editorial note since 2002, institute of europe of faculty of social sciences, arts and humanities (kaunas university of technology) prepares and publishes scientific works under the theme of european processes in the field of politics, economics, law and cultural dimensions. starting 2007 year the journal has got an issn code. at the present the annual scientific journal european integration studies: research and topicalities (issn 1822–8402) is published once a year (in september). the papers published in journal are abstracted and indexed by international databases: ebsco (central & eastern european academic source database coverage list), ebsco (business source complete), ebs­ co discovery service (eds), doaj (directory of open access journals), econbib (economics bibliography) and emerging sources citation index (esci, new edition of web of science). journals in esci have passed an initial editorial evaluation and can continue to be considered for inclusion in products such as scie, ssci, and ahci, which have rigorous evaluation processes and selection criteria. papers published in the european integration studies: research and topicalities undergone a formal process of double blind peer review by two appointed external reviewers. the main objective of the journal is to analyse problems and actualities considering european integration processes. the articles are brought under the three main themes. these are social evolution of europe, economics of european union as well as managerial aspects of european integration. it is believe that the articles included in the journal, being selected and reviewed, are of high scientific quality were actual scientific problems are solved, deserve a wide distribution. editors hope that presented new scientific ideas and ways of problems solving will help to develop research not only for academicians and students but and for a wide representatives of society which seek to improve their knowledge in eu­ ropean integration. in conclusion, editors would like to thank all authors of the articles for their willingness to share their ideas with others. rasa daugėlienė, kęstutis kriščiūnas general requirements the article should be prepared by microsoft windows operational system microsoft word text editor. the author submits the paper by registering to www.eis.ktu.lt the suggested length of the article is ~4000–8000 words. the structure of the article should correspond to the general requirements of research papers. it should clearly present the research problem, the aim, research methods, results and discussion, conclusions, references, according to the american pshycological association 6th edition system used in the journal. presented papers will be reviewed by two experts. 5. if you are referring to some authors in the paper, the name of the author and the year of publication should be indicated in the text and a full list of references provided at the end of the article. structure of the article should be as follows: notes for contributors _ title of the article; _ full name of the author; _ abstract in english (approximately 1500–2000 printed characters); _ keywords (5–7); _ introduction; _ theoretical background/literature review; _ methods; _ results and discussion; _ conclusions; _ references; _ date of submission (year, month); _ information about the author. requirements for the preparation of an electronic form of an article text. an article shall be submitted according to the sequence specified in the general requirements of the article. the text of the article shall be submitted in a4 format (210 x 297 mm), using only the necessary text formatting, 11 pt. times new roman text font and 14 pt. times new roman font in bold for article headings. illustrations. text in the tables and charts shall be written in 9 pt. font, using single line spacing. tables and charts shall be numbered and have titles. tables, charts and illustrations shall be submitted in separate files (not only in word software). if illustrations are prepared using excel software, it is necessary to provide open operational files of illustrations. the photo resolution shall not be less than 300 dpi. references submitting the paper, the following data about the author (no more than 600 printed characters) should be presented separately: _ name, surname; _ scientific title and the title referring to a research field or trend; _ area of research interests; _ author’s working place, its address and e-mail. the list of references is presented in one column (10 pt) according to the alphabet. references (not less than 25 resources, wide use of isi (http://www.isinet. com/isi). here are some basic reference forms (journal article; working papers; book; book chapter; the internet address). journal article: broner, f., didier, t., erce, a., & schmukler, s. l. (2013). gross capital flows: dynamics and crises. journal of monetary economics, 60(1), 113–133. working papers: artige, l. & nicolini, r. (2006). evidence on the determ inants of foreign direct investment. the case of three european regions (no. 07) (p. 33). retrieved from http://www2. ulg.ac.be/crepp/papers/crepp-wp200607.pdf book: daugeliene r. (2011). es ekonomine integracija: priezastys, raida, perspektyvos (p. 281). ktu: technologija. book chapter: o’neil, j. m., & egan, j. (1992). men’s and women’s gender role journeys: metaphor for healing, transition, and transformation. in b. r. wainrib (ed.), gender issues across the life cycle (pp. 107-123). new york: springer. internet access: european commission. (2013). taric consultation methodology. retrieved december 14, 2013, from http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation. jsp?lang=en&taric=&endpub=&meastext=&area=ru&r e g u l a t i o n = & l a n g d e s c r = & m e a s t y p e = & s i m date=20131025&startpub=&ordernum=&goodstext=&level=&expand=true european integration studies 2011.indd 243 issn 1822–8402 european integration studies. 2011. no 5 information about the article’s authors alakel murat, assistant prof. dr. yalova university, economics and administration sciences faculty international relations department, phone: +90-505-241 3311, e-mail: muratalakel@hotmail.com bite ligita, dr.oec., assist.prof., faculty of economics, latvia university of agriculture, latvia, phone: +371 630 23773, e-mail: ligita.bite@llu.lv briška iveta, mg.soc.sc, riga stradiņš university, phone: +371-29208924, e-mail: bri888@inbox.lv burinskas arūnas, mg.ec.sc., mg.law.sc., ph.d. student at vilnius university, lithuania; e-mail: burinskas.arunas@gmail.com burinskienė aurelija, dr.soc.sc., lecturer at vilnius gediminas technical university, lithuania; e-mail: aurelija.burinskiene@vgtu.lt. büter clemens, prof. dr. rer. pol., international business and foreign trade, koblenz university of applied sciences, phone.: 0049-(0)261-9528-169, e-mail: bueter@fh-koblenz.de cimdiņš rūdolfs, master of geography, riga planning region, phone: +37167226431, e-mail: rudolfs.cimdins@rpr.gov.lv grinis vygintas, assoc. prof. dr., kaunas university of technology, institute of europe, phone + 370 37 300 140, e-mail: vygintas.grinis@ktu.lt daugėlienė rasa, assoc. prof., dr. of social sciences (management and administration), kaunas university of technology, institute of europe; phone: +370 37 30 01 40; e-mail: rasa.daugeliene@ktu.lt dzalbe ilze, mg. soc, science field : sociology, direction: political sociology, moral and ethics in politics department of humanities, rīga stradiņš university, latvia, dzirciema 16, riga, lv-1007. phone: +371 29428179, e-mail: ilze.dzalbe@lvceli.lv ezmale sandra, mg. sc. env. of the university of latvia (1998), mg. sc. soc. of rezekne higher educational institution (2006), doctoral studies in the programme “regional economy” at daugavpils university (since 2007); rezekne higher educational institution, atbrivošanas aleja 90, rēzekne, latvia, phone: 646 05302, e-mail: ltpi@inbox.lv feifere santa, mg.oec., phd student, demography, university of latvia, phone: +371 26480511, e-mail: santa_feifere@inbox.lv gineite meldra, mg.sc.tqm, master degree in total quality management, indicating science field and direction – regional economic. latvia university of agriculture, phone: + 371 26177200, e-mail: meldra.gineite@gmail.com jermolajeva elita, dr.oec., assoc.prof., daugavpils university, vienības iela 13, daugavpils, lv-5400, latvia, phone: +371 65425452, e-mail: elita.jermolajeva@du.lv junevičius algis, dr., assoc. prof., kaunas university of technology, institute of europe; kestutis str. 8, kaunas; e-mail: algis.junevicius@ktu.lt; phone (+370) 37-2225216 kaivo-oja jari, phd, research director, foresight and innovation research, finland futures research centre, university of turku, phone:. +358-50-502 7030, e-mail: jari.kaivo-oja@tse.fi, kirch aksel, professor, tallinn university of technology, e-mail: aksel.kirch@tseba.ttu.ee kocak orhan, dr., yalova university, faculty of economics and administrative sciences, department of labor economics and industrial relations, one of his fields of research and development activities are social policy, welfare state, employment, new economy and knowledge society, phone: 0090 532 2856 606, e-mail: orkoc@hotmail.com, okocak@yalova.edu.tr issn 1822–8402 european integration studies. 2011. no 5 244 kotane inta,. mg.oec., phd student at riga international school of economics and business administration, scientific research areas: regional development, business efficiency. phone: +37129415644, e-mail: inta@ru.lv kuzmina-merlino irina, dr. oec., professor, riga international school of economics and business administration, scientific research areas: accounting and finance techniques and methods, entrepreneurship development in latvia, phone: +37129610918, e-mail: irina.kuzmina@riseba.lv lagzdins arnis, phd student of school of business and finance, riga, republic of latvia, study program “business administration”, phone: + 371 26303310, e mail: arnis.lagzdins@gmail.com litavniece lienite, dr.oec., assistant professor of rezekne higher educational institution, doctoral degree in regional economics; rezekne higher educational institution, atbrivošanas aleja 90, rēzekne, latvia, phone: 646 05302, e-mail: litavniece@inbox.lv liutkus egidijus, master of social science. kestutis str. 8, kaunas e-mail: egidijus_liutkus@yahoo.com phone (+370) 37-2225216 lukashina olga, dr. oec.,ass. prof. of information systems management institute. indicating science field and direction tax law and financial management., e-mail: isma@isma.lv, olga.lukasina@isma.lv, phone: +371 7100582,mob.+371 29223551. matjušina rada, phd student and name, indicating science field and direction; latvian council of sworn advocates, phone: +37129696866, e-mail: rada.matjusina@rmbirojs.lv mezentsev vladimir, ma, institute for european studies, e-mail: mezentseff@gmail.com meženiece marta, mg. european studies; the ministry of education and science of the republic of latvia, phone: +371 29338033, e-mail: marta.mezeniece@gmail.com. mistre baiba, mg. oec., lecturer, ph.d. student, latvia university of agriculture, faculty of economics, department of accounting and finance, phone: +371 630 23739, e-mail: baiba.mistre@llu.lv mistre zane, mg.oec, economics; latvia university of agriculture; phone: +371 29189734, e-mail: zane.mistre@inbox.lv młodkowski paweł, ph.d. in economics, faculty of economics and management, collegium mazovia – innovative university, phone +048 18-26-232-43, e-mail: pawel.mlodkowski@gmail.com muška aina, dr.oec., associated professor, latvia university of agriculture, faculty of economics, department of business and management, phone: +371 630 23739, e-mail: aina.muska@llu.lv neimanis janis, dr.iur., legal theory and legal methodology, state organisation law, administrative procedure law, constitutional court procedure law; university of latvia, faculty of law, phone: (+371) 67034563, e-mail: janis.neimanis@ lu.lv; judge at the supreme court of latvia, phone: (+371) 67020341, e-mail: janis.neimanis@at.gov.lv nesterenko polina, phd in law, associate professor, department of economic theory and law, kharkov university of humanities (ukraine), mob. phone: +38-095-4971236, +38-067-4578326, e-mail: alex_appolinar@mail.ru, nesterenko.polina2011@yandex.ua nezerenko olga, phd student, tallinn university of technology. e-mail: olga.nezerenko@gmail.com priede jānis, dr.oec., economics of entrepreneurship; university of latvia, faculty of economics and management, e-mail: priede.janis@gmail.com . pužulis armands, doctoral student in university of latvia. theses “the role of boundaries in spatial organisation in latvia”. phone: +371 22020778, e-mail: aba5@inbox.lv rijkure astrida, phd stud., university of latvia 5 aspazijas bulv., riga, latvia, lv-1050. e-mail: astrida.rijkure@inbox.lv and roberts.skapars@lu.lv issn 1822–8402 european integration studies. 2011. no 5 245 rivža baiba, dr.habil.oec.; professor latvia university of agriculture, faculty of economics, phone: +371 29254469, e-mail: baiba.rivza@llu.lv. rudusa ilva, mg.oec., economics; latvia university of agriculture, phone: +371 29118363, e-mail: ilva.rudusa@llu.lv rungule ritma, dr.soc.sc., assoc. prof., riga stradiņš university, phone:+26446362, e-mail: ritma.rungule@rsu.lv sayim ferhat, assistant prof. dr. yalova university, economics and administration sciences faculty business administration department-accounting and finance main science section, phone: +90-532-572 4351, e-mail: f_sayim@hotmail.com sloka biruta, dr., university of latvia, faculty of economics and management, phone: + 271 29244966, e–mail: biruta.sloka@lu.lv stenvall jari, prof. university of lapland, box 122, 96100 rovaniemi, finland, phone: +358-408284350, e-mail: jari.stenvall@ulapland.fi. škapars roberts, dr.oec., professor, economics; university of latvia, faculty of economics and management, head of department of national economy; phone: +37167034768, e-mail: roberts.skapars@lu.lv . šķiņķis pēteris, doctor of geography, associated professor in university of latvia, faculty of geography and earth sciences, scientific interests: regional policy in latvia, formation and development of administrative division in latvia; changes of social structures in latvian towns and country; university of latvia, phone: +37129107612, e-mail: peteris.skinkis@lu.lv vaidere inese, prof. dr.oec., university of latvia, phone: 0037129208484, e-mail: inese.vaidere@europarl.europa.eu sīle vija, head of the department of humanities, rīga stradiņš university, latvia, dzirciema 16, riga, lv-1007, prof. dr. phil, vija sīle, science field: humanities, direction: ethics, phone: +371 67409104, e-mail: vijasile@yahoo.com. valalytė ligita, an acting director, science and technology park “technopolis”, phone +370 686 50788, e-mail: ligita@technopolis.lt vilciņa anastasija, dr.oec, doctorate in economics, indicating science field and direction – national economy. latvia university of agriculture, phone: + 371 26764837, e-mail: anastasija.vilcina@llu.lv znotiņa daina, mg.soc.sc., phd student, daugavpils university, vienības iela 13, daugavpils, lv-5400, latvia, phone: +371 29503299, e-mail: daina.znotina@inbox.lv zvaigzne anda, dr.oec., assistant professor, economics; latvia university of agriculture, phone: + 371 26307669, e-mail: anda.zvaigzne@llu.lv zvidrins peteris, dr.habil.oec., demography, university of latvia. phone: +371 67034787, e-mail: peteris.zvidrins@lu.lv general requirements the article should be prepared by microsoft windows operational system microsoft word text editor. the author submits the paper by registering to www.eis.ktu.lt the suggested length of the article is ~4000–8000 words. the structure of the article should correspond to the general requirements of research papers. it should clearly present the research problem, the aim, research methods, results and discussion, conclusions, refe­ rences, according to the american pshycological association 6th edition system used in the journal. presented papers will be reviewed by two experts. 5. if you are referring to some authors in the paper, the name of the author and the year of publication should be indicated in the text and a full list of references provided at the end of the article. structure of the article should be as follows: notes for contributors _ title of the article; _ full name of the author; _ abstract in english (approximately 1500–2000 printed characters); _ keywords (5–7); _ introduction; _ theoretical background/literature review; _ methods; _ results and discussion; _ conclusions; _ references; _ date of submission (year, month); _ information about the author. requirements for the preparation of an electronic form of an article text. an article shall be submitted according to the sequence specified in the general requirements of the article. the text of the article shall be submitted in a4 format (210 x 297 mm), using only the necessary text formatting, 11 pt. times new roman text font and 14 pt. times new roman font in bold for article headings. illustrations. text in the tables and charts shall be written in 9 pt. font, using single line spacing. tables and charts shall be numbered and have titles. tables, charts and illustrations shall be submitted in separate files (not only in word software). if illustrations are prepared using excel software, it is necessary to provide open operational files of illustrations. the photo resolution shall not be less than 300 dpi. references submitting the paper, the following data about the author (no more than 600 printed characters) should be presented separately: _ name, surname; _ scientific title and the title referring to a research field or trend; _ area of research interests; _ author’s working place, its address and e–mail. the list of references is presented in one column (10 pt) according to the alphabet. references (not less than 25 resources, wide use of isi (http://www.isinet. com/isi). here are some basic reference forms (jour­ nal article; working papers; book; book chapter; the internet address). journal article: broner, f., didier, t., erce, a., & schmukler, s. l. (2013). gross capital flows: dynamics and crises. journal of monetary economics, 60(1), 113–133. working papers: artige, l. & nicolini, r. (2006). evidence on the de­ term inants of foreign direct investment. the case of three european regions (no. 07) (p. 33). retrieved from http://www2.ulg.ac.be/crepp/papers/crepp– wp200607.pdf book: daugeliene r. (2011). es ekonomine integracija: priezastys, raida, perspektyvos (p. 281). ktu: tech­ nologija. book chapter: o’neil, j. m., & egan, j. (1992). men’s and women’s gender role journeys: metaphor for healing, transi­ tion, and transformation. in b. r. wainrib (ed.), gender issues across the life cycle (pp. 107–123). new york: springer. internet access: european commission. (2013). taric consulta­ tion methodology. retrieved december 14, 2013, from http://ec.europa.eu/taxation_customs/dds2/ taric/taric_consultation.jsp?lang=en&taric=&end­ pub=&meastext=&area=ru&regulation=&lang­ descr=&meastype=&simdate=20131025&start­ pub=&ordernum=&goodstext=&level=&expand=true reikalavimai straipsnio parengimui reikalavimai straipsnio parengimui pagrindiniai reikalavimai 1. nurodyti, kas ir kaip šią mokslinę problemą nagrinėjo lietuvoje ir užsienio šalyse (autoriaus pavardė, metai), tuo pagrindžiant straipsnio mokslinę problemą. 2. straipsnio pabaigoje pateikiamas panaudotos literatūros sąrašas (ne mažiau 25). literatūros nuorodos tekste pateikiamos, nurodant autorių pavardes ir metus, pvz. (molle, 2006). visa sąrašo literatūra turi turėti nuorodas tekste. 3. būtina plačiai panaudoti isi (http://www.isinet.com/isi/) cituojamus literatūros šaltinius. (ne mažiau 20 šaltinių). 4. straipsnis turi būti parengtas su microsoft windows 98 ar vėlesnės operacinės sistemos microsoft word 2000 tekstų rengimo sistema. 5. straipsnis rašomas tik angliškai šia tvarka: straipsnio pavadinimas; pilnas autoriaus vardas, pavardė; darbovietė ir jos adresas, el. paštas; straipsnio anotacija originalo kalba (apie 3000 spaudos ženklų); po anotacijos pateikti (ne mažiau 5) raktažodžius anglų kalba; įvadas (nurodant straipsnio mokslinę problemą, naujumą, tikslą, objektą, tyrimo metodus); tekstas; išvados; literatūra; rekomenduojama sumaketuoti pagal žemiau nurodytus reikalavimus straipsnio apimtis – 6-7 psl. 6. įteikiant straipsnį, atskirai pateikiami duomenys: apie autorių (anglų kalba);  vardas, pavardė, darbovietė;  mokslinis laipsnis ir vardas, nurodant mokslo sritį ir kryptį, tel. el. paštą; straipsniui recenzija (laisva forma); spaudai pateikiamo kūrinio autorių garantinis raštas. reikalavimai straipsnio maketavimui issn 1822 8402 (times new roman, 10 pt bold, italic) > 14 pt straipsnio pavadinimas (times new roman, 14 pt, bold) > 14 pt vardas, pavardė (times new roman, 12 pt, bold) >12 pt autoriaus universiteto pavadinimas (times new roman, 12 pt, italic) institucijos adresas, el. paštas (times new roman, 10 pt, italic) > 14 pt anotacija (times new roman, 10 pt, italic) >12 pt raktažodžiai: ne mažiau 5 (times new roman, 10 pt, italic) > 12 pt skyrelių pavadinimai (times new roman, 11 pt, bold) > 6 pt autoriai redakcinei kolegijai pateikia straipsnio rinkmeną diskelyje arba atsiunčia el. paštu. straipsnis turi būti pateiktas griežtai laikantis maketavimo reikalavimų. > 12 pt http://www.isinet.com/isi/ http://www.ktu.lt/lt/mokslas/zurnalai/inzeko/autoriu%20garantinis%20rastas_ie.doc puslapio formatas > 6 pt tekstas maketuojamas a4 formato (210 x 297 mm) lape su tokiomis paraštėmis: viršuje – 20 mm, apačioje – 20 mm, kairėje – 20 mm ir dešinėje – 10 mm. > 12 pt informacijos išdėstymas ir tvarkymas straipsnyje > 6 pt straipsnio pagrindinis tekstas išdėstomas dviem skiltimis, tarp jų paliekamas 5 mm tarpas, tekstas rašomas 1 intervalo eilėtarpiu. pastraipos pradedamos nauja eilute, po 0,5 cm. po straipsnio pagrindinio teksto pateikiamas nenumeruotas literatūros šaltinių sąrašas, surikiuotas abėcėlės tvarka. > 12 pt literatūra (10 pt, bold) > 6 pt molle, w. the economics of european integration: theory, practice, policy. 5 th ed. ashgate publishing limited, 2006. baldwin, j.r. a firm-based approach to industry classification: identifying the knowledge-based economy / baldwin, j.r., gellatly, g. // doing business in the knowledge-based economy / ed. l.a. lefebvre, e. lefebvre, p. mohnen. dordrecht: kluwer, 2001. p. 199-238. castles. s. the age of migration / casltes, s, miller, m. 3 rd ed. new york: the guilfard press, 2003. moguerou, ph. the brain drain of ph.d.s from europe to the united states: what we know and what we would like to know. european university institute. 2006. 41 p. on line paper: http://cadmus.iue.it/dspace/bitstream/1814/4286/1/rscas+2006.11.pdf http://cadmus.iue.it/dspace/bitstream/1814/4286/1/rscas+2006.11.pdf 73 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 refugee quota: is estonia ready to receive refugees? a review of the literature on migration and ethnic minorities in estonia http://dx.doi.org/10.5755/j01.eis.0.10.16104 aminul islam institute of international and social studies, tallinn university narva mnt 25, 10120, tallinn, estonia submitted 03/2016 accepted for publication 09/2016 refugee quota: is estonia ready to receive refugees? a review of the literature on migration and ethnic minorities in estonia eis 10/2016 european integration studies no. 10/ 2016 pp. 73–80 doi 10.5755/j01.eis.0.10.16104 © kaunas university of technology abstract this study analyzes literature about migration and ethnic minorities in estonia. following initial iden­ tification and using content analysis process, existing literature were characterized into four major patterns: definition of immigrant population in estonia, emigration and ethnic return migration in es­ tonia, formation of ethnic minorities and their structure, and ethnic minorities and integration. despite of having long historical background of emigration, return migration and ethnic minorities in estonia; existing literature lacks focusing on refugees and ethnic minorities having background from outside europe. new question emerged from the reviewed literature, whether estonia is ready to accept quota refugees under eu quota system? keywords: refugee quota; emigration; return migration; immigration; estonia. world is changing constantly. homogeneous societies, which remained unchanged are quickly turning remnant of the past. societies are becoming more diverse than ever. social, financial and political conflicts are running on the same side where continuous migration, intercultural communication, agreements, cooperation all testify the fact that societies are going through on an age of diversity (sharmin 2008). as a result of ever increasing globalization and immigration in decades, researchers and policymakers emphasized a new argument regarding the extent it is possible to ensure immigrants own identify at the same time integrate into their host societies. countries have been designing specific programs to tackle ever increasing challenges that are emerged out of these multicultural societies to create a cohesive society ( nimmerfeldt, schulze & taru 2011). studies on immigration in europe after the second world war featured diversity from movement of population to the movement of labour. in the recent decades it has changed again as masso introduction e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 74 (2009, p. 253) pointed out that ‘aims of immigrants have changed from an individual desire for a better standard of living to the desire that any standard of living is better than none’. however, in the 1990s migration studies in europe mostly characterized with growing interest in ethnic return migration which was poorly investigated before 1990s (kulu & tammaru 2000). estonia makes a very interesting context and it is one of those few countries in europe where emigration, return migration and immigration have varied in different times and in different background (kulu & tammaru 2000; tammaru, haukanomm, & anniste 2010; kulu 1998). by studying the specific setting of studies on migration in estonia, this study will enhance our understanding of the pattern of migration studies in estonia. therefore the objectives of this paper are: _ to review the existing major literature on migration and ethnic minorities in estonia, _ to identify any major gaps in the exiting literature to be studied in future. electronic search was carried out through social service abstracts and google scholar, consider­ ing the fact that these databases used to inform social science research and their access is flex­ ible. analysis mostly focused on manuscripts, and it also includes some other types of literature and reports that might influence researchers and policy makers. this data based search was focused from interdisciplinary perspective. the search was conducted using the terms ‘ethnic minorities in estonia’, ‘migrants’ , ‘immigrants’, and ‘refugee’. search was not restricted by any cer­ tain dates or any types of publication but eventually all of them were peer reviewed journal articles. in total 122 publications emerged from the search, after eliminating duplicate abstracts, coming out from both databases, 72 different publications were picked. of the 72 publications, 25 were finally omitted due to their lack of relevance. to examine the patterns of existing literatures, content analysis was utilized, as it is a tool that gives the scholars to find out specific concepts within text. (markoff et al. 1975; neuendorf 2001; weber 1990). this is a process which has been utilized by bradshaw and graham (2009) to lo­ calize relevant literatures. following this process, existing literature were characterized into four major patterns: methodology 1 definition of immigrant population in es­tonia and to put them into perspective, 2 emigration and ethnic return migration in estonia, 3 formation of ethnic minorities and their structure, 4 ethnic minorities and integration. these literatures were reviewed with an intention to identify the major gaps from the existing academic works in order to design and bring up the recent discussion on migration and to make an effective intervention for the current discussion of immigration aspect into the whole perspective. in a study of immigrant population in estonia; saar (2009) pointed out that immigrants are those who are living in estonia and whose parents were born in a foreign state. in case one parent was born in estonia and the other not, they are not considered as immigrant population. however, if one non estonian is known or if parents remained undefined, the potential respondent might fall into immigrant population. immigrant population in estonia in the recent time can be divided into first and second genera tion immigrants. first generation immigrants are those who along with their parents were born abroad. second generation immigrants are those who are the descendents of the first generation or to be précised ‘people who were born in estonia but whose parents were born abroad’ (saar 2009, p. 9). definition of immigrant population in estonia 75 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 this makes it significant perspective to study estonian immigrants and ethnic minorities. ethnic composition in estonia experienced a drastic change, which was prompted in the years of german and soviet occupation and second world war. the last census that was carried out before the war was in 1934, the share of non estonian in estonia was around 12 percent. the absolute number was 134, 000 and these non estonian minorities mostly comprised of russians, germans, swedes, jews and latvians. during the period of soviet rule, the share number of non estonian increased rather considerably up to 25 percent of the total population and the number went high up to 204,000 in 1959 when the first post war census was held. before soviet collapse, the last census was held in 1989 when the country’s non estonian share was 39 percent and they comprised population from different soviet states mostly from russia and ukraine (tammaru & kulu 2003, p. 105) according to the 2000 census, non estonian consists 31 percent of estonian total population, rus­ sians being dominated(26%) followed by ukrainian(2%), byelorussians(1%) and others(3%) ( van elsuwege 2004; ham & tammaru 2011). however, an important statistics here to be noted that according to the ministry of interior, as of 1st september 2015; 9.4 percent of total population in estonia were citizens of other country and persons with undetermined citizenship were of 6.3%. therefore “estonia has one of the highest share of ethnic minorities in europe” (ham & tammaru 2011, p. 315). later parts of this paper would focus on emigration and ethnic minorities in estonia and the concept of naturalization that arguably makes the entire discussion of immigrants in esto­ nia and ethnic minorities into a complex perspective. tammaru, haukanomm, & anniste ( 2010) in their study of the formation and development of the estonian diaspora figured out three major waves of emigration from estonia. first wave was east ward and took place between mid nineteenth and world war second. it was the period when estonia was part of russian empire. emigration from estonia was at its peak in this time and ap­ proximately 19 percent of total population of estonia migrated to russia. in 1917 the total num­ ber of estonian diaspora was 215,000 people (p. 1159). the formation of this east ward estonian diaspora was due to demographic transition and population boom in the rural parts of estonia on one hand (katus 1989) and on the other hand contemporary politics and the period along with some social and economic factors played a vital role (jansen 2007). this flow of eastern diaspora begun to decrease after the first world war. (tammaru, haukanomm, & anniste 2010). the second wave of emigration from estonia was mostly towards western countries and it took place during the second world war time in the form of war displaced people. their major desti­ nation was united states, sweden and canada. even though many of them initially left for ger­ many and from there they resettled to other western countries (kulu & tammaru 2000). this was the time when estonia experienced its second peak of emigration in its size and the total number was around 200000 people. this number remained quite stable for a period of time (andrae 2005; reinans 2006; tammaru, haukanomm & anniste 2010). however, the main reason for this was because during the soviet occupation both return migration and migration towards west was almost non existence (tammaru, haukanomm, & anniste 2010). however, western diaspora started again when estonia experienced its third wave of emigra­ tion after regaining its independence. unlike first and second wave, the number was small­ er and it took place in the form of ongoing process and its pace has been increased since 2004 when estonia became a member of the european union. germany, finland and other eu countries are major attraction for the new wave. in the recent times estonian diaspora forms 12 percent of total estonian population. significant aspect is, ‘at the beginning of estonian dias­ pora it was mostly eastern or russian ward but this share has now dropped to 33 percent and emigration and ethnic return migration in estonia e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 76 finland is soon going o replace to host the large number of estonian community’ (tammaru, haukanomm, & anniste 2010, p. 1172). these waves of emigration lead a phenomenon of return migration. estonia makes it very unique as it is ‘one of those very few countries where migrants have a varied emigration background’ (kulu & tammaru 2000, p. 349) these return migrants are the one who are the descendents of those who left for russia during the end of nineteenth and the beginning of 20th century, and those who left during the second world war period to west. as kulu (1998) pointed out that return migration is by product of emigration. two waves of return migration can be pointed out from the existing literature. first wave can be considered between 1940 and 1989 and the second one is when estonia regained their indepen­ dent in 1990s. about 52 to 54 thousands of estonian emigrants returned from the soviet union to estonia in the first wave (kulu 1997). however, return migration in the 1990s can be characterized as modest, as the numbers are low in compare to the previous wave. during the years following re–independence, about 1100–1200 estonian diaspora returned voluntarily (kulu & tammaru 2000, p. 354). during the first wave it was only the eastern diaspora who returned but in the 1990s emigrants have also returned from the west which formats 29% of the return migrants however still majority of the return migrants came from the former soviet union and the neighboring baltic countries, which forms 71 percent of total return migration. among these return migrants who emigrated to russia, there were no significant differences to select return migration between generation, but considerable differences can be found among those who left to the west during the second world war and their descendents. therefore major­ ity of return migrants are those who were born and grew up in estonia (kulu & tammaru 2000). this leads to the fact that return migrants might have an age dimension and they might fall into elder generation. it was however evident that those who returned from the west, came alone; on the other hand those who came from russia, returned with whole family. estonian identity however played important role to make their journey back to estonia for both groups. in 1998, kulu (1998, p. 313) carried out a study on return migration of west siberian estonians from the omsk province and this study reveals that ‘the main career of the migration behavioral norm is generation’. he figured out that return migration over a long period of time perhaps don’t depend on monetary term but people’s identity, values etc. this follows them even when the generation goes by. however, while emigration and return migration was common feature of the migration pattern in estonia, ‘immigration begun immediately after estonia was reincorporated into the soviet union in the later 1944’ (ham & tammaru 2010), which actually made a significant number of ethnic minority in estonia who does not have estonian background. it was not only emigration that took place in estonia. world war second and the years of and so­ viet occupation changed estonian ethnic composition (tammaru & kulu 2003). after the second world war when estonia was incorporated with soviet union, immigrants were needed to rebuild destroyed industrial infrastructure and housing sector. during that period “russiafication” also took place in the baltics (cole & filatotchev 1992) and many communist party members and mil­ itary personnel from soviet army were brought to estonia (tiit 1993). however, these immigrants were mainly engaged in the industrial sector (tammaru 2001, p. 599). this flow of immigration to estonia remained consistent and persisted during the post war peri­ od. the peak time however was between 1960s and 1970s (tammaru & kulu 2003). even though return migration took place in times, this continuous immigration to estonian made a stable and ethnic minorities in estonia 77 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 positive net migration during the soviet occupation and the non estonian share of total population increased considerably, rising from 3 percent of estonia’s total in 1945 to 25 percent in 1959 (tam­ maru & kulu 2003). according to the census which took place in 2000, the share of non estonians in estonia is almost 31 percent of total population ( van elsuwege 2004; ham & tammaru 2011). most of them are russians followed by small number of ukrainian, belarusians and finns. however, in the common traditional sense ethnic russians are not immigrants as most of them came in estonia during the soviet period when estonia was a part of this union (nimmerfeldt, shulze, & taru 2011). when estonia regained its independence and soviet union collapsed in 1991, these people became minority. in this period many russians chose to return russia but at the same time many remained in estonia. in the early 90s estonian government decided to introduce naturalization policy. this policy gave automatic citizenship to ‘those persons who held citizenship in 1940 and their descendents’(schulze 2014). this policy privileged ethnic estonians almost in all sectors. this policy gave roughly two–third of the country’s residents to its citizenship but huge number of residents who were mostly russians, forced to naturalization. a process where persons who desires to get the citizenship must pass language and the knowledge of estonian law and constitution (nimmerfeldt, shulze, & taru 2011 ). ‘through this process, state hope was either to integrate them or their out migration’ (schulze 2014). however this policy made a number of people as stateless as only a small percentage of russian were proficient in estonian to get the citizenship (park 1994, p. 73). 32 percent of the population turned to stateless right after naturalization policy was introduced. as of april 2012, a significant number of persons remained stateless, which was 6.9 percent of countries total residents, while 7 percent of these ethnic russian speakers taken russian citizenship as an alternate of being stateless (schulze 2014, p. 26). this makes a significant perspective to see how ethnic minorities integrate themselves with the host society. research on immigrants in estonia mostly focused on russian speaking first or second generation immigrants putting the emphasize on educational level of immigrant population, position of native and immigrants population in the labor market, working life of native and immigrant population, ethnic minority and majority unions, their geographical location, political and civic participation of immigrants etc. to examine the relationship between structural, cultural, social and identificational integration dimensions among second generation russians in estonia, nimmerfeldt (2011) and his colleagues identified that in estonia, relationship between structural and cultural integration is pos­ itive and according to this study higher level of social and identificational integration is not related to higher level of structural integration. second generation russian retains a strong ethnic identity and socializes primarily with other russians. ham and tammaru (2011) in their research on ethnic minority and majority unions in estonia came out with a finding that russian speaking immigrant women are less likely to make a union with estonians, which according to them is ultimate evidence of the integration of ethnic minorities into the host societies. in a study of political and civic participa­ tion of second generation russian and estonian youth, schulze (2014, p. 19) pointed out that ‘ethnicity remains a significant predictor of political and civic participation. it is likely that more estonians vote in municipal elections and participate in a voluntary association than russian’. however, the per­ centage of individuals with higher level of education is lower among immigrants than among native population (saar, 2009) and they have poor estonian language capacity. among ethnic minorities who continue higher education have more tendency to go abroad for their studies than majority estonians ( pungas etal. 2015). schulze (2014, p. 22) pointed out that ‘russians with excellent estonian language skills are more likely to participate in voluntary association than those who don’t have the proficiency’. in a study of ethnic dimension of suburbanization in estonia, tammaru and his colleagues (2011) found that probabilities to suburbanize among ethnic minorities are lower compare to the estonians. ethnic minorities and integration e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 78 it is less likely that minorities would move to the rural areas. therefore most of them concentrate to the major cities in estonia. leisure activities have been viewed as an important act as this is when majority and minority members meet and undertake similar activities. in a study of ethnic segmen­ tation in leisure activities, kamenik, tammaru & toomet (2014) pointed out that almost in all leisure activities there are important ethnic differences in estonia, mostly because of their socio–economic status, where russian speaking minorities are relatively poor. other reason is residential pattern of ethnic groups which is different and mostly concentrated in large cities that too based on different zone, which makes them feeling being stranger in leisure time places. naturalization policy deeply touched ethnic minorities and their identity and value system. after re­ gaining independence, estonia adopted liberal and free market economy. ethnic minorities found it difficult to find a job and those who found a job had low salary. ‘as a result a large number of non estonian populations found themselves as socially exclusive’ (leinsalu, vagero, & kunst 2003, p. 587). a study was done on ethnic differences in mortality in estonia before and after the collapse of soviet union. the results suggested that overall life expectancy has been increased after the collapse of sovi­ et union but russian speaking ethnic minorities had higher mortality than estonians mainly because of their poverty, political upheaval and over alcohol consumption (leinsalu, vagero, & kunst 2003). differences in terms of leisure time activities, civic, political participation, and educational level or mortality rates have been clearly evident from the literatures. however, varnik & kolves (2005) point­ ed out that because of the introduction of naturalization policy, ethnic russians lost their privileged status that they were receiving during the soviet period and it may have caused stress leading them to commit even suicide. during the soviet period suicide rate was lowest among russians which has now increased significantly and their suicide rate is very much higher than estonians. migration research in estonian society has mostly been built on four major dimensions: emigration from estonia and return migration of estonian population to estonia; immigrant population in esto­ nian society; characteristics and structure of ethnic minorities and; integration aspect of ethnic minori­ ties in different sectors. none of them particularly focused on refugees or immigrants having ethnic background outside of europe. _ scholarly works on migration research in estonia covered its historical background of emigration and return migration along with immigration to estonia; its russian speaking ethnic minorities and their integration aspect in different sectors. however a significant gap can be observed, as very few studies have focused on other groups of migrants in estonia. ukrainian, byelorussians ethnic minorities for example have not been emphasized in the scholarly works. hyvonen (2008, p. 421) studied finish immigrant women in estonia to see their acculturation between two groups, one living in the finish enclave isolated from estonian society and the other into the estonian mainland. any notable difference in terms of interpersonal contacts back their home in finland between these groups was not found. on the other hand she found respondents, who had weak ties and they don’t have any social contacts within estonian society and they even preferred to use finish welfare and healthcare services. this was an interesting study that opens up to carry out more future research on immigrants who are relatively less in number but have similar ethnic or language background with estonia. _ according to the most recent statistics, 3% immigrants in estonia represent ‘other’ groups. who belong to this group and where are they from needs to be studied thoroughly. refugee studies have been a significant part of migration studies. existing migration literatures in estonia do not cover this group of migrant people. almost as if this country does not have any international refugees. while the discussion on refugees and their resettlement goes on along with hegemonic discourse, the number of refugees has been increasing all over the world. eu countries for instance have re­ conclusions 79 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 ceived more than six hundred thousand asylum seekers in 2014 compared to 2013, when the num­ ber was around four hundred thousand (bourgeais 2015), which makes fourteen percent increase of the evaluation percentage from 2013 to 2014. estonia joined in the european union in 2004 and schengen treaty in 2007. in 1997 estonia ratified the 19951 convention relating to the status of refu­ gees and the corresponding 1967 protocol. estonia has traditionally been viewed as least attractive country for asylum seekers. according to inter press service, it might be the case that estonian liv­ ing standard is lower than those of its neighboring countries (manni 2013). estonian human rights center in their report on refugees addressed that the number of asylum seekers has been quite low and it might be the case that general public is not aware of this issue and unfortunately this topic has not been a priority on the governmental level either (saar 2013). in this report, estonian human rights center actually used their data up to the year 2011. however, in 2009 the number of asylum seekers in estonia was 40 and in 2011 it was 67. most recent data from eurostat represents a very significant story, as of 2013 the number of asylum seekers in estonia was 95 and in 2014 it went high hp to 155 and the evaluation rate is 63 percent which is even higher than overall eu rate. _ however, all these information and statistics represents before the death of a three year old syrian boy who washed ashore in turkey while aiming to get a shelter in europe with his family because of the syrian war. according to an american news agency, this has changed the entire migration situation in europe (clarke & shoichet 2015). his dead body was found near the sea side in turkey, this photo went viral on media and this was the time when europe received high number of mi­ grants and refugees. this influx of migrants and refuges in europe made it as crisis and to handle this crisis, european commission president announced the proposal of “120,000 additional asy­ lum seekers will be distributed among eu nations, with binding quotas”. postimees, an estonian popular newspaper reports that according to this new proposal, estonia will have to receive 372 migrants. estonian interior minister hanno pevkur confirmed that as a part of the quota system, estonia will receive 150 refugees very soon in its first phase. (erlich, pulver, toomas 2015) _ it is a significant number for a country which has only 1.3 million populations. therefore, estonia as a global society and a part of european union and its organizations that deal with asylum seekers and refugees might face new challenges. these quota refugees would probably have non europe­ an ethnic background. in a study of readiness to accept immigrants in europe, masso(2009) carried out a research asking question, whether they would like to have immigrants of different race and ethnicity and from outside europe; estonia placed at the bottom of chart just scoring 22 right after hungary which scored 23 being the lowest, when iceland and sweden were at the top scoring 1 and 2 respectively . this was a scale of 23, where 1 being highest and 23 being lowest. this might reflect to the fire incidence that took place at vao center (house of estonian asylum seekers) in september 2015, while refugee and migration crisis was at its peak in europe. later estonian prime minister informed that ‘an evil person set fire to refugee’s house’. (erlich, pulver, toomas 2015). _ in the globalized world and a part of eu, estonia will have to face migration and refugees crisis and will have to deal with the new quota system. it is quite often perceived that humanitarianism is the ideology of hegemonic states in the era of a globalization. chimni(2000, p. 244) in her study of relationship of globalization and humanitarianism stated that ‘while humanitarianism has al­ ways had a presence in the international politics, it has never had the salience it possesses in the recent days’. while there is no significant academic research on existing refugees, estonia will soon receive quota refugees. question can be asked whether estonia is ready to accept quota refugees under eu quota system which has been introduced recently. despite of having long historical background of emigration, return migration and ethnic minorities, estonia have less experience hosting non european ethnic minorities and refugees. therefore their policy makers, academician and researchers will have to address this aspect to tackle the challenges which are emerging from migration crisis to build up a cohesive society. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 80 bourgeais, v. (2015) ‘asylum in the eu’ available at: bradshaw, c. m., & graham, j. r. (2007) ‘localization of social work practice, education, and research: a content analysis’, social development issues, 29, 2. chimni, b.s. (2000) ‘globalization, humanitarism and the erosion of refugee protection’ journal of refugee studies, 13, 3. doi: 10.1093/jrs/13.3.243. http://dx.doi.org/10.1093/jrs/13.3.243 clarke, r. & shoichet, e.c. (2015) ‘image of 3– year–old who washed ashore’, available at: pop­ ulation , 27. doi: 10.1007/s10680–011–9236–z. http://dx.doi.org/10.1007/s10680–011–9236–z estonia’ trames, 12(62.57) 2. doi: 10.3176/ tr.2008.4.04. http://dx.doi.org/10.3176/tr.2008.4.04 activities in estonia’, leisure studies, 34,5. doi: 10.1080/02614367.2014.938773. http://dx.doi.org/10.1080/02614367.2014.938773 kulu, h. ( 1998) ‘ethnic return migration: an es­ tonian case’, international migration, 36,3. doi: 10.1111/1468–2435.00049. http://dx.doi.org/10.1111/1468–2435.00049 case of estonia in 1990s’, europe–asia studies, 52,2. doi: 10.1080/09668130050006826. http://dx.doi.org/10.1080/09668130050006826 doi: 10.1136/jech.2003.013755. http://dx.doi.org/10.1136/jech.2003.013755 park, a. (1994) ‘ethnicity and independence: the case of estonia in comparative perspective’, europe–asia studies, 46 ,1994. doi: 10.1080/09668139408412150. http://dx.doi.org/10.1080/09668139408412150 references migration studies, 41,14. doi:10.1080/136918 3x.2015.1059739 http://dx.doi.org/10.1080/1369183x.2015.1059739 saar, e. (eds) (2009) immigrant population in estonia (statistics estonia: tallinn). schulze, l.j. (2014) ‘the ethnic participation gap: comparing second generation russian sharmin, z. (2008) beyond the root: an endless journey (lund university: sweden). tammaru, t. 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(1990) basic content analysis (newberry park, ca: sage). http://dx.doi.org/10.4135/9781412983488 about the author aminul islam ma in asian studies, lund university, sweden phd candidate, tallinn university, estonia school of governance, law and society, tallinn university fields of research interests refugee settlement, immigrants integration, acculturation, ethnicity etc address narva mnt 25, 10120, tallinn, estonia tel. 00372 58220671 e–mail: aminulislam80@yahoo.com 211 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 submitted 04/2017 accepted for publication 08/2017 european integration studies no. 11 / 2017 pp. 211-219 doi 10.5755/j01.eis.0.11.17982 © kaunas university of technology eco-management and audit scheme (emas) implementation in the european union: survey of estonian certified organisations eis 11/2017 abstract eco-management and audit scheme (emas) implementation in the european union: survey of estonian certified organisations http://dx.doi.org/10.5755/j01.eis.0.11.17982 krislin kivi, natalja gurvits tallinn university of technology, akadeemia tee 3, tallinn 12618, estonia krislinkivi@gmail.com; natalja.gurvits@ttu.ee nowadays the eu eco-management and audit scheme (emas) is considered as one of the most credible and effective environmental management tools, which adds valuable elements to an effective environmental management system. however, the number of emas registered companies in estonia remains low, therefore the authors considered it useful to reveal the main reasons of this phenomenon and determine the main obstacles and benefits of emas implementation. the main aim of the research was to find out positive and negative aspects associated with the emas certification and implementation; the role of emas for the stakeholders and the added value derived from the emas implementation. the authors conducted interviews and distributed a questionnaire among the emas certified organisations in april-may 2015. the main findings of the research suggest that the most substantial value added by the emas system is the improved reputation, credibility and transparency derived from the preparation and publication of environmental reports, which is a compulsory component of emas. organisations also recognized an added value of emas by the improved environmental performance. however, emas seemed to have less or no effect on other aspects such as risk management and employee motivation. based on the results of the research it may be concluded that the value added to organisations by the implementation of emas was not significant. even though implementation of emas brings along numerous positive impacts, it is also considered as time, money and effort consuming. authors believe that more initiatives from the state side are strongly required to promote emas implementation and to increase the public awareness of the emas system, its main benefits and added values. keywords: added value, certification, european union, eco-management and audit scheme (emas), implementation. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 212 nowadays the european union (eu) is playing a leading role in international efforts to promote sustainable development and responsible environmental performance. the growing importance of corporate social responsibility in general and environmental performance of organisations in particular; as well as environmental policies and regulations introduced and enforced by the eu; made organisations to focus on the implementation of various environmental management systems. however, much has been argued about why companies should voluntarily adopt various social and environmental initiatives. according to nash & ehrenfeld (2001) many companies are adopting environmental management systems (ems) due to growing external pressure; this decision is not always necessarily linked to the conscious choice of making investments for improving the environmental performance of an entity. arora & cason (1996) concluded that public recognition is key to improving the success of voluntary environmental regulation. this is also supported by the findings of kagan et al. (2003) which suggest that some companies may show better performance compliance than other due to the pressures from local communities and environmental activists as well as the corporate management style. an important role is also played by trade associations and environmental groups by influencing companies to take voluntary actions towards the implementation of various regulatory programs to prevent potential harms (koski & may, 2006). it becomes evident that a „social licence to operate“ may be considered as an intangible asset of most companies and even industries; this asset, however, needs constant update and revaluation and according to berger (2011) can be easily lost, which in turn couldbring serious negative consequences for the company. gunningham (2009) also noted that „the empowering social license may be a particularly powerful point of leverage and that for large, highly visible corporations ‘reputation risk’ is becoming increasingly difficult to ignore”. all these developments have influenced companies to implement voluntarily various environmental management tools among which eco-management and audit scheme (emas) is considered as one of the most credible and effective tools, which adds valuable elements to an effective environmental management system. the history of emas dates back to 1990 when it was first presented by the eu commission as a mandatory scheme, however in response to the industry feedback it was changed to a voluntary standard (franke, 1995). in july 1993 the emas regulation 1836/93 was first introduced by the european commission as a vital tool of environmental policy aiming to fulfil its goal of sustainable development; since april 1995 emas has been opened for voluntary participation, but its scope initially restricted participation to companies in the industrial sector (european commission). the first pilot schemes confirmed that emas would improve environmental efficiency and promote good and responsible environmental performance (counsell & king, 1995), which is “significantly associated with “good” economic performance” (al-tuwaijri et al., 2003). however, the research of freimann & schwaderlapp (1996) showed that the audit system was quite complicated and had yet to reach its potential as companies concentrated their activities on documentation and self-control (freimann & schwaderlapp, 1996). research findings obtained shortly after the emas implementation revealed that the industry did require some form of environmental reporting (erskine and collins, 1996), but the implementation of emas was associated with certain difficulties and benefits (hillary, 1998). organisations mentioned lack of technical skills for environmental reporting and auditing, as well as difficulties faced by companies in preparation of the environmental report, but they also recognized various opportunities related to marketing, sales and publics relations arising as a result of the emas introduction and literature review 213 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 implementation (strachan et al. 1997), therefore, confirming the ability of emas to become an efficient marketing tool for improvement of environmental performance (strachan, 1995). findings of mora & martin (1998) indicated that education and training should be the main tools required for the implementation of emas (mora & martin, 1998). the results of first surveys carried out after the emas implementations introduced mixed opinions indicating the pessimistic estimation about the future of emas (glachant et al., 2002), the low uptake of emas and indicating it as “communication tool of variable value“ (hillary, 1998), and also outlining that while the emas implementation is associated with several costs it also results in cost savings and numerous corporate benefits (freimann & schwedes, 2000). first revision of emas (emas ii) took place in 2001 by the extension of the scope and the integration of the international environmental management system standard en iso 14001. as a result, emas was considered to become a vital tool to cope with environmental challenges and improve the competitive position of companies, which is also confirmed by studies of jirillo et al., 2003. second revision took place in 2009 and on the 11th of january 2010 the so called „emas iii“ (regulation (ec) no 1221/2009) came into effect. emas iii included the following new elements: introduction of emas global, revised audit cycles to further improve applicability for smes, corporate registrations to ease administrative and financial burdens on organisations with several emas registered sites and environmental core indicators to adequately document environmental performance. (eu commission) today the european union emas brochure specifies the following nine good reasons for emas: resource efficiency, climate protection, corporate social responsibility, legal compliance, supply chain management and green public procurement, credible information, performance measurement, employee agreement, and stakeholder involvement (emas brochure, 2016). it should be outlined that emas goes beyond iso 14001 by adding value through: _ environmental performance stricter requirements on the measurement and evaluation of environmental performance against objectives and targets, and the continuous improvement of that environmental performance; _ legal security compliance with environmental legislation ensured by government supervision; _ strong employee involvement; _ environmental core indicators creating multi-annual comparability within and between organisations; _ transparent communication provision of information to the general public through the validated environmental statement; and _ reliability registration by a public authority after verification by an accredited/licensed environmental verifier (emas – factsheet, 2017) the main differences of emas and iso14001 are presented in table 1. from table 1 it becomes evident that having much in common with iso14001, emas requires more attention and participation from the management side, involvement of employees, preparation of an environmental report, sets out strict audit and verification rules and procedures. that in turn requires professional advice on the emas implementation to be available for all companies, special attention and support for smes, and various opportunities for different organisations to share emas related experience. strong governmental support and influence of stakeholders are additional key factors in voluntary implementation of environmental management systems in general and emas e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 214 table 1 the main differences between emas and iso14001 elements emas iso14001 general aspects legal status european regulation (ec) no 1221/2009 international, commercial standard under private law participation voluntary voluntary logo yes no focus and objective focus on continual improvement of environmental performance of the organisation focus on continual improvement of the environmental management system planning environmental aspects comprehensive initial environmental review of the current status of activities, products and services _ requires only a procedure to identify environmental aspects _ initial review is recommended, but not required legal compliance proof of full legal compliance is required _ only commitment to comply with applicable legal requirements _ no compliance audit employees involvement active involvement of employees and their representatives not required (iso 14001 and emas both foresee training for employees) suppliers and contractors influence over suppliers and contractors is required relevant procedures are communicated to suppliers and contractors external communication _ open dialogue with external stakeholders is required _ external reporting is required on the basis of a regularly published environmental statement _ dialogue with external stakeholders not required _ external reporting is not required audit and verification internal environmental auditing _ environmental management system audit _ performance audit to evaluate environmental performance _ environmental compliance audit _ includes only the environmental management system audit of the requirements of the standard verifier/ auditor _ environmental verifiers are accredited/licensed and supervised by governmental bodies _ independence of the environmental verifier is required _ certification bodies are accredited through a national accreditation body _ independence of the auditor is recommended audits _ inspection of documents and site visits to be carried out according to regulation _ check for improvement of environmental performance _ data from environmental statement needs to be validated _ no certification rules in standard (other standards for auditing and certification) _ check of environmental management _ system performance, but no frequency specified or required official registration by authorities _ publicly accessible register records each organisation _ each registered organisation receives a _ registration number no official register sources: emas factsheet, 2017. 215 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 in particular (boiral, 2007). however, today an increased certification of iso14001 rather than emas is observed (wätzold et al., 2001), with iso 14001 “becoming the dominant international standard for assessing environmental management processes“ (morrow & rondinelli, 2002), which also serves as a benchmark for the development and assessment of the environmental practices of various organisations (rondinelli & vastag, 2000) and outnumbers the emas in most european countries (bracke & albrecht j, 2007). the findings of testa et al., 2013 suggested that emas is usually chosen by companies willing to achieve full transparency in their environmental accounting and reporting. the results of a review of emas in greece carried out by abeliotis (2006) revealed that a major benefit of emas as seen by companies turned out to be closer monitoring of the production process while the infrastructure upgrading was named to be the costliest aspect (abeliotis, 2006). unlike iso14001, emas seems to be quite costly, time and effort consuming, and requiring the involvement of all employees, which goes in line with findings of pedersen (2007), stating that companies consider emas as a successful initiative, though in their opinion, costs associated with its implementation outweigh the benefits. in case of emas it seems obvious that since the very beginning costs remain the main barrier of implementation and renewal of certification even in case of high internal and external motivation of the organisation. in 2009, vernon et al. conducted surveys and interviews with the european emas registered organisations, and the results revealed that the greatest obstacle related to the implementation of emas appeared to be the associated costs while the most frequently named financial benefits were reductions in energy use and more efficient usage of resources. the findings also demonstrated different motivations of emas implementation: public sector organisations were mostly motivated by improved employee motivation and overall transparency while in case of the public sector organisation the main drivers were improved reputation for the organisation and requirements from the stakeholders’ side (customers, supply chain) (vernon et. al, 2009). it should also be noted that motivation varies among companies, industries and the sector of activity. the findings of the study of alvarez-garcia & riorama (2016) demonstrated that internal motivation related to improved productivity, efficiency and improved performance of the organisation has a stronger influence on the benefits derived from the emas implementation than the external ones related to demand from the stakeholders’ side. therefore, it is obvious that there are many ways to increase the initiatives of organisations to implement emas voluntarily, which is also confirmed by the studies of kolln & prakash, (2002). the results of a survey regarding the emas implementation conducted by merli et al. (2016) among all italian registered organisations revealed that the majority of the surveyed organisations would renew their emas registration, but public administrations seemed to be more satisfied with the emas. public administrations also experienced higher difficulties relating to staff and, in particular, to lack of time and motivation but appeared to be more enthusiastic about the benefits achievable with emas. (merli et al., 2016) these findings are in line with prior researches of emilsson & hjelm (2004 & 2005) stating that local authorities indicated an increased interest toward voluntary implementation of environmental management systems and have actively used emas for this purpose. according to the official statistics of the european emas helpdesk the number of emas registered organisations in europe is declining as illustrated by figure 1. statistical data shows that the peak of emas registered organisations was observed in april 2011, while in february 2017 the amount has dropped to its minimum since april 2010. as of february 2017, there were 3658 organisations registered according to the emas scheme, in the eu. germany (1160) is the leading country for the number of registered organisations, followed by italy, spain and austria (929, 866 and 290 respectively) while at the end of the list e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 216 remain luxembourg, netherlands and malta (2, 2 and 1) respectively. according to the official statistics of the european emas helpdesk no emas registered organisations were found in croatia and latvia, and only 6 estonian organisations are emas registered. (eu commission) despite the numerous studies carried out on the various benefits, obstacles and added values derived from the emas implementation, no such studies observe the current situation in estonia, small european country, where the number of emas registered organisations still remains low. therefore, the authors considered it vital and worth attention to reveal the main reasons of this phenomenon and determine the main obstacles and benefits. the main aim of the research was to find out positive and negative aspects associated with emas certification and implementation; the role of emas for the stakeholders and the added value derived from the emas implementation. the added value was examined via improved environmental and financial performance, risk credibility, transparency and reputation, employee motivation and involvement. for the present study the authors have chosen interviews as a method of qualitative research due to a small number of emas registered organisations. interviews were conducted among the emas certified organisations in april-may 2015, five organisations were immediately available, for the two others the authors used a questionnaire, however later on one of these organisations also joined the interview process. in authors’ opinion the results of the interview are still relevant and even more important in 2017 than in 2015 as since then two private sector organisations have cancelled their emas registration and one public sector organisation became emas registered in october 2015. therefore, it seems very important to find out the main benefits and obstacles associated with emas registration in estonia. figure 1 official statistics of the european emas helpdesk evolution of emas registered organisations 4470 4542 4659 4532 4581 4470 4209 3721 4163 4024 3931 3928 4034 3943 3658 3500 3700 3900 4100 4300 4500 4700 4900 apr 2010. dec 2010. apr 2011. dec 2011. march 2012. dec 2012. march 2013. dec 2013. march 2014. nov 2014. march 2015. oct 2015. may 2016. oct 2016. feb 2017. source: eu emas register and german register. one of the main objectives of the interview was to find out the opinion of organisations on the emas certification process in general and the main problems and difficulties related to the process itself in particular. most organisations outlined that they had to perform a huge amount of work related to preparation for the emas implementation, like collection and systematization of data, which was absolutely necessary to prepare the environmental report. organisations also experienced difficulties related to the involvement of employees, especially in the public sector organisations with high percentage of office staff. these results were in line with findings of merli et.al (2016), confirming that public administrations also experienced higher difficulties relating to staff involvement. it seemed complicated to explain the necessity of emas implementation and certification to the personnel, especially in non-manufacturing non-iso14001 certified organisations. it was also mentioned that even after the emas implementation the preparation of environmental reports still seemed to be a quite time-consuming process. organisations also named costliness as one of the results 217 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 main problems related to certification and implementation; three organisations were of the opinion that costs were rather high. it is worth mentioning that iso14001 certified companies experienced less difficulties related to the emas implementation process, than the non-certified ones. the authors also wanted to determine the added value derived from the emas implementation. the added value was examined via improved environmental and financial performance, risk credibility, transparency and reputation, employee motivation and involvement. the main findings of the research suggest that the most substantial value added by the implementation of the emas system is the improved reputation, credibility and transparency derived from the preparation and publication of environmental reports, which is a compulsory component of emas. organisations also recognized an added value of emas by the improved environmental performance pointing out that their own environmental awareness had risen due to the implementation of an environmental performance measurement and evaluation system. however, emas seemed to have less or no effect on other aspects such as risk management and employee motivation. during the interviews it became obvious that emas has little or no influence on the relations with stakeholders due to their low awareness of emas compared to iso14001. the feedback received by companies in regard to emas certification was low or “zero” in most cases. during the emas implementation phase, most organisations turned to professional consultants whose assistance in the process was highly valued and appreciated. nowadays the eco-management and audit scheme (emas) is considered as one of the most credible and effective environmental management tools, which adds valuable elements to an effective environmental management system and plays an important role in sustainable development reinforced by the european union’s renewed sustainable development strategy (eu sds). emas was designed to improve and promote sustainable and responsible environmental performance and resource-efficient production. however, it seems that in practice emas is not a widely used and recognized market tool for the implementation of an environmental management system. the low popularity and low awareness of emas among stakeholders in case of estonia may partly be explained by the success of its “competitor” iso14001, which has a certification process highly similar with emas, but is still less costly and easier in terms of process. the low number of emas certified companies in europe confirm that even if emas is regarded by companies as a way to further successful and sustainable development, the benefits related to its implementation do not substantially outweigh the costs. in authors’ opinion costliness might also be one of the factors which prevented companies from realizing the constantly growing importance and significance of non-financial reporting. therefore, awareness should be raised in this regard so that companies start considering the preparation and publication of an environmental report as a vital part of their business strategy, activity and transparency and would regard costs, even substantial ones, as the essential investments into their reputation and risk-reduced activity. based on the results of the research it may be concluded that in case of estonia the value added to organisations by the implementation of emas was not very significant. even though the implementation of emas brings along numerous positive impacts, it is also considered as time, money and effort consuming. authors believe that more initiatives from the state side are strongly required in order to promote emas implementation in both, private and public sector. support is also needed in order to increase public awareness of emas system, its main benefits and added values. it may also be useful to create a national platform among emas registered companies to share experience, opinions and ways to reduce costs associated with the implementation of the system and consider them as a fee to obtain a “social licence to operate”. conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 218 abeliotis,k.(2006). a review of emas in greece: is it effective? journal of cleaner production, 14(18): 1644–1647. doi: 10.1016/j.jclepro.2005.10.002. https://doi.org/10.1016/j.jclepro.2005.10.002 al-tuwaijri, s, christensen, t. e. and hughes, k.e. 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(2009). study on the costs and benefits of emas to registered organisations. milieu ltd.: brussels, belgium. retrieved march 6, 20017 from http://ec.europa.eu/environment/emas/pdf/other/costs_and_benefits_of_emas.pdf wätzold, f., bültmann, a., eames, m., lulofs, k. and schucht, s. (2001), emas and regulatory relief in europe: lessons from national experience. european environment, 11: 37–48. doi:10.1002/eet.249. https://doi.org/10.1002/eet.249 about the authors kivi krislin ma tallinn university of technology fields of research interests environmental reporting, management, csr address akadeemia tee 3, tallinn 12618, estonia gurvits natalja phd tallinn university of technology fields of research interests csr, accounting and business ethics, sustainability accounting and reporting address akadeemia tee 3, tallinn 12618, estonia e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 114 submitted 03/2016 accepted for publication 09/2016 european integration studies no. 10/ 2016 pp. 114–124 doi 10.5755/j01.eis.0.10.14637 © kaunas university of technology exploring the obstacles of latvian food companies export to china eis 10/2016 abstract exploring the obstacles of latvian food companies export to china haidong feng, kaspars viksne faculty of economics and management, university of latvia, aspazijas blvd 5, riga, latvia http://dx.doi.org/10.5755/j01.eis.0.10.14637 introduction as we know, china is the biggest trader in the world. european commission has revealed that china has become the european union (eu)`s second largest trading partner behind the united states, and eu is china`s biggest trading partner. this situation just proves the necessity of making good partner­ ship with china, which is especially needed for such a small country as latvia. the main export fields for latvia are wood, metal, electrical devices and minerals. as the population of china is growing very fast, leading to more than one billion people in 2016 (increased for more than 41 million in last six years), the food market is in need of more and more products. of course, chinese market may seem a golden ticket to each food producer, but there are some obstacles that doesn`t allow european com­ panies export to china right away. some researches about cultural background differences and under­ standing how the chinese partners work are still missing. in this fact, based on the statistics from the ministry of foreign affairs of the republic of latvia as well as sample food market research report of latvian export to china, the authors introduce some of the legal and cultural obstacles (differences) that may stop food producers from entering chinese market, and give some ideas to assist latvian food small and medium–sized enterprises (smes) to analyze the overview of china’s food market, explore the barriers to entry the market of china, and illustrate the market barriers. meanwhile, the authors use descriptive and analytical method in some specific researches of marketing barriers, such as intellectual property rights (ipr) protection issues, infrastructure and logistics, and food labelling to analyze the marketing strategy of opening the food market in china. at last, the authors provide some information and advices to latvian and eu`s food producers to discover china market. keywords: export; china; food industry; obstacles; regulations china is also the world’s second largest economy, and is the largest exporter and second larg­ est importer of goods all over the world. the development of china as a major global economy was boomed by its world trade organization (wto) membership in 2001, which made it reform and open up its economy. just two decades ago, china and the eu traded almost nothing. however, today we form the second–largest economic partner in the world. in a obviously short time frame, also the eu economy has integrated to a point where it is difficult to imagine one without the other. the bilateral trading reached 429.7 billion eur in 2013. however, trade in services is still about ten times lower at 49.9 billion eur (2012 data) and remains a level full of potential market if china were to open its market more. how to open this large market successfully becomes a very important question for eu and their smes, and we need to solve this problem currently. 115 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 the purpose of the study is to investigate the obstacles of latvian food products export to chi­ na, and do some specific research of exporting barriers such as registration of food & drink exporters, the new food safety law in china, new regulations on exports of dairy products to china. based on the research of latvian food company export, the authors analyze the marketing strategy of china food market. meanwhile, the authors provide some information and advices to latvian and eu`s food producers to discover the food market in china. to achieve the aim, there are three tasks solved in this paper. first, the authors analyze the over­ view of china’s food market identifying market scale of china, market growth drivers in china, and forecasts of chinese food market. second, we explore the barriers to entry the market of china identifying legal and regulatory barriers, certifications, and standards of the food export to china. third, the authors illustrate the market barriers such as distribution, infrastructure and logistics, economies of scale, and increasing local competition. novelty of the paper: some researches about china’s imported food labelling regulations are still missing. in this matter of fact, made analysis in this paper creates the minimum requirement of information. also the personal relationship with distributors, importers, officials, agents and some clients is important to help those food exporters overcoming unexpected obstacles. most researches neglect this important factor, so in this paper, as a chinese researcher, the author also illustate how to work with chinese partners well. the article uses descriptive and analytical method of analysis in the research, such as official documents and law regulations, secondary analysis and synthesis of official statictics and infor­ mation, analysis of scientific literature. the people’s republic of china is located in eastern asia and it is the third largest country in the world. beijing is the capital of china – one of the most populous cities in the world (19.6 mil­ lion population). china’s gdp growth in 2013 was 7.7 %, and international estimates predict that china is on the track to become the world’s biggest economy within the next ten years, with an internal market of 1.38 billion potential consumers by the end of 2016. in 2014, the volume of exports of goods to china amounted to 107.2 million eur which is by 27.3% more than in the year of 2013. in 2014 the volume of import of goods from china amount­ ed to 353.09 million eur which is by 4.7% more than in the year of 2013. the relative statistics data is shown in chart 1. the main goods exported to china are electronic equipment (18%), wood and wooden products (34%), metals and metal products (20%), machinery and mechanisms, and agricultural and food products (10%). the relative dada of statistics is shown in chart 1 below. imports are dominated by machinery and mechanisms; electronic equipment (54%), products of the chemical and allied industries (12%) and light industry commodities (8%). since 2008, the export to china has grown almost six times. at the same time the import from china to latvia increased not even two times and was valued a little more than 354 million eur in 2014. this fact can be beneficial for latvian farmers and food producers. also, this is an opportunity to boost the regional market and show a good case to other baltic countries and maybe even some other eu countries in general. in 2014, for example, latvia as the first of the baltic countries had the permission to start the export trading of milk products to china. from 2010 to 2013 the sales of imported milk products in china increased 13 times, leading to 194.9 thousand tones of sold products. with a unique cultural and geographical position, latvia is providing a strategic location for inter­ national trading operations to develop the economies of the eu and emerging markets of baltic neighbors. latvia is a natural gateway between eu, the united states (us) and asia (especially overview of china’s food market e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 116 russia and cis). some advantages enabling successful trade include advanced transport infra­ structure, free trade and export experience and support. located on the baltic sea, latvia has three major, ice–free international ports (riga, liepaja and ventspils) that are closely linked into the country’s land–based infrastructure, including an extensive railway, road and pipeline system. the largest airport in the baltic countries is riga international airport – with over 70 international direct destinations, it serves nearly two–thirds of all flights in these region. external trade of latvia and customs policy are based on free trade principles. latvia is also a eu country, a member in schengen district and an active participant of the world trade organi­ zation, getting all the benefits from free and open trade in the international markets. customs and border procedures have been standardized for effective planning and cooperation with trade members in the world. some domestic food companies continue to develop their exports, making an environment of knowledge and ability that enable firms to grow their businesses abroad. latvia’s history has prepared its workforce with knowledge of business and cultural norms that enable trading mem­ bers with western european countries, and particularly with russia and some commonwealth of independent countries. investment and development agency of latvia (liaa) provides a series of suggestions assisting registered domestic food companies to find and cultivate new markets. figure 1 trade dynamics of latvia and china (source: ministry of foreign affairs of latvia, 2015) figure 2 latvian export to china by commodity sections (source: ministry of foreign affairs of latvia,2015) 2010 2011 2012 2013 2014 export 25,01935 39,263678 46,645458 83,898244 107,190738 import 216,102263 295,036252 349,01058 336,629646 353,099165 0 50 100 150 200 250 300 350 400 latvia-china trade dynamics (million eur) export import wood and articles of wood 34% machinery and mechanical appliances, electrical equipment 18% base metals and articles of base metals agricultural and food products 10% mineral products 8% other commodities 10% exports: latvia to china (2015) 117 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 consumption (f&b) growth in china with an average annual growth rate of 30% from 2010 to 2014, china is the second–fast­ est growing food and beverage (f&b) market in asia (stated in a study conducted by “the economist”). according to “euromonitor”, the chinese food consumption sector is the largest worldwide whose turnover gets around 440 billion eur in 2014 and 7.4 million eur outlets. with chinese citizens consuming around 80kg of grains and over 100kg of fresh vegetables, respectively, per household in 2015, vegetables and grains are the most consumed food prod­ ucts in china, notwithstanding their significance, the consumption of these two food cate­ gories has declined since 2010. in contrast, meat (beef, pork, and mutton), poultry products, aquatic products, milk and fresh fruit grew in popularity between 2010 and 2015, albeit at a modest rate. based on the observation in chinese food market, the imported food quantities in china have increased obviously since 2012. it is well known that the recent rise in family disposable income and scandals on food safety have become the key drivers that have expedited rapid growth in china’s imported food market. chart 3 below shows the trade value of imported food from 2005 to 2014. in fact, data released by the chinese national bureau of statistics show that the average an­ nual income per capita in china’s urban households rose from eur 308 in 1990 to eur 3,791 in 2012,3 allowing chinese consumers to spend more on food (including imported products) and dining out. food safety scandals include the 2008 tainted milk scandal, the 2013 discov­ ery of 15,000 dead farm animals in the huangpu river and, more recently, scandals in fast food chains. these incidents have substantially undermined chinese consumers’ confidence and trust in domestic food production processes and standards. food safety has a significant influence on consumers’ purchasing decisions. figure 3 china’s imported food trade value 2005–2014 (in usd 100 million; source: commerce ministry of china, 2015) 0 100 200 300 400 500 600 2009 2010 2011 2012 2013 2014 market growth drivers in china a key growth driver in the chinese economy has been the rapid rise in average household in­ comes. over the past ten years, china has experienced an average gross domestic product (gdp) growth of approximately 10%, which has created a new middle–income group with much higher disposable incomes. in addition, chinese urban populations have increased by an estimated 153 million over the past ten years (2005–2015); by 2025, it is expected that urban areas will grow from 607 million to 822 million people. china’s major cities – beijing and shanghai – will contin­ ue to be leading consumer hubs. beyond beijing and shanghai, mckinsey predicts that by 2015, nine large chinese markets will account for 30% of luxury consumption in china: chongqing, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 118 dongguan, foshan, guangzhou, hangzhou, nanjing, shenzhen, tianjin and wenzhou. luxury consumption will clearly include luxury f&b products, as well as consumer goods. at the same time, rapid developments in transportation (including major rail improvements and road arteries) are expanding the economic potential of second– and third–tier cities. in terms of f&b, infrastructure improvements are speeding up distribution times, efficiency and costs, thereby stimulating local economies by raising consumer demand for higher value products. cold–chain infrastructure remains poor, greatly affecting distribution of frozen foods. due to chi­ na’s rapid urbanisation, the number of urban residents is expected to reach one billion by 2030. urban residents’ steady consumption growth of basic ingredients over the last 20 years reflects the rising proportion of income spent on food and eating out. future outlook and forecasts of chinese food market with a population of over 1.3 billion, china has emerged as the world’s largest consumer market for f&b, surpassing the united states. by 2018, the association of food industries predicts that china will be the world’s largest consumer of imported food. according to “euromonitor”, the chi­ nese food service sector is now the largest in the world, with a eur 440 billion turnover in 2014 and 7.3 million outlets. china has an increasing demand for protein, dairy and meat products, including chicken, beef, pork and animal offal. barriers to the entry of the china market legal and regulatory barriers chinese f&b market is attractive due to the size of it, but many opportunities remain difficult for lat­ vian smes to exploit. there are multiple reasons for this, including high entry barriers related to the legal and regulatory environment, the characteristics of the market and the operating environment for both exports and investments entering china. recently, china has approved some new regula­ tions relating to certain industries, such as dairy, due to the food safety scandals (for example, sanlu milk powder, injected meet, toxic food color etc.) in the chinese market in past years. in chinese market, imported products are in the order from the least easy (livestock) to the easier (wine). easy to be exported note: dn – doesn’t need a protocol np – needs a protocol eba – easy bilateral agreement * has a special license or export certificate ** needs a protocol and needs to stay in quarantine wine (dnp) olive oil (dnp) coffee & tea (dnp) sweets (dnp) pastries (dnp) liquor (dnp*) fish (eba) dairies (dnp*) fruit & vegetables (np) meat (np*) livestock (np*) not easy to be exported figure 4 the varieties of exported food to china 119 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 since joining the wto in 2001, china has reduced tariffs on a wide range of imported products, but sanitary and phytosanitary restrictions (and, to some extent, labelling) continue to limit ac­ cess to the market. meanwhile, the new food safety law that was approved in october 2015, requires stricter monitoring and supervision methods, tougher safety standards, and the recall of substandard products with harsh punishments for offenders. enforcement of regulations is often not very well planned, creating confusion for exporters. the new food safety law regulates: _ trading and production of food and food additives _ packing materials, vessels, detergents and disinfectants for food and equipment used in food production _ food additives and food–related products used by food producers and traders _ safety management of food, food additives and food–related products _ all imported food products, subject to the national food safety standards in china entering china´s market, the market–entry costs are high – both the fees involved in mandatory certification and the resources required. in this area particularly high concerns are product regis­ tration, product expiry dates and labelling. in order to enter the chinese retail market, all the food and beverage companies must receive a hygiene certificate from the local government where the products will be sold. another problem is inconsistencies in the interpretation of regulations among officials at different product entry locations and whether they loosely or more strictly ap­ ply fines and penalties. regulations tend to change with some frequency and without a warning. adjusting these regulations can be expensive and time–consuming. since september 10th 2013, foreign food and beverage companies exporters to china have been required to register from administration of quality supervision, inspection and quarantine (aq­ siq). registration can also be achieved through demand companies. both of the two ways can be accessed from http://ire.eciq.cn. this website includes guidance in both chinese and english, enabling the foreign food suppliers to register by themselves. it is important that the chinese importers’ information must be filled out in chinese language before getting through the regis­ tration procedure; therefore, those companies are suggested to work closely with their agents in china or trading partners to complete this process. aqsiq also introduced new administrative measures for the inspection, quarantine and su­ pervision of imports and exports of dairy products, which have been in effect since 1st of may 2013. details of these new measures can be found at: www.defra.gov.uk/animal–trade/2013/ cin–2013049/. companies exporting baby formula products to mainland china also must register with the authorities and according to aqsiq. for more information on the import of dairy prod­ ucts into china, one must download the eu smes centre guideline importing dairy products into china, available at http://www.eusmecentre.org.cn/guideline/importing–dairy–products–china. the foreign organic certification systems and certification systems in china have not been mu­ tually recognized. thus, internationally recognized organic products that have been certified only by an overseas organic certifying body or have not been certified in china can not be labelled as “organic food ” or “in– conversion to organic” or some misleading labelling information purport­ ing to be organic when marketed in mainland of china. to ensure the quality of imported organic food and reinforce the regulations on organic food producers, chinese authorities have figured out that they will verify consignments in accordance with the regulation on the administrative measures on organic product certification and the accreditation and certification. certifications & standards as the certification cost is determined by the process of inspection, the certification cost can vary. for example, it will increase the cost of certification if a variety of laboratory tests are required. and the e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 120 inspection can cost up to 2,790 eur per product on average. however, if more tests are required, there will be added costs. about this cost, additionally, those companies willing to seek organic certification will have to pay the travelling and accommodation expenses to the chinese inspec­ tors visiting to inspect the food quality suitability. organic certification needs to be renewed each year. fees, however, are reduced by nearly one–third during the recertification procedure. since joining the wto in december 2001, china has modified or introduced hundreds of food and agricultural–related standards and regulations. these have included the food additive regulations, the changes in food laws, labelling requirements, multiple commodity regulations, commo dity– specific regulations, packaging and container requirements, and specific procedures. followings regulations are the key requirements that must be met by food that will be imported to china. according to china’s imported food labelling regulations, it is essential that all imported foods and beverages need to have a white label attached to individual cans, bottles or packets in sim­ plified chinese. labels also must be checked by the chinese inspection and quarantine service (ciqs). and the regulation requests that products must be labelled before shipping, but as this will be difficult to carry out, ciqs allows labelling to be taken in bonded warehouses in china. the following is the minimum requirement of information to be listed: _ configuration and net weight _ quality level _ the product standard code _ the number of food production licence _ standard name of food products _ address, name and contact information of manufacturer and distributor or local agent _ production date, use by date in yy/mm/dd format and guidance for storing _ generic name of the food additives as per the national standard _ ingredients list _ quantitative ingredients labelling (percentage) _ special contents if there are any (e.g. irradiated food, genetically modified, nutrition list for baby food or diet food) customer information quality (ciq) requirements sometimes change and can be complex to interpret. latvian food companies are proposed to reconfirm labelling requirements and other food products certification with the chinese agents (or related departments), prior to dispatching goods. stricter and tighter regulations are being strided over food and beverage categories in response to food safety concerns. before importing, latvian food smes must register with the chinese ministry of commerce (mofcom) and are well advised to check with the accreditation administration and chinese certification if products also are needed for producer registration. to clear customs, a latvian sme’s first shipment of pre–packaged goods needs to: _ acquire a ciq sanitary certificate _ meet the requirements of declaration at customs _ acquire a ciq certificate of imported food labelling verification for the product’s label in chinese language the following documents are also required: _ documentation providing permission to manufacture and sell the food product in the country or a region _ documentation supporting the application of label verification in addition to regulate verification application materials of labelling, first time food exporters are 121 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 also required to submit: _ the commercial licence copy of distributors, importers or agents that are listed in tags _ the chinese label sample of pre–packaged food or beverage _ the original labelling sample with a chinese translation when pre–packaged food labels state that a product is award winning, certified, from a certain geographical region, or that it contains some special ingredients, corresponding materials show­ ing proof should be provided. this information can be found in the following documents: “export and import of pre–packaged food label management regulations and inspection supervision” no. 37 notice of 2013. on the label, ingredients such as sugar or herbs must state specific types. label verification from ciqs usually takes two to three weeks. this process is generally handled in contact with the distributor or importer , due to language issues and the need for cooperation with ciqs. counterfeiting is popular in some markets in china. although vigilance is always necessary in the food and beverage companies, well–known international brand products experience more problems than do smaller producers. recently, the serious cases of wine adulteration and coun­ terfeiting have highlighted the issue across the broader wine sector. the sheer amount of euro­ pean “alcohol” in chinese market alone raises some concerns regarding the original production place. for further guidance on ipr–related issues, the china ipr sme helpdesk may offer you with confidential, free–of–charge, commerce–focused ipr advice. in the system that has a transparent series of well–understood procedures, more or less it is easy to place a product on the market of china. however, the personal relationship with distrib­ utors, importers, officials, agents and some clients is important to help those food companies overcoming unexpected obstacles. due to the legal system, it is developing but remains incon­ sistently helpful and applied. thus, enforceability of some contracts vary widely but also is gen­ erally a little weak. doing a successful business in china relies heavily on influence (guanxi) or personal contacts. generally, we can see that no investment will be more important to latvian food smes’ success than the available network of relationships they build in china. market barriers to china market distribution the imported food markets remain more or less decentralized in main land of china and these markets are described as competition and free growth. meanwhile there are not too many large distributors or agents that are dedicated to imported food and beverages. as there are few im­ porters or agents with more than 1,200 imported food and beverage products, the varieties of european imported products in china are very limited. most chinese agents in this market are more willing to be interested in wholesaling and do not like to pay more attention to brand devel­ opment, so some distibutors or agents tend to be conservative in introducing the new imported products to chinese customers. generally they pay more attention on the products that have already been sold in the market but are sold by “grey” channels (not official) or sub–distributors. some european food suppiers with a limited range of products need to work not only in the ends of the distribution chain simultaneously, but also to identify some retailers who are interested in the products and agents who have good relationship with lots of retailers. because of the domestic food scandals and growing disposable income in china, the dramatical development of online shopping (such as taobao) has been a main driver to stimulate the boom of the imported food selling. the internet shopping market has expanded sharply since 2013, which has resulted in the closure of some food retail shops due to the increasing preference of online shopping consumers. according to a marketing research, when considering online shop­ ping channels as a way of distribution, an new internet marketing portal in china, latvian food companies which are going to open chinese market should be aware of the following details: e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 122 _ it is easy to have conflicts of interest among the marketing channels _ there are lots of requirements for logistics and warehousing _ high brand promotion costs are associated with using e–commerce platforms _ the costs of distribution are generally high _ online shopping habits are different from traditional consumption habits, especially for snacks infrastructure and logistics the first tire cities in china such as beijing, shanghai and guangzhou are the main entry points from eu to mailland of china. compared to just several years ago, china railway high speed system has greatly eased the cargo directly out of guangzhou or shanghai. china high–speed train has decreased the time travelling across the country; in the changjiang river delta, for example, trains from shanghai to hangzhou city (zhejiang province) now take not more than thirty minutes and, to nanjing city (ji­ angsu province), less than forty minutes. as increasing high speed railways are important distribution networks, the government is continuing to support the rail network with further investment. china has the largest container ports in the world, with shanghai holding the world’s top spot since 2009. in the region of guangzhou, hongkong and shenzhen, container ports are ranked respectively at numbers three and four all over the world, and there are also three other ports (such as qingdao, tianjin, and da­ lian) among the largest ten in the world. the process of exported food logistics is illustrated in figure 5. in neighbor cities, ports offer a growing series of services, including bonded storage with online inventory tracking, temperature–controlled services, and tax free industrial regions where goods can be further processed or repackaged, with tax paid only on the original import value and only after products depart from the area. however, further inland logistics services are local, ineffi­ cient and fragmented, making it difficult to transport imported food directly from the coast cities to inland cities. demanders in china are not familiar in this kind of transportation yet. economies of scale over the past four years, china’s gdp growth has been 8% per year on average, and gdp per capita reached 89 trillion eur (63.6 trillion rmb) in 2014 (7.4% growth). organic producers face the challenge of scaling up their production capacity to meet large scale of chinese demand, es­ pecially those with a geographical indication (gi) mark as well as sufficient production volume to figure 5 process map at origin of export (source: eu sme centre ,2012, export of goods to china) no need to protocol no need to protocolfoodstuffs export license approval of the condition specified in protocol need for an export model protocol signed general import restriction exports documents label, bill of lading & contract international transport 123 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 make a profit. meanwhile, their gi status and the quality of their products depend on their small production capacity; it means china is a very large market, and if one product is successful on the market, the demand will grow beyond its production capacity. given the difficulties of entry and costs involved, it could be a challenge to make the market entry profitable. local companies may make the process of production and marketing more efficiently. french and german com­ panies have had some success by producing goose liver and breeding geese in partnership with chinese producers locally. there is a local company which has established an spanish–style ham processing company that employs spnish employees and is labelled as spanish brand. increasing local competition latvian food products are regarded as high safety standards and healthy production quality, but their prices are often more expensive than some local food products. in terms of food marketing competition, the united states keeps the largest food supplier of consumer–oriented products to china, and it is the only one exporter with a pressent goods in most varities. therefore, local food companies seem to repel imported products out of the price–oriented mass market and into their own markets, where innovations and qualities are more important than price. in a few years ago, some chinese restaurants and hotels were usually obliged to import european products as their specialites; however, they are now able to turn to local producers. for example, some latvian dairy companies, such as “daugava, valmieras piens, druva food ”, sell cheese directly to restaurants and hotels, and also some local companies are also making european–style meats and other dairy delicacies. some companies express concern that increasing local production threatens sales of their imported food products. however, the two companies can work in tandem to increase consumer exposure to new food products and allow consumers with more discerning tastes to access original and better quality food. _ the latvian foreign ministry’s state secretary andrejs pildegovičs commended the successful su­ zhou summit and expressed appreciation for the opportunity of organizing this year’s events in the “16+1” format. the organizational modalities of the upcoming events were discussed, as well as projects in logistics and transport. thus, latvian food producers will have better access to chinese market in this fall. also latvian food companies will have more chances to export their production to such a large country that has a rapidly growing food market. economic relations with china take on increasing importance. economic relations and traditional markets do not always meet the best result. in the post–crisis time, the coming new challenges in the global economy new fields and channels for cooperation bring more and more opportunities. even the most different economies can create synergy and opportunities for development. generally, there are several steps for latvi­ an small and medium food companies to operate the export trading to chinese market. _ step 1: check if you can export your product to china, step 2: check if an export model is need­ ed and ready, step 3: check if your products meet chinese regulations, step 4: register as an exporter at aqsiq, step 5: prepare documents to export, step 6: label your product following chinese regulations, step 7: check if you meet chinese regulations on packaging, step 8: im­ port documents and licenses, step 9: customs inspection, step 10: tariffs and tax payment. _ thus, it is necessary to recognize cultural background differences and spend time understand­ ing how their chinese partners work. they also find that agreements viewed as contract by the latvian food suppliers are more flexible or negotiable from the perspective of the chinese demanders. ensuring that a company representative is present at all transactions will reduce misunderstandings and errors. it also offers the opportunity to adapt suitable portion sizes, alter ingredients in the exported food products (for example, reduce sugar content), and design the packaging appealing to chinese consumers. however, with the chinese government put­ conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 124 ting forward the one belt one road strategy and the g20 summit held in hangzhou, it is a good opportunity to solve the problems of investment and trade facilitation. also latvian food com­ panies could take advantage of this background to carry out more trade and find investment barriers, building area and the good business environment for positive cooperation. references albaum, g. s., albaum, g., duerr, e. 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(2012). export sophistication and economic growth: evidence from china. journal of development economics, 97(2), 281–292. http://dx­ .doi.org/10.1016/j.jdeveco.2011.04.001 ministry of economics of latvia (2014). latvian milk processors are the first in the baltic countries that have a new export market – china. retrieved march 2, 2016, from https://em.gov.lv/lv/jaunumi/1500–latvi­ jas–piena–parstradatajiem–pirmajiem–baltijas–vals­ tis–ir–jauns–eksporta–tirgus–kina ministry of foreign affairs of latvia (2015). bilateral relations of the republic of latvia and the people’s republic of china. retrieved march 15, 2016, from http://www.mfa.gov.lv/arpolitika/divpusejas–attieci­ bas/latvijas–un–kinas–tautas–republikas–attiecibas lachenmaier, s., & wößmann, l. (2006). does in­ novation cause exports? evidence from exogenous innovation impulses and obstacles using german micro data. oxford economic papers 58 (2): 317–350. oxford economic papers, 58(2), 317–350. http://dx.doi. org/10.1093/oep/gpi043 xiwei, z., xiangrong, j., deming, l. (2005). market segmentation and the expansion of china’s export. economic research journal, 12, 68–76. yang, c. (2012). restructuring the export–oriented industrialization in the pearl river delta, china: insti­ tutional evolution and emerging tension. applied ge­ ography, 32(1), 143–157. http://dx.doi.org/10.1016/j. apgeog.2010.10.013 miloloza, h. (2015). distance factors and croatian ex­ port obstacles in the eu15: cage approach. interdisci­ plinary description of complex systems – scientific journal, 13. http://dx.doi.org/10.7906/indecs.13.3.8 about the authors haidong feng bachelor’s degree of economics, lanzhou university of finance and economics (2009), master´s degree of business administration, lanzhou university (2014), doctoral student (now) faculty of economics and management, university of latvia fields of research interests economics, marketing, financial management, financial engineering address aspazijas blvd 5, riga, latvia tel.: +371 25336787 e–mail: fenghd12@lzu.edu.cn kaspars viksne doctoral student (now) faculty of economics and management, university of latvia fields of research interests economics, internet marketing, leadership, sociology address aspazijas blvd 5, riga, latvia tel.: +371 36559228 e–mail: kaspars.viksne@gmail.com authors hold the responsibility for the journal language. editors hold the responsibility for the journal content © publishing house “technologija“ (design), 2017 © kaunas university of technology, 2017 editor-in-chief assoc. prof. dr. rasa daugėlienė kaunas university of technology, lithuania international editorial board prof. federiga bindi, university of rome, italy, federiga.bindi@eui.eu assoc. prof. dr. aleksandra borowicz, university of gdansk, poland, aleksandra.borowicz@ug.edu.pl assoc. prof. dr. jurgita bruneckienė, kaunas university of technology, lithuania, jurgita.bruneckiene@ktu.lt dr. richard caddell, utrecht university, netherlands, j.r.caddell@uu.nl prof. martin dangerfield, university of wolverhampton, united kingdom, m.dangerfield@wlv.ac.uk assoc. prof. dr. jolita greblikaitė, aleksandras stulginskis university, lithuania, jolita19@gmail.com assoc. prof. dr. natalja gurvits, tallin university of technology, estonia, natalja. gurvits@ttu.ee prof. dr. jari kaivo-oja, finland futures research centre, turku school of economics, university of turku, finland, jari.kaivo-oja@utu.fi prof. dr. aksel kirch, school of economics and business administration, tallinn university of technology, estonia, aksel.kirch@ttu.ee assoc. prof. dr. ainius lašas, kaunas university of technology, lithuania, ainius. lasas@ktu.lt prof. dr. pawel mlodkowski, school of international liberal arts, miyazaki international college, miyazaki, japan, pawel.mlodkowski@gmail.com assoc. prof. dr. janis priede, university of latvia, latvia, janis.priede@lu.lv prof. dr. gazmend qarraj, university of prishtina, kosovo, gazmendqorraj@ yahoo.com assoc. prof. dr. rimantas rauleckas, kaunas university of technology, lithuania, rimantas.rauleckas@ktu.lt prof. habil. dr. baiba rivža, latvia university of agriculture, latvia, baiba.rivza@llu.lv assoc. prof. dr. loredana simionov, university alexandru ioan cuza in iaşi, romania, lori.simionov@gmail.com assoc. prof. dr. jolita sinkienė, kaunas university of technology, lithuania, jolita.sinkiene@ktu.lt prof. biruta sloka, university of latvia, latvia, biruta.sloka@lu.lvprof. dr. jari stenvall, university of tampere, finland, jari.stenvall@uta.fi prof. dr. jari stenvall, university of tampere, finland, jari.stenvall@uta.fi assoc. prof. dr. joana stryjek, sgh warsaw school of economics, poland, jstryj@sgh.waw.pl assoc. prof. dr. jurgita šiugždinienė, kaunas university of technology, lithuania, jurgita.siugzdiniene@ktu.lt prof. habil. dr. helena tendera-wlaszczuk, cracow university of economics, poland, tendera@uek.krakow.pl prof. dr. stanislaw uminski, university of gdansk, research centre on european integration, poland, uminski@univ.gda.pl prof. dr. phil. velga vevere, the university college of economics and culture, latvia, velga.vevere@gmail.com prof. dr. habil. krzysztof wach, cracow university of economics, poland, wachk@uek.krakow.pl assoc. prof. dr. małgorzata zajaczkowski, warsaw school of economics, poland, mgraci@sgh.waw.pl dr. oerc. assoc. prof. rosita zvirgzdina, turiba university, latvia, rosita@turiba.lv european integration studies: research and topicalities / 2017, no. 11 faculty of social sciences, arts and humanities institute of europe, kaunas university of technology this annual journal is dealing with interdisciplinary field of european union law, economics, policies and history research with the aim to form the common ground for discussion, exchange of ideas and to foster the integrated research concerned with problems and actualities of european integration processes. designer evelina garliauskienė correspondence editorial board of european integration studies: research and topicalities mickevicius str. 37, lt-44244 kaunas, lithuania phone +370 615 56233 e-mail rasa.daugeliene@ktu.lt web site in ojs (open journal system): www.eis.ktu.lt the journal european integration studies: research and topicalities in print since 2007 editorial note since 2002, institute of europe of faculty of social sciences, arts and humanities (kaunas university of technology) prepares and publishes scientific works under the theme of european processes in the field of politics, economics, law and cultural dimensions. starting 2007 year the journal has got an issn code. at the present the annual scientific journal european integration studies: research and topicalities (issn 1822–8402) is published once a year (in september). the papers published in journal are abstracted and indexed by international databases: ebsco (central & eastern european academic source database coverage list), ebsco (business source complete), ebsco discovery service (eds), doaj (directory of open access journals), econbib (economics bibliography) and emerging sources citation index (esci, new edition of web of science). journals in esci have passed an initial editorial evaluation and can continue to be considered for inclusion in products such as scie, ssci, and ahci, which have rigorous evaluation processes and selection criteria. papers published in the european integration studies: research and topicalities undergone a formal process of double blind peer review by two appointed external reviewers. the main objective of the journal is to analyse problems and actualities considering european integration processes. the articles are brought under the three main themes. these are social evolution of europe, economics of european union as well as managerial aspects of european integration. it is believe that the articles included in the journal, being selected and reviewed, are of high scientific quality were actual scientific problems are solved, deserve a wide distribution. editors hope that presented new scientific ideas and ways of problems solving will help to develop research not only for academicians and students but and for a wide representatives of society which seek to improve their knowledge in european integration. in conclusion, editors would like to thank all authors of the articles for their willingness to share their ideas with others. rasa daugėlienė european integration studies 2011.indd 145 issn 1822–8402 european integration studies. 2011. no 5 foreign exchange reserve management in the eurozone and the global interest rates pawel mlodkowski collegium mazovia – innovative university, poland abstract global interest rates and their term structure depend on the relation of the time structure of demand and supply of capital. with the monetary integration in europe one can observe substantial realignments in the mentioned variables. the scientific problem of this paper is the change in the term structure of the global interest rate over the period of the last 25 years – 1987 – 2011. the aim is to recognize any actual anomalies in the yield curve of the global interest rate that may be associated with the creation of the eurozone and its further expansion. the first step in this quest is presentation of the theoretical background for the foreign exchange reserve management at a central bank. then, the institutional solutions are presented to give insights into the actual operating procedures that have potential of affecting the term structure of demand and supply of liquid funds in foreign exchange markets. in the next step, a rationale for a substantial realignment of large foreign assets’ portfolios in a monetary union is presented in detail. one may list here several costrelated arguments and efficiency in maximizing rate of return, without endangering the international liquidity of a country and a monetary union as a whole. it is argued that the institutional solutions together with the rational behavior of central banks result in permanent departure from the once well-established balance in the global economy. it could be also argued that monetary integration in europe is responsible for moving toward a new equilibrium at the global financial market. these claims are later supported in the empirical part by the time series analysis of the term structure of global interest rates. differentiating between interest rates of different maturities delivers three years over the period 1987-2011 when the yield curve inverted. these years were 1998, 2001 and 2007. all three cases of unusual yield curve behavior may be associated with: onset, expansion and further expansion of the eurozone. in each case, adding to the common pool of the foreign exchange reserves created an impulse for demand-supply interplay, concerning the term structure of capital offered and demanded at the global financial market. another supporting argument flows from the recognized strong and significant relationship between foreign exchange reserves management and the term structure of global interest rates. correlation exercise delivered interesting results, showing not only uniqueness of the mentioned years (1998, 2001, and 2007) but also some differences between these years in the manner of the yield curve shape and form of adjustment. in some cases changes leading to the inverted yield curve were only in long-term interest rates (down), but sometimes interest rates of all maturities were changing (short term up& long-term down). also the form of latter adjustment, when yield curve returned to the normal shape differed for the studied anomalies. keywords: foreign exchange reserves, global interest rates, yield curve, monetary policy, ecb. introduction foreign exchange management is an issue that despite its importance has not been a subject of detailed analysis in the literature. it has been a result of the actual design of the global financial system. historically, foreign exchange management has been focused on the main aim that has been maintaining international liquidity [młodkowski 2002]. mercantilism perceived foreign exchange reserves as a value for itself, claiming that the higher the level of reserve assets (monetary gold) the better. until the second half of the 90s in xxth century, research on driving forces for demand for foreign exchange reserves was sporadically. it is possible to list here works of bryant [1980], edwards [1983], or ben-bassat and gottlieb [1992] and scott [1993]. this situation started to change with the onset of monetary integration in europe. at the turn of xxth and xxist century, interest in this topic rose, among economists and economic policymakers. the reason was the creation of a new international currency backed by the biggest economies in europe [chinn and frankel, 2005, p. 3]. aside from this fact, the other reason was departure from maintaining foreign exchange reserves in a form of monetary gold (due to high costs) at the end of xxth century. this tendency, however, was revered after the world turmoil caused by the 11/9 terrorists attacks. unstable political situation resulted in fueling demand for gold. foreign exchange reserves and their management became interesting also because of significant changes in the global pattern of trade and liberalization of the balance of payments accounts. review of literature in this regard for 1997-1999 period can be found in eichengreen and mathieson [2000]. the fact of further increase in interest for this topic can be concluded from the reference list found in aizenman and lee [2005], or chinn and frankel [2005]. however, all of the mentioned authors studied the foreign exchange reserves issues from the point of view of only one country [młodkowski 2006]. the topic of monetary union reserve assets management was still not present in the literature. the reason was in the absence of a formal currency union of a significant share in the global economy. there were already four successful monetary unions prior to the 1999 [młodkowski 2008]. all of them centralized their foreign exchange reserves for the purpose of an effective monetary policy in stabilizing member economies [młodkowski 2007]. only after creation of the european monetary union (emu) centralization of the reserve assets became an important factor for the global monetary system. issn 1822–8402 european integration studies. 2011. no 5 146 the paper presents introductory empirical results of an analysis of foreign exchange reserves management on the global interest rates. the research methodology is a simple correlation analysis of time series for global interest rates’ yield curve. institutional design of foreign exchange reserves management in the eurozone when one describes the centralization and management of foreign exchange reserves in the eurozone, it is necessary to start from the exchange rate system regulations. the european treaty assigns the responsibility for the decision on the exchange rate regime to the european council [european treaty art.111, p.1]. in case of the lack of the decision on a particular exchange rate regime, the european council (by a qualified majority of votes) may formulate the general directions for the exchange rate policy [european treaty, art.111, p.2]. a priority goal in both formal ways of defining the exchange rate policy in the emu is maintaining stability of the general level of prices. therefore, all decisions in this regard require recommendation from the european central bank or from the european commission that is often consulting them with the ecb. so far none of the aforementioned procedures were initiated. during the summit of the european council on 13th of december in 1997 in luxembourg stressed that the exchange rate of the euro should be a result of an interplay between economic factors and economic policies and the exchange rate it self should not be a separate and an independent aim. it was concluded that some general directives for the exchange rate policy will be formulated only in extraordinary circumstances. however, all these potential directives must consider the independence of the european system of central banks and the ultimate goal, which is the stable general level of prices. the lack of the institutional exchange rate regime solutions together with no exchange rate target for the ecb caused only two actual interventions in the foreign exchange market by the ecb over the first five years of operations [scheller, 2004, p.92]. both interventions took place in 2000 (in september and november). these were conducted with a cooperation of central banks of the usa, japan, the uk and canada. the reason for the interventions was the stable depreciation trend of euro, which was in contradiction with the macroeconomic situation of the eurozone. in order to conduct such foreign exchange market interventions, a central bank needs to hold some foreign exchange. the european central bank maintains the necessary resources because it is a custodian of the pool of the common foreign exchange reserves. the charter of the central bank defines, among its basic functions, conducting foreign exchange transactions and maintaining the foreign exchange reserves of the member states [ecb statute, art.3.1]. the common pool of foreign exchange reserves at the ecb is maintained and managed mainly for the purpose of foreign exchange market interventions. the ecb is allowed to conduct transactions (spot and forward) and make deposits together with engaging in credit operations [ecb statute, art.23]. the national central banks of the eurosystem are obligated to transfer their foreign exchange reserves to the ecb. initially, the total amount of the foreign exchange reserves was set at 50 billion of ecu [ecb statute, art.30.1]. however, as new countries join the eurozone, it results in increasing the equity of the ecb and in increasing the common pool of the foreign exchange reserves. since the 1st of may 2004 the initial limit rose to 55,6 billion of euro. the ecb is not obligated to return some of the foreign exchange to member countries that decreased their share in the total equity. in january 1999 the national central banks transferred to the ecb the foreign exchange reserves with total value of 39,46 billion euro. it was the upper limit resulting directly from the ecb statute, decreased by the share in the ecb equity of the eu countries that did not join the emu. then, on 1st of january in 2001, when greece joined the eurozone, the central bank of greece transferred 1,28 billion worth of foreign exchange reserves. the total amount of all contributions so far reached 40,74 billion of euro. the structure of the transfer was as follows: 15% gold and 85% jointly the us dollar– and japanese yen–denominated assets. the initial value of the common pool of foreign exchange reserves at the european central bank fluctuated due to exchange rates movements and fx market interventions. in january 2008 it amounted at 43,2 billion euro [ecb 2008, p.18], while in january 2011 it was 56.3 billion euro [ecb 2011, p.16]. the statute of the ecb allows the central bank to call for transferring more of foreign exchange from the national central banks, above the initial limit. the reason for such a call would be a necessity to replenish depleted foreign exchange reserves, but not to increase their total amount at the ecb disposal. goals of foreign exchange management at the european central bank the european central bank has one general goal in its foreign exchange reserves management. the goal is to have enough of the most liquid foreign assets to conduct any necessary intervention at the foreign exchange market. this leads to emphasizing two principles: liquidity and safety when decisions about the chosen instruments are made. complying with these two principles, the total value of foreign assets portfolio is maximized. it can be argued that such an approach is in line with the modem trends in this regard. the foreign exchange reserves in the european monetary union are managed by national central banks according to an investing strategy formulated at the european central bank. in reality this solution means that the following parameters are imposed: 1. currency structure of foreign assets portfolio, 2. ratio of acceptable risk to the expected rate of return, 3. credit risk, 4. liquidity requirement for instruments used. the currency structure of the foreign assets portfolio is decided by the managing board at the ecb. it considers the expected needs resulting from potential interventions and it is subject to frequent change. the ecb is not conducting an active foreign assets portfolio management to avoid the indirect interference with the common monetary policy. the actual decisions of the ecb concerning the foreign exchange reserves management at the national central banks are communicated in a from of investment benchmarks and limits, which ought to be achieved and maintained. the national central banks announce the actions undertaken as a issn 1822–8402 european integration studies. 2011. no 5 147 consequence of centralized decisions. this allows all foreign partners at financial markets to distinguish transactions conducted on behalf of the ecb from independent ones. the ecb defined four key parameters for investing its foreign exchange reserves [scheller 2004, p.95]: i. two-level investment benchmarks for each currency (strategic and tactic ones), ii. allowed deviations from the benchmarks, iii. a list of allowed instruments and operations, iv. credit risk exposure limits. details of these parameters are classified to avoid an undesired influence on financial markets. these benchmarks are defined for two levels of managements: a strategic one and a tactic one. the strategic benchmark for each of currencies present in the foreign assets portfolio, reflects the long–term requirements of the policy of the managing board together with the preferences of the ecb in regard to risk and the rate of return. the tactic benchmark is formulated by the governors of the ecb. it must be maintained within the predefined deviations from the strategic benchmark. it is supposed to reflect the short–term and the mid–term preferences of the ecb in regard to the rate of return and the risk, concerning the current market conditions. as can be seen, the national central banks, when conducting their everyday management of foreign assets portfolios have some autonomy based on the allowed deviations from the pre-defined limits. the aim in this regard is to achieve higher efficiency. the ecb maintains also some foreign exchange reserves in the from of gold, at 750 tons. this part of its portfolio is not however subject to an active management, as in other monetary unions [młodkowski 2007, p. 213]. this is a result of the fact that the ecb is a member of the gold agreement of central banks, signed in 1999 by 15 central banks that belong to the eurosystem. in 2004 this agreement was extended by another 5 years. then it was then extended in 2009 for another 5 years until the 26th of september 2014. the foreign exchange reserves that were not transferred to the common pool and are still maintained and managed by the national central banks amounted in 2008 at 374,6 billion euros [ecb 2008, p.18], while at the beginning of 2011 (january) the amount of these reserve assets reached 562.3 billion euros [ecb 2011, p.16]. the right to call for additional foreign exchange by the ecb means that the common central bank has a tremendous power to conduct interventions at foreign exchange markets and to shape the exchange rate even in the long run. the foreign assets at the national central banks are almost ten times the value of the common pool today. benefits of a lower demand for foreign exchange reserves in the eurozone before creation of the emu a discussion developed on the foreign exchange reserves and their surplus that was represented by amounts outstanding after creation of the common pool at 50 billion of euros. the recognized benefits resulted from lowering the costs of maintaining foreign assets and from increasing the rate of return on foreign assets portfolios. the surplus of the foreign exchange reserves could no longer be maintained in gold and could be exchanged into instruments generating a much higher rate of return at a much lower liquidity. up to that moment, the diversification of foreign assets portfolios was significantly restricted. both, the imf and independent economists underestimated the surplus of the foreign exchange reserves in the emu. the imf estimated the surplus at 50 to 230 billion of the usd [imf 1998, p.143]. masson and turtelboom [1997, p.17] estimated the total value of the surplus at 105 billion of the usd. among many estimations of the surplus of the foreign exchange reserves in the emu the most accurate was the one by the european commission. according to the ec, the surplus was supposed to be about 300 billions of euro, above the statutory 50 billions in the common pool. currently, in the 2011, the surplus in the foreign exchange reserves amounts at 562 billion euro, after 374 billions in 2008 [ecb 2011, p.16]. the available rate of return from 5% to 10% suggests potentially significant benefits from it. in the first years of the third phase of the emu it was not expected to witness any effects of the monetary integration on foreign assets portfolios. is was caused by the decision of the ecb forbidding the sale of foreign assets. in case of quick liquidation, appreciation of euro would follow. this in turn would be detrimental to competitiveness of european exports. the imf contradicted this view, and claimed that the potential appreciation would be very small. the reason is because the foreign exchange reserves of the eurosystem represent a small part of all of the usa foreign liabilities. however, the appreciation trend of euro against the us dollar may be attributed partly to realignments in foreign assets portfolios. rationale for the postulated realignment in foreign assets portfolio in the eurozone foreign exchange reserves management became important because of excessive costs associated with maintaining large portfolios of foreign assets. with the primary aim to maintain international liquidity of a country, cost optimization begun. the new objectives (to minimize costs & to maximize rate of return) added to the previous ones (liquidity & safety) generated the need for realignments in the structure of reserve assets. there were several main reasons why such transition in the approach occurred. first, there was a significant increase in the stability of the global financial system. the last decade of the xxth century witnessed not only decreasing prices of natural resources but also low and stable inflation. in the same time, many central banks introduced two systemic solutions (1) inflation targeting and (2) free float, as the exchange rate regime. the latter one decreased demand for liquid foreign assets even further. with the general and broad macroeconomic stability and market-based exchange rates, demand for international liquidity systematically decreased. however, it was still not enough to cause largescale realignments in the foreign assets’ portfolios, due to precautionary considerations in each and every country that was managing its foreign exchange reserves on its own. only after monetary integration affected countries that represent a substantial share in the global gdp and in international trade, time structure began to change. in a monetary union, demand for foreign exchange reserves is significantly lower due to the fact of executing substantial part of all current and financial transactions in a common currency. all intra-union export-import transactions are denominated in the common currency. in addition, direct and portfolio and other investment within the union is also denominated in the common currency and do not call for any issn 1822–8402 european integration studies. 2011. no 5 148 foreign exchange to settle an intra-union transaction. there are additional reasons why excessive foreign exchange reserves accumulate when countries operate as a monetary union. in case of the eurozone, common sectoral and monetary policies resulted in a temporary increase in the productivity of capital within the member states. this, in turn, attracted capital from the rest of the world, adding to the total amount of foreign assets in the international investment position of the european monetary union countries. higher productivity of capital was also generated due to financial markets integration and lowering transaction costs. inflow of foreign capital was not discouraged by the relatively low interest rates for instruments denominated in the euro. to conclude, it can be said that due to general trends in the global economy and because of regional developments, demand for international liquidity decreased significantly. in the same time, excessive surpluses in foreign assets portfolios accumulated for the emu countries. the question remained: what to do with the amounts denominated in foreign currencies that, on one hand, were generating continuous costs of maintaining them, and on the other hand, were kept in highly liquid securities that were offering low rate of return. with the ‘price stability’, as the main objective of the common monetary policy of the european central bank, expanding money supply in the eurozone was not an option. therefore, despite the recognized excess of foreign reserve assets, above what was necessary to grant international liquidity, the accumulated stock was not released in any other form. with the nominal total value, a different change occurred, a change in the maturity structure. departure from holdings of short-term, highly liquid assets disturbed the yield curve of the global interest rate. the suggested effect could be described as follows. the latter members of the system of national central banks of the eurozone were custodians and managers of nations’ foreign assets. despite the actual currency composition was always and everywhere classified, it can be said that aside monetary gold, foreign exchange reserves were maintained in the most liquid financial assets of the shortest available maturities. when the ecb was created, and the emu member states transferred the required amounts of reserves to the common pool, the remaining foreign assets at their disposal were still substantial. analyzing behavior of exchange rates of major reserve currencies at that time, it can be said that the postulated realignment in the excessive amounts of foreign reserve assets were not affecting the currency pattern. the only other dimension that potentially could be the subject to change was the maturity structure of instruments, in which reserves were maintained. therefore, a hypothesis is posed about the rational response of the system of national central banks in the eurozone. these agents redesigned their foreign assets portfolios at the onset of the emu, moving from the shortterm securities to the longer-term securities. such realignment resulted in substantial alterations, for the time of this process, in the interplay of demand and supply of capital at different maturities. statistical exercise based on interest rates from 1987 to 2011 offers some hints about the actual timing of these postulated realignments. empirical investigation of disturbance in the yield curve for the global interest rate testing for unusual developments in the global interest rates is based on the libor interest rates for the main reserve currency – the usd. time series for the empirical study come from an on-line database (www.global-rates.com) provided by triami media bv in cooperation with homefinance. the study considers the annual average interest rates for each maturity, from 1-month to 12-month, as the best proxy for the market situation in any given year. a methodology for recognizing disturbances at global financial markets is very simple. since the yield curve is supposed to be of a normal shape in normal circumstances, then an unusual situation may be recognized when the yield curve inverts. using the annual averages of interest rate for different maturities makes the study informative and removes all small, short-time disturbances. by this approach only significant and persistent changes are pronounced and observed. the first step of the empirical analysis utilizes the original time series of the libor interest rates of maturities (1m⇒12m). according to the theory of finance, the risk premium for maturity period should make interest rates for longer maturities higher than for the shorter maturities. as a consequence, the difference between interest rates for the longest maturity and any interest rate for a shorter maturity should be positive. testing for this rule required calculation of the postulated differences. these are presented graphically in figure 1. figure 1. differences between 12-month interest rate and interest rates for maturities from 1-month to 11-months – 1987 – 2011. source: author. as can be observed in figure 1, for most of the years covered by the analysis, the standard relationship between longer and shorter maturities was present. however, there are three years, for which this rule does not hold. the years of unusual behavior of interest rates’ differentials are: 1998, 2001 and 2007. the 2007 changes in financial markets can be interpreted as signs of the global crisis approaching. financial institutions were looking for more liquidity and they realigned their portfolios from longer to shorter maturities, creating additional demand for short-term money market issn 1822–8402 european integration studies. 2011. no 5 149 instruments and excessive supply of longer-term ones. this in turn, influenced the interest rates of financial instruments of different maturities. relatively increased demand for longer maturities of financial instruments pushed up their prices. as a consequence, the interest rates for these maturities decreased. the reversed yield curves for selected years (presented in figure 2 and in figure 3) offer another opportunity to confirm the interpretation of the situation at the global financial markets. in all the years that precede yield curve reversal, the situation is normal. the pattern of interest rates for different maturities exhibits the postulated relationship in 1997, 2000 and 2006. then, in the years of the actual reversal, interest rates for longer maturities experience a significant decline. it should be noted that the relative change in short-term interest rates is relatively small in comparison with the change in the level of interest rates of longer maturities. figure 2. yield curves for the global interest rate (from 1m to 12m) in pairs of years when curves reversed. source: author. after the years of the observed reversals in the yield curve (1998, 2001, 2007), the relationship between interest rates of different maturities return to the normal state. this is presented in figure 3, with upward sloping curves in the second column of charts. the same shape, of persistently upward sloping yield curves is recognized for all other years covered by this study, from 1987 to 2011. the only years of temporary reversals in the pattern of interest rates at different maturities are 1998, 2001 and 2007. it is argued that the reasons for the observed behavior in 1998 and in 2001 were realignments in the foreign exchange reserves portfolios of central banks. these institutional agents in the eurozone found themselves in a situation of excessive foreign assets and started to optimize foreign exchange reserves management. minimizing costs of maintaining foreign assets in a form of monetary gold resulted in systematic decline in gold prices at global market for this asset. the other kind of realignment was the move from shortterm financial assets to longer-term securities that offer lower liquidity, but much higher rates of return. figure 3. yield curves for the global interest rate (from 1m to 12m) in pair of years when curves reversed again. source: author. information included in table 1 represents a proof for significance and clear difference between yield curves for several more years than covered by figures 1 and 2. correlation coefficients of interest rates for different maturities in the period from 1997 to 2007 leave no doubt that 1998, 2001 and 2007 exhibited a very different pattern than all other years covered by this study. table 1. correlation coefficients for yield curves of the global interest rate for maturities from 1m to 12m over the period from 1997 to 2007. 98 99 00 01 02 03 04 05 06 97 -0.82 98 1.00 99 -0.88 1.00 00 -0.86 0.99 1.00 01 0.52 -0.23 -0.13 1.00 02 -0.70 0.92 0.96 0.17 1.00 03 -0.57 0.86 0.90 0.31 0.99 1.00 04 -0.83 0.98 1.00 -0.05 0.98 0.93 1.00 05 -0.89 0.99 1.00 -0.18 0.94 0.87 0.99 1.00 06 -0.94 0.98 0.96 -0.39 0.84 0.75 0.94 0.98 1.00 07 0.63 -0.81 -0.88 -0.32 -0.96 -0.96 -0.91 -0.86 -0.73 source: author. the observed negative correlation coefficients for 1998, 2001 and for 2007 indicate that in these three years the situation at the financial markets was opposite to that in all of the other years. in particular, it is necessary to stress the fact that for most cases the value of correlation coefficient is statistically significant and it is close to minus one. there is one more statistical analysis exercise that is able to offer some more information about the nature of the observed changes. to answer a question: what is actually changing in order to deliver an inversed yield curve? is the short term increasing? or is the long-term decreasing? to answer these questions and provide a deeper insight into the nature of the issn 1822–8402 european integration studies. 2011. no 5 150 observed developments, changes on the year-to-year basis are presented in figure 4. the new time series are calculated as follows: interest rate in the year preceding a change in the yield curve minus interest rate in the year of the yield curve inversion. variable d9798 represent a difference in interest rates between 1997 and 1998. variable d9899 represents a difference in interest rates between 1998 and 1999. the other charts are based on the same pattern of calculating year-toyear differences in interest rates. figure 4. year-to-year changes of interest rates (from 1m to 12m) for years when yield curves inverted and returned to normal shape again. source: author. as can be seen in the first column of charts in figure 4, each and every yield curve reversal was associated with much greater change in long-term interest rates than the change in interest rates for the shortests maturities. in case of year 2007, the change in short-term interests rates was even deeper, resulting in a negative change that indicates an increase (2006 minus 2007). it could be concluded that in 1998 and in 2001 short interest rates did not change in a significant way. the observed yield curve invertion should be attributed solely to the adjustment of long-term interest rates that decreased relatively to the short-term ones. the following changes that returned all yield curves to the normal shape are in 1998/1999 case different from the later two cases (2001 & 2007). from the second column of charts in figure 4 it can be recognized that in 1999 the average interest rates for short maturites declined and these for longer maturities increased. this is a seesaw effect and it was quite symmetric. for the other two years (2002 and 2008) the adjustment that resulted in returning the yield curve to the normal shape was of different kind. long term interest rates experienced a change statistically not different from zero. these are the short-term interest rates that were responsible for reshaping the yield curve by a relatively substantial decline. conclusions monetary integration in the european union covers more and more of the eu countries. the economic and demographic potential of the eurozone is still growing and in 2011 exceeds the potential of the usa. it was expected that the creation of a common currency backed by high developed countries that represent a substantial share in the global gdp and in the international trade will have a significant influence on the global economic and financial system. however, issues associated with reserve assets management and consequences of accumulation of excessive amounts of foreign assets at a disposal of the european central bank and the european system of (national) central banks were not subject to earlier studies. as was presented in the empirical part of the paper, behavior of global interest rates from the moment the ecb was created exhibited several times a clear divergence from a situation that is typical. the analyzed yield curves for the global interest rate for financial instruments denominated in the leading reserve currency (the usd) reversed in 1998, 2001 and 2007. the first case could be associated with the creation of the ecb and pooling the foreign exchange reserves, according to the statutory requirements. after creation of the common pool of foreign assets at the disposal of the ecb, the national central banks of the eurozone started to optimize their portfolios by moving from short-term maturities to longer-term maturities. as a consequence, an inversed yield curve for average interest rates in 1998 was observed. another inversion took place in 2001, when there was expansion of the emu and the directive of the ecb prohibiting national central banks to sell their foreign assets was no longer binding. in 2001 the ecb and all other institutional and private agents recognized that the common monetary policy and the new currency were successful. the stable macroeconomic position allowed for further realignments in foreign assets’ portfolios and demand for instruments with longer-term maturities increased again. the last case of the yield curve reversal, despite it cooccurred with another emu expansion, it is difficult to associate this change solely with european developments. it is possible that in the year that precedes directly the outbreak of the global financial crisis there were already some changes in confidence of financial markets. therefore this particular inversion of the yield curve is left without a specific eurorelated interpretation. since this issue remains still unclear, it calls for further theoretical, institutional and empirical studies. references aizenman j., j. lee, [2005], international reserves: precautionary vs. mercantilist views. theory and evidence, imf working paper, wp/05/198 ben-bassat a., d. gottlieb, [1992], optimal international reserves and sovereign risk, journal of international economics, vol 33, pp. 345 – 362 bryant r., [1980], a model of reserves, bank runs and deposit insurance, journal of banking and finance, vol 4, pp. 335 – 344 chinn m., j. frankel, [2005], will the euro eventually surpass the dollar as leading international reserve currency?, nber working paper 11510 chinn m., j. frankel, [2005], the euro area and world interest rates, santa cruz center for international economics, 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and regional monetary policy in the west african economic and monetary union, imf working paper, imf wp/98/57, washington d.c. scheller h., k., [2004], european central bank. history, role and functions, ebc, frankfurt. scott r., [1993], the management of foreign exchange reserves, bis economic paper nr 38, basle: bis (july). statute of the ebc, protocol on the statute of the european system of central banks and of the european central bank. european treaty, official journal of the european communities, no c 191/4, 27.7.92. the article has been reviewed. received in april, 2011; accepted in june, 2011. 145 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 analysis of barriers for business start in latvia biruta sloka university of latvia , aspazijas bulv. 5, lv – 1050, riga, latvia ināra kantāne university college of economics and culture, lomonosova st.1 c.5, lv – 1019, riga, latvia elita jermolajeva full member of latvian academy of agricultural and forestry sciences valdis avotins ventspils university college, ventspils international radio astronomy center inzenieru st. 101a, lv–3601, ventspils, latvia submitted 03/2016 accepted for publication 09/2016 analysis of barriers for business start in latvia eis 10/2016 european integration studies no. 10/ 2016 pp. 145–156 doi 10.5755/j01.eis.0.10.14570 © kaunas university of technology abstract http://dx.doi.org/10.5755/j01.eis.0.10.14570 entrepreneurship is one of driving forces for economic development, in european union it has to be paid more attention to keep competitiveness in the world. various aspects of entrepreneurship including on barriers for business start are covered in research world–wide. the aim of the current paper is to analyse barriers of new business starters in latvia. the tasks of the current research: analysis of theoretical findings in scientific publi­ cations; analysis of new business starters views on barriers for business start; to perform statistical analysis of new business starters evaluations on business barriers. research methods: scientific literature studies, survey of entrepreneurs in the business start phase in latvia (survey was conducted in the period between october 2013 and march 2014, the number of respondents 209). in survey for most of questions evaluation scale 1 – 5 is applied. for data processing descriptive statistical indicators, cross tabulations, factor analysis, mann–whit­ ney u test, kruskal wallis test are applied. the key results: in latvia entrepreneurs as the serious barriers for business start evaluate – unreliable employees, complex and confusing tax system, weak economy, availability of long–term financial capital. the complex factors – barriers for business start are: infrastructure and unsafe environment; knowledge and skills in management; business environment; lack of financial resources. keywords: business starting barriers, entrepreneurship, entrepreneur‘s views introduction successful entrepreneurship is the precondition for country economic growth, employment, well–being of population and is on special importance in the european union. the statistical data of the enterprise register of latvia (enterprise register of republic of latvia, 2016) shows that during the last years start–up of companies in the country is decreasing. in 2015 the number of new registered enterprises decreased approximately by 8% in comparison with 2014 but the number of liquidated enterprises increased approximately by 54%. various aspects of entrepreneurship including on barriers for business start are covered in re­ search world–wide. the problem is on great importance in the eu as european union is lacking back in competitiveness rankings. the aim of the current paper is to analyse barriers of new e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 146 business starters in latvia. for deeper analysis the barriers for business start are analysed by age groups of new business starters, previous experience in management and by gender. the tasks of the current research: analysis of theoretical findings in scientific publications; analysis of new business starter’s views on barriers for business start; statistical analysis of new business starter’s evaluations on business start barriers by help of different statistical analysis methods. research methods: scientific literature studies, survey of entrepreneurs in the business start phase in latvia (survey was conducted in the period between october 2013 and march 2014, the number of respondents 209). in survey for most of the questions evaluation scale 1 – 5 is applied. the mentioned scale was selected to make comparisons with results on studies of business start barriers in other countries. for data processing descriptive statistical indicators (indicators of central tendency or location; indicators of variability – range and standard deviation), cross tabulations, factor analysis, mann–whitney u test, kruskal wallis test are applied for analysis of survey data. the results of empirical research shows that unreliable employees, complex and confusing tax system, weak economy, availability of long–term financial capital are very important barriers for business start in latvia. academic research world–wide has paid a lot of attention by researchers of stable business creation influencing factors, on aspects making obstacles for company development in different fields in each of the field having specifics, limitations and risks but also challenges for develop­ ment including in science business taking into account promises, reality and futures of the re­ spective field development (friedman, 2006). different countries and different parts of the world and continents have different experience and different barriers for entrepreneurship start and development (volery, et al, 1997). many researchers have stated question: what motivates entre­ preneurs to start and develop their business (kirkwood & walton, 2010). barriers for entrepre­ neurship start in different european countries has been studied by international research team and results indicated that in most of countries biggest barriers for business start–up are institu­ tional barriers as well as lack of skills (iakovleva, et al, 2014). differences in barriers for start–up os small and micro size enterprises are noticed in many countries (sandra, et al, 2000). each of countries for barriers of business start–up can find their differences and challenges (gill & biger, 2012). researchers have noticed several barriers depending on industry and markets – 25 differ­ ent barriers have been discovered and analysed (karakaya, 2002). how experience influence busi­ ness success is a serious and deeply researched aspects (kuckertz & wagner, 2010). from other side academic researchers have paid their research focus also on success of entrepreneurship graduates – what makes them succesful and what is lacking for successful entrepreneurship start–up (smith & beasley, 2011). different countries have different approaches to such analysis and different results (choo & wong, 2006). sustainable production development and conditions including experience in past is on researchers agenda (hall, et al, 2010). researchers have an­ alysed also study conditions, programs and challenges (shinnar, et al, 2009). entrepreneurial scientists and their collaborations are on special interest as it could be successful way for new product development (oliver, 2004). technology business incubators are evaluated as important and powerful source to help build an innovation–based economy (lalkaka, 2002). technology and equipment in some areas are on great importance and value (grohn, et al, 2015). barri­ ers of entrepreneurship start – up for different age groups and education level entrepreneurs are analysed as well (robertson, et al, 2003). entrepreneurship educations several aspects are monitored by researchers on regular basis (pitaway &, cope, 2007). issues on entrepreneur­ ship start–up, growth as well as classification aspects of problems that make entrepreneur­ theoretical background 147 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 ship start–up problematic have been on researcher’s agenda already many decades (terpstra, et al, 1993). entrepreneurship environment as well as industry life –cycle makes influence on entrepreneur‘s performance and results (lumpkin & dess, 2001). problems and brakes of entre­ preneurship are studied by different approaches (morrison, 2000). innovation evaluation aspects are on great importance and have different experience (daugeliene & jucepute 2011). cultural backgroud makes influence on entrepreneurial activities and results (moriano, et al, 2012). can everybody even having solida academic background be a entrepreneur – those issues are on importance for academic researchers (lüthje & franke, (2003). can entrepreneurs rely on theory and expected behaviour of possible customers are the issues analysed by scientists (lien, et al, 2002). relationships among the research organisations and ways of their interaction is on great researchers interest (musajeva, 2015). differences among entrepreneurs on their motivation and barriers for business start and development are diffetrent in different continents and countries (giacomin, et al, 2011). availability of venture capital is mentioned as success for sustainable start – up as venture capitalists provide triple bottom line business advice and network support (bocken, 2015). the role of smes in improving the competitive position of the european union are covered in varios reseraches and scientific publications, including researchers from united kingdon (floyd, mcmanus, 2005). normal entrepreneurship development in eu is on special in­ terest to have not so big gap in the competitiveness with developed countries in other continents, like switzerland, japan, usa, indonesia and other) *world economic forum, 2016). the analysis of business barriers are going on as those aspects are on great importance for practical applica­ tions in business of the academic research findings and developed suggestions. taking into account theoretical findings of barriers for business start–up it was selected most mentioned barriers. for current research 16 barriers for business start were measured with a five–point likert scale. the evaluation 1 would rate as unimportant, 2 – not very important, 3 – mildly important, 4 – very important and 5 – extremely important. the indi­ cators of central tendency or location (arithmetic mean, mode and median) showed that the most important barriers for business start were unreliable employees (arithmetic mean – 4, mode – 5 and median – 4, in evaluation scale 1 – 5), complex and confusing tax system (arithmetic mean – 3.8, mode – 5, median – 4), state interference/bureaucracy (arithmetic mean – 3.7, mode – 5, median – 4), weak economy (arithmetic mean – 3.7, mode – 4, medi­ an – 4), availability of financial capital (arithmetic mean – 3.7, mode – 4, median – 4). the new business starters evaluated listed barriers as very important. the evaluations of new business starters on barriers for business start were quite heterogeneous (standard deviation). the main statistical indicators (indicators of central tendency or location and indicators of variability) of new business starter’s evaluations on barriers for business start are reflected in table 1. the full range of evaluation scale was covered by respondents for all analysed aspects but most variability was indicated for barriers problems with electric power supply as well as complex enterprise registration process as the indicators of variability – standard deviations were the big­ gest. the differences of views by respondents of the survey were the smallest for barrier too much competition and barrier availability of short–term capital. for deeper analysis the barriers for business start were analysed by age groups of new business starters, by the previous experience of business starters and by gender. the empirical research results showed that barriers too much competition, and lack of marketing trainings, and barrier unsafe surroundings/environments which were a bit higher evaluated by older new business starters (aged 60 years or more). young new business starters (aged 20–39) empirical research results and discussion e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 148 barriers for business start arithmetic mean median mode standard deviation minimum maximum unreliable employees 4.0 4 5 1.18 1 5 complex and confusing tax system 3.8 4 5 1.21 1 5 too much state interference/bureaucracy 3.7 4 5 1.16 1 5 weak economy 3.7 4 4 1.05 1 5 availability of long–term financial capital 3.7 4 4 1.04 1 5 availability of short–term capital 3.6 4 4 0.97 1 5 too much competition 3.4 3 3 0.96 1 5 failure to maintain accurate accounting records 3.4 4 4 1.25 1 5 lack of marketing training 3.1 3 3 1.11 1 5 unsafe surroundings/ environments 3.1 3 3 1.24 1 5 lack of training in management skills 3.0 3 3 1.11 1 5 bad roads and transportation possibilities 3.0 3 3 1.33 1 5 problems with electric power supply 3.0 3 1 1.44 1 5 complex enterprise registration process 2.6 2 1 1.30 1 5 foreign currency exchange restrictions 2.4 2 1 1.24 1 5 limited parking 2.2 2 1 1.16 1 5 table 1 main statistical indicators of new business starters evaluations on business barriers source: authors’ calculations based on entrepreneurs survey conducted in october 2013 – march 2014, n=209. evaluation scale 1 – 5, where 1 – unimportant, 2 – not very important, 3 – mildly important, 4 – very important, 5 – extremely important. lightly higher have evaluated barrier availability of long–term financial capital. other business barriers were evaluated similarly by new business starters in all age groups of business starters. statistical analysis of new business starters evaluations by age groups showed that the evalu­ ations did not differ statistically significant by ages groups (kruskal wallis test, p>0.975). the distribution of the average values of new business starter’s evaluations on barriers for business start by age groups is reflected in table 2. 149 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 2 distribution of average values of evaluations on new business starters of business barriers by ages groups business barriers ages groups 20–29 (n=60) 30–39 (n=56) 40–49 (n=41) 50–59 (n=33) >=60 (n=15) median mode median mode median mode median mode median mode unreliable employees 4 5 4 5 5 5 4 5 4 4 too much competition 3 4 3 3 3 3 3 3 4 5 availability of short–term capital 3 3 4 4 3.5 4 3 3 4 4 availability of long–term financial capital 4 4 4 4 4 3 3 3 4 4 too much state interference/ bureaucracy 4 5 4 2 4 4 4 5 3 3 weak economy 4 4 4 5 4 4 4 3 3 3 limited parking 2 1 2 1 3 1 2 3 2 2 lack of training in management skills 3 3 3 3 3 4 3 3 3 4 lack of marketing training 3 3 3 3 3 4 3 3 4 4 failure to maintain accurate accounting records 4 4 3 3 4 4 3 3 4 3 complex and confusing tax system 4 5 4 5 4 5 4 5 4 4 unsafe surroundings/ environments 3 3 3 3 3 5 3 3 5 5 complex enterprise registration process 2 2 2 1 3 1 3 3 2 2 foreign currency exchange restrictions 2 1 2 1 2 1 2 2 2 2 bad roads and transportation possibilities 3 3 3 3 3 3 4 4 4 4 problems with electric power supply 3 5 3 1 3 1 3 4 3.5 4 source: authors’ calculations based on entrepreneurs survey conducted in october 2013 – march 2014, n=209. evaluation scale 1 – 5, where 1 – unimportant, 2 – not very important, 3 – mildly important, 4 – very important, 5 – extremely important. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 150 the evaluations of only one barrier – weak economy differed statistically significant between new business starters without experience in management and with experience 1–5 years in management (mann–whitney test, z=–2,952, p=0.003). other business barriers of new business starters without experience in management and with experience in management 1–5 years, with experience in management 6–10 years, with expe­ rience in management more than 10 years, were evaluated similarly by the respondents. the distribution of average values on new business starter’s evaluations on barriers for busi­ ness starting by experience are reflected in table 3. the results of mann–whitney test showed that new business starter’s evaluations of barriers too much competition, availability of short–term capital, lack of marketing training, failure to maintain accurate accounting records, complicated enterprise registration process” differed sta­ tistically significant by gender. the distribution of average values of new business starter’s eval­ uations on barriers for business start by gender is reflected in table 4. for identifying the key business barriers and determining the mutual statistical relations of the business barriers the factor analysis were used. as a result of the factor analysis the initial 16 indicators, through 7 iterations (by using the vari­ max rotation) were grouped in 4 complex factors (see table 5). the interpretation of the identified complex factors with regard to the indicators with which the initial analysed aspects – indicators had relatively high burdens: 1 complex factor f1– infrastructure, unsafe environment. the factor had relatively high bur­dens on the following indicators: foreign currency exchange restrictions, bad roads and transportation possibilities, problems with electric power supply, unsafe surroundings/environ­ ments, complex enterprise registration process. 2 complex factor f2 – knowledge and skills in company management. the factor had rel­atively high burdens on the following indicators: lack of marketing training, lack of train­ ing in management skills, limited parking, failure to maintain accurate accounting records, too much competition. 3 complex factor f3 – business environment. the factor had relatively high burdens on the following indicators: too much state interference/bureaucracy, unreliable employees, complex and confusing tax system, weak economy. 4 complex factor f4 – lack of financial resources. the factor had relatively high burdens on the following indicators: availability of short–term capital, availability of long–term finan­ cial capital. the complex factors – barriers for business start are: infrastructure and unsafe environment; knowledge and skills in management; business environment; lack of financial resources. those findings could be useful for policy makers before decision making on changing business environment for entrepreneurship development. 151 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 3 distribution of average values of evaluations on new business starters of business barriers by experience in management business barriers experience of new business starters (years) 0 (n=99) 1–5 (n=47) 6–10 (n=32) >10 (n=26) median mode median mode median mode median mode unreliable employees 4 5 4 5 5 5 5 5 too much competition 3 3 3 4 3 3 3.5 3 availability of short– term capital 4 4 4 3 4 3 4 4 availability of long– term financial capital 4 4 4 4 4 4 4 3 too much state interference/ bureaucracy 4 5 3 3 4 4 4 5 weak economy 4 4 3 3 4 3 4 4 limited parking 2 1 2 1 2 2 2 1 lack of training in management skills 3 3 3 2 3 4 3 4 lack of marketing training 3 3 3 3 4 4 3 4 failure to maintain accurate accounting records 3 3 3 3 4 4 4 3 complex and confusing tax system 4 5 4 5 4 5 4 5 unsafe surroundings/ environments 3 3 3 3 4 4 4 4 complex enterprise registration process 2 1 2 2 3 3 2 1 foreign currency exchange restrictions 2 1 2 2 2 2 2 1 bad roads and transportation possibilities 3 3 2 2 3 3 4 4 problems with electric power supply 3 1 2 2 3 4 3 4 source: authors’ calculations based on entrepreneurs survey conducted in october 2013 – march 2014, n=209. evaluation scale 1 – 5, where 1 – unimportant, 2 – not very important, 3 – mildly important, 4 – very important, 5 – extremely important. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 152 table 4 distribution of average values of evaluation on new business starters of business barriers by gender sign. males (n=92) females (n=95) median mode arithmetic mean median mode arithmetic mean unreliable employees 0.865 4 5 4.1 4 5 4.0 too much competition 0.001 3 3 3.2 4 4 3.6 availability of short–term capital 0.002 3 3 3.3 4 4 3.7 availability of long–term financial capital 0.166 4 4 3.6 4 4 3.8 too much state interference/bureaucracy 0.446 4 5 3.6 4 4 3.7 weak economy 0.777 4 3 3.8 4 4 3.8 limited parking 0.209 2 1 2.0 2 1 2.2 lack of training in management skills 0.602 3 3 3.0 3 3 3.1 lack of marketing training 0.043 3 3 3.0 3 4 3.3 failure to maintain accurate accounting records 0.018 3 3 3.2 4 4 3.6 complex and confusing tax system 0.056 4 5 3.6 4 5 4.0 unsafe surroundings/ environments 0.229 3 2 3.0 3 3 3.2 complex enterprise registration process 0.016 2 1 2.3 3 3 2.8 foreign currency exchange restrictions 0.086 2 1 2.2 2 2 2.5 bad roads and transportation possibilities 0.812 3 5 3.0 3 3 3.1 problems with electric power supply 0.155 3 2 2.8 3 5 3.1 source: authors’ calculations based on entrepreneurs survey conducted in october 2013 – march 2014, n=209. evaluation scale 1 – 5, where 1 – unimportant, 2 – not very important, 3 – mildly important, 4 – very important, 5 – extremely important. 153 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 5 the business barriers of latvian entrepreneurs evaluations – factor analysis (complex factor matrix after rotation) business barriers (initial indicators) factors f1 f2 f3 f4 foreign currency exchange restrictions 0.782 0.315 –0.076 0.192 bad roads and transportation possibilities 0.715 –0.034 0.239 0.181 problems with electric power supply 0.697 0.098 0.412 0.057 unsafe surroundings/environments 0.602 0.279 0.319 0.102 complex enterprise registration process 0.585 0.518 0.123 0.070 lack of marketing training 0.057 0.839 0.203 0.154 lack of training in management skills 0.108 0.823 0.261 0.056 limited parking 0.333 0.633 0.001 –0.029 failure to maintain accurate accounting records 0.400 0.428 0.427 –0.192 too much competition 0.100 0.366 0.311 0.199 too much state interference/bureaucracy 0.171 0.179 0.692 0.174 unreliable employees 0.089 0.244 0.673 0.106 complex and confusing tax system 0.447 0.176 0.673 –0.066 weak economy 0.120 –0.017 0.548 0.417 availability of short–term capital 0.124 0.073 0.109 0.873 availability of long–term financial capital 0.141 0.114 0.140 0.859 extraction method: principal component analysis rotation method: varimax with kaiser normalization rotation converged in 7 iterations source: authors’ calculations based on entrepreneurs survey conducted in october 2013 – march 2014, n=209. evaluation scale 1 – 5, where 1 – unimportant, 2 – not very important, 3 – mildly important, 4 – very important, 5 – extremely important. conclusions _ in latvia the main serious barriers for business start are: unreliable employees, complex and confusing tax system, too much state interference/bureaucracy, weak economy, availability of financial capital. _ female entrepreneurs starting enterprise have indicated that there is a very big competition, lack of marketing training, availability of short–term capital, complex enterprise registration process. those aspects are different statistically significant with male respondents. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 154 _ the entrepreneurs without experience evaluate importance of barrier „weak economy” higher (as very important) than entrepreneurs with experience 1–5 years. the evaluations are diffe­ rent statistically significant. _ the evaluations of entrepreneurs on barriers for business start do not differ statistically significant by entrepreneur’s age groups. _ the complex factors – barriers for business start are: infrastructure and unsafe environ­ ment; knowledge and skills in management; business environment; lack of financial re­ sources. _ the research findings could be used for policy development before decision making to im­ prove business environment and consequently increasing global competitiveness and not lack so much with leaders in global competitiveness rankings. references bocken, n.m.p. 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(2016). competitiveness rank­ ings 2016. retrieved march 16, 2016 from http://reports.weforum.org/global–competitiveness– report–2015–2016/competitiveness–rankings/ e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 156 about the authors biruta sloka dr. oec., professor university of latvia fields of research interests she has participated in several research projects, headed the euro faculty riga centre. she is a member of latvian association of econometrists, member of association of professors of higher education of latvia and the president of latvian association of statisticians address aspazijas bulv. 5, lv – 1050, riga, latvia tel. +371 29244966 e–mail: biruta. sloka@lu.lv inara kantane dr. admin., associate professor – university of economics and culture, researcher – university of latvia university college of economics and culture fields of research interests fields of study are small and medium business, factors influencing business development, employment and it impact on fertility and migration; had been researcher in esf, eraf projects and in the projects of university of latvia; member of latvian association of statisticians address lomonosova st.1 c.5, lv – 1019, riga, latvia tel. +371 29491763 e–mail: inara. kantane@lu.lv elita jermolajeva dr. oec, associate professor, expert of latvian council of science (economics),full member of latvian academy of agricultural and forestry sciences, editor–in chief of the scientific journal ‘regional review’, mersa (member of regional studies association), rsa ambassador for latvia latvian academy of agricultural and forestry sciences fields of research interests regional development; entrepreneurship development; territorial marketing study address tel. +371 29444989 e–mail: elita. jermolajeva@gmail.com valdis avotins dr. chem. associate professor ventspils university college, ventspils international radio astronomy center fields of research interests main research interests in knowledge transfer and commercialization and early stage business development. in 2014 he helped to ec as an expert to assess latvia’s research and technology development environment address inzenieru st. 101a, lv–3601, ventspils, latvia tel. + 371 29240951 e–mail: valdis. avotins@venta.lv 161 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 free movement of workers as an instrument of creation of the european common market http://dx.doi.org/10.5755/j01.eis.0.9.12804 agata ludera-ruszel university of rzeszow, 4-5 ofiar getta street, rzeszow, poland submitted 04/2015 accepted for publication 07/2015 free movement of workers as an instrument of creation of the european common market eis 9/2015 european integration studies no. 9 / 2015 pp. 161-169 doi 10.5755/j01.eis.0.9.12804 © kaunas university of technology abstractthe creation of common market was based on four fundamental freedoms. these freedoms have re-mained the central issue of the eu, although their perception has significantly changed since the treaty of paris. the principle of free movement of workers, as a part of free movement of persons, facilitates the mobility of workers within the eu, as any citizen of eu member states is allowed to go to another member state for work, having the same workplace rights as the nationals. the principle of free movement of workers is associated with the lack of any discrimination between workers based on nationality, which is guaranteed by eu legislation. for these reasons, that principle at the same time remains one of the most controversial issues of the european integration. it is so because from the beginning of its existence, its realisation has required the necessity to reconcile – sometimes different – national interests for the sake of common market. due to the significant disparities between member states regarding their economic status and standard of living, the principle of free movement of workers is often associated by the highly developed countries with the inflow of cheap labour force from the poorer member states that poses a real threat for its national labour markets and welfare systems. considering the above mentioned facts, the article solves the research problem: to determine the place of the principle of free movement of workers in the process of creation of the european common market. the aim of this paper is to present the decisive stages in changing the perception of the principle of free movement of workers through the process of european integration. to achieve this aim, the main tasks are: to present free movement of workers at the beginning of european integration, the perception of free movement of workers at the struggle to implement the idea of eu citizenship, the perception of free movement of workers at the time of eu enlargements and the impact of the economic crisis of 2008+ on the realisation of free movement of workers. the paper presents a combination of several research methods: comparative analysis of international scientific works; comparative analysis and interpretation of the eu legal documents, strategies and practical papers as well as the analysis of the cjeu decisions in cases that involve the free movement of workers. the results of the article are: explanation of the emergence of the idea of free movement of workers at the beginning of european integration, presentation of the development of free movement of workers due to the implementation of the idea of eu citizenship, indication of the manner of implementation of free movement of workers for new member states, the way of realisation of free movement of workers at the time of economic crisis of 2008+. keywords: european integration, european union, free movement of workers, common market, legal regulations, eu citizenship. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 162 the idea of common market without internal frontiers laid the foundation for the european integration, which resulted in the creation of the european union (eu) (schwarze, 2006, p. 91). the common market was seen as a mechanism that would lead to peaceful and prosperous europe after the second world war (touzenis, 2012, p. 15). for a long time, european integration and the idea of common market have been mostly focused on economic goals, which have a predominant position over social issues (perulli, 2014, pp. 33-34). the struggle towards accelerated raising of the standard of living has been subordinated to economic integration within the european coal and steel community (ecsc) and the european economic community (eec)1. the social goals would be achieved through the harmonious economic development: they would be the result of the existence of the common market (carson, 2004, p. 3). the primary idea of european integration – the creation of common market, has been based on four fundamental freedoms, which have been introduced through european community regulations. these are: the freedom of goods, the freedom of workers, the freedom to provide services and the free movement of capital. the importance of these four freedoms for the common market has been indicated by the court of justice of the eu (cjeu), which stressed in the gaston schul case that the common market “involves the elimination of all obstacles to-intra community trade in order to merge the national market into a single market bringing about conditions as close as possible to those of a genuine internal market”2. for these reasons, those four freedoms have remained the central issue of the eu, although their perception has significantly changed since the treaty of paris. since the beginning, the european integration has taken on more social dimension, those four freedoms have started to be perceived not only through their economic goals but also through the social ones (shaw, 2005). this is particularly true of the free movement of workers, which due to european integration, has been extended to all persons – the citizens of the eu. the principle of free movement of workers, as part of free movement of persons, facilitates the mobility of workers within the eu, as any citizen of the eu member states is allowed to go to another member state for work having the same workplace rights as the nationals (gordon, 2011, p. 3). the principle of free movement of workers is associated with the lack of any discrimination between workers based on nationality, which is guaranteed by eu legislation. for these reasons, that principle at the same time remains one of the most controversial issues of the european integration. it is so because from the beginning of its existence, its realisation has required the necessity to reconcile – sometimes different – national interests for the sake of common market. considering the above mentioned facts, the aim of the article is to solve the research problem: to determine the place of the principle of free movement of workers in the process of creation of the european common market. there are many scientific works analysing the process of european integration from different perspectives. this article will significantly contribute to the studies that focus on the evolution of european integration with regard to the principle of free movement of workers3. 1 see article 2 of the treaty constituting european coal and steel community (hereafter referred to as the treaty of paris) from 1951 and the treaty establishing the european economic community (hereafter referred to as the treaty of rome) from 1957, both signed by six countries: belgium, the netherlands, italy, france, the republic of germany, and luxembourg. 2 the case c-461/03 gaston schul douane-expediteur bv v minister van landbouw, natuur en voedselkwaliteit, [2005] ecr i-10513. 3 see a. favell (2008), eurostars and eurocities. free movement and mobility in an integrating europe, uk, blackwell publishing; s. giubboni (2007), free movement of persons and european solidarity, in: european law journal, vol. 13, issue 3, pp. 360-379; j. handoll (1995), free movement of persons in the ue, new york, john wiley&sons; w. maas (2005), freedom of movement inside ‘fortress europe’, in: global surveillance: borders, security, identity, ed. e. zureik, m.b. salter, devon, uk, willan publishing; s. o’leary (1996), the evolving concept of community citizenship: from the free movement of persons to union citizenship, the hague, kluwer law international; e. spaventa (2007), free movement of persons in the eu. barriers to movement in their constitutional context, alphen aan den rijn, kluwer law international; f. weiss, f. wooldridge (2002), free movement of persons within the european community, kluwer law international, the hague. introduction 163 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the aim of this paper is to present the decisive stages in changing the perception of the principle of free movement of workers through the process of european integration. to achieve this aim, the main tasks are: to present free movement of workers at the beginning of european integration, the perception of free movement of workers at the struggle to implement the idea of eu citizenship, the perception of free movement of workers at the time of eu enlargements and the impact of the economic crisis of 2008+ on the realisation of free movement of workers. the paper presents a combination of several research methods: comparative analysis of international scientific works; comparative analysis and interpretation of the eu legal documents, strategies and practical papers as well as the analysis of the cjeu decisions in the cases that involve the free movement of workers. as mentioned before, the early beginnings of the european integration fell on hard times of recovering after the second world war. therefore, the struggle to make the vision of peaceful and prosperous europe come true strongly determined the nature and direction of the process that resulted in the creation of the european economic community in 1957, as the predecessor of the eu. hence the idea of europe as an area without internal borders emerged. the principle of free movement of workers, as one of the four ‘pillars’ of european common market, has been supported as an instrument to facilitate economic growth (smigiel, 2010, p. 1). the labour shortages which europe was experiencing at that time were seen as a real threat to the economic development (castles and miller, 2003). it is therefore not surprising that the free movement of workers was initially targeted at workers and only later at the economically active population and other groups of eu citizens. looking way back to the beginnings of the european integration, the principle of free movement of workers was not, however, the key point in the negotiations between the six countries – the founders of the ecsc. the decision to take free movement of workers into consideration was initiated by italy, which saw it as an ‘attractive’ instrument to “export its surplus labor” in order to reduce high unemployment (mason, 1995, p. 5) and as a tool to improve working conditions of a wide group of nationals who had already worked abroad, mostly in belgium (romero, 1993, p. 54). for these reasons, the acceptance of free movement of workers was a precondition of supporting the idea of european integration by the italian government (pella, 1956). as a result of large-scale promotion, the free movement of workers in coal and steel industries was finally included in the ecsc treaty, with the acceptance of other member states, especially germany and netherlands, that similarly were “labour-exporting countries” (maas, 2005, p. 1013). in order to facilitate the creation of the ecsc as an economic community as much as possible, the area of free movement of workers within the ecsc was tailored to coal and steel industries, as only the workers with recognized qualifications for positions in such industries benefited from them. however, the italian government did not succeed in the reception of a broad interpretation of the definition of ‘recognized qualifications’. as a result, only part of the coal and steel workers in the community were entitled to receive work permissions that allowed them to move to other member states. that became a compliment to those member states, especially france and luxembourg, which were seriously concerned that significant labour migrations would not cover their real demand for coal and steel workers. moreover, member states received a relatively large margin of appreciation when implementing that principle due to the possibility of derogation from the realisation of free movement of workers subject to the fundamental needs of health and public order. the reduced demand for coal and steel workers triggered heated debate within the ecsc over the idea of creation of a more general market for labour, not limited to coal and steel workers. the idea of the creation of an economic common market based on free movement of workers was perceived as a response to the existing practice of bilateral recruitment agreements, which free movement of workers – the creation of common market for labour e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 164 were concluded between germany, italy and france in the period of 1945-1955 (favell, recchi, 2009, p. 5). yet, the treaty of rome, which established the eec, provided a solid legal framework for the creation of common market for labour, as it extended the scope of the principle of free movement to all workers, with the only exception of those employed in the public service. the members states, however, preserved their competence to introduce limitations that would be justified on the grounds of public policy, public security and public health. moreover, in contrast to the ecsc, the treaty of rome transferred the competences regarding the free movement of workers to the european community. as the european integration surged forward, the social issues were steadily growing in importance. they were no longer subordinated to economic targets but ‘step by step’ identified as an independent goal. the process of attributing a much stronger social dimension to the european community also involved the free movement of workers. the development of the idea of eu citizenship was decisive for the realisation of free movement of workers (pieter van der mei, 2003, p. 27). the free movement of workers has become associated with the idea of the establishment of eu citizenship4, thus it has been considered, not only in terms of movement of labour as a factor of production but in terms of a fundamental individual right (evans, 1982, p. 498), which has produced a direct legal effect5 affecting both the host and the home state6. as a result, together with consistent development of the common social policy and the idea of european citizenship, the principle of free movement has been, therefore, gradually extended to the other groups of the eu and has covered the broad spectrum of social and economic rights to which every national of a member state is entitled. the charter of the fundamental rights adopted in 1989 had a great importance in this respect, despite its non-binding nature7. it was, however, until 1993, when the maastricht treaty finally finished the process of widening the freedom of movement to cover all eu citizens (henry and pastore, 2014, p. 166). the role of the ecj in the process of establishing eu citizenship, as well as the whole common social policy, is undeniable. the impact of the ecj has been twofold. since 1970, the ecj has consistently representing broaden scope of interpretation of the relevant primary and secondary legislation related to the free movement of workers, e.g. with regard to the principle of equal treatment of workers that has been referred not only to the labour market but also to the other aspects of workers’ social life (baldoni, 2003, p. 8)8. in the case 32/75 cristini9 and in c-261/83 castelli10, the ecj adopted a broad meaning of the concept of ‘social and tax advantages’ to which every worker-national of a member state is entitled to, according to article 7(2) of the regulation no 1612/6811, which has been extended to mean “all social and tax advantages which, whether or not attached to the contract of employment, are generally granted to national workers primarily because of their objective status as workers or by virtue of the mere fact of their residence on the national territory and the extension of which to workers who are national of other member states therefore seems suitable to facilitate their mobility within 4 see ecj in the case c-85/96 martínez sala vs freistaat beyern [1998] ecr i-2691 and in the case c-184/99 grzelczyk vs centre public d’aide social [2002] ecr i-6153 in which the ecj pointed out that “union citizenship is destined to be the fundamental status of nationals of the member states”. 5 see ecj in the case 167/73 commission v. france [1974] ecr 359, 41 and in the case 41/74 van duyn [1974] ecr 13337, 6-7. 6 the ecj case 41/74 van duyn [1974] ecr 1337 and the case c-384/93 alpine investments [1995] ecr i-1141, 30. 7 the lisbon treaty, adopted on 1st december 2009, then gave the charter of fundamental rights legally binding force. 8 see also ecj in the case o’keeffe [1998], 20-25. 9 [1975] ecr 1085, 12-13. 10 [1984] ecr, 3199. 11 regulation no 1612/68 of the council of 15 october 1968 on freedom of movement for workers within the community, o.j. ue. l. 257 of 19/10/1968, p. 2. this regulation has been(można opuścić) free movement of workers on its way towards establishing eu citizenship 165 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the community”12. simultaneously, the ecj has systematically shifted the gravity of freedom of movement from workers to all nationals of member states. as a result, in 1970 the freedom of movement covered the self-employed13, while since the 1980s it has been extended to persons who take up paid apprenticeship14, who enter university in a different member state after having taken up professional activity15, and seasonal workers16. finally, in the joint cases c-502/01 and c-31/02 gaumain-cerri and maria barth17, the ecj based the eu citizenship on the principle of non-discrimination on the grounds of nationality, which is decisive for the effective realisation of free movement of workers, by stating that “eu citizenship enables all nationals of the member states to enjoy the same treatment in law”. since its creation, the european community, and later the eu, has been enlarged six times. the adoption of new member states has often tested the resistance of the principle of free movement of workers. however, it might seem that the fear usually resulting from unlimited exercise of free movement of workers in ‘new’ member states has emerged, not only in the case of accession of the poor ones. as for the first enlargement in 1973, involving the uk, denmark and ireland, it caused the concerns of france and the netherlands about the risk of labour market destabilization resulting from a high level of immigration (guild, 2004, p. 189). those fears, however, may be partly explained by the oil crises of 1973-1974 in arab countries that shook up the european economy and ‘closed the door’ for migrant workers (power, 1979, p. 5). although, in that time, like in 1995 (the accession of austria, finland and sweden), any time restrictions on the exercise of the free movement of workers were introduced by the ‘old’ member states.121314151617 there five times, however, when the admission of new member states put the free movement of workers on the top of the really heated debate in europe. in those cases the national interest triumphed over the project of building a united europe, when the so-called “european solidarity” was severely put to the test. it occurred for the first time in 1981, at the time of greece’s accession, and afterwards, in 1986, due to the spanish and portuguese membership. later it happened in 2004 and 2007 due to the eu enlargement with the ten relatively low-wage eastern and central european countries of the czech republic, estonia, lithuania, latvia, poland, slovakia, slovenia, hungary (“a8”), romania, bulgaria, and recently in 2013, at the time of croatia’s accession to the eu. the controversy that arose over the principle of free movement of workers was related to the fact that it was often associated by the ‘old’ member states with the ghost of so-called ‘welfare migration’, that is the inflow of usually cheap labour force from the newly joined member states that poses a real threat for their national labour markets and welfare systems (vilcu, 2014, p. 1). the free movement of workers was then perceived as a danger to economic and social stability. the predicted ‘wave of migration’ was estimated to be high because of significant disparities in income and standard of living between ‘old’ and ‘new’ member states. therefore, the realisation of free movement of workers was each time a central issue during the accession negotiations. in order to protect the ‘stability’ of their labour markets, the ‘old’ member states have decided to introduce transitional limitations on free movement of workers concerning the ‘new’ member states. 12 see also the case 207/78 even [1979] ecr 2019, 22 and c-249/83hoeckx [1985] ecr 973, 20. previously the ecj had represented a strict way of interpretation of the term ‘social advantages’ as those related only to the rights and benefits connected with employment – e.g. case 76/72 michel s. [1973] ecr 457, 9. 13 the ecj case c-268/99 jany and others v. staatssecretaris van justice [2001] ecr i-8615. 14 the ecj case 66/85 lawrie-blum [1986] ecr 2121. 15 the ecj case 197/86 lair [1988] ecr 3161. 16 the ecj case 357/89 raulin [1992] ecr i-1027. 17 [2004] ecr i-06483. free movement of workers – a fear of ‘social tourism’ at the time of eu enlargements e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 166 germany18, and later also austria, played a leading role in this ‘battle’ (nyman-metcalf, 2002, p. 1). it is not surprising, however, that some regard this process as the formation of the so-called ‘second class citizenship’ (kochenov, 2004). at the time of greek, spanish and portuguese accession, the transitional period of seven years was finally introduced. however, as it became clear that the initial fears had been strongly exaggerated, as the number of nationals from those countries moving into the eu labour market was minimal, that period was shortened by one year (baldaccini et al., 2007). nevertheless prior “southern’ experiences19, the transitional period has been repeated at three later enlargements, even though the european commission recommended the ‘old’ member states to open their labour markets unconditionally. the ‘2+3+2 formula’ that was adopted in the 200420, 2007 and 2011 accession treaties represents a compromise for the countries, especially germany and austria, which opted for the maximum seven years’ transitional period. it is no surprise that germany and austria were the only countries which decided to maintain the maximum transitional period for countries from the a8 group, even though the last two years could only be maintained in a special case, if opening-up the labour market could lead to a serious disturbance or a threat. with respect to romania and bulgaria, also belgium, france, italy, luxembourg, the netherlands, spain, the uk and malta have decided to close their labour markets for a seven years’ period as the fear of massive influx of immigrants was bolstered by the income inequalities between them, greater than ever. among those countries was also ireland; however, due to the european commission report from 2011 calling for the re-assessment of functioning of the transitional limitations on their labour markets, it finally decided to remove those restrictions as of 1st january 2012, when it was clear that the initial negative scenario was not confirmed. however, other member state, which decided to maintain the restrictions for the second phase, did not follow it, although they cannot currently present any credible evidence that opening their labour markets before the final term would be detrimental for their labour markets (vilcu, 2014, pp. 7-8). as far as croatia is concerned, thirteen countries decided to introduce the first two years of restrictions; these are mostly the ‘old’ member states, except malta, cyprus and slovenia. time will show whether prejudice, not real danger, will prevail and they decide to extend the transitional period by the next two, or even three, years. the realisation of free movement of workers became a burning issue every time when europe was experiencing some economic difficulties. as past experiences has shown, the migrant workers were at usual hit first and hardest on the labour market during economic downturns (oecd, 2009, p. 12). that is also the case since the second half of 2008, at the beginning of the economic crisis, when the lower demand for work could be observed (european commission, 2012, p. 255). at this time, the eu internal migrant workforce reached the high number of 14 million compared to 43 million of foreign-born migrant population in the 27-eu (eurostat, 2008). the member states faced the challenge to tackle this phenomenon in the context of economic crisis, although at that time overall net migration decreased. the most visible and radical example of actions18taken was provided by spain19and united kingdom (uk). the spain20was in the group of countries severely affected by the economic crisis. the country experienced a drastic fall in gdp (-3.9%) and rise in unemployment (over 20%). as a result, spain, which initially opened its 18 however, germany supported the greek accession to the community, with a view to strengthening the existing trade links between those countries. 19 the european commission pointed out that “experience of past enlargements shows that emigration diminishes rather than increases after enlargement”, in: free movement of workers to and from the new member states – how will it work in practice? http://europa.eu.int/comm/employment_social/free_movement/en2-pr-pdf.pdf (12/02/2015). 20 except cyprus and malta, to which the time restrictions were not applied. however, in the case of malta, the accession treaty included a safeguard clause, according to which this country may restrict the access to its labour market at any time within a seven years’ period. free movement of workers as a challenge at the time of economic crises 2008+ 167 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 labour market for romanian workers from 1st january 2009 (after the first phase of the maximum seven years’ period), was the first one to invoke (in the letter to the european commission of 28th july 2011) on the ‘safeguard clause’ that enables to re-impose restrictions on the free moment of workers on the grounds of undergoing or foreseeing serious labour market disturbances. the european commission approved this request and temporary restrictions (until 31st december 2012) concerning romanian workers on its labour market were introduced. the uk plans to curb workers immigration, due to the predicted inflow of romanian and bulgarian workers after the 1 of january 2014, were on the other hand, not the result of a real threat to its economy but the part of a political strategy at the time of government election. as a result a domestic reforms aimed at restricting eu foreigners access to social benefits has been announced by uk prime minister david cameron in november 2013. it was in line with the previous ecj dano-ruling 21 in which ecj set limits to a eu citizen’s right to equal treatment when claiming social assistance from a host member state. due to the economic crisis, migrant workers have many times found themselves in a really hard position on the labour market, contrary to nationals from the member states. the worse position of migrant workers was the result of interaction of a number of different factors. however, it has to be noted that the occurrence of most of those factors is, in fact, not closely related to the economic crisis, which only accelerated their negative effects and worsened the – already not good – situation of migrant workers on the labour market. these factors were the result of prejudices and discrimination against migrant workers on the basis of their nationality, considered to be one of the main obstacles to the development of free movement of workers. it is emphasized, first of all, that migrant workers were overrepresented in the sectors that are more sensitive to the business circle, and therefore were first of all hit by the economic crisis, especially in the construction and manufacturing sector. secondly, they were concentrated among low-skilled workers (even if their real qualifications were higher) who were easier to replace. secondly, they were more often in temporary arrangements considered as less secure in comparison to open-ended contracts, which has caused double-side effect on its position. they were usually the first to be dismissed at the time of decrease in demand for labour, as temporary contracts allow for easier and cheaper termination, and were more often covered by the reduced working time schemes aimed at the retrenchment of labour costs (ghosh, 2013, pp. 70-71). moreover, the economic crisis that resulted in a rise of unemployment in many member states has lead to stronger protectionism and nationalistic course towards their national labour markets compared to pre-crisis times, that as was proved has been partially authorized by the ecj. as a result, migrant workers were even more exposed to unequal competition in relation to nationals from member states. due to the difficulty regarding full integration with labour markets of some member states, they were then exposed to a greater risk of poverty and social exclusion. it is, therefore, not surprising that the fight with discrimination on the ground of nationality has fallen within the scope of the eu’s ‘recovery’ action after the time of crisis. the proposal of a new eu directive, launched by the european commission on 26 april 2013, to improve the application of workers’ right to work in another member state, was based on the conviction that a range of discriminatory practices and obstacles which eu migrant workers still face affect their right to exercise the free movement within the eu. the principle of free movement of workers has a long history in the process of european integration, with21 its initial idea of creating a common market without internal borders. undoubtedly, the free movement of workers, along with other freedoms, has been a ‘pillar’ of european integration which, however, has shaped the free movement of workers and determined the way 21 case c-333/13 of 11 novemner 2013 [2014] 2358. conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 168 of its perception. the decisive stages in the changing perception of the principle of free movement of workers have, therefore, to some extent coincided with the directions of the european integration. in this regard, as the european integration has surged forward, free movement of workers has evolved from the strictly economic measure which would facilitate the economic development of member states, to a fundamental individual right that has been a significant component of the idea of eu citizenship. at the same time, the free movement of workers has been particularly sensitive to the processes that have strongly influenced the process of european integration. as the past experiences have shown, the free movement of workers was on the top of european agenda at each eu enlargement, especially in 2004 and 2007, when it made the ‘old’ member states sense the threat of so-called ‘social tourism’ and ‘welfare migration’, as well as due to the economic crisis of 2008-2010. it is always difficult to predict the future. the same is true in the case of european integration and the free movement of workers. it has to be emphasized, however, that the free movement of workers must begin to be perceived as a useful instrument to respond to the issues related to the mismatches in supply and demand on the labour market, which are experienced by eu member states (quintini, 2011, p. 4), and in the long run may become a real threat to the european economy. however, to turn it into reality, more effective fight against discrimination on the grounds on nationality is significantly important, as the prejudice and discrimination of migrant workers has become a crucial obstacle to their free movement within the eu. baldaccini a., guild e., toner h. (2007), whose freedom, security and justice? eu immigration and asylum law and policy, hart publishing, usa. baldoni e. (2003), the free movement of persons in the european union: a legal-historical overview. state of the art report, pioneur working paper no. 2 – july, pp. 1-19. carson m. (2004), from common market to social europe? paradigm shift and industrial change in european union policy on food, asbestos and chemicals, and gender equality, acta universitatis stokholmiensis, stockholm studies in sociology n.s. 22, stockholm university. castles s., miller m. j. (2003), the age of migration, guilford press. european commission (2012), employment and social developments in europe 2011, luxembourg: publications office of the european union. eurostat (2008), population and social conditions, statistics in focus 98/2008: www.http://epp.eurostat.ec.europa.eu/cache/ity_ offpub/ks-sf-08-072/en/kssf-08-072-en.pdf. evans a.c. (1982), european citizenship: a novel concept in rrc law, the american journal of comparative law, vol. 32, no. 4, pp. 497-515. http://dx. doi.org/10.1111/j.1468-2230.1982.tb02491.x ghosh b. (2013), the global economic crisis and the future of migration: issues and prospects. what will migration look like in 2045?, palgrave macmillan, great britain. gordon j. (2011), free movement and equal rights for low-wage workers? what the united states can learn from the new eu migration to britain?, uc barkley law school, chief justice earl warren institute on law and social policy, issue brief (may 2011), pp. 1-20. guild e. (2004), the legal elements of european identity. eu citizenship and migration law, kluwer law international. henry g., pastore f. (2014), the governance of migration, mobility and asylum in the eu: a contentious laboratory, in: imagining europe: towards a more united and effective eu, n. tocci (ed.), roma, pp. 163-198. kochenov d. (2004), european integration and the gift of the second class citizenship, paper presented at the annual meeting of the international studies association. le centre sheraton hotel, montreal, quebec, canada 17-20 march 2004. maas w. (2005), the genesis of european rights, journal of common market studies, vol. 43, no. 5, pp. 1009-1025. http://dx.doi.org/10.1111/j.14685965.2005.00606.x mason j.l. (1955), the european coal and steel community: experiment in supranationalism, the hague: martinus nijhoff. http://dx.doi. org/10.1007/978-94-015-7555-3 references 169 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 nyman-metcalf k. (2002), free movement of workers and eu enlargement: a fundamental freedom with exceptions?, swedish network for european studies in economics and business, http://www. snee.org/filer/papers/119.pdf (12.02.2015). oecd (2009), international migration outlook, oecd publishing. oecd, european commission (2014), matching economic migration with labour market needs in europe. policy brief, oecd publishing. pella g. (1956), la comunita europea del carbone e dell’acciaio: risultati e prospettivo, roma: edizioni 5 lune. perulli a. (2014). fundamental social rights, market regulation and eu external action, international journal of comparative labour law and industrial relations, vol. 30, p. 34. pieter van der mei a. (2003), free movement of persons within the european community. cross-border access to public benefits, hart publishing, oxford. power j. (1979), migrant workers in western europe & the united states, biddles ltd, guildford, great britain. quintini g. (2011), over-qualified or under-skilled: a review of existing literature, oecd social, employment and migration working papers, no. 121, oecd publishing, p. 4. recchi e., favell a. (2009), pioneers of european integration. citizenship and mobility in the eu, united kingdom, mpg books group. http://dx.doi. org/10.4337/9781849802314 romero f. (1993), migration as an issue in european interdependence and integration: the case of italy, in: the frontier of national sovereignty – history and theory 1945-1992, london, routledge, pp. 33-59. schwarze j. (2006), the development of the european union from a common market to a political union, ritsumeikan law review, no 23, pp. 91-98. shaw jo. (2000), social law and policy in an evolving european union, hart publishing, oxford. smigiel j. (2010), free movement of workers in the european union. obstacles to eu labour mobility and possibilities to overcome them, ma dissertation, central european university. touzenis k. (2012), free movement of persons in the european union and economic community of west african states. a comparison of law and practice, unesco migration studies 4. vilcu r. (2014), labour mobility in the european union. transnational arrangements and freedom of movements. a romanian case study, ku lueven, master of european studies: transnational and global perspectives, centre for european studies, pp. 1-30. agata ludera-ruszel phd adjunct at department of law and administration of university of rzeszow and judge assistant in appeal court in rzeszow address 4-5 ofiar getta street, rzeszow, poland e-mail: aruszel@ur.edu.pl about the author european integration studies 2011.indd 179 issn 1822–8402 european integration studies. 2011. no 5 the perception of market and e-commerce aurelija burinskienė 1, arunas burinskas 2 1vilnius gediminas technical university, 2vilnius university abstract the article discloses the perception of market, which is important talking about e-commerce. e-commerce is a phenomenon without borders. this global dimension of e-commerce proposes different themes such as taxation, jurisdiction, consumer protection, and market perception. one of them (the perception of market) is investigated from different perspectives in this paper and the perspective of e-commerce as well. the analysis of economic scientific literature on e-commerce published by oxford university press, cambridge university press, harvard university press, springer, m. e. sharpe, routledge, etc. show that 35% of the authors (from 0,54 mln. in total) give attention to the issues of markets. most of these authors investigate e-market (virtual market), business-to-consumer market and only some of them define the market. in the literature on marketing published by leading world publishers 53% of the authors (from 0,9 mln. in total) analyse the issues of markets. most of the authors discuss the issues of market segmentation, market potential, and market entry (by ranking order). from all of the authors only 0,17% of the authors investigate the perception of relevant market. it is also interesting that topics about market are also popular between authors published books on trade: 49% of authors (from 1,62 mln. in total) give their attention to selling markets. from all of authors only some of authors (0,11% of authors) give the introduction to the terminology of market. in the literature on competition (published by the same publishers) discussion about market is provided by 35% of authors (from 0,35 mln. in total) and the theoretic aspects of market – by 1,1% of them. so, the results of such analysis show the importance of research, which combines both: the perception of market and e-commerce. this also shows that the perception of market is discussed more often in the literature on marketing, trade and competition than in the literature dedicated to e-commerce. the paper presents the results of investigations in such context. the scientific problem can be formulated – there is the lack of perception about market in modern theories, theoretical generalisations and solutions on the theme of e-commerce. the study presented in the paper contains three different aspects. first, the perception of market is disclosed. the terminology of market is investigated in different literature and the presentation of methods and main criteria, which are used for the comparison of markets, is provided. second, the new model, which can be used for the comparison of export markets, is presented. third, in the paper the developed profile is applied to case study looking up for practical evidence. the article is based on comparative and multi criteria analysis. for the comparison of export markets, a set of criteria and the multi criteria evaluation method (copras) is used. several groups of criteria: the positive criteria and negative ones are defined and used for the comparison of export markets. the results of the study can be used by on-line sellers when they choosing export markets, which are the most attractive for selling products in european union. keywords: e-commerce, perception of market, exports markets, european union. introduction the application of e-commerce technologies is opening new possibilities: consumer buying at home can to buy products worldwide. the global dimension of e-commerce proposes the discussion about market. it is interesting that the topic about market is also popular between authors, which published books on trade, competition, and marketing. the analysis of literature shows that the perception of market is discussed more often in the literature, which is dedicated to marketing, trade and competition than in the literature dedicated to e-commerce. the research is aimed to propose new profile, which will help to identify export markets when e-commerce technologies are used for reaching consumers. the research tasks are defined as follow: 1) to disclose the perception of market from different perspectives and from the perspective of e-commerce as well; in addition, to present methods and main criteria, which are used for the comparison of export markets, 2) to present new model, which can be used for the comparison of export markets, and 3) to provide the assessment of practical application of proposed model. research objective is the comparison of export markets. issn 1822–8402 european integration studies. 2011. no 5 180 the article is based on comparative and complex evaluation analysis. the scientific novelty of the study – the presented perception of market is investigated in literature on marketing, trade, competition, e-commerce; formulated new model, which can be applied for the comparison of export markets, which are the most attractive for selling commodities online; the proposed approach can be usefull for authors, which analyse the issues of market segmentation. the perception of market in the literature of economic science market is for exchange (i.e. buying and selling goods and services). exchange is usually beneficial otherwise it would not take place (thielemann, 2000). competiton. what is when competition enters the picture? of course, there is much rivalry in the market between enterprises offering similar products. but this is not the kind of competition that drives the economy and that is responsible for the quality of the market (thielemann, 2000). in practice, there can be one cost-leader in the market only. therefore other companies achieve competitive advantage thought different ways. they try both keeping costs similar to competitors and supplying products which consumers’ value and are willing to pay more for them. but rivalry doesn’t define what enterprises are able to exchange. competition takes place in specific product market, where several enterprises are competing with each other. but in some cases competition takes place for the product market, when single enterprise is monopolizing it (means that single enterprise has high market share). relevant product market comprises products which are considered as interchangeable. the perception of relevant market is important seeking to understand how competition goes. trade. the market is connected to trade and depends on price, supply and demand mechanisms. talking about demand it is evident that large demand can support multiple suppliers using specific technology, while smaller demand may lead to natural monopoly (perritt, 2010). in the literature on trade it is mentioned that the perception of market has two dimensions: geography and product. both the product and geographic markets are defined in such way: as the identification of the narrowest possible market, extending boundaries of it until the closest substitute. such perception of market helps to identify competitors, products, and coherent groups of clients. e-commerce. the analyse of literature on e-commerce shows that in order to define market the perspective of consumers have to be used. e-marketplace is called as independent market if it offers services that are different from ones offered in traditional marketplaces. talking about geographic market (which is a research objective of 4% of authors), first it is necessary to take into account that commodities offered on-line by enterprises are accessible from any place in the world. some geographic restrictions are used by sellers than the offers clearly refer to quality or other requirements, which are different in specific export markets. marketing. in the literature of marketing market is where all buyers and sellers meet to satisfy their needs. then measuring demand of market such measures are taken into account: market level: domestic or global; time level: short, medium or long term, product level: product line and brands. in the theory of marketing such type of markets are identified: consumer market, business market, global market, and non-profit and governmental market. these markets are segmented by characteristics. consumer market is segmented by consumer characteristics such as: geographic, demographic, psychographics, and behavioral characteristics. in addition, clancy et al. (1984) specify behavioral characteristics into credit and other behavior characteristics. beane et al. (1987) suggest using also purchase occasion, usage incidence and benefits characteristics. these characteristics are also called as target market characteristics. business market is segmented by size and market share. for the comparison of market such measurements have been suggested: one of them is the potential of market measure (which shows total number of consumers), another is the availability of consumers (group of consumers who has interest and money), and the third measurement is the penetration of market (consumers who are buying the products of company). the perception of market is very important in the theory of marketing. the difference between such terms as “selection” and “segmentation” depends on how the “market” is defined. usually, the term “selection” is used when decision focuses on segmenting the world based on national country markets, while the term “segmentation” is used in traditional marketing sense: when the seller identify markets cross-nationally by collecting the characteristics of purchasers regardless of where they live (papadopoulos et al., 2011). bruning et al. (2009) also give variables which play a critical role in term of consumers: price, on-time performance, national country of enterprise. “selection” is also used here in order to mention the choice among several or more alternatives. for selection of markets the method of r. kuvykaite (1997) can be used. this method is called “the choice of export markets by the convergence method” and has four steps: • first step, from all markets, which are reviewed, are eliminated those markets, where the local legislation is week and administrative priority is not proper; • second step, from markets, which are left after the first elimination, more markets are eliminated. now are eliminated those export markets which are not attractive economically; • third step, from markets, which are left after previous elimination, additional markets are eliminated. now are eliminated the markets where company has no competitive advantage; • fourth step, from markets, which are left after final elimination, some markets are filtered, mainly, those markets, where the company has no available resources or capability, are filtered. other authors mention that export market can be selected using the results of analysis concerning export market opportunity. malhotra et al (2009) offer to take into account also the role of different distance factors (geographic distance, cultural distance, economic distance, etc.) on firms’ foreign market acquisition behavior. they provide also empirical issn 1822–8402 european integration studies. 2011. no 5 181 support about such behavior by multinational enterprises. in addition, talking about behaviour of national enterprises, it can be mentioned that they usually first select neighbor export markets. martín et al. (2011) takes acquisition behavior of buyers. they provide a model reflecting the role of risks in transaction, and intention of buyers to repeat purchase. sheng et al (2011) suggest taking for the comparison of export market around ten criteria such as: market size, market receptivity, physical infrastructure, geographical and cultural distances, language and religious differences, etc. various methods for comparison of export markets are used: market grouping methods, market estimation methods, etc. the most of markets grouping methods are based on a wide variety of political, economic and social indicators. these general country indicators are used seeking to identify and group countries with different levels of industrial development. in addition, reddy (2007) highlights markets, which are receptive for technology; borg (2009) separates markets into technology intensive and non-intensive markets. such analysis rely on indicators, which may adequately characterise marketing environment but don’t include the features of products. for such analysis douglas et al. (2011) suggest using economic, demographic, socio-cultural, and geographic and/or situational consumption indicators. the approach of geographic market analysis includes the geographic coverage of a market, which might be extended due to common pricing constraints, or purchasing behaviour of customers (xavier et al. 2011). market grouping methods are based on the postulate that the most attractive markets for an enterprise are those, which most closely resemble the markets it has already penetrated assuming that successfully. other methods are market estimation methods. the criteria used in market estimation vary and may include the indicators of growth, size, etc. export markets are evaluated on the basis of several criteria; later the markets with the highest score are selected. these methods are subdivided into the evaluation of (according papadopoulos et al., 1988): • total demand potential. these methods include indicators characterising economic development and political stability. they are used when statistical data about market is not available. sometimes market quality index is used. this index includes macro indicators such as national income, electricity consumption and number of technology in the market. the total demand potential of export market can be evaluated by dividing the population of foreign country from the population of domestic market and by multiplying by the production amount of domestic market (in tons or units). • import demand potential methods. methods used for the estimation of import demand potential typically use trade statistics for specific commodity. one of these method (is called multiple criteria method proposed by the unctad and gatt) analyses markets in terms of size of imports, growth of imports, market coverage (imports versus exports) and competition. another method (which uses the shift-share approach) relies on the identification of relative changes of import shares in various countries. the analysts calculate the average growth rate of imports and compare actual growth rate of each market with the calculated average. the main disadvantage is that for the evaluation of import demand potential only two criteria are used. some other methods also examine the concentration in analysed market (papadopoulos et al., 1988). finally, the analysis of various methods shows that multi criteria method can be used for the comparison of export market. in addition, the conclusion can be drawn that if statistical data is available, then general indicators of export markets and import share approach can be used seeking to select export markets, which have the highest score. the analysis of criteria shows that the size of import, the growth of import, and the competition in the market can be used as main criteria and have to be included in new model. the comparison and selection of export markets for the comparison of export markets, where enterprises have the purpose to use e-commerce technologies for selling goods, multiple criteria method copras and the set of five criteria is used. so, the set consists of such criteria: a) the openness of market for import (import value compared with gross domestic product (gdp), in percentage); b) the number of internet users in market (from all inhabitants, in percentage); c) he percentage of enterprises, which sell goods using e-commerce technologies; d) reduction of market openness for import (in percentage compared with previous years; criteria get value when import value compared with gdp of actual year is smaller than in previous year, over wise criteria value is zero); e) not enough spread of e-commerce technologies between enterprises in export market (in percentage). it is a vector distance between current level and expected level, which according amazon.com practice has to be at least 10 %. the criteria presented above are divided into such two groups: • criteria, which describe the openess of market for import (a and d criteria); • criteria, which describe the level of the usage of e-commerce technologies in the market (b-c and e criteria). authors think that the set of criteria can describe export markets, where it is possible to use e-commerce technologies in efficient way. for the final selection of export markets the method of r. kuvykaite (1997), which is called “the choice of foreign markets by the convergence method”, can be used. in the mentioned method there are four steps. the presented model by authors can be used in the second step, where on-line seller has to eliminate those export markets which are not attractive economically. mariotti (2008) highlights that all chosen export markets have to prefer to all rejected alternatives. bojnec et al. (2010) mention that the internet increases economic distance between export markets, which is significant when alternatives are sorted. issn 1822–8402 european integration studies. 2011. no 5 182 alexander et al. (2011) suggest that managers responsible for market selection decisions do not have the freedom of action implied in the marketing literature and that their actions are constrained by structural market conditions. for example, the better indicators of market will also affect selection of this market for export (alexander et al. 2011). below (in fig 1) is the presentation of new model, which can be used for the comparison of export markets. fig 1. the model, which can be used for the comparison of export markets (prepared by authors) each decision-maker (this time on-line seller) has own preferences, but in most of cases is interested in export markets, which are attractive economically. quantitative evaluation of such aspects allows defining their impact to the final decision. each alternative in the quantitative evaluation is described by five criteria. some of them differ in optimization direction (turskis et al., 2009). maximising and minimising criteria are with different directions. bellow (see table 1), the type of each criterion, the direction of criterion – maximizing or minimizing (i.e. max or min in column 2), is defined. for the long time managers are dealing with multi criteria issues. numerous methods have been developed for analysing such problems (peldschus, 2009). one multi criteria method is the method of complex proportional assessment of alternatives (copras). during the application of method direct and proportional dependences are assumed and the alternatives, values and weights of criteria are adequately described (turskis et al., 2009). among lithuania scientists copras method is used widely (for example, by ginevičius et al. (2009); ginevičius et al. (2008)). based on such type of methods, the multi criteria problem is represented by a matrix. in our case the matrix contains 18th alternatives (rows) and 5th criteria (columns). in order to avoid the difficulties caused by different dimensions of all five criteria, the normalization is used. table 1. the basic information about criterion the direction of criterion the weight of criterion the openness of market to import (import value compared with gdp) (%) max 0,224 the number of internet users in market (%) max 0,157 the percentage of enterprises, which sell goods using e-commerce technologies (%) max 0,295 reduction of market openness for import (%) min 0,233 not enough spread of e-commerce technologies (%) min 0,090 the application of multi criteria methods depends on the calculation of criteria weights. usually for the estimation of weights experts are used. in our case study 7th experts were used (see table 2). for the checking consistency of experts’ judgments the coefficient of concordance is calculated. the sum of scores, presented by experts: ,),...,( 105m1icc r 1j ij === ∑ = here m is the number of alternatives; r – the number of experts. table 2. the estimation of weights by experts issn 1822–8402 european integration studies. 2011. no 5 183 the sum of deviations in ideally agreed case: the coefficient of concordance w is calculated according such formula: maxs s w = , when ∑ = −= m i i ccs 1 _ )( 2, here s is the sum of deviations, which shows difference from average squared, smax – the sum of deviations in ideally agreed case, c – overall average is calculated: 21157 2 1 1mr 2 1 c =+⋅⋅=+= )()( _ , when .271s = 490 12 125549 12 1mmr s 22 = −⋅⋅ = − = )()( max , after ., max 550 490 271 s s w === the significance x2 for the coefficient of concordance is calculated as follows: .,)(,)( 49151575501mwrx 2 =−⋅⋅=−= random number x2 is distributed under x2 with ν=m−1 the degrees of freedom of the chosen significance level α (in practice α is usually equal to the value of 0,05 or 0,01). the assessments of experts are aligned calculated x2 value is greater than the xkr 1 (which is taken from tables of distribution and is equal to 9,49). the coefficient of concordance is equal to 0,55 (its significance is equal to 15,49 and is greater than the critical value – equal to 9,49) and shows that experts’ judgments are in a good agreement. this means that the results obtained can be used (podvezko, 2005). finally, the weights of criteria are placed into the model. the criterion, which represents the spread of e-commerce technologies in the market, received the highest experts’ interest. after this the matrix is normalized. the sum of normalized values is equal as always to one (turskis et al., 2009). the assessment of practical application of presented model in the paper the developed profile is applied to case study looking up for practical evidence. to assess the practical relevance of presented model the data of amazon.com (2009), eurostat (2009b), wto (2008), wto (2000), is used. in the website of amazon.com it is stated that amazon. com sells on-line 200 thousand items. the main goods such as books, music, videos are sold all over the world, but other goods are sold only in limited number of export markets 1 xkr value is taken from the tables of distribution with ν=7−1=6 the degrees of freedom and significance level α =0,05. (from eu 27 only to the 17th of eu geographic markets). it is also mentioned that the warranty of manufacturer may not be valid in other countries; also goods may not have instructions or safety warnings for a specific language; the product may not meet the standards of other markets, specifications and labeling requirements, as well as products may not meet the requirements for electrical goods, which are valid in other export markets. in this case, the buyer is responsible for assurance that the product can be lawfully imported into domestic market. amazon.com sell other goods to 17 eu export markets, they are: austria, belgium, czech republic, denmark, finland, france, germany, hungary, ireland, italy, luxembourg, the netherlands, poland, portugal, spain, sweden, united kingdom. it may be noted that greece, which has significant import volume (greece belongs to top 50 countries, which have the highest import volume in the world (wto 2007, wto 2000)), is not a priority market for amazon.com. bellow (see fig. 2), the statistical data about amazon. com export markets, which are placed in european union, are presented. the results of the study showed that greece occupies 18th place and is not in the list of export markets of amazon.com. the presented model suits for identification of export markets, where e-commerce technologies can be used effectively. this also means that a set of criteria can be used for the comparison of export markets. this also shows that according “the choice of foreign markets by the convergence method”, it has to be 4 steps but amazon.com filters export markets based on the first two. amazon.com selects only whose eu export markets, which are attractive economically and maybe take into account standardization process of e-commerce inspired by european union law. other steps of the method, which are related to competitive advantage and resources or capability of company, are not used by amazon.com. in comparison gaston-breton et al. (2011) made empiric research and found out such the most attractive european union markets: belgium, sweden, finland, the netherlands, denmark, austria, luxembourg, and ireland. this also shows that presented model gives similar results. in order to apply the presented model in the future such steps have to be taken: first, statistical data about export markets has to be collected, second, the comparison of export markets have to be made (through a set of criteria), third, the export markets have to be selected, and, fourth, the further monitoring of export markets have to be implemented. the results of the study show that the comparison of export markets is important for on-line sellers. issn 1822–8402 european integration studies. 2011. no 5 184 fig. 2. the comparison of export markets conclusions the theoretical analysis on theme of market perception show that where is lack of theoretical knowledge in the literature on e-commerce. as well, that is a lack of theoretical solutions which are adequate to new challenges, concerning e-commerce. in the paper this theoretical knowledge is extended to the perception of market, as it is very important for any market analysis. usually in e-commerce more than 200 thousand items are sold; this means that the criteria of product market are not so important such as criteria of geographic market for on-line sellers. the analysis of various methods shows that multi criteria method can be used for the comparison of export market. in addition, the presentation of methods and main criteria, which are used for the comparison of markets, showed that if statistical data is available, then general indicators of export markets and import share approach can be used seeking to compare export markets. the analysis of criteria shows that the size of import, the growth of import, and the competition in the market can be used as main criteria and have to be included in new model. new model, which can be used for the comparison of export markets, is presented. the variety of evaluation criteria are used, including criteria which reflect the country’s openness to import and the usage of e-commerce technologies in examined export markets. such set of criteria can be applicable for the comparison of export markets in which e-commerce technologies can be used effectively. the presented model can be used for the elimination of those export markets which are not attractive economically. the results of empirical research show amazon.com selects only whose eu export markets, which are attractive economically and maybe take into account standardization process of e-commerce inspired by european union law. other steps of convergence method, which are related to competitive advantage and resources or capability of company, are not used by amazon.com. in addition, the proposed approach can be usefull for authors, which analyse the issues of market segmentation. finnaly, the set of criteria is tested by using data of 18 export markets in european union. the assessment of practical application of presented model show that it suits for the comparison of export markets. it helps to identify export issn 1822–8402 european integration studies. 2011. no 5 185 markets in proper priority sequence. these findings also show how international company selects export markets for selling commodities on-line. limitations and further research the results show that for the comparisons of export market other directions can be used. future studies should expand this research to such directions: • first, to the direction of other eu and non-eu countries, which can be used further comparison; • second, to the direction of products’ assortment, to prove the necessity of criteria describing product market to be included into the model; • third, to the direction of companies: to other size of companies, which have limited competitive advantage and resources; to internationalization level of their activity, in order to define the number of export markets and physical distance from national market. references alexander, n., rhodes, m., myers, h.(2011). a gravitational model of international retail market selection. international marketing review, 2(28): 24 36. amazon.com. news release. 2010. on line paper: http:// www.amazon.com/ beane, t.p. ennis, d.m. 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(2011). geographically segmented regulation for telecommunications: lessons from experience. info: the journal of policy regulation and strategy for telecommunications information and media, 2(13): 3 – 18. the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 192 issn 1822–8402 european integration studies. 2011. no 5 the european unions health and safety policy: analysis of risk assessment and management algis junevicius kaunas university of technology, institute of europe abstract safety and health at work comprises all preventative measures aimed at protecting functional capacity, health and life of employees at work which are used or planned at all operational stages of the company to protect employees from occupational risks or minimise these risks. the main objective of occupational safety and health is to maintain and develop health, safety and work ability of the employee, as well as to prevent occupational accidents and illnesses. in a democratic country every human has got an inborn and constitutional right to free choice of work and business, as well as to have favourable, safe and healthy working conditions. every employee must be provided with secure and healthy working environment irrespective of the activities of the company, type of employment contract, number of employees, profitability of the company, work place, working environment, nature of work, duration of the working day or shift, citizenship, race, nationality, gender, sexual orientation, age, social background, political or religious beliefs of the employee. employers have a general duty to ensure the safety and health of workers in every aspect related to work. the main role of the european union in health and safety is to harmonize workplace and legal standards and remove barriers to trade across member states. the directives of the eu set out minimum requirements and fundamental principles, such as the principle of prevention and risk assessment, as well as the responsibilities of employers and employees. the framework directive with its wide scope of application as well as further directives focusing on specific aspects of safety and health at work are the fundamentals of european safety and health legislation. european directives are legally binding and have to be transposed into national laws by the member states. the current eu strategy for the period 2007-2012 is focussing on prevention. in the commission’s view, the overall objective during this period should be to reduce by 25% the total incidence rate of accidents at work. to achieve this objective it calls for action by players at all levels – european, national, local and workplaces. national and eu policies should help to create working environments and occupational health services which enable workers to play a full and protective part in working life until they reach old age. this article reveals an empoyer responsibility to guarantee safe and healthy working conditions for employees, in accordance with eu legislation and policy. equally, this article highlights the importance of risk assessment. risk assessment is the cornerstone of the european approach to occupational safety and health. it is the key to preventing accidents and illness at work and occupational risks must be assessed in every company. risk assessment enables employers to understand the action that they need to take, to eliminate or minimise the risks to their employees. if the risk assessment process is not done well or not done at all, the necessary preventive measures are unlikely to be identified or put in place. it must be remembered that risk assessment is the start of the process of safety and health management. good health and safety is good business, and proper risk assessment is worth investing in. keywords: european union, health and safety at work, risk assessment. introduction creation of the safe and healthy operating conditions is an inseparable part of a full – value work: if the job is well paid but not safe, it cannot be considered as a full – value work. employers have responsibilities for the health and safety of their employees. all employers, whatever the size of the business, must follow safety and healthy ensuring regulations, prevent risks to health and make the workplace safe. workers have responsibilities as well. the worker shall make correct use of machinery, apparatus, tools, dangerous substances, transport equipment, other means of production and personal protective equipment and similarly cooperate with the employer in fulfilling any requirements imposed for the protection of health and safety and in enabling him to ensure that the working environment and working conditions are safe and pose no risks. workplace health promotion means more than simply meeting the legal requirements on health and safety; it also means employers actively helping their staff improve their own general health and wellbeing. within this process it’s essential to involve employees and to take into account their needs and views on how to organise work and the workplace. despite the fact that, more and more employers have an interest in keeping workers safe and healthy, the figures on accidents and illness at work show that improvements are needed. problem. the problem of health and safety at work is particularly topical. every year in the european union there are plenty of fatal work-related accidents and millions of people are injured or have their health seriously harmed in the workplace. health and safety at work is now one of the most important and most highly developed aspects of eu policy on employment and social affairs. the current commission’s target to reduce 25% of work accidents across the eu requires guarantee the proper implementation of eu legislation. another topical problem is risk assessment. risk assessment is still a gap at workplace level. in spite of the fact that the eu framework directive on occupational safety and health requires risk assessment to be carried out in all companies and some companies are doing excellent work, it is not universally issn 1822–8402 european integration studies. 2011. no 5 193 done. occupational risks must be assessed in every company. it is essential to provide employers and employees with the guidance, information and resources that they need, to carry out proper risk assessments and keep the workplace safe. aim of the article is to analyse risk assessment and management in companies of occupational health and safety policy. object of the article – the occupational health and safety regulation; tasks of this article: • to reveal main aspects of the eu occupational health and safety policy; • to analyse occupational health and safety legislation of the eu; • to identify common principles of risk assessment and management in companies. research methods: analysis of primary and secondary literature. occupational health and safety policy in the european union create more jobs and of better quality: this is one of the main objectives of the eu social policy. a safe and healthy working environment is an essential element of the quality of work. there is no doubt that health and safety at work represents today one of the most important advanced fields of the social policy of the european union (the european commission). action of the eu is not limited to legislation. occupational health and safety policy is not only a matter of laws and regulations they are essential and have to be applied at the workplace level. to achieve measurable improvements of the working conditions and a reduction of occupational accidents and diseases it is necessary to combine them with a variety of other instruments, such as social dialogue, good practices, awareness raising, corporate social responsibility, economic incentives and mainstreaming. work in this field is a complex interaction between various actors at eu and member state level, including in particular governments and other public authorities, as well as workers’ and employers’ organisations. at eu-level, this holistic approach towards osh has been adopted in the form of community strategies on health and safety at work. (european agency for safety and health at work). on 21 february 2007, the european commission published a communication setting out its proposals for a new european occupational safety and health strategy to run from 2007-2012. the new strategy is called „improving quality and productivity at work[1]: community strategy 2007-2012 on health and safety at work“. this strategy succeeds the former strategy „adapting to change in work and society: a new community strategy on health and safety at work 20022006“. the eu strategy for the period 2002-2006 adopted a global approach to well-being in the workplace. it emphasised the culture of risk prevention, the combination of a variety of political instruments and the building of partnerships between all the players on the safety and health scene. it pointed at the fact that an ambitious social policy is a factor in the competitiveness equation and that, conversely, having a ‘nonpolicy’ engenders costs which weigh heavily on economies and societies (european parliament). over the period 20002006, the rate of fatal accidents at work in the eu has fallen by 17% while the rate of workplace accidents leading to absences of more than three days has fallen by 20% (improving quality and productivity at work: community strategy 2007-2012 on health and safety at work). the current eu strategy for the period 2007-2012 is focussing on prevention. it aims to achieve a continuous, sustainable and homogeneous reduction of occupational accidents and diseases in the eu, in particular through defining and implementing national strategies based on a detailed evaluation of the national situation and improving and simplifying existing legislation as well as enhancing its implementation in practice through non-binding instruments such as exchange of good practices, awareness-raising campaigns as well as better information and training (the european parliament). the current commission’s target to reduce 25% of work accidents across the eu is very ambitious. in order to achieve this ambitious target, the following main instruments are proposed: • guarantee the proper implementation of eu legislation; • support sme’s in the implementation of the legislation in force; • adapt the legal framework to changes in the workplace and simplify it, particularly in view of sme’s; • promote the development and implementation of national strategies; • encourage changes in the behaviour of workers and encourage their employers to adopt health-focused approaches; • finalise the methods for identifying and evaluating new potential risks; • improve the tracking of progress; • promote health and safety at international level. it is generally agreed that the lack of effective protection to ensure health and safety at work can result in absenteeism, in the wake of workplace accidents and occupational illnesses, and can lead to permanent occupational disability. this not only has a considerable human dimension but also has a major negative impact on the economy. the enormous economic costs of problems associated with health and safety at work inhibits economic growth and affects the competitiveness of businesses in the eu. a considerable share of these costs also falls upon social security systems and public finances (improving quality and productivity at work: community strategy 2007-2012 on health and safety at work). health is central in people’s lives and needs to be supported by effective policies and actions in member states, and at eu level as well. the base of the eu strategic approach on safety and health includes european directives, strategies and european agency for safety and health at work ( see figure 1). there are many actors involved in occupational safety and health across europe. in addition to the eu and the competent osh authorities in the member states, the social partners, various osh networks and professional organisations as well as international organisations such as ilo and who play a role and contribute to achieving modern, effective and efficient occupational health and safety for europe. an important role of the european agency for safety and health at work estimate information available to support and promote the prevention of risk to workers, helping employers and others with legal duties to comply with national legislation based on the directives and helping to include risk awareness education within their activities (tartilas, 2008). issn 1822–8402 european integration studies. 2011. no 5 194 european directives, strategy, european agency for safety and health at work occupational safety & health system promotion advocacy legislation inspection knowledge, support services slic • promote safety culture • strenghten osh system • targeted action: construction, sme’s, agriculture etc. national strategy and programme figure 1. eu strategic approach on safety and health (takala, 2010) the european agency for safety and health was set up by the european union in order to meet the increasing needs for information in the field of safety and health at work. contributing to safer, healthier and more productive workplaces is eu-osha’s vision this year and this vision is perfectly in line with the “europe 2020” strategy which says “europe needs to make full use of its labour potential to face the challenges of an ageing population and rising global competition”. going from the current 69 percent of the population aged 20-64 in employment to 75 percent in 2020 is not going to be achieved without a considerable contribution from better occupational safety and health at european workplaces. eu-osha fully recognises its responsibility and role in contributing to the aim of creating smart, sustainable and inclusive economy with high levels of employment, productivity and social cohesion. better working conditions is one of the key contributions to reducing health inequalities and promoting a healthy and active ageing population. (2011 annual management plan & work programme of eu-osha). occupational health and safety legislation in the european union the charter of fundamental rights, which became legally-binding with the lisbon treaty, only reinforces the importance of occupational health and safety policy in the european legislation. the main role of the eu in health and safety is to harmonize workplace and legal standards and remove barriers to trade across member states. the eu action in health and safety at work has its legal basis in article 153 of the treaty on the functioning of the european union (ex article 137 ot the ec treaty). on the basis of this article the eu encourages improvements in the working environments in order to protect workers’ health and safety by harmonising working conditions. to this end, minimum requirements are laid down at the eu level (the european parliament). the eu’s work in the area of the prevention and protection of the health and safety of workers at work began as far back as 1952 under the european coal and steel community. in line with the treaty, the eu defines at european level the minimum requirements in the field of health and safety at work. in other words since 1952 a solid corpus of legislation has been adopted covering the maximum number of risks with the minimum number of regulations (european commission). the first european directives on safety and health at work were adopted on the basis of the general market harmonisation provisions (ex articles 100 and 100a tec). this was due to a lack of an explicit legislative competence in the treaty in the field of safety and health at work until the mid-1980s. until then occupational safety and health was seen as an annex to market harmonisation and the economic policies of the european economic community. the single european act 1987 was a major step forward in that it introduced a new legal provision on social policy to the treaty aiming at ‘improvements, especially in the working environment, as regards the health and safety of workers’. with the treaty of amsterdam in 1997, the legislative competence in the fields of european social policies was further strengthened by the incorporation of the social agreement into the ec treaty. the lisbon treaty – apart from the renumbering of the articles on social policy – kept the substance of the provisions of ex articles 136 ff tec (now articles 151 ff of the treaty on the functioning of the european union) (european agency for safety and health at work). a directive from the eu is legally binding on each member state and must be incorporated into the national law of each member state. directives set out specific minimum aims which must be covered within the national law. one of the cornerstones in the development of the safety and health of work was the adoption of the framework directive 89/391/ eec. the object of the measures introduced by council directive 89/391/eec is to encourage improvements in the safety and health of workers at work. it contains general principles concerning the prevention of occupational risks, the protection of safety and health, the elimination of risk and accident factors, the informing, consultation, balanced participation and training of workers and their representatives as well as general guidelines for the implementation of these • issn 1822–8402 european integration studies. 2011. no 5 195 directive 89/391 (occupational safety and health “framework directive” article 153 of the treaty on functioning of the european union (ex article 137 of the ec treaty) „daughter directives“: � requirements for working places (directive 89/654/eec); � the use of work equipment (directive 89/655/eec amended by directive 2001/45/ec); � the use of personal protective equipment (directive 89/656/eec); � work with display screen equipment (directive 90/270/eec); � manual handling (directive 90/269/eec); � exposure to carcinogens (directive 90/394/eec); � temporary or mobile construction sites (directive 92/57/eec); � provision of safety and health signs at work (directive 92/58/eec); � pregnant workers (directive 92/85/eec); � mineral-extracting industries (drilling) (directive 92/91/eec); � mineral-extracting industries (directive 92/104/eec); � fishing vessels (directive 93/103/ec); � chemical agents (directive 98/24/ec amended by directive 2000/39/ec); � minimum requirements for improving the safety and health protection of workers potentially at risk from explosive atmosphere (directive 99/92/ec); � the protection of workers from risks related to exposure to biological agents at work (directive 2000/54/ec); � the protection of workers from the risks related to exposure to carcinogens or mutagens at work (directive 2004/37/ec); � four directives on the minimum health and safety requirements regarding the exposure of workers to the risks arising from physical agents on vibration (directive 2002/44/ec), noise (directive 2003/10/ec), electromagnetic fields (directive 2004/40/ec) and artificial optical radiation (directive 2006/25/ec). eu directives on safety and health at work have their legal foundation in article 153 of the treaty on the functioning of the european union (ex article 137 tec), which gives the eu the authority to adopt directives in this field. the framework directive is the basis for a number of so-called “daughter directives” figure 2. scheme of european safety and health legislation principles. member states must ensure that the provisions of the directive are applied to employers, workers and workers’ representatives. in particular, there must be adequate controls and supervision. the directive applies to all sectors of activity, both public and private (industrial, agricultural, commercial, administrative, service, educational, cultural, leisure, etc.) however, it is not applicable where characteristics peculiar to certain specific public service activities in the civil protection services inevitably conflict with it. in that event, the safety and health of workers must be ensured as far as possible in the light of the objectives of the directive (quigley, 2003). under the umbrella of the 1989 “framework” directive, a number of so-called “daughter directives” have also been adopted, all of which incorporate the general provisions of the framework, and all of which refer, specifically, to the dramatically extended “social dialogue” provisions. in particular “daughter directives” have been adopted on the minimum safety and health requirements for the workplace, on the minimum safety and health requirements for the use of work equipment by workers at work, on the minimum health and safety requirements for the use by workers at work, on the minimum health and safety requirements for the use by workers of personal protective equipment at the workplace, on the minimum health and safety requirements for the manual handling of loads where there is a risk particularly of back injury to workers, and on the minimum safety and health requirement for work with visual screen equipment (neal, wright 1992). the framework directive is the basis for in total 19 “daughter directives” (see figure 2). the framework directive have had an impact on other legislative acts, in particular on the commission’s proposal to amend the directive 91/383/eec on temporary agency workers; the proposal to amend directive 2003/88/ec on certain aspects of the organisation of working time; on directive 99/95/ec on working time provisions in maritime transport; on directive 2000/34/ec concerning certain aspects of the organisation of working time to cover sectors and activities excluded from that directive (road, air, sea and rail transport, inland waterways, sea fishing, other work at sea and the activities of doctors in training); on directive 94/33/ec on the protection of young people at work; and on the council regulation (ec) no 2062/94/eec established the european agency for health and safety at work (the european parliament). issn 1822–8402 european integration studies. 2011. no 5 196 the framework directive with its wide scope of application as well as further directives focusing on specific aspects of safety and health at work are the fundamentals of european safety and health legislation. these directives set out minimum requirements and fundamental principles, such as the principle of prevention and risk assessment, as well as the responsibilities of employers and employees. eu directives on safety and health at work have their legal foundation in article 153 of the treaty on the functioning of the european union (ex article 137 tec), which gives the eu the authority to adopt directives in this field. european directives are legally binding and have to be transposed into national laws by the member states. it should be noted that member states are free to adopt stricter rules for the protection of workers when transposing eu directives into national law, and so legislative requirements in the field of safety and health at work can vary across eu member states. in lithuania, safety and health at work is regulated by labour code, law on safety and health at work, other laws, and legislation adopted by government regulations and orders of the ministres (lietuvos respublikos socialinės apsaugos ir darbo ministerija). risk assessment and management in companies risk assessments are at the core of the european approach to a preventive occupational safety and health culture as they are the key tools at the workplace level to identify and initiate actions to prevent risks. though the importance of risk assessment is recognized and though risk assessment is a key concept in the framework directive on occupational safety and health the implementation of risk assessment at the workplace level is still far from satisfactory. every three-and-a-half minutes, someone in the eu dies from work-related causes. this adds up to around 167,000 deaths a year from workrelated accidents and occupational disease. every four-and-ahalf seconds, a worker in the eu is involved in an accident that forces them to stay at home for at least three working days. that adds up to over 7 million every year. data and statistics about accidents and illnesses at work show that improvements are urgently needed (interview with jukka takala, director of the european agency for safety and health at work). in guidance on risk assessment at work, the european commission defined risk assessment as “the process of evaluating the risk to the health and safety of worker while at work arising from the circumstances of the occurrence of a hazard at the workplace”.(…) “risk assessment is a systematic examination of all aspects of work that identifies the hazards that could cause harm, assesses whether these hazards can be eliminated and, if not, suggests preventive or protective measures to control the risks”. it must be remembered that a hazard is the potential of a substance, activity or process to cause harm. hazards take many forms including, for example, chemicals, electricity and the use of ladder. a hazard can be ranked relative to other hazards or to a possible level of danger (hughes, ferret, 2009). the key role played by risk assessment is set out in the directive 89/391. this occupational health and safety “framework directive” guarantees minimum safety and health requirements throughout europe while member states are allowed to maintain or establish more stringent measures. risk assessment is a requirement under european legislation enacted in all member states. risk assessment means identifying what may cause harm so that preventive measures can be taken. proper risk assessment is the basis for successful risk management. training workers on the basis of risk assessment for safe work practices is an important part of risk management. trained workers can not only apply the rules but also work more efficiently and promote a healthy and safe working environment (an introduction to dangerous substances in the workplace). in order to carry out effective workplace risk assessment, all those involved require a clear understanding of the legal context, definitions, the purpose of risk assessment, the process of assessing the risks and the role to be played by the main actors involved in the process. in occupational health and safety terms, the purpose of risk assessment is to enable a valid decision to be made about measures necessary to control exposure to substances hazardous to health arising in any workplace. it enables the employers to demonstrate that all factors pertinent to the work have been considered, and that a valid judgement has been reached about the risks. an important part of the assessment process is to define clearly the stages which need to be taken to achieve and maintain adequate control. (sahra, rampal, 1999). there are three stages of the risk assessment process: planning the risk assessment stage, carrying out the risk assessment stage and documenting the risk assessment stage (see figure 3). figure 3. stages of the risk assessment process (european agency for safety and health at work) employers should carefully prepare a risk assessment and take all measures necessary to ensure the safety and health protection of workers. the preparation stage includes: commissioning, organising and coordinating the assessment appointing competent people to make the assessment consulting workers’ representatives on the arrangements for appointing the people who will carry out the assessments providing the necessary information, training, resources, time and support to assessors who are employed by the organisation. risk assessment can be a challenge, especially for small businesses. but it need not be so. risk assessment is not necessarily complicated, bureaucratic, or a task only for experts. a simple, step-by-step approach is often all that is needed, and many resources and examples of good practice are available, to help make the process easier. the guiding principles that should be considered throughout the second stage of the risk assessment process can be broken down into five steps (see figure 4). issn 1822–8402 european integration studies. 2011. no 5 197 figure 4. five steps of the second stage of the risk assessment process the last stage of the risk assessment process is the documenting stage. article 9 of the framework directive states that the employer shall be in possession of an assessment of the risks to safety and health at work, including those facing groups of workers exposed to particular risks. a risk assessment sheet with several appendices is a suitable form for documenting the results of a risk assessment. a general form can exist providing an overview of hazards, risks and subsequent measures, with extra forms for each department in the enterprise (e-facts 32 common errors in the risk assessment process). the actual risk assessment process is very different in different companies. businesses have different organisational structures, needs, risks, and resources, so the same methods do not suit everyone. the best results are attained when the risk assessment is properly planned and the company’s own needs are taken into account in the planning. risk assessment methods are usually developed to suit as many companies as possible. to get the best possible results the chosen method should be adapted to suit the business’s own purposes (a european campaign on risk assessment). by law employers are responsible for risk assessment. but ultimately, risk assessment concerns everyone in the workplace, not just employers and experts. everyone has a valuable contribution to make, and everyone has an interest in preventing accidents and ill health. the best risk assessments are based on partnership between employers and employees, with workers being closely involved and consulted throughout the process. it must be remembered that risk assessment isn’t just an obligation or burden. not only does risk assessment protect workers, but there are economic benefi ts too. accidents and illness at work are costly for organisations and governments. when things go wrong at work, it affects business productivity, and places a burden on healthcare systems. the creation of safe working conditions enables companies to cut costs arising from occupational accidents and illness. proper risk assessment helps to reduce rates of sick leave, and insurance costs come down with fewer claims. more highly motivated workers are more productive and effi cient, and staff turnover rates fall. this all helps businesses become more competitive (interview with jukka takala, director of the european agency for safety and health at work). conclusions health and safety at work represents today one of the most important advanced fi elds of the social policy of the european union. improvement of health and safety at work is important not only in human terms, to reduce workers’ pain and suffering, but also as a way of ensuring that enterprises are successful and sustainable, and that economies thrive in the long term. for occupational safety and health improvement, the commission introduced the occupational safety and health strategy for the period 2007-2012, which aims to promote a common approach to the wellbeing of workers, taking into account the changes in the work area, and the emergence of new risks, and reduce accidents. the main role of the eu in health and safety is to harmonize workplace and legal standards and remove barriers to trade across member states. the key principles relating to the prevention and protection of the health and safety of workers are defi ned in the 1989 framework directive 89/391/ eec. it constitutes the basis for all subsequent individual socalled “daughter directives”. the framework directive with its wide scope of application as well as further directives focusing on specifi c aspects of safety and health at work are the fundamentals of european safety and health legislation. the employer has a duty to ensure the safety and health issn 1822–8402 european integration studies. 2011. no 5 198 of workers in every aspect related to work. workers’ safety and health is protected in europe by an approach based on assessing and managing risk. in order to carry out effective workplace risk assessment, all those involved require a clear understanding of the legal context, concepts, the process of assessing the risks and the role to be played by the main actors involved in the process. without a systematic assessment of the risks and a genuine integration of occupational health and safety into the general management of the organisation it is not possible to develop a preventive approach – and prevention is the guiding principle for occupational health and safety legislation in the european union. references an introduction to dangerous substances in the workplace. e -facts 33. european agency for safety and health at work. on-line: http://osha.europa.eu/en/publications/ factsheets/33 „europe 2020“ – a european strategy for smart, sustainable and inclusive growth. the european commission. online: http://eunec.vlor.be/detail_bestanden/doc014%20 europe%202020.pdf 2011 annual management plan & work programme of eu-osha. european agency for safety and health at work. on-line: http://osha.europa.eu/en/publications/ work_programmes/amp2011 common errors in the risk assessment process. e – facts 32. european agency for safety and health at work. online: http://osha.europa.eu/en/publications/e-facts/efact32 council directive 89/391/eec of 12 june 1989 on the introduction of measures to encourage improvements in the safety and health of workers at work. official journal l 183, 29.06.1989. european directives. european agency for safety and health at work. on-line: http://osha.europa.eu/lt/ legislation/directives guidance on risk assessment at work. the european commission.on-line: http://osha.europa.eu/en/topics/ riskassessment/guidance.pdf health and safety at work. the european commission. on-line: http://ec.europa.eu/social/main. jsp?catid=148&langid=en health and safety at work. the european parliament. on-line: http://www.europarl.europa.eu/ftu/pdf/en// ftu_4.9.5.pdf healthy workplaces. a european campaign on risk assessment. on-line: http://osha.europa.eu/en/ publications/magazine/magazine11 hughes p., ferrett e. (2009), introduction to health and safety at work – london, elsevier/butterworthheinemann, 85 p. improving quality and productivity at work: community strategy 2007-2012 on health and safety at work. communication from the commission to the european parliament, the council, the european economic and social committee and the committee of the regions. on-line: http://eur-lex.europa.eu/lexuriserv/lexuriserv. do?uri=com:2007:0062:fin:en:pdf interview with jukka takala, director of the european agency for safety and health at work. on-line: http:// osha.europa.eu/en/press/articles/interview_jt_ra_ en.pdf neal a.c., wright f.b. (1992), the european communities’ health and safety legislation new york, chapman & hall, 21 p. quigley c. (2003), european community contract law – london, kluwer, 242 p. risk assessment roles and responsibilities. factsheet 80. european agency for safety and health at work on-line: http://www.hsa.ie/eng/news_and_events/european_ agency_for_safety_and_health_at_work/european_ safety_week/fact_sheet_no_80.pdf risk assessment. the scottish centre for healthy working lives. on-line: http://www.healthyworkinglives.com/ advice/minimising-workplace-risks/risk-assessment.aspx sadhra s.s., rampal k.g. (1999), occupational health risk assessment and management – oxford, blackwell science ltd, 4 p. safety and health at work. lietuvos respublikos socialinės apsaugos ir darbo ministerija. on-line: http://www. socmin.lt/index.php?1826297904 takala j. (2010), workplace safety and health as a strategy for success. singapore wsh conference, symposium 1: development & implementation of national wsh strategies. on-line: http://osha.europa.eu/en/press/ articles/presentation-whs-singapore-2010 tartilas j. (2008), darbų saugos teisiniai aktai kritiniu aspektu. jurisprudencija. – volume 110, nr. 8, 13-17 p. treaty on the functioning of the european union. official journal c 83, 30.3.2010 the article has been reviewed. received in april, 2011; accepted in june, 2011. 157 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 an empirical study of latvian consumers’ attitudes and perceptions towards genetically modified organisms inese aleksejeva university of latvia, raiņa bulvāris 19, rīga, lv–1586 submitted 03/2016 accepted for publication 09/2016 an empirical study of latvian consumers’ attitudes and perceptions towards genetically modified organisms eis 10/2016 european integration studies no. 10/ 2016 pp. 157–168 doi 10.5755/j01.eis.0.10.14624 © kaunas university of technology abstract http://dx.doi.org/10.5755/j01.eis.0.10.14624 genetic modification and genetically modified organisms (gmo) remains a controversial issue. latvian consumers’ attitude towards genetic modification and gmo have been characterized as negative using eurobarometer data, but so far no specific investigation of latvian consumers has been done in this field. the aim of this study was to analyse latvian consumers’ attitude towards genetic modification and gmo, the subjective and objective knowledge about this questions and acceptability of use of gmo in different application areas. main task in frame of this research is to summarize different literature and data available to out­ line some of factors that influence attitudes towards gmo: mainly public subjective and objective knowledge, perception on risk and benefits, and ethical concerns. the survey method was chosen as a tool to collect data and elicit latvian consumers’ attitude to­ wards use of gmo in different industries. the survey was composed of 18 questions; seven of them have been structured on one to ten–point scale. the survey data of latvia’s inhabitants (n = 1184) were collected by the telemarketing company from september 2014 until june 2015. to select the units to be included in the sample systematic sampling was applied – every twentieth inhabitant was approached by phone call and invited to answer on survey questions. the results of latvian consumers’ survey showed that latvians’ acceptability of genetic modifi­ cation varies by application area; genetically modified (gm) non–food products are more accepted than gm food and feed products. ethical and moral aspects play essential role among latvian consumers. respondents’ subjective and objective knowledge of genetic modification and gmo differs. the findings would be essential to policy makers when designing risk–communication strategies targeting different consumer segments to ensure proper discussion and addressing potential con­ cerns about genetic modification. keywords: attitudes, consumers, genetically modified organism, perception. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 158 according the forecast of the population analysts current global population will exceed 9 billion by 2050 with 90% living in developing countries in such poor regions as asia, africa and lat­ in america. presently 815 million people living in these countries are affected by malnutrition, unhygienic living conditions, poverty and face daily food shortages as a result of environmental impacts or political instability, while in the developed world there is a food surplus (basu et. al., 2010). in developing countries, inadequate and unbalanced nutrition or malnutrition is a cause of premature death or disability for every third inhabitant of the world (cohen, 1994). for these countries the drive is to develop drought and pest resistant crops which also maximize yield. in developed countries, the food industry is driven by consumer demand which is currently for fresher and healthier foodstuffs (joseph & morrison, 2006). in spite of huge progress in food production processes environmental conditions and cataclysms arouse problems of hunger in many developing countries and it is clear that using of convention­ al agricultural practices alone will not eliminate these problems; new technologies are necessary to help to feed the world and genetic modification is one of the practices to apply. genetic mod­ ification is relatively new technology which has gained an important place in the food industry. although the aims of genetic modification and conventional plant breeding are the same, genetic modification is more targeted as it allows to predict the results and to improve the characteristics of the organism, increasing yield and nutritional value, as well as safety. history of gmo – organisms in which the genetic material has been altered in a way that does not occur naturally by mating and/or natural recombination (european parliament and the council directive 2001/18/ec)) – started in 1973 when the first gmo was obtained – an escherichia coli bacterium. since that time many food plants and crops are being genetically modified. rapid development of use of genetic engineering technologies was observed especially in 80ies and 90ies of the last century. although question of hunger and malnutrition is not urgent in latvia and use of gm technologies to increase amount of food is not the topic of the day in latvia the problem of use of gmo in food, animal feed and other industries becomes topical. as latvia is the part of the europe union (eu) common market products containing consisting or obtained with the help of gmo are entering latvian market and raise a lot of questions especially regarding safety to human and animal health and environment. latvian consumers’ attitude towards gmo have been characterized as negative using euroba­ rometer data (gaskell et. al., 2006) but so far no specific investigation of latvian consumers has been done in this field. kayabası & mucan (2011) consider that the attitudes and perceptions of the consumers to­ wards gm food have nine dimensions: the perceived environmental risk, the perceived benefit, long–term effects on human health, risk for the world, attitudes towards labelling, attitudes to­ wards purchase, attitudes in terms of cultural–spiritual and moral values, perception of knowl­ edge level and the perceived risk respectively. the most explanatory factor is the possible risks of gm food on human health in the long term. the least explanatory factor solution is the attitudes towards cultural – spiritual and moral values. the aim of this study was to analyse the attitude towards genetic modification and gmo, the sub­ jective and objective knowledge on gmo and latvians’ acceptability of use of gmo in different ap­ plication areas. the outcomes of this research are important as the use of the new technologies in food production has potential benefits for both – food manufactures and consumers. but at the time when the food industry is creating the new products and new ingredients, the farmers are growing the new crops with improved or modified characteristics, the question is open whether introduction 159 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 the new technologies and money invested by industries is cost effective, are the new products accepted and assumed by the consumers? main task in frame of this research is to summarize different literature and data available to out­ line some of factors that influence attitudes towards gmo: mainly public subjective and objective knowledge, perception on risk and benefits, and ethical concerns. research methods applied: analysis of scientific publications, analysis of research results, anal­ ysis of statistical data and latvian consumers’ survey on their attitude to different gmo, level of awareness and knowledge about genetic modification and gmo in latvia, latvians’ perception on safety of gmo. analysis of consumer behaviour and attitude towards use of gmo in agriculture and other indus­ tries allows predicting market demand in the future and willingness of the consumers to buy and consumers’ expectations from technology which can benefit to many. research results and discussion consumers’ attitudes towards gmo, risk and benefit perception. attitude is defined as positive or negative behaviour potential of individuals learned about an object. the object could be a specific product, product category, ownerships, use of products, reasons, subjects, people, advertisement, prices, retailers, events and news. attitudes are one of the basic factors affecting the final decision of consumers and if consumers have positive attitude towards an object, it will get easier to direct them as desired. on the contrary, if consumers have negative attitudes, implementations to over­ come these negative attitudes should be focused (kayabası & mucan, 2011). the results of the study performed by christoph et. al. (2008) in germany revealed that consumers’ attitude towards use of gmo in areas other than the food production is much more favourable than the use of gmo in food production. according to the results, it was doubted that future studies about risks and benefits would make consumers change their attitude towards genetic modification. the consumers who opposed genetic modification had lack trust in authorities, industry and scientists. even if new studies showed the risks of gmos are non–existent or manageable, these consumers would be unlikely to change their attitudes because they would lack trust in the source of informa­ tion. it was also found out that education was not cause to support genetic modification, because good knowledge does not automatically imply support as this study showed. the willingness to buy or to avoid gm products has been studied in a number of research papers. the investigations have identified several factors to explain differences in individual support, in­ cluding the level of knowledge, socio–demographic variables, the perception of the risks and ben­ efits linked to agricultural biotechnology, trust in regulatory bodies, in the information and /or the actions of certain actors, social and political values, etc. (barnett, 2007; gaskell, 2004). among all, the high risk regarding human health and environment associated with gm foods as perceived by the consumers seems to be the main obstacle to the consumer’s acceptance of such foods. people weigh risk information as more important than benefit information, thus the difficulty of selling benefits against possible risks (aleksejeva, 2012). for example, results obtained in the investigation conducted by harrison et. al. (2004) in italy and the united states (the us) indicated that consumer’ risk perception, knowledge and awareness of gm foods, and trust in government agencies impact willingness to buy gm food. higher levels of perceived risk decrease the likelihood of purchase in both countries. however, italian consumers were found to be more sensitive to the potential risks what gm foods may pose to human health and the environment, relative to the us consumer. in general, italians were also less likely to pur­ chase gm foods relative to the us consumers. it was also found that confidence in competent authorities involved in decision making and control process impact willingness to purchase gm e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 160 food. education, age and gender produced mixed results. it was concluded that beliefs regarding risk perceptions and trust in regulatory agencies played an important role in consumer opinions towards gm foods in both countries. the findings obtained by brown and o’cass (2005) in australia indicated that consumer risk per­ ceptions act as an antecedent to external information search and willingness to buy. therefore, the more a consumer sees risk in gm food the more likely they are to search for information. however, risk also acts to diminish the willingness of consumers to by gm food. investigation made by aerni and bernauer (2006) in the philippines, mexico and the south africa found out that most of the stakeholders believed that agricultural biotechnology had the potential to solve important problems in agriculture (drought, pest infestation, plant disease, high use of pes­ ticides), and did not pose a significant health risk to consumers. yet, there were also concerns re­ garding the potential negative impact of such crops on the natural environment and the difficulties of implementing strict regulations well as lack of market access, too little investment in research and development, and infrastructure. the results of the surveys suggested that the differences in risks perception in the philippines, mexico, and the south africa were often related to different his­ torical, political, ecological, and socio–economic conditions. consumers’ subjective and objective knowledge of gmo. the impact of knowledge on decision–mak­ ing, and the measurement of this variable, has long been a subject in marketing literature. park and lessig (1981) identified two major approaches for measuring product familiarity: one measuring how much a person knows about the product and the other measuring how much a person thinks they know about a product. similarly, brucks (1985) described three categories of consumer product class knowledge used in consumer behavior research: subjective knowledge, the individual’s perception of how much s/he knows; objective knowledge, a measure what an individual actually knows; and prior experience, the amount of purchasing or usage experience the consumer has with the product. however, according to brucks (1985) experience–based measures of knowledge are less directly linked to behavior. the impact of the knowledge on consumer decision and acceptance of gm products is an import­ ant issue for different stakeholders: policy makers, agribusinesses, and other parties interested in the acceptance (or rejection) of gm products. when investigating these subjects, it is important to be careful of the differences between objective and subjective knowledge. both measures may be important factors in willingness to accept new products; however, according to house et al. (2004), they may impact acceptance differently. the level of knowledge of the consumers regarding genetic engineering varies in different parts of the world. for example, according to the investigation of xiaoyong et.al. (2010) a basic quiz of six questions concerning biotechnologies was given to respondents in china, the us and the eu. by comprising the test results among these consumers it was concluded that there are statistical differences between chinese consumers and the eu consumers indicating that chinese consumers are more knowledgeable regarding issues concerning biotechnology than their eu counterparts whilst remaining less knowledgeable about biotechnology issues than consumers in the us. it remains a universal phenomenon that consumers have very limited knowledge regarding biotech­ nology. this suggested that consumers’ attitudes toward gm foods could be influenced by new information supplied and knowledge gained. it is often argued that consumers’ education will improve acceptance of biotechnology (e.g., hoban and katic, 1998). for example, according to i. aleksejeva (2014) the most of the eu experts involved in gmo decision making process are supportive towards use of gmo in food and feed and many of them consider that gm food/feed is as safe as conventional products or more safe than unsafe. 161 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 the experts are more concerned about cultivation of gm plants as consider they can cause risk to the environment. assumption of the genetic modification proponents is that, if citizens better understand the science and biotechnology underlying gm food benefits, they are more likely to accept gm food research, development, and commercialization (e.g. allum et. al., 2003). although other research, especially in europe (e.g. gaskell et. al., 2003), has called into question this understandable inference from the knowledge deficit model. when we consider decision making regarding the purchasing of gm products we can presume that this decision is impacted by the consumers’ subjective knowledge about gmo and awareness (labelling) regarding these products. previous researchers have asserted that subjective knowledge is a stronger motivator of consum­ er behavior than objective knowledge. park et al. (1994) found that product–related experience is more strongly related to subjective knowledge than objective knowledge. raju et al. (1995) found that, of the three types of knowledge (subjective knowledge, objective knowledge, and usage experience), subjective knowledge is the most closely associated with pur­ chase decision satisfaction. this is because those who have greater subjective knowledge are likely to feel less confused and more certain about the quality of their choice, implying that subjective knowledge is an important factor in consumer decision making. methodology of the study purpose and importance: after gmo spread all around the world, it became a requirement to ana­ lyze the attitudes and perceptions of the consumers towards these organisms and products con­ taining, consisting or obtained with the help of gmo. considering this requirement, the analysis of consumer attitude and perception towards gmo constitutes the purpose of this study. methodology: this study has been carried out with survey method within the descriptive research method. the survey method has been preferred as a tool to collect data. the survey was composed of 18 questions; seven of them have been structured on ten–point likert scale. likert scale is widely used since it allows the consumers to express their attitudes in a regular and meaningful way and it is easy to use for those who conduct market researches (koç, 2008). the survey used in this study has been prepared so as to measure consumers’ risk perception and attitude towards gmo and objective and subjective knowledge of genetic modification and gmo. additionally, based on the literature on consumer perception of risks and benefits and a review of the various empirical ap­ plications mentioned above, a series of questions were developed to measure risk and benefit per­ ception. in line with the purpose of this research, dimensions regarding measurement of attitudes and perceptions consist of the perceived environmental risk, the perceived benefit, its long–term effects on human and animal health, benefits for developing countries, attitudes towards recogniz­ able labels and nutritional value, attitudes in terms of ethical and moral values and importance of price. general sociodemographic variables consist of gender, age, income, education, marital sta­ tus, occupation, religious affiliation and residence. respondents’ subjective knowledge about bio­ technology was assessed using likert scale, where 1 – no knowledge at all and 10 – have excellent knowledge. objective knowledge of consumers was assessed by eight true and false questions. the obtained data were analyzed through spss programme. constraints and sample: the study was conducted face to face and via internet between january and april 2015. the resident data base was used in the study, units within the sample were de­ termined randomly; so it is quite decently to generalize the results. 1184 surveys were filled by respondents via internet and interviewing them face to face. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 162 the survey was developed to elicit latvian consumers’ attitudes towards use of different gmo (us­ ing evaluation scale 1 – 10, where 1 – no support at all; 10 – definitely support). main statistical indicators of latvian consumers’ attitudes towards use of different gmo are reflect­ ed in table 1. average evaluations of latvian consumers were quite low and indicated that latvians were scep­ tical towards use of any kind of gmo. the most positive evaluations were expressed towards use of medicines obtained with the help of gmo (arithmetic mean – 4,21), followed by gm plants with improved nutritional value (arithmetic mean – 3,2), gm plants resistant to diseases and viruses (arithmetic mean – 3,18) and gm plants resistant to insects (arithmetic mean – 3,03). the lowest acceptance of respondents was expressed towards use of gm animals (arithmetic mean – 1,97). most frequently evaluation of use of gmo was 1 (characterised by mode). when latvian consumers’ perception on benefits was evaluated, it was identified that the respon­ dents had low level of benefit perception with the average value about 3. main statistical indicators of latvian consumers’ benefit perception towards use of different gmo are reflected in table 2. to elicit consumers’ opinion, the question was put “whether you choose gmo if.” despite the fact that gm products could be beneficial latvian consumers were quiet sceptical re­ garding any use of gmo and their benefit perception was low (characterised by arithmetic means). the highest support was expressed regarding gm products if their acquisition is environment friendlier (arithmetic mean – 3,35) and if these products have less pesticides residues (arithme­ tic mean – 3,3). other perceived benefits were evaluated lower than 3. as the most unessential perceived benefit from latvian consumers’ point of view was well recognizable label of product (arithmetic mean – 2,27). most frequently perceived benefits were evaluated with 1 – definitely not choose (characterised by mode). main statistical indicators of latvian consumers’ attitude in terms of ethical and moral values are reflected in table 3. analyses of the collected data table 1 latvian consumers’ attitudes towards use of different gmo gmo m ea n s ta nd ar d e rr o r o f m ea n m ed ia n m o de s ta nd ar d d ev ia ti o n r an g e m in im u m m ax im u m medicine obtained with the help of gmo 4,21 0,118 4 1 3,191 9 1 10 gm plants with improved nutritional value 3,20 0,107 1 1 2,911 9 1 10 gm animals 1,97 0,077 1 1 2,118 9 1 10 gm feed 2,44 0,091 1 1 2,486 9 1 10 gm plants resistant to insects 3,03 0,103 1 1 2,805 9 1 10 gm plants tolerant to herbicides 2,76 0,096 1 1 2,623 9 1 10 gm plants resistant to diseases and viruses 3,18 0,105 1 1 2,870 9 1 10 source: author’s calculations based on latvian consumers’ survey in 2015, n=1184 (using evaluation scale 1 – 10, where 1 – not support at all; 10 – definitely support) 163 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 2 main statistical indicators of latvian consumers’ benefit perception towards use of different gmo answering the question “whether you choose gmo if:” question m ea n s ta nd ar d e rr o r o f m ea n m ed ia n m o de s ta nd ar d d ev ia ti o n r an g e m in im u m m ax im u m thereby you contribute to development of national economic 2,64 0,095 1 1 2,525 9 1 10 thereby you support the developing countries where gm food is obtained 2,71 0,099 1 1 2,618 9 1 10 these products have well recognizable label 2,27 0,087 1 1 2,310 9 1 10 these products have higher nutritional value 2,75 0,102 1 1 2,713 9 1 10 these products remain fresh longer 2,45 0,095 1 1 2,517 9 1 10 these products cost less than others 2,67 0,100 1 1 2,643 9 1 10 these products have less pesticides residues 3,30 0,114 1 1 3,008 9 1 10 acquisition of these products is environment friendlier 3,35 0,115 2 1 3,044 9 1 10 source: author’s calculations based on latvian consumers’ survey in 2015, n=1184 (using evaluation scale 1 – 10, where 1 – definitely not choose; 10 – definitely choose) table 3 main statistical indicators of latvian consumers’ attitude in terms of ethical and moral values declaration m ea n s ta nd ar d e rr o r o f m ea n m ed ia n m o de s ta nd ar d d ev ia ti o n r an g e m in im u m m ax im u m genetic modification of plants is more acceptable then genetic modification of animals 3,80 0,117 3 1 3,066 9 1 10 people have the right to interfere with the natural life 3,05 0,109 1 1 2,854 9 1 10 genetic modification is morally wrong and inadmissible 6,57 0,129 7 10 3,384 9 1 10 gm products are unnatural 6,89 0,133 8 10 3,461 9 1 10 if genetic modification doesn’t pose risk to human and animal health, and environment it is acceptable 4,57 0,126 5 1 3,299 9 1 10 if genetic modification contribute to society it is acceptable 3,35 0,113 2 1 2,935 9 1 10 source: author’s calculations based on latvian consumers’ survey in 2015, n=1184 (using evaluation scale 1 – 10, where 1 – completely disagree; 10 – completely agree) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 164 arithmetic means of latvian consumers’ attitude in terms of ethical and moral values indi­ cated that in general latvian consumers considered that genetic modification was morally wrong and inadmissible and that gm products were unnatural (respectively – 6,57 and 6,89), most frequently evaluations for both declarations were 10 – completely agree (characterised by mode). main statistical indicators of latvian consumers’ perception on safety aspects of gmo (possi­ ble impact on human/animal health and environment) are reflected in table 4. arithmetic means of latvian consumers’ perception on safety aspects of gmo indicated that in general latvian consumers considered that gmo was not safe for next generations (arith­ metic mean – 2,48), had negative impact on environment (arithmetic mean – 2,5), gm feed was not safe for animal health (arithmetic mean – 2,42) but gm food – for human health (arithmetic mean – 2,44); most frequently evaluations for all declarations were 1 (character­ ised by mode). when latvian consumers’ subjective knowledge level was evaluated, it was identified that the respondents were moderately knowledgeable (a 5,11 on a 10–point scale) about genetic modification and gmo. the respondents were asked to evaluate their knowledge using liker scale (where 1 – no knowledge at all; 10 – excellent knowledge) by answering the question – how knowledgeable would you say you are about genetic modification and gmo? main statistical indicators of latvian consumers’ subjective knowledge of genetic modification and gmo are reflected in table 5. as reflected in fig most frequently (22.6%) the respondents evaluated their knowledge with 5 (characterised by mode), in addition the half of the respondents evaluated their knowledge lower than 5 and half – higher than 5. 16.4% of the respondents evaluated their knowledge with 3 but 14.5% – with 7. in a second step, respondents’ objective knowledge about genetic modification and gmo was analysed. respondents were asked eight true/ false questions about genetic modification and gmo and had the opportunity to answer with „do not know”’. table 6 shows the questions as well as the results. table 4 main statistical indicators of latvian consumers’ perception on safety aspects of gmo declaration m ea n s ta nd ar d e rr o r o f m ea n m ed ia n m o de s ta nd ar d d ev ia ti o n r an g e m in im u m m ax im u m gmo is safe for next generations 2,48 0,093 1 1 2,427 9 1 10 gmo is safe for environment 2,50 0,089 1 1 2,336 9 1 10 gm feed is safe for animal health 2,42 0,090 1 1 2,355 9 1 10 gm food is safe for human health 2,44 0,093 1 1 2,448 9 1 10 source: author’s calculations based on latvian consumers’ survey in 2015, n=1184 (using evaluation scale 1 – 10, where 1 – completely disagree; 10 – completely agree) 165 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 5 main statistical indicators of latvian consumers’ subjective knowledge of genetic modification and gmo main statistical indicators values mean 5,11 standard error of mean 0,082 median 5 mode 5 standard deviation 2,140 range 9 minimum 1 maximum 10 source: author’s calculations based on latvian consumers’ survey in 2015, n=1184 (using evaluation scale 1 – 10, where 1 – no knowledge at all; 10 – excellent knowledge) the most widely known fact was that „tox­ ic and allergic reaction can be caused by gm food and ordinary food” (60.68% correct an­ swers), while the question that „ gm food genes may enter the human germ cells and can be passed to future generations” received the lowest share of correct answers (22.58%). more than half of the respondents gave cor­ rect answers to questions that “every day a man by the consumption of food consume a lot of different foreign genes” (60.68%), “ge­ netically modified tomatoes contain genes but ordinary tomatoes do not” (56.12%) and that “tomatoes genetically modified with a help of fish gene taste fishy” (respectively 56.44% of respondents). source: author’s calculations based on latvian consumers’ survey in 2015, n=1184 (using evaluation scale 1 – 10, where 1 – no knowledge at all; 10 – excellent knowledge) figure 1 latvian consumers’ subjective knowledge of genetic modification and gmo some of the items are disappointing in terms of the knowledge exhibited. for example, a near one–third, or 31.24% of the respondents believed that “by eating genetically modified tomatoes, a person’s genes could also be changed” but almost half of respondents (43.47%) were convinced that “gm food genes may enter the human germ cells and can be passed to future generations”. it should be noted that although most often the respondents evaluated their knowledge of genet­ ic modification and gmo with 5 (22.6% of respondents) and in addition the half of the respondents evaluated their knowledge higher than 5, aggregated results in table 6 indicate that near one third of the respondents (can be concluded from the last column of table 6) did not know the cor­ rect answers to questions (except for the question that “toxic and allergic reaction can be caused by gm food and ordinary food”). % evaluations e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 166 table 6 latvian consumers’ objective knowledge of genetic modification and gmo (%) question correct wrong do not know genetically modified tomatoes contain genes but ordinary tomatoes do not 56.12 16.21 27.68 by eating genetically modified tomatoes, a person’s genes could also be changed 42.27 31.24 26.49 gm food genes may enter the human germ cells and can be passed to future generations 22.58 43.47 33.95 toxic and allergic reaction can be caused by gm food and ordinary food 83.28 5.52 11.2 genetically modified animals are always larger than their conventional counterparts 49.62 23.2 27.19 tomatoes genetically modified with a help of fish gene taste fishy 56.44 9.82 33.74 every day a man by the consumption of food consume a lot of different foreign genes 60.68 12.44 26.88 it is impossible to transfer animal genes to plants 42.99 9.4 47.61 source: author’s calculations based on latvian consumers’ survey in 2015, n=1184 _ the review of the literature regarding relationship between knowledge and acceptance of ge­ netically modified products shows that consumers are particularly conservative when it comes to acceptance of gmo and their choice is based more on their presumed risk/benefit evalua­ tion than knowledge. _ latvian consumers are quite sceptical regarding any use of gmo. the highest level of support was for use of gmo for medicines but the lowest – for gm animals. _ in spite of the potential gmo benefits latvian consumers in general were quite sceptical re­ garding any use of gm products. the highest support was expressed regarding gmo if their acquisition was environment friendlier. as the most inconsequential aspect marked by re­ spondents was well recognizable label. _ ethical and moral aspects were essential for latvian consumers and influenced their attitudes towards gmo. latvian consumers believed that genetic modification was morally wrong and unacceptable and that gm products were unnatural. _ latvian consumers believed that gmo was not safe for next generations, causes harmful ef­ fects on the environment, gm food was not safe for animal health, but gm food – for human health. _ latvian consumers evaluated themselves as moderately knowledgeable about genetic mod­ ification and gmo. analysis of consumers’ objective knowledge indicated that respondents’ knowledge depended on the particular issue; 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(2010). a consumer segmentation study with re­ gards to genetically modified food in urban china. food policy, 35(5), pp. 456–462. http://dx.doi.org/10.1016/j.foodpol.2010.04.008 the paper was supported by the national research program 5.2. ekosoc–lv about the author inese aleksejeva the candidate for doctoral degree university of latvia fields of research interests marketing, consumer attitudes address raiņa bulvāris 19, rīga, lv–1586 e–mail: aleksejeva.inese@gmail.com european integration studies 2011.indd 132 issn 1822–8402 european integration studies. 2011. no 5 compliance and the recovery of financial services of the european union: new challenges for latvia’s banking sector arnis lagzdins*, biruta sloka** * school of business and finance, riga **university of latvia, riga abstract determinants of international banking failures have been widely discussed and summarized. a combination of global and systemic complexity of products that fails down on correct managing of the banking risk systems; consumers who are eager for credits and regulators who are unable to spot the potential global inter-relationships – consequently have led to the failures. as a response to the financial crisis the european commission has been working actively to complete a comprehensive financial reform to address poor risk management, lack of responsibility and to correct the underlying weaknesses in the supervisory and regulatory framework. the regulatory development is substantially increasing the role of compliance. one of the main supervisory objectives in eu countries is to ensure compliance with relevant laws and regulations. regulations as such are not to be blamed in a context of financial crisis, moreover we have to draw our attention to the control mechanism that is being reformed and overhauled. compliance in general terms is the adherence to the existing rules and regulations laid down by those in authority. currently there is a widespread understanding that compliance means respecting all the regulations and supervisory expectations relevant to financial institution. compliance means not only adherence to the letter of the law but moreover it is also concerned with adherence to the spirit of the law. compliance should be considered as something more significant than just a function of conformity with laws and regulations. banks must have culture of integrity and ethical business conduct. this is one of the main reasons why the development of compliance is a joint effort between the financial industry and the regulators. recognition of the broader role of compliance as a part of the governance framework for banks is yet very strong and confirmed by guidelines from basel committee. the aim of the paper is to highlight possible impact of eu financial reform to the compliance and theoretical constitution of sanctions as one of the main drivers for development of compliance management in latvia’s banking sector. the article shows several research results of the surveys performed by the eu. the perceived threat of regulatory sanctions is one of the key drivers for compliance strategy in banks. the eu new financial reform program has five key objectives and among them it should be stressed upon – the more effective sanctions against market wrongdoing. the levels of administrative pecuniary sanctions (fines) vary widely across the member states and seem to be too ineffective activities in some countries. latvia and other baltic countries are ranked among them. analysis of the latvian laws regarding administrative sanctions has been performed by the author and consequently it can be stated that fines are very small comparing with nordic and other developed countries. the author in his research concludes that due to the current relatively low level of sanctions in latvia and the commission’s activities to strengthen and adequately enforce the member states, the banking sector of latvia should pay a greater attention in discussing the issue of compliance and reviewing the current practices. besides, the discussion is needed regarding education, professional examination and certification for the compliance specialists in latvia. keywords: compliance, banks, regulation, sanctions, latvia. introduction the paper deals with european union (eu) proposal for financial sector reform and sanctions impact to the compliance in banks. the creation of the single market and the opening of borders have been two of the main driving forces behind growth in europe. common market, single market or internal market: the changes to the name over the years illustrate the longstanding policy objective of the union. completing the single market in financial services that includes banking, insurance and securities is recognized [monti, 2010] as one of the key areas for eu’s future growth and jobs. the banking crisis 2007 to date has threaten single market completion and create debate about how to safeguard the financial services from further and future failures. determinants of international banking failures have been widely discussed and summarized by the researchers [o’sullivan, 2010], [garcia, 2009], [clarkson, 2009]. a combination of global and systemic complexity of products, which banking risk systems doesn’t correctly manage; consumers are eager for credit and regulators also are unable to spot the potential global inter-relationships – all that have led to the significant failures [hindle 2009]. as a response to the financial crisis the european commission (2009) has been working actively to complete a comprehensive financial reform to address poor risk management, lack of responsibility and to correct the underlying weaknesses in the supervisory and regulatory framework. issn 1822–8402 european integration studies. 2011. no 5 133 the regulatory developments are substantially increasing the role of compliance. this is confirmed by research. one of the main supervisory objectives in eu countries is to ensure compliance with relevant laws and regulations [garcia, 2009]. through market research and interviews with industry executives, the ibm institute for business value identified a number of significant industry trends that will impact the retail banking industry. regulatory burdens intensify – heightened requirements around privacy, security, partnership risk and operational risk will require banks to take a more proactive, enterprise wide approach to managing compliance issues [hedley, white, 2006]. regulations as such are not to be blamed in a context of financial crisis, moreover the control mechanism that is being reformed and overhauled [chambers 2010]. compliance in general terms is the adherence to the existing rules and regulations laid down by those in authority [edwards 2006]. currently there is a widespread understanding that compliance means respecting all the regulations and supervisory expectations relevant to financial institution. compliance means not only adherence to the letter of the law, moreover it is also concerned with adherence to the spirit of the law. this is one of the main reasons why the development of compliance industry is a joint effort between the financial industry and the regulators. recognition of the broader role of compliance as a part of the governance framework for banks is yet very strong and confirmed by guidelines from basel committee (2010). there is a large number of various studies and surveys on compliance matters from international financial community: eu, european commission (2009, 2010), basel committee (2008), pricewaterhousecoopers (2002), kpmg (2005), securities industry association (2005) and academic researchers: verhage (2009), birindelli (2008), haynes (2005), sathye (2008), taylor (2005), rossi (2010), where has been pointed out series of issues concerning compliance, among which the research on the gap between national and foreign banks, and the evolution of compliance in different countries. interpretation issues with regards to certain definitions and judgment of business practices have been identified. this raises a question if more attention should be paid to the academic research of compliance management in latvia’s banking sector. several studies [kudinska, 2004], [romānova, 2008], [solovjova, 2008] have been concluding regarding latvia’s commercial banks, but none of them included matters of compliance management. solovjova (2008) analysed latvian banking internal stability factors and concluded that they could be divided in three groups: organizational, technological and economical. banking governance condition was defined as one of the most important organizational factors. this is in line with recent recommendations from basel committee (2010). strategy is a key element of bank’s success in a current competitive environment. senior management of banks is responsible for overall strategy. solovjova (2008) defined and described strategy pyramid, which contains financial, marketing, personal management, information technology and safety. therefore the discussion regarding compliance strategy in latvia’s banking sector is needed. considering the above-mentioned aspects the research problem being solved in this article should be constructed as follows: how to define strategic drivers for compliance development in order to promote scientific debate in latvia about compliance management practice and support practitioners. research object legal framework for compliance in latvia’s banking sector. the aim of the article is to evaluate possible impact of eu financial reform to the compliance and theoretical constitution of sanctions as one of the main drivers for development of compliance management. the research tasks are the following: • systemize knowledge around compliance; • evaluate importance of sanctions in development of compliance and level of administrative sanctions in latvia in comparison with other eu countries; • evaluate the readiness of latvia commercial banks to fulfil the requirements for compliance management. the research methods involve analysis of the eu policy documents and studies; latvian laws related to sanctions in the financial sector; compliance literature review and theoretical analysis of the research in this field. the research novelty is investigation of latvia’s legislative documents and practice related to the compliance function in commercial banks. compliance knowledge and theoretical background recent observations [complinet, 2011] suggest that in the new regulatory environment knowledge of compliance is becoming increasingly important across all areas of business. bank regulation models and supervisory approaches have changed significantly. the new role of the supervisory bodies requires significant consistency between the knowledge bases with the supervised entities [carretta, 2010]. the compliance departments should not enclose knowledge and operate more as internal consultants. holland (2010) noted that lack of basic knowledge of banking risks and value drivers by the board and senior managers were implicated in the banking crises. he concluded that in general by ensuring greater bank learning, knowledge creation, and knowledge use, governments and regulators could help reduce individual bank risk and the likelihood of future crises. the same time he admitted – given the history of bank learning, incentives to learn and implement knowledge effectively are only to arise at the top of banks with clear regulation and tough sanctions. in latvia like in belgium [verhage, 2009] the certification of the compliance profession is still under discussion. birindelli (2008) noted highly skilled resources: competencies and experience as an essential to discharge compliance liabilities effectively. edwards (2006) established a compliance competence partnership model where the regulator and regulated need to work together in a proactive partnership in order to achieve compliance competent organization. the above discussion leads to think about further research and discussion regarding education, professional examination and certification for the compliance specialists in latvia. this problem will be observed and evaluated by the author in the next paper. theoretical core knowledge for compliance is recommended by national occupational standards of uk [fsp, 2011] to structure around three areas: financial market and the financial services industry, the regulatory environment and compliance role. issn 1822–8402 european integration studies. 2011. no 5 134 financial market and financial services in literature on compliance [callioni, 2008] market is defined as a place, physical or virtual or both, where sellers interact with buyers. market is a place where value exchanged, allowing for non-financial transactions of value. a market is a complex system. by complex means a system with many interconnected parts, with the whole amounting to more than the mere sum of the parts. market is also complicated. by complicated is meant that we are dealing with something that is difficult to understand. generally, markets are both complex and complicated, and therefore the understanding their complexity may help to reduce the level of complication. the creation of competitive and efficient european financial market started in 1998 when european council set the financial services action plan (fsap) and since that plan was being a top priority of eu policy [milles, 2008], [callioni, 2008]. this has been confirmed by eu report released in may 2010 [monti, 2010] that is urging parliament and council to give a central consideration to the single market for financial services. any complex system requires operating rules [callioni, 2008]. the single market is a construct based on law [monti, 2010]. thus, it is crucial that member states take seriously their obligation to timely transpose and correctly apply the rules agreed to [monti, 2010]. latvia’s financial market latvia is among those countries that have developed financial sector as a bank based model [clarkson, 2009]. there are 21 banks and 10 branches of foreign banks (alcb). all banks are accepting deposits, grants commercial and industrial loans and provides other banking services for the public. they are called commercial or full-service banks. the bank assets form the greatest share of the total assets in the financial and capital market of latvia [ministry of economics, 2010]. at the end of the 1st quarter of 2010, the total amount of the bank assets reached lvl 21.5 or eur 30.5 billion and account for over 98% of all financial assets. three banks are owned by large nordic and german banking groups (seb, swedbank, dnb nord), representing 45% of the total banking system assets. two banks owned by top-tier banks from the russian federation (mdm bank, the bank of moscow) and two by large ukrainian private banks (privatbank, pivdenny), and altogether they account for 3% of the total banking system assets. there is one bank owned by austrian banking group (unicredit bank) accounting for 3.5% of the total banking system assets. one bank is a 100% state-owned (lhzb), accounting for 4.5% of the total banking system assets. the number of clients who have opened accounts at banks in latvia were 2.9 million as of december 2009 (fktk). on june 1st 2010, the market capitalization was lvl 600.4 million and the total amount of gross premiums signed in the insurance market reached lvl 223.3 million of 2009.the research confirms that capital markets in all cee countries including latvia are more underdeveloped than banking sectors [dinger, hagen, 2009]. various international institutions [us department of state, 2010, international monetary fund, 2007] are noting the importance of banking sector by recognizing latvia as a growing regional financial centre with sizeable non-resident deposit base. the figure 1 provides comparison with neighbouring countries. latvia is a regional financial centre of some significance and acts as an important trade and financial gateway between cis countries (mainly russia) and western countries. the high volume of throughput of transactions in accounts in latvian banks shows, in part, the financing of trade, but also contains a substantial component related to capital flows and transactions designed to minimize the impact of tax and currency control requirements in the originating countries, mainly in the cis. source: haver; ifs; bis, locational banking statistics; and ebrd when the size of the banking sector is measured relatively to financial wealth, the gap between the developed eu banking systems and those of the cee countries is not as severe as argued in studies based on the traditional approach of measuring the size of the banking system with respect to gdp [dinger, hagen, 2009]. it is important to confirm that not only the size, but also other areas (including compliance) of latvian commercial banking are in line with developing trends. regulation regulation is undoubtedly the founding spark and ultimate justification of all compliance activity in the financial services industry. it is almost certainly true that there would be no compliance if there had first been a regulatory system in which to put them. to get to grips with compliance one should have a sound understanding of the regulatory environment that gave rise to it [mills, 2008]. the term regulation is derived from latin. the word regula in latin means a rule. regulation is viewed as operating rules and is about “stopping people doing bad things” or maintaining order for society and for economy. people understand regulation as the effort by state, through operating rules to shape the market. regulation is intended to ensure conformity with agreed norms. it is a way of controlling behaviour, either of individuals or of organizations. as human society becomes more complex, the complexity of regulation also increases. predictability is the primary component of order. predictability is enhanced by reliability and means that similar sets of circumstances ought to produce similar consequences. elements of order are as follows: 1) a set of rules is required; 2) process to govern the development of the rules, to ensure they remain relevant to the society they support. in real world that means having a government; 3) compliance, which means abiding by the rules that govern a society, profession or other domain; 4) enforcement, which means taking steps to ensure compliance or to deal with transgressors. logically, issn 1822–8402 european integration studies. 2011. no 5 135 enforcement is subset of compliance, a mechanism to make sure that the rules are not broken. however enforcement seems to have taken a life of its own [callioni, 2008]. to understand how the regulation works in the financial sector we can use principles of game theory. game theory is the systemic study of behaviour in situations involving interdependencies. it also is known as “multi-person decision theory” or “the analysis of conflict”. the roots of game theory are to be found in the work by john von neumann and oskar morgenster [solovjova, 2008], who defined two types of games: in rule based games, players interact according to specific “rules of engagement”, which are generally explicit; in the second type, players interact without explicit rules, although they may still abide by implicit “rules” or understandings. whatever the nature and character of state, the state will tend to want maximum compliance (effectiveness), while people and especially business will want minimum interference and minimum transaction costs (efficiency). the outcome will be a trade-off between efficiency and effectiveness, which will move through a pendulum cycle, driven primarily by level of trust in the bargain between the ruler and the ruled one. the stronger the trust, the lower the risk of non-compliance, resulting in a lower requirement for verifying compliance, with a consequent reduction in transaction costs. the lower the trust, the higher the requirement for verification, with a consequent hike in transaction costs. the optimum point in the cycle is when there is enough regulation to maintain order and predictability, without imposing an unacceptable amount of red t ape [callioni, 2008]. eu regulation against the above-mentioned background it’s important to review eu regulation for financial sector. fsap was endorsed at lisbon european council of 2000, and had laid the legislative foundations for the eu financial services industry: banking, insurance, securities and asset management. it detailed 42 measures of four types: directives, regulations, communications and recommendations. in 2001 and 2002 fsap was added with lamfalussy process covering securities market, banking and insurance. the lamfalussy process involves a four-layer approach to the implementation of eu financial services legislation. level 1 – the european commission and the european council agree on basic framework of the legislation being considered. level 2 – the european commission specifies the technical details of the framework agreed at level 1. level 3 – each member state implements the measures taken at level 1 and 2. guidelines and best practice standards are issued in order to bring about uniform implementation. level 4 – this will involve the european commission checking member states’ compliance with the fsap measures, with the threat of enforcement action for any that are “under-performing” [mills, 2008]. compliance what compliance means – has been much debated by financial institutions and regulators. compliance in general terms is the adherence by the regulated to rules and regulations laid down by those in authority. compliance is the certification or confirmation that the doer of an action meets the requirements of accepted practices, legislation, prescribed rules and regulations, specified standards, or the terms of a contract [principles – basel, 2010]. in literature biegelman (2008) compliance is defined as a state of being in accordance with established legislation, guidelines, standards or specifications. compliance includes concepts of obedience, observance, deference, governable, amenable, passive, non-resistance and submission. linked to this are aspects of duty that include doing what ought to be done, moral obligation, accountability, propriety, fitness, to be on one’s good behaviour, answerable, to act morally and ethically. the difficulty in defining compliance with any real precision is noted by parker [edwards, j., 2006]. she advocated that the term “compliance” is too passive to indicate that it is engaged with its legal, social, environmental and ethical responsibilities. indeed, some leading compliance consultants prefer the term “integrity programme”, because “compliance” connotes a simplistic obedience to rules rather than engagement with ethical and social responsibilities. in 2001, belgian regulator defined “compliance” as “the actual implementation of the integrity policy of the financial institution” [verhage, 2009]. implementing anti money laundering procedures is only one of the many duties of a compliance officer, as the regulator also mentions a number of other specific tasks related to integrity policy: formulate guidelines for employees, development of procedures and codes of ethics, training and enhancing the awareness of employees, establishing and reporting incidents, investigation of rule-violations, monitoring transactions, client-screening, gives advice on new products, follows up on legislation, developing a deontological policy within the organization. under this approach banks can divide business conduct in four related integrity risk areas: client, staff, and financial services and organizational. money laundering is most recognized in the first related area, market abuse and personal trading in the second, transparency of product offering in the third, and agreed sector/industry standards in the fourth [ing, 2009]. pricewaterhouse coopers (2002) undertook study and found a widespread understanding that compliance meant respecting all the regulations and supervisory expectations relevant to a financial institution and used this as a working definition of compliance. basel committee on banking supervision is leading international institution setting up high-level compliance principles on bank’s management of compliance risk. in 2005 basel committee provided definition of the compliance risk, which is defined as the risk of legal or regulatory sanctions, material financial loss, or loss to reputation a bank may suffer as a result of its failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of conduct applicable to its banking activities (together, “compliance laws, rules and standard”). regulators for financial services have framed compliance within number of terms and concepts. the key regulatory concepts that comprise compliance are defined by mills (2008) as: compliance risk; reputational risk; regulatory sanctions; compliance laws, rules and standards; compliance function; compliance universe; compliance department; compliance officer; compliance culture; cost of compliance. regulatory authorities in the united states (us fdic, us fed) are issn 1822–8402 european integration studies. 2011. no 5 136 requesting two very important concepts: compliance management system and compliance programs. a number of services and instruments have been developed in support of these obligations (for example, the automated monitoring devices for banks, or software, providing lists of “suspicious” individuals) – which results in the supply part of a market in compliance support – referred to in our research as the “compliance industry” [verhage, 2009]. basel committee (2005) states that compliance laws, rules and standards generally cover matters such as observing proper standards of market conduct, managing conflicts of interest, money laundering, treating customers fairly, and ensuring the suitability of customer advice. compliance laws, rules and standards have various sources, including primary legislation, rules and standards issued by legislators and supervisors, market conventions, codes of practice promoted by industry associations, and internal codes of conduct applicable to the staff members of the bank. for the reasons mentioned above, these are likely to go beyond what is legally binding and embrace broader standards of integrity and ethical conduct. in a globalised financial services industry, the regulations driving compliance include among those regulations that are imposed at the international level and are imposed at the eu level. in a context of eu, study in 2009 used some particularly important fsap measures (the selected directives) that are making compliance landscape: the prospectus directive; the financial conglomerates directive; the capital requirements directives (the crds); the transparency directive; the markets in financial instruments directive (mifid); the third anti-money laundering directive (3amld). in 2008 basel committee organized a survey “implementation of the compliance principles”. eight committee member countries and 16 countries that are not members of the committee participated in the survey. respondents from 21 jurisdictions underlined two major issues they had to face when implementing compliance framework. one of these issues, which relates to small and medium-size institutions in particular, was how banks should organize their compliance function. this includes, for instance, the determination of what are the appropriate resources for compliance function in relation to the size, complexity and nature of the business; the relationship between internal audit and compliance; the independence of the compliance function. another issue was the scope of compliance function. basel committee urged also other countries to assess the implementation of compliance principles. latvia implemented basel committee principles and definition of the compliance risk in may 2007, [fktk 2007]. birindelli (2008) confirmed hypothesis laying a special emphasis on the development of compliance risk management in foreign banks as in domestic banks. sathye (2008) found empirical evidence suggesting that owing to scale economies in regulatory compliance, the burden has fallen more heavily on smaller financial institutions”. in october 2010 basel committee issued principles for enhancing corporate governance. the bank should maintain sound control functions, including an effective compliance function that, among other things, routinely monitor compliance with laws, corporate governance rules, regulations, codes and policies to which the bank is subject and ensure that deviations are reported to an appropriate level of management and, in case of material deviations, to the board. committee noted that in some cases, banks’ compliance functions have been designed to address only anti-money laundering issues, which turns to be inconsistent with basel committee guidance. the compliance function should have a broader scope and address the areas indicated in this document and in the basel committee guidance. compliance strategy compliance is not itself distinct from business strategy and therefore could be linked to porter’s rubric of generic strategies [national occupational standards, 2010]. cost leadership strategy is a strategy based on assumption that the cost leader in a market or segment of a market can gain a competitive advantage by producing at the lowest cost – every element of the value chain is scrutinized to see if costs can be cut, including compliance. in a cost-cutting environment banks have to see through a wall if the ultimate costs of noncompliance will far exceed any short-term budgetary savings. rosi (2010) urge modern company to consider compliance leadership strategy as the core element in company’s overall strategy. further studies of eu documents suggesting that compliance cost cutting strategy could be more risky for latvian banking sector as for other member states and therefore the attention should be paid to differentiation strategy. the eu commission conducted “survey on the cost of compliance with selected fsap measures” [european commission, 2009]. the objective of the study was to obtain financial estimates of the costs of compliance with selected fsap legislative measures for a sample of eu financial services companies (including banks) and a more precise assessment of where the costs of eu regulation lie. the study was based on direct interviews of a sample of companies to obtain their estimates of the costs of compliance with the provisions of selected directives. the study was completed in january 2009. according the study the fundamental interest of the compliance function is in ensuring that the business complies with existing external laws and regulations, and internallydefined policies and ethical standards. beyond this, the compliance function is seen, by an increasing number of firms, as having a crucial role to play in the mitigation of reputational risk. thus, it follows that some spending on compliance would occur even in the absence of regulation. further, such compliance activity need not be restricted to the compliance function itself. the drivers of individual bank‘s compliance strategies and resource allocation in order to enable a ranking of relative importance was discussed and information obtained. the study set out below a ranking based upon the composite results of the participants interviewed (where a rank of one represents the most important category). it follows that in these charts closeness to the outer ring represents the greater relative importance of that driver or resource. issn 1822–8402 european integration studies. 2011. no 5 137 the perceived threat of regulatory sanctions is one of the key drivers for compliance strategy. this would require analysing developments in area of regulatory sanctions in eu and latvia. eu program for financial market reform and sanctions in order to regain full confidence in the soundness of the financial system as one of the pillars for growth, the commission proposed in 2009 and 2010 [eu driving european recovery, 2009] an ambitious new reform programme with five key objectives in the following areas of: supervisory framework; regulation; market confidence; risk management and effective sanctions. the objective of commission is to make sanctions more of a deterrent. the imposition of penalties on firms is an important part of the instruments available to regulators and, following the financial crisis, regulatory authorities have shown a greater willingness to employ those [armour et al., 2010]. law literature [wikstrom, 2006] argues that compliance with regulation should therefore be achieved through deterrence and deterrence experiences. a primary function of regulation of financial markets is to uncover and discipline misconduct. in the absence of effective monitoring and enforcement of rules of conduct, financial markets are particularly prone to abuse. commission stated that at present, sanctioning regimes are often weak and quite heterogeneous. legal framework covering sanctions provided for in national legislation for the violations of eu financial services rules – including: type (administrative and criminal, pecuniary and non-pecuniary) and level of sanctions, addressees of sanctions, factors to be taken into account in the application of sanctions – and actual enforcement of sanctions. in the light of this review, commission will make proposals on how member state sanctions should be strengthened and adequately enforced. based on research studies on the level of fines – direct penalties [armour et al., 2010] and its relation to the level of enforcement, the eu commission made an impact assessment [eu – impact assessment, 2010] that defines the problem and explains the need for and the objectives of eu level action in the field of sanctioning regimes. it also provides an analysis of the rationale, the alternative and the impact of the commission proposals on how sanctioning regimes may be approximated at eu level, which are presented in the communication on sanctions. the summary of assessment has been presented as a problem tree and several problems drivers were mentioned: type and level of administrative sanctions, application and enforcement of sanctions. lack of dissuasiveness, effectiveness and proportionality of sanctions has been pointed among specific problems. the specific problems can result general problems in a lack of compliance with eu financial services rules, such as prudential rules, conduct of business obligations, transparency obligations, etc. for instance, when the maximum amount of the pecuniary sanctions is very low, even for the most serious infringements, there is a high risk that sanctions will not have a sufficiently dissuasive effect, as the perceived reward from such behaviour will far outweigh the real risk. as an example: in the banking sector, when an infringement of banking law and money laundering occurs in some member states, the competent authorities will apply fines of less than 150 thousand eur, which are very unlikely to have a dissuasive effect on the large banking groups operating in these member states. in accordance with literature [armour et al., 2010], for a legal penalty to deter the wrong from which the defendant can gain a benefit w, the inequality w < pd (1) must be satisfied [becker, 1968], where d is the size of financial penalty and p (0 < p < 1) is the probability of enforcement. the theory of optimal deterrence implies that policy-makers should calibrate the right hand side of inequality (1) according to the social cost of the wrong in question, through either the amount spent on detection and enforcement (p) or the size of the penalty (d). those divergences and weaknesses of sanctioning regimes can also have a negative impact on the trust between national supervisors and hence on cross border financial supervision. the levels of administrative pecuniary sanctions (fines) vary widely across the member states and seem too ineffective in some member states, including for the same type of infringement. for instance, as regards the level of administrative pecuniary sanctions, the maximum levels provided for in national legislation diverge very widely: – banking sector: the maximum amount of fines provided for in case of violation is unlimited or variable in 5 member states, issn 1822–8402 european integration studies. 2011. no 5 138 more than 1 million eur in 9 member states, less than 150 thousand eur in 7 member states. chart 6, compiled from input from member states, gives an overview of the amount of administrative financial sanctions imposed in the banking sector (compared with the range of sanctions that is the minimum and maximum levels provided for in the legislation). from this chart it can be seen that the majority of member states, imposed little or no sanctions during that period. it also shows that in most cases where a wide range of sanctions are allowed in the statute book, including very high sanctions that range of sanctions is not effectively imposed. only in three member states was a significant amount of sanctions, totalling over one million eur, actually imposed in the banking sector during that period. in particular, if enforcement intensity is measured by financial penalties imposed, the us looks to be an outlier in world enforcement activity [coffee, 2007], [armour et al., 2009]. the gap in aggregate fines, even adjusted for differences in market capitalization, is so large (an order of four or five times anywhere else) as to pose the question whether misconduct outside the us in fact goes unpunished. however, it may be that regulators elsewhere—whose budgets are no less, in per capita terms, than the us—rely more heavily on reputational than financial penalties [jackson, 2008], [armour, 2009]. the difference may be more one of enforcement style than intensity. source: cebs report, p.50-52 and contribution from national authorities sanctions in latvia the author has performed the analysis of legal documents, which determine the highest administrative sanctions that could be applied to credit institutions in latvia. such sanctions are prescribed in two legal acts – code of administrative violation (code of administrative violation, 1984) and the law of credit institutions (law of credit institutions, 1995). in all there are determined ten violation kinds and the fines are from 250 till 100 thousand lvl or the corresponding eur. the highest sanction can be applied for the actions if the violation of the law “on money laundering prevention” has happened. consequently, the investments of the eu are being confirmed and latvia is ranging among the countries where the bank’s fines are the lowest. direct penalties according [armour et al., 2010] are only one, and a surprisingly small, component of the overall sanctions available to regulators. there is another that has received less attention to date but is revealed in this paper to be potentially far more potent than direct penalties. a firm’s reputation demonstrates the expectations that its partners have of the benefits of trading with it. in general this is difficult to measure but the release of new information provides an opportunity to do so. [armour et al., 2010] study the effect on firms’ reputations of the announcement by a regulator of corporate misconduct and examine whether following a firm’s ‘naming’ as a wrongdoer by a regulator, it suffers ‘shaming’ in terms of lost reputation. [armour et al., 2010] have found that reputational sanctions are very real: their stock price impact is on average ten times larger than the financial penalties imposed by the regulator. the study [deloitte, 2011] confirms that latvia is among those four eu member states, which are not publishing penalties. conclusions the role of the compliance in eu financial market is growing and according research will continue to grow. this could be explained by the fact that main supervisory objectives in eu countries after financial crisis are to ensure compliance with relevant laws and regulations. the new regulatory environment will require original ideas, new methods and approaches to the knowledge concerning the compliance management. in general by ensuring greater bank learning, knowledge creation, and knowledge use, government and regulators could help to reduce individual bank risks and within the limits of possibility to avoid future crises. at the same time – given the history of bank learning, incentives to issn 1822–8402 european integration studies. 2011. no 5 139 learn and implement knowledge effectively are only to arise at the top of banks with clear regulation and tough sanctions. latvia’s banking sector and regulator should have a discussion regarding development of education, professional examination and certification for the compliance specialists in latvia. the perceived threat of regulatory sanctions is one of the key drivers for compliance strategy in banks. eu commission proposed to make sanctions more of a deterrent and will make proposals on how member state sanctions should be strengthened and adequately enforced. research studies and review of latvian laws that regulate banking industry confirm very low level of sanctions in latvia. in addition to that latvia is among those four eu member states, which are not publishing penalties. the above-mentioned findings should urge latvia’s banking sector to pay greater attention to the issues of compliance management. references armour, j., mayer, c., polo, a. 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(2005) the evolution of compliance, journal of investment compliance, vol. 6, no 4, pp. 54-58. the future of compliance – best practice and delivering value. on-line http://www.i-law.com/ilaw/doc/view. htm?id=131975 – visited 16.02.2011. towards a single market act. online – http://ec.europa. eu/internal_market/smact/index_en.htm visited 16.02.2011. us fdic: compliance examination manual. on-line http:// www.fdic.gov/regulations/compliance/manual/index_pdf. html visited 22.02.2011 us fed: compliance risk management programs. on-line http://www.federalreserve.gov/boarddocs/srletters /2008/ sr0808.htm verhage, a. (2009) compliance and aml in belgium: a booming sector with growing pains, journal of money laundering control, vol.12, no 2, pp. 113-133. on-line www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html webfinance – business dictionary, 2011 www.businessdictionary.com/definition/compliance.html?q= compliance, visited 2011.01.26 law of republic of latvia code of administrative violations, accepted 07.12.1984 (in latvian – administratīvo pārkāpumu kodekss) on-line http://www. likumi.lv/doc.php?id=89648&version_date=21.05.2004 and http://www.likumi.lv/doc.php?id =89648 law of credit institutions, accepted 05.10.1995. (in latvian – kredītiestāžu likums) on-line http://www.likumi.lv/ doc.php?id=37426&version_date=24.10.1995 http://www.likumi.lv/doc.php?id=223915 the article has been reviewed. received in april, 2011; accepted in june, 2011. 29 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 cultural integration and cross–cultural management challenges in the central european countries: lithuania and poland http://dx.doi.org/10.5755/j01.eis.0.10.16281 jolita greblikaite aleksandras stulginskis university, universiteto g. 10, akademija, kauno raj., lithuania wlodzimierz sroka university of dabrowa gornizca, cieplaka street no. 1c, 41–300 dąbrowa górnicza, poland rasa daugeliene kaunas university of technology, mickeviciaus str. 37, kaunas, lithuania joanna kurowska–pysz university of dąbrowa górnicza, cieplaka street no. 1c, 41–300 dąbrowa górnicza, poland submitted 03/2016 accepted for publication 09/2016 cultural integration and cross–cultural management challenges in the central european countries: lithuania and poland eis 10/2016 european integration studies no. 10/ 2016 pp. 29–43 doi 10.5755/j01.eis.0.10.16281 © kaunas university of technology abstract the article focused on disclosing the situation of cultural integration in lithuania and poland lead­ ing to the different issues of cross–cultural management in labour market and companies activity. as the main research method, a critical analysis of scientific literature on cultural integration and cross–cultural management applied in the companies as well as secondary research data and legal documents are analysed focusing on both countries – lithuania and poland. practical exam­ ples’ analysis is based on particular issue of global company ang activity in poland. in lithuania the third countries citizens’ integration in labour market is discussed. findings. the main chal­ lenges, problems and improvement possibilities in cultural integration and cross–cultural man­ agement context in both countries are disclosed. the context of cross–cultural management, in terms of cultural integration and globalisation evaluated focusing terms of companies’ activity in poland and labour market issues in lithuania in terms of third countries’ citizens’ integration in it. practical implications. the research presents actual analysis of legal documents of third countries citizens in lithuania as well as the tools of improving the situation. particular issues for compa­ nies’ consideration are presented in case of poland. social implications. the research presents actuality of cultural integration and cross–cultural management in terms of society and business in poland and lithuania integrating different cultural groups and ethnic minorities in labour mar­ ket of both countries. originality/value. the paper considers actual and problematic issues in the e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 30 life of two countries in the frames of national identity and cultural integration’s conjunction and diversity. some particular issues as labour market and companies’ specificity are analysed. the comparative analysis provides some useful solutions for business and society. keywords: cultural integration, cross–cultural management, multicultural environment, national iden­ tity, multicultural business. business environment as well as management of the companies in central european countries (cee) have been changed radically since 1989. all the countries within the cee region started their integration with the european union (eu) and global world economy, which in turn resulted in the implementation of the new management tools and behaviour in all the countries. because a numerous of foreign international companies from the whole world decided to invest their money in those countries, multicultural environment and its management started to face the challenges. the companies suffered transitional period transforming from state–planned to free market economy. the decisions in business became dependent on cross–cultural management and its successful implementation resulting from europeanisation issues (delanty, 2005) and globalisation affected by glocalisation. given these circumstances, the aim of this paper is to present the main cultural integration and cross–cultural management aspects in the economy and social life of poland and lithuania as neighbouring countries and having common historical past and culture development (eriksen, 2007) and solving different questions in this field espe­ cially concerning the national identity (savickiene, kaledaite, 2008; anderson, 1992) and multi­ culturalism interactions. the issues presented in the paper include: 1 presentation of the cultural situation in lithuania and poland which may influence the func­tioning of the companies in both countries; 2 revealing the main problems of companies acting in multifaceted environment and pre­sentation of the possible improvement tools provided by cross–cultural management for further improvement of the economies of both countries – poland and lithuania ; 3 particular issues of cultural integration and cross–cultural management in poland and in lithuania influencing the changes in economic and social life of both countries. introduction cultural integration issues in poland and lithuania multiculturalism in lithuania and preconditions for cultural integration and cross–cultural management in lithuania the concept of multiculturalism was adopted just in the last decade of the 20th century. it became more common in social and humanitarian sciences. the concept of multiculturalism was tightly related with ethnicity in the terms of “many ethnicities” as lithuania is rather mono ethnical country consisting more than 80 percent of lithuanians and population in the country does not ex­ ceed 3 million citizens (lithuania population clock, 2016). potasenko (2009) describes multicultur­ alism as cultural diversity or culture amalgam. multiculturalism is evaluated from religious, lingual, ethnical perspectives. lithuania is kept more like “one nation” country than multicultural one. how­ ever in lithuania multiculturalism and ethnocentrism are already started to be conceived as different poles discussing about national identity and cultural diversity. in eu political focus implementing multiculturalism doctrine is focused on cultural diversity and cul­ tural integration. it should be mentioned that the current situation in eu caused by flows of migrants from ukraine, at first, later the difficult situation of syria influenced decisions and actions in favour of solidarity of these nations. however, the political and cultural tension became obvious. lithuania is prepared to adopt refugees from syria, but at the moment situation is just planned for the later time 31 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 (the second half of year 2016). even the discussion of these actions taken by lithuanian government was admitted rather “hot” by society and was led by concern of unsafety for native people in here. the national identity became more discussed and crosses national borders of the eu countries (field, 2012). the dominance of one culture is the issue not only in lithuania. recent political events force to think of preserving every country by their citizens as some threat is raised from instability in the region. as eu is multicultural in itself the appropriate rights and laws must be issued and applied for man­ aging multicultural issues in economic and social life of the countries. lithuanian government still struggles the lack of appropriate political actions in the field of multiculturalism policy. in 2007 “strategy of minority policy development till 2015” (tautinių mažumų politikos plėtros iki 2015 metų strategija) (lrs, 2007) was adopted but it showed rather old fashioned view to the presented ques­ tion (hrmi, 2009). in the review of human rights in lithuania (year 2011–2012) it is stated that human rights remain as not essential object of discussion and it is not a part of political work schedule (hrmi, 2013). however, it remains positive that partnership between public and private sectors is more and more valued as perspective and useful and this precondition development of different societal groups interests in political level. in the review of human rights in lithuania (year 2012–2013) which was made by european fund of human rights (2014) the emphasis was put on the necessity of political documents in the sphere considering international obligations and suggestions in the field of human rights in lithuania. it must be stressed that the attitude to multiculturalism in lithuania was mostly perceived as op­ posite to nationalism, or rather neutral and even as some negativity. it also should be mentioned that rather often multiculturalism in lithuania is perceived as threat to national identity and national culture despite that eu cultural policy is based on preservation of cultural identity and variety. such and attitude affects and business environment in the country as some intolerance and cultural mis­ understandings exist especially concerning third countries citizens. lithuania suffers problems of ethical minorities integrating them in labour market and social life (beresneviciute, 2005, p. 11). as one of the consequences of cultural integration in lithuania adaptation of national culture to “eu­ ropean standard” should be mentioned (laitin, 2002). the standard to be more europeanised and the orientation for more ideological viewpoint exists. it is more common for eastern european countries. as lithuania was for many years member of soviet union here there are left some families and their children of other former soviet union countries for example, russia, ukraine, belorussia, georgia and other. recent 10 years situation in lithuania has rather changed in terms of emigration as a lot of people left the country when lithuania became the member of eu. so it must be considered that for lithuanian citizens cultural integration became an issue in their emigration countries as united kingdom, spain, norway and etc. as well as national identity preservation question remains in there. lithuania has not suffering so much cultural variety as other eu countries as mostly cultural mi­ norities are living many years already and that the consequence of historical events, for example, as polish in vilnius region. as lithuania opened borders to the citizens of eu and third countries citizens the situation mostly have changed in higher education institutions as they are having students from different countries from africa (nigeria, congo, ghana) or asia (india, pakistan, bangladesh) (for example, aleksandras stulginskis university, kaunas university of technology). the cultural variety exposed some changes but it might be stated that they are not essential in the country level. edu­ cational institutions’ staff sometimes are facing the lack of cross–cultural skills as much as skills in managerial and in teaching level too when cultural variety appears. the globalisation forced to evaluate the skills and capabilities to adapt to multicultural environment despite some fear of loss of national identity. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 32 in adapting to the new cultures the old problems just have to be solved in lithuania (pervazaite, 2014). in lithuania xenophobia, homophobia and social distance were rather dominating. some of these old fashioned attributes of behaviour will have to change in order for more effective and deeper cultural integration in favour of less political and social tension in society as in the same for more favourable environment for foreign business investments in the country and more suc­ cessful activity of lithuanian companies going on international stage. from the other hand, such a small country as lithuania must be oriented to national identity cherishment to stay unique. in these conditions the smart and thoughtful decisions are necessary for striving to be competitive and attractive in economic sphere. the specificity of polish culture and management inter–cultural determinants strongly shape the functioning of many companies. it is, however, dif­ ferentiated depending on whether the company represents the domestic, international or multina­ tional kind. at the stage of a domestic company, the cross–cultural aspects are not very important. this is evident especially in poland, which is inhabited by the representatives of nine national mi­ norities: belarusians, czechs, lithuanians, germans, armenians, russians, slovaks, ukrainians, jews and 4 ethnic minorities: karaits, lemkos, roma and tartars. further in pomorskie province there are kaszubs – the community which used regional language (paszkowska–rogacz, 2006, p. 18). it means that labour force is practically ethnically homogenous (grandys and grandys, 2010). it changes, however, radically if the company reaches the status of international corporation, mul­ tinational one or finally – global (transnational). for example, knowledge of foreign languages and business protocol is a prerequisite for communicating with foreign suppliers and buyers as well as managers who come from different countries and represent a variety of cultural backgrounds. cultural factors are of great importance for running an international business (kania, 2010), and strongly shape the functioning of many companies (grandys and grandys, 2010). a variety of cul­ tures coexist in the global market and many of them might be entirely new and strange to us. different business cultures in different countries lead to distinct commercial practices. therefore, executives operating internationally encounter difficulties that people managing enterprises on a local scale do not have to face. the concept of culture has many meanings. all of them, however, originate from latin, where culture stands for cultivation. in a majority of western languages, cul­ ture is identified with civilization or intellectual refinement manifested in education, art and litera­ ture (hofstede, 2000). in addition, it is a social phenomenon as it is common for people existing in a given social environment. culture is acquired and learned in the environment. culture contains the entirety of attainments of a given society handed down from generation to generation that concern e.g. beliefs, models of conduct and rules of coexistence. it forms sets of rules, conceptions, and categories, concepts accepted in the society and determining obligatory behaviours (nogalski, jarocki 1998, p. 70). never theless, while contemplating culture we think about its region, ethnic and religion diversity, and also organizational culture, alias corporation culture. the fundamental dimensions of national cultures that differentiate us are (kania, 2010): _ attitude towards regulations and principles, _ individualism versus collectivism, _ fragmentary versus holistic perception of the world, _ ascribed status versus achieved status, _ attitude towards time, _ attitude towards environment. 33 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 the culture of poland is going through the transition process. the political and economic changes shape the society and there is obvious transition in main cultural dimensions i.e. power distance, individualism, uncertainty avoidance, masculinity and short term orientation. in the cultural process of transformation in poland, four main stages may be distinguished (theodoulides and korman­ cová, 2013): _ first stage: years 1989 – 1995 characterized by the beginning of transition to market based ap­ proach, and the extensive privatisation process, _ second stage: years 1996 – 2003, which is characterized by the emphases on the gaining the new managerial experience offered through many mergers and acquisitions, rapid development of the foreign cooperation offered by various international experts and international programs, _ third stage: years 2004 – 2008, in which the main event that was the entrance into the european union, _ fourth stage: 2009 – till present, characterized by the effects of the global economic recessions as the part of the world global market. according to theodoulides & kormancová (2013), the characteristic features of polish culture in­ clude: individualism, discipline and loyal to old principles, strong preferences for formal structures, presence of both “old” and “young” management, zero correlation between age of organisation and management style. it is necessary to emphasize that poland adopted also some characteristics of the american and also asian cultures as a result of multinationals from these geographical regions (goodyear, toyota, etc.). one of the main changes was strong shift from collectivism towards more individualism dimension, especially within the young generation. another change occurred is that poles are willing to work long hours and take few holidays in order to achieve higher carrier and earn more money. on the other hand, however, poland is still regarded by foreign investors as a culture with little initiative, no questions and lack for innovations and new ideas (lithuania appears even in worse position in this case) (figure). figure 1 innovation on poland vs. innovation of other countries. source: theodoulides and kormancová, 2013 innovation leaders innovation followers moderate innovators catching–up countries e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 34 in the overall context of the country it should be mentioned that lack of innovation influence and managerial issues as cross–cultural management appliance effectiveness in poland. traditional viewpoint to decision making is often not effective in very fast changing economic conditions. globe research (house et al., 2004) has showed that poland business culture was similar to greece, hungary, albania, slovenia, russia, georgia, and kazakhstan and represented eastern european countries cluster with quite high team orientation, autonomy, self or group protective­ ness, but participation, orientation to performance were expressed as rather low. main challenges of companies acting in multifaceted environment and measures for further improvement in both countries – poland and lithuania intercultural awareness, especially within a global enterprise is a critical principle to the components of the value chain and overall business success (reidy, 2010). these companies face the challenge of managing complex multi–environment system of multiple societies. on the one hand, the busi­ ness activity of large companies all over the world increasingly links various nations and cultures, however, on the other hand, it reveals profound differences between people and nationalities on the level of communities, individuals and organisations (murdoch, 1999, p. 20). therefore, to achieve their goals, global corporations need, among other things, to overcome cultural barriers in man­ aging foreign subsidiaries or even at the beginning born to act globally. it means that developing knowledge in this area is significant. people working for such companies have to deal with the following challenges: _ handling the language barrier, as they have to communicate with global colleagues daily or weekly, _ dealing with stereotypes and prejudices, _ ability to communicate effectively, _ they are dependent on other global workgroups from different regions, and countries with differ­ ent culture to successfully complete strategic projects and programs, _ managing global projects and dealing with multiple people, _ have to be opened to new ideas and develop creative solutions. workflows are coordinated across global locations at their company, and cultural differences arise mostly due to the lack of cultural awareness. on the other hand, it is necessary to emphasize that there are different problems and possible conflicts when people from different cultures cooperate with each other. when global teams consist of more than one culture, the individuals within the team bring with them preconceived beliefs about team members from the other cultures and it is these beliefs that could lead to unintentional conflict due to misunderstandings (rothbard, 2009). it also re­ quires different strategies to manage them successfully. these strategies include (brett et al., 2006): _ adaptation, which is used to combat situations where conflict arises due to differences in deci­ sion–making or misunderstandings are experienced when communication differences from one or more individuals avoids or ignores another individual or individuals due to challenges in the communication process. the adaptation solution requires cultural awareness amongst members and time to analyse the challenge and direct the individuals towards a common understanding, _ structural intervention, which assists by temporarily subdividing teams to mix cultures or exper­ tise, _ managerial intervention, which is generally used when a problem or real challenge appears irre­ solvable, _ exit strategy, which is usually applied to longer–term problem situations. beside specific organisational cultures, also national culture differences are a matter of concern in international corporations, poles, germans, americans or the french have a different perception 35 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 of such values as teamwork, a different attitude to regulations and procedures and they perceive dimension of time differently. taking these differences allow to elucidate the grounds of communi­ cation, management or collaboration problems, as well as to decide on the course of action. cultural differences can be frustrating for businessmen or companies. ignorance and non–observance of the rules and national customs valid in a given country may entail breaking promising negotiations, cause unintentional offence to a foreign customer or other instances of social blunders. therefore, profound knowledge of customs and practices applied in international business is of great signifi­ cance. there are two basic rules in this regard (gesteland, 2000, p. 125): 1 the seller is expected to adapt to the buyer in international business 2 the visitor is expected to observe local customs in international business. one should also remember that in large companies (not mentioning global corporations) main communication occurs via satellites on the internet through modems connected to laptop or computer. even then, cross–cultural sensitivity is essential when participating in teleconferences or videoconferences. electronic media also require appropriate etiquette and protocols to create cultural synergy (moran et al. 2014). the expectations presented should determine the actions of companies operating in different cultural conditions and businesses must develop cultural sensitivity to communications between people from different centralized and distributed subsystems and cultures (reidy, 2010). major determinants of human actions are individual and organisational factors which are influenced by three levels of mind programming. (rozkwitalska, 2011). they include: _ national culture bonded, like: cultural distance, cultural shock, cultural stereotypes and auto–ste­ reotypes, prejudices, and national ethnocentrism, _ organizational: global corporation’s headquarters’ characteristics, institutional ethnocentrism, the cultural gap, and subsidiary’s characteristics, _ individual rooted, like: ethnocentric attitude, perception barriers, low international experience of individual, his or her characteristics, insufficient level of cultural intelligence and cultural competences. in terms of polish and lithuanian companies foreign companies acting in the countries could be good examples of implementation of cross–cultural management principles in their activity. integration of third countries citizens in lithuanian labour market the last statistical data recording of lithuanian citizens made in 2011 in the level of all country shows that situation has not significantly changed during last years. in lithuania there were liv­ ing the citizens of 154 nationalities: 6.6 percent of polish, 5.8 – russians, 1.2 – belarusians and 0.5 – ukrainians. lithuanians consisted 84.2 percent of population. without mentioned before nationalities there are living armenian, georgian, chechenia, azerbaijani, afghanistan people as well as jewish and others. lithuania did not become a destination country for new immigrants because of economic and social situation. although some tendencies might be observed in data (see table 1). the latest refugee situation in eu lithuania is not so concerned as it is with germa­ ny or austria, greece, hungary or sweden. looking at the data in table 1 the numbers are presenting the growing tendency of incoming people. it might be possible to consider that in the first years of lithuanian membership in eu there were just small interest in lithuania by immigrants. particular issues in lithuania and poland influencing the changes in applied cross–cultural management e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 36 table 1 immigration tendencies in lithuania 2002 –2014 year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 incoming people 5110 4728 5553 6789 7745 8609 9297 6487 5213 15685 19843 22011 24294 source. lithuanian statistical department, 2016. the tendency of later years presents that numbers were growing almost more than 3–4 times. still it might be considered that immigration of foreigners to lithuania remains very low with the annual average of several thousand people. in 2014, 4.8 thousand foreign nationals immi­ grated to lithuania – 700 of them from eu and 4.1 thousand from non–eu countries. in 2014 immigration increased also due to the increased labour demand: the number of issued work permits for third country nationals increased. most foreigners come from russian federation, ukraine and belarus. as it could be considered in table 2 still numbers of foreign citizens are growing slowly. more vulnerable question remains that lithuanian citizens leave the country and choosing other countries for living and working. it is counted that about 1 million lithua­ nian citizens work and live abroad. and the main issue is that more high skilled workers leave the country for insufficient economic conditions. more detailed analysis of the situation presents that in lithuania as foreign citizens reside peo­ ple from latvia, poland, germany. russian, ukrainian, and belarussian people are residents in lithuania as well (see table 3). it could be stated that the situation is caused by geographical situation and neighbourhood policy. table 2 foreign citizens living in lithuania (in thousands) 2009 2010 2011 2012 2013 2014 number of citizens 3176,3 3137,0 3052,6 3007,8 2979,3 2944,5 foreign citizens 32,9 32,5 29,6 31,3 32,3 35,5 source. migration department of lithuania, 2015. according berseneviciute et al. (2009) in lithuania there are just a few migrants’ communities. the tendency is observed that new coming people from abroad rare keep the relations with such kind of communities. according eriksen (2007) lithuanian migration policy is more social than oriented to cultural integration. in lithuania the rights of foreign citizens residing in here are defended by constitution and inter­ national or bilateral agreements. despite that in lithuania any congruent document enforcing the rights of third countries citizens was not in act. some fragmented questions are discussed in legal documents as immigration is treated as measure for solving some economic problems suffered in the country (emn, 2012). as it was discussed earlier the convention of minorities human rights is not implemented appropriately (efhr, 2014). even some misconducts of legal acts were observed. in 2007 lithuania did some appropriate actions in accordance to migrants’ economic activity. it was “strategy and its implementation measures for economic migration regulation” (ekonominės migracijos reguliavimo strategija ir jos įgyvendinimo priemonės) (lrs, 2007). this document considers the vision and policy of migration in lithuania (žibas, platačiūtė, 2009). the newest document in the field of minority policy is prepared to adopt – “ethnical minori­ ties’’ policy development strategy, year 2015–2021” (tautinių mažumų politikos plėtros strategija 2015–2021 m.) (lrv, 2013). a lot of discussion before the adoption of the strategy were fulfilled. 37 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 3 foreign citizens according the countries in 2014 citizenship number european countries 28265 eu countries: 3655 latvia 718 poland 548 germany 550 efta countries 135 other european countries: 24475 armenia 428 belorussia 5846 georgia 326 russia 13331 ukraine 3713 north america countries 415 central and southern america countries 113 australia and oceanic countries 28 asia countries: 2396 israel 380 kazakhstan 321 china 339 lebanon 183 african countries 378 other 3892 iš viso: 35 487 source. migration department of lithuania, 2015. the document still is on discussion because of different disagreements in the field of sur­ names writing in non–lithuanian symbols and double names of streets, for example, in lithuanian and polish. the economic policy of migrants in lithuania is regulated by the law of legal status of foreigners (dėl užsieniečių teisinės padėties) (lrs, 2009). this legal act regulates the most important spheres of foreigners living in lithuania. after year 2011 third countries citizens are getting more and more possibilities integrate themselves into social, cultural and busi­ ness environments in lithuania. the special funding takes care of providing consultations how to establish new enterprise, giving financial and legal knowledge. there are courses on lithuanian language, culture, entrepreneurship organised for foreigners for better integra­ tion in labour market and social life. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 38 in 2014 in lithuania new lithuanian migration policy guidelines were adopted (lrs, 2014). in them the most important tasks and principles were determined as well as the main migration policy directions were defined. migration process monitoring, refugee policy, foreigners integra­ tion, measures with illegal migration and international cooperation in the sphere were encoun­ tered. integration is bilateral agreement depending not only on the incoming people but on the atti­ tude of society. from this viewpoint various cultural events are actual and organised. essential competence is cross–cultural in cultures dialogue. the main issue stays intolerance for different cultures. in lithuania people were more positive to citizens of western europe countries (france, italy, belgium, and germany) and central european countries as latvia, czech republic, slovakia (beresnevičiūtė, leončikas, žibas, 2009, p. 40). third countries citizens were valued worse and attitude to them is sceptical. it must be stressed that the members of the states who countries are less supported in economic and cultural profit in eu are more nationalistic (fligstein et al., 2012). sometimes people think about eu as “elite” project. in lithuania according the research data it is possible to distinguish common problems concern­ ing ethical minorities and third countries citizens when integration in labour market and life in lithuania (okunevičiūtė – neverauskienė, 2009): _ insufficient lithuanian language knowledges; _ negative employers’ attitude; _ discrimination for race; _ diplomas without confirmation; _ nationalism in general; _ intolerance in society. in terms of more effective cultural integration in lithuania it must be considered and some spe­ cific projects which enhanced third countries citizens. as one of them is a project initiated in lithuania and named “tolerance and based on common understanding relationship development between lithuanian citizens and third countries citizens” (see esf page). by this project it was focused on the improvement of lithuanian society under the cultural diversity and trust in rela­ tionship and positivity to integration. in the same year another project was started – “intercultural competence and skills education towards the tolerance society creation”. in 2014 one very important project was started devoted to “labour migrants’ life and work con­ ditions research”. in lithuania there were implemented ten projects under the european social fund financing devoted to cultural integration and integration in labour market. it is possible to consider that the projects helped to develop cross–cultural skills and improve situation in terms of cross–cultural management. example of amg in poland there are many global corporations existing in poland. they are observed in a variety of sectors: automotive, banks, chemicals, food, steel and several other industries. one of them is arcelormittal group (amg) which is the world’s leading steel and mining company. in 2004 arcelormittal pur­ chased the steel companies in poland constituting ca. 70 % of market share. these theses present­ ed earlier are especially suitable to this group which employs 222,000 people across 60 countries (with an industrial presence in 19 countries). as reidy (2010) claims, a constant development of cultural awareness is important in the creation of a learning organisation, as well as a concept of knowledge management. it was developed by arcelormittal group. shortly after acquisition 39 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 of polish steel companies, the group implemented the assumptions of knowledge knowledge management program (kmp),which was broken down into four levels: level 1 – top manage­ ment; level 2– senior management; level 3 – middle–level management; and level 4 – junior management. a key component of the program is the participation of managerial staff in the “manager academy”. the manager academy program was implemented in 2006 and comprises three main blocks (gajdzik, 2008): _ fundamentals and knowledge – its purpose is to construct new employee approaches and new organisational culture and goodwill, _ management skills – covering performance management, leadership, personal effectiveness, cultural awareness, and team leadership; generally speaking its purpose is to improve the skills and competences of the management staff, _ professional skills – consisting of training in innovative and analytical thinking, dealing with stress, decision making, labour law, recruitment interviews, lean manufacturing, value chain management, project management, commercial negotiations and negotiation techniques, business communication, change management, and conflict resolution. another important component of the program is the exchange of knowledge and experience amongst the employees of the corporation as a whole. the group systematically organizes in­ ternal meetings, treating them as part of the exchange of experience; holds meeting with ex­ perts and scholars outside its structures; as well as participating in national and international conferences, symposia and workshops. it is estimated that approximately 35 percent of its staff are trained every year, and furthermore that knowledge is distributed via an effective system of communication. sharing of knowledge and the implementation of best practices are integral to its management philosophy. through its global knowledge management program, arcelormittal shares, develops and utilizes its knowledge and experience across all the existing facilities and subsidiaries to accelerate improvement in business performance. the kmp comprises all key functional areas, such as procurement, marketing, logistics, health and safety, steel production and processing, and customer service. the kmp includes ongoing benchmarking, regular tech­ nical meetings and information–sharing at the corporate, regional and operational levels to drive improvement in performance, enabling each business unit to benefit from economies of scale and access to the best practices and experience available within the corporation. therefore, the kmp contributes to enhanced quality, productivity and profitability across the whole group (sroka et al. 2014). cultural diversity is becoming the standard in most areas of life in europe. even for those with little interest in foreign cultures or in mixing with others culturally different from themselves, many everyday situations require intercultural interactions. it relates to the workplace, public services or educational institutions. therefore, people at all levels of the workforce, i.e. manag­ ers, employees, customers find themselves in new roles with new challenges. such interactions require a new mind set and a repertoire of skills beyond what was adequate for interaction within one’s own cultural group (paszkowska–rogacz, 2006, p.10). given these facts it is very important for managers to understand the dynamics of cross–cultural adaptation. whether one is con­ cerned with intercultural training, education, or development, all employees should learn about the influence of culture and be effective of cross–cultural communicators if they are to work with minorities in their own society or with foreigners encountered at home or abroad (moran et al., 2014, p. 26). that’s because a person who is culturally different may go through some form of ‘culture shock’. if managers know little about this phenomenon, they can react improperly to discussion e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 40 the employee’s behaviour and make the situation worse. therefore organisations often need to re–think their existing procedures to better meet the needs as well as the opportunities offered by a new culturally diverse workforce. in other words, intercultural communicative competence becomes a vital priority in all areas of life. cross–cultural management takes into consideration cultural context. its goal is not to eliminate differences between different people but to use these differences to enhance creativity – and thus performance – within an organisation. one may say that multi–cultural environment is very chal­ lenging, however, simultaneously it may also be a wonderful learning opportunity if managers understand these differences. an effective manager is able to communicate with people from various backgrounds. those who hold this position support training programs to help those who are different fit into the dominant organisational culture. given the facts above, no wonder that the intercultural management’s training area develops constantly in poland. of course, it relates rather to the large companies, as there will be a great number of firms, which never plan to train their employees in the intercultural management area. there are mainly micro and small entrepreneurs from the local level. training organisations will include this kind of training, workshop or seminar in their offer as a permanent possibility to learn for clients. the prices of these training will go down and probably, for a few years the intercultural training will more universal than today in such countries as poland and lithuania. in terms of lithuania and poland situation research discloses that both countries have culture based on one basic as lithuanian and polish. cultural diversity exist in the countries but it does not influence very much economic and social life of the countries. cultural integration process is more based on managing the minority groups than constructing some very diverse society mod­ el in the countries. in poland global companies are performing their activity as it was discussed in amg example. lithuania is lacking such companies because of quite narrow market and not so favourable economic conditions. in terms of business and labour force integration in labour market of both countries international and multinational companies apply cross–cultural management principles as well as national companies going abroad are doing the same. the main issue lays upon effectiveness of im­ plementation and especially it might be related with managers of the companies working with multicultural team and going to international or even global markets. poland as a big country was always more focused on internal market and now on influence of globalisation the situation is changing. it requires to be open minded for other nationalities in poland and abroad. lithua­ nian market is even more complicated now as in poland because it is quite small and companies must orient their products for, at least, international market, as going to some eu countries. for both countries, lithuania and poland, cross–cultural management is challenging for the dis­ cussed reasons and becomes more and more important. as some changes are happening in eu it reflects poland and lithuania in terms of cultural groups and different nationalities in the countries and their integration in economic and social life. the focus of countries on national identity preservation was always in alert, but economic situation forces to adapt to changing conditions and re–evaluate cultural integration possibilities in the countries. as appropriate measure in such situation education on multiculturalism and cultural integration should be mentioned (greblikaite, 2015). the role of cross–cultural management ba­ sics in study programmes at higher education institutions should help improve the situation in terms of bigger tolerance and positivism. appropriate skills and abilities could be gained and/or developed at higher education institutions if study programmes would be effectively involving them. 41 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 _ lithuania and poland being neighbourhood countries do not express significant differences in dealing with other cultures or minorities. both countries have dominant culture – polish and lithuanian and the biggest part of citizens are polish and lithuanians accordingly. globalisa­ tion and economic changes influence business in the countries to internationalisation and even global scene. some global companies are coming in poland and fulfilling their activity there on the same hand presenting the high standard of cross–cultural management as an example for other foreign and domestic companies. in case of lithuania only international companies are acting in the market but situation might change every day. lithuanian companies are working internationally or globally with specific products, especially it. in both countries the preference issue is managing minority groups in terms of integration of them in labour market and social life. national identity question is often raised in public discussion and remains very actual and important, especially for such small in population countries as lithuania. cross–cultural man­ agement remains as the main tool for companies in both countries striving to be competitive in the eu and global market. conclusions referencesanderson, b. 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(2014), “the trans­ fer of knowledge in intra–organizational networks: a case study analysis”, organizacija, vol. 47, no. 1, pp. 24–34. http://dx.doi.org/10.2478/orga–2014– 0003 theodoulides, l., kormancová, g. (2013), “the in­ tercultural dimensions of the cultures in transition process in central and eastern europe”, proceed­ ings of scientific papers: contemporary challenges towards management iii, pp. 41–60, uniwersytet śląski w katowicach, katowice. žibas, k., platačiūtė, v. (2009), “lietuvos imigraci­ jos politika ir trečiųjų šalių piliečių integracijos pri­ elaidos”, etniškumo studijos, no. 2, pp.40–53. žiobienė, e. (2005). žmogaus teisių garantijos. tautinių mažumų teisės, lietuvos žmogaus teisių centras, vilnius. 43 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 about the authors jolita greblikaitė assoc. prof., phd aleksandras stulginskis university fields of research interests social enrepreneurship, entrepreneurship in rural areas, family business, cross–cultural management address universiteto g. 10, akademija, kauno raj., lithuania tel. +370 61644615 e–mail: jolita19@gmail. com; jolita.greblikaite@asu.lt włodzimierz sroka assoc. prof. habil. dr. włodzimierz sroka, ph.d university of dąbrowa górnicza fields of research interests alliances, network organizations, coopetition, mergers & acquisitions, csr, innovations and entrepreneurship address cieplaka street no. 1c, 41–300 dąbrowa górnicza, poland tel. +48 322628560 rasa daugėlienė assoc, prof., phd kaunas university of technology fields of research interests economics of european integration; european economic policy; eu international economic relations; eu internal market functioning; effects of globalization address mickeviciaus str. 37, kaunas, lithuania tel. +370 67011022 email: rasa. daugeliene@ktu.lt joanna kurowska–pysz phd university of dąbrowa górnicza fields of research interests management, regional development, cross– border cooperation address cieplaka street no. 1c, 41–300 dąbrowa górnicza, poland european integration studies 2011.indd 63 issn 1822–8402 european integration studies. 2011. no 5 synergy of the amount of social security benefits and economic activity in latvia baiba mistre, aina muska latvia university of agriculture abstract research hypothesis: a synergy exists in latvia between the average amounts of state social security benefits and the regions’ economic development. the research aim is to identify interaction between the average amount of state social security benefits and economic development in latvia. the synergy between economic development and the average amount of security benefits, which was identified in this paper, can be regarded as a research novelty. latvia’s social safety system includes state social insurance, state social benefits, social services, and social assistance that are financed from both the central government’s basic budget and special budget and the budget of local governments. latvia’s social insurance includes state pensions and state social security benefits. in accordance with latvia’s legislative acts, its state social security benefits are classified into two groups: unemployment benefits and maternity and sickness benefits. the present research showed that the average amount of state social security benefits gradually increased in the regions of latvia in the period 2005-2009. the increase in the amount of benefits is related to an increase in wages, an increase in and the legalisation of employment, as well as amendments to legal acts of the republic of latvia. to compare economic development levels according to various indicators in latvia’s districts, a cluster analysis was performed. for the cluster analysis, 11 statistical indicators were selected. a cluster analysis showed that a monocentric economic development trend is specific to latvia, as a result of which there are significant differences between latvia’s capital city of riga and the other districts of latvia (a unit of administrative and territorial division in latvia till the middle of 2009). the economic development level in many latvian border districts (aluksne, balvi, gulbene, kraslava, ludza, valka) is low, as a result of which the socio-economic differences increase and differences in the average amounts of social security benefits paid in latvian regions increase. according to the research results, there are interactions – synergies – among the amounts of unemployment, maternity, paternity, and parental benefits, the distance of districts to the country’s capital city, as well as the economic development level of districts. key words: state social security benefits, economic development, synergy. introduction in avoiding social tension and in ensuring the wellbeing of society, an important role is played by the capacity of social security system and sustainable development that protect individuals in case of social risk and provide disabled individuals with means of existence. to provide a sustainable social security system in latvia, maintaining its financial stability and fostering its development as well as achieving the society’s better understanding of the role of social insurance system were set as the key tasks to be solved in the “national development plan 2007-2013”. after analysing the amounts of state social security benefits in latvia and its regions during 2005-2009, mistre b. and dobele a. emphasise that there are significant differences among these benefit amounts in various latvian regions (mistre b, dobele a., 2010). social insurance problems, including changes in the amount and number of social security benefits, were revealed in several studies conducted by the ministry of welfare (an optimal tax .., 2007; cunska z., muravska t, 2008; national strategy report .. , 2008). however, presently in latvia, few studies on the synergy of amounts of social security benefits and economic development, which is a complementary precondition for sustainable development in its regions, have been done. therefore, the synergy between economic development and the average amount of security benefits, which was identified in this paper, can be regarded as a research novelty. hypothesis: a synergy exists in latvia between the average amounts of state social security benefits and the regions’ economic development. the research aim is to identify interaction between the average amount of state social security benefits and economic development in latvia. to achieve the research aim, the following tasks were set forth: 1. to investigate the economic and legal aspects of the country’s state social security benefits; 2. to examine the economic development of latvia’s districts; 3. to compare the average amounts of state social security benefits with the results of cluster analysis. the present research is based on the monographic method, analysis and synthesis, deduction and induction, factor analysis, as well as the economic and statistical method. mostly legal acts of the republic of latvia, data of issn 1822–8402 european integration studies. 2011. no 5 64 the central statistical bureau (csb) and the state social insurance agency (ssia), and researches done in latvia in the field of social insurance were used in the present research. the research covers the period 2005-2009, analysing data by statistical region and district (a unit of administrative and territorial division in latvia till the middle of 2009). economic and legal aspects of state social security benefits a social safety system is established in any country, which to a great extent depends on the social and economic situation as well as on the social policy implemented in it. latvia’s social safety system includes state social insurance, state social benefits, social services, and social assistance that are financed from both the central government’s basic budget and special budget and the budget of local governments. the goal of social insurance system is to insure individuals and their dependent individuals against the risk of losing their earned income due to sickness, disability, maternity, unemployment, old age, accidents at work or occupational disease, as well as against additional expenses related to child care and the death of insured persons or their dependents. latvia’s social insurance includes state pensions and state social security benefits. in accordance with latvia’s legislative acts, its state social security benefits are classified into two groups: unemployment benefits and maternity and sickness benefits. based on the unpublished data of the ssia, the authors analysed only trends in the amounts of state social security benefits paid in latvia due to the limitation set for the paper. an amount of state social security benefits paid depends on the amount of earned income used for computing state social insurance contributions. to determine the amount of state social security benefits in latvia, the average wage subject to insurance contributions of a socially insured person is taken into consideration. table 1. changes in the average amount of state social security benefits in latvia’s statistical regions in 2005-2009, on average per month or period, lvl type of benefit region 2005 2006 2007 2008 2009 average absolute increase unemployment benefit rīga 86.14 107.75 142.73 185.62 197.26 27.79 pierīga 67.59 85.67 115.04 158.97 178.66 27.77 vidzeme 53.39 62.66 84.82 114.98 141.87 22.12 kurzeme 55.62 66.86 88.47 125.24 154.55 24.73 zemgale 56.65 70.24 98.09 140.48 158.4 25.44 latgale 44.44 52.93 70.99 92.73 123.69 19.81 sickness benefit rīga 150.77 178.19 214.37 280.78 353.51 50.69 pierīga 122.08 144.29 178.56 245.87 314.82 48.19 vidzeme 110.15 124.63 151.55 201.28 265.71 38.89 kurzeme 108.41 128.38 151.8 206.16 266.8 39.60 zemgale 107.07 123.95 154.15 208.65 270.09 40.76 latgale 92.65 106.00 128.26 173.62 231.22 34.64 maternity benefit rīga 721.74 823.44 1046.92 1300.89 1468.38 186.66 pierīga 564.75 664.33 835.9 1120.81 1245.29 170.14 vidzeme 399.65 485.46 623.96 859.00 957.09 139.36 kurzeme 414.87 471.6 618.74 802.69 943.77 132.23 zemgale 462.91 526.39 693.52 917.4 1028.34 141.36 latgale 378.69 443.79 574.48 741.98 888.38 127.42 paternity benefit rīga 109.16 131.71 161.92 201.42 274.06 41.23 pierīga 88.98 111.37 139.65 180.39 236.41 36.86 vidzeme 66.22 80.06 102.92 123.15 171.24 26.26 kurzeme 66.06 88.64 117.27 140.48 190.11 31.01 zemgale 71.64 88.83 115.19 142.81 203.5 32.97 latgale 62.10 74.51 92.34 116.98 167.84 26.44 source: computed by the authors using ssia data table 1 does not include changes in the amount of parental benefits paid, as this type of state social security benefits was introduced in latvia in 2008. according to the data of table 1, one can conclude that there are differences in the amounts of social insurance benefits among latvia’s regions. an analysis of the changes in the average amounts of state social insurance benefits in latvia’s regions from 2005 to 2009 shows that they have significantly increased in all the regions. the increase in average absolute figures indicates that the state social insurance benefits have increased most in the regions of rīga and pierrīga, whereas the smallest increase was in latgale region. the procedure of granting and paying unemployment benefits is regulated by the law “on insurance in case of unemployment” (1999). a person being granted the status of unemployed and having a period of insurance for not less than 1 year, if obligatory social insurance contributions for unemployment have been paid or had to be paid in the republic of latvia for at least nine months during the recent 12 month period prior to the date of gaining the status of unemployed, is entitled to unemployment benefit. the issn 1822–8402 european integration studies. 2011. no 5 65 amount of unemployment benefit is determined according to the period of insurance and the amount of earned income from which contributions are made. table 1 shows that the average amount of unemployment benefits gradually increases in all the regions of latvia over the entire period of analysis. the increase in the average amount of unemployment benefits is related to an increase in wages in the national economy, a decrease in unemployment, and the legalisation of employment, i.e. social insurance contributions were made from all incomes, thus gradually reducing the phenomenon of under-the-table wages. (cunska, muravska, 2008). table 1 also shows that the average amount of unemployment benefits increased in 2009 as well when latvia’s national economy faced an economic crisis that was fostered by both structural and cyclical and endogenous factors. the economic recession significantly impacted the labour market – the rate of registered unemployment increased, the rate of employment decreased, the indicators of economic activity sharply declined, and wages significantly decreased (the conception of..., 2010). the economic crisis did not significantly impact the average amount of unemployment benefits in 2009, as a six months period of contributions made by a socially insured person from the average wage subject to insurance contributions that ends two months before the person obtained the status of unemployed is taken into account when computing the amount of an unemployment benefit. (on unemployment insurance, 1999). a sickness benefit is granted if a person does not go to work and thus loses job income or if a self-employed person loses income in the following cases: disability due to sickness or trauma, medical care or prevention is needed, isolation due to quarantine is necessary, treatment at a medical institution during the period of recovery after sickness or trauma if such treatment is needed to restore working capabilities, care, prosthesis, or orthesis for a child under 14 years of age at hospital. since 2009, a sickness benefit is granted and paid for a period from the 11th day of incapacity for work till the day of restoring working capabilities, but for not more than 26 weeks from the first day of incapacity for work if the incapacity is continuous or for not more than 52 weeks within a three year period if the incapacity returns interruptedly. until 2009, any sickness benefit was granted and paid for a period starting with the 15th day of incapacity for work until the day of restoring working capabilities, but for not more than 52 weeks from the first day of incapacity for work if the incapacity is continuous or for not more than 78 weeks within a three year period if the incapacity returns interruptedly. a sickness benefit in the event of taking care of a sick child under 14 years of age is granted and paid for a period from the first day of incapacity for work until the 21st day of incapacity for work (on maternity and ..., 1995). table 1 shows that the average amount of sickness benefits, too, gradually increased in all the regions of latvia over the entire period of analysis. since the amount of this benefit is affected by the amount of income (wage) from which state social insurance contributions are made and owing to a gradual increase in wages over the period of analysis and a decrease in the rate of unemployment until 2008 in latvia, which indicated an economic boom and (almost) full employment, the average amount of this benefit rose as well. table 1 shows that the average amount of maternity and paternity benefits, too, gradually increased in all the regions of latvia over the entire period of analysis. the economic boom in the country in the period until 2008 caused an increase in available funds for welfare and, therefore, significantly impacted an increase in expenditures on state social security benefits. amendments to the legislative acts significantly affected this increase in government expenditures. the amount of child care benefits did not depend on an individual’s social insurance contributions until 2005. beginning with that year, the benefit depends on the amount of income earned and only partially can be regarded as a social benefit, besides, it features a family planning instrument. after the amendments were made to the legislative acts, the average child care benefit, in terms of money, increased. the “mother’s wage” policy was a stimulating factor for families to plan and afford one more child, especially in 2006-2007, when an economic boom was observed in latvia. the number of beneficiaries of child care benefits in latvia gradually decreased until 2007, but this number rose by 4525 in 2007 compared to the previous year, but in 2008 it sharply decreased again, as this government support increased mostly owing to an increase in child births and during the first year of life of children; after the second year of their life this support decreases. it means that support for children in latvia is intended only for a relatively short period (2 years), that is why it does not provide a real support for families and does not promote an increase in child births (cunska z., muravska t., 2008). according to the legislation of the republic of latvia from 2005 to 2007, the amount of child care benefit was determined: • person taking care of a child up to one year of age if this person is employed – is deemed to be an employee or self-employed person in accordance with the “law on state social insurance” (1997) and is on parental leave or is employed during the period of childcare, but is not on parental leave – 70 % of the average monthly wage subject to insurance contributions, but not less than lvl 56 per month and not more than lvl 392 per month; • person taking care of a child up to one year of age if this person is not employed – is not deemed to be an employee or self-employed person in accordance with the “law on state social insurance” (1997) – lvl 50 per month; • person taking care of a child from one year up to two years of age – lvl 30 per month. • an increase in the amount of benefits was also caused by a new provision of the law giving a right to an employed individual who cares for a child aged less than 1 year to be employed and, at the same time, to get a full child care benefit, thus stimulating child benefit requests by those parents who earned larger wages. (national strategy report …, 2008). in accordance with the 2008 budget draft law, the government agreed to the amendments to several laws submitted by the ministry of welfare, which stipulated the introduction of a new social insurance benefit, i.e. parental issn 1822–8402 european integration studies. 2011. no 5 66 benefit that partially replaced child care benefits. since 2008, employed individuals receive a parental benefit, but unemployed individuals keep getting a child care benefit. the amendments to laws stipulated that no maximum limit of lvl 392 will be in effect since 1 january 2008, respectively, an individual caring for a child aged less than 1 year will receive a benefit equal to a wage earned after tax deductions. the minimum parental support is lvl 63 a month since 2008. a parental benefit is granted and paid to a socially insured person that nurses his/her child aged less than one year if this person is employed on the day of granting the benefit and is on leave for child care or does not gain income from selfemployment due to child care. the average amounts of state social security benefits differ among the districts of latvia (see table 2). table 2. average amounts of state social security benefits in the districts of latvia in 2008-2009, lvl district unemployment benefit sickness benefit maternity benefit paternity benefit parental benefit 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 riga city 186 197 281 354 1301 1468 201 274 399 515 riga 176 201 271 350 1321 1437 216 281 406 521 jelgavas 168 184 222 300 1061 1214 171 230 322 432 ogre 168 183 232 287 1158 1248 182 242 395 451 ventspils 162 187 252 318 882 1067 173 231 338 428 aizkraukle 147 155 224 270 865 1022 157 195 303 355 limbazi 140 149 214 273 852 995 127 182 265 341 valmiera 139 158 228 278 939 1019 135 188 295 372 bauska 138 166 221 280 963 1051 144 217 294 373 cesis 136 146 226 300 902 1083 123 162 274 354 tukums 136 161 242 314 951 1110 162 197 319 380 dobele 134 155 202 283 865 980 128 211 268 329 liepaja 131 159 203 257 803 918 146 175 280 347 saldus 118 153 205 259 805 957 131 187 275 322 jekabpils 115 132 175 217 833 874 114 164 237 310 valka 114 142 212 276 782 879 127 172 245 311 talsi 112 134 178 247 710 851 123 180 242 299 madona 111 135 187 247 860 987 110 175 238 320 daugavpils 107 141 163 205 716 847 109 155 235 295 kuldīga 103 139 193 252 812 926 129 177 243 315 rezekne 99 133 184 243 781 946 123 173 249 298 gulbene 98 135 164 225 836 872 90 141 207 276 preili 93 116 181 230 828 967 119 172 232 318 aluksne 92 135 191 267 835 902 123 162 240 298 ludza 90 117 186 270 732 886 113 160 230 300 balvi 87 123 186 257 769 923 123 188 270 310 kraslava 80 112 142 183 627 761 116 159 220 240 source: computed by the authors using ssia data the explicitly largest state social security benefits are received by beneficiaries in riga district and the city of riga: the average unemployment benefit ranged within lvl 197201, the average sickness benefit was within lvl 350-354, the average maternity benefit ranged within lvl 1437-1468, the average paternity benefit – lvl 274-281, and the average parental benefit – lvl 515-521 in 2009. over the analysed period, the smallest unemployment benefits were received by beneficiaries living in the districts of kraslava, balvi, ludza, preili, aluksne, and rezekne. the smallest sickness benefits were paid to residents of the districts of kraslava, daugavpils, gulbene, jekabpils, and talsi. yet the smallest maternity, paternity, and parental benefits were received by beneficiaries in the districts of kraslava, ludza, issn 1822–8402 european integration studies. 2011. no 5 67 daugavpils, jekabpils, gulbene, and valka. the economic development of the regions has to be analysed to provide a deeper analysis of the differences in amounts of state social security benefits. evaluation of economic development in latvia’s districts to compare economic development levels according to various indicators in latvia’s districts, a cluster analysis was performed. for the cluster analysis, 16 statistical indicators were selected: number of residents at the beginning of 2009; change in the number of residents (from the beginning of 2005 to that of 2009, %); population density at the beginning of 2009 (people per 1 km2 of territory); number of employees at their basic work in 2008 (thsnd.); demographic burden per 1000 residents as of the beginning of 2009; net wage in the private sector in 2008 (lvl); net wage in the public sector in 2008 (lvl); number of economically active legal entities or entrepreneurs and businessmen per 1000 residents in 2008; number of businessmen per 1000 residents in 2008; total revenues of the basic and special budget in 2008 (lvl); revenues of the basic budget in 2008 (lvl); revenues of the basic budget per 1 resident in 2008 (lvl); gross domestic product budget in 2006 (thsnd. lvl); gross domestic product budget per 1 resident in 2006 (lvl); nonfinancial investments in 2006 (mln. lvl); nonfinancial investments per 1 resident in 2006 (lvl) (see table 3). these statistical indicators were summarised for all the 26 districts of latvia. riga city or the country’s capital was excluded from riga district. analysis of variance (anova), which is included in the module cluster analysis of spss for windows, showed that all the selected indicators, except five: change in the number of residents, demographic burden per 1000 residents, net wage in the private sector, number of economically active legal entities or entrepreneurs and businessmen per 1000 residents, and nonfinancial investments per 1 resident are statistically significant for grouping the districts into clusters. their significance did not exceed a level of 0.05. the statistically insignificant indicators were omitted by the authors. the cluster-to-cluster distances obtained in the analysis prove that there is a relationship among the clusters. the clusters being closer to each other can move to another level if a new distribution of them is performed, and they can create new clusters or cluster groups. in clustering the statistical data, several numbers of clusters were considered: from 2 to 10 clusters. latvia’s territorial division by economic development into 7 clusters was the most appropriate option, as the number of latvia’s districts was more equable with such a distribution into clusters. in addition to the clustering results, the clusters were ranged for all the statistically significant indicators to determine the overall development level of each cluster in relation to the other clusters (see table 3). the ranging showed that the most positive situation regarding economic development was in cluster 1 that included only the capital city of riga; the values of all the statistically significant indicators were placed in the first position. cluster 2 included the districts of riga and daugavpils. the values of all the mentioned indicators were placed in the second position, except the indicators: revenues of the basic budget per 1 resident and gross domestic product budget per 1 resident. the values of these indicators are reduced by the large number of residents in the districts included in cluster 2. after comparing the average values of clusters 2 and 1, one can conclude that there is a significant difference pointing that the economic development level in the capital city is much higher than in the districts included in cluster 2. cluster 3 includes 2 districts – jelgava and liepaja. the indicator “number of businessmen per 1000 residents” was placed in the second position, the indicator “gdp per 1 resident” had the fourth position, and the indicator “net wage in the public sector” took the fifth position; all the values of the other indicators were placed in the third position. cluster 4 also includes 2 districts – rezekne and ventspils. the indicators “revenues of the basic budget per 1 resident” and “gdp per 1 resident” were placed in the second position. the values of the other indicators had the fourth position. the average value of the indicator “number of residents” in cluster 4 is smaller than that in clusters 2 and 3, therefore the value of the indicator “revenues of the basic budget per 1 resident” is higher, although the indicators “total revenues of the basic and special budget”, “revenues of the basic budget”, as well as “gdp” are almost twice as high. cluster 5 includes the districts of cēsis and tukums. the highest indicator of this cluster is “number of businessmen per 1000 residents” which was placed in the third position in the ranging, but if the average values of this indicator are compared among clusters 2, 3, 4, 5, and even 6, one can see that there are no significant differences among the values. a similar conclusion can be made for the indicator “net annual wage in the public sector” which was ranked in a low sixth position. however, after comparing the average values among clusters 3, 4, and 5, one has to conclude that there are no large differences among them. the indicator “gdp per 1 resident” is also ranked in the low sixth position. the values of the other indicators are ranked in the fifth position. cluster 6 includes 9 districts of latvia: aizkraukle, bauska, jēkabpils, kuldīga, madona, ogre, saldus, talsi, and valmiera. the average values of the indicators were ranked mostly in the sixth position for this cluster, meaning that the economic development level in this cluster is lower than in the previous five ones. issn 1822–8402 european integration studies. 2011. no 5 68 ta bl e 3. a ve ra ge v al ue s an d ra nk s of c lu st er s in th e cl us te r an al ys is o f e co no m ic d ev el op m en t i n l at vi a in di ca to r c lu st er 1 c lu st er 2 c lu st er 3 c lu st er 4 c lu st er 5 c lu st er 6 c lu st er 7 average value rank average value rank average value rank average value rank average value rank average value rank average value rank n um be r of r es id en ts 71 30 16 1 18 58 63 2 11 52 60 3 65 80 3 4 55 21 5 5 47 02 6 6 31 19 6 7 p op ul at io n de ns it y, p eo pl e pe r 1k m 2 23 53 .2 1 62 .8 2 48 .4 3 24 .5 5 4 20 .5 5 19 .8 7 6 14 .4 7 7 n um be r of e m pl oy ee s, th sn d. 40 0. 1 1 58 .8 2 36 .7 5 3 21 .4 5 4 15 .0 5 5 12 .4 6 6 7. 39 7 n et a nn ua l w ag e in th e pu bl ic s ec to r, l v l 57 37 1 41 10 2 40 36 5 40 37 4 40 24 6 40 85 3 38 20 7 n um be r of b us in es sm en p er 1 00 0 re si de nt s 56 1 24 2 24 2 21 4 22 3 20 5 15 6 to ta l r ev en ue s of th e ba si c an d sp ec ia l bu dg et , m ln . l v l 60 6. 80 1 72 .6 5 2 60 .5 5 3 36 .6 5 4 21 .3 5 5 13 .7 9 6 9. 04 7 r ev en ue s of th e ba si c bu dg et , m ln . l v l 55 4. 77 1 63 .3 6 2 55 .4 1 3 32 .7 8 4 19 .3 5 5 11 .9 3 6 7. 81 7 r ev en ue s of th e ba si c bu dg et p er 1 r es id en t, lv l 77 8 1 35 8 4 48 5 3 51 3 2 35 1 5 26 1 6 25 4 7 g d p, th sn d. l v l 67 22 32 7 1 62 41 51 2 37 87 23 3 23 73 40 4 13 63 74 5 12 29 71 6 64 24 9 7 g d p pe r 1 re si de nt , l v l 92 72 1 32 99 3 32 13 4 37 02 2 24 35 6 25 73 5 19 80 7 n on fin an ci al in ve st m en ts , m ln .l v l 20 34 .9 0 1 33 8. 15 2 14 2. 35 3 12 1. 75 4 69 .1 5 5 57 .3 3 6 26 .1 9 7 to ta l r an k 11 25 35 40 55 61 76 d is tr ic ts in cl ud ed in c lu st er s r ig a ci ty d au ga vp ils r ig a je lg av a l ie pā ja r ez ek ne v en ts pi ls c es is tu ku m s a iz kr au kl e b au sk a je ka bp ils k ul di ga m ad on a o gr e sa ld us ta ls u v al m ie ra a lu ks ne b al vi d ob el e g ul be ne k ra sl av a l im ba zi l ud za pr ei li v al ka so ur ce : d ev el op ed b y th e au th or s us in g c sb d at a issn 1822–8402 european integration studies. 2011. no 5 69 cluster 7 also includes 9 districts: alūksne, balvi, dobele, gulbene, krāslava, limbaži, ludza, preiļi, and valka. the values of the all selected indicators characterising their economic development level are ranked only in the lowest positions, meaning that this cluster’s districts feature the lowest economic development level in the country. discussion the authors compared the results of cluster analysis with the average state social security benefits paid in 2008 and 2009, as the amount of benefits is affected by the gross wage of a socially insured person during the previous period. after comparing the results of cluster analysis with the average unemployment benefit, one can conclude in general that the amount of this benefit is larger in the clusters of higher economic development level than in those of lower economic development level. table 2 shows that the largest amounts of unemployment benefits in 2008 and 2009 were in riga district and the country’s capital city. according to the results of cluster analysis, riga belongs to cluster 1, while riga district is in cluster 2. there were significant differences between clusters 1 and 2 regarding economic development, while no large differences were observed for the average amounts of unemployment benefits. in addition to riga district, cluster 2 includes also daugavpils district, but the average amount of unemployment benefits in this district is small compared to riga city and riga district. the average amount of unemployment benefits in jelgava district, which is included in cluster 3, was lvl 184, while in liepaja district it was lvl 159 in 2009. the average amount of unemployment benefits in ventspils district that is included in cluster 4 was lvl 187 in 2009, which is slightly more than in the districts included in cluster 3. yet in 2008, the average amount of unemployment benefits in ventspils district was lvl 162, which is slightly less than in jelgava district, but more than in liepaja district. in addition to ventspils district, cluster 4 includes also rezekne district; in both districts, the average amounts of unemployment benefits are low compared with the average amounts of unemployment benefits paid in the districts of the first four clusters. in clusters 5, 6, and 7 where the economic development level is lower compared to the above-mentioned clusters, the average amounts of unemployment benefits are volatile. the largest amount is in ogre district (cluster 6) and the smallest – in kraslava district (cluster 7). the difference is lvl 88 in 2008 and lvl 71 in 2009. by analysing the average amounts of unemployment benefits, one more correlation was identified the amounts of unemployment benefits are larger in the districts located close to the country’s capital: the districts of ogre, bauska, valmiera, aizkraukle (all of them are included in cluster 6), tukums (cluster 5), and dobele and limbazi (cluster 7). the national strategy report on social protection and social inclusion 2008-2010 states that “…the low rate of registered unemployment in the regions of riga and pieriga promoted regional mobility, respectively, part of businessmen attracted employees also from more distant latvia’s planning regions”. this mobility was mostly ensured by the districts closely located to riga city and riga district. wages in riga city and riga district were higher than in the country in both 2008 and 2009, and since the amount of unemployment benefits is affected by the size of wage, it was higher in the districts closely located to the country’s capital. the distance of economically less developed districts – daugavpils (cluster 2), liepaja (cluster 3), and rezekne (cluster 4) – to the country’s capital city is large, therefore, it does not promote the mobility of residents from these districts. wages in these districts are lower compared to the districts closely located to riga city and are ones of the lowest in the country. it means that there is interaction – synergy – among the amount of unemployment benefits, the distance of a district to the country’s capital city, as well as the economic development level of a district. after comparing the results of cluster analysis with the average maternity, paternity, and parental benefits, one can conclude that the largest amounts of maternity, paternity, and parental benefits are in the country’s capital city (riga) and riga district. there are no significant differences between the average amounts of benefits paid in these two areas, but large differences are observed if compared to the other latvia’s districts. besides, larger benefits are received by residents living in the neighbouring districts or those closely located to rīga city and riga district – ogre, jelgava, tukums, cesis, bauska, aizkraukle, valmiera, limbazi, and dobele. of the above-mentioned nine districts, four (ogre, bauska, aizkraukle, and valmiera) belong to cluster 6 and two districts (limbazi and dobele) are included in cluster 7, i.e. in the clusters of the lowest economic development level. the results can be explained by the fact that one of the highest indicators in cluster 6 is “net annual wage in the public sector, lvl”, which is ranked in the high third position. the national strategy report on social protection and social inclusion 2008-2010 also states that “…in the field of social insurance, an increase in expenditures was impacted by the significant rise of wages in the national economy, as a result of which the amount of benefits increased, pensions were annually indexed, and birth indicators improved in the country, which in their turn were affected by an increase in the number of maternity benefits”. after analysing the statistically insignificant indicator “net annual wage in the private sector, lvl”, the authors concluded that this indicator would not affect the results of cluster analysis and it would be ranked in the fifth position with an average value of lvl 3512.56 for cluster 6. in the districts closely located to riga city – riga, jelgava, and cesis – the average wages in the public and private sectors do not significantly differ from the average values of respective indicator in cluster 6. in the more economically developed districts located in the border zone of latvia – daugavpils, liepaja, ventspils and rezekne – the average amounts of maternity, paternity, and parental benefits are smaller if compared to the districts of riga, jelgava, cesis, and tukums. among the border area districts, the largest benefits were paid in ventspils district, while the smallest – in daugavpils district. if the indicator “number of newborns per 1000 residents” is analysed, a similar trend can be observed – the birth indicator is higher in the districts closely located to the capital city, but it is lower in more distant districts (demography 2009 (2009). issn 1822–8402 european integration studies. 2011. no 5 70 therefore, there is interaction – synergy – among the amounts of maternity, paternity, and parental benefits, the distance of a district to the country’s capital city, as well as the economic development level of a district. after comparing the results of cluster analysis with the average sickness benefits, the authors came to an analogous conclusion as in case of maternity, paternity, and parental benefits. it means that the largest sickness benefits are received in riga city and riga district as well as in their neighbouring districts or those closely located to the country’s capital – the districts of tukums, cesis, jelgava, ogre, dobele, bauska, valmiera, limbazi, and aizkraukle. it is determined by the mobility of residents in these districts and, therefore, higher wages. there are no significant differences between the average amounts of sickness benefits in riga and riga district, but large differences are observed if compared to the other latvia’s districts. in economically more developed districts that are located in latvia’s border territories – daugavpils, liepaja, and rezekne – the average amounts of sickness benefits are smaller if compared to the districts of riga, jelgava, cesis, and tukums, which is determined by low wages in these districts. among the border area districts, the largest amounts of benefits are paid in ventspils district. the average amount of benefits in this district is the third highest in the country. the authors explain the result gained in the present research – existence of interactions among the average amounts of sickness, maternity, paternity, and parental benefits – by the provisions that are stipulated in the country’s legislation: part of beneficiaries of sickness benefits (according to ssia data – approximately 20%) are parents of children. the dispersion diagram, too, for the indicators “average amount of parental benefits” and “average amount of sickness benefits” indicates a medium strong correlation. thus, there is a medium strong correlation between the average amount of sickness benefits and the average amounts of maternity, paternity, and parental benefits. there is also a correlation between the average amount of sickness benefits and the distance of a district to the country’s capital city and its economic development. conclusions 1. the average amount of state social security benefits gradually increased in the regions of latvia in the period 2005-2009. the increase in the amount of benefits is related to an increase in wages, an increase in and the legalisation of employment, as well as amendments to legal acts of the republic of latvia. 2. a monocentric economic development trend is specific to latvia, as a result of which there are significant differences between latvia’s capital city of riga and the other districts of latvia. 3. in many border area districts of latvia, economic development is unbalanced, as a result of which socioeconomic differences increase and a difference in the average amounts of state social security benefits paid emerges as well. 4. there is interaction – synergy – among the amount of unemployment benefits, the distance of a district to the country’s capital city, as well as the economic development level of a district. 5. there is interaction – synergy – among the amounts of maternity, paternity, and parental benefits, the distance of a 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(the conception of social insurance system stability in a long-term) on-line: http://www. lm.gov.lv/text/864 law on maternity and sickness insurance (1995). the law of the republic of latvia. on-line: http://www.likumi.lv/ doc.php?id=38051 law on state social insurance (1997). the law of the republic of latvia. on-line: http://www.likumi.lv/doc. php?id=45466 law on unemployment insurance (1999). the law of the republic of latvia. on-line: http://www.vsaa.lv/vsaa/ content/?lng=lv&cat=654 level of demographic burden at the beginning of the year. on-line: http://data.csb.gov.lv/dialog/varval.asp?ma=is 0050a&ti=is05.+level+of+demographic+bu rden+at+the+beginning+of+the+year&pa th=../databaseen/iedzsoc/annual%20statistical%20 data/04.%20population/&lang=1 market sector economically active statistical units by statistical region, city and district. on-line: http:// data.csb.gov.lv/dialog/varval.asp?ma=sr0050a&ti=s r05.++market+sector+economically+ac tive+statistical+units+by+statistical+ region%2c+city+and+district%2c+2004++2008&path=../databaseen/rupnbuvn/annual%20 statistical%20data/23.%20statistical%20business%20 register/&lang=1 mistre, b., dobele, a. (2010). evaluation of state social security benefits in latvian regions. in human resourcesthe main factor of regional development. proceeding of the 6th international scientific conference, klaipeda university. pp.268. 275. monthly employees middle income activity. on-line: http:// data.csb.gov.lv/dialog/varval.asp?ma=ds0020a&ti=ds 02.+average+monthly+wages+and+salar ies+by+kind+of+activity+%28in+lats%29&pa th=../databaseen/iedzsoc/annual%20statistical%20 data/wages%20and%20salaries/&lang=1 muška, a., ozoliņa, i. (2009). locations of shoping centres in the regions of latvia. economics science for rural development 2009: international scientific conference, jelgava, latvija, 2009.g. 23. – 24.apr: proceeding of the international scientific conference „primary and secondary production, consumption”, №19. jelgava: llu. pp. 189.197. national strategy report on social protection and social inclusion 2008 – 2010. (2008). riga: ministry of welfare. on-line: http://www.lm.gov.lv/text/549 resident population by region, city under state jurisdiction and district at the beginning of the year, 2005. 2009. on-line: http://data.csb.gov.lv/dialog/ varval.asp?ma=ais02a&ti=is02a.+resident+popu lation+by+region%2c+city+under+state +jurisdiction+and+district+at+the+begi nning+of+the+year%2c+1990+-+2009&path=../ databaseen/iedzsoc/annual%20statistical%20 data/04.%20population%20f%20archive/&lang=1 state social insurance agency (ssia) data the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 237 issn 1822–8402 european integration studies. 2011. no 5 development of latvian auto roads and administrative system improvement astrida rijkure, roberts skapars university of latvia abstract auto road sector in national economy, is a sector development of which, with appropriate funding, creates basis for other sector development and facilitates competitiveness of country in international market. the goal of auto road sector is auto road network maintenance and development, in order to contribute to the development of the whole country, increase of standards of living of inhabitants, as well as facilitate compliance of latvian auto roads with the european union requirements for auto road network. effective resource utilization and investment attraction to auto road sector is determinant for favorable conditions to overcome economic crisis, structural changes in national economy, regional development and technical progress implementation, which, subsequently, are basis for stable growth of economy. development and construction of international and national roads is strategically important for further country’s economic development, as well as for the european union regulation and standard fulfillment. in order to achieve positive progress in latvian auto road development, it is important to assign existing funds, as well as try to find opportunity to increase financing for roads in latvia. it is necessary to elaborate effective method in order to be able to assign funds appropriately for prioritized projects for them to create reflective return in the development of national economy of latvia. solution for this problem is scientifically grounded, well considered auto road construction resource appraisal and assigning method elaboration. traffic intensity on latvian roads has considerably increased during the past few years – motor road traffic has increased at least two times. roads are very overloaded. demand on use of the transport infrastructure is still increasing. this growth is due to both increasing of number of registered vehicles and the fact that there increases the number of inhabitants of latvia which live outside riga but work in riga. during the past ten years quality of the latvian auto roads has considerably deteriorated. due to shortage of financing and increase of the traffic intensity auto roads in latvia are worn out, coverings has become uneven and there have developed grooves and holes. shortage of money has forced the owner of roads to set a decreased maintenance standard. driving by bad roads increases possibilities of accidents on roads and the costs of users and speeds up the wear of vehicles and results in more frequent repairs. taking into account bad technical condition of latvian roads, which is deteriorating from year to year due to lack of funding is necessary to significantly improve the situation, which could be achieved by increasing funding for road management, maintenance and restoration. now latvian road network condition is critical. as several years for state road maintenance and restoration are not allocated sufficient resources, road pavement condition in many country roads is not satisfactory, and even in some parts is needed emergency reconstruction. road funding model over the past 15 years has changed several times. over the last couple of years, it was succeeded to improve the financing model, which along with beginning of economic crisis was destroyed, now the road funding level has fallen back for 5 years. keywords: auto roads, auto road funding, resource assignment methodology. introduction novelty. analyzed impact of quality of resources available in latvia on road surfacing quality and construction costs and elaborated road maintenance, quality improvement and development financing assignment methodology. aim the aim is, exploring auto road development problems, reveal positive aspects and drawbacks in road maintenance and development resource assignment system as well as elaborate proposals for auto road resource utilization system in latvia. tasks • reveal factors delaying road development in latvia; • elaborate latvia’s auto road development resource assignment methodology; • summarize the elaborated conclusions and proposals; object: development of roads of latvia. research methods in order to achieve the aim of the paper and fulfill the set tasks, the author in analysis has used the following research methods: logical-constructive method, monographic method, situation analysis method and graphical method. current difficult economic situation not only in latvia, but also in the rest of the world, have negative impact on real economy, which can be seen in consumption, sales and production decrease, real estate market corrections and other. this situation has directly and severely impacted the economy of latvia. the existing financial and economic crisis in latvia has caused large burden on the state budgetrapid budget income decrease forces to revise budget expenditures as rapidly as incomes degrease, making emphasis not only on proportional expenditure cut on accounts, but also revising budget expenditure making principles and financing structure of public sector functions. public and private partnership in this issn 1822–8402 european integration studies. 2011. no 5 238 situation is the most effective instrument in order to improve national economy of latvia. in limited public sector financing situation it can give long lasting and important contribution to revitalization process of latvian economy, ensuring private sector funding for public sector infrastructure and service projects, decreasing tension in the society, as well as maintaining and creating new work places. as a result it leads to tax incomes in the state budget. in many european union countries governments are working towards economy stimulation measures. these measures almost always include significant investments in infrastructure, starting new construction projects, in order to facilitate employment and maintain economic activity as high as possible. other european union countries as one of the main exits from economic crisis consider direct support of infrastructure projects [2;16;19]. the faster the economy diminishes; the grater government activity in construction field should take place. in russian federation one of the main government priorities are construction. construction volume increase facilitates development of other sectorsconstruction material production, increase in transportation etc. france, usa, the great britain and germany have chosen construction as one of the most important areas to be supported. it is assumed that one employee working in construction site provides job for three to four additional workers in related industries. latvia should also follow his trend. construction sector direct impact on other sectors is approximately 683 million lvl added value per year. gross domestic product should increase by 3 % for people to get financial resources and stimulate construction sector[11]. it is necessary to justify how important is to maintain and develop auto roads and how much is dependent on the overall condition of roads. new methods for rational resource assignment have to be elaborated. the author has developed recourse assignment scheme in auto road field which could improve overall situation in the auto road field and develop it. the author in the latvian road development resource assignment scheme has depicted system how auto road user, paying for infrastructure accessibility, receives well developed auto road network. in single scheme the author has depicted all resource circulation, showing new finance acquisition methods for latvian auto road development and maintenance model. primary factor in this scheme is road user who, in unusual wayby levies and taxes, is paying money into the state budget which eventually reaches auto road maintenance providers and developers. in latvia toll roads are not allowed by law thereby road user can not pay directly for road accessibility, but indirectly it is happening in daily life by performing motor vehicle technical maintenances and paying vehicle tax or buying fuel for your vehicle. the author is of the opinion that it is necessary to restore the state auto road fund. at this moment it is the state budget subprogram which is subject to general financial resource cuts during the economic crisis. figure 1. latvian auto road development resource assignment scheme the author in her scheme has mentioned four income sources for the state auto road fund, paid by user: 1. vehicle tax 100% 2. excise tax on fuel 100% 3. eurovignette 100% 4. vehicle insurance octa (compulsory third party insurance) 5% 5. vehicle tax contributes in average 26 million lvl incomes per year. this sum is included in the state budget, but the author considers that this sum should go into the state auto road fund. thereby this money would go for auto road financing in 100% amount and could be used for auto road maintenance and development. according to law ‘’law on vehicle exploitation tax and enterprise car tax’’[10] tax each year has to be paid by all natural and legal persons, who owns or holds or will register vehicle in latvia or to whom transit number plates are assigned. taxes for each in latvia registered or to be firstly registered vehicle have to be paid once a year irrespective of how many times per year for particular vehicle state technical inspection or registration is performed. the vehicle annual duty aim is to serve as a financial basis for state auto roads and municipal auto roads. the tax is levied as stated by the law and it is included in the state budget main income. issn 1822–8402 european integration studies. 2011. no 5 239 table 1 fuel excise tax constitutes in average 270 million lvl per year. this sum also is included in the state budget. the author holds a view that this would be a reasoned state auto roads base model. 2010 was the last year when by the law percentage proportion from fuel excise tax which should be conveyed for auto road development was stipulated and it was 80%. nevertheless they were not taken into account by the cabinet of ministers preparing state budget and planning funds for auto roads. at the same time ‘’latvian railways’’ jsc is willing to achieve that 5% (approximately 18 million lvl) from this tax is invested in railway development, because state is not financing railway infrastructure. the author is against such tax proportion assignment to railway infrastructure. infrastructure user using railway services for passenger or cargo transportation is paying for the services, but using auto roads nobody is paying direct exploitation payment. ’’latvian railways’’ jsc is profitable company, but ‘’latvian state roads’’ jsc is not earning and is living only on funds assigned by the state budget. therefore the author is of the opinion that fuel excise tax in 100% should be conveyed to the state auto road fund. eurovignette introduction in latvia is postponed till 2014. this road toll is stipulated only for cargo consignments which are performed in territory of the republic latvia. eurovignette is effective first united road toll collection system not only in europe, but in the rest of the world. it is created on the basis of paper vignette. the activity of the eurovignette is based on electronically stored usage rights therefore documents in paper form are not necessary any more. the main eurovignette introduction goal is improvement of transit road condition. it is stored in electronic data record form, using state assigned numbers. buying electronic eurovignette the only information provided by vehicle driver is vehicle registration number, necessary usage period/region, number of axis, and emission category. [18] domestically or in other countries registered motor vehicles with total mass over 12 tons, which will be using trunk auto roads of latvia, are liable to the eurovignette payment. the author regards that acquired funds would be necessary to convey for trunk auto road reconstruction and maintenance. the planned eurovignette payment incomes from road toll per year could be within 15 million lvl positive is fact that the road toll will be applied to the foreign motor vehicles, because they are crossing territory of latvia with large full mass, increasing the load on latvian auto roads. mainly these cars are crossing territory of latvia not buying fuel, because it is more expensive, as well as are not using other goods and services in our country. the ministry of transport is working towards eurovignette introduction in latvia. amendments in the law ‘’on auto roads’’ [9] as well as new law ‘’auto road usage law’’[8] has been adopted. it was planned to enact the eurovignette on summer 2009 but auto carriers succeeded to persuade government of latvia to postpone it, because large part of auto carrier enterprises are struggling for solvency and they do not have funds for the eurovignette payment. now it is planned that it will be introduced on january 1, 2014. the author is of the opinion that now it is not appropriate time for new toll introduction in latvia. transport conveyers have to work on cost optimization, due decrease in cargo volumes and severe competition. also for new toll implementation additional budget funds will ne needed which could be more useful in improving competitiveness of enterprises. along the other eurovignette implementation gaps could be named high implementation and administration costs. the implementation of eurovignette forms additional taxation system which duplicates, for instance, annual motor vehicle duty system, but annual motor vehicle duty to latvia is paid only by motor vehicles registered in latvia, at the same time eurovignette is directed towards transit transportation by roads. for trucks crossing latvia only in transit, national economy of latvia is not receiving any money and is suffering loses from these transit trucks, because road surface is damaged and our nature is polluted with emissions and waste. the main direction to be developed in auto road field is eastwest route and its condition is of great importance, because this is the main transit road of latvia, connecting three largest ports of latvia: riga, ventspils and liepaja with russian federation border and this route is the most loaded route and contributes to economy of latvia largest added value. transport and communications sector can effectively contribute to fast recovery of the economy in short time period. even at present transport and communications contributes approximately 10 % to gdp of latvia.[3] the role of transport is very essential in every country’s national economy. for latvia this aspect is very important taking into consideration that latvia is positioned as attractive for transit and logistic services. the gross domestic product of latvia in real prices in 2008 was 16 243.2 million lvl, from which transport, storage and communications contributed 1567.7 million lvl, in sector structure constituting 10.8 %. but in 2009 gdp in real prices decreased till 13082.8 million lvl, from which – transport, storage and communications contributed 1341.9 million lvl, in sector structure constituting 11.4%. transit cargo transportation and handling in ports constituted 614.89 million lvl, which is approximately 1/3 from total service issn 1822–8402 european integration studies. 2011. no 5 240 export. total service export in latvia in 2009 was 1937.3 million lvl [4]. the author considers that in current economic situation it is necessary to facilitate transit flow through latvia as much as possible. in order to ensure such flow, two inputs are necessary: cargoes which analyzing the world cargo fluctuation tendencies will increase, and appropriate infrastructure that has to be developed for main transit corridors to be able to compete in the world market. transit, transport and logistics issue are one of the most important in development of the national economy of latvia transit services are one of the most important export services. the ports of latvia provide an opportunity for latvia to strengthen as one of the most important logistics centre among the european union, cis and asian markets. thereby it is necessary: 1. develop several lane motor highway system, which would ensure cargo deliveries from ports to west-east and north-south directions; 2. develop federal road direct connection with port assess roads, which would allow to perform large volume cargo flow transportation from ports of latvia without adding additional load on city traffic; 3. develop bypass around largest cities of latvia, in the first place around riga; 4. construction of new bridges over the daugava river (near saulkalne and in jekabpils); 5. modernize border zone roads and develop truck parking lot near important border point entries, which would allow to decrease idle time on the border and would facilitate resolving existing environmental problems; 6. road toll (eurovignette) introduction on the state trunk auto roads; 7. wide public and private partnership model application in auto road construction, which would ensure realization of most important transit projects in due time. main problems: 1. road surface construction is designed according to truck 10 ton axis load, which does not corresponds with the requirements of the eu directive 96/53/eec (allowed load should be 11.5 tons). 2. increasing loads and transit traffic intensity leads to situation when load carrying capacity of bridges does not corresponds to real loads which exceed the load requirements applied previously. 3. nonsufficient number of crossings and connections with 2 level layouts. 4. single level crossings are settled incompletely – mainly there is lack of additional lanes and not in all places visibility complies with requirements. 5. in auto road (street) lanes (particularly in cities and populated places) not in all places pedestrian and cyclist traffic safety is ensured. there is lack of pavement, cycling lanes and pedestrian crossings. 6. auto roads mainly are with 2 lanes, with road width of 7,0-7,5 m and roadbed of 12-15 m. allowed driving speed in single lane roads are till 90 km/h, but in sections passing through cities and populated places 50-70 km/h. as additional fund source, the author proposes to involve insurance system, drawing in the compulsory third party insurance system. insurance companies would be even interested in more safe traffic on the motorways and in less traffic accidents. each motor vehicle owner each year performs compulsory third party insurance. each month insurance companies would transfer ~ 5 % from collected compulsory third party insurance premium into the state auto road fund. the state budget would not be able to solve all auto road field problems that are accrued over tens of years. the renewal plan of latvian auto roads foresees along with the financing from the state budget to attract european and private funds for the auto road field. within this planning period till 2013 it is planned to involve 300 million lvlfrom the european union cohesion fund. it is important to implement public and private partnership model in latvia, acquiring 650 million lvl. implementing public and private partnership principle it is planned to construct first five motor highways in latvia where the maximal allowed driving speed would be 130 km/h. figure 2. motor highway/ high-speed road development plan in latvia [7] in latvia there are no such motor highways. it is planned that motor highways will be developed on the following road sections: riga – sigulda, riga – kekava, riga – jelgava, priedaine – sloka, baltezers – saulkalne. at present there are discussions taking place on the implementation of the riga – koknese – jekabpils project. till 2025 it is planned to construct new motor highways and high speed roads on the sections of riga – ventspils, riga – liepaja, riga – rezekne, riga valmiera, riga – cesis auto roads and on the road that leads to the border with lithuania. [14] according to the opinion of the author, in order to ensure good driving conditions for drivers, the following tasks should be stated as prior in the auto road field management: 1. the role of the road users have to be increased in the adoption of the political decisions favorable for auto road development; issn 1822–8402 european integration studies. 2011. no 5 241 2. new methods and modern equipment have to be introduced which would highlight the priorities and would decrease the gap between technical decision and political decision adoption; 3. road administrations have to improve road budget justification methods for politicians to be timely prepared to adopt decisions necessary for auto road maintenances. it is necessary to develop auto road databases and management systems, because only using them it is possible to evaluate where the money has to be invested in road periodic maintenance, reconstruction as well as construction works. the prior task has to be transit road network financing. at present auto road inspection is performed using visual assessment method and there are no elaborated criteria how this visual assessment should be performed, therefore this data very often is not objective. as economic downturn is continuing and more powerful activities to overcome crisis are introduced, which become apparent as significant budget cuts and other financial restrictions, ‘’latvian state roads’’ jsc and ministry of transport have to make their further policy, taking into account that internal and external risk factor influence can increase. decrease of financial resources will negatively affect commercial activity of ‘’latvian state roads’’ jsc. expected auto road budget cuts will continue to impact work results in auto road networktechnical condition maintenance and ensuring safe traffic, everyday maintenance level and management. the state auto road network has suffered from insufficient financing for almost two decades. it is expected that existing situation will maintain or become worse – necessary funds needed for auto road periodic maintenance and reconstruction will be not assigned timely and in required level. it is necessary to achieve that with available financing urgent activities are performed which would ensure as high as possible prerequisites for auto road development. in order to ensure state road network operational capability it future it is necessary: 1. specify priorities and adjust state auto road work programs according to budget amendments; 2. in auto road everyday maintenance area indentify works that could be postponed and prepare recommendations on auto road list for which maintenance level could be decreased. 3. for road construction program management and decreasing costs continue improvement of government procurement procedures, as well as improvement of technical solutions and specifications, in order to facilitate usage of local construction materials in auto road construction. 4. facilitate the eu cohesion and eraf fund co financed program implementation in planned volume and pay larger attention on land expropriation for construction needs. 5. promote implementation of the state and public partnership project – auto road a1 section riga bypass – senite and state trunk road surface renewal and maintenance. conclusions 1. the main reasons for bad condition of auto road network in latvia are insufficient financing for auto road surface and bridge upper construction timely restoration; increasing intensity and heavyweight motor vehicle proportion accelerates auto road breakdown. 2. developed scheme, where all finance resource turnover is depicted, showing new finance obtaining ways and introducing latvian auto road maintenance and development model. 3. it is important to introduce public and private partnership model. implementing state and private partnership principle, the first five motor highways in latvia are planned to build, where the maximal allowed speed would be 130 km/h. 4. latvia utmost has to facilitate transit flow through its territory. in order to ensure such flow, two inputs are necessary: cargoes which analyzing world cargo fluctuation tendencies will increase, and appropriate infrastructure that has to be developed for main transit corridors to be able to compete in the world market. references 1. baltic roads: looking to the future., world highways., april,2003, pg.19. 2. delmon j.private sector investment in infrastructure. project finance, ppp projects and risk, the world bank and kluwear law international, great britain, 2009., pg.321.-339.;477.495. 3. european road statistics 2010, european union road federation, belgium – brussel, 2010.,pg.13.-23. 4. eurostat – [electronic resource] – http://epp.eurostat. ec.europa.eu, january 7, 2011. 5. heggie g.ian. management and financing of roads, the world bank, washinghton, 2005., pg.47.-59. 6. hybrid ppps:levering eu funds and private capital, price waterhouse coppers, washinghton, 2006.,pg. 5.-22. 7. latvian state roads jsc [electronic resource] – www. lvceli.lv, march 2, 2011. 8. law ‘’auto road usage law’’: law of the republic of latvia [electronic resource]/-http://www.likumi.lv, march 16, 2010. 9. law ‘’on auto roads”: law of the republic of latvia [electronic resource]/-http://www.likumi.lv, march 5, 2010. 10. law ‘’on motor vehicle exploitation tax and enterprise vehicle tax’’: law of the republic of latvia – december 12, 2010. 11. long term performance of road pavements – belgium: european commision., 1997., pg.103.-108. 12. martin r. highway engineering – london: blackwell publishing, 2008., pg.147.-150. 13. morra l., rist r., the road to results., the world bank, washinghton, 2009., pg.141.-177.; 373.-411.; 495.-513. 14. ministry of transport of the republic of latvia – [electronic resource] – www.sam.gov.lv, march 1, 2011. 15. o’brien e.i. weight in motion of road vehicles – belgium: european comission, 1998.,pg.71.-79. issn 1822–8402 european integration studies. 2011. no 5 16. o’flaherty c.a. highways. the location, design, construction & maintenance of pavements – oxford: butterworth heinemann, 2008.,pg.395. 411. 17. o’flaherty c.a.transport planning and traffic engineering – amsterdam: elsevier, 2004., pg.299.-306. 18. papi j., halleman b., figaredo a. overview of eu funds available for transport, erf, 2005.,pg.5.-19. 19. papi j., halleman b., antonissen t., falco f., the socioeconomic benefits of roads in europe, erf, 2007., pg.5.30. 20. papi j., halleman b., stelmaszczyk p. the socioeconomic benefits of roads in europe, erf, 2006., pg.4.24. 21. world bank – [electronic resource]www.worldbank. org, march 19,2010. the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 116 issn 1822–8402 european integration studies. 2011. no 5 hypothetical crisis policy framework for the recovery of lithuania‘s economy: searching for impact of globalisation rasa daugeliene kaunas university of technology, institute of europe abstract there are many scientific works were globalization, deregulation, liberalization and financial crisis is interpreted as a process that creates great instability and fragility in their emergent markets economies. as it was stressed in the latest work of martens and amelung (2010) globalization is something more than a purely economic phenomenon manifesting itself on a global scale. globalisation supposes to be interpreted as a phenomenon which makes impact to the economic crisis. the depth and breath of the current global financial crisis is unprecedented in post-war economic history. it has several features in common with similar financial – stress driven crisis episodes. it was predicted by relatively long period of rapid credit growth, low risk premiums, abundant availability of liquidity, strong leveraging, soaring asset prices and the development of bubbles in the real estate sector (european commission, 2009). this paper points out the statement that globalisation may negatively affect the growth of economy. in order to prove this hypothesis some providences of globalisation as the preconditions for the global financial crisis were presented. the classification of the lessons from the past considering crisis prevention as well as practical analysis of the situation of lithuania’s economy allowed to suggest hypothetical crisis policy framework (hypothetical recipe) for the recovery of lithuania’s economy. the research problem being solved in this article: what is the impact of globalisation to the state of economy? what was the impact of present economic crisis on lithuania’s economy? how to construct hypothetical recipe for the recovery of lithuania’s economy? the object of the research is lithuania’s economy in the presence of global crisis. the aim of this article is – highlighting the points of globalisation impact to the state of economy, to present the hypothetical crisis policy framework for the recovery of lithuania’s economy. to achieve this aim five tasks were solved: to present some providences of globalisation as the preconditions of global financial crisis; to classify the lessons from the past economic crisis; to highlight the main impact of global economic crisis on lithuania’s economy; to systemise the specific actions of the government of the republic of lithuania in the presence of global economic crisis; to recommend hypothetical crisis policy framework for the recovery of lithuania’s economy. the research methods: analysis of scientific literature, synthesis; comparative analysis of statistical date. the results of the article: there was presented particular approach to the impact of globalisation to the state of economy; constructed the scheme of interrelation of classic and modern economic growth theories searching for impact of globalisation on change of values; classified the lessons from the past economic crisis; highlighted main impact of global crisis to lithuania’s economy; systemised specific actions of the government of the republic of lithuania in the presence of global economic crisis; recommended hypothetical crisis policy framework for the recovery of lithuania’s economy. keywords: economic crisis, globalisation, lithuania’s economic situation, crisis policy framework, economic recovery. introduction there emerging more and more scientific works were globalization, deregulation, liberalization and financial crisis is interpreted as a process that creates great instability and fragility in their emergent markets economies (giron a., correa e., 1999). as it was stressed in the latest work of martens and amelung (2010) globalization is something more than a purely economic phenomenon manifesting itself on a global scale. during the last few decades, human dynamics, institutional change, political relations, and the global environment have become more intertwined. among these visible manifestations of globalization are the greater international movement of goods and services, financial capital, information and people. in addition, there are technological developments, new and enhanced legal systems, and institutions that facilitate these flows. as the analysis of historically proved economic works shows (martens p., amelung b. (2010); fukuyama f. (1989), huntington s. p. (1996) there is direct impact of globalisation to the state of economy. globalisation suppose to be interpreted as the phenomenon which makes impact on economy and can stimulate economic crisis. the era of globalization in the late 19th and early 20th centuries was reversed by catastrophic war and global depression. like the 1929 crisis, the current financial crisis will be remembered as one of the most serious in the history of world capitalism. the depth and breath of the current global financial crisis is unprecedented in post-war economic history. it has several features in common with similar financial – stress driven crisis episodes. it was predicted by relatively long period of rapid credit growth, low risk premiums, abundant availability of liquidity, strong leveraging, soaring asset prices and the development of bubbles in the real estate sector (european issn 1822–8402 european integration studies. 2011. no 5 117 commission, 2009). this paper points out the statement that globalisation may negatively affect the growth of economy. in order to prove this hypothesis some providences of globalisation as the preconditions for the global financial crisis were presented. the classification of the lessons from the past considering crisis prevention as well as practical analysis of the situation of lithuania’s economy allowed to suggest hypothetical crisis policy framework (hypothetical recipe) for the recovery of lithuania’s economy. the research problem being solved in this article: what is the impact of globalisation to the state of economy? how to could be interpreted? what was the impact of present economic crisis on lithuania’s economy? how to construct hypothetical recipe for the recovery of lithuania’s economy? the object of the research is lithuania’s economy in the presence of global crisis. the aim of this article is – highlighting the points of globalisation impact to the state of economy, to present the hypothetical crisis policy framework for the recovery of lithuania’s economy. to achieve this aim five tasks are to be solved: • to present some providences of globalisation as the preconditions of global financial crisis; • to classify the lessons from the past economic crisis; • to highlight the main impact of global economic crisis on lithuania’s economy; • to systemise the specific actions of the government of the republic of lithuania in the presence of global economic crisis; • to recommend hypothetical crisis policy framework for the recovery of lithuania’s economy. the research methods: analysis of scientific literature, synthesis; comparative analysis of statistical date. the results of the article: there was presented particular approach to the impact of globalisation to the state of economy; constructed the scheme of interrelation of classic and modern economic growth theories searching for impact of globalisation on change of values; classified the lessons from the past economic crisis; highlighted main impact of global crisis to lithuania’s economy; systemised specific actions of the government of the republic of lithuania in the presence of world’s economic crisis; recommended hypothetical crisis policy framework for the recovery of lithuania’s economy. the providences of globalisation as the preconditions of global financial crisis two essential innovations in the twentieth century – totalitarianism and globalisation – born in italy. the first term used to explain the tendencies of the middle of xxth century as well as the second – the end of the xx century. finally totalitarianism collapsed in 1989 and expression of globalisation factors came into the force (daugėlienė r., 2011). analysing scientific works fukuyama (1989) and huntington (1996) it is evident that economic welfare could be reached when states’ markets becomes open for the global competitiveness which ensures the manifestation of three factors transparency in all fields of economy as well as in social life; the fight with corruption; attractive / friendly environment for the investments. krugman p., venables a. j. (2001), krugman p. (2001), mussa m. (2001) identify globalisation as the precondition for the global economic crisis. specified factors above could be interpreted as essential for economy growth as well as for the development of morality paradigms of new economy (moral markets, 2008; kriščiūnas k., daugėlienė r., 2006). it is important to stress that the change of values which was inspired by the surplus economy was one of the most important preconditions for the latter economic crisis as well (see fig. 1). radical changes in the scope of economies and growth engines were a result of (kriščiūnas k., daugėlienė r., 2006): • increased participation of enterprises in the international as well as local networks (global geographic clusters); • increased interested in investment in research and development (r&d) and other aspects of implementation of innovations; • increased understanding about the importance of specified knowledge and their implementation in the processes of enterprise activities; • increased demand in knowledge workers • accelerated spread of information and communication technologies which stimulates creation and usage of new knowledge; • decreased costs of knowledge creation and dissemination; • accelerated internationalisation of production; • increased openness of global economy; • production transfer to more advanced spheres of economy (from production to services) it is a key to stress that manifestation of globalisation factors changed the attitudes of people to values, to consumption as well as to engines of progress. in order to determine the features of xxi century economy the metaphor of perfect storm induced by expression of globalisation could be used. the scientists usually analyse several forms of globalisation. this is economic, political, military, cultural, geographic as well as institutional globalisation (pekarskienė i., susnienė r., 2010). here in the article we are talking about economic globalisation. the reflection of globalisation processes can be evaluated using specific complex instruments. dreher, gaston and martens (2008) underlines that it is possible to analyze the effects of globalisation on tax policy, government spending, economic growth, inequality, union power, and the natural environment and consider additional avenues for research, analysis, and decision making . the possible criteria of assessment of globalisation expression are (daugėlienė r., 2011): • the a.t. kearney globalization index or kof globalisation index it assesses the extent to which the world’s most populous nations are becoming more or less globally connected and; • maastricht globalisation index (mgi) presented by martens and zywietz in 2006. detailed analysis considering the assessment of the level of globalization in the baltic states was presented by pekarskienė i. and susnienė r. (2011). in order to highlight lithuania’s level of globalisation the maastricht globalisation index (mgi) was used (for detailed index variables see daugėlienė r., 2011). issn 1822–8402 european integration studies. 2011. no 5 118 summarising the analysis it could be stressed that according to the mgi lithuania is in the 47 position among 117 world countries. the leaders are ireland, belgium, switzerland, netherlands, france, and austria. interesting situation arises regarding ireland. despite its great economic clasic economy growth theories (1776 – 1980) modern economy growth theories (1980 till now) capital, work, land, raw materials (basic indicators for economic growth) changes in attitudes of persons, groups and governements  changes in activities conditions  penetration of it  change in understanting of time and distance g l o b a l i s a t i o n creation, aquisition, dissemination, implementaion of knowledge creativity of persons wisdom (basic indicators for economic growth) curious society growing economy consumer society surplus economy economic welfare economic crisis fig. 1. the interrelation of classic and modern economic growth theories searching for impact of globalisation on change of values united states occupied just 51 place, finland – 32. in the contrary analysing kof globalisation index, lithuania is in the 33 position among 208 world countries. the first position belongs to belgium. five first positions occupied by austria, netherlands, switzerland, sweden. it is interesting to stress that despite of economic level portugal is in the 8 position contra to finland (9), france (13), united kingdom (24), united states (27) and so on. summarising, the correlations between globalisation expression and situation of world’s economic health are direct. if globalisation indexes allows identify the problems in tax policy, to evaluate the rates of government spending as well as the welfare of people, the globalisation could be interpreted as conception of international system management as well as precondition for the global economic crisis (the fact of ireland and portugal this confirms). and, according to krugman and venable (2001) – economic recession is the price of globalisation. the classification of the lessons from the past economic crisis the latest economic crisis – not a new phenomenon in the world’s history. today’s collapse in trade, the fall in asset prices and the downturn in the real economy are fast and synchronous to a degree with few historical parallels. any way most of analysts agree that the current crisis is the deepest, most synchronous across countries and most global one since the great depression of the 1930s. the present crisis has not yet got a commonly accepted name. it was proposed the great recession term. in the past the most countries of the word were marked by the “storms” in the economies (daugėlienė r., 2011). in some ways current crisis resembles the leverage crises of the classical pre-world war i gold standard in 1873 and in particular the 1907 financial panic. there are clear similarities between the 1907 – 1908 and 2007 – 2009 crises in terms of initial conditions and geographical origin. they all occurred after a sustained boom, characterised by money and credit expansion, rising asset prices and high-running investor confidence and over-optimistic risk-taking. all were triggered in first instance by events in the us, although the underlying causes and imbalances were more complex and more global, and all spread internationally to deeply affect the world economy (european commision, 2009). interesting correlations between “great depression” and “great recession” were presented by european commission experts. the main over-covering characteristics of “great depression” (1929 – 1933) and “great recession” (2007) could be highlighted: recession ireland occupies the first position. ireland’s economy is globally open because of fdi. it could be made a conclusion that if no foreign capital injections, the situation of ireland considering globalisation index would change in a worse position. issn 1822–8402 european integration studies. 2011. no 5 119 • the degree of global economic integration and the size of international capital flows had fallen back significantly; • the recession of the early 1930s deepened dramatically due to massive failures of banks in the us and europe and inadequate policy responses; • most negative impacts on the real economy seem to occur not necessarily in the countries at the origin of the crises, but in some emerging economies whose growth has been highly dependent on inflows of foreign capital; • the crises witnessed mass unemployment. the current recession is clearly the most severe since the 1930s, but so far less severe in terms of decline of production. as regards the degree of sudden financial stress, and the sharpness of the fall in world trade, asset prices and economic activity, the current crisis has developed faster than during the great depression. as seen from figure 1, the decline in world trade is larger now than in the 1930s. but despite a sharper initial fall in 2008 – 2009, stabilisation and recovery promise to be quicker in the current crisis than in the 1930s (european commission, 2009). analysing the preconditions and features of all mentioned economic depressions, similarities allows to highlight key policy lessons from the past: • maintain the financial system – avoid financial meltdown – the financial system should be supported by government actions in order to prevent a collapse of the credit allocation mechanism and to maintain public confidence in the banking system; • maintain aggregate demand – avoid deflation – this is possible to implement by means of expansionary monetary and fiscal policies. the role of monetary policy is to provide ample liquidity to the system by lowering interest rates and use unconventional methods once rates are close to zero. fiscal policies should aim at supporting aggregate demand; • maintain international trade – avoid protectionism; • maintain international finance – avoid capital account restrictions; • maintain internationalism – avoid nacionalism. these lessons had to be learned in order to avoid the economic consequences which are obvious in many countries of the world. for the crisis prevention it had to be secured prudentional micro and macro regulation of financial policy; automatic stabilisers within medium-term frameworks, leaning against asset cycles; market flexibility as well as development of entrepreneurship and innovation (daugėlienė r., 2011). the main impact of global economic crisis on lithuania’s economy lithuania as most of other countries of european union did not managed to learn the key policy lessons from the past. in the very rise of economy starting from the 2006 the banks encouraged people to take credits, the prices of assets were not adequate to their real value, and the governmental policy was oriented to the stimulation of total consumption. such policy inspired the “blow-out” of economy. there could be highlighted the main preconditions which stipulated the slow down of the lithuania’s economy (daugėlienė r., 2011) was uncontroled borrowing and the “bubble” of real estate prices; ineffective budget management; dependance on external sponsorship sources; labour export; problems in the energy sector; lack of foreign direct investments. mentioned preconditions stipulated a huge accumulation of large – scale economic and financial imbalances in the country: the current account deficit, growing inflation, budget deficit, a large part of the loans was given in foreign currency. the priority was given to the stable fixed exchange rate. due to the fixed national currency exchange rate and the country’s participation in the exchange rate mechanism (erm ii) there was no possibility to apply active monetary and fiscal incentive policies in order to stabilise country’s economy. due to declined state of international financial markets the funding needs were hardly satisfied or government hat to borrow on high interest rates (račickas e., vasiliauskaitė a., 2010). as it can be seen the problems listed above could be predicted analysing lessons from the past. the economy of lithuania was affected by the global crisis and the scope of effects could be identified analysing statistical data. in order to assess the global financial crisis impact on lithuanian economy properly, it is necessary to take into account the dynamics of macroeconomic indicators. 17,9 10,6 4,2 7,9 13,7 14,9 17,8 4,8 7,1 11,6 13,0 16,9 15,9 0 5 10 15 20 25 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* years u n e m p l o y m e n t r a t e , % 8,9 4,7 5,8 1,3 -14,7 3,0 7,87,87,4 10,2 6,96,7 4,1 -1,5 -20 -15 -10 -5 0 5 10 15 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012* years c h a n g e s i n g d p , % fig. 3. lithuanian gdp growth dynamics in 1999 – 2012 year fig. 2. unemployment rate dynamics in 1999 – 2012 year after sliding by nearly 15 percent in 2009, lithuania’s gdp grew by 1.3 percent in 2010 (fig. 3). the economy is expected to rise by 5.8 percent in 2011 and 4,7 percent in 2012. lithuanian export growth is accelerating rapidly, and the prospects of export markets growth remain positive, therefore issn 1822–8402 european integration studies. 2011. no 5 120 updated the central economic development scenario provides for a substantially faster growth in gross domestic product in 2011 about 5.8 percent and in 2012 growth will decline to 4,7 percent. in 2010, lithuania’s economy was on the rise, but unemployment did not fall (fig. 2). it is expected that the unemployment in 2011 would fall 14.9 percent. market participants believe that unemployment will slump by nearly 3 percentage points this year, but it will remain still high. about 15 percent of job seekers of working age will be unemployed at the end of 2011. despite the economic recovery, unemployment remains relatively high over the medium term. in the year 2010, lithuania felt the recovery of its major export markets, and growing exports at least partially softpedalled the diminished demand on the domestic market. it is expected that exports will grow at a high rate in 2011. market participants think that exports edged up by as much as 17 percent last year, while imports climbed somewhat less rapidly – by 14 percent. foreign trade will continue to grow rapidly this year. both imports and exports are expected to increase by about 13 percent (fig. 4). -13,0 13,0 13,0 14,0 -18,0 16,8 11,4 13,9 15,6 12,312,4 12,2 13,0 17,015,1 12,8 15,8 12,913,212,0 12,0 16,4 -20 -15 -10 -5 0 5 10 15 20 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* years c ha ng es , % import growth export growth fig. 4. lithuanian foreign trade flow dynamics in 2001 – 2011 year market participants estimate that prices of consumption goods and services fall 1,3 percent in 2010. this is even 8,6 percent points less than in 2008 and 3,2 percent points less than in previous year. it is expected that prices of consumption goods and services will soar by 2,1 percent in 2011 (fig. 5). the downward trend in the price of borrowing, discerned from 2008 to 2010, will end; borrowing in 2011 will cost similarly as in 2010. market participants estimated that interest on more than 1-year loans in litas was 6.5 percent last year. the price of borrowing is expected to remain at a somewhat similar level in 2011. 4,5 9,9 7,2 2,9 2,6 2,1 1,3 4,6 3,9 0,8 1,4 2,32,4 0 2 4 6 8 10 12 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* years i n f l a t i o n r a t e , % fig. 5. lithuanian inflation dynamics in 1999 – 2011 year until the beginning of the crisis in 2008 the volume of banks’ credits given to the inhabitants of lithuania was growing in double-digit figures. in just five years from 2003 to 2008, the inhabitants of lithuania borrowed almost 60 billion litas. the global financial crisis affected households’ incomes that impacted on obtaining credit. on this situation, domestic credit volumes decreased respectively 13,83 percent in 2009 and 5,23 percent in 2010 (detailed analysis see daugėlienė r., 2011). the tax burden is one of the major causes of the shadow economy. a heavy tax burden forces enterprises and people to transfer at least parts of their activity to the informal sector and so reduce the total tax load they are coerced to bear. the tax burden in lithuania remained heavy in 2010 and will increase in 2011. lithuania’s tax burden is expected to grow by one percent point, according for 37 percent of gdp in 2011. legal business activity is being influenced not just by the tax burden, but also by the regulatory burden. in 2009, the lithuanian government assumed an obligation to reduce the administrative burden for business by 30 percent by the end of 2011. specific actions of the government of the republic of lithuania as the reaction to global economic crisis as it was stressed above lithuania was reached painfully by the global recession and still feels the consequences. however it is very interesting to analyse the reaction and actions of the government of the republic of lithuania after the beginning of global economic crisis. this analysis presented in confrontation with the events in the world and europe. the results are very interesting (see table 1). the government of the republic of lithuania responded to the possible consequences of global financial crisis to the lithuania’s economy in the end of 2008. the solution considering financial stability security was initiated. the first actions were pointed to the tax policy. many rates of taxes were enlarged. this increased tax burden on citizens. issn 1822–8402 european integration studies. 2011. no 5 121 table 1. the events / actions of the government of the republic of lithuania after the beginning of global economic crisis date the events / actions 2007 september (europe) interbank interest rates increased to the highest level starting from 1998. the problems of northern rock (jk) started to be obvious. 2008 november first reaction of the government of the republic of lithuania to the crisis. the project concerning assurance of lithuania’s financial stability. 2008 january (lithuania) the bankers assured the prime minister of lithuania that there are no threats for lithuania’s economy because of financial crisis in the usa. while the world bank made the prognosis about the slowdown of global economy growth. it was obvious the biggest slowdown in the global stock markets sins september 11, 2001. the fears about americans debt obligations in the real estate market were expressed. to some it was forecasted that such situation can raise many problems in the credit market. january 2008 – november 2008 (lithuania) the personal income tax rate was reduced from 27% to 24%. social tax for the taxable profit was abolished. the salaries for the pedagogues were increased. additional 37 mln. lt. was assigned for the needy families. the payments for the social security pensions were increased. while in europe and world… northern rock (jk) bank was nationalised by the government of the united kingdom. the g-7 announced that the collapse of usa mortgage market raised a loss approximately in 400 mlrd. dollars. the problems of the liquidity of one of the biggest usa investment banks “bear stearns” were announced. icf alerted that potential losses regarding financial crisis may reach 1 trillion dollars. and crisis may cover all financial spheres . judicial investigations considering intentional financial crimes were started in the usa. the real estate prices in the jk fell to the level of 1991’s. injection of 95 mln. euro was made by the european central bank to the banking sector. “lehman brothers” bank went bankrupt (usa). first eu country which fell the consequences of crises was ireland. european banking sector was shocked by the credit crisis. the first victim was “fortis” – european giant in banking and security. island nationalised the banks. the central banks of usa, eu, g. britain, china, canada, sweden and switzerland reduced the interest rates and presents the report about the recession of global economy for the icf. the first actions considering the global economic crisis made by the government of the republic of lithuania in order to stabilise economy was the tax reform. then quite drastic actions not friendly for the lithuanian’s were implemented. starting from january of 2009 the tax policy measures which were implemented increase the level of inflation by 2.7 percents. the main measures are systemised below: • seeking to economise the state budget there were reduced the salaries for the public sector servants (aprox. for 7 – 38 percents. the scope depended on the amount of salary); • the personal income tax was splited (but this did not reduced the tax burden for residents); • the values added tax (vat) rate was increased from 18 percent to 21 percent (the privileges were abolished); • the dividends were taxed by 20 percent tariff; • the tax for use of state property in use was increased from 0.5 percent to 2 percents; • the income tax was increased (from 15 percents to 20 percents); • the excise duty for petrol, diesel, gas and ethyl alcohol was increased; • the total state budget was reduced in 3 mlrd. litas (it was about 3 percent of gdp); it is a key to stress that despite these governmental actions were painful for residence however they were inevitable. as the practise of scandinavian countries shows, it is very important to make correct and accurate decisions considering tax policy in order to manage the consequences of economic crises, though these countries applied totally controversial measures then lithuania’s government. they reduced taxes, especially the public costs in order to enhance the flexibility of the economy as well as to tighten the budget policy. summarising it is a key to stress, that the solution for mentioned above tax policy measures which was made by the government of lithuania was the reaction to the recommendations of international monetary fund (imf). these recommendations not always and not for all countries are fully appropriated and could be hundred percent implemented. issn 1822–8402 european integration studies. 2011. no 5 122 hypothetical crisis policy framework for the recovery of lithuania’s economy lithuania’s economy is recovering supported by a determined policy response and the global upturn. regardless much has been achieved over the past year, the crisis has left three key policy challenges: fiscal deficit remains high, public debt is growing rapidly and the rising level of unemployment makes it imperative to advance with structural reforms. it is a key to stress that lithuania as other eu countries should follow for the requirements or suggestions by european commission in order to create policy framework for crisis management (see table 2). this framework, once fully developed, should include policy instruments in the pursuit of crisis prevention, crisis control and mitigation, and crisis resolution. basically it is important to stabilise monetary and fiscal policies. table 2. crisis policy framework for the recovery of economy crisis prevention crisis control and mitigation crisis resolution eu coordination frameworks financial policy regulation, supervision (microand macroprudentional) liquidity provision, capital injections, credit guarantees, asset relief state-contingent exit from public support; audits, stress tests, recapitalisation, restructuring eu supervisory committees, single market, competition policy, joint representation in international forum (g20) monetary policy leaning against asset cycles conventional and unconventional expansions state-contingent exit from expansion, safeguarding inflation anchor single monetary policy, european system of central banks fiscal policy automatic stabilisers within medium-term frameworks, leaning against asset cycles expansions plus automatic stabilisers, while respecting fiscal space considerations state-contingent exit from expansion, safeguarding sustainability of public finances stability and growth pact, european investment bank structural policy market flexibility, entrepeneurship and innovation sectoral aid, parttime unemployment compensation state-contingent exit from temporary support single market, competition policy, lisbon strategy eu coordinated tools microand macro-prudential surveillance, fiscal surveillance, peer pressure, learning liquidity provision, balance of payment lending facilities, eurobonds definition of coordinated exit strategies, structural funds source: european commission, economic crisis in europe, 2009, p. 58 as it was stressed in the document, the eu policy framework for crisis management largely builds on existing institutions and procedures, but parts of it are emerging from the various policy actions during, and prompted by, current crisis. this framework, once fully developed, would include policy instruments in the pursuit of crisis prevention, crisis control and mitigation, and crisis resolution (european commition, 2009). every country should now start to think about actions concerning crisis preventions while measures for crisis control and mitigation as well as resolution is still very important. hypothetical recipe for the recovery of lithuania’s economy (daugėlienė r., 2011) could be simulated according to the imf provisions made in 2010. considering mentioned above there could be highlighted free challenges for lithuania in future. they are reduction of unemployment rate, stipulation of domestic consumption as well as properly organise public finances. in order to manage these challenges it should be taken the later measures: • packages of measures to support employment generation and smes through increased absorption of eu funds should help to support the economy and job creation at a time of substantial fiscal adjustment. the new proposals in parliament to further enhance labour market flexibility would encourage hiring earlier in the recovery. further steps to improve the business climate as well as the performance of state-owned enterprises could help stimulate investment; • further fiscal consolidation is needed to place deficits and debt on a sustainable path. it is important to reduce sodra’s deficit as well as to restore the financial viability of the pension system; • there is a need to ensure the recovery of viable borrowers and the adequate protection of creditors. lithuania is able to overcome the challenges of the crisis and to carry out painful but necessary structural reforms that will create a strong foundation for long-term competitiveness. it would like to believe that effective measures will be implemented in order to enhance the purchasing power of lithuania’s citizens. the concepts of knowledge-based economy development (daugėlienė r., 2008) should not be eliminated as well. the economic growth needs to be supported by the policy which stipulates the creation, acquisition, implementation and dissemination of knowledge. according issn 1822–8402 european integration studies. 2011. no 5 123 to this it is important to strengthen incentives towards r&d activities, maintain labour and product market regulations that do not hinder the process of recourse reallocation towards higher-value-added activities. it is important to create the conditions for faster adoption of new technologies, enhance the innovation potential and attract fdi in dynamics sectors. conclusions • the impact of globalisation to the state of economy is direct and seems to be negative. globalisation increases the opportunities to deal with a crisis. the main preconditions for globalisation are changes in activities conditions because of it penetration, changes in understanding of time and distance. the main factors for economy growth stressed in classic economy theories were capital, work, land and raw materials. the expression of globalisation changed the attitudes of persons, groups and governments. according to this there were relooked and basic indicators for economic growth and modern economy growth theories emerged. since 1980’s the expression of the process of creation, acquisition, dissemination and implementation of knowledge became essential engine for stimulation of economy growth. in the interaction with globalisation this process may course the emergence of curious society which creates the economic welfare and , in contrary, consumer society which was the essential precondition for the last economic crisis. • starting from 1593 year we could calculate up to eleven prime crises which influenced negative changes in the economies. as the history shows the current downturn is clearly the most severe since the 1930s, but so far severe in terms of decline of production. the analysis allowed to systemise five key policy lessons from the past which would be called as measures to ensure avoidance of economic downturn. these are: to maintain the financial system; to maintain aggregate demand; to maintain international trade; to maintain international finance; to maintain internationalism. • the economy of lithuania as many countries of eu was effected by the global economic crisis. the unemployment rate increased significantly as well as gdp rate. the inflation level raised 9,9 percents in 2008. import decreased by 18 percents as export by 13 percents. this situation stipulated the total downturn of the economy and tax burden increase. • the first real actions of the government of the republic of lithuania as the reaction to the global economic crisis were made just in january of 2009. while the world and europe started inform about slowdown of the economy growth in september of 2007. the first actions while very painful for the residents were concerned with the relook of tax policy. this policy could be specified as “tax increase” policy. • further actions for the recovery of lithuania’s economy should be taken. the crisis policy framework for the recovery of lithuania’s economy should cover crisis prevention, control and mitigation, resolution actions. they should be done changing financial, monetary, fiscal structural policies. the instruments implemented have to be oriented in order to manage free basic challenges – reduction of unemployment rate, stipulation of domestic consumption as well as properly organise public finances. references 27th lfmi survey of the lithuanian economy 2010/2011 (2). lietuvos laisvosios rinkos institutas, 2011. daugėlienė r. lithuania‘s economy in the presence of global financial crisis: glogalisation and competitiveness aspect // current issues in management of business and society development – 2011 (conference proceedings), university of latvia, isbn 978 – 9984-45-348-4. p. 86 – 95 daugėlienė, rasa. perspectives of 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the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 7 issn 1822–8402 european integration studies. 2011. no 5 sustainable development: discourse on environmental values in latvia iveta briska research centre skds ritma rungule riga stradiņš university abstract the paper deals with the dynamics of the discourse on environmental values in latvia basing upon traditional emotional attitudes towards nature in the latvian culture, changes in environmental values in comparison with the dynamics of other values of the latvian public, and the role of the discourse on environmental issues in the formation of civil society in latvia. the dynamics of the public attitudes towards ecological problems and the discourse on environmental values is presented on the basis of the historical information, as well as the data of the world values survey and the research performed by the latvian public opinion research centre skds. the factual material mostly covers the period of the last twenty years. first of all the paper reflects traditional attitudes of the latvians towards nature and environmental values, which go deep into the latvian culture. these traditions are widely represented in the latvian folklore, and the paper provides a brief overview thereof. further, the paper offers the comparison of environmental and other values in the opinion of the latvian public on the basis of the abovementioned studies. finally, the paper provides the analyses of the role of environmental values in the formation of civil society in the latvian context, where environmental values are viewed as a mobilising factor for social and political activities of the public. the article is aimed at the provision of an overview of historical information and research materials on the dynamics of environmental discourse in latvia. the analysis of historical and literary sources and research materials related to the subject matter of the paper, and the comparative analysis of quantitative data of surveys have been used as the methods of this paper. topicality of the paper resides in the fact that modern society faces various conscious and unconscious risks, and in this context the activities aimed at the provision of long-term sustainable development are of great importance, which is impossible without the formation of environmental discourse. therefore, it is essential to provide an in-depth analysis of changes taking place in the environmental values and opinions of general public towards ecological issues in order to enable proper response to these transformations on the part of decision-makers, as the society should be educated and informed properly to enhance the development of its ecological consciousness. keywords: environmental values, sustainable development, environmental awareness, history. introduction ancient history of latvia has underwent a complicated and sometimes even dramatic development. however, latvians, who today represent one of the two „living” balt nations, have managed to preserve their traditional environmental values which go deeply into the history of the nation and represent an integral part of the traditional latvian culture. in the recent times the role of environmental values become essential in the formation of the civil society in latvia. the article investigates the development of the discourse on environmental values in latvia on the basis of a research of traditional attitudes towards nature and the environment in the latvian culture, dynamics of the opinion of the public towards environmental problems and the place of environmental protection in the development of the country, and the role of the discourse on environmental issues in the formation of civil society in latvia in the context of risk society and provision of sustainable development. the object of the article is to provide an overview of historical development of environmental values in latvia, to provide theoretical basis of the concepts of risk society and sustainable development and an insight in the application of these concepts in latvia, as well as to analyse the results of the recent studies conducted in relation to environmental issues in latvia over the period between 2006 and 2011. research methods used in the article include the analysis of literary sources, including theoretical literature and research materials related to the subject of the paper, as well as a comparative analysis of data acquired in the course of public opinion surveys . the subject of the article is topical, as modern risk society today has to find solutions for numerous risks, which requires joint activities of the society at all levels, which, in its turn, appears to be impossible without the formation of environmental discourse. therefore, it is essential to provide an in-depth analysis of changes taking place in the environmental values and opinions of general public towards ecological issues in order to enable proper response to these transformations on the part of decision-makers, as the society should be educated and informed properly to enhance the development of its ecological consciousness. issn 1822–8402 european integration studies. 2011. no 5 8 historical roots of environmental values in latvia latvia has an ancient history, which underwent a complicated development, and the latvians today represent one of the two „living” balt nations. up to the 13th century, when christian traditions were set up in latvia, religious traditions here shaped under the influence of the beliefs of paganism. people believed in spirits and ghosts and polytheism – worship of more than one god – was characteristic for this period. each of the gods was responsible for its own sphere. typical divinities were gods of the sun and fertility, the creators and mother divinities. even in remote ages the latvians worshiped the sun, the thunder, the moon, the mother earth, the mother wind, and the mother forest (kokare, 1999). long before christ was born the ancestors of the latvians believed that natural forces and phenomena, as well as the environment itself influence human mind and existence. environmental values also represent an integral part of the traditional latvian culture. folklore reflects the perception of the world of any nationality at a level, which expresses its social and cultural identity. the latvians have a distinctively emotional attitude towards environmental values, which resound in folklore. in japan the part of the folklore is haiku, the slavs have folk tales, and the latvians have their folk songs. these songs reflect their understanding of nature and their attitude towards it; nature is glorified: who owns those hills, who owns those vales, who owns those verdant oak-trees? pine-trees do own the hills; spruce-trees do own the vales; bees do own the verdant oak-trees (švābe, 1952-1956) in the folk songs not only worship and love for nature is expressed; they also teach that nature should be preserved and not destroyed: i walked through an argent grove, snapping no twigs, if i snap any twigs, i would walk in tears (ambainis, 1955). considering the history of the latvian literature, the nature and its phenomena, for example, in anna brigadere’s tale in „sprīdītis”, edvards virza’s „straumēni” are not just mentioned, but rather word-painted with great love; nature has powers that are able to control and even destroy men, if not treated with due respect. turning to a more recent history – the 20th century – when latvia was occupied and forcibly included into the soviet union, the development of the state went on in compliance with the concepts and directions of moscow. economical development of latvia was implemented according to the industrialisation and agricultural collectivisation policy adopted by the ussr. up to the end of the 1960s latvia experienced a relatively successful, although problematic, development, if compared to other republics of the ussr; however, it was still behind the western economies, especially in terms of the development quality. such concepts as environmental protection and quality of life were not quite popular among the public. the forced industrialisation in latvia from the 1950s exercised a significant influence on the environment, as extensive industrial construction resulted in an intensive pollution of the environment. at that time it was more important to implement the so-called five-year plans, rather than think about the evolving environmental problems due to the construction of a vast number of industrial facilities in such a small territory. at the end of the 1980s the role of environmental values in the formation of the civil society turned out to be vital. characterising the processes of awakening in this country in 1980s and 1990s, which laid the foundation of regaining independence, it is impossible to omit mention of the campaign against the construction of the daugavpils hydroelectric power station. today dainis īvāns says that his article of those times, which was directed against this construction, arose from the desire to live in a clean environment and green latvia. although in this case environmental values turned into the public socially-political mobilisation factor and the protests against the construction of the daugavpils power station are mostly associated with the onset of the period of awakening, initially they were aimed at the protection of a natural environment and ecological values. from this period environmental protection in latvia has been developing very rapidly after the creation of the ministry of environment and regional development in 1993 national legislation related to the protection of the environment has been normalised and investments into many specific environmental projects have been mobilised. for example, “procedures for carrying out a strategic environmental impact assessment” were issued by the cabinet of ministers of the republic of latvia in 2004, which specified the types of planning documents requiring a strategic assessment, the consultations prior to the commencement of the development of these planning documents, the information to be included in the environmental accounts, the procedure of informing of the public, organisations and bodies during the preparation process of environmental accounts, and the procedures for informing the european commission (latvijas republikas ministru kabinets, 2004). on the other hand also general public has become much more active in relation to environmental protection. thus, in 2008 the “big cleanup” project has been launched in latvia. the idea of the big cleanup latvia belongs to the writer anna žīgure. the project is based on voluntary participation to keep our environment tidy, bring people together and promote positivism and satisfaction with the achievements. the ultimate target of the project is to turn latvia into the cleanest country on the world map by its 100th anniversary in 2018, making nature garbage-free, allowing it to recover and urging people to take care of their environment (big cleanup). all the above proves that environmental values in latvia, owing to their deep roots in the history of the country, can become a strong basis for further development of the country along with the preservation of nature and its resources for the generations to come. risk society in latvia when latvia has regained independence in 1991 most of the spheres of national policy have been reviewed including the aspects of environmental policy. today the supported concept in latvia is that the improvement of the quality of life should not be accompanied by destruction of the environment. therefore, it is necessary to provide the balance between the activities of the industrial society and natural resources, which issn 1822–8402 european integration studies. 2011. no 5 9 in its turn requires an advanced environmental consciousness and ecological culture of the public. this concept conforms with the idea of sustainable development, which is not quite new. the term of sustainable development was first introduced by the united nations world commission on environment and development in its report “our common future”. since the united nations conference on environment and development (unced), which took place in 1992 in rio de janeiro this concept has been widely used all over the world. the most widespread definition of this sustainable development claims that it is meant to “meet the needs of the present without compromising the ability of future generations to meet their own needs” (bruntland, 1987). therefore, a traditional tendency of the modern society is orientation on a stable development, improvement of the quality of life, and technological progress, while preserving the environment. in the second part of the past century it was a prevalent belief that environmental problems are limited only to the shortage of natural resources, which is just a problem of economic nature requiring economic solution. however, as environmental problems grew deeper, environmental protection became seen as one of the principal priorities in the development of each country. environmental problems in the view of humanenvironment relations become more topical in the course of time. solution of global environmental problems will require joint activities of many generations of people. in this context sustainable development has turned into the main aspect in the relations between the public and the environment (sutton, 2007). german sociologist ulrich beck in the 90s of the last century stated that in the course of the globalisation industrial society is transformed into the global risk society. he considered that the problems of risk society are not limited to the threats caused by the pollution of the environment. risk society is characterised by a complete vanishing of time, territorial and social boundaries. beck illustrated this idea by the chernobyl accident in 1986, as the consequences of this accident have affected not only ukraine, but the whole europe, and these effects are felt even today (beck, 1992). considering risk society from the point of view of sustainable development it should be said that similar to an industrial society, risk society is not sustainable. it endangers the use of natural resources by excessive depletion, as well as by the fact that the pollutions resulting from industrial production harm the environment and keep it from recovery (beck, 1999). today the society has to face various perceived and unperceived risks and has to find solutions for this numerous risk to provide for successful formation of everyday life and to minimize the effect of different negative aspects of the development and progress on the life of people and the environment. british sociologist anthony giddens believes that it is very difficult to define the sources of environmental risks. (giddens, 1996) however, it should be noted that a right combination of social, political and economical components would allow both the protection of the environment against disasters and essential improvement of ecological situation in general. furthermore, some theorists argue that social, political and institutional reforms are necessary to accommodate the transition from industrial modernity, which was focused on the production of material goods, to reflexive modernity, which is focused on the production of knowledge, the avoidance of risk and the preservation of nature (ekberg, 2007). beck’s concept of the risk society is basing, among other things, upon the rise of a new “risk consciousness” around techno-social developments (wilkinson, 2001). the environmental and health risks from technologies, for example, like pesticides, would be expected to dominate public discourses in a risk society (blok, 2008). common knowledge interlaces with issues of scientific expertise in various ways (lidskog, 1996). therefore, besides the significance of risk regulation regimes, it is necessary to analyse, how the public is engaged in active forms of experimental knowledge-making. the basic regulations for sustainable development of latvia state that the goal of sustainable development is the formation of a stable economy of latvia, which should secure the needs of the society and ensure that the rates of economic growth exceed the rates of pollution of the environment and use of natural resources. it is necessary to provide the environment that would be safe and harmless for health both for the current and further generations, as well as sufficient activities for the preservation of biological diversity and protection of ecosystems. it is also essential to develop responsible attitude towards natural resources and to continuously increase the efficiency of utilisation thereof (cabinet of ministers of the republic of latvia, 2002). effective balancing of economic, social and environmental considerations requires active involvement of the entire society into the policy development process. providing that the major part of the society is actively involved, it will be possible to find optimal solutions and effective response to global challenges (sia “analītisko pētījumu un stratēģiju laboratorija”, 2007). as a separate issue the problem of raising public consciousness in relation to environment and awareness of environmental risks was mentioned. this problem should be considered as the question of the highest importance, since implementation of new legislation and policies by government, as well as effective use of such legislation and policies shall be possible only with active support by population (brizga j. at all, 2002). although sustainable development is a society-wide social and economic process, every individual in an everyday life is able to participate in it, if he or she is ready to take up certain activities. therefore, provision of comprehensive information related to environmental risks is essential to raise environmental awareness, and to develop environmental consciousness and environmental conduct. to accomplish these tasks it is necessary to properly define the target audience and to ensure sufficient quality and quantity of such information, as proper environmental information would help the public to orient better in their choice of the patterns of environmental conduct. one of the primary prerequisites for the achievement of this goal is the awareness of the current state of information provided to the public, as well as the level of comprehension and perception of such information. in this context studies of public opinion are seen as a very efficient tool for the evaluation of public awareness regarding issn 1822–8402 european integration studies. 2011. no 5 10 environmental issues and the readiness to act to contribute to the environmental protection. dynamics of environmental attitudes in latvia various studies are being carried out all over the world and the results of such opinion polls are used as to assess attitudes of the public towards the environmental protection, as well as to determine the level of readiness of people to adopt environmental conduct. the world values surveys and european values surveys series was designed to enable a crossnational, crosscultural comparison of values and norms on a wide variety of topics and to monitor changes in values and attitudes across the globe (icpsr). the range of questions the respondents are asked in these studies also cover the perception of the environment, technological development and its impact on the environment (world values survey). latvia took first took part in this survey in 1996. unfortunately, latvia’s participation in this study was irregular. regular studies being performed at european level are studies conducted by a research service eurobarometer dealing with the research of public opinion in europe. attitudes of the european public towards the issues related to the protection of the environment have been conducted by this service since 1982. the survey named “attitudes of european citizens towards the environment” was conducted in 2007 and latvia took part in it. one of the topics of this survey was related to general environmental concerns of the european public. since climate change was already associated with the concept of environment in general, this issue was mentioned as top concern in almost all european countries. on the other hand, in latvia other issues were more likely to be mentioned than climate change. another question of this survey was aimed at the investigation of the opinion of europeans regarding the responsibility for responding to environmental challenges. to that end the participants of the survey were offered two statements concerning the role of corporations and industry in environmental protection and the extent to which, in their judgement, the public can play a role in the protection of the environment. europeans in general tend to see environmental protection as a joint responsibility. as for latvia, almost all respondents (98%) placed the responsibility with the big polluters, while 71% thought that they, as individuals, can play a role in protecting the environment in their countries (eurobarometer, 2008). lots of various studies covering the issues of the environment and environment protection have been also performed in individual member-states of the european union. in order to investigate the changes in the public attitudes towards environmental problems and the readiness to act to improve ecological situation the public opinion research centre skds in 2006, 2010 and 2011 has performed vast surveys related to these issues. within the framework of these studies, among other things, the opinion of the latvian residents with regard to the most topical environmental problems, the extent of readiness to adopt environmental conduct, as well as the position regarding the priority of the environment protection over the economic growth were analysed. in 2006 the survey was ordered by the ministry of the environment of the republic of latvia. in 2010 and 2011 the survey was repeated by skds to allow the comparative analyses of attitudes of the latvian public towards environmental problems. the studies were performed with the use of the database of the latvian residents registered with the skds web panel: 1000 respondents at the age between 15 and 74. interviews were performed in the way of web assisted personal interviews. the selection has been made on the basis of the latest data of the register of population of the republic of latvia. this research method has been chosen due to the fact that along with the increase of the population of the internet and on-line users, this method allows researchers to reach target segments more effectively (aaker, 2001). the results of these surveys allow the comparison of the attitudes of the latvian public and the analysis of the dynamics of discourse on environmental values in latvia. one of the questions of these three studies was related to the topicality of different environmental problems in latvia (fig. 1). 42.7% 56.0% 54.1% 65.1% 69.6% 77.9% 73.6% 78.2% 77.6% 73.5% 82.3% 82.7% 85.1% 96.7% 48.1% 55.5% 60.3% 66.2% 69.7% 76.3% 77.2% 80.6% 81.1% 82.1% 82.5% 84.1% 85.1% 97.6% 57.2% 56.3% 71.8% 52.8% 77.4% 85.4% 66.4% 83.9% 80.6% 71.9% 84.4% 84.9% 91.1% 93.5% global warming problems (climate changes) construction and operation of small hydroelectric power plants ecological threats caused by neighbouring countries growing and cultivation of genetically modified plants (for example, genetically modified crops, etc.) pollution from industrial plants quality of drinking water travellers' and tourists' open-air activities car exhaust pollution in cities construction in urban green areas burning of last year's grass sewage treatment waste (household and hazardous) treatment problems deforestation dumping of waste in forests 2006 2010 2011 figure 1. the analysis of the answers to this question shows that no great changes happened during the period covered by the studies. the matter of top concern in 2006, according to the respondents, was dumping of waste in forests. this problem was mentioned by 93.5% of the participants of the survey. in 2010 and 2011 this issue remained the most topical (97.6 % and 96.7% respectively). the importance of deforestation has slightly decreased over these years. in 2006 this problem was indicated by 91.1% of the respondents, while both in 2010 and 2011 it was mentioned by 85.1% of the questioned respondents. another issue, which has undergone certain changes, was issn 1822–8402 european integration studies. 2011. no 5 11 burning of last years grass. in 2006 71.9% of the participants of the studies mentioned this problem as a topical issue. in 2010 the number of the respondents, who indicated this answer was much higher (82.1%), while in 2011 this number decreased almost to the level of 2006. only 73.5% of the respondents considered that this is a matter of great concern in latvia. the opinion of the public regarding ecological threats caused by neighbouring countries has also become less negative over the respective period. in 2006 71.8% of the respondents believed that these threats are important in relation to the latvian environment. in 2010 the number of such respondents amounted to 60.3%, while in 2011 only 54.1% of the participants of the survey believed that neighbouring countries pose a significant ecological risk. the decrease of ecological threats caused by the neighbouring countries in the opinion of the latvian public was possibly influenced by the closure of the ignalina nuclear power plant (which was located near the border of latvia). on the other hand, there were several problems that, according to the respondents, eventually have become more topical. among these problems open-air activities of travellers and tourists and growing and cultivation of genetically modified plants could be mentioned. in 2006 only 66.4% of the respondents were concerned about the effect of traveller’s and tourist’s activities on the environment. the same problem was indicated by 77.2% in 2010 and by 73.6% in 2011. as for the growing of genetically modified plants, this answer was mentioned by 52.8% of the questioned participants in 2006. in 2010 the number of the respondents, who believed that this problem is very important in latvia, grew up to 66.2%. in 2011 65.1% of the respondents mentioned this issue. this increase in concerns could be explained by the fact that there is a broad debate in media about gmo-free regions. another important result of these studies is consistent with the abovementioned conclusion of the survey performed by eurobarometer in 2007. the problem of global warming, in the eyes of the respondents, was the least important in latvia if compared with other issues offered by the questionnaires. in 2006 climate changes were mentioned by 57.2% of the participants of the study, in 2011 this problem was indicated by 48.1%, and only 42.7% of the respondents in 2011 considered this issue to be of high importance. another important question of the studies under consideration was related to the readiness of the latvian public to get involved in certain activities aimed at the improvement of ecological situation in latvia (fig. 2). 41.4% 46.3% 67.1% 72.6% 83.7% 84.0% 86.8% 86.7% 37.8% 48.5% 61.4% 70.2% 84.1% 86.8% 86.8% 86.9% 25.9% 34.9% 51.2% 67.5% 75.3% 76.3% 76.6% 79.1% more rarely drive your car, choosing public transport, bicycle or walking as an alternative use biofuel or gas for your car get around by bicycle participate in volunteer environment cleanup activities buy environmentally-friendlier household chemicals buy and use energy saving light bulbs sort your household waste plant trees 2006 2010 2011 figure 2. according to the results of the studies it could be said that in the course of time the latvian residents tend to become more environmentally conscious and more disposed to make their contribution to the protection of the environment. in 2006 79.1% of the respondents indicated that they would be ready to plant trees to improve the quality of the environment. in 2010 this answer was mentioned by 86.9% of the participants of the survey with slight reduction in the number of such respondents by 2011 (86.7%). readiness to sort household waste has also increased over the period under question. in 2006 this answer was indicated by 76.6% of the respondents, while both in 2010 and 2011 86.8% of the participants of the studies claimed that they would be ready to adopt this custom. buying and using energy saving light bulbs was mentioned in this question by 76.3% of the respondents in 2006, 86.8% in 2010 and 84.0% in 2011. readiness to buy and use environmentally-friendly household chemicals has also grown during the period of the studies. in 2006 this answer was indicated by 75.3% of the respondents. in 2010 the number of such respondents has increased to 84.1%, while in 2011 it amounted to 83.7% of the participants of the study. another answer, which also was more frequently mentioned by the respondents, was participation in volunteer environment cleanup activities. in 2006 this answer was indicated by 67.5% of the respondents. in 2010 and 2011 respectively 70.2% and 72.6% of the respondents mentioned that they would be ready to take part in such events. other activities offered in this question of the above opinion polls, such as getting around by bicycles, using biological fuel or gas for cars and driving cars more rarely, while choosing public transport, bicycles or walking as an alternative, were less frequently mentioned by the participants of these studies. however, it should be mentioned that the increase in the percentage of such respondents over the years was more significant than it was in previously analysed answers. readiness to get around by bicycle was indicated only by 51.2% of the respondents in 2006, while in 2010 the number of the participants, who would be ready to adopt this habit has grown to 61.4%. in 2011 this number has increased even more and amounted to 67.1% of the respondents. using biological fuel or gas was mentioned by 34.9% of the respondents in 2006, 48.5% in 2010 and by 46.3% in 2011. 25.9% of the respondents in 2006 would agree to choose public transport, bicycle or walking instead of driving their cars. the same answer was indicated by 37.8% in 2010. in 2011 such alternative was considered to be acceptable by 41.4% of the questioned participants of the survey. in the next important question of these studies the respondents were asked to evaluate, whether the environmental protection in latvia must be a priority in relation to economic growth (fig. 3). the comparison of the results of the four surveys shows that in 1996 only 40.3% of the respondents believed that environmental protection should be a priority, while 36.1% indicated that economical growth is more important than the protection of the environment (world values survey). issn 1822–8402 european integration studies. 2011. no 5 12 37.1% 38.5% 24.3% 37.3% 34.6% 28.1% 47.4% 23.7% 28.9% 40.3% 36.1% 14.2% 9.4% environmental protection must be a priority economic growth and job creation must be priorities other answer don't know / hard to say 2011 2010 2006 1996 figure 3. the situation changed sufficiently in 2006. 47.4% of the respondents believed that environmental protection should be a priority, even if it would mean slower economic growth and loss of a certain number of jobs. in 2010 the number of the respondents, who supported this point of view was much lower. only 37.3% of the respondents indicated this answer. in 2011 this idea appeared to be even less popular, as only 37.1% of the participants of the study agreed with this statement. on the other hand, if in 2006 only 23.7% of the respondents believed that economic growth and job creation should be of top-priority, even if it would cause certain damage to the environment, the number of such respondents has grown considerably by 2010 and 2011 (34.6% and 38.5% respectively). 28.9% of the participants of the study could not define their position in this question in 2006, 28.1% answered that they could not chose any of these statements in 2010, and 24.3% could not answer this question in 2011 (skds, 2006-2011). basing upon the above research and the analysis of the surveys conducted in latvia in relation to the public opinion towards environmental issues certain conclusions can be drawn regarding the development of the discourse on environmental values and the role of environmental values in the formation of civil society in the latvia. conclusions the discourse on ecological issues in latvia has developed on the basis of ancient latvian traditions and latvian folklore. latvian people have a special emotional attitude towards environmental values. they always have been a significant component of the traditional latvian culture. before christianity was introduced in latvia in the 13th century, the main religious elements or figures were ecological, natural or environmental images – the moon, the thunder, the sun, the mother forest, the mother earth, and the mother wind. in the latvian folklore, which reflects the nation’s perception of the world at the level demonstrating the development of its social and cultural identity, nature and environment has been mentioned both in folk songs and fairy-tales. due to the complicated circumstances of the latvian history, the latvian nation has often been restricted in expressing its own opinion on various issues, including the issues of environmental protection; however, cultural traditions has been rooted so deeply in the latvian culture that at the end of the last century, when latvia regained its independence, the role of ecological values in the process of forming of civil society became particularly significant. the onset of awakening and regaining independence started not as standing for freedom, but rather for the environment and, consequently, for environmental values. today environmental protection in latvia is not just one of the topical points in election campaigns of political parties. at the moment, when society is exposed to a variety of conscious and unconscious risks, emphasis is placed on longterm development, including the process of formation of environmental discourse. the industrial society shall develop, though, in harmony with natural resources and opportunities. society shall be educated, informed, enhancing development of its ecological consciousness. to this end it is essential to monitor the opinion of the public in relation to environmental issues by conducting vast regular surveys. today latvia participates in cross-national studies related to the environmental protection, including world value survey and surveys performed on the request of the european commission by a research service eurobarometer. also latvian public opinion research centres during the past years have conducted several studies to analyse the level of environmental awareness of the latvian public, the readiness of the latvian residents to act for the sake of environmental protection, and the extent to which, according to the public opinion, environmental protection should be given a priority over economic growth. according to the data summarised by the public opinion research centre skds the opinion of the latvian public in relation to the most topical environmental problems in latvia has not changed significantly over the past 5 years. people still consider that dumping of waste in the latvian forests is the matter of greatest concern in this regard, while such global problems as climate changes is not considered to be especially topical. this conclusion is also supported by the results of the study ““attitudes of european citizens towards the environment” conducted in 2007. it should be also noted that the level of readiness of the latvian public to adopt environmental conduct has grown considerably over the last five years. at the same time the results of the world values survey and the surveys performed by skds in 2006-2011 people in latvia still find it difficult to decide whether environmental protection should be a priority, even if it means a slower economic growth and a loss of a certain number of jobs, or whether the priority should be given to the economic growth and the creation of new jobs, even if the environment is harmed to a certain extent. on the other hand, the studies conducted in 2010 and 2011 show that the number of people giving preference to the protection of the environment over the economic growth and creation of jobs has shrunk. such results can be explained by a difficult economic situation in the country and the level of unemployment caused by the crisis, as people, who are unable to satisfy their basic needs, i.e. to buy food and clothes, unfortunately are less concerned about environmental issues. basing upon the above developments it could be concluded that latvia has every possibility to become a developed european country, where people foster ecological issn 1822–8402 european integration studies. 2011. no 5 13 culture and environmental consciousness. such a developed society in its turn would guarantee sustainable development of the country in future. development of such society requires proper information and education of the public in the matters related to environmental protection, which is one of the essential tasks of the government, policy-makers and other stakeholders in meeting the goals of sustainable development. references aaker d.a.; kumar v. 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(1996), in defence of sociology: essays, interpretations, and rejoinders – cambridge, polity press, 86 p. hood, christopher, rothstein, henry and baldwin, robert (2001), the government of risk: understanding risk regulation regimes – oxford, oxford university press. icpsr, european and world values surveys four-wave integrated data file, 1981-2004. on-line: http://www. icpsr.umich.edu/icpsrweb/icpsr/studies/04531 īvāns d., sapnis par neiespējamo. on-line: http://www. gramata21.lv/users/ivans_dainis/p1.html kokare e. (1999), latviešu galvenie mitoloģiskie tēli folkloras atveidē – riga, mācību apgāds nt, 17 p. lidskog, rolf (1996), in science we trust? on the relation between scientific knowledge, risk consciousness and public opinion research centre skds, research on the opinion of the latvian society towards the environment issues and environmental risks, 2006-2010. on-line: www.skds.lv sia “analītisko pētījumu un stratēģiju laboratorija”, (2007), latvijas ilgspējīgas attīstības stratēģija līdz 2030. gadam. pamatziņojums” (2007). on-line: http://www. latvija2030.lv/upload/lias_pamatzinojums.pdf sutton, p.w. (2007), the environment: a sociological introduction – cambridge, 126-143 pp. švābe a., straubergs k. (1952-1956), latviešu tautas dziesmas – copenhagen, imanta, 172 p. wilkinson, i. (2001), social theories of risk perception: at once indispensable and insufficient – current sociology 49(1): 1–22 world values survey. on-line: http://www.wvsevsdb.com/ wvs/wvsanalizesample.jsp the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 220 issn 1822–8402 european integration studies. 2011. no 5 evaluation of the development of tourist accommodation in the regions of latvia aina muska, ligita bite latvia university of agriculture abstract research hypothesis: the number of tourist accommodation in the regions of latvia has gradually increased over the research period but their distribution is uneven. the research aim is to evaluate the changes in the placement of tourist accommodation in the statistical regions of latvia. research novelty is scientifically evaluated development of tourist accommodation in the regions of latvia. from 2005-2007 the number of tourist accommodation in the regions of latvia has fluctuated, but since 2007 it has been constantly increasing in all the regions. the fastest chain increase rates can be observed in the regions with a small concentration of tourist accommodation – in zemgale and latgale. findings of the authors’ research allow concluding that the placement of tourist accommodation in the regions of latvia is uneven: 50% of all the tourist accommodation is located in riga and pieriga regions, but about one fifth of them – in kurzeme region. zemgale and latgale regions have little tourist accommodation. riga and pieriga regions also hold the largest number of beds – more than 65% of the total number of beds in latvia, thus the number of beds in the other regions is small. on average it does not exceed 50 beds per region. from 2005-2008 the number of serviced tourists has gradually increased in the entire latvia, as well as in riga, pieriga, kurzeme and latgale regions, but it has reduced in vidzeme and zemgale regions in certain periods. the fastest chain increase rate can be observed in latgale and kurzeme regions, but fastest decrease – in zemgale region. in the research period, more than half of the total number of clients in tourist accommodation was concentrated in riga region, but more than 10% in pieriga and kurzeme regions. the number of clients in other regions does not exceed 6% of the total number. 70% of the clients in tourist accommodation are local tourists (from latvia). the values of defert’s function prove that among the researched regions of latvia, tourism has a significant role in the regional economics of riga and pieriga regions. in latgale and zemgale regions the role of tourism in regional economics is small, but it is gradually increasing. results of the cluster analysis indicated that the capital of latvia, i.e. riga region, present the most beneficial conditions for the tourist accommodation sector. it is followed by pieriga region and kurzeme. vidzeme, latgale and zemgale regions lag behind the other regions significantly, regarding the development of tourist accommodation. keywords: tourism, tourist accommodation, development. introduction tourism is considered to be one of the most competitive sectors of european economy, which on average makes 4% of eu gdp, varying from 2% to 12% in different member states. in europe 2.2 million tourism enterprises employ 5.3% of the total labour force, constituting 10.8 million work places. (basic positions of ..., 2008) across the regions, 37% of all the foreign travellers of europe go to the countries of south europe, 32% to west europe, 19% to central and east europe, but 12% to north europe. (basic positions of ..., 2008) central and east europe region, which comprises latvia, has become a significant tourist destination over the last years. (basic positions of ..., 2008) in latvia, the overall situation in the tourism industry changed sharply after latvia accessed european union in may 2004 – the recognition of latvia increased, the “old” european countries developed interest in their “new” neighbours. (report on tourism ..., 2007) tourism enterprises, especially tourist accommodation establishments, have a significant role in tourism development. an economic crisis in the world and latvia, the value added tax rate raised fourfold in the beginning of 2009 from 5% to 21%, negative information regarding latvia in foreign countries, and tough competition among tourist accommodation establishments in the baltic countries are the main reasons for a sharp downturn for tourism businesses in latvia in 2009. the number of foreign visitors at hotels and other tourist accommodation establishments, which reached 944 thousand in 2008 or the highest indicator in the history of re-established latvia, declined to the level of 2005 in 2009. the number of local (latvian) visitors at tourist accommodation establishments declined even sharper, reaching the level of 2004. the number of tourist accommodation establishments in latvia has not adapted to this declining trend, as their number as well as the number of bed-places at tourist accommodation establishments in latvia continue increasing. in the period 2005-2008, the number of tourist accommodation establishments increased by 73 units or 17%. in 2009 this increase continued and was 13%. (tourism in latvia..., 2007; 2010; ancitis, 2010). specialists of the hotel sector believe that given the demand in 2009, the number of tourist accommodation in latvia is too large. the director of the hotel “radi un draugi”, evita zvarte, believes that the present number of tourist accommodation “probably is appropriate for the south of spain where the sun shines all year long, but not in latvia”. (ancitis, 2010) the average occupancy rate of hotels in latvia in 2009 was issn 1822–8402 european integration studies. 2011. no 5 221 28.6%; it is the lowest indicator at least during the recent 10 years. besides, the occupancy rate of hotels in latvia is lower than in lithuania and estonia. (tourism in latvia..., 2010;) the occupancy rate fell to a critical level not only due to the economic crisis, but also due to the imprudent construction of tourist accommodation establishments, i.e., demand was not adjusted to supply in a long term. research hypothesis: the number of tourist accommodation in the regions of latvia has gradually increased over the research period but their distribution is uneven. research aim: to evaluate the changes in the placement of tourist accommodation in the statistical regions of latvia. the following research objectives have been set to achieve the research aim: 1. to research the dynamics of the development of the main indicators characterising tourist accommodation in the regions of latvia; 2. to evaluate the value of defert’s function in the regions of latvia; 3. to perform the cluster analysis of tourist accommodation across the regions of latvia. the research is based on the data obtained by the central statistics bureau. the survey comprises hotels and resort hotels that have at least 10 rooms, guest houses that have at least 5 rooms, as well as motels, rest-houses, sanatoriums, tourist and recreation centres, campsites, youth hostels and other tourist accommodation. (tourism in latvia..., 2009) to attain the research aim and objectives and to prove the hypothesis the planning documents and reports of the ministry of economics were also used. the monographic method, the multi-factor statistical analysis method – cluster analysis, economically statistical methods, synthesis and analysis were applied in the research. the monographic method, analysis and synthesis methods for problem research of elements and their synthesized association or formulated regularities are widely used in the research. the economically statistical methods are used for statistical data analysis. the cluster analysis is conducted to classify cluster of similar tourist accommodation development of latvia district and to elaborate the conclusions. this analysis is received with the aid of the computer programme spss excluding division of the regions to the clusters. also the computer programme spss presents the following characteristics: the cluster centres, the distance between any object and cluster centre, the distance between clusters, and dispersion analysis results that assists to analyse the importance of clusterisation. the research covers the time period after latvia had accessed european union, i.e. from 2005 till 2009. limitations the research comprises accommodation service providers of commercial character in the regions of latvia. however, it has to be admitted that along with the commercial sector, non-commercial sector also operates in tourism industry: friends and relatives, “second” home, “flat swap”, vans. the non-commercial sector has not been included in the research. the present paper reveals the main conclusions. the research was performed across the statistical regions of latvia. research novelty – scientifically evaluated development of tourist accommodation in the regions of latvia. results and discussion there is a wide variety of tourist accommodation in latvia. tourists stay in hotels, resort-hotels, guest houses, as well as motels, rest-houses, sanatoriums, tourist and recreation centres, campsites, youth hostels and other places. during the research period the number of tourist accommodation has increased from 418 units in 2005 to 559 units at the end of 2009 or by 34%, but this increase has not been even. (see fig. 1) 149 147 168 205 202 154 144 119 151 21546 37 40 40 4134 30 31 39 37 0 50 100 150 200 250 300 350 400 450 500 550 600 2005 2006 2007 2008 2009 n um be r yea rs hotels guest houses tourist and recreation centres camp-sites youth hostels other accommodation source: tourism in latvia..., 2007; 2008; 2009; 2010 figure 1. the dynamics of the number of the most popular tourist accommodation in latvia from 20052009 (end of the year) issn 1822–8402 european integration studies. 2011. no 5 222 figure 1 presents the most widespread types of tourist accommodation in latvia, the number of which at least once exceeds 30 units a year. the group ‘other accommodation’ comprises motels, resort-hotels, rehabilitation centres, resthouses (pensions) and other accommodation, the number of which is small in latvia. the data in figure 1 indicate that in 2006 the total number of tourist accommodation has decreased by 6%. the most rapid decrease can be observed in the group of motels (19%), tourist and recreation centres (20%). only the number of hostels has increased by 15%. since 2007, the number of tourist accommodation in latvia has gradually increased. a fast chain increase rate of the number of tourist accommodation was observed in 2008 – 23%. irrespective of the fact that the growth tendency continued also in 2009, the chain increase rate reduced by 9%. the increase of the total number of tourist accommodation in 2009 took place on the account of guest houses. the authors consider that this increase can be explained with finishing building and launching of the guest-houses started in the previous years. whereas, the groups of hotels, motels and other tourist accommodation already exhibited a tendency: chain increase rates are negative. the analysis of the structure of tourist accommodation revealed that hotels and guest houses are the dominating tourist accommodation in latvia. the proportion of hotels in the total number of tourist accommodation is 40%. (tourism in latvia..., 2007; 2008; 2009; 2010) it can be explained with the fact that hotels are the most important and more recognized type of tourist accommodation in the entire world and in most cases it is one of the main elements of holiday packages.(platace, 2000) the proportion of guest houses exceeds 30% in the total number(tourism in latvia..., 2007; 2008; 2009; 2010) the distribution of guest houses approves of the development of rural tourism in the country, where a significant role is played by the activities of “lauku ceļotājs”. (report on tourism..., 2007) it is important to research the placement of tourist accommodation in the regions of latvia. (see table 1) table 1. the number and proportion of tourist accommodation in the regions of latvia from 2005-2009 region 2005 2006 2007 2008 2009 n um be r st ru ct ur e, % n um be r st ru ct ur e, % n um be r st ru ct ur e, % n um be r st ru ct ur e, % n um be r st ru ct ur e, % total in latvia 418 100 393 100 400 100 491 100 559 100 riga 84 20 92 23 99 25 118 24 121 22 pieriga 116 28 105 27 103 25 127 26 153 27 vidzeme 69 17 63 16 60 15 64 13 78 14 kurzeme 68 15 59 15 70 18 96 20 104 19 zemgale 36 9 32 8 29 7 36 7 52 9 latgale 45 11 42 11 39 10 50 10 51 9 source: hotels and other tourist ...in 20052008, hotels and other tourist ...in 2009 and authors’ calculations data in table 1 reveal that in total the number of tourist accommodation has increased in all regions of latvia since 2007, but the distribution of tourist accommodation is uneven. 50% of all tourist accommodation is located in riga and pieriga region. during the research period the proportion of tourist accommodation was decreasing in pieriga region until 2007 but in riga region – increasing. in the period from 20062008 the proportion of tourist accommodation has increased in kurzeme region, and in 2008 this region already comprises one fifth of all the tourist accommodation. a small part of tourist accommodation establishments is located in latgale and zemgale regions. in vidzeme region the proportion of tourist accommodation has been gradually decreasing during the research period. along with the growth of the number of tourist accommodation, the number of beds there has also increased during the research period. the chain increase rate of the studied indicator – number of beds – has increased in total in latvia during the research period, but irrespective of the fact that in 2009 the number of beds in tourist accommodation increased, the chain increase rate decreased. the increase in the number of beds can be observed in latgale and riga regions during the entire research period, but the chain increase rates are fluctuating in these regions. in zemgale, kurzeme, vidzeme and pieriga regions the number of beds has decreased along with the decrease of the number of tourist accommodation. the fastest decrease can be observed in pieriga region – by 20% in 2006 and by 8% in 2007. issn 1822–8402 european integration studies. 2011. no 5 223 table 2. the number of beds in tourist accommodation and their proportion in the regions of latvia from 20052009 regions 2005 2006 2007 2008 2009 n um be r st ru ct ur e, % n um be r st ru ct ur e, % n um be r st ru ct ur e, % n um be r st ru ct ur e, % n um be r st ru ct ur e, % total in latvia 24045 100 24489 100 25696 100 29591 100 32496 100 riga 9212 38 10395 42 11329 44 12738 43 12920 40 pieriga 7194 30 6451 26 5906 23 6632 22 8136 25 vidzeme 2216 9 2105 9 2156 8 2418 8 2626 8 kurzeme 2845 12 2791 11 3465 13 4426 15 5002 15 zemgale 1227 5 1128 5 1114 4 1288 4 1621 5 latgale 1351 6 1619 7 1726 7 2089 7 2191 7 source: hotels and other tourist ...in 20052008, hotels and other tourist ...in 2009 and authors’ calculations table 2 reveals that riga region holds more than 40% of the total number of beds since 2006, but riga and pieriga regions together comprise more than 65% of beds, thus the proportion of beds in the other regions of latvia is small. kurzeme region stands out among the other regions of latvia. a small part of beds is concentrated in zemgale region – about 5% of the total number of beds. most of the beds are located in hotels. the data of the central statistics bureau about the period from 2005 till 2009 attest that 60% of the total number of beds is concentrated in hotels. along with the decrease in the number of both hotels and beds in 2009, the number of beds concentrated in hotels has also decreased to 54%. (tourism in latvia..., 2007; 2008; 2009; 2010) the analysis of the average number of beds revealed that the most capacity tourist accommodation is located in riga region. the average capacity of tourist accommodation is above 100 beds in riga region. in the other regions the average capacity of tourist accommodation does not exceed 50 beds. the lowest capacity tourist accommodation is located in zemgale and vidzeme regions. significant changes in the capacity of tourist accommodation in the regions of latvia have not been observed during the research period. clients of tourist accommodation services are tourists, therefore it is important to research the dynamics of the serviced people in tourist accommodation in both the entire latvia and the regions of latvia. table 3. the number and proportion of the serviced people in tourist accommodation in the regions of latvia from 20052009 regions 2005 2006 2007 2008 2009 n um be r st ru ct ur e, % n um be r st ru ct ur e, % n um be r st ru ct ur e, % n um be r st ru ct ur e, % n um be r st ru ct ur e, % latvia 1154700 100 1329890 100 1487379 100 1555936 100 1113898 100 riga 663800 57 733535 55 825419 55 869975 56 689330 62 pieriga 198600 17 239637 18 247969 17 253625 16 167105 15 vidzeme 73800 6 86069 6 83100 6 81301 5 46362 4 kurzeme 131700 11 156577 12 199144 13 228116 15 133363 12 zemgale 39300 3 47538 4 50458 3 38407 2 27093 2 latgale 47500 4 66534 5 81289 5 84512 5 50645 5 source: hotels and other tourist ...in 20052008, hotels and other tourist ...in 2009 and authors’ calculations the analysis of the people serviced in the tourist accommodation indicated that from 2005-2008 the number of serviced tourists has gradually increased both in latvia and in riga, pieriga, kurzeme and latgale regions, but it has reduced in vidzeme and zemgale regions during certain periods. in 2009 the number of the serviced tourists reduced in both the entire latvia and the regions of latvia. the fastest decrease can be observed in vidzeme region (43%) and kurzeme region (42%), as well as in latgale region (40%). in latvia, in total, the number of serviced tourists reduced by 28%. the analysis of the structure of the serviced tourists by regions revealed that more than half of all the serviced people in tourist accommodation are concentrated in riga region, issn 1822–8402 european integration studies. 2011. no 5 224 but more than 10% in pieriga and kurzeme regions. in the other regions the proportion of the serviced people does not exceed 6% of the total number. data presented in table 3 indicate that in 2009 when the number of serviced people in tourist accommodation in latvia reduced both in entire latvia and in the regions of latvia, the proportion of the serviced people in tourist accommodation in riga region increased by 6%-points. during the research period from 2005-2009 the analysis of the structure of the serviced people in tourist accommodation revealed that more than 60% of the people serviced in tourist accommodation establishments are foreign tourists. the proportion of foreign tourists in tourist accommodation establishments in riga exceeds even 80%, but in pieriga region it is around 50%. in the other regions of latvia the proportion of foreign tourists is around 30%. it means that 70% of the guests in tourist accommodation outside riga and pieriga regions are domestic tourists (from latvia). (tourism in latvia..., 2007; 2008; 2009; 2010) irrespective of the increase in the number of tourists in entire latvia and in several regions of latvia, the average length of stay of foreign travellers has decreased from 1.5 days in 2005 to 1.4 days in 2008, whereas the average length of the travel of tourists from latvia to foreign countries has significantly increased. it has to be admitted that in 2004 foreign tourists stayed for 1.7 days on average in latvia. it means that the year 2005 experienced a significant reduction in this indicator. in 2009 the length of stay reduced to 1.3 days on average. (tourism in latvia..., 2007; 2008; 2009; 2010) table 4. the main indicators characterising tourism industry in latvia from 2005-2009 indicators 2005 2006 2007 2008 2009 average stay of foreign tourists, days and nights 1.5 1.5 1.4 1.4 1.3 average length of travel of tourists from latvia, days and nights 3.2 3.8 3.8 4.0 4.7 travel service balance, mill. lvl -132.0 -138.4 -146.8 -181.9 -64.3 source: action plan for ..., n.d. table 4 presents that irrespective of the increase in the number of serviced people in the tourist accommodation of latvia, the travel service balance is negative during the entire research period and the difference has constantly increased until 2008. along with the reduction in tourist activity both in latvia and in the world, the difference has dropped to lvl 64.3 mill. in 2009. the reduction in the length of the travel can be explained with similar tendencies in the entire world, i.e. with the increase of the proportion of short holiday trips that are facilitated by the development of air traffic, especially in the budget flight sector, as well as with the increase of society’s busyness and load. (basic positions of..., 2008) 1. thus, most of the studied indicators characterising tourist accommodation have increased from 20052008. during this period the development of tourism industry and commercial activity of tourist accommodation establishments in latvia has been affected by several factors (report on the development ..., 2007; report on the development .., 2009; results and tendencies ..., n.d.): 2. strengthening of latvia as a tourist destination after accessing european union; 3. availability of the financial resources of european union; 4. marketing latvian tourism in high priority countries, priority countries and perspective countries; 5. increase of the number of direct flights; 6. increase of the number and volume of budget airline services; 7. the development of the ports of latvia; 8. international cooperation of the tourism industry of latvia: participation in the european travel commission of un nto, the work of the tourism consultant committee and sustainable tourism group of the european commission; 9. economic growth in latvia, which means that people earn more and may spend their money on travelling; 10. development of international and local business activities, which facilitates the increase of business trips; 11. big international undertakings held in latvia. statistical data that characterise the operation of tourist accommodation establishments in 2009 have decreased or their chain increase rates have reduced. these decreases have been caused by mainly three factors (in hotels and tourist..., n.d.; armands slokenbergs: “the...”, 2010; basic positions of ..., 2008): 1. recession in latvia, which significantly reduced the domestic demand and purchasing capacity; 2. demand for the latvian tourism product has reduced in the main target markets of latvian tourism (germany, estonia, finland, lithuania, russia, sweden); 3. vat increase for hotel and tourist accommodation services (from 10% to 21%) reduced the competitiveness of latvian tourist accommodation establishments in europe. the above studied data allow concluding that the number of tourist accommodation establishments, beds and serviced people in latvia is concentrated in riga region; therefore, it is necessary to calculate the defert’s function. “defert’s function characterises the importance of tourism in the economy of a particular region … defert’s function characterises a value indicating to n tourist accommodation establishments per capita in the given region.” when calculating defert’s function, the offer of individual tourist accommodation establishments is not taken into account. defert’s function is calculated by dividing the number of beds in tourist accommodation establishments with the number of population in the region and then multiplied by 100. (silineviča, 1999) issn 1822–8402 european integration studies. 2011. no 5 225 table 5. the size of defert’s function in the regions of latvia and in jurmala, from 2005-2009, % regions 2005 2006 2007 2008 2009 latvia 1.0 1.1 1.1 1.3 1.4 riga 1.3 1.4 1.6 1.8 1.8 pieriga 1.9 1.7 1.6 1.7 2.1 jurmala 6.7 5.8 5.7 6.1 6.5 vidzeme 0.9 0.9 0.9 1.0 1.1 kurzeme 1.1 0.9 1.1 1.5 1.7 zemgale 0.4 0.4 0.4 0.5 0.6 latgale 0.4 0.5 0.5 0.6 0.6 source: authors’ calculations applying, hotels and other tourist ...in 20052008, hotels and other tourist ...in 2009, resident population by region ... 20052009 as riga region concentrates one third of the permanent residents of the country and more than 40% beds of tourist accommodation establishments, the value of defert’s function is not significantly different from the average indicators of latvia, but yet, if compared to other regions of latvia, differences can be observed. comparing the value of defert’s function in riga and pieriga regions, it can be observed that the importance of tourism in the economy of the region has been slightly higher in pieriga region until 2007. this indicator is significantly increased by the city of jurmala. in 2007 the value of defert’s function is equal in both regions, but in 2008 the contribution of tourism industry of riga region to the economy of the region is larger. the value of defert’s function for jurmala city included in pieriga region is the highest in the country; however, the value is gradually decreasing until 2007, but in 2008 and 2009 the contribution of tourism to the city economy increased. the value of defert’s function has increased in kurzeme region. the data of table 5 reveal that in latgale and zemgale regions the value of defert’s function has been gradually growing but the importance of tourism in the economy of the region is small as both the number of tourist accommodation establishments and beds and the number of serviced people in them is small. the cluster analysis of tourist accommodation establishments was also performed during the research. 5 statistical indicators were selected for the cluster analysis: the number of tourist accommodation establishments, the number of beds per tourist accommodation establishment, the number of serviced people, the number of businesses and entrepreneurs in the accommodation and catering service sector, the value of defert’s function. statistical indicators reflect the situation in 2009. the above mentioned statistical data were gathered for all 26 districts of latvia and the capital of the country separately. dispersion analysis (anova) that is included in the module “cluster analysis” of the statistical data processing system of spss for windows revealed that all the chosen indicators are statistically significant for grouping districts in clusters. their significance does not exceed the 0.05 margin. several cluster variants were considered while performing the statistical data analysis: from 2 to 10 clusters. the division of latvia into 8 clusters turned out to be the most suitable because then the number of districts of latvia included in clusters was more even. in addition to the results of clustering, ranking of clusters was performed for all statistical indicators to determine the total development degree of each cluster against the other clusters. the development degree is the highest in cluster 1, the lowest – in cluster 8. (see table 6) ranking revealed that cluster 1 presents the most favourable situation concerning the development of tourist accommodation establishments at the beginning of 2009. cluster 1 comprises only the capital riga. values of all the statistical indicators were placed as number 1 during ranking, except the indicator “defert’s function”. this indicator occupies the 3rd place, as it was established already earlier that this indicator is reduced by the large concentration of the population in the city of riga. it is also approved by the statement of the regional manager in latvia and poland of sia emcm baltic santa rozenkopfa that “in comparison with other cities of latvia, riga has historically developed with a too large number of population and capital concentration, as a result of which the sign of equality could be placed between the country and the capital for a long time”. (skreija, 2008) cluster 2 comprises riga district without the capital city. all the indicators used in the cluster analysis are ranked in the high second place. when the values of statistical indicators of cluster 1 and cluster 2 are compared, it can be observed that there are significant differences. cluster 1 values are much higher, except for the value “defert’s function”. cluster 3 comprises ventspils district, where ventspils city plays a big role, in which tourism marketing activities have been actively implemented over the last years, as well as tourism infrastructure and man-made attractions have been developed. (tourism in ventspils, n.d.) the indicator “defert’s function” ranked number 1 and the indicator “the number of people serviced” ranked number 3. the rest of the indicators occupied the 4th place. cluster 4 comprises another district of kurzeme region – liepaja district. the highest valued indicators are “the number of tourist accommodation establishments”, “the number of beds”, and the number of businesses and entrepreneurs in the group of accommodation and catering service. cluster 5 comprises a district of vidzeme region – cesis district with the centre cesis in it, which is popular among the inhabitants of latvia and many foreign tourists as a tourism centre with explicitly low seasonality, and with a successfully developed favourable environment for the development of tourism infrastructure. (development programme of ..., n.d.) issn 1822–8402 european integration studies. 2011. no 5 226 ta bl e 6. a ve ra ge v al ue s an d ra nk s in th e cl us te r an al ys is o f t ou ri st a cc om m od at io n in l at vi a in 2 00 9 in di ca to rs c lu st er 1 c lu st er 2 c lu st er 3 c lu st er 4 c lu st er 5 c lu st er 6 c lu st er 7 c lu st er 8 average value rank average value rank average value rank average value rank average value rank average value rank average value rank average value rank n um be r o f t ou ri st ac co m m od at io n 11 8 1 80 2 20 4 30 3 19 5 16 6 9 7 4 8 n um be r o f b ed s 12 73 8 1 51 06 2 14 19 4 14 97 3 82 9 5 55 2 6 32 1 7 11 5 8 n um be r o f s er vi ce d pe op le 86 99 75 1 20 90 38 2 97 58 0 3 84 68 3 4 33 07 2 5 18 96 4 6 93 00 7 28 21 8 n um be r o f en tr ep re ne ur s in th e di st ri bu tio n an d ca te ri ng s er vi ce g ro up 14 08 1 32 7 2 89 4 14 3 3 73 5 57 6 44 7 23 8 d ef er t’s fu nc tio n 1. 80 3 2. 20 2 2. 50 1 1. 20 4 1. 03 6 1. 12 5 0. 76 7 0. 40 8 to ta l 7 10 16 17 26 29 35 40 d is tr ic ts in cl ud ed in th e cl us te rs , b y th e re gi on r ig a re gi on : r ig a p ie ri ga r eg io n r ig a di st ri ct k ur ze m e: v en ts pi ls d is tr ic t k ur ze m e: l ie pa ja d is tr ic t v id ze m e: c es is d is tr ic t; l at ga le : d au ga vp ils di st ri ct r ez ek ne di st ri ct p ie ri ga r eg io n: o gr e di st ri ct tu ku m s di st ri ct k ur ze m e: k ul di ga d is tr ic t ta ls i d is tr ic t v id ze m e: v al m ie ra d is tr ic t p ie ri ga : l im ba zi d is tr ic t k ur ze m e: sa ld us d is tr ic t v id ze m e: m ad on a di st ri ct v al ka d is tr ic t l at ga le : pr ei li di st ri ct z em ga le : a iz kr au kl e di st ri ct b au sk a di st ri ct je lg av a di st ri ct je ka bp ils d is tr ic t v id ze m e: a lu ks ne d is tr ic t g ul be ne d is tr ic t l at ga le : b al vi d is tr ic t k ra sl av a di st ri ct l ud za d is tr ic t z em ga le : d ob el e di st ri ct so ur ce : a ut ho rs ’ r es ea rc h ap pl yi ng th e da ta o f t he c en tr al s ta tis tic s b ur ea u issn 1822–8402 european integration studies. 2011. no 5 227 in addition to cesis district, cluster 5 also comprises two economically most developed districts of latgale region – daugavpils and rezekne districts. (muška, ozoliņa, 2009) the average values of all statistical indicators, except “defert’s function” are ranked as number 5. cluster 6 comprises ogre and tukums districts of pieriga region, kuldiga and talsi districts of kurzeme region and valmiera district of vidzeme region. “defert’s function” has a higher value in this cluster than in cluster 5. cluster 7 comprises aizkraukle, bauska, jelgava, limbazi, madona, preili, saldus, valka districts, thus most of the districts of zemgale region, as well as some districts from the other regions of latvia. the average values of all indicators are ranked only as number 7. cluster 8 comprises aluksne, balvi, dobele, gulbene, kraslava and ludza districts and the average values of all indicators are ranked number 8, the lowest. thus, the results of the cluster analysis also revealed that the capital of the country possesses the most favourable situation in the tourist accommodation sector, i.e. in riga region. it is followed by pieriga region and kurzeme. the development of tourist accommodation in vidzeme, latgale and zemgale regions significantly lags behind the other regions. conclusions 1. from 2005-2007 there have been fluctuating changes in the number of tourist accommodation in the regions of latvia, but since 2007 it has been gradually growing in all the regions. the fastest chain increase rates can be observed in the regions with a small concentration of tourist accommodation. 2. the distribution of tourist accommodation in the regions of latvia is uneven: 50% of all the tourist accommodation is located in riga and pieriga regions, but almost one fifth – in kurzeme region. a small number of tourist accommodations are located in zemgale and latgale regions. there have not been any significant changes in the distribution of tourist accommodation in the regions of latvia during the research period. 3. the distribution of the number of beds of tourist accommodation is uneven in the regions of latvia: 40% of the total number of beds is located in riga region, around 25% in pieriga region, about 15% in kurzeme region, but the proportion of beds in the other regions of latvia (zemgale, vidzeme, latgale) is small. from 2005-2009 there have not been any significant changes in the distribution of beds in the regions of latvia. 4. during the research period more than half of all the people serviced in tourist accommodation are concentrated in riga region, but more than 10% in pieriga and kurzeme regions. the proportion of the serviced people does not exceed 6% of the total number in the other regions. foreign tourists are the main guests in tourist accommodation in riga and pieriga regions, but local tourists – in the other regions. 5. among the studied regions of latvia, the variables of defert’s function approve that the importance of tourism in the regional economy is significant in riga and pieriga regions. in latgale and zemgale regions tourism has a small significance in the regional economy, but it is increasing gradually. 6. the results of cluster analysis indicated that the capital of the country, i.e. riga region, is in the most beneficial situation concerning tourist accommodation. it is followed by pieriga region and kurzeme region. the development of tourist accommodation in vidzeme, latgale and zemgale regions significantly lags behind the other regions. 7. it is necessary to continue the research and to evaluate the impact of economic activities on the development and distribution of tourist accommodation in the regions of latvia. references action plan for facilitating the development of tourism in latvia for 2010. on-line: http://www.em.gov.lv/images/ modules/items/rp_turisms_2010.doc ancitis t. (2010) the present number of hotels in latvia is more appropriate for the south of spain. online: http://www2.la.lv/lat/latvijas_avize/jaunakaja_ numura/?doc=75344 armands slokenbergs: “the drop of tourism indicators is etiological”.tourism. journal for tourism professionals. 2010, no.1 (12)pp. 15. basic positions of tourism development of latvia for 20092015. project.– riga: ministry of economics, 2008. cluster analysis. on-line: http://www.statsoft.com/textbook/ cluster-analysis/ development programme of cesis town for 2008-2014. tourism. on-line: http://www.cesis.lv/?d=1136 economically active statistical units in statistical regions, cities under state jurisdiction and districts by main kind of activity (nace rev 2.), 2005 – 2008. on-line: http://data.csb.gov.lv/dialog/varval.asp?ma=sr0060a&t i=sr06.+economically+active+statistical +units+in+statistical+regions%2c+cities +under++state+jurisdiction+and+distric ts+by+main+kind+of+activity+%28nace+r ev+2.%29%2c+2005+-+2008&path=../databaseen/ rupnbuvn/annual%20statistical%20data/23.%20 statistical%20business%20register/&lang=1 hotels and other tourist accommodation establishments by statistical region, city and district in 2005.2008. online: http://data.csb.gov.lv/dialog/varval.asp?ma=tu009 0a&ti=tu09.+hotels+and+other+tourist+a ccommodation+establishments+by++stat istical+region%2c+city+and+district+&p ath=../databaseen/transp/annual%20statistical%20 data/20.%20tourism/&lang=1 hotels and other tourist accommodation establishments by statistical region, city and county in 2009. on-line: http://data.csb.gov.lv/dialog/varval.asp?ma=tu0091a& ti=tu091.+hotels+and+other+tourist+ac commodation+establishments+by+stati stical+region%2c++city+and+county&p ath=../databaseen/transp/annual%20statistical%20 data/20.%20tourism/&lang=1 issn 1822–8402 european integration studies. 2011. no 5 228 in hotels and tourista – for a third less customers. online: http://diena.lv/lat/business/hotnews/viesnicas-unturisma-mitnes-par-tresdalu-mazak-apmekletaju muška a., ozoliņa i. (2009), locations of shopping centres in the regions of latvia // economics science for rural development 2009: international scientific conference, jelgava, latvia, april 23-24, 2009: proceeding of the international scientific conference „primary and secondary production, consumption”, №19jelgava: llu, 2009pp. 189197 number of visitors in hotels and other accommodation establishments. on-line: http://data.csb.gov.lv/dialog/ varval.asp?ma=tu0030ca&ti=tu03.+number+of+v isitors+in+hotels+and+other+accommod ation+establishments&path=../databaseen/ transp/short%20term%20statistical%20data/20.%20 tourism/&lang=1 platace m. (2000), basic principles of operation of the reception service.riga, 6 p. report on tourism development in latvia in 2006. informative report. riga: ministry of economics, 2007 report on tourism development in latvia in 2007. informative report. riga: ministry of economics, 2008. report on tourism development in latvia in 2008. informative report. riga: ministry of economics, 2009. resident population by region, city under state jurisdiction and district at the beginning of the year, 2005.2009. on-line: http://data.csb.gov.lv/dialog/ varval.asp?ma=ais02a&ti=is02a.+resident+popu lation+by+region%2c+city+under+state +jurisdiction+and+district+at+the+begi nning+of+the+year%2c+1990+-+2009&path=../ databaseen/iedzsoc/annual%20statistical%20 data/04.%20population%20f%20archive/&lang=1 results and tendencies of tourism development in latvia in 2008. on-line: www.tourism.ventspils.lv/.../a. ramata_tava silineviča i. (1999), analysis of tourism.rezekne: rezeknes augstskola, 52 p. skreija d. (2008), potential shown for developing shopping centres in the regions. – dienas bizness, june 10, pp. 1617. tourism in latvia in 2006. a collection of statistical data. riga: central statistical bureau of latvia, 2007 – pp. 4449 tourism in latvia in 2007. a collection of statistical data. riga: central statistical bureau of latvia, 2008 – pp. 45-50 tourism in latvia in 2008. a collection of statistical data. riga: central statistical bureau of latvia, 2009 – pp. 45-51 tourism in latvia in 2009. a collection of statistical data. riga: central statistical bureau of latvia, 2010 pp. 3540 tourism in latvia. on-line: //http://tava.gov.lv/userdate/file/ prezentacijas/tūrisms_latvija_2010_lv.pdf tourism in ventspils. on-line: http://www.tourism.ventspils. lv/?p=27 the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 126 submitted 03/2016 accepted for publication 09/2016 european integration studies no. 10/ 2016 pp. 126–134 doi 10.5755/j01.eis.0.10.14605 © kaunas university of technology the opportunities of relationship marketing: aspect of the eu digital market eis 10/2016 abstract the opportunities of relationship marketing: aspect of the eu digital market elina radionova university of latvia, veldres 5 –35, riga, latvia, lv – 1064 valerijs praude university of latvia, aspazijas 5, riga, latvia, lv – 1011 introduction the purpose of research is to analyse and evaluate opportunities of using relationship marketing in online trading in latvia as a part of eu countries. the objectives of research are to analyse scientific literature on the topic in order to find out the main ideas and understandings of research definitions and problems, to conduct a relationship marketing research, to make the internet trade industry analysis, to evaluate opportunities of using relationship marketing in online trading. the methods of research are: theoretical analysis of scientific literature, experts’ survey and its ana lysis. in the course of time it becomes necessary to have long–term relationships between businesses and consum­ ers. many companies want not only to sell their products to the consumer just once, but also to make up a new relationship with them, to increase the level of loyalty to the company and its products in future. therefore, it is necessary not only to “create” consumer`s base, but also to work to encourage consumers to re–purchase products. this means that there is a necessity in two–sided communication or relationship marketing. the suitable environment for relationship marketing is online trading market, where communication is much faster and easier than in real life, and which influences the effectiveness of communication. in the eu digital market consumers also search for solutions to purchase as effective as it is possible. the author’s research shows that online trading companies use relationship marketing in their activities. the research results can be used in practice, which will help online trading industry, in the eu digital market and especially in latvian online stores, to communicate more efficiently with their customers, and use the existing databases more efficiently. keywords: relationship marketing, online trading, marketing communications. http://dx.doi.org/10.5755/j01.eis.0.10.14605 the number of consumers who use online stores every year grows faster and faster, and in 2014 71% of latvian internet users are involved in online shopping, which is by 4 percentage points more than in 2013. as it is shown in gemius data, people aged between 25 and 34 are more active in online trading; women do that more often and act as professionals or office workers (kursorslv, 2014). analysis of citadele bank data shows that the number of transactions into foreign online shops increased by 42%, and into latvian shops – by 9 percentage more in 2013 than in 2014 (haka, 2015). in spite of the fact that in latvia the popularity of online stores is growing, consumers shop more in foreign online stores. comparing the baltic states countries between each other, latvia takes the second place in terms of the percentage of people who are aged between 16 and 74 and who get the goods or services on the internet (latvian internet association, 2014). 127 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 1 people purchasing goods or services online (aged 16–74) % country residents, % latvia 33.5 estonia 48.6 lithuania 26.0 source: latvian internet association e– commerce statistics, 2014 analysing the same data from 2014 year for the eu counties it is possible to see that a big number of people now prefer use online platform as a place for ordering goods or ser­ vices. in addition, it can be pointed out that electronic sales takes in average 25% from total turnover. the map shows the compari­ son of different eu countries. figure 1 individuals ordering goods or services online, all individuals (aged 16–74) (latvian internet association e– commerce statistics, 2014) after evaluation different sources and data it is possible to underline that online trading is be­ coming popular and convenient way for consumers. however, the problem is in the huge number of online sellers and shops. it is necessary not only to promote products or services but also to build a long – term relationship with consumer and to strengthen level of the customer loyalty. the purpose of research is to analyse and evaluate opportunities of using relationship marketing in online trading. the objectives of research are to analyse scientific literature on the topic in order to find out the main ideas and understandings of research definitions and problems, to conduct a relationship marketing research, to make the internet trade industry analysis, to evaluate opportunities of using relationship marketing in online trading. the following hypothesis were set: _ h1: mostly companies in the eu use crm systems but do not make an analysis from the data. _ h2: reaction time for different feedback is too long and sometimes feedbacks are not taking into account at all. the methods of research are: theoretical analysis of scientific literature, experts’ survey and its analysis. after analysing and evaluating both theoretical and statistical results the authors came to key results that to have a long – term relationship with a customer online companies should not only have crm (customer relationship management) systems, but also work with it appropriately in order to satisfy their customer needs in the best way to increase loyalty level in the future. online vendors react very slow or sometimes do not have a reaction at all at different (positive, nega­ tive) feedbacks from customer. reaction time is one of the components of loyalty model and it is important to provide the best solution in the quickest time for consumer. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 128 figure 2 total electronic sales by enterprises, as a % of their total turnover. (digital single market, 2016) it is possible to defined relationship marketing as a multi–dimensional construct consisting of six behavioral components such as trust, bonding, communication, shared values, empathy and reciprocity (yoganathana, jebarajakirthyb, thaichon, 2015). it can be pointed out that there is connection such as communication between customers and sellers increases the understanding of each other and enhances closeness and trust (huang, 2015).talking about relationship mar­ keting, the authors of the paper think first about long – term relationship with customers. it is necessary focus not only to customers but also on the creation of long–term relationships with other stakeholders (such as suppliers, institutions, intermediate customers) to implement the company’s value proposition and therefore its competitiveness in the market (bressan, signori, 2014). long – term relationship with customers is not only one relationship marketing dimension it is also one of the preconditions for the loyalty. the aim of relationship marketing is to create customer loyalty based on customer satisfaction. relationship marketing can improve the level of customer satisfaction and loyalty, and simplifies purchasing procedures (miquel–romeroa, caplliure–ginera, adame–sánchez, 2014). customer loyalty is one of the most important ele­ ments of relationship marketing. strictly related to customer loyalty is customer satisfaction (dumitrescua, ţichindeleanb, vinerean, 2013). marketing channel in the internet is different from the traditional one. customers have to choose and evaluate product only from the provided information even pictures on the website (bilgihana, bujisic, 2015). it is impossible to touch the product or to try it before buying process. that is why for the online seller it is necessary to provide full and trustful information about the all products, prices, delivery and payment terms. in the online market consumer has two ways of purpose to use internet – hedonic and utilitarian shopping (bilgihana, bujisic, 2015). hedonic shopping consumer uses when he wants to enter­ tain himself like surfing the internet, watching different pictures or reading funny quotes and after that just do shopping with no specific reason. utilitarian shopping has a particular goal to buy something such as buying products with the lower price. customers’ behaviour and attitude about the product offered by the company is differs how website fulfils the utilitarian or hedonic relationship marketing in the online dimension 129 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 requirements of the customer. understanding and evaluation of the customer behaviour helps to find out the effectiveness of the relationship marketing and allows increasing a company’s re­ turn of relationship marketing investment by offering demand–actuated strategies and services (schäfera, kummer, 2013). for finding those requirements there is a necessity to come with a special approach and com­ munication that could be integrated into online environment (kotler, 2014). three approaches are mentioned in different sources to increase consumer satisfaction and loyalty in the internet world (yi, 2103): _ professional approach – in terms of traditional marketing it means professional services as­ sociated with direct service and staff skills. the quality of provided information and service is important to consumer (chang, chen, 2008). it is honesty, while selling products on the internet only best pictures should be displayed and a good description should be provided; the prices should be up to date. if there are any problems and getting the product the consumer sees that the product and the picture are two different things in real life, then there is no doubt that consumer returns it immediately. the same is connected to prices – some online shops do not count the full price with delivery and other options and when consumer start to pay the price increase. in this case, the consumer often refuses from the purchase and is looking for other alternatives. all provided information should be trustable and easy to use (labrecque, esche, mathwick, novak, hofacker, 2013); _ interaction with consumers – it is possible to leave feedbacks in the virtual environment – both positive and negative. without a doubt, even the best online shop cannot get only positive feedbacks. it should not be forgotten that that reviews are written by people and psychological factors also should be taken into account. it is necessary to deal with any review very quickly. it is interaction with the consumer and requires a two–way communication in order to build a sustainable relationship with the consumer, which increase trust and satisfaction as well (mccole, ramsey, williams, 2010). therefore, it is necessary to interact with the consumer kindly and with understanding and respect (ivanov, 2012); in case of any problems that may be arisen there need to be find a solution to satisfy consumer. there should be a possibility to return the product, refund etc. in any situation it is essential to demonstrate that the consumer is important and that you care about him. besides there is the necessity to ensure a conve­ nient buying process (andrews, bianchi, 2013), delivery and billing processes. in short, the process of purchasing the product should provide the consumer with satisfaction and comfort (martínez–lópez, pla–garcía, gázquez–abad, rodríguez–ardura, 2014); _ stimulation – it is impossible to forget that any internet store wants to make a profit, which means that the consumer is more likely to be motivated to visit the website and make as many purchases as he can. a variety of promotions and discounts motivate consumers to buy products very well (sewell, brown, 2002). sometimes such actions are coordinated with tradi­ tional stores if the company has both stores in traditional and internet environments. loyalty programs become topical and stimulate to buy in a particular online store in order to accrue bonus points, to get free delivery, discounts or various gifts etc. (ткачев, 2015). a personal ap­ proach to each customer is important too, such as a thank–you letter, holiday greetings, faster delivery etc. after such service the consumer wants to share his positive experience with either his friends or acquaintances, or in social networks and blogs, or elsewhere, thus, creating a positive impression about the company. using all three approaches company establishes a long – term relationship with the customer the main idea of relationship marketing. in that case, it will mean an e–loyalty to the online ven­ e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 130 dor. it is important to understand that relationship marketing and e–loyalty are close and relate with each other. loyalty is the unity of interaction and behavioural and attitudinal components, as shown in figure 3, the model designed and moderated by the author from research made in early 2015 which was conducted within the master’s thesis (radionova, 2015). in turn, loyalty influences directly customer satisfaction (audrain–pontevia, n’goala, poncin, 2013), which may be affected by different values such as functional, social and emotional values and the value of money. the developed model points out that there are also factors that can influence consumer loyalty from outside, such as socio–demographic, usage duration, a variety of marketing activi­ ties. the analysis of loyalty models showed that satisfaction is the general impact factor to loyalty (christodoulides, michaelidou, 2011). the model can be used in general but each sector has its own characteristics and, of course, the internet trade market has its own specific features that allow modifying the specific model and applying it to online stores. the model developed by authors point out that the e–loyalty building process on the internet and in particular online stores is more complicated process than it is considered to be, because it is affected by several factors. in this case, it is necessary to mention repeated purchases (re–pur­ chases), which will appear in case of the high level of trust, which affects satisfaction. authors would like to single out that the chosen opportunities are what make the difference in loyalty to the traditional market and to the online market. while on the internet it is much faster to find required products, also to find a product that is not available in a traditional store, so foreign stores are more popular than local ones in latvia. because of these factors, online sellers need to react fast on different changes and interact with the consumer in order to prevent wrong and negative cases that could be in the online trading. in the traditional market, it is possible to talk face – to – face to the customer to explain some things or to show the product and provide all necessary information. talking about online trading it should be pointed out that the online com­ munication should be in a high level in order to build a long – term relationship with consumers. as it was mentioned before, it is essential to satisfy consumers directly in the online dimen­ sion. having studied several theories in the article (udo, bagchi, kirs, 2010), it can be stated that quality variability can be found in three main dimensions – information quality, system quality figure 3 loyalty model to the internet store (based on radionova, 2015) 131 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 and product quality. they have determined that these dimensions affect directly custom­ er satisfaction in online trading. each dimen­ sion can create their own factors, for example, service quality can consist of five dimensions: intangible value, trust, responsibility, guaranty and empathy. the authors agree with such division but con­ siders that such dimension as work speed could be added to service quality, because it is important for a consumer not only to use a good–looking website that has been used for a long time where there are certain guaran­ tees and a good attitude towards him but also where all the issues are dealt promptly and ef­ ficiently. moreover, discussing the quality, the authors point out the idea of adding delivery quality as nowadays there is a wide choice of different shipping methods which may differ by speed, price and locations, that is why de­ livery quality is an essential quality dimension. figure 4 use of crm figure 5 information about re–purchase in 2014 there was a significant increase in complaints to the latvian post due to the rapid growth of internet trading and the main reasons for complaints were cross–border correspon­ dence delivery (mainly in small packages)– delivery with lack or damaged contents, delivery delays and indication of incorrect (incomplete) address (haka, 2015). these factors indicate that the quality of delivery to the consumer is important and it is necessary to be improved. to find out the situation with the relationship marketing in online trading authors analysed experts surveys in order to make the evaluation of the results. in the survey took part 27 experts – repre­ sentatives from the companies that providing services or goods online. the experts were chosen accidentally from 7 different eu countries like latvia, lithuania, estonia, poland, uk, germany and greece. the experts are marketing and strategic directors of the online trading companies in different fields. they asked to stay incognito. the results of the survey showed that mostly companies use crm systems in their everyday work, 33.33% of companies do not use it. it can be explicable with the idea that many online companies are small or a start–up company and do not see the reason of having that kind of system. the next problem is that companies in online trading do not work with the informa­ tion they have. to the question how they work with the crm if we not taking into account the answer do not use crm the most popular answer was – special deals – 25.93%. that means that company use their crm database to send their customers different specials deals when they are sales periods, the authors want to underline that it is not personalized offers. 14.81% of experts use their crm database to send everyday news to the customers, which can be valuated as a negative experience because many customers sign out this news and lose the connection with the vendor. only 3.70% of experts use their crm with a personalized approach – they send to the customer’s special offers for special dates like birthday or anni­ versary. here is first hypothesis confirmation – mostly companies use crm systems but do not make an analysis of the data. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 132 figure 6 working with crm information) figure 7 feedback reaction time mostly experts collect information about their customers re–purchase – 77.78%. it means that companies are interested in increasing the level of e–loyalty. it should be pointed out that re–pur­ chase statistics helps better understand and measure e–loyalty to the online store. results show that online vendor reaction is slow. mostly it takes 3–7 days for 44.44% of experts to react to the feedback, which in some cases is long period for customer to wait and in this time he could find another online store and make purchase there. moreover, there are companies that do not react at all – 11.11%. for 14.81% it takes more than a week to respond, for 11.11% – 1–3 days and for 18.52% it takes about 24 hours to answer. that is the best way to react. as authors found out reaction time is one of the factors influencing e–loyalty. conclusions _ relationship marketing can be expressed as a multi–dimensional construction consisting of six behavioral components such as trust, bonding, communication, shared values, empathy and reciprocity. the aim of relationship marketing is to create customer loyalty based on customer satisfaction. it means that such components as satisfaction and trust cooperating together not making only loyalty, but also long–term relationship, which will transform into relationship marketing. companies have to think first about satisfying their customers and increase the level of trust to them and their products. _ relationship marketing is closely connected with loyalty, trust and satisfaction. these ele­ ments relate with each other. if the company thinks about having strong position in the market 133 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 and having close relationship with customers, company should improve all that components by using and analysing customers actions and behaviour. _ consumer satisfaction of the internet trade market affects the quality, which can be divided into four dimensions, such as quality of information, service quality, product quality, delivery quality. satisfaction causes customer loyalty and transform to the long – term relationship, so the traders in both markets should focus on the quality in all dimensions, for that purpose different customer research can be made to evaluate not only the satisfaction and loyalty, but also to find reason of results. _ by using relationship marketing companies in the eu especially in the baltic states and latvia will improve the long–term relationship with customers in order to create and increase loyalty level and improve situations in local online stores. _ h1 – accepted. to have a long – term relationship with a customer online companies should not only have crm systems, but also work with it appropriately in order to satisfy their cus­ tomer needs in the best way to increase loyalty level in the future and improve relationship marketing. _ h2 – accepted. online vendors react very slow or sometimes do not have a reaction at all at dif­ ferent (positive, negative) feedbacks from customer. reaction time is one of the components of loyalty model and it is important to provide the best solution in the quickest time for consumer. referencesandrews l., bianchi c. 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(2015). дисконтные системы: внедряем и развиваем. ростов н/д: феникс (tkachev s.s. discount systems: introduce and develop. rostov n/d: feniks, 2015) about the authors elina radionova mag.oec., doctoral student university of latvia address veldres 5–35, riga, latvia, lv–1064 tel. +37126376825 e–mail: elinaradionova@gmail.com fields of research interests marketing, loyalty, customer behaviour, relationship marketing valerijs praude dr.habil. oec. university of latvia address aspazijas 5, riga, latvia, lv – 1011 e–mail: valerijspraude@lu.lv fields of research interests marketing, customer behaviour, relationship marketing 257 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 efficient consumer response (ecr) principles and their application in retail trade enterprises in latvia http://dx.doi.org/10.5755/j01.eis.0.9.12812 rosita zvirgzdiņa, iveta liniņa business university turiba, graudu 68, riga lv 1058, latvia velga vēvere the university college of economics and culture, lomonosova 1, corp. 5, riga lv 1019, latvia submitted 04/2015 accepted for publication 07/2015 efficient consumer response (ecr) principles and their application in retail trade enterprises in latvia eis 9/2015 european integration studies no. 9 / 2015 pp. 257-264 doi 10.5755/j01.eis.0.9.12812 © kaunas university of technology abstract the sector of the retail trade has always played a significant role in the latvian economics. the basis for the retail trade is the satisfaction of consumers’ needs and the formation of the long-term relationship. to retain the existing consumers and to attract the new buyers, one of the fundamental tasks is to create the according assortment. the efficient consumer response presupposes not only the new approach in creating the assortment, but also influences all business processes in the enterprise and significantly raises the level of assortment. the purpose of the present study is to analyze the level of the ecr application in the retail enterprises in latvia. therefore, there were set the following tasks: a) to characterize the retail trade tendencies in latvia; b) to research the principles of assortment formation. the research methods applied were the expert interviews and consumers’ survey. the key result of the research was: the ecr implementation helps to form the assortment of the retail trade enterprises in more responsive to consumers’’ needs way. keywords: ecr, retail trade, assortment, consumers’ needs, product category management. private consumption is one of the corner stones of the economic growth. private consumption is a realm that raises latvia above the average rate of the gross domestic product increase in the eu. until the middle of 2007, the retail trade in latvia in comparison with other branches of national economics was developing dynamically. in 2009 the trade sector overall constituted 13.8% of the gdp (in actual prices). for many several it was one of the major factors of the gdp. largely it was because there was a tendency to put in order this sector by the state. the retail trade moved from market places, sport halls and sheds to shops and shopping malls. however, during the world economic crisis, the retail trade was one of the industries that experienced the largest drop. the total turnover of the retail trade enterprises in comparable prices in 2009 decreased by 28% in comparison with 2008. the turnover of the food products retail trade decreased for 20.9%, at the same time the decrease of the turnover of the non-food consumer introduction e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 258 goods was 31.4%. in order to explain such decrease many different factors should be taken into account, but primary factor was the stoppage of the issuing of consumption credits. when the economic situation in the country became stable, the retail trade sector started to bounce back. the sector of the retail trade beginning already with 2011 has been developing like the rest of industry. in 2011 the turnover of the retail trade increased by 4,6% in comparison with 2010. especially rapid increase was in the sphere of the non-food consumer good trade (excluding fuel) – 12%; the trade volume of the food products increased by 1,3%, but the retail turnover of fuel decreased by 8,8%. the growth was detected also during the last year. in comparison with the year of 2013 in 2014 the turnover of the retail trade according to comparable data has grown by 3,6% (data by the central statistics board). we cannot deny the fact that although the retail trade sector directly depends on the domestic situation, the rather negative external environment influences it also. the conflict between russia and the ukraine and the related sanctions, as well as the slow development in the european union have negative impact on the consumers’ frame of mind and create motivation to accumulate savings for the possible “hard times”, thus slowing down the total consumption. the good news is that, the actual data on labor market and salaries allow to conclude that the internal course of events can still resist the negative external influence (www.csb.gov.lv). despite the overall positive rate of retail trade growth, the competition within limits of the industry becomes more intensive. therefore, it is very important to find ways how to survive and develop successfully in these conditions. the consumer is the one who makes choice and satisfaction of his needs is the primary task of the retail trade. the basis of the consumer’s choice is a product (assortment and quality), price and place. the consumer also wishes to receive the according service and all necessary information. in the contemporary age of information consumer can easily obtain the information about the best offer, therefore retail trade enterprises should find possibilities to be leaders in the struggle for the client and to form long-term relationship with him. one of the systems to ensure the effectiveness of the retail trade operations is the ecr. the american marketing management company has found that the gain from the ecr would be 10,8% in the retail prices (kurt salmon associates 1993). it is expected that the manufacturers would receive 54% of these savings, whereas the distributers and the retailers would have the rest 46% (ecr europe 1997). ecr – efficient consumer response (understood also as „ quick reaction to consumers’ needs”) is cooperation of trade and manufacturing institutions, in order to adapt the sector of the fast moving consumer goods to consumers’ needs and to diminish the unnecessary expenditure related to the supply chains. the goal of the ecr is the cooperation to satisfy consumers’ needs faster, better and with smaller expenditure. the ecr movement became popular in the mid1990-ies; the reason for this was necessity to look for new solutions in managing distribution channels with an aim to supply consumers faster, qualitative and cheaper by cooperating with the trade partners. trust among all parties involved is the essential precondition for reaching results (dyer, jeffrey h. and harbir singh 1998). ecr relation is the long-term relation with the specific input since most likely the partners would start the implementation of the ecr in rather different periods. the partnership presupposes the monitoring and solving all problems together. nevertheless, if there is a common goal and common understanding, it is possible to reach the goal through joint learning (teece, pisano, and shuen 1997). the basis of formation of the ecr was the rapid development of information technologies, the ever growing competition, the formation and development of international trade organizations, as well as consumers’ need for more qualitative, safer, fresher product with better service and broad assortment (kato and others 2012). theoretical background of ecr 259 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the ecr is divided in four zones that are interrelated (see figure 1). the ecr is the business activity of the whole demand chain; it is reflected in 13 conceptions of improvement that are divided into four ecr spheres – demand management, supply management, suitable technologies and integrating technologies (busonera , martini, zavattini, santona 2014). figure 1 ecr zones •demand strategy and possibilities •cooperation value creation •optimization of assortiment •optimization of shares •optimization of new product implementation demand management •planning and forecasting of cooperation •expense/income value measurement integrators •general identification standards •standards of electronic news •synchronization of international data promoting factors •supply strategy and possibility of responsive supplies •integrated offer based on demand •operation excellence supply management the main benefits from the ecr are: _ fast reaction to the consumers’ needs _ elimination of losses in the supply chain and decrease of expenses _ increase in the product availability and higher level of customers’ service _ more effective stock management _ higher service and product level consumer’s benefits from the ecr: _ larger choice and shopping according to needs _ decrease in shortage of products _ fresher and cheaper products retailer’s benefits from the ecr: _ higher consumers’ trust and satisfaction _ better market research _ better relationship with suppliers _ improvement of the chain effectiveness manufacturer’s benefits from the ecr: _ effective manufacturing _ synchronizing of demand _ less possibility of the lack of products _ stronger positions of the product brand _ long-term trade relations (ecr baltic 2011) the retailer benefits from the ecr is immense, because the satisfied consumer will return, this will allow the enterprise to save and to reach its goals. what is consumer satisfaction? there are several answers to this question. the most theoreticians ascribe it to satisfactions. h. k. hunt defines satisfaction in the following way: “.. evaluation expressed by the consumer meaning that the experience of consumption was at least as good as expected” (hunt 1977). since the consumer goes to the shop to buy something necessary, then in the case of successful interaction it is possible to make .conclusions about his satisfaction. summing up, we can say that first of all the consumer in the shop will look for the assortment that corresponds to his needs. this mean that the retail trade is based on providing the assortment that corresponds to the consumer’s needs and on the fast reaction to the changes in these needs. the ecr presupposes to start the assortment formation with the product category management. the product category management views the assortment not as a body of separate products, but instead it divided this body into categories according to consumers’ needs and psychological aspects of product purchase. every retail trade enterprise works out its product categories based on cone u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 260 sumers’ needs (hofstetter 2006). therefore, it is necessary to start with the consumer research and segmentation, in order to understand in what categories does he think and how does he view the particular shop. in sum, we can say, that the principles of the product category management are: figure 2 product category management process (dirk, seifert 2001) _ the orientation to the consumer _ the joint systemic approach _ relying on the data _ the relationship based on cooperation _ the continuous improvement. in order to better coordinate these processes, it would be advisable to appoint one person as a product category manager. researching all responsibility zones of the product category manager, we can say, that they are related to: division of products into categories on the basis of psychological aspects of buying responsibility of one employee for the product category from buying till selling product category as enterprise in the enterprise with its own budget formation of shop assortiment on the basis of customer's vision of the shop _ cooperation with the suppliers and logistics _ purchase volume and assortment _ product placement on the shelves _ responsibility for sales results _ prices _ application of the non-liquides _ pos materials placement and sales promotion taking into account everything mentioned above, we can say that the product category management is seriously advantageous for the enterprise: 1 the assortment management is planned and the competitiveness of the enterprise increases. 2 the organizational structure of the enterprise becomes optimal and mutual relations improve. 3 all processes are regulated; this ensures interchangeability of the manager. 4 increase of the consumers’ satisfaction and the number of impulse buys is higher. the assortment is more balanced and harmonious. 5 the sales profit grows. the volume of non-liquids decreases. 6 the relationship with suppliers improve, because there is joint planning of purchase, logistics and promotion activities. 7 contradictions between purchase and sale disappear. the implementation of the product category management by itself does not automatically create advantages. we can speak about advantages only when there is revision of the enterprise development strategy, the structure of the assortment, as well as setting the goals for the product category managers and cooperation among all departments (dirk 2001). in order to implement the product category management it is necessary to answer these questions: 1 is there an understanding what the product category management is and why it is necessary? 2 what are the goals of the enterprise? it is possible to say that the implementation of the product category management requires the detailed business plan, definition of the operative and financial goals, defining the zones of responsibility, setting up deadlines for actions to be taken, as well as working out criteria for evaluation of the plan implementation (сысоева с.в., бузукова е.а. 2013). 261 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 there are many significant benefits from the product category management but how responsive to the implementation of these principles are the retail traders in latvia? in order to research the situation in latvia and to determine problems of implementations, we carried out the expert interview with the ecr baltic director edgars pantjuss. apart from that in cooperation with the latvian traders’ association, we surveyed the leading specialists of the latvian retail trade enterprises. in 2007 the ecr baltic the category management work group was created, its task was to educate the baltic retail trade market about the product category management, to facilitate its introduction into practice; as well as to share experience, to prepare publications and training programs related to the category management. in his interview, e. panjuss admitted that there are many problems in the implementation of the ecr principles in the retail trade enterprises in latvia. the main problems he mentioned were the following: ecr on retail trade enterprises in latvia figure 3 strategic planning in retail trade enterprises in latvia figure 4 retail trade enterprises’ wish to change the principles of assortment formation 1 the inability of the retailers to perceive the suppliers as partners and sharing of information. 2 the problem with the precision of product supply. 3 the problems with modern technology and use of programs. 4 the resistance of the personnel and the lack of specialists. using the database of the latvian trade association the survey was carried out among the retail trade enterprises. the research results gave an overview of the real situation in the retail trade enterprises related to the implementation of the product category management; as well as the survey allowed to define the main reasons for its non-implementation. one of the obstacles is the lack of the strategic planning. summarizing the survey data, we can conclude that 69% of the retail trade enterprises in latvia do not have strategic plans, 24% admit that they have plans for 1-2 years, but only 7% for a longer period. the survey demonstrated also the lack of change something in the assortment formation. although the majority of the enterprises want to change the situation, (see the figure 4). the lack of understanding of the product category management can be an obstacle in its implementation. only 14% of the surveyed enterprises had the full understanding, what does the product category management mean and how the implementation would be possible, 40% exhibited partial understanding, but 32% demonstrated only superficial understanding of the processes related to the product category management. figure 5 latvian retail traders’ understanding of the product category management e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 262 summing up all results of the survey, it is possible to conclude the retail traders in latvia do not recognize and do not appreciate benefits they can gain from the ecr and introduction of the product category management in the enterprise. there, in latvia has not been carried out the comprehensive research about the benefits from the introduction of the product category management principles because due to the high competition enterprises do not want to share their data. in the european countries (like switzerland and austria), where the product category management has been fully implemented, the calculated gain comprises about 30% of the turnover increase. the ecr is the business management process that benefits manufacturers, product distributers, traders, and consumers. the ecr presupposes integration of all instruments, in order all parties involved would reach their respective goals. . the product category management is one of the most important components of the ecr. besides that, it is orientated towards communication with the consumer and planning the changes in consumers’ needs. in other words, in order, the products in demand would be in the appropriate place, in the demanded volume and in the right time, as well as in order consumers would be informed. the goal of the ecr rests on four basic principles: conclusions _ effective assortment _ effective price determination _ effective product introduction and promotion _ effective diversification of assortment. according to the survey data, we can conclude that 69% of the retail trade enterprises in latvia do not have strategic plans, 24% admit that they have plans for 1-2 years, but only 7% for a longer period. only 14% of the surveyed enterprises had the full understanding, what does the product category management mean and how the implementation would be possible, 40% exhibited partial understanding, but 32% demonstrated only superficial understanding of the processes related to the product category management. the lack of understanding of the product category management can be an obstacle in its implementation. summing up all results of the survey, it is possible to conclude the retail traders in latvia do not recognize and do not appreciate benefits they can gain from the ecr and introduction of the product category management in the enterprise. in order to carry out successfully the product category management in the retail trade enterprise, the authors suggest the following plan of implementation that consists of the following activities: 1 auditing of the existent finances, personnel and other resources; 2 evaluation of the competitiveness and positioning; 3 continuous planning of the business results; 4 preparing the regulating documents for the assortment policies; 5 preparing the regulating documents for the price policy; 6 preparing the regulating documents for cooperation with suppliers; 7 revision the structure and functions of the enterprise; 8 introduction of the new position – the product category manager, preparing the job description. the authors offer the model (see figure 6) for the introduction of the ecr in the retail trade enterprises in latvia. taking into account the real situation, we suggest to divide the implementation of the ecr into stages and assign the specific time frame for each of these stages. the division into periods will allow to weaken the resistance and will require smaller immediate investments, both financial and in personnel development. 263 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 busonera a., martini p. s.; zavattini g. c.; 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(1977), „cs?d:overview and future research direction, „ // conceptualization and measurement of concumer satifaction and dissafigure 6 ecr model in retail trade enterprise years, but only 7% for a longer period. only 14% of the surveyed enterprises had the full understanding, what does the product category management mean and how the implementation would be possible, 40% exhibited partial understanding, but 32% demonstrated only superficial understanding of the processes related to the product category management. the lack of understanding of the product category management can be an obstacle in its implementation. summing up all results of the survey, it is possible to conclude the retail traders in latvia do not recognize and do not appreciate benefits they can gain from the ecr and introduction of the product category management in the enterprise. in order to carry out successfully the product category management in the retail trade enterprise, the authors suggest the following plan of implementation that consists of the following activities: 1) auditing of the existent finances, personnel and other resources; 1) evaluation of the competitiveness and positioning; 2) continuous planning of the business results; 3) preparing the regulating documents for the assortment policies; 4) preparing the regulating documents for the price policy; 5) preparing the regulating documents for cooperation with suppliers; 6) revision the structure and functions of the enterprise; 7) introduction of the new position – the product category manager, preparing the job description. assortment formation based on consumers’ needs procurement & logistics price politics according trading place sales promotion realization sales assistants’ training sale crm consumers’ data base from client cards -consumers’ segmentation -purchase analysis -customers’’ research -communication with consumer necessary product in necessary amount and quality price according to consumer’s psychological perception consumer can find product promotional activities according to consumer’s perception consultation about product satisfied consumer who becomes a loyal consumer ecr product category management figure 6. ecr model in retail trade enterprise faction/ h.keith hunt, ed., cambridge, ma: marketingscience institute kato y.; kiriyama r.; takenaka t.; kurisu y.; nozaki d.; yano k.; sato f.; iida t. enhanced production of ecr plasma by using pulse mode microwaves on a large bore ecris with permanent magnets. source: 19. international conference on ion implantation technology, valladolid (spain), 25-29 jun 2012, issn: 0094-243x kurt salmon associates (1993), efficient consumer response—enhancing consumer value in the grocery industry. washington, dc: food marketing institute teece, david j., gary pisano, and amy shuen (1997), “dynamic capabilities and strategic management,” strategic management journal, 18 (7), 509–533. h t t p : / / w w w . e m . g ov . l v / e m / 2 n d / ? c a t = 3 0 4 0 5 (01.03.2015) http://www.ecr-baltic.org/en/ ( 08.03.2015) references e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 264 (http://globalscorecard.gs1.org/gsclive/getting_ started/introduction.asp) (01.03.2015) http://dx.doi. org/10.1002/(sici)1097-0266(199708)18:7<509::aidsmj882>3.0.co;2-z сысоева с.в., бузукова е.а. (2013), управление асортиментом в розницею категорный менеджмент. спб.: питер, 288 с, isbn 978-5459-00774-9 rosita zvirgzdiņa business university turiba address graudu 68, riga lv 1058, latvia e-mail: rosita@turiba.lv iveta liniņa business university turiba address graudu 68, riga lv 1058, latvia e-mail: iveta.linina@turiba.lv velga vēvere the university college of economics and culture address lomonosova 1, corp. 5, riga lv 1019, latvia e-mail: velga.vevere@gmail. com about the authors european integration studies 2011.indd 92 issn 1822–8402 european integration studies. 2011. no 5 some issues concerning unification and harmonization of european foundation law polina nesterenko kharkiv university of humanities, ukraine abstract the european union needs unified legislation regulating private juridical relations in the fields of property rights, contracts, torts and status of legal entities (companies and non-profitable organizations) etc. all over europe. however it is still complicated to harmonize and unify law of inheritance and family law, as these spheres are not connected with the internal market and member states have their particular traditions in this field. as we know, according to the article 95 of the ec treaty, the approximation of the provisions laid down by law should have as their object the establishment and functioning of internal market. european civil code lacks in sound foundation and sufficient grounds. therefore the codification appears to be premature whereas the unification of single institutes of private law seems to be reasonable and timely. in particular, must be unified the institute of foundations and rules governing their activities. the european foundation sector is a major economic force and makes significant contributions to the public good of europe. if we refer to the foundation law of eu countries, as long as there are no suitable directives or decisions aimed at harmonizing of standards concerning the foundations (a project of european foundation statute has not been adopted yet), there are less relevant discrepancies. european foundation statute would provide further benefits to the foundation sector. it would help to clarify terms and the concept of foundations as organizations with their own resources and independent governance. it would also help to develop a common definition of “public benefit purpose” foundations, as currently the term “foundation” is much too loosely used. but now within the eu each member state has a slightly different understanding of what foundations are. there are legal barriers to cross-border activities of foundations of the member states both in civil law and in tax law. as in company law, most of the barriers can be overcome, but this leads to compliance costs which will often be higher than they would be in company law, given that the legal and personal environments vary (foundation and tax laws of the member states seem to have more legal uncertainties inter alia because of much less case law and fewer specialized lawyers, and because board members of foundations may be less experienced in legal issues). a european foundation statute will become a law, which would do much to overcome the barriers which impede foundations’ cross-border activities. the statute would have the effect of unleashing foundations’ potential economic impact on public-good activities. key words: foundations, european foundation statute, economic activities, cross-border activities of foundations, civil law. introduction in last few decades the question of the possible harmonization and unification of european private law was particularly actual and controversial, as well as the question of how to implement them. this process goes slowly, but steadily, however the discussion about the degree of unification of private law rules, which must be achieved in the eu, is continuing. harmonization is a policy of the european community to achieve uniformity in laws of member states to facilitate free trade and protect citizens. harmonization is an important concept now in the european union for creating common standards across the internal market in accordance with ec treaty. attention is should be paid to the fact that the unification as a special case of harmonization is not possible to execute in the same degree to all the institutions of private law. one of the basic institutions of civil law is the institution of a legal entity, which was subjected to harmonize, but the question of the european foundation statute is still opened. certain aspects of the topic were discussed in the scientific papers and articles of christian von bar, jan m. smits, anastasia vezyrtzi, jürgen basedow, mauro bussani, angelika fuchs and other famous scientist in the field of civil law. in ukraine the problems of unification and harmonization of the european private law have been analyzed in civil literature, in particular, in the scientific works of anatoliy dovgert, ruslan stefanchuk etc. however, today a huge number of issues related to the development of unified rules of the european private law and european foundation law, had left unresolved. in consideration of the above mentioned, there is a need to analyze the social relations that arise in connection with the establishment, functioning and regulation of institutions, which have determined the choice of the theme of this article. scientific problem: the development of european foundation statute as a separate act or part of the future european civil code should lead to the unification of the understanding of foundations, their legal status as a legal personality, the consolidation of a unified concept of “public purpose”, and, most importantly, to the relief of cross-border issn 1822–8402 european integration studies. 2011. no 5 93 activities, as well as to the reduction of the costs for crossborder activities. however, it is still uncertain what should be in the european foundation statute. object of this article – the process of the harmonization and unification of the private law, and particularly foundation law, in european union members. aim of this article. the aim of this article is to study the theoretical aspects of harmonization and unification of the private law across the member states, and particularly their foundation laws, and expose the necessity to find the best way to unify rules about foundations in eu, the formulation of the theoretical conclusions and practical recommendations aimed at ensuring the optimization of activity of the foundations. the realization of the mentioned objectives of this study determinate the formulation and solution of the following main tasks of this article: • to present the historical development of harmonization process of private law in eu member states; • to expose the problems and issues of european law on foundations. • to uncover the importance of the european foundation statute. research methods: during the study were applied scientific and special techniques that allowed us to study legal phenomenon in the unity of social content and legal form. in the study were used techniques such as dialectical, historical, comparative-legal, logical-semantic, dogmatic-legal, formal and legal, method of complex analysis and other methods. private law of european union: possible degree of the harmonization before considering the particular regulation of foundations in member states it is very important to pay attention to the whole process of the unification within the eu, its stages and the results that were achieved input harmonization of private standards. since 1982, the commission was set up under chairmanship of professor ole lando (commission on european contract law). the main task of this commission was the creation of the principles of european contract law, which would be deployed are common to all eu standards and principles, which mediate the contractual relationships. commission’s work lasted more than 10 years and was finished by publication in 1995 the first part of “principles of european contract law”, in 1999 and 2003, came the second and third parts of this work. processes with respect to convergence of legal systems of eu countries have moved on. the european parliament in its resolution of 26 may 1989 (ojc 158 (6/28/1989)) and resolution of 6 may 1994 (ojc 205 (25/7.1994)), called the legal community to the creation of the european code of private law. based on these parliamentary resolutions dutch ministry of justice organized a conference in 1997 under the slogan «towards a european civil code». during this conference it became clear that most of the european lawyers favor the idea of forming a pan-european codification of private law that can solve the problem of intensive comparative study, which will be free from the constraints associated with the need to represent national interests. despite some skeptical comments, the basic response of the overwhelming majority of the participants to the idea of creating a european civil code was so positive and constructive that the establishment of a european study group seemed to offer sufficient prospect of success. in this context it looks logical the creation of the research team, dedicated to the development of the european civil code study group on a european civil code (sgecc) headed by dutch scientist christian von bar (chairman of the study group on a european civil code), and a study group on matters of private law (research group on ec private law (acquis group)). the last group was represented by its speaker, prof. gianmaria ajani, and coordinated by prof. hans schulte-nölke. these groups presented at the beginning of 2009 draft common frame of reference (for european private law)-dcfr: principles, definitions, and model rules of european private law. lawyers working on a project of the member states united in the network of excellence under the auspices of the european commission under the eu sixth framework programme. the acquis group, founded in 2002, currently consists of more than 30 legal scholars from (nearly) all ec member states and accession candidates who will contribute their research in national teams. as a reaction on activities of eu institutions in the field of european contract law, the acquis group targets a systematic arrangement of existing community law which will help to elucidate the common structures of the emerging community private law. in order to achieve this, the acquis group primarily concentrates upon the existing ec private law which can be discovered within the acquis communautaire. as christian von bar says: «but contract law alone is not enough. we have been arguing right from the beginning and feel reassured by the results right now emerging from a study commissioned to us by the eu-commission “on property law and non-contractual liability law as they relate to contract law” – that certain areas of private law are so closely connected with contract law that they have to be taken into consideration as well»1.we should wholly agree with the expressed points of view. unification must undergo not only the norms of the contract law, but also property law and law of torts, the law of secured transactions indeed. unification process continued and continues today. but this process of unification is not touched on all areas of private law. the reason is that family law and law of succession are not only the core of the cultural tradition of each country, but, in addition, it is difficult to find a legal basis for their harmonization, as they are not connected with the internal market. but the complexity of the unification of individual institutions is not the only obstacle in establishing european civil code. the main obstacle is that, in contrast to the nineteenth century codifications which could rely on sources limited in scope and origin, modern legal comparison is both purpose are oriented and pragmatic. due to the “richness and complexity” of the comparative materials to be taken into consideration, a transnational codification demands evaluation of already existing rules, understanding of the purpose served by each rule and its implementation by the courts, and synthesis and careful transfer to every linguistic framework. even in the work of christian von bar, we can find a similar view: “as chairman of the study group on a european 1 a common frame of reference for european private law academic efforts and political realities christian von bar .electronic journal of comparative law, vol. 12.1 (may 2008) // http://www.ejcl.org/121/art121-27.pdf. issn 1822–8402 european integration studies. 2011. no 5 94 civil code, which is heavily involved in the drafting of the academic and therefore “draft” common frame of reference, i should pause for a moment and make one point ‘parenthetically’, and that is that one should not loose any time on the question whether or not all of this is “in reality” about the creation of a european civil code. the “reality” is that it does not matter whether one responds to this in the positive or in the negative. it clearly has to be answered in the negative if by a “european civil code” we mean a legislative instrument like the code napoléon, the codice civile or the bürgerliches gesetzbuch. that is definitely not the idea, not even mine! (my reasons for that, however, would have nothing to do with political or “diplomatic” considerations of any sort; i simply believe that such a major step requires more time and more detailed knowledge about each other’s systems than we possess today)”2. there is a more optimistic position regarding the possibility of establishing a european civil code as a single pan-european instrument for all countries of eu. as massimo bianca says: “europe needs a single civil code, it is unlikely that the target will be reached in a short time. some continental civil codes are seen not only as a body of rules. they are seen rather as the expression of cultural inheritance, motive of national pride, and means of political influence of the state. similar considerations may concern the common law. that is why it is very difficult for some member states to give up their juridical tradition and accept to conform their domestic private law to a foreign code. these difficulties must not dissuade us from working hard for a european civil code and, first of all, for a european contract code. directives can assure only similar rules whereas europe must try to get not similar, but common rules”3. in ukraine, most of the jurist maintains the second position (anatoliy dovgert, ruslan stefanchuk etc.). anatoliy dovgert points out: “in what way out of harmonized national civil laws will appear a law which is new quality in this world? there are two ways: codification and cultivating. the last approach consists of the accumulation of doctrines, and in educating a new generation of comparatives lawyers. this is a long dialogue of legal cultures. the second path, codification, is to create (based on the already achieved level of harmonization) of the world code of private law. uniformitarianism of private law on a global scale already exists now in some sectors, such as human rights, or the basic conditions of supply. the european code that will be created in the next decade, no doubt, will have planetary significance, and may become the prototype of the world code of private law”. in our opinion, today it is expedient way to achieve greater uniformity is “cultivation”. due to the fact that many institutions may not be standardized, and because of different traditions in different countries eu. since 1957, the development of the european union (eu) and its accompanying supranational legislation and jurisprudence have had an intense effect on the formulation of domestic law within the member states, which now include all major western european states based on the continental 2 a common frame of reference for european private law academic efforts and political realities christian von bar .electronic journal of comparative law, vol. 12.1 (may 2008) // http://www.ejcl.org/121/art121-27.pdf 3 massimo bianca, progressive codification of european private law, an academic green paper on european contract law, kli, 2002,p. 133-136. legal tradition of single institutes of private law, in particular such subjects of the private relation as the foundations. of particular note is the fact that the eu encompasses countries that do not follow the continental tradition, so the process of developing supranational legislation that they can all agree on has served to further harmonize the various legal traditions in a number of different areas. but this fact still remains a problem in creating of unified code. european foundation law: current situation and prospects one of the key institutions of private law, which is subject to unification, is the institute of the foundation. this sector which is developing in recent years is very dynamic. there are currently number of foundations ranges between 90,000 and 110.000 in 27 eu member states. lately many member states decided to reform their foundation laws and tax laws in order to encourage the growth of foundation/charities sector. these reforms have taken place in the last few years, both in civil law countries (austria, belgium, germany, italy, france etc.) and in the common law countries (england and walse). importance and volume of the sector of foundations determined the emergence of the idea of a european foundation statute. this idea was a part of the considerations of the high level group of company law experts set up by the european commission in 2001 to make recommendations on a modern regulatory framework in the eu for company law. according to the final report of the high level group, a european foundation is worth considering but should not take priority in the short or medium term, because it would not be imperative for the conduct of cross-border activities4. later from december 2005 until march 2006 the directorategeneral internal market undertook a further “public consultation on future priorities for the action plan on the modernization of company law and corporate governance”, which also asked whether it would be considered useful to carry out an examination on the feasibility of a european foundation statute. and then in autumn 2007 the consortium (the max planck institute for comparative and international private law in hamburg and the university of heidelberg) started its work and finished the study in november 2008. this study showed the need to create a single european foundation statute, similar to those statutes, which govern the societas europaea, societas cooperativa europaea, societas privata europaea5. now within the eu each member state has a slightly different understanding of what foundations are. foundations are independent, separately constituted non-profit bodies with their own established and reliable sources of income. they are usually but not exclusively funded by an endowment, and have their own governing boards. they have been given goods, rights, and resources to perform work and provide support for public benefit purposes, either by supporting organizations or individuals or by operating their own programs. they do not have members, but associate private resources for public interest purposes. but in common law countries (cyprus, ireland, malta 4 final report of the high level group of company law experts // http:// ec.europa.eu/internal_market/company/modern/index_en.htm#background 5 this form is currently being proposed by the european commission to be introduced across the european union. issn 1822–8402 european integration studies. 2011. no 5 95 and the united kingdom) legislation distinguishes between “charitable trusts”, “charitable company”, and newly created “charitable incorporated organization”. however, these legal forms only have certain similarities with the features of the public benefit foundations (absence of membership and corporate structures and legal personality. for the matter of that, in the united kingdom it seems to be common to regard all “charities” as one single category (without a distinction between charitable trust, charitable company and charitable incorporated organization). the legislation of the us unlike the one of common law countries, uses the term “foundation”, although the understanding of which differs significantly from the “foundation” in the civil law country. in the united states, a “foundation” is a sub-category of a tax-exempt “charity” (trust or non-profit corporation) defined by some functional criteria depending on the source of its income. the internal revenue code distinguishes between “private foundations” (usually funded by an individual, family, or corporation) and public charities (other charities that raise money from the general public). private foundations have more restrictions (e.g., prohibition from controlling affiliated enterprises) and fewer tax benefits than public charities. in addition to the above mentioned features the european foundations are generally (but not always): are created for an indefinite period, exist under control of public authorities, and should not allow dividing the received profits (donation, gift, inheritance, etc.) between the founders or between the members of foundation executive body. but the lack of common terminology and understanding of the term “foundation” is not the only reason for european foundation statute to be created. there are other civil law barriers in some member states (e.g., recognition procedures), and in tax law the vast majority of the member states only grant tax benefits to resident foundations but not to nonresident foundations. in practice, the usual way to overcome the existing tax law barriers seems to be to establish one or more other foundations or non-profit organizations which comply with national laws of the states in which they are to engage in activities. undoubtedly the great importance has a practice of european court of justice for changes of the foundation laws and tax laws in the member states. decision in the hein persche case and judgment in the stauffer case have a great importance. the ecj released its judgment on 14 september, 2006 in the so called “stauffer case” (c386/04). walter stauffer is an italian resident foundation. it derived rental income from german real estate in 1997, which was subject to german corporate tax. since the german law stipulates that exemption from corporate tax only applies to resident entities, i.e. entities that have their registered office and/or governance structure in germany, stauffer decided to bring the case to the justice and invoked an infringement of the european legislation, namely the freedom of establishment and free movement of capital. the ecj ruled that the differential treatment of resident and non-resident charitable foundations constitutes an unjustified breach on the free movement of capital (article 56 of the treaty) but only where germany recognizes the charitable status of the stauffer foundation according to the german law. since the referring court had already recognized the charitable status of stauffer, the ecj considered stauffer to be comparable with a german charitable foundation. consequently it decided that the foundation should be exempted from real estate tax in germany. the ruling of the ecj is a significant step for the income tax treatment of non-profit organisations operating in other european countries, since many national legislations do not grant exemptions to foreign organisations operating on their territory. in the hein persche case the ecj has ruled that tax laws which discriminate against donations to public-benefit organizations based in other eu member states are against the ec treaty, as long as the recipient organizations based in other member states are to be considered “equivalent” to resident public benefit organizations. in addition to the slow pace of the infringement procedures and ecj procedures, the main problem again is that they only address the tax issue and do not provide solutions to the administrative and legal barriers that foundations face (for example, the highest barriers exist when a foundation considers transferring or has effectively transferred its seat to another member state. member states adhering to the “real seat” doctrine will even require the foundation to dissolve itself in such a case. in the other member states there are usually no rules which allow such a transfer). the foundations need positive laws as the courts only fix problems after they occur. ecj case law may not give sufficient legal certainty to proceed since the ecj can only interpret the law in specific cases, but not map out the more detailed legal rules that may be necessary for planning and carrying out complicated business transactions. conclusions we are aware that our insight into certain aspects of the perspective of the establishment of common european civil code and creating of unified and harmonized regulations on public and private foundations in the eu may be controversial, especially in current conditions. we’ve attempted to analyze different theories and positions concerning feasible ways of improvement of european private law. we realize that there are differences between positions concerning the future of european private law. therefore, in accordance with the first position the european civil code can be possibly created. even if creation of this act takes “more time and more detailed knowledge about each other’s systems than we possess today”6. and the adherents of the second position assert inability of the modern civil law science to generate paneuropean civil code as obligatory act for all member states. as we have also indicated, we believe that now “cultivation” is the most expedient way to achieve uniformity in regulation of private relations. this “cultivation” will result unification of particular civil law institutes. and then on the basis of these unified institutes creation of single european civil code will be on the cards. in reference to the foundations which are one of the key institutions of private law it should be mentioned that they have also become the subjects to unification in last decade. the last studies in this field and practice of the european court of justice showed that foundations in the eu need 6 a common frame of reference for european private law academic efforts and political realities christian von bar . electronic journal of comparative law, vol. 12.1 (may 2008) // http://www.ejcl.org/121/art121-27.pdf. issn 1822–8402 european integration studies. 2011. no 5 96 to set up common tax and civil regulation which would be nondiscriminatory for residents and non-residents publicpurpose and other foundations. in our opinion european foundation statute would provide further benefits to the foundation sector. it would help to clarify terms and the concept of foundations as organizations with their own resources and independent governance. it would also help to develop a common definition of “public benefit purpose” foundations, as currently the term “foundation” is much too loosely used. european foundation statute can also be called up to eliminate the administrative and legal barriers that foundations face when they transfer their seat to another member state or in case of providing trans-border activities. even if common act european civil code for member states isn’t created, further unification of foundation law would be extremely important for all private spheres of the society. references a common frame of reference – how should it be filled? on line paper: http://ec.europa.eu/consumers/cons_int/ safe_shop/fair_bus_pract/cont_law/stakeholders/5-18. pdf/ a common frame of reference for european private law academic efforts and political realities christian von bar .electronic journal of comparative law, vol. 12.1, may 2008, on line paper: http://www.ejcl.org/121/ art121-27.pdf. bezbah, v.v., ponka, v.f., belikova k.m., civil law and commercial law of european union (the main institutes) [in russian], moscow: rufn, 2010, 534 p. company law: new consultation on european foundation statute. european social policy, 2009, on line paper: http://goliath.ecnext.com/coms2/gi_0199-10273970/ company-law-new-consultation-on.html. cristian, v. bar, study of the systems of private law in the eu with regard to discrimination and the creation of a european civil code, european parliament, directorate general for research, working paper, legal affairs series, juri 103 en, chapter iii, 1999, p. 137-150. on line paper: http://www.cisg.law.pace.edu/cisg/biblio/ vonbar2.html. dovgert, anatoliy, modern private law reform considering forming a world-civil law. on line paper: http:// www.nbuv.gov.ua/portal/soc_gum/unzap/2009_2/ unz30dovhert.pdf. european foundation statute. where do we stand? on line paper: http://www.efc.be/europeanfoundationstatute/ pages/europeanfoundationstatute.aspx. feasibility study on a european foundation statute. final report, online european commission. on line paper: http://ec.europa.eu/internal_market/company/docs/ eufoundation/feasibilitystudy_en.pdf. giving in europe. decision in the hein persche case. judgment in the stauffer case on line paper: http://www. givingineurope.org/site/index.cfm?bid=1&sid=1&tid =1&inc=quick&back=1&lg=2&search=persche+c ase&x=16&y=6. intro to civil law legal systems (cr 09-002). on line paper: http://www.scribd.com/doc/25546163/intro-tocivil-law-legal-systems-cr-09-002. kashkin, s. u., european union law [in russian] 2d ed., moscow: jurist, 2009, 1054 p. klaus j. hopt, the european foundation –a new legal, cambridge: university press, 2006. koopmans, t., towards a european civil code?, 5 eur. rev. priv. law, 1997. p. 543-544. massimo, b., progressive codification of european private law, an academic green paper on european contract law, kli, 2002, p. 133-136. peter, e. nygh, peter butt (ed). butterworth australian legal dictionary. 1997, p. 543. pokrovskiy, ivan, the main issues of the civil law [in russian] 5th ed., moscow: statut, 1998. 351 p. salole, gerry, why is the european foundation statute needed? the i j of not-for-profit law volume 11, issue 1, 2008. on line paper: http://www.icnl.org/knowledge/ ijnl/vol11iss1/special_5.htm#_ftn18. smits, jan m. plurality of sources in european private law, or: how to live with legal diversity. the foundations of european private law. ed. h. micklitz, s. weatherill, l. niglia & r. brownsword. forthcoming, 2011. smits, jan m. the draft common frame of reference (dcfr) for a european private law: fit for purpose? maastricht journal of european and comparative law 2, 2008, p. 145-148. stefanchuk, ruslan. the ways of reforming of the civil law. on line paper: http://www.nbuv.gov.ua/portal/ soc_gum/unzap/2009_3/unz31stefanchuk.pdf. then, volker, vahlpahl, tobias, european developments towards a new legal concept – the european foundation. trusts & trustees, vol. 14, iss. 5, 2008, p. 272276. on line paper: http://tandt.oxfordjournals.org/ content/14/5/272.abstract. the article has been reviewed. received in april, 2011; accepted in june, 2011. 89 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 submitted 04/2017 accepted for publication 08/2017 european integration studies no. 11 / 2017 pp. 89-97 doi 10.5755/j01.eis.0.11.18958 © kaunas university of technology the european migration crisis – economic and political factors and challenges for the future eis 11/2017 abstract the european migration crisis – economic and political factors and challenges for the future http://dx.doi.org/10.5755/j01.eis.0.11.18958 aleksandra borowicz university of gdańsk, research centre on european integration, ul. armii krajowej 119/121, 81-824 sopot, poland, e-mail: aleksandra.borowicz@ug.edu.pl until 2014 the problem of migration was discussed primarily in the context of free movement of people and the asylum policies of selected countries. since 2014 the european union (eu) has been facing one of the deepest political and social crises, namely the migration crisis. the stance adopted on this issue by individual member states has demonstrated great divergence between countries in terms of their understanding of the notion of “solidarity”. in 2015 alone, over a million migrants arrived in the eu, creating an urgent need to develop adequate solutions and mechanisms that would help to manage this influx and prevent its negative effects. the need for tight cooperation and support for the countries affected must lead to the development of a long-term strategy for the future. the article introduces selected theoretical issues that may be applied in describing the current situation in migration crisis. the article offers a brief overview of the steps undertaken on the european level in response to the migration crisis and analyses their effectiveness. at the same time the author discusses the reaction of member states, taking into consideration the fundamental principles of solidarity, openness to new countries or the global role of the eu. the article emphasises the economic implications of the crisis and its impact on the political dimension of the eu in the future. the article is based on a literature review and analysis of documents published by european institutions and distinguished research centres. a substantial section of the article is devoted to member states’ obligations stemming directly from eu primary legislation. this article is founded upon the belief that, at the european level, the right measures have been proposed to resolve the ongoing crisis. the lack of understanding of the fundamental principles governing the european integration process has resulted in the current difficulties. the negative reaction of different countries to the migration crisis in the eu is likely to lead to new scenarios in the integration process. a highly probable consequence is the transformation of the eu into “the eu of two speeds”. this may pose a serious threat to the catching-up countries, as they may become only supporting actors of the european integration process. the discussion between eu member states with respect to fulfilling the resettlement obligation is entirely unjustified, as the legal mandate of the european commission stems directly from the treaties. keywords: european union, international migration, migration crisis, migration policy. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 90 the migration crisis in the european union has demonstrated the differences in the understanding of the notion of solidarity among the member states. since 2014 the eu has been facing an on-going debate on the scenarios to resolve the problem of migrants. the eu is in a unique position with sufficient capabilities and resources to handle this social and economic phenomenon. however, the measures undertaken by individual member states are certain to carry political consequences, with the eu greatly divided on this sensitive issue. it should be noted that there is nothing new about the migration process. the eu has dealt with it for many decades; in fact, it is the migration process that forms the foundations of the european community. nonetheless, the current wave of migration has proved exceptionally dramatic and dynamic. in general terms, the key underlying factor turned out to be the so-called arab spring of 2011, which resulted in a rising number of asylum applications in the eu. in 2014 alone the eu member states received approximately 563 000 asylum applications, of which 30% involved syrian citizens (martin, 2016). at the same time the european societies realise that they are ageing fast and many member states have noted shrinking population and labour force. the inflow of migrants and asylum seekers used to be considered helpful in alleviating this problem. the openness of some european leaders, mainly german, is now viewed as key element in the context of the migration crisis. chancellor angela merkel could not foresee the sheer number of migrants entering the eu, which had been vastly underestimated. no member state would be able to handle and resettle 1 million or more economic migrants and asylum seekers. the emotional reaction of the german chancellor was also broadly discussed in germany. however, today it is beside the point. now germany is a key driver in solving the migration crisis, as it is considered to be largely responsible for the present situation. the migration crisis in the theoretical dimension touches upon at least 3 areas. the first one focuses on the division of competences as far as migration policy management is concerned. in this respect, articles 67-80 of treaty on the functioning of the eu (tfeu) can be invoked. it needs to be stressed that these articles directly point to solidarity as the key principle in this policy area. what is more, the treaty defines specific areas, in which measures may be undertaken on the european level (art. 78 and 79 of the treaty). it means that the european union considers the migration policy to form a crucial aspect of the external actions, as emphasised in the tfeu. in turn, the treaty on the european union states that those competences which are not directly listed in tfeu within the shared competences shall remain with the member states. the migration policy falls under freedom, security and justice, as explicitly described in tfeu (in title v of part 3). it has to be underlined that the eu focuses on migration flows, mainly concerninig border checks and the asylum process, which cannot be considered to constitute an immigration policy. an analysis of the treaties reveals a very clear division of competences. the european union manages the external issues of the migration process, but the immigration policy itself remains within the competences of the member states. secondly, the process of migration is not unusual. it is a stable occurrence in the context of international economic relations. migrations fall within the scope of interest of economists, sociologists, historians and researchers of many other disciplines. depending on the discipline, the migration process is analysed from a different perspective. in the context of the migration crisis faced by the eu, the crucial aspects are connected with causes of the migration. the reasons for migration (temporary or permanent) differ widely, starting with employment opportunities through to persecution in the land of origin. the fundamentals of migration theories are rooted in the work of ravenstein, who, in 1880s, presented his “laws of migration”. the following decades brought new empirical data and a lot of research. until the1980s migration research focused on introduction 91 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 macro aspects, concerning the labour market, analyses of demand and supply in rural and urban areas (lewis, 1954; harris&todaro, 1970). then there was a shift in the interest of researchers and they focused on the micro-level, taking into in-depth consideration the motives underlying the migration process, such as structural factors influencing the level of poverty (hagen-zanker, 2008). this article is founded upon the theories outlining the motives behind migration. in this context the most important are micro-level theories of migration, starting with lee‘s (1966) push-pull framework that analysed the supply and demand side of migration. another crucial trend in the development of migration theories involved the behavioural theories developed by wolpert (1965) and crawford (1973) (in hagen-zanker, 2008) which stress other aspects of migration, besides economic ones, for instance security or self-fulfilment. one of the latest models, i.e. new economics of labour migration (nelm), offers a comprehensive approach, combining the economic reasons for migrations with the influence of migration on the family (hagen-zanker, 2008). it is very difficult to find theories which may be applied directly to the migration crisis in eu, as most models focus chiefly on economics and economic issues. the author believes it is important to mention them in the context of the current crisis, feeling, however, that the work of wallerstein (1974), who described the world systems theory, should also be emphasised. migration to a specific part of the world is the consequence of the market development in the global economy. as the european union is considered one of the most developed markets founded upon tolerance and respect for human rights, it is a natural direction for people seeking a safe haven and a secure life. last, but not least, the author will briefly mention the theory of integration, focusing on its crucial component, namely the freedom of movement. since the 1990s the eu has enjoyed free movement of people and workers, strengthened further by the schengen agreement. the free movement of people has become the core focus of the member states in the context of the migration crisis. non-eu citizens, upon receiving the right to stay at the territory of the eu, gain the right to travel freely between the member states and enter the labour market, becoming part of the european society. the consequences of the free movement of the labour force for labour market and for the society was broadly analysed by lindert (1991) and molle (1997). the broad scope of rights granted to the migrants and their entering the labour system have been the subject of animated debate between member states and become the reasons for the backlash against the measures introduced by the european commission. economic aspects of the migration crisis behind the dramatic manifestations of the migration crisis, such as people on inflatable dinghies trying to reach the coast of greek islands, there are numbers and money. one of the first actions undertaken by the european union was tripling the budget for its triton and poseidon sea operations to eur 9 m monthly. until april 2015 the amount allocated towards those operations stood at eur 2.9 m monthly (more: pachocka, 2016). the cost of managing the migration crisis has two dimensions: the european and the national one. the measures are financed from the general eu budget and the national budgets of the member states. the general budget includes a “security and citizenship” category, which accounts for 1.6% of the eu budget for 2014-2020. furthermore, a special asylum, migration and integration fund (amif) has been created for 2014-2020, with a total allocation of eur 3.1 bn for seven years. the union resettlement programme is financed through the specific actions and amif, amounting jointly to eur 360 m. as mentioned above, the economic aspect of the migration crisis has a very strong national dimension. in the eu different types of actions are undertaken in this context: e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 92 1) protection of borders in the member states 2) managing the visa system in the member states 3) managing the influx of migrants and asylum seekers 4) police support 5) support for countries within the resettlement programme, which are financed from two sources: amif and international security fund (isf). isf amounts to eur 3.8 bn for 20142020. within the short term the member states will observe the increase of public spending with respect to managing the migration crisis. in the long term, the financial burden will depend on the age structure, the level of assimilation of the migrants and asylum seekers and their integration in the labour market. the international monetary fund (2016) prepared a summary of the fiscal costs of the migration crisis in different european countries. it was estimated that the average budgetary expenses for asylum seekers in eu member states could increase by 0.05 and 0.1 percent of gdp in 2015 and 2016, respectively, compared to 2014 (see table below). austria, finland, sweden and germany are most likely to note the largest increase in spending over the coming years; this assumption takes into consideration their actions since 2014. what is more, it is proportional to their engagement in solving the problem of migrants and asylum seekers. in turn, in 2015 the eu increased its spending on the migration crisis in the general budget from 0.01 eu gdp to 0.07 eu gdp (imf, 2016). the financial implications of the migration crisis can be divided into shortterm and long-term. in the short term the focus is set firmly on the day-to-day financing of crisis management and the allocation of migrants and asylum seekers. there is a debate on the involvement of the eu and national-level financing in this context. countries like italy, which have been directly affected table 1 fiscal cost of asylum seekers in 2014-2016 2014 2015 2016 austria belgium croatia cyprus czech rep. denmark finland france germany greece hungary ireland italy luxembourg netherlands spain sweden u.k. 0.08 0.07 0.002 0.003 0.0 0.24 0.09 0.05 0.08 n.a. 0.0 0.03 0 0.17 0.05 0.10 0.006 0.3 0.015 0.16 0.09 0.09 0.012 0.0 0.47 0.13 0.05 0.20 0.17 0.1 0.04 0.20 0.09 0.18 0.006 0.5 0.016 0.31 0.11 0.11 0.012 0.02 0.57 0.37 0.06 0.35 n.a. 0.0 0.05 0.24 0.09 0.23 0.03 1.0 n.a. source: international monetary fund, the refugee surge in europe: economic challenges, january 2016, sdn: 16/02. 93 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 by the problem, are even considering interference into the multiannual budget, a consequence of which would be decreased payments from the cohesion fund to those countries that oppose the solutions developed at the eu level, including the protection of an external border, reallocation systems or the resettlement programme. another italian proposal is to issue the “eu migration bond”, whereas the germany’s finance minister suggested a common tax on fuels (wolf, 2016). in the long run the eu may observe the integration of migrants with the european labor market and filling the generation gap. if the eu takes the responsibility for the assimilation process and makes it effective, in the long term this will result in increased tax revenues in the national budgets. such long-term thinking in the eu should prevail over the short-term perspective. sadly, political changes in some of the eu member states are posing a great threat to such long-term measures. the neoclassical theory assumes that migration accelerates the process of convergence between countries or regions (duszczyk, lesińska, 2009). a lot of studies confirm limited impact on the national economy in the long-term (barro, sala-i-martin, 2004; ostbye and westerland, 2006). in their findings the researchers emphasize that it is the human capital that is fundamental for the success of the convergence process. card (2005) in his research for the u.s. proved that migrants exert positive influence on the labor market, especially in low-skilled jobs. card pays a lot of attention to the assimilation of migrants within the local community, which increases the chance of them becoming active on the labor market. the political aspects of the migration crisis vary widely. firstly, it needs to be underlined that the european union is acting in line with the fundamental rule of integration, namely “global responsibility”, which imposes upon the member states joint responsibility as part of the international community. the eu as one of the key political and economic leaders proposed two new mechanisms of dealing with the huge influx of migrants: the union resettlement programme and the relocation system. both mechanisms are aimed at solving the problem of disproportionate inflow of migrants into selected eu member states. what is more, hoping to decrease the threat of illegal immigration, the eu signed a bilateral agreement with turkey to implement the resettlement programme. questioning the right of the european commission to impose common solutions upon member states is unjustified, as the tfeu in art. 67 underlines solidarity as the basic principle of the asylum, immigration and external border control policy. as of october 2015 we have observed increased efforts to relocate migrants from italy and greece. the ambitious plan to resettle 22,000 people in cooperation with turkey is highly unlikely to become a success. in its 10th report on relocation and resettlement the european commission announced that 14,422 people have been resettled to 21 member states. of this number 3,565 have been resettled within the scheme developed with turkey. the countries that have not made any progress in this area for several months include bulgaria, cyprus, the czech republic, denmark, greece, croatia, malta, poland, portugal, romania, slovakia and slovenia. the progress in the relocation system has been much lower. in september 2015 the council proposed to relocate the total of 160,000 asylum seekers. so far it has been reported that only 13,546 people were relocated from italy and greece. the leaders in this respect are france, germany and the netherlands, while only malta and finland are on track to fully meet their obligations resulting from the council decision. some of the member states have demonstrated a very dissapponting attitude. these include poland, hungary and austria. they keep refusing to become actively involved in this mechanism. the czech republic, bulgaria and slovakia have been largely limited in their enagagement. secondly, the political aspects of responding to the european migration crisis is deeply rooted in the solidarity clause under art. 222 tfeu: the political dimension of the migration crisis e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 94 1 the union and its member states shall act jointly in a spirit of solidarity if a member state is the object of a terrorist attack or the victim of a natural or man-made disaster. the union shall mobilize all the instruments at its disposal, including the military resources made available by the member states, to: (a) prevent the terrorist threat in the territory of the member states; _ protect democratic institutions and the civilian population from any terrorist attack; _ assist a member state in its territory, at the request of its political authorities, in the event of a terrorist attack; (b) assist a member state in its territory, at the request of its political authorities, in the event of a natural or man-made disaster. 2 should a member state be the object of a terrorist attack or the victim of a natural or man-made disaster, the other member states shall assist it at the request of its political authorities. to that end, the member states shall coordinate between themselves in the council. 3 the arrangements for the implementation by the union of the solidarity clause shall be defined by a decision […] 4 the european council shall regularly assess the threats facing the union in order to enable the union and its member states to take effective action. the aim of this clause is to secure the mutual support among the member states and give the eu the right to mobilise all instruments at its disposal (parkes, 2015). the solidarity clause as defined above gives all the answers to those politicians and experts who debate the legal endowment of the eu with respect to resolving the migration crisis. not only does it touch upon the issue of natural disasters, it also includes the latest and global threat, i.e. terrorism. as europe is experiencing the highest inflow of asylum seekers and migrants since the fall of the berlin wall and each month is marred by terrorist violence, solidarity is the only path forward. the division of competences introduced in the lisbon treaty gave the eu the full right to implement laws on behalf of its member states in the area of migration. the process of co-decision and qualified majority voting are the legal basis for regular immigration and integration. the share of competences between the member states and the eu shows the subsidarity rule is respected. at the same time the share of competences in this area shows that it is ineffective in implementation, as underlined by many experts (vision europe summit, 2016). the possibility of rejecting eu law and rules, as exemplified by what happened in hungary and slovakia, sends a very bad message to european citizens. it shows that managing the migration crisis has divided the eu in terms of respecting the european law. it is likely to result in reinforcing anti-european sentiment among the citizens of the member states. another issue of importance when discussing the political implications of the migration crisis is its social impact. in the case of countries like hungary or poland their attitude towards accepting and adopting european solutions is very populist in nature. the perception of the migration crisis by the poles is not as conservative as it may seem. the issue of migration has simply been turned into a political weapon to ensure a political advantage at the national level. visvizi (2017) has outlined the migration-populism nexus model. she stresses there are at least 3 groups of factors connected with ideology, history and culture that determine society‘s resilience to populism. 95 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 has the eu done its homework on the migration crisis? the history of the european union and european communities shows that they emerge from each crisis stronger and more integrated. the 1970s brought about eurosclerosis and as a result the ec went into the project of a single market based on four freedoms. soon after that european politicians suggested implementing a single currency. it was a very difficult time for the europeans. the increasing growth gap between the eu and the u.s. and the simultaneous divergence between eu member states (greece, spain, portugal as new member states) were the key internal issues affecting scenarios for the eu. in parallel, germany decided to unite and its chancellor helmut kohl significantly influenced the process of deepening the integration process in the ec. in this debate the european community enjoyed a very strong alliance with france and its president francois mitterand in terms of envisioning the future of the eu. long since the treaty of maastricht, the concept of the eurozone was introduced and then faced one of the biggest crises in some of the member states. but still the eurozone remained united and integrated. step by step it included new countries and now encompasses 19 out of 27 (28) member states. never before have the european citizens been so sceptical about the european union and its leaders. one may only hope that the presidential elections in france will reinforce france’s pro-european stance. it would send a firm message to other countries that european thinking is crucial for their safety, whereas, restoring internal borders would be a step back. it has now been more than 15 years since the amsterdam treaty and tampere conclusions and today the eu immigration policy and not an asylum policy is being implemented. the challenge undertaken by the eu in the form of an agreement with turkey to resettle some of the asylum seekers may be considered a transaction in which the eu is becoming a hostage. will it result in hard negotiations regarding turkey’s eu membership? the author believes it is not about the membership as such, but rather a direct financial support for the turkish government. the eu leaders must ask themselves whether it is worth exposing eu achievements to such a bargain. what is more, the eu might be seen as a fortress that cannot be breached and is closed to noneu citizens or migrants. the debate among member states has demonstrated differences not only in terms of fulfilling the eu obligations but also in the understanding of the value of human rights protection. when faced with the so-called islamic state’s atrocities, complicated roles of russia and turkey and unpredictable behaviour of the u.s. authorities it is crucial for european citizens to stay together and keep a united front. the creation of two-speed eu is one of the most pessimistic scenarios that are mentioned by decision-makers. until recently it was only a matter of discussion and debate. today, when the european commission (2017) has already presented its five scenarios, it seems certain that their adoption would soon lead to the establishment of two clubs in the european union. the core, with germany and hopefully france as leaders, would work to deepen their integration. consequently, the so called “core” would diminish the role of countries which do not follow european obligations and fundamental rules. this poses a great threat to those countries, as this group includes the new member states that benefit directly from the european integration process in the area of the cohesion policy, free movement of goods, services or capital. in the coming years they may become just a gateway to the european union. should that occur, the disintegration process will start, as for a member state to become simply an entryway to the common market would be tantamount to eu’s disintegration. when faced with the current change of attitude among the member states and the pressure exerted by the global environment, the european union needs decision-makers with vision. the eu must remain consistent in implementing its legislation in the member states. any search for new solutions must be based on common consensus combined with solidarity. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 96 the migration crisis as a rift in eu unity apart from the economic consequences, the political implications of the migration crisis have brought home the realisation that the eu is far from integrated. the position of eu on the global scene stems from its economic strength, coupled with democratic and human values. this fuels the strive of people to migrate to the european union. it is worth underlining that many researchers studying migration have noted this trend in their work. the limited implementation of migration solutions sheds new light on the unity of the eu. the member states have chosen to define the solidarity clause as they deem fit, suiting their own needs and interests. the debate on the future scenarios for the eu has been initiated by the european commission in its white paper of 1 march, 2017. the document indicates a very strong turn towards the concept of two-speed europe, which would be detrimental to new members (those that have joined since 2004). this debate is influenced by global changes and events, such as the arab spring, conflicts in the ukraine, the conflict in syria, the future leadership of the u.s., as well as the role of russia and turkey on the international political scene. the main fear connected with the influx of migrants into the eu is terrorism and the limited extent of integration of migrants with local communities. the main challenge facing the eu is reminding the member states of the fundamental principles underlying european integration, namely subsidiarity, global responsibility, solidarity, respect of human rights, free market and democracy. making these issues part of the european debate may lead to a better understanding of the nature of the integration process. the new generation of europeans have not had to face the problem of war or post-war destruction of the economy. most european citizens are not directly affected by such global issues as conflicts in syria or in arab countries. these are far removed from europeans’ day-to-day life. however, making them visualise the consequences of the migration crisis may result in renewed support for european initiatives. consequently, europe’s politicians would not feel entitled to disregard and breach european legislation and principles. conclusions martin l.p. (2016), viewpoint: europe’s migration crisis: an american perspective. migration letters, vol.13, no:2, 307-319. european commission. 2017. tenth report on relocation and resettlement. retrieved 1st of may 2017 from https://ec.europa.eu/home-affairs/sites/ homeaffairs/files/what-we-do/policies/european-agenda-migration/20170302_tenth_report_ on_relocation_and_resettlement_en.pdf international monetary fund. 2016. the refugee surge in europe: economic challenges, january 2016, sdn: 16/02. retrieved 4th of may 2017 from https://www. imf.org/external/pubs/ft/sdn/2016/sdn1602.pdf ravenstein e.g. (1885). the laws of migration. journal of the statistical society of london. vol.48, no. 2, 167-235. https://doi.org/10.2307/2979181 harris, j., & todaro, m. (1970). migration, unemployment and development: a two-sector anareferences lysis. the american economic review, 60(1), 126-142. retrieved from http://www.jstor.org/ stable/1807860 lewis, w. a. (1954). economic development with unlimited supply of labour. the manchester school, 22(2), 139-191. https://doi.org/10.1111/j.1467-9957.1954.tb00021.x hagen-zanker j. (2008). why do people migrate? a review of the theoretical literature. mpra paper no. 28197. retrived on 16th of august 2017 from https://mpra.ub.uni-muenchen.de/28197/. https://doi.org/10.2139/ssrn.1105657 lee e. (1966). a theory of migration.demography 3(1), 47-57. https://doi.org/10.2307/2060063 wolpert j. (1965). behavioural aspects of the decision to migrate. papers of the regional science association 15, 159-169. https://doi.org/10.1007/ bf01947871 97 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 crawford t. (1973). beliefs about birth control: a consistency theory analysis. representative. research in social psychology, 4, 53-65. wallerstein i. (1974). the modern world-system: academic press new york. lindert p. (1991). èconomie internationale. èconomica. paris. molle w. (1997). the economics of european integration. theory, practice, policy. ashgate. aldershot. pachocka m. (2016). the twin migration and refugee crises in europe: examining the oecd’s contribution to the debate. yearbook of the institute of east-central europe (special issue: visvizi, a. (ed.) re-thinking the oecd’s role in global governance: members, policies, influence), 14(4): 71-99. parkes r. (2015). migration and terrorism: the new frontiers for european solidarity. brief issue, eu institute for security studies, 37 (2015). retrieved on 20th of february 2017 from: http://www.iss.europa. eu/publications/detail/article/migration-and-terrorism-the-new-frontiers-for-european-solidarity/ european vision summit. (2016). improving the responses to the migration and refugee crisis in europe. retrieved on 15th of february 2017 from: http://bruegel.org/wp-content/uploads/2017/02/ visioneurope%e2%80%93policypapersweb.pdf visvizi a. (2017). querying the migration-populism nexus: poland and greece in focus’, ied discussion paper, july 2017, brussels: institute of european democrats (ied). wolf g.b. (2016). european financing for the european refugee crisis. retrieved on 4th of may 2017 from: http://bruegel.org/2016/05/european-financing-for-the-european-refugee-crisis/ barro r.j., sala-i-martin x. (2004). economic growth, mit. ostbye s., westerlund o. (2006). is migration important for regional convergence? comparative evidence for norwegian and swedish counties, 19802000. (no. 07/06) (p. 42). retrieved from: http:// munin.uit.no/bitstream/handle/10037/943/article.pdfurn?sequence=1 card d. (2005). is the new immigration really so bad? working paper 11547. retrieved from: http:// www.nber.org/papers/w11547 duszczyk m. & lesińska m. (2009). współczesne migracje: dylematy europy i polski. (p. 233). warszawa: 2009. european commission. (2017). white paper on the future of europe: avenues for unity for the eu at 27. retrieved on 5th of march 2017 from: http://europa.eu/rapid/press-release_ip-17-385_en.htm about the author borowicz, aleksandra phd university of gdańsk, research centre on european integration fields of research interests european integration, foreign direct investment address ul. armii krajowej 119/121 81-824 sopot, poland e-mail: ekoabo@ug.edu.pl 139 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the safety and security of international trade as a determinant of the business strategy of the polish customs service http://dx.doi.org/10.5755/j01.eis.0.9.12802 monika grotteli university of gdańsk, poland submitted 04/2015 accepted for publication 07/2015 the safety and security of international trade as a determinant of the business strategy of the polish customs service eis 9/2015 european integration studies no. 9 / 2015 pp. 139-154 doi 10.5755/j01.eis.0.9.12802 © kaunas university of technology abstract the aim of the paper is to analyze the influence of safety standards in the international trade of goods on the activity of the customs administrations on the example of the polish customs service. the safety of trade of goods in the international market is one of the main aspects affecting the actions taken by the customs administrations worldwide. the safety is most often defined as a condition in which the vast majority of risks associated with the conducted activity, have been identified, the probability of specific adverse events has been defined, accepted and special measures have been taken to limit the risks. in the era of globalization and trade liberalization the concept of risk analysis in the international trade and improving safety in the international supply chains is particularly important for all areas of business, as well for the public administration activity. therefore author of the paper is going to search for answers to the questions: to what extent the need to increase the safety of international trade in goods determines the customs service’s activity? what initiatives are undertaken by the customs administrations in order to define and to reduce the risk of goods trading? searching for answers to these questions in first part of the paper author will define the concept of safety of contemporary international trade by referring to the world customs organization safe framework of standards to secure and facilitate global trade (wco, 2007). the second part of the paper deals with the nature of the customs service and its activity by stating that in the era of liberalization the international trade of goods the competition and the role of customs authority has evolved. the third part of the paper is focused on the impact of safety standards in the international trade on polish customs service activity. in this part of the paper specific strategic document: business strategy of the polish customs service will be analyzed. the new business services offered by customs administrations, which aim is to ensure the safety of the international goods trade, will also be indicated and the effort to evaluate the effectiveness of these services will be taken. in this paper, the following research methods were used: a descriptive method, an analysis of literature and a statistical inference. keywords: international trade, safety of the international trade, customs administration, strategy. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 140 trade and security, as well as safety are fundamentally interconnected in the foreign trade policy of states. over times, as new forms of trade policy and new concepts of international cooperation come into being, the international security and safety environment has also evolved. in the traditional sense security was understood primarily as a military security concerns the military defense of state interests and territory. but in an increasingly globalized world understanding and meaning to the notion of security has changed considerably. trends that are observed in the contemporary globalized and liberalized trade, including increasingly free movement of goods, new models of trade such as: global supply chains or dropshipping1, rising expectations of economic operators especially in terms of minimizing the costs of their activity and reducing time of customs services, increasing participation of developing countries in global trade, a growing number of customs and tax crimes such as: undervaluation of goods customs value and falsification of invoices value, increase of unfair competition in trade, unpredictable specificity of criminal activity, terrorist attacks and piracy attacks cause the more and more increasing diversity of security threats. as a consequence of a diversity of threats in contemporary world, in literature and in discussions about that problem, there is a new security notions: “human” security and “non-traditional” security, which concepts are focusing more on the security of the individual, both on people and on entrepreneur, and not, as in the case of the traditional concept, on the state sovereignty (aggarval & govella, 2013). both “traditional” security, “non-traditional” as well “human” security and safety are directly linked to world trade. however, contemporary as the most dangerous, both for the state and for the individuals. activity of organized criminal groups is regarded. for this reason, many initiatives are taken, both nationally and globally, in order to develop the principles and conditions for secure safe international trade. particularly involved in these initiatives is the world customs organization (wco) and customs administrations of the member states. customs administrations are in a unique position to provide increased security and safety to the global supply chain and to contribute to socio-economic development through revenue collection and trade facilitation. nowadays the role of customs administration has changed significantly. from typical fiscal administration, it has evolved and focuses mainly on protecting the market and ensuring the safety and security of international trade. this paper addresses the problem of threats in today’s international trade and the role of customs administrations in ensuring the security and safety both, of the international goods flow and of the international market. the aim of the paper is to analyze the influence of safety and security standards in the international trade of goods on the activity of the customs administrations, on the example of the polish customs service. the aim is pursued by addressing the following objectives: introduction 1 identifying threats to the contemporary international trade. 2 defining the concept of security and safety of contemporary international trade by referring to the world customs organization safe framework of standards to secure and facilitate global trade (wco, 2007; wco, 2012). 3 discussing the peculiarities of tasks and competitions of the modern customs service, on example of the polish customs service. scientific originality and practical significance of the article: 1 the increasing significance of security and safety standards as well as practices for international trade. 2 analysis of the practical solutions devel-oped by customs administration for the implementation wco safe framework of standards to secure and facilitate global trade. 3 the lack of scientific studies addresses the impact of risks and threats in international trade on the activity of the customs service. 1 1 dropshipping is a new logistic model, used primarily in international trade. it consists in the delivery of the goods from producer directly to buyers, bypassing the distributor and its warehouse. notion of dropshipping is not defined yet in encyclopedia britannica or in collins english dictionary (nowak & stanisławiszyn, 2015). 141 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the research methods: analysis of scientific literature, official documents and law regulations, secondary analysis and synthesis of official information and data. security and safety most often is defined as a condition in which the vast majority of risks associated with the conducted activity, have been identified, the probability of specific adverse events has been defined, accepted and special measures have been taken to limit the risks (zięba, 1997). security is usually dealt in relation to a particular entity. in the case of international trade, security entities are: enterprises, international supply chains, consumers and the state budget. with regard to international trade should be talking about both: security and safety. security in international trade is directly related to the economic security of countries involved in that trade, which is defined as a ,, …such state of development of the domestic economic system, which ensures high efficiency of its functioning and the ability to resist effectively the external threats, which may lead to developmental disorders of the whole economy (stachowiak, 1994). economic security consists in keeping the basic indicators of development and ensuring comparative balance with the economies of other countries (księżopolski, 2011; żukrowska, 2013). it guarantees conditions for the harmonious development, which allows to build sustainable prosperity as well the welfare and safety of citizens. in reference to the above, security in the international trade should be defined as the conditions enabling business activity in a free and adjustable way, with the autonomy of the will of the operators engaged in that activity and the necessity to maintain existing volume of risk by maintaining limited confidence in the economic and legal relations between the contracting parties also between internal and international environment (raczkowski, 2014). in the context of transnational threats such as terrorism and smuggling, security is also defined as the physical protection of technical infrastructure of the company, as well cargo security and security of any information associated with it. the object of security are therefore it systems, harbors, warehouses, terminals, transport means and also staff operating all this infrastructure (wieteska, 2011; manuj & mentzer, 2008; sarathy, 2006). both, safety and security in international trade are directly connected with the threats that can be defined as direct or indirect destructive effects on the trade operators or on goods. in general, threats can be divided into political, military, economic, social and environmental. today, the main threat to the international trade is illegal intentional human activity, including terrorist attacks, organized mafia activities, illicit arms trafficking, smuggling and thefts. the second group of major disruptions in the trade are natural disasters, lack of food, raw materials and even lack of water, uncontrolled population growth, epidemics, significant disparities of economic development. the last group of threats includes disruptions of technical infrastructure failures, fires, explosions, traffic accidents (cfo, 2009). actually, the most common threat to the security of international trade is organized criminal activity. crime in international trade are defined as intentional acts which aim to achieve measurable financial benefits by entities committing offenses or, in the case of terrorist attacks, also to achieve certain political decisions and resolves. typical crimes that threaten the security of the international trade in goods are (ahokas & hintsa, 2012; ahokas, hintsa, männistö & sahlstedt, 2010): safety and security in the context of international trade _ theft, including the theft of goods, theft of all vehicles and kidnapping for ransom, _ intellectual property infringement, trading in in counterfeit and pirated goods, _ violation of the customs legislation, including the goods smuggling, customs value undervaluation, customs and tax crimes, _ tax fraud, especially vat fraud and excise duty fraud, _ industrial espionage, _ corruption, _ terrorist and pirate attacks, _ crime related to human trafficking and illegal immigration. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 142 the most dangerous for the security and safety of the international trade is terrorism2. first of all due to the scale of possible damages in case of a terrorist attack, even though the probability of such incidents in goods trade is relatively low. however, all of those threats cause certain costs or financial losses for enterprises affected by these threats or by the risk of such threats. all costs which can be result of threats are difficult to quantify when the risk of threat or particular threat has not happened yet (jażdżewska-gutta, 2014a; 2014b). this is due to the fact that international trade in goods nowadays are carried out within supply chains that take the form of a wide network of transnational connections, and therefore it is difficult to evaluate how potential disruption or threat will affect the work of individual companies in the supply chain and how the consequences of these disruptions will affect its environment, including other supply chains. furthermore criminal activities in the supply chain are unpredictable, thus reducing the predictability of supply. that is why, to avoid the adverse events and losses or costs related with them, both companies as well as international institutions and organizations initiate several actions to minimize the risk of threats to the international trade. as the consequence of the high risk of the crime threats in international trade and international transport, especially after the terrorist attacks of 11 september 2001., the costs of cargo insurance in international transport have substantially increased, as well as the insurance conditions have changed significantly. the cost of security against theft of goods during storage and transportation, among others, are also high as a result of the use of special mechanical security and monitoring systems or employment of security personnel. potential threats to international trade, in addition to organized crime, are also acts of force of majeure, including hurricanes, earthquakes, tsunamis, fires, floods, which as in case of criminal attacks may also cause significant disruptions in the international flow of goods. there are many examples of such natural treats, which in recent years have disrupted international trade: epidemic in europe due to the sales of bean sprouts with dangerous e-cola bacteria or volcanic eruptions in indonesia and iceland, which resulted in volcanic ash that paralyzed air transport almost all over the world. such events affect not only the individual supply chains, but they can cause destabilization of the global economy which is confirmed, in some cases, by significant reactions of stock exchanges worldwide (wieteska, 2011). security and safety in trade also means the need to ensure continuity and stability particular processes carried out in the supply chain, including: supply, production, storage and transportation also flow of information. this can be ensured through prevention and contingency procedures, prepared in case of adverse events, as well as for emergency situations, where the danger stems from the unpredictability and lack of complete control of the specified events occur in the future. in this way, international trade operators tend to develop appropriate risk management skills of occurrence of unexpected and unprofitable interruptions in supply chains, which means that even in the case of apparent risks of such interruptions, customer service will be realized at the intended level. this, however, causes the already mentioned costs for the operators, which can also lead to a rise in commodity prices on the international market.1 besides the financial costs, there are also lots of other consequences for customers arising from the disruptions in international trade, such as, for example threat to human health or life and to the natural environment. goods that are sold illegally, that are smuggled, as well as those that infringe intellectual property rights, mostly do not comply with the required standards in terms of safety and health. particular dangerous threat to the human health and life are alcoholic beverages and tobacco from illegal factories, counterfeited medicines, cosmetics, food and toys, but also counterfeited auto parts and electronics. 2 according to terrorism tracker, a collaborative project between aon (the leading global provider of risk management) and the risk advisory group, terrorism incidents affect businesses globally twice every day (aon, 2014). 143 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the economies of individual countries and in particular their budgets are also exposed to the negative effects of threats to international trade. organized criminal activity, which aims to achieve enormous financial benefits at the same time leads to serious budgetary losses. an example of such activity is smuggling of goods, which trade on fiscal grounds is controlled by the state, as in the case of tobacco, alcohol and fuel. each year illegal trade in those goods leads to losses millions of dollars in the budgets of most countries of the world. another example of criminal activity that leads to serious budgetary losses is the undervaluation of the customs value of imported goods. this problem is particularly evident in import from china. the practice of undervaluation of the invoice value of goods, subsequently leads to undervaluation of customs value of those goods. it should be remembered that the customs value of goods declared by the importers, is the basis for the customs services in calculation of import duties, including duties and taxes on goods, services and excise duty as well. obviously, undervaluation of invoice value and customs value of goods is an action against the state budget. on the other hand, it’s also an act of unfair competition against companies that fairly comply with customs duty and taxes (laszuk, 2014). view of the foregoing it proved necessary to take global action to reduce the risks and improve the security and safety of international trade. significant result of initiatives undertaken to the topic of security and safety on the international forum are norms and safety standards in international trade formulated and laid down by the world customs organization. the later in the article will be analyzed the impact of those standards on the activities of modern customs services, on the example of polish customs administration. to this analysis the strategic documents that determine the extent of activities of polish customs officers such as customs service business strategy will be used. world customs organization as a global organization, is involved in the processes taking place in the global trade and endeavor to ensure the safety and security of international trade, while maintaining implemented facilitation and transparent procedures for customs services (grottel, 2013a). the most important for the global trade result of this activity was the development and implementation in 2006. standards to secure and facilitate global trade (wco, 2007; wco, 2012), known as the wco safe framework32. the basic premise for formulation of such global security standards in trade were terrorist attacks in usa in 2001. wco safe framework became an important base for the development of global procedures for safety and security in international trade and provide the basis for all actions taken with regard to the security of international trade by individual member states of the wco and wto. these standards have also become the basis for the development of strategic documents laying down detailed rules for the organization of work and the statutory tasks of customs administrations in the member states of the wco, and also contributed to the development and implementation of partnership programs, that define and lay down the principles of cooperation between international business operators and customs administrations. an example of such program is: customs-trade partnership against terrorism c-tpat43 in the us (us cbp 2004, us cbp 2014) or authorized economic operator aeo (wco, 2010; wco, 2014) and e-customs programme (e-customs) in the european union (com, 2005). 3 this is the wco safe framework of standards to secure and facilitate global trade, hereafter referred to as the “safe framework”. 4 the u.s. customs-trade partnership against terrorism (c–tpat) seeks to safeguard the world’s vibrant trade industry from terrorists, maintaining the economic health of the u.s. and its neighbors. the partnership develops and adopts measures that add security but do not have a chilling effect on trade, a difficult balancing act. the program began in november 2001. today, there are more than 10,832 certified companies. these companies account for over 54 percent (by value) of what is imported into the united states. the role of the world customs organization in the process of securing the global trade e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 144 implementation of the principles of the wco framework aims to: _ establishing standards that provide supply chain security and facilitation at a global level to promote certainty and predictability, _ enable integrated and harmonized supply chain management for all modes of transport, _ enhance the role, functions and capabilities of customs to meet the challenges and opportunities of the 21st century, _ strengthen co-operation between customs administrations to improve their capability to detect high-risk consignments, _ strengthen customs/business co-operation, _ promote the seamless movement of goods through secure international trade supply chains. the safe framework consists of four fundamental elements: 1 it harmonizes the advance electronic car-go information requirements on inbound, outbound and transit shipments. 2 each country that joins the safe frame-work commits to employing a consistent risk management approach to address security threats. 3 it requires that at the reasonable request of the receiving nation, based upon a comparable risk targeting methodology, the sending nation’s customs administration will perform an outbound inspection of high-risk cargo and/or transport conveyances, preferably using non-intrusive detection equipment such as large-scale x-ray machines and radiation detectors. 4 the safe framework suggests benefits that customs will provide to businesses that meet minimal supply chain security standards and best practices. based on those four fundamental elements, the safe framework rests on the twin pillars of customs-to-customs network arrangements and customs-to-business partnerships. the pillars involve a set of standards that are consolidated to guarantee ease of understanding and rapid international implementation. moreover, this instrument draws directly from existing wco security and facilitation measures and programs developed by member administrations. wco safe framework formed the basis for the development of new methods for customs control and for the development of new tools that increase the share of customs administrations in the creation of economic and social security of individual wco member states. it provides a consolidated platform which will enhance world trade, ensure better security against terrorism, and increase the contribution of customs and trade partners to the economic and social well-being of nations. it will improve the ability of customs to detect and deal with high-risk consignments and increase efficiencies in the administration of goods, thereby expediting the clearance and release of goods. adoption of the safe framework brings the above mentioned benefits to governments, customs administrations and the business community alike (sobieski, 2006). wco standards enables customs administrations to facilitate the movement of legitimate trade and improve and modernize customs operations. this, in turn, improves revenue collection and also the proper application of national laws and regulations. this instrument therefore supports economic and social protection, and enables foreign direct investment. the safe framework also encourages the establishment of co-operative arrangements between customs and other government agencies and assists governments to ensure coordinated border management and control. then again, one of the main aim of the safe framework is to establish and enhance customs-to-customs network arrangements. these network arrangements will result in the exchange of timely and accurate information that will place customs administrations in the position of managing risk on a more effective basis. this allows to improve the ability of customs to detect high-risk consignments, it also enables customs administrations to improve their controls along 145 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the international trade supply chain and make for better and more efficient allocation of customs resources. the customs-to-customs network arrangements will also strengthen co-operation between customs administrations and enable administrations to carry out controls earlier in the supply chain, e.g. where the administration of an importing country requests the administration of the exporting country to undertake an examination on its behalf. the safe framework also provides for the mutual recognition of controls under certain circumstances. through the application of this instrument it is possible the adoption a broader and more comprehensive view of the global supply chain and creation the opportunity to eliminate duplication and multiple reporting requirements. also important is that safe framework will enable customs administrations to cope with the challenges of the new international trading environment by putting the building blocks in place to undertake customs reform and modernization. what is most important for business, the safe framework creates, amongst other things, the conditions for securing international trade, but also facilitates and promotes international trade. this encourages and makes it easier for buyers and sellers to move goods across borders. the safe framework takes account of, and is based on, modern international production and distribution models such as authorized economic operators (aeos) programme which reaps benefits, such as faster processing of goods by customs, e.g. through reduced examination rates. this, in turn, translates into savings in time and costs. one of the main tenets of the safe framework is to create one set of international standards and this establishes uniformity and predictability. it also reduces multiple and complex reporting requirements. these processes will ensure that aeos see a benefit to their investment in good security systems and practices, including reduced risk-targeting assessments and inspections, and expedited processing of their goods. wco guidelines and aeo programme were implemented into eu legislation in 2006 (european commission, 2006). it involves to use modern and innovative methodology that allows to carry out a comprehensive risk assessment of threats to trade and risk management, both on the national and international levels. aeo program can be used not only to protect the fiscal interests of a member state of the eu, but also to protect the non-fiscal interests, including: the protection of external borders, the security of the internal market, supply chain security, natural environment, human health and life, and as well to combat illegal and criminal activity in trade. operator applying for the aeo status has to, in accordance with its risk management model and organization, implement systems and procedures, conditions and requirements laid down in eu regulations54 (grottel, 2013b). another example of an eu initiative aimed at improving the safety and security of international goods trade is the electronic customs programme. its aim is to create optimal conditions for the functioning of eu companies within the customs union through the implementation of electronic customs services to handle export and import transactions, including implementation of the innovative programs for risk analysis and risk management, which enable effective monitoring and customs supervision of trade operators activity and goods flow as well. total implementation of e-customs programme, planned in 2016, will help to create the conditions for efficient and secure data exchange between trade operators, customs administrations of other member states and the european commission. it will also allow better functioning of the customs authorities in the member states, will eliminate paper documents, simplify customs formalities, thereby will accelerate goods flow and will increase the competitiveness of eu companies in the international 5 the rules establishing the institution of authorized economic operator within the european union, which define conditions and criteria to be met by any trade operator granting aeo status, entered into force on 1 january 2008 (based on a regulation amending regulation eec no 2454/93 laying down regulations for the implementation of the community customs code ec no 648/2005 of the european parliament and of the council of april 13, 2005 amending council regulation eec no 2913/92, which established the community customs code, and on the basis of commission regulation ec no. 1875/2006 of december 18, 2006 amending regulation eec no 2454/93). program aeo was introduced to the eu regulations in 2008, in poland it is being implemented since 2008. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 146 market (ręgowski, 2012). the aim of the program is also increase the efficiency and friendliness of the process of charging and collecting customs duties and taxes. finally, electronic services within the e-customs programme will be implemented in all areas of international trade activities, including: risk management, collecting customs duties and taxes, customs control, security and safety of goods flow. implementation of e-customs programme also ensures the improvement of conditions for the functioning of eu enterprises, what will be possible by shortening: _ time necessary for the execution of formalities relating to customs clearance, _ time necessary to carry out a trade transaction, especially to transport goods and to rent the means of transport, what particularly improves the cash flow of trade operators, _ time of customs control the reliable and fair entrepreneurs possible thanks to integrated risk analysis. it also allows to make a customs declaration of exported or imported goods at any customs office in the area of the customs union, the process of implementation of wco safety and security standards for international trade requires financial investment for specific infrastructure and qualified personnel, which in the case of developing countries can be a difficult and expensive process. the increase in the cost of running and handling the foreign trade due to the additional safety and security procedures could lead to a weakening of the competitiveness of the products offered by those countries when compared to other products sold on the international market (swedish national board of trade, 2008). accordingly, the world customs organization in 2006, has developed a special columbus programme that aims to assist developing countries in the implementation of the wco safe framework programme, as well as in the implementation of other wco initiatives and best practices in the field of customs procedures and services (wco, 2008). contemporary customs administration fulfills three functions: fiscal function, protective function and control function. however, the fundamental and primary is fiscal function, it is important to note that the process of liberalization and globalization of international trade, new trends in global trade, internationalization of enterprises and goods production, integration processes, expectations of trade operators for customs handling system significantly reduces the importance of the role of customs as a fiscal and administrative tool of trade policy. thus, the fiscal function of customs administration losing its significance nowadays. while the increasingly important functions of customs policy become: protection, control and social function, related to the protection of national interests, such as: interests of producers and of trade operators, interests of writers and of artists, protection of life and health of citizens, protection of cultural heritage and of the natural environment. in carrying out the protective and control function the customs administration controls the scope and degree of implementation of customs tools in import and in export of goods, what means that the customs officers are responsible for: collecting and verifying the customs declaration, goods and documents control, import duties calculation and collection. carrying out a social function, the customs administration protects the life and health of citizens, as well protects the natural environment, through a detailed inspection and revision of imported and exported goods carried out not only on the customs borders, but also on the whole territory of the internal market of eu. all tasks and objectives carried out by the polish customs service are consistent with the guidelines set out in the strategy for the evolution of the customs union (com, 2008). therefore, customs in poland is obliged to achieve such objectives as: protection of the financial and social security and safety of the internal market as a statutory task of customs service – case of poland 147 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 interests of all eu member states, strengthening the competitiveness of eu companies in the international market, implementation of facilitation and simplification of customs procedures and services, administration and monitoring the goods flow within the international supply chains. maintaining, developing and improving the quality of cooperation with the customs administrations of eu member states. current tasks of polish customs service have been identified and formulated in the law on customs service in 2009. (ustawa o służbie celnej, 2009). according to provisions of article 2 of this act, the detailed tasks of the customs in poland are as following: _ calculation and collection of charges related to export and import of goods, including customs duties, vat on import of goods and excise duty, _ calculation and collection of gaming tax and the implementation of other tasks resulting from the polish gambling act (ustawa o grach hazardowych, 2009), _ compiling statistics relating to goods trade with foreign countries, as a result of community legislation, _ identifying, detection, prevention and combating of crime activity such as illegal import and export of goods, which was restricted or prohibited due to national or international security and safety. in this group of commodities are particularly waste, chemical products, nuclear materials, drugs and psychotropic drugs, weapons, ammunition, explosives and technologies of strategic importance for the national economy, _ identifying, detection, prevention and combating of crime against human life and health, cultural property, intellectual property rights, nature and environment. in accordance with the provisions of art. 72 of the law on customs service, in order to effectively carry out these tasks special powers and rights have been granted to customs administration (laszuk, 2013). moreover the customs administration cooperates with other public administration authorities (rada ministrów, 2009) as well as with state and with local government organizational entities that are obliged to ensure the customs administration free technical, operational and substantive assistance in carrying out statutory tasks. the customs authorities carrying out statutory tasks in the field of protection of the internal market and ensuring security and safety of international trade, cooperate first of all with police, border guard, internal security agency, central investigation bureau and with road transport inspectorate, but also with other specialized services that are responsible for detecting, fighting and preventing crime, such as: prosecution, central anticorruption bureau and intelligence agency. the scope and principles of this cooperation are laid down in the agreements concluded between the minister of finance, directors of customs chambers and representatives of collaborating departments. customs service also cooperates with the territorial government administration authorities – voivodes. under the provisions of the regulation, which regulates the responsibilities of voivodes concerning the financing and maintenance of the border crossing points (rada ministrów, 2005), voivod is required to ensure customs administrations suitable office space and technical equipment necessary to carry out an effective and efficient customs control, detection and prevention the customs offenses, and thus implementation the protective function for the internal market. protecting the internal market is the main statutory task of the polish customs service, it is being implemented through a number of special rights, in cooperation with organizations and institutions whose activity is related to the economic and social security and safety. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 148 since october 1999 the directions of action for polish customs service are defined based on strategic documents. particulary important in the context of safety and security of the international trade was document “strategy 2015+” (ministerstwo finansów, 2010), prepared on the basis of art. 11 of the law on customs service5 and published as a decree of the minister of finance. the guidelines set out in the “strategy 2015+” referred to the provisions contained in the three eu documents: multi-annual strategic plan masp (european commission, 2013), strategy for the evolution of the customs union future customs initiative6 and e-customs programme. the strategic objectives formulated in the “strategy 2015+” have been developed based on the balanced score card and concentrated in three perspectives: the perspective of the customer (external perspective), perspective of business processes (internal perspective) and the perspective of development (kaplan & norton, 2004). the main aim of the activities carried out by the individual units of the customs service was: _ protection of the financial security of polish and eu budget, _ support for legal business activity, through facilitation and simplification of customs services, _ ensuring the safety of society and the natural environment, through protection against the dangers of the processes of globalization and liberalization of international trade. in that document, 17 strategic initiatives were formulated, which implementation was planned for period 2010-2013. 9 of those initiatives were fully implemented until the end of 2013 and the rest of them were in the process of implementation, including: _ e-customs program, _ modernized customs code, _ business processes increasing efficiency of customs service, most of all simplifications and facilitations of customs service, _ coherent risk management system for customs control and for the conduct of the audit processes, _ integrated human resources management system, _ integrated system of border management, _ the single window / one stop-shop, _ extension of competences in the fight against corruption. a significant success that has been achieved in the implementation of strategic initiatives in the area of security and safety of international trade, defined in the “strategy 2015+” was the increase efficiency of activities taken in the area of risk analysis and risk management. however, the adoption in 2013. strategy for efficient state in 2020 and the establishment of new digital perspective within the operational programme digital poland for the period 2014-2020 indicate a necessity to verify the priorities set out in the “strategy 2015+”. the document business strategy for customs administration for 2014-2020 was approved by the minister of finance in december 13, 2013. (ministerstwo finansów, 2013). the basis for the formulation of a new strategy became strategic expectations of clients of the customs services, which are: entrepreneurs, state budget and the eu budget, as well the society including travelers. in 2014-2020, the polish customs service seeks to achieve four overarching strategic objectives: 5 art. 11 law on customs service “... in order to carry out the tasks of the customs service, and bearing in mind the effectiveness of its activities, the minister responsible for public finance will, by law regulation, formulate business strategy for the customs service and the way of its implementation.” (ustawa o służbie celnej, 2009). 6 strategy for the evolution of the customs union (also known as future customs initiative or ‘fci’) was supported by the council and the european parliament, communication (com) no169/2008 of 1 april 2008. global trade security and safety as the main objective of business strategy for polish customs service 149 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 1 support to the economic activity of trade operators by reducing costs and administrative burden, increasing the scope and availability of simplification, increasing transparency, consistency and cohesion of compliance with the law and raising the legal awareness of clients. 2 raising customer service standards by increasing the availability and diversity of e-services and reducing the customs clearance time, using the capacity of finance ministry. 3 increasing market safety, security and protection by reducing the amount of illegal excise and customs goods on the market, and as well illegal gambling activities, also by reducing the illegal cross-border trade in dangerous goods and raising awareness of society about risks and threats to safety resulting from the illegal trade, especially in counterfeit goods. 4 providing for the effective and efficient collection of the revenues by the reducing the customs and tax gap in revenues collected by the customs administration, by increasing the level of collection rate and increasing the cost-effectiveness of administration’s actions . according to the defined strategic goals and strategic direction of the customs administration’s activities focused on the client, the key programs ate those addressing the trade operators. the following programs will be established: 1 customs service relations, that allows to create the tools enabling the registration all data and information about clients and trade transactions, as well the development the rules on data management, what is necessary to build the relations with trade operators. 2 e-border, which means the creation the comprehensive organizational solutions and tools such as integrated customer service system and establishing the environment for the integrated, it-based customer service on the borders, that finally allows to achieve increase the efficiency and effectiveness of customer services on borders. 3 e-customs programme, the aim of which is creation the comprehensive organizational solutions and tools such as integrated customer service system, as well establishing the technical and legislative environment that will enable the increase the efficiency and effectiveness of office-based customer services. implementing the strategy objectives, customs administration uses innovative solutions including knowledge, innovative tools, electronic and digital environment which enhance the safety and security of goods trade. therefore, the polish customs service has also developed an internal program of modernization “3i”, based on three priorities internet, intelligence, innovation, which are treated as tools for increasing the effectiveness of the activities carried out by the customs authorities (ministerstwo finansów, 2012). the results of research conducted by the european commission, published in the flash eurobarometer 399 report “the electronic customs implementation in the european union”87(european commission, 2014) show that among the eu countries, polish entrepreneurs are most satisfied with e-services implemented by the customs service. entrepreneurs in particular pointed out the impact of electronic services on the simplification customs procedures, reducing the costs of business activity and increasing security within the supply chains. polish entrepreneurs also believe that by implementing i-services they become more and more competitive, they may extend the range of activity and easier enter the foreign markets. the effect of supporting entrepreneurship is a lot of new electronic services and facilities for entrepreneurs introduced by the customs 8 eurobarometr is an international project to regular public opinion surveys carried out for the european commission. the european commission report is based on research evaluating the implementation the electronic services for entrepreneurs carried out by the customs administrations of the eu. the survey was conducted in 2014, in 17 eu countries. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 150 service in recent years. among the most important services that use innovative technologies particularly noteworthy is: _ online customs declarations 100% of customs declarations for export, import and transit is submitted in electronic form, _ online intrastat declaration more than 92% of these declarations is online, _ online tax free document management system, _ e-booking bus system that allows for booking the time of border clearance via the internet, it is dedicated for organized groups traveling by buses and minibuses, as well activating the e-booking truck system, that enables the booking of border clearance time via the internet, _ e-attachments system, which allows the trade operators to transfer to the customs office all documents necessary for customs clearance (eg. certificate of origin, licenses, certificates) via the internet, _ center for official customs clearance, which gives the possibility of making customs clearance online within a specified customs department while being able to deliver the declared goods to carry out customs control to a place convenient for entrepreneurs. currently, the customs service also works intensively on pursuing strategic initiatives formulated in the “strategy 2015+”, including strategy for integrated border management, “single window / one-stopshop” system and implementation of the coherent risk analysis system as a base for carrying out customs controls and revisions. implementation of all of tasks and challenges in the area of security of goods trade requires that customs administration works closely with the business environment. an example of such cooperation are regular seminars and conferences for business such as “customs service for business” and “customs facilitations for business “, which offer an ideal opportunity to exchange experiences and observations about solutions implemented to the customs service system and give companies opportunity to get help from customs experts in solving current technical or procedural problems. there are also training programs and courses for representatives of business practice and special meetings with business organizations, such as .: business centre club, the national chamber of commerce, the chamber of customs, logistics and shipping, while the customs topics are discussed. another important project implemented by polish customs administration in cooperation with business representatives was the setting up of the advisory council of the customs service (ministerstwo finansów, 2014). it is a consultative-advisory body established by the minister for finance. the members of council are representatives of entrepreneurs, especially exporters, importers, carriers, forwarders, and customs agents. the special role of the council is visible when significant changes are carried out in customs law, such as changing the law on customs service, implementation of e-customs programme, simplification and facilitation of customs procedures, or implementation of new customs services to support trade operators at the customs borders. council’s activity allows both customs administrations and business to solve effectively common problems that relate the security and safety of the international trade. to conclude, in accordance with the objectives formulated in strategic documents, polish customs service aims to apply a comprehensive approach to the client, provides innovative customs services, improves standards of customs service, customs control and risk analysis. customs administration supports the legal and reliable entrepreneurs through the implementation of facilitation and simplification to improve the quality of customs services as well. 151 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 analyzes and reflections conducted by the author of the article allows to formulate the following conclusions: conclusions 1 the basis for the effective and efficient functioning of the contemporary world trade is safety and security in all its areas, and therefore we can observed increase in interest in this issue both at international and national levels, as well in government initiatives and actions undertaken in the private sector. 2 all types of threats are a significant barrier to international trade, lead to higher costs of com-mercial activity and extend the time of goods flow and raw materials flow. they are also dangerous for human health and life, especially in the case of goods flow as those do not meet certain quality, health and phytosanitary standards, distribution of which leads to the spread of infectious diseases, bacteria, viruses, and dangerous chemical substances. 3 nowadays terrorism and organized international crime activities that increasingly affect the international trade are becoming more of a threat to the order and security of not only individual countries but also of the whole international environment. 4 ensuring the safety of international trade is one of the priority tasks for customs adminis-trations. it is carried out by taking action to assess the risks of irregularity in the activities of trade operators and to eliminate of all those risks using modern risk management tools that ensure shortening the time and reducing the cost of customs services. 5 considering number of customs regulations relating to safety and security in the interna-tional trade and the ensuing procedures and costs of those can be concluded that they are a serious barrier to the development of cooperation between enterprises, as well barrier to the international trade of raw materials, products or kno-how. but one must not forget that all of those regulations and procedures can also create benefits such as: higher level of security, the ability to avoid risks or ability to continue trade operations even if the adverse circumstances will occur. through this procedures companies raise the level of its services within the supply chain, and participation in various programs and initiatives related to safety and security allow them to reach certain benefits. however, to achieve expected benefits it is necessary to harmonize the rules for safety and security standards and to implement the mutual recognition of initiatives to increase the security of trade undertaken in different countries or regions. 6 the effect of international cooperation in the field of security and safety in global trade are the safe framework of standards to secure and facilitate global trade (safe framework) adopted in june 2005 by the wco council, that would act as a deterrent to international terrorism, secure revenue collections and promote trade facilitation worldwide. 7 wco safe framework were implemented into the polish customs service business strat-egy, which formulated main objectives and tasks for polish customs: protection of the financial security of polish and eu budget, support for legal business activity, through facilitation and simplification of customs services and ensuring the society safety and the natural environment. 8 polish customs service carries out the strategic objectives using innovative technologies and innovative risk management system, which are coherent with wco guidelines and european law regulations. it also implements international standards such as aeo programme and e-customs programme, at the same time develops an internal program of modernization “3i”, based on three priorities internet, intelligence, innovation, which all are treated as tools for increasing the effectiveness of the activities carried out by the customs authorities for ensuring the security and safety in the international trade. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 152 aggarval v. k., & govella k. 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(2014). compendium of authorized economic operator programme, compliance and facilitation directorate, 2014 edition. retrieved juni 14, 2014, from http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/tools/~/media/b8fc2d23be5e44759579d9e780b176ac.ashx zięba r. (1997). kategorie bezpieczeństwa w nauce o stosunkach międzynarodowych. in d. b. bobrow, e. halisak & r. zięba (eds.), bezpieczeństwo narodowe i międzynarodowe u schyłku xx w. (p. 4). warszawa: wydawnictwo naukowe scholar. żukrowska k. (2013). ekonomia jako sfera bezpieczeństwa państwa. in k. raczkowski, k. żukrowska & m. żuber (eds.), interdyscyplinarność nauk o bezpieczeństwie (p.10). warszawa: difin. monika grottel dr., assistant professor university of gdańsk, poland address tel. +48 58 523 1490 e-mail: monika.grottel@wp.pl about the author 81 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 enironmental management in european union: survey of iso 14001 certified estonian companies http://dx.doi.org/10.5755/j01.eis.0.10.14490 triinu habakuk, natalja gurvits tallinn university of technology, akadeemia tee 3, tallinn 12618, estonia submitted 03/2016 accepted for publication 09/2016 enironmental management in european union: survey of iso 14001 certified estonian companies eis 10/2016 european integration studies no. 10/ 2016 pp. 81–89 doi 10.5755/j01.eis.0.10.14490 © kaunas university of technology abstract the growing importance of sustainable development and influence of corporate social responsibility (csr) on the performance of companies have forced companies to care more than ever about the environmental impact of their activities. wide range of environmental legislations has been enforced by the european union during recent years in order to ensure sustainable development of european cities. as a result, various initia­ tives have taken place to boost companies’ interest to take control over the environmental performance. an environmental management area has developed strongly in recent decades and various systems and tools have been introduced to effectively manage sustainable environmental development of companies. more and more organizations both in estonia and worldwide are initiating the iso14001 certification process, which specifies requirements for environmental management systems, in order to develop and implement envi­ ronmental policy and objectives. the main purpose of the present research was to identify the main factors of initiating the iso certification process by estonian companies and to get their opinion regarding the future of the iso 14001 certification in estonia. to achieve the aim of the research, the authors have set the following research tasks: to provide a wide overview of the scientific literature covering the main relevant studies in the selected research area; to research the implementation of standards in european union and estonia; to con­ duct a survey in the form of questionnaire among iso 14001 certified enterprises; to reveal respondent’s opin­ ion about the current situation and future development of iso 14001 certification in estonia. the main methods applied in this article include analytical method and quantitative research method. authors conducted a survey among iso 14001 certified estonian companies in september–october 2015 and collected 115 replies. the findings of the present research clearly demonstrate that estonian companies are actively involved into the environmental management process; therefore, they initiated the iso 14001 certification procedure and are willing to renew the certificate upon expiration. they also confirm that estonian stakeholders are aware of the environmental management initiatives and their opinions are valued by companies and inspire them to show better performance in the field of environmental sustainability. the companies are also caring about their reputation and compliance with environmental laws and legislation, and believe that iso 14001 certification will assist in this matter. however, it should be pointed out that surveyed companies do not identify a direct link between the iso 14001 certification and reductions of certain costs and expenses. therefore, there should be more workshops and training organized in order to explain how the sustainability helps to boost the effective­ ness of the company by reducing various expenses and increasing profits. keywords: csr, certification process, environmental management initiative, environmental management system, iso 14001. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 82 introduction the growing importance of sustainable development and influence of corporate social respon­ sibility (csr) on the performance of companies have forced companies to care more than ever about the environmental impact of their activities. constant growing pressure and concern of stakeholders made companies to demonstrate their environmental responsibility (robinson & clegg, 1998; gonzález–benito & gonzález–benito, 2005), which in turn led to increased popular­ ity and reliance of csr reporting (tschopp, 2005). in many cases environmental management is considered by investors an inevitable part of good corporate governance (chan & welford, 2005) and regarded by companies as an effective mean to boost market reputation and build long–term relationship with stakeholders (lin&liu, 2011). the motives of implementation of environmental management system (ems) became a matter of high interest and attracted attention of numer­ ous researchers (melnyk et al., 2003; king et al., 2005). most studies reveal a positive impact of environmental management on environmental performance (martin–pena et.al., 2014; newbold, 2006) and the economic performance of the companies (ann et al., 2006) also outlining the pos­ itive influence on “market success and stakeholder satisfaction” (pereira–moliner et al., 2005). wide range of environmental legislations has been enforced by the european union during re­ cent years in order to ensure sustainable development of european cities and address environ­ mental and climate challenges in the most efficient way (european..., 2016). as a result, various initiatives have taken place to boost companies’ interest to take control over the environmental performance. an environmental management area has developed strongly in recent decades and various systems and tools have been introduced to effectively manage sustainable envi­ ronmental development of companies. among the most vital and important tools author would like to outline the eu eco–management and audit scheme (emas) and iso 14001 standard. both instruments were developed in order to improve environmental performance of companies and are suitable for every type of organizations worldwide. however, according to wätzold et al. (2001) participation in emas has remained “sluggish” and seems not as popular as iso 14001. these instruments have emerged as important tools of environmental policy (potoski & prakash 2013). nowadays their implementation still remains voluntary, and in authors option can be re­ garded as a valuable and powerful addition to the governmental and eu regulations, which is also confirmed by the studies of singh &perry (2000). the international standards on environmental management are designed to provide organizations with the elements of an effective environmental management system that can be integrated with other management systems. iso 14001 standard specifies requirements for environmental man­ agement systems, in order to develop and implement environmental policy and objectives. atten­ tion must be paid to the fact that legal requirements and information about significant environmen­ tal aspects are taken into consideration. iso 14001 is also the world’s most recognized framework for environmental management systems (iso standards, 2016) and is “the world’s most successful ems standard“ (baumbach et al.,2013).table 1 represents statistics of iso 14001 certified com­ panies. data of table 1 clearly demonstrates that italy; czech republic, sweden and uk have taken leading positions, while in regard to the number of issued certificates per millions of inhabitants as of the year 2014 estonia is also among top five leading countries. more and more organizations both in estonia and worldwide are initiating the iso14001 certification process, it should be noted that as of march 9, 2016 there are 532 companies in estonia, 5 compa­ nies were already certified according to newest version of the standard iso 14001:2015). the first certificate was issued in estonia in 1999 and the process is in a strong uptrend since then, as of december 2015 there were 531 certified companies in estonia, which is illustrated by figure 1. 83 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 1 iso 14001 certified companies in the european union as of the year 2014 state total number of issued certificates position in a list of eu countries number of issued certificates per million. of inhabitants position in a list of eu countries austria 1 172 17 138 19 belgium 1 216 16 109 23 bulgaria 1 761 13 243 10 croatia 951 18 224 13 cyprus 55 27 64 27 czech republic 5 831 7 555 1 denmark 895 20 159 16 estonia 492 23 374 5 finland 1 512 14 277 8 france 8 306 5 126 22 germany 7 708 6 95 24 greece 909 19 83 25 hungary 2 231 10 226 12 ireland 666 22 145 17 italy 27 178 1 447 3 latvia 334 25 167 15 lithuania 707 21 240 11 luxemburg 70 26 127 20 malta 30 28 71 26 netherlands 2 411 9 143 18 poland 2 213 11 57 28 portugal 1 321 15 127 21 romania 9 302 4 466 2 slovakia 1 806 12 333 6 slovenia 425 24 206 14 spain 13 869 3 298 7 sweden 3 990 8 414 4 united kingdom 16 685 2 259 9 source: authors’ based on iso survey 2014 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 84 figure 1 iso 14001 certified companies in estonia during years 1999–2015 (authors’) 4 18 24 47 74 86 148 173 169 233 263 306 358 394 440 492 531 0 100 200 300 400 500 600 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 number of certified companies years numerous studies have been carried out to reveal the impact of the iso 14001 certification on the performance of the companies and to find out the main benefits and obstacles associated with the certification process. lawrence, et al. (2002) outlined that the tools and techniques applied in various environmental management systems should support the goals of the everyday business activity of the company. halkos & evangelinos, (2002) investigated the determinants of environ­ mental management systems standards (emss) implementation in case of greek industry. their findings suggest that in case of greek industry, stakeholders’ pressure on the environmental performance of companies will not always results in high implementation of emss (halkos & evangelinos, 2002). graafland & smid (2015) stated that in case the usage of environmental management tools as a strategical target would result in increase of the environmental impact of smes. various benefits are associated with obtaining iso 14001 certificate. findings of yang & yao (2012) suggest that the iso 14001 certification has a positive impact on a profitability of the companies. gonzález–benito & gonzález–benito (2010) discovered that companies decide to become iso 14001 certified due to ethical and competitive motivations. takahashi & nakamura (2010) discov­ ered that companies facing more risk in their everyday business activity are more prone to iso certification and regard it as an insurance scheme. the aim of the present research was to identify the main factors of initiating the iso certification process by estonian companies and to get their opinion regarding the future of the iso 14001 certification in estonia. to achieve the aim of the research, the author set following research tasks: to provide a wide overview of the scientific literature covering the main relevant studies in the selected research area; to research the implementation of standards in european union and estonia; to conduct a survey in the form of questionnaire among iso 14001 certified enterprises; to reveal respondent’s opinion about the current situation and future development of iso 14001 certification in estonia. the main methods applied in this article include analytical method: the study of the relevant scientific literature and prior research in the selected area and quantitative research method in the form of statistical analysis of the results of the survey by the develop­ ment of the likert scale for expressing respondents’ opinion on several statements in the dis­ tributed questionnaire. 85 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 the survey was conducted among iso 14001 certified estonian companies in september–october 2015. according to the official data as of september 24, 2015 there were 523 iso 14001 certified companies in estonia. the questionnaire was sent via email to 442 companies and in total 115 replies was collected. table 2 illustrates the selected sample of the surveyed companies in regard to the main business activity. current research to some extent replicates the “analysis of the environmental systems imple­ mented in estonia” (eestis..., 2008) carried out in 2008 by the stockholm environment institute tallinn centre and the ministry of the environment of estonia as authors have also asked several similar questions, however the questions and suggested multiple–choice answers were updat­ ed and modified in line with the latest developments in this area. the questionnaire consisted of 21 questions, which can be divided in 3 groups: yes/no questions, multiple–choice questions and statements ranked 1–5 according to the likert scale (1 – strongly disagree, 4 – totally agree, 5 – do not know how to answer the question). in calculating the weighted–average of the replies, the an­ swer “5 – do not know” was not taken into consideration. methodology table 2 core business of the selected companies business area % of companies construction 35 electronics 7 metal production 6 recycling 6 production of construction materials 3 energy production and distribution 3 transport 3 furniture 3 printing 3 chemical production 2 water supply 2 plastic production 2 transport, delivery, warehousing of oil products 1 textile production 1 other business area 23 source: authors’. results the present section summarized and presented the results, which in authors opinion are most important and worth attention. in the table 3 there are listed the respondents’ rankings of the benefits associated with the certi­ fication. it should be noted that the most important benefits turned out to be guarantee of com­ pliance with laws and legislations, improvement of reputation and improvement of the manage­ ment system (scores 3.34; 3.30 and 3.30 respectively), while saving money was the argument that gained least agreement (2.47). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 86 table 3 benefits associated with the successful certification and obtained certificate associated benefits ranking in accordance to the likert scale 1–5 weighted– average of the ranking 1–4 1– strongly disagree 2 – disagree 3 – agree 4 – strongly agree 5 – do not know saving money (reduction of expenses) 11 (10%) 31 (27%) 26 (22%) 11 (10%) 36 (31%) 2.47 improvement of reputation among stakeholders 1 (1%) 2 (2%) 71 (62%) 37 (32%) 4 (3%) 3.30 improvement of the management system 2 (2%) 8 (7%) 54 (47%) 45 (39%) 6 (5%) 3.30 staff motivation 7 (6%) 3 1 (27%) 42 (37%) 8 (7%) 27 (24%) 2.58 competitive advantages 0 (0%) 11 (10%) 49 (43%) 37 (31%) 18 (16%) 3.27 improvement of the supply chain management 3 (3%) 29 (25%) 32 (28%) 16 (14%) 35 (30%) 2.76 guarantee of compliance with valid laws and legislations 2 (2%) 4 (4%) 57 (50%) 45 (39%) 7 (6%) 3.34 source: authors’. it should also be noted that 31% of the respondents had difficulties to associate the benefits of the certification with the cost–reduction process and 30% – with the ones related to the improvements of the supply chain. table 4 represents the respondents’ opinion on the reasons of obtaining the certificate. table 4 clearly indicates that the strongest reason for certifications were as follows: desire to guar­ antee compliance with laws and legislation (3.50), the demand from stakeholders (3.43) and im­ provement of the reputation of the company (3.41). the least popular reason turned out to be policy of the mother company (2.13) and desire to reduce certain expenses (2.76). in regard to the future renewal of the certificate nearly all companies (114) unanimously stated that they would definitely proceed with the re–certification process. only one company stated that it would not renew the certificate due to lack of interest from the company side. the authors also asked the companies to indicate whether they are holding some other certifi­ cates and revealed that 87% of the respondents are iso 9001 certified, 40 companies are holding ohsas 18001 certificate and 3 are emas–registered. several companies also claimed to hold iso/ ts16949, iso 14065, iso 17025, iso 13485 certificates as well as fsc and/or pefc – forest (stew­ ardship council; programme for the endorsement of forest certification schemes) certi ficates. it should also be noted that 72% of respondents are planning to continuously develop the environ­ mental management system. authors also asked companies whether they were preparing and publishing environmental report and 46% (53 responded companies) of the surveyed companies replied positively, it is also important that 46 companies of the ones preparing the report are staying in business for more than 10 years. in authors opinion that may be explained by the fact that environmental report is regarded by the companies as the valuable tool to ensure sustainable development in long–term perspective. 87 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 4 the evaluation of the reasons of certificationreasons to obtain the certificate ranking in accordance to the likert scale 1–5 weighted– average of the ranking 1–4 1– strongly disagree 2 – disagree 3 – agree 4 – strongly agree 5 – do not know policy of the mother–company 51 (44%) 5 (4%) 22 (19%) 21 (19%) 16 (14%) 2.13 desire to reduce certain expenses 7 (6%) 31 (27%) 45 (39%) 18 (16%) 14 (12%) 2.76 desire to improve reputation of the company 1 (1%) 3 (3%) 57 (49%) 51 (44%) 3 (3%) 3.41 desire to improve safety and health conditions at work 2 (2%) 5 (4%) 46 (40%) 49 (43%) 13 (11%) 3.39 desire to guarantee compliance with certain laws and legislations 2 (2%) 2 (2%) 43 (37%) 60 (52%) 8 (7%) 3,50 desire to take under control and reduce the environmental impact of the company business activity 2 (2%) 13 (11%) 41 (36%) 51 (44%) 8 (7%) 3,32 demand from the stakeholders (suppliers, clients, investors, employees, trade–unions etc.) 2 (2%) 15 (13%) 27 (24%) 66 (57%) 5 (4%) 3,43 current trend in the world 8 (7%) 23 (20%) 40 (35%) 21 (18%) 23 (20%) 2,80 source: authors’. _ the findings of the present research have various implications. first, they clearly demonstrate that estonian companies are actively involved into the environmental management process; therefore, they initiated the iso 14001 certification procedure and are willing to renew the certifi­ cate upon expiration. secondly, estonian stakeholders are aware of the environmental manage­ ment initiatives and their opinions are valued by companies and inspire them to show better per­ formance in the field of environmental sustainability. the companies are also caring about their reputation and compliance with environmental laws and legislation, and believe that iso 14001 certification will assist in this matter. in general, it should be concluded that iso 14001 certificate is quite popular in estonia, regarded by companies as a valuable tool to increase transparency and among the stakeholders. second, and the very important, they show that for companies there is no direct link between the iso 14001 certification and reductions of certain costs and expenses. therefore, there should be more workshops and training organized in order to explain how the sustainability helps to boost the effectiveness of the company by reducing various ex­ penses and increasing profits. _ authors are aware of the limitations of the present survey: the sample of the selected companies is quite narrow; 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(2012). environmental compli­ ance and firm performance: evidence from china. oxford bulletin of economics and statistics, 74: 397–424. doi: 10.1111/j.1468–0084.2011. 00649.x about the authors triinu habakuk ma tallinn university of technology fields of research interests environmental reporting, management, csr address akadeemia tee 3, tallinn 12618, estonia e–mail: triinuhabakuk@gmail.com natalja gurvits ph.d tallinn university of technology fields of research interests csr, accounting and business ethics, sustainability accounting and reporting address akadeemia tee 3, tallinn 12618, estonia tel. + 372 6 204 007 e–mail: natalja.gurvits@ttu.ee e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 148 preferred owners of european gas storage and transmission companies http://dx.doi.org/10.5755/j01.eis.0.11.18247 olga bogdanova riga technical university, kalnciema street 6, riga lv-1007, latvia, nameolga@yahoo.co.uk ilja arefjevs ba school of business and finance, k.valdemara 161, riga, lv1013, latvia, ilja.arefjevs@inbox.lv jurijs spiridonovs riseba university of business, arts and technology,3 meža street, riga, lv-1048, latvia j.spiridonovs@gmail.com submitted 04/2017 accepted for publication 08/2017 preferred owners of european gas storage and transmission companies eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 148-159 doi 10.5755/j01.eis.0.11.18247 © kaunas university of technology the purpose of the article is to compare actual owners of european gas storage and transmission companies with preferred ones based on experts’ assessments from the perspective of the energy union dimensions. tasks of the research include explaining the topicality of the research, collecting data on owners of european gas storage and transmission companies, grouping companies in accordance with their ownership structures, obtaining expert assessments on preferred owners of the companies, comparing actual owners with preferred ones as well as drawing corresponding conclusions. methods used area single linkage cluster analysis, structured expert interviews, analytic hierarchy process, monographic method, document analysis, case study method, literature review and others. the research covers gas storage and transmission companies in europe, which are members of the gas infrastructure europe association. companies are grouped into clusters according to the shares of the defined types of owners. experts with sufficient knowledge on five dimensions of the energy union were interviewed in order to obtain assessments of preferred owners for the companies subject to research. expert interview results were processed by using the analytic hierarchy process. at the final stage of the research, actual owners were compared to preferred ones derived from expert assessments and corresponding conclusions drawn. six various clusters of gas storage companies and seven ones categorising transmission companies were identified while fifteen companies were defined as outliers. apart from holdings by states of establishment, which constituted the most of observed cases, in many other instances both other european union state as well as noneu state holdings were revealed in the companies subject to research. expert assessments processed by the analytic hierarchy process revealed the most and the least preferred clusters from the perspective of the five dimensions of the energy union. keywords: energy union, state ownership, gas storage and transmission, expert interviews, energy security. 149 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 introduction state ownership is a well-known concept, which can be explained by percentage of shareholdings by government agencies and affiliated state owned entities (hsueh-liang, 2007). ownership unbundling concept is defined as the strictest regulatory regime of vertical disintegration, as the company that owns and operates the transmission assets is fully separated from trade or production (growitsch, stronzik, 2014). the natural gas industry in western europe has been experiencing drastic changes induced by the unbundling of the state-owned companies, followed by the liberalization of gas market (pelletier, wortmann, 2009). the last couple of decades have seen substantial growth in the use of gas for power generation, putting upward pressure on overall gas demand due to switching from co2 intensive power generations. however, in recent years gas demand has fallen rapidly, peaking in 2010 falling by 28% by 2014 (eurostat) as a result of weak economic growth, energy efficiency, competition from coal and expansion of renewables generation. there is a large amount of uncertainty around future gas demand in europe, with substantial falls in annual consumption possible in the long term in some scenarios. in particular, europe has set further renewables growth and carbon targets beyond 2020. significant further growth in renewables production, electrification of heat and energy efficiency could put further downward pressure on annual gas demand. moreover, expectations of the market players in russia concerning the global perspectives of the gas market continue to decline (deloitte, 2016). the study by roland berger strategy (2014) regarding grid infrastructure development efforts have been made throughout europe to develop and integrate the power transmission networks in order to provide a safe, reliable, sustainable and affordable supply of energy to citizens in europe, as this is of major importance for the well-being and quality of life of people in europe. a range of issues still remains nebulous, so the right balance should be found between such aspects of energy policy, as, for example, regional and national sovereignty, energy supply security and cost affordability, as well as other horns of dilemma (spiridonovs, bogdanova 2016). on the other hand the european-wide support for the concept of an energy union offers the opportunity to develop and implement a shared european vision, which is required to address the common challenges on secure, competitive and sustainable energy supply (szulecki, ancygier, neuhoff, 2015). tasks of the research include explaining the topicality of the research, defining the five dimensions of the energy union as a response to the energy challenges in europe, collecting data on owners of european gas storage and transmission companies subject to research, grouping companies in accordance with their ownership structures, obtaining expert assessments on preferred owners of the companies, comparing actual owners with preferred ones as well as drawing corresponding conclusions. additionally it is also connected with the new structure of global energy market, e.g. from 2004 to 2013, the 202 location choices have been found by 132 chinese firms targeting investments in 17 eu countries, sector of renewable energy (ping, spigarelli 2016). methods used area single linkage cluster analysis, structured expert interviews, analytic hierarchy process, monographic method, document analysis, case study method, literature review and others. the research covers gas storage and transmission companies in europe, which are members of the gas infrastructure europe association, being an assembly point for companies responsible for nearly 84% of gas operations in the region. state ownership is defined from the perspective of control of a state via direct and indirect holdings such as municipalities, its companies as well as sovereign funds belonging to a state. ownership structures are categorized by using four types of possible owners of companies covered by the research: state of establishment, other eu state, noneu state as well as private (i.e. non-state) ownership. companies are grouped into clusters according to the shares of the defined types of owners. experts with sufficient knowledge on five dimensions of the energy union (i.e. energy security, solidarity, trust; e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 150 internal market; moderation of demand; decarbonisation; research, innovation, competitiveness) were interviewed in order to obtain assessments of preferred owners for the companies subject to research. expert interview results were processed by using the analytic hierarchy process, which provided quantitative assessments for the defined types of owners. eu energy union creation process may be theoretically linked with the energy geoeconomics. energy geoeconomics makes use of energy resources as an instrument to advance political aims that are not energy-related—by manipulating another actor’s need for affordable and secure energy supplies with one’s own energy resources (wiggel, vihma 2016). comparing the energy policy of 1970s and 2000s, the remarkable transformation of the energy policy accents could be noticed. until recently, the only truly global energy market was oil, whereas all others, including electric power and gas, remained national or at best regional (kuzminov, et. al., 2017). the main initiatives of the eu were driven either by the eu internal market idea or by environment protection perspective. however, the coherent common energy policy still was rather illusive (mcgowan, 2011). the eu institutions have been slow, and sometimes inconsistent and divided on the use of existing powerful instruments – anti-monopoly and “unbundling” legislation – vis-á-vis russian attempts to dominate the eu gas market (bošnjaković, 2016). after discussions between the european commission, the eu member states, politicians, non-governmental organizations, academia representatives and other parties, a new era in the eu energy policy started (european commission, 2010). in 2015, during the latvian presidency the revolutionary strategy of the eu energy union was launched with an aim to turn energy to the one of the eu freedoms. the strategy is based on the five key pillars (dimensions): energy union perspective 1. energy security, solidarity, trust; 2. internal market; moderation of demand; 3. decarbonisation; 4. energy efficiency; 5. research, innovation, competitiveness. the strategy (european commission, 2015) changes the ideology of energy systems from traditional country-oriented and self-sufficient only to the region-oriented integrated systems. however, to be credible, narrative [on the energy union] would have to be in line with communications and decisions on other levels (national and regional) and other policy areas that are affected as, e.g., job market, technology and innovation policies or fiscal policies. this might be facilitated when a great proportion of stakeholders and policymakers from different levels and domains are informed, able to participate, and agree to the process and accept its result (ellenbeck, et. al., 2015). the energy union debates have uncovered several policy cleavages. the major one is europeanisation versus maintaining sovereignty of member states in the energy sector. another is pitching security and affordability against sustainability in the notion of ‘rehabilitating’ fossil fuels versus enhancing renewable deployment (szulecki, et. al., 2016). european energy security, climate change mitigation and increased competitiveness should not only be attained by internal eu energy savings measures. these objectives also depend on the reorientation of the economies in eu partner countries towards more energy efficient patterns (boute, 2013). with member states anchored to their individual national energy policies and with many obstacles for cooperation on an intergovernmental level, the integration goal can be achieved only through advanced supranational cooperation (focken, 2015). member state governments still have a central position and policy issues where power is transferred to the eu level tend to be those where member states see such transfers as in their interest (wettestad, et. al., 2012). the eu energy union strategy as a policy document is being practically incorporated into the legal acts in form of concrete regulations and directives, as well as delegated legal acts, which are to be further either applied directly or transposed into the national legal systems of the eu 151 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 member states. consequently, the possibility to hit the target of the energy union strategy without missing the point depends directly on the quality of the transposition of the concrete requirements set in the energy union-related legal acts. in practice, it means that all the stakeholders involved in the regulatory settlement chain, namely, governments and the energy ministries defining primary and secondary legislation, public utilities commissions approving tariff methodologies and system access rules, transmission system operators, storage system operators (if available) and distribution system operators elaborating their systems’ usage rules and proposing tariff plans, play an important role for the final outcome of all the process. even though all the mentioned stakeholders have strictly defined competence and field of their responsibility, some of the elements of the energy union might be less attractive from their egoistic short-term perspective. for example, a transmission system operator might be not interested in developing additional elements of a system, which on the one hand increases a security of supply, but on the other hand decreases the load of the existing infrastructure consequently decreasing income from power transported by one unit of infrastructure. at the same time, the transmission system operators, which are too focused on security of energy supply might be not open enough to promote innovations and develop new market-oriented services to market participants. the analysis performed by the authors aims to identify interrelations between the owners of energy undertakings of the european union (gas transmission operator and gas storage operators) and the overall fitness of the undertaking to meet particular aims of the dimensions of the energy union strategy. at the final stage of the research actual ownership structures are compared to preferred ones derived from expert assessments and corresponding conclusions drawn. the article constitutes scientific novelty primarily because it assesses different types of owners of gas storage and transmission companies according to the energy union dimensions, which are not yet studied enough since the energy union was introduced only in 2015, after the european gas market was liberalised. following thirty one member of the gas infrastructure europe association (i.e. storage section) was included in the research (further abbreviation is stated in brackets while its two last letters define a country of operations): astora gmbh & co. kg (astora de), bulgartransgaz ead (bulgartransgaz bg), centrica storage limited (csl uk), edison stoccaggio s.p.a. (es it), enagás s.a. (enagas es), energinet.dk (energinet dk), n.v. energystock (nves nl), fluxys belgium s.a. (fluxys be), gazprom germania gmbh (gazprom de), magyar földgáztároló zrt. (magyar hu), mmbf földgáztároló zártkörűen működő részvénytársaság (mmbf hu), nafta a.s. (nafta sk), nederlandse aardolie maatschappij b.v. (nam nl), omv gas storage gmbh (omv at), operator systemu magazynowania sp. z o.o. (osm pl), pozagas a.s. (pozagas sk), podzemno skladište plina d.o.o. (psp hr), rag energy storage gmbh rag at, ren armazenagem s.a. (ren pt), rwe gasspeicher gmbh (rwe gg de), rwe gas storage, s.r.o. (rwe gs cz), stogit s.p.a. (stogit it), sse hornsea ltd (sse h uk), storengy s.a.(storengy fr), storengy deutschland leine gmbh (sdl de), swedegas ab (swedegas se), taqa energy b.v. (taqa e nl), transport et infrastructures gaz france, s.a. (tigf fr), uniper energy storage (ues de), vng gasspeicher gmbh (vng g de), hellenic gas transmission system operator s.a. (hgtso gr). in accordance with the research methodology, each gas storage company was assessed from the perspective of its shareholders paying special attention to direct and indirect state control via ownership in share capital of such companies. share of ownership by state of establishment, another state or states of the european union and ownership by non-eu state or states served as segregation criteria for the cluster analysis by the single linkage method. the cluster analysis summary is presented in the table 3. there were six clusters identified in total as well as nine gas storage companies classified as outliers, i.e. not fitting into any of the defined clusters. owners of gas storage companies e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 152 the first cluster of companies reveals substantial (i.e. 42-50%) ownership of other eu states sdl de is partly owned by france and the state consortium with the eu origin, swedegas se is partly owned by belgium and to a very minor extent by spain. none state of establishment and non-eu state ownership was discovered for the cluster companies. the second cluster companies gazprom de and ren pt have substantial non-eu state ownership (41-50%) and zero state of establishment and european economic area state shareholders. in case of ren pt this is state grid of china and oman oil (i.e. oman state based company). gazprom de is controlled by the russian government to the extent of 50%. the cluster number three is the most monolith due to an absolute 100% stake of the state of establishment in share capital of the gas transmission companies included in the cluster. the cluster consists of bulgartransgaz bg, energinet dk, nves nl, magyar hu, mmbf hu, psp hr, vng g de. the cluster is followed by the next one, which is nearly similar in terms of state of establishment ownership, which varies from 72% to 84% leaving at nearly 0% holdings of other states. the cluster number five (i.e. csl uk, enagas es, nam nl, rwe gg de, sse h uk, ues de) represents the most liberalised companies whereas state of establishment holdings range from 0 to 15% and no other state holdings were revealed. the cluster number six can be considered to be somewhat less liberalised than the previous one, even though state of establishment holdings vary from 28 to 29% while other eu states might have ownership to the extent up to 10%, which is very low. however, it should be noted that the cluster consists of two slovak companies and thus is not that representative. outlier companies were not included in any of the clusters because of significantly different ownership structure, which is summarised in the table 2. german based astora de to the extent of 25% can be considered to be controlled by the russian government via its gazprom stake (i.e. 50%). no other state holdings were identified for the table 1 cluster analysis of owners of gas storage companies in europe, 2016 source: prepared by authors. cluster owners state of establishment other eu state non-eu state private 1 0% 42-50% 0% 50-58% sdl de, swedegas se 2 0 0% 41-50% 50-59% gazprom de, ren pt 3 100% 0% 0% 0% bulgartransgaz bg, energinet dk, nves nl, magyar hu, mmbf hu, psp hr, vng g de 4 72-84% 0% 0% 16-28% fluxys be, osm pl, hgtso gr 5 0-15% 0% 0% 85-100% csl uk, enagas es, nam nl, rwe gg de, sse h uk, ues de 6 28-29% 0-10% 0% 62-71% nafta sk, pozagas sk outliers 0-50% 0-85% 0-76% 15-85% astora de, es it, omv at, rag at, rwe gs cz, stogit it, storengy fr, taqa e nl, tigf fr 153 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 company. italian es it (i.e. edison stoccaggio s.p.a.) is owned by the government of france to the extent of 85% via edf holding, which makes it distinctive from other companies. omv at is partly owned by the state of abu dhabi (24.9%) while 32% belongs to local authorities. stogit it has quite a similar structure with 23% controlled by state of establishment and 10% owned by a non-eu investorstate grid of china. one of the most interesting companies is taqa e nl, which is owned by abu-dhabi state to the extent of 76% while no other state holdings were present. france based tig fr is also owned by non-eu investors to a bigger extent compared to state of establishment and eu state ownership. non eu investors’ stake in the company reaches 40% (i.e. mainly singapore gic and state grid of china). table 2 owners of gas storage companies (outliers) in europe, 2016 source: prepared by authors. company state other eu state non-eu state private astora de 0% 0% 25% 75% es it 0% 85% 0% 16% omv at 32% 0% 25% 44% rag at 44% 15% 0% 41% rwe gs cz 0% 15% 0% 85% stogit it 23% 0% 10% 67% storengy fr 50% 0% 0% 50% taqa e nl 0% 0% 76% 24% tigf fr 17% 8% 40% 35% following thirty one member (including two observers) of the gas infrastructure europe association (i.e. tansmission section) was included in the research (further abbreviation is stated in brackets while its two last letters define a country of operations): bulgartransgaz ead (bulgartransgaz bg), creos luxembourg s.a. (creos lu), hellenic gas transmission system operator s.a. (hgtso gr), enagás s.a. (enagas es), energinet.dk (energinet dk), eustream, a.s. (eustream sk), földgázszállító zrt. (földgázszállító hu), fluxys belgium s.a. (fluxys be), gascade gastransport gmbh (gascade de), gas connect austria gmbh (gca at), gas networks ireland (gni ie), gassco as (gassco no), gasunie transport services b.v. (gts nl), gasum oy (gasum fi), operator gazociągów przesyłowych gaz-system s.a (ogpg-s pl), grtgaz s.a. (grtgaz fr), grtgaz deutschland gmbh (grtgaz de), interconnector (uk) limited (interconnector uk), national grid gas plc (ngg uk), net4gas, s.r.o. (net4gas cz), ontras gastransport gmbh (osg de), open grid europe gmbh (oge de), plinacro d.o.o. (plinacro hr), plinovodi d.o.o. (plinovodi si), regasificadora del noroeste, s.a. (rdn es), ren gasodutos s.a. (ren g pt), snam rete gas s.p.a. (srg it), swedegas ab (swedegas se), swissgas ag (swissgas ch), trans austria gasleitung gmbh (tag at), transport et infrastructures gaz france, s.a. (tig fr). furthermore, each gas transmission company was assessed from the perspective of its shareholders paying special attention to direct and indirect state control via ownership in share capital of such companies. share of ownership by a state of establishment, another state or states of the european union and ownership by non-european union state or states served as segregation criteria for the cluster analysis by the single linkage method. the cluster analysis summary is presented in the table 3. there were seven clusters identified in total as well as six gas transmission companies classified as outliers, i.e. not fitting into any of the defined clusters. owners of gas transmission companies e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 154 the first cluster of companies reveals moderate ownership of other eu statesgrtgaz de is partly owned by france and the state consortium with the eu origin, swedegas se is partly owned by belgium and to a very minor extent by spain while tag as is partly owned by italy and austria. none state of establishment and non-european economic area state ownership was discovered for the cluster companies. the second cluster companies rdn es and srg it have moderate state of establishment ownership (23-24%) and low non-european economic area state shareholders. in case of rdn es this is an algerian state company while srg it is partly owned by the state grid of china. the third cluster of gas transmission companies can be considered to be the most liberalised. only spain based enagas es has a state of establishment stake of 5% while no other state holdings were identified. in other companies of the cluster state holdings were found to be non-existent. the cluster number four demonstrates substantial ownership of state of establishment, which ranges from 47% to 51% whereas other state holdings were not revealed. the next cluster number five is the most monolith due to an absolute 100% stake by a state of establishment in share capital of the gas transmission companies included in the cluster. the cluster is followed by the next one, which is nearly similar in terms of state of establishment ownership, which varies from 77% to 84% leaving at nearly 0% holdings of other states. the cluster number seven constitutes high scientific interest because only non-european economic area states have stakes in the companies. in particular, gascade de is partly owned by gazprom (around 50% controlled by the russian federation) while 24.9% of shares of oge table 3 cluster analysis of owners of gas transmission companies in europe, 2016 cluster owners state of establishment other eu state non-eu state private 1 0% 33-50% 0% 50-67% grtgaz de, swedegas se, tag at, grtgaz de, swedegas se, tag as 2 23-24% 0% 10% 66-67% rdn es, srg it 3 0-5% 0% 0% 95-100% enagas es, ngg uk, net4gas cz 4 47-51% 0% 0% 49-53% grtgaz fr, plinovodi si, eustream sk 5 100% 0% 0% 0% bulgartransgaz bg, energinet dk, gni ie, gassco no, gts nl, gasum fi, ogpg-s pl, swissgas ch, osg de, plinacro hr, 6 77-84% 0-1% 0% 16-22% creos lu, hgtso gr, fluxys be 7 0% 0% 25% 75% gascade de, oge de outliers 0-32% 0-80% 0-40% 20-75% földgázszállító hu, gca at, interconnector uk, ren g pt, tig fr source: prepared by authors. 155 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 de belongs to the abu dhabi state-based holding infinity investments. outlier companies were not included in any of the clusters because of significantly different ownership structure, which is summarised in the table 4. table 4 owners of gas transmission companies (outliers) in europe, 2016 company state other eu state non-eu state private földgázszállító hu 25% 0% 0% 75% gca as 32% 0% 25% 44% interconnector uk 0% 80% 0% 20% ren g pt 0% 0% 40% 60% tig fr 17% 8% 40% 35% source: prepared by authors. the hungarian company földgázszállító hu is the simplest to interpret because it is owned by state of establishment to the extent of 25% while no other state holdings were identified. gsa as has nearly balanced stakes of a state of establishment versus non –european economic area state investments via international petroleum investment company, abu dhabi. interconnector uk has a majority investment by belgium via fluxys. the portugal operator ren g pt to the extent of 40% is owned by state grid of china (i.e. with a share of 25%) and oman oil (i.e. remaining 15%). tig fr is owned by singapore gic (i.e. sovereign fund of singapore) to the extent of 35% while another 5% belongs to the state grid of china. in order to assess state and non-state ownership of the companies, authors conducted expert interviews and used the analytic hierarchy process for processing answers. it is considered to be a common tool for structured decision making. decision making, for which we gather most of our information, has become a mathematical science today (figuera, et. al., 2005). decision making involves many criteria and subcriteria used to rank the alternatives of a decision (saaty, 2008). data are collected from experts or decision-makers corresponding to the hierarchic structure, in the pairwise comparison of alternatives on a qualitative scale as described below. in total, eight experts were selected within the research (see table 5). choice of experts was balanced in terms of countries of their origin and their occupation. in particular, there are two ex-ministers of economy, two chief executives of regional energy companies and four other energy related public institution officers. all of them were considered to possess sufficient knowledge on the energy union dimensions. in the course of the analytic hierarchy process, experts can rate the comparison as equal, marginally strong, strong, very strong, and extremely strong. a set of pairwise comparison matrices was constructed in accordance with the overall hierarchy of the process. the hierarchy of the alternatives for preferred owners of gas storage and transmission companies is presented under the figure 1. decarbonisation as one of the energy union dimensions was excluded from the evaluation criteria because of potentially controversial impact varying from country to country due to differences in national energy policies (e.g. dominance of fossil fuel in one country vs substantial share of renewable energy in another), leading to different policy needs and developments. additionally, another eu state as an owner was not assessed for the same reason of potential controversies, which may vary from country to country. expert assessment of preferred owners of gas storage and transmission companies e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 156 table 5 selected experts with knowledge on energy union dimensions expert organisation position country mr. nemunas biknius epso-g uab head of strategy and development lithuania mr. māris kuņickis latvenergo sjsc chief operating officer latvia mr. jaroslav neverovic ministry of energy minister (2012-2014) lithuania ms. milda parnavaite national commission for the energy control and prices head, natural gas division lithuania mr. timo partanen energy authority leading specialist finland ms. dana reizniece-ozola ministry of economics minister (2014-2016) latvia mr. timo tatar ministry of economic affairs and communications director, energy department estonia ms. marija zjurikova permanent representation of the republic of latvia in eu counsellor for the energy policy latvia/ belgium source: prepared by authors. figure 1 the hierarchy of alternatives for preferred owners of gas storage and transmission companies according to ahp (prepared by authors) preferred owner 1.security, solidarity, trust 2.integrated market 3.efficiency 4.research, innovation, competitiveness state of establishment non-eu state private ownership the expert assessment results according to the ahp process findings were processed by the authors while its summary is presented in the table 6. table 6 expert assessment results alternative/criterion c1. security, solidarity, trust c2. integrated market c3. energy efficiency c4. research, innovation, competitiveness total a1. state of establishment 0.62 0.55 0.37 0.44 0.49 a2. noneu state 0.14 0.14 0.18 0.11 0.14 a3. private owner 0.25 0.31 0.46 0.46 0.37 total 1.00 1.00 1.00 1.00 1.00 source: prepared by authors. 157 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 theoretical preferences of experts clearly tend to exhibit overall anchoring towards ownership by a state of establishment, which is the most frequent type of ownership in practice as well. however, it is noteworthy that while a state of establishment proved to be an extreme preference from the security, solidarity, trust and an integrated market point of view, in case of research, innovation and competitiveness experts assessments are narrowly spread between a state of establishment and a private owner with a tiny overweight towards a private owner. the difference between preferences for a state of establishment and a private owner from the efficiency angle is somewhat more significant, amounting to nine basis points in favour of a private owner. finally, a non-eu state as an energy undertaking owner got lowest expert assessments in each dimension of the energy union included in the research. this is a very important implication, which is suggested to be subject for further research in the area. though one expert admitted that a non-european union country should not necessarily mean countries, which already own partly gas storage and transmission companies such as china, oman, abu-dhabi and other, it needs to be taken into account that liberalised and developed countries such as the united states, canada or australia are unlikely to become owners of the european infrastructure via their state holdings. as a final remark it has to be noted that several experts expressed a view that in case energy regulations are properly designed and implemented, an owner’s issue clearly becomes less important from the energy union perspective. however, the scope of the current research does not include assessment of effectiveness of national regulations in energy matters. _ actual ownership by the state of establishment (including both 100% ownership and majority ownership to the extent of over 70%) was found to be the most common for european gas storage and transmission companies comprising nearly 40% of the total sample. second most frequent types of ownership was with a private owner controlling around 50% of shares while the rest was split between a state of establishment and possible other states of the european union. even though being currently rather an exception, there are gas storage and transmission companies owned to the extent up to 75% by non-european union states. typically, such states include china, singapore, abu-dhabi and others. _ overall expert assessments of preferred owners gas storage and transmission companies from the energy union perspective generally confirmed the choice of the state of establishment as the primary one and private owner as the second best option. state of establishment got high assessments in the dimension of security and integrated market while private owner obtained strong scores for the efficiency. the dimension of research, innovation and competitiveness was nearly equally rated by experts with a tiny overweight towards a private owner. _ non-european union state got the lowest expert assessments in any of the four chosen dimensions of the energy union, which can serve as a sound proposal for further research. it has to be taken into account that liberalised and developed countries such as the united states, canada or australia are unlikely to become owners of the european infrastructure via their state holdings. _ actual ownership of european gas storage and transmission companies overall corresponds to preferred owners as assessed by experts. companies owned to a larger extent by a state of establishment would typically get more points than companies owned largely by private owners. in total, companies owned by states of establishment as well as companies with private owners accounting for at least 50% of shares amount to around 70% of the total sample. companies partly owned by non-eu states would get the lowest assessment and rather constitute exceptional cases. conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 158 bošnjaković, b. 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(2009). a risk analysis for gas transport network planning expansion under regulatory uncertainty in western europe. energy policy, 37(2), 721-732. https://doi. org/10.1016/j.enpol.2008.08.033 ping, lv, spigarelli, f. (2016). the determinants of location choice: chinese foreign direct investments in the european renewable energy sector, international journal of emerging markets, 11 (3), 333-356. https://doi.org/10.1108/ijoem-09-2014-0137 roland berger strategy (2014). study regarding grid infrastructure development: european strategy for raising public acceptance. revised final report. retrieved from [https://ec.europa.eu/energy/sites/ener/files/documents/20140618_grid_ toolkit_report.pdf] (accessed on 9 may 2017). saaty, t.l. (2008), decision making with the analytic hierarchy process. international journal services sciences, 1(1), 83–98. https://doi.org/10.1504/ ijssci.2008.017590 spiridonovs, j., bogdanova, o. (2016). the resilient energy union – response to the challenges of xxi century. 21st international scientific conference. smart and efficient economy: preparation for the future innovative economy, proceeding of selected papers, isbn 978-80-214-5413-2 szulecki, k., ancygier, a. and neuhoff, k. (2015). energy union: from idea to reality, econstor conference papers, zbw german national library of economics szulecki, k., fischer, s., gullberg, a. t., sartor, o. (2016). shaping the ‘energy union’: between nareferences 159 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 tional positions and governance innovation in eu energy and climate policy. taylor & francis. https:// doi.org/10.1080/14693062.2015.1135100 wettestad, j., eikeland, p. o., nilsson, m. (2012). eu climate and energy policy: a hesitant supranational turn. global environmental politics, 12(2), 67-86. massachusetts institute of technology. https://doi. org/10.1162/glep_a_00109 wiggel, m., vihma, a. (2016). geopolitics versus geoeconomics: the case of russia’s geostrategy and its effects on the eu. international affairs. 92(3), 605-627. https://doi.org/10.1111/1468-2346.12600 bogdanova olga dr. oec riga technical university fields of research interests energy policy, economics, governance address kalnciema street 6 riga lv-1007, latvia tel. +37128319554 arefjevs ilja dr. sc. administr. ba school of business of finance fields of research interests finance, investments address k.valdemara 161, riga lv-1013, latvia, tel. +37126547036 spiridonovs jurijs dr. oec riseba university of business, arts and technology fields of research interests public services, economic development, energy sector address 3 meža street riga, lv-1048, latvia tel. +37129234414 about the authors european integration studies 2011.indd 205 issn 1822–8402 european integration studies. 2011. no 5 the employment opportunities of disabled people at call centers: some cases from turkey orhan kocak, ersin kavi yalova university, turkey abstract the issue of employment is very important subject for countries where the rates of unemployment is high in the world. while the issue of unemployment is seen a major subject in some countries, other countries see it more minor. however, every country, including developed, faces with unemployment depending on their development level. the lack of skills and knowledge, matching problems and legal and regulatory issues in labor markets may cause and increase the unemployment rates of countries. in addition, there are different groups in unemployed people who are socially and economically excluded such as youths, old people, women, uneducated and disabled people. especially, these excluded groups are benefited of the emergence of information and communication technologies. in this sense, the last decade, disabled people had many employment opportunities by using information and communication technologies either at workplace or at home. in this mean, call centers offer new opportunities for disabled people in terms of workplace environment. when it is investigated the data related to call centers in turkey and the world, it is seen that call centers have a potential on employment and a high turnover rate. call centers are popular businesses and day by day they are becoming an important employment sources for the disabled people who can reach that kind of jobs and adopt easily with their disabilities. also, because call centers don’t require high level qualifications, they make disabled people, who can’t reach education opportunities, more socially included. technological developments make the call center businesses more adaptive towards flexible working models and implement these technologies into their work processes. with the new emerging technologies (information and communication technologies), call centers can use either offices or homes as their work places. thus, disabled people, who can’t go to work places from home, can work at their homes and take part in working life by using information and communication technologies and the internet. of course, there are some risks when disabled people work at home, they may become excluded from social life and environment. also, when disabled people work at home they will feel more relax, but they can’t be integrated into social life and be excluded from the society. in order to include disabled people into society, call centers businesses should establish their offices rather than giving jobs to the homes. with this sense, call center projects are developed so as to provide employment opportunities for disabled people in the world and turkey. the common point of these call centers projects is to include disabled people into working life in short term by giving them necessary training. however, legal and social responsibilities are going to be completed for companies by giving disabled people working opportunities. with this study, employment opportunities are provided by information technologies were examined for disabled at call centers in the world and turkey. in the first part of the paper, the definition of disabled people, their inclusion and employment opportunities are studied. in the second part, the definition of call centers, their working processes and if they are an employment source are examined. at the final part, disabled people and call centers relations and call centers’ contribution to employment of disabled people are evaluated with some examples. key words: disabled people, call center, employment of disabled people. introduction people with disabilities constitute at least 10% in any country. the number of disabled people is about 650 million and 80% of them at working age. also, most of the disabled people are unemployed (about 70-80 %) and those who unemployed are socially and economically excluded. when it is looked the figures, it is seen that the growing importance of employment and socially and economically inclusion of disabled people. the emergence of information and communication technologies created new horizons for the people who have lack of ability of mentally and physically. today, there are many opportunities for the disabled people with the using of information and communication technologies from developed countries to developing and underdeveloped countries. some disabled people prefer to work at home individually, while some prefer to work in offices at a company. one of the examples is call centers that offer opportunities for disabled people’s employment and inclusion. especially, developing countries, with their cheap labor prices and skills of the usage information technologies, have been attracting many investment opportunities in the establishment of call centers. the purpose of this paper is to investigate the importance and the benefits of call centers in terms of employment and in reducing social exclusion in the world and turkey. it is seen that disabled people who subject to the exclusion in their life have some opportunities if they improve their skills and knowledge about information and communication technologies and the internet. also, many new investments are, placed in the poor areas in the east of turkey, the sign that how cheap labor and young educated among disabled people offer many advantages for call center businesses. issn 1822–8402 european integration studies. 2011. no 5 206 in this study, employment opportunities are provided by information technologies were examined for disabled at call centers in the world and turkey. in the first part of the paper, the definition of disabled people, their inclusion and employment opportunities are studied. in the second part, the definition of call centers, their working processes and if they are an employment source are examined. at the final part, disabled people and call centers relations and call centers’ contribution to employment of disabled people are evaluated with some examples. the definition of disability disability is the disadvantage or restriction of activity caused by a society which takes little or no account of people who have impairments, and thus excludes them from mainstream activity (gradwell, 2005, 273). also, disability is defined as physical and mental impairments which have substantial and long-term adverse effects on person’s ability to carry out normal daily activities. the definition covers physical and mental impairments such as physical impairments affecting the senses such as sight, hearing, heart disease, diabetes, epilepsy and mental impairments including learning disabilities. for an effect to be substantial, it should be more than minor. for example; inability to see moving traffic clearly enough to cross a road safely, turn taps or knobs and to remember and relay a simple message correctly (equality com., 2011, 3). long-term effects include those, which are likely to recur. for example, an effect will be considered to be long-term if it is likely both to recur, and to do so at least once beyond the 12-month period following the first occurrence. daily activities are normal activities carried out by most people on a regular basis and must involve such as mobility, manual dexterity, physical co-ordination, selfcontrol, the ability to lift, speech, hearing, memory, ability to concentrate, learn or understand. social inclusion of disabled people there are challenges in the areas of healthcare, education, professional training and entering in the job market (frança, 2009, 170). disabled people are accepted as one of the most important groups facing with the risk of being discriminated, the aim of eliminating the discrimination based on disability has become one of the privileged social policy aims in the academic, national and international levels. in order to eliminate disability discrimination, it is necessary to change the social perception which accepts being disabled people equal to being marginal and dependent because of individual inadequacy. there has been a remarkable consensus across social theory and government policy that paid employment is central to social inclusion. the marginalization of disabled people from the labor market has certainly been a major factor in their exclusion over the last two centuries, and will remain a focus for political campaigns (barnes, 2005, 541). a recent study conducted by the government of canada found that the most frequently reported barrier to social inclusion of disabled people is public attitudes and prejudices concerning disabled people (shier, 2009, 64). there is a wide gap between the employment rate of people with and without disabilities in the country. therefore, the target for bringing down the unemployment rates cannot be achieved without addressing the employment issues of people with disabilities, who constitute about 5-6% of the population. it would require proactive initiative on the part of all concerned to ensure that disability is included in the employment plan and programs of the government and the private sector (deoc, 2009, 4). the employment of disabled people from the beginning of the welfare state, it has been assumed that disabled people would be unlikely to have a job. although the emphasis is now much more focused on identifying people who can work as well supporting people still judged to be incapable. the concept of ‘incapacity’ implies that some people are unable to work and entitled to special treatment in the social security system, while everyone else is able to work and should expect to take their chances in the labor market. this distinction has been subject to two significant modifications over the years (bertheud, 2011, 2). the first issue is that an individual’s job prospects are not determined simply by his or her own self-contained characteristics, but also by the economic and institutional framework within which employment is negotiated. the second issue is that dividing disabled people into two groups such as capable and incapable of working. there is a wide range of sets of conditions, impairments and severities, which have varying effects on people’s probability of working. for example, well-educated people are much less vulnerable to the disadvantaging effects of disability than others with no qualifications (bertheud, 2011, 2). there are lots of restrictions legal and institutional for disabled people in countries. for example, disabled people in canada remain under-represented in the canadian labor market, even though policy and programming is present to increase participation. in canada approximately 10% of all working age adults (15–64) are disabled. the employment rate for that 10% is approximately 48%, compared with 76% for non-disabled people (shier, 2009, 64). during the second world war nearly half a million disabled people were drafted into the labor force in britain is another example. in the months following the end of the war, the government expressed its social obligation towards the employment of disabled people, particularly those with wartime injuries, but labor market policies soon relegated disabled people back to the margins (barnes, 2005, 533). the level of exclusion from the paid labor market is evident in england. around 60 percent of disabled people of working age are not in paid work, with unemployment rates three times higher than for their nondisabled counterparts, while periods of unemployment have been much longer, particularly for people born with impairment. one in six of those who acquire impairment while in paid work lose their job within a year, and a third of disabled people who find paid work become unemployed again within a year, in comparison to one-fifth of nondisabled people. disabled people earn significantly less, and approximately 50 percent of disabled people have incomes below the ‘official’ poverty line of less than half the national average wage, with disabled women particularly disadvantaged. disabled people also experience higher levels of underemployment, in jobs for which they are ‘overqualified’ (barnes, 2005, 534). oecd (organization for economic co-operation and issn 1822–8402 european integration studies. 2011. no 5 207 development) proposes steps in a study called “sickness, disability and work: breaking the barriers norway, poland and switzerland“ to the governments that should take to cut the number of people claiming benefits and help them back into the labor market. in poland, less than one in five disabled people are employed. those who are employed tend to have part-time or temporary jobs in sheltered work enterprises, often in agriculture, and, less frequently, in the public sector. the employment problems of people with disabilities are partly due to the overall poor labor market situation in poland, which had the highest unemployment rate in the oecd area of 15.5% in the second quarter 2006. further reforms of disability policies should be undertaken as well as labor market and product market reforms aimed at making work pay, raising labor demand and encouraging a shift from informal to formal employment so that work can become a real option for disabled people (oecd, 2006). broader rights-based approach to citizenship is a significant means by which to extend eu nationals’ rights beyond the economic imperative of the free movement provisions to a more inclusive and positive declaration of their specific needs and values. as well as seeking to promote the substance of tangible entitlement, a rights-based model of citizenship provides an important platform not only for promoting individual autonomy and agency, but also for exposing and crediting disabled people’s contribution to society through their formal and informal, direct and indirect participation in the labor market (morgan, 2005, 268). employers must be central to any discussion of disability and work. all employers need to fulfill their obligations under the legal base but it is also in their interests to go further in every country (stanley, 2005, 38). in a survey related to disabled people in uk, employers’ views were explored using a series of statements about the costs and benefits to the business of employing people with disabilities. many of the findings demonstrate positive attitudes. for example, the employment of people with disabilities was widely seen as beneficial for other people and to have a positive impact on staff and morale; over half of respondents (55%) agreed with that (goldstone, 2002, 5). a substantial majority disagreed that disabled people are inappropriate for customer facing employment (84%), that they may make other staff feel uncomfortable (83%) or are less productive (75%). labor market integration of disabled people people with disabilities face daily barriers not only to their participation in society, also in terms of labor market access. however, they make up one of the most disadvantaged segments of the workforce related to training and employment. studies explain that there is much gap between disabled people and that people without disabilities. equal education opportunities are the first step to ensuring equal employment opportunities. full access to educational opportunities to learn needed skills is vital for achieving social integration and finding a job. this is an essential prerequisite for the future integration of young disabled people into the labor market (hamad, 2007, 4). the exclusion of disabled people from employment opportunities is linked directly to the social organization of the labor market, not individual impairment effects. the position of disabled people in the labor market is located within a broader pattern of social and environmental barriers such as access to education, information, transport, the built environment, as well as cultural and media representations. given this range of barriers to social inclusion, specific policy interventions in the field of employment are likely to have no more than a limited impact (barnes, 2005, 534). disabled people are under-represented in the labor force and the employed population, and, on average, are less educated. this means that they are one of the population groups most affected by poverty and social exclusion. the labor market contribution of this segment of society is just as decisive as that of other population groups. disabled people must be seen as a valid labor pool and people with disabilities be given an equal opportunity to become financially through employment and to contribute to the future of society. equal opportunities must create an appropriate environment to develop their full potential and enter and remain in the labor market (charest, 2008, 1). recognizing and developing the potential of disabled people as well as improving their skills and qualifications, especially basic skills, are necessary to ensure equal opportunity in the labor market. in this respect, following proposals are much important for disabled people to be able to include and retain in labor market (hamad, 2007, 8); • increase the skill levels of disabled adults who are working or looking for a job and who do not have sufficient schooling • broaden training prospects for disabled people by diversifying training methods and venues (for example, by creating paid internships leading to qualifications for those who cannot benefit from traditional training) • facilitate the transition between school and work for young disabled • matching restrictions in terms of geographical and occupational should be facilitated in labor markets by state and private institutions (koçak, kavi 2011, 1085). one of the examples is that the national strategy for labor market integration and maintenance of handicapped persons in québec in canada is designed to achieve employment equality and enhanced labor market participation for disabled people. one of the broad objectives of the strategy is to mobilize labor market players and involve them in the necessary efforts to ensure that more people with disabilities enter the labor market and remain employed for a longer period of time (mess, 2011). this strategy highlights following aims; • additional investments of $142.8 million over a five-year period, including $102.6 million from the government and $40.2 million from private businesses. • increased funding for employment integration contacts (cits), to enable 2,750 people with handicaps to enter the labor market over the next five years. • gradual increase in the program (grant program for adapted businesses) in order to create 825 new jobs by 2013. • new work premium for people with a severely limited capacity for employment. • work income supplement for long-term recipients of financial assistance who find employment. • increase in the refundable tax credit for an on-the-job training period to 40% and double the number of hours of supervision. issn 1822–8402 european integration studies. 2011. no 5 208 • better regional collaboration between stakeholders. • better representation of people with handicaps in the public service. • gradual increase in the number of trainees in the public service. • school integration and school-to-labor market. • transition for young disabled people • skills development and recognition for adults with handicaps call centers are as an employment source definition of call centers a call center is a physical place where customer and other telephone calls are handled by an organization, usually with some amount of computer automation. typically, a call center has the ability to handle a considerable volume of calls at the same time, to screen calls and forward them to someone qualified to handle them, and to log calls. call centers are used by mail-order catalog organizations, telemarketing companies, computer product help desks, and any large organization that uses the telephone to sell or service products and services (callcenterdeliver, 2011). call centers which are not operated solely for the provision of a service outwith a commercial environment. for example the call centers run by the benefits agency for the provision of benefits-related advice, or the call centre operations of agencies provide emotional support to callers. functional definition of call centers can be explained such as ‘offices providing a variety of sales, marketing and information services remotely by computer and telephone’ (dawson, 2002. 3) the employment process of call centers have become one of the fastest growing areas of employment in many countries. however, call centers do not constitute a sector but a specific form of work organization. the purposes of this operation are both to provide a more client-oriented service and to improve the efficiency of processing customer relations. also, call center jobs characterized by high degree of computerization and standardization of work. because of these features, this type of work usually depicted as an unskilled work with high time pressure and de-humanization of work. it is described as an expression of “taylorism”. consistent and tight technological surveillance and repetitive work cause stress which later result in job dissatisfaction among these employees (yılmaz and keser, 2008, 24). call centers are a relatively new type of workplace, offering a type of employment that is significantly different to other occupations, for example different forms of clerical work, data entry or ‘traditional’ telephone switchboard work, it might on first sight be thought to resemble. dawson’s study shows four main conclusions related to call centers’ employment (dawson, 2002, 417). first, the differentiation of call centre employment from other occupations in terms of recruitment and selection practices, employee skills and differences in work environments, performance monitoring and regulation of workplace behaviors. second, job characteristics may predispose employees to low levels of job-related well-being and burnout. third, levels of employee turnover may be linked to occupational novelty and the availability of pre-employment realistic job information. fourth, automated systems are beginning to replace routine, repetitive, low value tasks, resulting in changes in the nature of call centre employment. the employment opportunities of call centers call centre employment has been growing exponentially both domestically and globally. they are growing at an astonishing 40% per year globally. in australia, call centre growth is forecast at around 20 –25% annually (lewig, 2003, 367). about 160.000 workers are employed in 4.000 different call centers in australia, while employment growth is calculated to be in the order of 25% per annum domestically and 40 per cent globally. given these trends, call centre employment has become a significant factor in recent job growth (russell, 2002, 468). graphic1: sectoral distribution of call centers in turkey source: serka, the call center opportunity in development of tra2 region, serhat dev. agency, 2011, p.16 16,3 14,9 4,3 4,1 3,9 3,3 2,5 2,3 48,4 0 10 20 30 40 50 60 % sector issn 1822–8402 european integration studies. 2011. no 5 209 according to weinkopf, the number of call-centre jobs in 13 european countries in 2000 was 736.700, among which the united kingdom, with 243.000 or 37%, had by far the highest number. next one is germany with 148.000 or 17% and france with 104.900 or 14%. in fourth place came the netherlands with 57.000 jobs, while the figures for other countries were rather low. for the year 2000 the number of call-centers in the united kingdom was estimated at around 5.000, about twice as many as in france or germany (each with around 2.500). spain and italy as fast-growing markets with respectively 5 and 4% of the european call-centre market, while the extent of call-centers in portugal, greece and the scandinavian countries was estimated to be rather low, at least in 2000 (weinkopf, 2002, 458). the usa has different policies in terms of call centers’ diffusion and employment. although call centers are found in all states, customer service representatives who work in call centers tend to be concentrated geographically. four states— california, texas, florida, and new york—employ 30 percent of customer service representatives. delaware, arizona, south dakota, and utah, have the highest concentration of workers in this occupation, with customer service representatives comprising over 2 percent of total employment in these states. the united states has lost 250.000 call center jobs to india and the philippines since 2001. that’s part of a much larger trend. 3.3 million services industry jobs, including call centers, and $136 billion in wages, will move to countries like india, russia, china and the philippines (mcdanie, 2007, 5). there are many educated poor and also disabled people in societies in which we live need to be employed in order to include in social and economic life. call center are an employment opportunity especially for disabled people in the world. in this sense, there are many examples that shows call center workers who are disabled. call center employs 1000 blind people in moscow. because of unemployment is relatively high in russia, any job creation of such a large volume is striking. but more importantly, giving this opportunity at this volume to blind and visually impaired people is definitely going to increase social awareness (even, 2011). another example is, in at raleigh in north carolina in usa where rlcb (formerly raleigh lions clinic for the blind) has opened a new call center facility that is providing employment for people who are blind. the call center is a state-of-the-art facility staffed by well qualified and trained employees who are blind. national telecommuting institute, a nonprofit organization that places disabled workers with at-home employment, uses internet technology to enable call center work to be done at home (today, 2011). also, employment options is currently recruiting two-hundred people in the triad area for work in three different, national call centers. the jobs represent legitimate work-from-home positions which are open to people who are on ssi (the social security income) or ssdi (the social security disability insurance). employment options is a national employment network that specializes in the social security ticket to work program that help people on ssi or ssdi to find jobs. the call center jobs involve both full and part-time work, with an average pay of $10.25 per hour (disabledworld, 2011). some call center operators already have found that disabled workers stay in their jobs longer and are more loyal than other workers. they also tend to be older and better educated, and they will work for less. on the other hand, the call centers are becoming much important for regional development. for example, istanbul is the biggest city of turkey in which there were intensively call centers in. but in time investments shifted from istanbul to anatolia because of following reasons (serka, 2011, 23): • istanbul labor market has several alternatives, so qualified workforce do not stay long at call centers • establishing call centers only in a city creates risks during disaster. call centers should be distributed different areas. • increasing costs trigger other expenses and the area of the city was not available to expand, then call centers were moved to out of downtown. in the cities where land, workforce and transportation costs are low where new call centers has been built in order to diminish the density of istanbul. this led the call centers be established in the cities such as erzurum, erzincan, diyarbakır, sivas, samsun, uşak, malatya, antalya, kayseri, yalova, gümüşhane, karaman, düzce, afyon, bingöl. also, call centers started to decrease the unemployment rate in such eastern cities where industry hasn’t developed because of their distance to raw materials and markets. incentives that transportation ministry gives for call center investments on eastern and southeast regions ease shifting investments to these regions. companies whose call centers exist in istanbul prefer to move and make new investments out of city (serka, 2011, 23). as a result of development of communication technologies, call diverting is very easy and inexpensive. the access to company intranets via internet is now part of daily life due to high internet access speeds. the combination of these two phenomenon is now bringing new opportunity for disabled people, who can work at their home by using a computer and communication facilities (adam, 2008, 7). call centers in terms of the employment of the disabled people in turkey call centers are one of the most important communication tools that undertake the role of a bridge between the firms and the customers. for that reason, the call centers which are turning into consultancies from representation have turned into the most important communication point to consult, to be supported and places where provide contribution commercially rather places that respond to the telephone calls ,work as operators and contrary to what some people reckon. at the same time, call centers give an opportunity of a career which gives a chance to the employees to be promoted for a career from the initial point called agent where communication with the customer is improved in a most intensive way, up to the team leadership, supervising and the position of the management. furthermore there is a working environment where an employee may need to improve himself and receive training continuously depending on the sector he works at (www.aped.org.tr). at the call centers young population who are generally are being employed. in the recent years, with the encouragement of the ministry of communications the number of the disabled people who work at the call centers increased. issn 1822–8402 european integration studies. 2011. no 5 210 the employees of the call centers are %70 women and the reason is that, the work requires a smooth diction and flexibility. furthermore, call centers have four groups of employee; customer representative, team leadership. in these units, generally the service of answering the calls, external calls, order management,, customer support, back office is provided. the process of answering the calls includes order management, information services, complaint management. as external call services, tele-sales, campaign management is realized. as welcome calls are made, customer satisfaction is tried to be provided solving the problems of the customers. as back-office services, data entry management, data input and appointment is provided. (www.serka.org.tr/ downloads/ tra2.pdf ). taking all these into consideration, call centers provide a considerable potential of employment and it is predicted that disabled people can also easily benefit from the potential. so the employment of the disabled people is today’s basic social inclusion policies and is important in point of the integration of the disabled people into the society. in this context, one of the most suitable working environments for disabled people is call centers. so call center employees fulfill their work mostly, sitting, answering the calls, using computers. in that case it is an easier work for people who have walking disabilities. also it is one of the factors that facilitates the employment of the disabled people who couldn’t have the opportunity for education for certain reasons as it doesn’t require that much skills. according to the result of the “research for the problems and the expectations of the disabled people” which was realized in 2010 by tüi̇k (turkish statistic institution), 55,7 of the disabled people want to work at a job which doesn’t require physical labor and strength. also, considering the regulations and the working conditions needed where registered disabled people work/may work , 33,3% of them want to have frequent and shorter breaks during the working time due to the health problems and also, 27.6 of them want to work part time (tuik, 2011). consequently in accordance with the expectations of the disabled people, call centers can be accepted as suitable working environment. besides, taking the demands related to call centers into consideration, we see that disabled people are also expected to work at these centers. it is seen in the following in the table that there should be emphasis on a structuring which will provide employment for disabled people. in this context, the call centers are opened and projects are carried out so as to provide employment for disabled people in the world and in our country. one of them is the execution in “bizimköy” production center of disabled people which is connected with the municipality founded in 2006 with the joint support of i̇şkur (government employment agency in turkey) and eu funds and which was realized by kocaeli municipality. also, it is told that, a call canter of 50 tables will be added next to these business areas. as for the cost of investment of 350.000 dollars needed for the purpose that will be met by east marmara development agency, funds of eu and special provincial administration (www.engellilersitesi.com). at the same time, ankara branch of “kimse yok mu” association provide employment for disabled people. the aim of the relate project is bringing in the workforce work force of disabled people who want to work but are left inactive due to their physical problems, people who couldn’t go on their education, providing them skills giving education. in this context, the topic of the project is the certification of the employees who would work in call centers which show a rapid development in the last 15 years, certification of the 20 physically disabled people aged 18-35 in mamak county of ankara who are registered to i̇skur (government employment agency of turkey). sub-goals of the project are as follows (www.aped.org.tr): 1contribution to the personal development of the young people with disabilities and completing the lost feelings of self reliance and self sufficiency of them. 2finding a solution for economical problems of the young disabled people who will take part in the project providing them employment. 3finding a solution for the problem of finding a qualified employee with disabilities for the work places which are obliged to employ people with disabilities. 4producing a sample solution with a sample project which will be realized for the problem of employment of the young people with disabilities in turkey 5supporting them making other people accept their opinions about themselves, and their perspective. 6development of vocational training systems and prevocational training (qualification) systems for the disabled people. 7to prove that disabled people can work in the field of call center operator which is a popular job in labor market. at the same time, after the government provided people an employment opportunity of 38 thousand persons for disabled people in public sector, gsm operators such as turkcell, vodafone and avea developed their projects in which disabled people will answer the calls from home. among all these aims, the 3rd and the 7th one show the importance of call centers in terms of the employment of disabled people. they consider expanding the scope of the project in which visually impaired and paralyzed people will be employed, if positive results are gotten. at the preliminary stage, each operator will employ 10 persons and then the number will rise to 30. the project, which will make the disabled people hold on to life, is being carried out through undertaking of the ministry of communication. in that way, the disabled people will both have chance to earn money and hold on to life (www.pozitifengelliler.com). callpex firm which shows activity in the field of call center and customer services has provided opportunities of employment to 40 employees through the way of home services in accordance with the new business style “home agent” then they rose this number to 200 persons. in the related implementation, housewives, young retired people, students, people who have put an end or given a pause to active working life and war veterans as well as disabled people got an opportunity to work from home. besides, this modal helped call centers be open to the anatolia and reducing the operating costs, encouraged the employment (www.engellilersitesi.com). at the same time, working from home may eliminate the discrimination which is unethical. so much so, it is a known fact that women and disabled people have difficulties in getting issn 1822–8402 european integration studies. 2011. no 5 211 into working life. however in the information society the number of the projects for women rose, the possibilities and information has been easier and this way their participating to the decision making process is ensured and therefore their empowerment is achieved (kavi, koçak, 2010, 69). also considering the foreign countries, investments are made for call centers in terms of employment of the disabled people in countries india. in india a call center in which only physically disabled people serve and is considered as the very first has started in mumbai. the call center opened and designed by eureka forbes selling durable goods is working jointly with national society for equal opportunities for the handicapped (naseoh).all the employees are made up of disabled people at the call center where 70 people aged 2030 already works. everything is considered for the disabled people who work different shifts. it is said that the number of the employees will rise. the call center which was founded in naseoh campus located in the chembur region of mumbai is designed particularly for the entry and the exit of the disabled people (www.haberiklimi.net). consequently, call centers are offering a model of working which is allowing the employment of the groups like the disabled people that incur social exclusion along with making it possible to work from home. within the framework of this model, contribution of the disabled people to the work force will rise and also the establishments will have the opportunity to employ much more people at a much lower cost. conclusions the increasing growth in the number of disabled people who are out of work and claiming benefits is an important agenda for governments. most of the disabled people don’t produce and join economic and social life. today’s new technologies provided many facilities for disabled people in order to make them more included in the life. call center are as a new sector have been becoming an important platform in which disabled people can easily work by using information and communication technologies at home or at work. benefits of call centers to the regions’ investment result in increase in the public institutions’ employment with a scope which aims to lessen the difference of being developed. in this context, employment of disadvantaged groups and stimulation of region economy through investments provide the perception of call center investments in a social responsibility manner. call centers will also affect regions socio-cultural structure. new cafes, cinemas, libraries and shopping centers will be established in the medium or long term. thus, there will be an incrementally increase in the number of social environments of the region. in this mean, service sector will be developed where call centers are established and create many new employment opportunities. unemployment is the most important issue of both developed and developing world. while information technologies provide opportunities for disabled people, also creates many benefits for young and educated people who live in rural area and can’t find a job. as a result, exclusion of disabled people from social and economical life is another important subject that needs to be studied by academicians and governments. call centers provide an important potential of employment and it is predicted that disabled people can also easily benefit from the potential. the employment of the disabled people is seen today’s basic social inclusion policies and it is important in terms of the integration of the disabled people into the society as economically and socially. in this mean, as a new job and sector, call centers, provide benefits for disabled at home or workplace by working full time or flexible. some policies are adopted in order to increase the inclusion and employment of disabled people for disabled people by the state and private companies in turkey in the last decade. the information and communication technologies have been becoming an integral part of these policies and projects in turkey and in the world. references adam, (2008), it-call – integrated training for efficient employability of disabled people as call center representatives leonardo da vinci project. barnes, colin, mercer, geof, (2005), disability, work, and welfare: challenging the social exclusion of disabled people, work, employment and society volume 19 number: 3, pp. 527-544 berthoud, richard, (2011),trends in the employment of disabled people in britain, iser working paper series, institute for social economic research, no. 2011-03. callcenterdeliver, (2011) setting up a call center, what is a call center, http://www. callcenterdeliver.com/, online 15\04\2011. charest, jean, (2008) for equal employment opportunities national strategy for labor market integration and maintenance of handicapped persons, government of quebec. dawson, alison, s., (2003) call centre employment: a qualitative study, a thesis submitted to the university of stirling for the degree of doctor of philosophy. deoc (diversity and equal opportunity centre), (2009), employment of disabled people in india, baseline report, prepared for national centre for promotion of employment for disabled people (ncpedp). disabledworld, (2011) raleigh call center provides jobs for people who are blind, http://www. disabled-world.com/ disability/employment/usa/raleigh-call-center.php. equality commission,(2011) definition of disability, the disability discrimination act 1995, reproduced in northern ireland with the permission of the disability rights commission (gb). even grounds, (2011), call center employs 1000 blind people in moscow, even grounds accessibility consulting company. frança, (2009), inacia sátiro xavier, lorita marlena freitag pagliuca, social inclusion of disable people: achievements, challenges and implications for the nursing area, rev esc enferm usp, 2009; 43(1):170-7. goldstone, carol, meager nigel, (2002), barriers to employment for disabled people, in-house report 95, a study carried out on behalf of the department for work and pensions. gradwell, lorraine, (2005), missing pieces: the voluntary and community sector’s potential for inclusive employment, working futures: disabled people, employment policy and social inclusion, pp. 273-286 issn 1822–8402 european integration studies. 2011. no 5 212 hamad, sam, (2007), for equal employment opportunities, report on the consultation regarding the national strategy for labor market integration and maintenance of handicapped persons, minister of employment and social solidarity. holman david, batt rosemary, hotgrew ursula, (2007) the global call center report: international perspectives on management and employment kavi ersin, koçak orhan, (2010), “bilgi toplumunda evden çalışmanın etik boyutu”, sosyal siyaset konferansları, number: 59, 2010/2, s. 69–88 kocak, orhan, ersin kavi, (2011), “the role of information technologies in reducing of social exclusion in the process of knowledge society and the sample of call centers in turkey”, challenges of knowledge society, cks 2011, bucharest, 5th edition, april 15-16, 2011, pp. 1077-1086 lewig, k. a. and m. f. dollard,(2003), “emotional dissonance, emotional exhaustion and job satisfaction in call centre workers”, european journal of work and organizational psychology, 12 (4), 366–392, 2003 mcdaniel, (2007), 2006 call center employment outlook, mcdaniel executive recruiters, search, placement and consulting solutions morgan, hannah, (2005), disabled people and employment: the potential impact of european policy, working futures: disabled people, employment policy and social inclusion, pp., 259-271 oecd, (2006), sickness, disability and work: breaking the barriers norway, poland and switzerland, organization for economic co-operation and development publication, 07/11/2006. russell, bob,(2002), “the talk shop and shop talk: employment and work in a call centre”, the journal of industrial relations, vol. 44, no. 4, december 2002, 467–490. serka, (2011), the call center opportunity in development of tra2 region, serhat dev. agency,p.16. shier, michael, john r. grahamb and marion e. jonesc, (2009), barriers to employment as experienced by disabled people: a qualitative analysis in calgary and regina, canada, disability & society vol. 24, no. 1, 63–75. stanley, kate, (2005), “the missing million: the challenges of employing more disabled people”, working futures: disabled people, employment policy and social inclusion, british library cataloguing in publication data, pp. 2944. tuik, (2011), haber bülteni, sayı :71 , 7 nisan 2011. today, (2011), there’s no place like (an office at) home, http://today.msnbc.msn.com/id/7254610/ns/today-money/ weinkopf, claudia, (2002), call-centre work: specific characteristics and the challenges of work organization, european review of labor and research 2002 8: 456466. yılmaz, gözde, keser aşkın, (2006), call center work from employer and employee perspective: two field studies from turkish banking sector, is-guc, the journal of industrial relations & human resources, vol:8 no:2 , june 2006, issn: 1303-2860. http://www.mess.gouv.qc.ca/grandsdossiers/strategie_ nationale/index_en.asp http://www.aped.org.tr/dernek/ index. php?option=com_content& view=article&id=129:cari-merkez operatoerlueue etm&catid=38:duyurular& itemid=78). http://www.serka.org.tr/downloads/tra2.pdf. http://pozitifengelliler.com/haber_detay.asp?haberid= 1075 http://cagrimerkezleridernegi.org/uploads/dunya-veturkiye-cagri-merkezi-sektoru.pdf http://www.engellilersitesi.com/haber/7192-yasam engelliistihdami-icin-cagri-merkezi-kuracaklar.html http://www.haberiklimi.net/hd225457 hindistanda-sadeceengellilerin-calistigi-cagri-merkezi-acildi.html the article has been reviewed. received in april, 2011; accepted in june, 2011. general requirements the article should be prepared by microsoft windows operational system microsoft word text editor. the author submits the paper by registering to www.eis.ktu.lt the suggested length of the article is ~4000–8000 words. the structure of the article should correspond to the general requirements of research papers. it should clearly present the research problem, the aim, research methods, results and discussion, conclusions, references, according to the american pshycological association 6th edition system used in the journal. presented papers will be reviewed by two experts. 5. if you are referring to some authors in the paper, the name of the author and the year of publication should be indicated in the text and a full list of references provided at the end of the article. structure of the article should be as follows: notes for contributors _ title of the article; _ full name of the author; _ abstract in english (approximately 1500–2000 printed characters); _ keywords (5–7); _ introduction; _ theoretical background/literature review; _ methods; _ results 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author (no more than 600 printed characters) should be presented separately: _ name, surname; _ scientific title and the title referring to a research field or trend; _ area of research interests; _ author’s working place, its address and e-mail. the list of references is presented in one column (10 pt) according to the alphabet. references (not less than 25 resources, wide use of isi (http://www.isinet. com/isi). here are some basic reference forms (journal article; working papers; book; book chapter; the internet address). journal article: broner, f., didier, t., erce, a., & schmukler, s. l. (2013). gross capital flows: dynamics and crises. journal of monetary economics, 60(1), 113–133. working papers: artige, l. & nicolini, r. (2006). evidence on the determ inants of foreign direct investment. the case of three european regions (no. 07) (p. 33). retrieved from http://www2.ulg.ac.be/crepp/papers/creppwp200607.pdf book: daugeliene r. (2011). es ekonomine integracija: priezastys, raida, perspektyvos (p. 281). ktu: technologija. book chapter: o’neil, j. m., & egan, j. (1992). men’s and women’s gender role journeys: metaphor for healing, transition, and transformation. in b. r. wainrib (ed.), gender issues across the life cycle (pp. 107-123). new york: springer. internet access: european commission. (2013). taric consultation methodology. retrieved december 14, 2013, from http://ec.europa.eu/taxation_customs/dds2/ taric/taric_consultation.jsp?lang=en&taric=&endpub=&meastext=&area=ru&regulation=&langdescr=&meastype=&simdate=20131025&startpub=&ordernum=&goodstext=&level=&expand=true 199 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 submitted 04/2017 accepted for publication 08/2017 european integration studies no. 11 / 2017 pp. 199-210 doi 10.5755/j01.eis.0.11.18133 © kaunas university of technology proposals for environmental noise management boost at a national level in the european union member states eis 11/2017 abstract proposals for environmental noise management boost at a national level in the european union member states http://dx.doi.org/10.5755/j01.eis.0.11.18133 zanda krukle university of latvia, ministry of environmental protection and regional development of the republic of latvia, peldu 25, riga, lv-1494, latvia, e-mail: zanda.krukle@varam.gov.lv ruta bendere institute of physical engineering, aizkraukles 21, riga, lv-1006, latvia, e-mail: bendere@edi.lv environmental noise is currently becoming one of the most dominant types of environmental pollution. the effects of noise closely correlate with quality of life especially regarding the physical and psychological health of inhabitants, social and economic costs, thus impacting the sustainable development of a country. environmental noise management, therefore, is one of the most exigent tasks for environmental pollution management. the management of noise need to be developed in a comprehensive, integrative and cross-sectorial way, and appropriate methods and approaches for the management of noise impacts need to be found to deal with them in the most effective and sustainable manner at different governance levels, including national level that takes into account not only the requirements of the unions the country is a part of but also finds tailor made approaches. taking into account above mentioned, the aim of this research is to study environmental noise management at a national level, taking into account the framework in the european union (hereinafter – eu). the objectives of this research are as follows: (1) to justify the need for development of environmental noise management, based on theoretical studies of environmental noise as a comprehensive environmental pollution component; (2) to analyze the established legislative and institutional practices for noise management in eu; (3) to analyse the problem situations detected in previous authors’ researches carried out in latvia (that is as an example of eu member state); (4) to propose improvements for noise management processes at a national level in latvia. research mostly focuses on eu member states that joined eu after the year 2000, including baltic countries. in the scope of the study authors analyze legislation and the institutional system for environmental noise management, and provide conclusions from latvian case studies regarding practical implementation issues of environmental noise management. the conclusions from the studies allow providing suggestions for improvements at a national level by developing latvian environmental noise management model. the model consists of the complex of processes that are used in practice at a national level: development of legislation and policy, noise mapping and action planning, control and complaints management, data and information collection, analysis and dissemination, and environmental impact assessment. the research allowed providing proposals for the improvements and further development e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 200 of these processes. the innovative aspects of this research are related to the description of the practice based management model and the development proposals. keywords: environmental noise, management, improvement, national level, european union, latvia. environmental noise is currently second most important types of environmental pollution after air pollution. the main noise sources are transportation, industry and different community activities. in the eu-27 countries almost 34 million people are exposed to long-term average traffic noise levels exceeding 50 db(a) and in average 72% of inhabitants think that noise is an important environmental stressor (european commission, directorate-general for mobility, 2013). the effects of environmental noise closely correlate with quality of life with quality of life regarding physical and psychological health, social and economic factors. the most significant noise affects sleep. this includes arousals, awakenings, longer falling-asleep periods, insomnia and other effects. researches on sleep disturbance indicate a correlation between sleep disturbance, noise sources and noise perception place (hume et al., 2012; perron et al., 2016). a study conducted in oslo showed significant relationships between noise annoyance at night and sleeping problems, as well as strong links between these factors and pseudo neurological complaints (fyhri & aasvang, 2010). studies on the subject confirm noise induced arousals even at relatively low noise level (hume, et al., 2012). for example, research carried out in sweden (bluhm et al., 2004) has shown frequently occurring sleep disturbance for 23% of respondents at leq24h level over 50 db(a), and 13% sleep disturbance complaints from respondents living in areas with at levels leq24h level less than 50 db(a). in cases, when noise levels excess 55 db(a) during night time, this exposure can cause not only sleep disturbances, but also cardiovascular effects and also may increase stroke risk in the elderly (hume, et al., 2012). data form other traffic noise studies show that noise may be related to increased heart rate and therefore is a cardiovascular risk factor (zijlema et al., 2016), hypo dynamic effects (lekaviciute & argalasova-sobotova, 2013), as well as increased hypertension (bendokiene et al., 2011; (lekaviciute & argalasova-sobotova, 2013; zeeba et al., 2017). due to this, the world health organization has advised a target limit of outdoor night noise levels at an annual average of 40 db(a) (world health organization, 2009). but the eu requires the minimization of noise level in the areas where it exceeds 50 dba at night time and 55 dba daytime. apart from direct health effects noise pollution also causes annoyance can be viewed as an indicator of negative reactions to noise or interfered well-being, and may also contribute to the occurrence of the health issues mentioned above. noise annoyance may be expressed as a variety of negative responses, such as anger, disappointment, dissatisfaction, withdrawal, helplessness, depression, anxiety, distraction, agitation, stress-related psychosocial symptoms such as tiredness, stomach discomfort and stress (who regional office for europe, 2011). it must be highlighted that also psychological, social factors and sensitivity are very important in noise annoyance assessment (fields et.al., 1997; collette, 2011; job, 1997), and only one-third of the variance of annoyance reactions can be explained by the acoustic properties (guski, 1999). environmental noise also causes significant economic effects. these are related to increased amounts of medical expenses, productivity loss, absence from work, a decrease of property value as well as the costs associated with different noise control measures. the studies on how people value environmental conditions through the willingness-to-pay assessment. most of the studies show the willingness-to-pay to be in a range from two to nine eur, which is approximately 0.27 – 0.31% of total household annual income (barreiroa, sanchez, & viladrich-grau, 2005). the impacts of noise also can be expressed in housing prices. researches on airport noise exposure on housing prices show that the average noise depreciation index, which is defined as a loss in property value per one decibel change in noise exposure, is in average between 0.45 % and introduction 201 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 0.67% (nelson, 2004) (bristow & wardman, 2011). these impacts have to be taken into account when deciding on noise management policies. rapid urbanisation, industrialisation and growing mobility are the main factors contributing to increasing noise holistic health and economic impacts in developing countries (schwela, finegold, & stuart, 2011). initially environmental noise was considered to be mainly a problem associated with the urban environment, however, expansion of business activities and infrastructure such as roads are becoming critical factors outside cities as well. it also must be taken into account that people living in the suburbs may have sought for quiet and better quality of life as it is in cities. in addition, if measures to reduce noise focus on control in “black spots” (such as airports and motorways), there are the corresponding increase in the moderate level “grey zones” (i.e. zones where the noise level is elevated but are yet bellow the threshold) (buck, 2016). “grey zones” therefore also should also be the focus of environmental noise management activities. taking into account above mentioned, environmental noise management as a set of measures comprising the development and implementation of outdoor noise control policy based on the identified problems, and assessment thereof, aims to prevent and reduce noise induced negative effects on human holistic health and well-being. environmental noise management includes the development, implementation, and assessment of noise policy. in order to ensure noise management efficiency, noise management is organized at different levels that have different management focuses. the eu legislation sets requirements for noise management for agglomerations and the largest noise emitting facilities, and promote noise mapping and action planning, but national legislation regulates general and practical management aspects according to the factual general situation in a state and its specifics. different countries at a national level use different noise policy approaches with varying results, and there is no internationally coordinated global noise policy to reduce the wide-spread effects (institute of noise control engineering, 2006). therefore practice adaptation could be one of the most urgent and useful tools for ensuring improvements in noise management. for example, in the eu member states, which joined the union in the last decade, environmental noise management has started to develop mostly only around the time of joining eu and integrating the requirements of the eu directives in the national systems (belojevic et al., 2012). compared to the other eu countries where noise management policies and schemes have developed steadily over the last decades of the previous century, significant developmental gaps in terms of approaches can still be identified. also, a study of g.licitra and e.ascari (2014) about noise levels and noise annoyance, reveals that the highest values, that also correlates to highly annoyed and highly sleep disturbed inhabitants and a large part of higher values are detected in south and eastern europe. the authors believe that these countries should provide improvements through raising awareness on noise and health issues and improving national legislation. this coincides with the study of jeram et al. (2013), where authors conclude that the public, in general, is not sufficiently aware of the noise hazards. this may be so due to the several reasons. first, noise is invisible; it does not provoke strong images and is perceived to be less hazardous. second, noise is often labeled as a subjective issue, and not fully accepted as an environmental problem. next, people not often clearly understand the scientific data for the connection between noise and health. finally, people consider that financial matters prevail over environmental problems and may lack trust in authorities (jeram et al., 2013). a similar conclusion was done by j. hays, m. mccawley, and s.b.c. shonkoff (2017), stating that profits and other economic considerations of noise causing activities are often weighed against environmental and health protection and other community concerns (e.g., nuisance, aesthetics, etc.). these issues are related not only to residents but also to policymakers that lack knowledge on the issue. therefore noise management should e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 202 become a concern of policymakers, their technical and staff from supporting agencies in order to estimate the effects and solve the issues relates to the environmental noise (world health organization, 2012). other authors (king and murphy, 2016) argue that environmental noise has already become a recognized issue, however, the data submitted to the eu environmental noise mapping, show that noise control remains on its current course, it may become more appropriate to refer to noise as ‘the ignored pollutant’. there is a set of noise management instruments – planning, technical, administrative, economic, communication, and legislative ones – that can be used for environmental noise management, however, analysis of the situation shows a need for improvements of their appliance for more effective noise control. for example, technical control tools are taken into account mostly for new and large projects; however, there is still little done to regard to retrofitting existing infrastructure (moudon, 2009). their increased role of the public in consultancy on noise actions plans, on landuse planning and environmental health impact assessment would be a step forward in improving public collaboration and awareness (jeram et al., 2013). in order to investigate environmental noise management, the assessment of noise management in eu member states was carried out. the study consist of three main parts: the objectives of this research are as follows: (1) analysis of the established institutional practices for noise management in eu; (2) analysis of the established legislative practices for noise management (3) analysis the problem situations detected in previous authors’ researches carried out in latvia and proposals for the improvements for noise management processes at a national level. the study was based on: _ content analysis of literature and documentation. literature and documentation review was done using the qualitative content analysis method. content analysis of the documentation was carried out in order to gather information on noise management, impacting factors, approaches, theories, tools, etc. for this purpose information from scientific articles, conference materials, legislation, and planning documentation, books, reports and other sources were compiled. _ the comparative analysis of environmental noise institutional models of european countries. this included preparation of institutional schemes and institutional function descriptions for each country chosen. this allowed mutual comparison of institutional system elements and functions. institutional models were chosen on the premise that public policy is a product of the public institutions, which are responsible for its implementation. as the public policy applies to all members of the society, the institutional structure can have an important impact on the environmental noise policy. the institutional framework of several countries – slovenia, slovakia, lithuania, poland, estonia, and latvia were compared and analyzed. these countries were chosen for the study because of their accession time to eu and in order to see how the recently formed noise management institutional systems are constructed and what noise management activities have been introduced in them. the example of those countries have is chosen in order to see how these countries develop and improve their noise management at a fast speed rate in order to aim towards the management level that the “older” eu countries have (i.e., countries in which noise management started to develop in previous century). this comparison is based on the analysis of institutional and functional differences between those countries. the chosen countries, in general, have similar noise sources and their structure apart from railway network technical characteristics (1435mm or1524mm gauge) and the typical industrial environment in poland. _ content analysis of environmental noise legislation practice in three baltic countries – latvia, lithuania and estonia. it included the analysis of main legislative acts dealing with sectorial asmethods and methodology 203 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 pects, i.e. environmental noise, its management, control, as well as cross sectorial laws on transport, health and construction. this shows how the requirements of the european commission parliament and council directive 2002/49/ec (hereinafter the directive) on environmental noise assessment and management are taken into account and how the national noise management systems are constructed in order to take into account the local specifics and reach the general aim of the directive – to protect society against noise. deeper analysis exactly of the baltic states’ legislation is done because they have similar social and economic background. _ data analysis from other researches carried out by authors on the practical implementation of environmental noise policy and legislation in latvia and policy planning documentation analysis. these data were gathered in three latvian case studies performed for the analysis of industrial, road and train noise management issues from the perspectives of inhabitants, environmental noise source managers, and public institutions, and through policy documentation content analysis. these case studies are not described in this article; however, the suggestions on environmental noise management in latvia is based on the conclusions of those researches. results and discussion analysis of environmental noise legislation in eu one of the most important factors influencing environmental noise management is legislation and policy framework, which can be viewed as internal, i.e., national, and external, i.e., the one developed by state unions (eu, for example). the policy framework is the basis for noise management. without proper policy and legislative framework, it would be difficult to develop and operate noise management programs actively or successfully and the prevention of problems in the environment which can be caused by the insufficient coordination of sectoral policies or local resolutions. (cvetković & praščević, 2006; praščević et al., 2013). at the level of eu, the legislation on noise control is developed based on the analysis of the issues identified in the member states, scientific data on the impacts and possible solutions. member states have to transpose these regulations into their national legislation and implement them. the main measures and legislative initiative for the mitigation of environmental noise pollution is the directive which requires actions for the environmental noise prevention and reduction, development of strategic noise maps for major roads, railways, airports as well as urban agglomerations, in order to gather information on the noise level in a coordinated way, summarizing environmental pollution impacts from several noise sources, as well development of noise action plans. these action plans must include information on measures for the reduction of noise where it might be harmful and/or maintaining acoustical quality in quiet areas that should also be defined by the member states. thus the directive helps to implement the longterm eu pollution management strategy, which aims at reducing harmful health effects and number of people affected by noise in the longer term and provides a framework for developing existing environmental noise policy at national levels. to reach the goal, also other sectorial and cross-sectorial legislative acts and policy documents are prepared, including ones on transport and environmental impact assessment (hereinafter – eia) for development activities. to implement the eu regulations, countries have to develop subordinate legislation, i.e., to adopt the requirements, detect technical methods, set maximum permitted noise levels, and to prepare noise maps and action plans. however, each state can have its framework, strategy, and measures how to transpose the requirements at the national level. different countries use different noise policy approaches with varying results, and there is no internationally-coordinated global noise policy to reduce the wide-spread effects (institute of noise control engineering, 2006). therefore best practice adaptation is one of the most essential and useful tools for ensuring improvements in noise management. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 204 factors as social behavior due to cultural differences, meteorological conditions, legislative backgrounds etc. determine different legislative approaches in the transposition of the directive regulations (lictra & ascari, 2015). the directive also does not set the single approach for setting the environmental noise levels, therefore, member states, taking into account above mentioned factors along with other factors such as territorial planning paradigms and the particular tailormade evaluation on noise sources choose their own approach to the legislation. when comparing the environmental noise levels in different eu member states, three main concepts on how the environmental noise levels can be identified first, maximum noise levels are set for a particular territorial zone according to a spatial plan, for example, for multi-storey building, industrial areas or hospital zones different noise limits can be set. this concept is used in latvia, lithuania, and other countries. second, maximum noise levels are source dependent. this means that different noise levels can be set for noise coming from transportation or industrial sites. the particular paradigm is used in estonia, spain, and other countries. the third alternative is the generic approach that refuses noise limits, but sets an ambitious policy aim on the matter, for example, to reduce the amount of noise affected inhabitants. this approach is used, for instance, in finland that has a goal of 20% reduction of daytime noise over 55 db(a) compared to 2003. every approach has its advantages, and every country should have the tailor-made way of determination of noise limits so that they suit the actual situation best, most probably, based on the country’s economical and urban structures. the first approach is mostly based on urban structures (population and economic activity concentration areas) and focuses of the possible vulnerability of the dwellers of residential parts of the area. this is well shown by the research of king et al. (2012) that proves that noise disturbance significantly impacts areas with a high population density and affects the inhabitants in their daily life, and that in residential areas noise levels tend to be lower than in mixed used areas. the second approach could be based on the correlation between annoyance and noise sources (hume et al., 2012; perron et al., 2016) and foresees protection of all inhabitants. the third approach is usually used for environmentally aware countries that are more ambitious in reaching sustainability goals. this approach requires very well coordination and impact assessment on the case-to-case basis. the best practice seen in eu countries is noise limit value reduction, for example, that is planned in cyprus, however, in some countries, particularly in latvia, maximum permitted environmental noise values have been raised. in order to compare environmental noise legislation in details, the law in latvia, lithuania, and estonia was compared. the comparison on the legislative aspects is given in table 1. as it can be seen in table 1, all of the analyzed countries have transposed the requirements of the directive in their table 1 comparison of latvian, lithuanian and estonian noise management legislative framework lithuania latvia estonia its legislation contains the most detailed strategic noise management description: _ it clearly provides noise management principles and tools, defines indicators for evaluation, describes the responsibilities and tasks for each institution involved, and requires annual reports on noise management. _ lithuania’s legislation contains the most detailed information on control procedures. _ the legislation has the most detailed description on procedural methods related to the implementation of the directive. _ the legislation lacks a particular description, which defines the cooperation among the different noise managing institutions in charge of controlling. _ the legislation is adequately developed in that it has all the necessary information about noise management. _ additionally, estonia has developed noise management guidelines on how to implement legislation in practice. source: authors’. 205 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 national legislative acts, but the each state has chosen different approach on drafting the legislation. for example, lithuania legislation provides a detailed information for noise action implementation and policy monitoring afterward such as tasks, indicators, and evaluation mechanisms. latvian legislative acts provide a detailed procedural scheme, but estonians have prepared noise management guidelines on how to implement legislation in practice (i.e. for noise evaluation and control) which have been sent to 150 municipalities. estonian practice on guidelines could be considered to be a best practice that should be implemented in other states to specify the instruments of noise policy. environmental noise institutional framework in eu the directive requires states to assign responsibility to the relevant authorities for the required implementation of the directive, including the authorities which ensure the data collection, development of noise maps and action plans, as well as their approval. however, each country needs an institutional system for implementing not only the requirements of the directive but also to ensure comprehensive environmental noise management in its different aspects. they include legislation and policy planning and implementation and its control. the research on institutional systems of slovenia, slovakia, lithuania, poland, estonia, and latvia allowed detecting five leading responsible institutions for noise management. these are ministries (usually – ministry of health or ministry on environmental), agencies (usually – health inspectorate or environmental inspectorate), municipalities, police (including municipal police), as well as noise consulting board or noise consulting board in lithuania and slovakia. ministries are responsible for the development of noise management legislation and policy. agencies’ tasks include control of noise limits in large infrastructure objects and dissemination of noise related information, but municipalities are responsible for the regulation of community activities and noise control in objects of municipal level significance. violation control of community noise issues is usually devoted for police. but complementary recommendations on noise issues are given by noise consulting board. this information on leading institutions allows creating a common noise management institutional framework for new eu member states. it consists of two levels – state level with ministry and agency sublevels, and municipal level. noise consulting board is established only in lithuania and slovakia, but it could be a useful institutional component also in other countries if they lack noise expert networks. noise consulting board was recognized as a useful instrument and can be advertised as a good example of inter-institutional collaboration. noise consulting board could deal with the awareness raising on noise pollution issues and possible solutions in public and on the political agenda (organize press conferences, debates, etc.), and to provide advises and proposals on technical matters. the members of the noise consulting board should be the responsible ministries, municipalities, and representatives of scientific, medical, acoustical and other public institutions that work for noise prevention. environmental noise policy’s practical implementation – the example of latvia in order to investigate on how the environmental noise policy is practically implemented in eu, a detailed research in latvia was done. the research included documentation studies and several case studies. the data and information gathered in the case studies that were explicitly analyzed in other scientific articles, showed insufficiently developed understanding of noise issues for both inhabitants and governors that causes lack of community-based environmental noise management and low noise management priority at both local and national levels, and leads to high level of subjective noise perception. see table 2. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 206 table 2 main problems of environmental noise management in latvia problem group problem identified lack of community-based environmental noise management the public is not fully involved and its opinion on a potential source of noise is not taken into account during the planning, construction and operation processes. communication problems between municipalities and residents. high impact of subjective noise perception aspects development planning issues; communication problems; lack of information about noise, lack of analysis and data on national problems. low understanding of noise issues and low policy priority/ policy planning problems often only the mandatory tasks are fulfilled; low application of noise management instruments; avoiding the usage of priority noise management measures; uncooperative, unwelcoming attitude; noise issues are usually treated as a low priority. policy implementation problems often only the mandatory tasks are fulfilled; low application of noise management instruments; avoiding the usage of priority noise management measures; problems in implementation mechanisms; weak control; lack of guidelines, educational tools. differences between large and small size municipalities small municipalities tend to act with less initiative and not always solve the noise issues in optimal ways. source: authors’. in order to see how the situation could be improved in a coordinated, sustainable and integrative way, national level functions and processes at ministry and agency sublevel in latvia were analyzed together with the conclusions of the case studies and legislative and institutional practice from other eu countries. national level processes include six main environmental noise management processes that correspond to the primary functions of both state level sublevels – the ministry and agency sublevel. the first three processes describe the ministries’ duties, but the rest – the agency sublevel. those processes are: _ development of legislation in the field of environmental noise. according to the studies carried out, the existing regulations do not specifically promote or oblige the application of scientific and best practice based approaches. this is justified by several examples, such as increasing of maximum permissible noise levels or noise evaluation methods set in the national legislation. in order to improve the quality of the legislation, it would be necessary to provide officials with an access to scientific databases, to raise institutional capacity and to highlight the need of education and consultancy services. the latest factor can be solved through the creation and involvement of a new consulting body – a noise consulting board that could provide expert advice in specific and ambiguous cases. in this way also best practice from other countries can be transferred and implemented. the research also revealed the need of adding a new procedural step after the enactment of the applicable legal acts, i.e., for the development of methodological tools (such as guidelines) for involved parties, as it is already done in estonia. these materials should explain the regulation set in the legislative act and assist in the implementation of regulatory requirements. the guidelines should be written as simplified explanations and descriptions of the applicable processes. 207 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 _ development of environmental noise policy. environmental noise policy development process is done in accordance with the existing legislation. however, similarly, it would be necessary to raise knowledge and competence on the issue of those state officials who are responsible for develop the respective policy planning documents as well as to raise the public’s awareness on noise-related environmental issues. whenever noise related aspects are integrated into policy planning documents, information on the planned measures for noise abatement or prevention should be provided and include information on the funding sources, time frame, as well as indicators for the assessment of the progress in the context of this document. it is also necessary to involve the public fully and truly in the planning document’s public review process, and therefore it is proposed that planning documents should be reviewed also by the noise consulting board that could give competent opinion regarding noise aspects. besides that, the planning document should be monitored and assessed regularly and the government informed. _ development of environmental noise mapping and action plans. the process of developing environmental noise mapping and action plans is done in accordance with the legislation. however, there are some shortcomings in the process, which is not only due to failure to comply with the set time-frame as well as lack of data and ineffective adaptation of methods, but mostly with the implementation of the developed strategies. this is because both – the eu and the national levels do not apply penalties in case of failure to implement the plan, as well as due to the limited possibilities to get funding for noise abatement projects. there is a need to link the noise action plans with other planning documents and budgetary documents to ensure the actions that are foreseen are actually implemented. there are also no guidelines for mapping and action planning that could save the resources of the institutions and ensure the use of streamlined approaches. according to the practice in lithuania, the noise consulting board should be involved in the assessment of the noise maps and action plans by giving its recommendations and annually assessing the progress of the implementation of action plans, and giving the report and recommendations. _ environmental noise control and complaints management. the investigation on complaints and noise level controls by the responsible institution state health inspection is currently done only when receiving complaints. however, it would be advisable to have annual inspection plans for the largest or new noise emitting objects as well as to ensure permanent noise monitoring in noise sensitive areas such as hospitals, etc. or to request the developer to submit certified noise measurement data. in addition, according to the suggestions for the eia process improvements, the state health inspection should carry out environmental noise assessment follow-up checks when the object subjected to the eia procedure is commissioned and operating. the follow-up check should be done during the warranty period in order to ask the constructor to solve the issue in case the noise level is exceeded. _ data and information collection, analysis, and dissemination. the collection, compilation, analysis, and dissemination of the data and information on environmental noise are necessary to ensure timely and representative information on the situation in the country. availability of data is a precondition for making a more accurate assessment of noise and its effects to develop appropriate and adjusted legislation, planning documents, guidelines, etc. not only data and information should be gathered according to the eu regulatory requirements for data collection and reporting, but also research on environmental noise and public health issues should be carried out. so far studies on noise and its effects on the society have rarely been made by the responsible noise managing or scientific institutions in the latvia. in case of establishing the noise consulting board, it should review, collect the data and studies and give proposals for researches. _ eia. during the eia process, it is necessary to ensure that the process is performed in accordance e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 208 with the applicable regulations. for objects that can potentially cause noise pollution and are close to residential or noise sensitive, or quiet areas, the eia program must include noise assessment, including noise mapping. according to the results of a case study of saulkrasti bypass construction and the associated noise annoyance due to subjective aspects of noise perception, construction board must inform the state health inspectorate or municipality about the start of the object’s operation. during the object’s warranty period, the state health inspectorate or local municipality should ensure noise assessment and control in accordance with the process of noise control and complaints management. this would help control the noise level and evaluate the applied measures, and ensure that, if the noise level is exceeded or the measures do not correspond to the eia report, the construction warranty shall be used for the anti-noise measures. noise is an environmental pollutant that has effects on human well-being (including health and economic aspects), and that has to be managed in the sustainable and comprehensive way at different management levels. when analyzing environmental noise institutional system in eu, it can be seen that the noise consulting board and municipal inspectorate are good practice examples, which could be a useful noise institutional model component for other countries. also, guidelines, indicator system and national policy with an aim to reduce the number of affected inhabitants, is best practice. noise management deficiencies in latvia are mainly due to the lack of community-based activities regarding noise management, high impact of subjective noise perception, low understanding of issues and low priority for implementation of the noise management policies. noise management process improvements are related to the development of new intermediate body – noise consulting board -, development of methodological tools, extending noise control as well as adding new procedural steps in the processes of eia, development planning, object construction, noise mapping and action planning, development of legislation and others. noise is an environmental pollutant that has effects on human wellbeing (incl. health and economic aspects), and that has to be managed in sustainable and comprehensive way at different management levels. conclusions references lekaviciute, j., argalasova-sobotova l. 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(2017). public health implications of environmental noise associated with unconventional oil and gas development. the science of the total, 580, 448-456. https://doi.org/10.1016/j.scitotenv.2016.11.118 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 210 krukle zanda msc env. university of latvia, ministry of environmental protection and regional development of latvia fields of research interests environmental policy address peldu street 25, riga, latvia, tel. +371 66016713 bendere ruta doc., dr. phys institute of physical engineering fields of research interests waste and environmental pollution address aizkraukles 21, riga, lv-1006, latvia, tel. +371 29171599 about the authors european integration studies 2011.indd 32 issn 1822–8402 european integration studies. 2011. no 5 regional innovation policy: from the development of innovation activities in the non-metropolitan regions of baltic sea region to the innovation policy memorandum vygintas grinis, ligita valalyte kaunas university of technology, institute of europe this paper aims to answer the question “what changes are taking place in the field of innovation policy and why?” generally the concept of the regional innovation policy is directly related to the actors of the regional innovation system, which are created with an explicit goal to develop, diffuse and utilise innovations (even though systems may be modified in such a direction by policy or strategy). analyzing the regional innovation policy, it is essential to examine the issue of the regional innovation system, because the goals of the regional innovation policy is shaped by using initiatives of actors of regional innovation system, which aims to involve every actors of regional innovation system to build an open and dynamic ecosystem. the purpose of this paper is threefold: (1) to expose the characteristics of regional innovation policy; (2) to reveal the changes in the innovation system; (3) to expose the essence of concept of innovation policy memorandum of baltic sea region and perspectives in the kaunas region. the regional innovation system is changing by the regional innovation environment, which is focused on development of entrepreneurial, open and dynamic ecosystems. in summary, the key perspectives of kaunas region is to adapt aspects of innovation policy in the memorandum and to improve access of actors of kaunas regional innovation system to develop activities with international partners in the baltic sea region. keywords: innovation policy, regional innovation system, regional innovation entvironment, non-metropolitan regions, baltic sea region. introduction globalisation and growing economic integration in europe require the actors of innovation system to adjust to the new competitive conditions on the european and world market. contemporary day economy is no longer based on raw materials or labour, but on knowledge. innovations are the most important tool to build competitive advantage, thus, forming the basis for not only the prosperity of the companies but also of the entire region. during the last two decades the innovation has become a key to sustainable growth and economic development at the region and country level, having impact on the country competitiveness in global economy (j. fagerberg, 2006) and recognized by the country level policy makers (i. savitskaya, 2009). pure r&d is not anymore considered to be sufficient for economic growth – new ideas do not increase employment or income, however, new ideas commercialised (that is innovations) have economic and social impact. country-wise decisions are modified and implemented in regions, where rather different approaches are revealed due to characteristics and variety of regional infrastructures around the country (i. savitskaya, 2009). the topic of regional innovation policy is analyzed by both, lithuanian and foreign authors, widely. innovation in society and more specifically innovation systems have been studied at various levels and with various scopes. these include e. g. national innovation systems (b. a. lundvall, 1992; r. r. nelson, 1993), regional innovation systems (p. cooke et al., 1997, j. howells, 1999), sector innovation systems (f. malerba, 2002), innovative milieus (r. camagni 1991), and technological systems (b. carlsson, 1995). in the core of innovation system literature is the view of innovation as an interactive and evolutionary process. innovation is not seen as a single and separate event but as a process in which various organisational actors innovate in interaction (c. edquist, 2005). a system of innovation is constituted by elements and relationships which interact in the production, diffusion and use of new knowledge (b. a. lundvall 1992, p. 2). this knowledge is exploited for practical, including commercial use (p. cooke et al., 1997, p. 478). thus the knowledge created, diffused and used is not always in the form of commercial products or services but can have practical and social effects. more specifically knowledge may take the form of new ideas and concepts, new skills or competencies, or technological and organisational advances (g. schienstock, t. hämäläinen 2001, p. 78). an innovation system is a social and dynamic system (b. a. lundvall 1992, p. 2). the system is social because a central activity in the system, learning, is a social activity. innovation in the system involves positive feedback and reproduction which makes it a dynamic system. thus innovation is not a linear but a recursive process and the system is recursive by nature (g. schienstock, t. hämäläinen 2001, p. 78). an assumption can be made that analyzed topic is multidisciplinary, because it is an object of interest of the researchers of social and technical sciences. rapid globalization processes and the creation of knowledge society have a new weight on information and innovations (especially technical). technology progress, collaboration between science and business is one of the most significant factors on the economical growth at the moment. scientific problem: what are the most important initiatives forming the abstract issn 1822–8402 european integration studies. 2011. no 5 33 innovation policy in kaunas region? what perspectives could be supposed? novelty of the problem is revealed through the development of innovation activities, which determine structural changes, competitive advantage and economic growth in kaunas region.\ research aim – to highlight characteristics of regional innovation policy and innovation system in the kaunas region, in purpose evaluating the perspectives. research tasks: 1. to expose the characteristics of regional innovation policy; 2. to reveal the changes in the innovation system; 3. to expose the essence of concept of innovation policy memorandum of baltic sea region and perspectives in the kaunas region. research methods: analysis of the eu legal acts and specific literature, and contemplation of the perspectives of initiatives of the kaunas region. the characteristics of regional innovation policy innovation policy is understood as an end-of-pipe activity, channelling pre-stage science and technology policy measures to market-ready solutions by a variety of information, transfer, networking or marketing activities (f. meyer-krahmer, 1989: 1). the public stimulation of collaboration between sciences, education institutes and enterprises for the sake of bringing technological or organizational solutions to a pre-market stage is a classical instrument of innovation policy. since innovation does not only comprise technological aspects, but social and organizational inventions as well, innovation policy in a broader understanding aims at the creation of favourable conditions for innovative activities than only at the establishment of new technological paradigms or scientific breakthroughs (f. meyer-krahmer, 1997). according to l. k. williams (2001), when discussing the scope and impacts of regional innovation policy, it is necessary to raise the question about the level of “region” that defines the territorial responsibility of ‘regional’ policy makers. this is not only related to the common definitions of regions, e.g. in a way of an administrative, functional or homogenous region. k. ohmae (1995) notes, that a “region” could be a metropolitan area, a non metropolitan area, a county or a federal state. depending which region is meant, political powers, budgetary responsibilities, experiences and responsibilities vary to a great extent. multi-level governance (a. benz, b. eberlein, 2001; b. kohler-koch 1996; g. marks et al. 1996) describes the fact that due to the different policy levels dealing with the region as a platform for policy implementation, both top-down and bottom-up policy making processes shape “regional” policy so that political authority in regions is shared by a variety of supranational, national, interregional and intraregional authorities (e. uyarra et al. 2002). it is needed to notice, that the two difficulties can be attributed to the following aspects: • the changing role of regions in european science, technology and innovation policy, triggered by the era concept (h. capron 2006; european commission, 2001); • the devolution of political powers to the regional level in formerly centralized countries by which regional authorities are increasingly involved in various policy mechanisms (el ouardighi et al., 2006). • the emergence of new actors in regions which are both target groups of public policy measures and stakeholders by which they are able to intervene in policy making processes (s. kuhlmann, 2001). according to k. koschatzky (2009) the new challenge for regional policy makers is that regional development is more and more affected by different types of policies and by different political levels. although a real devolution of powers did not take place in all european countries so far, the decentralization of certain responsibilities is a major characteristic of recent developments. it can be observed that multi-actor and multilevel governance structures emerge across europe. usually, there is no dominant player in nations and regions, but the policy arena consists of a variety of political, corporate, social and scientific bodies (s. kuhlmann, 2001: 961). policy making does not take place in the form of top-down decision making, but is a result of networking and bargaining between different societal actors, interest coalitions and systems. it necessitates effective policy learning mechanisms which allow policy makers to learn from past experiences, ongoing implementation processes and the assessment of future trends (e. uyarra, s. n. haarich, 2002). according to k. koschatzky (2009), with regard to the level of ‘region’ for which conclusions about its policy making abilities should be drawn, different qualifications and objectives of its policy makers can be found. the lower the hierarchical level, the more regional policy makers are routed in routines of regional infrastructural policy and planning. compared to “brick and mortar” infrastructural development, innovation policy displays other characteristics. the uncertainty by which innovation processes are characterised (c. freeman, l. soete, 1997) holds true for innovation policy as well. contrary to the focus on infrastructure development of classical regional policy, it is by far more difficult to attain intended results in the promotion of an innovation friendly environment or by providing incentives for network formation. results are not clearly visible within a short-term perspective and cannot be pre-sented to the public like the inauguration of a building or a road. due to different approaches and the non-linearity of policy input and the intended output, a high degree of experimentalism in policy making is needed (k. koschatzky 2009). the other aspect is related to the specific character of regional innovation policies. whether a regional innovation policy could be effective has to be debated. many sceptical views about the effectiveness of this kind of policy are expressed in the literature (e. malecki, 1997). if regional innovation policy is able to shape and influence regional development paths is a matter of tailor-made policy concepts taking the specific problem configurations into account, but also a matter of the local or regional context. the boundaries of the specific territory in which the measures should be effective must not coincide with overall innovation regimes and thus restrict intended impacts (j. g. lambooy, r. a. boschma, 2001). changes in the innovation system science, technology and innovation policies are experiencing numerous developments and changes in issn 1822–8402 european integration studies. 2011. no 5 34 their orientation and design, which demand corresponding adaptation of policy evaluation methods and practices. according to h. etzkowitz, l. leydesdorff (2000), innovation systems are evolving towards more complex socially distributed structures of knowledge production activities, involving an increasing intertwining between science and technology, greater multidisciplinarity and specialization in technological knowledge bases and a diversity of knowledge generating organizations. these changes require new forms of intervention, based on adaptability, policy learning and evolution, systemic coordination and the enhancement of firms & innovative capabilities. moreover, there is a regained interest in sub-national (regional and local) levels of accumulation of innovative capabilities. indeed, regional innovation policies are becoming more and more important, which in turn represents an important opportunity to be seized specially by less developed regions in narrowing the technology gap with more advanced ones (s. n. haarich, e. elvira, 2002). innovation and technology development are the result of a complex set of relationships among actors in the system, which includes enterprises, universities and government research institutes (h. etzkowitz, l. leydesdorff, 2000). for policy-makers, an understanding of the national innovation system can help identify leverage points for enhancing innovative performance and overall competitiveness. it can assist in pinpointing mismatches within the system, both among institutions and in relation to government policies, which can thwart technology development and innovation. policies which seek to improve networking among the actors and institutions in the system and which aim at enhancing the innovative capacity of firms, particularly their ability to identify and absorb technologies, are most valuable in this context (oecd, 1997). enterprises public authorities/ government educational and research institutes c h a m b e r s o f c o m m e r c e , t r a d e u n i o n s d e v e l o p m e n t s c o n t r a c t s technological institutes, science and technology parks figure 1. the main actors of kaunas innovation system (l. leydesdorff, h. etzkowitz 1996; h. etzkowitz, l. leydesdorff 1997 modifyed by v. grinis, l. valalyte, 2011) according to a. p. cornett (2006), within the framework of the above sketched triple helix, special attention has to be on dissemination and in particular the ‘broker function’ of the advisory system as a ‘go between’ between the companies and the knowledge sector. a similar role is played by chambers and professional organizations (interest organizations) with regard to the business community and the public authorities on the national and regional/local level. also within the third leg of the triple helix new modes of relations are appearing, i.e. development contract between universities and the government aiming to link funding to the fulfilment of negotiated performance benchmarks. with regard to the second driver addressed in this section it is important to stress that the above sketched system has to modified to target the special needs of start-up companies or entrepreneurs (l. soete, 2007). a core element in the regional policy aspect is the role of innovation as an instrument in regional policy. innovation is often considered to be one of the main drivers of regional growth. in this perspective, partnership between the private sector and the public sector is of crucial importance. as mentioned innovations can take place in existing firms or through entrepreneurial activities in independent start up’s or as entrepreneurship within the framework of an existing company (l. dahlander, d. m. gann, 2010). in both cases important actors and participants are enterprises, educationaland research institutions and public authorities’ as well advisory organizations, and have to be in the partnership. from an organizational point of view we have to distinguish between public sector and private sector institutions (b. s. tether, a. tajar, 2008). in a real world context the distinction is blurred, but if we include a legal dimension the core of the public sector is defined as ‘authoritative allocation of values or rule setting’. this is the lower right corner of the triple helix, see figures 1. the base line of the figure represents a functional distinction between regulation and research and dissemination (education) (a. p. cornett, 2006). ch. oughton, m. landabaso, k. morgan (2004) identified the regional innovation paradox. the main cause of the regional innovation paradox is not primarily the availability of public funds in lagging regions. its explanation lies in the nature of the regional innovation system and the institutional characteristics of these regions. in particular firms in lagging regions often articulate little demand for r&d and other innovation inputs and tend to lack a tradition of cooperation and trust either amongst themselves or with regional innovation actors, such as universities. enterprises do not demand innovation ‘inputs’ or services. at the same time, the regional research and technological infrastructure is not embedded in the regional economy, and therefore suppliers of innovation services (technology, training/education, venture capital) are unable to identify the innovation needs and capabilities of firms in the regional economy. thus, there is a lack of integration between regional supply (of innovation services) and demand for innovation (inputs/services). other words, the regional innovation system is fragmented (see figure 2) and lacks either the necessary interfaces and co-operation mechanisms for the supply of innovation inputs to match firms’ demand, or the appropriate conditions for the exploitation of synergies and co-operation among regional innovation actors which could eventually fill gaps and avoid duplications in service provision (ch. oughton, m. landabaso, k. morgan, 2004). given low levels of investment in innovation inputs and the complementarity between private and public expenditure on innovation activities such as r&d, absorption of public issn 1822–8402 european integration studies. 2011. no 5 35 funds earmarked for r&d and innovation activity will also be low. as a result regions frequently get trapped in a vicious circle of little private sector demand and poor public funding supply which is diffi cult to break out of from within the system. the policy conclusions of the innovation systems approach suggest that what is required is institutional change (lundvall, 1999). enterprises public authorities/ government educational and research institutes c h a m b e r s o f c o m m e r c e , t r a d e u n i o n s d e v e l o p m e n t s c o n t r a c t s technological institutes, science and technology parks sectoral associations business services kaunas chamber of commerce industry and crafts technology centers regional government universities smes sme sme sme sme sme sme sme sme large firms large firms large firms figure 2. regional innovation system is fragmented (ch. oughton, m. landabaso, k. morgan (2004) modifi ed by v. grinis, l. valalyte, 2011) until recently, the research, technology and innovation policies of european countries clearly refl ected the profi les of their national (and regional) “innovation systems”, understood as the various “landscapes” of institutions, corporate actors and processes contributing to industrial and societal innovation (s. kuhlmann, 2001). the analysis of innovation systems and innovation policy-making aspects showed that the necessary changes to the rapidly changing market factors. the question is what changes are needed in order to achieve the desired effect of a regional innovation system? m. sotarauta, a. eriksson, m. caniels, p. cooke, e. uyarra, m. sotarauta, j. wallin (2010) and v. harmaakorpi (2006) argue that, given its global market developments, there is a need to change the innovation system concept as changing expectations of actors from each other in this system. the solution is the transition from the regional innovation system to the regional innovation environment (see figure 3). figure 3. regional innovation environment (l. soete (2007) modifi ed by v. grinis, l. valalyte, 2011) in summary, the two schemes (figure 2 and figure 3) could be concluded that innovation is understood as a process of combination of new and existing knowledge. this allows suggesting that the inter-reaction is important because innovative knowledge comes from various actors and institutions. the main differences between regional innovation system and regional innovation environment could be highlight according to the following aspects: institutional ris entrepreneurial rie research and development dynamic; based on continuous cycle of emerging new businesses and ventures (and dying businesses) public to public relationships vcs play a big role; risk capital fuelling the system universities as “knowledge machines” market based innovation services (e.g. entrepreneurial public bodies, private kibs) technological orientation on innovation universities focusing on “big issues”, not to the problem solving aims at radical science based innovation; still typical innovations incremental innovations orientation on business and market innovation; technology as enabler key organizations: science parks, technology centres (as brokers), intermediary organizations public interventions at the early stage of innovation processes (“development platforms”) metaphors: ”bureaucratic system”, ”machine”, ”top down” metaphors: ”ecosystem”, ”jungle”, ”bottom-up” the essence of concept of innovation policy memorandum of baltic sea region and perspectives in the kaunas region kaunas regional innovation policy is formulated according to the formed direction on the national level. one of the main guidelines for the formation of regional innovation policy in the lithuanian is the innovation strategy 2010 – 2020. this strategy is central to the guidelines outlined in innovation policy making in order to build a creative society and create the conditions for the development of entrepreneurship and innovation. in accordance with the principles of the strategy the actors of kaunas regional innovation system, implementing initiatives to contribute to that goal, carrying out activities designed to accelerate lithuania’s integration into the global market (“lithuania without borders”), to promote business networking and joining international innovation networks; to participate in the implementation of international initiatives (strategy for the baltic sea region, knowledge and innovation communities created by european institute of innovation and technology, activities of european space agency and others); to educate a creative and innovative society; to promote innovation oriented towards demand and consumers’ needs and to implement a systematic approach to innovation. issn 1822–8402 european integration studies. 2011. no 5 36 in view of the targets of the innovation system, the actors of kaunas innovation system with foreign partners are implementing a project for the innovation policy making. one of the major results of the project of baltic sea region programme is prepared for innovation policy decision makers the memorandum of understanding, which is aimed at convergence of innovation policy in the baltic sea region. this memorandum is signed by project partners from 9 different regions in 6 member countries. the memorandum of understanding presents recommendations for decision makers at the regional, national and eu-level regarding the promotion of innovation and international collaboration. the primary objective of the memorandum of understanding (mou) is to raise awareness of regional decision makers on the importance of regional innovation policy making for non-metropolitan areas and of the initiative, who are in the end responsible for supporting the development and competitiveness of their regions. the memorandum provides decision makers with recommendations and guidelines for regional innovation policy and innovation support in their respective regions as well as in all non-metropolitan areas in the baltic sea region. the memorandum (memorandum of understanding on the development of innovation activities in the non-metropolitan regions in the baltic sea region, 2011) will guide international cooperation and innovation support activities and give recommendations on efficient innovation promotion: 1. developing an innovation policy framework that takes into account the needs of the non-metropolitan regions. in national policies the roles of the metropoles on one hand and peripheral regions on the other hand have been emphasised. other non-metropolitan regions with often strong industry base need to have their role strengthened and bsr cooperation provides a good platform for this. 2. a long term commitment to secure a consistent and efficient innovation policy implementation is needed. in many areas within bsr there is a need for a more consistent long-term innovation policy strategies in the regions, the tools and resources to implement suffer from short term funding and changing politics. 3. strengthening the regional dimension of innovation policy to cater for the region specific assets and opportunities. there are many differences between regions in their industrial structure, r&d and technology provision, policy initiatives, business service provision, governance structures and the institutional framework. many of these features frame the policy opportunities but also provide unique assets that can be capitalised on. 4. securing the future human capital – young people as professionals and entrepreneurs. many nonmetropolitan regions suffer from demographic change and outmigration. especially the ‘brain-drain’ of young talented people poses a challenge for future knowledge based growth in these regions. through cooperation non-metropolitan regions aim to develop new measures to support young people is needed in innovation policy. 5. better support for new modes of innovation in the nonmetropolitan regions. innovation takes place in many ways. new modes of innovation, such as open innovation, user and demand driven innovation, organisational innovation and social innovation have become increasingly important and they need new and enhanced regional innovation policy measures. 6. developing a more diverse funding model for innovation policy in the non-metropolitan regions. public resource constraints and changes in the funding instruments pose challenges in financing innovation policy activities in the non-metropolitan regions in the future. a joint activity is needed to find new and develop existing funding models. 7. targeting innovation in the traditionally strong sectors. most innovation strategies target fast growing high-tech sectors. however, not all non-metropolitan regions have strong capabilities in these sectors. at the same time there are many growth opportunities by better supporting innovation in the traditionally strong sectors in manufacturing and services. bsr cooperation provides a good platform to develop and test policy measures that target these areas. 8. focus on innovation in the public and nongovernmental sectors. within the service sector, public services are a particularly huge area of economic activity in many regions. fast growth, low innovation intensity and fiscal challenges provide not only opportunities but also a need to develop public services in becoming both more efficient and user friendly. a specific emphasis should be put to the development of e-government initiatives and e-services, where bsr co-operation provides good opportunities to develop and test new innovations. 9. increased long-term commitment for interregional innovation policy cooperation in the bsr. bsr cooperation in innovation policy has proved to be useful for metropolitan and non-metropolitan regions alike. however, there are still many opportunities and advantages provided by cooperation, which have not yet been fully exploited. a long term commitment by the regional governments is needed to exploit these opportunities. this memorandum sets out the essential elements of innovation policy-making, focusing on international cooperation in the baltic sea region increases. there are currently held the strategic plan of the kaunas city 2012 2014, and the recommendations of this memorandum may be exercised in preparing this strategic plan. one of the major perspectives on the basis of this memorandum is significantly enhanced international cooperation in the baltic sea region. since this memorandum is considered as the basis for innovation policy in all regions of project partners (6 countries). conclusions • global competition and technological development have lead to a change in the success factors of developed economies. innovation has become an important determinant of the competitiveness and success of firms, regions and nations. if regional innovation policy is able to shape and influence regional development paths is a matter and policy issn 1822–8402 european integration studies. 2011. no 5 37 concepts, and local (regional) context. • until recently, the research, technology and innovation policies of european countries clearly reflected the profiles of their national (and regional) “innovation systems”, understood as the various “landscapes” of institutions, corporate actors and processes contributing to industrial and societal innovation. this situation is changing and causing changes in the innovation system. the regional innovation system is changing by the regional innovation environment which is focused on development of ecosystems which are entrepreneurial, open and dynamic. • the key perspectives of kaunas region is to adapt aspects of innovation policy in the memorandum is a real opportunity for conditions to improve access kaunas regional innovation system participants to develop activities with international partners in the baltic sea region. key assumptions for this cooperation is to promote joint innovation policy in the baltic sea region in areas such as better support for new modes of innovation in the nonmetropolitan regions, development a more diverse funding model for innovation policy in the non-metropolitan regions, targeting innovation in the traditionally strong sectors etc. references benz. a., eberlein b. 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(2007). from industrial to innovation policy// journal of industry, competition and trade. on-line: http://www.springerlink.com/content/w46p5l27g45666t8/ sotarauta m., eriksson a., caniels m., cooke p., uyarra e., sotarauta m., wallin j. (2010). regional innovation policy in transittion reflections on the change process in the skåne region// vinnova report. on-line: http:// web.me.com/markku.sotarauta/tiede/sotarauta_ homepage_e.html tether b. s., tajar a. beyond industry–university links: sourcing knowledge for innovation from consultants, private research organisations and the public sciencebase // research policy, volume 37, issue 9, october 2008, pages 1653-1654 uyarra e., haarich s.n. (2002). evaluation, foresight and participation as new elements for regional innovation policy practice: lessons from the regional innovation strategies (ris), paper presented at the ersa 2002 conference dortmund. dortmund. on-line: http:// www-sre.wu-wien.ac.at/ersa/ersaconfs/ersa02/cd-rom/ papers/099.pdf williams lk. (2001). the baltic sea region: forms and functions of regional cooperation. on-line: http:// www2.hu-berlin.de/ostseekolleg/virtual/online_pdf/ paper2.pdf the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 165 issn 1822–8402 european integration studies. 2011. no 5 the impact of regional and cohesion policy on the economic development of the eu inese vaidere university of latvia, faculty of economics and management abstract as the global financial and economic crisis hit the european union, no country was left unharmed. to this day, the member states share the burden of excessive foreign debt, inflation, budget deficit, high unemployment levels, shaken stability of the currency, and many more. multiple responses were introduced to these damaging effects, including adopting changes to the use of the globalisation adjustment fund, enabling a financial stability mechanism for the euro zone and introducing a number of micro-financing instruments, particularly to support smes. nevertheless, these have all been short-term actions, which will not suffice to ensure a long-term, sustainable economic growth of the european economies and maintain the eu’s position among global political and economic leaders. european leaders have adopted the europe 2020 strategy for economic growth, which addresses all key-areas of economic growth from innovations to employment and environment. yet, the greatest challenge to this goal remains regional cohesion namely, full economic and social convergence of the regions and member states of the european union. after thirty six years of a common regional policy and over twelve years since the creation of the cohesion policy, the remaining economic and social disparities within the union are striking. what is more, the distribution of cohesion financing, similarly to the common agricultural policy direct payments, continues to portray a significant weakness in the common objectives of fair competition and solidarity among member states. within the next multiannual financial framework of 2014-2020, regional and cohesion policy of the eu will have a fundamental importance in eliminating existing disparities among regions, providing for a sustainable economic growth, increasing the eu’s competitiveness and implementing the ambitious europe 2020 goals. it can therefore be considered as a key element in europe’s economic recovery. this paper provides an analytical examination of the goals, strategies and current trends in the regional and cohesion policy as a tool of economic growth of the european union. it provides a brief insight into the history, objectives and functioning of the policy in order to continue with analysis of its results and provide recommendations for improvement of the policy and increase its positive impact on the eu’s economic development. materials, statistics, working documents and analysis provided by eu and national institutions, as well as independent analysts have been used in the production of this paper. results and conclusion are presented in a descriptive, logically constructive manner of synthesis. more specifically, the paper concludes by stating that in order to achieve full convergence and be able to ensure sustainable economic recovery and growth throughout the eu, greater flexibility and sovereignty need to be employed in political decision-making and regulations on allocation of funds. to raise the positive effects on member states’ economies, equality must be ensured to attain the union’s strategic goals without harming the weakest member states’ economies and competitiveness. it is therefore essential that the convergence objective be formulated as the leading goal of the regional and cohesion policy. policies under the upcoming multiannual financial framework must be resultsoriented. the eu’s economic recovery, hence, also its regional and cohesion policy and allocation of funds, have to reflect the practice of fair competition, solidarity and equality. only then will the european union be able to fulfil its political and economic ambitions. key words: eu, regional policy, cohesion, europe 2020, recovery. introduction the european union (eu) is one of the richest parts of the world, comprising 27 member states (ms), 493 million citizens, a single market and – in a large part of it – a single currency. yet, great economic and social disparities continue to exist within the union’s 271 regions. for illustration – the eu’s wealthiest country luxembourg has a gdp per capita of eur 76.588 (2009 data), nearly ten times more than in the poorest and newest eu ms romania and bulgaria, whose gdp per capita the same year was eur 5468.28 and eur 4683.03 respectively. (the world bank, 2009) the eu’s regional and cohesion policy was created in order to stimulate economic and social integration of european regions and ms. this paper will analyse the relationship between the regional policy goals and cohesion funding allocated to evaluate the results achieved and find key elements for a more efficient regional policy of the eu. the central question of the article has therefore been how the regional and cohesion policy can be improved in order to provide tangible results and enhance convergence and economic development in the eu. in order to answer the set question, the author has used issn 1822–8402 european integration studies. 2011. no 5 166 comparative analysis of data, statistics and academic analysis available, to evaluate whether the policy has contributed to its primary goal reducing regional disparities in the eu and can be implemented to achieve the eu’s strategic goals for economic development and global competitiveness. conclusions have been drawn based on the methodology of inductive reasoning. regional policy explained regional differences in the eu were first addressed in the 1957 treaty of rome. (consolidated version of the 1957 eec treaty of rome) although the european social fund (esf) and the european agricultural guidance and guarantee fund (eaggf) already existed, the regional policy was initiated only with the creation of the european regional development fund (erdf) in 1975, following the eu’s first enlargement in 1973. (european commission. structural funds 20072013) the policy itself was eventually defined in the single european act in 1986, which provided guidelines to coordination of economic policies and the use of structural funds. in 1993, the treaty of maastricht initiated a major reform of the eu’s structural funds, integrating all existing structural measures into an overall strategy, and creating the cohesion fund. (treaty on european union, 1992) it is after the second general reform of structural funds in 1999, (the council of the european union, 1999) that the regional policy evolves into a wider cohesion policy, as it is often referred to today. the final changes to the regional policy were introduced by the treaty of lisbon, which defined the concept of territorial cohesion1 (treaty of lisbon, article 1-3(3) teu) and adopted, among other, changes to the legislative procedure, giving the european parliament (ep) legislative power in the community’s budget planning and adoption. (treaty of lisbon, article 177 theu) the treaty of lisbon updated most of the provisions on the current multiannual financial perspective defined in the interinstitutional agreement on budgetary discipline and sound financial management. (interinstitutional agreement, 2006) it has thus had a fundamental effect on the budget of the regional and cohesion policy, which accounted for eur 49.4 billion of the community budget in 2010 and eur 64.5 billion of the 2011 budget. (european commission. eu budget in detail. 2010) the extent of these changes was explicitly portrayed by the difficulties over the adoption of the eu budget for 2011. prior to the existing multiannual financing period, two objectives were set for the regional policy for 2000-2006: objective 1 on structural adjustment and convergence and objective 2 on economic development of areas with structural problems.2 given the growing regional disparities after the last two eu enlargements in 2004 and 2007, as well as the insufficient financing of the policy (staab a., 2008), its objectives were subsequently re-defined for the eu financial framework (ff) of 2007-2013. as defined in article 174 of 1 it extends beyond economic and social cohesion, as it concentrates on de-it extends beyond economic and social cohesion, as it concentrates on development based on geographic and sectoral specificities, intends to strengthen the cooperation between territories and consistency in eu policies to make the most efficient use of territorial assets. 2 objective 1 on structural adjustment and convergence of european re-objective 1 on structural adjustment and convergence of european regions whose gdp per capita is less than 75% of the union’s average; objective 2 economic development of areas with structural problems, including crisis-hit areas and those in industrial decline. the treaty of lisbon, those are convergence, competitiveness and employment, and european territorial cooperation. the rationale behind the regional policy’s convergence objective is to create growth-enhancing conditions in the least developed ms and regions, in order to secure regional cohesion and thus increase europe’s competitiveness in the world. in the eu-27, this objective applied to ms with gdp per capita less than 75 % of the community’s average a total of 18 countries, combining 84 regions and 154 million europeans. (european commission. key objectives. 2010) additionally, 16 more regions (16.4 million inhabitants) in the so-called “phasing-out” stage, where gdp per capita is slightly above the threshold of 75%, but below 90% of the union’s average, are also targeted by the objective of convergence through the erdf and a budget of eur 282.8 billion 81.9 % of the total financing for the cohesion policy for 2007-2013.3 the cohesion fund, which provides financing under the convergence objective specifically for projects related to transport, infrastructure and environment, is reserved uniquely for ms with a gnp per capita of 90% of the eu’s average. (the council of the european union, 2006) in the eu-27, a total of 168 regions (314 million inhabitants) are eligible for funding under the objective for regional competitiveness and employment, which aims to strengthen the eu’s global competitiveness and raise its employment levels. according to information provided by the european commission (ec), a budget of eur 55 billion (15.7% of the total cohesion budget) is provided for the objective. (european commission. structural funds 2007 2013) finally, the objective for european territorial cooperation aims to strengthen cross-border collaboration and support interregional exchange of experience.4 eur 8.7 billion (2.4% of the cohesion policy’s budget for the current ff) have been made available for this objective, eur 6.44 billion of those being concentrated for cross-border cooperation, eur 1.83 billion for transnational and eur 445 million for interregional cooperation. (ibid) funding for each of these objectives is allocated through erdf, which covers programmes involving general infrastructure, innovation, and investments, esf, which pays for vocational training and employment assistance projects, and the cohesion fund that covers projects related to environment, development of renewable energy, transport and infrastructure. provision of these funds is based on strict principles of additionality5, partnership6 and concentration7. an additional support instrument is the solidarity fund, which provides financial support to ms or regions suffering from a 3 the funding is further divided as follows eur 199.3 billion for the convergence regions, eur 14 billion for the “phasing-out” regions, and eur 69.5 billion for the cohesion fund, which covers the eu-15. (european commission. key objectives. 2010) a detailed explanation is offered by staab a., 2008. 4 population living in cross-border areas amounts up to 181.7 million (37.5 % of the total eu population). (european commission. structural funds 2007 2013. 2010; provisions and instruments of regional policy, 2010) 5 the funds must be used in addition to existing national initiatives. 6 all cohesion projects must be managed by the commission, regions and national governments. 7 funding must be allocated to programmes that comply with one of the principles of the regional policy. 167 major8 disaster. alike others, under this instrument, the ec’s support cannot exceed 50% of the funding. (the council of the european union, 2002) in practical terms, the regional policy thus invests in real economy: of a budget of eur 347 billion for the financing period of 2007-2013, eur 250 billion have been allocated to invest in four priority areas, defined in the renewed lisbon agenda for growth and jobs entitled europe 2020 (european commission, 2010b), i.e. employment, business, infrastructure, energy and research and innovation. (katsarova i., 2009) the regional policy a success? impact on economic development in the eu. economic theory shows that an intervention from outside can bring positive effects in the case of social exclusion taking place in the particular place, often due to failure of economic institutions or a lack of those. it is also clear that a concentration of consumers, workers and businesses in a defined area alongside formal and informal institutions – as in the case of the eu has the potential to produce externalities and increasing returns to scale. (barca, f. 2009; farole, t., rodríguez-pose, a., storper, m. 2009) in the eu, intervention can also be justified by the need for common management of the single market and common governance and political accountability system. finally, from a governance point of view, the eu is also better equipped to tackle challenges of cross-border interdependence, management of common eu budget resources and above all – the common development goals. meanwhile, tendencies in economic development around the world – both in industrialised and developing countries – demonstrate a high concentration of resources and income in selected agglomerations: 40% of the global gdp is produced in 10% of the world’s regions. in the eu, too, growth of metropolitan regions generally exceeds growth in rural regions. (oecd 2009; oecd 2006) from the economic perspective, this is an unhealthy trend – not only are a large number of areas lagging behind, the development in the exceeding ones is disturbed, as well, since economic growth and development also requires well-built networks, infrastructure, development elsewhere – in brief, strong regional cooperation, partners and contributors. (barca, f. 2009) development of selected agglomerations is thus endangering themselves as much as the economic growth of the entire area. what is more, analysis show that price increases, pollution, adverse effects on health, the environment and the quality of life, the rising costs of urban infrastructure, social tensions and high crime rate can all result from agglomeration and offset the social and economic benefits endangering healthy economic development of an area (rodríguez-pose, a., storper, m. 2006), which in turn makes the economy particularly vulnerable to external trends and globalisation. given all the reasons mentioned above, it can be concluded that there is a convincing case for a strong regional policy in the eu. it is often claimed that the regional and cohesion policy has lead to a considerable economic development, with ireland, which rose from 64% of gdp per capita of the eu’s average upon its accession in 1973 to 130% of the average in 2008, 8 a disaster being considered as “major” if it results in damage over 0.6% of gni or if it affects the majority of a region’s population to suffer from longterm economic and social problems. generally quoted (staab a., 2008) as the most pronounced example. on the other hand, greece, which joined the eu in 1983 with a gdp per capita of 62% and in 2003, had still not developed to above 63% of the eu’s average (ibid), proves the rather opposite case. indeed, much of the divide between the north and the south of the eu-15 and between the new and old ms has in fact increased, as evidenced by various authors.9 it should be noted, however, that the overall success of the policy is not that easily measured it lacks specific, defined criteria to measure cohesion. furthermore, economic progress is strongly affected by numerous external factors, such as the global economic and financial crisis, macro-economic policies, national wage levels, education, governance, structure of investments, etc. hence, the lack of consensus on the effects of the policy among its analysts. a comprehensive summary of how production in the recipient states is affected by cohesion expenditure programmes can be provided by the so-called ‘cumulative’ multiplier10. results fall into three groups, based on a ranking by their size11: high values (above 3.0), within which fall ireland (4.0), spain (3.3), czech republic (3.3) and malta (3.1); medium values (2.5 to 3.0) slovakia (2.8), greece (2.8), estonia (2.8), portugal (2.6) and poland (2.5); and low values (below 2.5) lithuania (2.4), hungary (2.4), slovenia (2.2), cyprus (2.2) and latvia (1.9). (bradley j., 2009) moreover, hermin simulations12, widely used by the ec, reveal a sustained higher demand for donor country exports, even when the recipient states, succeeding in economic development, technically become better equipped to compete with the donor states. with increasing convergence, the balance between net donors and net beneficiaries should even out. in reality, however, the donor states, particularly germany, france and italy, which have a high trade exposure to the beneficiary states, continue to benefit from the increased demand for imports within the recipient states. according to hermin simulations, improvements on the supply side of manufacturing and market services are likely to maintain a higher rate of import from the larger, more developed donor states. economic and social inequality has various consequences – it can disrupt economic and labour relations and raise uncertainty and growing stress levels in the society. (alesina, a., perotti, r. 1996; atkinson a.b., cantillon, b. marlier, e., nolan, b. 2007) the ec has recently reaffirmed its belief in a regional policy targeting the weakest regions by gdp per capita and the ms, whose gni per capita is lower than 90 % of the eu’s average. (european commission. 2010a) the proposal is to maintain the present system of intervening in all regions with concentration on those lagging behind, which is opposed by several critics (barca f., 2009), including author of this paper, who believe that the so-called ‘rich’ eu ms can provide supplementary financial resources to regions where needed, since their national gdp per capita is above average and they have access to larger resources. 9 for further analysis, see atkinson, a.b. 2008; barca, f. 2009; lorand, b. 2011; lorand, b., lukovics, m. 2010; staab a., 2008 10 it is calculated by accumulating all previous increases in gdp that were attributable to the cohesion expenditure, divided by the magnitude of the accumulated cohesion expenditure, expressed as a share of gdp 11 using data from the cohesion expenditure programme 2000-2006 12 see bradley j., 2009 issn 1822–8402 european integration studies. 2011. no 5 168 the regional policy should focus on disparities between countries rather than regions, with the convergence objective as its absolute priority. according to renationalisation critique (barca f., 2009), the purpose of cohesion is not financial redistribution and inefficiency and social exclusion can arise anywhere. it is claimed that the renationalisation argument therefore undermines the principle of solidarity. such an argument, however, appears to be slightly far-fetched. whilst the existing regional policy benefits economic convergence, a number of its regulations do not comply with the economic and social realities of the eu-27. one of the leading obstacles to fair competition and convergence within the eu is the net balance thinking among its ms, i.e. distinction between net donors13 and net beneficiaries14 of the eu budget, undisclosed to large levels by the ec’s consultation report on eu budget. (european commission, 2008b) net balance thinking has created an inefficient system of double priorities – national and european, bearing a negative effect on the regional policy, which has become torn between politics and policies. according to the latter, funding should be allocated to the most backward regions, calculated by gdp per capita. in politics, however, there is a fight for a “share for everyone” and support within the electorate. (acemoglu, d., johnson, s. and robinson, j.a. 2005; bachtler, j., mendez, c., wishdale, f. 2010; staab a., 2008) essentially, net balance thinking risks losing key principles in practice, as well as targeting the citizens’ needs rather than the objectives of national governments and initiating reforms. a solution to the matter might be a shift in the political thinking about the cohesion policy namely, focusing on revenue-raising rather than spending. the existing realities of distribution of cohesion funding form a leading obstacle to successful implementation of the eu’s regional policy. several analysis (lorand, b. 2011; lorand, b., lukovics, m. 2010) of the regional policy have emphasised the slow economic success, as opposed to the continuously growing structural funding. as figure 1 below portrays, the new ms have continuously benefited less from the regional policy than the eu-15. some of it may be blamed on disadvantageous certain external factors; however, these numbers demonstrate a large underlying weakness within the regional and cohesion policy and the need to refocus it towards a results-based approach. another central issue in the debate is financial governance of the regional and cohesion policy. the eu court of auditors continues to account for unacceptably high levels of errors in allocation of finances under eu contracts, (eiropas revīzijas palāta, 2009) reaffirming the leading position of the regional policy as the source for the highest level of mistakes in the eu budget spending – 5%, the policy being valued as partially effective. errors were discovered in 36% of payments under cohesion projects. as the court of auditors have noted, most of these mistakes have been caused by wrongfully attributed and often gravely disregarded regulations of 13 the largest being germany, which in 2007, paid into the eu budget eur 164 billion, yet received back (through various funds and projects) only eur 78 billion, france paid in eur 140 billion, received eur 89 billion, and italy, which paid in eur 116 billion and received eur 70 billion. (open europe, 2010) 14 mostly the new ms like latvia, which paid into the eu budget (2007 data) eur 1.4 billion, but received eur 6 billion, bulgaria eur 2.3 billion versus eur 12 billion received and czech republic paid in eur 9.2 billion and received eur 31 billion. (ibid) public procurement. (ibid, p.10) clearly, the increasing administrative costs do not ensure higher efficiency. in fact, the report reveals that the ec ms are efficient to register faults, yet the system of informing the ec of the corrections applied is highly unsatisfactory. (op.cit., p.11) in result, there is a lack of credible data of cancellation or retrieval of falsely executed payments, largely due to the multilevel governance managing the policy – the complex regulations, contracts and control levels of structural funding. an annual system of error rates, by which transfers to ms are withheld if a threshold of payments is surpassed, might therefore be supported. this would however require an annual error limit and threshold of payments to be agreed upon by the ms, provided that the new system of check-ups does not present a supplementary financial or administrative burden. the ec has offered a similar proposition (european commission, 2010b; european commission, 2010c) annual declarations accompanied by an independent audit opinion to be submitted by national authorities responsible for managing cohesion policy programmes. in such occasion, on a case-by-case, the ec should assess basis if not reimbursing national authorities until the corresponding eu contribution has been paid, would indeed accelerate payments of grants to beneficiaries and thus increase the incentive for a strong national control. finally, as a means of improving financial engineering, general financial support should be channelled to individual enterprises via financial engineering instruments, leaving grants for specifically targeted support schemes. the scope and scale of financial engineering instruments certainly needs to be broadened to encompass new eu development goals, which might be done by combining interest subsidies with loan capital and other repayable financing. given the weak connection in a number of cases between the funds obtained and structural disadvantages (crescenzi, r., 2009; lorand, b., 2010), the allocation of funding has not been accurate. an improved allocation of funding requires, first of all, removal of net balance thinking; and secondly, added-value approach with macro-economic calculations of both allocation of policy funding and measuring of results, and a simplified administrative procedure. it would also require defined core priorities and principles to raise the impact of the policy instruments. given the arguments above, setting a limited number of eu-wide core policy priorities (preferably up to five)15 could prove essential to maximising the economic potential of the regional and cohesion policy. the european economic recovery plan (european commission, 2008a) first called for a targeted approach in areas of added-value to the eu, particularly, growth-enhancing policies, development of strategic infrastructure, safeguarding key skills and assets from being lost. (european commission, 2010d) the differing ways in which eu structural funding is distributed and utilised in ms makes it increasingly difficult to shape a cohesion policy acceptable to all ms. to tackle the problem, three principles are suggested for setting the core policy priorities: eu-wide relevance of the spending objectives, place-based approach in funding and verifiability (set targets can be clearly identified and measured). (barca, f., 2009; bachtler, j., mendez, c., wishlade, f., 2010) 15 f. barca (2009) has suggested defining 3-4 core priorities that would receive 55-56% of the regional and cohesion policy funding. issn 1822–8402 european integration studies. 2011. no 5 169 0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 60,0% 70,0% 80,0% 90,0% be ie lu cy ee hu it se es mt nl f i si pt lt dk fr at lv bg uk cz sk de ro p l gr cr os s-b ord er to tal source: european commission, 2011 figure 1. percentage of 2007-2013 cohesion allocations contributing to sustainable growth, by member states successful cohesion also requires re-evaluation of the co-financing levels from national budgets. its objectives of convergence, competitiveness and employment are closely linked to the strategic development goals of the lisbon agenda and europe 2020. the regional policy will therefore have a significant role in the implementation of these strategies. it is therefore utmost important, to harmonize the regional policy with other initiatives of the eu. what is more, aside defined core priorities of eu-wide relevance, targeting global warming, energy security and efficiency, innovations and competitiveness, etc., in its application, the differing capacities of ms should not be ignored. the presently set percentage varying from 30-50% (european commission, 2009) of required national assistance disregards possible financial difficulties of the ms. for instance, latvia suffered the most damaging effects of the global financial crisis in the eu, its gdp falling to minus 18% in 2009. (eurostat, 2011) budget cuts left unharmed none of the national policies. thus, providing extensive co-financing became impossible. in result, numerous projects previously co-funded by the eu cohesion and common agricultural policies were impeded indeterminately (the ministry of agriculture, 2010a, 2010b, 2010c), leading to an even greater economic and social disparity compared to the rest of the eu. flexibility and innovative approach both in financial management and political decision-making are central to economic growth. (acemoglu, d. 2009) this paper therefore suggests that ms should be able to choose their leading priorities, according to the european interest and national budget capacities, concluded in a development and investment partnership contracts signed by the ec and each ms, as proposed by the ec (european commission, 2010d). the contract should be accompanied by an ec done implementation assessment and regular report on policy implementation conducted by the ms, which have been acknowledged as necessary in a recent world bank report. (the world bank, 2008) such evaluations, concluded each 1-3 years, would also tackle the present inefficiency, whereby because payment claims are settled at the end of each multiannual financing period during the first years, member states are less concerned about the effectiveness of their control system. (barca f., 2009; eiropas revīzijas palāta, 2009; european commission, 2010a; european commission, 2010b) moreover, it would concentrate the political decisionmaking on results and provide for regular feedback and improvements within a multiannual financial planning period. it has been recognized that the next generation of cohesion programmes will need to encompass a greater thematic focus on green investment and capacity building, using technical assistance budgets. it will also require strong political motivation. reports by the court of auditors and the european commission have continuously accounted for lagging behind in results and lacking policy evaluation on the part of ms (european commission, 2006), rarely leading to change. incapacity to achieve full economic, territorial and social convergence of the eu ms would not only undermine the credibility of the policy, but also impede reaching europe 2020 goals, particularly, the eu becoming an innovative, green, resource-efficient, knowledge economy, highly competitive among the fast-growing world economies. a successful regional and cohesion policy will require mobilisation of all resources and coordination of policies, with greater involvement of local stakeholders. conclusions it is clear that the remaining level of disparities within the eu is disproportionately high. the regional policy has long intended to tackle the problem, and has been recognized as a key driver to competitiveness and economic development of both separate european regions and the eu as a whole. yet, its results so far have been limited and efficiency remains questionable. regional convergence is affected by a number of external conditions, which complicates a detailed and precise evaluation of results. a set of criteria should therefore be defined to ensure a more precise assessment of the regional policy and thus provide possibility for convincing issn 1822–8402 european integration studies. 2011. no 5 170 improvement measures. furthermore, annual evaluation of funding expenditure has been suggested to tackle the problem of the high error rates within the eu’s budgetary spending. this article more frequent declarations from the responsible national and regional authorities to be implemented in order to reduce the critical amount of mistakes in financial contracts, provided that they do not provide additional administrative and financial burden to either the ec or ms. analysis of the existing criteria, set priorities and results, if measured by gdp per capita, reveals that regional convergence must above all remain the main priority of the eu’s regional policy, in order to achieve full economic and social cohesion of its regions. to this respect, the current net balance thinking among member states must be abandoned entirely. all in all, data suggest that there has been positive development of the regional policy, albeit unequal. significant disparities among eu member states and regions have remained, accelerated furthermore by the recent global financial and economic crisis. it has also been increasingly torn between the politics and policies of the decisionmaking. nevertheless, cohesion funding and the set targets of the regional policy provide a significant potential. it has therefore been concluded that with a results-based and valueadded approach, focusing on revenue-raising rather than spending, the regional and cohesion policy can prove to be a significant contributor to the economic development of the eu. equality, solidarity and fair competition are key elements to economic development. those are also the founding principles of the eu’s cohesion policy and to achieving europe 2020 goals that aim to safeguard the union’s political and economic leadership in the world. the future regional and cohesion policy must simplify its approach and reflect upon these fundamental principles to achieve the maximum positive results. references acemoglu, d., johnson, s., robinson, j.a. 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(2009) on-line: http://data. worldbank.org/indicator/ny.gdp.pcap.cd/ countries/1w?display=default. the world bank (2008), reshaping economic geography. world development report 2009. washington dc: world bank. treaty on european union. (1992), in: official journal c 191, 29 july 1992. treaty of lisbon amending the treaty on european union and the treaty establishing the european community, signed at lisbon, 13 december 2007. on-line: http://eurlex.europa.eu/johtml.do?uri=oj:c:2007:306:som:en: html the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 220 indexes as business environment characterizing instruments http://dx.doi.org/10.5755/j01.eis.0.11.18645 velga vevere the university college of economics and culture, lomonosova 1/4, riga lv-1019, latvia e-mail: velga.vevere@gmail.com rosita zvirgzdina turiba university, 68 graudu st., riga lv-1058, latvia, e-mail: rosita@turiba.lv iveta linina turiba university, 68 graudu st., riga lv-1058, latvia, iveta.linina@turiba.lv submitted 04/2017 accepted for publication 08/2017 indexes as business environment characterizing instruments eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 220-232 doi 10.5755/j01.eis.0.11.18645 © kaunas university of technology introduction every year several world organizations evaluate countries according different criteria and determine their indexes, such as kof index of globalization, corruption perception index, global competitiveness index, global innovation index, and others. these indexes later are used for analysis of the aspects of entrepreneurship activities in specific countries. one particular application of indexes is related to analysis and evaluation of the business environment of the country. the entrepreneurship is affected by many factors; to research all of them is very time and effort consuming process. the proposed approach (i.e., use of indexes) is targeted and can yield results of the practical significance. the goal of the current paper is to compare indicators of the baltic countries with average indicators of the european union by using selected indexes that characterize business environment. to reach this goal we set the following tasks: (1) to characterize theoretical framework of indexes that pertain to the business environment; (2) to perform comparative analysis of selected indicators of business environment of the baltic countries and the eu according to 4 indexes; (3) to make conclusions about business environment in the baltic countries, especially in latvia, on the basis of indexes. the current study employs the logical-constructive method – comparison of theoretical notions with empirical data. the factor analysis allows identifying and comparing factors within chosen indexes. the benchmarking is used to estimate indicators of the baltic countries and compare them mutually and with the average indicators of the eu – it allows to identify the best examples and calculate the deviation. the graphic method allows depicting information visually and making subsequent analysis. keywords: indexes, business environment; kof index of globalization; corruption perception index; global competitiveness index, global innovation index. in the contemporary conditions of market globalization for entrepreneurs, it is very important to find methods and instruments for business environment evaluation. one of the most operative approaches is to employ various country evaluation indexes that are available. every year several world organizations evaluate countries according different criteria and determine their indexes, such as kof index of globalization, corruption perception index, global competitiveness index, global innovation index, and others. indexes, on the global scale, serve as performance indicators (clear benchmarks), but at the same time, they are the basis for the asset relocation research. in other words, indexes in their various manifestations, serve as data for important business decisions. steven schoenfeld (2004) points out that, perhaps the most significantly, indexes 221 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 are often the basis for investment vehicles. analyses of dynamics of global ratings compiled by international organizations over several years show which countries have been increasing their competitiveness and which have lost their position. most of the countries involved perform assessment of their business environment based on indexes. these indexes can serve also as problem indicators in business environment. based on comparative study of indexes the respective governments can work out problem solving strategies taking into account positive experience of other countries. recently there have been fair number of publications about countries’ competitiveness, business environment based on the international rankings. let us mention a few examples. thus, s. keišs and e. čerkovskis (2016) in their article on the business environment in latvia in the light of global ratings take into account such indexes as global competitiveness index, economic freedom index, global prosperity index, and business environment assessment index. the most important among these, in authors’ opinion is the latter one, since this survey make it possible to find out which administrative obstacles, bureaucratic and regulatory barriers cause issues for entrepreneurs. the survey comprises 10 aspects of business environment, such as starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. the authors conclude that latvian business environment is sufficiently highly evaluated, that is, latvia takes 22nd place among 189 countries’ surveyed; still, in order to position the country as an attractive business and investment economy, it is necessary to make long-term decisions on economic development. (ibid.) likewise, the press release prepared by the stockholm school of economics (the strategical partner of wef global competitiveness report in latvia) regarding latvia’s ranking in the global competitiveness index states the main problematic factors in the order of priority: tax rates, ineffective governance and bureaucracy, access to financing, complexity of tax regulations, inadequately educated labor force, and instability of policy formation practices. (stockholm school of economics, 2015) depiction of the similar analysis can be found in the article “assessing the level of competitiveness of the republic of kazakhstan on the basis of world ranking analysis” (aimagambetov, stefanov & kuttybaeva, 2016) where the authors conclude that most advantageous factors for the country development are the following: the favorable location, the existence of vast reserves of mineral resources and political and macroeconomic stability. whereas the disadvantageous are the lack of diversification of industry, technological backwardness, as well as insufficient level of governance and management. the results of the current analysis show specific directions for future development, i.e., the realms that are to be improved. yet another researches to be mentioned here are “reviews of the competitiveness of european countries” (ciocanel, 2015), “comparing the innovation performance of eu candidate countries: an entropy-based topsis approach” (kaynak, altuntas & dereli, 2017), and “landmarks on the evolution of global competitiveness. analysis on the example of the european union member states” (tudose & rusu, 2015). the first investigation analyzes the results of the application of some widely recognized models, used in evaluating the competitiveness performances between different countries (altogether 29 european states) and the causal relationship between wef global competitiveness index and imd competitiveness scoreboard. the second research is aimed at analysis of innovation performance of four european union countries (macedonia, iceland, serbia and turkey) using entropy-based topsis (technique for order preference by similarity to an ideal solution) method. whereas the third scholarly article mentioned above is based on data obtained from the reports of the world economic forum, it aims at the identification of the specifics of the member states of the eu, the authors conclude that. these examples demonstrated the e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 222 importance of using different international ratings in assessment of the current status of affairs, the positive and negative trends of business development, the business climate (favorable or unfavorable for foreign investments), the level of corruption, etc. in other words, this is a process of benchmarking; it allows redefine qualitative and quantitative coordinates of improvement through competitiveness and sustainable performance. the proposed approach (i.e., use of indexes) is targeted and can yield results of the practical significance. the goal of the current paper is to compare indicators of the baltic countries with average indicators of the european union by using selected indexes that characterize business environment. to reach this goal we set the following tasks: (1) to characterize theoretical framework of indexes that pertain to the business environment; (2) to perform comparative analysis of selected indicators of business environment of the baltic countries and the eu according to 4 indexes; (3) to make conclusions about business environment in the baltic countries, especially in latvia, on the basis of indexes. the research questions of the present study are: _ which global indexes can be used for characterization and analysis of business environment in the particular country? _ what is the situation of the baltic contrives in comparison with the average eu indicators? _ do indexes make it possible evaluation prospective export markets? the current study employs the logical-constructive method – comparison of theoretical notions with empirical data. the factor analysis allows identifying and comparing factors within chosen indexes. the benchmarking is used to estimate indicators of the baltic countries and compare them mutually and with the average indicators of the eu – it allows to identify the best examples and calculate the deviation. the graphic method allows depicting information visually and making subsequent analysis. the theoretical background of the current research consists of publications that disclose information regarding indexes and their application (ahmad, 2001; berger, 2008; dreher, 2008; and others). the research limitation: only those indexes were chosen that concern economical categories used for business environment assessment; the indexes were compared without identifying ground factors used in index calculation. the research data period: years of 2015 and 2016. this article includes analysis of four different types of indexes related to business environment – the kof index of globalization, the corruption perception index, the global competitiveness index, and the global innovation index. globalization indexes, kof index of globalization globalization as enhanced trade and financial integration poses both opportunities and challenges to national economies. as opportunities there can be mentioned such factors as division of labour and specialization according to comparative advantage; in turn, negative factors include inability to erect and maintain regulatory and redistributive institutions, lack of financing for social needs, increase in evasion of international/global financial regulatory institutions into national regulations, problems in macroeconomic management, etc. (rodik, 2007) in the theoretical literature these challenges are being described as so-called “open economy trilemma”. namely, if government imposes fixed exchange rates and capital mobility, it has to give up monetary autonomy. if it wants monetary autonomy and capital mobility, it has to go with floating exchange rates. if it wants to combine fixed exchange rates with monetary autonomy (at least in the short run), it has to restrict capital mobility. (ibid.) m. caselli in his book “trying to measure globalization. experiences, critical issues and perspectives” (2012) concentrates upon methodologies 223 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 of measuring globalization and differences between indexes, taking into account their characteristics, i.e. one-dimensionality or multi-dimensionality. although multidimensionality is one of the most distinctive features of globalization, there are instruments that measure the phenomenon by considering only one of its dimensions—usually the economic one. the fact that some measurement instruments focus exclusively on this dimension is not surprising, given that, as pointed out in the first chapter, globalization is widely regarded as a phenomenon which is primarily if not exclusively economic in nature. at the same time, d. rodik poses some criticism of the globalization indices. firstly, he admits that the principal defect of all indices is the use of an excessively large number of variables and indicators that can lead to decrease of countries that can supply necessary data. secondly, the massive amount of indicators can decrease reliability of data. thirdly, variety of sources can hamper the timeliness of information. fourthly, there can be misbalanced representation of data (some aspects get more attention than others do). (ibid.) still, despite these shortcomings different globalization indices serve as instrument to measure position of the country in the global market. among numerous indexes that are employed for assessment of a country performance within international/global milieu we can mention the bertelsman stiftung’s transformation index (bti), the maastricht globalization index, the new globalization index (ngi), and, the most important in our opinion, the kof index of globalization. let us shortly dwell on the first three indices before turning to the kof index. the bertelsmann stiftung’s transformation index (bti) analyses and evaluates the quality of democracy, a market economy and political management in 129 developing and transition countries. it measures successes and setbacks on the path toward a democracy based on the rule of law and a socially responsible market economy. the bti is the first cross-national comparative index that uses self-collected data (according to 17 criteria) to comprehensively measure the quality of governance during processes of transition. the bti aggregates the study into two indices: the status index and the management index. the status index is formed by calculating the total of average scores for the political and economic transformation whereas the management index is formed by calculating the scores for management criteria (acumen with which decision-makers steer political processes). (transformation index bti) every year the foundation publishes the globalization report composed according to the criteria mentioned above. thus, for example, the globalization report 2016 states that between 1995 and 2014, a group of emerging countries grew massively in importance relative to the group of developed countries, as well as that the raise of emerging countries is primarily due to their improved competitiveness relative to competitiveness of all economies. (bohmer et. al., 2016) the maastricht globalisation index is calculated by aggregating eleven indicators referring to five dimensions of globalization: political, economic, sociocultural, technological, and ecological. in particular, the most distinctive features of this instrument are its consideration of globalization’s ecological dimension and its inclusion of an indicator relative to the arms trade in the political dimension. (caselli, 2012) more specifically, the political domain comprises such indicators as incountry embassies, membership in international organizations, and military-industrial complex; the economic domain includes such indicators as trade and share of gpd – transactions between domestic and foreign affiliates, as well as private capital flows; the social and cultural domain – cross border migration, tourism, awareness of global issues (climate change, human rights, etc.); the technical domain comprises such indicators as communication technologies, use of internet, social media platforms, etc.; the environmental domain – bio capacity as measure of land productivity, ecological deficit of traded goods and services, etc. (figge & martins, 2014) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 224 the new globalization index (ngi) is a composite index constructed to measure the relative globalization level of a group of countries according to 21 variable. this index differs from other indices because it takes into account, in addition to economic aspects, international student mobility and environmental issues; besides that, the ngi forms a weighted sum of bilateral trade flows using the geographical distances between trading partners as weights. in sum, the index comprises three dimensions finance, trade and politics, and social globalization. (vujakovic, 2010) market globalization more and more influences business organizations; it compels them to look for solutions to ensure their competitiveness. in order to comprehend globalization on the european level the authors of the current paper propose to compare ratings of all three baltic countries (latvia, lithuania and estonia) and the average european level according to all eight factors of the kof index of globalization. in our opinion, this index offers the best methodology to assess the level of globalization in each particular country set against the background of the average level. the kof index of globalization was introduced in 2002. the index covers three main divisions – economic globalization that includes long distance flows of goods, capital, services and information; political globalization characterized as diffusion of government policies; and social globalization – the spread of ideas, information, images and people. (dreher, et.al, 2008) since our interest lies in the realm of economy, let us briefly dwell on its eight sub dimensions: (1) trade – the sum of exports and imports of goods and services measured as share of gdp; (2) foreign direct investment, stocks – the sum of inward and outward fdi stock; (3) portfolio investment – the sum of portfolio investment assets stocks and portfolio investment liabilities stocks; (4) income payments to foreign nationals – employee compensations paid to nonresident workers and investment income; (5) hidden import barriers – the answer to the question if tariff and non-tariff barriers significantly reduce the ability of imported goods to compete in the domestic markets; (6) mean tariff trade; (7) taxes on international trade – import duties, export duties, profits of export or import monopolies, exchange profits, and exchange taxes; (8) capital account restrictions – foreign ownership of companies and types of capital controls. (caselli, 2012) the weights of these indices and variables are depicted in the figure 1. figure 1 indices and variables of economic globalization in kof index (kof index of globalization. indices and variables, 2015) 225 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 in order to analyse the business environment the authors of the current research compare the index of economic globalization of three baltic countries with the average european union index (see figure 2). figure 2 economic globalization in kof index 2015 (kof index of globalization. rankings,2015) 70 80 90 average eu latvia lithuania estonia 79,48 80,31 77,28 87,39 the average index of the eu is 7948. all three baltic countries are quite close to this average level – estonia (87,39) and latvia (803) are above the average index, while lithuania (77,28) is slightly below it. the comparative analysis of economic globalization indexes demonstrates that economies of all three baltic states are competitive on the european scale and ready to participate in market globalization processes as strong players. the second index to be analysed in the current research is the corruption perception index (cpi). the level of corruption in any given country shows the limitation of business environment and obstacles to business development. corruption is a complex social, political and economic phenomenon that is prevalent in all countries in varying degrees. according f. galtung (2006), j. g. lambsdorff (2007), ahmad (2001) and other researchers, corruption, in general, takes four main forms: bribery, embezzlement, fraud and extortion. the real level of corruption is difficult to determine technically, therefore, the transparency international focuses upon perception of corruption. the transparency international’s corruption perceptions index (since 1996) ranks countries in terms of the degree to which corruption is perceived to exist among public officials and politicians. it is a composite index, drawing on corruption-related data from expert and business surveys carried out by a variety of independent and reputable institutions. (rohver, 2009) the cpi currently ranks 168 countries “on a scale from 100 (very clean) to 0 (highly corrupt). the lower-ranked countries exhibit untrustworthy and badly functioning public institutions; even though there exist anti-corruption laws, they are often ignored. people frequently face situations of bribery and extortion, misappropriation of public funds and official indifference when seeking justice. higher-ranked countries tend to have higher degrees of press freedom, access to information about public expenditure, stronger standards of integrity for public officials, and independent judicial system. the higher score, the lower corruption level. (corruption perception index. topline report, 2015) analysing situation of the baltic countries against the background of the average european level (figure 3) we can see that estonia (70 pts.) scores much higher than the european average (62 pts.), lithuania (61 pts.) closely follows, but latvia (55) lags far behind. since corruption places constraints upon free and earnest competition and hinders development of entrepreneurship, latvia has to pay serious attention to raise awareness of critical issues related to functioning of public institutions, anti-corruption legislation, misuse of public funds, etc. corruption perception index e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 226 the third index to be analysed in the current article is the global competitiveness index (gci), compiled by the world economic forum. thus, the index of the years 2015-2016 comprises 140 countries. (the global competitiveness report 2015-2016, 2016) for over 35 years, the global competitiveness report series has shed light on the key factors and their interrelations that determine economic growth and a country’s level of present and future prosperity. by doing so, it aims to build a common understanding of the main strengths and weaknesses of an economy so stakeholders can work together to shape economic agendas that address challenges and enhance opportunities. the report describes competitiveness as the set of institutions, policies, and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can earn. (ibid.) there is vast amount of literature regarding national competitiveness starting from the classical definition and scheme proposed by m. porter. (porter, 1990) porter’s “diamond” includes such aspects as firm strategy, structure and rivalry; demand conditions; related and supporting industries; factor conditions. here we can mention also t. berger’s reflections upon the status of research. he concludes that the nation’s competitiveness is determined by four main factors, that is, the ability to sell, the ability to earn, the ability to adjust, and the ability to attract. (berger, 2008) a great deal of attention is paid to also to the concepts of competitiveness environment (country’s openness to the world economy; world economy’s openness to the region); political stability; country’s geographical position; living conditions, cultural environment; climate and natural resources, demographic situation), economic policy (attitude towards foreign investments and market economy; level of government bureaucracy; low inflation policy; taxes and credit aid; pricing and its regulation; corporate governance, trade policy; exchange rate policy), and competitiveness of business infrastructure factors (level of wages; quality of labor; ecological environment; stability of supplies and raw materials; existence of land suitable for business activities; transport and communication; research and technology infrastructure). (reiljan et.al, 2000). the specific approach to measure nation’s competitiveness on the global scale is worked out by e. meiliene, s. neverauskaite and r. aidis (2015) the authors propose to measure the country’s competitiveness through the aspect of technology-intensive innovative enterprises index, that includes 57 indicators (7 indicators determine human capital factors; 8 – networking; 14efficiency of policies; 17 – innovative capacity of a country; 12 – innovative level of a country). l. wenzel and others (2013) propose a method of measuring competitiveness applying canonical correlation analysis (cca). among others, we would like to mention three research papers. the first of them is entitled “a new perspective on the competitiveness of nations.” (onsel et.al.,2008) figure 3 corruption perception index 2015 (points) (corruption perception index. topline report, 2015) global competiti veness index 227 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 the article addresses two major methodological issues: (1) the choice of weights to use to aggregate the underlying primary data concerning micro and macroeconomic factors; (2) the specification of the stages of countries and understanding criteria that have the greatest impact on the specification of relative position of the countries in the terms of competition. the second research utilized a structural model that decomposes competitiveness into its quantitative microlevel and qualitative macro-level. (ezeala-harrison, 2014) whereas the third research by s. perezmoreno and others (2016) proposes to implement a multi-criteria approach with new alternative normalization and aggregation formulas for such pillars of competitiveness. the authors have worked out three alternative global competitiveness indices (weak, strong and mixed) with different degrees of substitutability, as well as the mixed index without normalizing. at the same time, we would like to admit, that there is certain criticism of using the global competitiveness report to assess country’s macro-economic competitiveness (djogo & stanisic, 2016), namely, the world economic forum’s definition of macroeconomic competitiveness and the following methods of measurement are not the best solution for measuring the current macroeconomic competitiveness, as there exists a gap between a change in the level of productivity of the country and macroeconomic performance of the country in short time period. the global competitiveness index analyses the most problematic factors of doing fussiness that can be the ground for assessment of business environment in the country. by analysing these factors, it is possible to determine the obstacles for country development and work out the strategic plan. the factors analysed in the this article demonstrates that there exist significant differences among all three baltic countries and the average level of the european union (figure 4). it has to be noted that higher score indicates more problematic level. 0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 18,0 20,0 tax rates restrictive labor regulations ineffiecient gavornment bureaucracy tax regulations inadeguately educated workforce corruption insufficient capacity to innovate access to financing government instability/coups poor work ethic in national labor force inadeguate supply of infrastructure inflation crime and theft poor public health foreign currency regulations policy instability latvia lithuania estonia average eu figure 4 most problematic factors for doing business, 2015-2016 (authors’) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 228 as we can see latvia, among other baltic countries, ranks the highest (in the negative way) in such areas as tax rate (alongside with lithuania), crime and theft, policy instability, inefficient governance, insufficient innovation level, although according to most indices, latvia comes close to the average eu level. thus, it is possible to see which spheres are in need of improvement. table 1 shows the comparison of the average result of three baltic countries and the eu according to all 12 pillars of competitiveness (institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, innovation). table 1 global competitiveness index, 2015 – 2016 global competitiveness index latvian lithuania estonia average eu institutions 4.0 4.2 5.1 4.5 infrastructure 4.4 4.7 5.0 5.1 macroeconimic environment 5.6 5.4 6.1 5 health and primary education 6.2 6.3 6.5 6.3 higher education and training 5.0 5.3 5.5 5.2 goods market efficiency 4.5 4.6 5.1 4.7 labor market efficiency 4.6 4.4 5.0 4.4 financial market development 4.2 4.1 4.8 4.2 technological readiness 5.2 5.6 5.4 5.4 market size 3.2 3.5 3.0 4.3 business sophistication 4.1 4.3 4.3 4.6 innovation 3.4 3.7 4.1 4.2 source: authors’ according to this comparison, it is possible to see that estonia is above the average level of the eu in 7 parameters, but latvia and lithuania are in most cases close or below the average eu scores. only according to three pillars market size, business sophistication and innovation the average scores of the eu are higher than the according ones of the baltic countries. global innovation index one of the most important indexes to used for business environment evaluation is the global innovation index (gii). the gii aims to capture the multi-dimensional aspects of innovation and provide tools for developing long-term strategies. the innovation is measured by a composite index, the so-called summary innovation index (sii). it sums up the results of several different partial indices in three areas (the driving force of innovation, the activities of enterprises and the results of innovative activities). individual areas (components) are ascribed certain categories of indices in 8 dimensions of innovation, which in total led to the creation of a set of 25 indices, describing in detail the innovativeness of each state. (lacka, 2015) the gii helps to create an environment in which innovation factors are continually evaluated. in 2015 this 141 world countries were included the gii ranking. the gii adopts a broad notion of innovation. it is formulated like this: an innovation is the implementation of a new or significantly improved product (good or service), a new process, a new marketing method, or a new organizational method in business practices, 229 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 workplace organization, or external relations. (global innovation index 2015) today, innovation capability is seen more as the ability to exploit new technological combinations; it embraces the notion of incremental innovation and ‘innovation without research’. the index includes such subcategories as institutions, human capital and research, infrastructure, market sophistication, business sophistication, knowledge and technology outputs, creative outputs. these factors are divides into two categories – input sub-indices that characterize country’s ability to create innovative environment and output sub-indices – results of innovative activities. figure 5 shows scores of the baltic counties set against the background of the average eu values. figure 5 the global innovation index 2015 (the global innovation index, 2015) 0 10 20 30 40 50 60 average eu latvia lithuania estonia 47,8 45,5 42,3 52,8 the higher score demonstrates country’s accomplishments in the realm of innovations. in the european union the average ratio is 47,8. estonia’s rate is 52,8, that is above the european level, whereas latvia is ranked quite close to the european mean data with the score 45,5, but lithuania exhibits the ratio of 42,3. 1 the indexes allow estimating operatively the business environment from different perspec-tives (corruption. globalization, etc.), they can be instruments for evaluation as well as indicators of the primary factors of investment and export. 2 according to our research, the indexes that can be used for assessing business environ-ment are the kof index of globalization, the corruption perception index, the global competitiveness index, and the global innovation index. 3 the kof index of globalization is developed by the swiss federal institute of technology, zurich; it is being published since 1002. in 2015 the index included 207 countries. the index is assessment of economic globalization (36%), social globalization (37%) and political globalization (27%). the ratio of the baltic countries is the following: estonia – 87,39, latvia – 80,31 and lithuania – 77,28; that is very close or above the average european union ration. this indicates that economy of these countries is able to participate in market globalization processes as equal players. 4 the corruption perception index (cpi) is worked out by the transparency international «one global movement sharing one vision: a world in which government, business, civil society and the daily lives of people are free of corruption», founded in 1993. in 2015, the index included 175 countries. estonia (70) exhibits results that are much higher than the average eu results, whereas lithuania (61) is close to the average ratio, but latvia’s result (55) shows that the country that there are serious problems that should be solved. conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 230 5 the global competitiveness index (gci) is compiled by the world economic forum, in 2015-2016 the index included data about 140 countries. the global competitiveness index identifies and evaluates the most problematic factors for doing business, thus it can be the framework for business environment evaluation in each particular country. the current research shows that there are difference among the baltic countries; the further analysis of these differences makes it possible to identify factors that hinder development and work out the strategy to solve problems. 6 the global competitiveness index consists of 12 pillars. the index shows that estonia’s indicators in 7 positions is ranked above that the average indicators of the eu, but latvia and lithiania by the most part is close to the average ratio of the eu. only in 3 positions market size, business sophistication and innovation – the average eu indices are higher than in estonia, latvia and lithuania. 7 the global innovation index (gii) aims to capture the multi-dimensional facets of innova-tion and provide the tools that can assist in tailoring policies to promote long-term output growth, improved productivity, and job growth. the gii helps to create an environment in which innovation factors are continually evaluated. in 2015 the index included 141 country. within european union the average ratio is 47,8. estonia’s radio (52,8) is above the average, but latvia’s (45,5) and lithuania’s (42,3) ratios are slightly below the eu ratio. ahmad, n. 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(2013). towards a new measure of a country’s competitiveness: applying canonical correlation. hwwi research, paper 144. retrieved march 3, 2017, from http://epub.sub.uni-hamburg. de/epub/volltexte/2014/27830/pdf/hwwi_research_paper_144.pdf e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 232 vevere velga dr. phil. the university college of economics and culture fields of research interests social media, business ethics, corporate social responsibility, corporate governance address lomonosova 1/5 riga lv-1019, latvia tel. +37126463584. zvirgzdina rosita dr. oec. turiba university fields of research interests business administration, commerce, finance administration, human resource management address graudu 68 riga lv-1058, latvia tel. +37126408253 linina iveta dr. oec. turiba university fields of research interests marketing, sales management, marketing communications address graudu 68 riga lv-1058, latvia tel. +37126306922 about the authors 65 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 submitted 04/2017 accepted for publication 08/2017 european integration studies no. 11 / 2017 pp. 65-74 doi 10.5755/j01.eis.0.11.18129 © kaunas university of technology the theoretical and practical challenges of european security community in the context of globalisation eis 11/2017 abstract the theoretical and practical challenges of european security community in the context of globalisation http://dx.doi.org/10.5755/j01.eis.0.11.18129 virginijs keinis rīga stradiņš university, 16 dzirciema street, rīga, lv-1007, latvia e-mail: virginijs.keinis@gmail.com modern world and the inconsistent process of globalisation have given new dimensions to matters like national self-confidence, identification with a certain ethnos, traditions, symbols and history. due to a number of factors borders have ceased to exist literally and figuratively. during the foundation and enlargement of modern europe regional policy was mostly economically driven. it was declared that europe has never been as prosperous, secure and free. today we start to doubt this declaration and it is clear that history has brought us challenges that the founders of europe could not imagine. what are the results of europe’s “open door” policy, schengen treaty and common financial, energy and transit policy? what exactly is the common foreign security policy and how successful it can be in the fast changing environment of today’s world? all these aspects have determined the need to shift emphasis of policy from economics to security and conceive the context of practically unlimited information space, the aggressive propaganda of hostile states (or pseudo states) and endless flow of refugee’s that contribute to international terrorism and national disturbances. the purpose of the study is to acknowledge the impact of the described current situation on the concept of national security and its transformation in the course of ongoing global processes. the tasks are to acknowledge the impact of europe’s “open door” policy, comprehend the progress of europe’s common security policies and estimate how successful it can be in the fast changing environment of today’s world. the author uses analytical synthesis and a number of scientific research methods to fulfil the tasks of the thesis and draw conclusions. expert interviews were extensively performed to gather the opinion of field professionals. the study clearly indicates that europe has comprehended the necessity of common security and defence policy. however alternating global situation withhold the progress and success of the implementation of this policy. modification of the threat itself has brought new topics to the agenda of security community. europe is sharing economical, energy and other issues but national security still is the field that each nation is left to consider individually. physically building europe’s security and defence capacity could be an ambitious plan but contemporary situation require radical actions. nevertheless the most significant dilemma is the balance between sovereignty and common security interests. keywords: national security, challenges of globalisation, common security and defence policy, unconventional warfare, implementation of security policy. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 66 introduction oxford dictionary defines term “globalisation” as the process by which businesses or other organizations develop international influence or start operating on an international scale. (oxford dictionary, 2017). this definition show classical approach to globalisation as initially economic phenomena. nevertheless modern world is facing the situation that globalisation as a process has not only economical but also cultural, military and political influence. the swedish journalist thomas larsson has said that globalization „is the process of the shrinking of the world, the shortening of distances, and the closeness of things. it allows the increased interaction of any person on one part of the world to someone found on the other side of the world, in order to benefit“. he also states that „globalisation is happening, faster and faster. but it is far from complete, and far from inevitable”. (larsson, 2001). this statement perfectly shows that globalisation should be perceived not as a constant condition or a destination but as a path of development. globalisation as a process that directly effects almost all aspects of society also has reshaped the concept on nation-state. historical concept of the nation-state is that this is an area where the cultural boundaries match up with the political boundaries. the ideal of nation-state is that the state incorporates people of a single ethnic stock and cultural traditions. (kazancigil, dogan, 1986). now we can say that modern world and the inconsistent process of globalisation have given new dimensions to core of the nation-state – matters like national self-confidence, the values of a certain nation, identification with a certain ethnos, traditions, symbols and history. those used to be issues that were natural necessity allowing one to be a special part of the community and underlining the singularity of each individual. nevertheless due to a number of factors borders have ceased to exist literally and figuratively. during the foundation and enlargement of modern europe regional policy was mostly economically driven. when in 2009 secretary general of the council of the european union and high representative for the common foreign and security policy javier solana introduced european security strategy it was stated that „europe has never been so prosperous, so secure nor so free. the violence of the first half of the 20th century has given way to a period of peace and stability unprecedented in european history“. (european security strategy, 2003). today it is clear that this declaration was based on aspects that that the founders and developers of europe could not anticipate. current situation show the need to shift emphasis of policy from economics to security. moreover security policy should conceive the context of practically unlimited information space, the aggressive propaganda of hostile states (or pseudo states) and endless flow of refugee’s that contribute to international terrorism and national disturbances. additional challenge is the obvious indications and events that refer to the collapse of the common europe. brexit and geopolitical interests of russia have entailed the change of political course of power states like germany and france. it is clear that previously mentioned “shrinking of the world” is a phenomena that should be considered also in security community. the described situation encouraged author as a practitioner to set tasks for this research, namely to acknowledge the impact of europe’s “open door” policy, comprehend the progress of europe’s common security policies and estimate how successful it can be in the fast changing environment of today’s world. author used analytical synthesis and a number of scientific research methods to fulfil the tasks of the thesis and draw conclusions. analytical and comparative methods were used to analyse literature and legal documents and compare practical studies. expert interviews were extensively performed to gather the opinion of field professionals from the state security services. author chose four high and medium rank officers from several state security agencies (due to professional reasons the names and positions of interviewed persons cannot be disclosed). 67 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 transformation of the concept of national security analysis of security policy starts with comprehension of the concept of national security. bock and berkowitz defined national security as “the ability of a nation to protect its internal values from external threats„. (bock, berkowitz, 1966). this historical definition clearly outlines the complexity of current situation in europe. defining „internal values“ and „external threats“ in the diversity of modern europe is a challenge for policy makers and to even a greater extent to those implementing these policies. more appropriate could be the approach of professor of transnational relations, foreign and security policy helga haftendorn who states that “there is no one concept of security: national security, international security and global security refer to different sets of issues and have their origins in different historical and philosophical contexts. “ (haftendorn, 1991). nevertheless european policy makers should find the balance between these “different sets of issues” as for europe concept of national security has lost its strict borders. shift of emphasis from economy to security briefly considering the history it is clear that at the core of the european union are security reasons. the european coal and steel community was founded with the aim of ending the frequent and bloody wars between neighbours. it begun to unite european countries economically and politically in order to secure lasting peace. these efforts led to period of rapid economic growth that resulted in enlargement of the community. the collapse of communism across central and eastern europe and the concept of single market gave new dimensions to the ‘four freedoms’ (movement of goods, services, people and money) thus emphasising europe‘s economic competences. the global economic crisis stroke hard in europe. this brought necessity to work on common financial, energy and transit policies. current developments also brought new security challenges – annexation of crimea by russia, increasing religious extremism in the middle east and regions around the world, leading to unrest and wars which result in people fleeing their homes and seeking refuge in europe. currently european union is left not only facing the dilemma of how to take care of these security issues, but also found itself the target of several terrorist attacks. (the history of the european union, 2017). subsistent situation dramatically reveal that europe cannot solemnly concentrate on economic issues but it should also consider evolving threats that it has not faced before. nowadays every policy that is developed within european union should consider the actual threats that influence it‘s member states. nature of the threats european political and economic security expert robin niblett promptly summarised security challenges of european union involving russia, the middle east, refugees, immigration, brexit, terrorist attacks and a united states president-elect who has called the nato alliance “obsolete” and came to conclusion that “the list of threats from a european context are all coming together.” (vlasic, 2017). this listing precisely show the variety of threats that europe is forced to face and what is more important – also deal with. the analysis of annual reports of several european security services show that those are not only hypothetical threats that are comprehended only by policy makers and theoreticians. latvian security police recently published its annual report that outlined security threats – activities of russian federation in the region and international terrorism. first on the agenda is the russian aggressive foreign policy and active espionage in the region. so called compatriot movement is used by russia not to preserve the national identity of the diaspora but is an instrument for enforcing the interests of russian foreign policy and for the power structures to covertly interfere with domestic policy and influence decision-making thus undermining the current state of play e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 68 security system of the country in the long run. manifestation of this soft-power channels through advocacy of russian rights, benevolent interpretation of socio-political process and history and criticism of nato activities in the region. (latvian security police annual report, 2016). international terrorism and refugee crisis is viewed as a consequential threat. swedish security service in process of preparing latest annual report already released security trends. security situation in the region is characterised as tense due to several terrorist attacks in europe and hardened climate in political debates. the nature of the threat to sweden and swedish interests has undergone a significant change in the past few years. for example, terrorist profile has changed from interlinked individuals to so-called „lone actors“. the security service believes that any terrorist attack in sweden would probably be carried out by a lone perpetrator. (swedish security service, 2016). counter-intelligence together with protective security are also mentioned as key factors of security environment in sweden. previous annual report stated that that foreign intelligence services operated in sweden to gather intelligence on politics, economics, defence and technology. they specifically targeted the central government, public agencies, the defence system, foreign interests, as well as research and industry. as a novelty in security community swedish security service became aware that some of these services engage in so-called refugee espionage. (swedish security service annual report, 2013). estonian security police in their annual review stated that one key security impact on estonia and europe was deepening confrontation with the russian federation owing to an aggressive russian foreign policy. as well as latvians also estonians stress that activities of nato disturbs kremlin. as part of unconventional threat estonian security police also mentions compatriot policy – a special form of the divisive policy that russia uses to manipulate expatriate communities. (estonian internal security service annual review, 2016). but for example in the spanish national security council annual report on national security terrorism was named the worst enemy of freedom and democracy and should be countered with strong response and message of unity. migration and counterintelligence were also mentioned as direct threats. (national security council of spain annual report on national security, 2015). the analysis of these assessments show obvious shift from conventional threats like organised terrorist groups to unconventional – lone perpetrators. or with the example of russia from conventional political battle to unconventional usage of soft-power to influence the policy making process from within. practically unlimited information space including social media is also key factor that shape the current security situation. radicalisation more frequently happens on-line. social media reaches individuals in countries and regions where muslims are rarity and locally there are no signs of islamist extremism. even in latvia – country where terrorism threat level has been low appeared a classical example where 22-yera-old mārtiņš from a small town in the middle of country in several month time radicalised and went to fight for terrorist organisation „islamic state“. (krenberga, 2016). latvian security police in its annual report allocated special section to russia usage of information space. for several years russia using all instruments available in a democratic country launched targeted media operations to systematically gain positions in latvian information space. the propagators of russia‘s aggressive foreign policy with the help of generous funding not only involve in journalism and shape alternative opinions but also launch coordinated activities to influence public opinion in accordance with russia‘s geopolitical interests. (latvian security police annual report, 2016). estonia also has stressed the kremlin‘s attempts to make greater use of the internet and social media in its anti-west, including anti-estonian, influence operations. (estonian internal security service annual review, 2016). 69 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 together with the mentioned there is one more key element that contributes to the security situation. migration is now mentioned in every threat assessment. free movement of persons is a complex issue and more detailed analysis of this phenomena can be found in another thesis of the author “free movement of the persons as the cause for problems to prevent threats to national security”. common security policy brief history the idea of a common security and defence policy for europe is not new. several historical events dictated the need for defensive arrangements in europe thus in 1948 the western european union was created. it became the principal forum for consultation and dialogue on security and defence in europe. to enact the defence provisions of the treaty western union defence organisation was established. later it transformed to become „european pillar“ of north atlantic treaty organisation. (duke, 2000). following the end of the cold war and the subsequent conflicts in the balkans, it became clear that the european union needed to assume its responsibilities in the field of conflict prevention and crisis management. the conditions under which military units could be deployed were agreed and the post of the “high representative for common foreign and security policy” was created to allow the european union to speak with ‘one face and one voice’ on foreign policy matters. (the common security and defence policy, 2016). the european security strategy one of the milestones in the development of european security was adoption of the european security strategy in 2003. for the first time europe analysed the european union’s security environment and identified key security challenges and subsequent political implications for the european union. european security strategy provided the conceptual framework for the common foreign and security policy that later became the common security and defence policy. though this paper was of advisory nature it outlined the five key threats – terrorism, proliferation of weapons of mass destruction, regional conflicts, and state failure and organised crime. european security strategy not only listed the threats but also highlighted the possible interplay between key threats and called for political implications of the new security environment. (european security strategy, 2003). in 2008 this document was revised and the conclusions were not satisfactory. report on the implementation of the european security strategy reviled that in all five areas progress has been slow and incomplete. more work was required in all areas, necessity to explore a comprehensive eu approach, raise awareness and enhance international co-operation was defined as strategic. the context of the report demonstrate that european union remains an anchor of stability and carries greater responsibilities than at any time in its history. europe faces increasingly complex threats and challenges that is accelerated by globalisation, shifts in power and differences in values. to rise to these new challenges europe should examine its practice and elaborate on improvement of implementation as the identified range of threats and challenges to its security interests have not gone away but have become more significant and all more complex. (report on the implementation of the european security strategy, 2008). common security and defence policy cornerstone in the development of common security and defence policy is the lisbon treaty that came into force in december 2009. the treaty includes both a mutual assistance (if a member state is the victim of armed aggression on its territory, the other member states shall have towards it an obligation of aid and assistance by all the means in their power, in accordance with article 51 [the e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 70 right to self-defence] of the united nations charter. this shall not prejudice the specific character of the security and defence policy of certain member states’ (teu art. 42.7) (the treaty of lisbon, 2007)) and a solidarity clause (the union and its member states shall act jointly in a spirit of solidarity if an eu member state is the object of a terrorist attack or the victim of a natural or man-made disaster’ (tfeu art. 222) (the treaty of lisbon, 2007)) and allowed for the creation of the european external action service under the authority of the high representative of the union for foreign affairs & security policy/vice-president of the european commission. this structure allows to bring all the necessary eu assets together and to apply a “comprehensive approach” to eu crisis management as the eu is constantly improving its crisis management capabilities. european commission has stated that terrorism, trafficking and smuggling, hybrid threats by state and non-state actors and other threats and challenges that directly affect europe‘s internal security and often feed off the crises and instability in the regions surrounding europe. the necessity to counter these threats and become a stronger actor on the international scene and promote peace and security in its neighbourhood and beyond led to adoption of global strategy for the european union’s foreign and security policy. this strategy turn three interlinked decisions on security and defence form vision concrete actions. european ministers agreed on a new level of ambition in security and defence (council conclusions on implementing the eu global strategy in the area of security and defence, 2016) focusing on three priorities: enabling the european union to respond more comprehensively, rapidly and effectively to crises, in particular in our neighbourhood; helping to make our partners stronger when it comes to their security and defence; and strengthening the european union’s capacity to protect european citizens, by working more closely together on security. european commission adapted the european defence action plan comprising a european defence fund and other actions to help member states boost research and spend more efficiently on joint defence capabilities, thus fostering a competitive and innovative defence industrial base and contributing to enhance european citizens’ security. (roadmap of the initiative: european defence action plan, 2015). the council of the european union and foreign ministers of nato adopted in parallel a common set of proposals for eu-nato cooperation. the set of actions comprises 42 concrete proposals for implementation in seven areas of cooperation. (statement on the implementation of the joint declaration signed by the president of the european council, the president of the european commission, and the secretary general of the north atlantic treaty organization, 2016). the most significant implementer of common security and defence policy is european external action service that acts as he eu’s diplomatic service. its contribution is evident in report on the implementation of the common security and defence policy (based on the annual report from the council to the european parliament on the common foreign and security policy). this paper also stresses that european security environment has deteriorated considerably. it has become more fluid, more complex, more dangerous and less predictable. one of the most important conclusions reveal that threats are both conventional and hybrid, generated by both state and non-state actors, and coming from the south and the east, and that they affect the member states differently though they often have a cross-border dimension. notion that the security of the eu member states is deeply interconnected is followed by remark that uncoordinated and fragmented reaction to common threats and risks perplexes and hampers more common approach. it is emphasised that this lack of coordination constitutes one of the vulnerabilities of the union’s action. the report underlines that, as europe is no longer in full control of its security environment, common security and defence policy tools should be used more efficiently, member states should work on cooperation and coordination and have more integrated approach to crises. (report on the implementation of the common security and defence policy, 2016). 71 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 it is clear that europe long before has comprehended the necessity for common security policy. nevertheless there are several drawbacks that withhold the successful implementation and action of european common security policies. report on the implementation of the common security and defence policy states that „eu citizens would like to see greater eu engagement in matters of security and defence policy“. (report on the implementation of the common security and defence policy, 2016). high representative/ vice president federica mogherini said that “for most europeans security is a top priority today”. (eu security and defence package, 2016). she also called europe to work on „collective sense of direction” to fulfil the political goals that are elaborately set. the need for cooperation and common understanding of the threats was stated also in european security strategy. there it was said that eu needs to be more active, more coherent and more capable. the importance of international cooperation and eu partnerships is also emphasised by claiming that none of the threats can be tackled by the union alone. the conclusion reaffirms that these challenges also pose opportunities for the eu to become more active and more capable in the pursuit of a safer, more unified world. (european security strategy, 2003). in the previous chapter author analysed the annual reports of several security services that can be generalised to particular eu member states and it was clear that range of the threats to these states is actually the same. policies mentioned previously also apply to these states. though there is common comprehension of the threat, the lack of common vision how to counter the threat hinders the success of the common security policies. senior researcher at zurich eidgenossische technische hochschule centre for security studies daniel keohane promptly draw together the reasons behind the failure of the security policies. he indicates that „eu defence policy was conceived as a crisis management, in theory to be able to do everything but territorial defence. but these days eu defence policy seems to do everything but crisis management. the paradox of europe’s defence policy is that the strategic demand for eu action has been growing but political interest in national capitals in acting through the eu’s defence policy has been declining.“ (keohane, 2016). keohane‘s list of reasons for this paradox is rather comprehensive. firstly, different european capitals have different political priorities. secondly, europeans suffer from a serious lack of strategic consensus. thirdly, there is an emerging geographic divide between those governments focused on the challenge of russia and those concentrated on the threats emanating from the middle east and north africa. and finally, divisions between the ‘big three’ – france, germany, and the uk – has enormous impact on eu defence policy as they collectively account for almost two-thirds of eu defence spending. (keohane, 2016). this is another turning-point. shift of focus in the security and defence policies of traditional trend-setters like germany and france has opened another perspective of potential threat to security. several security experts already have claimed that change of security policy in france and germany together with brexit has given russian new potential for development and execution of its hostile and aggressive foreign policy in europe. (interviews with state security officers, 2017). carnegie europe editor in chief judy dempsey in a panel discussion on security issues asked the panellists (active or former top diplomats from europe and north america) to name the most important security threat to their respective countries. here is what they came up with: (1) lack of confidence, (2) the de-linkage across the atlantic, (3) lack of public resilience, and (4) the undermining of european solidarity. (dempsey, 2012). eu institute for security studies also emphasised that „the future of common security and defence policy is not solely predicated on the capacity of the europeans to work together, but alpractical challenges e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 72 most as crucially on their ability to work with others. (european and security and defence policy. the first 10 years (1999-2009), 2009). it is obvious that common vision and sense of solidarity is crucial. nevertheless another key element for europe’s success is subjected to ability of building and maintain positive relations with strategic partners. current situation in europe clearly show that in this form and with this attitude europe will not reach the common goal of “secure and prosperous europe”. in a sense the european union is a unique partnership where member states have pooled sovereignty in certain policy areas to counter the matters that ask for common vision and action without jeopardising their national identity and self-determination. on contrary, further generalisation of european policies and creation of immense common capacities inevitably will lead to total or partial loss of sovereignty. professor at european institute of public administration and senior fellow of maastricht university simon duke has elaborated on the idea of a federal europe and concluded that „the ideas of federal europe enjoy a long history of intellectual endeavour. the notion of a unified and prosperous europe is one that came to the fore in the mid-nineteen century. (..) not all agreed though on how a federal europe should be organised or how to attain a united europe.“ (duke, 2000). from the security perspective this could be one of the best ways to deal with common security threats. in the course of developing this thesis author came to conclusion that this point in history could become also the turning point of european security community transforming it form sporadic national formations to unified common security capacity that could successfully implement common security policies. in this model security policy from declarative paper becomes fully-fleshed defence mechanism. author concludes that europe needs extensive audit of the security policies and an updated threat assessment that would allow any member states to find position in current threat situation and decide to what extent it involves in this common policy. this can be achieved only if each member state clarifies to what extent it is ready to engage in common policies and what they expect from these policies. it is clear that at one point europe will have to understand whether it follows the traditional values of european union like solidarity and mutual assistance or sets new list of values that are more appropriate for member states. _ globalisation as a process has approximated the threat creating security situations and challenges that did not exist. _ historical concepts like “internal values” and “external threats” have lost its direct and unambiguous meaning leaving wide space for interpretations. _ security is not comprehended only as element of economic development but has become separate discipline that is as important as economy or at some point even more important. _ european countries have comprehended that they should begin with identifying the threats, then set the counter measures and deal with the threats. at first two points europe is excellent. _ experts as well as politicians share the views on current threats naming russian hostile activities, international terrorism and migration as key issues. _ members of european security community have comprehended the enormous impact of unlimited information space on the current security situation. it insubstantial whether country concentrates on russian foreign policy or international terrorism. _ idea of common security basis follows development of european union from its foundation. numerous security policies have been created and to some extent implemented but there have been conclusions 73 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 drawbacks that did not allow these policies to be implemented fully. _ security policy defines the threats and sets the measures but the governments of member states are the ones who brings these policies into action. for the policy to be successful mutual assistance and solidarity should not be mere declarations. _ to some extent europe should acknowledge that it has partially lost control of current security situation as the threats themselves and the ways they are realised are changing at enormous speed. _ though the member states are subject to one security policy the comprehension of the threats varies form country to country, for region to region. _ internal and external cooperation, sense of common direction, coherent actions and strong answer are key elements to make european common security policies successful. _ europe will have to understand whether it follows the traditional values of european union like solidarity and mutual assistance or sets new list of values that are more appropriate for member states. bock, p.j., berkowitz, m. 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(retrieved from http://www.lsm.lv/lv/raksts/latvija/zinas/ekskluziva-intervija-ar-dais-saverveto-martinu-esmu-vilies-islama-valsti.a216068/) larsson, t. (2001) the race to the top. the real story of globalization, 3 references e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 74 national security council of spain. (2015) annual report on national security. (retrieved from http:// www.dsn.gob.es/en/documento/informe-anual-seguridad-nacional-2015) north atlantic treaty organization. (2016) statement on the implementation of the joint declaration signed by the president of the european council, the president of the european commission, and the secretary general of the north atlantic treaty organization. (retrieved from http://www.nato.int/ cps/en/natohq/official_texts_138829.htm) oxford university press. (2017) oxford dictionary. (retrieved from https://en.oxforddictionaries. com/definition/globalization) swedish security service. (2013) annual report (retrieved from http://www.sakerhetspolisen.se/download/18.4f0385ee143058a61a81622/1400770540371/ sapo2013_eng_webb.pdf) swedish security service. (2017) launch of the swedish security service 2016 yearbook. (retrieved from http://www.sakerhetspolisen.se/en/swedish-security-service/about-us/current-events/ news/2017-03-16-launch-of-the-swedish-security-service-2016-yearbook.html) vlasic, m. (2017) the global security outlook. comments on world economic forum. (retrieved from https://www.weforum.org/agenda/2017/02/the-global-security-outlook/) keinis virginijs mg.iur. (doctoral law student) rīga stradiņš university fields of research interests law studies, politics, security policies address 16 dzirciema street, rīga lv-1007, latvia e-mail: virginijs.keinis@gmail.com about the author microsoft word european studies_2011_no_5_titulinis issn 1822 – 8402 european integration studies. 2011. no 5 editorial since 2002, institute of europe of kaunas university of technology prepares and publishes scientific works under the theme of european integration. starting 2007 year the journal has got an issn code. at the present the annual scientific journal european integration studies: research and topicalities (issn 1822-8402) is published once a year. the journal is covered by the ebsco indexing services (full text starting from 2008, no. 2) central & eastern european academic source database coverage list. papers published in the european integration studies: research and topicalities undergone a formal process of peer review. the main objective of the journal is to analyse problems and actualities considering european integration processes. the articles are brought under the three main themes. these are social evolution of europe, economics of european union as well as managerial aspects of european integration. it is believe that the articles included in the journal, being selected and reviewed, are of high scientific quality were actual scientific problems are solved, deserve a wide distribution. editors hope that presented new scientific ideas and ways of problems solving will help to develop research not only for academicians and students but and for a wide representatives of society which seek to improve their knowledge in european integration. in conclusion, editors would like to thank all authors of the articles for their willingness to share their ideas with others. kęstutis kriščiūnas, rasa daugėlienė 53 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 social economy: the potential and challenges of social enterprises in lithuania http://dx.doi.org/10.5755/j01.eis.0.11.18916 jolita greblikaitė aleksandras stulginskis university, universiteto str. 10, akademija, kauno raj., lithuania jolita.greblikaite@asu.lt neringa gerulaitienė kaunas university of technology, k. donelaicio str. 73, kaunas, lithuania neringa.gerulaitiene@ktu.lt živilė žiukaitė aleksandras stulginskis university, universiteto str. 10, akademija, kauno raj., lithuania zivile.ziukaite@gmail.com juan j. garcia-machado professor of finance, university of huelva, plaza de la merced, 11. 21002 huelva, spain machado@uhu.es submitted 04/2017 accepted for publication 08/2017 european integration studies no. 11 / 2017 pp. 53-64 doi 10.5755/j01.eis.0.11.18916 © kaunas university of technology social economy: the potential and challenges of social enterprises in lithuania eis 11/2017 abstract the paper analyses the peculiarieties of social economy, focusing the scientific attention to social enterprises and their environment in eu and, especially, lithuania. the research problem of the paper lays upon revealing the situation and development of social entrepreneurship and social enterprises in eu and lithuania, especially emphasizing rural areas and their peculiarities. the aim of the paper is to disclose the role of social economy and the importance of social enterprises in it, especially concentrating on the environment analysis for such business in lithuanian rural areas. in the research paper, there were analysed social economy context and importance, legal, economic and social environment of social enterprises in lithuanian rural area, and social enterprises in lithuania in terms of latest statistical data. main findings of the fulfilled research are following: social economy remains very important in eu countries, but the exposure of it is quite different in various countries. lithuania is trying to implement the principals of social economy in the policy of the country. now the attention is focused on social entrepreneurship and social enterprises as the unused potential for economy boost in the country. environement analysis of social enterprises, especially focusing on rural areas of lithuania, revealed that situation is getting better, but there are a lot of things to be improved for successful development of social business in the country. the improvement should start from public institutions and their focused activity to improve conditions for social enterprises. otherwise, intentions from business actors are very important also. the further guidance of this research could lead to deeper analysis of social entrepreneurs’ intentions due to starting up social business gathering primary data from the potential and existing entrepreneurs. rural areas remain as unexplored area for social business creation, especially when additional financial support is planned for them. keywords: social economy, social entrepreneurship, social enterprises, rural areas, lithuania. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 54 the actuality of the research fulfilled in the article is based on the main principles of eu functioning. the social dimension was always a priority for the union and for the countries in it. otherwise, social economy and social enterprises are congruent part of overall economy. many academics analysed the phenomenon of social economy (dunoyer, 1830; evans & syrett, 2007; arpinte, cace & cojocaru, 2010; vaillancourt, 2009; moulaert & ailenei, 2005), however a universal definition of the social economy still does not exist. the characteristics of the social economy vary from country to country. the strenghetning of economy in the countries is important for them and all the entity. social entrepreneurship and enterprises are the tool of unused potential. in some member countries, social entrepreneurship was developing more than 20 years. in other countries, in this case in lithuania, social business just started to gain its place in the market. the other reason for researching social enterprises in lithuania is difficulties in lithuanian economy, especially in rural areas (greblikaite, rakstys, 2016). lack of constant research in this field provides the scientific quriosity to analyse this issue in more detailed way. the research problem of the paper lays upon revealing the situation and development of social entrepreneurship and social enterprises in eu and lithuania, especially emphasizing rural areas and their peculiarities. the aim of the paper is to disclose the role of social economy and the importance of social enterprises in it, especially concentrating on the environment analysis for such business in lithuanian rural areas. the object of the research is social enterprises as a part of social economy. methods of the fulfilled research are scientific literature analysis in-depth, situation analysis, statistical data analysis, comparative analysis. the originality/ value of research is related to the actuality of analysed question in lithuanian economy and the detailed analysis of situation of the analysed object. novelty of the research lays upon revealing obstacles and perspectives of social enterprises development in lithuanian rural areas. the definition of social economy first appeared in france in the xix century (defourny & develtere, 1999). the french liberal economist charles dunoyer (1830) published a treatise on social economy that advocated a moral approach to economics. the french sociologist frederic le play accepted and contributed this concept in socioeconomic analysis. in 1867, he introduced the term e´conomie sociale at the universal exhibition (bidet, 1997). according to topalov (1999), in frederic le play‘s text, he defines the social economy as the study of the situation of the working class and of its relations with other classes (moulaert & ailenei, 2005). for a long time, the definition was much broader than it is today. a universally accepted definition of the social economy still does not exist, and the definition may vary from one country to another (mcmurtry, 2010; defourny & develtere, 1999). social economy enterprises and organisations are present in many different forms, at different levels, local, national and european. many academics analysed the phenomenon of social economy (evans & syrett, 2007; arpinte, cace & cojocaru, 2010; vaillancourt, 2009). according to defourny & develtere (1999), any economic phenomenon that has a social dimension, and any social phenomenon that has an economic dimension, could be considered as a part of the social economy. social economy is everywhere and for anyone. across the social economy are a variety of different relationships between stakeholders such as volunteers, members, trustees, users, workers, funders, customers, contractors and the wider community (smith, 2005). the social economy includes mutual societies, cooperatives, associations, foundations, as well as new forms of social enterprises and organisations which share social economy’s values (social economy europe, 2015). social economy enterprises and organisations are particularly active in social security, education, social and health services, banking services, insurance services, local services, renewable energy, training and research, social tourism, consumer services, handicraft, industrial and agrifood production, introduction social economy in the european union 55 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 building, residential environment and cooperative housing, associated work, as well as in the domains of culture, sport and leisure activities (social economy europe, 2015). essentially, the social economy is made up of the voluntary, non-profit and co-operative sectors that are formally independent of the state. their market activities are means of achieving social development goals that transcend the market per se. thus defined, the social economy is considered as a third sector (browne, 1997). according to the approach used by le´vesque et al. (1999), there exists a ‘third sector’, different from the traditional public ‘general interest serving’ and the private market sectors, that combines: formal and informal elements at the level of organisation (market, state, volunteering, self-help and the domestic economy), market and nonmarketoriented production and valorisation of goods and services, monetary and non-monetary resources at the level of funding (moulaert & ailenei, 2005). as stated by concise (2003), the social economy is defined as the sector of economic activity made up of social enterprises organized around shared values concerned with the satisfaction of needs and not for profit principles. it is distinguished by cooperation and self-organization, distinctive types of inter-organizational relationships, and the pursuit of a new mode of production and a mode of economic integration which is characterized by norms of reciprocity, which make it both a formalized subsector of the broader third sector and distinct from the public and private sector. ciriec (2000) defines the social economy according to four criteria: (a) the object of providing services to members (common or mutual interest) or the community (general interest); (b) the primacy of people over capital; (c) democratic functioning; and (d) a management system which is independent of the public authorities (smith, 2005). according to vaillancourt (2009), social economy organizations produce goods and services with a clear social mission and have these ideal-type characteristics and objectives: 1) the mission is services to members and communities and nonprofit oriented. 2) autonomous management is independent of government/ public authorities. 3) democratic control by membership 4) people have priority over capital. 5) participation, empowerment, individual, and collective responsibility and solidarity. as reported by chaves (2015), the main shared features of the social economy are: 1) they are private; 2) they are formally-organised; 3) they have autonomy of decision, meaning that they have full capacity to choose and dismiss their governing bodies and to control all their activities; 4) they have freedom of membership; 5) any distribution of profits or surpluses among the user members, should it arise, is not proportional to the capital or to the fees contributed by the members but to their activities or transactions with the organisation. 6) they pursue an economic activity in its own right, to meet the needs of persons, households or families. 7) they are democratic organisations. social economy became a subject of interest because its enterprises and organisations had to assume an increasing role in the production and supply of social goods and services of public interest (arpinte, cace & cojocaru, 2010). europe (evans & syrett, 2007; borzaga and santuari, 2003; ecotec, 2000). the social economy creates new quality jobs and has the capacity to meet today’s challenges, not only through labour-intensive production, but also through innovative technologies. it also contributes to the social integration of vulnerable sectors of society (social economy europe, 2015). social economy organisations continue to hold a significant potential, particularly by providing open jobs for the people belonging to vulnerable groups “goods and services that had to be e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 56 provided at affordable cost to mainly vulnerable social groups were covered, at varying levels, by the social economy sector” (cace et all, 2010, p 139). the period of social and economic crisis stresses the importance of the social economy sector, knowing that the loss of job or the employment opportunities affect primarily the people having a lower educational or social capital. the reintegration or insertion of these people on the labour market is more difficult, sometimes very unlikely, with high probability to remain (arpinte, cace & cojocaru, 2010). the social economy is founded on the principles of solidarity and collective involvement in a process of active citizenship, individuals deciding to collaborate on a voluntary, co-operative and reciprocal basis, it generates high quality jobs and a better quality of life, and offers a framework suited to new forms of enterprise, work and responsible consumption (social economy europe, 2015). also, strong social economy initiatives are focused on community-based actions that incorporate the principles of equity, redistribution, solidarity, mutuality and meeting social needs rather than maximizing profit (pearce, 2003). the social economy plays an important role in regional and local development and social cohesion, is socially responsible, in conducting activities, social economy actors focus on social aims, and social economy is a factor of economic democracy. the social economy contributes to the stability and pluralism of markets, contributes to key european union’s priorities and strategic objectives, such as: smarter, sustainable and inclusive development, social cohesion, full employment and the fight against poverty, participatory democracy, better governance, sustainable development, etc. (social economy europe, 2015). on the other hand, the social economy has some weak points. weak social economy approaches are criticized for not addressing societal transformation, minimal attention to environmental concerns (amin et al., 2002). a critical point of differentiation is whether social economy/ enterprise activities are able to generate their own capital, rather than relying on an ongoing subsidy from the derivatives of the mainstream economy and the politics of redistribution (connelly, markey & roseland, 2011). social economy enterprises and organisations are an integral part of the european social model and play an important role within the objectives of european policies, in particular for employment, social cohesion, entrepreneurial spirit, governance, local development etc., to which they actively contribute. the social economy is fast growing sector in europe (molloy et al., 1999). in the eu, there are around 2 million social economy entities, accounting for approximately 10-12% of all european businesses. traditional social economy entities employed over 14.5 million people, equivalent to 6.5% of the entire eu working population in 2010, up from 11 million and 6.5% in 2002 (liger, stefan & britton, 2016). social economy enterprises main purpose is to serve their members rather than maximise profits. in the following chapters of the article social economy actors -social enterprises and their environment in eu and lithuania are discussed in detail. the research of social entrepreneurship is relevant due to two groups of reasons. they could be identified as intrinsic and extrinsic reasons. intrinsic reasons are those arising from the general economic situation both in the european union and in lithuania. economy’s growth rate of the eu is rising not as fast as expected, and population employment is insufficient. competition is high. it acts as stimulus to business to look for new markets, new products or services and new models of entrepreneurship performance. entrepreneurship problems in lithuania are like those in other countries of the eu, and some of them are even more significant, e.g. lack of funding sources, bureaucratic obstacles, activities lacking innovation, challenges posed by small market, etc. social entrepreneurship is one of the possible alternatives for solving these problems, and the benefit of it is undeniable. another group of reasons which encourages further research into social entrepreneurship is extrinsic or initiated reasons. it covers all political and other initiatives which appeared based on situation analysis of the social enterprises and entrepreneurship environment in lithuanian rural areas 57 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 the first group of reasons, i.e. encouraging social entrepreneurship at the strategic level starting from the lisbon strategy 2000 and to the entrepreneurship 2020 action plan at the eu level, which clearly articulates and emphasises the need for development of such entrepreneurship, establishment of social entrepreneurship and supporting social entrepreneurs. the concept of social entrepreneurship in lithuania (lr ukio ministerija, 2015) approved in april 2015 is the most recent politically-legislative initiative in the sector of social entrepreneurship development. for better understanding of the issues of social entrepreneurship and social enterprises in lithuania it is worth analysing the environment of their activity (greblikaite, rakstys, 2016). legal environment. the lithuanian government has made some steps towards development of social enterprises, social entrepreneurship, and social innovation, but the essential one has been made just in 2015. the lithuanian government confirmed the concept of social entrepreneurship adopted in april 2015 (lr ukio ministerija, 2015). according to the definition accepted by the ministry of economy, “social entrepreneurship is a business model according to which the use of market mechanism and the pursuit of profit are related to social aims and priorities. it is based on corporate social responsibility and public and private sectors’ partnership. social entrepreneurship applies social innovation. such entrepreneurship involves three main aspects: entrepreneurial based on casual business activity, social based on social aims, and managerial based on profit sharing and fair public management.”(lr ukio ministerija, 2016, p. 3). the essence of social entrepreneurship according to the adopted concept is based on attracting existing models for this kind of business and changing ngos activity through adapting existing business models. the concept has three objectives (lr ukio ministerija, 2016, p. 6): 1) to create favourable legal environment for social entrepreneurship; 2) to create favourable financial and tax support system; 3) to reach the visibility and awareness of the phenomena in the society. the lithuanian ministry of economy (see www.ukmin.lt) is now consulting public entities, businesses including those in rural areas for the preparation of the law on social enterprises. the consultation especially focuses on co-operation in revealing criteria for the evaluation of social entrepreneurship. in the autumn of this year some special meetings will be announced for businesses in rural areas. it will be based on supporting social entrepreneurship in rural areas. a lot of special teaching courses will be made available for businesses situated in rural areas, seeking to invite family business representatives and local action groups to participate in the upcoming meetings. the coherence of the above-mentioned dimensions provides successful model of social enterprises operating in various countries of the eu. social entrepreneurship is not the only and the best solution for the traditional business, but it suits the political and social model of the eu and the conditions are favourable or become favourable for the creation of such business and social enterprises. it is very important to integrate eu laws with lithuanian legislation and specifically define what is considered a social enterprise and what criteria social business should meet. the real actors in the lithuanian social entrepreneurship and social business are ngos and smes (see figure 1). the social concept provides a quite similar understanding of what entities should be implementing the social mission in business or, to be more precise, create added value with very specific social dimension. but legislation regulates social services providers therefore the situation must be improved in terms of appropriate legislation. economic environment. to better understand the above-mentioned situation in lithuanian rural areas, current problems should be discussed deeper. emigration is a problem not only in lithuanian rural areas. it is one of the biggest problems in the entire country. lithuania has the highest emigration numbers in the eu1. there are various causes for this but the essential ones are 1 http://www.migracija.lt/index.php?1357390560 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 58 economic and social. a lack of job places in various sectors remains the most important problem in rural areas. diversity of activities and business could theoretically provide the conditions for citizens to build their life in native country. social economy in the biggest eu countries is very important and creates significant amount of income for their budget. as the statistical data reveal, the united kingdom, germany, spain, france, finland experienced a boost in social economy (see figure 2). but, for example, such countries as denmark, malta, cyprus, latvia were not interested in developing their social enterprises and boost social economy. slovakia, romania, ireland, bulgaria, slovakia, and lithuania were in quite analogous situation in terms of the size of their social economy (oecd, 2013). ney et al. (2014, p. 60; konda et al., 2015) mention that, first, value creation refers to the design and delivery of products and services. some social entrepreneurs will introduce entirely new practices to the provision of public goods and social services. secondly, value creation also involves the financing practices, human resource management and marketing regimes to deliver products. some social entrepreneurs may provide a rather common product or service, say health care, but are radically innovative in their financing, managing and marketing practices. in this way, the framework captures social innovations that create value in terms of the services or products, in terms of management and in terms of both. social innovations aim to create value for society. in some eu countries, for example slovenia, the greatest difficulty with the implementation of social innovation into the social setting is the weak supportive environment, lack of funds and the unwillingness of the state and other important actors to take risks and make changes (azmat, samaratunge, 2013). in lithuania, the situation is quite similar, some of the key factors remain a lack of legislation, tax regulation, weak knowledge about social entrepreneurship and social innovation. such conditions lead to insufficient development of innovative social enterprises. unemployed people lack inspiration and support for successful entrepreneurial social start-ups. the data reveal that the motives and preconditions for social economic activity in different countries remain different and can remain different in the future. but strong economies are generally more involved in social entrepreneurship than weaker ones. in the european countries, more than 99% of enterprises are small and medium-sized (smes) ones2. in lithuania, the situation is the same. 2 http://ec.europa.eu/eurostat/web/structural-business-statistics/structural-business-statistics/sme?p_p_ id=navtreeportletprod_war_navtreeportletprod_instance_vxlb58hy09rg&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&p_p_col_id=column-2&p_p_col_pos=1&p_p_col_count=4 figure 1 spectrum of social enterprises in lithuania. source: ec, 2014 59 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 the problems that arise for such enterprises are still related to bureaucratic procedures, high taxes, poor management skills, non-innovative activities and low added-value created because of a lack of innovative technologies and decisions. smes also operate in rural areas. and the situation there is even more difficult because of a small market and lack of consumers. family business is also related to smes, but the legal basis for it is not well developed in the country. therefore, from the legal economic criteria perspective, some preparations for appropriate classification of family farms have already been made. that is a step forward in lithuanian agriculture making conditions more favourable for farmers and family householders. social environment. in lithuania, the population declines faster than in any other eu country3. the emigration flows from the country have already been mentioned. despite economic reasons, said social problems could be the cause of such a situation. for 25 years the corruption index in lithuania remained almost at the same level (approximately 55)4. people do not trust their public 3 see www.stat.gov.lt figure 2 the size of the social economy in 28 european countries source: oecd, 2013 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 60 and governmental institutions. the reasons are obvious. public management stayed at quite a poor level, that caused ineffective solutions from the strategic to the tactical levels. that always disappoints people because it creates more social problems, such as insufficient education system, medical services, tax system ineffectiveness, inequality and overall disappointment in the development of the country. lithuania has the biggest number of suicides per country in the eu5. that leads to very sad social climate and critical thinking about what is happening in the country. even in the world lithuania is in the 8th place after such countries as sri lanka, guyana, kazakhstan6. those facts are even more disappointing when considering lithuania’s place in the overall context of the world. responsibility of the public sector is a quite complicated issue because of the complexity of public organisations and institutions, variety of their functions. today responsibility of public organisations has a lot in common with csr as much as some business philosophy and management principles are addapted for implementing social responsibility. in this case, public organisations’ responsibility is analysed through accountability and publicity implementation taking into consideration social marketing as a helpful tool (greblikaite, tamuliene, 2016). in rural areas, social climate is worse than in the towns because of higher unemployment, poverty, social exclusion, closing schools. the situation is even more different in the so-called thirdworld countries where poverty is high (but eu countries are also not immune to it – about 20 percent of population live below the poverty line in such countries as lithuania and latvia (eurostat data)). therefore, social entrepreneurs must create novel business models and organisational structures, and unique strategies for brokering between very limited, disparate and often dynamic resources to create social value (konda et al., 2015). the difference in economic development of the countries does not deny the fact that social entrepreneurship is powerful tool for synergy of different regions and environments especially seeking to diminish poverty and social exclusion. the existing problems in lithuanian rural areas must be solved by public institutions, but on the other hand that is also an area for social entrepreneurs and their actions. every social problem could become a great business plan with a positive solution. that is why social entrepreneurship could be a tool for improving not only the economic but also the social situation. lithuanian social enterprises development trends at the end of 2016 were as following: there were 158 social enterprises, of which 66 social enterprises, employing people with disabilities. the number of social enterprises in the years 2006-2016 shows increasing trends in lithuania. in 2011 the number of social enterprises decreased till 36, but after that the number of social enterprises in lithuania was increasing progressively. during the period 2006-2016 number of social enterprises employing people with disabilities could be characterized by continuous growth as employers had the opportunity to employ people with disabilities and use of the various categories of state assistance. in 2016 the number of disability social enterprises reached 97 (see figure 3). the increasing number of social enterprises shows that employment conditions, social integration and training of social skills are getting better.4 56 63,3 percent of the main activities of all social enterprises are related to the provision of various services (consultancy, catering, computer maintenance, cleaning services, printing services, etc.). the main activities of the majority of social service enterprises are cleaning services (25%), consulting (10%), packaging (9%), auxiliary construction and finishing (7%), health promotion (6%) (see figure 3). 67,83% of employers working in social enterprises are employed in social service enterprises (the majority of employed people are with special needs or have limited work capacity). 4 see www.transparencyinternational.org 5 see http://ec.europa.eu/eurostat/web/products-eurostat-news/-/ddn-20170517-1?inheritredirect=true&redirect=%2feurostat%2f 6 see https://en.wikipedia.org/wiki/list_of_countries_by_suicide_rate social enterprises in lithuania 61 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 figure 3 dynamics of number of social enterprises in lithuania source: created by the author according to lithuania labour exchange. 24 24 22 28 40 36 61 66 75 82 97 0 20 40 60 80 100 120 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 36,7% of social enterprises work is related to production (sewing and textile products, food products, furniture, paper products, etc.). the major part of manufacturing social enterprises is mainly related to sewing and textiles (17%), furniture production (12%), food production (10%), paper production (5%) (see figure.4). 32,17% of people working in social enterprises are employed in manufacturing social enterprises. the fact that most social enterprises operate in the field of provision of services is the reason that most people with disabilities can’t work physically or are with a big possibility for risk. since the adoption of the law in 2004, the number of registered social enterprises in lithuania increased five times and the number of their supported employees – seven times (see figure 5). over 10-year period state subsidies increased more than 20 times, from 0.57 million eur in 2004 to more than 11.58 million eur planned in 2014. since 2008 large part of these subsidies are allocated from the esf funds. it is forecasted that in 3 years number of social enterprises (as per law on figure 4 social enterprices distibution by working in service activities source: created by the author according to lithuanian labour exchange. 0 5 10 15 20 25 30 clean service other service consulting service packaging auxiliary works and finishing health service print service feed service projection service waste management engineering solutions 28 17 12 10 5 3 3 3 3 3 3 3 3 0 5 10 15 20 25 30 other production sewing and textiles furniture production food production paper production electrical lighting equipment spice plastic products decorations metal constructions wood products ceramic products installation equipment e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 62 source: created by the author according to lithuanian labour exchange. figure 5 social enterprises distribution by manufacturing activities figure 6 development of the social enterprises and their employees from the target groups sources: lithuanian labour exchange, 2016; šcerbickaitė, moskvina, 2013. 10 social enterprises) will not increase significantly (5-6 start-ups per year). however, number of the disabled employees could reach 7000. thus, demand for state subsidies could reach about €18.83 million eur or around 1.5 times more than in 2014 and is likely to constantly grow further. the fulfilled analysis of the social enterprises activity in lithuania presents the imporving situation but also discloses the problems and challenges for such business. 0 5 10 15 20 25 30 clean service other service consulting service packaging auxiliary works and finishing health service print service feed service projection service waste management engineering solutions 28 17 12 10 5 3 3 3 3 3 3 3 3 0 5 10 15 20 25 30 other production sewing and textiles furniture production food production paper production electrical lighting equipment spice plastic products decorations metal constructions wood products ceramic products installation equipment 63 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 boost of social economy in the eu countries disclosed a lot of possibilities, but otherwise it has been a challenge for some countries, including lithuania. social enterprises are supported by state implementing social and economic policy. but despite potential they could expose, especially in problematic rural areas, the situation remains complicated as environment analysis revealed. the difficulties remain in legal, economic, and social environment for prosperous development of social enterprises. lack of appropirate legislation, tax burden, bureaucracy, financial dificultires in smes, social climate in the country are just some of them. the latest data expose interest of business to become social, especially in rural areas because their situation is more difficult than in towns in terms of unemployment and activity development. the further research in the theme could be directed to business actors attitude and intentions to develop social business. conclusions amin, a., cameron, a. and hudson, r. 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(2005). green citizenship and the social economy. environmental politics: 14(2), 273-289. https://doi.org/10.1080/09644010500055175 social economy europe (2015). social economy. available at: http://www.socialeconomy.eu.org/ social-economy šcerbickaitė k., moskvina j. (2013). social entrepreneurship and other models to secure employment for those most in need (croatia, 29-30 october 2013): social enterprises in lithuania. comments paper – lithuania. peer review on social entrepreneurship, croatia. topalov, c. (1999). les ‘re’formateurs’ et leurs re’seaux: enjeux d’un objet de recherche, in: c. topalov (ed.) laboratoires du nouveau sie`cle: la ne’buleuse re’formatrice et ses re’seaux en france, 1880–1914, pp. 11–58. paris: editions de l’e´ cole des hautes e ´ tudes en sciences sociales. vaillancourt, y. (2009). social economy in the co-construction of public policy. annals of public and cooperative economics: 80(2): 275-313. https://doi.org/10.1111/j.1467-8292.2009.00387.x greblikaite jolita assoc. prof., phd aleksandras stulginskis university institute of business and rural development management fields of research interests social entrepreneurship, family business, social business in rural areas, young entrepreneurs address universiteto str. 10 akademija, kauno raj. lithuania tel. +37061644615 gerulaitiene neringa phd candidate kaunas university of technology fields of research interests family business, dynamic managerial capabilities, innovations and entrepreneurship address k. donelaicio str. 73 kaunas, lithuania tel. +37067226560 ziukaite zivile master of economics aleksandras stulginskis university institute of business and rural development management fields of research interests social entrepreneurship, family business, social business in rural areas address universiteto str. 10 akademija, kauno raj. lithuania tel. +37060200946 garciamachado juan j. professor of finance university of huelva fields of research interests econometrics, risk assesment and management, agriculture, finance address plaza de la merced, 11 21002 huelva, spain about the authors european integration studies 2011.indd 20 issn 1822–8402 european integration studies. 2011. no 5 spatial planning as a tool for improving attractiveness of the places: case of latgale region sandra ezmale, lienite litavniece rezekne higher educational institution abstract according the new concepts of the regional economics and geographical literature, territorial attractiveness is an issue of growing importance for national, regional and local governments during last years. territorial attractiveness can be defined both as the capacity to attract new residents, visitors, enterprises and investments as well as the ability to retain and develop mobile communities and assets. medium-sized and small towns play complementary roles and are differently integrated into urban systems depending on the specific features of the country and the historical, institutional and economic development background, but at the same time its attractiveness has been increasingly recorded as a key factor to strengthen the competitiveness of cities in the regional, national and global context. city attractiveness is determined by different elements like the quality of road networks and public transport, effectiveness of infrastructure, quality of life as well as activity of local economy, city image and institutional capacity, which are substantial factors for attraction of new residents, highly skilled workforce, new enterprises and investments. policy and city development planners have adopted diverse measures like spatial plans and strategies for city development to enhance it. territories are competing to offer the most productive business environment and to attract new businesses or industries creating jobs and thus providing increased material welfare. there has been a growing interest in academic literature in recent years on creating new paradigms of regional development to introduce new ways of tackling longstanding regional problems. one of these directions is spatial planning being closely related to the regional planning theory, which has sought to explain the causes and consequences of regional economic disparities and regional competitiveness. political and development planning documents, which take into account spatial perspective, can contribute to many important factors of competitiveness in production and development being essential areas for growth. winners are those territories which have elaborated their development strategy or other development planning documents with a clear message and vision to potential investors as well as local entrepreneurs regarding the future development of the territory and the mechanisms to achieve it. it reduces doubts and risks of potential investors and territory developers and promotes mutual trust and partnership between policy makers, decision makers and entrepreneurs. the research deals with the analysis of the development planning documents to enhance the attractiveness and competitiveness of cities considering the example of latgale region. keywords: spatial planning, city attractiveness, competitiveness, quality of life, regional development, strategies. introduction there has been a growing interest in academic literature in recent years in developing new paradigms of regional development to introduce new ways of tackling longstanding regional problems such as spatial planning, territorial attractiveness and competitiveness. the previous researches regarding the evaluation of attractiveness and competitiveness are primarily oriented to metropolitan cities, cities and large scale territories, while medium-sized and small cities’ attractiveness has been increasingly recorded as a key factor to strengthen their competitiveness in the regional, national and global context. it is especially important in remote regions. city attractiveness is determined by different elements like the quality and effectiveness of infrastructure, quality of life as well as activity of local economy and institutional capacity, which are substantial factors for attraction of new residents, highly skilled workforce, new enterprises and investments. policy makers and city development planners have adopted diverse measures like spatial planning for city development to enhance it. the aim of the research is to analyse the quality of development planning documents in accordance with the needs of increasing business attractiveness based on the development planning documents in the cities and towns of latgale region. two tasks have been set within the framework of the research: • to conduct a research regarding spatial development and increasing the attractiveness of places; • to analyse the development planning documents of latgale region in the context of increasing city business attractiveness aspects. research object – spatial planning documents of latgale region in the context of increasing business attractiveness. research subject – business attractiveness factors and criteria in the planning documents of latgale region cities and towns. the novelty of the research – it is the first time in latvia when the research of spatial planning as a tool for improving business attractiveness of places considering the example of latgale region is made. research is done within the rhei esf project nr.2009/0227/1dp/1.1.1.2.0/09/apia/viaa/071 “linguoissn 1822–8402 european integration studies. 2011. no 5 21 cultural and socio-economic aspects of territorial identity in the development of the region of latgale”. research methods – theoretical analysis of scientific literature, comparative analysis, survey, factor analysis, correlation analysis. theoretical aspects of cities attractiveness in the context of spatial planning the attractiveness of cities has become an important topic for policy makers and city planners in order to enhance their competitiveness through a flexible, adaptable and diverse local economic structure by which the city is better positioned in global competition. greater attention regarding territorial attractiveness has been paid to in the political documents of the european union emphasizing that it is an essential factor to increase competitiveness. at the same time, the attractiveness of cities does not have a clear definition in academic researches. some researches (berg, meer, otgar) state that factors such as the labor market quality and size as well as the living environment quality are important for entrepreneurs, while residents value clean and safe environment, balanced social structure, access to good quality public services, etc., but for tourists and visitors good accessibility of the city, and diverse cultural activities are of great importance (sinkiene, ..., 2010). interpretation of attractiveness and elements influencing attractiveness for a variety of different economic subjects (local and foreign entrepreneurs, residents, visitors, etc.) is different. one of the frequently used approaches that tries to understand the attractiveness of places are attempts to rank places by diverse aspects of their performance: business climate, quality of life, etc. (niedomysl, 2010). quality of life is a wide range of the human activity rules set, which includes the standards of living, social welfare, political climate, psychological comfort, as well as components for living in ecological environment (meyers, 1987). in order to make the city to be attractive to residents as a target group, it must meet the needs of every particular resident and his family. majority of the systems of indicators for quality of life measurement include such attributes of place as housing quality, morbidity and mortality rates, educational achievements, income level, crime rate, as well as subjective indicators regarding residents’ satisfaction with services, amenities and opportunities (meyer, 2009). residents of different regions are different, so are the factors affecting the perception of the living standards. in order to observe the past experience of population, the analysis of objective welfare indicators should not be done basing on existing values, but, basing on comparative measurements avoiding the problems of different measuring units (mayers, 1987). in recent years, under the influence of economic and cultural globalization specific and unique attributes of place have been pointed out: distinctiveness, sense of place, cultural heritage (mayer, 2009). various conceptual frameworks have been developed for understanding the quality of life approaches: united nations human development index (1990), the economist: quality – of life index (2005), physical quality – of life index (1979). the theoretical basis and empirical researches in assessing the potential for tourism development and attraction from the point of view of visitors or tourists are associated with a number of disciplines of science. a number of scientists link tourism development with landscape development in the spatial analysis and planning context (gunn, 1994; walmsley and jenkins, 1992; smith, 1983) as well as with demand and market attractiveness analysis (hu and ritchie, 1993), while nyberg (1995) offers the tourism system (includes visitors, destinations, and their interconnection) to include the concept of “attraction” in addition to the demand and supply approach (formica 2006). visitors (tourists, city visitors, etc.) come to a city to stay there for a short time. therefore, city visitors look for a temporary accommodation offer (hotels, apartments, camping, family houses, etc.), as well as good accessibility and availability of these facilities. such factors as cost and accommodation facilities, access to entertainment and restaurants, public transport and other amenities are attractive for visitors (braun, 2008). cities compete one with another to attract new businesses or industries creating jobs and thus providing increased material welfare. according to the theories of economic development, spatial competitiveness can be explained in different ways: as competition of places, competitiveness of places and territorial competition (gordon, 2011). in order to make a city to be attractive for business, it must be well reachable, have reasonable land prices, local taxes and normative regulations, as well as it should be appropriate labor force supply and quality (braun, 2008). a place has a competitive advantage if it has technological, social, infrastructural and institutional assets advantages (bristow, 2011), while urban performance is linked to the standard of living, employment rate and productivity in various ways (begg, 1999). van der klassen and van der meer (1990) argued that the growing importance of the quality of the living environment in combination with the intensifying spatial interactions among the european cities causes the increase and change of the nature of economic competition between cities and regions (braun, 2008). particular attention is devoted to the role of human capital, knowledge and innovation. studies justify that human capital spillovers can increase productivity (morreti, 2004), a real source of economic value creation is human creativity (florida, 2005) and creative industries (evans, 2009), and knowledge spillovers are an important mechanism underlying endogenous growth (audretsch, 2004). it has led to putting emphasis on regional “assets” as the source of competitiveness, not only physical factors but also “soft” or less tangible factors, for instance, territorial identity (kunzmann, 2006), democracy (crouch, 2011), social innovations (moulaert, ..., 2011), city image (metaxas, 2002), strong communities (lekwa, ..., 2007), etc. diversity and difference of cultures and traditions in natural and urban landscapes are the capital of territories for their future socioeconomic development and regional competitiveness in the globalizing world (kunzmann, 2006). enhancing the creative and cultural economy of cities has become one of the preferred ways to strengthen the local communities’ sense of spatial and group-based belonging (ponzini, ..., 2010). territories are competing to offer the most productive business environment and in this context public and private sectors are in different positions, but at the same time they are interrelated. there has been a growing interest in academic literature in recent years on creating new paradigms of regional development to introduce new ways of tackling longstanding issn 1822–8402 european integration studies. 2011. no 5 22 regional problems. one of these directions is spatial planning being closely related to the regional planning theory, which has sought to explain the causes and consequences of regional economic disparities and regional competitiveness. many political decisions affect decisions of the private sector relating to the initiation of operation in a particular location or its expansion. regional economic approaches manage space through the development of regional plans and strategies. regional planning deals with efficient placement of infrastructure and zoning of economic activities, as well as it addresses the region – broad issues such as environment, social and economic concerns (ache, 2011). it makes it necessary at all levels of government to use a place-based approach to promote business growth and attract new investments, simultaneously creating viable places. the design of local and regional strategies embodies values and principles (tomaney, ..., 2011). political and development planning documents, which take into account spatial perspective, can contribute to many important factors of competitiveness in production and development being essential areas for growth. unique spatial planning components relate to the interdisciplinary nature, which binds social and economic spheres, cultural and environmental dimensions of regional development (alden, 2006). winners are those territories which have elaborated their development strategy or other development planning documents with a clear message and vision to potential investors as well as local entrepreneurs regarding the future development of the territory and the mechanisms to achieve it. it reduces doubts and risks of potential investors and territory developers and promotes mutual trust and partnership between policy makers, decision makers and entrepreneurs. urban development planning in latgale region for promoting competitiveness latgale region was chosen as a pilot region for studying urban attractiveness aspects from the business perspective and reflection of competitiveness factors and criteria through development planning documents. latgale region is of particular interest not only because it is the poorest region in latvia, but also because it was the first region in latvia to work actively on the regional policy after harnessing the eu pre-accession funds (adams, ..., 2006). the subject of the study is the research of competitiveness factors and criteria in the local municipalities planning documents since the author’s previous studies have shown that regional development planning documents don’t have real instruments for their implementation (ezmale, 2010 a) determined by the legal system of regional development in latvia. the following tasks have been set for the research on the analysis of competitiveness factors promotion and criteria in latgale urban development planning documents: 1. to find out the opinions of latgale region businessmen on the criteria and factors substantial to the decision on setting up business in a particular place and to develop a matrix for evaluation of development planning documents on these grounds. 2. to carry out the analysis of competitiveness factors and criteria in latgale region urban development planning documents according to the developed matrix. basing on the theoretical notions, a list of criteria (in total 15 criteria) being essential to increase place competitiveness and business attractiveness was prepared; and a survey was elaborated according to these criteria. within the framework of the study entrepreneurs’ survey was carried out (n=130) to find out the point of view of economically active market units in the cities of latgale region (eamu) regarding the essential criteria for decision making on setting up business in a particular place, as well as the business environment in the cities of latgale region. the chosen sampling method – determined quota sampling. quota sampling is designed to match proportionally the cities economic market units’ distribution into micro-, small, medium sized and large enterprises in latgale region. survey questionnaires were sent by mail, published on the website, sent electronically. initially, information was obtained about 15 criteria rating them by the importance from the point of view of respondents. after analyzing the results, the author found out that the respondents mentioned provision and quality of technical infrastructure ( = 3.50), safe business environment ( = 3.46), good accessibility ( = 3.43), favorable taxes, fees and normative regulations ( = 3.38) and human resource quality and availability ( = 3.37) as the most significant factors to determine making a decision on starting a business in a particular place. the analysis showed the relation of criteria to respondents’ satisfaction with business environment in the calculation of kendall’s rank correlation coefficient using the formula (paura, 2002: 118): (1) after calculations it can be concluded that at 95% and 99% of credibility there is a trend of correlation: • between access to the local market and satisfaction with the business environment (kendall’s tau_b value of 0.225 is significant at 99% probability); • between the market of competitive real estate prices and satisfaction with business environment (kendall’s tau_b value is 0.216, statistically significant at 99% probability); • between provision and quality of technical infrastructure and satisfaction with business environment (kendall’s tau_b value is 0.218, statistically significant at 99% probability); • between secure environment for living and satisfaction with business environment (kendall’s tau_b value is 0.195, statistically significant at 95 % probability); • between availability of housing and satisfaction with business environment (kendall’s tau_b value is 0.184, statistically significant at 95 % probability); • between leisure time activities and satisfaction with business environment (kendall’s tau_b value is 0.183, statistically significant at 95 % probability); • between appropriate real estate availability and satisfaction with business environment (kendall’s tau_b value is 0.169, statistically significant at 95 % probability); in the process of further analysis the author, using the factor analysis method, has identified three factors to determine the key factors influencing a decision on setting up business in a particular place. the criterion of kmo issn 1822–8402 european integration studies. 2011. no 5 23 (kaiser meyer olkin measure of sampling adequacy) is 0.875, which determines that the combined factors adequacy is acceptable. it is confirmed by the statistical reliability of the criterion (sig. 0.000). total variance shows that the first factor explains 49.8%, the second 10.2% and the third 7.3% of the total variation. the factor rotation matrix reflects the conditional correlation coefficients, to which the research features have the closest correlation. therefore, the following groups of factors are interpreted: 1. local business environment: good accessibility (r = 0.809), favorable local taxes, fees and normative regulations (r = 0.781), safe environment for business (r = 0.745). 2. quality of life: leisure time activities (r = 0.824), availability of housing (r = 0.799), safe living environment (r = 0.658). 3. technical infrastructure and real estate: competitive real estate prices (r = 0.869), appropriate real estate availability (r = 0.777), provision and quality of technical infrastructure (r = 0.585). the research established the relation of new derived factors to the assessment of respondents’ satisfaction with business environment. as a result, it can be concluded that at 95% and 99% of credibility there is a trend of correlation: • between the residents’ quality of life factors group and the satisfaction with business environment (kendall’s tau_b value of 0.173, significant at 95 % probability); • between the availability and quality of technical infrastructure and quality of real estate and the satisfaction with business environment (kendall’s tau_b value is 0.179, statistically significant at 95 % probability). the hypothesis was put forward that all enterprises (micro, small, medium-sized, large) were equally satisfied with the business environment in the city. kruskal-walis test (kruskal walis h) showed the p value 0.033 < α = 0.05 wherewithal rejecting the null hypothesis and assuming that satisfaction with the business environment differs significantly in groups depending on the enterprise size. during kruskal-wallis test it was verified whether there was significant difference between groups depending on the enterprise size as regards the following criteria: accessibility, human resource quality and availability, local taxes, fees, regulations and laws, appropriate real estate availability, competitive prices of real estate, provision and quality of technical infrastructure, access to the local market, housing availability, leisure activities, safe environment for living and business. it was established that in all cases p value < α, so the difference between the assessments of significance of criteria within groups of enterprises distributed by size is not significant. basing on the carried out analysis, in the further course of research there was developed a matrix for evaluating cities development planning documents in latgale region to determine whether the identified most important competitiveness factors and criteria are reflected in the development planning documents of local municipalities (see table 1). table 1. analysis of competitiveness factors and criteria in the documents of development planning in latgale region cities factors criteria correlation coefficient frequency of characteristics kendall’s rank coefficient pca csa dp sp dp sp 1 accessibility 0.053 0.809 9 9 13 local taxes and fees, normative regulations 0.099 0.781 1 1 1 secure environment for business x 0.114 0.745 5 3 10 access to the local market 0.225** 0.605 0 0 0 1st factor local business environment ( ) 3.75 3.25 6.00 2 leisure time activities 0.183** 0.824 9 9 11 availability of housing 0.184** 0.799 5 7 13 safe living environment 0.195* 0.658 5 3 10 2nd factor quality of life for people ( ) 6.33 6.33 11.33 3 competitive real estate prices 0.216** 0.869 0 0 0 factors criteria correlation coefficient frequency of characteristics kendall’s rank coefficient pca csa dp sp dp sp 3 provision and quality of technical infrastructure 0.218** 0.585 9 9 13 3rd factor technical infrastructure and real estate ( ) 3.33 3.33 6.00 ** correlation is significant at the 0.01 level (2-tailed); * correlation is significant at the 0.05 level (2-tailed) pca principal component analysis; csa dp current situation analysis part of the development program; sp dp strategic part of the development program; sp spatial plan; x rating is identical to the criterion “safe living environment” assessment as it is not separated in the development planning documents source: compiled by the author according to the evaluation results of 13 latgale region cities’ development planning documents issn 1822–8402 european integration studies. 2011. no 5 24 according to the elaborated matrix the analysis of development programs and spatial plans of 13 latgale region cities and towns was carried out. in total 9 development programs (4 towns don’t have development programs) and 13 spatial plans were analyzed. during analysis it was determined whether a particular city development program (current situation analysis and strategic part) and spatial planning reflected the defined criteria. qualitative characteristics were quantified using the binary encoding the existence of qualitative characteristics were identified by the quantitative indicator 1 (one), the shortage of quality indicator by 0 (zero). frequency of characteristics is used as a quantitative parameter within the analysis. the entrepreneurs’ satisfaction with business environment in latgale region is most closely correlated with the access to the local market, competitive real estate prices and provision and quality of technical infrastructure. at the same time, basing on the results of the development programs and spatial programs analysis it appears that the criteria such as the access to the local market and competitive real estate prices in the documents mentioned above are not addressed at all. while provision and quality of technical infrastructure are analyzed in the current situation analysis and strategic part of 9 urban development programs, as well as in 13 urban spatial plans. it can be concluded that the provision and quality of technical infrastructure are analyzed in all existing development planning documents. according to the results of the factor analysis the highest positive correlation coefficient in the first factor is for accessibility, in the second factor – leisure activities, and in the third factor – competitive real estate prices. as we can see, the accessibility is reflected in the current situation analysis and strategic parts of 9 urban development programs of as well as in 13 urban spatial plans, while leisure activities are analyzed in the current situation analysis and strategic parts of 9 urban development programs, as well as in 11 urban spatial plans. consequently, these aspects of urban development are an important part of planning documents. real estate is not analyzed in any of the documents. among three factors discussed within the matrix the closest correlation of enterprises satisfaction with business environment in a city or town had the 3rd factor “technical infrastructure and real estate” (rb = 0.232 at 95% of statistical significance), as well as the 2nd factor “quality of life” (rb = 0.219 at 95% of statistical significance). correlative relationship of the enterprise’s satisfaction with business environment for the 1st factor “local business environment” was not observed. analyzing urban development planning results by factors, there is evidence that the aspects of life quality are better represented in the development planning documents. while the other two factors in development planning documents are represented similarly. taking into consideration that respondents’ responses on average showed the importance of such criterion as the availability and quality of human resources, we’ll look at representation of this criterion in the urban development planning documents. quality and availability of human resources have been analyzed in the current situation analysis part of 8 urban development programs, in the strategic parts of 9 urban development programs and in 9 urban spatial plans, which is a good result. it can be concluded that through elaboration of planning documents, latgale region municipalities should pay greater attention to the aspects of the local market, local taxes, fees and normative regulations, real estate availability and prices. it would convince local entrepreneurs, potential investors that the local authority takes all necessary measures to improve the business climate and increase competitiveness in the city or town. by providing measures to increase the competitiveness factor within the city in spatial planning documents, it would create favorable conditions for business attractiveness improvement in the future. conclusions there has been a growing interest and academic literature in recent years in developing new paradigms of regional development to find new ways of tackling longstanding regional problems. one of these directions is spatial planning being closely related to the regional planning theory, which has sought to explain the causes and consequences of regional economic disparities and regional competitiveness. territorial attractiveness can be defined both as the capacity to attract new residents, visitors, enterprises and investments as well as the ability to retain and develop these mobile communities and assets. cities compete one with another to attract new business or industries that create jobs and thus provide increased material welfare. the city has a competitive advantage if it has technological, social, infrastructure and institutional assets’ superiority over all other cities. latgale region entrepreneurs’ satisfaction with business environment is most closely correlated with the access to the local market, competitive real estate prices as well as provision and quality of technical infrastructure. at the same time, basing on the results of the development programs and spatial programs analysis it appears that criteria such as the access to the local market and competitive real estate prices in those documents are not addressed at all. the provision and quality of technical infrastructure are analyzed in all urban development programs and spatial plans. according to the results of the factor analysis three factors important for businessmen of latgale region cities to make a decision to start business in a particular place were identified and interpreted as the local business environment, quality of life, technical infrastructure and real estate. according to the results of the analysis, the highest positive correlation coefficient in the first factor is for accessibility, in the second factor – leisure activities, and in the third factor – competitive real estate prices. among three factors discussed above the closest correlation of enterprises satisfaction with business environment in the city had the 3rd factor “technical infrastructure and real estate” (rb = 0.232 at 95% of statistical significance), as well as the 2nd factor “quality of life” (rb = 0.219 at 95% of statistical significance). analyzing urban development planning results’ division by factors, there is evidence that the aspects of life quality are better represented in the development planning documents. while the other two factors in development planning documents are represented similarly and are insufficient. in order to strengthen the role of urban spatial planning to increase business attractiveness in latgale region it is necessary to pay more attention to such factors as competitive local business environment and technical infrastructure and issn 1822–8402 european integration studies. 2011. no 5 25 real estate by discussing in detail the issues such as local taxes, fees and normative regulations, local market size and access to the local market, safe environment for business activities, real estate offer in the development planning documents. references ache, p. 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(2002) neparametriskās metodes. spss datorprogramma [spss computer sorfware]. study aid.jelgava: llkc, 2002.148 pp. ponzini, d., rossi, u. (2010) becoming a creative city: the entrepreneurial mayor, network politics and the promise of an urban renaissance. urban studies 2010; 47 (5), p.1037 1057. online paper: http://usj.sagepub.com./cgi/ content/abstract/47/5/1037 sinkiene, j., kromolcas, s. (2010) concept, direction and practice of city attractiveness improvement. public policy and administration. no. 31, pp. 147 154 online paper: http://www.ktu.lt/lt/mokslas/zurnalai/vpa/ vpa31/147-154.pdf tomaney, j., pike, a., rodriques pose, a. (2011) local and regional development // handbook of local and regional development/ ed. pike, a., rodriques pose, a., tomaney, j. london and new york: routledge, p. 618 630. the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 8 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 8-19 doi 10.5755/j01.eis.0.9.12792 © kaunas university of technology towards stronger normative power: the nature of shift in eu foreign policy in the context of the crisis in ukraine eis 9/2015 abstract towards stronger normative power: the nature of shift in eu foreign policy in the context of the crisis in ukraine http://dx.doi.org/10.5755/j01.eis.0.9.12792 gediminas vitkus institute of international relations and political science, vilnius university vokiečių 10, lt-01130 vilnius, lithuania the crisis in ukraine of 2014 produced considerable change in the eu international environment, which not only tested its capabilities to react very quickly and adequately but also actually destroyed previous subtle balance of its member states in relations with russia. the eu member states were not able to continue to maintain in these relations the “disunity” pattern, which was successfully described in the european council on foreign relations study “a power audit of eu – russia relations” already in 2007. new turbulence pushed eu member states closer together, re-introduced old geopolitical constraints and concerns about national and international security and limited the room for diplomatic maneuver and finally produce new “unity” pattern. however nature of that new pattern remains not yet fully investigated from academic point of view. the aim of the article is to present results of analysis of this shift in foreign policy preferences of the eu and its member states. the research is targeted to identify the nature of this change, which happened through process of adjustment to new reality, in the hierarchy of foreign policy preferences of member states and finally of the european union in general. the aim of the paper will be achieved by implementation of analysis of collected empirical data on foreign policy preferences of the eu member states. the analysis will be based on typical methods of foreign policy analysis. those include analysis of legal acts, statements of politicians, analytical literature and interviews with experts from the eu member states. the conclusion of the article is supposed to answer to the main research question and to explain nature of new choices in the eu members states foreign policies and its effect to the eu foreign policy towards russia in general. keywords: european union, foreign policy, member states, russia, foreign policy preferences. the european union’s common foreign policy is often an object of criticism, sometimes even outright ridicule. yet to the wonder of many, with the heightened state of crisis in the ukraine, the eu’s response in terms of russia has been its strongest yet. the eu implemented a whole series of diplomatic démarches and even applied economic sanctions and restrictions to russia. below is a description of these measures made by the eu external action service: “in response to russia’s illegal annexation of crimea and continuing destabilization of ukraine including aggression by russian armed forces on ukrainian soil the eu has suspended talks on visas and a new eu-russia agreement. most eu-russia cooperation programmes have been suspended. targeted measures have been taken against russia in areas including: access to capital markets, introduction 9 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 defence, dual-use goods, sensitive technologies (including those in the energy sector). the european investment bank and the european bank for reconstruction and development have suspended the signing of new financing operations in russia. a trade and investment ban is now in force for crimea/sevastopol, bolstering measures taken to mark the eu’s non-recognition of the annexation of crimea. furthermore, a number of individuals and bodies in russia and ukraine are subject to travel bans, and their assets have been frozen” (european union external action, 2015). earlier, this kind of general agreement by all the eu countries was unimaginable. it became obvious that something had changed in the eu common foreign policy formation mechanism, that a new structure emerged which is now the object of special research and commentary. in actual fact, eu and russian relations were never short of attention. however traditionally it has been the so-called “low politics” themes which have received the most attention, i.e., trade, visa regimes, scientific and cultural exchanges, transport, energy, which gradually “shifted” from the business into the geopolitical sphere once vladimir putin consolidated his power. meanwhile in the field of “high politics”, in its relations with russia the eu was never a serious player. and one of the main reasons for this situation has been the variety in eu member states’ attitudes towards russia and their prospective relations with the country, a point which has been spotted numerous times by a majority of observers and researchers. some member states view putin’s russia’s development vectors negatively, considering it an obvious turn towards dictatorship in the country’s interior and a sign of aggression in its foreign policy. others thought that despite russia’s internal domestic development problems, it would still be possible to engage in successful and profitable cooperation with the country. ultimately, this was determined by the non-existence of a common eu position and favourable conditions for russia whereby it could have relations not with a unified block, but with separate states. in 2007 researchers of the think-tank “european council on foreign relations (further – ecfr)” who examined this problem prepared an influential study “a power audit of eu – russia relations” (leonard, popescu, 2007), which is still being widely cited. the researchers not only analyzed the situation, they also provided specific recommendations for a common eu strategy in regards to russia. however this study received most attention not due to its recommendations which have now lost some of their relevance, but more for the successful classification of eu member state attitudes towards russia into five groups: “we have identified five distinct policy approaches to russia shared by old and new members alike: ‘trojan horses’ (cyprus and greece) who often defend russian interests in the eu system, and are willing to veto common eu positions; ‘strategic partners’ (france, germany, italy and spain) who enjoy a ‘special relationship’ with russia which occasionally undermines common eu policies; ‘friendly pragmatists’ (austria, belgium, bulgaria, finland, hungary, luxembourg, malta, portugal, slovakia and slovenia) who maintain a close relationship with russia and tend to put their business interests above political goals; ‘frosty pragmatists’ (czech republic, denmark, estonia, ireland, latvia, the netherlands, romania, sweden and the united kingdom) who also focus on business interests but are less afraid than others to speak out against russian behaviour on human rights or other issues; and ‘new cold warriors’ (lithuania and poland) who have an overtly hostile relationship with moscow and are willing to use the veto to block eu negotiations with russia” (leonard, popescu, 2007). although the images used to identify the eu state groups were more literary than scientific, they, especially the ‘trojan horse’ metaphor, gradually became almost a political science category describing the specific policies of smaller states in power games with the larger players. for example, in the context of the current crisis in ukraine, there have been numerous discussions in the global press suggesting that the public expressions of good will towards russia made by the leaders of hungary, slovakia and the czech republic are a sign that the ‘trojan horses’ group is growing noticeably larger (bne intellinews, 2015; bai, 2015; mudde, 2014; marušiak, 2013; liedekerke, 2014). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 10 indeed, the differences in eu members states and their policy approaches towards russia have mostly been and continue to be widely researched, as, most likely, based on them we can give the most convincing explanation as to why the eu does not have a common strategy or a consistent policy when it comes to russia (forbrig, 2015). precisely they receive the most discussion, as mass media records and widely disseminates all the controversial declarations made by state leaders, which go on to serve as an expression of these differences of the member states. this has ultimately created a kind of inertia in thinking, which interprets the never-seen before unified stance taken by eu member states in terms of russia as if it were a temporary coincidence, like an exception to the rule, or like a decision that will shortly be reversed and we will soon revert to our usual disharmony in interests. this might be why the very fact of the formation and stability of the unified eu position has not received a greater deal of attention or more comprehensive discussion. indeed, the mentioned ecfr, which since 2010 has carried out consistent monitoring of the behaviour of eu member states also presents its assessments of state uniformity regarding one or another foreign policy issue. nevertheless, the observed increase in the degree of uniformity of eu states regarding russia in 2014 has not yet been more comprehensively interpreted. the compilers of the mentioned report, understandably, raising for themselves other, broader objectives, made the following comment on the increased uniformity in eu member states behaviour regarding the introduction of sanctions against russia: “germany, not itself a strong proponent of harsh sanctions, was the clear leader in consolidating a common sanctions policy, especially after mid-summer. the european commission was key in preparing a package of sanctions acceptable to major member states. others states that pushed hard for sanctions (often despite heavy costs) included sweden, the netherlands, poland, romania, uk, and the baltic states. france deserves recognition for halting the sale of mistral warships. slovakia, hungary, italy, and spain were reluctant to sign on to sanctions, but eventually agreed….” (ecfr, 2015a). naturally, no larger doubts arise regarding the substantiation of such an explanation with facts or events. however, in any case, in our view it is too laconic. that is why in this article the goal is to take a more in-depth look at how and why the mentioned configuration evolved from the earlier complete dissonance of eu state policies regarding russia. the article seeks to give a more comprehensive explanation as to how it was possible for the eu to achieve this unprecedented degree of unity and to shape to a larger extent the tougher face of european foreign policy against russia. in light of this goal, answers to the following more detailed questions had to be found: _ why did some states push for sanctions despite (sometimes heavy) costs? _ why did germany become a leader? _ why did france sacrifice its sale of warships? _ why did some states eventually agree despite initial reluctance? the analysis will be based on typical methods of foreign policy analysis. these methods embrace critical examination of the foreign policy behaviour of state and other international actors by monitoring of the interplay between domestic and external forces; review of the organization, psychology and politics of decision-making; analysis of the impact of leadership upon foreign policy and the impact of public opinion and state type upon foreign policy, etc. however in this particular case, due to the limited size of the article, a lesser amount of methods will be used. these include the analysis of legal acts, statements of politicians, analytical literature and already-published reports by experts from the eu member states. the conclusion of the article is supposed to answer the main research question and to explain the nature of new choices in the eu member states’ foreign policies and its effect on eu foreign policy towards russia in general. 11 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 but before starting to discuss the decisions by separate eu member states and their groups to support sanctions against russia, another circumstance, the most important one to have urged this change, should be mentioned. and that is russia’s stroke of revisionism which brought about this entire process. russia became more than just a state which decided to disregard the rules of a democratic political system common to europe (free elections, the rule of law, freedom of speech, respect for minority rights, etc.), but also found unacceptable european rules for order and security that became established after the cold war that were based on states’ rights to independently decide on their development vectors, the refusal to resort to force, and the inviolability of state borders. yet at the same time it should be noted that in any case, russia’s requirement to give it special rights and the respective power and treachery policy in terms of its neighbours was just an external factor which only encouraged the formation process of a unified eu response, though did not unilaterally determine the actual shape of that eu response. in order for the emergence of a common, note, common not fragmented, eu position, each of the states had to “go down” a certain path towards reaching a final decision, until their reaction reached its current status. “hawks” – consistent criticism of russia it has been the baltic states, poland and romania that have had the least distance “to go”, due to their historic experience of russian aggression. that is why these countries view russia’s increasing aggression or even more so, its success in ukraine, as a zero-sum game that poses an actual existential threat. looking from their position, russia’s actions in ukraine should receive an unambigiously critical assessment. estonia’s president tomas hendrik ilves was one of the first eu heads of state to compare the annexation of crimea to nazi germany’s annexation of sudetenland in 1938 (ilves, 2014). lithuania’s president dalia grybauskaitė in november, 2014 repeated several times her assessment of russia’s threat as a terrorist state. on november 21 during a joint press conference with the nato general secretary jens stoltenberg, she said: “…we can all see that our neighbour, ukraine’s neighbour, is behaving in a way that neighbours should not behave, or as a state that places importance on international law and international responsibilities, as well as agreements it has itself signed. we can see that the russian military, russian soldiers are today present in eastern ukraine, meanwhile that same state is openly lying in denying this. a state which orders its soldiers to remove their identification symbols, which brings in its army and heavy artillery without any identification symbols – this kind of state bears all the hallmarks of international terrorism. that’s all i can say…” (alkas.lt, 2014). that is why these states urge the european union to also take up a maximally strict stance and react to russia’s actions in ukraine, and they are convinced that the eu’s response has not been sufficiently decisive, strict or effective. the lithuanian minister of foreign affairs linas linkevičius has publically voiced this position. ahead of a two-day informal meeting of european union foreign ministers on 6-7 march, 2015 in riga, the minister, in his assessment of the situation that had developed in ukraine following the signing of the minsk agreement, claimed to journalists that: “being unified is all well and good, everyone is all for this unison, but being united not to do anything is not for me. i don’t like that. we must be unified in actually doing something” (bns, 2015). as is widely known, the baltic states and russia are linked via important economic ties. russia is a significant market and energy resource provider for the baltic states. on the other hand, even before the ukraine crisis, russia used economic and energy pressure measures as a way of applying political pressure on numerous occassions, to the extent that these countries have gradually had to “learn” and become used to living without russia’s market, and to accelerate their efforts in diversifying their energy resource providers. however, in the face of the existential threat posed by russia, it is obvious that these dependencies lose their primary significance and do not interrupt these countries from wholeheartedly supporting eu sanctions. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 12 in their rhetoric on russia, poland’s leaders have been somewhat more reserved than their colleagues in the baltic countries. however their position on the necessity of applying eu sanctions on russia and of making them stricter if the peace agreements are not abided, plus the further escalation of the conflict, has been decisively strict (reuters, 2014). expressing its concern over the possible destabilization of the entire region, romania demonstrated complete support for the application of eu sanctions on russia as well (chiriac, 2014). countries which have a different historical background, such as sweden, the uk and the netherlands, are also among the unconditional backers of eu sanctions. the primary motive uniting them is their disappointment in russia. they hold a very critical and skeptical view of contemporary russia’s development trajectory and believe that the time has come to exert pressure to stop its slide down this path. for example, uk and russian relations took an obvious turn for the worse one decade ago and have remained rather cold to this day. that is why uk prime minister david cameron’s critique of russia’s actions in the ukraine was one of the most categorical and unambigiously supported a broad as possible application of sanctions and their further strengthening (gross, bryan-low, 2015). the opposition labour party leaders also in effect approve of this position. sweden’s strict position has primarily been determined by the conservative government whose foreign policy has been influenced by the consistent critic of the russian regime and initiator of the european eastern partnership, carl bildt (gardels, 2014). the significant increase in russian military activity in the baltic sea region has also notably contributed to sweden’s position. public opinion is also in favour of this kind of stance. the possibility of becoming a nato member is also receiving more serious consideration in sweden as well. the social-democrats who came to power after the elections in october, 2014 have not strived to change the country’s strict position, perhaps only tempering certain accents in the recent rhetoric. an exception in this group is the netherlands, which basically had no historic or geopolitical problems with russia and has always first sought to develop profitable economic relations with it. critical comments over the state of democracy or the human rights situation in russia from the pragmatic dutch governments have similarly not been forthcoming. of course, the crude infringements of international law that russia made in 2014 could not go by unnoticed, however the netherlands were not inclined to stand out, much less end up in the group of countries expressing most criticism of russia. in their view, it would have completely sufficed to simply follow the initiative shown by the german leadership, while the sanctions could have been more symbolic than fundamental (togt, 2015). the change in the netherlands’ position was fated by the accident when on july 17, 2014 the malaysian airlines plane was brought down above eastern ukraine, on route from amsterdam to kuala lumpur. during the attack 283 passengers and 15 crew members were killed. among the close to 300 dead, two thirds were dutch citizens. this catastrophe fundamentally changed dutch society’s approach towards the russia-ukraine conflict. the government too could not ignore this change, and came to understand that regular diplomacy would not be enough to control this particular conflict. as such, contrary to their plans, the netherlands became a supporter of stricter sanctions against russia. german leadership and french sacrifice germany’s leadership has been without a doubt the most significant change which has led to the common european union position gaining solid support. keeping in mind the hitherto hardfought and patiently nurtured special relations between russia and germany, the turnaround from the summer of 2014 was very important. how and why did it eventuate? as is known, until quite recently germany was first and foremost an economic power that avoided playing a more distinctive role in foreign and security policy. and this was a rather comfortable 13 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 position, allowing it to concentrate its attention on economic and social issues, and to develop relatively politically neutral yet economically beneficial and profitable ties with russia. on the other hand, the fact that germany has started to acquire a more obvious foreign policy profile was noted by observers and experts even before the apogee of the ukraine crisis. according to the strafor analysis: “as the de facto leader of the european union, germany has to contend with and correct the slow failure of the european project. it has to adjust to the u.s. policy of global disengagement, and it must manage a complex, necessary and dangerous relationship with russia. a meek foreign policy is not well suited to confront the situation in which germany now finds itself. if germany doesn’t act, then who will? and if someone else does, will it be in germany’s interest?” (friedman, lanthemann, 2014). having this in mind, it is much easier to understand why, alongside factors such as the difficulties in european integration, the relative “standing back” of the usa and russia’s revisionism, germany in actual fact was left with no other choice but to take up the leadership role and fundamentally influence the hitherto poorly articulated common european union policy in terms of russia. subjective factors have also contributed significantly to these objective circumstances. german chancellor angela merkel went to considerable effort to convince putin to uphold a different policy in regards to ukraine and to reject plans for the annexation of crimea. however the breaking point came in the early days of march, 2014. according to a correspondent from the new york times “chancellor angela merkel of germany told mr. obama by telephone on sunday that after speaking with mr. putin she was not sure he was in touch with reality, […] “in another world,” she said.” (bakermarch, 2014). this “miscommunication” between merkel and putin became a determining factor that helped change both germany’s public opinion, as well as the business community’s position in terms of russia. as russia continued to escalate the conflict in ukraine, support for sanctions grew accordingly. if in march only 24% of surveyed respondents were in favour of sanctions, then by june this figure had grown to 52%, and 54% by september (wehner, 2014). regardless of the sanction-related losses (export to russia decreased by 26%), merkel managed to win over germany’s business community to join her side (pond, kundnani, 2015). finally, bolstered by her support at home, the chancellor convinced the other european union states that forcible alteration of country borders needs to be opposed in principle, and that such actions cannot go by without recourse. even if certain losses need to be experienced as a result. in this context, france’s position was particularly important. unlike germany, france’s economic ties with russia are much less developed, which is why the introduction of sanctions against russia was felt to a much lesser degree than in germany. however the crisis in ukraine and its ever increasing escalation has become difficult to coordinate politically with the contract signed with russia back in 2011 for the construction and sale of two mistral warships valued at €1.2 billion. the french president françois hollande, despite trying to maintain the position that the eu sanctions and the transfer of the warships had nothing in common, in november, 2014 nevertheless made an announcement about the suspension of the contract “until further notice” (bbc, 2014). france’s decision to delay the sale of the warships, even though this contract did not figure amongst the restrictions foreseen as part of the sanctions, did bring france and germany noticeably closer together, while also strengthening the central position of both states in the european union, as well as its united policy regarding russia. the common position of germany and france helped bring the sides involved in fighting in ukraine to the negotiating table in minsk in february, 2015 and reach a new agreement for peace. this closeness of germany and france and their decision to act together undoubtedly strengthe u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 14 ened and safeguarded the possibility of successfully leading the european union. of course, today germany alone is already capable of leading the european union forward and to act as a leader in common eu policy. however, this leadership would have been much less fathomable if france had not indefinitely delayed and thus associated the transfer of the mistral warships to russia with regulation of the conflict in ukraine, that is, if france’s president had not gone together with merkel to participate in the peace negotiations in minsk. according to ecfr researcher josef janning: “the tandem has entered a new stage, in which both possess leadership resources, albeit in different policy areas, but in which leadership is not clearly allocated – sometimes it is shared, at other times lost for lack of strategic consensus. also, the relationship still seems to depend highly on the chemistry between leaders, which makes it less stable and predictable. it took over two years and three profound challenges for merkel to reconnect strategically with hollande. now, the pairing is back and seems determined to lead – but for how long?” (janning, 2015). indeed, at the same time we should draw attention to the fact that although the researcher comments on the existence of a new quality of relations between france and germany, he nevertheless ends his thought with the rhetorical question about the sustainability of this new tandem. researchers in finland notice a different aspect of the quality of this new leadership. according to them, this distinctive role of germany and france is at the one time beneficial and features potential shortcomings, as it does not make sufficient use of the eu’s own institutions that could have a more clearly defined mandate to negotiate on behalf of all the eu, more so than just germany and france have now (raik, 2015). indeed, as we might have well noticed, the eu institution leadership newly appointed in 2014 (president of the european commission jean-claude juncker, president of the european council donald tusk and even the high representative of the union for foreign affairs federica mogherini) have not played a particularly significant role in this instance. this group includes finland, denmark, bulgaria, portugal, slovenia, croatia, belgium, luxembourg, malta and ireland. for a majority of the states in this group, russian relations are not among the highest priority issues, neither in an economic sense, much less so in a political sense. the non-existence of the main fundamental tensions naturally encourages these states not to take a prematurely anti-russian stance by default. quite the opposite, they first of all think that closer cooperation with russia could be mutually beneficial. that is why in principle they do not oppose but support sanctions against russia, however they believe that the dialogue should continue, and when it becomes evident that russia is abiding by the agreements, the sanctions should be called off. for example, although neither spain’s economic or political ties with russia are particularly wide or close, much less strategic, nevertheless, as the commentator from madrid nicolás de pedro says, “for observers of spanish foreign policy, the question is no longer whether madrid is pro-russian or not, but why spain sounds so pro-russian” (pedro, 2015). according to the same observer, spain was rather skeptical of the events at maidan square and once the conflict in ukraine’s east commenced, it stated that no good would come of it. yet the annexation of crimea was russia’s move which changed spain’s position and opinion. “however, this firm position, like the one it took on kosovo’s independence, is primarily shaped by madrid’s concerns about catalonia and the basque country and is completely unrelated to spain’s links with ukraine or russia (or serbia)” (de pedro, 2015). perhaps finland and bulgaria are the other two states that stand out from this group, who due to their geographical location and extensive economic ties with russia do feel the outcomes of the conflict. finland’s statehood, much like that of the baltic states, is based on the same principles that were settled on after the cold war, which russia is now openly infringing. however, finland’s behaviour is still quite different to the unambigious opinions voiced by the baltic states. analysts from the finnish institute of international affairs presented a comprehensive comparative analthe “neutrals” – loyal europeans 15 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 ysis of finland’s and estonia’s reactions to the crisis in ukraine and the motivations for agreeing to sanctions. according to them, both countries’ response to the crisis was “similar but different”. this contradictive description should be understood as follows, according to the authors: “estonia and finland took similar positions on many key issues regarding the ukraine crisis. the common ground is based on both countries’ attachment to the liberal world order and western structures. however, there are deep-rooted differences between the estonian and finnish positions on the way to handle russia and the need to adjust security arrangements, notably the role of nato in the nordic-baltic region. it is common in finland to see estonia’s approach as unhelpfully hawkish, and common in estonia to see finland’s approach as too accommodating towards russia” (raik, aaltola, pynnöniemi, salonius-pasternak, 2015). in actual fact, finland, continuing along with the tradition from cold war times, tried to take up a seemingly neutral position and to mediate in the conflict. finland’s president sauli niinistö as part of an official visit travelled to sochi to meet with putin on august 15, 2014. yet it is unlikely that this would have brought about any conceivable results. bulgaria’s case also depends on the historically traditionally friendly ties it shared with russia. that is why it is not surprising that bulgaria, unlike russia’s other former communist neighbours, is not such a categorical supporter of sanctions. according to a public opinion poll carried out in february–march, 2015, as many as 61% of bulgaria’s population does not agree with the sanctions and only 24% consider the conflict in ukraine a threat to bulgaria’s security. the activities of the “islamic state” and other terrorist groups is considered a much greater threat (ecfr, 2015b). however the main conclusion from this study was that regardless of bulgarians’ friendship with russia, they do not consider this country as an example to follow and expectations of greater security at home or guaranteed economic wellbeing coming from russia, rather than membership in the european union or nato, are unfounded (ecfr, 2015b). that is why bulgaria naturally ended up amongst those countries that do not themselves recommend tightening sanctions yet do support the common eu policy regarding russia being formed by germany. thus, all the mentioned states took up the same position of “loyal” europeans, albeit for different reasons, and in this way fundamentally contributed to the consolidation of the common eu position. besides the traditional ‘trojan horses’ of greece and cyprus, other countries that also sympathize with putin, namely austria, hungary, slovakia, italy and to a degree the czech president miloš zeman, could also be attributed to this group. the political elites and political leaders of these states do not avoid openly criticizing the eu sanctions policy and continue to be in favour of even the highest level of political dialogue with russia. however at the same time they are characterized by inconsistency, as when they criticize the sanctions, they also end up criticizing themselves. regardless of their rhetoric, the representatives of these countries did not resolve to officially take up a different position in european institutions or to block the unanimous acceptance of sanctions.1* greece’s new government, which now consists of the leftist populist “syriza” party that won in the elections on january 25, 2015, has on numerous occasions signalled that it will try to block eu sanctions against russia. yet this did not happen. the informal meeting of eu ministers of foreign affairs, which was called to discuss the worsening security situation in ukraine (the artillery attack against peaceful citizens in mariupol on january 24), didn’t change anything in this respect. the visit of the new greek prime minister alexis tsipras to moscow on april 8, 2015 failed to bring any unexpected results, despite raising considerable speculation. 1 this well-directed expression i have found in gustav gressel’s text (gressel, 2015). “russland versteher’s”1 club e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 16 austria too is not even trying to hide its skeptical approach towards the sanctions applied against russia. it was the first eu country that putin visited on an official visit after the annexation of crimea on june 24, 2014. the reasons for their skepticism, according to gustav gessel, are essentially economic, yet there are also numerous provisions in austria’s own political culture, which is not adverse to various informal agreements (gressel, 2015). whatever the case might be, keeping in mind germany’s position, austria was not prepared to transfer its doubts to the european level and oppose the common eu sanction policy. italian-russian relations are in effect economic and have nothing in common with geopolitical conditions. russia is one of italy’s most important energy resource providers and a market for italian goods. meanwhile italy’s relations with other east european countries, such as ukraine for example, have always been smaller than minimal. that is why the conflict in eastern europe has been of interest to italians only so far as it would not worsen good relations with russia. according to the commentator from rome, nathalie tocci, it was most probably the downing of the malaysian airlines plane more than the annexation of crimea or military activity in eastern ukraine which encouraged italy to review its position and to go along with the common eu position (tocci, 2014). another commentator says that italy agrees that russia violated international law, and thus appropriate sanctions must be applied. however this does not mean that further dialogue with russia needs to be completely broken off, or that it should be pushed into diplomatic isolation (francescon, 2015). yet while supporting the sanctions, italy nevertheless tries to continue to maintain direct political contact with putin and to further develop bilateral political relations with russia. already after the annexation of crimea, on july 9, 2014 the then italian minister of foreign affairs federica mogherini visited moscow. the pretext for the formal visit was the beginning of italy’s half-year presidency of the council of the european union. however such an open expression of attention to putin almost cost the minister her chance of becoming the high representative of the union for foreign affairs. hungary’s pro-russian policy is neither a new nor an unexpected phenomenon in the central european political landscape. this is in part due to economic ties. russia extended a loan, under favourable rates, worth €10 million to hungary for the development of an atomic power plant (shchelin, 2015). a greater degree of pro-russian sentiments come from the specific political ideas of hungary’s prime minister viktor orbán and his fidesz party, which detail that hungary could be “a non-liberal democracy and have a similar political system to that of russia or turkey”. that is why explaining why hungary was not sufficiently consistent and did not try to block the sanctions being applied to russia is not such an easy task. taking a further, closer look, it appears that this pro-russian stance is more rhetorical than realistic. hungary cannot ignore the position of its main trading partner. approximately a quarter of hungary’s foreign trade was with germany. nevertheless, having considered the advantages that hungary enjoys being a part of the west, they significantly outweigh the temptations that putin has offered hungary. as the situation is one where a choice must be made, like it or not, hungary still chooses europe. the case of slovakia is more distinctive. although the slovakian government and especially prime minister robert fico are critical of sectoral sanctions against russia, and because public opinion is also divided, realistically the state’s administration goes to obvious lengths to avoid any steps that would in any way harm the eu unity already achieved. moreover, in recent years slovakia has purposefully tried to reduce its dependence on russia in all aspects, starting from energy and going all the way through to the leftover soviet defence equipment that is still in use (kobzova, 2015). 17 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 compared to the audit of eu and russian relations made in 2007, the present situation of eu unity and coordinated policy regarding russia is much more pronounced. specifically, current relations have taken the form of a stream of diplomatic démarches and legal and economic sanctions. the point of this policy approach is also rather evident. this, of course, determined the change of the earlier configuration, that could be described as such: _ on the one hand, it appears that the group of russia’s ‘trojan horses’ has almost significantly increased in size – the traditional pairing of greece and cyprus has been joined by italy and central european countries – austria, slovakia and hungary. on the other hand, thus far there are no serious indicators that these countries are in fact ready to justify the label applied to them. at least so far, the ‘trojan horses’ are inactive, their “loyalty” to russia has been expressed only via the rhetoric of individual leaders. so even though they value partnership with russia, it is not to the extent that they would exchange it for european cooperation. for them, russia is a very important supplement to european cooperation. though only a supplement, and not a substitute. if the necessity to choose were to arise, it is more likely that they would settle on european solidarity; _ the ‘strategic partners’ group, we could say, underwent a fundamental change (italy and spain dropped out), while the remaining france and especially germany transformed from being strategic partners to the architects of a unified eu response, becoming leaders and the main eu negotiators in trying to mediate in the regulation of the russia-ukraine conflict. in this context, it should be noted that the rise of these countries’ leaders came mostly at the expense of eu institutions; _ the composition of the group of ‘friendly pragmatists’ changed somewhat. it could be said that austria, hungary and slovakia “left” this group, leaving belgium, bulgaria, finland, luxembourg, malta, portugal, slovenia and croatia which joined the eu in 2013. spain maintains a similar position, whose declared strategic partnership with russia never reached any noticeable acceleration. ireland and denmark could also be reservedly added to this group, who have not gone out of their way to stand out in this crisis in any real way, and also the czech republic, whose president zeman’s pro-russian rhetoric obviously counterbalances the principled position of the government. however, most importantly, this group is no longer as “friendly” towards russia. even though these countries, at least on the official level, try to avoid rhetoric that either criticizes or justifies russia, they have become rather reliable supporters of germany’s demonstrated leadership. _ that leaves the “frosty pragmatists” group, which except for the czech republic and ireland which were once members, has now become substantially “more radical”, like the “cold warriors”. the fact that now besides poland and lithuania there is also the uk, the netherlands, sweden and the other baltic states, it has transformed into a relatively important and influential force, capable of strongly representing its position in internal eu debates. indeed, it is difficult to forecast whether this new configuration shall last for a longer period. this will depend on external factors, primarily russia’s behaviour. however, in any case it can be stated that compared to 2007, a rapid return to the earlier situation in terms of relations is hardly imaginable, as obviously much time is still needed for the new coexistence of the european union and russia to form and take on a more distinctive appearance. yet the most important thing that has become evident from this exceptional episode in eu foreign policy is that the one-off expression of states’ common position has not gone by without outcomes and is itself becoming another significant factor influencing decisions in the foreign policies of sepconclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 18 arate states, and respectively modifying the spectrum of states’ opinion ranges. in this case, the european union is becoming a “normative power” not just to the 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(2014), “how should europe respond to russia? the italian view”, ecfr commentary, 18th november, 2014, retrieved may 29, 2015, from http:// www.ecfr.eu/article/commentary_how_should_europe_respond_to_russia_the_italian_view353 togt, t. van der (2015), “how should europe respond to russia? the dutch view”, ecfr commentary, 25th february, 2015, retrieved may 29, 2015, from http:// www.ecfr.eu/article/commentary_how_should_europe_respond_to_russia_the_dutch_view311233 wehner m. (2014), “how should europe respond to russia? the german view”, ecfr commentary,18th november 2014, retrieved may 29, 2015, from http:// www.ecfr.eu/article/commentary_how_should_europe_respond_to_russia_the_german_view356 vitkus gediminas prof. dr. (political science) institute of international relations and political science, vilnius university address vokiečių 10, lt-01130 vilnius, lithuania tel. +370-5-2514130 e-mail: gediminas.vitkus@tspmi.vu.lt about the authors e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 138 regional cooperation within the eastern partnership http://dx.doi.org/10.5755/j01.eis.0.11.18428 małgorzata zajaczkowski warsaw school of economics, poland, al. niepodległości 162, 02-554 warsaw, poland e-mail address: mgraci@sgh.waw.pl submitted 04/2017 accepted for publication 08/2017 regional cooperation within the eastern partnership eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 138-147 doi 10.5755/j01.eis.0.11.18428 © kaunas university of technology introduction the aim of the paper is to present and analyze the problem of cooperation between the eastern partners of the european neighborhood policy (enp). the problem is that current regional cooperation is insufficient and superficial what makes common arrangements impossible to attain. it resulted from weak economic relations and low level of interdependence among the eastern partners. moreover the biggest obstacles are looming interstate or local political or military conflicts in the eastern europe and southern caucasus which have been dominating political and economic scenes of that regions since the changes of the 1990. the paper’s aim is to examine difficulties that prevent the countries from engaging in wider economic cooperation and find areas for development of new regional initiatives. major question is whether the enp has contributed to enhancing of cooperation among the eastern partners? the answer is twofold. on the one hand the eu’s initiative has brought about to establishing institutional and financial framework for developing regional initiatives and on the other, the lack of stable economic and political relations and unresolved conflicts have prevent the eastern neighbors from engaging in genuine cooperation. keywords: european union (eu), eastern partnership (eap), european neighborhood policy (enp), regional cooperation, deep and comprehensive free trade areas (dcfta). development of regional cooperation is of utmost importance to the functioning of the european neighborhood policy (enp). it is especially significant across the eu’s external borders and among the eu’s neighbors themselves, specially that are geographically close to each other. the idea behind the enp and its eastern dimension provides the eu’ neighbors with two options: first an alternative to the eu’s membership through offering the countries comprehensive and deep economic and political cooperation, second the membership perspective through engaging the partners in a long-run economic, social and political reforms. the problem is that current regional cooperation is insufficient and superficial what makes common arrangements impossible to attain. the riga summit on eastern partnership (eap) in 2015 showed broadening split between those partners who wish to join the eu and those who want to stay apart and benefit from bilateral economic cooperation with the eu. therefore the aim of the paper is to present the root causes of restrained intra-regional cooperation and indicate the conditions in which closer economic and political relations between the eastern partners would unfold. thus it leads to the general question on whether the enp initiative has fulfilled its objectives and contributed to enhancing of cooperation among the eap countries. the paper is based on selected eu’s documents related to enp as well as the subject literature referring to assessment of the eastern partnership initiative. it is limited to key policy actions 139 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 undertaken both by the eu and the eastern partners themselves. it resulted both from changes in the enp agenda as well as internal turbulences in the eastern europe and the southern caucasus. the research comprises three parts. in the first section there was depicted general geopolitical overview of the enp and the eastern dimension. second part concentrates on hardships which prevent the partner countries from continuing bilateral and multilateral cooperation. the last part focused on sectoral initiatives which the partner countries were managed to established with financial support from the eu. enp in brief in 2009 the eu has launched the eastern partnership which was to strengthen the eastern dimension of the enp. the offer was aimed at six countries from eastern europe and southern caucasus (i.e. armenia, azerbaijan, belarus, georgia, the republic of moldova and ukraine) to address their specific needs of the regions in a multilateral forum. the eap has created more complex perspective for the enp with sustaining its overriding objectives such as enhancing of cooperation and granting of accession to the eu market under bilateral action plans (eprs, 2016). the overall enp program provided an institutional framework for the eu to negotiate its relationship with the neighbors after the 2004 enlargement with a perspective of association agreements. it embraced 16 eastern and southern neighbors. the main objective was to avoid the emergence of new dividing lines between the enlarged eu and its neighbors by engaging in the negotiation of reform priorities leading to good governance, rule of law, trade liberalization and civil society representation in the partner countries. the enp was to go beyond traditional financial assistance provided to the neighboring countries and was assumed to be better suited to the challenges in particular regions. under the enp there were issued two pivotal programs which were to reinforced each of its regional dimensions: the eastern partnership and the union for the mediterranean. both initiatives were to undercut of political instability and economic fragility throughout the regions. for the eu the crucial goal was to support stability along the european periphery while enhancing cooperation with the most advanced and eager neighbors. the enp’s institutional framework of cooperation was based on a commitment to fundamental values such as democracy, the rule of law and respect for human rights, market economy, sustainable development and good governance. the idea of how to treat the countries left after the downfall of the soviet union was one of the biggest challenge for the eu’s foreign policy. after the admission of the central european countries to the eu in 2004 and 2007 the union decided to launch a program which would provide the eu’s eastern neighbors with an alternative to membership a set of incentives for engaging in economic, social and political reforms. the eu decided to promote regional cooperation under the eap initiative instead of bringing the countries closer to the accession formula. under the enp instrument for 2014-2020 the eu has allocated to the regional projects within the eap between 741 and 906 mln eur. most of the funds were dedicated to enhancing intra-regional economic cooperation among the eastern partners as their economic relations have been at a relatively low level. deeper market integration would help stimulate economic growth in the regions but might also bring political and social benefits such as reconciliation and confidence building. the crucial tool for development mutual contacts became the agreements on deep and comprehensive free trade areas (dcfta) with ukraine, georgia and the republic of moldova as a part of association agreements (aas). this universally used instrument of economic integration might contribute to building sound trade relations in the region and boosting foreign direct investments which would lead to job creation and long-term growth. the eu’s ultimate goal for the dcfta associate countries was to create a wider regional free trade area based on the wto rules and international multilateral agreements (ec, 2015). for these eastern partners who did not want to engage in negotiations for a dcfta the eu offered more flexible mechanism such as agreements on conformity assessment and acceptance e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 140 table 1 initiatives designed by the eu thematic platforms democracy, good governance and stability economic integration and convergence with the eu policies energy security contacts between people flagship initiatives integrated border management; regional electricity markets, energy efficiency and renewables; natural and man-made disaster prevention; small and medium size enterprises; environmental governance non-governmental initiatives civil society forum parliamentary dimension (euronest) committee of region’s proposal for local and regional assembly source: j. boonstra, n. shapovalova, (2010), p. 6. (acaas), which would allow free movement of industrial products in specific sectors (ec, 2015). in the absence of regular form of cooperation between the partner countries the eu has offered four thematic platforms which covered: (1) democracy, good governance and stability, (2) economic integration and convergence with eu policies; (3) energy security and (4) contacts between people. in 2009 it was held first inaugural ministerial meeting which launched the two-year work programs for each of the areas. there were established the so-called flagship initiatives: integrated border management; regional electricity markets, energy efficiency and renewables; natural and man-made disaster prevention; small and medium size enterprises and environmental governance (boonstra, shapovalova, 2010). much attention was paid to parliamentary cooperation as well as collaboration with non-state actors. for that purpose there were appointed the eu-eastern partners parliamentary assembly euronest and civil society forum. the intention of parliamentary cooperation was to improve mutual relations between the partner countries national assemblies and the representatives of the eu parliament. the objective was to strengthen the eap thematic platforms and flagships initiatives. the civil society forum established in 2009 was designed to represent civil society actors from the eu, partner states and the third countries. moreover the eu’s committee of regions took and initiative to establish local and regional assembly in eastern europe and southern caucasus (table 1). there were to o serve as thematic platforms to establishing and maintaining regular dialogue and cooperation in areas of greatest importance for the local and regional authorities (boonstra, shapovalova, 2010). the process of building cooperation was to involve state institutions (local and regional authorities) as well as non-governmental actors. the hardships of cooperation promotion of regional cooperation within the enp has become a key objective, however at the very beginning the focus was put on other areas. the enp was based much more on developing bilateral relations than multilateral cooperation in the regions. it resulted from a number of hardships and impediments that the partner countries have encountered during their long term relations. an attempt to remedy the situation was the initiative of the union of mediterranean and the eastern partnership. thus there were established two regional platforms which were first, to strengthen the overall enp program and second, to improve intra-regional cooperation. the latter would make much more positive developments for the partner countries since most of the problems are regional and cannot be effectively addressed on bilateral basis (tkeshelashvili 2015, p. 29-30). 141 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 the eap programme assumed to “strengthen relations among the partners themselves, contributing to the exchange of information and experience in a whole range of reform areas and to the adoption of common standards” (euronest 2016). on the other hand achieving the goal has appeared to be a complicated task as a large number of eastern partners have been affected by armed or frozen conflicts which hampered economic, social and political transformation as well as regional cooperation, stability and security. the eu’s concept of promotion of intraregional cooperation came from the pattern of economic integration among central and eastern european countries and in the western balkans. these were the good examples for deepening economic integration among the partners which were culturally and historically closely linked with each other. however the changing geopolitical situation in the regions of eastern europe and southern caucasus has not been favorable to establishing permanent cooperation framework. the eu was particularly interested in extending its security area by expressing its willingness to resolve interstate conflicts and to obstruct further disputes in the regions. due to their negative impact on the economy the conflicts and political disputes impede economic cooperation and political dialogue. therefore the eu was very much interested in overcoming negative tendencies in policy of the eap partners. the open or frozen disagreements in the eastern europe and southern caucasus have been dominating political and economic scenes of that regions since the changes of the 1990. some of the conflicts date back to the period of functioning the soviet union. however contribution to their peaceful solution is a prerequisite to undertaking any further steps. the frozen military strives have been ongoing between armenia and azerbaijan over nagorno karabakh, georgia and russia over south ossetia and abkhazia. ukraine and moldova are enmeshed in internal conflicts where russian plays a pivotal role. since 2014 moscow has been running military actions in the eastern ukraine and it has been engaged in the process of autonomy of transnistria which finally may result in taking control over the moldavian territory. in all cases the problem have arisen from ethnic, national and religious differences and the interference of external powers such as russia. turkey or iran. in case of the conflict between armenia and azerbaijan over the nagorno karabakh both countries were called to enhance diplomatic efforts and intensified bilateral dialogue. unfortunately not much so far has been achieved while in the first half of 2016 the situation exacerbated substantially. it proofs again that the enp has not brought enough incentives for the partners to overcome the crisis. the eu was again criticized for the inconsistent policy and the lack of bargaining power in the region. the western europeans were blamed for an insufficient use of their economic and political power by using the principle of stronger conditionality. in case of moldova the most important problem is to resolve the conflict in transnistria. a peaceful settlement between the republic of moldova and territory of transnistria is of utmost importance for socio-economic development of the country and for improving good relations with neighboring states. the conflict is situated in a broader geopolitical bargaining process involving russia and the eu with special interest of romania and ukraine. the latter participates in international negotiations on the status of transnistria inside moldova alongside with russia and the osce. moreover kyiv holds peacekeeping troops in the secessionist area. the role of ukraine in the conflict over transnistria is ambiguous. on the one hand is seems that the settlement of the crisis is beneficial because it can contribute to improving regional stability and ukraine’s long-term european and euro-atlantic aspirations. on the other hand serious interest groups in ukraine benefit from smuggling, trafficking and export of arms passing mainly through ukrainian land and sea borders. that kind of cooperation was also profitable for the survival of transnistria, specially after the new moldovan customs treaty was introduced in 2001 and ukraine did not stop accepting exports from transnistria (popescu, 2005, p. 25). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 142 major obstacle to ukrainian recover is its conflict with russia. it has weakened ukrainian economy and prevented from developing cooperation with its neighbors. ukraine is currently a long way away from stability after an annexation of its territory of crimea by its powerful neighbor and a perpetual internal political turmoil. in these circumstance there is difficult to develop sound and long-term cooperation with its neighbors. southern ukraine is still facing a threat of russian military intervention and the central government does not have sufficient support from political parties and ukrainian society. key attention is paid to quick economic recovery with strong assistance of the eu’s institutions and programs. the frozen conflicts in the area of eap have confirmed that eastern europe and southern caucasus remain a volatile area despite a number of institutional framework for cooperation provided by the eu. the continuing conflicts in georgia (south ossetia and abkhazia), azerbaijan and armenia (over nagorno-karabakh region), as well as moldova over transnistria make the current situation under the enp framework even more fragile (jankowski, 2014). in all above mentioned cases russia plays a pivotal role of revisionist power by precluding the eap partners from strengthening their ties with the eu. different expectations and varying visions of the partner countries towards the eap have led to partition within the group of counties and failure of the initiative. the root-causes of the situation were much older than the enp initiative itself due to each of the neighbor has had different strategic visions towards the region and different policy. thus the eu’s approach based on treating all partners equally turned out to be a mistake. the six member-states have divided into two distinct groups, and in some opinion even three (giragosian 2015, p. 10). the problem is that within each of the group there are looming a number of difficulties and disagreements in terms of reform performance and the eu’s membership aspirations. the first group is consisting of these partners which have ultimately signed the association agreements (aas) and have expressed its intension to accede the eu in the future. it concerns georgia, moldova and ukraine though their western political orientation has been fluctuating over time. the second group comprises belarus, armenia and azerbaijan which have not decided to conclude their aas. in case of azerbaijan its government has not even expressed an interest in negotiating the aas, and its commitment into the eap was marginal. therefore the role of azerbaijan within the framework of the enp has been secondary which corresponded to the eu’s poor activity in pulling the authorities in baku on the european side (alieva 2015, p. 12). the azerbaijan position originated from its importance as a leading provider of gas and oil in the southern caucaus, particularly in the context of russian aggression to east ukraine. as the eu’s policy towards the government in baku was based on energy interests its engagement in reforms has been diminished and the european integrationist trend has heavily decreased. the eu has failed to offer the oil-rich economy something more than a vague perspective of the access to the eu market and visa facilitation. the armenian case is much more complicated. the government has admittedly declared its intension to integrate with the eu, but because of the moscow’s political and economic pressure it has withdrawn from initial promises. in 2013 armenia has decided to abandon its planned aas with the eu in return to joining the russian-led eurasian economic union. its turn resulted from the risk of a minor engagement of the eu in the southern caucasus and the rising demands from russia. the danger for armenia stems from greater isolation and a threat of becoming a state subordinated to russian authorities (giragosian 2015, p. 11). the change in political and economic circumstances indicates the fact that in 2006 both azerbaijan and armenia enp’s action plans had a clause on eu’s aspiration. most of the pools showed significant support for european integration (alieva 2015, p. 15). nevertheless, the government in yedifferent expectations and contradictory visions 143 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 revan has put its political and economic survival on strategic partnership with russia as it is a key trading partner and the deliverer of vital supplies of energy. moscow is also the principal source of armenian security, providing much needed military equipment and political support (german, 2012, p.149-176). armenia is under economic embargo of azerbaijan, but it maintains close economic and security relations with georgia (babayan, 2012, p. 49). therefore georgia is seeking to play a catalyzing role in the region having good relations both with armenia and azerbaijan. for belarus its participation in the enp allows the government in minsk to benefit financially from the eu’s program. in the absence of a bilateral agreement the belarus engagement in the eastern partnership legitimates relations with the eu. it also allows for maintaining a platform for any intergovernmental contacts and civil society cooperation (preiherman 2015, p. 18). close political and economic relationships with russia give belarus strong support from powerful neighbor but on the other had a danger for its national sovereignty. its participation in the eurasian union together with russia and kazachstan is not an alternative for regional economic projects but a geopolitical and ideological imperative imposed by russia. the more serious the frictions between the eu and russia are the more difficult is for belarus to balance between the two influencing neighbors. so far its capability to maintain an impression on independent policy have been quite successful. instead bilateral relations with the eu have let the government in minsk to gain more bargaining power against russia. moldova was one of the most advanced partner on the way to european integration by signing in 2014 its aas and concluding negotiation on dcfta. the question is whether the state will be able to implement the provisions of both documents since the last parliamentary elections have emerged new political forces skeptical to european integration. the problem rests also in decreasing support of moldavian society towards the european membership. instead there has been rising an endorsement for moldova’s accession to the eurasian union, which is very much assisted by russia. moscow opposes moldova’s rapprochement to the eu by using political pressure, trade blockades, energy threats and media propaganda (chirila, 2015, p. 36). the presence of ukraine within the enp has been marked by its military conflict with russia. from the ukrainian perspective its further engagement in the initiative should be clearly reaffirmed by its prospect of the eu’s membership. otherwise it may drop reform hardships and find itself again in the orbit of russian influences. in order to face up to russian demands ukraine requires an urgent access to european market, inclusion in european energy system and a visa free regime. in case of georgia its enthusiastic approach to european integration has been chilled by the eu’s pragmatic policy. georgia has not been yet offered a formal candidate perspective despite its staunchest support towards the eu and engagement in the reform process. because of the evident division within the eap for those who have signed the aas and the dcfta and those partners who have pulled back, georgia advocates the idea of forming a separate group in the form of eap (3+1). it would let the most interested partner countries to deepen their cooperation such as exchange of the experience on reform, synchronizing of regulatory policy reforms (gogolashvili 2015). the failure of enhancing cooperation within the eastern dimension of the enp stems from several reasons. first, the argument about the commonalities between the six member countries is too far-reaching. despite the fact that partners are combined by common post-soviet historical legacy their different interests and expectations prevent them from broadening and deepening mutual relations. second, their communist heritage can both unite and divide. they are bound by common history and close political, economic and cultural connections enforced by the former soviet union, which on the one hand may serve as a foundation for collaboration, but on the other restrain this cooperation. third, the enp was seen by the partners as a platform for the advancement of their political and economic reform agenda rather than as a significant regional platform (tkeshelashvili 2015, p. 30). the only regional sector that has performed well so far was the platform of civil society. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 144 major initiatives which has led to develop intra -regional cooperation within the eap was established by the eu. they have gained institutional and financial support from the eu and were to encourage the partner countries to keep on the process. the eu has established several cross-border programs that have incorporated the countries from the eastern dimension of the enp. most of the actions presented below have been launched by 2014. the priority areas for bilateral and multilateral cooperation were: (1) energy, (2) border management, (3) transport and (4) environment. some progress has also been achieved in the area of educational cooperation. ad. 1. in energy sector the eu has launched in 2009 the eastern europe energy efficiency and environment partnership (e5p), which was first addressed to ukraine and next extended in 2013 to moldova, georgia, armenia. the aim is to unite the eastern partnership countries, european commission and other bilateral donors in the region to coordinate and accelerate the implementation of energy efficiency and environmental projects. moreover some progress was achieved within the specialized programs such as the inogate and the ‘covenant of mayors’ initiative targeted municipal level to better energy efficiency in eastern partner countries. regular dialogue on energy is taken at the foreign ministers plenary sessions that were held in baku in 2014 and riga in 2015. ad 2. in border management area the eu has initiated the support program for territorial cooperation to improve capacity building, communication and awareness-raising activities in all the eap partners. the program aims to promote cross-border cooperation between border regions of the eap partner countries. it seeks to boost the capacity of local and regional actors in the bordering regions of partner countries that would help them implement cross-border initiatives without the involvement of eu member states. in practice the partner countries obtain technical assistance to develop the capacity of state and non-state actors (panorama, 2013, p. 66). the objective is to lay a foundation for territorial cooperation programs established at 4 borders: between the ukraine and belarus, ukraine and moldova, georgia and armenia, georgia and azerbaijan. the participation on the programs is open for local, regional and national authorities as well as for ngos. as a significant aspect of eu-led regional cooperation and good neighborly relations the eu has funded in 2007 a south caucasus integrated border management program that included the partner states from the region. its aim was to help the partners to boost their security and facilitate the cross-border movement of people and goods. similar initiative has been established separately for ukraine and moldova. a capacity building projects under the integrated border management program was focused on specialized training and the fight against corruption, and human rights aspects. ad. 3. as far as transport is concerned the eu has established the regional transport cooperation platform which was concentrated on rail and road priority projects, but also included the improvement of motorways of the sea, hinterland connections, logistics centers and the safety and security of maritime and aviation transport. the partners have committed to implement decisions taken at the eastern european transport ministers meeting, which focused on including inland waterways in the transport network, but also dealt with eu road safety policy, including the adoption of the roadworthiness package. two regional projects on road safety were launched in january 2014, supporting countries on road design, awareness campaigns and enforcement of legislation (ec, implementation, 2015). ad. 4. under the environment framework cooperation was designed to pursue via the flagship initiative entitled “towards a shared environmental information system program (seis) in the enpi region’, as well under the other regional and local programs. they were aimed at improving the quality, timeliness and availability of environmental information and to set up an environmental information system in line with the eu’s shared environmental information system. there was also established a number of specialized programs on nature protection sites (the the prospects for cooperation 145 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 emerald network), on forest law enforcement (fleg), on obsolete pesticide and other hazardous waste (ec, implementation, 2015). one of the tangible achievement in the environmental area was the conclusion of the regional program on air quality governance, which provided further assistance on pollution prevention permits (ec, implementation, 2015). moreover in all 6 eap countries there were introduced a disaster risk assessments based on the eu risk assessment methodology. the results of the operation were presented as an electronic risk atlas and were available at national, sub-regional and regional level. all activities have brought the partner countries progressively closer to the eu civil protection mechanism and contribute to the enforcement of regional cooperation in that field. the disaster risk protection started in belarus, georgia and in the south caucasus countries. good results have been achieved in the area of education. there were initiated various international programs on higher education, young people, culture and research. for the purpose of development of regional cooperation substantial progress was made in the initiative of regional torino process. all 6 eap countries had an opportunity to share their achievements in the field of vocational education and training, identified areas for potential regional cooperation. in order to develop research and innovation network the eu has given an open access for researchers and innovators from the eap under the “horizon 2020”. the willingness to join the program was declared by moldova, ukraine, georgia and armenia. successful conclusion of the eu-led programs require greater support from the partner countries both at the level of government officials as well as regional political leaders. any effort to overcome the stalemate in the region by initiating projects and join enterprises needs substantial financing and political assistance. in order to trigger intra-regional cooperation all stakeholders should enhance their commitments which in practice may lead to the following actions: _ first, the eu shall offer the most advanced partner countries in terms of systemic reforms such as ukraine, moldova and georgia a perspective of the eu’s membership. the current offer has discouraged these partners to take strong efforts on improving their neighboring relations, particularly in a situation when a conflict was a good motive for internal political use. the partners with poor transformation achievements such as belarus, armenia and azerbaijan would except a ‘privileged relationship’ based on greater economic assistance. _ second, the eu should give more support for those eap partners which reform more. those countries which meet the required criteria should be rewarded in a manner as the eu has done in the case of western balkans states. the implementation of the principle “less for those who reform less” would reinforce the efficiency of the differentiated integration approach (nicolescu, 2013, p. 4). the partners should be assessed in accordance to their individual merits what seems to be the right respond for the cases in which the principle of conditionality does not work. _ third, the enp agenda should be flexible in order to adapt to new circumstances. external and internal changes in partner countries have reversed the context of the enp and its eastern dimension. it is primary referring to frozen military conflicts and recurring political turmoil but also the role of russia and turkey whose contradictory interests and different positions have affected directly the policy of the partner countries. this problem is closely related to international position of the eu and its capacity to take effective response in a conflict situation. it has passed eight years since the eastern partnership (eap) was launched by the polish-swedish tandem in 2009. the initiative was expected to stimulate changes in eastern europe and southern caucasus by bringing forward internal reforms and enhancing intra-regional cooperation. the eap initiative was to reinforce the enp for which the good neighborly relations constituted the bedrock of its further functioning. the idea of promoting regional cooperation was conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 146 based on the eu’s commitment to protect its interests and maintain stabilization at the eu’s external frontiers while offering the partners economic and social benefits. the enp has hardly committed to boost intraregional cooperation among the eastern partners. it is one of the most criticized aspect of the enp which was neglected both by the europeans and the partners countries. most institutional and economic efforts taken by the eu and its members have not brought expected results. an increase of nationalist sentiments in the most enp partners, military conflict at the eastern border of ukraine, the escalation of hostile and military operations between azerbaijan and armenia in nagorno-karabakh are the most evident examples of the eu’s failure. it was not repeated a success of the eu’ impact on central and eastern europe and the western balkans. the eu’s strategy relied on political dialogue and economic assistance has not been sufficient incentive to change. admittedly there were some area of cooperation within the framework of the eu-led programs but the escalation of military conflicts and ongoing political tensions have dwarfed the symptoms of cooperation. alieva l. (2015) the european neighborhood policy and azerbeijan: when soft power and security are tightly related in: inayeh a., forbrig j. ed. reviewing the european neighbourhood policy: eastern perspectives, “europe policy paper 4/2015”, the german marshall plan of the united states, washington, babayan, n. (2012). “fear or love thy neighbor”? the eu framework for promoting regional cooperation in the south caucasus’, journal of contemporary european research. volume 8, issue 1, belarus – eu (2016), an overview, european external action service, (eeas), downloaded from http://eeas.europa.eu/delegations/belarus/projects/overview/index_en.htm (21.04.2017) boonstra j., shapovalova n., (2010) the eu’s eastern partnership: one year backwards, “fride working paper”, no 99, pp. 6-7. chirila v. (2015) moldova: more focus, flexibility, and visibility for the european neighborhood policy in: inayeh a., forbrig j. ed. reviewing the european neighbourhood policy: eastern perspectives, “europe policy paper 4/2015”, the german marshall plan of the united states, washington european external action service (eeas) (2016), the enp, downloaded from https://eeas.europa. eu/topics/european-neighbourhood-policy-enp euronest parliamentary assembly on eu multiannual financial perspectives and their impact on economic cooperation among eastern partnership countries, (2016/c 193/02), 22 march 2016. eu-moldova action plan, 2004, european external action service, (eeas) downloaded from http:// references eeas.europa.eu/enp/pdf/pdf/action_plans/moldova_enp_ap_final_en.pdf european neighborhood policy at a glance (2016), european parliamentary research service, eprs, october, downloaded from http://www.europarl. europa.eu/regdata/etudes/atag/2016/593478/ eprs_ata(2016)593478_en.pdf (23.04.2017) european commission (ec) (2015) implementation of the european neighborhood policy. eastern partnership implementation report, swd(2015) 76 final, brussels, 25.3.2015, european commission (ec) (2015) review of the european neighbourhood policy, joint communication to the european parliament, the council, the european economic and social committee and the committee of the regions, swd(2015) 500 final}, 18.11.2015 eu-ukraine action plan (2008), join evaluation report, european external action service, (eeas) downloaded from http://eeas.europa.eu/ukraine/ docs/ukraine_eu_joint_evaluation_2008_en.pdf german t. (2012), regional cooperation in the south caucasus. good neighbors or distant relatives, routledge, giragosian r. (2015), the european neighbourhood policy: an armenian perspective, in: inayeh a., forbrig j. ed. reviewing the european neighbourhood policy: eastern perspectives, “europe policy paper 4/2015”, the german marshall plan of the united states, washington, gogolashvili k. (2015), reform of the enp and the eastern partnership – a view from georgia http:// www.europeanleadershipnetwork.org/reform-of147 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 the-enp-and-the-eastern-partnership--a-viewfrom-georgia_2763.html (02.05.2017) inayeh a., forbrig j. ed. (2015) reviewing the european neighbourhood policy: eastern perspectives, “europe policy paper 4/2015”, the german marshall plan of the united states, wasgington, jankowski, d. p. (2014) russia – ukraine conflict: lessons for europeans, downloaded from http:// foreignpolicyblogs.com/2014/09/05/the-russia-ukraine-conflict-lessons-for-europeans/ nicolescu a. (2013) eastern partnership roadmap 2012-2013 and the european enlargement strategy: main challenges to the conditionality and differentiated integration principles, istituto affari zajaczkowski małgorzata phd warsaw school of economics, institute of international studies fields of research interests european integration, transatlantic relations, wto, development cooperation address al. niepodległości 162, 02-554 warsaw, poland tel. +48 22 564 94 06 internazionali, documenti iai 13 | 11 – november, panorama of eu regional programmes and projects. eastern partnership and russia. (2013), ec directorate general development and cooperation – europeaid, european commission, popescu n. (2005), settling conflicts in the neighborhood, occasional paper, no 60, october 2005, institute for security studies, paris tkeshelashvili e. (2015), european neighbourhood policy review: comprehensive reset or rebranding initiative? in: inayeh a., forbrig j. ed. reviewing the european neighbourhood policy: eastern perspectives, “europe policy paper 4/2015”, the german marshall plan of the united states, washington. about the author this research project has benefited from funding under the polish “national science centre” (ncn) grant titled “european neighbourhood policy: (multi-level) governance, the reform process and the prospect of enhanced cooperation in the region”, opus/hs5, no. 2013/09/b/hs5/04534. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 110 waiting for the capital market union: the position of latvian corporate bond market http://dx.doi.org/10.5755/j01.eis.0.11.18147 natalja tocelovska university of latvia, aspazijas bulvaris 5, riga, latvia, email: natalja.tocelovska@sseriga.edu submitted 04/2017 accepted for publication 08/2017 waiting for the capital market union: the position of latvian corporate bond market eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 110-119 doi 10.5755/j01.eis.0.11.18147 © kaunas university of technology baltic region is traditionally treated as similar and comparable when analysed on the macroeconomic level. the major difference is faced when the analysis is performed for the corporate bond market – the weight of latvian publically traded corporate bonds among the three countrieslatvia, lithuania and estoniareached 94% by the number of issues quoted. with 47 corporate bonds listed in nasdaq riga, latvian corporate bond market demonstrated the rapid growth and recognition of corporate bonds as the source of alternative to bank lending financing method (nasdaq baltic, 2017). there are no obvious macro or microeconomic evidence for latvia meeting more favourable conditions for corporate bond market development than lithuania and estonia the increasing role of the capital market as the alternative to the traditional to europe banking sector is strongly supported by the european commission (ec). in 2015 the ec announced the capital market union (cmu) initiative and respective action plan as the reaction to the challenges faced by both banking sector and small and medium enterprise (sme) segment in europe. as integrated and more diverse capital markets will decrease the cost of funding for companies, the objective of the cmu is to make the financial system more resilient in all 28 member states including latvia, lithuania and estonia (european commission, 2017). while several steps like proposal to modernise the prospectus directive have been made, further actions based on the review of regulatory barriers to sme admission on public markets and sme growth markets and review of european union corporate bond markets, focusing on how market liquidity can be improved made in 2017 will follow (european commission, 2015). the aim of this article is to analyse the level of development of the biggest baltic corporate bond marketlatvian corporate bond segment and to reveal the areas of potential focus of cmu introduction. the paper applies financial sector development indicators (fsdi) framework developed by the world bank (world bank, 2004) to the country cluster as defined by bending et al (2014). the paper relates the results to cmu action plan developed by the european commission. the article estimates that latvian corporate bond market is highly developed compared to the peers selected where the only lagging area is size. the article concludes that actions targeted to increase directly or indirectly the size of the market should be prioritised for latvian corporate bond market within cmu framework. keywords: corporate bond market, capital market union, bank-based economy, latvia, development. 111 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 before the financial crisis of 2008-2013 the traditional bank-based european economy has rarely been challenged. the total assets of banks in the eu amounted eur 42 trillion or 334 % of european union (eu) gdp in 2013 while us banks’ assets were worth eur 11 trillion of 88 % of us gdp (langfield and pagano, 2016). the recovery, which took place afterwards created the change both in academic perception of the bank-based economy of eu and political view. in the result, the economy, which for centuries has been relying on banking financing is in the process of being turned towards a more market oriented financing. the banking sector is facing a vast wave of regulations requiring the core structural changes and often business restructuring. moreover the development of alternative financing solutions is providing parallel competitive challenge. in order to structure its steps towards marketbased economy, the action plan called capital market union was announced by the european commission in 2015 (european commission, 2017). latvia while being the bank-based economy is experiencing the strong development of its corporate bond market where the number of public issues outstanding has reached 47 corporate bonds (nasdaq baltic, 2017). the growth of the alternative financing is experienced while unclear in its sustainability of corporate bond segment. in order to identify the level of developed of latvian corporate bond segment the study of tocelovska (may 2016) selected the financial sector development indicator (fsdi) framework developed by the world bank and applied it to latvia. the performed comparison to the benchmark markets: germany, usa and sweden, indicated the need for additional selection of efficiency area indicators for analysis (provided by the study of tocelovska (september 2016)) and additional peer countries for the comparison. the research by tocelovska (october 2016) run expert panel to discover the relevant peer countries and identified poland, croatia, hungary, slovakia and slovenia as the peer countries. the analysis revealed that latvia had a comparatively developed bond market and its corporate segment. the increased focus on the cmu creation and actions planed and the strong focus on the corporate bond market development as part of the cmu action plan, besides to the increasing number of academic studies on cmu develop the need for analysis of latvian corporate bond market development within cmu perspective. the aim of this article is to analyse the level of development of latvian corporate bond segment and to reveal the areas of potential focus of cmu introduction. the article employs scientific publication analysis, document analysis, data evaluation, and case study research methods. this paper contributes in two fundamental ways to the current research on the corporate bond market development in latvia and cmu introduction. firstly, the author provides in-depth analysis of the academic development of market-based concept in europe including cmu introduction. secondly, the author further extends the development of financial sector development indicators (fsdi) model by the world bank (2004) by adding the peer countries as provided by bending et al (2014) as the result of the cluster analysis of the european union economies and identifies the comparative level of development of the corporate bond market in latvia within the cluster selected. the structure of this paper commences with the review of the academic research on the financial system specifics of bank-based and market-based systems and the justification for the preferred arrangement of the european market. the cmu initiative is reviewed within the shift to the market-based economy. while classified as the country with underdeveloped both banking sectors and capital underdeveloped by the study of bending et al (2014), latvia is analysed for its comparative development for corporate bond segment within fsdi framework by applying identified by bending et al (2014) peer countries. finally, the results of the fsdi framework applied are presented within the cmu introduction perspective, the expected outcomes are described as well as future areas of research are proposed. introduction e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 112 an academic discussion on whether financing on both corporate and sovereign level should be bank-based or marketbased has taken place for a long period of time where the academic research on the topic concentrates in the period mid-1990s early 2000s. langfield and pagano (2016) explain that since the early 1990s, europe’s banking system has expanded rapidly, where europe’s capital market experienced moderate changes. in the result europe’s financial structure has become strongly bank-based. the second wave of academic interest to the topic could be observe in mid-2010, where the reflections from the financial crisis and proximity of capital market union initiative by the european commission stimulated the discussion. financial system of the country brings together lenders, borrowers, financial markets and financial intermediaries with the aim to channel financial resources from the financial market participants with the excess to other financial market participants, who have shortage. mishkin (2009) defines two flows of the financial resources between the borrowers and lenders: through the financial markets or direct finance and through the financial intermediaries or indirect finance. the practice of dividing market and bank financing is used also to characterize the entire economy. in the bank-based financial system the role of the banks is central in redistributing financial resources. on the contrary, in the market-based financial system, securities market shares the stage with the banks in getting private savings to companies, applying corporate control, and easing risk management (demirguc-kunt and levine, 1999). while corporate sector forms the base of the country economy, an influence of the corporate financing into the entire economy is studied by dividing the economies into being based on bank financing and market financing. studies by levine (1997, 2002) summarize academic views by dividing market-based and bank-based approach: a bankbased view: the studies of gerschenkron (1962), boot and thakor (1997), boyd and smith (1998), rajan and zingales (1999) support the view that bank contribute more efficiently to the financial market of the developing countries. diamond (1984) points to the monitoring function of banks thus smoothening the risk; while benston and smith (1976) to lowering of transaction costs of funds. moreover the state-owned banks will route the money flow to the vital project thus developing the economy. the study of allen and gale (2001) further highlights the role of banks in the early stage of economic development while the sufficient legal and financial frameworks are not in place. fecht et al (2012) stresses that banks remain at the core of financial system and tend to be linked among each other via interbank and other relevant tools. fecht et al (2012) finds that an enhanced concentration in lending does not necessary increase risk since a well-functioning interbank market allows to achieve the necessary diversification. b market-based view: the studies by allen and gale (2001), fujita (2000) and levine (2002) reveal that market fund gathering adds competition and thus efficiency and diversification to the process. moreover the study of la porta et al (2001) shows that that state-owned banks are more oriented on achieving political goals thus resulting in inefficient resource allocation. peterson (2003) stresses that bonds have more ways to tap institutional and household longterm savings. additionally levine (2002) adds financial services and legal-based views, which reveal the importance of financial sector as suchnot stressing the dominating role of banks or financial markets but their cooperation; and the importance of legal framework respectively. the study supports no direct evidence of either market of bank based economy being more efficient, while stressing the dependence of the financial sector development on the level of development of the legal system. moreover the better developed financial sector influence the economic growth while the source of financing bank or market is relatively unimportant. the importance of the legal base and law protection as the central in the choice for source of financing is also stressed by ergunor (2003). bank as the source of financing is the choice for civil-law applied countries, where courts literature review 113 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 have less flexibility in interpreting the laws and creating new rules. whereas common-law courts enforce laws effectively, providing them with more detailed creditor and shareholder protection laws has a greater impact on the development of financial markets compared with civil-law systems. the findings were extended by the research of beck and levine (2002), which showed that the reliance on the bank-based or market-based capital system does not make much difference, while the efficient legal system and financial development improve industry growth, new establishment formation, and efficient capital allocation. peterson (2003) finds that there is no one “right” way to handle financing on the sample of sovereign bonds observed, while stressing that the local bond market is a more preferred way since the public monitoring and public disclosure required for efficient bond market operation is higher. most of the european economies including germany are traditionally bank-based, where usa and canada markets are market based (levine, 2002). the role of banks is overemphasized in most of the european economies thus leaving bond markets as less developed. the financial crisis, which started in summer 2007 in the us as the first wave and continued in europe in mid-2010 as the second wave, has revealed the scope of the bank influence on the economy (zaghini, 2015). while starting on the bank and interbank level initially, the crisis through sovereign guarantees provided to the banks and ecb interventions, have shifted the risks on the whole economy: e.g. latvia (european commission, 2012). while pre-crisis academic studies emphasize the cost-effectiveness and safety of bank-based financing due to higher monitoring and control function performed by the banking sector versus lower control from the investor society, the shift in the research paradigm could be observed in later studies with the effectiveness focus shifting towards us-employed market based system. allen and gale (2001) explained the shift by the failure of government interventions and over-stressed effectiveness of the financial marketsboth left no doubts that market financing is more efficient. the post-crisis academic research instead of traditional bank-based versus market-based division of financial systems concentrate on finding: 1 the relationship between the crisis effect and economic growth and the type of financial sys-tem. when looking to the bank-based financial systems, the research by langfield and pagano (2016) discovers that bank-based financial structures are associated with lower economic growth, particularly when real house prices drop substantially. bending et al (2014) states that while banking crises causes a similar initial drop in investment on both bank-based and market-based systems, the recovery is much slower in the bank-based economies. the latter is supported by allard and blavy (2011); 2 quantitative easing (qe) effect and financial system. qe as performed by the central banks increase the importance and activity of the capital markets. duca et al (2015) highlights that issuance in emerging markets without qe would have been broadly half of the actual issuance since 2009, where steeley (2014) finds that qe resulted in a substantial and statistically significant drop in the costs of trading uk gilts; 3 an alternative classification of the financial system of a country. while banking and market as the sources of financing are viewed as substitutes by the majority of authors, hardie et al (2013) view market –based economy as the way to disseminate loans or market-based banking. the latter is characterised by four elements: 1) assets are valued at market price (“marked to market”); 2) bank lending is securitized or traded; 3) bank assets are sold to “shadow banks”; 4) assets retained on balance sheets are financed market sources. the shift in bank-based and market-based paradigm is stressed by sawyer (2014), where the banks are changing their role from “originate and retain” to “originate and distribute” with more involvement in the securities market. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 114 while stressing the importance of market-based economy, academic studies rarely provide solutions different from the ones already in focus of the cmu: increased regulation, securitisation, cheaper sme access to capital markets ((langfield and pagano, 2016), (bending et al, 2014)). the existing focus on capital market development should not shrink the importance of symbiosis of both banking sector and capital markets, where the financing for some groups of the potential borrowers such as small size companies can be limited by the scope, for new companies –limited by the lack of credit and cash flow history, etc. the presence of both banking sector and capital market is vital for the country. cmu seeks to develop wide range of small and medium enterprise (sme) capital needs by the action plan introduced. cmu introduction is scheduled as an action plan with short and medium term focus and ambition of regular revision and correction when needed. the green paper (european commission, 2015) summarizes the early priorities of the cmu as: 1) develop proposals to encourage high quality securitisation and free up bank balance sheets to lend; 2) review the prospectus directive to make it easier for firms, particularly smaller ones, to raise funding and reach investors cross border; 3) start work on improving the availability of credit information on smes so that it is easier for investors to invest in them; 4) work with the industry to put into place a pan european private placement regime to encourage direct investment into smaller businesses; and 5) support the take up of new european long term investment funds to channel investment in infrastructure and other long term projects. the scope of the cmu action plan on the money demand side includes wide range of corporates from the start-up phase to large and stable government institutions. the role of the corporate bond market is stated as one of the key objective. while latvian corporate bond market is the biggest on the baltic level, its perspective and area of development within cmu should be identified. latvian financial system is characterised as bank-based by bending et al (2014). the study looks for both presence of loans available for non-financial companies (nfc) and capital market size indicators and as the result clusters the eu countries into 4 group: methodology 1) countries with both large banking sectors and well-developed capital markets: austria, denmark, luxembourg, spain, sweden, the united kingdom; 2) countries in which banking plays a large role, and capital markets a lesser role: cyprus, estonia, greece, ireland, italy, malta, portugal; 3) countries with well-developed capital markets in which bank lending, as measured by the stock of nfc loans, plays a comparatively smaller role: belgium, czech republic, finland, france, germany; 4) countries in which both banking sectors and capital markets appear underdeveloped: bulgaria, hungary, latvia, lithuania, poland, romania, slovakia and slovenia latvia is found to be in the fourth cluster together with seven other peers. while the peer group is found to share the same cluster for financial system comparison and partially contains the countries selected by the expert panel by the study of tocelovska (october 2016) the fsdi framework is run for the whole fourth cluster as grouped by bending et al (2014) to identify the comparative development of latvia within the peer group and potential for further development within cmu action presence. fsdi framework is selected by tocelovska (january 2016) as the comparative factor framework for the analysis of development of latvian corporate bond market. the framework does not provide the desirable level or the threshold values suggested but the framework for comparison of the countries selected. the framework groups all the metrics into 4 groups: size, access, efficiency and stability and summarizes the results of the comparative analysis. the fsdi study 115 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 provides the sub-indicators for each of the four groups. the study of tocelovska (may 2016) revealed the need to develop additional efficiency area sub-indicators, which were successfully developed and tested by tocelovska (september 2016). in the result, the groups and sub-indicators are: 1) size: ratio of private sector bonds to gdp, ratio of public sector bonds to gdp, ratio of international bonds to gdp, dummy variable: existence of bond market and dummy variable: existence of corporate bond market; 2) access: government bond yield (3 months and 10 years), ratio of domestic to total debt securities, ratio of private to total debt securities (domestic), ratio of new corporate bond issues to gdp and new corporate bond issues ($ billion); 3) efficiency: quoted bid-ask spreads (10-yr government bond yield), quote size, number of the counterparties providing bid/ask quote; 4) stability: volatility of sovereign bond index, skewness of sovereign bond index, ratio of short-term to total bonds (domestic), ratio of short-term bond to total bonds (international), correlation with german bond returns and correlation with us bond returns. size, access and stability area indicators are calculated as average numbers over the period 20082015 with subsequent standardisation of the scores. efficiency area indicators are based on the market situation at the moment of analysis. the data from the world bank, the bank for international settlement database, eurostat and bloomberg information system is used for the analysis. the results of the fsdi framework indicate the comparatively high level of development of latvian bonds market and its corporate segment in stability, access and efficiency areas (figure 1). while the summarised data is comparatively similar for the whole cluster observed, more detailed analysis should be performed to find the relative position of latvia. size area is measured by three ratios as applied by the study of the world bank (2004): ratio of public (government) sector bonds to gdp, ratio of private (corporate) sector bonds to gdp and the ratio of international bonds to gdp. for the sovereign debt sector the analysis of six peer countries selected indicates that public debt varies within the range of 11%-71%, where slovenia and hungary overcome 50% level. the results are contradicting previous fsdi analysis finding that the relative size of bond markets in middle income countries is generally indistinguishable from the one in low income countries. the weights of the public bonds from gdp of the countries observed are different by as much as 60% within the sample observed. while the framework treats the higher level of debt as more positive one, the study of artis (2002) indicates that public debt benchmark established by the maastricht criteria provides the reasonable target. buiter et al. (1992) argue that fiscal convergence criteria can lead to unnecessary hardship if pursued mechanically stressing the lack of case to restricting the debt/gdp ratio to lie below a particular value. latvia is indicating 30% level of public debt outstanding as the percentage of gdp. the level is gradually increasing starting from 11% in 2008. the average level of latvian sovereign debt in the period 2008-2015 reached 18% while the average level for all cluster countries in the period observed reached 32%. private sector indicators share more homogeneitythe ratio of corporate bonds as the percentage of gdp for the cluster countries observed stays below 13%, with average cluster level in the period 2008-2015 staying at 7% and not showing the signs of increase. all countries share similar dynamics of the indicator observed except of hungarythe dynamics of hungary can be described as a steep decrease in the period of 2013-2014. the decrease in the corporate debt was relatively higher when compared to the growing gdp base. the results are comparable with fsdi findings by the world bank in 2004, where the proportion of the corporate bonds outstanding as the proportion of gdp of the country was found to be a 40% ratio of high income oecd countries and 4% low income. (the world bank, 2004). results e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 116 in its article from 2004 the world bank indicates that the developing countries experience difficulties utilizing international markets (the world bank, 2004). all of the six countries observed except hungary have gone from 2-24% ratio of international debt to gdp in 2008 to 11-37% in 2015 thus proving their positive dynamics and development of the capacity to attract funds internationally. latvia shares the third highest level of the international debt as the proportion of gdp within the cluster observed thus proving presence of the international demand. according to fsdi, the access is useful and effective only when the cost of capital is low and process to acquire capital is easy (the world bank, 2004). while 3 month and 10 year maturities bonds of the sample countries selected are issued in different countries, all the relevant cash flows need to be swapped to eur currency in order to compare the cost of capital of the sovereign debt for 3 month and 10 year maturities. all the cash flows were first swapped to eur currency with the help of bloomberg system and then analysed. the analysis of 3 month and 10 year public bonds of poland, latvia, hungary, slovakia, slovenia bulgaria, lithuania and romania indicates the difference in yields both in short-term and long-term segment. the high volatility of short-term bond segment is stimulated by the low interest rate environment as well as the proximity to maturity. the study of the world bank (2004) states that measurement of domestic bonds to total bonds outstanding indicates the capacity of local market to provide capital. the ratio of domestic bonds to total bonds outstanding in the cluster observed fluctuates substantially reaching 76% in poland and exceeding 50% in hungary, slovenia and slovakia. the latter could be partially explained by the presence of the local currency, which stimulates the selection of the local instruments by the local investors. the study of the world bank states that measurement of domestic private bonds to total domestic bonds outstanding indicates the degree of accessibility of the resources locally for the companies thus affecting their financing decision (the world bank, 2004). latvia is leading the sample with its 50% of domestic corporate debt as the percentage of the total domestic debt. the average level of the sample observed is reaching only 12% in 2015 indicating the low level of development of the local capital market. this indicator reveals the very strong position of latvia in the domestic corporate debt market. the study of the world bank stresses the importance of the efficiency of the bond market stating that more than 130 countries have some form of organised bond market, but only 50 have figure 1 composite bond market indicators (author’s construction based on the world bank, bloomberg and bank for international settlement data, 2071) (1,50) (1,00) (0,50) 0,50 1,00 1,50 2,00 size access efficiency stability poland latvia hungary slovakia slovenia bulgaria lithuania romania 117 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 become substantial in size and even smaller number are efficient by international standards (the world bank, 2004). despite the existing difference in both size and access area indicators observed before, the efficiency area metrics: bid-ask spread, quote size and the number of the counterparties providing bid/ask quotes for the bonds, are comparatively similar. latvia demonstrates the lowest bid-ask spread from all the six countries while sharing the average quote size and counterparties providing bid/ask quotes thus indicating the comparatively efficient market. stability is the last area of indicators suggested by fsdi for the analysis of the development of the corporate bond market. fsdi groups stability indicators into 4 areas: volatility, skewness, maturity and correlation, thus providing 6 ratios: volatility of sovereign bond index, skewness of sovereign bond index, ratio of short-term to total bonds (domestic), ratio of short-term bond to total bonds (international), correlation with german bond returns, correlation with us bond returns. (the world bank, 2004). the study of the world bank states that stability of the bond market is influencing the cost of capital and thus the motivation of the investors to enter the market. (the world bank, 2004). this study analyses the stability of the cluster countries applying 3 groups of ratios: volatility, skewness and maturity for public bond segment only. latvia demonstrates the highest level of the stability area indicators in the cluster observed with the comparatively low level of short-term bonds issues and presence of longer-term financing possibilities open for both sovereign and corporate segment in the country. _ despite the current strong focus towards market-based economy, the academic research defines market-based, bank-based, financial services and legal-based views. the apparent skewness to bank-based view domination can be observed in the early research in the period mid-1990s early 2000s. pre-crisis studies emphasize the cost-effectiveness and safety of bank-based financing due to higher monitoring and control function performed by the banking sector versus lower control from the investor society. _ while skewed to bank-based economy efficiency before crisis, the researchers have turned to more market-based approach in postcrisis period. post-crisis academic research concentrate on finding: the relationship between the crisis effect and economic growth and the type of financial system; qe effect and financial system; an alternative view on the classification of the financial system of a country. moreover the focus of the ec towards cmu has left very scares research on bank-based economy efficiency. _ the shift in bank-based and market-based economy paradigm is taking place by observing both not as substitutes any more but as complements. gradually the border between the market and financial institution is becoming more blurred and banks are viewed from the perspective of the financial market participants and originators of the bond issues. additionally the significance of legal practice in the country as the one influencing the economy is stressed by the academic studies. _ to identify the development of latvian corporate bond market prior to cmu action plan introduction the fsdi framework is selected. the peer country selection is based on the study of bending et al (2014), where the countries of the european union are group according to the presence of loans available for non-financial companies and capital market size indicators. in the result 4 clusters are formed. latvia is sharing the cluster where both banking sectors and capital markets appear underdeveloped. the countries in the sample are bulgaria, hungary, latvia, lithuania, poland, romania, slovakia and slovenia. fsdi framework is run for the whole cluster to identify the comparative development of latvia within the peer group and potential for further development within cmu action presence conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 118 _ size area is the comparatively weakest area for latviacomparatively low level of sovereign debt outstanding and low level of the size of the corporate bond market when related to the gdp of the country place latvia in the lower end with romania and bulgaria behind. lithuania, slovakia and poland represent the average level in the cluster observed. _ measurement of domestic private bonds to total domestic bonds outstanding indicates the degree of accessibility of the resources locally for the companies. latvia has the highest ratio within the cluster observed with its 50% of domestic corporate debt as the percentage of the total domestic debt. this indicator reveals relatively very strong position of latvia in the domestic corporate debt market as well as being the metric of access area. _ latvia demonstrates the lowest bid-ask spread from all the six countries while sharing the average quote size and counterparties providing bid/ask quotes thus indicating the comparatively efficient market. _ stability is the strongest area for latvian bond market and its corporate segment where the comparatively low level of short-term bonds issues and presence of longer-term financing possibilities are open for both sovereign and corporate segment in the country. _ cmu represents an action plan with short and medium term focus. the early priorities of ec are reviewing company documentation; developing standardised methodologies to assess the creditworthiness of smes; reviving high quality securitisation; development of european long term investment funds; developing european private placement market. _ latvian bond market and its corporate segment from four areas analysed: size, access, efficiency and stability; is facing the challenge only on the size metrics. the actions of cmu targeted to increase directly or indirectly the size of the market should be prioritised for latvian corporate bond market. cmu actions related to increase the size of the corporate bond market are reviving securitisation, participation in european long term investment funds and developing european private placement market. _ recommendation for the future studies include to perform in-depth analysis of cmu introduction application to latvia with detailed effect on latvian corporate bond market and further development of the focus of the fsdi model on the corporate bond sector by adding more corporate bond specific metrics to all four areas observed in the framework. allard, j., blavy, r. 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(january 2016). framework for analysis of latvian corporate bond market development. working paper. proceedings of the 2016 international conference “economic science for rural development”. latvian university of agriculture. tocelovska, n. (may 2016). revealing the stage of development of latvian bond market. working paper. university of latvia conference: new challenges of economic and business development – 2016: society, innovations and collaborative economy, pp.845-857. tocelovska, n. (september 2016). measuring efficiency of the bond market in latvia. working paper. proceedings of the xxv aedem international conference. tocelovska, n. (october 2016). corporate bonds as the alternative for bank crediting: analysis of latvian market. working paper. proceedings of the annual international conference “evolution of international trading system: prospects and challenges zaghini, a., (2016). fragmentation and heterogeneity in the euro-area corporate bond market: back to normal? journal of financial stability, 23, pp. 5161. https://doi.org/10.1016/j.jfs.2016.01.009 tocelovska natalja phd student university of latvia fields of research interests finance, financial markets, securities, bonds, corporate bonds address aspazijas bulvaris 5, riga, latvia tel. +37129138802 about the author european integration studies 2011.indd 102 issn 1822–8402 european integration studies. 2011. no 5 the financial crisis and the discourses of latvia’s political parties vija sile, ilze dzalbe riga stradins university, latvia abstract at the end of 2008, latvia’s population found out about the financial problems of one of latvia’s largest banks. at first, politicians stated that there were no grounds for concern and that there was no crisis, but just a couple of weeks later the opposite turned out to be true. accordingly, the saeima made a number of decisions that met with mixed reactions in society, also including amendments to tax laws. at the same time, the cabinet also made decisions about public expenditure cuts and redundancies, and entered negotiations with the international monetary fund about a loan for the republic of latvia. nationally, unemployment grew as did socio-economic tension. at the start of 2009, together with 25 public organisations and trade unions, the political organisation sabiedrība citai politikai (the society for political change) (diena, 13 january 2009) came forth with a proclamation “an invitation to the latvian people”, asking state president valdis zatlers to dissolve the 9th saeima, as well as demanding the election of a new saeima and establishment of fair, honest, democratic and competent executive government. at the end of the announcement, an invitation was made to everybody to attend a meeting of the people on 13 january in dome square. the study analyses the rhetoric of political values in the six biggest national newspapers in an attempt to clarify the information that latvian society received from politicians. using one word or another, people create a certain social reality. concepts and metaphors reflect belief systems and the thoughts, on the basis of which the speaker acts. within the framework of the study, the authors try to answer the question of what society discovered about the aims and actions of politicians during the resolution of the economic crisis, which generated a lack of confidence, which prompted people to unite and demand the dissolution of the saeima. people observe the political rhetoric within the public discourse and the study data show that that which society gleaned from political discourses was: a failure to search for a definition of a single concept; emotional saturation within the rhetoric of politicians containing mutual offence, irony and metaphors; over-definition of the essence of the subject; self-presentation redefining one’s beliefs depending on the position in the current situation; use of negative statements which reduce the potential discussion space; use of prior assumption relating this to the practice of intimidation; frequent use of meta-discourse; naming of the agenda of the day by the position. observing the structure of such a discourse, the general public felt a sense of disappointment and sensed that finding welfare-based solutions to the problems caused by the financial crisis was not the basis for the battles between politicians. accordingly, people found themselves unable to trust the information provided by political forces within the public space and experienced a double loss of freedom. (raz.j., 2001 ) the situation subjected to an analysis of the rhetorical values of politicians shows that politicians engage in constant manipulation by redefining the nature of the subject, disclosing facts about others and presenting themselves by reformulating their beliefs depending on the environment and the situation. such conduct reduces people’s abilities to make decisions. latvian society is experiencing a double loss of freedom, firstly through the manipulation of politicians who restrict available information and reduce opportunities for action, and secondly, due to the economic crisis which reduces people’s autonomy, compelling people to focus every thought and action on the goal of self-preservation. keywords: financial crisis, political party discourses, knowledge. introduction the social problem which prompted the study to be conducted in the low level of public trust in representatives of state authorities (in political parties, parliament and the government). the eurobarometer 74 study for autumn 2010 shows that 6% of the population trust political parties, while 15% trust their national parliament, and 20% trust the government. (european commission: national report. latvia. eurobarometer 74) like other european countries, latvia has experienced the economic crisis and is still on the road to recovery. on 8 november 2008, the latvian government decided to take over a 51% majority shareholding in one of latvia’s largest banks: “parex banka”. prior to the takeover of the bank, the public space was dominated by questions such as the annual pre-budget preparations, a responsible budget for the coming year, and the demands of teachers and medics; information about the bank’s financial problems was not published. on 13 january 2009 a meeting of the latvian population took place, which was organised by a party then in opposition together with public organisations. it ended with a riot a public reaction untypical of latvia. the meeting itself, albeit conventional and authorised by the local council was untypical of the timid latvian public. the scientific problem is what prompted people to gather? what could prompt society to think that latvia’s governing elite could not cope with the task entrusted to it and was not acting as the situation demanded? what was the public content and form of latvia’s governing discourse in the period between the emergence of the first information about the problems in the financial system and the gathering in dome square where 10,000 members of the latvian people issn 1822–8402 european integration studies. 2011. no 5 103 gathered at a peaceful meeting. the research novelty is related to the fact that before now, public behaviour during the period under consideration has not been considered using the perspective of moral values in the rhetoric of politicians. even though, due to the fact that it is not involved in the direct decision making process, the public relies on information in the public space; its assessment is largely based on observations of the behaviour of politicians and its appraisal of this using its own internal scale of values. an impression exists about values which must be represented in the conduct of politicians, in order to prove that they can be entrusted with the power to make decisions that influence society. the aim of paper is to analyse the content of political party representative value discourse received by a public representative interested in political events. the research object is the rhetoric of politicians during the period from 8 november 2008 to 13 january 2009. in the aftermath of the events of 13 january, discussions acquired a new form in which the discussion of public dissatisfaction with the economic situation and a crisis of political trust were transformed into a discussion about who was responsible for planning and implementing the riot. in latvia, public space is divided into two information environments – newspapers such as diena, neatkarīgā rīta avīze, latvijas avīze focusing on the latvian-speaking audience and newspapers including telegraf, chas, vestji segodnja focusing on the russian-speaking audience. depending on the affinity of the relevant information space, the agenda of newspapers differs: into priority sequence of the issues under consideration, form of interpretation, content of information, published opinions of experts and politicians, etc. therefore, to obtain information about the discourse of politicians, it is necessary to study both environments and separate them by explaining the results obtained. the methode to study the public discourses of representatives of political parties. units of content taken directly from speeches of representatives of political representatives made during the time period under consideration were firstly selected and then subjected to content analysis. content analysis with the structure of categories and structures makes it possible to analyse and examine broader units of content, at the same time without restricting the study within the framework of keyword searches. (flick u., 2007) categorisation elements were developed on the system of values devised by s.h. schwarz and m. rokeach. as rokeach points out, a system of vales enables a person to resolve situations and make decisions. (rokeach m , 1973). in turn, schwarz states that in attempting to attain a goal, people and groups express their values linguistically through communication. (schwarz s.h, 2009). accordingly, analysing the rhetoric of politicians using values, one can clarify the basis on which politicians make decisions, how they choose alternatives, how their motivation is formed, and what governs their conduct. collating the theories of schwarz (schwarz s.h, 1992) and rokeach (rokeach m , 1973), one can compile a list of the following values: social values: democracy, equality, development of a civil society, security and openness. moral and professional values in the political environment: just division of power, rule of law, transparency and respect for society. moral and professional values of politicians: responsibility, integrity, competence, and trustworthiness. values of conformism: traditions, norms, and stability. values of liberalism or universalism: autonomy; self-determination, human rights and tolerance. naturally, these concepts are not self-explanatory, but are part of discourse. any statement is part of a broader system; thus, the critical discourse analysis approach will be used to reveal the social structures within rhetoric and content units will be analysed using the intertextuality of n. fairclough. analysis of discourse is possible using intertextuality, which consists of the concept of power and does not solely concentrate on analysis of linguistic content units. this approach will make the study relevant and practically useful, because it is possible to establish a link between rhetoric and social structure. (fairclough n., 1993). morality and politics what are ethics and morality in politics? according to roger scruton’s political dictionary, in politics ethics are moral standards that govern this profession; this is a system of moral values. (scruton r, 2007). in turn, joseph raz believes that political morality incorporates principles that lay the foundation for political conduct. the principles of political morality shape beliefs about the suitability of one institution or another and the future operating goals of this institution are determined within its framework. (raz j , 2001). therefore, political morality incorporates beliefs about the co-existence of good people within the framework of complication public structures, which can be provided by a government in shaping impressions about institutions and their goals. hume points out that people can get involved both as interested actors and as observers. people observe one another, because it is necessary how other people will behave. (hume. d, 2010). everybody has an impression of how a person must fulfil a certain role in the given situation and feel disappointed if their motives don’t prompt them to achieve and fulfil the expectations felt by the observer. hume perceives the main duty of government to be maintaining conditions in which the economic system serves the public good (hume. d, 2010). accordingly, if people notice politicians failing to fulfil this main duty, they are bound to feel disappointed about the way in which politicians fulfil their role. sutor states that suspicions always exist that those “at the top” are using their power position to our detriment, because they are just like “us” (the rest of society). (sutor b , 2001) the difference between “them” and “us” is in the fact that they have more power. politicians make decisions, are involved in the distribution of state funds, implementation of projects, and formation of sector policies, etc. their rejection of moral principles instantaneously affects society and therefore society is entitled to know how these decisions are made, and what the motivation for decisions is based on. a european union study of the norms and standards of professional ethics concluded that the integrity and trustworthiness of those holding political office is that which matters to the general public. (european commission bureau study, 2007). public trust is highly fragile and sensitive. very high requirements are placed on persons holding high public office, because they have more power, influence and decision making opportunities than anybody else. if these requirements are not satisfied, people feel disappointed; as is the case in latvia, issn 1822–8402 european integration studies. 2011. no 5 104 where public trust in political parties has been low for years. the newspaper discourse in the volatile situation of today, theories that deal with an assessment of the consequences of moral action are finding increasing favour and popularity, because the main problem is not beliefs themselves, but rather their actual consequences. (scruton r.a., 2007). within the framework of this study, the public discourse of representatives of political parties will be analysed, which points to the moral value system of politicians. also in the context of the study; discourse is understood to mean “wide social practices that incorporate both linguistic and non-linguistic factors” (schiffrin d, tannen d & hamilton h, 2003). the task of the analysis of the discourse is to clarify the dual relationship between discourse and the social system and to throw light on how language and concepts are used to exert the dominance of power. critical analysis of the discourse expands the discourse theory, incorporating analysis of political texts and addresses, as well as focusing attention on the context in which they are created. (howart d, 2000) description of discourses using the mass media is important, because as foucault states, the mass media are one of the means by which decress and instructions are given, as well as through which indirect manipulation occurs. (bruhman, h, 1996) during the period under consideration, the total number of articles i found containing keywords like: financial crisis, parex takeover and imf loan was 612: • in newspapers geared towards the latvian-speaking audience 261 articles • in newspapers geared towards the russian-speaking audience – 351 articles the majority of articles published in newspapers about the subject under consideration represent the opinion of the newspapers’ own journalists and experts. in percentage terms, a much small percentage of articles represent the opinions of party representatives. in total, 83% of articles written in latvian contain the opinions of journalists and experts, whereas 17% contain the opinions of representatives of political parties. it is a similar situation when it comes to russian language newspapers in which the majority of articles contain the opinions of experts. 74% of articles contain expert opinions, whereas 26% contain the viewpoints of those involved or political representatives. there are two possible explanations in this situation. the first is related to the crisis as a closed issue, involving a narrow circle of those in the know, whose representative face was the then prime minister ivars godmanis. at first, the issue was not even discussed in the public space by political representative, because of the dominance exerted by the statements of the prime minister, but there was still very little information. as a result, we come to the second related explanation, whereby newspapers tried to cover this area of missing information using their own journalists, and, in particular, due to the large number of recruited experts which is a characteristic feature of a crisis situation. experts make forecasts, explain concepts and possible solutions. in russian language newspapers, representatives of political parties often publish their opinions using pseudonyms when commenting on important public issues. it is interesting that during the period in which the economic crisis was brought to public attention, representatives of political parties did not use pseudonyms. analysing the way in which persons involved are represented in newspapers, one notes a common trend whereby the opinions of the parties in government are represented more in latvian language newspapers, whereas the opinion of opposition parties are featured more in russian language newspapers. in turn, when analysing individual latvian language newspapers, one can observe that the opinions of opposition parties which are geared to the latvian speaking section of society are published more frequently. in contrast, in russian language newspapers, there is a trend whereby the opinions of all opposition parties are represented with the same intensity. there is no indication that russian language newspapers would only represent that section of the opposition representing the interests of russian speakers. in the study, one can observe that the representatives of political parties express opinions that are neutral in their moral position. this trend in the content of articles under analysis could be explained by the specific nature of the issue. statements by representatives of political parties contain numerical information that cannot be explained with the assistance of values. compared with the total number of articles, at 16% the proportion of such statements within the articles is not large, but at the same time this is a new trend in the analysis of the discourse of values. the discourse of values among political parties in analysing the representation of values in newspapers, one can observe that most frequently statements by representatives of political parties are dominated by stability of values followed by responsibility, competence, transparency and integrity. values such as democracy, respect for society, autonomy and human rights are not represented within the discourses. stability as a value dominates, because it is used in two ways by government and opposition parties. governing parties use it to explain their actions which are carried out to preserve the status quo. in contrast, the opposition questions the activity of governing parties; because this activity is not open and public, it is explained that it threatens stability. analysing governing and opposition parties separately, one can observe that the main dominant value of representatives of governing parties is stability. in this case, the value “stability” ensures status. as a result, we can conclude that the value of stability is used as justification for the true goal preservation of their status. within this debate, since governing parties do not use other values that would accompany the value of “stability” as an ethical argument that would cement this value, we can conclude that the value of stability is an ethical argument that ensures the preservation of the system. thus, the value system is used in reverse for the purposes of their presentation and stability serves as argumentation. the value of stability becomes the norm, whose relevance depends on the question posed and which is used to ensure the moral face of politicians. in turn, values that ensure moral face change depending on the situation. such changes mean that the governing parties have subordinated the values system for their own presentational purposes. respectively, actions are not carried out within the framework of the value system, issn 1822–8402 european integration studies. 2011. no 5 105 but rather applied for the justification of actions. one’s own position must always appear in a good light and reference to moral values supports this. • the electoral alliance “latvijas pirmā partija”’/”latvijas ceļš” (latvian first party/latvia’s way), ivars godmanis, prime-minister of latvia: “in voting for the amendment to the 2009 budget, the saeima has proved that it is one of the most powerful parliaments in europe, so there is absolutely no reason to talk about its early dissolution “(they have begun to save us (13 december 2008) chas). the value of “stability” is also used within the rhetoric of governing parties to explain the instability that could arise through doubting the governing coalition. • tautas partija (people’s party), aigars kalvītis: “...to take even one step in the direction of political instability, one must be very brave, and in this case, one must also accept responsibility... “(all possibilities also mean dissolution of the saeima (28 november 2008) diena). the discourse of representatives of opposition parties is based on a number of values: stability, responsibility, transparency, followed by integrity, competence and trustworthiness. the opposition uses the system of values as justification for its goal changes. it justifies changes with the need for governing politicians to accept responsibility for the situation nationally and resign. therefore, responsibility is the norm that dominates the discourse of opposition parties. a trend can be observed, whereby the value of stability is used in the opinions of representatives of opposition parties as a demand to ensure stability nationally. • the party “par cilvēku tiesībām vienotā latvijā” (for human rights in a united latvia), nikolajs kabanovs: “ in russia, the state is purchasing large areas from private owners, while our vips continue to rely on the invisible hand of the market. the result is hundreds of dark windows in new high-rise and office buildings (built near here (9 january 2009) vesti segodnja.) opposition parties have an interesting way of using the value of “stability”, in viewing the unity of two communities existing within latvian society as a positive factor in the crisis. • the party “saskaņas centrs” (harmony centre), nils ušakovs: “moreover, the crisis has reduced division and national tension within the country, because latvians, russians and representatives of other nationalities are all suffering equally from economic problems.” (harmony centrists aiming for positions in government (1 december 2008) latvijas avīze) at the same time, one has to say that not only the opposition considers the crisis as a means of stabilizing the country; governing parties also see the possibility of public representatives setting their differences aside in difficult economic circumstances. based on the economic crisis, both the government and opposition hope that the problems of the co-existence of the two communities, which they had not succeeded in resolving before the crisis could now be resolved. • state president valdis zatlers “the economic situation compels us to be more united, because the crisis affects people of all nationalities and confessions” (the situation is forcing people to be more united (7 january 2009) latvijas avīze) dealing with the crisis under the leadership of ivars godmanis was a narrow issue for representatives from coalition parties and the discourse of opposition parties demanded their involvement in this process. opposition parties doubted the knowledge of the narrow grouping of the governing coalition and demanded openness of information, action and transparency of decisions. the use of moral values declined and was replaced by rhetoric full of numerical information. initially, the value of “responsibility” was a value used in the discourse of representatives of opposition parties, but in time its use was also adopted by governing parties, as a result of which the value of “responsibility” is value referred to most often in total. the opposition uses the value of “responsibility” not only in relatoin to the responsibility of the government towards the population, but also as a motivational factor referring to the opposition’s responsibility to act and justify the hopes placed on it. • the party “saskaņas centrs” (harmony centre), jānis urbanovičs: “all of us within harmony centre bear great responsibility we can see that lots and lots of ordinary latvians trust us. we have no right to betray their trust”(congress with a view of the future (1 december 2008) chas). responsibility as a value is also used by governing parties despite the fact that this value does not dominate the discourse of governing parties. responsibility is used by governing parties to make it clear that those who criticise the work of the government must take action and to challenge such critics to accept responsibility for their words. • “tēvzemei and brīvībai” (for the fatherland and freedom) and “latvijas nacionālās neatkarības kustība” (latvian national independence movement) alliance politician, māris grīnblats, “nobody is devoid of errors, and no decision is ideal,” therefore undoubtedly others are entitled to take up the place of the politicians of the moment, “if they can do this, if they can offer something better and if more votes are cast for them” (the more tickling, the better (13 january 2009) neatkarīgā rīta avīze) similarly, governing parties use the value of “responsibility” to justify their hold on positions of power, arguing that the crisis does not mean that there is justification for dissolving the government, but that it is a reason for the government to continue working and for this work to continue with painful decision making: • the party “tautas partija” (people’s party), saeima fraction chair, māris kučinskis “i think that any crisis even a crisis in ratings means that one has to work and not sit still” (party ratings compel action (4 november 2009) neatkarīgā rīta avīze). critical discourse analysis in interpreting the use of values within rhetoric, it is necessary to ascertain the context in which the discourse was formed. discourses of political parties are part of a complicated structure, in which the discourses are not independent and free. any statement is part of a broader system; thus, the critical discourse analysis approach will be used to reveal the social structures within rhetoric and content units will be analysed using the intertextuality of n. fairclough. critical issn 1822–8402 european integration studies. 2011. no 5 106 discourse analysis has not been widely used in the analysis of political events, thus sacrificing a social explanation for such discourse. in 1997, a definition for critical discourse analysis was coined, “language as social practice”. (wodak r., 2001). the explanation for a socially-orientated discourse is an issue of critical discourse analysis, creating a new approach in which social and linguistic aspects are combined. the intertextuality approach contains analysis units that can explain discourses as a system, in which there are, using the division created by michel foucault, dominant power trends and opposing power trends. (foucault m., 2003). using intertextuality, an analysis of discourse is possible which contains the concept of power and does not solely focus on analysis of linguistic content units. deeper language structures make it possible to determine the information that people pass to one another and it describes discursive structures. (fairclough n., 1993) to analyse public discourses, fairclough established a method that the principles of analysis. discourses are subjected to analysis using the following criteria: the intertextuality manifesto; discourse representation, prior assumption; denial; irony; interdiscursivity; intertextuality and changes and intertextuality, unity and the subject. (fairclough n., 1993). intertextuality of the public discourse of political parties intertextuality is used when a statement previously made by oneself or another person is explained, augmenting it or disputing it. representatives of political parties augment or dispute statements in order to present their position in regard to the issue under consideration more successfully and to present the opinions of the opposing position in a more negative light. discourse representations take place using certain words that depict an idea more powerfully; for example, by declining to comment on assumptions and emotions. the use of such statements draws a line in the sand in relation to the previous statement, pointing to one’s non-engagement. intertextuality is used to clarify some problem. for example, in describing how current events will also make problems that were not previously resolved more serious. thus, discourses in rhetoric can highlight previously unresolved problem, linking them to current issues on the agenda at the given moment. prior assumptions: • the party “jaunais laiks” (new era), linda mūrniece, “the deputy of the chairman of the service is the longstanding member of “latvijas ceļš” (latvia’s way), andrejs panteļējevs. it is possible that he is not the only member of the prime minister’s party working for this body, and thus there will be no desire to liquidate it. moreover, at the same time, panteļējevs is also the advisor to saeima chairman, gundars daudze on security matters. doubts arise as to whether panteļējevs is sufficiently burdened by this current job if he can combine two such important positions,” (usefulness of information analysis service to be assessed, 29 november 2008) latvijas avīze). prior assumptions are formed based on the assumed knowledge and experience of the speaker. fairclough points out that knowledge is not always individual; there is also knowledge based on general views and assumptions. general assumptions can be explained as generally accepted knowledge; for example, the sun rises in the morning. prior assumptions are a way of including another text so that it can provide the basis on which to form one’s opinion. assumptions are sometimes used to intimidate and thus change the opinion of people with a different viewpoint. given that the rhetoric of intimidation is often used in discourses under analysis; based on michel foucault’s theory power in which one of the characteristic elements of discourses is intimidation, fairclough’s list of factors will be augmented with intimidation. intimidation: • the party “latvijas pirmā partija” (latvia’s first party), ainārs šlesers, “the state president is well aware of what is happening globally, where there is an economic recession. if anybody tries to speculate with the dissolution of the saeima in this situation, then the country can expect extremely difficult times” (all possibilities also mean dissolution of the saeima (28 november 2008) diena). in foucault’s theory of power, intimidation is understood to be a concept that links presentation and domination. intimidation is a form of self-presentation: presentation, with the assistance of which both sides want to show the other that they are ready to fight and will not back down; in which both sides show that they are ready to achieve or retain the dominant position. (hobbes t., 1991). during the course of intimidation, the balance of power can change, but domination does not occur, because, if the intimidation strategy is used, this points to the fact that both sides are strong enough to changes the existing situation. the rhetoric of intimidation is used to justify one’s position and preserve the status quo or to change it. pointing out that if the course set at the given moment is not maintained and stability will be threatened if it is not supported, is a way of justifying one’s role and place in the specific situation. irony: • the party “jaunais laiks” (new era), dzintars zakis: “the government of godmanis once again showed that their understanding of the rule of law state is very different from the normal understanding of these words” (why have godmanis and slakteris escaped from journalists? (26 november 2008) telegraf) irony as a factor that collates statement, which to a certain degree articulate a negative attitude towards some other statement, express anger, convey sarcasm, etc. irony is used by representatives of political parties to characterise statements by representatives of opposing parties in an emotional light, thus pointing to their absurdity. irony is like an echo of opinions expressed by others. words are used which reduce the importance of other statements and question the compatibility of other opinions with the perception of normality prevalent within society. in this instance, irony is interwoven with a prior assumption, because some concept of normality is assumed within the statement. metadiscourse: • the party “saskaņas centrs” (harmony centre), jānis urbanovičs: “on thursday, we proposed convening an extraordinary session of parliament and talking about the situation within the financial system. unfortunately, the government followed the course of illegal problem solving. on saturday night, behind closed doors, they issn 1822–8402 european integration studies. 2011. no 5 107 were making decisions, which in my opinion go beyond the competence of the government, and now they will ask parliament to decide on their legitimacy. nobody informed us; moreover, i think that the ruling parties are also not aware of anything. the question of budget approval in such a situation is simply ridiculous how can this be done without having a complete picture of the financial situation in the country.” (the deputies are unaware of “the lord’s supper” (10 november 2008) telegraf). metadiscourse is used to set oneself apart from the statements made by oneself and others on various levels, adopting an attitude towards this division as if it were something strange and external. for example, metadiscourse can be used in instances when one must describe one’s level of participation in the making of a certain decision, particularly if this has occurred within the framework of the group to which the author of the statement belongs. thus, the course of events is mentioned in order to highlight the denial or absence of one’s participation, and intertextuality is used in referring to historical events that have influenced the current situation. modality: • the party “saskaņas centrs” (harmony centre) nils ušakovs: “if it were not for the crisis, nobody would pay attention to the fact that the officials here receive up to 14 annual bonuses! if it were not for the crisis, all these political commissars in the councils and boards would continue to receive fantastic salaries. the crisis should help us – there is nobody else! to unite society. the crisis does not divide people by nationality, and we must use this “special moment” (“harmony centre”: a step away from power... (1 december 2008) vesti segodnja). according to fairclough’s theory, modality is a factor that designates that something is being assumed as a fact, even though it actually only serves as an interpretation of various facts. modality characterises statements that form the interpretation for events by assuming that this is how things would have occurred if some additional circumstances had not developed. statements of this nature allow all parties involved in the situation to carry out their own presentation or to present the negligence of their opponent. the agenda: • the alliance “zaļo and zemnieku savienība” (union of greens and farmers), gundars daudze, “but the question is whether the debaters want to arrive at the truth or simply want to raise their political rating, by noisily announcing – look how bad things are for us and it’s going to get worse straight away. i have justified suspicions that the initiators of the demand will only cause a commotion, instead of proposing solutions.” (daudze: the ball is in the government’s court (4 december 2008) neatkarīgā rīta avīze) naming the agenda points to the holder of power, because naming the agenda is one of the means of control characteristic of authority. control also entails assessment and comparison of other statements with the general position of authority on the issue concerned. assessment of statements is used by holders of power to reduce the chances of the discourse of ruling parties being assessed as unsuitable for the given situation, by augmenting a viewpoint with one’s statements as to what would be the best course of action, thus aligning statements in a position closer to those held by representatives of those in positions of authority. metaphors: • the party “sabiedrība citai politikai” (the society for political change), aigars štokenbergs: “the leader of our government uses exactly the same rhetoric as a leader of a gang of racketeers” (a expensive price for the government’s indiscretion (12 december 2008) latvijas avīze) metaphors can be found in various texts and by selecting certain metaphors, a person highlights a specific social environment and creates the social reality in which he finds himself. metaphors characterise knowledge systems and are used by people day-to-day. metaphors are used by political representatives to assess the viewpoints of their opponents emotionally by describing such viewpoints using phrases that are easily understood by society and provide a wealth of information about a viewpoint using just a few words. kindness: • lr president, valdis zatlers: “we always need unity so that we can work together for latvia. this year highlights serious challenges for us which we must overcome together.” (the situation demands greater unity (7 january 2009) latvijas avīze) kindness is used to acknowledge and maintain certain relationships. using kindness can be used to describe statements which attempt to create a pleasant environment, thus achieving a certain result. in examples, it is noticeable that the use of the idea of unity denotes attempts to achieve pleasant feelings within society pointing to a feeling held by the whole community which could resolve current problems. in this case, the goal is stability, but the means of achieving it is through a sense of unity within society nd would not encourage opposition, which could be caused by complicated economic conditions and decisions that have to be made in relation to them. negative statements: • the party “tautas partija” (people’s party), jānis lagzdiņš: “the generation of politicians currently in power has lost the trust of society; i don’t hold out any hope that it will be able to significantly increase it; accordingly, it will be hard for current politicians to persuade society about the usefulness of the actions required.” (which trends will dominate politics this year?(2 january 2009) neatkarīgā rīta avīze). negative statements are prior assumptions that dispute and deny other texts. formulation: • the party “latvijas pirmā partija” (latvia’s first party) ivars godmanis: “crisis? there is no crisis for the time being. this is a hasty assessment of the situation by politicians and journalists”, “a crisis only exists when everybody – everybody! – feels it” (godmanis: there is no crisis in the crisis (27 december 2008) vesti segodnja). one of the forms of representation of discourses is formulation of concepts. formulation is a means of creating a certain truth. formulation provides the basis for discussion, because if the parties can agree on a common definition of an issue, it then becomes possible to form a dialogue within the framework of a certain discussion. use of a certain formation strengthens one of the positions involved in the debate and is related to power. formulating a certain understanding of issn 1822–8402 european integration studies. 2011. no 5 108 an issue leads to the formation of the truth. in turn, if the listener considers it to be convincing, naming the truth can help its proponent to win supporters. naming definitions as an explanation for concepts and understanding of such is also one of the forms of formulation, e.g. understanding of the concept of democracy in the context of a specific issue. considering results of content unit analysis separately, based on the factors devised by fairclough, it is noticeable that for the most part discourse positions form around two basic belief systems. the first system of belief entails retention of existing positions, whereas the second belief system entails a change in the current situation. formulation, which would make it possible to arrive at a common solution, is formed around presentation of one’s positions and clarification one’s truth, but not on creating a dialogue that is based on a common understanding of concepts. the representatives of latvia’s political parties use all the form of rhetorical structure to engage in the battle for power. a trend has been observed, whereby irony is used, which points to emotionally saturated relationships. irony is manifested not only through sarcastic statements, but also through personal insults. the response of the other party to this is to avoid commenting on such emotions. conclusions rawls points out that politicians must try to obtain a united political concept which will be perceived by all, regardless of differing and competing beliefs about what is good. (rawls j, 2005). analysing latvia’s political situation, one aspect of the rhetoric of politicians that can be observed is their reluctance to engage in a dialogue, within the framework of which they would review their own position and seek consensus. studying the rhetoric of politicians, one can observe behaviour that is reminiscent of the model of egoistical behaviours in ethics, because in studying the structure of the discourse, one can observe the structure of rhetoric in which one’s interests and interpretation of events are emphasised, as well as one’s own way of acting, rarely associating oneself with other social groups. statements related to the problems of the financial crisis are formulated within the paradigm “my opinion” which is relevant and important. t.tännsjö describes egoism as ‘collective idiocy’, because worse decisions are made by adhering to the postulation of ethical egoism than would be made if another moral theory were to be implemented. (tännsjö t., 2002). according to the beliefs of habermas, mutual understanding motivated by rationality is required to obtain a solution to conflicts and all those involved must participate in obtaining a better solution. (habermas j., 1991). however, intertextual analysis of latvia’s politicians shows that mutual cooperation is hindered by the imposition of subjective formulations, dominant trends, irony and metaphors. accordingly, there is no basis on which to form a dialogue. a dialogue can ensure that the beliefs of politicians are not shaped by social injustice and, if nevertheless, politicians are unable to survive the discipline of liberal negotiation, this can be considered to be political prejudice and must be forsaken (ackerman b.a., 1980). misak also points outs that in the desire to obtain truth, one should try to subject the viewpoints regarding truth to experience and arguments to discover more quickly whether they still hold true. (misak c., 2000). latvian society experienced a double loss of autonomy, because it could no longer trust the information provided by politicians. political players continued electoral battle strategies in resolving the problems caused by the economic crisis and the general public detected this in the public rhetoric of politicians. society felt the financial problems caused by the crisis, and observed how politicians each represent their own opinion to continue the battle for power, but do not unite behind a policy that serves state welfare and do not fulfil the roles and duties entrusted to them. as a result, society demanded the dissolution of the saeima. references ackerman, b.a. (1980), social justice in the liberal state new haven and london, yale university press, 355.p bruhman, h.,(1996), mishel foucault. der mensch ist ein erfahrungstier-frankfurt am main: suhrkamp, 98 p. demmke. c, bovens m., henökl t., lierop k., moilanen t., pikker g., salminen a., (2007),regulating conflicts of interest for holders of public office in the european union. a comparative study of rules and standards of professional ethics for the holders of public office in the eu-27 and eu institutions a study carried out for the european commission bureau of european policy advisers (bepa). european institute of public administration in co-operation with utrecht school of governance and university of helsinki and university of vaasa, october 2007, 34.p. fairclough n., (1993), discourse and social change cambridge, polity, 26 p. flick u., (2007), qualitative sozialforshung, eine einfurung reinbek: rowhlts enzyklopadie, 87.s. foucault m., (2003), society must be defended – london, penguin book, 2732.p. habermas j. (1991), erläuterungen zur diskursethik frankfurt am main, suhrkamp, 22.s. hobbes t., (1991), leviathan. – cambridge, cambridge university press, 88 p. hume.d., (2010), the project gutenberg ebook of a treatise of human nature, oxford philosophical texts// http:// www.gutenberg.org/dirs/etext03/trthn10.txt howart d., (2000), concepts in the social scienece buckingham – philadelphia, open university press, 5 p. misak c., (2000), politics, morality. pragmatism and deliberationlondon, routledge, 49.54.p. rawls j., (2005), a theory of justice – usa, belknap press of harvard university press, 477 p. razs.d., (2001), brīvības morālerīga: publishing house agb, 13.p. rokeach m., (1973), the nature of human values new york, the free press, 15 p. schwarz s.h., (1992), universals in the content and structure of values: theoretical advances and empirical tests in 20 countries//advances in experimental social psychologynew york, academic press.n25. issn 1822–8402 european integration studies. 2011. no 5 109 schwarz s.h., (2009), basic human values: an overview jerusalem, the hebrew university of jerusalem. scruton r. a., (2007), dictionary of political thought. 3rd editionnew york, palgrave macmillan press, 453 p. sutor b., (2001), mazā politiskā ētika – maskava, фаир пресс, 29c tännsjö t., (2002), understanding ethics: an introduction to moral theory – edinburgh, edinburgh university press, 47.p. the handbook of discourse analysis, ed.schiffrin d, tannen d & hamilton h., usa, blackwell publishing ltd. , 2003. -1p. wodak r., meyer m., (2001), methods of critical discourse analysislondon, sage publications, 1 p. neatkarīgā rīta avīze during the period from 8 november 2008 until 13 january 2009 diena from 8 november 2008 until 13 january 2009 telegraf from 8 november 2008 until 13 january 2009 chas from 8 november 2008 until 13 january 2009 vestji segodnja from 8 november 2008 until 13 january 2009 latvia, autumn 2010. national report. eurobarometer 74. public opinion within the european union. european commission. aicinājums latvijas tautai. http://www.visulatvijai.lv/news. php?readmore=1156318583 нас начали спасать (2008.gada 13.decembris) čas visas iespējas nozīmē arī saeimas atlaišanu (28 november 2008) diena) понастроили тут (9 january 2009) vestji segodnja.) saskaņieši tēmē uz posteņiem valdībā (1 december 2008) latvijas avīze situācija liek būt vēl vienotākiem (7 january 2009) latvijas avīze) конгресс с видом на будущее (1 december 2008) čas jo vairāk kutinās, jo būs labāk (13 january 2009) neatkarīgā rīta avīze partiju reitingi liek sarosīties (4 november 2008) neatkarīgā rīta avīze izvērtēs informācijas analīzes dienesta lietderību (29 november 2008) latvijas avīze visas iespējas nozīmē arī saeimas atlaišana (28 november 2008) diena почему годманис и слактерис сбежали от журналистов? (26 november 2008) telegraf депутаты не в курсе “тайной вечери (10 november 2008) telegraf (“центр согласия”: в шаге от власти… (1 december 2008) vestji segodnja daudze: bumbiņa ir valdības pusē (4 december 2008) neatkarīgā rīta avīze dārgā cena par valdības neapdomību (12 december 2008) latvijas avīze situācija liek būt vēl vienotākiem (7 january 2009) latvijas avīze kādas tendences šogad valdīs politikā?(2 january 2009) neatkarīgā rīta avīze doma laukumā miermīlīgi pieprasīs saeimas atlaišanu. (13 january 2009), diena. годманис: в стране нет никакого кризиса (27 december 2008) vestji segodnja the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 184 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 184-197 doi 10.5755/j01.eis.0.9.12806 © kaunas university of technology islamic banking in the european union countries eis 9/2015 abstract islamic banking in the european union countries http://dx.doi.org/10.5755/j01.eis.0.9.12806 iwona sobol university of gdańsk, armii krajowej 119/121, 81-824 sopot, poland in the 1970s islamic financial system based on religious belief emerged in some of muslim countries. the purpose of the islamic financial system is just like in the case of the conventional one, to facilitate the smooth flow of funds between savers and investors. however, what is distinguishable about the islamic financial system is that it is based on principles of sharia, which is a religious law of muslims. with the share of around 80% in total assets of islamic financial institutions, islamic banks play a dominant role in the islamic financial industry. they operate in over 75 countries, not only muslim ones, but also those, where muslim minority live. the aim of the paper is to analyse the opportunities and challenges for development of islamic banking in the european union countries. the analysis should give an answer to the question whether islamic banks can have more significant presence in the european financial market in the future, than they have today. the article consists of four parts, not counting introduction and concluding remarks. the first part of the paper is a descriptive analysis of the main principles of sharia, which have impact on operations of islamic banks. they include: prohibition of interest (riba), avoidance of uncertainty (gharar) and prohibition of trading in illegal (haram) products. because of the necessity to comply with those principles, the instruments offered by islamic banks must be constructed differently than conventional ones. islamic financial instruments are briefly described in the second part of the paper. in the third section of the article the evolution and the current state of islamic banking in the eu countries is presented. the main focus is put on the united kingdom, since in this country islamic banking sector is the most developed. in the fourth part prospects for development of islamic banking in the eu are discussed. first the factors that should contribute to the development are presented. then challenges faced by islamic banking industry in the eu are analysed. the key results show that islamic banking in the european union countries is at a very early stage of development. even in the united kingdom, which is the european islamic finance leader, assets of islamic banks account for less than 1% of total assets of british banking sector. however, there is a potential for the development islamic banking market in the eu, which mainly lies in large and increasing population of muslims in europe. moreover, after the global financial crisis, which severely affected european banking industry, there is a higher demand for ethical investments among europeans, which could translate into higher demand for islamic financial services. on the other hand, there are still a lot of challenges faced by the islamic banking industry in the eu, which cannot be easily solved. they include: lack of suitable legislation in majority of eu countries, especially with regard to tax and supervision issues, problems with risk management, high costs of islamic banking products and hostility towards islam, and thus islamic banking among the european society. the article uses descriptive and analytical method of analysis, based mainly on scientific literature, market reports and statistical data. keywords: islamic banking, non-interest banking, european union, sharia, united kingdom. 185 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 in the 1970s of the 20th century islamic fi nancial system, based on religious principles started to emerge in muslim countries. among all the islamic fi nancial institutions, banks emerged at the earliest. the reasons why they were established across the muslim world were connected with the neo-revivalist movements among muslim societies on one hand and the raising wealth of some middle east countries on the other. one of the most infl uential movements was the muslim brotherhood, established in al-ismailijja (egypt) in 1928 by hasan al-banna. the muslim brotherhood criticised interest-based fi nancial system in egypt and other parts of the muslim world and argued that since islam provides its followers with a comprehensive ideological framework for all aspects of life, economic aff airs should be also included within that framework (saeed, 1996). the opinions of muslim brotherhood and other muslim movements found followers in the academic world as well as among market practitioners. but if it were not the wealth of the gulf states, which was the result of oil crisis and the enormous increases in the oil prices, the development of islamic fi nance probably would have been much slower. almost all the islamic banks that were established in the 1970s were partly or even totally funded by oil-linked wealth. since then, introduction figure 1 domicile of islamic banking assets source: malaysia international islamic financial centre, 2015. the increasing signifi cance of islamic fi nance has been observed. up to now banks have been playing a dominant role in the islamic fi nancial industry. the value of their assets accounts for about 80% of assets of all islamic fi nancial institutions. apart from banking services, other islamic fi nancial services that develop dynamically include islamic bonds (sukuk), islamic insurance (takaful) and islamic funds. according to ernst & young, assets of islamic banks amounted to 1.54 trillion usd in 2012 and estimations indicate that this fi gure will grow to 3.5 trillion usd by 2018 (ernst & young, 2013). islamic banks operate in over 75 countries, mainly muslim ones. as it can be seen in figure 1, iran is the country with the highest volume of assets. in 2013, assets of islamic banks operating in this country, accounted for 37% of total global islamic banking assets. the second and third places were taken by saudi arabia and malaysia. however, islamic fi nancial services are also off ered in other parts of the world, where muslim minorities live, such as the usa and australia. in the european union countries islamic fi nancial services are still at a very early stage of development with the marginal contribution in the global islamic fi nancial assets estimated at 50-60 billion usd in 2013 (malaysia international islamic financial centre, 2015). it is rather dubious that the islamic fi nancial system could become a serious alternative for a conventional system in the eu countries. but islamic banks could become a viable addition to the conventional fi nancial institutions. they could achieve a similar position to the position, held by co-operatives banks. whether islamic banks will fi nd their place in the eu markets though, the question remains open. the aim of the paper is to analyse the opportunities and challenges for the development of islamic banking services in the european union countries. the analysis should give an answer to the question whether islamic banks can have more signifi cant presence in the european fi nancial market in the future, than they have today. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 186 the aim is pursued by addressing the following objectives: _ identifying principles of islamic religious law, which have impact on operations of islamic banks, _ presenting the evolution and the current state of islamic banking in the european union, _ discussing prospects for development of islamic banking in the eu. scientific novelty and originality of this article lies mainly in the subject, which is rarely raised in the european scientific literature. most of the articles, dedicated to islamic finance, concentrate on markets of the middle east and southeast asia, while this paper makes a contribution to the studies on the current state and prospects for development of islamic banking in the european union countries. the article uses descriptive and analytical method of analysis, based mainly on scientific literature, market reports and statistical data. the purpose of the islamic financial system is just like in the case of the conventional one, to facilitate the smooth flow of funds between savers and investors. however, what is distinguishable about the islamic financial system is that it is based on principles of sharia. sharia (in arabic “the way” or “path to watering place”) – islamic religious law – can be defined as “a set of norms, values and laws that governs the islamic way of life” (dusuki, 2011). sharia regulates all spheres of life, including politics and economy. compliance with sharia principles by islamic banks should guarantee that they act ethically and do not exploit in any way their partners, whether these are their individual or corporate clients or other financial institutions. the main principles of sharia, which have a big impact on operations of islamic banks, include: prohibition of interest (riba), avoidance of uncertainty (gharar), prohibition of speculation (maysir), prohibition of trading in illegal (haram) products (e. g. alcohol, pork, pornography, tobacco), reliance on the participation model of banking. the basic principle applied by islamic financial institutions is the prohibition of interest (riba). it also constitutes the main difference between islamic banks and conventional financial institutions, which base all their operations on interest rate. the prohibition of riba has its origins in the holy book of the muslims – the koran. the koran forbids expressly the practice of riba several times (koran: 2.275, 2.276, 2.278, 2.279, 4.160, 4.161). the hadiths, which describe the life and actions of muhammad, the messenger of allah, also state that riba is condemned. however, neither the koran nor the hadiths define what riba is. according to most islamic economists, it is any sort of increase over the principal amount (hasanuz zaman, 2001). according to islamic scholars, riba creates wealth without being the outcome of productive economic activity and all interest-based financial arrangements are unfair and morally unjustifiable. the prohibition of riba means that islamic banks must construct all their instruments, whether on asset, or liabilities side of the balance sheet in such a way, that they are riba free. the necessity of avoiding gharar is another principle that must be followed by islamic financial institutions. islamic scholars define gharar as ignorance (jahl) or lack of knowledge about the physical attributes of the subject transaction, and the lack of knowledge that the object exists. gharar can be also understood as an inequality in the bargaining power that arises from ignorance or lack of knowledge about the subject matter and features of the contract (balala, 2011). mainly due to that principle, derivatives are hardly used in islamic finance. it can be explained in several ways. one of the purposes of the prohibition of gharar is the elimination of risk and uncertainty. and these are imminent for derivatives trading. in the case of derivatives there is principles of islamic banking 187 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 no guarantee that the transaction will be settled by the counterparty. it must be also said that despite the fact that derivatives were created in order to protect against risk, in a very short time they started to be used for speculative purposes. in islam speculation is prohibited because of the necessity of avoiding gharar as well as due to the prohibition of maysir, which is understood as gambling1. and it should be pointed out that the majority of islamic scholars believe that trading in derivatives for speculative purposes is a form of gambling (sobol, 2012). islamic banks are also not allowed to invest in activities, which are considered haram (illegal). thus they are not supposed to lend to companies or individuals involved in industries as those related to pork products, pornography or alcoholic beverages (duràn & garcia lòpez, 2012). this principle is especially important for the clients of islamic investment banks. when they entrust money to such banks, they can feel sure, that it will not be invested in industries, which are considered unethical. another important islamic banking principle, which results from the prohibition of riba, is the necessity to base the bank’s operations on a participation model, meaning participants of a financial transaction should share profits and losses of this transaction. a financial transaction which transfers all the risks associated to an investment project on a single stakeholder is, therefore, contrary to the principles of islamic banking. the basic principle of a participation or profit and loss (pls) model is that instead of lending money at interest, the bank forms a partnership with the borrower, sharing in a venture’s profits and losses. hence, unlike interest-based products, in the case of pls instruments, there is no guaranteed rate of return on the investment, since income depends on the profit earned by the partnership company and may possibly result in losses. as it was already written in the previous section of the article, a participation model is an ideal banking model from the perspective of sharia. in practice, two main modes of finance based on this model, can be distinguished: musharaka and mudaraba. musharaka can be defined as a form of joint venture where two or more parties combine their capital and labour together to share the profits, enjoying similar rights and liabilities. the profits resulted from such a venture are shared according to a pre-agreed ratio between the parties of musharaka, while losses are borne in proportion to contributed capital. in a mudaraba contract one party of the agreement, called rabb-ul-maal, provides capital finance for a specific venture indicated by the other party, called mudarib. mudarib’s contribution to the venture is professional and technical expertise. he is also responsible for the management of the business. if the venture brings profits, they are shared according to a pre-agreed ratio between rabb-ul-maal and mudarib. losses however are entirely borne by the rabb-ul-maal, with the exception of the cases when such losses are the outcome of the managerial negligence or misconduct of rabb-ul-maal. due to the fact that one of the partners runs the business and the other provides solely finance, the relationship between the partners is based on trust, with the investor having to rely heavily on the entrepreneur, his ability to manage the business and his honesty when it comes to profit share payments (schoon, 2010).1 as it can be seen above, in the case of pls tools, the partners in the venture, have no right to profits if they do not share the risk, whether it is money or the work, dedicated to the venture. hence, islamic banks need to adopt a more cautious approach to lending. being a partner, rather than a lender, compels them to assess risks more carefully and to effectively monitor the use of funds by 1 in ancient arabia maysir was a very popular game of chance, played with arrows without heads and feathering, for stakes of slaughtered and quartered camels (wehr, 1976). main instruments of islamic banks e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 188 the borrowers. in reality, it means that both the client and the financier assess risks which improves discipline of the financial system and restrains excessive lending and borrowing (chapra, 2009). however, although pls instruments should be the foundation of the islamic banking system, in practice they play only a secondary role. the reason for such a situation lies in the fact that there are many problems associated with those modes of finance. most of them result from the information asymmetry which may lead to moral hazard behaviour of the borrowers (warde, 2000). as a consequence of problems associated with pls transactions, other methods of finance such as murabaha, salam, istisna and ijara are much more often used by islamic banks. murabaha (a cost-plus, mark-up contract) is a trade contract stipulating that one party purchases a good for its own account and sells it to the other party with a mark-up (vissner, 2013). the payment usually takes place sometime afterwards or in instalments. there are many controversies connected with this tool of finance. some islamic scholars even consider murabaha not sharia-compliant, since the mark-up is often based on the interest rate. and thus they say, mudaraba can only be used temporarily, when musharaka and mudaraba cannot be applied because of their impracticality (usmani, 1998). however, since it is a very useful mode of finance, appreciated by both the banks and their clients, it is widely used. a murabaha contract is applied to trade finance, interbank liquidity and house finance. in a salam contract one party of the contract agrees to provide specific goods at a future date while the other party agrees to pay its price in full at the conclusion of the contract. salam contracts are usually short term (1-3 months). the type, the quality and the amount of the goods are precisely specified. their vendor is required to provide the required goods at the time specified in the contract. if they are not in his possession, he will have to purchase them on the market. it is therefore also important that the goods that are the subject of financing are easily accessible. as a transaction type, salam contract is especially suitable for the financing of agriculture and small construction and manufacturing projects (schoon, 2010). just like salam, an istisna contract is a purchase agreement for future delivery of an asset. unlike the salam contract, however, in the istisna contract, the payment to the producer or contractor of the asset does not have to be in full in advance. payment usually is done in instalments in line with the progress made on the development of the asset. therefore this tool of finance is especially suited to project finance and construction (schoon, 2010). an ijara contract is the islamic equivalent of a leasing transaction. the difference between two instruments is that in ijara the proprietorship of the object of the lease stays with the lessor. the asset stays on its balance sheet until the end of the period of the lease. what is transferred is its usufruct (boumediene, 2011). on the liabilities side of the balance sheet of the islamic bank, just like in conventional banks, deposit accounts are the most important elements. islamic banks usually provide three types of accounts: current accounts, saving accounts and investment accounts. none of these products can bring interests. it is not a problem with current accounts or savings accounts. they often do not bring interests in conventional banking either. in the case of investment accounts, depositors participate in the profits and losses of the bank. thus they can earn money but also incur losses. mudaraba is an instrument, which is usually used as this kind of deposit. in this case depositors (rabb-ul-maal) share the bank’s (mudarib) profit, but if the bank invests the money into project, that brings losses, the depositors may lose their money. apart from the financial instruments and deposits mentioned above, islamic banks also offer products, not directly related to financing or investing. for instance, there are special islamic instruments, facilitating international trade transactions. such as islamic letters of credit or islamic bank guarantees. 189 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 to sum up this part of the article, it should be noted that all financial products, offered by islamic banks, before being launched to the market, must get consent of a special body of islamic bank sharia board, which consists of scholars in islamic religious law. islamic banking in the european union countries is still at a very early stage of development. there are only a small number of banks, offering islamic financial products and services in the eu. most of them are situated in the united kingdom, which is regarded as the european islamic financial centre. that is why the analysis conducted in this chapter, will be mainly concentrated on the british market. the first involvement of european banks in non-interest finance took place already in 1920s of the 20th century. at that time, the eastern bank, the predecessor of standard chartered, was allowed to open a branch in bahrain on condition of avoiding of all interest-based transactions. at the same time and on the same condition the national handelsbank of the netherlands, the predecessor of abn-amro, was allowed to establish a branch in jeddah, the aim of which was to provide money changing services for pilgrims from dutch indonesia (wilson, 1983). for the next fifty years the european banks involved in the muslim world conducted their operations using interest, just like their local counterparts. it was not until 1970s, when first islamic banks were established in the middle east, that banks operating in europe came into contact with non-interest banking again. the newly established islamic banks had problems with management of their liquidity, since they could not use instruments that are available for conventional institutions, because those are based on interest rate. as an answer to this problem, a number of banks operating in london, especially saudi international bank and the united bank of kuwait started to offer sharia-compliant liquidity management services to islamic banks from the middle east. they accepted deposits based on a commodity murabaha structure, with the associated short term trading transaction being conducted on the london metal exchange (wilson, 2007). the big step towards the implementation of islamic banking services into european financial system was done in 1982, when the al baraka investment company from jeddah, bought british hargrave securities, a licensed deposit taker and converted it into islamic bank. newly established al baraka international bank served the british muslim community only to a limited extent though. it targeted its services mainly to wealthy arabs, who spent summers in london. at the turn of 1980s and 1990s, the business of al baraka international bank expanded, as a result of which at the beginning of 1990s the bank had between 11 000 and 12 000 clients (al-omar & haq, 1996). at that time the bank offered current accounts, investment accounts based on mudaraba, as well as instruments dedicated to housing financing. despite this, the most profitable area for al baraka was investment management and as matter of fact the institution reminded more an investment company than a bank. when it came to retail banking, it lacked the critical mass to achieve a competitive cost base in an industry dominated by large institutions, and the possibility of expanding through organic growth was also limited. in these circumstances, when the bank of england tightened its regulatory requirements after the demise of bcci2, al baraka decided that it was not worth to continue to hold its banking licence, as it would involve high costs, needed for restructuring of the ownership and a greater injection of shareholder capital. consequently in june 1993, al baraka surrendered its banking licence and closed its branches, but continued to operate as an investment company. depositors received a full refund, and many of them transferred their money to the newly established investment company (wilson, 1999-2000). 2 bank of credit and commerce and international (bcci) was an international bank, established in 1972, which had branches in many countries of the world, including the uk. in the 1980s it came under the scrutiny of numerous financial regulators and intelligence agencies due to concerns that it was poorly regulated. investigations, which followed, revealed that it was involved in money laundering and some other financial crimes. evolution of islamic banking in the european union and current state of the market e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 190 in 1995, at a conference organised by the islamic foundation, then governor of the bank of england, lord edward george gave a speech in which he drew attention to the dynamic development of islamic banking in the muslim world and its emergence on the international stage as well as to the need to attract islamic banks to the uk. he also pointed to a number of problems and difficulties associated with the development of islamic banking in the uk, to which the banking supervision had to find the solution (ainley et al., 2007). these sentiments were first translated into practice in 2001, when a special committee, which included representatives from the government, financial services authority (fsa), banks and the muslim community, was appointed to determine what legal obstacles stood in the way of further development of islamic banking in the uk. one of the largest obstacles, that was recognised, was the fact that islamic mortgages attracted double stamp duty, both on the purchase of the property by the bank and on the transfer of the property by the bank to the customer at the end of the mortgage term (ainley et al., 2007). the stamp duty on the subsequent sale of the property to the customer was abolished very soon, namely in 2003 (finance act 2003, section 73). this step is considered to be the first step, which opened the door to retail islamic banks in the uk and equalised their chances with conventional banks. the year 2004 brought a breakthrough in the field of british islamic banking. in this year islamic bank of britain (ibb) became the first wholly islamic retail bank, which received a license from the fsa. it was the first fully-fledged islamic bank not only in the uk, but in the whole european union. the licensing process, which required a great effort both from fsa and the bank, was well thought out. during that process, especially two issues arose concern – the security of deposits and the role of the sharia board. a saving account proposed by islamic bank of britain as a deposit was mudaraba deposit, which as it was mentioned in the previous section, means that customers risk the loss of the original capital. however, under the british law, customers have the right to a guaranteed refund of the deposit. representatives of the fsa and the ibb came to an agreement according to which ibb customers had the right to waive the right to deposit protection on religious ground and choose instead to be repaid under the risk sharing and loss bearing formula. the question of the role of the sharia board was far more complex. fsa had to determine whether the board would act as the management or merely the advisory body, as the delimitation of these two functions is not obvious in the islamic bank. british law requires banks management to fulfil certain legal requirements concerning, inter alia, economic education and experience in the financial industry. these are the requirements that the islamic scholars often cannot meet. that is why from the supervising authorities’ perspective, islamic banks need to show that the role and responsibilities of sharia boards are advisory and they do not interfere in the management of the bank (ainley et al., 2007). further legislative improvements were done in 2004 and 2005. the finance acts both from both years included regulations that allowed using such islamic financial instruments as musharaka, mudaraba or ijara. interestingly, in the provisions of the british law arabic names for financial instruments such as murabaha or ijara never appear. the legislature avoids names derived from arabic and always refers to typical islamic contracts as “alternative finance”. nevertheless, the analysis of british regulations shows that the they also apply to islamic contracts (hadžić & klepić, 2009). in the following years, several other wholly islamic banks were established in the uk. in 2014, there were six fully-fledged islamic banks. these were: al rayan bank (former islamic bank of britain), bank of london and the middle east, european islamic investment bank, gatehouse bank, qib uk and abu dhabi islamic bank. 191 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 among those, only al rayan bank concentrates on offering retail services, such as current and investment accounts and housing financing products. it also has the largest number of clients, estimated at around 50 000. other islamic banks target their offer to wealthy clients and corporations. their main products include asset management and private and corporate banking services. since most of islamic banks in the uk are not listed on any exchange, they are not obliged to publish their financial statements. that is why it is impossible to assess their financial situation in comparison with their conventional counterparts. it can be assumed, however, that this situation is not good, especially when it comes to retail services. islamic bank of britain reported a loss 6.99 million gbp for 2012, the last year for which figures are available, which followed 8.1 million and 8.99 million losses in 2010 and 2011 respectively (islamic bank of britain, 2011, 2012). and in 2012, hsbc amanah, the islamic subsidiary of hsbc, withdrew from operations in the uk allegedly because of unsatisfying financial results. in the uk, apart from six fully-fledged islamic banks, 16 conventional banks, including barclays, deutsche bank, royal bank of scotland, standard chartered, lloyds offer islamic financial services through the “islamic window”, which is a separate department of a conventional bank dedicated to islamic finance. their edge over the wholly islamic banks lies mainly in the recognisable brand. some clients can prefer to approach such banks, because of their long history and strong reputation. islamic banks, on the other hand, are usually not so widely recognised in europe. although the number of islamic banks in the uk may seem small, and the value of their assets, estimated at 19 billion gbp and less than 1% of total assets of british banking sector, low, the united kingdom is an absolute leader when it comes to islamic banking in the eu (uk islamic finance secretariat, 2013). in 2013, there were no wholly islamic banks in other eu countries. islamic services were only offered by a few islamic windows in france, germany and luxembourg (table1). table 1 number of banks, offering islamic services in the eu (2013) source: uk islamic finance secretariat, 2013. country number of banks uk 22 france 3 germany 1 luxembourg 1 total 27 the situation did not change much in 2014, apart from one thing. at the end of 2014, in luxembourg the first fully-fledged islamic bank in eurozone, eurisbank, was established. it was launched with an initial capital of 60 million eur. the bank offers retail, corporate and private banking services and is aiming to open branches in paris in france, brussels in belgium, the netherlands and frankfurt in germany (evershed, 2014). it should be noted that at present, in two european countries with the largest muslim populations, france and germany, there are no fully-fledged islamic banks. in france, only two branches of islamic banks from middle east operate. and the retail banking services are offered only through islamic window opened in 2011, by chaabi bank, a subsidiary of the banque populaire du maroc group. the offer of the bank includes islamic deposit and islamic real estate financing products (commerce international, 2013). in germany, kuveyt türk katılım bankası, a participation bank from turkey, has one branch in manheim. in october 2012, kuveyt türk applied to germany’s federal financial supervisory authority (bafin) for a full banking services license in order to be able to carry out all retail services, including loan and deposit operations, under article 32 of the german credit act (kuveyt türk, 2012). up till now, however, licence has not been granted to the bank. one of the reasons, why islamic banking has no significance in germany, may lie in the negative experience, german turks have with financial institutions coming from the muslim world. in 1990s several turkish companies, such as kombassan holding, jet-pa, yibitas holding and yimpas holding entered the german market with seemingly islamic finance products. in a short time e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 192 they gained about 200 000-300 000 muslim customers, who they approached mainly through mosques. however, the money was defalcated and the majority of clients lost their savings. estimates for the losses ranged between 5 and 50 billion eur, which only shows the potential of islamic finance among turks in germany (farhoush & mahlknecht, 2013). however this scandal created great mistrust among muslims, living in germany and worked against new approaches to establish islamic banking market in this country. so now any institution, which wants to gain customers in germany, first of all must gain confidence of the muslim community. as it was shown in the previous section of the paper, the islamic banking in the eu is at a very early stage of development. in fact, the expansion of islamic banking and finance does not meet the high expectations of some of its promoters. in two european countries with the largest muslim populations, france and germany, there are no fully-fledged islamic banks. in this chapter factors, which should contribute to the development of islamic finance in this region, will be identified and analysed. also the threats and challenges, which need to be overcome, so that this market could develop, will be presented. islamic banks that start their operations in the european union countries see one of the main opportunities in the muslim minority, living in the eu. according to pew research center, the number of muslims in europe grew from 29.6 million in 1990 to 44.1 million in 2010. table 2 provides information on the estimated number of muslims, living in selected eu countries in 2010 and projection about that number for the year 2030. the population of muslims in the eu is projected to increase by over 10 million by the year 2030. it means that the potential customer base, which is relatively high now, will be even higher in the future. it should be indicated that this is a potential that has not been used so far. it is enough to give an example of the only islamic retail bank in the uk, al rayan bank, which has about 50 000 cusprospects for development of islamic banking in the european union table 2 number and share of muslim population in selected eu countries source: pew research center, 2011. 2010 2030 country number share (%) number share (%) austria 475 000 5,7 799 000 9,3 belgium 638 000 6 1 149 000 10,2 denmark 226 000 4,1 317 000 5,6 finland 42 000 0,8 105 000 1,9 france 4 704 000 7,5 6 860 000 10,3 germany 4 119 000 5 5 545 000 7,1 greece 527 000 4,7 772 000 6,9 ireland 43 000 0,9 125 000 2,2 italy 1 583 000 2,6 3 199 000 5,4 luxembourg 11 000 2,3 14 000 2,3 netherland 914 000 5,5 1 365 000 7,8 portugal 65 000 0,6 65 000 0,6 spain 1 021 000 2,3 1 859 000 3,7 sweden 451 000 4,9 993 000 9,9 united kingdom 2 869 000 4,6 5 567 000 8,2 tomers, and compare this number to a number of muslims, living in the uk, which is estimated at almost 3 million. and as it was already mentioned, in other countries the situation is much worse. but it should also be emphasised, that although islamic banks target their products mainly to muslims, they also try to gain clients outside islamic community, especially among middle and upper class individuals. the major appeal of islamic banking for non-muslim clients is the ethical and socially responsible nature of islamic financial investments. in a survey conducted among 100 private bankers around the world by the economist intelligence unit in 2012, the surveyed said that 193 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 they expected the annual increase in the amount of money directed towards ethical investments by an average of 9,1% in the following five years. and 25% of private bankers expected a double-digit annual percentage increase in investments, which are sharia-compliant. the need to use ethical services is especially strong among clients from the european union, where the demand for such investments especially grew in the aftermath of the global financial crisis of 2007-2009. the crisis, which affected severely european financial industry, spared islamic banks. proponents of the islamic financial system even say the crisis would not have occurred if the islamic principles of finance had been implemented in international financial markets. there is no clear evidence whether, it is indeed truth or maybe islamic banks were more resilient to the crisis, because of their immaturity. still islamic banks use this fact as a factor, which helps to build their positive image. there is also a big potential for the development of corporate islamic banking services in the eu. it mainly results from the growing trade relations between the eu and the association of southeast asian nations (asean) and the countries of gulf cooperation council (gcc) (table table 3 eu merchandise trade with asean and gcc countries (in millions of eur) source: eurostat, 2015. 2009 2010 2011 2012 2013 export 108 047 127 320 142 223 165 220 176 309 import 91 162 122 537 153 157 161 643 153 770 3), where islamic banking has a significant presence and where islamic banking services dynamically develop. more and more companies from those countries become clients of islamic banks. while supporting international trade operations of their clients, those banks often need to co-operate with foreign banks. potential islamic banks in the eu could become such partners for islamic banks from the asean and the gcc countries. the above-mentioned factors, although potentially should increase the presence of islamic banks in the eu in the near future, are not sufficient for the development of islamic services in this region. there are still some obstacles that need to be overcome. those obstacles can be divided into two groups. the first group includes problems that are faced by the whole islamic banking industry, so they can also apply to islamic banking in the european union countries. the second group concerns mainly islamic banking in the eu. the main challenge for the development of islamic banking is a lack of uniform regulations and the diversity of sharia-judgements. especially big is the gap between institutions operating in the gulf region, and the countries of southeast asia. the institutions from the gulf region usually comply with standards of the accounting and auditing organization for islamic financial institutions (aaoifi), while in southeast asia standards of the islamic financial service board (ifsb) are more frequently used. what is more, in the gcc countries there is no higher authority, which would affect decisions made by the sharia board of each financial institution. as a result, judgements can differ depending on the scholars sitting on the board. and for instance in malaysia, the government assigned national shariah advisory council (nsac) as the highest shariah authority on islamic banking. resolutions and judgements of nsac are binding for all malaysian islamic financial institutions. in this way diverging standards for the same products and discussions on whether or not specific products are sharia-compliant are avoided. just like in the rest of the world, in europe there is also no agreement about the standards which should be used. for instance, france is more inclined towards the aaoifi standards, while luxembourg opted for the ifsb standards. islamic banks have also significant problems with risk management, especially with the management of liquidity risk. conventional banks have access to a number of tools, enabling liquidity management. those tools include interbank deposits, foreign exchange swaps, repo operations, treasury bills and commercial papers. all those instruments are based on interest rate and that e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 194 is why they are not accessible to islamic banks. islamic interbank money market is underdeveloped and the secondary markets for most short-term instruments are illiquid. and because of different interpretation of sharia, in different jurisdictions other instruments are permitted which makes it very difficult to develop international money market. thus the problem with the access to liquidity management instruments constitutes one of the most serious problems and one of the largest challenges for islamic banks. though it should be mentioned that some initiatives have been already taken aiming at closer collaboration between different islamic countries, such as establishment of international islamic liquidity management corporation (iilm), international islamic financial market (iifm) and liquidity management center. those bodies are expected to play a key role in the process of harmonisation and standardisation of transactions across the countries which would facilitate the creation of cross-border money market. the activities of the above mentioned entities should concentrate on increasing liquidity of the secondary markets and the development of instruments which would be approved across different islamic jurisdictions. without the sufficient supply of short-term instruments and well-developed secondary market, liquidity risk management in islamic banking will remain ineffective in comparison with techniques adopted by conventional institutions and this will affect negatively the competitiveness of islamic finance industry (sobol, 2013). a second group of challenges that need to be overcome, affect the european market in particular. the first challenge of this kind is a variety of legal obstacles, not permitting the functioning of banks on the basis of profit and risk sharing model. however, as the example of the uk shows, these are not insurmountable problems. customers of british islamic banks, although they are protected against the insolvency of the bank, can surrender this protection on grounds of religious belief. on the other hand, the european union policy can be against such a solution. the compulsory membership of the european banks in a deposit-guarantee scheme does not only serve the safety of the single depositor, but also should guarantee the stability of the whole financial system. and such a policy can be especially visible in the aftermath of the financial crisis. one of the biggest problems encountered by islamic banks in the eu, can be lack of demand, resulting from high costs of islamic products. due to the highly competitive european market, the price is a key factor affecting the success of islamic banking in europe. the low price of conventional products can determine the choice of product and the resignation of the islamic one. also, this problem is partially solved in the uk, at least in terms of mortgage loans. as it was discussed in the previous section, the double stamp duty on a murabaha transaction was abolished there, which greatly improved the competitiveness of the islamic housing financing products. however, still the prices of the islamic products may be more expensive, because of the presence of the additional body in the islamic bank, which is in the sharia board as well as due to problems with the risk management. religious muslim clients may agree to pay even a higher price, in order to benefit from sharia-compliant services. this can also apply to some wealthy non-muslims, interested in ethical investments. however, for the majority of customers of banks, the price is a very important issue. it also concerns muslims, living in the eu, especially that not all of them are very religious and many of them do not know islamic financial system. so in order to cope with competition coming from conventional banks, islamic banks, entering the eu, apart from indicating the ethical character of their services, should also try to make their products and services competitive in terms of price. another obstacle that stands in the way of development of islamic banking in the eu is the attitude of the general public towards this activity, resulting from the negative attitude to islam in general. there are allegations that islamic banking is used in financing of terrorists. those views are hardly surprising, taking into account the unrest in the middle east and attacks carried out by 195 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 extremist organisations also outside muslim world. still are very well remembered the attacks on the world trade center in new york in 2001, train bombings in madrid in 2004 or the terrorist attack on london underground in 2005. hostile feelings against islam among society in europe were fuelled by the attacks on the charlie hebdo magazine in paris in january 2015. another source of hostility to muslims among europeans is the fear of the influx of people from muslim countries and high fertility of muslim families, which may translate into social changes in the near future. the problem of hostility towards islamic banking, resulting from hostility to islam, cannot be unravelled quickly. the image of islamic banks, can be improved however, through well thought out promotion campaigns and through the high standards of business conducted by islamic financial institutions. finally, shortages in staff is a problem that also affects the european islamic banking industry. there are not enough scholars in koranic law, who could serve on the sharia boards. even fewer people are familiar enough with the activities of islamic banks that they could occupy managerial positions. however, this situation is changing slowly. with the growth of interest in this type of banking, there are a variety of courses and seminars on islamic banking and finance, organised in the eu countries. again, the uk is the leader in this field. two of the british universities, the university of durham and the university of reading offer master studies in islamic finance and in the university of durham even doctoral programme on islamic economics and finance is organised. islamic banks fulfil the same needs of customers, as conventional banks. they provide a variety of religiously acceptable financial services to muslim communities, but also can be an alternative for non-muslim clients seeking ethical investments and greater risk diversification. in many muslim countries, islamic banking has become a significant segment of financial markets. and three countries (iran, pakistan and sudan) even decided to fully transform their financial system into the islamic one. in the european union countries, islamic banking was introduced in 1980s, when al baraka international bank started operating in the british market. until now, the uk has remained the european islamic banking leader. the uk has achieved this title thanks to the support of the government, the favour of the supervising authorities, the reputation of the world’s financial centre and money from the gulf countries, which helped to establish islamic financial institutions in this country. the islamic banking market in other eu countries is in the infancy stage of development. even in such countries, as france and germany, with large muslim communities, there are no fully-fledged islamic banks. it is improbable that islamic banking could develop as dynamically in the eu as in the islamic countries. but it has a potential to have a more significant presence in the european financial market and it could achieve a similar position to the position, held by co-operatives banks. the main factors that should contribute to this include: _ large and increasing muslim community in the eu, _ growing demand for ethical investments, also from non-muslims, _ increasing trade relations between the eu and the asean and gcc countries, where islamic banking has a significant presence. however, there are still many challenges and problems that are faced by islamic banking industry in the eu. they include: _ lack of suitable legislation in the majority of eu countries, especially with regard to tax and supervision issues, conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 196 _ problems with risk management, resulting from the lack of appropriate instruments and insufficient collaboration between institutions, operating in different countries, _ high costs of islamic banking products, _ hostility towards islam, and thus islamic banking among the european society. if islamic banks do not solve the above-mentioned problems, their presence in the eu countries will remain insignificant. it is improbable that they could become an alternative for conventional banks, as it happens in some of the muslim countries. however, if they find the way to overcome numerous challenges, they may become a viable addition to the conventional financial institutions. ainley, m., mashayekhi, a., hicks, r., rahman, a. & ravalia, a. 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(2012). analiza instrumentów pochodnych z perspektywy finansów islamskich. prace naukowe uniwersytetu ekonomicznego we wrocławiu, 267, 252-267. sobol. i, (2013). liquidity management practices in islamic banking. journal of management and finance, 11(2,1), 566-576. uk islamic finance secretariat. (2013). uk, the leading western centre for islamic finnce (p. 4). london: thecityuk. usmani, m.t. (1998). an introduction to islamic finance (p. 72). karachi: idaratul ma’arif. vissner, h. (2013). islamic finance: principles and practice (p. 66). cheltenham: edward elgar publishing. warde, i. (2000). islamic finance in the global econom (p. 137). edinburgh: edinburgh university press. http://dx.doi.org/10.3366/edinburgh/9780748612161.001.0001 wehr, h. (1976). a dictionary of modern written arabic (p. 1107). new york: spoken language services. wilson, r. (1983). banking and finance in the arab middle east (p. 87). london: macmillan. wilson, r. (2007). islamic finance in europe (p. 3), rscas policy papers, no. 2007/02, florence: european university institute, robert schuman centre for advanced studies. wilson, r. (1999-2000). challenges and opportunities for islamic banking and finance in the west: the united kingdom experience. islamic economic studies, 7(1-2), 35-59. http://dx.doi.org/10.1002/ tie.4270410408 iwona sobol dr. economics and finance (science field), institute of international business, university of gdańsk, poland address armii krajowej 119/121, 81-824 sopot, poland tel. +48 58 5231273 e-mail: isobol@ek.univ.gda.pl about the author e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 60 submitted 04/2015 accepted for publication 07/2015 local government networks for sustainable growth of local and regional economy eis 9/2015 abstract local government networks for sustainable growth of local and regional economy http://dx.doi.org/10.5755/j01.eis.0.9.12796 maris pukis latvian association of local and regional governments, m. pils str.1, riga, latvia european integration studies no. 9 / 2015 pp. 60-72 doi 10.5755/j01.eis.0.9.12796 © kaunas university of technology the objective of the paper is to evaluate opportunities of the latvian variant of local governments’ bench learning system to facilitate sustainable growth of local and regional economy. the research is performed by applying several policy analysis methods. there are several obstacles for local governments to facilitate local economy: influence of neo-liberal approach on eu and national legislation, which minimize opportunities of flexible decisions, based on local circumstances; influence of normativism, which is expressed in over regulation of the majority of local government competences; insufficient motivation of local executives to be creative; insufficient performance capacity. latvian variant of local governments bench-learning is under implementation by latvian association of local and regional governments performing project “smart governance and performance improvement of latvian municipalities”. model is based on the developing of the experience of the norwegian association of local and regional authorities (ks) and the association of polish cities, during the implementation of the project, a benchmarking data base is elaborated; the data base will enable application of quantitative methods and the best practice of the world in the governance of the municipalities, it further will be used for a range of additional activities with a positive impact on the social and economic development of the municipalities and the state. the second main activity – elaboration of cooperation network on the basis of bench-learning concept. in the cooperation network, the representatives of the municipalities help each other by giving advice, discuss different solutions known in latvia and in the world. during project implementation, the skills of network coordinators to organise and serve the networks are developed. main thesis: bench-learning system is powerful instrument to facilitate local initiative to invent and implement innovative methods; suitable for diversification of local economy, therefore facilitates better developing and applying of local and regional human resources; useful for central government to co-operate for better regional policy and organisation of supervision on the basis of applying principles of subsidiarity and proportionality. keywords: local government, bench-learning, networks, bench-marking, sustainability. 61 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 introduction the scientific problem is the building of efficient procedure for activation local politicians and administrators to be more innovative. there are several obstacles for introduction active innovative approach on administration of municipalities. particularly, during last economic crisis among issues of political agenda could be mentioned: 1 influence of neo-liberal approach on eu and national legislation, which minimize opportunities of flexible decisions, based on local circumstances (lps,2013-1); 2 influence of normativism, which is expressed in over regulation of the majority of local government competences (lps,2013-1); 3 insufficient motivation of local executives to be creative (lps,2013-2); 4 insufficient performance capacity (lps,2014) research, provided by council of european municipalities and regions (cemr, 2013) clearly shows general tendencies of fiscal and administrative centralization in the majority of countries – council of europe members during crisis. that tendency was clearly estimated also in the bologna conference “simplification of local administration in europe – levels and dimensions” (ola, strongly another threat centralization is therefore, finding of suitable procedure to overcome above mentioned negative tendencies is substantial problem of applied public administration. the objective of the paper is to evaluate opportunities of the latvian variant of local governments’ bench learning system to facilitate sustainable growth of local and regional economy. latvian variant of local governments bench-learning is under implementation by latvian association of local and regional governments performing project “smart governance and performance improvement of latvian municipalities”. model (lalrg, 2015) is based on the developing of the experience of the norwegian association of local and regional authorities (ks-2015) and the association of polish cities (zmp, 2015). international (council of europe, 1985, articles 3, 4, 6) and national (saeima, 1994, , articles 7,8 and saeima 2002, 11, article 88) law allow full discretion of local governments about methods of local economy facilitation. in practice there are increasing amount of obstacles, including above mentioned. the main tasks of paper are: 1 to characterize main problems on introduction of smart innovative governance for latvian local governments; 2 to characterize main elements of latvian model of municipal bench learning and evaluate opportunities arisen by that model applying; 3 to characterise main research problems, estimated during first phases of corresponding project implementation. the primary methods of research are several approaches of policy analysis such as analysis of interest groups and their preferences, applying of theoretical principles of good governance, comparing existing systems with principles of subsidiarity and proportionality. the novelty of proposed research is analysis of obstacles for introduction of strategic management procedures of autonomous local governance, characteristics of first conclusions from wide scale pilot projects, covering 40% of latvian municipalities, formulation of substantial research topics concerned with introduction of that strategic approach. methodology of bench learning is popular approach how to improve work for different kind of organisations. application of bench learning methodology to local government networks too is rather popular during last 15 years (karlof etc., 2001, knudsen, 2007). bench learning is method, which arisen from bench marking (bruder etc., 1994) with addition of learning process through networks (dorsch etc., 1998 & tat-key, 2002). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 62 bench-learning system is established and applied successfully in norway (ks, 2015); within this system, the municipalities receive information from the benchmarking data base and establish networks in which they select appropriate solutions for their further development on the basis of the received information and analysis of the experience of other municipalities. ks has successfully passed on its experience to several states, poland being especially successful example among them. to take over the experience of the norwegian and polish municipalities and adapt it to the circumstances in latvia developing further the contribution of the latvian association of local and regional governments (lalrg, 2015) and the ministry of environmental protection and regional development (meprd) in improvement of the performance of the municipalities, development of the most appropriate system model is necessary for latvia. the overarching goal of the project is to stimulate the managers, politicians and administrative personnel of local municipalities, the employees of municipal institutions and enterprises to become more creative, to look for new approaches to solve existing problems, to ground on the experience of the colleagues and lalrg support in acquisition and analysis of the facts describing operation of the municipalities within the process of introduction of the novelties. it is envisaged that the product developed within the project will serve for a longer period of time. the estimated lifetime of the product can be 20 years taking into account that the initial approaches of the latvian model will be preserved and updated. within the project, the approaches of this model will be approbated, and relevant modifications performed, paying special attention to the opportunities for the development of the project after its implementation. during the implementation of the project, a benchmarking data base is elaborated; the data base will enable application of quantitative methods and the best practice of the world in the governance of the municipalities, it further will be used for a range of additional activities with a positive impact on the social and economic development of the municipalities and the state. the second main activity – elaboration of a cooperation network on the basis of bench-learning concept. in the cooperation network, the representatives of the municipalities help each other by giving advice, discuss different solutions known in latvia and in the world. during implementation of the project, the skills of network coordinators to organise and serve the networks are developed. main feature of latvian model is promoting strategical management approach and attempt to activate localism through establishing permanently working voluntary system. that leads to many elements, which are not characteristic to bench-learning in private organisations or with bench-learning in other local government associations in other world. author didn’t find scientific researches, focused on analogous systems. analysis of first stages of project implementation leads to several conclusions, which could be applicable for public administration development in other countries. purpose and principles of system the cooperation networks to be established will not meet the long-term strategic objectives of lalrg if a stable foundation is not established for sustainable development of the cooperation networks and benchmarking data bases after completion of the project. the main preconditions for sustainability: 1 gradual voluntary involvement of all municipalities; 2 funding sources generated by the municipalities for maintenance and development of the system; 3 voluntary implementation of evidence based strategic governance principles in the municipalities; 4 interest of the central government in use of benchmarking data base, including setting of performance indicators to be achieved by sector policies. 63 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the direct target groups of the project are the politicians and employees of the municipalities, the indirect target groups are the inhabitants of the municipalities, and the state administration institutions, visitors of the municipalities and business people working within the territories of the municipalities. the politicians of the municipalities need political will to implement changes; it will be achieved by evaluating the experience of norway and poland, actively participating in the first network (aimed at strategic governance) and other networks according to their interest. the employees of the municipalities need understanding of the strategic planning process, as well as the skill to apply the conclusions obtained within bench-learning networks; they should further use benchmarking data base for solution of issues of their sector. the respective skills will be developed by participating in the network meetings and other publicity events, as well as by studying two manuals after completion of the project. the employees of the state administration institutions need understanding of benefits of cooperation in acquisition of the data and a skill to use benchmarking database. the skills will be developed both – in mutual cooperation process during the project implementation and by participating in publicity events. the residents need increasing opportunities to impact decisions of the municipalities, as well as more qualitative services provided by the municipalities. such opportunities will increase during the project implementation when the municipalities will find innovative solutions for improvement of the work for the benefit of the inhabitants during bench-learning process. as the residents, from the view of marketing strategy of the municipalities, are the most significant and largest segment of the market of the products of the municipalities, the implementation of strategic governance will aim the activities of the municipalities at the priorities of the inhabitants. the business people require positive attitude, reduction of administrative burden and cooperation with the municipalities in providing for resources (including human resources and infrastructure). these capacities of the municipalities are included in the thematic networks that will ensure involvement of business people and development of businesses in the territories included in the project. visitors of the territories are people from other territories who work and study in the municipalities, and tourists. both groups usually are in the centre of the marketing strategies of the municipalities, therefore it is envisaged that these indirect groups will enjoy the positive impact of the project as well. organised civil society are more and more involved in national and local public administration. they need not only opportunities to participate in decisions, but also practical aid and opportunities for financing activities by social entrepreneurship. bench-learning is a learning process that helps improve practical performance through comparing and sharing knowledge, information and occasionally resources. it is an active, long-term process that has been found as one of the most efficient tools in organisational change process. the main bench-learning instrument is the cooperation networks of the municipalities. the networks thematically are related to the main lalrg activity groups, supplementing the existing political and administrative structure of lalrg. the goal of the bench-learning within each network will be taking over of the best practice from other organisations adapting the relevant experience to the specific circumstances of the respective municipality. it is not less important to learn from mistakes made by others and avoid them in the process of the changes of an organisation. bench-learning will be based on the evidence provided by the benchmarking data base. the benchmarking method is a governance process in which organisations evaluate their procee u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 64 dures and activities comparing them to the best practice in the organisations of similar type. the benchmarking becomes a point of reference to improve performance of a municipality. in latvia (and also other states), the attempts to govern municipalities or state administration institutions based on evidence encounter a significant problem – it is hard to measure approaching (not approaching) the outcome. the data of statistics or budget hardly describe the goals which the politicians of the municipalities or the state strive to achieve. mostly, measurable criteria can be applied to the outputs at the best, but the results of policy (outcome) and impact of the policy can be described very rarely. during the project, 4 thematic networks are developed – one for the development of the strategic governance of the municipalities (complies with the theme of the committee of finance and economics) and the other three – in the areas that comply with three of the themes of other three permanent committees: in latvian model, each network meeting contains open and closed part. the advantage of the open part is the opportunity to popularise the benchmarking data base of bench-learning, share innovative ideas and explain the problems of the municipalities to wider part of the society. the advantage of the closed part is the opportunity to freely discuss possible solutions of the problems, use and discuss sensitive data of the involved municipalities. striving to reach positive effects of both types of meetings, the meeting may take more time, thus discouraging participation of the leading persons of the municipalities. but it is the participation of the political leaders that has a decisive role in the latvian model. the theme of the first network – strategic governance is pre-determined and selected with the aim to promote qualitative changes in the governance of municipalities. with fixed amount of resources, better results will be achieved by a municipality that can better make use of local circumstances and local human resources. the deputies representing interests of collective (territorial) communities need resources for implementation of their specific ideas and concepts. this is the only way to reach desired variety and make better use of opportunities. the basic task of the first network: to develop a medium-term strategy for each involved pilot municipality. at the end of the project, each of the pilot municipalities drafts the text of the strategy, as well as develops and launches strategy governance system. on fulfilling the basic task, the pilot municipalities will be offered to facilitate development and implementation of several significant additional products; upon consent the following would take place: networks, established during the project 1 availability of social work and health (complies with the theme of the committee of the social and health care issues); 2 public utilities and housing (complies with the theme of the technical committee); 3 education and culture (complies with the theme of the education and culture committee). 1 discussion regarding marketing network sector of the municipality: inhabitants, visitors and business persons; division into sub-sectors, comparison of the interests of different municipalities regarding the priorities of the sub-sectors and focus on the sectors in medium term and long term; 2 overview of competitors and partners of the municipalities, significance of competition and cooperation for achieving the goals of the municipality; 3 evaluation of different missions, goals and objectives of municipalities (cities, large and small municipalities, rural and urban municipalities) and definition of tasks for development of appropriate performance indicators; 65 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 4 discussion of marketing management cycle for the municipality and comparison of different options how to ensure efficient governance in planning, implementation, assessment and change stages; 5 evaluation of different options to implement medium term budget in a municipality and use the budget as means for implementation of medium term strategy and motivation of the employees of the municipality; 6 discussion on legal means for facilitating business activities in the territory of the municipality, including attraction and preparation of human resources for innovative and research-intensive business activities; 7 evaluation of performance indicators acquired in the benchmarking data base and options for use of such data. next two pilot networks are chosen about social and health-care themes. after the analysis of the initial discussion, two sub-themes were selected: 1 is social entrepreneurship necessary for a municipality and how to improve it; 2 innovation in the social work, social services, health care enhancement for improvement of the competitiveness of a municipality. considering options of social entrepreneurship, this type of economic activity is widely interpreted as it is done in the documents of the european commission and the economic committee. it embraces all types of activities in which the overarching goal of the performer of the economic activity is not profit making. a municipality for this purpose can have several roles – engage in social entrepreneurship itself, procure services from social enterprises or cooperate with performers of social entrepreneurship for the purpose of implementation of its social policy. social entrepreneurship is usually regarded as kind of corporate social responsibility (baron, 2013), but use of that term for public authorities entrepreneurship could be productive to clarify role of non-profit entrepreneurship. considering innovations in the social and health sector, extensive exchange of experience is possible, and adoption of the innovations of different countries of the world (including latvia) to the peculiarities of a certain municipalities after the analysis of the initial discussion, two sub-themes were selected: 1 municipal investment policy for public utilities and construction and maintenance of motor-ways; 2 municipal housing policy – synergy of social and infrastructure policies. next two themes for cooperation networks are chosen about public utilities and housing. an investment policy embraces both – “attraction” of the eu funds and all other opportunities for purposeful enhancement of social and economic development including strategic resources and their development opportunities, granting advantages for certain groups of business people depending on the potential benefit to the development using not only financial instruments but also administrative, natural and human resources. a housing policy embraces both – interests and obligations, it should not be viewed apart from social policy and human resources development policy; thus it allows to flexibly address a wide range of problems in a municipality and propose complex solutions. in the sphere of education and culture for pilot networks two sub-themes were selected: 1 problems of small schools; 2 economic management of schools and motivation of teachers. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 66 the issues regarding small schools embrace a wide range of questions; there are different approaches for solution of these issues, and they are related to different areas of responsibility of the municipalities. the discussions and searching for innovative solutions will help each municipality to find a most suitable solution for local circumstances. the economic management of schools is the most important element of responsibility of a municipality in the area of education. funding of these activities is one of the largest (sometimes – the largest) items of the budget of a municipality. the motivation of the teachers is one of the most significant elements in approximation of the targets of the educational policy. centralised, unified approach has led to a significant decrease of the level of education if compared to the beginning of the 90-ties when the salaries of the teachers was the competency of the municipalities. the most essential challenges during the initial stage of developing the bench-learning system are characterised by the following complex of research themes:research themes 1 the statistic data necessary for the local government management. 2 options for development and application of local muni cipality’s medium-term budget. 3 opportunity of the municipality to exert influence upon development of local economics. 4 option to carry out social entrepreneur-ship by the municipality and opportunity to use private social entrepreneurship to reach the goals of the municipality. 5 options to acquire performance indi-cators using budget information of the municipalities absence of statistical data for local decisions: acceding to the eu (priority alignment to the needs of eurostat), administrative-territorial reform (decrease of the number of territorial units and abandonment of individual records by rural and urban territories), as well as austerity programme implemented due to the economic crisis in the world (decrease of the capacity of the central statistical bureau of latvia to collect and analyse data) have led to loss of succession of the data and loss of an option to judge about the economic and social situation of the administrative territories and residential areas using facts. with insignificant exceptions, the central statistical bureau of latvia aggregates the data at the national level (nuts 1 and nuts 2) or at 6 statistical regions (nuts 3). such aggregation of the data is sufficient for the government of the eu, but insufficient – for the government of a state. regarding latvia, branch and generalised data about the state in general and for the purpose of management of the eu budget for 6 regions can be acquired. these data are not appropriate even for the management of the regional development of a branch as they do not provide an insight into the processes within the administrative territories. 1 the data base raim developed by srda that is under supervision of meprd is a reaction to destruction of the regional statistics of the state, the agency strives to accumulate data about administrative territories at least partly. to great extent, this task is complicated due to restrictions to publish information about the state secret, commercial secret and personal data of natural persons. however, there is an opportunity to make some conclusions regarding the success of a municipality in general without going into the details of branches or territories within the municipality. 2 basically the contents of raim is appropriate for measuring the regional politics of the state, as well as indirect measuring of the success of an individual municipality (the data poorly and indirectly describe the socio-economic situation of a municipality). however, the data found in the system are insufficient for well-reasoned management of a municipality. 67 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 problem, how to find primary data, which could be published and after aggregation characterize results of local government policy is substantial theoretical and practical problem of applied science. problems with using short time budget: the budget of a municipality is an instrument for implementation of municipal policy (in the area of autonomous competency) and state policy appropriate for the circumstances of the relevant municipality (in the area of the competency delegated by the state). in order to optimally implement the municipal policy, it is necessary to know what resources are used for attainment of the goals, as well as the extent to which the goals are approximated. unfortunately, the classification of the budget is intended for other purposes that have almost nothing to do with the governance of a municipality. in order to aggregate data from several existing budget items, as well as obtain evaluation of expenditure for the interests of different focus groups of the municipality, it is necessary to establish peculiar economic models with clearly defined systems of assumptions and data use restrictions. attempts to introduce middle term national budgets are popular from the times of president lindon jonson in usa and have many forms (young, 2003), but never have success for long periods. opposition against middle term budgets is strong from such interest groups as central bureaucracy, local bureaucracy, politicians who in reality are not interested to show real measurable results. voluntary introduction of middle term budgets in the conditions of centrally required one year reporting is not simply achievable for the same reasons. therefore finding of conditions for compromise, how to introduce voluntary and locally middle term project budgets, program budgets or impact budgets is substantial problem for applied science. narrow opportunities to facilitate economics: promotion of local economics is a statutory obligation of a municipality that has been preserved in the laws regarding municipalities since 1990. at the same time, politsation of the eu and national laws takes place, a range of social and economic doctrines, group interests implement prohibitions to promote economics with the help of primary and secondary legislation. several restricting norms arise from the eu policy that is aimed at the development of unified economic space using the means chosen for europe for other goals and at other scale. as a result, unfair circumstances are created for local business people if compared to that of the business people in other eu member states. some of the restrictions arise when any of economic or legal doctrines (that impartially reflect group interests or have been useful in other countries with completely different circumstances) are declared binding in whole latvia. promotion of entrepreneurship at the level of a municipality is never fair for the whole community or all groups of business people. they are basically agreements on certain priorities, support of such priorities by unsymmetrical approach, sometimes even on the edge of law. a research is necessary on the opportunity to remain on the right (legal) side, at the same time implementing support for certain groups of business people or workforce. simple attempts to follow support strategies used in other countries without additional research may be punished. in the situation of austerity policy, approved by majority of eu countries, research of innovative methods for local economics facilitating is of great importance. narrow opportunities for social entrepreneurship: latvian municipalities are in unfavourable circumstances if compared to municipalities of other eu member states. due to implementation of the commercial law. upon adopting the come u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 68 mercial law, the economic activity type – state or local government non-profit companies – was eliminated, and nothing appropriate was created instead in this area. at the time, there are legal organization types that are appropriate for economic activity of a municipality in the areas where profit is not the dominating aspect in other eu member states; in latvia such legal form does not exist. in other countries, the economic activity in which social goals dominate is referred to as the social entrepreneurship. if gaining of profit is as important, then such a company is referred to as a hybrid company. if entrepreneurship of the state and a local government is regulated separately, the term social entrepreneurship is used only in the private sector (non-governmental organisations or commercial entities having a significant proportion of activities of social rather than commercial character). local governments are interested in social entrepreneurship (according to the eu understanding) in two ways: data are arranged in such a way so one could find them by benchmarking data base _ cooperation with private sector in solving of social issues, _ participation in entrepreneurship the goal of which has a social rather than profit gaining character. examination of the options for municipalities in both directions is topical in terms of efficient solution of social issues, problems related to enhancement of education, human resources development, health care and entrepreneurship. research of applications of social entrepreneurship concept to self-government activities is substantial problem of applied science. opportunity to create data for performance indicators from budget reports budget reporting systems are not applicable for local performance measurement. at the same time those reports could be applied by working out corresponding economical models. detalization of classifications, applied by municipalities can differ. sometimes also the book-keeping traditions could differ in different municipalities. therefore methodology of individual applying those models is preferable, compare to unified formula. therefore, solving that problem of applied science budget data could be used in new quality. the benchmarking data base is intended as a tool for improving operation, for better implementation of the goals and mission by providing such facts which the municipality could hardly obtain on its own. either to use the data or not – it will be up to politicians of the municipality. the data base is designed in such a way to update the accumulated data each week in accordance with the decisions made in the collaboration networks; as of their content, the data are processed by the respective network coordinator in collaboration with the data base analyst. data are accumulated in four ways: 1 a table (primary data); 2 indicators (data calculated using primary data which are arranged also in the tables); 3 experience descriptions (primary texts intended for further processing); 4 structured experience descriptions (obtained by structuring information of primary experience descriptions). 1 selecting municipal function group which is subdivided into eight types in accordance with the nature of the activity; 2 selecting 7 types of data (acquisition) sources; 3 selecting functional units and sub-functions arranged there. 69 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 there are three levels of accessibility applied to the data, depending on the level of accessibility granted by the data base administrator, one can obtain primary and secondary data of various levels. to conveniently use the data base, it shall have a well-considered table of contents to find the necessary entries. the table of contents embraces 8 classifiers; each of them describes its dimension. in a single dimension, several indicators are possible as this is not a budget classification; this classification does not have to ensure registration of data only in one class and sub-class. the index of each record of data belongs to mandatory metadata in compliance with the respective classifier. no records can be made without the relevant index. the data are characterised by several dimensions: 1 according to the data source (provider) that may be a public or natural person, as well as an institution or an official; 2 according to the type of the data – a table of primary or secondary indicators, a structured or unstructured description of experience or research, a presentation; 3 according to the main functional groups that have a certain type of activity both – within an organization and outside it – policy, services, administration, enhancement, management, entrepreneurship (commercial activity) or support function; 4 according to the type of the area to be governed, identifying the areas characteristic for the municipality at the given time and in future including voluntary initiatives and state-delegated tasks ); 5 according to a focus group – direct beneficiaries, identifying four sub-classes of beneficiaries – residents, visitors, business people and representatives of organized civil society; 6 according to the territory to be referred to – starting with the eu and oecd and down to a populated area; 7 according to the data acquisition period ; 8 according to the availability of the data – starting from public data and up to the data that are available only for an administrator of the bench-learning data base. this classification will enable users (network coordinators, representatives of the municipalities and ministries) to find the relevant entries easy and use them for solution of practical and theoretical issues. it shall be taken into account that the selected type of classification can impact the organization of the municipalities in future, insofar the performance indicators are used in governance of a municipality. an example is management of eu budget that is impacted by regional statistics of eurostat to great extent. if an opinion that a municipality needs fair and true information regarding the events under its responsibility would prevail in the society, the elaboration of the data base would be only a technical issue, and the main obstacle for its elaboration would be lack of investments. however, the situation is different. there are many factors delaying elaboration of the data base: problems of system development 1 most often politicians are interested in misinformation of the society rather than providing fair information; the latter may disclose broken promises given in pre-election campaigns, withdrawal from the set goals and other unpleasant issues; 2 representatives of the executive power (administration) are afraid that information on the results of their work may damage their career and decrease remuneration; 3 the central government is afraid of increase of the role of the municipalities that will certainly take place if people would be more informed; 4 human rights include regulation that protects privacy thus delaying accumulation of information about education, employment, movement of persons and other important aspects; e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 70 5 commercial rights protect commercial secret; it means that significant information on economic and social development of the territory is unavailable; 6 regulatory enactments in the area of statistics restricts transferring of primary information to third persons; 7 erroneous beliefs that municipalities do not engage in politics and all information about „economic” activity of a municipality shall be public are widespread; 8 information on public administration is available only in the official language of a state; it restricts implementation of the best practice among the states. there is a product elaborated during the project – the bench-learning system. several hypotheses should be proved during elaboration: each of the above problems is global or arises from the nature of a person as a social being. none of the factors can be eliminated by the latvian model. but the negative impact of each factor may be decreased. certain problems are caused by lack of understanding of the work of a municipality and the legal status of a municipality. supporters of state rights school in latvia use to be certain that the municipalities are in hierarchy subordinated to the cabinet of ministers (see pūķis m., 2010). there are opinions that there are no municipal policies – the municipalities perform economic activities in the interest of inhabitants according to the regulations of the cabinet of ministers. both of these delusions make it difficult for the municipalities to function in real circumstances and in actual system of global, national, regional and local laws. a municipality competes with other municipalities. the main objects of such competition are: 1 resources of municipal equalization fund; 2 state (sector) investments in the territory of a municipality; 3 private entrepreneurs who maintain their activity or invest new private funding in the territory of a municipality; 4 work force that facilitates the development of a municipality; 5 inhabitants that choose other place for living due to free movement of persons; 6 pupils and children of preschool educational establishments that can choose another 7 educational establishment in the territory of other municipality. even more significant competition issues are related to local protectionism (insofar it does no impact on common market of eu, in eu legislation protectionism in the form of municipal support is allowed) and facilitation of local entrepreneurship. normally, municipalities promote the interests of its entrepreneurs in national and global markets and compete with other municipalities in this area. if there is competition, there are also lawful rights to commercial secret or restricted access information. therefore, the council of the municipality is entitled to decide issues that are not to be discussed in public and enable achievement of better results in the interests of inhabitants. commercial secret of a municipality can be justified like the secret of the state. the system shall ensure that the restrictions for distribution of information specified by the municipalities are complied with. 1 by dividing the network cooperation meeting in the open part (to be transmitted online) and closed part, a wide circle of participants may be involved in the network themes at the same time ensuring an open and efficient discussion among the network 71 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 during the project, the following solutions will be verified: 1 network meeting division in the opened and closed part; 2 development of the marketing strategy of the municipality on a voluntary basis and its adoption by the marketing council lead by the chairman of the council of a municipality; 3 structuring of good practice descriptions of the municipalities and their usage for solution patterns; 4 acquisition of good practice descriptions from the internet; 5 data obtaining from the ministries on the basis of mutual benefit; 6 primary data acquisition from csb; 7 elaboration of economic models in order to use budget data for making performance indicators; 8 introduction of a medium-term budget; 9 motivation system based on performance indicators; 10 social solutions in relation to municipal marketing strategy; 11 setting up of the municipal businesses with a purpose to re-structure the local economy. i bench-learning system is: conclusions _ powerful instrument to facilitate local initiative to invent and implement innovative methods; _ suitable for diversification of local economy, therefore facilitates better developing and applying of local and regional human resources; _ useful for central government to co-operate for better regional policy and organisation of supervision on the basis of applying principles of subsidiarity and proportionality. ii preconditions for sustainability of self-organised bench-learning system are: _ voluntary involvement of municipalities; _ maintenance sources generated by municipalities; _ interest of central government to use benchmarking data base. _ introduction of strategic management as a process is feature of latvian bench-learning model compare to earlier implemented in other countries. iii analysis of implementation problems leads to proposing of several substantial themes for further research: _ the statistic data oriented to local government management; _ options for voluntary introduction of medium term performance budget for particular municipality; _ widening opportunities to facilitate local economics by local actions; _ option to carry out social entrepreneurship by the municipality; _ options to acquire performance indicators using budget information of the municipalities. participants resulting in the work improvement plan of the involved municipality. 2 proper models can be developed for information obtaining from the budget data of a municipality for preparing result indicators and impact indicators. 3 it is possible to agree with the ministries on data exchange on mutually beneficial terms excluding duplication in data collecting (lalrg would request from municipalities the same data which are requested by ministries). 4 it is possible to agree with csb on receiving primary data for the municipal and research needs. 5 the bench-learning system will obtain a support from municipal politicians in the major part of the municipalities. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 72 iv main problems of latvian municipalities bench-marking system development are: _ interest of particular groups to misinformation; _ regulatory enactments restricting transferring different kinds of information; _ erroneous belief that municipalities do not engage in politics; _ misunderstanding of the role of the competition among local governments. references journal articles baron, david p. “corporate social responsibility and social entrepreneurship.” journal of economics & management strategy. no. 3 (2007): pp.683-717 http://dx.doi.org/10.1111/j.1530-9134.2007.00154.x bruder, kenneth a., gray, edward m., (1994), public sector benchmarking, a practical approach, public management, no.76(9), pp 9-14 dorsch jeffrey j, yasin mahmoud m., (1998), a framework for benchmarking in the public sector. literature rewiew and diresctions of future research, international journal of public sector management, vol.11 iss.2/3, pp.91-115 http://dx.doi. org/10.1108/09513559810216410 tat-key ho alfred, (2002), reinventing local governments and the e-government initiative, public administration rewiev, july/august, vol 62, no.4, pp.434-444 young richard d., (2003), performance-based budget systems, public policy & practice, january, p. 12 working papers cemr, (2013), decentralization at a crossroads – territorial reforms in europe in times of crisis, october, p.68, www.ccre.org lalrg, benchlearning system model for latvian municipalities, riga, 2015, pp.67, www.lps.lv ks,(2015), improved user satisfaction and quality through better resource utilisation, http://www.ks.no zmp, (2015), norway project, www.zmp.poznan.pl knudsen, hans jørgen (2007) “netværks baseret benchlearning” randers: esb-netværket (udkommer som artikel i en antologi fra erhvervsskolernes forlag 2008) (on network-based benchlearning) books pūķis m., (2010), pašu valdība, latvijas pašvaldību pieredze, idejas un nākotnes redzējums, lps, rīga, p.507 pūķis m., jaunsleinis a., (2014), rokasgrāmata latvijas novadu pagastu un novadu pilsētu pārvalžu darbības organizēšanai, lps, rīga, pp.67 pūķis m., jaunsleinis a., (2014), vietējās pašvaldības darbības pamatprincipi. lps, rīga, p.89 internet access ola (2014), conference “simplification of local administration in europe – levels and dimensions”, bologna, 30/31 october, www.ola-europe.com/en/ colloquues/conference-in-bologna-3031-october ola (2015), “a threat to autonomy ? control and supervision of local and regional government activities”, erlangen and nurenberg, 26/27 june, www. ola-europe.com/en/colloques/symposium-in-erlangen-and-nuremberg council of europe, (1985), european charter of local self governments, www.coe.int karlof b., lundgren k., edenfeldt fromet m., (2001), benchlearning, forbilleder som loftestang for udvikling, kobenhavn , borsens forlag, www.benchlearning.com lps 24.kongress, (2013-1), rezolūcija “par pašvaldību tiesībām un spēju rīkoties ar pašvaldības īpašumu un veikt uzņēmējdarbību iedzīvotāju interesēs”, aucē, 9.augustā, www.lps.lv lps 24.kongress, (2013-2) “par pašvaldību darbinieku motivācijas sistēmu”, aucē, 9.augustā, www.lps.lv lps 25.kongress, (2014), latvijas pašvaldību attīstības vadlīnijas, aizkrauklē, 30.maijā, www.lps.lv saeima, (1994), likums “par pašvaldībām”, www. saeima.lv saeima, (2002), valsts pārvaldes iekārtas likums, www.saeima.lv maris pukis senior adviser latvian association of local and regional governments address m. pils str.1, riga, latvia. tel. +37129197602 e-mail: maris@lps.lv about the author 19 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 submitted 04/2017 accepted for publication 08/2017 e pluribus unum? the communitarization of eu migration, asylum and border management policies in times of crisis eis 11/2017e pluribus unum? the communitarization of eu migration, asylum and border management policies in times of crisis http://dx.doi.org/10.5755/j01.eis.0.11.18956 tommaso emiliani senior academic assistant at the department of eu international studies & diplomacy, college of europe, dijver 11, 800 bruges, belgium abstract european integration studies no. 11 / 2017 pp. 19-30 doi 10.5755/j01.eis.0.11.18956 © kaunas university of technology the article accounts for the emergence of an external dimension of eu internal policies and focuses on the migration, asylum and border management domains. building on bretherton & vogler (2006), it assesses and explains the forms and extent of eu’s external engagement. firstly, it assesses the degree of eu actorness – that is, the extent to which the union has become an actor in global politics in the researched fields in terms of opportunity, presence and capabilities. secondly, it attempts to explain the emergence of such eu external engagement. while the article defends that the treaty objective of creating an european area of freedom, security and justice (article 3 teu) makes eu external action in the migration, asylum and border control domains necessary, it also acknowledges the role of external triggers, such as the so-called 2015 ‘migration and refugee crisis’. on the one hand, external events can provide scope conditions accelerating the pace by which eu external action is pursued. on the other hand, they can also trigger the comeback of hard security concerns linked to claims for ‘more national sovereignty’, thus constraining the development of eu (external) action. the analysis carried out shows that the degree of eu actorness varies considerably across the three domains researched. on one extreme of the continuum, neo-realist understandings of increased arrivals of foreign citizens as hard security challenges to member states account for the enhanced interest in cooperation at the intergovernmental level. such interpretations explain why the most established domain for eu external engagement is the cooperation with third countries on border management, as it is shown by the expansion of the mandate of eu agencies such as europol and frontex, or by negotiation by the european commission of international agreements containing clauses on readmission of third country citizens irregularly residing in the eu to their countries of origin (the mobility partnerships). less developed, yet quickly evolving, is the eu external dimension of migration policies. functional concerns related to the need to acquire highly specialized (and relatively cheap) workforce towards an efficient functioning of the single market have prompted a remarkable the law-making in this area, as shown by the ec directives and regulations aimed at third country students, unpaid trainees, voluntary workers and big corporations’ staff. while the neo-functionalist logic explains the emergence of the external dimension of eu migration policies, it may also explain this development is currently limited to certain areas within the policy area. a comprehensive approach to migration policy has not proved possible to achieve so far, due to institutional and bureaucratic limitations, as well as the different agenda of national policymakers. on the other extreme of the continuum, liberal theories and constructivism account for the constraints e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 20 currently limiting the full development of eu actorness in asylum policies. several member states’ civil societies do not perceive prospects for absolute gains deriving from cooperation at the eu level. constraints to the establishment of international institutions regulating asylum policies are thus understood through the lack of strong societal pressures at the member states level. therefore, while the article puts forward a combination of neo-functionalist, neo-realist, liberal intergovernamentalist and constructivist explanations to account for the emergence of an external dimension of migration asylum and border management policies, as wells as for the obstacles opposing that process, it also provides evidence that external triggers such as increased migratory pressure lead to internal policy dynamics with positive or negative impacts on the shift of actorness from eu member states to the eu itself. keywords: eu external engagement, eu migration policy, eu asylum policy, eu border management policy, external dimension, eu actorness. reaching out to the external environment to achieve eu internal aims the integration of the area of freedom, security and justice (afsj) as a substantial policy domain of the european union (eu) is an on-going process. although migration, asylum and border management policies long considered core competences of states – already became eu shared competences with the maastricht treaty, full incorporation of these competences areas into eu policies has only happened gradually1. article 3(2) of the treaty on the european union (teu) the creation of an afsj without internal frontiers, in which the free movement of persons is ensured in conjunction with appropriate measures with respect to external border controls, asylum, immigration and the prevention and combating of crime. against the background of an increasingly interdependent world, and taken into account the intrinsically international nature of challenges such as migration, asylum seeking and border crossing, the treaty objective is hardly achievable through purely internal eu policies. therefore, the development of an external dimension aimed at engaging third countries in the realization of eu internal aims is to be understood as directly related to the project of an internal afsj (monar 2012: 11). standing the difficulties to advance a coherent eu policy in this field, it has to be noted the momentum provided for the establishment of truly european migration, asylum and border management policies by the occurrence of a set of events originating outside the eu borders. this article contends that external triggers, such as the so-called 2014-15 ‘migrant and refugee crises’, provide scope conditions affecting the way in which and the pace by which eu external action is pursued. as such, the internal and external drivers may well have a mutual impact on eu actorness and external engagement. the article has two key objectives: first, it aims to understand the development of the external dimension of eu migration, asylum and border management policies through an assessment of the degree of eu actorness in the three fields. to this end, it analyses the extent of the eu’s external engagement with third countries, and the forms it assumes with regard to achieving the objective set down by article 67 of the treaty on the functioning of the european union (tfeu), namely the establishment of a eu common policy on asylum, immigration and external border control. 1 this article refers to eu migration policies as to eu rules regulating the inflow of third country economic migrants. eu asylum policies are understood as the eu rules aimed at harmonizing procedures for asylum applications and protection granted by the refugee status. for asylum of third-country nationals. eu border management policies are understood as the eu rules on external border crossings and the conditions governing the temporary reintroduction of internal border checks. the migration, asylum and border management domains are peculiar exceptions in the eu system, as policies do not apply by default to all eu member states. the united kingdom and ireland possess ‘opt outs’ provisions in these fields and are therefore exempted from applying relevant eu rules, unless they decide to ‘opt in’ on a case-by-case basis. denmark refused the scheme altogether, and could theoretically join in only by accepting the full package of measures. introduction 21 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 second, the article provides an explanation for the emergence and evolution of eu actorness. although eu external engagement in the analysed areas is an emerging process and there is barely any single explanatory factor that can be identified as the main driver, i argue that, at a time when the stability of european borders is physically challenged by remarkable migratory flows, borders between eu domestic and external action with regard to migration management become increasingly fuzzy. this section tracks the evolution of eu external engagement in migration, asylum and border management policies. it addresses the questions of how and to what extent the eu has achieved actorness in the observed domains. in doing so, it builds on the theoretical framework developed by bretherton and vogler (2006), which defines actorness in terms of opportunity, presence and capability. opportunity: the external context opportunity is understood as ‘the external policy context’ (bretherton & vogler 2006: 24) of the migration, asylum and border management domains, e.g. the global institutional setting, that is the existence of an international governance architecture, and the global interest and norms constellation. regarding the global institutional setting, the competence to regulate movements of people across national borders has long been considered as a core component of sovereignty and as an exclusive prerogative of sovereign states (anderson 1996). it is not surprising, therefore, to observe the absence of well-established multilateral frameworks in the three policy areas researched. since the 2000s, however, the international arena witnessed the quick development of a ‘bottom-up’ global migration governance framework, which has been labelled ‘substance without architecture’ (aleinikoff 2003: 467). discussion fora and focus groups have been created to addresses the challenges related to migration and asylum law, mostly leaving border management policies up to states. the most recent initiative in this sense is the new york declaration, issued by the un general assembly on september 2016. the document seeks the establishment of a comprehensive refugee response framework, apt to implement more systematic and sustainable action benefitting both refugees and their hosts. furthermore, the new york declaration sets up the un commitment to adopt a global refugee compact in 2018, with the goals of easing pressures on host countries, enhancing refugee self-reliance, expanding third-country solutions and supporting conditions in countries of origin for return (un 2016: 3). concerning the global interest and norms constellations, migratory flows contribute to shaping the external environment and may produce incentives for policy-making. the so-called ‘migrant and refugee crisis’ the eu has been struggling with since 2014 provides an emblematic example. increased arrivals of non-eu citizens seeking refuge and political asylum have called into question shared understandings of acceptable behaviour – that is, international norms – and led to a greater divergence of interests among the involved actors in the region, including the eu, turkey and russia. while these actors seem to share a hard security interest in curbing irregular migrants’ inflows in order to minimize perceived threats to their internal security and welfare systems, understandings of international obligations regarding asylum seekers largely differ across the area. on the one hand, the eu defends the abstract right of every individual fleeing persecution to apply for asylum in a member state. on the other hand, the eu has so far been hosting only a small fraction of displaced people from on-going conflict scenarios, while the other regional actors such as jordan, lebanon, iraq and turkey have been considerably higher amounts of migrants without, however, granting formal refugee status (emiliani 2016). the varied constellations of interests and ideas among sending, transit and receiving countries and the eu has led to ‘multi-layered approaches to migration management’ (betts 2008). the assessing the components of eu actorness e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 22 most successful ones have led to the creation of regional migration regimes, addressing shared concerns and interests related to the mobility of workers and people as an integral part of common market-building, as in the case of the latin american southern common market (mercosur) and the economic community of west african states (ecowas). presence: the eu’s acquis in migration, asylum and border management defined as the ‘ability of the eu to exert influence externally’ (bretherton & vogler 2006: 27), eu presence includes an assessment of what the eu stands for in a given domain, expressed in its legal and political acquis in this policy field. while the lisbon treaty increased eu shared competence in migration, asylum and border management policies, law-making in these three areas is still not fully harmonize at eu level. for instance, the principle of subsidiarity, which allows the eu to act only when the policy goal can best be achieved at the union level, still allows eu member states to retain a strong grip on the regulation of migration policies (monar 2012: 25). the eu’s current approach on legal migration ‘consists in adopting sectorial legislation by category of migrant’ (chateau 2016: 3). the eu has showed quite some remarkable agency law making with regard to legal immigration of third country citizens, as it is proved by the several directives issued on the right to reunification of regular migrants’ family members (2003/86/ec), immigration of highly skilled workers (2009/50/ec), employment of seasonal workers (2014/36/eu), intra-corporate transfers of employees (2014/66/eu), entry and residence of third-country nationals for the purposes of research, studies, training, voluntary service and au pairing (2016/801/eu). as regards irregular migration, eu legislation regulates the return of irregular migrants to their countries of origin or transit in the ‘return directive’ (2008/115/ec) and introduced sanctions against employers who infringe the prohibition on employing illegally staying third-country nationals. the situation is very different with regard of eu asylum policies, as no common eu asylum system has so far been achieved. current legislation is limited to setting minimum standards for asylum seekers (sy 2016).2 council directive 2005/85/ec on minimum standards on procedures in member states for granting and withdrawing refugee status lays down the rules regarding ‘safe third countries’ (e.g. not eligible for asylum), which are then decided upon based on national law and procedures in each member state. the eu also sets up the general system of distribution of asylum applications, establishing that asylum seekers should apply for asylum in the eu member state of first arrival (dublin ii regulation). more recently, the treaty of lisbon has introduced a uniform asylum and subsidiary protection status (article 78(2) tfeu). despite the reforms undertaken with the recast of the dublin system (european commission 2017) the current system has proved insufficient to face the challenges brought about by the increased amounts of requests for asylum submitted to several eu countries since 2015. the management of the eu’s external borders is the area in which the eu has taken the most evident measures. since the establishment of the schengen system, the development of a joint management of the eu’s external borders has become a priority of the concerned eu member states. tfeu codified the already existing political objective of introducing an integrated external border management system (article 77(1)). in terms of management instruments, a set of centralized databases for the purposes of migration and border management has been established, including the schengen information system (sis), the visa information system (vis) and an european database for information-sharing (eurodac). also, the eu has introduced a financial burden-sharing mechanism to support the countries at the external borders, the internal security fund: borders and visa (2014-2020). 2 these rules are set out in the directive on minimum standards on granting temporary protection (2001), dublin ii regulation (2003), directive on minimum standards for the reception of asylum-seekers (2003), directive on minimum standards for the qualification of refugees (2004), directive on minimum standards on asylum procedures (2004). 23 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 the commission has then proposed the establishment of an european border and coast guard (ebcg) to react to the so called ‘migrant and refugee crisis’, with a ‘right to intervene’ when a member state is not able to cope with migratory pressure (milt 2016: 3-4). some commentators, such as the slovak prime minister robert fico, have remarked the importance of the ebcg to ‘help us to get back to schengen’ (politico 2016). the adoption of the legislative act establishing the ebcg took less than nine months which, according to the eu commissioner dimitris avramopoulos, was a very quick development in comparison to the standard time of two years to pass eu legislation (eder 2016), providing support to the view that the ‘migrant and refugee crisis’ accelerates the pace of further eu integration in migration, asylum and border management policies. the european agenda on migration (european commission 2015) constitutes the main policy framework for response to the migration challenges. while the agenda does address the external dimension of migration and stresses the importance of cooperation with third countries, it does not make direct reference to the 2011 global approach to migration and mobility (gamm), the current framework for eu external policy in the researched areas. in contrast to the gamm, which does not explicitly mention the root causes of migration, the european agenda on migration seems to put a stronger focus on those underlying causes of migration and how those could be addressed in the long term (european commission 2015a: 7). capability: can the eu react to the external environment? capability refers to those aspects of the eu policy process that constrain or enable external action (bretherton & vogler 2006: 29). this subsection analyses eu competences for external activity, policy objectives, and procedures for external engagement. the eu’s capability to act externally depends on the institutional and legal development in a specific policy field. eu competence to act externally on migration, asylum and border management is explicitly defined in articles 78(2) and 79(3) tfeu. due to the shared competence, member states retain a partial competence since full harmonization has not taken place in most matters (monar 2012:24). with the treaty of lisbon, the eu has strived to develop a more coherent external policy and representation by codifying eu’s capacity to sign readmission agreements with third countries (article 79(3) tfeu) and to manage flows of asylum seekers in cooperation and partnership with third countries (article 78(2) tfeu). however, even after the creation of the european external action service (eeas), obstacles remain. whereas the eeas’ role is to integrate migration into a more strategic foreign policy perspective, dg home is more focused on internal migration priorities, (garcía andrade, p., martín, i. 2015:91). weinar (2011: 7) argues that a mix of budgetary and institutional constraints limits the development of a true external migration policy. for instance, the only financial instrument at eeas disposal is the partnership instrument. the fund can finance migration related activities for strategic countries, but it is not solely dedicated to migration actions. thus, funding for migration policies and instruments is divided among dg devco, dg home, dg near and the eeas. furthermore, member states have different agendas and follow different interests, which forces the eu to act rather as the broker and communicator of this standpoint, than as the one engaged in policy-shaping (weinar 2011: 3). as mentioned above, the current eu external policy framework is formulated under the gamm. the gamm aims to maximize the impact of migration and mobility on development (chateau 2016: 2). the main instruments introduced by the gamm are the mobility partnerships (mps), that combine different policies tools, mainly linking the granting of legal channels of migration and mobility to the signature of readmission agreements. however, being ‘soft policy instruments’ (garcía andrade, p., martín, i. 2015: 30-34) negotiated by the european commission on behalf of willing member states, mps lack widespread backing at the eu level. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 24 the extent and the forms of eu external engagement the analysis of the three components allows for an assessment of eu actorness on the three domains. overall, opportunity seems conducive to emerging eu actorness in the migration and asylum policy fields, but only to constrained actorness in border management. the absence of an institutional, multilateral framework to address migration and asylum issues gives room to the eu to potentially fill in the role as the main regional institution. the external pressure brought about by the so-called ‘refugee crisis’ seems to enhance the opportunity for eu action in the three domains analysed. as heightened migratory inflows are perceived by public opinions and policy makers across europe as threats to the stability of eu and to the welfare systems of member states (de geus et al. 2016), the eu has been claiming an increasingly stronger role to play. evidence for such is provided by the entrepreneurship displayed by the council in the signature of the so called ‘eu-turkey refugee deal’, or by the rather assertive tone used by the commission in key documents such as the ‘european agenda on migration’, that in its introduction states: ‘it is clear that we need a new, more european approach. this requires using all policies and tools at our disposal – combining internal and external policies to best effect. all actors: member states, eu institutions, international organisations, civil society, local authorities and third countries need to work together to make a common european migration policy a reality.’ (european commission 2015). the analysis of eu presence leads to similar findings, although the extent of eu actorness varies considerably across the three domains analyzed. eu external engagement appears rather weak in asylum policies, due to the lack of a harmonized framework to deal with the challenges brought about by increased inflows of asylum-seekers. the so-called ‘dublin system’ (with its multiple recasts) has not proved sufficient to engage external actors in an efficient way. eu presence appears moderately developed in migration policies, thanks to framework strategies such as the european agenda on migration, that foresee operative measures to reach out to third countries and non-eu citizens. finally, eu presence seems quite strong in the border management policy area, thanks to the creation of the ebcga and the policy framework established by gamm and in particular to the signature of mps including agreements on readmission of third country nationals. the capabilities of the eu in migration, asylum and border management external action are largely shaped by their nature as a shared competence of the union. eu capability is rather developed when it comes to migration management. the eu has a clear mandate to enter into readmissions agreements (see article 79(3) tfeu) with third countries and to tackle incentives to work irregularly on the eu market. regular migration, however, is only regulated on a sectorial basis. this impacts also the capability to act externally for the eu’s overall external migration policy, since some of the policy instruments such as mps combine incentives such as regular migration with more coercive measures such as readmission agreements. asylum is the policy area where only minimum standards have been agreed upon at the eu level. the eu has been struggling to agree on quotas for distribution and a common system, as this is met with strong resistance from some member states. this, in turn, also limits eu external capability when it comes to negotiating agreements with third countries. for instance, the socalled ‘eu-turkey refugee deal’ rests upon the eu promise to take in a refugee in return for each refugee who was sent back to turkey. since the eu cannot impose quotas on the member states, it has to rely on voluntary quotas, which are lower than the numbers needed to ensure that the eu can meet its obligations under the agreement. as the graph below shows, in this analysis eu activities range from the mere (unintended) radiation of internal policies across borders, to an externalization of eu policies for the purpose of creating broader spaces in which eu rules apply, to the integration of eu (internal and/or external) 25 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 policy objectives into other external policies than the one corresponding to the original internal policy, often referred to as mainstreaming, to the most developed form of external engagement – that exists at present time only in theory: a full-fledged eu ‘sectorial diplomacy’. currently, the externalisation of eu internal policies appears to be the most recurring form of eu external engagement. with respect to migration policies, the gamm seeks to institutionalize collaboration with third countries on a variety of migration-related issues. on the one hand, the document acknowledges eu labour market shortages due to member states’ ageing population, as well as the need for qualified labour. on the other hand, it highlights that increased influxes of irregular migrants are likely to be successfully addressed only if a genuine cooperation with third countries is established, for instance through mps aimed at facilitating legal migration for specialized workers from partner countries in exchange for a firm commitment to readmit irregular migrants found on eu member states’ territory. the agency here lies with the commission, which negotiates mobility partnerships on behalf of member states, while the latter retain the right to opt out of these agreements. with regard to asylum policies, the eu engages in advocacy activities to promote adherence by third countries with eu values and provides humanitarian aid and capacity-building to third countries hosting considerable numbers of asylum-seekers, as well as resettlement schemes to share third countries’ burden to host refugees. a telling example in this sense is the chapter on asylum included in the 2016 so called ‘eu-turkey refugee deal’: the advocacy dimension is found in the eu request that turkey – that is not part to the geneva convention and is therefore not bound by international law on refugees – should grant syrian asylum seekers a temporary protection status. the economic aid and solidarity dimensions are accounted for by the financial disbursement under the facility for refugees in turkey instruments that will reach 6 billion euros transferred to turkey in 2018 (european commission 2017), as well as the relocation scheme put forward by the european commission to resettle syrian refugees from turkey to eu member states. regarding border management policies, perceived challenges linked to the influx of refugees and migrants, as well as heightened security concerns, have triggered strong reactions and a shift towards more direct operational eu support to member states and collaboration with third countries. in this field, the eu relies on its ad hoc agencies to achieve treaty objectives. ebcg has so far signed 17 working arrangements with countries from all over the world focusing on the establishment of operational cooperation in several fields of action. the working agreement with e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 26 ukraine, for instance, sets out a structured dialogue on the operational cooperation in border-related matters that includes daily contacts via agreed points of contact and the establishment of expert working groups will be established with the objective to facilitate measures taken by frontex and the state border guard service of ukraine (frontex 2007). frontex also takes part in other gamm instruments such as mobility partnerships, camms and migration dialogues. multiple reasons account for such shift from a purely internal dimension to external action. for what it concerns migration policies, the comprehensive approach promoted by the commission and the parliament within the eu needs the implementation of development policies aimed at curbing the need and desire of non-eu citizens to quit their countries of origin in the first place. these policies, while still aimed at the fulfilling the internal objective to reduce migration inflows to the eu, are designed to have an impact on third countries, and inherently require their cooperation. with regard to asylum policies, the eu has an interest in making its partners more accountable in order to make sure that less asylum claims are lodged legally in its member states. the so-called ‘safe third country’ and ‘safe country of origin’ lists, issued by the eu to reduce grounds for asylum claims by incoming migrants, are to be read through these lenses. the same logic applies to the advocacy activities undertaken by the eu vis-à-vis those countries that are not party to the geneva convention – like turkey – with the goal of inducing them to grant a special protection status to asylum seekers. finally, border management policies abide to what lavenex has called the policy of ‘shifting up and out’, that is, to transfer a security-oriented approach to the protection of eu borders to third countries in order to evade the legal constraints that eu liberal democracies oppose to the rejection of unwanted migrants (lavenex 2010: 332). explaining the emergence of eu external engagement the emergence and evolution of eu external engagement in the three domains researched can be explained with reference to several key factors related to, first, the notions of eu opportunity at the international level and, second, the notion of eu capabilities and presence enabling or constraining the union’s external action3 multiple external crises as pulling factors for external engagement international crises such as the wars in syria (2011-), libya (2011-) and donbass (2014-), as well as the political unrest brought about by the so-called arab spring (2011) and the change of environmental conditions affecting in particular the area of sub-saharian africa had a strong impact on migratory flows of individuals towards the eu. from a neo-realist perspective, increased arrivals of foreign citizens pose a hard security challenge to member states that find an interest in cooperation at the intergovernmental level to protect their power. such interpretation would explain why the most established domain for eu external engagement is the cooperation with third countries on border management. members states have long been engaging in the externalisation of their border protection to third countries, as it is shown for instance by the bilateral deals struck in 2008 by french then-president sarkozy and his tunisian homologue ben ali (mikail 2011: 4) or italian then-prime minister berlusconi and lybian then-president gheddafi (camera dei deputati 2009). the shift to the european arena is analysed by lavenex in her seminal work on ‘shifting up and out’ responsibility for immigration control (lavenex 2010) as a strategy for institutional proponents of a security-oriented approach to migration management in the member states to build common grounds for cooperation without compromising on national asylum and immigration systems. in other words, ‘escape to europe’ for national executives, accounts for as an evidence of ‘venue-shopping’ (guiraudon 2000) from a realist perspective, that is to say, the need to find a political arena less constrained by the legal and normative constraints present in eu liberal democracies’ national arenas. therefore, whereas internally the move towards 3 this section is built on the findings of emiliani & linck (forthcoming). 27 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 communitarization of policies is met with reluctance towards transfers of sovereignty, external intergovernmental cooperation is on the contrary understood as a tool to readdress national executives’ control over borders. this would explain the entrepreneurial role taken by the council in the negotiations over the so-called refugee deal with turkey in march 2016. liberal theories and constructivism can, on the other hand, account for the constraints currently limiting the full development of an external dimension of eu migration and asylum policies. neoliberal institutionalists would argue that constraints to the establishment of international institutions regulating asylum policies are explained through the lack of strong societal pressures aimed to that end at the member states level. increased policy coherence as the pushing factor for external engagement at the eu level, the drive for a stronger external engagement is described by liberal intergovernamentalist theory with the eu strong bargaining power vis-à-vis third countries when compared to single member states. proponents of this school of thought maintain that integration of national policies at the eu level (both at the internal and external level) happens insofar there is an aggregation of member states preferences and relative bargaining power on specific issues (moravcsik 1993: 479). evidences for eu migration policies can be found in the case of mps, negotiated by the european commission on the behalf of the interested member states. neo-functionalists argue that the development of an external dimension of eu immigration policies as a spill-over of the internal market and its four freedoms, the free movement of persons within its borders only being possible if external borders are effectively protected and if some basic common rules regulating the movement of third-country migrants are in place (guiraudon 2000: 254). the need for eu external action has been further exacerbated with the entry into force of the schengen in 1995, and the later integration of the schengen acquis into the eu framework. while the neo-functionalist logic explains the emergence of the external dimension of eu immigration policies, it may also explain why eu migration policies remained limited to certain areas within the policy area, which were necessary to allow the single market to function. a comprehensive approach to migration policy was not possible due to institutional and bureaucratic limitations, as well as the different agenda of national policymakers. many aspects of the broader migration agenda, such as access to the labour market for third world, social policies and regular economic migration for many categories of individuals are still under the exclusive competence of the eu member states (weinar 2011: 2). the last strand of theoretical explanations for eu external engagement relies on the constructivist conceptualisation of europe-as-a-power, that is to say, the expansion of eu influence outside its borders by virtue of the values and norms intrinsically related to its presence. thus, the notion of market power europe (mpe), that tries to explain eu’s external engagement by its attempt to externalise eu social and internal market-related regulatory policies, would interpret eu directives on third country nationals as a way to provide the single market with highly specialised workforce and the provisions on higher flexibility and mobility contained in the gamm a legal tools to acquire cheap main oeuvre. pushing this theorization to its limits, even the eu official ‘inclusive’ discourse on refugees, built on the support of large sectors of the european private sector, could be thus understood as a tactical move to provide cheap labour force to the internal market. on the other end of the conceptualisation of the external engagement as an eu instrumental tactic lies the notion of normative power europe (npe). according to ian manners, who developed the concept, the eu is defined on the international stage by the fundamental values inscribed in its founding treaties (manners 2002: 252), that allow it to shape the identities and behaviours of the actors interacting with the union. from a npe perspective, then, the eu effort to uphold an international protection regime for refugees worldwide is the product of the influence the union exercises beyond its borders by virtue of its commitment to human dignity, freedom and rule of law. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 28 towards the establishment of an ‘eu migration diplomacy’? this article examined the impact of external events on eu’s external engagement in the areas of migration, asylum and border management policies. while the creation of an afsj was already foreseen in the 1992 maastricht treaty, eu’s internal legal and policy acquis has long remained constrained with regard to migration, asylum and border management policies, so that key decision have been taken at the intergovernmental level until very recently. however, recent challenges brought about by increased inflows of third country nationals – and attached perceptions of threats to eu member states’ reception systems– have contributed to the quick development of eu actorness in the researched domains. the analysis carried out showed how the three policy domains researched, although closely interlinked, present distinct extents of actorness and produce different forms of eu external engagement. while external events such as the so-called ‘migrant and refugee crisis’ open up the window for an increased role of the eu as a global actor in devising an international asylum policy, its scarce legal capabilities sharply constrains its actorness. with the inclusion of the goal of establishing a ‘more effective migration policy’ in the june 2016 global strategy for the eu’s foreign and security policy (eeas 2016: 28), it appears certain that the union will increase in the next future its external engagement with third countries in the areas of migration, asylum and border management, so that the border between its internal and foreign policies will become even more fuzzy. whether this process will be conductive to the establishment of a full-fledged sectorial diplomacy rests to be seen and depends on the possible occurrence of a combination of internal and external events. first and more important, the reconciliation of the interests and tensions existing among the three domains. as long as justice and interior ministries who lead the externalization of border management will not take into account the humanitarian and development actors’ stake in the establishment of an international asylum system, as well as the stakes of business private and institutional actors in a migration policy functional to the internal market, chances for an eu migration diplomacy will remain constrained (emiliani 2016). second, the impact that political events happening worldwide will have on the union. the analysis carried out in this article has highlighted how the so-called ‘migrant and refugee’ crisis that has been strikin europe since 2015 has proved instrumental to the enhancement of the external dimension of eu border management policies. eu migration and asylum policies, on the opposite, have been affected negatively by the crisis, marking a partial resurgence of nationalist claims at the member state level and intergovernmental decision-making at the eu level. however, other kinds of political crises are also likely to affect the way eu’s immigration policy will evolve. the reaction of eu member states to the exit of the united kingdom from the union and to the foreign policy devised by the trump administration in the u.s., with its tough stance on immigration and its commitment to withdraw from negotiations on a trans-atlantic partnership treaty with the eu, will have existential consequences on eu migration, asylum and border management policies. will the eu rally around the flag in times of quick changes on the international political stage, or will member states attempt at making sense of the current transformations by advocating the return to national and local solution to global challenges? the question concerns as much the future of the eu migration, asylum and border management policies as that of the union’s itself. conclusions references aleinikoff a. & v. chetail (eds) (2003) 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(2017), asylum policy, fact sheet on european union, available at http://www.europarl. europa.eu/atyourservice/en/displayftu.html?ftuid=ftu_5.12.2.html, january. united nations (2016), resolution adopted by the general assembly on 19 september 2016, 71/1. new york declaration for refugees and migrants, new york, 22 september waltz, k. n. (1979), theory of international politics, new york: mcgraw-hill. weinar, a. (2011), ‘eu cooperation challenges in external migration policy’, background report for eu-us immigration systems (2011/02), san domenico di fiesole (fi): robert schumann centre for advanced studies, european university institute. about the author tommaso emiliani senior academic assistant department of eu international studies & diplomacy, college of europe fields of research interests eu migration, asylum and border management policies, eu anti-radicalisation strategies; european neighbourhood policy; middle east affairs; political sociology; international negotiation analysis address dijver 11, 800 bruges, belgium e-mail: tommaso.emiliani@coleurope.eu 135 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 risk aversion in the board room. an analytical approach on corporate governance of german stock–listed companies knut michelberger university of latvia, faculty of economics and management, department of international economics and business, aspazijas blvd. 5, riga, latvia submitted 03/2016 accepted for publication 09/2016 risk aversion in the board room. an analytical approach on corporate governance of german stock– listed companies eis 10/2016 european integration studies no. 10/ 2016 pp. 135–144 doi 10.5755/j01.eis.0.10.16191 © kaunas university of technology abstract http://dx.doi.org/10.5755/j01.eis.0.10.16191 according to the agency theory, a positive relationship between company performance and good corpo­ rate governance should exist. a broader study of the author of this paper examines a sample of german stock–listed companies whereas germany can be seen as one of the most highly regulated countries concerning corporate governance. the overall purpose of the author’s study is to analyze the effect of supervisory board characteristics and procedures on firm performance. several corporate governance variables such as number of committees, board independency, supervisory board compensation, personal risk liability, etc. are examined regarding their effects on firm performance in terms of firm growth and profitability. two different approaches were selected: (1) a quantitative data analysis, based on financial figures and corporate governance variables, and (2) a survey of supervisory board members out of this sample. the total sample consists of 128 german stock–listed companies. the financial data are obtained from the financial databases providers thomsonone and morningstar. the corporate governance data are also collected from annual reports and from corporate governance compliance statements. according to the german corporate governance codex (dcgk) each stock–listed company has to explain their com­ pliance with the dcgk rules. thus, the dcgk represents a benchmark of good corporate governance and allows collecting objective and comparable quantitative data to estimate the corporate governance level. the main data analysis methods are bivariate analysis and tests for statistical differences (t–test), the latter in particular to find differences between groups clustered by their 5–years total shareholder return (tsr) growth resulting in a tsr top–30 group and tsr bottom–30 group. while the fulfilment of good corporate governance standards over all shows no significant effect on firm performance, this paper focusses on the findings that risk aversion in the board room is increasing as a result of governance regulations and that growth outperformers have a lower degree of risk aversion. it is concluded that an own–risk deductible in the d&o insurance policy leads to risk–averse supervisory board behavior and thus to lower tsr growth. keywords: corporate governance; supervisory board; principal–agent theory; risk aversion; firm performance. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 136 the failure of several corporations such as enron, tyco, parmalat, skandia, lehman brothers, etc. in the last decade shows that firms should undertake additional modifications in their corporate governance (cg) to increase transparency and to assure shareholders’ reliance on management (hermalin & weisbach, 2012, p. 326). a large consensus exists among both ac­ ademics and professionals that new efforts are important to improve corporate governance practices to protect the shareholders’ interests and to stabilize market economy basics, due to the fact that many scholars, economic analysts, and corporate practitioners have linked the severity and increasingly circular nature of financial and economic crises to corporate gov­ ernance failures (sun, stewart, & pollard, 2011, p. 1; gupta, chandrasekhar, & tourani–rad, 2013, p. 86). although several corporate governance codices are introduced in many countries, they are not legally binding but provide recommendations for good corporate governance. the term ‘corporate governance’ summarizes efforts to optimize a company’s management sys­ tem and its monitoring. the concept is based mainly on the agency theory and the problem of information asymmetries. the agency theory’s essence is the separation of management and monitoring. today, corporate governance defines the regulatory framework for management and supervision of companies. good corporate governance should ensure and guide a re­ sponsible, professional, and transparent business administration in the interest of owners and external stakeholders. characteristics of ‘good’ corporate governance are regulations con­ cerning appropriate risk management, procedures, management organization, long–term val­ ue creation, transparency, safeguarding mechanisms to secure the interests of stakeholders, and, overall, a clearly defined control structure. the german government passed the law of control and transparency (kontrag) in 1998 which was one of the first corporate governance laws worldwide. according to section 161 of the german stock corporation act the german corporate governance code applies for all listed companies. the supervisory and executive boards of corporations are obliged to explain annually whether the code is adopted or rejected as a whole or only in parts. insofar, in the german case, an objective benchmark exists to qual­ ify and to examine the several dimensions of ‘good’ corporate governance. the field of study of the author’s thesis is the effect quality of the german ‘good’ corporate governance model on firm performance and total shareholder return. the research problem is whether the ger­ man model is relevant for serving the shareholder’s interest. according to jensen & meckling (1976), a positive relationship between company performance and ‘good’ corporate gover­ nance should exist which is also assumed in general by recent research, while other research­ ers doubt that the highly–regulated european corporate governance models and particularly the german corporate governance model are really serving effectively the shareholders’ inter­ ests. this issue is examined based on a sample of 128 largest german stock–listed companies constituting the research object. the aim of the author’s thesis is to analyze the relationship between essential parts of the german corporate governance model with firm performance of german listed companies and to identify elements with positive and negative effects. to reach this aim, literature review of high–rated academic journals and research publications as well as prior empirical research identified factors, variables and a research design leading to a 13 factors– model developed by the author. the data for these 13 factors are collected by the author through the analysis of 256 annual reports of 128 companies and through a database query to collect data on company financials. additionally, 30 expert interviews with supervi­ sory board members of 15 top–performing and 15 non–performing companies are conducted to get deeper insights into the qualitative (structural and processual) aspects of supervisory board activities and the required competence. the quantitative data are analyzed by means of bivariate correlation analysis, tests for statistical differences (t–test) and multiple regression introduction 137 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 analysis. while the author’s study provides empirical evidence that main elements of the ger­ man corporate governance procedures and regulations are irrelevant for shareholders and stakeholders or is even against their interests, this paper focuses on the results relative to risk aversion in the board room. the ‘theory’ of corporate governance governance is a historic term for the description, evaluation, and comparison of state gover­ nance. the term stood linguistically ‘in competition’ with the term government, and was as such often used as a synonym for government in political literature. however, the term governance was increasingly less used in the political context in the 20th century (van den berghe, 1999, pp. 220–221). however, in the 1970s, the concept of governance revived in american business language through the concept of corporate governance with the focus on corporate responsibil­ ity. a decade later, the world bank introduced the term good governance and thus coined this phrase (wouters & ryngaert, 2005, p. 72). today, corporate governance defines the regulato­ ry framework for the management and supervision of companies. the corporate governance framework is largely determined by legislators and owners (spira, 2002, p. 11), whereas the actual corporate governance design is the supervisory board’s responsibility. the company–spe­ cific corporate governance system consists of the totality of relevant laws, regulations, codes, letters of intent, mission statement, and management habits, and monitoring (oecd, 2010, p. 34). however, there is still no common understanding or a single definition of what exactly cor­ porate governance means or covers (stiglbauer, 2010, p. 9). academic literature discusses good corporate governance and the improvement of existing corporate governance. good corporate governance should ensure and guide a responsible, professional, and transparent business ad­ ministration in the interest of owners, but also of external stakeholders (i.e., creditors, sales and procurement markets, society, citizens) (spedding, 2009, pp. 500–503). discussed characteristics of ‘good’ corporate governance are (1) appropriate risk management, (2) formal and transparent procedures for the proposal and election of board members, (3) functional organizational man­ agement, (4) management decisions focused on long–term value creation, (5) transparency in internal and external corporate communications, (6) safeguarding mechanisms to secure the interests of various groups (stakeholders), and, overall, (7) a clearly defined management and control structure (passenheim, 2010, p. 11). governance relies on its effectiveness for the trans­ parency of financial information and the transparency of management decisions so that external ‘market’ mechanisms can be effective through disciplinary effects on the company. in addition to these external market monitoring mechanisms, the agency theory discourse has shaped the internal boardroom reform (bratton, 2012, p. 102). perhaps the most significant contribution in this context came in the form of the widespread adoption of performance–based executive com­ pensation schemes (bratton, 2012, pp. 111–115), which follows directly from the assumption that the executives self–interest must be aligned with the shareholders’ interests, for exam­ ple, through value–based key performance indicator systems, rewarding an increase of added economic value, etc. (zarbafi, 2011, pp. 61–63).the subject of ‘good’ corporate governance has gained in importance also in germany since the 1990s. the german government passed the law of control and transparency (kontrag) in 1998, which was the first actual corporate governance law in germany, which extended the liability of directors, supervisors and auditors. the core of this law is a provision forcing companies to introduce and operate company–wide early warn­ ing systems and to publish statements about risks and the company’s risk structure in a spe­ cial report attached to the annual report. in 2000, the federal government set up a government commission on the modernization of company law, due to the bankruptcy of one of germany’s largest construction companies. among other things, this commission recommended develop­ e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 138 ing a ‘best practice code’ for german companies. for this end, the ‘government commission on the german corporate governance code’ was formed as a self–regulation measure of the economy in 2001. the commission is funded by the private sector and completely independent in their decisions. the government cannot give instructions for the design of the code. (jannott & frodermann, 2014, pp. 266–268). the commission does not include any representative of the government or politics and released the “german corporate governance code” in 2002. due to the subsequent publication in the federal law gazette the declaration obligation in section 161 in the stock corporation act applies for listed companies. the supervisory and executive boards of corporations are obliged annually to explain if the code is adopted as a whole or only parts of the code are followed (so–called qualified deviation explanation or selection solution). (jannott & frodermann, 2014, pp. 266–268). the declaration must be made permanently available to the shareholders and all other inter­ ested parties on the company’s website. the german corporate governance codex (dcgk) is a reaction to the criticisms of the german corporate ‘constitution’ expressed particularly from international investors such as, for example, the lack of transparency, as well as inadequate focus on shareholder interests and of board professionalism, diversity, and independence. the aim is also to unify and standardize measures concerning the fulfillment of ‘good’ corporate gov­ ernance (rode, 2009, p. 110). the question remains which are the essential elements of ‘good’ corporate governance. here, the empirical research in this field should provide some answers. prior empirical research this section analyzes the state of empirical research on the relation of good corporate gover­ nance and firm performance with respect to single parameters of corporate governance such as board size, role duality, independent directors and firm performance. the sarbanes–oxley act can be seen as a turning point after which in many countries a lot of changes can be observed. many countries have introduced corporate governance codes as a kind of soft law since 2002. in addition, laws were modified with regard to the requirement to supervisory boards in many countries. in this respect, the post–sarbanes–oxley period is characterized by a strong transna­ tional standardization of corporate governance requirements. whereas the pre–sarbanes–oxley period was characterized by significant differences between companies in terms of corporate governance both between companies within a country and between companies of different coun­ tries, the post–sarbanes–oxley period is characterized by a cross–country homogenization of corporate governance codes and practices (bainbridge, 2016, p. 90, p. 269). dalton et al. stated in a meta–analysis of empirical studies that both the supervisory board com­ position (insider/outsider proportion) as well as leadership structure do not have any effect on financial performance (dalton, daily, certo & roengpitya, 1998, p.282). since then, further studies have been published which come to different results. overall, a positive effect of corporate gover­ nance on firm performance must be assumed. however, the number of studies which determine no or a negative impact is not negligible. most of the studies do not use a standardized general measure to define good corporate governance. they measure single aspects of a corporate gov­ ernance system such as the leadership structure (castaner & kavadis, 2013), board ownership (carline et al., 2009), or board independence (nicholson & kiel, 2007) and their impact on firm performance. some studies determine a relationship between only two variables, such as finan­ cial performance with board or management structures (krivogorsky, 2006). the findings of such studies with a reduced set of variables are mostly that a single aspect of corporate governance has a positive impact, others not. brenes et al., for example, determine that the more intensive the evaluation of management performance by the board is the better is the company perfor­ mance to vis–à–vis competitors (brenes, madrigal & requena, 2011, p. 282). nicholson & kiel 139 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 show that an “independent board” has a positive impact on firm performance (nicholson & kiel, 2007). others, such as bauer et al. (2004), larcker et al. (2007), bhagat and bolton (2007), daines et al. (2008), renders, gaeremynck, & sercu (2010), and gupta, chandrasekhar & tourani–rad (2013), use corporate governance rankings to compare the corporate governance ‘culture’ of countries, in which companies are embedded, with the overall performance of companies in this country. thus, they are not interested in measuring the impact of single aspects of corporate governance of company performance. some studies use a very small sample. only bauer et al. (2004), brown & caylor (2006), bhagat & bolton (2007), daines et al. (2008), renders, gaeremy­ nck & sercu (2010), and gupta, chandrasekhar & tourani–rad (2013) use samples with more than 250 companies. taking this into account, the ratio between studies stating a positive impact and studies with neutral or negative impact shows a relatively balanced ratio. additionally, most studies examine only short time periods from two to four years. only gompers et al. (2001) examine a longer time period (from 1990 to 1999). therefore, it seems to be questionable if such short–term studies really measure what they pretend to measure. in recent years, further studies are published concerned the effect of corporate governance on firm performance. due to the growing formalization through country–specific codification the problem of comparability of results arises. consequently, one–country approaches are preferred. thus, conheady et al. (2015) examines only canadian listed–companies, fuzi et al. (2016) focuses only on malaysian listed companies, rose (2016) on danish and akbar et al. (2016) on british companies. con­ cerning the german corporate governance code and its effect on firm performance, only a few empirical studies were published in the last five years. stiglbauer (2010) has examined a set of 113 companies from the dax30, tecdax, mdax and sdax regarding firm–specific characteris­ tics. he argues that the implications of his study are valid for all german listed companies. he has measured firm performance in terms of profitability using the return on assets (roa), total shareholder return (tsr) and return on equity (roe). stiglbauer (2010, p. 4) mentions six prior studies examining the effect of corporate governance on firm performance among german com­ panies whereas all these studies have an observation period prior to 2005 which is three years after the introduction of the first version of the german corporate governance code. stiglbauer (2010), however, has not examined the effect of single corporate governance characteristics and their cumulative effect on firm performance. ebeling (2015) has examined the implementation degree of the corporate governance code and its effect on firm value among companies of the german real estate index (dimax) including 75 companies with an observation period of just a single year (2010). research approach, data and methods according to § 161 german corporate governance codex (dcgk), each stock–listed company must issue an annual statement concerning the company’s compliance with the german corpo­ rate governance codex (dcgk). this declaration must contain the number and reasons for the exceptions explicitly. . thus, the dcgk represents a benchmark of ‘good’ corporate governance and allows collecting quantitative and comparable data to estimate corporate governance level without any subjective factors such as researcher classifications. good corporate governance is observed mainly by deviations from the ‘good’ corporate governance codex as a benchmark provided by the german corporate governance codex and is measured as total number of ex­ ceptions from the codex and as exceptions from selected core elements of the codex. the ger­ man corporate governance codex (dcgk) comprehends 62 sections. only a certain number of sections are selected, which are to be seen as essential parts of ‘good’ corporate governance, based on the factors derived from the literature and empirical research provided by the author. for the purpose of this paper, § 3 of the dcgk, § 3.8 of the dcgk, and § 5 of the dcgk (division e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 140 of supervisory board ‘labor’ regulating the duties) are of special focus. § 3 of dcgk regulates the cooperation between the executive management and supervisory board. however, 99% of the counted exceptions of this sample refer only to § 3.8. this section rules the own–risk deductible included in the directors and officers liability insurance (d&o insurance). dcgk requires: “if the company buys d&o insurance for the board, a deductible of at least 10% of the damage must be agreed up to at least a half times the fixed annual remuneration of the board member. in d&o insurance for the supervisory board, a similar deductible must be agreed upon.” (dcgk, 2015) the ruling idea behind § 3.8 of dcgk is to increase the liability of board members so that board members are, on the one hand, more risk averse and, on the other hand, exercise more caution in their supervisory activities. additionally, board size, number of committees, compensations, etc. are collected as well. some data are calculated based on given financials, such as share of management costs to revenue. the total sample consists of 128 german companies listed in the dax30, mdax, sdax, and tecdax in the period 2005 to 2014 for which the necessary data were completely available. the data source for firm performance metrics is thomson one by thomson reuters and morningstar. the data for qualifying corporate governance are retrieved from corporate gov­ ernance reports, containing the declaration of exceptions to the corporate governance codex, and annual reports containing key performance metrics, the number of board members, board members’ academic degrees, number of committees, performance–based supervisory board compensation, etc. the values are collected from the annual reports and corporate governance compliance statements for the years 2010 and 2014, converging with the financial data that re­ fer on a 5–year period such as 5–year total shareholder return average, 5–year return growth (cagr)1, etc. the financial data are all scaled numerically, as are most corporate governance values. however for this purpose, only some data are nominally scaled. the sample is, particularly in comparison with international key figures, a representative sample. however, it must be mentioned that the sample is dominated by smaller companies due to the fact that already two indices are small companies’ indices, namely the sdax and tecdax. the tecdax is not defined by a market cap threshold, but by segment definition. the sample’s revenue median is eur 1,765m so that 50% of the companies generate lesser than eur 1,765m. instead, the top quartile includes companies from eur 14,534m up to eur 202,445m. additionally, 109 companies generate lesser than 20% of the revenue of the top company, which is volkswagen ag with eur 202,458m. however, from the shareholder’s view, the sample is very profitable with the total sample’s 5–year total shareholder return (tsr) average of 21.8%. furthermore, the sample shows a significantly higher year–over–year growth rate in 2014 than the s&p 500. whereas the sample’s average is 10.3%, the s&p 500 year–over–year revenue growth is 2.83% (csimarket 2015). the research process involves several steps and different statistical tests conducted with the total sample as well as with subgroups. the main data analyses methods are bivariate correlations testing and tests for statistical differences (t–test), the latter in particular to find differences between groups clustered by their 5–year total shareholder return growth result­ ing in a tsr top–30 group and tsr bottom–30 group. based on these data, which are supplemented by several firm performance characteristics such as revenue growth, total shareholder growth, and financial leverage, the following tests are applied: 1 cagr: compound annual growth rate. 141 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 1 testing statistical influence of single board characteristics on firm performance among the total sample. the main data analysis applies pearson’s r as a correlation coefficient to analyze bivariate correlations or cumulative influences of corporate governance characteristics on firm performance through the application of the multivariate regression analysis. 2 testing differences between tsr performance groups: additionally, not only bivariate cor­relations among the total sample are analyzed but also among different groups. the sample is clustered into two different groups. one group, which is named tsr top–30 group (tsr out­ performers), includes the top–30 companies with the highest total shareholder returns among the total sample, while the second group, which is named tsr bottom–30 group (tsr under­ performers), includes the 30 companies with the lowest total shareholder returns in a 5–year period among the total sample. both groups are compared by applying a t–test, to determine the significance of group differences, while among both groups, the same tests are performed as with the total sample regarding bivariate correlations. 3 testing multivariate effects among the total sample: all independent corporate governance variables are included in the final testing to examine their cumulative impact. the multivari­ ate test is conducted to test the influence of the accumulated effects of all corporate governance variables on the total shareholder return (tsr). results while the group statistics of the tsr–30:30–sample indicates that the tsr top–30 companies have smaller supervisory boards, fewer committees and smaller executive boards, pay smaller supervisory board compensations and executive board compensations, but comply lesser with the dcgk (“number of except. § 161”) than the tsr bottom–30 companies, the tsr top–30 group shows a 5–year tsr growth of 38% against –8% among the tsr bottom–30 group. furthermore, the tsr top–30 group shows a double 5–year revenue growth compared with the tsr bottom–30 group. reviewing the changes in the exceptions to the above mentioned rules, it is obvious that the total number of exceptions have not changed significantly. the most significant changes are measured in three different areas: the number of exceptions concerning the d&o own–risk de­ ductible (“# excep. dcgk § 3”) decreased by 28%, while the number of exceptions concerning the link between corporate performance and supervisory compensation (“# excep. dcgk § 5.4.6 sec. 2”) decreased by 24%. instead, the number of exceptions concerning the independence of super­ visory members (“# excep. dcgk § 5.4.2”) increased by 125%, however, starting from a low base level. thus, it can be determined that the sample’s companies increased the subsequent risk for supervisory activities and tied the supervisory compensation more closely to firm performance. instead, the board structure characteristics regarding the committees and the overall structure of cooperation between executive board and supervisory board, the independence of members, etc. remained more or less on the same level. therefore, it can be stated that the regulatory intentions ‘good’ corporate governance are increasingly met by the sample’s companies. these observations have been also confirmed by the multivariate regression analysis performed on the total sample. the multivariate test is executed with the control variables revenue growth, roic, and firm size (revenue 2014 in eur mil.), because the bivariate tests have indicated that, for example, the number of committees, the number of exclusions, etc. also depend, at least partly, on firm size (in revenue 2014 in eur mil.). the model summary shows that the exception from dcgk § 3 is the only variable explaining tsr growth. as mentioned above, this exception results in at least 99% from exceptions to § 3.8. this section rules that an own–risk deductible should be included in the directors and officers liability insurance (d&o insurance) with the objective to in­ crease risk–taking costs. however, the results of the multivariate test do not explain the direction of influence. therefore, the question remains regarding whether the absence or the existence of e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 142 an own–risk deductible influences firm performance in the sense of a causal relationship. the t–test descriptive statistics show that 70 companies of the total sample declare non–compliance with § 3.8 while 57 companies have concluded a d&o insurance contract containing an own–risk deductible. the comparison of the group with d&o insurance contracts containing an own–risk deductible and the group without the own–risk deductible reveals that the group without risk–shar­ ing agreements perform better with a tsr growth of 18% while companies with risk–sharing show considerably lower tsr growth of 8.7% (t–test group statistics). the group differences are highly significant with p 0.002 (independent sample test). thus, it may be concluded that the own–risk de­ ductible leads to risk–averse supervisory board behavior and thus to lower tsr growth. however, on the other hand, it must be noted that this factor has only a low explanatory power regarding the total shareholder return growth, as the results of the multivariate regression analysis has shown. conclusions _ the results of all bivariate analysis of the total sample indicate that none of the single factors show a higher (r > 0.5) and significant correlation with firm performance indicators. therefore, it can be concluded that the selected parameters of ‘good’ corporate governance are not sig­ nificantly relevant for revenue growth and total shareholder return growth. however, this does not mean that they are irrelevant. the examination of the tsr–30:30–sample indicates that the tsr top–30 companies – with the tsr growth of 38% – have smaller supervisory boards, few­ er committees and smaller executive boards, pay smaller supervisory board compensations and executive board compensations, but comply lesser with the dcgk (“number of except. § 161”) than the tsr bottom–30 companies with the tsr growth of –8%. the higher the number of exceptions to ‘good’ corporate governance, the higher the firm performance and the degree of shareholder interest fulfillment in terms of tsr growth and revenue growth. furthermore, the multivariate regression analysis indicates that although the cumulated 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(2011). responsible investment and the claim of corporate change: a sensemaking perspective. wiesbaden: springer http://dx.doi.org/10.1007/978–3–8349–6202–7 about the author knut michelberger dipl. ökonom, dipl. ing. university of latvia, faculty of economics and management, department of international economics and business fields of research interests corporate governance address aspazijas blvd. 5, riga, latvia tel. +41 162 2681417 e–mail: knut.michelberger@kmgib.com editorial note since 2002, institute of europe of faculty of social sciences, arts and humanities (kaunas university of technology) prepares and publishes scientific works under the theme of european processes in the field of politics, economics, law and cultural dimensions. starting 2007 year the journal has got an issn code. at the present the annual scientific journal european integration studies: research and topicalities (issn 1822-8402) is published once a year (in september). the papers published in journal are abstracted and indexed by international databases: ebsco (central & eastern european academic source database coverage list), ebsco (business source complete), ebsco discovery service (eds), doaj (directory of open access journals) and econbib (economics bibliography). papers published in the european integration studies: research and topicalities undergone a formal process of double blind peer review by two appointed external reviewers. the main objective of the journal is to analyse problems and actualities considering european integration processes. the articles are brought under the three main themes. these are social evolution of europe, economics of european union as well as managerial aspects of european integration. it is believe that the articles included in the journal, being selected and reviewed, are of high scientific quality were actual scientific problems are solved, deserve a wide distribution. editors hope that presented new scientific ideas and ways of problems solving will help to develop research not only for academicians and students but and for a wide representatives of society which seek to improve their knowledge in european integration. in conclusion, editors would like to thank all authors of the articles for their willingness to share their ideas with others. rasa daugėlienė, kęstutis kriščiūnas e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 44 role of internet marketing for exporting and not exporting companies (results of recent company survey in latvia) http://dx.doi.org/10.5755/j01.eis.0.10.16282 biruta sloka, ināra kantāne, renāte vidruska university of latvia, riga, aspazijas bulv. 5, lv 1050, latvia submitted 03/2016 accepted for publication 09/2016 role of internet marketing for exporting and not exporting companies (results of recent company survey in latvia) eis 10/2016 european integration studies no. 10 / 2016 pp. 44–51 doi 10.5755/j01.eis.0.10.16282 © kaunas university of technology abstract introduction the aim of current paper is to analyse the role of internet marketing for exporting and non–exporting companies. methods used in research: scientific publications studies, survey of companies in latvia. the survey was conducted from november 2014 to march 2015. the company register data base lursoft is used for survey sample creation. a systematic sampling was applied in the survey to guarantee a ran­ dom selection of units included in the sample. for the analysis of the survey data – descriptive statistical analysis, cross tabulations, mann–whitney u test are applied. the companies’ survey results show that exporting companies and non–exporting companies do not use internet marketing properly, the half of companies home page use only as a business card. about 32% of exporting companies and about 19% of non–exporting companies does not sell the products/services on the internet, but customers can order the product in home page. products/services sell both on the internet and at points of sale about 25% of exporting companies and about 26% of non–exporting companies. theoretical findings and empirical research results indicates that internet marketing could be used more efficient in companies to promote and develop expert. keywords: exporting companies, internet marketing; non–exporting companies, company survey, market promotions. internet marketing has bigger and bigger role as the information technologies development pushes to open new challenges and new options for mere efficient marketing applications, in­ cluding development of internet marketing. there are numerous researches done worldwide to evaluate efficiency of internet marketing in different fields and branches of business. according comparative statistical data latvia is not applying internet as efficient as other countries and this has motivated to make deeper research on aspects of internet marketing for exporting and non–exporting companies. the aim of the current research is to analyse the role of internet marketing for exporting and non–exporting companies. tasks for the research: analyses theo­ retical findings of the role of internet marketing and examine different views of the companies on internet marketing and make comparisons of the indicators for exporting and non–exporting 45 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 companies. research methods applied: scientific publications studies, survey of companies in latvia and comparing results of the survey for the exporting and non–exporting companies. for data processing of survey results there are used descriptive statistics: indicators of central tendency and location (arithmetic mean, mode, median) and indicators of variability – range, standard deviation and standard error of mean, cross tabulations and mann–whitey u test. main findings are that companies could use internet marketing more efficient. internet marketing aspects are on researcher’s agenda in many countries as internet takes more and more significant place in everyday life around the globe. more and more activities are per­ formed via internet and internet marketing has significant role in attraction of consumers, export promotion and realization of goods and services. aspects of applications of information techology in developing business models of export are analysed from several aspects (fazlollahtabar, 2012) where the proposed system is composed of marketing, business models and web optimisation. antendents and effect of internet implementation for trade shows are important research topic as trade shows are noticed as one of the most effecient trade promoters (ling–yee, 2010) where ling–yee also have examined the influence of the usage of the internet for trade show marketing on performance of trade shows. ling–yee has indicated that the key lesson for exhibitors is to adopt the right approach to internet marketing – using the internet primarily for “informational and com­ municational purpose” in pre–show promotion, and for “customer service and support purpose” in post–show follow–up. online activities and export performance for the smaller firm has a specific capability perspective – analysed and defined as the extent to which an export firm’s objectives are achieved via online activities (morgan–thomas, 2009). rapid internationalisation enabled by the internet and a knowledge intensive company has better chances for export development (arenius, sasi, gabrielsson, 2005). the nature of trade relations between different countries, like lithuania and russia depends also from political decisions – like trade barriers. investigation on trade barri­ ers is an important issue as often economic aspects are not stressed when explaining political de­ cisions on introduction of trade barriers (daugeliene, 2014). internet marketing and export growth has been analysed in many countries and by many authors, like in chile (bianchi, mathews, 2016) where it was examined whether the internet has an impact on the export performance of firms from emerging markets. bianchi and mathews study has tested a conceptual model that includes the effect of internet marketing capabilities on export market growth in an emerging market on a cross–national sample of export firms from chile – the current findings of authors have indicated that internet marketing capabilities positively influence the availability of export information, which in turn impacts the development of business network relationships and export market growth. efficiency and exports in country prospective is analysed on different aspects including website information and export performance (moral–pajares, et al, 2015). building and leveraging informa­ tion in dynamic environments and the role of information technologies infrastructure flexibility as enabler of organisational responsiveness and competitive advantage of efficient internet marketing applications (bhatt, et al, 2010).. the envolvent of criteria for assessment of innovation expression for state level in lithuania (daugeliene, juocepyte, 2012). specifics of cross–border trade are on importance where researchers also have made their investigations (gomez–herrera, et al, 2014). the influence of internet–marketing on marketing competencies and export performance are eval­ uated and examined (prassad, et al, 2001). different approaches could be used in different indus­ tries for distribution channels like as sophisticated computer– and internet–mediated marketing practices as the larger proportion of entrepreneurs in developing economies still deploy largely informal marketing practices and several countries have adopted the marketing revolution to vary­ ing degrees, consistent with prevailing level of development (ogunrin, inegbenebor, 2015). studying theoretical findings e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 46 and prioritising the effective elements of internet advertising on e–marketing has its specifics and research findings like as external perspective on using internet and new technologies for electronic communication together with traditional media for receiving and delivering services to customers as e–marketing is considered as the pulse of strong exports in modern global markets and underlying employment, production and improvement as well as foreign exchange incomes and economic development – one of the bases for e–marketing provided by internet is internet ad­ vertisement: internet ads include notice messages to internet users by websites, e–mail, support ads software, text messaging and mobiles with internet connection feature (doostar, mohamma­ di, 2014). the internet as an alternative path to internationalization – examinations of the drivers and performance outcomes of two patterns of internet use supporting export marketing: the in­ ternet as an alternative to a physical presence and the internet as a sales channel are questions investigated by researchers and stating that traditional exporters are likely to use the internet as a complement to, and thus to support, existing physical operations with foundp practical implica­ tions that managers should focus on relationship building and on–site learning, instead of putting too much emphasis on the internet as a substitute for a physical market presence and authors develop a framework and explore previously untested relationships that suggest the internet may play a complementary role in firm internationalization. (sinkovics, et al, 2013). the digital scoreboard is published by european commission and shows progress of european countries digital economies. for this purpose european commission uses multiple indicators that are secondary statistical data gathered from several sources. data are openly available for down­ load online (european commission, 2016a,b) and also contains some indicators related to internet marketing (social media and web site usage, advertising in internet). in general latvia shows quite low overall performance (see table 1). small and medium enterprises (smes) represent the larg­ table 1 latvia internet marketing data compared with eu28 average, % of enterprises, 2015 indicator (indicator code) latvia (rank) latvia (value, %) average eu28 value, % smes large smes large smes large enterprises using social media (e_sm_any ) 25 14 27.01 64.90 38.36 62.82 enterprises having a web site or homepage (e_web) 25 17 58.16 94.56 74.75 94.05 use two or more social media (e_sm_ge2) 24 14 9.55 42.42 17.01 43.50 enterprises exploiting the “business to consumers” opportunities of web sales (e_aws_gt1_b2c_gt10ws) 23 6 4.22 13.75 6.39 8.11 enterprises selling cross–border to other eu countries (e_aeseu) 23 18 3.92 17.71 7.52 23.19 enterprises using any computer network for sales (e_esell) 22 23 8.30 21.52 16.15 37.98 enterprises paying to advertise on the internet (e_ads ) 18 (out of 23) 6 (out of 23) 27.57 50.31 30.28 42.21 enterprises having a website with some sofisticated functionalities (e_webf2) 15 5 56.17 87.40 55.04 99.93 source: european commission secondary data (european commission, 2016 a, b) 47 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 est part of all enterprises, employ an increasing number of persons and form about 25% of gdp in latvia. statistical data related to internet marketing first suggests that results of large companies are much higher compared with smes (statistically significant difference). second, difference be­ tween performance of smes in latvia and performance of smes in eu28 on average is also very high. thus latvian smes are performing worse than large companies. moreover, two other baltic states have higher values – lithuania slightly outperforms latvia, while estonia is very close to the leaders. thus the research of different internet marketing usage among latvian companies in different aspects is very important. the empirical research showed that about 45% of exporting companies and about 52% of non–ex­ porting companies in latvia considered that the role of internet marketing was significant, aver­ age evaluations (arithmetic mean, mode and median) were around 8 points (in evaluation scale 1 – 10). the non–exporting companies evaluated significance of internet marketing slightly higher than exporting companies (indicated by arithmetic mean, mode and median). the evaluations on internet marketing significance were quite different (indicated by indicators of variability – range, standard deviation, standard error of mean). however, the evaluations of exporting and non–exporting companies’ on internet marketing significance did not differ statistically significant as proved by the results of the mann–whitney test (p=0.427). the main statistical indicators of manager’s evaluations on internet marketing significance of exporting companies and non– exporting companies’ are reflected in table 2. about 46% of exporting companies and non–exporting companies considered that internet mar­ keting impact on marketing and sales objectives was significant, average evaluations (arithmetic mean, mode and median) were around 8 points. the exporting companies and non–exporting companies’ evaluations on internet marketing impact on marketing and sales objectives were similar (arithmetic mean 6.8 and 6.7, mode 8, median 7). the evaluations of exporting companies and also non–exporting companies were quite different (indicators of variability). the main sta­ tistical indicators of exporting companies and non– exporting companies’ evaluations on internet marketing impact on marketing and sales objective are reflected in table 3. the evaluations of exporting and non–exporting companies’ on internet marketing impact on marketing and sales objectives did not differ statistically significant as proved by the results of the mann–whitney test (p=0.427). empirical research results and discussion table 2 statistical indicators of managers evaluations on internet marketing significance statistical indicators exporting companies non–exporting companies arithmetic mean 6.9 7.0 standard error of mean 0.176 0.180 median 7 8 mode 7 8 standard deviation 2.304 2.444 range 9 9 minimum 1 1 maximum 10 10 source: authors’ calculations based on manager’s survey conducted in 2015 (n=406), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 48 table 3 statistical indicators of managers evaluations on internet marketing impact on marketing and sales objectives statistical indicators exporting companies non–exporting companies arithmetic mean 6.8 6.7 standard error of mean 0.165 0.164 median 7 7 mode 8 8 standard deviation 2.159 2.2 range 9 9 minimum 1 1 maximum 10 10 source: authors’ calculations based on manager’s survey conducted in 2015 (n=406), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant. the exporting companies and non–exporting companies’ significance of internet marketing role for gaining feedback, for analysis of digital communication channel efficiency, for market­ ing expenses reduction, for increase sales quantities and for brand/product/company popu­ larisation have evaluated similarly. the highest evaluations on internet marketing role respon­ dents of both companies groups (exporting companies and non–exporting companies) gave for brand/product/company popularisation, slightly higher evaluations gave non–exporting companies (arithmetic mean respectively 7.7 and 7.6, mode 10, median 8), the respondents evaluations were quite different (indicators of variability). the exporting companies and non–exporting companies high evaluated also internet mar­ keting role for increase sales quantities, the evaluations were quite different. the exporting companies slightly higher than non–exporting companies evaluated internet marketing role for marketing expenses reduction and analysis of digital communication channel efficiency. however the differences in the evaluations of exporting companies and non–exporting com­ panies on internet marketing role for gaining feedback, for analysis of digital communica­ tion channel efficiency, for marketing expenses reduction, for increase sales quantities and for brand/product/company popularisation were not statistically significant (results of mann–whit­ ney test, p>0.291). the main statistical indicators of exporting companies and non–exporting companies’ evaluations on role of internet marketing are reflected in table 4. the use of internet marketing possibilities exporting companies and non–exporting compa­ nies evaluated similarly – as middling, the evaluations were quite different. the main statis­ tical indicators of exporting companies and non–exporting companies’ evaluations on use of internet marketing possibilities are reflected in table 5. the company home page used only as a business card a nearly half of companies (about 45% of exporting companies and about 52% of non–exporting companies). about 32% of exporting companies and about 19% of non–exporting companies do not sell the products/services on the internet, but customers could order the product in their web page. companies sell products/services both on the internet and at points of sale – about 25% of ex­ porting companies and about 26% of non–exporting companies but on the internet sold about 3% of non– exporting companies and no one of exporting companies. 49 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 4 statistical indicators of managers evaluations on internet marketing role in their companies internet marketing role exporting companies non–exporting companies mean median mode standard deviation mean median mode standard deviation for gaining feedback 6.2 7 8 2.65 6.5 7 8 2.49 for analysis of digital communication channel efficiency 5.4 6 8 2.82 5.2 5 1 2.79 for marketing expenses reduction 6.3 7 7 2.51 6.1 6 5 2.68 to increase sales quantities 7.2 8 9 2.56 7.0 8 10 2.65 for brand/ product/company popularisation 7.6 8 10 2.35 7.7 8 10 2.50 source: authors’ calculations based on manager’s survey conducted in 2015 (n=406), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant. companies with web pages and those who are exporting their goods/services, more often use facebook (60.7%), have blog (15.4%), use google adverts (46.3%), e–mail marketing (45.9%) and use seo optimisation (34.1%) compared with companies that are not exporting (use face­ book – 59.9%, have blog – 55.6%, use google adverts – 39.6%, use e–mail marketing (54.6%) and use seo – only 34.1%). results suggest that exporting companies more often use social media and such tools as seo optimisation, while non–exporting companies more often use banner advertising that is usually more expansive and does not provide feedback from customer as well as direct communications with customer. it is recommended to all companies to follow the latest possibilities and develop­ ments of internet marketing to apply modern and effective tools for internet marketing. table 5 statistical indicators of managers evaluations on internet marketing impact on marketing and sales objectives statistical indicators exporting companies non–exporting companies arithmetic mean 5.4 5.1 standard error of mean 0.186 0.175 median 5 5 mode 3 4 standard deviation 2.333 2.292 range 9 9 minimum 1 1 maximum 10 10 source: authors’ calculations based on manager’s survey conducted in 2015 (n=406), evaluation scale 1 – 10, where 1 – incomplete; 10 – very well. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 50 _ usage of internet marketing can significantly affect companies’ performance. _ latvia lacks behind other european union countries in terms of internet marketing usage. moreover, performance of small and medium enterprises in latvia is highly low. _ the companies’ survey results show that exporting companies and non–exporting companies do not use internet marketing properly. companies’ evaluations for the significance of internet marketing and the impact of internet marketing on the marketing and sales are rather high, but the variability of evaluations are high. _ evaluations of exporting companies and non–exporting companies for the usage of internet marketing possibilities are on average level. _ the half of companies do not use sophisticated web page, but uses it only as a business card. _ the exporting companies and non–exporting companies’ significance of internet marketing role for gaining feedback, for analysis of digital communication channel efficiency, for market­ ing expenses reduction, for increase sales quantities and for brand/product/company popu­ larisation evaluated similarly. the exporting companies and non–exporting companies eval­ uate internet marketing role for brand/product/company popularisation, for increase sales quantities. the exporting companies slightly higher than non–exporting companies evaluated internet marketing role for marketing expenses reduction and analysis of digital communica­ tion channel efficiency. _ the variability of exporting companies and non–exporting companies’ evaluations on internet marketing significance role is high. _ in general results suggest that companies (both – exporting and not–exporting) understand the importance of internet marketing for business, however, they do not use fully internet marketing potential for some reason. non–exporting companies more often are using banner advertising while exporting companies tend to use social media (facebook, blogs), as well as seo and google adverts more often. conclusions references arenius, p., sasi, gabrielsson, m. 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(2009). online activities and ex­ port performance for the smaller firm: a capability perspective. european journal of international man­ agement, 3(3), 266–285. http://dx.doi.org/10.1504/ ejim.2009.026992 ogunrin, f.o., inegbenebor, a.u. (2015). distribution channels and internationalization in a developing country clothing industry. journal of research in marketing and entrepreneurship, 17(2), 130–148. http://dx.doi.org/10.1108/jrme–03–2014–0006 prassad, v.k., ramamurthy, k., naidu, g.m. (2001). the influence of internet–marketing on marketing competencies and export performance. journal of international marketing, 9(4), 82–110. http://dx.doi. org/10.1509/jimk.9.4.82.19944 the paper was supported by the national research program 5.2. ekosoc–lv about the authors biruta sloka dr. oec., professor university of latvia fields of research interests internet marketing, application of statistical methods for data analysis, small and medium business, factors influencing business development, internet marketing; was researcher in esf, eraf projects and in the projects of university of latvia. she has headed the euro faculty riga centre. she is member of advisory board of eurostat. she is a member of latvian association of econometrists, member of association of professors of higher education of latvia and the president of latvian association of statisticians address aspazijas bulv. 5, lv – 1050, riga, latvia tel. +371 29244966 email: biruta.sloka@lu.lv inara kantane dr. admin., associate professor with the university of economics and culture, researcher at the university of latvia university college of economics and culture fields of research interests small and medium business, factors influencing business development, employment and it impact on fertility and migration; had been researcher in esf, eraf projects and in the projects of university of latvia; member of latvian association of statisticians address lomonosova st.1 c.5, lv – 1019, riga, latvia tel. +371 29491763 email: inara.kantane@lu.lv renāte vidruska mg. comp, researcher university of latvia fields of research interests internet marketing, marketing research, e–commerce aspects, and information and communication technologies usage in business, customer behavior, applied statistics address aspazijas bulv. 5, lv – 1050, riga, latvia tel. +371 29195175 email: renate.vidruska@ gmail.com european integration studies 2011.indd 79 issn 1822–8402 european integration studies. 2011. no 5 the transformation of the understanding of judge independence in latvia janis neimanis university of latvia; supreme court of latvia abstract latvian people’s craving for freedom culminated in the beginning of 1990-s. the activity of the constitution of the republic of latvia was renewed, and the state power was returned to the people. from this moment, the work on dismantling the soviet legal system in latvia had started. a legal system had been redirected to the principles of the western legal branch. the hard core of these principles was already in the article 1 of the 1920 constitution of the republic of latvia which states that latvia is an independent and democratic republic. a key element of a democratic state is of a legal state. the division of powers, which is an essential element of a judge’s independence, is in force in a legal state. up to 2009 the judge’s independence was based on the understanding of the institutional independence, when the other branches of state power must not sit as a court, and on the understanding of the personal independence, when the pressure to the judge is not acceptable during the administration of justice. only after the complication of the financial situation, there were also highlighted other elements of the judge’s independence principle, including financial security. separate present cases in society, these together produce a variety of problems understanding the judge’s independence principle. it is positively characterized, that by expanding cooperation with foreign judges, the independence of latvian judges’ self-consciousness is increasing. but these are not just demands for greater freedom. currently, the latvian legal system has identified several problems: 1) the admissibility of the judges participating in discussions with other government representatives, 2) the stability of judges’ salaries, 3) the judges’ progress in their careers, 4) the best model for evaluating judges’ professional qualifications, 4) the need of judges’ administrative immunity; 5) the need of the honour judge institute. the decisions of the constitutional court had a great impact on the understanding the content of the judge’s independence principle. the constitutional court at least in six cases have extended the judge’s independence principle, have given its clarification and the methodology of application. however, in practice, the main obstacles achieving the optimal model of freedom are not the rules of law. during economic problems the public do not attach importance to nuances of a freedom’s narrow aspect in the constitutional model. the public psychological portrait has not significantly changed during 20 years. soviet people’s fears and worry, lack of understanding the activity of state’s democratic elements make it difficult to improve the democratic state’s legal system. in addition it should be noted that the judiciary and the executive and the legislative powers are unable to negotiate with each other. therefore, during the next few years the provisions of international rules and the arguments of the constitutional court’s decisions will, however, remain as implementation tools for the judge’s independence principle. keywords: constitutionalism, separation of powers, judge, judicial independence, financial independence. introduction the matters of the content of judge’s independence principle in recent years have been constantly in the list of latvian law system news. the materials of annual judge’s conferences and cases viewed separately at the press allow us to judge about the actual development aspects of the current understanding of judge’s independence principle. in recent years, the latvian legal system has significantly complemented with decisions of the constitutional court, which analyze the independence of judges at the constitutional level. towards the mechanism of power balance appropriate to western legal system, the latvian legal system has experienced much. however, despite the laws’ amendments, the most important is the society to understand the legal nuances of the expression of freedom. in this respect, both politicians and the public in latvia have gone hard. but recently, a trend has emerged that in matters of the judiciary independence the judges are becoming more active. although individually the achieved changes within all the legal system can not yet be regarded as fundamental, but in general it characterizes a positive trend that points to the clear way to achievement of western legal values. the article deals with the transformation of the content of judge’s independence principle over the past 20 years in latvia, highlighting some of the problems and finding the solution. developments research gives an opportunity to evaluate progress and to understand the current issues that are yet to be resolved. up to the year 2009 the judge’s independence was based on the understanding of the institutional independence, when one branch of state power must not sit as a court, and on the understanding of the personal independence, when the pressure to the judge is not acceptable during the administration of justice. only with the complexity of financial situation, there have also been highlighted the other elements of judge’s independence principle, including financial security. without this the latvian legal system still has a few cases requiring the solution from the perspective of judge’s independence principle. the aim of this article is to give the reflection of development of the judge’s independence principle’s separate issn 1822–8402 european integration studies. 2011. no 5 80 elements through a historical perspective. looking at the situations which are identified by an element of the judge’s independence principle, it is possible to estimate the latvian legal system on the whole and trends of understanding. the research also points to the most urgent changes in the judges’ professional field of employment law and offers its solutions. the article uses historical, comparative and deductive research methods. the role of the latvian constitution in ensuring the judge’s independence principle the renewal of the latvian republic’s judiciary and the changeover of soviet law, including the judiciary, began with the adoption of the declaration of the latvian sovereignty by latvian ssr supreme council on the 28th of july, 1989. latvian ssr supreme council in paragraph 2 of the declaration stated that the judiciary system in latvia is carried out by the latvian people.1 in less than a year later, by paragraph 3 of the declaration of the latvian independence restoration, adopted by the latvian ssr supreme council on the 4th of may, 1990, the activity of the constitution of the republic of latvia, adopted on the 15th of february 15, 1922, was renewed throughout the entire latvian territory. with the acceptance of the declaration the constitution’s of the republic of latvia article 1 came into force, which states that latvia is an independent, democratic republic. paragraph 6 of the declaration stated that the only applicable rule of law is the one, which is not contrary to the constitution’s of the republic of latvia article 1.2 the restoration of the constitution’s of the republic of latvia article 1 is not only symbolic but also practical. an essential characteristic of a democratic state is a legal state. in turn the main element of a legal state is a division of powers and the resulting consistency the judiciary’s independence claim. the democratic idea that the domination power comes from the people, is not a modern invention. this topic was already known in antiquity.3 in the course of time, the idea of representative democracy developed, because in the way of direct democracy is difficult to take effective actions (making decisions). only a structural democracy of a legal state is also the freedom of democracy.4 the legal state in turn is a country where public bodies observe the law and rights and where fundamental rights are being implemented.5 therefore, the constitutional court states that: “the concept of a democratic republic included in the article 1 of the constitution of the republic of latvia result that all state institutions have an obligation in their activities [..] to respect the legitimacy, the division of powers and to carry out mutual supervision, considering the public power subordination to law, i.e. the supreme command of the law and other principles of the 1 latvijas psr augstākās padomes un valdības ziņotājs (rapporteur of the latvian ssr supreme council and the government), 1989, no.32, p.863.-864 2 archives of the saeima, archive collection of the supreme council, 10th description, file no.2932, p.42 3 cipeliusss r. vispārējā mācība par valsti (general doctrine about the sta-cipeliusss r. vispārējā mācība par valsti (general doctrine about the state). riga: agb, 1998, p.97 4 ibidem, p.99 5 ipsen j. staatsrecht i (staatsorganisationsrecht). 8. aufl. neuwied [u.a.]: luchterhand, 1996, s.215 legal state, as well as the principle of proportionality and the principle of legitimate expectation”.6 the principle of legality and the principle of division of powers is the basis of the existence of any legal state [..].7 the german federal constitutional court has also recognized: “traditional judge’s subordination to the law is a part of the principle of powers’ division, which again is part of the principle of a legal state”.8 in french count’s charles louis montesquieu (charles louis de montesquieu) book, released in 1749, in section “de l’esprit des lois” about england’s constitution is stated: “there is not any freedom either, when the judge’s powers are not separated from the legislative and executive powers. in this case, power over people’s lives and freedom would be limitless, if the judicial power would be connected with the legislative power, as then the judge would be the legislator”.9 former state theory still maintains the familiar doctrine of montesquieu about three national powers; almost the only amendment made by the later theory in the doctrine of montesquieu is that – taking into consideration public power entity do not talk anymore about the three state powers, but the three public powers’ functions. these functions are: the legislative function, the jurisdictional function and the administrative executive function.10 ensuring civil liberties what is decisive is, which organs are realizing the function.11 the latvian constitutional court emphasizes that “the principle of division of powers manifests itself in the division of powers into legislative, executive and judicial power, which are realized by independent and autonomous institutions. this principle guarantees the balance and mutual control and promotes moderation of power”.12 in western democracies the division of powers is in a force as a principle, but it is not implemented in strict ideal-typical model. in general a judge’s independence is strictly protected only from executive interference. the breaking of powerdivision schemes is not only happening in a way that one power is influencing another, as it is in parliamentary control, but also so that one power is fulfilling the other power’s functions. the judiciary power with an interpretation of the law and gap filling in the law is taking part in correction or improvement of rights grounded in legal acts. interpretation of the law and “open” development of the law may establish themselves as a permanent jurisdiction [the judges rights] so far so that it reaches the chance of actually carrying out the legal interpretation or other rule of law, from the principles about equality before the law and legal security immediately follows the link of legitimacy for once implanted practice of the interpretation or gap filling. so the judiciary power, despite disclaimers, is also inevitably operating in the field of 6 latvian constitutional court judgement no.04-07 (99) from 24 march 2000. latvijas vēstnesis, 29 march 2000, no.113/114 7 latvian constitutional court judgement no.04-03(98) from 10 june 1998. latvijas vēstnesis, 11 june 1998, no.172/173 8 bverfge 34, 269 9 ipsen j. staatsrecht i (staatsorganisationsrecht). 8. aufl. neuwied [u.a.]: luchterhand, 1996, s.216 10 dišlers k. latvijas valsts varas orgāni un viņu funkcijas (latvian state power organs and their functions). riga: courthouse agency, 2004, p.25 11 ipsen j. staatsrecht i (staatsorganisationsrecht). 8. aufl. neuwied [u.a.]: luchterhand, 1996, s.218 12 latvian constitutional court judgement no.2001-06-03 from 22 february 2002. latvijas vēstnesis, 26 february 2002, no.31 issn 1822–8402 european integration studies. 2011. no 5 81 legislative functions.13 however, the court is not suitable for legal politically regulating considerations.14 in fact, latvia and other countries are constantly in search of the best possible system of the power balance. the principle of division of powers is based on the popular aspiration for freedom, therefore searches for the balance of power system is the search for freedom. the institutional independence when you browse the debates of the past 20 years reflected in the latvian press, the author finds that they are mostly related to only two of the elements of judicial independence the judicial institutional independence and the judge’s independence in justice. although the understanding of judicial institutional independence and the judge’s independence in justice in latvia always relied on international standards in this area, however not always in practice they are implemented correctly. note that renewing the constitution’s of the republic of latvia article’s 1, regulatory activities, cardinal changes in public opinion did not happen. perhaps that is why the supreme court judges at their first decision, after the renewal of the constitution of the republic of latvia, made in general meeting on the 11th of march, 1991 referred to the un resolution of december 13, 1985 nr.40/146, where are proposed basic principles of judicial independence. the supreme court specially stressed the independence of judge as the subordination to the law during the trial and the obligation of anyone to treat the court with respect. it was also noted that the judge can not be a member of any political organization and can not combine positions, except scientific. are courts subordinated to the ministry of justice? on the 23rd of august, 1994 the cabinet of ministers approved the statutes of the ministry of justice15, which established that the supreme court, regional courts and district city courts are supervised by the ministry. the meeting of the supreme court judges on 31st of october, 1994 indicated that such a rule in part on the inclusion of the supreme court in the ministry’s of justice supervision is contrary to the principle of courts’ independence.16 the author does not consider the inclusion of such provision as a conscious desire of the executive power to subordinate the courts. in fact, since the renewal of latvian independence and the establishment of latvian cabinet of ministers, the issue of courts’ administration has not been resolved. thoughts on court administration and judicial institutional independence had all this time been as a “hot potato”. initially this was done by the ministry of justice. later there was developed the concept of the council of justice, which was intended to establish a council where the majority of the judges would determine the judicial organization, development and would 13 cipeliusss r. vispārējā mācība par valsti (general doctrine about the state). riga: agb, 1998, p.224 14 ibidem, p.241 15 23 august 1994 cabinet decision nr.118 “on the statutes of the ministry of justice”. latvijas vēstnesis, 22 september 1994, no.111 16 decision of the plenum of the supreme court from 31 october 1994 no.5 “on the latvian ministry of justice statute law improper recognition as part of the latvian republic of the supreme court’s supervision”. not published organize the judicial self-government.17 in the council’s structure would also include the administration of the courts dealing with administrative matters. however, the concept of the council lastingly was not supported18; the content of it disappeared in debates, until the cabinet of ministers set up only the court administration.19 the district city courts’ and regional courts’ administrative organization was transferred to it. but the supreme court administration remained outside the tasks of the court administration. the supreme court administration is carried out by the supreme court itself. in the discretion of the author it creates a dual situation, for example, if a judge goes on a business trip or uses the entitlement to leave. the district city judge and regional judge with a request for permission to go on a business trip or to go on holiday has to go to the executive power, but the supreme court judge, however, solve these issues interns – in the court itself. on the judge’s activity organization viewpoint, it is not clear why one judge must settle his operational issues with the representatives of the executive power, but the other judges with the judicial authorities. the council of justice the council of justice is a new governmental body. it was created in latvia only in 2010 and started its work in the autumn 2010. because of political compromises the council of justice is established as an advisory board, but its aims are certainly more wide-ranging to participate in the court system policy and the development of strategy, as well as in the development of judicial work organization system. the council of justice is also granted the right to influence the judges’ institutional issues, such as to determine a judge’s place of service, to transfer a judge from one court level to another, etc. in the discretion of the author the establishment of the council of justice process was accelerated by the constitutional court’s decision in judges’ pay case. the constitutional court stated that the principle of division of powers and the principle of judge’s independence led to an obligation to listen to the judiciary bodies’ represented views.20 the court declared unlawful the managed wage reform, because the obligation of hearing was not observed. however, when the council of justice was established, the process of opinion hearing was formal, because saeima did not observe the opinion of the council of justice21 in judge’s wage reform case. in the discretion of the author the council of justice during the first half of the year failed to show their character that would be expected from the justice system policy and strategy consultant’s viewpoint. the previous activity is “dissolved” into small administrative and bureaucratic work, such as dealing with the internal procedural rules, 17 the draft law “on judicial system”. on line paper: http://www.politika.lv/ temas/politikas_process/4581/ 18 āboltiņa s. tiesu iekārtas likumprojektu laiks nodot saeimai (judiciary draft law time to pass to the parliament). latvijas vēstnesis jurista vārds, 13 june 2006, no.23 19 cabinet order of 28 august 2003, no.574 “on the concept of court administration”. latvijas vēstnesis, 29 august 2003, no.118 20 article 24.4. of the latvian constitutional court judgement no.2009-1101 from 18 january 2010. latvijas vēstnesis, 20 january 2010, no.10 21 judicial council decision of 1 december 2010 no.18. on line paper: http://www.at.gov.lv/files/docs/doc20101203201741.pdf issn 1822–8402 european integration studies. 2011. no 5 82 judges’ certificates and an approval of judges wearing robes arrangements. simultaneously the council has not even analyzed in functional perspective the judicial budget of 2011, its priorities, is has not deeply judged the activity of the court administration in 2010. also, it has not earned the necessary authority in the eyes of the parliament. for example, in saeima current discussions about the evaluation of judges’ professional activity, the head of saeima’s legal affairs committee expressed incomprehension why rules of the bill of judges’ professional qualification evaluation should be coordinated with the council of justice. 22 one may agree with a specialist of the european court of human rights j. rudevskis’ view that the council’s of justice main defect is its rank23 of constitutional state power body, but even the institutional place will not solve lack of personal charisma and internal power. this, however, depends on the inner freedom of society and on the inner freedom members of the council of justice (as a part of a society). in the future, the council of justice should unite with the court administration, concluding the institutional reform of judicial administration. the court administration would lose its national regulatory authority’s status, and would become a full judicial self-management executive body, but the council of justice would be decision-making body. the independence adjudicating cases subordination to the legal act and the law article 83 of the constitution of the republic of latvia provides that “judges shall be independent and subject only to the legal acts”. that provision strengthens the judge’s independence principle as an integral component of division of powers. article 83 of the constitution of the republic of latvia equally reinforces, and also limits the judge’s subordination only to the legal acts. firstly, article 83 of the constitution of the republic of latvia protects a judge from another form of influence, therefore, according to the principle of division of powers separates the judiciary power from the legislative and executive power. secondly, the principle of subordination to law is a legal prerequisite for the restriction of independence’s arbitrary use.24 the constitutional principle included in the article 83 of the constitution of the republic of latvia means that a judge who is hearing the case shall not be subjected to any impact. therefore, the obligation not to interfere in making a decision concerns not only the legislature and executive, but also the court itself and relevant officials of the judicial power. 25 the judge and the government is subject to the law. however, the legal act is not the only source of law and the legal act is not the same as the law. therefore, the discretion of the constitutional court, subordination to the law means that judges in the process of applying the law should seek to 22 10.saeimas legal commission of judicial policy subcommittee, 5 april 2011, minutes of the meeting no.18. not published 23 rudevskis j. dažas piezīmes un ierosinājumi par tieslietu padomi (some comments and suggestions on the judicial council). latvijas vēstnesis jurista vārds, 26 january 2010, no.4 24 stern k. das staatsrecht der bundesrepublik deutschland. bd. ii “staats-stern k. das staatsrecht der bundesrepublik deutschland. bd. ii “staatsorgane, staatsfunktionen, finanzund haushaltsverfassung, notstandsverfassung”. münchen: beck, 1980, s.911 25 article 2.4. of the latvian constitutional court judgement no.2002-0601 from 4 february 2003. latvijas vēstnesis. 5 february 2003, no.19 reach a fair and useful result, which would correspond to the legal system on the whole.26 the adopter of the law can do it if he observes not only a legal act, but also the law. similar to the subordination to the legal act, subordination to the law of latvian legal system outcomes from the principle of a legal state, in particular the principle of division of powers. these constitutional principles are not directly indicated in the constitution of the republic of latvia, but these principles outcome from article 1 of the constitution of the republic of latvia, which states that latvia is an independent democratic republic. it is also declared in the constitutional court‘s judicature.27 so latvian judge is subject to both the legal act and the law. subordination to the legal act means that judges adjudicating cases are required to apply the binding legal act, and he is not entitled to repeal these provisions (the principle of the law mastership). at the same time, subordination to the legal act means that a judge is not subordinated to anything other than the legal act. but the subordination only to the legal act would be an overstatement of the legal act’s construction. in particular, it appears if the judge faces an obviously unjust legal act. therefore, the judge must be subordinated to the law. the concept of „subordination to the law“ is expressing the idea of justice, which cannot be provided by a „subordination to the legal acts“.28 therefore, only the simultaneous subordination to the legal act and the law binds the adopter of the law to observe the requirements of fairness, the overpositive law. subordination to the law (alongside to the legal act) means the recognition of the custom law and the principles which is the legal system based on. thus, the principle of justice (rule of law) or the principle of the law mastership is carried out, which is the central principle of a legal state and generally provides that all public power is linked with the law, and it can handle within the limits set by the law. however, as the term „legal act“, the term „law“ has many meanings. for example, the roman-germanic legal system the priority rights to create the law belong to the legislature, however, as previously seen, the legislature is often in the role of „driving into“ body, because the society creates new forms of relationships that need to be regularized. similarly, the language of the legal acts is necessary to understand and use for a particular occasion. here appears the great significance of the judicature. argumentative and authoritative binding judicial decisions inevitably have an impact on the application of the rule of law in the future. thus, these court decisions become „unofficial attendants“ of the law. practicing lawyers in similar cases love to refer to such decisions in order to reinforce an accurancy of his view. such court decisions become a part of the law.29 however, the legal doctrine recognizes that the subordination to the law does not mean 26 ibidem 27 latvian constitutional court judgement no.04-03(99) from 9 july 1999. latvijas vēstnesis, 14 july 1999, no. 229; latvian constitutional court judgement no.03-05(99) from 1 october 1999. latvijas vēstnesis, 5 october 1999, no. 325/327; latvian constitutional court judgement no.2004-04-01 from 5 november 2004. latvijas vēstnesis, 9 november 2004, no. 177 28 evaluating the experience of the national socialist and the soviet historical period 29 levits e. par tiesiskās vienlīdzības principu (on the principle of legal equality). latvijas vēstnesis, 8 may 2003. no.68 issn 1822–8402 european integration studies. 2011. no 5 83 the subordination to the rights of judges.30 the court under certain circumstances may enter its practices change, so the concept of „legal act and law“ does not imply the rights of judges. here should be evaluated the fact, whether the rights of judges are not developed into custom law, thus becoming a full part of the law as well as in regulationary sense. the binding nature of the decisions of the general meeting of supreme court judges up to 2003 the leading role in the field of uniform practices, including statutory interpretation, was awarded to the decisions of plenum of supreme court of the republic of latvia. it was detected by the binding effect of decisions of plenum, because the law on judicial power in article 49 in second paragraph provided that the the plenum of supreme court is competent to adopt binding interpretations of laws. the roots of the competence of plenum of the supreme court to interpret legal provisions shall be found in the socialist legal system, because theses plenum decisions as the law interpreting acts was put in during the time of the ussr. all issues both strategic and tactical within its jurisdiction, ussr dealt within the level of party committee or the issues were dealt by that committee leaders alone. the next filter was the ministry, committee and the prosecutor’s office, furthermore the prosecutor’s office was directly required to supervise the judicial activities. in cases when the regional courts notwithstanding tried to withstand that pressure, the necessary adjustments were made the ussr supreme court.31 due to the fact that latvian soviet socialistic republics was part of a united soviet legal system, in accordance with the law of june 12, 1981 on the latvian ssr judiciary, the plenum of latvian ssr supreme court leading explanations were binding to the courts, in adjudicating similar cases, as well as to other institutions and officials, which were applying the law, and on which the explanation was referring. while the continental european law does not recognize the similar institute of plenum decisions, by adopting the law on judicial powers, the latvian republic preserved the rights of plenum of the supreme court to issue bindings on the courts interpretations of law, strengthening the competence of the plenum of the law article 49 of second paragraph. at the moment of adopting the law on judicial powers a strong soviet comprehension on the law existed. long-standing soviet understanding of the matter was adjourned by the constitutional court, which provided that such rights to give the binding explanations are inadequate of the the constitution of the republic of latvia article 83. the court found that the judge’s independence principle provides that the judge shall be subject to the legal acts and to the law. this means that a judge shall not be subject to anything other, then to the legal acts and to the law. the constitutional court held that a judge who is hearing the case shall not be subjected to any influence. therefore, the obligation not to interfere into decision-making applies not only to the legislature and executive, but also to their own 30 stern k. das staatsrecht der bundersrepublik deutschland. band i. grundbegriffe und grundlagen des staatsrechts, strukturprinzipien der verfassung. 2.aufl., münchen: beck, 1984, p.800 31 lepse a. on the separation of power and independence of the judiciary. latvijas vēstnesis, 5 january 1996, no.1 courts and the officials realizing the judicial power.32 however, in the author’s opinion, another legal provision that affect the judge’s independence has occurred in the law. the possibility was incorporated into the law that the senate as a cassation instance and the panel as the appellate instance may jointly decide on the legal interpretation issues. first, the most striking is the cassation and appellate instance joint decision possibility in any legal issues. but secondly, even though the law does not impose such a joint interpretative decision with binding nature, however, according to the hierarchical ranking of instances, it appears that decisions are in fact binding, because they are already following the general meeting sense. in any case, following the decisions of general meeting making so overwhelming pressure on the appellate court judge, who would have to justify not only the resignation of the highest court instance judicature, but also have to justify the resignation of his colleagues made joint agreement. financial security it is no secret that latvia has experienced a severe financial crisis. it couldn’t affect also the judges’ wages. since march 9, 2006, the judge wage principle was in force that the monthly salary is calculated on the basis of national average wage for the previous year, which is indexed by a factor of 4.5. by the law in 2008 and in 2009 the legislature had been frozen the judges salary increases, and finally also reduced the wage. similarly, the law also stipulated that the judge’s salary may not exceed the salary of the prime minister. by the rulings of the constitutional court in three cases it was confirmed that the judge’s salary is the element of the independence of the judge’s principle, in particular, the judge’s financial security. the constitutional court has generally held that the constitution article 83 prohibits the reduction of judges wages during their term. the constitutional court in the judgement of 18 january 2010 declared and in the judgement of june 22, 2010 reiterated that the remuneration arrangements set in latvian in 2006 does not allow a reduction of the judges’ wages in the fair value. it provides the judge the financial security of the magnitude required to protect the independence of judges. the system complies with the balance of the branches of power and ensures that the judiciary do not have to discuss with the executive or legislative power of the judges’ wages. the system is also flexible it provides a judge’s salary scale adjustment to the average wage in the country.33 the constitutional court stated that the legislature has the authority to establish a new judicial payment system, if it pursues a legitimate objectives, serious causes and reasonable grounds to the new system. by changing the judges’ payment system, the legislature must not violate constitutional principles.34 it is also shall be observed that such a reform is carried out jointly to all existing public service officials. the court held that the judge’s salary is not only salary but also social security. unfortunately, the legislature failed to comply with the 32 latvian constitutional court judgement no.2002-06-01 from 4 february 2003. latvijas vēstnesis. 5 february 2003, no.19 33 article 19.3. of the latvian constitutional court judgement no.2010-3901. latvijas vēstnesis, 28 june 2010, no.100 34 article 11.5. of the latvian constitutional court judgement no.2009-1101 from 18 january 2010. latvijas vēstnesis, 20 january 2010, no.10 issn 1822–8402 european integration studies. 2011. no 5 84 constitutional court judgement, and instead of getting into force a previously determined formula for calculating the salaries of judges, within one month made an urgent reform of the remuneration of judges. with these laws in 2011 latvia has been introduced to a new system of remuneration of judges. it provides that judges shall be included in one category of civil officials and the monthly wages are calculated in respect with the salaries of officials. currently, the mentioned wage reform again is challenged in the constitutional court. it is expected that the court will have to re-address the question on whether the legislature has complied with the independence of judges principles and whether the wage reform is based enough. at the same time the constitutional court will have to answer to an awkward question: “whether the new pay reform in the country has complied with the previous constitutional court rulings?”. during the wage reform exactly that caused the most complaints of the judges, because judges could not accept that the court judgement may not be enforced, in particular, by the state itself. in the mentioned case, as the sub topics but equally important are the aspects of the additional payments and and bonus. bonuses to the judges in latvia there is a long-term practice and provision which permits a judge to reward for the “the investment into work” and for “quality work”. however, in the author’s opinion, such procedures and practices are incompatible with the principle of independence of the judge. international instruments repeatedly stated that the judge’s remuneration must not depend on the judge’s performance. the judge duty is to dispense a particular case. judging, the judge must be free of any influence, or as it is specified by the law – “motivation”, therefore judge’s duties performance can not be rewarded. the adequate planning of the judges load is a duty of the presiding judge, therefore, there should not appear the situation that one judge has been severely under load. interestingly, the law now delegate the right to determine the bonus cases to the council of justice. the council of justice is now faced with the dual objective: on the one hand judges bonus arrangements are challenged by the constitutional court, and expressed its opposition in the council of justice, however, on the other hand the council of justice is continuing to examine the bonus arrangements, referring that the law empowers the council of justice to decide on these matters. in addition more significant, that the constitutional court in the judgement of 18 january 2010, in the paragraph 11 stated that in a democracy state there should not be permitted that the judges and execute power determine the judges wages. since the council of justice shall consist of majority of the judges, in the author’s opinion, the council of justice should not make the decisions in this regard. additional payments a similar situation is also an additional payments issue. the law defined that the judge shall receive an additional payment not more than in an amount of 20 per cent of the monthly salary determined for him or her, if she or he performs other duties in addition to the duties specified in the position description. the amount of an additional payment, the substantiation for its determination, as well as a period of time for which the additional payment is to be determined, shall be regulated by a competent official (authority) of the state or local government authority. that means that the additional payments are imposed directly by the court manager. the law also provides that the additional paymaster for the presiding judge of the court defines the minister of justice. the law also provides that a judge receives an addition payment also for the authorization of the operational activities. in the authors opinion such provisions are incompatible with the principle of independence of the judge, because the court’s or the executive’s delegation to determine the additional payment openly violates the principle of judge’s financial security, the principle of the separation of powers. this is admitted also by jurisdiction of german federal constitutional court judge wage growth should not depend on executive discretion.35 similarly, it should be noted that the judge and the prosecutor can not get an additional payment for replacement or for adjudication of court cases (also – approval of operational activities). these tasks include his basic official duties adjudge, therefore, for example, replacing the duties of absent judge, or attesting criminal proceedings, he shall carry out the same duties. privileges of the position ongoing discussions in latvia is awaiting the issue on judges’ administrative immunity. currently, the law protects a judge from administrative violation proceedings, because it is defined, that judge may not be subject to administrative liability. in the case of administrative violation the judge may be subject to disciplinary liability. administrative immunity is based on the soviet legacy, when it was considered that the administrative punishment of the judge would affect its independence. in the authors opinion such understanding of the principle of independence of the judge has been exaggerated. in everyday life the judge is not a special member of the public, he must, like any other person, comply with the rules of public life, for example, to comply with traffic rules. position operating provisions are also the part of the judge’s public life, for example, the judge may not behave in inappropriate way at public. however, administrative responsibility and official professional responsibility are not mutually exclusive. therefore, there is no reason to perceive any administrative violations as official violations. officials professional liability should be incurred only in the most important, directly to the judge’s professional misconduct. however, the judges’ opinion in this respect, there are dual. during the survey among the administrative judges, the author found out that the judges divided into proportionately equal parts: one part considers that the administrative immunity shall be preserved, but the other part states that the time has come to withdraw such provision. the reasons for preserving the immunity are prosaically, for example, that privilege protects members of the parliament and substantial equality is accessed, or such immunity protects against prominent pecuniary punishment. therefore also in this aspect of the judge’s independence principle each judge’s free point of view is expressed, as far 35 bverfge 12,81 issn 1822–8402 european integration studies. 2011. no 5 85 as the judge is willing to give up a judge over-balance power in favour of more proportionate. conclusions 1. the principle of the separation of powers is based on the society’s aspiration for freedom, therefore searches for the balance of power system is the search for the ideal model of use of freedom. 2. the constitution of the republic of latvia article 83 is distinct among the constitutions of other countries, because in the law text it does not provide that the judge shall be subject to the law. this is explained by the fact that the provision is not amended after the 2nd world war, and that the judges shall be subject to the law may be fetched in the the constitution of the republic of latvia article 1 in the concept of “democracy”. 3. by the renewal of the normatively ruling of the constitution of the republic of latvia article 1, radical changes in public opinion did not happen. the opinion of the public and opinion of the the judges as part of the public are still substantially affected by the passage of time of the idea of heritage and of practical experience. 4. previous discussion in latvia on principle of judge independence basically were related to only two of the elements of judicial independence the independence of the judiciary and the judge independence in court hearing. only in recent years the aspect on the judges financial security was highlighted. judges have begun to recognize the other elements of judge independence principle. 5. the council of justice that had been created on 2010, during the first half year failed to show their character, what would be expected from the justice system from the policy and strategy consultant’s point of view. the current operation is “dissolved” into small administrative and bureaucratic work. the court administration shall incorporate to the judicial council, to transfer the court administration function to the courts. 6. from the law on judicial power shall be excluded the provision, that the senate as a cassation instance and the panel as the appellate instance may jointly decide on the legal interpretation issues. a even though the law does not impose such a joint interpretative decision with binding nature, however, according to the hierarchical ranking of instances, it appears that decisions are in fact binding. 7. from the law that regulates the judge wages shall be excluded the provision on the implementing the bonus system. also there shall be excluded the provisions on the rights to the extra payment for the same duty that already is in judges range of responsibilities. the payment of administrative work and the additional payment shall be determined by the law. 8. the judges’ administrative immunity shall to be terminated because it is an exaggeration o the judge’s independence principle. but the judges itself are reluctant to refuse of such freedom. 9. the conclusion of the above thesis, the key elements can be identified, that an ideal division power model depends on the power function executing person’s internal awareness of freedom and the ability to self-limit their power reasonably. references āboltiņa s. tiesu iekārtas likumprojektu laiks nodot saeimai (judiciary draft law time to pass to the parliament). latvijas vēstnesis jurista vārds, 13 june 2006, no.23 cipeliusss r. vispārējā mācība par valsti (general doctrine about the state). riga: agb, 1998 dišlers k. latvijas valsts varas orgāni un viņu funkcijas (latvian state power organs and their functions). riga: courthouse agency, 2004 ipsen j. staatsrecht i (staatsorganisationsrecht). 8. aufl. neuwied [u.a.]: luchterhand, 1996 lepse a. on the separation of power and independence of the judiciary. latvijas vēstnesis, 5 january 1996, no.1 levits e. par tiesiskās vienlīdzības principu (on the principle of legal equality). latvijas vēstnesis, 8 may 2003. no.68 rudevskis j. dažas piezīmes un ierosinājumi par tieslietu padomi (some comments and suggestions on the judicial council). latvijas vēstnesis jurista vārds, 26 january 2010, no.4 stern k. das staatsrecht der bundersrepublik deutschland. band i. grundbegriffe und grundlagen des staatsrechts, strukturprinzipien der verfassung. 2.aufl., münchen: beck, 1984 stern k. das staatsrecht der bundesrepublik deutschland. bd. ii “staatsorgane, staatsfunktionen, finanzund haushaltsverfassung, notstandsverfassung”. münchen: beck, 1980 latvian constitutional court judgement no.04-03(98) from 10 june 1998. latvijas vēstnesis, 11 june 1998, no.172/173 latvian constitutional court judgement no.04-03(99) from 9 july 1999. latvijas vēstnesis, 14 july 1999, no. 229 latvian constitutional court judgement no.03-05(99) from 1 october 1999. latvijas vēstnesis, 5 october 1999, no. 325/327 latvian constitutional court judgement no.04-07 (99) from 24 march 2000. latvijas vēstnesis, 29 march 2000, no.113/114 latvian constitutional court judgement no.2001-06-03 from 22 february 2002. latvijas vēstnesis, 26 february 2002, no.31 latvian constitutional court judgement no.2002-06-01 from 4 february 2003. latvijas vēstnesis. 5 february 2003, no.19 latvian constitutional court judgement no.2004-04-01 from 5 november 2004. latvijas vēstnesis, 9 november 2004, no. 177 latvian constitutional court judgement no.2009-11-01 from 18 january 2010. latvijas vēstnesis, 20 january 2010, no.10 latvian constitutional court judgement no.2010-39-01. latvijas vēstnesis, 28 june 2010, no.100 bverfge 12,81 bverfge 34, 269 issn 1822–8402 european integration studies. 2011. no 5 86 declaration of the latvian sovereignty. rapporteur of the latvian ssr supreme council and the government, 1989, no.32, p.863.-864 declaration of the latvian independence restoration. archives of the saeima, archive collection of the supreme council, 10th description, file no.2932, p.42 23 august 1994 cabinet decision nr.118 “on the statutes of the ministry of justice”. latvijas vēstnesis, 22 september 1994, no.111 cabinet order of 28 august 2003, no.574 “on the concept of court administration”. latvijas vēstnesis, 29 august 2003, no.118 decision of the plenum of the supreme court from 31 october 1994 no.5 “on the latvian ministry of justice statute law improper recognition as part of the latvian republic of the supreme court’s supervision”. not published judicial council decision of 1 december 2010 no.18. on line paper: http://www.at.gov.lv/files/docs/ doc20101203201741.pdf minutes of the meeting no.18 from 5 april 2011 of the subcommittee of judicial policy of the legal commission of 10th saeima. not published the draft law “on judicial system”. on line paper: http:// www.politika.lv/temas/politikas_process/4581/ the article has been reviewed. received in april, 2011; accepted in june, 2011. 235 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 creativity as the main factor for organizations‘ success: theoretical approach http://dx.doi.org/10.5755/j01.eis.0.9.12810 jurgita baryniene, berta dauknyte kaunas university of technology submitted 04/2015 accepted for publication 07/2015 creativity as the main factor for organizations‘ success: theoretical approach eis 9/2015 european integration studies no. 9 / 2015 pp. 235-243 doi 10.5755/j01.eis.0.9.12810 © kaunas university of technology abstract in recent decades drastic changes of economic activity conditions are observed. global transformations and rapid development of information and communication technologies (ict) have resulted in emergence of knowledge economy where the added value is created on the basis of knowledge. due to this reason, business organisations operating under such conditions must increasingly focus on innovations and innovative processes which would guarantee them a competitive advantage. companies which do not create innovations or at least do not introduce innovations in their activity, is quickly pushed out of today market. in the last century the creation of innovations was an accidental process. however today it is overwhelmingly a targeted activity. in today’s society innovations are understood as vital for social and economic development. innovations do not come up by themselves. creativity is an important condition for innovations to occur. although the concept of creativity is often used in both the scientific and public discourse, the boundaries of this concept are often unclear. scientists emphasize the complexity and multidimensity of this concept. for some businesses, creativity is an important factor: clients in advertising agencies require a creative advertisement; architects, designers also often have to create an exclusive and unique creation. however, in other business areas creative thinking is not such a matter of course. although the majority of world business organizations, while declaring the values, use such words as “innovations”, “creativity”, “new and smart thinking”, in reality they remain only the statements of declarative nature. therefore the main problematic question arises: how the creativity can contribute to the success of business organisations. the aim of this paper is to determine the directions of use of creativity in business organisations. in order to achieve this aim, the following objectives have been set: with reference to scientific literature to present evolution of the concept of creativity; to cristalyzed out contemporary concept of creativity; to identify the factors which encourage the development of creativity in organisations. the research method used: in-depth analysis of scientific literature, synthesis. the main results and conclusions of the article are: revealed the concept of creativity and its importance in nowadays organizations; constructed the model of factors which influence the expression of creativity in business organizations. keywords: creativity, innovations, business organizations, model, factors. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 236 nowadays creativity becomes important object of scientific research in such fields as innovations, education, business and others. the scientific research shows the complexity and multidimensity of creativity concept (runco, m., 2014). regarding to this, concept of creativity still remains important issue in many scientific works. the explanation of creativity concept was changing constantly. for instance, first research on creativity analysed this concept in individual level. later research focuses on cognitive level and analyse why individuals behave creatively. the research from 1990s started to analyse creativity in sociocultural approach. before the 1980s creativity was treated as occasionally important to organizations success. however nowadays creativity is understood as essential for organizations (sawyer, r.k., 2014). the year 2009 was announced as the year of creativity and innovations in european union. with this initiative europe tried to strengthen awareness of significance of creativity in the context of individual, social as well as economic progress. in european level it is recognized the importance of creativity in innovation stimulation which are crucial in knowledge based economy. for instance, in the communication “putting knowledge into practice: a broad-based innovation strategy for the eu” it is stated that “without education as a core policy, innovation will remain unsupported. it must promote talent and creativity from an early stage”. in a strategy for smart, sustainable and inclusive growth europe 2020 the creativity of people is mentioned as the strength of europe which can help to succeed. eu initiatives show that creativity is emphasized not only in cultural field, but in education as well. eu seeks to stimulate creativity and supports the idea, that persons who act in creativity stimulating cultural, social and economic environment creates more innovative and creative products. much more, creativity and creative thinking is recognized as the competence of 21 century which is important concequence for successful activity in today’s labour market (gonzalez, j., et. al., 2007, berdrow, i., evers, e.t., 2011; andrews, j., higson, h. 2008; ananiadou, k., claro, m., 2009; van der velden, r., 2013; kang, m. et. al., 2010 and others). nowadays creativity is treated as essential for organizations (sawyer, r.k., 2011). sawyer, r. k.(2011) defines several reasons why creativity should be analyzed: introduction 1 for identification and realization of individual creativity; 2 for dealing with changing society; 3 for problems solving with creative responses; 4 for positive experience; 5 for effective education. creativity in business organizations was analysed by amabile, t.m., (1998), bilton, c., (2007), seidel, s., rosemann, m., becker, j. (2008) and others. despite of this research, there is still open question how the creativity can contribute to the success of business organisations? this article is devoted for searching answer for this question. the aim of this paper is to determine the directions of use of creativity in business organisations in order to cope with hyper competitiveness in nowadays business environment. in order to achieve this aim, the following objectives have been set: 1 to present evolution of the conception of creativity; 2 to cristalyzed out the concept of creativity; 3 to identify the factors which encourage the development of creativity in organisations; he research method used: in-depth analysis of scientific literature, synthesis. 237 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 creativity is a broad concept, which is often used in science, business organizations, in daily human activities. recently, this concept is used to explain almost everything starting with global competition and information wars and ending with lifestyle and predominance of creative culture (augustaitis, a., 2010). martin, p. (2010) states that concept of creativity “has become a modern mantra” and are used in many problems solving. in order to coherently explore the object of this paper, the conception of creativity and its peculiarities and features are being further analysed. the word to create comes from the latin word creatus form creare, which means “to do or to make something”. historical analysis shows that this concept started up trying to explain the crefigure 1 evolution of the conception of creativity evolution of the conception of creativity the conception of creativity: types and features (gonzalez, j., et. al., 2007, berdrow, i., evers, e.t., 2011; andrews, j., higson, h. 2008; ananiadou, k., claro, m., 2009; van der velden, r., 2013; kang, m. et. al., 2010 and others). nowadays creativity is treated as essential for organizations (sawyer, r.k., 2011). sawyer, r. k.(2011) defines several reasons why creativity should be analyzed: 1) for identification and realization of individual creativity; 2) for dealing with changing society; 3) for problems solving with creative responses; 4) for positive experience; 5) for effective education. creativity in business organizations was analysed by amabile, t.m., (1998), bilton, c., (2007), seidel, s., rosemann, m., becker, j. (2008) and others. despite of this research, there is still open question how the creativity can contribute to the success of business organisations? this article is devoted for searching answer for this question. the aim of this paper is to determine the directions of use of creativity in business organisations in order to cope with hyper competitiveness in nowadays business environment. in order to achieve this aim, the following objectives have been set: 1) to present evolution of the conception of creativity; 2) to cristalyzed out the concept of creativity; 3)to identify the factors which encourage the development of creativity in organisations; the research method used: in-depth analysis of scientific literature, synthesis. evolution of the conception of creativity creativity is a broad concept, which is often used in science, business organizations, in daily human activities. recently, this concept is used to explain almost everything starting with global competition and information wars and ending with lifestyle and predominance of creative culture (augustaitis, a., 2010). martin, p. (2010) states that concept of creativity “has become a modern mantra” and are used in many problems solving. in order to coherently explore the object of this paper, the conception of creativity and its peculiarities and features are being further analysed. the word to create comes from the latin word creatus form creare, which means “to do or to make something”. historical analysis shows that this concept started up trying to explain the creation and existence of the world. the concept of creativity has been varying since its appearance (see figure 1). figure 1. evolution of the conception of creativity analyzing the above given illustration it is noticed that the concept creativity had not been understood as a human creativity for a long time. according to the antiquity thinker plato, only god had the privilege to create and the whole earthly creation was only a mimetic art (bukantienė, j. et al., 2013). till the 16th century the ancient approach to creativity as a creation had dominated in the western europe. everybody who knew their crafts were considered to be creators, artists. in the renaissance period, unlike in the middle ages, a human with his creative powers was equated to god the creator. a rise of such miscellaneous personalities like leonardo da vinci or michelangelo, who were actively acting in many areas of culture, has influenced such situation. however, until the end of the 19th century creative powers were unambiguously attributed to the very precise field of human activity artistic and philosophical creation. inventors, scientists were not described as creative people. in the middle of the 20th century, when intensive researches of creativity started to be developed, it was acknowledged that creativity in one or another level is typical to everybody and can occur in various fields: science, art, household, communication and others. the provision, that creative activity was not an exceptional phenomenon and people of different age or profession can be creative, settled over. to sum up, creativity as such phenomenon has already been recognized in the early cultures of the world, however, even then it was not understood uniformly. in ancient times god was considered to be the only creator. later the creator was considered to be a person, who knew his crafts. only in modern age it was started to consider that everybody can be a creative person and express himself in various areas. the conception of creativity: types and features nowadays so often heard word creativity is understood variously. scientists of various fields, such as philosophers, psychologists, sociologists, educators analyse the concept of creativity and its related problems. creativity was started to be intensively explored sixty years ago, but until now its general conception has not been agreed. according to dumčienė, a., lapienė, d. (2012) quite broad variety of conceptions, such as creativity, creative process, creative thinking is used to describe the studies of creativity. in table 1 it is presented different understanding of the creativity concept. table 1 the definition of creativity author year definition g. wallas 1926 creativity is the main force of human evolution. t. amabile 1996 creativity is creation of new and useful ideas in any field. a. petrulytė 2001 creativity – the tendency of an individual to a new, original or innovative composition, designing or thinking of something. r.tickards and f. xu 2007 creativity is the process, when individuals, their groups generate ideas, which are new and useful for these individuals or groups as well as other members of the field of their activity. authors, mentioned in the table above, provide with a distinctive description of concept creativity, emphasizing new characteristic and features. according to wallas, g. (1926) ation and existence of the world. the concept of creativity has been varying since its appearance (see figure 1). analyzing the above given illustration it is noticed that the concept creativity had not been understood as a human creativity for a long time. according to the antiquity thinker plato, only god had the privilege to create and the whole earthly creation was only a mimetic art (bukantienė, j. et al., 2013). till the 16th century the ancient approach to creativity as a creation had dominated in the western europe. everybody who knew their crafts were considered to be creators, artists. in the renaissance period, unlike in the middle ages, a human with his creative powers was equated to god the creator. a rise of such miscellaneous personalities like leonardo da vinci or michelangelo, who were actively acting in many areas of culture, has influenced such situation. however, until the end of the 19th century creative powers were unambiguously attributed to the very precise field of human activity artistic and philosophical creation. inventors, scientists were not described as creative people. in the middle of the 20th century, when intensive researches of creativity started to be developed, it was acknowledged that creativity in one or another level is typical to everybody and can occur in various fields: science, art, household, communication and others. the provision, that creative activity was not an exceptional phenomenon and people of different age or profession can be creative, settled over. to sum up, creativity as such phenomenon has already been recognized in the early cultures of the world, however, even then it was not understood uniformly. in ancient times god was considered to be the only creator. later the creator was considered to be a person, who knew his crafts. only in modern age it was started to consider that everybody can be a creative person and express himself in various areas. nowadays so often heard word creativity is understood variously. scientists of various fields, such as philosophers, psychologists, sociologists, educators analyse the concept of creativity and its related problems. creativity was started to be intensively explored sixty years ago, but until now its general conception has not been agreed. according to dumčienė, a., lapienė, d. (2012) quite broad variety of conceptions, such as creativity, creative process, creative thinking is used to describe the studies of creativity. in table 1 it is presented different understanding of the creativity concept. authors, mentioned in the table above, provide with a distinctive description of concept creativity, emphasizing new characteristic and features. according to wallas, g. (1926) creativity is the e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 238 main force of human evolution, because only the person who used this ability was able to adapt to a rapidly changing environment. amabile, t. (1996) proposes that creativity is creation of new ideas. however, given definitions also have common similarities. “flexible thinking and fluently developed ideas are important components of the definition of creativity. however, the most important feature of creativity is originality. creative work is original, appropriate, reasonable and in a sense elegant or just good. so, creativity is a talent or activity, the result of which is ideas, theories, products of art or science.” (gage, n. l., berliner, d.c., 1994) despite of different understanding of creativity concept, it is agreed that creativity is an ability to discover something new, to adapt the available knowledge purposefully and solve the problems originally, flexibly and effectively. creativity is a steady encouragement to solve arisen problems in a productive way and to look for innovations. further analysis of the creative elements is important to determine what factors influence their expression, in what level or field they come through. therefore, it is important to analyse this concept, using the models of creativity framed by scientists, by separating into different types. maslow, a. (1968) emphasizes improvisation and inspiration. from the psychological point of view, he proposes that human evolution, mental health and talent ensure high performance of creativity. later, after accomplished research it emerged that it could not be adapted to each person. famous painters wagner and van gogh, who were characterised for their extraordinary creativity, proved that, however, at the same time their mental health state was unstable. as a result, maslow, a. (1968) distinguished two types of creativity. one of them is a creativity of a special talent, which comes through independently of the personal health and well-being. it is the creativity of genius, also called the creativity with big c. contrary to the first type, creativity of self-realization characterize such individuals, which have excellent state of mind. this type of creativity can come through not only at the level of art, but at any human activity. it is creativity with little c. according to maslow, a. (1968) individuals with a high level creativity of self-realization are used to do everything creatively. such group of people has a higher than average level of spontaneity, expressiveness, naturalness. they are also less controlled, therefore, they feel less uncomfortably and easily express their ideas and they are less worried about the surrounding opinions (starko, a. j., 2010). maslow, a. (1968) defines such creativity as a “fundamental feature, which is inherent from human nature, that is brought by everyone or at least the vast majority of people at birth, and which is often suppressed and lost during human inculturation.” (maslow, a., 1968) maslow, a. (1968) emphasizes the importance of self-expression in human life. creativity is typical to each person and it is related with mental health. according to this understanding, creativity can be divided into two groups: creativity of special talent and creativity of self-realization. it is also possible to say that knowledge, skills, motivation, personal features and social environment is also typical to the classification of creativity. table 1 the definition of creativity author year definition g. wallas 1926 creativity is the main force of human evolution. t. amabile 1996 creativity is creation of new and useful ideas in any field. a. petrulytė 2001 creativity – the tendency of an individual to a new, original or innovative composition, designing or thinking of something. r.tickards and f. xu 2007 creativity is the process, when individuals, their groups generate ideas, which are new and useful for these individuals or groups as well as other members of the field of their activity. 239 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 according to psychologists, in order to come through for an individual creativity, a person must have creative features. different authors name different features, which are even contradictory one to another and which are typical to creative personality. after the analysis of the elements proposed by authors, a new model of the features of creative personality was created. the first feature is originality. it is understood as the ability to think keeping to the subject or to have unusual ideas. original people are known for a free thinking. it is a creation of original, absolutely new, unique or exclusively different ideas. another feature is facility, which is understood as the ability to express thoughts fluently. the more time we have to create ideas, the bigger quantity and better quality is achieved. it is a smooth creation of ideas which would increase the amount of possible solutions. one more feature of creative personality flexibility. it is an ability to see the idea from different perspectives and ability to see different solutions out of one problem. another feature is specification, which is understood as the ability to differentially and intensive analyse the problem. it is an essential requirement that it would be possible to plan in advance how the problem would be solved. the last of the features is imagination. it is the ability to dream, invent, see, and understand new ideas or creations, to be inventive. it is closely related with the ability to associate. the input of creativity to economic success is analyzed in various research (bobirca, a., draghici, a., 2011; sacchetti, s., sugden, r., 2007; sherwood, r. m., 1999; yusuf, s., 2009). yusuf, s. (2009) presented the correlation between creativity and economic performance. it is presented in figure 2. creativity is a crucial factor for innovations. importance of innovation in nowadays organizations is unarguable. innovations are the base for increasing productivity in nowadays knowledge based economies. undoubtedly, innovations raises from application of knowledge creatively. according to this, there could emphasized two importartant factors: elements which promote creativity in organizations creativity innovation development economic growth figure 2 creativity and economic performance _ creativity; _ knowledge. creative organization is “characterized by native individual creativity and competence, generates and uses the intellectual capital, create and realizes creative products, in such a way receives economic benefit and makes certain of competitive advantage” (girdauskienė, l., 2011). process, products, employees as well as work environment in such organizations is characterized as creative. business organizations which want to remain in today’s competitive struggle, must always expand and improve. one of the main opportunities to do that is to allow employees to express their creativity at work. each organization should understand that creative worker helps the organization to expand, improve and remain competitive in the market. this is particularly true when creativity becomes a part of the culture of the organization and employees are allowed to see particular things not according to the stereotypes. according to the scientific literature the new model of creative environmental assessment was created. this model consists of three basic factors, which make influence on creativity in organization and each of these factors has individual elements (see figure 3). the encouragement of organization is understood as an attention of organizational management structure and organizational climate. therefore, it is important to understand the conception and features of the elements the encouragement of organization. one of elements encouraging the creativity in organizations is organizational structure. it is a particular set of means to divide work e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 240 in several tasks and coordinate their implementation and this influences creativity. particular organizational factors result in such management structure. the analysis of various research related with this topic allows to notice that the majority of authors agrees that organizational structure favorable to creativity is plane, flexible and decentralized (mumford, m. d., et. al., 2002). such system enables quick decision-making, which is required by current situation, conversely figure 3 model of elements encouraging creativity of organizations according to the scientific literature the new model of creative environmental assessment was created. this model consists of three basic factors, which make influence on creativity in organization and each of these factors has individual elements (see figure 3). the encouragement of organization is understood as an attention of organizational management structure and organizational climate. therefore, it is important to understand the conception and features of the elements the encouragement of organization. one of elements encouraging the creativity in organizations is organizational structure. it is a particular set of means to divide work in several tasks and coordinate their implementation and this influences creativity. particular organizational factors result in such management structure. the analysis of various research related with this topic allows to notice that the majority of authors agrees that organizational structure favorable to creativity is plane, flexible and decentralized (mumford, m. d., et. al., 2002). such system enables quick decision-making, which is required by current situation, conversely than centralized system, when everything is decided by the front office, while the divisions or departments do not have the possibility to make decisions. another encouraging element of the organization is organizational climate. scientists researching creativity in organizations emphasize that when creating a favorable work environment for organizations, it is important to consider the same components which are necessary for individual creativity to come through. creating this model an attention was paid to the components identified by ekvall, g. (1987). these components have an impact on creativity: • challenge. people facing with big challenges have internal motivation to contribute to the organization. they find joy and meaning in their work and intend a lot of energy; • environment. in such environment which encourages risk, new brave decisions can be made, even not knowing their result or finding oneself in unpleasant situation; • dynamism and liveliness are the characteristics which define the events of organization life. innovation, changes of way of thinking and new ways to solve the problems are frequent in dynamic situations. the atmosphere is alive and full of positive energy; • confidence and openness define emotional safety of mutual relationship. in a high level of mutual confidence, each person in the organization can present their ideas and opinions. initiatives can be taken without fear to receive negative emotions or to be mocked in case of failure. communication is open and candid; • playfulness and humour means spontaneity and abandon. free atmosphere shows that the organization takes a high rank in terms of this factor. according to ekvall, g. (1996) creative climate is defined by three creative climate factors: behavior, feelings and attitudes. therefore, it is possible to say, that organisational culture is characterized by certain specific cultural norms accepted by the majority, which encourage creativity in organization. one more creative aspect in organization is front office or leader encouragement. this phenomenon includes the following factors: • leader support. the leader sets the objectives, supports working group, estimates an individual contribution to work and shows trust in working group. it depends on a working group if workers will be involved in decision-making; • resources. the leader controls the formation of organization budget, decides workers hiring and firing cases, forms teams, sets priorities; • motivation. leader motivates and evaluates employees, suggests the objectives and vision of organization. in order to better understand mentioned factors which depend on the leader, forming elements of each of them are discussed. the first factor is leader support. one of the most important factors that determines the existence of a favourable environment for creativity, is front office / leader favour and support. it could be emphasized that exactly the leader is responsible for creativity in organizations. the role of a head as a leader has an important position for the existence of creative environment. the actions of the leaders are important not so much for the direct result, but also for signals about the desired behavior sent to other employees. vision of the leader is the main factor in supervision of the creative persons. the vision of the leader reflects what could be and should be the future of organization. liberty, support of ideas and discussions are three factors depending on the leader and determining the creativity in organizations (ekvall, g., 1986). liberty is described as independence of human behavior in organization. in such a workplace where a lot of freedom is given, employees take the initiative to obtain and share information, the possibilities to try new fields are made. organizations, which encourage discussions, listen to the opinions of employees, people are happy to offer their ideas. creativity is encouraged by such style of the leadership which supports the ideas of employees, takes into account their needs. if a leader criticizes employee, it is only in order to advise and not to humiliate. thus the discussions are encouraged. conversely, a high level of control, which is characterized by a vigilant supervision of inferiors, strict rules, exclusion of employees from decision making, considerably than centralized system, when everything is decided by the front office, while the divisions or departments do not have the possibility to make decisions. another encouraging element of the organization is organizational climate. scientists researching creativity in organizations emphasize that when creating a favorable work environment for organizations, it is important to consider the same components which are necessary for individual creativity to come through. creating this model an attention was paid to the components identified by ekvall, g. (1987). these components have an impact on creativity: _ challenge. people facing with big challenges have internal motivation to contribute to the organization. they find joy and meaning in their work and intend a lot of energy; _ environment. in such environment which encourages risk, new brave decisions can be made, even not knowing their result or finding oneself in unpleasant situation; _ dynamism and liveliness are the characteristics which define the events of organization life. innovation, changes of way of thinking and new ways to solve the problems are frequent in dynamic situations. the atmosphere is alive and full of positive energy; _ confidence and openness define emotional safety of mutual relationship. in a high level of mutual confidence, each person in the organization can present their ideas and opinions. initiatives can be taken without fear to receive negative emotions or to be mocked in case of failure. communication is open and candid; _ playfulness and humour means spontaneity and abandon. free atmosphere shows that the organization takes a high rank in terms of this factor. according to ekvall, g. (1996) creative climate is defined by three creative climate factors: behavior, feelings and attitudes. therefore, it is possible to say, that organisational culture is characterized by certain specific cultural norms accepted by the majority, which encourage creativity in organization. one more creative aspect in organization is front office or leader encouragement. this phenomenon includes the following factors: _ leader support. the leader sets the objectives, supports working group, estimates an individual contribution to work and shows trust in working group. it depends on a working group if workers will be involved in decision-making; 241 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 _ resources. the leader controls the formation of organization budget, decides workers hiring and firing cases, forms teams, sets priorities; _ motivation. leader motivates and evaluates employees, suggests the objectives and vision of organization. in order to better understand mentioned factors which depend on the leader, forming elements of each of them are discussed. the first factor is leader support. one of the most important factors that determines the existence of a favourable environment for creativity, is front office / leader favour and support. it could be emphasized that exactly the leader is responsible for creativity in organizations. the role of a head as a leader has an important position for the existence of creative environment. the actions of the leaders are important not so much for the direct result, but also for signals about the desired behavior sent to other employees. vision of the leader is the main factor in supervision of the creative persons. the vision of the leader reflects what could be and should be the future of organization. liberty, support of ideas and discussions are three factors depending on the leader and determining the creativity in organizations (ekvall, g., 1986). liberty is described as independence of human behavior in organization. in such a workplace where a lot of freedom is given, employees take the initiative to obtain and share information, the possibilities to try new fields are made. organizations, which encourage discussions, listen to the opinions of employees, people are happy to offer their ideas. creativity is encouraged by such style of the leadership which supports the ideas of employees, takes into account their needs. if a leader criticizes employee, it is only in order to advise and not to humiliate. thus the discussions are encouraged. conversely, a high level of control, which is characterized by a vigilant supervision of inferiors, strict rules, exclusion of employees from decision making, considerably reduces the existence of an environment favorable for creativity. another group of elements of front office / leader encouragement factors is resources. creativity also requires organizations to make strategic decisions considering human resources. cook, p. (1980) considers that creative organizations must fight for attraction improvement and maintenance of creative talent, if they want to remain competitive. creative organizations must try to employ people who desire to learn and ready to take the risks. working groups should reflect the variety of skills and consist of individuals who trust and communicate with each other when generating various ideas (amabile, t., 1987). leaders must adapt the workplace which reflects the employee’s experience and skills in creative thinking, to inspire an appropriate motivation. in order for organization to be creative, it is especially important to improve and save its human resources. in the analyzed literature the usually importance of time and money is usually mentioned, as influencing factors that can support or conversely restrict creativity. when employee is given an insufficient time to experiment, he may unwittingly make mistakes on the way of creative process (amabile, t., 1998). restriction of resources can restrict creativity, because employees will be busy for a longer time searching for additional resources, rather than developing new products or services. according to ekvall, g. (1986), time for ideas is the time that can be used by people for the development of new ideas. according to amabile, t. (1998), leaders have to provide financial, human, time and other necessary resources which are necessary for the team to generate creative solutions. one more group of elements of front office / leader encouragement factors is motivation. motivation can be described as one of the most important factors which determine people behavior. it is like an internal load, which encourages to try and implement the aims. motivation is very important for creative activity. according to zakarevičius, p.(2003) motivation is a very important element of personnel management. motivation of activity is an action which encourages employees to better e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 242 perform their jobs (zakarevičius, p., 2003). researches have shown that supportive, informative evaluation can increase motivation, which mostly contribute to creativity (deci, ryan 1987). creativity would increase, if they receive an award, which is understood as a kind of bonus, confirmation of competence, which may take a form of financial award or verbal compliment (amabile, t., 1986). working group support is the third factor encouraging creativity in the organization. general objectives, settled norms, mutual relations influence the creativity of organizations. organizations can easier come up with some new idea than individuals, however, a team work is one of the factors which influences creativity and affetct creative productivity (grakaskautė – karkockienė, d., 2006). in the majority of modern organizations teams unify employees of unequal qualifications, different experiences and various attitudes. a group as well as individual creativity is affected by many factors: climate of the group, individual creativity and ability to work in a group. creativity in the organization is encouraged by working group support, which comes through when people maintain good mutual relations, are open to new ideas, constructively assess each other’s activities, trust and help each other and are committed to the work they perform. psychologists who research working group influence on creativity observed that the work in group, especially when the creative problems are being solved, is more effective than individual work. vangundy a. b. characterizes some advantages of work in groups: “the scope of knowledge is expanded when working in group; less mistakes are made; more unique ways of solving problems are created; participants are more pleased with their decisions; efficiency of application of decisions increases; less afraid to risks; more various and higher-quality ideas are generated; decisions are rejected more quickly, mistakes are observed; employees take more control to their behaviour, are more interested in task” (grakaskautė – karkockienė, d., 2006). final insights amabile, t. m. (1998). how to kill creativity, harvard business review, 76 (5)/ amabile, t.m. (1987). creativity in the r&d labaratory. technical report number 30. greensboro, nc: center for creative leadership; amabile, t.m., (1996). creativity and inovation at organizations. harvard business school. references analysis shows that understanding of creativity concept was changing constantly. according to the complexity and multidimensity of this concept, there are a lot of definitions of this phenomenon. despite of various understanding of creativity concept, it could be stated that creativity is an ability to discover something new, to adapt the available knowledge purposefully and solve the problems originally, flexibly and effectively. the individual creativity is one of main factors which influence the expression of creativity in higher levels such as organizations and society as well. creativity is often associated with different human features and abilities. creative personality from one simple idea or suggestion is able to create more ideas, thoughts and creations. scientists, who analyse the creativity, identify its different features. the analysis of the proposed models also indicates the similarities: originality, facility, flexibility, specification and imagination. various authors very differently classify factors of creativity of organizations, therefore, new model of actions, which encourage creativity of organizations, was created. that model consists of organization encouragement, front office / leader encouragement and work group support. countries educational systems should be orientated to creativity as well. much more, the importance of creativity should be understood in business sector as well as in government institutions, because government has the exceptional power to trigger the changes in business environment. ananiadou, k., claro, m. (2009). 21st century’s skills and competences for new millennium students in oecd countries. paris, france: centre foreducational research and innovation (ceri) new millennium students. http://dx.doi. org/10.1787/218525261154 andrews, j., higson, h. (2008). graduate employability, ‘soft skills’ versus ‘hard’ business 243 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 knowledge: a european study, higher education in europe, 33:4, 411-422. http://dx.doi. org/10.1080/03797720802522627 augustaitis, a. (2010). kūrybinis žinojimas kompleksinėse aplinkose: kūrybiškumo sudaiktinimas, medijavimas ir vizualizavimas. vilnius: lietuvos mokslų akademijos leidykla; berdrow, i., evers, f.t. (2011). bases of competence:a framework for facilitating reflective learner – centered educational environments. journal of management education, vol.35, no.3. http://dx.doi.org/10.1177/1052562909358976 bilton, c. (2007). management and creativity: from creative industries to creative management. blackwell publishing. bobirca, a., & draghici, a. (2011). creativity and economic development.world academy of science, engineering and technology, (59), 887-892. bukantienė, j., girdzijauskienė, r., jarienė, r., penkauskienė, d., sruoginis, l. v. (2013). mokinių kūrybiškumo ugdymo lietuvių (gimtosios) kalbos pamokose metodika. vilnius. cook, p. (1998). privatisation in the uk: policy and performance. edited by parker, d. , manchester university press; http://dx.doi. org/10.4324/9780203058954.ch12 deci, e. l., ryan, r. m. (1987). the support of autonomy and the control of behavior. journal of personality and social psychology, 53(6), 1024-1037. http://dx.doi.org/10.1037/0022-3514.53.6.1024 dumčienė, a., lapėnienė, d. (2012). kūno kultūros mokytojų kūrybingumo ugdymas. kaunas: lkka; ekvall, g. (1987). the climate metaphor in organization theory. in bass, b. m. and drenth, p. j. d. with weissenberg, p. (eds.), advances iin organizational psychology: an international review. beverly hills: sage, ca, psl. 177-190; european commission (2006). putting knowledge into practice: a broad-based innovation strategy for the eu. retrieved march 14, 2015, from internet : http://eur-lex.europa.eu/legal-content/en/txt/ pdf/?uri=celex:52006dc0502&from=en gage, n. l., berliner, d. c. (1994). pedagoginė psichologija. vilnius: alma litera; jurgita barynienė lecturer, phd kaunas university of technology faculty of social sciences, arts and humanities institute of europe address e-mail: jurgita.baryniene@ktu.lt berta dauknytė master of international business kaunas university of technology faculty of social sciences, artand humanities institute of europe address e-mail: berta.dauknyte@ktu.lt about the authors girdauskienė, l. (2011). ar reikia kūrybinės organizacijos lyderiams ugdyti darbuotojų lojalumą? ekonomika ir vadyba gonzalez, j. et al. (2007). reflections on and outlook for higher education in latin america. university of deusto. grakaskautė-karkockienė, d. (2003). kūrybos psichologija. vilnius: logotipas; yusuf, s. (2009). from creativity to innovation. technology in society, 31(1), 1-8. http://dx.doi. org/10.1016/j.techsoc.2008.10.007 kang, m. et al. (2010). developing an educational performance indicator for new millennium learners. journal of research on technology in education. vol.43., no.2 pp. 157-170. http://dx.doi.org/10 .1080/15391523.2010.10782567 martin, p. (2010). making space for creativity. university of brighton. creativity centre. maslow, a. h. (1968). toward a psychology of being, new york: d. van nostrand co., second edition; runco, m. a. (2014). creativity: theories and themes: research, development, and practice. elsevier. sacchetti, s., & sugden, r. (2007). creativity and economic development.biannual international festival of creativity and economic development, gambettola, italy, may, university of birmingham, mimeo, march. sawyer, r. k. (2011). explaining creativity: the science of human innovation. oxford university press, 2011. seidel, s., rosemann, m., & becker, j. (2008). how does creativity impact business processes?. sherwood, r. m. (1999). human creativity for economic development: patents propel technology. akron l. rev., 33, 351 starko, a. j. (2010). creativity in the classroom: schools of curious delight. new york: routledge; van der velden, r., (2013). measuring competences in higher education: what next? in: s. blömeke, o. zlatkin-troitschanskaia, c. kuhn, & j. fege (eds.), modeling and measuring competencies in higher education. rotterdam: sense publishers. http://dx. doi.org/10.1007/978-94-6091-867-4_15 wallas, g. (1926). the art of thought. new york: harcourt brace. zakarevičius, p. (2003). pokyčiai organizacijose: priežastys, valdymas, pasekmės. kaunas: vdu; european integration studies 2011.indd 199 issn 1822–8402 european integration studies. 2011. no 5 estonia and other countries of the baltic sea region as actors of development: сonceptual approach aksel kirch tallinn university of technology olga nezerenko tallinn university of technology vladimir mezentsev institute for european studies abstract the article describes conceptual model for analyzes processes occurring in the baltic sea region during the formation of single market a unified social, economic and technological space within the european union. these processes are seen as an important condition for more comprehensive and intensive integration of baltic social and economical systems of estonia, latvia and lithuania into the european space. most important tasks of the baltic states integration into the european union social and technological space is maximum possible overcoming of existing differences in these states and integration of political interests, societies and economical structures within this region whilst preserving their national identity. in paper was introduced a conceptual model based on the idea of baltic region seen as environment consisting of open and non-linear systems in which occur transformational processes, reorganizing the social, political and economical structures of the baltic states in the process of sustainable development. the model contains the abstraction which designated as “flow through the area”, where “flow” means the transit any movement of goods, resources and people through the area of single market. sustainable social development requires the availability of renewable resources in sufficient quantities with permanent quality. one of the natural and renewable resources of the baltic region is the transit, which is available because of the unique geographical location of these states. we examine the baltic region’s states and their transit of cargo and people as a system in which structures emerge, disappear and alter under the influence of the energy flow resulting in the system’s new functions and properties and different levels of interaction with the environment. apart from the above-mentioned conceptual model of regional transformation, two types of flows were examined – cargo and goods and migration. based on the quality changes, the prognosis is made with anticipation of further development of processes towards the society founded on knowledge, tendencies in social development and the development of relations between the states in the region. estonia is assumed to be a country with tax tolerance, highly advanced informational environment and good fiscal discipline might take participation in forming the role model for the whole region. keywords: integration; transformation; unified social, economic, technological space; baltic region, europe, sustainable development, society. introduction in the rapidly changing economic situation the common problems and challenges which emerge in front of the baltic region should be considered on the regional level – within the european union as «eu strategy for the baltic sea region». this program of cooperation is an instrument which assists further integration and increasing of competitive status of the baltic states in the european economic area. the primary strategic goal of the program is defined as building of stable, competitive and territorially integrated region within the european union. (ozoline, reinholde, rostoks, 2010). the development of the innovative economy has named one of the main goals of joint transnational activities. such development is mainly focused on educational services, social services and on correction the disadvantageous demographical situation in the region. the program has proposed the participation of the russian federation as a partner for implementation of priority tasks. the strategy is estimated to perform up to 2013 and is a part of the overall strategy european commission «europa 2020: a strategy for smart, sustainable and inclusive growth» (com (2010)2020). the success in achieving the goals of this strategy largely depends on the decisions made in the 27 european states as well as in the states of the baltic region (com (2011)17 final). one of the major tasks of integration of the baltic states into the european community is overcoming the differences existing within the region and implementation of regional integration of economics, politics and social sphere while preserving the national identities. this work is aimed to formulate the conceptual model, which can be used to study the processes transformation of social and political space in the baltic sea region into unified whole. issn 1822–8402 european integration studies. 2011. no 5 200 in the first chapter we introduce the conceptual principles of our model. the second chapter contains the formulation of the model itself. in the following chapters we examine the different social and economical spheres within the model boundaries. and in the conclusion we formulate further plans of study. for the description of the model the following concepts and approaches have been used: prigogine, stengers, 1984; coleman, 1990; norgaard, 1997; bassel, 1999; rotmans 2001; haken, 2006; loorbach, rotmans 2006; ciegis, 2009; todorov, 2009, melnikas, 2010. the method of the research logical abstraction, analysis of the concepts and methods published in scientific literature. conceptual model we consider the countries of the baltic region as an open and non-linear system. openness means availability of sources and exchange stocks of matter and energy and/or information with the environment in which the system is running. nonlinear nature proposes the presence of macroscopic processes of exchange of matter, energy or information within the system. openness and nonlinear structure of the system presuppose the variety of the multiple options of further development on the certain steps of evolution. such choice comes into existence when the initial condition of the system is destroyed and the differentiations arose between the parts of the system or between the environment and the system. the differentiation starts with the self-organization processes which lead the system to stabilizing under new conditions or to her destruction (haken 2006). the process of choosing the development options in a certain moment is a bifurcation in the meaning which was introduced by i. prigogine. such choice assumes that the system may not develop in any random direction but only in a few defined ways of development. variety of evolution directions determines by the present system condition and the environment. in contrast to opposition to natural environment the bifurcation in social systems is not a one-moment state of transformation from one condition to another but a stretched in time process of system rebuilding (transformational process). the system evolution into new state under the influence of attraction certain structure called «attractor». here «attractor» is a subset of the possible variety of way’s, on which the system will evolve further. under the influence of the attractor the system begins its evolution evolving into the foregoing state. the total amount of attractors which could be reached by system during the transformational processes might become the set of various scenarios for the future. we accept that the social system evolves in a direction of sustainable development. the trajectory of this system development has been affected by two groups of forces. one of them is the forces which deflect the development from the sustainable trajectory. another group is the forces which push the development to the sustainable trajectory. extreme depletion of the resources is the factor of limitation of development. when depletion increases, the rate of consumption of resources reduced, and the society begins to increased investments to renewal of the resources. in terms of the balaton’s group accessing the sustainable development, there are three following allocated systems: 1) humanity: social system (population development, ethnic composition, income distribution and class structure, social groups and organizations), individual development (individual autonomy and self-determination, right to work, social integration, qualification, specialization, education), government ( government and administration, population and migration, international assistance, technology); 2) economy: transportation, communication, facilities for education, science, research and development, labor and employ these; 3) natural. (indicators for sustainable development, 1999). in compliance with the co-evolutional approach (by norgaard) the sustainable development is a meta-system which contains the balanced components human, economic and nature. specifications of the model the role of attractors in our model belongs to the russian federation and the european union under which influence the transformational processes are occurred in the baltic region states – estonia, latvia and lithuania. the european union is the main center of attraction of the model that defines the rules and allocates the resources within the system. the russian federation is the major regional power which is one of the leading suppliers of energy transit, goods and services. states of the baltic region are the result of a bifurcation process the collapse of the russian empire in 1917. from 1918 to 1939 the baltic states experienced the influence of two attractors «europe» and «russia». in 1939 they were included in the sphere of influence of the attractor «russia», until the 1991. during this time the social systems of the baltic states were influenced by next flows: ideological, migration, and economic activities, was transformed into stable structures, typical of the attractor «russia». the collapse of the soviet union it is yet another bifurcation process, as result of which: 1) the baltic states regained their independence; 2) the system of the baltic sea region has acquired its present configuration two powerful attractors «europe» and «russia», among which are located the social systems of the baltic states. despite the fact that in the past 20 years, the baltic states have shifted into the zone of influence of the attractor «europe» we use the term «the transformation of social systems». this is due to the fact that the transformation process is not completed. the reasons “why” are listed above. after the collapse of the soviet systems, in social system the baltic states preserved the some structures, foremost in the ethnic composition of population and industrial structures, that were formed in the time spent in the soviet union. we make the assumption that the current position of the baltic states depends on the varying degrees of transformation and integration of these structures into the space of their social and economical systems. joining the european union in 2004 has provided the baltic states with consistent development of the economy. in figure 1 it is shown that starting from the moment of entry into the eu, gdp in all three states shows the tendencies to grow up until 2007 when the rates of growth slow down due to the political conflict with russia and a fall in gdp to the negative area due to the global economical crisis in 2008. issn 1822–8402 european integration studies. 2011. no 5 201 figure 1. growth rate of gdp volume percentage change on previous year (eurostat 2010) we interpret this behavior of gdp as an indication that the membership of the baltic states in the european union, despite the possible crisis situations provides sustainable economic development. in 2009 the majority of europe`s post communist countries (and all baltic states) may consider themselves to be modern capitalist societies (kirch, inotai, 2009, 5). at this time estonia is the only one among the baltic states which joined the european economic area for which she had equated her fi nancial showings to the european standards. it demanded the enforcement of strict fi nancial discipline and reduction of social spending. it didn’t result in lowering showings, which testifi es in behalf of stability of the social sphere to the adverse effects. bertelsmann’s index which gives an integral estimate of social and political transformation of the state shows that estonia ranks fi rst among the baltic states (figure 2) on quality of governance, the interaction with the environment and development of civil institutions and public education (http://www.bertelsmann-transformation-index.de/en/bti/). figure 2. composite bertelsmann index development of transformational processes in estonia, latvia and lithuania moves in the direction of sustainable development. for the development of the society, the renewable resources should be available. for sustainable development the renewal of resources should be at least in unrelenting quantity and permanent adequate quality (daly, 1991). one of the natural and renewable resources of the baltic region is the transit, which exists because of the unique geographical location of these states. we defi ne baltic region states (latvia, lithuania, estonia) and their transit fl ows through it, as a system through which the fl ow of energy, under whose infl uence there, disappear or altered internal structure, so that the system itself takes on new properties or functions and moves to new level of interaction with the environment (haken, 2006). here, under the energy fl ow we mean transit as any movement of goods, ideas and human resources across the fi eld. the transit in any of its form we examine as a structurefoundation factor (by haken). at the same time only those structures which have a property of resistance to unfavorable external conditions are assigned. below we examine two types of transit: cargo transit as an economic category and the migration processes. the migration process within boundaries of our model may seen as a fl ow, which originates when the differences in the socio-economical potential between two regions – the state of origin and the state by choice, occurs (see beine, docquier and rapoport, 2001; hardill, 2000; williams, 2005; čekanavičius, kasnauskienė; 2008). we examine migration processes, mainly in part of the migration of highly skilled personnel and the side-effect of this process on the development of an innovative economy. transit as an economic category as mentioned above the transit is a natural and renewable resource of the baltic region which existence becomes possible thanks to the unique geographic position of states located there. currently transport infrastructure is used to ship goods from the west to the east and vice versa. russia, china and southeast asia should be considered as a primary destination of export and import of goods. (see table 1). table 1. extra eu27 trade by main partner, 2008 bn euro external and intra-european union trade monthly statistics, 2009. p.25). export import china 78.4 247.9 russia 105.0 177.9 norway 43.8 95.8 dae(dynamic asian economies) 100.4 126.2 asean 55.7 79.7 shares of the baltic region in the total cargo turnover for the year 2009 are presented on the figure 4. issn 1822–8402 european integration studies. 2011. no 5 202 figure 4. the market structure of cargo seaports service in 2009, %. (baltic transport journal, 4,2010, p.30) the russia leads the chart with 24% share of total volumes. sweden is on the second place, which lost its leading position with the biggest slump in total cargo (-25.8% or -43 mil ton than a year before). denmark became the third country in cargo handling in the baltic region, the amount of processed goods into its ports decreased by 14.6%. for estonia, cargo transit in addition to its economic attractiveness hides potential risks. the increase in freight traffi c through the baltic region involves the participation of russia as a stable supplier for the steady increase in the volume of goods transported. you should also consider a possible negative scenario. as an example: 1) russia reduces the transit fl ows through one of the baltic sea region and directs the fl ow of cargo into a neighboring country; 2) russia has been increasing fl ow of cargo through its terminals in the baltic sea, and 3) must separately consider the presence of the existing customs unions with participation of russia, kazakhstan and belarus. under these conditions rely on the steady growth of the transit fl ow through the ports of estonia and neighboring countries is not possible. migration process as “a transit to open society” the development of the innovative economy named as one of the main objectives of the joint efforts of the baltic states. let’s compare the showings of innovation opportunities in estonia, latvia and lithuania with the summary innovation index (http://www.proinno-europe.eu), which is calculated for the eu27 (figure 3). in compliance with this index the states included in the eu27 are divided into the following categories: 1) innovation leaders. denmark, finland and sweden all show a performance well above that of the eu27; 2) innovation followers. estonia shows a performance close to that of the eu27; 3) modest innovators. latvia, lithuania are well below that of the eu27. as we have seen on ground figure 3, estonia has a good position for the development of the innovation economy. such development is greatly focused on education and social services. (kirch, 2010). estonia has the tolerant tax policy, good fi scal policy and the maximum developed electronic environment. (varblane et al, 2008). also estonia has good potential for establishing the transit “to open society“of highly qualifi ed resources from russia for further education, researching and innovation activities. figure 3. normalized summary innovation index calculated over a fi ve-year period (http://www.proinnoeurope.eu/metrics) the reasons for the migration process lay in the processes of globalizing of world economy, increasing mobility of population and increasing of freedom of self-realization (biene, docquier and rapoport, 2008, 631). for the states participating in the migration process it exerts the positive and negative impact at the same time. the migration of highly educated people on the international scale can be considered as a mechanism of diffusion of knowledge and rotation of scientifi c personnel which aids to research and development of educational systems in the recipient countries. possible positive and negative effects for both involves countries see table 2. table 2. positive and negative effects of high skilled migration for involved countries (daugeliene, 2007, p.61) effect positive negative for «source» country migrants return with new competence, new relations with foreign partners. the growth of average wages. decline of unemployed level loss of investments in education of the individual. loss of high competence specialists. decline of producing amounts. the negative change considering demographic situation. for «purpose» country knowledge workers invest in competence as well as in adaption to new life circumstances. total growth of economy. growth of investment in r&d. decline the ambitions of local habitants to seek for the highest qualifi cation. possibility to lose the know-how potential. for the state of origin the migration of highly qualifi ed issn 1822–8402 european integration studies. 2011. no 5 203 personnel towards more comfortable social system means the losses in productivity of educational system financial losses. the reason for such losses is the migration of teachers, qualified researchers and students and as a consequence of that, impossibility to return the money invested to maintain and develop the educational system which lost its productivity. the negative consequences of migration process estimated as the following: 1) exhaustion of the human resources who lead to lower productivity and underdevelopment; 2) reducing the tax base and reducing investments in education; 3) increasing of poverty and inequality in the country. research results show that lithuanian and latvian migration is starting to change from a short-term economical migration to a long-term, because of the family reunion process and fast-developing social network (in ireland, united kingdom and spain as main directions of lithuanian emigration). in lithuania emigration flow increased 2010 about five times compared to 2009, in latvia emigration flow increased in 2010 about 3 times compared to 2009. according to certain estimations, approximately 12-15% of adult lithuanian citizens have departed to work abroad (gaydis, 2010: 29). but in estonia migration flows (immigration and emigration) have stabilized in the last few years (in the period of 2005-2010 net migration was only 13 thousand persons). estonian migration to finland is today long-term economical migration. in 2010 about 29 thousand estonian citizens live in finland and they form biggest ethnic minority in finland. due to the quality of emigrants, lithuania and latvia is losing investment in human capital in the future, because almost one half of the emigrants are the representatives of qualified labor force (daugeliene, 2008; sedziuviene и veinhardt, 2009). attracting of knowledge workers in the high tech sector and consequences in the form of accumulation of human capital is the topical issue for the countries which going through processes of transforming their systems. conclusions for the examine of the integration processes in the baltic sea region was proposed the conceptual model of environment consisting of open, non-linear systems in which there are processes of transformation, transforming the socio-political and economic structures are seen as the processes of sustainable development. the model has been proposed the abstraction of «flow through the area» where the flow means the transit – the movement of cargo, people or resources through the certain area. as the external forces which determine these flows and causing the transit of open social systems have been defined attractors – the european union and russia. the hypothesis was formulated that current differences in social and economical situation of the baltic states depend on their success in the transformation and integration of structures which cannot self-adapt to the new social and economical conditions. within the boundaries of the model the cargo transit in the direction of the russia-european union through the states of the baltic region have been examined. increasing the freight traffic through the territory of the baltic states involves the participation of russia as a stable supplier for the steady increase in the volume of goods transported. migration of highly skilled manpower has been identified as a flow, causing the difference in economic potential. future research on this topic should focus on the problem of migration knowledge workers in the context of the transit process. external migration from the baltic states should be regarded as a positive factor that influences the development of higher education, research and development. problem of the future study is defined as: 1) the analysis of processes in an education sphere and migration of knowledge workers of the countries of baltic sea in a context of free moving of capitals, the goods, services, people and knowledge; 2) the analysis of tendencies knowledge workers migrations in nordand baltic-europe and the connected institutional and behavioural mechanisms of adjustment; 3) an estimation positive and negative sides of migration knowledge workers of the countries of baltic sea in a model «donor-recipient»; 4) revealing and the analysis of the reasons leading to «brain drain» in a context of innovative processes of science and education. references bassel, h. 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(2005). what human capital, which migrants? returned skilled migration to slovakia from the uk. the international migration review, vol. 39. issue 2, 439–468. the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 76 brexit implications for the eu enlargmement of the western balkans http://dx.doi.org/10.5755/j01.eis.0.11.18125 gazmend qorraj, suada ajdarpašić university of prishtina, street “george bush”, kosovo gazmendqorraj@yahoo.com; suadahajdarpasic@hotmail.com submitted 04/2017 accepted for publication 08/2017 brexit implications for the eu enlargmement of the western balkans eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 76-88 doi 10.5755/j01.eis.0.11.18125 © kaunas university of technology introduction most of the analyses are performed to find the impact of the eu membership on trade relations and economic impact for the eu member states. on the contrary, the brexit is the first case to discuss and predict the exit process. in this paper we will try to analyse the brexit with regard to the eu enlargement of the western balkans. the first issue addressed by this paper is: the lack of political support of britain for the eu enlargement of the western balkans from now on. the paper tackles another important issue, namely the eu-uk negotiation process and its impact on the western balkans. assuming that britain cannot negotiate optimally with the eu, which could impose long term negotiations, and therefore the main focus of the european union will be directed to the brexit process instead of focusing on the eu enlargement of the western balkans. we employed a survey of 400 respondents, covering mainly academics working on the eu affairs and other stakeholders in four western balkan countries, to produce the empirical results from the expectations of respondents about the future prospects of the european union in the western balkans after brexit. the survey was conducted in 2017. generally, based on the statistical indicators as well as the survey results, we can conclude that the respondents in the western balkans are still optimistic about the europen integration process despite the brexit and other eu challenges. keywords: brexit, eu enlargement, membership, negotiations, integration, western balkans. besides the european union membership, the uk is also member of the most influental international institutions such as: g8, g20, nato, the oecd, the wto, the united nations security council, a significiant contributor to the un, imf and world bank as well as world‘s sixth largest economy (world bank, 2013). the fact that, on the 23rd of june 2016, the majority voted uk to exit the european union has caused great uncertainty throughout europe, although the uk’s membership of the eu was somewhat special as the uk has an opt-out from the single currency, it has a rebate from the eu budget, and it was not part of the schengen zone (andor, 2016). as a result of this decision, the western balkan countries have also experienced great uncertainty in their integration path towards the eurpean union. as the “brexit” does not mean just exit of great britain from the eu, but also shifting the main focus of the eu exclusively to this process, throwing into oblivion its enlargement. this also represents a major problem for the western balkan countries, even though after the uk referendum the eu high representatives reassured western balkans leaders that the enlargement process will continue. despite this eu commit77 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 ment, the dilemma exists whether the brexit process will cause political challenges, impact on reforms and future growth (bakker, 2016). according to bieber (2016) the eu accession process has been the key driver for political and economic reform in the western balkans for years. serbia and montenegro are in accession talks. albania is a candidate country, as is macedonia albeit with a question mark since the political crisis of the past year. bosnia and herzegovina submitted its eu membership application just a few months ago; kosovo remains lagging far behind, but has recently concluded a stabilization and association agreement. generally, europeanisation in the western balkans has been equalled with building regional peace and stability (kostovicova, 2016). except the economic and political issues, the eu for many years is supporting the western balkan countries on educational reforms by providing various forms of support through the different educational programs such as: tempus, erasmus, horizon 2020. given the administrative and experience constraints of the western balkans the uk partners supported the inolvement of the western balkan universities on the eu projects.the brexit leads us to the question, to what extent will it affect the participation process of the western balkans in the eu projects, as well as the overall support to these countries? the main objective of this paper is to investigate and determine whether brexit is a threat to the enlargement process of the eu in general, and whether the countries of the western balkans are still part of the current plan of the european union? the story in this paper is build in the main assumptions, such as: first, the brexit will significiantly impact the speed of the eu enlargement process; and second, the brexit will have stronger political negative effect on western balkans compared to economic effects, due to the continuation of strong political influence of the britain in the region. there are not many theoritical contributions about the brexit and the western balkans, therefore this paper adds value and could be very useful for the academic world; the policy makers in the western balkans, as well as for other interested stakeholders. the brexit process is officially initiated in march 2017, and the plan is that by march 2019, the uk should complete its separation process from the eu. the impact of the brexit has been immediate and global, but there are still more questions than answers about what happens next. the brexit referendum means that the eu will have to devote tremendous activities in the coming years to its own internal debates and to the ideas of determining the future of the european integration. according to wohlfeld (2016), it is expected that the exit process won’t be an easy task. but if for any reason uk decides to revoke the process of the brexit, according to the eu, it can only happen if all 27 other members of the eu allow it. thus, it would be much better if the uk has a good plan to be able to function outside the european union. even before the outcome of the brexit referendum, the western balkans and the topic of the eu enlargement were hardly top priorities for the europe’s decisionmakers. since at least the onset of the economic and financial crisis in 2007 and 2008, and with mounting worries about member states leaving the eu, the eu has been chiefly concerned with internal matters, issues that require enormous effort and resources (wohlfeld, 2016). the eu message was clear on its commitment to the western balkans: enlargement would continue as usual. but in the balkans, there are concerns about eu integration process as the eu gets mired in the unprecedented task of british withdrawal. these fears accurately reflect the relationship between the eu and its balkan partners. balkan countries aspire the eu membership, but the driver of change is still the eu (kostovicova, 2016). britain had been an active force in the literature review e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 78 western balkans, especially in bosnia and kosovo, even though the level of its engagement had noticeably declined in recent years (ker-lindsay, 2015. earlier, however, it had been “extremely important” in the context of kosovo’s recognition as a state as well as “instrumental” in taking serbia-kosovo relations forward (tanner, 2016). furthermore, with britain leaving the eu, the countries of the western balkans are losing a key advocate of enlargement. as many member states have become critical towards enlargement, the uk has promoted both enlargement and reforms in the region vigorously (bieber, 2016). in those terms the issue of brexit influences the time and capacity the eu institutions are investing in the policy of enlargement and the view from the balkans is that this eu policy has been neglected (bazerkoska, 2016). in addition, bieber (2016) added that the uncertainty that brexit produces makes prediction difficult, but that uncertainty in itself will play an important role in shaping policy making. the consequence of the brexit is both structural the ability of the eu to act and integrate new members and normative the ability of the eu to promote a particular type of democratic, consensus-oriented system of government. an additional important issue for the western balkans countries is participation on eu programs in partnership with the uk. although the uk government has confirmed that there will be no change to arrangements, many partner institutions in the eu countries as well in the western balkans have raised concerns about whether to collaborate with uk institutions on the eu funding projects. evidence suggests that the he sector is already experiencing an impact with regard to collaboration in eu research projects and he staff mobility, as much will depend on what will be agreed as part of the uk’s exit negotiations with the eu(hubble, 2016). apart from political consequences, the brexit it‘s expected to have also the economic impact for the eu. the uk made the third highest net contribution to the eu budget, €7.1 billion, following france with €7.4 billion and germany with €17.7 billion. therefore the economic impact relates also to the eu’s multiannual financial framework (mff) for both the current (2014-2020) and the next planning period.the negotiations around and adoption of the (2021-2027), mff will become more stressful and challenging than before (dana, 2016). futhermore, once britain leaves the european union, there will be consequences for the eu as a trading power. britain was, in 2015, the world’s fifth-largest economy and europe’s second-largest. it was tenth-biggest exporter of merchandise, and the second-biggest of commercial services (schmucker, 2016). according to the (dg for internal policies report, 2017) the volume of trade between the uk and eu27 is very substantial, with eu27 enjoying a large surplus. the eu27’s exports to the uk totalled €306 billion, whereas it imports amounted to only a little above half as much, at €184 billion.furthermore, in 2015, 76% of the western balkans’ total trade was with the eu 28. within the eu 28, the uk is a minor export market for the western balkans compared with italy, germany and central europe. these markets are unlikely to change because of brexit (butler, 2016). with regard to the investments, the uk has never been a significant investor in the western balkans. the potential economic decline of the uk as a fallout from brexit may have thus a very limited impact on these economies (stojic, 2016).the long-term impacts of the decision to leave the eu on the overall regulatory framework for the uk will depend, in part, on the relationship that the uk seeks with the eu in the future (booth, 2016). the eu would also face political and economic risks as described in the table 1. for the eu the so called process of brexit doesn’t mean just the exit of uk but also the ruin of many dreams that the founders had about the europe. brexit would not just have significant consequences for the uk but also for the rest of the european union; a divorce of this magnitude would necessarily impact all parties involved gow & henning (2016). however, brexit implica79 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 table 1 political and economic impact on eu from brexit damage to the post-war european ideal political contagion – brexit would set a precedent and in the uk economy is successful would increase impetus for further exits shift in the balance of power within eu institutions loss of major net contributor to the budget smaller voice on the global stage with the exit of its second largest economy damage to eu-uk trade could exert a negative impact on the uk‘s major trading partners within the eu increased competition from the uk as a destination for fdi source: political and economic impact on eu (blog.euromonitor.com). tions are not easy to measure as they depend on negotiating process and which status britain will ensure with the eu. thus depending on how these scenarios will unfold, the process could result with benefits or challenges for the western balkans. methodology result‘s interpretation first, a pilot survey was conducted with local experts in kosovo, which dealt with the eu integration issues with regard to the brexit and balkans, and helped us to create the key assumptions. those assumptions are: lack of political support from the britain for the western balkans integration to the eu; lack of eu support for the wb integration as eu involvement on brexit negotiations. based on results of this pilot exercise we compiled a final survey which was the main focus of this study. the primary data are gathered from respondents including four western balkan countries as follows: kosovo 100 respondents, bosnia and herzegovina 100 respondents, montenegro 100 respondents and macedonia 100 respondents. the targeted respondents are mainly university lecturers and students as well as local officials within public institutions involved on the eu integration process. we used a spss statistical package to obtain the descriptive statistics. the results of the surveys conducted were interpreted separately for each participating country including kosovo, bosnia and herzegovina, macedonia and montenegro. afterwards, these results, respectively the perceptions and expectations expressed in the surveys were compared to analyze the situation for all these 4 countries of the western balkans. this section summarize and present the main findings of the research. 1. kosovo kosovo is the last country of the western balkans included within the european integration process due to the political and final status challenges. on the question if the brexit will have an impact on the western balkans, around 58% of the respondents answered that brexit will have a significant impact, while only 12.4% expected no impact and 29.5% relative impact. more that half of the respondents, 54.4%, answered that the main impact of brexit will be political, while 45.6% though that the economic impact will be more important. furthermore 78.1% of the respondents expected that the eu-uk negotiations will be very difficult, while only 21.9% of the respondents thought they will be very easy. on the question about the most difficult issues during the negotiations, interestingly around 34% declared that the most difficult will be the negotiation of economic issues, which is quite similar with the eu programmes as 31% declared about the eu programmes and 34.3% declared about e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 80 political issues. when asked about the impact of brexit on the eu, most of the respondents, around 88%, answered that the brexit will have a negative impact on the eu, whereas on the contrary only 12% thought that brexit will have a positive impact. table 2 interpretation of the results for kosovo interpratation of the results for kosovo b r e x it w ill h av e an im pa ct o n w es te rn b al ka ns th e m ai n im pa ct o f b re xi t eu u k ne go tia tio ns is su es to b e ne go tia te d th e b re xi t im pa ct o n e u w ill b re xi t p os tp on e th e eu in te gr at io n pr oc es s th e im pa ct o f b re xi t o n o th er e u m em be rs t o le av e th e e u n eg at iv e ef fe ct s e u m ai n ch al le ng es e u p o te nt ia l t o o ve rco m e ch al le ng e yes 58% no 12.4% relatively 29.5% political 54.4.% economic 45.6% difficult 78.1% easy 21.9% economic i. 34% eu prog. 31% political i. 45.6% positive 12% negative 88% yes 32.5% 61% no 64.8% 39% political 42.9% economic 57.1% economic crisis 52.4% brexit 17.1% emigration 18.1% enlargement 12.4% yes 85.7% no 14.3% source: authors‘. 81 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 around 32.5% of the respondents think that the brexit will postpone the eu integration process for the western balkans, and 64.8% think that there will be no impact. another important question addressed was also the impact of brexit on initiatives of other eu member states to leave the eu. most of the respondents, 61% of them, answered that brexit could influence the other member states to leave the eu while 39% of them declared that brexit will have no influence on other eu member states. with regard to negative spillover effects on the european union, around 42.9% of the respondents think that there will be political negative effects, while 57.1% think that brexit will have much more economic negative effects. the current eu main challenges by respondents were classified as follow: 52.4% identify the eu economic crises and convergence as the main challenge,17.1% think it is the brexit, 18.1% the emigration and refuge crises, while only 12.4% the enlargement process. finally most of the respondents are optimistic about the eu potential to overcome the challengess, as 85.7% of them believe that eu will overcome easily these challenges and only 14.3% of them think that the current challenges will create serious problems for the existence and functioning of the european union. 2. bosnia and herzegovina bosnia and herzegovina is a potential candidate country within eu integration process. our analysis on impact of brexit on the western balkans will be described as follow. in bosnia and herzegovina around 40% of the respondents think that brexit will have significant effect, only 14% answered there will be no effects, and interestingly some 46% chose relative effects. furthermore, around 54% of the respondents think that the main impact from the brexit will be political, while 46% think that the economic impact will be the main one. in addition majority of the respondents, around 83%, think that there will be very difficult negotiations between the eu and uk and only 17% expect easy negotiations. political issues are considered to be the most important respectively difficult issues by the respondents, consisting of 42% and approximately similar level around 43% think that economic issues are more important; while only 15% think that the crucial issue will be the participation of britain on the eu programmes. around 77% of the respondents also expect the negative effects for the eu from the brexit, on the contrary only 23% of them believe that there will be no effects for the eu from the brexit as britain was not fully integrated within the eu. with regard to the enlargement process, 45% of respondents in bosnia and herzegovina concluded that the brexit will postpone the eu integration process for the balkans, while 55% think the contrary will happen. the brexit impact on the other eu member states according to 65% of the respondents is real, that means this process could initiate other eu member states to think about the eu exit such as france; while 45% believe that policies of the other countries will not be affected by brexit. some 53% of the respondents expect political negative effects, whereas the remaining 47% of them believe on economic negative effects to the eu from the brexit. the emigration and refuge crises was seen as the most important issue from the 39% of respondents, about the current eu main challenges, followed by eu economic crises and convergence around 26% of respondents, brexit 24%, and the enlargement process only 11%. according to the question if the eu could overcome these challenges easily, only 67% of the respondents answered positively while the remaining 33% answered negatively by being pessimistic about the eu mechanisms and institutions. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 82 table 3 interpretation of the results for bosnia and hercegovina 3. macedonia macedonia, as a country of the western balkans, is a candidate country within the eu integration process. in macedonia only 38% of respondents concluded that brexit will have significant impact, followed by 39% who concluded that there will be relative impact and 23% expected no impact. around 34 % of respondents answered that the main impact of the brexit will be politiinterpratation of the results for bosnia and hercegovina b r e x it w ill h av e an im pa ct o n w es te rn b al ka ns th e m ai n im pa ct o f b re xi t e u -u k n eg o ti at io ns is su es t o b e ne g o ti at ed th e b re xi t im pa ct o n e u th e b re xi t po st po ne th e e u in te g ra ti o n pr o ce ss th e im pa ct o f b re xi t o n o th er e u m em be r to le av e th e e u n eg at iv e ef fe ct s e u m ai n ch al le ng es e u p o te nt ia l t o o ve rco m e ch al le ng es yes 40% no 14% relatively 46% political 54% economic 46% difficult 83% easy 17% economic i. 43% eu prog. 15% political i. 42% positive 23% negative 77% yes 45% 65% no 55% 45% political 53% economic 47% economic crisis 26% brexit 24% emigration 39% enlargement 11% yes 67% no 33% source: authors‘. 83 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 cal, while 66 % of respondents think that economic impact will be the main one. majority of the respondents, around 80% of them, are expecting the difficult negotiations between eu and uk on brexit, while only 20% of respondents expect normal and easy negotiations. around 44% of the macedonian respondents expect that the most difficult part will be on economic issues, followed by 32% of respondents who expect difficulties onthe eu programmes and table 4 interpretation of the results for macedonia interpratation of the results for macedonia b r e x it im pa ct o n w es te rn b al ka ns th e m ai n im pa ct o f b re xi t e u -u k n eg o ti at io ns is su es t o b e ne g o ti at ed th e b re xi t im pa ct o n e u b re xi t w ill p o st po ne th e e u in te g ra ti o n pr o ce ss th e im pa ct o f b re xi t o n o th er e u m em be r to le av e th e e u n eg at iv e sp ill ov er ef fe ct s e u m ai n ch al le ng es e u p o te nt ia l t o ov er co m e th e ch al le ng es yes 38% no 23% relatively 39% political 34% economic 66% difficult 80% easy 20% economic i. 44% eu prog. 32% political i. 24% positive 64% negative 37% yes 47% 66% no 53% 34% political 39% economic 61% economic crisis 33% brexit 25% emigration 30% enlargement 12% yes 67% no 33% source: authors‘. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 84 surprisingly only 24% of respondent’s think about political issues as difficult ones. macedonian respondents expect a minor role of the brexit on the eu, only 37% declared on the negative impact of brexit on the eu; whereas on the contrary, majority of them 64% expect a positive impact of the brexit for the eu. some 47% of the respondents believe that brexit will involve the eu in long negotiations therefore the process of the eu integration for the balkans will be out of the eu agenda, while 53% do not share their thoughts.around 66% accept that the case of the brexit will influence other eu member states initiating the similar initiatives, while 34% of them believe on the strong commitment of other member states to remain in the eu, especially old members. interestingly only 39% of respondents expect political negative spillover effects, but 61% of respondents expect economic negative spillover effects from the brexit. interesting results were shown about the main current challenges, which are almost equal as 33% of the responts that the eu economic crises and convergenceare main current challenge, 25% of them put their weight on the brexit, 30 % believe that the emigration and refuge crises are the main challenges, while only 12% of respondents chose the enlargement process. in macedonia there is also an optimistic view about the eu potential to overcome the challenges as 67% of respondents believe in the eu institutions and reforms and 33% of them think that these challenges are not easy tasks for the european union. 4. montenegro montenegro is also one of the candidate countries in the european integration process. according to the dilemma about the brexit impact on the western balkans only 29% of the respondents expected a significant impact, while 22% expected that brexit will have no impact on the western balkans, and 49% accept only relative impact of the brexit on the western balkans. with regard to political or economic impact they almost share the same opinion, suggesting that 49% expect political impact and 51% expect an economic impact as more important. most of the respondents, 84% of them, expect long term and hard negotiations, while the small group of the respondents, only 16%, expects easy negotiations between the eu and the uk. for almost 40% of the respondents in montenegro the most challenging issues are seen political issues during the negotiations, followed by 35% of respondents who think that the eu programes are larger issues, and interestingly only 25% of the respondents focus on the role of economic issues during the negotiations. furthermore, in montenegro only 30% of the respondents answered that the brexit will have negative impact on the european union, while 70% of them think that the brexit will have the positive impact, which is contrary to kosovo and bosnia and herzegovina but similar with macedonia. regarding the enlargement process and brexit, respondents have following expectations: 47% of them think that brexit will postpone the enlargement process of the western balkans, while 53% of them believe that there will be no impact on enlargement process. around 58% of the respondents in montenegro think that the brexit impact on the other eu member states is real, meaning that this process could initiate other eu member states ti initiate procedures of exiting from the eu, while 42% thought that the other countries will not be affected by the brexit. some 54% of the respondents expect to see political negative effects, whereas 46% of them expect mainly economic negative spillover effects to the eu. furthermore, around 31% of the respondents consider the main eu current challenges to be the economic crises and the eu convergence, the similar number of 31% of respondents consider the emigration and refuge crises as key challenges, whereas the rest of the respondents, about 27%, consider brexit, and 11% the enlargement process as main challenges. finally respondents in montenegro seems to believe 85 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 interpratation of the results for montenegro b r e x it im pa ct o n w es te rn b al ka ns th e m ai n b re xi t im pa ct e u -u k n eg o ti ati o ns is su es t o b e ne g o ti at ed th e b re xi t im pa ct o n e u b re xi t po st po ne th e e u in te g ra ti o n pr o ce ss th e b re xi t im pa ct o n o th er e u m em be r to le av e e u n eg at iv e ef fe ct s e u m ai n ch al le ng es e u p o te nt ia l t o ov er co m e th e ch al le ng es yes 29% no 22% relatively 49% political 49% economic 51% difficult 84% easy 16% economic i. 25% eu prog. 35% political i. 25% positive 30% negative 70% yes 47% 58% no 53% 42% political 54% economic 46% economic crisis 31% brexit 27% emigration 31% enlargement 11% yes 76% no 24% source: authors‘. table 5 interpretation of the results for montenegro on the eu institutions as 76% of them believe that the eu will find the optimal solution to overcome the challenges, while only 24% of the respondents are pessimistic about the eu potential for the reforms and new initiatives. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 86 the european union within the framework of the stabilisation and association process has succeeded in incorporating the countries of the western balkans into the european integration process despite their political, economic and institutional challenges and differences. in generall, there are interesting perceptions about the impact of the brexit on the western balkans when comparing surveyed countries of the western balkans, namely: kosovo, bosnia and herzegovina, macedonia and montenegro. kosovo showed highest perception in general about the significant impact of brexit as 58% of the respondents expect the negative impact, while it was a bit less in other countries: bosnia and herzegovina only 40%, macedonia 38% and montenegro only 29%. therefore in bosnia and herzegovina, macedonia and montenegro there is a high number of respondents who expect only relative impact of the brexit. this perception probably could be interpreted in a way that for kosovo respondents, the uk represent very influental country especially from the political point of view. different countries had also differences when it came to analyzing if there will be political or economic impact from the brexit. in kosovo and bosnia and herzegovina respondents shared the similar opinion. around 54% in both countries expect the political impact.however the sittuation differs with macedonia and montenegro. in macedonia around 66% expect economic impact followed by 51% in montenegro. with regard to negotiating process all the western balkan countries respectively more than 80% of the respondents in these countries are expecting difficult negotiations betwen the eu and the uk. although macedonian respondents expected that economic issues will be the most challenging, for around 40% of respondents in kosovo, bosnia and herzegovina and montenegro the political issues are considered to be the most challenging topics during eu-uk negotiations. in surveyed countries such as kosov and bosnia we found that majority of the respondents expect negative effects of the brexit on the eu. kosovo leads with 88%, followed by bosnia and herzegovina by 77%, while in contrary respondents in macedonia 63% and montenegro 70% declared about positive effects of the brexit on the eu. they explained that uk benefited from the eu due to selective policies applied. macedonian and montenegro respondents share the similar percentage of 53% on the dilemma if the brexit will postpone the enlargement process, followed by bosnia 55%. this suggest that countries assume that the brexit will not postpone the enlargement process. in kosovo a larger number of respondents share the idea that eu integration process will continue. all surveyed countries share almost the similar opinion that brexit could influence other eu member states. this is expressed in percentages in montenegro 58%, kosovo 61%, bosnia and herzegovina 65% and macedonia around 66%. in kosovo, bosnia and herzegovina and montenegro respondents declared that there will be political negative effects from the brexit, whereas only in macedonia 61% have a perception that the main will be the economic negative effects for the eu. almost three countries share the same opinion that the main current challenge of the eu is economic crises and convergence issues, while only in macedonian respondents think that the emigration and refugee crises was the main challenge for the eu. finally most of the respondents in all the countries believe that the european union will overcome the current challenges and crises. expressed in percentages this is as follows: in kosovo 85.7%, followed by montenegro 76%, and similar for bosnia and herzegovina and macedonia with 67%. comparisons between the western balkan countries 87 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 conclusions despite the minor economic role respectively export market for the region of the western balkans, the uk was considered among the main influential countries for the eu integration of the western balkans. taking into consideration this fact, for the western balkans the uk position within the eu was very important as it’s is also very important the uk positioning outside the eu. according to the survey results the main conclusions of this paper are: _ the brexit impact is significant for all the countries of the western balkans. for kosovo and bosnia and herzegovina it is considered mainly transmitted as a political impact while for macedonia and montenegro as economic impact. _ for the western balkans the eu-uk negotiating process is also crucial, as the most of the respondents is expecting difficult negotiations which keep both the eu and the uk engagement out of the balkans. _ the western balkan respondent’s in kosovo and bosnia assume that the brexit will impose the negative effects on the european union, while in macedonia and montenegro expect positive effects of brexit on the eu, as they suppose that uk had more benefits from the eu membership than contributions. _ in most of the western balkan countries, respondents accept that the eu will experience larger negative political effects compared to economic effects due to the brexit. _ additional negative effect for the eu could be the increase of the eurosceptic’s within the eu, therefore influence other eu member states to undertake the same initiatives. _ it is important also the fact that most of the respondents expected that the eu integration process will continue therefore the brexit will slow the enlargement process but not interrupt it. this fact could be interpreted that the respondents in the western balkans are too optimistic. _ for most of the respondents in three countries, namely: kosovo, macedonia and montenegro the most currently challenging issues are economic and social crises, followed by other challenges while in bosnia and herzegovina emigration and refugee crises is seen as key challenge. _ respondents in the western balkans expect that even with current difficulties, the eu will overcome current and future challenges. therefore they believe in the european project, especially respondents in kosovo, montenegro and bosnia and herzegovina. _ additionally with regard to brexit process respectively uk, it seems that the western balkan respondent expectations are based on the political influence of the uk and less in the economic terms such as reduce of the eu budget, trade relations and other economic issues. the economic impact respectively trade could derive indirectly on the western balkans as these countries have trade relations with germany, italy and other eu countries which are affected from the brexit. finally, we can confirm our initial assumptions: first, that brexit will impact the speed of the european integration process for the western balkans and second, uk will have less important political role for the eu enlargement of the western balkans outside of the eu. in general, we can conclude that although optimistic view of respondents in balkans, the current relationship betwen the eu and the western balkans seems to be uncertain. recently european union proposed the ‘‘balkan regional economic area‘‘ which could be seen as substitute for the eu integration agenda for the balkans as eu currently doesn‘t have enough political willignes deal with the western balkans. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 88 bakker, b. (2016). western balkans in post-brexit europe; bank of albanian & seesox annual conference, tirana 2016. bazerkoska, j. (2016). view from the balkans: brexit and the possible implications on the candidate countries for eu membership: iustinianus primus law review, vol. 7:2. bieber, f. & kmezić, m. (2016). policy brief eu enlargement in the western balkans in a time of uncertainty: (balkans in europe policy advisory group). bieber, f. (2016). ever farther union: balkans and the brexit: (nations in transit/brief, freedom house). booth, l., (2016). the impact of brexit – what will leaving the eu mean for the profession?: what next for the uk?. the journal – the voice of your profession: cii.co.uk/journal, august-september 2016. butler, e. (2016). brexit and the balkans: implications for future eu enlargement; european futures, edin.ac/2c2i1so. cidob (2016). the brexit scenarios: towards a new uk – eu relationship, barcelona center for international affairs. 7 june 2016. dana r. (2016). what next for the europe and britain; welcome to austerity 2.0: europe’s world, autumn 2016 issue. gow, d.& meyer, h. (2016). brexit: the politics of a bad idea, (friedrich – ebert – stiftung in cooperation with social europe publishing). holzner, m. (2016). policy options for competitiveness and economic development in the western balkans: the case for infrastructure investment, policy notes and reports 16, (wiiw – the vienna institute for international economic studies, june 2016), wiiw.ac.at huble, s. (2016). the impact of leaving the eu on the higher education, house of commons library, briefing paper, p:3-4; december 2016. schmucker, c. (2016). brexit changes the eu’s trade dynamics: don’t expect progress; europe’s world, 2016 autumn, issue. ker-lindsay, james (2015) britain, ‘brexit’ and the balkans. the rusi journal,160 (5). pp. 24-29. https://doi.org/10.1080/03071847.2015.1102539 kostovicova, d. (2016). brexit future europe: brexit’s twin risks for the balkans: europe’s world, autumn 2016 issue. lászló andor (2016). a bad idea hard to defeat; in the brexit: the politics of a bad idea, (friedrich – ebert – stiftung in cooperation with social europe publishing). miller, v.(2016). brexit: impact across policy areas, briefing paper, number 07213, 26 august 2016, house of commons library, www.parliament.uk/ commons-library. stojic, m. (2016). eu enlargement after brexit: temporary turmoil or the final nail in the coffin of enlargement?: europeum monitor, www.europeum.org. tanner, m. (2016). brexit will curtail uk’s engagement in balkans, experts: birn, london. wohlfeld, s. (2016). don’t forget the western balkans, spiegel online international. world bank group (2017). faster growth, more jobs: western balkans: regular economic report, no. 11, www.worldbank.org. references qorraj gazmend jean monnet professor university of prishtina fields of research interests economy address str. “george bush“, rk tel. +37744640161 ajdarpašić suada phd candidate university of prishtina fields of research interests economy address str. “george bush”, rk tel. +38649687970 about the authors european integration studies 2011.indd 141 issn 1822–8402 european integration studies. 2011. no 5 the issues of tax risks calculation and management olga lukashina information systems management institute, latvia abstract in any private company in latvia there are three main issues in the field of tax risks calculation and management: how to calculate the possibility of tax risks occurrence, how to estimate the amount of reserves for covering unforeseen losses, choice of the optimality criterion for selecting one of the possible solutions. the article deals with three features and two major causes of tax risks, as well as several stages of calculating risks and choosing the best option of possible management solutions. the optimality criterion proposes the amount of probable losses within the limits of acceptable risk. in the balance sheet the value of this zone varies around the accumulated profit and reserves. tax payments procedure has its own peculiarity: tax payers have to interpret independently statutory provisions, which appear unclear, ambiguous or contradictory to them. not all taxpayers undergo audit, not all taxation periods and not all taxes are being verified. tax payers can calculate the probable amount of the claim in advance, if they independently take the decision on tax payment under conditions of uncertainty of tax statutory provisions. tax risk diagnostics can be carried out and based on two figures possible risk cost and probability of the event “x” that there is an audit by tax administration service and its decision on imposing a tax penalty. tax risks should be an important element of entrepreneurial risks (including financial risks) for the benefit of efficient administration. every private company could estimate its tax risk cost. at the first stage it is important to carry out the complex job of analysis of regulatory documents concerning taxation, i.e. applicable laws and rules of. at the second stage the taxpayer compiles all options based upon the structure of of each statutory provision. at the third stage the possible sanctions are calculated (penalty and late payment fee). then an idea of possible risk costs due to misapplication of statutory provisions is being formed. at the fifth stage chances of lowering tax penalties are estimated. then the sixth stage follows, where the total possible risk cost and its influence on the tax payers’ financial position is evaluated. the methods and procedures of calculating the probability of an audit and application of the tax penalty have already been described in the literature. the delphi method, described by v.m.popov for financial risks, is mainly used for this purpose. but it is also possible to conduct calculation of probability verification’s facts towards taxpayer. the annual statements may be used for this purpose by tax administration. thus, there were approximately 162 thousands active operating tax payers (legal persons) registered with the tax administration in latvia in 2010. there were only 1682 audits conducted in 2010, that is 2% of all verifications. that means that the probability of audits for each tax payer comes to no more than 2%. probability of auditcalculated by the same method for years 2005 and 2006 had also come to 1%. so, tax risks management should be conducted under the conditions of uncertainty and instability of tax legislation . keywords: partial uncertainty, tax risk, unstable tax system, financial and accounting policy, acceptable losses zone, probability. introduction the scientific problem is the lack of research in the fields of the nature of tax risk, its calculation and management on macroeconomic and microeconomic levels. in practice of business-consulting the necessity of calculation of tax risks has become an important element for adoption of management decisions in the field of entrepreneurial activity. novelty – the methods of tax risk diagnostics, estimation and reduction to the level of acceptable losses are suggested . the aims of this article are to analize the tax risk reasons, to show stages of estimation of losses connected with tax risk and to determine the levels of acceptable, critical and catastrophic risk. the object of this article is tax risks of a private company as they occur when the country‘s tax system is characterized as unstable and unclear. the research methods of tax risk analysis (method of scenario, method of losses and gains, method of statistical data) used in this article are based on the neoclassical approach to risks’ nature and on probability theory. subject’s relevance tax risks in a risk-management’s scientific and study literature have not been researched practically [1-4]. the place for them in the currently accepted risks’ classification has not been specified [5-7]. sometimes the researchers mention tax risks as a part of political force-majeure risks [8] that do not quite precisely reflect their nature. nevertheless, in practice of business-consulting the term ”tax risks” has assumed its firm position among financial risks [9-14, 20]. the necessity of losses’ records connected to their occurrence has become an important element of management decisions. in relation to this, the difficulty of calculation of the tax risks amount and selection of its mitigation technique emerges. for the solution of this problem it is expedient to issn 1822–8402 european integration studies. 2011. no 5 142 choose those risk-management specialists’ and experts’ recommendations, that may be applied to the risk of additional (unplanned) tax payments in the budget, i.e. the tax risks. the risk, as a probability of occurrence of unforeseen expenses, is always present in any entrepreneurial activity. the tax risk is a form of financial risks. it represents a possibility of occurence of financial liability, i.e. claims concerning the amount of mandatory tax payments and duties to the budget imposed by fiscal bodies. furthermore, the unexpectedness of additionally claimed tax payments is highly relative. it is related to the specific features of the tax payments procedure. first, the majority of such mandatory payments are calculated and paid by tax payer into the budget independently, based on requirements of government regulations. in addition, tax audit and discovery of mistakes in tax calculation cannot be an absolutely unexpected event for a tax payer. the fact of occurrence of a claimon the part of fiscal bodies as such is expected always. it becomes clear, therefore, why 33% of the residents in latvia surveyed in december 2010 have responded that nonpredictable and ambiguous nature of tax legislation is the main cause of evading tax payments. another 58% believe that the governmental policy in the field of taxation gives raise to hidden economy [15]. however, not all taxpayers undergo audit, not all taxation periods and not all taxes are being verified. claim to the figure of released tax payments on the part of fiscal bodies is accorded only to the tax payer as an opportunity, but not as the imminence. therefore, additional tax payments into budget are considered by entrepreneur as a probability, i.e. as a risk. second, in calculation of taxes an entrepreneur relies upon the regulatory system that is available to him/her. furthermore, a tax payer has to interpret independently statutory provisions, which appear unclear, ambiguous or contradictory to him/her. the tax administration cannot help the tax payer in this respect, since it is not eligible to interpret statutory provisions in latvia. therefore, the tax payer is always aware of the situation wherein a contradiction between two different interpretations of statutory provisions may occur during an audit. only the court can resolve contradictions between viewpoints of a tax payer and viewpoints of the tax administration. just as the court judgment is not known to anybody by anticipation, the necessity of payment of additionally accrued sums into the budget is perceived by a tax payer as a probability. videlicet, the realization of the presumptive tax risk is becoming totally unexpected for a tax payer; he/she cannot forecast additional expenses. yet, the situation of occurrence or non-occurrence thereof signifies that the tax risk remains as the essence of these expenses. the third circumstance is the one that confirms the thesis of relativity of unexpectedness of emerging tax claims to anentrepreneur. the fact is that a tax payer can calculate the presumptive figure of the claim in advance, if he/she independently takes the decision of tax payment under the conditions of uncertainty of the tax statutory provisions. the amount of claim (sanctions) is composed of three elements: tax unpaid in time, late payment fee and penalties for payment, that can add up to 30% and 50% of the unpaid tax, it might also be higher: 70%, 100% and even 300% (employer‘s mandatory social insurance payments)[16]. the tax payer can rapidly change the adopted tax decision by paying the main debt, penalty and 10% of the fine. in this way the tax payers will avoid sanctions, since they voluntarily have accepted the fact of paying a part of expected sanctions, i.e. the realization of the unexpected risk. yet, they may pay nothing and wait for conclusion of the audit. in fact, it is purelypossible, that their interpretation of the faint statutory provision may coincide with the auditor’s interpretation. in that case, the risk of unexpected expendituredisappears. the essence of tax risks (probable occurrence of the previously unplanned tax liability) emerges not only as tax sanctions on the part of fiscal bodies requirements to pay an additional amount of tax, penalty and fine. the second equally important aspect of thisis represented by changes of tax legislation. in the period of rising budgetary deficit, latvian tax payers have already experienced a sudden increase of value added tax rates. the debates concerning further stiffening of the tax legislation’s are expected, these are as follows: increase of the exercise goods tax rates, the appearance of new taxable objects and lifting the currently existing preferences (exemptions, discounts, remissions, delays). the reasons of tax risks consequently, there are different reasons of occurrence of tax risks’. the imperfection of tax legislation in a country may be considered as one of the reasons behind tax risks. these are doubtfulness and ambiguity of some tax laws provisions, in the first place. the unpredictability of the legal system comes second.this situation is especially characteristic of latvia where tax laws are changed every 2-3 months. they are adopted in a hurry and therefore they cannot be well thoughtover. under such conditions each new legal requirement can be interpreted in different ways. there is a possibility that both tax payers and the tax administration can adopt many different decisions. this is where the tax risk is born – a risk of additional tax payments (sanctions) by the taxpayer and the risk of not collecting expected budget revenues (see table 1). quantity quantity of amendments in main tax laws in latvia the name of tax law \ years 2007 2008 2009 2010 taxes and duties (general law) 3 3 6 8 corporation income tax 2 1 5 4 personal income tax 3 3 3 5 the value-added tax 1 3 3 3 social tax payments 2 2 3 3 concerning this reason it is necessary to understand that changes of tax legislation are a real necessity. the “stability” in this content cannot mean firmness of accepted standards. yet, the necessity and possibility of medium-term perspective planning of processes have been proven by scientists long time ago. for that reason, the stability of tax legislation, first, issn 1822–8402 european integration studies. 2011. no 5 143 means the accepted innovations scientific justification; second, the specification of the minimumvalidity term of these norms (a year, one, two, three); third, strict abidance of a transition period (it can be, for example, from three to six months), i.e. time between the date of adopting a new statutory provision and the date of its entry into effect. so, imperfection of the tax legislation is the main reason behind the tax risks. undoubtedly, there are other taxpayers’ mistakes and dishonesty. it may be explained by the attempts of businesses to survive under the circumstances of economic crisis and the ongoing depression: the gross domestic product of the country has decreased to minus 18% in 2009 and minus 0.4% in 2010. [17]. the question about subjectivity and objectivity of these reasons cannot receive a univocal answer. that is why the analysis of other reasons of tax risks must be carried out, including peculiarities of different taxpayer groups. nevertheless, it is safe to distinguish several factors that intensify or vice versa enfeeble tax risks at different management levels. in the first instance, these are personnel or educational and accounting policies for circumstances of latvia. the amount of the tax risks and their probability incase of different taxes depend on how targeted this policy is and what is thedegree of sophistication in the state and an independent private company. evaluation of efficacy of these factors is always carried out at the level of a certain taxpayer with differing degrees of awareness, therefore, the diagnostics of tax risks is in progress. it is possible to conclude that tax risks present an objective reality in the entrepreneurship. they may be referred to political risks by virtue of nascence that is tax statutory provisions’ vagueness, divergent or theirs sudden super session. they are dual by their own nature for the reason of subjective and objective origination causing partial uncertainty on the levels of microand macroeconomy. they should be considered financial risks by scope of nascence and losses’ nature. nonetheless, if latter may be speculative by nature, then tax risks are always pure and static. stages of calculating the risks such characteristics of tax risks (in terms of generally acknowledged classification features of risks groups) enable to perform their diagnostics and monitoring. at the first instance, the complex job in analysis of regulatory documents in taxation scope is essential, i.e. applicable law and rules. the aim of such analysis is to reveal current for a company, but vague and divergently interpreted statutory provisions. at the second instance, the taxpayer compiles something like a worksheet of tax rates benchmarking study according to all possible options based upon interpretation of each statutory provision. this suggestion was stated by k.ketners in issues of 2007 and 2008 [10,18]. at the third stage of diagnostics the possible sanctions are calculated (penalties, late payment fee and general debt), if it is assumed, that tax administration will interpret statutory provisions differently from the tax payer. consequently, an idea of possible risk costs due to misapplication of statutory provisions is being formed. at the fifth stage chances of lowering tax sunctions are estimated. that can be done by means of two techniques: 1. application of tax penalties’ discounts to tax payers refusing an appeal of tax administration’s decision , 2. application of conciliation agreement with the tax administration and complete lifting of the fine imposed on the tax payer [19] next is the sixth stage, where a total possible risk cost and its influence on tax payers’ financial position is evaluated. it is known, that in the risk-management it is not advisable to take decisions which result in probable losses exceeding the limits of the allowed risk envelope (company’s accumulated income and reserves). losses penetration in a critical and more irretrievable risk envelope signifies that analyzable employment option in conditions of uncertainty of actual statutory provision should not be given a consideration, even if such situation’s probability is low. calculation of probability the diagnostics of tax risks, as it follows from the above, must be based on two figurespossible risk cost and probability of the event “x” that there is an audit by tax administration service and its decision on imposing a tax penalty. the methods and procedures of calculation of probability of audit and imposition of the tax surcharge have already been described in the literature [20]. the delphi method, described by v.m.popov for financial risks, is mainly used for this purpose [21]. it is also possible to conduct calculation of probability verification’s facts towards taxpayer. the annual statements may be used for this purpose by tax administration. thus, there were approximately 162 thousands active operating tax payers (legal persons) registered with the tax administration in latvia in 2010. there were only about one thousant audits conducted in 2010, that is less than 1% of all verifications [22]. tax audit probability in latvia indications 2009 2010 total amount of tax payers (legal persons) 151,476 161,895 total amount of tax audits (legal persons) 807 987 tax audit probability (%) 0.53 0.61 average tax penalty per audit (thousands lvl) 113.3 110 one has to keep in mind that the probability of audit calculated by the same method for years 2005 and 2006[20] had also come to 1%. so, the probability of a tax audit is quite low. however, the amount of possible penalty is large enough. as we can see from table 2, each audited taxpayer pays a sanction amounting on average to 100 thousand lvl (about 200k $). the final decision, about which interpretation of a statutory provision should be chosen by a tax payer, must be taken after considering various factors. the main ones among them are risks cost and probability of audit. yet, other factors are equally important, the search and evaluation of which refer to scope of monitoring and to present risks dynamics’ tracking. there is a possibility of winnings in decision’s appeal among them. some of taxpayers appealed against tax surcharges. in 10% cases the decision was partially or entirely revoked. this issn 1822–8402 european integration studies. 2011. no 5 144 means that monitoring provides a low probability of victory in appeal, it is pointless to reckon on it. conclusions in conclusion, several overall conclusions can be made: • tax risks must be distinguished within the totality of entrepreneurial risks (including financial risks) for the benefit of efficient administration • tax risks 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e g r a t i o n s t u d i e s 2 0 1 5 / 9 types of barriers to the integration of the eu gas market http://dx.doi.org/10.5755/j01.eis.0.9.12803 mariusz ruszel department of economics faculty of management rzeszow university of technology powstancow warszawy 8, 35-321 rzeszow, poland submitted 04/2015 accepted for publication 07/2015 types of barriers to the integration of the eu gas market eis 9/2015 european integration studies no. 9 / 2015 pp. 155-160 doi 10.5755/j01.eis.0.9.12803 © kaunas university of technology abstract the article discusses the problem of barriers to the integration of the eu internal energy market. the study is concentrated on gas market. the eu needs to combine particular gas markets and integrate gas networks in order to create energy highways. this article applies a combination of factor and systematic analysis and comparative research methods. the study includes the analysis of official eu documents such as documents and directives, as well as the network code on capacity allocations. the analyses and research tasks include: the analysis of the potential model of integration of the gas market, the analysis of the level of reserved capacity of existing interconnectors in europe by 2030, the analysis of the role of lng terminals on the eu gas market, the analysis of traffic capacity of the existing interconnectors that allows to determine further investments and the types of barriers to the gas market integration process. the results of the article are: the direction of the integration process of the eu gas market, identification of the significance of lng terminals in the gas market in europe, identification of the main types of barriers which could protect the national gas markets and contribute to slowing down the integration process. the integration of the eu gas market is a challenge because the member states will protect their interests as well as their own energy companies. the creation of the eu internal energy market necessitates the development of energy infrastructure as well as good regulations. it is also important to increase the understanding of and trust in the energy field between european union countries, at the expense of national interests, in order to achieve energy solidarity in the eu gas market. keywords: gas market, energy market, interconnector, gas pipeline, lng terminal. in the european union (eu) there are principal market freedoms such as the free movement of goods, services, capital and labour. these fundamental principles are the basis of the concept of internal energy market, which should maintain flexible exchange of electricity and gas between member states (dohms, 1994). for this reason, the eu needs to develop energy infrastructure (electricity and gas networks such interconnectors and underground gas storages) as well as energy regulations. since the liberalisation process that started in the 1990’s, the european electricity market has progressively been integrating (creating europe, 2015). the same process has slowly developed on the gas market because the structure of the gas market is based on monopolistic energy companies which protect their own interests and share in the market (ruszel, 2014b). for this reason, the process of integration of eu gas market is a big challenge for europe. on the one hand, the eu would create an integrated gas market, but on the other hand, eu counintroduction e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 156 tries would protect their national markets. therefore, the eu should assist the development of gas infrastructure, market competition and harmonization of regulations. the main research problem of this paper is to identify the barriers to integration of the eu gas market. for this reason, the aim of this article is to answer the study questions such as: how the gas market will be integrated, what will be the role of lng terminals, and what kind of barriers will slow down the process of gas market integration in europe. therefore, the tasks of this paper are to analyze the potential form of the eu gas market model integration, the level of reserved capacity of gas interconnectors, the role of lng terminals in the eu gas market and the barriers to the gas market integration process in europe. factor analysis is applied in this article in order to identify the most important barriers to gas market integration and to assess the eu gas infrastructure. the comparative method is used to collate the capacity of gas interconnectors in different parts of europe. also, the political analysis method and the forecasting technique are applied to obtain, not only theoretical, but also practical input. the main results of this article are: identification of the important direction of eu gas market integration, the determination of the role of lng terminals in the european gas market, and identification of the main types of barriers to the integration process of the eu gas market. the existing gas networks were built following the model which takes into account the costs of natural gas transportation. in accordance with long term gas contracts between exporters and importers, transit pipelines were constructed. the energy infrastructure should be used effectively and provide the minimizing of the gas supplies cost (lochner, 2011), especially in the time of global market competition. sergio ascari stressed that north america is the only really competitive gas market in the world (ascari, 2011). the american model is based on the unbundling of transportation and supply, regulated tariffs, investments and transparency decisions (ascari, 2011). europe should draw conclusions from the american integration process and adopt it in the european model. nowadays, the european union faces energy challenges connected with the energy market, such as the harmonisation of tariffs regulation, the assertion of profitability of interconnectors, the regulation of capacity networks (network codes) and the balance of the national intervention in the gas market. of particular importance is good network codes regulation, which can enhance open access to transmission systems in order to increase the flexibility of gas flows through europe. with these principles in mind, boaz moselle and martin white underline that the level of intervention in the energy market should be low and the eu should take the necessary countermeasures to reduce congestions in gas interconnectors (moselle, white, 2011). in the models of energy integration it is emphasized that a conjunction of neighbouring gas markets helps to create small integrated gas markets. jean-michel glachant claims that the creation of regional gas markets is first step to the internal gas market in the eu (glachant, 2011). integrated gas networks will be connected with centres of gas distribution (gas hubs) in europe, which is illustrated by beatrice petrovich (petrovich, 2013). this solution supports energy security and increases the position of member states in the situation of gas crisis. after gas crises of 2006 and 2009, the eu is in the better position to understand this type of risk of security of gas supplies. previously, gas crises were the catalyst in the integration process on the gas market in europe. the target model of gas market integration should posit the diversification not only of the direction but also of sources of gas supplies. on that account, lng terminals as “entry points” to the european gas networks play an important role in strengthening energy security. anne neumann sees the relevance of lng terminals in the energy market (neumann a., 2008). in the theoretical approach, researchers from ifee stressed that it is important to guarantee the pressure in the pipelines for security and operational reasons, and that is why it is so crucial to use balancing systems and the model of integration of the eu gas market 157 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 flexibility tools (dickx, miriello, polo, 2014). furthermore, the theoretical framework developed by roberto roson and franz hubert gives some analyses concerning bargaining on the network markets (roson, hubert, 2014). to conclude, europe needs to develop the target model of gas integration to strengthen energy security as well as competitiveness of the european industry. the eu should find a compromise between national interests in the energy sector and the european interest to develop the draft of the european energy union (energy union, 2015). an lng (liquefied natural gas) terminal is a strategic energy infrastructure which is a part of the critical infrastructure (yusta, correa, lucal-arantegui, 2011). therefore, this energy infrastructure should be protected from different types of risks and threats. lng terminals have a significant role because they allow to diversify the directions and sources of gas supply (geist, 1983; sakmar, kendall, 2009). moreover, lng terminals could strengthen the competitiveness on the gas market (dorigoni, graziano, pontoni, 2010). thereby, this energy infrastructure supports energy security and is a significant instrument in a process of negotiation with others gas exporters who supply the natural gas by pipelines. the international energy agency (iea) has worked out the model of short term energy security (moses), in which it is stressed that lng terminals are the “entrance” points to the eu gas market and they strengthen the security of supply as well as energy security (jewell, 2010). in comparison with pipelines, lng terminals support the flexibility of natural gas supply. regardless of this fact, it is verified that the more lng terminals the state has, the less it wishes the development of interconnectors with other countries. this is confirmed by the policy of spain or italy, which have a lot of lng terminals but do not have good gas connections with neighboring countries. nowadays, the eu countries use the capacity of lng terminals in 25-30% but the situation could change if a conflict or gas crisis occurs in the regions such as north africa or russia. norway is still the most stable natural gas exporter. to conclude, lng terminals strengthen the security of gas supply but on the other hand they could reduce the political will to develop the capacity of gas interconnectors in europe (e.g. spain, italy). lng terminals – integration or fragmentation gas market the types of barriers to gas market integration in europe firstly, the main type of barrier to integration of the gas market is the political barrier. a clear conception of internal gas market requires political acceptance among the governments of the eu countries and the eu leaders. not all member states are able to compete on the market and for this reason they will use this instrument to protect their markets. moreover, european countries have different gas contracts with exporters: some states pay more for natural gas and other pay less for the same gas from the same supplier. this means that on the internal gas market with flexible gas exchange the countries which pay less and have well-developed energy infrastructure (e.g. germany) will have an advantage over other european countries. it is a really dangerous situation for europe, because some countries’ energy policy with the main exporter is aimed at the protection of the low price for natural gas. it can be seen in hungary, where the discount on russian gas is more important than the common interest of the eu. the situation is similar in germany, where the business lobby would protect the relation with russian companies – also in the energy sector – regardless of the political situation in europe. to conclude, the european union countries have different interests and protect their own interests instead of developing the solidarity and european energy union. secondly, it is the lack of harmonization of the standards and rules that impedes the gas trade. although the eu has adopted directives and regulations and has taken action to develop the liberalization of gas market, the prices of gas in some countries are regulated. therefore, it is crucial to deregulate the gas price on the national markets and strengthen the competition on the eu gas market. it is also important to map out and implement the network code on capacity allocations. “network codes are specific tools for implementation of a single energy market in e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 158 the eu. they include common rules for functioning and managing energy systems and are aimed at eliminating technical barriers for further market integration” (framework guidelines, 2014). these rules could determine the device of the gas market operation. thirdly, the eu countries do not have enough gas infrastructure to exchange natural gas flexibly. between some eu countries there is no gas infrastructure (e.g. france – italy, poland – lithuania, slovakia – hungary) and some states are separated from the rest (e.g. the baltic states: lithuania, latvia and estonia). for this reason, the eu has adopted the regulation of the european parliament and the eu council no. 347/2013 of 17th april 2013 on the guidelines regarding the transeuropean energy infrastructure to support the development of energy infrastructure (regulation, 2013). moreover, european union countries do not have sufficient capacity of gas interconnectors to send natural gas between member states flexibly and in many places there are so called “bottlenecks” (ruszel, 2014a). for this reason, it is necessary to develop the existing gas interconnectors to ensure their proper capacity and bidirectional usage (dieckhöner, lochner, lindenberger, 2013). regardless of this fact, eu countries should invest in national gas grids to strengthen their capacity, because these gas pipelines will be part of european gas networks (hall, dart, 2014). the big challenge for the countries and gas operators is how to finance the investment; therefore they should apply for eu funds. in 2013, the european commission announced the list of 248 projects of common interest (communication, 2013). fourthly, there are the gas contracts in europe based on long-term rules and different clauses such as take or pay. it means that this type of gas contract has significant impact on the capacity of pipelines and gas interconnectors. moreover, the states have taken decisions about the choice of the sources of natural gas supply to take into consideration the cost of the transport. for this reason, member states have decided to choose the closest gas suppliers to reduce the costs and risks connected with supply. therefore, spain or portugal do not import natural gas from russia, and lithuania from algeria or morocco. the majority of eu countries have signed long-term gas contracts until 2025 or even 2035. moreover, the capacity of interconnectors between eu states is also contracted in some places in 100%, but used only up to 50-60% (acer, 2013). the capacities of interconnectors of, among others, czech-germany (waidhaus) or spain-portugal (badajoz point) have been contracted till 2035 and slovakia-austria (baumgarten) or netherlands-germany (bocholtz) have been already contracted till 2030 (ruszel m., 2014a). it means that the gas companies have bought the capacity in the interconnectors in order to protect the national gas market. in that way they could buy the capacity but not use it, and hence block the import. if this operation continues in the future and the network codes do not terminate these actions, then the development of competition in the gas market will be slower. the european union needs to build new gas interconnectors as well as develop the capacity of the existing ones. the architecture of gas pipelines was built according to the model that takes into account the cost of transportation as well as long-term contracts. for this reason, the gas infrastructure should support the minimizing of both the risks of gas supply and the costs of transportation. in the time of gas market integration, eu countries will look for the competitive advantage, which should be the lower price for importing natural gas. therefore, the cost of transportation will still be one of the main factors to chose the gas supplier and influence the shape of the eu gas market model. the integration of gas market contributes to the creation of regional markets, which will be connected with gas hubs. first of all, it is crucial that europe needs to develop the eu gas market model to strengthen not only the security of supply but also the competitiveness of european industries. lng terminals will have an important role on the gas market, because they could diversify the natural gas suppliers and increase the number of “entrance” points to the market. regardless of conclusions 159 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 this fact, the eu countries which have this energy infrastructure has less developed interconnectors with neighbor states. therefore, the states with well-developed lng terminals could slow down the integration process on the eu gas market. on the other hand, a geopolitical conflict or gas crisis causes lng terminals to play a significant role in supporting the security of gas supply. to conclude, the role of this installation could change if some risks will come true. what has a significant impact on the competitiveness of liquefied natural gas is both the price of this gas and transportation. then the usage of lng terminals should be changed when there will be a gas crisis or problem with gas supply through transit pipelines. the main types of barriers in the integration process of the eu gas market are the political will, the lack of harmonization of the common rule and regulation (network codes), the lack of sufficient gas infrastructure in europe and long-term gas contracts. for this reason, eu countries need to develop gas infrastructure that would enable the free exchange of natural gas between them. moreover, eu countries need the transition in the long-term gas contracts because they need more competition on the gas market. therefore, it is important to strengthen spot transaction and the trade of gas in the stock markets in europe. certainly, the long-term gas contracts will still exist but the proportion between long-term contracts and short contracts (spot transition) should be changed (zajdler, 2012). because a lot of capacity in gas interconnectors have been already contracted, europe needs a networks code which would influence the pace of integration of the gas market. eu institutions such as the agency for the cooperation of energy regulators (acer) and european network of transmission system operators for gas (entso-g) have a significant role in this aspect, as they support the process of integration of the eu gas market by contributing to the regional integration of gas markets as well as the approval of network codes (ruszel, 2014b). of particular importance is good network codes regulation, which can enhance open access to transmission systems in order to increase the flexibility of the gas flows thought europe. moreover, the eu should find a compromise between national interests in the energy sector and the european interest to develop the draft of the european energy union. the eu needs a more solidarity to face the gas market integration challenges such as: the harmonization of tariffs regulation, the assertion of profitability of interconnectors, the regulation of capacity networks (network codes) and the balance between national interventions in the gas market. member states and their energy companies will always think about their national interests and this will never change, as well as the increasing competition between countries, regions and companies. regardless of this fact, europe needs more responsibility and common action to develop gas 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(2009). the globalization of lng markets: historical context, current trends and prospects for the future. proceedings of the 1st annual gas processing symposium, 32-43. yusta j. m., correa g. j., lucal-arantegui r. (2011). methodologies and applications for critical infrastructure protection: state-of-the-art. energy policy, 39, 6100-6119. http://dx.doi.org/10.1016/j.enpol.2011.07.010 energy union package (2015). communication from the commission to the european parliament, the council, the european economic and social committee, the committee of the regions and the european investment bank. a framework strategy for a resilient energy union with a forward-looking climate change policy. european commission, brussels, 25.2.2015, com(2015) 80 final. zajdler r. (2012). the future of gas pricing in long-term contracts in the central eastern europe. global market trends versus regional particularities. warsaw. mariusz ruszel phd, assistant professor department of economics faculty of management rzeszow university of technology address powstancow warszawy 8, 35-321 rzeszow, poland tel. +48 17 865 14 03 e-mail: mruszel@prz.edu.pl about the author e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 16 social dimension and inequality problems in the european union http://dx.doi.org/10.5755/j01.eis.0.10.14445 elena dubra university of latvia, faculty of economics and management riga, aspazijas bulv.5, lv 1050, latvia submitted 03/2016 accepted for publication 09/2016 social dimension and inequality problems in the european union eis 10/2016 european integration studies no. 10 / 2016 pp. 16–28 doi 10.5755/j01.eis.0.10.14445 © kaunas university of technology abstract the purpose of this paper is to introduce evaluation of social development convergence between eu–28 mem­ ber states in the context of the eu cohesion policy. the main tasks of this study is to assess social dimension and inequalities problems in the european states by applying theory of convergence for real estimations social situations in eu countries. additionally the development challenges are discussed for improvement of the socio–economic well–being of eu states and to avoid social disparities. the research methodology is based on the convergence theory, on the eu strategies, european commis­ sion legitimate documents application, on the calculations and socio–economic forecasts analysis of the welfare level in the eu states. this research present information about various different socio–economic indicators, indexes and scheme of information flows for social situation estimation in the eu states. this study contain changes of key concepts related to the cohesion policy of the european union and com­ pares objectives and general outlines of period 2014–2020 in the framework of europe as a whole, as well as its impact on eu member states economics and living conditions. the speed of convergence depends on the initial discrepancy of the development level in the eu states. the efficiency of european convergence policy can also be improved by significant economic growth and by clever choice of the country–specific social activities. this research investigate major information for social situations estimation in eu states as well as gdp growth, population’s income level, unemployment and welfare condition indicators. the key results reflect the overall social situation analysis in the eu countries and present current and future’s european convergence policy’s impact on social development in the european states. the conclu­ sions consist of national social development inequality problems estimations in the eu states and of new challenges of eu convergence and social policy goals. keywords: social dimension, eu strategy, inequality, cohesion, convergence. introduction the passing years has emphasised the activities against poverty and exclusion, particularly within the lisbon strategy and its economic, social and environmental pillars. it set the chal­ lenge of making europe “the most competitive and dynamic knowledge–based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion” and included modernization of the european social model, investing in peo­ ple, and the social agenda formed part of the integrated eu approach combating social exclu­ sion (european commission, 2013). the social policy agenda continued in the “europe 2020” strategy. this strategy includes the agenda for new skills and jobs, the platform against poverty and social exclusion. through its social investment package, the commission pro­ vides reference to member states to modernise their welfare systems towards social invest­ 17 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 ment throughout life. the package complements: the employment package, which sets out the way forward for a job rich recovery; youth employment package, which deals specifically with the situation of young people and white paper on pensions, presenting a strategy for adequate, sustainable and safe pensions. this means in particular that labour markets and welfare systems need to function well and be sustainable in all euro area member states. better social performance and labour market , as well as social cohesion should be at the core of the new process of social convergence (european commission, 2010). the effectiveness of european convergence policy can also be improved by clever choice of the country–specific social activities and significant economic growth. the inverse relation­ ship between growth and the level of income is considered β– convergence scenario. if this interaction is present, poorer countries get closer to the richer one. the process of real eco­ nomic convergence suggests catching–up in standards of living in eu new member states with those of the old eu member states and describes gradual elimination of disparities in the income level. convergence processes for the eu states must be based on the strong socio–economic growth of gdp, investment flows, new technologies and productivity. trends of the recent years of economy development in the eu–28, which shows moderate gdp growth require social legislation improvement, income`s level, labour market and education system devel­ opment. for future`s social development investigations and governmental decisions needs to be pragmatic approach into financing in order to create employment and reduce poverty level and social disparities in the national economy. the social policy is the composite part of the “europe2020” strategy and european commission also supports eu countries efforts in the actions foreseen in the platform against poverty and social exclusion and social investment package applying the eu funds, in particular the european social fund. the european commission works together with eu states through the social pro­ tection committee using the coordination method in the areas of social inclusion, health care and pensions systems long–term improvement. this is a voluntary process for eu states cooperation based on common objectives and measuring progress towards these goals using common indi­ cators, including social partners and civil society (the social protection committee, 2011). the crisis pressured eu member states to pursue social budget consolidation, which often con­ nected with cuts in social welfare systems and increasing of taxes rates on the working po pu­ lation. in general, eu needs to augment the use of social indicators to better assess economic impact, both in the short– and long–term growth. for future`s social development investigations and gov­ ernmental decisions needs to be pragmatic approach into financing in order to create employment and reduce poverty level and social disparities in the national economy. the necessity for the eu to move towards harmonization of social policy and a harmonisation of minimum social standards is becoming more obvious. convergence policy must bet connected with a judgement of the likely future evolution of the national economy potential. however eu strategies also become more and more aware of world economy possibilities and development trends and using estimations of world economic climate index (see table 1). the ifo index for the world economy climate clouded over. the main estimations show that in 2013–2014 the indicator is clearly below its average of 96.1 points and in 2015 this was only 89.6 points. assessments of the current economic situation deteriorated, but expectations are social foundation and european convergence policy e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 18 far less positive than last years. the most urgent economic problems are the insufficient demand and a lack of confidence in government policies. now the world economy is seeing only moderate growth. in the main world regions economic climate index in 2015 decreased: in north america to 91.2 points, in asia to 75.4 points and in europe to 113.6 points. table 1 economic climate index of the main world regions (2005=100) for the 19 european member countries of the euro area the ifo economic climate index is the arithmetic mean of assessments of the general economic situation and the economic expecta­ tions. as a rule, the trend in the ifo economic climate indicator closely correlates with the actual business cycle trend for the euro area – measured in annual growth rates of real gdp. the last years ifo economic climate index in the euro area declined, but still remains significantly above the long–term average. the current economic situation improved in austria, belgium, spain, estonia and lithuania. there are nevertheless significant differences in levels between member states. in slovakia and in germany the current economic situation is good. experts in greece and finland, as well as in france, italy, spain, austria, portugal and cyprus continued to assess the current economic sit­ uation negatively. in several member states were significantly scaled back, especially in france, portugal and spain. experts in ireland, italy, lithuania and slovenia, by contrast, are far more optimistic. the gdp growth outlook for the next three to five years increased slightly to an annual 1.7 percent from 2.0 percent till 2020 and inflation expectations for the euro area at 1.9 percent in this period (ifo world economic survey, 2015). the employees and social conditions in the eu countries also become more and more aware of the possibilities offered by the global market. it requires not only a change structure of national social models, but also a discussion on the strategic choice of countries social policy. the so­ cial structure undergoes not only quantitative changes but also qualitative changes decreasing disproportions between the social indicators of national economy, which generates a range of problems in the national social development programmes. social processes development in the eu states to a large extent connected with guidelines of strategic documents of national econ­ omy trends and social situation in the countries and with goals and tasks defined by eu social programmatic documents for the eu states. in order to improve the information’s support for the research information of the social situation estimation and forecasts for the eu member states prepared scheme of information flows for social situation assessments (see figure 1). the social situation is influenced by the gdp level, economic structure of the national economy, which is determined by products offered by sectors and the total consumer’s income and demand levels, labour force skills and education, but also a discussion on the strategic targets of coun­ tries socio–economic policy. quarter/year iv/13 i/14 ii/14 iii/14 iv/14 i/15 ii/15 iii/15 iv/15 world economic 98.6 103.2 102.3 105.0 95.0 95.9 99.5 95.9 89.6 north america 88.7 102.1 107.1 110.5 101.3 107.1 97.9 96.2 91.2 europe 109.7 116.5 118.4 117.5 101.0 108.7 120.4 116.5 113.6 asia 98.2 97.4 89.5 99.1 93.9 90.4 93.0 87.7 75.4 source: ifo world economic climate results of the ifo world economic survey (wes) of the 4th quarter 2015. 19 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 social standards can be compared by measuring the price of a range of goods and services in each country relative to income, using the purchasing power standard (pps). comparing gdp per capita in pps provides an overview of living standards across the eu. the strives of eu countries to improve living standards by protecting the encouraging job creation, infrastructure, environ­ ment and reducing regional disparities require more structural reforms, which is essential in order to raise living standards. the real situation in the eu states by main convergence indicator as the gdp per capita for last years we can illustrate in table 2. the convergence in the eu states during the past decades showed a relatively steady pace. the social situation is influenced by the gdp level, economic structure of the national economy, the total consumer`s income and demand levels, education and labour force skills. at the same time future projection shall be based on the gdp potential growth rate, but now forecasts of social development based of gdp per capita at purchasing power standard. figure 1 scheme of information flows for social situation estimations in the eu states (dubra e., 2016) eurostat surveys of social condition in the eu states eu strategies and regulatory documents of the social development analysis of the factors influencing on social situation results of eu social statistics analysis of the eu states social progress results analysis and forecasts for the demographic and social situation in eu states eu states social policy legislation social strategies and convergence forecasts in the eu states social situations estimation in the eu states social indicators calculations medium and long–term strategies of social development in the eu strategies of socio– economic progress in the eu states annual social surveys. national statistics of the eu states studies of the govermental and scientific institutions. analysis of social development analysis and forecasts for the demographic and social situation in the eu states e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 20 national economies strategies have been related to the influence of several internal and ex­ ternal factors and eu convergence process can guarantee political stability and sufficiently consistent implementation of economic and social development. european cohesion policy should provide more attention for countries with minimum income level and high income`s disparity with target to reduce inequalities between eu states and contribute social situation improvement in the eu countries, taking into account the actual socio–economic problems in the eu new member states. the neo–classical theories of growth generate real social convergence. the standard growth model incorporate major factors of capital flows and production which influence on economy as long–term strategic scenario. national socio–economic growth model targets are formu­ lated by main priorities attainment for economy and social policy. trends for the recent years are taken as socio–economic situation development strategy of the eu states which can be used for social estimation as income`s and pension`s policy improvement, education system and labour market organization. the process of real economic convergence suggests catching–up in standards of living in eu new member states with those of the old eu member states. this process is usually accom­ panied by nominal convergence and is usually related to the balassa–samuelson effect. eco­ nomic literature suggests that the term convergence in its economic essence describes grad­ ual elimination of disparities in the income level. economic growth theory provides two types of the convergence: σ–convergence (sigma) and β–convergence (beta) (barro, sala–i–martin, 2004). table 2 gdp per capita in the eu countries (gdp in pps eu–28=100, %, 2015) gdp per capita in pps country country gdp per capita in pps 45 cyprus (cy) bulgaria (bg) 85 54 spain (es) romania (ro) 93 64 italy (it) latvia (lv) 97 59 united kingdom (uk) croatia (hr) 108 68 france (fr) poland (pl) 107 68 finland (fi) hungary (hu) 110 74 belgium (be) lithuania (lt) 119 73 germany (ge) estonia (ee) 124 76 sweden (se) slovakia (sk) 124 78 denmark (dk) portugal (pt) 124 72 ireland (il) greece (el) 132 84 netherlands (nl) czech rebublic (cz) 130 83 austria (at) slovenia (si) 128 85 luxembourg (lu) malta (mt) 263 source: calculation based on eurostat data, 2015 and european commission data, 2015. 21 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 the σ–convergence serves as an indicator to measure weather the distribution of income across regions or countries has become less uneven over time. in contrast, β–convergence, attempts to describe the mobility of income within the same distribution between countries. the relationship between gdp growth and the level of income is considered β–convergence scenario as mea­ sures the distance of convergence. the pace of catching–up usually relates to β–convergence and is expressed as a catching–up rate (r catch–up). for convergence assessments used new measure how to calculate country`s convergence of compared to average eu–28 level by formu­ la 1 (halmai p., vasary v., 2010): y it – reflect the level of gdp per capita as pps for country i at a time t; y t * – is the average for the y t of eu–28; ∆ – indicates the difference between t and t–1; y t * – is the weighted average of the eu–28. the results from convergence analysis are usually used to test the validity of the two economic growth models– neo–classical and endogenous. convergence reflects the measure of economic progress, while catching –up convergence regardless full, partial or absence of the capital mobility (marzinotto b., 2012). the catching–up rate is calculated by means of the historical actual growth rate. it gives a frame­ work for ex–post analysis of the catching–up dynamism. in the case of negative catching–up rates the disparity between the country concerned and the eu average decreases, while the positive catching–up rate shows the increase of this difference. the negative rate indicates that there has been a reduction in the gdp gap between new member states and average gdp per capita of the eu–28. gdp growth and current economic situation improved in eu at whole and especial in ireland, latvia, estonia, lithuania, slovakia, poland and romania. nevertheless significant differences in levels between member countries continued to influence the current economic situation negatively. in several member states were significantly scaled back especially in italy, france, portugal and fin­ land. the gdp growth outlook for the next two years in the eu–28 increased slightly to an annual from 2.0 percent to 2.1 percent in 2017 (european commission, 2015. economic forecast: moder­ ate recovery despite challenges). using β–convergence scenario by formula (1) and european and latvian statistics forecasts for 2016–2020 author`s calculations show that situation in the social policy in latvia continues im­ proving. according estimations based on methodological framework of convergence theory, the level of latvia’s gdp per capita compared to eu–28 level in 2015 was 64.2%, but in future will increase up to 69.3% in 2020 and up to 80.2% in 2030. catching–up rate calculations of latvia’s convergence to eu–28 medium level and using β– conver­ gence scenario can forecast that latvia may to reach negative catching–up rate: 2015–2020 –>1.2 percentage points; 2020–2030 –> 1.1 percentage points. the negative catching–up rate shows actu­ al latvia’s convergence growth, because forecasts of the gdp growth rate in latvia is higher than in tne eu–28 in this period. the gdp growth for the next years in latvia increased stable to an annual from 2.7 percent in 2015 to 3.1 percent in 2020 (central statistical bureau of latvia, 2016). conversely, the external environment – weaker growth in the developing countries, economic problems and the sluggish euro area economy – creates downside risks. the external factors and any negative economic shock may create risks and negative effects that would further dampen the willingness of businesses to invest and increase households’ and so­ cio–economic activity. (1) )( )( 100 * 11 *      tit tit upcatch yy yy r e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 22 term social inequality according to eurostat definitions refers to disparities in the distribution of monetary resources within or between populations. socio–economic inequality has been rising in most eu countries over the past ten years. the eu states disparities in the gdp annual growth rates, competition level and living standards is very different. the main principle for living standards growing and welfare increasing can defined as observance real proportions between indicators of productivity, wages and inflation`s annual growth. social conditions de­ termined by the national economy development level, the number of population and level of urbanization, the geographical location, availability of infrastructure. in european union much attention is currently being paid to the consequences of inequality, such as poverty and lack of social cohesion. however, relying solely on taxing more and spend­ ing more can only be a temporary measure, which is not a best solution to redress inequality in the long–run. the eu cohesion policy provides new evidence on the evolution of regional and social disparities in europe and designed to reduce socio–economic inequality of social situation in the eu regions and member states. the eu strives to improve living standards by protecting in the environment, job creation and social disparities support to reduce social policy inequality in fallowing five areas: social inclusion and social protection, employment, working conditions, gender equality and social discrimination. the inequality can be defined and measured as specific resource is distributed across the whole society, while economic inequality means primarily differences in earnings and incomes, so­ cial inequality relates to differences in access to social commodities including education and health care, but also social and institutional networks. the multidimensional term social exclusion relating many spheres: in social field – educa­ tion, health, personal contacts, respect; in economic field – livelihoods, employment, housing, property and poverty level; in political field – eu states civic and social policy legislation, citizenship, migration. while the eu has a clear role, and competences, in reducing eu–wide inequality, still reduc­ ing inequality at national level within eu countries is a precondition for reducing european inequality. using data from eurostat, european commission data and national level indicators, can esti­ mate the national minimum wages on 2015 of the eu–28 member states. this indicator was ranged from €194 per month in bulgaria to €1 923 in luxembourg (see table 3). however, when adjusted for differences in purchasing power, the disparities between eu mem­ ber states are reduced from a ratio of 1 to 10 in euro to a ratio of 1 to 4 in purchasing power standards (pps). the next inequality indicator is gini coefficient which captures differences in inequality in house­ hold incomes over time or between different regions and countries. the gap between rich and poor, which is usually measured as the ratio of the top 20% of the population to the bottom 20% on the income scale, has been steadily growing: from a ratio of 4.8 in 2008 to 7.2 in 2015 across the eu as a whole (european commission data, 2015). socio–economic inequality refers to disparities in a range of economic and social resources that have an impact on individual’s well–being, such as income, education and health. the eu uses an “at–risk of poverty” measure, defined as “those living below 60 % national median equal­ ised disposable income”, as not all those with low incomes are necessarily poor. the unit of measurement is households adjusted for household size: equalised incomes are defined as the household’s total disposable income divided by its “equivalent size”. europe, as part of the “eu­ social inequality definitions and measurements in the eu 23 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 3 monthly minimum wages in the eu countries 2015, euro country monthly minimum wage, euro country monthly minimum wage, euro bulgaria (bg) 194.2 greece (el) 683.7 romania (ro) 234.7 malta (mt) 720.4 lithuania (lt) 325.0 spain (es) 756.7 latvia (lv) 360.0 slovenia (si) 790.9 croatia (hr) 398.9 france (fr) 1457.5 hungary (hu) 333.4 ireland (il) 1461.8 czech rebublic (cz) 337.5 germany (ge) 1473.0 slovakia (sk) 380.0 belgium 1501.8 estonia (ee) 390.0 netherlands (nl) 1507.8 poland (pl) 417.5 united kingdom (uk) 1509.7 portugal (pt) 589.1 luxembourg (lu) 1922.9 source: calculation based on european commission data, 2015. rope 2020” strategy, has committed itself to lifting 20 million europeans out of poverty which is interconnected with poverty and social exclusion: the more unequal a society is, the more wide­ spread poverty and social exclusion tend to be. european statistics show that in 2015 24.5% or 121 952 000 people of all the eu population are at risk of poverty or social exclusion and this includes 27.6% of all children in europe, 18.3% of those is over 65 age old and 25.3% of adults (european commission, 2015). poverty and social exclusion among those of working age (18–64 years) have increased significantly in two thirds of eu member states as a combined result of rising levels of unemployment and in–work poverty (see table 4). increasing in the private consumption will depend on changes in personal income. the social and personal income taxes in eu is planned to be gradually decreased and this changes can to increase personal incomes and fostering growth of private consumption. however, the still high unemployment rate does not allow to increase wages and the medium–term changes in wages are unlikely to exceed the increase in productivity. unemployment rate in the eu in 2015 reached to 10.3%. the social costs inflicted by the crisis continue to weigh heavily on the euro area’s performance and internal cohesion. they also reveal divergence between eu member states and especially in unemployment rates, which vary from 4.7% in germany to 25.7% in greece, or the share of low skilled in the workforce, which ranges from 15.1% in estonia to 56.3% in portugal. such divergence is not sustainable in the context of eu targets for social development (eurostat data, 2015, income and living conditions). one in five long–term unemployed eu citizens has never worked, three quarters of them being below 35 years of age. this creates a strong risk of marginalisation, exacerbated by the low demographic growth of the continent, which is pushing more and more european societies. long–term unemployment (i.e. individuals unemployed for 12 months or more) has increased in most member states in recent years, doubling between 2008 and 2015 at eu level. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 24 table 4 the at–risk–of–poverty rate or social exclusion in the eu states (% of total population, 2015) country country bulgaria (bg) 40.1 cyprus (cy) 27.8 romania (ro) 40.4 spain (es) 27.3 latvia (lv) 35.1 italy (it) 28.4 croatia (hr) 29.9 united kingdom 24.8 poland (pl) 25.8 france (fr) 18.1 hungary (hu) 33.5 finland (fi) 16.0 lithuania (lt) 30.8 belgium (be) 20.8 estonia (ee) 23.5 germany (ge) 20.3 slovakia (sk) 19.8 sweden (se) 16.4 portugal (pt) 27.4 denmark (dk) 18.9 greece (el) 35.7 ireland (il) 30.0 czech rebublic (cz) 14.6 netherlands (nl) 15.9 slovenia (si) 20.4 austria (at) 18.8 malta (mt) 24.0 luxembourg (lu) 19.0 source: calculation based on eurostat data, 2015 and european commission data, 2015. the problem, however, is particularly acute in some countries, notably spain, cyprus and greece. in recent months, very long–term unemployment (for 24 months or more) has continued to increase, while overall unemployment has only modestly declined. men, youth and low skilled workers are more vulnerable to long–term unemployment, as well as those employed in declin­ ing occupations and sectors, whose skills often need upgrading (see table 5). dynamic and inclusive labour markets are key for convergence high–performing, inclusive la­ bour markets need to be at the heart of the social dimension of eu. modern social policy must be both about enabling people to make the most out of their talent as well as ensuring equity in opportunity. only effective social policy and labour markets development in european states can successfully master the challenge of overcoming mass unemployment and growing social exclusion. one of the main step of social policy development in eu shoud be combine competitive econo­ mies that are able to innovate and succeed in an increasingly globalised world, with a high level of social cohesion between eu states. the european budget as the financial instrument promote economic, social and regional cohesion at the national and eu levels. consequently, all policies and allcommunity budget spending will have to be more effective. in particular, as experience has shown, the sustainability and robustness of the convergence process after euro adoption is to a significant extent endogenous and it depends on a member state’s domestic policy orienta­ tions after it has joined the euro area. convergence processes for the eu states must be based on the strong economic growth of gdp per capita. trends of the recent years of eu states economy shows lowering of gdp development with fore­ casts about 2.0% till 2017, but the effectiveness of convergence policy can also be improved by 25 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 5 unemployment rate (%) in the eu states 2007 – 2017 country 2007–2011 2012 2013 2014 2015 2016 f 2017 f eu 8.5 10.5 10.9 10.2 10.3 9.2 8.9 germany 7.3 5.4 5.2 5.0 4.7 4.9 5.2 estonia 10.5 10.0 8.6 7.4 6.5 6.5 7.6 latvia 13.4 15.0 11.9 10.8 9.8 9.5 8.8 lithuania 11.4 13.4 11.8 10.7 9.4 8.6 8.1 spain 15.7 24.8 26.1 24.5 22.3 20.5 19.0 france 8.6 9.8 10.3 10.3 10.4 10.4 10.2 italy 7.5 10.7 12.1 12.7 12.2 11.8 11.6 greece 11.3 24.5 27.5 26.5 25.7 25.8 24.4 sweden 7.4 8.0 8.0 7.9 7.7 7.7 7.4 united kingdom 6.9 7.9 7.6 6.1 5.4 5.4 5.5 source: calculation based on european commission forecasts, 2015 intensive factors of economic growth and by clever choice of the country–specific social activities. the inverse relationship between growth and the level of income is considered β–convergence scenario. if this factor is present, poorer countries get closer to the richer ones. the eu social and countries cohesion has been at risk because states and its regions are affect­ ed in different ways and to varied degrees of intensity. the mechanisms in social policy are not sufficient with regard to future progress in the european integration and with regard to the need to reduce inequality. _ european social policy is shared competence between the eu and its member states and in­ cludes new objectives for social matters like full employment, social progress, the fight against social exclusion and social protection of eu citizens. _ the inequality can be defined and measured as specific resource is distributed across the whole society, while economic inequality means primarily differences in earnings and incomes, so­ cial inequality relates to differences in access to social commodities including education and health care, but also social and institutional networks, eu states civic and social policy legisla­ tion, citizenship, migration. _ social policy measures also deals with issues related to creation of new jobs and worker rights, improving social and working conditions in the eu, social dialogue, supplementary pen­ sion schemes and modernising social protection. _ quality of life is complex notion and is composed from several measures such as material living standards, health, education, social connections and relationships, including work, per­ sonal, political voice and governance activities. _ the external factors and any negative economic shock may create downside risks and neg­ ative effects that would further dampen the willingness of businesses to invest and increase households’ and socio–economic activity. conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 26 _ the necessity for the eu to move towards harmonization of social policy and a harmonisation of minimum social standards is becoming more obvious. convergence policy must bet con­ nected with a judgement of the likely future evolution of the national economy. _ “europe 2020” strategy goals and proposals of socio–economic convergence for the eu mem­ ber states has been considered as one of the most important economic development targets in the eu, concentrating national resources and eu funds on the areas and sectors where they can make the most important progress. the strategic goals of eu convergence policy are dis­ cussed as well as the development challenges. _ european national economies strategies have been related to the influence of several inter­ nal and external factors. eu convergence process can be sufficiently supports for improve­ ment sustainable economic and competitiveness growth, social development, job creation and quali ty of life. _ european union new member states convergence the past years showed a relatively sta­ ble pace. the inverse relationship between growth and the level of income is considered β–convergence. if this factor is present, poorer countries get closer to the richer ones. it supports job creation, competitiveness, economic growth, improved quality of life and sus­ tainable development. _ the effectiveness of european convergence policy can also be improved by significant eco­ nomic growth and by clever choice of the country–specific social activities. the socio–eco­ nomic policy improvement in general connected with investment flows, new technologies and productivity growth. _ the main calculations show that gdp growth and current economic situation improved in eu at whole and especial in ireland, latvia, estonia, lithuania, slovakia, poland and romania.never­ theless significant differences in levels between member countries continued to influence the current economic situation negatively. in several member states were significantly scaled back especially in italy, france, portugal and finland. _ the situation of the social policy in latvia for example continues improving. according to au­ thor`s calculation based on methodological framework of convergence theories, the level of latvia’s gdp per capita compared to eu–28 level in 2015 was 64.2% and with future will in­ crease up to 69.3% in 2020 and up to 80.2% in 2030. _ trends of the recent years of eu–28 states economy shows lowering of gdp development. the gdp growth outlook for the next two years in the eu–28 increased slightly to an annual from 2.0 percent to 2.1 percent in 2017, but the effectiveness of convergence policy can also be improved by intensive factors of economic growth and by clever choice of the country–specific social activities. _ the analysis of the convergence effects is complicated by the fact that there are different mea­ surement and social priorities in the eu states that are used to evaluate the degree and suc­ cess of the socio–economic progress. different national models and different baseline indica­ tors produce different results of the socio–economic situations in the eu states. _ for future`s social development investigations and governmental decisions needs to be prag­ matic approach into financing in order to create employment and reduce poverty level and social disparities in the national economy. national socio–economic policy must identify main social priorities as the income`s growth, pension`s policy improving, education’s systems and labour market development and decide where the money will deliver the best results and high social efficiency. 27 e u r o p e a n i n t e g r a t i 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(2013). country – specific recommendations–final version, http://europa.eu/legislation_summaries/institu­ tional_affairs/treaties/lisbon_treaty/ai0023,ap­ proved by the council: http://ec.europa.eu/euro­ pa2020/europa–2020–in–your–country/latvia european commission. (2010). “europe 2020”: a eu­ ropean strategy for smart, sustainable and inclusive growth, 2020: http://ec.europa.eu/eu2020/pdf/ the social protection committee (2011). the social dimension of the europe 2020 strategy. the rise of income inequality amongst rich countries: http:// inequalitywatch.eu/spip.php?article58 world bank (2015) “what’s next in ageing europe: ageing with growth in central europe and the bal­ tics”: http://www. worldbank.org/content/dam/ world bank/publications/eca/ about the author elena dubra dr.oec., professor university of latvia, faculty of economics and management, department of national economics fields of research interests macroeconomics, social economics, world’s economics development address riga, aspazijas bulv.5, lv1050, latvia tel. +371 67034762 e–mail: elena.dubra@lu.lv european integration studies 2011.indd 186 issn 1822–8402 european integration studies. 2011. no 5 development of entrepreneurship as a component of regional policy in latvia meldra gineite, anastasija vilcina latvia university of agriculture abstract balanced regional development in latvia is one of the most important issues on all political levels in terms of development strategy. in latvia there are five planning regions – kurzeme, latgale, vidzeme, rīga, zemgale. the regional development is not balanced. the most powerful region is rīga, because significant part of economic activity takes place there, also most part of inhabitants live there. consequently, it is important to have efficient regional policy, to ensure a balanced regional development. in year 2009 important reform was realized in latvia – administrative-territorial reform. as a result now there are 118 local governments (before reform – 548) in latvia with the average population of 19 100 (before reform – 4 300) inhabitants. however, there are differences among the local governments – both in population and economic development. part of the municipalities is classified as a mixed urban and rural area. theoretically local municipalities have become more powerful; yet there are still discussions taking place whether this administrative-territorial reform was really necessary. one of the concepts of sustainable development (which is also a principle of the regional policy) is that big amount of social and environmental problems could be solved by sector of entrepreneurship. also development of regional economy is related to the local governments and its ability to use resources, create working places and promote and strengthen business activities. entrepreneurship, its development is seen as basics of country’s progress, because business creates work places, provide tax revenue and the output is goods and services. business can be considered as one of the driving forces of society. consequently development of entrepreneurship, its support should also be a component of regional policy. in the article authors are analyzing both the role of entrepreneurship in regional policy in latvia and identifying differences of business development on regional level. researchers in recent years have a lot of discussions, what kind of activities are necessary and what kind of regional policy is appropriated to balance entrepreneurial activity in different regions. in latvia regional policy is developing since recovery of independence in 1990th. resuming planning document hierarchy in latvia, it is possible to divide regulation of planning system in three levels: national level, regional level and local level. after the administrative territorial reform, controversies about necessity to strengthen the regional level in administrative way have intensified. in regulations there are also mentioned needs of business. there exist significant economic differences between regions of latvia. coherence between region development and activity of entrepreneurship is also noted. it demonstrates that supporting development of entrepreneurship and motivating people to start their own business, also providing suitable business environment and successful realization of support activities could also be a useful instrument of regional policy. keywords: entrepreneurship, economic, regional differences, regional development, policy. introduction regional policy is one of the most complicated issues for policy makers both on national and global level. traditionally regional policy means to realize purposive activities to coordinate development of different sectors to support and promote progress of separate territory parts. regional development is focused on balancing and sustaining development of territory. any regional policy has two aspects – economic and social. it means that policy makers need to correct free market economy to achieve two interconnected aims – development of economic and social equality and prosperity. in practice implementation of regional policy means that government intervenes in the private sector. one of the regional policy components is regional economic development policy, and its aim is to reduce socio-economic disparities between areas and territories. development of economy is closely related to entrepreneurship. entrepreneurship plays an important role in stimulating region’s economic development and growth (hackler,mayer, 2008). in recent years entrepreneurship has become one of the instruments to solve certain social problems. entrepreneurs have to play more and more roles. entrepreneurship as an all-embracing concept appears to be the most prominent solution for a better society, economically as well as socially (johansson, 2009). economic strength and business vitality as well as innovative capacity, entrepreneurial environment, creative class, and liveability (barkley, 2008) also are related with regional competitiveness. all these issues indicate that entrepreneurship has a great impact on regional development as well as success of development of some industry or enterprises in general could be associated with the regional policy. regional development and regional policy in latvia still is one of the most important challenges because of unique progress of regions in latvia. although in 2009 here an important administrative-territorial reform was realized, issn 1822–8402 european integration studies. 2011. no 5 187 which resulted in 118 local governments instead of 548, it is still an issue – how to provide equal development of regions? it is completed also with factors like economic crises, relatively high unemployment rates in different regions. during the economic crises there was also a decrease in registration of new enterprises. because of unemployment inhabitants tend to migrate abroad. places of employment usually are created by private sector, so it is important to stimulate activity of entrepreneurship, because having a job is one of the main points to have prosperity in society. the aim of this article is to assess business development in different regions from regional policy point of view. the main tasks are: 1. to make theoretical frame of regional policy role in regional economic and business development. 2. to analyze regional policy documents in latvia. 3. to compare business development tendencies in regions of latvia. the object is entrepreneurship in regional policy. research methods applied: monographic method, logical-constructive method, document analyze, statistical data analyze. in recent years there have been many discussions in latvia on how to get over the economic difficulties, but rarely these activities are linked to regional policy. a question is still open, whether the concept that entrepreneurship could solve economic and social problems works on regional level in latvia. regional policy and economic development economic development of region is influenced by different factors – resources, human capital, and geographic conditions, social conditions, infrastructure, culture, production, innovations and science etc. in knowledge-based economies, regional networking, research and technology development and collective entrepreneuring appear as important key processes for future local development and attractiveness (johannisson, lindholm dahlstrand, 2009). it is known that there are significant differences between countries and regions. consequently there is a discussion, what kind of activities are necessary and what kind of regional policy is appropriated. a new approach to regional policy in europe is to not only try to solve social and economic differences, but also make stronger innovation process and society of knowledge. many countries devote a large part of their national budget to regional policies. these policies are designed to support the development of economically backward regions, substantially below the average of other regions. (wiberg, 2011) a number of the regional initiatives set up by the eu and national european governments rely on distortionary financing schemes, which seek to reduce regional inequalities by encouraging relocation of activity to the periphery (ulltveit-moe, 2007). today the trend is to move from classic policy approaches in regional development towards a stronger orientation regarding the role that innovation could play for the regional economic development (koschatzky, stahlecker, 2010). researchers consider that reasons for regional differences can be found on regional level, also reasons for different economic activity, business start ups (saantarelli, vivarelli, 2007) so it is a task for regional policy makers to provide conditions for economic growth to decrease regional disparities. for instance, governments both on national and international level spend money to support, for example, infrastructure project in poorer regions, thus trying to develop these territories. many countries devote large amounts of money to improve their domestic infrastructure to make it easier and cheaper to transport goods, promote trade and increase the mobility of people (gallo, 2010). a common feature of regional policies is that they are designed to raise investment in poor regions by either a) directly granting subsidies for private investment or b) improving the regional infrastructure (fuest, huber, 2006). at the same time there is a contradiction, why it is necessary to support poor regions instead of investing money in successful area to make increased benefit. one of the reasons is to decrease migration from poorest territories to well developed regions. however c. fuest and b. huber (2006) think that from an economic perspective, the best way to reduce migration to rich regions is to tax migrants or to pay direct subsidies for staying in the poor regions. however, there is also a sceptical view on performance of european regional policy. some researchers even highlight that regional policy has had a negative rather than a positive impact, because still there are regional inequalities between eu member states and regions. consequently, resources spent for the regional policy have not yielded the expected results. one more component of regional policy in european countries is state aid to manufacturing and service sectors in the form of grants and subsidies. public subsidy is aimed at influencing the regional allocation of investments and employment in order to increase competitiveness, selfsustaining growth and new employment in low income region (bernini, pellegrini, 2011). also this is a disputable issue, whether it is the best way and in the result gives more benefit than amount of investment. for instance, c. bernini and g. pellegrini (2011), analyzing example of italy, showed that the policy makers prefer to subsidize projects with higher employment, even if they are less productive. in addition, governments around the world use subsidies to attract firms to relatively deprived regions in the belief that they generate positive externalities. however, firms that potentially generate the largest spillovers may themselves benefit from co-location externalities, and thus be drawn towards current centres of activity (devereux, griffith, simpson, 2006). as the local environment influences the choices of entrepreneurs; entrepreneurial success influences the local economy (glaeser, rosenthal, strange, 2010), also region influences entrepreneurs and vice versa. to choose a business place is one of the first tasks to do. a large empirical literature attempts to identify the determinants of start-ups, most of it focusing on the regional context (gries, naude, 2009). so regions have to prove their performance to be a good place for business. business development in small towns and rural areas is also essential for the steady development of all country, and significant instrument to attract people to live outside metropolis. as i.verheul, m. carre, e.santarelli (2009) mentioned, entrepreneurs in retailing and other small-scale services may be attracted to regions with high population density and high incomes, while entrepreneurs in manufacturing may be attracted to regions with low wages and well-developed infrastructure. generally, the choice for issn 1822–8402 european integration studies. 2011. no 5 188 a location is driven by regional opportunities and absence or presence of barriers to entry. main differences among the regions are access to resources, human capital, culture, political system, development level of economy. as business activity is strongly related to employment, also these two aspects have to be analyzed. the existence and persistence of regional disparities in the unemployment rate is a common problem of many european economies (bande, fernandez, montuenga, 2008). number of different factors is forming the attractiveness of the territory to start and develop business – social, economic, political, technological, regulatory, geographical and other conditions. also it is important to consider regional particularities, for instance, it is urban or rural territory. y. vaillant and e. lafuente (2007) have mentioned that it is necessary to apply different business support mechanisms for urban and rural areas. this approach also could be useful for regional policy. small and medium cities often operate from narrower and more specialized industrial base but their economic future may be closely tied to the specific industries in which they have historically specialized (wolfe, bramwell, 2008). focusing on one or more sectors of business, or even on large enterprise in the area, it makes advantages also for other enterprises, for instance, those providing services and goods. p. devereux, r. griffith and h. simpson (2007) found that a region’s existing industrial structure has an effect on the location of new entrants and grants do have a small effect in attracting plants to specific geographic areas, but firms are less responsive to government subsidies in areas where there are fewer existing plants in their industry. at the same time it is a threat for local economy, because the area becomes dependent on this sector’s successes and failures, which is highly risky. so a larger share of small and mediumsized businesses can make a local economy more flexible and less vulnerable to industry-specific shocks (loveridge, nizalov, 2007). each business sector needs specific support, so it is necessary to identify region’s development way to use the most appropriate support activities. as v. harmaakorpi and v. uotila mentioned, regions are strongly dependent on their history. the region’s development trajectories are strongly path dependent. therefore, it is impossible to build any kind of sustainable regional strategies without a thorough assessment of regional assets and resource configurations. it means that it is very important to use regional policy in step with the available resources. all things considered, it is also assignment for regional policy to ensure activities suitable for region features, differences, advantages and disadvantages. regions are considered to be strongly path-dependent entities needing to create new, even radical, paths to stay competitive in a rapidly changing world (harmaakorpi, uotila, 2006). as b.johannisson and a.lindholm dahlstrand (2009) mentioned, both entrepreneurship and regional development are at present popular subjects in the policy-making european community as well as in the global academic research community. there is also a tendency to use traditional instruments and methods both for regional and entrepreneurship development; consequently it is a more serious issue to evaluate previous activities. besides, in europe 2010 strategy all three priorities (smart growth, sustainable growth and inclusive growth) are closely linked to regional policy issues and regional development. regional policy documents and entrepreneurship as a component in its in latvia logical basis of choosing instruments for regional development is political viewpoint. instruments chosen by each country are indicatives of their regional policy. in latvia regional policy is developing since recovery of independence in 1990th. the first document about regional development policy was established in 1995 – it was a framework for regional development policy. later, in 2002 there was also adopted “regional development law” and it is still operative with a number of changes. in regional development law there a definition is given of regional development and in this case it means beneficial change in social and economic situation in all country or in its separate parts. but regional policy is defined as government policy and focused activities to promote regional development, by coordinating development of industries according to the development priorities of separate parts of country and providing direct support to promote progress of a certain area. in the law a principle to consider each territory’s characteristic features and possibilities is emphasized. fundamental principles of regional development planning, mentioned in the “regional development law”, are: concentration, programming, partnership, complementarities, publicity, principle of subsidiarity and sustainability. regional development law determines institutional structure of regional planning and policy implementation. these principles and institutional framework also influence development of entrepreneurship in all regions. it is a positive aspect that in this law there are aspirations to consider differences and characteristics of several regions included. on the other hand it also encourages defining of features, opportunities and main industries in each region and it is not an effortless issue. together with “regional development law” there was also developed a “spatial planning law” (2002); which is still operative with a number of changes. the aim of this law is to promote sustainable and balanced development of the country through effective spatial planning system. this law has also defined principles of territory planning – sustainability, combination of interests, diversity, detalization, free competition, continuity and succession, publicity. also tasks of territory planning are defined in „spatial planning law“ and some of them are related to entrepreneurship, for instance, to create favourable conditions for business developments and investment attraction. consequently, there are accentuated needs and demands of entrepreneurship development. however, in the „spatial planning law“ mostly there are institutional framework, responsibilities and procedure of planning process defined. spatial planning has an important role in local governments, so support to business infrastructure development is highly dependent on municipalities. to coordinate all interested parties to consider territory‘s development is also a very specific and complicated process for the local governments, consequently it takes a long time and also skills and abilities necessary for administrators of the local governments. therefore, based on the „spatial planning law“, „local municipality territory spatial planning regulations“ issn 1822–8402 european integration studies. 2011. no 5 189 (2009) were drafted out. it is a new advantage for local governments to evaluate development of their territory after administrative-territorial reform (ended in 2009) and create new planning documents on local level, taking into account the new administrative divisions. new administrative areas most frequently were created by uniting two or more municipalities. municipal land spatial planning regulation defines that municipalities have to determine territory plan for the period of twelve years. this plan should be a great guide for entrepreneurs interested to start or develop a business in this municipality. to create such plan local governments have to have clear vision for territory’s development in a long term. to evaluate and determine resources on a broad scale, there are also „regulations for the spatial planning region“ (2005) in latvia. these instructions define that, creating this plan, it is necessary to evaluate both resources, its perspective of development in all region and functional link with other regions and neighbouring country. law demands to have a perspective on development of the region for a 20 year period. guidelines of this plan are recommendations for local municipality development programmes and spatial development. resuming planning document hierarchy in latvia, it is possible to divide regulation of planning system in three levels: national level, regional level and local level. controversial is ability and performance of collaboration between all involved parties in this planning process. after the administrative territorial reform, controversies about necessity to strengthen the regional level in administrative way have intensified. the first part was an administrative view to regional policy, but it is also important to look at it in a conceptual way. in 2004 cabinet of ministers affirmed conception of regional policy, which is a long term document and it includes fundamental principles, aims, priorities and main directions of actions. in this document the most important problems in regional development are indentified: latvia and its regions have low level of competitiveness compared to other regions in eu; significant differences in socio-economic development between and in planning regions, and tendency to become more and more unequal; low quality infrastructure unattractive to business and also living environment; riga (the capital of latvia) has a low level of competitiveness comparing with other european capitals. the reasons identified are: problems with coordinating industry development policy and harnesses to harmonize it with priorities of regional planning; lack of local and eu regional development support instrument interface; slow process of administrative-territorial reform and insignificant local government support instruments. established aims are related to the defined problems. and one of the aims is to create equal preconditions in all regions for developing entrepreneurship to promote balanced progress of all country. also in 2006 a medium-term planning document “latvia national development plan 2007-2013” was accepted, in which regional development issues were emphasized. in this development plan latvia is seen as a polycentric development country. the aim is to have a favourable environment both for business and living. one of the tasks to improve region and local level function was to implement regional reform by creating regions and regional local governments capable of economic development. reform was implemented, but there are still discussions taking place whether it was a successful one on both administrative and economical levels. as the next planning period in europe union will commence in 2014, politicians are already developing a new plan to provide successful planning of european funds. in recent years there have been many discussions about development course for latvia. consequently, in 2010 by saeima, the latvian parliament, was developed and approved a long-term planning document “sustainable development strategy of latvia until 2030”. now it is the main strategic planning document in latvia, and it also refers to the regional policy and planning documents. in 2030 for latvia one of the accents is interaction of rural-urban territories, to provide a balanced development – “regardless of the geographical location, the competitiveness and attraction of territories will be determined by the ability to offer qualitative and attractive living environment, as well as wide range of public services”. the spatial development perspective puts emphasis on the three main aspects: a) accessibility and mobility possibilities, b) settlement as the economic development, human life and work environment, c) spaces of national interest – unique specific territories, significant for the development of the whole country. in this vision of development a significant role is given to spatial planning to provide infrastructure, public service, communications, energy, sustainable resource application. all these factors are important also for providing favourable environment for entrepreneurship. entrepreneurship development tendencies in the regions of latvia in latvia there are five planning regions – rīga, vidzeme, kurzeme, zemgale and latgale. but there are five statistical regions – rīga, pierīga, kurzeme, zemgale, vidzeme and latgale. by area the largest region is vidzeme (23.6% of territory of latvia), but the most populated area is rīga, where 48.6 % of all inhabitants live. rīga is the smallest region by territory. rīga has the highest density of population it is three times bigger than in the average number in latvia. data of survey “development of regions in latvia 2009” show that during the five year period the greatest share of the total reduction of latvian population was in latgale region – 24.4 thousand. in region of rīga the number of inhabitants had even grown by 2.1 thousand people, while in the other regions it has reduced: in vidzeme – by 11.4 thousand, in kurzeme –by 10.4 thousand and in zemgale – by 7.7 thousand people. here is some of the data, that reflect the problems of unbalanced development and that also influences entrepreneurship environment. there are also statistical evidence problems existing in socioeconomic development. data of statistics board of latvia shows that a great part of gross domestic product (gdp) is created in rīga – more than a half. this also indicates that development of regions is unequal. during the last years there is a decrease in gdp part of rīga region (from 57.3 % in 2005 to 54.1 % in 2008), but it is still significant (table 1). the smallest part of gdp is created in vidzeme (6.6 % in 2008) and zemgale (7.6 % in 2008). issn 1822–8402 european integration studies. 2011. no 5 190 table 1. gdp of statistical regions in latvia (data of statistics board of latvia) year region 2005 2006 2007 2008 total, lvl thsd. total, proportion, % total, lvl thsd. total, proportion, % total, lvl thsd. total, proportion, % total, lvl thsd. total, proportion, % rīga 5190886 57.3 6174398 55.3 8036228 54.4 8749588 54.1 pierīga 1008529 11.1 1467991 13.1 1818255 12.3 2056433 12.7 vidzeme 563908 6.2 733130 6.6 990399 6.7 1065875 6.6 kurzeme 965196 10.7 1149313 10.3 1517697 10.3 1688246 10.4 zemgale 629684 7 805037 7.2 1180164 8 1237667 7.6 latgale 691460 7.6 831952 7.4 1219612 8.2 1358320 8.4 non-financial investments are one of the measures that shows economic growth and potential of territories. data of statistics board of latvia shows that comparing non-financial investments, it is seen that rīga and pierīga obtain most of the financial investments (table 2). in 2009 there was a decrease in non-financial investments in all regions. it is explained by economic crises. in 2009 69% of all non-financial investments were in statistical regions of rīga and pierīga which is rīga planning region. in kurzeme – 11%, zemgale – 7 and both in vidzeme and latgale it was 6%. these figures show inequality of regional development as well. it also influences development of entrepreneurship in different regions. table 2. dynamics of non-financial investments in the statistic regions from 2006 to 2009, in comparative prices of 2009, lvl million (data of statistics board of latvia) region/year 2006 2007 2008 2009 rīga 2131.5 2198.8 2431.7 1618.8 pierīga 776 973.4 663.8 397 vidzeme 310.5 291 284.4 185.4 kurzeme 480.4 479.3 506.8 334.3 zemgale 364.5 381.9 324 211.5 latgale 262.5 289 261.1 185.6 statistical data (by lursoft) shows that 68.5% of enterprises are registered in rīga. in kurzeme there are 9.1%, latgale-4.8%, zemgale – 8.0%, vidzeme – 9.5% of enterprises (table 3). these numbers also confirm conclusions made before, that region of rīga is a great influence to economic situation of latvia and it is the most powerful region and differences with the other regions are significant. table 3. registered enterprises in the regions of latvia (authors’ construction by data of latvian it company lursoft) region enetrprises % rīga 7068 9.1 pierīga 53105 68.5 vidzeme 3742 4.8 kurzeme 6209 8.0 zemgale 7400 9.5 latgale 77524 100.0 this analysis demonstrates the significant economic differences between regions of latvia. coherence between region development and activity of entrepreneurship is also noted. it demonstrates that supporting development of entrepreneurship and motivating people to start their own business, also providing suitable business environment and successful realization of support activities could also be a useful instrument of regional policy. still there is a question, what kind of activities are the best to provide progress of entrepreneurship in all regions. it is important to continue research and evaluation with a goal to find the best solution for each region. table 4. the number of enterprises per 1000 inhabitants in the planning regions (authors’ construction by data of latvian it company lursoft and statistics board of latvia) region enterprises population enterprises per 1000 inhabitants rīga 53105 1095706 48.47 vidzeme 7400 233570 31.68 kurzeme 7068 299506 23.60 zemgale 6209 279809 22.19 latgale 3742 339783 11.01 conclusions during the recent years a concept that has become more and more popular is that entrepreneurship is a way to solve social and economic problems. consequently, support to business is also one of the most popular points in development policies, also regional development. while there is an understanding that support for business is important on all levels, still there is a questions to answer, for instance, what kind of support activities are the most beneficial? also an important issue to address is how to get the most advantage by investing as little as possible – how to use resources carefully and efficiently. in latvia both regional policy and entrepreneurship has become an actual issue lately – during the last 20 years, however, regional policy documents both on national and local level are provided, but in practice they are not successful, because differences between regions, their development are significant. not only indicators of development are different but also different activity of entrepreneurship is observed. by analyzing and comparing statistic data, it is observed that in region with lower activity of business also other indicators are lower than in regions with higher entrepreneurship activity. issn 1822–8402 european integration studies. 2011. no 5 191 references bande, r., fernandez, m., montuenga, v. 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(2008) innovation, creativity and governance: social dynamics of economic performance in city-regions. innovation: management, policy & practice, vol. 10, pp. 170-182 the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 125 issn 1822–8402 european integration studies. 2011. no 5 the eu sovereign debt crisis and „european bonds“ option algis junevicius, egidijus liutkus kaunas university of technology, institute of europe abstract after the financial crisis economies with existing deficits usually are in danger to go to default due to uncontrolled borrowing paces. all the members of the european monetary union have violated treaty limits on allowable budget deficits – some of the members have four times larger deficit. such a development clearly suggests that some countries in european union might become insolvent, since their net external debt is really large measure to the size of their economies. after financial crisis economies back to the recovery after a period of 3 or 4 years. therefore economies are shrinking or growing rate is very slight. due to these processes it is really big challenge to bring these deficits back to satisfactory level. governments then have to go to the market and ask for additional debt to cover its deficit. these countries, if not aided, will possibly default and will be forced to restructure their debt. this argument is the reason why european commission and prime ministers of european union make a lot of play on discussions about present and future sovereign debt issues, not only regarding the certain countries, but the entire eu. the italian finance minister giulio tremonti and luxembourg’s prime minister jean-claude juncker, in an article which appeared in the financial times on 5 december, launched the proposal to issue the “european bonds”. in this paper authors follow this idea and appeal to obvious arguments showing, that “european bonds” would be great cooperation to control euro zone debt. also authors consider “european bonds” as a tool to solve eu debt crisis and ensure future financial stability of all eu countries. the “european bonds” idea is not new. the first one goes back to jacques delors in the 1980s. jacques delors proposed the issue similar bonds in addition to european investment bank loans to finance infrastructure investments, so the initial idea was intended to provide a new debt instrument for financing pan-european infrastructures, but recently “european bonds” idea became the possible measure to overcome present sovereign debt problems. in the first part authors analyze occasions of sovereign debt crisis unbalanced sovereign budgets, irrational social and public spending, too high trust of creditors, etc. the second part of the paper is devoted to theoretical assumptions of debt structures development and “debt dilution” phenomenon. long recognized as a problem in corporate debt, dilution seems to have recently become a significant problem in sovereign debt markets. debt dilution has undesirable consequences for both debt structures and the amounts and terms at which sovereigns borrow. in the third and fourth part various aspects of “european bonds” are being analyzed. also the negative and positive consequences are analyzed if “european bonds” proposal would be implemented. also government deficit, government consolidated gross debt and long term government bond yields statistics are presented to append the paper findings. keywords: sovereign debt, sovereign debt crisis, debt structuring, „european bonds“. introduction this paper explores ideas for implementation of systematic decisions how to structure sovereign debt system in eu and avoid future sovereign debt crisis. the two main difficulties that arise in a framework of “european bonds” are how to ensure further sustainability of eu sovereign debt management (especially for high-debt countries) and how to convince virtuous countries to support the project and make the debt service costs lesser. this paper suggests an approach to deal with those issues, although this area clearly requires further work. while this paper concludes that “european bonds” is a novel approach to improve sovereign debt management that is worthy of further research, it is only a first pass at the issue, and further research is needed before arriving at a definite conclusion. in fact, while “european bonds” could be more beneficial for countries with high debt levels, it may make “european bonds” ideas contradictory to well debt managed countries. in any case it will help to prevent future over borrowing and sovereign debt crisis. moreover, an overall judgment of “european bonds” would depend on the further development of sovereign debt management decisions of eu institutions. the pending scientific problem – eu countries sovereign debt is getting higher, so complex solutions are needed to overcome present sovereign debt crisis and restore the trust of euro as a currency and of all european union. the aim of the paper – to analyze the present eu sovereign debt crisis appearance reasons and assess “european bonds” as possible measure to solve eu sovereign debt control problem. tasks of the paper: • to present sovereign debt crisis appearance reasons • to highlight sovereign debt structure theoretical assumption • to consider the “european bonds” solution as a tool to solve the sovereign debt control in eu. • to identify positive and negative “european bonds” features in the context of eu sovereign debt control problem. the object of the paper – eu sovereign debt control. issn 1822–8402 european integration studies. 2011. no 5 126 research methods applied – analysis of scientifi c papers and statistical data. sovereign debt crisis: fundamental features history shows that fi nancial crises are generally followed by sovereign debt crises. in some cases sovereign debt crisis become the reason of currency crisis. the latter stage is not the case for eu, because of existence of euro zone and currencies pegging mechanisms. from the sovereign debt crisis point of view some four stages of typical debt crisis appearance could be indentifi ed: 1. growing defi cit 2. growing debt 3. downgrades of fi nancial ratings 4. default. the fi rst stage of sovereign debt appearance is defi cit growth and it is the outcome from the fi nancial crisis. during the fi nancial crisis governments spending increases dramatically in attempts to stabilize the fi nancial system and stimulate economic activity. the cyclical income from taxes goes down, but the fi nancial commitment of governments stay mostly unchanged. social and health affairs, huge and important state infrastructure projects usually can not be stopped on the spot. therefore fi scal surpluses become defi cits. if fi nancial crisis damage banking system and government must borrow huge sums from the market, than it makes situation more diffi cult. thereby economies with existing defi cits are in danger to go to default due to uncontrolled borrowing paces. all the members of the european monetary union have violated treaty limits on allowable budget defi cits – some of the members have four times larger defi cit. even leading economies of the world have all seen their defi cits become higher, some of them to record level (fig. 1). fig. 1. general government defi cits and surpluses (eurostat, 2011) the next sovereign debt appearance stage is growing debt. almost in every fi nancial crisis economies back to the recovery after a period of 3 or 4 years. it means that government’s budget starts to collect more taxes after business and private individuals’ starts to receive more profi t and income. therefore economies are shrinking or growing rate is very slight. due to these processes it is really big challenge to bring these defi cits back to satisfactory level. governments then have to go to the market and ask for additional debt to cover its defi cit. this stage turns into growing debt loads (fig. 2). fig. 2. general government consolidated gross debt as a percentage of gdp (eurostat, 2011) issn 1822–8402 european integration studies. 2011. no 5 127 that means governments have to cut spending, raise taxes and divert revenues to payoff interest on their debts. furthermore, because of the worries of default, investors are demanding higher interest payments before they will lend any more money. the risk premium raises rates on assets, such as corporate bonds — meaning companies themselves find it more expensive to borrow. deep budget cuts, a freeze on public sector wages, pension reforms, increases in fuel taxes. usually (but not always) when debt reaches 80 percent of gdp, the borrowing costs for governments starts to become higher. markets become suspicious and suspenseful. if the second stage mentioned above goes up, than third stage become real, i.e. downgrades of financial ratings. when deficits and debts rise and economic activity appears to be too weak to solve fiscal problems, the credit worthiness of the government falls under intense scrutiny. this moment every time is fixed by watchful international rating agencies. this stage in short term period is not avoided in every sovereign debt crisis, because the restructuring of countries problems takes at least two years. even the best rating holders, like ireland and spain lost the rating due to decreased trust and believe that countries are able to serve the present and future commitments to markets. if some essential changes in debt crisis decisions will not appear during near future, downgrades are going to be a great trouble (cole, kehoe, 2000; gros, 2010) default is the final and most negative stage of financial crisis. downgrades only make the cycle of weak economic activity and growing dependence on debt. when markets indicate higher risk, the more return will be definitely required. therefore, the borrowing costs for these troubled countries rise. then it becomes harder to finance spending needs and harder to finance existing debt. even huge rescue package committed by the eu and imf doesn’t ensure the long-term solvency of greece, portugal and other eu countries. even spain, an economy that represents 12 percent of gdp for the euro zone might be next in line for a massive funding request. in this stage deliberate political and financial decision must be enacted to step out from debt crisis (calvo, 1988; rich, 2010; guidotti ,kumar, 1991). theoretical assumptions of debt structures development in analyzing existing debt structures, two sets of comparisons provide insights into how debt structures might be improved. first, a comparison between debt structures in less advanced countries and advanced economies highlights characteristics that make advanced economies less crisis prone. compared with advanced economies, less advanced countries find it relatively difficult to issue long-term debt in their own currencies. greater reliance on short-term and foreign currency debt is associated with a higher frequency of asymmetric shocks and sovereign debt problems. shortterm debt (or debt indexed to short-term domestic interest rates) is associated with vulnerability to sudden changes in market sentiment: worsening perceptions of the country’s creditworthiness can quickly feed into higher interest costs, often leading to vicious circles. similarly, with relatively large shares of foreign currency debt, depreciations can abruptly render a country insolvent. only a handful of the largest economies issue debt denominated in their own currency on international markets, perhaps reflecting in part their economic size and the use of their currencies as a vehicle for international trade. bonds issued internationally are otherwise relatively homogeneous, usually taking the form of fixedrate bonds with relatively long maturities. by contrast, the composition of debt issued domestically varies considerably across countries (missale, 2009; reinhart, rogoff, savastano, 2003). less advanced countries’ difficulties in issuing long-term local-currency bonds on the domestic market seem to result from deeper problems, such as lack of monetary and fiscal policy credibility (in eu especially for countries not member of euro zone), and related worries about the possibility of inflation. regarding debt issued internationally, some international financial institutions (ifis) have often been among the first parties to issue bonds denominated in the currencies of less advanced countries (usually in combination with exchange rate swaps with emerging market residents that issue in one of the world’s main currencies). opportunities to raise funds at more favorable rates have been, and should continue to be, the primary motivation for the ifis’ involvement in these operations: the ifis have been able to tap new investor bases interested in holding assets denominated in less advanced currencies but bearing no default risk. this said, contributions to the development of new financial markets that can later be tapped by developing countries are a welcome by product of such funding decisions by the ifis. ideas for sovereign debt structurising came from the corporate context. explicit seniority partly as a result of contract enforcement issues, sovereign liability structures both in less advanced countries and in advanced economies are not as rich as those of corporations. a notable difference is a lack of an explicit seniority structure, which at the corporate level exists either by statute or through bond covenants. as a result, sovereign creditors tend to be more exposed to “debt dilution” than do their corporate counterparts. debt dilution occurs when new debt reduces the claim that existing creditors can hope to recover in the event of a default. long recognized as a problem in corporate debt, dilution seems to have recently become a significant problem in sovereign debt markets. debt dilution has undesirable consequences for both debt structures and the amounts and terms at which sovereigns borrow. its adverse effects on debt structure stem from investors’ efforts to hold debt forms that are harder to dilute—such as shortterm debt or debt that is costly to restructure. such instruments in turn make the debtor more vulnerable to crises and render the impact of crises more severe. dilution also increases the likelihood that highly indebted countries will over borrow. countries near default may be able to place new debt with investors without facing prohibitive interest rates, as the new creditors effectively obtain a share of the existing creditors’ debt recovery value. at low debt levels, the opposite problem may occur, as the possibility of dilution tends to raise interest rates unnecessarily. in principle, debt dilution could be ruled out by an explicit, “first-in-time” seniority structure giving priority to earlier debt issues, because in the event of bankruptcy the original creditors would be repaid first. firstin-time seniority would tend to reduce borrowing costs at low debt levels, but make borrowing more expensive at high debt levels. in fact, if the probability of a debt crisis were substantial, markets would expect a new debt issue to be issn 1822–8402 european integration studies. 2011. no 5 128 junior to most outstanding debt in the event of a crisis, and thus demand a higher interest rate compared to the present system. the effect on borrowing costs would reward prudent borrowing behavior and discourage over borrowing. explicit seniority could also improve debt structures by reducing incentives to issue “crisis-prone” debt forms that are hard to dilute. explicit seniority would also entail risks, however. in particular, an unavoidable consequence of limiting dilution and making new borrowing harder at high levels of debt is that this may prevent some countries from accessing debt markets in situations of illiquidity, in turn increasing the likelihood of liquidity crises. another potential drawback is that seniority could complicate debt pricing and, as a result, make debt more expensive (at least until markets became familiar with the new system). uncertainty would be increased by the possibility that sovereigns fi nd ways to circumvent seniority when their borrowing levels are elevated, for example, by obtaining direct bank loans under different jurisdictions or providing collateral for subsequent loans (borensztein, 2004; buchheit, gulati, 1992; detragiache, 1994). eu sovereign debt crisis ride out: “european bonds” solution recent decisions by european fi scal and monetary authorities, sovereign debt issues continue to destroy the weak economic recovery. strong-minded and versatile decisions must be formulated to global markets to restore trust in eu (juncker j. c., tremonti, 2010; imarketnews update, 2010). the italian fi nance minister giulio tremonti and luxembourg’s prime minister jean-claude juncker, in an article which appeared in the financial times on 5 december, launched the proposal of establishing a european debt agency (hereinafter – eda), which should replace the european financial stability facility, when this expires in 2013. each country through eda could issue “european bonds” up to 40% of gdp – thus well within the maastricht reference rate of 60%. it would create, over time, a sovereign bond market of similar size to the us treasury market. as a fi rst step, the eda would fi nance 50% of member states’ debt issues – but this can be raised to 100% during crises (fig. 3) (eurointeligence, 2010). figure 3. the scheme of „european bonds“ operation (made by authors) the recent proposal has some features “exchange offers”. the main idea is that the sovereign debtor, threatening to default, proposes to the creditors that they accept “voluntarily” the new bonds in exchange for the existing securities. the new securities are worth less, but are senior relatively to the old ones, as they are given priority in the repayments. if well planned, the offer may be convenient for creditors, who, by accepting it, lose less than they would by refusing and prompting a default. the offer is clearly convenient for the sovereign debtor, since it reduces the value of his debt and allows him to continue to access the international capital markets at reasonable rates. this procedure, however, does not require an international guarantee, as in the case of the eurobonds. more importantly, the conversion of old into new debt makes sense only if made as soon as possible, i.e. before default (manasse, 2010). the second aspect of “european bonds” is the mechanism of the switch between national and “european bonds”. this is the built-in default mechanism (eurointeligence, 2010). the conversion rate would be at par but the switch would be made through a discount option, where the discount is likely to be higher the more a bond is undergoing market stress. knowing in advance the evolution of such spreads, member states would have a strong incentive to reduce their defi cits. “european bonds” would halt the disruption of sovereign bond markets and stop negative spillovers across national markets (juncker, tremonti, 2010). this would solve the problem of low liquidity in secondary sovereign market, because during the crisis almost all eu sovereign bonds are not suffi ciently liquid (eurointeligence, 2010). in the absence of well-functioning secondary markets, investors are weary of being forced to hold their bonds to maturity, and therefore ask for increasing prices when underwriting primary issuances. so far the eu has addressed this problem in an ad hoc fashion, issuing bonds on behalf issn 1822–8402 european integration studies. 2011. no 5 129 of member states only when their access has been seriously disrupted. a new market would also ensure that private bondholders bore the risk and responsibility for their investment decisions. in this way, the “european bonds” proposal usefully complements recent decisions aimed at providing clarity about a permanent mechanism to deal with debt restructuring. it would help to restore confidence, allowing markets to expose losses and ensuring market discipline. allowing investors to switch national bonds to “european bonds”, which might enjoy a higher status as collateral for the ecb, would help to achieve this. bonds of member states with weaker public finances could be converted at a discount, implying that banks and other private bondholders immediately incurred the related losses, thus ensuring transparency about their solvency and capital adequacy. a “european bonds” market would also assist member states in difficulty, without leading to moral hazard. governments would be granted access to sufficient resources, at the eda’s interest rate, to consolidate public finances without being exposed to short-term speculative attacks. this would require them to honour obligations in full, while they would still want to avoid excessive interest rates on borrowing that is not covered via “european bonds”. the benefits from cheaper, more secure funding should be considerable. a liquid global market for “european bonds” would follow. this would not only insulate countries from speculation but would also help to keep existing capital and attract new flows into europe. it should also foster the integration of european financial markets, favoring investment and thus contributing to growth. ultimately the eu would benefit too. profits from conversions would accrue to the eda, reducing effective “european bonds” interest rates. as a result eu taxpayers, and those member states currently under attack, would not have to foot the bill. all these benefits could be extended to member states that remain outside the euro zone (juncker, tremonti, 2010). from the history point of view the proposal of giulio tremonti and jean-claude juncker is not new. the original one goes back to jacques delors in the 1980s (manasse, 2010). jacques delors at that time prospective french minister of finances proposed the issue of “union bonds”, whose repayment would be guaranteed by the community budget, in addition to european investment bank loans to finance infrastructure investments in transport, energy and telecommunications. jacques delors economic adviser stuart holland, has envisaged the issue of union bonds by a european investment fund as a vehicle for the transfer of a substantial share of member states’ national debt to the union. after such “tranche transfer” member states would continue to service their share of their debt, but at a lower interest rate. stuart expected the bonds not to count as debt of the member states, by analogy with us treasury bonds, but because member states would continue to service them that analogy does not hold. actually the initial idea was intended to provide a new debt instrument for financing pan-european infrastructures (nuti, 2011). nowadays post-financial crisis situation is different, and sovereign debt issues have to be managed. therefore giulio tremonti and jean-claude juncker version is also different and applied for today’s situation. in their opinion new european debt instrument should gradually replace national public debts. but recently imf is arguing that eu should not concentrate on individual initiatives, but go for a larger programme, because eu economy suffers from systematic problem. german finance minister wolfgang schaeuble has told that financial markets are currently not speculating against individual eu countries but rather doubt the sustainability of the european monetary union as a whole. “european bonds”: a part of systematic viewpoint like every decision this likewise has the negative consequences and in this case to the countries, which are debt-disciplined (eg. germany or nordic countries). those eu countries which have rational debt level often emphasize the fiscal discipline and reasonable social policy, which are positions all the eu countries must start with (eurointeligence, 2010). despite negatives no doubt there are few important objectives that “european bonds” would achieve: • creation of a bond market comparable, in size and liquidity, to the us treasury bill market; • switch would be made through a discount option – earnings for eda • termination of speculative attacks against sovereign debts in the euro zone. • avoidance of excessive interest rates; • governments would be granted access to sufficient resources; an the other hand new bonds would weaken the market incentives for fiscal discipline, by allowing spendthrift governments to borrow at lower costs, and would penalize virtuous countries, whose borrowing costs would likely rise and this is the moral hazard problem. the opponents of “european bonds” not only mention negatives above: • the “european bonds” require a fiscal union where high debt countries lose their fiscal sovereignty. • recent aid receivers are actually overborrowed and are not able to serve present debt; • jointly guaranteed bonds would require “fundamental changes” in european treaties • virtuous countries will be penalized and forced to solve problems of irrational spending programs. public debt has a positive market value only if those who buy it believe that the state will be able to repay it in the future by running budget surpluses. current european budget is by no means large enough to repay a debt equal to 40% of european gdp. either the bonds will have no market, or, if they do, it must be because investors believe that the new bonds will be eventually reimbursed by the budget surpluses of virtuous countries. the main problem is that those countries are actually over-borrowed and are not able to serve present debt. countries like greek, ireland, portugal, spain or italy a decade ago have been implementing social spending programs. from virtuous countries point of view those countries could never afford it. consequently germany, france or nordic countries should not pay high taxes for financing the sovereign debt solutions in european union (reuters, 2010; basevi, 2006). given that rates on “european bonds” would reflect perceived risk across the entire eu, german borrowing costs could raise compared to existing benchmark bunds (fig. 4). issn 1822–8402 european integration studies. 2011. no 5 130 figure 4. long term government bond yields (eurostat, 2011) therefore the largest load will be imposed to germany. it is true that germany is the main benefi ciary of the euro, as the country’s export industry benefi ts from germany’s real devaluation. the argument against this is that germany’s export surplus has increased substantially against noneuro zone countries, and germany was a stronger exporter long before the introduction of the euro. the examples of sweden and switzerland show that it is possible to maintain a high level of economic strength outside the euro zone. the problem with the euro zone is still insuffi cient fl exibility and factor mobility. all in all if the virtuous countries taxpayers have to step each time after a sovereign crisis, it will become increasingly diffi cult to persuade the virtuous countries like german, nordic countries to trust euro as welfare guaranty for the economy. financial times associate editor wolfgang munchau recently analyzed recent proposals and attempts to fi nd the universal decisions. in his point of view the sovereign debt crisis is a systematic problem. he also accentuates the eu inability to cope, and this moment has a few dimensions: • replay of mistakes – the totally wrong decision is solvency of crisis through liquidity policies. during sovereign crisis ecb provided almost unlimited funding, bank guarantees, and the efsf; • lack of co-ordination; • breakdown of communication among eu countries and institutions; • blaming fi nancial markets; • blaming of each other among eu leaders; • consistent requirement to the ecb to fi x consequences of implementation of irresponsible fi scal and economical policy (eurointeligence, 2010; monti, 2010; european council 24/25 march, 2011). giulio tremonti and jean-claude juncker have noticed that if europe formulates a strong and systemic response to the euro zone debt crisis, than a clear message would be sent to global markets and european citizens of its political commitment to economic and monetary union. thereby eu needs the systematic approach and attempts to fi nd systematic response to current eu sovereign debt crisis. conclusions giulio tremonti’s and jean-claude juncker’s proposal is probably the single most important proposal ever made since the outbreak of the european sovereign debt crisis. the scheme for a single “european bonds” comes in different sizes and forms, but all proposals have an underlying consideration in common: a “european bonds” would attract a lower interest rate than the average (weighted) interest rate at which nation states could borrow in international markets, because of the lower liquidity premium and the lower credit risk premium. the funds raised through issues of a single “european bonds” could be channeled to euro zone member states in various ways: by buying their new national bond issues, or by buying back old national bonds, or by lending to member states against the security of domestic bonds (nuti, 2011). sovereign debt crisis is a cyclical process due to systematic problems (mostly irrational budgeting or large social spending programs). in order to overcome debt crisis eu needs the systematic view and coordination. therefore giulio tremonti and jean-claude juncker in some way have advanced jacques delors’ idea and applied it as a mechanism of fi nancial stability in eu. eu politicians and experts acknowledge that “european bonds” could possibly be only the part of whole rescue package and eu should consider more on long range measures as eu crisis solvency mechanisms creation, more tough control from imf and ecb, larger efsf program, because the existing eu rescue funds won’t be large enough. increase of efsf funds is a more likely scenario than the issuance of “european bonds”. the tremonti-juncker project is a good idea for fi nancing infrastructure and increasing market liquidity in good times. yet it requires a large loss of fi scal sovereignty by high debt countries. because of its timing, it’s a bad idea for solving the debt crisis of europe. further analysis would also be needed on how to overcome potential legal and practical obstacles to introducing contract-based seniority. nevertheless, given the potential benefi ts of explicit seniority for crisis prevention— and other enhancements to bond contracts that would also mitigate debt dilution—this paper calls for further analysis and discussion of the issue. issn 1822–8402 european integration studies. 2011. no 5 131 references basevi g. un’agenzia europea del debito pubblico. i mercati finanziari internazionali. nino andreatta 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impact of regional development on enterprise environment eis 10/2016 abstract impact of regional development on enterprise environment baiba rivza, ligita azena, linda sunina latvia university of agriculture, 2 liela str., jelgava, lv–3001, latvia http://dx.doi.org/10.5755/j01.eis.0.10.14614 introduction scholars from the usa, western europe, russia and other countries (h.w. richardson, y. butenko, ph. kot­ ler, k. asplund, i. rain, i. haider and others) have worked out theories of regional development that serve as grounds for planning, researching and forecasting changes in the country region. theories of regional development reflect methods of spatial economics. „space as limited resource” should be planned since necessary for people space utilization in the particular way precludes another, alternative mode of space usage. the economical aspect of space utilization – development of the spatial segments, their interrelation and their impact on the development of the common space, for instance, the influence of latvian county economics on the whole region or country. while choosing the location enterprises have to take into account the optimal structure of space for all economic activities. where is the best location for the stable development of enterprise? where are the best conditions for the enterprise existence? the sequence of spatial location can begin from the particular region, from the specific place in this region. the result of the search for the spatial location is the result of the more or less successful decision of the single entrepreneur. purpose of the present research was to study the impact of regional development on the development of enterprise environment. in order to implement the aim the authors had to investigate theories of re­ gional development and study the indicators of environment development in two cities of national level in latvia – valmiera and jekabpils. the research was implemented with the following methods: analysis of theoretical literature, statistical data analysis, document analysis. the primary conclusions were as following: _ when researching territory, economical aspects of the space utilization shall be taken into consideration; _ national orientation criteria should be considered when choosing the enterprise location. keywords: regional development, enterprise environment, orientation of location. an enterprise usually chooses such location where it could reach it main goal – to earn a long–term profit. not all enterprises are free in their choice of location. the location of certain branches of economy is determined by nature, for example, mining, shipbuilding, hydropower station, etc. other enterprises choose their location according to private, not economical, reasons, for example, family tradition. the existing enterprises can experience economical restrictions, if there is a change in circumstances and other location becomes more convenient. enterprises location choice of which does not depend on the geographical, legal, economical, private restrictions, in general have to answer four questions. for instance, what difference is in taxation, what is the salary rate, is the enterprise located on the domestic territory or 107 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 abroad, what region is the best for setting up business from the viewpoint of national econ­ omy. then there is a question of choosing the advantageous place in the city or countryside. there are several criteria when choosing location places. it has been concluded that there is the national choice of locations as well as the international one. the national choice of location can be described according to these orientations: 1) orientation to raw materials; 2) orientation to labour; 3) orientation to taxes; 4) traffic and energy orientation; 5) orientation to nature; 6) orientation to market. within the process of company’s location place the optimal space structure for all economic ac­ tivities should be taken into consideration. where to locate the company for its stable existence? where are the best preconditions for company existence? the sequence of space choice can start from a particular region or a place in the particular region. the choice of a location place and premises very often is a story of a success or vice versa for the entrepreneur. researchers of the western europe worked out theories of regional development because of which changes in state region are being planned, studied and forecasted. theories of regional development represent methods of spatial economics. “the space as limited resource” should be planned since usage of every space excludes the other usage type of the space (alternative). the economic aspect of space usage – development of space parts, their mutual relations and impact on the development of total space, such as economical impact of rural area of latvia on its municipality or state in total. economic space theory is a part of economic theory that is used together with time dimen­ sion. theory studies: methods of regional development 1) decisions of entrepreneurs and householders on location places; 2) flow of products, factors and information; 3) structure of production and other places in a space, as well as mutual relation of different space parts. (butenko, 2008) decision on choice of location place has a long–term influence because often it is very hard to change the decision, especially for big companies. a company usually chooses such location place with the help of which it will be able to reach the main aim – a long–term profit. com­ panies, working in a particular territory, can experience economic struggle due to changes in different economic conditions, therefore other location place can become a better solution for its activities. companies that are not subjected to a location place due to lack of geographical, legal, econom­ ic or personal restrictions, should answer to four questions. firstly, it should make a decision on tax differences, i.e., differences in salary. it should consider of establishing the company in their own country or in foreign countries (international choice of location place). afterwards it needs to answer on a question in which region of a country should the company locate (choice of inter­ local location place). when this issue has been defined, for example, the specific city has been chosen, the question on a most appropriate place in a city for entrepreneurship arises (local e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 108 choice of a location place). eventually, the departments of a company should be distributed in an optimal manner (company’s inner choice of a location). problems with inner location place in a production company are connected to production process and therefore also with inner trans­ portation costs. the distribution of departments should be performed in a way the transportation costs are minimal. distribution of departments in trade and service companies partly depends on infrastructure (driveways, residential areas, transport and human flow). usually the national choice of location can be described according to these orientations: 1) orientation to raw materials; 2) orientation to labour; 3) orientation to taxes; 4) traffic and energy orientation; 5) orientation to nature; 6) orientation to market (kotler p, 2015). there are territories, appearing around places (cities) the impact areal of which depend on size of a city, connection with other cities, approachability, specialization, and other indicators. fluctua­ tion in working places and services, migration, rural settlement that is closely connected with a city, such as suburban areas and seasonal villages, influence economic activity of a territory (the ministry of environmental protection and regional development, 2012). globalization in a second part of 20th century, especially during last two decades, has developed communication networks and computer sciences, and information has become as dominant mainspring of state economics. primary, largest and the most developed cities of the developed countries that initially was named as world cities currently are the main centres of finances and other international corporations in the whole world. while daily social and work migration takes significant role in a city space of local, regional and national level and still depends on distance indicators, finance and service sectors that are independent from space in a global level ignore existence of traditional city agglomeration regions. figure 1 map of the republic of latvia 109 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 cities of a global level creates their own subordinate territory in the whole world not after geograph­ ic criteria, but taking into consideration economic connections and regional principles of business management, therefore, cities of national level are increasingly joined in the global city network, acting as satellite centres of a global level. central question in development theory connected to space is clarification of processes in differen­ tial economic and public development (medway, 2008). theories of a location place are connected with industry and location problems. theories of a location places study optimal places for separate agricultural, production enterprises and service providers, i.e., primary, secondary industries. the question of entrepreneurship place can be for­ mulated in such way: what place in an area should entrepreneur take for one’s company? theory underlines that “issue of choosing optimal place are directed towards different levels: international, interregional, intraregional, local and company level”. in the process of choosing the optimal place for a company, the optimal space structure for all economic activities should be taken into consid­ eration. choice for company’s location place can be made if theory of a location place is taken into account, since it concentrates on explanation of space or place structure (bugina, pucere, 2000). theory of location place for production after first researches of w.roscher, a.schaffle and w.launhardt, a.weber provided first syste­ maized representation of location place for production. in his theory the researchers speaks about optimal location place for production company, taking into consideration economic aspect of a company (hague, 2011). in his theory, such aspects are essential: _ location places of raw materials; _ distribution of consumption in a space; _ transportation system is united, transportation costs are function that depends on distance; _ distribution of labour force in space – labour force is mobile, salary is constant, but differentiated in a space, and labour force is employed in unlimited quantity at the current salary (hague, 2011). basing on these assumptions, the choice of location place for production are determined by three location place factors: transportation costs, labour costs and agglomeration development. in theory of a.weber, transportation costs take central place in determination of location place for producers. area mobility theory its theoretical conclusions are limited with basic knowledge about trends and activities of particular production factors and product area mobility. area mobility theory provides such definition of a region: “segregation of areals allows defining 3 definition types: _ homogenous regions; _ functional regions; _ planned regions” (hague, 2011). homogenous regions characterize similar structure that is measured with one or several traits (equivalent income level, similar geographic location). functional concept underlines mutual influence on intra–regional economic relation, consisting of one or more functional relations. frequently researchers speak about polarized region the main trait of which is deterioration of relations from centre to periphery. planning regions are political and administrative units that are segregated performed according to planning tasks (hague, 2011) mobility theory underlines causes and influence of inner activities. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 110 table 1 regional development theories, applicable to territory development theory type the application of a theory area economic theory _ decisions of entrepreneurs and householders on a location place; _ flow of products, factors and information; _ structure of production and other premises in space, as well as mutual relation of space parts. theory of a location place _ problems of industry and localisation; _ optimal places for separate agricultural, production enterprises and service pro­ viders, i.e., primary, secondary industries. area mobility theory _ trends and activities of particular production factors and product area mobility; _ causes and consequences of inner activities. source: authors’ provided table within the particular research, the authors will analyse two cities of national significance valmiera and jekabpils, the surrounding cities and impact areal. the impact areals of the cities are indicated with an aim to get an overview about development coherences of a cities end their surrounding territories. im­ pact areals of cities are not administrative territories, but provides statistical information about territo­ ry usage in order to characterize impact of a city that, in its turn, determines shape of functional space. rural territories in impact areals of cities differ from size and number of municipalities; also, existence of other towns next to the city of national significance affect the impact areal. different location place of cities of national significance and their role in latvian economics determines also the impact of other territories. the comparison of latvian cities of national significance and their development trends are summarizes in table 2. if city impact areals are compared with average demographic and socio–economic indicators, it can be witnessed they characterize conformities to average indictors of latvia, furthermore, valmiera and jekabpils show similar trends both taking into consideration number of residents, number of economically active enterprises etc. centres of national significance and their development trends table 2 evaluation of development indicators for the cities of national significance cities of national significance number of residents, (thousands) density of residents, (thousand residents/ sq. m.) unemployment rate. % residents income tax per capita, eur economically active individual merchants and companies per 1000 residents riga 700 2.3 6.6 537 57 jelgava 63 1.4 8.0 453 28 jekabpils 26 1.0 10.6 347 27 jurmala 56 1.1 8.0 524 23 liepaja 82 0.56 9.3 357 26 rezekne 34 1.4 15.1 351 27 daugavpils 101 1.9 8.2 313 22 valmiera 27 1.5 6.8 484 34 ventspils 42 0.72 7.1 560 25 source: authors’ provided table, using data of the year 2012 111 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 table 3 average indicators of cities’ influence areal indicators daugavpils impact areal jekabpils impact areal rezekne impact areal valmiera impact areal territory area, sq.m. 2595 2995 3457 2946 number of residents (thousands) 137.4 50.0 78.8 61.7 demographic load 513 520 515 532 unemployment rate, % 9.4 11.4 20.4 8.4 residents income tax per capita, eur 283 297 263 375 economically active individual merchants and companies per 1000 residents 17.8 19.8 17.2 23.4 source: authors’ provided table, using data of the year 2012 comparing city impact areal after their average demographic and socio–economic indicators, it can be seen they are characterized by conformity to average indicators of latvia; rezekne, valmiera and jekabpils are similar after number of residents, but daugavpils, jekabpils and valmiera, in their turn, are similar after unemployment rate and density rate. valmiera shows higher results on residents’ income tax and economic activity, which is lower in rezekne, daugavpils and jekabpils. further, the authors will revise the abovementioned cities together with their surrounding territo­ ries (see table 3). valmiera and its impact areal valmiera areal embrace territory consisting of seven counties (beverina, burtnieki, koceni, mazsa­ laca, naukseni, rujiena, and strenci) and valmiera city. possible functional area of valmiera city is wider since proximity of other centres of regional significance determines that many residents choose valmiera as their working place and use its offered services. valmiera city is an explicit concentration centre of working places. there are more companies, higher income of residents’ income tax and higher salaries as in other counties. valmiera can be characterized also by better in­ dicators of unemployment rate and changes in number of residents, but territory, in its turn, shows slightly lower demographic load. valmiera has preserved production functions and, unlike jekabpils, has supplemented its service with possibilities of receiving higher education that establishes potential of city impact areal devel­ opment. valmiera establishes explicit suburban territory with a direct impact on neighbourhood – it can be witnessed by infrastructure near the city. the further impact of the city currently is unclear, which tends to evaluate valmiera as slightly weak centre of national significance. jekabpils and its impact areal jekabpils consists of five counties (akniste, jekabpils, krustpils, sala, and viesite). jekabpils is the smallest city of national significance in latvia. the impact of jekabpils is weak and shows similar trends to rezekne, which is the weakest city of national significance, if development indicators are taken into consideration. companies are concentrated in jekabpils, but not in the county. there is a significant difference of residents’ income tax and salary level between city and county. the impact areal of jekabpils among other territories of the particular group stands out with high decrease in number of residents due to less favourable socio–economic conditions and advantages connected to mobility, as the city is located near to lithuanian border. after current data, the direct impact of jekabpils on surrounding territories is unclear. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 112 daugavpils and its impact areal daugavpils surrounds territory, which consists of territories of daugavpils and ilukste counties; dau­ gavpils is the second greatest city in latvia after number of residents. differences between income level and specific weight of economically active entrepreneurs in cities and county territories repre­ sent heterogeneous socio–economic situation in a space of city impact areal. in conditions, when commercial activity is very low in the counties, daugavpils city provides a positive impact on surrounding territories, since their unemployment level there is comparatively low as com­ pared with average level in latgale. lower activities of entrepreneurship in counties of daugavpils impact areal represent relatively greater dominant role of the city in terms of provision of working places. during last year’s daugavpils experienced the shutdown of many large businesses that created neg­ ative consequences – decrease in resident number and their departure from city and county. there was no compensating working places that created different situation from other large cities in latvia. daugavpils as the second largest city in latvia provides both city and suburban territory areal, but it is difficult to draw a line of a direct city impact areal on all territory. rezekne and its impact areal rezekne covers territory, consisting of rezekne city and three counties – rezekne, vilani and karsa­ va. indicators of socio–economic development of rezekne county are comparatively low; therefore, the role of rezekne as the centre for promoting surrounding territory or direct positive impact is not determined. unemployment rate as indicator of economic activity is very low in both rezekne city and county. rezekne, similarly to daugavpils, shows very great differences in residents’ income among city and suburban territories. however, rezekne impact areal in latgale region can be characterized as positive due to comparatively large number of economically active businesses and individual mer­ chants per 1000 inhabitants that could witness on a beginning of higher social and economic activity or on a potential of economic welfare in near future. in total, situation in rezekne is similar to daugavpils – also rezekne experiences a shutdown of sev­ eral large businesses in a result of which rezekne is characterized by greatest unemployment rate in latvia and significant decrease in number of residents. the activity of rezekne special economic zone can be evaluated as positive, since it develops also in suburban area, creating new working places. in the end, the authors of a particular research state that after evaluation of a particular region or territory the one of abovementioned theories (see table 1) can be used for territory development. after the opinion of the authors of the present research, it is necessary for latvian specialists to study offered theories and use them in territory development. despite of the abovementioned, the usage of these approaches in practice is currently incomplete. the authors suggest combining them, taking into consideration foreign experience and other scientific directions, i.e., marketing, planning, audit, and strategic management. in order to plan activities for entrepreneurship environment development in future it is necessary to implement new territory management methods (city marketing, smart marketing) un provide study on preconditions, necessary for entrepreneurship development. _ current trend shows territories are competing with each other in terms of services they will be able to keep their residents and attract residents, tourists, entrepreneurs and investors. _ marketing approach demands territory to pay special attention to the development of their own production according to society demands by using all its resources and potential. _ both valmiera and jekabpils impact indicators are low or unclear that shows the possibilities for development of entrepreneurship environment are insufficient. conclusions 113 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 _ both rezekne and daugavpils experienced a shutdown of large enterprises during last years that created negative consequences and currently shows that development possibilities for entrepre­ neurship development are insufficient. referencesbugina v., pucere i. introduction in theories of regional development. – jelgava, llu, 2000. – 136 p.; hague c., hague e., breitbach c., regional and local economic development, 2011– 344 page; бутенко яна. муниципальные образования регио­ на: расчёт уровня асеметрии. (региональное раз­ витие). ж. проблемы теории и практики управле­ ния. – м., 2008, 52 p. котлер, ф., асплунд, к., рейн, и., хайдер, д., марке­ тинг мест. привлечение инвестиций, предприятий, жителей и туристов в города, коммуны, регионы и страны европы. – stockholm scool of economics in saint petersburg, 2005. – 376 p. johansson b., karlson ch., stough r., theories of endogenous regional growth, 2000 – 430 p.; about the authors baiba rivža dr.habil.oec., prof. latvia university of agriculture fields of research interests eu agricultural policy, rural development, marketing, eu higher education system and it’s evaluation address 2 liela str., jelgava, lv–3001, latvia e–mail: baiba.rivza@llu.lv ligita āzena mg.sc.soc. latvia university of agriculture fields of research interests regional development and economy, marketing, place marketing address 2 liela str., jelgava, lv–3001, latvia e–mail: azenaligita@gmail.com dominic medway. alternative perspectives on marketing and the place brand./ dominic med­ way manchester business school, marketing group, the university of manchester, manches­ ter, uk, and gary warnaby university of liverpool management school, liverpool, uk.// european journal of marketing – vol. 42 no. 5/6, 2008. – 653 p. regional development in latvia 2011, state re­ gional development agency, the ministry of en­ vironment protection and regional development, riga, 2012. research supported from national research pro­ gramm ekosoc–lv linda sūniņa mg.oec. latvia university of agriculture fields of research interests regional development and economics, marketing, place marketing, smart marketing and administration address 2 liela str., jelgava, lv–3001, latvia e–mail: linda.sunina@inbox.lv acknow­ ledgment the preparation of the paper was supported by the national research program 5.2. economic transformation, smart growth, governance and legal framework for the state and society for sustainable development–a new approach to the creation of a sustainable learning commu­ nity, project ekosoc_lv. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 208 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 208-223 doi 10.5755/j01.eis.0.9.12808 © kaunas university of technology complex patterns in construction of entrepreneurial identity among youth in estonia eis 9/2015 abstract complex patterns in construction of entrepreneurial identity among youth in estonia http://dx.doi.org/10.5755/j01.eis.0.9.12808 aksel kirch, tarmo tuisk tallinn university of technology, akadeemia tee 3, 12618 tallinn, estonia introduction the goal of the study was to assess entrepreneurial identity focusing on the beliefs and values such as individualism, risk-taking, innovativeness, opportunity recognition and tolerance. methods: an identity structure analysis (isa) (weinreich, 2003/2012) was applied as a meta-theoretical framework to conceptualize entrepreneurial identity and identification patterns among students with the image of an entrepreneur. a bayesian dependency-modelling (myllymäki et al, 2002) was applied to validate the cohesiveness of the research instrument. results: this empirical study, carried out among the students of tallinn university of technology (n=45), shows similarities on shared dimensions across groups with varying entrepreneurial experience and differences on specific identity processes, particular to each group. these findings are evidenced when using ‘significant others’ as ‘a successful entrepreneur’ , ‘co-students’, ‘business circles’, ‘the government’, ‘family members’ and ‘ethno-cultural groupings’ as reference points within one’s identity structure. the results also demonstrate that dominant and increasing role of identifications with ‘father’ significantly contributes to one’s personal entrepreneurial development while simultaneous distancing from ‘co-students’ seems inevitable. at the same time, those who are tightly bound with their peers in their identifications are less likely to become successful entrepreneurs and their positive identifications with all family members have decreased continuously during their life span. those who are and aspire to become entrepreneurs have much higher overall self-evaluation and tolerance, individualism and innovativeness form their core identity dimensions when compared to those who are less entrepreneurial and reveal collectivistic values. the results are consistent with earlier studies (macnabb 2003/2012; nabi et al 2010) and the application of isa together with its methodological possibilities has been justified despite the small number participants. in the future, cross-cultural assessments of entrepreneurial orientation and identity should help to verify if the findings have universal validity or remain only applicable to the estonian socio-cultural context. keywords: entrepreneurial identity; identification patterns; values and beliefs; identity structure analysis; estonia. this article focuses on socio-psychological aspects of the personality, values and skills associated to entrepreneurship. information about nascent entrepreneur’s behaviour conditioned by the cultural and educational background can help to understand socio-psychological dilemmas of entrepreneurs, aspiring entrepreneurs and even those whose attitude is neutral or negative about this activity. enterprising identities have been studied earlier (e.g. essers & benschop, 2007), with emphasis put on skills, socialization and societal influences within the development of entrepreneurial ‘traits,’ accompanied also by the culture-specific influences of location. identity structure analysis (isa), developed by weinreich (2003), is the meta-theoretical framework applied for the assessment of these characteristics among university students who have passed 209 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 an introductory course on entrepreneurship. it attempts to classify the participants according to their personalities and prior entrepreneurship experience. then the entrepreneurial identity of all the participants is evaluated using their perceptions of expected entrepreneurial ‘imperatives’ within their own identity structure. the results can be used to assess different groups’ entrepreneurial identity where through their perceptions each group will provide the reader with in-depth insight about entrepreneurship and entrepreneurship teaching related issues of the country, in spite that the analysis is based on self-appraisals of the students. the outcome will contribute to entrepreneurship literature with a valuable tool and a methodological approach that may also involve (davidsson, 2004; landström, 2005) business management, psychology and sociology. identity structure analysis uses unorthodox techniques, and adds a much needed methodological diversity to this field (neergaard & ulhøi, 2007 p.2; kyrö et al, 2013). research on entrepreneurship is popular and abundant (e.g. schumpeter, 1934; gartner, 1990; davidsson, 2004; hoang & gimeno, 2010); much of it concentrates on what motivates an individual to become an entrepreneur. these studies try to take into account the conditions and institutions that affect entrepreneurial intentions (parker, 2004). falck et al (2012) have analysed entrepreneurial identity from a social identity perspective, claiming that peers of schoolchildren have a decisive influence on whether a person becomes an entrepreneur or not. according to weinreich (2003, p. 2) socio-developmental and biographical aspects in one’s personality development should be taken into account as well. falck et al (2012) noticed that some values facilitate an overall propensity towards entrepreneurship. for instance, individualism prevails and it is in fact the strongest value that suggests this activity. entrepreneurial identity has been studied and constructed by navis & glynn (2011) from an investor’s viewpoint. they found entrepreneurial identity paradoxical as it embeds conformity and deviance. this ambiguity in personality and tolerance for it has been considered a common feature among entrepreneurs, often leading to the capacity to recognize and exploit opportunities (shane & venkataraman, 2000). entrepreneurship has been studied from the organisational studies perspective, too. for instance, weick (1995, p. 61) puts an accent on people with “multiple shifting identities.” within the framework of his sense-making theory, he claims that contextual identity and identification and interpretation of events are essential. this study aims at establishing the features that describe a person aspiring to become an entrepreneur, but not only. it assesses the overall features (among groups with different entrepreneurial background) that could help to predict enterprising capacity. this does not require management or ownership status. macnabb et al (1993) have studied female entrepreneurial identity (using isa) and found that, despite aspirational attempts, these women did not display all of the expected entrepreneurial values: they rejected risk-taking and profit motivation. similarly, falk and others (2012, p. 39) have noticed a strayed pattern on that „entrepreneurs are willing to accept a lower expected income than what standard occupational models would imply.” this could possibly refer to a non-pecuniary value of entrepreneur’s identity. as shown by the study of macnabb (2003) – ‘entrepreneurs’ do not form any homogeneous group (hornaday, 1990), but it is still possible to find certain common characteristics that have been considered essential by scholars in the field. schumpeter (1934) sees “the will of conquer” and “the joy of creating” as attracting pull factors – common for entrepreneurs. baumol (1968) has underlined innovativeness and opportunity recognition. but, the values and beliefs of an entrepreneur concerning individualism, risk-taking, profit motivation, innovativeness and opportunity recognition need yet to be studied together with influential affects. these are not merely peers, but also ‘significant others’ of the broader environment (representing society), identified using the individual’s identifications in the past, presence and future (weinreich, 2003). in addition to the five already mentioned, an theoretical background e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 210 additional value is tolerance. being an indicator of acceptance of different people and groups (e.g. ethnic and racial minorities), and facilitating overall openness of society to new innovative ideas (florida, 2003), it becomes a substantial precondition of innovativeness and creativity. the overall purpose of this article is to present the assessment performed, in regard to the individual socio-biographical development (i.e. via interaction with ‘significant others’ – persons or social institutions having either intimate or remote impact on one’s well-being (weinreich, 2003/2012, p. 54)), and to propose conclusions on how to evaluate professional competences among potential entrepreneurs. the identity structure analysis enables participants to use a self-appraisal instrument, where bipolar constructs representing entrepreneurial identity dimensions are evaluated from a viewpoint of each ‘significant other’ by the study participants. this evaluation of qualitative discourses was implemented by using quantitative identity parameters, operationalised and analysed by freely available ipseus computer software (weinreich & ewart, 2007). the aims and specific objectives were formulated to be empirically tested on study participants with different entrepreneurial background. broader aims and more specific objectives were set up for the study. aims and objectives the aims of the study are: the study of entrepreneurial identity processes 1 to apply the isa conceptual framework, operationalized by the ipseus software, for assessing the identity processes of persons related to entrepreneurship in respect of their values and beliefs about business world, risk-taking, innovativeness and tolerance as dimensions of their identity; 2 to ascertain the psychological consequenc-es for individuals of disjunctions between expected entrepreneurial and individuals’ values and beliefs; 3 to demonstrate the efficacy of isa for elu-cidating the complex identity processes of the person in relation to the perceived expected entrepreneurial ‘imperatives’ as these are judged by these persons. specific objectives are: 1 to measure the extents of the participants’ aspirational and empathetic identification with salient influential societal agencies and agents (business circles, creative people, the government, ethno-cultural groupings, a businessman’s role model), and people of personal significance (a successful entrepreneur, an unsuccessful business person, family members); 2 to assess the extents to which identifica-tion with these entities is conflicted; 3 to provide evidence of developmental pro-cesses in identification with others (change or resistance to change); 4 to establish the core and conflicted values of the individuals in respect of risk-taking, opportunity recognition, innovation and tolerance; 5 to determine the individuals’ appraisal (via evaluation of others) of entrepreneurism in society. synopsis of the identity structure analysis conceptual and methodological tools identity structure analysis as an open-ended framework was chosen to provide empirical evidence on how entrepreneurs and enterprising individuals construe their identity in the different contexts they encounter. the isa was considered as suitable because it helps the researcher to examine individuals’ construals of themselves and others – based on, and anchored in, their own value and 211 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 belief systems. this approach recognizes that identity is not fixed and thus allows for entrepreneurship to be viewed as a developmental process rather than a given or fixed state. hence, isa enables the analysis of the processes of identity formulation and reformulation in the case of aspiring and existing business owners, as they adopt, adapt, consolidate, and redefine their entrepreneurial identity over time. further, entrepreneurial identity can be examined as part of the totality of identity (macnabb, 2003, p. 278). this article focuses on the entrepreneurial part of a person’s identity which has been adapted from weinreich (2003, pp. 26-34) and defined as follows: one’s entrepreneurial identity is defined as that part of the totality of one’s self-construal made up of those dimensions that express the continuity between one’s construal of past entrepreneurial experience and one’s future aspirations in relation to entrepreneurship. method the entrepreneurial identity was assessed on a student group majoring in logistics after completing a course in business planning in november 2013. to specify the discourses and entities for isa an instrument – common for all participants – was formulated. it was constructed on the basis of earlier research and the theoretical contributions of various authors (macnabb et al, 1993; macnabb, 2003; kirch & tuisk, 2008; tuisk, 2012). during 2012-2013 three pilot studies were carried out in order to specify and tune the final research instrument (tuisk, 2013a; tuisk 2013b). themes were transformed into bipolar constructs and domains of the self and others into entities in order to tackle the aforementioned research objectives. identity instrument themes risk-taking. one of the noted entrepreneurial features has been the acceptance of a certain degree of risk (baumol, 1968). it has been considered almost as self-evident among entrepreneurs and enterprising persons. risk-taking can be related to challenges that entrepreneurship offers for those who have the “will to conquer” (schumpeter, 1934, p. 93) and is related to the need for achievement (mcclelland, 1961). individualism. as found by falck et al (2012) ’individualism’ is a significant indicator of an entrepreneurial spirit. in addition, ‘leadership’ referred to personal initiative has been characterised as a predictor of entrepreneurial success (baumol, 1968). tolerance. according to richard florida (2009) ’tolerance’ about different people (e.g. ethno-cultural groups) may be an indicator that demonstrates openness to ideas, displaying the overall creativity of a person. the macro-level effect of ‘tolerance’ has been noted by florida (2002) earlier when he exemplified berlin as a city where creative economies attract and give space for immigrants who make up 1/7 of the city’s population. new york and montreal serve as successful examples with even higher share of immigrant population. opportunity recognition. opportunity recognition is essential as it opens a path towards opportunity realization and value creation. this last is a basic outcome where entrepreneurship and innovation find their meaning. while innovation usually refers to the generation of new products, processes and services, entrepreneurship is associated with the identification of opportunity in society for these (mitra, 2012, p. 2). the research instrument includes an evaluation of network marketing – on one hand influencing freedom of decisions, but on the other, expressing entrepreneurial spirit that at the same time evidences the enterprising culture of a given society (smith & neergaard, 2008) while at the same time entrepreneurial orientation inherited from the family can influence also several aspects in one’s entrepreneurial behaviour (e.g. in risk-taking, innovation and proactiveness) (see craig et al 2014, p. 206). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 212 innovativeness. while ‘innovation’ itself is strongly related to entrepreneurship in the personal level also the context should be taken into account to determine innovativeness (e.g. perception of the country’s innovation potential). leadership. a transformational leadership model has been linked to both innovativeness and entrepreneurship. the theory has persuasively explained innovation processes and good management patterns (crawford, 2001). the tests that crawford performed on the patterns of transformational, transactional and laissez-faire leadership models confirmed that transformational individuals are likely to be also highly innovative. inspiring ‘others towards new ways of thinking’ demonstrates efficient leadership characteristics among entrepreneurs. ethics, satisfaction with work and flexibility have been tested in entrepreneurial identity studies. table 1 presents the bipolar constructs that were used on the research instrument. domains within the isa, domains demarcate arenas of interaction. the dominant ones are those considering the self in a series of contexts, such as past, current, and anticipated future, but also the ones which present other people and groups and social institutions are included. domain of selves. according to the isa the use of the self-images like ‘me as i would like to be’ for ideal self, ‘me as i am now’ for the current state; ‘me as i was in gymnasium’ for the past; and ‘me as i would not like to be’ for a contra-ideal self, is mandatory. these facets are called ‘mandatory entities’ and are required by the isa. still, it is essential that the exact wordings of these entities can effectively capture the study context and correspond to the participants’ socio-biographical background. since ‘me’ in different situations is very explanatory about one’s identity, ‘me at a business meeting’ and ‘me when travelling abroad’ are included as alternative facets of the self. domain of family. parental influence on entrepreneurship aptitudes has been highlighted in the literature (cf. aldrich et al 1998; hout & rosen, 2000), thus, entities like ‘my mother’ and ‘my father’ were included. additionally, wife/husband/partner of the participant, were added. domain of significant circles, groups and role models. these are the entities a person uses for identification, including for instance ‘creative people’, ‘business circles’, ‘government of estonia’, ‘my fellow students’ (corresponding to the peer group influence argued by falck et al in their 2012 study), ‘a successful entrepreneur’ and ‘an unsuccessful business person’ . significant others affect the individual’s propensities towards entrepreneurship. urmas sõõrumaa – a well-known estonian businessman – is one of the role models included on the test. domain of ethno-cultural groupings. finally, based on the ethnic division of estonia’s society, ‘estonians’ and ‘russians’ categories were included. in the past, isa studies have demonstrated the strong explanatory power of this division (tuisk, 2012). participants the isa instrument was administered to 45 participants who were students majoring logistics at tallinn university of technology during the autumn semester of 2013. all students had passed a course on business planning recently. the instrument consisted of 18 entities and 20 constructs. during the assessment, the bipolar constructs appeared in each page together with a list of entities (360 combinations) on the left side of the page. each participant had to evaluate each combination at the bi-directional centre-zero rating scale (4-3-2-1-0-1-2-3-4) and no a priori assumptions of favourable or unfavourable connotations associated with either end of the scale were provided. gender, age, ethnicity and year of (gymnasium) graduation composed the demographic data collected. in addition, the students had to report whether they had experience as an 213 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 construct number risk-taking & “willingness to sacrifice in order to conquer” 1 …think/s people become entrepreneurs because it is challenging …think/s people become entrepreneurs because they are forced to 2 …find/s solving new problems challenging …prefer/s working at problems within proven abilities 15 …would first of all prefer to study and work in abroad as an experience in order to return later to estonia …would first of all prefer to leave estonia in order to continue educational and work career in abroad 20 …am/is/are limited by lack of resources and time to follow through a mission …give/s up other interests in order to provide resources and time for the mission individualism / team-building 3 …think/s the state is responsible for well-being of a common person …think/s that each person has to manage by her/ himself 4 …think/s it is easier for an entrepreneur to manage alone …thinks that it is easier for an entrepreneur to share responsibility 6 …am/is/are more likely to wait for the orders …am/is/are more likely to take initiative and decide by him/herself tolerance 9 …am/is/are tolerant about different people and views …do/does not accept other people and views 10 …believe/s that ethno-cultural diversity of the staff contributes positively to the firm’s performance …believe/s that ethno-cultural diversity of employees has negative impact into the firm’s performance opportunity recognition 5 …celebrating birthdays with a business partner will contribute to mutual trust … celebration of birthdays and other informal events can be dangerous to the company future 11 network marketing will be a good way to start to become an entrepreneur network marketing does not facilitate a person to become an entrepreneur 12 …those whose parents are entrepreneurs are more likely to become entrepreneurs as well activities or occupation of one’s parents do not influence entrepreneurial spirit of descendants 13 …education and training in business and innovation management are a key to become an entrepreneur … educational background is not the most important when becoming a successful entrepreneur 14 entrepreneurs behave according to their heritage entrepreneurs demonstrate diverse forms of behaviour according to the situations they encounter innovativeness/creativity 7 …think/s that estonia’s potential for innovation is pretty good …think/s that situation in estonia is hopeless in regard of innovation potential 19 …make/s effective use of existing processes …am/is/are good at inventing new processes ethics vs. profit motivation 8 …only work/s to make a profit …would not make/sell tasteless good to make a profit satisfaction with work 16 …would not mind doing routine unchallenging work just if the pay was good …think/s work has to be motivated by self-satisfaction leadership & flexibility 17 …support/s others in their own ways of thinking ..am/is/are able to inspire others to new ways of thinking 18 …will move onto new arenas of investigation when progress is blocked …will try and try again in the current arena of investigation to find solutions table 1 translation of themes into ’bipolar constructs’ (criterion poles representing entrepreneurialism are given in italic) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 214 entrepreneur, intend to become one, are unsure about becoming or are definitely sure that they will never become an entrepreneur. 38% were males and 62% females. their age varied between 19 and 23, (with a mean of 21.2, s.d.2.27). 87% were estonians and 13 % russians. 11% were entrepreneurs or had some experience, 27% were intending to become, 51% were undecided and 11 % believed they will never be entrepreneurs. validation of the research instrument in order to validate the cohesiveness of the research instrument about the existing dependencies, between all 20 variables, a bayesian dependency-modeling was applied. evaluations of the entity „me as i am now“ (scaled from 1..9) were used within the model, testing data from 45 participants. the b-course web-based bayesian data processing environment, and the modeling of joint probability distribution (myllymäki et al, 2002, p. 371), were the techniques of choice. the figure 1 bayesian dependency modeling’s results resulting model consists of 17 variables out of 20 (see figure 3.1) i.e. 3 bipolar constructs were not included in the model. still it can be considered fit for application within the isa, but the interpretation of results concerning constructs no. 4, 5 and 10 should be performed cautiously; for clarity they are excluded from the figure. at the same time, the bayesian output reports that the dependencies between construct pairs 6 and construct 16, and between pairs 6 and 18 are extremely strong (i.e. removing any single of these arcs connecting these variables would most probably cause the model to go down). the meaning of these connections will be examined within the analysis of the results. the analysis of the results has been presented according to the research objectives. objective 1. extents of aspirational and empathetic identifications of the participant groups (table 2) all participants were grouped by their self-reported relation to entrepreneurship. thereby four categories were formed for comparison. the four columns for each calculated identity parameter were labelled according to the nominations as ‘entrepreneurs’ (e), ‘those who intend to become’ (i), ‘those who have not decided – so-called doubters’ (d) and finally those who reported that they are sure about never becoming’ one (n). in table 2 the first two columns include aspirational identification that is defined through two opposite propensities – in respect of desired characteristics (idealistic identification) and rejected or not desired characteristics (contra-identification). the degree of idealistic identification indicates the perceived similarity between the desired characteristics ascribed to the entities and the contra-identification corresponds to an opposite process (kenig & spasovski, 2014, p. 460). the level of empathetic identification with an entity refers to the current state of identification with that entity. conflicted identification with entities takes place when one empathetically identifies with results 215 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 these entities while simultaneously wants to dissociate from certain qualities (i.e. contra-identifies with them when assessing other bipolar constructs). the values of these parameters show that the e group demonstrates the highest idealistic identifications with image of a ‘successful entrepreneur,’ and with the real-life role model proposed: urmas sõõrumaa. at the same time their identification with ethnic groupings (estonians and russians) is the lowest – these entities are considered as disturbing ‘significant others’ at the creation of one’s entrepreneurial identity. for group e a high positive identification with the ‘family domain’ demonstrates the necessities and aspirations of participants in their idealizations to become more similar to their closest people (mother, father, husband/ wife). ‘co-students’ positions as a much less desired entity to idealise with. family members were reported as desired role models for group i also, and the data shows that to a very similar degree when compared to the entrepreneurs who participated in the study. in general – according to their aspirations – group i seems rather close to the entrepreneurs although their idealization of ‘co-students’ remains higher. doubters’ group idealizes most ‘fellow students’ and ‘a successful entrepreneur’, but all other identifications remain lower, except with ethnic groupings where their identification with estonians and russians are the highest across all the groups. group n shows the highest identification with ‘co-students’, but the lowest with a ‘successful entrepreneur’, urmas sõõrumaa and also with their family members. when compared to all other groups they have highest negative aspirational identification with ‘an unsuccessful business person’, with their father and also ‘a successful entrepreneur’. objective 2. extents to which the participant groups’ identifications are conflicted (table 2) overall conflict levels among participant groups are considered high when exceeding the index value .54 and moderately high when exceeding .43. thereby it is evident that highest conflicted identifications are reported by the group n. it is possible to notice that although their empathetic identification with ‘father’ and ‘mother’ does not differ from other groups, still high levels of conflicted identifications with both parents, ‘the government’ and ‘estonians’ demonstrate that this group has a large number essential entities with whom similarity and dissimilarity exist at the same time, causing instability and tensions when constructing their entrepreneurial identity in respect to their surrounding world. entrepreneurs have moderately high conflicts with ‘co-students’, ‘the government’ and both ethno-cultural groups only. groups i and d merely with entities like ‘estonians’ and ‘the government’. to sum up, it is evident that the entrepreneurial identity is highly related to identifications with the respective (entrepreneurial) role models while aspired and current identifications with family members have a significant role as well (father even being more dominant when compared to mother). the role of peers (co-students) is less essential for those who have become entrepreneurs while for the group that ‘intends to become’ proximity to their peers continues being important. the identity structure of students that are negative about entrepreneurship shows the highest affiliation with their peers and moderately high idealistic identification with both ethno-cultural groupings while expressing high conflict with ‘the government’, ‘estonians’ and both parents. it is possible to notice that their only stable and low-conflict entity – ‘co-students’ – does not grant any perspective on entrepreneurial aspirations. instead the role of fathers has to be respected and idealized as the essence of entrepreneurship is based on masculine traits. accordingly, the affiliation and idealization of co-students (i.e. group mentality) carrying attributes of behaviouristic school system (see toomela & kikas, 2012:ix) does not develop one’s personality towards becoming an entrepreneur. objective 3. evidence of developmental processes in identification with others (change or resistance to change) the table 3 presents past and current identifications across the groups (e, i, d and n). in addition, the third column gives the reader a possibility to estimate perceived changes in percentage e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 216 table 2 aspirational, empathetic and conflicted identifications 1234 1 the highest aspirational identifications are with ‘a successful entrepreneur’ (.87-.88) among entrepreneurs and the group of those who intend to become entrepreneurs, also entrepreneurs demonstrate very high identification with ‘urmas sõõrumaa’ . the same groups e and i have noticeably higher identifications with their parents and spouse (.68-.75) when to compare with groups d and n where the same identification vary from .48-.67. 2 entrepreneurs most negative aspirational identifications (desiring not to be like) are with ethnic grouping (‘estonians’ and ‘russians’ (.68-.69), these entities are appraised as those which have attributes from which entrepreneurs wish to dissociate. also, for all groups an ‘unsuccessful business person’ has been negatively evaluated, the index varies from .67-.79 3 empathetic identifications for groups e and i are with ‘a successful entrepreneur’ (.79-.81) and ‘urmas sõõrumaa’ and ‘my father’ (.72-.73). for i-group also with ‘husband/wife’ and ‘my mother’ (.74-.75) 4 the highest conflicts in identification are among the n-group with ‘an unsuccessful business person’, ‘mother’, ‘father’ and ‘estonians’ – all varying from .51-.57. entity positive aspirational identification (idealistic identification)1 negative aspirational identification (contra-identification)2 empathetic identification with respect to current self (me, as i am now)3 conflicted identification with respect to current self (me, as i am now)4 e i d n e i d n e i d n e i d n m y fe llo w st ud en ts .55 .71 .71 .77 .41 .18 .23 .21 .59 .75 .81 .73 .47 .34 .41 .39 g ov er nm en t of e st on ia to da y .48 .49 .42 .41 .47 .41 .47 .53 .50 .53 .47 .50 .48 .45 .45 .51 a s uc ce ss fu l en tr ep re ne ur .87 .88 .83 .72 .11 .08 .11 .28 .79 .81 .68 .50 .21 .21 .22 .36 a n un su cce ss fu l b us ine ss p er so n .10 .21 .13 .18 .75 .67 .72 .79 .21 .32 .24 .43 .38 .40 .39 .57 b us in es s ci rc le s in e st on ia .76 .76 .69 .70 .22 .15 .21 .29 .73 .73 .61 .51 .35 .28 .31 .37 c re at iv e pe op le in e st on ia .67 .67 .63 .71 .31 .21 .25 .27 .63 .60 .54 .52 .42 .31 .35 .36 u rm as s õõ ru m aa .82 .74 .66 .62 .15 .10 .11 .24 .73 .72 .55 .42 .25 .22 .20 .31 e st on ia ns .26 .33 .41 .35 .69 .54 .54 .63 .32 .42 .51 .50 .46 .46 .48 .55 r us si an s .27 .35 .45 .42 .68 .38 .40 .49 .37 .40 .52 .44 .48 .38 .43 .46 m y m ot he r .68 .69 .63 .59 .29 .26 .29 .41 .65 .74 .65 .67 .39 .38 .39 .52 m y fa th er .75 .71 .56 .48 .24 .25 .37 .52 .72 .72 .64 .64 .38 .33 .43 .57 m y hu sb an d/ w ife / pa rt ne r .75 .70 .67 .59 .15 .17 .21 .39 .73 .75 .72 .58 .23 .32 .35 .45 * scale range 0.00 to 1.00. 217 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 points. positive scores demonstrate increases in modulation with the corresponding entities. it is easy to notice that the entrepreneurs are the only group whose identification decreased (-9%) with co-students. all groups demonstrate distancing in their identifications from the government, unsuccessful business person, estonians and russians. while groups e and i show largest gap in identification with these ethno-cultural groupings, then smallest identification change with the government takes place among group n. as one might expect the highest positive modulation with ‘a successful entrepreneur’ is demonstrated by groups e (+35%) and i (+27%), the same finding is valid also in regard to the increasing identification with urmas sõõrumaa (for both groups around +26%). at the same time, it is possible to notice that according to the participants’ projection of the past similarities, the carriers of masculinity – ‘father’ has increased his position significantly more when compared to other groups (+19%). an explanation would be the socio-biographical development during life and through experiences. ethno-national identifications of entrepreneurs have become less important, in contrast with the increased relevance of the support from fathers and wives-husbands to their entrepreneurial endeavours. fathers’ role especially, appears to be dominant in competitive (masculine) and business spheres of their everyday life (hofstede, 1998). objective 4. the core and conflicted values and beliefs as dimensions of identity (table 4). core dimensions of identity are the most stable (least likely to change in time) and reference values and beliefs that are used pre-eminently by the person to evaluate the worth of other people and agencies, and also of oneself. tolerance and a liberal worldview are the two strongest aspirations across all polarities of bipolar constructs for the entrepreneurs. belief in the estonian innovation potential and presence of inspiration accompanied by entrepreneurial invention prosperities follow. also taking responsibility and deciding by oneself is an important discourse. conflicted dimensions are troublesome for the individual, these are likely to be sources of stress, and prone to vacillation from one moment to the next (that is, switching to thinking and behavtable 3 the participant groups and their sociodevelopmental and biographical processes entity empathetic identification with respect to past self (me, when i was a gymnasium student) empathetic identification with respect to current self (me, as i am now) difference, % e i d n e i d n e i d n my fellow students .65 .66 .61 .60 .59 .75 .81 .73 -9.2 +12.0 +24.7 +17.8 government of estonia today .57 .63 .56 .53 .50 .53 .47 .50 -12.3 -15.9 -16.1 -5.6 a successful entrepreneur .52 .59 .54 .45 .79 .81 .68 .50 +35.4 +27.2 +20.6 +10.0 an unsuccessful business person .40 .46 .40 .49 .21 .32 .24 .43 -47.5 -30.4 -40.0 -12.2 business circles in estonia .57 .57 .52 .48 .73 .73 .61 .51 +21.9 +21.9 +14.7 +5.9 creative people in estonia .56 .45 .44 .52 .63 .60 .54 .52 +11.1 +18.6 +16.7 0.0 urmas sõõrumaa .52 .53 .44 .34 .73 .72 .55 .42 +26.0 +26.4 +20.0 +19.0 estonians .42 .58 .61 .55 .32 .42 .51 .50 -23.8 -27.5 -16.4 -9.1 russians .46 .44 .53 .49 .37 .40 .52 .44 -19.6 -9.1 -1.9 -10.2 my mother .64 .62 .60 .62 .65 .74 .65 .67 +1.5 +16.2 +7.7 +7.5 my father .59 .67 .57 .61 .72 .72 .64 .64 +18.1 +6.9 +10.9 +4.7 my husband/wife/ partner .62 .57 .60 .55 .73 .75 .72 .58 +15.1 +24.0 +16.7 +5.2 * scale range 0.00 to 1.00. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 218 table 4 core dimensions of identity: high structural pressures on constructs the strongest core dimensions of identity: constructs with high structural pressures entrepreneurs (group e) construct no (polarity*, struct. pressure**) text of endorsed aspiration 09 (-1, 73.96) … is tolerant about different people and views 03 (1, 71.65) … each person has to manage by him/herself 07 (-1, 67.83) … estonia’s potential for innovation is pretty good 17 (1, 66.76) … rather inspires others in to the new ways of thinking 19 (1, 64.98 ) … am/is/are good at inventing new processes 02 (-1, 63.63) … find/s solving new problems challenging 06 (1, 62.58) … is more likely to take initiative and make necessary decisions by him/herself * polarity is -1 when left-hand pole of the construct is the endorsed aspiration, 1 when this is the right-hand pole. the endorsed aspiration is given here (which may be that one aspires to accept an unpalatable ‘reality’) – see the table of constructs (table 1) for both poles. ** scale range -100 to +100. table 5 conflicted dimensions of identity: low (net) structural pressures on constructs most conflicted dimensions of identity: constructs with net low structural pressures entrepreneurs (group e) construct no (polarity*, struct. pressure) text of endorsed aspiration 04 ( -1, -3.78) …think/s that it is easier for an entrepreneur to manage alone 09 (-1, -3.72) … education and training in business and innovation management are a key to become an entrepreneur ing according to the one pole of the construct to doing so according to the other pole). these conflicted dimensions represent dilemmas. one of the dimensions concerns leadership and responsibility – while in most cases ‘managing alone’ can be considered reasonable – in other cases entrepreneurs tend to base their decisions and activities on shared responsibility i.e. they also aspire to become team builders. as might be expected, being an entrepreneur or having an experience in entrepreneurship implies conflicting attitudes and behaviour about their studies majoring on logistics. seven cores and merely two conflicting dimensions demonstrate a pattern of a well-formed entrepreneurial identity structure. these findings correspond to high identifications with masculine carriers of entrepreneurial identity (e.g. ‘a successful entrepreneur’, ‘father’) and low conflicted identifications despite higher contra-identifications exist (e.g. ethno-cultural groupings, co-students etc.) the group of students that claimed they would never become entrepreneurs (see table 6) have the strongest identity core linked to ‘informal events which contribute to mutual trust,’ together with ‘each person as manage by him/herself’ and ‘entrepreneurs behave according to the situations they encounter.’ the bayesian dependency modelling (see fig.1) demonstrated that the first core is unrelated to others, which may mean that the members of this group by choosing an unrelated core as the strongest, construct their identity on marginal evidences (elementary identifications) and they would like to associate to entrepreneurial values and beliefs. the core ‘tolerance’ was placed fourth when compared to group e for which it was the strongest. finally, ‘entrepreneurship as a challenge’ has formed their fifth core. * polarity is -1 when left-hand pole of the construct is the endorsed aspiration, 1 when this is the right-hand pole. the endorsed aspiration is given here (which may be that one aspires to accept an unpalatable ‘reality’) – see the table of constructs for both poles. **scale range -100 to +100. 219 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 table 6 core dimensions of identity: high structural pressures on constructs the strongest core mensions of identity: constructs with high structural pressures those who claimed they will never become entrepreneurs (group n) construct no (polarity*, struct, pressure**) text of endorsed aspiration 05 (-1, 60.13) … celebrating birthdays with a business partner will contribute to mutual trust 03 (1, 58.85) … each person has to manage by him/herself 14 (1, 58.61) … entrepreneurs demonstrate diverse forms of behaviour according to the situations they encounter 09 (-1, 57.24 ) … am/is tolerant about different people and views 01 (-1, 54.61) … people become entrepreneurs because it is challenging the conflicted dimensions of group n identity are presented in table 7. here as well as for group e an aspect of ‘individualism vs. shared responsibility’ is causing the highest stress levels among the participants, while ‘shared responsibility’ as the endorsed polarity carries the strongest incompatibility within their entrepreneurial identity structure. this is in accordance with their affinity of (co-students) group as demonstrated with the high identifications levels with this group, whereas for group e the same identification was among the lowest. high overall conflicted identifications with their parents (table 2) also explain group n’s distress when evaluating parents’ influence to their descendants about becoming an entrepreneur. the ‘possibilities offered by network marketing’ as a conflicting dimension is an evidence about one avoiding uncertainty when accepting challenges which demand some personal activity, but causing controversy with existing group collectivism. objective 5. participants’ appraisal (construal and evaluation) of society. within the isa ‘evaluation of another’ is an appropriate parameter for designating the extent to which another is favoured or disfavoured. table 8 presents ‘a successful entrepreneur’ as the highest evaluated entity across of all four groups of the participants. very low and negative evaluations occur for ethno-cultural groupings and for the government of estonia. when comparing the groups by their evaluation of family, it is noticeable that for group n the lowest evaluations of family members indicate weak intergenerational heritage in regard of entrepreneurism and negative evaluation of the government, emphasised by a lack of trust in the state. the high* polarity is -1 when left-hand pole of the construct is the endorsed aspiration, 1 when this is the right-hand pole. the endorsed aspiration is given here (which may be that one aspires to accept an unpalatable ‘reality’) – see the table of constructs (table 1) for both poles. ** scale range -100 to +100. table 7 conflicted dimensions of identity: low (net) structural pressures on constructs most conflicted dimensions of identity: constructs with net low structural pressures those who claimed they will never become entrepreneurs (group n) construct no (polarity*, struct. pressure) text of endorsed aspiration 04 ( 1, -15.15) … think/s that it is easier for an entrepreneur to share responsibility 12 (1, -1.50) … activities or example of one’s parents do not influence entrepreneurial spirit of descendants 11 (-1,1.10) … network marketing will be a good way to start to become an entrepreneur * polarity is -1 when left-hand pole of the construct is the endorsed aspiration, 1 when this is the right-hand pole. the endorsed aspiration is given here (which may be that one aspires to accept an unpalatable ‘reality’) – see the table of constructs for both poles. ** scale range -100 to +100. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 220 est evaluation was assigned to co-students followed by ‘creative people’. the latter evaluation can indicate about n group’s desire towards non-materialistic values as a protest against success-oriented society where all entrepreneurs inevitably belong. table 8 the participants’ evaluation of society by groups entity gr. e gr. i gr. d gr. n my fellow students 0.06 0.36 0.35 0.52 government of estonia today -0.01 0.09 -0.03 -0.16 a successful entrepreneur 0.64 0.74 0.73 0.54 an unsuccessful business person -0.67 -0.43 -0.68 -0.64 business circles in estonia 0.40 0.49 0.41 0.37 creative people in estonia 0.31 0.43 0.37 0.51 urmas sõõrumaa 0.59 0.60 0.57 0.41 estonians -0.32 -0.06 -0.11 -0.22 russians -0.32 0.04 0.08 -0.04 my mother 0.30 0.31 0.26 0.12 my father 0.28 0.33 0.19 -0.04 my husband/wife/ partner 0.39 0.49 0.38 0.12 * scale -1.00 to +1.00. this study applied identity structure analysis to evaluate entrepreneurial identity development allowing the participant groups to assess their own identity structure. the findings demonstrate various patterns in identifications with ‘significant others’, as follows: 1 entrepreneurs highly identify themselves with their role models (a successful entrepreneur, urmas sõõrumaa, father, business circles). their identifications with ethno-cultural groups and the government of estonia are low, and evaluations of these are even negative. entrepreneurs and ‘those who intend to become’ demonstrate high modulations (via increasing identifications) in their identity structure towards entrepreneurial ‘significant others’. 2 participants who are negative about becoming an entrepreneur tend to keep close to their peers (co-students) while having conflicting identifications with their family and the government. at the same time, identifications with a successful entrepreneur and business circles are lowest all across within the current study. these have the smallest modulation (change in identifications) in empathetic identification as well, when compared between the gymnasium period and present, indicating their resistance to the changes despite the acquisition of new knowledge during the course of business planning. 3 the role of fellow students cannot be underestimated within development of one’s entrepre-neurial identity. attachment to this group can be opposed to the attachment of family members, especially to the father as a role model of an entrepreneur or as supporter of entrepreneurial activities. when comparing the entrepreneurs to those who aspire to become entrepreneurs, the biggest disparity between these groups is expressed with higher attachment of the latter group to their fellow students. once this “connection” to their peers is broken, their identity structure will correspond more to that of the entrepreneurs. 4 the government as a representation of the state (republic of estonia) plays a rather controver-sial role in one’s entrepreneurial aspirations, despite its official declarations and policies about facilitating business and entrepreneurship. only those who intend to become entrepreneurs have expressed their slight sympathy with a minimal positive evaluation, while all groups demonstrated conclusions and discussion 221 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 decreasing identifications. as can be expected, the lowest idealistic identification with the government has been expressed by participants with no intention whatsoever to become entrepreneurs. while investigating current and potential entrepreneurs’ behaviour with the use of identity structure analysis, the necessity of positioning their entrepreneurial orientation related issues within the context of family has been justified (being consistent with results of macnabb, (2003) and nabi et al, (2010)) as the importance of paying attention to the relations with parents and one’s spouse or partner cannot be underestimated. it is evident from the study that family’s and namely father’s support has an essential role when one aspires to advance in entrepreneurial orientation. this advances the results of global entrepreneurship monitor on estonia (gem 2012, p.40) where the authors found that the participation of parents in business even reduces the likelihood of being a new entre preneur while the support of parents (independently of their social status or job) to their children remained unexplored. the current study showed, based on the group that expressed the most negative propensities in regard of becoming an entrepreneur that their attachment to a study group values serves as a compensatory mechanism. respondents whose individual achievements have not been supported or encouraged at home try to preserve their self-confidence in this way. the study showed also that this group has the highest conflicts in identification with most of the ‘significant others’ including both of their parents and ‘estonians’ while this parameter was the lowest only with their peers. entrepreneurs’ have demonstrated lowest conflicts with their parents and entity ‘wife/husband/ partner’, thereby also expressing continuous supporting role of family in their entrepreneurial activities. entrepreneurs increasing identification with these ‘significant others’ also coincides with a result of a recent study that claims entrepreneurs see themselves as growing personally and contributing to the well-being of others (andré, 2013). to sum up the findings – individuals with strongest entrepreneurial aspirations have shown their growing personal development by demonstrating the lowest conflicts and uncertainties in their entrepreneurial identity construction while highly identifying with their fathers. at the same time those with weakest entrepreneurial orientation display uncertainties in their behaviour and highest level of similarities to their peers and this tendency is even deepening over time. despite a small sample size of the study the isa as enabled to map these socio-psychological patterns among university students in one particular cultural context – estonia. similar studies among mature entrepreneurs and in different cultural settings will be necessary to validate the results of the current quasi-experimental exploratory study. the results also identify the aspects that need to be taken into account when teaching entrepreneurship. earlier personality development studies at the university level could affect entrepreneurship instruction and learning. ideally, a different andragogic approach should be applied to those who already 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(1995), sensemaking in organisations (p. 248). london: sage weinreich, p. (2003/2012). part i: theory and practice. in p. weinreich & w. saunderson (eds.), analysing identity: cross-cultural, societal, and clinical contexts (pp. 1–76). london & new york: routledge. weinreich, p., ewart, s. (2007). ipseus computer software for identity exploration. belfast: sycadex ltd. available from: url http://www.identityexploration.com. kirch aksel doctor’s degree (sociology) from 1979 in moscow academy of science, institute of sociology; tallinn university of technologye address akadeemia tee 3, 12618 tallinn, estonia tel. +372 6204118 e-mail: aksel.kirch@ttu.ee tuisk tarmo ma in social sciences (sociology) from 2012 in tallinn university, institute of international and social studies; tallinn university of technology address akadeemia tee 3, 12618 tallinn, estonia tel. +372 6204118 e-mail: tarmo.tuisk@ttu.ee about the authors european integration studies 2011.indd 72 issn 1822–8402 european integration studies. 2011. no 5 the procedure of financing the national blood service of latvia zane mistre, ilva rudusa, anda zvaigzne latvia university of agriculture abstract the national blood service of latvia is a set of regional medical institutions and their structural units in latvia that produce blood components and supply them to medical institutions. the paper characterises the procedures and ways of financing the institutions preparing blood and blood components – the state blood donors centre and the blood establishments – that are included in the national blood service of latvia and analyses their cash flow and changes in it during the period 2005-2010. hierarchically, the state blood donor centre and the blood establishments, in which the holder of share of capital stock is the latvian ministry of health, are at the same level of subordination to the ministry. yet the procedures of financing the institutions included in the service are different and the state blood donor centre statute stipulates that the state blood donor centre methodically manages, organises, and coordinates the production of blood components and supplies them to medical institutions on request, except the medical institutions having their own blood establishment. the monographic and descriptive methods are used to study elements of problems and to synthesize interrelationships or formulate correlations. the inductive method was applied to make general conclusions from several facts or to determine correlations. the deductive method, in its turn, was used to logically systematise and theoretically explain empirical research results. the methods of analysis of balance sheet and financial indicators were applied to assess funding allocated to the organisations that are studied and its use efficiency. it was examined by a disperse analysis whether the funding allocated to preparing blood and blood components differs in various regions of latvia. in the final part of the research, the authors draw several conclusions on the procedures of financing the regional system of the national blood service of latvia which was affected by both the overall economic situation in latvia and the structural optimisation of the service in 2006. the optimisation was based on the „conception for optimising the structure and operational principles of the national blood service of latvia in 2006-2010” developed for the state blood donor centre. the change in the system of financing has especially affected the cost of producing blood and its components, as since 2010 the state blood donors centre differentiates funding for the blood establishments according to the quantity of blood produced. at the same time, the agreements made between the state blood donors centre and the bes stipulate particular quantities of blood to be produced. it means that the output of blood at the blood establishments is limited; otherwise the medical institution, to which a particular blood establishment is subordinated, has to pay for the excess quantity of blood. given the fact that a single system of distributing blood and its components exists in latvia, such a model of financing is inefficient, as it does not allow production of blood in towns where more blood donors are available. key words: national blood service of latvia, financing. introduction the national blood service of latvia (hereinafter – the nbsl) is a set of regional medical institutions and their structural units in latvia that produce blood components and supply them to medical institutions. the regional system of the nbsl includes the state blood donor centre (hereinafter – the sbdc) with its affiliate in rēzekne, the blood establishments of 9 hospitals (hereinafter – the bes), the performance of which is stipulated by their agreements with the sbdc, and the blood offices of 32 hospitals (hereinafter – the bos) in all the regions of latvia that function as suppliers of blood and its components (sbdc, 2007). the basic function of the sbdc is to organise and coordinate the supply of blood components, which meet the quality standards, to medical institutions, therefore, government budget funds are allocated to the following activities: • preparation of blood and its components; • laboratory tests for blood of donors; • quality control of blood components; • immunity and haematological compatibility tests; • administration of expenditure on the bes of medical institutions; • purchase, storage, and dissemination of blood plasma; • maintenance of the single information system of the nbsl; • blood gravity surgical services. hierarchically, both the sbdc and companies (medical institutions which include the bes and the bos), in which the holder of share of capital stock is the latvian ministry of health, are at the same level of subordination to the ministry. yet the sbdc statute stipulates that the sbdc methodically manages, organises, and coordinates the production of blood components and supplies them to medical institutions on request, except the medical institutions having their own blood establishment (sbdc statute, 2005). besides, the sbdc finances several costs related to blood preparation at the bes. the research aim is to investigate and analyse the procedure of financing the institutions producing blood and its components that are included in the nbsl. the following research tasks are set forth to achieve the aim: issn 1822–8402 european integration studies. 2011. no 5 73 1. to investigate and analyse the procedure of financing the sbdc and the bes; 2. to investigate and analyse the cash flow of the sbdc. research methods used: the monographic and descriptive methods as well as analysis and synthesis are used to study elements of problems and to synthesize interrelationships or formulate correlations. the inductive method was applied to make general conclusions from several facts or to determine correlations. the deductive method, in its turn, was used to logically systematise and theoretically explain empirical research results. the methods of analysis of balance sheet and financial indicators were used to assess funding allocated to the organisations that are studied and its use efficiency. it was examined by a disperse analysis whether the funding allocated to preparing blood and blood components differs in various regions of latvia. financing of the sbdc and its procedure the sbdc is an institution directly subordinated to the latvian ministry of health, the performance of which is financed from the government budget. any annual budget of the sbdc is set by a respective calendar year’s latvian law “on the government budget for the year xx”. table 1. sbdc funding for 2005–2010 year budget subsidy lvl own income lvl total lvl change in budget against previous year,% 20 05 * planned 4555461 105878 4661339 real 4233323 106460 4556043 20 06 * planned 4368815 77000 4565339 -2.06 real 4446277 121135 4598672 +0.93 20 07 * planned 7506656 144000 7650656 +67.58 real 7506656 141323 7735508 +68.21 20 08 planned 8314563 141000 8455563 +10.52 real 8314563 141000 8455563 +9.3 20 09 planned 6643913 141000 6784913 -19.76 real 6703913 120395 6824308 -19.3 20 10 planned 6019106 141000 6160106 -9.21 real 6219106 177299 6396405 -6.27 *in addition to the government budget funding, funds from the erdf were obtained. source: developed by the authors according to the sbdc’s balance sheets from 2005 to 2010 for instance, in accordance with the law “on the government budget for the year 2010”, the sbdc budget for 2010 was made of the subprogram “provision of blood and blood components” under the government budget program “provision of specialised health care” (republic of latvia saeima, on the government budget for the year 2010). the amount of funding allocated from the government budget as well as its percentage change, compared to a previous year, for the period 2005-2010 are presented in table 1. according to table 1, the amount of funding allocated to the sbdc from the government budget was volatile during the recent five years – from a 71.82% increase in 2007 compared to 2006 to a gradual reduction in the funding in 2009 and 2010. these sharp changes in budget funds do not allow rational and prudent investments in developing the infrastructure for testing, preparing, and storing blood and its components, as it is not possible to plan the amount of funds for a next year. the indicators of asset turnover of the sbdc – asset turnover ratio (hereinafter – atr), fixed asset turnover ratio (hereinafter – fatr), as well as current asset turnover ratio (hereinafter – catr) in the period from 2005 to 2010 (see table 2) show whether the funding allocated to the sbdc is efficiently used. table 2. indicators of sbdc performance efficiency in the period 2005-2010 2005 2006 2007 2008 2009 2010 atr 1.8 1.5 1.8 2.16 2.11 1.8 fatr 4.1 3.9 4.25 4.31 3.74 3.8 catr 2.1 1.17 3.02 4.33 4.92 3.5 source: developed by the authors according to the sbdc’s financial management reports on performance results the atr shows how efficiently assets are used regarding net turnover, i.e. how many times a full cycle of production and turnover is done. given the specifics of sbdc performance, one can consider that the sbdc performance is efficient, as its assets make a full cycle more than once a year. the performance efficiency is also determined by the amount of funding available to the sbdc. since the sbdc produces blood and its components that are supplied to latvia’s medical institutions free of charge, the performance of the sbdc fully depends on the amount of funding allocated from the government budget. its own revenues, which are laboratory tests for compensation, are relatively small. financing of the bes and its procedure until 2006, the bes of medical institutions were financed only from the funding allocated to these medical institutions. such a system of financing was recognised as inefficient, as it could not provide adequate technological and medical conditions for producing blood in the entire nbsl. based on the „conception for optimising the structure and operational principles of the national blood service of latvia in 20062010”, the procedure of financing was also changed (sbdc, conception for optimising the structure and operational principles of the national blood service in 2006 2010). based on european parliament and council directive 2002/98/ek (27 january 2003) that stipulates the quality and safety standards concerning preparing, testing, processing, storing, and distributing human blood and its components, the sbdc elaborated the „conception for optimising the structure and operational principles of the national blood service of latvia in 2006-2010” which included a new issn 1822–8402 european integration studies. 2011. no 5 74 procedure of financing the bes, and their number was reduced from 18 to 8. when making a decision on optimising the nbsl’s structure and elaborating a conception for optimising the performance and structure of the national blood service of latvia, the following factors as the main prerequisites for planning optimal locations of the nbsl in the country were examined: population density, locations of medical institutions in the country, availability of information technologies in accordance with the possibilities provided by the national program’s project “establishment of a single information system for the national blood service of latvia”, and establishment of bes in geographically advantageous locations in latvian regions. as a result, by approving the optimisation of the nbsl’s structure, a decision was made to retain 10 bes instead of 8 with the same funding approved, which reduces the available funds of any be to cover its maintenance costs by 20%. the conception envisaged allocating lvl 347840 to 8 bes of the sbdc (bes at vidzeme hospital, hospitals in the towns of daugavpils, jelgava, and kuldīga, liepāja regional hospital, hospital no.1 in rīga, clinical university hospital gaiļezers, p.stradiņš clinical university hospital) from the government budget to cover their maintenance costs. yet by starting implementing an eu sf project “establishment of a single information system for the national blood service of latvia”, it was decide to retain 10 bes with the same funding (be of northern kurzeme regional hospital located in ventspils and the be of jēkabpils regional hospital). based on the amount of funding allocated to the sbdc, any be spent lvl 3623.30 a month in 2006, including: 1. personnel cost – lvl 3350.43; 2. cost of premises, including electricity, heating, water/ sewage, waste removal, security, deratization, goods for cleaning – lvl 160.67; 3. transportation cost – lvl 112,20. table 3. funding allocated for maintaining one be in 2006-2009, lvl funding allocated 2006 2007 2008 2009 salaries 32163.6 50046.6 50046.6 45041.76 maintenance cost of premises 1542.00 2399.16 2399.16 2159.28 transport cost 1078.44 1678.08 1678.08 1510.32 total 34784.04 54123.84 54123.84 48711.36 source: developed by the authors according to the sbdc’s financial reports for 2006-2009 with the economic situation improving in the country, and due to the fact that two additional bes were included in the nbsl, the latvian ministry of health made a decision to allocate additional lvl 193398 in 2007 to cover the costs of the bes, thus raising the available funding to lvl 541238. the bes funding remained unchanged in 2008 and in the three first months of 2009, but with the economic situation worsening, the bes funding was reduced by 10% in april of 2009. the bes funding in the period 2006-2009 is presented in table 3. the sbdc changed the procedure of financing the bes in 2010, differentiating the funding according to the quantity of blood produced. besides, the bes maintenance costs were differentiated after the state audit office of latvia pointed to it for the second time. as stipulated in the agreements between the sbdc and the bes, medical institutions are covered the cost incurred due to preparing blood for the country’s needs from the government budget every month, but not more than it is stipulated in the agreement’s paragraph concerning maintenance cost that is computed individually for each be since 2010. based on an analysis of the sbdc, the maintenance cost that consists of salaries and state compulsory social insurance contributions, maintenance cost for premises, and transport cost is differentiated for each be. given the blood production plan for a calendar year, the bes are classified into 3 groups (see table 4): • large bes – their blood production plan is from 1400 to 2000 litres a year (be of p.stradiņš clinical university hospital, gaiļezers be of rīga eastern clinical university hospital, and the be of daugavpils regional hospital). • medium bes their blood production plan is from 900 to 1000 litres a year (bes of vidzeme hospital, liepāja regional hospital, and jelgava hospital). • small bes their blood production plan is from 650 to 700 litres a year (bes of kuldīga hospital, northern kurzeme regional hospital, and jēkabpils central hospital table 4. grouping of the bes in latvia since 2010 criterion large bes medium bes small bes blood production plan (litres) for a calendar year 1400 2000 900 1000 650 700 average number of employees 12 7 6 source: developed by the authors according to information of the sbdc’s department of planning and economy any group of personnel (doctors, junior personnel, paraprofessionals, and others) in each group of bes has a certain number of employees: • large bes – 12 employees (2 doctors, 7 medical paraprofessionals, 2 junior medical employees, and 1 – others). • medium bes – 7 employees (1 doctor, 4 medical paraprofessionals, 1 junior medical employee 1 – others). • small bes – 6 employees (1 doctor, 3 medical paraprofessionals, 1 junior medical employee 1 – others). the sbdc computes the amount of salaries for any group of medical personnel in each group of bes (it is not lower as stipulated by paragraph 180 of the cabinet’s of ministers 19 december 2006 regulation no.1046 “procedures of organising and financing health care”) by multiplying an average monthly wage by an average number of employees in a personnel group (doctors, junior personnel, paraprofessionals, and others). the state compulsory social issn 1822–8402 european integration studies. 2011. no 5 75 insurance contributions of personnel are also computed by this institution. an average monthly expenditure on transport for a be is obtained by summing up the respective expenditure of all the nine bes for the previous calendar year and dividing by the number of bes and the number of months a year. an average monthly expenditure on maintenance of premises per be is obtained as follows: • average expenditure on maintenance of premises of a be per square meter is computed, and the available monthly funding for covering maintenance cost is divided by the fl oor area of premises of all the nine bes; • average expenditure on maintenance of premises per square meter is multiplied by the fl oor area of premises of each be. thus, the bes are fi nanced from two sources – the sbdc’s budget and the medical institution’s budget. the medical institution covers the cost of its be that is related to infrastructure (premises, equipment etc.), human resources, and other costs (administration of its be etc.). since the funding of all the bes was equal until 2010, a signifi cant difference is observed in the part of funding that is spent on preparing blood and its components. table 5. percentage distribution of the funding for the bes in 2006-2010 region costs 2006 2007 2008 2009 2010 maintenance 57,35% 66,50% 67,57% 72,65% 76,73% compensation for blood 42,65% 33,50% 32,43% 27,35% 23,27% total 100,00% 100,00% 100,00% 100,00% 100,00% maintenance 76,94% 80,11% 78,43% 79,47% 79,50% compensation for blood 23,06% 19,89% 21,57% 20,53% 20,50% total 100,00% 100,00% 100,00% 100,00% 100,00% maintenance 81,13% 84,84% 82,18% 82,74% 84,62% compensation for blood 18,87% 15,16% 17,82% 17,26% 15,38% total 100,00% 100,00% 100,00% 100,00% 100,00% maintenance 81,50% 84,67% 81,98% 83,27% 84,41% compensation for blood 18,50% 15,33% 18,02% 16,73% 15,59% total 100,00% 100,00% 100,00% 100,00% 100,00% maintenance 70,03% 74,95% 83,92% 74,96% 79,91% compensation for blood 29,97% 25,05% 16,08% 25,04% 20,09% total 100,00% 100,00% 100,00% 100,00% 100,00%latgale rīga vidzeme kurzeme zemgale source: developed by the authors according to information of the sbdc’s department of planning and economy after analysing the percentage distribution of the be funding during the period from 2006 to 2010 (see table 5), the authors concluded that in general, the cost of preparing blood and its components accounts for only 20% of total cost, the other costs (approximately 80%) consist of expenditures on maintenance of a be, which includes salaries, maintenance of premises, and transport. respectively, the sbdc started a more rational use of the budget when made a decision on differentiating the funding for each be; as a result, the total funding intended for the bes was reduced by 10% or lvl 48711 since 2008. the authors did a dispersion analysis to ascertain whether the funding allocated to producing blood and its components signifi cantly differ among the regions of latvia. to assess the result gained, the signifi cance level was assumed α= 0.05. when computing, it was found that the funding allocated to producing blood and its components do signifi cantly differ among the regions of latvia (p = 0.0000086 < α = 0.05). as of 1 march 2011, the funding is not individually allocated to the bes and the bos; they are fi nanced from each medical institution’s budget that is also fi nanced from the national government budget. besides, the bes are also additionally fi nanced from the sbdc, the cooperation with which is stipulated in agreements. the agreements stipulate the amounts of blood to be produced and the coverage of costs incurred to produce donor blood in accordance with the latvian law “on the government budget for the year 2010”, government procurement orders under the national program “provision of specialised health care”, the latvian cabinet’s of ministers regulation no.1037 “regulations regarding the quality and safety standards of collecting, testing, processing, storing, and disseminating blood and its components and the compensation for costs incurred to restore the amount of blood lost”, the latvian cabinet’s of ministers regulation no.138 “statute of the sbdc”, and the technologies approved. cash fl ow of the sbdc the nbsl’s effi ciency is also characterised by a rational use of funds. given the changes in the sbdc budget in the period 2005-2010 (see table 1), the sbdc has to pay special attention to organising a rational and balanced fl ow of expenditure. fig.1 presents the changes in the expenditure on maintenance of the sbdc during 2005-2010, which explicitly shows an increase and a decrease in the cash fl ow in the respective period. source: developed by the authors according to balance sheets of the sbdc for 2005-2010 fig. 1. changes in the expenditure on maintenance of the sbdc during 2005-2010, lvl fig.1 shows that the overall economic situation affects the changes in the expenditure on maintenance of the sbdc during 2005-2010. during the economic boom, the funding for health care in latvia sharply increased as well, including that for the sbdc. after a recession started, the funding was reduced for the sbdc, and it did not reach the amount of 2005 in 2010. issn 1822–8402 european integration studies. 2011. no 5 76 source: developed by the authors according to balance sheets of the sbdc for 2005-2010 fig. 2. changes in salaries at the sbdc during 20052010, lvl after analysing the sbdc balance sheets for the period 2005-2010, the authors concluded that the largest increase in the sbdc expenditure in 2007 and 2008, when the total funding for the sbdc signifi cantly increased, was on salaries (see fig.2). salaries include also such items of expenditure as premium pay and bonuses (premium pay for night shifts, work under special conditions, etc.) as well as state social insurance contributions paid by employers, social benefi ts, and compensations. an increase in the expenditure on salaries can be explained by the overall economic situation in latvia in 2007 and 2008 when wages sharply increased in the private sector, which promoted an increase in salaries in the public sector as well. after the crises began, salaries and the funding allocated for pay decreased, which is explicitly presented by the data for 2009 and 2010 in fig.5. it is forecasted that salaries will keep decreasing in 2011 as well, as the total sbdc budget for 2011 was reduced by additional lvl 3.5 million. the increase in the expenditure on salaries was also determined by the extension of sbdc functions when the institution’s structure was reformed and a gradual extension of its administrative and medical functions was started after implementing the conception for optimising this institution. as a result, the nbsl’s staff (as well as amount of work) increased in both rīga and rēzekne. such departments as the department of public relations, the department of quality management, and the department of labour safety started operating, while the departments of accounting and information technology were extended. the increase in expenditure took place not only due to an increase in salaries. as we can see in fig.3, prices rose for such items of expenditure as public utilities, administration of the sbdc, repairs, and the institution’s maintenance. the increase in the institution’s expenditure on repairs and maintenance services can be explained by the depreciation of buildings and equipment. source: developed by the authors according to balance sheets of the sbdc for 2005-2010 fig. 3. increase in the expenditure of the sbdc in 2005-2010, lvl a new item of expenditure emerged since 2006, which required investments in the entire nbsl – information technology services. this item of expenditure was fi nanced, to a great extent, by the european union social fund that invested lvl 220037 (investments and their distribution is shown in table 6) in the nbsl in 2005 and 2006 under the program for establishing a single information system at the national blood service of latvia. table 6. costs of the project of establishing a single information system at the national blood service of latvia indicator 2005 2006 total total project cost (lvl), of which: 216260 83740 300000 total eligible cost (lvl) 211500 81883 293383 eu sf funding requested (lvl) 158625 61412 220037 eu sf funding requested as % of total sf funding 72.09% 27.91% 100% source: public information bureau of the state chancellery, erdf, 2004 since 2006 the sbdc invested lvl 166756 in the system’s establishment from its own budget. the increase in costs is determined also by an increase in tax payments paid by the sbdc as a government institution in the period 2005-2010 (see fig.4). other items of expenditure can be managed and impacted, whereas this item of expenditure can be hardly impacted, as the national tax system determines it. as we can see in fig.4, the largest increase in tax payments was observed during the recent years, besides, the annual tax payments continue increasing. issn 1822–8402 european integration studies. 2011. no 5 77 source: developed by the authors according to balance sheets of the sbdc for 2005-2010 fig.4. changes in the tax payments paid by the sbdc as a government institution in 2005-2010, lvl changes in the budget of the sbdc as the only medical institution in latvia that performs various specifi c operations (for instance, preparation of cryoprecipitate, processing of blood components, apheresis operations for patients etc.) affect the quality and production of blood and its components. these changes affect the entire nbsl, as it not only partially fi nances the bes, but also performs various tests on blood and its components that are not performed by the bes. to be stable and oriented towards long term development, it is important to the nbsl to plan and take into account its disposable funds, therefore, the health care policy of latvia has to be based on stability. conclusions 1. the amount of funding allocated to the sbdc from the government budget was very volatile in the period 2005-2010. such changes impact both the planning and production of blood and its components and the overall development of the nbsl. 2. until 2006 when the „conception for optimising the structure and operational principles of the national blood service of latvia in 2006-2010” was implemented, the bes were fi nanced from the government budget without the sbdc as a mediator. such a model of fi nancing was regarded as ineffi cient, as it did not ensure equal – single safety, quality, technological and essential other – standards in blood production at all medical institutions in latvia. 3. the amount of funding allocated to producing blood components signifi cantly differ among the regions of latvia. 4. in fi nancing the bes since 2010, the sbdc differentiates their funding according to the quantity of blood produced. at the same time, the agreements made between the sbdc and the bes stipulate particular quantities of blood to be produced. it means that the output of blood at the bes is limited, otherwise the medical institution to which a particular be is subordinated has to pay for the excess quantity of blood. taking into account the fact that a single system of distributing blood and its components exists in latvia, such a model of fi nancing is ineffi cient, as it does not allow production of blood in towns where more blood donors are available. 5. after the nbsl optimisation conception was implemented, the extension of its functions affects expenditures of the sbdc. references cabinet of ministers of the republic of latvia. statute of the state blood donor centre. regulation no.138. latvia, rīga, 2005. on line paper: http://www.likumi.lv/doc. php?id=102423. european parliament, the european council, directive 2002/98/ec setting the standards of quality and safety for the collection, testing, processing, storage and distribution of human blood and its components and amending directive 2001/83/ec. belgium, brussels, 2003. online paper: http://eur-lex.europa.eu/lexuriserv/ lexuriserv.do?uri=oj:l:2003:033:0030:0040:en:pdf. mistre z. (2008), 23 april 2007 – the date of introducing the single information system of the national blood service of latvia at its first institution. news of the national blood service of latvia. latvia, rīga, pp.3–10. public information bureau of the state chancellery, erdf. establi shment of a single information system for the national blood service. latvia, rīga, 2004. on line paper: www.eps.gov.lv/fi les/projekti/np/5_proj.doc. republic of latvia saeima, “on the government budget for the year 2010” latvia, rīga, 2010, on line paper: http:// www.likumi.lv/doc.php?id=202345 . state blood donor centre’s balance sheet 2005, latvia, rīga: state blood donor centre of the ministry of health of the republic of latvia, 2006. state blood donor centre’s balance sheet 2006, latvia, rīga: state blood donor centre of the ministry of health of the republic of latvia, 2007. state blood donor centre’s balance sheet 2007, latvia, rīga: state blood donor centre of the ministry of health of the republic of latvia, 2008. state blood donor centre’s balance sheet 2008, latvia, rīga: state blood donor centre of the ministry of health of the republic of latvia, 2009. state blood donor centre’s balance sheet 2009, latvia, rīga: state blood donor centre of the ministry of health of the republic of latvia, 2010. state blood donor centre’s balance sheet 2010, latvia, rīga: state blood donor centre of the ministry of health of the republic of latvia, 2011. state blood donor centre’s financial management report 2007 on performance results, latvia, rīga: state blood donor centre of the ministry of health of the republic of latvia, 2008. state blood donor centre’s financial management report 2008 on performance results, latvia, rīga: state blood donor centre of the ministry of health of the republic of latvia, 2009. state blood donor centre’s financial management report 2009 on performance results, latvia, rīga: state blood donor centre of the ministry of health of the republic of latvia, 2010. issn 1822–8402 european integration studies. 2011. no 5 78 state blood donor centre of the ministry of health of the republic of latvia. conception for optimising the structure and operational principles of the national blood service in 2006 2010, latvia, rīga, 2005. state blood donor centre of the ministry of health of the republic of latvia. state blood donor centre summary 2005. latvia, rīga, 2006. online paper: http://www. donors.lv/doc_upl/publiskais_parsk_2005.pdf state blood donor centre of the ministry of health of the republic of latvia. state blood donor centre summary 2006. latvia, rīga, 2007. online paper: http://www. donors.lv/doc_upl/2006_g_publiskais_parskats.pdf state blood donor centre of the ministry of health of the republic of latvia. state blood donor centre summary 2007. latvia, rīga, 2008. online paper: http://www. donors.lv/doc_upl/vadc_2007_publiskais_parskats.pdf state blood donor centre of the ministry of health of the republic of latvia. state blood donor centre summary 2008. latvia, rīga, 2009. online paper: http://www. donors.lv/doc_upl/vadc_2008_publiskais_parskats.pdf state blood donor centre of the ministry of health of the republic of latvia. state blood donor centre summary 2009. latvia, rīga, 2010. online paper: http://www. donors.lv/doc_upl/vadc_publiskais_parskats_2009.pdf public information bureau of the state chancellery (2004), national program. development and upgrade of the basic infrastructure of electronic government. latvia, rīga. the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 14 issn 1822–8402 european integration studies. 2011. no 5 development policy monitoring issues – regional and local experiences in riga region rudolfs cimdins, peteris skinkis riga planning region, university of latvia abstract elaboration and use of development policy monitoring instruments promotes applicable and effective policy implementation and decision making, which is based on regular and systematic verification of resources, actions and results. on different policy development levels exists varied approach of defining specific aims and use of policy monitoring measures. since activation of development monitoring issues in latvia, some institutions have gained experience in elaboration of monitoring systems among them riga region and its local municipalities practise various approaches using policy monitoring instruments. specific study analyzes theoretical aspects of different development monitoring approaches and factors that impact its quality. monitoring performance evaluation is based mostly on territory development comparative analysis using the methods of statistical analysis by assessing territory development indicators. practical examples explain experiences of development tendencies and policy evaluation as well as impact on further decision making and policy implementation. analyze of development planning system laws and regulations explain legal basis impact on processes in the field of development policy elaboration, implementation and monitoring. development monitoring and its role and effectiveness evaluation, and further monitoring system optimization analysis is an objective of this article. on different policy development levels exists varied approach on elaboration, implementation and monitoring of specific policy. this study analyzes the matter contextually on state, regional and local levels. observations indicate link between development priorities and budget planning is a principally essential precondition for implementation of development policies. different development monitoring approaches are determined by aim of the specific policy. development evaluation mostly express as monitoring of general development processes, connected to specific aims or policies. overall approach of development policy monitoring mostly is oriented on evaluation of planning documents. riga region development monitoring practice is considered as successful, till now and within nearest future region’s development monitoring realization based on statistics, thematic studies, efficiency analysis and functional monitoring is expected. further research would be focused on new approaches on elaborating development monitoring instruments for suitability of use for specific aims on different policy development levels. regional development monitoring system improvements would be connected with elaboration of operational indicators structure and the creation of flexible thematic indicators system. permanently on the agenda of riga region are monitoring themes such as public sector efficiency, the society’s economic activity, social activity, population needs and movement. specific thematic research is needed for solving challenges of environmental quality, human settlements and infrastructure planning, public transport, school network planning and other issues. keywords: development policy, administrative levels, implementation, evaluation, monitoring. introduction in latvia for more than 15 years exists defined regional development policy as a national responsibility. it marks primary development goals and objectives of the country and part of its territory. regional policy until 2004 was closely linked to accession process to the european union (eu) and dealt with cohesion issues. after joining the eu regional policy remained tasks of the internal areas development difference equalization, but in practice mainly focuses on the eu’s financial support of regional development funds. throughout the period, regional policy was dual the existence of the stated objectives, while its implementation means were weak and funding support has been directed towards the medium term or even operational priorities, without contributing of realistic regional policy objectives. in relation to eu accession in latvia planning regions were established. it was intended that the regions as territorial organisation structures will play an essential role in implementation of regional policy. however, it administrative and functional capacity was not strengthened. regions tasks mostly connected to a coordinating role in the planning process (between national and local levels). since 2008 clearly marks a new addition to the region responsibility for spatial planning process, to a large extent taking over the monitoring of local municipalities development planning. consequently, it naturally became necessary to monitor the development process; the regions become the major agents of national territories development monitoring. wherewith, the need arose to build a development monitoring system. in latvian case, this meant establishing of planning regions development monitoring to assess changes in processes, issn 1822–8402 european integration studies. 2011. no 5 15 at the same time without the administrative and financial instruments to allow changes affect directly. during monitoring elaboration process communicative, consultation procedure based monitoring practice was established. the aim of this research is to study development monitoring and its role and effectiveness evaluation in riga region and propose further monitoring system optimization options. main objectives: • analyze legal basis in the field of development planning in the context of theoretical aspects of policy monitoring and evaluation; • study development monitoring approaches and aims in different administrative levels, as well as factors that impact its quality; • define monitoring themes and options for further research and recommend possible regional development monitoring system improvements. in general in latvia monitoring activities are in initiatory stage and this study includes novelty in terms of analyzing policy monitoring experiences on all administrative levels. methods latvian and riga region development monitoring is analyzed contextually, as a policy and its implementation practices from the management point of view when evaluating the decision making and consultation process results. monitoring performance evaluation is based mostly on territory development comparative analysis using the methods of statistical analysis by assessing territory development indicators change dynamics during 5-10 years period. development policy monitoring and evaluation regional development monitoring exists on very different forms, depending on each country’s legal and functional organization and policy implementation mechanism (cziraky, sambt, rovan, puljiz 2006, nared, ravbar 2003, khan 2001, spencer, gomez c. 2004, toward country-led development: a multi-partner evaluation of the cdf, 2003). monitoring on its complete procedure includes fixing of changes, evaluation, decision making and its implementation control. at the same time, today exist the broadest spectrum of the various thematic or challenge analyses monitoring systems oriented towards sustainable development, population mobility, environmental impact, business, competitiveness etc. evaluation (dowell 1987, gudmunsson 2003, leeuw 2003, mott 2004, boronenko 2006). in monitoring design and implementation the key is monitoring aim. but its type (form) is determined by social context, political and economical practices determine development policy. today studies main attention concentrate on monitoring indicators, mostly within thematic monitoring. determination and choice of development indicators are important issues for development of already successfully existing monitoring systems. many attempts exist to create operational and representative indicators, which help to identify causal of processes and applicable indicators for changing circumstances, as well as the indicators, which could be used for different aims, including quantitative methods of calculation (measuring outputs and outcomes in ida countries, 2002, locāne, vanags 2002, krastiņš, vanags, locāne 2008, krastiņš, locāne 2009). the case of latvia – legal basis, policy implementation and monitoring aims in different administrative levels on different policy development levels exists varied approach on elaboration, implementation and monitoring of specific policy. in case of latvia, policy monitoring activity with different success express on state, regional and local levels. development planning system laws and regulations prescribe necessity of monitoring and evaluation of development policies on all administrative levels. policy monitoring approach is determined by aim of specific policy on each administrative level. on state level main national policies are elaborated by the state chancellery and branch ministries. the state chancellery is a central public administration institution directly subordinated to the prime minister with function to coordinate planning and implementation of the national policy. institution in cooperation with branch ministries presents proposals on priorities for national development. in the field of policy monitoring the state chancellery perform functional monitoring – ensure branch policy analysis, strategic planning and preparation of proposals for medium and long term state development; coordinate and control enforcement of the decisions adopted by the cabinet of ministers and the prime minister (law on structure of the public administration, 2002). the ministry of environmental protection and regional development (former ministry of regional development and local government) is the leading institution for the development and implementation of state regional policy, as well as the coordination of implementation of the state support measures for regional development. cabinet of ministers provides operation of development planning system and its monitoring among them elaboration, implementation monitoring and coordination of state level development planning documents sustainable development strategy of latvia and national development plan (law of development planning system, 2008). sustainable development strategy of latvia until 2030 (latvia 2030) is the first united long term development vision of the state. strategy updates and expands the main idea of the conceptual document – „model for long term growth of latvia: human being in the first place” approved by the saeima of the republic of latvia on october 2005. latvia 2030 includes implementation monitoring mechanisms, based mostly on evaluation of specific indicators linked to strategy priorities (sustainable development strategy of latvia, 2010). recently elaborated project (15.03.2011.) of action plan for implementation and monitoring of latvia 2030 prescribe mostly monitoring procedures, but not essential problem – implementation of the document. formally the main instrument for implementation of strategy of the state is national development plan, which determines the priorities for the development of sectors and territories in medium term or in time period up to seven years (latvian national development plan, 2006). in practice latvian national development plan lack of its issn 1822–8402 european integration studies. 2011. no 5 16 own implementation instruments and document implements via different sectoral development policies and territorial development documents (regions and local municipalities), also by planning investment programmes of the state and local governments and financial instruments of eu policies. the implementation of latvia 2030 and national development plan within existing development planning system and indefinite support measures is a challenge in the immediate future. the present development planning system is poorly connected with the budget planning, as well as medium term and long term assessment of fiscal effect of action policy is not practiced. sectoral planning and operational character of state administration, insufficient succession and determination in adoption of decisions are main obstacles in implementation of development documents. within existing development planning system regions role mostly express as coordination and transition from state to local level. planning regions within the scope of their competence shall ensure the planning and coordination of regional development, and cooperation between local government and other state administrative institutions (regional development law, 2002). laws and regulations prescribe procedures and order how to perform territory development planning documents implementation monitoring in regional and local level. it mostly concern to development programmes – medium term policy planning document, which sets out the development priorities of the relevant territory and contains a set of specific measures. order prescribes periodicity of monitoring measures and form. regular monitoring report is defined as a monitoring form within understanding of laws and regulations. the ministry of regional development and local government (at present ministry of environmental protection and regional development) has worked out unified methodology for elaboration of development programmes for regional and local level. methodology has permissive status and it includes recommendations on process of elaboration and structure of development documents as well as implementation and monitoring order (methodological recommendations on elaboration of development programmes on regional and local level, 2010). methodology explains aims and tasks of the specific monitoring system – elaboration of framework, which provides possibility to evaluate progress of territory development and achieved goals during implementation of the development programme. this approach ensures monitoring of general development processes of specific territory and monitoring of specific policy aims. as concerns to monitoring of spatial plans, there is no concrete indicators how to evaluate documents implementation, it express as conformity between regional and local level spatial plans. planning region evaluate and provide opinions regarding the mutual coordination of regional and local level development planning documents and the conformity thereof to the requirements of regulatory enactments (regional development law, 2002). main problems concerning implementation of development policy is due to insufficient support measures and implementation instruments. in connection with policy monitoring one of the main obstacles is availability of necessary data. state statistical institutions increasingly decrease amount of accessible data for development planning needs, especially in local level (cabinet of ministers rules nr.1115, 2010), what is essential for monitoring of development processes and implementation of specific policies. for planning of local municipalities even more detailed statistical units are necessary – due to results of administrative reform in year 2009, noticeable number of large scale local municipalities has been established. considering fact that process of elaboration of new development programmes for the next planning period (2014-2020) has been started, this problem needs immediate solution. this challenge is in the competence of state level, local initiatives by creating smaller statistical units for specific aims should be encouraged, but this is not an overall solution for problems of data availability. during past five years appropriate monitoring system with data analysis component for use on all administrative levels (state, regional, local) being developed, but unfortunately elaboration still has not been completed. currently continues work on elaboration of new system with complex solutions – territory development planning information system (tapis – in latvian). the question of how this system will be compatible with an existing monitoring systems and will it provide with necessary data on smaller territorial subdivisions than in existing statistics (local municipality level) is significant. regional and local experiences in riga region riga planning region is regional authority, which performs functions in accordance with regional development law, among them ensure local government cooperation and the cooperation of the planning region with national level institutions for the implementation of regional development support measures. within the law, development questions are not clearly defined and express as implementation monitoring of planning documents – development programme and spatial plan. there are interpretations of understandings about monitoring concept on different administrative levels and institutions wherewith regional and local experiences reveal different approaches on development policy monitoring. riga region practices development monitoring for almost five years since 2007. aim of riga region monitoring is to provide informational and analytical basis for the implementation of regional planning documents and to ensure planning continuity (figure 1). main tasks of regions development monitoring (determination of riga planning region development evaluation indicators and result indices in accordance with regional planning documents, 2007): • regularly and systematically collect, compile and analyze quantitative and qualitative information on the demographic, social, economic situation and development tendencies in region territories; • identify positive and negative changes and causes of social, economic and spatial situation in the region and its local municipalities; • regularly and systematically evaluate region planning documents implementation progress and results; • provide this information publicly available, in order to promote a unified and comprehensive awareness of the region development. studies have shown that riga region development monitoring aims and components are as follows: • region’s development monitoring – observation (based issn 1822–8402 european integration studies. 2011. no 5 17 on statistics and thematic research); • planning documents implementation monitoring – efficiency analysis (based on evaluation indicators and result indices); • region’s functions implementation assessment – functional monitoring (based on work plan reports and result indices). figure 1. development monitoring framework in riga region currently, development monitoring form is an annual monitoring report. as territory development monitoring form it achieved appreciation also on national level – this approach was implemented in ministry’s methodology for elaboration of development programmes for regional and local level. additional element of riga region’s monitoring is annual thematic studies relating to current development challenges in the region. three monitoring reports have been elaborated till now and each focuses on specific actual development issues. as example, last of them focuses on the riga planning region’s economic profile development, coastal development issues and public transport analysis (riga planning region development monitoring report, 2010). every monitoring report includes action plan for the next year, based on analyzed experience and development needs of previous years. the action plan also contains measures for 3 years budget planning period and is linked to region’s formal functions. also prospective functions are identified, which could be transferred to the region and is logical accordingly to region’s planning and coordination role. action plan should be linked with decision making and budget planning, but due to uncertain region’s role and insufficient policy implementation instruments currently it has advisory character. economical crisis is the right time for evaluation on how reasonable budget is created and how long term priorities are considered. such situation usually leads to critical evaluation of the decisions taken in previous years, and to make appropriate conclusions (jakobsons, 2009). riga region existing monitoring approach could be defined as consultative monitoring with optional character. in riga region local municipalities development policy monitoring mostly express as monitoring of specific policy aims – evaluation of implementation of development planning documents. riga city municipality experience presently is most advanced within regions other municipalities. monitoring approach is oriented on municipality’s development policy efficiency analysis. to provide successful monitoring of riga city development policy strategy monitoring system has been established. system includes monitoring and evaluation of two development planning documents: riga development strategy until 2025 and riga development programme 2006 – 2012 (strategy monitoring system, 2011). monitoring promotes implementation of strategic planning documents by attaching it importance and provides with options to examine and evaluate how city advance in reaching strategic aims. within riga city monitoring system, regularly and systematically necessary data and information are collected and aggregated (figure 2). quantitative and qualitative information is analyzed on the situation in the city. such approach is a precondition for a successful, results-oriented development evaluation at both regional and local level (uusikyla, 2008). figure 2. riga city example – strategy monitoring system (www.sus.lv) monitoring system functions are to evaluate and monitor the strategic aims and objectives and to prepare regular monitoring reports on the implementation of the strategy (progress and effectiveness analysis). strategy monitoring system includes database that offers essential contribution to work optimization on regular data collection, maintenance and interpretation. it helps on operative analyze and presentation of actual information about socioeconomic processes in riga city. riga city approach solves problems connected with data availability on smaller territorial subdivisions (“apkaimes” – in latvian). subdivisions explain the concept of neighbourhood as a suitable size for the home environment, which have own maintenance, identity and character arising out of the building issn 1822–8402 european integration studies. 2011. no 5 18 type, the physical boundaries of the landscape and population sense of community (project apkaimes, 2011). this solution helps on systematic monitoring of city internal processes and on further decision making of development of specific territory. other riga region’s local municipalities except those who have approved new development planning documents (sigulda, ogre) are in a relatively early stage of elaboration and use of development planning monitoring mechanisms. overall approach of development policy monitoring is oriented on evaluation of planning documents as indicated in ministry’s methodology for elaboration of development programmes. monitoring themes and options with existent region’s role in governance and regional policy development and implementation in practice, further development should be advanced by strengthening its thematic component. at present, availability of statistical information that would enable to analyze development processes of the region is limited, both from operational and also from the area / place attraction perspective. this can be compensated by the annual thematic research at the current development process, issues to be addressed and the decision making purposes. permanently on the agenda are issues such as public sector efficiency, the society’s economic activity (living and creating areas, business directions and structure), social activity, population needs and movement. periodically arise challenges of environmental quality, human settlements and infrastructure planning, public transport, school network planning and other necessary solutions and specific thematic research is needed. figure 3. riga planning region – administrative territory, riga agglomeration and proposition for territorial data system (statistical units) with administrative territorial reform in 2009 and merging of local municipalities, has reduced the information available on smaller geographical units. since 2009 clearly marked the need to create extra regional statistical territories network, to match population placement, movement of people and economic activity spatial structure. in riga region is being developed proposition for territorial data system (statistical units), which should be created also in whole country (figure 3). one of the challenges is to create simply manageable and operational network of territorial units, which would allow maintaining necessary data for constant monitoring and planning (population and age group distribution, the changes in employment and the breakdown of the number). riga region’s monitoring system as a whole and especially the spatial structure establishment should be much more purposeful if it covers an area of riga functional region. monitoring development should therefore be integrated and coordinated between several latvian regions. this provides an important complement riga as metropolis and latvian city planning and polycentric development policy implementation processes. conclusions in latvian case the monitoring systems still are in developing process. coinciding with elaboration of new regional policy, territorial administration reform, remained unclear regional administrative role, riga region development monitoring practice is considered as successful, or as one of the best possible. till now and within nearest future region’s development monitoring realization based on statistics, thematic studies, efficiency analysis and functional monitoring are expected. it is integrated into the consultation process by cooperation with local governments, public authorities and result in an annual monitoring report, which includes the provision of guidelines for development planning, coordinate cross territorial activities and support decision making process on local and national levels. consultative type of monitoring allows saving flexible decision making and implementation of monitoring practices in a rapidly changing economic and policy conditions. functional and full-cycle monitoring system in the region are essential preconditions necessary for performance of regional and local government functions, to uptake financial resources and promote effective decision making at the same time. this would allow monitoring to serve as an effective planning tool. link between development priorities and budget planning is a principally essential precondition for implementation of development policies on all administrative levels. further research issues of regional development monitoring system improvement are connected with elaboration of operational indicators structure (including territorial) and the creation of flexible thematic indicators system, which enables effective, targeted research. references action plan for implementation and monitoring of sustainable development strategy of latvia until 2030 (in latvian) (2011). lr ministry of environmental protection and regional development (project 15.03.2011.) boronenko v. 2006. alternative view on economic regions in latvia. – agriculture regional development. proceedings of the international scientific conference – economic science for rural development, 10, laafs, jelgava, 247-256 p. issn 1822–8402 european integration studies. 2011. no 5 19 cabinet of ministers rules nr.1115 (in latvian) (2010). rules on state statistical information programme for the year 2011. ed. 14.12.2010. (prot. nr.73 8.§) available at: http://www.likumi.lv/doc.php?id=222920&from=off viewed: 07.04.2011. cziraky d., sambt j., rovan j., puljiz j. 2006. regional development assesment: a structural approach. – european journal of operational research, 174, 427-442 p. determination of riga planning region development evaluation indicators and result indices in accordance with regional planning documents (in latvian) (2007). sia „reģionālo pētījumu un plānošanas centrs“ 130 p. dowell m. 1987.internal monitoring of quality of life for economic development.economic development quarterly.university of wisconsin,madison, 46-73 p. gudmunsson h. 2003. the policy use of environmental indicators – learning from evaluation research. – the jaournal of transdisciplinary environmental studies, 2 (2), 1-12 p. jakobsons a. (2009). atbildīgums budžeta veidošanā. latvija. pārskats par tautas attīstību, 2008/2009: atbildīgums. rīga: lu sociālo un politisko pētījumu institūts, p.87. isbn 978-9984-45-162-6 khan, m.a. 2001. guidbook on results based monitoring and evalution: key concepts, issues and applications. – monitoring and progress review division, ministry of plan implementation, government of sri lanka, colombo, sri lanka, 1-234 p. krastiņš o., locāne v., 2009. coherences of level of territories’ development and its changes. the results of statistical scientific research, research papers, riga, 8897 p. krastiņš o., vanags e., locāne v., 2008. possibilities of deepened analyses of territory development index. the results of statistical scientific research, research papers, riga, 128-145 p. law of development planning system (2008). ed. 16.12.2010. vsia „latvijas vēstnesis“. available at: http://www.likumi.lv/doc.php?id=175748 viewed: 30.03.2011. law on structure of the public administration (2002). ed. 13.05.2010. vsia „latvijas vēstnesis“. available at: http://www.likumi.lv/doc.php?id=63545 viewed: 28.03.2011. latvian national development plan 2007-2013 (2006). lr ministry of regional development and local government, riga leeuw f. 2003. evaluation of development agencies’ performance: the role of meta-evaluation and development. washington, d.c., 1-78 p. locāne v., vanags e. 2002. sociāli ekonomisko rādītāju teritoiālās atšķirības un to izmnaiņas latvijā. – statistikas un pārvaldes problēmas. latvijas statistikas institūts, zinātniski raksti, rīga, 48-52 p. measuring outputs and outcomes in ida countries 2002. ida 13.world bank, washington, d.c., imf. methodological recommendations on elaboration of development programmes on regional and local level (in latvian) (2010). ed. 23.09.2010. lr ministry of regional development and local government, riga mott a. 2004. increasing space and influence through community organising and citizen monitoring: experiences from the usa. – institute of development studies 35(2), 91-114 p. nared j., ravbar m. 2003. starting points for the monitoring and evaluation of regional policy in slovenia. – acta geographica slovenica, 43(1), 53-83 p. project apkaimes (in latvian) (2011). riga city council development department. available at: http://www. apkaimes.lv/ viewed: 01.04.2011. regional development law (2002). ed. 16.12.2010. vsia „latvijas vēstnesis“. available at: http://www.likumi.lv/ doc.php?id=61002 viewed: 04.04.2011. riga planning region development monitoring report (in latvian) (2010). riga, riga planning region administration. 68.p. available at: http://www.rpr.gov. lv/uploads/filedir/uzraudziba/rpr%20uzraudzibas%20 zinojums%202010.pdf viewed: 01.04.2011. spencer j.w., gomez c. 2004. the relationship among national institutional structures, economic factors, and domestic enterpreuneurial activity: a multicountry study. – journal of business research, 57, 1098-1077 p. strategy monitoring system (in latvian) (2011). web page. riga city council development department. available at: http://www.sus.lv/info/laipni-ludzam viewed: 05.04.2011. sustainable development strategy of latvia until 2030 (2010). lr ministry of regional development and local government, riga toward country-led development: a multi-partner evaluation of the cdf. 2003. oed precis, 233, washington, d.c. uusikyla p. (2008). plānošanas dokumentu rezultātu novērtēšana un sasniegumu uzlabošana. metodiskais materiāls teritorijas attīstības plānošanai. lr reģionālās attīstības un pašvaldību lietu ministrija, oecd leed. p.144.-158. the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 97 issn 1822–8402 european integration studies. 2011. no 5 representations of boundaries in the context of private and public relationships: latvian example armands puzulis1 peteris skinkis2 riga planning region1, university of latvia2 abstract in social practice boundaries often have been perceived and used as a tool of structuring of the space. spatial structures appear as representations of different activities and patterns as public and private relationships. formal regulations, public attitudes forming on the basis of values system, acceptance and rejection of norms create different forms of individual adaptation cases which are representing in planning practise and landscape as a contradictory public and private relationships. baltic coastal areas, riga agglomeration, settlements structure, local suburban land transformation processes are some of the areas have been explored. what are public and private in using of space, where and how we can see results of that relation, how it is represented by boundaries, what are the roles of state and local government in that interplay are questions explored in this research. the research is based on analysis of policy documents, interviews, landscape studies and gis analysis. key words: public private relation, planning, boundaries, land use. introduction over the last few decades, latvia and other eastern european countries has experienced conflict between individual decisions and overall public interests. this was most clearly seen in new suburban territories where development was connected with widespread land and housing speculation. under market conditions, land value is not assessed according to sustainability criteria. latvian land policy considers value on the basis of cadastral and market value (land policy frameworks), which is created as a result of both territorial planning and real estate speculation. this has up to now deeply affected the development planning process, especially the creation and implementation of land-use plans (territorial plans). public life and territorial planning revolve largely around the balancing of public and private relations, where community interests and values are realised in individual practices. individual practices may be ego/private-centric or dualistic, balancing individual and public interests and thereby strengthening both. this is generally reflected in situations of political transformation, especially in territorial development planning. over the last decade, public and private relations issues most visibly affected territories which have become spaces for new building interests. changes in land use particularly became the subject of discussions and the focus of decision making near waterways (especially the seashore) as well as in the vicinity of valuable (including protected) nature territories. the implementation of private rights dominates in planning practice. the aim of this research is to study the role of balance and opportunities of new balancing of private and public relations in sensitive spatial contexts. main objectives are to work out methodology and to examine public and private interest representations in different riga suburban cases. the research is based on analysis of policy documents, interviews, landscape studies and gis analysis. private and public relations the concept of the public interest is open to debate and interpretation. in contrast to the private, the public does not have a clearly defined representation body of its interests, although it may be state administration, a social group or a community. these bodies of public interests are imputed with rights to represent value which transcend the individual (keleş, r., 2011). in the planning process, often public and private interests are aligned using the concept of sustainability, which has a political context. sustainability balances between what is and what is desired and is affected by location and economic and cultural considerations, which are primarily subjective (dixon-gough, r. and al., 2011). from the aspect of public interests, decisions about development mainly touch on ethical questions. land use ethics are based on values which cannot be considered to be absolute and are subject to various interpretations (beatley, t.,1994). if territories are transformed through building, the quality of the new land use/ living environment is important, creating a requirement not only for new but also for a new type of building. the public and private also join and intertwine in the identity of place and people. this may be variously translated, but the essence is understanding the surroundings and finding the self in these surroundings (keleş, m., 2009). in both our contemporary liberal political culture and in practice, private property does not have an absolute character. the public trust doctrine, a principal which stipulates that certain resources are preserved for public use and the government is required to maintain them for the public’s reasonable use, has been in existence for 1500 years. (public trust...) today, this doctrine has both supporters who urge the expansion of the range of regulations covered by it, as well as critics defending private rights in the age of globalisation. environmental rights are connected with the public trust doctrine, which form the basis for general human rights to environmental quality (takacs, d., 2008). during the years of independence, territorial planning has frequently not been based on justified public interests or issn 1822–8402 european integration studies. 2011. no 5 98 values. the argumentation for values-based public interests in the formal planning procedure tends to be weak. values are not clearly defined and are things we keep in mind when making decisions moving towards the ideal, such as equality, autonomy, dignity, honouring your mother and your father, self-reliance, honesty, security, being content with your lot, ownership, freedom, solidarity, personal responsibility, not placing a stepping stone before the blind, and self-preservation. values are realised through objectives (priorities), which are political and which should be commensurate. principles establish a transition from values which may be not concrete and changeable to concrete action. interests are connected with persons and institutions which are value-defined (shiffrin, d.b., 2006). methodology: analysis of boundaries as a representation of private and public relations space can be viewed as an arena for private and public relations, where the players are various participants interested in land-use – state and municipal institutions, private land owners and tenants, social organisations, territorial communities, property developers and speculators. the most significant context is the boundary between the private and public, which is often decisive in land use decisions. public and private boundaries are reflected in space, despite the fact that at the same time the very concept of private and public is often the subject of discussion. in the spatial context, private and public relations are starkly represented in the case of boundaries. boundaries are spatially expressed as the spatial actions of our thoughts, both in the practically observable working environment and in formalised working documents, stipulating the boundaries and rules of land use. boundaries are used as representations to describe territorial processes. boundaries are viewed as tools and reflections of territorial policies. boundaries have a number of functions: as a spatial orientation system for people, for organising the structure of individual and public territories, and emphasising the heterogeneous nature of space (šķiņķis, p., 1999). in this sense, boundaries bring order to space in the manner required by the individual and society. in anthropology, boundaries are conceptualised as having little connection to land, at least not as being restricted by land, rather they are imaginary yet at the same time possessing real influence and consequences. (houtum, h.van, 1999). territorial boundaries are used as strategies for setting spatial usage rules for both public and private objectives, including administrative territories, state borders, seashores, border areas, agglomerations and land ownership boundaries. some boundaries, such as natural boundaries and personal intuitive boundaries, cannot be evaluated functionally, even though people assign them some functional meaning. the demarcation of territorial differences ensures geographical order in the management of space. many authors emphasise the influence of boundaries through processes such as connection, belonging, inclusion and exclusion. paasi stresses the creation of boundaries as part of territorial formation. through the institutionalisation (place formalisation) process they obtain boundaries and symbols differentiating them from other territories (paasi, a., 1999). the concept of place is not clearly defined and everyone understands it differently (massey, d., 1994). private spaces are restricted and protected to combine power and space (sack, r., 1986), which may be expressed formally, through legal confirmation, or physically by naturally restricting the territory. there are on-going discussions about the role of boundaries in the era of globalisation. the role of boundaries in determining place is stressed (harvey, d., 1989, anderson, d., 2001) – the greater the level of disintegration, the more people become attached to places. boundaries become a tool for discussing the identity of places. the classification of places and their spatial categorisation permits the cartographic comparison of differences in spatial institutionalisation, identification and expression (sassen, s., 1999). border cases we examine public and private interest representations in three different spatial situations. firstly, the shore of the baltic sea, where there is greater relativity in both boundaries and values. the specifics of the seashore are largely influenced by natural processes, and here the human presence is represented in the landscape forms from both the individual and public standpoint in a comparatively weak physical reflection of interests. secondly, the spaces on city outskirts, which are characterised by the presence of greater individual interests, less clearly defined public interests and complex private-public relations. thirdly, territories in which special environmental protections created over a longer period, therefore also public space usage requirements, play an important role. the coastal area while the baltic coastal area is a latvian territory of national interest (lias), its boundaries have not been clearly established. this is a naturally and functionally distinct public space where large areas mostly untouched by human impact have been preserved. almost half of the seashore space is covered by some form of natural protected territory status. roughly one third of the seashore space is uninhabited. at the same time, there is high demand here for building plots. large village and city territorial areas are reserved in planning documents, covering around half of the territory. however, these territories also have large areas of natural landscapes, including forests and protected biotopes (pužulis, a., 2010). usage of the seashore space is regulated by the protection zone law, which stipulates internal technical structural and formal guideline planning requirements (protection zone law). it also stipulates the boundaries of coastal territories and provides for their definition in municipal territorial planning (pužulis, a., 2010). the law technically stipulates property rights and restrictions, building, fencing, sea access, forest usage, risk territories, recreational use of the sea, use of subterranean resources, rules for behaviour by tourists and visitors and references to action in addition to alignment by state institutions. the main criteria for determining coastal protective zones are formal location within the boundaries of an inhabited area and the existence of a protected biotope. the result is that the boundaries of a specific zone often depend on interpretations by public institutions, which in turn affects private owners’ rights to land usage. access to the sea and natural objects such as dunes, lakes and rivers is an issue of accommodating public and private interests. many private land blocks block access to the sea or free movement along rivers. access is ensured by rights of way and planning tools, however at present there are issn 1822–8402 european integration studies. 2011. no 5 99 no legal instruments for realising planning requirements. municipalities do not own property with which they could implement requirements for accessibility and parking areas. figure 1. coastal area between private and public the seashore is subject to extensive erosion (around 120 km in latvia). because the shore has not been surveyed, the beach, which is located between the sea and the part of the dry land covered with continuous vegetation and which according to the civil law belongs to the state, does not have a clear area. usually the beach is state property, but as the shoreline is washed away there are places where private land impinges on the beach or even the sea. in such cases the civil law stipulates that the land becomes state property, but the order in which this happens is not regulated. the result is a formal confl ict between unclearly defi ned state (public) interests in relation to beach ownership rights and the private person’s land ownership rights. this is a unique situation wherein there is a natural transformation from one management form to beach, resulting in a change in the public character (accessibility) of the land from public to private. beach management is another problem arising from the shifting coastline. city outskirts space the riga suburban area or the riga agglomeration is the second of latvia’s defi ned national interest spaces. after world war ii, riga developed rapidly and its suburbs expanded. in the soviet era territorial development was compact, typifi ed by separated inhabited sites established either on the basis of old manors or in new places as economic centres, garden cooperatives or as continuations of the outfl ow of urban riga beyond the city limits. for the fi rst decade after the restoration of independence, growth in the existing compact structures continued. but over the last ten years, new areas were rapidly planned and built up. so-called “meadows’ villages” sprang up. the plans did not fulfi l spatial organisational functions. bank lending created a new value system, and private houses in new developments outside riga followed the developers’ wishes rather than planning principals for inhabited sites. in the immediate vicinity of riga, agricultural land was divided into formal villages, which were in essence single addressing and record keeping territories. the developers’ detailed plans and land improvement projects almost completely covered the territories of these “villages,” but they were not mutually aligned. the village territory included historic structures, new projects, garden cooperatives and free, unutilised agricultural land (liz...,2010). in one of the territories studied in detail, katlakalns and rāmava villages in ķekava parish, almost all of the land belongs to private owners, except for the main roads, which are state owned, and small parcels of land near public, municipal-owned buildings (ķekavas pagasta teritorijas plānojums). this ownership structure was created during the land restitution period and today completely limits opportunities for developing the public space. the street is one of the functional public spaces, creating access and serving as a meeting point for people. the few state and municipal streets do not provide access to land blocks. during subdividing, in many places streets were not provided for or, based on the civil law, were allocated the minimum width of 4.5 m, which is insuffi cient. many places presently face the situation where streets are formed after houses are built. rights of way and common property are used to this end. figure 2. boundaries structure in the new “planned” suburban settlement ramava another problem is real life compliance with the cadastre, because in some places streets provided for in the cadastre have been built over. this has had an effect on street management, with streets that are uncompleted and/or not cleaned in winter found in many places. the fact that the streets formally have private owners hampers the development of public infrastructure because the approval of all owners must be received (the civil law). the territorial plan is a promise of the future land use. almost all of the territory of the formally planned villages is intended for private use, for residential or commercial building. a few public territories are planned in existing public territory. figure 3. settlement structure in riga suburban area issn 1822–8402 european integration studies. 2011. no 5 100 the dominance of private property severely limits the potential for developing public places. only a few public function sites are concentrated in old centres – schools, kindergartens, sports fields, playgrounds, public halls, libraries, post offices, bus stops, information stands and shops. the new villages only have houses. here, the various developer projects were created with no regard for public space, utility connections or communications. this has also left its mark on the social space, with a lack of integration between the residents of new and old villages. according to survey data (iedzīvotāju aptauja, 2011), inhabitants of old centres do not regard new arrivals as “their people,” even when the new structures form a single compact village. in the case of the “meadows’ villages” residents identify themselves as part of a larger territory with no reference to the nearest place names. some identify themselves as residents of riga. the result is a socially, mentally and spatially fragmented local society mainly using the services of riga. conflicts between landowners are resolved through court practice, while the ordering of territorial status is the primary everyday function of municipal governments. the solution here can be sought in local land policy and the creation of joint infrastructure. another equally serious challenge is to create a spirit of collective responsibility and partnership in communities with regard to territorial management (intervija.., 2011). environmental protection territories environmental protection territories represent public interests via the state using specially protected territory status. they are specially planned (nature protection plans), with differing land uses anticipated for various. other territories may be used for other purposes, including building. in latvia, land use in protected nature territories is regulated by environmental protection laws and the protection zone law, resulting in territorial planning requirements. environmental protection practice is realised in two ways – through the state representing the overall public interest and playing the role of development restrictor – which tend to differ from municipal community public as well as private interests. spatially varied territorial interests are realised functionally and from an administrative and management aspect in the overlapping of various territories. to a large extent this is reflected in the overlapping of various spatial belonging and usage regime boundaries. one of the most typical such spaces is the contiguous and overlapping area formed by the city of jūrmala, its adjacent municipal territory, the seashore and ķemeri national park. the territory of lapmežciems municipality consists almost entirely of the ķemeri national park and part of the baltic seashore zone (ķemeru nacionālā parka...); just 8% of its territory is not covered by special environmental protection restrictions, but even these areas are subject to special city outskirts forestry management conditions. large private landholdings have historically developed in lapmežciems, which are currently in restricted areas with strict management rules. however, as is the case with other city outskirts and seaside municipalities, here there are also ambitious plans for building (lapmežciema novada teritorijas plānojums). in a situation where territorial planning and the building process must be aligned with the national park administration and various other national territorial management institutions, interpretations of regulations of public and private relations acquire great significance. the riga suburban forest belt is another example of a complex boundary space. here there are also large protected nature territories restricting commercial infrastructure development projects. riga forests and latvian state forests are monopolists in the environmental protection and commercial usage spheres in large territories in the riga area. soviet-era protected forest zones are no longer in effect in the outskirts of riga. pursuant to the protection zone law, these are stipulated by municipalities agreeing on restricted forestry zones, but in reality only small areas are covered. other forests are being subjected to commercial use or transformation. dune forests surrounding riga are being felled for timber, which was not permitted for at least 150 years previously. some are transformed for building or recreational functions. two forestry management organisations, riga forests and latvian state forests, institutionally represent the public interest, however their commercially motivated activities not infrequently lead to doubts about the extent of public benefit gained from comparatively intensive forestry activities versus sustainable solutions. a very special case in this space which is virtually closed to commercial activity is the city of riga underground water protection zone territory. in this space, the planning process is almost entirely implemented through institutional alignment between the state and large enterprises, a formality based on the a priori assumption that their competence and activities represent the overall public interest. conclusion the public space is not only linked to public sector land ownership or land use for public functions. rather, it is a much broader concept, since the public space is a component of the cultural environment encompassing access, social life and community-forming factors. the boundaries between various legally and spatially morphologically or mentally differing spatial segments cannot always be clearly identified as representations of the character of social relations. under latvian conditions, they indirectly characterise the structural differences in public-private relations. in almost all of the aforementioned cases there is a lack of practices for balancing public and private interests. in the case of the city outskirts, the dominant private interests do not create obvious contradictions with overall public interests as such; rather, they create an ignorant situation in relation to community interests. this has happened due to a lack of values transcending the individual and a vision of their benefits and to alignment as a social communication process. in social practice, private and public relations involve balancing, in which rights and responsibilities play an important role. this is even more significant in situations where individual interests are more clearly represented (agency) than public ones. here the individual/private is connected with efficiency and rationality. participatory responsibility is essential for achieving publically significant actions. the responsibility of each individual in the community context is important. individual relations must be formed as socially comparable co-responsibilities (lenk, h., 2009). the present situation, which stands out most clearly in the riga suburban forest space, also creates a lack of balance issn 1822–8402 european integration studies. 2011. no 5 101 from the aspect of interest representation due to the nonexistence of private and community interest representation. this deficiency leads to a deficit of balancing practices as a component of social control mechanisms. in both extreme cases, there is a lack of socially meaningful discussion about public and private values and relations. it is reduced to merely formal legal interpretation, therefore an interpretive legal practice and legal culture is not created. references anderson, j., 2001. theorizing state borders: “politics/ economics” and democracy in capitalism. cibr electronic working paper series wp01-1. beatley, t. 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(2008) the public trust doctrine, environmental human rights, and the future of private property. new york university environmental law journal; http://www. ielrc.org/content/a0804.pdf (viewed 10.04.2011.) the civil law (with amendments) saeima, 1937 , translation © 2007, tulkošanas un terminoloģijas centrs (translation and terminology centre) yilma, m., keleş, r.,(2009) sustainable urban development and the patterns of the right to ownership with special reference to architecture and urban planning land development strategies, hepperle, erwin; lenk, hans (hrsg.) © vdf hochschulverlag the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 172 effects of corporate social responsibility on customer brand choice in baltic region: mediating role of product involvement level http://dx.doi.org/10.5755/j01.eis.0.12.20735 muhammad zafran turiba university, latvia submitted 04/2018 accepted for publication 10/2018 effects of corporate social responsibility on customer brand choice in baltic region: mediating role of product involvement level eis 12/2018 abstract european integration studies no. 12 / 2018 pp. 172-182 doi 10.5755/j01.eis.0.12.20735 the purpose of this study is to investigate how csr initiatives of company influence customer brand choice. this research primarily deals with how csr initiatives of the firm effects consumer buying behavior and purchase criteria in different product categories. the study provides a solution to effectively link csr with elements of brand equity. specific research objectives include: (1) evaluating consumer understanding of csr concept; (2) csr influence on consumer brand choice in low involvement and high involvement product categories; (3) csr effects on different elements of brand equity. this study establishes theoretical framework, research design, interpretation of results and finally proposes a model for effective csr initiatives in line with customer involvement level with a product. quantitative research method-a survey is used to collect data. the questionnaire was derived based on christopher a. noe, using 5-point likert scale.the sample size is 57 students of business studies from two main universities in latvia. descriptive and inferential statistics are used to analyse the data. results indicate that csr initiatives have significant influence on customer brand choice in case of high involvement products and little influence on customer decision in case of low involvement products. results also indicate that csr has positive effects on some elements of brand equity, while little or no effects on others. consumer perception and evaluation of four different types of csr initiatives-legal compliance, environmental protection, transparency and participation in voluntary projects vary significantly in their purchase decision. finally, it is also revealed that some industries in baltic region have poor corporate image in terms of csr initiatives. keywords: csr and brand equity, csr effects on consumer buying behavior, csr and product involvement level; customer perception of csr; csr in baltic region. 173 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 introduction the increased global competition and growing concern for society and environment among stakeholders, has put business under immense pressure to find the ways of participating in sustainable development and corporate social responsibility initiatives. the topic of csr and sustainability issues has become the central piece of corporate managerial practices in today business environment. the stakeholder like customers increased awareness of environmental protection further drive the importance of csr. however, implementing csr initiatives comes at heavy cost to business entity in the shortrun. that is the reason csr poses a big challenge for organizations to strategically plan and execute voluntary projects, which benefits both, the society and business. building a strong brand equity is the ultimate goal of every brand manager either at micro level firm or giant mncs. in this context, a major problem businesses face is the poor planning, integration and execution of csr initiatives in line with brand equity. this research aims measuring the impact of csr initiatives on different elements of brand equity proposed by aaker (1991, 2001). the research is an effort to reflect on the efficient planning and execution of csr initiatives in line with brand building activities. there are three main tasks in this study, which are as follows. firstly, investigating how customers in baltic region think of csr. consumer perception and understanding level of csr initiative helps all level firms to decide which csr initiatives to pursue and why. organizations can better devise such initiative by understanding consumer perception and awareness of csr. secondly, given the complexity and significant difference in consumer purchase criteria in different product categories (njuguna reuben kinyuru, et.al, 2015). this research explore the difference in consumer buying behavior and their purchase criteria of different product categories with regard to csr initiatives. for this research purpose, low involvement and high involvement product categories are used to measure the influence of csr initiatives on customer brand choice. baltic region is adopting to csr initiatives to comply with western european standards in retail services as well as manufacturing. the final task of this study is to investigate relationship between different elements of brand equity and csr. this research takes into accounts four elements of brand equity i.e. awareness, brand image, differentiation and loyalty. this research aims to investigate the influence of corporate social responsibility (csr) on customer brand equity in general, and more specifically with respect to low involvement and high involvement products. customers use different criteria when purchasing low involvement products (functional brands) and high involvement products (emotional brands). this research is highly significant because it investigates csr effects on customer brand equity and ultimately its influence on financial performance of the company. the principal concern of the previous studies on csr remained focused on the moral (perter drucker 2008), social (freeman 1970), and economic (milton friedman 1970) justification of csr and balancing conflicting interest of stakeholders (carroll 1999, archie carroll 1991, frank 1945, eric rhman 1946 and edward freeman 1984). in the past, most of the research remained focused on the topic of csr effectiveness and its financial outcome. instead, investigating its empirical relationship with corporate marketing outcomes (e.g., brand equity, consumer attitudes, and consumer loyalty) (brunk, 2012; hur et al., 2014). this is the gap, that is why this research pays attention to analyze the impact of csr on brand equity and csr influence on customer decision when buying (a) low involvement products (lip) e.g shampoo, toothpaste, toilet papers etc. and (b) high involvement products (hip) e.g car, mortgage, and luxury items etc. this research also aims to discuss which types of csr activities influence most customer decision. key research questions around which this study revolves: how does csr effects customer brand choice? when customers give importance to csr initiative? thus, we merely investigate csr at product level rather at corporate level (brunk, 2010a; 2011; singh et al., 2012). corporate social responsibility has been widely debated topic in the e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 174 history of modern management theory. csr has not only gained the attention of social scientists but the world leaders, governments, media and social activist as well. notable names, who contributed in the field of csr includes howard r. bowen (1953), peter drucker (2006), carroll (1999), achie cardle (1974), archie carroll, (1991), frank (1945), eric rhman (1946) and edward freeman (1984). a recent example of debates on sustainability have been witnessed at cop21 meeting held in paris in 2015, where a large number of multinational companies including apple, coke, goldman scachs, google, microsoft and walmart pledge to invest more than $140 billion in efforts to reduce carbon emission( wall street journal, nov 17, 2015). today, businesses are facing many challenges of modern management including corporate social responsibility (naami et al., 2011). some managers view csr as an extra cost to business, while others believe it is an integral part of business strategy. therefore, david chandler (2017) concluded that “it would be incorrect to view csr as optional add on and chose to ignore it. he further argued that companies exist to create value but how they create the value and for whom they create it. of course, the answer is the society, and this puts csr at the central position and an integral part of business strategy. it is the manager’s jobs to keep balance among competing interest of the firm’s different stakeholders. if we ignore csr, then what kind of society are we shaping? defining corporate social responsibility corporate social responsibility is defined as “ongoing commitment by business to behave ethically and contributes to economic development, while improving the quality of life of its employee and that of community within which it operates as well as society as large”, (institute for corporate culture affair, 2005). organizations interact with society to achieve their goals. some organization emerge to do social good in the society, not to seek profit. in early 1950, debates on the role of organization in the society became more systematic when howard r. bowen published a book, social responsibility of business (1953). it is still a hallmark contribution in the field of csr (carroll, 1999). debates on csr further gained a turning point when archi carroll presented a four-layered model of corporate social responsibility (carroll, 1979). according to carroll and buchholtz (2000), csr encompasses economic, legal, ethical and philanthropic expectation that a society places on organization at a given point of time. this definition provides a structure to various social responsibilities, but fails to explain how to resolve conflicts among competing stakeholders. according to freeman stakeholder theory requires managers to demonstrate broader view of responsibility. freeman’s definition is still widely adopted in high quality management journals (samantha miles, 2012, p.295). frank (1945) argued that manager has a duty “to act as a balancing wheel in relation to three groups of interest of owners, of employee, and of public, all of whom have a stake in the output of industry”. other scientists including post, preston, and sachs (2002, p.8) give a narrow definition of stakeholders that ties the group or an individual more directly to the operations of the firm. another popular term, sustainability, has been widely utilized, and interpreted substantially in different ways (dobson, 1996). the term, sustainability is commonly used in relation to sustainable development, which is defined as meeting the needs of present without compromising the ability of future generations to meet their own needs(world commission on environment and development, 1987). stakeholder theory stakeholder theory is very popular and influential in csr debates indeed (stark, 1994). stakeholder theory enjoys the central position in the strategy (e.g. carroll, 1989; donaldson and preston, 1995; harrison and st john, 1996; useem, 1996; campbell, 1997; harrison and freeman, 1999). it was first developed and presented by edward freeman in 1984.he defines stakeholder literature review 175 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 as “any group or individual who can affect or affected by the achievement of organizational goals”. stakeholders are all those who are related to the activities of an organization in some way. evan and freeman (1993) provide a more precise definition that is based on two principles; first, the principle of corporate right, which means organization has an obligation not to violate the rights of others, and second, corporate effect, which means companies are responsible for effects of their action on others. social and economic objective of organization are always in conflict. freeman (1970) argue against csr when such actions are carried out in self-interest and profit maximization of the firm under the guise of csr. milton friedman (1970) nobel prize winning economist states that the only way the firms can benefits most to the society is when it focuses on profit solely. “the corporation” he wrote in his book capitalism and freedom, “is an instrument of stockholder who owns it. if corporation makes a contribution, it prevents the individual stockholder from deciding how he should dispose his funds.” friedman concludes charitable contribution should be made by individual stockholderor, by extension, individual employee-not by corporation. friedman putsorganizational social responsivity comes at the expense of economic result. in contrast, on drawing of immanuel kant’s ethics theory, employees, supplier, or local community is not only treated as means but also as an end in themselves (evan and freeman (1993). organizations do not operate in isolation and they benefit from the society. moral justification of scr also emphasized by the great social scientist, perter drucker (2008), expressing his views-, profit for firm is like oxygen for person but if the objective of life is only about breathing then you are really missing something. therefore, the efficient manager must keep the balance among the conflicting interest of external and internal stakeholders. this suggests that, definitions, therefore, can evolve with passage of time and on the expectation of a society. however, polonsky et al. (2003) argued that there are “no universally accepted definitions of stakeholder theory or even what constitutes a stakeholder” (p. 351). alexander dahlsrud (2006) identified at least five dimensions of csr, which are derived from various published definitions: environment, social, economic, stakeholder and voluntariness. the variance in definitions is due to the need of the time in the given society and cultural aspect. csr is different things to different people at different time in different economic conditions. ethics and csr here it is important to draw attention of an audience to the issue that responsibility and ethics are two different things. ethic is a much broader concept and has five distinct core values including responsibility, honesty, respect, fairness, and compassion. therefore, ethical argument for csr is based on two philosophical approachesconsequentialist reasoning (outcome orientation) and categorical reasoning (process orientation. (mark s. schwarst & archie b. carroll, 2003). measuring csr simon zadek (2004) proposed a model that helps managers evaluate which issue in csr is the most critical, in other words, poses the greatest potential risk and opportunity. zadek, first identified five stages of organizational learning: defensive (to deny responsibility), compliance (to do minimum required), managerial (integrating csr into management practice), strategic (to embed csr with strategy and planning), and civil (promoting csr practices industry wide). secondly, he combines these five stages of learning with four stages of intensity (latent, emerging, consolidating, and institutionalized) in order to measure sensitivity of social issue. defining brand equity brand equity is defined as “the additional value that accrues to a firm because of the presence of the brand name that would not accrue to an equivalent unbranded product” (keller and lehmann, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 176 2006, p. 745). keller (1998) defined brand equity “the differential effect that brand knowledge has on consumer response to the marketing of that brand”. in other words, it means brand has positive differential effects on the mind of consumer and they react more favorably to the brand offering. brand equity from customer perspective takes into account consumer knowledge, familiarity, and associations with the brand (dollatabady & amirusefi 2011; washburn & plank, 2002). it represents the difference between overall brand preference and multi-attributed preference based on objectively measured attribute levels (park & srinivasan, 1994) and overall quality and choice intention (agarwal & rao, 1996).keller (1993) presented a multidimensional model called cbbe, which later evolved into the cbbe pyramid: brand salience, brand performance, brand imagery, brand judgements, brand feelings, and brand resonance. brand equity definitions have evolved, and include the added value of a name, which can expand to include a broad set of attributes that drive customer choice (faircloth, capella, & alford, 2001) and the relationships between consumer brand perception, brand preference and brand choice (kim, jin-sun, & kim, 2008). aaker (1991, 2011), contribution to the concept of brand equity itself is landmark. he grouped it into five categories: perceived quality, brand loyalty, brand awareness, brand association, and other proprietary brand assets such as patents, trademarks and channel relationships which have been widely adopted to measure customer-based brands equity. keller (1993, 2002) focused on awareness and association. other authors (barwise, 1993; yoo & donthu, 2001; yoo, donthu, & lee, 2000) also investigated the formation of brand equity and the suggested same dimensions and concluded that those dimension are positively related to brand equity. konecnik and gartner (2007) suggest that these dimensions have influence on three component of attitude: conative, affective and cognitive. csr as source of competitive advantage many researcher concludes that brand equity is an important driver of financial performance (aaker, 1991; srivastava & shocker, 1991; keller, 1993; gerzema et al., 2007). similarly, wide range of study advocate that there is direct relationship between csr and competitive advantage of firm. (porter and kramer, 2002). porter argues that investment in philanthropic aspect creates long-term competitive advantage. willingness to invest in corporate social responsibility is not a cost or constraint, but a source of competitive advantage (yoo, 2015). a large body of investors consider csr and ethical factors into their investment decisions (rivoli, 19995, tylor, 2001). investors can excludes companies with undesirable or negative features or adopt companies with certain positive features (cowe, 2002). hoeffler and keller (2002) suggest that corporate societal marketing can affect brand equity by building consumer awareness, enhancing brand image, establishing brand credibility, evoking brand feelings, creating a sense of brand community, and eliciting brand engagement. studies further show that csr programs can result in favorable evaluations (brown and dacin, 1997), stronger consumer identification (sen and bhattacharya, 2001), and increased customer satisfaction (luo and bhattacharya, 2006). effective use of corporate social responsibility and brand management can distinguish a company from its competitors and create competitive advantage (craig, 2003). reason for empirical research methodssurvey and experimental, both are natural science base approach to social science. smith (1998) points out that the key element of natural science or positivist approach is their belief that social science can measure, social phenomena. bryman and cramer (1990:3) advocated and explained the quantitative research process. in this research, data is collected through quantitative survey form using a 5-point likert scale. the questionnaire was derived based on the instrument developed by christopher a. noe with some modifications. sample size is 57 business students of two main universities in latvia. the sample characterisresearch method 177 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 tics shows male and female ratio of 36.8% and 63.2% respectively. among age group 72.2 % are less than 35 years and remaining 22.8 % are between 35-55 years old. in occupation, students accounts 57.9%, managers 7%, skilled worker 21.1%, business owners 10.5% and other 3.5%. research hypotheses theory or concept is translated into variables so that it can be measured easily and this is called operationalization of concepts (bridgman, 1927, hirschi, and durkheim, 1992). hypothesis is a premise or claim that researcher want to test and it very often takes form of relation between two or more entities. it allows the researcher to think systematically about envisaged research problem and structure their research plan accordingly (simon j. yates 2001). following hypotheses are developed for this study. lip denotes as low involvement products and hip as high involvement products. 1 ho: csr effect on customer decision is not dependent on the product involvement level ha: csr effect on customer decision is dependent on the product involvement level 2 ho: csr does not have significant influence on consumer brand choice in case of lipha: csr has a significant influence on consumer brand choice in case of lip 3 ho: csr has significant influence on the customer decision in case hipha: csr does not have significant influence on customer decision in case of hip 4 ho: csr has a positive impact on all elements of brand equityha: csr does not have positive impact on all element of brand equity. csr initiatives legal compliance transparency philanthropic product involvement level (low or high) corporate image/ reputation brand equity figure 1 csr-brand equity model: role of product involvement as mediating factor coronbah’s alpha test was performed to check inter data reliability. coronbah’s alpha values for all the items were found greater than 0.7, which mean high degree of reliability exists between all subscale items. first, it is found that consumer awareness of csr is not so high and it is just above an average with the mean =3.09, std.d =1.19. independent sample t-test also indicates that no gender (male and female) differences exist regarding awareness level of csr. r= (57), p-value .323> .05 the results regarding customer’s evaluation of four types of csr initiatives and their relative importance in purchase decision vary significantly with the highest mean values4.9 for “information transparency”, 4.3 for “compliance to legal requirements”, 3.7 for “environment protection” and 3.4 for “corporate philanthropy”. results clearly suggest that customer give very high imresults and discussion e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 178 portance to provision of full and correct information, while little or low value to corporate philanthropy. customer view environmental protection as important but not critical one. it is clear from the results that customers are more concerned about compliance requirements rather participation in voluntary projects that promotes well-being of the society. this is contrary to our assumption that company participation in philanthropic projects enhance corporate image and increase brand loyalty. corporate philanthropy does not have significant influence on consumer purchasing decision but this does not mean that it does not improves goodwill of the company. this could be the possible case of ineffective execution of philanthropic activities. this is consistent with michael e. portter and mark r. kramer (2003) who argue that corporation that can demonstrate significant impact on social problem will gain more credibility than those that are merely big givers. spearman’s rho test of correlation were performed to check the relationship between “customer awareness of csr” and “relative importance of csr types”. a positive relationship exist between csr awareness and concern for environment protection. r (57) =.357, p<.01. correlation is significant at 0.01 alpha level. a negative relationship exist between csr awareness and concern for corporate philanthropy. r (57)= -.036, p<.01. therefore, mere philanthropic act alone are not sufficient motivation. they should have clear focus and ability to project positive image of organization and for this managers needs to think how they can enhance effectiveness of corporate philanthropy. spearman’s correlation test were also performed to analyze the impact of csr on customer decision. it was found that the subscale “csr importance in purchase decision” has significant relation with subscale “csr effects on low involvement product” r (57) = .436, p>.01. correlation is significant at 0.01 alpha level. similarly, spearman’s correlation test show that subscale “csr importance in customer purchase decision” is significantly correlated with “high involvement product” subscale. r (57)=.536 ,p<.01. correlation is significant at 0.01 alpha level. it is clear from the results that csr effect on low involvement products is not significantly high as compared with high involvement products. although csr effects customer decision in both product cases but with different intensity. descriptive statistics in table 1.0 clearly shows that csr effects on customer brand choice of high involvement and low involvement products are not the same. so we can conclude that csr has strong influence on customer brand choice in case of high involvement products i.e. expensive and luxury items, in contrast, it has not significant influence on customer decision in case of involvement products i.e. less expensive and daily use items. csr effects on low involvement products csr effects on high involvement products valid 57 57 missing 0 0 mean 3.16 3.42 median 3.00 4.00 mode 4 4 std. deviation 1.031 1.034 table 1 csr effects on customer brand choice of lip and hip therefore, based on these results, we can draw conclusion that csr influence on customer brand choice is dependent on product involvement level. similarly, csr has significant effects on customer decision in case of high involvement products and little influence in case of low involvement products. the relative importance of csr in customer purchase criteria is also measured and it is found that customer give more importance to csr when purchasing high involvement prod179 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 figure 2 relative importance of csr in customer purchase decision 0 1 2 3 4 brand image brand loyalty brand preferncebrand awarness brand differen�a�on mean std. devia�on mode figure 3 csr effects on elements of brand equity uct with mean value of 3.4 compared to mean value 3.12 for low involvement product. these results are consistent with previous findings to support our research premise. further results revealed that csr effects on brand equity are not the same and vary across different elements of brand equity. for instance, csr effects on brand image are high with mean= 3.98, std.d =.719 followed by brand loyalty (mean =3.54, std.d =.965); brand preference (mean= 3.33, std.d 1.042); brand awareness (3.05, std.d= 1.042) and brand differentiation (mean=2.98, std.d = 1.96). as the results indicate that csr has strong effects on brand image and brand loyalty; while moderate effect on consumer brand preference. on other hand, csr fails to strengthen awareness and differentiation elements. in others words, customers cannot easily recall, recognize and differentiate the csr practicing brand from others. previous studies shows that effective use of corporate social responsibility and brand management can distinguish a company from its competitors and create competitive advantage (craig, 2003). firstly, reason for week effects of csr on some elements are due to inefficient management of csr program. secondly, this is also worth mentioning that csr initiatives does necessarily results into strengthening of all the elements of brand equity. because csr programs are carried out at limited scale and thus, get little attention of the target audience. researcher in the past have also argued that csr effectiveness does not means every corporate expenditure will bring a social benefit or social benefit improve competiveness” (michael e. portter and mark r. kramerp.p33) as consumer behavior is complex to measure, so is the brand loyalty. it is hard to predict the actions of consumers in multistimuli response environment. acid-test ratios of csr and brand loyalty suggest that consumer preference and choice of csr practicing brand is conditional. csr is not the primary factors in customer brand choice; it should be coupled with other source of competitive advantage. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 180 0 1 2 3 4 willingness to pay extra price rejec�on of other brands posi�ve a�tude of csr brand csr brand as first choice preference for csr brand mean std. d mode 3, 14 3, 16 3, 82 3, 77 3 3 4 4 0, 99 1, 04 9 1, 08 8 0, 92 6 b a n k s & f i n a n c i a l i n s i t u t i o n s s u p e r s t o r e s & r e t a i l s e c t o r p h a r m a c u t i c a l & h e a l t h o r g a n i z a t i o n s i n s i t u t i o n s o f h i g h e r e d u c a t i o n means mode std. devia�on figure 4 csr brand loyalty sensitivity map figure 5 customer perception of csr and industry fig 4 shows us that customer has strong positive attitude and preference for csr practicing brand but at the same time, they are less likely to reject other brands. price is important factor in customer decision-making process and they are not willing to pay premium price for csr practicing brand. among two similar options, customer gives preference to csr practicing brand but customer do not choose csr practicing brand as first choice. we can infer from these findings that csr offers customer brand preference and positive brand attitude. managers needs to embed csr with other brand benefits to gain maximum advantage. as csr alone is not sufficient motivation to buy the product. in other words, csr image cannot be substitute for better price and quality, while customer can sacrifice csr for better price and quality in purchasing decision. in this part, we discuss customer perception of csr and certain industries in baltic region. customers have just an acceptable view of organizational good conduct and ethics. it means customer perception of organizational good conduct is not so high. customers generally believe that most organization do not follow all the legal and ethical requirements which benefits the society with mean= 3.11, mode=4, std.d=.976. customer also fairly believe that csr is used as tool to get customer sympathy and maximize profit in the name of society well-being with mean score= 3.60, mode=4, std.d=.799. fig 5 shows customer csr perception of four difference industriesbanks, pharma& health, superstore and higher education institutions. at first, customer ranked pharma and health industry high on csr initiatives (mean=3.82) followed by higher education institutions (mean=3.77) superstores (mean=3.16) and banks & financial institution (mean=3.14). last two industries have poor perception in term of csr and needs to take initiatives to improve customer perception. conclusions adrain cadbury (2002), said, there is no conflict between social responsibility and efficient and profitable use of scare resources. csr provide an effective mechanism to create, preserve, and improve the company’s reputation and brand image. csr has positive effects on brand equity 181 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 and provide competitive advantage to the company. there are enough evidence to suggest that csr influence on brand choice is dependent on customer involvement level with product. hence, product involvement level plays a mediating variable role in csr effects on brand equity. csr has greater impact on customer decision in case of expensive and luxury items than less expensive and daily use items. customer value most the information transparency and legal compliance of the company than participating in corporate philanthropy. environmental protection initiative is also an important factor in shaping customer perception of csr. all the financial institutions and superstores in baltic region need to adopt csr in strategic planning and brand building activities. aaker, d. 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(2003), "corporate social responsibility: not whether, but how?" centre for marketing working paper, 17(1), pp. 1-35. cramer, d. (1998) fundamental statistic for social research, london, routledge. david chandler (2016), strategic corporate social responsibility, university of colorado denver business school, sage publication inc. 2017. david han-min wang (2015)"the effects of corporate social responsibility on brand equity and firm performance", journal of business research, volume 68, issue 11, november 2015, pages 2232–2236 https://doi.org/10.1016/j.jbusres.2015.06.003 design thinking, "peter senege's necessary revolution," business week, june 11, 2008,http://www. businessweek.com/innovate/content/june2008/ id20080611_566195.htm frank w. pierce, "developing tomorrow's business leaders," december 6, responsibility of businessman, harper and brother, 1953, p-51 gillian o'brien (2009) "from corporate social responsibility to corporate responsible behavior". references recommendations based on the findings of this study, following suggestions are proposed for management and industry in baltic and other european countries. firstly, organizations need to focus on transparency of information and provide customers full and accurate information. because customers value this aspect in their purchase decision. secondly; manager needs to identity real need and clear objective to participate in voluntary project promoting society well-being. managers also requires effective management of csr program to get maximum benefits of it. mere participation in corporate philanthropy without analyzing intended outcomes results into waste of resources.thridly, superstore and banking sectors needs to adopt csr in order to improve consumer negative perception in this this context. at fourth, management should embed csr at strategic as well as operational level. integrating csr at micro level (product) may bridge gaps in brand equity and provide strong competitive advantage. finally, high involvement products like fashion and luxury brands could face great challenges regarding csr. they cannot simply avoid csr and need a strategy to respond quickly to issues like sustainability and environmental protection, ethical conduct and fair business practices in order to gain sustainable competitive advantage and brand differentiation. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 182 a futures approach, dublin institute of technology. keller, k. (1993), "conceptualizing, measuring, and managing consumer-based brand equity", journal of marketing, 57(1), pp. 1-22. https://doi. org/10.2307/1252054 lai, c.-s.; chiu, c.-j.; yang, c.-f. & pai, d.-c. (2015), "the effects of corporate social responsibility on brand performance: the mediating effect of industrial brand equity and corporate reputation", journal of business ethics, 14(4), pp. 457–469. managing the extended enterprise: "the new stakeholder view", california management review, vol.45, no.1, fall 2002, p.8 mark s. schwartz & archie b. carroll, "corporate social responsibility: a three domain approach," business ethics quarterly, vol.13, no.4, 2003, p.512 https://doi.org/10.5840/beq200313435 milton friedman, "the social responsibility of business is to increase its profits", the new york time magazine, september 23, 1970. njuguna r k, muathe s m & kerre francis 2015" brand loyalty influence on consumer choice, an empirical and quantitative analysis in the retail sector" international journal of sales, retailing and marketing, vol. 4,no.5,2015 porter, m. & kramer, m. (2006), "strategy and society: the link between competitive advantage and corporate social responsibility", harvard business review, 84(12), pp. 78-92. r.edward freeman, strategic management: a stakeholder approach, pitman, 1984, p.46 samantha miles, (2012), "stakeholders: essentially contested or just confused", journal of business ethics, 2012, p.295 https://doi.org/10.1007/ s10551-011-1090-8 simon zadek (2004) "the path to corporate responsibility," harvard business review, december 2004, pp.125-132 the competitive advantage of corporate philanthropy, by michel e porter, and mark r. kramer, hbr, december 2002. world commission on environment and development, 1987, our common future, oxford: oxford university press. zafran muhammad phd candidate turiba university fields of research interests mba and ma marketing, consumer behaviour, branding, csr, advertising address 68 graudu street, riga, lv-1058, latvia oric id: 0000-0002-0543-7944 e-mail: muhammad.zafran@skt.umt.edu.pk, m.zafran84@yahoo.com about the author general requirements the article should be prepared by microsoft windows operational system microsoft word text editor. the author submits the paper by registering to www.eis.ktu.lt the suggested length of the article is ~4000–8000 words. the structure of the article should correspond to the general requirements of research papers. it should clearly present the research problem, the aim, research methods, results and discussion, conclusions, references, according to the american pshycological association 6th edition system used in the journal. presented papers will be reviewed by two experts. 5. if you are referring to some authors in the paper, the name of the author and the year of publication should be indicated in the text and a full list of references provided at the end of the article. structure of the article should be as follows: notes for contributors _ title of the article; _ full name of the author; _ abstract in english (approximately 1500–2000 printed characters); _ keywords (5–7); _ introduction; _ theoretical background/literature review; _ methods; _ results and discussion; _ conclusions; _ references; _ date of submission (year, month); _ information about the author. requirements for the preparation of an electronic form of an article text. an article shall be submitted according to the sequence specified in the general requirements of the article. the text of the article shall be submitted in a4 format (210 x 297 mm), using only the necessary text formatting, 11 pt. times new roman text font and 14 pt. times new roman font in bold for article headings. illustrations. text in the tables and charts shall be written in 9 pt. font, using single line spacing. tables and charts shall be numbered and have titles. tables, charts and illustrations shall be submitted in separate files (not only in word software). if illustrations are prepared using excel software, it is necessary to provide open operational files of illustrations. the photo resolution shall not be less than 300 dpi. references submitting the paper, the following data about the author (no more than 600 printed characters) should be presented separately: _ name, surname; _ scientific title and the title referring to a research field or trend; _ area of research interests; _ author’s working place, its address and e–mail. the list of references is presented in one column (10 pt) according to the alphabet. references (not less than 25 resources, wide use of isi (http://www.isinet. com/isi). here are some basic reference forms (journal article; working papers; book; book chapter; the internet address). journal article: broner, f., didier, t., erce, a., & schmukler, s. l. (2013). gross capital flows: dynamics and crises. journal of monetary economics, 60(1), 113–133. working papers: artige, l. & nicolini, r. (2006). evidence on the determ inants of foreign direct investment. the case of three european regions (no. 07) (p. 33). retrieved from http://www2.ulg.ac.be/crepp/papers/crepp– wp200607.pdf book: daugeliene r. (2011). es ekonomine integracija: priezastys, raida, perspektyvos (p. 281). ktu: technologija. book chapter: o’neil, j. m., & egan, j. (1992). men’s and women’s gender role journeys: metaphor for healing, transition, and transformation. in b. r. wainrib (ed.), gender issues across the life cycle (pp. 107–123). new york: springer. internet access: european commission. (2013). taric consultation methodology. retrieved december 14, 2013, from http://ec.europa.eu/taxation_customs/dds2/ taric/taric_consultation.jsp?lang=en&taric=&endpub=&meastext=&area=ru&regulation=&langdescr=&meastype=&simdate=20131025&startpub=&ordernum=&goodstext=&level=&expand=true european integration studies 2011.indd 229 issn 1822–8402 european integration studies. 2011. no 5 quality competitiveness of latvia’s wood industry janis priede, roberts skapars university of latvia, faculty of economics and management abstract quality is a complex phenomenon and there exist no general accepted definition, which fits every purpose and all the complexities in teal economics. while competitiveness of enterprises has been studied by many scholars around the world, competitiveness of nations is a relatively new discipline. studies of export competitiveness in the world markets are not new. several attempts to evaluate export competitiveness have been made in the past, primarily in eastern europe. in czechoslovakia, for example, a detailed and comprehensive analysis of the study was undertaken already in the 1960’s. similar approach was used by world bank studies of the price and quality competitiveness of exports by other authors in the late 1980‘s. quality competitiveness topic is still important and research in this field continuous. researchers are using different methods to look at the quality of exports and its competitiveness. researchers are developing different methods and indicators to measure quality competitiveness of exports, product differentiation and quality link to changes in exports, product-quality view, exporters behavior under quality constrains and other issues. authors in this paper will examine quality competitiveness of latvia’s wood industry on example of main trade partners of wood and articles of wood. keywords: competitiveness, quality, export, wood. introduction main problem authors are facing in this article is measuring quality competitiveness of countries and industries. until now there are several approaches in the literature how to measure quality competitiveness of countries or industries or product groups and each one of them has their advantages and disadvantages. approach is still discussable due to the nature of measuring quality itself and measuring quality competitiveness of country is still quite new and undeveloped field. the aim of this paper is to analyze quality competitiveness of wood industry on example of main trade partner countries of latvia. research methods used in this paper include monographic approach (studying of scientific literature on quality competitiveness), statistical methods (structural analysis), calculations and graphic method. quality competitiveness of country and industry theoretical and empirical research increasingly point to the importance of product quality in international trade and economic development (hallak, schott, 2008). studies of export competitiveness in the world markets are not new. several attempts to evaluate export competitiveness have been made in the past, primarily in eastern europe. in czechoslovakia, for example, a detailed and comprehensive analysis of the study was undertaken already in the 1960’s (see, for example, klacek and pleva, 1967). unfortunately, their study covered only the price competitiveness of czechoslovak exports in the eec market and the period 1955-64 and selected manufacturing exports. they estimated export prices realized by czechoslovak exporters in the eec market and compared them with export prices of countries for the same products of countries of the european free trade association (efta). similar approach was used by world bank studies of the price and quality competitiveness of exports by other authors (drabek, olechowski, 1989). quality competitiveness topic is still important and research in this field continuous. researchers are using different methods to look at the quality of exports and its competitiveness. researchers are developing different methods and indicators to measure quality competitiveness of export (aiginger, 2001; davidsons, kanepajs, 2008), product differentiation and quality link to changes in exports (kandogan, 2003, 2004), product-quality view (hallak, 2006), exporters behavior under quality constrains (hallak, sivadasan, 2009) and other issues. different studies have used different proxies for product quality. since product quality is not directly observed in trade data, most of these proxies are based on the assumption that price variations contain sufficient information about quality variations. some of these proxies use crosscountry variation in export prices (unit values), while others rely on both export and import unit prices. some of these indices are calculated at the product level, while other indices are constructed at the sectoral level. hallak (2005) even goes one step further and creates a separate quality index for each country. the following discussion will elaborate on the definition and construction of some of these quality indices. the abd-el-rahman (1991) unit value ratio expresses the export unit value of a given product relative to the import unit value of the same product. import unit values are used since domestic flows are largely unobservable. the closer is this ratio to 1, the more similar are the home country’s exports and imports in terms of quality. such exchanges are considered “horizontal.” products in such sectors may have different proportion of some characteristics, but none has a bigger amount of every characteristic. these products are not expected to show huge price differences. if this ratio is sufficiently far away from 1 (such that it exceeds issn 1822–8402 european integration studies. 2011. no 5 230 the limits of the interval [1-ε , 1+ε ], where ε is an arbitrary cutoff point), these exchanges are “vertical.” these products have a different amount of every characteristic compared to other products. the quality of these products may be ‘better’ or ‘worse’ than those of other products, depending on whether they have a bigger or a lower amount of these characteristics. these products represent a different positioning on the quality spectrum and are less sensitive to price competition. the abdelrahman index has been extensively used in the literature, most notably by chiarlone (2000), martin and orts (2001), mora (2002), reganati and pittiglio (2005), etc. schott (2004) also uses product level unit values to measure quality. in essence, he estimates quality by calculating unit values of all us imports (equivalently, exports of all other countries) at the product level. the unit values provide substantial variation at a very disaggregate level, and may not be perfect indicators of quality due to underlying product heterogeneity and classification error involving inaccurate recording of units and misclassification of goods. hallak (2005) uses a more aggregate price index to estimate quality. more specifically, he uses the fisher price index, which is the geometric mean of the laspeyres index and the paasche price index. the laspeyres index itself weights the price in each period by the quantities in the base period, while the paasche price index uses the current period quantities to weight the prices. hummels and klenow (2005) also use a variant of the fisher price index to infer the quality margin. they decompose each country’s exports to a given market category into its price and quantity components and compare them across exporters (faruq, 2006). a number of studies do not construct any specific quality (or price) indices, but use other ways to estimate quality differences across countries. for example, hummels and skiba (2004) estimate quality differences by calculating price variation across all country pairs for products in a given category. this removes certain commodity-specific variation in prices (e.g. a low quality car might be much more expensive than a high quality stereo system). they also hold the supply side of the model constant so that price variations across importers arise purely due to changes in the quality mix. several studies also explore the horizontal dimensions of product differentiation. instead of equating quality with a price index (under the assumption that all price dispersions occur due to vertical quality differentiation), they allow crosscountry variation in prices to be caused by factors other than quality, such as comparative advantage. for example, hallak and schott (2005) develop a decomposition methodology that separates observed export prices into quality versus quality-adjusted prices. however, despite allowing for horizontal differentiation, they find that for many countries, there is not much difference between a country’s quality index and its price index (notable exceptions include china and ireland). khandelwal (2005) also allows for horizontal differentiation by applying the discrete choice methodology in berry, levinsohn, and pakes (1995). he infers countries’ unobserved product quality by allowing market shares to influence quality estimates, so that products with larger market shares have higher quality (conditional on price) and vice-versa. this methodology, while useful at a disaggregate level, is computationally intensive and difficult to implement at the country level (faruq, 2006). since product quality is not directly observable from trade data, there is a lack of consensus on an appropriate measure of quality. researchers have traditionally used various price indices to proxy for quality, but this approach ignores the horizontal aspects of product differentiation. on the other hand, efforts to incorporate horizontal differentiation have been relatively scarce and are somewhat difficult to implement at a more aggregate level. in this paper authors decided to pay more attention to aiginger’s ideas in order to better understand the theoretical framework of quality competitiveness. higher quality is a necessary precondition for high cost producers to stay competitive. producing the same quality at a higher price or at lower margins is not feasible in the long run. many european countries have higher wages than the usa and japan; this cost advantage is even larger if compared to accession countries and to many new competitors in the globalizing world. it is possible to cope with higher wages by increasing productivity, but since technology and managerial skills are also spreading by the investment of multinational firms, this strategy is not always feasible. producing a higher quality is an alternative as well as a complement to higher productivity. this strategy is however easier in those industries in which buyers differentiate between quality types, while there are other markets in which price competition is the most important competitive mode. “quality competition” is competitive environment, in which upgrading quality, and increasing the willingness to pay is important relative to competing at low prices (aiginger). activities that upgrade quality are more or better skilled labor, machines, more sophisticated material inputs, but also superior organization on the plant or firm level. research and development, as well as imitation of the best techniques and processes, may be sources of quality upgrading. marketing may increase the willingness to pay by providing information about the capabilities of the product or by changing the tastes of consumers. in most, but not all cases, the quality of output is related to the quality of input. submitting to certifications, setting standards, and benchmarking are other techniques of upgrading the quality of processes, as well as the quality of products, and also market functions. the inputs that help to upgrade quality, economic and political accelerators, are summarized in figure 1. it also reports on the indictors that signal quality and consequences for market structure. quality differs from productivity, as the latter is defined usually in technical (quantitative) terms, like tons per one unit of labor input. if, however, value added is used as a numerator, then the prices and quality of output are taken into account. and if we distinguish between several qualifications for labor, the quality of inputs can be incorporated into the denominator of productivity. nevertheless, productivity studies focus on the quantity of output with respect to the quantity of inputs, trying to do so for indicators which are as homogenous as possible, while quality explicitly addresses the heterogeneity of outputs produced usually with respect to heterogeneous inputs. innovations refer to changes in processes and products. new products are usually products of higher quality. issn 1822–8402 european integration studies. 2011. no 5 231 figure 1. quality competition: preconditions, types and consequences (aiginger, 2001) however, they can be relatively cheaper when better materials or superior production processes are used. tension between higher quality and lower costs may arise. adding a further stage of processing usually increases the quality of the product. the additional stage can make the product more durable, more convenient, more specifically suitable and useful for the consumer, investor or producer. a further stage of processing can be to combine hardware with a software; a tangible product with a service or information. there are some cases, where a further stage of processing decreases the user value by decreasing flexibility or compatibility for some purposes (aiginger). quality and profitability are closely related, insofar as the quality of products will usually raise profitability, both by decreasing the competitive pressure as well as by increasing the willingness to pay. however, quality is mainly a characteristic of the product and profitability a result of the production process and the strategy and organization of firms. there can be a conflict between the quality of the product as measured in objective terms and profitability, if quality raises costs more than it raises the willingness to pay. the economic solution is to find the quality that maximizes profits. the resulting “optimal” quality provided may be below that assessed as desirable or feasible by technicians or consumer organizations. the quality of products should be reflected in the profits and specifically in the persistence of supernormal profits. if the market is not regulated or characterized by entry barriers, each advantage of a specific firm will be contested rapidly by other firms. only firms which can consistently upgrade quality or which – to use a term taken from strategic management literature – possess a specific nonimitable advantage can accrue higher profits in the long run. aiginger also developed three main indicators to assess quality: the unit value of exports (uv), the share of exports in quality sensitive industries, and the share of exports in the high price (quality) segments. the main indicators (aiginger): • the unit value (uv) of exports: this indicator is defined as nominal exports divided into tons. higher unit values reflect higher willingness to pay for a given product, one reason for this is the higher quality in a market with vertically differentiated products. the unit value for an aggregate is higher if a country focus on more sophisticated or higher processed goods. we can call this indicator “indicator on overall quality” since it comprises many different aspects of product quality. • the share of exports in quality sensitive industries: a method is developed to reveal in which industries exports are dependent on quality and not only on prices. the indicator reveals the importance of quality is called rqe (revealed quality elasticity). this indicator defines quality competition as an intrinsic characteristic of an industry (not changing over time or across countries). countries with a large share in high-rqe industries have managed to abandon industries in which low prices define the competitive edge and shifted exports into quality elastic industries. it could be called “indicator on inter industry quality upgrading”. • the share of exports in the high price segment: a method is developed to divide each industry in a high, medium and low quality segment. the indicator pps (position in price segments) reveals the position of countries in the individual price segment. this is an “indicator on intra industry quality upgrading”. countries with a high pps have managed to shift into high price segments in their main export industries. summing up we see that the second indicator focus on industries (as quality or price elastic), the third on position within industries (high or low segment), and the first indicator comprises elements of both. though the three main indicators already look at quality from different angles, there exist more aspects of quality than those captured by these three indicators. aiginger have developed set of indicators to monitor the quality position (competitiveness) (aiginger): 1. share of quality intensive industries in value added (net rqe production). 2. share of quality intensive industries in exports (net rqe exports). 3. share of exports in high quality sectors of industries (pps, net). 4. export unit value (export uv). 5. import unit value (import uv). 6. relative unit value (export uv/import uv). 7. share of value added in sunk cost industries (technology + marketing driven). 8. share of exports in sunk cost industries (technology + marketing driven). 9. share of value added in skill intensive industries. 10. share of exports in skill intensive industries. 11. share of value added in industries with high contents of knowledge-based services. 12. share of exports in industries with high contents of knowledge-based services. 13. share of value added in industries with high product differentiation (pd). 14. share of exports in industries with high product differentiation (pd). issn 1822–8402 european integration studies. 2011. no 5 232 15. share of value added in globalised industries (openness). 16. share of exports in globalised industries (openness). these indicators highlight different aspects of quality. authors in this paper will use unit values of export and import and relative unit value as well. measuring quality competitiveness the most comprehensive measure of quality available for empirical research is the “unit value”. its usefulness in evaluating quality comes from the fact that all of the following activities tend to increase sales relative to physical weight (aiginger): • increasing durability, reliability, compatibility, flexibility • using superior material inputs or higher skills • making a product more specific to demand • refining or further processing a product • adding new functions, service or maintenance contracts • better design, advertising. unit values as indicators of quality have been used in industry studies for assessing qualitative competitiveness and for discriminating between different components of intraindustry trade. the unit value is defined as nominal value divided into physical volume. in aiginger’s reports it is the gross value of exports or imports in ecu (euro) divided by kilogram. the unit value in general depends on demand and prices, but specifically it reflects changes in quality, shifts to higher product segments and to other value enhancing features (service component, design and advertising). therefore, unit value is often applied as an indicator in attempts to measure quality and vertical product differentiation. like any comprehensive indicator, it has advantages and disadvantages. among the advantages is its availability at nearly every level of disaggregation (6 digit industries or even 9 digit industries), for any country, and even for bilateral country to country trade flows. it is not available for production. for some industries, some information is missing (differing from country to country), implying careful programming techniques for the correct treatment of nominators and denominators. as far as the interpretation of the unit value is concerned, it is fascinating that most of the components which add value are included. industries intensively using physical capital exhibit rather low unit values, since capital is used for example in basic steel industries or in basic chemicals for large-scale production. so capital intensive industries rank lower and skill intensive higher in unit values as compared to productivity or value added per employee. this can also be seen as an advantage when we understand that developed countries rely mostly on skills in their efforts to achieve the competitive edge. on the other hand, some industries have intrinsically higher unit values, while they are neither high tech, nor do they use skilled labour, nor is physical capital involved. for example, this holds for textile and apparel industries, in which the unit values are high, since the weight in tons is low. here, reprocessing also poses a problem. goods are shipped into low wage countries and return at a somewhat higher unit value, indicating that the high wage country exports the lower quality product (as compared to the re-imported good). reservations about the use of unit value also hold for precious metals, where supply is scarce relative to demand. therefore, jewellery, leather, furs, footwear and apparel are among the top industries, as far as absolute unit value is concerned, without for example any indication of the use of skilled labour or research. however in general, high tech or high skill industries like aircraft and spacecraft, watches and clocks, tv and radio transmitters and instruments are also among the industries with the highest export unit values (aiginger). a problem in using unit values was that high values could indicate high quality or high costs. a technique proposed by aiginger (aiginger, 1997) enables us to disentangle costs and quality at least partially. if unit values reflect costs, the quantity exported must be low for the high cost country. if it reflects quality, then exports are predicted to be high for the country with the higher unit value. another objection to the use of unit value is that unit values may include the higher margins created by market power. the greatest market power is primarily expected on domestic markets. if unit values on the international market contain market power, this will be based on a major innovation. and if some firms succeed in becoming world monopolists and are not challenged over a long period of time, they will produce in various countries. unit values of exports and imports are not fully comparable, since both are measured at the border. imports include trade costs from the point of origin to the border, exports from the mill to the border. the reporting mode has shifted in the last years from customs agencies to firms. a lot of noise and inconsistency on the product level have arisen from these features, but the rich data set enables us to cope with many outliers and errors. but in the most cases, a careful second look at the data, or the exploitation of the very rich data can eliminate distortions or enable an evaluation of their quantitative impact. in general we use total exports if we focus on the comparison of european countries. trade structure of latvia authors of this paper will divide analysis of latvia‘s export structure in two parts: export structure to eu 27 countries and outside eu 27 countries (extra eu-27). figure 2 shows latvia‘s export to eu 27 countries and outside eu 27 countries in millions of euro. as we can see in figure 2, amounts of latvia’s export to eu 27 countries and outside eu 27 countries is similar – from year 2000 it increased every year until year 2008 and in year 2009 it significantly decreased, which can be explained with economic crisis in the world. if we take a look at the structure of latvia’s export in year 2009, we can see the main product groups exported. as shown in figure 3, the greatest share of latvia‘s export in year 2009 was agriculture and food products – 18,6% from all export. the next was wood and wood products – 16,5% and this group will be analyzed in this paper in more detail. there was three more big groups of export in year 2009: machinery products (14,1%), metal and metal articles (12,4%) and products of chemical industry (11,4%). issn 1822–8402 european integration studies. 2011. no 5 233 figure 2. latvia‘s export to eu 27 countries and outside eu 27 countries, million euro (authors, eurostat) figure 3. latvia‘s export structure in year 2009, percent (authors, eurostat) there was also vehicles (7,1%), light industry products (5,7%), minerals (5,5%) and other goods (8,7%). figure 4 shows latvia‘s import from eu 27 countries and outside eu 27 countries. as we can see in figure 4, the situation from year 2000 until year 2009 is very similar as it was with export during the years. but import increased only until year 2007 and the next year it already decreased and in year 2009 it decreased signifi cantly. decrease in import reacted fast because of economical situation in latvia. structure of latvia‘s export in year 2009 is shown in figure 5. in year 2009 the greatest share of import was agriculture and food products (18,3%). the second largest import group is minerals (17,2%), than follow products of chemical industry (16,9%), machinery products (15,7%), metal and metal articles (8,1%), vehicles (6,5%), light industry products (6,3%), wood and wood products (1,4%) and other goods (9,6%). figure 4. latvia‘s import from eu 27 countries and outside eu 27 countries, million euro (authors, eurostat) figure 5. latvia‘s import structure in year 2009, percent (authors, eurostat) it is interesting that all export and import product groups are similar in structure except wood and wood products. if in export structure it makes 16,5% (figure 3) than in import structure it makes only 1,4% from all goods. quality competitiveness of latvia‘s wood industry authors in this section of article will analyze quality competitiveness of latvia’s wood industry by applying approaches described in previous sections. latvia’s top 10 export partner countries of wood and articles of wood in year 2010 are shown in figure 6. issn 1822–8402 european integration studies. 2011. no 5 234 figure 6. latvia’s top 10 export partners of wood and articles of wood in year 2010, euro (authors, eurostat) figure 6 shows that latvia’s top 10 export partners of wood and articles of wood in year 2010 was sweden (228 million euro), united kingdom (165 million euro), germany (155 million euro), estonia (104 million euro), finland (78 million euro), denmark (63 million euro), netherlands (61 million euro), lithuania (53 million euro), france (42 million euro) and poland (34 million euro). authors in this paper will analyze in more detail top three export partner countries of latvia‘s wood and articles of wood – sweden, united kingdom and germany. first, authors calculated latvia’s unit values of export to sweden, united kingdom and germany (figure 7) figure 7. latvia’s unit value of export to sweden, united kingdom and germany, euro/100 kg (authors, eurostat) as we can see in figure 7, from three export partner countries the lowest export unit value is for the export to sweden. in case of sweden, unit value of export increased slowly from year 2000 (3,78 euro/100 kg) until year 2005 (4,97 euro/100 kg). than it went up sharply and reach 23,49 euro/100 kg in year 2007. and then, considering changes in world economy, unit value decreased very sharply and reach value of 6,91 euro/100 kg in the following year. in year 2010 it was 6,31 euro/100 kg. changes in world economy left even more signifi cant impact on unit values of export to germany and united kingdom. unit values of latvia’s export to germany reached maximum level in year 2006 (173,06 euro/100 kg) and in year 2010 it was only 23,57 euro/100 kg (it is more than maximum for sweden in year 2007). and unit values of latvia’s export to united kingdom reached maximum level also in year 2006 (329,02 euro/100 kg) and sharply decreased until year 2010 (31,72 euro/100 kg). from the theory we can make a conclusions that overall latvia are exporting higher quality goods to germany and united kingdom, then to sweden. in this case it also could refl ect just higher added value goods since product group of wood and wood articles contain products with very different added value. authors also calculated unit values of import from sweden, united kingdom and germany (figure 8). figure 8. latvia’s unit value of import from sweden, united kingdom and germany, euro/100 kg (authors, eurostat) as we can see in figure 8, overall lowest unit value is for import from united kingdom (lowest – 29,49 euro/100 kg in year 2001, highest – 382,49 euro/100 kg in year 2006). import unit value from germany was very high during the year 2006 – 1045,12 euro/100 kg, and with the economic situation in the world it sharply decreased and was only 84,09 euro/100 kg in year 2010. interesting results are for sweden. latvia had lowest export value from three trade partners, but overall it has highest import unit value. and again we can see that during the years 2006 and 2007 there was sharp increase of unit value of export and it reached 1126,14 euro/100 kg in year 2007. after that unit value sharply decreased until 92,77 euro/100 issn 1822–8402 european integration studies. 2011. no 5 235 kg in year 2010. overall we can see (figures 7 and 8) that unit values of export and import increased very sharply during the years 2006 and 2007 and now they has returned to the level before these dramatic increases in value. as authors mentioned before, relative unit of value will be used as well to characterize quality competitiveness of latvia’s wood industry. relative unit values (ruv) of trade with sweden, united kingdom and germany are shown in figure 9. figure 9. latvia‘s relative unit value of trade with sweden, united kingdom and germany, unit value of export/unit value of import (authors, eurostat) as calculations show (figure 9), we can conclude that overall quality competitiveness of latvia’s wood industry is low with three trade partners: sweden, united kingdom and germany. in all years ruv is lower than 1 except year 2007 when latvia’s unit value of export to united kingdom exceeded unit value of import from united kingdom (ruv>1). it could be explained with some differences in prices but not quality, because unit value of export was 317,23 euro/100 kg and unit value of import was 268,18 euro/100 kg. from these results we can conclude that overall quality of exported wood products is lower than imported from sweden, united kingdom and germany. of course, we are looking at large product group and further research is needed to compare certain products in order to get better evidence about quality competitiveness. results also show the fl ow of the products. if latvia is exporting lower added value products, than sweden, united kingdom and germany are adding extra value and selling these goods further to other courtiers. conclusions quality competitiveness is diffi cult to measure for the very same reason as it is diffi cult to defi ne quality itself. if measuring quality on company level has quite long history with high degree of sophistication, measuring quality level and quality competitiveness of a country is still very debatable, since there are not very much research in this area. there were many attempts from different researchers to defi ne set of indicators to measure quality competitiveness. one of the universal indicators used to measure quality of exports is unit value of the products gross value of exports in euro divided by kilogram. the unit value in general depends on demand and prices, but specifi cally it refl ects changes in quality, shifts to higher product segments and to other value enhancing features (service component, design, and advertising). therefore, unit value is often applied as an indicator in attempts to measure quality and vertical product differentiation. like any comprehensive indicator, it has advantages and disadvantages therefore researchers have to be careful in setting the research limitations. calculations made by authors’ shows that overall quality of exported wood products is lower than imported from sweden, united kingdom and germany. although in year 2007 latvia’s quality competitiveness of wood industry was higher than united kingdom’s. further research is needed to compare certain products within product group “wood and articles of wood” in order to get better evidence about quality competitiveness of latvia’s wood industry. references abd-el-ra hman, k. 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(2004): how much restructuring did the transition countries experience? evidence from quality of their exports. william davidson institute working papers, university of michigan business school, 32 p. linder, s. (1961): an essay on trade and transformation, stockholm: almqvist & wiksell. martin, j., and v. orts (2001): vertical specialization and intra-industry trade: the role of factor endowments, weltwirtschaftliches archiv 121, 176 – 189. mora, d. (2002): the role of comparative advantage in trade within industries, weltwirtschaftliches archiv 138, 291 – 316. murphy, k. m., shleifer, a. (1997): quality and trade, journal of development economics, vol. 53, pp. 1-15. pillania, r. k. (2009): competitiveness and emerging markets, business strategy series. vol.10, issue 2, pp. 90-95. schwab, k. (2010) the global competitiveness report 2010-2011. – geneva, world economic forum, 513 p. porter, m. (1990): competitive advantage of the nations. – new york, free press, 857 p. porter, m. (2005): building the microeconomic foundations of prosperity: findings from the business competitiveness index. harvard university, harvard. reiljan, j., hinrikus, m. (2000): key issues in defining and analyzing the competitiveness of a country, tartu university press, tartu. the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 64 submitted 03/2016 accepted for publication 09/2016 european integration studies no. 10/ 2016 pp. 64–72 doi 10.5755/j01.eis.0.10.14633 © kaunas university of technology free movement of persons as the cause for problems to prevent threats to national security eis 10/2016 abstract free movement of persons as the cause for problems to prevent threats to national security virginijs keinis rīga stradiņš university, 16 dzirciema street, rīga, lv–1007, latvia http://dx.doi.org/10.5755/j01.eis.0.10.14633 immigration and free movement of persons has become one of the main questions on the agenda of se­ curity institutions all over europe. these aspects are now taken into consideration when drafting national security conceptions and prevention plans. experts are defining threats that arise specifically from this phenomena – free movement of persons. together with this, another problem is outlining – is the current instruments to limit free movement for the cause of national security enough to prevent certain security risks? in this paper author is researching the threats to national security caused by the free movement of persons and views the possibilities to limit these threats. the task of the research is to determine whether today we should understand free movement as it was understood previously and what are the current consequences of this phenomena, what new threats to national security it has caused and what could be done to eliminate these threats. in the preparation of the paper author uses number of scientific research methods. author applies ana­ lytical method by analysing available literature, laws and other legal documents. comparative method is used to compare different legal and practical studies. to a certain extent author uses statistical method by considering statistics of crime rates and performing expert interviews. the results of the research show that existing instruments available to limit free movement of persons for the sake of national security are not enough to prevent complex threats. europe’s expectations that immigration and free movement of persons are one of the core instrument to warm the economy have not been met. thus europe is flooded by immigrants that are subjects of threat to national security. hostile third countries are using existing situation for their advantage and challenge europe’s core values. current situation in the migration field, refugee crisis, lingering to solve immigration problems and create effective instruments to manage the immigration flows are the aspects that should be con­ sidered as a favour to hostile countries. solution in this situation could be rising capacities and intensifying counterespionage. widening the view on conventional migration issues and strengthening the cooperation could be more appropriate to manage identified threats. another way to manage alternating situation is to create new instruments to limit free movement of persons for the sake of national security and adjusting or creating common legal basis. keywords: free movement of persons, immigration, national security, refugees, threats to national security. 65 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 introduction immigration and free movement of persons has become one of the main questions on the agen­ da of security institutions all over europe. these aspects are now taken into consideration when drafting national security conceptions and prevention plans. experts are defining threats that arise specifically from this phenomena – free movement of persons. together with this, an­ other problem is outlining – is the current instruments to limit free movement for the cause of national security enough to prevent certain security risks? author is researching the threats to national security caused by the free movement of persons and views the possibilities to limit these threats. the task of the research is to determine whether today we should understand free movement as it was understood previously and what are the current consequences of this phe­ nomena, what new threats to national security it has caused and what could be done to eliminate these threats. author applies analytical method by analysing available literature, laws and other legal docu­ ments. comparative method is used to compare different legal and practical studies. statistical method is used to consider statistics of crime rates and perform expert interviews. due to field of experience author on looks this problem in the light of existing geopolitical situa­ tion with the stress to regional policy. the results of the research show that modern understand­ ing of the term free movement of individuals differs from classical comprehension. there are threats to national security that arise specifically from the immigration–related issues. existing instruments available to limit free movement of persons for the sake of national security are not enough to prevent complex threats. when looking at the term free movement of persons it should be understood that there is histori­ cal or classical and contemporary approach to this subject. historically europe refers to free movement of people as one of the founding principles of the european union. it gives all citizens of eu countries and their relatives the right to travel, live and work wherever they wish within the eu. european parliament (darren neville) defines freedom of movement and residence for persons in the eu as the cornerstone of union citizenship, which was established by the treaty of maastricht in 1992. the first provisions on the subject, in the 1957 treaty establishing the european economic community, covered the free movement of workers. the treaty of maastricht introduced the notion of eu citizenship to be enjoyed auto­ matically by every national of a member state. it is this eu citizenship that underpins the right of persons to move and reside freely within the territory of the member states. the lisbon treaty confirmed this right, which is also included in the general provisions on the area of freedom, security and justice.1 detailed analysis of historical section is not the aim of the paper and it will be left for another research. nevertheless there is another perspective to free movement of persons and to a certain degree we can agree with the senior analysts of european union institute for security studies who state that nowadays we cannot comprehend principle of free movement just to its classical dimen­ sion.2 if the scope of the term free movement would end with just european citizens than it would be simpler to monitor and control the movement of persons for the sake of national security. but even the directive 2004/38/ec that establishes the main principles of the free movement of per­ sons also widens the scope of persons who can enjoy the free movement. there it is stated that the right of all union citizens to move and reside freely within the territory of the member states 1 neville d., 2016, european parliament, free movement of persons, http://www.europarl.europa.eu/atyourservice/ en/displayftu.html?ftuid=ftu_2.1.3.html 2 parkes r., 2015, eu institute for security studies, 20 years on: rethinking schengen, http://www.iss.europa.eu/ uploads/media/brief_39_schengen.pdf evolution of the term free movement e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 66 should, if it is to be exercised under objective conditions of freedom and dignity, be also granted to their family members, irrespective of nationality. the definition of “family member” should also include the registered partner if the legislation of the host member state treats registered partnership as equivalent to marriage.3 another circumstance that makes us reconsider the classical term free movement is the schen­ gen agreement. the paper on schengen area and cooperation determines that the schengen area represents a territory where the free movement of persons is guaranteed. the signatory states to the agreement have abolished all internal borders in lieu of a single external border. within the schengen area common rules and procedures are applied with regard to visas for short stays, asylum requests and border controls. 4 common rules and procedures are applied to short term visas,5 asylum requests6 and border control.7 those mentioned are covered by eu regulation but there is one more aspect that also complements to the scope of travelers enjoying free movement within the schengen area. and those are long term visas or residence/work permits issued by member states, issuance of which are not regulated by specific common acts. taking into consideration above mentioned we can say that the concept of the free movement of persons has changed in meaning since its inception. one of the leading researchers of the uni­ versity of lapland (saara koikkalainen) uses term free mobility8 that could be more appropriate to describe the situation in modern europe. author considers that free movement or should we say free mobility is synonymous to control–less migration that has led europe to security threats it has not faced before on such large scale. refugee crisis illegal and legal migration, liberal politics and alternating situation predefines new security risks that arise from liberty to move freely that are now enjoyed by constantly growing number of third country individuals. europe’s expectations that immigration and free movement of persons will be one of the core instrument to warm the economy have not been met. thus europe is flooded by individuals that appear to be subjects of threat to national se­ curity. uncontrolled immigration has put new topics on the agenda of security institutions. due to the immigration crisis terrorism and counterespionage has gained new dimension. latvian national security conception stresses that since 2011 the geopolitical situation has dramatically changed and now it can be characterised as variable and uncontrollable. besides conventional threats caused by russia and instability in middle east it also mentions refugee crisis and necessity to systematically and methodically control issuance of residence permits to foreigners, finely evaluating the coherence between economic gain and national security.93456 immigration as a security threat has now become a topic within political circles. politicians across europe hustle to comment on those issues and gain political dividends by stressing the coherence between immigration and terrorism threat. for example, british politicians from the uk independence party (jonathan arnott) notes that the free movement of people across 3 directive 2004/38/ec of the european parliament and of the council of 29 april 2004, http://eur–lex.europa.eu/ lexuriserv/lexuriserv.do?uri=oj:l:2004:158:0077:0123:en:pdf 4 schengen agreement, http://eur–lex.europa.eu/legal–content/en/txt/?uri=uriserv:l33020 5 regulation (ec) no 810/2009 of the european parliament and of the council of 13 july 2009 estab­ lishing a community code on visas (visa code), http://eur–lex.europa.eu/lexuriserv/lexuriserv.do?uri=o­ j:l:2009:243:0001:0058:en:pdf 6 concil regulation (ec) no 343/2003 of 18 february 2003 establishing the criteria and mechanisms for determin­ ing the member state responsible for examining an asylum application lodged in one of the member states by a third– country national, http://eur–lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:l:2003:050:0001:0010:en:pdf consequential threats 67 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 europe is a “security risk” and refugee crisis provides terrorists with an opportunity to infiltrate western europe.10 the fact that immigration is taken for advantage by international terrorists is confirmed by security institutions throughout europe. the senior nato commander in europe (us gen philip breedlove) said that russia and syria are deliberately using migration as an aggressive strategy towards europe, they are “weaponising” migration to destabilise and undermine the continent. he also suggested that criminals, extremists and fighters were hiding in the flow of migrants.11 the head of the german domestic intelligence agency hans–georg maassen has urged refugees to help identify terrorist suspects and risks.12 this idea is also promoted by journalists and scientists.13 on the other hand such attitude causes social concussions and tension resulting in xenophobia, racism, hate crimes, etc. for example in germany the vast majority of the 1,610 crimes committed against refugees and refugee housing in 2015 is almost double to the figure identified in 2014, when 895 crimes of this type were recorded.14 however there is another aspect that should not be left uncovered – existing situation can be exploited by secret services of hostile third countries causing security threats that european countries have not faced on such extensive scale. there are already european countries that point out russia’s efforts to use europe’s liberal approach to migration to launch their covert operations on the european soil. for example swedish security service sapo in its 2014 annual report stated that russian intelligence services collected information on swe­ den’s defense policy, technologies and scientific research, economics and refugee policy. russian reconnaissance operations were aimed at swedish militaries, police officers and immigrants.15 several experts of the security field in the interviews confirmed that immigration is typical cover for spies and now in the times of migration confusion it is used most widely not only to gather intelligence but also to infiltrate “right persons” into “right countries”.16 current situa­ tion in the migration field leaves us with the possibility that an agents can be legalized in the italy and work in latvia or, for example, in lithuania. together with that diplomatic cover is still widely used in the baltic and scandinavian region.177891011121314151617 7 regulation (ec) no 562/2006 of the european parliament and of the council of 15 march 2006 establishing a community code on the rules governing the movement of persons across borders (schengen borders code), http:// eur–lex.europa.eu/legal–content/en/txt/?uri=celex:32006r0562 8 koikkalainen s., 2011, free movement in europe: past and present, http://www.migrationpolicy.org/article/free– movement–europe–past–and–present 9 par nacionālās drošības koncepcijas apstiprināšanu, latvijas vēstnesis 233 (5551), 27.11.2015, https://www.vest­ nesis.lv/op/2015/233.2 10 wearmouth r., 2015, paris attacks: free movement of people policy presents security risk to britain, says ukip, http://www.chroniclelive.co.uk/news/north–east–news/paris–attacks–free–movement–people–10448594 11 bbc, 2016, migrant crisis: russia and syria ‘weaponising’ migration, http://www.bbc.com/news/world–eu­ rope–35706238 12 reuters, 2015,informers needed, says german intelligence agency head maassen, http://www.dw.com/en/in­ formers–needed–says–german–intelligence–agency–head–maassen/a–18911013 13 kūrēns m, 2015, netālredzīga migrācijas politika un nesavienojamu civilizāciju sadursme (intervija ar prof. leonu taivānu), http://apollo.tvnet.lv/zinas/netalredziga–migracijas–politika–un–nesavienojamu–civilizaciju– sadursme/678347 14 the local.de, 2015, attacks on refugees double in a year: police, http://www.thelocal.de/20151215/attacks–on–ref­ ugees–double–in–a–year–police 15 swedish security service, 2015, security service yearbook 2014, http://www.sakerhetspolisen.se/en/swedish–se­ curity–service/about–us/current–events/news/2015–03–20–security–service–yearbook–2014.html 16 author‘s interwiev of two security field experts (identity of the sources can not be uncovered) 17 estonian security police kapo, 2014, annual report 2014, https://www.kapo.ee/en/content/annual–reviews.html e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 68 one of the conclusions of the research is that hostile third countries secret services gather infor­ mation on strategic fields of the european countries, meaning – perform classical espionage – and use it for their advantage and challenge europe’s core values. within the research it was estab­ lished that certain secret services are closely linked to our region and they directly execute the foreign policies of several hostile countries, destabilize the situation in the region, promote schism in the society and diversely contribute to ruin the ground basics of the european union. current situation in the migration field, refugee crisis, lingering to solve immigration problems and create effective instruments to manage the immigration flows are the aspects we can consider as a favour for these hostile countries. in the course of the research author comes to conclusion that appropriate restrictions to the free movement of persons could be the solution for european countries to limit the threats that now appear due to massive immigration flows. european countries should not only re­ think using classical instruments but also consider new ways to fight immigration problems. as the analysts at european institute for security studies state the world has now changed, and the eu finds it far harder to leverage free movement in order promote its core values. nevertheless, this novel international environment again requires an innovative response, rather than replicating at an eu level the classical attributes of a national model.18 another mistake europe can make instead of open–minded approach it can transform to policing society by solving problems with prosecution methods. there we can agree with professor of stockholm university (vanessa barker) that current refugee crisis in europe is a failure of political will and a moral failing to stand up for fellow human beings. the inability of member states to agree on a comprehensive plan of action exposes deep divisions within the eu not only about immigration policy but about core values within the european union. the principles of free movement and human rights, principles that have been at the heart of european integration and self–identity, are severely strained as some member states put up razor fences, introduce temporary border checks in free movement zones, dissuade refugees from coming, or in other ways deny access to the eu. this retrenchment stems in part from a more regressive stance towards migrants that has been developing across the eu for a number of years and identified as crimmigration, the intermeshing of crime control with mi­ gration control.19 nevertheless, considering the above, it is clear that limiting the free movement still will be one of the widely used instruments. the ground act that determines free movement of per­ sons also include limitations to it defining that one of the core freedoms in europe can be limited for the sake of security. directive 2004/38/ec states that expulsion of union citizens and their family members on grounds of public policy or public security is a measure that can seriously harm persons therefor scope for such measures should be limited in accordance with the principle of proportionality to take account of the degree of integration of the persons concerned, the length of their residence in the host member state, their age, state of health, family and economic situation and the links with their country of origin.20 author considers that proportionality should be the main principle when evaluating limitation to free movement but nevertheless security of citizens should prevail the interests of a single person being the subject to limitation of free movement. this evaluation is now solemnly left with national experts in member states. led by the common spirit of eu, author considers that the practical (physical) limitation of free movement should be left to be executed by experts in member states but general pro­ instruments to limit free movement 69 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 visions must be given by european union. eurobarometer poll also shows that as the immi­ gration and terrorism have become eu citizens’ fastest–growing concerns, average of 66% of respondents said that more decisions on migration should be taken at eu level, rather than by national governments alone.21 181920212223 another question that should be on looked is schengen agreement. will abolishment of the agreement solve current problems or it will become one more manifestations of lost values of eu? there are numerous announcements that eu governments have placed a large ques­ tion mark over the future of europe’s passport–free travel zone, signaling an extension of national border controls within the 26–country schengen area in response to the immigration crisis. prominent ministers openly ask to extend and prolong the border controls launched due to necessity or even predict the collapse of schengen.22 during the research author came to conclusion that in the terms of proportionally simple collapse of schengen would solve the immigration crisis and its consequential threats to na­ tional security but at the same time this would leave disruptive influence on eu. much more appropriate would be to concentrate on common values and work to achieve fluent coopera­ tion and find new instrument to pro–actively react on modern security situation. europe will be as strong as the weakest element in its security system. that determines timely and precise exchange of information as the core component to successfully eliminate the risks. on the one hand it is approved by member states that better cooperation would complement the security situation but practical aspects to this are not that simple. for example, the paris attacks appeared to show that jihadists could seemingly move freely across borders while the information required to stop them did not. at eu summit, leaders promised to improve the fight against terrorism and to improve co–ordination. security and intelligence services are intrinsically secret organisations closely allied to na­ tional power and priorities. sharing data with all the other countries in the eu is a far more ambitious goal. many security services will fear that their secrets will not always be kept when so many are involved. in some countries, security services are also less well–resourced and less experienced. poor border controls, unsystematic approach to watch listing individu­ als and flow of weapons are key points deepening the problem.23 author concludes that rising capacities and intensifying counterespionage would be conven­ tional answer to modern security threats. but widening the view on conventional migration issues, strengthening the cooperation and finding new common solutions and instruments to legitimately limit free movement of persons could be the better answer to manage this constantly evolving threat. 18 parkes r., 2015, eu institute for security studies, 20 years on: rethinking schengen, http://www.iss.europa.eu/up­ loads/media/brief_39_schengen.pdf 19 barker v., 2016, reflection on dutch border practices, https://www.law.ox.ac.uk/research–subject–groups/centre– criminology/centreborder–criminologies/blog/2016/02/reflections–dutch 20 directive 2004/38/ec of the european parliament and of the council of 29 april 2004, http://eur–lex.europa.eu/ lexuriserv/lexuriserv.do?uri=oj:l:2004:158:0077:0123:en:pdf 21 european paliamnet press release, 2015, migration challenges are best tackled at eu level, says eurobarometer poll, http://www.europarl.europa.eu/news/lv/news–room/20151015ipr97847/migration–challenges–are–best–tackled– at–eu–level–says–eurobarometer–poll 22 the guardian, 2016, eu border controls: schengen scheme on the brink after amsterdam talks, http://www. theguardian.com/world/2016/jan/25/refugee–crisis–schengen–area–scheme–brink–amsterdam–talks 23 corera g., bbc, 2016, why intelligence sharing still has a long way to go, http://www.bbc.com/news/world–eu­ rope–35154640 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 70 _ term free movement of persons has historical or classical and contemporary approach to this subject. typically we use it to speak of migration of eu citizens, but current situation determines that the scope of travelers is much larger. _ common directives and schengen agreement are main sources complementing to the scope of travelers enjoying the freedom of movement within europe beginning with family members regardless their citizenship and ending with short term visa applicants and ref­ ugees moving within europe. author considers that free movement is on the verge to be compared with uncontrolled migration. _ term free movement has gained new dimensions with the evolution of european union. circumstances under which this term originated has changed. the creators of the idea of free movement did not envisage current situation with massive immigration flows, terror­ ism threats and invasion of completely different civilisation with distinguished culture and values. _ it is clear that existing situation requires the change of attitude towards the traditional con­ cept of free movement. it is necessary to create mechanism that allows us to react on com­ ing threats but at the same time maintain european core values and freedoms. _ refugee crisis illegal and legal migration, liberal politics and alternating situation predefines new security risks that arise from liberty to move freely that are now enjoyed by constantly growing number of third country individuals. _ expectations that immigration and free movement of persons will be one of the core instru­ ment to warm the economy have not been met. instead immigration has become new topic on the agenda of security institutions. _ immigration is taken for advantage by international terrorists and hostile third countries that expand their covert operations in europe. _ hostile third countries secret services gather information on strategic fields of the european countries and use it for their advantage and challenge europe’s core values. _ current situation in the migration field, refugee crisis, lingering to solve immigration prob­ lems and create effective instruments to manage the immigration flows are the aspects that should be considered as a favour for hostile countries. _ appropriate restrictions to the free movement of persons could be the solution for european countries to limit the threats that now appear due to massive immigration flows. _ when reacting on current situation the problem is that national interests still prevail com­ mon interests of the union. member states struggle to understand each other and each countries regional policies. instead of expanding the view and working together eu fails to embody it core values with that giving advantages to euro–sceptics and russia. _ proportionality should be the main principle when evaluating limitation to free movement. security of citizens should prevail the interests of a single person being the subject to lim­ itation of free movement. _ practical (physical) limitation of free movement should be left to be executed by experts in member states but general provisions must be given by european union. _ simple collapse of schengen would solve the immigration crisis and its consequential threats to national security but at the same time this would leave disruptive influence on eu. much more appropriate would be to concentrate on common values and work to achieve flu­ ent cooperation and find new instrument to pro–actively react on modern security situation. conclusions 71 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 _ cooperation between services responsible for national security is cornerstone of common se­ curity in europe. as there are no limitations to flow of individuals there should not be limita­ tions to the flow of information performed in mutual trust and support. _ rising capacities and intensifying counterespionage would be conventional answer to modern security threats. widening the view on conventional migration issues, strengthening the coop­ eration and finding new common solutions and instruments to legitimately limit free move­ ment of persons could be the better answer to manage this constantly evolving threat. _ existing mechanisms to limit free movement of individuals (expulsions, deportations, etc.) can be complemented with new instruments. for example, notice about possible expulsion. such measure would not seriously harm person but at the same time will distinctly show that eu­ rope’s hospitality should not be taken for granted. _ europe should rethink current integration policy. it should be understood that we are facing different civilisation with different values and attitudes. guests entering europe have other understanding of assistance and relief. europe should clearly outline that security it provides is not our responsibility but more of a hospitality. immigrants should be noticed that european freedoms and value come together with european responsibilities and obligations. integration policy should be proactive instead of reactive meaning that immigrants already before coming to europe should understand that europe is open but they themselves should be responsible for peaceful and prosperous living here. _ given right instruments for the socialisation of immigrants countries could follow the integra­ tion process of refugees tracing their progress as socially responsible beings. as an opposite it is seen currently when countries fail to find appropriate way to integrate immigrants. that leads to formation of conclaves that cannot be accessed even by law enforcement institutions. regulation (ec) no 810/2009 of the european parliament and of the council of 13 july 2009 establishing a community code on visas (visa code), http://eur–lex.europa.eu/lexuriserv/lex­ uriserv.do?uri=oj:l:2009:243:0001:0058:en:pdf regulation (ec) no 562/2006 of the european parliament and of the council of 15 march 2006 establishing a community code on the rules governing the movement of persons across bor­ ders (schengen borders code), http://eur–lex. europa.eu/legal–content/en/txt/?uri=celex­ :32006r0562 council regulation (ec) no 343/2003 of 18 febru­ ary 2003 establishing the criteria and mechanisms for determining the member state responsible for examining an asylum application lodged in one of the member states by a third–country national, http://eur–lex.europa.eu/lexuriserv/lexuriserv. do?uri=oj:l:2003:050:0001:0010:en:pdf directive 2004/38/ec of the european parliament and of the council of 29 april 2004, http://eur–lex. e u r o p a . e u / l e x u r i s e r v / l e x u r i s e r v . d o ? u r i = o ­ j:l:2004:158:0077:0123:en:pdf schengen agreement, http://eur–lex.europa.eu/ legal–content/en/txt/?uri=uriserv:l33020 european parliament press release, 2015, migra­ tion challenges are best tackled at eu level, says eurobarometer poll, http://www.europarl.europa. eu/news/lv/news–room/20151015ipr97847/mi­ gration–challenges–are–best–tackled–at–eu–lev­ el–says–eurobarometer–poll par nacionālās drošības koncepcijas apstiprināša­ nu, latvijas vēstnesis 233 (5551), 27.11.2015, https://www.vestnesis.lv/op/2015/233.2 estonian security police kapo, 2014, annual re­ port 2014, https://www.kapo.ee/en/content/annu­ al–reviews.html swedish security service, 2015, security service yearbook 2014, http://www.sakerhetspolisen.se/ en/swedish–security–service/about–us/current– events/news/2015–03–20–security–service–year­ book–2014.html barker v., 2016, reflection on dutch border prac­ tices, https://www.law.ox.ac.uk/research–subject– groups/centre–criminology/centreborder–criminol­ ogies/blog/2016/02/reflections–dutch references e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 72 koikkalainen s., 2011, free movement in europe: past and present, http://www.migrationpolicy.org/ article/free–movement–europe–past–and–pre­ sent neville d., 2016, european parliament, free movement of persons, http://www.europarl.eu­ ropa.eu/atyourservice/en/displayftu.html?ftu­ id=ftu_2.1.3.html parkes r., 2015, eu institute for security studies, 20 years on: rethinking schengen, http://www.iss. europa.eu/uploads/media/brief_39_schengen.pdf kūrēns m, 2015, netālredzīga migrācijas politika un nesavienojamu civilizāciju sadursme (intervija ar prof.leonu taivānu), http://apollo.tvnet.lv/zin­ as/netalredziga–migracijas–politika–un–nesavi­ enojamu–civilizaciju–sadursme/678347 corera g., bbc, 2016, why intelligence sharing still has a long way to go, http://www.bbc.com/ news/world–europe–35154640 wearmouth r., 2015, paris attacks: free move­ ment of people policy presents security risk to britain, says ukip, http://www.chroniclelive.co.uk/ news/north–east–news/paris–attacks–free–move­ ment–people–10448594 bbc, 2016, migrant crisis: russia and syria ‘wea­ ponising’ migration, http://www.bbc.com/news/ world–europe–35706238 reuters, 2015,informers needed, says german intelligence agency head maassen, http://www. dw.com/en/informers–needed–says–german–in­ telligence–agency–head–maassen/a–18911013 the guardian, 2016, eu border controls: schengen scheme on the brink after amsterdam talks, http:// www.theguardian.com/world/2016/jan/25/refu­ gee–crisis–schengen–area–scheme–brink–am­ sterdam–talks the local.de, 2015, attacks on refugees double in a year: police, http://www.thelocal.de/20151215/at­ tacks–on–refugees–double–in–a–year–police about the author virginijs keinis mg.iur. (doctoral law student) rīga stradiņš university fields of research interests law studies, politics, security policies address 16 dzirciema street, rīga, lv–1007, latvia e–mail: virginijs.keinis@gmail.com european integration studies 2011.indd 45 issn 1822–8402 european integration studies. 2011. no 5 europe of knowledge: the context of global transformations borisas melnikas vilnius gediminas technical university abstract the complexity of global transformations and the knowledge based society creation processes, as well as the processes of the european integration is analyzed in the article. the complex analysis and the multidimensional evaluation of the processes of global transformations and of the knowledge based society and knowledge economy creation in the european union as an perspective theoretical approach in research on societal changes in the context of globalization is defined and described in the article. the variety of global transformations is described, the main problems and processes of the creation of knowledge based society and knowledge economy in the context of globalization are identified and studied. the processes of the creation of knowledge based society and knowledge economy are defined as the processes belonging to the category of global transformation processes: it means that the complex interaction between the general processes of global transformations and the processes of the creation of knowledge based society and knowledge economy is a very important factor of the positive changes in the societal life in the context of globalization and european integration. the main idea of the complex analysis and of the evaluation of the factors of interaction between the general processes of global transformations and the processes of knowledge based society and knowledge economy creation is that all these processes as a common global transformations are defined and analyzed, and the new challenges for creation of knowledge based society and knowledge economy in the context of globalization are identified. the main regularities of the global transformations are identified, their impact on real processes of knowledge based society and knowledge economy creation in the european union is characterized. keywords: global transformation, european integration, knowledge based society, knowledge economy, creation processes, regularities. introduction the creation of the knowledge based society and knowledge economy is perceived as one of the most important priorities of the modern society and its lifestyle development, as well as of social, economic, political development, science and technological progress, especially – in the european union. the creation of the knowledge based society and knowledge economy is assessed as the most important assumption and the main way to solve most of the social, economic, technological, even security and defense problems worldwide as well as in various countries or regions in general and in various countries or regions in the space of the european union. the processes of the creation of the knowledge based society and knowledge economy expresses the essential qualitative changes in all the areas of social, economic, political life, science and technological progress, and interaction with nature. the processes of the creation of the knowledge based society and knowledge economy deeply influences the content of globalization processes and the effect on a situation in the modern world. it may be noted that the processes of the creation of the knowledge based society and knowledge economy, in general, could be perceived and assessed as an essential worldwide transformation, which determines a number of breakings and sallies, important to all the humankind. the processes of the creation of knowledge based society and knowledge economy must be analyzed in complexity. in general, the processes of the creation of knowledge based society and knowledge economy could be defined as the processes belonging to the category of global processes: it also means that the complex interaction between the processes of global changes and the processes of the creation of knowledge based society and knowledge economy is a very important factor of the positive development in the societal life in the general context of globalization. there are very different theories and theoretical models of knowledge based society and knowledge economy creation processes, as well as different theoretical models of these processes. problem is that the knowledge based society and knowledge economy creation processes and the processes of global transformations are usually analyzed separately: the factor of the complex interaction between different processes of global transformations and the processes of the creation of knowledge based society and knowledge economy is often ignored. it means, that a complex analysis of the processes of both types, as well as an evaluation of the factors of interaction between these processes could be defined as an perspective way to solve some actual theoretical and practical problems in the area of knowledge based society and knowledge economy, especially in the context of globalization. the main idea of the complex analysis and of the evaluation of the factors of interaction between the different processes of global transformations and the processes of knowledge based society and knowledge economy creation is that all these processes as a general global transformations are defined and analyzed, and the new challenges for creation of knowledge based society and knowledge economy in the issn 1822–8402 european integration studies. 2011. no 5 46 context of globalization are identified. this idea is described in details in the article. the object of this article is the processes of global transformations, especially the creation of knowledge based society and knowledge economy; the main focus is put on the interaction between the processes of knowledge based society and knowledge economy creation and of the general processes of global transformations in general context of globalization. tasks of the article: to explore the new definitions and to systematize the general processes of global transformations; to describe the main global transformations and to identified their role; to describe the knowledge based society and knowledge economy creation processes in the context of globalization; to explore the main challenges for societal development in the context of global transformations, including – in the context of knowledge based society and knowledge economy creation processes. research methodology – theoretical study, including comparative analysis of the theoretical works, and complex analysis of long-term tendencies typical for political, social and economic changes and development processes in the european union. the global transformations and the knowledge based society creation processes: complexity and idea of the multidimensional evaluation the processes of the development and changes in the contemporary society are very complicated and controversial. a lot of new phenomena and circumstances show up under the contemporary conditions of social, economic, political development and progress of science and technologies. in order to understand and react to them, it is necessary to see into so-called problems of the complexity of the development processes and changes of different types and nature and to strive that these problems were solved adequately with the new challenges in the life of the society. besides, the importance and significance of the problems of the complexity of development processes and changes are indicated by the fact that the understanding and salvation of these problems is one of the main priorities implemented in the contemporary practice of scientific research. the complexity of the global transformations and the knowledge based society creation processes could be defined as an especially important case: the importance and significance of this case are indicated by the dominance and prevalence of the processes and problems of globalization, as well as processes and problems of knowledge based society and knowledge economy creation in the context of the changes, development processes and problems of the contemporary society and its life in general, especially – in the european cultural, social, economic and political space. . modern attitudes to the complexity of the global transformations and the knowledge based society creation processes, to the concept of complexity of these processes, as well as to the understanding and salvation of the problems of knowledge based society and knowledge economy creation processes in the context of globalization can be characterized by extremely wide variety. such variety determines the fact that the phenomena, problems and topicalities can be analyzed by: • including spaces of different extent (various regions, countries or their groups, the world), as well as including different systems (various organizations, their groups, other systems), • involving different combinations of processes, phenomena, factors and circumstances of social, economic, political development, and progress of science and technologies into the unit of developmental processes, • giving preference to different social, economic, ecological, technological, political as well as other manifestations, consequences or circumstances of the knowledge based society and knowledge economy creation processes in the context of globalization, • regarding the management, administration and governance features of various processes of development and progress as well as the multiplicity of different subjects and their interests that take place in management , administration and governance processes. the research of the problems of complexity of the global transformations and the knowledge based society creation processes is multiand interdisciplinary by nature, must inevitably have attitudes to social and economic development, progress in technologies, environmental protection and changes in the modern society and its life, which reflect various areas of science, integrated in them. an important aspect of the research on complexity of the global transformations and the knowledge based society creation processes is a regional one, since various social, economic, technological, ecological factors are assessed in the extent of variously identified regions, by trying to reveal the interaction of processes and changes of different nature in various regional systems herewith. this aspect could be defined as especially important in the conditions of european integration and enlargement of the european union. the problems of knowledge based society and knowledge economy creation, including in the context of globalization, are analyzed through various aspects in a number of scientific works. particularly important are studies of knowledge based society and knowledge economy creation processes in the global space, as well as in european union and in different countries ( boldrin, canova (2001); cohendet, stojak (2005); currie (2000); david, foray (2002); daugeliene (2007); dicken (1998); ein-dor, myers, raman, (2004); farnsworth (2005); garrett, mitchell (2001); goeransson, soederberg (2005); grace, butler (2005); hayo, seifert (2003); hunt (2000); huseman, godman (1999); leydesdorff (2004); mcnally (1999); melnikas (1990, 2002, 2008); melnikas, reichelt (2004); merrill, sedgwick (1997); munasinghe, sunkel, de miguel (2001); olsen, osmundsen (2003); parker (1998); perraton (2001); redding, venables (2004); sangmon (2002); steinmueller (2002). traditional attitudes to the knowledge based society and knowledge economy creation emphasize the technological priorities, the new values, the new models of lifestyle as well as necessity to ensure the internecine compatibility and compensation of developmental processes and changes that have different nature. the modern concepts of the knowledge based society and knowledge economy as well as the concepts of the knowledge based society and knowledge economy creation processes are very multiple (castells (2000-2004); dang, umemoto (2009); fischer, gran, hacker, jakobi, petzold, pusch, steinberg issn 1822–8402 european integration studies. 2011. no 5 47 (2010); steinmueller (2002); melnikas (1990-2010)). therefore, it is obvious, that the concepts of the knowledge based society and of the knowledge economy may be defined and described differently. at the same time it can be seen, that most of the scientific works on knowledge based society and knowledge economy creation does not pay sufficient attention to the impact of the knowledge based society and knowledge economy creation processes on the development processes in the global space as well as in the various sectors of societal life. on the other side, most of the scientific works on knowledge based society and knowledge economy creation processes are not directly oriented to the solving of actual problems of economic, social, political, technological, ecological development, especially economic, social, political, technological, ecological sustainability and sustainable development in general (castells (2000-2004); friedman (2006, 2009); melnikas (2010)). in general, contemporary practice of scientific research on problems of knowledge based society and knowledge economy creation is characterized by the prevalence of the specific studies and research works, which are oriented to the separately research on various specific topics of knowledge based society and knowledge economy creation problems and processes: various aspects of the complexity of the processes of the creation of knowledge based society and knowledge economy in the context of globalization have not been investigated. despite the fact that traditional attitudes to the knowledge based society and knowledge economy creation in the context of globalization are characterized by a wide variety, extensive coverage of processes and problems and considerable possibilities of practical application, it is still possible to claim that nowadays there appear many new circumstances, conditions and phenomena, the impact and role of which insufficiently reflect in most of the traditional attitudes. for this reason, traditional concepts of the processes and problems of the creation of knowledge based society and knowledge economy become more and more inadequate to the modern needs and challenges and require essential supplements and specifications. it must be noted, that modern attitudes to the creation of knowledge based society and knowledge economy should deeper reflect the role and influence of new type transformation processes that are taking place in the world now. the most important role and influence are of those transformations, which reflect the global spread of values and ideas of the knowledge based society and of the sustainability of new knowledge creation processes : namely the creation of knowledge based society and the spread of its values and ideas, as well as the spread of the ideas and values of sustainability of new knowledge creation processes in the global environment condition can activate and stimulate the new transformations in the modern society and its life, as well as help to understand the necessity to react to the needs of the creation of knowledge based society and knowledge economy and solve new problems in a new way. it is possible to claim that the essential priority of the actualization of the traditional concepts of knowledge based society and knowledge economy creation and development processes is that the modern concept should be oriented to the complexity and sustainability of social, economic, technological, ecological development processes and must reflect both the global transformation processes in general and those global transformation processes, which reflect the creation of knowledge based society, knowledge economy and the spread of values and ideas of the sustainability of new knowledge creation processes. when actualizing the concepts of the knowledge based society and knowledge economy creation and considering the circumstances of the global transformations, it is purposeful to refer to certain theoretical attitudes, which could be used when analyzing various phenomena of the knowledge based society and knowledge economy creation processes. the idea of multidimensional evaluation of the processes of global transformations as well as processes of knowledge based society and knowledge economy creation, and the so-called “power” concept should be distinguished among those theoretical attitudes: their ideas and application possibilities are revealed in various studies (melnikas (1990, 2002, 2007, 2010)). the global transformations as a general context of the processes of knowledge based society creation in the european union situation in the space of european union as well as in the contemporary world in general is more and more conditioned by multiple globalization processes, which appear in all areas of political social, economic life, and in all sectors of culture as well as of science and technological progress. globalization processes proximately influence society’s lifestyle and the quality of life, as well as the changes, which take place in all areas of life (ravenhil (2008); friedman (2006, 2009); appiah (2007); castells (2000-2004); chossudovsky (2003); melnikas (2002)). besides, the perception and assessment of the meaning of globalization processes regarding the content and singleness of changes in the world are considered a very important assumption to scientifically cognize and adequately analyze the nature of globalization itself: it is obvious, that deep and complex cognition and analysis of globalization processes are possible only in those cases, when globalization processes are treated as changes, which take place in a global extent, and as global environment of such changes. relation of the conception of globalization processes to global changes and their environment allows speculating that the so-called processes of global transformations are considered exceptionally significant among globalization processes. the reason for such speculation is the fact, that the essence of transformation processes (or, simply, transformations) is qualitative changes, which determine the creation of new systems: globalization processes namely express the world’s qualitative changes; therefore, the transformation processes are treated as exceptionally important and significant in the general whole of globalization processes. global transformation processes are characterized by a wide variety and may be identified and classified according to various features. the following features may be treated as the most important ones among the features, which should be taken into consideration when identifying and classifying the processes of global transformations: • features, which characterize natural and climate conditions, as well as their influence on various global issn 1822–8402 european integration studies. 2011. no 5 48 changes and situation, • features, which characterize human resources, their potential, change of its structure, as well as global role of human resources, • features, which characterize the society, its development, structure, change dynamics, as well as features, which help to describe various types and models of the society itself and its organization, and global spread and spread dynamics of these types and models, • features, which characterize global variety and spread of cultures, mentalities, value systems, models of lifestyle, and social behavior stereotypes, • features, which characterize the processes of social, political, economic development, as well as science and technological progress, the impact and consequences of these processes, which appear or may appear globally. the above-mentioned features, as a unit, as well as various their combinations allow universally and complexly describing the modern processes of global transformations and their variety. it is obvious, that regarding the complex cognition of global transformations, other features, characterizing such transformations may appear. the variety of global transformations is also shown by the fact that global transformations may be identified, assessed and analyzed by two different approaches: • geographically regional approach, when global transformations, their expression or their impacts on the society and its life are assesses and analyzed according to a country, region, continent or other geographically or regionally identified system, • sectoral approach, when global transformations, their expression or their impacts on the society and its life are assessed and analyzed by distinguishing certain sectors, out of the whole of global transformations, which are identified by regarding the content, character or forms of expression of global transformations themselves, and by assessing and analyzing the global transformations according to various sectors (besides, various sectors may be identified by highlighting multiple features, typical of the global transformations themselves). moreover, the variety of global transformations shows that global transformations, as a unit, are exceptionally complicated area, which requires scientific cognition and research. it is possible to claim, that the underlying aim of the research in this area is to assess and foresee possible impacts of global transformations on the society, its development, its life, as well as to make assumptions for purposeful influence and management of the society development processes. the impacts of global transformations on the modern society in general and on the changes in its life, development and progress are multiple, complicated and even contradictory. several circumstances determine the multiplicity and complication of the impact of global transformations on the society and changes in its life. firstly, the global transformations themselves are characterized by a variety of typical features, which inevitably conditions the multiplicity and complication of these transformations and their impact. secondly, global transformations, as a unit, may be identified as composing different geographically regional or sectoral systems: the variety of different geographically regional or sectoral systems reflects the multiplicity and complication of the impact of global transformations on the society and changes in its life. thirdly, controversial tendencies, when certain development, progress and change processes evoke positively and negatively assessed results, inevitably appear under the conditions of the variety, multiplicity and complication of the global transformations and their impact on the society and changes in its life. global transformations, which express the changes of natural and climate conditions, are very significant because these transformations reflect new challenges and needs to solve multiple ecological problems, radically reduce environmental pollution, save limited natural resources and seek for new alternatives for the use if these resources, as well as implement the means for the prevention of natural disasters and the reduction and elimination of their results (friedman (2009)). the significance of global transformations, which express the changes of natural and climate conditions, is shown by objectively highlighted influences to implement qualitatively new principles and standards of the development and management of various eco-systems globally. essential changes in the modern society and its life are inevitably determined by the creation, spread and implementation of such principles and standards (melnikas (2002, 2010)). global transformations, which express the changes of the potential of human resources and its structure, are especially significant due to two essential reasons. firstly, these global transformations reflect the changes of human resource potential and their influence on the change of the modern society and its lifestyle. secondly, these global transformations reflect the efficiency and usefulness of various impacts on the potential of human resources and its change. global transformations, which express the changes of the potential of human resources and its structure may be perceived and assessed as the ones, which reflect and influence demographic situation and its changes globally, in separate continents, countries or regions, among different social groups and layers, as well as in the spread areas of different ethnic, confessional, cultural or other mentality groups, which determine the impacts of demographic situations and their changes on the developing economical, social, political, ecological or other situation in the world, in separate continents, countries or regions, determine possibilities and assumptions that new threats, dangers or problems, which will be caused by the changes in the demographic situation, will inevitably appear in the world, in separate continents, countries or regions, which show the variety of reasons, why the structure of human potential and demographic situation change, as well as the variety of possibilities to influence the changes of demographic situation. the significance of global transformations, which express the changes of the potential of human resources and its structure, is shown by objectively appearing needs of the world, separate continents, countries and regions to implement newly perceived humanistic orientations, which reflect an increasing priority of natural human rights and freedoms, as well as complexly treated pursuit to improve the life quality: namely the perception, highlighting and implementation of the importance of humanistic orientations must be treated as the basis to react to the global transformations expressing the potential of human resources and the change of its structure issn 1822–8402 european integration studies. 2011. no 5 49 (mcnally (1999)). global transformations, which express changes typical for the modern society, its structure and organization, are very significant for several essential reasons. firstly, these global transformations reflect quite controversial processes, happening in the world, when assimilation and variety increase tendencies are typical of the change of society structures in different countries and regions. secondly, these global transformations reflect the tendencies of the convergence of various society organization forms, including the tendency, the essence of which is convergence, multiple integration and even assimilation of a country’s models and types, typical of a modern country, as the highest form of the society organization. thirdly, these global transformations reflect very significant changes, which are typical of the role, activity and influence of modern countries, various international organizations, as well as international business subjects and other organizations, movements or formations. fourthly, these global transformations reflect new type threats, dangers and risks, as well as new type possibilities when developing multiple progresses, which arise or appear under the conditions of change of modern society structures and its organization forms. global transformations, which express changes typical for the modern society, its structure and organization, may be perceived and assessed as the ones, which: • determine the changes of powers and function structures, typical of modern countries, which reflect a general tendency, when the role of a state influencing and affecting the situation in various areas of social, economic, political development as well as science and technological progress, changes in essence. (the changes of the role of a state may be expressed in two ways: the first one is that a modern state gains new powers and takes up new functions; and the second – that, in the areas of traditional powers expression and implementation of traditional functions, the role of a state is more determined by its cooperation with various international and non-governmental organizations, with various social movements, various organizations, functioning in business and public sectors, and other subjects, most importantly – the subjects of international business, their networks and other formations), • determine essential changes, typical of the activity and role of formal and informal international organizations and other formations, especially – for the activity and role of international inter-state organizations and international economical and business organizations: under contemporary conditions, namely international organizations and other formations of various subjects perform various functions and gain more and more powers to influence and affect a situation and development processes in separate countries or regions as well as internationally, • influence essential changes in the modern management systems of the society development processes, including changes of democracy conception, and changes implementing democracy values and principles in a real management and self-government practice (besides, the changes of democracy and its values and principles naturally determine needs for change in various management system chains of the modern society development processes), • determine creation and activity activation, variety increase and influence growth of various nongovernmental organizations, movements and informal structures in the world, separate countries or regions: an appropriate tendency reflects manifestations of new society activeness forms as well as the increase of various interest groups’ role and significance, • determine the fact, that in the future there is going to be new type interaction between various subjects of activity and management, which operate internationally (states, various their organizations, other international organizations, various international business subjects and their formations), as well as regionally (various institutions of public administration, business subjects, international and local organizations, other subjects): it must be noted, that new type interaction appears and may appear in various forms of network, • determine the fact, that there is going to be new type interaction between an individual and various organizations locally, regionally, in countries or internationally, and such interaction is gaining a bigger role and is becoming more and more intensive: under contemporary conditions individuals are becoming significant subjects of the society development processes, who are actively acting the globalization environment. the significance of global transformations, which express the change of modern society structures and is organization forms, is shown by objectively appearing needs to adequately react to the changes of organization forms, typical to the modern society, as well as changes in the management of the society development processes and changes of the democracy and the conception of its value and principles as well as the results of such conception change. it must be emphasized, that the significance of the above-mentioned global transformations is also shown by the objectively appearing needs to ensure the consolidation of humanistic and democratic values when globalization processes are becoming more and more intense, when the mobility of individuals, various social groups and layers, as well as organizations is increasing in various forms, and when new possibilities to develop multiple interaction among various activity and management subjects is increasing. the global transformations, which express the changes typical for the modern society, its structure and organization, as well as the changes of the potential of human resources and its structure, could be defined as a global context of the changes of the potential of human resources and of the various organizational changes in all spheres and sectors of the contemporary society and its life. global transformations, which express the changes of cultures, mentalities, value systems, social behavior stereotypes, are very important because these transformations proximately affect ideals, expectations, ideological attitudes, assessment criteria as well as lifestyle models and underlying development trends, which are entrenched in the society and its life. it is obvious, that global transformations, which express the changes of cultures, mentalities, value systems, issn 1822–8402 european integration studies. 2011. no 5 50 social behavior stereotypes are also important because these transformations particularly reflect the manifestations and tendencies for change of the society’s psychological state, morale, ethnic and esthetic attitudes, spirituality, innovations and creativity, inertness and conservatism, tolerance and adaptation to the environment abilities. global transformations, which express the changes of cultures, mentalities, value systems, social behavior stereotypes, may be perceived and assessed as the ones, which: • determine the activation of spread processes and variety increase of different cultures, mentalities, value systems, social behavior stereotypes, as well as their interaction and convergence tendencies: the expression of such tendencies reflects inevitable creation and development processes of qualitatively new cultures, mentalities, value systems, social behavior stereotypes, as well as their spread areas in separate continents, countries or regions, as well as internationally in general, • determine the fact, that historically “alien” cultures intensively “penetrate” into historically created traditional concentration spaces of certain ethnic, confessional or other cultures, and that this “penetration” causes ambivalent consequences: they create preconditions for intensive connection of various cultures and creation of qualitatively new cultures, as well as they create preconditions for the expression of new conflicts, threats and dangers, which could be determined or encouraged by the increasing variety of cultures and too great inadequacy of different cultures, • encourage the creation of preconditions for the expression of multiple synergetic effects, which may determine the activation and development of innovations which include all areas of life, as well as the appearance of new risks, threats and dangers, • determine inevitable changes in those systems of criteria and dimensions, on the basis of which it may be possible to react to the natural change of cultures, mentalities and other spaces, including the ones, on the basis of which it may be possible to “structuralize” various world’s spaces (especially – to identify the spread areas of various cultures, interest or influence spheres of various countries and their groups, various markets). the changes of criteria and dimension systems not only determines the changes in the cognition of the modern world and the establishment and identification areas of various “cause-effect” connections, but also determine essential changes when creating, adapting and implementing means used by the society and meant for single-minded reaction to the change of cultures, mentalities, value systems and social behavior stereotypes. the significance of global transformations, which express the changes of cultures, mentalities, value systems, social behavior stereotypes, is shown by the emphatic needs to adequately react to the changes of cultures, mentalities, value systems, social behavior stereotypes and their spread areas, to the outcomes of changes, which include all the areas of the modern society life, as well as to the fact, that these changes influence the change of the society structures and its lifestyle models. it must be noted, that the significance of these global transformations is also shown by the fact, that the change of cultures, mentalities, value systems, social behavior stereotypes highly influences society’s tendencies to initiate and tolerate changes in various areas of its life (melnikas (2002)). global transformations, which express changes in various areas of social, economic, political development, science and technological progress, are extremely significant due to two reasons. firstly, these transformations determine long-term qualitative changes and long-term development tendencies, which inevitably appear and will appear in all areas of the society, its life and development globally, as well as in separate countries or regions. secondly, these transformations determine the multi-channel influences and “cause-effect’ connections, which reflect general interaction phenomena, when changes in some areas of the society life and development proximately influence changes in other areas of the society life and development. the general interaction phenomena shows, that these global transformations reflect multiple functional as well as correlation connections, which show various subordinations among the changes in different areas of social, economic, political development, science and technological progress and the change tendencies. the importance of global transformations, which express changes in various areas of social, economic, political development, science and technological progress, is also obvious because these transformations reflect the assimilation of processes and changes, which take place in particular areas of development, progress and society life, worldwide or in large global areas. the essence of such assimilation is that a situation in particular areas of the society life, development and progress in different countries or regions is becoming more and more assimilated, due to the appearing orientations to identical standards, norms, etalons, ideals, expectations, activity models, or stereotypes. it means that general global changes, which include different areas of social, economical, political development, science and technological progress, increasingly influence the situation in certain development and progress areas in separate countries or regions, as well as in every country or region in general. global transformations, which express changes in various areas of social, economic, political development, science and technological progress, may be perceived and assessed as the ones which: • determine the fact that the influence of the development, progress and change in some areas of the society’s life on the development progress and change in other areas of the society’s life is increasing worldwide and in separate countries or regions. such increase of manysided, multiple and multi-channel influences reflects the significance increase of interaction, convergence and harmony among different sectors of social, economic, political development, science and technological progress, and shows a common tendency, that changes in certain sectors determine the changes in others under the conditions of globalization, • determine trajectory, extent and rate inter-inadequacies among the processes and changes in different areas of social, economic, political development, science and technological progress, when development, progress and change processes taking place in different areas issn 1822–8402 european integration studies. 2011. no 5 51 are characterized by more and more different and incompatible trajectories, extent and rate. at the same time, ambivalent assumptions emerge – the assumptions that qualitative sallies should be implemented in certain areas of the development, progress and change, and the assumptions that disproportions and conflicts should emerge in certain areas of the development, progress and change, which may have various negative consequences on the society and its life, • condition the needs to comprehensively coordinate and harmonize changes, which take place in different areas of social, economical, political development, science and technological progress. despite the fact that global transformations are perceived as an objectively appearing phenomenon, it is still necessary to react single-mindedly to various manifestations of this phenomenon and strive to rationally adapt to the objectively inevitable changes and effectively implement the prevention of undesirable effects using the means of coordination and harmonization, including the cases when unacceptable and undesirable inequality appears in different areas on the development, progress and change. global transformations, which express changes in various areas of social, economic, political development, science and technological progress, reflect the possibilities to solve and eliminate problems, which arise in various areas with the help of the experience or new development, progress and change results cumulated in other areas. these global transformations reflect common tendencies significant for the modern society and its life. the above-mentioned tendency appears multiply and controversially – factors of the same origin may differently influence various processes of social, economic, political development, science and technological progress, and the effects of those influences may also be very different and differently assessed. the significance of global transformations, which express changes in various areas of social, economic, political development, science and technological progress, is shown by objectively appearing needs to adequately react: • to the variety, inequality and outcome multiplicity of the appropriate development, progress and change processes, • to new risks, dangers and threats, which arise and appear owing to changes, as well as to the needs harmoniously adapt to the multiple and controversial development, progress and change processes, which appear in various areas, • to the needs to single-mindedly influence and even manage the development, progress and change processes within the limits of objectively existing and conspired possibilities. it must be emphasized, that the above-mentioned global transformations show the modern society’s powers to actively and single-mindedly influence its life’s conditions at the same time partially programming the trajectories of further development and progress. in general, the global transformations, which express changes in various areas of social, economic, political development, science and technological progress, could be defined as an important precondition and as a global context of various social, economic, political, technological changes in all spheres and sectors of the contemporary society and its life, as well as in all countries and regions: this statement is especially important in the conditions of european integration and enlargement of the european union (foltean, feder (2009); armstrong (20060; daugeliene (2007); zeitlin (2008); wendt (2005); melnikas, reichelt (2004)). in conclusion, it may be noted, that global transformations, as a unit, are so much multiple and complicated, that even a detailed study of these transformations creates assumptions to perceive and assess various factors and circumstances, which are typical to transformations and their effects, only very superficially. the new challenges for the knowledge based society creation in the european union: the context of global transformations global transformations are typical not only for contemporary world in general, but also for the space of the european union. global transformations, their expression and influence on the modern society and its life are characterized by wide variety and significant common regularities. among common regularities, typical of global transformations, the following must be emphasized: • regularities, which reflect universalism and unification processes under the conditions of global transformations, • regularities of the increasing uncertainties and their expression, • regularities of unsynchronized development and the expression of resonance effects, • regularities, which express society’s needs to activate innovations, stimulate creativity, and strengthen adaptation and tolerance skills. the above-mentioned regularities are perceived as very important and significant under contemporary conditions. regularities, which reflect universalism and unification processes under the conditions of global transformations, express a typical tendency of the universal convergence. the essence of this tendency is that identical standards, norms, etalons, as well as expectations, activity and lifestyle models, behavior stereotypes, which reflect the newest achievements and the newest conception of quality and modernity in all areas of the society life, social, economic, political development, science and technological progress, spread, are assimilated, implemented and renewed on a world scale. this tendency reflects a periodic phenomenon, the essence of which is continuously periodic situation assimilation typical of every specific area of the society’s life, development and progress on a world scale. regularities of the increasing uncertainties and their expression reflect the factor that more and more various uncertainties are appearing under the conditions of global transformations, and the expression of these uncertainties is much more various. these regularities are very important when trying to perceive and solve the problems of the sustainable development, besides, more and more uncertainties are appearing under the conditions of global transformations, which are necessary to consider when diagnosing, forecasting and planning the processes of the sustainable development. issn 1822–8402 european integration studies. 2011. no 5 52 regularities of unsynchronized development and the expression of resonance effects reflect two simultaneous tendencies, which are different as well as complementary: • development, progress and change processes, which take place in different areas of the society’s life, activity and development, as well as in different countries or regions, are characterized by multiple unsynchronicities, unbalancing, and inequalities: this tendency reflects the appearing possibilities that various development, progress and change processes may be characterized by increasing disproportions, which may provoke additional risks and threats, • development, progress and change processes, which take place in different areas of the society’s life, activity and development, as well as in different countries or regions, are characterized by the congruence of space and time parameters (this tendency also reflects the resonance of different processes and may be described as a tendency reflecting resonance effects). this tendency reflects the appearing new risks and threats, which are or may be caused by the resonance of different processes and changes as well as new development and progress possibilities, which may be based upon the synchronization of different processes and changes. it is obvious that regularities of unsynchronized development and the expression of resonance effects are assessed as extremely important when solving the problems of the sustainable development: • unsynchronized development reflects the assumptions for the sustainable development problems to appear, as well as the possibilities to purposefully regulate pace and extent of different development processes and changes, and at the same time adequately react to various disproportions and inequalities, • the expression of resonance effects reflects undesirable consequences of unharmonious or insufficiently sustainable development, as well as the possibilities to purposefully concentrate various management effects, which are intended to react to the development, progress and change processes, which require correction. it must be emphasized that the circumstances of regularities of unsynchronized development and the expression of resonance effects in all cases require exceptional attention when trying to adequately perceive, identify and solve the problems of the sustainable development. regularities, which express the needs to activate innovations, stimulate creativity, and strengthen adaptation and tolerance skills, generally reflect the main challenges, which arise under the conditions of global transformations. these regularities reflect general tendency, which shows, that there is an increasing significance for the needs, which are intended to: • activate innovations and stimulate creativity by reacting to new challenges and new problems, including the problems of the harmonious development, under the conditions of global transformations; • strengthen adaptation and tolerance skills, because, under the conditions of globalization, there is a strong need to adapt to new circumstances and adapt various systems to new requirements, as well as tolerate various changes by reacting to them rationally, and by regarding the attitudes of the sustainable development. the above-mentioned regularities of global transformations are assessed as very important when trying to adequately perceive and solve the problems of the creation of knowledge based society and knowledge economy. of course, regarding the complexity and variety of global transformations, as a unit, it is possible to make an assumption, that other regularities may be highlighted apart from the ones mentioned above. the knowledge based society and knowledge economy creation could be defined as priority in the system of global transformations processes. in this case the phenomena of the knowledge based society and knowledge economy as well as the trends and the concepts of the knowledge based society and knowledge economy creation processes should be analyzed in the context of processes of global transformations. in order to substantiate the appropriate definitions and descriptions, it is necessary to regard the following: • when describing a certain society, the underlying attention must be paid to the highlighting of the most important values, typical of the society itself, • when describing a certain economy, the underlying attention must be paid to the highlighting of the most important factors of the economy growth. it is possible to claim that it is purposeful to describe the concepts of the knowledge-based society and knowledge economy as follows: • the knowledge based society is the society which is characterized by the values of the predominance of creativity and creative activity, as well as the values, which express the generation, spread and use of new knowledge. in the knowledge based society, the underlying interests express the objectives to create, spread and use new products of art, technical, business and other creation, as well as initiate, generate and implement multiple creative ideas and innovations in all areas of life. • the knowledge economy is the economy, for which the underlying growth factor is the potential, intended for the generation, spread and use of the new knowledge, as well as the activation of creativity. the raising and possession of the abilities to create, spread and use new knowledge, ideas and innovations in all areas of life, as well as the incessant raise of the economical efficiency with the acceleration and activation means of the science and technological progress are the underlying conditions for economic growth and modernization in the knowledge economy. the provided descriptions of the concepts reflect the main orientations of values, which express the objectives of creativity, creation activation and new knowledge generation, typical of the knowledge based society, as well as the main features, which characterize the significance of the new knowledge generation, innovation and science and technological progress, typical of the knowledge economy. the highlighting of the underlying values, which are typical of the knowledge based society and which express the domination of creative activity, generation, spread and use of new knowledge, allows realizing that the essential internal contradiction of the knowledge based society is the contradiction among the society members, groups, layers and issn 1822–8402 european integration studies. 2011. no 5 53 variously identified subjects, which belong to two different categories: • one category is the society members, groups, layers and subjects, who become leaders, able to initiate the creation of new knowledge, ideas and innovations, participate in multiple creation actively, intensively and productively, develop creative activity, generate, spread and efficiently use the new knowledge and ideas. the society members, groups, layers and subjects, who belong to this category, generally take over the real power in the society and carry out the functions of its development and progress. what is more, the creation and spread of the new knowledge, ideas and innovations generally express the prerogative of making progress oriented decisions, especially strategic ones, • the other category is the society members, groups, layers and subjects, who lose or do not have real possibilities to initiate the creation of new knowledge, ideas and innovations, do not have real conditions and skills to participate in the creation actively and intensively, to develop creative activity independently, or to generate, spread and efficiently use the new knowledge and ideas. the society members, groups, layers and subjects that belong to this category generally become just ordinary effectors, who have very limited power and only perform the functions of effectors, including even those areas, where huge innovation changes take place. the above-mentioned contradiction reflects the internal differentiation logic, typical for the knowledge based society, when the position of different members, groups, layers or subjects of the society is determined by the role and place when initiating, generating, spreading and using new knowledge, ideas and innovations. besides, the expression of the abovementioned contradiction is universal: this contradiction may be perceived -s appearing in the lives of separate countries and regions, and as the one, which appears in separate groups or layers of the society, as well as the one, which may appear globally in the future. the above-mentioned contradiction reflects the meaning of those propulsions, which determine and will determine the development and progress of the knowledge based society, as well as the preconditions for various threats and dangers to appear, which may inevitably arise under the conditions of the knowledge based society. it is obvious, that the internal differentiation of the society, which expresses different role and place of various society members, groups, layers and subjects when initiating, generating, spreading and using new knowledge, ideas and innovations, may show itself in two ways: • as propulsion, which determines further development and progress of the knowledge-based society, because the objectives to activate and effectuate creative processes, when initiating, generating, spreading and using new knowledge, ideas and innovations, become the underlying stimulus of the development and progress, and the potency activating the processes of development and progress, • as a precondition for new threats and dangers to appear, because, under the conditions, when the society differentiation exceeds certain critical limits, there inevitably appear various tendencies of the destructive manner, including the tendencies to integrate various means, based on the use of the newest science and technological progress results, into destructive processes. the internal contradictions, typical of the knowledge based society, influence the processes of knowledge economy creation and development. the underlying conditions for economic growth and modernization, typical of the knowledge economy, which include education and possession of the abilities to create, spread and use new knowledge, ideas and innovations, as well as increase economic efficiency with the acceleration and activation means of science and technological progress, may be assessed in two ways: • as the propulsion, typical of the development and progress of the knowledge economy, which reflects the influence of the initiation, generation, spread and use of the new knowledge, ideas and innovations, as well as of the results of science and technological progress, on the growth and effectuation of the economy itself, • as the precondition for the new threats, dangers and risks to appear, which are characteristic of the knowledgebased society and knowledge economy and which may cause various undesirable negative results of the knowledge economy development and progress, which appear or may appear in various sectors of economic life as well as in various areas of the society’s life and development in general. it must be emphasized, that the essential principles to be implemented under the conditions of the creation and modernization of the knowledge based society and knowledge economy reflect the aim to create favorable conditions to get synergy effects and to use them, as well as to create favorable circumstances to generate new synergy effects. in general, it is possible to claim, that the creation and modernization processes of the knowledge based society and knowledge economy may be assessed as the complex expression of the synergy effects. it must be noted, that the described regularities and aspects reflect the complex problems of the social, political, economic, technological development, which inevitably appear under the creation and development conditions of the knowledge based society and knowledge economy, and allow highlighting and reasoning the priorities of these problems salvation, especially – in the european union. conclusions the research on the processes of the knowledge based society creation in the european union and on the problems of complexity of the global transformations and the knowledge based society creation could be defined as an important scientific research area, especially – as an important and significant object of social science. the research on the processes and problems of the knowledge based society and knowledge economy creation in the context of global transformations could be defined as especially important scientific research area in the conditions of the intensive european integration and enlargement of the european union. the processes of the creation of knowledge based society and knowledge economy in the context of globalization issn 1822–8402 european integration studies. 2011. no 5 54 should be understood as the undivided unity. these processes are an important priority of the social, economic and technological changes and development processes, especially in the european union. these processes should be perceived as relevant to all spheres of life – meaning social, economic and political life, culture, advancement of science and technologies, interaction with nature in general and environment in particular. these processes should be comprehended as the ones providing social, cultural, political, economic, technological preconditions for modernization of the society and refinement of its life in accordance with the modern future oriented standards, norms and values. the processes of the creation of knowledge based society and knowledge economy in the context of globalization should be interpreted as multi-dimensional and extremely complex and uninterrupted global process which manifests itself in cyclical changes and leaps towards higher quality standards, norms and values. the idea of complexity of the global transformations and the knowledge based society creation should be implemented in all stages of scientific research, studies and practical activities, including the prioritizing various programs on multiand cross-disciplinary research and studies, as well as strategic solutions of the complex character in various stages. the processes of the creation of knowledge based society and knowledge economy in the context of globalization could be interpreted and analyzed as an important global transformation. the global transformations in general, as well as the processes of the creation of knowledge based society and knowledge economy could be analyzed in the context of the ideas of synergy effects: in general, the global transformations and the processes of knowledge based society and knowledge economy creation may be attributed to the category of global transformation and synergy effects oriented development processes. global transformation processes are characterized by a wide variety and may be identified and classified according to various features: features, which characterize natural and climate conditions, as well as their influence on various global changes and situation, features, which characterize human resources, their potential, change of its structure, as well as global role of human resources, features, which characterize the society, its development, structure, change dynamics, as well as features, which help to describe various types and models of the society itself and its organization, and global spread and spread dynamics of these types and models, features, which characterize global variety and spread of cultures, mentalities, value systems, models of lifestyle, and social behavior stereotypes, features, which characterize the processes of social, political, economic development, as well as science and technological progress, the impact and consequences of these processes, which appear or may appear globally. the impacts of global transformations on the modern society in general and on the changes in its life, development and progress are multiple, complicated and even contradictory. several circumstances determine the multiplicity and complication of the impact of global transformations on the society and changes in its life. the global transformations themselves are characterized by a variety of typical features, which inevitably conditions the multiplicity and complication of these transformations and their impact. the global transformations, as a unit, may be identified as composing different geographically regional or sectoral systems: the variety of different geographically regional or sectoral systems reflects the multiplicity and complication of the impact of global transformations on the society and changes in its life. controversial tendencies, when certain development, progress and change processes evoke positively and negatively assessed results, inevitably appear under the conditions of the variety, multiplicity and complication of the global transformations and their impact on the society and changes in its life. all in all, it is possible to claim, that global transformations, as a unit, are characterized by exceptional complication, variety and multiplicity, as well as great impacts on all changes, which take place in all areas of life, their content and trajectories. global transformations, their expression and influence on the modern society and its life are characterized by wide variety and significant common regularities. by the creating knowledge based society and generating knowledge economy and its further development in the context of globalization and in the conditions of the european integration and enlargement of the european union harmonization should be sought in the following: in the fields of various social, economic, political development, culture, advancement in science and technologies, interplay with nature and other fields; in the environment of changes in various countries, regions or otherwise geographically or regionally defined systems; in changes occurring in various layers in society. creation and modernization of the knowledge based society and knowledge economy are very complicated processes, oriented to the formation of the new quality society and qualitatively new lifestyle. moreover, these processes may be described as “twice” as complicated, because they win distinction by orientations to the pursuit of new quality in two aspects: • the knowledge based society and knowledge economy, compared to “traditional” society and economy, are in all cases described as qualitatively new, • creation and development of the knowledge based society and knowledge economy takes place under the conditions of the global changes, which means that qualitative changes take place in all global space, the essence of those changes is the creation and spread of the knowledge based society and knowledge economy. the creation and development processes of the knowledge based society and knowledge economy may be attributed to the category of global transformation processes, therefore all general phenomena, and characteristic of global transformations in general, are unconditionally typical of the creation and development of the knowledge based society and knowledge economy. specific phenomena reflect exceptional peculiarities typical of the creation and development processes of the knowledge based society and knowledge economy. the research of the problems of creation of the knowledge based society and knowledge economy is multi and interdisciplinary by nature, they must inevitably have attitudes to social and economic development, progress in technologies, environmental protection and changes in the modern society and its life, which reflect various areas issn 1822–8402 european integration studies. 2011. no 5 55 of science, integrated in them. an important aspect of the research on creation of the knowledge based society and knowledge economy is a regional one, since 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(2005). tarptautinės politikos socialinė teorija – vilnius, eugrimas – 446 p. zeitlin, j.( 2008). the open method of coordination and the governance of the lisbon strategy, journal of common market studies 46(2): 436–450. the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 114 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 114-126 doi 10.5755/j01.eis.0.9.12800 © kaunas university of technology new approach to regional competitiveness as instrument of regional development eis 9/2015 abstract new approach to regional competitiveness as instrument of regional development http://dx.doi.org/10.5755/j01.eis.0.9.12800 leonas žitkus kaunas university of technology, faculty of social sciences, arts and humanities, institute of europe mickevicius str. 37, lt-44320, lithuania introduction the paper addresses a scientific and practical problem of how the regional characteristics referred to as competitiveness can be employed in enhancing the efficiency of planning its economic and social development. the aim of the paper is to substantiate the relevance of regional competitiveness concept as the objective of strategic development of the region. the first part of the paper presents statistical data of regional development in lithuania. they illustrate that the current principles of organizing regional development fail to produce desirable results. the conclusion is that the paradigm of regional development focused on regional cohesion should be changed into the paradigm of developing regional competitiveness. the second part analyses the role of the regional competitiveness concept in the development process as well as its interrelation with regional cohesion. it was found that the functional approach to regional cohesion provides the possibility to declare competitiveness as one of the main objectives of regional development. the third part discusses such features of competitiveness concept as abstractness, relativity and probabilistic nature, which are to be considered in strategic planning by identifying competitiveness as an objective of regional development. besides, the abstract nature of competitiveness concept enables creating operational definitions of competitiveness which can be practically used as guidelines (partial goals) of regional development. keywords: regional development, competitiveness, functional approach, strategic planning, objective of development. despite the abundance of theories, the mechanism of regional development is not completely recognized yet (strahl, 2006; snieška, bruneckienė, 2009). in seeking the answer to the question of what forces cause and maintain regional development, the openness of the process to the internal and external effects is emphasized. in addition, this process is infinite since the signs, in terms of which it is possible to claim that the region is most advanced, are not established. scientific literature describes numerous ways of regional development; consequently, development itself can be referred to as the process of long-term purposeful changes which is controlled by the administration of the region by making use of the active role of the region’s subjects (enterprises, community and institutions), internal (endogenic) development factors and experience of other regions. the process cannot be fully normalized (standardized) and the standard of the ‘developed region’ cannot be created (domanski, 2004). in pursuing the aim of the work, this part of the paper will discuss competitiveness as a feature of the region by the development of which the process called regional development takes an appropriate trajectory. 115 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 after the analysis of regional development plans for lithuania (e.g. kaunas region development plan 2007-2013) we can state that they are prepared based on the classical paradigm of ‘alignment of differences’, according to which internal economic, social and spatial cohesion should be developed alongside with the development of regions. this paradigm is legislated in the law on regional development of the republic of lithuania (chapter ii, article 3, paragraph 1 and chapter iv, article 7, paragraph 2), in the strategy of lithuanian regional policy until 2013 (paragraphs 7, 8 and 9), approved by the decision of the lr government no. 575 of 23 may 2005, and in the program for reducing social and economic differences of 2011-2013 approved by the decision of the lr government no.62 of 17 january 2011. in the “national progress program for 2014-2020” there is a priority “regional development” combining two aims: “to ensure even and sustainable regional development and to enhance territorial cohesion (reducing developmental differences) across the regions” (vidaus reikalų ministerija, 2012). despite relevance and attractiveness of the idea of internal cohesion of the region, its practical realization is related to the difficulties in realizing regional competitiveness as the ability to create favorable conditions for developing economic activity so that the needs of the population are met. competitiveness in the modern global world tends to become a dominating and obligatory type of status of the subjects of all levels including regions. competitiveness being the means of functioning turns into the goal of functioning. so, the necessity to treat competitiveness as the objective of regional development is more and more reasonable. this is discussed in the works of the researchers of the countries with deep traditions of regional policy great britain, usa and germany (berger, bristow, 2008). this necessity is relevant in poland (chądzynski, nowakowska, 2007) , china (xu, yeh, 2005) and rumania (cojanu, lungu, 2012). in analyzing lithuanian sources the following tendencies in utilizing and studying regional competitiveness conceptions can be distinguished: 1 in applied works (in the regional develop-ment strategies) competitiveness is attributed to a single area of regional functioning, i.e. economic area without relating it to the region as to the economic, social and territorial whole. 2 in research works regional competitive-ness is equalized to the existing situation which is evaluated in terms of the results achieved or in terms of the existing potential. this paper addresses scientific, theoretical and practical problem of how regional characteristics referred to as competitiveness can be made use of by enhancing the efficiency of planning and organizing economic and social development. the aim of the paper is to substantiate the appropriateness of the regional competitiveness concept to be the objective of the long-term (strategic) development of the region. with the view of that aim the following objectives are addressed: 1 to clarify the practical need of the inno-vative approach to regional development; 2 to highlight the core of functional ap-proach to regional cohesion thus giving the possibility to regard competitiveness as the objective of regional development; 3 to establish the main features of region-al characteristics called competitiveness, which influence the planning of regional development. scientific originality and practical significance of the paper: _ a substantiated need of the innovative approach to regional development; _ a substantiated possibility to regard competitiveness as the aim of regional development; _ the methods for transforming the definition of competitiveness to the development landmarks are proposed; _ regional competitiveness features to be considered in planning regional development are identified. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 116 regional disparities manifest themselves throughout all areas, the most significant being economy. both absolute (gdp) and relative (gdp per capita) data presented in figs. 1 and 2. regional policy as a separate area of concern of the lithuanian government was designed with regard to the preparation for eu membership with the aim to make a more efficient use of the aid from the eu. upon the urge from the eu, the government acknowledged that the system for formation and implementation of regional policy is absolutely necessary for the country. presently, we must bear in mind that regional policy consists of two constituent parts: implementation of eu regional policy principles and formation and implementation of national regional policy. the main aim of the national regional policy is reduction of developmental disparities between lithuanian regions. seeking to substantiate the relevance of considerations presented in the further chapters, this chapter offers statistical information showing that, of the regions) show that alongside with a very dynamic region of the capital vilnius, a large group of problematic regions is being formed covering as many as half of all statistical regions of the country: the regions of alytus, marijampolė, tauragė, telšiai, and utena. economic disparities are accompanied by those in other areas. for example, table 1 represents data about changes in the number of population which, on the one hand, is a reflection of economic development, on the other hand, one of the reasons of economic disparities. the figures submitted show that the problematic regions are characteristic of major negative results in mipractical demand of new approach: inefficiency of the regional policy in lithuania gration as well as of a bigger decline in a relative number of inhabitants. the development of services network can be an indicator of living standards. table 2 represents data about the number of companies providing services in the lithuanian regions. obviously, most of the country’s regions cannot match vilnius region in terms of the number of such companies per 1000 people and of the growth rate of this indicator. the trend of slow development rate of services in most lithuanian regions can possibly mean a significant deterioration in living environment and life quality. the supply (and quality) of services can be a decisive factor in choosing the place of residence or investment (specifically, for people with higher income). on the other hand, a small number of services can also disclose the insufficiently exploited potential of business development within the region. figure 1 differences between the growth of lithuania’s regions 2 50,1 34,4 9,2 15,5 19,8 36,7 19,6 26 13,5 2124,3 13,1 0 10 20 30 40 50 60 2001 2007 2011 year g d p p er c ap ita ( th ou sa nd o f lt ) vilnius kaunas marijampolė tauragė 40,5 20,8 1,7 38,1 16,7 18,9 9,4 1,7 3,2 3,5 1,1 2,20 5 10 15 20 25 30 35 40 45 2001 2007 2011 year g d p ( bi lli on o f l t) vilnius kaunas marijampolė tauragė more and more reasonable. this is discussed in the works of the researchers of the countries with deep traditions of regional policy great britain, usa and germany (berger, bristow, 2008). this necessity is relevant in poland (chądzynski, nowakowska, 2007) , china (xu, yeh, 2005) and rumania (cojanu, lungu, 2012). in analyzing lithuanian sources the following tendencies in utilizing and studying regional competitiveness conceptions can be distinguished: 1. in applied works (in the regional development strategies) competitiveness is attributed to a single area of regional functioning, i.e. economic area without relating it to the region as to the economic, social and territorial whole. 2. in research works regional competitiveness is equalized to the existing situation which is evaluated in terms of the results achieved or in terms of the existing potential. this paper addresses scientific, theoretical and practical problem of how regional characteristics referred to as competitiveness can be made use of by enhancing the efficiency of planning and organizing economic and social development. the aim of the paper is to substantiate the appropriateness of the regional competitiveness concept to be the objective of the long-term (strategic) development of the region. with the view of that aim the following objectives are addressed: 1. to clarify the practical need of the innovative approach to regional development; 2. to highlight the core of functional approach to regional cohesion thus giving the possibility to regard competitiveness as the objective of regional development; 3. to establish the main features of regional characteristics called competitiveness, which influence the planning of regional development. scientific originality and practical significance of the paper: • a substantiated need of the innovative approach to regional development; • a substantiated possibility to regard competitiveness as the aim of regional development; • the methods for transforming the definition of competitiveness to the development landmarks are proposed; • regional competitiveness features to be considered in planning regional development are identified. practical demand of new approach: inefficiency of the regional policy in lithuania regional disparities manifest themselves throughout all areas, the most significant being economy. both absolute (gdp) and relative (gdp per capita) data presented in figs. 1 and 2. regional policy as a separate area of concern of the lithuanian government was designed with regard to the preparation for eu membership with the aim to make a more efficient use of the aid from the eu. upon the urge from the eu, the government acknowledged that the system for formation and implementation of regional policy is absolutely necessary for the country. presently, we must bear in mind that regional policy consists of two constituent parts: implementation of eu regional policy principles and formation and implementation of national regional policy. the main aim of the national regional policy is reduction of developmental disparities between lithuanian regions. seeking to substantiate the relevance of considerations presented in the further chapters, this chapter offers statistical information showing that, of the regions) show that alongside with a very dynamic region of the capital vilnius, a large group of problematic regions is being formed covering as many as half of all statistical regions of the country: the regions of alytus, marijampolė, tauragė, telšiai, and utena. figure 1. differences between the growth of lithuania’s regions source: created by authors according to the data of department of statistics figure 2. differences between gdp per capita of lithuania’s regions source: created by authors according to the data of department of statistics economic disparities are accompanied by those in other areas. for example, table 1 represents data about changes in the number of population which, on the one hand, is a reflection of economic development, on the other hand, one of the reasons of economic disparities. the figures submitted show that the problematic regions are characteristic of major negative results source: created by authors according to the data of department of statistics. 2 50,1 34,4 9,2 15,5 19,8 36,7 19,6 26 13,5 2124,3 13,1 0 10 20 30 40 50 60 2001 2007 2011 year g d p p er c ap ita ( th ou sa nd o f lt ) vilnius kaunas marijampolė tauragė 40,5 20,8 1,7 38,1 16,7 18,9 9,4 1,7 3,2 3,5 1,1 2,20 5 10 15 20 25 30 35 40 45 2001 2007 2011 year g d p ( bi lli on o f l t) vilnius kaunas marijampolė tauragė more and more reasonable. this is discussed in the works of the researchers of the countries with deep traditions of regional policy great britain, usa and germany (berger, bristow, 2008). this necessity is relevant in poland (chądzynski, nowakowska, 2007) , china (xu, yeh, 2005) and rumania (cojanu, lungu, 2012). in analyzing lithuanian sources the following tendencies in utilizing and studying regional competitiveness conceptions can be distinguished: 1. in applied works (in the regional development strategies) competitiveness is attributed to a single area of regional functioning, i.e. economic area without relating it to the region as to the economic, social and territorial whole. 2. in research works regional competitiveness is equalized to the existing situation which is evaluated in terms of the results achieved or in terms of the existing potential. this paper addresses scientific, theoretical and practical problem of how regional characteristics referred to as competitiveness can be made use of by enhancing the efficiency of planning and organizing economic and social development. the aim of the paper is to substantiate the appropriateness of the regional competitiveness concept to be the objective of the long-term (strategic) development of the region. with the view of that aim the following objectives are addressed: 1. to clarify the practical need of the innovative approach to regional development; 2. to highlight the core of functional approach to regional cohesion thus giving the possibility to regard competitiveness as the objective of regional development; 3. to establish the main features of regional characteristics called competitiveness, which influence the planning of regional development. scientific originality and practical significance of the paper: • a substantiated need of the innovative approach to regional development; • a substantiated possibility to regard competitiveness as the aim of regional development; • the methods for transforming the definition of competitiveness to the development landmarks are proposed; • regional competitiveness features to be considered in planning regional development are identified. practical demand of new approach: inefficiency of the regional policy in lithuania regional disparities manifest themselves throughout all areas, the most significant being economy. both absolute (gdp) and relative (gdp per capita) data presented in figs. 1 and 2. regional policy as a separate area of concern of the lithuanian government was designed with regard to the preparation for eu membership with the aim to make a more efficient use of the aid from the eu. upon the urge from the eu, the government acknowledged that the system for formation and implementation of regional policy is absolutely necessary for the country. presently, we must bear in mind that regional policy consists of two constituent parts: implementation of eu regional policy principles and formation and implementation of national regional policy. the main aim of the national regional policy is reduction of developmental disparities between lithuanian regions. seeking to substantiate the relevance of considerations presented in the further chapters, this chapter offers statistical information showing that, of the regions) show that alongside with a very dynamic region of the capital vilnius, a large group of problematic regions is being formed covering as many as half of all statistical regions of the country: the regions of alytus, marijampolė, tauragė, telšiai, and utena. figure 1. differences between the growth of lithuania’s regions source: created by authors according to the data of department of statistics figure 2. differences between gdp per capita of lithuania’s regions source: created by authors according to the data of department of statistics economic disparities are accompanied by those in other areas. for example, table 1 represents data about changes in the number of population which, on the one hand, is a reflection of economic development, on the other hand, one of the reasons of economic disparities. the figures submitted show that the problematic regions are characteristic of major negative results source: created by authors according to the data of department of statistics. figure 2 differences between gdp per capita of lithuania’s regions 117 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 region year 2001* 2007* 2011** alytus -64 -788 -16 kaunas -1112 -1229 -13,3 klaipėda -618 +94 -12,1 marijampolė -101 -492 -14,3 panevėžys -217 -1217 -16,5 šiauliai -294 -2167 -18,5 tauragė +149 -707 -18,0 telšiai -99 -694 -15,5 utena -451 -575 -18,3 vilnius +248 +2531 -4,07 table 1 changes of population in lithuania’s regions1 1 those are official (registered) scales of migration. they are considerably bigger in reality, as majority leaving the country do not inform about their actions. source: department of statistics (statistics lithuania). * changes of population (in numbers) due to migration1 **changes of population (in percents) due to all reasons the information supplied illustrates fairly well the trends of regional development, in the first place, the growth of disparities. the reasons of this situation are undoubtedly complex and require comprehensive theoretical and empirical research. nevertheless, the present level of investigation leads to the ways of how to change those trends. one of them is change of the strategic management paradigm (planning) by rejecting the idea of equal development of the regions and replacing it by the idea of enhanced competitiveness. table 2 number of services in lithuanian regions (units per 1000 inhabitants) region year 2001 2007 2011 alytus 2,2 3,0 3,8 kaunas 3,4 5,1 7,2 klaipėda 3,3 5,5 8,1 marijampolė 1,7 2,6 3,9 panevėžys 2,4 3,1 4,3 šiauliai 2,3 3,0 4,5 tauragė 2,1 2,2 3,1 telšiai 2,2 3,2 4,0 utena 2,1 2,5 3,0 vilnius 4,7 9,4 12,3 source: department of statistics (statistics lithuania). table 1 table 2 theoretical conceptions of enhancing the efficiency of economic-social development of different level territorial units originate from the necessity to clarify the reasons of the developmental disparities of the units. with the view of those reasons, the identification of both internal and external obstacles for regional and local development is possible. in addition, the actions determining the activation of regional or local development can be planned. identification of the mentioned obstacles and the actions leading to their weakening or elimination is a very important step in determining the character, trends and scope of regional development promotion. that largely covers such areas, as finance, human and social capital, research and development, enterprise, ecology, municipal and transport development, information, etc. scientific theoretical and practical works as well as political documents regard regional development as positive transformation in economy and community, also in technical, technological and natural environment (budd, hirmis, 2004; sztando, 2009). the elements of regional structure which can be utilized in the areas of manufacture, distribution, turnover and consumption of material and immaterial goods are referred to as factors of development. on the other hand, when the region in the process of development faces difficulties and/or incurs costs related to the difficulties of adapting to new conditions of social and economic nature, the problem is the absence of relevant developmental factors, or inadequacies which occur due to the newly formed conditions both within and outside the region. the objective of the state or regional public administration is to interfere into the developmental process with the view to both weaken the obstacles of such process or create or improve the factors which affect the speed of development which is normally called regional policy. theoretical conceptions of regional development contain some kind of duality. some of them modern approach to the regional cohession and competitiveness in the eu e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 118 specifically those based on neo-liberal views maintain that the main role in the processes of development is played by the operation of market mechanisms. according to the authors, it is market forces that most efficiently generate development of theories and reduction of natural disparities. other theories based on keynesian doctrine, stress the necessity of the state’s interference in the process of regional development, specifically in the regions where the developmental obstacles have a cumulative character. the authors of those theories propose various ways of intervention, the choice of which depend on time, location and level of the region’s development. it is to be noted that a “pure form” of any of the group of theoretical conceptions of regional development is nonexistent (strzelecki, 2011). one can think that in practice regional policy is pursued following some intermediate model (between neo-liberal and keynesian). factually, however, the conceptions based on neo-liberal views currently remain as the object of theoretical considerations, and most countries of the world (specifically, developed ones) pursue an “active” regional policy. in that case the object of theoretical considerations is the areas, instruments and scope of the state’s interference into regional development (fig.3). theoretical proposals due to the mentioned intervention aspects are very diverse and depend on the conception proposed, and, more exactly, on the authors’ experience, scientific interest and conditions in which the conception was developed (i.e. level of socio-economic development of the country and the region). improvement of conditions for the operation of market mechanisms object of theoretical considerations: the way market mechanism affects regional development object of theoretical considerations: “areas of application of regional policy, instruments and scope” “active” regional policy practice theory n e o -l ib e r a l t h e o r ie s k e yn e s ia n t h e o r ie s figure 3 fields of theoretical conceptions of regional policy and their theoretical/practical application (worked out by the author). the necessity of regional policy originates from the developments in the economic (real) area and the opinions of public administration subjects with respect to those developments. the subjects of public administration are empowered to pursue conscientious activity the aim of which is a purposeful development of a territory. the rise (in the sense of the content) of the modern regional policy is associated with the attempts to alleviate the effects of the 20th century crisis (1929-1933). the 6th decade of the last century saw the rise of the possibility both in europe and usa to re-distribute the state budget surplus by channeling the accumulated funds to the underdeveloped regions; therefore, regional policy has become a popular instrument for the states’ governments. the economic stagnation of the seventh decade led to the alignment of regional disparities; however, financial interventions were firstly focused on the reduction of inequalities of people’s incomes and creation of jobs, specifically, in the areas where these phenomena had reached the limit threatening socio-economic stability. despite the efforts of the european community and individual member states, regional policy was not successful, i.e. regional convergence failed. consequently, searching for the ways of activating regional convergence was the focus of attention. in the eighth and the ninth decades, the ec reforms of regional policy covered both the scope and areas of financing which aimed at the increased intervention into the efficiency of regional development. the result of the reforms was the increased expenses allocated for regional policy as well as the formulated principles and goals leading to the increased concentration of ac119 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 tions. however, the leveling character of interventions focused on the convergence of community member states and their regions has not considerably changed. the three main aims of regional policy (as well as of cohesion) are the reduction of inequalities between regions (equalization), channeling of resources (capital) to the areas where the lack of resources is economically costly, and redistribution of eu budget funds. following the reforms of the eu structural funds and their redistribution of 1998, the priority was the objective of the allocation. the aim of redistribution, however, was by no means neglected: the cohesion policy has always been focused on the promotion of underdeveloped regions. despite that fact, the classical cohesion conception derived from the paradigm of alignment of interregional and internal disparities due to the inefficiency of the pursued regional policy, has been recently loosing its importance (commission …, 2008). redistribution approach to cohesion is linked to the classical regional policy dilemma, i.e. equality or productivity (competitiveness). scientific sources maintain that promotion of regional cohesion tends to restrict the possibilities for the regions to enhance competitiveness and vice versa – promotion of competitiveness causes polarization of regional development, i.e. reduction of cohesion (gorzelak, 2009). to avoid that dilemma, a functional approach to cohesion was adopted (faludi, 2006). the main disparities between classical and functional approach are the following: _ cohesion should not necessarily be associated with the reduction of imperfections within the regions. in the new approach cohesion involves harmonious socio-economic development evaluating the endogenic potential of the region and its constituent parts. _ functional approach to cohesion focuses on the movement of factors – material resources, capital, labor – and their exploitation results, rather than on their existence. of the major importance is the fact that the functional approach to regional cohesion does not reject the possibility to declare competitiveness as one of the main objectives of regional development. scientific literature and political documents stress that the undisputable phenomenon of convergence on the regional level does not exist, while the regions as the territorial units of the country are strongly involved in the competition struggle, i.e. maintaining and increasing their economic and social importance. the forms of competition can be diverse – from direct competition of regional administration for organizing individual projects or cultural, sports or economic events to more delicate indirect competition. regional administration or other institutions compete for direct foreign investment, skilled labor force, financial aid from the eu funds or the state budget, for local or foreign tourists, etc. (armstrong, taylor, 2000; brooksbank, huggins, 2010; howitt, 2002; saperstein, ronach, 2002; domanski, 2011; czyzewska, 2012; martin, tayler, 2003, et al.). regional competition is a complex concept. therefore, scientific literature defines it in diverse ways. some authors (czyzewska, 2012) relate it to the fact that regional competitiveness is a comparatively new object of economic theory; however, it does not mean that theoretical considerations on regional competitiveness “come from nowhere”. the sources present quite a few more or less comprehensive links to which economic theory elements should be reflected in the regional competition conception. the summary of these links is represented in table 3. moreover, economic theories fail to present a uniformly understood conception of the region able to define features of a competitive region. “a study on …”(2003) identifies three characteristics of the region derived from different economic theories: 1 region as an area for export specialization (origin: classical, neo-classical, keynesian, growth, endogenic growth, new trade theories); 2 region as a source of growing profit (origin: the theories of marshal’s industrial area, local-ization economics, transaction costs, regional endogenic growth, agglomeration economy); e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 120 table 3 conclusions of economic theories for regional competitiveness source: czyzewska, 2012, p.251-252. economic theories conclusions for regional competitiveness classical theory 1 all countries play a specific role in the labor division based on comparative advantage; however, if the level of technological development and productivity across different countries (regions) is the same, there is no basis for trade relations between them. 2 even for higher productivity (absolute advantage), that area under the free trade conditions can wither away. neo-classical theory 1 all countries play a specific role in labor division which is determined by a relative influence of production factors. if that influence is the same across different countries (regions), there is no basis for trade. the theory best illustrates the case of trade between developed and underdeveloped countries. 2 the equalization of the costs of production factors causes the convergence of payback of labor and capital. 3 under the conditions of perfect convergence, competitiveness in a long term has no sense. keynesian theory 1 the government can successfully regulate economic cycles. it is time that acquires an essential significance. 2 regional disparities are explained by market imperfections. 3 regional convergence is possible by pursuing a relevant economic policy. 4 intensity of capital exploitation enhances productivity and growth. development economy 1 central regions characterized by initial productivity advantage normally maintain their overbalance over less productive peripheral regions. 2 the “chase” of productivity across the region is a slow process. 3 the policies applied have to take into consideration the development level of the region. 4 the application of policies is mandatory seeking to promote a “multiplying effect”, e.g., through direct foreign investment or development funds. theory of endogenic growth 1 disparities of regional productivity and growth can be explained by disparities in the level of technological and human capital. 2 improvement of technological and human capital is a driving force of growth. 3 free trade is capable of stimulating growth and technological development. 4 investment into research and development is of utmost significance. 5 enhancing the level of human capital through education and training is essential. the new theory of trade 1 in seeking the external effects of scale economy, specialization in a specific industry is necessary. 2 the share of the internal (country’s or region’s) market is a precondition of internal scale economy. 3 investment into the skilled labor force, specialized infrastructure, network of suppliers as well as localization of technologies tends to strengthen the external effects of scale economy. theory of urban growth 1 economic value is created and accumulated in the urban systems. 2 the most valuable human capital (talents) are accumulated in the urban systems. the new institutional economy 1 clusters occur due to vertical disintegration and outsourcing. business strategy economy 1 clusters are the sources of competitive advantage of enterprises and regions. evolution economy 1 j.schumpeter’s creative destruction as a process of innovation creation. 2 innovation as a method of tests and errors. 3 learning and creation of innovations as the essential processes of developing competitiveness in the region. 121 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 3 region as the axis of knowledge (origin: theories of jacobs urban growth, urbanization eco-nomics, institutional economics, business strategy economics and evolution economics). in the source quoted, these features are considered the basis of regional competitiveness conception which allows formulation of the features of competitive region (table 4). table 4 features of regional competitiveness regional trait features of competitive region region as place of export specialization _ export growth; _ cost decline; _ growth of inflows from markets of other regions (countries); _ growth of quality of exported goods and amount of related services; _ reduced costs of labor, capital, raw materials and indirect costs; _ higher level of technologies compared to other regions; _ growing employment rate and income of population. region as a source of growing profit _ growth of the demand and prices of exported goods in the world market; _ decline of labor costs per one unit of the product; _ growth of skilled labor share in the market; _ growth of enterprises’ specialization in the region; _ growth of the volume of specialized services business for business. region as the axis of knowledge formation of ‘corporate learning’ network of enterprises, workforce and regional institutions; growth of it usage (specifically, in business); formation of clusters uniting creation, realization and utilization of innovations. source: compiled by authors according to “a study on..”. similarly to many other sources analyzing regional competitiveness, the authors of the mentioned source highlight competitiveness of the economic share in the operation of the region. in seeking to create total undisputed competitiveness of the region as of the economic, social and territorial unit, other features of the region as well as the resulting features of competitiveness should also be considered. 1 in analyzing the concepts of regional competitiveness scientific literature introduces numerous attitudes to this theoretical conception. some authors (biniecki, frankiel, 2005) maintain that such a situation occurred as a result of the researchers’ tendency to create common (aggregated) conceptions for regional competitiveness3. they suggest formulation of operational definitions containing methodology for measuring and defining competitiveness as a regional feature. the authors mentioned call the situation of defining regional competitiveness as ‘chaos of concepts’. to prove it, they performed the analysis of the relationship between the concepts of regional competitiveness and regional development and distinguished as many as seven versions of this relationship: _ competitiveness as a symptom of development, _ competitiveness as the index of development, _ competitivenessas a condition for development, _ competitiveness as a constituent part of development, _ competitiveness as a means of development, _ competitivenessas an aim of development, 2 according to m. porter (2001), different definitions of competitiveness result from the lack of accuracy which “leads to new questions and to the need of information for further considerations”. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 122 _ competitiveness as a synonym of development (biniecki, frankiel, 1999). regional competitiveness is difficult to define unambiguously, because of the complexity of operation of the region as economic and social unit. they maintain that exact definition of one minor economic unit is possible3, but the definitions for the country or the region are not accurate and tend to be generalizing (klamut, pasella, 1999). some other authors (bristow, 2010) are of the opinion that theoretical analysis creates the image of competitiveness of the region as the combination of chaotic productivity, people’s welfare and different aspects of business environment. it is common knowledge that the competitiveness features of the region identified in table 4 do not occur by themselves: that requires specific preconditions. regional competitiveness is mostly defined as the ability to create such economic, social, infrastructural and institutional conditions under which the enterprises are capable of achieving possibly best results, and the people better satisfy their needs compared to other regions (camagni, 2002). formulation of the definition of the phenomenon is only a first step to recognize it, which, while providing some information on the phenomenon, raises the following questions. in the context of the problems addressed in this paper, it is essential to be aware of some features of regional competitiveness as the objective of regional development. the employment of competitiveness conception as the objective of regional development is related to strategic planning. according to m.porter (2001, p.22), “the core of the strategy formulation is how to deal with competition”. a similar approach is expressed by other authors: “strategy is actions leading to achievements in tomorrow’s competition struggle” (ghauri, prasad, 1995, p.x). without going deeper into the theoretical and practical aspects of strategic planning (9), in this work we will be paying attention to some of the features of competitiveness as a complex feature of the region, which are to be considered in forming the development strategy. abstractness of the competitiveness conception. despite its fundamental nature, competitiveness is a theoretical concept characterized by a specific feature, i.e. abstractness. the abstract nature of the concept causes the problem of its measurement (evaluation): how should it be related to everyday occurrences, and what are the procedures to do it? abstract concepts are useful only in the case when they are meant for a specific problem faced by the researchers. otherwise, such a concept will only aggravate awareness of the phenomenon, even though it was meant to understand it. abstract concepts do not exhibit indicators for direct assessment; therefore, they have to be supplemented by so-called operational definitions. the more abstract the concept is, the more empirical phenomena it covers, the more operational definitions occur, from where a full picture is formed. figure 4 represents a diagram how a number of operational definitions can be formulated on the basis of the presented definition of competitiveness. these definitions can be employed as development landmarks (partial objectives) in seeking regional competitiveness. the places of intersection of the lines specify the content of the operational definitions of regional competitiveness, i.e. how the economic, social, institutional and infrastructural conditions enabling the companies to achieve better results, and the inhabitants to better meet their needs, have to be characterized and by what figures they have to be expressed. by this example regional competitiveness is expressed by means of the system of eight operational definitions. these definitions can be regarded as landmarks (partial objectives) of regional strategic development and the administration’s efforts made for the realization of this strategy.42 3 those who worked on the analysis of competitiveness of enterprises most probably will not agree with this statement. competitiveness as feature of a region and it’s characteristics 123 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 since the region is a very complicated socio-economic-spatial system, operational definition systems composed of eight elements to define its competitiveness can be insufficient. in that case, more complicated systems can be designed. for example, by using the typology of regional competitiveness factors by u. fratesi and l.senn (2009) (table 5), it is possible to obtain the system of thirty operational definitions (strategic development landmarks). operational definitions contain pre-programmed indicators of competitiveness assessment. besides, they are used to decide which resources of the region seeking competitiveness will have to be empowered. relativity of the competitiveness concept. even with the comprehensive system of operational definitions to determine regional competitiveness, it is not possible to judge about the region’s chances in the competition struggle to attract investment, organized events, skilled labor, etc. to that effect, competitiveness of the competing regions has to be known and compared. that is done in the annual competitiveness assessments by well-known world organizations, such as “the global competitiveness report” or oecd “economic outlook”. the ranking figure 4 appearance of operational definitions for regional competitiveness (worked out by author). 7 the people better satisfy their needs compared to other regions (camagni, 2002). formulation of the definition of the phenomenon is only a first step to recognize it, which, while providing some information on the phenomenon, raises the following questions. in the context of the problems addressed in this paper, it is essential to be aware of some features of regional competitiveness as the objective of regional development. the employment of competitiveness conception as the objective of regional development is related to strategic planning. according to m.porter (2001, p.22), “the core of the strategy formulation is how to deal with competition”. a similar approach is expressed by other authors: “strategy is actions leading to achievements in tomorrow’s competition struggle” (ghauri, prasad, 1995, p.x). without going deeper into the theoretical and practical aspects of strategic planning (9), in this work we will be paying attention to some of the features of competitiveness as a complex feature of the region, which are to be considered in forming the development strategy. abstractness of the competitiveness conception. despite its fundamental nature, competitiveness is a theoretical concept characterized by a specific feature, i.e. abstractness. the abstract nature of the concept causes the problem of its measurement (evaluation): how should it be related to everyday occurrences, and what are the procedures to do it? abstract concepts are useful only in the case when they are meant for a specific problem faced by the researchers. otherwise, such a concept will only aggravate awareness of the phenomenon, even though it was meant to understand it. abstract concepts do not exhibit indicators for direct assessment; therefore, they have to be supplemented by so-called operational definitions. the more abstract the concept is, the more empirical phenomena it covers, the more operational definitions occur, from where a full picture is formed. figure 4 represents a diagram how a number of operational definitions can be formulated on the basis of the presented definition of competitiveness. these definitions can be employed as development landmarks (partial objectives) in seeking regional competitiveness. figure 4. appearance of operational definitions for regional competitiveness (worked out by author). the places of intersection of the lines specify the content of the operational definitions of regional competitiveness, i.e. how the economic, social, institutional and infrastructural conditions enabling the companies to achieve better results, and the inhabitants to better meet their needs, have to be characterized and by what figures they have to be expressed. by this example regional competitiveness is expressed by means of the system of eight operational definitions. these definitions can be regarded as landmarks (partial objectives) of regional strategic development and the administration’s efforts made for the realization of this strategy. since the region is a very complicated socio-economicspatial system, operational definition systems composed of eight elements to define its competitiveness can be insufficient. in that case, more complicated systems can be designed. for example, by using the typology of regional competitiveness factors by u. fratesi and l.senn (2009) (table 5), it is possible to obtain the system of thirty operational definitions (strategic development landmarks). table 5. typology of regional competitiveness factors factors groups factors macroeconomic factors capital codified knowledge education system macroeconomic factors accessibility/transport infrastructure research infrastructure, relations science-business, higher education structure of regional economy institutional and cultural factors management mechanisms of the region local market enterprise creative atmosphere attracting new people factors of spatial regional organization spreading of knowledge use of agglomerations urban structure of the region factors of relations untraded interdependencies trust-based social networks source: fratesi, senn, 2009 operational definitions contain pre-programmed indicators of competitiveness assessment. besides, they are used to decide which resources of the region seeking competitiveness will have to be empowered. relativity of the competitiveness concept. even with the comprehensive system of operational definitions to determine regional competitiveness, it is not possible to judge about the region’s chances in the competition struggle to attract investment, organized events, skilled labor, etc. to that effect, competitiveness of the competing regions has to be known and compared. that is done in the annual competitiveness assessments by well-known world organizations, such as “the global competitiveness report” or oecd “economic competitiveness of the region is its ability to create conditions at which enterprises achieve better results population better satisfy their needs conditions economic social institutional infrastructural table 5 typology of regional competitiveness factors factors groups factors macroeconomic factors capital codified knowledge education system macroeconomic factors accessibility/transport infrastructure research infrastructure, relations sciencebusiness, higher education structure of regional economy institutional and cultural factors management mechanisms of the region local market enterprise creative atmosphere attracting new people factors of spatial regional organization spreading of knowledge use of agglomerations urban structure of the region factors of relations untraded interdependencies trust-based social networks source: fratesi, senn, 2009. of the country in the ratings is established by comparing the figures of nearly all countries of the world: the higher the figures, the more competitive the country is. however, this is not competitiveness (ability to compete) as a feature is assessed, but rather: 1 results of economic and social development achieved in the competition struggle and/or 2 more favorable initial conditions for future competition, i.e. the authors of the ratings assume that the indicators chosen for ranking and the degree of their effect (weight) determine higher or lower ability of the country to create and exploit favorable conditions for enhancing competitiveness (world economic forum, 2009). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 124 this is where one other feature of competitiveness the probability character – is exhibiting itself when competitiveness is regarded as the objective (goal of development) of any economic entity (including the region). in the case when comfigure 5 probabilistic character of regional competitiveness as an objective of development (worked out by the author) 8 outlook”. the ranking of the country in the ratings is established by comparing the figures of nearly all countries of the world: the higher the figures, the more competitive the country is. however, this is not competitiveness (ability to compete) as a feature is assessed, but rather: 1) results of economic and social development achieved in the competition struggle and/or 2) more favorable initial conditions for future competition, i.e. the authors of the ratings assume that the indicators chosen for ranking and the degree of their effect (weight) determine higher or lower ability of the country to create and exploit favorable conditions for enhancing competitiveness (world economic forum, 2009). figure 5. probabilistic character of regional competitiveness as an objective of development (worked out by the author). this is where one other feature of competitiveness the probability character – is exhibiting itself when competitiveness is regarded as the objective (goal of development) of any economic entity (including the region). in the case when competitiveness is assessed based on the performance results (e.g. gdp/per capita, export volume, research investment, etc.), actually, the former ability to create favorable conditions for business activities and living is determined. when, however, competitiveness is expressed as ability to create conditions for the future, it becomes only the opinion of the people and/or institutions creating those conditions and declaring abilities, which can, but not necessarily, be proved out (fig.5). conclusions 1. for a long time the primary aim of regional development was minimization of disparities between the regions by applying different instruments of regional policy. despite the attractiveness of the idea of regional cohesion, the growing amount of disparities is a dominating trend of spatial development of economy and society both in europe and nationally (including lithuania). statistical information provided shows that during the recent decade the regional inequality not only stopped decreasing but, rather, its growth obtained a regular character. one of the reasons of that phenomenon is an irrelevant paradigm of strategic thinking based on the idea of elimination of inequalities “from outside”, i.e. by using the instruments of central regional policy. that paradigm is proposed to be replaced by the idea of promoting and stimulating regional competitiveness. 2. the analysis of regional competitiveness concepts in scientific literature shows that there exists a rather wide range of attitudes to that theoretical conception in some way similar to ‘the chaos of concepts”. at the same time the situation exhibits attempts to recognize the regional competitiveness phenomenon and make use of the gained knowledge to channel regional development at the desired direction, i.e. declaring competitiveness as the objective (goal) of regional development. currently, the idea is becoming increasingly popular because the paradigm of regional cohesion, which dominated for a long time in the process of regional development, is subject to transformation, and the application of its original version causes a classical dilemma in regional development, i.e. equality or competitiveness. 3. the utilization of competitiveness as the objective of regional development in the region’s management (through strategic planning) is related to some features of competitiveness as a characteristic of the region, or, more exactly, the consequences of the existence of those features. the main of them is that competitiveness is an abstract concept devoid of direct forms or indications of expression which may lead to direct measurement of competitiveness between the regions. to that effect, the so-called operational definitions, i.e., a set of procedural regulations enabling description of the evident traits of competitiveness. operational definitions in the strategic planning of regional development play the role of development landmarks (partial goals). operational definitions normally contain pre-programmed qualitative and quantitative results of competitiveness. 4. regional competitiveness is a relative concept, i.e. it becomes evident only by comparing competition results of all competing entities (other regions). essentially, however, that is the way to assess the results obtained in the past, which can also be regarded as a potential for would-be competition. scientific literature stresses that even the presence of exceptional potential fails to automatically ensure better results in the future. therefore, competitiveness seen as the ability of the region to create more favorable conditions for economic performance and life than the competitors and declared as the objective of development, bears a probabilistic character. references armstrong, h., taylor, j. (2000) regional economics and policy. oxford: blackwell. a study on the factors of regional competitiveness. a draft final report for the european commission. 2003. http://ec.europa.eu/regional_policy/sources/docgener/studie s/pdf/3cr/competitiveness.pdf [2013-01-25]. berger, t., bristow, g. (2008). benchmarking regional performance: a critical reflection on indices of competitiveness. paper for the regional studies association present evidence of results future probabilistic nature of the results conditions in the region created due to the past competitiveness conditions to be created competitiveness in the past competitiveness in the future petitiveness is assessed based on the performance results (e.g. gdp/per capita, export volume, research investment, etc.), actually, the former ability to create favorable conditions for business activities and living is determined. when, however, competitiveness is expressed as ability to create conditions for the future, it becomes only the opinion of the people and/or institutions creating those conditions and declaring abilities, which can, but not necessarily, be proved out (fig.5). 1 for a long time the primary aim of regional development was minimization of disparities between the regions by applying different instruments of regional policy. despite the attractiveness of the idea of regional cohesion, the growing amount of disparities is a dominating trend of spatial development of economy and society both in europe and nationally (including lithuania). statistical information provided shows that during the recent decade the regional inequality not only stopped decreasing but, rather, its growth obtained a regular character. one of the reasons of that phenomenon is an irrelevant paradigm of strategic thinking based on the idea of elimination of inequalities “from outside”, i.e. by using the instruments of central regional policy. that paradigm is proposed to be replaced by the idea of promoting and stimulating regional competitiveness. 2 the analysis of regional competitiveness concepts in scientific literature shows that there exists a rather wide range of attitudes to that theoretical conception in some way similar to ‘the chaos of concepts”. at the same time the situation exhibits attempts to recognize the regional competitiveness phenomenon and make use of the gained knowledge to channel regional development at the desired direction, i.e. declaring competitiveness as the objective (goal) of regional development. currently, the idea is becoming increasingly popular because the paradigm of regional cohesion, which dominated for a long time in the process of regional development, is subject to transformation, and the application of its original version causes a classical dilemma in regional development, i.e. equality or competitiveness. 3 the utilization of competitiveness as the objective of regional development in the region’s management (through strategic planning) is related to some features of competitiveness as a characteristic of the region, or, more exactly, the consequences of the existence of those features. the main of them is that competitiveness is an abstract concept devoid of direct forms or indications of expression which may lead to direct measurement of competitiveness between the regions. to that effect, the so-called operational definitions, i.e., a set of procedural regulations enabling description of the evident traits of competitiveness. operational definitions in the strategic planning of regional development play the role of development landmarks (partial goals). operational definitions normally contain pre-programmed qualitative and quantitative results of competitiveness. conclusions 125 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 4 regional competitiveness is a relative concept, i.e. it becomes evident only by comparing com-petition results of all competing entities (other regions). essentially, however, that is the way to assess the results obtained in the past, which can also be regarded as a potential for would-be competition. scientific literature stresses that even the presence of exceptional potential fails to automatically ensure better results in the future. therefore, competitiveness seen as the ability of the region to create more favorable conditions for economic performance and life than the competitors and declared as the objective of development, bears a probabilistic character. armstrong, h., taylor, j. (2000) regional economics and policy. oxford: blackwell. a study on the factors of regional competitiveness. a draft final report for the european commission. 2003. http://ec.europa.eu/regional_policy/ sources/docgener/studies/pdf/3cr/competitiveness.pdf [2013-01-25]. berger, t., bristow, g. (2008). benchmarking regional performance: a critical reflection on indices of competitiveness. paper for the regional studies association annual conference: the dilemas of integration and competition. prague: university of economics. biniecki, j., frankiel, w. (2005). konkurencyjnosc – przedsiębiorczosc – rozwoj: podstawowe dylematy pojęciowe i metodyczne. klasik, a. (ed.), przedsiębiorczy i konkurencyjny region w teorii i polityce rozwoju regionalnego. warszawa: pan kpzk, p. 23–46. bristow, g. (2010). critical reflections on regional competitiveness. theory. policy. practice. abington: routledge. brooksbank, d. j., pickernell, d. g. (1999). regional competitiveness indicators. a reassessment of methods. local economy, vol. 13 (4), p. 310–326. http://dx.doi.org/10.1080/02690949908726459 budd, l., hirmis, a. k. (2004). conceptual framework for regional competitiveness. regional studies, vol. 38.9, p. 1015–1028. http://dx.doi. org/10.1080/0034340042000292610 chądzynski, j., nowakowska, a., przygodzki, z. (2007). region i jego rozwoj w warunkach globalizacji. lodz: cedewu, www.cedewu.pl [2013-01-23]. camagni, r. (2002). on the concept of territorial competitiveness. sound or missleading? urban studies, vol. 39, no. 13, p. 2395–2396. http://dx.doi. org/10.1080/0042098022000027022 cojanu, v., lungu, l. (2012). regional competitiveness analysis: process and mesurement. http:// www.docin.com/p-67399746 [2013-01-04]. czyzewska, d. (2012). osrodki wspierania inowacji a konkurencyjnosc regionalna na przykladzie rereferencesgion uczacego sie rodan-alpy. uniwersytet ekonomiczny w poznaniu. domanski, t. (2011). rola uniwersytetow w promocji miast i regionow – nowe wyzwania strategiczne. domanski t. (ed.) marketing akademicki. rola uniwersytetow w promocji miast i regionow. wydawnictwo uniwersytetu lodzkiego, p. 15-32. european commission. (2008). green paper on territorial cohession. brussels, com (2008) 616 final. european commission. (2011). regional policy contributing to smart growth in europe 2020. brussels. faludi, a. (2006). from european spatial development to territorial cohesion policy. regional studies, vol. 40, no. 6, p. 667-678. http://dx.doi. org/10.1080/00343400600868937 fratesi, u., senn, l. (2009). regional growth, connections and economic modeling: an introduction. growth and innovation of competitive region: the role of internal and external connections. heidelberg: springer, p. 3-27. ghauri, p., prasad, s. b. (1995). international management. london: the dreaden press. gorzelak g. (2009). fakty i mity rozwoju regionalnego. studia regionalne i lokalne, no. 2(36), p. 1015-1028. howitt, p. (2000). endogenous growth and cross-coutry income differences. american economic review, vol. 90(4). p. 829-846. http://dx.doi. org/10.1257/aer.90.4.829 huggins, r. (2010). regional competitive inteligence: benchmarking and policymaking. regional studies, vol. 44.5, p. 639–658. http://dx.doi. org/10.1080/00343400802331312 jiang xu, yeh, a.g.o. (2005). city repositioning and competitiveness building in regional development: new development strategies in guangzhou, china. international journal of urban and regional research, vol. 29.2, p. 283–308. http://dx.doi. org/10.1111/j.1468-2427.2005.00585.x klamut, m., pasella, e. (1999). podnoszenie poziomu konkurencyjnosci regionow. klamut, m. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 126 (ed.). konkurencyjnosc regionow. wroclaw: wydawnictwo akademii ekonomicznej. martin, r., tyler, p. (2003). regional competitiveness: an elusive concept. paper presented at the regional studies conference “reinvesting the region in tne global economy”, university of pisa, italy. porter, m. e. (2001). porter o konkurencji. warszawa: polskie wydawnictwo ekonomiczne. snieška v., bruneckienė j. (2009). measurement of lithuanian regions by regional competitiveness index. inžinerinė ekonomika – engineering ecoonomics, no.1 (61), p. 45–57. strahl, d. (2006). metody oceny rozwoju regionalnego. wroclaw: wydawnictwo akademii ekonomicznej we wroclawiu. sztando, a. (2009). subjects and objects of local development strategy. economicky rozvoj a management regionu. hradec karlove. vidaus reikalų ministerija. (2012). regionų plėtra „nacionalinės pažangos programoje“. www.vrm. lt/nrp/index.php?id=2215 [2013-01-20]. world economic forum. (2009). the global competitiveness report 2008–2009. oxford university press. leonas žitkus prof. dr. kaunas university of technology faculty of social sciences, arts and humanities, institute of europe address mickevicius str. 37, lt-44320, lithuania tel. +370 37 300138 e-mail: leonas.zitkus@ktu.lt about the author 139 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 submitted 03/2018 accepted for publication 07/2018 european integration studies no. 12 / 2018 pp. 139-147 doi 10.5755/j01.eis.0.12.20849 main motivators of social audit: case of estonia eis 12/2018 abstract main motivators of social audit: case of estonia http://dx.doi.org/10.5755/j01.eis.0.12.20849 chrislin nestra estonian tax and customs board natalja gurvitsh tallinn university of technology in recent years the growing importance of sustainable development has been widely recognized worldwide. organizations actively implement social and environmentally sustainable work practices in their business strategy. the growing concern from the stakeholders for the transparency and social responsibility has put more focus on social audit as an important tool of measurement of social and environmental performance of organizations. various studies revealed importance and numerous benefits of social audit in different countries (berthin, 2011; ahmed 2012; brown-liburd & zamora, 2014; casey & grenier, 2014). however less is known about the social audit in estonia and this study fills a gap in determining its current stage and perspectives of future development. the aim of this paper is to identify the reasons why estonian are not very active in conducting social audit and what would be the main motivators for this procedure. authors conducted a survey among the largest tax paying companies in estonia. the questionnaire was sent to 800 companies and 122 responses were collected. results of the study revealed an interest towards social audit among the surveyed companies however only 15 of them (12%) conduct social audit. in authors opinion the reason of the low number of performing companies is the certain difficulties experienced by companies while obtaining social audit related information. the main reasons of conducting social audit outlined by respondents were their desire to demonstrate their responsibility towards society (67%) and the opportunity to evaluate the impact of the business activity of the company on different groups of stakeholders (60%); while the main reasons on non-conducting appeared to be lack of information about such opportunity (42%), lack of interest (20%) and lack of popularity in estonia (28%). the main motivators which would push companies to perform social audit were identified as financial performance-related benefits (41%) and the growing public pressure (44%). the findings of the survey have various implications. first, they emphasize that there is an interest towards social audit among estonian companies, which will continue growing in the coming years as stated by respondents. seconds, that more attention and support should be provided from the state and the audit companies to ensure the sustainable development of the estonian business community. keywords: csr, sustainable development, social audit, measurement, social and environmental practices. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 140 in recent years the growing importance of sustainable development has been widely recognized worldwide. organizations actively implement social and environmentally sustainable work practices in their business strategy. the growing interest of the society towards social and environmental activities of companies in general and their impact on different groups of stakeholders in particular has created the world of corporate social responsibility accounting and reporting. according to nikolaeva & bicho (2011) this growth is partially contributed to the csr media visibility of the company and its csr publicity policy. more and more attention is paid nowadays to the reputation of company and its non-financial performance which in turn results in sustainable performance and creates a beneficial business environment. the growing concern from the stakeholders for the transparency and social responsibility has put more focus on social audit as an important tool of measurement of social and environmental performance of organizations. and while csr reporting is highly implemented by most companies, widely used its benefits are non-deniable, the verification of such reports and csr related activities – social audit is still gaining its popularity and public recognition. a corporate social audit can be defined as assessment of company’s performance on corporate social responsibility objectives. it also evaluates measurable goals intended to help business meet the expectations of various stakeholder groups regarding social and environmental responsibilities (what is a corporate audit..., 2018). various studies revealed importance and numerous benefits of social audit in different countries (berthin, 2011; ahmed 2012; casey & grenier, 2014). however social audit is still not very popular in estonia (navross et al., 2016) and less is known about its current situation and perspectives of future development in this country and this study fills a gap in determining its current stage and perspectives of future development. therefore, authors considered it worth attention to investigate the main reasons of this phenomenon. authors believe that main reasons of non-performance of social audit is the complexity, lack of interest from the companies’ side and lack of relevant information about the procedure in general. authors also suggest that such factors as lack of qualified specialists, unclear benefits of performance of social audit also have an impact on the low popularity of social audit among estonian companies. the main purpose of this study is to identify the reasons why estonian are not very active in conducting social audit and what would be the main motivators for this procedure. to achieve the goal author have set up research tasks to provide and overview of the current situation on social audit and to reveal the opinion of estonian companies. therefore, authors have chosen a quantitative research method – survey, which was conducted among the largest tax paying companies in estonia. the questionnaire was sent to 800 companies and 122 responses were collected. results of the study revealed an interest towards social audit among the surveyed companies however only 15 of them (12%) conduct social audit. the main reasons of conducting social audit outlined by respondents were their desire to demonstrate their responsibility towards society and the opportunity to evaluate the impact of the business activity of the company on different groups of stakeholders; while the main reasons on non-conducting appeared to be lack of information about such opportunity, lack of interest, and lack of popularity in estonia. the main motivators which would push companies to perform social audit were identified as financial performance-related benefits and the growing public pressure. the remainder of the paper is organized as follows: after the linkage of the research topic to current literature, authors provide a practical insight into the performance of social audit by estonian companies identifying the main reasons and associated benefits. furthermore, authors present the results of the survey conducted among the largest estonian taxpaying companies, which are taken as a basis for concluding remarks. introduction 141 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 the growing popularity of csr has gained international recognition and resulted in a various socially responsible initiatives which has led the substantial contribution to the nation in general (the fundamentals..,2015). companies have started voluntary adopt csr reporting practices; making the level of such disclosures may have a significant impact of the perception of stakeholders and the reputation of the company (odriozola & baraibar‐diez, 2017). the findings of dhaliwal et al. (2012) suggest that the „issuance of standalone csr reports is associated with lower analyst forecast error“ and contributes to the increasing level of trust of stakeholders. thus, verification of such reports has become extremely important inspiring an increasing number of companies to assess their performance on a systematic basis (henriques, 2002) and determine the current way of actions (wirsig, 1978). according to according to the kpmg survey (2017) during the last 12 years assurance among the g250 companies has more than doubled, meaning that 67% of the reports are now verified, which is driven by both management and benefits gained by different groups of stakeholders (owusu & frimpong, 2012). the data of kpmg (2017) survey also suggests that assurance rates increase more rapidly in the countries with the high level of csr reporting. previous studies identify the positive impact of the assurance of csr reports on the quality of the disclosures (moroney et al., 2012), investors decisions in general (cheng et al., 2015) and their desire to invest into such companies (shen, wu & chand, 2017). numerous studies also suggest that companies willing to enhance the credibility and reputation would have performed the social audit procedure (simnett et al., 2009), as the credibility of csr reports is higher after the assurance (pflugrath, roebuck & simnett, 2011) also contributing to the increasing the trust of stakeholders (viehöver, türk & vaseghi, 2015). this is also confirmed by bagnoli & watts (2017), whose results indicate that companies more sensitive and caring about their social activities would seek for external high-level assurance. it is also important to note that while no strict criteria in regard to the verification body exists, and assurance can be either external or internal, being performed by either professional accounting specialist or representative from other company or provided by the big 4, the studies indicate that the choice of assurance specialist really matters as the quality of assurance highly depends on the provider (perego & kolk, 2012). studies of hodge et al. (2009) reveal that users “would place more confidence in the reports provided by top tier accountancy firm than by a specialist consultant”, these findings are also confirmed by studies of mock et al. (2007) and perego (2009). studies of sierra, et al., 2013 also reveal that while the choice of assurance company largely depends on the size and profitability of the company this market is still dominated by the big-4 companies. it should also be noted that while companies recognize the benefits of assurance the non-assured companies are often quite reluctant to implement this procedure referring to the high cost of the procedure (park & brorson, 2005), time consuming and the complexity of the process (jones & solomon, 2010). all the above mentioned created a challenging path for the further research and inspired authors to investigate what is currently happening in estonia, whether companies are ready to adopt the social audit concept or still costs outweigh the benefits. literature review the authors have conducted a survey among 800 largest taxpaying companies in estonia reported by the estonian tax and customs board as of the year 2016 via google forms during 14.11 – 23.12.2016 (email addresses were found by authors via internet and the websites of the selected companies). the questionnaires were also distributed via accounting professional group on facebook. to identify flaws and possible misunderstandings in the questionnaire the pilot survey was also arranged: the questionnaire was sent to persons involved in accounting and auditing activities, whose comments were incorporated into the final version of the questionnaire. target companies were reached via email and 122 replies were collected in total. table 1 illustrates the selected sample of the surveyed companies regarding their main business activity. research design e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 142 status sample field of activity manufacturing 27 wholesale and retail trade; repair of motor vehicles and motorcycles 21 public administration and defence; compulsory social security 14 human health and social work activities 11 transportation and storage 10 construction 9 information and communication 6 other service activities 5 administrative and support service activities 4 financial and insurance services 4 professional, scientific and technical activities 2 arts, entertainment and recreation 2 electricity, gas, steam and air condition supply 1 education 1 accommodation and food service activities 1 real estate activities 1 mining and quarrying 1 agriculture, forestry and fishing 1 water supply; sewerage, waste management and remediation activities 1 total 122 employees in a company ≤ 50 56 51 to 250 20 >250 46 total 122 years of operation 1-3 7 4-6 2 7-10 5 >10 108 total 122 socially responsibility of companies (on their opinion) yes 115 no 7 total 122 performance of social audit in the company yes 15 no 107 total 122 table 1 data of the surveyed organizations source: authors’ 143 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 the questionnaire was amended by the cover letter explaining that the survey would take approximately 10-15 minutes, all replies would be made anonymous and the results will be analysed and presented as a summary. the questionnaire consisted of either both multiple choice and likert-scale ranked questions, either 14 or 12 questions depending on the performance of social audit by the company. first three questions were related to general information about the company, while next four aimed to identify what does the “social responsibility” mean for companies, who are the main stakeholders interested in the performance of social audit, whether company considers itself socially responsible and performs social audit. the following five questions were answered by companies performing social audit and aimed to find out the main flaws and benefits related to this process. while the non-performing companies were asked about the main reasons that would engage them into the social audit procedure and what would be the main benefits of this process. at last companies were asked to express their opinion on the future growth of the social audit in estonia. this information was compiled and analysed based on the survey questions. statement s tr o ng ly di sa g re e d is ag re e a g re e s tr o ng ly ag re e n o t ab le to a ns w er i understand what „social responsibility„ means. 2 9 46 39 4 i understand what „social audit„ means. 11 28 38 17 6 society awareness on social audit in estonia is high. 42 42 4 1 11 i consider it necessary to perform social audit in estonian companies. 9 20 43 10 18 social auditing in estonia should be supported by the state. 12 16 39 16 17 social audit merits more attention in the mass media. 5 14 43 25 13 i would like to get more information about the process of social auditing, main strengths and weaknesses in order to make a decision on the necessity of social audit. 2 12 41 37 8 it is easy to obtain information about social audit in estonia. 18 52 8 2 20 the interest towards social audit among estonian companies will grow in the coming years 3 19 37 17 24 the regulation of social audit by the law would make the process social reporting easier, more transparent and clearer to everybody 11 19 40 18 12 in order to give a better overview of the activity of the company social audit could be a part of financial audit; main stakeholders are also the same in both cases. 31 23 28 8 10 source: authors’ table 2 respondents opinion on social audit in estonia (% of respondents) results the present section summarizes main findings, which in authors opinion are most important and worth attention. according to the results of the survey it was revealed that main words associated with the definition of social audit appeared to be “ethics and values” 90% (110 respondents); “transparency and disclosure” 59% (72); “environmental responsibility” -53% (65); “human rights” 52%, (64); and “reporting” 22% (27). other 3 respondents have chosen the words “social mobility”, “social justice” and “availability of main services”. main stakeholders identified by companies as the ones interested in performance of social audit appeared to be: society 84%, employees -66%, business partners – 55%, clients – 54%, shareholders – 44% and suppliers – 39%. in the table 2 there are listed the respondents’ rankings of the benefits associated with social audit. it should be noted that most respondents consider themselves well aware of what is social audit and social responsibility, while consider the general awareness on social audit in estonia quite low. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 144 the following tables 3 and 4 present an analysis of replies from companies performing social audit, it is also important that out of 15 companies performing social audit seven claimed to have a special person dealing with this matter. as becomes evident from the table 3 the main reasons of performing social audit turned out to be desiring to demonstrate the responsibility and values of the company as well as to have a clear idea of how its activities influence various groups of stakeholders, while the satisfaction of clients seems to be least motivating factor. this in turn resulted in the increasing interest from the stakeholders’ side and high public respect and recognition as seen from table 4. reason no. of respondents % of respondents desire to demonstrate the values and responsibility of the company 10 67 desire to evaluate the impact of the activity of the company on different groups of stakeholders 9 60 desire to improve the decision-making processes of the company 7 47 desire to increase the transparency of the company’s activity 6 40 the decision was made by the parent company 5 33 in order to achieve the satisfaction of clients 7 table 3 the main reasons of performing social audit by the respondents (the respondents were allowed to choose several options) source: authors’ impact no. of respondents % of respondents increase of the interest towards the company from the stakeholders’ side 11 73 gained public respect and recognition 8 53 gained new knowledge and experience 7 47 positive impact on the financial indicators of the company’s activity 3 20 no positive impact observed 2 13 other: new clients, client’s satisfaction etc. 2 13 table 4 tthe main positive influence experienced by the company as a result of the social audit (the respondents were allowed to choose several options) source: authors’ companies were also asked to name negative impacts of the performance of social audit (if any) and could choose several options. as a result, companies claimed that the process was too costly (2 replies) and time consuming (6 replies). the other part of the questionnaire was dedicated to 107 companies currently not performing social audit, the results are presented in tables 5 and 6. as becomes evident from the table 5 the main reasons of non-performing social audit turned out to non-awareness of such option, non-popularity of social audit in estonia in general and lack of interest among companies. as clearly illustrated by table 6 among the positive benefits associated with possible future performance of social audit companies selected their desire to demonstrate the responsibility and values of the company as well as possibility to evaluate the impact of its activities on various groups of stakeholders 145 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 impact no. of respondents % of respondents not aware of this option 44 41 not popular in estonia 30 28 lack of interest from the company’s side 21 20 other reasons: not ready for this process; not necessary for the company; plans to perform it in future, not in our priority list now etc. 18 19 costly and time-consuming process 19 18 it is difficult to find qualified specialists to perform social audit in estonia 12 11 lack of positive impact associated with this process 2 2 table 5 the main reasons of non-performing social audit (the respondents were allowed to choose several options) source: authors’ impact no. of respondents % of respondents demonstrates values and responsibility of the company 72 67 better evaluation of the impact of company’s activities on different stakeholders 49 46 positive impact on society 47 44 increase in transparency of the company 34 32 improves decision making processes in the company 24 22 positive impact on environment 18 17 no positive impact associated with social audit 12 11 source: authors’ table 5 possible positive impact associated with social audit by non-performing companies (the respondents could choose several options) the companies were also asked what would force them to perform social audit and among the most frequently chosen reasons (respondents could choose several options) appeared the pressure from the stakeholders’ side (44%) and the improvement of the financial performance of the company (41%). conclusions and discussion the results of the research revealed that the general awareness of the social audit in estonia is not on a very high level. however, companies are interested in social audit but found it difficult to obtain related information. as seen by companies this gap maybe filled by linking social audit with financial audit procedure. the authors are also of the opinion that in case audit companies provide and promote this service as a package it would inspire higher interest and concern among different organizations. from the research it is also evident that social audit is an important tool in evaluating the performance of companies and increases transparency of business. all respondents also unanimously agreed that this procedure adds value to the image of the company and delivers a clear message of its responsibility to the stakeholders. the main obstacles of performing social audit appeared to be its non-popularity in estonia and as already stated above low awareness among companies. _ the findings of the survey have various implications: e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 146 _ first, they emphasize that there is an interest towards social audit among estonian companies, which will continue growing in the coming years as stated by respondents. _ second, more attention and support should be provided from the state and the audit companies to ensure the sustainable development of the estonian business community. in authors opinion, it would make sense to promote education on social audit in different high educational institutions of estonia as well as to organize various trainings and workshops. authors are aware of the limitations of the present survey: the sample of the selected companies is quite narrow; 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(2015). csr assurance in practice: measuring and a uditing sustainability. in responsible business (eds m. pohl and n. tolhurst). doi:10.1002/9781119206156.ch6 what is a corporate social audit? by neil kokemuller. retrieved may 06, 2018, from: http:// smallbusiness.chron.com/corporate-social-audit-20345.html wirsig, w. (1978), a social‐audit bridge to future business success. new directions for program zorio, a., garcía‐benau, m. a. & sierra, l. (2013). sustainability development and the quality of assurance reports: empirical evidence. bus. strat. env., 22: 484-500. doi:10.1002/bse.1764 nestra chrislin ma estonian tax and customs board fields of research interests csr, social audit address lõõtsa 8a, 15176 tallinn, estonia e-mail: chrislin.nestra@gmail.com about the authors gurvitsh natalja phd tallinn university of technology fields of research interests csr, social audit, accounting and business ethics address ehitajate tee 5, 19086, tallinn, estonia e-mail: natalja.gurvits@ttu.ee european integration studies 2011.indd 213 issn 1822–8402 european integration studies. 2011. no. 5 non-financial indicators for evaluation of business activity inta kotane, irina kuzmina-merlino riga international school of economics and business administration abstract it is well-known that financial reports are the main source of information about company performance, and basing on them the business activities and financial position of a company are evaluated. however, under conditions of contemporary economic development company management cannot rely only on the evaluation system of financial indicators in order to manage the company successfully. the main indicators of business activity are not found only in financial data. such indicators as quality, clients’ satisfaction, innovations, market share quite often reveal the economic position of a company and opportunities for growth better than the financial indicators of company performance reflected in reports. the balanced scorecard indicators, which include the financial perspective, clients’ perspective, internal processes perspective and innovations and learning perspective, can be considered as the origin of non-financial indicators. the balanced scorecard indicators developed strategy maps were designed to trace and develop cause-effect links between long-term aims and implemented short-term activities. initially the growth and learning perspective of the balanced scorecard indicators included employees’ skills, opportunities of the information system, and such behavioral factors as motivation and powers; however, some changes were introduced into the balanced scorecard indicators and the growth and learning perspective is characterized now as intangible assets which are divided into three groups: human capital, information capital and organizational capital. researches prove that the results of non-financial activity positively influence the results of financial activity and an increasing number of company managers transform the evaluation system of their company performance to trace non-financial evaluation indicators and thus use their new strategies in competition. despite the fact that in scientific literature the number of publication on this topic increases, researchers have not come to agreement about the content and structure of non-financial indicators as well as about the methods for their measurement and evaluation. the article reveals various theoretical approaches to understanding the nature, classification and measurement on non-financial indicators, which are in scientific literature, are considered as the indicators for measurement and evaluation of intellectual capital. the aim of the paper is to provide recommendations on the development of non-financial indicators system and its practical implementation in latvian companies on the basis of the study, analysis and generalization of the scientific economic publications in the field of company performance. the research is based on the analysis and evaluation of special literature and scientific publications on the nonfinancial indicators of business activity and their role in the evaluation of company performance. general logical analysis and synthesis methods as well as content analysis and monographic analysis are used in the research. the article is focused on the analysis and evaluation of previous researches on the non-financial indicators of business activity, overview and systematization of non-financial indicators used in the evaluation of business activity, including small enterprises performance. keywords: non-financial indicators, balanced scorecard indicators, evaluation, business activity. introduction in order to ensure long-term activity, increase competitiveness and attract investments it becomes topical for many companies in latvia to create a system for evaluating non-financial performance indicators. traditional methods for evaluation of business activity are based on the calculations of financial indicators and their evaluation and do not indentify all factors influencing company development. the analysis of company performance basing just on financial indicators provide incomplete evaluation of company performance as the internal, usually immeasurable factors of the company describing company’s internal potential and future perspectives are not taken into consideration. despite the great number of theoretical publication on the problems of evaluating company performance, basing on the system of financial and non-financial indicators (hafeez, 2002; philips, louvieris 2005; craig, moores, 2005; lau, sholihin, 2005; fernandes et.al., 2006; prieto, revila, 2006; wier et.al., 2007; chen et.al., 2009; cardinaels, van veendirks, 2010) there are problems in practical application of this indicators’ system as there is no single approach to identification, classification, measurement and evaluation of non-financial performance indicators. the topic of the paper is not sufficiently researched in latvia, thus, the authors of the article have analyzed and evaluated researches done abroad about non-financial indicators of business activity and have assessed the classifications of non-financial indicators. issn 1822–8402 european integration studies. 2011. no 5 214 the aim of the paper is to make recommendations on the development of non-financial indicators system and its practical implementation for latvian companies on the basis of study, analysis and generalization of the scientific economic publications in the field of company performance. the present article has the following tasks: • to investigate the essence of non-financial indicators and show their role in company activity performance; • to study and systematize possible approaches to designing content and structure of non-financial indicators as an essential part of company’s intellectual capital; • to analyze the advantages and disadvantages of nonfinancial indicators; • to develop recommendations for practical implementation of non-financial indicators to evaluate company’s business activity. the research is based on the analysis and evaluation of special literature and scientific publications about nonfinancial indicators of business activity and their role in evaluation of the company performance. general logical analysis and synthesis methods, content analysis and monographic analysis are used in the research. non-financial indicators and balanced scorecard system kaplan and norton (harvard business review, 2008) have created a balanced scorecard (bsc), which includes financial and non-financial indicators providing information about the results of completed activities. financial indicators are supplemented by three kinds of evaluating performance related to the clients’ satisfaction, internal processes in a company and its ability to learn and develop. bsc lets managers to have a look at their business from four important perspectives and answer four important questions: • how clients see us (clients’ perspective); • where we need to develop (internal perspective); • if we can improve and create a value (innovations and learning perspective); • how our shareholders see us (financial perspective). bsc method is widely used to evaluate company’s performance around the world. for example, in england there are analyzed options using bsc to evaluate small and medium-sized enterprises performance (sousa et.al.,2006), to organize manufacturing companies performance (fernandes et.al.,2006), to evaluate hotel industry companies performance (philips, louvieris, 2005), to have strategic plans in family companies (craig, moores, 2005). taking into consideration the aim of the research, the authors of the article will analyze the non-financial indicators included in the balanced indicators system in their further research. kaplan and norton (harvard business review, 2008) assert that non-financial performance measures are better indicators for future financial performance than lagged financial measures. wiersma’s opinion is that non-financial indicators have more information content than financial indicators. this claim is based on the observation that financial indicators only partially reflect the impact of current managerial actions. financial indicators omit the impact of actions taken today; it takes some time before they accumulate in improved financial performance. nonfinancial indicators are expected to record the impact of these actions earlier, because they more directly track the impact of actions taken (wiersma, 2006) according to the researcher hogue measurement of nonfinancial indicators includes three aspects: (1) customer; (2) internal business processes; and (3) learning and growth. the customer perspective includes: market share; customer table 1. key non-financial performance indicators (designed by the authors) manufacturing (fernandes et.al., 2006) hotel sector (philips, louvieris, 2005) family companies (craig, moores, 2005). customer/ customer related % of sales from new products on-time delivery share of key accounts no. of cooperative efforts guest surveys mystery guest participation in grading schemes anecdotal feedback via staff customer satisfaction levels average spend customer satisfaction levels customer retention rate operational excellence customer intimacy product leadership internal processes/ internal business cycle time efficiency actual launch vs. delay reduction in w/f meeting financial targets internal auditing completion of capital projects staff satisfaction surveys staff development reviews staff retention rate percentage wages (%) to achieve turnover staff incentive schemes (performance-related pay) spurring innovation increasing customer value achieving operational excellence promoting corporate citizenship learning and growth / innovation / learning time to new process maturity % of product representing 80% sales compare to competitors number of new products/services process improvement initiatives networking relationships membership of trade/professional bodies participation in grading schemes courses completed by staff level of multiskilling productivity employee capabilities and skills technology corporate climate issn 1822–8402 european integration studies. 2011. no 5 215 satisfaction survey; on time delivery; customer response time and warranty repair cost. the second aspect “the internal business processes” is characterized as a material and labour efficiency variance; process improvement and reengineering; new product introduction; and long-tern relations with suppliers. the last “learning and growth perspective” includes: staff development and training; workplace relations; employee satisfaction; and employee health and safety (hoque, 2005). in table 1 there are summarized non-financial performance indicators applying bsc in manufacturing, hotel industry and family companies. the data in the table prove that companies use different indicators within bis. these indicators are grouped in three perspectives using bis approach: customer-related, internal business processes, learning and growth. kaplan and norton (harvard business review, 2008) consider that bsc is not a pattern to be applied to business in general or even within one industry. a different market situation, various product strategies and competition conditions require diverse systems of balanced indicators. in order to evaluate companies performance there are created adjusted bsc complying with the mission, strategy, technology and culture of a specific company. bsc provides managers information from four various perspectives, reduces cluttering of information by limiting it to a certain number of applied indicators. craig and moores (craig, moores, 2005) describe perspectives using bsc method not only for a family company, but also for a family as primary social group. there have been named the main customer-related indicators: awareness of the family name, use of family in marketing initiatives, quality that reflects family brand. there have been named the following internal processes: investment in technology that will benefit future generations, professional work practices that will attract best family and non-family employees, philanthropic activities. the last group of indicators related to learning and growth includes: creating career paths for family members, making involvement in the business a privilege, encouraging and providing seed funding for new ventures presented by family members. within the framework of bsc method non-financial indicators have specific measurements or aims to be achieved which are compared by the authors to the actual measurements of these indicators (for example, cardinaels, van veen-dirks, 2010; coram et.al., 2011). table 2 provides comparison of non-financial performance indicators, which are divided into three groups (customer-related, internal business processes, learning and growth). among non-the financial performance indicators described by the authors there shall be marked common or identical indicators, for example, customers’ satisfaction, and slightly different indicators, for example, hours of employee training/ sales training per employee as well as different indicators. non-financial indicators refer to the following business functions: manufacturing (product quality, relations with suppliers, delivery and services), sales and marketing, human resources, research and development, environment (workplace environment and surrounding environment) (shaw, 1999). non-financial performance indicators are not divided into three perspectives of bsc as it is shown in tables 1 and 2. in its turn, table 3 displays non-financial performance indicators not distinguishing customer-related, internal business processes and learning and growth indicators. table 2. non-financial performance indicators 2 (designed by the authors) (cardinaels, van veen-dirks, 2010) (coram et.al.,2011) . customer-related customer satisfaction rating repeat sales sales per square foot of retail space new items first to market returns by customers (% of sales) internal business processes returns to suppliers (%) average markdowns (%) orders filled within one week stock-outs sales from trailblazer’s brand learning and growth suggestions per employee hours of sales training per employee hours of employee training per employee retail experience of sales managers average tenure of sales personnel (years) employee satisfaction (%) non-financial performance indicators have a long-term aim emphasizing the role of increasing customer loyalty, attraction of new customers, improvement of perceived company image and reputation (chen et.al.,2009). non-financial performance has no significant value for company managers; however, it can be used as a determining financial performance indicator and especially as a future financial performance indicator, which is not reflected in the current accounting indicators (prieto, revila, 2006). clients’ satisfaction can be described as an increasing clients’ wish to purchase new items or repurchase. satisfied clients buy more frequently and in larger quantities as well as purchase other goods and use other services offered by the company. besides, consistently offering goods and services, which satisfy clients, company’s financial performance improves as failure-related costs reduce. the more clients, the higher profit a company gains. (prieto, revila, 2006; abdelmaksoud et.al., 2005) (see table 3). table 3. non-financial performance indicators 3 (designed by the authors) (chen et.al., 2009). (prieto, revila, 2006) (abdel-maksoud et.al, 2005) • customer loyalty • attracting new customers • competitive advantage • reputation • perceived image • customers’ satisfaction • growth of number of customers • quality in products and services • employee satisfaction • organizational reputation • customers’ satisfaction • on-time delivery • efficiency and utilisation • product quality • employee morale (staff turnover, lateness, absenteeism) issn 1822–8402 european integration studies. 2011. no 5 216 clients’ loyalty can be described as clients’ trust to a certain company, product or service. under contemporary competitive conditions companies have to solve an ongoing problem: how to keep and strengthen their position in the market and at the same time maintain efficiency. clients’ loyalty can be described as one of the key factors for success in business. employees’ satisfaction or morale is reflected in company’s income, labor efficiency and productivity improve (prieto, revila, 2006; abdel-maksoud et.al, 2005). a company having good reputation needs lower costs to attract new customers or employees. good reputation can also help introduce new goods and services by reducing customer trial risk. reputation can also benefit by establishing and maintaining relations with key suppliers, distributors and potential partners (prieto, revila, 2006). summarizing this part of the article it can be concluded that all authors consider non-financial indicators systems as a component of bis; however, each author has his own perception of the non-financial indicators system. non-financial indicators as an essential part of intellectual capital non-financial indicators mentioned above, which measure the results of a certain kind of business activity, are invisible resources contributing to the company value. in economic literature such invisible resources are called “intangible assets”, but in scientific literature – “intellectual capital”. the authors of the paper pay attention to the existing problems of the measuring non-financial indicators; the reason for which, in most cases, is the impossibility to apply quantitative methods to measure intellectual capital. classification of non-financial indicators lies on the basis of the model of its measurement (kuzmina, 2008). every measurement model is based on certain combinations of indicators, and therefore is unique. scorecard method developing by kaplan and norton is one of them. according to kaplan and norton (harvard business review, 2008) bsc has 4 perspectives: financial perspective, client perspective, internal business processes perspective and innovation and learning perspective. bsc is strategy and vision oriented, not control oriented. it puts forward aims, but assumes that staff will adapt its behavior and take actions to reach them. indicators are introduced to guide staff to a common vision. further development of bsc methodology is characterized by bis as a basis for a new system of strategic management. kaplan and norton have developed a map of strategies which let establish cause-effect links between long-term aims (strategic management) and performance indicators (shortterm activities) (духонин е.ю. и др., 2005). analyzing further the opinions of researchers about the nature of intellectual capital it can be concluded that in each case the definition of intellectual capital included a definite set of non-financial indicators, which are grouped in three areas or strategic perspectives. for example, webster m. considers intellectual capital to be a component of intangible assets. in his opinion, intangible assets include intellectual capital (patents, licenses, etc.) and other intellectual property (human capital – knowledge, loyalty to organization, motivation, etc..; client capital – clients’ loyalty, distribution channels, etc.; organization (infrastructure) – information systems, management philosophy, corporate culture, etc.) (webster m. et.al. 2004). kim dong-young and kumar v. consider that intellectual capital includes three parts: human capital, structural capital and relations capital. in his opinion, the indicators characterizing human capital are employees’ satisfaction, number of training hours and training costs per employee, etc. structural capital is characterized by such indicators as the number of patents, corporate culture, staff ethics, etc., but relations capital has such indicators as clients’ satisfaction, clients’ loyalty, brand value, etc. (kim dong-young, kumar v., 2009). ballow j.j. (ballow j.j. et.al., 2004) thinks that intellectual capital is composed of three parts: relations capital, organization capital and human capital. the authors have marked clients’ loyalty, quality of offered contracts, etc. as the indicators characterizing relations capital. in authors’ opinion, organization capital has the following indicators – reputation, structural opportunities, etc., but human capital is described by such indicators as staff loyalty, employees’ reputation, etc. we can see non-financial performance indicators among the indicators characterizing intellectual capital (see tables 1, 2, 3), for example, clients’ loyalty, employees’ satisfaction, number of training hours per employee, etc. initially the learning and growth perspective included employees’ skills, opportunities of information systems and such behavioral factors as motivation and powers (henhall r.h., langfield-smith k , 2007), but within the recent approach of bis the learning and growth perspective is described as intangible assets having three parts: human capital, information capital and organization capital (kaplan r.s., norton d.p., 2004). there is a positive link between learning skills and nonfinancial performance indicators as well as non-financial performance results and financial performance results. companies taking care of their clients, employees and society in general can reach better financial performance indicators. improvement of non-financial performance indicators does not have immediate positive impact on financial performance indicators. managers must understand that satisfied clients and shareholders will automatically increase company profit. in general, a long-term perspective is needed to measure the training effect and business activity results (prieto, revila, 2006). the learning process as one of the non-financial indicators is considered to be an element of the knowledge-based management process. as a result of training employees gain knowledge and master skills, as well as change their attitude, behavior and motivation. the result of the complex system is the result of business activity, which is divided into two groups: financial indicators (roi, roa, roe, ros, turnover, productivity) and non-financial indicators (staff turnover, shortage, conflicts, product quality, services and innovations). the company’s strategic role and impact on the learning process and results of business activity are noted (thang et. al., 2010). qualitative analysis, which includes analysis of financial indicators (analysis of financial reports, roi, net present value, etc.) and non-financial indicators (staff training, communication practice, assessment of product and process issn 1822–8402 european integration studies. 2011. no 5 217 knowledge, assessment of individual, context, satisfaction and process knowledge) is one of the knowledge-based management measurement methods (huang et.al., 2007). despite standardized calculations to measure the results of intangible assets performance, for example, impact of brands in the 1990s, the non-financial performance identification, measurement and reporting mechanism is not sufficiently developed. much of this lack of standardization has to do with the present voluntary nature of such reporting. those organizations that put themselves under the onus of nonfinancial performance metrics do so of their own free will, thus there is much variation from one organization to another as they formalize their respective reporting formats (klm inc., 2004). the authors consider that companies have a great deal of flexibility in the treatment of non-financial indicators to complete the reports on intellectual capital as an additional part of the financial statement of a company. reporting rules do not fully determine actual reporting practice. further research on business activity non-financial indicators shall be related to detailed study of intangible assets measurement and assessment methods and approaches, which are analyzed in scientific literature in relation to intellectual capital. advantages and disadvantages of non-financial performance indicators in the previous part of the paper it has been noted that in practice there are certain problems in measurement and assessment of non-financial indicators. thus, business performance assessment basing on non-financial indicators has both advantages and disadvantages. more profound research was conducted by ittner and larcker (2000), who described the advantages and disadvantages on nonfinancial performance indicators in comparison to financial performance indicators; later in 2003 they completed their analysis by identifying company errors in measurement of non-financial performance and options for improving nonfinancial performance measurement. within the paper the authors schematically summarized the opinions of ittner and larcker as displayed in figure 1 and analyzed the opinions of the researchers. the main advantages of non-financial performance indicators seen in figure 1 can be described as the advantages of bsc method (closer link to company’s long-term strategies, better displayed future financial performance results, indirect, quantitative indicators of intangible assets), as the aim the map of strategies and bsc is identifying and developing causeeffect links within the strategy implemented by a company. analyzing the disadvantages of non-financial performance indicators, the authors of the article have concluded that measurement and assessment of non-financial performance indicators are complicated by the time and cost factor, which can be described as the need for extra time to explain employees the principles and advantages of using a non-financial performance system as well as calculation and introduction of non-financial indicators require additional information. it is complicated to measure and compare non-financial performance indicators because it is difficult to measure the results of company performance or arrive to compromise between indicators if some indicators are expressed in time units, but others in quantitative units or percentage, or even in a free form. as a result, a variety of non-financial indicators measurement methods can lead to imprecise or even erroneous measurement of company’s non-financial performance. bsc method determines identifying causal links in a company, but in case of unknown or unrecognized causal links a company may concentrate attention to wrong aims, thus complicating decision making by company managers. figure 1. advantages and disadvantages of nonfinancial performance indicators, companies’ errors in their measurement and improvement of measurement errors (created by the authors based on the data of ittner and larcker) ittner and larcker (2000) consider that non-financial performance indicators lack statistical reliability because many non-financial data, for example, satisfaction indicators, are based on surveys having a certain number of respondents and quite few questions. ittner and larcker (2003) are aware of companies’ errors in measurement of non-financial performance resulting from identification and assessment of company’s non-financial indicators advantages and disadvantages. bsc method, for example, does not determine which fields provide the greatest contribution to the company’s financial results. successful companies use causal models identifying causal links between the implemented measures and performance results. the companies using causal models can rarely actual improvement in non-financial performance measurement and its impact on future financial performance results. besides, the researches of ittner and larcker (2003) prove that 70% of companies use indicators which are not sufficiently statistically grounded and reliable. options for improvement of non-financial indicators (see figure 1) are based on the application of a causal model, continuous improvement of the model, use model data in making decisions, and assessment of model performance outcomes. in order to introduce a causal model successfully it is needed to summarize information and check causal links within the model by applying mathematical statistics and other methods (for example, target group method, interview method). issn 1822–8402 european integration studies. 2011. no 5 218 the authors consider that companies, including latvian companies, can gain opportunities to identify better company performance results and measure the company’s market value by applying the causal model and bsc and taking into consideration the potions for improvement of non-financial indicators offered by ittner and larcker (2003). conclusions • non-financial indicators reflect individual elements of company’s intellectual capital; they are intangible resources comprising the company’s value. • in scientific literature there is no common approach to the classification, measurement and assessment methods of non-financial indicators. as there are no common ways to reveal information, it causes difficulties in displaying information in relation to nonfinancial indicators. • the most widespread method for identifying, measuring and displaying non-financial performance indicators is the a balanced scorecard system, which includes financial perspective, clients perspective, internal business processes perspective and innovations and learning perspective. the balanced scorecard system developed, strategy-mapping was elaborated to trace and develop causal links between long-term aims and implemented short-term activities. • despite the fact that standardized calculations have appeared to measure intangible assets performance results, for example, impact of brands in the 1990s, the non-financial performance identification, measurement and reporting mechanism is insufficiently elaborated. • assessment of company’s non-financial performance errors basing on the recognition and assessment of non-financial indicators advantages and disadvantages provides an opportunity to consider options for improvement of non-financial indicators measurement. on the basic of the above conclusions, it is possible to make the following recommendations for the practical implementation of non-financial indicators for evaluation of company’s business activity: • description of a company’s strategy; • identifying the subject of non-financial indicators for management purposes, because the classification of indicators defines the basis of the model of its measurement; • selecting the appropriate method of value; kaplan and norton‘s strategy-mapping approach could be useful for latvian companies; • developing a report on intellectual capital as an additional part of a company‘s financial statement. performance can be monitored year by year, or can be compared to other similar organizations. a report on intellectual capital is considered to be a tool for financial and non-financial indicators measurement, management and enhancement of company’s attractiveness for investors. • despite the fact that scientific interest in the problem of implementation of non-financial indicators is constantly growing, the above presented theme is still being the subject of scientific discussions and disputes. references abdel-maksoud a., dugdale d., luther r non-financial performance measurement in manufacturing companies. // the british accounting review, 2005, vol.37, p.261– 297. andriessen. d. making sense of intellectual capital: designing a method for the valuation of intangibles. butterworth-heinemann is an imprint of elsevier, 2004. ballow j.j., burgman r., molnar m.j. managing for shareholder value: intangibles, future value and investment decisions.// journal of business strategy, 2004, vol. 25 iss: 3, p.26 – 34 cardinaels e., van veen-dirks p.m.g. financial versus non-financial information: the impact of information organization and presentation in a balanced scorecard. // accounting, 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– 742. wier b., hunton j., hassab elnaby h.r. enterprise resource planning systems and non-financial performance incentives: the joint impact on corporate performance. // international journal of accounting information systems, 2007, vol.8, p.165–190. wiersma e. an exploratory study of relative and incremental information content of two non-financial performance measures: field study evidence on absence frequency and on-time delivery. // accounting, organizations and society, 2008, vol.33, p.249–265. духонин е.ю. и др. управление эффективностью бизнеса. концепция business performance management. – м.: альпина бизнес букс, 2005, стр 269. the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 8 submitted 03/2016 accepted for publication 09/2016 european integration studies no. 10 / 2016 pp. 8–15 doi 10.5755/j01.eis.0.10.14579 © kaunas university of technology dilemmas of post–enlargement europe: building an ‘insecurity zone’? eis 10/2016 abstract dilemmas of post–enlargement europe: building an ‘insecurity zone’? http://dx.doi.org/10.5755/j01.eis.0.10.14579 martin dangerfield department of history, politics and war studies, university of wolverhampton wulfruna street, wolverhampton, wv1 1ly, united kingdom this article reflects on the development and operation of the european neighbourhood policy (enp) from the perspective of the post–1989 attempt to extend the west european ‘security community’ into the wider europe via processes of both eu enlargement and attempts to foster deep integration with former soviet states. whilst the eu’s strategy towards eastern neighbours should certainly not be taken as the sole or even key cause of the ‘insecurity zone’ in and around the eu’s eastern frontier, it seems hard to avoid the conclusion that actions such as the enp and eap have played an important part in these developments. this is an analytical contribution rather than a study based on primary re­ search. as well as extending existing discussions about the expansion of the european security com­ munity and the application of the ‘optimum integration area’ concept to the eap countries, the article includes a focus on eu states’ economic relations with russia which is a critical albeit underexplored constraint upon eu ‘eastern’ policy. keywords: eu–russia relations; ukrainian crisis; eastern partnership; eu enlargement; eu trade with russia. 2014 marked the ten year anniversary of the launch of the european neighbourhood policy (enp) and the five year anniversary of its ‘offspring’ the eastern partnership (eap). the war in georgia in 2008, the present conflict in ukraine with the ensuing annexation of crimea and breakdown of relations with russia were not expected to be its key results as far as the eastern sphere of the enp was concerned. as speck (2015), quoting the economist, noted, “(i)nstead of having built a ‘ring of friends,’ the eu is now surrounded by a ‘ring of fire’”. post–2004 attempts to develop close integration with selected post–soviet countries have certainly not achieved the hoped–for spread of the ‘european security community’ further east. whilst the eu’s strategy towards eastern neighbours should certainly not be seen as the sole or even key cause of the ‘insecurity zone’ in and around the eu’s eastern frontier, it seems hard to avoid the conclusion that actions such as the enp and eap have played an important part in these developments. this article reflects on the development and operation of the enp and eap from the perspective of the post–1989 attempt to extend the west european ‘security community’ into the wider eu­ rope via processes of both eu enlargement and attempts to foster deep integration with former introduction 9 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 soviet states. the article identifies some key contradictions of the eu’s engagement with the eastern neighbourhood including the effects of important inconsistencies in policies towards the eap countries on the one hand and towards russia on the other. for the latter, this will include the implications of the relatively unnoticed but extremely important intensive economic interde­ pendence that developed over the last decade or so due to the rapid growth of eu exports to the russian market. first, some definitions and a qualification. post–enlargement europe refers to europe after the 2004 and 2007 eu enlargements and signifies that we are now in the era where big–bang ex­ pansions of the eu are over and the contours of the european project are more or less known, assuming the western balkans eventually gain accession (see webber and stivachtis, 2011). a security community is (cottey 2007, 3) “a region where war between constituent states is highly improbable and virtually unthinkable. disputes are resolved via cooperation in framework of common institutions”. after 1945 a potent security community emerged in western europe in the framework of the process of european integration in the cold war context. this therefore developed as the deutschian pluralistic variant of security community where sovereignty re­ mains primarily at state level though diluted through elements of supranational governance. the qualification is to stress that this article is concerned with the soft power based security role of the eu and the interplay between integration processes and security–building. eu enlargement to central and eastern europe (cee) was of course accompanied by the hard power based nato expansion into the region as a broader and more explicit component of cee security policy. apart from the fact that nato membership is more to do with perceived external conventional security threats and a comparison that can be drawn between the respective external and internal secu­ rity roles of nato and the european integration in post–war western europe, the enp/eap has not in any case been accompanied by nato expansion to the eu’s eastern neighbours. after 1989 the west european security community began the process of spreading eastward and the security–building properties of the eu enlargement process became fully apparent during this time. for cee each step forward in european integration was underpinned by conditionality that created the internal conditions for eventual membership of the eu and also of the extended european security community. the core conditions, otherwise known as the copenhagen cri­ teria, included: transition to a market economy able to be competitive in the eu single market; resolution of local conflicts/tensions; democracy; and rule of law. cottey (2007) wrote that “the western european security community that emerged during the cold war has outlasted the his­ torical circumstances that gave rise to it, and is now the defining feature of the new security land­ scape. the emergence and consolidation of this security community has dramatically reduced the likelihood of war in europe and in doing so fundamentally transformed the nature of secu­ rity in europe…the western security community has also been a significant stabilising influence in central and eastern europe, providing a powerful impetus for reform and moderation in the region. in the context of democratisation and integration with western institutions, central and eastern european states have made significant efforts to overcome historic disputes and develop new co–operative relationships (both bilaterally and multilaterally)”. the successful spread of the european security community to cee is the main reason why the eu enlargement process has been hailed as the eu’s most successful foreign policy ever. now­ adays, in 2016, the sustainability of this achievement is however under some question, with notions of ‘disappearing democracy’ and ‘democratic backsliding’ in new eu member states, especially hungary and, more latterly poland, having gained traction (meuller 2014, sedelmeier 2014, inotai 2015). even before these setbacks, the gloss of the 2004/2007 enlargement had also security and integration in europe e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 10 differentiated ‘zones’ of post– communist/ post– enlargement europe worn off somewhat with anti–free movement of people rhetoric having been growing steadily in several ‘old’ member states, most notably in the uk where immigration was a key issue in the june 2016 vote to leave the eu. nevertheless it is only where the possible alternative scenarios for europe, exemplified by the horrors of the former yugoslavia in the 1990s, have been forgotten that doubts about the enormously positive impact of the eu’s eastward expansion could serious­ ly be harboured. either way, the post–enlargement success is certainly not being replicated in the eu’s engagement with the eastern neighbours. the manifold shortcomings of the enp itself have been discussed at length by many scholars and will not be rehearsed here. instead, the rest of the article focuses on some key reasons why the spread of the european security community into the ex–ussr was always bound to be a formidable, if not impossible task, regardless of how well the enp may have been designed and why even a strategy based enlargement proper and not just enlargement ‘lite’ may well also have run aground. the eu’s differentiated approach to post–communist europe became apparent almost imme­ diately after the end of the cold war. by 1993 it was clear that the countries comprising cee were the most privileged group and set apart from the other post–communist countries, with membership on the horizon and association agreements in place or under negotiation. europe. relations with ex–soviet countries, except for the baltic states, were to be on the basis of part­ nership and association, which included neither membership nor deep integration perspec­ tives. the countries of the conflict–ridden former yugoslavia were by and large not engaged (with the exception of macedonia) at all. by the end of the 1990s these enduring distinctions in patterns of eu engagement were reflected in how europe was seen from the perspective of se­ curity. hyde–price (2002) identified three differentiated zones: core, intermediate and outer. the core zone, western europe, was of course itself a stable order and established security commu­ nity. the states comprising the intermediate zone – cee – (essentially those destined to be the 2004/2007 eu entrants) were so far less stable than the core zone but essentially peaceful be­ cause of the so–called ‘triple transformation’ from authoritarianism to democracy, from planned economy to market system and from belonging to the council for mutual assistance (cmea) to accession to the eu. the outer zone – the west balkans and former ussr – was clearly going to be an increasingly difficult and challenging task as far as further spread of the european security community was concerned. this set of countries represented the least stable and most unpre­ dictable zone characterized by slower domestic reform, post–conflict or frozen conflict contexts and lagging progress and/or uncertain prospects for euro–atlantic integration. this at least was the picture in the early 2000s when ‘intermediate’ zone states were on the cusp of eu accession. as far as post–enlargement europe is concerned, the basic pattern has continued. the modes of engagement with the western balkans and ex–soviet states have undergone major change but the main three–way differentiation set in train in the early 1990s has been consolidated (see dangerfield 2007) with varied statuses as far as the european security community is concerned. the first group is cee, consisting of the eight may 2004 entrants plus (in spite of later entry and some variation in entry conditions) bulgaria and romania. these new eu members are now largely absorbed into the european security community. the second group consists of the west balkan states all of whom have a membership promise (already honoured in the case of croatia) and are en route to the eu, albeit with differentiated rates of progress. this region is also a site also of active eu peacekeeping and other common security and defence policy (csdp) missions, reflecting the complex mix of security problems within that region. the third group includes east european states engaged in the enp and since 2009, the eap. these states are still denied a membership promise but have progressed to an association perspective. they have been subject 11 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 to an eu vision or, some would say, rhetoric, in which they can develop a relationship short of full membership but nevertheless entailing advanced integration with the eu. this group is charac­ terised by specific security complications and reform issues connected to the soviet legacy and close relations with russia. russia itself has, of course, gone into a category of its own, espe­ cially since 2004 when it declined to participate in enp. this marked the point in which eu and russian competition for influence in the ‘shared neighbourhood’ began to crystallise (see below). each of the above–mentioned zones or ‘concentric circles’ has represented a progressively more complex and more challenging arena for the eu, yet the premise has been that the same me­ thod – enlargement or ‘enlargement–lite’ – can work in all these different settings. the fact that the eap zone is now one of instability and crisis, at least for ukraine, has not only finally confirmed the invalidity of that assumption, but has fuelled perspectives that the enp/eap strategy has actually undermined security in europe by acting as a catalyst for struggle between reform and anti–reform elements in eap countries that escalates into violent confrontation. speck (2015), for example, argues, that while european integration should be of long term benefit – economic and political success – it can have de–stabilising effects in the short term. this is due to corrupt and self–serving elites that embrace cooperation with the eu to get benefits but resist full–blown transformation to liberal democracy and market economy. europeanisation threatens them be­ cause it would empower the wider population and, inter alia, undermine ‘cronyism’ in the form of patronage and rent–seeking privileges. as speck (2015, 2) writes, “it was not by accident that the eu’s flag was waving over the maidan and that the refusal of the association agreement with the eu was what triggered the fall of the old yanukovich regime”. thus europeanisation processes seem to run up against deep–seated resistance to reform processes needed to forge a path to genuine integration with the eu. when, as in the ukraine case, this results in violent clashes between elites and reformers the eu finds itself in the position of having been complicit in the outbreak of conflict but at the same time itself lacking the capacity to intervene, especially when russia becomes involved as a key external actor. this is not, course to say, that the eu has no means of responding, as the subsequent economic sanctions on russia, along with the subsequent offer of an association agreement for ukraine and eu ‘context’ of the german and french role in achieving the 2015 minsk agreement show. nevertheless, the eu itself has neither the political capacity nor the ‘hard power’ instruments in which to respond or intervene directly in such conflict situations and is always restricted to its usual post–conflict reconstruction and peace–building role, with even the diplomacy carried out during the conflict phase being carried out by the member states rather than the eu per se. the third reason focuses on the use of the enlargement method even for countries without any formal prospect of joining the eu. the consequences of the lack of membership offer is well–worn argument which stresses that the absence of accession process undermines incentives to reform. less noticed is incorrect sequencing of integration process with eu. according to the ‘classical’ method of eu enlargement (see preston 1997) the first step is a ’classical free trade agreement’ that involves basic tariff and quota removal. this is usually accompanied by insistence that the countries taking this initial step towards integration with the eu should also liberalise trade with each other, for example as per the central european free trade agreement (cefta). in the neighbourhood, the eu reversed the order and offered deep integration at the outset that entailed a massive, complex and long term regulatory alignment. classical free trade arrangements of europe agreement type were a more ap­ propriate first stage. these is because they were more feasible to introduce, and would have unintended consequences of europeanisa­ tion – de– stabilisation? contradictory application of the enlargement method e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 12 acted as stepping–stones towards and a learning process for deeper integration. moreover, they could have encouraged more foreign direct investment, especially if accompanied by regional free trade agreement or enabling the other eap countries to follow the example of moldova which is a member of cefta. the concept of optimum integration area (oia) devel­ oped by dangerfield (2011) not only shows whether states are fit for membership at a specific time but also clearly suggests that the traditional sequencing of steps towards eu integration would have been more suitable for the eap countries. to give a brief explanation of the oia first, it adapts the ‘optimum currency area’ (oca) concept, which identifies necessary con­ ditions for a viable currency union, to the eu enlargement issue. the oca approach stresses that economic profiles of prospective participants must be sufficiently converged, otherwise unsuitable partners will put intolerable strains on the whole system. following the same principle, the oia uses a number of indicators to determine whether potential members could be absorbed without compromising the integration project. dangerfield’s model, which fo­ cused on the so–called western newly independent states (wnis) took into account gdp per capita, freedom and human rights, quality of economic and business governance according to world bank governance indicators and progress in post–communist economic transition as measured by the european bank for reconstruction and development (ebrd). it clearly showed that even at the time of launch of the eap, let alone the enp, the wnis at least were not in a fit state for deep integration with eu. the final argument rests on the assumption that relations between the eu and eap countries are a sub–system of eu–russia relations. one perspective on this is the mearsheimer (revived) thesis that the eu has been complicit (with nato) in creating a new grave security crisis in in the post cold–war ‘multipolar’ europe. this is through disregard for russia’s perceived interests and pushing euro–atlantic structures to russia’s front door. again, this paper stresses a differ­ ent contradiction and one that has played an important role in hampering eu support for eap countries and undermines the ability of the eu to deal with the de–stabilising consequences of europeanisation as noted above. the basic point to be stressed here is that the eu has promoted and supported europeanisation in the ‘shared’ neighbourhood whilst simultaneously building strong economic interdependence contradictions between neighbourhood policy and the strategy towards russia table 1 belarus, moldova, ukraine and the “optimum economic area” income per head 2008 ($) freedom index 2010 (pr/cl) quality of economic regulation 2008 transition rating (ebrd) eu25 28497 1/1 1.38 – iceland 36299 1/1 1.12 n/a norway 49072 1/1 1.34 n/a switz. 38031 1/1 1.66 n/a ukraine (47.1 million) 6750 3/2 (free) –0.39 3.07 moldova (4.2 million) 2738 3/4 (partly free) –0.20 3.0 belarus (9.8 million) 11329 7/6 (not free) –1.24 2.04 romania 11704 2/2 0.53 3.44 bulgaria 11239 2/2 0.75 3.56 source: dangerfield (2011) 13 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 with russia. eu companies have massively expanded exports to russia since around 2000 and particularly after 2005. this of course was on the back of russia’s oil–fired import boom: between 2005 and 2010 imports doubled from us $bn 79.7 to 197.5 us $bn (dangerfield 2015). the rela­ tionship with russia is obviously crucial to successful engagement with eastern neighbours, yet a ten year process of building economic interdependence with russia means that trade consider­ ations are at the heart of the difficulty of achieving a unified eu stance when it comes to economic statecraft towards russia. criticism of sanctions and some ‘behind the scenes’ business as usual in some aspects of bilateral ties (see dangerfield 2015) are evidence of this. for example it was interesting to note that many leading not only us but also european multinational companies attended the annual ‘st petersburg international economic forum in late june 2015. this was in marked contrast to 2014 when most stayed away. the decision of some member states (such as hungary and slovakia) to reconvene meetings of bilateral intergovernmental trade and economy commissions after having suspended them in 2014, is a further evidence that the complex web of eu–russia trade and economic ties is well beyond the comprehensive control of the eu and that a multilateral approach to economic ties with russia has clear parameters. to further illustrate this issue, we can point out that the new eu members states have also been significant participants in the overall eu export boom to russia. taking the three ‘small’ visegrad states as an example, viktor orban and robert fico have been openly critical of eu sanctions on russia and there have similar interventions by czech president milos zeman. rather than some kind of sudden political lurch towards russia, this represents economic pragmatism based on the rather dramatic increase in the significance of the russian market over the last decade or so. table 2 demonstrates the extent to which the czech republic, hungary and slovakia have all expanded exports to russia since eu accession and also shows how this was set in the overall eu boom. energy dependence is another important consideration for the three. the gas trade is well publicized, the nuclear energy issue less so. table 3 shows the importance of nuclear energy for the three. russia is the key partner in this sector (dangerfield 2015). table 2 czech, hungarian and slovak exports to russia 2004–2013 (euro, millions) 2004 2006 2008 2010 2012 2013 index 2013/2004 czech exports 770 1504 2911 2672 4760 4474 581 hung. exports 738 1617 2666 2583 2567 2538 344 slovak exports 271 549 1811 1933 2638 2457 906 eu 27 exports 46123 72400 104970 86308 123442 119780 260 source: dangerfield (2015) table 3 nuclear energy capacity in the czech republic, hungary and slovakia no. of soviet–built reactors nuclear power as % of domestic electricity generation czech republic 6 33% hungary 4 33% slovakia 4 55% source: dangerfield (2015) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 14 _ in 2016, ‘post–enlargement europe’ largely reflected a successful expansion of the euro­ pean security community. this has been based primarily on the internal transformations of cee post–communist states and their absorption into the eu (alongside nato expansion). also, despite the ongoing challenges in the western balkans and inevitable longer term mem­ bership perspectives of many states in that region, no one could deny the role that european integration has played in pacifying and stabilising the former yugoslavia. whatever the even­ tual outcomes within the west balkans, the contours of post–enlargement europe suggest that the final limits of eu expansion are now known. this also means that the spread of the european security community may have also run aground, at least for the foreseeable future. there can be no doubt that at the present time the eu’s eastern neighbourhood looks more like an ‘insecurity zone’ plagued by open or frozen conflict. _ does the failure to achieve successful spread of the european security community reflect the failure of eu policies or intractable complications of the eastern neighbourhood itself, includ­ ing but not wholly down to, the russia factor? much more research will be needed on that key question in the future, but either way the ukraine crisis and all its ramifications confirmed a widespread acceptance that the fundamental re–assessment of the enp that took place during 2015 was long overdue. the european commission’s november 2015 review of enp stresses that differentiation and greater mutual ownership will be its hallmarks from now on (european commission, 2015). the new approach appears to be more pragmatic and less based on the enlargement model than its predecessor but whether it will provide a more effective frame­ work for eu engagement with its neighbours remains to be seen. conclusions bbc news (2015) ‘ukraine ceasefire: new minsk agreement key points’, 12 february. retrieved 15 june, 2015 from http://www.bbc.co.uk/news/ world–europe–31436513 cottey, a. (2007) security in the new europe. london: palgrave. dangerfield, m. (2015) ‘economic relations be­ tween visegrad group countries and russia: how much has changed?’ paper presented at the eusa fourteenth biennial conference, march 5–7, boston massachusetts. dangerfield, m (2011) ‘belarus, moldova and ukraine: in or out of european regional interna­ tional society, journal of european integration, (special issue: ‘europe after enlargement’, edited by m. webber and i stivachtis), 33(2), 215–233 dangerfield, m (2007) ‘the european union and post–communist europe: one approach or several?’, communist studies and tran­ sition politics, 23, (4), 478–500 http://dx.doi. org/10.1080/13523270701674566 european commission (2015) ‘joint communi­ cation to the european parliament, the council, the european economic and social committee and the committee of the regions’, brussels. 18.11.15, join(2015) 50 final. hyde–price, a. (2002) ‘european security in the twenty–first century: towards a stable peace order?’ in a. cottey and d. averre (eds.) new security challenges in post–communist europe (pp.190–212). manchester: manchester university press: manchester hungarian government, (2015) ‘we have strengthened our cooperation with russia’, 17 february. retrieved 4 november, 2015 from www.kormany.hu/en/the–prime–minister/news/ we–have–strengthened–our–cooperation–with– russia a. inotai (2015) ‘hungary on the way from a lib­ eral to illiberal system. introductory remarks’, südost–europa, 63(2), 167–172 j–w meuller, (2014) ‘eastern europe goes south. disappearing democracy in the eu’s newest members’ foreign affairs, march/april, 2014, 14–19. prague post (2015) ‘czech–russian plan catch­ es babiš unawares’, 28 january. retrieved 2 march 2015 from www.praguepost.com/czech– news/44035–czech–russian–plan–catches–ba ­ bis–unawares preston, c. (1997) enlargement and integration in the european union. london: routledge. references 15 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 about the author http://dx.doi.org/10.4324/9780203195871 u. speck (2015) ‘eu faces tough choices in the neighbourhood’, euobserver.com, 20 may. re­ trieved 15 june, 2015 from https://euobserver. com/opinion/128728 j. mearsheimer (2014) ‘why the ukraine crisis is the west’s fault. the liberal delusions that pro­ voked putin’ foreign affairs, september/october, 77–89. u. sedelmeier (2014) ‘anchoring democracy from above? the european union and demo­ cratic backsliding in hungary and romania after accession’, journal of common market stud­ ies, 52(1), 105–121. http://dx.doi.org/10.1111/ jcms.12082 spief16 news, (2015) ‘ministry of industry and trade promotes cooperation between russia and slovakia in high–technology industries’, 6 may. retrieved 19 november, 2015 from https:// f o r u m s p b . c o m / e n / 2 0 1 5 / s e c t i o n s / 2 2 / m a t e r i ­ als/196/news/307 martin dangerfield ba (hons), m.sc., phd, jean monnet chair in the european integration of east and central europe department of history, politics and war studies university of wolverhampton fields of research interests eu–russia relations, european neighbourhood policy, eu enlargement, visegrad cooperation address wulfruna street, wolverhampton, wv1 1ly, united kingdom e–mail: m.dangerfield@wlv.ac.uk general requirements the article should be prepared by microsoft windows operational system microsoft word text editor. the author submits the paper by registering to www.eis.ktu.lt the suggested length of the article is ~4000–8000 words. the structure of the article should correspond to the general requirements of research papers. it should clearly present the research problem, the aim, research methods, results and discussion, conclusions, references, according to the american pshycological association 6th edition system used in the journal. presented papers will be reviewed by two experts. 5. if you are referring to some authors in the paper, the name of the author and the year of publication should be indicated in the text and a full list of references provided at the end of the article. structure of the article should be as follows: notes for contributors _ title of the article; _ full name of the author; _ abstract in english (approximately 1500–2000 printed characters); _ keywords (5–7); _ introduction; _ theoretical background/literature review; _ methods; _ results and discussion; _ conclusions; _ references; _ date of submission (year, month); _ information about the author. requirements for the preparation of an electronic form of an article text. an article shall be submitted according to the sequence specified in the general requirements of the article. the text of the article shall be submitted in a4 format (210 x 297 mm), using only the necessary text formatting, 11 pt. times new roman text font and 14 pt. times new roman font in bold for article headings. illustrations. text in the tables and charts shall be written in 9 pt. font, using single line spacing. tables and charts shall be numbered and have titles. tables, charts and illustrations shall be submitted in separate files (not only in word software). if illustrations are prepared using excel software, it is necessary to provide open operational files of illustrations. the photo resolution shall not be less than 300 dpi. references submitting the paper, the following data about the author (no more than 600 printed characters) should be presented separately: _ name, surname; _ scientific title and the title referring to a research field or trend; _ area of research interests; _ author’s working place, its address and e–mail. the list of references is presented in one column (10 pt) according to the alphabet. references (not less than 25 resources, wide use of isi (http://www.isinet. com/isi). here are some basic reference forms (journal article; working papers; book; book chapter; the internet address). journal article: broner, f., didier, t., erce, a., & schmukler, s. l. (2013). gross capital flows: dynamics and crises. journal of monetary economics, 60(1), 113–133. working papers: artige, l. & nicolini, r. (2006). evidence on the determ inants of foreign direct investment. the case of three european regions (no. 07) (p. 33). retrieved from http://www2.ulg.ac.be/crepp/papers/crepp– wp200607.pdf book: daugeliene r. (2011). es ekonomine integracija: priezastys, raida, perspektyvos (p. 281). ktu: technologija. book chapter: o’neil, j. m., & egan, j. (1992). men’s and women’s gender role journeys: metaphor for healing, transition, and transformation. in b. r. wainrib (ed.), gender issues across the life cycle (pp. 107–123). new york: springer. internet access: european commission. (2013). taric consultation methodology. retrieved december 14, 2013, from http://ec.europa.eu/taxation_customs/dds2/ taric/taric_consultation.jsp?lang=en&taric=&endpub=&meastext=&area=ru&regulation=&langdescr=&meastype=&simdate=20131025&startpub=&ordernum=&goodstext=&level=&expand=true e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 170 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 170-183 doi 10.5755/j01.eis.0.9.12805 © kaunas university of technology supply, demand, forecast of latvian labour market and tools for its development eis 9/2015 abstract supply, demand, forecast of latvian labour market and tools for its development http://dx.doi.org/10.5755/j01.eis.0.9.12805 olga starineca, inesa voronchuk university of latvia, latvia , aspazijas blvd. 5, lv-1050, riga, latvia many factors influence situation on latvian labour market. employment is one of the core subject to explorer observing changes of labour market supply, demand and forecasts. focusing on organisational problems concerning labour issues the microenvironment of the organisations ought to be study. the authors would like to compare latvian labour market forecasts and the real situation for the period starting from the economic crises year 2009 in latvia to 2015. reaching the objective of the study additionally, the data on labour market structure is observed focusing on young participants of the employment process (new enterprises and young employees, job seekers). describing the forecasts fulfilment and current situation on the labour market in latvia, some risks were defined connected with future employment situation in latvia. in addition, some tools of labour market development implemented in latvia were evaluated defining their advantages and disadvantages. the main assessed tools are lifelong education, youth guarantee, new enterprises support programs. they are implemented along the european commission initiative and european union funds. this research has an exploratory and descriptive design. the authors develop tentative hypotheses for the future researches. the primary methods used are literature review on employability and labour market topics; statistical data interpretation, statistical data comparison, synthesis, contextual analysis (swot). the forecasts about latvian labour market done by ministry of economics of the republic of latvia mainly were wrong. the last tendencies shows that there is a demand for specialists in such areas as trade, agriculture, construction and building, education. the demand of labour for this field is in the top ten rating. however, the forecast was correct about construction field; the demand of the specialists of this field has been decreasing slowly for the last five years. in addition, demand for the specialists of transportation, logistics field is high as it was forecasted as well as demand of medical specialists. the general tendencies of the employment on labour market are positive. the unemployment rate has been deceased for last five years and is about 10% during last two years. however, youth unemployment rates decrease does not show positive results as it is still high and is about 20 % during last two years. the main risk that can be urgent for the next five years are: economically inactive citizens, higher education institutions non-cooperation with latvian government, lack of specialists in engineering fields, medicine, information technologies, and some other, surplus of humanitarian and social sciences specialists, young specialist emigration, economy dependence on small, medium and microenterprises business. the authors propose public administration work more with their stakeholders especially scientists and younger representatives of the society (pupils). evaluating unemployment data general and youth some factors needs to be taken in to account before the data interpretation. before propose any eco171 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 introduction nomically inactive citizens engagement and stimulation activities, it is beneficial to identify and take into account reasons of their inactivity. the authors propose especially public organisations and governmental institutions to work more on youngest generation awareness about new trend on labour market and public organisations’ employer brand development. keywords: labour market, youth unemployment, lifelong education, youth guarantee. many factors influence situation on latvian labour market. employment is one of the core subject to explorer observing changes of labour market supply, demand and forecasts. focusing on organisational problems concerning labour issues the microenvironment of the organisations ought to be study. the authors’ objective towards the research is to compare latvian labour market forecasts and the real situation for the period starting from the economic crises year 2009 in latvia to 2015. the authors in many cases focus on latvian youth issues and people with tertiary education towards the research subject. the authors seek the new trends on latvian labour market and describe existing tools of its development as well as outline their advantages and disadvantages. for this purpose, the authors describe latvian labour market structure, evaluate supply and demand on certain specialists on the market, mark peculiarities of employment and unemployment in latvia as well as evaluate labour market development tools. as the final point, the authors provide results of latvian labour market swot analysis. this analysis will provide summarized information about the condition on the labour market and will help to define possible best development tools for it. in addition, the authors highlight the main risks that can be urgent for the labour market for the next five years. this research has an exploratory and descriptive design. the authors develop tentative hypotheses for the future researches. the primary methods used are literature review on employability and labour market topics, statistical data interpretation, statistical data comparison, synthesis, contextual analysis (swot). reaching the objective of the study additionally, the data on labour market structure is observed focusing on young participants of the employment process (new enterprises and young employees, job seekers). the authors observe the structure of the labour market of latvia mainly by age, education level and fields of activity. since 2009, more than 50% of latvian population in age from 15 to 74 years are employed economically active people. the percentage of the job seekers has shrunk from 11.50% in 2009 to 7.80% in 2013. the percentage of economically inactive people in latvia is constantly about 34% during this period. the main reasons of economical inactivity however are the willingness of students and pupils to study; also, it may be hard for them to find full-time jobs, pensioners’ disability to work because of weak health and homemakers’ necessity to be employed or their difficulties to manage children care while working. since 2009, about 6% out of economically inactive population in latvia admit that the reason of inactivity is a loss of hope to find a job. for the latvian economy recovery period, more than 40% of job seekers are long-term unemployed people. the biggest part of job seekers are young people in age of 15-24. part-time job is not popular in latvia and the situation has not changed in this field during the observed period. less than 10% latvian men and women are working part-time (latvijas republikas centrālā…, 2014a). peculiarities of employed and other economically active people in latvia prove latvian transition to the knowledge-based economy. statistics clearly reflects this fact by data from 2001 to 2013. the most economically active people are with the highest education level i.e. around 82% of people with tertiary education are economically active while only around 32% of latvian inhabitants latvian labour market structure e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 172 with basic or lower education are economically active ones. respectively the places supplied on the labour market are mostly for people with high level of education. the number of employed people in 2013 is lower than in 2009 for 14.6 thousands; however, it is relatively increasing each year since 2009. the biggest part of employed latvian inhabitants are people in age between 30 and 54, when there are not that many people in age from 55 to 64 and from 20 to 29 among the employed ones (latvijas republikas centrālā…, 2014a). senior economist of the macroeconomic analysis division from the bank of latvia highlight that “young people between 15 and 24 have low economic activity and the proportion of this cohort will continue to contract. the population in the 25-34 age group are characterized by a high level of economic activity and the proportion of this cohort will rise” (krasnopjorovs, 2014). young people activity on the labour market is clear – law level of education and lack of job experience as well as focus on education rather than job. there are also some people that can be classified as neets young people who are not in education, employment, or training (eurostat, 2009). in 2010, 17.80% of youth could be qualified as neets in latvia. in 2013, this proportion was equal to 13.00% (latvijas republikas centrālā…, 2014), however it also depends on the variances in the total number of youth in age from 15 to 24 years during the period. the age of latvian people’s maturity as well as period of life, when the level of health is usually high is around 25-34. this is age, when latvian inhabitants prefer to create families, that requires financial income (central statistical bureau…, 2014). people in this age already can have necessary on the labour market level of education and job experience and are likely. the authors focus on the period from 2009 to 2013. 88-89% of employed people in latvia are employees, around 4% are employers (owners) and around 6-7% are self-employed, other are volunteers that are working without compensation (latvijas republikas centrālā…, 2014a). the authors find statistical data that characterize employed people in latvia and prove that latvian economy is switching to the knowledge-based content. the proportion of employed people by economic activity sector has not changed a lot since 2009. the biggest group of employed people in latvia (40-41%) works in trade service sector. the next biggest group (27-28%) – in other services sector, the next group (23-24%) – in manufacturing sector. the smallest group (8-9%) is working in a sector of raw materials extraction and agricultural (latvijas republikas centrālā…, 2014a). service employees dominate in the economy of latvia. therefore, more and more people with higher education are required on the labour market; they simply have the biggest change to find job as supply of these types of vacancies is relatively high in latvia. the proportion of employed people by occupation groups in latvia also has had just a little changes, but the structure remains the same for the observed period. the majority of employed are managers or specialists (39-40%). the next big group of employed people are qualified/ skilled employees (25-26.50%). this group is a little bit bigger than the group of clerks and service workers (19-21.50%). the smallest group is a group of simple occupations workers. it was 13.10% in 2009, has it peak in 2011 (14.40%) and reused for 1.80% in 2013 (latvijas republikas centrālā…, 2014a). latvian labour market is mainly for middle age latvian inhabitants with more than secondary education and at least some work experience for work in service sector as employee. the local labour market did not have crucial changes in structure since 2009. the economic crises in latvia did not influences structural changes on the labour market in the big extend. the most sensitive group of population that had the biggest problems with employment after the economic crises is youth in age from 15 to 24 years. sometimes it is connected with the high requirements of the employers and other personal professional development priorities of the youngest generation on the labour market. 173 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the authors focus on exact specialities and areas of professional activities to check the demand on latvian labour market. particularly the authors checked the forecasts about latvian labour market done by ministry of economics of the republic of latvia. supply and demand on latvian labour market figure 1 number of demanded vacancies in latvia by working area in 2009 and for 10 first months of 2014 (authors created by sea unpublished data) according to the state employment agency (sea) data, demand of employees from 2009 to 2014 has slight changes; however demand of the employees in some areas doubled or more than doubled (figure 1). increase in demand is marked in law, transport and logistics, management and administration, information technology and telecommunication, catering and food industry, health care and social care (the demand quite doubled in these areas). the slight decries of employees demand was in culture and art area, media and public relations, banking, finance, insurance, security and defence, education and science, agriculture and environment, construction, service, manufacturing on latvian labour market for the period. the major increase (more than 50%) of employees demand since 2009 was in such areas as electronics, energy and electricity, public administration and other fields. manufacturing and trading organisations require the biggest amount of employees among other groups. the forecasts about latvian labour market done by ministry of economics of the republic of latvia (2009) mainly were wrong. the last tendencies shows that there is a demand for specialists in such areas as trade, agriculture, construction and building, education. the demand of labour for this field is in the top ten rating. however, the forecast was correct about construction field; e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 174 the demand of the specialists of this field has been decreasing slowly for the last five years. in addition, demand for the specialists of transportation, logistics field is high as it was forecasted as well as demand of medical specialists (according to the sea unpublished data, 2014). exploring supply of job seekers with certain background, the authors based on education of latvian inhabitants. supply on the labour market create job seekers (economically active inhabitants). the authors focus on the younger generation (generation y born from 1980) job seekers in the age of 15-35 as they have the certain peculiarities as employees and job seekers and are the major group of the youngest representatives on the labour market in latvia. employment in knowledge-based economy should go along with education i.e. the students should strive for having a job according their background. the youth in latvia graduate from tertiary education institutions earning specializations in different fields. the most popular ones from 2010 to 2013 were (latvijas republikas centrālā…, 2014): _ social sciences, commerce and law _ health care and social welfare _ engineering, manufacturing and construction. potentially these alumni may generate a supply in the mentioned field that could potentially fill in the vacant positions in these fields. potentially, the supply in the future can generate also students that will graduate from tertiary education institutions. the study fields’ biggest number of students accepted for at the tertiary education institutions in latvia from 2010 to 2014 were (latvijas republikas centrālā…, 2014): _ social sciences, commerce and law _ engineering, manufacturing and construction _ health care and social welfare. these areas are the same as those that were popular among the graduates at the same period. there are vacancies in these fields on the labour market, however, it is hard to consider, if the graduates will be able to fiend the suitable ones at least taking into account the factor that not all these vacancies presume job for tertiary education institutions graduates. besides employees’ education, employers are usually requiring certain job experience (voronchuk & starineca, 2014). unfortunately, not all tertiary education institutions have programs that presume professional experience of the students during the studies. therefore, it is more probable that youngest generation job seekers with appropriate education will not fully match the latvian labour market requirements. it is important to make a more detailed evaluation of hard and soft skills etc. required by employers analysing labour market supply and demand. sea forecasted that for the period from april 1, 2014 to april 1, 2015 the top demanded professions in latvia would be (nodarbinātības valsts aģentūra, 2015): _ senior specialist _ qualified workers and crafts men _ specialists _ managers _ plant and machine operators and assemblers _ service and sales workers _ clerks _ elementary occupations _ skilled agricultural, forestry and fishery workers. the forecast of the workforce occupations’ demand on latvian labour market for the same period are summarizes in table 1. after this period, it will be possible to compare forecast and reality, develop new forecasts and calculate probabilities of match on the labour market. in addition, it will be possible to define risks and new challenges on latvian labour market. 175 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 studente, l. (2014) also outlined that programmers are demanding on the labour market. she also highlighted that there is a risk of lack of specialists. latvian aging society also is aging in terms of employees in the certain working areas. such of them are metalworking, mechanical engineering and electronics, transport and logistics, life sciences, health care, green technologies, treatment of foods, etc. suhonen, t. (2014) emphasises that “completing a university degree in business, law or engineering generally results in higher average earnings than a degree in education or the humanities”. in addition “it may be argued that given the rapid increase in the general educational level observed recently [also in latvia], individuals’ post-secondary fieldof-study choices have become increasingly important determinants of earnings inequality and social stratification” (wolniak et al., 2008; suhonen, 2014). table 1 sea forecast of workforce in latvia from april 1, 2014 to april 1, 2015 the most demand on the labour market the least demand on the labour market programmers social workers information technology operations specialists gardening workers wrappers bricklayers and related trades workers film, theatre and related areas filmmakers and producers sales representatives not elsewhere classified commercial professionals psychologists not elsewhere classified engineers insulation work performers the construction sector executives steam turbine, engine and boiler operators waiters mixed crop growers agricultural and industrial machinery mechanics and repair telephone switchboard operators constructers/builders child care workers shop assistants and assistants seller dairy cattle and other livestock breeders not elsewhere classified workers agricultural crops farm workers geologists and geophysicists painters and related workers gardeners, garden crops and nursery growers not elsewhere classified service areas managers not elsewhere classified builders and related workers source: nodarbinātības valsts aģentūra, 2015. there are already lack of young employees and relevantly qualified education institutions’ graduates in some fields. according to the state education development agency’s forecasts, presenting by the ministry of welfare the supply of workforce will exceed the demand by 2016. under the risk will be people with tertiary education especially in social, commerce and law sciences and low qualification workforce (ministry of welfare, 2012). in spite of having a degree in the certain areas the graduates may decide not to work by their speciality because of the several reasons that might be law salaries, low prestige of the job or lack of passion and motivation, weak employer brands of the potential employers etc. sometimes it may cause increase of unemployment among young people as well as their emigration. several organisation care about employment on national, regional and cities levels as well as employability of the certain groups of latvian population. “unemployment has as its immediate consequence “income poverty” because earnings on the labour market decrease” (haataja, 1999). the authors are focusing on youth making an overview of employment in latvia. the general tendencies of the employment in latvia are positive. the unemployment rate has been deceased for last five years and is about 10% during last two years (trading economics, employment and unemployment in latvia e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 176 2015). however, youth unemployment rates decrease does not show positive enough results as it is still high and is about 20% during last two years (trading economics, 2015a). youth unemployed in latvia and registered by sea are both with and without tertiary education (figure 2). number of unemployed people with tertiary education is constantly low (below five thousands). the majority of unemployed youth are those with low education level. the crises has effected only these young people. the low educated people tendency to get benefits from the unemployed person status (compensations, career services, etc.) can also effect the higher number of low-educated youth among unemployed ones. figure 2 number of registered by sea unemployed youth from 15 to 24 years in latvia from 2009 to the first 10 months of 2014 (authors created by sea unpublished data) another aspect to pay attention on the employability of youth with tertiary education. it is possible to earn for example bachelor degree until 24 years in latvia; however, it is a small chance to get job according to the background until this age especially for the tertiary education students. the low number of unemployed youth with tertiary education does not necessary mean that all other employed young people with tertiary education have jobs according to their background. they might have low-level jobs holding the diploma from the tertiary education institution. that is another probable issue of efficiency of education institutions and employers collaboration. top ten occupations/position chosen by employed youth with tertiary education in age between 15 and 24 in 2011 were (latvijas republikas centrālā…, 2014): _ shop assistant (6.80%) _ senior specialist of policy management (4.20%) _ preschool pedagogue (2.80%) _ sales representatives/commercial agent (2.70%) _ visitor reception and information staff (2.50%) _ office manager (2.40%) _ home affairs inspector and investigator (2.40%) _ accountant (2.10%) _ secretary (2.00%) _ programmer (1.90%). some occupations from the top ten occupations that youth from the same age group chose in 2011 to obtain income are the same as from the list of top ten occupations/position chosen by employed youth with tertiary education. they also in some instance had the quite the same popularity among all inhabitants in latvia including youth in 2011. these occupations are (latvijas republikas centrālā…, 2014): _ sales representatives/commercial agent (12.90% youth, 7.30% all inhabitants) _ commercial activities and management (administration) specialist (8.40%, 7.20%) _ personal services clerk (8.00%, 4.30%) _ mine, construction, manufacturing and transport worker (5.90%, 2.90%) _ food and wood processing, clothing manufacturing worker and artisan (other related trades’ worker) (5.40%, 4.60%) _ client service (4.00%, 1.80%) _ metal processing, machinery and other related trades’ worker (3.80%, 3.60%) 177 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 _ builder and other related trades’ worker except electrician (3.70%, 3.20%) _ employee of processing services sector (3.30%, 2.80%) _ self-propelled machinery and equipment managers, lifting equipment and machine operator (3.20%, 7.00%). self-propelled machinery and equipment managers, lifting equipment and machine operator is more popular among all latvian inhabitants (833493) than among youth (80483), however, it has the tenth place in the rating (figure 3). all other occupations from the list are more popular among particularly youth rather than all latvian inhabitants. latvian youth find sales representatives/commercial agents work both gainful and relevant for tertiary education institutions graduates. the most popular fields that the latvian youth (15-24years) worked in were (latvijas republikas centrālā…, 2014): figure 3 top ten occupations that youth (15-24 years) chose to obtain income and their popularity among all latvian inhabitants in 2011, % (authors created by latvijas republikas centrālā…, 2014) _ wholesale and retail trade, repair of motor vehicles (22.80% from 80483 in 2011) _ processing plant (14.80%) _ accommodation and catering service (8.70%) _ transport and storing (6.30%) _ construction (6.20%). these fields provide working places for youth (15-24 years) and employ them. the biggest field preferred by youth is trading. wholesale and retail trade, repair of motor vehicles also is the top field that youth with tertiary education work in having the main working place there (12.5% out of 16754 in 2011). the next fields are education (12.50%) and public administration and defence, compulsory social security (9.60%). the next field employed 5.60% of youth in 2011 and it is financial service activities except insurance and pension funding. other field employed less than 4% of youth each in 2011 (latvijas republikas centrālā…, 2014). young people are employed in various fields and hold various positions and these varieties sometimes do not depend on tertiary education. however, for instance financial field as a field for employment is more typical for young people with tertiary education. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 178 unemployment does not always primary depend on the supply and demand of labour on the market. mismatch of job seekers’ skills and abilities, and skills and abilities required by employers cause structural unemployment. “transition costs” of employers and job seekers (especially recent educational institutions graduates or parents after maternity leave that would like to come back to the labour market) cause the frictional unemployment (dau-schmidt, 2009; šenfelde, 2009; jain & sandhu, 2010). in case of latvia, both types of unemployment exist. frictional unemployment will exist as preferences of job seekers and employees has changing characteristics. structural unemployment is easier to manage providing different kind of tools to develop the situation on the labour market, to adjust job seekers portfolio to the changing requirements of the employers. among the reasons of youth unemployment are a country’s poor macroeconomic performance and the absence of the right skills and attitudes within the young generation and the major one society’s failure to create enough jobs for young people. “a more demand-oriented strategy based on social partnership by including workers’ and employers’ organisations” could help to solve the issue (o’higgins, 2001; artner, 2013). “the manpower group (2012) suggests promoting economic growth, entrepreneurship development and education among other things” (artner, 2013). several tools are used in latvia to solve some the labour market challenges. the authors evaluate some of these tools defining their advantages and disadvantages. the authors focus on three this kind of tools namely lifelong learning, youth guarantee and new enterprises support programs as well as some latvian local career services. the tools are implemented along the european commission initiative and european union (eu) funds. a tool that is promoted by eu initiatives and the organisation for economic co-operation and development (oecd, 2015) is a lifelong learning. oecd (2015) recommends latvia to “encourage lifelong learning and training by improving information about training opportunities and adult learning while ensuring the portability of skills”. latvian state education development agency (seda) provide information and implement competitions for several eu lifelong learning programmes such as comenius, leonardo da vinci, erasmus, grundtvig, study visits, erasmus+ (viaa, 2015). some of these programs are focused on students and pupils mobility, some of them focus “on the teaching and study needs of learners taking adult education and ‘alternative’ education courses”, other on “specialists and decision makers representing various groups of education and vocational training stakeholders” (viaa, 2015). latvian state employment agency (sea) provides also information on some lifelong activities. sea “war launching the implementation of the european social fund (esf) project lifelong learning measures for the employed” (sea, 2015). for employed people sea provides lifelong-learning measures for employed persons, besides it also provides measures to increase competitiveness (mic) and promotion of regional mobility of persons employed by merchants i.e. “financial aid to cover the transport and apartment rent costs during the first four months of the employment legal relationship” is provided (sea, 2015). sea also provides career services for youth, adults and job seekers. on sea web site, it is possible to find various tools under each path that can help to identify each group’s needs, help to find assistance services on employment, career development, training, learning, education and motivation. all these career services are free of charge (nodarbinātības valsts aģentūra, 2014). according to the youth survey, the most useful competences, which can give advantage when entering the labour market, are foreign languages knowledge, communication skills, knowledge gained from non-formal education activities and to the smallest extent knowledge gained at school or during studies (latvijas republikas centrālā…, 2014). sea works a lot to maintain the contact with employers to be able help employees to adapt to the requirement of employees and try to regulate supply and demand on labour market. latvian labour market development tools 179 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 sea also promotes such an eu tool as the youth guarantee. these program activities in latvia are implementing only for one year. the unemployed youth without any job experience in age from 15 to 24 years can enjoy these program provided activities. the youth from the target group can receive special career consultations; can participate in competitiveness development activities, workshops for youth, informal education programs, and other activities that stimulate inclusion on the labour market. sea, some educational institutions and municipalities are involved into all these activities implementation (nodarbinātības valsts aģentūra, 2015a). one more tool oriented on young entrepreneurs up to 40 years is new enterprises support program. “entrepreneurship development has a positive impact on many areas, e.g., it stimulates new job creation accordingly leads to the higher employment level. young people become entrepreneurs and employ other specialists” (starineca, 2015). sometimes these new entrepreneurs are young people are those who could not find suitable for them work on the labour market and decided to create it by themselves, this situation can be called “supply creates its own demand” (dau-schmidt, 2009). “introduced in latvia in 2009, the new start programme has already enabled latvian entrepreneurs to create 700 new businesses and 1300 new jobs” (european commission, 2013). to establish a small or microenterprises in latvia is quite simple and fast as well as get informational and financial support (liaa, 2015)”. (starineca, 2015) the centre of new entrepreneurs (jobs and society) also provide free consultancy to new entrepreneurs. it is local initiative and is not supported by eu. the age of new entrepreneurs is not limited (jauno uzņēmēju centrs, 2015). the authors emphasises several advantages and disadvantages of the aforementioned tools (table 2). some of them are focused on certain age group, however, many of them provide free of charge advices and services. it is important to increase awareness of latvian population on these tools that in many cases requires people’s primer interest and involvement. these tools and services cover development activities of population on the different development steps i.e. when people are pupils, students, with or without job experience. this is a logical activity as exactly those groups of people has the biggest difficulties with employment. “unemploytable 2 evaluation of some latvian labour market development tools tools advantages disadvantages lifelong learning programs are focused on different groups of people by employability and education status as well as age group provide financial support help to develop skills important to inclusion and adaptation to the labour market some groups of people however cannot use some programs (e.g. civil servants) some programs are competition based youth guarantee help to develop skills important to inclusion and adaptation to the labour market is focused only on unemployed youth without any job experience new enterprises support programs/ activities provide free of charge consultancy and financial support engage specialists from the field help to develop economy are mostly oriented to students or people till the certain age some programs are competition based sea career services free of charge adapted for three categories of people (youth, adults and job seekers) provide advises and self-development tools help to develop skills important to inclusion and adaptation to the labour market require self-engagement i.e. a person needs to find services via web site. sources: european commission, 2013; sea, 2015; nodarbinātības valsts aģentūra, 2014, 2015a; viaa, 2015. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 180 ment risk is higher for young people than for adults, and first jobs are often unstable and rather short-lived” (jacob, 2008). new entrepreneurs support activities and programs do both enhance economy and develop labour market by activating people, who become entrepreneurs, and by increasing number of vacant job places created by those entrepreneurs. the authors identify swot – strengths (internal origin and helpful), weaknesses (internal origin and harmful), opportunities (external origin and helpful) and external origin and harmful threats (pahl & richter, 2009; ferrell & hartline, 2014) of latvian labour market to identify its possible risks. the list of swot aspects has been developed summarizing the made overview of the case and other possible aspects, which had not been covered within this particular research. strength of latvian labour market can be defined as: swot analysis of latvian labour market _ high percentage of highly educated labour from different age groups _ high percentage of youth with tertiary education and studying in the tertiary education institutions _ level of employability is high _ attracts entrepreneurs (especially from the countries with the workforce less beneficial for their businesses). weaknesses of latvian labour market can be defined as: _ frictional unemployment _ high percentage of youth with tertiary education and studying in the tertiary education institutions _ mismatch of labour qualification/background and requirements of positions _ young people (job seekers) migration/emigration _ regional labour market misbalance (the majority of work places are provided in riga and riga region) _ lack of local job seekers with certain specialities and qualification _ local labour market unattractiveness for required local and foreign specialists. opportunities of latvian labour market can be defined as: _ labour market development tools _ european cohesion policy and eu funds and programs that are focused on employment and entrepreneurship development _ outsourcing of labour from abroad. threats of latvian labour market can be defined as: _ easy labour force mobility opportunities (especially for young people) _ attractive foreign labour markets (including eu labour market) _ neets and a high percentage of economically inactive population. high percentage of youth with tertiary education and studying in the tertiary education institutions can be both a strength and a weakness of the latvian labour market. most probably vacant positions that require tertiary education will be filled in future, however the employer will have difficulty with filling other lower qualification required positions. the main risks that can be urgent for the next five years can be caused by: _ economically inactive population _ higher education institutions non-cooperation or weak cooperation with latvian government and employment regulatory state institutions _ lack of specialists in engineering fields, medicine, information technologies (it) and some other 181 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 _ surplus of humanitarian and social sciences specialists _ young specialists emigration _ latvian aging society _ economy dependence on small, medium and microenterprises businesses. the lack of some specialists on labour market can be one of the risks. latvian society is aging; some specialities workforce is aging too, however, there will be the demand on these specialities workforce in the nearest future. these specialities require fundamental background e.g. tertiary education that takes time to get. some of these specialities are not popular among youth. the next risk is associated with difficulties to replace some aging workforce towards outsourcing. latvian labour market in some instance is not attractive even for the local workforce; there is small chance that the highly qualified foreign workforce will be attracted by latvian labour market. furthermore, there is language barrier that in some cases can be a reason of some difficulties in foreign labour employment. the authors compared latvian labour market forecasts and the real situation from 2009 to 2015. describing the forecasts fulfilment and current situation on the labour market in latvia, some risks were defined connected with future employment situation in latvia. some risks identified can be connected to the mismatch on the labour market. in addition, risks can cause economically inactivity of local population. from one hand, they do not participate in development of economy by ignoring participation on labour market. from another hand, many economically inactive people are young people, who are studying that is a positive moment. another risk can be associated with field of studies of these pupils and students. sometimes they are not aware of the education connection with the employability. higher education institutions cooperation with latvian government and employers could help this situation. otherwise, latvian labour market will suffer because of the lack of specialists in engineering fields, medicine, it etc. and surplus of humanitarian and social sciences specialists. the authors also crystalized few hypotheses for the future studies. these hypotheses are: _ a part of latvian employed young people with tertiary education does not have jobs according to their background rather the low-level jobs _ the low educated people have a tendency to get benefits from the unemployed person status and this effect the number of low-educated youth among unemployed ones _ some young and older people probably has weak awareness of career development and some tools that can help them to build career rationally and adjust their professional skills, abilities and knowledge to the employers requirements. the authors propose public administration work more with their stakeholders especially scientists and younger representatives of the society (pupils). evaluating unemployment data general and youth some factors needs to be taken into account before the data interpretation. before propose any economically inactive population engagement and stimulation activities, it is beneficial to identify and take into account reasons of their inactivity. in addition, the authors propose especially public organisations and governmental institutions to work more on youngest generation awareness about new trend on labour market and public organisations’ employer brand development. conclusions referencesferrell, o.c. & hartline, m.d. 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(2014). human resource recruitment and selection approaches in public sector: case of latvia. international scientific conference “new challenges of economic and business development – 2014”: riga, latvia, may 8-10, 2014. conference proceedings. riga: university of latvia, 2014, 417-430 p. isbn 978-9984-45-836-6 wolniak, g. c., seifert, t. a., reed, e. j. & pascarella, e. t. (2008). college majors and social mobility. research in social stratification and mobility, 26(2), 123–139, doi: 10.1016/j.rssm.2008.02.002. http:// dx.doi.org/10.1016/j.rssm.2008.02.002 olga starineca phd student msm, public administration, human resource management, university of latvia address aspazijas blvd. 5, lv-1050, riga, latvia tel. +371 25984905 e-mail: olga.starineca@lu.lv inesa voronchuk prof. dr.oec. public administration, human resource management, university of latvia address aspazijas blvd. 5, lv-1050, riga, latvia tel. +371 67034727 e-mail: inesa.voronchuk@lu.lv about the authors e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 34 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 34-52 doi 10.5755/j01.eis.0.9.12794 © kaunas university of technology intergovernmental and domestic factors in the negotiation process on renewable energy support schemes eis 9/2015 abstract intergovernmental and domestic factors in the negotiation process on renewable energy support schemes http://dx.doi.org/10.5755/j01.eis.0.9.12794 aistė pikšrytė, liudas mažylis vytautas magnus universtity, s. daukanto st. 28 lt44246, kaunas, lithuania the adoption of the directive 2009/28/ec on the promotion of the use of energy from renewable sources was an important step for the successive contribution to the global climate change regime as well as the diversification of energy supply, thus ensuring energy security and reducing dependence on external suppliers. however, although the directive sets out legally binding targets for each member state by 2020 as well as interim targets, it does not provide any legally binding instruments, i.e., renewable energy support scheme(s), to achieve the above-mentioned objectives. since the overall eu target as well as national targets are fairly ambitious, it poses a question, why the directive does not include specific legally binding instrument(s) for achieving these targets, whereas the so-called flexibility mechanisms, provided in the directive, are limited only to non-obligatory cooperation between member states. it is important to mention that, during the negotiation process on the directive, the harmonization of member states’ renewable energy policies through the eu-level mechanism of guarantees of origin was widely debated. therefore, the intergovernmental negotiation on the directive’s provisions on renewable energy support scheme which should allow member states to achieve their national targets as well as the overall eu target shall be submitted as the object of this article, while the purpose is to analyze the case of negotiating the eu-level renewable energy support scheme and to investigate the intergovernmental factors such as asymmetrical bargaining power of member states as well as specific domestic factors’ influence for the negotiation’s results, applying liberal intergovernmentalist approach as the theoretical framework for analysis. the main tasks of the article are: _ to introduce the basic provisions of liberal intergovernmentalism and to formulate principal theoretical assumptions for further empirical analysis; _ to present a compact overview of the support schemes for renewables, applied in the eu; _ to define the role of the european commission in the negotiation process, to determine the positions of the member states on a common support scheme for renewable energy, to analyze the process of interest bargaining through coalition-forming and to detect the essential results of the negotiation. the main methods applied in this article include an analysis of the documents and the member states’ position papers, conducting a case study of the negotiation process on the mechanism of guarantees of origin as the common eu-wide support scheme for renewables in the directive 2009/28/ec on the promotion of the use of energy from renewable sources. the article consists of three parts. the basic provisions of liberal intergovernmentalism as well as 35 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the principal theoretical assumptions are examined in the first part of the article as the theoretical framework for further empirical analysis. renewable energy support schemes, applied in the eu, are presented in the second part and the case study of the intergovernmental negotiation on the pan-european support scheme for renewables based on the mechanism of guarantees of origin is carried out in the third part. the findings show that the majority of the member states demonstrated strong opposition to the european commission’s proposal for harmonizing their renewable energy policies through specific pan-european support scheme, i.e., the mechanism of guarantees of origin. the commission’s initiative was rejected by posing an argument that the instruments for reaching the renewable energy targets must be selected according to the principal of subsidiarity with respect to each member state’s national specifics as only under these circumstances renewable energy support schemes could function in the most sufficient and effective manner. therefore, the commission‘s initial proposal had to be significantly modified thus abandoning the idea of the eu-level support scheme for renewables. the findings also verify theoretical assumptions based on liberal intergovernmentalism which postulate that the negotiation’s results mainly depend on asymmetric bargaining power and the most powerful member states’ preferences determined by their national specifics, support schemes and other domestic factors. keywords: renewable energy support schemes; mechanism of guarantees of origin; renewable energy policy harmonization; intergovernmental negotiation; eu member states’ national preferences. since the very end of the 20th century, the european commission has frequently criticized the highly fragmented variety of support schemes across the eu and has been urging the member states to turn towards a stable, unified eu-wide support mechanism for renewables (jacobs, 2012). the latest effort to harmonize the renewable energy support schemes can be seen in the negotiation process on the directive 2009/28/ec on the promotion of the use of energy from renewable sources, reflecting the commission’s proposal for the harmonized mechanism of guarantees of origin. however, this effort was rejected by the member states. the aforementioned situation poses the question regarding the reasons for the unwillingness of the member states to accept the commission’s proposal for joint instrument, i.e., a common support scheme for renewables, during the negotiation process on the directive. therefore, to answer this question, two main assumptions will be made and tested in the further analysis. firstly, the outcomes of the eu-level negotiations depend on the member states’ bargaining power as well as on the national preferences of the most powerful member states. consequently, the main purpose here will be to track the coalition-forming processes during the negotiation as well as to identify the interests of different member states and to analyze the process of interest coordination by exposing the so-called „winners“ and „losers“ of the negotiation. secondly, the functions of supranational institutions in the policy-making process are strictly limited to the initiation and coordination of political agenda as they are almost unable to participate in the decision-making process without the support of the most powerful member states. therefore, these institutions are forced to give up their initiatives or to make the significant amendments which match the positions of the most powerful member states. here the main purpose will be to assess the member states’ potential to remove the commission‘s proposals from the political agenda or to reduce them to a level which does not pose threats to their national interests. therefore, the intergovernmental negotiation on the directive’s provisions on renewable energy support scheme which should allow member states to achieve their national targets as well as the overall eu target shall be submitted as the object of this article, while the purpose is to analyze the case of negotiating eu-level renewable energy support scheme and to investigate introduction e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 36 the intergovernmental factors such as the asymmetrical bargaining power of the member states as well as the specific domestic factors’ influence for the negotiation’s results, applying liberal intergovernmentalist approach as the theoretical framework for further analysis. the main tasks of the article are: _ to introduce the basic provisions of liberal intergovernmentalism and to formulate principal theoretical assumptions for further empirical analysis; _ to present a compact overview of the support schemes for renewables, applied in the eu; _ to define the role of the european commission in the negotiation process, to determine the positions of the member states on a common support scheme for renewable energy, to analyze the process of interest bargaining through coalition-forming and to detect the essential results of the negotiation. the main methods applied in this article include an analysis of the documents and the member states’ position papers, conducting a case study of the negotiation process on the mechanism of guarantees of origin as the common eu-wide support scheme for renewables in the directive 2009/28/ec. the article shall consist of three parts. the basic provisions of liberal intergovernmentalism as well as the principal theoretical assumptions shall be examined in the first part of the article as the theoretical framework for further empirical analysis. renewable energy support schemes, applied in the eu, shall be presented in the second part and the case study of intergovernmental negotiation on the pan-european support scheme for renewables based on the mechanism of guarantees of origin shall be carried out in the third part. prior to the analysis, it is necessary to mention that only a few academic papers and media articles analyze the negotiation process on renewable energy policy as well as the member states‘ positions on these issues. moreover, even the scientific articles usually examine only the climate part of the negotiation process on the climate and energy package for 2020, paying very little attention to the renewable energy issues, e.g., the provisions of the directive 2009/28/ec. one of the reasons for this may be that the detailed positions of the member states in the intergovernmental negotiation are of limited public availability, while some of them are entirely inaccessible and classified by the national authorities due to national security issues. however, the majority of the member states’ positions on the mechanism of guarantees of origin, i.e., the common eu-wide support scheme for renewables (analyzed further in this article), are reflected in the documents of the general secretariat of the council. liberal intergovernmentalist theory emphasizes the vital interests as well as the preferences of the member states as the main stimulus for their integration. according to the postulates of this theory, the member states seek the best possible outcome which matches their national interests during the process of intergovernmental negotiation. in order to verify this assumption, the analysis of the member states‘ positions on the mechanism of guarantees of origin, set out in the commission’s proposal for the directive 2009/28/ec on the promotion of the use of renewable energy, will be carried out to identify their preferences and national interests. currently, the intergovernmental theories based on realist assumptions are dominant in the studies of european integration. from an intergovernmental theory perspective, the eu integration process may be defined by the following provisions, which also reflects the criticism of (neo)functionalist theory. firstly, the member states are the main actors determining the scale and speed of sovereignty delegation to the supranational authorities, while supranational institutions should be perceived as agents controlled by the member states, with no actual decision-making prerogatives, except in the cases when these institutions are supported by the large and most powerful member states. theoretical framework: the main assumptions of liberal intergovernmentalism 37 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 secondly, in contrast to the postulates of (neo)functionalist theory, the political and economic union is not self-sustained and an inevitable process. thirdly, the integration is possible only on the socalled routine issues on daily basis, which can be determined as matters of low-politics, where conflicts based on member states’ vital national interests are less likely to occur. realistic or classical intergovernmental theoretical approach particularly emphasizes the importance of nation-states and their impact on the processes of integration. the theory is based on the core (neo)realist principles, i.e., the anarchistic nature of international system which consists of formally and functionally equal elements, i.e., nation-states (rosamond, 2000). in this case, the focus should be placed on the distribution of power between the units, i.e., the nation-states, while the distribution of power should be described by analyzing how much influence or power the particular state a has on the particular state b (ibid.). in this way, the interstate cooperation is often perceived as complicated, for nation-states, as rational actors, always seek to maximize their gains, while the interests followed by respective actions of the most powerful actors determine the whole nature of the international system (ibid.). classical intergovernmental theory perceives the nation-states as the main actors who influence supranational institutions, maintain autonomy and defend their national interests (richardson, 2006). in this regard, supranational institutions do not weaken the sovereignty of nation-states. on the contrary, they serve its maintenance so the suppression of national interests for the common international cooperation remains unlikely. therefore, it is necessary to distinguish two forms of cooperation, i.e., the one on collective issues on daily basis within the framework of routine or low policy matters and the one on strategic high policy issues which would always be limited by opposing vital national interests. consequently, the principles of (neo)functionalist theory, such as the spill-over effects, fostering the integration, may only be actualized or implemented in the framework of low politics. in the early phase of its development, the intergovernmental theory was based on the assumption that the member states have fixed preferences or national interests based on geopolitical constellations, and the integration is highly determined by the realization of national interests. the classical intergovernmental theory was later modified, resulting in a newly evolved liberal intergovernmentalist approach, considered to be one of the dominant theoretical tools of european integration studies. a.moravcsik is universally recognized as the founder and the prime scholar of this approach, clearly conceptualizing the issues of national preferences’ formation and thus developing the classical intergovernmentalism into a multi-level theory. liberal intergovernmentalism suggests that the course and the results of intergovernmental negotiations (as well as the integration process itself) are determined by domestic policy matters and based on three fundamental principles: the assumption regarding the rational nature of the state, the scheme of preference-formation, based on the postulates of liberalism, according to which the preferences are influenced by various domestic actors, and the analysis of intergovernmental negotiation (moravcsik, 1993). contrary to the classical theory of intergovernmentalism which emphasized the importance of geopolitical interests, the liberal approach by a.moravcsik stresses the significance of states’ economic interests in the preference-shaping process. however, liberal intergovernmentalism retains the fundamental principles of classical intergovernmental theory as both theories recognize that the member states are the fundamental actors in the eu-level negotiations and that the power of supranational institutions in this respect is highly limited. the results of negotiations in this case depend on the relative power of the member states as well as on the intensity of their national preferences (pollack, 2000). a.moravcsik suggests a three-stage model of international negotiation which encompasses the formation of national preferences, the process of intergovernmental negotiations and the delee u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 38 gation of sovereignty to the authorities higher than national-level, i.e., supranational institutions (laursen, 2008). in the first stage, national preferences are formed as a result of competition between domestic interest groups, which eventually are represented by the state in intergovernmental negotiation process. the state-public relations are of particular importance in this stage, as foreign policy is highly dependent on public society and various interest groups (moravcsik, 1997). in the second stage of international negotiation, national preferences aggregated domestically are transferred to the international level, where the states seek the realization of their vital national interests by exploiting a variety of strategies and techniques. the stage of intergovernmental negotiation is based on three key theoretical assumptions. firstly, the negotiation process is a nonviolent, voluntary action, i.e., the parties have full power to reject an agreement which would be less useful than unilateral decision. secondly, the parties are provided with all the necessary information regarding each other’s national preferences. thirdly, the outcome of the negotiation and the distribution of benefit is determined by the bargaining power of the parties, which depends on the relative value provided by particular party to the particular agreement as compared with the best results of alternative policies; in other words, the bargaining power arises from the asymmetry of the member states’ preference intensity (moravcsik. 1999). the third stage of a.moravcsik’s model encompasses the delegation of sovereignty to supranational institutions in two ways. firstly, in the case of pooling sovereignty, states are prone to dealing with a number of issues by means other than unanimity, e.g., by qualified majority voting. secondly, in the case of delegating sovereignty, the decision-making prerogative is assigned to the supranational institutions, e.g., the european commission or the european court of justice, without states’ intervention or unilateral veto decisions (ibid.). in this case, the decision-making efficiency increases, but the parties’ abilities to control the process decline. alternatively, in the former case of pooling sovereignty, parties are less likely to lose control over decision-making, though a problem of inefficiency occurs. having assessed the notions, posed by a.moravcsik that the results of intergovernmental negotiations are determined by the differences in states’ bargaining power as well as asymmetric interdependence, it can be assumed that such negotiations determine “winners” and “losers”. the most powerful member states have more options to shape the eu policies by uploading their national interests to the international level, thus imposing their preferences on the relatively less powerful member states which can be perceived only as eu policy downloaders or takers. the existence of above-mentioned roles, such as policy uploaders or shapers, i.e., the most powerful member states, and policy downloaders or takers, i.e., member states possessing relatively weaker bargaining power, also offers an answer to why the integration within the domains of certain eu policies is often described as highly fragmented because of particular disparities. the powerful member states actively support the idea of integration on certain issues, while the member states with relatively weaker bargaining power are sometimes reluctant to implement the international commitments imposed on them during the negotiations. two main assumptions which are essentially based on liberal intergovernmentalist theory will be discussed in this article for the purpose on the eu renewable energy policy. firstly, the outcomes of the eu-level negotiations depend on the member states’ bargaining power as well as on the national preferences of the most powerful member states. consequently, the main purpose here will be to track the coalition-forming processes during the negotiation as well as to identify the national interests of different member states and analyze the process of interest coordination by exposing the so-called “winners” and “losers” of the negotiation. 39 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 secondly, the functions of supranational institutions in the policy-making process are strictly limited to the initiation and coordination of political agenda, as they are almost unable to participate in the decision-making processes without the support of the most powerful member states. therefore, these institutions are forced to give up their initiatives or to make the significant amendments which would match the positions of the most powerful member states. here the main purpose will be to assess the member states’ potential to remove the commission’s proposals from the political agenda or to reduce them to a level which does not pose threats to their national interests. in order to test these assumptions, the intergovernmental negotiations as well as the member states’ bargaining positions on the mechanism of guarantees of origin, proposed by the european commission as the eu-wide support scheme for renewables in order to harmonize the renewable energy policies within the eu, will be further analyzed in this article. since the very start of the development of renewable energy, it demanded a certain amount of financial support from the state, so some renewable energy promotion instruments, i.e., the support schemes, eventually emerged. the european commission emphasizes two groups of support instruments which encompass the instruments focused on the price, i.e., feed-in tariff schemes, and the quantity-oriented instruments, i.e., quota and the green certificate system as well as the scheme of auctions and tendering (jacobs, 2012). however, it should be noted that the spectrum of support schemes applied in the eu has now expanded to include a broad variety of modifications as well as some hybrid models. the most common renewable energy support schemes in the eu range from the so-called feed-in and feed-in premium tariffs to auction and tendering scheme for renewable energy quota allocation, quota and the green certificate system and other support instruments, such as investment support, tax exemptions, soft loans, etc. the feed-in tariff scheme is applied in the vast majority of the eu member states (canton & johannesson linden, 2010). the member states using the latter support scheme commit to support renewable energy by establishing long-term feed-in tariffs. in this case, renewable energy producers receive a fixed amount per unit of energy for a fixed period of time, regardless of the energy market price. it is considered that the feed-in tariff is the most favorable support scheme for a steady development as well as a promotion of renewables, since it ensures stable income flows for producers and investors and allows them to clearly predict the payback periods of renewable energy projects (held, et. al., 2014). as a result, it becomes easier to convince the creditors to grant loans, which also guarantees a stable development of renewable energy. feed-in premium support scheme functions quite similarly to the feed-in tariff, but in this case the renewable energy is traded on the market and its producers receive a fixed premium to the market price, which goes as a fixed amount or as a changing amount depending on the market price fluctuations (ibid.). for the above-mentioned reasons, the feed-in tariffs are considered as the most effective support schemes in the eu by a broad consensus of member states, investors, producers and the scientific community (haas, et. al., 2001; haas, et. al., 2004; reich & bechberger, 2004; held, et. al., 2006; ringel, 2006; lauber, 2007; haas, et. al., 2011). the auction and tendering scheme is applied with the purpose of allocating quotas for renewable energy by announcing calls for tenders. in this case, the tender winners are provided with quotas as well as feed-in tariffs for a defined period of time. the latter support scheme usually requires that (potential) competitors, i.e., auction participants, meet certain criteria, e.g., financial guarantees for renewable energy projects, penalties for delays of project implementation or non-implementation, etc., in order to reduce the number of potential tender participants on purpose to retain only those market players with the sufficient technological, financial and renewable energy support schemes in the eu e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 40 other resources (held, et. al., 2014). it is argued that the effectiveness of auction and tendering support scheme depends on the specific terms of the auction, the attractiveness of the renewable energy market for potential investors as well as the prospects of economic growth, the number and the special characteristics of tender participants and other factors. in the case of a quota or green certificate support schemes, various entities operating within the state must use renewable energy by producing or purchasing it from other entities or by acquiring the so-called green certificates. here renewable energy producers receive the green certificates from state authorities, which can be sold to other energy producers who are committed to produce a certain quota of renewable energy. it is argued that the main advantage of this scheme is its compatibility with the principles of the market as well as competitive energy prices, though it should be noted that the use of green certificates may increase the overall costs of renewable energy policy implementation when energy prices are unstable (ibid.). the feed-in tariff schemes focus on the specifics of renewable energy technologies, so they can be intended to support a wide range of technologies, while the quota or green certificate support schemes do not take into account technological specifics and they are intended to support the least competitive technologies or sources of renewable energy as well as large-scale projects. this may explain why the efforts to unify support schemes in the eu by their harmonization on the basis of the quota scheme have received opposition from those member states who oppose the centralization in the energy sector as well as resistance from small renewable energy market participants (jacobs, 2012). it should be mentioned that there have been some efforts to harmonize renewable energy support schemes on the eu level, though these efforts still remain unimplemented due to strong reluctance from the majority of the member states. the first harmonization initiatives appeared in the green paper of 1996, in which the european commission criticized the fragmented and fast-changing support schemes in the eu member states, encouraging them to move towards a unified and stable eu-wide scheme (ibid.). in 1997, the parliament published their opinion, urging for an eu-wide application of a feed-in tariff scheme, whereas the commission supported a quota scheme, since the feed-in tariff was less competitive compared to the quota scheme, according to the commission’s judgements (ibid.). however, the diversity of support schemes for renewables across the eu was retained, legally resulting in the directive 2001/77/ec on the promotion of electricity produced from renewable energy sources in the internal electricity market, with no specific provisions regarding the application of particular support scheme(s) (european parliament, european council, 2001). what is more, the assessment of the member states’ progress on the implementation of the targets set out in the directive 2001/77/ec, accomplished by the european commission in 2004 and 2006, estimated that respectively only four and three member states managed to meet their commitments, as most of them applied a feed-in tariff to reach their national renewable electricity targets (jacobs, 2012). yet another attempt to harmonize renewable energy support schemes followed during the negotiation process on the directive 2009/28/ec on the promotion of the use of energy from renewable sources, amending and subsequently repealing the directive 2001/77/ ec, but this initiative also ultimately failed. the directive 2009/28/ec on the promotion of the use of energy from renewable sources is generally acknowledged as one of the central legal acts in the field of renewable energy legislation. however, although the directive sets legally binding targets for each member state by 2020 as well as interim targets, it still does not provide any legally binding instruments, i.e., renewable energy support scheme(s), to achieve the aforementioned objectives (european parliament, european council, 2009). 41 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 since the overall eu target as well as national targets are fairly ambitious, it poses a question why the directive does not include specific legally binding instrument(s) for achieving these targets, whereas the so-called flexibility mechanisms provided in the directive are limited only to non-obligatory cooperation between the member states. it is important to mention that, during the negotiation process on the directive, the harmonization of member states’ renewable energy policies through eu-level mechanism of guarantees of origin was widely debated. however, despite the fact that the agreement on eu-wide as well as legally binding national renewable energy targets was reached by the member states, they were quite reluctant to accept the commision’s proposal on a common instrument for reaching those targets, i.e., the mechanism of guarantees of origin, in order to protect their national support schemes which match their national specifics according to the principle of subsidiarity. as liberal intergovernmentalist theory pays as much attention to supranational institutions as they serve the interests of the member states, supranational authorities’ (in particular, the european commission) main function mainly encompasses the agenda-setting prerogatives. the member states delegate their sovereignty to the commission in particular policy areas, such as renewable energy policy, to define the direction and to institutionalize the outcomes of negotiation process. the existence of the commission reduces the number of proposals submitted for consideration as well as the so-called transaction costs and makes further negotiation process more efficient. thus, the main function of the commission in many cases as well as in this particular case is the political agenda-setting through formulation of particular proposals, which member states can accept or reject during the negotiation process. in the case of the negotiation on renewable energy support scheme in the directive 2009/28/ec, the main role of the commission was to introduce the initial proposal on the guarantees of origins for the negotiation process, as it was seeking (at least) partial harmonization of the eu renewable energy support schemes, and to monitor the implementation of the directive, which can be perceived as the negotiation’s outcome. a wide range of permanent as well as ad hoc member states’ coalitions can be seen while researching the processes of various international negotiations. most commonly, the coalitions, particularly in the field of energy policy, are based on the distinction between the so-called new member states (joined the eu in 2004 and afterwards) and old member states. according to the theory of liberal intergovernmentalism, intergovernmental negotiations are also usually characterized by classical distinction between the most powerful large member states and the periphery member states. some other distinctions depending on the location, size and economic power of member states’ exist as well. therefore, one of the purposes of this case study will be to identify the structure of coalitions during the process of intergovernmental negotiation on renewable energy support scheme, i.e., the mechanism of guarantees of origin. as one of the central issues of the negotiation on the directive 2009/28/ec was the commission’s efforts to harmonize the member states’ renewable energy support schemes through the above-mentioned mechanism, this issue caused most disputes and disagreement among the member states. it should be noted that, speaking in terms of liberal intergovernmentalism, member states opposing the commission’s proposal to harmonize the renewable energy policies across the eu through the universal mechanism of guarantees of origin became the “winners” in the negotiation. the latter mechanism can be described as an eu-wide harmonized support scheme, by its nature very similar to the quota or green certificate support scheme, which also formally proves that a certain unit of energy is produced from renewable sources (jacobs, 2012). the latter mechanism was initiated to help member states cover their shortages of renewable energy by buying the certificates of guarantees of origin from each other if the case study of the negotiation process on the mechanism of guarantees of origin as a common support scheme for renewables e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 42 they failed to reach their national targets (ibid.). trading the latter certificates between operators was also set out in the proposal and widely debated during the negotiation. while assessing the issue of the mechanism of guarantees of origin, it can be noted that the contradiction between the member states in the negotiation process was determined by the variety of national support schemes. the member states which apply feed-in tariffs as well as small and medium-sized renewable energy companies advocated for the right of individual member states to apply national support schemes according to their own discretion (ydersbond, 2012). it is worth to mention that, prior to the official commission’s proposal, the abandonment of national support schemes such as feed-in tariffs and replacing them with a legally binding trade-based system was debated, but the proposal was amended, allowing an optional trading system, where national feed-in tariffs would still be allowed (ibid.). the legally binding obligation for guarantees of origin certificate trading when particular member states fail to reach their interim national renewable energy targets figured in the early draft of the commission’s proposal, but this provision was eventually removed by joint efforts of such feed-in tariffs’ proponents as germany, spain and their allies (dzionara, 2014; “endsreport”, 2008). after the presentation of the proposal in january 2008, the process of negotiation began at the european council and immediately a disagreement occurred among the member states over the relationship between the mechanism of guarantees of origin and the national support schemes, especially the feed-in tariff, therefore, the member states applying feed-in tariffs, particularly the above-mentioned eu renewable energy leaders germany and spain, were very reluctant regarding the common support mechanism (dzionara, 2014). the opposing member states’ positions reflected a strong contradiction, especially regarding the state-controlled trading in guarantees of origin. the reluctance towards the common support scheme was based on fears that the mechanism of guarantees of origin may lead to the eventual top-down harmonization of member states’ renewable energy policies through the total abandonment of the national support schemes (as it is widely recognized that sooner or later the eu will have to regulate national support schemes (delgado piqueras, 2012)). finally, taking into account the pressure on the national level, the uk altered its position on guarantees of origin from positive to rather skeptical. this resulted in the joint statement of germany, poland and the uk which offered a reduction of guarantees of origin from eu-wide support scheme to a simple formal tool, which solely proves that the origin of energy is of renewable nature, as well as a number of the so-called flexibility mechanisms which should help member states meet their renewable energy targets, i.e., voluntary cooperation between the member states by trading or joint projects in the field of renewable energy (dzionara, 2014; nilsson, et. al., 2009). this change in uk’s position in the very beginning of the negotiation came as a surprise to member states with a strong reluctance towards the mechanism of guarantees of origin, such as germany and spain (jacobs, 2012). at first the uk stated in its position that the mechanism of guarantees of origin may be economically efficient and could help achieve the renewable energy targets, together with national support schemes (general secretariat of the council. climate energy legislative package: policy debate. contribution from the united kingdom, 2008). however, later some doubts were expressed that the mechanism is already criticized by some member states for its potential “legal uncertainty” and the possible negative outcomes for national support schemes (general secretariat of the council. climate energy legislative package: policy debate. contribution from denmark and the united kingdom, 2008). the united kingdom claimed that the latter criticism may be perceived as reasonable and stressed that the flexible and efficient alternative proposal shall be introduced together with other member states (ibid.). 43 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 poland also showed concerns regarding the mechanism of guarantees of origin, suggesting that it could only operate as an additional instrument next to national renewable energy support schemes. otherwise, the renewable energy sector investment climate would be challenged by threats to its stability, the efficient operation of existing support schemes would be disrupted and even the implementation of the eu’s renewable energy targets could be jeopardized (general secretariat of the council. climate energy legislative package: policy debate. contribution from poland, 2008). in its bargaining position on the mechanism of guarantees of origin, germany stated that just as important as quantitative renewable energy targets are adequate support schemes (general secretariat of the council. climate energy legislative package: policy debate. contribution from germany, 2008). germany posed its rather negative attitude toward guarantees of origin certificate trading by pointing out that, although this mechanism could help minimize the burden on the member states, there is a need for discussion on the application of the mechanism and its coordination with the national renewable energy support schemes, especially feed-in tariff, as another option for reaching the renewable energy targets, according to germany, would be the cooperation between the member states, increasing flexibility and maintaining competitive and time-tested national support schemes at the same time (ibid.). germany also showed strong reluctance regarding guarantees of origin certificate trading between operators, as such trade would be difficult to implement due to legal as well as other issues (ibid.). in its position paper, spain stated that there is no need for strict binding measures, given the geographical, social, economic and energy diversity as well as other aspects of national specifics of the member states. therefore, the subsidiarity principle must be applied when adopting support schemes for renewables. “spain, along with germany and other countries, represents a case of success (in terms of renewable energy penetration, creation of technological structure, a fall in the learning curve towards competitive costs, etc.), and both countries exemplify the use of the feed-in tariff system of support for renewables”, so “we must ensure that the use of flexibility mechanisms to meet the targets does not undermine the operation of successful practical support systems, such as feed-in tariffs“ (general secretariat of the council. climate energy legislative package: policy debate. contribution from spain, 2008). greece stressed the need to take into account a variety of specific national aspects of the member states as well as the need to protect and develop the competitiveness of energy sector. in its position paper, greece suggests that member states should continue applying a variety of renewable energy support schemes, particularly the feed-in tariff, which has been already tested in many member states and has demonstrated high efficiency (general secretariat of the council. climate energy legislative package: policy debate. contribution from greece, 2008). additionally, it is stated that the mechanism of guarantees of origin could harmonize the member states’ support schemes and work efficiently only in a single european electricity market, but such a market “is not yet the case in the current transitional period in which we have many different national electricity markets and prices in the eu” (ibid.). cyprus stated that it has strong doubts regarding the efficiency of guarantees of origin certificate trading as well as the added value and cost-effectiveness of the mechanism (general secretariat of the council. climate energy legislative package: policy debate. contribution from cyprus, 2008). in its bargaining position, portugal welcomed such commission’s proposals as national renewable energy action plans and the interim renewable energy targets, but it also emphasized that the mechanism of guarantees of origin is not a sufficient renewable energy incentive and stressed its focus on feed-in tariff as well as other support schemes, such as lower taxes and other benefits for renewable energy (general secretariat of the council. climate energy legislative package: policy debate. contribution from portugal, 2008). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 44 belgium acknowledged that renewable energy targets for 2020 are ambitious, but noted that flexible instruments are necessary alongside the national targets. (general secretariat of the council. climate energy legislative package: policy debate. contribution from belgium, 2008). in objection to the commission’s proposal, belgium mentioned its doubts about the effectiveness of the mechanism of guarantees of origin (ibid.). finland’s position paper emphasized that the mechanism of guarantees of origin is more compatible with the green certificates support scheme, but is less suitable for the member states using the feed-in tariff (general secretariat of the council. climate energy legislative package: policy debate. contribution from finland, 2008). finland did not support guarantees of origin certificate trading between operators as it envisaged national risks, stating that the mechanism should not impair the existing national support schemes as well as the member states’ abilities to ensure secure and sustainable energy supplies (ibid.). in its position, denmark stated that it expects a stronger commitment of the member states to promote renewable energy production and consumption, and stressed that it would show support to the mechanism of guarantees of origin only if it functioned alongside the national renewable energy support schemes. denmark was in favor of a system functioning according to the principles of the market, in which the member states could voluntary reject the mechanism so that it would not jeopardize the national support schemes (general secretariat of the council. climate energy legislative package: policy debate. contribution from denmark ant the united kingdom, 2008). sweden emphasized the importance of avoiding a strict set of rules for the development of renewable energy, as the development would become more complicated for this reason (general secretariat of the council. climate energy legislative package: policy debate. contribution from sweden, 2008). sweden claimed that the effective national control mechanisms are necessary in order to reach national targets as well as an overall eu target, taking into account the national priorities of the member states (ibid.). in other words, each member state must have the right to independently select and apply renewable energy support schemes that are most compatible with their national specifics. the swedish government doubts if this mechanism could ensure stable investments in the renewable energy sector, and stresses that the application of the mechanism requires a deeper analysis as well as further discussion (ibid.). assessing the commission’s proposals on the mechanism of guarantees of origin, estonia expressed doubts whether this mechanism should be applied equally to both electricity and heat sectors, emphasizing the fact that the latter sector differs from electricity sector by its nature, so a uniform mechanism for both sectors should benefit heat producers more (general secretariat of the council. climate energy legislative package: policy debate. contribution from estonia, 2008). it was also noted that the mechanism of guarantees of origin is not strictly necessary if national support schemes work effectively and are beneficial to investors. the french position emphasized that the french presidency of the council at the time will make all the necessary efforts and pay special attention to europe’s energy security as well as the adoption of the directive and it will certainly be a priority to the french presidency (general secretariat of the council. climate energy legislative package: policy debate. contribution from france, 2008). assessing the proposal on the mechanism of guarantees of origin, similarly to many other member states, france’s point of view was that this mechanism should not contradict the existing and effectively functioning national support schemes, as it emphasized that the mechanism must be strictly controlled in order to allow the member states to stimulate the use of renewable energy by feed-in tariffs (ibid.). the position paper of romania regarding the mechanism of guarantees of origin reflected a neutral point of view as romania held a relatively moderate position, offering to improve the 45 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 proposal by introducing some clarity into this issue, particularly on the transfer of certificates of guarantees of origin between the member states. (general secretariat of the council. climate energy legislative package: policy debate. contribution from romania, 2008). in its position, lithuania noted that the directive will require significant efforts by the member states to achieve the targets set for renewable energy. lithuania also stated that the member states have different renewable energy potentials as well as different economic opportunities for renewable energy development. therefore, the efficient and flexible mechanism is necessary for the implementation of the targets, as that would ensure that they are reached in the most competitive manner in terms of price. lithuania thus considered that the mechanism of guarantees of origin is the most competitive and flexible way to achieve the aforementioned purposes (general secretariat of the council. climate energy legislative package: policy debate. contribution from lithuania, 2008). its position also suggested that the harmonization of renewable energy support schemes at eu level would be too early, as it would harm the investors and adversely affect the obligations of the member states to such investors. as a result, the member states should maintain the existing support schemes and should complement them with the mechanism of guarantees of origin (ibid.). the slovak republic also expressed strong support for the mechanism, as it believed that a common support scheme reflects solidarity between the member states. the slovak republic also noted in its position that during the process of negotiation it would endeavor to clear rules and minimum legal-administrative barriers to the application of the mechanism (general secretariat of the council. climate energy legislative package: policy debate. contribution from slovak republic, 2008). hungary also supported the commission’s proposal as a flexible, competitive and investment-promoting instrument for achieving national targets, which would enable the member states to reduce their burden, but stressed that the national control of the mechanism of guarantees of origin requires clear and strict rules (general secretariat of the council. climate energy legislative package: policy debate. contribution from hungary, 2008). bulgaria expressed support for the commission’s proposal on the mechanism of guarantees of origin in its position, and noted that this would be the most effective instrument of direct investment for reaching the targets (general secretariat of the council. climate energy legislative package: policy debate. contribution from bulgaria, 2008). bulgaria also stressed that renewable technologies require huge initial investments and create a considerable risk to investors, and this consequently requires stable and transparent instruments for long-term investment. consequently, in its position paper, bulgaria emphasized the importance of the economic efficiency of renewable energy, i.e., the lowest possible price (ibid.). probably the most obvious opinion on the mechanism of guarantees of origin came from italy. italy strongly advocated for the harmonization of support schemes based on the mechanism of guarantees of origin (with some exceptions related to the effectiveness of this mechanism in the case of interim targets) as it campaigned for the application of the mechanism not only within the eu, but also between the eu and third countries (general secretariat of the council. climate energy legislative package: policy debate. contribution from italy, 2008). in its position, italy stated that in order to achieve the maximum cost-effectiveness in the sector of renewables, it is necessary to harmonize the member states’ support schemes (ibid.). assessing the negotiation process on the common eu-level mechanism of guarantees of origin, it can be noted that this issue revealed deep disagreements between the member states on the commission’s efforts to harmonize their renewable energy support schemes through the joint mechanism. the commission’s proposal was eventually rejected by the joint efforts of e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 46 germany, spain, portugal, france, poland, the uk and other member states. however, a certain degree of flexibility, given the cooperation between member states as well as joint projects and international trade, has been maintained in the final text of the directive, although the pan-european mechanism of guarantees of origin was rejected as it posed threats to the existing national support schemes. therefore, the attempts for the member states’ renewable energy policy harmonization failed once again. those member states which remained negative regarding the common support scheme and were actively seeking to preserve their national support schemes (particularly germany, spain, portugal and others) became the “winners” in the negotiation, in terms a.moravcik. the outcomes of the negotiation process were a very accurate representation of the main notion of liberal intergovernmentalism that the integration in particular is based on the logics of economic interests, so it could unfold and take place only until violations of the member states’ vital national interests occur. in this case, the member states’ integration into the field of renewable energy policy was hindered by the efforts of the member states to protect the most economically advantageous, time-tested national support schemes, according to a variety of specific economic as well as energy domestic parameters. however, from the perspective of intergovernmentalism, this phase of the negotiation process resulted in reaching the lowest common denominator, partially satisfying all parties involved by rejecting the harmonization of support schemes through the mechanism guarantees of origin and replacing it with the alternatives of voluntary member states’ cooperation in the renewable energy sector as well as offering a variety of concessions and trade-offs in other debated issues regarding the whole package, such as climate change. according to the results of the case study and one of the main notions of liberal intergovernmentalism (that the international policy agenda is generally determined by the positions, preferences and national interests of the great powers), it can be noted that one of the main coalitions during the process of negotiation was composed of the most powerful member states, i.e., germany, the uk and france. as a result of the cooperation of these three great powers and their allies, the mechanism of guarantees of origin was essentially eliminated from the final text of the directive, retaining only a symbolic function of a formal instrument proving the renewable origin of energy. from the perspective of liberal intergovernmentalism, the pattern of coalition-forming is sufficiently clear during the process of negotiation on the directive 2009/28/ec, considering the three great powers of the eu. consequently, this denies the basic provisions as well as tendencies of supranational federalism, as it demonstrates the importance of national interests and the bargaining power of the member states in the processes of intergovernmental negotiations on the prospects of european integration. on the other hand, in terms of the outcomes of the negotiation, it can be noted that the assumptions of the (neo)fuctionalist theory regarding the supranational consensus, european integration by various spill-overs as well as harmonization of national policies are clearly limited by the member states’ preferences and their vital national interests which distinctly adjust the proposals of supranational institutions, i.e., the european commission. the scandinavian countries, which essentially opposed the proposal on the mechanism of guarantees of origin as a common eu-wide support scheme for renewables, together with estonia, spain, portugal, greece, cyprus, belgium, poland and other member states should also be perceived as the “winners” of the negotiation, as they reached a significant victory after safeguarding their specific national support schemes. conversely, italy, slovakia, lithuania, bulgaria and hungary, which expressed their support for the common support scheme, can be identified as the “losers”. while analyzing the aforementioned coalitions of the member states, it can be noted that none of them clearly meet the criteria for the distinction between the so-called new member states, which joined the eu in 2004 and afterwards, and the old member states. it is also worth adding that a clear 47 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 distinction between coalitions in terms of regional or geographical position, size and political or economic power does not exist either. in this case, the conclusion can be drawn that this distinction is based on the postulates of liberal intergovernmentalist theory, that the formation of certain coalitions during intergovernmental negotiations is determined more by the national preferences and economic interests of the member states than their size, geographical position, etc. the member states composing the aforementioned coalitions during the process of negotiation have different potential and energy mix of renewables, maintain different models and practices in the renewable energy sector as well as different support schemes, etc. therefore, their national interests as well as bargaining positions reflect a certain degree of heterogeneity and some mismatch over the “old vs. new member states” distinction. as a result, the coalitions of the member states, namely over the issue of a common eu-wide support scheme, can be regarded to be of ad hoc nature. the results of the case study revealed the energy integration disparities across the eu. the most powerful eu member states, particularly germany, france and the uk, have engaged in the implementation of green policies as well as in active participation in the global climate change regime. on the other hand, these member states are facing an active public advocacy for renewables as well as pressures from the renewable energy lobby groups seeking policy continuity safeguards from national authorities. germany should be perceived as one of the biggest “winners” of the negotiation, as it might reasonably be seen as a constructive pusher or even a unilateral policy maker, taking the agenda-shaping role in the process of negotiation (dzionara, 2014). germany played a key role in the negotiation process and is currently characterized as one of the renewable energy leaders across the globe. in the context of the negotiation process, germany can be considered as the constructive pusher whose presidency in 2007 was essential for adopting the 20 percent target for renewables at the eu-level. germany was also one of the few member states which has managed to implement the previous (not legally binding) targets at the national level by ensuring the necessary conditions for renewable energy development (sokolov, 2011). germany’s role as a constructive pusher in the negotiations process on the directive was determined by its course of domestic policy patterns, such as strengthening economic and political positions in environmental policy with regard to climate change prevention and the rapid development of renewable energy as well as a long-term favorable attitude of the ruling coalitions to green policies, with the continuity of chancellor g.schroeder’s policy by his successor a.merkel (ibid.). as the largest emitter of the co 2 emissions in the eu (and the sixth in the world), germany is very strongly committed to the development of the green agenda at the eu level as well as to the global climate change regime, actively implementing the kyoto protocol (ibid.). therefore, the maintenance of the national feed-in tariff support scheme during the negotiation on the directive was an important task for germany, as the feed-in tariff stimulates renewable energy development, which in turn significantly contributes to climate change prevention. although the share of uk’s renewable energy sources was one of the lowest in the eu during the time of negotiation on the directive, precisely because it relied strongly on nuclear energy as well as on oil and gas reserves in the north sea, it also supported the 20 percent overall eu target and showed reluctance regarding the common support scheme for all the member states. however, unlike the scandinavian countries which have carried out their national policies for developing more renewable energy, the uk focused on the importance of climate change prevention and the commitments to the global climate change regime under the kyoto protocol (ibid.). even though france also largely relies on nuclear energy, it also supported the 20 percent overall eu renewable energy target. in 2002, french ministry of economy organized the first large-scale e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 48 national debate on the topic of energy, the results of which showed that approximately 70 percent of the population had very low knowledge of energy, while the other part showed strong interest in energy-related issues (viepublieque.fr, 2005). therefore, the so-called white paper was adopted as a result of the debate which highlighted the prospects of the legal regulation of energy sector in three areas, namely energy efficiency, diversification of energy supply and significant increase in renewables (sokolov, 2011). according to these provisions, the 23 percent target for renewables in final energy consumption was introduced as well as the 50 percent increase in the use of renewable sources in the heating sector since 2020 (ibid.). like the uk, france has also assumed the high international commitments in combating climate change under the provisions of the kyoto protocol. the scandinavian member states are universally recognized as the pioneers and leaders in the field of renewable energy, fostering a single energy market as well as efficient renewable energy policies, although these policies are based on different principles, support schemes and renewable energy sources. for example, denmark is currently one of the leaders in the eu’s renewable energy sector and the largest producer of renewable energy technologies who has begun exploiting its national renewable energy potential (especially wind energy) since the oil crisis of the seventies. it has been further developing the electricity transmission network by expanding it to the neighboring countries, increasing the export of renewable energy technologies threefold by the end of 20th century, and committing to achieve a complete energy independence from fossil fuels as well as 30 percent of renewables in the final energy consumption by 2020 (ibid.). estonia should also be attributed to scandinavian countries in the respect of renewables, for, according to the evaluation of the progress in reaching the interim renewable energy targets, estonia is doing very well as it follows the plan in a timely manner (spitzley, et al, 2014). southern european member states, specifically spain and portugal, are one of the leaders at the eu-level and around the globe in terms of wind energy production. they also share a common goal to connect their electricity transmission infrastructure with other eu member states, especially france, as it would help them to further increase the renewable electricity production by exploiting potential export opportunities (euractiv, 2014). therefore, the protection of the national feed-in tariffs, most favorable for a steady development of renewable energy, was an important issue for spain and portugal during the process of negotiation. assessing the composition of the “loser” coalition in the negotiation, it can be noted that it largely consists of the so-called new eu member states and italy. italy can be characterized as the member state with a unique energy situation within the region of southern europe. it still tends to strongly rely on energy from fossil fuels and most of its oil and gas imports is based on long-term contracts (dinmore, 2013). unlike spain or portugal, italy has never been a leader in the renewable energy sector. on the other hand, it is often noted that the italian energy policy is short-sighted, lacking a comprehensive approach as well as a clear direction. it is usually emphasized that during its eu presidency in 2014 italy failed to effectively coordinate the common energy policy issues and to solve the climate crisis-related questions (colantoni, 2015). it is also easy to see that the three “losers” of the negotiations, i.e., bulgaria, slovakia and hungary, have strongly relied on nuclear energy since the soviet era or even implement new nuclear energy projects. another new member state, lithuania, showed a strong reluctance regarding the decommissioning of ignalina nuclear power plant according to the requirements set by the eu authorities for joining the eu. moreover, lithuania is not ready to abandon its nuclear state ambitions as it still plans to develop the visaginas nuclear power plant project, with the intention to maintain the continuity of energy policy based on the reliance on nuclear power, even while facing pressures from the non-governmental sector and the 49 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 public. the later post-soviet nuclear energy discourse as well as the ambitions to maintain the historically inherited centralized energy systems reflect the phenomenon of the so-called path dependency, when certain domestic policies, decisions or practices are based on the political or economic legacy, relying on historically determined knowledge and reasoning. _ a case study of the negotiation process on the mechanism of guarantees of origin as the common eu-wide support scheme for renewables in the directive 2009/28/ec together with an analysis of member states’ position papers were carried out in this article. the results of the case study showed that the negotiation process and the bargaining positions of the member states are determined by their economic interests. the opposition to a common support scheme very similar to the quota or green certificate support scheme by the member states which apply feed-in tariffs can justify this assumption. the intensity of the negotiation process depends on whether and how much the debated issue is relevant to the national energy and/or economic interests of the member states, which essentially reflects the basic notions of liberal intergovernmentalism. the majority of the member states demonstrated a strong opposition to the commission’s proposal for harmonizing their renewable energy policies through a specific pan-european support scheme, i.e., the mechanism of guarantees of origin. the commission’s initiative was rejected by posing an argument that the instruments for reaching renewable energy targets must be selected according to the principal of subsidiarity with respect to each member state’s national specifics, as only then the renewable energy support schemes could function in the most sufficient and effective manner. _ the commission‘s initial proposal had to be significantly modified, which resulted in abandoning the idea of an eu-level support scheme for renewables. the findings also verify the theoretical assumptions based on liberal intergovernmentalism which postulate that the negotiation’s outcomes depend primarily on asymmetric bargaining power and the preferences of the most powerful member states, determined by their national specifics, support schemes and other domestic factors. on the other hand, the case study of the international negotiation process on the mechanism of guarantees of origin sets aside the (neo)functionalist theoretical assumptions that integration is largely determined by the supranational level initiatives, since the european commission’s initiatives were significantly adjusted and even rejected by the member states during the process of intergovernmental negotiation. therefore, supranational consensus and the commission’s efforts to harmonize the member states’ renewable energy support schemes actually remain unaccomplished. consequently, the energy integration as a result of intergovernmental negotiations is likely to emerge only to a certain degree, until the initiatives of supranational institutions, i.e., the commission, are not contradictory to the national interests of member states. _ the case study also revealed that domestic policy issues, characterized by such national factors as the potential of particular renewable energy sources and other types of specific parameters, determine national preferences and bargaining positions of the member states, which are uploaded on the policy agenda on an international level during the process of negotiation. the distinction between member states’ domestic policy patterns on renewables, reflected in their bargaining positions, demonstrates the energy integration disparities across the eu. _ the most powerful eu member states, particularly germany, france and the uk, tended to successfully coordinate their positions without undermining their national interests during the process of negotiation. this provides positive stimulus for the common eu renewable energy policy, considering that the member states which successfulconclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 50 ly upload their national interests on the eu agenda in the policy-making phase of intergovernmental negotiation will be inclined to effectively download the provisions of the common eu policy, formed as a result of the negotiation process, to transpose the latter provisions into their national law and to implement them in an efficient manner. _ on the other hand, the member states which failed to upload their national interests during the 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(7010/08). retrieves july 08, 2014, from http://www.eumonitor.nl/9353000/1/j4nvgs5kjg27kof_j9vvik7m1c3gyxp/vi7jgt815kps/f=/7010_08.pdf haas, r., eichhammer, w., huber, c., langniss, o., lorenzoni, a., madlener, r., menanteau, p., morthorst, p.e., martins, a., oniszk, a., schleich, j., smith, a., vass, z., verbruggen a. (2004). how to promote renewable energy systems successfully and effectively. energy policy, 3(6), 833-839. haas, r., faber, t., green, l., gual, m., huber, c., resch, g., ruijgrok, w., twidell, j. (2001). review report on promotion strategies for electricity from renewable energy sources in eu countries. vienna: institute of energy economics, vienna university of technology. http://dx.doi.org/10.1016/s03014215(02)00337-3 haas, r., resch, g., panzer, c., busch, s., ragwitz, m., held, a. 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(2011). policy design in the eu at the crossroads of environmental and energy fields: renewable energy through the lens of european integration theories. central european university department of international relations and european studies, budapest (p. 33). spitzley, j.b., banasiak j., jirous, f., najdawi, c., steinhilber, s. (2014). keep-on-track! project: analysis of deviations and barriers 2013/2014. contract n: iee/11/842 (p. 4). viepublieque.fr (2005). un dèbat national en 2003 et l’adoption d’une loi de programme en 2005. retrieved july 07, 2014, from http://www.vie-publique.fr/politiques-publiques/politique-energie/ index/ ydersbond, i.m. (2012). multi level lobbying in the eu: the case of the renewables directive and the german energy industry. nansens institute, fni report (no. 10) (p. 6-7). pikšrytė aistė candidate for phd department of public administration, faculty of political science and diplomacy, vytautas magnus universtity address s. daukanto st. 28 lt44246, kaunas, lithuania tel. +370 655 18232 e-mail: a.piksryte@pmdf.vdu.lt mažylis liudas prof. dr. department of public administration, faculty of political science and diplomacy, vytautas magnus universtity address s. daukanto st. 28 lt44246, kaunas, lithuania tel. +370 612 57137 e-mail: l.mazylis@pmdf.vdu.lt about the authors 233 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 submitted 04/2017 accepted for publication 08/2017 european integration studies no. 11 / 2017 pp. 233-243 doi 10.5755/j01.eis.0.11.18410 © kaunas university of technology stabilization through institutionalization?: institutionalization of external relations as a success factor in the reform process eis 11/2017 abstract stabilization through institutionalization?: institutionalization of external relations as a success factor in the reform process http://dx.doi.org/10.5755/j01.eis.0.11.18410 joanna stryjek sgh warsaw school of economics, aleje niepodległości 162, 02-554 warsaw, poland joanna.stryjek@sgh.waw.pl the paper aims to answer the question why the process of institutionalization of the eu’s external relations with its six neighboring countries, representing the eastern dimension of european neighborhood policy (i.e., armenia, azerbaijan, belarus, georgia, moldova and ukraine), has failed to perform its stabilization role. the study is analytical and descriptive in nature. its results indicate three reasons for which the aforementioned institutionalization process has not been successful, and thus – the eu’s neighborhood has become even more unstable than it was over a decade ago. the first reason is rooted in the applied integration model. the model expected the eu’s neighbors to undergo deep reforms, without offering them the eu membership ‘reward’. in this regard, the eu’s offer not only failed to meet the expectations of the neighbors in question, but also appeared to be partly misunderstood. in consequence, the eastern enp countries considered the decision on their potential eu membership to be exclusively political, as well as underestimated the importance of the previously agreed reforms. as regards the second reason for the unsuccessful development of the institutionalization process, the eastern enp countries found it very difficult to reach a high level of ‘embeddedness’ of the transferred formal institutions in their socio-economic environment. finally, the institutionalization process has also faced difficulties due to the geopolitical rivalry between the eu and russia over the region. the actions and policies undertaken by russia not only influenced the (political and economic) decisions of the eu’s eastern neighbors, but also clearly showed that the institutionalization of their relations with the eu neither provided for them protection nor guaranteed defense. according to the presented theoretical approach, this serves as an explanations why the stabilization function of the institutionalization process was not able to perform its role. keywords: enp, eastern partnership, european union, institutionalization, europeanization, democratization, democracy promotion, stabilization, transition. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 234 this paper examines the institutionalization of the eu’s external relations with its six neighboring countries, currently covered by the eastern partnership (eap) initiative under the eu’s european neighborhood policy (enp) – i.e., armenia, azerbaijan, belarus, georgia, moldova and ukraine. the concept of institutionalization of international relations refers to a wide range of theoretical approaches where scholars’ emphasis varies from the crude rational-choice approach, which concentrates on the choices of a human agent, to the historical institutionalist approach, which focuses more on the constraints imposed on actors within specific historical contexts. when it comes to international relations, the institutionalization process is supposed to perform three main functions: (1) stabilization function, (2) legitimation function, and (3) integration function (kukułka, 1988, kukułka 2000). for the purpose of this study, the stabilization function of the institutionalization process needs to be given particular attention.1 the function involves the creation of protection and the guarantee of defense, by means of which the interests of international actors (i.e., states, regional integration groups, international organizations) are to be balanced and stabilized. what is more, it is important for the institutionalization process to confirm the equality of rights and the sovereign equity of the involved states. in the context of this paper, it is also important to bear in mind that the stabilization and integration functions of the institutionalization process are interrelated. this is because the process contributes both to closer cooperation and deeper (political and/or economic) interdependence of the actors involved; in turn, the greater interdependence is expected to contribute to the increase in political and economic stability, and thus – security. the european neighborhood policy strategy paper was presented on 12 may 2004 (european commission, 2004), that is, almost simultaneously with the biggest enlargement of the eu in its history, which took place on 1 may 2004. the time coordination between these two events reflected, to a large extent, the eu’s concerns about the tensions on its newly created eastern border. what is more, the eu enlargement was preceded by the development of a new security strategy (council of the european union, 2003). although the strategy emphasized europe’s exceptional security: “europe has never been so prosperous, so secure nor so free. the violence of the first half of the 20th century has given way to a period of peace and stability unprecedented in european history” (council of the european union, 2003), at the same time it expressed concerns about the influence of the enlargement process on the political problems in the eu’s eastern neighborhood: “it is not in our interest that enlargement should create new dividing lines in europe. we need to extend the benefits of economic and political cooperation to our neighbors in the east while tackling political problems there” (council of the european union, 2003). for the reasons laid down in the security strategy, the stabilization role has been always of high importance in the process of institutionalization of the eu’s external relations with its new eastern neighbors. however, despite the eu’s awareness of the aforementioned problems, as well as the actions undertaken to solve them (specifically including the european neighborhood policy), the institutionalization process turned insufficient to develop a stable and secure neighborhood. the results of the process were completely opposite to expectations, as the eu’s presence in the (historically) russian ‘sphere of influence’ became a source of new tensions and conflicts in the region. the article is analytical and descriptive in nature, i.e., it should be regarded as an analytical contribution rather than a study based on primary research. the aim of the article is to analyze 1 for description of the other two functions see j. kukułka (1988; 2000). 235 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 the external relations of the eu with its eastern neighbors from the point of view of the (expected) stabilization role of the institutionalization process. the theoretical background for the analysis is drawn from the literature on the functions of the international relations’ institutionalization process (kukułka 1988, 2000). the analysis focuses on the integration model applied by the eu, the level of ‘emdeddedness’ of the transferred formal institutions into their socio-economic environment of the eastern enp countries, as well as the problem of geopolitical rivalry between the eu and russia in their common neighborhood. within the context of the aforementioned problems, the study aims to answer the question why the institutionalization of the eu’s external relations with the eastern neighboring countries has failed to perform its stabilization role. the article is structured as follows. first, the theoretical background for the institutionalization process is provided as well as the historical development of the process is discussed. in what follows, the analysis of the enp as an instrument for institutionalization of the eu’s external relations with its eastern neighbors is presented. next, the stability and security problems related to the conflicting interests of the eu and russia in their common neighborhood are traced. conclusions follow. the process of institutionalization of international relations has its origin in the need to regulate and perpetuate desirable actions and interactions of individual actors on the international stage, i.e., states, regional integration groups and international organizations. in a historical perspective, there are four main streams of the institutionalization process (the description of the streams is based on the works of kukułka, 1988; 2000). the first stream covers institutions, norms and diplomatic procedures, which were created in relation to the international empiricism. its development led to the creation of a hierarchical diplomatic staff, having specific privileges and immunities as well as applying specific ceremonial in mutual interstate relations. in what followed, new ways and forms of the diplomatic dialogue were developed by the states. since 1648 (the peace of westphalia) the dialogue has been held at the international congresses and conferences. the second stream of the institutionalization process covers the creation and dissemination of international organizations, which took place after 1815. the development of international organizations reflected the desire to deepen multilateral cooperation and create such international order that could be accepted by the (existing at that time) community of states. as regards the third stream of the institutionalization process, it includes so-called sectoral institutionalization, that is, the development of states’ cooperation in specific areas (sectors), for instance, in the area of security, culture, etc. and finally, the last of the aforementioned streams covers the creation of interstate communities (regional integration groups), which took place in the second half of the xx century. the states belonging to the interstate communities agreed to undertake a long lasting, deep and multilevel cooperation. the best example of such cooperation constituted the european communities, which originally comprised of the european economic community, the european coal and steel community, and the european atomic energy community (later on, the european communities evolved into the european union). countries belonging to regional integration groups not only are institutionalized within their group, but also, as the group’s members, they develop (and thus – institutionalize) external relations with third countries. in case of the european union, the relations of its members with third countries (or their groups) are being institutionalized in many different ways. this differentiation can be seen even within the group of the eu’s neighbors. the european neighborhood policy serves as the main instrument for institutionalization of eu’s external relations with a group of its southern and eastern neighboring countries (which are the institutionalization of international relations: a historical perspective and a theoretical background e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 236 listed below). in case of the other eu’s neighbors, the institutionalization processes have been developed on different bases (and thus – in different ways). this can be clearly illustrated by the concentric circles model.2 the eu, governed by its ‘acquis communautaire’, constitutes the core (i.e., the first circle) of the model, and the other circles reflect the following groups of countries (moga, 2013; see figure 1): _ the second circle represents the european economic area, consisting of the eu member states and the neighboring countries that belong to the european free trade association (i.e., norway, iceland and lichtenstein); the aforementioned group of the eu’s neighbors takes part in its internal market. _ the third circle reflects the states that are subject to the potential enlargement process – i.e., the counties from the former yugoslav federation as well as turkey and iceland. _ the forth circle represents all the countries covered by the enp, i.e., the eu’s neighbors with the east (armenia, azerbaijan, belarus, georgia, moldova, ukraine), and the eu’s southern neighbors (algeria, egypt, israel, jordan, lebanon, libya, morocco, palestinian national authority, syria, tunisia). _ the fifth and the following circles represent other (numerous) countries in case of which the process of institutionalization of international relations with the eu is being developed. despite the fact that the processes of institutionalization of the eu’s relations with third countries shows differences between the individual groups of neighbors, they de facto head the same direction, that is, the processes lead to europeanization of the neighbors in question. for this reason, the circles distinguished in the concentric circles model (for the purpose to explain the eu’s institutionalization processes) can be also related to the studies on europeanization (figure 1). the concept of europeanization was introduced and then gradually examined on various policy areas through the 1990s (see e.g. ladrech, 1994; andersen, 1995; radaelli, 1997; harmsen, 2 the description of the concentric circles model is based on t. moga (2013). figure 1 concentric circles model: institutionalization processes and europeanization of the eu’s neighborhood european economic area potential eu members (i.e. countries from the former yugoslav federation; turkey; iceland) enp countries eu member stets membership europeanization accession europeanization neighborhood europeanization eu 237 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 1999; agh, 1999). by now, it has become a widely deployed research approach amongst scholars from international relations and european studies, and it has developed into three streams of research (gawrich, melnykovska, schweickert, 2010): _ the first stream includes so-called ‘membership europeanization’; it describes the eu’s impact on its member states (and relates to the first circle of the concentric circles model – see figure 1); _ the second stream covers ‘accession europeanization’, that is, it concerns countries with a clear eu membership perspective (and relates to the third circle of the concentric circles model); _ the last stream is called ‘neighborhood europeanization’; it includes the eastern and southern neighbors of the eu, who are covered by the enp and have no (official) accession perspective (the stream relates to the forth circle of the concentric circles model). in the context of this paper, the process of neighborhood europeanization is of great importance. it consists in the transmission of the eu’s policy and institutional models (i.e., formal institutions3) to its neighboring countries. there are two interrelated factors that are particularly decisive in the successful transfer of formal institutions to the enp countries. first, the domestic actors of the recipient country need to consider the adoption of the institutions (institutional model): (1) appropriate, (2) useful for pursuing their particular interests, or (3) as a means to acquiring a more legitimate role in the international community (celata, coletti, 2016). second, the transferred institutions have to be not only de jure (i.e., formally) integrated into the formal institutional framework of the recipient country but also de facto embedded into the informal socio-economic institutions of the recipient society (compare to: martens at al., 2001). according to douglass north’s institutional theory (1990), the successful ‘embeddedness’ of (formal institutional) reforms in the wider socio-economic environment is more likely to take place when informal institutions in the country of origin (of the transferred formal institution/ institutional model) show similarities to the informal institutions of the recipient country. the process of institutionalization of the eu’s external relations with the countries currently covered by the eastern dimension of the european neighborhood policy was launched in 1990s, that is, much earlier than the enp was implemented. the development of the process was closely related to the decision on extending european union membership to the central and eastern european countries (ceecs).3the decision was accompanied by the need to develop new instruments for cooperation with the future eu neighbors in order to increase the stability in the new neighborhood. at that time, the ue’s bilateral relations with almost all the (potential) eastern neighbors were shaped by the partnership and cooperation agreements4 (pcas). the main objectives of cooperation, laid down in the agreements, included (nowak, 2011; stryjek, 2015): (1) development of (close) political relations; (2) support for the development of democracy in the neighboring countries, as well as the economic development of their economies in order to complete the process of transition of these countries into market economies; (3) promotion of trade, investment and harmonious economic relations in order to support sustainable economic development; (4) provision of frameworks for legislative, financial, scientific, technological, civil, social and cultural cooperation. since the conclusion of the pcas, the eu practices and 3 the division of institutions into formal and informal refers to d. north’s institutional theory (1990), defining institutions as the formal and informal rules, laws, regulations, contracts and agreements that guide people’s behaviour. 4 the partnership and cooperation agreements were signed in the period 1998-1999. they were concluded between the european communities and their member states, of the one part, and – respectively – armenia, azerbaijan, georgia, moldova and ukraine, of the other part. enp as an instrument for institutionalization of the eu’s external relations with its eastern neighbors e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 238 institutional arrangements have served as a benchmark for policy change in the region (langbein & börzel, 2013). however, it is important to emphasize that in the early 1990s (i.e., before the pcas were concluded) the eu’s participation in the (economic and political) transformation of the countries in question was minimal. it was just the opposite in the ceecs, in case of which the eu has been taking part in the transformation processes since their beginning, and thus influenced newly shaped institutions and political elites. in the eastern enp countries the new institutions and political elites were formed without the eu’s participation. this should be regarded as one of the reasons for which the cooperation between the eu and the eastern enp countries was more difficult than in case of the ceecs (knothe, 2017). as it was mentioned before, the enp was launched almost immediately after the eu’s enlargement to the east in 2004. the policy – while being designed – was clearly modeled on the eu’s experience coming from the enlargement processes (kelly, 2006; leino & petrov, 2009). this included in particular numerous economic and political reforms to be made by the neighboring states. however, the important thing is that the enp countries have never been promised the membership in the european union (i.e., the bilateral agreements signed by the eu with these countries did not contain an explicit mention of the membership perspective). in other words, the eu’s offer included almost everything that was previously expected from the ceecs except the eu membership ‘reward’. in the context of the above, the decision of the european commission to adapt enlargement policies in the newly shaped neighborhood could be theoretically interpreted in two ways. first, the integration model could have been perceived as the best possible and, to a certain degree, tested solution or – second – there might have been an intention to (unofficially) leave the door open to the eu membership. however, even if there was a ‘hidden’ intention not to exclude the eu membership possibility, the unsatisfactory development of the enp (i.e., slow reform processes) made a potential further eu’s enlargement to the east impossible.5 this was at least several times clearly stated by the politicians of the eu member states. for instances, the german chancellor angela merkel, while explaining the aims behind the development of the eastern partnership initiative, stated that “the eastern partnership is not an instrument for enlargement of the european union, but it is an instrument of rapprochement with the european union” (statement made at the eastern partnership riga summit in 2015 – maurice, 2015). hence, the decision to adapt enlargement policies in the eastern enp countries should be perceived mainly as a willingness to implement solutions with which the eu was familiar, and most probably considered them to be the best option. this is all the more so when taking into consideration that – over the years of its existence – the european union (and previously european communities) has gone through many enlargement processes. although each of the enlargements was different, they contributed to the creation (and then improvement) of a certain procedure for the preparation of a given country for the eu membership. additionally, they made the eu get used to look at its neighbors through the enlargement lens and – in consequence – expect them to be willing to share the same values. this was also true for the eastern enp countries. in other words, the historical context serves as an explanation for the decision on the integration model between the parties in question. the eu’s tendency to reproduce its integration experience in the enp countries has been analyzed in numerous studies (bicchi, 2006; bauer et al., 2007; lavenex, 2008; schimmelfennig, 2007; barbé et al., 2009; boerzel, 2011; lightfoot et al., 2016). at the same time, a low (or even minimal) degree of europeanization has been observed in the countries covered by the neighborhood 5 additionally, the eu’s enlargement of 2004 made it clear the eu cannot enlarge forever, simply due to the limits of its institutions effectiveness. 239 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 policy (van hüllen 2012; delcour 2013). this low degree of europeanization constitutes – to a large extent – a consequence of the integration strategy implemented by the eu in the region. as it was already mentioned, the eu’s expectations that the enp countries would undertake reform efforts similar to those that were undertaken by the ceecs (but without being offered the prospect of membership) was unlikely to be met. firstly, the eastern neighbors did not feel motivated enough to carry out such deep reforms, and this was related not only to the lack of the membership perspective. in the opinion of the aforementioned neighbors, their potential eu membership was dependent entirely on the political decision of the eu member states (and not on the progress in reforms implementations), and thus the decision seemed possible to be taken at any time (knothe, 2017). from this point of view, the ruling elites in the eu’s partner countries simply underestimated the importance of reforms. moreover, even if the countries decided to implement reforms, the new solutions were often only de jure integrated into the formal institutional framework, and not de facto embedded in a wider socio-economic environment. apart from the above, the lack of the membership perspective made the potential effects of the integration strategy more uncertain. the countries that were offered the prospect of membership could (at least approximately) estimate the effects of the integration process on the basis of data concerning previous enlargements. the enp countries did not have such possibility, as they were covered by the policy which was implemented for the first time. moreover, due to the uncertainty, the eastern enp countries have been always opened to and encouraged cooperation with other international actors. this is visible especially in trade, which constituted one of the most important components of the economic integration between the eu and the enp states.6 for instance, while analyzing the trade exchange of the eastern enp countries with all world partners, growth rate trends show an increasing role for brics economies (i.e., brazil, russia, india, china, south africa) for both imports and exports (kallioras & pinna, 2017). the trade gains and other economic benefits of the eu-enp countries cooperation have been always of great importance, as they were supposed to encourage the governing elites of the neighboring countries to implement political reforms. in general, the enp originated in the assumption that external liberalization, coupled with domestic economic reforms, should have been given priority over political changes. it was argued that the provision of basic needs was most important for respective populations, and that political freedoms would follow suit (tarnawski, 2014; see as well stryjek, 2016). however, as practice suggests, liberalization of the economy, as well as the financial support provided by the eu, proved to be ineffective without a system of democratic control (tarnawski, 2014). both the military conflict in ukraine and the uprisings and upheavals in the middle east and north african region (i.e., the so-called arab spring) can serve as an evidence that political reforms are as important as the economic ones in view of stability of the eu’s neighborhood. the eu’s socio-economic model is built on the premise that democracy is a necessary condition for its functioning and development. for this reason, the eu placed great emphasis on upholding and promoting democratic values and practices in its neighborhood. the eu’s expectations in this regard were based on its successful experience in contributing to the consolidation of democracy in ceecs (buscaneanu, 2015). however, unexpectedly, the promotion of democratic values in the eastern enp countries appeared to be very difficult. firstly, most of the countries 6 at the time when the neighbourhood policy was introduced, the scope of potential economic integration models for the eu and its neighbours ranged from models incorporating bilateral deep free trade or multilateral simple free trade arrangements to models incorporating a stake in the common market, with its four freedoms (or three freedoms, i.e., with the exclusion of the freedom of labour), which was seen as the most attractive economic offer (gawrich, melnykovska, schweickert, 2010). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 240 have already developed oligarchic institutions, and the governing elites wanted to preserve the oligarchic systems. in this respect, the gains coming from the economic cooperation with the eu, which were supposed to encourage the states’ authorities to carry out political reforms, were definitely not motivating enough. secondly, as it was previously explained, the most valued eu offer – i.e., the possibility of eu membership – was not on the table. and thirdly, according to some scholars, successful democracy promotion was difficult also because the enp lacked (and still lacks) consistency in democracy-related areas. for instance, tom theuns argues that democracy promotion is in conflict with some of the other enp goals, such as market liberalization, private sector development and trade policy reforms (2016). according to his suggestions, democratization could be coherently promoted in the enp countries in two ways: (1) by delimiting the policy to unilateral transfers conditional on democratization alone, or (2) by offering eu membership to the countries covered by the neighborhood policy. a successful institutionalization of the eu’s relations with the eastern enp countries and, in particular, the stabilization function of the institutionalization process have been highly dependent on the actions and policies undertaken by russia. as the eu’s eastern neighbors belong to the so-called post-soviet space, russia – being another important regional player – has always had its own concept for the policy change in the region (averre, 2009). no need to explain that the concept was (and still is) in contradiction with the policy developed by the eu. its realization thwarted not only the economic integration between the eu and the eastern enp countries but also the democratic development of the eu’s eastern neighbors (langbein & börzel, 2013). in addition to the above, russia showed tendency to increase tensions that appeared on (or close to) its borders, so that they turned into military conflicts. it can be even said that russia’s military interventions (or destabilizing influence) in the region constituted an important element of its external policy (for examples of the russian destabilizing influence in the region see e.g. falkowski & stryjek, 2016). these actions bought various effects. in the context of the problems discussed in this paper, they clearly showed that the institutionalization of the eu’s relations with the eastern enp countries neither created protection nor guaranteed defense in the eu’s neighborhood. for instance, the 2008 military conflict between russia and georgia showed that the enp countries – in case of being attacked by russia – most probably would have to face the problem (i.e., defend themselves) alone. as the countries are small and their military potentials are low, the fear of armed conflict with russia, in some cases, negatively influenced their decisions on deepening cooperation with the eu. taking into consideration the above arguments it becomes clear that the enp not only failed in providing stability and security in the eu’s eastern neighborhood, but also constituted an additional destabilizing factor itself (as the eastern enp countries belong to the historically russian ‘sphere of influence’). although the eu’s cooperation strategy towards the aforementioned neighbors should not be taken as the sole or even key cause of the security problems in and around the eu’s eastern frontier, both the enp and then the eastern partnership have played an important role in their developments (dangerfield, 2016). as ademmer et al. (2016) clearly explains, moscow’s objections to the eu’s policies date back to the beginning of 2000s, when the color revolutions in georgia (2003) and ukraine (2004) took place and thus signaled to russia the possible loss of its influence in its western neighborhood. afterwards, russia’s concerns kept raising because of the further actions and policies undertaken by the eu: ‘the eap, in particular, signaled a shift toward hard-law integration with the eu that was interpreted in russia as a constraint to its own policies in the region (…).the competition for influence over their “contested neighborhood” reached its climax with the imminent signing of an association conflicting interests of the eu and russia in their common neighborhood 241 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 agreement between the eu and ukraine, culminating in a chain of events that started with mass protests and led to the annexation of crimea by russia and, with the support of russia, to the war in eastern ukraine’ (ademmer et al., 2016). as a result of the geopolitical rivalry between the eu and russia over their common neighborhood, domestic reform processes in the eastern enp countries were de facto shaped by both the aforementioned actors. in this regard, the eu definitely overestimated its ability to influence domestic changes in the enp countries, as well as to ensure stability in its eastern neighborhood. however, it needs to be emphasized that the effectiveness of implementation of the eu’s institutionalization strategy was low not only because of the actions and policies undertaken by russia, but also due to the specificity of the neighboring countries’ economies (i.e., especially the lack of functional legal system and/or capacity to implement desirable reforms – see dragneva & wolczuk, 2011; ademmer et al., 2016) and the (previously discussed) insufficient incentives for reforms. when the enp was launched, the conditions for further institutionalization of the eu’s external relation with its eastern neighbors seemed to be, in many respects, favorable. the eu had extensive experience in cooperation and integration with countries representing lower level of development. apart from that, the eu member states included, inter alia, the group of ceecs which undergone successful (political and economic) transformation, significantly reducing the development gap that separated them from their western partners. moreover, one of the most desirable effects of the institutionalization process – i.e., the stability of the region – was both in the interest of the eu and its neighbors. and finally, the eu created financial instruments to officially support reform processes in the neighboring countries. all the aforementioned circumstances created a situation where one could expect a successful institutionalization of the eu’s relations with the neighboring countries, including in particular proper performance of the stabilization function of the institutionalization process. however, it turned to be just the opposite, that is, along with the passage of time, the ue’s neighborhood became even more unstable. the article indicates three reasons for which the institutionalization of the eu’s external relations with the eastern enp countries has failed to perform its stabilization role: _ the first one is rooted in the applied integration model, and specifically – in the eu’s expectation that the neighboring countries would be satisfied with sharing with the eu ‘all but institutions’ (prodi, 2002). as it was explained before, the eastern enp countries perceived their potential eu membership as an exclusively political decision. for this reason, on the one hand, the countries were disappointed with the eu’s offer and expected it to change. and on the other hand, they underestimated the importance of the reform process for their stable and prosperous development. _ the second reason was related to a very low level of ‘embeddedness’ of the transferred formal institutions into the socio-economic environment of the eastern enp states. this was due to considerable differences between informal institutions in the recipient countries and the countries of origin. in other words, even if the eastern enp countries undertook efforts to implement reforms and transfer formal institutions, the new solutions were often only de jure integrated into the formal institutional framework, and not de facto embedded in a wider socio-economic environment. _ the third reason was related to the geopolitical rivalry between the eu and russia over their common neighborhood. as russia showed tendency to increase tensions that appeared on (or close to) its borders and then impose its will through military interventions, some of the enp conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 242 countries began to fear being attacked by russia. what is more, russia’s military interventions clearly showed that the institutionalization of the eu’s relations with the eastern enp countries neither provided for the eu’s neighbors protection nor guaranteed defense. in other words, the stabilization function of the institutionalization process was not able to perform its role. acknowledgements: this research project has benefited from funding under the polish “national science centre” (ncn) grant titled “european neighborhood policy: (multi-level) governance, the reform process and the prospect of enhanced cooperation in the region”, opus/hs5, decision no. dec-2013/09/b/hs5/04534. ademmer, e., delcour, l. & wolczuk, k. 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(1990). institutions, institutional change and economic performance. cambridge: cambridge university press. https://doi.org/10.1017/ cbo9780511808678 prodi, r. (2002). a wider europe – a proximity policy as the key to stability, speech 02/619 delivered at sixth ecsa–world conference, brussels, 5-6 december 2002. radaelli, c. m. (1997). how does europeanization produce domestic policy change? corporate tax policy in italy and the united kingdom. comparative political studies, 30(5), 553-575. https://doi. org/10.1177/0010414097030005002 stryjek, j. (2015). inter-regional cooperation and fdi flow: one step too far? – preconditions and prospects, yearbook of the institute of east-central europe, 13(4), 125-143. stryjek, j. (2016), european neighbourhood policy and fdi: the southern dimension. yearbook of the institute of east-central europe, 14(6), 49-68. theuns, t. (2017). promoting democracy through economic conditionality in the enp: a normative critique. journal of european integration, 39(3), 287-302. https://doi.org/10.1080/07036337.2016.1263625 van hüllen, v. (2012). europeanisation through cooperation? eu democracy promotion in morocco and tunisia. west european politics, 35(1), 117–134. https://doi.org/10.1080/01402382.2012.631317 about the authors stryjek joanna phd sgh warsaw school of economics fields of research interests innovation policy, national innovation systems, economic and monetary union, european neighbourhood policy address aleje niepodległości 162, 02-554 warsaw, poland e-mail: joanna.stryjek@sgh.waw.pl e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 52 the european conception of the university knowledge within the bologna–initiated competence–based curriculum modernisation: repercussions at the national policy level in estonia and lithuania http://dx.doi.org/10.5755/j01.eis.0.10.14534 rūta petkutė tallinn university, narva mnt 25, 10120, tallinn, estonia submitted 03/2016 accepted for publication 09/2016 the european conception of the university knowledge within the bologna–initiated competence– based curriculum modernisation: repercussions at the national policy level in estonia and lithuania eis 10/2016 european integration studies no. 10 / 2016 pp. 52–62 doi 10.5755/j01.eis.0.10.14534 © kaunas university of technology abstract the european ‘knowledge economy’ policies and higher education policies and reforms associated with the bologna process, as largely driven by efficiency concerns, have continually stressed the fail­ ures of european universities to meet efficiency targets. this has provided the justification for a radical european–wide modernisation of the higher education curriculum which has uniformly introduced a competence (outcomes)–based curriculum rationale to all european universities as a strategic device to enhance the efficiency and relevance of the university curriculum. within the competence–based curriculum rationale, competence has been designated as a major component within the university curriculum, whereas knowledge, traditionally being the main educational category of the university curriculum and a fundamental pillar of the university research, has been increasingly given a scarce mention in the european policy documents despite the common european policy discourse on the ‘knowledge economy’ and ‘knowledge society’ and a new prominence of knowledge that these notions imply. accordingly, the european assumptions about the nature of the university curriculum knowl­ edge have had significant implications for the way university knowledge and the role of university have been defined at the national policy level in the light of the curriculum change. thus, it becomes important to examine the explicit and implicit epistemological stances behind the bologna–initiated competence–based curriculum modernisation and their repercussions throughout the national higher education policies. the aim of this paper is to examine the way the european assumptions about the nature of the university curriculum knowledge as implied within the bologna initiated competence–based curriculum modernisation reverberate throughout the national higher education policies in estonia and lithuania. the objectives of this study are to examine the ongoing bologna–initiated university cur­ riculum modernisation as based on the competence framework and its assumptions about the na­ 53 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 introduction ture of the university curriculum knowledge and to map the way the european policy assumptions about nature of the university curriculum knowledge as implied within the curriculum modernisation reverberate at the national policy level in estonia and lithuania. the research methods served are qualitative research methods, namely, an overview of research literature and a content analysis of the official strategic european policy documents and estonian and lithuanian national policy documents. the main results of the study are the following: situating the phenomenon of the competence–based curriculum modernisation within a broader socio–economic and political context and, in doing this, providing the basis for a better understanding of the driving forces generating this curriculum change; discerning the main patterns of the bologna–initiated higher education curriculum modernisation and its underlying assumptions about the nature of the university curriculum knowledge and the role of universities both at the european and national levels; providing insights about the way the higher education curriculum modernisation has been taken–up at the national policy level in lithuania and estonia; revealing the lack and the need for educational arguments as informed by curriculum theory to complement and challenge the currently predominant economic rationale underpinning the higher education curriculum modernisation in europe. keywords: knowledge economy, european higher education policy, reform, bologna, university, cur­ riculum knowledge, competence–based curriculum, competence, skill, lithuania, estonia. it has been widely admitted that the bologna process with its associated higher education cur­ riculum reforms as based on the competence framework implies an entire reconfiguration of the european higher education landscape. within the competence–based curriculum rationale, com­ petence has been designated as a major component within the university curriculum in order to increase the vocational relevance of curriculum. this establishes a tighter relationship between the higher education and the world of work, and, as a result, reformulates the purpose of the university curriculum and the university in society more in utility terms, which, in turn, inevitably has important repercussions for the conception of the university curriculum at the national policy level. the current ongoing curriculum reforms in the context of the european higher education have been, to a large extent, discussed and researched from the perspectives of their apologists as mainly focusing on the technicalities of its implementation such as the development of the most suitable methods for the implementation. meanwhile, there seems to be lack of research on what kind of knowledge the policies addressing ‘knowledge economy’, as well as subsequent curriculum reforms refer to (wheelahan, 2010; young, 2011). the underlying epistemological assumptions of the higher education curriculum modernisation are taken for granted and nat­ uralized without seeing them as fundamental question of educational debate. provided that, it becomes essential to interrogate the underlying assumptions this bologna–initiated curriculum change make and the way they shape the conceptualisation of the university curriculum knowl­ edge and the purpose of universities at the national level. the research problem of the present study can be outlined in the following research questions: what are the european assumptions about the nature of the university curriculum knowledge as implied within the bologna–initiated curriculum modernisation? how the european policy as­ sumptions about the nature of the university curriculum knowledge as implied within the bo­ logna–initiated curriculum modernisation reverberate at the national policy level in estonia and lithuania? the aim of this paper is to examine the way the european assumptions about the nature of the university curriculum knowledge as implied within the bologna initiated competence–based cur­ riculum modernisation reverberate throughout the national higher education policies in estonia and lithuania. to achieve this aim, the following objectives are set: e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 54 _ to examine the ongoing bologna–initiated university curriculum modernisation as based on the competence framework and its assumptions about the nature of the university curriculum knowledge; _ to map the way the european policy assumptions about nature of the university curriculum knowledge as implied within the bologna–initiated curriculum modernisation reverberate at the national policy level in estonia and lithuania. the qualitative research methods, namely, an overview of research literature as drawn from cur­ riculum studies and policy studies, and a content analysis of the official strategic european policy documents and estonian and lithuanian national policy documents, are served. in analysing the documents, it has been sought to select the european and national strategic policy documents which are most indicative of the assumptions made about the university curriculum knowledge and the purpose of universities. the main results of the study are the following: situating the phenomenon of the competence–based curriculum modernisation within a broader socio–economic and political context and, in doing this, providing the basis for a better understanding of the driving forces generating this curriculum change; discerning the main patterns of the bologna–initiated higher education curriculum modernisation and its underlying assumptions about the nature of the university curriculum knowledge and the role of universities both at the european and national levels; providing the insights about the way the higher education curriculum modernisation has been taken–up at the national policy level in lithuania and estonia; revealing the lack and the need for educational arguments as informed by curriculum theory to complement and challenge the currently predominant economic rationale underpinning the higher education curriculum modernisation in europe. the novelty of the present paper is its interdisciplinary analysis which draws on policy studies and curriculum studies in order to come up with a more all–rounded approach to interrogating the bo­ logna–initiated competence–based curriculum modernisation in the contemporary context of the european university education. what is more, the paper maps the epistemological assumptions about the university curriculum knowledge both at the european and national le vels. finally, it of­ fers an original overview of the two national higher education policies as situated within the wider european context. the current bologna–initiated competence–based curriculum modernisation has to be understood as part of broader european policies and as their strategic device to achieve socio–economic ends, rather than as a mere technical affair. the bologna process has to be situated within the european ‘knowledge economy’ policies which have significantly affected the traditional conceptualisation of the purpose of the contemporary european university, as since the mid to late 1990s, they have assigned universities and knowledge they produce crucial roles in terms of their contribution to the economic development. in the light of the lisbon strategy, it is claimed that europe’s education needs to adapt to the demands of the knowledge society (lisbon european council, 2000). in this political context, the interrelation between investment in education and the growth of economy has been increasingly stressed (european commission, 2012). consequently, the conditions under which universities operate and the expectations from universities have changed significantly as universities have been increasingly demanded for the relevance of education provision. if, traditionally, knowledge has been conceived to be the main purpose of higher education curric­ ulum, and, in particular, university curriculum, and higher education institutions were largely ori­ ented towards ‘basic science’, as well as followed their own disciplinary epistemic concerns (ward, 2012, p. 4), a closer look at the european strategic policy documents reveals that the contemporary the european ‘knowledge economy’ policies and the changing purpose of the university 55 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 ‘knowledge economy’ policies have spawned a strong criticism of the traditional conception of the purpose of higher education and higher education at large on the basis of economic and employability arguments. it has stressed the failure of universities to supply the knowledge economy with more employable graduates who possess flexible competences and skills to meet the demands of a rapidly changing world of work and, in this way, to contribute to solving the contemporary socio–economic issues, such as youth unemployment in europe (european commission, 2012). the european higher education systems are criticised for being insulated from industry and that the traditional relation­ ship between higher education and work is inadequate to ensure the relevance of higher education (european commission, 2012). consequently, it is claimed, the european higher education, including university education, fails in realising its vocational purpose and does not solve unemployment prob­ lems (ibid.). as a solution, a closer collaboration between the university and the world of work has been urged. against this background, european member states have become under intensified pressure to re­ form their national higher education systems in order to “boost” their efficiency (ibid.). from what has been said so far, it can be argued that the heightened demands set on universities to demonstrate their use–value in the market have had significant implications for the conception of the purpose of universities which has been increasingly conceived in more utilitarian terms – to prepare students for working in the ‘knowledge economy’. therefore, these demands are indicative of a current vocation­ alisation of the european university education. the bologna competence–based curriculum modernisation and university knowledge concept eu­ ropean universities are undergoing a supranational curriculum reforms as based on the bologna declaration (1999), which, at the broader context of the eu policy, fit into the economically driven lis­ bon strategy (2000) and the european ‘knowledge economy’ policies at large. the bologna is aimed to strengthen the role of higher education in the development of ‘knowledge economy’ and create a european higher education area (ehea), which is to increase employability and strengthen the com­ petitiveness of the european system of higher education (london communiqué, 2007) against the rest of the world. against these strategic goals, the bologna process, with its associated curriculum reforms, implies an entire reconfiguration of the european higher education landscape (the european union, 2013). the present analysis of the european policy documents shows that throughout the bologna, the ‘traditional’ input (subject or knowledge)–based curriculum model has been strongly criti cized. it has been argued that “higher education curricula are often slow to respond to changing needs in the wider economy, and fail to anticipate or help shape the careers of tomorrow” (european commission on quality and relevance, n.d.a.). the input–based curriculum has been claimed to be a reason for higher education curriculum to fall short in providing the graduates with the right skills to enhance their employability and not being relevant to the realities of the the world of work (european commission, 2012). also, it has been maintained that input–based curricu­ lum “leads to programmes or rather loose units which might not be sufficiently balanced and most effective”. (tuning, n.d.a., p. 11). therefore, it is argued, the higher education curriculum, including universities, is to be restructured to break with the input–based curriculum rationale which has operated within a ‘traditional’ model of qualification structures and move towards a uniform competence (outcome)–based curriculum model, which has designated competence, rather than knowledge, as a key learning outcome (tuning, n.d.a.). the competence rationale has provided the basis for new european qualifications framework and national qualifications frameworks. thus, qualifications frameworks, as implemented throughout the bologna, are to be conceived as ‘competence–based’ or ‘outcomes–based quali­ e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 56 fications’ (mehaut and winch, 2011; allais, 2014). the assumption of shifting to the competence (outcome)–based curricu lum rationale has been that, contrary to the input–based curriculum, it could possibly lead to more balanced, efficient and more relevant study programmes. the com­ petence framework is expected to ensure the responsiveness of the university curricula to the needs of society and the world of work by producing more ‘employable’ graduates with the ‘right’ competences and skills for the labour market (european commission, 2012). in particular, the policy focus (tuning, n.d.a.; european council and commission, 2012) has shifted to generic com­ petences or transferable skills which are said “to offer more possibilities for employment” in a rapidly changing labour market and society at large (tuning, n.d.a., p. 20). however, against the background of these new policy demands, a number of authors (wheelah­ an, 2007; 2010; young, 2011) have noted a paradox within the contemporary policy discourse on the ‘knowledge economy’, which, while declaring a new significance of knowledge in the ‘knowl­ edge economy’, have actually focused not on knowledge as such but competences and skills. when referring to this controversial situation across the international higher education land­ scape, wheelahan notes the following: “the paradox is that while education is supposed to pre­ pare students for the knowledge society, the modern curriculum places less emphasis on know­ ledge, particularly, theoretical, disciplinary knowledge” (2010, p. 3). the present overview of the european strategic documents, too, confirms the before–mentioned existing controversy within the european ‘knowledge economy’ policies. a closer study of the documents reveals that what is actually required in so called ‘knowledge society’ or ‘knowledge economy’ is not knowledge as such but conceptually and content–neutral skills and competences, whose value is determined by their applicable nature as well as economic and employability concerns. meanwhile, the need for knowledge acquisition or development within the higher education curriculum is hardly ever explicitly articulated in european policy documents. the present overview of the european doc­ uments discerns the way the european higher education curriculum modernisation has been mainly pushed by an assumption that all curricula, including university curricula of differentiated disciplines, must be justified for their relevance to the ‘knowledge economy’. these economic considerations underpinning european policies have been increasingly steering curriculum–re­ lated decisions at the national policy level, the issue we will turn to in the next section. the endorsement of the competence framework at the european level is expected to be followed by its endorsement at the national higher education level. this section gives a special attention to the way the assumptions underpinning the european curriculum modernisation reverberate throughout the national conceptualisations of the university curriculum knowledge and the role of universities in estonia and lithuania. to date, it has been acknowledged that not all countries are positive about the benefits of the bologna–initiated curriculum changes and that perceptions differ sharply not only between coun­ tries (me´haut and winch, 2011; european commission/eacea/eurydice, 2015; sursock, 2015) but also within countries (me´haut and winch, 2011). as mehaut and winch note, even though the endorsement of the competence and skills agendas at the national level cannot be directly influenced by the eu, the designation of competence–based qualifications frameworks, which are to correspond to the competence–based european qualification framework, nonetheless, has served as a medium through which to “put pressure on national systems” to focus on com­ petences (2012, p. 369). moreover, the competence framework is being further reinforced and monitored through the eu mechanism of funding (oxenham, 2013, p. 109), which, as can be anticipated, positions economically more vulnerable member states to respond to the european higher education curriculum reform more eagerly, at least at the formal level. the competence– based curriculum modernisation in the national higher education context: lithuania and estonia 57 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 before we look at the national policy documents, it is pertinent to briefly note some contextual similarities and differences between estonia and lithuania. on the one hand, estonia and lithuania are similar countries in a way that they are two post–soviet countries. also, the education traditions of these countries have been historically influenced by german bildung tradition and continental and north european tradition of didactics. this means that historically, the university curricula in these countries have been input rather than outcome (competence)–based, as is the case with the current bologna–initiated anglo–saxon curriculum rationale. after the restoration of independence, the two countries have undergone a flurry of policy reforms, including higher education reform, and have been pursuing “neoliberal shock therapy politics”1 (translation mine – r.p.). on the other hand, estonia, according to norkus (2008), has come out as the most successfully developing country from the three baltic countries and “the extremeness of liberalism in estonia has surpassed everything what one could see in the transformation period in post–communist countries”2 (translation mine – r.p.). norkus cites mattusch to argue that the starting–point in estonia was more favourable for the ‘invasion’ of capitalism and its successful and fast consolidation based on protestant tradition than in lithuania as formed by catholic tradition (mattusch, 1996 in norkus, 2008, p. 607). based on this, it could be assumed that estonia may be, at least to a certain extent, more open to the bologna–initiated anglo–saxon curriculum rationale than lithuania. the bologna–initiated higher education reforms have been changing the lithuanian higher education landscape significantly. nevertheless, lithuanian education system has been criti­ cised by the european commission for its inadequate collaboration with the labour market and a failure to meet the needs of the labour market (2015, p. 3); therefore, “improving the labour market relevance of education” has been suggested and urged (ibid.). accordingly, the articulation of an urgent need to increase the relevance of higher education curriculum can be increasingly traced throughout lithua nian strategic documents.12 the recent amendment of the law on higher education and research (republic of lithua­ nia, 2015) exemplifies attempts of lithuanian policy–makers to make higher education study programmes more relevant to the labour market. also, other strategic lithuanian policy documents reflect attempts to strengthen the link between higher education and the labour market by including employers and other social partners into the studies process and taking their needs into account (government of the republic of lithuania, 2012), as well as orienting education to the development of entrepreneurship (parliament of the republic of lithua nia, 2013). as a result of the current heightened policy concerns with the relevance of the higher edu­ cation curriculum to the world of work, the discourse of the lithuanian strategic policy doc­ uments, despite the used rhetoric on the “knowledge–based economy” and “knowledge–re­ sponsive society” (government of the republic of lithuania, 2012), has shifted away from the need to develop knowledge to the development of competencies which have, allegedly, more relevance for employability (government of the republic of lithuania, 2012; parliament of the republic of lithuania, 2013). it has been argued that “lithuania will focus on (…) development of competencies required for future jobs (…)” (government of the republic of lithuania, 2012, p. 4). it is important to note that in lithuania, the competence approach has been endorsed as a uniform approach to curriculum through law and regulation since the last decade. fur­ 1 “neoliberalią šoko terapijos politiką” (norkus, 2008, p. 595) 2 “liberalizavimas estijoje savo radikalumu pranoko viską, ką apskritai buvo galima pamatyti transformacijos metu pokomunistinėse šalyse” (norkus, 2008, p. 595) lithuanian higher education context e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 58 thermore, in 2010, the description of the lithuanian qualifications framework was approved. as it is indicated in the excerpt below, the lithuanian qualifications framework is based on competences: the lithuanian qualifications framework corresponds to the recommendation of the euro­ pean parliament and of the council (…) on the establishment of the european qualifications framework for lifelong learning (…) and 8 qualifications framework levels set out in it. qualifi­ cations described in this description are attributed to qualification levels set in this description which define functional, cognitive and general competences necessary to perform the activity of similar complexity, autonomy and changeability (lr vyriausybė 2010, p. 1) however, despite the fact that in lithuania “the implementation of the nqf has started (…) study programmes have not yet been completely re–designed on the basis of the learning outcomes included in the nqf” (european commission/eacea/eurydice, 2015, p. 68). to ex­ plain this under–achievement, the assumption is made that society does not know about the newest educational aims and desirable competences because of the lack of its inclusion into the competence formation process; otherwise, it is assumed, the development of competenc­ es would receive more support (parliament of the republic of lithuania, 2013, p. 5). meanwhile, želvys critically observes, that lithuanian education policy tends to follow the european imperatives for education reforms because they are treated as inevitability of the western world and, even more, approaching the standards of the western world (2009, p. 25–26). similarly to želvys, duoblienė maintains that lithuania is fast to respond to the eu­ ropean imperatives to develop a wide range of narrow competences and emphasise em­ ployability aspect (2011, p. 145), while, at the same time, she adds, lacking methodologically based strategy for the curriculum change and a well–thought–out educational discussion on the possible consequences of these curriculum trends, which implies a simulation of the cur­ riculum change rather than responsible action (2009, p. 134). here it is pertinent to stress that lithuania, contrary to estonia, does not have a separate higher education strategy as such. this could at least partly explain the current confusion in higher education strategising. also, it is possible that the lack of the national higher education strategy, and, thus, education­ al vision, can make the university curriculum more susceptible to extrinsic socio–economic pressures. estonia, in a similar vein to lithuania, has been experiencing changes in higher education which have been taking place within the frame of the bologna–initiated reforms. however, it is important to note that estonia clearly indicates that the quality standards of the estonian higher education is oriented not only to the quality standards set by the european union but also the nordic countries (estonian higher education strategy, p. 2006–2015). also, estonia, contrary to lithuania, has a separate higher education strategy, the fact which hints that poli­ cy–makers in estonia find it important to highlight what makes higher education distinct from other educational sectors and to bring more clarity to the role of higher education institutions and consistency to the national vision of higher education. the european commission (2015), when commenting on the strength and weakness of the estonian higher education system, notes that estonia, despite its recent efforts to launch a system for labour market monitoring and forecasting future skills, still needs stronger links with the business sector within the knowledge triangle. accordingly, these european assump­ tions have been reverberating throughout estonian strategic education documents, such as estonian higher education strategy 2006–2015 and the estonian lifelong learning strategy estonian higher education context 59 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 2020 (republic of estonia/ ministry of education and research, 2014). they, too, emphasise inefficiency of estonian education institutions in collaborating with the representatives of the labour market and meeting the demands of the labour market. for this reason, the involve­ ment of representatives from the labour market in developing curricula and taking into ac­ count their needs is stressed (estonian higher education strategy, 2006–2015; republic of estonia/ministry of education and research, 2014). also, promotion of enterprising initiative and entrepreneurship has been articulated to be one of the key goals (the estonian lifelong learning strategy 2020, 2014). what is even more, it has been declared that the traditional purpose of higher education has changed and higher education has become a ‘transnational commercial activity” and ‘an important export article’ (strategy for the internationalisation of estonian higher education over the years 2006–2015). this shows profound changes taking place in the estonian policy conceptualisations of the purpose of higher education, including universities. following the before–mentioned arguments, as well as the results of the international com­ parisons, which show that estonian youth with higher education, when compared to other countries, have lower level of problem solving skills and ability to use different skills in new contexts (republic of estonia/ministry of education and research, 2014), the competence– based approach to curriculum has been endorsed in estonia during the past decade. cur­ rently, the efforts are directed towards the implementation of this curriculum change (re­ public of estonia/ ministry of education and research, 2014). similarly to lithuanian case, the implementation of these changes is reinforced by legislation (estonian higher education strategy, 2006–2015, p. 6). the ehea implementation report (european commission/eacea/ eurydice, 2015) notes that estonia has fulfilled all the steps in the implementation of quali­ fications framework, which are described on the basis of learning outcomes (competences). the study programmes in higher education, including universities, are to include descriptions of the required competencies as “described in various national and international regulations and professional standards” (republic of estonia/ ministry of education and research, 2014, p. 14). thus, the competence–based approach to curriculum has been given a firm policy support in estonia. despite the declaration of such national strategic development plans as “knowledge–based estonia” (republic of estonia/ministry of education and research, 2014), the estonian strategic documents discussed are essentially concerned with the development of competences rather than the development of knowledge. to conclude, the present overview of estonian and lithuanian strategic policy documents indicates a significant influence of the european neoliberal knowledge economy policies on the conceptualisation of the higher education curriculum in the two countries at the national policy level. this is reflected in a new focus on the economic significance of university edu­ cation and increased involvement of employers in the development of study programmes to enhance the vocational relevance of the higher education curriculum. this goes along with the new emphasis on competences which are served as a means to strengthen the position of higher education institutions within education market and highlight more vocational utility goals of higher education curriculum. in lithuania and estonia, the introduction of the compe­ tence–based approach to curriculum has been steered through laws and regulations. mean­ while, the need to develop knowledge in curriculum, despite the frequent policy references to the ‘knowledge society’ or ‘knowledge economy’, has been systematically under–articulated throughout the national policy documents. the current national policy discourse of the two countries implies unproblematic nature of the current shift from the ‘traditional’ input–based university curriculum as historically influ­ e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 60 enced by german bildung tradition and continental and north european tradition of didactics to a new competence–based curriculum, which is an anglo–saxon outcomes–based curric­ ulum model. what is more, it implies a logic of inevitability of this change and the questions surrounding the new competence framework are largely presented as technical questions requiring a mere training and practical adjustment, while its conceptual underpinnings are unstressed. here, on the contrary, it is argued that the inherent national curriculum tradition inevitably influences the present–day conceptions of the university curriculum and practice. therefore, the radical shift from one curriculum rationale to another is problematic and inher­ ently conceptually complex if not treated only as a formal change. _ the present analysis of the european, estonian and lithuanian national policy documents has captured the way, in the light of the european ‘knowledge economy’ policies and the bologna–mandated curriculum modernisation, the traditional conceptualisations of the university knowledge and university education at large have been increasingly determined by economic rather than educational rationale. it has shown that the national higher ed­ ucation policies of the two countries have been largely responsive to the european im­ peratives to break from the traditional input–based curriculum and shift to the bologna mandated competence (outcomes)–based curriculum in order to increase the relevance of higher education curriculum. the competence–based approach to curriculum has been gaining ground both in estonia and lithuania at the national policy level. thus, the current national policy trends of the two countries can be described as ‘policy borrowing’ from the european policy framework without a greater consideration of the national localities of the two countries. however, it is important to stress that estonian policy has demonstrat­ ed more attempts to come up with a distinct national higher education policy line than lithuania. _ the present analysis has revealed the emergent predominant policy suppositions as to the nature of university education and knowledge to be developed in the so called ‘knowledge society’ or ‘knowledge economy’. the higher education policy focus in lithuania and es­ tonia, as influenced by the european neoliberal ‘knowledge economy’ policies, has shifted to generic competences and skills which are to ensure graduates employability. further­ more, the present analysis, by demonstrating a currently prevailing policy objective to re­ spond to the needs of the labour market and a repetitive policy references to such notions as outcome, competence, skill, and employability, as traced throughout strategic higher education documents has also highlighted the reduction of the focus of higher education policy to economic issues. it has been noted in the present analysis that a more holistic notion of knowledge seems to become taken–for–granted and, thus, unstated educational concept within the policy documents, which, it can be assumed, runs risk of trivialising knowledge as such, which traditionally, has been conceived to be the main pillar of the university curriculum and university research. it has been observed that despite the fre­ quent policy references to the ‘knowledge economy’ and the declaration of knowledge and universities to be the key drivers of innovation and growth of europe, the ‘knowledge economy’ policies and the associated educational policies, paradoxically, challenge, rather than reinforce the role of knowledge. thus, the present analysis sheds light on the lack and need for educational arguments as informed by curriculum theory to complement and challenge the current hegemonic economic rationale driving the ongoing curriculum modernisation in the european higher education context. conclusions 61 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 allais, s. (2014). selling out education: nation­ al qualifications frameworks and the neglect of knowledge. rotterdam: sense publishers. http:// dx.doi.org/10.1007/978–94–6209–578–6 andrée sursock. (2015). trends 2015: learning and teaching in european universities. brussels: euro­ pean university association. duoblienė, l. (2009). ugdymo turinio formavimo politika: socialinė reprodukcija ir jos įveika in bu­ lajeva, t. and duoblienė, l. lietuvos švietimo poli­ tikos transformacijos. vilnius. vilniaus universiteto leidykla. duoblienė, l. 2011. ideologizuotos švietimo kaitos teritorijos. vilnius: vilniaus universiteto leidykla. estonian higher education strategy 2006–2015. retrieved march 4, 2016, from http://www.hm.ee/ en/activities/higher–education european commission on quality and relevance. n.d. retrieved march 1, 2016, from http://ec.euro­ pa.eu/education/policy/higher–education/quali­ ty–relevance_en.htm european commission. 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(2007). towards the euro­ pean higher education area: responding to chal­ lenges in a globalised world. communiqué of the conference of ministers responsible for higher edu cation. london. retrieved february 6, 2016, from http://www.ehea.info/article–details.aspx­ ?articleid=43 lr vyriausybė. (2010). resolution on the approval of the description of the qualifications framework. 4 may, 2010, no. 535 ,vilnius. retrieved february 13, 2016, from http://www.skvc.lt/default/en/la­ wacts mattusch, k. (1996). demokratisierung im bal­ tikum? über die begrenzung von demokratis­ ierungschancen durch politische kulturen. frank­ furt a. m.: peter lang. méhaut, p. and winch, c.. 2011. eu initiatives in cross–national recognition of skills and quali­ fications in m. brockmann, l. clarke, c. winch et al. (eds). knowledge, skills and competence in the european labour market: what’s in a qualification?. london and new york: routledge, 22–35. http:// dx.doi.org/10.2304/eerj.2012.11.3.369 méhaut, p. and winch, c. (2012). the european qualification framework: skills, competences or knowledge? european educational research jour­ nal, vol. 11, no 3, 2012. norkus, z. (2008). kokia demokratija, koks kapital­ izmas? pokomunistinė transformacija lietuvoje ly­ ginamosios istorinės sociologijos požiūriu. vilnius: vilniaus universiteto leidykla. oxenham, m. (2013). higher education in liquid modernity. new york and london: routledge. par­ liament of the republic of lithuania. (2013). the national education strategy 2013–2022. retrieved march 10, 2016, from https://www.smm.lt/web/lt/ teisesaktai/tei/valstybine–svietimo–strategija_1 republic of estonia/ ministry of education and research. (2014). the estonian lifelong learning strategy 2020. retrieved march 12, 2016, from https://www.hm.ee/en/activities/higher– edu­ cation. references e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 62 republic of estonia/ministry of education and re­ search. (2014). estonian research and develop­ ment and innovation strategy 2014–2020: “knowl­ edge–based estonia”. tartu: ministry of education and research. republic of lithuania. (2015). the law on higher education and research. as last amended on 17 december 2015 – no xii–2198. strategy for the internationalisation of estonian higher education over the years 2006–2015. re­ trieved march 14, 2016, from https://www.hm.ee/ en/activities/higher–education the european union. (2013). high level group on modernization of higher education: report to the european commission on improving the quality of teaching and learning in europe’s higher education institutions. luxembourg: publications office of the european union. tuning educational structures in europe. (n.d.a.). tuning general brochure. retrieved february 13, 2016, from http://www.unideusto.org/tuningeu/ documents.html young, m. (2011). curriculum policies for a knowl­ edge society? in l. yates & m. grumet (eds.), cur­ riculum in today’s world: configuring knowledge, identities, work and politics (pp. 125–138). new york, ny: routledge. ward, s. c. (2012). neoliberalism and the global re­ structuring of knowledge and education. abingdon, oxon: routledge. wheelahan, l. (2007). the marginalisation of the­ oretical knowledge in vocational qualifications in australia: a blended bernsteinian & critical realist analysis. doctoral thesis. melbourne: monash uni­ versity. wheelahan, l. (2010). why knowledge matters in curriculum: a social realist argument. london and new york: routledge. želvys, r. (2009). lietuvos švietimo politikos kon­ tekstas in bulajeva, t. and duoblienė, l. (2009). lietuvos švietimo politikos transformacijos. vilnius. vilniaus universiteto leidykla. about the author rūta petkutė phd candidate in social sciences (educational sciences) school of educational sciences, tallinn university fields of research interests higher education policy, curriculum policy, curriculum theory, sociology of curriculum address narva mnt 25, 10120, tallinn, estonia tel. +37065116134 e–mail: ruta.petkute@tlu.ee e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 90 submitted 03/2016 accepted for publication 09/2016 european integration studies no. 10/ 2016 pp. 90–105 doi 10.5755/j01.eis.0.10.14988 © kaunas university of technology shrinking of rural territories in latvia eis 10/2016 abstract shrinking of rural territories in latvia armands pužulis delta company ltd., senču iela 6, riga, latvia laila kūle university of latvia, jelgavas iela 1, riga, latvia http://dx.doi.org/10.5755/j01.eis.0.10.14988 development in the last decade was characterized by economic, social and spatial shrinking. this phenomenon is observed in many western and post–soviet countries. in spite of the existence of wide–spread research and publications on shrinking the concept rarely are applied to rural areas outside metropolitan regions. until now there is no national–level in–depth research or targeted policies towards shrinking phenomenon in latvia. the aim of the study is to examine if and how the concept of population shrinkage is represented in latvian rural ar­ eas, and how this phenomenon might be incorporated in spatial development of the country. the article explores the inconsistence of application of shrinking at the latvian context. theoretical concepts used in this research are the result of a review of the literature. empirical research is carried out in seven local municipalities of the former alūksne, balvi and gulbene districts in north–eastern latvia by interviewing local government employees and analysing statistical data and policy documents. spatial shrinking is wider concept than population decline by in­ corporating not only demographics but also drivers, outcomes and impacts of the process as well as governance, planning and policy response aspects. our study indicates that whole latvia, both its rural and urban spaces, has to be considered as shrinking territory that needs to prepare place–specific policies for different areas. the investigation results approve that latvian countryside can be defined as typically shrinking. this process requires a change in attitude among decision–makers at both national and regional governmental levels. the scarcity and incompleteness of available data is reflective of the realities of regional policy implementation. drivers of rural spatial shrinking are due to socio–economic structural changes and rescaling and consequent changes of former economic, social and cultural linkages. shrinkage processes have an impact on rural social capital and services. shrinking requires the need for a set of innovative; knowledge–, evidence– and place–based; coordinat­ ed; pro–active; multi–disciplinary; spatial; economic and socially–targeted policy measures. keywords: shrinkage, rural development, regional policy, policy change, science–policy introduction shrinking or decline (directorate–general for…, 2008) as social and spatial phenomenon is not new concept (haase et al., 2014; mitchell & de waal, 2009; rybczynski & linneman, 1996; com­ mins, 1978). the existence of extensive research and publications and better understanding of shrinking in recent years has not lead to common approach, a model or theory on shrinkage as a development pathway and a set of solutions (haase et al., 2016; kotilainen, et al., 2015; reckien & martinez–fernandez, 2011; wiechmann & bontje, 2015). spatial shrinking is wider concept than population decline by incorporating not only demographics but also drivers, outcomes and impacts of the process as well as governance, planning and policy response aspects. sousa & pinho (2015) underline that urban decline not always leads to urban shrinking, and that shrinking is not a negative process, but needs to be considered as another type of development path of 91 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 urban pattern. some comparative research in the east germany and estonia was targeted to find out if urban size (including small rural towns) is relevant for shrinkage process (leetmaa et al., 2015); and the study indicated that combination of shrinking drivers are more relevant then the location of a settlement in the hierarchy of urban classes. this research “did not find “one size fits all” examples” in relation to social capital, but “discovered, however, that different forms of social capital combine differently with local development practices and economy, and the local government bodies need to adjust their governance practices to local conditions” (leetmaa et al., 2015, p.164). the wide–spread research and publications on shrinking rarely are applied to rural areas outside metropolitan regions. post–socialist european countryside is undergoing structural changes that often have been classified by researchers as another example of rural decline due to technologi­ cal changes and modernization of the societies, and as a phase of the general urbanization pro­ cess. we argue that in the baltic states the centres of rural settlements were urbanized and ser­ viced close to the standards of small towns due to central government investments, particularly in 1970s and 1980s in order to strengthen collective agriculture outputs relevant for soviet food provision; current population loss causes impact similar to observed processes in urban areas. during two last decades shrinkage in rural areas in latvia is manifested by re–industrialization and social–economic changes, like aging, decline of social capital, decrease of public and private services, school closures, housing vacancy, land abandonment and re–wildening. there is a poor transfer from research results to policy documents, as consequence the shrinking processes are rarely addressed into the policy measures at various levels (haase et al., 2016; kotilainen et al., 2015; reckien & martinez–fernandez, 2011). social changes in the last decade raise a question concerning future planning and develop­ ment, how we understand and conceptualize place development in the future without population growth; what values, qualities and priorities will make the baseline of future lives of individuals and communities and their economies. currently in latvia, similarly to many other european countries, phenomenon of shrinking is not widely recognised, and therefore it is absent from existing policies and is not utilized for preparing new policy initiatives and documents. in–depth studies on cases of shrinking processes and their outcomes, relevant data analysis and re–as­ sessment of its quality and relevance for better understanding of spatial, economic and social changes at localities and their regional differences are missing at national or regional govern­ ments’ agenda for research needs and presumable policy adjustments. since recent times schol­ ars at global academic levels debate on shrinking and its consequences, – “we argue that the urban growth model is no longer valid for the sustainable development of cities and regions” (martinez–fernandez et al., 2012, p.214) and that requires adequate planning measures that con­ siders different dimensions of shrinking pathway of development. the novelty of the article is to localized shrinking concept in the context of latvian countryside by analysing various its dimensions and aspects in the peripheral north–eastern rural munici­ palities. the data on demographics, employment and economic structure and taxes used for the analysis are obtained from the latvian state revenue service, the state land service, the state employment agency and the central statistical bureau, and from planning offices of local munic­ ipalities. during the study comparative qualitative and data analysis were conducted, partly struc­ tured interviews with local politicians and municipal employees were carried out and the texts of local and national level planning documents were reviewed. the authors propose that current de­ velopment pattern of latvia at a national level comply with the shrinking paradigm – demographic, economic and social dimensions are shrinking. observed geographical differences increase the shrinking trends in the peripheral areas of latvia. the article compares a central part of the country e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 92 (the capital city of riga agglomeration) with peripheral areas, with emphasis on in–depth study of a case from the north–eastern latvia on the border with estonia and russia. our study em­ phasizes the importance of data and its interpretation in the context of better understanding of shrinkage processes. we demonstrate that shrinking concept is scale–targeted for different ar­ eas of latvia and ambiguous in relation to selected criteria. the decrease of population number is not sufficient as criteria to unambiguously assess if shrinkage pattern is prevailing. the theme of the article covers such scientific concepts as shrinking, growth, development, countryside, urban and rural. whatever conception that is used as metaphor is characterised by uncertainty and ambiguity. shrinking (in latvian – sarukšana) is pathway of slower or sudden processes of causal relationships in the systems of economics, social and political spheres or nature (natural disasters). while spatial and scale aspects are analysed; temporality of processes or/and eventisation, including extraordinary versus conventional paths, are rarely topic of spatial research. the decrease in population numbers is causing numerous development problems, such as aging, brain drain, vacant housing, un–utilisation of infrastructure and services (bernt et al., 2012). shrinkage has social consequences that influence social capital and the quality of life of individuals and local communities, and therefore the potential to innovate is diminished in such localities (martinez–fernandez et al., 2012). the knowledge, skills and attitudes toward their local environment are deteriorating (delken, 2008). research on shrinkage are mainly based on reactive approach than proactive or preventive position; and this might be explained with the dominance of growth–based policies and existing research paradigms in development geogra­ phy. shrinking has cyclic character that defines that “the underuse of industrial infrastructure, a low number of jobs, and emigration of the working–age population, which usually moves to more prosperous agglomeration regions. the problems come together in a vicious circle, which is exacerbated by demographic change” (domhardt & troeger–weib, 2009, p.163). the growth needs to be distinguished from shrinkage, as these are phases of development with „different overall trends – growth, slow growth, stabilization and shrinkage” (sousa & pinho, 2015, p.13). researchers acknowledge that development is not merely related to the growth, but it is imma­ nent with shrinking. in contemporary uncertain conditions where global economy and linkages are dominating; any growth centre or locality might lose its run of luck and might become a place with shrinking patterns. pallagst (2014, p.59) concludes „shrinking and growing are processes that can be observed in parallel“. while researchers admit that shrinkage as a consequence of modernization, is becoming a part of contemporary realities of social, economic and physical processes. politicians undesirably are changing their traditional worldviews and ideologies towards the futures of local communities and national societies. in the politics shrinking does not fit into the growth strategies and con­ sidered as place degrading phenomenon (canzler, 2008). they believe that it is necessary to turn back to the growth path that alone is able to provide needed welfare level. although there are no all–purpose and ready–to–use solutions; shrinking if empowered as new policy paradigm can provide alternatives to the traditional growth paradigm. planned shrinkage can offer opportunity to create smaller, more compact and better quality space for communities, it can offer additional time to find, select and implement high–quality smart local measures (hollander & nemeth, 2011; rhodes & russo, 2013). the crux of the matter for place development/shrinkage is the loss of the main economic, social or cultural function that is not yet substitute with new one. strate­ gic spatial planning is mentioned as a measure to accommodate undesirable conditions and to „counteract the spatial mismatches on various levels“ in order „to break a downward spiral to cross instituted behaviour, to transform“ shrinking areas „into a different state of consciousness shrinkage concept in urban and rural areas 93 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 and to use the given institutional, social and economic settings“ (reckien & martinez–fernandez, 2011, p.1390). this study proposes to use two planning strategies that might lead out of the spatial mismatch dilemma that is considered as one of the main cause for shrinkage; – firstly, to „bring the functions that are spatially mismatching together“, by moving people where jobs or vice versa, that is bringing adequate jobs where people live; – secondly, „enable a better informational or spatial connection between the disconnected parts“(gobillon et al., 2007). in the scientific literature the focus of the shrinking concept is most often towards urban or met­ ropolitan areas, and rarely towards peripheral countryside. through the social construction of the shrinking the analysed space is structured in urban and rural categories. by replacing rural category with regional, the theme of shrinkage can be extended towards inclusion of rural areas (directorate–general for…, 2008). therefore, “rurality can be considered along two axes: acces­ sible rural areas marked by growth and connectedness; and peripheral rural areas frequently denoted by investment uncertainty and remoteness” (houston et al., 2016, p.44). ever increasing uncertainty and complexity defines the need for universal approach in spatial planning – flexible response that is counteracting traditionally defined and fixed strategies and goals (pallagst et al., 2009). researchers and policy–makers more often such flexible strategies apply for urban areas, particularly in brownfield sites. another approach that used to solve shrinking problems, partic­ ularly in localities and rural areas, are suggested by the research community (hasse et al., 2016; wiechmann & bontje, 2015) is need to coordinate planning and policies and their implementation at various levels and sectors. scarce human and financial resources, the shortage of knowledge and incapability to innovate requires shrinking communities call for assistance outside their bor­ ders. it has been emphasised that in shrinking context spatial planning requires smart solutions by accommodating both – place–based and multi–scale and cross–sectoral approaches that are appropriate to real conditions in point of fact. such examples of smart shrinking carried world­ wide are hardly applicable without adjustment in other specific places (wiechmann & bontje, 2015). additional long–term, experience–based and culture–related knowledge on particular shrinking places and regions is needed. until now there is no national–level in–depth research or targeted policies towards spatial shrinking phenomenon in latvia. previous scientific activities have been focusing on population change, international and inter–regional migration and metro­ politan suburbanization processes (bauls et al., 2004; krisjane, 2007; krišjāne & bērziņš, 2009; pužulis & šķiņķis, 2010). in modern societies the concepts of ‘urban’ and ‘rural’ might have distinct meanings at diverse scales. the social construction of urban and rural categories and their differences are related with long–term cultural and political bias. how these urban/rural categories are utilized for pol­ icy–making and implementation are closely linked with prevailing spatial development goals defined for these ‘urban’ and ‘rural’ regions, inhabitants and enterprises. in latvia the ur­ ban–rural population ratio is based on the formal administrative status of local municipalities or their sub–divisions. these boundaries are inherited from the soviet period, and have not change in general since 1960s–1970s. there are no strict thresholds for urban and rural areas and these have been considered being with less importance as since 1994 all municipalities have equal rights and functions despite their formal status (kule, 2010; kūle, 2014). in 2009 as result of municipal reform, the merger left 118 local municipalities out of former 522 municipalities, and new pattern of rural and urban areas under joint local government frame was created – new amalgamated local–level municipalities have for types in relation to urban/rural status: – 1) entirely urban or 2) rural area, 3) central urban (medium and small towns) with adjacent rural area, and 4) rural area with more than one urban centre (rural towns). currently there are 119 local munici­ palities and 76 areas with urban status at local municipalities or their sub–divisions level. at the e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 94 latvian national level a formal urban–rural boundary defined in the legislation is two thousand inhabitants (saeima, 2008), although historically established towns that are smaller in popu­ lation numbers or towns that have recently depopulated are still keeping their urban status in spite of discrepancy with formal criteria, except one case when due to amalgamation of urban and rural local communities, kalnciems town decided to agree to be re–classified to rural area. urban–rural categories are exercised for ad–hoc planning needs, e.g. for the needs of the im­ plementation of the eu common agricultural policy in latvia the threshold of five thousand in­ habitants as criteria for urban areas are used; the smaller urban area are applicable for rural aid and are regarded as rural area (ministry of agriculture…, 2015). additional to previous approach, several national–level programs of rural and regional aid are defined in the way that is not appli­ cable for formal rural, currently suburbanized municipalities located in the riga region. in latvia there are no official policies towards functionally connected areas that can be applied towards urban agglomerations (pužulis & šķiņķis, 2010). suburban settlements in legislative and policy documents are in most cases constructed as villages in rural areas in spite of their apparent urban character and proximity and close functional connectivity with central urban core. in the article we use mixed approach towards a separation of urban and rural categories, – (1) for­ mal local level administrative territories – 9 large cities (in latvian – republikas pilsētas) and 110 amalgamated local municipalities (in latvian – novadi), and (2) functional metropolitan region that is defined from research on suburbanization – in our case we include here the cities of riga, jurmala and 12 adjacent local municipalities that are currently characterized with the growth pattern. to describe shrinking pattern at national scale we propose growth and shrink­ ing typologies against above mentioned urban–rural pattern, where both formal and functional approa ches are examined. the main indicator that is widely accepted as a signal to indicate a shrinking pattern is the change of population numbers; although to make in–depth analysis in order to understand drivers and outcomes of this process, other social, economic and spatial data is needed at units of local mu­ nicipal and their sub–divisions territories. latvia can be characterized as a territory with scarcity and fragmentation of statistical data at local level. besides widely used population, employment/ unemployment numbers per local municipalities, other data on human and social capital, eco­ nomic and cultural activities, built environment, access to services and social and regional aid measures are complicatedly or impossible to obtain. in our study to characterize the extent of demographic and economic shrinking in rural areas we analysed data on population, jobs and taxes. to describe local economic situation we used data on unemployment and transfer of the payments of population income tax (in latvian – iin), – since to obtain data on enterprises and jobs is cumbrous process requiring additional resources unavailable for independent research­ ers. the shrinkage of population is not only a cause, but also at the same time an effect and an indicator, particularly, if the usage of other additional data is limited. currently available official statistical information on resident population, e.g. all inhabitants who declared permanent place of residence is the respective administrative unit, does not reflect actual (present) population number. this is due to liberated declaration system of residence, open borders and free move­ ments of inhabitants. in our case study in the shrinking periphery – seven local municipalities located in the northeast latvia – alūksnes, apes, baltinavas, balvu, gulbenes, rugāju and viļak­ as local municipalities (novadi) (figure 2 and 3) lost population by one third in the period from 1990 to 2015 if the official statistical data is analysed (csp data). indirect calculations by local municipalities’ staff indicate change of population by in average 20–30 percent larger than offi­ cial statistical data (csp data). actual numbers of local inhabitants are crucial in the context of data constraints for describing spatial shrinking 95 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 shrinking, as this indicator is a base for derived data on unemployment, density of population, access to services or structure of local economy. in our study we used available official statistical data that was available at the beginning of 2016 (csp data). data extraction from population income tax transfer is not a solution at the current policy practice when enterprises declare not actual places of jobs, but their juridical notification. these data are collected and compiled for other purposes, like accounting, then identification of actual pop­ ulation number at particular territorial unit. tax transfers from other municipalities constitute approximately one third of the local municipalities’ budgets of the seven case municipalities of the north eastern latvia (vid data). the number of jobs in a particular geographical unit is ex­ trapolated from the survey data (csp data). due to the national legislation, only a portion of all businessmen is paying the population income tax. paradoxically, during interviews we realize that shrinking communities are not interested in the issues concerning incorrect data on factual population numbers, population income tax or jobs in local municipalities. the latvian national legislation on the municipal income equalization defines that the budgets of poorer municipal­ ities are dependent from the central government dotation and tax transfers from more pros­ perous municipalities through the equalization fund. similar to other european countries (blair, 1992), latvia rely on a national level regional development policy instrument – the system of municipal income equalization. this mechanism of tax transfer is designed to use data from the state population register. population numbers published by the state population register for shrinking municipalities are larger than the numbers of population identified by the central statistical bureau and consider­ ably larger than calculated at local level by local municipal offices. and vice versa in the subur­ banized growing local municipalities adjacent to riga city population numbers identified by local planners are larger than published by the office of the national official statistics. the fact what proves this observation is people participating in elections at times exceeds more than hundred percent in suburban municipalities (cvk, 2014). these growing municipalities are concerned how to attract actual population to declare their formal place resident in the territories of their factual living, and with thus to increase their municipal budgets; and how to pay less taxes into the na­ tional municipal equalization fund created with the aim to support the left behind municipalities. taking account, the actual situation with data availability and their quality at local municipal and their sub–divisions level, there is a need for other alternative and derived data to be explored and probably used for analysis in the further research on shrinking. contemporary technological changes and new smart solutions provide ever increasing data availability (big data) in the disposal of private and public service providers, e.g. data of electricity consumption, mobile telephone location, retail turnover. in latvia such big data are used by busi­ ness and communications sectors, but rarely collected and analysed by state, regional and local governments for the purpose of spatial planning and public services and infrastructure. during interviews in municipalities of the case study area we did not find any innovative measures to counteract situation with data discrepancies. for instance, local level population census might be a solution for smaller rural communities to increase data credibility and to correct available quantitative information used for planning purposes. additional constraints to data interpretation for the needs of the analysis of shrinking processes are due to uneven size of local municipalities (lau–2). that situation is created as result of democratic character of local municipalities’ re­ form in 2009, e.g. baltinava novads/ the smallest local municipality with 1000 inhabitants formed from one unit (pagasts) as it is refused to any amalgamation option, while gulbenes novads with 21000 inhabitants was created by amalgamating all local municipalities of former regional level municipality (rajons), currently there are 14 sub–divisions (13 rural and one urban). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 96 in order to understand spatial shrinking patterns, we analysed all latvia territory, the capital city riga agglomeration, and seven municipalities representing a case from shrinking periph­ ery. in total all latvian territory is under demographic shrinking, e.g. long–term depopulation during last twenty years. the territories of growth and shrinkage were mapped in latvia based on lau–2 geographical units at local municipalities (republikas pilsētas and novadi) level (figure 1). there are only two medium–size cities in latvia which characterize as stable – growth – valm­ iera and ventspils; – all other cities are shrinking. riga metropolitan area is shrinking if it is per­ ceived as one spatial unit (agglomeration) (figure 2). within riga agglomeration there are 15 local municipalities where population numbers have been increased due to suburbanization process. from them 12 most economically advantageous municipalities are financial donors contributing to the national municipal equalization fund. we divided riga agglomeration area in (1) the first ring – the inner circle which is growing, (2) the second ring – outer circle which development is under the growth and stability pattern, and (3) the third ring – metropolitan fringe municipalities that are experiencing stable development pattern (figure 1, 3). these suburban municipalities demonstrate the growth pattern in both demographic and economic activities. other research similarly classifies riga city as shrinking (mulligan, 2014), demographic data proves that. however, riga and jurmala need to be assessed both at national and metropolitan context. riga is the largest economic growth centre for latvia, and the growth of its suburban areas cannot be separated from its central part where economic and financial power, governance and culture centre are located, and which contains the highest share of all employment places and registered companies. however european and national trends of depopulation, international migration, globalization and economic slowdown influence not only latvia, but also hampers the growth of its capital city–region. these shrinking tendencies need to be considered when national and regional spatial plans and policies are made. case study areas figure 1 growth and shrinkage territories in latvia (source: authors) 97 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 figure 2 population change in riga agglomeration (source: authors based on csp data) figure 3 population change (%) 1995–2015 riga agglomeration versus periphery (source: authors based on csp data) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 98 riga agglomeration against the latvian periphery is defined by social and economic barrier due to differences in wages, employment, land and immovable properties values and market. such barrier is hampering free movement of labour force from peripheral areas to the eco­ nomic growth centre. net wages in riga and its suburban area (pierīga) are two times larger than in the rest of latvia (shrinking periphery), transfers from population income tax pay­ ments into the municipal budgets are five times larger between growing centre and shrinking periphery, land market values are 22 times larger in riga agglomeration than in the rest of the latvia. there are no direct indicators to describe differences between the centre and the shrinking periphery in relation to the access to jobs; – although there is data that indicates that unemployment is seven times larger in areas outside riga agglomeration (based on estimates from data obtained from csp, vzd, nva). access to housing in cities and thus opportunities to move from shrinking periphery small towns and rural areas to the economic growth areas are limited by actual small wages in the periphery and ‘cost gaps’ in everyday expenses for livelihoods. this is one of the reasons why persons from the shrinking periphery employed in riga (or working abroad) live in on temporary status, still maintaining their farmhouses, family homes and apartments in shrinking periphery as first homes. these land properties and hous­ ing serve them as ‘social security’ and at the same time creates incorrect statistics on resident population numbers both in the shrinking periphery and in the growing areas. selected seven shrinking municipalities in the north east latvia are established after the mu­ nicipal reform of 2009 by joining up 56 former urban and rural local municipalities from three former districts (in latvian – rajons) – alūksne, balvi and gulbene. we preferred to study these municipalities due to their marginal location in the shrinking periphery. the case area is rural without larger regional urban centres. the study area is situated approximately 200 kilometres from the capital/the central part of latvia; four of selected municipalities are the frontier of the state border, – three of them are on the eu–russia border, two on estonia–latvia border. all selected area is with low economic activity and higher unemployment rate then the nation­ al average. the case is represented by typical rural area with three former district centres/ towns – alūksne with 8 thousand inhabitants as data from official statistics record, balvi with 7 thousand and gulbene with 8 thousand inhabitants and two small towns – ape with one thousand inhabitants and viļaka with less than one and a half thousand inhabitants (csp, data). local municipalities’ rural sub–divisions (in latvian pagasti) have population in range from 200 to 1900 inhabitants, in their central villages some 50 to 1000 residents live (grupa 93 sia…, 2015), that in the most case is not adequate number to sustain existing technical infrastructure and public services. the case area has an explicit demographic shrinking pattern, – in the last twenty years’ popula­ tion number has decreased for one third, while at the same time in whole latvia the current num­ bers of resident population are less than one fourth than the numbers before twenty years ago (csp data). the demographic shrinking is the highest in the borderline municipal sub–divisions (pagasts), while rural areas are shrinking more than towns. the shrinkage can be characterised as changes in human settlement spatial structure. although the morphological structure of human settlements – villages, towns, cities – are remaining as spatial unit and occupied/va­ cant built environment, they are deteriorating in quality. technological and structural changes in economy determine the need for fewer employees. due to administrative reforms and centralization tendencies, former district centres are losing public governance functions. at the same time industrial activities are substituted with private services (mainly retail). as the result of depopulation, public services are closed –there are fewer schools, doctorates, post offices, public transport, and private services are diminishing – shops, 99 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 pharmacies and cash points are becoming inaccessible for many rural inhabitants. the propor­ tion of public sector employees against total employment is growing. public sector employs from one third in larger municipalities up to two thirds of all employed in the all other municipalities (authors estimate based on interviews). there almost no new economic sector entrance in the case area. the scale of economic activities is constantly decreasing, and thus any one termi­ nation of existing economic and social units, like closure of school or enterprise or low quality of road can become crucial for livelihood of particular place (village or small town). any vacant place of job can obtain high importance for local development and to keep young people. for instance, in baltinavas novads there no vacancies (data from municipality), e.g. young people can only get jobs only by substituting the existing employees. the different speed of shrinking in the municipalities indicates (jaunlaicenes pagasts versus kupravas pagasts) (ir data) that there is a need for complex approach to assess the role of leadership, governance structures and culture, values of nature and culture heritage, social and human capital for particular plac­ es/localities. the explanation of current situation might be the lack of knowledge and tools on how to approach shrinking processes, defined limits of state regulation and the centralization of priorities and finances of regional aid. until now the national government policy response to shrinking process are concentration and centralization of public services. offices of state institutions and organizations are moved from rural centres and smaller towns to regional centres or riga city. widely are introduced e–ser­ vices that however do not substitute all types of services and do not cover all inhabitants. spa­ tial concentration is becoming apparent in the public service provision centres – hierarchical places (cities, towns and large villages) in which it is plan by national government to provide aid for establishing certain volume of services – ‘basket of services’ (in latvian – pakalpojumu grozs) (rpp, 2013). at the same time uncoordinated use of spatial planning tools and weak sci­ ence–practice linkages and an inadequate dialog between localities and their municipal staff with national government responsible ministerial political and civil servant staff and responsi­ ble regional development agencies, create a gap between planned human settlements future in relation to infrastructure and services and current realities in shrinking localities. proposed new local services are centrally planned for more population than there are real resident pop­ ulation. there are no national or regional policies how population numbers might be increased in the close future. at the same time administrative–territorial reform is not yet accomplished. there are nation­ al level proposals to further increase the size of local governments, with an idea to create them around 9 national level and 21 regional level centres (cities and towns) (varam, 2013; kūle, 2014). there are national policies plan to increase spatial concentration of industrial and innovation activities, by creating additional new free economic zones. there are currently undergoing education and health sectors reforms at national level. the national school reform is based on indicators of financial benefits with the main trend towards the increase of the number of pupils in classes. as result, it is planned to close small schools and to re–organize medium schools and gymnasiums. local municipalities will have four times multiplication of losses due to school closure – the loss of teachers working places, less taxes in the municipal budgets, more financial transfers will go to school in other municipalities and more finances for school busses, – to transfer pupils to schools in other municipalities (interviews in mu­ nicipalities). as result human capital will be depleted in these localities, as teachers’ jobs will be replaced by bus driver jobs. ongoing rural depopulation questioning what solutions to be found for recently improved technical infrastructure and public services traditionally provided in these rural settlements. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 100 we analysed spatial development policy and physical planning documents of selected munici­ palities and we found that their future visions are based on assumptions that resident population numbers will stabilize or even will increase in the near future. the national level long–term spatial and economic development documents, e.g. the national development plan, the nation­ al regional development policy documents – all are directed towards the growth, and not even mentioning factual shrinking patterns (cross–sectoral coordination…, 2012). the hierarchical and framework principles of the national level spatial planning system support the process that the growth approach multiplies into lower level spatial documents, e.g. regional spatial plans and development programs, local municipalities land use plans, development programs, strate­ gies and projects. there is no official mechanism that requires the examination of future visions against actual resident numbers and utilization of public services and real demographic progno­ sis at various scales. in our case study area the demographic prognosis that is based on official statistical data suggest that resident population will decreases by one fifth up to one third during the period from 2011 to 2030 (grupa 93 sia…, 2015). considering that prognosis is based on official statistical informa­ tion, it is expected that real depopulation can reach one third up to one half of existing residents in the next twenty years. there opposite picture in the municipalities of riga agglomeration. de­ mographic projections suggest that the current trends will continue and thus it high population increase is expected. we have doubts on such forecasts. in the last five years’ data indicates that in ten out of fifteen local suburban municipalities population numbers are stable and even start slowly decrease (csp data). riga city municipality is implementing targeted policy to attract more population that is declaring their permanent residence in the capital by public transport subsidies and tax allowances on housing. such riga’s local urban policy coincides with global suburbaniza­ tion trends that witnessing the decrease of suburban population, as it is proved by the research in the usa (audirac, 2014). the interviews in the case study area revealed the general negative attitude towards spatial planning at local areas. the background for such mind–set is limited financial and human re­ sources and weak support to local initiatives from the national government and its institutions. in this local level spatial planning which is not adjoined with additional financing, public or pri­ vate investments are not considered as appropriate activity. current development priorities in shrinking periphery are based on physical infrastructure and cover sectors that are defined by the national level – jobs, roads and services. although these are aspects, that under the shrinkage development pattern need to be re–assessed. local politicians during interviews emphasised that there are limited options to influence the development situation in their municipalities, and as an excuse of this self–assessment they mentioned a national legislative framework defining functions, responsibilities and rights of local self–governments. there are almost no initiatives or local actions target towards active local individuals of groups facilitating their involvement into spatial development of shrinking localities. the local government politicians and staff are sceptical concerning national policies towards the long–term ongoing territorial–administrative reform, the current re–organization of school network, existing policy tools to create new work­ ing places, to improve local road infrastructure, social aid policy and instruments. from the point of view of the locals the national policies targets are hardly tackling their real needs, particularly in the shrinkage conditions. they do not believe current capabilities of the central government to find solutions to development challenges in their communities, as so often their local needs are ignored by national and european priorities and regional aid instruments (interviews with municipalities). shrinking practice versus policy 101 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 we can conclude that existing rural settlements are “guttering out” in functional, quantitative and qualitative dimensions. unfortunately, more active population groups that traditionally were community leaders and local development agents are moving out from shrinking periphery, al­ though to assess the extent and impacts of this trend additional qualitative research is needed. the further research is likewise needed to identify and assess cases who and why is returning to live and work in these shrinking rural/ small towns’ communities, and if these situations can be applicable to other places and can be thus multiplied as new policy initiatives. our research is summarizing the need to harmonize policies with realities in shrinking areas. as realistic policies, their goals and instruments are relying on data and information used during policy–making and policy assessment phases, we highlight the need solve in correction and incompleteness with data at local spatial units. we also identified the shortage of long–term, comparative and qualitative research at national and regional levels that would provide a better understanding of shrinking causes and outcomes of different speed developments. demographic projections at local areas and regions have to take account real resident population and shrinking context at national scale, it is not feasible that suburban municipalities at riga urban fringe will experience long–term growth pattern. as the result of differences in shrinking/ growth patterns two types of rural areas can by identified in latvia – (1) growing countryside that are connected with larger urban areas and integrated in global production–consumption cycles and (2) shrinking countryside that has poor physical and financial accessibility. as localities such typologies can be found elsewhere in latvia, however due to the growth concentration at the capital and other lager cities, the growing countryside is most often found at city–regions, while geographical remoteness define that shrinking countryside is more often located in peripheral and frontier areas. national policies should be designed in such way that both types of rural areas – growing and shrinking – will be targeted with different but adequate spatial policies. current uncertainties to­ wards understanding of shrinking development patterns are further manifested in inefficient policy measures. attitude change is needed towards shrinking, – from seeing the shrinkage as a fail­ ure of development, as deprivation and wrong direction of pathway, towards positive framing, that provides a new opportunity to create spaces and places differently, possibility to new spatial and economic development innovations and policy transfers, opportunities to implement place–based and community–based actions, opportunities to strengthen science–policy linkages and activate local entrepreneurship, smart place image–making and marketing targeted to return and new in­ habitants and companies. there is also need for additional theoretical research on better understanding of shrinking path­ ways and their geographical implications at various scales. to compose and write this article the field study and brief literature research have been conducted without any financial support from na­ tional or regional authorities. it reflects general attitude towards social and spatial national science in general. political and administrative authorities rely from international and foreign short–term expertise. the authors argue that while such policy was reasonable through transformation period the change towards nationally–placed researchers with local place based knowledge is needed. therefore a dialog between the research community and national level regional development authorities is needed in order to assist how challenge discrepancies between policy documents focusing on the growth paradigm and the realities in the latvian shrinking periphery. one of the option might be separate the development concept from the demographic and economic growth pattern, and to focus more on jobs, housing, the quality of life, living standards of existing discussion e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 102 population, maintaining and improving existing services and technical infrastructure, caring for countryside, planning re–wilding or moving from remote and inadequate housing to better qual­ ity and well–served housing, if other options to attract jobs or provide services are not available. national level politicians and bureaucrats pretend that shrinking does not exist; there is a social process of ‘trivializing shrinkage’ (hospers, 2014). however, there are attempts of individual sec­ tors implement policies that indicates that they use instruments targeted towards accommodat­ ing the outcomes of shrinking process. this strategy is a top–down approach that leads to the closure of offices and public services and as a result people are moving–out from that territory (hollander & nemeth, 2011). without national level encouragement local municipalities in shrinking periphery are passive towards changing existing development pathway, declaring that they alone can only hamper, but stop such development path. future government reforms have to leave some state level functions at regional level, such public services and face–to–face contacts with people work­ ing for national government are crucial for social capital strengthening and survival of medium and small towns. there is also need for individual approach to assess future needs of rural vil­ lages while planning appropriate technical infrastructure, connections with regional centres or re–organizing infrastructure and finding new uses of built structures of closed public and private services. there is need to provide access to scattered farmsteads based on typology of their ac­ tivities, for instance agriculture versus eco–tourism, or second–home usage. the article reflects that it is decisive to change priorities from focusing on formal governing and hard investments to flexible and innovative co–operation with humans living or willing to return or move to shrinking localities. on the basis of paper topicality, the next investigations should be focused on several research questions. it needs to be answer what is a real number of resident population and jobs in local­ ities concern. what are demographic projects if the real number of resident population is used? whatever ‘local census’ can be used to collect a correct information on shrinking municipalities? what settlement model(s) can be proposed for shrinking rural areas? what services are needed and how they are being provided (locations, mobile or e–services versus face–to–face contacts)? to facilitate a pro–active policy against shrinking trends and their drivers there is a need to list appropriate policy instruments and measures, based on mutual trust between local communi­ ties and national authorities, and by better dialog between researchers and policy–makers. _ that article concludes that all latvia complies with demographic shrinking pattern. the con­ cept of population shrinkage is particularly represented in the latvian countryside. there is a need for comparative research on shrinkage processes at national and local scales in latvian and international contexts, and to assess which solutions to can be transfer to apply in latvi­ an shrinking localities. latvian academicians, planning practitioners and policy–makers until now have been silent in relation to the shrinking phenomenon and its manifestation in latvian context, that rise questions if real situation in remote shrinking periphery is recognized in the knowledge–making circles mainly concreted in the growth areas. latvia’s capacity is small to participate in international scientific networking focusing on the shrinking concept studies at the european or global levels without a nationally supported scientific institution specialized in regional and spatial research. to facilitate a revival of research community capable to conduct place–based spatial, economic and social studies, both european and national policies need to be redesign in order to include and finance knowledge component with scientific qualities, that would be capable to provide holistic reflexivity and an assessment of existing spatial policies and sectoral policies with spatial impacts. such further research activities need to widen their conclusions 103 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 6 / 1 0 focus by evaluating not only demographic patterns at localities but also economic, social, and financial dimensions of shrinking. shrinking paradigm shifts a request for data that has to become place and human–oriented multi–dimensional information. more focus on qualitative investigations, action research and the involvement of local communities is needed; and the experience–based policy evaluation can provide adequate feedback to hopefully stop incorrect policies in relation to shrinking areas (leetmaa et al., 2015; foulkes & newbold, 2008). as shrinking areas need innovative measures and approaches there is an increasing role for high quality leadership and the dialog and cooperation between science and government institu­ tions at national, regional and local levels and thus providing adequate place adjusted solu­ tions. place knowledge and ability to use it at local context is becoming more significant than quantitative data or their interpretation. a pro–active 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(2015). responding to tough times: policy and planning strategies in shrink­ ing cities. european planning studies, 23(1), 1–11. http://dx.doi.org/10.1080/09654313.2013.820077 about the authors armands pužulis dr. geogr. delta company ltd., fields of research interests spatial development analyses, regional development and planning, working as planning consultant address senču iela 6, riga, latvia tel. +371 22020778 e–mail: armands.puzulis@outlook.com laila kūle phd candidate university of latvia fields of research interests human geography, spatial and regional planning, urban and rural geography address jelgavas iela 1, riga lv–1004, latvia e–mail: laila.kule@lu.lv e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 44 time use. economic, social and health care aspects of greek and european citizens http://dx.doi.org/10.5755/j01.eis.0.11.18132 michail th. papailias piraeus university of applied sciences, master in public economics and policy 250 str. thivon and petrou ralli, egaleo, greece, po 12244 the present paper explores the significant role of the creative time use and its’ consequences as far as it concerns the economic, social and health care aspects in greece and in european union. the appropriate time use has been mentioned from the ancient years, but a more completely approach has been reported after the 18th century. in greece the first “time use survey” (tus) took place by hellenic statistical authority (elstat) between 2013-2014, but unfortunately elstat is not expected to conduct a new one. the research question is that a no productive time use can lead to economic, social and health care negative effects in greece and in european countries. the innovation of the paper lies in the fact that the specific scientific area (especially in greece) has been investigated poorly. the methodology of this study uses secondary data from eurostat, hellenic statistical authority and the historical approach of similar literature review. the paper is structured in four parts. the first part refers to the methodology, the literature review and the limitations of the article (the effects of time use cannot be correlated totally). the second presents the theoretical approaches of the leisure time (origins and significance) from ancient years till today. the third evaluates data not only from greece but also from european union as regards economic, social and health care aspects such as time use, overweight, mental illness, limited social relationship, work accidents, years of healthy life and food habits. the last refers to the conclusions. the investigation results (especially for greece) show that the problem is the unproductive time use. the increasing period of studies, the mental illness, the personal opinion of people for themselves and their health condition (gali index such the myopic glasses and overweight), the overtime work and passive activities, such as watching tv and surfing the internet contribute negatively to creative time. keywords: leisure, free, time, spent, creative, household, sleep, tv, travel, sports, pet, internet, greece, european, citizens. submitted 04/2017 accepted for publication 08/2017 time use. economic, social and health care aspects of greek and european citizens eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 44-52 doi 10.5755/j01.eis.0.11.18132 © kaunas university of technology introduction the present paper explores the significant role of the creative time use and its’ consequences as far as it concerns the economic, social and health care aspects in greece and in european union. the appropriate time use has been mentioned from the ancient years, but a more completely approach has been reported after the 18th century. in greece the first “time use survey” (tus) took place by hellenic statistical authority (elstat) between 2013-2014, but unfortunately elstat is not expected to conduct a new one. the research question is that a no productive time use can lead to economic, social and health care negative effects in greece and in european countries. the innovation of the paper lies in the fact 45 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 that the specific scientific area (especially in greece) has been investigated poorly. τhe limitations of the article is that the effects of time use cannot be identified clearly. the statistical data are quite poor (for example factors which affect health), so a correlation between time use and its consequence may not be so strong. the literature review cannot be confirmed totally. methodology the specific article uses both secondary data and historical approach. it evaluates information from eurostat, hellenic statistical authority and it presents the similar literature review with a critical view (phillips & pugh, 1995). literature review in this section will be mentioned the relevant literature review with a critical approach (collis, 2003), giving at the same time the reasons that are reported from this paper. the book of diamandopoulos (2004) “pedagogical of leisure time” presents in the first section a partial similar approach to this paper as far as it concerns greece. ιn the first part he refers the diachronic development of the free time and afterwards he connects this development with the social institutions, tourism, sports, television, painting and illustrated book. the second part of the book is devoted to the empirical approach of student’s leisure time for the last 4 classes of the primary school (6 years total) from 10 schools of crete (a region of greece), but with small sample, as emphasized by the author. regarding the sociological aspect, the historical development and generally the origin of leisure time some important information could be drawn from the following literature. the book “sociology of leisure time” of koronaiou (1996) gives a very good insight for the sociological theories of leisure time, for the importance of game as a cultural phenomenon and its definition as an activity. furthermore, a very good view about the theoretical models of leisure time could be exported from the book of georgoula (2010) “the society of leisure time”. the book presents not only classical, but also modern thoughts of leisure time. furthermore, it presents the attitude of the greek state. the book “leisure time” of konstantopoulou (2010) introduces initially the most important sociological theories and then analyzes the game as an expression of culture. as main elements of leisure time the book mentions the video games, sports and contemporary visual representation (theater, cinema, television series and reality shows) with a little reference to statistics. toti’s book (loupis & pentelikos, trans., 1985) describe from social aspect the creation of leisure time, the right to laziness, and also give several definitions for the game, sports, hobbies and small freedoms correlated with social class (caste). the book of harris “leisure time” (laliotis, trans., 2011) consider education as a pleasurable activity of leisure time, but because of institutional, bureaucratic organization (aiming at professional rehabilitation) and the continuous evaluation finally is perceived as a job. moreover, the book describes as accepted from a social majority some “illegal” by the state activities, such as dangerous substances, hunting with dogs and violent sports. furthermore, it analyzes pornography as an activity of free time, which begins to be accepted. finally, the book presents the phenomenon disney synonymous to commercialization. the cultural capital is converted to profits, because of the exploitation of history and culture creating consumerism. regarding childhood (the way it is described into the reading/school books), game and society the present study analyzes the following two literatures. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 46 erikson in his book “childhood and society” (koutroumpaki, trans.,1990) refers the game, the work, the spiritual development and the treatment (regarding children psychology). he associates the relief of the adult’s intensity through discussion with the relief offered to the children through the game. he also emphasizes the need of children to find their personality in the environment they live and compares the reaction of modern and primitive cultures in children’s behavior. makrynioti in her book “childhood in reading books 1834-1919” provides a description about the historical development of childhood, compulsory schooling and the main features of the greek educational system. moreover she mentions the way friendship and game were presented at the school books of previous decades. the psychosocial development of children is drawn from the following four writings. wenar & kerig in the “evolutionary psychopathology” (markoulis & georgakis, trans., 2000) among the models of childhood psychopathology mention the “systemic family model”, which considers the whole family as a united dynamic group and affects the development of children. furthermore, they mention the “approaching models” as concerning the way interfere, prevent and treat children with problematic behaviors. they also point out the importance of the game (dolls, sand, animals, clay and paint) in this treatment process. cole & cole in volume i “the development of children. the beginning of life, pregnancy, childbirth, and infancy” (solman, papaligoura & vourrias, trans.,2002) mention, among other things, the most favorable conditions for infant development and consequences in the following years. in addition to the appropriate response of the mother and the effects of the segregation from parents, the book emphasizes the importance of adequate stimuli (books, toys) and mother’s time with the infant-child. in volume ii “the development of children. cognitive and psychosocial development in early and middle childhood” (solman & babblek, trans.,2002) they explain the importance of “fantasy game”, such as the pretense or suspicion of various social roles among a group of children. they also mention the role of television in shaping child behavior, the proper family control in use of television, and the importance of nurseries, schools and peers. herberth in his book “psychological problems of childhood” (paraskevopoulos, trans., 1997) describes the importance of early childhood experiences and the child-mother’s relationship. furthermore, he tries to define the “problematic” child, to describe the problems of excessive inhibition and the ways to enhance a child’s mental health (teacher, peers). as far as it concerns: a) preventing and treating possible problems which may appear at children, b) the levels of reading comprehension in order to facilitate reading and c) the recreational ways of using (illustrated book, painting, sports) leisure time, some important information could be drawn from the following writings. rubin’s book “healing children through art” (skarvelis & anagnostopoulou, trans., 1997), emphasizes the great importance of creative development as well as the conditions for its existence, such as the giving children colors, clay, miniatures, theatrical costumes and equipment (cassettes and microphones). moreover, she presents ways of creative use of time for children with disabilities, as well as activities that will help the whole family. kitsaras (1993) in his book “the illustrated book at infancy and at early childhood” describes the psychological and pedagogical significance of the illustrated book and its reduced interest in relation to the other options (television, video games) nowadays. he mentions the comparative advantages, the content and attitudes of the child (after 7 years who is looking for more text) towards illustrated books. 47 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 information on additional recreational activities for young people aged 15-19 is included at myrizaki’s study “leisure time of young people” (1997). for example it presents statistical data for recreational and sports activities, such as exits in pastry shops, cafes, dance centers, live music, taverns and bars. elias & dunning’s “sports and leisure time in the evolution of culture” (kyprianos, chirdakis, kakaroukas & katsiambouras, trans., 1998) refer the leisure time as reassuring work such as going to the theater, sports activities, social dances, concerts and sports. finally, a spherical view for the activities of children 11-13 years is presented by koronaiou’s research (1992) “young and mass media”, which presents some statistical data for spending time going to the theater, reading books, illustrated, sports and women’s magazines, going to the cinema, listening radio, watching television and the exploring life of hollywood stars. the specific part presents the theoretical approaches of the leisure times from ancient times till today. it mentions the origins and the significance of creative time for the spiritual and physical development. the first references for the meaning of leisure time lies on the greek antiquity. greek philosophers such as ippodamos, aristotle, socrates, plato and isocrates mentioned the important role of the spiritual improvement. a man of that time, free from the productive obligations due to the slaves, ought to dedicate its time in the searching of knowledge and its spiritual improvement. in the roman empire, leisure time did not mean only exemption from work and searching of knowledge, but also time for social recognition through the enjoyable consumption of luxury goods. moreover, leisure time included activities such as swimming, running, wrestling, horse riding, hunting, fishing, ball and board games. some of the most important references after the european renaissance for the concept of leisure time are presented below. marx argued that society should facilitate the free development of the individual and that the consumption of goods acts as a multiplier of human subjugation to production, due to the fact that the goods which produced are consumed by themselves (georgoulas, 2010). lafargue spoke eloquently about the right to laziness and the beneficial effect of a part-time daily work on humans (georgoulas, 2010). durkheim reported that sports and entertainment were developed to offer personal balance and relief (georgoulas, 2010). weber presented the spontaneous happiness and the leisure time as a sin for industrial capitalism, and also as a tool of power and manipulation in order for a person to preserve a dominant position in society (georgoulas, 2010). a first comprehensive approach was made by veblen in 1899 in his work “theory of leisure class”, where the social classes were divided in two parts. in the “middle class” and in the class in which human “are working to live”. those who occupy with fishing, hunting, sports, clergy and general works that were not productive belong in the first class, while those who work in manual or domestic work without any social prestige rank in the second (konstantopoulou, 2010). huizinga (1938) in his work “homo ludens” refers the meaning of play as a volunteer activity, which takes place at specific local and time limits, with binding rules and aiming at the pleasure. it also describes the free time as a free choice of activities with equality and individual completeness (koronaiou, 1996). next approach was made by riesman in 1950 in his work “the lonely crowd”, in which three theoretical approach – origins and significance of leisure time e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 48 social types are distinguished according to the time period. in the middle ages the pre-capitalist europe, the indians, the arabs and the chinese are characterized by strong family ties that leave no room for unique personalities. during the renaissance, the accumulation of capital and the population movement created internal rules that kept the balance between individual and society. finally, the industrial and bureaucratic era (early 20th century), with the increase of productivity and the development of services, allows the mass media and mass media culture to infiltrate the personal and social life (konstantopoulou, 2010). friedman in his work “employment discrimination” (1964) argues that work in modern times can not satisfy the individual, since there is an intensive rhythm, subordination to productive activity and division of activities. under these conditions man feels fatigue and nervousness. therefore, the existence of a compensatory factor, of free time, is necessary. he separates the activities to passive and energetic, but only energetic activities are able to offer satisfaction and fullness (koronaiou, 1996). the first complete recognition of the term leisure time, as a separate subject of the sociology, was mentioned in 1962 by dumazedier’s work “towards a society of leisure”. he describes all the activities that lead at rest, recreation and creative occupation after fulfilling his professional, family and social obligations (koronaiou, 1996). baudrillard has made an important criticism of leisure time in 1970 in his work “the consumer society”, where he considers that leisure time is a huge energy waste in consumer products, mass media and sexuality that will gradually lead to the society’s destruction (konstantopoulou, 2010). rojek in 1985 in his book “capitalism and leisure theory” criticizes dumazedier’s views, presented the limitations of choices during free time, especially for women due to male-dominated society (georgoulas, 2010). sue in 1994 in his work “temps et ordre social” argues that every era emerges a dominant social time and presents leisure time in modern societies as the time that has been freed from work, which rises as well as unemployment increases. as a consequence the social value of working time is reduced (koronaiou, 1996). lalive d ‘epinay in his work “temp libre: culture de mass et culture de class aujourd’ hui” (1983) argues that the increasing consumer demands result in the waste of energy and commodities, due to the increasing leisure time of modern times. until the early 20th century, there was a trend for work and saving, while the last decades prevails the perception of consumerism and individualism. satisfaction from work occurs only in the upper social strata and decreases in the folk, where in every opportunity they leave the work activity (koronaiou, 1996). pronovost in his work “leisure and society” (1993) argues that leisure time is available from modern societies in order to analyze important phenomena such as social values, intergenerational cultural relations, working relationships, family dynamics and the role media communication. for this reason, the working population expresses dissatisfaction as regards overworking (koronaiou, 1996). this part evaluates data not only from greece but also from european union as regards economic, social and health care aspects such as time use, overweight, mental illness, limited social relationship, work accidents, years of healthy life and food habits. factors which affect health in greece (elstat, 2016) are food, smoking, sports and social support from other people affect health. more specifically for people 15 years old and above: data from greece and european union 49 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 _ 47,6% of men and 31,7% of women are overweight _ 28,7% of the total work in jobs which do not require any physical effort and 51,2% with small physical effort _ only 9,0% of the total uses bicycle for getting to office _ 82,7% of the total of overweight people does not exercise for pleasure _ only 55,0% of the total eats daily fruits _ 44,0% of the total eats daily only 1 portion, quantity which fit in 1 hand, such as 1 apple, 1 orange, 3 apricots etc _ 27,3% of the total smokes everyday _ 55,1% of the total has only 1 or 2 people to turn for close social support and help it is evident that in greece a significant amount of people (above 15 years old) are overweight, with no physical effort in their job, moderate nutrition, smoking and limited friendships or close social contacts. moreover, factors (in greece) which affect health (health care research: year 2014, elstat, 2016) could be also mentioned the overweight, long term (over 6 months) disease and mental illness. more specifically for people 15 years old and above: _ 49,7% of the total states a long term (over 6 months) disease _ 8,6% of the total mentions mental illness _ 49,9% of the total has hospitalized for 1-3 days and 35,4% between 3-10 days _ 8,0% visits physiotherapist _ 47,4% of the total consumes medicines, herds and vitamins with written doctor’s recipe _ 27,5% of the total (24,6% for 2009) consumes medicines (64,9% of them), herds and vitamins without written doctor’s recipe _ the increase between the years 2009 and 2014 for the consumption of medicines herds and vitamins without written doctor’s recipe was 11,8% _ 4,4% of the total states asthma, 4,2% heart attack or brain damage, 20,9% high blood pressure, 9,2% diabetes, 15,4% cholesterol and depression _ 29,7% of the total (23,8% for 2009) argues the reduction of usual activities for the majority of people, due to self-consider illness, index gali (global activity limitation indictor) as regards the quality of life (table 1) the “life expectancy” and the “years of healthy life” for people after 65 years old both in greece and in european union (28) figures are: _ in 2005 the life expectancy and the years of healthy life for women was 20,0 and 10,3 years respectively and 20,2 and 8,9 for eu (28) _ in 2013 the data were 21,6 and 6,8 for greece and 21,3 and 8,6 for eu (28) _ in 2005 the life expectancy and the years of healthy life for men was 17,1 and 9,7 years respectively and 16,7 and 8,5 for eu (28) _ in 2013 the data were 18,7 and 8,0 for greece and 17,9 and 8,5 for eu (28) as regards the working situation it is estimated that in greece for the year 2012-2013 and for people 15 years old and above of the total people who work or had worked in the past (special research on accidents and health problems associated with work, elstat, 2014): _ 59,3% reports health problems about bones, joints (connection between bones) and muscle _ 13,0% states cardiological or artery system problems _ 6,8% reports depression, stress and anxiety the use of time for greece and other 15 european country members is stated at table 2. the investment of time is almost the same through the total countries. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 50 table 1 life expectancy – years of healthy life (after 65 years old) women men 2005 2013 2005 2013 life expectancy greece 20,0 21,6 17,1 18,7 years of healthy life greece 10,3 6,8 9,7 8,0 life expectancy eu (28) 20,2 21,3 16,7 17,9 years of healthy life eu (28) 8,9 8,6 8,5 8,5 source: life expectancy 2013 (elstat, 2016). table 2 time use between ages 20-74 for each main activity in europe (hours:minute) m ai n a ct iv ity b el gi um b ul ga ria fr an ce g er m an y es to ni a u k sp ai n ita ly la tv ia li th ya ni an n or w ay p ol an d sl ov ak ia sw ed an fi nl an d g re ec e p er so na l ca re 10:58 11:45 11:49 10:49 10:33 10:33 11:08 11:14 10:49 10:55 10:16 10:54 10:31 10:25 10:31 11:34 em pl oy m en t 2:29 3:01 3:01 2:41 3:42 3:16 3:13 3:02 4:11 4:05 3:21 3:06 3:17 3:32 3:09 02:34 st ud y 0:14 0:05 0:15 0:13 0:07 0:09 0:19 0:12 0:10 0:10 0:14 0:14 0:17 0:17 0:15 0:13 h ou se ho ld 3:20 3:53 3:31 3:20 3:50 3:18 3:17 3:30 2:58 3:25 3:04 3:36 3:49 3:06 3:08 3:01 fr ee tim e 5:31 4:15 4:24 5:28 4:38 5:08 4:51 4:35 4:25 4:13 5:46 4:55 4:59 5:07 5:36 4:54 m as s m ed ia 1:26 0:59 0:58 1:23 1:07 1:27 1:10 1:24 1:24 1:09 1:16 1:10 1:06 1:26 1:09 1:02 u ns pe ci fie d tim e us e 0:01 0:02 0:02 0:05 0:04 0:09 0:02 0:03 0:02 0:03 0:03 0:05 0:02 0:06 0:12 0:03 sa m pl e si ze 10.676 11.506 12.913 22.597 8.899 14.810 37.512 38.149 5.786 7.418 5.458 35.212 10.186 7.612 8.253 7.137 source: elstat. 51 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 from table 3 it is evident that the estimated years of studies between 2008-2012 are increased in greece, so there is less leisure time for young people. despite the better qualifications the figure of unemployment is increased dramatically, due to the economic crisis (table 4). from table 5 it is obvious that the total state budget for health care is decreased significantly, confirming the fact of the economic crisis of the country. 2008 2012 eu (28) 17,3 17,6 greece 17,3 18,3 source: eurostat 2008-2012 2008 2013 % 7,9 27,5 source: elstat 2015 2009 2013 total amount (millions euro) 23.176.9 15.776.5 source: elstat 2015. it seems that leisure time in greek and roman civilization was more important compared to nowadays, at least for noblemen of the ancient years. a wealthy person of the ancient years seeks for spiritual improvement, for social recognition and for creative activities such as horse riding, hunting and fishing. nowadays people in greece: table 3 estimated time (years) of studies (2008-2012) table 4 unemployment in greece (2008-2013) table 5 total state budget for health care in greece (2009-2013) conclusions _ do not exercise for pleasure _ reduce usual activities due to self-consider illness (gali index) _ have bad food habits, smoke every day and consume medicines without doctors’ recipe _ state depression, mental illness and loneliness with low social support _ are overweight and have less years of healthy life after 65 years old _ increase the years of studies while the unemployment is increasing exponential and _ the budget for health care is reduced due to the economic crisis of the country the research question that a no productive time use can lead to economic, social and health care negative effects in greece and in european union seems to be a fact. a no productive time use could lead to economic, social and health care negative effects both for people and governments. the literature review, the similar studies, the origins of leisure time, the statistical data and the critical approach of the paper lead to a sense that the hypothesis of the study could be verified. a more detailed investigation with questionnaire could reduce the limitations of the present paper as it may confirm the literature review, but even hellenic statistical authority (elstat) is not expected to conduct such an extended survey. governments and local authorities should offer free creative activities for a big age range (such as physical exercising, painting, craft projects, dancing and spectacles), psychological support both for elderly and depressed persons and seminars for the importance of creative time use and healthy food. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 52 cole, m., & cole, s., (2002). the development of children. the beginning of life: pregnancy, childbirth, and infancy (solman, m., papalygoura, z., & vorria, p., trans., in greek). volume i, tipothito/ dardanosnet. cole, m., & cole, s., (2002). the development of children. cognitive and psychosocial development in early and middle childhood (solman, m., & babblekou, z., trans., in greek). volume ii, tipothito/ dardanosnet. collis, j., & hussey, r., (2003). business research. a practical guide for undergraduate and postgraduate students (p. 294). palgrave macmillan. diamandopoulos, p., (2004). pedagogical of leisure time. exploitation of leisure time of primary school students, papazisis (in greek). ellias, n., & dunning, e., (1998). sports and leisure time in the evolution of culture (kyprianos, p., chirdakis, s., kakaroukas, g., & katsiamboura, g., trans., in greek). dromeas. erikson, e., (1990). childhood and society (koutroumpaki m., & mpalis, n.,, trans., in greek). kastanioti. eurostat, 2008-2013 georgoulas, s., (2010). the society of leisure time (p. 33-34, 41-44, 45-46, 50-52, 112-113). pedio (in greek). harris, d., (2011). leisure time.theory and practise (laliotis, m., trans., in greek), plethron hellenic statistical authority, survey factors which affect health: year 2014 (2016) hellenic statistical authority, survey health care research: year 2014 (2016) hellenic statistical authority, survey life expectancy 2013 (2016) hellenic statistical authority, survey time use (2013-2014). hellenic statistical authority, survey special research on accidents and health problems associated with work” (2014). herbert, m., (1997).psychological problems of childhood (paraskevopoulos, trans., in greek), greek books. kitsaras, g., (1993). the illustrated book at infancy and at early childhood: a theoretical and empirical approach, papazisis (in greek). konstantopoulou, x., (2010). leisure time: myth and reality (p. 29, 33-34, 38). papazisis (in greek). koronaiou, a., (1992). young and mass media. sociological approach of cultural practice of leisure time of young 11-13 years old. odysseas (in greek) koronaiou, a., (1996). sociology of leisure time (p. 53-54, 58-60, 61-64, 82-83). nisos (in greek). makrynioti, d., (1986). childhood in reading books 1834-1919. dodoni (in greek). myrizakis, g., (1997). leisure time of young people. phycological and athletic activities. national center for social research (in greek). phillips, e., & pugh, d., (1995). how to get a phd (p.49). open university press, buckingham, philadelphia. toti, g., (1985). leisure time (loupis, n., & pentelikos, p., trans., in greek). mnimi. rubin, j., (1978), child art therapy. understanding & helping children though art (skarvelis, g., & anagnostopoulou, n., trans., in greek). greek books. wenar, c., & kerig, p., (2000). developmental psychopathology (markoulis, d., & georgakis, e., trans., in greek). gutenberg. references papailias michail phd piraeus university of applied sciences fields of research interests financial accounting, agricultural, public economics, sociology address 250, thivon & p. ralli str tel. +0030 210 5381100 e-mail: papailiasmichail@hotmail.com about the author european integration studies 2011.indd 152 issn 1822–8402 european integration studies. 2011. no 5 the participation banking and its comparison with deposit banking in the turkish finance market ferhat sayım, murat alakel yalova university, economics and administration sciences faculty, turkey abstract financial systems and institutions has become the most important reason in the fragility of world economic system. the formation and development process of the financial structure also constitutes the infrastructure of the world economic system. the course of the financial system and development has led to debate with the financial crisis in 20092010. one of the discussion topic in order to eliminate problems caused by the conventional banking system is alternative financing systems. in our country, the corporations based on profit share system which are named participation based banking spotlight, if the alternative banking systems are considered. these banks which determine different principles in the risk distribution of the portfolio acquired are analyzed more nowadays. participation based banks are placed in almost every regulation related to banking terms and get their legal infrastructure more stable in the banking legislation of our country. in this study, we try to find out the place and the importance of participation based banking with the various sub-headings especially in our country. we examine the comparative review 2007-2009 data of participation banks which collected turkish currency and foreign currency funds, bank loan funds, total assets, equity and net profit figures for the four participation banks in turkey. we are comparing the total figures with deposit banks for the same period. one of our primary goal in this essay, to study in the framework of the alternatives of the financial institutions and options. these options could be asserted as a vibrant and viable well established choice as a non-western modeldifferent from the classical western interest based dominant banking system in the globe. moreover, that participation banking systems’ growth, advancement and increase with its resourceful bulk of transactions and shares within the financial market. in addition, we intended to delineate the basic functioning structures, rules, norms, principles, procedures, operations of the alternate banking system in the financial market. after that, we have applied as a descriptive, explanatory, discursive and comparative analytic methodology to expound the matter in detail. having gathered a large volume of literature reviews then we have concentrated on turkey as a model state in that banking system practice; at which, what kind of instruments and tools used by referring basic indicators, data and information related to the growth, flourish and share of that sector within the total banking and financial system in turkey. furthermore, that participation banking system positions, researched in the country. thus, it is explicated more concerns on by investigating its credits, deposits, financing formulation systems and commitments with the banks, customers and investors of the alternate banking system in the country’s financial order. at last, we have attempted to clarify and summarize the concepts, definitions, expositions, demonstrations, rules, assets, liabilities, equities etc.. by giving special cultural internalizations about the organizational and operational activities of the participation banks both similarities and discrepancies, too; so as to draw the attentions of the new researchers and studies in that situation. keywords: bank, finance market, finance sector, participation bank, islamic bank, interest free banking, alternative banking system. introduction with their former name private finance institutions, or with the new one, participation banks have no authority to collect deposits but receive fund through special current accounts or profit and loss participation accounts, and utilize fund through methods such as production support, community of profit and loss, financial leasing, buying and selling documents against payment. even if these institutions are have been allowed in turkey since 1984, they have been limited in terms of both quantity and scale (central bank of republic of turkey, 2005). the constitution of the legal base for interest free banking in our country is dated as the end of the year 1983. with the decree dated 16.12.1983 and numbered 83/7506, the foundation of private finance institutions is laid. participation banks are banks operating in financial sector, financing real economy and offering banking service. participation banks collect funds from saving owners, use them in industrial and trade sectors according to the interest free financing principles and shares the profit or loss with saving owners. the word “participation” in their name expresses that this type of banking is based on the principle of participation to profit and loss (the participation banks association of turkey-faq, 2010). participation banks serve as a means of transformation of saving to capital. proportional to their advantage of working with a greater number of branches, they also give standard banking services such as investment consulting, safe deposit box, money transfer service, giving check book, mediating cash proceeds etc (battal, 2007, p. 57). today, variety of such services given by participation banks is equal or similar to the issn 1822–8402 european integration studies. 2011. no 5 153 standards of other banks. now, in this article, we are going to elaborate as the unit of analysis, the participation banks, a new financial instruments. in the middle of the first quarter of 21th century, there has been occurred a world financial crises. in fact, that crises mainly influenced the capitals of the financial centre in the west. for those countries which heavily affected by this financial crises, forced them look for new financial instruments and systems. for that reason, it leaded to the quest for alternative models, opportunities or proposals. the fiscal and financial crises, especially in the european union member states, it may be due to of the rigidity of maastricht euro criteria, is deepening and deteriorates further. so we think that it proves the need for searching new sort of financial innovations, techniques and tools. it is also our modest propositions that might be recorded some theoretical and practical contributions and amendments to overcome these current troublesome critical financial problematic. one of our primary goal in this essay, to study in the framework of the alternatives of the financial institutions and options. these options could be asserted as a vibrant and viable well established choice as a non-western model different from the classical western interest based dominant banking system in the globe. moreover, that participation banking systems’ growth, advancement and increase with its resourceful bulk of transactions and shares within the financial market. in addition, we intended to delineate the basic functioning structures, rules, norms, principles, procedures, operations of the alternate banking system in the financial market. after that, we have applied as a descriptive, explanatory, discursive and comparative analytic methodology to expound the matter in detail. having gathered a large volume of literature reviews then we have concentrated on turkey as a model state in that banking system practice; at which, what kind of instruments and tools used by referring basic indicators, data and information related to the growth, flourish and share of that sector within the total banking and financial system in turkey. furthermore, that participation banking system positions has been researched in the country. thus, it has been explicated more concerns on how it can be investigated by mentioning its credits, deposits, financing formulation systems and commitments with the banks, customers and investors of the alternate banking system in the country’s financial order. at last, we have attempted to clarify and summarize the concepts, definitions, expositions, demonstrations, rules, assets, liabilities, equities etc.. by giving special cultural internalizations about the organizational and operational activities of the participation banks both similarities and discrepancies, too; so as to draw the attentions of the new researchers and studies in that situation. i. participation banking in the literature banking methods defined in this system called “islamic banking” in the international literature are methods such as various kinds of project partnership and others based on prohibition of interest (moles & tery, 1999, p. 304). islamic banks in general referred to the three types of. (1) development banks, (2) islamic banks in special purpose, (3) islamic commercial banks. participation banks may categorized in islamic commercial banks groups (canbaş & doğukanlı, 2007, p. 237). islamic bank works as a trading concern and financial intermediary to perform interest-free activities purely according to principles of sharia’h. it is a welfare organization that promotes business and trade activities by pooling the financial resources for the sake of profit and loss for mutual benefit (ahmad, humayoun, & hassan, 2010, p. 8). participation or islamic banks are not institutions peculiar to turkey. all around the world, especially in muslim countries, there are many financial bodies operating according to a similar system. even if the system consisting of such kind of institutions operating on the basis of partnership of profit and loss is known as “interest free banking” or “islamic banking” in the world, it is taken first as “special finance house”, and then as “participation banking” in the turkish regulations. the first modern experiment with islamic banking can be traced to the establishment of the mit ghamr savings bank in egypt in 1963. during the past four decades, however, islamic banking has grown rapidly in terms of size and the number of players. islamic banking is currently practiced in more than 50 countries worldwide. in iran, pakistan, and sudan, only islamic banking is allowed. in other countries, such as bangladesh, egypt, indonesia, jordan and malaysia, islamic banking co-exists with conventional banking. islamic banking, moreover, is not limited to islamic countries (chong & liu, 2009, s. 125-126). but, when we look at the books of financial institutions generally we can’t see this institutions among the financial institutions (rose & marquis, 2009). (burton, nasiba, & brown, 2009) (mishkin & eakins, 2009) on the other hand islamic banks ability to withstand the global downturn has fuelled an expansion of islamic finance around the world. islamic banks have learned that customer loyalty and brand loyalty must be earned (omar & ali, 2010, p. 25). the islamic banking and finance systems in west will continue to grow in areas like sukuk, takaful, hedging funds, mutual funds, equity & asset management, corporate finance, wealth and asset management. these high street banks are far more accessible and popular, and all offer similar services. the main reason for the struggle is that, the islamic bank is introducing an entirely new banking model into a country that has been built around an existing banking system that has been around for a long time (malik & malik, 2011, p. 184). related legal regulations in turkey generally six types of regulations seek to enhance the net social benfits of commercial banks services to the economy(1)safety and soundness regulation, (2)monetary policy regulation, (3)credit allocation regulation, (4)consumer protection regulation, (5)investor protection regulation and (6) entry and chartering regulation (saunders & cornett, financial markets and institutions, 2004, p. 379). we will deal with some of these regulations in this study for turkey. deposit banks, participation banks, development and investment banks, branches of foreign banks, financial holding firms in turkey, the banks association of turkey (bat – türkiye bankalar birliği), the participation banks association of turkey (pbat – türkiye katılım bankaları birliği), banking regulation and supervision agency (brsa – bankacılık düzenleme ve denetleme kurumu-bddk), savings insurance deposit fund (sidf – tasarruf mevduatı sigorta fonu-tmsf) and their activities are regulated by the mentioned banking act. with the condition that the provisions issn 1822–8402 european integration studies. 2011. no 5 154 of the related law are also valid for the banks founded according to special acts, the provisions of the banking act are applied. in case of absence of related provisions in the special act, general provisions are applied.( banking act no. 5411, article 2) participation banks are supervised by banking regulation and supervision agency (brsa). in 2004, the uniform chart of account was formed for participation banks, and these institutions began bookkeeping as other banks, in accordance with the mentioned chart of account (central bank of republic of turkey, 2005). definitions regarding participation banks in the banking act. in the 3rd article of the banking act no. 5411, there are important definitions showing differences and similarities between participation banks and other banks. according to these definitions, both deposit banks and participation banks consist two lower members of the higher definition of “loan institution”. there are also two banks associations defined in the banking act, one of which is the participation banks association of turkey, and other is the banks association of turkey with a more widespread structuring. the definition of “bank” in the banking act includes 3 types of banks. these are: deposit bank: institutions operating mainly by accepting deposit and utilizing loan in accordance with the act in the name and account of itself, and branches in turkey of such foreign institutions, participation bank: institutions operating mainly by collecting funds through special current accounts and participation accounts and utilizing loan in accordance with the act in the name and account of itself, and branches in turkey of such foreign institutions, and development and investment bank: institutions operating mainly by utilizing loan rather than accepting deposit or participation funds, in accordance with the act in the name and account of itself, and branches in turkey of such foreign institutions. permission for foundation or branch and office establishment (subsidiary) in turkey. according to the 6th article of the act no. 5411, the foundation of a bank in turkey or the first branch establishment in turkey of a foreign bank, is allowed with the condition that it is in accordance with the conditions proposed in the act, and with decision taken through positive votes of at least 5 members of brsa. allowance applications and principles regarding to this allowance is determined by the regulations published by brsa. conditions of foundation. according to the 7th article of the act, the main conditions for the foundation of a bank in turkey are as follows: a) it has to be founded as an incorporated company, b) stocks have to be issued in against cash reserve and all has be written in the title, c) founders has to have the qualities defined in the act, d) board members has to have the qualities defined in the act and to have professional experience in order to be able to realize planned operations, e) proposed subjects of operation have to be in accordance with planned structure of finance, management and organization, f) its issued capital free of every kind of collusion and in cash has to be at least 30 million new turkish lira, g) its founding charter has to be in accordance with provisions of the act. in addition, it has not so complex structure of organization and partnership which would prevent supervision, and plans regarding proposed operation objects and structures regarding internal organization have to be designed in a realist manner. provisions regarding loans participation banks are subject to strict provisions of the banking act regarding loan and loan limitations. at the end of the detailed definition of “loan” in the 48th article, in the second paragraph, fund utilization styles peculiar to participation banks are mentioned to be seen as loan in the implementation of the act: (…) funding obtained by participation banks through payments of prices of movable and immovable possessions and services, or through methods such as profit and loss partnership investments; supply of immovable, equipment or commodity; or financial rent; funding of documents against payment, joint investments and so on are accepted as loan (…) loan limitations. the quality of loans in the assets of the banks is very significant in terms of building banking system on a sound basis and operating with sound balance sheets. the motive behind the banking act and regulations made by brsa is the prevention of these bank owners utilize collected funds in too risky operation fields or in their own group companies with disregard of objective evaluation. in order to achieve this goal, the banking act puts some limitations on the distribution of loans and proposes severe penal sanctions in case of violation. these limitations are valid also for participation banks. these are shown below in general terms. total loans utilized by a natural entity or a legal entity or by a risk group cannot exceed 25 % of equities. (there are some exceptional cases in which different rates are implicated.)… loans given to an ordinary partnership are assumed to be given to partners proportional to their responsibilities. loans utilized by all partners registered in the stock register holding 1 % or more of the bansk’s capital and entities consisting risk group with them cannot exceed 50 % of equities. loans utilized by partnerships controlled jointly are assumed to be utilized by the risk group which includes every shareholder controlling the partnership jointly proportional to the rate of its share within the partnership capital to the total share controlled jointly. loans utilized by a natural entity or a legal entity or by a risk group and equaling or exceeding 10 % of equities are assumed to be “great loan”. total great loans cannot exceed 8-multiple of the equities. (…) when elements of the same risk group risk is included in the assurance of a risk group’s loans, topics such as how calculations will be made and how assurance elements with guarantee of country’s central government are mentioned in the act. (banking act no. 5411, article 54) operations without loan limitations. furthermore, the 55th article mentions operations which are outside of loan limitations. ones of these which are thought to be related to participation banks are listed below. brsa can made additions to these operation types. a) operations paid in cash, values and accounts similar to cash, and precious metals. b) in case of allocation of a new loan to the same entity or same risk group, with the condition of that loans given before in foreign currency or in unit of foreign issn 1822–8402 european integration studies. 2011. no 5 155 currency are considered in current exchange rate as of the date when the following loan begins to be utilized, with the exception of use of check book or credit card, increases of loans stemming from change of exchange rate, and interest, profit share and other elements settled to overdue loans. c) partnership shares obtained free because of every kind of capital increases and value increases of partnership shares which does not require any fund going out. d) operations between banks according to the principles determined by the council. e) partnership shares obtained in scope of undertaking of mediating public offer. f) operations considered as discount value in the account of equity. participation banks founded in turkey special finance houses adopted by turkish society in short time showed a rapid improvement in terms of collected funds, volume of work and project capacities. these finance institutions are: albaraka türk special finance institution inc.: the first finance institution of interest free banking in turkey, albaraka türk participation bank, finished its foundation in 1984, and began its operations as of the beginning of 1985. its name is still albaraka türk participation bank. (albaraka türk – about us, 2010) kuveyt türk evkaf finance institution inc.: kuveyt türk, founded in 1989 at the status of special finance institution, changed its name in may 2006 as kuveyt türk participation bank inc (the history of kuveyt türk, 2010). anadolu finance institution inc.: it began its operations in 1991 in ankara. it is founded with domestic capital. faisal finance institution inc.: founded in 1985. in 2001, faisal finance institution inc. has been taken over by ülker group, its trade name was changed to family finance institution inc. in 2005, anadolu finance institution inc. and family finance institution inc. merged under the name of türkiye finance participation bank inc. i̇hlas finance institution inc: founded in 1995. as a result of the 2001 economic crisis, it went on bankrupt and its official authorization has been cancelled. it is very interesting that bank still has been in liquidation, since 2001. however, it has been also exempted from the executive authority of newly founded turkish depository insurance fund(tmsf) which took over, without hesitation, the management of the corrupted financial corporations and companies in turkey. that is why, many depositors had sued this bank in turkish commercial banks, but both low courts and high courts decisions were very far away on touching the tenets of the matter1. we should underline the fact that the bankruptcy of this finance bank negatively influenced the other participation banks, too. asya finance institution inc: founded in 1996. after the 1 the essence of the matter is related to the liquidation of this bank has not been accomplished! why?. this bank also is member of i̇stanbul capital market, too. their shareholders lost; it is very normal that earning dividends as losses or profits in a free market system. but the court based its decision putting the depositors of the bank as shareholders who may earn loss or profits. in addition, ıt has omitted that why i̇hlas finance went on bankruptcy. in turkey, because of macroeconomic instability till 2001, majority of holdings and corparations established their own banks and financial institutions, thus those holdings like i̇hlas holding has utilized their banks and financial institutions as subsidiary or branch company as similar to other business corporations act no. 5411 came into effect, its name has been changed to bank asya participation bank. after the banking act no. 5411 accepted on october 19, 2005 and published in the official journal on november 1, 2005, the name “private finance institutions” has been changed to “participation banks”. and the name “private finance institutions association” has been changed to “participation banks association of turkey” which has also created their own insurance funds so as to prevent their depositors” loss; because of any of its member’s probability of bankruptcy at which they could conmpensate similar to other banks. but we don’t know how much deposits assured. but the other corporate banks gave assurance at most for amount of 50 000 tl. participation banks operating today among the institutions mentioned above are albaraka türk participation bank inc., kuveyt türk participation bank inc., asya participation bank inc. and türkiye finans participation bank inc. ii. methods of fund collection these organizations collect funds in the form of sharing accounts or current accounts to operate independently within each maturity group (parasız, 2009, p. 251).main items of liability side in the balance sheet of all firms consist of equity capital and loan capital. equities are funds given by partners as capital or profit which is not distributed etc. these express resources belonging to the capital owners. however the share of equity item within the total capital is not so high in finance institutions and especially in banks in comparison to other businesses. it can be read as follows: an important part of resources of banks consist of loan capital. because of the banking system is based on this. bank or participation bank transforms funds collected from real or legal entities to loan. and the collected funds are naturally loan capital. therefore, the growth of a bank depends on that it collects funds as much as possible in order to be able to give loan as much as possible. in deposit banks, fund collection is mostly realized through promise of interest. however participation banks cannot promise any future interest which would mean a predefined return. participation banks collect funds mainly through three ways below. in addition to them, there are also investment accounts based on gold or precious metals. current account. current accounts are funds which belong to physical or legal entities, money in which can be withdrawn every time partly or totally, and which don’t pay any interest or profit to their holders. these accounts are similar to checking accounts in interest banks. account holders open current account to be free of trouble to protect their money against theft, loss etc., and have opportunity to keep their money in a safe place. they also use services provided by their bank such as use of commercial check book, money transfer, collection of check and bills. with the help of these accounts, services are provided such as payment and so on, parallel to needs of commercial and daily life. therefore, these accounts which are mostly dynamic are not proper to bring return and to promise interest. however banks can use these capitals as equity capital after determining average amounts held in these accounts and keeping the needed reserves. participation accounts. participation accounts are funds of interest free banks which belong to physical or issn 1822–8402 european integration studies. 2011. no 5 156 legal entities, money in which is deposited as turkish lira or foreign currency against contract of profit/loss participation account, and which result in profit/loss participation. interest free banks pay amount of balance equivalent to unit account value to the account holder according to the state of profit/ loss. payees of interest free banks have no right to demand anything from funds accumulated in these funds (akın, 1986, pp. 288-299). returns remaining back from the funds deposited by participation account holders are distributed to account holders after deduction of losses stemming from returns obtained from funds utilized in pools constituted after certain criteria are handled such as their fixed terms and deposit date. when these returns are distributed, certain shares of these returns are hold by participation banks as management share. special fund pools. participation banks, according to the 60th article 7th paragraph of the banking act, can create special fund account pools for 3 or more months by collecting funds in private accounts in order to be utilized for financing planned projects or other investments, without the necessity of adhering time or types determined by the central bank of the republic of turkey. participation accounts belonging to funds collected in this manner are operated in different accounts independent from other accounts and with different time. no transfer is allowed from the collected funds to other period groups. the related authority or institution has to be informed in 15 days after opening or closing dates, regarding special fund pools. at the end of the period of funding, special fund pools get closed2. iii. fund utilization methods banking activity is mainly not a sector of trade of goods and service. this sector is a service sector. with its operations, it is a sector aiming to utilize fund surplus – collected from entities which have no opportunity or ability to use funds in their hands – for paving the way for operations based on commercial activities, and to take a share from the added value created. therefore funds collected in order to create added value have surely to be used for production of goods and service. otherwise, it is obvious that money etc. held in lockboxes would not increase where they stay, and not create added value. the most important difference of participation banks is that they prohibit for themselves certain methods of fund utilization and certain sectors used by other banks when utilizing collected funds. fund utilization methods based on commerce. the main fund utilization methods of participation banks can be listed under two titles: the first of them is fund utilization methods based on commerce. also deposit banks can use these types of financing. however there are some points in certain procedures such as handover of money which participation banks pay more attention. the important points here are that it has to be an operation necessarily based on trade of goods or service, and that payment to be made has to be delivered to the firm which sells the goods. private funding support. participation bank pays the price of goods or services – bought by real entities directly from sellers for personal needs such as vehicle and apartment – in the name of the customer to the seller, with the condition 2 published in official journal no. 26333. banking regulation and supervision agency (brsa) / bankacılık düzenleme ve denetleme kurumu (bddk), article 7, 2006 of not to be used in funding of commercial activities, and in return the buyer is charged with a debt (the participation banks association of turkey, 2008). financial rent. gülten kazgan also underlined that these financial institutions acts and function as leasing companies (kazgan, 1999). in the operation which is called “leasing” today, the person who wants to buy a good demands that this good is bought by the participation bank and rent to this person after the agreement between this person and the participation bank. however it is decided the customer of the participation bank will be the owner of that good after a certain period of rent and of paying rents. in this way, the good with financial renting is used by the customer demanding financial renting, and is owned by the bank. at the end of rent period, the ownership is handed over. as investment banks, also participation banks can realize financial renting operations without founding a separate company. murabaha: (installment sale). murabaha used in banking is sale of goods with an order of sale in which payment is made some time after delivery of the goods transacted. a customer and a bank sign a pre-contract which proposes that the customer buys a good from the bank. after the contract, upon the customer’s written demand, the bank buys the mentioned good in cash from the seller, and sells it to its customer in accordance with the conditions agreed upon before (akın, 1986, p. 159). so, participation bank mediates trade, buys the good from the seller in cash, and sells to its customer for the account. fund utilization through profit and loss partnership method mudaraba: (venture capital) mudaraba is a method of fund utilization used by interest free banks very commonly. one party gives its labor, knowhow and experience (entrepreneur), and the other party gives capital (interest free bank). in this method, real and legal entities present their applicable projects to the bank. the manager accepted and funded by the bank is called “mudarib”, and the person or institution funding or supporting the project is called “rabbul-mal”. after signing a contract with the mudarib, rabbul-mal (interest free bank) has to keep ready the amount of capital mentioned in the contract, in accordance with mudarib’s demand. other than conditions mentioned in the contract, bank has no authority to interfere in transactions realized by the project owner. however in case of emergence of danger of loss because of unplanned and irregular work, the bank can make some initiatives in order to prevent loss. normally, it can control accounts every time, and demand all formal and informal bookings. profit obtained at the end of mudaraba operation is shared among rabbulmal guaranteeing funding and mudarib using fund according to the proportion determined before. in case of any loss, this loss is met by rabbul-mal (küçükkocaoğlu, 2010, p. 8). muşareke: (joint capital partnership or capital invesment) muşareke is called “şirketu’l-i̇nan” in the islamic law. while one party, i.e. bank, gives capital, and the other party, i.e. real or legal body demanding fund, gives labor in the mudaraba contract, both of these two parties put forward both their labor and capital in muşareke contract. one or more of issn 1822–8402 european integration studies. 2011. no 5 157 participants of partnership realize the work, and every partner included ones which does not take part in the work too deserves a certain right according to the rate agreed before. even if capitals are the same, profit shares can be different, or vice versa. the finance method called muşareke is applied in following manner: islam bank takes the responsibility to provide a part of the capital which is demanded by its customer as its partner. and the customer provides the rest of project capital due to its own financial opportunities and the qualification of the project. the customer takes the responsibility of management, control and monitoring of the financial aid because of its expertise. taking these responsibilities, the customer deserves to take a bigger share of the profit (küçükkocaoğlu, 2010, p. 10). selem sale: (current sale of future delivery goods or future markets and sales) “selem sale” means buying a good on account with another good bought or sold in cash. the bank buys a good by paying its price in cash which is going to be delivered to the bank in a future date agreed upon in the contract between the bank and the seller. a different style of selem sale, as in funding purchase of building, machinery and equipment, can be used also in purchase of consumer durables in case of that conditions are proper in terms of economy. in other words, this finance technique can be used in order to fund industry, trade and agriculture (akın, 1986, p. 163). according to another definition, selem is the sale activity which is made with money in cash and goods on account. in selem, type, quality, amount, price, delivery place and date of the product have to be determined in the contract. with the help of selem, goods which will be produced in a future date are sold, and the needed money is obtained. on the other hand, customer buys a good which it will need in a future date. so, both parties meet their needs without using interest (yılmaz, 2010, p. 14). for example, a farmer which needs money is supported by the bank in terms of capital, and the bank sells the yield in the market. documents against payment this type of fund utilization method is used for funding of foreign trade. according to the contract signed between participation bank and the party using fund, the participation banks buy documents against payment in cash, and sells to one using fund on account with a higher price. this type of finance technique is mainly based on the method of murabaha (forward sale) (akın, 1986, p. 290). however, methods and documents used in foreign trade gain importance at that point. documents are used in foreign trade especially in operations of documented credit. they are documents which assure importer’s custom clearance of goods sent by exporter. therefore, these documents which make possible that goods entering in customs in the country of exporter are delivered by customs authorities are undertake the ownership of goods as documents with status of valuable papers. it means that a participation bank buys goods abroad in the name of its customer who gave him order, and sells them to its customer. iv. personnel and branch structure of participation banks growth of branch numbers. as of the end of 2009, the number of deposit banks founded in turkey is 32. while 3 of them are based on public capital, 11 of them are based on domestic private capital, and 17 of them are based on foreign private capital, 1 of them belongs to sidf. additionally, there are 13 development and investment banks founded in turkey. when we take also 4 participation banks into consideration, it is seen that the number of banks in turkey reaches to 49. the number of branches of deposit banks was 8.741 in 2008, and reached to 8.983 with an increase of 2.8 % as of the end of 2009. the number of branches of participation banks was 530 in 2008, and reached to 560 with an increase of 5,7 % as of the end of 2009. 3 public bans excluded, each of 29 private deposit banks has average 223 branches, and each of 4 participation banks has average 140 branches. looking at the growth rates of the number of their branches from 2008 to 2009, it is seen that the growth rate of branches of participation banks is two times more than deposit banks. the table below shows the position of participation banks within themselves. table 1. growth of branch numbers, 2007-2009 b ra nc h n um be r / pe ri od a l b a r a k a t ü r k in cr ea se % b a n k a sy a in cr ea se % k u v e y t t ü r k in cr ea se % t ü r k i̇y e f i̇n a n s in cr ea se % t o ta l su m in cr ea se % dec. 07 422 march 08 81 119 95 146 441 4,5 june 08 90 11,1 124 4,2 100 5,3 157 7,5 471 6,8 sep. 08 94 4,4 142 14,5 113 13,0 167 6,4 516 9,6 dec. 08 100 6,4 143 0,7 113 0,0 174 4,2 530 2,7 march 09 100 0,0 149 4,2 113 0,0 178 2,3 540 1,9 june 09 100 0,0 149 0,0 113 0,0 178 0,0 540 0,0 sep. 09 100 0,0 152 2,0 120 6,2 178 0,0 550 1,9 dec. 09 101 1,0 158 3,9 121 0,8 180 1,1 560 1,8 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). growth of personnel number as of the end of 2009, totally, 184.204 employees are employed in the banking sector in turkey. while 167.063 of them are employed in deposit banks, 11.802 of them are employed in participation banks. personnel number of deposit banks was 166.325 in 2008, and reached to 167.063 with an increase of 0.4 %. personnel number of participation banks was 11.032 in 2008, and reached to 11.802 with an increase of 7.0 %. moving from that point, looking at the increase speed of personnel numbers from 2008 to 2009, it is seen that participation banks reached a quietly higher personnel number increase rate than deposit banks. issn 1822–8402 european integration studies. 2011. no 5 158 table 2. employment in the banking sector, 2008-2009 employment in the banking sector 2008 2009 increase % deposit banks 166.325 167.063 0,4 public banks 43.333 44.856 3,5 private banks 82.158 82.270 0,1 fund banks 267 261 -2,2 foreign banks 40.567 39.676 -2,2 development and investment banks 5.273 5.339 1,3 public banks 4.146 4.165 0,5 private banks 794 842 6,0 foreign banks 333 332 -0,3 other banks-total 171.598 172.402 0,5 participation banks 11.032 11.802 7,0 total 182.630 184.204 0,9 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). as of the end of 2009 (december 2009), the average personnel number for branch in participation banks is as follows: bank total personnel no./ branch no. average personnel no. for branch albaraka türk (1.935/101) 19 bank asya (4.074/158) 25 kuveyt türk (2.447/121) 21 türkiye finans (3.346/180) 19 total sum (11.802/560) 21 actually, bank asya participation bank has the biggest personnel number and average personnel number. analyzing participation banks in yalova, albaraka türk participation bank has the biggest personnel number, i.e. 14. in deposit banks, average personnel number reached by dividing the total personnel number to the branch number is 167.063/8.983=18,6. the same average is 21 in participation banks. this means that participation banks employ 13 % more employees for branch than deposit banks. table 3. growth of personnel number (participation banks), 2007-2009 pe ri od a l b a r a k a t ü r k in cr ea se % b a n k a sy a in cr ea se % k u v e y t t ü r k in cr ea se % t ü r k i̇y e fi̇ n a n s in cr ea se % t o ta l su m in cr ea se % dec. 07 9215 march 08 1.582 3.554 1.897 2.865 9.898 7,4 june 08 1.684 6,4 3.571 0,5 2.046 7,9 3.020 5,4 10.321 4,3 sep. 08 1.746 3,7 3.748 5,0 2.233 9,1 3.140 4,0 10.867 5,3 dec. 08 1.796 2,9 3.806 1,5 2.245 0,5 3.185 1,4 11.032 1,5 march 09 1.817 1,2 3.812 0,2 2.272 1,2 3.173 -0,4 11.074 0,4 june 09 1.859 2,3 3.833 0,6 2.324 2,3 3.200 0,9 11.216 1,3 sep. 09 1.903 2,4 3.917 2,2 2.400 3,3 3.280 2,5 11.500 2,5 dec. 09 1.935 1,7 4.074 4,0 2.447 2,0 3.346 2,0 11.802 2,6 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). v. evaluation of sectoral quantitative data turkish currency funds participation banks showed a quite better performance as of the end of 2009 compared to 2008 in funds of turkish currency. as of the end of 2009, deposits of turkish currency reached to approximately 17 billion turkish lira after an increase of 53 %. in the same period, the increase of turkish currency deposits of deposit banks was 14 %. among participation banks, bank asya has the biggest fund of turkish currency. bank asya and albaraka türk participation bank has the highest increase of performance in 2009. table 4. collected turkish currency funds in participation banks, 2007-2009 (1000tl) pe ri od a l b a r a k a t ü r k b a n k a sy a k u v e y t t ü r k t ü r k i̇y e fi̇ n a n s t o ta l su m dec. 07 7.943.805 march 08 1.773.148 2.805.072 1.583.839 2.712.776 8.874.835 june 08 1.648.738 3.081.433 1.632.654 2.592.343 8.955.168 sep. 08 1.781.602 3.094.955 1.727.540 2.840.535 9.444.632 dec. 08 2.029.617 3.603.487 2.111.414 3.300.252 11.044.770 march 09 2.441.543 4.464.748 2.467.083 3.801.235 13.174.609 june 09 2.528.619 4.705.865 2.561.541 3.861.546 13.657.571 sep. 09 2.822.325 5.463.422 2.677.973 4.243.509 15.207.229 dec. 09 3.290.809 5.979.825 2.987.415 4.660.035 16.918.084 2008-2009 increase for the year (%) 62 66 41 41 53 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). foreign currency funds, 2007-2009 table 5. foreign currency funds, 2007-2009 (1.000tl) pe ri od a l b a r a k a t ü r k b a n k a sy a k u v e y t t ü r k t ü r k i̇y e fi̇ n a n s t o ta l su m 6.999.266 march 08 1.795.327 2.398.130 1.679.267 1.783.078 7.655.802 june 08 1.843.318 2.701.868 1.837.144 2.198.136 8.580.466 sep. 08 1.948.592 2.466.363 1.818.134 2.151.112 8.384.201 dec. 08 1.955.493 2.239.334 1.957.958 2.012.296 8.165.081 march 09 2.073.177 2.322.446 2.149.807 2.241.740 8.787.170 june 09 2.156.367 2.706.448 2.205.278 2.060.746 9.128.839 sep. 09 2.146.904 3.107.923 2.311.492 2.150.941 9.717.260 dec. 09 2.173.836 3.156.753 2.370.842 2.222.455 9.923.886 2008-09 incr. for the year (%) 11 41 21 10 22 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). issn 1822–8402 european integration studies. 2011. no 5 159 a similar case to turkish currency funds is also valid for foreign currency funds. among participation banks, bank asya has the biggest fund and the highest increase of performance of foreing currency in 2009. participation banks showed a quite better performance compared to deposit banks in terms of foreign currency funds. as of the end of 2009, turkish currency deposits of participation banks reached to approximately 10 billion turkish lira after an increase of 22 % compared to the end of 2008. total funds collected, 2007-2009 bank asya is the leading participation bank with an amount of 9.1 billion turkish lira; in terms of total funds collected as the end of 2009. türkiye finans, albaraka türk and kuveyt türk participation banks follow bank asya respectively. as of the end of 2009, total funds collected by participation banks reached to approximately 27 billion turkish lira, after an increase of 40 % compared to the end of 2008. figures of deposit banks and participation banks are shown below which facilitates to make a comparative analysis between them. table 6. total funds collected, 2007-2009 (1000tl) period a l b a r a k a t ü r k b a n k a sy a k u v e y t t ü r k t ü r k i̇y e fi̇ n a n s t o ta l su m dec. 07 14.943.071 march 08 3.518.475 5.203.202 3.263.106 4.495.854 16.480.637 june 08 3.492.056 5.783.301 3.469.798 4.790.479 17.535.634 sep. 08 3.730.194 5.561.318 3.545.674 4.991.647 17.828.833 dec. 08 3.985.110 5.842.821 4.069.372 5.312.548 19.209.851 march 09 4.514.720 6.787.194 4.616.890 6.042.975 21.961.779 june 09 4.684.986 7.412.313 4.766.819 5.922.292 22.786.410 sep. 09 4.969.229 8.571.345 4.989.465 6.394.450 24.924.489 dec. 09 5.464.645 9.136.578 5.358.257 6.882.490 26.841.970 2008-09 incr. for the year (%) 37 56 32 30 40 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). when figures are compared as of the end of 2008 and 2009, it is seen that participation banks have three times bigger percentage of increase than deposit banks on the percentage basis in terms of rate of increase, even if participation banks have quite lower levels than deposit banks in terms of nominal values of turkish currency funds deposit, foreign currency funds deposit, and total turkish-foreign currency deposit. as of the end of 2009, while total deposit of 32 deposit banks is 507 billion tl, 4 participation banks have approximately 27 billion tl of total funds collected. while deposit banks have a 12 % deposit increase from the end of 2008 to the end of 2009, participation banks increased their funds by 40 % in the same period. participation banks taken into account, total fund + deposit in turkey reaches 534 billion tl as of the end of 2009. table 7. fund distribution of participation and deposit banks, 2007-2009 (million tl) 20 07 20 08 in cr ea se % 20 09 in cr ea se % deposit banks turkish currency 232.488 291.452 25 333.090 14 foreign currency 124.496 162.032 30 174.168 7 total 356.984 453.485 27 507.258 12 participation banks turkish currency 7.944 11.045 39 16.918 53 foreign currency 6.999 8.165 17 9.924 22 total 14.943 19.210 29 26.842 40 deposit + participation banks turkish currency 302.497 350.008 16 foreign currency 170.197 184.092 8 total 371.927 472.695 27 534.100 13 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). funds utilized, 2007-2009 increase rates of loan-fund utilization from the end of 2007 to the end of 2008 of participation banks and other banks are at very close, 29% and 30 % respectively. according to the same figures as of the end of 2009, it is seen that participations banks reached a quite higher increase rate compared to other banks. as of the end of 2009, while other banks increased their loans only by 4 %, participation banks have and increaser rate of 26 %. this situation shows also parallelism to increase rates of fund and deposit. it is seen that bank asya and türkiye finans have close figures of total and increase, and take the lead among participation banks. another point which attracts attention is that albaraka türk which has the lowest nominal figures among participation banks in terms of fund utilization showed a big increase of high rates in the third and fourth quarters of 2009, and got quite close to kuveyt türk participation bank. table 8. funds utilized by participation banks (1000tl) pe ri od a l b a r a k a t ü r k b a n k a sy a k u v e y t t ü r k t ü r k i̇y e fi̇ n a n s t o ta l su m in cr ea se r at e dec.07 15.332.940 mar.08 3.310.810 5.366.644 3.740.426 4.888.801 17.306.681 12,9 jun.08 3.451.821 5.697.261 3.998.918 5.034.674 18.182.674 5,1 sep.08 3.565.823 6.065.407 4.240.254 5.384.245 19.255.729 5,9 dec.08 3.716.977 6.253.160 4.237.341 5.526.380 19.733.858 2,5 mar.09 3.716.108 6.496.048 4.276.045 5.972.382 20.460.583 3,7 jun.09 3.865.036 6.850.278 4.218.855 6.265.355 21.199.524 3,6 sep.09 4.216.317 7.469.157 4.809.944 6.692.911 23.188.329 9,4 dec.09 4.675.617 8.221.427 4.904.932 7.109.233 24.911.209 7,4 2007-2008 increase for the year (%) 29 2008-09 increase 26 31 16 29 26 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). issn 1822–8402 european integration studies. 2011. no 5 160 table 9. distribution of other banks’ loans, 20072009 (1000 tl) loan type / year 2007 2008 2009 directed loans agriculture 7. 480.838 9.834.008 11.490.009 real estate 104.980 83.438 0 vocational 3.227.483 3.781.739 4.476.772 maritime 0 0 6.105 tourism 1.975 3.240 232.851 other 7.008.740 8.751.405 9.779.776 indirected loans 261.173.596 341.407.149 353.419.248 total 278.997.612 363.860.979 379.404.761 total increase for the year (%) 30 % 4% source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). collected as of 31.12.2007-2008-2009 from the table called “loan distribution according to cities and regions” growth of net profit table 10. growth of net profit, 2008-09 (1000tl) n e t p r o fi t /y ea rl y c um ul at iv e a l b a r a k a t ü r k sh ar e in t ot al p ro fit % b a n k a sy a sh ar e in t ot al p ro fit % k u v e y t t ü r k sh ar e in t ot al p ro fit % t ü r k i̇y e f i̇n a n s sh ar e in t ot al p ro fit t o ta l su m % pe rc en t o f y ea rl y in cr ea se dec. 2007 527.382 march 08 27.562 22,6 37.339 30,7 20.179 16,6 36.682 30,1 121.762 june 08 58.540 21,1 99.599 35,8 47.909 17,2 71.957 25,9 278.005 sep. 08 91.058 20,3 161.642 36,1 84.743 18,9 110.866 24,7 448.309 dec. 08 136.242 21,0 246.529 38,1 104.086 16,1 160.633 24,8 647.490 23 march 09 30.300 20,0 52.655 34,8 44.657 29,5 23.697 15,7 151.309 june 09 53.982 15,2 142.100 40,0 83.190 23,4 75.957 21,4 355.229 sep. 09 82.273 15,5 219.586 41,4 107.392 20,3 120.880 22,8 530.131 dec. 09 105.626 15,0 301.281 42,7 127.133 18,0 171.388 24,3 705.428 9 average 18,1 38,9 19,1 23,8 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). total profits increased by 23 % from 2007 to 2008, and by %8,94 from 2008 to 2009. bank asya has the biggest share in total profitability of the sector which is around 38,9 %. türkiye finans follows it with a percentage of 23,8, ant two other participation banks follow them with close rates to each other, i.e. circa 18-19 %. looking at deposit banks for the same period, on the tl basis, their profit decreased by 12 % from 2007 to 2008, and reached to 18,5 billion tl in 2009 after an increase of 56 % from 2008 to 2009. while deposit banks have a profit increase of 37 % from 2007 to 2009 on tl basis, participation banks increased their profit by 34 % from 2007 to 2009 on tl basis. in terms of average profit per bank, deposit banks have too high figures compared to participation banks naturally. however it is also obvious that average scales, branch numbers and history of deposit banks are above participation banks. table 11. net profit/loss of deposit banks for the year, 2007-2009 net profit/loss for the year, 2007-2009 2007 2008 increase 2009 increase deposit banks million tl 13.468 11.852 %-12 18.490 %56 million dolar 11.617 7.788 %-33 12.432 %60 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). growth of asset looking at the table regarding the asset growth, it is seen that participation banks increased their asset in 2008 more than in 2007. they made a total increase of 1.4 billion tl. and in 2009, they reached an increase rate of 58 %. 2009 was not so bright for deposit banks in terms of asset. while deposit banks increased their asset only by 12 % in 2008 on tl nominal basis, it means that total equity decreased by 15 % on dollar basis. using the same exchange rate, participation banks increased their equity by % 20 on dollar basis. participation banks maintained their high increase of asset also in 2009 even if not the same percentage. as of the end of 2009, compared with 2008, total equity increased to 4,420 billion tl with an increase rate of 19 %. in the same period, 32 deposit banks increased their asset by 30% and it totally reached to 93,833 billion tl. table 12. growth of asset, 2007-2009 (1000tl) a ss e t p e r io d a l b a r a k a t ü r k b a n k a sy a k u v e y t t ü r k t ü r k i̇y e fi̇ n a n s t o ta l su m in cr ea se % to ta l y ea rl y % dec.07 2.363.811 mar.08 529.051 891.195 408.762 624.274 2.453.282 3,8 jun.08 560.400 1.256.762 629.502 659.549 3.106.213 26,6 sep.08 592.547 1.318.805 666.333 698.458 3.276.143 5,5 dec.08 638.102 1.403.692 685.679 1.001.456 3.728.929 13,8 58 mar.09 633.735 1.456.785 730.336 1.027.663 3.848.519 3,2 jun.09 658.373 1.547.360 763.369 1.088.424 4.057.526 5,4 sep.09 687.954 1.626.760 787.571 1.147.336 4.249.621 4,7 dec.09 710.666 1.707.894 807.312 1.193.692 4.419.564 4 19 share inn dec.09 16,1% 38,6% 18,3% 27,0% 100,0% source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). issn 1822–8402 european integration studies. 2011. no 5 161 two with the highest asset among participation banks are fi rst, bank asya and second, türkiye finans. these two participation banks own 65,6 % of total asset. and kuveyt türk and albaraka together own 34,4 % of total equity. table 13.equity growth of deposit banks,2007-09 eqity of other banks, 2007-2009 2007 2008 increase 2009 increase deposit banks million new tl 64.533 72.061 %12 93.833 %30 million dollar 55.666 47.352 %-15 63.089 %33 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). growth of total assets table 14. growth of total assets in participation banks, 20072009 (1000tl) to ta l a ss et s pe ri od a l b a r a k a t ü r k b a n k a sy a k u v e y t t ü r k t ü r k i̇y e f i̇n a n s t o ta l su m in cr ea se % to ta l y ea rl y in cr ea se dec. 07 19.435.082 march 08 4.224.371 7.003.186 4.408.024 5.852.389 21.487.970 10,6 june 08 4.255.003 7.867.730 4.858.169 6.250.086 23.230.988 8,1 sep. 08 4.439.465 7.609.639 4.953.797 6.451.095 23.453.996 1,0 dec. 08 4.789.108 8.108.129 5.768.034 7.104.156 25.769.427 9,9 33% march 09 5.368.854 9.119.818 5.896.984 7.890.309 28.275.965 9,7 june 09 5.602.438 9.821.492 6.223.879 7.987.880 29.635.689 4,8 sep. 09 5.909.983 11.111.369 6.439.437 8.363.902 31.824.691 7,4 dec. 09 6.414.914 11.608.955 6.904.526 8.699.643 33.628.038 5,7 30% share in total 19,1% 34,5% 20,5% 25,9% 100,0% source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). when we look at the table of growth of assets, it is seen that participation banks provide in 2008 a better increase of asset than in 2007. participation banks increased their total assets 6,3 billion tl and reached 33 % increase rate in this year. in 2008, deposit banks increased their total assets 26 % on tl nominal basis, and decreased 4 % on dollar basis. applying the same parity to the fi gures of participation banks, participation banks increased their total assets 1 % on dollar basis in the same period. participation banks maintained a similar rate of asset increase also in 2009. they increased their total assets reached to 33,628 billion tl as of the end of 2009 with an increase of 30 % in 2009. in the same period, total assets of 32 deposit banks reached to a deposit of 775,512 billion tl with an increase of 13 %. bank asya has the biggest asset among participation banks, which is followed by türkiye finans. these two participation banks have 60,4 % of total assets of participation banks. kuveyt türk and albaraka together have 39,6 % of total assets. table 15. growth of total assets in deposit banks, 20072009 assets 20072009 2007 2008 2009 deposit banks million new tl 542.293 682.937 26 771.512 13 million dollar 467.776 448.769 -4 518.733 16 source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). table 16. the shares of participation banks within the sector source: collected from data provided by (bat, the bank association of turkey, 2008) (bat, the bank association of turkey, 2009) (bat, the bank association of turkey, 2010) (pbat, the participation banks association of turkey, 2010). vi. conclusions participation banks, with their old name special finance houses, are institutions collecting funds similar to deposit through private current accounts and accounts giving right to profi t/loss participation, and utilizing funds through methods such as production support, partnership of profi t and loss, leasing, document against payment. in turkey, the foundation of these institutions has been allowed since 1984. their number which has increased to 6 decreased to 4 eventually parallel to the consolidation of deposit banks. however growth of volume and branch number in the fi nance sector especially in the last years is also extremely valid for these institutions. their share is small today in total sector but it grows in a stable manner with their higher growth rate than other banks. in 2001, participation banks had total asset amount of 2,4 billion tl which meant a share of 1,08 % in the total assets of the sector. these amounts and shares were 7,3 billion tl and 2,34 % in 2004, 13.730 billion tl and 2,83 % in 2006, 25.769 billion tl and % 3,64 in 2008, and 33.628 billion tl and 4,18 % as of the end of 2009. these institution which are subject to most limitations of general arrangements and loan limitations in the banking act no. 5411 differ from deposit banks at most in terms of that they don’t undertake the risk of interest. because these kinds of banks don’t undertake the risk of interest which is one of ratio in the sector issn 1822–8402 european integration studies. 2011. no 5 162 the greatest risks which have to be managed in banking sector, we can talk about an asset-liability balance which is less sensitive to financial crisis. however not to undertake the risk of interest, in these kinds of banks, differently from deposit banks, eliminates the opportunity to obtain sudden and high institutional profit based on interest rate difference. putting three public banks aside, while 29 private deposit banks have 223 branches on an average, each of 4 participation banks has 140 branches on an average. however in terms of the increase rate of branches from 2008 to 2009, it is seen that participation banks reached a two times bigger increase rate of branch numbers than deposit banks. the average rate of “total personnel number/branch number” is 21. this means that participation banks employ 13 % more personnel than the average of deposit banks per branch. setting 2007 apart, and comparing 2008 and 2009 figures, it is seen that participation banks have three times bigger percentage of increase than deposit banks on the percentage basis in terms of rate of increase, even if participation banks have quite lower levels than deposit banks in terms of nominal values of turkish currency funds deposit, foreign currency funds deposit, and total turkish-foreign currency deposit. while it is seen that increase rates of loan-fund utilization from the end of 2007 to the end of 2008 of participation banks and other banks are at very close, 29% and 30 % respectively, it draws attention that participations banks reached a quite higher increase rate compared to other banks according to the figures as of the end of 2009. as of the end of 2009, while other banks increased their loans only by 4 %, participation banks have and increaser rate of 26 %. total profits increased by 23 % from 2007 to 2008, and by %8,94 from 2008 to 2009. looking at deposit banks for the same period, on the tl basis, their profit decreased by 12 % from 2007 to 2008, and reached to 18,5 billion tl in 2009 after an increase of 56 % from 2008 to 2009. while deposit banks have a profit increase of 37 % from 2007 to 2009 on tl basis, participation banks increased their profit by 34 % from 2007 to 2009 on tl basis. it is seen that participation banks increased their asset in 2008 quite more than in 2007. in 2009, they made a total increase of 1.4 billion tl, and reached an increase rate of 58 %. 2009 was not so bright for deposit banks in terms of asset. as of the end of 2009, compared with 2008, their total equity increased to 4,420 billion tl with an increase rate of 19 %. proportioning equities to total assets, and therefore to total liabilities, the result rate is 13 % for participation banks consolidation, while it is 12 % for deposit banks. however this rate has not to be confused with the capital adequacy ratio which takes place in basel regulations. table 17. the participation banks in turkey (march 2011) total assets 45 billion tl= 28 billion $ collected total funds 34 billon tl= 21.12 billion$ used funds 33 billion tl=20.5 billion$ net profits3 months 169 million tl=105 million $ credit customers number 911 thousand owners of credit cards 793 thousand the numbers of branches 633 numbers of personnel 12703 (december 2010) sources: zaman newspaper, 19 may 2011, p.8, and brsa as it seen on the table by comparing to the 2009 year’ data the total assets grew %22,4, the collected funds grew % 26 and the used credits grew %36 so those ratios which systemically maintains its development though economic crises in the world. thus that given results also all support our thesis in this paper. meanwhile, the participation banks also have some problems for instance they have needed such as the interbank systems which provides urgent proper credits for the depository banks in the short run. whereas, this situation negatively hinders the participation banks performance. because they are sharing nearly all of their funds for the creditors or investors who uses them for leasing, production, sales, trade, export and imports which composed the real sector of the economy. for that reason it is very vital interest for the participation banks forming the similar interbank system which would increases their customers and operational transactions, too. for instance, the establishment of guaranty insurance system among the participation banks positively influenced their expansion in the market, in 2010 data, justified also our arguments in this article. nevertheless, the depository banks they are the corporations so their rulers and executive bodies are responsible fully form their operations and in any case, the state quarantined their possible bankruptcy situations, but in the participation banking systems there was no such kind of full responsibility or insurance system in their financial credit operations because of joint losses or gains. in both theory and practice there is a legal gap that is why it leaded to some corruptions and abuses, the participation banks and companies in turkey and european countries, too. this problem has been partially solved yet. those banks and companies forced to adopt the status and the legal structural establishment of banks and companies. some of them applied to be part of the capital stock exchange market. that is why they could be checked and controlled by the state audit system. there are 300 the participation banks in the world. they collected approximately 700 billion$ funds and they don’t only operate in the asian countries but also in the western countries, too(tevfik bilgin). it would not be exaggerations to compare the micro credit systems with the participation banking systems which helps internalizations -somehow very close to the western banking systems in the asian societies as the developments of the establishment of financial institutions in their economic order. table 18. the growth of participation banks march 2011 participation banks d e p o s i t o r y banks total 1000$ total funds 21.12billion$ 361billion$ 382.12$ credits 20.5billion$ 330billion$ 350.5$ assets 28billion$ 622billion$ 650$ banks numbers 4 44 48 branches numbers 633 9677 10.210 sources: güngör urasbrsa, milliyet newspaper. issn 1822–8402 european integration studies. 2011. no 5 163 by comparing both depository banks and participation banks in turkey both also improves but the latter progress more in the medium term the participation banks’ share in the turkish financial markets, would rise from %4.5 to %10 said the head of audit of union of bank executive body in turkey is tevfik bilgin. (güngör uras, ibid) hayrettin karaman is the advisor of participation banks who related to the growth of -murabahainstallment sales transactions as something very close to the capitalist banking systems individual or customer based consumer credits. (http://www.hayrettinkaraman.net/kitap/ekonomi/0060.htm) but he says in this system inflationary depreciation value and profit values added over the price of the goods delivered. in practice there is so close with the cost of the credit interest based banking systems with the participation banks. but the intentions of the dealers here not to get the interest cost from the traders.( http://www.hayrettinkaraman.net/yazi/ hayat/0300.htm) bernard lewis, underlined that though the nonwestern societies very much accustomed to free trade regimes more than western societies by forming a great single uniform market culture during the middle ages, but later on, they were not able to overcome or comprehend or compete with the dynamism of the western industrial capitalist market economy. furthermore, the paper based monetary economy’s inflationary, interest problem and other fiscal or national market policy at there were not able to be developed a financial banking system with their own cultural internalization like max weber protestan ethics of capitalism(bernard lewis, middle east, 7. edition pp.199-225). upon that, güneri akalın, it is problem of eastern societies that they don’t know how to price the time in the economic activities(interview). in addition, hayrettin karaman stressed the fact that there is no problem in transactions of real goods in the commercial bargaining -like barter economyin somehow but the inflation problems for the future markets and forward sales which punish sellers or creditors(interview, tvnet, 2010 november). at last, we should point out that in the world there is a tendency to lower high level the interest based financial approaches or mentality to increase the economic efficiency in the global, regional and national level in the postkeynesian or maastrict era. in this current world financial crises, the zero level interest approaches may contribute more in production and investment in the world economy. references ahmad, a., humayoun, a. a., & hassan, u. u. 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(2010). retrieved 12 22, 2010, from kuveyt türk participation bank: http://www. kuveytturk.com.tr/tr/hakkimizda_tarihce.aspx the participation banks association of turkey, t. (2008). türk finans sisteminde katılım bankaları. türkiye katılım bankaları birliği. the participation banks association of turkey-faq. (2010, 12 28). retrieved 2010, from the participation banks association of turkey: http://www.tkbb.org.tr/index. php?option=com_content&task=blogcategory&id=46&i temid=83 uras,g. (2011), milliyet newspaper, http://ekonomi. milliyet.com.tr/katilim-bankalari-faizsiz-bankacilikfinans-sisteminin-bir-parcasioldu/ekonomi/ ekonomiyazardetay/19.05.2011/1392052/default.htm (19.05.2011) yılmaz, o. n. (2010). faizsiz bankacılık i̇lkeleri ve katılım bankacılığı. antalya, turkey: türkiye katılım bankaları birliği. zaman newspaper,(2011) “the three proposals that will add power to the power of participation banks from brsa”,http://www.zaman.com.tr/haber. do?haberno=1136055 , 19.05.2011 the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 52 european integration studies no. 13 / 2019, pp. 52-60 doi.org/10.5755/j01.eis.0.13.23562 abstract income differences in regions of latvia – problems and challenges http://dx.doi.org/10.5755/j01.eis.0.13.23562 biruta sloka university of latvia income differences in regions of latvia is becoming a greater problem for families as there are made decisions for emigration, for municipalities as there are significant reductions in tax (income and property) payers and for entrepreneurs as there are less customers for their products and services: those aspects are on great importance but not enough researched and discussed in academic research. purpose of the study is to analyse income differences in the regions of latvia. the tasks of the study: 1 to review theoretical background of income differences in context of regional development; 2 to review existing research of income differences in the regions in eu; 3 to analyse problems of income indifferences in the regions of latvia. research methods used in preparation of the paper: scientific publication and previous conducted research results analysis, analysis of eu-silc results (in 2014-2017) and european central bank conducted survey on household income and expenses survey results, results are compared with the results of other eurozone countries. survey results are analysed using indicators of descriptive statistics (indicators of central tendency or location arithmetic mean, mode, median), indicators of variability (indicators of dispersion range, standard deviation and standard error of mean), cross-tabulations for regions in latvia, for household members, for urban – rural living and analysis of variance anova are used. the results of analysis have indicated different challenges for decision makers on different levels. keywords: income differences, regional development, latvia introduction inga jekabsone university of latvia kate čipāne university of latvia sabine anete vasina university of latvia the analysis of the regional inequality is essential for a country and it is also an important question whether the inequalities are growing or decreasing – such aspects are important for academic researchers paper which deal with temporal change of spatial income and development differences (dusek, et. al., 2014), it is stressed also that macroeconomic stability is on great importance (daugeliene, 2016). according to the statistics, more than 600 thousand people left latvia since 1991 (csb of republic of latvia, 2019). especially dramatic situation is in the regions. one of the reasons that may affect the population is income difference – income gap between the richest and the poorest cause economic tension. submitted 06/2019 accepted for publication 10/2019 income differences in regions of latvia – problems and challenges eis 13/2019 53 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 taking into account all mentioned before, the purpose of the study is to analyse income differences in the regions of latvia. in order to achieve the purpose, the tasks are formulated as follows: 1 to review theoretical background of income differences in context of regional development; 2 to review existing research of income differences in the regions in eu; 3 to analyse problems of income indifferences in the regions of latvia. research methods used: scientific publications and previous conducted research results analysis, analysis of “the european union statistics on income and living conditions" (eu-silc) results (in 2014-2017) and european central bank conducted survey on household income and expenses survey results (hfcs), results are compared with the results of other eurozone countries. for statistical data analysis there are used main indicators of descriptive statistics (arithmetic means, standard deviations and standard error of means), t – test for testing differences of means by two independent characteristics – territories (cities and rural areas) and for testing differences of arithmetic means by six independent characteristics – regions of latvia was used one of the most often used multivariate analysis method: analysis of variance – anova. income differences in regions: theoretical framework income indifferences have been analysed before as well as the origins of income inequalities. the oldest theory states that income inequality appears due to modernization, as the economies shift from low-income agricultures to higher-income non-agricultural economies. this hypothesis was first adapted in 1950s by economist simon kuznets, later followed by various studies conducted by other researchers up to this day. the kuznets curve (kuznets, 1955) describes a situation that happens due to industrialization – laborers leaving less developed areas of the country and moving to urban cities, therefore causing inequality gap between pay and welfare state. since then kuznets’ theory has been referred to other research agendas, e.g., when analysing regional dispersion of income inequality in norway (modalsli, 2018). kuznets’ theory suggests that a rich economy should also be less unequal and the economic growth must be sustainable to reduce the levels of inequality. there has also been criticism on this theory, indicating it has become old-fashioned and nowadays the inequality can be reduced when coordinating international policies (lyubimov, 2017). regional inequalities are being studied by international organisations (like, oecd, 2019) and by academic researchers in many countries, for example, regional differences in context of intelligence have been studied in twelve regions of turkey, stating there are regional differences between west and east regions, as well as differences in educational attainment (lynn, sakar & cheng, 2015). in a research conducted in sub-saharan africa, it has been concluded that urbanization and income inequality in the region are positively correlated (sulemana, et al., 2019). long-term evolution of regional inequality throughout years 1860 – 2010 have been studied across spanish provinces (tirado, et. al., 2016). income inequality between provinces has become a major concern in china, where provinces are converging into either low or high income regions (tian, et. al., 2016) and the reasons are low investment in physical and human capital, as well as not enough support from the governments to the low income regions. income differences are counted as barriers and the transition to modern growth is a big challenge in the number of countries (ngai, 2004). intangible capital and international income differences in rich countries and poor countries are actual research topics by researchers worldwide (hashmi, 2013; sujianto & suryanto, 2018; waugh, 2010) with different solution approaches. income convergence and the catch-up index that measures rich-poor country income convergence and comparing it to within group convergence (so called β-convergence), defining relae u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 54 tive convergence as decrease in rich-poor country income ratio and absolute convergence as decrease in rich-poor country income gap has been created and applied by researcher in united states c. kant (kant, 2019). marital status is investigated to measure income differences of mothers by family status in germany during decades (neuberger, schutter & preisner, 2019). a recent study on dynamics of regional divergence conducted in harvard university (manduca, 2019) describes that regions in the united states are pulling apart and the gap between rich and poor is expanding dramatically. in addition, if it were roughly 12 percent of people living in especially rich or poor regions by 1980, then by 2013 it was over 30 percent. this shift is not only due to geographical concentration, e.g., high-paying jobs being situated in certain regions, but also related to income growth of the richest people and the areas they have been living in – by getting a larger income they are „dragging their cities along with them“. a study conducted on high and low inequality clusters of rural regions (non-metropoleitian areas) situated in the us (peters, 2011) suggests that people living in poor places can be highly equal in terms of income distribution, but those living in prosperous places are highly unequal. in comparison to higher inequality clusters, the low inequality clusters have poorer demographic outcomes, such as more single-headed families, more people without a high school education, fewer college graduates, lower labor force participation rates, higher levels of poverty, lower median household incomes. in high inequality places people tend to be more educated, wealthy and highly skilled, as well as these places have more growth in economic context between various sectors. relationship between income inequality and level of corruption have been studied in post-communist countries in europe (basna, in-press) as well as in africa (sulemana, kpienbaareh, 2018). study in brazil has been analysing the effect of informal employment and corruption on income level revealing that the size of informal economy has a negative effect on income levels (bologna, 2016) but those are not only influencing factors – also others have to be examined. widely discussed topic is income differences between male and female. study in france analyses self-employed female physician earnings revealing that female physicians have lower annual income and that depends on family structure. (mikol, 2019; pena-boquete, et.al. 2010) have been analysing income differences in italy and spain, (oczki, 2016) in poland revealing that gender pay gap in poland was very low. situation is different in india, because within economic globalization many women are going to be employed for the first time and there are evidence that increase in female income weakens family ties to the traditional economy and ancestral community (luke, munshi, 2011). in the next section the empirical research results of household income in latvia by different characteristics are reviewed. empirical research results eu-silc is the most complete harmonised survey on household income in europe. eu-silc survey is conducted annually in line with eurostat methodology in all european union countries. in order to acquire information four questionnaires were developed: household register, household questionnaire form and individual questionnaire form. one of the main study objects of the eu-silc is annual income of a household – their composition and level, in 2017 sample size of eu-silc in republic of latvia 8 087 randomly selected respondents; completed questionnaire sets were of 6014 households; individual interviews (persons) 11 304; non-response rate 25.6% (csb of republic of latvia, 2019). it is important that anonymised data sets are available in spss files for more detailed statistical data analysis – by statistical regions, by territories (cities or rural areas), by household size and by other indicators important for research and further for practical recommendations for decision making. 55 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 income differences in the regions in eu problems and challenges of income differences: case of latvia figure 1 gini coefficient (%) in the baltic states and eu-28 in 2009-2017 (authors construction based on data bases of csb) gini coefficient is measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used measurement of inequality «0» – perfect equality; «100» maximal inequality – results of gini coefficients in baltic countries are included in figure 1. figure 2 gini coefficient by regions of latvia (%) in 2014-2017 (authors construction based on data bases of csb) the statistics shows that income differences in the baltic states are higher than in average in eu. the most stable gini coefficient is in latvia. in lithuania the gini coefficient is the highest, namely, income differences in lithuania are the most substantial. at the same time, the gap between richest and poorest is the least essential in estonia – it is approaching the average level of eu-28. according to the administrative breakdown, there are 6 regions in latvia: rīga, pierīga, vidzeme, kurzeme, zemgale and latgale. in figure 2 is revealed the income differences in the regions of latvia. highest gini coefficients in 2014-2017 are in pierīga and latgale regions, but lowest – in kurzeme and vidzeme regions. during last years the coefficient has grown rapidly in latgale region – eastern part of republic of latvia. s80/s20 quintile share ratio index (see fig.3) ratio of total equalised disposable income received by the 20% of the country’s population with the highest equalised disposable income (top quintile) to that received by the 20% of the country’s population with the lowest equalised disposable income (bottom quintile). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 56 analysing the difference between lowest needed income and total disposable income (see fig.4), the greatest difference is in kurzeme and vidzeme regions, the smallest difference – in rīga and pierīga regions. at the same time, in all regions of latvia the lowest needed income is higher than total disposable income. figure 4 comparison between household lowest net income necessary to make ends meet and household disposable income (euro) in the regions of latvia in 2017 (authors construction based on data bases of csb) latvia statical regions mean n standard deviation rīga 13070,6908 1913 11086,90799 pierīga 13082,9956 859 11693,28410 vidzeme 9400,8446 579 7772,29679 kurzeme 10772,9881 927 9345,36505 zemgale 10305,0636 857 9337,63890 latgale 7658,4507 879 6552,00538 total 11179,8123 6014 10021,99343 table 1 annual household disposable income in 2017 by regions in latvia, eur source: authors’ calculations based on eu-silc data,in 2017, available on csb, n=6014 figure 3 s80/s20 income quintile share ratio by regions of latvia in 2014-2017 (authors construction based on data bases of csb) in addition, statistics shows that lowest needed income is the highest in rīga and kurzeme regions; the lowest – in latgale region (lowest needed income is almost 1.5 times smaller than in rīga). differences are also noticeable in other regions. distribution of average income per households in 2017 by regions in republic of latvia is reflected in table 1. 57 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 data of table 1 indicate that there are differences in annual income of households in different regions in latvia. to evaluate – are annual income of households in latvia by regions – annual income are compared using analysis of variance (anova). results of anova are included in table 2. data of table 2 (results of anova) indicate that there are differences in annual income of households in different regions in latvia and they are statistically significant (sig. 0.000). sum of squares df mean square f sig. between groups 2,349e10 5 4,698e9 48,631 0,000 within groups 5,805e11 6008 9,661e7 total 6,039e11 6013 table 2 analysis of variance (anova) on annual household disposable income in 2017 by regions in latvia, eur source: authors’ calculations based on eu-silc data,in 2017, available on csb, n=6014 territory n mean standard deviation standard error of mean cities 4162 11593,9122 10069,91239 156,08985 rural area 1852 10249,2057 9852,82873 228,94989 source: authors’ calculations based on eu-silc data,in 2017, available on csb, n=6014 table 3 main statistical indicators of annual household disposable income in 2017 by territories in latvia, eur data of table 3 indicate that there are differences in annual income of households in different territories in latvia. to evaluate – are annual income of households in latvia by territories – annual income are compared using t-test. results of t-test analysis are included in table 4. levene's test for equality of variances t-test for equality of means 95% confidence interval of the difference f sig. t df sig. (2-tailed) mean difference std. error difference lower upper equal variances assumed 4,444 0,035 4,812 6012 0,000 1344,70644 279,42518 796,93288 1892,48000 equal variances not assumed 4,853 3623,368 0,000 1344,70644 277,09582 801,42714 1887,98575 source: authors’ calculations based on eu-silc data,in 2017, available on csb, n=6014 table 4 nalysis of differences with t – test on annual household disposable income in 2017 by territories in latvia, eur data of table 4 (results of t-test) indicate that there are differences in annual income of households by territories (cities or rural areas) in latvia and they are statistically significant (sig. 0.000). in context of income distribution, the correlation between education level and income level was reviewed. in latvia, there is tendency that the lower the education level, the more likely to be at risk of poverty. according to the csb, in 2017 45.8% of male and 39.7% with pre-primary, primary and lower secondary education are at the risk of poverty (share of persons with an equivalised disposable income below 60% of the national median equivalised disposable income), while 10.6% of male and 9.9% of female with higher education are at the risk of the poverty. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 58 also, the statistics shows that in context of citizenship in 2017 almost one third of the non-citizens of latvia is at the risk of the poverty, while only 22% of citizens of latvia and 29.5% of citizens of other countries face with the same problem (csb, 2019). at the end, in the context of comparison between household lowest net income necessary to make ends meet and household disposable income, in the most favourable position are couples without children (difference between lowest needed income and total disposal income – 44.62 eur) and couples with one child (difference – 40.94 eur) and at least favourable position are single person households (difference 194.75 eur) and one adult with children (difference 137.95 eur) (csb, 2019). however, these breakdowns are not available for regions of latvia, but the statistic show that in less favourable positions are: male with low education level, persons who live alone or with children, and non-citizens of latvia. conclusion references basna, k. 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(2011). place-based income inequality clusters in the rural north central region, 19792009. applied economic perspectives and policy, 33(2), 222-240. https://doi.org/10.1093/aepp/ppr007 waugh, m. e. (2010). international trade and income differences. the american economic review, 100(5), 2093-2124. https://doi.org/10.1257/aer.100.5.2093 the research was supported by the national research programme “latvian heritage and future challenges for the sustainability of the state” project “challenges for the latvian state and society and the solutions in international context (interframe-lv)” e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 60 about the authors sloka biruta dr. oec., prof. university of latvia fields of interests public administration, social inclusion, data analysis address raiņa blvd. 19, rīga, lv-1586 +371 29244966 biruta.sloka@lu.lv jekabsone inga dr.sc.admin. university of latvia fields of interests public administration, social inclusion, citizens’ involvement, regional and local development address raiņa blvd. 19, rīga, latvia, lv-1586 +371 27116147 jekabsone_inga@inbox.lv cipane kate university of latvia fields of interests public administration, social marketing, citizens’ involvement, regional and local development address raiņa blvd. 19, rīga, latvia, lv-1586 +371 20220183. kate.cipane@lu.lv vasina sabine anete university of latvia fields of interests organizational management, gender income indifference, gender segregation, female managers address raiņa blvd. 19, rīga, latvia, lv-1586 +371 26095294 vasinasabine@gmail.com e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 100 european integration studies no. 13 / 2019, pp. 100-107 doi.org/10.5755/j01.eis.0.13.23455 abstract corporate social responsibility and ownership interrelation: evidence from estonia http://dx.doi.org/10.5755/j01.eis.0.13.23455 irina glushkova, tallinn university of technology , estonia with time corporate social responsibility (csr) attracts has become a matter of high attention and it is obvious that its influence on companies is increasing. more and more organizations both in estonia and worldwide are voluntarily implementing non-financial reporting as a part of their business strategy. these initiatives seem to have high impact on the reputation and recognition of the company by stakeholders. the aim of the present research is to investigate whether the type of ownerships is related to the way the company presents csr related information and the focus of these disclosures. authors studied the available information of top100 estonian most successful companies to find out the type of ownership and the type of csr-related disclosures (web-site or non-financial report) as well as the focus of the reporting about the most popular and commonly used certificates related (health, safety, environment and quality). the findings of the present research clearly demonstrate that estonian companies have implemented csr reporting practices with website being the main channel of presentation of csr related information. it is also important, that the leading issue of csr disclosure for all types of companies are environmental performance as well as environmental and quality management certification. results indicated that in case of individual ownership csr disclosures are less frequent and less aspects are reported, while in case of corporate and institutional ownership, csr reporting is widely adopted, and the wide scope of aspects is reported. in general, it may be concluded that the type of ownership has impact of the type and focus of csr reporting. introduction and literature review natalie aleksandra gurvits-suits, tallinn university of technology, estonia keywords: csr, ownership, disclosures, reporting, corporate governance with time, corporate social responsibility (csr) has become a matter of high attention and it is obvious that its influence on companies deepens rapidly (guo et al., 2019). more and more organizations both in estonia and worldwide are voluntarily implementing non-financial reporting as a part of their business strategy. these initiatives seem to have high impact on the reputation and recognition of the company by stakeholders, moreover “companies with outstanding sustainable development are most likely to be rewarded by investors” (lo & sheu, 2007). however, according to ali et al. (2017 the main driver of csr reporting may differ depending on culture, type of industry, size of company and other corporate governance mechanisms. researchers also argue that the csr reporting practices may differ in in developing and developed country contexts (el-bassiouny & el-bassiouny, 2019). while the studies of ali et al. (2017) revealed that in the case of developing countries csr reporting is initiated by the international stakeholders (investors, clients etc.), while in case of developed countries the pressure from the public sector is less heavy. numerous studies investigated csr reporting and its interrelation with corporate governance submitted 05/2019 accepted for publication 10/2019 corporate social responsibility and ownership interrelation: evidence from estonia eis 13/2019 101 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 (li & zhang, 2010; choi et al., 2013; ashfaq & rui, 2019) suggesting that there is a positive relationship between board of directors (fuente et al., 2017), presence of audit committee (fallah & mojarrad, 2019), ceo duality (khan et al., 2012) board gender representation (barako & brown, 2008), company size (dias & craig, 2017) and ownership type (akin & yilmaz, 2016) and concentration (majumderet al., 2019). in authors opinion the ownership structure is one of the most challenging elements of corporate governance as while abovementioned corporate attributes vary a lot and may be changed or amended, ownership seems to be more constant and reluctant to changes and therefore appeared in focus of numerous researchers. prior researches suggest that ownership structure is associated to corporate social responsibility (csr) and influences the level of csr disclosures (eng & mak, 2003). based on the study of 267 annual reports of saudi-arabian non-financial listed companies during five year period habbash (2016) concludes that the type ownership matters in case of csr reporting or csr disclosures and that government and family ownership are positive determinants for csr disclosures. these findings were later confirmed by cordeiro et al. 2017 indicating positive impact of family management and control on the general level of csr engagement, however, public ownership revealed a negative impact. the results of studies of khan et al. (2018) also revealed that the reduction of state ownership among chinese listed companies had negative impact on the csr performance. researchers also revealed positive relationship between the internalization of the company i.e. presence of foreign investors and the extent of csr disclosures (chau & gray, 2002; attig et al., 2016). similar results were also received by soliman, et al. (2013), who examined 42 egyptian companies during the three-year period and revealed positive relationship between csr ratings and the institutional ownership and especially foreign investors. numerous studies have been carried out to reveal the impact of the institutional ownership structure on the extent and level of csr disclosures. suyono & farooque, 2018, who investigated the impact of corporate governance mechanisms including ownership on the csr disclosure and revealed that institutional ownership has a significant positive impact on csr. these results were also confirmed by the findings of suttipun & bomlai, (2019), who investigated the level of integrated reported among 150 companies listed at thailand stock exchange between 2012 and 2015 a and found positive relationship between institution-owned companies and the level of integrated reporting. however, while numerous researchers outline the positive relationship between csr disclosures and ownership type as well as the strong impact of ownership type on csr reporting, several studies do not find this evidence. for example, dissanayake et al. (2019) investigated the reporting of 84 publicly listed companies in sri lanka during the years of 2015-2015 and the results did not show strong influence of ownership on the extent of csr reporting. the studies of abu qa'dan & suwaidan (2019) among reporting of jordanian companies listed on the amman stock exchange revealed that the percentage of shares held by institutional investors had a significant negative impact on the level of csr disclosures. the main purpose of the present research was to investigate whether the type of ownerships is related to the way the company presents csr related information and the focus of these disclosures. to achieve the goals, authors studied the available information of top100 estonian most successful companies to find out the type of ownership and the type of csr-related disclosures (web-site or non-financial report) as well as the focus of the reporting about the most popular and commonly used certificates related (health, safety, environment and quality). and while current research is highly inspired by the research carried out by dam and scholtens (2012); authors e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 102 would like to outline that the main tasks of the present research is not only to find out whether the level of csr disclosures reports differs among companies with different ownership; but also to reveal the type of csr disclosures preferred by each type of ownership. the remainder of the paper is organized as follows: the first part outlines the importance of csr disclosures in regard to their relation to the type of ownership and gives various perspectives of the examination of research topic. the following section discloses the methodology of the research followed by the discussion of the results and the main conclusions. methodology the authors have selected top100 estonian most successful companies ranked by the leading estonian business newspaper äripäev for the year of 2015. the sample included first hundred companies without any exclusions, as the purpose of the research was also to reveal the level of csr reporting by the most successful companies. authors studied the available information to find out the type of ownership and the type of csr-related disclosures (web-site or non-financial report) as well as the reporting about the most popular and commonly used certificates related to occupational health and safety management systems (ohsas 18001), environmental management systems (iso14001), quality management system (iso 9001) and the voluntary pact encouraging companies to implement socially responsible policies and report on their adoption (un global compact). authors have studied the estonian version of annual reports of the selected 100 companies submitted to the state via reporting system and if available, the english and/or russian version of the annual report in order to find csr related information in any of the sections. authors have also investigated the information published and publicly available on the companies’ website in order to figure out what csr-related information is presented to the stakeholders. in authors’ opinion, for a customer, a company’s website serves as the most accessible and important source of information about the company, while annual report as a source of information about csr activity is more tailored to professionals. the criteria for the choice and presentation of information was the binary system, there one point was granted in case the information for the selected characteristics was disclosed and zero if no information was found. later these results were transferred into share in percentage. table 1 presents the sample distribution. business area share of companies (in%) manufacturing 32 wholesale and retail trade 30 construction 11 information distribution and sale 5 transport 5 real estate 3 entertainment 3 finances and insurance 3 agriculture 2 energy distribution and sale 2 health and social care 1 other 3 total: 100 source: authors’ basis publicly available information about the companies. table 1 core business of the selected companies 103 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 data of the table 1 reveals that most sampled companies are related to manufacturing and wholesale and retail trade. it should also be noted that net-turnover of the selected companies remains in the range of 15,2 till 945.2 mln. eur (including consolidated data), 5% of the selected companies are stated-owned and 95% are private companies. it should also be noted that four of the selected companies got the index of being socially responsible. the breakdown in the type of ownership of the selected companies is presented in figure 1. 3 5 26 66 0 10 20 30 40 50 60 70 institutional investors state individual investors corporate investors figure 1 type of ownership of the selected companies, share in percentage (authors’). results data of the figure 1 reveals that most companies have either corporate (66%) or private (26%) ownership, while only 5% are stated-owned and 3 % have institutional type of ownership. main characteristics of disclosure individual investors institutional investors state corporate investors csr related information at website 16 3 7 74 csr related section on website 11 4 4 81 non-financial report 6 6 0 88 un global compact 8 0 0 92 iso 14001 18 8 5 69 ohsas 18001 24 5 0 71 iso 9001 24 2 7 66 source: authors’ basis publicly available information about the companies. data of the table 2 also confirmed that un global compact related reporting is present in the case of nearly all selected companies with corporate ownership while individual investors seem to be more concerned about compliance with iso 9001 and ohsas 18001. the following table 3 represents the stakeholders, with whom the selected companies cooperate. data of the table 3 reveals that for all companies the key target stakeholders remain employees and clients. table 2 disclosure of csr related information among the selected companies (share in %) the present section summarized and the results, which in authors opinion are most important and worth attention. in the table 2 there are presented ways of csr related disclosures as well as the presence of most commonly used certificates and initiatives. the most actively disclosing group are companies owned by corporate investors while institutional investors seem to be less active. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 104 tables 4-7 represent the disclosure of csr related information by companies depending on the type of ownership (%). data in table 4 reveals that the csr reporting is not very popular among the companies with individual ownership as only 58% disclose some sort of csr related information and the most frequently disclosed information is related to iso9001 certification and environmental issues. while in case of institutional investors, the situation is quite different as presented in table 5. it is obvious that these companies have implemented csr reporting practice and use web site as the main way of disclosures with standalone csr reporting being not very popular (33%). it is also evident, that such companies are more focused on environmental aspects (56%) and environmental management certification (100%). while in case of state ownerships, website remains the main channel of csr reporting, but in case of certification, the main focus is shifted towards quality management as presented in table 6. data in table 7 represents results for the companies with corporate ownership broken up between companies with local and foreign investors. main parameters individual investors (%) csr related information at website 35% csr related section on website 19% non-financial report 4% un global compact 4% iso 14001 27% ohsas 18001 19% iso 9001 38% disclosed csr information about environment 15% disclosed csr information about ethics 4% disclosed csr information about stakeholders 5% source: authors’ basis publicly available information about the companies. table 4 disclosure of csr related information among companies with individual type of ownership main parameters individual investors (%) csr related information at website 67% csr related section on website 67% non-financial report 33% un global compact 0% iso 14001 100% ohsas 18001 33% iso 9001 33% disclosed csr information about environment 56% disclosed csr information about ethics 33% disclosed csr information about stakeholders 26% source: authors’ basis publicly available information about the companies. table 5 disclosure of csr related information with institutional type of ownership (percentage) main parameters individual investors (%) csr related information at website 80% csr related section on website 40% non-financial report 0% un global compact 0% iso 14001 40% ohsas 18001 0% iso 9001 60% disclosed csr information about environment 27% disclosed csr information about ethics 20% disclosed csr information about stakeholders 11% source: authors’ basis publicly available information about the companies. table 6 disclosure of csr related information of the stateowned companies (share in %) 105 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 data in table 7 clearly indicates that csr reporting via website is preferred by both types of companies, while mainly companies with foreign ownership as well as reporting about the un global compact compliance prepare non-financial reports. while environment and quality management are, the most frequently reported aspects in both cases. main parameters local investors share (%) foreign investors share (%) total number of companies share (%) total number of companies 30 36 66 csr related information at website 15 50% 28 78% 43 65% csr related section on website 11 37% 27 75% 38 58% non-financial report 1 3% 14 39% 15 23% un global compact 0 0% 12 33% 12 18% iso 14001 8 27% 19 53% 27 41% ohsas 18001 6 20% 9 25% 15 23% iso 9001 11 37% 16 44% 27 41% csr related aspects disclosed csr information about environment 18% 43% 31% disclosed csr information about ethics 7% 40% 25% disclosed csr information about stakeholders 9% 28% 19% source: authors’. conclusionsthe findings of the present research have various implications. first, they clearly demonstrate that the csr reporting practice has been widely adopted by the estonian companies, as 58% of the selected companies publish csr related information on their corporate website and 47% have a separate csr section. however, standalone non-financial reporting is mainly used by companies with corporate and institutional ownership, in authors’ opinion this may be caused by the fact that preparation of standalone csr report is quite time and effort consuming, which in maybe crucial in choosing the way of reporting in case of companies with state and individual ownership. it is also important to note, that the leading issue of csr disclosure for all types of companies are environmental performance as well as environmental and quality management certification. it is obvious that in case of individual ownership csr disclosures are less frequent and less aspects are reported, while in case of corporate and institutional ownership, csr reporting is widely adopted, and the wide scope of aspects is reported. in general, it may be concluded that the type of ownership has impact of the type and focus of csr reporting. authors also believe that more education in the field of csr accounting and reporting is needed in the form of courses in the university curriculum, various trainings and workshops for the companies as well as conferences and open seminars. these activities will outline various benefits of csr reporting and assist to reduce costs and make this process less time and effort consuming and therefore, more attractive. table 7 disclosure of csr related information for companies with corporate type of ownership e 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(2018). do governance mechanisms deter earnings management and promote corporate social responsibility? accounting research journal, 31(3):479-495 https://doi. org/10.1108/arj-09-2015-0117 about the authors irina glushkova ma tallinn university of technology fields of research interests csr accounting and reporting address akadeemia tee 3, tallinn 12618, estonia e-mail: natalja.gurvits@taltech.ee natalie aleksandra gurvits-suits phd tallinn university of technology fields of research interests csr, accounting and business ethics, sustainability accounting and reporting address akadeemia tee 3, tallinn 12618, estonia ph. + 372 6 204 007 e-mail: natalja.gurvits@taltech.ee 129 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 submitted 04/2018 accepted for publication 10/2018 european integration studies no. 12 / 2018 pp. 129-138 doi 10.5755/j01.eis.0.12.21874 enhancing efficiency of baltic retail contact centers eis 12/2018 abstract enhancing efficiency of baltic retail contact centers http://dx.doi.org/10.5755/j01.eis.0.12.21874 iveta linina business university turiba velga vevere the university college of economics and culture rosita zvirgzdina business university turiba private consumption is one of the main cornerstones of economic growth in any country. retail sales also play an important role in today’s society and in the national economy as it introduces and develops new technologies in customer service, provides jobs and increases the welfare of society. adapting to customer needs and requirements gives the company, on the one hand, the opportunity for further development and increase of competitiveness, but, on the other hand, it necessitates organizing customer service and improving the use of existing resources for the management of the customer service process. in order to identify the factors for effective management of communication with customers, the authors aim to study the factors characterizing and influencing the effectiveness of retail contact centers. to accomplish that, the authors of the article with a monographic or descriptive method investigate the theoretical basis of efficiency management, analyze the trends of the retail sector in latvia and investigate the application of the principles of queueing theory to ensure the efficiency of customer service of latvian retail companies. this research will give companies an insight into the theoretical and real factors of the queueing theory. in the end of the study, the authors conclude that by exploring the factors of the queueing theory, the company can manage this process and maybe it is one of the tools for competitiveness. keywords: retail trade, effectiveness, efficiency, queuing theory, contact center. introduction private consumption plays an important role in any national economy. retailers implement and develop new technologies, provide jobs, and enhances the welfare of the society. at the same time, advanced technology, skilled personnel and state-of-the-art equipment alone cannot guarantee the competitiveness of a retail company, increase of the value of a private company. in the long run, the priority of each retail business should be the transition to a cost-effective management system and a resource-efficient economy. for the sake of competitiveness and the attainment of goals, the retail company can use efficiency principles in all operational processes. (sen, 1993) any business is based on satisfying the wishes and needs of the customer. orientation towards the buyer and his needs, effective communication is a factor in the customer-oriented approach e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 130 to business management. according to the existing research, to attract a new buyer is 5-10 times more expensive than selling to an existing buyer, and the existing buyers spend 67% more money than the new buyers (anderson et al., 2007). hence, one of the main tasks of the retail specialists is devising the effective communication system that would prompt customers to repeat purchase and maintain further relations with enterprise. to ensure that in the sphere of the retail trade the significant role is played by the call centers. the current article researches possibilities and advantages of the effective use the call centers. the aim of the research is to evaluate the effective principles of call centers in retail trade, as a tool for increasing customer satisfaction. to attain this aim the following tasks were put forward: 1. to research the theoretical framework of process effectiveness 2. to characterize the sphere of retail trade and conditions for organizing call centers 3. to establish the level of call center effectiveness and their potential in the retail trade enterprises. the research question of the current research: what factors do ensure effective communication with customers in retailing? in order to determine the contact center development tendencies work out suggestions for enhancing the effectiveness, 257 retail enterprise customers from the baltic countries (latvia, estonia and lithuania) were surveyed. due to the specific aspects of communication between call centers and customers this particular research had the following limitations: communication with customers is researched only through the call centers, as well as their demographic characteristics were not taken into account. the research period was 1, january 1, april, 2018. the following research methods were used: the monographic or descriptive and the logical-constructive to set the empirical findings against the theoretical background; the customer survey to determine the effectiveness of communication channels; the graphical method for visualization and analysis of data. the theoretical and methodological framework of the current article consists of publications by p. drucker, v. neufeldt, a.n. spark, a.k. erlang and others, as well as theoretical and practical reflections upon activities of retail enterprises, as well as materials of scientific conferences and seminars. queueing theory for ensuring effective communication in retail enterprise call centers at first, it would be necessary to turn to the concept of effectivity. according to p. drucker, effectivity implies that the balance of all production factors provides maximum return with the minimum effort. profit is the company’s effective performance in terms of marketing, innovation and efficiency. in the words of p. drucker, if the productivity means “to do things correctly”, then the effectiveness – “to do correct things”. he also developed the model of effective management. this model rests on five principles that are to be observed by the manager to ensure his efficiency: 1) to plan ones time; 2) to orientate oneself towards success and final result; 3) to develop strengths of oneself and employees; 4) to determine enterprise priorities and to concentrate upon main spheres of activity for getting better results; 5) to make effective decisions. (drucker, 1954, drucker, 1994) it is obvious that conceptions of the effectiveness itself are rather diverse, each author offers a different interpretation. (emerson, 1917; drucker, 1954; koуз, 2015) majority of the authors associate it with the rational use of resources, still there are alternative opinions as well. upon analysis of them we can conclude that there are differences in explanation and interpretation of the concept itself. thus, for example, there is a non-discriminatory view of it, the one that effectiveness means the same as efficiency, while other researchers believe that effectiveness can be defined as appropriation of internal resources, hence – efficiency. overall, it is admitted that the 131 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 concept of effectiveness rests upon three elements: investments, short-term performance and long-term performance. the concept of efficiency refers to both the consumption and the quality of the specific results achieved. economic effectiveness (efficiency) determines the use of resources with minimum losses, while functional effectiveness determines the achievement of higher goals. based on the scientific publications, the authors propose such definitions of effectiveness: 1 efficiency, effectiveness describes the achieved performance against the resources used to achieve a certain result; 2 economic effectiveness (efficiency describes the way how a system or its components achieve the desired performance compared to the resource consumption, providing maximum return on resources and their use with minimal losses; 3 functional effectiveness describes how any system or its components achieves the desired performance compared to resource consumption, providing maximum return on resources and their use with minimal losses. (kotāne, 2014) _ another research on effectiveness was carried out at the debrecen university. it was related to explanation of the concept in different dictionaries: _ efficiency – achieving the desired result with minimal effort, expenses and losses; (neufeldt, sparks, 1995) _ efficiency – achieving the desired results with as little investment as possible or maximizing the results with existing resources; (black et al., 2002) _ efficiency – functional, technical efficiency; the manufacturer’s ability to produce a maximum output with acceptable quality with minimal investment; economic efficiency: the enterprise’s ability to produce and distribute its products at minimum prices. (black et al., 2009) _ besides that, the definition of productivity is being mentioned, since according to the authors, it exhibits similar features to the one of efficiency. productivity is the result of an organization or economy per unit (work, material resources, capital, etc.). (black et. al., 2002). the authors of the current study agree that the concept of effectiveness is very broad and not clear. it can be noted that some authors define effectiveness only in relation to the efficient use of resources, but some distinguish between economic and functional efficiency, which allows to assess separately both the use of resources, the achievement of objectives and pricing principles. this second approach seems to be more adequate as the company’s operation is a complex process that includes resource planning, setting short-term and long-term goals for enterprise development and innovation, and employee motivation to improve performance, as well as pricing procedures. the activity of an enterprise cannot be assessed solely on the basis of resource use, since this assessment will not be complete and will not reflect the existing situation in the full. therefore, the authors believe that the definition should be split in two economic and functional effectiveness, which more fully reflects its essence. so, the economic effectiveness is ability of an enterprise to produce a good quality product or provide a quality service using as little labor, raw material or capital resources as possible. in turn, the functional effectiveness is ability of an enterprise to achieve results that meet the objectives set. summarizing these definitions, it can be concluded that efficiency (effectiveness) is ability of an enterprise to produce a quality product or to provide a quality service with the least investment possible and to achieve the objectives. several theories of efficiency are considered in the scientific literature, such as the ones of constraints, queueing, lean, six sigma, total quality management, etc. the queueing theory is e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 132 one of the methods of mathematical modeling, which aims to provide the theoretical basis for modeling and efficient operation of the queuing systems. the use of the theory in practice allows the company to avoid situations where the customer is forced to wait for a long time or eventually to give up the service because the company has poorly the organized customer flow. this theory employs mathematical statistics and probability theory. the founder of the queueing theory is danish scientist a.k. erlang as a telephone company employee in the beginning of the 20th century he published his work “probability theory and telephone conversation,” where he addressed the customer service problems associated with the abandonment of services by the means of the queueing theory. there are mass servicing systems with and without standby time. in the latter case, the customer leaves the system without receiving the service, because his application is not processed due to the system congestion. such systems need to take into account losses. systems that do not want to lose customers, can make use of this theory can be useful in order to organize customer flow more effectively and ensure the processing of all applications. the queueing theory is suitable for mass-servicing systems with a large flow of customers and limited possibilities for processing all applications. each mass service system has a number of service channels. these channels are unevenly occupied and their level of occupancy cannot be predicted. when service channels are busy, they cannot serve future customers until they are free, so a queue is forming. the subject of the queueing theory is the determination of dependencies between the flow of the application, the productivity of the individual channels and efficient service with the aim of finding the best way to manage this process. the main task of the theory is to study the functioning of the service system. this includes the economic aspect of defining a type of the system, which will minimize the total costs associated with the loss of time and other resources. (кошуняева, патронова, 2013; sztrik, 2012) there are certain elements in each mass servicing system: _ flow of incoming applications _ queue _ service channels _ outbound flow of serviced applications to describe the effectiveness of the functioning of the service system, three group indicators can be used: 1 service system performance indicators: _ absolute throughput capacity of the system the average number of applications that a system can handle in a time unit; _ relative throughput capacity of the system the ratio between the average number of applications that can be served by the system in the time unit and the number of the incoming applications; _ average system load time; _ system utilization rate average time when the system is loaded. 2 application servicing quality indicators: _ average waiting time in the queue _ average time for the application to be in the system; 133 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 _ probability that the application will be rejected without waiting in the queue; _ probability that the repeatedly incoming application will be taken out of the queue; _ the procedure for determining waiting time; _ procedure for determining the time in the application system; _ average number of applications in the queue; _ average number of applications in the system. 3 “system-client” relationship efficiency indicators (“client” – the sum of all applications): _ uniform flow if all applications are equal, if only the time of receipt of the application is taken into account without specifying the details of the application. _ flow without the following action the number of events at any time period does not depend on the number of events in any other time period not related to the current one. _ stationary flow the probability of events over a period of time does not depend on time, but depends only on the length of the area. _ simple flow the uniform stationary flow without the following action is a simple, or poisson flow. in practice, simple flows are rarely found, but simulated flows can be assumed to be simple. this facilitates calculations and allows modeling the situation in a simplified manner. when analyzing the service system, it is necessary to determine first what type it belongs to. often it consists of different elements and each of them has its own application servicing procedure. there are single-channel systems, multichannel, systems with refusals, standby times, with and without priorities. signatures for retail call centers consist of multiple multichannel systems with different throughput capabilitie-s, either with standby time or with refusals. (кошуняева, патронова, 2013) in the retail sector, where direct contact between the company’s staff and the buyer is taking place, personal service is traditionally very important when vendors or other sales staff help to select a product, provide advice and other services. at the same time, there is communication a dialogue between the retailer’s staff and customers that significantly affects their behavior by choosing where to make purchases. personal service has not lost its momentum nowadays, but at the same time, changes in buying patterns must also be taken into account. in the context of the development of information technology and internet, customers increasingly want to make communication (including dialogue) and purchase goods via electronic means. consequently, contacts with the retail business staff take place not only directly at the point of sale but also remotely. due to the changing characteristics of the target audience, customer service methods and principles must be changed as well. (ronen et al., 2006). one of the existing potential customer service tools based on the advanced information technology is the call center. in the current situation, the retail centers of the baltic states are mainly focused on processing incoming and outgoing calls, and thus effectively fulfill the functions of the secretariat. information technologies are used mainly to meet technical needs that are not related to creating interaction with buyers. as a result, retailers face the following problems with communication with customers: _ phones are busy; _ calls are directed to inappropriate employees; _ customers have to wait long time for the answer; e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 134 _ operators can’t find the necessary information: _ customers are not satisfied with the answer; _ customers receive impolite answer; _ information from buyers is processed for a relatively long time or remains unanswered; _ there is no coordination among information channels – phones, internet sites, etc. to solve such problems, it is necessary to apply the effective management of these processes, which can be ensured by the application of the queuing theory. it involves the centralized processing and servicing the incoming and outgoing calls through various interactive channels. these interactions are implemented by the professional operators working in a technically and technologically equipped contact centers. each operator has access to a marketing database that helps to find or enter the necessary information about the buyers with whom they are communicating at the moment. the basis for it is the management of interactive channels digital telephony, processing subsystem for messages in the homepage and e-mail, the sms processing subsystem. it is precisely functionality of this block that determines the amount, structure and quality of information that will be sent to the operator at the work place. on the other hand, the operator, through the marketing database, ensures the connection of the information provided or requested by the buyer with information that satisfies him by content and perception. information regarding customer, his values (including purchased items), complaints, etc. in the marketing database is retrieved from loyalty cards, receipts, filled in questionnaires, previous calls, online purchases, social networks, and more. in order to utilize marketing data base information it is necessary to apply the computer telephony integration that will make it possible: _ to distribute calls automatically; _ to determine caller’s phone numbers automatically; _ to identify customer and find an appropriate form of communication. the operator then finds out what the problem is and looks for a solution in the marketing database. without a standard solution to the problem, it is automatically sent to the responsible employee of the service department, of the according department, of the product category or other. depending on the content of the problem and the solution, the system formulates the task for the operator to report to the customer what exactly a retail company employee does to solve the problem. this demonstrates that the work of the retail company is oriented towards meeting the needs of the buyers and building relationships with them. the contact center can also be used for communication with prospective buyers, providing them with information about goods, services, events, etc. there are several advantages of using the contact center (see table 1). at the same time, it should be noted that the preparation and implementation of the contact center activities requires some financial investment, such as equipment, software, personnel, training, etc. such costs can mainly be afforded by the relatively large (by turnover and profit) retail companies. for others, it is useful to use the services of a professional contact center and pay fees. in any case, efforts should be made to calculate the effectiveness of use. collaboration with professional centers also raises certain problems because they work with their clients and in essence they cannot (or do not want to) go deep into each company’s problems. a formal attitude can lead to formal results that do not contribute to the increased customer loyalty. the authors on the basis of special literature and clarification of the needs of cooperation partners adapted the contact center model for the retail trade enterprises taking into account their operational characteristics (see figure 1). (черкашин, 2014) 135 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 channels of interaction “enterprise-consumer” fixed phone mobile phone homepage e-mail social network other channels crm/ecr subsystems action analytic ecr collaboration data storing in marketing database external data • data on existing buyers • data on potential buyers • data on partners internal data • marketing strategy • service standards • reports • analytics information for structural units employees, branches top managers, item category managers, department/service heads buyers potential buyers: • information matters; • references to advertisements and other communication sources existing buyers: • information matters • complaints; • other information buyers: • information matters; • operational activities; • complaints figure 1 the scheme of contact center performance for retail trade enterprises (authors’ compilation according to черкашин, 2014) criteria retaining existing customers attracting new customers indicators increase of repeat purchase ratio increase of customer loyalty ratioi increase of customer satisfaction level reducing costs per customer optimization of marketing budget spheres of application customer support establishing of “hot line” claim/complaint management research of customer needs organization of internet and phone sales optimization of communication channels organization of internet and phone sales management of category of goods market research means of reaching the target effective delegating of tasks development of integrated communications it is very important to understand the operation of these contact points particularly from the point of view of customers. based on the literature, the authors of the study developed the list of advantages of using the contact center for retail companies (see table 1). (черкашин, 2014) source: authors‘ compilation according to черкашин, 2014. linina et al., 2017, linina, 2017 table 1 advantages of contact centers in retail trade enterprises e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 136 by using principles of the queuing theory in retail companies, by establishment of a successful contact center and integration of the contact center function and marketing database it is possible to significantly increase the customer satisfaction and build relationships that, in its turn, enhances customer loyalty and creates the competitive advantage in the market. evaluation of communication between retailers and customers m ea n s ta nd ar d er ro r o f th e ar it hm et ic m ea n m ed ia n m o de a ve ra g e sq u ar ed de vi at io d is pe rs io a m o u nt o f va ri at io n m ax . ev al u at io n s u m evaluation of non-sales communication 5.78 0.78 5.00 4.00 2.35 5.5 4.89 9.00 48.00 evaluation of problem solving 3.27 0.70 3.00 2.00 2.11 4.44 7.27 8.00 29.00 source: authors‘ as can be seen in the block of questions on the non-sales communication, the average arithmetic mean is slightly above the average (x ť = 5.78; me = 5.00; mo = 4.00), which could not be regarded as positive for business communication with customers. the question block for evaluating company’s problems and issue solving the indicator is very low (x ̅ = 3.27; me = 3.00; mo = 2.00), which demonstrates that there are huge problems in retail companies in this field. in order to evaluate the real performance of the company in the field of communication, the authors of the study consider the concept of productivity and its significance. productivity in economics is a concept that describes the relationship between the product (service) delivered and the resources used for this purpose. in the economic theory, various mathematical models are used, by which economic development tendencies are being analyzed. one of the historically first was the cobb-douglas two-factor model, where factors of production are work and capital. the ability of these two factors to promote economic growth is also characterized by productivity in microeconomics (ivanovs et al., 1981). productivity can be measured by comparing costs with revenue. in the case of effective communication, productivity can be measured by customer satisfaction and loyalty. table 2 evaluation of communication between retailers and customers during the time period from january 2018 to march 2018, the authors have conducted a customer survey. the survey questions were focused on effective retail communication with customers, in order to determine the use of the principles of lean management concept. the survey sample: 257 customers of the baltic retail enterprises selected randomly in the database available to authors. all data obtained from the survey were found to be usable for the study. data were processed by the spss program. due to the specific aspects of communication between call centers and customers this particular research had the following limitations: communication with customers was researched only through the call centers, as well as their demographic characteristics were not taken into account. the research question of the current research: what factors do ensure effective communication with customers in retailing? the survey questions were divided into two blocks – the first one concerning the non-sales communication, while the second one – related to the problem solving. within each block the respondents could evaluate several elements according to the likert scale in the 10-point system, where 1 means very bad, and 10 outstanding. the results of the survey are presented by authors as a summary of the two main question blocks (see table 2). research results 137 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 the use of the queueing theory in the retail business call centers is an effective way of communicating with customers in the first place. the effective communication is the key to the relationship with customers building that, in its turn, ensures the customer satisfaction and loyalty. the satisfied and loyal customer increases the competitiveness of the retail business. summarizing the results of the research, several conclusions and recommendations can be made: conclusions and recommendations 1 the factors that ensure effective communication with customers in the call centers in retail-ing in the baltic countries are non-sales communication (working hours, parking possibilities, availability of additional service, etc.) and problem solving. as can be seen in the block of questions on the non-sales communication, the average arithmetic mean is slightly above the average, which could not be regarded as positive for business communication with customers. the question block for evaluating company’s problems and issue solving the indicator is very low, which demonstrates that there are huge problems in retail companies in this field. 2 there are several theories and methods of increasing the efficiency of an enterprise. taking into account the structure and work of the company, it was concluded that the best results will be achieved by the use of criteria and tools of the queuing theory, the theory of constraints and the lean management theory. 3 by the successful contact center performance and integration of contact center and market-ing database functions it is possible to gain such advantages: _ to attract and retain consumers with the help of new information technologies; _ to reduce the cost of the contact center, as the automation of responses to repeated questions makes it possible to reduce the number of operators; _ to increase the productivity of operators thanks to reduction of the time of each call and increase of the number of incoming calls; _ to give each customer more time while increasing their number; _ to obtain new competitive advantages. 4 retail call centers need to implement a call waiting feature with an answering machine so that incoming calls are not lost due to the congestion of phone lines. 5 during rush hours responsibilities of employees must be shared so that one administrator is always available to handle incoming calls. 6 timely correspondence processing should be ensured so as not to lose customers who chose communicate via internet. references anderson, j. l., jolly, l. d., fairhurst, a. e. (2007). customer relationship management in retailing: a content analysis of retail trade journals, journal of retailing and consumers services, 14(6), 394-399. black, j., hashimzade, n., myles, g. (2002). a dictionary of economics. second edition (p. 28). oxford: oxford university press. black, j., hashimzade, n., myles, g. (2009) a dictionary of economics. third edition (p. 528). oxford university press. drucker, p.f. (1954). the practice of management (p. 404). new york : harper & row. drucker, p. f. (1994). adventures of a bystander (p. 344). piscataway, nj: transaction publishers. emerson, h. (1917). the twelve principles of efficiency. 5th edition (p. 423). new york : engineering magazine. erlang a.k. (1909). the theory of probabilities and telephone conversations, nyt tidsskrift for matematik, b 20, 33-39. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 138 ivanovs, a.u.c. (1981). sociolog ̓isko pētījumu metodolog ̓ija, metodika un tehnika (242 lpp.). rīga: zvaigzne. kotāne, i. (2014). komercdarbības efektivitātes jedziens un tā interpretācija, sociālo zinātņu žurnāls, 1(6), 107.-111. linina, i., vevere, v., zvirgzdina, r. (2017). evaluation of customer relationship management formation in the retail trade enterprises in the baltic countries, globalization and its socio-economic consequences. proceedings. zilina: university of zilina, 1307-1316. liniņa, i. (2017). attiecību ar patērētājiem vadības sistēmas ieviešana un lietošana baltijas valstu mazumtirdzniecības uzņēmumos. promocijas darbs (185 lpp.). rīga: turība. neufeldt, v., sparks, a.n. (1995). webster`s new world dictionary (p. 694). new york: pocket books. ronen, b., pliskin, j. s., pass, s. (2006). focused operation management for health service organizations (p. 354). san francisco: jossey-bass. sen, a. (1993). markets and freedom: achievements and limitations of the market mechanism in promoting individual freedoms, oxford economic papers, 45 (4), 520-522. sztrik, j. (2012). basic queueing theory (p. 193). debrecen: university of debrecen. кошуняева, h.b., патронова, h.h. (2013). теория массового обслуживания (109 c.). архангельск: сафу имени м.в. ломоносова. koуз, р. (2015). очерки об экономической науке и экономистах (288 с.). спб: факультет свободных искусств и наук спбгу. черкашин, п. (2014). стратегия управления взаимоотношениями с клиентами (срм) (375 c.). м.: интернетуниверситет информационны технологий. linina iveta dr. oec., business university turiba fields of research interests retail trade, marketing, marketing communications, sales management address graudu 68, riga lv 1058, latvia, tel. +371 26306922 e-mail: iveta.linina@turiba.lv about the authors vevere velga dr. phil. the university college of economics and culture fields of research interests business ethics, management, corporate social responsibility, corporate governance address lomonosova 1/5, riga lv 1019,latvia, tel. +371 26463584 e-mail: rosita@turiba.lv zvirgzdina rosita dr. oec. business university turiba fields of research interests economics, performance efficiency, strategic management address graudu 68, riga lv 1058, latvia, tel. +371 26408253 e-mail: velga.vevere@gmail.com e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 98 twenty years of “growth, jobs and investments” strategy in the european union– macroeconomic developments after the maastricht treaty http://dx.doi.org/10.5755/j01.eis.0.11.18959 jari kaivo-oja finland futures research centre, turku school of economics, university of turku, åkerlundinkatu 2 a, 33100 tampere, jari.kaivo-oja@utu.fi teemu haukioja pori unit, turku school of economics, university of turku, pohjoisranta 11 a, 28101 pori, tophau@utu.fi ari karppinen school of management, university of tampere, ari.karppinen@uta.fi submitted 04/2017 accepted for publication 08/2017 twenty years of “growth, jobs and investments” strategy in the european union– macroeconomic developments after the maastricht treaty eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 98-109 doi 10.5755/j01.eis.0.11.18959 © kaunas university of technology since the creation of the eu, its focal economic objective has been to achieve economic growth and improved employment. the european union’s present ’growth, jobs and investments’ –strategy (gji) is a recent attempt to promote these goals. since the global economic and financial crisis the eu has been suffering from low level of investments. the purpose of this study is to assess the development of growth, employment, and investments in the member states from 1995 to 2015. for this purpose, a relatively simple ‘gei-index’ is developed. this aggregate index is a composition of indicators in gji, which in general evolve in the same direction. the study provides: (1) a comparative evaluation of the haves and losers among the eu countries and (2) an empirical summary for the main objectives in the gji-strategy. the primary methods used are based on the gei indicator and data-analyses. the key findings of the study are: first, there seems to be some catching up concerning new member states that joined in the eu in the 2000s. second, during the whole period from 1995 to the beginning of the financial crisis all the eu-28 countries – including the late members – show a positive development in the gei-index. however, from 2009 to 2015 seven countries – all of which belong into the euro area –had declining gei-index. these same countries had low level of investments and long lasting economic recession. third, all the other eu-28 countries, but except greece, had positive development in the gei-index in 2015 as compared to the previous year. obviously, our gei-analyses cannot give a straight answer about the success of the eu’s gji-strategy as such. however, we see that our gei-index provides a simple but effective tool for the practical assessments of the eu’s growth policies. it is easy to interpret and visualize. based on our illustration of the gei-index, we recommend that there is a serious need to re-evaluate the eu’s growth strategies and economic policies concerning the employment and investments. keywords: eu strategies, economic growth, employment, index, investments, macroeconomics. 99 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 introduction the purpose of this paper is to elaborate macroeconomic development in the eu–28 region in years 1995–2015. we evaluate the success of the european union’s ‘growth, jobs, and investments’ strategy over the twenty years using the eurostat database (2017). the long run eu policy was built on three elements: (1) the maastricht treaty, (2) the stability and growth pact, and (3) the lisbon strategy. these three conventions define the general framework for economic policies in the eu (see e.g. calmfors 2001, buiter, 2005, buti et al. 2005, collingnon 2009, bednarek-sekunda et al. 2010, dubra 2016). the maastricht treaty defined the fiscal framework for member states. the stability and growth pact mainly included the rules for the excessive deficit procedure under article 126 of the treaty (formerly article 104). the lisbon strategy was set up by the eu heads of state or governments in march 2000. it included the ambitious aim of turning the eu into ‘the most competitive and dynamic knowledge-based economy in the word capable of sustainable economic growth with more and better jobs and greater social cohesion.’ (lisbon european council conclusions 2000) in the report ‘investment for jobs and growth’ (2014), the european commission defined the third pillar of eu’s economic strategy. the article is organized as follows. first, we describe macroeconomic growth as a strategic target in the eu-28 region. second, we elaborate employment, and finally, investments are inspected. in summary, we present key statistical findings of the gji index examination. we conclude that the most problematic target of the eu policies is that economic growth and investments have not created jobs, i.e., the jobless growth problem can be recognized (see ioannou et al. 2008, european commission 2005, 2014, demosthenes & stracca 2014, christiansen et al. 2012). figure 1 shows average gross domestic product at market prices in the eu-28 countries, current prices, pps per capita, years 1995-2015. the purchasing power standard (pps) is the name for the artificial currency unit in which the ppps and real final expenditures for the eu-28 are expressed in euros, constructed by eurostat (oecd 2007). figure 1 reveals that benelux countries, nordic countries, austria, germany, and ireland have the highest per capita gdp levels, which can be interpreted as a crude measure of potential material well-being. baltic countries, eastern european countries, and mediterranean countries have relatively lower per capita gdp levels. there are huge differences in potential economic welfare between the member states, for example, per capita gdp in luxemburg is almost six time higher than in bulgaria. france and the uk stand on quite average positions. growth as a strategic target in the eu-28 region 0 10000 20000 30000 40000 50000 60000 lu xe m bo ur g ir el an d n et he rla nd s au st ria d en m ar k sw ed en g er m an y be lg iu m fi nl an d eu ro pe an u ni on … eu ro a re a (1 2… eu ro a re a (e a1 1… u ni te d ki ng do m fr an ce eu ro a re a (1 9… ita ly eu ro pe an u ni on … sp ai n cy pr us g re ec e sl ov en ia m al ta po rt ug al cz ec h re pu bl ic sl ov ak ia cr oa tia h un ga ry es to ni a po la nd li th ua ni a la tv ia ro m an ia bu lg ar ia average gross domestic product at market prices, current prices, pps per capita, years 1995-2015 figure 1 average gross domestic product at market prices in the eu-28 countries, current prices, pps per capita, years 1995-2015 source: eurostat 2017. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 100 in figure 2 we present average final consumption expenditure in the eu-28 countries. this gives another viewpoint to the potential material welfare that economic growth can bring to citizens as consumers. figure 2 average final consumption expenditure in the eu28 countries, current prices, pps per capita, years 1995-2015 source: eurostat 2017. figure 3 average final consumption expenditure of general government in the eu-28 countries, current prices, pps per capita, years 1995-2016 source: eurostat 2017. 0 5000 10000 15000 20000 25000 30000 35000 lu xe m bo ur g n et he rla nd s u ni te d ki ng do m au st ria d en m ar k g er m an y sw ed en be lg iu m ir el an d eu ro pe an u ni on … fr an ce ita ly eu ro a re a (1 2… eu ro a re a (e a1 1… fi nl an d eu ro a re a (1 9… eu ro pe an u ni on … cy pr us g re ec e sp ai n po rt ug al m al ta sl ov en ia cz ec h re pu bl ic cr oa tia sl ov ak ia li th ua ni a h un ga ry po la nd es to ni a la tv ia ro m an ia bu lg ar ia average final consumption expenditure in the eu-28 countries, current prices, pps per capita, years 1995-2015 few interesting observations can be made. as compared to figure 1, (1) baltic, eastern european, and mediterranean countries retain their relative positions. (2) in france consumers gain the average level of consumption expenditure, but interestingly, the british consumers get higher benefits in relation to their position in the gdp growth, that is even higher than in germany. (3) distinctively, finland seems to drop out from the group of nordic countries in consumption. that is, finnish consumers are in much weaker position than their nordic neighbors, even with a similar kind of success in potential well-being. in figure 3 we report the average final consumption expenditures of general governments in the eu. figure 3 raises some interesting questions concerning economic growth policy and the role of government in welfare generation processes. figures 1, 2 and 3 suggest that there might be some 0 2000 4000 6000 8000 10000 lu xe m bo ur g sw ed en d en m ar k n et he rla nd s be lg iu m fi nl an d fr an ce au st ria ire la nd g er m an y eu ro pe an … eu ro a re a (1 2… eu ro a re a… eu ro a re a (1 9… u ni te d ki ng do m ita ly eu ro pe an … sp ai n g re ec e cz ec h re pu bl ic sl ov en ia cy pr us po rt ug al m al ta h un ga ry sl ov ak ia cr oa tia es to ni a li th ua ni a po la nd la tv ia bu lg ar ia ro m an ia average final consumption expenditure of general government in the eu-28 countries, current prices, pps per capita, years 19952015 101 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 causalities going on. namely, the countries that have shown higher success in potential welfare also have higher final consumption expenditure of general government, and vice versa. european average is about 4500–5000 euros per capita. in greece, this public expenditure is less than 4000 euros per capita. in fact, greece seems to be a distinctive outlier in this respect. this observation gives some alarming features that should be scrutinized for policy re-evaluation that figure 4 reinforces. figure 4 describes the average real rate of per capita gdp growth in the countries. figure 4 average annual real growth rate (%) of gdp per capita in the eu-28 countries, chain linked volumes, years 1995-2016 source: eurostat 2017. 0,0 % 1,0 % 2,0 % 3,0 % 4,0 % 5,0 % 6,0 % 7,0 % 8,0 % 9,0 % 10,0 % li th ua ni a la tv ia es to ni a po la nd sl ov ak ia bu lg ar ia ro m an ia ir el an d h un ga ry cz ec h re pu bl ic sl ov en ia m al ta sw ed en lu xe m bo ur g cr oa tia fi nl an d u ni te d ki ng do m n et he rla nd s eu ro pe an u ni on … sp ai n au st ria g er m an y be lg iu m eu ro pe an u ni on … eu ro a re a (1 9… eu ro a re a (e a1 1… eu ro a re a (1 2… po rt ug al fr an ce d en m ar k cy pr us g re ec e ita ly average annual real growth rate (%) of gdp per capita in the eu-28 countries, chain linked volumes, years 1995-2016 it is notable that the baltic countries and eastern european countries show very high growth rates and growth of real labor productivity (fig. 5). however, greece is no longer part of this group, as it was elsewhere, but lacks the high growth that is the most critical factor for the possibility to increase well-being in the future. the growth rates of mediterranean countries have generally been low. despite this, as figure 2 suggests, consumers in these countries have enjoyed relatively high consumption. in the long run this can be a threat to economic sustainability. figure 5 average annual growth rate (%) of real labor productivity per hour worked in the eu-28 countries, percentage change on previous year, years 1996-2016 source: eurostat 2017. 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 ro m an ia la tv ia li th ua ni a ire la nd sl ov ak ia bu lg ar ia es to ni a po la nd sl ov en ia cz ec h re pu bl ic h un ga ry m al ta sw ed en fi nl an d au st ria eu ro pe an u ni on … fr an ce g er m an y u ni te d ki ng do m po rt ug al cy pr us g re ec e n et he rla nd s eu ro pe an u ni on … eu ro a re a (1 9… eu ro a re a (1 2… eu ro a re a (e a1 1… d en m ar k be lg iu m sp ai n cr oa tia lu xe m bo ur g ita ly average annual growth rate (%) of real labour productivity per hour worked in the eu-28 countries, percentage change on previous year, years 1996-2016 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 102 in figure 6 we elaborate the average changes of employment in the eu-28 countries in period 2001–2016. the successful member states in employment have been: luxembourg, malta, ireland and cyprus. on the other hand, the less successful countries have been some latest eu-members and euro-members that have been in economic troubles after the recent economic crisis: romania, portugal, greece, latvia and lithuania. employment as a strategic target in the eu-28 region investment as a strategic target in the eu-28 region figure 6 total changes of employment, total employment domestic concept, all nace activities, average of percentage change on previous period (based on persons) source: eurostat 2017. -2 -1,5 -1 -0,5 0 0,5 1 1,5 2 2,5 3 3,5 romania portugal greece latvia lithuania hungary denmark slovenia bulgaria european union (28 countries) estonia italy france netherlands euro area (19 countries) czech republic germany finland poland belgium sweden spain slovakia united kingdom austria croatia cyprus ireland malta luxembourg total changes of employment, total employment domestic concept, all nace activities, average of percentage change on previous period (based on persons, 2001-2016). in the field of investment policy, the eu-28 region has not followed a unified strategy. figures 7–9 show that the investment policies among member states vary. some countries show business investment while others seem to be more oriented towards public investment. the total investment percent in the eu-28 countries varies from 17.3 (uk) to 28.8% (czech republic). business investments dominate investment activity in many easter european countries (czech republic, estonia, latvia, slovakia, bulgaria, and slovenia). the lowest business investment activity is in greece (fig. 8). public government investment activities are reported in figure 9. government investment activities have deviate from 2.2% to 5.2% while business investments deviate from 6.5% to 19.2%. estonia is showing the biggest investment rate while germany has the smallest rate of government investment. 103 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 figure 7 average level of total investment, % of gdp in the eu-28 countries, eu-28 region and euro area, average of years 2002-2015 0,0 5,0 10,0 15,0 20,0 25,0 30,0 u ni te d ki ng do m lu xe m bo ur g ita ly bu lg ar ia g re ec e d en m ar k po la nd cy pr us g er m an y (u nt il 19 90 … m al ta n et he rla nd s eu ro pe an u ni on (2 8… li th ua ni a fr an ce eu ro a re a (1 9 co un tr ie s) sw ed en fi nl an d be lg iu m po rt ug al h un ga ry ire la nd cr oa tia ro m an ia au st ria sl ov en ia la tv ia sp ai n sl ov ak ia es to ni a cz ec h re pu bl ic total investment, by institutional sectors, % of gdp in the eu-28 countries, eu28 region and euro area 0,0 5,0 10,0 15,0 20,0 business investment, by institutional sectors, % of gdp in the eu-28 countries, eu-28 region and euro area 0 1 2 3 4 5 g er m an y (u nt il 19 90 … be lg iu m u ni te d ki ng do m ita ly au st ria d en m ar k eu ro a re a (1 9… eu ro pe an u ni on (2 8… m al ta ir el an d la tv ia cy pr us bu lg ar ia sp ai n po la nd h un ga ry fi nl an d n et he rla nd s fr an ce sl ov ak ia lu xe m bo ur g po rt ug al ro m an ia sl ov en ia li th ua ni a sw ed en g re ec e cz ec h re pu bl ic cr oa tia es to ni a government investment, by institutional sectors, % of gdp in the eu-28 countries, eu-28 region and euro area source: eurostat 2017. figure 8 average level of total business investment, by institutional sectors, % of gdp in the eu-28 countries, eu-28 region and euro area, average of years 2002-2015. data from luxembourg and malta are missing source: eurostat 2017. figure 9 average level of total government investment, by institutional sectors, % of gdp in the eu-28 countries, eu-28 region and euro area, average of years 2002-2015 source: eurostat 2017. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 104 to summarize development in relation to ‘growth, jobs and investment’, we have calculated a gei index, which gives equal weight (1/3) to each economic policy goal. officially, the european union and its member states aim to get more economic growth, jobs and investments. the gei index is defined as follows: gei = 1/3 * [indicator of the change in gdp + indicator of the change in jobs (employment) + indicator of the change in investments (total investments)]. in other words, the gei-index is a summation of the individual indicators in the form of change. in economic theory, gdp, employment and investments are correlated and, for example, the nation’s aggregate demand identity is the summation of private consumption, investment, public expenditure and net export. however, the purpose of the index is not to describe structural functions or economic causalities for analytical purposes. instead, the gei-index can be used to describe the comprehensive development of chosen policy variables with one figure. this can be justified, because according to economic theory, all these variables develop at the same direction despite of the causalities and possible loops: investments increase gdp, which increases demand, which increases employment, which increases demand and investments, etc. and vice versa. as we see below, this kind of index tool can give very interesting results and points of view for further analyses. in figure 10 we report minimum, median, and maximum levels of the gei index for eu-28 countries. it is important to understand that different member states have very specific starting conditions for their economic policies. the new member states have faced more big differences in the key factors. the established eu member states have shown quite stable development. figure 11 indicates that the observations are compatible with the endogenous growth theory, according to which less developed countries have potential to catch up more advanced countries in economic development (for example, see aghion & howitt 1998, barro & sala-i-martin 2004). the catching up requires active economic and growth policies. possibly the most important policy variables that affect growth processes are investments in r&d&i and education. in practice, for an individual member state, catching up can be pursued by the effective utilization of the sti (science, technology and innovation) policy programs that the european union provides. as an example, countries like latvia, lithuania, estonia, bulgaria and romania have the highest gei-index (measured as median) in figure 11. correspondingly, in figure 1 we can see that the summary of the macroeconomic evaluation figure 10 min, median and max gei indices of the eu28 countries, years 1995-2015 0 100 200 300 400 500 600 700 800 min, median and max gei indices of the eu-28 countries, years 1995-2015 min median max 105 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 same countries have the lowest per capita gdp. this can be interpreted that catching up processes has indeed occurred. in figure 12, relative contribution of sub-indicators on the gei-index in the eu-28 countries are reported. the average annual relative deviation (percentage) from the annual average value of the gei-index is reported in figure 12. we can observe that the annual average of gdp and investments indicators between 1995 and 2015 have increased the annual average value of the gei index (in exception of investments in croatia and germany). correspondingly, the employment indicator figure 11 best performance ranking of eu´s official strategy of growth, jobs and investments, eu-28-countries, years 1995-2015 (based on geiindex-analysis) 0 100 200 300 400 best performance ranking of eu´s official strategy of growth, jobs and invesments, eu-28-countries, years 1995-2015 figure 12 relative contribution of sub-indicators on gei-index in the eu-28 countries, ranked by the growth of investment sub-index, annual average 1995-2015 -100,0 % -80,0 % -60,0 % -40,0 % -20,0 % 0,0 % 20,0 % 40,0 % 60,0 % 80,0 % 100,0 % bulgaria latvia poland romania estonia sweden lithuania slovakia hungary finland slovenia ireland france greece denmark luxembourg italy spain united kingdom czech republic belgium portugal malta netherlands cyprus austria germany croatia dev. gdp-i dev. emp-i dev. inv-i e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 106 has decreased the magnitude of the gei-index. in relative terms, investments in bulgaria, latvia and poland have had a considerable importance the growth of their gei indices. on the other hand, the employment indicators have reduced the gei-indices for all the countries. this may indicate the so-called ‘jobless growth’ effect where economic growth is not able to increase employment as effectively as previously has been the case. next, we summarize the trends of the gei indices. financial crisis caused discernible problems for the growth, jobs and investment strategy. in figures 13 and 14 we present the development of the gei indices in years 1995-2008 (before financial crisis) and in 2009-2015 (after financial crisis). these figures show that european economies enjoyed positive development before the financial crisis (we call this as ‘fun-effect’), but after financial crisis we can identify the so called ‘fan effect’ where parallel progress dispersed. during the area of the fun effect of european integration, steady economic growth can be recognized in europe. as the gei indices in figure 13 show, especially latvia, lithuania, bulgaria, conclusions figure 13 gei -index (1995=100) in the eu-28 countries, years 1995–2008 107 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 estonia and romania benefitted from the growth and jobs strategy, at least in relative terms, even though they joined in the eu at the later stage. figure 14 displays the fan effect, i.e. the dispersion of economic development after the financial crisis. we can recognize two kinds of countries. first, malta, lithuania, estonia, the uk, ireland and sweden have been winners according to the gei indices. second, greece, cyprus, spain and portugal have lost the most as the gei indices are negative as compared to year 2009. it seems that there are three main processes behind the fan effect: first, the decline of investment activities in the latter countries explains almost all of the drop in the gei index. the investments explain also the success of the former countries, their total investments have been growing steadily. second, successful countries have recovered quite soon from economic decline in gdp. instead, unsuccessful countries have had great difficulties to reach the growth path. third, the employment indicators show no drastic changes in general, even though the development figure 14 gei-index (1995=100) in the eu-28 countries, years 2009–2015 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 108 has been positive in the first group of countries, and negative in the latter group. as exception, greece has suffered quite radically. we can summarize that: _ practical and easily interpreted indicator analyses for the objectives of the eu’s growth strategies – like ‘growth, jobs and investments’” – can give a concise picture of the real world development to support the decision-makers and policy-makers knowledge needs both at the eu level and national level as well. _ aggregate indices – like the gei-index (growth, employment, investment) constructed in this study – can reveal successful and regressive member states in relation to the objectives of eu’s growth strategies. _ gei-index performance varies a lot among the eu-28 countries. during the steady economic growth between 1995 and 2007 the gei indices were positive for all member states. _ the gei-index analysis suggests that financial crisis years (since 2008) have been very challenging for the growth strategies of the european union: the exceptional ‘fan effect’ can be recognized among the eu countries. seven euro countries have fallen deep and long lasting recession, and concurrently the rest of the eu countries had performed better. _ comparison of the year 2015 to the previous year, the gei indices have risen for all but greece. _ versatile indicator analyses and rigorous evaluation studies concerning the eu’s ‘growth, jobs and investment’ strategy is further needed. aghion, p. & howitt, p., (1998). endogenous growth theory. mit. usa. alesina, a., ardagna, s. & galasso, v., (2008). the euro and structural reforms. nber working paper 14479. nber, chicago. https://doi.org/10.3386/w14479 barro, r.j. & sala-i-martin, x., (2004). economic growth. second edition. mit press. cambridge, massachusetts and london, england. bednarek-sekunda, e., jong-a-pin, r. & de haan, j., (2010). the european economic and monetary union and labour market reform. european union politics, 11 (1), 3–27. https://doi. org/10.1177/1465116509353458 buiter, w.h. (2005). the “sense and nonsense of maastricht” revisited: what have we learnt about stabilization in emu? cepr discussion paper 5405. cepr, london. buti, m., roger, w. & turrini, a.a., (2009). is lisbon far from maastricht? trade-offs and complementarities between fiscal discipline and structural reforms. cesifo economic studies 55. cesifo, munich. germany. calmfors, l., (2001). unemployment, labour-market reform and monetary union. journal of labour economics 19(2), 265-89. https://doi. org/10.1086/319561 christiansen, t., duke, s. & kirchner, e., (2012). understanding and assessing the maastricht treaty. journal of european integration, special issue: the maastricht treaty: second thoughts after 20 years, 34(7), 685–698. https://doi.org/10.1080/07036337. 2012.726009 collignon, s., (2009). the lisbon strategy, macroeconomic stability and the dilemma of governance with governments; or why europe is not becoming the world‘s most dynamic economy. international journal of public policy, 3(1/2), 72–99. https://doi. org/10.1057/9780230233898_9 demosthenes, i & stracca, l., (2014). have the euro area and eu governance worked? just the facts. european journal of political economy, 34, 1-17. https://doi.org/10.1016/j.ejpoleco.2013.11.009 dubra, e., (2016). social dimension and inequality problems in the european union. european integration studies, 10, 16-28. https://doi.org/10.5755/ j01.eis.0.10.14445 european commission (2005). working together for growth and jobs—a new start for the lisbon strategy. european commission, brussels. european commission (2014). investment for jobs and growth. promoting development and good goreferences 109 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 vernance in eu regions and cities. sixth report on economic, social and territorial cohesion. european commission, brussels. eurostat (2017). eurostat database. http://ec.europa.eu/eurostat/data/database. eurostat and oecd, (2007). eurostat-oecd methodological manual on purchasing power parities, oecd, paris – annex vii, glossary of terms and abbreviations. created on thursday, july 12, 2007, https://stats.oecd.org/glossary/detail. asp?id=7184 lisbon european council conclusions 2000. lisbon european council 23-24 march 2000. presidency conclusions. web: http://aei.pitt.edu/43340/ world bank (2017). indicators. economic growth indicators, gni, ppp (current international $). web: http://data.worldbank.org/topic/economy-and-growth?view=chart jari kaivo-oja research director, adjunct professor. phd (adm.sc.), msc (international economics) finland futures research centre, turku school of economics, university of turku fields of research interests european integration, policy analysis, foresight, innovation management address åkerlundinkatu 2 a, 331000 tampere, finland tel. +358417530244 teemu haukioja assistant professor, phd (economics) university of turku, turku school of economics, pori unit fields of research interests endogenous growth theory, sustainable development address pohjoisranta 11 a fi-28100 pori, finland ari karppinen university instructor, m.sc. (economics) university of tampere, faculty of management fields of research interests regional economics and development, globalization and multinational enterprises address fi-33014 tampereen yliopisto, finland about the authors authors hold the responsibility for the journal language. editors hold the responsibility for the journal content © publishing house “technologija“ (design), 2018 © kaunas university of technology, 2018 editor-in-chief assoc. prof. dr. rasa daugėlienė kaunas university of technology, lithuania international editorial board prof. federiga bindi, university of rome, italy, federiga.bindi@eui.eu assoc. prof. dr. aleksandra borowicz, university of gdansk, poland, aleksandra.borowicz@ug.edu.pl assoc. prof. dr. jurgita bruneckienė, kaunas university of technology, lithuania, jurgita.bruneckiene@ktu.lt dr. richard caddell, utrecht university, netherlands, j.r.caddell@uu.nl prof. martin dangerfield, university of wolverhampton, united kingdom, m.dangerfield@wlv.ac.uk assoc. prof. dr. jolita greblikaitė, aleksandras stulginskis university, lithuania, jolita19@gmail.com assoc. prof. dr. natalja gurvits, tallin university of technology, estonia, natalja. gurvits@ttu.ee prof. dr. jari kaivo-oja, finland futures research centre, turku school of economics, university of turku, finland, jari.kaivo-oja@utu.fi prof. dr. aksel kirch, school of economics and business administration, tallinn university of technology, estonia, aksel.kirch@ttu.ee assoc. prof. dr. ainius lašas, kaunas university of technology, lithuania, ainius. lasas@ktu.lt prof. dr. pawel mlodkowski, school of international liberal arts, miyazaki international college, miyazaki, japan, pawel.mlodkowski@gmail.com assoc. prof. dr. janis priede, university of latvia, latvia, janis.priede@lu.lv prof. dr. gazmend qarraj, university of prishtina, kosovo, gazmendqorraj@ yahoo.com assoc. prof. dr. rimantas rauleckas, kaunas university of technology, lithuania, rimantas.rauleckas@ktu.lt prof. habil. dr. baiba rivža, latvia university of agriculture, latvia, baiba.rivza@llu.lv assoc. prof. dr. loredana simionov, university alexandru ioan cuza in iaşi, romania, lori.simionov@gmail.com assoc. prof. dr. jolita sinkienė, kaunas university of technology, lithuania, jolita.sinkiene@ktu.lt prof. biruta sloka, university of latvia, latvia, biruta.sloka@lu.lvprof. dr. jari stenvall, university of tampere, finland, jari.stenvall@uta.fi prof. dr. jari stenvall, university of tampere, finland, jari.stenvall@uta.fi assoc. prof. dr. joana stryjek, sgh warsaw school of economics, poland, jstryj@sgh.waw.pl assoc. prof. dr. jurgita šiugždinienė, kaunas university of technology, lithuania, jurgita.siugzdiniene@ktu.lt prof. habil. dr. helena tendera-wlaszczuk, cracow university of economics, poland, tendera@uek.krakow.pl prof. dr. stanislaw uminski, university of gdansk, research centre on european integration, poland, uminski@univ.gda.pl prof. dr. phil. velga vevere, the university college of economics and culture, latvia, velga.vevere@gmail.com prof. dr. habil. krzysztof wach, cracow university of economics, poland, wachk@uek.krakow.pl assoc. prof. dr. małgorzata zajaczkowski, warsaw school of economics, poland, mgraci@sgh.waw.pl dr. oerc. assoc. prof. rosita zvirgzdina, turiba university, latvia, rosita@turiba.lv european integration studies / 2018, no. 12 faculty of social sciences, arts and humanities institute of europe, kaunas university of technology this annual journal is dealing with interdisciplinary field of european union law, economics, policies and history research with the aim to form the common ground for discussion, exchange of ideas and to foster the integrated research concerned with problems and actualities of european integration processes. designer evelina garliauskienė correspondence editorial board of european integration studies mickevicius str. 37, lt-44244 kaunas, lithuania phone +370 615 56233 e-mail rasa.daugeliene@ktu.lt web site in ojs (open journal system): www.eis.ktu.lt the journal european integration studies in print since 2007 editorial note since 2002, institute of europe of faculty of social sciences, arts and humanities (kaunas university of technology) prepares and publishes scientific works under the theme of european processes in the field of politics, economics, law and cultural dimensions. starting 2007 year the journal has got an issn code. at the present the annual scientific journal european integration studies (issn 1822–8402) is published once a year (in september). the papers published in journal are abstracted and indexed by international databases: ebsco (central & eastern european academic source database coverage list), ebsco (business source complete), ebsco discovery service (eds), doaj (directory of open access journals), econbib (economics bibliography) and emerging sources citation index (esci, new edition of web of science). journals in esci have passed an initial editorial evaluation and can continue to be considered for inclusion in products such as scie, ssci, and ahci, which have rigorous evaluation processes and selection criteria. papers published in the european integration studies undergone a formal process of double blind peer review by two appointed external reviewers. the main objective of the journal is to analyse problems and actualities considering european integration processes. the articles are brought under the three main themes. these are social evolution of europe, economics of european union as well as managerial aspects of european integration. it is believe that the articles included in the journal, being selected and reviewed, are of high scientific quality were actual scientific problems are solved, deserve a wide distribution. editors hope that presented new scientific ideas and ways of problems solving will help to develop research not only for academicians and students but and for a wide representatives of society which seek to improve their knowledge in european integration. in conclusion, editors would like to thank all authors of the articles for their willingness to share their ideas with others. rasa daugėlienė european integration studies 2011.indd 26 issn 1822–8402 european integration studies. 2011. no 5 labour and economic growth through education and research in latvia santa feifere, peteris zvidrins university of latvia abstract the structure of latvian economy and distribution of employees within it during last years has changed. dealing with study of population, one can find young people share continuous decline and labour mean age increase, but in situation of economic slowdown latvia also face challenge to develop knowledge-based economy. one of the means of helping to achieve the goal of becoming competitive and knowledge-based economy is through an investment in human capital. to ensure sustainable development there is a need to balance between social and economical growth using available resources. the theoretical concepts have shown that further growth has to be built on innovation, diffusion and adoption of new technologies and new products which increases competitiveness of the economy. attained educational level not only enhances the ability of a country to develop its own technological innovations, but also its ability to adapt and implement technologies developed elsewhere. educated society can contribute from the transfer of latest technologies from abroad because any investment demonstrates stronger positive impact on economic growth in country with higher level of educational attainment. attained education is relatively high in latvia 30.7% of employed persons (15-74) and 15.4% of job seekers (15-74) had attained higher education in 2010. if the labour market could not accommodate skilled workers it raises question of country’s ability to use educational investments efficiently. according to the latest statistics (european innovation scoreboard 2010) latvia has relative strength in human resources (new doctorate graduates, population completed tertiary education and youth with upper secondary level education), but latvia is among ‘modest innovators’ taking last place in eu-27 range and its performance is estimated as well below that of the other countries of european union (eu). the statistical data have showed that labour is more used in final good sector, not in research sector that produces technology in latvia. only 0.5% of labour in 2009 was employed in research and employment in knowledge-intensive service sectors was 26.8% of total employment in 2008. according to calculation the lowest added value to gdp per 1% of the labour was in agriculture and fishing caused by high proportion of labour allocated in this sector, but the highest added value to gdp was in financial mediation and business activities in 2009. after accession in eu there are available structural funds for member states, also for implementation of practical research projects during eu structural funds 2007-2013 programming period in latvia. these projects would promote integration of the science and manufacturing and were approved in 2010 and in the beginning of 2011. implementing practical research projects scientific institutions are provided with opportunity to employ highly educated scientific personnel and develop innovative products and technologies influencing the changes in economic structure. the research is based on statistical data analysis. comparative and analytical methods have been mainly used in the paper taking into consideration the scientific literature. keywords: ageing society, economic growth, labour, education, eu structural fund research projects. introduction latvian strategic development plan 2010-2013 taking into account in latvian national development plan 20072013 defined strategic aim and priorities, emphasis education and knowledge importance in economics development and technological excellence. identifying the impact of population ageing on labour supply in latvia, the presumption is that an educated labour what is able to create, implement, and adopt new products and technologies could generate economic growth and establishment of knowledge-based economy in latvia. noting the problem ageing of total population and labour, it could be hard to ensure sustainable growth in latvia because less labour is released to the labour market and fewer resources are accumulated for investment in economic development. this could become an obstacle for economic growth. although the level of labour education is relatively high and according to european innovation scoreboard 2010 latvia has relative strength in human resources (new doctorate graduates, population completed tertiary education and youth with upper secondary level education) latvia is among ‘modest innovators’ taking last place in eu-27 range. however, country which lies below the ‘leader nation’ in technology but possesses a higher human capital stock would catch up and overtake the leader in a finite time period (benhabib, spiegel 1994). level of education not only enhances the ability of a country to develop its own technological innovations, but also its ability to adapt and implement technologies developed elsewhere since imitation tends to be cheaper than innovation. the research novelty is related to fact that not many scientific papers analyse ageing society, labour and economic structure in latvia. the aim of the paper is to analyse theoretical concepts of ageing society accordance with labour and economic issn 1822–8402 european integration studies. 2011. no 5 27 development through education and research in latvia. research object is necessary preconditions for economic growth through education and science in latvia. to achieve the aim two tasks are to be solved: 1) to discuss the theoretic concepts of demographic change, education and research for economic growth; 2) to analyse the situation of quality of labour in latvia. the research methods are monographic descriptive, analysis and synthesis, statistical analysis and graphic illustration. statistical analysis is built mainly on central statistical bureau of latvia and eurostat data. theoretical concepts of demographic change, education and research for economic growth there are authors who have been writing about demographic aspects in relation to economic development. angeles (2010) stresses two closely related factors of economic development and technological progress related to demography a richer and more technologically advanced economy may remunerate human capital better, and this would induce parents to increase their children’s education at the expense of their number. fertility decisions are linked with educational level of the children and educational level of their parents (becker et al. 1990, angeles 2010). it may make female labour relatively more effective, shifting women’s choices towards more market employment and less child rearing (galor, weil 1996). becker and borro (1988) had developed model in which increased technological progress will lead to a higher rate of consumption and to lower rate of fertility. in closed population, the population ageing can occur due to decline of fertility or mortality in mid and old ages. but these demographic processes have different socioeconomic subsequences and effects on economic development in the long run. there are several authors who have been writing about depopulation and ageing society in latvia (krumins 1993, 2009, zvidrins 2004, 2009, depopulation in latvia 2010, eglite 2009). studies of ageing society in europe (komp et al. 2009, regions 2020 2009) and population projections by eurostat and united nations population division are also carried out. economists have devoted considerable attention to understand how human capital affects a variety of economic outcomes. human capital would affect economic growth in two ways. first, human capital directly participates in production as a productive factor and the accumulation of capital directly generates output growth. second, human capital can contribute in raising technical progress through increased innovation, diffusion and adoption of new technologies. from this indirect channel human capital influences growth through increases in productivity (fougere 2009). romer (1990) had suggested that the rate of technical change in country depends on its human capital endowments’ identifying the differences between two types of human capital – used in final good sector and used in research sector that produces technology. the presumption is that an educated labour is better at creating, implementing and adopting new technologies, thereby generating economic growth. education speeds the process of technological diffusion and more educated will quicker introduce new processes and products (nelson, phelps 1966, teixera, fortuna 2010). a number of economic models of economic growth in fact emphasize the importance of scientists and engineers as key ingredient to growth. by these views, the technically trained college students who contribute to invention and to development of new products provide a special element to the growth equation (hanuchek 2004). science is a human activity enacted through distinctive social institutions, professional organizations, government (global governance of science 2009). the level of science in different countries and regions of the world vary and are basically determinate by the levels of education and economic development (silins 2004). the knowledge is not separable from human capital and there are many definitions describing the meaning of it. in the longman dictionary of contemporary english ‘knowledge’ is explained as the facts, skills, and understanding that one has gained through learning or experience. in fast changing and unpredictable environment the superior position is guaranteed only through the creation of new knowledge implemented in new products and services. researchers are main element of research and development system and potential knowledge creators (kersyte, krisciunas, 2008). to ensure transition to knowledge-based economy some meaning emphasis has to be taken account (figure 1). 1970-1980 1980-1990 1990-2000+ skills-based economy competence-based economy knowledge-based economy old economy preserving existing industries transition-time economy adapting to industrial changes new economy establishing knowledge-based industries emphasis on ‘ability to do’ skills. less attention towards ‘ understanding’ a nd pe rsonal competencies (attitudes) emphsis on wide-scale comprehensive competencies. increasing more attention to integrating technological, social and personal competencies and attitudes emphasis on integrating formal and informal (practice-based) knowledge and know-how. including dimensions related to business activities, technological, soc ial, or ga ni zationa l a spe cts a nd self-management skills, knowledge, attitude skilled employee skills, knowledge, attitude competent employee skills, knowledge, attitude knowledge-able employee figure 1. transition from skilled-based economy to knowledge-based economy source: author: nyhan (2002), reference: estonian human development report 2007 issn 1822–8402 european integration studies. 2011. no 5 28 countries cannot converge to the economically more advanced countries unless they have abundant levels of initial human capital stock and the more human capital level devoted to research, the higher growth of technology (kyriacou 1991) what explains a shift in the demand towards educated labour. pointing out the education importance education as indicator is included also in determination knowledge index (ki) and knowledge economy index (kei) which are introduced by the world bank and european innovation scoreboard introduced by inno metrics. one of the means of helping to achieve the goal of becoming competitive and knowledge-based economy is through an investment in human capital. scientific and technological development has since been placed at the core of eu objectives, with an increasing interest in the role and measurement of skills within the labour (europe in figures eurostat yearbook 2010). situation in latvia latvia is a small country with limited natural resources and 2.25 mil inhabitants at the beginning of 2010 which is 196.5 thousands inhabitants less than in the 1997 (number of children and young people under age 15 had decreased by 179.4 thousands, inhabitants aged 15-64 which mainly form labour had decreased by 62.4 thousands, only number of inhabitants older than 65 years had increased by 45.7 thousands). the share of young people has decreased from 20.0% to 14.0%. the number of inhabitants in latvia decrease due to low birth rate, ageing population and emigration. the results of census organized by central statistical bureau of latvia which is held from march till may 2011 will introduce the actual amount of population in latvia due to free movement of persons after accession in eu. most likely the total number of population will be considerable lower than according official data of central statistical bureau of latvia. latvia is among most ageing countries in the world and has had a low fertility rate since the 1990s, which has not ensured even a simple level of population replacement that according to previously explanations would induce parents to increase their children’s education. this causes consequences less labour is released to the labour market and fewer resources are accumulated for investment in economic development. this could become an obstacle for economic growth in the future. retirement regulation is being discussed and used as a tool to decrease the number of retiring people and prolonging labour in labour market but it does not directly solve the problem of further growth of economics in country with high unemployment rate (18.7% of labour aged 15-74 in 2010, eurostat). meanwhile the mean age of labour and economic active population increases. likewise, it is planned the retirement age to apply to those who insure the age of 62 years before 31st december 2015 in latvia. for younger, the retirement age will be increased gradually to 65 years starting from 2016. according to authors’ calculation the mean age of economic active population (1564) and labour (15-64) has also increased by 0.6 and 0.5 years during the period from 2002 till 2010. (table 1). table 1. mean age of labour and economic active population in latvia, 2002-2010 year labour (1564) mean age base increase (years) economic active popula-tion (15-64) mean age base increase (years) 2002 40.1 39.7 2003 40.0 -0.1 39.8 0.1 2004 40.3 0.2 40.0 0.3 2005 40.3 0.2 40.1 0.4 2006 40.2 0.1 40.0 0.3 2007 40.2 0.1 40.0 0.3 2008 40.4 0.3 40.2 0.5 2009 40.9 0.8 40.3 0.6 2010 40.7 0.6 40.2 0.5 source: authors’ calculation based on central statistical bureau data although the attained education is relatively high – 30.7% of employed persons (15-74) and 15.4% (15-74) of job seekers had attained higher education in 2010, latvia face economic slowdown what rises question of country’s ability to use educational investments efficiently if the economy could not accommodate skilled workers. the attained education level by labour age differs. the employees in age group 25-39 has attained higher level of education tertiary education levels 5-6 (isced 1997) than employees in age group 50-64 that could ensure further economic development according to theoretical approaches discussed in advance (figure 2.). figure 2. employees by age groups (25-39 and 5064) and highest level of education attained tertiary education levels 5-6 (isced 1997) (1000) source: authors’ calculation based on eurostat data according to spence (1973) it could indicate that employers have used education and other observable human capital variables as a signal of unobservable worker ability. that could lead workers to invest in education even it provides no actual increase in productivity. innovative capacity is rooted in nation or region microeconomic environment and in field such as the intensity of scientists and engineers in the workforce. analyzing labour issn 1822–8402 european integration studies. 2011. no 5 29 as human capital devoted to research total r&d personnel by full time equivalent the full time equivalent was 5485 in 2009 that is less than 1048 comparing with 2008 the year with one of the highest result since 1993 (central statistical bureau of latvia). only 0.54% of labour in 2007 and 2008, and 0.46% of labour in 2009 was employed in research (eurostat), employment in knowledge-intensive service sectors was 26.8% of total employment in 2008 meanwhile in norway the share of employment in knowledge-intensive service sectors was 46.7%. authors identify that the level of scientific capacity of products and innovations can be described also by number of patents assuming that patents are one of the results of scientific activity. the number of patents registered in latvia is low and not satisfactory in 2008 there were 178 registered patents, in 2009 202, in 2010 184 (patent office of the republic of latvia). the research results made by melihovs and davidsons (2006) emphasis that even if labour quality and technology could be identically to the average eu member states achieved, high proportion of industries that produce goods and services with relatively low added value in latvia could become an obstacle to meet the maximum income level and technological innovation. simultaneously it could be an alert for economic restructuring through labour concentration in economic sectors, but it raises more questions than it answers. authors did the analysis of the structure of economy on basis of employment and ratio of added value gdp. to ensure the comparison of the economic sectors authors integrated and nominated six economic sectors (according to nace rev.1.1.) 1) agriculture and fishing (a+b), 2) industry, electricity, gas, and water supply (c-e), 3) construction (f), 4) retail trade, hotels, restaurants, transport, warehousing, communications (g-i), 5) financial mediation and business activities (j-k), 6) public administration and civil defence, compulsory social insurance, education, health care and social welfare etc. (l-q). the allocation of labour in economic sectors from 1997 till 2009 has changed. the share of agriculture and fishing (a+b), industry, electricity, gas and water supply (c-e) has declined, meanwhile importance of others has increased. in assessing the economic structure, authors did the comparison of ratio of the added value created to gross domestic product (gdp) and labour (l) in the given sectors. the most notable change in the economic structure in latvia from 1997 to 2009 was the growth of such sectors as construction, financial mediation and business activities, and public administration and civil defence, compulsory social insurance, education, health care and social welfare etc. in the structure of added value. at the same time the share of agriculture and fishing, industry, electricity, gas, and water supply decreased. more detailed results are reflected in table 2. table 2. labour allocation and ratio of added value to gdp in latvia, 1997 and 2009 sector a+b c-e f g-i j-k l-q year/ l gdp l gdp l gdp l gdp l gdp l gdp 1997 21.5 5.1 20.6 25.3 5.2 4.2 23.2 31.6 3.8 14.0 25.5 19.8 2009 9.0 3.3 15.6 14.0 7.7 6.6 29.5 28.0 9.7 26.1 28.4 22.0 2009: gdp value added/ 1% labour 0.367 0.897 0.857 0.949 2.691 0.775 rank (descending) 6 3 4 2 1 5 source: authors’ calculation based on central statistical bureau data (note: according to statistical data l (1997)= 99.8%, l (2009)= 99.9%) the results of calculation added value to gdp per 1% of the labour in six sectors according to data in 2009 showed that the lowest added value to gdp per 1% of the labour was in agriculture and fishing caused by high proportion of labour allocated in this sector. the highest proportion was in financial mediation and business activities. according to the latest statistics (european innovation scoreboard 2010) latvia is among ‘modest innovators’ taking last place in eu-27 range. the performance of latvia is estimated as well below that of the eu-27. although the relative strengths are in such indicators as human resources (new doctorate graduates, population completed tertiary education and youth with upper secondary level education) and finance and support (public r&d expenditure and venture capital), there are also relative weaknesses open, excellent and attractive research systems (international scientific co-publications, scientific publications among top 10% most cited and non-eu doctorate students), linkages and entrepreneurship (smes innovating in house, innovative smes collaboration with others, public-private co-publications) and innovators (smes introducing product or process innovations and marketing, organizational innovations). latvia is not performing well in development of new products and innovations but at the same time there are different activities supported by eu. one of the opportunities to eliminate relative weaknesses is efficient use of available eu structural funds. since latvia become a member of eu, the certain amount of eu funds has flown into the country. there is eu structural funds activity that is focused on financial support to practical research projects promoting integration of the science and manufacturing for universities and research institutes activity no. 2.1.1.1. ‘support to science and research’ in the eu structural funds programming period 2007-2013. eu structural funds support provide the opportunity to employ highly educated scientific personnel for implementation of issn 1822–8402 european integration studies. 2011. no 5 30 practical research projects and develop innovative products and technologies influencing the changes in economic structure. the approved and contracted 123 projects (total expenditure 54.6 eur mil, including european regional development fund (erdf) co-finance 48.3 mil eur) are in accordance with the prior scientific directions of basic and applied research funding in latvia till 2013. the expected results of implementation of these projects are increase of internationally recognised scientific publications and increase of number of patents. 15 of 123 projects are accepted in 2010 and in the beginning of 2011 (only 12.0% of total expenditure and 8.6% of erdf co-finance) as projects in relation to economic activities which are implemented by private or state scientific institutions and/ or under the task of an entrepreneurs. low interest to prepare projects in relation to economic activity could be explained by lack of opportunity to provide co-finance (for projects not in relation to economic activities co-finance rate is 7.5% of total eligible costs including maximum 5% in-kind contribution as voluntary work, activities as professional nature, fixed assets and granted materials) and lack of collaboration with entrepreneurs (mezeniece et.al. 2010). according to regulation projects not related to economic activities are implemented by scientific institutions which perform the following primary activities scientific activities and distribution of the results of scientific activities in the form of knowledge and technology transfer. all profits which have been acquired upon implementation of these primary activities are reinvested into the primary activities. although the proportion of projects not related to economic activities is large, implementation length of projects are for average ¼ longer than in projects not related to economic activities, there are positive aspects including sustained effect. the certain amount of finance will flow in higher education and scientific institutions compensating reduced funding from state budget and highly educated scientific personnel would be attracted to implementation of innovative products and technologies increasing their competences and competitiveness. conclusions the demographic aspects in relation to economic development could be explained. due to labour emigration and law fertility rate, less labour will be released to the labour market and fewer resources would be accumulated for investment in economic development in latvia and one of the taken incentives is to increase retirement age. 15.4% of job seekers had attained higher education in 2010 what shows that country could not use educational investments efficiently. the employees in age group 25-39 have attained higher level of education tertiary education than employees in age-group 50-64 that could ensure further economic development according to theoretical approaches in which educated labour is better at creating, implementing, and adopting new technologies, thereby generating growth. innovative capacity is rooted in nation or region microeconomic environment and in the field such as the intensity of scientists and engineers in the workforce, but only 0.5% of labour in 2009 was employed in research in latvia. taking into account that latvia by european innovation scoreboard 2010 is among ‘modest innovators’ taking last place in eu-27 range and performance of latvia is estimated as well below of other countries of eu, more attention has to be focus on eliminating relative weaknesses in the nearest future. one of the opportunities to eliminate the weaknesses is efficient use of available eu structural funds to ensure investments in education and science. the statistical data have showed that labour is more used in final good sector not in research sector that produces technology, and the lowest added value to gdp per 1% of the labour was in agriculture and fishing caused by high proportion of labour allocated in this sector, but the highest proportion was in financial mediation and business activities. even if labour quality and technology could be identically to the average eu member states achieved, high proportion of industries that produce goods and services with relatively low added value in latvia could also become an obstacle to meet the maximum income level and technological innovation. simultaneously it could be an alert for economic restructuring through labour concentration in economic sectors. this work has been supported by the european social fund within the project ‘support for 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(2004), development of latvia’s population: presence and future. in: latvia in europe. visions of the future – riga, baltic center for strategic studies, latvian academy of sciences, pp. 258-275 regions 2020: an assessment of future challenges for eu regions (2008), commission of the european communities. on-line: http://ec.europa.eu/regional_ policy/sources/docoffic/working/regions2020/index_ en.htm the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 8 european integration studies no. 13 / 2019, pp. 8-17 doi.org/10.5755/j01.eis.0.13.23529 submitted 06/2019 accepted for publication 10/2019 participation of key stakeholders in science policy making in eu eis 13/2019 abstract participation of key stakeholders in science policy making in eu http://dx.doi.org/10.5755/j01.eis.0.13.23529 inga jekabsone "riseba" university college of business, arts and technology, latvia nowadays the importance of involvement of citizens in decision-making processes is underlined in most recent research on effectiveness of public administration. taking into consideration that development of science and research is fundamental for economic growth as well as sustainable development, the process of policy making in science should involve relevant stakeholders building effective relationships with key stakeholders. in case of eu, ministries responsible for science have developed smart specialization strategies for transformation of economies towards higher added value. for successful implementation of the strategies, ministries have identified different initiatives towards involvement of key stakeholders in science policy making. in circumstances of low public and private funding to research and development in eu-13, the communication with science community has been challenging. taking into account all mentioned before, the purpose of the study is to analyse the approaches on involvement of stakeholders in science policy making, especially in eu countries with relatively low budget for research and development. in order to achieve the purpose, the tasks are formulated as follows: 1 to review the theoretical background for involvement of stakeholders in science policy making in eu; 2 to analyse the best practice in ensuring the participation of key stakeholders in science policy making in eu, special focusing on case of latvia; 3 to provide the recommendations for the ministries in eu responsible for science in ensuring the participation of key stakeholders in policy making. research methods used: scientific literature studies, statistical data analysis, expert survey. the research showed that effective involvement of key stakeholders in science policy making process is topical challenge for policy makers in eu, especially in countries with low share of budget for research and development. successful strategy of involvement of key stakeholders in science policy includes effective communication at different levels, development of high-quality services as well as development of participatory administrative culture for civil servants. keywords: science policy, stakeholders, public administration, latvia policy-making is a complex interactive process, having many iterations, involving and impacting many stakeholders, and addressing intractable problems from a wide variety of topics (birkland, 2011). the policy-making practice is affected by a number of relatively recent developments – the potential for ubiquitous civic engagement, more and more government data being released in open formats around the world, experiments involving citizens in solving government problems through advice and challenge platforms, and commercially-ready techniques for gaming and simulation that provide a virtual space to explore various social and policy dynamics (jassen and helbig, 2018). introduction 9 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 participatory process in policy-making: theoretical framework in brief, ‘stakeholder participation’ refers to the inclusion of various stakeholders that can affect, or are affected by, the results of policy-making and decision-making processes. in general, a number of institutions and actors are invited to participate in such processes, for instance, civil society organisations/ ngos, business representatives, social partners (i.e. trade unions, chambers of commerce, etc.), sub-national authorities, academia and individual citizens (pisano, et. al. 2015). academic studies and policy statements lauding the benefits of participatory policy processes have made participation one of the most widely used concepts in development politics (reed, 2008, henning et al., 2019). beyond normative claims, pragmatic claims focus on higher quality and sustainability of political decisions arising from participatory policy processes (brody, 2003, blackstock et al., 2007). one critique is that stakeholder participation has not been meaningfully implemented by governments (siebold, 2007), with marginalized groups still being excluded from political decision-making or their involvement being limited to pure consultation (burton, 2004). the failure of participatory policy processes is explained by the fact that participating stakeholders lack the capacity and technical knowledge to make good political decisions (hage et al., 2010). in addition, many policy-makers are struggling to understand participatory governance in the midst of technological changes. advances in information and communication technologies (icts) continue to have an impact on the ways that policy-makers and citizens engage with each other throughout the policy-making process (jassen and helbig, 2018). it is widely recognized that advanced information and communication technologies (icts) have impacted the ways that policy-makers and citizens engage in the policy-making process (chadwick, 2003). in case of science policy-making, ministries responsible for science and research policy-making are facing challenges regarding involvement academia, industry and civil society in decision-making process in context of rather low investment in r&d, especially in eu-13. however, the focus on these matters in scientific research have not been made. in case of latvia (one of eu-13 member states), where expenditure in r&d consist 0.51% of gdp in 2017 (expenditure in r&d in the eu increased to 2.07% of gdp in 2017, while europe2020 objective is 3% (european cpmmission, 2019)) public administrators are facing with difficulties to involve relevant actors and ensure transparency and openness of the participatory process. taking into account all mentioned before, the purpose of the study is to analyse the approaches on involvement of stakeholders in science policy making, especially in eu countries with relatively low budget for research and development. in order to achieve the purpose, the tasks are formulated as follows: 1 to review the theoretical background for involvement of stakeholders in science policy making in eu; 2 to analyse the best practice in ensuring the participation of key stakeholders in science policy making in eu, special focusing on case of latvia; 3 to provide the recommendations for the ministries in eu responsible for science in ensuring the participation of key stakeholders in policy making. research methods used: scientific literature studies, statistical data analysis, expert survey. researchers and practitioners have formulated several key principles that describe effective participatory process (e.g. arbter et. al. 2007; duraiappah et al., 2005; hemmati, 2002): _ inclusion: stakeholders (representatives of interest groups or society) are involved during the participatory process; _ equal partnership: all stakeholders are participating on equal rights disregarding its’ sex, age, religion or status; e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 10 _ increasing knowledge: each stakeholder has special “knowledge” that he or she can share in order to increase common knowledge and understanding; _ transparency: the process of forming stakeholders group should be open and transparent, as well as all discussions; _ access to information: all participants should have the same access to documents and information; _ ownership: usually stakeholders has ownership of the results f they are actively involved in the process; _ sharing responsibility: each participant has shared responsibility of decisions made during the process; _ empowerment: process holder should inform all participants how much influence they have; _ process design: before the participatory process, the organiser (process holder) should plan all resources needed (e.g. personnel, budget) _ integrating in existing decision procedures: in the democracy there should be built a participatory framework with relevant procedures. the process principles outlined above can have different application practices in the policy process, depending on:(i) participation applied in the different policy hierarchy levels, (ii) the different forms of participation, (iii) the degree of participation, (iv) participation at the different political levels (vertical participation),(v) the breadth of participation and, (vi) the participation at different stages of the policy cycle (pisano, et. al. 2015). there are clear benefits for all parties involved (arbter et. al., 2007): _ politicians may get better understanding of that citizens want and what is their position regarding specific questions. in addition, these processes could also promote more democratic policy. _ public administrators are benefited as they have possibility to discuss issues with stakeholders and it would help in further steps of harmonization of document. in addition, participatory process also correlates with citizens’ trust in administration. _ business representatives may benefit from the participatory process as they can lobby their own perspectives. also, entrepreneurs can change their activities or strategy as they are informed about some processes before others. _ citizens or citizen representatives can demonstrate their position, ideas, concerns and opinions. they can influence the process and decisions. in addition, the citizens are informed about different processes. before the process during the process after the process creation of unrealistic expectations costs of resources, time and money stakeholder selection and legitimisation of stakeholder groups topics are too technical takeover of the process by dominant participants report on the outcomes of participatory processes figure 1 challenges of participatory processes (author‘s illustration based on arbter et. al., 2007; dalal-clayton and bass, 2002; unep, 2002; waylen et al. 2015) 11 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 during the process of stakeholders’ involvement there are many challenges to face with (see fig.1.). for example, during the preparation process, persons involved sometimes build an unrealistic expectation, that’s why it is important to communicate properly in advance all aspects of participatory process. also, it is usual mistake to discuss with stakeholders topics that are too technical and requires specific knowledge, e.g. discussing some legislative aspects. in addition, it should be taken into account that there must be some budget in order to organize meetings with stakeholders, like catering, accommodation, stationery. there are some cases when process holder decides to go the easiest way and invite stakeholders that are positively disposed avoiding discussing issues with negatively tuned citizens. however, the selection process should be based on transparency and openness. another challenge is misbalanced discussion process because of takeover by dominant participants. in these cases, process holder needs to ensure experienced moderator. at the end, it should be ensured that all outcomes of the discussions are reported. it is important that there is a feedback after discussions, so participants can follow the progress after participatory process. in case of research policy and involvement of stakeholders in policy planning, usually triple helix model has been called (see fig.2). the triple helix model offers a useful perspective to analyze the role of the collaboration between different social stakeholders in promoting local and regional conditions for the development of knowledge-based entrepreneurship (etzkowitz and leydesdorff, 2000). the main assumption of the triple helix model is that the interplay of relations among university, government and industry, which roles partially overlap, improves the conditions for innovation (champenois and etzkowitz, 2017). the triple helix and other derived models can be applied to different scales and types of innovation, ranging from incremental to more fundamental and social innovation, which makes them good analytical tools to understand the dynamics of knowledge-based development of regions (kolehmainenet et. al., 2016). regional or national research and innovation strategy for smart specialization design (self-)assessment steering group/ management team knowledge leadership group/ mirror group thematic/ project-specific groups implementation policy mix pilot projects roadmaps action plan monitoring monitoring and evaluation mechanism set of output and result indicators peer review civil society, actors of knowledge, international experts, enterprises, investors, public authorities and their agencies figure 2 triple helix model: cooperation between academia, industry and government (farinha et.al., 2016) in order to deal with facing major economic challenges, eu has set out its vision for europe's social market economy in the europe 2020 strategy, which aims to smart, inclusive and sustainable growth (european commission, 2010). in this policy context, eu has designed the framework for regions smart specialization supporting regional development. regions or member states has to develop regional/ national research and innovation strategies for smart specialisation (ris3) that are integrated, place-based economic transformation agendas. these strategies focus policy support and investments on key national/regional priorities, challenges and needs for knowle u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 12 edge-based development. in designing, implementing and monitoring of ris3 stakeholders must be fully involved and encourage innovation and experimentation (european commission, 2012). taking into account, that ris3 is based on a wide view of innovation, stakeholders of different types and levels should participate extensively in its design, implementation and monitoring. european commission has defined recommendations for the member states in order to ensure openness and transparency of participatory process. the analysts point that tripartite governance model based on the involvement of industry, education and research institutions, and government (the so-called triple helix model), is no longer enough in the context of smart specialisation innovation users or groups representing demand-side perspectives and consumers, relevant non-profit organisations representing citizens and workers should all be taken on board of the participatory process of ris3. in order to secure that all stakeholders own and share the strategy, governance schemes should allow for 'collaborative leadership', meaning that hierarchies in decision-making should be flexible enough in order to let each actor to have a role and eventually take the lead in specific phases of ris3 design, according to actors' characteristics, background, and capacities (european commission, 2012). involvement of stakeholders in science policymaking in context of participatory process in science policy-making, there are many potential roles of scientists in a science advisory ecosystem, for example scientists can be knowledge generators, knowledge synthesizers or knowledge brokers and policy evaluation (see table 1). in addition, scientists could be perceived as individuals or institutions, the government advisory boards, etc. table 1 different roles in a science advisory ecosystems knowledge generators knowledge synthesizers knowledge brokers policy evaluation individual academics +++ ++ + academic societies/ professional bodies + government employed practicing scientists +++ + ++ scientists within policy agencies ++ ++ ++ scientists within regulatory agency ++ ++ national academies +++ + ++ government advisory boards/ science councils ++ + science advisors to the executive government + ++++ science advice to legislators + ++ source: gluckman, 2018 according to gluckman (2018), individual academics and government employed practicing scientists could be excellent knowledge generators, national academies are good in knowledge synthesis, while science advisors to the executive government (ministries) and scientists within agencies could do knowledge brokerage, namely communicate different issues related to science policy. referring to the european commission’s recommendations, the participatory process should be ensured at all stages of ris3 – design, implementation and monitoring (see fig.3). different actors representing civic society and market should be involved in different management bodies of ris3. also they must participate in development of policy instruments within policy mix and 13 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 planning documents (action plans, roadmaps, etc.). in addition, stakeholders present at monitoring and evaluation process as well. regional or national research and innovation strategy for smart specialization design (self-)assessment steering group/ management team knowledge leadership group/ mirror group thematic/ project-specific groups implementation policy mix pilot projects roadmaps action plan monitoring monitoring and evaluation mechanism set of output and result indicators peer review civil society, actors of knowledge, international experts, enterprises, investors, public authorities and their agencies figure 3 participation and ownership model for ris3 (author‘s illustration based on european commission, 2012) during the implementation of interreg baltic sea programme project “baltic science network” (2016-2019), which aims to providing science and research ministries of the baltic sea region states with an overall coordination framework to develop and implement science, the research on so called widening countries (eu-13) was conducted. during the research, the aspect of participatory process at the ministries responsible for research policy was covered in context of ensuring effective communication channels with stakeholders. it was concluded that multi-stakeholder partnership is very important in order to effectively communicate with actors. in this case, development of participatory culture in administrative mechanisms should be ensured. project partners admitted that internationalization and good practice sharing on participatory instruments encourage development of participatory culture in public sector. ministries needs to develop communication strategy implementing multi-stakeholder approach in order to involve actors in policy-planning processes (lindroos and suomalainen, 2019). participatory process in ris3: case of latvia in case of latvia, the development of ris3 started at the end of 2014 involving wide range of stakeholders from academia, industry and civil society. ministry of education and science of latvia was a partner in before mention project “baltic science network” where through good practice sharing improved participatory processes. in depth analysis of case of latvia would be developed in next section. in case of latvia, the analytical unit of ris3 experts within the ministry of education and science has been established since 2018. based on semi-structural interviews with these experts as well as analysis of publicly available and experts’ provided data further would be analysed the participatory process of ris3 in latvia. in line with the guidelines on research, technology development, and innovation for 2014–2020 (ministry of education and science of republic of latvia, 2013b). ris3 aids in the discovery of competitive advantages, choice of strategic priorities and the selection of such policy instruments that unlock the highest potential for a knowledge-based state, thus ensuring the growth e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 14 of the national economy. pursuant to ris3 objectives, ris3 public investments programmes focus on strengthening innovation capacity of latvian national economy and reducing innovation obstacles (ministry of education and science of republic of latvia, 2013a). during the development phase of ris3, ministry of education and science initiated 8 discussions with stakeholders with the aim to assess the current situation, to identify the problems and challenges, to find the relevant sectorial specialization and to plan the necessary support instruments for the next programming period and ris3: 1 biomedicine, medical technology, biotechnology and bio-pharmacy; 2 smart materials, technology and engineering; 3 knowledge-intensive bio-economy; 4 smart energy; 5 information and communication technologies; 6 professional education; 7 higher education; 8 r&d&i system development. in 2014, 14 public discussions were organised attended by more than 500 representatives from scientific institutions, education institutions and industry associations. in these discussions it was concluded that the sectors of the national economy in latvia are characterized by a relatively high level of specialisation, therefore, specialisation as a whole is not a challenge for the national economy of latvia. latvian export-oriented enterprises are highly specialized and are constantly looking for specialization opportunities in niches and specific product sectors. one of the most important core principles for the implementation of the smart specialization strategy does not choose “winning sectors” or avoid selectivity. instead, the primary focus is on the creating a business environment that facilitates innovative activities and the development of human capital. one of the issues in these discussions was to identify the possible niches of the competitiveness within the framework of each specialization area (ministry of education and science of republic of latvia, 2018). at the end five smart specialization areas were defined: 1 knowledge-based bio-economics; 2 bio-medicine, medical technologies, bio-pharmacy and biotechnologies; 3 advanced materials, technologies, engineering systems; 4 smart energy; 5 smart energy (ministry of education and science of republic of latvia, 2013a). during the implementation stage of ris3, the discussions with stakeholders within each specialization area continued, for example during the development of policy-mix instruments. during the interviews, experts from analytical unit of ris3 admitted that they use different formal and informal instruments in order to ensure effective participatory process (see fig.4): _ formal instruments – formal harmonization of planning documents, participation as partners in join projects, organizing conferences, seminars, trainings for stakeholders, participation in working groups for development of policy planning documents and funding programmes, collecting data; _ informal instruments – regular meetings, calls and emails, participation in joint business trips, organizing joint communication events, etc. in addition, department for higher education, science and innovation focus on communication 15 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 regional or national research and innovation strategy for smart specialization design (self-)assessment steering group/ management team knowledge leadership group/ mirror group thematic/ project-specific groups implementation policy mix pilot projects roadmaps action plan monitoring monitoring and evaluation mechanism set of output and result indicators peer review civil society, actors of knowledge, international experts, enterprises, investors, public authorities and their agencies figure 4 approaches of the ministry of education and science of latvia in ensuring the participation process in policy-making (author‘s illustration based on semi-structured interviews with experts) conclusions activities with stakeholders by implementing a communication strategy (within european structural fund project “integrated national level measures to strengthen the representation of latvia's research and development interests in the european research area”). special attention is paid also to latvian researchers living and working abroad – for example, in 2018 iv world congress of latvian scientists gathering more than 750 participants form 24 countries was organized (ministry of education and science of latvia, 2018). in development and implementation of communication strategy stakeholders from academia, industry and civil society are participating. especially active is association of young scientists and association of latvian universities. _ stakeholder participation refers to the inclusion of various stakeholders that can affect, or are affected by, the results of policy-making and decision-making processes. research show that effective realization of stakeholder participation ensures society trust in policy-making, reduce the possibility of conflicts and improves the quality of planning documents. _ in case of science (or research) policy making, traditionally in theoretic framework researchers and administrators use modification of triple helix model, where interactions among academia, industry and government are illustrated. however, in order to deal with current mayor challenges new approaches needs to be developed. _ within eu, framework for smart specialization strategy has been developed in order to boost research and innovation in regions. the framework promotes the participatory process in all stages of development of strategies. _ in case of latvia, ministry of education and science ensured involvement of stakeholders in design, implementation and monitoring of smart specialization strategy. ministry has formed ris3 analytical unit that on daily basis develops ecosystems of specialization areas in close cooperation with relevant stakeholders. _ research in latvia showed that in order to implement effective participatory process, different range of formal and informal instruments needs to be used. very important is to communicate with stakeholders in daily basis, thereby developing participatory culture for civil servants. in addition, communication strategy including stakeholders in development and implementation of different evets is crucial par effective dialogue with society. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 16 arbter, k., handler, m., purker, e., tappeiner g., trattnigg, r. 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(2019). baltic science reference 17 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 network learning experiences. retrieved may 22, 2019, from http://www.baltic-science.org/index. php/publications ministry of education and science of latvia (2018). latvia's strength is its people and their knowledge is its virtue. retrieved may 22, 2019, from https://congress.sciencelatvia.lv/about-congress/?lang=en ministry of education and science of republic of latvia (2013a). the informative report "about the development of smart specialization strategy". retrieved may 23, 2019 from https://www.izm.gov.lv/images/ zinatne/ris3_eng/the_informative_report_development_of_ris3.pdf ministry of education and science of republic of latvia (2013b). zinātnes, tehnoloģijas attīstības un inovācijas pamatnostādnes 2014.-2020.gadam/ guidelines for science, technology development and innovation 2014-2020. retrieved may 23, 2019 from https://www. izm.gov.lv/images/zinatne/ztaip_2014-2020.pdf ministry of education and science of republic of latvia (2018). monitoring of smart specialization strategy: informative report. retrieved may 23, 2019 from https://www.izm.gov.lv/images/statistika/petijumi/ris3_progress-report_lv_2018.pdf pisano, u., lange, l.k., lepuschitzand, k., berger, g. (2015). the role of stakeholder participation in european sustainable development policies and strategies. esdn quarterly report no39. retrieved from https://www.sd-network.eu/quarterly%20reports/ report%20files/pdf/2015-december-the_role_of_ stakeholder_participation_in_european_sustainable_development_policies_and_strategies.pdf reed, m.s. (2008). stakeholder participation for environmental management: a literature review. biological conservation, 141, 2417-2431. https://doi. org/10.1016/j.biocon.2008.07.014 siebold, t. (2007). participation in prs processes a review of the international debate. stakeholder participation in poverty reduction duisburg. inef report, 86, 13-30. un (2002). guidance in preparing a national sustainable development strategy: managing sustainable development in the new millennium. new york: united nations. retrieved may 17, 2019, from https://sustainabledevelopment.un.org/content/ documents/nsds_guidance.pdf waylen, k.a., blackstock, k.l., marshall , k.b., dunglinson, j. (2015). participation-prescription tension in natural resource management: the case of diffuse pollution in scottish water management. environmental policy and governance, 25, 111-124. https://doi.org/10.1002/eet.1666 about the author jekabsone inga dr. sc. admin "riseba" university college of business, arts and technology 3 meza street, riga, lv-1048, latvia fields of interests public administration, social inclusion, citizens’ involvement address phone +371 27116147 e-mail: jekabsone_inga@inbox.lv e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 86 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 86-99 doi 10.5755/j01.eis.0.9.12798 © kaunas university of technology criteria for sustainability of oldage pension system based on the ndc principles eis 9/2015 abstract criteria for sustainability of old-age pension system based on the ndc principles http://dx.doi.org/10.5755/j01.eis.0.9.12798 inara dundure, maris pukis university of latvia. aspazijas blvd.5, lv -1050, riga, latvia the topicality of the research subject. the foundations of the old-age pension scheme based on notional accounts, also referred to as the “notional defined contribution” or “non-financial defined contribution” (ndc) old-age pension scheme, were laid in sweden in 1994, when the prevailing view was that a sustainable defined-contribution payg old-age pension scheme is impossible. since then, the ndc system modifications have been implemented in several countries; since 2000, this scheme is also part of the latvian pension system and works significantly better than the other part of the pension system the funded pension scheme. however, the sustainability of ndc scheme is still being questioned. to prevent the ndc pension system sustainability problems, the authors (pukis, m., & dundure, i., 2012) in their publication “the sustainability of the pension system in latvia” and (dundure, i., 2015), the article “sustainable old-age pension system by developing notional defined contribution pension scheme” have proposed a modified ndc model that provides sustainability of the pension system considering the known risks inherent in the pension system. the aim of the paper is to research and analyse the conditions for building a sustainable pension system by developing a notional defined contribution pension scheme and working out an adjusted (modified) old-age pension calculation formula. in order to achieve the above mentioned aim, the authors set the following tasks: _ define the old-age pension system based on ndc principles; _ define the primary objectives of pension systems and perform analysis of pension adequacy; _ define the conditions for achieving a sustainable old-age pension system based on ndc principles; _ develop an adjusted (modified) old-age pension calculation formula based on ndc principles. in order to achieve the established aim and tasks, the following scientific research methods have been used in the work: analytical method, comparative method, logically and abstractedly constructive method. the analytical method and the comparative method are employed for conducting pension adequacy analysis and examination of pension capital indexation and indexation of pensions after retirement, as well as for the purpose of studying the notional defined contribution pension system. the logically and abstractedly constructive method is employed for making forecasts and defining the main research results – the conditions for ensuring pension system sustainability that have been determined by the authors in the course of the research. the authors proved that by basing on the principle of generation solidarity and equity and through improvement of ndc pension calculation formula, it is possible to create the old-age pension system, which would be capable of excluding the old-age pension instability causes. keywords: sustainability of pension system, ndc, pension model. jel code: h55 87 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the old-age pension system should be financially stable (robust) in the changing demographic and economic environment and at the same time display cross-generational equity (fairness) and equity among various income groups by diversifying economic and demographic risks. scholars researching the pension sphere consider that the “non-financial defined contribution” (ndc) scheme has a number of advantages over paygo systems, one of these being stable. pension scheme of the ndc type ensures known level of fiscal stability because the promised profitability reflects the paygo characteristics, which form the basis of the programme rather than are based on the rate of return from investment operations on the market. the authors of the paper analyse the principles of operation of the ndc-based pension system. the paper highlights the primary goals of pension systems, the adequacy or sufficiency of the pension income and the provisions for ensuring sustainability of the pension system based on ndc principles. basing on the ndc structure, the principles of solidarity, equity and voluntariness as well as the defined provisions, the authors of the paper propose to introduce changes in the pension calculation method to ensure financial, political and social sustainability of the ndc old-age pension system. according to the proposed model, the virtual retirement system is used for calculation of the pension capital, where in the annual indexing not only the amount of tax that is assigned for old-age pensions is taken into account, but also the demographic changes (the changes in the number of the deceased and the new pensioners). the paper shows that it is possible to achieve political stability if the two conditions are met. first, in the same way as in another physical or notional models of the funded pension systems, the system needs to be supplemented with a minimum guaranteed pension for those individuals, who have not been able or have not been willing to accumulate pension capital. secondly, it is deemed necessary to keep explaining the motives for accumulation during the entire working life of a contributor. the paper demonstrates stability of the model in respect of the key known risks immanent to pension systems: introduction 1 the scheme is stable against the risk of aging population, because it provides a reasonable level of income regardless of demographic changes; 2 the scheme is stable against the economic crisis, because the proposed universal indexing allows to ensure improvement for all participants in equal measure; 3 the scheme is stable against the risk of default, because it stimulates each scheme participant to make the maximum contribution every year; 4 the system is stable against the insufficiency of the pension during the time after retirement, because the universal indexing procedure is equally applied to both the period of accumulation and the payout period; 5 the scheme stimulates an earlier start of the work life and later retirement, thus minimizing the amount of funding required to ensure sustainability of the system. the authors proved that by basing on the principle of generation solidarity and equity and through improvement of ndc pension calculation formula, it is possible to create the old-age pension system, which would be capable of excluding the old-age pension instability causes. the “notional accounts” old-age pension schemes the so-called “notional contribution” or „nonfinancial defined contribution” (ndc) old-age pension schemes were first introduced in sweden in 1994, at the time when it was predominantly considered that a sustainable defined contribution payg old-age pension scheme is hardly ever possible to achieve. the new notional accounts old-age pension scheme proved that it is still possible to build a sustainable old-age pension system that would be based on payg principle. ten years later, being encouraged by sweden’s example many other countries introduced a new ndc model. in latvia, the ndc reform was formulated and provided a legal basis on the 1st of description of the notional defined contribution (ndc) old-age pension scheme e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 88 january, 1996; in italy the ndc scheme was introduced in 1995; poland also started its ndc reform in 1999. ndc can be also found in the reformed pension systems of other countries, for example, in 2002 the ndc pension scheme was introduced in russian federation, norway and kyrgyzstan (holzmann, r., & palmer, e., 2003). similar to any old-age pension system, upon joining the ndc old-age pension scheme, a participant goes through the two phases, which approximately correspond to the periods of work and retirement. during the period of work an individual’s payroll tax is transferred to the virtual account. similar to an individual account within the framework of the actual dc scheme, a certain value is set to a virtual account within the ndc scheme, which increases every year thanks to the made contributions and the interest yield, accrued on the account balance. unlike the balance of funds on an individual account under the dc plan, the ndc individual accounts are notional because the financial information on the accruals is virtual and the rate of return is based on the internal growth rate of the system. when a person retires, he/she receives a pension benefit (annuity), which is based on the notional accrued pension amount at the time of retirement (auerbach, a.j. & lee, r., 2006). social insurance contributions made by the employed in a certain year are used to pay out oldage pensions to existing retirees. the government defines the contribution rate applicable to the employment and self-employment earnings by observing the following principle: the contribution rate for all generations is the same and the contributions are made either by individuals or by the employers in the name of such individuals. the age, at which individuals become entitled to use the accumulated notional capital upon retirement, i.e., to receive fixed pension payments (annuities) from the pension plan, differs in different countries. the rules for paying out annuities are dependent on the mortality rate at the time when a certain generation reaches the age of retirement stipulated by legislation (for example, 65 years), and on the interest yield earned by a particular pension plan, which may be accrued at the same rate that was used during the pre-retirement accumulation phase. researchers, holzmann, r., palmer, e. & robalino, d., et.al., (2012), who study pension sphere, consider that the ndc scheme possesses a number of potential advantages over paygo systems, and one of these is stability. a pension scheme of a ndc type ensures a fair level of financial stability because the promised yield reflects the paygo characteristics, which form the programme basis, rather than is based on the rates of return obtained from investment operations on the market. the aim of the ndc system is to imitate a funded dc system structure, and, at the same time, to ensure financial stability by using a relevant internal rate of return (keeping in mind also the context of a fragile situation), rather than the market rate of return. in order to ensure political sustainability of the pension system – adherence to the principals of pension adequacy and equity towards members of the community international organisations and national lawmakers advocate the policy shift away from the payg system towards the private, primarily pre-paid pensions. that is mainly supported by economic considerations about the fiscal austerity of financial sustainability of the ageing community and promotion of the development of financial and capital markets in order to facilitate economic growth. as a result of pension reform, over the recent decades the size of the state pension has decreased, the pension qualification age has been raised and privately funded pensions became more widely promoted. however, schludi, m., (2005) being affected by the economic and financial crisis, the majority of the eu member states experienced an economic downslide or economic recession followed by an increase in social expenditure. the state budget deficit (and debts) only further increased the pressure on pension schemes, because these had to be at least partially financed from the state budget. primary objectives of pension systems and the essence and objectives of pension adequacy 89 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 natali, d., (2010) writings about pension policies demonstrate agreement of the opinion on the fact that pension programmes (both in the state and private sector) are not protected from the aftermath of economic downslide and financial crisis. when analysing the implemented pension reforms, the authors of the article came to the conclusion that, although the reforms sought to promote sustainability, the adequacy of the retirement income or pension sufficiency is pretty often being neglected and does not become the subject of public debate, mainly for the reason that poverty in the old age no longer seems a pressing issue in the european countries with advanced welfare systems. although the level of poverty and the inequality of incomes differ in various european countries, at large, they demonstrate a tendency to grow in many places the state pensions continue to decrease in size, whereas reliance on voluntary contributions in private pension funds is increasing. financial crisis of 2000 and the financial tumbledown of 2008-2009 brought to the surface the problems related to funded pensions – their inability to provide the expected yield. these changes brought out the key points concerning the growing role of private pensions: whether retreat from the public (state) responsibility leads to a higher private initiative, which is supposed to fill in the future old-age income gaps? to what extent the risk of ensuring the retirement income is transferred upon an individual, and whether the inequality of incomes will continue to grow? if we look back at the primary goals of the pension system, then, according to holzman, r., hinz, r.p., & dorfman, m., (2008) the primary goals of any pension system should be to provide adequate, affordable, sustainable, fair and predictable old-age pension, while seeking for the possibilities to maximise the overall community welfare in a manner appropriate to the individual country. an adequate system is one which provides benefits to the full breadth of the population that are sufficient to prevent old age poverty on a country specific absolute level in addition to providing a reliable means to smooth lifetime consumption for the vast majority of the population. the essence of pension adequacy in the eu pension policy documents is determined in the following way: securely financed adequate income that does not destabilise public finances or impose excessive burden upon future generations, while maintaining fairness and solidarity and responding to the changing needs of individuals and society (social protection committee, 2000). eu member states have undertaken to ensure adequate and sustainable pensions guaranteeing appropriate pension arrangements for all individuals and the opportunity to receive the pension that would allow them to maintain the reasonable living standards after retirement in accordance with the principles of intergenerational solidarity and fairness. the european commission (2001) defines the following pension adequacy objectives: the pension system should ensure that all older people enjoy a decent living standard, share in the economic well-being of their country and participate actively in public, social and cultural life. after retirement due to old age or invalidity or in case of a breadwinner loss, maintain the living standard of an individual’s choice, by providing to all individuals access to proper pension arrangements. these objectives european commission (2003) were further specified as: _ preventing social exclusion; _ enabling people to maintain the accustomed living standards, and _ promoting solidarity between generations. the council of the european union (2001) singles out the three basic principles for ensuring the long-term sustainability of pension system, which are adequacy, financial sustainability and adaptability to change. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 90 borella, m., & fornero, e., (2009) suggested that it is important to build a proper and fair relation between contributions and benefits since the sufficiency of income is the key objective of pension system. whereas, the uk pension institute researchers redwood, d., carrera, l., armstrong, j., & pennanen, t. (2013) with reference to retirement income express an opinion that there are two major definitions of adequacy: first, to what extent does the pension income enable individuals to meet their basic needs at retirement, and, second, to what extent the pension income is able to ensure the living standard compared to the income received during the working life. while the first definition is given in order to apply the minimum guaranteed income standards and prevent the risks of poverty in the old age, the second definition is designed to evaluate the adequacy by analysing the replacement rate. for evaluation of the pension income adequacy the authors use one of the dimensions – the wage replacement rate. there is one matter, which does not cause any controversy of opinion the pension system should be build in a way to protect individuals from poverty, as well as to enable them to maintain their former living standards. based on the conducted analysis and performed computations, the authors concluded that the replacement rate (%) in latvia for the newly awarded pensions in relation to the average insurance contribution wages was 38% in 2007, 44% in 2008, 60% in 2009, 64% in 2010, 58% in 2011, 52% in 2012 and 38% in 2013. studies of the replacement rate in latvia in the context of the influence of all the three levels lead the authors -pukis, m. & dundure, i. (2012) to the conclusion that given the existing pension system in latvia the theoretical replacement rate of 70% for the old-age pensions in latvia in reality is an unattainable objective. for a sustainable pension system it is necessary to ensure that senior citizens would not be affected by the poverty risk and could enjoy a decent living standard. an old-age pension system must be financially stable in a changing demographic and economic climate, and at the same time it should create fairness among generations and income groups by diversifying the economic, financial and demographic risks. the basic building block of political sustainability of the pension system is adherence to the principle of fairness (equity) towards community members. in theory, a fair pension system is the one, which ensures redistribution of income from the financially robust in favour of the poor in accordance with the society priorities, furthermore, does that in such a way so that no burden is laid upon the rest of the community members, who do not participate in the system. the principle of fairness (equity) is also ensured by a direct link between the contributions and the pension level within the context of ndc, since individuals are rewarded with a higher pension for every additional contributed monetary unit. contribution of each insubstantial unit creates equal pension rights. this principle that ensures horizontal equality is at the root of ndc representation, which implies that it is based on the principle of fairness (equity). on the macroeconomic level, fairness with respect to future generations and long-term financial stability are dependent on the real-life system build-up (structure) and the system’s susceptibility to demographic and economic changes. a well-functioning institutional system is also fundamental for a stable pension system, i.e., the government plays a significant role in any pension system. all pension systems to a large extent depend on the technical capacity of the public sector. as for the ndc pension system holzmann, r. & palmer, e. (2003) argue that it includes the ability to collect taxes and contributions, the ability to track the mobility of employees and, what is most important, the ability to monitor the contributions over a long time period and to forecast the volume of further contributions and benefits with a sufficient accuracy. conditions for achieving sustainability of the oldage pension system based on ndc principles 91 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 ndc pension schemes may achieve the desired results only on the provision that the system is well developed and implemented in the right manner, by providing: _ economic stimuli to individuals to stay on the labour market; _ flexibility in making retirement decisions; _ visibility (predictability) of distribution; _ motivation to pay taxes; _ mechanisms, which ensure financial equilibrium; _ stability amid the economic crisis; _ ability to withstand the impact of demographic changes; _ observation of the principle of fairness (equity) and solidarity. proceeding from the ndc structure, the principles of solidarity, fairness and voluntariness and the above mentioned provisions, the authors of the article propose to introduce changes in the method of calculating pensions to ensure long-term financial, political and social sustainability of the ndc old-age pension system. in development of the new formula for calculating the old-age retirement benefits the authors proceed from the ndc pension system operation principles. specifically, for each contributor payer of social insurance an individual account is established, which registers information on paid contributions. interest income is accrued on the account balances, and a pension plan announces the amount of interest yield on an annual basis. notional contributions are paid into the mentioned accounts throughout the lifetime, thus reflecting the actual taxes and payments. together with the announced yield the notional contributions make up the value of such account at any given point of time. this information enables to perform calculation of the appropriate size of an individual’s pension benefit at the time of retirement. the basic elements of the proposed model are similar to that of swedish and latvian ndc model, however a range of peculiarities of the suggested solution allows to prevent all currently known instabilities against internal or external factors. describing the proposed model with the help of the formulas, the authors chose a number of description principles: modified (adjusted) old-age pension calculation formula based on ndc principles 1 small letters define an individual pension-er or an individual contributor; 2 capital letters define the figure country wise; 3 small indexes define the year or the ordi-nal number; 4 superscripted indexes are not meant for summing up or multiplying, these are applied for characterisation purpose only. further description refers solely to the old-age pension accrued within the ndc system. sources of the social (minimum) pension benefit, which should be provided in any case, are not reviewed, because there always be found certain individuals, who failed to accrue virtual pension. in the consecutive year marked with the index k, a payer of social tax (payroll tax) pays a certain amount deductible from his tax, which is directed to old-age pension: where the notations used are: s ik – i-th payer’s contribution in the k-th year; w ik – i-th payer’s taxable income (wage) in the k-th year; (1) 5 in the consecutive year marked with the index k, a payer of social tax (payroll tax) pays a certain amount deductible from his tax, which is directed to old-age pension: ikik lws = (1) (all formulas, except the fourth, created by authors dundure, i.,& pukis, m., (2015)) where the notations used are: sik – i-th payer's contribution in the k-th year; wik – i-th payer's taxable income (wage) in the k-th year; l – the contribution rate applied to taxable income directed to old-age pension (in latvia's case the rate l=20% is applied to those, who do not participate in the creation of the funded pension). the total contribution during a year is the sum of all payments performed by the payers in that year sk. this amount in the consecutive year can be forecasted with a pretty high level of accuracy. in contrast to other ndc models, here we introduced the equilibrium (balance) of contributions and payoffs. kk sp = (2) whereas pk is the amount of pension in the k-th year, which consists of individual pensioners' old-age pensions. formula (2), unlike the generally accepted payment procedure, shows the volatile nature of the amount of pensions in payment: depending on the aggregate contributions and the change in the number of pensioners, the size of the pension calculated for each consecutive year’s changes. if the volume of contributions by working individuals grows, the earlier calculated pension may go up as well, and vice versa. with the decrease of the contributed amount, the size of the pension would also decrease. until now, the traditional view was that an individual has "earned" a particular pension amount. in such a case the pension changes alongside with the changing amount earned by the respective generation of wage earners. in the proposed model, similar to other ndc models, every ith payer of social tax accumulates the pension capital from year to year, increasing it by means of his contributions sik, however, the earlier contributed sum is indexed. the novelty is the introduction of a general-purpose index ik, which can be equally applied to pension capital accumulation and for indexing earlier awarded old-age pensions. pension capital of an i-th taxpayer is accumulated every year by the following formula ikikkki skik += ++ 11, (3) where the notations used are: ki,k+1 the ith pensioner's pension capital in the forecasted year; ik+1 the general-purpose (universal) index forecasted for the kth year; kik the ith pensioner's pension capital in the kth year; sik the ith contributor's payment in the kth year. pension in the year of retirement d is calculated by the formula i i id g k p = (4) (formula (4) in accordance with article 12 of the law "on state pensions“, latvia.) where the notations used are: pid ith pensioner's pension in the year of retirement; ki – ith pensioner's accrued pension capital in the year of retirement; gi – ith pensioner's forecasted average life expectancy in the year of retirement is a function of age and statistical data for a particular year. from now forth the pension is indexed by the formula: kikki pip ,11, ++ = (5) where the notations used are: pi,k+1 the ith pensioner's pension in the k+1th year (forecast); ik+1 a general-purpose (universal) index in the k+1th year; pi,k the ith pensioner's pension in the kth year. annually indexed pension in the n-th year after retirement (6) where the notations used are: pi,d+n -the ipensioner's pension in the year n-th year after retirement; pid ith pensioner's pension in the year of retirement; im the universal index. the annual general-purpose (universal) index is calculated by the formula: )k k k k s s i α−= − 1( 1 (7) where the notations used are: sk the sum of social insurance contributions in the kth year; sk-1 – the sum of social insurance contributions in the preceding year; the value αk is determined by taking into account the solidarity provision (2) and the changes in the number of pensioners in the kth year, i.e., the pension benefits unpaid to deceased pensioners in a certain year and pensions in payment to new pensioners in the same year are taken into consideration. although the value of αk is small, still, it does reflect demographic changes. the αk value is calculated in the following way:       δ −       δ − −= −1 1 1 1 k j k k m k k p p p p α (8) where the particular expenditure items are forecasted every year: m kpδ pensions unpaid to deceased pensioners in the kth year; (all formulas, except the fourth, created by authors dundure, i.,& pukis, m., (2015)) l – the contribution rate applied to taxable income directed to old-age pension (in latvia’s case the rate l=20% is applied to those, who do not participate in the creation of the funded pension). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 92 the total contribution during a year is the sum of all payments performed by the payers in that year s k. this amount in the consecutive year can be forecasted with a pretty high level of accuracy. in contrast to other ndc models, here we introduced the equilibrium (balance) of contributions and payoffs. whereas p k is the amount of pension in the k-th year, which consists of individual pensioners’ old-age pensions. where the notations used are: k i,k+1 – the ith pensioner’s pension capital in the forecasted year; (formula (4) in accordance with article 12 of the law “on state pensions“, latvia.) (2) (3) (4) 5 in the consecutive year marked with the index k, a payer of social tax (payroll tax) pays a certain amount deductible from his tax, which is directed to old-age pension: ikik lws = (1) (all formulas, except the fourth, created by authors dundure, i.,& pukis, m., (2015)) where the notations used are: sik – i-th payer's contribution in the k-th year; wik – i-th payer's taxable income (wage) in the k-th year; l – the contribution rate applied to taxable income directed to old-age pension (in latvia's case the rate l=20% is applied to those, who do not participate in the creation of the funded pension). the total contribution during a year is the sum of all payments performed by the payers in that year sk. this amount in the consecutive year can be forecasted with a pretty high level of accuracy. in contrast to other ndc models, here we introduced the equilibrium (balance) of contributions and payoffs. kk sp = (2) whereas pk is the amount of pension in the k-th year, which consists of individual pensioners' old-age pensions. formula (2), unlike the generally accepted payment procedure, shows the volatile nature of the amount of pensions in payment: depending on the aggregate contributions and the change in the number of pensioners, the size of the pension calculated for each consecutive year’s changes. if the volume of contributions by working individuals grows, the earlier calculated pension may go up as well, and vice versa. with the decrease of the contributed amount, the size of the pension would also decrease. until now, the traditional view was that an individual has "earned" a particular pension amount. in such a case the pension changes alongside with the changing amount earned by the respective generation of wage earners. in the proposed model, similar to other ndc models, every ith payer of social tax accumulates the pension capital from year to year, increasing it by means of his contributions sik, however, the earlier contributed sum is indexed. the novelty is the introduction of a general-purpose index ik, which can be equally applied to pension capital accumulation and for indexing earlier awarded old-age pensions. pension capital of an i-th taxpayer is accumulated every year by the following formula ikikkki skik += ++ 11, (3) where the notations used are: ki,k+1 the ith pensioner's pension capital in the forecasted year; ik+1 the general-purpose (universal) index forecasted for the kth year; kik the ith pensioner's pension capital in the kth year; sik the ith contributor's payment in the kth year. pension in the year of retirement d is calculated by the formula i i id g k p = (4) (formula (4) in accordance with article 12 of the law "on state pensions“, latvia.) where the notations used are: pid ith pensioner's pension in the year of retirement; ki – ith pensioner's accrued pension capital in the year of retirement; gi – ith pensioner's forecasted average life expectancy in the year of retirement is a function of age and statistical data for a particular year. from now forth the pension is indexed by the formula: kikki pip ,11, ++ = (5) where the notations used are: pi,k+1 the ith pensioner's pension in the k+1th year (forecast); ik+1 a general-purpose (universal) index in the k+1th year; pi,k the ith pensioner's pension in the kth year. annually indexed pension in the n-th year after retirement (6) where the notations used are: pi,d+n -the ipensioner's pension in the year n-th year after retirement; pid ith pensioner's pension in the year of retirement; im the universal index. the annual general-purpose (universal) index is calculated by the formula: )k k k k s s i α−= − 1( 1 (7) where the notations used are: sk the sum of social insurance contributions in the kth year; sk-1 – the sum of social insurance contributions in the preceding year; the value αk is determined by taking into account the solidarity provision (2) and the changes in the number of pensioners in the kth year, i.e., the pension benefits unpaid to deceased pensioners in a certain year and pensions in payment to new pensioners in the same year are taken into consideration. although the value of αk is small, still, it does reflect demographic changes. the αk value is calculated in the following way:       δ −       δ − −= −1 1 1 1 k j k k m k k p p p p α (8) where the particular expenditure items are forecasted every year: m kpδ pensions unpaid to deceased pensioners in the kth year; formula (2), unlike the generally accepted payment procedure, shows the volatile nature of the amount of pensions in payment: depending on the aggregate contributions and the change in the number of pensioners, the size of the pension calculated for each consecutive year’s changes. if the volume of contributions by working individuals grows, the earlier calculated pension may go up as well, and vice versa. with the decrease of the contributed amount, the size of the pension would also decrease. until now, the traditional view was that an individual has “earned” a particular pension amount. in such a case the pension changes alongside with the changing amount earned by the respective generation of wage earners. in the proposed model, similar to other ndc models, every i-th payer of social tax accumulates the pension capital from year to year, increasing it by means of his contributions s ik, however, the earlier contributed sum is indexed. the novelty is the introduction of a general-purpose index i k , which can be equally applied to pension capital accumulation and for indexing earlier awarded old-age pensions. pension capital of an i-th taxpayer is accumulated every year by the following formula 5 in the consecutive year marked with the index k, a payer of social tax (payroll tax) pays a certain amount deductible from his tax, which is directed to old-age pension: ikik lws = (1) (all formulas, except the fourth, created by authors dundure, i.,& pukis, m., (2015)) where the notations used are: sik – i-th payer's contribution in the k-th year; wik – i-th payer's taxable income (wage) in the k-th year; l – the contribution rate applied to taxable income directed to old-age pension (in latvia's case the rate l=20% is applied to those, who do not participate in the creation of the funded pension). the total contribution during a year is the sum of all payments performed by the payers in that year sk. this amount in the consecutive year can be forecasted with a pretty high level of accuracy. in contrast to other ndc models, here we introduced the equilibrium (balance) of contributions and payoffs. kk sp = (2) whereas pk is the amount of pension in the k-th year, which consists of individual pensioners' old-age pensions. formula (2), unlike the generally accepted payment procedure, shows the volatile nature of the amount of pensions in payment: depending on the aggregate contributions and the change in the number of pensioners, the size of the pension calculated for each consecutive year’s changes. if the volume of contributions by working individuals grows, the earlier calculated pension may go up as well, and vice versa. with the decrease of the contributed amount, the size of the pension would also decrease. until now, the traditional view was that an individual has "earned" a particular pension amount. in such a case the pension changes alongside with the changing amount earned by the respective generation of wage earners. in the proposed model, similar to other ndc models, every ith payer of social tax accumulates the pension capital from year to year, increasing it by means of his contributions sik, however, the earlier contributed sum is indexed. the novelty is the introduction of a general-purpose index ik, which can be equally applied to pension capital accumulation and for indexing earlier awarded old-age pensions. pension capital of an i-th taxpayer is accumulated every year by the following formula ikikkki skik += ++ 11, (3) where the notations used are: ki,k+1 the ith pensioner's pension capital in the forecasted year; ik+1 the general-purpose (universal) index forecasted for the kth year; kik the ith pensioner's pension capital in the kth year; sik the ith contributor's payment in the kth year. pension in the year of retirement d is calculated by the formula i i id g k p = (4) (formula (4) in accordance with article 12 of the law "on state pensions“, latvia.) where the notations used are: pid ith pensioner's pension in the year of retirement; ki – ith pensioner's accrued pension capital in the year of retirement; gi – ith pensioner's forecasted average life expectancy in the year of retirement is a function of age and statistical data for a particular year. from now forth the pension is indexed by the formula: kikki pip ,11, ++ = (5) where the notations used are: pi,k+1 the ith pensioner's pension in the k+1th year (forecast); ik+1 a general-purpose (universal) index in the k+1th year; pi,k the ith pensioner's pension in the kth year. annually indexed pension in the n-th year after retirement (6) where the notations used are: pi,d+n -the ipensioner's pension in the year n-th year after retirement; pid ith pensioner's pension in the year of retirement; im the universal index. the annual general-purpose (universal) index is calculated by the formula: )k k k k s s i α−= − 1( 1 (7) where the notations used are: sk the sum of social insurance contributions in the kth year; sk-1 – the sum of social insurance contributions in the preceding year; the value αk is determined by taking into account the solidarity provision (2) and the changes in the number of pensioners in the kth year, i.e., the pension benefits unpaid to deceased pensioners in a certain year and pensions in payment to new pensioners in the same year are taken into consideration. although the value of αk is small, still, it does reflect demographic changes. the αk value is calculated in the following way:       δ −       δ − −= −1 1 1 1 k j k k m k k p p p p α (8) where the particular expenditure items are forecasted every year: m kpδ pensions unpaid to deceased pensioners in the kth year; pension in the year of retirement d is calculated by the formula i k+1 – the general-purpose (universal) index forecasted for the kth year; k ik – the ith pensioner’s pension capital in the kth year; s ik – the ith contributor’s payment in the kth year. 5 in the consecutive year marked with the index k, a payer of social tax (payroll tax) pays a certain amount deductible from his tax, which is directed to old-age pension: ikik lws = (1) (all formulas, except the fourth, created by authors dundure, i.,& pukis, m., (2015)) where the notations used are: sik – i-th payer's contribution in the k-th year; wik – i-th payer's taxable income (wage) in the k-th year; l – the contribution rate applied to taxable income directed to old-age pension (in latvia's case the rate l=20% is applied to those, who do not participate in the creation of the funded pension). the total contribution during a year is the sum of all payments performed by the payers in that year sk. this amount in the consecutive year can be forecasted with a pretty high level of accuracy. in contrast to other ndc models, here we introduced the equilibrium (balance) of contributions and payoffs. kk sp = (2) whereas pk is the amount of pension in the k-th year, which consists of individual pensioners' old-age pensions. formula (2), unlike the generally accepted payment procedure, shows the volatile nature of the amount of pensions in payment: depending on the aggregate contributions and the change in the number of pensioners, the size of the pension calculated for each consecutive year’s changes. if the volume of contributions by working individuals grows, the earlier calculated pension may go up as well, and vice versa. with the decrease of the contributed amount, the size of the pension would also decrease. until now, the traditional view was that an individual has "earned" a particular pension amount. in such a case the pension changes alongside with the changing amount earned by the respective generation of wage earners. in the proposed model, similar to other ndc models, every ith payer of social tax accumulates the pension capital from year to year, increasing it by means of his contributions sik, however, the earlier contributed sum is indexed. the novelty is the introduction of a general-purpose index ik, which can be equally applied to pension capital accumulation and for indexing earlier awarded old-age pensions. pension capital of an i-th taxpayer is accumulated every year by the following formula ikikkki skik += ++ 11, (3) where the notations used are: ki,k+1 the ith pensioner's pension capital in the forecasted year; ik+1 the general-purpose (universal) index forecasted for the kth year; kik the ith pensioner's pension capital in the kth year; sik the ith contributor's payment in the kth year. pension in the year of retirement d is calculated by the formula i i id g k p = (4) (formula (4) in accordance with article 12 of the law "on state pensions“, latvia.) where the notations used are: pid ith pensioner's pension in the year of retirement; ki – ith pensioner's accrued pension capital in the year of retirement; gi – ith pensioner's forecasted average life expectancy in the year of retirement is a function of age and statistical data for a particular year. from now forth the pension is indexed by the formula: kikki pip ,11, ++ = (5) where the notations used are: pi,k+1 the ith pensioner's pension in the k+1th year (forecast); ik+1 a general-purpose (universal) index in the k+1th year; pi,k the ith pensioner's pension in the kth year. annually indexed pension in the n-th year after retirement (6) where the notations used are: pi,d+n -the ipensioner's pension in the year n-th year after retirement; pid ith pensioner's pension in the year of retirement; im the universal index. the annual general-purpose (universal) index is calculated by the formula: )k k k k s s i α−= − 1( 1 (7) where the notations used are: sk the sum of social insurance contributions in the kth year; sk-1 – the sum of social insurance contributions in the preceding year; the value αk is determined by taking into account the solidarity provision (2) and the changes in the number of pensioners in the kth year, i.e., the pension benefits unpaid to deceased pensioners in a certain year and pensions in payment to new pensioners in the same year are taken into consideration. although the value of αk is small, still, it does reflect demographic changes. the αk value is calculated in the following way:       δ −       δ − −= −1 1 1 1 k j k k m k k p p p p α (8) where the particular expenditure items are forecasted every year: m kpδ pensions unpaid to deceased pensioners in the kth year; from now forth the pension is indexed by the formula: where the notations used are: p id – ith pensioner’s pension in the year of retirement; k i – ith pensioner’s accrued pension capital in the year of retirement; g i – ith pensioner’s forecasted average life expectancy in the year of retirement is a function of age and statistical data for a particular year. where the notations used are: p i,k+1 – the ith pensioner’s pension in the k+1th year (forecast); (5) 5 in the consecutive year marked with the index k, a payer of social tax (payroll tax) pays a certain amount deductible from his tax, which is directed to old-age pension: ikik lws = (1) (all formulas, except the fourth, created by authors dundure, i.,& pukis, m., (2015)) where the notations used are: sik – i-th payer's contribution in the k-th year; wik – i-th payer's taxable income (wage) in the k-th year; l – the contribution rate applied to taxable income directed to old-age pension (in latvia's case the rate l=20% is applied to those, who do not participate in the creation of the funded pension). the total contribution during a year is the sum of all payments performed by the payers in that year sk. this amount in the consecutive year can be forecasted with a pretty high level of accuracy. in contrast to other ndc models, here we introduced the equilibrium (balance) of contributions and payoffs. kk sp = (2) whereas pk is the amount of pension in the k-th year, which consists of individual pensioners' old-age pensions. formula (2), unlike the generally accepted payment procedure, shows the volatile nature of the amount of pensions in payment: depending on the aggregate contributions and the change in the number of pensioners, the size of the pension calculated for each consecutive year’s changes. if the volume of contributions by working individuals grows, the earlier calculated pension may go up as well, and vice versa. with the decrease of the contributed amount, the size of the pension would also decrease. until now, the traditional view was that an individual has "earned" a particular pension amount. in such a case the pension changes alongside with the changing amount earned by the respective generation of wage earners. in the proposed model, similar to other ndc models, every ith payer of social tax accumulates the pension capital from year to year, increasing it by means of his contributions sik, however, the earlier contributed sum is indexed. the novelty is the introduction of a general-purpose index ik, which can be equally applied to pension capital accumulation and for indexing earlier awarded old-age pensions. pension capital of an i-th taxpayer is accumulated every year by the following formula ikikkki skik += ++ 11, (3) where the notations used are: ki,k+1 the ith pensioner's pension capital in the forecasted year; ik+1 the general-purpose (universal) index forecasted for the kth year; kik the ith pensioner's pension capital in the kth year; sik the ith contributor's payment in the kth year. pension in the year of retirement d is calculated by the formula i i id g k p = (4) (formula (4) in accordance with article 12 of the law "on state pensions“, latvia.) where the notations used are: pid ith pensioner's pension in the year of retirement; ki – ith pensioner's accrued pension capital in the year of retirement; gi – ith pensioner's forecasted average life expectancy in the year of retirement is a function of age and statistical data for a particular year. from now forth the pension is indexed by the formula: kikki pip ,11, ++ = (5) where the notations used are: pi,k+1 the ith pensioner's pension in the k+1th year (forecast); ik+1 a general-purpose (universal) index in the k+1th year; pi,k the ith pensioner's pension in the kth year. annually indexed pension in the n-th year after retirement (6) where the notations used are: pi,d+n -the ipensioner's pension in the year n-th year after retirement; pid ith pensioner's pension in the year of retirement; im the universal index. the annual general-purpose (universal) index is calculated by the formula: )k k k k s s i α−= − 1( 1 (7) where the notations used are: sk the sum of social insurance contributions in the kth year; sk-1 – the sum of social insurance contributions in the preceding year; the value αk is determined by taking into account the solidarity provision (2) and the changes in the number of pensioners in the kth year, i.e., the pension benefits unpaid to deceased pensioners in a certain year and pensions in payment to new pensioners in the same year are taken into consideration. although the value of αk is small, still, it does reflect demographic changes. the αk value is calculated in the following way:       δ −       δ − −= −1 1 1 1 k j k k m k k p p p p α (8) where the particular expenditure items are forecasted every year: m kpδ pensions unpaid to deceased pensioners in the kth year; i k+1 – a general-purpose (universal) index in the k+1th year; p i,k – the ith pensioner’s pension in the kth year. 93 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 annually indexed pension in the n-th year after retirement where the notations used are: p i,d+n -the ipensioner’s pension in the year n-th year after retirement; (6) the annual general-purpose (universal) index is calculated by the formula: 5 in the consecutive year marked with the index k, a payer of social tax (payroll tax) pays a certain amount deductible from his tax, which is directed to old-age pension: ikik lws = (1) (all formulas, except the fourth, created by authors dundure, i.,& pukis, m., (2015)) where the notations used are: sik – i-th payer's contribution in the k-th year; wik – i-th payer's taxable income (wage) in the k-th year; l – the contribution rate applied to taxable income directed to old-age pension (in latvia's case the rate l=20% is applied to those, who do not participate in the creation of the funded pension). the total contribution during a year is the sum of all payments performed by the payers in that year sk. this amount in the consecutive year can be forecasted with a pretty high level of accuracy. in contrast to other ndc models, here we introduced the equilibrium (balance) of contributions and payoffs. kk sp = (2) whereas pk is the amount of pension in the k-th year, which consists of individual pensioners' old-age pensions. formula (2), unlike the generally accepted payment procedure, shows the volatile nature of the amount of pensions in payment: depending on the aggregate contributions and the change in the number of pensioners, the size of the pension calculated for each consecutive year’s changes. if the volume of contributions by working individuals grows, the earlier calculated pension may go up as well, and vice versa. with the decrease of the contributed amount, the size of the pension would also decrease. until now, the traditional view was that an individual has "earned" a particular pension amount. in such a case the pension changes alongside with the changing amount earned by the respective generation of wage earners. in the proposed model, similar to other ndc models, every ith payer of social tax accumulates the pension capital from year to year, increasing it by means of his contributions sik, however, the earlier contributed sum is indexed. the novelty is the introduction of a general-purpose index ik, which can be equally applied to pension capital accumulation and for indexing earlier awarded old-age pensions. pension capital of an i-th taxpayer is accumulated every year by the following formula ikikkki skik += ++ 11, (3) where the notations used are: ki,k+1 the ith pensioner's pension capital in the forecasted year; ik+1 the general-purpose (universal) index forecasted for the kth year; kik the ith pensioner's pension capital in the kth year; sik the ith contributor's payment in the kth year. pension in the year of retirement d is calculated by the formula i i id g k p = (4) (formula (4) in accordance with article 12 of the law "on state pensions“, latvia.) where the notations used are: pid ith pensioner's pension in the year of retirement; ki – ith pensioner's accrued pension capital in the year of retirement; gi – ith pensioner's forecasted average life expectancy in the year of retirement is a function of age and statistical data for a particular year. from now forth the pension is indexed by the formula: kikki pip ,11, ++ = (5) where the notations used are: pi,k+1 the ith pensioner's pension in the k+1th year (forecast); ik+1 a general-purpose (universal) index in the k+1th year; pi,k the ith pensioner's pension in the kth year. annually indexed pension in the n-th year after retirement (6) where the notations used are: pi,d+n -the ipensioner's pension in the year n-th year after retirement; pid ith pensioner's pension in the year of retirement; im the universal index. the annual general-purpose (universal) index is calculated by the formula: )k k k k s s i α−= − 1( 1 (7) where the notations used are: sk the sum of social insurance contributions in the kth year; sk-1 – the sum of social insurance contributions in the preceding year; the value αk is determined by taking into account the solidarity provision (2) and the changes in the number of pensioners in the kth year, i.e., the pension benefits unpaid to deceased pensioners in a certain year and pensions in payment to new pensioners in the same year are taken into consideration. although the value of αk is small, still, it does reflect demographic changes. the αk value is calculated in the following way:       δ −       δ − −= −1 1 1 1 k j k k m k k p p p p α (8) where the particular expenditure items are forecasted every year: m kpδ pensions unpaid to deceased pensioners in the kth year; p id – ith pensioner’s pension in the year of retirement; i m – the universal index. the value α k is determined by taking into account the solidarity provision (2) and the changes in the number of pensioners in the kth year, i.e., the pension benefits unpaid to deceased pensioners in a certain year and pensions in payment to new pensioners in the same year are taken into consideration. although the value of α k is small, still, it does reflect demographic changes. the α k value is calculated in the following way: where the notations used are: s k – the sum of social insurance contributions in the kth year; (7) 5 in the consecutive year marked with the index k, a payer of social tax (payroll tax) pays a certain amount deductible from his tax, which is directed to old-age pension: ikik lws = (1) (all formulas, except the fourth, created by authors dundure, i.,& pukis, m., (2015)) where the notations used are: sik – i-th payer's contribution in the k-th year; wik – i-th payer's taxable income (wage) in the k-th year; l – the contribution rate applied to taxable income directed to old-age pension (in latvia's case the rate l=20% is applied to those, who do not participate in the creation of the funded pension). the total contribution during a year is the sum of all payments performed by the payers in that year sk. this amount in the consecutive year can be forecasted with a pretty high level of accuracy. in contrast to other ndc models, here we introduced the equilibrium (balance) of contributions and payoffs. kk sp = (2) whereas pk is the amount of pension in the k-th year, which consists of individual pensioners' old-age pensions. formula (2), unlike the generally accepted payment procedure, shows the volatile nature of the amount of pensions in payment: depending on the aggregate contributions and the change in the number of pensioners, the size of the pension calculated for each consecutive year’s changes. if the volume of contributions by working individuals grows, the earlier calculated pension may go up as well, and vice versa. with the decrease of the contributed amount, the size of the pension would also decrease. until now, the traditional view was that an individual has "earned" a particular pension amount. in such a case the pension changes alongside with the changing amount earned by the respective generation of wage earners. in the proposed model, similar to other ndc models, every ith payer of social tax accumulates the pension capital from year to year, increasing it by means of his contributions sik, however, the earlier contributed sum is indexed. the novelty is the introduction of a general-purpose index ik, which can be equally applied to pension capital accumulation and for indexing earlier awarded old-age pensions. pension capital of an i-th taxpayer is accumulated every year by the following formula ikikkki skik += ++ 11, (3) where the notations used are: ki,k+1 the ith pensioner's pension capital in the forecasted year; ik+1 the general-purpose (universal) index forecasted for the kth year; kik the ith pensioner's pension capital in the kth year; sik the ith contributor's payment in the kth year. pension in the year of retirement d is calculated by the formula i i id g k p = (4) (formula (4) in accordance with article 12 of the law "on state pensions“, latvia.) where the notations used are: pid ith pensioner's pension in the year of retirement; ki – ith pensioner's accrued pension capital in the year of retirement; gi – ith pensioner's forecasted average life expectancy in the year of retirement is a function of age and statistical data for a particular year. from now forth the pension is indexed by the formula: kikki pip ,11, ++ = (5) where the notations used are: pi,k+1 the ith pensioner's pension in the k+1th year (forecast); ik+1 a general-purpose (universal) index in the k+1th year; pi,k the ith pensioner's pension in the kth year. annually indexed pension in the n-th year after retirement (6) where the notations used are: pi,d+n -the ipensioner's pension in the year n-th year after retirement; pid ith pensioner's pension in the year of retirement; im the universal index. the annual general-purpose (universal) index is calculated by the formula: )k k k k s s i α−= − 1( 1 (7) where the notations used are: sk the sum of social insurance contributions in the kth year; sk-1 – the sum of social insurance contributions in the preceding year; the value αk is determined by taking into account the solidarity provision (2) and the changes in the number of pensioners in the kth year, i.e., the pension benefits unpaid to deceased pensioners in a certain year and pensions in payment to new pensioners in the same year are taken into consideration. although the value of αk is small, still, it does reflect demographic changes. the αk value is calculated in the following way:       δ −       δ − −= −1 1 1 1 k j k k m k k p p p p α (8) where the particular expenditure items are forecasted every year: m kpδ pensions unpaid to deceased pensioners in the kth year; s k-1 – the sum of social insurance contributions in the preceding year. where the particular expenditure items are forecasted every year: m kp∆ – pensions unpaid to deceased pensioners in the kth year; j kp∆ – pensions in payment to the new pensioners in the kth year; (8) in this article sustainability is illustrated as stability against the major known risks, which may cause insolvency or dissatisfaction of recipients of the old-age pensions. political stability the major risk associated with the proposed model lies in the political stability. while the impact of the political factors can be set off through optimisation of the sources of pension resources and improved distribution, political stability strongly depends on the perception of justice present in the community, which may be both subjective and shifty. the proposed model provides that every old-age pensioner receives the pension, which source is the generation solidarity. there are no major problems associated with this aspect, since in many developed countries for almost a hundred years this has been a time tested and well proven principle of funding, therefore it should not cause any notably negative public attitudes. at the same time, the pension size is proportional to the life-long contribution. crucial significance is attributed to the amount that has been contributed over the working life rather than to time in employment or other factors. the wage amount at any given point of time is not that important (for example, at the time of retirement or at any time shortly before retirement). those, who have been paying a lot for several years and those, who have been contributing small amounts for many years will receive pensions equal in size. 5 in the consecutive year marked with the index k, a payer of social tax (payroll tax) pays a certain amount deductible from his tax, which is directed to old-age pension: ikik lws = (1) (all formulas, except the fourth, created by authors dundure, i.,& pukis, m., (2015)) where the notations used are: sik – i-th payer's contribution in the k-th year; wik – i-th payer's taxable income (wage) in the k-th year; l – the contribution rate applied to taxable income directed to old-age pension (in latvia's case the rate l=20% is applied to those, who do not participate in the creation of the funded pension). the total contribution during a year is the sum of all payments performed by the payers in that year sk. this amount in the consecutive year can be forecasted with a pretty high level of accuracy. in contrast to other ndc models, here we introduced the equilibrium (balance) of contributions and payoffs. kk sp = (2) whereas pk is the amount of pension in the k-th year, which consists of individual pensioners' old-age pensions. formula (2), unlike the generally accepted payment procedure, shows the volatile nature of the amount of pensions in payment: depending on the aggregate contributions and the change in the number of pensioners, the size of the pension calculated for each consecutive year’s changes. if the volume of contributions by working individuals grows, the earlier calculated pension may go up as well, and vice versa. with the decrease of the contributed amount, the size of the pension would also decrease. until now, the traditional view was that an individual has "earned" a particular pension amount. in such a case the pension changes alongside with the changing amount earned by the respective generation of wage earners. in the proposed model, similar to other ndc models, every ith payer of social tax accumulates the pension capital from year to year, increasing it by means of his contributions sik, however, the earlier contributed sum is indexed. the novelty is the introduction of a general-purpose index ik, which can be equally applied to pension capital accumulation and for indexing earlier awarded old-age pensions. pension capital of an i-th taxpayer is accumulated every year by the following formula ikikkki skik += ++ 11, (3) where the notations used are: ki,k+1 the ith pensioner's pension capital in the forecasted year; ik+1 the general-purpose (universal) index forecasted for the kth year; kik the ith pensioner's pension capital in the kth year; sik the ith contributor's payment in the kth year. pension in the year of retirement d is calculated by the formula i i id g k p = (4) (formula (4) in accordance with article 12 of the law "on state pensions“, latvia.) where the notations used are: pid ith pensioner's pension in the year of retirement; ki – ith pensioner's accrued pension capital in the year of retirement; gi – ith pensioner's forecasted average life expectancy in the year of retirement is a function of age and statistical data for a particular year. from now forth the pension is indexed by the formula: kikki pip ,11, ++ = (5) where the notations used are: pi,k+1 the ith pensioner's pension in the k+1th year (forecast); ik+1 a general-purpose (universal) index in the k+1th year; pi,k the ith pensioner's pension in the kth year. annually indexed pension in the n-th year after retirement (6) where the notations used are: pi,d+n -the ipensioner's pension in the year n-th year after retirement; pid ith pensioner's pension in the year of retirement; im the universal index. the annual general-purpose (universal) index is calculated by the formula: )k k k k s s i α−= − 1( 1 (7) where the notations used are: sk the sum of social insurance contributions in the kth year; sk-1 – the sum of social insurance contributions in the preceding year; the value αk is determined by taking into account the solidarity provision (2) and the changes in the number of pensioners in the kth year, i.e., the pension benefits unpaid to deceased pensioners in a certain year and pensions in payment to new pensioners in the same year are taken into consideration. although the value of αk is small, still, it does reflect demographic changes. the αk value is calculated in the following way:       δ −       δ − −= −1 1 1 1 k j k k m k k p p p p α (8) where the particular expenditure items are forecasted every year: m kpδ pensions unpaid to deceased pensioners in the kth year; pk – pension amount in the k th year; p k-1 – pension amount in the preceding year. stability (robustness) of the proposed ndc model e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 94 it follows from the above formulated model that contribution in the pension capital made every year of the working life is proportional to relative wage (taxable income) of the i-th contributor (payer) in the k-th year: where the notations used are: w ik – taxable income (wage) of a certain i taxpayer in a certain k year; where the notations used are: l – social security rate on taxable income directed to old-age pensions; (9) (10) wage replacement rate for a certain pensioner i in the year of retirement is calculated by the following formula created by the author. 6 j kpδ pensions in payment to the new pensioners in the kth year; pk pension amount in the kth year; pk-1 – pension amount in the preceding year. 5. stability (robustness) of the proposed ndc model in this article sustainability is illustrated as stability against the major known risks, which may cause insolvency or dissatisfaction of recipients of the old-age pensions. 5.1. political stability the major risk associated with the proposed model lies in the political stability. while the impact of the political factors can be set off through optimisation of the sources of pension resources and improved distribution, political stability strongly depends on the perception of justice present in the community, which may be both subjective and shifty. the proposed model provides that every old-age pensioner receives the pension, which source is the generation solidarity. there are no major problems associated with this aspect, since in many developed countries for almost a hundred years this has been a time tested and well proven principle of funding, therefore it should not cause any notably negative public attitudes. at the same time, the pension size is proportional to the lifelong contribution. crucial significance is attributed to the amount that has been contributed over the working life rather than to time in employment or other factors. the wage amount at any given point of time is not that important (for example, at the time of retirement or at any time shortly before retirement). those, who have been paying a lot for several years and those, who have been contributing small amounts for many years will receive pensions equal in size. it follows from the above formulated model that contribution in the pension capital made every year of the working life is proportional to relative wage (taxable income) of the i-th contributor (payer) in the k-th year: (9) where the notations used are: wik – taxable income (wage) of a certain i taxpayer in a certain k year; the average taxable income (salary) k-th year of payers. pursuant to the adopted pension capital indexing system, the pension capital accumulated till the year of retirement is presented as follows: (10) where the notations used are: l – social security rate on taxable income directed to old-age pensions; – the average wage in retirement year; md – number of payers of social tax; – the value that characterises the change in the number of pensioners; mj – number of payers of social tax; rid – relative accumulated contribution by a certain payer i in the year of retirement; rij – relative amount of accumulated contributions by a certain payer i till the year of retirement. wage replacement rate for a certain pensioner i in the year of retirement is calculated by the following formula created by the author. i i id g ldr r = (11) where the notations used are: l – social security rate on taxable income directed to old-age pensions; d – length of service (working career) (number of social tax payment years); gi – average life expectancy of a certain pensioner i in the year of retirement; ri – relative payer's contribution accumulated till the moment of retirement. the formula for calculation of the wage replacement rate for a certain i pensioner in the year of retirement (12) shows the commitment of an individual contributor to assume responsibility for his or her old days. pension in the n-th year after retirement by applying the universal pension adjustment index is calculated by formula 7. (12) where the notations used are: pi,d+n – a certain i pensioner's pension in a certain year after retirement; pid – a certain i pensioner's pension in the year of retirement; im – forecasted index. what is important is that after many years also in the year of death the pension would not get devalued, as it happens now. many years on we continue to compare pension with the average wage in that year. if the multiplication of indexes would be close to 1, in that case a pensioner's relative income would be preserved as long as the absolute income during the period of retirement keeps pace with the solidarity wage growth. the liberal approach, which is based on responsibility of each particular individual for his/her own welfare, does not happen to be highly valued in the modern world. nevertheless, the hope for the system stability is supported by the fact that since the the average taxable income (salary) k-th year of payers. pursuant to the adopted pension capital indexing system, the pension capital accumulated till the year of retirement is presented as follows: 6 j kpδ pensions in payment to the new pensioners in the kth year; pk pension amount in the kth year; pk-1 – pension amount in the preceding year. 5. stability (robustness) of the proposed ndc model in this article sustainability is illustrated as stability against the major known risks, which may cause insolvency or dissatisfaction of recipients of the old-age pensions. 5.1. political stability the major risk associated with the proposed model lies in the political stability. while the impact of the political factors can be set off through optimisation of the sources of pension resources and improved distribution, political stability strongly depends on the perception of justice present in the community, which may be both subjective and shifty. the proposed model provides that every old-age pensioner receives the pension, which source is the generation solidarity. there are no major problems associated with this aspect, since in many developed countries for almost a hundred years this has been a time tested and well proven principle of funding, therefore it should not cause any notably negative public attitudes. at the same time, the pension size is proportional to the lifelong contribution. crucial significance is attributed to the amount that has been contributed over the working life rather than to time in employment or other factors. the wage amount at any given point of time is not that important (for example, at the time of retirement or at any time shortly before retirement). those, who have been paying a lot for several years and those, who have been contributing small amounts for many years will receive pensions equal in size. it follows from the above formulated model that contribution in the pension capital made every year of the working life is proportional to relative wage (taxable income) of the i-th contributor (payer) in the k-th year: (9) where the notations used are: wik – taxable income (wage) of a certain i taxpayer in a certain k year; the average taxable income (salary) k-th year of payers. pursuant to the adopted pension capital indexing system, the pension capital accumulated till the year of retirement is presented as follows: (10) where the notations used are: l – social security rate on taxable income directed to old-age pensions; – the average wage in retirement year; md – number of payers of social tax; – the value that characterises the change in the number of pensioners; mj – number of payers of social tax; rid – relative accumulated contribution by a certain payer i in the year of retirement; rij – relative amount of accumulated contributions by a certain payer i till the year of retirement. wage replacement rate for a certain pensioner i in the year of retirement is calculated by the following formula created by the author. i i id g ldr r = (11) where the notations used are: l – social security rate on taxable income directed to old-age pensions; d – length of service (working career) (number of social tax payment years); gi – average life expectancy of a certain pensioner i in the year of retirement; ri – relative payer's contribution accumulated till the moment of retirement. the formula for calculation of the wage replacement rate for a certain i pensioner in the year of retirement (12) shows the commitment of an individual contributor to assume responsibility for his or her old days. pension in the n-th year after retirement by applying the universal pension adjustment index is calculated by formula 7. (12) where the notations used are: pi,d+n – a certain i pensioner's pension in a certain year after retirement; pid – a certain i pensioner's pension in the year of retirement; im – forecasted index. what is important is that after many years also in the year of death the pension would not get devalued, as it happens now. many years on we continue to compare pension with the average wage in that year. if the multiplication of indexes would be close to 1, in that case a pensioner's relative income would be preserved as long as the absolute income during the period of retirement keeps pace with the solidarity wage growth. the liberal approach, which is based on responsibility of each particular individual for his/her own welfare, does not happen to be highly valued in the modern world. nevertheless, the hope for the system stability is supported by the fact that since the – the average wage in retirement year; m d – number of payers of social tax; (1–α m ) – the value that characterises the change in the number of pensioners; m j – number of payers of social tax; r id – relative accumulated contribution by a certain payer i in the year of retirement; r ij – relative amount of accumulated contributions by a certain payer i till the year of retirement. the formula for c alculation of the wage replacement rate for a certain i pensioner in the year of retirement (12) shows the commitment of an individual contributor to assume responsibility for his or her old days. pension in the n-th year aft er retirement by applying the universal pension adjustment index is calculated by formula 7. where the notations used are: l – social security rate on taxable income directed to old-age pensions; (11) 6 j kpδ pensions in payment to the new pensioners in the kth year; pk pension amount in the kth year; pk-1 – pension amount in the preceding year. 5. stability (robustness) of the proposed ndc model in this article sustainability is illustrated as stability against the major known risks, which may cause insolvency or dissatisfaction of recipients of the old-age pensions. 5.1. political stability the major risk associated with the proposed model lies in the political stability. while the impact of the political factors can be set off through optimisation of the sources of pension resources and improved distribution, political stability strongly depends on the perception of justice present in the community, which may be both subjective and shifty. the proposed model provides that every old-age pensioner receives the pension, which source is the generation solidarity. there are no major problems associated with this aspect, since in many developed countries for almost a hundred years this has been a time tested and well proven principle of funding, therefore it should not cause any notably negative public attitudes. at the same time, the pension size is proportional to the lifelong contribution. crucial significance is attributed to the amount that has been contributed over the working life rather than to time in employment or other factors. the wage amount at any given point of time is not that important (for example, at the time of retirement or at any time shortly before retirement). those, who have been paying a lot for several years and those, who have been contributing small amounts for many years will receive pensions equal in size. it follows from the above formulated model that contribution in the pension capital made every year of the working life is proportional to relative wage (taxable income) of the i-th contributor (payer) in the k-th year: (9) where the notations used are: wik – taxable income (wage) of a certain i taxpayer in a certain k year; the average taxable income (salary) k-th year of payers. pursuant to the adopted pension capital indexing system, the pension capital accumulated till the year of retirement is presented as follows: (10) where the notations used are: l – social security rate on taxable income directed to old-age pensions; – the average wage in retirement year; md – number of payers of social tax; – the value that characterises the change in the number of pensioners; mj – number of payers of social tax; rid – relative accumulated contribution by a certain payer i in the year of retirement; rij – relative amount of accumulated contributions by a certain payer i till the year of retirement. wage replacement rate for a certain pensioner i in the year of retirement is calculated by the following formula created by the author. i i id g ldr r = (11) where the notations used are: l – social security rate on taxable income directed to old-age pensions; d – length of service (working career) (number of social tax payment years); gi – average life expectancy of a certain pensioner i in the year of retirement; ri – relative payer's contribution accumulated till the moment of retirement. the formula for calculation of the wage replacement rate for a certain i pensioner in the year of retirement (12) shows the commitment of an individual contributor to assume responsibility for his or her old days. pension in the n-th year after retirement by applying the universal pension adjustment index is calculated by formula 7. (12) where the notations used are: pi,d+n – a certain i pensioner's pension in a certain year after retirement; pid – a certain i pensioner's pension in the year of retirement; im – forecasted index. what is important is that after many years also in the year of death the pension would not get devalued, as it happens now. many years on we continue to compare pension with the average wage in that year. if the multiplication of indexes would be close to 1, in that case a pensioner's relative income would be preserved as long as the absolute income during the period of retirement keeps pace with the solidarity wage growth. the liberal approach, which is based on responsibility of each particular individual for his/her own welfare, does not happen to be highly valued in the modern world. nevertheless, the hope for the system stability is supported by the fact that since the d – length of service (working career) (number of social tax payment years); g i – average life expectancy of a certain pensioner i in the year of retirement; r i – relative payer’s contribution accumulated till the moment of retirement. what is important is that aft er many years also in the year of death the pension would not get devalued, as it happens now. many years on we continue to compare pension with the average wage in that year. if the multiplication of indexes would be close to 1, in that case a pensioner’s relative income would be preserved as long as the absolute income during the period of retirement keeps pace with the solidarity wage growth. the liberal approach, which is based on responsibility of each particular individual for his/her where the notations used are: p i,d+n – a certain i pensioner’s pension in a certain year aft er retirement; (12) 6 j kpδ pensions in payment to the new pensioners in the kth year; pk pension amount in the kth year; pk-1 – pension amount in the preceding year. 5. stability (robustness) of the proposed ndc model in this article sustainability is illustrated as stability against the major known risks, which may cause insolvency or dissatisfaction of recipients of the old-age pensions. 5.1. political stability the major risk associated with the proposed model lies in the political stability. while the impact of the political factors can be set off through optimisation of the sources of pension resources and improved distribution, political stability strongly depends on the perception of justice present in the community, which may be both subjective and shifty. the proposed model provides that every old-age pensioner receives the pension, which source is the generation solidarity. there are no major problems associated with this aspect, since in many developed countries for almost a hundred years this has been a time tested and well proven principle of funding, therefore it should not cause any notably negative public attitudes. at the same time, the pension size is proportional to the lifelong contribution. crucial significance is attributed to the amount that has been contributed over the working life rather than to time in employment or other factors. the wage amount at any given point of time is not that important (for example, at the time of retirement or at any time shortly before retirement). those, who have been paying a lot for several years and those, who have been contributing small amounts for many years will receive pensions equal in size. it follows from the above formulated model that contribution in the pension capital made every year of the working life is proportional to relative wage (taxable income) of the i-th contributor (payer) in the k-th year: (9) where the notations used are: wik – taxable income (wage) of a certain i taxpayer in a certain k year; the average taxable income (salary) k-th year of payers. pursuant to the adopted pension capital indexing system, the pension capital accumulated till the year of retirement is presented as follows: (10) where the notations used are: l – social security rate on taxable income directed to old-age pensions; – the average wage in retirement year; md – number of payers of social tax; – the value that characterises the change in the number of pensioners; mj – number of payers of social tax; rid – relative accumulated contribution by a certain payer i in the year of retirement; rij – relative amount of accumulated contributions by a certain payer i till the year of retirement. wage replacement rate for a certain pensioner i in the year of retirement is calculated by the following formula created by the author. i i id g ldr r = (11) where the notations used are: l – social security rate on taxable income directed to old-age pensions; d – length of service (working career) (number of social tax payment years); gi – average life expectancy of a certain pensioner i in the year of retirement; ri – relative payer's contribution accumulated till the moment of retirement. the formula for calculation of the wage replacement rate for a certain i pensioner in the year of retirement (12) shows the commitment of an individual contributor to assume responsibility for his or her old days. pension in the n-th year after retirement by applying the universal pension adjustment index is calculated by formula 7. (12) where the notations used are: pi,d+n – a certain i pensioner's pension in a certain year after retirement; pid – a certain i pensioner's pension in the year of retirement; im – forecasted index. what is important is that after many years also in the year of death the pension would not get devalued, as it happens now. many years on we continue to compare pension with the average wage in that year. if the multiplication of indexes would be close to 1, in that case a pensioner's relative income would be preserved as long as the absolute income during the period of retirement keeps pace with the solidarity wage growth. the liberal approach, which is based on responsibility of each particular individual for his/her own welfare, does not happen to be highly valued in the modern world. nevertheless, the hope for the system stability is supported by the fact that since the p id – a certain i pensioner’s pension in the year of retirement; i m – forecasted index. 95 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 own welfare, does not happen to be highly valued in the modern world. nevertheless, the hope for the system stability is supported by the fact that since the implementation of such pension model in a typical welfare country like sweden (where the majority of population upholds the values of social democracy) no public concerns were raised for more than 20 years. this indicates that in case of a welfare state oriented community a certain part of the social insurance benefits may be based on social responsibility. the next element of fairness, which may have a significant effect on public perception, is application of the equal life expectancy standard both for men and women. women on average live longer. which means that women in retirement are going to receive part of the redistributed men’s virtual accumulated pension. such situation is characteristic to all ndc schemes. it is partially justified by the fact that women contribute less toward their retirement due to the period of childbirth and childcare. that also happens in cases when the retirement age for women is set to a lower level. at the same time women “are responsible” for existence of the new generation of pension providers. previous experience is not indicative of any conflict of opinions with respect to such approach to the redistribution of accumulated pension. one of the drawbacks in other ndc models is devaluation of pension over time after retirement. in this model the devaluation rate is minimal or even does not exist at all. this is an additional argument in favour of strengthening the sense of justice and fairness. in any case, political stability may evaporate as a result of the government ineffectual communication policy. the fundamental issue is which way to choose: either inform the community about the essence of the implemented pension system and operation of corresponding mechanisms or hold back these details from the public. if political stability is needed as a sustainable process, then it would be better in every respect to inform the community and start explaining how one can earn larger pension already by doing it already in the secondary school. the proposed old-age pension in principle cannot be sustainable unless a minimum pension is introduced and appropriately increased in proportion to the welfare level achieved by the society. at the same time, the more stimulating is the process of shaping the basis for such pension while augmenting the welfare of the society, the relatively less additional resources will be required to fund the minimum pensions. therefore, it is possible to separate these pension types and review them on an individual basis. stability against the changes in age structure this, in particular, is a great concern for the majority of the world pension schemes. pretty much none of the most successful world economies can expect any positive change in this area the share of pensioners keeps increasing while the share of contributors is decreasing. in order to prevent these concerns, it is necessary to change the goods and services production structure by bringing the impact of technological progress into balance. which means the relation between the producers and controllers should be slightly increased. technological development leads to increased life expectancy. at the same time the number of employees in manufacturing and agricultural sectors decreases, with an excessive growth of the service industry and inflated bureaucracy. sooner or later life will make adjustments to these proportions ensuring adequate living standards to the pensioners. however, change of the employment structure is not the subject matter of this article. let us consider pension adequacy in connection with the current tendency ageing of population. formula (11) demonstrates a number of simple coherences: replaceability is directly proportione u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 96 al to the deduction rate applied to earnings and the duration of the working life and is inversely proportional to the part of life spent in retirement. if the relative investment r i is equalled to one, then the replaceability will be calculated for a pensioner of the formerly “moderate means”, who have been earning a countrywise average income throughout his life. let us consider two cases: 1 the average earner started to work at the age of 16 and retired at the age of 65, his d=50. if the average life expectancy is 25 years and keeping l=0,2, we obtain r id = 0,4. 2 the average earner started to work at the age of 26 and retired at the same age of 65. then d=40 and, ceteris paribus, the replaceability rate decreases r id = 0,32. it should be remembered that an individual, who starts his career at such a young age will not be able to dedicate much time to his education, while an individual, who dedicated much time to studies, on the contrary, may potentially earn more if during his studies he acquires the skills that are highly assessed by the employer. therefore, the prospects to obtain r i > 1 and compensate for the missing years in employment are higher. in every respect it is important that in each subsequent year the pension is indexed in accordance with general-purpose (universal) index. experience of dozens of years proved that wages use to increase in the long run. therefore, except for the years of crisis which is a special case, a pensioner is convinced that his pension does not decrease in value. in general, the system resembles a social family model. the more the employable earn, the better is the life of the old people. the more children are born, the more comfortable is the life of the seniors in the society in general. however, there are no steep declines in the system, and in accordance with the formula (12), a pensioner maintains his earned “virtual” level till the very end of his life. stability against economic crises if the pension amount is fixed at retirement, then the welfare of a pensioner becomes dependant on the economic cycle. at times when the number of employees drops, it seems unfair to cut the fixed “earned pension”. that creates the need to borrow, which would be covered at the expense of future expenditures (normally future pensions). under traditional ndc systems some years are favourable and some are unfavourable for retirement. if indexing is linked to economic success of the society in general, then the system becomes stable. this is secured by the general-purpose (universal) index. from year to year the workers’ virtual pension capital and pensioners’ pension benefits are equally indexed according to the formula (3) and (4). there is no reason both for the pensioners and the workers to be afraid of the short-term decrease of earnings or capital, because there is an assurance that things will improve over the next phase of the economic cycle. stability against early retirement tendency if formulas (11) and (12) would be taught at school, each worker would easily evaluate his/her expected pension amount and act accordingly. in the systems, which lack firm assurance that longer working life would also ensure higher pensions, large part of the society endeavours to make their working life shorter. if the community become fully aware of the direct proportion of the length of the working life, the number of those who start their working career early and retire later would grow. staying in the labour market also after the age of retirement will make payment of pensions easier to those who do not work. 97 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 stability against tax evasion in the proposed model the pension capital is calculated on the basis of actual contribution. if an employer reports smaller wages and pays less tax, the worker’s pension is decreased. if the employer has social tax debts to the state, the pension decreases again. under such system it becomes disadvantageous to work in a company to which tax privileges apply. an employee becomes embroiled in conflict with a dishonest employer. stability against decrease of value of the earned pension the currently applied ndc schemes do not use equal indexing before and after retirement. this problem is going to become more aggravated with the growing average life expectancy. the high initial replacement rate is insufficient. introduction of the general-purpose (universal) index solves this problem. if after retirement the proportion of workers continues to decrease, the pension will grow proportionally with the increase of the aggregate wages and will decrease proportionally with the ratio between the pensioners and workers. this is evidenced by the formula (12). previous practice shows that productivity caused by technological progress grows at a higher rate compared to increase of life expectancy. that is why the system remains stable against pension devaluation for many decades after retirement. the paper shows that political stability is possible under the two conditions: first, like in other physical or notional models of the funded pension systems, the system needs to be supplemented with a minimum guaranteed pension for those individuals, who have not been able or have not been willing to accumulate pension capital. second, an active explanation of the accumulation motives is necessary during the entire working life of a contributor. the paper demonstrates the stability of the model with respect to the main known risks of a pension system: conclusions 1 the scheme is stable against the risk of aging population, because it provides a reasonable level of income regardless of demographic changes; 2 the scheme is stable against the economic crisis, because the proposed universal indexing allows improvement for all participants in equal share; 3 the scheme is stable against the risk of default, because it stimulates each scheme participant to make the maximum contribution every year; 4 the system is stable against the insufficiency of pension during the time after retirement, because the universal indexing procedure is equally applied both to the accumulation period and the payout period; 5 the scheme stimulates an earlier start of the work life and later retirement, thus minimizing the payments required to ensure sustainability of the system. auerbach, a.j. & lee, r., 2006. notional defined contribution pension systems in a stochastic context: design and stability. retrieved from http://www.nber.org/programs/ ag/rrc/7.1.pdf borella, m. & fornero, e. (2009). adequacy of pension systems in europe: an analysis based on referencescomprehensive replacement rates. european commission enepri research report no.68. retrieved from http://aei.pitt.edu/10967/1/1837.pdf http://dx.doi.org/10.2139/ssrn.2033652 cec 2010. green paper: towards adequate, sustainable and safe european pension systems. com 365 final, brussels, ec 830.pp.36. retrieved from http://ec.europa.eu. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 98 cec 2010. progress and key challenges in the delivery of adequate and sustainable pensions in europe. occasional papers 71.pp.81. retrieved from http://ec.europa.eu/economy finance/publications .pdf communication from the european commission to the council, the european parliament and the economic and social committee supporting national strategies for safe and sustainable pensions through an integrated approach, com/2001/0362 final of 4 july 2001. council of the european union, 10672/01 ecofin 198 soc 272. joint report of the social protection committee and the economic policy committee on objectives and working methods in the area of pensions: applying the open method of coordination. brussels, 23 november 2001. dundure, i. (2015) sustainable old-age pension system by developing notional defined contribution pension scheme. 15th ebes conference – lisbon. european commission, (2003). adequate and sustainable pensions. joint report by the commission and the council. luxembourg: publications office. retrieved from http://www.mpsv.cz/files/ clanky/2745/cs7165_03_en.pdf european commission. (2010). progress and key challanges in the delivery of adequate and sustainable pensions in europe. a joint report on pensions by the economic policy committee (ageing working group), the social protection committee (indicators sub-group) and the commission services (dg for economic and financial affairs and dg employment, social affairs and equal opportunities brussels: european commission. retrieved from http://ec.europa.eu/economy_finance/publications/occasional_paper/2010/pdf/ocp71_en.pdf european commission, (2012). pension adequacy in the european union 2010-2050. report prepared jointly by the directorate-general for employment, social affairs and inclusion of the european commission and the social protection committee. brussels: european commission. retrieved from file:///c:/users/homestaff/downloads/pension_ adequacy_en%20(1).pdf holzmann, r. & palmer, e. et.al. (2003). pension reform: issues and prospects for non-financial defined contribution (ndc) schemes. washington, d.c.: the world bank. holzmann, r. & palmer, e. (2003). pension reform: issues and prospects for non-financial defined contribution (ndc) schemes. washington, d.c.: the world bank. proceedings of the ndc conference in sandhamn, sweden, september 28–30, 2003. retrieved from https://www.google.lv/ search?q=15.%09holzmann,+r.+%26+palmer,+e .+%282003%29.+pension+reform:+issues+and+prospects+for+non-financial+defined+contrib u t i o n + % 2 8 n d c % 2 9 + s c h e m e s . + wa s h i n g t o n , +d.c.:+the+world+bank.&ie=utf-8&oe=utf-8&g ws_rd=cr&ei=5zclvzz8k4jyppgjgyal.pdf http:// dx.doi.org/10.1596/0-8213-5358-6 holzmann, r., palmer, e. & robalino, d., et.al. (2012). nonfinancial defined contribution pension schemes in a changing pension world. volume 1: progress, lessons, and implementation. washington, d.c.: the world bank. retrieved from https://openknowledge. worldbank.org/bitstream/handle/10986/9378/ 705940pub0epi0067902b09780821388488.pdf?sequence=1.pdf holzman, r., hinz, r.p., & dorfman, m., (2008). pension systems and reform conceptual framework. the world bank sp discussion paper no. 0824. washington, d.c.: the world bank. retrieved from http://siteresources.worldbank.org/socialprotection/resources/sp-discussion-papers/pensions-dp/0824.pdf law on state social insurance (par valsts sociālo apdrošināšanu): 01.10.1997. nr.22, 27.11.1997., latvijas vestnesis, nr.274/276 (989/991), 21.10.1997., 01.01.1998.; 13.03.2014. latvijas vēstnesis, nr.63 (5123), 28.03.2014. law on state pensions (par valsts pensijām): 02.12.1995. nr.1, 11.01.1996., latvijas vestnesis, nr.182 (465), 23.11.1995 ar 01.01.1996.; 03.04.2014., latvijas vestnesis, nr.75 (5135), 15.04.2014. natali, d. (2010). pensions in turmoil owing to the crisis: key messages from the eu. in: c. degryse, ed. 2010. social developments in the european union 2009. brussels: etui and ose, pp. 119-147. pukis, m. & dundure, i. (2012). sustainability of the pension system in latvia. journal of economics and management research, vol. 1, pp.139–154. procedures for the calculation of the insurance contribution wage index updating of the old-age pension capital (apdrošināšanas iemaksu algas indeksa aprēķināšanas un vecuma pensijas kapitāla aktualizācijas kārtība): 27.03.2007. nr. 205.cabinet of ministers regulation. latvijas vēstnesis, nr.54 (3630), 30.03.2007., in force 31.03.2007. redwood, d., carrera, l., armstrong, j. & pennanen, t.( 2013). what level of pension contribution is needed to obtain an adequate retirement income? 99 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 london: the pensions policy institute. retrieved from file:///c:/users/homestaff/downloads/20131022_ ae_adequacy_final_report.pdf schludi m. (2005). the reform of bismarckian pension systems (p.312). amsterdam: amsterdam university press. social protection committee.( 2000). adequate and sustainable pensions, a report by the social protection committee on the future evolution of social protection. retrieved from http://www.consilium. europa.eu/uedocs/cms_data/docs/pressdata/en/ misc/08792en1.htm social protection committee, 2009. updates of current and prospective theoretical pension replacement rates 2006-2046. retrieved from file:///c:/ users/homestaff/downloads/isg%20report%20 on%20theoretical%20replacement%20rates%20 2009.pdf inara dundure phd student university of latvia address aspazijas blvd.5, lv -1050, riga, latvia tel. +371 26486654 e-mail: inara.dundure@gmail.com maris pukis dr. oec., dr. phys., associate professor university of latvia address aspazijas blvd.5, lv -1050, riga, latvia tel. +371 29197602 e-mail: maris@lps.lv about the authors e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 92 submitted 04/2018 accepted for publication 10/2018 european integration studies no. 12 / 2018 pp. 92-103 doi 10.5755/j01.eis.0.12.21871 productivity trap in latvia eis 12/2018 productivity trap in latvia http://dx.doi.org/10.5755/j01.eis.0.12.21871 sandra jekabsone university of latvia abstract irina skribane university of latvia along with a more rapid economic growth tension can be observed in the latvian labour market. number of economically active population is decreasing because of negative natural increase of the population and emigration, while number of job vacancies is rising and labour shortages become more acute. as a result wages are rising rapidly, and it, in turn causes increase in production costs and negatively affects the competitiveness of domestic firms. changes in productivity and labour costs from 2011 to 2016 show that the increase in labour costs exceeded productivity growth more than two times in the manufacturing as well in the total economy of latvia. convergence of labour costs is inevitable in the conditions of free labour movement (open labour market), thus further economic growth of latvia will largely depend on its ability to reduce the productivity gap with the advanced economies. the purpose of the research is to evaluate the dynamics of labour productivity in latvia and its level in comparison with the eu average, as well as to reveal the most important factors limiting productivity increase in latvia. the tasks of the research is to determine the main factors that influence labour productivity in latvia in last 10 years, to compare productivity levels in latvia and other eu country and to evaluate the current policy measures to increase labour productivity in latvia. different quantitative and qualitative research methods are used in the analysis, for example analysis of scientific literature and economic policy planning documents, statistical data analysis methods, shift share analysis etc. the results of the research show that productivity growth rate in latvia was one of the fastest in the eu during the last five years that enhanced productivity convergence with the advanced economies. raise of the productivity level was mostly influenced by the improved business conjuncture and optimization of the number of employees at the sectoral/firms’ level. nevertheless, the contribution of structural transformation was insignificant on productivity growth. the main conclusion of research shows, that two mutually interconnected processes determine increase of productivity level. first, they are the entrepreneurs’ choices about competitive advantages on which their business strategies are based, which define the business management and technological decisions (to modernize production or to move resources across sectors, to other region or even other country). second, it is the ability of the country to ensure the reallocation of the its resources to the most productive firms and sectors, i.e. to promote structural reforms or “technological upgrading”. keywords: productivity, labour cost, economic growth, structural changes. 93 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 productivity is often used to evaluate countries economic development; it has been one of the most important determinant of economic growth, which is crucial factor to increase population’s welfare. over 60 percent of crosscountry differences in income can be explained by productivity. the article’s scientific problem is to determine how productivity can be increased in order to increase the life standards and population’s welfare on a long-term basis. productivity is close related to competitiveness. at the world economic forum (wef) experts by developing global competitiveness index (gci), defines competitiveness as productivity (the global competitiveness report 2017-2018). experts believe that welfare and life quality level are defined by the productivity level, which depends on possibility to mobilize all resources in economy. productivity allows country sustain high level of salaries, stabile and strong national currency and high level of capital return, and by them also high level of life standards. due to limited availability of resources and the increasing competition in the global markets, it is important for latvia to support its economic growth through increased productivity. the novelty the article’s is to identify the reasons for low productivity in latvia and to identify the causes of the productivity trap. the scientific study’s approach are based on oecd and eurostat methodology of productivity measurement. the purpose of the research is to evaluate the dynamics of labour productivity in latvia and its level in comparison with the eu average, as well as to reveal the most important factors limiting productivity increase in latvia. the tasks of the research is to determine the main factors that influence labour productivity in latvia in last 10 years, to compare productivity levels in latvia and other eu country and to evaluate the current policy measures to increase labour productivity in latvia. in the research to be used different research methods: literature review on the productivity, empirical analysis of data, shift share analysis etc. the main research sources include the information available in the databases of the csb and eurostat, as well as the studies and publications on the productivity by the ministries of economics republic of latvia, bank of latvia, european commission, oecd, world bank and imf. the results of the research show that productivity growth rate in latvia was one of the fastest in the eu during the last five years that enhanced productivity convergence with the advanced economies. raise of the productivity level was mostly influenced by the improved business conjuncture and optimization of the number of employees at the sectoral/firms’ level. nevertheless, the contribution of structural transformation was insignificant on productivity growth. the research practical value is related to oecd recommendation to monitor productivity in latvia. introduction theoretical aspects of productivity term of productivity is a multi-dimensional and its definition might change according different situations. oecd, imf, world bank, the european commission deal with different aspects of productivity. productivity generally refers to the relation between the quantity of production produced (output) and the quantity of resources (production factors) used in the production process. in other words, productivity measures the efficient use of resources (work, magazine capital materials, etc.) in the production of certain production in the enterprise, sector or economy as a whole (jekabsone s., skribane i., 2017). according to a.ghobadian and t.husband, definition of productivity can be divided in three major categories: 1) in the context of productivity technologies, it is the output and investment ratio that is used in the production process; 2) from engineering standpoint, productivity is the relationship between the output that can be produced and the potential output of the production; e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 94 3) productivity is the efficiency of redistribution of resources (kashim, r., 2014). there are different approaches to productivity measurement, their calculation and interpretation. productivity can be divided as: _ one factor productivity, the output and the proportion of the investment of one particular resource (labour, capital), _ multi-factor productivity (mfp), a ratio of output and multiple forms of investment (see table 1). output types input types labour (l) capital (c) labour (l) and capital (c) capital, labour& energy, materials, services (clems) gross output labour productivity (based on output) capital productivity (based on output) c&l multi-factor productivity (based on output) clems multi-factor produc¬tivity value added labour productivity (based on value added) capital productivity (based on value added) c&l multi-factor productivity (based on value added) single factor productivity multi-factor produc¬tivity (mfp) table 1 productivity types source: : author’s construction based on oecd methodology of productivity measurement. as an example of one factor productivity, it is labour productivity, which shows what amount of products in certain time can be produced by using certain amount of work. it shows invested amount of labour force (time, effort and knowledge), which has been used during production process. on the macro level labour force productivity is measured with amount of products and services, which has been produced during one working hour (added value on one worked hour) or output on one employee (the amount of real gdp per employee). at the level of some sectors, productivity is measured by dividing the benefit of the industry with the number of people employed there, for example, the number of components produced per employee. the productivity of capital (output per unit of capital) and energy productivity (output on a single energy joule) is also considered as one factor productivity. whereas multi-factor or total factor productivity (tfp) reflects the overall effectiveness, with which work and equity investments are used in the production process at the same time. total factor productivity is an indicator, which explains growth in gross domestic product, a part of growth, which cannot be justified by the accumulation of capital or increased labour. consequently, the tfp can be interpreted as an economic capacity to organise the production process, therefore, in the performance of the research of productivity problems, scientists prefer the total factor productivity (kfp) analysis. tfp is not measured directly; rather it is acquired as a balance after the total output of all other factors of the production of the investment. in scientific literature, it is believed that this indicator encompasses economic technological development, but the researchers have observed that it is also influenced by the quality of the institutions, economic openness, the internal organisation of enterprises, staff education and effort level (the level of employee effort), health, and a number of other indicators. although the concept of kfp is important in economic theory, it is difficult to apply in practice, as measuring capital is onerous and 95 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 it is necessary to make additional assumptions as to how labour and capital resources could be combined (the size of labour and capital share or investment in increase of productivity). therefor further attention will be stressed to labour productivity, where essence of tfp is one of productivity growth factors. this can be reflected in simplified form using standard cobb-douglas manufacturing function (sargent and rodriguez, 2001): y=aka l(1-a) , 0< a <1 (1) where y is output, k is capital input, l is labour input and a is tfp, a parameter that governs the relation between the inputs, capital and labour, and output. dividing equation (1) by labour input (l), gives the following expression: (2) where lower case letters denote quantities per unit of labour input, so that y expresses labour productivity or output per unit of labour input while k denotes the level of capital intensity or the capital–labour ratio. the dots indicate the rate of change of each variable. equation (2) implies that the rate of growth of labour productivity ( is equal to the rate of growth of tfp ( plus a times the rate of growth of capital intensity ( labour force productivity and tfp relevance can be reflected also as (total economy database): δlny=δln gdp− δln 𝐻=s̅k,itδln kit+s̅k,nitδln knit+s̅lδlnlq+δlna (3) where δln𝑦 denotes labour productivity growth, measured as the difference between 𝐺𝐷𝑃 growth and labour quantity growth, and 𝑘 is capital deepening, measured as the difference between capital service growth for the relevant asset type (ict or non-ict) and labour quantity growth. relevance between labour productivity and total factor productivity can be illustrated also graphically (see figure 1). ̇ = ̇ + ̇ figure 1 relevance between labour productivity and total factor productivity (author’s construction based on total economy database) growth in output increase in output per worker or per worker hour (labor productivity) increase in workers and worker hours increase in contribution of capital (machinery, equipment, structures) increase in contribution of human capital (skills, management competencies) increase in overall efficiency of production (tfp) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 96 as it can be seen in given picture economic growth (increase of amount of production) can be achieved either by increasing productivity or by attracting more resources, for example by increasing employment rate. however there are limits for resource attracting (especially for labour), for example demographical situation, which can reduce enterprise possibilities to increase amount of production. besides the less resources are available, the higher price for them, which increases costs of production, thereafter negatively affect competition in internal and external markets. this is why sustainable development can be provided only by increasing productivity, which is increase of production with available resources, or sustain the same amount of production with fewer resources. therefore, to increase productivity means effective use of existing resources or increase of production effectiveness and competitiveness. overall, in a small and open economy, productivity in the country (at macro level) is determined mainly by the average benefit of exported production per worker. it is export goods that determine the country’s competitiveness on international markets, which leads us to question, does or economy gain profit because of high technology or we gain profit because of cheap labour force. if productivity is high, teachers and hairdressers shall have high income. if this implication is not complied, than in the internal demand-driven sectors (mainly service sectors), wages are growing faster, there is inflation, loss of competitiveness and exports shrink. this in turn has a negative impact on economic growth and the welfare of people. (see figure 2). productivity has an impact on business competitiveness and is a key driver of economic growth and welfare of people. over time, the country’s capacity to improve living is almost entirely dependent on its ability to mobilise available resources and increase output per employee, so only increasing productivity can increase the welfare of people and maintain high standards of living in long term. productivity allows country sustain high level of salaries, stabile and strong national currency and high level of capital return and by them high level of life standards. the productivity of the labour force depends on the employees ‘ working capacity (e.g. physical and mental talents, health, skills, experience), willingness to work, creative attitude to work, and other conditions conducive to work, tool support (e.g. modern machines and technological equipment, tools, workplace design). in addition, a significant impact on labour productivity is technological progress that increases labour efficiency, various organisational factors related to the organisation of work and management of the production process, as well as human resources management. (see figure 3). the most significant factors of productivity essentially do not change (they are listed in a number of researches and differ only to the degree of details). some authors emphasise the importance of research and innovation (lopez-rodriguez & martinez-lopez, 2017), others pay attention to structural changes in the economy and the allocation of resources of the party’s aspects (harada, 2015; hartwig, 2015), yet others analyse technological factors. besides there are different activities implemented to increase productivity by improving these exact factors. it should be stressed out, that the impact of these measures on productivity growth can be very low if the ecosystems operational principles are complied with, it is when separate actions does not creates increase of effectiveness of ecosystem. on the contrary, a change in one element may weaken and even frustrate existing feedback and in result creates weakening of the economic transformation capacity, or the ability to increase the efficiency of existing resources. conversely, if the ecosystem has weak capacity to respond to technological globalisation and challenges, the economy gets into a trap. each measure of improving the performance-influencing factor must therefore be assessed in 97 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 figure 2 role of productivity in economic growth and welfare of people (authors’) figure 3 factors of labour productivity (authors’) the context of the overall ecosystem where the change in one element undeniably calls for qualitative and quantitative changes in other elements. for example, the use of new technologically advanced equipment is not possible without proper training of employees as well as without proper care of this particular equipment. these kinds of systems naturally occurs in economy. economical agents, whether they are banks, consumers, enterprises or investors, constantly adapts to new challenges when it comes to making decisions and changing its strategy, considering the benefits and losses. in the economy, you can find several examples of such customization. for example, the introduction of the “micro concept “ (micro tax) in latvia in the recession helped reduce the negative impact of the global financial crisis on entrepreneurial activity, which can be seen as a positive effect (in the short term). however, nowadays, it is a disincentive factor for increasing productivity; for example, there are large number of micro-enterprises with low innovative capacity in latvia comparing with other eu countries (which have resulted from a micro-concept). another example of week ability to effectively use of resources is high structural unemployment and large emigration flows. although in latvia investment in human capital is significantly lagging comparing to the higher income level eu member states, these investments are often benefiting other countries, which can offer an income corresponding to professional qualifications. consequently, not only every element of the ecosystem needs to be strengthened, but the feedback between the individual elements should also be strengthened, thereby reducing mismatch between them and promoting the overall efficiency of the ecosystem in the use and redistribution of resources. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 98 the analyses of productivity issues in latvia dynamics of productivity in latvia have been more rapid in recent years than on average in the eu, as a result since 2010 productivity gap has decreased for 9% points with eu average level. in 2017 productivity in overall latvian economy, described as gdp per one employee reached 46, 3% of average eu level. (see figures 4 and 5). still it is necessary to mark that in the long-term perspective productivity growth rates in latvia tend to shrink. if pre-crisis years (2004-2007) productivity increased by 7.4% each year, then in the last five years (2013-2017) by 2.2%, which is almost three times slower. while latvia is in one of the leading position between eu member states in its productivity growth rates, labour costs has increased rapidly comparing to productivity growth, which leads to decrease of competitiveness among enterprises in terms of costs. the decrease in competitiveness in terms of costs reveals an increase of price of nominal labour unit. (see figure 6). slow productivity growth in comparison with the growth of labour and other production costs leads to price increase of final consumer goods and services, which negatively affect producers’ competitiveness both in domestic and foreign markets and it leads to the decline in sales and impropriate usage of producers’ capacity, thus economic growth rate is decreasing. when analysing factors affecting productivity (see figure 3), it is possible to conclude that low productivity level can have different reasons (insufficient labour qualification, old production technologies with low effectiveness, weak management, etc.), however authors wish to emphasize structural aspects, namely that economic structure of latvia is predominated by the low technology sectors. analysing the production structure in latvia by technological intensity, shows that more than figure 4 productivity changes in latvia and eu (author’s construction based on. eurostat databases) figure 5 productivity in latvia (eu28 =100) (author’s construction based on. eurostat database) figure 6 productivity and labour costs (average increase per year in %) in latvia from 2011 until 2017 (author’s construction based on. eurostat databases) 99 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 50% of it consists of low-tech industries, while the high and medium high-tech industry are only less than 20%. thus, producing cheap items cannot generate more value and increase productivity, so it creates productivity trap (see figure 7). productivity trap situation when enterprise or state reaches certain productivity level and after that it’s growth slows down essentially, staying in a relatively low level for long time (productivity growth stopping). in academic literature, there is no generally accepted methodology, low productivity low income low contribution to r&d, low technological capacity low number of innovative enterprises, small amount of production with high added value figure 7 productivity trap (authors’) which would allow to evaluate, whether state has got into the productivity trap. several authors analyse productivity trap in enterprise level (for example, bahar, d. (2018), syverson, c. (2016) and others), focusing on factors, which determine productivity differences among several enterprises within one sector (enterprise size, production diversification, access to financing, innovation, etc.). however, in macrolevel this topic is poorly researched. authors consider that one of the indicators which indicates on the productivity trap on state level could be the decline in productivity convergence. figure 5 shows productivity trap in latvia, where we can see that since 2013 productivity (gdp per 1 employed) increase is weak, thereby also convergence speed of latvia is slowing down. oecd evaluates it by the annual difference in labour productivity gap (oecd, 2018) and gap on average in the eu is not reduced (on average in the eu). eurostat data shows that until 2008 productivity gap in latvia decreased on average by 2,5 percentage points annually, but in post-crisis period (since 2011) only by 1.4 percentage points (eurostat, 2018), which could indicate on fact that latvia is close or already in the productivity trap. only by allocating resources to the production of higher value added products at the enterprise level and by reorienting the economic structure towards high added-value sectors, there will be higher-level productivity; increase of welfare level and economy will overcome the productivity traps. such changes in a market economy (free competition) should take place in the natural way and should be called “creative destruction”, but there are a number of factors in reality, which slows these processes, for example unfair competition, administrative obstacles, etc. the process of reallocating resources also depends on the quality of the institutional framework (legislation, state aid, economic and political institutions), which ensure the efficient functioning of the markets for products and resources by minimizing the costs of the redistribution process and the risks, thereby reinforcing the country’s competitive advantage. it is also important that entrepreneurs have an interest in changing the existing business model and investing in the development of new technologies and staff. this is crucial in a situation where a labour force availability is exacerbated by the deteriorating demographic situation. thus, in order to increase productivity in latvia, attention must be paid not so much how to produce but to produce by moving “up the technology ladder”. according to data, at the moment latvia is lagging behind both in high and low technology sectors. (see figure 8). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 100 0 25 50 75 100 125 low-tec industry medium low-tech medium high-tech high-tech industry latvia germany pr od uc tiv ity en ha nc em en t st ra te gi esw ha t to p ro du ce how to produce productivity enhancement strategies according to data shown in figure 8, the greatest lag behind is observed exactly in medium-high and medium-low sector groups, but in high technology sectors productivity level differences are not so large. thus, it is possible to conclude that mitigation of the productivity gap in medium-low and medium-high technology sectors will give significant positive impact on the increase of the total productivity level, however it will not strengthen competitiveness of latvian producers and will not promote development of production potential in a long-term. it means that in order to increase the total productivity level it is important both to identify problems of certain sectors (study of obstacles on a level of certain enterprises and sectors) and promote structural transformation in economics (progress towards high technology sectors). if low productivity stability continues to persist, it can significantly limit latvia’s growth, wage increases and welfare level. nowadays world faces age of technological transformations, which is also called the 4th industrial revolution. this is why it is so important to understand, whether are we ready to face new challenges of competitiveness, are we capable to gain benefit from future production, decrease risks, also are we flexible enough to react on possible future turmoil’s. on the need to strengthen the capacity of production industry points out article of europe commission, stressing out, that eu need to strengthen our industry’s ability to continuously adapt and innovate by facilitating investment in new technologies and embracing changes brought on by increased digitisation and the transition to a low-carbon and more circular economy. but companies must do their part by upgrading the technology base, future-proofing business models, internalising sustainable development principles and embracing innovation (ec, 2017). according to the world economic forum research “readiness for the future of production report 2018” methodologies, country readiness to future challenges set by the current production base, its structure, as well as the development level of main drivers (including technologies and innovations, human capital, participation in international trade, quality of institutional system etc.). (wef, 2018) according to the world economic forum (wef) evaluation, the 4th industrial revolution will significantly transform the world’s production and few countries are ready for its challenges. as the results of the research show, currently latvia is characterised with a poorly developed base of production (a low level of manufacturing in gdp) and a low level of technological development which significantly restricts economic readiness for the new competitive challenges (see figure 9). figure 8 productivity (thousands eur per one employee) in manufacturing industries by technological intensity (author’s construction based on. eurostat databases) 101 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 austria belgium czech republic denmark estonia finland france ireland italy the netherlands poland slovenia spain sweden great britain hungarylithuania romania slovakia portugal bulgaria croatia cyprus greece latvia 4 5 6 7 8 4 5 6 7 8 st ru ct ur e of p ro du ct io n drivers of production legacy strong current base but insufficient technological development potential high-potential limited current base, but high technology development potential nascent limited current base and low technological development potential leading strong current base and high technological development potential figure 9 assessment of current state of preparedness (author’s construction based on. world economic forum data) as shown in the picture below, estonia is ranked among the leaders, one of the 25 countries of 100 included countries in research. successful group, comprising 25 of the 100 countries included in the study. latvia, compared with leaders, has a lower assessment at the development of key production drivers (including technologies and innovations, human capital, participation in international trade, quality of structural system etc.), which significant restricts readiness of economy to future competitive challenges. to provide fast industrial development in future, it is necessary to promote high technology field. to be based on low cost labour force and extensive use of local resources (mainly it refers to wood-processing) fast development cannot be promised in the future. vital structural changes are not one day task. it takes time and appropriate politics of industry development. one of the essential issues of industrial policy is to clearly identify the direction of structural transformation by establishing effective mechanisms for implementing it. to strengthen the latvian production base and its readiness for the future challenges crucial will be the rapid development of high-technology sectors, including attraction of foreign capital and reinforcing channels of knowledge and technology transfer. while the effectiveness of industrial policy is mainly determined by the quality and competitiveness of the institutional environment. _ productivity measures effectiveness of used resources in production process of certain amount of production (in enterprise, sector or in economy as a whole). _ labour productivity, or productivity, reflects the amount of labour input that is consumed and used in the production process and is expressed in quantities of goods and services, which has been produced per one working hour (benefit per one worked hour) or output per employee (real amount of gdp per one employee). _ latvia currently has a poorly developed base of production (a low level of manufacturing in gdp) and a low level of technological development which significantly restricts economic readiness for the new competitive challenges. _ 2008 productivity gap in latvia decreased on average by 2,5 percentage points annually, but conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 102 in post-crisis period (since 2011) only by 1.4 percentage points, which could indicate on fact that latvia is close or already in the productivity trap, i.e. situation, when productivity growth stopping). _ at the moment latvia is lagging behind both in high and low technology sectors, but the greatest lag behind is observed exactly in medium-high and medium-low sector groups. _ to increase the total productivity level in latvia it is important both to identify problems of certain sectors (study of obstacles on a level of certain enterprises and sectors) and promote structural transformation in economics (progress towards high technology sectors). _ the role of the government’s economic policy in increasing the total productivity level is to provide a high-quality institutional and business environment so that entrepreneurs would be interested and able to invest. _ one of the more significant productivity challenge in latvia is the need to strengthen the production capacity and capacity of the industrial sector, in order to be able to adapt to the challenges of the new industrial age by encouraging investment in new technologies. therefore, it is important to understand whether we are prepared for the new challenges of competitiveness, i.e. whether we are able to benefit from future production opportunities, reduce risks, and can be flexible in responding to future shocks. bahar, d. 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(2017) export and productivity in global value chains : comparative evidence from latvia and estonia. oecd economics department working papers no. 1448. oecd. (2017) economic surveys: latvia 2017. paris: oecd publications. september 2017. oecd. (2017) regulation, institutions and productivity. new macroeconomic evidence from oecd countries. paris: economics department working papers no. 1393. oecd. (2018) economic surveys: lithuania 2018. paris: oecd publications. 2018. https://doi. org/10.1787/eco_surveys-ltu-2018-en oecd. productivity statistic database. [online] available at http://stats.oecd.org/index.aspx?datasetcode=pdbi_i4 [accessed 10 march 2018] sargent, t. c., rodriguez, e.r. (2001) labour or total factor productivity: do we need to choose? department of finance working paper. https://www. fin.gc.ca/pub/pdfs/wp2001-04e.pdfthe national economy of latvia. macroeconomic review #70 | 2018-1. ministry of economics of the republic of latvia, 2018 syverson, c. 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[online] available at: https://www. weforum.org/reports/the-global-competitiveness-report-2017-2018 world economic forum (2018). readiness for the future of production report 2018, wef. about the authors sandra jekabsone dr.oec., assoc. professor university of latvia faculty of business, management and economics, department of economics, economics bachelor's and master`s programme director fields of research interests macroeconomics, national economy of latvia, structural and investment policy, labour market, development of regional and social economy address tel. +37126172296, e-mail: sandra.jekabsone@lu.lv irina skribane mg.oec., lecturer university of latvia faculty of business fields of research interests management and economics, department of economics address tel. +37128370696, e-mail: irina.skribane@lu.lv european integration studies 2011.indd 39 issn 1822–8402 european integration studies. 2011. no 5 the cloud university platform: new challenges of the co-operation in the european university system jari kaivo-oja*, jari stenvall** finland futures research centre, university of turku finland, *; university of lapland, finland** abstract many experts have recently noted that cloud computing is a key driver of digital technology and ubiquitous revolution. cloud computing is internet-based computing, whereby shared resources, software, and information are provided to computers and other devices on demand, like the electricity grid. in the paper we concentrate on “clouds” in the context of universities. the aim of paper is to create the conceptual framework of the cloud university platform. the concept of european cloud university is a new idea to make universities to be more competitive in a global setting and provide a broad set of educational services to customers. it provides a large-scale platform for exchange of information, views, mutual learning and practical cooperation between innovation policy and innovation support actors with an interest in, and willingness to contribute to the improvement of the design, implementation and delivery of innovation policies and support measures. keywords: universities, co-operation, europe, innovation systems, open innovation paradigm, ecosystems of innovation, cloud computing, innovation dynamics, life long learning. introduction in this article we shall discuss about future challenges of european university co-operation. many experts have recently noted that cloud computing is a key driver of digital technology and ubiquitous revolution. cloud computing is internet-based computing, whereby shared resources, software, and information are provided to computers and other devices on demand, like the (1) electricity grid (smart grids in general), (2) smart buildings and housing systems and (3) location and navigation systems. in the paper we concentrate on “clouds” in the context of universities. the aim of paper is to create the conceptual framework of the cloud university platform. our study is based on broad literature review and desk work and grounded theory. the research target of this article is to open the future oriented concepts and the novel research discourse of the cloud university. the views and results, which are presented here in this article, are based on open and selective coding analyses (see potter 1996, strauss and corbin 1998, glaser 2008). later we plan to extend our study to more complex analyses like conditional matrix analyses. the concept of european cloud university is a new idea to make universities to be more competitive in a global setting and provide a broad set of educational services to customers. it provides a large-scale platform for exchange of information, views, mutual learning and practical cooperation between innovation policy and innovation support actors with an interest in, and willingness to contribute to the improvement of the design, implementation and delivery of innovation policies and support measures. the interaction between innovation, entrepreneurship and regional economic development has become a central theme in many policy circles. recently, the penetration of utilitarian arguments into governments’ university policy has been so intensive that even the concept of scientific curiosity has been replaced by the concepts of innovation and entrepreneurial attitude. the new phenomenon of entrepreneurial universities has received considerable attention over the last decades. an entrepreneurial orientation by academia might put regions and nations in an advantageous position in emerging knowledgeintensive fields of economic activity. at the same time, such entrepreneurial orientation requires reconciliation with the scientific visions, missions of academia (see e.g. baumol 2002). in the political context, the concept of innovation refers now to a process where all producers of knowledge are involved in every phase of an innovation chain, i.e. from the production of knowledge to its marketing and commercialization. universities can play a critical role both in supply driven innovation and demand driven innovations. there has also been pressure on the universities to redefine their strategic goals, core values and missions in order to demonstrate their contribution to economic progress and social welfare, and their value as a public investment. a closer look reveals a multiplicity of visions and prospects of the future that are driven by highly advanced innovations and technologies. in a way the visions are based on social theory as a plenty of references has been made to some ”postmodern” elements of socio-economic change. in particular the political views of ”the information society” or “knowledge society” (blair, 1998, sitra, 1998) and ”the globalizing learning economy” (european commission 1998) have served as syntheses of the new technologyintensive social, economic and human progress. key forms of innovation are technological innovations, business innovations and social innovations. today innovation should be considered as a dynamic process referring to above threedimensional knowledge system. innovation processes have issn 1822–8402 european integration studies. 2011. no 5 40 extremely complex composition and mechanism. traditionally, there have been two dominant approaches in innovation theories: (1) technology push approach (supply based approach) and (2) demand-pull approach (demand based approach). according to the traditional supply-based approach, the so-called linear model assumes that innovations can be advanced in an organized manner and systematically. by demand based innovations we mean that users, customers, and different actors are interactively connected into making innovations. viewed from this perspective, the advancement of innovations does not necessarily follow any clear and phased logic but develops contextually and is problemrelated, inductive, and dependent on interrelationships. the ecosystem of an innovation represents in the research project an approach that can be utilized for analyzing and developing dynamic and customer-oriented innovations. the approach related to the ecosystem of innovations contains a potential, which enables the implementation of european research and innovation policies more convincingly. by innovations ecosystem we mean the approach where the objective is to specify the factors that affect the generation and development of innovations taking into account adaptation into the operating environment. in a complex environment, a functional ecosystem contains, firstly, actors that utilize innovations, such as entrepreneurs and actors of the public sector, and, secondly, modes of operation that promote dynamism and self-steering, such as interaction and network structures based on openness, and practices that promote social activities (e.g. social media). in addition, ecosystem includes the structures supporting it. these include especially universities and research institutions. ecosystems are both local and global. according to finnish innovation policy expert, prof. hautamäki, the best “innovation ecosystems” are local, dynamic and open environments in which there is toplevel research, adequate funding for new competencebased companies, high-standard business services, a skilled workforce and a diverse set of enterprises. most importantly, however, this “ecosystem” would nurture creativity, encouraging experimentation and risk taking and close cooperation between different actors, especially international actors. innovation activities are no longer an internal matter for companies. they have been partly outsourced and distributed. innovations are created in collaboration with clients, end-users, research institutes and other enterprises (hautamäki 2008). knowledge is a pre-condition to an innovation. innovation is equal to applications of a new idea or a new application of an existing idea. it is not just in high tech, manufacture, private sector, but in low tech, service, public and private sector. innovation refers to all discipline fields: not only based and depend on natural science and technology, but also on social science and technology. (moulaert and sekia 2003). albeit often gradually, the roles that universities undertake in society change and evolve over time. “the medieval university looked backwards; it professed to be a storehouse of old knowledge . . . the modern university looks forward, and is a factory of new knowledge.” so wrote the english biologist thomas henry huxley in 1892, remarking on the transformation that industrial society had stimulated in longestablished functions of universities. this kind of evolutionary process will also take place in the future. evolution in the role of universities is proceeding from knowledge storehouse (mode 1) to knowledge factory (mode 2) to knowledge hub (mode 3) and finally to innovation factories (4). universities are not ivory towers, but they are innovation engines and learning environments in contemporary societies (carayannis & campbell 2006, mowery et al ). in the next chapters we discuss more about future prospects of european universities. our focus in on innovation processes of the european universities. we also discuss shortly about strategic lifelong learning role of the european universities. new dynamics of european innovation systems recently, prahalad and krishnan reveal that the key to value creation and future growth of every business depend on having access to global resource networks that cocreate unique experiences with customers. this idea of global resource networks is a key element in the innovation ecosystem thinking. it is worth of thinking in the policy context of managing european universities. (prahalad and krishnan 2008). the more systemic view of the innovation process recognizes the potentially complex interdependencies between the elements of the innovation process. the chain-linked model makes it evident that the systems-oriented approach accords great importance to the demand side. it has been shown that many users – both individuals and firms – develop new products and services to serve their own needs. the so-called customer-driven innovation process is increasingly relevant for many companies. technological progress has made this kind of innovation model easier and more feasible for larger segments of population. user-innovators and open innovation models will probably change the logic of innovation systems in the future. as stated above, open innovation is a new paradigm for managing research, technology, r&d, and business. many companies have opened their innovation processes and successfully utilize open innovation strategies. knowledge society is internationally networked. the well being of europeans depends on what the customers in china choose today, and what the factories in brazil make tomorrow. also creative class is more and more international. a strategy for globalization is therefore an integral part of the european knowledge society strategy. (florida 2002, von hippel 2005, baldwin, hienerth and von hippel 2006, chesbrough,, vanhaverbek and west 2008). today we can start talking about national open innovation systems,l about nois paradigm (see freeman 1995, santonen, kaivo-oja and suomala 2007). global networking is becoming increasingly easy. strategic investments are needed to grasp this opportunity. european universities probably need to think of globalization as a challenge and, accordingly, of global investments and the networking of universities. europe must strengthen its global competitiveness in higher education, research, and innovation. we are moving from an information society towards a ubiquitous society. ubiqueis latin for ’everywhere.’ the “ubiquitousness” of our near future means that information technology decreases in physical size and spreads out to all possible everyday situations. the relationship between man and machine is slowly transforming into a relationship between man and his technological environment. this issn 1822–8402 european integration studies. 2011. no 5 41 development is substantially affected by the future of the internet; web 2.0 and 3.0 (internet of things). we anticipate that in 2030 everyday objects, such as refrigerators, clocks and e-cars, are connected to the internet. for example, a smart refrigerator is able to make sure that it contains all the necessary groceries according to predefined parameters. (see e.g. kurzweil 1990). many similar kind of technological applications will be invented. we can expect that internet of things, web 2.0 and web 3.0, cloud computing systems and fast expansion of social media will change organizational logic of european universities (see e.g. cachia , compano and de costa 2007). probably after social media we can start talking about ubi-media although other form of media (broadcasting media, interactive media and social media) will exist in the communication, news and media markets. ubiquitous refers to pervasive, embedded information technology that works imperceptibly. the term ‘ubiquitous computing’ was first defined in the late 1980s by mark weiser of the xerox laboratory. the goal was to achieve technology with such a subtle, easy-to-use presence that it goes unnoticed. discussions on ubiquitous society involve such concepts as “smart” spaces and materials and mediated built environments. a smart space refers to the interaction between man, computer and the built environment. “smart” is in quotes, naturally, for we are not dealing with intelligence per se. a “smart” space is not an independent cognitive entity. ”the emerging relationship between people and pervasive computation is sometimes idealized as a ’smart space’: the seamless integration of people, computation, and physical reality.” (weiser 1991). the concept of european cloud university is a new idea to make european universities to be more competitive in a global setting and provide a broad set of educational services to global customers and european citizens. european universities and research institutes are vitally important in this context. the development of these european institutions primarily requires action within the national and regional systems for higher education, science, and research in order to provide adequate funding and favorable framework conditions. without pilot experiments transition process will be more difficult than in a situation where piloting activities are made in a large scale. university reform should be supported by cross-border cooperation and action at the european level. the agenda for modernizing european universities is a fundamental part of new innovation ecosystems. (aho 2006, brinkley 2008). the cloud university platform the fundamental concept of cloud computing is that the computing is “in the cloud” i.e. the processing (and the related data) is not in a specified, known or static place(s). this is in opposition to where the processing takes place in one or more specific servers that are known. cloud computing provides a new platform for the european universities. all the other concepts mentioned are supplementary or complementary to this concept. generally, cloud computing customers do not own the physical infrastructure, instead avoiding capital expenditure by renting usage from a third-party provider. european cloud university could provide a new possibility of distant work and education. they consume resources as a service and pay only for resources that they use. many cloud-computing offerings employ the utility computing model, which is analogous to how traditional utility services (such as electricity) are consumed, whereas others bill on a subscription basis. sharing “perishable and intangible” computing power among multiple tenants can improve utilization rates, as servers are not unnecessarily left idle, which can reduce costs significantly while increasing the speed of application development. a side-effect of this approach is that overall computer usage rises dramatically, as customers do not have to engineer for peak load limits. in addition, “increased highspeed bandwidth” makes it possible to receive the same. the cloud is becoming increasingly associated with small and medium enterprises (smes) as in many cases they cannot justify or afford the large capital expenditure of traditional it. smes, citizens and public agencies also typically have less existing infrastructure, less bureaucracy, more flexibility, and smaller capital budgets for purchasing inhouse technology. similarly, smes in emerging markets are typically unburdened by established legacy infrastructures, thus reducing the complexity of deploying cloud solutions in contemporary societies, universities have three main functions. through science, technology, and innovation (sti), universities (1) are working to provide research achievements needed in the society, (2) promote different modes of technology transfer to promote productivity, and (3) realize the universities’ mission of talent education and social service. these functions of universities are strategically very important for the competitiveness of europe. on the one hand, universities must strengthen their capability of scientific research innovation, produce first-rate research achievements that can be recognized internationally; on the other hand, european universities need to transform research achievements into practical productivity, make full use of them in the industrial and service sectors and in the public sector. in doing so, universities utilize extensive social and economic resources, which not only promote social development, but also raise more funds and absorb more resources for themselves, and enhance their economic strength. cloud concept allows for joining two or more elements in order to perform a more complicated, bigger task than available for a single one and keep the structure easily reconfigurable, flexible and agile – in the area of three key university functions. the theoretical platform is the systematic innovation theory (innovation ecosystems and social innovations) combined with creativity and open innovation approach (phills, deiglmeier and miller 2008). the growth of knowledge has accelerated in recent years and bright minds clustered in the right environments could spark a knowledge revolution and knowledge societies. according to the lisbon strategy and post-lisbon developments, europe tries to become a leading knowledge society. the future internet, which will see full integration of infrastructure and user services, is now a key driver of the networked digital economy. the core of knowledge society is its system of learning. when the processes of knowledge production and appropriation change the system of learning will also change. education is rapidly becoming international and intertwined issn 1822–8402 european integration studies. 2011. no 5 42 into individual life careers. the historical role of european universities as institutions of knowledge production is about to change. it should not be impossible to think that the system of education in the next decade should look quite different from what it is today. a new system of learning and inventing is about to emerge, and what will it do and what will it will look like will depend on us. sustainability challenge in many strategies of the european commission information and communications technologies (ict) cluster is seen to be one policy instrument promoting development towards sustainability. in these strategies key idea is that the mobilizations of icts facilitate the transition to an energy-efficient, low-carbon economy, and also to better sustainability. the cloud university platform can be an effective tool to (1) promote the use of nature saving technologies, (2) improve ecological land use and sustainable transportation systems, and (3) raise awareness of more sustainable lifestyles. these kinds of political sustainability targets can be integrated to the cloud university platform. the use of modern icts can increase dematerialization of production and immaterialization of consumption (see e.g. jokinen, malaska and kaivo-oja 1998). in general, knowledge and learning are fundamental component of sustainable economic growth and welfare. learning processes typically are built on trust and social capital. institutions that are able to imbue these elements into firms and markets encourage interactive learning and are more likely to produce strong innovative capabilities. (archibugi and lundvall 2001). from the social and economic trust perspective it is very important to eliminate all possible security and privacy risks of the cloud university system. future challenges of european university co-operation international competitiveness and macroeconomic performance are functions of innovation-based commerce and long-term innovation abilities. different innovations may require quite different organizational efforts and may result in a multitude of competitive impacts. from this perspective, innovation types can be categorized into two classes: incremental and disruptive innovations. incremental innovations utilize current technology in the market to strengthen existing competencies. this type of innovation generates value by accumulative effect and by creating versatility. disruptive innovations frequently begin in limited markets, but, after technological improvements, they substitute current technologies and simplify the product and the value proposition. (dosi 1982, abernathy and clark 1985). innovation begins with ideas, but ideas need to be transformed into useful commercial and social outcomes. an innovation ecosystem model encompasses more than knowledge inputs and incorporates all relevant factors and stakeholders that generate value to customers. the importance of software technologies is increasing. software has a special role because it is the technology that is used to implement the new forms of social and societal practice. a profound understanding of software technologies is a critical success factor of the knowledge society (including european universities). in the global economy the commercialization of innovations will be an increasingly central source of value. knowledge economy is an innovation economy. this has already become visible in the fact that employment growth has focused on young well-educated workers. a highly evolved innovation ecosystem enables participants to work across company boundaries, focus on customer value creation, respond quickly and with agility to shifts in market demand, accelerate the transition from research to production, and be more adaptive to change. innovation ecosystems build a collaborative advantage and a strategic asset for economic growth and profitability in the years ahead. the scheme of the national innovation ecosystem proposed by the council on competitiveness includes the following propositions (see council on competitiveness 1987, watanabe and fukuda 2005): • innovation is much more than technology — many additional resources and services are essential for market success; • as with human health, there is no single attribute adequate to capture innovation dynamics and multiplicity features; • the success and diffusion of innovation is ultimately determined by the demand side and not just by technical inputs and product features; • firms are beyond the dichotomy of technology push and market pull; they are embracing both sides of the equation by collaborating more closely with customers, associating with external sources of innovation, networking resources into new business models, and focusing innovation on global market opportunities, and • non-linear dynamics characterize the entire innovation value chain end-to-end at the national and the firm level. top level experts in u.s. and japan see co-evolutionary development cycle in the following way (fig. 1, watanabe and fukuda 2005, p. 3). figure 1. the mutually inspiring co-evolutionary development cycle in japan and the usa (1950-2010) thus, european innovation eco-systems are important to build on fundamental european social innovation advantages. many innovation advantages are based on long-term sociotechnical system development. also maintaining advantage requires constant assessment, choices and renewal of innovation eco-systems. the web makes it possible today to issn 1822–8402 european integration studies. 2011. no 5 43 develop deeper relationships with customers by linking the information systems of interacting organizations together in order to reduce or eliminate the time required to react to changing market requirements. self-organizing systems and network dynamics allows co-operation among dynamic value chains in several industry and service sectors. the web can help also in consumer-driven innovation processes in europe, if companies can get relevant weak signals in time from different consumer groups. the development of innovation ecosystems is a powerful capacity building instrument for implementing a comprehensive european horizontal industrial policy by linking rtd policy (fp7), innovation and support to smes (cip), cohesion policy (“innovation poles”, researchdriven and industrial clusters, “regions of knowledge”), and international cooperation policy. the big advantage and public good of european cloud university is that it provides a lot of possibilities to decrease transaction costs of european university network. this increases the competiveness of european university system. also many sustainability benefits can be created by this kind of invention. conclusions we have argued that cloud cniversity is the platform for innovation ecosystem. this means that the concept of cloud university platform gets contents from innovation ecosystem and its future challenges. also modern triple helix idea and thinking (co-operation of the government, the industries and the academia working together) requires agile adoption of modern tools of internet and other digital technology communication tools. as we have noticed as well that evolution in the role of universities is proceeding from knowledge storehouse to knowledge factory to knowledge hub and finally to innovation factories. today innovation should be considered as a dynamic process. innovation processes have extremely complex composition and mechanism. innovation ecosystems should build a collaborative advantage and a strategic asset for economic growth and profitability.a highly evolved cloud university platform enable participants to work across company boundaries, focus on customer value creation, respond quickly and with agility to shifts in market demand, accelerate the transition from research to production, and be more adaptive to change. usa and japan are now adopting this kind of new approach. innovation eco-system approach was launched by us national council of competitiveness in 2004 (21st century innovation working group of the council on competitiveness 2004). in japan industrial structure council made similar statement in 2005 (industrial structure council 2005). especially the emergence of ubiquitous society requires new kind of approach to innovation system management. paradigm shift from information society to ubiquitous society is obvious and recognized (see e.g. watanabe and fukuda 2005) to sum up, if european union wants to take ubiquitous technology revolution seriously, broad innovation eco-system thinking must be adopted. european cloud university model is such a platform, which includes an innovation eco-system thinking idea. references abernathy, w. j. and clark, k. b. (1985) innovation: mapping the winds of creative destruction. research policy 14, pp. 3–22. aho, e. (2006) creating an innovative europe. report of the independent expert group on r&d and innovation, http://ec.europa.eu/invest-in-research/pdf/download_en/ aho_report.pdf. archibugi, d. and b. lundvall, b. (2001) (eds.) the globalizing learning economy. oxford university press, oxford. baldwin, c. & hienerth, c. and von hippel, e. (2006) how user innovations become commercial products: a theoretical investigation and case study. research policy 35, pp. 1291–1313. baumol, w.j. (2002) the free-market innovation machine: analyzing the growth miracle of capitalism. princeton university press. princeton, new jersey. blair, t. (1998) 1998 our information age. the government’s version (summary). web: http://www. number-10.gov.uk/public/info/releases/publications/ infoage.feat.html. brinkley, i. 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(1991) the computer for the twenty-first century,” scientific american. september 1991, pp. 94110. the article has been reviewed. received in april, 2011; accepted in june, 2011. 15 issn 1822 – 8402 european integration studies. 2010. no 4 competitive identity for nation of latvia – lessons to learn from national hockey team ‘’dinamo riga’’ ainars brencis, juris ozols school of business administration turiba abstract nowadays global competition could be seen not only in corporate level, but also is exists among nations. competition among nations is in following sectors – foreign investment, export and tourism. as there is competition between nations, regions and cities (as it is among corporations) there will be always need for methods to increase subject’s competitiveness – this can be defined as a competitive identity (porter 1998). term competitive identity is used as broader expression of brand management for nations, cities and regions. higher marketing effort is needed for developing (emerging) nations, and nations without resources (natural or man made) representing absolute advantages. nation branding has emerged relatively recently as an important field in the domain of international marketing. anholt 2007 states marketing quality depends on all the national stakeholders (virtually society – people) working together in creating competitive identity. media could be involved only after all the stakeholders speak one language about their country. communication can’t substitute positive change; it can only help change to happen faster. latvian authorities too often start from the least efficient – communication. according to nation brands index (nbi) and city brand barometer, latvia and its capital riga, shares one of the last places – 35 to 40th (depending on research type and year) place from forty among other nations and cities around the world. after regaining independence and collapse of almost all the industry, there was little left for positioning latvia as a nation, so fanning for ice hockey was spontaneous and very convenient way for local people to speak common language about their nation. so the state became branded without any positioning effort, by people themselves. the message to the outside world was; ‘’we are small nation risen from the rubble, but we can be part of worlds elite either as players or also as supporters.’’ in fact latvian ice hockey is among world’s elite nations fluctuating between 7th and 12th places. following victory over russia and other dramatic success of latvian national team (predecessor of club ‘’dinamo riga’’) number of fans increased rapidly. in the beginning of millennium there was notion in latvian society ice hockey would bring us to the very top of the world. ice hockey became the most popular sport in latvia and at the same time national game, and economical development and international recognition followed until financial crisis stroked and ice hockey was put in hands of professional marketers commercialising and merchandising every aspect of the game. due to financial crisis latvian society is far from unity, but this can’t be addressed to ice hockey. may be emotions are not as strong as before 10 years, you can still feel deep sense of national identification and expression through ice hockey. in could be explained as inertia, or lack of other alternatives for external communication. could latvian authorities repeat success of ice hockey story in terms of national effort of self and social support in positioning nation of latvia? answer is positive there must be an alternative. keywords: place branding, brand management, competitive identity, sports marketing. introduction brand management for nations, cities and regions are analysed by such scientists: olins w. anholt s. kotler f. porter f. balakrishnan.m.s kavaratzis.m. ashworth g. zenker s. and pike.s. nation branding has emerged relatively recently as an important field in the domain of international marketing. the field of nation branding is characterised by an increasingly large amount of real world activity, but relatively little rigorous theory-building. the destination branding literature only surfaced relatively recently, with the first academic conference session convened in 1996, the first journal articles appearing in the late 1990s, and the first book published in 2002 (pike 2005). focus of this study is competitive identity as a new brand management for nations, cities and regions. ‘’most countries communicate with rest of the world create their reputation through six natural channels.issn 1822-8402 european integration studies. 2010. no 4 16 hexagon of competitive identity: 1) tourism promotion 2) export brands 3) policy decisions 4) cultural exchange 5) local people 6) inward investment’’ (anholt 2007). this paper tries to find out conceptual answer whether latvian sports success to win people’s/fan’s loyalty and support could be repeated or used in positioning of latvia. problem of this study – despite several studies in the field place management reputation of latvia in global scale is still low. novelty of this study – according to the authors best knowledge, no previous research papers have analysed the impact of sports on international reputation of latvia. the aim of this paper: by studying brand success of national ice hockey and “dinamo riga“look for positive examples in brand management for nation of latvia and set background for further studies in this field. research tasks – is to analyse concepts of brand and place brand, sports marketing, and “dinamo riga” as national hockey team, the impact on reputation of latvia. research methods bibliographical review and case study. research object –competitive identity for nation of latvia. brand and place brand “a brand is a consistent group of characters, images, or emotions that consumers recall or experience when they think of a specific symbol, product, service, organization or location” (simeon 2006). branding must “attract and keep customers by promoting value, image, prestige, or lifestyle” (rooney 1995). conceptually, nation branding is characterised by a degree of complexity greater than that which is normally associated with brand and reputation management for single products. the multiplicity of stakeholder groups, for instance, which nation branding must address, represents a significant challenge for the discipline. the reason is that destination brands are similar to corporate brands, as they act as umbrella brands for a portfolio of leisure, investment and business tourism, and stakeholder and citizen welfare products (trueman 2004). in other words places increasingly compete with other places to attract tourists, business and investment (kotler 1993). latvian case as stated above place branding is driven by global competition. it exists not only in corporate level, but also among nations. latvia is not exception. the great democracies of old europe have been building their rich and positive reputations for centuries, while latvia – as far as the west is concerned – simply didn’t exist until a few years ago. for many years local marketers are struggling to find the ways on what and how to speak to the outside world. for the time being latvia is far from success in building competitive identity; according to nation brands index (nbi) and the saffron city brand barometer. latvia and its capital riga, shares one of the last places 35 to 40th (depending on research type and year) place from forty among other nations and cities around the world. latvia’s current lack of respect stems principally from the following (anholt 2007): 1. anonymity: it is a country which people have heard of (probably as a result of independence and eu accession), but about which they appear to know virtually nothing. 2. perception of zero heritage/culture: last place in the nbi. 3. perception of zero technology. 4. perception of zero natural assets/tourism attraction. latvia is ‘’hitting the wall’’ by lack to have absolute or relative advantages to form the message for outside world. by the beginning of millennium latvian marketers developed visual representation of event they hoped will drive attention; latvia was positioned as ‘’land that sings’’ (see: exibit1). stake was put on song and dance festival, being unique and promising absolute advantages in competition with other rivals. for latvians it is not just a festival – the tradition goes back for 135 years and in 2003 together with lithuanian and estonian song and dance tradition it was recorded in the unesco list of masterpieces of oral and intangible cultural heritage. idea failed mainly because of difficulties to position the nation through event taking place only once in four years. figure 1. ‘’old (left) and new (right) symbols of latvia only in 2010 local authorities took an action to replace concept ‘’the land that sings’’ to ‘’latvia – best enjoyed slowly’’ (see: exibit1). o.kalnins director of latvian institute noted: ‘’that’s the general opinion of most people who live in latvia, and that seems to be the consensus among international travellers, which explains why latvia’s tourism development agency recently unveiled a new tourism promotion concept based around the tagline – „latvia best enjoyed slowly”. time will show whether this concept will help issn 1822-8402 european integration studies. 2010. no 4 17 latvia to climb stairs of international recognition. the main difficulties in place branding are (tayebi 2006): 1. getting the governors of places to realize that they need to involve other key stakeholders from the private and civil sectors in the development of the place; 2. getting the leaders of governments, (local, regional and national) to share the leadership of the development of their place; 3. getting key stakeholders to join together to undertake joint leadership of their place in partnership; 4. getting key stakeholders to understand the difference between place marketing, destination marketing and place branding; 5. getting key stakeholders to realize that place branding has more to do with economic development and public governance than advertising, logos and strap lines 6. getting key stakeholders to realize that place branding takes time and is not an advertising campaign of a few months duration; 7. getting key stakeholders to understand the principles of place branding in order to create competitive identity for nation, 80% of success depends on innovation, 15% coordination and only 5% from communication (anholt 2007). marketing quality depends on all the national stakeholders (virtually society – people) working together in creating competitive identity. media could be involved only after all the stakeholders speak one language about their country. in other words, national branding must be perceived as component of national policy and not as a single marketing campaign to be done separately without complex approach. communication can’t substitute positive change; it can only help change to happen faster (anholt 2007). as has been seen above latvian case consistently lacks 1) public appeal towards common goal, as people do not take an action except by paying taxes 2) politicians will not support, since due to economic crisis competitive identity is not priority to latvian government 3) key stakeholders associate place branding with mass communication many times creating senseless logos, printing useless leaflets and running short term marketing campaigns. taking into account the afore-mentioned the authors consider it necessary to find another competitive identity for latvia, and suppose it may be sports that are further analysed in the paper. sports marketing the early beginning of sports marketing date back to ancient rome, when roman patriarchs sponsored gladiatorial games for the same reason today’s companies do – to win public esteem (ukman, 1984). sports rank as the eleventh largest industry in the usa in 1995 (shannon 1999). sports marketing can be broken into two categories: the marketing of sports (marketing sporting events and equipment to spectators and participants) and marketing with sports promotion of non-sport products at sporting events and using athletes to endorse non-sport products (shannon 1999). sports may be linked with cults as well. why do people join cults? why do they become devoted to certain brands? the simplest answer is that membership tends to make them feel at ease by being among like-minded others. thus, one of the most important characteristics of cults and cult brands is that they establish the differences that link their users (atkin 2004). sports fans it is the support of the sports fan that underpins the sports industry; as explained by taylor (1992), “the crowd is the supreme authority without which the golden core of the game has no currency”. this group buys season tickets, attends games, pays for parking and concessions, and typically follows the exploits of a favourite player or team with unabashed loyalty. when not actually attending games, this group will watch games on television, and purchase league apparel, supporting a multi-billion dollar market for licensed products (ozanian 1995). fans manifest their attachment through specific behaviour toward the object. further, fan is an enthusiastic consumer, meaning that he or she is motivated to engage in behaviour related to sports. the sports consumptive object can be a sport in general, or a specific league, or team. or the object can refer to a personality such as a player, coach/manager, broadcast announcer or other individual who has strong associations with a team or sport. existing conceptualizations have tended to concentrate on team performance as the primary determinant of fan behaviour. yet, fan motivation and subsequent behaviour go beyond the record of teams and, at times, seem unrelated to performance, as it is in the case of ‘’dinamo riga’’, in fact the sports performance of the club is much lower than support performance of latvian population (see further). however, fan behaviour is often cited by coaches and players as a determinant rather than as a consequence of team performance. therefore we devote the further lines for characterising sports fans. classifying sports fans there are several ways for sports fans classification. smith (1988) made the distinction between “serious” and “normal” sports fans, proposing that the serious fan believes the result of the sports contest matters. similarly, issn 1822-8402 european integration studies. 2010. no 4 18 real and mechikoff (1992) suggested the notion of a “deep fan”. deep fans have a ritual identification with mass-media sports productions, portrayals of athletes, and related commercial advertising. for the deep fan, sport provides a means of identification, celebration, expression, and interpretation of social life. hunt, bristol, bashaw (1999) provided following classification of sports fans. the temporary fan the temporary fan’s interest in the phenomenon is time constrained. after the phenomenon of interest is over, the fan is no longer motivated to exhibit behaviour related to the sports object, but rather returns to normal behavioural patterns. thus, the temporary fan is a fan for a specific, time-bound event. this recognized time boundary is the primary factor that differentiates the temporary fan from other sports fans. the time boundary may be as short as a few hours or as long as a few years, with the sports fan becoming a non-fan once that time period has expired. the local fan while the temporary fan is bounded by time constraints, the local fan is bounded by geographic constraints. however, like the temporary fan, the local fan still operates under a constraint: if a local fan moves away from the city where the schema target is located, the devotion of the fan diminishes. the devoted fan initially, the devoted fan probably started as a temporary or local fan. their motivation toward and attachment with the consumptive object (personality, team, league, or sport) increased, thus breaking the boundaries of time and place. the devoted fan remains loyal to their team or player even if either the specific, short-term event that captivated their temporary attention has ended or if they are removed from the context of the original geographical location. why do devoted fans remain attached in a more permanent manner? perhaps because of emotional significance, defined as “the associations of the object with significant people and events in a person’s life” (ball and tasaki, 1992) the fanatical fan this representation is used to infer that the fanatical fan uses being a fan as a very important part of selfidentification, yet there remains at least one aspect of their lives (family, work, religion, etc.) that the individual uses for identification that is stronger than being a fan. the fanatical fan engages in behaviour that is beyond the normal devoted fan, yet the behaviour is accepted by significant others (family, friends, and other fans) because it is considered supportive of the target – sport, team, or player. the devoted fan may go to games. the fanatical fan will go to the game and paint their body the colours of the team, go in costume or in some way exhibit behaviour different from the devoted fan. the dysfunctional fan the dysfunctional fan uses being a fan as the primary method of self-identification. the dysfunctional fan uses the sports team, player, or whatever the schema-target is, as the primary method to identify his or her self to others and to his or her own self. while the fanatical fan sees being a fan as an important part of self-identification, the dysfunctional fan sees being a fan as the primary form of self-identification. ‘’dinamo riga’’ and national ice hockey team’s case ‘’dinamo riga’s’’ roots are found in 1946. ‘’dinamo riga’’ was one of the eleven teams that participated in the first soviet championship in 1946/1947. in sixties ‘’dinamo’’ played only in the ussr third league, but since 1973 the team went back to the strongest league and kept playing there until the collapse of the soviet union in 1991. the most successful season was in 1987/88, when ‘’dinamo’’ took the second place in soviet championship by loosing in ‘’play-off’’ tournament only the legendary moscow cska. after the collapse of the soviet union ice hockey was loosing popularity and fans in latvia, the team continued playing with less success as a member of the international hockey league until 1995. in 1995 ‘’dinamo riga’’ ceased to exist. in 1991, after regaining independence, latvia was admitted into iihf (international ice hockey federation) and as a new team was joined to world championship ‘’c’’ division with players mainly from ‘’dinamo riga’’. latvian national team was born. in 1994 latvia for the first time played in ‘’b’’ division, but since 1997, latvia is a member of the world’s strongest ‘’a’’ division. the highest success for latvian team is 7th’s place in world’s championship. the culmination of success is dated with year 2000 world championship in st’petersburg. further success fluctuated between 7th and 12th places. the loss of some fans started for the second time. ironically in april 7, 2008 when latvian fans started to live with the fact, that latvian national hockey team potential was limited by averagely 8th place between the strongest, and the miracle will hardly come for the national team, ‘’dinamo riga’’ was re-established after the latvian hockey federation received an invitation issn 1822-8402 european integration studies. 2010. no 4 19 from the kontinental (continental) hockey league (khl). at first nobody knew the name of the new club, so the board of the club decided to hold a public vote to decide the club’s name. most votes were given to ‘’dinamo riga’’. this event came just in time, regaining back former fans of national team ready to give up. to underline mentioned fact the colours of new established ‘’dinamo’’ represent national colours (see: exibit 2) – latvian red and white and three stars (long lasting latvian symbols) representing three regions – kurzeme, vidzeme and latgale. even it is club, not national team any more, you can feel the notion of nationalism in both sides – team and fan area. moreover most of latvian national team members playing in world championships and olympic games are scrambled from ‘’dinamo riga’’ and only few latvians join the team from other clubs. after reviving ‘’dinamo riga’’ fans were given consistent ability to follow ups and downs of their team as before for fans great hockey event began and started in may during world ice hockey championship. figure 2. ‘’old (left) and new (right) symbols of ‘’dinamo riga’’ the khl is an international professional ice hockey league in eurasia founded in 2008. as of 2009, it is ranked as the strongest hockey league in europe. the title of champion of russia, regardless of the nationality of the club, the khl champion title and the gagarin cup, named after cosmonaut yuri gagarin, are awarded annually to the league champion, following a 16-team playoff at the end of the regular season. the league was formed in 2008 from a predecessor organization, the russian super league (rsl). the rsl, in turn, was a successor to the soviet championship league, which was founded in 1946 with only five teams. the khl began its operations with 24 teams, 21 of which are based in the russian federation with the remaining 3 located in belarus, latvia, and kazakhstan. during only two ears playing in khl ‘’riga dinamo’’ has managed to get great public appraisal and loyalty, creating very strong national sense among latvian population. it is not only small bunch of hockey fans, but also the largest part of whole nation from district to district. people of latvia not only watch the games, but they work together in order to promote their team colours and national flag 20 000 tickets are sold in two hours, children train and parents support them, feeling the best way to go global. to extend its brand ‘’ dinamo riga’’ has enormous quantity of fan attributes (t-shirts, scarves, hats, shoes, mugs and drums) and what is more important club allowed local producers to release consumer product line (beer, chips, ice cream, mineral water, bread, picas and pelmeni) with ‘’dinamo’’ logo consisting of 35 kinds and costing higher than the same products of rivals. in 6 months after introduction (autumn 2009) 700 000 were sold in retail. one santime (0,07 eur) from sales goes to club. fanning for ‘’dinamo riga’’ higher attention of public towards ice hockey was driven by following factors: 1) success of national team (predecessor of ‘’dinamo riga’’) in world championship. the culmination came in year 2000 in st’petersburg with victory over russian national team. for example, cialdini found that university students were more likely to wear school identifying clothes after a win by the school’s football team, than after a loss. following victory over russia and other success of national team dramatically increased number of fanatical and dysfunctional fans. there was notion in society ice hockey would bring us to the very top of the world. as time showed it to be illusion, structure of fans changed towards devotion or temporary expression 2) being fan for ice hockey enabled population to show outside world that ‘’we’’ as a nation are ready to be part of worlds elite, not only in hockey but also most likely (as society though) in other spheres of life. cialdini (1976) also stated in his research that students were more likely to use the word “we” to describe a win (“we won”), and the pronoun “they” to describe a loss (“they lost”). 3) there was no algorithm on how to fan. people in big mass gave it a try. they made noise and attracted another mass. success of national team attracted even more people and in few years, ice hockey became not only national game, but also national symbol and in some kind tool for international recognition. after collapse of almost all the industry after regaining independence, there was little for positioning of latvia, so fanning for ice hockey was spontaneous and very convenient tool for local people to speak common language about their nation. so the state became branded without any positioning effort, by people themselves. the message to the outside world was as follows; ‘’we are small nation risen from the rubble, but we can be part of worlds elite either as players or also as supporters’’. by creating such enormous support latvians gained the title of the best hockey fans in the world from mouth iihf (international ice hockey federation) rene fasel (www.rigadimo.eu). latvian ice hockey fans are the most attractive, the loudest, most loyal there are many names they are called in international media for issn 1822-8402 european integration studies. 2010. no 4 20 about ten years; they have been even on cnn. they are called “brazilians of ice hockey” and the name is well earned. as a tribute to latvian fans world ice hockey championship 2006 was held in latvia (www.rigadimo. eu). in just about 10 years supporting their heroes fans pushed national team of small country up to 7th place in world’s hockey elite. latvia is among such nations as canada, usa, russia, sweden and germany. fan support helped ‘’dinamo riga’’ club to grab 8th place in kontinental hockey league in 2010. emotions of society are not as strong as before 10 years, you can still feel deep sense of national identification through ice hockey. in could be explained as inertia, or lack of alternatives for external communication. there are at least two scenarios for latvian marketers: first – to catch the momentum and position latvia as a country of best hockey fans like canada the best hockey country. secondly – do further research on how to rise mass support as it happened in case with ice hockey. conclusions marketers of the latvian state and the capital riga do • not have good results to show. national brand index of latvia is very low 35 to 40th place from forty. in just about 10 years supporting their heroes fans • pushed national team of small country up to 7th place in world’s hockey elite. latvia is among such nations as canada, usa, russia, sweden and germany. fan support helped ‘’dinamo riga’’ club to grab 8th place in kontinental hockey league in 2010. latvian ice hockey fans help and promote not only • the game to be more successful, but over previous years they have played significant role in international recognition of latvia. sports performance of the club is much lower than • support performance of fans (society). this can not be addressed to loyalty to their own country. high devotion towards ice hockey in latvian society • can be explained by vacuum of self identification in post soviet era and promising hopes to become champions of ice hockey beating such a large nations as russia, usa or canada there must be something nation believes in and sees • self expression and identification. as m.lindstrom (2005) sees future of building powerful brands through holistic view hsp (holistic selling proposition) brands adopting characteristic of religions. for latvians such brand was and still is ice hockey represented by ‘’dinamo riga’’ self expression as this study reveals can be created • (managed) and might rise spontaneously following/ fanning for something happening being managed by others, destination brand managers must evaluate and • promote values shared by largest part of the nation in creating competitive identity for the nation, city or region. destination brand managers must understand and • use the power of public self identification and benefit it can bring for reputation of the nation references aaker d. building strong brands, the free press, new york, ny, 1996 aaker d. brand portfolio 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brand, corporate communications: an international journal, 2004 ukman, l the special event: finding its niche, public relations journal, 1984 www.dimaoriga.eu official web site of ice hockey team ‘’dinamo riga’’ www.khl.ru official web site of kontinetal hockey league the article has been reviewed. received in april, 2010; accepted in may, 2010. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 104 submitted 04/2018 accepted for publication 10/2018 european integration studies no. 12 / 2018 pp. 104-116 doi 10.5755/j01.eis.0.12.21524 economic integration and corruption eu enlargement in western balkans eis 12/2018 economic integration and corruption eu enlargement in western balkans http://dx.doi.org/10.5755/j01.eis.0.12.21524 hannu laurila university of tampere abstract the paper examines possible eu enlargement in western balkans from the point of view corruption. transparency international warns from the risks of acceleration and spreading of corruption in economic integration between states with different levels of integrity, and draws ambitious guidelines for optimal anticorruption policy. the paper aims for policy advices concerning proper anticorruption policy. the method is, first, to compare the candidate states to the current 28 eu states in terms of corruption and the quality of governance. second, the paper surveys relevant economic literature on the macroeconomic effects of corruption, which shows that in countries, that are imprinted by both corruption and bad governance, particularly in terms of rule of law and government effectiveness, a straightforward attack on corruption is hopeless, and it may even be economically detrimental. the conclusion is that following the guidelines given by transparency international is a too winding path to take, and it is almost impossible to set integrity as a precondition for entry. optimal policy to avoid the contagion of corruption is to focus not on the candidates, but on the existing eu28, and particularly on close neighbors of the candidates. this can be done best by concentrating on international business transactions, namely by strict enforcement of the oecd anticorruption convention. the eu should pressure all member countries to uniform commitment to that project. after the entrance, the rooting out of corruption and the enhancement of formal governance in the new member states can then be carried out in due course. keywords: anticorruption convention; contagion of corruption; government effectiveness; rule of law; second-best policy. the author thanks two anonymous referees of this journal for their valuable comments. the purpose of this paper is to assess the eu enlargement towards western balkans from the viewpoint of corruption. transparency international (2015) has highlighted the risk that economic integration and opening borders for trade may make corruption accelerate and spread from more corrupt countries to less corrupt ones. this fear is quite evident with the western balkan candidate countries, since corruption is a persistent problem within them and concerns many of their close neighbors and trade partners, too. transparency international provides quite ambitious guidelines as conditions for integration that would necessitate a deep reorientation within the whole eu. the research task is to show that the candidate countries suffer from bad governance, including corruption, and that the suggested linkage to the eu single market may expose their trading introduction 105 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 partners, especially in the close neighborhood, to contagion of corruption. descriptive method is used to present the situation within the candidate countries with respect to that in the existing eu countries, and to pinpoint the profound distortions in formal governance not only in the candidate countries but also in some of the most relevant trading partners. moreover, the issue of corruption is tackled also from the point of view its macroeconomic effects. the final aim of the paper is to analyze, whether the first-best policy suggested by transparency international is an appropriate way to take, or would it be better to take a second-best approach. the argument is that the profound distortions in the candidate countries and in their natural trade partners make the setting a second-best environment, where a more realistic integration policy in terms of combating corruption is appropriate. the paper proceeds as follows. first, the candidate countries albania, macedonia, montenegro and serbia, and potential candidates bosnia and herzegovina, and kosovo are set in comparison with the existing eu countries with reference to trade connections, corruption, and the quality of governance. second, the literature on the macroeconomic effects of corruption is briefly surveyed. the third section assesses the optimal stance towards the issue of corruption in the enlargement process. the concluding section states that, instead of focusing on rapid defeats against corruption in the candidate countries, the mother eu should rather concentrate on its own house-cleaning, and especially on the integrity of its business sector when it penetrates into the new markets. a key policy instrument is strict and exhaustive enforcement of the oecd anticorruption convention (1997). the eu enlargement process has lately been oriented to western balkans. currently, croatia is the only eu member state in that region, and the rest of the balkan states are either official candidate countries, including albania, macedonia, montenegro, and serbia, or potential candidate countries, including bosnia and herzegovina, and kosovo. this time, the enlargement process is somewhat different than before (european parliament think tank, 2016). there are two main reasons for that. first, the eu itself is in a flux. this is partly reflected by the five-year halt to enlargement since 2014, and the current refugee crisis has even increased the menaces. the brexit in june 2016, growing threat of terrorism, and the rise of radical right-wing parties, populism, and nationalism in many countries pose notable reluctance towards opening borders. second, the western balkan countries present a particularly complex case. those countries are still under transition towards market based democracy, and their economic development has not accelerated notably. adjacent to that, the legacy of severe armed conflicts and bilateral disputes is still haunting. the region is also in the heart of the refugee transit. still, the eu has recently confirmed that the inclusion of the western balkans remains on the agenda and is a matter of mutual interest. due to the complexity of the case of the western balkan countries, a scrutinized stabilization and association process is implemented to carry out their gradual integration into the eu. “the bar for accession has been set higher” for the candidate countries because of the increased focus on conditionality, reshuffled priorities, and rule of law as a major area of concern. pre-accession monitoring is emphasized instead of post-accession monitoring, which has proven inefficient for example in the cases of bulgaria and romania. another highlight is the increased focus on regional cooperation. the idea is that, while enlargement is on hold, cooperation could give fresh impetus to the region’s economic performance, reconcile societies, and prepare them for the eventual eu entry. yet, besides problems with rule background e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 106 of law, a key element in the complexity of the case of western balkan countries is the existence of pervasive corruption, intertwined with deficient formal governance. in such circumstances, facilities for healthy regional cooperation that would prepare the area for eu entry are poor, indeed. thus, the focus must be also on government effectiveness. a somewhat similar situation emerged in southeast asia, where the asean economic community was established in 2015. with respect to that initiative, transparency international (2015) warned that economic integration is risky between countries that differ in terms of corruption. increasing cross-border trade, investments, and migration of people and capital create new opportunities, or even necessities, for illicit transfers and corrupt actions. therefore, economic integration may not only accelerate corruption in the newcomers but also make it spread to the initial member countries. moreover, since corruption distributes the economic benefits unequally, there is a notable danger of the accumulation of social unrest. transparency international’s suggestion for solving the issue of corruption in southeast asia is to build an “asean integrity community”. that should include achieving effective anticorruption policies, legislation and strategies; strong and independent anticorruption institutions; intergovernmental anti-corruption cooperation; and meaningful engagement with civil society and the business sector. so far, these ambitious initiatives don’t seem to have actualized, and corruption still strikes at the roots of the area’s development (checchi, 2017). the average state of integrity within the present eu is fairly good, far better that in the candidate countries. yet, there are also some problematic eu economies, particularly in the close neighborhood of the candidate countries. thus, there is a noteworthy risk of cross-border contagion of corruption, and the warning by transparency international must be taken seriously when assessing eu enlargement in western balkans. since the economic gains generated by the single market is one of the cornerstones of the enlargement process, the assessment needs also consideration of the economic effects of corruption. there is no doubt that corruption causes microeconomic damages by erecting biased incentives and distorting the allocation of resources. however, the question about its macroeconomic effects is more obscure. the mainstream view still is that corruption is pernicious on economic performance, but there is also some evidence about positive macroeconomic effects in countries that suffer from flawed governance. the evidence is especially noteworthy, when the quality of governance is monitored in terms of rule of law, and government effectiveness. in such surroundings, corruption may have lucrative economic effects, if corruption initially acts rather as a complement than a substitute to formal governance. if so, rapid rooting out of corruption in terms of pre-accession monitoring would be very hard. openness, corruption, and quality of governance the warning of transparency international (2015) that corruption endangers economic integration is broadly based on the argument that the increase of trade within the widened single market makes corrupt behavior accelerate and spread across the partner countries thus causing economic inefficiency and social problems. therefore, the biggest intra-eu traders, and also the close neighbors of the candidate countries are the most probable victims of contagion. table 1 reports the share-out of intra-eu trade between the current 28 member states. table 1 shows that the power of trade in europe is highly concentrated. in 2015, the three biggest traders, germany, france, and uk cover about 43 % of the intra-eu trade, and the seven biggest traders, germany, france, uk, italy, belgium, netherlands, and spain cover about 70 % of the trade. of these, germany, uk, and spain are on a rising trend, while the others decline in their share of mutual trade within the eu. 107 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 country 2012 2013 2014 2015 austria 3.8 3.8 3.7 3.6 belgium 8.3 8.2 7.8 7.1 bulgaria 0.5 0.6 0.6 0.6 croatia 0.4 0.4 0.5 0.5 czech republic 3.0 3.0 3.2 3.3 cyprus 0.1 0.1 0.1 0.1 denmark 1.8 1.8 1.8 1.8 estonia 0.4 0.4 0.4 0.4 finland 1.4 1.4 1.4 1.3 france 12.7 12.6 12.1 11.8 germany 20.6 20.8 20.8 20.9 greece 0.8 0.8 0.8 0.8 hungary 1.9 2.0 2.1 2.1 ireland 1.2 1.3 1.4 1.5 italy 7.3 7.2 7.1 7.2 latvia 0.4 0.4 0.4 0.3 lithuania 0.5 0.6 0.6 0.6 luxembourg 0.6 0.6 0.6 0.5 malta 0.1 0.1 0.1 0.1 netherlands 7.5 7.4 7.1 7.0 poland 3.8 3.9 4.1 4.1 portugal 1.5 1.5 1.5 1.5 romania 1.5 1.5 1.5 1.6 slovakia 1.6 1.7 1.6 1.8 slovenia 0.6 0.6 0.6 0.6 spain 5.1 5.1 5.4 5.7 sweden 3.1 3.0 2.9 2.9 united kingdom 9.3 9.3 9.6 10.2 eu28 100 100 100 100 source: the data from http://ec.europa.eu/eurostat/web/international-trade-in-goods/statistics-illustrated. table 1 intra-eu28 trade in 20122015, % of the monetary value of total product a reasonable assumption is that the enlargement of the single market erects new trade connections particularly between close neighbors. the eu neighbors that have common borders with the candidate countries are bulgaria, croatia, greece, hungary, and romania. of these, hungary, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 108 and romania report relatively high activity in trade. italy can also be regarded a neighbor, because it has a close connection to western balkans over the adriatic sea. as a notable eu trader, italy requires special attention in the analysis. transparency international (2016) defines corruption as “the abuse of entrusted power for private gain”. the concept “grand corruption” refers to misconducts at the top level of government, arising from the leaders’ capability to benefit at the expense of the public good, and leading to serious distortions in sector policies and the general functioning of the state. “petty corruption” refers to abuse of entrusted power by civil servants in their everyday interactions with the service users of hospitals, schools, police departments and other agencies. “political corruption” means abusive manipulation of the mechanism of public resource allocation by political decision makers, who aim only to sustain their own power, status and wealth. transparency international monitors the worldwide extent of corruption by the corruption perceptions index (cpi), and provides comparative time-series of it country by country. the cpi aggregates data from different sources that provide perceptions of business people and country experts about the level of corruption in the public sector, calculated as the average of the scores from at least three sources. the scale of the index goes from 0 (utmost corruption) to 100 (full integrity). the scores are rounded to whole numbers. the cpi scores in 2015 for the current 28 eu states can be found from the appendix. table 2 below presents the variation of the cpi scores between 2012-2015 for official and potential candidate countries, close eu neighbors (including italy), and reference eu economies. the last category represents the socio-economic figureheads of the eu. of these, germany, france, uk, belgium, netherlands, and spain represent the biggest intra-eu traders (ref. table 1 and note that, while italy is excluded from this group, united kingdom is included in spite of the brexit decision). denmark, finland, and sweden are included because they constitute not only the top three cpi score countries in the eu but also the core of the nordic welfare state model. table 2 shows that the cpi values of both the official and potential candidate countries have remained far below 50 over 2012-2015, which means that they are regarded as highly corrupted countries by transparency international. during the time-span, none of the countries shows undisputed improvement in that respect. in 2015, the average cpi score of the official and potential candidates is 38,8, while the respective figures read 75,7 for the big traders, and 90 for the nordic welfare sates. the average cpi for the current eu member states is 65,4 (see the appendix). compared to those figures, the average cpi scores of the candidate countries are markedly low. the situation is quite the same among the close neighbors. bulgaria, greece and romania are highly corrupt countries, and the bad scores of italy are noteworthy because of its vivid trade. the average cpi score for the neighbors is 46,5 in 2015, and only croatia and hungary barely avoid being labeled as highly corrupt. croatia shows a slightly rising trend, while hungary seems to follow a more dismal pattern. however, since the cpi scores, like all perceptions-based measures, are in fact incomparable over time, no definite conclusions can be made about the evolution of corruption in any of the countries listed in table 2. the quality of governance is monitored by world bank’s worldwide governance indicators (wgi). the wgi are aggregated from a big amount of underlying variables from a wide variety of data sources, reflecting the views of survey respondents, and public and private experts worldwide. the numerical scale of the wgi goes from -2.5 (minimum quality) to 2.5 (maximum quality). of course, the measurement of the quality of governance based on any kind of data is inherently difficult, but, 109 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 country 2012 2013 2014 2015 official candidates: albania 33 31 33 36 macedonia 43 44 45 42 montenegro 41 44 42 44 serbia 39 42 41 40 potential candidates: bosnia and herzegovina 42 42 39 38 kosovo 34 33 33 33 close neighbors: bulgaria 41 41 43 41 croatia 46 48 48 51 greece 36 40 43 46 hungary 55 54 54 51 italy 42 43 43 44 romania 44 43 43 46 reference economies: belgium 75 75 76 77 denmark 90 91 92 91 finland 90 89 89 90 france 71 71 69 70 germany 79 78 79 81 netherlands 84 83 83 87 spain 60 59 60 58 sweden 88 89 87 89 united kingdom 74 76 78 81 table 2 the cpi scores of the candidate countries and select eu countries in 2012-2015 source: the data from http://www.transparency.org/cpi2015#results-table. in any case, the wgi permits meaningful cross-country comparisons (kauffman, kraay & mastruzzi, 2010). from the variety of the wgi indicators the most relevant ones for this study are government effectiveness (denoted ge), and rule of law (denoted rl). ge “reflects perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality if policy formulation and implementation, and the credibility of the government’s commitment to such policies”. rl “reflects perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence”. thus, ge and rl monitor the issues from both sides: from the viewpoint of the formal governance at all levels, and from the viewpoint of the public’s adaptability to the official structures. table 3 below collects the ge and rl indicator values over 2012-2015 for the same sets of countries as table 2. the ge and rl scores of the current 28 eu states in 2015 are reported in the appendix. table 3 shows that the official and potential candidate countries have very poor governance (in spite of the insignificant improvement in the numbers). all and especially the potential candidates e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 110 country 2012 2013 2014 2015 official candidates: albania -0.26-0.57 -0.33 -0.57 -0.07 -0.37 0.03 -0.36 macedonia -0.07-0.24 -0.06 -0.20 0.15 -0.03 0.13 -0.17 montenegro 0.13-0.01 0.16 0.02 0.28 0.07 0.16 0.03 serbia -0.11-0.39 -0.10 -0.34 0.09 -0.16 0.11 -0.09 potential candidates: bosnia and herzegovina 0.47-0.23 -0.45 -0.17 -0.47 -0.20 -0.54 -0.29 kosovo -0.39-0.56 -0.41 -0.57 -0.32 -0.48 -0.42 -0.47 close neighbors: bulgaria 0.14-0.12 0.15 -0.14 0.09 -0.08 0.22 -0.12 croatia 0.700.21 0.69 0.26 0.69 0.31 0.51 0.20 greece 0.310.39 0.45 0.44 0.40 0.34 0.25 0.24 hungary 0.620.60 0.64 0.56 0.53 0.50 0.49 0.40 italy 0.410.36 0.45 0.36 0.38 0.34 0.45 0.25 romania -0.310.02 -0.07 0.11 0.00 0.15 -0.04 0.15 reference economies: belgium 1.591.40 1.59 1.40 1.40 1.51 1.44 1.42 denmark 1.971.85 1.97 1.87 1.81 2.09 1.85 2.04 finland 2.211.94 2.17 1.93 2.02 2.12 1.82 2.07 france 1.331.43 1.47 1.40 1.40 1.47 1.44 1.41 germany 1.571.64 1.52 1.62 1.73 1.85 1.74 1.43 netherlands 1.801.84 1.77 1.81 1.83 1.98 1.84 1.93 spain 1.121.05 1.16 1.01 1.15 0.94 1.18 0.90 sweden 1.941.93 1.89 1.95 1.79 1.99 1.81 2.04 united kingdom 1.541.70 1.48 1.68 1.62 1.89 1.74 1.81 source: http://databank.worldbank.org/data/reports.aspx?report_name=wgi-table&id=ceea4d8 table 3 the ge and rl scores in 2012-2015 (ge up and rl below in each cell) 111 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 remain in poor condition in 2015 according to both ge and rl. on the average, the candidate countries score -0,09 in ge and -0,22 in rl in 2015. the ratings are very low compared to the eu averages 1,13 for ge, and 1,12 for rl (see the appendix). the situation is only a bit better within the close neighbors. the steadily declining trend of hungary deserves attention, particularly in the light of the country’s recent political decadence, and a dismal fact is that italy scores badly also in this respect. on the average, the neighbors’ scores are 0,33 in ge, and 0,19 in rl in 2015, the reference eu economies portray a totally different and fairly stable picture. the quality of governance at its best in the nordic welfare states (1,83 in ge and 2,05 in rl on the average in 2015). note that netherlands, which obeys a quite similar socio-economic pattern, scores almost equally well. the ratings of germany and uk stay somewhat lower, but exceed those of france, belgium, and spain (see also the appendix). by table 3, the state of the quality of governance in the candidate countries and in their close neighbors compared to the reference countries is pretty much in line with the observations of corruption presented in table 2. this emphasizes the well known fact that corruption is actually a symptom of more generally flawed governance (myrdal, 1968). to sum up the information from tables1-3, the warning by transparency international of acceleration and spreading of corruption seems to be noteworthy. the candidate countries are badly corrupt, and so are most of their close eu neighbors. the eventual increase in crossborder trade with neighboring countries opens doors also for corruption to trespass. moreover, the integrity of large exporting companies of the biggest eu traders may be questioned, too. for example siemens from germany was in 2008 caught from vast bribery in corrupt countries (fisman & golden, 2017). thus, it is quite plausible that the opening of new markets in countries with broadly bad governance can make corruption run riot. corruption and economic performance the question about the economic effects of corruption has been widely discussed in the economic literature (for recent summaries, see ugur, 2014; and popov, 2015). the mainstream view is that the microeconomic distortions caused by corruption turn to detrimental macroeconomic effects, say, on economic growth, capital accumulation, and employment. this is called the sand in the wheels hypothesis (swh). for example mauro (1995) and mo (2001) support his view. méon & sekkat (2005) finds that corruption hampers growth and investments, and even more so if the quality of governance is bad. this is widely regarded as a seminal confirmation of the strict form of the swh, albeit the analysis suffers from an error in the main regression formula. however, there are other visions of corruption, too. a persuasive counterargument to swh is that the microeconomic distortions caused by otherwise bad governance are more profound than those caused by corruption as such, and that corruption may in effect alleviate the basic distortions thus making the macroeconomic effects of corruption positive. this idea of second-best optimality is called the grease in the wheels hypothesis (gwh) saying that corruption may help economic agents to bypass unnecessary regulations and red tape thus lubricating transactions and enhancing the operative power of the market. for example leff (1964), and huntington (1968) are early proponents of this hypothesis, and e.g. méndez & sepulveda (2006) provides more recent empirical support for it. kéïta & laurila (2017) tackles the controversy by, among other things, remedying the above mentioned regression flaw of méon & sekkat (2005). the paper finds that, while swh holds in general, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 112 there is some support also for gwh, particularly when ge and rl are considered as indicators of the quality of governance, and suggests that corruption in very badly governed countries may foster economic convergence, too. this means that corruption may help less developed economies to catch up with more developed ones (about the conditional convergence hypothesis, see mankiw & weil, 1992), which would act for the economic benefit of the eu enlargement process. furthermore, méon & weill (2008) finds that corruption enhances economic efficiency in countries with bad governance, especially when the quality of governance is measured by ge and rl. the finding is insightful, because it dives deeper into the origins of the microeconomic distortions caused by deficient governance. thus, the result constitutes a further pleading for gwh in surroundings, which match the present case of eu enlargement. the above excerpts from the literature show that there still exists some ambiguity concerning the macroeconomic effects of corruption. however, the key issue seems to be that corruption and the quality of governance are tightly intertwined. economic distortions can well arise from bureaucrats’ self interests, and corruption endogenously leads to bad governance thus exacerbating the distortions (see e.g. kurer, 1993; and kauffman & wei, 2000). as a matter of fact, major international organizations have widely taken this view of systemic corruption being merely an indicator or broader failures of governance (fisman & golden, 2017). prevalent amalgamation of corruption and bad governance usually has a long history and strong socioeconomic roots, which come down to the societal values (i.e. latency in the agil paradigm of parsons 1970). in this kind of a situation, combating corruption is an extremely difficult and time consuming project, since it necessitates a profound change in the nation’s social psychological pattern of behavior (fisman & golden, 2017). policy implications the analysis indicates that the western balkan candidate states are countries with broadly poor quality of governance and high corruption rates. it is quite plausible that their prevalent corruption has historically amalgamated with formal governance somewhat complementarily. the fact that such amalgam is hard to melt down must be taken seriously in the stabilization and association process. it would be a mistake to impose tough integrity clauses on the candidate countries as a precondition for entry in the spirit of pre-accession montoring. moreover, if gwh should happen to hold in these countries, defeating corruption might have negative short-run effects that go beyond the candidate countries. the expected economic gains would wither as the new market opportunities for the bullish entrants shrink thus dampening the expected gains from the enlargement of the single market. the expected boost in the aggregate growth of the eu would also flop due to the slacking catch-up mechanism in the newcomers. all this would shake the economic cornerstone of the integration process. the first-best solution would be a comprehensive attack on corruption and bad governance both in the candidate countries and the mother eu, as presented by transparency international (2015) in the context of asean countries. in the present context, the aim would be to establish a “european integrity community” that calls “citizens, businesses and civil society alike to fully participate in the reduction of corruption across the region”. this would imply the construction of an eu-wide “nornet welfare state” model with respectable formal governance and unified intolerance of corruption (the label nornet is because the netherlands has a quite similar socioeconomic model as the nordic countries denmark, finland, and sweden, and has nearly as good cpi, ge, and rl indicator values). the dismal fact is that carrying out this kind of a first-best plan within a reasonable time-span is merely wishful thinking. 113 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 the second-best optimum is based on the observation of historical amalgamation of corruption and bad governance that is deeply rooted in the socioeconomic mentality. thus, there is a notable system of informal corrupt governance, which rather complements than substitutes the deficient formal governance. a hasty anticorruption attack might dry this grease, and a wide-eyed european integrity community attempt would be too time-consuming. therefore, something else is needed in order to prevent the spreading of the contagious disease of corruption. in this second-best world, the acceleration and spreading of corruption can be best avoided by focusing on the on international business transactions from the existing eu countries to the newcomers. this can be easily, rapidly, and effectively done by strict enforcement of the anticorruption convention by oecd (1997). the convention on combating bribery of foreign public officials in international business transactions commits all oecd member countries to put in place legislation, which criminalizes bribery of foreign officials by domestic firms. closely obeyed the convention is a powerful weapon in the battle against corruption. still, five of the eu countries have not ratified or acceded to the convention, namely croatia, cyprus, lithuania, malta, and romania. furthermore, the enforcement of the laws has been lax in many of those eu countries that have ratified the convention, even among the states with highest integrity and most reliable governance. the eu should unify the project by urging the non-ratifiers (especially croatia and romania) to ratify the convention, and pressing the negligent states, particularly the neighbors of the candidate states (including italy) to fortify their enforcement. this would also be a loud enough starting shot for the race to the european integrity community. conclusions _ in the stabilization and association process of eu enlargement, there are many important issues to be solved. the issue of apparent corruption in the western balkans is only one aspect among others, but it should be tackled with special caution. this is an eu wide concern, because the enlargement of the single market may make corruption spread through trade thus making things even worse. the paper argues that it would be a mistake to rely on pre-accession monitoring of the candidate countries in the hope of internal house-cleaning. _ there are several reasons for this. first, wiping out corruption is not easy. a well-intentioned, externally induced attack against corruption in countries that experience a long history of it may well end to a rout. second, even if the attack was a success, the result can be a macroeconomic disappointment for the whole eu. third, defeating corruption is inherently subordinate to the time-consuming consolidation of formal democratic governance of the candidate countries. that is a tedious project, which is on the long-term agenda of the stabilization and association process in any case. and fourth, the twisted motives of big export companies of voluminous eu trades must not be omitted. _ anti-corruption actions are most effective within countries, in which corruption is not a big issue, and in which the formal democratic governance possesses the requisite arsenal for the combat. therefore, the threat of acceleration and contagion of corruption in the context of eu enlargement in western balkans can be best blocked by focusing not on the candidates, but on the existing players in the single market. _ the primary anticorruption acts by the current eu countries should be oriented towards the business transactions of domestic firms penetrating into the new markets. in this respect, the building block is the oecd anti-corruption convention. the european power states germany, united kingdom, netherlands, france, and belgium should be fairly well equipped in its enforcement, not to mention the nordic welfare states denmark, finland, and sweden. other e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 114 countries that score above the eu average in terms of cpi, and ge and rl should also be capable to conduct the enforcement, especially if they are nudged to do so. _ italy is in a special position, because it scores poorly both in terms of corruption and quality of governance, and because it is a notable intra-eu trader with close connections to the western balkans over the adriatic sea. thus, the eu must watch closely italian firms and governance. the badly corrupted neighbors bulgaria, croatia, greece, hungary, and romania are in special danger of acceleration and spreading of corruption thus deserving the same treatment. since a majority of the present eu states score below the current average in terms of cpi or ge or rl, there is a considerable need for persistent centralized scrutiny by the eu. _ to sum up, corruption and bad governance are intertwined, and rooting out corruption cannot happen without remedying governance. therefore, proper anti-corruption policy should consist of primary measures, that is strict enforcement of the oecd anticorruption convention, and secondary measures, that is long-term building of the european integrity community. the virtue of the primary shield against contagion of corruption is twofold. first, it gives time for the secondary measure, the replacement of corrupted informal governance by legitimate formal governance in the new as well as in some of the old eu partners. second, the unbreakable shield erects inherent motives for gradual reforms by the problematic states themselves. country cpi 2015 ge 2015 rl 2015 denmark 91 1.85 2.04 finland 90 1.82 2.07 sweden 89 1.81 2.04 netherlands 87 1.84 1.93 germany 83 1.74 1.43 luxemburg 81 1.72 1.86 united kingdom 81 1.74 1.81 belgium 77 1.44 1.42 austria 76 1.47 1.85 ireland 75 1.54 1.79 estonia 70 1.09 1.33 france 70 1.44 1.43 portugal 63 1.23 1.14 poland 62 0.80 0.80 cyprus 61 1.04 1.01 lithuania 61 1.20 0.98 appendix the current eu28 countries with their cpi, ge, and rl scores in 2015 115 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 references source: the data from http://ec.europa.eu/eurostat/web/international-trade-in-goods/statistics-illustrated checchi f. 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(2001). corruption and economic growth. journal of comparative economics, 29, 66-79. https://doi.org/10.1006/jcec.2000.1703 myrdal g. (1968). asian drama. new york: random house. country cpi 2015 ge 2015 rl 2015 slovenia 60 0.97 0.95 spain 58 1.18 0.90 czech republic 56 1.05 1.12 malta 56 0.85 1.12 latvia 55 1.10 0.79 croatia 51 0.51 0.20 hungary 51 0.49 0.40 slovakia 51 0.84 0.48 greece 46 0.25 0.24 romania 46 -0.04 0.15 italy 44 0.45 0.25 bulgaria 41 0.22 -0.12 average 65.43 1.13 1.12 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 116 about the author laurila hannu dr./professor university of tampere, faculty of management fields of research interests public economics; urban and regional economics; finance address fi-33014 university of tampere, finland tel. +358 50 3185 998 e-mail: hannu.laurila@uta.fi oecd (1997). convention on combating bribery of foreign public officials in international business transactions. retrieved june 2018 from http:// www.oecd.org/daf/anti-bribery/oecdantibriberyconvention.htm parsons t. (1970). the social system. london: routledge & kegan paul ltd. popov, s. v (2015). decentralized bribery and market participation. the scandinavian journal of economics, 117 (1): 108-125. https://doi.org/10.1111/ sjoe.12081 rodrik d. (2011). the globalization paradox: why global markets, states, and democracy can’t coexist? oxford: oxford university press. transparency international (2015). asean integrity community a vision for transparent and accountable integration. transparency international (2016a). corruption perceptions index. retrieved october 14, 2016, from http://www.transparency.org/cpi2015#results-table transparency international (2016b). definition of corruption. retrieved october 14, 2016, from https://www.transparency.org/what-is-corruption/#define ugur m. (2014). corruption’s direct effects on per-capita income growth: a meta-analysis. journal of economic surveys, 28(3), 472-490. https:// doi.org/10.1111/joes.12035 wold bank (2016). worldwide governance indicators. retrieved october 18, 2016, from http:// databank.worldbank.org/data/reports.aspx?report_name=wgi-table&id=ceea4d8b e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 198 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 198-206 doi 10.5755/j01.eis.0.9.12807 © kaunas university of technology cointegration of monetary policy in gcc countries as measure of economic integration eis 9/2015 abstract cointegration of monetary policy in gcc countries as measure of economic integration http://dx.doi.org/10.5755/j01.eis.0.9.12807 pawel mlodkowski sohar university, p.o box 44, al jameah street, sohar 311, oman economic integration in the world is not always an explicit and intentional process. for some regions we are able to observe unintentional coordination of economic policies that results from following similar institutional and legal solutions. one of such cases can be recognized in the nominal sector of the national economy. as a consequence, a group of countries may be forming a de-facto currency union. it could alternatively compose an oca without any need for forced nominal convergence. this paper focuses on monetary policy stance and its developments in the period from 1981 to 2013 of a very special group of resource-based economies. the gcc countries share many similarities in the underlying exchange rate regime solutions. they are in the same time following some explicit economic integration initiatives. it happens, however, that due to the financial turmoil after 2008, many of the integration processes have been reversed, or stopped. an empirical research tries to answer a question of the extent to which the integration process in nominal sector has been developing. for this purpose the monetary policy stance correlation is measured. observing its developments, with a cointegration analysis in a standard (non-structural) var model, delivers interesting insights into an issue of the gcc as an oca. with statistical data provided by the world bank (wdi database) it is possible to observe significant convergence in monetary policy stance among all but one of the gcc countries. this study draws attention to a broader picture of a region that has potential of benefiting from a common market. however, not all gcc countries seem to be suited for economic integration in nominal sector. it is bahrain that shows significant divergence for the whole period covered. there may be many country-specific factors, but persistence of asymmetry in monetary policy in this particular case allows for skeptical thoughts. if the gcc initiatives are continued, the economic integration will be more challenging in the new situation. as the observed convergence in monetary policy stance has been present from late 1970s one could suggest that it could have been a non-intentional process, but a result of similar exchange rate regimes. however, the latter divergence has been a result of conscious changes in the economic policies that affect the nominal sector. keywords: monetary policy, monetary integration, gcc, economic integration, mpsi. in today’s globalized and increasingly integrated world, another issue emerges – the consequences of economic stability and the efficiency of monetary policy flowing from developments in relative restrictiveness domestically and globally. capital flows are no longer restricted due to liberalized balance-of-payments accounts. international capital movements are driven by differences in the rates of return between domestic and foreign assets, with the former being, to some degree, influenced by domestic monetary policy. this may have a blurring effect on any study trying to identify the international coordination of monetary policy in a small open economy. therefore, a new instrument is required to capture restrictiveness developments for international comparative studies and economic integration studies. this is one of reasons for introduction 199 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 studying monetary developments in more than one country. this approach is intended for both policy analysis and formulation and for testing the channels of monetary policy transmission in the globalized world. the following study on the similarity in monetary policy stance shall fill the gap in the literature on the gcc countries as the oca. the efficiency of monetary policy in achieving its goals requires knowledge of variables influencing private agents’ reaction to changes in monetary policy stance they perceive. these variables are very often perceived as characteristics of the financial sector (bernanke and blinder, 1992, kashyap and stein, 2000) or features of the non-financial sector entities (bernanke and gertler, 1995, gertler and gilchrist, 1994). there is a wide variety of monetary policy assessment methodologies. some are based on market interest rates prevailing in the economy (ng, smith, and smith, 1999) or in a specific market (goodfriend, 1993) or focus on specific market rates (nilsen, 2002). other make use of information included in monetary aggregates and in their rates of change (abell, 1991). another appraised method uses non-borrowed reserves (bernanke and mihov, 1998). bernanke and mihov (1998) point out the need to consider money supply jointly with money demand. this is what the mpsi methodology offers. an index, like the mci approach (freedman, 1994), is also very popular. a separate group of measures is based on the “narrative approach” (friedman and schwartz, 1963, romer and romer, 1989, boschen and mills, 1991). in this case the timing of monetary impulses (but not their strength) is recognized and search for responses of real variables follows. there is an eclectic approach too. it uses a combination of several of the aforementioned methods to recognize and measure monetary shocks (christiano, eichenbaum, evans, 1996, kashyap and stein, 2000). however, some of variables that are used to measure monetary policy stance are not free from the problem of endogenous behavior (ellingsen and söderström, 2001). some are just lacking in credible theoretical foundations (bernanke and mihov, 1998). they often assume an incorrect nature of the underlying time series features, as pointed out by eika, ericsson and nymoen (1996). this study of monetary policy stance in the gcc countries is intended to offer an alternative approach to methods used in studies reviewed by ugai (2007). using the monetary policy stance indicator (mpsi) concept and controlling for some international developments, it is possible to provide some evidence on similarity in the monetary policy stance in some of the gcc countries over the period 1981-2013. monetary policy assessment methods in brief mpsi methodology the core idea at the roots of the proposed method is an alternative interpretation for short-term shocks of money velocity. money velocity (v) can be derived directly from the fisher’s equation (exchange equation mv=tp). this variable is defined as the relationship between the nominal value of transactions (t*p) and the nominal money stock (m) servicing those transactions. the nominal gdp may be a good proxy for nominal money demand since it is the total expenditure on final goods and services (one of the approaches used in compiling this aggregate). calculating the ratio of money demand to money supply offers a basis for compiling a proxy for developments in monetary conditions (mpsi). money velocity describes the manner, in which agents in the economy use money. the monetarist model assumes that money velocity is constant. however, is it really? when we focus on factors that could be responsible for changing the behavior of a society on this matter, the theory offers us “financial innovations“ as a reason for decreasing average real money balances (i.e. demand for cash) and increasing velocity. for velocity based on m2, one observes, however, a systematic negative trend (figure 1). this is obviously inconsistent with the monetary economics theory. the example of gcc countries e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 200 is not unique. velocity is systematically decreasing. it is argued that in spite of significant “financial innovation” (that should drive velocity up) some other factors offset this effect. the first point is that broader monetary aggregates are beyond control of the central bank, as proved already by revenkar and yoshino (1990). there seem to be some other forces behind these clear and sharp, short-term but significantly homoscedastic developments in vm0. they are far from being good proxies for either transaction money stock or targets of monetary policy. instead, the proposed mpsi method focuses on velocity of currency in circulation (high-power money) proxy. any change in the manner society uses currency should be gradual. for sure, it should not look like the fluctuations observed in the empirical data (figure 2). figure 1 money velocity (m2-based) for gcc countries 1976-2013 (author) figure 2 random country example of money velocity shocks for different money aggregates 1996-2008 (author) the suggestion is that monetary policy is responsible for this behavior. short-term shocks of money velocity are fully a part of a transmission mechanism, as suggested already by reynard (2007). this view is explicitly consistent with several methods for capturing monetary policy stance. the most obvious examples of methods consistent with the proposed one are: (1) the “credit channel” (kashyap and stein, 2000) and (2) the “balance sheet channel” (bernanke and gertler, 1995) and with commonly used econometric models (3) assuming an indirect impact of monetary policy on inflation (gertler and gilchrist, 1994). the monetary policy stance indicator (mpsi) is defined as the first difference time series of money velocity, expressed as a percentage change over the preceding period. due to such formulation it is able to capture both the qualitative and quantitative information on monetary situation. with assumption of the constant velocity, money growth rate that offsets actual rate of growth for output at the same ratio means that there is no reason for prices to adjust. a similar interpretation can be found in reynard (2007, p. 26). it was, however, already henry thornton (1802) who proposed the same interpretation. the mpsi seems to be independent from many, if not from most, of the postulated disadvantages and technical weaknesses of all other methods. it is also independent from specific features of monetary policy reaction function. it requires no modeling of any kind or estimating any of unobservable variables (i.e. output gap). the aforementioned weaknesses are the reason for criticisms of all past monetary policy stance assessment frameworks. the mpsi method assumes nominal rigidity during the current period (at least one quarter). otherwise, any change in the real money supply in relation to demand for real cash balances is removed by the price adjustment resulting in super neutrality of money. 201 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 compilation of the mpsi must be based on the high-power money, or money available for transactions in the shortest horizon. therefore, aggregates like m0 must be used. these aggregates’ behavior depends in the least extent on the specific features regarding society and the financial sector. another point is that a central bank has direct and credible control over them. the mpsi is based on a proxy of the nominal transactional money demand – the gdp. this design mitigates any problems that might be associated with controlling for the income demand element in the total money demand. using the nominal gdp also deals with the problem of controlling for new assets prices, when one evaluates monetary policy. prices of non-perishable, long-lasting assets newly produced are included in both “c” and “i”. including monetary base (m0) in the compilation of mpsi allows for controlling for financial and real assets’ prices. mpsi represents a quantitative and qualitative measure of monetary conditions in the economy induced by intentional and unintentional monetary policy. this is why it is suggested that money supply/demand movements (implicitly) represent monetary policy exogenous shocks as well as endogenous reactions to some other variables and shocks. this is invariant with operating procedures and regimes, as monetary imbalance is the cause of inflation and money is neutral in the long run. it is possible to implement the abovementioned method for capturing monetary policy stance in international comparative studies and in research focused on international interdependency and economic integration studies (mlodkowski, 2008). the empirical exercise that follows offers an in-depth insight into economic integration over time in monetary policy stance. as such, it is a valuable reference for any discussion on the causes and consequences of regional economic cooperation, like the gcc initiative, that aims to mimic the one in europe. the persian gulf and its coast is a strategic region for the global economy. it contains the biggest reserves of crude oil in the world. according to opec statistics, this region1 is in possession of almost 64% of proven total crude oil reserves. the gulf cooperation council gathers five out of seven countries that are located in the arab gulf, namely kuwait, saudi arabia, bahrain, qatar, and united arab emirates. oman is the last member, although not regarded as located in the arab gulf. however, it is of strategic importance due to its neighborhood with the strait of hormuz. this is the only water passage leading from the persian gulf to the open sea. according to energy information administration, about 90% of oil transited from the arab gulf went through the strait of hormuz. taking into consideration all of these factors, the importance of the gcc countries for the international economic relations cannot be underestimated. given the historical instability in the gcc region, the economic and monetary integration could be desirable for the purpose of maintaining sustainable growth and peace. this would firm the connections between the members and create collective security in face of external threats. it could also soothe some border conflicts that are still present. indeed, the gcc planned to introduce a common currency already in 2010. however, due to global financial crisis and its waves, the idea has been abandoned by governments of some of the gcc countries. apart from political rationale, there is a set of crucial economic benefits that a group of highly integrated countries could capture, if a common market and a common currency are effectively achieved. first of all, a single currency in the gcc region will lead to the removal of the transaction costs (mlodkowski, 2013). as proved, in a formal theoretical model by mlodkowski & bywaters (2012), such situation fuels economic growth. in addition, companies operating in more than one country will be able 1 including iran, iraq, saudi arabia, kuwait, qatar, united arab emirates and oman. short history of the gcc economic integration e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 202 to reduce costs, and delivery time of cross-border money transfers. another benefit is the elimination of the uncertainty about the foreign exchange rates that may inhibit the foreign trade to some extent (mlodkowski, 2007). the favorable consequences of the common currency in this aspect include the increase of the general economic efficiency, and further economic integration via intensified intraregional trade in the non-oil sectors. this is particularly important for the gcc fiscal stability. finally, the gcc members with a common currency and common customs policy could strengthen their bargaining power in negotiating trade agreements. next to the benefits of a common currency, there are some potential drawbacks as well. this basically originates from the fact that, all of the members will have to give away a portion of their autonomy both in monetary, as well as in fiscal policy (mlodkowski, 2008). the implication is that no country will be able to change the value of its currency against another currency in case of some macroeconomic problems. however, there is a very good argument against this theoretical drawback. for most of the gcc countries the fixed exchange rate regime operated successfully for many years. there was no need to use depreciation in order to deal with external imbalance. instead, this is the fiscal policy that has to handle any internal imbalances (mlodkowski, 2009). another potential drawback is due to spill-over effects. the abovementioned potential issues may never become problematic, as active monetary policy has been rarely seen in the region. for many years all of the gcc countries operated in a setup that is called pseudo-monetary union with the usa (and with each other) due to the fixed exchange rate regime that prevailed until the first decade of the 21st century. summarizing, all six members of the gcc countries are similar in terms of history, geography, politics (monarchies with limited participation), population (small size, except saudi arabia), with the majority of sunni (except bahrain), culture, language, and religion. in economic terms, hydrocarbon resources are dominant. oil accounts for one third of the gdp, for three quarters of government revenue and for three quarters of exports (hanna, 2006). owing to high prices of oil at the turn of millennia, their economies significantly expanded. however, oil price developments in 2014/2015 exercise negative impact on all of the gcc countries. there has been big scale economic integration initiative in the region. the gulf cooperation council introduced a custom union in 2003. it should have granted the free movement of goods, services, people and capital. this was supposed to help to deal with possible asymmetric shocks. however, the actual situation in 2015 is far from what is understood as the common market or a customs union. there are still very long and time consuming customs procedures at the internal gcc borders. they result in increasing transactions costs for all stakeholders. it is worth noting that cultural and language similarities make the movement of people and capital far easier than in the eu. it was already more than a decade ago, in 2004, when the gcc countries agreed on the convergence criteria for the purpose of a currency union. these were partly adopted from the european monetary union set of criteria. they included in the gcc such elements as: _ budget deficit less than 3% of gdp, _ public sector debt less than 60% of gdp, _ currency reserves in excess of 4 months of imports, _ interest rates not higher than the average of the three lowest countries by more than 2%, _ and inflation not higher than the weighted average of the six countries by more than 2%. in case of the first criterion, one should remember that all gcc countries budgets depend strongly on crude oil price. with severe deterioration of the oil price in late 2014 and in early 2015 many of the gcc countries face the threat of substantial and permanent deficits. as noted already by 203 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 mlodkowski (2010), it may lead to detrimental effects for the economic growth via the crowding-out of private investment. the gcc members are relatively open economies. central governments have been promoting fdi for many years (jadresic, 2002). moreover, they have been harmonizing rules and regulations with regard to economic activity. all gcc members’ currencies used to be pegged to the us dollar. the usd used to act as an anchor for external value of all gcc currencies. this situation started to change due to the most recent financial crisis. some of the gcc countries decided to follow a different approach, and pegged the external value of their national currencies to a basket of currencies. such decisions were a step back in the process of economic and monetary integration. data used for the empirical study on the de-facto monetary integration comes from the world bank on-line wdi database. for some of the gcc countries consistent time series for the nominal gdp and narrow monetary aggregates start in 1960s. however, this is only the period from 1981 to 2013, when all of the observations for all of the countries are available. therefore, in spite of possibility to conduct individual studies for the period as early as 1960-1970, the results presented reflect the period 1981-2013. money velocity based on the annual observations for the nominal gdp and m0 aggregate was compiled in the first step of the empirical analysis. then, the mpsi was derived, as the first difference series for vm0. figure 3 presents vm0 for all gcc countries: bahrain, ksa, kuwait, oman, qatar, and uae. the main idea to capture a process of monetary situation convergence among the gcc countries called for correlation study. it could be expected that with similar exchange rate arrangecointegration of monetary policy in the gcc countries figure 3 money velocity (vm0) in the gcc countries 19812013 (author) table 1 correlation coefficients of monetary policy stance indicator for the gcc countries for the period 1981-2013 source: author. uae ksa bah oma kuw qat uae 1 ksa 0.67 1 bah 0.33 0.29 1 oma 0.71 0.72 0.38 1 kuw 0.22 0.38 0.29 0.39 1 qat 0.38 0.48 0.56 0.54 0.27 1 ments and similarities in the underlying real sector activities, there should be a significant similarity in monetary conditions developments over time. using a moving correlation coefficient with a five year long window allows observing relative changes in nominal sector among pairs of countries. there are 15 pairs made of six of the gcc countries. correlation coefficients for the period 1981-2013 are presented in table 1. bahrain seems to be the only outlier in the gcc group concerning monetary policy stance. the rest of the countries used to perform continuously in a manner that justifies a conclusion on significant and far-reaching similarity in monetary policy. it can be observed in figure 4. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 204 for the whole period covered (1981-2013) the correlation coefficient remained positive and significantly different from zero. it oscillated in the upper region for its range, close to plus unity. such situation calls for a conclusion that this de-facto coordination of monetary policy creates favorable conditions for creation of a monetary union. substituting national monetary policies with a common one would not generate asymmetric shocks, figure 4 mpsi moving correlation coefficient for all gcc countries (author). as monetary situation has been identical in countries considered. in fact, the observed performance at each country level has been as if there has been one common central bank for the gcc countries already. referring to the oca literature and to the de-facto monetary unions section one can conclude that the central bank that has been responsible for formulation of monetary policy for all of them has been the federal reserve of the usa. therefore, any arguments against the common central bank for the gcc countries, based on “giving up monetary policy independence” have been lacking any ground, as there has been no such independence so far. the empirical study on similarity of monetary policy stance in the gcc countries over the period of the last three decades delivers an interesting picture. due to factors discussed earlier in this paper, there has been a significant high positive correlation of the monetary policy stance in the region. when compared with the situation in europe, prior to the creation of the emu in 1999, it is obvious that the gcc countries have been suited for a currency union in much greater extent that the eu countries (mlodkowski 2011). this has been achieved by means other than the nominal convergence criteria, formulated for the emu members in the maastricht treaty. the gcc countries compose an oca, but still formal monetary integration is not present. there is an alternative situation that we may label “de-facto monetary integration”. in the same time, the emu conclusions figure 5 correlation coefficients for mpsi in the most recent period 2010-2014 (author) countries enjoy the common currency benefits in spite they do not meet the oca criteria, and they do not perform in a manner justifying the common monetary policy. as the presented case shows, the formal monetary integration may be postponed due to some other considerations. the emu example indicates that political will is able to overcome reservations resulting from not meeting the oca criteria that used to be pronounced as justifying cre205 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 ation of a common currency. political factors are able to mitigate also the fact of explicit violation of the limits and requirements imposed on emu member states. by comparison, it is highly possible that the reason for not observing a new common currency in the gcc countries is also ‘political’. otherwise, we should have a new gcc common currency in the global economy that would definitely become an important reserve currency, and a unit of account and payments for international trade in hydrocarbons. abell, j. d. 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(2007). effects of the quantitative easing policy: a survey of empirical analyses. monetary and economic studies, 25(1), 1 – 48. pawel mlodkowski ph.d. in economics faculty of business, sohar university address p.o box 44, al jameah street, sohar 311, oman e-mail: pmlodkowski@soharuni.edu.om about the author e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 8 submitted 04/2017 accepted for publication 08/2017 european integration studies no. 11 / 2017 pp. 8-18 doi 10.5755/j01.eis.0.11.18955 © kaunas university of technology the pros and cons of integration vs. disintegration scenarios for europe eis 11/2017 abstract the pros and cons of integration vs. disintegration scenarios for europe http://dx.doi.org/10.5755/j01.eis.0.11.18955 stanisław umiński the university of gdańsk, research centre on european integration ul. armii krajowej 119/121, 81-824 sopot, poland introduction the purpose of the study is to discuss the ongoing debate on the future of the eu, with reference to the scenarios formulated by the european commission, as well as other interesting concepts, and to indicate the most probable scenario that the eu would follow. the method used in the research is studies of the scientific publications, comparison and evaluation of alternative integration scenarios and interpretation of selected legal issues related to the division of competences between the eu and the member states (ms). the main tasks are as follows: (i) to prove that the concurrent debate about the future of the eu is not “new” and similar questions were asked since the birth of the integration processes, (ii) the usage of sovereignty concept to interpret different demand for integration of the ms, (iii) identification of links between globalisation, integration and the crisis as well as (iv) comparisons of different scenarios related to further (dis)integration within the eu and their consequences. the novelty of the paper is that it relates the integration scenarios formulated by the european commission to the issue of sovereignty as well as to historical and legal background of the european integration. out of the possible scenarios proposed, multi-speed europe is the most probable one. the real challenge, if this scenario will evolve, is to safeguard the possibility for the “lagging countries”, to join the (more integrated) leaders – if the former will be ready to do so. the challenge is to make the multi-speed europe – an inclusive concept. multiple speeds have in fact existed within the eu, as there always have been and will be those who are the laggards and the leaders. the awareness of the european issues has been increasing, as suggested by de wilde & zürn (2012). however, the eu will go through serious changes, consequences of which deserve thorough debate in order to disseminate knowledge on the consequences of the strategic choices ahead of the ms. keywords: future of the eu, integration scenarios, sovereignty, globalisation. the 60th anniversary of the treaty of rome seems to be a perfect time to make some reflections about integration within the eu. the time for discussing the pros and cons of integration vs. disintegration scenarios is special, as the “climate” for making a debate on the integrational issues – has changed. crisis “2008+” and its consequences undoubtedly are key factors, negatively influencing the perception of the eu integration. their consequences for the economies of the members states (ms) of the eu and their societies turned out to be so serious, that also have weakened the fundaments of the european integration. national egoisms have increased, the solidarity among ms has been weakened, moreover the crisis in not only complex but also multidimensional (tosun, 9 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 wetzel & zapryanova 2014). the 2004 and the next enlargements of the eu resulted in its increased diversity. new and old ms often have different interests. they differ in many aspects: gdp per capita, purchasing power, democratic traditions, rule of law, quality of institutions, institutional and administrative transparency etc. many differences have clearly revealed also among the old ms, an example being competitiveness inequalities between the southern and the northern countries. the eu is under the immigration pressure, that has its external and internal dimension, the latter stemming from the enlargements. last but not least, the globalisation pressure shall be mentioned. the eu (and the integration process thereof) is perceived as a “transmitter” of the globalisation’s negative consequences, to the ms. the discussion on the eu’s troubled situation and its unclear future might be perceived to be as intensive as it has never been before. this perception relates both to the debates taking place in the particular ms, as well as on the european level. moreover, the so-called negative cumulative causation has been initiated, which means that negative opinion about the eu brings the next – even more critical one. however, the exchange of views about the desired direction towards which the integration process shall go – is not new. from the very beginning, the conflicting ideas about the shape of the integration process have been confronted. for instance, after the second world war, during the congress of europe in hague in 1948, different attitudes towards integration were presented. some of them were deeply rooted in the federalist-oriented ideas, while others, envisaged intergovernmental cooperation, that only to the limited extent shall transfer the prerogatives towards the supranational (community) level. however, it was the sovereignty question that was a real issue of the debate. one can argue, that the today’s debate on the future of the integration project is different. undoubtedly, the ms are far deeper integrated within the eu. integration process went through several stages, from the free trade area, through customs union, common market to incomplete economic and monetary union. what needs to be stressed, is that in each period, the political, as well as historical context, constitutes the framework for the discussion about the further integration. refereeing to the functioning of the market mechanism and its “language”, the so-called demand for integration is determined by this framework. it sets the “fears” associated with the next integration steps. today, we, for instance, fear globalisation-related issues. the workplaces for the eu citizens are endangered by the competitors not only from china, india and other low-cost countries but also from canada, japan etc. however, when we come back to the ideas of the founding fathers of the european communities, they meant french-german cooperation, as a fundament of the future integration process. was it not a revolutionary, astonishing idea – at that time, just after the second world war? two, traditionally conflicted countries, germany and france, working together in order to establish the communities. today, as well as in the foundation years of the european integration, the issue to be decided has been the same. it is the scope of the transposition of the nations’ competencies to the common (supranational) level. therefore the problem has been to what extent a country is willing to limit its sovereignty, in order to benefit from being integrated with other countries and being able to influence their sovereignties. the subject of the integration debate is not new the sovereignty in the eu integration influences sovereignty. however, the understanding on how the sovereignty is altered – depends on one’s worldview. sovereignty can be limited, as a country in a voluntary way decides to get rid of part of its sovereignty – and share it, with other countries. therefore a shared (or pooled) sovereignty is built. through sovereignty sharing, a country gets influence over other countries’ sovereignty. thus, reducing of sovereignty, paradoxically, at the same time, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 10 broadens it. the judgement of the final balance of what the country losses (or sacrifices) and gets in exchange, being integrated with other countries – is difficult to be assessed. in the sphere of economic relations, cost-benefit balance is easier to be accomplished. however, many integration-related aspects belong to the symbolic sphere, and their valuation depends on ones’ worldview, life-experience, family tradition etc. the assessment can be situated somewhere on the whole spectrum between the cosmopolitan or national-oriented extremes. each individual may have his or her own, particular scope, to which sovereignty can be limited or shared. another question is if sovereignty shall be treated in absolute (zero-one) terms, meaning that it is completely unrestrained or, alternatively, completely lost. or it is allowed that part of sovereignty can be shared. historical legacy, political system (centralisation vs. decentralisation) and societal environment that influence current political situation – all determine the willingness to share sovereignty. the concurrent economic situation and societal environment are more important, that apparently one could think. the correlation between the dynamics of the integration process and the business cycle trends is observed since the european integration has been initiated in the 50ties last century. a tendency to treat sovereignty in absolute terms can hardly be justified. as the world economy has become globalised, the activity of transnational corporations, capital and services flows and openness to trade – contribute to sovereignty limiting. it is not necessary that a country becomes the member of the eu, that its sovereignty is limited. however, being part of the eu and its legal system, with the supremacy of the european law over the ms’ laws, reduces sovereignty even more. all the more, monetary integration is perceived as the most sovereignty limiting aspect of integration. however, as a country is open to free capital transfers and its banking sector can be penetrated by foreign direct investment, it reduces the monetary policy independence. a country that is not in the eurozone, conducts independent monetary policy (it is run by the central bank). in an open economy, however, effects of this policy often “leak” to the markets of the other countries. the increased demand, due for instance to the reduced interest rates, can be directed towards imported products. if foreign owners are active in the banking sector, and the important share of the banking assets are foreign owned, it may reduce the efficiency of the “independent” monetary policy. the central bank sets the interest rates, that influence demand for credit. however, foreign-owned banks’ preferences in the credit policy, might be not compatible with the policy of the central bank. for example, a bank can tighten its credit policy, because of the consolidation process, meaning that capital is transferred to the banks’ subsidiaries in the other countries. bank can also disfavour some industries from being intensively credited, as they have been ranked high risk. sovereignty is thus an elusive concept. due to participation in dense, global trade and capital flows networks, a country is far from being absolutely sovereign. the division of competences between the eu and its ms is declared in the treaties. article 5 of the treaty on the european union (teu) sets the limits of the eu competences, according to the principle of conferral. also, the principles of subsidiarity and proportionality apply. the eu’s ability to act, or to interfere into the members states economies, is not unlimited. as a rule, if competencies have not been conferred upon the eu, they remain with the ms. article 5 of the teu describes the subsidiarity principle. according to it, the eu is entitled to take actions in areas that are outside its exclusive competences, if the objectives can be more sufficiently obtained by the eu than by its ms, acting individually. it requires the condition to be fulfilled, that the union level of intervention, by reasons of effects or scale, is more effective. proportionality rule shall be obeyed, guarantying that the eu action does not exceed what is necessary for the achievement of the objectives formulated in the tue and the treaty on the functioning of the eu. 11 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 one of the treaty of lisbon aims and changes brought by was the increased role of the national parliaments in the decision-making process in the eu. the task of the national parliaments is to ensure compliance of the eu actions with the subsidiarity principle. another question is if the so-called yellow card procedure effectively protects the ms from “excessive” eu law interference into their sovereignty, which would signal the non-compliance with the subsidiarity principle. the above-presented divagations on sovereignty, its limits or changes in countries of the eu shall be done, with reference to the ideas formulated by the founding fathers of the european integration process after the second world war. robert schumann, jean monnet, alcide de gasperi, paul-henri spaak and the others, understood integration as a process leading to peaceful coexistence of nations. limiting their sovereignty and transferring some prerogatives to the supranational level through the creation of federal bonds – was the way to achieve it. 2008+ crisis proves, that the dynamics of the integration processes in the eu and its predecessors, has been highly correlated with the economic cycle trends. this correlation is not something that revealed itself suddenly. an inquiry into the history of the european integration leaves no doubt about it (jovanovic 2005; baldwin & wyplosz 2004). integration was developing in waves. after the second world war, it was a climate for a radical change. the economic rebuilding process was accompanied by optimism. the high dynamism of the economic growth stemmed from the huge destruction, caused by the second world war. the 70thies of the last century are today referred to, as the eurosclerosis. the eu competitive position deteriorated and both, high inflation and unemployment (stagflation) – coexisted in the ms. the eurosclerosis – to large extent – was the consequence of the world economy crisis, that revealed the eu structural weaknesses. in the 80ties, the increased dynamism of integration process correlated with the liberal revolution in economics and with a trend towards privatisation and deregulation. the liberal paradigm and liberalisation resulted in a long period of economic prosperity and dynamic growth. however, liberalisation of financial markets constituted the “seeds” for 2008+ crisis. the evolution of sophisticated, risky financial instruments has led to the crisis in the autumn of 2008. collateral debt obligations (cdos) exemplify, how the risk spreading was understood in an opaque way, bringing misery to the “ordinary people”. 2008+ crisis can be interpreted in many ways. one of them is the serious discrepancy between the financial markets and the “real” economy (orłowski, 2016). in times of the favourable economic situation, there is a tendency to liberalise and open the economy to foreign competition, also from the other ms. however, when economic situation deteriorates, the tendency to limit integration scope or its dynamics – comes back. as already mentioned, the perception of the european integration is that it brings instability to the economies of the ms, also as it transfers the negative impulses stemming from globalisation. it is a paradox because the integration was intended to bring stability. for instance one of the aims of the monetary integration was to eliminate the currency rates fluctuations. the introduction of euro brought stability, as there is no currency risk for transactions done in euro. however, it resulted in macroeconomic instability for some ms. the key problem seems to be the broken link between prosperity for the next generations and integration processes. membership in the eu does not automatically guarantee the improved quality of life for the next generations, and high unemployment among the young people in the eu ms indicates it. convergence – is not an automatic process in the eu. the endogenic theory of economic growth is less optimistic than the neoclassical growth theory, that envisaged “automatic” convergence, resulting from diminishing marginal productivity and catching up processes. the message of the endogenic theory of the economic growth is different – convergence is conditional. it happens in clubs (club convergence). steady states can differ – for each of the clubs. integration, globalisation and consequences of the crisis e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 12 the fundamental question is to what extent the integration process by itself has contributed to the situation of having no hope for economic prosperity in the eu. is the situation in the southern ue ms so serious because they were conducting irresponsible economic policy? or it is so because the eurozone was constructed in a way that results in macroeconomic imbalances, as the criteria of the optimum currency areas have not been fulfilled? answering questions of that type goes beyond the scope of this article. the key problem, today, as the future of the eu is discussed, seems to be that for the younger generations of the eu citizens, the eu is perceived as a “construction” that brings troubles, instability and rigidities. they do not remember that the european integration was meant by the founding fathers as a remedy to the military conflicts. thus, if the younger generations do not have this war or post-war experiences, they question the integration process so easily. they treat peace as granted and see the eu only as a “trouble maker”. as already mentioned, the discussion about the scenarios for the further integration – is not new. its key element is if more of the federative component is needed. or – treated in the opposite way – if the troubled situation in the eu (after the uk has decided to quit the eu) is a result of “too much” of the federal content, and therefore federative approach shall be limited. to make the further elaboration less “theoretical”, more important, already formulated scenarios will be presented in the remaining of the paper. the key document, that shall be commented, is the white paper, published by the european commission in march 2017 (european commission, 2017). it describes 5 scenarios for eu27 (after the uk quits), by the year 2025. as a background, the white paper describes the drivers of the eu’s future, including important facts about a place of the eu in a changing world. the eu27’s share in the global gdp has been shrinking, other currencies than euro, are gaining in importance as global currencies, the recovery after the 2008 recession is not evenly distributed among the ms and the eu is facing the ageing challenge. the challenges for the eu are predominantly acute for the young people, for whom the better well-off than for their parents – is not guaranteed. also the terrorism, militarisation of the world and russian troops on the eu eastern border – are the factors that constitute the challenges for the eu’s ms, acting together. the scenario 1 is based on the “carrying on” attitude. the eu “sticks to its course”; what has been done so far, would be improved or upgraded. the focus will be on improving the functioning of the single market and on the creation of jobs, stimulation of economic growth and investment. the pros of scenario 1 are sustaining of the unity of the eu27. however, if the eu is criticised for its so far achievements or failures, this scenario does not offer any chance to make a serious and expected change, whatever would be understood by a change. scenario 2, “nothing but the single market”, represents a “step back”. the progressing integration, evolving according to “an ever closer union” rule, is stopped under the conflicting interests of the ms. differences among the ms are possible in many spheres. national – instead of the commonly set – regulations apply for instance to the social and environmental standards, as well as to the public aid etc. bilateral cooperation gains in importance. the main drawback of such a scenario is that the eu will not make use of collective action, which would limit its bargaining power in the world. in scenario 3, “those who want more do more”, many coalitions of the “willing” countries would arise. over time, the lagging countries will have the possibility to join the “willing more” countries. the ue’s overall transparency will suffer from many possible, strengthen cooperation circles that would be formed. transparency of the decision-making process will deteriorate. what scenarios for the eu? 13 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 in scenario 4, “doing less, more efficiently”, the integration will be focused on the limited, selected policy areas, however, the eu will act quicker and more effectively. a step back in integration will be in those areas, that will be regarded as less important. this scenario means less solidarity between the ms. for instance, the regional/structural policy may be the neglected area. the different priorities of the ms may make it difficult to decide which are the areas in which the eu shall do more or less. scenario 5, “doing much more together”, envisages that further than ever before, deep cooperation between all the ms would evolve. the eu will face the global challenges “as one”. the defence and security will be prioritised. a strong focus would be on the coordination of many aspects of economic policies (taxation, social matters, financial supervision systems etc.). such an eu would be quicker and more efficient, however those who are opposite to such a deep federalist approach – would feel being alienated in the eu. the two extreme scenarios are 2 and 5. number 2 would be a serious step back, many european level policies would be rolled back, the eu (or precisely the european commission) will withdraw from pushing ahead the integration of policies or better economic governance, for instance in the eurozone (janning, 2017). the scenario number 5 seems to be leapfrog, in which all the ms want “more of europe”. as noticed by janning (2017), the white paper does not represent usually presented “binary logic”, in which only two opposite scenarios are possible, which are decay vs. progress. the white paper seems to be an invitation to a debate on the future of the eu, in the global, changing world. this debate is important for the ms and their citizens, because the eu structure will probably seriously change and the politicization of the eu-related issues is a fact reflected in increasing awareness and polarization of opinions (de wilde & zürn, 2012). many terms, describing the possible ways in which integration would evolve, could be quoted or recalled here: concentric circles of integration, multi-speed europe, two-speed europe, europe a la carte, variable geometry, etc. it seems, however, that a relevant term is a flexibility. flexibility is a solution to reconcile different – often conflicting attitudes – towards the eu’s future. flexibility was in fact introduced to the acquis communautaire by the treaty of amsterdam, signed in 1997. enhanced cooperation (or closer cooperation) envisaged in the amsterdam treaty, however, was not successful. grabbe and lehne (2016) see the main challenge for the eu in solving the puzzle how to provide two issues in the long run: internal cohesion and flexibility. the challenge for the eu is twofold. in the globalised, changing world, the eu must be stronger, more integrated in order to be able to cope with the challenges ahead of it. however – it must be cohesive, which means the imperative to contain many centrifugal forces. grabbe and lehne (2016) formulate several recommendations as regards flexibility. according to the authors, the eu shall protect the single market integrity, shall punish noncompliance, consolidate the eurozone project, allow flexibility in new areas and use flexibility in order to develop relations with third countries in a creative way. cantore (2011) treats enhanced cooperation as a tool enabling the balance between unity and asymmetry. enhanced cooperation, or flexible integration, is a step towards multi-speed integration. in the eu that consists 28 countries, the tension between sovereignty and closer integration is unavoidable. flexible integration undermines the unity of the european “construction”. it may result in centrifugal tendencies – therefore may not be accepted by some of the ms. however, as noticed by cantore (2011, p. 18), “asymmetry is in the dna of the european union” and was present in all the stages of the integration process. it is difficult to judge and unequivocally say how the finalite politique of the eu in the forthcoming years would look like. however, it is clear, that political discussion has already started. the political leaders of the “big four” (france, germany, italy and spain) at the meeting on the 6th of march, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 14 made a strong signal in favour for the multi-speed integration, with intensified efforts towards the deeper integration within the eurozone, which would reduce the functional dissonance due to the incomplete economic and monetary union (niemann & ioannou, 2015). the message from the “big four” meeting is that: _ despite the opposition of the countries not willing to integrate deeper, the integration process must forge ahead; otherwise, the eu is at risk of disintegration, _ a europe of different speeds is a necessity, otherwise, the eu would probably “get stuck”. shall this occur, the european efforts in favour of peace, may be endangered, _ “unity does not mean uniformity”, as declared by francois hollande, meaning that new forms of deeper (or enhanced) cooperation shall enable for the willing ms to push integration ahead (zalan, 2017). as a multi-speed concept is so strongly promoted, it deserves more attention and presenting its pros and cons. the main arguments against multi-speed europe can be described as follows: _ it may lead to the further divisions within the eu, ms will not be treated equally. it seems unavoidable that some ms will be “in” or “out”. all the more, it is hard to predict what “in” or “out” they would be, as many functional spheres of ms’ cooperation could evolve; _ it will dismantle solidarity, as those how will become outsiders, will not be able to take part in the core of the decision-making process. in multi-speed europe, many coalitions would be possible, which will be detrimental for solidarity, _ it would make the decision-making process even more complex than it is now. structures within structures will arise, competencies would overlap, etc. the federalists will not accept it. they would prefer to have transparent, coherent structure of the eu. the main arguments for multi-speed europe can be described as follows: _ the sceptics, shall not be able to slow the integration processes down. those who want to integrate closer, to be an avantgarde and wish to build the stronger union – shall have a chance to do so, _ multi-speed eu is nothing new, the eu has been functioning with multiple speeds for long, the examples being many opt-outs (also for poland: charter of fundamental rights), for the uk and denmark (not in the eurozone), _ ms are different, for instance not all of them “fit” into the eurozone, as their competitiveness differ, inflation rates are not the same, some of them need devaluation of currencies from time to time etc., their economic policies can hardly be harmonised (debating europe, 2017). the multi-speed concept is intended to make the eu more efficient, dynamic and capable of facing its challenges. however, this scenario represents “more of europe” option, at least for those, who agree on more integration. it can be criticised however on the following grounds: if the european project that has been functioning so far – has failed, “more integration” – seems not to be a reasonable remedy. friedman (2015) for instance, is of the opinion, that the concurrent eu crisis is the crisis of brotherhood. if his diagnosis is true, therefore multi-speed will not be a remedy for the eu. multi-speed means less solidarity. zielonka (2014) formulates several scenarios of the disintegration of the eu. he arguments, that the crisis, that the eu is going through now, is far more serious than the past integration crises. its nature is not financial or “technical”, related for instance to the indebtedness of the ms etc. the crisis is about the eu cohesiveness, trust and imagination. zielonka (2014) refers to the concept of medieval empires. he sees the remedy for the eu’s crisis not in bringing competencies 15 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 back from the eu/supranational level to the ms. ms, by their citizens, are also perceived to be inefficient. the medievalism concept assumes that different authorities overlap and share the competencies, which leads to sovereignty pooling and overlapping. the special role is envisaged for global cities and agglomerations. the scenario proposed by zielonka is not exactly resignation from integration, but rather building it according to the new rules. competencies and power shall not be assigned according to hierarchical structures and sophisticated treaties. instead, a functional network of cooperation is proposed. instead of the current paradigm, that is monophony, zielonka (2014) proposes “polyphony”, represented by interplaying actors from the european level, national levels, cities/agglomerations as well as civil society level. an interesting contribution to the discussion on the future of the eu was done by piketty (2016). he sees the main drawback in the functioning of the eu in the fact, that it does not temper the dangerous and harmful “experiments” of the global capitalism, as it was intended to do so, by the founding fathers. moreover, the monetary integration, in the form as it was established within the eu, is not a panacea for the economic problems of the ms. it makes the problems stemming from globalisation to be even more severe. as a reform, piketty (2016) proposes to establish a strong parliamentary representation of the eurozone’s ms. also, a separate budget shall be made for the eurozone countries, “supplied” from the european tax. it would enable to fulfil “taxation with representation” principle. eurozone would become a fully-fledged currency union, with not only monetary policy but also with strong, common institutions and harmonised taxes and economic policies. some part (10 percent) of the harmonised corporate income tax would be collected at the federal level. harmonisation of taxes would reduce harmful tax competition. communitisation of ms’s public debts will be done, which will help the highly indebted ms (as greece, for example) to pay their debts more easily. communitisation of public debts means lower interest rates for the less creditworthy, southern ms. as pointed out by piketty, and worth recollecting at the 60th anniversary of the treaties of rome, after the second world war germany’s debts were reduced. therefore the idea of helping the indebted mss to overcome their debt problem – deserves serious attention. the reform of the eu proposed by piketty, in fact, would mean multior two-speed europe. it would be designed as the one to be opened for the next “willing” ms. however due to political reasons it does not guarantee to be open for the next ms – in the future. thus the question is if it will be an inclusive or exclusive project. guerot (2016) proposes even more “radical” solution for europe, however sharing some elements of the zielonka (2014) proposal. she treats cities and regions as a source of european identity, not countries. therefore, despite the fact that the eu is in crisis now, it makes sense to discuss and introduce the concept of the european republic. the idea of the european republic is consistent with the thoughts of the founding fathers, that treated the european project as an alternative for particular ms’ nationalisms. the true challenge for the eu is to face the competitive pressure from china, usa russia etc. the normative unity is required, that would be provided by the european republic. on the other hand, the identity and diversity – are provided by cities and regions. the pros and cons of possible scenarios and dynamics of integration the above-presented ideas and scenarios reveal only the fragment of the ongoing debate related to the future of the integration processes in the eu. each of them has pros and cons. the discussion has just started, new european architecture will be worked out. each ms will have to decide, what option to support, and what “sort of europe” will suit its interest and fit into its “demand for integration” better. the outcome is – yet – hard to predict. political agenda influences the climate for the european debate (french presidential elections in may 2017 and german elections in october 2017). however one thing seems clear, the eu will change. conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 16 one of the solutions proposed is the new treaty for the eu, to be negotiated by the ms. this, however, seems to be a long term perspective, very unlikely in the short run. it seems to be a risky proposal to follow, as the final outcome is highly unpredictable and may by far away from expectations of particular ms. those who postulate “less integration” option, might be dominated by those, who put an option on the eu to be even more integrated. according to buras (2013), an intergovernmental method of integration (more suitable for multi-speed europe solutions) is more likely – than negotiating the new treaty. the so-called new intergovernmentalism is already present in the eu, especially after the beginning of the financial and economic crisis in 2008. such a solution, however, leads to the establishment of the new union (or unions), parallel to the existing one. it may result in the increased tensions between the ms, as the role of the eu institutions will be weaker. first of all the tension between the eurozone vs. non-eurozone ms are likely to increase. paradoxically, the economic and monetary union, despite the fact it’s architecture is not completed, did not implode, but will probably integrate furtherly even deeper (ioannou, leblond & niemann 2015). a risk for ms that are not keen on federal solutions, as described for instance in scenario 5 from the white paper, is that if they stay out of the core, will suffer from less solidarity. less solidarity means less influence on the decisions taken by the core countries, probably fewer funds available from the eu budget, less transparency of the functioning of the eu as a whole. the question is however what is the priority of the ms. if this is safety, broadly understood also in the military sphere, then strong focus on federalisation shall be more easily accepted by the ms. thus the issue is not to change the ue into the union of the sovereign, or independent states, but of the safe states. the ms are coexisting in the strong symbiosis, stemming from economic relations. a stress shall be on safety, that safeguards the sovereignty. in the “strong, disintegration” variant, if for instance the eu would be limited only to the single market, without common policies and even without common currency – the situation of less developed, less competitive ms would not be comfortable. this scenario is not very likely – the eurozone brings many benefits for germany, therefore more expected is tightening integration within the eurozone. nevertheless, we can try to sketch some of the most important consequences of such a hypothetical scenario. this scenario would mean that ms would be able to act individually in the sphere of economic policies. for instance, in the absence of common competition policy, those who can afford it, would subsidise their domestic producers more. the less well-off ms will have no chance to compete in the race for subsidies. the subsidised products from other ms would be a serious competition for domestic producers. as structural/regional policy would be dismantled, the process of less developed ms’ catching up would probably be slowed downed. less integration means less solidarity, which equals fewer funds for regional or cohesion policy. withdrawal from monetary integration could lead to currency wars. currency rates fluctuations – as stems from rose effect – negatively influence trade intensity and fdi flows. if the common agricultural policy would be drawn back, also the race for subsidies could occur in agriculture. in the most pessimistic scenario, if also single market would be waived, a sort of trade wars would start. what could be their consequences – was very well described in the literature from the thirties last century. examples were given by heckscher (1931) and bonn (1938) who have used the term integration as an antonym to the disintegration of trade relations in times of trade wars initiated by countries during the great depression. webber (2013) points that it is difficult to speculate in which way the eu might disintegrate. on the other hand, kelemen (2007) formulates several scenarios of disintegration, from dissolution to (an extreme) civil war. 17 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 if “solidarity” scenarios would prevail, their costs shall also me mentioned. for instance, if those of the ms that so far do have not belonged to the eurozone, would join it quickly, would probably bear part of the burden associated with financial help for greece. thus from their perspective, it is better not to hurry to introduce the euro, till the eurozone will solve its problems. with reference to those ideas that envisage the increased role of cities and regions the question can be asked – are they prepared in budgetary and functional terms to bear possible additional tasks and costs? they would be for instance associated with immigrants accommodation and assimilation. as regards the utopian project of federal, european republic – it may be hard to be accepted by many ms, for whom the sovereignty matters much. out of the five scenarios proposed, number 3 seems the most probable. it is multi-speed europe. the real challenge, if this scenario will evolve, is to safeguard the possibility for the “lagging countries”, to join the leaders (more integrated) – if the former will be ready to do so. the challenge is to make the multi-speed europe – an inclusive concept. multiple speeds have in fact existed within the eu, as there always have been and will be those who are the laggards and the leaders. multi-speed approach bears a risk of the “decoupling” of the lagging ms, which could result in disintegration. integration in the military sphere would be a factor positively contributing to an ever closer integration – reducing the likelihood of scenario 3, and increasing of the scenario 5. priority on military and defence cooperation would be a strong impetus towards “doing much more together”. the main recommendation stemming from observing the changes that have just started in the eu, is to initiate a serious, intensive discussion with the involvement of civil society representatives in the ms, in which the consequences (including pros and cons) of the integration and disintegration scenarios will be elaborated. as suggested by de wilde & zürn (2012) the awareness of the european issues has been increasing. nevertheless the eu will go through serious changes, consequences of which deserve thorough debate in order to disseminate knowledge on the consequences of the strategic choices ahead of the ms (for instance related to the membership in the eurozone or remaining outside of it). baldwin r. & wyplosz ch. (2004). the economics of the european integration. new york: mcgraw hill. bonn m.j. (1938). the crumbling of empire: the disintegration of world economy. london: g. allen & unwin. buras, p. (2013). the eu’s silent revolution. european council on foreign relations policy brief, 87, 1-8. cantore, c.m. (2011). we’re one, but we’re not the same: enhanced cooperation and the tension between unity and asymmetry in the eu. perspectives on federalism, 3(3), 1-21. debating europe (2017). arguments for and against a multi-speed europe. retrieved from http://www. debatingeurope.eu/focus/arguments-for-andagainst-a-multi-speed-europe. de wilde, p. & zürn, m. (2012). can the politicization of european integration be reversed? journal of referencescommon market studies, 50(s1), 137-153. https:// doi.org/10.1111/j.1468-5965.2011.02232.x european commission (2017). the white paper on the future of europe. reflections and scenarios for the eu27 by 2025, brussels. friedman, g. (2015). the european union, nationalism and the crisis of europe. geopolitical weekly, 20.01.2015. retrieved from https://www. stratfor.com/weekly/european-union-nationalism-and-crisis-europe. guerot u. (2016). warum europa eine republik werden muss!: eine politische utopie, dietz verlag. grabbe, h. & lehne, s. (2016). how to build a more flexible eu after brexit, carnegie europe. retrieved from http://carnegieeurope.eu/2016/09/08/howto-build-more-flexible-eu-after-brexit-pub-64507. hecksher e.f. (1931). mercantilismen, vols. 2. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 18 about the author stockholm: nordsted (translated by shapiro m., as: mercantilism, london 1935, london: allen & unwin; rev. new york: macmillan, 1955). ioannou, d., leblond p. & niemann a. (2015) european integration and the crisis: practice and theory. journal of european public policy, 22(2), 155-176. https://doi.org/10.1080/13501763.2014.994979 janning, j. (2017). scenarios for europe: deciphering juncker’s white paper. european council on foreign relations, 3rd march. jovanovic m.n. (2005). the economics of european integration. limits and prospects. cheltenham, uk, northampton, ma, usa: edward elgar. kelemen r.d. (2007). built to last? the durability of eu federalism. in s. meunier & k. mcnamara (eds.), making history: the state of the european union, vol. 8. oxford: oxford university press, 51-66. niemann, a. & ioannou, d. (2015) european economic integration in times of crisis: a case of neofunctionalism. journal of european public policy, 22(2), 196-218. https://doi.org/10.1080/13501763. 2014.994021 orłowski w. (2016) global determinants of poland’s trade during and after the crisis. in k. gawlikowska-hueckel, s. umiński (eds.), an analysis of poland’s foreign trade in the light of the latest theoretical concepts. implications for economic policy at time of crisis. (pp. 15-33). warsaw: scholar publishing house. piketty t. (2016). czy można uratować europę?. warszawa: wydawnictwo krytyki politycznej. tosun, j., wetzel, a. & zapryanova, g. (2014) the eu in crisis: advancing the debate. journal of european integration, 36(3), 195-211. https://doi.org/ 10.1080/07036337.2014.886401 webber d., (2013) how likely is it that the european union will disintegrate? a critical analysis of competing theoretical perspectives. european journal of international relations, 20(2) 341-365. https:// doi.org/10.1177/1354066112461286 zalan, e. (2017). eu’s big four back ‘multi-speed’ europe. euobserver. retrieved from https://euobserver.com/news/137134. zielonka j. (2014). is the eu doomed? global futures. cambridge: polity. umiński stanisław dr. hab. professor the university of gdańsk, research centre on european integration fields of research interests international trade, foreign direct investment, european integration address ul. armii krajowej 119/121, 81-824 sopot, poland e-mail: uminski@univ.gda.pl 48 issn 1822 – 8402 european integration studies. 2010. no 4 presumptive correlations between economic downturn and education & training: necessary preconditions for universities’ actions kestutis krisciunas kaunas university of technology, institute of europe abstract the growing complexity of modern economics and the protracted process of economic downturn stimulate broad investigation pursuing identification the essential boosters of the economics and possible causes of current embarrassments. some economists as colander, d. c.; holt, r. p. f.; rosser, j. b. (2004), in the vein of ecological economics, believe that the neoclassical “holy trinity” of rationality, greed, and equilibrium, is being replaced by the holy trinity of purposeful behavior, enlightened self-interest, and sustainability, considerably broadening the scope of what is the mainstream. in this paper the attempt is made to investigate the vigor of one of the fundamentals of the current economics. that is quality of manpower acting in the economics and relevance of it in circumstances when the society consumes more and more. it is assumed among many causes of economic downturn a whole chain of interconnected reasons. at the very beginning of the chain supposed the erosion of spiritual values of acting economic community members. it is claiming that disremembered and muted spiritual values released greediness, boosted corruption, undercut the confidence between partners in the article. those circumstances grounded conditions and influenced the emerging and afterwards consecutive fall of the expanded fictional business pyramids in many countries. globalism of economic downturn demonstrates that those circumstances are not only local. in that connection it is important to have a look to relevance of education and training of human resources as well as to investigate the essentials of education including cultivation of the spirituality of graduates in every study programme. discussing content of study programmes adequate attention to interdisciplinary and multidisciplinary study programmes is underlined. it is mentioned that those programmes could enable educating pathfinders with the broader scope of knowledge and skills. those graduates could become the leaders in making reasonable sustainable long-run oriented innovations in the industry and society. maintaining the european concept of worth of university’s diversity development of entrepreneurial universities with clear specific mission and regional involvement is supported as other essential improvement relevant to the current situation in the education and training field of the postmodern european society. in the article university ranking as political instrument for enhancing of their quality is overviewed. it is stated in the article that strenghtening the autonomy of the universities as well as increasing investments in education and training are enabling preconditions for the improvement of the performances of universities in european countries. the specific accent is made to the fact that relations of autonomy and financing as well as quality of universities are inseparable. main objective of the article is to discuss the presumptive correlations between economic downturn and education & training system disclosing necessary preconditions enabling universities for relevant actions. key words: economic downturn, spirituality of the graduates, education and training, university’s autonomy, diversity, entrepreneurial university, interdisciplinarity and multidisciplinarity, university’s ranking. issn 1822-8402 european integration studies. 2010. no 4 49 introduction the growing complexity (colander, 2000) of modern economics and the protracted process of economic downturn stimulate broad investigation pursuing identification the essential boosters of the economics and possible causes of current embarrassments. economists as colander, d. c.; holt, r. p. f.; rosser, j. b. (2004), in the vein of ecological economics, believe that the neoclassical “holy trinity” of rationality, greed, and equilibrium, is being replaced by the holy trinity of purposeful behavior, enlightened self-interest, and sustainability, considerably broadening the scope of what is the mainstream. research problem being solved in the article is investigation what are the presumptive correlations between economic downturn and education & training as well as what are necessary preconditions for universities’ actions towards the better relevance of learning outcomes of the university‘s graduates. the object of the research is necessary preconditions for universities’ actions. the aim of the article is to identify presumptive correlations between economic downturn and the results of education & training as well as formulate necessary preconditions for universities’ actions for enhancing the relevance of university’s graduates for leadership in the current economics. to achieve this aim there are several tasks to be solved: identification some mix-up in social contract between • universities, community and authorities; proposal necessary shifts in the content of graduates’ • skills; contemplation – is the diversity of universities not • the advantage? formulating the requirements for university rankings • enabling to enhance quality of university graduates; uplift of the autonomy as the essential precondition • of universities for systematic improvement of the university’s activity; identification the sustainable financing as fundamental • precondition for systematic improvement of the activity of universities. as the research method it was taken theoretical multidisciplinary analysis of the scientific works in the fields of economics as well as higher education history and philosophy. scientific originality and practical significance of the article is: opened mix-up in social contract between • universities, community and authorities; uplift some important features of the university’s • graduates relevant for the current economy; identified necessary preconditions for effective • universities actions enhancing relevance of the graduates; suggested concrete recommendations for higher • education policymakers and university leadership. mix-up in social contract between universities, community and authorities analysing current economic downturn among the causes i assume a whole chain of the connected reasons. at the bottom is erosion of spiritual values of acting community members. disremembered and muted spiritual values released greediness, boosted corruption, undercut the confidence between partners (individuals, companies, banks and state institutions). consecutive fall of expanded fictional business pyramids in many countries caused financial instability and ultimately global economic downturn. why did we get this situation (paul krugman , 2009)? many reasons could be nominated. among them i assume as important the shortage of respectable attitude of mind as well as relevant knowledge and skills of manpower (keršytė, 2008). probable further reason could be imperfect education and training in universities. financial crisis and economic downturn once more demonstrate that global community has lost the tune of triple capital material, social and spiritual. therefore elevation of spiritual values of graduates such as humanistic and democratic mentality, respect of human rights, nurturance of cultural heritage and identity, sustainable development, etc. has to become the urgent task of every university. other fundamental reason of the economic downturn i suppose is that the effectiveness of state economics consists mainly on inordinate but primitive individual consuming. this circumstance is connected with spiritual values as well. why is it so, when many important efforts and actions for enhancing of quality of education and training in universities during last twenty years have been placed down in europe and globally? let look shortly to some aspects. policymakers and academicians are in the position, that strong research basis in the universities is the pipeline for knowledge and technology transfer to the industry and society. yes, it is fundamental truth. but in many universities research as the university’s activity was overvalued and, contrary, education and training became undervalued. as the result overall quality of graduates started to cripple. not in sciences or technology, but mainly in spirituality. eua and other university’s groups and local universities together with european commission and local partners organised great number of various conferences and seminars searching for the best schemes and methods of universities activity. new versions of educational law in many countries are adopted. where issn 1822-8402 european integration studies. 2010. no 4 50 are the expected outcomes!? in spite of that great commotion at the supranational and national level the problems with quality of graduates still are evident. why it is so – many efforts and manikin result? i suppose, something wrong has to be in fundamentals – in social contract between university, community and authority (kriščiūnas, 2002) as well as in managerial matters important in implementation phase. in fact, some mismatch exists between understanding of the situation and ways of its improvement by policymakers and academicians. from one side, policymakers, especially at the national level, usually are in the force position. they believe that relevant and precise corrections of traditional mission, organisation and activity forms of universities are not able to solve still existing problems. trying to improve situation policymakers predicate more radical changes involving even some governmental regulations especially concerning governance, financing, internal structure and even academic matters. from the other side, universities’ professors fairly understand the challenges coming with the new economic and societal transformations (kriščiūnas, 2006), but they are bounded by university’s developmental history lasting hundreds years. universities protect and still believe in institutional autonomy which is world-wide recognised factor as crucial for universities effective activity in the society. universities can’t break traditions which are carefully enshrined from very beginning and became fundamental. i suppose some important corrections should take place in setting goals and the managerial implementing instruments in education and training field. discussing learning outcomes of the graduates i usually desiderate requirements about implanted spiritual values to the mentality of graduates in every study programme. discussing the titles and content of study programmes i desiderate interdisciplinary and multidisciplinary study programmes. but those programmes enable educating pathfinders with the broader scope of knowledge and skills. this kind of graduates could become the leaders in making reasonable sustainable long-run oriented innovations in the industry and society. this approach is often in european commission’s documents, but not in real practise in national states. necessary shifts in the content of graduate’s skills as i already mentioned, spiritual values should have an important position among other learning outcomes of university graduates. in the structure of learning outcomes alongside with knowledge obtained in the field transferable skills are becoming utmost important. very important among skills in current situation seems the ability to find and formulate the problem, to organise or make research and utilise the research results in practise. rapid extension of new knowledge’s and technology’s flow commits everybody to learn continuously. infusion to the graduates lifelong learning skills and individual urge to learn continuous became serious task of universities. communication skills got extremely important. every university graduate should be able to prepare documents: from personal essay expressing his thoughts or scientific paper placing evidence against hypotheses up to business plan (henry etzkowitz, 2008). graduate’s skills of working in groups and networks, and some other skills have to become ordinary. high technology units incorporate and bind knowledge from traditionally different scientific fields (kriščiūnas, 2007). nevertheless, evident mismatch still exists between highly specialized degree programmes well fitted to industrial society needs and new, mostly interdisciplinary and multidisciplinary which are necessary for emerging knowledge-based society. of course, knowledge based industry and services demand both kinds of graduates: generalists from multi-and interdisciplinary programmes as well as highly specialized. globalisation of human activity urges to equip students to deal with changing local and global situations. graduates should become spiritually strong and dynamic personalities and have to have necessary knowledge in the field as well as transferable and specific skills to work in international landscape. is diversity of universities not the advantage? massiveness of higher education had contributed to erection of new institutions competing with older universities. as the result institutional and qualification systems of higher education became much more divers (sybille reichert, 2009). eua lisbon declaration points that universities recognize the fact that moving from an elite to a mass system of higher education implies the existence of universities with different missions and strengths. system of academic institutions got institutions with highly diversified profiles. therefore it is utmost important to recognize equality of esteem for different missions. the quality of profiled universities not always connected with scientific visibility. lithuanian experience testify that governmental aspiration to implement research profile in every university is neither rationale nor possible. it concerns at first art academies and partially humanitarian as well as institutions of social sciences. traditionally universities and knowledge are inseparable. as ronald barnet (barnett, 2008) postulates “universities came to have not only knowledge production’s function, but more than that, they had issn 1822-8402 european integration studies. 2010. no 4 51 a function in safeguarding knowledge, having a care towards knowledge and its validation. the university came to be the arbiter as to what counts as knowledge”. serious changes of university-state-community relationships implicated by the vision of “europe of knowledge” step by step strengthen the preference of concept of entrepreneurial university instead of concept of research university. the concept of entrepreneurial university in my point of view should integrate multiple missions and allow reinventing itself. it should contain strong will for materialization of: research based studies, • diversified and wide university-industry/society • cooperation, life-long learning for everybody with recognition of • informal learning, strong comprehensive regional involvement, • upholding green and sustainable development, • diversified financing, • student focused studies. • europe might need several or several dozen research universities with high international prestige, excellent infrastructure and highly internationally visible professors. the others should seek recognition as entrepreneurial universities having clear specific mission and regional involvement. of course, both types of universities should have the same overall prestige. but politicians and academics should simply never put parity sign when asses the quality of activity of concrete universities. university rankings for quality’s enhancing two highest profile ranking systems in current time are shanghai jiao tong university’s and the times higher education rankings, both of which focus on what might constitute a world class university. they suggest that there is in fact only one model that can have global standing: the large comprehensive research university. this concept contradicts the european concept that diversity is great european university’s value. europe severely needs multi-dimensional ranking system, which enables to evaluate the quality of universities implementing different missions. therefore i congratulate very much european commission and consortium cherpa-network which won the european commission’s competition to develop global multi-dimensional ranking system (van vught, 2009). the project anticipates two-level analysis (focused institutional rankings and field-based rankings). the universities will be scrutinized along five groups of indicators: teaching and learning, incl. employability, • research, • knowledge • exchange, internationalisation, • regional engagement.. • project’s team looks for customized rankings enabling the important advantages for students and academic staff, policy-makers as well as european business and industry. participation in the project’s stakeholder’s consultation process gives me confidence that politicians and academics in the nearest future will get effective and reliable instrument enabling strengthening and modernising the european universities, promoting diversity and quality of them. students and society at large will get reliable and comprehensive continuous information source about the profile of higher education institutions and quality of study programmes. autonomy as the precondition of universities for systematic improvement of the activity institutional autonomy as necessary precondition for implementing university’s mission in the society was stressed in european university charter in 1988, repeated in salamanca and other academic meetings, expressed in many european commission documents. eua recently published survey (exploratory study) on really existing university autonomy prepared by thomas estermann and terhi nokkala under the umbrella of eua. the study compares and analyses a series of elements of financial, organisational, staffing and academic autonomy in 34 european countries. the study seeks to offer the preliminary analysis of great diversity of models available. it enables governments to benchmark their progress on governance and autonomy reforms comparing other systems and gives policymakers feedback on their reforms from an institutional perspective. juxtaposition of situations across europe reflects the multiple approaches for a balance between autonomy and accountability. although the study confirms the existence of a general trend towards an increase in university autonomy throughout europe, there are still a large number of countries that do not grant their universities enough autonomy, thereby limiting the possibilities of improvement of the performances. there are equally cases where autonomy previously granted has now been reduced. quite often there is also a gap between formal autonomy and the real degree of a university’s ability to act with certain independence. sustainable financing as the other fundamental precondition for systematic improvement of the activity of universities it is very well known fact that europe’s universities are not sufficiently funded and cannot be expected to issn 1822-8402 european integration studies. 2010. no 4 52 compete with other systems without comparable levels of funding. at present, european union countries spend on universities about half of the proportion of their gdp compared to the united states. while europe’s lisbon strategy goals are ambitious, public funding for research and higher education is stagnating at best. universities maintain that weakened public support erodes their role in sustaining democracy and their capacity for promoting cultural, social and technological innovation (eua lisbon declaration, 2007). governments must increase in an efficient and sustained way the investments in education and training. they have to ensure necessary levels of funding appropriate to maintain and raise the quality of institutions. financing and quality of universities are inseparable. generalised final conclusion: only very well coordinated concepts and implementation actions of policymakers and academicians based on mutual institutional respect could enable universities to realise their assumed long run diverse mission and the particularly mission in strengthening knowledge-based economy and society in europe. references barnett ronald. knowledge interests & knowledge policies: re-thinking the university in the twentyfirst century, conference on “rethinking the university”, antwerp, 12-13 december, 2008. complexity and history of economic thought, perspectives on the history of economic though. edited by david colander; 2000, routledge colander, d. c.; holt, r. p. f.; rosser, j. b. the changing face of economics, university of michigan press, 2004 commission of the european communities, “the role of universities in the europe of knowledge”, com (2003) 58 final, 5 february 2003 commission of the european communities, “delivering on the modernisation agenda for universities: education, research and innovation”, com (2006) 208 final, 10 may 2006 commission of the european communities, “the european research area: new perspectives”, com (2007) 161 final, 4 april 2007 design and testing the feasibility of a multidimensional global university ranking, the project in context, center for higher education policy studies (cheps) university of twente, 2009 eua, the glasgow declaration „strong universities for a strong europe“, eua, brussels, 2005 eua, lisbon declaration europe’s universities beyond 2010: diversity with a common purpose, eua, brussels, 2007 eua, charter of lifelong learning, eua, brussels, 2008 european university association, financially sustainable universities: towards full costing in european universities, eua, brussels, 2008 ec tuning project: educational structures in europe, 2007 henry etzkowitz, marina ranga, james dzisah. beyond bologna: the novum trivium and the transition to the global entrepreneurial university, conference on “rethinking the university”, antwerp, 12-13 december, 2008. how did economists get it so wrong? by paul krugman ,new yourk times, september 2, 2009 keršytė, jurgita; kriščiūnas, kęstutis. business’s vision on competence of researchers in knowledge-based economy // european integration studies : research and topicalities / kaunas university of technology. – issn 1822-8402. kaunas. 2008, no. 2, p. 128134 kriščiūnas, kęstutis; staniškis, jurgis kazimieras; tričys, vaclovas. mokslinė veikla: šiuolaikinės tendencijos : [monografija]. šiauliai : všį šiaulių universiteto leidykla, 2007. 432 p isbn 9789986-38-835-7 kriščiūnas k., daugėlienė r. žiniomis grįstos ekonomikos link: žinių skvarba ir raiška. kaunas: technologija, 2006. isbn 9955 25 058 5 kriščiūnas k. (ats. redakt). mokslas, technologija ir visuomenė: harmoningos raidos paieškos. kaunas: technologija, 2002. 272 p. isbn 9955-09-179-7 sybille reichert. institutional diversity in european higher education, eua, brussels, 2009. university autonomy in europe. exploratory study by thomas estermann and terhi nokkala, eua, brussels, 2009 van vught, f. (ed.) mapping the higher education landscape: towards a european classification of higher education. dordrecht etc.: springer, (2009). the article has been reviewed. received in april, 2010; accepted in may, 2010. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 160 opportunities and barriers for application of distributed ledgers in the context of eu digital single market strategy http://dx.doi.org/10.5755/j01.eis.0.11.18134 natalija kostrikova, baiba rivza latvia university of agriculture, 2 liela street, jelgava, lv-3001, latvia, kostrikova.natalia@gmail.com submitted 04/2017 accepted for publication 08/2017 opportunities and barriers for application of distributed ledgers in the context of eu digital single market strategy eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 160-172 doi 10.5755/j01.eis.0.11.18134 © kaunas university of technology decentralization, on one hand, brings more transparency and trust to the parties involved in transactions, but on the other hand, it narrows possibilities for central control. distributed ledger technology (dlt) is a recent decentralized innovation in the field of information and communication technology (ict) that acts as self-sustainable ledger for documenting transactions self-protected against counterfeiting and hacker attacks. the aim of the current research paper is to reveal opportunities and barriers for utilization of distributed ledgers in the context of eu digital single market strategy. the main tasks are (1) to analyze functionality dynamics of existing distributed ledgers, (2) to analyze utilization areas of distributed ledgers, (3) to analyze digital trends related to utilization of distributed ledgers within the eu. the current research paper utilizes methods of content analysis, grounded theory, descriptive statistics, correlation analysis and regression analysis. the research has revealed that half of eu digital single market priorities can be facilitated through distributed ledgers. keywords: distributed ledger, digital single market, european union, decentralization, ict, blockchain. decentralization processes are currently taking place all over the world creating new economic models and supported by modern ict tools. since the end of 1990s a trend toward decentralization has been noted all around the world (dethier, 1999), however since its creation, european integration has been a process of gradual centralization with the single market being arguably the most spectacular success of european integration (wyplosz, 2015). digital single market is among political priorities of the european commission for the years 2015-2019 (european commission, 2017). the idea of a digital single market stems from the rapid development of an ict sector intertwined with four founding principles of the european union – the free movement of people, services, capital and goods. eu single market provides for economy of scale and a wider choice of products and services at lower prices, however regulatory and non-regulatory barriers are existent, for instance, not standardized business processes in europe (delina, 2016) modern ict solutions are required to implement the digital single market strategy. one of such solutions can be a distributed ledger technology (dlt), a recent ict innovation that acts as a self-sustainable ledger for documenting transactions self-protected against counterfeiting and hacker attacks. current knowledge about dlt is fragmented, lacks theoretical background and common technological implementation. the novelty of the current research paper lies in introduction 161 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 interdisciplinary approach to policy analysis, involving combination of technical knowledge and economic analysis tools. in this paper, authors pay substantial attention to structuring existing knowledge about dlt under comprehensive framework in order to reach indicated research aim. the aim of the current research paper is to reveal opportunities and barriers for utilization of distributed ledgers in the context of eu digital single market strategy. the main tasks are 1. to analyze functionality dynamics of existing distributed ledgers, 2. to analyze utilization areas of existing distributed ledgers, 3. to analyze digital trends related to utilization of distributed ledgers within the eu. qualitative research in ict can apply various methods, e.g. case study, ethnography, action research, grounded theory and content analysis (thinagaran, 2014). the current research paper utilizes content analysis method to identify existing dlt applications and analyze their functionality. for the purpose of current research content analysis is defined as a research technique for making replicable and valid inferences from texts (or other meaningful matter) to the context of their use (krippendorff, 2004). since there are only a few dlts apart from crypto-currencies that are currently implemented in public space, no sampling method is applied and all available dlt applications are selected for detailed functionality analysis. the main sources of information are white papers and web sites of existing dlt applications, expert interviews and official documents of public authorities and think-tanks. the “context of use” of analyzed information is exploration of interconnections between dlt functionalities and priorities of the eu digital single market strategy. since dlt is a recent ict innovation, a proper scientific research has not yet been implemented and a theoretical framework is non-existent. grounded theory is very useful when current theories about a phenomenon are either inadequate or non-existent (creswell, 2014). thus, the current research will also utilize a grounded theory method to identify and analyze areas for dlt application. descriptive statistics is used to analyze digital trends related to dlt utilization within the eu. correlation and regression analysis is used to analyze interconnections between eur-bitcoin exchange transactions and components of a digital economy and society index (desi), a composite index that summarises relevant indicators on europe’s digital performance and tracks the progress of eu member states in digital competitiveness (european commission, 2017). desi components: _ connectivity fixed broadband, mobile broadband, broadband speed and affordability _ human capital basic skills and usage, advanced skills and development _ use of internet content, communication and online transactions _ integration of digital technology business digitisation and ecommerce _ digital public services egovernment. methodology european central bank defines dlt as a record of information, or database, that is shared across the network (european central bank, 2016).federal reserve defines dlt as a combination of components, including peer-to-peer networking, distributed data storage and cryptography that, among other things can potentially change the way in which the storage, recordkeeping and transfer of a digital asset is done (badev et al, 2016). dlt is not the first technological attempt to implement transactions through ict. the core underlying concepts of such applications include establishment of trust, maintaining confidentiality and ensuring secure data exchange and storage. previous technologies include such concepts as blind signatures (chaum, 1982), b-money (dai, 1998), hash-cash puzzles (back, 2002), reusliterature, market and policy review e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 162 able proofs of work (finney, 2004), all of them using encryption and consensus protocols, but none of them providing distributed data storage opportunity. in this sense, a distributed nature of dlt is truly a revolutionary concept to ensure transparency, security and immutability. researchers (swan, 2015, nguyen, 2016, underwood, 2016), public institutions (federal reserve, 2016, european parliament 2016, european central bank, 2016) and think-tanks (european union agency for network and information security, 2016, oliver wyman, 2016, deloitte, 2016) conclude that dlt can bring numerous benefits, however certain criticism exists majorly outlining a security concern about a possibility of a 51% attack (chuen, 2014), slowness of the data adding process to the ledger (deloitte, 2016), size problem if scaled to mainstream use (swan, 2015) and wasted energy resources on mining (swan, 2015). the first practical application of a distributed ledger technology has been implemented by satoshi nakamoto launching a bitcoin crypto-currency in 2009. in his whitepaper sakamoto described a peer-to-peer online payment system that functioned without a financial intermediary. all transactions with bitcoins are digitally signed and stored in a peer-to-peer network that utilizes a proof-of-work concept (nakamoto, 2008). the total market capitalization of all crypto-currencies globally is estimated at approx. eur 23,14 billion, whilst bitcoin takes the 1st place and enjoys a 68,43% market share (fig. 1). figure 1 market shares of cryptocurrencies (authors’ based on data from bitcoinity, 2017) ethereum 18,54% ripple 2,95% dash 2,23% bitcoin 68,43% other 7,85% current distributed ledger projects are promoted by business and heavily involve fintech. it is no wonder because intermediation being a core issue addressed by dlt is also at a core of financial transactions. financial markets have developed significantly in the past decades, driven by deregulation, technology and globalization (genberg, 2008). the evolution of financial intermediation is going to be one of the most important and consequential stories in the coming years for law, finance, and society (lin, 2015). since bitcoin a few other dlt platforms and initiatives have already been launched: _ 2nd layer bitcoin projects that run on top of bitcoin infrastructure and can store any type of transaction in the bitcoin network for example, counterparty allows users to create digital tokens that can be traded or exchanged through smart contracts (counterparty, 2017), factom offers ready solutions for auditing, compliance, quality control and due diligence (factom, 2017), etc. _ 2012: ripple is built around interledger protocol that allows transactions among different ledgers ensuring real-time settlement of cross-border payments and maintaining privacy of in163 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 volved financial institutions (ripple, 2017).a protocol for interledger payments enables anyone with accounts on two ledgers to create connections between them (thomas s., schwartz e., 2017). _ 2013: ethereum is a decentralized platform that runs smart contracts and uses different digital tokens, i.e. crypto-currency, representation of an asset, virtual share, proof of membership, vote, or anything at all. ethereum is used as a platform for decentralized applications, decentralized autonomous organizations and smart contracts (ethereum, 2017). _ 2015: hyperledger is an open source collaborative effort created to advance cross-industry blockchain technologies that incubates and promotes a range of business blockchain technologies, including distributed ledger frameworks, smart contract engines, client libraries, graphical interfaces, utility libraries and sample applications (hyperledger, 2017) _ 2016: corda is an open-source distributed ledger platform designed to record, manage and automate legal agreements between businesses; its development is led by r3, a fintech company that heads a consortium of over 70 of the world’s largest financial institutions in the establishment of an open, enterprise-grade, shared platform to record financial events and execute smart contract logic (corda, 2017). with the dlt all systems of involved actors can stay in step with each other without requiring armies of people to reconcile and resolve the issues, thus, increasing the speed of matching transactions, eliminating human error factor and reducing costs. each file in a ledger consists of blocks that include cryptographic signatures of previous blocks, called hashes that are created by a particular algorithm (fig. 2). a ledger with files is stored in identical copies on devices of network’s participants that are synchronized and automatically updated when a new file is added to a ledger. in comparison to traditional transaction networks, distributed ledgers do not require trusted intermediaries for ownership certification and transaction clearing (fig. 3). many global companies are currently exploring possibilities of dlt within their business processes, i.e. major global banks, nasdaq, swift, us depository trust & clearing corporation, etc. because dlt can bring confidence by providing a system with no central control. this means that the system cannot be shut down or changed by any single party. it enables the users of the network to know that they can safely use the network without the rules changing. this dlt funcfigure 2 data structure of a distributed ledger (authors’) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 164 tionality is particularly important for ensuring secure cross-border data exchange between eu member states providing unprecedented opportunities for deeper european integration. european parliament notes that dlt’s potential to accelerate, decentralise, automate and standardise data driven processes at lower cost has the potential to alter fundamentally the way in which assets are transferred and records are kept, with implications for both the private and the public sector (european parliament committee on economic and monetary affairs, 2016). thus, the core eu strategy aimed at strengthening eu digital economy and society is further analyzed in this paper to highlight opportunities and barriers for application of distributed ledgers in the process of creating and sustaining a digital single market within the eu. eu digital single market strategy is built on three pillars (european commission, 2015): 1. better access for consumers and businesses to online goods and services across europe. 2. creating the right conditions for digital networks and services to flourish. 3. maximising the growth potential of european digital economy. the first pillar involves harmonization of online and offline environments to enhance cross-border online activities. the second pillar includes ensuring proper regulatory framework for fair competition, investments and innovation with high-speed secure access to trustworthy content services and infrastructures. the third pillar refers to investments in ict infrastructures and new technologies (i.e. cloud, big data), supporting research and innovation activities, providing better public services, developing ict skills and ensuring digital inclusiveness. 12 priorities of the digital single market strategy (european commission, 2015) can be summarized as follows: 1. e-commerce: figure 3 distributed ledger network (author’s) 2. parcel delivery: _ cross-border e-commerce rules _ consumer and contract law harmonisation _ more rapid, agile and consistent enforcement of consumer rules _ alert mechanisms to detect infringements faster _ eu-wide online dispute resolution platform _ affordable, high-quality cross-border delivery services _ price transparency for european deliveries _ enhanced regulatory oversight of the cross-border parcel markets _ 165 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 3. geo-blocking: _ preventing unjustified geo-blocking _ unjustified practices should be expressly prohibited 4. copyright: _ modern and harmonized european copyright framework _ wider use of copyright-protected material, including across borders _ effective and balanced civil enforcement system against infringements _ clear rules for online intermediaries concerning copyright protected works _ safeguarding fair remuneration of creators _ enhanced cross-border access to broadcasters’ services in europe _ 5. vat: _ minimizing vat related obstacles in cross-border sales _ ensuring that vat revenues are attributed to consumer’s member state _ clarifying tax treatment of e-services _ taxation of profits where the value is generated 6. telecoms _ telecoms single market package with clear and harmonized rules for net neutrality _ final elimination of roaming surcharges _ more harmonised framework for the radio spectrum _ release of the 700 mhz band _ encouraging deployment of very high capacity networks while maintaining effective competition _ high-capacity connectivity for schools and universities/ research hubs _ review of the telecoms rules 7. media _ minimum rules for traditional television broadcasts and on-demand audiovisual media services _ regulatory framework for keeping up with market and technological developments _ promoting catalogues of european works on video on demand platforms 8. online platforms _ regulatory environment for platforms and intermediaries of sharing economy _ measures for tackling illegal content on the internet with due concern about the right to freedom of expression _ increasing transparency with regards to how online platforms use acquired information 9. security & personal data _ protecting critical infrastructure _ effective response to cyber-threats _ adoption of cybersecurity strategies and regulation on national and eu levels _ take-up of more secure solutions by enterprises, public authorities, and citizens _ effective response to criminal activity on the internet _ personal data protection 10. data economy _ cloud services, big data and the internet of things _ removing technical and legislative barriers related to the rights for data usage and interoperability of systems and services _ adopting data protection reform package _ removing unnecessary requirements for data location within the eu _ european cloud initiative certifying cloud services e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 166 ethereum and 2nd layer bitcoin projects facilitate transactions between all possible actors involved in financial and value exchange transactions – businesses (including non-profits), governments and customers (physical persons) (table 1). table 1 distributed ledgers versus transaction types fintech b2b b2c b2g c2b c2c c2g g2b g2c g2g 1 bitcoin x x x x x 2 2nd layer bitcoin projects x x x x x x x x x 3 ethereum x x x x x x x x x x 4 ripple x x 5 corda x x x x 6 hyperledger x x x source: authors’. 11. ict standards _ more efficient cross-border interoperability across borders, especially between public services and authorities _ ict standardisation for 5g, digitisation of processes in manufacturing and construction, cloud services, data driven services, cybersecurity, e-transport, e-health, mobile payments and energy (smart metering) _ promoting ict standards through public procurement 12. skills and e-government _ raising levels of digital skills _ ‘once-only’ principle for businesses and citizens _ eu wide solution for secure online document repository _ transition to full e-procurement _ integration of european portals, services, networks and systems _ promoting the use of electronic documents _ interconnection of business registers research results and discussion having analyzed dlt functionalities and opinions of different stakeholders, it is possible to group dlt transaction types under two major categories – fintech and e-government, whilst transactions involving government can be also categorized according to litvack’s (2000) identified types of government decentralization (fig. 4). although technically it is possible for governments to base their dlt projects on ethereum and 2nd layer bitcoin projects, there are however ethical barriers and security concerns impeding public institutions from using those platforms for transactions involving government. european central bank notes that the technology is not yet mature, the clarification of critical legal, operational and governance issues will take time and there is a risk of abuse of certain applications for criminal conduct, including money laundering and terrorist financing (pinna, ruttenberg, 2016). on the other hand, committee on economic and monetary affairs of the european parliament acknowledges that dlt provides reductions in transaction costs and the ease of use while providing for resilience and varying levels of privacy and foresees emergence of dlt applications in the areas of smart contracts, intellectual property transfers, supply chain management and government services (european parliament committee on economic and monetary affairs, 2016). thus, public institutions at all levels will have an important role in adoption and promotion of 167 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 figure 4 groups of transactions facilitated through dlt (authors’) figure 5 bitcoin-eur exchange transactions, eur, and eu28 desi components, indices, 2013-2016 (authors’ based on data from bitcoinity, 2017, ec dg connect, 2017) distributed ledger projects involving implementation of transactions with government such as registering civic statuses, filing applications, collecting taxes, transferring property, ensuring regulatory oversight, etc. bitcoin-eur exchange transactions and components of eu digital economy and society index have grown since 2013 whilst bitcoin-eur exchange transactions more than doubled in 2016 in comparison to 2015 (fig. 5). 0 0,5 1 1,5 2 2,5 0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 2013 2014 2015 2016 b ill io ns e u r bitcoin-eur transactions connectivity human capital use of internet integration of digital technology digital public services bitcoin-eur exchange transactions have strong correlations with all desi components (table 2), however only digital public services component has a statistically significant correlation (sig.=0.04<0.05), meaning that development of e-government within the eu and bitcoin-eur exchange transactions are strongly and significantly interconnected. table 2 correlations between bitcoineur exchange transactions and desi components, 2013-2016 connectivity human capital use of internet integration of digital technology digital public services trans actions pearson correlation .912 .898 .881 .868 .960* sig. (2-tailed) .088 .102 .119 .132 .040 n 4 4 4 4 4 source: authors’ calculations based on data from bitcoinity, ec dg connect. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 168 also, stepwise regression analysis proves strong interconnection between bitcoin-eur exchange transactions and digital public services (table 3, table 4). table 3 regression model summary for bitcoineur exchange transactions, 20132016 model r r square adjusted r square std. error of the estimate durbin-watson 1 ,960a .922 .883 .31739 2 1,000b 1.000 .999 .02476 3 1,000c 1.000 . . 2.401 a. predictors: (constant), digital public services b. predictors: (constant), digital public services, connectivity c. predictors: (constant), digital public services, connectivity, human capital source: authors’ calculations based on data from bitcoinity, ec dg connect. table 4 coefficient analysis for bitcoin-eur exchange transactions, 2013-2016 model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) -9.644 2.198 -4.388 .048 dps 21.510 4.419 .960 4.868 .040 2 (constant) -10.913 .185 -58.905 .011 dps 65.868 2.475 2.941 26.612 .024 con -36.253 2.003 -2.000 -18.098 .035 3 (constant) -8.709 .000 . . dps 64.595 .000 2.884 . . con -30.166 .000 -1.664 . . hc -9.806 .000 -.280 . . source: authors’ calculations based on data f rom bitcoinity, ec dg connect the results of stepwise regression analysis: _ digital public services (x1-independent variable) explain 92,2% of variance of bitcoin-eur transactions (y-dependent variable); the linear one factor regression equation y = -9,644 + 21,510*x1 and regression coefficients are statistically significant (sig.=0,040; 0,048; 0,040 accordingly). _ digital public services (x1-independent variable) and connectivity (x2independent variable) explain 99,9% of variance of bitcoin-eur transactions (y-dependent variable) ; the linear two factors regression equation y = -10,913 + 65,868*x1 – 36,253*x2 and regression coefficients are statistically significant (sig.=0,015; 0,011; 0,024; 0,035 accordingly). 6 out of 12 digital single market priority areas can be technically facilitated through existing dlt initiatives (table 5). 169 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 according to the 1st research task authors have analyzed functionality dynamics of existing distributed ledgers and made the following conclusions: _ bitcoin was the first transaction network that implemented peer-to-peer distributed data storage functionality, however, not the first transaction network facilitated through ict. _ distributed ledgers bring numerous benefits in comparison to traditional systems for recording transactions such as reduced costs for data storage, faster transaction implementation process, immutability of recorded transactions, no central control and data ownership, no human error factor in the process of implementing and recording transactions, etc. _ transaction network based on distributed ledger technology must consist of more than a half of honest participants in order to ensure credibility of transactions and exclude possibility of a hacker attack. according to the 2nd research task authors have analyzed utilization areas of distributed ledgers and made the following conclusions: _ distributed ledgers facilitate financial and value exchange transactions between all possible actors – businesses (including non-profits), governments and customers (physical persons). _ there are five main platforms for developing distributed ledger initiatives up to date, mainly focusing on business-to-business, business-to-customer and customer-to-costumer transactions and involving fintech. _ transactions facilitated through distributed ledgers can be grouped under two major categories: fintech and e-government. _ second layer bitcoin projects and ethereum are the most multifunctional, cross-sectoral and customizable distributed ledgers up to date. according to the 3rd research task authors have analyzed digital trends related to utilization of distributed ledgers within the eu and made the following conclusions: table 52nd layer bitcoin projects ethereum ripple corda hyperledger 1 e-commerce x x x x x 2 parcel delivery 3 geo-blocking 4 copyright x x x x 5 vat x x x x x 6 telecoms 7 media 8 online platforms 9 security & personal data 10 data economy x x x 11 ict standards x x x 12 skills & e-government x x x x x source: authors’. conclusions and recommendations e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 170 _ residents of the european union increasingly utilize bitcoins for economic transactions between each other. _ the biggest contributing factors to the growth of bitcoin-eur exchange transactions are improving e-government and connectivity levels within the european union. _ digitization of economy and public services within the european union is happening simultaneously and with high correlation. _ european union institutions acknowledge the potential of distributed ledgers to transform different sectors of the economy, but so far, they do not formally participate in the development of distributed ledger initiatives and wait for the technology to mature. _ the main barriers for utilization of distributed ledgers in transactions involving government include the lack of clarity about legal, operational and governance issues. _ half of eu digital single market priorities can be technically facilitated through distributed ledgers. based on above listed conclusions authors have put forward the following recommendations: _ eu regulation and supervision authorities (e.g. european central bank, european banking authority) to create working groups with promoters of distributed ledger initiatives and other stakeholders in order to ensure adequate regulatory responses to technological developments in this field. _ eu research institutes and other research institutions to explore areas of potential introduction of distributed ledger technology in e-government on eu level with economic and social impact assessment. _ european commission to encourage creation of consortiums of public authorities to develop distributed ledger prototypes in e-government area. _ european commission to consider developing pan-eu e-government backbone based on distributed ledger technology for interoperability of e-government initiatives of member states. _ authors to analyze in future research exact benefits that can be brought by distributed ledgers to each of the identified priorities of eu digital single market strategy and to assess them in a view of european integration theories. the paper was financially supported by the latvia national research programme ekosoc-lv. acknowledgments back, a. 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(2015). the centralization – decentralization issue, european economy discussion paper (p. 25). luxembourg: publications office of the european union. rivza baiba dr. habil. oec latvia university of agriculture fields of research interests regional economy, human capital address svetes 18, jelgava, latvia tel. +37163021041 kostrikova natalija phd student latvia university of agriculture fields of research interests digital economy, e-government address svetes 18, jelgava, latvia tel. +37126873416 about the authors european integration studies 2011.indd 172 issn 1822–8402 european integration studies. 2011. no 5 labour productivity in the regions of latvia daina znotina, elita jermolajeva daugavpils university (latvia) abstract labor productivity directly describes return on the labor force or contributed labor and its efficiency. its calculation is based on the actual output per unit of contributed labor. labor productivity can be calculated on the level of a company, branch, certain territory, state, etc. as regards the use of human capital latvia is one of the leading countries in central and eastern europe; however, in case of latvia employment does not mean high productivity of human capital. in 2008 in latvia productivity per one employed person was 51.3 % from the respective indicator in the european union. in estonia this indicator was 64.7%, in lithuania – 61.3%. the lowest indicators of productivity in the european union were among the newest member states – bulgaria 36.5%, romania – 47.7%. in 2008 the highest indicators of productivity were in luxemburg – exceeding the average rate by 72.8%, ireland – by 31.5%, and belgium – by 24.3%. in the context of aging society, which is very topical problem in latvia, it is essential to pay attention to increase labor productivity timely. as it is emphasized in the sustainable development strategy of latvia till 2030 aging of society is related to the loss of labor productivity and changes in the structure of the labor force. if in the nearest years the productivity of human capital is not sufficiently improved, further investments in the basic value and use of human capital will be useless. the most significant opportunity for development in latvia in the context of demographic burden and changes is facilitation of labor force participation and economic activity, as well as investments in education of population of all age groups and increasing productivity of human capital. along with traditionally involved educational institutions the activities and services of libraries, cultural education institutions and creativity and interest groups can be give a significant contribution in this field. latvia has significant differences in regional development. considering gdp per capita and assuming that the average indicator in the state is 100% in the period of time from 2003 to 2007, in riga region it exceeds the average indicator and fluctuates within the range from 138.4% to 143.5%; in latgale region in the respective period this indicator significantly lags behind the average indicator and is in the range from 46.4% to 53.4%. due to the economic crisis gdp in latvia, including regions, significantly reduced; the most crucial changes were observed in such branches as construction (drop by over 30 % in comparison to 2008), trade and manufacturing industry (drop by over 25% in each), transport and communications industry (drop by over 15%). keywords: gross domestic product, kinds of economic activities, number of employed people, added value, labour productivity, regions of latvia. introduction labour productivity is an indicator describing the return on the contributed labour. a high employment level in the country is not a guarantee for high productivity or return on labour. as the number of population is decreasing due to a low birth rate and a high migration rate, which is a topical problem in latvia, it is essential to increase labour productivity. if in the forthcoming years nothing is done in latvia to improve human capital productivity, further investments in the basic value and use of human capital will be ineffective. thus, it is significant to research labour productivity by kinds of economic activities in the regions to reveal branches where it is essential to increase labour productivity. aim of research is to research labour productivity by kinds of economic activities in the regions of latvia. tasks of research: • to study the theoretical aspects of labour productivity; • to characterize labour productivity calculation methodology; • to calculate labour productivity in the regions of latvia and analyze the obtained data; • to consider opportunities for increasing labour productivity. research object is labour productivity. research period is from 1998 to 2008. research methods – monographic and statistical analysis methods. novelty of research is authors’ calculations of labour productivity and analysis of the obtained data by economic activities in the added value gross domestic product in the regions of latvia. theoretical aspects of labour productivity labour productivity is an indicator of labour efficiency – the output in a definite period (year) per one person employed in the state or company. labour productivity depends on employees’ capacity (physical and mental qualities, health, qualification, experience, age, etc.), wish to work (creative attitude towards work and other facilitating conditions), provision with tools (modern facilities and technological equipment, instruments, arrangement of workplace, etc.) (ekonomikas terminu skaidrojošā vārdnīca [explanatory dictionary of economic terms]). specialists admit that it is hard to define this term „labour productivity” in a precise way corresponding to all the areas of activity of enterprises, since productivity, in its essence, is issn 1822–8402 european integration studies. 2011. no 5 173 a measure of efficiency. the labour efficiency of an enterprise is ensured by a well-planned strategy, a perfect labour environment and work organisation, a targeted and efficient use of resources, a solid and loyal team of employees, and effective internal communication (lāsmens, tominens, 2007). labour productivity is based on the actual output per unit of contributed labour (gomez –salvador, musso, stocker, turunen, 2006). in the economic sense output is a result of production. the result of production, in its turn, can be expressed as a sum of goods or services or both kinds in terms of value or amount depending on the specifics of data or aims of calculation. the total output on the national scale or the result of contributed labour related to other economic factors is gross domestic product (ulnicāns, 2010). interrelationship of employment development and productivity has also been researched by such authors as buchele, christiansen (1999), gordon (1997), dew-becker, gordon (2008). human capital, which includes professional knowledge, social skills, health, motivation, values, attitudes, talents, experience and other characteristics is only one of the factors influencing labour productivity (see fig. 1). the role of human capital in productivity and economic growth can be direct or indirect (latvija. pārskats par tautas attīstību [latvia. review of national development], 2007). human capital can influence productivity indirectly by facilitating creation and adoption of technologies. social capital is also important in the increase of productivity – networks through which human capital is formed, used and awarded. social institutes have significant role as well, as they encompass the life of population and market activities as well as create a framework where human capital and social capital can lead to different results (côté, 2001). the satisfaction of employees with the job can be increased by good working conditions, social guarantees, medium work intensity, and career possibilities (bite, muška, 2010). technologies human capital s o c i a l c a p i t a l p o l i t i c a l , l e g a l , a n d i n s t i t u t i o n a l c o n d i t i o n s k n o w l e d g e a n d s k i l l s m o t i v a t i o n p r o d u c t i o n t e c h n o l o g i e s h e a l t h v a l u e s , e t c . i n f o r m a t i o n t e c h n o l o g i e s p r o c e s s o r g a n i z a t i o n m a n a g e m e n t p r a c t i c e productivity economic growth (gdp increase) figure 1. interaction between human capital, social capital and social institutes (latvija. pārskats par tautas attīstību [latvia. review of national development], 2007). labour productivity calculation methodology gross domestic product from production approach is calculated as a sum of total added value (at base prices) and product taxes (excluding subsidies) of all kinds of economic activities or institutional sectors (gross domestic product from production approach). total regional value added (va) is evaluation of a production unit (institution) economic activities in the region. va in financial terms is determined as a difference between the output of goods and services and the value of intermediate consumption in actual prices of the corresponding year (total regional value added). economic activities take place if specific goods or services are created by adding such resources as equipment, labour force, production technologies, information networks and material resources. economic activity is described by the products (goods or services) involved in the production process, production process itself and final products (output) (economic activities according to nace revision 1.1). statistical classification of economic activities in the european union is done according to the statistical classification of economic activities in the european community nace. since 2008 the classification of economic activities is done in compliance with the latest nace version nace 2. as in the paper the authors research labour productivity in the period of time from 1998 to 2008, there will be applied the classification of economic activities according to nace revision 1.1 (including year 2008) to make data to be comparable. according to this nace revision all kinds of economic activities are divided into 17 basic groups: a – agriculture, hunting and forestry, b – fishing, c – mining and quarrying, d – manufacturing, e – electricity, gas and water supply, f – construction, g – wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods, h – hotels and restaurants, i – transport, storage and communication, j – financial intermediation, k – real estate, renting, computer, science and other business activities, l – public administration and defence; compulsory social security, m – education, n health and social work, o – community, social and personal service activities, p – activities of households, q – extra-territorial organizations and bodies (statistical classification of economic activities in the european community, nace revision 1.1). in order to calculate labour productivity according to value added by kinds of economic activities in the regions of latvia, the authors have united economic activities into six groups: 1) agriculture, hunting and forestry, fishing (a, b), 2) mining, manufacturing, and related services of these branches (c, d, e), 3) construction (f), 4) trade, hotels and restaurants, transport, repair and communication services (g, h, i), 5) financial services, real estate transactions (j, k), 6) public administration, community, social and personal services (l, m, n, o, p). gross labour productivity on the national scale for a definite period of time is calculated dividing gross domestic product by the number of employed persons (productivity. the key to competitiveness of…). issn 1822–8402 european integration studies. 2011. no 5 174 gross productivity = gdp/number of employed persons calculating labour productivity by kinds of economic activities, product taxes are usually not included into gross domestic product, only total value added of economic activities is taken into consideration. according to the order no. 271 “on statistical regions in the republic of latvia and their administrative units” passed by lr cabinet of ministers on april 28, 2004 and the common classification of statistical territorial units in the european union (nuts 3), data are calculated on six statistical regions: 1) riga region; 2) pieriga region; 3) vidzeme region; 4) kurzeme region; 5) zemgale region; 6) latgale region (statistical region). analysis of labour productivity in the regions of latvia as regards the use of human capital latvia is one of the leading countries in central and eastern europe, unfortunately, in the case of latvia higher employment does not mean higher productivity of human capital (cilvēkkapitālu mēra kā ...[human capital is measured as …]). in latvia there are observed significant discrepancies in regional development. having a look at gdp per capita and assuming that the average national indicator is 100% in the period of time from 2003 to 2007 (see fig. 2), it is seen that in riga region it exceeds the average national indicator and fluctuates from 138.4% to 143.5%, but in latgale region during the whole period this indicator significantly lags behind the average national indicator and is between 46.4% and 53.4%. it proves the high concentration of labour force and economic activities in riga. the volume of gross domestic product in latvia, including regions, has significantly reduced due to the economic crisis. in 2009 the most crucial changes took place in such branches of national economy as construction (volume drop by more than 30 % in comparison to 2008), trade and manufacturing (drop by more than 25% in each), transport and communication (drop by more than 15%). in the european union in 2008 on average in comparison to 2007 gdp increased by 0.8% (reģionu attīstība latvijā [development of regions in latvia] 2009). 0 20 40 60 80 100 120 140 160 riga region vidzeme region kurzeme region zemgale region latgale region % 2003 2004 2005 2006 2007 figure 2. dynamics of gross domestic product per capita in the regions of latvia in 2003-2007 in actual prices, % in comparison to the average indicator in the country (reģionu attīstība latvijā [development of regions in latvia] 2009). in 2008 in latvia productivity per one employed person was 51.3 % from the respective indicator in the european union. in estonia this indicator was 64.7%, in lithuania – 61.3%. the lowest indicators of productivity in the european union were among the newest member states – bulgaria 36.5%, romania – 47.7%. in 2008 the highest indicators of productivity were in luxemburg – exceeding the average rate by 72.8%, ireland – by 31.5%, and belgium – by 24.3% (eurostat). during the last decade latvia has managed to increase productivity per one employed person by 40%, estonia by 56%, lithuania by 50%. it is the fastest growth of productivity in europe. within the last decade poland has increased it productivity by 25%, czech republic by 19%, hungary by 7% (ukenābele, pelane, 2010). further the authors will conduct the research on productivity according to value added by kinds of economic activities in the regions of latvia. 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year th ou s. lv l a_b c_e f g_i j_k l_p figure 3. labour productivity calculating according to the added value by kinds of economic activities (nace rev. 1.1) in 1998-2008 in riga region (authors’ calculations according to the information of the central statistical bureau). labour productivity tends to increase in all branches calculating it by value added by kinds of economic activities during the last decade in riga region (see fig. 3). in riga region labour productivity in all branches is larger than in other regions. it can be explained by explicit concentration of economic activities and employment in this region. comparatively more explicit fluctuations in comparison to other regions are observed in labour productivity in agriculture, hunting, forestry and fishing (a, b). in the period of time from 2001 to 2002 productivity sharply decreased, but in 2003 it sharply increased. in other regions these branches have a stable increasing tendency. in riga region in 2008 labour productivity in the branch of financial services and real estate transactions reached its peak and was 39 617 ls per one employed person in these areas. it can be explained by rapid increase of crediting and growing demand for real estate. in pieriga region (see fig. 4) in the respective period labour productivity the most significant fluctuations occurred in the field of financial services, real estate transactions (j, k) – in the period of time from 2004 to 2006 it sharply increased, but after 2006 sharply decreased, in the field of mining, manufacturing and related services (c,d, e) – changes occurred in the period of time from 2004 to 2008, despite fluctuations labour productivity in these fields in pieriga region is higher than in other regions (except riga region), in 2008 it was 11 415 ls per one employed person in issn 1822–8402 european integration studies. 2011. no 5 175 this field. in the branches of state administration, community, social and personal services (l, m, n, o, p) in pieriga region labour productivity decreased in 2007. 0 5000 10000 15000 20000 25000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year th o u s .l v l a_b c_e f g_i j_k l_p figure 4. labour productivity calculating according to the added value by kinds of economic activities (nace rev. 1.1) in 1998-2008 in pieriga region (authors’ calculations according to the information of the central statistical bureau). 0 5000 10000 15000 20000 25000 30000 35000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year th o u s .l v l a_b c_e f g_i j_k l_p figure 5. labour productivity calculating according to the added value by kinds of economic activities (nace rev. 1.1) in 1998-2008 in vidzeme region (authors’ calculations according to the information of the central statistical bureau). in vidzeme region (see fig.5) labour productivity faced the most explicit fluctuations in the field of financial services and real estate transactions (j, k), where in 2006 labour productivity was 31 662 ls per one employed person, in 2007 and 2008 productivity decreased in these fields while in riga, kurzeme and latgale regions it sharply increased. 0 5000 10000 15000 20000 25000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year th o u s .l v l a_b c_e f g_i j_k l_p figure 6. labour productivity calculating according to the added value by kinds of economic activities (nace rev. 1.1) in 1998-2008 in zemgale region (authors’ calculations according to the information of the central statistical bureau). in zemgale region (see fig.6) the most significant fluctuations of labour productivity have taken place in the fields of mining, manufacturing and related services (c, d, e), construction (f), trade, hotels, restaurants, transport, communication, and repair services (g, h, i). comparatively high productivity in zemgale region was observed in agriculture, hunting, forestry and fishing (a, b) in 2008 it comprised 8223 ls per one employed person in this field. high productivity can be explained by a development agriculture sector in this region. 0 5000 10000 15000 20000 25000 30000 35000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year th o u s. l v l a_b c_e f g_i j_k l_p figure 7. labour productivity calculating according to the added value by kinds of economic activities (nace rev. 1.1) in 1998-2008 in kurzeme region (authors’ calculations according to the information of the central statistical bureau). in kurzeme region (see fig.7) similarly to other regions the most relevant changes were observed in labour productivity the field of financial services and real estate transactions (j, k). in the period from 2000 labour productivity in construction (f) in kurzeme region had significantly decreased and only in 2007 it reached the level of 2000 having 11022 ls per one employed person. 0 5000 10000 15000 20000 25000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year th o u s .l v l a_b c_e f g_i j_k l_p figure 8. labour productivity calculating according to the added value by kinds of economic activities (nace rev. 1.1) in 1998-2008 in latgale region (authors’ calculations according to the information of the central statistical bureau). in latgale region in the respective period the most relevant changes in labour productivity were observed in field of financial services, real estate transactions (j, k), trade, hotels, restaurants, transport, communication and repair services (g, h, i). basing on the calculations of labour productivity according to value added by kinds of economic activities in the period of time from 1998 to 2008 it can be concluded that labour productivity is high, but it is unstable in all regions in the issn 1822–8402 european integration studies. 2011. no 5 176 field of financial services and real estate transactions (j, k). in the respective period labour productivity increased in the field of trade, hotels, restaurants, transport, communication and repair services (g, h, i) in all regions. comparatively low productivity is the mining, manufacturing and related services (c, d, e). it proves the existence of a development sphere of services having the largest proportion of economically active enterprises and a higher employment rate. opportunities for increasing labour productivity eurostat in its research on productivity in the european countries indicates that the highest indicators of productivity are observed in capital intensive industries. in these branches the ration between investments and the number of employed persons has a more significant role; besides, it has been crucially reduced along the development of technologies. capital intensive branches are mining, manufacturing, real estate transactions, electricity, water and gas supply. but labour intensive branches, for example, services, where a large number of persons is employed (retail sale, hotels, restaurants), have low productivity. in the regions of latvia there are comparatively few products having a high value added, which can be exported, thus, it is necessary to develop capital intensive branches resulting in increased labour productivity in regions. the long-term development strategy of latvia defines several reasons why labour productivity and also human capital productivity are comparatively low in latvia at the moment: a) due to short-term orientation companies and individuals insufficiently invest into development of human capital competences and skills, but significant investments in human capital give return only in the long-run; b) enterprises and municipalities are afraid of enticing capable and trained employees and are abstain from investing in their development; c) intensity of using human capital and other barriers (time, money) facilitate solid investments in education neither by employees, nor employers; d) state implemented support programmes sometimes are overly complicated and changing, but persons having interest have no adequate information and consultative support to make reasonable decisions (sustainable development strategy of latvia until 2030). each economic activity is based on an enterprise, an institution contributing to the total value added in the branch. the opportunities for increasing labour productivity on the level of an enterprise or an institution are as follows: 1) technical organizational factors – usage of highly effective facilities and progressive technologies (including information technologies), application of computerized systems in projecting, management of the means of labour and technological processes, labour mechanization and computerization, usage of resource saving facilities and technologies, improvement of technical facilities, rationalization of working conditions, etc. 2) personnel factors – timely filling in of workplaces, selection of appropriate employees, facilitation of professional adaptation, training and developing qualification, creation of a stimulating payment system, clear and appropriate division of duties and responsibilities, precise control, improvement of physical and social conditions, etc. 3) product and market factors – changes in omenclature and assortment of products (goods, services) according to the needs of consumers, improvement of product quality, purchase of cheaper product components (raw materials, semi-products, parts) or their purchase in smaller quantities substituting them by one’s own work, application of effective marketing to expand the market (ozoliņa-ozola, 2009). in production technical organizational factors are the most significant ones, in services – personnel and product factors. both for the enterprises of production and services the product market factor is crucial – if there is demand for the goods or services of an enterprise, then there will work and strive to produce (provide services) more. productivity does not mean that a product is produced by a fewer employees. it is improvement of goods and services quality in the way individuals would be willing to pay for them. having a look at the exports of latvia, it can be concluded that the country has not so many such goods and services, which could be demanded abroad. enterprises shall focus on the value to be created, not on the number of employees creating it (ketels, 2009). as a result of increasing labour productivity the volume of goods or services per one employed person increases, time for production of goods (provision of services) shortens, costs of these goods (services) reduce, and it positively influences the total labour effectiveness high effectiveness ensures private companies more stable position and greater opportunities in the market. for public sector organizations high effectiveness is a real proof that labour is oriented to state welfare interests. state welfare depends on the value of produced goods and provided services. it is important to make all enterprises understand that future success depends on orientation towards a higher value added. it requires qualified employees and support to enter foreign markets. conclusions 1. labour productivity is an indicator of labour efficiency – the output in a definite period per one person employed in the state or company. labour productivity depends on employees’ capacity, wish to work and provision with necessary labour facilities and equipment. 2. in 2008 in latvia productivity per one employed person was 51.3 % from the respective indicator in the european union. in estonia this indicator was 64.7%, in lithuania – 61.3%. 3. during the last decade latvia has managed to increase productivity per one employed person by 40%, estonia by 56%, lithuania by 50%. it is the fastest growth of productivity in europe. 4. in riga region labour productivity in all branches is larger than in other regions. it can be explained by explicit concentration of economic activities and employment in this region. comparatively more explicit fluctuations in comparison to other regions are observed in labour productivity in agriculture, hunting, forestry and fishing. issn 1822–8402 european integration studies. 2011. no 5 177 5. in pieriga region labour productivity the most significant fluctuations occurred in the field of financial services, real estate transactions, in the field of mining, manufacturing and related services. in the branches of state administration, community, social and personal services in pieriga region labour productivity decreased in 2007. 6. in vidzeme region labour productivity faced the most explicit fluctuations in the field of financial services and real estate transactions, in 2007 and 2008 productivity decreased in these fields while in riga, kurzeme and latgale regions it sharply increased. 7. in zemgale region the most significant fluctuations of labour productivity have taken place in the fields of mining, manufacturing and related services, construction, trade, hotels, restaurants, transport, communication, and repair services. comparatively high productivity in zemgale region was observed in agriculture, hunting, forestry and fishing. high productivity can be explained by a development agriculture sector in this region. 8. in kurzeme region similarly to other regions the most relevant changes were observed in labour productivity the field of financial services and real estate transactions. in the period from 2000 labour productivity in construction in kurzeme region had significantly decreased and only in 2007 it reached the level of 2000. 9. in latgale region in the respective period the most relevant changes in labour productivity were observed in field of financial services, real estate transactions, trade, hotels, restaurants, transport, communication and repair services. 10. labour productivity is high, but it is unstable in all regions in the field of financial services and real estate transactions. 11. in the respective period labour productivity increased in the field of trade, hotels, restaurants, transport, communication and repair services in all regions. comparatively low productivity is the mining, manufacturing and related services. it proves the existence of a development sphere of services having the largest proportion of economically active enterprises and a higher employment rate. 12. as a result of increasing labour productivity the volume of goods or services per one employed person increases, time for production of goods (provision of services) shortens, costs of these goods (services) reduce, and it positively influences the total labour effectiveness 13. high effectiveness ensures private companies more stable position and greater opportunities in the market. for public sector organizations high effectiveness is a real proof that labour is oriented to state welfare interests. 14. state welfare depends on the value of produced goods and provided services. enterprises should to understand that future success depends on orientation towards a higher value added. it requires qualified employees and support to enter foreign markets. references ekonomikas terminu skaidrojošā vārdnīca [explanatory dictionary of economic terms]. (2000). sast. autoru kolektīvs. rīga: izdevniecība „zinātne”, 104. lpp. latvija. pārskats par tautas attīstību 2006/2007. cilvēkkapitāls: mans zelts ir mana tauta? [review on national development 2006/2007. human capital: my gold is my nation?] (2007) lu sppi un undp latvija, rīga, 11.lp. isbn 978-9984-825-13-7 ulnicāns, e. (2010.) darba produktivitāte latvijā pa saimniecisko darbību veidiem 1996.-2009.gadā. [labour productivity in latvia by kinds of economic activities in 1996-2009.]. latgales tutsaimniecības pētījumi. sociālo zinātņu žurnāls nr. 1(2), rēzekne, 360.-391.p. issn 1691-5828 ukenābele, i., pelane, a. (2010) statistiski produktivitāte neparāda ekonomikas efektivitāti. [statistically productivity does not show economic effectiveness.] bilance. issn 1407-5709. nr.1 22.-23.lpp. ozoliņa – ozola, i. (2009). efektivitāte un produktivitāte [effectiveness and productivity.]. biznesa psiholoģija. issn 1691-3183. nr.19-48.lpp. reģionu attīstība latvijā 2009. [regional development in latvia, 2009.] valsts reģionālās attīstības aģentūra. rīga, 2010. 171 llp. lāsmens, k., tominens, k. (2007). procesu vadības izcilības kritēriji. [process management excellence criteria.] rīga: biedrība ”latvijas biznesa konsultantu asociācija”. ketels, k. (2009). jāceļ produktivitāte. [productivity shall be increased.] diena, 23.maijs. côté, s. (2001.) the contribution of human and sociala capital. canadian journal of policy research (isuma), vol. 2 (1). gomez – salvador r., musso a., stocker m., turunen j. (2006.) labour productivity developments in the euro area. occasional paper series. no.53. on-line: http:// www.ecb.int/pub/html/index.en.html bite l., muška a. analysis of labour environment factors impacting the productivity of employees. proceedings of the international scientific conference „economic science for rural development”. resources and education. nr.22., jelgava, 2010. 25.-33.p. issn 16913086 gordon, r. (1997.) is there a tradeoff between unemployment and productivity growth? in: snower, d., de la dehesa, g. (eds.), unemployment policy: government options for the labour market. cambridge university press, cambridge, uk. dew-becker,i.,gordon,r.j. (2008.). the role of labourmarket changes in the slowdown of european productivity growth, nber. buchele, r., christiansen, j., (1999.) employment and productivity growth in europe and north america: the impact of labor market institution. int. rev. appl. econ. 13 (3), 313–332. sustainable development strategy of latvia until 2030. online: http://www.latvija2030.lv gross domestic product from production approach. definition. on-line: http://www.csb.gov.lv/database total regional value added. definition. on-line: http://www. csb.gov.lv/database economic activities according to nace revision 1.1. definitions. online: http://www.csb.gov.lv/database issn 1822–8402 european integration studies. 2011. no 5 178 statistical region. definition. on-line: http://www.csb.gov.lv/ database statistical classification of economic activities in the european community, nace revision 1.1. on-line: http://www.csb.gov.lv/node/31668/list total value added by kinds of activities in regions. on-line: http://www.csb.gov.lv number of employed persons by kinds of economic activities (nace rev. 1.1) in regions. on-line: http://www.csb.gov. lv human capital productivity is measured as part of gdp, which consumption versus investments into human capital. on-line: http://www.lisboncouncil.net/initiatives/ human-capital.html/ productivity. the key to competitiveness of european economies and enterprises. on-line: http://europa.eu/ legislation_summaries/enterprise/industry/n26027_ en.htm labour productivity in the european union states. on-line: http://epp.eurostat.ec.europa.eu/statistics_explained/ the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 110 issn 1822– 8402 european integration studies. 2011. no 5 international transfer pricing and the eu code of conduct clemens buter university of applied sciences koblenz (germany) abstract international transfer pricing concerns the prices charged between associated enterprises across national borders. associated enterprises, also known as related parties, are enterprises that control each other either directly or indirectly by means of capital participation. international transfer pricing decisions have to be made, for instance, when a mother company delivers goods, services or intangibles to its foreign subsidiaries, particularly when it receives them from its affiliates. the tax rates on company profits differ from country to country. in the eu member states the tax rate differential on company profits range between 10 % in bulgaria to about 35 % in france. such tax rate differentials encourage associated enterprises to set transfer prices that shift profits from high-tax to low-tax countries in order to reduce the overall tax burden for the whole multinational corporation. no country can allow its tax base to suffer because of international transfer pricing. it is therefore necessary to set up guidelines in order to avoid arbitrary pricing. the oecd member countries have agreed that international transfer prices shall be determined according to the “arm’s length principle”. the “arm’s length principle” is an important element of the tax jurisdictions in eu member states. in order to reduce bureaucratic burdens imposed on multinational corporations operating on the european common market the european commission has proposed an eu-wide common approach to transfer pricing documentation requirements. this eu code of conduct on transfer pricing documentation (eu tpd) shall help to prevent multinational corporations with affiliates in different eu member states from taking a country-by-country documentation approach. this article describes economic implications of international transfer pricing. furthermore it classifies and compares the possiblities to determine an „arm’s length price“ according to the oecd guidelines 2010. based on empirical data concerning the actual taxes on company profits in eu member states the article shows that the eu code of conduct on transfer pricing documentation (eu tpd) can only be an intermediate remedy towards an inevitable tax harmonization in the european union. keywords: eu transfer pricing documentation, oecd transfer pricing guidelines 2010, compliance costs, masterfile documentation, country-specific documentation, eu code of conduct, associated enterprise, “arm’s length principle”, multiple tax jurisdiction, related party trade, “global formulary apportionment”, harmonization requirements. introduction the economic backbone of the european common market is the innercommunity trade. more than 60 % of german foreign trade is with eu member states. in smaller countries such as belgium, the netherlands and lithuania, this proportion is even higher.1 a large part of innercommunity trade is based on trade relations between associated enterprises operating in the common market. associated enterprises, also known as related parties, are enterprises that control each other either directly or indirectly by means of capital participation. international transfer prices are the prices being charged for cross-border transactions between associated enterprises (see figure 1). such international transfer pricing decisions have to be made for instance when a parent company delivers goods, services or intangibles to its foreign subsidiaries, respectively when it is receiving them form its affiliates. in the european union the tax systems of the member states are not harmonized yet. because of this the tax rates on companies’ profits differ from country to country. in eu member states the tax rate differential on companies` profits ranges between 10 % in bulgaria to about 35 % in france.2 such tax rate differentials encourage associated enterprises to set transfer prices that shift profits from high-tax to lowtax countries in order to reduce the overall tax burden for the whole multinational corporation. no country can allow its tax base to suffer because of international transfer pricing.3 it is therefore necessary to set up guidelines in order to avoid arbitrary pricing. the tax administrations of eu member states have to control international transfer pricing decisions according to the predominant internationally agreed guideline, which is the “arm’s length principle”. in order to control international transfer pricing decisions, tax administrations request detailed documentation concerning the international intra-group transactions. compliance costs are the costs of a taxpaying corporation for the documentation of information and data requested by tax authorities in different member states.4 in order to reduce bureaucratic burdens and therefore the compliance costs imposed on multinational corporations operating in the european common market the european commission proposes an eu-wide common approach to transfer pricing documentation requirements. this eu code of conduct on transfer pricing documentation (eu tpd) shall help to prevent multinational corporations with affiliates in different eu member states to take a country-by-country documentation approach. this article describes the latest developments concerning international transfer pricing regulations in the european common market. it also pinpoints the existing trade-offs issn 1822–8402 european integration studies. 2011. no 5 111 between the necessity of transfer pricing documentation and the increasing administrative burden and compliance costs of the taxpaying corporation. figure 1. related party trade and international transfer pricing source: büter clemens (2010) außenhandel – grundlagen globaler und innergemeinschaftlicher handelsbeziehungen, p. 122, berlin heidelberg. the second part of this article considers the oecd transfer pricing guidelines 2010. it briefly illustrates the “arm’s length principle” and its theoretical alternative, the “global formulary apportionment”. furthermore it describes the five basic methods for the determination of an “arm’s length price”. the third part of this article deals with the “eu code of conduct”, namely the proposed documentation requirements in order to control related party transactions in the european common market. the article ends with some critical conclusions concerning the practicability of the “arm’s length principle” and the administrative limitations of the “eu code of conduct” for the european common market. oecd transfer pricing guidelines 2010 the “arm’s length principle” the oecd transfer pricing guidelines were first released in 1995. the latest revision took place in 2010. the oecd transfer pricing guidelines 2010 are more detailed and contain practical suggestions for the comparison of the transaction conditions between associated enterprises and transaction conditions between third parties. the tax jurisdictions of eu member states have adopted transfer pricing rules which are similar to the oecd guidelines. the predominant transfer pricing rule is the “arm’s length principle”5. it is the international consensus for the determining of cross-border transfer prices6. the “arm’s length principle” is defined in article 9 of the oecd model tax convention. “where conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.”7 an “arm’s length price” is a price which a purchaser has to pay for the delivery of goods, services or intangibles under the conditions of perfect competition.8 in other words an “arm’s length price” would be the result of supply and demand in a particular market. that’s why it is also called “market-based pricing”. figure 2. “arm’s length pricing” and “autonomous transfer pricing” source: büter clemens (2010) außenhandel – grundlagen globaler und innergemeinschaftlicher handelsbeziehungen, p. 124, berlin heidelberg. international transfer pricing can also be the result of an autonomous negotiation between the associated parties. in this case the international transfer prices shall serve certain purposes. they can particularly be used to allocate profits and liquidity between associated enterprises across national borders. international transfer pricing is a special decision problem within the international price policy of a multinational corporation.9 as seen in figure 2 the associated enterprise in country a sells goods to its subsidiary in country b. on the basis of an “arm’s length price” the seller in country a delivers the goods for 100.000, € to its subsidiary in country b and receives a profit of 20.000, €. in turn the subsidiary in country b sells the goods for 120.000, €. both enterprises make a profit of 20.000, €. the corporate tax rates differ between country a and country b. the overall net profit of the associated enterprises sums up to 28.000, €.10 under an autonomous transfer pricing agreement the objective would be to minimize the tax burden in the high tax country b and to shift the profit to the low tax country a. as a result of this the associated enterprise in country a would deliver the goods to its affiliate in country b for 120.000, €. if the subsidiary in country b sells the goods for 120.000, € it would ultimately receive no profit. thanks to the “autonomous transfer pricing” agreement the overall net profit for the associated enterprises is higher that it was under the “arm’s length pricing” arrangement. it sums up to 30.000,€ instead of 28.000, €.11 issn 1822–8402 european integration studies. 2011. no 5 112 the “global formulary apportionment” a theoretical alternative to the “arm’s length principle” is seen in the “global formulary apportionment”. a “global formulary apportionment” would mean to split the entire profit of the associated enterprises on a consolidated basis regardless of their location. for the application of the “global formulary apportionment” three prerequisites have to be fulfilled12: 1. the tax unit has to be determined. which subsidiaries and branches of the associated enterprise belong to the global taxable entity? 2. the global profit of the taxable entity has to be determined. which accounting system should be used for the profit measurement? 3. a formula to allocate the global profits of the taxable unit has to be established. what should be the basis of the formula and who shall decide on it? the application of the “global formulary apportionment” as a realistic alternative for the “arm’s length principle” is rather controversial. the most significant concern with the “global formulary apportionment” is seen in “the difficulty of implementing the system in a manner that both protects against double taxation and ensures single taxation. to achieve this would require substantial international coordination and consensus on the predetermined formula to be used and on the composition of the group in question”13. such a level of international cooperation is seen to be unrealistic in the field of international taxation. so far oecd member countries do not consider the “global formulary apportionment” as a practical alternative to the “arm’s length principle”. determining a transfer price the oecd and the european commission clearly favour the “arm’s length principle” as opposed to the theoretical alternative of the “global formulary apportionment”. the crux of the matter concerning the “arm’s length principle” is to determine an appropriate “arm’s length price”. this “arm’s length price” is than be compared to the actual price setting for the related party trade. the oecd guidelines contain five methods for the determination of an “arm’s length price”. these methods are classified into two categories, namely the traditional transaction methods and the transactional-profit methods. the traditional transaction methods include the comparable price approach, the resale price approach and the cost-plus approach14: • the comparable price approach compares the price for goods or services transferred in a related party transaction to the price charged in an independent transaction in comparable circumstances. it is the most direct evaluation of whether the arm’s length principle is complied with.15 • the resale price approach is useful where a product that has been from a related party is resold to an independent party. the resale price has to be reduced by the resale price margin. the remainder amount is seen to be an arm’s length price of the original transfer between associated parties.16 • the cost-plus approach is based on the costs incurred by a supplier in a controlled transaction. an appropriate gross mark-up is added to this cost in order to calculate the arm’s length price of the transaction.17 the transactional-profit methods are using the profit from a controlled transaction as an indicator of whether the transaction was affected by conditions that differ from those that would have been made by independent enterprises in comparable circumstances. the transactional-profit methods recommended in the oecd guidelines are the transactional net margin approach and the profit split approach18: • the transactional net margin approach examines the net profit achieved by an associated enterprise to those achieved by comparable independent parties. the main difference between the transactional net margin approach and the resale price and cost-plus approach is that the former is focused on the net margin instead of the gross margin of a transaction. the lack of comparable data is seen to be the main weakness of the transactional net margin approach.19 • the profit split approach involves two steps. firstly the total profits arising from the arrangements of the associated enterprises have to be identified. this combined profit is then split by reference to the relative contributions of the associated enterprises in the transactions. the profit split approach can be helpful when the transactions between associated enterprises are very much interrelated and can’t be evaluated separately.20 according to the oecd the traditional methods are preferred. nevertheless the traditional methods always require comparable data. in case highly comparable data is given the most preferred traditional method is the comparable price approach.21 figure 3. oecd transfer pricing methods source: according to: oecd transfer pricing guidelines for multinational enterprises and tax administrations, p. 63 f. and p. 77 f.; oecd publication 22nd july 2010 generally the possibility of manipulation of cross-border transfer prices increases with the complexity of the market conditions. taking into account the unique characteristics of international commodity markets, intragroup services and other intangibles being traded between associated enterprises the “arm’s length principle” is a fairly theoretical approach.22 the eu code of conduct the “transfer price documentation” concept in order to reduce bureaucratic burdens on associated enterprises operating in different eu member states, the issn 1822–8402 european integration studies. 2011. no 5 113 european commission has proposed a transfer pricing documentation code of conduct (eu tpd).23 this proposal was approved by the european council on 27th june 2006. the eu tpd is not a community law but a proposal. eu member states are therefore not obliged to introduce transfer pricing documentation according to the eu tpd concept. nevertheless the existing code of conduct should encourage eu member states to implement the eu transfer pricing documentation approach. “the eu tpd is designed to establish a balance between the tax administrations right to obtain from a taxpayer the information necessary to assess whether the taxpayer’s transfer pricing is at arm’s length and the compliance costs for the tax payer.”24 the eu tpd concept consists of two main elements:25 1. the “masterfile” contains common standardized information for all eu group members of an associated enterprise. it mainly comprises a general description of the business and of the transactions in the eu. 2. the “country-specific documentation” includes documentation for each of the specific eu member states involved. it contains more detailed information for the specific country, such as contractual terms and the transfer pricing methods used. an associated enterprise that opts for the eu tpd concept should generally apply this approach to all its associates in the european union. „the eu tpd should cover transactions (i) between associated enterprises resident in the eu and (ii) between an enterprise resident outside the eu and an associated enterprise resident in the eu. it should not cover transactions between associated enterprises of the same group resident outside the eu. in other words: at least one of the enterprises must be resident in the eu.“26 the existing eu tpd is a data-framework for the compilation of requested information for the fiscal authorities concerning the business transactions between the group companies and the pricing methods applied. so far it is an open question whether it is sufficient for the taxpaying corporation to lay down the facts for determination of the inter-company prices being fixed, or whether it is necessary to provide evidence for the justice of the transfer prices according to the “arm’s length principle”. it is unquestionable that the eu tpd needs further development. to this end more detailed proposals and concepts are being discussed. this work is mainly done by the eu joint transfer pricing forum (jtpf). currently the joint transfer pricing forum is particularly discussing the treatment of inter-company services as well as possibilities to reduce the overall compliance costs for associated enterprises operating in different eu member states.27 implementation problems currently transfer price documentation requirements in eu member states range from no requirements to rather extensive requirements in a few member states.28 the existing eu tpd is just a non-legislative proposal of the european commission which has been approved by the european council.29 figure 4. actual taxes on companies profits (incl. trade taxes and others) source: www.bundesfinanzministerium.de (2010) issn 1822–8402 european integration studies. 2011. no 5 114 it is not mandatory for associated enterprises operating on the european common market to make use of the eu tpd approach. in the worst situation such a multinational corporation would have to prepare different sets of transfer price documentation for each eu member state involved. furthermore the scale of the tax rate differential on companies’ profits gives a strong incentive for associated enterprises operating in the eu common market to shift profits to low-tax eu member states. in figure 4 the actual taxes on companies’ profits of most european countries are shown. these statistical figures were calculated by the german ministry of finance (bundesfinanzministerium) for the fiscal year 2010. the actual tax rates on companies’ profits take into account the standard corporate tax rates and adjust them to country-specific differences concerning the taxable base and further tax particularities.30 the statistical figures reveal a huge tax rate differential on companies` profits in eu member states. the tax rate differential ranges from 10 % actual taxes on companies` profits in cyprus and bulgaria to 34.4 % in france and 35 % in malta. the concept of the common market means the elimination of obstacles to the free movement of goods, services, persons and capital. fiscal disharmony in the european union leads to the fact that cross-country transfer pricing decisions are not only based on market requirements but are ultimately influenced by tax considerations. an efficient resource allocation can hardly be reached under these conditions. conclusions international transfer pricing refers to the practise of pricing among the subsidiaries and affiliates of the same corporate family located in different countries. international transfer pricing can serve as a means to shift profits from high-tax to low-tax countries. in order to avoid such arbitrary pricing decisions the oecd member countries have defined the „arm’s length principle”, which is an important element of the tax jurisdictions of eu member states. the tax jurisdictions of eu member states have to control international transfer pricing decions according to the „arm’s length principle“. therefore they request a lot of information and data form the taxpaying corporations. in oder to reduce the administrative burdens imposed on multinational corporations operating on the european common market the european commission has proposed an eu-wide common approach to transfer pricing documentation requirements. the articel shows that the eu code of conduct on transfer pricing documentation (eu tpd) can mitigate the administrative burdens for the taxpaying corporations operating on the european common market. nevertheless the eu code of conduct on transfer pricing documentation (eu tpd) can not be the solution to the arbitrary pricing problem. the tax rate differential on company profits between eu member states is to big. it encourages multinational corporations to shift profits from high-tax eu member states to low-tax eu-member states. therefore the eu tpd can only be an intermediate remedy towards an inevitable tax harmonization in the european union.31 references 1 institut der deutschen wirtschaft, deutschland in zahlen, p. 41 f., deutscher instituts-verlag 2009, köln. 2 bundesfinanzministerium, monatsberichte 2010/04 (www.bundesfinanzminsterium.de). 3 levey m, wrappe st, chung k, transfer pricing rules and compliance handbook, paragraph 110 – 120, chicago 2010. 4 king e, transfer pricing and corporate taxation, p. 54; berlin heidelberg 2009. 5 haase florian, internationales und europäisches steuerrecht (2. auflage), s. 245 f. c.f. müller verlag heidelberg 2009. 6 king e, transfer pricing and corporate taxation, p. 12; berlin heidelberg 2009. 7 oecd transfer pricing guidelines for multinational enterprises and tax administrations, p. 33, oecd publication 22 july 2010, paris. 8 levey m, wrappe st, chung k, transfer pricing rules and compliance handbook, paragraph 210, chicago 2010. 9 büter clemens, außenhandel – grundlagen globaler und innergemeinschaftlicher handelsbeziehungen (2. auflage), p. 123, berlin, heidelberg 2010. 10 büter clemens, internationale unternehmensführung – entscheidungsorientierte einführung, p. 246, münchen 2010. 11 büter clemens, internationale unternehmensführung – entscheidungsorientierte einführung, p. 247, münchen 2010. 12 oecd transfer pricing guidelines for multinational enterprises and tax administrations, p. 37; oecd publication 22 july 2010, paris. 13 oecd transfer pricing guidelines for multinational enterprises and tax administrations, p. 38; oecd publication 22 july 2010, paris. 14 oecd transfer pricing guidelines for multinational enterprises and tax administrations, p. 63 75; oecd publication 22 july 2010, paris. 15 levey m, wrappe st, chung k, transfer pricing rules and compliance handbook, paragraph 610 620, chicago 2010. 16 brähler g, internationales steuerrecht (6. auflage), s. 445, gabler verlag wiesbaden 2010. 17 brähler g, internationales steuerrecht (6. auflage), s.447, gabler verlag wiesbaden 2010. 18 oecd transfer pricing guidelines for multinational enterprises and tax administrations, p. 77 93; oecd publication 22 july 2010, paris. 19 schreiber rolf (hrsg.) verrechnungspreise, s. 64, verlag neue wirtschaftsbriefe, herne 2010. 20 schreiber rolf (hrsg.) verrechnungspreise, s. 58 – 60, verlag neue wirtschaftsbriefe, herne 2010. issn 1822–8402 european integration studies. 2011. no 5 115 21 oecd transfer pricing guidelines for multinational enterprises and tax administrations, p. 63; oecd publication 22 july 2010, paris. 22 büter clemens, außenhandel – grundlagen globaler und innergemeinschaftlicher handelsbeziehungen (2. auflage), p. 125, berlin, heidelberg 2010. 23 european commission, code of conduct on transfer pricing documentation in the eu; memo/05/414, 10 november 2005, p. 1, brussels. 24 european commission, code of conduct on transfer pricing documentation in the eu; memo/05/414, 10 november 2005, p. 2 brussels. 25 van stappen dirk, „european union“, bna tax planning international: special report – transfer pricing documentation, july 2008. 26 european commission, code of conduct on transfer pricing documentation in the eu; memo/05/414, 10 november 2005, p. 2 brussels. 27 kpmg international, global transfer pricing review, p.16, 2009. 28 kpmg international, global transfer pricing review, p.14, 2009. 29 european commission, code of conduct on transfer pricing documentation in the eu; memo/05/414, 10 november 2005, p. 2 brussels. 30 bundesfinanzministerium, monatsberichte 2010/04 (www.bundesfinanzminsterium.de). 31 gutachten des wissenschaftlichen beirates beim bundesministerium der finanzen, einheitliche bemessungsgrundlage der körperschaftssteuer in der europäischen union, berlin, märz 2007. the article has been reviewed. received in april, 2011; accepted in june, 2011. european integration studies 2011.indd 87 issn 1822–8402 european integration studies. 2011. no 5 judge impartiality in comprehensive judicial development janis neimanis higher court of republic of latvia; university of latvia rada matjusina latvian council of sworn advocates abstract general human rights instruments guarantee the right to a fair trial before independent and impartial court. international and national legislation explicitly provides that the court should be impartial. but how can we understand that the court is impartial? should there be an objective decision or should there be impartial decision-making process? nowadays we often think about how it is possible to ensure judicial impartiality. how an impartial court may exist in democratic society, and whether a society should have any criteria of judicial impartiality to ensure that the public trusts the courts and judges. the aim of the court’s decision is not only to achieve an equitable settlement of the case, but the decision shall be understandable for the society, and the decision shall be made in way that the society can say that the court is impartial. through the court decision the court obtains the public confidence to the whole legal system and to the idea of the judicial state. impartial court is the base of an independent and democratic society. namely, an impartial court is the fundamental of people basic rights, which also makes important that the casa law has the most important public role, and the court decision shall be comprehended and accepted by the society. undoubtedly, political and economic changes affect the right, but the basic values of society remain. even in ancient egypt and in ancient greece the judicial impartiality was the foundation of the fair trial. but that time concept meaning of ‘judicial impartiality’ has changed and is not equal to the modern understanding. that is happening due to the continuing changes in the society. thus, it would have to say that the judge impartiality as a precondition for justice is derived from the values of society. over the time public vision of how the judicial objectivity is attainable is changing, public perception of a fair decision and reasoning also is changing, but it does not affect the concept of ‘judicial impartiality’. the concept of judicial impartiality has been changing within the changes in the society and it reveals in each of the societies life period. today in the democratic european counties with the term ‘judicial impartiality’ we understand the court’s ability to treat the parties equally (rather than judicial behavior must always be equal); the court’s ability to make a ruling in such way that if a particular case will be ruled by another judge the ruling would be similar and with the same result. today in all national legislation we are implementing the court’s duty to be impartial because the public demands for judicial impartiality increases. keywords: judge impartiality, judgment, judicial ethics, court, criteria of judicial impartiality. introduction all the human rights remedies and the instruments shall be guaranteed by judge impartiality. the research of subjective category of judicial impartiality has the theoretical and practical importance. in theory, the study of subjective category of judicial impartiality makes it possible to make evidentiary considerations as to whether a judicial impartiality has to be defined as written legal rule. clarification of criteria of judicial impartiality can define the importance of judicial impartiality and its influence on the judicial system and judges. the object of the research is the subjective category of judicial impartiality and its development during the centuries. the report contains an element of scientific novelty provisions the lack of trust of judicial system appears not because of judges less professional or bias but because the society become more democratic, express its view and understands its basic rights. the research shows the tendency of groundless exaggeration of judicial bias that is based on society’s attempt to define the category of judicial impartiality too wide. this shows that the problem of research of the concept of judicial impartiality takes one of the main role in the legal theory. the aim of the research is to analyse the concept of judicial impartiality. the most important requirements for ‘judicial impartiality’ will be discussed researching basically the democratic developed countries in the historical view. the research methods are: with the analytic method the concept of judicial impartiality is research in the historical sources and other legal sources. the comparison and evaluation is the base of the analysis. the comparison method is used to establish the base of development of judicial impartiality. with the comparison method the concept of judicial impartiality is valuated. issn 1822–8402 european integration studies. 2011. no 5 88 the definition of judicial impartiality „every person in life has to deal in one form or another, often very severe, with civil or criminal court. therefore a correct understanding of the court tasks and the ways to achieve them, [..]... seems is an urgent need of each developed man.”1 quite simple concept of 1915 didn’t lose its urgency even today. the judicial impartiality as the important element of the society originates in ancients, for example in the old testimony we can see the defined principles on the judicial impartiality: thou shalt not follow a multitude to do evil; neither shalt thou speak in a cause to decline after many to wrest judgment: neither shalt thou countenance a poor man in his cause. thou shalt not wrest the judgment of thy poor in his cause. keep thee far from a false matter; and the innocent and righteous slay thou not: for i will not justify the wicked. and thou shalt take no gift: for the gift blindeth the wise, and perverteth the words of the righteous. (ex. 23:2-8)2 the concept of judicial impartiality, as today we understand it, is defined in most international and national laws and these laws emphasizes the principle of judicial impartiality as each person’s guaranteed minimum rights. for example the international covenant on civil and political rights article 14 defines that all persons shall be equal before the courts and tribunals, furthermore in the determination of any criminal charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law. the human rights committee has unambiguously held that the right to be tried by an independent and impartial tribunal is an absolute right that may suffer no exception.3 thereby there are the rights that shall be applied in any circumstances and in any court. the most important judicial impartiality modern definition comes since 1982, where the concept of impartiality appears in the decision of european court of human rights, that is, impartiality normally denotes lack of prejudice or bias. but the court has repeatedly held that what is at stake in maintaining the impartiality of the judiciary is the confidence which the courts in a democratic society must inspire in the accused, as far as criminal proceedings are concerned, and also in the public at large.4 the same definition is included in the opinion of the lord of appeal for judgment in 2001 in magill v. porter case that states that the question is what the fair-minded and informed observer would have thought, and whether his conclusion would have been that there was real possibility of bias 5. the most important international laws and court judgments unanimity recognizes that judicial impartiality normally denotes absence of prejudice or bias, and a distinction can be drawn in this context between a subjective approach, that is endeavouring to ascertain the personal conviction of a given judge in a given case, and an objective approach, that is determining whether he offered guarantees sufficient to exclude any legitimate doubt in this respect.6 for example, the unites states code of judicial conduct requires a judge to be disqualified from presiding over any proceeding in which the judge’s impartiality might reasonably be questioned. this means that judges are disqualified from presiding over cases not only when they are in fact bias to one side or the other, but also when there is an appearance of bias to the reasonable observer. hence, judges are expected to avoid not only actual partiality, but the appearance of it as well, because the appearance of a judge who is not impartial diminishes public confidence in the judiciary and degrades the justice system.7 therefor there are grounds to admit that judicial impartiality is ensured when the society recognize it. that is the judicial impartiality is guaranteed not only by the implementing the law, but the society shall be assured that the impartiality is ensured and the court implements the law fairly and accurately. today’s the concept of the judge impartiality is in possession of the social characteristic. latvian lawyer of the arbitration court leons modris lula-frankevics (leons modris ļūļa-frankēvics) once remarked that the definition of judicial impartiality is very simply – people can make mistake, but this can’t be made intentionally.8 the development of concept of judicial impartiality there is a reason to assert that the concept of judicial impartiality as a part of a society didn’t dominate in all history periods. previously the judge impartiality was understood only as the judge duty to implement the law fairly and accurately. the concept of judicial impartiality as a research topic or the topic of the discussion was known even since 13 century in all developed countries. later, since 15 century, the judicial impartiality as the legal principle in different societies wasn’t emphasized a lot. the concept as itself was known but not dominated in the court system – from the time when the holy roman empire adopted (ancient) roman law as the national law – circa 1494, protesting judicial incompetence, and having nothing whatever to do with judicial impartiality9. namely it is possible to come to a conclusion that judicial impartiality as the compulsory criteria of judging existed but this principle wasn’t uppermost in the legal system. the judicial impartiality had society importance that times and this concept wasn’t called into question. there was no need to define the judicial impartiality in the law because the principle was a symbol of a fair court. of course there were precedents when judicial impartiality was doubted, and such doubts were the reason of developing modern legal system. for example, in 1557 during the french monarchy the privy council (also known as “conseil privé” or “conseil d’état privé”, or “conseil des parties”10) was established. the need of establishing such legal authority (a completely autonomous court of justice) was the doubts of the king’s council, the doubts of its impartiality. the history shows that the court as the representative of the society was the authority that should undoubtedly ensure judicial impartiality. in 17 century the concept of judicial impartiality increases in the society but it is valued as the clearly understood concept that does not need any additional interpretations.11 however, that time, although the clear criteria of judicial impartiality and specific requirements for the court were not inquired, it can be seen the first modern interpretation of the concept of judicial impartiality, that is, the interpretation issn 1822–8402 european integration studies. 2011. no 5 89 of judicial impartiality that we accept today. for example, describing the court procedure and its impartiality, one important feature was underlined to the judged “direct proceedings with scrupulous fairness toward prisoners”.12 ie it was said that the court not just impartial and fair, but it is impartial and fair to the prisoner, to the accused person in criminal cases or any other party of the process. so the social criteria get its higher value – the judicial impartiality is valued not only by the court, but also by the society. just one century away, when the establishment of the court was considered as the method that will ensure the judicial impartiality, the 17 century society again doubts its own promoted method and tries to invent new method to ensure the judicial impartiality of the courts. the judicial impartiality as one of the main court principle is discussed also in the later time period, and its value increases. on september 17, 1787, in philadelphia, citizens gathered outside independence hall as word spread that the deliberations of the constitutional convention had concluded. [..] this assault upon judicial impartiality is a growing cancer upon our constitutional republic.13 in 19 century the first criteria of judicial impartiality are developing: the personal interest of the case and cognate14. simultaneously, the society is invited to agree to an undistorted understanding of judicial impartiality, not interpreting this concept extended, and to admit that the symbol of judiciary always will be impartiality and fairness. the history shows that the state as the representative of the democratic society invites the society not to doubt the court impartiality – we shall never call in question the probity and judicial impartiality of a french jury. i believe that it would be unjust to do so; there are not materials for a packet panel; the spirit of a french jurors is too versatile and independent of the system15. the judicial impartiality in the democratic countries always was a fundamental component of the justice. at the end of 19 century, not only the judicial impartiality is researched as the main court principle, but the strict criteria of judicial impartiality are set. for instance, one of such criteria was political bias or personal prejudice.16 the political non-intervention as the treat of judicial impartiality is discussed in different counties, and the clear position on the court independence and its separation from other state powers is detected. the court can’t intervene into political work, and its intervention makes reasonable doubts of the judicial impartiality.17 beginning with 20 century the society starts to discuss the concept of judicial impartiality and the discussion is about ensuring the judicial impartiality in the court system. the society and political process requires not only fairness judgment, but it requires fairness judgment for the society; the society requires its own fairness and therefore the society each time examines the court decision whether the principles of fair trial are ensured. public lack of trust in the court system becomes higher, and therefore it becomes necessary to develop legislation to such an important principle as judicial impartiality. for example it is said in the legal publication that it had the public effect of shaking confidence in the judicial impartiality18. why this trust to the court system decreases? we shall say that the role of the person and the state changed during this time period, and therefore the role of the court changed. the lack of trust appear not because the judged become less professional or bias, but because the society become more democratic, express its view and understands its basic rights. the society lack of trust contributed to a number of international legislation, as well as to the court’s duty to be impartial. the whole society facilitates implementation of the various tools that focus on the public mind of its own, namely, with these instruments the public is ready to believe in judicial impartiality. on the one hand the pubic says that it doesn’t believe in judicial impartiality, but on the other hand the society allows certain measures, which, however, will satisfy the needs of preservation. thus, international law is incorporated the general legal principle that the court must be impartial, and therefore the national legislation, case law and doctrine are found in a variety of criteria that define either the impartiality of the court, either possible judicial bias criteria. public pressure and the loss of trust determine the consequences of second world war, after which the people felt the need for greater protection and stability. international covenant on civil and political rights19 article 14.1 says that all persons shall be equal before the courts and tribunals. in the determination of any criminal charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law. here it is seen that the international laws emphases the value of the concept of judicial impartiality. professor christian tomuschat (berlin) says that after the horrors of world war ii, a broad consensus emerged at the worldwide level demanding that the individual human being be placed under the protection of the international community.20 another one important international document that took into force on 1985 is united nations basic principles on the independence of the judiciary21. the article 2 says that the judiciary shall decide matters before them impartially, on the basis of facts and in accordance with the law, without any restrictions, improper influences, inducements, pressures, threats or interferences, direct or indirect, from any quarter or for any reason. the society need to get more confidence in the fair trial facilitating another international act that shows the reasonable doubt of the society that trust of a fair trial had been diminished. on november 1, 1998 the european convention on human rights22 came into force. article 6 provides a detailed description of right to a fair trial, including the right to a public hearing before an independent and impartial tribunal within reasonable time, and today judicial impartiality as a justice basic value is analysed in the european court of human rights. one of the first judgments that define the concept of judicial impartiality and the possible violation of the article 6 was made in 1982. the definition judicial impartiality had been defined in the judgment of the court of human rights in the case piersack v. belgium: “impartiality” normally denotes lack of prejudice or bias23. according to the several judgments made by the european court of human rights the society can define the list of the indication that determines the judicial impartiality. issn 1822–8402 european integration studies. 2011. no 5 90 also during the development of the justice system the criteria of judicial impartiality were defined. the huge input into developing the concept of judicial impartiality is made by prof. touchie j.cw, who defines three criteria under which the impartiality of decision can be assessed: replicability of decision, commonality of criteria of validity and similarity of rank-order over such criteria.24 for instance, proceeding the implementation of the general principles into national laws, the united states of america in 1974 amended the federal recusal law, that specifically removed any so-called “duty to sit” in favour of a general standard requiring recusal if there is a reasonable basis for doubting the judge’s impartiality. the purpose of that change was to enhance public confidence in the impartiality and fairness of the judicial system.25 namely, researching the principle of judicial impartiality in the historical development there was a need for legislative action to regulate the observance of the principle. a clear understanding of judicial impartiality being undermined because of the society’s expressed doubt, and at the same time the society begins to develop different measures to ensure the judicial impartiality. further steps on developing the judicial impartiality during the research it was shown that if the judicial impartiality was doubtless till 17 century, then the first doubts arise in the late 18 century and in the beginning of 19 century. different historical process encouraged the need for society to define their basic rights into legal acts. also today we see the tendency towards the weakening the society sureness of the judicial impartiality. on the edge of 18 and 19 century there was the start of the process were the society’s distrustfulness prevail over the judicial system and determined its such tendency is continuing and today the legal system has to make the researches not only on the defining the necessary indications or criteria on how to ensure the judicial impartiality, but the most important today is to develop the instrument on how to make society to trust on fair trail, and here not only legal instruments, but social, politics, psychological etc. instrument become more important. the exaggerating the doubts of judicial impartiality will lay the judicial system and all society to irreversible frustration. the problem of unreasonable society doubt on lack of judicial impartiality and on judge unreasonable refuses to recuse already is started to be researched, but still the future of judicial impartiality looks bleak26. in the democratic states the judicial impartiality is ensured and the state has to control the society on its requirements on more impartial courts. the democracy means the power of the people, but the court system is also the part of this society. we can’t look on the court and the society separately – the court is represented by the professional society. therefore it is shall be critically valued that the society doubt the judicial impartiality because in such way the society doubts its own principles. society is unimaginably more complex now, several centuries on, and of course the needs of society grow, but these needs can’t disrupt the society. the aim of the state is not to allow the society self-disruption. different philosophical concepts of impartiality exist. according to bernard gert, “a is impartial in respect r with regard to group g if and only if a’s actions in respect r are not influenced at all by which member(s) of g benefit or are harmed by these actions.”27 impartiality does not require, however, that individuals are treated equally under all circumstances; therefore the concept that there shall be strict criteria of judicial impartiality is false. people should be treated differently if they merit different treatment according to external and objective morality. impartiality requires is not that everyone receive equal treatment, but rather that everyone be treated as an equal.28 according to the mentioned, if the society will follow the concept that the criteria of judicial impartiality shall be defined, the society will disrupt itself due to the fact that such criteria are against of the definition of the judicial impartiality. conclusions 1. the principle of court impartiality and independence is not only the prerequisite for democratic society but also requires the society’s progress to the rule of law; 2. the doubts about the judicial impartiality as the value appears on the edge of 18 and 19 century, that was determined by the social and political process; 3. the lack of trust of judicial system appears not because of judges less professional or bias but because the society become more democratic, express its view and understands its basic rights; 4. in the future the society has to realize the increasing of the doubts of the judicial impartiality, and the democratic society has to provide the limits of its doubts. 5. the definition of the criteria of judicial impartiality will disrupt the society. references 1 судебная реформа. под ред. н.в. давыдова и н.н. полянского. москва: книгоиздательство «объединение», 1915, с. vii. 2 the old testimony, exodus. 3 human rights in the administration of justice: a manual on human rights for judges, prosecutors and lawyers, professional training series no. 9, united nations, new york and geneva, 2003, p.118 (referring to m. gonzalez del río v. peru, 1987). 4 european court of human rights, august 28, 1997, worm v. austria, no. 83/1996/702/894, §40; european court of human rights, october 26, 1984, piersack v. belgium, no. 8692/79, §30. 5 house of lords, december 13, 2001, magill v. porter, nr.[2001] ukhl 67, §105. 6 european court of human rights, october 26, 1984, piersack v. belgium, no. 8692/79. 7 jeffrey m. sharmanjeffrey m. sharman judicial ethics: independence, impartiality and integrity, washington, d.c.: inter-american development bank, may 19-22, 1996, p.15-17. 8 ļūļa-frankēvics l.m. objektivitāte pāri visam intervija. juristavārds, 2008.gada 28.oktobris, nr.41 (546). 9 simmonds a. amah and eved and the origin of legal rights., s.d. l. rev. 2000 / 2001, no.516, p.46. issn 1822–8402 european integration studies. 2011. no 5 91 10 article conseil du roi de france from the french wikipedia, retrieved on september 2, 2006. 11 bellany a. the politics of court scandal in early modern england, news culture and the overbury affair, 1603-1660. cambridge: cambridge university press, 2002, p. 232. 12 from sir matthew hale (nov 1 1609 dec 25 1676), uk lawyer, bibliography, hostettler, john (2002). the red gown: the life and works of sir matthew hale. chichester: barry rose law publishers, p. 229. 13 donald l. burnett jr. a cancer on the republic: the assault upon impartiality of state courts and the challenge to judicial selection, 2007, fordham university school of law fordham urban law journal, 34 fordham urb. l.j. 265. 14 from honorable edward frost bibliography, men of mark in south carolina: ideals of american life: a collection of biographies of leading men of the state, volume 3, james calvin hemphill, men of mark publishing company, 1908, the new york public library, second edition 2007. 15 national intelligence, washington, april 26, 1842, no.6172. 16 the nelson examiner, saturday, august 14, 1858. nelson examiner and new zealand chronicle, volume xvii, issue 65, 14 august 1858, page 2. 17 the green caldron (1931), university of illinois (urbana-champaign campus), volume: 14-16 (19441947), digitized with permission of the university of illinois board of trustees, publisher: [urbana, ill. : university of illinois]. 18 boston evening transcript, july 8, 1913, page 4. 19 international covenant on civil and political rights has been adopted on december 16, 1966, in force from march 23, 1976 20 christian tomuschat, the international covenant on civil and political rights, united nations audiovisual library of international law, united nations, 2008. 21 united nations basic principles on the independence of the judiciary adopted by the seventh united nations congress on the prevention of crime and the treatment of offenders held at milan from 26 august to 6 september 1985 and endorsed by general assembly resolutions 40/32 of 29 november 1985 and 40/146 of 13 december 1985. 22 european convention on human rights, 01.11.1998. 23 european court of human rights, october 26, 1984, piersack v. belgium, no. 8692/79. 24 touchie j.cw. on the possibility of impartiality in decision making. macquarie law journal, 2001, nr.2.: http://search.informit.com.au/documentsummary;dn=344 373982007218;res=ielhss [december 26, 2010]. 25 statement of senator russ feingold on the nomination of judge samuel alito, jr. to the united states supreme court, http://chuckcurrie.blogs.com/chuck_currie/the_ courts/. 26 monroe h. freedman, judicial impartiality in the supreme court the troubling case of justice stephen breyer, oklahoma city university law review, forthcoming, hofstra university school of law, legal studies research paper series, research paper no. 0523, 2005. 27 gert b moral impartiality. midwest studies in philosophy xx:, 1995, p.104 28 dworkin r taking rights seriously. harvard university press, 1977, p.227 the article has been reviewed. received in april, 2011; accepted in june, 2011. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 162 private financing alternatives for infrastructure of state owned enterprises http://dx.doi.org/10.5755/j01.eis.0.12.20858 ilja arefjevs luminor pensions latvia ipas submitted 06/2018 accepted for publication 11/2018 private financing alternatives for infrastructure of state owned enterprises eis 12/2018 abstract european integration studies no. 12 / 2018 pp. 162-171 doi 10.5755/j01.eis.0.12.20858 jurijs spiridonovs riga international school of economics and business administration natalja tocelovska university of latvia the aim of the article is to examine infrastructure classification and assess private financing alternatives for major groups of physical infrastructure under ownership of state owned enterprises in latvia. tasks of the research include examining types infrastructure with a focus on physical infrastructure, explaining importance of physical infrastructure to economy of a country and society, studying physical infrastructure financing challenges and problems, conducting a research on a state owned enterprises in latvia, which own physical infrastructure, conducting expert interviews to reveal key challenges of private financing alternatives for funding of infrastructure of state owned enterprises in latvia as well as drawing corresponding conclusion. methods used are structured expert interviews, analytic hierarchy process, monographic method, document analysis, case study method, and literature review. the empirical research covers ten stateowned enterprises of latvia, which own physical infrastructure. the major groups of infrastructure covered by the research are transportation, communication and power. following key private financing alternatives are consideredcommercial bank loans, bond issues as well as public-private partnerships. seven experts were interviewed to reveal key infrastructure financing challenges faced by state owned enterprises. out of seven experts, one expert represents the power industry, two experts operate in the area of communications and four are financing experts covering all infrastructure areas. at the final stage of the research, preferred alternatives for major groups of physical infrastructure under ownership of state owned enterprises in latvia derived from expert assessments are presented and corresponding conclusions drawn. only one company out of ten subject to research is financed not only by bank loans, but also issued bonds to attract funding. none of infrastructure objects belonging to these companies is financed via public-private partnership. the outcome of the article is an expert interview based hierarchy of suitable financing alternatives for studied types of infrastructure under ownership of state owned enterprises of latvia. keywords: infrastructure financing, state owned enterprises, corporate governance, public-private partnership, latvia 163 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 modern society demands adequate quality of life, which inevitably translates into high requirements for infrastructure. even though infrastructure can be very broadly defined, typically most demanded are electricity, communications and transportation, which represent physical infrastructure. in terms of social infrastructure, potable water as well sanitation prevail while health along with education facilities conclude the list. additionally, conventional economic theories suggest that infrastructure facilitates economic, social, agricultural and regional development as well as contributes to income redistribution and poverty reduction. some researchers noted that investment is critically important to infrastructure development (agrawal, et, al., 2011; grimseyand, lewis, 2004). infrastructure projects are in a need of substantial financing for its key stages, which include planning, designing, constructing, operating as well as further maintenance. infrastructure funding deficit is a common challenge for academic and business discussions (eroland, ozuturk, 2011; majumder, 2010). till late nineties of the last century, public sector was the main contributor to develop nearly all infrastructure sectors. because of shortage of public funding, infrastructure has been in a dire condition in many developing countries. in general, infrastructure investment can be considered to be pro-cyclical rather than evenly spread around economic cycles (välilä, et. al. 2005). it means that when gross domestic product is at higher levels, so go public infrastructure investments. nonetheless, one can find instances when government investments were made in a counter-cyclical manner. during severe economic conditions, as already witnessed at the time of the great depression in thirties of the last century, the public sector heavily increased its spending on various infrastructure objects (margairaz 2009; european investment bank papers, 2010). cyclicality of total investments measured as a share of gross domestic product in the recent decade can be largely explained by private finance fluctuations, which were caused by business cycles. on the contrary, public infrastructure investments also measured as a share of gross domestic product was found to be rather stable within the european union at an aggregate level and even increased tom some extent in 2008 and 2009 (european investment bank papers, 2010). private sector players in late nineties of the last century started to enter the infrastructure marketplace with considerable funding opportunities and strong operating skills that helped minimise risks related to infrastructure projects (agrawal, et, al., 2011; grimseyand, lewis, 2004). private infrastructure investments evolve from various sources. one of those, public-private partnerships, is gaining popularity in the world (majumder, 2010). quite similar findings are presented by european investment bank (european investment bank papers, 2010), stating institutional and private investors have become very active investments into public infrastructure in recent years. recently, many infrastructure linked financing products have been established by the financial industry in response to demand for the new asset class, which would offer a number of different investment characteristics. nonetheless, many private investors are still reluctant to make investments in infrastructure because of high risk, low returns and extra-long payback periods. investors reconsider the whole spectrum of available debt investments since many still prefer stable yields provided by infrastructure investments compared to high growth of capital. according to credit agencies, infrastructure projects typically expose investors to very low default rates (chambers 2007). taking a long-term perspective, the appropriate risk-return profile of infrastructure as an asset class is not yet clear. till now, history offers very limited guidance while a relevant finance theory was not designed yet (european investment bank papers, 2010). introduction e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 164 grimsey and lewis (grimseyand, lewis, 2004) believe that identifying infrastructure is easier than describing it. so far the term infrastructure included different things in it. “the definition that makes the most sense from an economics standpoint consists of large capital intensive natural monopolies such as highways, other transport facilities, water and sewer lines, and communications” (gramlich, 1994). however, it has to be noted that the definition cover called economic infrastructure. in particular, these are physical structure objects, which are used to produce goods and provide services demanded by many industries (chan, et. al., 2009). a broader definition of infrastructure should also include so-called social infrastructure. typically, such infrastructure is needed in education, health and other sectors of economy, which are serving society at broad. important to mention that social infrastructure is involved in provision of services which, in contrast to output by physical infrastructure, are used indirectly by many industries. however, investments in both economic and social infrastructure are considered to be suboptimal in case of no public funding available. therefore, infrastructure is typically classified into two main groups provided key differences in its use: _ physical or sometimes also referred to as economic infrastructure _ social infrastructure. a detailed chart of various types of infrastructure with a further breakdown is provided in the figure 1. physical or so called economic infrastructure is responsible for subsectors, which are directly linked to production and economic activities (ghoshand, 1998; majumder, 2010; singh, et. al., 2007). social infrastructure covers subsectors, which are responsible for facilitating development and quality of life of the society (ghoshand, 1998; grimseyand, lewis, 2002; majumder, 2009). the physical infrastructure directly assists production functions and contributes to economic development. summing up, broad infrastructure includes roads and bridges, tunnels and railways, harbours and airports, tramways and subways, irrigation networks and dams as well as canals, water figure 1 types of infrastructure (kumari, sharma, 2017) infrastructure 165 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 pipelines and water purification, potable water supply as such, powerlines and power plants as well power distribution grids, oil and gas pipelines, sanitation and sewage facilities, health and housing services, communications (including telecommunications) networks (prud’homme, 2005; sinha, et. al., 2012). economic or physical infrastructure is estimated to account for about 75% of total infrastructure investment in the european union leaving around 25% for social infrastructure. the research (alegre, et. al., 2008) showed that transport can be responsible for the biggest infrastructure investments. in europe transport related infrastructure was found to have a share of more than 50% of total infrastructure investments while utilities came at the second place (european investment bank papers, 2010). debates on whether financing should be bank-based or marketbased took place for a long period of time. langfield and pagano (2016) concluded that since early nineties of the last century, the banking system of europe expanded rapidly while its capital market experienced only moderate changes. thus the financial structure became mostly bank-based. another wave of academic interest of the financing topic is observed in mid-2010. reflections from the financial crisis as well as capital market union initiatives driven by the european commission facilitated academic discussions. generally, it is considered that a financial system of the country brings together lenders, borrowers, financial markets and financial intermediaries with the aim to channel financial resources from the financial market participants with the excess to other financial market participants, who have shortage. mishkin (2009) defined two flows of financial resources between borrowers and lenders: _ through financial markets or direct finance _ through financial intermediaries or indirect finance. the practice of dividing market and bank financing is typically used to characterise entire economy. in case of the bank-based financial system, the role of banks is central in redistributing financial resources. on the opposite side, in the market-based financial system, securities markets compete with banks in attracting private savings to companies (demirguc-kunt and levine, 1999). governments around the globe used to be only investors in public infrastructure for centuries. responsibilities for construction, implementation, operation, maintenance and further repair of infrastructure were with governments (guptaand, sravat, 1998; singh, et. al., 2007). however, because of several reasons, public funding started to be replaced with private financing increasingly more often. private investment can be seen as transferring responsibilities for infrastructure development from the public sector to the private sector (grimseyand, lewis, 2004). in1991 infrastructure in many countries was depleted. private financing could take over the responsibility of the infrastructure sector from the pure public funding. therefore, private financing played an increasingly more important role to meet increasing demand for infrastructure funding. private financing can take various forms such, for example, bond and equity issues, bank loans, deliveries of alternative services, public–private partnerships and finally foreign direct investment should not be forgotten as well. foreign direct investment conventionally means funds, which were made available by foreign entities, however within a strict supervision framework of such investments (rathand, samal, 2015). because domestic investments were insufficient, majority of developing countries experienced infrastructure facilities not being up to date. public-private partnerships have gained a lot of attention in academic literature (agrawal, et, al., private financing and infrastructure e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 166 2011; grimseyand, lewis, 2004). public-private partnerships are considered to have following key characteristics: _ private financing is supposed for construction, operation, maintenance and overall development of infrastructure sectors. _ a long standing contractual arrangement is in place between public and private sectors for development of infrastructure sectors. _ public-private partnership provides infrastructure related services to population on behalf of the public sector. public-private partnerships are becoming popular because they ensure adequate funding as well as enable design, planning, scheduling, construction, maintenance and completion of infrastructure projects within defined periods of time (devan, 2005; eid, 2008; elhance, et. al., 2013; ke, 2010 ; li, et. al., 2005; reeves, 2013; sharma, 2012; steijn, et. al., 2011; wojewnik-filipkowska, trojanowski; 2013). public-private partnerships also were criticised for relatively higher financing costs per unit compared to government debt, which received a label of the so-called public-private partnership premium. the figures presented for difference in costs vary a lot. in particular, cost of capital attracted under public-private partnership projects can be two to three hundred basis points higher compared to cost of public funding (yescombe, 2007, p. 18). nonetheless, public-private partnerships are considered to be the most promising vehicle for infrastructure finance in future. enterprise name balance value, euro fixed assets, euro type of infrastructure latvenergo, jsc 3 517 372 000 190 461 000 power sadales tīkls, jsc 1 310 085 000 101 885 000 power latvijas dzelzceļš, jsc 1 014 784 000 241 632 000 transportation lattelecom, llc 319 050 150 29 557 564 communication latvijas mobilais telefons, llc 251 115 715 43 021 517 communication starptautiskā lidosta rīga, jsc 186 027 759 27 020 460 transportation rīgas siltums, jsc 164 022 813 15 464 845 power augstsprieguma tīkls, jsc 107 187 707 1 489 533 power latvijas valsts radio un televīzijas centrs, jsc 104 402 677 7 543 231 communication latvijas pasts, jsc 91 701 752 1 178 955 communication source: www.valstskapitals.lv table 1 state owned enterprises with physical infrastructure included in the research quite substantial part of infrastructure objects in latvia is owned by enterprises, which are still under direct state control. out of ten biggest state owned enterprises with physical infrastructure, only two telecom operators (i.e. lattelecom, latvijas mobilais telefons) went through a process of partial privatisation. however, the latvian state still keeps control in these companies. power sector state owned enterprises cannot be privatised (except rīgas siltums, which provides heating services for natural persons and companies in the city of riga) because of law amendments, which were adopted in 2000. the list of state-owned enterprises with physical infrastructure covered by the research is provided in the table 1. state owned enterprises of latvia with physical infrastructure 167 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 companies with physical infrastructure and balance value of at least 100 million euro were included in the research. latvijas pasts, which is a national postal service operator, does not reach a balance value of 100 million euro, however was still included in the research because it is a systemically important infrastructure operator. all companies covered by the research use bank financing via loans and leasing arrangements while only one company, latvenergo also attracted financing via several bond issues. none of the companies included in the research is engaged in public-private partnership projects. expert organisation position mr indars aščuks nasdaq omx baltic chief executive officer mr guntars baļčūns latvenergo jsc chief financial officer mr jānis bokta state radio and television centre of latvia jsc chief executive officer mr jānis dubrovskis blue orange bank jsc corporate finance director mr elmārs prikšāns op bank latvia branch general manager mr andris nātriņš latvijas pasts jsc member of the supervisory council mr nauris kļava ernst & young baltic llc partner, advisory table 2 selected experts with knowledge on infrastructure financing alternatives source: prepared by authors in order to assess funding alternatives, authors conducted expert interviews, which had a structured part, for which the analytic hierarchy process (ahp) was used as well as an open-ended part, which added to the qualitative findings of the research. ahp is considered to be a recognized tool for structured decision making. decision making, for which we gather most of our information, became a mathematical science today (figuera, et. al., 2005). the evolving problem is that decision making may involve booth many criteria as well as sub-criteria to be used to rank decision alternatives (saaty, 2008). conventionally, data subject to research are gathered from decision making experts corresponding to a hierarchic structure. further, a pairwise comparison of alternatives on a qualitative scale is conducted as described below. (see table 3). in the course of the analytic hierarchy process, experts can rate the comparison as equal, marginally strong, strong, very strong, and extremely strong by using a nine point likert scale where “1” means that alternatives are equal while “9” stands for absolute superiority of one alternative over another. a set of pairwise comparison matrices was constructed in accordance with the overall hierarchy of the process. the hierarchy of the alternatives for preferred private funding sources of infrastructure of state owned companies is presented in the figure 2. experts were chosen taking into account their knowledge and competence in infrastructure financing matters in the sectors covered by the research. out of seven experts in total, four experts represent various institutions playing a role in the infrastructure funding value chaina stock exchange, a bank (loan issuer), a bank (debt underwriter) as well as a major advisory and consulting company. these experts are considered to possess wide knowledge on all sectors of the research since companies being studied operate in the same country. three more experts represent specific industries covered by the researchpower, communications and transport. thus, in total a selection of seven experts can be considered to be balanced between industry professionals and financing professionals with no anchoring to a specific industry. a list of experts as well as organisations they represent and positions they take is provided in the table 2 below. expert assessment of preferred financing alternatives e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 168 within the unstructured part of interviews, experts mentioned following reasons for commercial bank loans being the most popular financing alternative while bond issues and public-private partnerships staying largely unexploited: _ in europe, bank-based financing is more popular in general _ highly competitive corporate banking marketplace in latvia, high degree of flexibility and availability of funding for state owned enterprises in particular _ corporate governance and internal procedures very often need to be improved to meet higher transparency requirements for listed companies _ credit rating is needed to go for bond issues _ resistance to change a regular routine in general _ public-private partnership projects expose top management to political risks. the structured expert assessment results according to the ahp process findings were processed by the authors while its summary is presented in the table 3. figure 2 the hierarchy of alternatives for financing of infrastructure of state owned enterprises companies according to ahp (prepared by authors) alternative/criterion c1. transportation c2. communication c3. power a1. commercial bank loans 0.24 0.63 0.28 a2. bond issues 0.33 0.25 0.62 a3. public-private partnership 0.43 0.12 0.10 total 1.00 1.00 1.00 source: www.valstskapitals.lv theoretical preferences of experts clearly tend to exhibit overall anchoring towards certain type of a financing alternative for each sector. for example, banks loans were chosen as experts at the preference number one (i.e. overall score 0.63) for communication (telecoms and postal systems) while bond issues (scored at 0.25) and public-private partnerships (score of 0.12) were considerably left behind in expert assessments. the underlying logic for such a distribution of preferences was that life span of equipment in the communication sector is relatively short and specific know-how as well as competence is normally included in purchase conditions. some projects can be also financed by using industrial leasing offered by subsidiaries of banks. bond issues gained the highest assessment in the power industry related projects (scored at 0.62). one of the arguments was a longer maturity of funding (i.e. advantage compared to bank table 3 expert assessment results for infrastructure financing alternatives 169 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 loans) as well as no critical need for public-private partnerships since joint ventures are much more common in the given industry. finally, public-private partnerships received decent recognition by experts (score of 0.43) for financing transportation related infrastructure projects. the key driver for such an assessment was a need to get an access not only to project funding, but also to know-how and competence in relation to running and maintenance such projects. the problem can be especially relevant for small countries like latvia is since there is lack of knowledge and experience in implementation of transportation related projects in some areas (i.e. railroads, roads and potential improvements in running airport facilities). as a final remark it has to be noted that a dispersion of financing alternative assessments for the communication and power sectors is very similar and much bigger that for the transportation sector. according to expert assessments, the transportation sector might need a very well-balanced approach of funding, which also includes a big part of know-how and competence possible to be accessed via public-private partnerships with financially and technologically strong partners. conclusions _ latvian state owned enterprises with physical infrastructure have been primarily relying on loans from commercial banks. bond issues as well as public-private partnership projects as alternative private financing sources largely remain unexploited. _ overall expert assessments showed that commercial bank loans can be prevailing over other private financing means because of a general anchoring towards bank based finance in europe, highly competitive banking landscape in latvia, less requirements for corporate transparency and smaller top management exposure to political risks (especially compared to public private partnerships). _ expert assessments made in accordance with the analytic hierarchy process revealed the most preferred private financing alternative for each sector of infrastructure companies covered by the research, making commercial bank loans as a justified choice only for communications. _ power infrastructure companies were assessed to be in the highest need of market based financing via bond issues due to long project payback periods, which can match maturity of debt securities. _ infrastructure companies operating in the transportation industry were given the closest distribution of alternatives with public-private partnerships topping the list. the angle of operational and maintenance know-how as well as competence of a partner was mentioned by experts to be nearly as important as a financial component of participation in a project. agrawal, r., guptaand, a., gupta, m. 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(2009). “infrastructure funding: a long-term perspective”. revue d’économie financière”, special issue on sovereign wealth funds, 47-57. https://doi.org/10.3406/ecofi.2009.5490 mishkin f. (2009), the economics of money, banking, and financial markets, 9th edition, pearson. prud’homme, r. (2005), “infrastructure and development”, proceedings of the annual world bank conference on development economics, 153–180. rathand, r., samal, s. (2015), “an impact of foreign direct investment on infrastructure development for the economic growth in india: an economic survey of an indian scenario”, international journal of interdisciplinary research, vol.2(5), 78–95. reeves, e. (2013) “public–private partnerships in ireland: a review of the experience”, department of economics, university of limerick, limerick, ireland. saaty, t.l. (2008), decision making with the analytic hierarchy process. international journal services sciences, 1(1), 83–98. https://doi.org/10.1504/ ijssci.2008.017590 sharma, c. (2012), “determinants of ppp in infrastructure in developing economies”, transforming government: people, process and policy, vol.6(2), 149–166. https://doi. org/10.1108/17506161211246908 singh, s., batraand g., singh, g. (2007), “role of infrastructure services on the economic development of india”, management and labor studies, vol.32(3), 347–359 https://doi. org/10.1177/0258042x0703200306 sinha, p., arya, d. and s. singh (2012), “evolution of financing needs in the indian infrastructure”, faculty of management studies, university of delhi, new delhi, india. steijn, b., klijnand, e., edelenbos, j. (2011), “public– private partnerships: added value by organizational form or management?”, public administration, 171 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 arefjevs ilja dr. sc. administr. ba school of business of finance fields of research interests finance, investments address k.valdemara 161, riga, lv1013, latvia, tel. +37126547036 e-mail: ilja.arefjevs@inbox.lv about the authors spiridonovs jurijs dr.oec. riseba university of business, arts and technology fields of research interests public services, economic development, energy sector address 3 meža street, riga, lv-1048, latvia, tel. +37129234414 e-mail: j.spiridonovs@gmail.com tocelovska natalja phd student university of latvia fields of research interests finance, financial markets, securities, bonds, corporate bonds address aspazijas bulvaris 5, riga, latvia, tel. +37129138802 e-mail: natalja.tocelovska@sseriga.edu vol.89(4), 1235–1252. https://doi.org/10.1111/ j.1467-9299.2010.01877.x välilä, t., kozluk, t. and mehrotra, a. (2005). “roads on a downhill? trends in eu infrastructure investment”. eib papers, (10:1), 19-38. wojewnik-filipkowska, a., trojanowski, d., (2013), “principles of public–private partnership financing– polish experience”, journal of property investment and finance, vol.31(4),pp.329– 344, 2013. https:// doi.org/10.1108/jpif-10-2012-0049 yescombe, e.r. (2007), public-private partnerships: principles of policy and finance, butterworth-heinemann, london, uk. https://doi. org/10.1016/b978-075068054-7.50025-3 78 issn 1822 – 8402 european integration studies. 2010. no 4 consistent choice at the ballot box: perceptions that matter in latvia and estonia elina vikmane, ilga kreituse riga stradiņš university abstract distribution of parties along the left-right continuum historically has been the issue of coalition stability, governmental accountability and even stability of political system. left-right spectrum is widely used in comparative research as a guide between voters and politicians making easier to understand political preferences. the focus of this study is to test 1) whether the left-right continuum is evident and meaningful in latvia and estonia 2) whether voters have fairly accurate perceptions of parties’ left-right positions in latvia and estonia and whether they vote according to their self-placement on left-right scale, 3) whether voter’s self-placement can be explained by individual socioeconomic (income, education, position in work place) status or ethnolinguistic belonging (ethnic group, conversation language at home, conversation language in childhood, ethnic belonging of mother and father). data on basis of voter analysis was obtained from eu commission funded fp6 eurequal project (pi professor stephen whitefield, university of oxford), “social inequality and why it matters for the economic and democratic development of europe and its citizens: post-communist central and eastern europe in comparative perspective” data on party each placement is gathered by the authors. results show that voters have fairly accurate perceptions of the left-right position of parties or at least the position where party representatives place each party, supposing that voters chose the closest party to one’s self orientation at the ballot box. nevertheless the determinants of self-placement are not very clear as only in latvia education, personal income and position at work influence the self-placement of the respondents while no coherence of social economic status was observed in estonia. also influence of ethnolingustic factors was observed neither in latvia, nor estonia, though both nations are considered as one of the ethnically most divided societies in europe. keywords: elections, left-right continuum, ethno-linguistic belonging, socio-economic factors. introduction topicality of electoral behaviour research in postsoviet countries is rather new – it emerged with the restitution of countries’ independence, but in the international research it dates back to accession to european union (european election studies (2004), euromanifestos (2004), european social surveys (starting from 2004)). so far research, especially with applied quantitative methods in examination of electoral behaviour in latvia and estonia, was impeded by lack of data for the whole period in general or mutually incomparable data due to the statistic methods in each country or due to outdated data (world value surveys (1990, 1996, 1999). taking into consideration all the aforesaid, the scientific problem of the article is whether the left-right continuum is evident in latvia and estonia whether theoretical assumptions correspond to the behaviour of the voters in practice, is it a meaningful tool in the research of electoral behaviour of voters in latvia and estonia – does the opinion of voters and parties regarding their placement on left-right continuum match and do the voters vote for corresponding or closest party if compared to their self-placement on continuum. the novelty of the research refers to analysis of coherence between left-right placement of voters in latvia and estonia (mass survey data) and data on parties’ selfplacement and evaluation of the placement of other parties in parliament elected in 2006 in latvia and 2007 in estonia. the object of research is the perceptions of voters and parties about their placement on left-right continuum in elections. the aim of the article is to highlight the left-right continuum as meaningful tool in the research of electoral behaviour and to ascertain main factors influencing voter self-placement on the left-right continuum in latvia and estonia. meaning of placement of political attitudes on left-right continuum will not be discussed in the research and left-right continuum is used without specifying whether it is accepted in the country as classificatory of classically conservative liberal ideology or role of the state in economics, issn 1822-8402 european integration studies. 2010. no 4 79 whether it shows the issues of social and economical inequality in the society or important social and cultural issues for residents and political elite. to achieve the aim three tasks are to be solved: (1) to build an appropriate theoretical framework highlighting importance of leftright continuum in elections as well as identifying factors influencing formation or change of left-right self-placement (2) to apply appropriate set of data and methodological approach; (3) to test a) whether voters have fairly accurate perceptions of parties’ left-right placement in latvia and estonia and whether they vote according to their self-placement on left-right scale, b) whether voter’s self-placement can be explained by the individual socioeconomic status (income, education, work place position) or ethnolinguistic belonging (ethnic group, conversation language at home, conversation language in childhood, ethnic belonging of mother and father). correlation (pearson correlation coefficient) and multivariate linear regression analysis applied to data from the eu commission funded fp6 eurequal project (pi professor stephen whitefield, university of oxford), “social inequality and why it matters for the economic and democratic development of europe and its citizens: post-communist central and eastern europe in comparative perspective” and data on parties self-placement and a placement of each party by other parliamentary parties elected in 2006 in latvia and 2007 in estonia gathered by the authors will be used as the research method. theoretical framework in examining the ideological continuum within the context of parties’ competition in elections, downs (1957) developed a spatial modelling concept which assumes that voters in general tend to choose a party in elections which corresponds (or lies closest) to their self-placement in the left-right continuum. a series of other researchers in their works point at this connection regardless of the different explanations on meaning of leftright scale (lipset,1960; converse, 1964; klingemann, 1972; inglehart & klingemann, 1976; conover & feldman, 1981; laponce, 1981; fuchs & klingemann, 1989; knutsen, 1999; inglehart, 1985; van der eijk, 2001; kroh, 2003; mccarty & poole & rosenthal, 2003; tadosijevic, 2004; anduiza – perea, 2006; dalton, 2008; haupt, 2010; etc.). laponce (1981) entitled it “political esperanto” – a language allowing parties and voters to understand each other and serving as a communication code among representatives of parties, mass media and residents (freire, 2008). its meaning and social basis can change over time (inglehart, 1985). however, other researchers believe that along with putting forward a thesis of “end of ideology” (bell, 1960) the left-right placement today has lost its meaning or has become insignificant (lipset,1981; baudrilliard, 1981; giddens, 1994; mair, 1998; żiżek, 2002; michnik, 2008; etc). also our previous researches on electorate behaviour in latvia and estonia (vikmane & kreituse, 2009) does not confirm empirically the theoretical notions of electorate’s behaviour developed in western europe and usa and mainly based on data and practice of consolidated democratic western european countries. topicality of mismatch is indicated also in the international scientific conference “global theory, local practice” organized in tallinn (estonia) university in 2010, and bringing together phd students from all areas of social sciences and the humanities in baltics who have experienced methodological mismatch problems in their research where the traditional theories of their discipline do not seem to provide them with completely adequate answers to their questions. factors structuring individual left-right orientation are varous. freire (2006; 2008) considers that social factors are important dimension in explaining individual leftright orientation. he divides social factors into three broad dimensions: socio-structural dimension, organanization dimension and identity dimension. his studies show that all factors must not be present all at the same time thus independent components (for example, socio –structural dimension) should also be considered as social factor effects (freire, 2008). class factor based on employees variable (employers and self employed, higher level, middle level professionals, non-manual workers and manual workers), education, houshold income and church attendance is used as variables in socio-structural dimension in his study. also the bottom-line of resource theory (verba & nie, 1978) is a statement that electoral involvement is generated by education and income variables. socioeconomic status is formed out of two or three components: education, income and occupation. theory is being criticized for its inability to explain the electoral behaviour in comparative dimension (it cannot individually explain the vast difference between electoral activity in countries with similar welfare level (leduc & niemi & norris,1996) yet in this case we are interested in using variables in order to understand their impact on self-placement of individuals on left-right scale that would result in according electoral choice rather than to measure electoral activity in general. even though socioeconomic factors cannot serve as the only explanation of electoral behaviour still usa and many western european countries have typical observation on strong connection between education level and income and electoral involvement (pettersen & rose, 2002). research shows that the meaning of socioeconomic status correlates negatively in comparative dimension of countries and correlates positively in comparative dimension of individuals. correlation formed by taking various political activities as one of issn 1822-8402 european integration studies. 2010. no 4 80 variables and education level and family income as other variable (verba & nie & kim, 1978). lipset (1960) indicates that the social group of individuals is related to education level, level of political involvement, level of isolation and economical insecurity and other factors by emphasizing that these tendencies are interrelated. research by bauer (1990) shows that formal education is the most powerful prophet of voting and inevitable result of elections is the choice of party. income level has similar importance: the higher the socioeconomic status of the person, the more favourable it is disposed towards the participation in elections. conway (1985) believes that residents with high income definitely take part in elections more willingly than persons with low income. it has several explanations – one states that residents with higher income are more interested in governmental politics in private economic issues, for instance, tax policy, relationships between employers and employees. more critical evaluation is given to the occupation’s impact on electoral activity since many new professions have emerged in the length of time while others have lost or acquired their historical prestige thus making data interpretation difficult. even though socioeconomic theories are often considered as milestones of political behaviour explanation yet socioeconomic factors cannot fully explain determinants of society’s behaviour (murray & vedlitz, 1977) especially in ethnically divided society (tam cho, 1999). there is an opinion that ethnic favouritism can be observed in electoral behaviour of ethnically divided society because political elite expects support from voters in elections just like voters with certain ethnic origin expect more social, economical and political advantages as they vote for the same political elite (chandra, 2006). ethnic belonging even may lie with social, economic or political benefits it brings (da, 2006). since estonia and especially latvia is one of ethnically most divided societies in europe (luhiste, 2008; commercio, 2007), one cannot ignore the possible importance of these factors. also data used in this research show relatively high part of respondents who indicate at their belonging to ethnic minorities; 72% of respondents in estonia consider themselves estonians, but only 56% of respondents in latvia relate themselves to the major ethnic group – latvians. data and methodological approach data on election results was obtained from „centrālā vēlēšanu komisija” (the central election commission of latvia) and „vabariigi valimiskomisjon” (estonian national electoral committee). data on party placement was obtained from party top management (board members, secretaries-general and alike) opinion poll (n=7 for latvia and n=6 for estonia) where they placed their own party and other elected parties along 10 point left-right scale. data on political orientation of residents, socioeconomic, ethnic and linguistic factors as well as future voting for parties according to the left-right selfplacement in 10 point scale was obtained or calculated from eu commission funded fp6 eurequal project (pi professor stephen whitefield, university of oxford), “social inequality and why it matters for the economic and democratic development of europe and its citizens: post-communist central and eastern europe in comparative perspective”. general cluster covers 1058 respondents in estonia (n=1058) and 1001 respondents in latvia (n=1001) out of which 753 forms in estonia and 976 forms in latvia have respondent’s political attitude measured within the framework of 10 point left-right continuum. 489 forms in estonia and 544 forms in latvia answer the question regarding the choice of the party in parliamentary elections if they take place a day after. survey’s field work took place in 2007. one should take into consideration that not all forms were filled in completely; nevertheless the number of respondents who filled in forms properly was sufficient for data analysis and hypothesis verification, pointing at trends that allows making credible conclusions within the framework of this research. in order to establish whether there is coherence between the mutual appraisal of political parties within the framework of left-right continuum of political orientation and votes casted by voters regarding their self-placement of left-right political orientation, a correlation analysis was applied. in order to analyze the correlation between self-placement by residents in leftright continuum and their socioeconomic status as well as ethnic and linguistic belonging, correlation analysis and multivariate linear regression were applied as research method. correlation analysis was applied to establish the closeness of inter-coherence of values by using pearson’s correlation coefficient calculations, while multivariate linear regression was picked to determine the impact of various socioeconomic, ethnic and linguistic values on self-placement of respondent’s political attitudes provided that it depends on the said factors. in regression analysis data on respondents’ selfplacement in 10 point left-right continuum obtained from their response to the question “many evaluate political attitudes as “right” or “left”; where would you put yourself in this scale when you think of your attitude towards the political processes?” was used as dependent variable. data on respondents’ individual income, position in the place of employment (based on employees’ variable), education, ethnic belonging, language at home, language in childhood as well as ethnic belonging of respondent’s mother and father were taken as independent variable. data was regrouped for the needs of research in order to obtain data from latvia and estonia which could be issn 1822-8402 european integration studies. 2010. no 4 81 mutually compared. thus data on individual income was regrouped in order to comply with 3 categories – less than minimum wage in each country, minimum wage (“eurostat”) to gross average wage („statistics estonia”; „centrālā statistikas pārvalde”), more than average wage in the country. data on education was regrouped in order to comply with three categories – below secondary education, secondary or special vocational education and higher education. data on ethnic and linguistic belonging was regrouped in order to comply with 2 categories – majority (estonian in estonia and latvian in latvia) and minorities. position in the place of employment must be regarded in reverse order by starting with self-employed, higher level and middle level executives, office managers and staff who are not in charge of other employees. accordingly, the following regression model is formed: y = b1x1 + b2x2 + b3x3 + ...+bmxm, where y – dependent variable, xi mutually independent variables which influence dependent variable, bi coefficients which indicate the number of influences, m – number of independent variables. analysis and results survey shows that mean value between respondents’ answers in latvia is 5.78 but in estonia 5.62 (podemski, 2009). one must take into account that mean mathematical value of scale is 5.5. even though in correspondence with rein taagepera, which took place while writing this article, he indicated at shortcomings of 10 point scale, especially stressing the problems with interpretation which could arise with the mean value 5.5 where respondents would conceive of 5.5. as 5 points, yet research by kroh (2004) shows that the difference between credibility in 11 point scale and 10 point scale is insignificant (credibility in 11 point scale is 0.97 but 10 point scale it is 0.93) if compared with application of 101 point scale (0.76). figure 1. percent (%) distribution of respondents according to self-placement in the left-right 10 point scale in latvia and estonia source: eu commission funded fp6 eurequal project (pi professor stephen whitefield, university of oxford), “social inequality and why it matters for the economic and democratic development of europe and its citizens: postcommunist central and eastern europe in comparative perspective”. one can observe (figure 1) larger part of residents having their self-placement radically left (3.9%) and radically right (13.6%) than in estonia (3.2% and 7.8% respectively) while less number of respondents did not want to respond or could not identify themselves in the left-right continuum (18% of respondents in latvia, 26,4% in estonia). correlations between election outcome and survey data show that there is a close correlation (r=0.74; p=0.01) between the results of 9th saeima elections and survey results and very close correlation (r=0.92; p=0.01) between riigikogu results and survey results where respondents answered to the question „for which party would you cast your voice if parliamentary elections were tomorrow?” (table 1; w and z). it indicates at sufficient stability of electorate regarding the choice of party and data credibility for this research in order to find out whether there is a correlation between the self-placement of very parties in mean value of leftright 10 point scale and value which is formed out of parties’ supporters included in this survey regarding their self-placement and by calculating their mean leftright self-placement value (for instance, the mean value of self-placement in left-right scale of respondents who would vote for peoples party is 7.3 while, for instance, mean self-placement of supporters of for human rights in united latvia is 4.0). results of correlation analysis show that there is very close relation (r= 0.89; p=0.01) in latvia but less yet close relation (r=0.73; p=0.01) in estonia between the self-placement of parties in the framework of 10 point scale and self-placement of respondents in 10 point scale provided that respondents vote for the party or party union which is closest to their political attitudes in the left-right continuum (table 1; x and y). table 1. election results for 9th saeima elections and 2007 riigikogu elections, self-placement of parties and residents’ future voting for parties, including their self-placement in the left-right continuum in latvia and estonia latvia w x y z tp 19,6 8,3 7,3 7,4 zzs 16,7 5,6 6,8 8,3 jl 16,4 6,6 6,6 9,5 sc 14,4 3,6 4,5 11,9 lpp/lc 8,6 7,5 6,0 5,1 tb/lnnk 6,9 7,8 6,7 4,6 pctvl 6,0 3,0 4,0 2,6 issn 1822-8402 european integration studies. 2010. no 4 82 estonia w x y z reform 27,8 8,2 6,7 20,4 kesk 26,1 4,0 4,8 16,4 irl 17,9 7,8 6,8 6,6 sde 10,6 3,7 5,1 4,8 rohelised 7,1 6,3 4,4 6,8 raahvaliit 7,1 5,5 5,6 2,6 source: „centrālā vēlēšanu komisija” (the central election commission of latvia); „vabariigi valimiskomisjon” (estonian national electoral committee); data from party survey; data from eu commission funded fp6 eurequal project (pi professor stephen whitefield, university of oxford), “social inequality and why it matters for the economic and democratic development of europe and its citizens: postcommunist central and eastern europe in comparative perspective”, where w – election results in (%) (latvia 2006; estonia 2007), x – party placement along 10 point scale, y respondent votes for parties according to the left-right selfplacement in 10 point scale if parliamentary elections took place the next day, z – respondents’ votes per parties (%) if parliamentary elections took place the next day. what constitutes self-placement of political attitudes in the left-right continuum? correlation among survey data (table 2) shows that statistically important correlation among variables are found only mutually among ethnolinguistic values both in latvia and estonia. strong correlation between ethnic belonging and conversation language at home (r=0.86 in estonia and r=0.87 in latvia at p=0.01), between the ethnic belonging of respondent’s mother and respondent’s ethnic belonging and conversation language at home (r=0.72 and r=0.68 in latvia, r=0.69 and r=0.69 in estonia at p=0.01), as well as conversation language in respondent’s childhood and his ethnic belonging and current conversation language at home (r=0.89 and r=0.90 in latvia, r=0.90 and r=0.93 in estonia at p=0.01) was found in both countries. it must be added that the ethnic belonging of respondent’s father did not have a connection to respondent’s ethnic belonging or current conversation language at home in estonia (r=0.02 and r=0.01; p=0.01). father’s influence on ethnic belonging and conversation language at home of latvian respondent currently is weaker or is not observed (r=0.31 and r=0.03; p=0.01) if compared to mother’s influence on respondent within the ethnolinguistic context. table 2. correlations among socioeconomic, ethnic, linguistic factors, and left-right self placement in latvia and estonia lv a b c d e f g h i a 1 b 0,01 1 c 0,02 -0,03 1 d 0,06 -0,02 0,01 1 e 0,05 -0,01 0,01 0,87 1 f 0,01 0,03 0,26 0,02 0,01 1 g 0,06 0,00 0,04 0,90 0,89 0,00 1 h 0,07 0,02 0,03 0,30 0,31 0,03 0,33 1 i 0,06 -0,01 0,01 0,68 0,72 -0,03 0,73 0,28 1 ee a b c d e f g h i a 1 b 0,01 1 c 0,02 -0,03 1 d 0,06 -0,02 0,01 1 e 0,05 -0,01 0,01 0,87 1 f 0,01 0,03 0,26 0,02 0,01 1 g 0,06 0,00 0,04 0,90 0,89 0,00 1 h 0,07 0,02 0,03 0,30 0,31 0,03 0,33 1 i 0,06 -0,01 0,01 0,68 0,72 -0,03 0,73 0,28 1 note: p ≤ 0.01 source: eu commission funded fp6 eurequal project (pi professor stephen whitefield, university of oxford), “social inequality and why it matters for the economic and democratic development of europe and its citizens: postcommunist central and eastern europe in comparative perspective”, where a – left-right self placement, b – position at work, c – personal income, d – language at home, e – ethnic belonging, f – education, g – language in childhood, h – ethnic belonging of father, i – ethnic belonging of mother. results of multivariate regression (table 3) show, that self-positioning in latvia is influenced by both respondent’s education and income and position at the place of employment. regression coefficients are statistically credible in significance level p≤0.05. education (b=0.578) has the most influence on selfplacement – the higher the education of respondent, the more “right” the political opinions are, while respondents with lower education have more “left” political opinions. slightly less influence on self-placement of respondents is generated by their individual income (b=0.336). the larger the income of respondent, the more “right” his political opinion is in self-placement. the less the income of respondent, the more he or she evaluates himself or herself as ‘’left’’ oriented. completely different trend reveals in the independent value in place of employment (b=0.318). regression analysis shows that employees without subordinates rather judge their political views as “right’’ if compared with sole proprietors or selfemployed who tend to position themselves more as “left” oriented. in this regard contrary situation is observed in estonia where the only value which has statistically credible impact on significance level p=0.06 is respondent’s position in work (b= -0.117), yet the indicated spread is considered to be too large since influence coefficient can vary between 0.002 to -0.287 thus one cannot establish a considerable trend. in estonia also no influence of other socioeconomic indices issn 1822-8402 european integration studies. 2010. no 4 83 on respondents’ self-placement in left-right scale could be found. neither in estonia nor latvia a statistically credible coherence between ethnic or linguistic variables and self-placement of respondent’s political attitudes in left-right continuum can be observed. table 3 multivariate regression analysis with respondents’ self-placement in the left-right continuum in latvia and estonia as dependent variable latvia coef. st. error t stat p-value lower 95% upper 95% intercept 0 #n/a #n/a #n/a #n/a #n/a b 0,32 0,04 8,05 0,00 0,24 0,40 c 0,34 0,10 3,28 0,00 0,14 0,54 d 0,64 0,34 1,89 0,06 -0,03 1,31 e 0,03 0,32 0,10 0,92 -0,60 0,66 f 0,58 0,10 5,90 0,00 0,39 0,77 g 0,35 0,38 0,91 0,36 -0,40 1,09 h 0,06 0,09 0,66 0,51 -0,12 0,24 i 0,17 0,18 0,96 0,34 -0,18 0,51 estonia coef. st. error t stat p-value lower 95% upper 95% intercept 0 #n/a #n/a #n/a #n/a #n/a b -0,18 0,06 -3,14 0,00 -0,29 -0,07 c -0,08 0,09 -0,93 0,35 -0,26 0,09 d -0,70 0,56 -1,24 0,22 -1,80 0,41 e 0,82 0,48 1,72 0,09 -0,12 1,75 f 0,11 0,13 0,84 0,40 -0,14 0,35 g -0,03 0,68 -0,05 0,96 -1,37 1,30 h -0,12 0,13 -0,90 0,37 -0,37 0,14 i -0,31 0,26 -1,16 0,25 -0,82 0,21 note: p ≤ 0.05 source: eu commission funded fp6 eurequal project (pi professor stephen whitefield, university of oxford), “social inequality and why it matters for the economic and democratic development of europe and its citizens: postcommunist central and eastern europe in comparative perspective”, where b – position at work, c – personal income, d – language at home, e – ethnic belonging, f – education, g – language in childhood, h – ethnic belonging (father), i – ethnic belonging (mother). conclusions results of this research show that the left-right continuum is still topical and significant in terms of research even if understanding of the left-right continuum or even its content has changed. also both in latvia and estonia evaluation by voters and parties about their political orientation in left-right continuum generally match on average voters in previous parliamentary elections in 2006 in latvia and 2007 in estonia have voted for those parties with which they feel the closest connection regarding their own placement in the left-right scale while mutual evaluation of political orientation by parties generally match with voters’ understanding about parties’ place in the left-right continuum. still, within the framework of this research, it was not possible to find out exactly what factors form selfplacement of voters’ political orientation. in latvia one can observe the impact of education, individual income and position in work on formation of self-placement, while in estonia one cannot observe similar statistically significant correlation. ethnic or linguistic factors such as belonging to the ethnic group, parents’ belonging to a certain ethnic group or language at home or in childhood do not play important role either in latvia or estonia though both nations are considered as one of the ethnically most divided societies in europe. references anduiza-perea e. 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(2009), the impact of the socio-economic factors on the electoral behaviour in young eu member states: problemposing and methodological approach. the case of latvia and estonia // european integration studies – no.3, 7p. the article has been reviewed. received in april, 2010; accepted in may, 2010. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 224 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 224-234 doi 10.5755/j01.eis.0.9.12809 © kaunas university of technology expectations by employers on skills, knowledge and attitudes of employees eis 9/2015 abstract expectations by employers on skills, knowledge and attitudes of employees http://dx.doi.org/10.5755/j01.eis.0.9.12809 inara kantane university college of economics and culture, lomonosova st.1 c.5, lv – 1019, riga, latvia biruta sloka, ilze buligina, ginta tora, regina busevica, alise buligina university of latvia, aspazijas bulv. 5, lv – 1050, riga, latvia juris dzelme university of latvia, kronvalda bulv. 4, lv – 1050, riga, latvia peteris tora erasmus university rotterdam, the netherlands introduction changes of the work conditions and technologies ask to change approach to the main principles of education system. the education system can’t prepare employees for the whole working life. relative role of different parts of the qualification are changing. skills, practical experience, which were main object of investigation and assessment, becomes less valid for whole working life, significance of motivation, emotional intelligence and attitudes increase. skills and knowledge must be periodically improved, but attitudes remain as more constant basis for the competences. attitudes are significant part of employers needs for qualified employees, but their role should be investigated more carefully. investigation demonstrates different assessment of attitudes by employers depending on strategic plans and short term needs. increasing role of motivation supports the appropriate changes in education system. the relevant recommendations for the improvement of education system have been proposed. the purpose of the study is to investigate the expectations by employers on skills, knowledge and attitudes of employees. to achieve the purpose the following tasks were set: to summarize and analyse the results of the research published in scientific literature; to study the opinions of the employers. research methods used: scientific literature studies, survey of employers of the kurzeme region, jelgava city, jelgava district, ozolnieku district, dobele district (survey was conducted in june 2013 – october 2013). for employers selection company register lursoft was used and every tenth company was approached, response rate 21%. in survey for most of questions evaluation scale 1 – 10 is applied where 1 – not significant, 10 – very significant. for data processing used methods: descriptive statistics – indicators of central tendency or location and indicators of variability; multivariate statistical analysis – factor analysis; non-parametric statistical methods – kolmogorov-smirnov test, kruskal-wallis test. the empirical research showed that professional skills, knowledge, caring for the agenda and organization of work, purposefulness, cooperation, ability to plan and control, honesty are significant part of employers needs for qualified employees. the cooperation between education institutions and companies is necessary for the development of the study programs and practical skills in real production environment. the results of recent requirements by employers have been compared with survey results last decade. the important role of motivation of employees has been observed. the discussions about the employers 225 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 needs could be divided in two main parts – social and specific skills. transferable skills and attitudes become more significant owing to fast changes of knowledge and skills necessary for the quickly changing technologies. the ways of continuing improvement of qualifications of employees during their career are discussed. special attention is paid to different possibilities to involve employers and local municipalities in the creation of the conditions favourable for the life-long learning of employees. keywords: attitude, competence, education, employers; employees; employer’s motivation, experience, employees; knowledge; skills. changes of the work conditions and technologies ask to change approach to the main principles of education system with special attention to professional education. the education system can’t prepare employees for the whole working life. relative role of different parts of the qualification are changing. skills, practical experience, which were main object of investigation and assessment, becomes less valid for whole working life, at the same time increases significance of motivation, emotional intelligence and attitudes. skills and knowledge must be periodically improved, but attitudes remain as more constant basis for the competences. the issues how to provide employers with necessary specialists are particularly topical. the purpose of the study is to investigate the expectations by employers on skills, knowledge and attitudes of employees. to achieve the purpose the following tasks were set: to summarize and analyse the results of the research published in scientific literature; to study the opinions of the employers. research methods used: scientific literature studies, survey of employers. for data processing used methods: descriptive statistics – indicators of central tendency or location and indicators of variability; multivariate statistical analysis – factor analysis; non-parametric statistical methods: kolmogorov-smirnov test, kruskal-wallis test. the empirical research showed that professional skills, knowledge, caring for the agenda and organization of work, purposefulness, cooperation, ability to plan and control, honesty are significant part of employers needs for qualified employees. the discussions about the employers needs could be divided in two main parts – social and specific skills. to transferable skills and attitudes become more significant owing to fast changes of knowledge and skills necessary for the quickly changing technologies. introduction the expectations of business and the capabilities offered by employees are on research agenda worldwide touching different branches, specifics in different countries, different age groups, and many other aspects. attitude and motivation of employees are important aspects stressed in scientific publications of many authors as well as confirmed by many cases in empirical research. on motivation of employees extensive research is performed by scientists from scotland pouliakas & thoedossiou (2012) where has been stressed that one of the primary determinant of employee’s effort is job discretion through monetary rewards. economic crisis has confirmed that in general there are not important changes in expectations of employers and also employees towards job satisfaction, commitment and self-regulation (markovits, et al., 2014). modelling employees behaviour on workforce dynamics (saravakos & sirakoulis, 2014) has indicated relevant aspects of employee expectations and different possible realisation scenarios. attitude to job and employee discrete emotions are also important aspect valuable for successful business and satisfaction judgements (sherf & venkataramani, 2015). different employers expectations towards employees depend in small extent from the business branch (dhar, 2015; lee, 2014; muir, et al., 2013; karatepe, 2013; cowart & brady, 2014; antošova, theoretical background e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 226 et al., 2014; sharpley & forster, 2003), as well as business ownership forms (sieger, et al., 2011; choudhury & mcintosh, 2013), in some countries also traditional national specifics influence employers expectations towards employees (chung, et al., 2014; chiu, 2003; kalkavan & katrinli, 2014; el-zeiny, 2012), as well as other personal aspects (law, et al., 2011; clark, et al., 2014). the expectations of business and the capabilities offered by information and communication technologies makes it necessary to change teaching practices, particularly in higher education (warin, et al., 2011). the need for developing a converging set of key competences, knowledge and skills that reflect the requirements of employers and they staff and can be guidance for the design of courses are grown (quendler, et al., 2013). turek & perek-bialas (2013) have proved that when explaining productivity ratings in the case of older workers, soft skills (e.g. social skills, management skills, reliability and loyalty) were the most influential factor, hard skills (e.g. creativity, physical health, new technology skills, willingness to learn and flexibility) played a smaller role, in the case of younger workers, the relationship was reversed. turek and perek-bialas have pointed out that lifelong learning is necessary for hard skills development, it allows updating and improving of new technology skills, and maintains ability to learn. an increase in training investments is significantly linked to an increase in revenue per employee; marginal returns to training are increasing firm size. large firms benefit more from training (mehra, et al., 2014). work-place learning takes place in many settings and in different ways, resulting in knowledge and skills of different kinds and having different approaches in different countries and parts of world. the survey of employers of the kurzeme region, jelgava city, jelgava district, ozolnieki district and dobele district was conducted from june to october 2013. the company register lursoft was used for selection of employers, all large and medium companies and every tenth company was approached. the web survey, phone survey and written survey were used. the response rate was 21%. in survey for most of questions evaluation scale 1 – 10 was applied where 1 – not significant, 10 – very significant. for data processing used methods: descriptive statistics – indicators of central tendency or location and indicators of variability; multivariate statistical analysis – factor analysis; non-parametric statistical methods: kolmogorov-smirnov test, kruskal-wallis test. the survey results show that employers high evaluated not only the professional knowledge and skills of employees, but also their general knowledge and skills, attitudes and motivation. approximately 42% of employers assessed professional knowledge of employees as very significant factor, 47% – as significant. the general knowledge and skills (languages, computer, driving research results and discussion figure 1 employer’s evaluations on professional knowledge, general knowledge and skills, attitudes and motivation of employees as significant or very significant factors source: author’s calculations based on employers survey conducted in june – october, 2013 (n=340), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant. improving of new technology skills, and maintains ability to learn. an increase in training investments is significantly linked to an increase in revenue per employee; marginal returns to training are increasing firm size. large firms benefit more from training (mehra, et al., 2014). work-place learning takes place in many settings and in different ways, resulting in knowledge and skills of different kinds and having different approaches in different countries and parts of world. research results and discussion the survey of employers of the kurzeme region, jelgava city, jelgava district, ozolnieki district and dobele district was conducted from june to october 2013. the company register lursoft was used for selection of employers, all large and medium companies and every tenth company was approached. the web survey, phone survey and written survey were used. the response rate was 21%. in survey for most of questions evaluation scale 1 – 10 was applied where 1 – not significant, 10 – very significant. for data processing used methods: descriptive statistics – indicators of central tendency or location and indicators of variability; multivariate statistical analysis – factor analysis; non-parametric statistical methods: kolmogorov-smirnov test, kruskal-wallis test. the survey results show that employers high evaluated not only the professional knowledge and skills of employees, but also their general knowledge and skills, attitudes and motivation. approximately 42% of employers assessed professional knowledge of employees as very significant factor, 47% – as significant. the general knowledge and skills (languages, computer, driving skills, co-operation ability, ability to plan, control, lead a team) as very significant assessed approximately 26% of employers, as significant – 29%. the attitudes and motivation of employees (initiative, purposefulness, caring for the agenda and organization of work, progress towards development) as very significant assessed approximately 32% of employers, as significant – 44% (see figure 1). figure 1. employer’s evaluations on professional knowledge, not significant; 10 – very significant the employers were asked to evaluate the significance on skills, knowledge and attitudes of employees. very high employers evaluated professional knowledge of employees, latvian language skills, purposefulness, caring for the agenda and organization of work, co-operation ability, ability to plan and control, initiative in addition to the actions to be taken, initiative in additional duties taking, progress towards development, the ability to plan further education of employees (characterised by arithmetic mean, median, mode). the evaluations of above mentioned skills, knowledge and attitudes were quite homogenous (characterised by standard deviation), except evaluations of latvian language skills. main statistical indicators of employer’s evaluation on skills, knowledge and attitudes of employees are reflected in table 1. table 1 statistical indicators of employer’s evaluation on skills, knowledge and attitudes of employees skills, knowledge and attitudes mean median mode standard deviation professional knowledge 8.9 9 10 1.18 latvian language skills 8.8 10 10 2.01 purposefulness 8.7 9 10 1.24 caring for the agenda and organization of work 8.7 9 10 1.56 co-operation ability 8.6 9 10 1.61 ability to plan and control (tasks and their execution) 8.6 9 10 1.77 initiative in addition to the actions to be taken 8.4 9 10 1.54 initiative in additional duties taking 8 8 8 1.9 progress towards development, the ability to plan further education 8 8 8 1.89 computer skills 7.2 8 10 2.62 ability to lead a team 7 8 10 2.82 driving skills 6.8 8 8 2.32 russian language skills 6.4 7 8 2.83 english language skills 5.8 6 6 2.71 other languages skills 4.6 5 1 2.83 source: author’s calculations based on employers survey conducted in june – october, 2013 (n=340), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant the opinions of employers about the significance on skills, knowledge and attitudes of employees differed in the crosssection of industries. the differences of employer’s evaluation were statistically relevant with high probability (98.2%) proved by the res+ult of kruskal-wallis test (p<0,018). in the agriculture, forestry and fishing industry employers highly evaluated professional knowledge, co-operation ability (arithmetic mean 9, median 10). in the construction industry – professional knowledge, initiative, ability to plan and control, ability to lead a team, co-operation ability, purposefulness, caring for the agenda and organization of work, progress towards development, the ability to plan further education, latvian language skills and knowledge (arithmetic mean 10, median 10). in the transport and storage industry employers highly evaluated the initiative, latvian language skills and knowledge, purposefulness, caring for the agenda and 42% 26% 32% 47% 29% 44% 0% 10% 20% 30% 40% 50% professional knowledge general knowledge and skills attitudes and motivation very significant significant skills, co-operation ability, ability to plan, control, lead a team) as very significant assessed approximately 26% of employers, as significant – 29%. the attitudes and motivation of employees (initiative, purposefulness, caring for the agenda and organization of work, progress towards development) as very significant assessed approximately 32% of employers, as significant – 44% (see figure 1). 227 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the employers were asked to evaluate the significance on skills, knowledge and attitudes of employees. very high employers evaluated professional knowledge of employees, latvian language skills, purposefulness, caring for the agenda and organization of work, co-operation ability, ability to plan and control, initiative in addition to the actions to be taken, initiative in additional duties taking, progress towards development, the ability to plan further education of employees (characterised by arithmetic mean, median, mode). the evaluations of above mentioned skills, knowledge and attitudes were quite homogenous (characterised by standard deviation), except evaluations of latvian language skills. main statistical indicators of employer’s evaluation on skills, knowledge and attitudes of employees are reflected in table 1. the opinions of employers about the significance on skills, knowledge and attitudes of employees differed in the cross-section of industries. the differences of employer’s evaluation were statistically relevant with high probability (98.2%) proved by the result of kruskal-wallis test (p<0,018). in the agriculture, forestry and fishing industry employers highly evaluated professional knowledge, co-operation ability (arithmetic mean 9, median 10). in the construction industry – professional knowledge, initiative, ability to plan and control, ability to lead a team, co-operation ability, purposefulness, caring for the agenda and organization of work, progress towards development, the ability to plan further education, latvian language skills and knowledge (arithmetic mean 10, median 10). in the transport and storage industry employers highly evaluated the initiative, latvian language skills and knowledge, purposefulness, caring for the agenda and organization of work, progress towards development, the ability to plan further education (arithmetic mean 10, median 10); in the manufacturing industry – professional knowledge, latvian language skills and knowledge, computer skills). in the wholesale and retail trade; repair of motor vehicles and motorcycles industry – the latvian language skills and knowledge, purposefulness, caring for the agenda and organization of work (arithmetic mean 10, median 10), professional knowledge, co-operation ability, the ability to plan and control (arithmetic mean 9, median 10). table 1 statistical indicators of employer’s evaluation on skills, knowledge and attitudes of employees source: author’s calculations based on employers survey conducted in june – october, 2013 (n=340), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant. skills, knowledge and attitudes mean median mode standard deviation professional knowledge 8.9 9 10 1.18 latvian language skills 8.8 10 10 2.01 purposefulness 8.7 9 10 1.24 caring for the agenda and organization of work 8.7 9 10 1.56 co-operation ability 8.6 9 10 1.61 ability to plan and control (tasks and their execution) 8.6 9 10 1.77 initiative in addition to the actions to be taken 8.4 9 10 1.54 initiative in additional duties taking 8 8 8 1.9 progress towards development, the ability to plan further education 8 8 8 1.89 computer skills 7.2 8 10 2.62 ability to lead a team 7 8 10 2.82 driving skills 6.8 8 8 2.32 russian language skills 6.4 7 8 2.83 english language skills 5.8 6 6 2.71 other languages skills 4.6 5 1 2.83 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 228 factor analysis was performed to identify complex factors – skills, knowledge and attitudes of employees which employers evaluated as significant. as a result of the factor analysis the initial fifteen factors, through nine iterations (by using the varimax rotation with kaiser normalisation) are grouped in four complex factors (see table 2). the interpretation of the identified complex factors with regard to the indicators with which the initial indicators have relatively high burdens: 1 complex factor f1: ability to plan, control, organise, co-operation ability, purposefulness, progress towards development. the factor has relatively high burdens on the following indicators: ability to plan and control, caring for the agenda and organization of work, co-operation ability, purposefulness, and ability to lead a team, progress towards development, the ability to plan further education, latvian language skills and knowledge. 2 complex factor f2: general knowledge and skills. the factor has relatively high burdens on the following indicators: english language skills and knowledge, other languages (excluding english and russian) skills and knowledge, computer skills, russian language skills and knowledge. 3 complex factor f3: professional knowledge and initiative – in additional duties taking and in addition to the actions to be taken. the factor has relatively high burdens on the following indicators: initiative – in additional duties taking, professional knowledge, and initiative in addition to the actions to be taken in addition to an effort that required under the formal job responsibilities. 4 complex factor f4: driving skills. the factor has relatively high burdens on the indicator driv-ing skills, the initiative in addition to the actions to be taken in addition to an effort that required under the formal job responsibilities. table 2 complex factors on employer’s evaluation on skills, knowledge and attitudes of employees initial factors complex factors f1 f2 f3 f4 the ability to plan and control (tasks and their execution) 0.921 0.116 0.051 0.150 caring for the agenda and organization of work 0.874 0.080 0.020 0.134 co-operation ability 0.835 0.106 0.287 -0.145 purposefulness 0.662 0.122 0.470 -0.406 ability to lead a team 0.575 0.468 0.221 0.347 progress towards development, the ability to plan further education 0.530 0.451 0.409 0.117 latvian language skills and knowledge 0.456 0.438 0.288 -0.110 english language skills and knowledge 0.049 0.882 0.123 -0.153 other languages (excluding english and russian) skills and knowledge 0.212 0.778 -0.030 0.122 computer skills 0.046 0.769 0.041 0.180 russian language skills and knowledge 0.168 0.745 0.365 -0.078 the initiative in additional duties taking 0.122 0.224 0.809 -0.038 professional knowledge 0.186 -0.018 0.663 0.369 the initiative in addition to the actions to be taken in addition to an effort that required under the formal job responsibilities 0.397 0.287 0.465 0.424 driving skills 0.119 0.137 0.140 0.771 extraction method: principal component analysis rotation method: varimax with kaiser normalization a. rotation converged in 9 iterations source: author’s calculations based on employers survey conducted in june – october, 2013 (n=340), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant. 229 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the employers were asked to evaluate the significance on skills, knowledge and attitudes when recruiting new employees. the survey results show that employers high evaluated professional knowledge and skills, general knowledge and skills, attitudes and motivation to work in the company of new employees. approximately 19% of employers evaluated professional knowledge (appropriate education and qualification, appropriate work experience) of new employees as very significant factor, 35% – as significant. the general knowledge and skills (developed intellect, reasoning and analysis and synthesis capabilities, expression skill, communication and acumen) as very significant evaluated approximately 30% of employers, as significant – 40%. the attitudes and motivation of new employees (sense of responsibility, honesty, desire to work in good faith, motivation to work in the company, appearance and social behaviour) as very significant evaluated approximately 47% of employers, as significant – 33% (see figure 2). figure 2 employer’s evaluations on professional knowledge, general knowledge and skills, attitudes and motivation when recruiting new employees as significant or very significant factors source: author’s calculations based on employers survey conducted in june – october, 2013 (n=340), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant. organization of work, progress towards development, the ability to plan further education (arithmetic mean 10, median 10); in the manufacturing industry – professional knowledge, latvian language skills and knowledge, computer skills). in the wholesale and retail trade; repair of motor vehicles and motorcycles industry – the latvian language skills and knowledge, purposefulness, caring for the agenda and organization of work (arithmetic mean 10, median 10), professional knowledge, co-operation ability, the ability to plan and control (arithmetic mean 9, median 10). factor analysis was performed to identify complex factors – skills, knowledge and attitudes of employees which employers evaluated as significant. as a result of the factor analysis the initial fifteen factors, through nine iterations (by using the varimax rotation with kaiser normalisation) are grouped in four complex factors (see table 2). table 2 complex factors on employer’s evaluation on skills, knowledge and attitudes of employees initial factors complex factors f1 f2 f3 f4 the ability to plan and control (tasks and their execution) 0.921 0.116 0.051 0.150 caring for the agenda and organization of work 0.874 0.080 0.020 0.134 co-operation ability 0.835 0.106 0.287 -0.145 purposefulness 0.662 0.122 0.470 -0.406 ability to lead a team 0.575 0.468 0.221 0.347 progress towards development, the ability to plan further education 0.530 0.451 0.409 0.117 latvian language skills and knowledge 0.456 0.438 0.288 -0.110 english language skills and knowledge 0.049 0.882 0.123 -0.153 other languages (excluding english and russian) skills and knowledge 0.212 0.778 -0.030 0.122 computer skills 0.046 0.769 0.041 0.180 russian language skills and knowledge 0.168 0.745 0.365 -0.078 the initiative in additional duties taking 0.122 0.224 0.809 -0.038 professional knowledge 0.186 -0.018 0.663 0.369 the initiative in addition to the actions to be taken in addition to an effort that required under the formal job responsibilities 0.397 0.287 0.465 0.424 driving skills 0.119 0.137 0.140 0.771 extraction method: principal component analysis rotation method: varimax with kaiser normalization a. rotation converged in 9 iterations source: author’s calculations based on employers survey conducted in june – october, 2013 (n=340), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant the interpretation of the identified complex factors with regard to the indicators with which the initial indicators have relatively high burdens: 1) complex factor f1: ability to plan, control, organise, cooperation ability, purposefulness, progress towards development. the factor has relatively high burdens on the following indicators: ability to plan and control, caring for the agenda and organization of work, co-operation ability, purposefulness, and ability to lead a team, progress towards development, the ability to plan further education, latvian language skills and knowledge. 2) complex factor f2: general knowledge and skills. the factor has relatively high burdens on the following indicators: english language skills and knowledge, other languages (excluding english and russian) skills and knowledge, computer skills, russian language skills and knowledge. 3) complex factor f3: professional knowledge and initiative – in additional duties taking and in addition to the actions to be taken. the factor has relatively high burdens on the following indicators: initiative – in additional duties taking, professional knowledge, and initiative in addition to the actions to be taken in addition to an effort that required under the formal job responsibilities. 4) complex factor f4: driving skills. the factor has relatively high burdens on the indicator driving skills, the initiative in addition to the actions to be taken in addition to an effort that required under the formal job responsibilities. the employers were asked to evaluate the significance on skills, knowledge and attitudes when recruiting new employees. the survey results show that employers high evaluated professional knowledge and skills, general knowledge and skills, attitudes and motivation to work in the company of new employees. approximately 19% of employers evaluated professional knowledge (appropriate education and qualification, appropriate work experience) of new employees as very significant factor, 35% – as significant. the general knowledge and skills (developed intellect, reasoning and analysis and synthesis capabilities, expression skill, communication and acumen) as very significant evaluated approximately 30% of employers, as significant – 40%. the attitudes and motivation of new employees (sense of responsibility, honesty, desire to work in good faith, motivation to work in the company, appearance and social behaviour) as very significant evaluated approximately 47% of employers, as significant – 33% (see figure 2). general knowledge and skills, attitudes and motivation when recruiting new employees as significant or very significant factors source: author’s calculations based on employers survey conducted in june – october, 2013 (n=340), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant very high employers on employer’s evaluation on skills, knowledge and attitudes when recruiting new employees evaluated honesty, desire to work in good faith and sense of responsibility (characterised by mean, median, mode), the evaluations were homogenous (characterised by standard deviation). high employers evaluated developed intellect, reasoning and analysis and synthesis capabilities, communication and acumen, motivation to work in the 19% 30% 47% 35% 40% 33% 0% 10% 20% 30% 40% 50% professional knowledge general knowledge and skills attitudes and motivation very significant significant very high employers on employer’s evaluation on skills, knowledge and attitudes when recruiting new employees evaluated honesty, desire to work in good faith and sense of responsibility (characterised by mean, median, mode), the evaluations were homogenous (characterised by standard deviation). high employers evaluated developed intellect, reasoning and analysis and synthesis capabilities, communication and acumen, motivation to work in the company and a vacant post, the evaluations were quite homogenous. a bit lower employers evaluated appropriate education, qualification and appropriate work experience on employer’s evaluation on skills, knowledge and attitudes when recruiting new employees. the main statistical indicators of employer’s evaluations on required skills and knowledge and attitudes when hiring new employees are reflected in table 3. the opinions of employers about the significance on skills, knowledge and attitudes when recruiting new employees differed in the cross-section of industries. the differences of employer’s evaluation were statistically relevant with high probability (99.9%) proved by the result of kruskal-wallis test (p<0,001). in the agriculture, forestry and fishing industry employers highly evaluated sense of responsibility, honesty, to desire to work in good faith (arithmetic mean 9, median 10). in the transport and storage industry – appropriate work experience, sense of responsibility, developed intellect, reasoning and analysis and synthesis capabilities, honesty, motivation to work in the company and a vacant post, communication and acumen, desire to work in good faith (arithmetic mean 10, median 10). in the wholesale and retail trade; repair of motor vehicles and motorcycles industry – sense of responsibility, developed intellect, reasoning and analysis and synthesis capabilities, honesty, to desire to work in good faith (arithmetic mean 9, median 10). in accommodation and food service employers highly evaluated employees honesty (arithmetic mean 9, median 10). for identifying the key factors –skills, knowledge and attitudes which are significant when recruiting new employees and determining the mutual statistical relations of the factors, factor analysis has used. as a result of the factor analysis the initial twelve factors on employer’s evaluation on skills, knowledge and attitudes when recruiting new employees through four iterations (by using the varimax rotation with kaiser normalisation) are grouped in three complex factors reflected in table 4. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 230 the interpretation of the identified complex factors with regard to the indicators with which the initial indicators have relatively high burdens: 1 complex factor f1: attitudes, motivation, intellect. the factor has relatively high burdens on the following indicators: sense of responsibility, desire to work in good faith, honesty, motivation to work in the company and a vacant post, developed intellect, reasoning and analysis and synthesis capabilities. table 3 statistical indicators of employer’s evaluation on skills, knowledge and attitudes when recruiting new employees skills, knowledge and attitudes mean median mode standard deviation honesty 9.5 10 10 1.14 desire to work in good faith 9.3 10 10 1.02 sense of responsibility 9.3 10 10 1.15 developed intellect, reasoning and analysis and synthesis capabilities 8.5 9 10 1.65 communication and acumen 8.5 9 9; 10 1.55 motivation to work in the company and a vacant post 8.4 9 10 1.48 good reviews from people who trust 8.1 8 8 1.91 the overall impression of the overall adequacy of the post 7.7 8 8 1.98 expression skill 7.4 8 8 2.15 appropriate education and qualification 7,4 8 8; 9 2.15 appropriate work experience 7.3 8 8 2.15 appearance and social behaviour 6.6 7 8 2.23 source: author’s calculations based on employers survey conducted in june – october, 2013 (n=340), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant. table 4 complex factors on employer’s evaluation on skills, knowledge and attitudes when recruiting new employees initial factors complex factors f1 f2 f3 sense of responsibility 0.914 0.026 0.011 desire to work in good faith 0.908 0.062 0.035 honesty 0.891 0.148 0.007 motivation to work in the company and a vacant post 0.752 0.201 0.155 developed intellect, reasoning and analysis and synthesis capabilities 0.652 0.324 0.254 expression skill 0.116 0.813 0.318 appearance and social behaviour 0.033 0.793 0.121 good reviews from people who trust 0.410 0.589 -0.118 communication and acumen 0.472 0.503 0.484 appropriate education and qualification 0.041 -0.047 0.852 appropriate work experience -0.003 0.158 0.714 the overall impression of the overall adequacy of the post 0.202 0.407 0.631 extraction method: principal component analysis. rotation method: varimax with kaiser normalization. a. rotation converged in 4 iterations. source: author’s calculations based on employers survey conducted in june – october, 2013 (n=340), evaluation scale 1 – 10, where 1 – not significant; 10 – very significant. 231 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 2 complex factor f2: general skills, appearance and social behaviour. the factor has relatively high burdens on the following indicators: expression skill, appearance and social behaviour, communication and acumen, good reviews from people. 3 complex factor f3: professional knowledge and skills. the factor has relatively high burdens on the following indicators: appropriate education and qualification, appropriate work experience, the overall impression of the overall adequacy of the post. the employers were asked to evaluate the measures referred to the importance of the professional skills development. cooperation between education institutions and companies for the development of the studies programs and practical skills was highest evaluated measure (arithmetic mean 8, median 8, mode 10). the respondents high evaluated also measure „professional qualification development organization in the workplace” (arithmetic mean 8, median 8, mode 8). slightly lower respondents evaluated the measures „possibility to eu projects and other foreign financial assistance co-financed projects in employees preparation for professional work” (arithmetic mean 7, median 8, mode 8), „practice for students and/or management of apprentices in the workplace” (arithmetic mean 7, median 8, mode 8), „regular information on continuing education/qualification development courses/seminars” (arithmetic mean 6.5, median 8, mode 8), „training opportunities for employees development abroad” (arithmetic mean 6, median 6, mode 8), „internet use in improvement of professional qualifications” (arithmetic mean 6, median 6, mode 8). the current research indicates that professional knowledge and skills, general knowledge and skills and also attitudes and motivation of employees are high evaluated and requested by the employers. the research results are similar to study of labour market in 2007 in latvia – „compliance of professional and higher education programmes with the requirements of labour market”. this study indicates that work experience of employees is very important for about 92% of employers, general skills of employees is very important for about 76% of employers, higher or professional education appropriate for profession is very important or important for about 67% of employers. _ in the framework of the present investigation the opinion of employers concerning the knowledge, skills and attitudes of actual and potential employees were analysed. the answers were significantly different when the employers were asked to evaluate the significance of skills, knowledge and attitudes of employees and when the employers were asked to evaluate the significance of skills, knowledge and attitudes when recruiting new employees. the reason is high level of changes of knowledge and skills during the work. attitudes are changing slower, therefore honesty and other attitudes employers want to see immediately when recruiting new employees. knowledge and skills could be acquired after recruiting, during the work. according to the results shown in the tables 1 and 3, during the short initial period of work the professional knowledge should become the most valuable indicator of employees. employers should care about the conditions for the learning of employees. when recruiting new employees, employers highest evaluate attitudes of new employees and motivation to work in the company and a vacant post. the significance of motivation, emotional intelligence and attitudes of employees has increased. _ the regulations for the professional education are under the discussions now. changes of the professional standards and qualifications are proposed and elements of work based learning are introduced. instead of different independent qualifications will be groups of qualifications with one professional standard and several specializations. structure of such groups of qualifications and specializations will be discussed by branch expert councils where all conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 232 main stakeholders will participate. approximately twelve branch expert councils will cover all main branches of industry. this new part of the system of education is very useful tool for the development of the cooperation between employers, trade unions and education. branch expert councils could be used for secondary and tertiary level and could serve as a link between these levels. _ the system of the professional standards must support the appropriate study process. the existing system is too complicated and oriented to the receiving of equal professional knowledge and skills during initial studies in all educational establishments. professional standards are confirmed by government and contain national level requirements for professional knowledge, skills and competences for each qualification. according to the results of the present investigation more appropriate could be a system of general professional standards for the main groups of qualifications. the professional standards should define the general structure of learning outcomes with main emphasizes on attitudes and transferable skills. the specific learning outcomes of the individual education programme should be decided by each educational establishment together with the representatives of employers, professional organizations and trade unions. participation of the local communities is very desirable. instead of the present national level decision about the content of the detailed professional standard for each qualification should stand few general standards for the wide groups of qualifications and additional requirements for the learning outcomes created by all stakeholders of the specific education establishment. the local needs should be reflected in the course of negotiations between all local stakeholders. direct negotiations between the stakeholders create higher motivation for all stakeholders to participate in the education and employees skills development process. during such negotiations one more problem could be solved – organization of the life-long learning. _ according to the results of the present investigation the significance of the regular improvement of the professional knowledge and skills of employees increases. organization of practical placement, work based learning, distance education and other forms of further education of employees should be linked with initial education and learning outcomes for each education programme. the cooperation between education institutions and companies are necessary for the development of the studies programs and practical skills. antošova, m., csikosova, a., mihalčova, b. 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(2015). friend or foe? the impact of relational ties with comparison others on outcome fairness and satisfaction judgments. organisational behavior and human processes, 128, 1-14. http://dx.doi.org/10.1016/j. obhdp.2015.02.002 turek, k., perek-bialas, j. (2013). the role of employer’s opinions about skills and productivity of older workers: example of poland. employee relations, vol. 35 no. 6, 648-664. http://dx.doi. org/10.1108/er-04-2013-0039 warin, b., kolski, c., sagar, m. (2011). framework for the evolution of acquiring knowledge modules to integrate the acquisition of high-level cognitive skills and professional competencies: principles and case studies. computers & education, 57, 1595–1614. http://dx.doi.org/10.1016/j.compedu.2011.02.013 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 234 kantāne inara dr.admin., assistant professor university college of economics and culture address lomonosova st.1 c.5, lv – 1019, riga, latvia tel. +371 29491763 e-mail: inara@lanet.lv tora ginta mg.admin. university of latvia address aspazijas bulv. 5, lv – 1050, riga, latvia tel. +371 28318666 e-mail: ginta.tora@lu.lv sloka biruta dr.oec., professor university of latvia address aspazijas bulv. 5, lv – 1050, riga, latvia tel. +371 29244966 e-mail: biruta.sloka@lu.lv buševica regīna mg.admin. university of latvia address aspazijas bulv. 5, lv – 1050, riga, latvia e-mail: regina.busevica@lu.lv buligina ilze mg., candidate for doctoral degree university of latvia address aspazijas bulv. 5, lv – 1050, riga, latvia tel. +371 29478176 e-mail: ilze.buligina@gmail. com buligina alise mg.phylos., doctoral student university of latvia address aspazijas bulv. 5, lv – 1050, riga, latvia e-mail: alise.buligina@ gmail.com dzelme juris dr.chem., leading researcher university of latvia address kronvalda bulv. 4, lv – 1050, riga, latvia tel. +371 29283214 e-mail: juris.dzelme@lu.lv tora pēteris student erasmus university rotterdam, the netherlands address e-mail: peteristora@gmail.com about the authors 30 issn 1822 – 8402 european integration studies. 2010. no 4 evaluation and comparison of selling terms in international e-commerce arunas burinskas1, galina merkuryeva2, aurelija burinskienė 3 1attorney office, 2riga technical university, 3vilnius gediminas technical university abstract the article focuses on the complex and economic evaluation and comparison of selling terms provided by the international on-line sellers. analysis of scientific literature on electronic commerce (e-commerce) published by oxford university press, cambridge university press, harvard university press, springer, m. e. sharpe, routledge, etc. shows that 15% of the authors analyse only selling terms. most of these authors investigate selling terms from an economic point of view and others, only about 1, 5 %, from a legal point of view. the authors that analyse selling terms give the same attention to the international and national issues, but more attention to the united states of america than to the european union issues. so, the results of this analysis show the importance of research, which combines economic and legal terms, and give more attention to the european union on-line sellers. the paper presents the results of investigations in this context. in the study, consideration of selling terms is seen as a part of the analysis of purchaser’s decision process where impacts of legal and economic aspects are essential. the same is for the products being sold at international level. results of theoretical and practical studies show that implementation of internet technologies determines the necessity to identify and analyse the following key issues. the legal and economic aspects are not analysed together in scientific literature. most of authors, which analyse legal aspects, do not consider economic aspects; the selling terms provided by on-line sellers are not widely analysed from economic perspectives; the selling terms concerning digital products are analysed in 2,4% of the books published in the area of e-commerce. the study presented in the paper contains four different aspects. first, purchasers’ rights, concerning products purchase via the internet, are disclosed. the difference between selling terms for digital and material products is presented. the main issues of the european union on-line sellers related to the trade in international markets are overviewed. second, the comparison of selling terms provided by on-line sellers located in 27 european union countries is given. for comparison, a set of criteria which describe the main legal and economic aspects is selected, and the multi-criteria evaluation method (i.e., copras) is used. two groups of criteria are defined: the positive criteria, and negative ones. finally, the complex evaluation of the effectiveness of selling terms of the on-line sellers is performed. third, the economic evaluation of investments, which are made with the aim to improve selling terms, is presented. the economic impact for purchasers’ decisions of specific selling terms is analysed. fourth, the selling terms of several international on-line sellers are compared; recommendations for on-line sellers are given; the selling terms concerning digital products are revised. the article is based on the comparative and multi-criteria analysis, and economic evaluation. the results of the study show that the complex and economic analysis of selling terms is very important for understanding cross-border purchasing decisions. the main advantage of complex and economic approach is that it allows determining the impact of different aspects to the purchasers’ decisions. in addition, this makes possible to identify which selling term is the most important and provides some economic evaluation that can be used for improving selling terms in the future. keywords: selling via internet terms, legal and economic aspects, multi-criteria method, comparison of selling terms. issn 1822-8402 european integration studies. 2010. no 4 31 introduction under the conditions of selling goods increase over the internet, the selling terms are becoming more important. transactions that are conducted electronically, rather than in person, carry with them an inherent uncertainty to parties involved in purchasing goods (tonglet et al., 2001). in addition, there may be privacy concerns, relating to how the use of any information disclosed, may be limited. purchasers must feel unhesitatingly comfortable with the security measures that businesses put in place to ensure security and confidentiality, and, in addition, must feel confident that these security measures are effective (tonglet et al., 2001). so, in this study, electronic commerce (e-commerce) conditions (selling terms) are considered widely: as conditions due to which a purchaser chooses to buy from the on-line store instead of the usual one, and on the other side, as conditions, which should be offered to purchaser to serve him in the best way. on the other hand, by making them public a seller is binding legally himself, in case offered conditions are accepted. it means there is a point of considering the legal and economic aspects of e-commerce conditions at the same time. the review of economic science literature shows the needs for analysing the legal and economic aspects together. about 15% of the authors, which published books about e-commerce (in total, the authors have found 8.254 books), analyse selling terms mainly from an economic point of view. most of authors, which analyse the legal aspects, do not consider economic ones. also, the analysis shows that selling terms provided by on-line sellers should be analysed from economic perspectives as well. the research is aimed to propose a profile, which will help to understand cross-border purchasing decisions. the research tasks are defined as follow: 1) to disclose purchasers’ rights, 2) compare selling terms provided by on-line sellers, 3) analyse the economic impact for purchasers’ decisions of specific selling terms, and 4) give recommendations for on-line sellers. research objectives are evaluation and comparison of selling terms provided by the international on-line sellers. the article is based on a comparative and empirical analysis, multi-criteria analysis (based on the copras method), and economic analysis (based on the discounted cash flow method). scientific novelty of the study could be defined as follow. the complex and economic evaluation approach was used for understanding cross-border purchasing decisions. the multi-criteria analysis method, copras, was applied for comparison of selling terms, provided by international on-line sellers; the discounted cash flow method was applied for economic evaluation of investments, which are made to improve selling terms. theoretical aspects related to cross-border purchasing decisions traditionally, vendors are selected from among many suppliers (i.e. domestic and international suppliers) on their ability to meet the purchasing requirements (sevkli et al., 2008). in the literature, various factors are mentioned as criteria, which are important during purchasing process, such, as price, delivery performance, reputation in the industry, size of the enterprise, geographical location, quality, environmental compliance, capacity, services, lead-time, packaging, etc. phusavat et al. (2009) claim that the most important criteria for purchasing decisions are quality, cost, delivery, responsiveness, management, technical service, and environment/safety. jabbour et al. (2009) insert the environmental criteria, such as recovery of products into the supplier selection process. wu (2009) divides all research studies into two streams. the first stream of studies examines with each other related variables, such as cooperation, satisfaction, trust, and commitment. the second one focuses on the criteria for choosing suppliers, such as quality, on-time delivery, and costs. wu (2009) considers that the problem of choosing supplier so, that benefit can be maximized, is the most critical. to identify the on-line seller selection problem, we conducted a detailed literature survey (mainly based on the works of buyukozkan (2004); choy et al. (2003); kaklauskas et al. (2005); stockdale et al. (2002)). services presented in the on-line stores affect their sales. this means that on-line stores need to be well managed and functional. the products and services should be more effective and developed, and detailed in time. thus, purchaser’ market information and perfection are also related to this factor (buyukozkan, 2004). stockdale et al. (2002) point legislation, controlling the purchasing across the on-line seller. by interviewing individual experts, who go in detail into purchasing from on-line stores, the following three categories are deduced for our study: expected economic value of purchase. this provides motivation of a purchaser to buy; for example, a reasonable difference in prices comparing with the price, provided by national sellers, and costs, related to receiving purchase, including delivery costs, vat and other taxes, custom clearance costs, etc.; level of electronic process fulfilment. this includes privacy, payment and security issues; time-spent for searching a specific product in the on-line store and for its purchasing; currency exchange possibilities, etc.; level of physical process fulfilment. this includes information about specifics of a purchaser’ market issn 1822-8402 european integration studies. 2010. no 4 32 such as legislation, taxes, delivery, imports possibilities, etc. the literature survey also showed that usually multi-criteria evaluation methods mentioned in the works of aissaoui et al. (2007); ng (2008); sevkli et al. (2008); vaidya et al. (2006); wu (2009) are used for understanding purchasing decisions. in particular, the analytical hierarchy process (ahp) method is often used. it introduces a hierarchical structure to evaluate trade-offs between different criteria (wu, 2009). some researchers use the ahp approach to analyse costs, but the characteristics of the cost dimension need to be further investigated (wu, 2009). from the traditional point of view, the cost is the predominant criterion for buyers in the decision-making process because keen competition forces sellers to do the best in order to reduce buying and selling costs (wu, 2009). in our study for understanding purchasing decisions main attention is given to the costs for a purchaser (i.e., consumer). for understanding purchasing decisions based on multi-criteria evaluation methods, the complex proportional assessment method, copras, is used. it assumes direct and proportional dependences and weights of the criteria, as well as oppositely directed criteria. legal and economic aspects of the international e-commerce international e-commerce, as a subset of the total e-commerce, generally involves on-line commitment to import or export of goods and services. for all the parties involved in the international e-commerce, such as an online seller (which is an exporter) and a purchaser (as an importer) the legal and economic aspects are important. many legal areas are affected by e-commerce practices. purchaser’s protection and users’ agreements are both related to electronic transactions (fustos et al., 2004). there are two types of products, which are sold by enterprises: material products; these products are physically shipped to a consumer; digital products; these products are downloadable. digital products appeared when material products had changed their type into digital (for example, books). of course, selling terms related to digital and material products have specifics. some of them are stated in the directive 1997/7/ec, which is called as “the protection of purchasers in respect of distance contracts”. there are also regulations for some of cross-border issues. all conditions such as after-sales service, delivery complications, the application of guarantees/requests for refunds, and complaint-handling, have a regulatory dimension. these regulations are mentioned in the european union (eu) purchaser’s protection rules and their application in national law (commission of the european communities, 2009). the survey of the commission of the european communities (2009) statistics shows that purchasers have worries about receiving or returning goods, complaints and redress (21%), payment card (15%), and delivery times being too long or delivery at home being problematic (8%). because of this, the clearly stated selling terms for purchasers are very important. there are a number of factors that restrain purchasers from shopping on-line. the first category of constraints has to do with trust. trust is a vital factor for purchasers – they need to be assured that companies will protect their personal information. this means that sites required taking all necessary steps to protect the purchasers’ personal data (tran et al., 2002). in the report of the commission of the european communities (2009), it is stated that a major factor inhibiting purchasers is the fear of giving a credit card or personal details over the internet. the second category of constraints involves purchasers’ preferences. the main reasons, why purchasers are satisfied with the on-line stores, are the possibility to compare prices, the wider range of offers, the affordability of products and the choice of alternative suppliers. however, purchasers are less enthusiastic about aspects such as product information, the protection of privacy, the trustworthiness of the staff and the possibility to return goods (commission of the european communities, 2009). the purchasers’ rights are considered to be prominent issues (stoney et al., 2003). in the directive 1997/7/ec is stated that “for any distance contract the consumer shall have a period of at least seven working days in which to withdraw <..> without penalty and without giving any reason. the only charge that may be made to the consumer <...> is the direct cost of returning the goods”. it is also stated that “in any event the following must be provided: written information on the conditions and procedures for exercising the right of withdrawal. the consumer may not exercise the right of withdrawal provided for in respect of contracts: for the supply of goods made to the consumer’s specifications or clearly personalized or <...> expire rapidly, for the supply of audio or video recordings or computer software which were unsealed by the consumer, for the supply of newspapers, periodicals and magazines, for gaming and lottery services”. additionally, in directive 1997/7/ec is mentioned that the consumer shall be provided with the following issn 1822-8402 european integration studies. 2010. no 4 33 information: (a) the identity of the supplier and an address for complaints; (b) the main characteristics of the goods or services; (c) the price of the goods or services including all taxes (this is also specified in the 2005/29/ec so: “the price inclusive of taxes, or where the nature of the product means that the price cannot reasonably be calculated in advance, the manner in which the price is calculated, as well as, where appropriate, all additional freight, delivery or postal charges or, where these charges cannot reasonably be calculated in advance, the fact that such additional charges may be payable”); (d) the arrangements for payment, delivery or performance; (e) the information on after-sales services and guarantees which exist. the results of the survey of the commission of the european communities (2009) show that 71% of purchasers think it is harder to resolve problems such as complaints, returns, price reductions when on-line sellers are located in other eu countries. the complaints handled by the network of european purchaser centres show that most cross-border e-commerce complaints concern delivery (50% of cases handled in 2007, of which 88% concerned non-delivery), 11% of cases concerned problems with the terms of the sales contract (such as unfair contract terms, etc), and 6% of cases concerned prices and payments (for example, the imposition of supplementary charges, incorrect price during payment, etc.) cross-border e-commerce has the potential to enable purchasers to obtain products or services not available in their own country. but the results of the survey of the commission of the european communities (2009) show that purchasers have lack of information about cross-border transactions. based on information of the custom department of lithuania (2009), it is evident that the country of origin of purchased item cannot always match with the country of the shop. sometimes goods, purchased in eu on-line stores, are delivered from far east, so, this means that an item, which has a value between 21 and 350 euro, will be additionally charged by 2,5-3,5% of import taxes, sometimes also by excise, and by vat. it is striking to consider that for a third of the eu purchasers the attractiveness of price savings would prompt them to purchase products on-line in another country. but the problem that it is difficult for purchasers to know what they will be charged for deters them to buy. usually, the final price of the product has to contain such details as vat, shipment costs, taxes, etc. the survey of yougovpsychonomics (2009) shows that the final price of the item, which is purchased from the international on-line store has to be at least 10% lower than retail price of the same item presented at purchaser country. finally, practical implications show that purchasing decisions encompass the allocation of a limited amount of purchaser’s money. furthermore, the cross-border problems and the economics of parcel delivery may mean that in some instances, it simply may not be worth to purchase at all. comparison of selling terms by using multicriteria method copras costs of purchaser depend on solutions made by purchaser that’s why all possible variants of decisions (when selling terms, provided by international on-line sellers, are evaluated) must be compared. the alternative solution of a purchaser differs in the price paid; guarantee period, delivery options and other aspects. each decisionmaker has own preferences and in most of cases is interested in economic aspects. quantitative evaluation of such and other aspects allows us to determine their impact to the final purchasing decision. each alternative in the quantitative evaluation is described by several criteria. various criteria are used in an assessment of alternatives. the criteria can be qualitative and quantitative. they usually have different measurement scales and differ in optimization direction (turskis et al., 2009). for many decades authors are dealing with multicriteria problems. multi-criteria decisions are taken in various areas of human activities. numerous methods have been developed and new methods are continuously being created (peldschus, 2009). one of such methods is the method of complex proportional assessment of alternatives (copras) that was firstl announced in 1994 by zavadskas and kaklauskas (1999). this method assumes direct and proportional dependences and adequately describes the alternatives, values and weights of the criteria (turskis et al., 2009), and oppositely directed criteria (ginevičius et al. 2008a). in scientific literature, the copras method is well known and widely used (andruškevičius, 2005; ginevičius et al., 2009; ginevičius et al., 2008a; ginevičius et al., 2008b). based on this and other similar methods, the multicriteria problem is represented by a matrix containing the alternatives (rows) and the criteria (columns). in order to avoid the difficulties caused by different dimensions of the criteria, the normalization procedure is used (turskis et al., 2009). the application of multi-criteria decision-making methods largely depends on the calculation of the criteria weights based on expert evaluation. the results obtained can be used for practical purposes, if experts’ issn 1822-8402 european integration studies. 2010. no 4 34 judgments are in a good agreement (podvezko, 2005). this may be determined by the concordance coefficient (ginevičius et al., 2008a). after expert evaluation, the decision matrix is normalized. the sum of normalized criteria values is always equal to one. the normalization aims at obtaining comparable scales of criteria values (turskis et al., 2009). the impact of normalization techniques on the decision results has been investigated by migilinskas et al., 2007; turskis et al., 2009; zavadskas et al., 2008). they stated that it is hardly possible to evaluate the effect of various normalization methods to the decision matrix (turskis et al., 2009). thus, the classic normalization method is used in the case study. for the problem of comparison of selling terms, it is hardly possible to rank the selling terms for international on-line sellers. this is because of the nature of the provided criteria, which could be better in some regions and worse in the others. therefore, to get a generalizing solution of the considered problem, these criteria should be integrated into a single one (ginevičius et al., 2009). the situation is also complicated due to the fact that the criteria are of various dimensions or scales and directions. they are either maximizing or minimizing, implying that the growth of the value of some criteria means a higher value, while for other criteria it shows a lower value (ginevičius et al., 2009). in order to compare selling terms of on-line sellers, the above mentioned copras is used. complex evaluation of selling terms allows integrating criteria values into a single value; to evaluate criteria with different dimensions and directions and to include weights for them. for comparison of main selling terms, the following criteria are introduced: availability of terms and conditions (percentage of all offers); information on right of withdrawal (percentage of all offers); right of withdrawal: average length of period (in days); unclear offers, offer is not clear if vat is included in the initial price (percentage of all offers); orders, where final price is not given (percentage of all offers); information on refunding (percentage of all offers). bellow (see table 1), the type of each criteria, criteria direction maximizing or minimizing (i.e. max or min in column 2, correspondingly) and its weight are defined. all criteria used in decision matrix are quantitative. the criteria weights are based on expert evaluation. the criteria, which represent information about refunding, received the highest experts’ interest. the coefficient of concordance is calculated by using podvezko (2005) guidelines. it is equal to 0,81 and shows that experts’ judgments are in a good agreement. table 1. the basic information about criteria criteria criteria direction criteria weight availability of terms and conditions max 0,19 information on right of withdrawal max 0,16 right of withdrawal: average length of period max 0,09 offers are not clear: if vat is included in the initial price or not min 0,15 orders, where final price is not given min 0,20 information on refunding max 0,21 the latest statistical available data were used for comparison of selling terms. these data were collected by yougovpsychonomics (2009) for survey “mystery shopping evaluation of cross-border e-commerce in eu”. used statistical data covers international on-line sellers, located in 27 eu countries (according to the suffix or the registration of the company; in case the suffix is “.com”, “.org”, “.net”, etc.). the above mentioned survey gives a very broad coverage of e-commerce in the eu, covering 4.000 different on-line retailers. in total, based on the mentioned survey, 10.964 cross-border offers for 400 on-line sellers were tested. 52% of on-line sellers were represented by one offer, 17% of stores by two offers (from different product groups), and other on-line stores by three offers. the case study performed of authors shows that in the eu: terms and conditions are available for 87% of cross- border offers; information on right of withdrawal is available for 84% of cross-border offers; offers are not clear: if vat is included in the initial price or not, for 34% of cross-border offers; orders, where final price is not given, for 85% of cross-border offers; information on refunding is given for 64% of cross- border offers; the observed period of right on withdrawal lasts 13 days; the legal period of right on withdrawal is equal from 7 to 14 days (depends on country of shop). the results of comparison of selling terms for the international on-line sellers in 27 eu countries, shows that on-line sellers from slovenia, germany and france, have more clearly stated selling terms than sellers located in other eu countries (see table 2). in the last case, on-line sellers have to clarify their selling terms. issn 1822-8402 european integration studies. 2010. no 4 35 table 2. comparison results for on-line sellers country of shops comparison results rank slovenia 4,80% 1 germany 4,71% 2 france 4,51% 3 cyprus 4,48% 4 ireland 4,47% 5 austria 4,44% 6 czech republic 4,42% 7 united kingdom 4,40% 8 belgium 4,37% 9 luxemburg 4,34% 10 netherlands 4,33% 11 slovakia 4,29% 12 poland 4,26% 13 hungary 4,23% 14 sweden 4,22% 15 denmark 4,19% 16 italy 4,15% 17 spain 4,03% 18 greece 4,02% 19 portugal 3,99% 20 romania 3,98% 21 finland 3,96% 22 estonia 3,81% 23 malta 3,71% 24 bulgaria 3,24% 25 lithuania 3,00% 26 latvia 2,70% 27 the results of the study show that the comparison of selling terms provided by the international on-line sellers is very important for understanding cross-border purchasing decisions. economic evaluation of investments made to improve selling terms nowadays, many companies establish on-line stores with the focus on attracting new purchasers, and consequently, to generate new revenues (bergendahl, 2005). these on-line sellers have to answer a question – what the main goal of their activity is. is it purchasers’ needs satisfaction? is it the growth of turnover? is it profit? or is it international expansion? there are many reasons for enterprises to invest into e-commerce activity. such investments serve purchasers by providing them with an alternative that is more comfortable and less time consuming (bergendahl, 2005). degree of success depends upon various factors: the designed application have to suit to the electronic fulfilment; it is assumed that implementation of e-commerce (business-to-consumer (b2c)) technologies will help to deliver an economic value to a purchaser and to increase sales of on-line stores; it is assumed that the physical fulfilment level will help to provide purchasers’ needs satisfaction. in the study of bergendahl (2005), where he analysed, how investments into marketing effect on-line sales, is mentioned that the larger marketing investments are, the faster growth of on-line sales is expected. the study of abed et al. (2009) relates to the empirical tests of a set of hypotheses concerning the link between selling strategies and sales performance, and shows that selling strategies stimulate individual-level behaviours that have a direct impact on purchasers. in the study of owen (1993) is mentioned that while maximising the purchaser’ satisfaction the following linkages are assumed: service performance can be measured objectively in various ways, e.g., by errors, willingness to cooperate, on-time delivery, etc.; service performance is a key determinant of the purchaser’ satisfaction; purchaser’ satisfaction itself determines buying behaviour; buying behaviour strongly determines profitability (owen 1993). green et al. (2007) suggest using the integrated problem-solving initiatives on improving quality and facilitating timeliness to purchasers. green et al. (2007) suggest the selling strategy that incorporates on-site relationships with purchasers and full understanding of consumers’ purchasing processes. in practice, the price of item presented at traditional stores at the purchaser’ country usually includes wholesale and retail mark-up. based on the data of statistics department of lithuania (2009), it is calculated that on average wholesale mark-up is equal to 17% and retail mark-up – to 33%. this means that on-line stores (especially) of manufacturers can offer the attractive prices, which means price savings for purchasers. the practical analysis of us on-line stores, such as amazon.com, pc mall inc., pc connection, insight enterprises inc., and bidz.com, show that on average operating expenses and revenue ratio in on-line stores is equal to 11-16% (calculated according data of yahoo finance (2009)), which comparing to retail stores, is 3-8% lower (data about us retail stores from yahoo finance (2009)). this means, that each on-line store can additionally spend 5% on marketing, which includes collection of data related to the purchaser’ market and consumers’ service (i.e., advices and other services to purchasers). based on amazon.com data (2010) was calculated that investments into marketing brings 10,9% increase in sales during next year. before the detail analysis of the on-line store’ income data, it is necessary to mention that the initial issn 1822-8402 european integration studies. 2010. no 4 36 investments concern two separate types of activities instalments of a system for web-services and actions for marketing with an emphasis on advertising and consumer’ service. further these initial investments have to be matched with the growth of net revenues. for investments to become profitable, money spent for webservers and marketing have to be covered by an increase of discounted net revenues (bergendahl, 2005). for analysing revenues, initial investments, and results, the method of discounted gross operating cash flow (cash flow before interest and taxes) is used. cash flows are defined as the inflows and outflows of cash and cash equivalents, created within a certain period of time out of the investment activities of the company (mackevičius et al., 2006). below, the results of simulation with amazon.com (2010) data are presented (see table 3). several of its on-line stores are operating in europe (i.e. in united kingdom and germany). table 3. amazon.com data (actual and generated) the results of simulation show that by investing 5% into consumers’ service the on-line seller may expect the increase of the total net present value by 39% (when discount rate is 10%). comparison of main selling terms provided by international on-line sellers in order to revise selling terms the following on-line stores were investigated: the international on-line store placed in germany that sells digital products – wide range of software (www.softwarebox.de); the international on-line store placed in lithuania that sells digital and material products – packed and downloadable software such as project analytic solutions (www.investsign-home.com); the international on-line store placed in germany that sells digital and material products – material it products and packed and downloadable software such as painting solutions (eu.shop.wacom.eu). all three stores are selling in-side and out-side the eu. the selling terms (in total, 21) were analysed out of eu purchasers’ positions, which receive international offers. due to the difference in assortment the prices of products were not compared. table 4. comparison of main selling terms provided by international on-line sellers the analysis of selling terms related to digital and material products shows some specifics. for example, the shipment costs are excluded from the price of digital products; there is no return possibility after the moment when download is initiated; and the service in case of unsuccessful download is necessary. the results of the study also show that all on-line sellers from time to time have to revise selling terms. it is also evident that that the best way to improve them is to test them in practice through mystery shopping. based on results of the presented study, the following recommendations, according the above mentioned categories of constraints, to on-line sellers are given: recommendations related to the first category of constraints, such as trust. the survey of verisign (2009) proves that many purchasers request online sellers to use additional security technologies. many consumers are familiar with www.visa.com or verisign security technologies (which, for example, are used by banks in lithuania). following the issn 1822-8402 european integration studies. 2010. no 4 37 guidelines of other studies the authors recommend for the on-line sellers to inform consumers, which ssl certificate is used; recommendations related to the second category of constraints, such as comparison of prices and the choice of alternative suppliers. in the report of commission of the european communities (2009) stated that consumers are visiting price comparison web-sites, that one-third of europeans make price comparisons online. following these guidelines and other studies the authors recommend for on-line sellers: to present not country-based, but a standard international shipping rate that can help consumers to make easily price comparison for international offers; to clarify information about vat. the rate of vat is significant and different in the eu countries. for example, in germany it is 19%, in lithuania – 21%. this means that the rate of vat can significantly change the item price; to clarify information related to warranty and other questions. first, the purchasers are not familiar with the law of another country; second, the purchaser should find all necessary information easily and in one place. such information can be important during purchasing decision process. finally, the on-line sellers have to remember that the purchasing in on-line store have to be an alternative which is more comfortable and less time consuming. conclusions the theoretical analysis shows that in many cases for analysing purchasing decisions based on multi-criteria evaluation methods, ahp method is used. the results of the comparison of selling terms of online sellers located in 27 eu countries show that on-line sellers of slovenia, germany, and france, have more clearly stated selling terms than on-line sellers located in other eu countries. this also means that the on-line sellers located in these countries have more clarify the selling terms. the results of the study performed show that all online sellers from time to time have to revise selling terms and to test them in practice through mystery shopping. also the following conclusions based on three categories of constraints are made: the consumer has to receive an expected economic value of purchase. this means that the final price (including vat, taxes, shipment costs, etc.) of the item, which is purchased from international on-line store, have to be at least 10% lower than retail price of the same item presented at the purchaser country. the practical analysis show that on-line stores, especially of manufacturers, can offer the attractive prices, which means price savings for purchasers; the electronic fulfilment level of the process have to be especially secured; and comfortable to find products, analyse prices, revise all necessary information, which is important in the purchasing decision process; the physical fulfilment level of the process can help to increase consumers’ satisfaction. the products and services can be more effective, if they are more developed and detailed in time. the country of origin of goods can support purchasers to make right purchasing decisions. then, the authors suggests to the on-line sellers to improve selling terms. the authors calculated an economic effect of investments made to improve selling terms. finally, the results of the study show that the complex and economic analysis of selling terms is very important for understanding cross-border purchasing decisions. the main advantage of this approach is that it allows determining the impact of different factors to purchasers’ decisions. references abed, g.m., haghighi, m. 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(1999). a new method of complex evaluation of project based on multiple criteria analysis and the principle of proportionality / 5th international conference “integrating technology and human decisions: global bridges in 21st century” proceedings, 2: 1297 – 1299. the article has been reviewed. received in april, 2010; accepted in may, 2010. 37 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 abstract variations in the quality of government within the european union: a comparative approach of northern and southern public bureaucracies http://dx.doi.org/10.5755/j01.eis.0.13.24033 giorgio oikonomou university of the peloponnese, school of social and political sciences; department of political science and international relations, greece the quality of government represents a critical parameter of modern states for delivering sound public policies for the benefit of citizens. dimensions such as accountability, impartiality, mechanisms which cope effectively with corruption and government effectiveness stand as core components of the quality of government, whereas at the same time account for much of the variation in the quality of government across european union (eu) countries. this paper seeks to examine the quality of government by comparing and contrasting countries of the eu with substantially different administrative characteristics and traditions. the research explores two nordic countries, namely denmark and sweden, and, two mediterranean countries, italy and greece. taking stock of theoretical insights from the political and economic literature the core aim of the paper is to identify plausible explanations with regard to the variations in the quality of government across the four selected eu member-states. the research draws on quantitative data based on the world bank’s worldwide governance indicators (wgi) and the european quality of government index (eqgi). it is argued that certain traits (legacies) of the political-administrative systems of the countries under examination can explain much of the observed, often striking, variations in the quality of government between the north and the south european bureaucracies keywords: administrative models; government; quality; institutions; public administration. european integration studies no. 13 / 2019, pp. 37-49 doi.org/10.5755/j01.eis.0.13.24033 the quality of government has been a critical parameter in modern states’ functioning. the capacity of states to deliver sound public policies: a) effectively with reasonable and affordable costs, b) with democratic accountability and transparency, c) impartially and with low (ideally: absence of) corruption and, d) under the rule of law, has been a major challenge nowadays. the provision of fair treatment to all citizens with a view to safeguard public interest in tandem with the promotion of social and economic welfare has brought into the forefront the issue of the quality of government as the tool for states to effectively respond to contemporary social and economic challenges. in this respect, a new strand of academic literature has been developing with the primer aim to deal with the issue of the quality of government, providing new insights about the extend modern states deliver sound public policies to citizens. from another point of view, the issue of the quality of government is linearly connected with the politico-administrative apparatus of the state. public bureaucracies are considered to be inintroduction submitted 06/2019 accepted for publication 10/2019 variations in the quality of government within the european union: a comparative approach of northern and southern public bureaucracies eis 13/2019 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 38 stitutions in charge of participating in certain stages of the public policy cycle serving as the main nexus between political actors’ decisions and citizens’ needs. in contemporary democracies governments publicly announce the broad context and the general principles of their political programmes and public administrations are bound to effectively implement them, serving as the administrative mechanism of the state. in this vein, the way public policies are executed is principally contingent on the capacity of public institutions to effectively deliver them; the latter is highly depended on the quality of government: the higher the quality the better the delivery of public policies. focusing in europe, it is interesting to examine whether public administrations of the member states of the european union (eu) share a common administrative pattern and if different patterns lead to a variety in the quality of governance. in the first place there is no such thing as a common “european administrative space eas” or even a single administrative pattern that member states are required to converge (knill, 2001; for a discussion of the eas see: trondal and peters, 2013; heidbreder, 2011). secondly, national administrations within the eu have historically followed different administrative paths, though they build their bureaucracies on the premises of the weberian bureaucratic model (weber, 1946) especially in the continental europe. the degree to which the weberian administrative pattern has been fully embedded across the eu countries varies due to adjustments that have been introduced, i.e. by adopting market tools and elaborating techniques found basically on economic literature (new institutional economics; north, 1986, 1991) and managerial approaches (hood, 1991; pollitt, 1990) or by ill-appropriate implementation of some of its basic principles, i.e. professionalism. thus, different administrative patterns (as well as traditions) can be traced in the european continent: some eu countries follow the continental administrative paradigm, others the southern model, whereas in north europe is evident the nordic pattern as a distinct administrative tradition (for a discussion of the models see: painter and peters 2010; pollitt and bouckaert, 2011). this paper addresses the issue of quality of government by drawing on certain eu member states that share different administrative characteristics and traditions. the overall objective is to examine the relationship between administrative models and traditions and the quality of government. in particular, the primary focus is on countries with different administrative patterns located in northern and southern europe, which show remarkably opposite results in terms of their quality of government (most dissimilar case-studies). denmark and sweden stand for two northern countries that follow the nordic administrative model. on the other hand, italy and greece represent two mediterranean countries that share core traits of the so-called mediterranean or southern administrative model. as it will be revealed by the analysis, the two administrative patterns bear little resemblance between each other. the core aim of the paper is to identify the basic features of the two different organizational patterns and link them with the discussion on the performance of quality of government within the four countries. two hypotheses are critically explored: the first one (h1) suggests that in terms of the quality of government, the nordic administrative model performs better when compared with the corresponding southern pattern due to its unique features which allow for better focus on effectiveness and efficiency; the second hypothesis (h2) argues that, when considering the southern experience, the low performance in the quality of government is mostly related with mismanagement and ill-adjustments of the very basic principles of the weberian pattern, rather than on inherent deficiencies of the model per se. the research question deals with pointing out the principal factors that are related with the striking variations in the quality of government between eu northern and southern public administrations. from a theoretical point of view, it is argued that the administrative model according to which public bureaucracies have been organ39 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 ized stands for a critical factor in the successful delivery of public policies and is directly related (and positively correlated) with the performance measured by the quality of government index. the literature on the quality of government tends to employ various approaches in order to interpret the related performance. la porta el al. (1998) argue about three broad theoretical strands that have been used so as to explain the quality of government, namely economic, political and cultural theories. in this analysis, the explanatory variable is considered to be the administrative model which, in turn, accounts for variations in the quality of government. in this respect, the paper aims to contribute in the literature by offering a different yet fruitful context of analysis. methodologically, the paper utilizes the performance of the politico-administrative apparatus of two dissimilar groups of countries according to their rankings in the european quality of government index (eqgi) and the respective world bank index (wbi): on the one hand, italy and greece, and on the other denmark and sweden. building on the premises of administrative organization models, it analyzes the relationship between quality of government (dependent variable) and established administrative patterns (independent variable). intervening variables such as administrative legacies are employed and critically examined regarding the observed variations in the quality of government between northern and southern european public institutions. the performance of northern and southern administrative paradigms is examined in terms of their scores in quality of government, validating the aforementioned hypotheses. in what follows, the paper makes some necessary clarifications with regard to: a) the concept of quality of government, and b) the administrative models that characterize northern and southern european public bureaucracies. then are presented the results of the eqgi and wgi for the countries under examination. the forth part of the paper discusses the performance of public bureaucracies and links the results with reference to the respective administrative patterns. the last part summarizes the conclusions. theoretical considerations: quality of government and administrative traditions quality of government –in particular techniques regarding its measurement– is a relatively new research field in the academic literature and gradually attracts more and more attention. in general, is related with the social and economic development of a country, and the overall well-being (helliwell and huang, 2008) of a society. it has been held that, at its birth, the notion was conceived as “good governance” or “state capacity” and was referred mostly to developing countries and countries in transition (rothstein and teorell, 2012). la porta et al. (1998) suggest that there are exogenous variables related with the quality of government and linked with economic, political and cultural circumstances. however, they employ the –rather– narrow view of the concept of “good government” as they use it with the meaning of “good-for-capitalist-development” (la porta et al., 1998, p. 3). this point of view and other similar ones have been criticized since they were deemed to be extremely broad, functionally insufficient, and subjective mostly to corruption, setting aside other important dimensions (rothstein and teorell, 2008, 2012). recent literature conceptualizes the term providing a more holistic point of view by encapsulating dimensions of government other-than-corruption. rothstein and teorell (2008) have argued about the (influential) dimension of impartiality as a critical component of the quality of government, since it stands for the common denominator of lack of corruption, respect to the rule of law and government effectiveness. they define the quality of government as “the impartiality of institutions that exercise government authority” (rothstein and teorell, 2008, p. 165). this article focuses on the functional side of the quality of government rather than on normative aspects of the concept (for an in-depth analysis see: rothstein and teorell, 2008). the functional side of government performance is measured nowadays with elaborate indices. the first index regarding “good governance” has been introduced by the world bank in 1990s. this paper eme u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 40 ploys the european quality of government index (eqgi) which has been developed by the institute of government at the university of göthenburg, with published data from 2010 (charron and lapuente, 2011). in conjunction with the eqgi, findings of the world bank governance index (wbgi/or wgi) are also used for discussing the results in government performance. in general, the main components of the eqgi are impartiality, control (ideally absence) of corruption, rule of law, effectiveness, fair treatment to all citizens. charron and lapuente (2018, p. 6) approach quality of government “as a broad, latent multi-dimensional concept consisting of high impartiality and quality of public service delivery, along with low corruption”. more specifically, the determinants of the eqgi employed by the analysis (2017 eqgi; charron and lapuente, 2018, p. 14) are quality, impartiality, and corruption which are measured in certain policy areas such as in education, health, and rule of law. interestingly, the eqgi has two unique features: firstly, it is based on survey data on citizen attitudes, perceptions and experiences of prominent public policy fields in the eu rather than on established indicators for economic and social performance (i.e. per capita gdp). secondly, it is the only index referred to the quality of government drawing on data gathered from the subnational level of government, contrary to all other existing indices (as well as the wgi) which focus on the national level. in this way, data are provided (aggregated results) both for eu member states as well as for regional administrative units (eu nuts level 1 and 2) within eu countries. in turn, not only differences found across eu countries but also regional disparities within an eu country can provide in-depth information for further analysis with regard to the performance of (sub)national governmental institutions. in fact, it has been suggested that data gathered at the subnational level may trump those referred to the national level (charron et al., 2014, p. 70). quality of government constitutes a critical variable in assessing the performance of public institutions. in this article it serves as a dependent variable contingent on the administrative pattern eu member states have based their bureaucratic structures. in trying to analyze the variance of governmental institutions performance, most scholars have put forward economic, political and social reasoning and deployed respective variables so as to explain why some countries (i.e. la porta et al., 1998) and sub-state entities as well (charron and lapuente, 2011; charron et al., 2014) perform better than others. la porta et al. (1998) in their analysis deploy among other determinants of the quality of government a strategy which uses countries’ legal system and the tradition that is created so as to explain the performance of institutions. this approach seems to be relevant with the administrative dimension, yet it does not address organizational aspects. the same pertains to the analysis made by charron and lapuente (2011) who argue about the existence of phenomena of patronage and clientelistic networks in institutions within the same country (italy) which, in turn, boost corruption; however, since these traits do not constitute typical characteristics of the southern administrative model but signify distortions of it, the discussion about administrative models still remains neglected. although their analysis is based on path dependent characteristics which are found on southern public bureaucracies (italy), administrative patterns have not been taken into consideration. comparing and contrasting administrative models the nordic model represents a distinct administrative pattern found in northern european countries, particularly in sweden and denmark, as well as in norway and finland. the two countries are unitary states, but they are characterized by significant degree of political and fiscal decentralization horizontally (within central government institutions) and vertically (from a multi-level governance perspective). major competencies have been transferred from ministries to autonomous/functionally decentralized agencies (for a discussion on agencification see: pollitt et al., 2005; also: lampropoulou, 2019) as well as to subnational –principally local– government, which 41 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 enjoy high degree of independence from the ministerial bodies; this feature constitutes a particular historical legacy. in general, the basic characteristics of the nordic administrative tradition include social participation, consensual style of politics, decentralized architecture, and highly autonomous and/or independent (“at arms’ length”) operating agencies across various policy fields (painter and peters, 2010, p. 22). the existence of functionally autonomous and/or independent from the central government authorities’ agencies has been suggested that could lead to increased fragmentation and less coordination between central government offices and agencies (jacobsson et al., 2004, p. 15-16). in addition, democratic accountability issues may arise. on the other hand, it may also imply less chances for political interventions not only in agencies’ ordinary policy-making but also in their operational dimensions as well (i.e. in human resource management issues). in total, ‘agencification’ represents a core feature of the model and is related with promoting efficiency, effectiveness and professionalism of the public bureaucracy so as better cope with public policy problems, and in particular with citizens’ needs. furthermore, there are two representative types of the nordic administrative model, the east (dualist) and the west (monistic) type (jacobsson et al., 2004; veggeland, 2007). at the heart of the east nordic model, which dates back in the administrative regulations of “axel oxenstierna” regarding the ‘status of the colleges’ in 1634 (veggeland, 2007, p. 32), there is a clear distinction between governmental offices and central agencies in the sense that the latter enjoy full operational autonomy, are formally independent from the ministries (though tied by contractual agreements regarding i.e. their performance) and are held accountable to the ministerial cabinet as a whole (veggeland, 2007) instead of being accountable only to the minister who holds responsibility for a (specific) policy field (jacobsson et al., 2004, p. 16). thus, ministerial rule is prohibited. with regard to the west nordic type which is traced back in 1660 (i.e. during the danish absolute monarchy of frederick iii), the autonomy of the agencies is confined in comparison to their swedish counterparts and there is significant ministerial administration (‘ministerial model’; veggeland, 2007, p. 32). ministers have responsibility for agencies and are held accountable by the parliament for their actions (jacobsson et al., 2004, p. 16). reform inertia tends to characterize this type when compared to the east nordic pattern, however, it has been also argued that, on the whole, the nordic model is quite agile and adaptive in reforms (greeve et al., 2019). sweden falls within the east nordic administrative tradition and finland as well (veggeland, 2007). on the contrary, denmark and norway are characterized by the tradition of the west nordic type (jacobsson et al., 2004). with regard to the architecture of governance as a whole, in denmark the central administration is based on 18 ministries1. in addition, there are autonomous agencies responsible for various policy fields2. at the subnational level there are 98 municipalities and 5 regional authorities which have been established in 2007. subnational government expenditure accounts for 34.9% of the national gross domestic product (gdp) and the biggest proportion of the danish public expenditure are spent by subnational institutions (approximately 63.7%; mostly municipalities), implying a high degree of fiscal decentralization (oecd, 2017). as regards to sweden, its central administration is comprised of 22 ministries3 and many autonomous agencies4 with delegated authority over issues in various policy domains. the swedish central public administration has been organized on a very decentralized style of governance, since many operational responsi1 https://www.thedanishparliament.dk/en/members/the-government (assessed in 20 july 2019). 2 for instance, the task for the developing ideas about quality and sound fiscal management has been attributed to the agency of modernization (https://modst.dk assessed in 20 july 2019). 3 https://www.government.se/government-of-sweden/ (assessed in 21 july 2019). 4 tasks relating to organization, governance and development of the public sector fall within the responsibilities of the swedish agency for public management (http://www.statskontoret.se assessed in 21 july 2019). according to a report (swedish agency for public management) in january 2016 there were 347 agencies. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 42 bilities have been attributed to decentralized autonomous agencies (pollitt and bouckaert, 2011, p. 42). in addition, the administrative reforms during the 1980s and 1990s have further decentralized the state, delegating more authorities to local institutions (pollitt and bouckaert, 2011, p. 51). according to the committee of the regions (2014) sweden’s government structure is highly decentralized, including 21 counties and 290 municipalities with predefined competencies and without any hierarchical relation between the two levels of subnational government. contrary to core features of the nordic administrative model is placed the southern administrative pattern which is found in spain, portugal, italy and greece (painter and peters, 2010; ongaro, 2010). the southern european administrative tradition is principally based on the continental tradition, which in turn, follows the napoleonic administrative legacy (peters, 2008). the core features of the napoleonic administrative tradition, found on the southern pattern as well, are related with strong legalism (administration bound to the law), administrative actions that are primarily based in constitutional law, limited administrative discretion which is checked by administrative/judicial supervision, formality, focus on administrative procedures (rather than on results), impartiality, uniformity, professionalism and centralized architecture of governance (peters and painter, 2010). in addition, what uniquely characterizes the southern administrative tradition, standing as a deviation/departure from the weberian type, is the high degree of politicization and the existence of political interventions, particularly with regard to appointments –not only at the higher echelons of hierarchy but also at the bottom (sotiropoulos, 2004). in general, the southern pattern is principally based on ministerial rule which is in contrast to the basic rationale of the nordic (east) model. however, exogenous variables such as fiscal pressures (budget constraints) and endogenous deficiencies (i.e. corruption and clientelistic practices) have created impetus for increasing transparency, accountability, efficiency and effectiveness of the model. in particular, new institutional economics (north, 1986, 1991) and managerial techniques based on the new public management (npm) trend (pollitt, 1990) have induced gradual change which has led to the adoption of new administrative tools. thus, efforts for the reorganization the politico-administrative apparatus of the southern countries have included not only fiscal tools for increasing economy and efficiency but also the establishment of independent agencies in various policy fields, a trait which has been at the core of the nordic administrative model for a very long period of time. in this respect, the ministerial rule has given ground to professionalism and expertise, thus putting new emphasis on the dichotomy between politics and administration (wilson, 1887) even in policy areas which are considered to be part of the very heart of the state (i.e. in the field of collecting tax revenues5 ). the rationale behind this is directly linked with depoliticizing public bureaucracy, partly in line with the argument for minimizing political pressures on administration. with regard to the architecture of governance, italy is a unitary state, however, in practice is considered to be quite decentralized. there are 13 ministries6 and autonomous agencies as well held responsible for specific policy areas. the subnational administrative level of italy is comprised of 20 regions (five of which have special statute and enjoy special autonomy granted by the constitution), 110 provinces (two of which have special statute and autonomy) and 8,092 municipalities (committee of the regions, 2014). interestingly, the italian architecture of governance has allowed for a significant degree of fiscal decentralization, which resembles to a certain extend to the nordic model. subnational government expenditure in italy accounts for 14.5% of the national gdp while a considerable proportion of public expenditure is spent by subnational institutions (approximately 28.8%), supporting fiscal decentralization argumentation (oecd, 2017). finally, greece is characterized as a unitary and one of 5 drawing from the greek case (lampropoulou and oikonomou, 2018). 6 http://www.governo.it/it/i-ministeri-0 (assessed in: 20 july 2019) 7 considering the last reform effort in 2018 (law 4555; “kleisthenis” programme). 43 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 basic characteristics nordic model southern model legal basis for state yes yes state and society organicist / welfarist interventionist architecture of government ‘open government’ approach; decentralized through administrative and/ or political decentralization hierarchical and centralized (italy: vertically decentralized – regions with high institutional autonomy) civil service high status; professional, non-politicized; segmented and (horizontally – independent agencies) decentralized (mostly in sweden) low status, politicized primary objective(s) emphasis on results, accountability based on effectiveness and efficiency rule of law, (shadow of) hierarchy, following procedures, impartiality table 1 basic traits of nordic and the southern administrative models. source: painter and peters (2010, p. 20) and own elaboration. the most centralized states in europe, although since 2010 initiatives have been launched for political and administrative decentralization (hlepas, 2018; oikonomou, 2019). regarding the architecture of governance, there are 19 ministries in central government, and several independent agencies. in the subnational level there are 332 municipalities7 and 13 regions (self-governed authorities) as well as seven decentralized administrations serving as state bodies. in sharp contrast to the nordic countries as well as italy, the degree of fiscal decentralization in greece is considered to be significant low since subnational government expenditure is approximately only 3.4% of the national gdp. in addition, a small proportion of public expenditure is spent by subnational (self-governed) authorities (approximately 6.2%), evident of the very low degree of fiscal decentralization of the country (oecd, 2017). according to veggeland (2007, p. 33) nordic and the continental (or napoleonic in a more broader sense) models present some similarities in terms of the size of the public sector, job security policies and trade union relations8. however, the two models do not share many common features. the principal difference is found on their core objectives. on the one hand, the nordic tradition aims at serving citizens with efficiency, effectiveness, with quality and innovative tools and services. in this regard, the dichotomy between political and administrative sphere is clearer in comparison to the southern administrative model. in addition, professionalism and expertise, performance-based techniques and results-oriented public management constitute basic features of the model. on the other hand, the southern administrative model aims primarily at legality, is strictly hierarchical, rather insusceptible to innovation in a considerable extend, highly centralized, with limited administrative discretion, process-oriented, and with human resource management incentives such as a better position in (hierarchical) ranking and higher remuneration, yet with limited interest in optimum resource allocation, efficiency and economy at least in the first place. table 1 summarizes the discussion about core features of the two administrative models. overall, nordic administrative model is decentralized based on the extensive use of independent agencies, result-oriented and places emphasis on accountability and transparency through criteria such as openness, efficiency and effectiveness (output legitimacy9) . on the other hand, southern model is centralized, procedure-based, hierarchical and with low degree of openness to citizens; it aims at impartiality and is primarily focused on following the ministerial rule so as to be held accountable (input legitimacy) rather than enjoying high degree of autonomy and administrative discretion. 8 in this regard, it has been argued that the nordic model is a blend of the continental and the anglo-saxon administrative models and their traditions (veggeland, 2007, p. 33). 9 on an annual basis, agencies submit a report to the government with information about, inter alia, results, expenses, and revenue (https://www.government.se/how-sweden-is-governed/public-agencies-and-how-they-are-governed/ assessed in 5.7.2019). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 44 -0,30 -1,08 1,55 1,30 -0,33 -1,16 1,54 1,43 -1,39 -1,13 1,40 1,40 -2,00 -1,50 -1,00 -0,50 0,00 0,50 1,00 1,50 2,00 greece italy denmark sweden 2010 2013 2017 -1,40 -0,76 1,23 1,22 -1,32 -1,31 1,28 1,28 -1,29 -1,19 1,54 1,56 -2,00 -1,50 -1,00 -0,50 0,00 0,50 1,00 1,50 2,00 greece italy denmark sweden quality impartiality corruption source: charron and lapuente (2018); own elaboration. figure 1 evolution of the eqog index. the nordic and southern administrative models constitute two distinct traditions with regard to the organization of public institutions. despite the fact that both models aim at facilitating the organization of bureaucratic structures so as to facilitate the implementation of public policies to the benefit of societies, remarkable variability is found with regard to the quality of government. according to quantitative data based on the european quality of government index (eqgi) as well as the world bank’s worldwide governance indicators (wgi) sweden and denmark perform excellent and are among the leaders in quality of government, whereas italy and greece significantly lag behind scoring very low in the same index. however, it should be noted that significant differences are found with italy. figure 1 depicts the overall picture of the quality of government index for sweden, denmark, italy and greece in three different reference years. in general, there is a pattern of continuity for all countries regarding their scores (with the exception of greece in 2017). according to the data, italy and greece rank very low and have always scored negatively. on the contrary, sweden and denmark have always scored high values of quality of government and have been ranked among the countries with the highest performance. in the first place, italy scores negative values in all three years and its best result was in 2010 (-1.08). greece has deteriorated its scores within the years; it was rated with -0.3 in 2010 but in 2017 the quality of government index significantly decreased reaching one of the lowest among eu countries (-1.39). the situation is totally different in nordic states. denmark scores the highest value in 2010 (1.55) implying great quality of government and the same pertains to sweden; the latter ranks in the same position with denmark in 2017 as both countries share the same score (1.4). figure 2 shows a more detailed analysis of the performance of the four countries with regard to the three eqgi components, namely quality, impartiality and corruption, for the year 2017. evidently, italy shows to cope with greater problems in issues of impartiality (-1.31) and corruption (-1.19), since in the dimension of quality the country scores better (-0.76). greece lags behind in all three dimensions compared with all the other countries, and mostly in quality (-1.4) whereas in the other two components of the eqgi the country do not significantly variate from italy. in sharp contrast to these results, sweden and denmark perform excellent in northern vs. southern bureaucracies: quality of government in comparative perspective 45 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 -0,30 -1,08 1,55 1,30 -0,33 -1,16 1,54 1,43 -1,39 -1,13 1,40 1,40 -2,00 -1,50 -1,00 -0,50 0,00 0,50 1,00 1,50 2,00 greece italy denmark sweden 2010 2013 2017 -1,40 -0,76 1,23 1,22 -1,32 -1,31 1,28 1,28 -1,29 -1,19 1,54 1,56 -2,00 -1,50 -1,00 -0,50 0,00 0,50 1,00 1,50 2,00 greece italy denmark sweden quality impartiality corruption table 2 presents an alternative view of the quality of government. data are based on the wgi and the categories that are measured are four: voice and accountability, government effectiveness, rule of law and control of corruption, whereas the combined quality of government (qog) index stands for average values. the overall picture regarding the performance of the four countries in analysis do not alter. sweden and denmark score the highest indices in all four categories. on the contrary, italy and greece lag significantly behind and with the exception of the category of ‘rule of law’ the two countries show identical average performance. source: charron and lapuente (2018); own elaboration. figure 2 eqg index (2017). country/ component voice & accountability government effectiveness rule of law control of corruption combined qog denmark 1.61 2.17 1.92 2.42 2.03 sweden 1.59 1.96 1.95 2.22 1.93 italy 0.94 0.45 0.41 -0.01 0.45 greece 0.82 0.48 0.57 -0.15 0.43 table 2 dimensions of quality in government (2012-wgi). source: charron et al. (2018, p. 17). data based on wgi. in total, the analysis of the components of the eqgi and the wgi as well regarding the four countries under examination attests their overall (average) performance. nordic countries show significantly higher quality of government when compared to their counterparts in south europe. as already has been held, the two groups of countries have followed quite different administrative paths. however, can indeed different administrative legacies produce variability in quality of government? is there any ideal type of administrative model according to which –if public bureaucracies adopt it– better organizational results can be achieved? effort is made for providing answers to these questions in the next section. corruption (1.56 and 1.54 respectively) as well as in quality and impartiality where they present identical scores (1.23 & 1.22 respectively in quality; 1.28 in impartiality). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 46 prima facie, the eu lacks a coherent administrative pattern inasmuch as it has only coordinating powers in the administrative field. in fact, the treaties do not prescribe any specific administrative model, thus, public policy with regard to the organization of the administrative apparatus is considered to be in principal member states’ competency. however, the eu recognize the importance of (sub)national administrations in the implementation of ‘acquis communautaire’ and through policy diffusion and learning promotes the sharing of common policy tools and techniques among member states (european commission, 2017) thus, facilitating european integration process, in spite of the fact that these tools are considered as ‘soft’ europeanization mechanisms. when focusing on the administrative field on the european arena and employing the analytical lenses of states administrative models, evidently, there are different administrative traditions that countries, and –most often– groups of countries have embedded in their politico-administrative apparatus. in this respect, the nordic and the southern models are viewed as two different administrative types pertaining to particular organizational features as already has been described. since the implementation of public policies is contingent on public bureaucracies, the quality of the latter highly affects the former. in other words, the quality of government is, apparently, linearly connected with organizational outcomes and outputs, and the overall performance of public institutions per se; in that sense, institutions do matter. respectively, the higher the quality of government, the better the delivery of public policies and the greater the results in terms of serving the public interest and promoting social and economic welfare. from another point of view, it could be held that the quality of government is linked with the administrative pattern of a country. when comparing and contrasting the nordic and the southern models, it is evident that there is a huge quality of government ‘cleavage’ within the eu, interestingly even within the same country if focusing on the case of italy10. indeed, nordic countries perform much better than their southern counterparts. this is mostly explained by the results-oriented predisposition of the nordic model, as well as the professionalism which characterizes this organizational pattern. in addition, political patronage regarding i.e. clientelistic recruitment of personnel is not evident in the two nordic countries, a feature that could impact negatively in terms of organizational performance. agencies in sweden and denmark are placed “at arm’s length” from the political system, focused on delivering results and held accountable on the basis of their performance rather than on following rigid procedures without administrative discretion, a feature that characterizes the southern model, which also faces problems and distortions of its normative features, such as political patronage. the same pertains with regard to local government, since local institutions have the competencies and the fiscal capacity to implement public policies. thus, both specialized agencies and subnational institutions as well, are based on the professional skills of their personnel and achieve high scores regarding their rankings in quality, corruption, rule of law, and impartiality in the respective indices (eqgi and wgi). the story goes the other way around when considering the southern administrative pattern. though the model has been built on the premises of the weberian bureaucratic model (weber, 1946) which, ideally, presupposes inter alia professionalism, rule of law, hierarchy and 10 for instance, a closer look of the eqgi results for 2017 reveal that the northern part of the country (i.e. trento, bolzano, veneto, emilia-romagna, lombardia, friuli-venezia gulia) score better than southern regions (i.e. calabria, abruzzo, basilicata, sicilia, campania, puglia) and seem to share more with neighboring regions of other countries (i.e. austria) rather than with regions of the italian south (for detailed results see: charron and lapuente, 2018). discussion: quality of government and administrative patterns 47 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 impartiality, southern bureaucracies have been eroded in practice by political patronage and clientelistic practices. as a result, core traits of the weberian pattern as found in the italian and greek public administrations have been blurred, particularly those of professionalism and meritocracy in human resources management. it should be emphasized the fact that in italy, during the period 1973–1990, about 350,000 civil servants had been recruited without entrance examination, whereas approximately 250,000 civil servants had been hired through regular exams (ongaro, 2010, p. 64). it has been suggested that this phenomenon was mostly evident in southern italy and that “since 1995, the percentage of civil servants from southern regions in central administration was 73 per cent of the total amount” (ongaro, 2010, p. 64). the territorial dimension of this phenomenon is depicted when considering the eqgi scores of the italian regions where there is significant variation in quality of government within the same country which is explained by the existence of “patrimonial clientelistic networks” (charron and lapuente, 2011). this evident led to the claim that, with regard to the quality of institutions, seemingly it matters most the region someone lives rather than the country (charron et al., 2018, p. 9). by the same token, similar findings can be traced in greece. it has been argued that in 1992 more than half of the public servants had been recruited without entrance examinations but mostly through clientelistic practices (ministry of the presidency, 1992). such practices included recruitments with short-time contracts mostly based on clientelistic practices, which sooner or later (particularly before general elections) were converted by law into permanent public service positions. likewise, it has been estimated that in 2010, in a total sum of 570,000 public servants (government census11) approximately 170,000 had been appointed through meritocratic criteria under regular examination processes supervised by the supreme council for civil personnel selection. in addition, a small proportion of public servants had been recruited through professional training schools (i.e. the greek national school of public administration) whereas a significant number12 had not been selected and appointed through regular examinations (oikonomou, 2019). in a nutshell, taking into account the aforementioned argumentation in conjunction with the data on eqgi and wgi, it could be argued that there is evidence that the nordic model perform much better vis-à-vis the southern administrative pattern and this is mostly due to its primary focus on components such as efficiency and effectiveness, professionalism and considerable institutional autonomy resulting in minimizing political interventions, thus confirming the first hypothesis. with regard to the second hypothesis, the fact that southern model scores low in the quality of government index should not be considered as evident of the inferiority of the weberian bureaucratic model per se. in fact, political patronage and clientelistic practices in south (sotiropoulos, 2004; regarding the greek case see also: spanou, 2008) have served as mediating factors which represent a particular feature of historical legacy, and have given rise to mismanagement and ill-adjustments of core organizational features of the weberian pattern, smoothing the way for the departure from the very principles of the model, such as professionalism and impartiality. these factors account for much of the variation in the quality of government between nordic and southern administrative traditions rather than on inherent deficiencies of the weberian model, thus attesting the second hypothesis as well. 11 with permanent positions and long-term contracts (quasi-permanent). 12 estimated to double-digit. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 48 the article aimed to contribute in the discussion on the quality of government in eu member states by proposing a context of analysis which is related with countries’ administrative pattern; the latter it was argued that has a significant impact on the quality of government as measured by the eqgi and wgi. two different administrative paradigms were taken into account, namely the nordic and the southern model. the observed –striking– variations in the quality of government of the northern and southern bureaucracies are principally related with different embedded characteristics and orientations of the two distinctive types. on the one hand, the performance of the nordic model found in denmark and sweden is ranked among the best of its kind. the existence of independent agencies in both countries operating at arms’ length from political supervision and bound by contractual agreements, based on professionalism and result-oriented focus, primarily aiming at efficiency and effectiveness, constitute traits that contribute to the excellent performance as clearly depicted by the score of the two nordic eu member states. on the other hand, the southern administrative model is based on the weberian type which is characterized by rule of law, is procedure-oriented, chiefly hierarchical, and is focusing on impartiality and professionalism. however, italy and greece have deviated from the ideal (weberian) pattern since the latter has been eroded by political patronage and clientelistic practices and less responsiveness and adaptation to innovation. in turn, both countries significantly lag behind in terms of their performance in the quality of government. references charron, n. and lapuente, v. 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"the study of administration". political science quarterly, 2(2), pp. 197-222. https://doi.org/10.2307/2139277 about the author giorgio oikonomou phd, adjunct lecturer university of the peloponnese school of social and political sciences; department of political science and international relations fields of interests decentralization; europeanization; reforms in public administration; local and regional authorities; multilevel governance; subnational mobilization. address 1, aristotelous str., corinth, greece e-mail: giorgio.oikonomou@yahoo.com 103 issn 1822 — 8402 european integration studies. 2010. no 4 the assessment of finding in performed functional audits – latvia’s expierence iveta magone, inesa voroncuka university of latvia abstract functional audits at the state administration of latvia have been performed since 1999. wider resonance they gained starting from 2007 when all state administration institutions were ordered to perform them regularly. the author of the research has analysed 22 functional audit reports, and 6 of them were related to business sector. the article’s scientific problem is that, actually, there are no publications on functional audit performance and audit findings at the state administration. novelty – besides scientific value the article also has practical meaning. the facts stated in the article give assessment on possible benefits and at the same time warn about vain hopes revealing what should not be expected from such audits. objects – the author has analysed 6 business sector reports and 16 internal audit reports of structural units submitted by ministries of the republic of latvia. aim – to study audit statements and proposals and to evaluate the quality of their recommendations. tasks – firstly, to evaluate external auditors achievement against interior auditors achievement. secondly, to give general indications to the management of institutions on what they can expect and gain from such audits. research methods – functional and performance audits are basically the same, and they are usually performed by the supreme audit institution (sai) where there are best specialists in this field. that is why besides scientific publications the author also has used sai standards, including intosai. research restrictions – the author was not able to give direct references to specific institutions and audit reports because such were the conditions in order to receive the information. the author basically used qualitative data analysis because the audit reports were radically different. result – although functional audits are related to evaluation of functions, the range of issues exceeded it. function evaluation based on documents was accentuated in function analysis, and it was significantly beneficial only in some specific cases. additionally, institution’s interior control system, necessary improvements in processes, strategy and resultative indicators were analysed and evaluated. it showed that an institution itself should perform elementary improvements in its work before inviting auditors. the achievement of internal auditors and business auditors was different. on average the achievement of business auditors was more qualitative but also more expensive. the achievement of internal auditors can be divided in two parts – the ones who just generally compared the documents, which were not very beneficial, and the others who could serve as a perfect model on how functional audits should be performed because they had revealed the main problem issues. keywords: functional audit, latvia, state administration. introduction latvia has embarked on the functional auditing since 1999, making shorter or longer breaks in the process. the year 2007 should be mentioned as a period of the highest activity in the functional audit conduct, when the cabinet of ministers gave instructions to have the functional audit carried out in all ministries and their subordinate agencies and the established facts reported to the government (ministru kabinets, 2007). the article’s scientific problem is that, actually, there are no publications on functional audit performance and audit findings at the state administration. novelty – besides scientific value the article also has practical meaning. the facts stated in the article give assessment on possible benefits and at the same time warn about vain hopes revealing what should not be expected from such audits. objects – the author has analysed 6 business sector reports and 16 internal audit reports of structural units submitted by ministries of the republic of latvia. issn 1822-8402 european integration studies. 2010. no 4 104 aim – to study audit statements and proposals and to evaluate the quality of their recommendations. tasks – firstly, to evaluate external auditors achievement against interior auditors achievement. secondly, to give general indications to the management of institutions on what they can expect and gain from such audits. research methods – functional and performance audits are basically the same, and they are usually performed by the supreme audit institution (sai) where there are best specialists in this field. that is why besides scientific publications the author also has used sai standards, including intosai. research restrictions – the author was not able to give direct references to specific institutions and audit reports because such were the conditions in order to receive the information. the authors basically used qualitative data analysis because the audit reports were radically different. performance audit is advanced management tool that is becoming more and more sophisticated (daujotaite and mačerinskiene, 2008). nevertheless, it should be stated that the published works about performance audit leave much to be desired. the persons writing about performance audit do not review the functional auditing aspects (pollitt et al.,1999; dittenhofer,2001; lonsdale,2000) detailed deductions about functional audit are available in the work by sakc and saidi. (sack and saidi,1997). some authors give a review of the functional appraisal occasionally for example, function analyses or value method sit sometimes called is the systematic process of identifying function and their associated costs, and assessing the necessity of those function based on established criteria for the product or service (miles and snow,2003). general characteristic of the functional audit of the authors’ 14 requests for information to the ministries, one ministry answered that it did not conduct such audit, two ministries supplied incomplete information, which was not usable for the analysis, and three ministers gave no information at all. the functional audit in the ministries and their subordinate agencies is either carried out by an internal audit organizational unit or bought as an external service to be carried out by the business-sector auditors. the authors have analyzed 6 business-sector and 16 internal audit reports. it should be pointed out upon evaluation of the auditors’ approach to the functional audit that the business-sector auditors preferred conducting audit from the study of regulatory acts, i.e. evaluating external regulatory acts against the internal ones, and it was thereafter that thy studied the financial matters. to examine weak points of the agency, they employed two approaches – organizational slack and budgetary slack (busch, 2002). in turn, the internal auditors’ operation could be divided into two categories. in the first group, only internal regulatory acts were given to reciprocal analysis and/or financial statements were given to general comparison in dynamics by years. in the second group of auditing, the approach was individual and novelty in the settlement of problems made itself felt. resultant indicators of functional audit one of resultant indicators of functional audit is the number and quality of recommendations (cf. table 1). table 1. the costs of functional audit and the number of recommendations (authors’ work papers, 2010) recommendation (together all audits) min in one audit max in one audit audit cost eur bizness auditor 234 12 76 11 895 63 382 internal auditor 195 1 54 900 31 303 in the business-sector audit reports, recommendations were often unnumbered, due to which it was quite difficult both to have the recommendations accounted and put into practice. the authors made a summary of the recommendations. the recommendations were processed not by number, but by essence. for instance, it is advised in the audit report to improve 7 internal regulatory acts, and there is a particular recommendation for each act. it is showed just once in the authors’ table as a necessity to have the regulatory acts improved (cf. table 2). table 2.the given categories of recommendations in 22 audit reports (authors’ work papers, 2010) recommendation together ba ia to improve statute of institutions 16 4 12 to improve inner and/or outward normative acts 15 5 10 to perform structural changes in institution 12 6 6 to improve the descriptions of employees’ métiers 12 3 9 is suggested for the institution by it self to create a qualitative system of fruitful indices 12 5 7 to improve the business process of the institution. 11 4 7 to improve the system of internal control 10 3 7 to define and qualify imparted services of institution. 9 5 4 to improve institution’s strategic planning 9 4 5 issn 1822-8402 european integration studies. 2010. no 4 105 to initiate processing of electronic documents, data and lead of data basis 9 5 4 to centralize the methodical lead in leading institution, but to delegate actual accomplishment 8 4 4 is suggested to give the functions to other institutions. 7 4 3 auditors work out the organizing structure for future or give concrete indications 7 5 2 to perform functions, which are definite in normative acts. 6 2 4 not to perform functions, which aren’t definite in normative acts. 6 3 3 to perform functions by essential, not formal 6 2 4 not to perform doubling functions inside of institution. 6 4 4 to make structural units by unified principles 6 3 3 to reduce the number of employees 6 4 2 to improve the process of employees’ tuition 6 3 3 to improve the communication between structures in the institution. 6 2 4 to improve the workload in regions, structures, by reducing or increasing the workload 5 3 2 to initiate the system of reporting for employees. 5 2 3 to improve the intranet for work necessities 5 3 2 to perform detailed audit about one of area 5 2 3 to improve the system of salaries 4 2 2 babusiness-sector auditors reports ia internal auditors reports it follows from the table that the auditors advise reducing the number of employees of the agency. the business auditors do not link it to the efficiency, but advise reducing the number of employees performing the auxiliary functions (accountants, it specialists, etc.) assigning their functions to the external service not making a calculation of eventual costs of such external service. the recommendations are not grounded with audit evidence, which contradicts the good practice (canada, 2004; australian, 2008). in turn, the recommendations in two internal auditors’ reports to reduce the number of employees is actual and possible to improve the internal business processes, etc. apart from the recommendations given in the table, there were also such recommendations, which appeared just three times to transform the legal status of the agency; to reduce the risk of corruption in the agency; to reduce inefficient use of the infrastructure; to introduce the e-signature; to reduce the telephone communication and transport expenses; and it was also advised to increase the number of employees. and it was advised just once to increase their own revenues and to the management committee to improve its operation. it could be concluded upon evaluation of the auditors’ recommendations that most of the recommendations are of strategic significance for the agency. those are the recommendations, which are related to the financial system, information system, performance control and evaluation system, system of planning, etc.(aaker, 2001). a general conclusion from the audit reports could be formulated as follows when audits are conducted in comparatively small agencies with uniform lines of activity, for instance, 7 functions, and a small number of employees up to 200, the auditors can distinguish the performed functions, advise better future models, appraise the coverage or nonperformance of the functions. but the auditors’ contribution was restricted in most events, when the agency had many employees and was large or when its own functions were defined not clearly. eventual gains from the functional audit results the best business-sector auditors made the functional audit linked to the agency’s strategy analysis (coso, 2004). it was noted in two audit reports that “not a single document was stated during the audit, which would have outlined in any form whatsoever the long-term planning regarding…”. and it was noted in the second report: “the budget planning procedure is not transparent as far as the decision-making process is not documented and is not clear”. the next important aspect detected by the auditors is the fact that particular latvian regulatory acts do not correspond to the european community regulations and/or the internal regulatory acts do not correspond to the external regulatory acts. the authors consider that the detection of such disparities is just sluggishness of relevant legal organizational units. and other aspects established by the auditors could be arranged by the agency itself, not engaging external auditors. for instant, to strengthen control and determine responsibility for implementation of the internal audit recommendations so that it were not written in the audit report: the terms of implementation are delayed many times on the part of officials, even involvement of the management in the settlement of the problem is not sufficiently motivating. the auditors discovered opportunities for the information system operation improvement by way of introduction and update of databases and it systems. it is consonant with the experience of other countries that all internal processes should be improved to the maximum in the electronic form, even having adopted issn 1822-8402 european integration studies. 2010. no 4 106 the best practice of the business sector (gregory, 2005; bititci et.al., 2000). the authors point out that the auditors have also discovered an opportunity for saving on consultation services to the residents by bringing into line the service mechanism. for instance, it is estimated that there is different time of customer service in different regional structures it takes 9.5 hours in one case or 28.3 hours in another. similarly, the auditors detected the fact that the agency did not perform one of its functions at the time of audit, but the employees stated that 747 hours were dedicated to it. this is why the authors point out that the daily regular performance records are very important (moloi and mutula, 2007). in another report, the auditors state that the risk of use of effective resources arises on nontransparent, unclear processes of the agency operation. to have a summary, reports from different viewpoints are requested from all the supervised and subordinated agencies, including on the matters, which have not been financed by the agency. as a result, transparency and traceability of the spent assets is lost. it is evaluated positively that two possible models of further development of an agency with a number of development strategies were proposed in a certain audit report with an estimate of each proposed variant provided. contribution by internal auditors. while it could be said about business-sector auditors that the average audit report merit grade is sufficiently good, then in the events when internal auditors are professional and the degree of their knowledge about the state government system is high, their qualities are much higher than of the business-sector auditors. as the best example, internal audit reports of the ministry of agriculture and state treasury should be mentioned, in which a detailed analysis of the budget building process in the agency is given with its link to the strategies of institution as it is determined by good practice (schick, 2003). although the internal auditor is comparatively limited in the expression of one’s opinion, it should be admitted that they allowed themselves to point out more sternly to the existing problems of the agency than the business-sector auditors in the events when the internal auditors were professional. for instance, no confidence has been gained in conversations with managers of the organizational units that the persons in charge for the program management shall enter actively enough into the evaluation of soundness of the extra required financial resources, etc. thus, the internal auditors have adhered to the two major auditing basic principles objectivity and independence (karapetrovic and willborn, 2000). similarly to the business-sector auditors, the facts were established, which pointed out to indicators of poor operation of the agency. no analysis of deviations of the resultant indicators was made at all in most events, or the control mechanism was slack or insufficient. highquality resultant indicators make a public management problem throughout the world (robert and pollitt, 1994). it was also advised to improve the management accounting in order to realize how much each function comes to the state: as at the audit moment, the accounting system …does not give a clear view of the expenses charged to the subprograms. risks or problems that are not settled during the functional audit as an essential drawback in the business-sector audit reports, it should be noted that the auditors admit that information can be wrong, but nevertheless, they draw their conclusions on its ground. it was stated in a certain report: “the auditors are not responsible for the documented results, as far as the employees involved in the audit have supplied certain untrue information”. this is the text of another report: “the conclusions on particular processes are made according to the questioned employees’ declarations, which have been sometimes distorted deliberately”. it could be concluded then that no good practice of reliable audit evidences is followed (norway, 2005). audit „talk” and texts are now dominated by a discourse of „audit quality” (khalifa et.al., 2007). although it has been considered long since that the audit is related to the auditor’s subjective opinion, (wright, 1980) then it should be a more independent and grounded appraisal. it is not necessarily to paraphrase what is said by the managers and reflect it in the audit statement. for instance, there is such text in the findings: “according to the agency managers’ opinion, the number of employees is insufficient”. in turn, there is the following text in the recommendations: “according to the agency managers’ opinion, the number of employees should be increased…” it is stipulated by the good practice that the audit recommendations should be competent and constructive (percy, 2001). it means that the auditors do not dispose of precise information about the required number of employees for the performance of relevant functions. therefore, the auditor has not conducted an independent appraisal and not verified information supplied by the managers (karapetrovic and willborn, 2000). such audits do not present the added value, i.e. in order to determine where outputs from given inputs should be increased (rahim and athmay, 2008). the authors arrive at a conclusion that the business-sector auditors can advise reducing the number of performers of auxiliary functions, but, at reduction of the performers of basic functions, competence could be lacking or such service could be much more expensive. a contrary tendency was observed in the other audit reports, that issn 1822-8402 european integration studies. 2010. no 4 107 the load is sufficient or even excessive in the events, when not all positions of the list of staff were occupied. the agency managers consider that the load is excessive and more employees are required. the auditors did not give an answer to the question, whether it is the lack of employees or inefficient organization of the performance of functions or just a desire to improve unreasonably their supplied information. in certain events, the auditors made an insufficiently high-quality analysis of the link of functions and costs. for instance, they evaluated arguments for assigning the agency functions to another agency (finland, 2007). the external auditor should be in a short time able to quickly establish problems, advise solutions and continue activities on the research of further problems; as a result, the audit quality could be affected (coram and woodliff, 2004). there is a risk that often no detailed study of the agency’s essential matters is carried out. therefore, the authors suggest that the agency managers (service customers) should determine at the contract conclusion, to what questions detailed, comprehensive and grounded answers must be given to be supported with grounded evidences. for instance, to rate the number of employees of a certain organizational unit. such recommendations appear rather often, which start with the words to evaluate in detail for the agency…, to estimate in detail for the agency…, to study in detail for the agency… although one of the intosai demands is not to write excessively detailed conclusions on how the agency shall act in a definite event, (intosai, 2004) nevertheless, the authors point out that the audit has a much greater added value, when definite recommendations are given. the judgments made during the audit should be rational (european court of auditors, 2007). none of the audit reports makes use of the system auditing method, which is recognized one of the most comprehensive audit approaches, and, therefore, was based on reliable results (intosai, 2004). it could be concluded upon evaluation of the audit reports on the audit customer’s side that they contain much information and graphic presentations of different forms often provided with insignificant explanations. the authors consider that those could be drawn as exhibits. internal auditors’ negative aspects in audit reports. in the events when internal auditors conduct their audit just formally and only evaluate internal regulatory acts, fix the established discrepancies in their audit reports, such auditing is not efficient and the spent resources for the auditing are to be deemed the losses. that is why such auditors should improve continuously their performance (burr,1997) conclusion and future discusion the authors point out that the agency could evaluate individually many matters not waiting for auditors, for instance, arranging its processes, verifying compliance with the regulatory acts, etc. at the same time, the authors agree with the statement that an agency conducting its audit by itself, without engagement of auditors is like a person diagnosing and curing one’s diseases (murray et. all., 2002). nobody wants taking bitter medicines; that is why auditors are required for the settlement of the most significant matters. at the same time, there is a question deserving a further discussion how to gain that the agency managers and politicians shall make their decisions based on the auditors’ findings and put into practice the expressed recommendations. references aaker, d.a. (2001), developing business strategies. sixth edition.2001. john wiley &sons, inc 418. australian (2008), australian national audit office. performance auditing in the australian national audit office. pp.8.online: http://www.anao.gov.au. bititci, et.al. (2000), bititci, u.s., turner, t.j., suwignjo, p. dynamics of performance measurement systems. international journal of operations& production management, vol. 20, no.6, 2000, pp.692 -704. burr, j.t. (1997), keys to a successful internal audit. quality progress, vol.30, no.4, 1997, pp.75-7. busch, t. (2002), slack in public administration: conceptual and methodological issues managerial auditing journal, 17/3, 2002, pp.153-159. canada (2004), office of the auditor general of canada performance audit manual. 2004. coram, p., j. woodliff, d.r. (2004), the effect of risk of misstatement on the propensity to commit reduced audit quality acts under time budget pressure. auditing: a journal of practice and theory, 23(2), 2004, pp.159-167 coso (2004), http://www.coso.org/publications/ executive_summar y_integrated_framework.htm daujotaite, d., mačerinskiene, i. (2008), development of performance audit in public sector. 2008.5th international scientific conference business and management. vilnus, lithuania. 2008. dittenhofer, m. (2001), performance auditing in governments. managerial auditing journal, vol.16, no.8, 2001, pp. 438 – 442. issn 1822-8402 european integration studies. 2010. no 4 108 european court of auditors (2007), performance audit manual, 2007, pp.14-29; 72-92.online: http:// ea.europa.eu/portal/audit finland (2007), performance audit manual of finland. international publications of the national audit office of finland, 2007, pp. 11. gregory, k. (2005),implementing an electronic records management system. a pubic sector case study. records management journal, vol.15.no.2, 2005, pp. 80-85. emerald group publishing limited. intosai (2004), implementation guidelines for performance auditing. (standards and guidelines for performance auditing based on intosai’s auditing standards and practical experience), 2004, p.142 online: http://www.intosai.org. khalifa, et.al. (2007), khalifa, r., sharma, n., humphrey, c., robson, k. discourse and audit change transformations in methodology in the professional audit field. accounting, auditing&accountability journal, vol. 20, no.6, 2007, pp.847. karapetrovic, s., willborn, w.(2000),quality assurance and effectiveness of audit systems. international journal of quality&relieabilit management,vol.17, no.6, 2000, pp. 679,692. lr ministru kabineta (2007). 2007.gada 20. marta sēdes protokollēmums nr. 19, 49. §. miles, r.e., snow, c.c. (2003), organizational strategy, structure, and process. palo alto, ca, usa: stanford university press, pp.37 online: http://site.ebrary.com/lib/latvia/ doc?id=10042924&ppg=37. moloi, j. mutula, s. (2007), e-records management in an e-government setting in botswana information development, 2007, pp.290-306. murray, e. j., richardson, p.r., (2002), fast forward : organizational change in 100 days. cary, nc, usa: oxford university press, incorporated, 2002, pp. 32. norway (2005), office of the auditor general of norway guidelines for performance auditing. 2005, pp.50. percy, i.(2001), the best value agenda for auditing. financial accountability & management, vol. 17 no.4, 2001, pp.351-361. pollitt, et.al. (1999), pollitt, c., girre, x., lonsdale, j., mul, r., summa, h., waerness, m. performance audit and public management in five countries and public management reform: a comparative analysis. oxford university press 248.lpp. rahim, a.a.a., athmay, a.al. (2008), performance auditing and public sector management in brunei darussalam. international journal of public sector management, vol.2,no.7, 2008, pp.798-802. robert, s. pollitt, c. (1994), audit or evaluation? a national audit office vfm study. public administration, vol.72, winter, 1994, pp.527-549. lonsdale, j. (2000), developments in value-formoney audit methods: impacts and implications. international review of administrative sciences, sage publications, 2000, pp. 66-73. teacher (2010), teacher workload audit online: https://education.staffordshire.gov.uk/nr/rdonlyres/ 41804d8c-196b-4799-a0f5 ea5822fc8565/ 24453/headteacherworkloadaudit.xls. sack, r., saidi, m. (1997), functional analysis (management audits) of the organization of ministries of education. paris: unesco, 1997, p.128. schick, a. (2003),the role of fiscal rules in budgeting // oecd journal on budgeting, vol. 3, no. 3, 2003.pp. 8. wright, a.(1980), performance appraisal of staff auditors, the cpa journal, november, vol. 50, 1980, pp. 37-43. authors’ work papers (2010) of latvian ministries’. haven’t been published, 2010. the article has been reviewed. received in april, 2010; accepted in may, 2010. european integration studies 2011.indd 57 issn 1822–8402 european integration studies. 2011. no 5 influential factors on the eu structural funds financing efficiency in the r&d field in latvia marta mezeniece1, baiba rivza2 1 the ministry of education and science of the republic of latvia 1,2 latvia university of agriculture, faculty of economics abstract facing the challenges of global competition latvia emphases the advantage of its main and the most competitive recourses – highly educated society and well developed science based on the research, innovation and modern technologies. development of the scientific activity within the national innovation system has been set as one of the priorities for future growth. the main obstacle that hinders the development of scientific activities is restricted amount of funding for research and development (r&d). under the situation of the recent crisis, when the financing for r&d has decreased, there is necessity to invest the european union (eu) structural funds financial contribution in the most efficient and effective way. the aim of the research is to determine the factors influencing the efficiency of eu structural funds financing in the field of r&d in latvia. to achieve the aim of the research the following tasks were set out. firstly, accomplish revision and analysis of existing research and theoretical findings on factors of scientific activity and innovation development. secondly, perform a survey evaluating and comprising the opinion of project implementers and policy makers on factors that accelerate or impede the development of scientific activity and innovation creation. thirdly, analyse the results of questionnaire. investigate the attitude and values of two main stakeholders – r&d policy planners and implementers of r&d projects – within the innovation system. finally, elaborate suggestions for policy makers to elaborate measures that are more focused on jointly working national innovation system and user friendly, effective and efficient policy planning and implementation process. the following economic research methods were used for tackling the tasks: grouping, graphic illustration, monographic descriptive method. analysis and synthesis are used in the paper to study the problem elements and synthesize coherencies. the authors studied legal framework in latvia and analyzed scientific publications in regional development, innovation economics, innovation policy, research policy, and educations systems. induction method is used for summarizing individual facts in general statements, while deduction method for theoretical explanations and logical synthesis of the empirical study. the authors organised survey in december 2010 during annual general meeting of latvian academy of agricultural and forestry sciences in jelgava and via internet directly inviting the most representative stakeholders. stakeholders were initially chosen from two main target groups: 1) beneficiaries of eu structural funds projects in the field of r&d (mainly research institutes, representatives of higher education institutions and their research institutes) and 2) policy planners of innovation, r&d and scientific activity policy in latvia. in total, 162 completed questionnaires were returned. the empirical research showed that there is a gap between the view of policy makers and project implementers on the basic factors of the scientific activity and innovation development. this gap shall be narrowed in order to enhance the effectiveness and efficiency of eu structural funds financing in the field of r&d in latvia. keywords: innovation policy, r&d factors, innovation, policy planning, eu structural funds. introduction phenomena of innovation are studied by the economists by applying significantly more approaches, such as: • theoretical system oriented (lundvall, 1992; fagerberg, srholec, 2008; filippetti, archibugi, 2011); • methodological approach (sinclair-desgagné, 2000; srholec, 2007); • practically oriented research (fagerberg et.al., 2009; hall, ziedonis, 2001; wang., thornhill, 2010; prodan, drnovsek, 2010). focusing on wide range of matters of innovation include the measuring of innovation inputs (peneder 2008, conte et.al., 2009; flanagan et. al., 2011), outputs (edquist, zabala, 2003; bayona-sįez, garcķa-marco, 2010), composite indexes and indicators of innovation (daugėlienė., 2008; grupp, schubert 2009; freeman c., soete l., 2009). there are several authors in latvia that have been writing on innovations and knowledge based economy like innovative activities (boļšakovs, 2008), innovation process and system (dimza, 2003), knowledge society (karnītis, 2004), innovation capacity (lukjanska, 2010). however, there is a lack of research that addresses an exploration of the attitude and values of each stakeholder within the innovation system. the authors assume that the gradually increasing european union (eu) financial contribution to latvia can be used more effectively and efficient provided that stakeholders concentrate on the joint action within the national innovation system and build it on similar understanding of values. therefore the authors of this paper have found it topically issn 1822–8402 european integration studies. 2011. no 5 58 to study the main aspects of the scientific activity and innovation development factors in latvia. scientific problem of the article deals with factorial research of the attitude and values of main stakeholders within the innovation system. this article aims to determine the factors influencing the efficiency of eu structural funds financing in the field of r&d in latvia. to achieve the aim of the research the following tasks were set: • analyse existing research and theoretical findings on factors of scientific activity and innovation development. • perform a survey evaluating and comprising the opinion of project implementers and policy makers on factors that accelerate or impede the development of scientific activity and innovation creation. • analyse the results of questionnaire. investigate the attitude and values of two main stakeholders – r&d policy planners and implementers of r&d projects – within the innovation system. • elaborate suggestions for policy makers to elaborate measures that are more focused on jointly working national innovation system and user friendly, effective and efficient policy planning and implementation process. research object is development of scientific activity and innovation and factors influencing r&d. the following economic research methods were used for tackling the tasks: grouping, graphic illustration, monographic descriptive method. analysis and synthesis are used in the paper to study the problem elements and synthesize coherencies. induction method is used for summarizing individual facts in general statements, but deduction method for theoretical explanations and logical synthesis of the empirical study. the authors organised survey in december 2010 during annual general meeting of latvian academy of agricultural and forestry sciences in jelgava and via internet directly inviting the most representative stakeholders. initially stakeholders were chosen from two main target groups: 1) implementers (both beneficiaries and project partners) of the eu structural funds projects in the field of r&d (mainly representatives of the state funded research institutes and higher education institutions and their research institutes); 2) policy makers in the field of innovation, r&d and scientific activity policy in latvia. in total, 162 completed questionnaires were returned. in order to test the significance level of each factor and interactions among the development factors, such as dependent variables and characteristics of the respondents – belonging to the target group, age group, experience of project implementation, sex, region of workspace – as independent variables were tested using the multivariate analysis of variance (manova) test in the programme spss. the analysis of r&d financing in latvia is based on statistical data obtained from the central statistical bureau of latvia, eurostat and the information included in reports on higher education in latvia (figures, data, tendencies) acquired from the ministry of education and science of the republic of latvia during the period 2003-2009 and unpublished data from the eu funds joint information system (jis). comparative, analytical and historical methods have been mainly used in the article, taking into consideration the large amount of scientific literature. determination of the scientific activity and innovation development factors the analysis of scientific literature, expert interviews, and previously conducted research (meženiece et.al., 2010) provided the background for the factor determination. within the research meženiece and colleagues (2010) organized a survey where the respondents were questioned to name the factors that impede the development of the scientific institution they represent. according to the results of questionnaire, the second difficulty impeding the development of research institutes, following the cut of basis financing from the state budget, was mentioned the legislation framework. european catching-up countries, namely the new member countries of central and eastern europe, have been affected by recent crisis to a greater extent than the countries with a stronger national innovation system (filippetti, archibugi, 2011). purlys (2009) underlines the necessity of enterprises to innovate in order to overcome the recession. according to filippetti and archibugi (2011), competences and quality of human resources, the specialization in the hightechnology sector along with the development of the credit system seem to be the structural factors which are able to mitigate the effects of the economic downturn on innovation investments of companies across europe. the fact that some structural characteristics of the national innovation system explain persistency of innovation in response to major exogenous shocks is an important finding (filippetti, archibugi, 2011). since the direct public r&d funding can not be delivered or increased in sufficient amount (the financing for innovation is just 0.45% of gross domestic product (gdp) in latvia, while the average performance of 27 european union (eu) member states is 2.01% of gdp in 2009 according to data provided by eurostat) because of recent crisis and huge cuts of the state budget, it is important to study the factors of r&d influence and investigate possibilities to use indirect measures such as interference in the legal and regulatory framework and definition of public procurement rules in favour of innovative and r&d promoting products and services, that could enhance r&d performance in latvia. therefore the authors were encouraged to set and test the following main factors and aspects of the factors that influence the development of r&d activity in latvia: • legal factor group • skills of project realization • commercialization of inventions • financing factor • efficiency factor group. legal factor group the indirect measure that can be taken by government in order to enhance the scientific and innovation activity is a set of legal framework. the authors were encouraged to name and test the following main aspects of the legal framework that influence the development of r&d activity in latvia: • the current regulation on the intellectual property issn 1822–8402 european integration studies. 2011. no 5 59 rights; • the recently introduced joint record keeping of scientific and academic personnel working hours at the same employer; • corruption; • tax allowance or subsidies for producers of innovative products; • the legislative conditions, which make provision for indemnification of losses in case of unsuccessful research results. the legislation on intellectual property rights is one of the basic elements of the national innovation system (dimza, 2003; boļšakovs, 2006) and is used not only for purposes of innovation development, but also for the mutually reinforced comprehension of vulnerabilities of private companies and persistent need for self-protective strategies of patent trading and cross-licensing (hall, ziedonis 2001). the consequences caused by unconsidered action of the government when elaborating legislation on intellectual property rights can bring about enormous state budget losses later on (see aghion et.al., 2009), therefore it is even more important to evaluate the aspect of the legal factor. the experts from scientific institutions and state agencies expressed contestant opinion about the newly introduced joint record keeping of scientific and academic personnel working hours at the same employer, therefore we included this aspect into the research. while tax relief was introduced as contraction to crisis in the eu member states like belgium, germany, spain, ireland, france, the netherlands, portugal and slovakia (conte et.al. 2009), this measure that facilitates innovation around the europe has not been established in latvia. we consider that tax relief would push innovation activity towards faster development and growth; therefore we tried to clarify the attitude of the respondents to this measure. skills of project creation and realization in order to indicate if there is lack of information on r&d project calls or lack of project realization skills among project implementers, the authors asked to value if scientific institutions need to improve skills in such aspects: • project preparation, project proposal writing skills; • skills of project administration management; • skills for project partner attraction from other scientific institutions or universities; • skills of entrepreneur involvement in the project realization. commercialization of inventions inventions without their commercialization do not become innovations. innovation has the practical application of new inventions into marketable products, services or processes; thus contributing to the economic growth. the qualifications of researchers for joining business world is also an issue of interest to many researchers. some of them are studying researchers intentions of becoming an entrepreneur (ding , choi, 2011), while others are more concerned about employment of researchers in the private sector (keršytė, kriščiūnas, 2008; roach, sauermann, 2011). attitude to the commercialization of inventions has been studied in the article, because it could help to understand the differences of stakeholders point of view. the main aspects of inventions commercialization questioned in the survey were: • knowledge of intellectual and intangible property rights; • ability of scientists to patent practically useful inventions; • the scientists orientation to the performance of applied research; • involvement of entrepreneurs in contracting new product or service development to the scientific institutes; • ability of scientists to offer their services to the entrepreneurs in common language. guidelines for development of science and technology 2009-2013 elaborated by the ministry of education and science of latvia states that lack of knowledge and skills of commercialization and insufficient amount of financing are the main problems in the field of research and development (r&d) in latvia. financing factor the monetary resources have been defined as separate factor group, because the authors of article considered it important to include not only the aspect of availability of this resource, but the financing mechanisms both directly and indirectly used by the government within the ‘policy mix’ (for more see flanagan, 2011). evaluating financing mechanisms available for research institutes we constructed financing factor that according to our questionnaire includes the main financial instruments: • base funding, which is allocated to ensure scientific activities and development in the state research institutes and state university research institutes, as well as to cover maintenance costs of research institutes and salary expenses for scientific staff; • financing from european initiatives, for example framework programme 7, eureka, cost and other, european structural funds and national research programmes. state loan is an option available for state research institutes to borrow financial resources to ensure developmental project completion also as substitute to commercial bank loans. the both kind of borrowing instruments are included in the financial factor group together with financial instruments and support mechanism for consulting in finance management and accounting issues. efficiency factor group activation of innovation process in european union can be reached by more target oriented developed and more effective use of innovation potential (melnikas, 2009). efficiency aspects of factors influencing r&d development refers to the efficient use of recourses and methods in the innovation creation process, efficient national innovation system and efficient planning of structural policy as well as efficient institutional scheme of state research institutes. according to conte (conte et.al., 2009) some of these aspects refer to the environmental factors influencing efficiency and effectiveness of r&d. issn 1822–8402 european integration studies. 2011. no 5 60 questionnaire organization the authors questioned representative stakeholders from two main target groups: 1) benefi ciaries of the eu structural funds projects in the fi eld of r&d – mainly research institutes and representatives of higher education institutions and their research institutes as well as some entrepreneurs who have been implementing r&d projects or participating in the projects as partners (810, response rate 17.3%); 2) policy makers of innovation, r&d and scientifi c activity policy in latvia – different levels of civil servants working in the ministries and stale agencies: ministry of education and science, ministry of economics, investment and development agency of latvia and state education development agency (203, response rate 10.8%). during a 6-weeks process of collecting the replies on questio nnaire, one reminder was sent after 4 weeks. in total, we obtained a representative random sample with 162 usable responses – 32 were fi lled in paper during annual general meeting of latvian academy of agricultural and forestry sciences in jelgava and 130 via internet using survey portal http://www.kwiksurveys.com. the overall response rate was 39.50% (paper fi lled by 45.71%; internet fi lled by 12.83%) and all of them were valid, because it was possible to complete the questionnaire only when all of the required answers were provided. age structure of respondents shows that 43.8% were above 44 years, 9.2% above 63 years, but the main group of respondents (35%) were aged between 25 and 34 years. figure 1. distribution of survey respondents between age and sex source: authors’calculations based on survey results, december 2010 – january 2011 (n-162) the figure 1 shows the distribution of survey respondents between age and sex. the number of women and men participants is almost equal – respectively 49% (79) women and 51% (83) men, but the female respondents are younger than male ones. survey was formed from different type of questions: for evaluation of the above mentioned aspects of each of factors we used matrix question, where identical response categories are assigned to multiple questions, combined with scale method in order to measure attitude to each aspect of the factor; for the ranking of factors rank order scale. analysis of questionnaire results the respondents were asked to evaluate aspects of each factor in the scale from -5 to +5, respectively to mark an aspect as -5 if, according to respondents opinion, it infl uences the development of scientifi c activity in latvia in the most negative way, and as +5 if the impact of the aspect is extremely positive. we assume that the aspects marked with zero over 30% of all answers have no infl uence on the development of scientifi c activity in latvia.evaluating legal factor we have concluded that main aspects which infl uence the development of r&d in latvia negatively are: • the recently introduced joint record keeping of scientifi c and academic personnel working hours at the same employer; • corruption. however tax allowance/ tax relief or subsidies for producers of innovative products was rated as positive even though it has not come in to force yet. so we can conclude that in case of tax relief introduction, it would become even more positively evaluated factor. the analysis of variance (anova) shows that there is a signifi cant interconnection between the opinions of two main target groups (project implementers and policy makers) on how the legal factor infl uences the development of the scientifi c activity and r&d in latvia only in regard to two aspects: joint record keeping of scientifi c and academic personnel working hours at the same employer (α=0.05, r2= 0.139) and tax allowance or subsidies for producers of innovative products (α=0.05, r2= 0.135). the results show that project realization skills among project implementers could be slightly upgraded, while there is need for substantial improvement of scientifi c institutes’ skills of entrepreneur involvement in the project implementation. the group of commercialization factors were evaluated overall positively except of involvement of entrepreneurs in contracting new product or service development to the scientifi c institutes (average -0.51) and ability of scientists to offer their services to the entrepreneurs in common language (average -0.05), while the highest average mark (+1.31) was given to the aspect of the scientists orientation to the performance of applied research. the questionnaire results approved our assumption that base funding and nationally organized r&d project calls (eu funds, national research programme, lza grants, market oriented research programme etc.) are the most popular ones among the project implementers. an effi cient use of recourses and methods in the innovation creation process were outlined by respondents as the most important aspect of factors infl uencing r&d development. the previous research (meženiece et.al., 2010) showed that the respondents valuated the provision of public funding for basic research as the most powerful policy instrument ensuring development of scientifi c activity in the long run. that potentially creates positive externalities that favour industrial applications over the long run (peneder, 2008). issn 1822–8402 european integration studies. 2011. no 5 61 figure 2 . ranking of factors that impact development of scientifi c activity source: authors’ calculations based on survey results, december 2010 – january 2011 (n-162) to study which of the above mentioned factor groups are the most infl uential to the r&d development in latvia we asked to rank the factors from 1 – factor has strong infl uence to 5 – factor is least infl uential. the figure 2 shows that there are differences between opinion of policy planners and policy implementers. policy planners as no. 1 ranked factor of commercialization, while the project implementers fi nancing factor found the most infl uential. interesting that policy planners group of fi nancing factors ranked just as no.4 after ranking skills of project realization in the second place, but productivity and effi ciency factor group in third place. conclusions tax allowance is a measure that facilitates innovation around the europe, but has not been established in latvia. we consider that tax relief would push innovation activity towards faster development and growth. the survey results showed that tax relief or subsidies for producers of innovative products was rated positively even if it has not come in to force yet. this means that in case of tax relief introduction, it would become even more positively evaluated measure. measures shall be introduced that do not demand immediate fi nancial investments from the conversely direct spending of government, for example the innovation procurement. there is an attitude gap between project implementers and project planners means that there is lack of joint vision of two main stakeholders within the national system of innovation. this gap shall be narrowed in order to enhance the effectiveness and effi ciency of eu structural funds fi nancing in the fi eld of r&d in latvia. acknowledgements the authors gratefully acknowledge the funding from the european union and the european social fund (agreement no. 2009/0180/1dp/1.1.2.1.2/09/ipia/ viaa/017 „support for doctoral studies programme of latvia university of agriculture”, 04.4-08/ef2.d2.21). references aghion p., david p.a., foray d. 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(2010), r&d investment and financing choices: a comprehensive perspective. research policy 39, pp. 1148–1159. the article has been reviewed. received in april, 2011; accepted in june, 2011. 117 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 european integration studies no. 13 / 2019, pp. 117-130 doi.org/10.5755/j01.eis.0.13.22897 abstract digital platforms for postal services in eu and japan http://dx.doi.org/10.5755/j01.eis.0.13.22897 maciej lewandowski, logistics operations department polish post, poland the aim of this paper is to present and compare utilization of digital platforms used by national postal operators in the eu and japan. tasks include a biased review of digital platforms introduced recently and operated by national posts in several european union countries and in japan. authors chose the most interesting cases, including those deemed as the most successful, those that failed, and the most modern ones. the next task is a comparison of diverse european experience with modern solutions introduced by the japan post. methods used for delivering the study include direct interviews with japan post officials and systematic review of official documents and announcements by national post operators in european countries. european union member states, and their national postal operators seem to be well ahead of japan in the way modern technology is utilized in the process of providing traditional (and new) postal services. paper makes successful attempt to show how representative national postal operators benefit from advanced information and telecommunication technology and by replacing the manner in which postal services are rendered. there are numerous successful cases of digital platform implementation, like those from denmark, france, czech republic, and poland, among others. one may find interesting insight into reasons for failed case from italy among conclusions, at the end of the paper. environmental issues are also addressed, along with e-government issues. it happens that european union postal operators optimize their operations with modern technology in the form of digital platforms in a much wider scope than the japan post. japanese organizations deal with extremely challenging geographic conditions. this, in turn, should motivate much more advanced optimization by the means of solutions enabled by digital platforms. european postal operators have been recognized as leaders in maximizing benefits offered by digital platforms so far. keywords: modern postal services, digital postal services, public e-services, e-government, japan, eu. paweł młodkowski, school of international liberal arts, mic, japan marek wróbel, institute of logistics, wsb university in poznań, faculty in chorzów, poland introductionthe digitisation of the economy and society is one of dynamic changes taking place today. digitisation is also a continuous process of convergence of the real and virtual world, which is becoming a driving force for innovation and change in most sectors of the economy (gajewski et al. 2016, 11; castells 2010, 5; cetina and bruegger 2002, 905; chaffey 2016, 10; van dijk, 2005,156, tian and stewart 2006, 560). according to oxford english dictionary, the concept of digitisation includes now the adaptation and growth of the use of digital or computer technologies by organisations, institutions, economic sectors or countries (sobczak 2013,280). mckinsey describes digitisation as operations utilizing digital tools aimed at increasing productivity and growth. digitisation facilitates productivity growth in four ways (mckinsey 2016): _ first and foremost through process optimisation, _ expanding sales, _ innovative products, and _ more efficient use of human capital. submitted 03/2019 accepted for publication 10/2019 digital platforms for postal services in eu and japan eis 13/2019 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 118 the emergence of the global internet network was a breakthrough for digitisation of the economy. the internet was initially used by scientists and military personnel. its development was accelerated then by private providers of services and websites. the further development of new technologies, such as java or wap, allowed the creation of websites and the development of mobile services. at the end of the 1990s, the internet entered the web 2.0 era and became a collection of web services, thanks to which the users of a given website can create content themselves. at the turn of the millennia, the era of web 3.0 began with an increase in data transfer speed and the development of search engines, but also the ability to transfer not only text, but voice and video. the current internet protocol ipv4 enabled to create 4.3 billion network addresses, while the new ipv6 protocol will allow to create 349 billion addresses (śledziewska et al. 2017, 12). in turn, wireless internet has become the most commonly used way of connecting to digital infrastructure. it also accelerated the connection of about 3.4 billion users to the internet in 2016. this technology generates over 2% of global gdp. it affects the functioning of 1/3 of the world economy and has a significant impact on the work of 70% of all employees. based on the investment plans, it can be estimated that by 2025 the number of users will be approximately 4.3 billion (mckinsey 2013). undoubtedly, laptops, smartphones and tablets are currently used to handle many everyday matters via internet. online platforms act as intermediaries between market participants, who wish to carry out transactions. such platforms use web applications based on algorithms that connect users, consumers, and sellers. according to a research conducted by the european commission, platform users recognized their main benefits, as: _ facilitating access to information, _ improving communication and online interaction, _ wider range of choice of products and services, _ access to new markets, and _ new business opportunities. convenient communication provided by online platforms reduces the cost of reaching consumers by sellers. costs of finding information on products and services bear by consumers decrease also. consumers benefit from recommendations and reviews issued by other users. it should be noted that online platforms are diverse, especially in terms of their purpose and facilitated activities. but that is precisely why, the european commission, by planning the regulation of the unified digital market in the area of digital platforms, has omitted the specification of their precise definition. instead, it listed their most important types: advertising platforms, auction platforms, search engines, social networking platforms, price comparators and payment systems. internet platforms are therefore based on a new all-encompassing business model that enables interplay of demand and supply through the use of modern technologies. with their help it becomes possible to carry out banking transactions, make purchases, settle official matters, or purchase postal services. postal services provided through digital platforms are often described as ''digital mailboxes'', ''digital boxes'' or ''certified electronic mail'', and are used by eu governments for correspondence and exchange of documents with citizens. it is worth noting that the costs of handling digital correspondence, amounts at about 20% of the costs of traditional correspondence. what is also important for public institutions is that digital correspondence is legally binding. this means that digital box systems provide indisputable evidence of receipt and dispatch of documents, secure their content, but also ensure authenticity of origin through advanced authentication systems. as a result of the european parliament and council regulation eidas of 2014, a registered electronic shipment has the same legal status as a registered letter (on electronic 2014). the ease of access to the digital mailbox is also important, as it can be accessed from almost anywhere via the internet. there were 5 million individual users of the digital 119 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 mailbox of the french post office already in 2015. 600 thousand companies and 5 million citizens (and 11 million including people living in norway and sweden) were using the digital mailbox of the danish post office. the aim of this article is to present technological trends in the digitisation of postal services and models of digital platforms defined as digital mailboxes created by national postal operators in the european union and in japan. we compare japan post solutions with envelo, the most modern digital platform of postal services by poczta polska s.a., a national operator with 460 years of tradition, enjoying social trust and already having experience in creating new technologies, not only in delivering traditional letters and parcels. methods unified digital market in the eu the study was carried out using direct interview with representative of japan post, and an analytical method, consisting of a targeted study of the publications also available on the internet. it was based on systematization of knowledge in the field of solutions for e-government services. on the basis of the analysis of source texts, the solutions applied by the defined postal operators in the european union were cast against japan post achievements in this respect. the comparison was conducted from the point of view of benefits for individual, institutional and business customers. in 2015, the european commission has taken the initiative to create a unified digital market. the unified digital market in the european union means: _ the development of economic cooperation in e-commerce, _ the simplification of vat accounting in international transactions, _ a new system of personal data protection in the network, _ a reform of copyright law allowing the development of new types of services, and the extension of the internet infrastructure, as well as _ the improvement of cyber security. the establishment of the unified digital market is intended to stimulate eu economic growth, to become the substructure of the economy based on knowledge and innovation, and to combat social exclusion. on 6th of may 2015 the strategy of the unified digital market for europe was adopted. it included 16 priorities deemed necessary to achieve its objectives. the european commission concluded in 2015 that removing existing barriers will encourage cross-border trade. it was estimated that once legal obstacles are removed, an additional 122 thousands of enterprises will start cross-border online sales. this could increase intra-eu exports by around €1 billion. such additional competition in retail trade should result in lower prices in all member states, estimated at, on average -0.25% at the union level. consumer demand should increase as a result of reduced prices. consumer confidence would also improve through the unification of laws in the union. household expenses, which show a level of consumer welfare, would increase by +0.23% on average in each of the eu member states. this represents an increase of this macrovariable by almost €18 billion. the number of consumers, who would start buying products from abroad via the internet, would rise from 7.8 to as much as 13 million. the average annual expenditure of each consumer buying products from abroad via the internet would also increase by €40 per year. this increase in demand would have a direct impact on main macroeconomic variables in each member state. the european commission expects therefore a systematic increase in the union's real gdp by around €4 billion per year. introduction of the unified digital market is expected to provide the eu with additional €416 billion per year. according to mckinsey & company analyses, western europe has so far utilized 12 percent of its digital potential, poland has reached just 8 percent, while the entire american economy has utilized 18 percent. this means that digitisation has just started. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 120 in 2015, there were about 14 million fixed-line and mobile internet users in poland in total. throughout europe, 315 million users use the internet every day. on average, 31.6% of people in europe benefited from fixed-line internet access in 2015. the highest saturation of these services is in the netherlands and denmark, with over 42%. in 2015, nearly 19% of population in poland have access to fixed-line broadband internet services. over just 2015, poland recorded an increase by about 0.9 million in this respect. the number of mobile internet users also grew dynamically from 5.8 million in 2014 to 6.7 million in 2015. for several years poland has been one of the leaders in europe in terms of saturation with services of mobile network access. in 2015, poland ranked 5th in the eu with a result of over 94% (office 2015; 2016). saturation in poland was therefore 19 percentage points higher than the eu average. finland has been the european leader in this respect, with a score of almost 139% in 2015. (office 2015, p. 10). however, the mckinsey digitisation index shows, that the level of digitisation in poland is by 34% lower than in western europe (average for france, the netherlands, germany, sweden, the united kingdom and italy). mckinsey's analysis also shows that, due to digitisation within the coming decade the value-added of the entire economy in poland could increase by 13-22%. digitisation would reduce the productivity gap by 12-21%, compared to the most advanced western european economies, and by 27-47%, compared to the eu-15 (mckinsey 2016, 7). optimistic is the fact that in terms of "digital demand" (which is a measure of digital technology utilization rate), poland has not been lagging behind western europe the gap here reaches only 16%. this means that the polish businesses have utilized digital technology to contact customers, suppliers, and partners to a similar extent, as western european firms. there is still a low initial stage of development in the field of online transactions, online services for customers, and communication with the use of digitally advanced technologies. however, a key challenge for poland is the supply of digital resources, where the gap between poland and western europe is at 44%. this means that companies in poland invest much less in assets, and employ fewer specialists in jobs of a digital nature than in western europe. with the intensification of investments aimed at building digital assets and creating related jobs, the country's position in this respect is likely to improve. it should be noted that 7.2 million people in poland graduated from higher education institutions, between 1998 and 2012. this means that the country has the largest resource of highly educated labour in the eu. 800 thousands students graduated in science, while 185 thousands graduated from it programs. in these two particular categories of higher education poland ranks third in the eu, after germany, and france. poland has also the largest outflow of educated labor in the european union. according to 2013 records, around 280 thousand people with a university degree had lived in another eu or efta country for up to 10 years already. unfortunately, the outflow of digitally-skilled workers increases the productivity gap, and weakens the polish economy. although the polish economy laggs behind western europe in terms of digitisation, it has strong foundations for further digital growth. there are talented workers plus poland holds competitive advantage resulting from lower labour costs than in other eu countries (mckinsey 2016, 17). a very special place and role in the process of digitilization of a national economic system belongs to national postal operators. the eu has been a global leader in regard to utilization of modern solutions in this regard. platforms, created by postal operators, are already being used by the governments of individual eu countries for correspondence and exchange of documents with citizens. an important stimulus for the development of these digital platforms was regulation of the european parliament and council (eu) no. 910/2014 of 23 july 2014 on electronic identification and trust services for electronic transactions in the eu internal market (the so-called eidas regulation). the regulation has introduced a number of solutions aimed at increasing trust in transactions and on-line communication between central, or local, government offices, businesses, and citizens. importantly, the solutions adopted in the eu are intended not only to sup121 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 port the development of the e-trust services sector in europe, but also to improve the handling of various issues by citizens or businesses between individual countries within the eu. this should lead to shortening of various processes and reducing the amount of documentation accompanying these processes. positive environmental impact seems undeniable. the most important solutions introduced by the eidas regulation are as follows: _ an electronic seal which is intended to ensure the authenticity and integrity of the sent documents, an electronic time stamp which is treated as an equivalent of a postal stamp to confirm the existence, preparation and sending of the document at a given time; _ an electronic signature an equivalent of a traditional signature, constituting the confirmation of the authenticity of the documents bearing it; _ a recorded electronic delivery – an equivalent of registered letter, provides evidence of the sending and receipt of the sent correspondence. all of these solutions exist on several levels, the most important of which is the so-called qualified level. consequently, a document sent by the public administration using qualified registered electronic delivery, and bearing a qualified electronic seal, a qualified electronic time stamp, and a qualified electronic signature is identical to the original postal service and has the same legal effects. this is very important solution for implementing e-government (ec.europa.eu 2014; 2015; 2016). selected models of digital platforms of postal operators in the european union in 2001, a system for electronic communication was launched in denmark to connect public institutions, entrepreneurs, and citizens. the e-boks digital box is a version of the digital mailbox based solely on the internet channel. the e-boks digital box is created from the very beginning by a public and private entity, i. e. post danmark and nets, a provider of payment services, payment cards and information technology. to set up a box one needs a digital nemid signature. it can be obtained in several ways: online (using a passport or driving licence, if the user's address exists in a national register), by public administration units (here one needs a personal authorisation) or via internet banking. e-boks is an electronic inbox, in which a citizen cannot initiate any shipment on his/her own. this means that from citizen point of view, usage restricted to receiving messages from a sender and responding to these, in which the sender gave an opportunity to respond. the messages are addressed to citizens using a special personal cpr identification number. in order to receive such correspondence, a receiver must subscribe to a given sending entity (public administration authority, or company), and the sender must approve it. an important feature of e-boks is that the received messages are subject to lifelong archiving. it is also important for citizens that e-boks enables to upload, and store, their own private documents. the fact, that there is a single password for accessing many different types of services and official matters in one place, is an additional advantage of the system. in addition, e-boks users have an option to allow family members, or co-workers, for accessing to their mailbox, with specification, which type of mail can be accessed. it is worth noting, that all danish municipalities are sending out messages to citizens via e-boks. many other institutions such as banks, insurance companies, energy companies, telecommunications companies follow the same route. this system is obligatory for entrepreneurs and the government has supported its development from the very beginning. it was announced in 2014, that it would be the responsibility of every danish citizen to own an e-boks box. by the end of 2015, it was obligatory for everyone to use an electronic channel for contacting with public institutions. about 70% of citizens joined the system before it became obligatory. it is worth noting, that the awareness of functioning of this system in 2014 among citizens over 15 years of age was 97%. this is a proof of an effective information campaign. however, danish citizens have still the choice of how they wish to receive messages: electronically, or traditionally, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 122 and the decision can be changed. e-boks has been used by 600 thousand companies and 5 million danes (11 million including people living in norway and sweden). mail cost is by 80% lower than in case of traditional correspondence. 308 millions of documents were sent in this system already in 2015, saving more than 5000 tons of paper (about 85 thousand trees). 86% of users are satisfied with the operation of this digital box and 77% consider it a great facility to receive all correspondence from both the public and private sector in one place. e-boks has been used by 1300 new users daily. thanks to e-boks consumers saved around €214 million in postal services in 2012. this digital platform generated approximately €13.5 million in revenue and a profit of around €2.2 million in 2012. in the view of the above, it can be said, that this system has been successful in denmark (e-boks 2018; piskorski 2016, p. 8; piskorski 2017, p. 7-8). another successful case, since 2009, has been a digital platform for document exchange in the e-administration programme in the czech republic, named datove schranky (ds). the system is owned by the ministry of the interior. its operator is czech post office. the main objective of ds is to reduce communication cost between authorities, citizens, companies, and public administration. the most important task of ds is to increase the speed, comfort and reliability of communication while ensuring safety. ds handled more than 186 million electronic shipments and around 1.2-1.3 million transactions per week between july 2009 and the end of 2014. the number of active accounts in the customer system reached over 585 thousand. data boxes (ds) are obligatory for all public administration institutions (about 8 thousand), notaries and repossession agents (about 600), as well as for all companies and institutions with legal personality. the ds platform may be operated by a natural person, or a person running a business activity, but participation is voluntary. for public administration authorities, notaries and repossession agents having data boxes is free of charge. for natural persons and those, who run a business activity, the creation of a data box takes place after an application has been submitted by the person concerned, and it requires a visit to the czech point office. a fee is around 1 euro. sending a document consists of logging into the ds, placing in the data box a message with maximal size of 10 mb and assigning the destination address, along with the shipment parameters. assigning the address means giving the user of target mailbox the right to access the document. parameters of the shipment are standard postal procedures, such as receipt proof and other. additional services such as a postage with paid return reply, or shipment at the expense of the recipient are chargeable. a standard document is removed after 90 days, but there is an option to buy an additional area (so-called trezor), in which the data is permanently stored. if the receiver doesn't log into his/her mailbox within 10 days of the date of receipt of the document, the document shall be deemed to have been delivered, which shall have the same legal effect as the receipt of a traditional postal parcel. czech post office's revenue from the datove schranky system comes from a contract with the ministry of the interior, which regulates fees for all users from the state administration, courts, notaries and repossession agents, and from fees paid by commercial users. the use of ds is obligatory for state administration bodies, and entities financed by the state treasury. the average cost per transaction fell to below €1 in 2012. the ds and czech point systems (national terminal for the delivery of confirmed information ministry of the interior) are complementary due to sales channels, and the manner of service provision. however, czech point uses a paper-based interface and requires a personal visit to an operating point, while ds is a completely electronic system. the interdependence of the two systems (ds and czech point) consists in ensuring by czech point the functionality of documents conversion from electronic to paper form and vice versa (authorized conversion). more than 28.5 million documents were processed in this way since its launch in june 2009 till november 2013. czech point is used to create user 123 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 accounts in datove schranki. there has been an improvement in the efficiency of functioning of public administration bodies, while costs were reduced. from the beginning, czech post office has played one of the leading roles in implementing these projects: it is the most active of all czech point system operators. although it has only 980 out of over 7000 czech point service points, it processes over 52% of documents, and is the sole operator of the datove schranky system by law. czech point services remain stable at about 150 thousand documents per month. the total volume of czech point revenue in 2012 for all system operators amounted in total to approximately eur 7.6 million, of which czech post's revenue amounted to approximately eur 4.1 million and the gross margin on sales to approximately eur 3.8 million. the digital platform datove schranky brings more revenue to the czech post office. the ministry's fees alone were on average around €178 million per year (net excluding vat) for the period 2010-2012. thanks to the provision of e-administration services, the czech post office earns therefore revenues and builds up its leading position on the market of electronic services in the czech republic. the total revenues of czech post office from e-administration services account for 5% of the total revenue of post office. their profitability is much higher (at about 27%) than the rest of post office's activity, which is less than 1% (mojedatovaschranka 2018; vlada.cz 2018). a digital mailbox offered by the french post office (la poste) is nothing more than an ordinary mailbox, in which an account is created using the online channel. however, the french post office has introduced a verified digital identity called digital identity. if the user of la poste's box sets up, and verifies his digital identity, he/she has then a possibility to send registered letters with standard additional services (e. g. time stamp marking). to set up digital identity, a user fills in an online registration form. afterwards, it is confirmed with the sms code. at the time of registration the day is selected, on which it will be verified in person, because verification is made by a postman. after verification by a postman, the user receives a digital identity. this whole process of account creation, and verification, is completely free. the french post office's digital box offers the possibility of two-way exchange of correspondence, and in the case of digital identity holders, it is also possible to send and receive electronic registered letters with the possibility of choosing the delivery method: paper (hybrid) or electronic. when the sender sends a registered letter, he/she fills in a form with the recipient's e-mail address (in the french post office domain) and his/her own address. then, the system checks, if the given addressee has a confirmed digital identity. if the addressee has one, the letter is sent electronically otherwise hybridly. electronic letters may only be sent to other holders of digital identity. hybrid letters can be sent only to recipients residing in france, corsica, the french overseas departments, and monaco. the box can be integrated with the digiposte, i.e. the electronic document exchange box. digiposte enables also to archive documents and share them with other users. the free storage space is 5 gb, but the french post office provides a chargeable additional space (service-public.fr 2018; atlantico 2018). the exchange of documents is a free service for their recipients, because the entire cost is borne by the sender. qr codes containing key document information are added to the documents. digiposte offers a dedicated free digicheck application for reading these codes. documents are kept for a specified period of time. 11 thousand national and 70 thousand local services available in the service-public.fr system were carried out using this digital mailbox system in 2015. this platform had 5 million individual user accounts already in 2015. an interesting case of failure of digital platform for postal services one can find in italy. italian government created a law in 2009, which was the starting point for the postacertificat@, a digital platform project based on pec solutions (certified electronic mail). pec is a service provided by many different operators, typically under annual subscription model. prices start from €5 and depend on the size of the box and on the daily limits of messages sent, and some additional ope u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 124 tions (e. g. sms notifications). the pec system was supervised by italian government, which set technical and functional standards. the operators of this system may be entities that pass certification and meet all standards. italian law imposes an obligation on a specific group of entities to use the pec: companies, businessmen, and public administration authorities. the message sent with pec were equivalent to a registered letter. in the case of postacertificat@, the provider of free accounts for communication between public offices and citizens, was the italian post office (poste italiane). it was, because in 2014, after more than 5 years of operation, the project was closed down, due to low interest, and high costs of operations. by december 2014 italians have established just over 2.1 million accounts in the postacertificat@. since posta certificat@ platform was limited only to communication between citizens and public administration, most citizens preferred to use the "standard" pec version of other operators providing more of other complimentary services. the low activity of users of this platform (as much as 82% of the users sent never messages) and high costs of maintenance, and development, (the government spent 18 million euro) resulted in its closure. envelo – a modern digital platform of services offered by poczta polska fast developing e-commerce and common access to fixed-line, and mobile, internet force dynamic changes towards digitisation also in the postal services market. national postal operators place great emphasis on the development of commercial e-services and support for e-government initiatives. postal services must provide citizens with maximum convenience and secure access to online products. in 2012, poczta polska s. a. established a subsidiary company, poczta polska digital services, in order to digitise its own services. it created envelo platform. it is one of the most modern digital postal services platforms in europe. the platform provides convenient access to comprehensive, secure and trusted postal e-services using internet-connected fixedline and mobile devices. envelo allows for using postal services anywhere and anytime during the day. envelo offers services that utilize hybrid solutions providing access to traditional online postal services and fully digitalized services. since 2013, envelo has offered three basic e-products: neostamp, neocard and neoletter. a neostamp, is a sold online postal stamp secured by data matrix code for self-printing. after the online purchase one can print it on a sheet of paper, self-adhesive label or directly on the envelope. neocard is the same as a postcard sent over the internet and delivered to every place in the world in print. a sender can attach his/her own photo, or use a photo gallery available on envelo platform. the neocard is sent with a free application to mobile devices running on android, ios or windows phone systems. it should be mentioned here, that using the application, one can also use traditional post services, such as: search on the map for a post office or letterbox in the selected location, check the postal code or order a pocztex courier, and then follow the shipment. neoletter is equivalent to a traditional letter that a user prepares and sends via envelo platform. content of the letter is filled in, or attached as a pdf file, recipient data is added, and the standard, in which the leter should be delivered is selected: economical or priority. thus, the neoletter is sent on internet, and delivered to the addressee in a traditional manner: printed in an envelope. a mailman will deliver neoletter directly to a postbox of a designated person, company or bureau. envelo platform offers also a dedicated service for exhibitors and recipients of invoices. since 2014, further e-services have been implemented, such as a neoinvoice and mass neoinvoice. this e-service makes it possible to send all invoices over internet, regardless of the planned form of delivery: electronic or printed. the recipients of electronic neoinvoices are customers of companies, who can receive, view and archive them in their neoinvoice box. the mass neoinvoice is intended for customers sending over 100 thousands invoices. a dedicated portal is tailored to customer needs through the management of a single shipment and various correspondence 125 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 templates. the e-invoices will be sent to a special inbox on envelo neoinvoices platform. those invoices that are to be delivered in the traditional way, will be automatically printed and enveloped, and then delivered by a postman to the letterbox. this service is used, among others, by pge obrót sa the largest power supplier in poland, who sent in 2014 over 6 million electronic documents this way. in 2014, envelo introduced neostamps for registered mail with additional services supporting the dispatch of registered mail. there also were made available neostamps for foreign letters and personalised neostamps, which enabled individualisation of the message also in the unique form of a traditional postal stamp. in the first year of this particular service (i.e. 2014), users of envelo purchased 1 million neostamps and 90 thousand neocards were sent. nearly 30 thousand users were registered on envelo platform, while the mobile application was installed by over 40 thousand smartphone and tablet owners. envelo box is a very important element of envelo platform. it facilitates the process of public administration digitisation. this digital mailbox allows for sending messages from a trusted account marked with the digital postal stamp. the box is a carrier of the e-identity service, which allows for authenticating the user. the digital postal stamp is a guarantee of the authenticity, and integrity, of correspondence, as well as a confirmation of the time of sending and receipt. it should be noted, that envelo guarantees a very high level of data security through access control in all layers and repository encryption. in security tests of the reputable qualys ssl labs company, envelo platform received a+ rating. at present, in the scope of envelo box, every logged in citizen can be granted the status of a trusted account without any charge, and can have access to another service an electronic neoletter. the condition is a one-off proof of identity at the post office, by presentation of an identity card or passport. if a user runs a sole proprietorship, he/she must also provide tax number and national business registry number. electronic neoletter functions only in digital form and is a message sent online only between users of a trusted accounts. although at first glance it may look like an email, the electronic neoletter is much different. since security is the basis of online communication on envelo platform, a confirmation of identity of users of trusted accounts at a post office gives the sender and the recipient a guarantee, that the correspondence has been sent, and received, by a real person, company, or institution. holders of trusted accounts do not receive any of automatically sent spam from unknown sources or viruses from false addresses. an electronic neoletter can be registered, or unregistered. if the sender chooses the option of a registered letter, he/she will receive to envelo box a confirmation of sending, delivery of the message, as well as information about reading it, or rejecting by an addressee. each of these confirmations is marked with a digital postal stamp. this means that the date shown on the confirmation is authentic, and nobody interfered with its correctness. such security features are important in business relations, when one sends documents, or offers electronically. through a network of post offices throughout the country, polish post offers trusted profile, and its confirmation, by envelo trusted account. after proper verification, a citizen will be able to log in to e-services of public administration via his/her account. trusted profile is nothing else but a free, electronic tool for online authenticating one's identity, i. e. the equivalent of an electronic signature. one can easily and quickly handle online many official matters, including filing an application for an identity card, or registering a new business. trusted profile is needed for submission of the standard audit file for tax by vat payers. authentication of electronic identity is the same as presentation of an identity card at a post office, a bank, to a notary, or a lawyer. in this way, the other party confirms the identity of a citizen. after confirmation of identity in the post office, it is possible to use this sequence of numerical signs in relations with public administration. very important in this regard is an agreement signed in 2016 between the polish post and its subsidiary company polish post digital services with the polish securities printing house, the provider of an electronic signature. the agreement is about e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 126 digital platform of japan post dissemination of electronic signature via the network of post offices. another agreement signed in 2016 between the ministry of infrastructure and construction and the ministry of digitisation and the polish post (envelo) on strategic cooperation in the process of state digitisation is also very important for supporting public administration in the construction of digital poland. nevertheless, the future of poczta polska digital platform lies in the full portfolio of digital services tailored to various customer groups (envelo 2018). after presenting eu experience with focus on polish case, as the most modern digital platform in operation, it is time to compare achievements in this regard by japan post. japanese postal operator was analysed on a basis of a face-to-face interview with japan post top manager responsible for this section. the interview took place in march 2019 in miyazaki, at the jp central office. japanese economy is considered by many as one of the most advanced and therefore highly digitalized. however, when it comes to digital platforms serving the national post operator, japan may be considered as lagging behind the european union. for example, japan post does not offer any services that match neostamp, neoinvoice, envelo box or searching for a letterbox in a selected location. japan post offers a mobile application that is a restricted and reduced form of the neocard available in poland. in japan customers can create their own postcard with greetings for several special occassions, like the new year, funeral, summer greetings (shoochu-mimai). this platform allows for scanning of previous year postcard mailing address, but its operations are restricted to period from the beginning of november each year to mid-january, for new year’s greetings. the difference from the neocard is in the location of printing the postcard. japan post, after receiving all data for this special service, prints the greetings card in the post office closest to the sender, and then dispatches it through its network to the recipient. no significant savings in terms of transportation costs, or co2 emissions are achieved this way, unlike in the ue. there is another service from japan post (named: letax) that matches closely neoletter offered by polish post. however, there are several differences and limitations. in fact, letax is a form of a telegram sent on special occasions. its uniqueness comes from speed of delivery granted by similar logistics, as in the eu (printing of the message takes place at a post office closest to the recipient). if the service is ordered within the 10 days preceding a special event (like a wedding, final examinations, graduation, etc.) customers may chose exact date and time for delivery of greetings. customers can chose design of envelopes in which telegram will be delivered. due to the very nature of telegram, japan post grants immediate delivery on the same day, if customers submit the greetings by 15:30. there are some limitations for citizens living in areas on remote small islands, where jp coverage is low. there is an additional service (web-letax) that is slightly cheaper than the option described above but restricts design of the letterhead and envelopes. it allows for sending the same message (or greetings) to multiple recipients. web-express mail is another postal service provided via japan post digital platform. users can upload pdf or msword files with the content of an intended letter to be delivered on the same day to the receipient, again if the request is made by 15:30. this postal service is covered by a tracking system. web letter by japan post is a service to handle the following cases of letters: invoices, invitations, notifications, and direct marketing materials. post office closest to the customer prints the documents provided, and then puts letters in envelopes and dispatches them as regular mail all over japan using its standard logistics network. the whole process is fully automatic, with no labour involved, and as such is considered as failure-proof. all the three above described services by japan post require a prior registration of a customer on jp website. such registration is free of charge. japan post does not offer anything that matches envelo box, or anything similar to trusted profile solutions. 127 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 e-content certified services by japan post seems somehow similar to digital postal stamp that is aimed at confirming the date, and content of a message sent. system accepts msword files only due to free access to the content that is subject to certification. post office closest to sender will check the content, issue a certificate to confirm the content, and then print it and dispatch it via the regular logistics network. this is considered a registered mail, but not express. computerpost service is geographically restricted to only three central post offices in prefectures: tokyo, osaka, and aichi. it offers retrieval of data from any memory device delivered to the three designated post offices in japan. it allows for sending direct marketing materials (with samples of products, like cosmetics for example), and dispatching invoices to numerous customers at the same time. dmfactory (direct marketing factory) allows for designing direct marketing materials on-line. customers chose design out of those available in the gallery, and then upload all the required information to-be-included in the advertising leaflet. the minimum number of such direct marketing items is 40 for new year’s card (nengatownmail), 100 copies for townplus, and 1000 copies of any other types of flyers. townplus is a dedicated service used often during political campaigns for addressing citizens living in a targeted area. customers using this service don’t need to specify addresses of any recipients. intended content (leaflets) will be delivered to all people living in a specified part of a town, a village, or a city. nengatownmail, which can be translated as “new year’s mail” is similar to townplus. it is available only from the end of december to mid-january. this service is used to send new year’s greetings to people living in a particular part of a settlement. such greetings are sent by local businesses and contain very often advertisements, special offers and alike that apply for the end-of-the year season. japan post offers few categories of country-specific services. they reflect unique national culture, and facilitate cultivation of japanese traditions. this is why they are not present elsewhere among national post operators. one should expect few changes to its operations and reforms of japan post in the future because there is still capacity of modern technology to reduce costs of operations, and minimize climate impact of this national post operator. conclusionsintended research was completed successfully. aim of the paper was achieved and presentation of digital platforms of selected countries was complete, and up to date. comparison of benefits achieved by postal operators, and their customers in respective countries allowed for evaluation and recognizing leadership position. summing up the results of the comparative analysis of selected digital platforms of national postal operators in the eu and in japan one can see clearly market trends. this is not a surprising phenomenon of replacing traditional postal services with modern, digital equivalents. european union countries seem to record significant success in proliferation of digital platforms for all forms of communication among agents in the national economy, within the eu, and with entities abroad. the comparative case of japan gives an impression that the underlying economic and social system does not require similar digitalization of postal services, and citizen-state relationships. in the same time, one can recognize highly country-specific postal services provided by japan post via its digital platform. these special services reflect uniqueness of japanese culture, and traditions. another section is utilization of postal services offered via digital platforms for e-government purposes. this is perceived as a natural evolution of communication between a modern state and a citizen in the age of internet. in this regard statistics on saturation by digital platforms and utilization of digitalization potential seem most informative. us is the leader here, with eu quickly catching up. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 128 a big question remains on the extent to which modern solutions affect environment. utilization of electronic equipment and digital platforms is a source of savings in terms of money for all agents involved. this is also a way to protect the natural environment against pollution, waste (of paper), and greenhouse gases emissions. according to our study, some countries and societies seem to be working effectively towards this end, achieveing tangible results in both, cost savings and reduced impact on the environment. the current situation leaves still great deal of improvement in some regions, as national post operators do not fully utilize the available it solutions. an advantage of national postal operators when it comes to coverage of digital platforms results from the fact that national posts have the largest distribution networks (i.e. post offices and postmen). this backgroud guarantees reaching all citizens, not only those who use internet, but also those who are digitally excluded (older ones and in remote areas). role of national posts is significant. most eu citizens have confidence in national operators and recognise their brand. the most valued features of post office services are security, fairness and efficiency (opinions 2016). for implementation of digital boxes for public administration and citizens to succeed, three basic conditions must be met. first, the focus should be on a single system, a single digital platform for public administrations and a postal operator of an eu country, without any government-operated alternatives. a successful example is e-boks in denmark. an unsuccessful one is italian post office's digital mailbox that was closed down because the pec system run by italian government was more popular. second, the functionality of a digital platform is important. this means that the system must offer an intuitive interface easy-to-use. third, support from a government and priority must be given to digital administration. a good model of using postal infrastructure for the digital state is the solution present in the czech republic. services provided by digital platforms should be based on public interest rather than economic individualism, or market-based approach. these services, like postal services, provide public value. governments should ensure that all citizens in a country have access to high-quality digital services, free of charge, anywhere, and under the same conditions. hence, any digital platform for communication and interaction between the state and citizens should be maintained by government, or postal national operator. the current research on digital platforms seem to suffer no limitations due to full relevant information available in the real time. however, as the new forms of communication are developed and introduced by national postal operators in europe and asia, further research may bring new insights into leadership position in this regard. references atlantico (2016). retrieved february 28, 2018 from http://www.atlantico.fr/decryptage/fermeture-ann o n c e e s i t e m o n s e r v i c e p u b l i c f r o u c o m ment-simplification-rapports-entre-administra 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(2005). the deepening divide: inequality in the information society. london: sage 31 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 violence against women in germany and immigrants: a mediatized political communication? http://dx.doi.org/10.5755/j01.eis.0.11.18957 titty varghese, ligita sarkute kaunas university of technology, faculty of social sciences, arts and humanities/institute of public policy and administration, a. mickevičiaus g. 37, lt-44244, kaunas, lithuania titty varghese@ktu.edu, ligita.sarkute@ktu.lt submitted 04/2017 accepted for publication 08/2017 european integration studies no. 11 / 2017 pp. 31-43 doi 10.5755/j01.eis.0.11.18957 © kaunas university of technology violence against women in germany and immigrants: a mediatized political communication? eis 11/2017 abstract introduction violence against women is experienced by all ages and social classes, all races, religions and nationalities. it is estimated that at least one in three women were subjected to some type of inter-personal violence over their life time (un security council resolution 1820). the european union agency for fundamental rights found that in eu one in 10 women experienced some form of sexual violence since the age of 15 and, one in 20 has been raped. this article seeks to find out the role of media on portraying the reports of violence against women in germany which are carried out by men with immigrant background. the tasks include analysing the different violence incidences against women which are reported by media in germany and also observes the role of policy mechanisms and punishments for such crimes. research methods employed in this study encompass document analysis of different aspects of violence incidences by observing news reported from july 2016 till february 2017 by two e-newspapers in english. also secondary data analysis of different statistics such as crime statistics from germany, migration reports from eurostat, violence reports by european union agency for fundamental rights (fra)etc. were used in this paper. the primary interpretation can be made in such a way that there is an alarming increase in violence against women by certain group of men with immigrant background in germany despite of the fact that german mass media tries to obscure such reports while the international newspaper do not try to hide. the lack of successful integration of refugees can be identified as a big barrier to prevent such incidences and minimal punishment for crimes against women should be evaluated and modified by respective governance bodies for preventing such incidences. keywords: violence against women; migration; refugees; media; public policy. violence against women include any physical or sexual act against a woman (or girl) which meet or surpasses a minimum level of force, including pushing, hair pulling, hitting, smacking, slapping and being held down by a man. due to the increasing number of immigrants as refugees to europe various countries faces challenges on governance, economic and social security of the immigrants, their settlements etc. one of the rising issue due to influx of immigration can be seen in the form of violence against women which are perpetrated by men with immigrant background, towards the european and non-european women in countries. since germany is one of the country which accept and receive high number of refugee various crimes has been increased here in the last years. hence there occurs the necessity of attention towards such crime e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 32 and media plays a major role in giving much focus on such incidences. so that it is necessary to identify the underlying truth behind the mediatized approach towards reporting violence crimes against women by men with immigrant background as the scientific problem and this article trying to figure this aim. due to this features this article is very relevant and novel in the research arena. it analyses mainly two english news portal available online, one is from germany and another is an international e-new portal. this article observes how the mediatization of such news has been carried out by these two new portal in the duration from from july 2016 till february 2017. the tasks covers analysing the different violence incidences against women from germany which are reported by two e-news portals and also observes the role of policy mechanisms and punishments for such crimes. research methods employed in this study encompass document analysis of different aspects of violence incidences by observing news reported from july 2016 till february 2017 by two e-newspapers in english. also secondary data analysis of different statistics such as crime statistics from germany, migration reports from eurostat, violence reports by european union agency for fundamental rights (fra, 2014) etc. were used in this paper. the primary findings can be seen in such a way that there is an alarming increase in various crimes committed by men with immigrant background especially with refugee status in germany and the violence against women by these group of men is increasing across years, despite of the fact that german mass media tries to obscure such reports while the international newspaper do not try to hide. the lack of successful integration of refugees can be identified as a big barrier to prevent such incidences and minimal punishment for crimes against women should be evaluated and modified by respective governance bodies for preventing such incidences. in any society media plays an important role in the culture and social development. krotz (2007) and schulz (2004) views mediatization as a social and cultural process. mediatization has influence on political communication and other aspects of politics. mazzoleni and schulz (1999, p.249) say that ‘mediatized politics is politics that has lost its autonomy has become dependent in its central functions in mass media, and is autonomously shaped by interaction with mass media’. thompson (1995) sees that the media development plays as an integral part of the development of modern society. mass media significantly influences society and enabled communication and interaction over long distances and among larger numbers of people. in another words mediatization can be understood as a postmodern concept in which media has emerged as an independent institution on its own stand surpassing and overriding other social institutions. media become an integrated part of the institutions such as politics, work, family, and religion as varied forms of mass communication is playing a greater role in forming and expressing opinions. mediatization not only about the role of media on determination but that they at once have attained the status of independent institution and provide the means by which other social institutions and actors communicate. it is also clear that media intervene into the activities of other institutions such as family, politics, organized religion, etc. and they also provide ‘common’ for society as whole in virtual shared form which are used by other institutions widely to make their activities more reachable to public. so that mediatization and institutional activities are closely dependent each other (hjarvard, 2014). in the sphere of violence against women mediatization plays a greater role in both the developed and developing world even though the magnitude and the role played are different. in the developing world, mediatization helps in women empowerment like beyond women’s organization for women education, women right for job, propaganda against child marriage and against domestic violence and rape. since 1970’s women’s approach towards inequality changed across world however it remains s unequal in the realm of media. the new reporting regarding violence against women influences political attention on such issues and the respective government required to adopt new prevention mechanisms to tackle the issue. 33 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 migration can be seen as a one of the significant human phenomenon which the human community has practiced and continuing from ancient till modern times. the concept of migration assumes great significance in modern times mainly due to the current migration crisis and influx of refugees and migrants to europe and america due to the war and crisis in middle east and africa. it can be seen that the 9/11 attack on the united states and the subsequent invasion of afghanistan and iraq to combat global terror leads to the displacement of the existing dictatorial regimes in these countries which led to the instability and anarchy in the middle east and south east asia. also the recent democratic uprisings in the sub saharan and african regions with the arab spring led to the fall of dictatorial regimes in syria, morocco, libya and other non-democratic countries which led to the political, economic and social instability. apart from the normal eu procedure of annual refuge intake, these global issues lead to mass illegal immigration through loose borders in europe. the current data shows that the trend is alarming as more than 1 million migrants and refugees crossed into europe in 2015 whereas it was just only 280,000 in 2014. it can be seen than the crisis is getting worsen only as more than 135,000 has already arrived with the first two months of 2016. it can be seen than more than 80% of the refugees are form the worst affected states and the non-democratic regimes of the world which are well known for human rights violations i.e. syria under assad, iraq under former dictator saddam hussain and libya under gadhafi and afghanistan under the rule of taliban. the rest is coming from countries like pakistan, iran, somalia, eritrea etc. in the search of a peaceful livelihood. in the recent time in order to reach to europe in the hope for a better life people are taking risky ways by crossing through boats in the mediterranean and through land borders of greece. according to un refugee agency (un4refugeesmigrants) in the first eight months of 2016, about 281,740 people crossed sea to europe and about 4176 people died or gone missing on the mediterranean sea. it can be seen that there is a current sharp rise in the illegal immigration with a sharp increase with regard to syrian refugees due to the ongoing crisis in syria. it is to be noted that the eu policies with regard to border (schengen area) as less restriction on border crossing and mobility, the illegal immigrants who are entering the europe through sea and through the mediterranean route are able to freely across the borders and to reach to the most preferred destinations. this is leading to an outcry in many european states and even negative public opinion about immigration policies. this can even lead to lack of consensus in the eu with regard to migration policies and programs. immigration crisis in europe the scope of violence against women in germany violence against women has been used to describe a wide range of acts, includes murder, rape and sexual assault, physical assault, emotional abuse, battering, stalking, prostitution, genital mutilation, sexual harassment and pornography. crowell et al (1996) views intimate partner violence or battering, the coercive control by physical violence, psychological abuse, sexual violence and denial of resources took place. when considers violence against women in the south asian countries women and girls facing different forms of violence. in the opinion of solotaroff et. al. (2014) violence in childhood and later stages affects negatively women and girls to participate in different actions such as getting education and employment. due to the suffering they failed to get good career and prospects. also it points that the violence against women and girls undermines countries achievements and deteriorate developments. kelly (1998, cited by dobash, 1998, p.53) defined violence as ‘any physical, visual, verbal, or sexual act that is experienced by the women or girl at the time or later as a threat, invasion, or assault that has the effect of hurting her or degrading her and /or takes away her ability to contest an intimate contact’. it can be perceived from the statement that the issue of alcoholism and drug abuse are major cause of violence among relationships and will lead to sexual, verbal and physical violence, and leads to the situation of the lack of confidence and trauma for the women. also in the conflicting areas, “increase in dowry related violence against women has been associated with the demand for e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 34 higher dowries in order to replace processions that have been destroyed during civil upheavals” (njovana, 1994, cited by dobash, 1998). in europe violence against women seems to be high according to eu wide survey report (fra, 2014). the european union agency for fundamental rights conducted an interview with 42000 women across 28 member states of eu, and found that one in 10 women experienced some form of sexual violence since the age of 15 and, one in 20 has been raped. over one in five women faced physical and or sexual violence from current partner or previous partner, and one in 10 women revealed that before the age of 15, they faced some form of sexual violence by an adult. when it comes to reporting only 14% of women reported their most serious threat to police and only 13% report their most serious injurious by non-partner to police. all these data show that in eu many women did not try to report incidence to authorities and due to this majority of incidences becomes hidden. figure 1 physical and/or sexual violence against women by a partner or a nonpartner since the age of 15 (fra, european union fundamental agency for human rights, 2014) figure 2 number of asylum applicants in eu-28 (eurostat, february 10, 2017) 33 35 32 32.5 33 33.5 34 34.5 35 35.5 eu average germany the above given figure 1 shows the percentage of physical or sexual violence by partner or non-partner faced by women in eu and germany. an average 33% of women from eu and 35% of women from germany faced such violence from the age of 15 in their life time. the below given figure 2. show the number of asylum and first asylum applicants in eu-28 countries from 2010-2016 (eurostat, february 10, 2017). according to this figure we can identify that during 2010 about 259400 refugees applied for asylum across eu and when it is 2015 the numbers has been increased dramatically to 1322825. according the eurostat report in the year 2016 about 1010885 number of people applied for asylum. 259,400 1,010,885 0 500,000 1,000,000 eu-28 total 30 72 0 32 55 85 48 73 70 17 73 0 1 50 05 0 25 58 70 2 0 1 0 2 0 1 5 2 0 1 6 the below given figure 3 shows the number of asylum and first asylum applicants in germany by total male and female applicants from 2010-2016 (eurostat, february 10, 2017). it is very visible that the number of male applicant who have applied for asylum in germany and in sweden outnumbered female applicants from 2010 to recent study in 2016. 35 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 according to the bbc news on december 9, 2016 in 2014 122 of the 2760 murders and manslaughters were carried by immigrants in germany and in 2015 it was 233 out of 2721 killing. in 2014 about 949 immigrants are responsible for assaults including rape. the below given figure 2 shows the total number of crimes happened in germany in 2014 and 2015 by german police records bundeskriminalamnt (bka, 2015). according to the bka explanation on ‘immigrant’ here it refers to the ‘people who are asylum applicants or on exceptional leave to stay or quota or civil war refugees or irregulars’. the figure 4 shows the total number of all forms of crimes happened in germany in 2014 and in 2015. the total number of crimes has been increased about 4.10% in whole germany and the suspected germans rate has been fallen down to -4.90% in 2015 than it was in 2014. while there is a remarkable growth in the number of suspected people with non-german background to 47%. it is very visible that the suspected people on various crimes with immigrant background has been increased from 2014 to 2015 as 26%. there were hundreds of reports on women being undergone for groping and sexual violence during new year eve in cologne in germany on 2015 and some media tried to cover the perpetrators origin as immigrants. all these scenarios created tension and worries over european society on the safety of women in europe and the dangerous increasing violence by immigrants to women. as an aftermath of this influx of refugees and immigrants, the mainstream media and european society has been started to re-think on taking refugees to their country. since germany and sweden have the most welcoming nature on refugees, it’s important to analyse the issue of violence in this society since the news media have been come up with different atrocities and frightening violence inci30 72 0 32 55 85 48 73 70 17 73 0 1 50 05 0 25 58 70 2 0 1 0 2 0 1 5 2 0 1 6 figure 3 the number of asylum and first asylum applicants in germany (eurostat, february 10, 2017) figure 4 number of crimes in germany, 2014-15 (bka police crime statistics, 2015, p.8) 6082064 1532112 617392 179563 6330649 1457172 911864 463889 -20% 0% 20% 40% 60% 80% total crime suspected germans suspected non-germans immigrants 605 645 599 949 1683 2790 0 1000 2000 3000 2011 2012 2013 2014 2015 2016 7345 7022 1911 1952 31.00% 33.10% 0 2000 4000 6000 8000 2014 2015 total rape and sexual coercion non-german suspects e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 36 dences over women in these countries. for the analysis of violence incidences, we cover the media reports on sexual violence against women in germany and in sweden during the 2015-2016 year in both countries. looking at the given below figure 5. it is noticeable that there is drastic change in the number of sexual crimes by immigrants in germany from 2011-2016 periods. in the year 2011 it was only 605 cases, in 2012 645, in 2013 599, in 2014 it was 949, in 2015 it was 1683 and in 2016 it was 2790 cases. since violence against women becomes an increasing issue in germany it is important to identify the rape and 6082064 1532112 617392 179563 6330649 1457172 911864 463889 -20% 0% 20% 40% 60% 80% total crime suspected germans suspected non-germans immigrants 605 645 599 949 1683 2790 0 1000 2000 3000 2011 2012 2013 2014 2015 2016 7345 7022 1911 1952 31.00% 33.10% 0 2000 4000 6000 8000 2014 2015 total rape and sexual coercion non-german suspects 6082064 1532112 617392 179563 6330649 1457172 911864 463889 -20% 0% 20% 40% 60% 80% total crime suspected germans suspected non-germans immigrants 605 645 599 949 1683 2790 0 1000 2000 3000 2011 2012 2013 2014 2015 2016 7345 7022 1911 1952 31.00% 33.10% 0 2000 4000 6000 8000 2014 2015 total rape and sexual coercion non-german suspects related sexual offences against women. below given figure 6 shows the number of rape and sexual coercion occurred in 2014 and 2015. in 2014 about 7345 cases have been registered and in 2015 it was 7022. the suspected immigrants were 31% (1911) in 2014 and in 2015 immigrant suspects increased to 33.10% (1952). for the purpose of analysing the incidences of violence against women especially rape crimes in germany, two different news portal reports have been used. one is www.thelocal.de named the local german, which is an online news portal publishes all main news from whole germany and another is an international online news edition www.express.co.uk from uk. this article observes news from these two news portals in a duration of july 2016february 2017. it identifies the news published in these portals such as violence against women in the form of sexual abuse, rape and other molestation in germany. according to the findings there have been almost 11 sexual offences has been published in www.thelocal.de and 40 incidences of sexual offences has been published by www.express.co.uk from germany in the given period. the below given table 1. identifies the sexual offences news published in www.thelocal.de from july 2016-february 2017. in may 2, 2016 the news portal local.de published that one senior police officer instructed other police officer to prevent reporting the new year evening rape incidences in media. from the above table we can identify that about 11 news reports have been published by news portal www. thelocal.de from july 2016 till february 2017. among this news only 2 cases show that the suspects are german citizens and one is another from eu. all other 8 crimes against women have been conducted by immigrant men with refugee background. which means about 73% crimes are carried out by immigrants, 18% by german and 9% non-german. the below given table 2. identifies the sexual offences news published in www.express.co.uk from july 2016-february 2017. from the table it’s is understood that in between july 2016february 2017, over 45 sexual figure 5 number of sexual crimes by immigrant in germany in 2011-2016 (bka, police crime statistics, 2015, p. 14) figure 6 number of suspects in rape and sexual coercion crimes in 2014-2015 (bka, police crime statistics, 2014 & 2015) analysis of the media reports on violence against women in germany 37 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 date news 1. 8 february 8, 2017 two asylum seekers charged with abusing young girls in swimming pool 2. 7 february 7, 2017 police arrested syrian isis suspect accused or rape in germanys 3. 2 february 2, 2017 suspect confess rape in munich university toilet 4. december 15, 2016 moroccan man raped women in hamburg club who was ordered to leave country in april 2016 5. december 4, 2016 german government arrested teen afghan boy over rape and murder of girl 6. november 25, 2016 german couple arrested over rape and murder of chinese student 7. november 15, 2016 dutch citizen who was an asylum home manager arrested over rape of refugee women 8. november 14, 2016 seven refugee men arrested over raping iranian refugee women in asylum homes 9. october 24, 2016 14 year old german girl gang raped my young men from germany 10. july 15, 2016 cologne women reports pregnancy after nye rape 11. july 7, 2016 iraqi refugee arrested over two rape incidences in bochum source: www.thelocal.de. table 1 incidents of violence against women in germany reported by www.thelocal.de in july 2016-february 2017 table 2 incidents of violence against women in germany reported by www.express.co.uk in july 2016-february 2017 date news 1. february 21, 2017 iraqi migrant raped 13 year old gild at train germany fled to hungary 2. february 17, 2017 berlin police in hunt for libyan man accused of rape of women 3. february 12, 2017 elderly women on her way to work raped by foreigner 4. february 8, 2017 five girls including 12 year girl sexually assaulted by immigrants in german pool 5. february 7, 2017 migrant breaks girls nose for refusing sex with him 6. january 21, 2017 migrant tried to sexually assault teenage girl in train station 7. january 19, 2017 police dropped case over migrant who is suspected of two sex attacks on new year 8. january 13, 2017 migrant arrested for raping girl in class room and said he had high sex drive 9. january 13, 2017 school girl 13, trapped immigrant man who tried to rape her 10. january 10, 2017 father saves daughter from syrian refuge who tried to rape her 11. january 10, 2017 germany post wanted photo of suspect after 4 months of sexual crime against german girl 12. january 9, 2017 afghan refugee who were allowed to sleep in german women’s home raped her 13. january 9, 2017 manhunt is underway after african or arab looking man tried to rape german girl after following her in train and bus in september 2016 14. january 9, 2017 libyan migrant arrested for sexually assaulting german girls aged 13 and 14 in train station 15. january 9, 2017 nursed lured to park by fake cries for help and sexually abused by african men. 16. january 6, 2017 integration of migrants continues to fails and sexual violence against women increases 17. january 5, 2017 24 year old refugee raped pensioner in germany 18. january 4, 2017 asylum seeker overdue for deportation rapes teenage girl in migrant centre toilet. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 38 date news 19. january 4,2017 german police in search for mediterranean boy who rapes 69 year old pensioner in germany 20. december 23,2016 migrant accused of rape crime said it’s hard for to get a girlfriend as a refugee. 21. december 16,2016 only 18 convictions from 1310 victims a year after cologne attack by migrants. 22. december 14,2016 afghanistan migrant arrested for rape and murder of german girl, was also a suspect of sexual attack in greece and gets a punishment of 10 years in now. 23. december 10,2016 immigrant serial killer ordered to leave germany arrested for rape 24. december 8, 2016 syrian born political scientist says migrant see german women as ‘fair game’ to be raped 25. december 8, 2016 cologne sex attacks video emerges 26. december 7,2016 iraqi asylum seeker arrested for sexually assaulting students 27. december 3,2016 migrant sexual assaults teen girls and says he has sexual compulsion 28. november 24,2016 middle east looking man dragged girl out of street and raped in german town 29. november 2,2016 german police officials forced teenage girl from giving complaint over sexual assault by refugees 30. october 31,2016 17 asylum seekers sexually assaulted two women in church square 31. october 20,2016 serbian gang raped 14 year old girl and walked freed from court. 32. october 17,2016 90 year grandmother raped by 19 years old moroccan migrant on the way back from church 33. september 28, 2016 police dead shot refugee who tried to avenge daughter’s sexual assault who was also another immigrant in the same camp. 34. september 27, 2016 teenage girl grabbed by 3 men in famous german beer festival oktoberfest. heroic teenage boy saves 18-year-old girl grabbed by gang of men at oktoberfest. 35. september 18, 2016 afghan refugee raped migrant toddler in asylum centre in germany gets a punishment of only 2 years. 36. september 9,2016 200 migrant sex attack only in one german town 37. august 26, 2016 teenagers sexually assaulted by iraqi migrant in german pool 38. august 17, 2016 afghan asylum seeker arrested for sexually assaulting 4 year boy dragging him to toilet 39. august 3,2016 cologne sex attack investigators told to delete the word ‘rape’ from reports by minister 40. august 3,2016 smuggler arrested for forcing young girls into prostitution 41. july 31,2016 several iraqi men arrested for sexual assaulting a number of women in berlin 42. july 27,2016 refugee arrested for raping 79 year old women 43. july 19,2016 migrant men assaulted girls in ga german festival 44. july 15,2016 18 year old girl had abortion after mass cologne migrant sexual assault 45. july 12,2016 sexual abuse victims in cologne attack has been raised to 1200 by police report 4610. july 11,2016 another german region reported sex attack by immigrants in german pool 47. july 11, 2016 iraqi arrested for ‘licking’ women’s face in cologne attack 48. july 5, 2016 german women lied about the description of immigrant sexual attacker to avoid racism source: www.express.co.uk 39 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 violence in the form of rape or aggravated rape has been published by mass media. among this news it is clear that almost all news has been focusing refugee/immigrant background men as the suspect of the crime. so based on the below given figure 7 we can identify that the major crimes are committed by people with refugee background including minors who are asylum or asylum seekers. among 48 reported news 45 were related with violence against women and in 38 cases immigrants are the suspects, 4 were german citizens and other 3 were perpetrated by non-germans. 38 immigrants are categories as refugees or asylum seekers in germany, hence the issue of refugee integration and active policies to solve this issue is an increasingly important domain which needs efforts by authority. since in both news report cases majority of the suspects are immigrants with refugee background it is important to analyse the integration policies of germany. figure 7 news reports on violence against women with the suspect’s background in express.co.uk 3 38 4 0 10 20 30 40 other immigrant refugee german after understanding the issue of violence against women especially committed by the refugees shows the lack of proper orientation and integration of these immigrants in these respective countries. it is to be noted that before the arrival and after reaching the respective countries they should be educated and oriented about the cultural differences between their home countries and their destination countries. they should be made understand about the various legal measures that are in place if crimes are committed and the punishment which will be imposed if such acts are committed as most of the immigrants are coming from different social and religious background and having the notion that only women belonging to their religion should be taken care and others can be seen and utilized as a means of disposable sexual pleasure. this needs to be corrected through proper orientation and exemplary legal acts which will be seen as a bench mark for future offenders. also with regard to media, they should act more responsible and highlight such incidences and should create awareness regarding the need to contain these acts. with regard to the above analysis it can be seen that the german local news media are hiding most of the incidents in the fear that there will be clashes between the locals and the immigrants. such acts will lead only to the worsening of the situation as if not properly contained it will grow to such an extent that it won’t be controllable in the future and will affect the notion of migration in itself. thus the media and politicians should show more enthusiasm in preventing these issue and the policy makers should evaluate the current legal measures and if not sufficient enough should reframe for the current circumstances. different punishments for violence against women in germany (the german federal law gazette). below given table 3. shows the different sexual crimes against women in germany and the subsequent punishment (federal law gazette, p.3799). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 40 table 3 punishments for sexual violence in germany section 177 sexual assault by use of force or threats; rapes 1. whoever coerce another person 1.1. by force 1.2. by threat of imminent danger to life or limb 1.3. by exploiting the situation which the victim is unprotected and the mercy of the offender imprisonment of not less than 1 year • serious case (rape) –if the victim forced to engage in physical abuse with other offenders imprisonment of not less than 2 years 2. offender uses dangerous weapons during the violence / carrying instruments which prevents victim to resist / offence places the victim in serious injury imprisonment of not less than 3 years 3. offender keeps and uses dangerous weapons during the violence and the victim gets very serious injuries or dies. imprisonment of not less than 5 years 4. less serious cases (under 1) imprisonment of 6 months to 5 years 5. less serious cases (under 3 &4) imprisonment of 1 to 5 years section 178 sexual assault by use of force or threat of force and rape causing death 1. if the victim dies due to the negligence of offender due to rape imprisonment for life or not less than 10 years section 179 abuse of person who are incapable of resistance 1. incapable 1.1. due to mental illness or addiction or consciousness disorder 1.2. physically incapable 1.3. allowing a third person to abuse the incapable victim imprisonment of 6 months to 10 years 2. sexual violence to incapable victim /offence is jointly by more than one people / victim is in dangerous injury to physical or emotional development imprisonment of not less than 2 years section 180 causing minors to engage in sexual activity 1. whosoever encourage a minor, below 16 years old to engage in sexual activity alone or with a third person 1.1. by acting as an intermediary 1.2. by creating opportunity imprisonment of not more than 3 years or fine 2. whosoever encourage a person under 18 years old to engage in sexual activity alone or with a third person for financial reward by acting as an intermediary imprisonment of not more than 5 years or fine 3. whosoever encourage a person under 18 years believed to be an entrusted person for the victim as carer or employer or responsible for upbringing and education to engage in sexual activity alone or with a third person imprisonment of not more than 5 years or fine 41 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 as from the above mentioned legal frameworks it can be seen that the punishments for committing crimes like rape and its consequent acts are very low and even negligible when compared to the punishment applied in various countries including the united states where having strict legal measures to combats these kinds of incidences. also the police should maintain an updated list of the incoming immigrants and both police and border force should contain illegal immigration to its roots as it will be difficult to keep a record of the illegal immigrants and will be difficult to identify in cases of crimes committed by them. in order to successfully integrate refugees/immigrants in the country there are several integration programmes implemented. anthias et al (2013, p.3) defines integration as ‘the process by which individuals become members of society and their multilevel and multiform participation within it, integration is a process related to different forms of participation, in the neighborhood, at work, school, family’. international organization for migration (iom, 2014) defines migrant integration as ‘the process of mutual adaptation between host society and migrant’. the federal office for migration and refugees has given numerous integration and cultural adaptation instructions for immigrants and refugees. it covers various aspects regarding everyday concerns, language learning, joint civic commitment opportunity for integrating with local and foreigners, leisure and sports programmes, enhancing skill programmes for increasing self-esteem, equal opportunities in work and school, and support for prevent crime and violence. then the ‘identity and integration plus’ programme which is for the integration of people among societies under federal expellees act (bundesvertriebenengesetz) which is in the form of 200 lessons which covers all the basic information such as issues dealing with their identity till information regarding the healthcare, educational facilities for immigrant children. it also gives special focus on women and their improvement so that they provide such courses for women also. all the above mentioned facilities are available by migration advisory service for adult immigrants and the youth advisory service, migrant organizations and voluntary welfare organizations. the language course is a free course with 600 hours and 60 hours of orientation course. both will be delivering for over 2 years. language course enables the communication skill in german while orientation course explains about german culture, norms, regulations, rights etc. as a refugee people get free meals at the reception centers and 143 euro per month for basic needs in the first 3 months and then later 216 euro per month. also 92 euro per child depending on their age are allocated by germany. after the approval of the asylum application or after 15 months of stay in germany they will be able to get 400 euro/month for expenses and additional cost for rent and heating. since there are mainly three main form of refugee categories such as, _ asylum seekerindividual who intend to file an asylum application but have not been yet been registered by the federal office as asylum applicant _ asylum applicant – asylum applicant whose asylum proceedings are pending and whose case has not yet been decided on _ persons entitled to protection and persons entitled to remainindividuals who receive an entitlement to asylum, refugee protection or subsidiary protection, or who may remain in germany on the basis of a ban on deportation (federal office for migration and refugees). based on the assumptions german government has been issued certain guides and manuals according to the eu instructions for refugees and immigrants along with ngo’s. one of the important such publication has been carried out by refugee guide online in 17 different languages and it contains all basic information that should be followed by immigrants. it elaborates on the public life, personal freedom, community life, equality, environment and ecology, food, drinks and smoking, formalities, and the necessary guidelines for in case of emergency are given. the social integration policies by germany for immigrants e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 42 main points which are noticeable for immigrants are, same sex relationship is legal, staring at men or women is prohibited and even if they are in t-shirt or in short skirts, fkk denotes the swimming areas textile free and in sauna and swimming pools, men and women have equal rights, cannot urinate in public, men and women drink and smoke in germany. apart from this br.de one of the leading online news has been published kulturguide, 14 cartoon guidelines for immigrants on germany which again contains images showing on how to behave to women, do not touch women’s body, do not fight each other, if you fight you won get asylum or residence in germany etc. another website zanzu (my body in words and in images) has published many instructions to immigrants with the support of federal centre for health education ministry in germany, on how to behave to women, how to keep hygiene, sex education etc. also if entered illegally if not able to accommodate should be sent back to their respective countries and if not should be properly integrated into the local system through language and skill training so that they won’t engage to crime and criminal activities thus preventing a lot of these kind of incidences. also the recent regulation imposed by the united states, european union should also review whether to take immigrants from the worst affected and terrorized countries as these will have a long standing implication for the respective countries. thus it can be concluded that a proper coordination between the policy makers, impartial media, judiciary in framing strict legal measures and a vigil public needs to tackle the issue of immigrant violence. if effectively coordinated this can reduce these incidences to a great extent and can lead to long standing peace. it is evident that media influences the agenda setting in politics and the concentrated policy responsibility and creates sensational issues like crime and environment are more prone to media effects. political communication is largely mediated communication, transmitted through the print and electronic media. political communication affects elections process. each party attempts to shape the agenda so that the media reflects its views on favorite topics. public opinion is monitored through opinion polls. societies have changed dramatically since the time of course. mediatization influences the agenda setting process in public policy. _ the increasing number of violence against the women an important area whch needs proper policies by respective givernmen to prevent. mass immigration causes various social and economical changes in the hosting countries and in tthe case of germany, it accepts high number of asylum applicants and hence there is variation in the living conditions. in germany there is noticable increase of violence against women. medi and its startegies plays major role in order to decide what the readers sould know or not on any incidences. one of the significant finding of this article shows that such offences were committed by asylum men along with native germans. _ it can be seen that even though in most of the cases the perpetuators are immigrants or people seeking asylum in germany, the media tends to be submissive with regard to the incidences as the fear of making unrest in the country. in order to avoid the tension between immigrant people and natives, german media is trying to hide certain violence incidences against women which are perpetrated by immigrants. _ the low level of security or background check on asylum seekers and immigrants led to increase criminal activities by individuals and groups and has been widely highlighted and criticized by the international media. also the lack of proper punishment for heinous crimes like rape and sexual violence leads to increased acts of violence against women as it can be seen that the punishment ranges from six months to maximum of 10 years and no punishment like life imprisonment or hang until death. also it can be evident by the careful observation for the past 8 months that there is a clear notion of mediatized political communication within the local german news paper with regard to the publishing of news and events which can cause tensions and clashes between locals and immigrants. conclusions 43 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 bundeskriminalamnt (bka), german police crime statistics 2014, 2015. retrieved from, https://www. bka.de/en/currentinformation/policecrimestatistics/2015/pcs2015.html?nn=39580. bundesvertriebenengesetz. go ahead from the bundesrat integration act to support and challenge. retrieved from, https://www.bundesregierung.de/ content/en/artikel/2016/07_en/2016-05-25-integrationsgesetz-beschlossen_en.html. crowell, n. a., & burgess, a. w. (1996). understanding violence against women: panel on research on violence against women. washington, dc: national research council. national academy of sciences. https://doi.org/10.1037/10204-000 dobash, r. e., & dobash, r. p. (eds.). (1998). rethinking violence against women (vol. 9). sage publications. eurostat. (2017). asylum and first time asylum applicants by citizenship, age and sex. retrieved from, http://appsso.eurostat.ec.europa.eu/nui/show. do?dataset=migr_asyappctzm&lang=en express home of the daily and sunday express, retrieved from, www.express.co.uk federal office for migration and refugees. the stages of the asylum procedure. retrieved from, http://www.bamf.de/en/fluechtlingsschutz/ablaufasylv/ablauf-des-asylverfahrens-node.html. fra, eu. violence against women: an eu-wide survey. main results report. (2014). hjarvard, s. (2014). from mediation to mediatization: the institutionalization of new media. in mediatized worlds (pp. 123-139). palgrave macmillan uk. https://doi.org/10.1057/9781137300355_8 international organization for migration. migrant integration (2014). retrived from, http://www.iom. int/cms/en/sites/iom/home/what-we-do/migrant-integration.html. varghese titty msc public policy kaunas university of technology, faculty of social sciences, arts and humanities/institute of public policy and administration fields of research interests public policy, administration, mediatized politics, ngo, violence against women address a. mickevičiaus g. 37, lt-44244, kaunas, lithuania tel. +37067469498 sarkute ligita phd kaunas university of technology, faculty of social sciences, arts and humanities/institute of public policy and administration fields of research interests public policy, decision making, political parties, governments, text analysis address a. mickevičiaus g. 37, lt-44244, kaunas, lithuania krotz, f. the meta-process of mediatization as a conceptual frame. global media and communication 3.3 (2007): 256-260. https://doi.org/10.1177/1 7427665070030030103 kulturguide. retrieved from, mazzoleni, g., & schulz, w. (1999). mediatization of politics: a challenge for democracy?. political communication, 16(3), 247-261. https://doi. org/10.1080/105846099198613 my body in words and in images. retrieved from, www.zanzu.de. refugee guide online. retrieved from, www.refugeeguide.de schulz, w. (2004). reconstructing mediatization as an analytical concept. european journal of communication, 19(1), 87-101. https://doi. org/10.1177/0267323104040696 solotaroff, j. l., & pande, r. p. (2014). violence against women and girls: lessons from south asia. world bank publications. https://doi. org/10.1596/978-1-4648-0171-6 the german federal law gazette. retrieved from, https://www.gesetze-im-internet.de/englisch_ stgb/englisch_stgb.html. the local german. retrieved from www.thelocal.de. thompson, j. b. (1995). the media and modernity: a social theory of the media. stanford university press. un4refugeesmigrants, un refugee agency: 2016 is deadliest year for refugees crossing to europe via central mediterranean, retrieved from, https://refugeesmigrants.un.org/un-refugee-agency-2016-deadliest-year-refugees-crossing-europe-central-mediterranean. un security council resolution 1820 (2008, preamble). retrieved from, http://www.securitycouncilreport.org/atf/cf/%7b65bfcf9b-6d27-4e9c-8cd3cf6e4ff96ff9%7d/cac%20s%20res%201820.pdf. references about the authors e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 108 european integration studies no. 13 / 2019, pp. 108-116 doi.org/10.5755/j01.eis.0.13.23496 abstract internet use for shopping in latvia: findings by recent survey http://dx.doi.org/10.5755/j01.eis.0.13.23496 biruta sloka, university of latvia recent developments of internet applications and increase in application of various information technologies have supported fast development of internet shopping worldwide and also important topics for academic researchers. aim of the research: check findings of recent preferences by customers on internet shops and factors for internet shop choice, different aspects on internet shopping and comparisons with academic research results in other countries. tasks: scientific findings studies and empirical investigations on customer preferences and determining factors for choice of different factors in internet shopping. research methods used: recent scientific publications studies, studies of statistics on internet shopping development, survey on internet shop choice and on internet shopping in latvia realised at the end of 2017 and beginning of 2018. survey was developed and realised in co-operation with company specialising on internet marketing: imarketing, university of latvia and chamber of trade and commerce of latvia. respondents were selected randomly in assistance of chamber of trade and commerce of latvia. survey was filled in by 2530 respondents. for many aspects in evaluation of opinion of respondents it was used evaluation scale 1 – 10, where evaluation by 1 was do not agree with the statement; 10 – fully agree with the statement. for data analysis there were used indicators of descriptive statistics: indicators of central tendency or location (arithmetic mean, mode, median, quartiles), indicators of variability (variance, standard deviation, standard error of mean), cross – tabulations, statistical tests of hypotheses, multivariate analyse methods: regression and correlation analysis, analysis of variance (anova), factor analysis and other data analysis methods. main results and findings of the study, theoretical and practical implications of the work: response rate of respondents was very high in comparison with other surveys; respondents have expressed also their suggestions for internet shopping improvements; respondents have indicated the most attractive internet shops by their views. main conclusions: increase in internet shopping in latvia is not increasing so fast as in other countries, customers use also mobile devices for shopping on internet.. keywords: internet marketing; factors influencing of internet shop choice; preferences on shopping in internet; survey kate čipāne, university of latvia sergejs volvenkins, imarketing, latvia introduction recent developments of internet applications and increase in application of various information technologies have supported fast development of internet shopping worldwide. internet shopping creates convenience for customers, bigger selection of goods and services for customers from one side, but create also several challenges and additional opportunities for companies as well as some problems for companies and customers from other side. active researches on different aspects on internet shopping are performed by companies, academic researchers and in co-operation of businesspersons and academic researchers to use expertise as efficient as possible. submitted 06/2019 accepted for publication 10/2019 internet use for shopping in latvia: findings by recent survey eis 13/2019 109 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 aim of the research is to check findings of recent preferences by customers on internet shops and factors for internet shop choice, different aspects on internet shopping and comparisons with academic research results in other countries. the tasks are: 1 explore customer preferences and habits on internet shops worldwide and how they influence internet shop choice; 2 analyse data on internet usage habits of the internet in latvia; 3 analyse consumers’ shopping preferences on the internet. research methods used in the research are analysis of scientific publications and previously conducted research results; analysis of survey realised in latvia at the end of 2017 and beginning of 2018 on internet shopping in co-operation with company imarketing, university of latvia and chamber of trade and commerce of latvia. for many aspects in evaluation of opinion of respondents it was used evaluation scale 1 – 10, where do not agree with the statement; 10 – fully agree with statement. for data analysis there were used indicators of descriptive statistics, cross – tabulations, statistical tests of hypotheses, correlation analysis, analysis of variance (anova) and other data analysis methods. main results of the research reveal that e-commerce in latvia is not increasing as fast as in other countries; customers mainly use internet for checking e-mail, making payments and searching for information, not for shopping. theoretical implications the internet has changed the way how information is accessed and shared between people as it is concluded by anasi, lawas & paul-ozieh (2018). internet is used for a lot of purposes, for example castellacci and vinas-bardolet have studied whether use of internet for job foster employees’ job satisfaction. results revealed that internet technologies really enhance job satisfaction, because employees can access information, data, communicate among themselves and also create new activities, but it was also indicated that those who have higher income and educational level benefit more than those who work in professions weakly related to icts activities. study in nigeria was researching community pharmacist use of internet as health information resource and results reveal that the main challenges which hinder the use of internet is low power of supply and lack of money for purchases of internet facilities. also gender, age, level of educations and number of years in professional practice have significant relative contribution on frequency of internet use among community pharmacist in nigeria which were stressed by researchers anasi, lawas & paul-ozieh (2018). study in sudan was researching internet and e-mail use among sudanese librarians and results revealed that the main purposes of internet use are chat sessions, checking e-mails and surfing professional sites. this researched proved that the level of english language significantly affects the level of use of the internet applications in library services concluded by mudawi (2005). another study was exploring internet and facebook usage on student’s academic distraction, as more and more people use social networks daily. students are exposed to the increasing volume of information more than ever before, because of availability and varied usage of internet and the study revealed that there is positive relationship between increase in frequency of internet usage for entertainment per day and the increase in academic distraction by feng et.al. (2019). aspects of the association between financial literacy and problematic internet shopping in a multinational sample indicating several problems and challenmges buy lam & lam (2017) have concluded that results of research in three continents showed that enhancement of financial literacy in the general population, particularly among young people have a positive effect on the e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 110 occurrence of problems in internet shopping. researchers in many countries have sated question: internet or store which approach is more acceptabl;e for most of customers and dtermening trendes and fashings of their developement an ethnographic study of consumers' internet and storebased grocery shopping practices by elms, de kervenoael & hallsworth (2016) by ethnographic case studies were presented of two consumers’ internet and store-based shopping practices, and researchers ahve analysed and investinaged how these intersect with their everyday lives, using data generated from multiple, complementary methods over an eighteen-month period have indicated several important factors affecting the consumers decisions including inflence of marketing. researchers investigate how consumers in different countries behave in internet-shopping as it is getting more and more business without borders a profile of the internet shoppers: evidence from nine countries were studied by lim & cham (2015) who have concluded that there is still much work to be done in the research area of internet shopper profiles. due to globalization, it is important to explore global similarities and differences on a regional basis—between and within and lim & cham (2015) hope that their research will contribute to effective online marketing strategies across the globe. intelligent decision-making of online shopping behavior based on internet of things aspects are on research agenda by fu et al. (2019) concluding among other important aspects also that consumers rely more on safety perception reviews to make purchasing decisions when purchasing high contact degree items. researchers have performed their research in exploring why people spend more time shopping online than in offline stores (chiao et al. 2019) and have suggested practical recommendations for possible use in practice. use of internet has been widely researched topic in a lot of countries. study in pakistan has researched gender disparities in the use of internet among graduate students and the results show that there are differences between men and women, for example, that women use internet mostly for entertainment, social interaction and communication, but men are more experienced and skilled than women, because more men possessed personal computers.as it is indicated by ahmad, rafiq & ahmad: (2018). researchers group fortson, et. al. (2007) unlike other studies has found that there are no significant differences between men and women on the mean amount of time accessing the internet every day. malamud, et. al. (2019) have studied impact of internet access at home for children in peru and it was revealed that providing children with access to computers and internet at home close together with some training help improve children’s digital skills and fill the gap between those who have computer and internet at home and those who have not. internet shopping is developing very fast world-wide – in some countries faster in some slower but group of researchers sharma et. al. (2019) are asking foresight for online shopping behavior – they have performed a study of attribution of several aspects for "what next syndrome" – researchers have suggested some practical next steps for marketing specialists as well as for customers. academic researchers are making their investigations for understanding shopping routes of customers of offline purchasers with special attention on aspects on selection of search-channels (online vs. offline) and search-platforms (mobile vs. pc) based on product types (kim, libaque-saenz & park, 2019). empirical results and interpretation the survey was realised in latvia at the end of 2017 and beginning of 2018 on internet shopping in co-operation with company imarketing, university of latvia and chamber of trade and commerce of latvia. survey was located on one the most popular platform of latvia and randomly selected possible respondents were invited to answer questions included in the survey. 111 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 it was ensured that each respondent can fill in the survey form only once. for those who have not filled the survey in two weeks it was sent repeated invitation and the third reminder was sent in two weeks once more to those persons selected to be included in the sample and who have not respondent. all survey data were obtained in spss to ensure deep data analysis including use of multivariate data analysis and find out important aspects that could be found by use of several statistical analysis methods including methods of multivariate statistical analysis. gathered survey data processing was conducted using cross-tabulations, using indicators of descriptive statistics: indicators of central tendency or location (arithmetic means, mode, median), indicators of variability (variance, standard deviation, standard error of mean, range), testing of statistical hypotheses, correlation analysis and analysis of variance – anova. a total of 2513 responses by respondents included in the sample were received; demographic profile of the sample is shown in table 1. more women than men participated in the study (but it corresponds also to gender distribution in the country). the most widely represented age groups ranged from 25 to 34 years, from 35 to 44 years and from 45 to 54 years, while the most respondents came from riga and riga region, while in other regions of latvia the number of respondents was similar, which is similar to internet usage in latvia, compiled by the central statistical bureau of latvia. in the study on internet accessibility by csb, it was discovered that residents of riga and pieriga region are the most active users of the internet, followed by kurzeme and vidzeme, while the lowest proportion of internet users is in latgale. n percent gender female 878 62.9 male 518 37.1 age group under 18 26 1.8 18-24 135 9.6 25-34 357 25.3 35-44 369 26.2 45-54 324 23.0 55-64 157 11.1 65+ 41 2.9 region riga and riga region 676 48.0 kurzeme district 222 15.8 latgale district 148 10.5 vidzeme district 214 15.2 last time when shopping online zemgale district 147 10.4 in the last 30 days 1343 63,41 two months ago 281 13,27 three months ago 108 5,10 six months ago 113 5,34 i do not remember 273 12,89 source: authors calculations based on survey in 2018, n= 2166 table 1 demographic profile of the sample of the survey in latvia, in 2017 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 112 most respondents of the survey last purchased a product or service on the internet over the last 30 days, but almost 400 respondents last bought something online six months ago or did not remember when, therefore to be more accurate from the further data analysis were excluded those who last bought something online six months ago and those who did not remember when was the last time they bought something online. since the emergence of the internet, time spending opportunities on the internet have only expanded, moreover, they depend on gender, age group, culture, national development level and many other factors. figure 1 shows arithmetic means on respondent’s evaluations on use of internet in latvia in 2017. 5,46 6,33 7,17 7,51 7,66 7,7 7,93 8,74 8,78 8,95 0 1 2 3 4 5 6 7 8 9 10 other shopping watching video communicating with family, friends and… reading the news working using social networks making payments searching for information checking e-mail n = 2127 12,90 18,02 25,89 43,18 0 5 10 15 20 25 30 35 40 45 50 make a list of possible future purchases contact customer support buy goods and/or services search for additional information about product figure 1 arithmetic means on respondent’s evaluations on use of internet in latvia in 2017). source: authors calculations based on survey in 2018, n= 2166. evaluation scale 1 – 10, where 1do not use; 10 – use very often gender n mean std. deviation std. error mean female 907 7.00 2.670 0.089 male 536 6.81 2.670 0.115 source: authors calculations based on survey in 2018, n= 2166, evaluation scale 1 – 10, where 1do not use; 10 – use very often table 2 main statistical indicators on female and male respondent’s evaluations on use of internet for shopping in latvia at the end of 2018 respondents have indicated that they use internet for a variety of activities, but the most popular ones are e-mail checking, information searching and making payment, but online shopping is the least popular activity in latvia. aside from purposes of use of internet other mentioned purposes were playing games, watching movies and tv series, using the internet for studies, listening to radio, music and reading books. although shopping online is not one of the most popular ways of using internet, for digital marketing managers and other professionals it is important to know if there are any differences between the gender ratings shown in table 2. as data of table 2 indicate – the evaluations by female and male respondents responses on use of internet for shopping in latvia are very similar, but men’s evaluations differences are greater which is indicated by bigger indicators of variability standard error of mean, so for the purposes of clarification, an independent sample t-test was used to test statistical hypotheses on differences of arithmetic means on evaluations in the survey by female and male respondents on the use of internet – results are included in table 3. 113 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 statistical indicators levene's test for equality of variances t-test for equality of means 95% confidence interval of the difference f sig. t df sig. (2-tailed) mean difference std. error difference lower upper equal variances assumed 0.036 0.849 1.305 1441 0.192 0.190 0.145 -0.095 0.475 equal variances not assumed 1.305 1122.736 0.192 0.190 0.145 -0.096 0.475 table 3 independent samples t-test on significance of differences of responses by female and male on respondent’s evaluations on use of internet for shopping in latvia in 2017 source: authors calculations based on survey in 2018, n= 2166, evaluation scale 1 – 10, where 1do not use; 10 – use very often independent sample t-test of differences of responses revealed that there is no significant gender-related relationship in the use of internet for shopping evidenced by the level of significance which is 0.192, therefore analysis of variance (anova) was used to test statistical hypotheses on differences of mean evaluations by respondent’s age group and the use of internet for shopping – results are included in table 4. sum of squares df mean square f sig. between groups 178.169 6 29.695 4.222 0.000 within groups 10107.180 1437 7.034 total 10285.349 1443 source: authors calculations based on survey in 2018, n= 2166, evaluation scale 1 – 10, where 1do not use; 10 – use very often table 4 independent samples test with analysis of variance (anova) on significance of differences of responses by age groups on respondent’s evaluations on use of internet for shopping in latvia in 2017 the analysis of variance indicates that evaluations by female and male respondents by age groups on use of internet for shopping do not differ statistically different with level of significance 0,000. in order to test the relationship strength between the use of the internet for shopping and the region respondent is coming from, a correlation analysis was used – results are included in table 5. internet use for shopping region internet use for shopping pearson correlation 1 -0.064* level of significance (sig. (2-tailed)) 0.022 sum of squares and cross-products 11017.094 -298.765 covariance 6.677 -0.234 n 1651 1276 region pearson correlation -0.064* 1 level of significance (sig. (2-tailed)) 0.022 sum of squares and cross-products -298.765 2773.450 covariance -0.234 2.084 n 1276 1332 table 5 correlation analysis of respondents’ evaluation of internet use for shopping and region in latvia in 2017 *correlation is statistically significant with the level of significance 0.05 (2-tailed) source: authors calculations based on survey in 2018, n= 2166, evaluation scale 1 – 10, where 1do not use; 10 – use very often correlation analysis indicate that there is statistically significant relationship between the use of the internet for shopping and the region where respondent lives, what is indicated by the level of significance which is 0.022. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 114 5,46 6,33 7,17 7,51 7,66 7,7 7,93 8,74 8,78 8,95 0 1 2 3 4 5 6 7 8 9 10 other shopping watching video communicating with family, friends and… reading the news working using social networks making payments searching for information checking e-mail n = 2127 12,90 18,02 25,89 43,18 0 5 10 15 20 25 30 35 40 45 50 make a list of possible future purchases contact customer support buy goods and/or services search for additional information about product figure 2 arithmetic means on respondent’s evaluations on main activities on the internet using mobile phone in latvia in 2017 source: authors calculations based on survey in 2018, n= 2166. evaluation scale 1 – 10, where 1do not use; 10 – use very often more detailed analysis of other factors influencing internet-shopping have to be on investigation in many countries as several countries are developing in this aspect very fast and many countries in european union have big challenges in catching up many developed counties world-wide to keep competitiveness of countries in european union, including latvia. conclusions _ researchers world-wide in their academic research are investigating different aspects on development of internet-shopping including consumers attitudes and are suggesting practical steps for more efficient organisation of sales; _ respondents from latvia use internet mostly for checking e-mails, searching for information and making payments, not shopping online. besides there are no significant relationship between gender and use of internet for shopping and between age group and use of internet for shopping. correlation analysis indicated that there are statistically significant relationship between the region where respondent live and use of internet for shopping; _ increase in internet shopping in latvia is not increasing so fast as in other countries, customers use also mobile devices for shopping on internet; the use of mobile devices is becoming more attractive but not so often as in other countries; several local brads already having experience on internet shopping have big challenges in development of internet marketing; _ customers highly evaluate previous personal experience and good references of relatives and friends (word of mouth) in use of respective brand and internet shop for internet shopping, but does not want to leave personal information (bank card information, personal code, etc.). research has confirmed that marketing is influencing internet shop choice. references anasi, s. n., lawal, f. o. & paul-ozieh, a. 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(2000), adoption of internet shopping: the role of consumer innovativeness, industrial management & data systems, 100(7), 294-300.https://doi. org/10.1108/02635570010304806 this paper was supported by the project “interframe-lv” e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 116 about the authors sloka biruta dr.oec. professor university of latvia fields of research multivariate data analysis, marketing research, quantitative analysis address aspazijas bulv. 5, riga, lv 1050 phone. + 371 29244966 e-mail: biruta.sloka@lu.lv čipāne kate cand. mg.sc.admin., cand.for doctoral student university of latvia fields of research internet – shopping, marketing research, quantitative analysis address aspazijas bulv. 5, riga, lv 1050 phone. + 371 29435194 e-mail: kate.cipane@lu.lv volvenkins sergejs dr.oec. researcher, manager imarketing company fields of research internet – shopping, marketing research, quantitative analysis address bērzaunes iela 7, rīga, lv-1039 phone. + 371 29 435 194 e-mail: rigalat@gmail; sergejs.volvenkins@imarketings.lv e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 186 efficiency assessment concept model for financial alliances: bancassurance in baltic pension fund management http://dx.doi.org/10.5755/j01.eis.0.11.18245 ilja arefjevs ba school of business and finance, k.valdemara 161, riga, lv1013, latvia, ilja.arefjevs@inbox.lv submitted 04/2017 accepted for publication 08/2017 efficiency assessment concept model for financial alliances: bancassurance in baltic pension fund management eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 186-198 doi 10.5755/j01.eis.0.11.18245 © kaunas university of technology introduction the purpose of the article is to develop and implement an efficiency assessment concept model for financial alliances based on efficiency assessment of bancassurance in the pension fund management in the baltic countries. tasks of the research include explaining the topicality, studying the bancassurance, review of two frontier based efficiency measurement techniques stochastic frontier analysis and data envelopment analysis and its applicability for banking, insurance and pension funds industry as well as bancassurance efficiency assessment by using stochastic frontier analysis and data envelopment analysis. methods used are qualitativemonographic method, literature review, document analysis, data evaluation. quantitativeeconometric techniques, including regression and correlation analysis, economic modelling techniques, including stochastic frontier analysis and data envelopment analysis, descriptive statistics methods, cluster analysis. bancassurance was found to be the dominant business model in the pension fund management in baltics pension fund management business is very important for financial groups operating in the baltic countries because it generates very strong return on equity. small and medium specialised pension fund management companies proved to be capable of achieving competitive efficiency compared to other companies. keywords: financial alliances, bancassurance, pension fund management, stochastic frontier analysis, data envelopment analysis. the rapid development of the financial sector posed challenges to scientists, regulators and traditional market players. even though alliances among various financial companies have been extensively studied (eg., bancassurance models) and can be grounded on fundamental theories, disruptive innovations in the shape of emerging financial technology companies clearly brought a new perspective extending conventional financial alliances into modern financial eco-systems. the paper is aimed at assessing efficiency of conventional financial alliances such as bancassurance whilst applying contemporary frontier based methods and further elaborations, which can be also employed in efficiency research of modern financial eco-systems or financial technology companies as components of those. 187 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 different researchers suggested various definitions for a concept referred in the scientific and business literature to as bancassurance. pinter (2013) defined bancassurance as the means for connecting those kinds of financial services, which could cautiously fulfil financial and insurance needs. additional and essential elements are stressed out as well –savings, financing and insurance. based on previous research in the field (eg., davis, 2007; clipici and bolovan, 2012; preckova, 2016), a following definition of bancassurance is developed in the context of an alliance between banks and pension fund management companies: alliance between a bank and pension fund management company assuming either vertical or other type of integration with a purpose of selling of pension fund products and providing related services to customers by exploiting banks’ resources and customer relationships. bancassurance can be considered to be one of the financial sector convergence examples. the convergence in the financial sector is believed to be caused by the business diversification trend. general diversification topic has been widely studied. the pivotal question of interest is whether diversified firms outperform specialized counterparts. even though it is more often the case than not, findings of related researches do not always confirm this hypothesis. business diversification effects on performance were extensively studied by rummelt (1974). in his book “strategy, structure and economic indicators” rummelt proved, that related (that is integrated) but non-competing diversifiers are capable of achieving better performance than non-related (that is non-integrated) diversifiers. carter (1977) and grant and jammine (1988) also found value creation in diversification. later on, berger and ofek (1995) and lang and stulz (1994) made their contribution to the discussion by bringing contradictive findings. the research problem is to assess whether small and medium specialised pension fund management companies operating in estonia, latvia and lithuania under the bancassurance are capable of achieving competitive efficiency compared to the one of companies with bigger assets under management and bigger share of non-pension fund management income. the research tasks include examining the origin of bancassurance and its development, examining the stochastic frontier analysis (sfa) and data envelopment analysis (dea) as efficiency analysis methodology and its applicability for banking, insurance and pension funds industry, assessing the efficiency of bancassurance from the perspective of capability of companies with different volume and scope of operations to achieve competitive efficiency by using sfa and dea as well as developing efficiency improvement proposals for pension fund management bancassurance from the perspective of capability of companies with different volume and scope of operations to achieve competitive efficiency. the research can be seen as consisting of four main stages and review of previous research. the first stage of the research is devoted to establishing theoretical foundations by conducting a literature review – studying the bancassurance as the business model, studying parametric and non-parametric efficiency assessment methodologies like stochastic frontier analysis and data envelopment analysis. the second stage of the research is the beginning of the empirical part of the research, which starts with a description of a banking environment after the crisis in europe and baltics. the third stage is based on quantitative assessment of corporate data of pension fund management companies obtained from annual reports. the regression and correlation analysis is applied in order to examine relationship between variables describing size and scope of operations and variables describing efficiency. furthermore, pension fund management companies are classified in terms of size and scope of their operations by employing the cluster analysis. consistency checks of the efficiency scored produced by different models are performed by using a regression analysis. finally, the fourth stage of the research is devoted to the result discussion and development of recommendations in the research topic. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 188 the fourth stage research is designed in order to implement the concept model of the research. the concept model of the research is provided under the figure 1. it presents a logical flow of theoretical and empirical developments of the research as well as demonstrates interrelations between its parts. figure 1 research concept model (prepared by the author, 2017) following methods were used in the research: _ qualitative methods: monographic method, literature review, document analysis, and data evaluation. _ quantitative methods: regression and correlation analysis, economic modelling techniques, including sfa and dea, descriptive statistics methods, cluster analysis. general research period is from 2008 till 2016 while efficiency assessment models are implemented based on financial data from 2009 till 2015. based on findings of various researchers provided in the introduction of the research, the bancassurance illustration in the field of the pension fund management is developed, which is subject to assumptions and limitations of the research. the illustration is provided in the figure 2. bancassu rance, data envelopment analysis and stochastic frontier analysis figure 2 bancassurance and its efficiency in the pension fund management (prepared by the author, 2016) 189 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 pension fund management companies ensure their core operations as well as support functions. a bank in its turn employs a distribution network and serves a base of customers in a more efficient manner by offering pension products to its customers. as a result, revenue efficiency (via bigger sales volume), cost efficiency (via smaller sales and other costs) as well as capital efficiency is improved, caused by improvement in two above-mentioned efficiency areas. different efficiency measurement methods evolved over time. studies that compare parametric and non-parametric techniques are ferrier and lovell (1990), sheldon (1994), resti (1997), bauer, et. al. (1998), casu and girardone (2002), weill (2004) and beccalli, et. al. (2006). some researchers also studied relationship between diversification and performance depending on a size of an insurance company (berry-stolzle, et. al., 2013). du and sim (2016) examined cross-country evidence on whether the effect of mergers and acquisitions on bank efficiency differs for target versus acquiring banks. to estimate efficiency, researchers employed the dea approach. moradi-motlagh and babacan (2015) investigated the efficiency levels of australian banks prior to, during and in the post great financial crisis period by using dea. titko, et al., (2014) provided improvement recommendations for efficiency assessment methodology, which is based on dea vrs models applied for banks operating in latvia. aiello and bonanno (2016) used sfa in conducting the analysis of the level and dynamics of performance small mutual cooperative banks in italy compared with others and modelling time as a determinant of efficiency of small mutual cooperative banks. sfa was used by hughes and mester (2013) in efficiency assessment of large banks. quite often, accounting based bancassurance efficiency measurement has been performed by employing sfa, which was developed by aigner (aigner, et. al., 1977) as well as dea, pioneered by charnes (charnes, et. al., 1978). later both sfa and dea were used in the bancassurance efficiency analysis by bikker (bikker, van leuvensteijn, 2008), fiordelisi (fiordelisi, ricci, 2009), nawi (nawi, et. al., 2012) as well as other authors. greene (1997) proposed that frontier production function in general can be described as an extension of a regression model. the initial framework on parametric frontier analysis commenced with farell’s (1957) cross-sectional model where goal programming techniques were used to estimate production function where i=(1,2,3,…,i) represents the corresponding producer, y is the level of output, x refers to a vector of n inputs, f(.) is the production frontier depending on inputs and technology parameters (β) to be estimated. the last term is the technical efficiency of the ith firm calculated as the ratio of observed output over maximum feasible output: (1) ���� = �� ������� (1) ���� = ����� ���� � ��� (2) ������� ����) (3) ∑ �� = ������� = ���������� (4) ����� = ����� � �� (5) (2) ���� = ��������� (1) ���� = ����� ���� � ��� (2) ������� ����) (3) ∑ �� = ������� = ���������� (4) ����� = ����� � �� (5) aigner, et. al. (1977), battese and corra (1977), meeusen and van den broek (1977) independently proposed to estimate a stochastic production frontier. the model is denoted in logs as (deutsche bundesbank, 2006): where x j denotes an input vector for firm j, v j depicts random error added to the non-negative inefficiency term, u j . random error, v j , accounts for measurement error and other random factors affecting the value of the output variable, together with the combined effects of unspecified input variables in the production function. the model is stochastic because the upper limit is determined by the stochastic variable: e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 190 the random error, v j , can be positive or negative and so the stochastic frontier outputs vary relative to the deterministic part of the frontier model, exp(x j ) (coelli, et. al., 2005). (3) ���� = ��������� (1) ���� = ����� ���� � ��� (2) ������� ����) (3) ∑ �� = ������� = ���������� (4) ����� = ����� � �� (5) data envelopment analysis (dea) was originated by charnes, cooper, and rhodes (1978). the researchers developed the piece-wise-linear convex hull approach to frontier estimation proposed by farrell (1957) in a model which has an input orientation and assumes constant return to scale, in the following crs model (deutsche bundesbank, 2006). the original crs model assumes constant return to scale, an inappropriate assumption for most banking studies in general (hackethal, 2004). adoption of variable return to scale (vrs) becomes reasonable because it ensures that a firm is compared only with firms of a similar size. the vrs model is assumed to envelope data more closely and thus would compute efficiency scores that are equal or bigger than ones calculated by the crs model (banker et al., 1984). to capture the magnitude of “scale effect”, a variable returns to scale (vrs) model, which dismisses the crs assumption, was developed by färe, et. al., (1983) and banker, et. al., (1984). figure 3 explains the divergence of vrs models from crs ones. figure 3 dea crs and vrs models showing combinations of fixed inputs needed to produce output (prepared by the author based on coelli, et. al., 2005) for example, the efficiency at the point b is calculated as a ratio of q 1 /q 2 for the vrs frontier. in cas of the crs frontier it is defined as q 1 /q 3 . the vrs frontier takes into account scale efficiency when measuring total efficiency. linear programming of the vrs model is very similar to the crs one. major difference is a so called convexity constraint added to the system: (4) (5) ���� = ��������� (1) ���� = ����� ���� � ��� (2) ������� ����) (3) ∑ �� = ������� = ���������� (4) ����� = ����� � �� (5) for j= 1, for j=1,2,….,k. the mathematical relationship between the variable and constant return to scale model efficiency measurements can be presented as (coelli et al., 2005): where se defines scale efficiency, meaning that crs technical efficiency can be split into technical efficiency and scale efficiency. ���� = ��������� (1) ���� = ����� ���� � ��� (2) ������� ����) (3) ∑ �� = ������� = ���������� (4) ����� = ����� � �� (5) 191 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 the pivotal role in the baltic banking and as a result pension fund marketplace belongs to players with the nordic origin while local companies with mixed shareholding structures provide some diversification to the market. the research includes all twenty pension fund management companies, which are presented in the table 1. typically, vast majority of the pension fund management companies covered by the research are integrated with banks (insurance company in case of ergo funds) to the closest possible extent, that is via ownership, except invalda (former finasta) in lithuania, mp pension fund baltics and lhv varahaldus, which distribute most of their pension products outside banking channels. invalda (former finasta) in latvia initially had ownership based integration. however, after the bank belonging to the same financial group (i.e. jsc latvijas krājbanka), went bankrupt in late market players in the baltic countries and their cluster analysis table 1 companies subject to research from the baltic market 2009-2016 name country bancassurance integration legal owner owner’s origin cbl asset management latvia ownership citadele bank latvia swedbank investment management company latvia ownership swedbank robur sweden seb wealth management latvia ownership seb bank sweden dnb asset management latvia ownership dnb bank norway nordea pensions latvia latvia ownership nordea life holding ab sweden norvik investment management company latvia ownership norvik bank latvia hipo fondi latvia ownership hipo and land bank* latvia invalda (finasta) asset management latvia distribution/ ownership** invalda (finasta) lithuania lhv varahaldus estonia none lhv group estonia seb varahaldus estonia ownership seb bank sweden danske capital estonia ownership danske bank denmark nordea pensions estonia estonia ownership nordea life holding ab sweden swedbank investment funds estonia ownership swedbank robur sweden ergo funds estonia ownership ergo life insurance germany swedbank investment management lithuania ownership swedbank robur sweden dnb investment management lithuania ownership dnb bank norway mp pension funds baltic lithuania none mp bank iceland seb investment management lithuania ownership seb bank sweden invalda (finasta) asset management lithuania none invalda (finasta) lithuania danske capital investment management lithuania ownership danske bank denmark * hipo and land bank was reorganised into altum in 2014, which is an special project financing institution ** from 2009 till 2011 there was ownership based integration and from 2012 distribution agreements with banks is in place source: prepared by the author based on publicly available information e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 192 2011, invalda entered into distribution agreements with several banks and is not linked to those with ownership ties. the first cluster represents small to medium specialised pension fund companies with none to little exposure to non-pension fund management income (see table 2). in terms of a number of companies, this is the most representative cluster, which comprises nearly a half of all market players. the cluster clearly benefitted from the tailwind of increasing volume of pension fund assets defined as assets under management range, which increased from 6 to 97 million euro in 2009 up to 62 to 348 million euro in 2015. none of other clusters experienced such a rapid growth of assets under management. also the share of non-pension fund management income decreased steadily for the cluster 0 to 18% in 2009 down to 0 to 26% in 2015. the second cluster is formed by two related pension fund companies operating in different countries. the companies are similar in terms of assets under management and almost non-existent income from non-pension fund management activities. the third cluster of companies poses a scientific interest because it ceased to exist as a cluster in 2013. one common thing of these medium in size companies belonging to the cluster is their major exposure to non-pension fund management business. the fourth cluster of companies table 2 summary of the cluster analysis of pension fund management companies in baltic countries 2009–2015 cluster criterion 2009 2010 2011 2012 2013 2014 2015 1 aum range, mil. euro 6-97 8-143 31-219 39-252 43-374 45-323 62-348 non-pension income 0-18% 0-36% 0-23% 0-14% 0-11% 0-9% 0-26% 2 aum range, mil. euro 379-411 426-497 445-512 524-628 548-737 653-930 8821074 non-pension income 1-4% 0-3% 0-2% 1-2% 0 0-9% 0-18% 3 aum range, mil. euro 235-441 104-435 92-368 114-166 non-pension income 44-61% 25-55% 51-55% 50-55% 4 aum range, mil. euro 556-580 608-953 616-633 524-754 770-780 504-594 570-734 non-pension income 17-19% 20-34% 17-24% 15-16% 14-18% 15-22% 0-36% 5 aum range, mil. euro 65-250 non-pension income 19-22% outliers aum range, mil. euro 52-882 1980 846-1300 155-1473 124-1284 139-1100 1287 non-pension income 31-46% 0.47 34-47% 29-43% 27-55% 19-40% 0.15 source: prepared by the author based on the single linkage cluster analysis. 193 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 is very similar to the second cluster. however, its main distinction is stable non-pension fund business related stream of income. the final group of companies are so-called outliers. these companies have a big portion on non-pension fund management related income (15-55%). in efficiency research of financial sector companies, typically various types of costs were used as input variables whilst various types of revenue and profit indicators used as output variables. therefore the operational efficiency of the pension fund management companies is performed by using the thirteen models. for the cost and profit models, commission fees as well as administrative fees were used as input variables while profit before tax was used an output variable. one capital efficiency (i.e. actual roe) model was used. it has to be noted that average actual pre-tax return on equity in 2015 was 28.2%, average pre-tax return on equity in the top efficiency quartile was 60.7%. capital efficiency model uses actual return (i.e. pre-tax profit) on shareholder equity as the only measure of efficiency. finally, cost and capital efficiency dea crs and vrs as well as sfa models under various roe scenarios were used. cost and capital efficiency dea crs, vrs and sfa models can be considered to consist of two types of costs being actual costs as well as calculated capital costs. actual costs of the models comprise administration as well as commission costs as input figures. the calculated capital cost, which was also used as an input figure, stands for economic cost of capital defined as a required pre-tax return on equity, multiplied by average equity in a given year. following three capital scenarios were used to calculate cost of capitalpre-tax return of equity 11%, 15% and ultimately 19%. a regression analysis was applied to examine whether bigger assets under management and bigger share of non-pension fund income increase cost efficiency of pension fund management companies. the table 3 summarises efficiency models as well as main findings of the regression analysis applied for the models. the regression equation is expressed in the following manner: efficiency models, regression and top quartile analysis (6) (7) where ce is cost efficiency score, normaum is a figure of normalised assets under management, sharenonpensinc is a share of non-pension fund revenue and α stands for intercept. for the capital efficiency model the regression equation was stated in the following manner: where roe is a figure for actual return on equity, normaum is a figure of normalised assets under management, sharenonpensinc is a share of non-pension fund revenue and α stands for intercept. the regression analysis applied for results obtained by various models demonstrated that between efficiency score and assets under management and share of non-pension fund management revenue for all the models discussed above correlation coefficients range from 0.05 to 0.42 while adjusted coefficients of determination are in the interval from -0.01 to 0.16. dea crs models demonstrate the lowest correlation coefficients ranging from 0.05 to 0.25. the finding speaks in favour of an argument that efficiency scores cannot be explained by volume of assets under management and share of non-pension fund management income. dea vrs model findings reveal correlation coefficients in a broader range of 0.09 to 0.42. sfa models e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 194 showed correlation figures varying from 0.24 to 0.30. thus such results can be interpreted as not supporting the view that volume and scope contribute to efficiency of pension fund management companies operating under the bancassurance model in baltics. finally, it is noteworthy to mention that nearly all regression models demonstrated strong significance while it was weak for cost and profit dea crs and vrs models. furthermore, a detailed analysis of top quartile of companies (i.e. 4-6 companies) with the highest efficiency scores is performed. summary findings are presented at the cluster level in the table 4. total appearance of a given cluster companies during the research period 2009-2015 is stated in percentage terms for each of the efficiency models considered. cluster number one companies (i.e. small and medium specialised pension fund management companies) comprise 36%-60% of the total top quartile of companies with the highest efficiency scores with the average representation score of 45%. it also has to be noted that the first cluster is the biggest one comprising nearly half of all pension fund management companies subject to the research. therefore, such high appearance of the cluster one companies in the top quartile does not guarantee any probabilistic advantage for small and medium companies. the next most represented cluster is number four, which consists of big pension fund management companies with moderate exposure to non-pension fund management business. the cluster number two, which stands for big pension fund management companies with low exposure to non-pension fund management business, on average is represented twice less frequent compared to the cluster number four. finally, the cluster number three did not score any strong results because it ceased to exist in 2013 while outliers broadly failed to demonstrate sufficiently competitive efficiency to earn their place in the top quartile. as concluding remarks, it can be stated there was evidence obtained that on average there is weak correlation (i.e. 0.26) between efficiency scores obtained by using thirteen models and table 3 regression analysis findings for efficiency scores and volume of assets under management and share of non-pension fund management income model correlation adjusted coefficient of determination significance 1. cost and profit dea crs 0.05 -0.01 0.84 2. cost and profit dea vrs 0.09 -0.01 0.61 3. cost and profit sfa 0.30 0.08 0.00 4. capital efficiency (i.e. actual roe) 0.25 0.05 0.02 5. cost and capital efficiency dea crs (roe=11%) 0.18 0.02 0.12 6. cost and capital efficiency dea crs (roe=15%) 0.19 0.02 0.08 7. cost and capital efficiency dea crs (roe=19%) 0.25 0.05 0.02 8. cost and capital efficiency dea vrs (roe=11%) 0.42 0.16 0.00 9. cost and capital efficiency dea vrs (roe=15%) 0.40 0.14 0.00 10. cost and capital efficiency dea vrs (roe=19%) 0.38 0.13 0.00 11. cost and capital efficiency sfa (roe=11%) 0.30 0.08 0.00 12. cost and capital efficiency sfa (roe=15%) 0.24 0.05 0.02 13. cost and capital efficiency sfa (roe=19%) 0.30 0.07 0.01 source: prepared by the author based on efficiency scores obtained from the defined models. 195 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 table 4 composition of top quartile by clusters of different companies 2009–2015 model clusters total 1 2 3 4 5 outliers 1. cost and profit dea crs 60% 9% 9% 20% 0% 3% 100% 2. cost and profit dea vrs 59% 6% 6% 25% 0% 5% 100% 3. cost and profit sfa 37% 20% 6% 31% 0% 6% 100% 4. capital efficiency (i.e. actual roe) 39% 23% 5% 33% 0% 0% 100% 5. cost and capital efficiency dea crs (roe=11%) 51% 14% 3% 31% 0% 0% 100% 6. cost and capital efficiency dea crs (roe=15%) 46% 20% 3% 31% 0% 0% 100% 7. cost and capital efficiency dea crs (roe=19%) 37% 23% 6% 34% 0% 0% 100% 8. cost and capital efficiency dea vrs (roe=11%) 43% 19% 3% 19% 0% 16% 100% 9. cost and capital efficiency dea vrs (roe=15%) 44% 20% 0% 20% 0% 17% 100% 10. cost and capital efficiency dea vrs (roe=19%) 36% 25% 3% 19% 0% 17% 100% 11. cost and capital efficiency sfa (roe=11%) 49% 17% 3% 31% 0% 0% 100% 12. cost and capital efficiency sfa (roe=15%) 46% 14% 6% 34% 0% 0% 100% 13. cost and capital efficiency sfa (roe=19%) 43% 17% 6% 34% 0% 0% 100% average representation 45% 17% 4% 28% 0% 5% source: prepared by the author based on efficiency scores obtained from the defined models and cluster analysis. volume of assets under management and share of non-pension fund management income of pension fund management companies. additionally, the cluster analysis combined with the analysis of top quartile of companies with the highest efficiency scores demonstrated capability of small and medium pension fund management companies to be sufficiently represented in the top quartile in a sustainable manner. even though common trends may be identified within the results of the models discussed above, it is very important to examine statistical correlation among those to check consistency of results. to proceed, nine ordinary least square regression equations are established as follows: (7) �������� � roe � ) � �� � �������� ��� ���� ) + α where ce(model i ) denotes a cost efficiency score of the starting model with assumed roe i , ce(model i+1 ) stands for a cost efficiency score of the next model under the same assumption of return on equity i while β 1 is a coefficient and α stands for an intercept value. regression analysis findings are summarised in the table 5. the regression equations revealed medium and strong correlation, what confirms that results of the various efficiency assessment models can be considered to be consistent. additionally, the regression equations were found to be significant. correlation coefficients of regression equations, which are based on sfa and dea crs, range from 0.51 to 0.88 and are effectively higher than those of equations based on sfa and dea vrs, ranging from 0.48 to 0.72. it demonstrates the e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 196 table 5 regression analysis findings regression correlation adjusted coefficient of determination significance cost and profit sfa and dea crs 0.51 0.25 0.00 cost and profit sfa and dea vrs 0.48 0.23 0.00 cost and profit dea crs and dea vrs 0.67 0.45 0.00 cost and capital efficiency (roe=11%) sfa vs. dea crs 0.83 0.69 0.00 cost and capital efficiency (roe=11%) sfa vs. dea vrs 0.65 0.41 0.00 cost and capital efficiency (roe=11%) dea vrs vs. dea crs 0.75 0.56 0.00 cost and capital efficiency (roe=15%) sfa vs. dea crs 0.88 0.78 0.00 cost and capital efficiency (roe=15%) sfa vs. dea vrs 0.72 0.52 0.00 cost and capital efficiency (roe=15%) dea vrs vs. dea crs 0.77 0.60 0.00 cost and capital efficiency (roe=19%) sfa vs. dea crs 0.80 0.63 0.00 cost and capital efficiency (roe=19%) sfa vs. dea vrs 0.70 0.48 0.00 cost and capital efficiency (roe=19%) dea vrs vs. dea crs 0.83 0.68 0.00 source: prepared by the author. pattern that returns to scale are rather constant than variable. variable models might include at the same time increasing and decreasing returns to scale. finally, a strong correlation found for dea crs and vrs efficiency scores also confirms the pattern of returns to scale, which are rather be constant. the correlation range is 0.67-0.83. conclusions based on the efficiency assessment concept model of the research, several key conclusions are drawn in relation to bancassurance efficiency in the pension fund management in the baltic countries: _ bancassurance is the dominant business model in the pension fund management in baltics. seventeen out of twenty pension fund management companies in baltics operate under the bancassurance. sixteen companies operating under the bancassurance have ownership based integration with banks whilst only one company has been tied to banks by distribution agreements. _ pension fund management business is very important for financial groups operating in the baltic countries because it generates very strong return on equity with an average pre-tax figure of 28.2% (eg., average for the top quartile reached 60.7%) for 2015 while the traditional banking business typically earns above 5% and normally does not exceed 12% per annum. _ pension fund management companies in baltics can be classified into four sustainable groups: small and medium specialised companies, big companies with low exposure to non-pension fund management business, big companies with low to moderate exposure to non-pension fund management business, other companies, including outlier companies, which do not fit into any of the above mentioned groups. _ small and medium specialised pension fund companies proved to be capable of achieving competitive efficiency compared to other companies because these were presented in the top quartile of companies with highest efficiency rankings throughout the research period on average comprising 45% of the quartile member companies. 197 e u r o p e a n i n t e g r a 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(1974). estimating the efficiency of production. international strategy, structure and economic performance. harvard business school, cambridge. sheldon, g. (1994), “economies, inefficiencies and technical progress in swiss banking”, in fair, d.e, raymond, r. (ed.), the competitiveness of financial institutions and centres in europe, kluwer academic publishers, boston, pp. 115–133. https:// doi.org/10.1007/978-94-015-8350-3_8 titko, j., stankeviciene, j, lace, n. (2014), “measuring bank efficiency: dea application”, technological and economic development of economy, 20(4), 739–757. https://doi.org/10.3846/20294913 .2014.984255 weill, l. (2004), “measuring cost efficiency in european banking: a comparison of frontier techniques”, journal of productivity analysis, 21, 133–152. https://doi.org/10.1023/ b:prod.0000016869.09423.0c arefjevs ilja dr. sc. administr. ba school of business of finance fields of research interests finance, investments address k.valdemara 161, riga, lv1013, latvia tel. +37126547036 about the author e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 174 an exploratory analysis of latvian brands competitiveness in china http://dx.doi.org/10.5755/j01.eis.0.11.18913 haidong feng, janis priede faculty of business, management, and economics, university of latvia, aspazijas blvd 5, riga, latvia e–mail: fenghd12@lzu.edu.cn submitted 04/2017 accepted for publication 08/2017 an exploratory analysis of latvian brands competitiveness in china eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 174-185 doi 10.5755/j01.eis.0.11.18913 © kaunas university of technology introduction in the past several years, china is entering a new stage of country`s economic development. due to these changes of foreign brands also are switching their position towards chinese consumers. the attitudes that consumers have towards international brands have been studied in the western countries for some time now. on 6th november 2016, the 5th summit of china and central and eastern european countries (ceecs 16+1 cooperation) was successfully held in riga, latvia. on the behalf of guidelines which were made to help the cooperation between central and eastern europe and china, some latvian companies adopted an approach that emphasizes relation building with local agencies. however, these companies don`t do enough marketing planning and their activities in this field are implicit, because they do not understand chinese consumers and their shopping habits. in order to enter chinese market and expand the business here, entrepreneurs must understand the mindset and preferences of chinese consumers. through some marketing survey in beijing, shanghai, guangzhou, chengdu, nanjing, hangzhou, the author collected the marketing research data of consumer preference by questionnaires among the six largest cities in china. through some marketing theories, swot analysis, data statistics, the research gets a comprehensive analysis result. by taking a fresh look at the marketing researches amidst latent consumer conception and behavior further, this study generates gaining experiences of latvian brands building in china market. then the conclusion will show the suggestions of how latvian international brands adjust their marketing changes to raise their brands competitiveness in chinese consumption patterns and to address the impact of consumer behaviors and marketing activities successfully. keywords: consumer, china, marketing, preference, brand, product. european products purchasers are different from the buyers of chinese consumer products. chinese consumers have different motivation and other factors for buying european products, and different motivation for buying chinese products. as the boston consulting group (bcg) concluded in 2009, china will become the largest market for latvian products in upcoming years. latest data of post-economical financial crises of 2014-2016 shows that china’s share in imported brands consumption rose to 31.4%, alon & chan (2009), and become the leading market since the beginning of the 2011, li & kambele (2012). together, china is becoming the destination for 36.8%, zhou & wang (2014), of world high end brands. keeping in mind this information, it is extremely vital for latvian goods producers to know and understand the consumers behaviors of chinese specially the affluent chinese, and new consumers of latvian brands. for decades, branding and marketing research have been based on a concept of consumer behavior that is deeply embedded in a linear notion of marketing activities. this notion has been expressed in different forms, including steps in the selling process, gertner (2011), adoption of innovation, zhang & leeflang (2014), the hierarchy of effects, chu & sung (2011), and competitiveness mea175 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 surement, bulis & skapars (2012). although this concept has been challenged from time to time, kozlinskis & losane (2011), it has endured as a key organizing framework for brands building and marketing strategy. however, confronted by change, technological advancement, competition and the unpredictability of chinese market, today’s brands building has been compelled to seek a deeper understanding of the connection between brands and consumers, dickson, lennon, montallo, shen & zhang (2004). in turn, this had led to the search for new approaches and tools that will help latvian marketing researchers understand the interaction among attitudes, emotions and brand choice, mooij & hofstede (2011). rapid economic development, government policy and cultural factors have made chinese affluent people different from consumers in the most developed markets in the western countries as well as in the eastern asian countries (i.e korea). despite the increasing competitiveness of marketing latvian brands in china, academic research on chinese 5 affluent consumers buying process is rare or inexistent. in this paper, the authors will fill this gap and propose an effective business model for prospective as well as existing latvian products exporting to china. this paper is developed theoretically and based on systematic literature review as well as content previous academic analysis and practical marketing survey. first of all, we will make a marketing survey of the distribution of latvian brands consumers in different age groups. and investigate how their purchasing habits and consumption behaviors are different, and how their buying process of each product differs from their point of view. secondly, the authors will explain our methodology followed by marketing positioning and discussing on the case study of successful marketing of latvian brands in emerging china. then analyze the channels for improving latvian brands competitiveness, and the strategies of new latvian brands marketing in china. at last, the conclusion remarks as well as suggestions of latvian brands building will be given in the end of the paper. figure 1 below illustrates a logical diagram of the analysis of latvian brands competitiveness in china. novelty of this paper: most researches just analyzed the theoretical marketing model about brands competitiveness, but in this paper the author uses the practical work and marketing survey to discover the actual chinese consumer behavior and analyze different consumer group by different age range. the subject in this paper is the effective marketing strategies of latvia brands in china. through the case study, marketing research and the exploratory analysis of marketing prospect, the pafigure 1 the analysis of latvian brands competitiveness in china logical diagram task one task two task three task four illustrating how some latvian brands successfully enter into chinese market discovering what kind of consumers potential buyers of latvian brands in china are discovering how chinese consumers’ purchasing habits are using a variety of branding strategies to improve their competitiveness in china marketing strategies to improve latvian brands competitiveness in china research methods: questionnaire survey successful study swot analysis e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 176 per at last illustrates some advisable marketing strategies to improve latvian brands competitiveness in china. main tasks of this paper: (1) to illustrate how some latvian brands successfully enter to chinese market; (2) to discover what kind of consumers are potential buyers of latvian brands in china and how their purchasing habits are; (3) to use a variety of branding strategies to improve their competitiveness in china. the main finding of this research is that raising latvian brands competitiveness needs to adapt to chinese people’s habits, and chinese consumers will favor more latvian products by building unique brands image and taking advantage of their “face” mentality. research methods in this research are swot analysis, questionnaire survey, descriptive and analytical method of analysis, secondary analysis and analysis of scientific literatures. nowadays china is one of the most important economies in the world. as the economy is developing in a quite rapid and smooth way, the income of people is rising, and that leads to growing middle class. chinese consumers have more money to spend, so their shopping habits are changing fast. looking back in china`s history, some significant economic, social and cultural changes have created a unique consumer market. in order to conquer china`s market, companies have to explore and understand the needs, requirements as well as behavior of chinese consumers. in order to meet buyer`s wants, companies have to provide high quality products and services. in order to finish this research, the author did a questionnaire survey in beijing, shanghai, nanjing, hangzhou, guangzhou and chengdu in 2016 summer. a sample of 5245 randomly selected consumers (876 from beijing, 745 from shanghai, 786 from nanjing, 798 from hangzhou, 1172 from guangzhou, 868 from chengdu), from these large-sized metropolitan areas received the questionnaires. finally, 1265 consumers are latvian brands users.1 respondents received 5 rmb for completing the questionnaire. the respondents were asked to provide their perception latvian brands competitiveness survey among chinese consumers figure 2 age distribution of latvian brands consumers in china 1 these data was collected by the author from the questionnaire of latvian products among chinese consumers 2016, and the six cities can mostly represent the north, south, west and east part of the whole china. 8,10%; 8% 21,50%; 21% 23,60%; 24% 29,20%; 29% 17,60%; 18% new twenties thirties wealthy forties age distribution of latvian brands consumers in china generation of latvian products and latvians brands in selected grocery products such as snack, dairy products, cosmetics, alcohol, fish products etc. the questionnaire is anonymous. nobody was recognized in the analyzed result. all data will be used for research objective only. this specific questionnaire for these latvian products users consists of 8 questions. also the 4th question is about the survey of their age range (younger than twenty, twenties, thirties, forties, older than forties). the survey result will be showed in the figure 2. we can see in the survey result that the main groups are new generation, twenties, thirties, wealthy forties. 1. new generation in china, the young age consumers (not older than the age of 18) are attracted by eurosource: questionnaire of latvian products among chinese consumers 2016. 177 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 pean products, as well as latvian products. most of young generation people are pursuing the fashion to get the unique characters and think all the possible ideas to purchase some european brands. although most young buyers in this generation do not have good salary or enough savings, their parents’ decisions are usually influenced by them on cosmetics, electronics, food and clothing significantly. internet shopping is an effective way to lead this group of consumers to dig their purchasing potential abilities (april-june 2015, social media in china). 2. twenties consumers in the generation under the one-child policy usually have different consumer behaviors with their parents. they usually do not save money and spend all of their income on some consumptions in advance, such as entertainment and travelling. they want to be unique and often choose shopping online searching for latvian brands that help them dominate their personal characters, and they sometimes can also be very desperate to look for unique brands. as the consumers in twenties age will start to get married, their consumption style could become a little more conservative. although they are interested in convenient products and high-quality brands, they still spend more on latvian brands than older generations. 3. thirties talking about latvian brands consumers in thirties, they usually like spending more on clothing and some food, and go to buy their favorite food in shopping centers or internet. nearly most of consumers in this group are experienced shoppers and skillful on selecting brands comparatively. they often pursue valuable and high quality latvian products such as amber or amber jewelries rather than cheaper products. usually these people around thirties will be the main consumers of latvian products. 4. wealthy forties consumers in this generation mostly share the same preferences as the frugal thirties, but their career is usually in the government institutions or large national enterprises and they have comparatively high salary. even if they have to look after their parents and raise children, they still would like to pay extra money for high end latvian brands. in the coming five or six years, consumers in this age range will have less childcare responsibilities and consumption. meanwhile these consumers will definitely increase expense on healthcare, luxurious, natural, organic and high-quality latvian products. in 2016, the main indicator of fast-growing consumer product categories of latvian brands are listed in table 1. skincare item producer stenders entered chinese market in 2012 and company`s turnover in 2016 was already 46.12 million euro (eur). two years before (2010) amber seller amber with soul started to distribute amber jewelry in such large cities as beijing and shanghai. last year company` s turnover reached 58.33 million eur. latvian traditional alcohol brand riga black balsam entered chinas market in 2008 and sweets producer laima did it in 2013. both companies have smaller turnover respectively 0.43 and 0.32 million eur. gift seller riga collection started to do business in beijing in 2013, and reached 0.26 million euro turnover in 2016. also from the statistics of the two years in figure 3, we can see that from 2013 to 2016, the five brands growth rate (turnover) is stably not less than 10%. 1. stenders in recent years, chinese people is getting rich. they can not only accept some cosmetics just from faces, however they gradually put some attention on the cosmetics for bathing skin care. although the consumption of personal care products is quite low, china has a big potential to expand this market. mostly, chinese men do not like some cosmetics, and some chinese buy the most competitive latvian brands in china e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 178 turnover (2016, million eur) entry year market distribution stenders 46.12 2012 all the first tire cities and most second tire cities, and some third tire cities amber with soul 58.33 2010 beijing, guangzhou, shanghai, chengdu, shenzhen, chongqing riga black balsam 0.43 2008 beijing, shanghai, guangzhou, nanjing laima 0.32 2013 shanghai, beijing riga collection 0.26 2013 beijing table 1 main indicators of fast-growing categories of latvian brands in 2016 source: ministry of foreign affairs of china, 2016. figure 3 fast-growth consumer product categories of latvian brands in 2016 source: ministry of foreign affairs of china, 2016. only shampoo and don`t spend money on conditioner. however, in past years peoples` incomes are increasing, so more and more consumers are able to spend more money on non-essential hygiene and cosmetics products, especially body and bath cosmetics and natural organic personal care products. stenders is positioning itself as a brand that is inspired by the nature of the north. it pays a special attention to showering, bathing and body skin care rituals. the products are designated to amplify the positive feelings that different fragranced skincare products can give to the customer. special attention is given to the way how consumers are treated in stenders shops. since other cosmetics (such as loccitane, lancome, estee lauder) doesn’t have bath skin care products, the innovative design of hand-made essential oil soaps and sea salt bath bubble balls make the brand very unique and hard to be replaced. as other cosmetic brands represent in order to offer wide variety of options in the particular product segment, stenders can call itself the best gifts from latvia. stenders is also one of the largest cosmetics producers in northern europe. it consists of competent and creative people united by the idea of “gardening” feelings. its natural feelings are implemented in more than 280 products and it has more than 435 stores in 46 countries, for example, in latvia, estonia, norway, switzerland, sweden, lithuania, slovenia, finland, brazil, 0,00% 5,00% 10,00% 15,00% 20,00% 2013 2014 2015 2016 growth rate by turnover from 2013 to 2016 stenders amber with soul riga black balsam laima riga collection 179 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 saudi arabia, russia, turkey, kyrgyzstan, south korea, iran, japan, germany and china. in 2012 stenders successfully came into china market. now more than 300 stenders chain shops open in more than 50 main cities of china. 2. amber with soul in china, jewelries are still generally expensive for most people. usually some rich chinese people turn to natural ornaments or gemstone, such as amber, while low income people often wear gold or silver. in recent five years, many chinese consumers think the private labels or signs they have tried are not worth the premium prices. at the same time, these consumers are concerned about some fake gemstones or the original jewelry stone, so they are willing to pay slightly more for amber jewelries. amber with soul is the largest amber ware manufacturer in latvia and also an outlet shop. the jewelries are envisioned by professional designers and made by experienced amber folk craftsmen. all the items available in the shop come straight from the factory. they have the largest selection of certified amber jewelries, souvenirs, and wares with gold and silver at the manufacturer’s prices. at the same time one can see growing demand for amber and amber products (by 16.7% in 2016). according to the statistics the branch increases by about 14.5% annually. in 2012 the turnover reached over 1.65 billion cny. chinese amber fans also like putting amber stones in their home, clothes pockets, office desk or cabinet. they call the baltic amber “hupo”. and they also like to choose this brand as gifts to their children or parents. according to the china association for jewelry survey in 2015, there is a sustainable and relatively rapid growth on the amber jewelry market. 3. riga black balsam riga black balsam is one of the alternatives for other than local alcoholic drinks in china in recent 5 years. as we know, in black balsam, the herbs are mixed with alcohol and water, and this mixture is kept in wood barrels for more than 45 days, which produces special herbal taste and unique scent. traditionally, the recipe was created by abraham kunze, a pharmacist living in latvia on 18th century. and the brand recipe is always kept secret. meanwhile the quality of riga black balsam is carefully controlled and checked in the lab for all the stages of production. it is an ecological alcohol, and the ingredients of it are tested as well. the company chooses the raw materials and ingredients and controls these materials very carefully to ensure the application of traditional technologies and introduce innovative improvements of such methods to guarantee the highest brand quality. in 2013, riga black balsam was declared the best imported brand from latvia. it is regard to the good logo, “riga black balsam, better understanding northern europe”. 4. laima love and romance are the greatest value of laima chocolates and the main secret behind its amazing taste and aroma. when this atmosphere is presented, it always comes back to you, and that is exactly why laima chocolate helps you to choose love at this very important time in life, which opens the door to happiness for all of us. in riga, zaļa street 4, theodor riegert opened the first chocolate factory in latvia. over the years, riegert’s factory became one of the largest sweets manufacturers in the baltic states and russia. in 1938, there were five stores of “laima” brand in riga, while the total number of stores in other latvian cities reaches 10. sweets of “laima” are exported to the usa, great britain, africa, france, and sweden. in 2013, this famous latvian brand successfully entered shanghai market. “laima” sweet shops in shanghai is just like small factory of sweets where the time stops. when you take the first step inside the shop you are embraced by a romantic atmosphere and covered in chocolate scent that almost brings the same taste as in latvia. customers here can find the beloved sweets from e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 180 “laima”, “selga” and “staburadze” as well, and the friendly sellers will tell you more about new sweets you haven’t tried yet but should. there are small coffee shops in these chain shops in which you can take a rest and stop to smell the chocolate! when walking into the shop, consumers will enjoy their leisure moments with a cup of coffee and a piece of delicious cake. 5. riga collection riga collection sells several kinds of products including carpets from natural materials (nature` s carpet). riga collection` s, as a natural carpet brand, line of carpets has been tailored to accommodate the consumer who is willing to make a flooring purchase decision with consideration to its environmental effect, but does not wish to sacrifice quality and style on production. nature’s carpet strikes this balance successfully, offering over 45 colors and styles of 100% wool carpets. in recent years, chinese young people are beginning to celebrate christmas for the sake of fashion. before each new year, some chinese young people would like to buy some christmas gifts for friends and family members as well. with three months left until christmas in 2013, the first latvian store “riga collection” in sanlitun street in beijing alongside the brands “china gold” and “semmir” opened a pop-up christmas store. located in the “wangfujing” mall, the store opened for two weeks in christmas time, giving insight in the traditions of celebrating christmas in northern europe country latvia– the country that started the decorating of christmas trees. the “wangfujing” shopping mall is the prestigious comprehensive shopping center in beijing with about 80,000 people visiting it daily. in the opening month, their turnover got 235,000 rmb. in the next two years, riga collection also came into shanghai and guangzhou successfully. the theme for the pre-christmas sale in riga collection in last year was “kids design-connecting to the future”. therefore, the latvian stand features handmade local products, accessories and children paintings. the others companies in latvia are still looking for the opportunity to explore their marketing share in china. some of these food companies have already built their factories in china to gain good reputation in chinese market, but their marketing strategies are still not very effective due to the different consumer behavior psychology. 2016, the 1+16 forum was successfully held in riga, which effectively consolidated the cooperation between china and central and eastern european countries. the total trade volume between latvia and china exceeded 342 million euros; latvia and china traded goods over 0.85 million euros per day. in the first half of the year 2016, latvian investment in china amounted to 1.8 million euros and chinese investment in latvia was 1.5 million euros.2 chinese consumers are powering the growth of china and the global economy and their power will only grow in the next decade. no one could have predicted even seven years ago that major brands from western multinational corporations, to small and medium-sized enterprises, would add 11-11 (singles’ day), 6-18 (founding day of jd.com), october 1-7 (national day golden week) and the spring festival (chinese new year golden week) to their holiday promotions calendar. nor could anyone have predicted the impact that chinese travelers would have on cities, brands and service providers around the globe.1 we can see that china is the fastest-growing consumer market in the world. “china’s super consumers” have now gone beyond mimicking the patterns of more established western shoppers to being the trendsetters and innovators. there is a super-feedback loop taking place whereby consumer demands are shaping how e-commerce giants like taobao, alibaba, jindong (jd) and amazon are developing new models of retail and technology to serve them. retailers from latvia are catering to these shoppers and creating new demand and access to goods through innova2 the statistics is from latvia – china business council in 2015. the channels for improving latvian brands competitiveness in china 181 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 tion. the latvian cabinet of ministers on november 1st, 2016 supported signing of a memorandum of understanding between the latvian and chinese governments to promote implementation of the silk road economic belt initiative and the 21st century maritime silk road initiative. now we can do the swot analysis for these successful latvian brands in china in table 2 below. strengths weaknesses latvia is a european union membership, an open market economy and a secure business environment. latvian company employees are highly skilled and professional labor force is with fluent international communication in english and russian. latvian international brands have developed and upgraded their production facilities to guarantee that the products are of a high, stable quality. latvia as a country of origin has powerful brands in the region’s markets. shortage of human resource of marketing some brands have problems to provide large order volumes. small average size of companies on a global scale all the latvian companies are under the rules of the state tax policy, and in recent three years the tax rate increases for each domestic company. opportunities threats china is the second largest economy and now also the world’s biggest market china and the eu are trading more than €1 billion every day china has become one of the fastest growing markets for latvian exports in the long term, china’s importance as a strategic market can only increase the market of china is comparatively difficult to access for foreign companies latvian brands face a number of marketing barriers in china entering china´s market, the marketentry costs are high increasing local competition table 2 swot analysis of latvian brands in china source: latvia-china business council, 2015. for latvian brands in china, one of the key market entry obstacles is low brand awareness in the local market. a latvian brand could be well known in large cities in china, but it is still important for the retailers to position their products suitably within more and more small cities in china. chinese customers pay much attention on brands that they have heard of, and those which are with good reputation within others consumers. thus, building brand recognition is very important for some new latvian brands in china. it will make a good impression about the brand among chinese consumers. innovative advertising materials are also essential to promote a brand and help it to stand out from other similar brands and capture consumers’ imagination. as china opened its market to latvian investment, commodity availability was opening at the same time. the previous latvian companies have already entered chinese market before 2009, and they are cooperative venture with a local company in china. today, china has lots of marketing types, from shopping malls and hypermarkets to online stores and night markets. selecting the effective channels for selling their products can be essential to latvian brands building. 1. large scale shopping malls and selling stores wanguard group has announced plans to operate 25-30 shopping centers in west of china by 2020. latvian retailers should work more on these outlets at middle or large scale shopping malls. some second tire cities, such as nanjing, wuhan, tianjin, xi’an, chengdu, hangzhou, will also accept direct selling stores over latvian brands soon. this retailor format can be learned by some latvian cosmetics retailers. in general, more large scale shopping malls will be possible to open in main cities of western china. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 182 2. local chain supermarkets in china, supermarkets are not always profitable, because these supermarkets fiercely have some competitive rivals from shopping malls and hypermarkets. first tire chinese cities are full of international stores, but potential latvian brands buyers in smaller cities are often not rich enough to purchase products in some international supermarkets. since rich chinese buyers are increasing in middle and small size cities, at the same time the demand for better quality of living have emerged. they are gradually choosing the products which are related to a high quality of life and a higher social status. so the local chain supermarkets are expanding rapidly in larger cities, which offer more high end and foreign products. 3. hypermarkets some chinese consumers like spending time for shopping with their friends or families in leisure time. hypermarkets with a shopping gallery and specialty stores or some popular restaurants are very welcomed in large cities. although chinese incomes are increasing significantly, consumers will still prefer to buy their necessities in hypermarkets due to the one-stop shopping experience and the low prices. so the hypermarkets will continue to be successful in main cities of china. as chinese urbanization is running faster, hypermarkets are looking for some new opportunities to invite some exotic foreign brands to join their shopping circles. 4. neighborhood shops typically, neighborhood shops include wanguard group’s branch companies and shentong express. actually, some inefficient supply chains and small scales of operation are still existing. as incomes are getting higher, some chinese consumers prefer neighborhood shops more than the ones from shopping malls based on convenience. 5. online stores young citizens not older than 35 years old in china are willing to pay a fee for the delivery to their living places as they are too busy to shop in grocery shops. latvian branding retailers have to look for some new opportunities to make some changes to improve the marketing range of their online merchandise. indeed, they need to think about shorter delivery times to meet consumer needs, and advance their supply chain. alongside of establishing their good business image in the next few years, still many latvian brands are trying to enlarge their marketing share in chinese market. it is also necessary for latvian enterprises to focus on presenting the specific qualities and uniqueness of their brands compared with other competitors and the advantages of their products. because of some fake product scandals in china in the past few years, consumers in china actively research information about products and companies, so people are more informed and sophisticated than european people. they use social media and search energy to find information about a brand or product, so that they can make the best final purchasing decision. sometimes the decision about buying or not-buying some items is based on comments of other people who have bought the items. it`s because other peoples` experience sometimes seems to be more trustworthy than the information provided by the seller itself. since china has a large population and very competitive markets for the suppliers, the consumers are gradually getting more price sensitive. when the buyers make purchase decisions, the price is a key factor for the buyers. however, because of the specific culture, chinese pay much attention on social status and faces. they are brand conscious. thus, if brands can bring them a higher social status, they usually like to pay high extra premium for them. chinese buyers are also mistrustful more or less. for example, they don`t trust on-line shops that want to receive payment before sending the product to the customer. because of this issue with trust between conclusions 183 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 both parties, on-line shops started to use third-part payment systems, for example, alipay. buyers transfer payment for the product to alipay, and after the person receives the product, thirdpart payment system transfers money to the seller. the competitiveness of latvian brands in china can be assessed to the companies’ competitiveness. a number of characteristic aspects of latvian firms should be taken into account of choosing a competitiveness model for assessing of latvian firms’ competitiveness in china. firstly, latvia has a great number of small and medium sized enterprises (sme). the proportion of the sme in total number of latvian enterprises was 96.5% in 20153. secondly, latvian companies have insufficient experience in the operation in foreign markets and relatively short experience in the internationalization of business compared with those large companies from western europe. latvia is an independent country since 1991 and latvian firms operate in the free market conditions and accumulate experience operating in foreign markets since 1990s. it indicates that the competitiveness of latvian companies can be useful for assessment of competitiveness of latvian brands in china market. in fact, most of customers in china like to browse the comments of other people about some products that they are interested in. latvian companies must understand certain factors to successfully build their brands reputation in chinese consumers. in the end, marketing strategies to improve latvian companies competitiveness in china can be concluded as below:2 1. most chinese consumers favor european brands product safety scandal and low quality brand image have scared chinese consumers away from lots of domestic products. people are often willing to pay extra money for brands form italy, germany or france just to ensure the quality of important items, for example, baby formula. some chinese companies have noticed this trend, so they register their headquarters in european countries like germany or france and brand products as “originally imported”. by doing that these companies try to make the products more appealing to chinese consumers. however, it`s becoming more and more difficult for buyers to distinguish foreign from local brands. latvian companies should take advantage of this phenomenon to develop their resource to ensure chinese consumers know their products are original from europe. 2. brands image plays an important role in china chinese like to give a comment on some brands in social media. this includes, for example, sharing the quality of products, price point, advantages and disadvantages etc. these comments strongly influence the reputation of a brand, and help customers to make (or not make) a purchasing decision. for example, china daily in march 2015 revealed that clenbuterol, a kind of additive that accelerates growth, was inspected in beef sausage from the yurun group, a famous meet manufacturer. in the next few months, yurun’s retail sales dropped 37 percent, and many consumers are already scared to buy its products. 3. bargaining and discount seasons are common in china chinese is a frugal nationality, especially those people were born before the liberation of china in 1949. most of old chinese consumers above 60 years old would like to save as much as they can. retailers in shopping centers, supermarkets, or direct selling stores often decrease the prices of high end products and high demand-price elastic items, such as cosmetics, alcohol, personal products, and clothes. these retailers limit the quantity of products with discount, so this strategy may lead consumers buy these products more in one time. these promotion ways were quite effective and successful as long as frugal chinese consumers are willing to spend less money but to get more benefit. 3 the statistics is from central statistical bureau of latvia in 2015. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 184 4. “face” matters for chinese it`s very important to have and keep a good “face”. by “face” people usually mean good traits such as pride, honor and dignity. in order to keep a “face” some people will choose more expensive products. it also can prove that they have high social status. for example, when purchasing gifts during chinese new year for family members, company leaders, or important friends, some chinese consumers usually will choose gifts that have the appropriate value and pay much attention to the package of products for the receivers. consumers that cannot afford an expensive gift probably will choose the product with the beautiful packaging within their purchasing power. finally, some buyers will even pay more money for the packages, though the product value is of equal quality or cheaper than the package. 5. adapt to chinese people’s habits providing a typical example of adapting chinese consumer habits, black balsam has already occupied alcohol market in north of china, but chinese white alcohol drinking habit has been existing for a long time in history. more and more chinese people gradually prefer black balsam because it is healthier than white alcohol, and advertised as herbal alcohol. on the other hand, some latvian brands retailors had better change their products to get closer to chinese style more. a good example is kfc, which tried to promote their spicy fried chicken when it entered into china market in 1995, because chinese people like spicy food somehow. when they get to know that pork and fish are more popular in china, kfc adapted to chinese people’s eating habits and launched several kinds of fish burgers. alon, i., littrell, r. f., & chan, a. k. 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(2011). understanding chinese customers.retrieved july 1, 2011, from https://www.chinabusinessreview.com/understanding-chinese-consumers/ references 185 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 feng haidong doctoral student faculty of business, management and economics, university of latvia fields of research interests economics, marketing, financial management, financial engineer address aspazijas blvd 5, riga, latvia tel. +37125336787 priede janis dr. oec. associate professor, head of the department of economics university of latvia, faculty of business, management and economics fields of research interests microeconomics, macroeconomics, international business economics, export marketing, production and operations management address 5 aspazijas blvd., riga, latvia about the authors 148 issn 1822 – 8402 european integration studies. 2010. no 4 the growing need of cross-cultural management and ethics in business jolita greblikaite, rasa daugeliene institute of europe, kaunas university of technology abstract the article discusses questions of growing need of cross-cultural management and ethics in business. globalization and migration are the main causes of growing number of multicultural enterprises. globalization is affecting the environment in which managers must function. fast developments of technologies, growing competition, networks of enterprises are consequences of globalization. multicultural business environment conditions different problems. different aspects of culture are affected by technological and economic change. effective solutions are needed for enterprises. cross-cultural management and ethics helps to make preventive actions and solve the existing problems. global managers are concerned with legal and political characteristics of countries, which are derived from their history and culture. the main task of cross-cultural management and ethics in business is to propose effective and mostly adapted to situations decisions of problems. there are different cross-cultural problems such as standards, practice, laws, ethics, culture, customs, management system, and socioeconomic system. managers of multicultural enterprises use different techniques useful to their situation. international managers face a variety of decisions every day. resources must be allocated, employees selected, and the attractiveness of joint venture partners evaluated. all must be done in a highly complex international environment. work in virtual teams, difference in time zones, understanding and values in different cultures makes difficulties for managers. appropriate solutions of cross-cultural problems may be effective knowledge management, effective management of human resources, virtual teams, and bicultural skills. especially is important effective work with human resources in the enterprises. positive view to different attitudes and values help prevent problematic situations and possible conflicts. here helps organizational culture also. as empirical research results show the most important cross-cultural barriers are believes and stereotypes, verbal language, traditions, values, nonverbal language, social rules, and other. the made research results show that the appropriate and effective solutions may be collective parties, learning foreign languages, cultural instructing, and cultural programmes. in big multinational corporations solutions may be directly connected with internationally oriented cultural instructing, seminars for staff, global managers’ work. it is very important to remember that large companies and smes have very different capabilities of financial and human resources. solutions may be made in different management levels of the multicultural enterprise. information technologies connect millions of smes, develop foreign markets and compete strong as nether before. lithuanian enterprises face not so many cross-cultural problems because our country is rather closed and not very mixed by living nations. migrants select other more developed countries of the eu as their destination countries. key words: cross-cultural management, cross-cultural management ethics, business. introduction nowadays globalization processes are so quick and so unstable, that business communication becomes more multicultural or cross-cultural. in multicultural environment connections become more complex. and, problems rise in various situations of life, as also in business. coss-cultural management and ethics need is growing. this growing has several obvious causes. one of them is globalization. economic links are growing every day. work environment becomes more complex and more dynamic. rapid change is occurring in economic alliances, the work environment, trade and investment, and the players on the international stage. development of technologies is issn 1822-8402 european integration studies. 2010. no 4 149 so fast (seilius, šimanskienė, 2006; thomas, 2008). modern technologies become available even for small companies (bannock, 2005). the european union (eu) support helps to implement technologies, also attract new knowledge in smes (small and medium-sized enterprises). competition is stronger every day. only strong enterprises having competitive products stay in the market these days. globalization processes, also growing european union force enterprises compete globally risking and using unused resources. this process may be as seekingfounding process when international enterprises seek, find and try new possibilities (seilius, 2004). the other very important cause of growing need for cross-cultural management and ethics is migration. it is growing in such countries as lithuania, and even in very developed countries as germany. the people with high competence leave their native countries because of better living and work conditions in foreign countries. and, they often do not come back to their native countries. also, international business expands depending on migration circumstances. so, this precondition of the growing number of multicultural enterprises should be emphasized. those circumstances reveal such a scientific problem of the article as disclosing the growing role of crosscultural management and ethics; developing culture and management synergy process in multicultural business. the task of this article is to distinguish the main crosscultural problems and barriers in multicultural business environment. cross-cultural management role in multicultural environment business enterprises act more complicated that only in national markets. concept “cross-cultural” is any of various forms of interactivity between members of disparate cultural groups; taking into account the interaction between people of different cultures when making arrangements, mixes between various cultural contributions to overcome differences that may be an impediment to communication (thomas, 2008). cross-cultural management is applied in enterprises for solving problems rising between members of organization in internal environment and in external environment. cross-cultural management is a new type of management factoring in and tackling cultural differences between staff in management in general, with a view to improving communication in the company and in its international exchanges1. the main problems or, in other words, cross-cultural problems of multicultural enterprises are (thomas, 2008: 1 http://www.tamu.edu/classes/cosc/choudhury/culture.html standards. in different countries work standards are • different. practice. practical business activity differs among • people, enterprises, cultures, countries. ethics. implementation of ethical standards in • business is difficult and complex. laws. legal standards are very important. • culture. it is as itself complex phenomena, and in • business appropriate management of culture is essential. customs. they are still very important nether less the • assimilation sometimes is seen. management system. management systems differ • depending on company size, activity, tasks. especially they differ in different countries. socioeconomic system. the state of economic • situation of countries directly impacts enterprises and their activity. also, the characteristics of social systems in different countries reflect in business, and special adaptation is needed from employees of different socioeconomic systems. cross-cultural management helps go across these cross-cultural barriers or move them. other important role of cross-cultural management is preventive work in multicultural enterprises avoiding formation of barriers. culture shapes the context of managerial work, which in turn influences managerial roles (thomas, 2008). as globalization increases the amount of intercultural contact in organizational settings, the inadequacy of our present understanding of management to explain and predict behavior in these settings becomes more apparent. global managers face an environment that is more complex, more dynamic, more uncertain, and more competitive than ever before. the challenges presented by economic, legal, and political aspects of the international business environment are formidable. it is the influence of culture on management that can be most difficult to deal with because culture has a broad influence on behavior and on other environmental factors and because cultural effects are difficult to observe. why is cross-cultural ethics important? cross-cultural ethics is a branch of ethics philosophy. cross-cultural ethics (also known as moral philosophy) is a branch of philosophy that addresses questions about morality —that is, concepts such as good and bad, noble and the ignoble, right and wrong, justice, and virtue solving problems between disparate social groups or members. social group may be diverse by nationality, religion, believes, values, and etc. professional ethics solves various problems rising in special spheres as in medicine, law, also in business. business ethics (vasiljeviene, jeurissen, 2002; pruskus, 2005) can play an important role in economic and society transformations. the process of globalization issn 1822-8402 european integration studies. 2010. no 4 150 requires a company’s prompt response to upcoming technological, organizational and human relations’ changes, in order to succeed in a highly competitive business world. these developments produce a whole range of new ethical challenges for managers. managers need to deepen their knowledge about social, cultural, and moral environment that they are operating in. here the knowledge that business ethics provides is a strategic means for optimizing business/ professional activities and achieving more integrated, well-functioning and humane european and world society. now in business ethics the benchmark is universal ethical standards and legal acts, international humanized norms which could be applied for multicultural enterprises. possible solutions for cross-cultural problems from theoretical point of view possible effective solutions of cross-cultural problems may be: knowledge transfer and dissemination • . it helps to attract new knowledge, make information exchanges from professional view as well as from cultural view (probst, raub, romhardt, 2006). as t. c. chini (2004) says, most important is effectiveness of knowledge transfer, because not every transfer is effective. succesful transfer of knowledge includes the understanding how employees develop and manage communication (al-hawamdeh, 2003; girdauskiene, savaneviciene, 2007). here knowledge culture of organization is important. within the organization it is very important that essential values were widely and deeply spread (hansen, 1999; girdauskiene, savaneviciene, 2007). virtual teams. • it helps overcome distance and communicate rather directly even without real contact. modern technologies help connect easily and work virtually as often as it is needed (gasos, thoben, 2003). teams are working autonomic, freely geographically dislocated (barkema, baum, mannex, 2002; seilius, simanskiene, 2006). effective management of human resources. • it prevents from cross-cultural problems, at first (seilius, simanskiene, 2006). employees with high quality skills may be capable to adapt to the situation in more appropriate way, especially than problems are rising in multicultural environment. good communication’s skills help managers discussing problems; also finding the appropriate ways of solving them. leadership theories when combined with knowledge of cross-cultural interactions drawn from social cognition can be useful in drawing important implications for managers about appropriate leader behaviors (thomas, 2008). having specific knowledge of another culture can be though of as a task-relevant ability for some group tasks. the expression of alternate views by culturally different group members can raise the quality of group decision making and problems solving by increasing the attention of the group to the decisionmaking process (nemeth, 1992; thomas, 2008). bicultural skills. • such skills are acquired in bicultural families or spending part of life living and working in the other country as native country is. bicultural skills are as advantage in multicultural environment, also multicultural enterprises. it is important to say that research indicates that bicultural persons do not just superficially adapt their behavior. they are able to hold different conceptions of themselves as simultaneously independent of others and interdependent with others (yamada, singelis, 1999; thomas, 2008). from practical positions the research about crosscultural barriers was made interviewing one small bicultural enterprise in lithuania2. the research results show that the most important cross-cultural barriers are: believes and stereotypes. they are so strong in our • cultures. they can difficultly be changed or forgot. believes and stereotypes are the part of cultural identity. stereotypes are based on very limited information about others. that is, we use very basic physical or social evidence to categorize people and to organize information about them (taylor, 1981; thomas, 2008). verbal language. it is one of the strongest components • of cultural identity. lithuanian language is very old language and should be valued. it is very important to use actively native languages in business also. of course, the need of learning foreign languages is obvious and necessary. traditions. they are tightly connected with nationality • and native country. values. they should be cherished and composed • in business culture. in multicultural enterprises strong values can help to appreciate colleagues with different cultural identity. nonverbal language. language of body often is much • more important than verbal language. often happens that verbal language contradicts nonverbal language. nonverbal communications convey important messages and are produced more automatically than are words (argyle, 1988; ferraro, 2006; thomas, 2008). social rules. they especially differ in different • countries because of different governmental model and different social system, even different attitude to social status. other. • 2 t. kalonas. cross-cultural barriers and ways of moving them in lithuanian business. interview results, 2010. issn 1822-8402 european integration studies. 2010. no 4 151 the most appropriate solutions of problems proposed by employees as empirical research results show are: collective parties. parties may be very useful way • for connecting employees of different cultures. but it must be remembered that the parties can not become casual event. they might be related with traditional festivals, have their value between employees. learning foreign languages. it solves not only cross• cultural problems, but also helps to improve skills useful for direct duties. cultural programmes. they may be useful as they • are planned by management of the enterprise and prepared for connecting the work team. cultural instructing. it mostly depends on management • attitude to solve cross-cultural problems, or make more comfortable environment in the enterprise. as the research results show the multinational organizations emphasizes the need of the key managerial roles of information exchange, coordination, information scanning, and control (vora, 2008). it is very important to notice that the different levels of problems might rise in smes and large companies. large multicultural companies can put strong efforts and even make special teams for solving cross-cultural problems. smes have limited financial and human resources, so the solutions might be made sometimes by one managing person or main investor (bannock, 2005). ending the article such a thought could be said: „if you reject the food, ignore the customs, fear the religion and avoid the people, you might better stay at home.“ (james michener (1907-1997). conclusions the growing need of cross-cultural management • and ethics has several causes. one of the causes is globalization connected with growing competition, networks, and new technologies. the other main cause of growing role of cross-cultural sciences is migration. this process creates environments where multicultural societies, cultures, and enterprises develop. the main problems or cross-cultural barriers of • multicultural enterprises are standards, practice, ethics, laws, culture, customs, management system, and socioeconomic system. from theoretical viewpoint possible solutions • of cross-cultural problems may be knowledge transfer and dissemination, virtual teams, effective management of human resources, and bicultural skills. important role plays modern business ethics which standards and norms are constructed on international viewpoint. as empirical research results show the most important • cross-cultural barriers in lithuanian enterprises are believes and stereotypes, verbal language, traditions, values, nonverbal languages, and social rules. possible effective solutions of practical cross-cultural • problems may be collective parties, learning foreign languages, cultural programmes and instructing. the effectiveness of cross-cultural management and ethics appliance in enterprises especially depends on managers’ qualification. references al-hawamdeh s. knowledge management. cultivating knowledge professionals. – oxford, uk: chandos publishing, 2003. – 222 p. isbn 1 84334 037 2 argyle m. bodily communication. – 2 ed. – london: methuen, 1988. bannock g. the economics and management of small business. an international perspective. – new york: routledge, 2005. – 239 p. isbn 0-415-33666-x barkema h., baum j., mannex e. management challenges in a new time// academy of management journal, vol. 45, no.5, usa: brunswich, 2002. p. 916-980. business ethics: from theory to practice. edited by n. vasiljeviene and r. jeurissen. – 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in s. worchel, w. wood, and j. a. simpson (eds.), group process and productivity. newbury park, ca: sage, 1992. p. 95-111. issn 1822-8402 european integration studies. 2010. no 4 152 probst g., raub s., romhardt k. žinių vadyba: sėkmės komponentai. – vilnius: leidykla „knygiai“, 2006. – 350 p. issn 1392-1673 pruskus v. verslo etika: laiko iššūkiai ir atsako galimybes. – vilnius: enciklopedija, 2005. – 387 p. seilius a. aplinkos poveikio ir sėkmingo vadovavimo organizacijoms prielaidos// iš „valdymo problemos: teorija ir tendencija“. kolektyvinė monografija. – klaipėda: ku leidykla, 2004. – 244 p. seilius a., šimanskienė l. verslo organizacijų valdymas globalizacijos sąlygomis:teorinis požiūris// verslas:teorija ir praktika, 2006, vol. vii, no.4. p. 213-221. taylor s. a categorization approach to stereotyping. in d. hamilton (ed.), cognitive processes in stereotyping and intergroup behavior. – hillsdale, nj: lawrence erlbaum, 1981. p. 83-114. thomas d. c. cross-cultural management. – california, thousand oaks: sage publications, inc., 2008. – 327 p. isbn 978-1-4129-3956-0 vora d. managerial roles in the international context. in p. b. smith, m. f. peterson, and d. c. thomas (eds.), handbook of cross-cultural management research. – thousand oaks, ca: sage, 2008. p.411-430. yamada, a. m., singelis t. m. biculturalism and selfconstrual// international journal of intercultural relations, no.23, 1999. p.697-709. the article has been reviewed. received in april, 2010; accepted in may, 2010. 9 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 abstract fostering european identity http://dx.doi.org/10.5755/j01.eis.1.14.25492 sarah ciaglia london school of economics and political science over recent years, the concept of ‘european identity’ has received increasing scholarly attention. despite this progress, political initiatives to foster a shared feeling of europeanness still appear to be designed largely ad hoc. this contribution aims at providing a link between the existing state of knowledge and policy approaches to promote european identity. with a target group perspective, we develop a classification of measures to promote european identity. this classification is based on the distinctions between a ‘civic’ and a ‘cultural’ european identity. within this framework, we assess seven proposals: transnational party lists for the european parliament, an eu citizens’ assembly, eu consular offices, a pensioners’ erasmus, a ‘european waltz’ program, an eu public service broadcaster, and a european bank holiday. we conclude that current identity strategies suffer from too narrow target groups that already tend to have a european perspective. keywords: erasmus, civic identity, cultural identity, adonnino report. european integration studies no. 14 / 2020, pp. 9-25 doi.org/10.5755/j01.eis.1.14.25492 acknowledgement: we gratefully acknowledge financial support by lutz helmig. we also thank two anonymous reviewers for their helpful advice. a common identity within groups fosters mutual trust and cooperation (akerlof & kranton, 2000). this fundamental insight makes ‘identity’ a relevant concept also for the functioning of political organizations and it is not surprising that issues of ‘european identity’ have received substantial attention in the study of the european integration process as well (see for example: cram, 2012; kaina, 2013; westle & segatti, 2016). similar to national identity as one driving factor for the emergence of the nation state, some type of european identity is seen as a stabilizer for the existence and further evolution of the political institutions of europe such as the european union. increasingly, it is acknowledged that public opinion towards the european union is not solely determined by economic and utilitarian ‘hard’ facts but also by ‘soft’ factors that encompass identity (mitchell, 2014; van klingeren, boomgaarden, & de vreese, 2013). in analogy to the common identity of any other social group, identity of a european type would foster mutual trust of europeans and, hence, simplify cooperation and the search for compromises.1 with these arguments, european identity should be conducive for a cooperative approach that avoids a perspective of narrow nationintroduction submitted 03/2020 accepted for publication 07/2020 fostering european identity eis 14/2020 clemens fuest ifo institut and ludwig-maximilians-university munich friedrich heinemann* zew mannheim and university of heidelberg * corresponding author, email: friedrich.heinemann@zew.de3 1 for experimental evidence on the link between european identity and cooperation see la barbera and ferrara, (2012). according to these results, there are direct and indirect effects of european identity on cooperative behavior. the indirect effect is mediated by the generation of trust. http://doi.org/10.5755/j01.eis.0.13.24033 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 10 al self-interest. hence, it is not surprising that the concept receives particular attention in a critical stage of european integration that has experienced new serious conflicts and cleavages with the euro area debt crisis, the refugee issue, the rise of anti-european movements and the brexit. the awareness that european identity is a relevant constraint for the future of the integration process is not new. as early as 1973, at the copenhagen summit, the heads of state adopted a brief declaration on european identity emphasizing the ‘common heritage, interests and special obligations’ as essential for member states’ foreign policy (commission of the european communities, 1973). while the terminology was vague in these early years, a first, more substantial milestone was the ‘adonnino report’ (commission of the european communities, 1985). with the mandate from the fontainebleau european council, a committee under the chairmanship of pietro adonnino produced a comprehensive list of measures and projects to advance a common identity, some of which (european flag and anthem, student exchange programs) paved the way for the most prominent identity-constructing approaches of the following decades like erasmus. identity-supporting initiatives since the adonnino report have been largely motivated ad hoc and have lacked a closer link to the academic literature. these superficial approaches have led to a problematic narrowness of strategies. for example, in the tradition of the adonnino report, measures to foster cross-border mobility of students and apprentices through the current erasmus+ program, the eu student card or the promotion of european universities receive substantial attention in most political reflections on how to foster european identity (a recent prominent example is the commission's gothenburg communication from november 2017: european commission, 2017). however, this almost exclusive focus on the young and mobile generation with an already well-developed european perspective may be unbalanced. it may not sufficiently reflect the overwhelming empirical evidence that very different target groups (for instance middle-aged or elderly generations without tertiary education) with a lack of opportunity for transnational contacts might be much more crucial addressees. here our contribution comes in. our key objective is to link a well-developed theoretical and empirical strand in the european integration literature to the ongoing policy debate on appropriate strategies for fostering european identity. thus, we hope to provide a contribution that can inform european policymakers to develop better-targeted strategies at a critical stage of the integration process. for this purpose, we systematize and assess various triggers that might stimulate identity formation on a european level. based on a synthesis of the theoretical and empirical literature of the last years, we identify important target groups that new programs should address and we develop a classification of measures. hence, we do not provide an additional primary study to the huge existing literature but rather approach the issue from a meta-analytical perspective. within this framework, we assess the rationale of a few exemplary specific proposals for new identity triggers in more detail that are: transnational party lists, citizens’ assemblies, a european public broadcaster, eu consulates, a ‘european waltz’ program, a pensioners’ erasmus, and a european bank holiday. some of these approaches are new, some have been discussed since the time of the adonnino report. we sketch the history, basic ideas and limitations behind these models and show how they reflect different insights of identity research and for which target group they are promising. we proceed as follows: in a first step, we briefly take stock of the definitions and concepts of european identity as they have emerged over recent years (section 2) followed by a brief sketch of aggregate trends in european identity over the last four decades (section 3). our review of the empirical literature describes the robustly significant correlates of european identity on an individual level (section 4). based on these insights, we propose a target-group specific classification of identity fostering measures (section 5). section 6 develops in more detail our seven exemplary measures followed by conclusions on the limits and risks of any european identity fostering strategy. 11 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 conceptualization of european identity 2 for a detailed discussion of the definition social and political identity see kaina and karolewski (2013) and dehdari and gehring (2017). 3 it was named after sociologist luis moreno fernández (1986), who first introduced such a question to study sub-national identity of scots and catalans with regard to britain and spain, respectively. trends of european identity over time the term ‘european identity’ can in general be described as a feeling of being european “as an integral part of one’s own social identity”.2 the attempts to conceptualize european identity are vast and comprehensive and have led to various refinements (carey, 2002; friese & wagner, 2002; kaina, 2013; kaina, karolewski, & kuhn, 2015; white, 2012). excellent data availability has made the straightforward conceptualization of identification ‘as european’ highly influential. the so called ‘moreno question’3 is the following one: “in the near future, do you see yourself as (1) [nationality] only, (2) [nationality] and european, (3) european and [nationality] or (4) european only?”. this question is regularly asked in the european commission’s bi-annual standard eurobarometer survey and widely used in the empirical literature. although this framing dominates the empirical research, the literature’s understanding is much richer. cram (2012) clarifies that an implicit and latent type of identity is quite distinct from the explicit identity ‘as european’. the latter is also not fully informative about the intensity of attachment towards europe or even ‘eu support’. no matter how ‘european identity’ is precisely defined, there is a consensus that it is contingent. like regional and national loyalties shift as a consequence of external changes (cram, 2012 on scottish identity in the thatcher era) the same holds for european identity. the insight that a european identity is not strictly exogenous is an important message for any policy attempt to influence the formation and path of identity evolution. one of the conceptual refinements of the identity literature that is particularly valuable for a classification of policy proposals is the distinction between a civic and a cultural component of european identity (bruter, 2003). a european ‘civic identity’ refers to the perception to be part of a european political system or even a ‘european state’ that defines rules, laws and rights with relevance for one’s own life. a focus on the civic dimension would largely equate ‘europe’ with ‘european union’. a european ‘cultural identity’ is independent from these political perceptions and labels the perception that fellow europeans are closer than non-europeans because of shared culture, values or history. this distinction is important for the classification of identity-activating measures since, typically, the civic and cultural dimensions of identity will respond differently. bruter (2004) finds that ‘cultural’ identifiers have to do with peace, harmony, the fading of historical divisions and co-operation between similar people and cultures, whereas the images of europe held by ‘civic’ identifiers are related to the experience of open borders, mobility of citizens, common civic area, and economic prosperity. the civic dimension of european identity is particularly related to the perceived ‘legitimacy’ of the (political) european project. therefore, for the purpose of our classification, the standard distinction between ‘input legitimacy’ and ‘output legitimacy’ (hobolt, 2012; scharpf, 1999) is also helpful. triggers that foster civic identity through the ‘input’-channel refer to the institutions and processes that lead to political decisions in europe with a (perceived) high voter involvement. approaches towards more european identity through the output-channel concentrate on a good performance of european policies that effectively deliver salient public goods to citizens. figure 1 presents the general trend of european identity from eurobarometer data between the early 1990s and 2019. over these decades, the “(nationality) only” (e.g. “french only”) answer competes with the “(nationality) and european” answer for the first place. since 2012, the “double identity” answer (seeing oneself as both having a national and a european identity) has increasingly beaten the “national only” answer. since then, also the “european and (nationale u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 12 ity)” answer has advanced that puts the european identity even before the national one. taken together, the share of respondents that state to possess some type of european identity (either exclusively or in combination with a national identity) has fluctuated over these three decades between a minimum of 51% in 2010 and a maximum of 65% for the most recent surveys in 2019. obviously, there seems to be an impact of crisis and crisis adjustments on this development. the minimum was reached in a year that was characterized by the immediate economic and social fallout from the global financial crisis and which, on top, marked the start of the euro area debt crisis. a possible explanation for the continuous recovery of european identity since then is that events like the brexit and other crises (refugees, climate change, trade wars, populist threats) may have led to an increasing awareness for europe and a perception that european integration may be at risk, which might have activated reflections on europe and strengthened the formation of a european identity. it remains to be seen how the most severe post-war recession as a consequence of the covid-19 pandemic in 2020 will impact on european identity. a lot will depend on whether europe is perceived to react in a convincing and successful way to the economic and social challenges of these developments. figure 1 moreno question measuring european identity, 1992-2019, eu total source: eurobarometer 1992-2019, moreno question: “in the near future, do you see yourself as … ?”; weighted aver-age according to eurobarometer data for the ‘european union’ total. after this brief aggregate perspective, we dig deeper into the heterogeneity of views among european citizens. strategies that want to support european identity formation should be based on a clear understanding about the empirically relevant individual drivers. 4 only this detailed understanding allows to develop identity-fostering strategies with a promising target group perspective. 4 beyond the individual dimension the empirical literature has paid substantial attention to national characteristics like, for example, a member state’s economic and social conditions. for a comprehensive recent survey see (ciaglia, fuest, & heinemann, 2018). 13 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 determinants experiences recources personality and attituded demographics transnational contact discuss politics socio-economic status education, information language skills general personality traits values and religion (christianity) national/ regional identity age gender (male) trust in eu institutions figure 2 empirically relevant determinants of european identity positive effect on european identity negative effect on european identity experiences among individual-level factors, transnational contact has attracted particularly large attention. european identity research has covered various types of exchange that range from travelling (ceka & sojka, 2016; westle & buchheim, 2016) and personal transnational relations (e.g. being an intra-eu immigrant, verhaegen, hooghe, & quintelier, 2017) to relationships including marriages (schroedter, rössel, & datler, 2015; van mol, de valk, & van wissen, 2015). while travelling has a positive effect on european identity, being exposed to a high number of tourists at home does not show any effect on european identity (buscha, muller, & page, 2017). stoeckel (2016) studies international social interactions of about 1,500 german students and finds that contact increases european identity, particularly for those students who have had a rather weak european identity before. the eu’s erasmus impact study (european commission, 2014, pp. 130, 151) shows that mobile students and staff do in general feel more attached to europe than non-mobile individuals, even before going abroad. however, there is no ‘additional’ effect after having returned from the stay figure 2 summarize central insights from a rich literature with a selective focus on relevant individual characteristics. although the empirical literature on european identity provides some robust messages, an important caveat applies. a good share of the literature offers insights on correlations but does not show causality. for example, an empirical link between studying abroad and european identity can obviously be driven by a reversed causality so that students with a european identity are more likely to go abroad. moreover, correlations – e.g. between education and socio-economic status – make it difficult to identify the most relevant drivers from a conglomerate of individual factors. with these notes of caution the following picture emerges. empirical insights on determinants e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 14 abroad so that the causal effectiveness of erasmus is not supported. jacobone and moro (2015) find a small positive effect of participation in the erasmus program on european identity – directly, and indirectly through a reduction in national and regional identity and increased cultural exchange confidence, language skills and personal development. mitchell (2015) concludes that participating in the erasmus program indeed encourages european identity significantly. oborune (2015) surveys about 12,000 erasmus students and finds that about a third of them feels more european after the exchange. summing up, kuhn (2015) shows that transnational contacts contribute a lot to european identity formation. however, she also shows that only a small fraction of the population engages in this, namely young, well-educated and relatively wealthy people (similarly datler, wallace, & spannring, 2005; mitchell, 2015). apart from actual exchange, experience can also grow with a continuous intellectual preoccupation with political and european issues. this conjecture is confirmed as interest in eu issues (verhaegen & hooghe, 2015; westle & buchheim, 2016) as well as discussing about politics (di mauro & fiket, 2017; mitchell, 2015; verhaegen et al., 2017) is also associated with a larger european identity. also experimental designs that compare a treatment to a control group confirm the link: participation in a simulation of european politics (ruenz, 2015) or in deliberation meetings on european issues (di mauro & fiket, 2017) strengthen european identity. however, the findings of ruenz (2015) also show that the effect is rather small due to the fact that participants of eu simulations already had high levels of both european identity and eu support before. resources closely related to an individual’s european experiences is the whole conglomerate of factors summarized as ‘resources’ that not only includes the socio-economic status but also intellectual and mental capacities. these capacities, in turn, originate from education (including language skills). the individual socio-economic background seems especially decisive for european identity (risse, 2015). waechter (2016) shows that also for minority groups in the eu, the socio-economic situation drives european identity formation. european identity also increases with higher levels of education that is highly correlated with socio-economic status (ceka & sojka, 2016; curtis, 2016; mitchell, 2015; risse, 2015; verhaegen & hooghe, 2015; verhaegen et al., 2017; westle & buchheim, 2016). similarly, knowledge (ceka & sojka, 2016; curtis, 2016; mitchell, 2015; verhaegen & hooghe, 2015) and information (bruter, 2003; di mauro & fiket, 2017; waechter, 2016) about the eu and politics increases the likelihood to have a european identity. non-surprisingly, foreign language proficiency as a particular education dimension is shown to be an important asset to engage in transnational contact for instance, or in knowledge or debating politics, and in turn, european identity (monter, grad, albacete, & condor, 2004). stoicheva (2015) stresses the role of multilingualism for european identity, both as a means to communicate and enter into exchange with people from other eu countries. personality and attitudes personality traits and values including religious imprint and trust in european institutions affect european identity as well. curtis (2016) investigates how personality traits affect european identity in the uk. the study finds that extraversion increases european identity, while agreeableness (in the sense of being gentle and polite) decreases it. luhmann (2017) finds that pessimists are a lot less likely to feel european. postmaterialism (jung, 2008) and cosmopolitan and liberal values (risse, 2015) positively affect a supranational or european identity. curtis (2016) also finds that adhering to christian religion increases european identity. however, this could also simply be seen as a proxy for cultural closeness. nelsen 15 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 and guth (2016) conclude that religion affects european identity: catholics tend to be more european than protestants. however, this only holds as long as the community is a majority in a country. on national identity and regional attachment, medrano and gutiérrez (2001) find that both are compatible with european identity. however, jung (2008) points out that national pride decreases a supranational identity. there seem to be different effects at work here. ceka and sojka (2016) for instance uncover that having a strong national identity decreases the cognitive component of european identity, but does not affect the affective component of european identity. moreover, westle and buchheim (2016) discover that those who hold an exclusive european identity are mainly driven by rejecting their national identity. dehdari and gehring (2017) show that in alsace and lorraine a strong regional identity also relates to a high european identity. this holds especially for the first two generations after world war ii. brigevich (2016) sheds further light on the relationship between regional and european identity in french regions. in fact, she finds that cultural regional identity reduces support for eu institutions, whereas political regional identity increases support. this supports dehdari’s and gehring’s (2017) conclusion that people might seek to ‘up-level’ (national) political power to the eu so as to increase regional relevance. a person’s trust in eu institutions, democracy and other europeans (bruter, 2003; ceka & sojka, 2016; harrison & bruter, 2015; verhaegen et al., 2017) is positively correlated with european identity although the issue of reversed causality is particularly obvious for this link. westle and buchheim (2016) study the changes from exclusive national to dual european and from dual european to exclusive european identity. they show that both changes depend especially on factors related to the civic component of european identity: satisfaction with eu democracy, trust in eu institutions, eu citizens, and eu politics. moreover, the ‘opposite’, having trust only in national institutions and citizens, reduces european identity significantly. demographics age has been confirmed in the literature as a major determinant of european identity (risse, 2015). jung (2008) finds that across the world, young people tend to have higher levels of supranational identity than people at older ages. secondly, ceka and sojka (2016) differentiate between cognitive and affective european identity. they observe that the effect of age has opposing effects in old and new member states. while in old member states, cognitive european identity increases with age, the opposite shows for new member states. as concerns affective european identity, young people from new member states are even more affective than their peers from old member states. waechter (2017) links the generational effect to the numerous opportunities that the eu provides for young people regarding travelling, studying and working abroad. there are some studies on european identity formation among children, which support many of the above mentioned findings. agirdag et al. (2012; 2016) investigate european identity formation among belgian pupils and find that the socio-economic status, both of the child’s family as well as the overall school’s average, strongly affect european identity: children from working class families are less likely to identify as european. moreover, boys identify more as european than girls. in contrast, neither age nor religion affect european identity during childhood. finally, for the individual-level factors, gender seems to have a small but significant effect on european identity, which remains unexplained in the literature. male persons are more likely to have a european identity than female persons (jung, 2008; verhaegen & hooghe, 2015) and also higher levels of eu support (henjak, tóka, & sanders, 2012). robust main findings summing up, this literature provides some largely consensual facts about the relevant drivers of european identity. overall, key variable groups that are positively associated with identity as a e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 16 classification of measures and target groups european are centered on cognitive mobilization (e.g. information, discussing politics), transnational experience (so far largely student exchange), intellectual resources (education, language skills), financial resources and trust in european institutions. moreover, the literature shows the high correlation of young age, economic status, educational attainments, language skills and transnational contact. those who are most likely to hold a european identity are young, wealthy, well-educated, and eager to travel, work or study abroad. with other words, the erasmus target group is precisely one that already has a large disposition to develop a european view. the divide on transnational experience can itself reinforce a european alienation of the more constrained groups. kuhn (2015) emphasizes potential negative feedback loops of ‘social stratification’: transnationalism which depends on the social and educational background might even increase the distance between groups and, hence, further endanger a european consensus. on target groups, the insights from the empirical literature summarized before have straightforward lessons. a focused strategy should try to reach those groups in particular that normally lack the opportunity for european experiences due to resource constraints of the various types. programs should include those who are less educated, lack language skills and have had less opportunities to accumulate some basic knowledge of the eu and its politics. particular attention could be paid to groups that lack sufficient resources and opportunities to engage in transnational contact both at home and abroad. the robust negative correlation between age and european identity emphasizes the need to reflect the potential of programs for older citizens that, in their youth, may have lacked the opportunities to spend time abroad. with this target group descripany strategy to foster european identity should start with a clear understanding about both the specific dimension of identity and the target groups in focus. for that purpose, we first suggest a classification and, second, identify target groups. our classification (table 1) of identity triggers is built on the distinction between the civic and the cultural dimension of european identity. a strategy that wants to activate the perceived commonal-ities of europeans within their political system (civic dimension) has two groups of triggers. the strategy can either address citizens’ involvement in the political decision processes (‘input’) or aim at improving the provision of the union’s ‘outputs’ with a high salience. measures related to the cultural dimension of european identity would have to create space for the experience of shared values for europeans from the different member states. this can be achieved either through ap-proaches that simplify transnational contacts and common european experience of different na-tionalities or through european symbols and common stages of a european public. obviously, single identity triggering programs can also be relevant for both the civic and the cultural dimensions of identity (what explains the double entries in table 1). dimension civic identity cultural identity moderator input output transnational contacts symbols and european example (1) european party lists (2) citizens‘ assemblies (3) public broadcaster 4) eu consu-lates (5) european waltz (6) pension-ers’ erasmus (5) european waltz (6) pension-ers’ erasmus (3) public broadcaster (7) europe day as public holiday table 1 triggering european identity: classification and examples 17 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 exemplary measures consistent with the target group approach tion, it becomes obvious that the current sole pre-occupation of european programs with the young and well-educated (erasmus) needs to be reconsidered. in the following, we discuss seven exemplary measures and programs for which empirical identity research offers supporting arguments. we have chosen these examples to cover the available broad space of options as far as possible. some of these measures have been discussed before, others have been developed by the authors (for more details on the measures see ciaglia et al., 2018). for each of the proposals, we briefly sketch the origin and contents, describe its position in our classification, its target group and both its potential and limitations. transnational party lists european party lists in the european parliament have attracted considerable attention in the recent political debate. these have not only been proposed by the french president macron in his sorbonne speech about the future of the eu (macron, 2017) but they have also been discussed within the parliament for years (e.g., in a report by the committee on constitutional affairs: european parliament, 2011). more recently again, in february 2018, the european parliament rejected a proposal to re-allocate the current british seats after brexit to a transnational constituency (barbière, 2018), but the issue remains on the political agenda. the proposal can be classified as an input-related measure fostering the civic dimension of european identity. it does not address a specific stratum of citizens. target groups are voters of all kind for which identity formation could be fostered through information and discussions (‘cognitive mobilization’) about the european elections and pan-european policy issues. candidates running for seats on transnational party lists would have to win constituencies different to the current local or national definitions. european party families would each set up a list with the lead candidate at the very top. to be successful, candidates from these lists need to get attention across a critical number of eu member states and, therefore, seek to find policy issues that are of interest for many of them, hence, of a genuine european nature. clearly, these european messages that have an appeal to voters in various member states are likely to foster a sense of common european challenges in the election campaigns. conversely, candidates on european lists will hardly have a chance to qualify through messages centered on narrow country-specific national issues. in this sense, the ‘supply’ of political messages and policy offers in european collection campaigns can be expected to be more european and to address and raise the perception for common european issues. another argument from the political economy of fiscal federalism is that party lists could reduce the interest in local ‘pork barrels’, i.e. spending items that are highly salient in local constituencies. the resulting ‘common pool’ disincentive leads to an inefficient neglect of european public goods and the problematic ‘juste retour’ approach to the eu budget since years because politicians seeking reelection in a local district have to please their local voters (heinemann, 2006). from a constitutional justice perspective, a transnational list would contribute to reducing the current misrepresentation of voters from different member states due to the allocation of seats to member states. the downside is that the lists could lead even to an overrepresentation of large member states as their candidates could win a critical mass of voters more easily compared to those from smaller countries (pukelsheim & oelbermann, 2015). finally, hübner et al. (2017) concludes that transnational party lists require a “uniform, eu-wide electoral procedure” (p. 40). this could also be a starting point for striving towards more ‘europeanized’ elections e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 18 that might finally even overcome the need for transnational lists. in the long run, insofar genuine transnational political parties come into existence transnational lists could become redundant. citizens’ assemblies the idea to establish european citizens’ assemblies has first been promoted by ngos, thinktanks and academics rather than from eu representatives (organ, 2018). the instrument has been applied on the national level already with ireland5 being a particularly prominent example. with the new commission, this instrument might get more attention from the top: ursula von der leyen, as a candidate for the commission presidency, had announced a “conference on the future of europe” in which citizens “play a leading and active role” (von der leyen, 2019). similar to transnational party lists, a citizens’ assembly is a measure related to the civic dimension of identity. it would aim to increase the input legitimacy of eu decision making and offer a stage for a truly european debate of citizens. different to the party lists innovation with its embedding of a representative system, the assembly stresses the direct involvement of citizens in the union’s political reflections. again, it would be a broad measure in terms of its target group which is the part of the population that follows political debates and it is related to the cognitive mobilization for european issues. the idea is that the involvement of ‘ordinary citizens’ would increase the share of the population that pays attention to a european political debate and, hence, further increases the target group endogenously. a european citizens’ assembly would gather a representative sample of the eu population for discussing a relevant und timely political issue. the selection could be organized as a lottery by the eurobarometer as they have the necessary administrative experience.6 for a start, one could think of about 100 to 200 participants in order to ensure practicability. as language might certainly be a barrier, eu institutions could provide for translation services. the final outcome would be a decision (if it’s an issue with clear options, e.g. yes/no) or a report (if it’s more complex, e.g. guidelines). the file would be sent to all eu and national institutions and be presented to the european council, the european parliament, and the commission college. the report would not have any formal impact, instead it would enrich the political debate and stimulate politics on an issue. the argument is that the assembly would contribute to forming a ‘european demos’ on the one hand, and efficiently facilitating insights from the people to the policy-making process. a downside is that even the lottery element is no safe precaution that the selection will really be representative as the acceptance of an invitation will be strongly driven by individual features like education and political interests. despite its practical limitations, the measure is promising from this paper’s point of view as the kind of debate in such an assembly would be able to develop shared european policy perspectives and help to perceive various other european commonalities. european public broadcaster the idea of a genuine eu-wide public broadcaster was mentioned in the adoninno report that suggested “the development of a truly european television channel” (commission of the european communities, 1985, p. 22), but, since then, it did not receive serious consideration. currently, with euronews, there exists only one eu-wide broadcaster. however, it does not air on usual tv and is, therefore, not easily accessible for a large audience. even though, several national public service broadcasters take part in euronews (via the european broadcasting union), the majority 5 ireland’s citizens assembly website: https://www.citizensassembly.ie/en/home/. 6 in ireland, selection was organized by an opinion poll agency, too, and was based on a few criteria to ensure a representative sample: gender, age, region, and social class. 19 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 of shares is held privately (euronews, 2020). instead, a public broadcaster is usually required to focus on news from all regions, civic education, preserving cultural heritage and addressing various interests of the audience to reach a most broad coverage of the people.7 a european public broadcaster could appeal to both the cultural and civic dimension of european identity. it is supposed to encourage knowledge, information, and discussions about eu politics and lead to the valuable ‘cognitive mobilization’ on european debates. hence, it could impact positively on the ‘input’ dimension of the european political process. if it reaches a critical level auf audience, it could contribute to the development of a european public. its target group are those that have an interest in political developments from another than their national perspective. clearly, its potential will be higher for the part of the population with above-average education that has an interest in policy debates. a european public broadcaster could be founded by all national public service broadcasters and the governing body could be composed of their representatives only. accordingly, it would be financed and supported technically by all national public service broadcasters together. the aim is to provide an easily accessible, independent, and genuinely european source of information. the broadcaster could start with one main task which would be to air all public meetings, hearings, and press conferences of eu institutions, in particular from the european council, the european parliament and the european commission, and the new citizens’ assembly (or citizens’ dialogues). additionally, there could be news shows during the day, produced with contributions from all national and regional broadcasters. the aim is to allow a broadcaster that meaningfully complements national public service broadcasters and does not position in competition to them. public broadcasters are not uncontroversial. the main counter-argument is that people are forced to pay for a broadcaster independent from their actual media consumption. supporters emphasize the financial and political independence of national public service broadcasters and their mission to provide information most accurately and objectively and with less pressure to focus on what ‘sells best’. the added value of a european public service broadcaster could be its contribution for preserving media pluralism even in member states where this was recently challenged. eu consulates the idea to establish an ‘eu embassy with 27 flags’ has been proposed in the literature with a strong focus on potential cost savings due to potential economies of scale (bertelsmann stiftung, 2013, p. 56). according to this proposal, eu embassies would provide consular services for all eu citizens. beyond the cost argument, such an innovation would clearly have potential to make citizens perceive the union as a provider of valuable services. hence, it relates to the output dimension of the civic understanding of european identity. eu embassies and consulates would address the part of population that travels internationally, be it for touristic or professional reasons. these groups could perceive eu infrastructure as providing insurance and assistance, e.g. through the issuance of ‘laissez-passez’ travel documents in case they lost their passport or in cases of illness, crime victims or other emergencies. already the adonnino report (commission of the european communities, 1985, p. 21) has identified assistance of european citizens in third countries as european task where member states should also assist nationals from other community countries. today, eu countries already co-operate with regard to schengen provisions or visa application centers in third countries (for details see bertelsmann stiftung, 2013). moreover, the european external action service has a network across the world with regard to foreign policy issues and diplomatic assistance for the 7 arte is a german-french cooperation and, hence, not pan-european. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 20 high representative of the eu. however, it does not provide direct consular support for citizens. the lisbon treaty has made a first step in that direction by prescribing that every eu member state’s embassy shall provide for consular support for all eu citizens (art. 20 tfeu). nevertheless, a genuine eu consulate that replaces national representations would be a salient step beyond national cooperation towards european service provision. eu consular offices are considered to bring significant financial and administrative savings. moreover, it could provide a better coverage of third countries whereas the current situation is characterized by an inefficient spatial clustering of eu member states’ consulates in few places (bertelsmann stiftung, 2013). the key counter-argument is that member states have special national interests that might not adequately be addressed by eu representations. an obvious possible compromise could be that services of a homogenous type (travel documents, visa) are pooled whereas diplomatic contacts continue to be provided by national teams. european waltz the ‘european waltz’ is a recent new idea proposed by the authors (ciaglia et al., 2018). together with the measure described in the next section (pensioners’ erasmus, see below) it belongs, like the classical erasmus programs, to mobility-fostering approaches. it appeals to both the civic (the eu as enabler for professional cross-border exchange) and the cultural dimension of european identity (contact with colleagues in other eu countries fostering a sense of communality). policy makers regularly see erasmus (for students in tertiary education and vocational training) as the model case for a successful program to foster european identity through cross-border experiences. while participation is certainly beneficial as a personal experience, there is limited evidence that erasmus actually has a positive causal impact on european identity (beyond correlation, see section 3 for the erasmus impact assessment literature). the reasons are self-selection biases, through which most of young and mobile citizens participate that tend to have already a positive european attitude and often belong to the more affluent part of society. it might therefore be beneficial to broaden the target group. the ‘european waltz’ would specifically address the working population. it would support employed adults to work and live some time in another eu country. it could start with a couple of weeks and be insightful for both the visitor and the hosting company. the idea (and the name) builds on the journeymen in craftsmanship who travel around to learn from other habits and skills and, thereby, to improve and broaden their knowledge. priority should be given to employment sectors and qualifications that have a domestic character and regularly lack the opportunity of foreign work experience like the health sectors, the civil service, craftsmanship, retail and others (for further institutional details see ciaglia et al., 2018). taking part in such an exchange would not only improve working skills, but also foster exchange (‘transnational contact’), and getting to know other ways of life (‘cognitive mobilization’). moreover, people would feel a direct benefit from the eu’s attempts to facilitate working abroad (output dimension of civic identity). the backing from the empirical identity literature summarized above for the ‘waltz’ is obvious: the program addresses the transnational experience and resource channel that has proven to be important for identify formation. it is also based on a careful target group analysis. in contrast to the students’ erasmus program, the waltz would not be as costly. the main challenge is to establish the network and facilitate the placements. however, the first and easiest step could be to align regulation to ensure an “eu leave” and related social security safeguards. similar to the student’s erasmus program, this one could also be prone to self-selection. in contrast, however, this program would not only affect the ones on the ‘waltz’ but also their hosting company, their 21 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 home company and their guest family. given the practical issues remaining to be resolved, pilot programs could be a sensible first step. pensioners’ erasmus the ‘pensioners’ erasmus’ is our second own proposal that, like the preceding one, is built on the idea to enable transnational experiences for specific target groups that often lack the resources to do so on their own (for details see ciaglia et al., 2018). similar to the ‘waltz’, it has potential to stimulate both the civic (eu as output provider) and the cultural dimension (encounters with fellow-pensioners) of european identity. the program would have a financial, an administrative and an infrastructure related part. firstly, similar to erasmus, the program would provide financial support for short-term journeys up to a couple of weeks. eligible journeys would have to fulfill certain conditions that exclude the use of resources for normal tourist trips and prescribe true encounters with the host country population. these conditions could be linked to certified cultural, historical, language or social seminars or projects. in addition, pensioners who would like to engage with european pensioners at home, could be supported with information on funding a ‘buddy program’ to invite and accompany pensioners from abroad. the obvious challenge for the program are high budgetary costs, the mentioned self-selection of ‘good europeans’ into the program, and windfall gains for affluent pensioners who love travelling. therefore, a means-test could be recommendable in order to concentrate the budget on the pensioners with resource constraints. the program could also be limited to people immediately after pension entry when they are still relatively open and in a phase of re-orientation. the big advantage is that the program could reach a target group that so far has been rather neglected and that deserves special attention given the results of the empirical identity literature summarized above (section 4). public holiday on europe day 9 may the adonnino report (commission of the european communities, 1985, p. 24) has considered to dedicate the europe day 9th may commemorating the schuman declaration to special information and teaching campaigns and special celebrations of the european institutions. these limited intentions still characterize today’s practice of the europe day, which suffers from a low visibility (larat, 2019). one recent initiative from members of european parliament and civic groups was to make the day a public holiday for all member states and eu institutions (lee, 2019). a european public holiday would classify as european symbols like the european flag or anthem that foster a sense of european community. generally, days of commemoration have the function to strengthen such feelings even if there is no universal consensus on the past event. in the course of time, commemorating activities are increasingly detached from the actual historical event but create a collective image just because of the ritual repetition (onken, 2007). besides this ‘cultural’ dimension there is also a ‘civic dimension’ insofar the eu would be perceived to promote one common day off work to celebrate. the strength of the european bank holiday would be its far-reaching salience through all groups of society with a particular visibility for the active workforce. however, there are potential risks attached, both with regard to transition and the long-run. the introduction would raise the issue of compensating cuts in other holidays in order to avoid economic losses. hence, there might be social groups that would have to sacrifice on of ‘their’ holidays (e.g. the churches). an additional particular problem is that 9th may, as the day of victory over nazi germany, has competing meanings that could polarize at least in those countries where ‘victory day’ played a role in the (soviet) past, i.e. for the russian minorities in the baltic states (onken, 2007). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 22 with our analysis of target groups and political legitimacy, we developed and discussed seven pro-posals to strengthen european identity. our analysis does not recommend one particular measure as the single crucial and most promising approach to foster european identity. all measures that we have discussed are well grounded in our target group analysis and have their particular strengths and weaknesses. the overview demonstrates the broad spectrum of potential measures which are promising and worth further consideration. compared to this spectrum of action, the eu’s current approaches are rather centered on programs like erasmus which might be too narrow in terms of the target group, which is typically considered young, well-educated and comparatively wealthy. this might neglect exactly those groups with the highest obstacles to european experiences and perceptions. accordingly, there seems to be a gap between a highly differentiated and compre-hensive academic identity research and the narrow and ad hoc european policy debate. this con-clusion raises questions to which extent academic european integration research always reach their potential policy audiences. a final clarifying note is important. a sense of european identity is helpful for any type of european cooperation both within and outside the institutions of the european union. hence, programs fos-tering european identity are to be distinguished from approaches that seek to mobilize support for the eu and its status quo or specific integration steps. with our contribution, we explicitly do not take sides with one particular model of european integration. moreover, we do not think it should be the objective of european politics let alone academic research to manipulate (‘nudge’) citizens to become ‘better europeans’. this would be paternalistic. identity belongs to a person’s most pri-vate sphere and is up to own evaluations and decisions. with some justification, shore (2006) criti-cizes an instrumental use of european identity as a non-justified elite project. however, the kind of measures discussed in this contribution might advance european identity mainly by overcoming biases in information and prejudices. this type of 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(2012). a common european identity is an illusion. in h. zimmermann & a. dür (eds.), key controversies in european integration (pp. 103111): palgrave macmillan. ciaglia sarah phd candidate european institute, london school of economics and political science fields of interests economic and fiscal policy, political economy, european integration. address houghton street, london wc2a 2ae, united kingdom fuest clemens prof. dr. dr. h.c. ifo institute fields of interests economic and fiscal policy, international taxation, european integration. address poschingerstraße 5, 81679 münchen, germany phone: +49 89 92241430 heinemann friedrich prof. dr. zew – leibniz-centre for european economic research fields of interests fiscal policy and taxation, political economy, european integration. address l7, 1, 68161 mannheim, germany phone: +49 621 1235149 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 60 issn 1822 – 8402 european integration studies. 2010. no 4 europe of knowledge: sustainable development borisas melnikas vilnius gediminas technical university abstract the new theoretical concept of the processes of creating knowledge based society and the knowledge economy in the european union, as well as sustainable development processes is described in the article. the main idea of this concept is that the creation and development processes of the knowledge-based society and knowledge economy may be attributed to the category of global transformation and sustainable development processes, therefore, all general phenomena and characteristics of global transformations and sustainable development in general, are absolutely typical for the creation and development of the knowledge based society and knowledge economy. the processes of the creating of knowledge based society and knowledge economy and modernization are analyzed in the general context of the processes of sustainable development. the main principles of creating the knowledge based society and knowledge economy and modernization are described. creating and modernization of the knowledge based society and knowledge economy are very complicated processes, oriented to the formation of the new quality of society and qualitatively new lifestyle. moreover, these processes may be described as “twice” as complicated, because they win distinction by orientations to the pursuit of new quality in two aspects: the knowledge based society and knowledge economy, compared to “traditional” society and economy, are in all cases described as qualitatively new, creating and development of the knowledge based society and knowledge economy takes place under the conditions of the global changes, which means that qualitative changes take place in all global space, the essence of those changes is the creation and spread of the knowledge-based society and knowledge economy. a special attention is given to the conclusion that in the environment of the knowledge based society creation and generating knowledge economy and development, the provisions for sustainable development should be attained. the following general conclusions were made: the processes of creating knowledge based society and generating knowledge economy and its further development should be understood as the undivided unity, the processes of creating knowledge based society and generating knowledge economy and its further development should be perceived as relevant to all spheres of life – meaning social, economic and political life, culture, advancement of science and technologies, interaction with nature in general and environment in particular, the processes of creating knowledge based society and generating knowledge economy and its further development should be comprehended as the ones providing economic preconditions for modernization of the society and refinement of its life in accordance with the standards, norms and values of knowledge based society, the processes of creating knowledge based society and knowledge economy and further development should be interpreted as multi-dimensional and extremely complex and uninterrupted process which manifests itself in cyclical changes and leaps towards higher quality standards, the complex approach towards knowledge based society and knowledge economy creation and further development should be implemented in all stages of scientific research, studies and practical activities, including the prioritizing various programmes on multiand cross-disciplinary research and studies, as well as strategic solutions of the complex character in various stages of regional development, planning and designing of economic and technological leaps. the processes of creating knowledge based society and knowledge economy and further development should be analyzed and assessed in the context of the priorities of sustainable development. by knowledge based society and knowledge economy creation and further development, harmonization should be sought in the following: issn 1822-8402 european integration studies. 2010. no 4 61 in the fields of various social, economic, political development, culture, advancement in science and technologies, interplay with nature and other fields, in the environment of changes in various countries, regions or otherwise geographically or regionally defined systems, in changes occurring in various layers in society. the processes of creating knowledge based society and knowledge economy and further development should be analyzed and assessed in the context of processes of globalization and internationalization, as well as processes of global transformations. keywords: knowledge society, knowledge economy, sustainable development, europe. introduction creation and modernization of the knowledge based society and knowledge economy, as well as the processes of sustainable development in the european union are very complicated processes, oriented to the formation of the new quality society and qualitatively new lifestyle. a lot of new phenomena and circumstances show up under the contemporary conditions of social, economic, political development and progress of science and technologies. in order to understand and react to them, it is necessary to see into so-called problems of the sustainable development and problems of the creation of knowledge based society and knowledge economy, and to strive that these problems were solved adequately with the new challenges in the life of the society. the importance and significance of the problems of the sustainable development are indicated by the fact that the understanding and salvation of these problems is one of the main priorities implemented in the contemporary practice of scientific research. modern attitudes to the sustainable development, to the concept of sustainable development as well as to the understanding and salvation of the problems of sustainable development can be characterized by extremely wide variety. such variety determines the fact that the phenomena, problems and topicalities can be analyzed by: including spaces of different extent (various regions, countries or their groups, the world), as well as including different systems (various organizations, their groups, other systems), involving different combinations of processes, phenomena, factors and circumstances of social, economical, political development, and progress of science and technologies into the unit of developmental processes, giving preference to different social, economic, ecological, technological, political as well as other manifestations, consequences or circumstances of the sustainable development, regarding the management features of various processes of development and progress as well as the multiplicity of different subjects and their interests that take place in management process. the research of the problems of sustainable development is multiand interdisciplinary by nature, they must inevitably have attitudes to social and economic development, progress in technologies, environmental protection and changes in the modern society and its life, which reflect various areas of science, integrated in them. an important aspect of the research on sustainable development is a regional one, since various social, economic, technological, ecological factors are assessed in the extent of variously identified regions, by trying to reveal the interaction of processes and changes of different nature in various regional systems herewith. traditional attitudes to the sustainable development emphasize the necessity to ensure the internecine compatibility and compensation of developmental processes and changes that have different nature. what is more, they emphasize the priorities such as the necessity to ensure the harmony of economic development and social changes, the needs to avoid negative ecological consequences that arise or may show up under the conditions of technological progress, the needs to comprehensively protect natural resources, avoid negative impact on a person and his health, the needs to orient urbanization processes and technological progress to stricter standards of ecological, social and environmental protection (melnikas b., 1990, 2002). despite the fact that traditional attitudes to the sustainable development are characterized by a wide variety, extensive coverage of processes and problems and considerable possibilities of practical application, it is still possible to claim that nowadays there appear many new circumstances, conditions and phenomena, the impact and role of which insufficiently reflect in most of the traditional attitudes. for this reason, traditional conceptions of sustainable development and its problems become more and more inadequate to the modern needs and challenges and require essential supplements and specifications. it must be noted, that modern attitudes to sustainable development should deeper reflect the role and influence of new type transformation processes that are taking issn 1822-8402 european integration studies. 2010. no 4 62 place in the world now. the most important role and influence are of those transformations, which reflect the creation of knowledge based society and knowledge economy as well as global spread of values and ideas of the knowledge based society: namely the creation of knowledge based society and the spread of its values and ideas in the global environment condition new transformations in the modern society and its life, as well as help to understand the necessity to react to the needs of sustainable development and solve new problems of the sustainable development in a new way. it is possible to claim that the essential priority of sustainable development concept actualization is the fact that the modern concept of sustainable development must reflect both the global transformation processes in general and those global transformation processes, which reflect the creation of knowledge based society and knowledge economy and the spread of values and ideas of the knowledge based society. it is purposeful to refer to certain theoretical attitudes, which could be used when analyzing various phenomena of the sustainable development in complex with various phenomena of the knowledge based society and knowledge economy creation processes as well as solving different management issues of the sustainable development processes. the knowledge based society and knowledge economy creation processes in the context of the new challenges for sustainable development recently, the creation and development of the knowledge based society and knowledge economy are perceived as one of the most important priorities of the modern society and its lifestyle development, as well as of social, economic, political development, science and technological progress. the creation and development of the knowledge based society and knowledge economy are assessed as the most important assumption and the main way to solve most of the social, economic, technological, even security and defense problems worldwide as well as in various countries or regions in general and in various countries or regions in the space of the european union (boldrin m., canova f., 2001; cohendet p., stojak l., 2005; currie w., 2000. ; david, p. a.; foray d. , 2002; dicken p. , 1998; eindor p., myers, m., raman, k. s., 2004; farnsworth k., 2005; garrett g., mitchell d., 2001; goeransson b., soederberg j., 2005; grace a., butler t., 2005; hayo b., seifert w., 2003; hunt s. d., 2000; huseman r. c., godman j. p., 1999; leydesdorff l., 2004; mcnally r., 1999; melnikas b., 1990, 2002, 2008; melnikas b., reichelt b., 2004; merrill r. e., sedgwick h. d., 1997; munasinghe m., sunkel o., de miguel c., 2001; olsen t. e., osmundsen p., 2003; parker b., 1998; perraton j., 2001; redding s., venables a. j., 2004; sangmon k., 2002; steinmueller w. e., 2002). the creation of the knowledge based society and knowledge economy expresses the essential qualitative changes in all the areas of social, economic, political life, science and technological progress, and interaction with nature. the creation of the knowledge-based society and knowledge economy deeply influences the content of globalization processes and the effect on a situation in the modern world. the processes of the creation of the knowledge based society and knowledge economy are perceived and assessed as an essential worldwide transformation, which determines a number of breakings and sallies, important to all the humankind. the concepts of the knowledge based society and knowledge economy as well as their creation processes are very multiple. therefore, it is obvious, that the concepts of the knowledge based society and knowledge economy may be defined and described differently. in order to substantiate the appropriate definitions and descriptions, it is necessary to regard the following: when describing a certain society, the underlying attention must be paid to the highlighting of the most important values, typical of the society itself, when describing a certain economy, the underlying attention must be paid to the highlighting of the most important factors of the economy growth. regarding the above-mentioned attitude, it is possible to claim that it is purposeful to describe the concepts of the knowledge based society and knowledge economy as follows: the knowledge based society is the society which is characterized by the values of the predominance of creativity and creative activity, as well as the values, which express the generation, spread and use of new knowledge. in the knowledge based society, the underlying interests express the objectives to create, spread and use new products of art, technical, business and other creation, as well as initiate, generate and implement multiple creative ideas and innovations in all areas of life. the knowledge economy is the economy, for which the underlying growth factor is the potential, intended for the generation, spread and use of the new knowledge, as well as the activation of creativity. the raising and possession of the abilities to create, spread and use new knowledge, ideas and innovations in all areas of life, as well as the incessant raise of the economical efficiency with the acceleration and activation means of the science and technological progress are the underlying conditions for economical growth and modernization in the knowledge economy. the provided descriptions of the concepts reflect the main orientations of values, which express the objectives of creativity, creation activation and new issn 1822-8402 european integration studies. 2010. no 4 63 knowledge generation, typical of the knowledge based society, as well as the main features, which characterize the significance of the new knowledge generation, innovation and science and technological progress, typical of the knowledge economy. in order to describe the society and economy reasonably, it is necessary to regard the fact, that there are internal contradictions, which appear in every society and in every economy system, and which operate the same as the propulsion stimulating the progress of the society and economy, as well as the cause, which determines certain destructive processes that can “destroy” or destabilize both the society and the economy. for example, the modern “western” type democratic society and the modern market economy are typical of various property oriented capitalistic economy contradictions, which may be assessed as the essential ones. such property oriented capitalistic economy contradictions, which express the priorities of consumption, reflect the preconditions for progress and perfection (especially the preconditions for the increase of competitiveness, potential growth, modernization and effectiveness), as well as the preconditions for the various inadequacy to appear for the future needs and challenges (it is obvious, that the expression for the inadequacy needs and challenges may affect the society and economy, and may determine certain “destruction” processes and condition the needs for the essential qualitative changes). the highlighting of the underlying values, which are typical of the knowledge-based society and which express the domination of creative activity, generation, spread and use of new knowledge, allows realizing that the essential internal contradiction of the knowledgebased society is the contradiction among the society members, groups, layers and variously identified management subjects, which belong to two different categories: one category is the society members, groups, layers and subjects, who become leaders, able to initiate the creation of new knowledge, ideas and innovations, participate in multiple creation actively, intensively and productively, develop creative activity, generate, spread and efficiently use the new knowledge and ideas. the society members, groups, layers and subjects, who belong to this category, generally take over the real management of the society and carry out the functions of its development and progress. what is more, the creation and spread of the new knowledge, ideas and innovations generally express the prerogative of making management decisions, especially strategic ones, the other category is the society members, groups, layers and subjects, who lose or do not have real possibilities to initiate the creation of new knowledge, ideas and innovations, do not have real conditions and skills to participate in the creation actively and intensively, to develop creative activity independently, or to generate, spread and efficiently use the new knowledge and ideas. the society members, groups, layers and subjects that belong to this category generally become just ordinary effectors, who have very limited power and only perform the functions of effectors, including even those areas, where huge innovation changes take place. the above-mentioned contradiction reflects the internal differentiation logic, typical of the knowledge based society, when the position of different members, groups, layers or subjects of the society is determined by the role and place when initiating, generating, spreading and using new knowledge, ideas and innovations. besides, the expression of the above-mentioned contradiction is universal: this contradiction may be perceived as appearing in the lives of separate countries and regions, and as the one, which appears in separate groups or layers of the society, as well as the one, which may appear globally in the future. the above-mentioned contradiction reflects the meaning of those propulsions, which determine and will determine the development and progress of the knowledge based society, as well as the preconditions for various threats and dangers to appear, which may inevitably arise under the conditions of the knowledge based society. it is obvious, that the internal differentiation of the society, which expresses different role and place of various society members, groups, layers and subjects when initiating, generating, spreading and using new knowledge, ideas and innovations, may show itself in two ways: as propulsion, which determines further development and progress of the knowledge-based society, because the objectives to activate and effectuate creative processes, when initiating, generating, spreading and using new knowledge, ideas and innovations, become the underlying stimulus of the development and progress, and the potency activating the processes of development and progress, as a precondition for new threats and dangers to appear, because, under the conditions, when the society differentiation exceeds certain critical limits, there inevitably appear various tendencies of the destructive manner, including the tendencies to integrate various means, based on the use of the newest science and technological progress results, into destructive processes. the internal contradictions, typical of the knowledge based society, influence the processes of knowledge economy creation and development. the underlying conditions for economic growth and modernization, typical of the knowledge economy, which include issn 1822-8402 european integration studies. 2010. no 4 64 education and possession of the abilities to create, spread and use new knowledge, ideas and innovations, as well as increase economic efficiency with the acceleration and activation means of science and technological progress, may be assessed in two ways: as the propulsion, typical of the development and progress of the knowledge economy, which reflects the influence of the initiation, generation, spread and use of the new knowledge, ideas and innovations, as well as of the results of science and technological progress, on the growth and effectuation of the economy itself, as the precondition for the new threats, dangers and risks to appear, which are characteristic of the knowledge-based society and knowledge economy and which may cause various undesirable negative results of the knowledge economy development and progress, which appear or may appear in various sectors of economic life as well as in various areas of the society’s life and development in general. besides, the perception of the importance of internal contradictions, typical of the knowledge based society and knowledge economy, determines the necessity and needs to analyze and assess the creation, development and progress phenomena of the knowledge based society and knowledge economy, in the context of the ideas and attitudes of the sustainable development. namely, the observance of the sustainable development attitudes and the objectives to implement the ideals of the sustainable development create real preconditions to develop the knowledge based society and to create modern knowledge economy single-mindedly and efficiently. principles of the knowledge based society and knowledge economy creation and modernization for the sake of the scientific cognition and purposeful management of the creation and modernization processes of the knowledge based society and knowledge economy, it is necessary to regard the essential principles, which reflect qualitative changes in the society in general as well as in the economic life of the society. it must be emphasized, that the essential principles to be implemented under the conditions of the creation and modernization of the knowledge based society and knowledge economy reflect the aim to create favorable conditions to get synergetic effects and to use them, as well as to create favorable circumstances to generate new synergetic effects. in general, it is possible to claim, that the creation and modernization processes of the knowledge based society and knowledge economy may be assessed as the complex expression of the synergetic effects. creation and modernization of the knowledge based society and knowledge economy are very complicated processes, oriented to the formation of the new quality society and qualitatively new lifestyle. moreover, these processes may be described as “twice” as complicated, because they win distinction by orientations to the pursuit of new quality in two aspects: the knowledge based society and knowledge economy, compared to “traditional” society and economy, are in all cases described as qualitatively new, creation and development of the knowledge based society and knowledge economy takes place under the conditions of the global changes, which means that qualitative changes take place in all global space, the essence of those changes is the creation and spread of the knowledge-based society and knowledge economy. analyzing the creation possibilities and perspectives of the knowledge based society and knowledge economy, it is purposeful to refer to the universal principle of the “new quality creation” (melnikas b., 2008). this principle is applied in various cases of life in all areas: this principle is suitable for the analysis of the knowledge based society and knowledge economy coming and spread processes, typical under the conditions of modern globalization and for the political, social and economic development and progress, taking place in the globalization environment. the universal principle of the “new quality creation” may be formulated as follows: new quality always forms itself or is formed on the ground of conjugation, when elements of different origin, which never before belonged to the same system, merge into a common interaction system. this principle expresses the abstraction and use of synergetic effect and shows, that qualitative changes always require actions and means, necessary to merge elements of different origin into a common system. when applying the universal principle of the “new quality creation”, it is necessary to regard the fact, that new quality is always formed as a result of the conjugation. besides, the conjugation processes may be very different and in the most general case, they may be attributed to two types: integration processes and synthesis processes. integration processes are characterized by the fact that, during the conjugation, the interacting and conjugating elements do not lose their natural important features; it means that new quality, typical of the integration result, may later be disintegrated according to the previous features of the conjugated elements (it means that integration result may later be disintegrated and the previous state, which existed before the elements merged, may be restored). synthesis processes are characterized by the fact that, during the conjugation, the interacting and conjugating elements lose their natural important features; it means that new quality, typical of the integration result, may not be disintegrated according to the previous features issn 1822-8402 european integration studies. 2010. no 4 65 of the conjugated elements (it means that the synthesis process is created irreversibly). an important thing is that qualitative processes based on synthesis are irreversible; meanwhile qualitative processes based in integration in certain cases may be reversible. the perception of the essence of integration and synthesis processes, as the processes of new quality creation, allows applying the universal principle of the “new quality creation” quite widely when analyzing very different phenomena, including the creation of the knowledge-based society and knowledge economy. analyzing these phenomena, it is important to assess, to what extent various changes, development and progress are based on the integration processes and to what extent the synthesis processes determine the changes. the above-mentioned propositions reflect the essence of the universal principle of the “new quality creation” and allow revealing the significance of this principle when creating the knowledge-based society and knowledge economy. it must be noted, that, under the creation and modernization conditions of the knowledge based society and knowledge economy, besides the mentioned universal principle of the “new quality creation”, other principles are also implemented, including a very important universal innovativeness principle. the universal innovativeness principle allows perceiving the initiation, generation, spread, use and further renewal logic of innovations and new knowledge in general. the essence of this logic is that the processes of initiation, generation, spread, use and further renewal of innovations and new knowledge in general are treated as expression of certain cycles and when perceiving that two preconditions of these processes exist: generation, spread and use cycles of any innovations, new ideas and new knowledge is started by a certain subject, performing the function of new idea or innovation generation, which has to dispose of creative potential, necessary for the generation of a new idea or innovation, has to be able to use this creative potential properly and tangibly generate appropriate innovations, new ideas and knowledge. it must be noted, that in the generation course of innovations, new ideas and knowledge, opposition is usually expressed for the established attitudes, traditions, perceptions, models and stereotypes, therefore the subject, carrying out the functions of generation, may be assessed as having the opponent abilities, any innovations, new ideas or new knowledge may be tangibly spread and used in practice only in those cases when a certain critical mass, necessary to “accept” and assimilate newly generated innovations, ideas and new knowledge, is formed in an appropriate cultural, social, economic, political environment. it is also possible to claim that critical mass shows the environment’s ability to tolerate appropriate innovations as well as initiate and activate change processes and stimulate the adaptation to changes based on self-regulation. the abilities to adequately perceive the essence of the both described preconditions and of the universal innovativeness principle are very important condition to cognize scientifically and influence purposefully the creation and modernization processes of the knowledgebased society and knowledge economy. summarizing the stated propositions, it is possible to note, that universal “new quality creation” and innovativeness principles not only allow complexly perceive the creation and modernization essence of the knowledge based society and knowledge economy, but also reflect the possibilities to influence and manage certain development and change processes. in turn, in order to influence and manage the creation and modernization processes of the knowledge based society and knowledge economy single-mindedly, including the needs to implement the ideas and attitudes of the sustainable development, it is necessary to cognize the phenomena, typical for the creation, development and progress of the knowledge based society and knowledge economy, and to perceive the expression peculiarities of these phenomena. phenomena of the knowledge based society and knowledge economy creation: challenges for the sustainable development the processes of the creation and development of the knowledge based society and knowledge economy are characterized by a wide variety and significant phenomena. the creation and development of the knowledge based society and knowledge economy may be attributed to the category of global transformation processes, therefore all general phenomena, and characteristic of global transformations in general, are unconditionally typical of the creation and development of the knowledge based society and knowledge economy. the perception of the essence of these phenomena and their adaptation, regarding the peculiarities of the creation and development processes of the knowledge based society and knowledge economy, allows adequately diagnose and effectively solve topical modernization problems of the society and its economic life, including the ones in the context of the sustainable development. besides the above-mentioned general phenomena, certain specific phenomena appear or may appear under the creation and development conditions of the knowledge based society and knowledge economy. specific phenomena reflect exceptional peculiarities issn 1822-8402 european integration studies. 2010. no 4 66 typical of the creation and development processes of the knowledge based society and knowledge economy. among such phenomena, the following should be emphasized: phenomena, which characterize the continuation of the creation and development processes of the knowledge based society and knowledge economy, including the continuation with regard to previous forms of the society and its economical life, phenomena, which express the significance of culture and mentality factors and efficiency of the human resources education systems. phenomena, which express inequality of the creation and development processes of the knowledge based society and knowledge economy, phenomena, which express globalization and internationalization circumstances typical of the creation and development of the knowledge based society and knowledge economy. the continuation phenomena of the creation and development processes of the knowledge based society and knowledge economy show that the knowledge based society and knowledge economy may be created only under the conditions, when: the society itself nurtures social, economic, political, cultural and mentality assumptions in order to form critical mass, which ensures the domination and spread of values typical of the knowledge based society: the knowledge-based society may be created and further developed if high level of creative potency and tendency to innovations is achieved, and if this level is realized as a sufficient start position for further development, the society achieves a very high level of material welfare and social comfort, which is enough to create economic assumptions for miscellaneous sallies for the sake of further development of the knowledge base society and knowledge economy, economic potential, meant for the development of the knowledge based society and knowledge economy, is created in the economic system. the above-mentioned phenomena reflect the tendency, which shows that the creation and further development processes of the knowledge based society and knowledge economy are the continuation of previous development, progress and change processes, which took place and continue in various areas of social, economic life and science and technological progress. the phenomena, which reflect the significance of culture and mentality systems as well as the systems of human resources education show, that various circumstances, which influence cultural and mentality changes, as well as changes in the areas of human resources education, gain underlying importance under the conditions of the creation and development of the knowledge based society and knowledge economy. phenomena, which reflect contradictory tendencies, are especially emphasized among the above-mentioned phenomena. one of the phenomena, reflecting contradictory tendencies, is the phenomenon of real as well as imitational change interaction, typical of culture and mentality. two different tendencies are expressed by this phenomenon: a tendency, the essence of which is the decrease of the significance of values, oriented to consumption, and the increase of the significance of values, oriented to creativeness and innovativeness. the result of this tendency expression is that the society members, groups, layers and subjects, who prefer the values oriented to creativeness and innovativeness, gradually gain more and more possibilities to create a certain critical mass, which is necessary to develop the knowledge-based society and knowledge economy further, a tendency, the essence of which is the increasing expression of significance imitation of values, oriented to creativeness and innovativeness, inadequate to reality and typical of declarations, when virtually, the significance of those values does not increase, and the significance of values oriented to consumption increases. this tendency partially reflects a tendency to imitate real preparation and maturity, typical of the modern society, to develop the knowledge-based society and knowledge economy and declare the aims, inadequate for the reality quite gratuitously in the area of the creation of the knowledge-based society and knowledge economy. another phenomenon, reflecting contradictory tendencies, is the phenomenon of efficiency increase of the human resources education systems. this phenomenon also expresses several different tendencies: a tendency, which reflects the increase of the role of human resources education systems and the needs to effectuate the education of human resources, by giving priority to the creativeness and innovativeness abilities and to the orientations to a rapid progress of science and technologies. this tendency, by nature, is adequate to the significance of the creation and development aims of the knowledge based society and knowledge economy and reflects the needs of the role increase of human resources education, a tendency, which reflects the spreading tendencies to superficiality and an increasing imitation of modernity and high quality in various links of human resources education. there is an increase of links, which are tangibly oriented to quite a superficial, yet “externally” modern, education and caliber. (this tendency also reflects a leaning towards the artificial prominence of formal assessments and issn 1822-8402 european integration studies. 2010. no 4 67 “external” attributes, typical of educational systems, when actually, there is not a strive for a qualitative education and caliber, especially in the shape of real quality knowledge as well as creativeness and innovativeness abilities, but a strive for “externally” impressive positive assessments), a tendency, which reflects an increasing gap among the links of human resources education, which are oriented to a tangibly elite education and caliber, and among links, which are oriented to mass education and caliber. this tendency reflects assumptions to increase differentiation inside the society as well as differentiation among different economy sectors and different regional economy systems, and the base of differentiation being different quality of education and caliber as well as different skills, necessary to generate, spread and efficiently use new ideas and innovation in the knowledge-based society. phenomena, which characterize cultural and mentality factors as well as efficiency significance of human resources education systems and which reflect contradictory tendencies, confirm ambiguity and complexion of the creation and development processes of the knowledge based society and knowledge economy. phenomena, which reflect inequality of the creation and development processes of the knowledge based society and knowledge economy, reflect multiple tendencies of unequal changes. among such tendencies, the following ones should be emphasized, whish show: inequality of the creation and development processes of the knowledge-based society and knowledge economy in different countries and regions, inequality of different nature social, economic, technological and other processes, which characterize the creation and development processes of the knowledge-based society and knowledge economy in separate countries or regional systems, as well as in separate sectors of the social economic life and progress of science and technologies, creation inequality of social, economic, political, juridical, cultural, mentality, technological and other assumptions, which are necessary for the creation and development processes of the knowledge based society and knowledge economy. the above-mentioned tendencies, which show inequalities of the creation and development processes of the knowledge based society and knowledge economy, may be assessed in two ways: as the ones, which reveal the needs to pay underlying attention to the sustainable development under the conditions of the creation and development processes of the knowledge based society and knowledge economy. as the ones, which reveal various threats and dangers, which may be caused by various development and change inequalities, under the conditions of the creation and development processes of the knowledge-based society and knowledge economy. besides, development and change inequalities and their expression, which appear under the conditions of the creation and development of the knowledge based society and knowledge economy, are also greatly determined by those circumstances, which are attributed to the circumstances category of globalization and internationalization processes. phenomena, which reflect the globalization and internationalization circumstances, necessary for the creation and development of the knowledge based society and knowledge economy, show, that the creation and development processes of the knowledge-based society and knowledge economy, as a unit, have very clearly expressed internationalism and may be assessed as a very important part of globalization processes. the following ones are considered as very important: phenomenon, which expresses the spread of the creation and development processes of the knowledge based society and knowledge economy in the extent of global spaces, phenomenon, which expresses possibilities to create and develop the nuclei of the knowledge based society and knowledge economy in various spaces and environments globally, phenomenon, which expresses increasing mobility and free movement of human resources, capital, informational and other resources, which participate in the creation and development of the knowledge based society and knowledge economy globally, phenomenon, which expresses the role increase of multicultural and inter-cultural competencies and information exchange, reacting to new conditions when creating and developing the knowledge based society and knowledge economy under globalization conditions, phenomenon, which reflects the needs to develop international cooperation when creating the knowledge based society and knowledge economy. regarding the fact, that the creation and development processes of the knowledge based society and knowledge economy, especially under the conditions of globalization and internationalization activation, have increasing variety, it is possible to claim, that the described phenomena allow cognizing and assessing the appropriate phenomena just partially. it should also be emphasized, that namely the described phenomena, as a unit, allow making a complex picture about the situation in the creation and development of the knowledge-based society and knowledge economy, as well as bout the perspective of changes. it must be noted, that the described phenomena reflect the problems of the sustainable development, issn 1822-8402 european integration studies. 2010. no 4 68 which inevitably appear under the creation and development conditions of the knowledge-based society and knowledge economy, and allow highlighting and reasoning the priorities of these problems salvation. conclusions 1. the knowledge based society and knowledge economy creation is an important priority of the social, economic and technological changes and development processes in the european union. the processes of the creation of knowledge based society and generating knowledge economy and its further development should be understood as the undivided unity: the processes of the creation of knowledge based society and generating knowledge economy and its further development should be perceived as relevant to all spheres of life – meaning social, economic, and political life, culture, advancement of science and technologies and their advancement, interaction with nature in general and environment in particular, the processes of the creation of knowledge based society and generating knowledge economy and its further development should be comprehended as the ones providing economic preconditions for modernization of the society and refinement of its life in accordance with the standards, norms and values of knowledge based society, the processes of the creation of knowledge based society and generating knowledge economy and its further development should be interpreted as multi-dimensional and extremely complex and uninterrupted process which manifests itself in cyclical changes and leaps towards higher quality standards ,the complex approach towards knowledge based society and generating knowledge economy and its further development should be implemented in all stages of scientific research, studies and practical activities, including the prioritizing various programmes on multiand cross-disciplinary research and studies, as well as strategic solutions of the complex character in various stages 2. the knowledge based society and knowledge economy creation processes could be analyzed in the context of the ideas of sustainable development : the processes of the creation and development of the knowledge based society and knowledge economy may be attributed to the category of global transformation and sustainable development processes, therefore, all general phenomena and characteristic of global transformations and sustainable development in general, are unconditionally typical for the creation and development of the knowledge based society and knowledge economy. by the creating knowledge based society and generating knowledge economy and its further development, harmonization should be sought in the following: in the fields of various social, economic, political development, culture, advancement in science and technologies, interplay with nature and other fields, in the environment of changes in various countries, regions or otherwise geographically or regionally defined systems, in changes occurring in various layers in society. 3. creation and modernization of the knowledgebased society and knowledge economy are very complicated processes, oriented to the formation of the new quality society and qualitatively new lifestyle. moreover, these processes may be described as “twice” as complicated, because they win distinction by orientations to the pursuit of new quality in two aspects: the knowledge-based society and knowledge economy, compared to “traditional” society and economy, are in all cases described as qualitatively new, creation and development of the knowledge- based society and knowledge economy takes place under the conditions of the global changes, which means that qualitative changes take place in all global space, the essence of those changes is the creation and spread of the knowledge-based society and knowledge economy, 4. analyzing the creation possibilities and perspectives of the knowledge-based society and knowledge economy, it is purposeful to refer to the universal principle of the “new quality creation”. this principle expresses the abstraction and use of synergetic effect and shows, that qualitative changes always require actions and means, necessary to merge elements of different origin into a common system. the new quality is always formed as a result of the conjugation: the conjugation processes may be very different and in the most general case, they may be attributed to two types -integration processes and synthesis processes. besides the universal principle of the “new quality creation”, other principles are also implemented, including a very important universal innovativeness principle, which allows perceiving the initiation, generation, spread, use and further renewal logic of innovations and new knowledge in general. the essence of this logic is that the processes of initiation, generation, spread, use and further renewal of innovations and new knowledge in general are treated as expression of certain cycles and when perceiving that two preconditions of these issn 1822-8402 european integration studies. 2010. no 4 69 processes exist: generation, spread and use cycles of any innovations, new ideas and new knowledge is started by a certain subject, performing the function of new idea or innovation generation, which has to dispose of creative potential, necessary for the generation of a new idea or innovation, has to be able to use this creative potential properly and tangibly generate appropriate innovations, new ideas and knowledge. it must be noted, that in the generation course of innovations, new ideas and knowledge, opposition is usually expressed for the established attitudes, traditions, perceptions, models and stereotypes, therefore the subject, carrying out the functions of generation, may be assessed as having the opponent abilities, any innovations, new ideas or new knowledge may be tangibly spread and used in practice only in those cases when a certain critical mass, necessary to “accept” and assimilate newly generated innovations, ideas and new knowledge, is formed in an appropriate cultural, social, economic, political environment. it is also possible to claim that critical mass shows the environment’s ability to tolerate appropriate innovations as well as initiate and activate change processes and stimulate the adaptation to changes based on self-regulation. 5. universal “new quality creation” and innovativeness principles not only allow complexly perceive the creation and modernization essence of the knowledgebased society and knowledge economy, but also reflect the possibilities to influence and manage certain development and change processes. in order to influence and manage the creation and modernization processes of the knowledge based society and knowledge economy single-mindedly, including the needs to implement the ideas and attitudes of the sustainable development, it is necessary to cognize the phenomena, typical of the creation, development and progress of the knowledge-based society and knowledge economy, and to perceive the expression peculiarities of these phenomena. the creation and development processes of the knowledge based society and knowledge economy may be attributed to the category of global transformation processes, therefore all general phenomena, and characteristic of global transformations in general, are unconditionally typical of the creation and development of the knowledge based society and knowledge economy. specific phenomena reflect exceptional peculiarities typical of the creation and development processes of the knowledge-based society and knowledge economy. among such phenomena, the following should be emphasized: phenomena, which characterize the continuation of the creation and development processes of the knowledge-based society and knowledge economy, including the continuation with regard to previous forms of the society and its economical life, phenomena, which express the significance of culture and mentality factors and efficiency of the human resources education systems. phenomena, which express inequality of the creation and development processes of the knowledge-based society and knowledge economy, phenomena, which express globalization and internationalization circumstances typical of the creation and development of the knowledgebased society and knowledge economy. 6. the research of the problems of sustainable development, as well as the problems of creation of the knowledge based society and knowledge economy is multiand interdisciplinary by nature, they must inevitably have attitudes to social and economic development, progress in technologies, environmental protection and changes in the modern society and its life, which reflect various areas of science, integrated in them. an important aspect of the research on sustainable development as well as on creation of the knowledge based society and knowledge economy is a regional one, since various social, economic, technological, ecological factors are assessed in the extent of variously identified regions, by trying to reveal the interaction of processes and changes of different nature in various regional systems herewith. the processes of the creation of knowledge based society and generating knowledge economy and its further development should be analyzed and assessed in the context of processes of globalization and internationalization. the new priorities for development of international cooperation and priorities for improving international management show: development of international cooperation and improvement of international management should be based upon promotion and practical application of the ideas, patterns and technologies of networking, within international management a key trend should dominate oriented towards activization and promotion of creativity, innovation and entrepreneurship, as well as towards the implementation of the ideas of sustainable development and harmony. in all chains of human resource training the means should be implemented oriented towards the adequate response to the emerging needs to consecutively solve issn 1822-8402 european integration studies. 2010. no 4 70 the problems of sustainable development, elaboration of international management and activization of international cooperation manifesting them in the context of the creation of knowledge based society and generating knowledge economy and its further 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(2002), knowledge-based economies and information and communication technologies, international social science journal 54(171): 141-154. doi: 10.1111/1468-2451.00365 the article has been reviewed. received in april, 2010; accepted in may, 2010. 91 issn 1822 8402 european integration studies. 2010. no 4 the economics of rural heritage parks: willingness to pay tamara grizane, liga mihejeva latvia university of agriculture abstract one of the priorities should be the heart of europe 2020: sustainable growth – promoting more resource efficient, greener and more competitive economy. enhancing the competitiveness of european tourism sector is one of the perspective emphases of basic initiative flagship initiative: “an industrial policy for the globalization era” european commission proposal for europe 2020 strategy. in circumstances of economical crisis there must be evaluated the use of existing and future heritage resources. such evaluation is very important in the regions of latvia cultural heritage as a tourism resource can produce potential impulses for the development of local and regional economics. rural heritage parks are recreational places for local inhabitants. there are approximately one thousand heritage parks in latvia but most of them have not been properly studied and used. maija park, situated in cēsis city, is one of 100 most spruced culturally historic objects in latvia. in the research data from 127 respondents was gathered (were interviewed face-to face) and information was collected august – october 2009. by this time such research in the rural heritage parks in latvia has not been done. the aim of the research is increase of incomes in rural heritage maija park. as a result, authors determined visitors of heritage park, their individual wtp and stimulating factors. to understand this, the author analyzed such willingness to pay (wtp) factors as travel expenses, income, distance, education and quality of recreation events. the results of the research will be used for creating more effective policy of using heritage parks. keywords: tourism resources; rural heritage parks; willingness-to-pay. introduction according to the suggestion of european commission proposal for europe 2020 strategy of tourism in latvia must be paid attention for increasing its competitiveness. it is especially important to develop tourism in the regions of latvia impacted by crisis. the world travel & tourism council (wttc) indicates to real advantages for local communities to develop tourism. (wttc, 2009). data made by uk national tourism agency survey shows interest about heritage objects, even 7% per year. it indicates that heritage parks are the second most visited objects (visitbritain.org., 2008) most of researchers are interested in economics of nature, city parks (thompson, 2002; eagles, 2003; carlsen & wood, 2004; cranz &boland, 2004) or historical heritage (cuccia & signorello, 2002; navrud & strand, 2002; pollicino & maddison, 2002; bedate et al., 2004). only a few researchers have explored economics of heritage parks (santagata & signorello, 2002; willis, 2002; hughes &carlsen, 2009). although the number of heritage parks in the territory of the republic of latvia is more than one thousand, most of them are located in the regions and only a few are used for tourism because there is lack of infrastructure and maintenance (grizane t., 2009). full – scale studies have not been done in the heritage parks used for tourism. researches of heritage parks in latvia are based on exploring their history, flora and dendrology and it has been done by scientists and practitioners (cinovskis et.al., 1985; janele, 2010). economics of heritage parks is weakness of researching of parks in latvia; therefore this research is a novelty. author pays attention to increasing usage possibilities of historical heritage, especially of parks, local inhabitants and tourists. the object of the research is the usage of heritage parks of latvia in culture tourism. author uses maija park, located in cēsis city, vidzeme region, latvia, as a basis for pilot project. the aim of the research was to clarify maija park visitors’ socialeconomic and other trip-related measurements and their willingness to pay for recreation values. issn 1822-8402 european integration studies. 2010. no 4 92 research methods: is the analysis of scientific literature and quantitative personal survey method of heritage park visitors. to achieve empiric proof of the model, an econometric tool – regression analysis was used. its results were used to assess the maija park recreation cinsumers’ willingness to pay. from all heritage parks in public use and located in cēsis city, vidzeme region of the republic of latvia being the authors chose maija park for the reserach because of the following reasons: in 2009 the author made a research about maija park • and therefore have data precurse; secondly, and the other public park in cēsis city, in • the castle square, there is a reconstruction and it could encumber gathering stable scientific data; thirdly, in 2005 maija park was acknowledged being • one of 100 most spruced cultural monuments in latvia and a europe heritage flag was raised in it. maija park is a part of federal architecture monument in the castle ensemble. since 2004 the park has been enrichened by scenery and dendrologic values; in 2007 previously increasing number of visitors has • decreased. this is the fourth reason why maija park was selected for the research. willingness to pay there are several methods for measuring consumers’ willingness to pay. one of the methods, usually used for non-market valuation, is contingent valuation method (cvm) and one of the most important cvm conceptions is willingness-to-pay (wtp). several definitions of willingness to pay (wtp) are used but the most often used is that wtp is a maximum amount that an individual states they are willing to pay for a good or service (unep, 1995; adb, 2007) to be more precise, wtp is a sum of money a person wants and is able to pay for recreation service (mcconnel, 1984). in precocious introductions cvm was based on the questions asked to respondents about their wtp. the question was formulated in such form: „how much would you like to pay for ...?” the question created difficulties for respondents to answer and a question with an auction approach was started (randals et al., 1974), the value for the question was increased or decreased until it was acceptable and this was the final wtp. the next development step was based on the value of initial offer as the support point of increase. cameron and huppert (1988) believed that the selected amount is the lower border for the respondent’s wtp and the upper border is the next highest offered sum. in the compliance of this interpretation wtp can be prognosed in this interval. the method of wtp for increasing income possibilities was explored by willis (2002) and santagata and signorello (2002). willis tried to state the price of introducing income in bosco di kapadimonte heritage park in napoli suburb but santagata and signorello solved a similar problem in a forest park near napoli emphasising access to historic buildings. willingness to pay in future proved to be much less (about one third) than it was stated during the research. such result was prognosed by diamond and hausman (1994) who asserted that answers in reality do not comply with provisory surveys. researchers explain this phenomenon by people’s wish to support environment. kahneman and knetsch (1992) also emphasised people’s understanding that more benefit is gained by higher consumption of recreation service. cummings and taylor (1999) concluded by their eksperiments that it is possible to solve this bias and approximate hypothetical willingness to pay for real life. it is possible by having more information about the respondent. to characterize the respondent information about the age, education, income etc. gained in surveys is used (hanley et.al., 1993). in the economic theory there does not sugest any of before mentioned wtp approaches and combinations of methods for practical use, states michael hughes un jack carlsen (2009), therefore researchers had to state arbitrary assumptions and as an answer stating solution of econometric model (alberini, boils un welsh, 1999) and such a way was chosen also by the author. wtp based on economic theory can be summarized by the following conceptual model: wtpi = f(ai, bi, ci ,yi), (1) where a, b, c, and y are factors that influence study site wtp (e.g. age, gender, education, frequency of visits, availability of substitutes, etc). survey design individual wtp was elicited using an inperson survey conducted between august and october 2009 in maija park, located in cēsis city, vidzeme region in latvia. the amount of the selection was based on visiting data for average 3 years grizane (2009) and confirmed to representative criteria (paniotto, 1982; saunders, 2006) at probability 95 % where the highest possible mistake could be ±0, 0819. 127 respondents’ questionnaires were collected. for having information from maija park visitors, a survey interview method face-to-face was used. a questionnaire was designed to gain information on wtp in this study. the questions in the questionnaire were: (1) according to contents – social demographic, (2) according to form – open and closed. the questionnaire was pre-questionnaire was prepared in two languages, english and latvian. the questions were dividend in 3 sections: (1) profile of visitors, (2) characteristics of visits, (3) characteristics of paying. qustions in sections one and two were aimed to gather information about respondents and their trip connected issn 1822-8402 european integration studies. 2010. no 4 93 with the visit of maija park. questions in the third section were aimed to obtain their willingness to pay. a descriptive analysis was applied to obtain information on socio demographic and economic profiles and respondents’ wtp. in the research 15 questions were asked which were included in the visitors’ characterizing variable measurements: respondent’s age, gender, education, respondent’s income respondent’s geographical location, respondent’s road from home place to the park, transport and services used, assessment of maija park quality, visitor’s visit time (during th research), willigness to pay, respondent’s payment for maija park services, for way (during the research) and hypothetical payment for it. explanatory notes and limitations maija park visitors were introduced with the aim of the research; respondents were warned about the data confidentiality. the sensual question about income was solved individually when the sum was said about a definite period (month, year) or income interval. danish tourists answered they have average pensions. the authors therefore based on the data about pensioners’ income and danish and old-age pension systems in the nordic countries (nomesco, 2007). the currency was converted according to the current currency rate (bank of latvia, 2009). according to the wtp reserach experience (randals et al., 1974; mcconnel, 1984; cameron un huppert, 1988), the authors indicated the price examples for services in heritage parks and facilitated to say a provisory sum willing to pay when the economic situation in latvia will improve. to ease calculation and data analysis, respondents’ geographical location was divided in 4 groups: (1) respondents living in cēsis (c1); (2) respondents living in cēsis district (c2); (3) respondents living in other places of latvia (nd) (other districts); and (4) respondents living abroad (ac) (other countries). expenses for way to the park for people living in cēsis is assumed to be 0 but distances in km to maija park are calculated according to google map calculator and data gathered from a clerk in cēsis bus station. according to praxis often used in trip calculation, the author assumes the only respondents’ destination is maija park. when calculating the way two variants were used: (1) the respondent says the ticket price; (2) the author calculates travel expenses for an average car with a95 fuel use 10 l/100km according to the average fuel price in august – october, 2009 0.70ls/l (aa ireland: petrol, 2009). services offered by the park were dividend in 4 groups: 1-greenery, 2 children’s playground, 3 passive recreation and 4 active recreation where active and passive recreation srvices in 2009 were free of charge. expenses of children’s playground activities were made by rent of gadgetry. socio-economic and other trip-related measurements by visitors of maija park this section presents the summary statistics of the respondents’ socio-economic characteristics, and also respondents’ responses regarding their perceptions and attitudes. profile of visitors: information about respondents’ profile included their residential area, age, gender, education level, and income. the socioeconomic variables of respondents, collected in terms of categorical variables, are summarized in 65.4%, they are visitors living near maija park in cēsis city, and 59.1% of them are inhabitants of the city. in average in autumn 2009 has visited maija park 2.3 times per month. 22 of them are foreigners from russia, germany, denmark as well as lithuania and estonia. further destinations are more chosen by elder people but the youngest visitors of maija park are neighbour countries of the republic of latvia. with respect to the age, the visitors who come to maija park come from various levels of age. the results indicated that the respondents’ ages ranged from 18 to 78 year. the most of the respondents interviewed were those above more than 60 years. this information showed that most of visitors who visit maija park are able-bodied population and come from the middle age group. the average age of the respondents is 46 years and most of them are women – 66.1%. more women visit maija park from nd of latvia, but foreigners who create 17.3% of visitors are in balance. foreign respondents earn up to ls1600 per month, 14% of local visitors of the park – less than ls100. characteristics of visits: the most popular type of transportation to maija park was car (38.6%) followed by tour bus (7.1%), bus/aeroplane (11.8%) and walker (42.5%). the most important reason for visiting maija park was to enjoy natural beauty of the park greenery (41.7%). almost all repondents had visited maija park once during 3 months, respectively 92.1%. they were willing to visit the park again from one time (61.4%) up to 12 times (0.8%). the most part of respondents were willing to visit the park from one time to three (91.3%). it means, hypothetically the number of visits can increase by 99 times. 75 respondents from cēsis and 44 visitors from ac and nd admit maija park to be qualitative. 30 respondents evaluate it to be excellent, 89 – good and only 3 are unsatisfied. characteristics of paying: respondent’s payment for maija park services in average was ls1.21, maximum sum was ls9, however hypothetical price of using service can reach ls24 and in average – ls4.6. if the sum in total for visiting the heritage park was ls 806.80 then in average expenses per respondent was ls 70.46. issn 1822-8402 european integration studies. 2010. no 4 94 econometrical wtp model wtp was calculated according to (1) formula and calculated β rate, multiplying with explanatory variable measurement: wtp = β0 + β1 *dist + β2*educ+ β3*qual + β4*gen+ β5*geo + β6 *expen, (2) where β0 – constant coefficient and β coefficients of variables; dist road from home place to the park; educ – education, qual park quality; gen – gender; geo respondent’s geographical location; expen visitor’s visit expenses. linear model test: it was concluded that model anova shows statistic significance because sig.0.00<0.05, therefore the model is acceptable. model summary shows information about determination rate r = 0.347, that explains 34.7% variations. however, the model shows all variables < 0.01 and sig. value is valid and significant. diagram y =*zredsid, x=*zpred scatter plot for residuals showed the initial data mistake or heteroscedasticity. heteroscedasticity check was with white’s test: to test the hypothesis: h• 0: r 2 = 0 (mistake dispersions are equal because all ai=0) h• 1: r 2 > 0 (mistake dispersions are not equal ) white’s test showed that n⋅r2 > χ2 α;(k-1), 127 > 71.3, then heteroscedestation exists with p=1-α, h0 is denied. autocorrelation was tested by using durbin-watson statistics. hypothesis was tested: h• 0: ρ = 0 (no autocorrelation between mistakes) h• 1: ρ ≠ 0 (autocorrelation between mistakes exist) d=1.46, dl=1.72 and du = 1,75 with probability p=95%, where n = 127, p = 1 and α=0,05 d=1.46 < du = 1,75 was denied h0: ρ = 0 ar p=95%, positive autocorrelation between mistakes exist because 0 < d < 2. d-statistic values are in interval [0; 4] colinearity for 2 variables was diagnosed for the model because condition index is >about 10 (11; 19). histogram normal p-p plot of regression standardizes showed most probably the mistake division is not normal. normality test: testing hypothesis: h• 0: r 2 = 0 (mistake dispersions are equal because all ai =0) h• 1: r 2 > 0 (mistake dispersions are not equal ) jarque-bera test showed that jb = 1.94, jb < χ2 α ;(2), cannot deny zero hypothesis and mistake division conforms to normal division with α=0,05 nonlinear model estimation: for the model (formula3) good conformity was showed because run stopped after 3 model evaluations and 2 derivative evaluations because the relative reduction between successive parameter estimates is at most pcon = 1.00e-008. wtp = β1 *dist + β2*educ + β3*qual + β4*gen+ β5*geo + β6 *expen (3) evaluation of the model (formula 4) t (asymptotic std.error/estimate) is the following: b1 rate is not significant but b2 = 0.245, b3= 0.244, b4 = 0.377, b5= 3.77 and b6= 0.25, significant in 95% level because they are higher than 1.96 (critical value). the research made by the authors confirmed bateman et al. (2002), ward and beal (2000) conclusion about positive dependance on variables of the rates. it was showed by positive rate and negative – distance to rural heritage park. negative rate of variable gender (gen) differs from cases described by other scientists and it should be explored more (formula 4). wtp = 0.001 *dist + 0.656*educ + 1.055*qual 0.570*gen -0.201*geo + 0.004 *expen (4) as a result wtp is = ls253.74 per one visitor of maija park. the model showed that men’s wtp is connected with travel expenses, rate 0.042, but women pay more attention to the quality of maija park services, rate0.009. r squared = 1 (residual sum of squares) / (corrected sum of squares) = 0.301. unfortunately r squared statistics does not explain the calculated function but as confirmed also by bateman et al. (2002) it determines and gives information. information about 127 respondents showed wtp for services of maija park 237 times, in 3 future months wtp = ls253.74*237= ls60136.38. the value calculated in the research is not absolute but empiric results indicate to possibilities that can be gained in regions. conclusions in the research there were clarified visitors of maija park in latvia region: 65% are from cēsis city and its locality, the rest from other reģions of the country and foreigners from russia, germany, denmark, lithuania and estonia with average age 46 years. all study factors education, park quality; gender; respondent’s geographical location and visitor’s visit expenses, except way of means are also wtp promoting factors. women with good education are ready to spend more for quality of park. wage of visitors of rural park from cesis city and nearby regions is less than that of foreign tourists. their willingness to attend hp is greater than their wtp. it would be possible to raise hp revenue by offering less expensive rural park services. in 2009 the wtp was greater than the actual expenses (ls 6846.50). according to santagata and signorello (2002) it is possible to revenue 1/3 from wtp, assuming this it would be possible to revenue ls 20045.46 the visitor’s individual willingness to pay for rural maija park located in the republic of latvia was stated ls253.74. issn 1822-8402 european integration studies. 2010. no 4 95 references aa ireland: petrol. international price comparisons. degvielas cenas par periodu no 2009. gada 08.-.10. http://www.aaireland.ie/petrolprices/ alberini, a., boyle, k., welsh, m. analysis of contingent valuation data with multiple bids: a response option allowing respondents to express uncertainty. journal of environmental economics and management, 2003. no 45 (1). p. 40–62. asian development bank (adb) 2007. available at: http://www.adb.org/ documents/guidelines/eco_ analysis/glossary.asp. bateman, i., carson, r., day, b., hanemann, m., hanley, n., mourato, s., ozdemiroglu, e., pearce, d.w and sugden, r. 2002.economic valuation with stated preference techniques: a manual. cheltenham: edward elgar. bedate, a., herrero, l.c., sanz, j.c. economic valuation of the cultural heritage: application to four case studies in spain. journal of cultural heritage, 2004. vol. 5, no 1, p.101-111. cameron, t.a., huppert, d.d. ols versus ml estimation of non-market resource values with payment card interval data. journal of environmental economics and management, no 17, p. 230-246. carlsen, j., wood, d. assessment of the economic value of recreation and tourism in western australia’s national parks and forests (no. sd00006). gold coast: sustainable tourism crc, 2004. of cultural economics. rotterdam, 2002. p.13-16. cranz, g.; 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accepted in may, 2010. 53 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 submitted 04/2015 accepted for publication 07/2015 the complex relational dynamics in public sector reforms eis 9/2015the complex relational dynamics in public sector reforms http://dx.doi.org/10.5755/j01.eis.0.9.12795 ilpo laitinen city of helsinki, finland inga nyholm ministry of finance, finland jari stenvall university of tampere, finland jari kaivo-oja university of turku, finland abstract even though public sector reforms have become nearly every day-business in many countries, the implementation of the reforms is often a challenge for change management. this is the case also in finland. nationwide local government reform aiming to create a thriving municipal structure was launched in 2011 and gained a lot attention and criticism. we aim to analyze what kind of diverse views occurred in the implementation phase of this particular reform and how those affected the reform process. thus we aim to analyse the reform as a complex social process by using the figuration theory of elias’. according to our analysis it seems that there is a dominant discourse that includes actors with different goals. we also identified counter discourse, arisen as a reaction to the dominant discourse. in the reforms there also seems to be some structural diversity due to actors who look at things from various perspectives. thus the implementation of reforms is not only a question of the policy goals but also a question of different actors competing with each others. this underlines the fact that managing public sector reforms should focus more on building long-term processes of co-operation and not only on institutional or rationally explained changes. keywords: public sector reform, policy implementation, complexity, figuration theory, change management. european integration studies no. 9 / 2015 pp. 53-59 doi 10.5755/j01.eis.0.9.12795 © kaunas university of technology public sector reforms have become everyday business. reforms are seen in this context as conscious rearrangements to address the changes in the environment and the resulting demands for corrections (e.g. caiden 1969; pollitt & bouckaert 2004; collin & robertson 2005; brunsson 2009; bouckaert 2009). the planned reforms have often been extensive aimed for instance, an overall reform in regional administration. in many cases, public sector reforms have often been politically significant but differently acknowledged. in general reforms often aim e.g. to re-allocate resources, to adjust the proportion of government in the gdp, to redefine responsibilities of different actors and to solve low level performance of public services (bouckaert 2009). the state of public economics is an essential motive for public sector reforms in many western countries, as well in finland. yet the benefits of reforms – even the economical ones –are often questioned and especially the rationally implemented reformism criticized (drechsler 2013; hanes & wikström 2006; bouckaert & halligan 2008; thorne & kouzmin 2012). this illustrates that the implementation of reforms is often complex and ambiguous (e.g. haveri 2006; brunsson 2009; sandersson 2000; fimgreite & laegreid 2009; valler, wood & north 2000; drechsler 2013; boivard 2009): various views and opinions occur which often requires effective change or reform management. in this paper we analyse government reforms as complex social processes and from the perspecintroduction e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 54 tive of change management. our aim is to gain more theoretical and empirical understanding on the reform processes as changes as well as the various social factors affecting them. we concentrate on a nationwide local government reform in finland launched by the previous government on 2011. the aim of the reform was to create a thriving municipal structure (government programme 2011). it has been claimed that finnish government reforms are -20000 0 20000 40000 60000 80000 100000 120000 19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 20 07 20 09 20 11 20 13 m il li on e ur os development of public deficit and public debt in finland, years 1975-2013 deficit debt theory of figurations often approached from a rational perspective both in research and in practice. this particular reform has gained both a lot public attention and criticism, but most importantly the implementation has strongly divided different stakeholders. thus it serves as a good empirical example for the purposes of our paper. we examine the research topic from the perspective of various actors in aiming to create a picture of the reform as a social process. our data consists of statements of municipalities (total 24 municipalities, two statements from each) from two different regions (greater helsinki region, tampere city region). beside we use the official material drawn up by the government and parliament (reports, protocols, government proposals) and material produced by media or other actors such as researchers (e.g. articles, opinion writings). the total number of analysed documents is about sixty (n=60). on the basis of the material we aim firstly to represent the diverse views of different actors and secondly to contemplate a reliable description of the discourses existing in the implementation phase of the local government reform. by doing this we are thirdly able to illustrate social factors creating complexity in the public sector reforms. we have used qualitative content analysis aiming to note central themes and discourses and building a logical chain of evidence and in formulating our conclusions (see kvale 1996; miles & huberman 1994; silverman 1993). our analysis is also partly based on participatory interpretation as we have been involved in the reform as, for instance, evaluators, preparers and consulted experts. this involvement in the discussions enables us to interpret the various opinions and in the data material. it is possible to argue that complexity theory is focused on making films of how phenomena – like public sector reform develop under a variety of influences (teisman & klijn 2008, 288). in our article we understand the concept of complexity as a metaphor. in this viewpoint metaphors help to understand the reality differently compared to traditional approach which means that the reality is seen as mechanistic and systematic machine. the reality is seen as emergent, dynamic and nonlinear. we emphasize the importance of social process as the source of complexity (stacey 2001, 2010; macmillan 2009; marion 2008). our theoretical framework is based on norbert elias’ (2001) literature and referred to as process sociology. elias put lots of emphasis on the dynamics of relationships between people and on the dynamics of the process (see elias 2001; wouters 2009). social processes connected with figuration can be unplanned and can have a structure of their own. dynamic of the figuration has novel, emerging outcomes. 55 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 elias uses the term figuration to refer to ’interdependency networks’. the pattern independent human beings as groups or individuals form with each other can be described with the concept of figuration. (elias 1987, 85; elias 2001b:149; van krieken, 1998, 55-65; bloyce & murphy 2007.) figuration is ’a structure of mutually oriented and dependent people and agents’. in the context of public administration reform, individuals and agencies – like political parties, ministries, local governments and the reformers of administration are engaged in many interactions and power relations. (eg. gentilcore 1999; may 2004; powell 2010.) according to elias structures are figurations constituted by acting human beings (van krieken, 1998, 59). in the figurational theory, the central propositions are that 1) all humans are interdependent, 2) these interdependencies form emergent dynamics, 3) these emergent dynamics are figurations in flux, changing and constantly transforming, 4) these figurations are in long-term unpredicted and unplanned and 5) knowledge develops within these figurations. (eg. mennell, 1998, 251-252; goudsblom & mennell, 1998, 130-131; quilley & loyal, 2004, 5.) in this article we concentrate on the figuration concerning the local government reform. we assume that the reform interconnects independent people and organizations. our aim is to clarify why figuration explains as a mechanism the contents of public sector reforms. we are specifying on the basis of our data and the discourse related to the reform, which factors are sources of social complexity in the implementation of reforms. municipalities in finland have a central and autonomous status as in many other nordic countries. they are self-governed and have strong independency, with taxing power. they also organise the main welfare services, e.g. social and health care services. especially during recent years, many municipalities have had difficulties in arranging the services due to e.g. financial constraints, growing service demand, decreasing workforce and aging population. in addition, the municipal structure seems not to be very cohesive and not ideally suited to promote e.g. industrial and business activity. due to these changes a local government reform was launched by previousgovernment after the parliamentary elections in 2011. government aimed to tackle the problems with reforming municipal structure alongside with the reforms related to the division of tasks between the state and municipalities, reform of local government act and e.g. the reform of the state subsidy system. the objective of the local government reform was to create a thriving municipal structure built on economically robust municipalities consisting of customary commuter areas large enough to provide main basic public services. municipalities should have been capable of conducting successful policies in business and industry, development strategies and in preventing urban sprawl. (government programme 2011.) the reform and its progress was afterwards outlined by the government in many conjunctions. several responses to interpellations and a statement on the reform was given in the parliament in the government period 2011-2015. also municipalities were asked to give their statements in different phases, e.g. to different reports, legislation proposals or surveys made by the government. the reform was implemented by a special legislation, local government structure act, that came in force on 1st of july 2013. as mentioned above, the reform has gained a lot public attention. the mechanisms (mainly mergers except in the metropolitan area) and implementation strongly divide different actors, municipalities, parties, politicians and other interest groups, and also researchers. these diverse opinions can be illustrated through the cases and our data material. local government reform e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 56 farce, botch, and mess are among the words used to characterize the reform. the reform has also been criticized for “walking blindfolded” and claimed to cause chaos in municipalities. thus, complexity and diversity can be identified in the discourse on local government reform. complexity can manifest itself in various ways in reforms. we relate it to the premises, the implementation process, and the definition of contents and need. the premises are environmental factors that affect the conceptualisation of the reform. beside complexity can connect to the implementation process, to the concrete steps a process is planned as well as to the proceeding and steering of a reform. it can also have a connection with the definition of the reform. it seems that in this case, the contents and purpose have not been clear for all the actors, while others have shared them and some opposed them. it is also possible that a “wicked problem” occurs (cf. rittel & webber 1973) meaning several different solutions and perspectives existing simultaneously. in this case it seems obvious that different actors have seen different mechanisms (mergers or cooperation) suitable. the problem has however been, that only one (merger) was included in the reform “tool-box” of the government. connections to other reforms, and information basis that is closely connected to diverse opinions, are premise factors. the latter ones produce complexity especially when several truths are in question. in public administration, there are connections between reforms, and the solutions made or not made in one may affect another (eg. bouckaert 2009). the factor related to the social process and causing complexity is power games. when there are dissimilar interests, power games envelopes the different actors’ ambitions to steer the reform in the desired direction. for instance, issues can be unpredictably taken up for strategic reasons related to power games. this can happen both at the local level and in central government and is not easy to verify. the complexity in the implementation process is connected to, for instance, by whom and in what way the reform is taken forwards. problems are caused due to unclear or not approved reasons of implementation or ontents. these all together illustrate that reform as a whole is viewed from various angles. it makes the overall picture of the reform polyphonic and thus it may appear blurred for many actors. in a social process, different factors are linked together in a complex and unique way. one of the problems in the development of public administration in finland has been the constant implementation of separate partial reforms (nyholm & airaksinen 2011). the reforms have affected a single sector of administration at a time, such as regional, municipal, or provincial administration. operations have not always been coordinated. a central factor in the local government reform causing complexity has been seen to be its relation to simultaneous reforms. such reforms include e.g. the earlier municipal and service structure reform (2005-2012), the reform of social and health care sector and the renewal of the state subsidy system. the unclear question has been to what extent is the reform based on the earlier reforms and how it is connected to the other simultaneous reforms like the reform of social and health care. ralph stacey (2010) has paid attention to the power games related to social interaction. the idea is that in interactive relationships different actors try to affect one another, which in itself tends to create complexity. this can take place in a variety of ways, such as invalidation or forming allies with other parties. (stacey 2010; see also gentilcore 1999; may 2004; powell 2010.) power games seem to explain most of the complexity related to reforms. in conjunction to the local government reform, power games started almost instantly after the government publicized its’ program. opposing the reform has actually become one of the central political issues in current government period. literature on change management contains much discussion on how successful changes should have a clear direction and a defined need (e.g. stenvall et al. 2009). the direction involved in contents has a connection to what kind of public administration is desired through the reform. the need is attached to the substantial justifications of the reform. defining the direction emerges in conjunction to the reform as an unclear problem. there have even been discussions on whether the reform has a steering perspective or not. sources of complexity in municipal reform 57 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the change process in reforms is related to the leadership: who and by what kind of means is leading and implementing the work. literature on change management has actually repeatedly paid attention to the fact that if there is unclarity e.g. in the manner of implementation, succeeding becomes more difficult. the opinions of whether the finnish reform as a process lacks clarity diverse. according to some experts, municipalities have not been given an overall view of the reform process. some actors have also criticised that the change process is not open enough. when also criticism on whether all important views have been considered in conjunction to the preparation has been expressed, the reform has faced unpredicted opposition as different operators have tried to have an effect on the reform. on the basis of our data, the approach of figuration theory shows its explanatory power. the analysis has shown that the complexity of public sector reform can be analyzed by elias’ figuration theory. this means that we need research on the factors that create complexity in public sector reform. from the basis of our analysis, we recognize the following theses on the complexity of reforms. thesis i. complexity arises the question of the dominant discourse we identified that the figuration of reform contains so called dominant discourse. it includes not only the reform in favor of the proposals and their justification but also the actors who support the proposal. the dominant discourse is not necessarily unanimous. it includes actors with different goals. the actors have reached a consensus that the reform must be made, and this is justified because of certain arguments. in this sense, even within the dominant discourse may be struggles and power games that can change unexpectedly in the substance of the reform. we recognize the logic of collaboration and competition (see stacey 2001) within dominant discourse for instance between political parties. a counter discourse has risen as a reaction to the dominant discourse. that counter discourse could question unpredictable ways for instance the notion of merger and scale benefits. respectively the interests of the actors may be put into question, or even a social network that constitutes the dominant discourse. this finding has analogies to the study “how networks explain unintended policy implementation outcomes” (grantham 2001). grantham concluded, that implementation of policies is not only a question of how the policy changes, but also a question of the agencies for different actors not willing to fit into same ideals, different actors competing with each other and actors who remain out of the core. thesis ii. structures, activities, environment, knowledge base, and publicity create diversity which further creates complexity in public sector reforms the structural diversity means that there are actors in the figuration, who look at things from different perspectives. the diversity covers all activities related to the reform such as the political decision-making and human resource management at local level. the diversity of environment relates to the fact that the reform affects a number of factors, such as the other reforms or public services. the knowledge base of diversity occurs when the reform can be interpreted in numerous perspectives. the diversity of publicity includes the fact that the debate is taking place also in various arenas, for example in the research community, in the press or as a part of administrative processes. this aforementioned finding comes close to those studies which found tensions between explicit and implicit steering. explicit refers to formal mission and implicit to informal mission including various demands, different needs, and historical context. in elias’ figurational process the division was between established and outsiders. the authority conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 58 of forming municipalities has been in the hands of the established status. despite of the formal power differencies, the process has been figurational and included both formal and informal practices. figuration refers to negotiations, hearing procedures where involved have been seen as a phase to reach the wished outcome. figuration refers also to processes where the power actually does not lie in the center or in the hands of established, but brings forth all kinds of opposing maneuvers from the communities and groups of local interdependencies in order to manipulate the wished outcome to their own advantage. what is noteworthy is that the process is not linear. it contains lots of variation and diversity. it also has been a real process by its nature; meaning that there is no a static, final stage, but the powerbalance has been in flux: formal has caused both formal and informal counter reactions. diversity means that due to the complexity in points of views it is difficult to predict what kind of things, by whom, and in what context are debated in different phases of the reform process. diversified opinions and our results underline that a reform as a change requires long-term process of co-operation instead of purely institutional or rationally explained or implemented changes (see oecd 2015). the figurational process of the whole finnish local government reform can be divided to three different parties’ relational dynamics. those parties were the early adapters, opposing forces and the vast majority who have been puzzled. the latter group was seeking deeper understanding of the problem in order to create real, novel ideas to solve those. but understanding and even rationalities which in the first place were motivating the whole reform, were by-passed at the same time when the first two groups, parties were locked into their opinions. thus the flexibility in the change process ended up to be rigid installation between different actors. following the logic of figurational processes based on powerbalances do not bring out the final outcome or solution, especially if the third group, party is left voiceless. bouckaert, g. 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(2001) the society of individuals, the continuum international publishing group inc., new york. fimgreite, a.l., laegreid, p. (2009) reorganizing the welfare state administration. partnership, networks and accountability. public management review, 11; 3, 281297. http://dx.doi.org/10.1080/14719030902798198 government programme (2011) prime minister jyrki katainen government’s programme (2011-2015). grantham, a. (2001) how networks explain unintended policy implementation outcomes: the case of uk rail privatization, public administration, vol. 79, no. 4, 2001, 851-870. http://dx.doi.org/10.1111/14679299.00283 hanes, n.,wikström, m. (2006) does the local government structure affect population and income growth? an empirical analysis of the 1952 municipal reform in sweden, regional studies, vol. 42.4, 593-604. http:// dx.doi.org/10.1080/00343400701281311 haveri, a (2006) complexity in local government change: limits to rational reform. public management review. vol 8. http://dx.doi. org/10.1080/14719030500518667 kvale s. (1996), interviews, an introduction to qualitative research interviewing, sage, thousand oaks marion, r. (2008) complexity theory for organizations and organizational leadership, in ulh-bien, m., marion, r. (ed.) complexity leadership, information age publishing, north caroline. references 59 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 mcmillan, e. (2004) complexity, organizations and change – an essential introduction, routledge, london. http://dx.doi.org/10.4324/9780203507124 miles, m.b. & huberman a.m. (1994), an expanded sourcebook qualitative data analysis, second edition, sage, thousand oaks nyholm, i., airaksinen, j. (2009) muutoksen monet ulottuvuudet. miten tutkia muutosta kuntakontekstissa. kunnallistieteellinen aikakauskirja 37 (3), 236-255. oecd (2015) governing the city. oecd publishing. pollitt, c., bouckaert, g. (2000) public management reform: a comparative analysis. oxford; oxford university press. rittel, h., webber, m. (1973) „dilemmas in a general theory of planning, policy sciences, vol. 4, elsevier scientific publishing company, inc., amsterdam, 1973. (reprinted in cross, n (ed.), developments in design methodology, j. wiley & sons, chichester 1984), 155-169. sandersson, i (2000) evaluation in complex policy system. evaluation 6, 433-454. http://dx.doi. org/10.1177/13563890022209415 silverman d. (1993), interpreting qualitative data, methods for analyzing talk, text and interaction, sage, london stacey, r. (2001) complex responsive processes in organizations, routledge, london. stacey, r. (2010). complexity and organizational reality – uncertainty and the need to rethink management after the collapse of investment capitalism, 2nd edition, abingdon, oxon; routledge. stenvall, j., vakkala, h., syväjärvi, a., leinonen, j., juntunen, p., oulasvirta, l., tiilikainen, l. (2009) parasta nyt kunta –ja palvelurakenneuudistuksen toimeenpanon suunnitteluvaiheen loppuraportti. valtiovarainministeriön julkaisuja 11/2009. helsinki. teisman, t., klijn, e-h. (2008) complexity theory and public management. in introduction. thorne, k., kouzmin, a. (2012), reform, revolution, or mission impossible? radicalizing a public administration of post the global financial crisis, administrative. theory & praxis, march 2012, vol. 34, no 1, 16-39. valler, d., wood, a., north, p. (2000) local governance and local business interests: a critical review, progress in human geography 24,3, 409-428. http://dx.doi. org/10.1191/030913200701540492 wouters, c. (2008) how civilizing processes continued: towards an informalization of manners and a third nature personality. in gabriel, n. and mennell, s. (ed) norbert elias and figurational research: processual thinking in sociology, sociological review monographs series 7, wiley-blackwell/the sociological review, 140-159. ilpo laitinen dr. sc. director of administration city of helsinki, finland address tel. +358401549690 e-mail: ilpo.laitinen@hel.fi inga nyholm dr. sc. (admin.) ministerial adviser ministry of finance, finland address tel. +358401549690 e-mail: finland.inga. nyholm@vm.fi jari stenvall professor administrative sciences, university of tampere, finland address tel. +358408284350 e-mail: jari.stenvall@uta.fi jari kaivo-oja research director university of turku, finland address tel. +358417530244 e-mail: jari.kaivo-oja@utu.fi about the authors e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 118 submitted 04/2018 accepted for publication 11/2018 european integration studies no. 12 / 2018 pp. 118-128 doi 10.5755/j01.eis.0.12.21869 data-based startup profile analysis in the european smart specialization strategy: a text mining approach eis 12/2018 data-based startup profile analysis in the european smart specialization strategy: a text mining approach http://dx.doi.org/10.5755/j01.eis.0.12.21869 levan bzhalava big data excellence center, kazimieras simonavicius university caucasus school of business, caucasus university abstract jari kaivo-oja finland futures research centre, turku school of economics, university of turku sohaib s. hassan sme management graduate school, university of siegen the aim of the paper is to develop novel scientific metrics approach to the european smart specialization strategy. the european union (eu) has introduced smart specialization strategy (s3) to increase the innovation and competitive potential of its member states by identifying promising economic areas for investment and specialization. while the evaluation of smart specialization strategy requires measurable criteria for the comparison of rate and level of development of countries and regions, policy makers lack efficient and viable tools for mapping promising sectors for smart specialization. to cope with this issue, we used a text mining approach to analyze the business description of startups from nordic and baltic countries in order to identify sectors in which entrepreneurs from these regions see new business opportunities. in particular, a topic modeling, latent dirichlet allocation approach is employed to classify business descriptions and to identify sectors, in which start-up entrepreneurs identify possibilities of smart specialization. the results of the analysis show country-specific differences in national startup profiles as well as variations among entrepreneurs coming from developed and less developed eu regions in terms of detecting business opportunities. finally, we present policy implications for the european smart specialization strategy. keywords: european union, smart specialization strategy (s3), s3 implementation handbook, text mining, entrepreneurship, the entrepreneurial discovery process (edp) cycle, innovation, opportunity search. 119 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 introduction smart specialization strategy (s3) is a new concept in territorial development (foray et al., 2009; 2011; boschma, 2016; kaivo-oja et al., 2017). in particular, it is a place-based approach to strategic economic growth and development, in which regions define their strengths and focus on finding niche areas of specialization in a global value chain (mccann and ortega-argilés, 2015). smart specialization concept places great importance on geographical context (social, cultural and institutional characteristics) in elaborating industrial and innovation policies (foray et al., 2009; 2011; barca at al., 2012). given that regions differ in terms of their business and research activities, they compete in various technology and product spaces and show different strengths and weaknesses. correspondingly, they have different opportunities for growth and development (mccann and ortega-argilés 2015). moreover, knowledge spillovers are geographically bounded and they are rooted in place (arrow, 1962; audretsch and feldman, 2004; balland et al., 2018). in other words, technological knowledge that is complex and tacit in nature is difficult to imitate and is sticky in space. this, in turn, can be a primary source for competitive advantage for territories in which they are generated (balland et al., 2018). for these reasons, smart specialization strategy (s3) shifts attention from traditional a ‘one-size-fits-all’ policy framework towards more embedded and locally relevant innovation policy. the smart specialization approach is considered as a key instrument to promote smart, sustainable and inclusive economic growth in europe (foray et al., 2011; paliokaitė et al., 2016). facing increased global competition, the european union (eu) strives to encourage its regions to define their unique capabilities and to identify areas of specialization in which they can have competitive advantages. by enabling each region to identify a niche market of specialization, the eu aims to avoid duplication and fragmentation of its investments and to make its research and innovation efforts as effective as possible. in order to tap into an endogenous potential of each region, smart specialization strategy (s3) suggests that local actors from business and academia should discover the right areas of future specialization (foray et al., 2009). in other words, it is a bottom-up approach in which local actors explore scientific and technological opportunities and their market potential. to build critical mass in the promising areas of specialization, regional governments should identify where local business and academia see potential for research and innovation activities and whether these activities show promise for excellence. this process, in turn, requires a deep analysis of local capabilities and competencies to identify unique features and strengths of each region and, based on this, to set priorities in innovation policies and to develop a regional vision. however, there is lack of clarity and consensus how to measure regional capabilities and competencies and how to implement smart specialization strategy in practice. previous studies suggest measuring smart specialization strategy based on patent and industry analysis (paliokaitė et al., 2016; santoalha, 2016; kaivo-oja et al., 2017; asheim et al., 2017; balland et al., 2018), but both these approaches have drawbacks in defining indices of smart specialization. first of all, not all inventions are patentable and, for this reason, patent analysis lacks indices to measure knowledge capabilities and competencies in a region. industry analysis based on structured data collected by statistical offices may also be inappropriate for formulating smart specialization strategy, because smart specialization policy should target certain activities instead of industries and firms. furthermore, innovations introduced by startup companies often disrupt value network in a given industry and displaces incumbent firms from a market as well as make previous technological knowledge obsolete (christensen, 1997; kaivo-oja and lauraeus, 2018). in contrast to prior studies in smart specialization, we analyze the business description of startup companies to identify activities in which entrepreneurs from different european regions see new business opportunities. entrepreneurship is an important engine of economic growth and development (wennekers and e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 120 thurik, 1999; zacharakis et al., 1999). specifically, it is considered a source of innovative and competitive power of an economy (wennekers and thurik, 1999; zacharakis et al., 1999; praag and versloot, 2007). as wennekers and thurik (1999) suggest, entrepreneurs play an indispensable role in economic growth because their activities create variety of ideas and initiatives. as a result, “variety, competition, selection and also imitation (...) expand and transform the productive potential of a regional or national economy” (wennekers and thurik, 1999: 50). this implies that entrepreneurs facilitate the operation of market selection mechanisms and promote innovation activities as well as stimulate industry evolution. for these reasons, entrepreneurial activities explain a substantial portion of variations in rates of economic growth across regions (zacharakis et al.,1999). entrepreneurial activities can be highly geographical and it may depend on local economic and institutional characteristics (boschma, 2016). moreover, entrepreneurial search process for business opportunities can be substantially shaped by local research and development activities (acs et al., 2013). in other words, the asymmetries in knowledge accessibility across individuals can determine their capabilities to deliver high-valued solutions to market problems (shane, 2003; acs et al., 2013). as skills and know-how (e.g. tacit knowledge) are geographical bounded, entrepreneurs across regions may develop different business opportunities and identify diverse areas of specialization. in this line of reasoning, we use a text mining approach to analyze the business description of startup companies from nordic and baltic countries in order to identify key economic areas in which entrepreneurs from these regions see new business opportunities. specifically, a topic modeling approach is employed to classify full-text business descriptions and to identify economic activities, in which start-up entrepreneurs identify possibilities of smart specialization. the rest of the paper is organized in the following way. section 2 reviews the related literature and provides theoretical framework. section 3 presents the dataset and empirical methods used in the study. section 4 discusses the findings from the empirical analysis and, at the end, section 5 summarizes and concludes. smart specialization is a knowledge-driven growth strategy (foray et al., 2009; 2011). in particular, it is an innovation policy which aims to identify promising economic areas in a region for investment and specialization (foray at al., 2011; kaivo-oja et al., 2017). the european union (eu) introduced smart specialization strategy (s3) to help its member states discover the right sectors and fields of future specializations in which they can have competitive advantages and, in this way, to increase their innovation and competitive potential (foray et al., 2009; foray et al., 2012; kaivo-oja et al., 2017; roman and nyberg, 2017). given that eu lacks economic and technology specialization as well as has low capability to prioritize innovation and research efforts at regional level (benner, 2013), adopting to smart specialization strategy (s3) can support eu to develop innovative and resilient economy by specializing and concentrating on each region’s research and innovation strengths and, at the same time, avoiding duplication and fragmentation of investment efforts (foray et al., 2012). smart specialization strategy (s3) is a novel approach to regional economic development policy (kaivo-oja et al., 2017). the major idea that differentiates smart specialization strategy (s3) from traditional industrial and innovation policy is its emphasis on a place-based and bottom-up approach in priority-setting (foray at al., 2011; boschma, 2016; paliokaitė et al., 2016). in traditional industrial and innovation policy, a decision making process in mapping promising sectors for investment and specialization was mainly centralized and top-down (barca at al., 2012). in other words, decision makers were in a position to select and prioritize areas of economic actheoretical framework 121 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 tivity with the highest growth potential and then to focus the development of clusters and innovation activities in these areas. given that many uncertainties are involved in setting priorities in innovation policies and governments lack sufficient knowledge and expertise to design and implement such policies effectively, top-down sectoral approaches often fail to promote local economic development (barca et al., 2012; mccann and ortega-argilés, 2016). in particular, “the evidence from numerous development policy examples worldwide demonstrates that regions have made many mistakes in terms of their policy choices, and often this was because policies were chosen on the basis of criteria which were not appropriate or relevant for the local context” (mccann and ortega-argilés, 2016: 282). to put it another way, top-down policy mostly assumes that a ‘one-size-fits-all’ policy framework is generally effective and relied on imitating successful innovation policies applied in very different contexts (storper, 1997; pike et al., 2006; barca et al., 2012; mccann and ortega-argilés, 2016). moreover, top-down centralized-organized policy fails to engage with small local actors and to reflect their interests in the policy design due to lack of their lobbying power, whereas major local players with dominant monopoly positions are able to influence the top-down policy formulation and to shape it in their own interests (foray, 2015). in contrast to traditional industrial and innovation policy, smart specialization strategy lets entrepreneurs and small local actors to discover the right areas of future specialization (foray et al., 2011). specifically, smart specialization strategy relies entrepreneurial discovery process (edp) in setting innovation policy priorities (foray at al., 2011; coffano and foray, 2014). entrepreneurial discovery process is a bottom-up approach in which local actors from business and academia are discovering new market niches as well as scientific and technological opportunities (mccann and ortega-argilés, 2016; boschma, 2016). the role of government in this process is to identify those entrepreneurial discovery projects or new activities and to develop clusters and innovation activities in these prioritized areas (foray et al., 2011). hence, the information necessary for setting priorities in a smart specialization perspective comes from local actors such as firms, laboratories and specialized services. this process intends “to allow innovation policies to emerge which are ‘placebased’, which build on a sound analysis of each region’s strengths and potential for excellence, and which involve a broad range of actors and their knowledge of market potential” (boschma, 2016: 17). although a broad range of actors are involved in entrepreneurial discovery process, entrepreneurs have a prominent role in this process (coffano and foray, 2014; rodríguez-pose and wilkie, 2015), because they possess a valuable understanding of market dynamics and the commercial feasibility of scientific research activities due to their interaction with the market (cities alliance, 2007). moreover, entrepreneurs serve as “agents of change” by facilitating the operation of market selection mechanisms and forcing established companies to become more productive and competitive as well as by promoting innovation activities and stimulating industry evolution. specifically, their activities create variety of ideas and initiatives, and rivalry between these different ideas and initiatives lead to the selection of the most innovative and productive companies and the displacement of obsolete ones (wennekers and thurik, 1999). in other words, innovative entrepreneurs create new markets and industries by disrupting existing structures, value and actors. as a result, entrepreneurs provide a significant contribution to the innovative and competitive power of a region by generating novel solutions to market problems and renewing economic activities (wennekers and thurik, 1999; zacharakis et al., 1999; fölster, 2000; praag and versloot, 2007). the ability to identify complex problems and to deliver high-valued solutions is a key component of entrepreneurship (shane, 2003). it allows entrepreneurs to recognize valuable business opportunities and, through a creative combination of resources, to bring into existence new products and services. discovery of entrepreneurial opportunities can be considered as ree u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 122 combination activities, because an innovation is a new combination of the existing knowledge (schumpeter, 1934). this implies that individuals operating in a knowledge-rich environment are more likely to develop business opportunities than others acting in a knowledge-impoverished context. the knowledge output in a given region is considered to be the function of r&d curried out by local universities and industries (jaffe, 1986), and all the knowledge created by research institutions within a region is a potential source of entrepreneurial opportunities (plummer and acs, 2014). as knowledge spillovers are localized and knowledge spillovers are more intensive in regions with higher r&d investments (audretsch and feldman, 1996), regions vary in terms of their pool of knowledge and the knowledge-based opportunities generated for entrepreneurial exploitation (acs et al., 2013). therefore, identifying where entrepreneurs see business opportunities within a region can be an important instrument for defining local strengths and potential as well as developing a vision of regional smart specialization. to set priorities in a smart specialization perspective, policy makers should focus not on individual entrepreneurial initiatives but a large set of them that can provide systematic processes in regional economic development. “even though the entrepreneurial discovery is related to a micro level (individual initiatives that may result in new business projects), the approach of smart specialization model seeks to overcome it to reach a macro level” (del castillo hermosa et al., 2015: 10). for this purpose, we analyze business descriptions of individual early stage enterprises and aggregate them to provide a macro picture where entrepreneurs from nordic and baltic countries see business opportunities. source: https://angel.co/europe table 1 number of startup companies in nordic and baltic countries in 2016 and 2017 data and methodology the empirical analysis of the paper is based on startup dataset of nordic and baltic countries. specifically, we collected publicly available business descriptions of startup companies from the following website https://angel.co/europe, which provides information about startup activities from all over the world. in the empirical analysis, we focus on variations among entrepreneurs coming from developed and less developed eu regions in terms of detecting business opportunities. global entrepreneurship monitor (gem) study differentiates economic development levels among factor-driven, efficiency-driven and innovation-driven. given that no factor-driven regions are presented in eu, we analyze business descriptions of early stage startup companies from efficiency-driven (estonia, latvia, lithuania) and innovation-driven economies (denmark, finland, sweden). according to gem study, early stage entrepreneurs are those started business activities in the last 24 months. therefore, we restricted our dataset to only companies started operations in 2016 and 20171 (please see table 1). economic development level country number of startups efficiency-driven estonia 227 latvia 108 lithuania 103 innovation-driven denmark 298 finland 291 sweden 283 for analyzing unstructured texts that describe businesses of startup companies, we use topic modeling technique. topic modeling is an unsupervised machine learning method which automatically clusters words that frequently occur together and discovers the abstract “topics”. in 1 startup data for denmark available only from june 2016 and for sweden only from september 2016. 123 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 particular, given a collection of documents, topic modeling treats each document as a vector of word counts and present it as the mixture of topics, where each topic consists of relevant words. in the analysis, we use latent dirichlet allocation of topic modeling algorithm (blei et al., 2003; shi et al., 2016), which associates business descriptions from each country to defined number of topics and each topic to a set of relevant keywords. before applying the topic modeling algorithm, we used natural language processing methods to clean business description of startup companies, which include removing stop words and punctuations as well as stemming words (reducing each word to a single root word). estonia rank word share 1 servic 38% 2 provid 33% 3 compani 32% 4 custom 30% 5 platform 29% latvia rank word share 1 servic 14% 2 design 14% 3 product 14% 4 app 12% 5 digit 11% lithuania rank word share 1 app 23% 2 develop 22% 3 design 21% 4 web 21% 5 product 20% denmark rank word share 1 platform 33% 2 product 28% 3 custom 27% 4 develop 26% 5 compani 23% finland rank word share 1 servic 23% 2 mobil 18% 3 game 16% 4 platform 16% 5 learn 14% sweden rank word share 1 platform 38% 2 app 33% 3 servic 32% 4 help 30% 5 develop 29% table 2 the most popular keywords in startup company descritpions in baltic and nordic countries resultswe use natural language processing to identify which words are most often used in descrip-tions of startup companies in nordic and baltic economies. table 2 shows that user experience-centric words like service, app, design and platform are the most popular keywords in startup descriptions. in particular, early-stage entrepreneurs from sweden (29%), lithuania (23%) and latvia (12%) refer to an app in their business descriptions. the term “service” is also mentioned frequently in descriptions for startups from estonia (38%), latvia (14%), finland (23%) and sweden (29%) as well as the word “platform” in descriptions of early-stage companies from denmark (33%), sweden (30%), estonia (29%) and finland (16%). lithuania and latvian companies in our dataset also frequently mention the term “design” in their description (21% and 14%, respectively). in finnish startup businesses, the words “mobile” and “game” are among the top five referred terms (see table 2). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 124 estonia latvia lithuania denmark finland sweden figure 2 word cloud of startup company business descritpions looking at word cloud of startup company descriptions 50 most popular keywords in startup company descriptions, figure 1 shows that following terms app, platform, software, design, service, solution, data, market, digital, web, product and mobile appear often in startup landscape description of represented nordic and baltic countries. in qualitative analysis, these terms indicate key trends in start-up ecosystems in nordic and baltic countries. in general, the most popular keywords in startup company descriptions provide broad picture, but they do not show where startup companies from these economies see business opportunities. for this reason, we use topic modeling to classify business descriptions and to identify economic activities, in which start-up entrepreneurs identify business opportunities and possibilities of smart specialization. 125 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 estonia topic 1 topic 2 topic 3 topic4 topic 5 topic 6 topic 7 topic 8 1 car solut service service team time provide market 2 custom provid truck data develop service user manag 3 compani busi cryptocurr provide app custom project provide 4 rental time blockchain product manag student service platform latvia topic 1 topic 2 topic 3 topic4 topic 5 topic 6 topic 7 topic 8 1 service design reality real experi service market product 2 softwar digit world build fit financi manag hour 3 cryptocurr develop app industri smart app digit employe 4 custom first augment construct tool use agenc engag lithuania topic 1 topic 2 topic 3 topic4 topic 5 topic 6 topic 7 topic 8 1 web start estat user train develop home product 2 design game real busi tool inform accessori improv 3 market employe service product product design app realiti 4 develop search claim deliveri swimmer hous artist online denmark topic 1 topic 2 topic 3 topic4 topic 5 topic 6 topic 7 topic 8 1 busi develop content team service event product new 2 people platform art experi product app busi develop 3 custom compani design product custom compani app system 4 develop custom platform market time employe world manag finland topic 1 topic 2 topic 3 topic4 topic 5 topic 6 topic 7 topic 8 1 service compani service digit mobil artifici inform product 2 smart softwar app busi game learn manag natur 3 home service car platform app educ communic server 4 busi develop pet will develop intellig mobil food sweden topic 1 topic 2 topic 3 topic4 topic 5 topic 6 topic 7 topic 8 1 digit platform game servic data app product servic 2 music manag develop offer solut user system help 3 app use brand people smart help market platform 4 market develop experi need product publish platform compani table 3 topic modeling of startup company descritpions in baltic and nordic countries e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 126 topics discovered through latent dirichlet allocation of topic modeling algorithm are displayed in table 3. overall, latent dirichlet allocation algorithm shows that there are some differences and similarities in the startup landscape in nordic and baltic countries. looking first at efficiency-driven economies, early-stage estonian entrepreneurs identify business opportunities in car rental service (topic 1), cryptocurrency and blockchain related service (topic 3), and data-based business solution service (topic 2 and 4) as well as in developing project and team management (topic 5 and 7), and market management apps (topic 8). somewhat similarly, start-up entrepreneurs from latvia see new business opportunities in creating cryptocurrency and customer service software (topic 1), digital design development (topic 2), real estate and financial sectors (topic 4 and 6), digital market management (topic 7) and employee engagement service (topic 8), and also in developing augmented reality apps (topic 3). lithuania companies are also active in real estate service, web design and development as well as in home design and accessories. as to the startup landscape of innovation-driven economies, companies from denmark focus on developing event and employee management apps (topic 6) as well as system development and management apps (topic 8). moreover, they are active in developing art and content design platforms (topic 3) and also customer service and management platforms (topic 1, 2, 5, 7). in finland, early-stage entrepreneurs detect opportunities in smart home business (topic 1), software service development (topic 2 and 4), mobile game app development (topic 5) as well as in developing apps for car rent, food service and also related to pets (topic 3 and 8). furthermore, in contrast to other countries, finnish entrepreneurs identify possibilities of smart specialization in developing artificial intelligence for learning and education. looking at swedish startup companies, they are active in creating digital music apps (topic 1), providing data smart business solutions (topic 5), developing games (topic 3) and market management platforms (topic 7). conclusions _ in this study, we explored the business descriptions of startup companies to get insight about startup landscape in nordic and baltic countries. we used latent dirichlet allocation algorithm to discover economic activities in which entrepreneurs from these countries start new businesses and detect possibilities of smart specialization. the result suggests that there are some similarities and differences in startup communities in nordic and baltic countries. our analysis shows that smart specialization strategy approach and start-up community can be integrated by using text mining approaches. this methodological approach provides a lot of promising opportunities for european s3 research. for innovation ecosystem analyses text mining provides new understanding. _ this paper is first attempt to develop automated tools that can help governments to map promising sectors for smart specialization without human intervention. next steps are to measure competitiveness of startup activities across eu regions and to link entrepreneurial activities with patents, trademarks and brands generated in a region. also focused data analyses to industry 4.0 and manufacturing 4.0 production structures would provide new insights to changing innovation ecosystems in europe. understanding the entrepreneurial discovery process (edp) in the european union would benefit much from large data-based text-mining analyses. references acs, z.j, audretsch, d.b and lehmann, e.e. 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(2003). a general theory of entrepreneurship. edward elgar publishing. northampton, ma: edward elgar publishing. https://doi. org/10.4337/9781781007990 shi, z.m., lee, g. and whinston, a.b. (2016). toward a better measure of business proximity: topic modeling for industry intelligence. mis quarterly, 40(4), 10351056. https://doi.org/10.25300/misq/2016/40.4.11 storper, m. (1997). the regional world: territorial development in a global economy. guilford press, new york. wennekers, s. and thurik, r. (1999). linking entrepreneurship and economic growth. small business economics, 13(1), 27–56. https://doi. org/10.1023/a:1008063200484 zacharakis, a, reynolds, p.d. and bygrave, w.d. (1999). national entrepreneurship assessment: united states of america. mo.: kauffman center for entrepreneurial leadership, kansas city, mo. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.194.8412&rep=rep1&type=pdf. accessed march 7, 2018. levan bzhalava ph.d. big data excellence center, kazimieras simonavicius university and caucasus school of business, caucasus university fields of research interests innovation research, entrepreneurship, foresight research, business intelligence and big data analytics address dariaus ir girėno g. 21, vilnius 02189, lithuania tel. +370 633 93 0 47 paata saakadze 1, tbilisi, 0102, georgia tel. +995 599 199 450 e-mails: levan.bzhalava@ksu.lt; lbzhalava@cu.edu.ge about the authors sohaib s. hassan ph.d. sme management graduate school, university of siegen, germany fields of research interests international management, innovation, smes, regional economics address unteres schloss 3, 57072 siegen, germany tel. +49-271-7402424 e-mail: sohaib.hassan@uni-siegen.de jari kaivo-oja ph.d., prof. finland futures research centre, turku school of economics, university of turku fields of research interests futures studies, foresight research, innovation research, big data and data analytics, sustainable developme, globalisation, management, leadership, ai, industry 4.0, economic growth, r&d politics, start-up companies address åkerlundinkatu 2, 33100, tampere, finland tel. +358-41-753 0244 e-mail: jari.kaivo-oja@utu.fi 77 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 european integration studies no. 12 / 2018 pp. 77-91 doi 10.5755/j01.eis.0.12.20846 promoting the regional competitiveness through clusters‘ approach: case of the latvian information technology cluster http://dx.doi.org/10.5755/j01.eis.0.12.20846 zane zeibote, tatjana muravska university of latvia submitted 04/2018 accepted for publication 08/2018 promoting the regional competitiveness through clusters‘ approach: case of the latvian information technology cluster eis 12/2018 abstract the purpose of this research is to contribute to the debate on regional competitiveness concept by evaluating genesis of the studies of concept development, and the impact assessment. this paper also presents the impact of clusters on regional competitiveness through the experience of the latvian information technology (it) cluster. the methods used in the research are literature analysis, correlation and statistical analysis. the main tasks include: (i) the usage of competitiveness concept to describe main factors of regional competitiveness, (ii) identification of the role of clusters for regional competitiveness by testing the linkage between regional competitiveness and state of cluster development, (iii) presenting the experience of the latvian information technology (it) cluster and the assessment of advantages companies operating in the cluster environment. the novelty of the research is testing the relationship between regional competitiveness and state of cluster development, as well as introducing the assessment of the ceos of the latvian it cluster companies on advantages of cluster environment. in addition, synthesis of the cluster’s concept has led to findings on mandatory and desirable features of clusters. the authors conclude that economically more advanced regions have better developed clusters, while regions with higher state of cluster development are more competitive. the experience of latvian it companies in the cluster’s environment recognize that more can be achieved by working together than if acting alone. however, benefits of belonging to cluster aren’t always recognized and exploited. keywords: clusters; information technology (it); innovation; regional; competitiveness. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 78 the actuality of research is based on the authors’ perception that the regional competitiveness is based on competitive advantages, which has been a subject of research by many scholars serving as a basis for the current scientific methodology to assess competitiveness of regions. the author supports a view of considering regional competitiveness as the capacity of a region to create and support competitive economic environment, which could promote a long-term competitiveness of companies. however, the importance of the state of clusters’ development for developing favourable and supportive business environment hasn’t been fully recognized by national and regional policy makers, as well as by businesses. therefore, this is important to build upon the discussion on clusters by showing new perspectives for increasing competitiveness leading to economic development and growth, as well as more profits for companies and welfare for people. the aim of this paper is to contribute to debate on factors influencing the regional competitiveness from the perspective of clusters’ development, as well as testing the importance of clusters for businesses by assessing the experience of the latvian it cluster based on the survey among the ceos of the cluster’s companies. the originality of this research is based on testing the linkage between regional competitiveness and state of cluster development by using the world economic forum global competitiveness report data (2016-2017), as well as for the first time presenting the results of survey conducted among the ceos of the latvian it cluster member companies on their assessment of benefits provided by the cluster environment. methodology: this study is based on qualitative and quantitative methods, including the analysis of scientific publications and research papers, correlation analysis, statistical data analysis and other. the correlation analysis is based on data of the global competitiveness report (gcr) for three years – 2015, 2016 and 2017, where the correlation coefficient between the rankings of the competitiveness index and cluster development status indicators were calculated. (please, see the description of algorithm on page 7.). furthermore, the results of survey of the latvian it sector experts conducted from april to june, 2016 (n = 25) are analysed (pp. 8-11). survey answers were given in the scale from 1 to 10 in order to obtain data for performing in-depth statistical analysis of survey results. the following methods were used for statistical processing of data and analysis: _ descriptive statistics methods – central tendencies (arithmetic average, mode, median) and variation indicators (standard deviation, amount of variation, coefficient of variation); _ grouping according to various characteristics or by various criteria; _ methods of multidimensional analysis – variance analysis and correlation analysis. main limitations of the research are related to a number of survey respondents 25 of 31 respondents or 80% of the latvian it cluster members answered survey questions. also, a fact that the latvian it cluster members are involved in it software and hardware production could relate conclusions to specifics of the it sector, which may not be applied for the overall analysis of the impact of clusters on regional competitiveness. key results of this study confirm the importance of cluster development for the regional competitiveness and reveal main benefits and shortages of companies participating in the latvian it cluster. therefore, the research is contributing to discussion on the regional competitiveness and strategic decision making on cluster development, as well as participation of companies in cluster organizations, which could provide long term competitive advantage for regions and entrepreneurship. research results reveal specific issues important for the regional competitiveness and cluster development helping to deal with sustainability challenges through increasing competitiveness through promoting innovation, as well as economic and business efficiency. introduction 79 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 the concept of competitiveness is related to the concept of competition, which is a special type of economic environment and ability of an economic subject to survive in this environment. since 1980ies the competitiveness theory has become a new sub-sector of the theory of economy, which examines factors influencing the competitiveness of states and regions and is specifically useful for analysing new economic globalisation processes (garelli s, 1999). the world economic forum, wef (2006) defines the competitiveness as a combination of institutions, policies and factors, which determine productivity level of a territory, which, in turn, determines the welfare level adequate for the economic development. the world competitiveness research centre (wcrc) of the swiss international management development centre (2005) offers the following definition: the regional competitiveness is a part of economic theory, which analyses factors and policy instruments, which influence the ability of a region to create and support favourable environment and provide a possibility for companies to create added value, but for inhabitants – to achieve welfare. the definition of european commission, ec (2017) is as follows: regional competitiveness is the ability of a region to ensure attractive and sustainable life and work environment for companies and inhabitants (european commission, 2017). the national competitiveness council of ireland (2005) considers that the regional competitiveness is a meaningful concept that includes a wide spectrum of factors, which promotes ability of companies to succeed on international markets and at the same time pride opportunities for people to increase level and quality of life. according to markusen (2002): “the region is competitive when real income growth occurs faster than its market rivals”. competitiveness can also be viewed as a new stage of a territorial (regional) development, which depends on competitive advantages of regions. the achievement of the competitiveness stage helps to ensure further efficient and profitable use of attracted competitive resources, which ensures economic efficiency and improvement of economic indicators. however, there are several differences between territorial competitiveness and advantages: the competitiveness is related to efficient and optimal use of resources, while the advantages mean the ability to attract, keep and sustain resources on a particular territory. the competitiveness is more oriented to acknowledgement of development perspectives, while the advantages are focused on efficient and open business perspectives (pellegrini, 2006). the main difference between competitiveness and advantage is hidden on the level of active participation of the government in economy. the factors of attractiveness are based on the level of government support and they are almost fully under the influence and control of the government. at the same time, the factors of competitiveness are outside of the direct government influence (serrano, 2003). according to the literature analysis the authors have described the nature of the concept of regional competitiveness as the ability to create and support the competitive economic environment by: _ managing the set of own advantages to achieve prosperity; _ creating and supporting the environment, where companies can create added value; _ increasing real income under conditions of the free trade; _ supporting ability of companies to achieve success in international markets; _ satisfying increasing demand and support export; _ successfully competing with other countries/regions in international markets. the authors consider that competitive advantage of regional stakeholders is a desired result of competitiveness, not a factor. this approach is based on the statement of michael porter (1998) the genesis of regional competitiveness concept e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 80 on developing new guidelines of a new regional competitiveness concept: “the new theory must give answers to the following questions: why some companies working in certain countries are able to innovate more than others and why some countries provide a business environment that gives companies the opportunity to improve and develop their activities faster than their foreign competitors?” moreover, michael porter (1990) underline four main determinants, which serve as a basis of regional competitive advantages or environment, which are created and sustained by each region: _ production factors – determine the position of the region in relation to such production factors as qualified labour force and infrastructure, which is necessary to stand against forces of competition in a particular sector; _ demand factors of regional market are related to products and services of a particular sector; _ related and supportive industries – competitive sectors (companies) on a global market and presence of suppliers or related industries in the region – includes also presence of business clusters, which is in a greater detail in the next part of this study; _ strategy, structure and competition – regional conditions for the emergence of stakeholders, stakeholders’ organizations and management, as well as internal competition. these factors determine the creation of a business environment for regional stakeholders. each of the aforementioned determinants is typical for a particular region and their combination provides important preconditions for global competitiveness of regional companies. the genesis of regional competitiveness concept was in the focus of attention of many scholars since late 1980ies and determines the importance of competitiveness and competitive advantages are important concepts for the regional economic advance and growth through strategic regional cluster development. factors influencing regional competitiveness the authors analysis is based on theories related to factors influencing regional competitiveness developed by m. porter (1998), h. hernesniemi (hernasniemi et al, 1996) and j. dunning (1993). m. porter (1998) was the first, who created the system of factors influencing the regional competitiveness, which is called the diamond model. the diamond model identifies the four forces of competitiveness based on the above mentioned four determinants: 1) production factor (volume, quality and specialization of production factors); 2) demand factor (experienced and demanding local consumer; requirements of consumers; untypical local demand in specific segments); 3) structure and competition (local situation, which support investment and continuous development; strong competition between local companies); 4) related and supporting industries (presence of competitive local suppliers and competitive local industries, figure 1). the figure 1 shows the classical diamond model of michael porter (1998) amended with three newly added components important for the creation of a favourable business environment. these three new features were added by the finnish researchers in their fundamental industrial research „advantage finland – the future of finnish industries” (hernesniemi et al, 1996) and include:1) government; 2) chance; 3) international business activity. the government has an important role in several aspects, such as: 1) providing guaranty for sufficient supply of resources, which are necessary for the development, especially, factors for creating advantages; 2) creating basis for the economic development and innovation – measures for protecting environment, safety standards etc.; 3) ensuring functioning of the market system; and 4) stimulating the development of human capital. the factor of chance has been recognized as having an important role in many industrial undertakings. and the international business activity was added to the diamond model later in a result 81 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 of discussion with j. dunning (1993). according to m. porter’s views multinational economic subjects are external elements with respect to the diamond model. he also considers that global economic subjects aren’t meaningful in the presence of already established competitive advantages, because, there are such global economic subjects with their own corporative culture, which doesn’t influence separate nations. one of the four main determinants serving as a basis of regional competitive advantages or environment, which is also reflected as one of tops of the diamond model is related and supporting industries, which are represented by competitive sectors (companies) on a global market and presence of suppliers or related industries in the region and also includes also the presence of business clusters. this indicates that cluster is one of determinants influencing regional competitiveness. source: hernesniemi h., lammi m., yla-anttila p. (1996) advantage finland – the future of finnish industries: etla [the research institute of the finnish economy] report of the finnish clusters’ study. helsinki: taloustieto oy. figure 1 amended m. porter’s diamond model – regional competitiveness sources the idea about business networking started already more than 120 years ago in the beginning of industrial revolution. the economist alfred marshall (1890) wrote about concentration of specialized industries in particular territories. he also, noted the effects of specialization in new industrial areas of england, which served as basis for his famous comment – industry secrets are in the air. during 1990ies, when deeper discussion on the nature of clusters was started, researchers jacob and de man (1996) made an argument that the concept of clusters is not defined and, thus, they were using the main dimensions of the cluster definition of porter to further define the cluster. they were the following: 1) geographical or spatial cluster is a notion of economic activity; 2) horizontal and vertical relationships between cluster participants; 3) use of similar technologies; 4) the presence of the central player (e.g. large company, research centre, etc.); 5) quality of business cooperation or network. however, in the theory developed by jacob and de man (1996) the role of a central player was determined as the most crucial. the determining criteria of a cluster were further extended by rosenfeld (1997) including the size of the cluster, the economic or strategic significance of the cluster, the range of products or services, and similar investments (technology, labour, etc.). however, this scientist does not encourage the definition of the cluster to take into account the size or employment factor of the related industries, stressing that many efficient clusters are located in small interconnected industries where there may be no significant concentration of labour. according to rosenfeld’s definition the role of clusters for promoting regional competitiveness e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 82 (1997) the cluster is “concentration of geographically related, similar, related or complementary undertakings with assets for business transaction, communication and dialogue channels that jointly use specialized infrastructure, labor market and services, and are exposed to similar threats and benefit from the use of similar opportunities. therefore, this definition clearly indicates that cooperation and social relations between companies are essential for the identification of clusters. this definition stresses the joint use of specialized infrastructure as a precondition for clusters’ development. discussing the concept of cluster authors suggest to apply the form of definition offered by the swedish project – the cluster policies whitebook (andersson et al, 2004). the research done by the project recognises the objective multiplicity of the concept and specifies the key elements of the concept of cluster that have to be identified. opposite to porter (1998), they offer a broader list of such elements, adding the desired signs of the cluster:1) specialisation – the type of core activity that defines cluster formation; 2) competition and co-operation – this combination describes the link between cluster members; 3) clusters’ lifecycle – clusters and cluster initiatives are not temporary phenomena; 4) innovation – cluster participants are involved in the process of technological, commercial and knowledge sharing. the concept of a cluster life cycle has evolved in the context of the life cycle and industrial life cycle of the product. individual researchers (brenner, 2008) have tried to draw parallels between a cluster life cycle and an industry life cycle, arguing that there are relationships between a certain industry business cycle and a cluster of this industry. usually, the cluster is created at the beginning of the industrial life cycle and is developed simultaneously with the development of the related product market. clearly, if the industry has reached a maturity stage, markets are saturated and highly competitive then the cluster typically stabilizes and shows only a small dynamic. at the same time, it should be taken into account that the life cycles of clusters and industries are evolving differently during their periods of life, and therefore only individual relationships can be identified and cannot be fully compared (menzel&fornahl, 2007). in synthesizing the development of porter (1998) and other researchers, and based on comparative analysis of economic interaction forms, the concept of “cluster” in the form of a schematic model maybe established (figure 2). the characteristics of the cluster life cycle are closely linked to regional policy and competitiveness. for example, clusters include related industries that are important for the rise of regional features of cluster mandatory features of cluster: legal independence pf par�cipants economic interconnectedness diversity of ac�vity types and diversity of status geographical concentra�on within the region desirable features of cluster: compe��on and coopera�on specializa�on longevity innova�on source: authors’ design based on anderson (andersson et al, 2004), brenner (.brenner t., 2008), jacob and de man (jacobs d., de man a.p., 1996), menzel and fornahl ( menzel m., fornahl d., 2007), porter (porter m., 1998) rosenfeld (rosenfeld s.a. (1997). figure 2 amended m. porter’s diamond model – regional competitiveness sources 83 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 competitiveness. these may include specialised suppliers of manufacturing ingredients, production facilities, services and providers of specific infrastructure services. clusters typically consist of products of certain channels and consumer by-products and complementary products, as well as similar skills, technology or other related to total investments or raw materials. many cluster organisations also include public administration government institutions, as well as higher education and research institutions, agencies, “brain centres”, vocational education training institutions, business support organisations, etc. that provide vocational training, education, information, research opportunities and technical support. companies creating such synergies, not only in competition but also cooperating in the name of common interest, each represent clusters’ life-development cycles in their activities. cooperation may exist even in the context of strong competition, as these interrelated companies will, in turn, be linked to a different target group on the customer market and will cooperate with other partners in developing the product. according to researcher oecd report (2005) the most appropriate method for analyzing and identifying clusters in the central and eastern european countries (slovenia, slovakia, poland, hungary, the czech republic) has been the location quotient (lq). the lq is calculated by using the available nace data for capturing regional concentration of companies or labour. their research also includes qualitative research methods, such as analysis, surveys, expert interviews, etc. this should be recognized that the lq method also has some shortages. for example, in europe it mostly uses the nace data on 2-digit level, while in usa the 4-digit level data are available. also, the lq doesn’t take into account such important factors as the export and innovation capacity of companies, product life cycle, etc. therefore, we can conclude that the cluster analysis methodology is still underdeveloped. according to the lq method used by the oecd (2005) the lq is defined according to the formula: lq = (eij / ei) / (ekj / es) (1) eij – number of companies or employed in the industry j and the region i; ei – total number of companies or employed of the region i; ekj – total number of companies or employed in the industry of the country; es – total number of companies of employed in the country. as regards cluster formation in the region, according to lq>1.25, but in order to assess whether the business/workforce localization in a given region is indeed a cluster, additional analysis of different indicators, such as growth and wages, etc., should be carried out, which should be proportionally higher in the cluster than in the industry as a whole, as well as analysis of the commitments between cluster participants. nevertheless, the lq method is the most widely used approach for identifying clusters in europe and also in the northern america. according to the mapping done by the european cluster observatory (eco) there were 17 statistical clusters located on the territory of latvia, of which 9 clusters are significant on the european level. however, there are also other sectors in latvia, which has shown cluster development potential and, which have been supported by the european regional development fund (ec, 2016). according to the views of scholars (lindqvist et al, 2003; karlsson, 2008; solvell et al, 2009, cortright, 2006) the basis for national and regional level cluster mapping is statistical significance of clusters evaluated in accordance to labour or companies’ concentration across industries. therefore, the cluster mapping methodology could allow policy makers to define, which industries are particularly important for the successful economic development of state and its regions, as well as use this methodology as a basis for adjusting policy documents related to smes and entrepreneurship support, promotion of investment and innovation, etc. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 84 the wef global competitiveness report applies the empirical indicator state of cluster development – to award regions with cluster development rankings on the scale 1 – 7, i.e. from the stage «no clusters» to «clusters are created in numerous sectors». for evaluation the relation between regional competitiveness and cluster development the authors follow the defined algorithm: 1 it is necessary to define the shape, mathematical direction and strength of the correlation between cluster development and competitiveness of regions’ which are included in the global competitiveness ratings in 2015, 2016 and 2017, by calculating the correlation coefficient between the rankings of the competitiveness index and cluster development status indicators. 2 the correlation force referred to in paragraph 1 must be analysed according to groups of regions located at different stages of competitiveness – the stage of production factors, the stage of efficiency and the innovation stage, with an objective to identify at which stage of competitiveness the relationship is stronger and more significant. the calculation is based on the correlation coefficient of rankings, previously dividing the array of data into three groups corresponding to the regional development stages. 3 the correlation referred to p.1 above must be evaluated according to groups of regions of the european union divided according to their stages of competitiveness, with an objective to understand significance and strengths of the relationship between competitiveness and cluster development. the implementation of the above algorithm allows demonstrating the impact of clusters on regional competitiveness. for this purpose, each region’s rankings by cluster development status indicator and after the competitiveness index, as well as the competitiveness stage and affiliation of each region, were analysed using the spss program. to capture the interaction between the regional competitiveness and cluster development the correlation analysis was performed by using the global competitiveness index rankings of the regions and rankings of the cluster development status of the same regions. the correlation diagram in figure 3 shows the global competitiveness index rankings of the regions on the vertical axis and rankings of the cluster development status on the horizontal axis (figure 3). the g lobal c om petitiveness index of regions source: authors’ design according to the global competitiveness report 2017–2018 (schwab k, 2017). figure 3 example: correlation diagram of rankings, 2017, n=137 85 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 similar correlation analysis was performed for three years (2015, 2016 and 2017), which results revealed similar results. the figure 3 provides an example of the correlation analysis for 2017 showing that regional competitiveness and cluster development were intertwined with linear direct correlation, i.e. clusters were better developed in regions with higher competitiveness, or vice versa, regions with better developed clusters were also more competitive. the linear nature of the relationship means that by increasing competitiveness of the region, the development level of clusters, increased arithmetically proportionally (krastins, 2003). conversely, as a result of the development of regional clusters, their competitiveness increased proportionally. p ercentage assessment (points) source: authors’ calculations using data of the latvian it cluster survey. _ possibilities to attract highly qualified labour force by it cluster’s companies are assessed as average. however, most of cluster’s companies (25%-75%) have employees with the masters’ degree. (arithmetic average = 4.5; median=5; mode=5; standard-deviation=2.53, figure 5) figure 4 assessment of the impact of the it cluster on the economic performance of its member companies, april – june 2016, n = 251 1 assessment scale 1–10, where 1 – not influenced; 10 – influenced by a great extent. the analysis conducted in the previous chapter has shown that cluster is an important factor for regional development and that more advanced regions have better developed clusters. therefore, in this chapter the assessment of the latvian information technology (it) cluster will be provided taking into account that this is the first cluster initiative in latvia, which was identified by the scientific research in 2000 (vanags et al, 2002). the latvian it cluster was started with the support of the latvian information and communication technology association in 2005 with 10 member companies. it had become an officially established entity in 2007 with 19 leading latvian it companies as cluster’s members. in 2016, the latvian it cluster already had more than 30 member companies, as well as academic cooperation partners. this analysis is based on the survey of the it cluster companies with a purpose to identify main benefits and shortages of companies participating in the cluster organization, as well as investigate the impact of cluster on the regional competitiveness. the results of the survey are the following: _ more than half of respondents consider that the impact of belonging to the it cluster on their economic performance is weak. only 10% consider that the impact is great. on the other hand, all companies acknowledge their membership in the cluster and its benefits. (arithmetic average = 4.3; median=4; mode=4; standard-deviation=2.47, figure 4). case of the latvian information technology cluster e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 86 _ only 10% of members think that competition in the it cluster is severe (10 points). despite competitiveness among the it cluster’s companies around 10% of respondents have indicated that during 2008-2016 their company greatly cooperated with other it cluster companies on r&d and innovation (figure 6). p ercentage assessment (points) source: authors’ calculations using data of the latvian it cluster survey figure 5 assessment of the possibilities to attract highly qualified labour force, april – june 2016, n = 252 p ercentage assessment (points) source: authors’ calculations using data of the latvian it cluster survey. figure 6 assessment of the possibilities to attract highly qualified labour force, april – june 2016, n = 253 2 assessment scale 1–10, where 1 – not influenced; 10 – influenced by a great extent. 3 assessment scale 1–10, where 1 – not influenced; 10 – influenced by a great extent. _ statistical indicators on competition of it cluster’s members with other it companies in the baltic sea region indicate that the neighbouring countries – estonia and lithuania are perceived as the greatest competitors. however, the competition is not perceived as strong (table 1). _ while 45% of respondents assess their innovation success as good or very good, 55% of cluster members think that this is weak. however, all respondents answered that their companies are innovative and indicated that they had performed innovation related activities during the last two years. (arithmetic average = 6.1; median=6; mode=6; standard-deviation=2.06, figure 7). _ assessment of it cluster members’ activities related to implementing organizational innovation, process innovation, product innovation and social innovation have statistically significant difference which is demonstrated by the kruskal wallis test (χ2= 8,760, p = 0,033) results (table 2). the results show that it cluster companies are more active in process innovation and product innovation. 87 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 countries arithmetic average median mode standard deviation the lowest assessment the highest assessment denmark 2.9 1 1 2.996 1 10 estonia 4.3 4 1 3.124 1 10 russia 3.3 1 1 3.074 1 10 lithuania 4.0 3 1 3.180 1 10 poland 2.9 1 1 2.826 1 10 finland 3.8 2 1 3.242 1 10 germany 3.1 2 1 2.885 1 10 sweden 3.7 2 1 3.142 1 10 source: authors’ calculations using data of the latvian it cluster survey. table 1 assessment of latvian it cluster’s companies competition with other it companies in the baltic sea region, april – june 2016, n = 254 p ercentage assessment (points) source: authors’ calculations using data of the latvian it cluster survey. innovation arithmetic average median mode standard deviation the lowest assessment the highest assessment organizational innovation 5.5 5 3;5;8 2.735 1 10 process innovation 6.9 7 7;10 2.626 1 10 product innovation 7.5 8 10 2.303 3 10 social innovation 5.5 5.5 9 3.050 1 10 source: : authors’ calculations using data of the latvian it cluster survey. figure 7 assessment of the own innovation success by the it cluster’s member companies, april – june 2016, n = 255 table 2 assessment of the innovation level of it cluster’s member companies, april – june 2016, n = 256 4 assessment scale 1–10, where 1 – not influenced; 10 – influenced by a great extent 5 assessment scale 1–10, where 1 – not influenced; 10 – influenced by a great extent. 6 assessment scale 1–10, where 1 – not influenced; 10 – influenced by a great extent e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 88 p ercentage assessment (points) source: : authors’ calculations using data of the latvian it cluster survey. p ercentage assessment (points) source: authors’ calculations using data of the latvian it cluster survey. figure 7 assessment of the own annual r&d investment, april – june 2016, n = 257 figure 8 assessment of the cooperation with the r&d institutions, april – june 2016, n = 258 _ the assessment of it cluster companies’ investment in r&d reveals that more than half of companies (55%) invest around 10% of their annual turnover in r&d, one fourth of companies (25%) invest in r&d from 10% to 20% of their annual turnover and 10% of all cluster’s companies invest from invest more than 30% of their annual turnover, which is quite significant (figure 7). 7 assessment scale 1–10, where 1 – not influenced; 10 – influenced by a great extent. 8 assessment scale 1–10, where 1 – not influenced; 10 – influenced by a great extent. _ almost half (39%) of the it cluster companies assess that cooperation with r&d institutions is average, while 11% consider it as insufficient and 6% as weak. this indicates that the innovation level in it companies would be higher if the cooperation with research institutions could be better. (arithmetic average = 5.7; median=5; mode=5; standard-deviation=2.87, figure 8). _ in relation to cooperation on activities related to marketing and branding around 14% of respondents indicated that they very actively cooperate and around 28% indicated that they actively cooperate (figure 9). 89 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 source: authors’ calculations using data of the latvian it cluster survey. conclusions _ the research results reveal that the most active cooperation taking place in the framework of the it cluster is in the following areas: creation of favourable business environment, business development, marketing and branding, etc. another important cooperation area is development cooperation, i.e. subcontracting, creation of new possibilities for business logistics, etc., where around 24% of it cluster companies have indicated that they very actively participate with other it cluster companies and another 24% answered that they active cooperate (figure 9). therefore, the experience of it cluster shows that it is an important regional player and companies working in the cluster can achieve more than if acting alone. the development of the cluster is making an impact on the development and competiveness of the whole country (region). figure 9 assessment of the collaboration activities between the it cluster members, april – june 2016, n = 259 _ the genesis of regional competitiveness concept was in the focus of attention of many scholars since late 1980ies and determines the importance of competitiveness and competitive advantages are important concepts for the regional economic advance and growth through strategic regional cluster development. _ the authors assessing factors influencing regional competitiveness conclude that the main determinants serving as a basis of regional competitive advantages or business environment include the related and supporting industries in the region, which relates to the presence of business clusters. this indicates that cluster is one of determinants influencing regional competitiveness. _ based on the authors’ research synthesis for promoting regional competitiveness, the mandatory and desirable features of clusters were identified, which are the following: 1. mandatory features: legal independence of participants; economic interconnectedness; diversity of activity types and diversity of status; geographical concentration within the region; 2. desirable features: competition and cooperation, specialization; longevity; innovation. _ as a result of authors’ research on relationship between the regional competitiveness and cluster development, it has been empirically approved by applying the correlation analysis with more than 100 regions included in the world economic forum that more competitive regions have more developed clusters and regions with more developed clusters are more competitive. 9 assessment scale 1–10, where 1 – not influenced; 10 – influenced by a great extent. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 90 anderson, r. (1999). attractive cities: an economic analysis. stockholm: the swedish council for building research, p.13. andersson t., schwaag-serger s., sorvik j., hansson e. (2004). the cluster policies whitebook. sweden: iked, p. 13. brenner t. (2008). cluster dynamics and policy implications. zeitschrift fur wirtshaftsgeographie vol. 53, no. 2-3. pp. 146-162 https://doi.org/10.1515/ zfw.2008.0012 cortright j. (2006) marking sense of clusters: regional competitiveness and economic development. a discussion paper prepared for the metropolitan policy program. retrieved from: http://www.brookings.edu/metro/pubs/20060313_clusters.pdf. dunning j. (1993). internationalizing porter’s diamond. management international review: special issue, vol. 33, no. 2, pp. 47-62. european commission. (2017). the eu regional competitiveness index 2016. working papers, eds.: paola annoni, lewis dijkstra, nadia gargano, 02/2017, brussels. garelli s. (1999) competitiveness of nations: the fundamentals. retrieved from:http://members. shaw.ca/compilerpress1/anno%20garelli%20 cn%20fundamentals.htm hernesniemi h., lammi m., yla-anttila p. (1996). advantage finland – the future of finnish industries: etla [the research institute of the finnish economy] report of the finnish clusters’ study. helsinki: taloustieto oy. indiana’s workforce and economy. (2006). location quotients: a tool for comparing regional industry compositions. retrieved from: http://www.incontext.indiana.edu/2006/march/1.asp. jacobs d., de man a.p. (1996). clusters, industrial policy and firm strategy: a menu approach. technology analysis and strategic management, vol. 8, no. 4, pp. 425-437. https://doi. org/10.1080/09537329608522461 karlsson c. (ed.). (2008). handbook of research on innovation and clusters: cases and policies. retrieved from: http://www.amazon.com/handb o o k r e s e a rc h i n n ov a t i o n c l u s t e r p o l i c i e s / dp/1847208428#reader_1847208428 krastins o. (2003). ekonometrija. rīga: latvijas republikas centrālā statistikas pārvalde, pp. 218-225. lindqvist g., malmberg a., sölvell o. (2003). svenska klusterkartor. uppsala: nutek. retrieved from: http://www.ivorytower.se/documents/svenska_ kluster kartor.pdf; markusen j. (2002). productivity, competitiveness, trade performance and real incomes: the nexus among four concepts. ottawa: supply and services canada, p. 7. marshall a. (1890). principles of economics: an introductory volume. in: general books, chapter 10 “concentration of industries in particular localities”. london: macmilan. menzel m., fornahl d. (2007). cluster life cycles – dimensions and rationales of cluster development. jena economic research papers number 2007-076, friedrich-schiller-university and max planck institute of economics, jena. https://doi. org/10.2139/ssrn.1025970 national competitiveness council. (2005). the competitiveness challenge 2005. dublin: wilton park house, p. 5. oecd. (2005). business clusters. promoting company in central and eastern europe. paris: oecd. https://doi.org/10.1787/9789264007116-en pellegrini, g. (2006). measures of competitiveness and attractiveness: a critical appraisal focused on italy, proceedings of the scientific meeting of the italian statistical society, vol. 1, pp. 355-364. retrieved references _ the latvian it cluster research reveals that its members attribute the most of importance to product innovation (29%) and also process innovation (25%), which is also important for the regional competitiveness. moreover, the latvian it cluster companies are investing in r&d (45%) more than the whole it sector of latvia, which is especially important for the regional economic development; _ the research reveals that the latvian it cluster is an important regional player and companies working in the cluster can achieve more than if acting alone. the efficiency of the cluster is making a positive impact of the development and competiveness of the regional development and competitiveness of the country region. 91 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 about the authors zeibote zane scientific degree: m.a. university of latvia fields of research interests regional policy, clusters, competitiveness address bergenes street 11, riga, latvia phone: +371 29417214 e-mail: zane.zeibote@lu.lv muravska tatjana scientific degree: dr. oec. university of latvia fields of research interests regional and cohesion policies, productivity, competitiveness address kalpaka boulevard 4, riga, latvia e-mail: tatjana.muravska@lu.lv from: http://www.sis-statistica.it/files/pdf/atti/sessione%20plenarie%202006_355-364.pdf porter m. (1998a). on competition. usa: boston. pp. 171, 220. porter, m.e. (1990). the competitive advantage of nations. new york: the free press, p.8. https://doi. org/10.1007/978-1-349-11336-1 rosenfeld s.a. (1997). bringing business clusters into the mainstream of economic development. european planning studies, vol. 5, no. 1, pp. 3-23. https://doi.org/10.1080/09654319708720381 schwab k. (ed.) (2017). the global competitiveness report 2017–2018. geneva: world economic forum, pp. 42-315. serrano, a. (2003). city competitiveness and attractiveness: a new approach to evaluate economic development in mexican cities. phd thesis, department of urban studies, university of glasgow. solvell o., lindqvist g., ketels c. (2009). the european cluster observatory: eu cluster mapping and strengthening clusters in europe. luxembourg, lu: publications office of the european union; vanags, a., basarova, j., titova, n. (2002) industrian and intellectual capital clusters in the baltic states. in: european regional science association ersa conference papers, no ersa02, 62 p., vienna, austria world competitiveness center – imd. (2005) world competitiveness yearbook 2005.lausanne: wcc, p.34. world economic forum. (2006). the global competitiveness report 2005-2006. geneva: wef, p.36. world economic forum. (2006). the global copetiiveness report 2005-2006. geneva: wef, p.36. internet access: european commission. (2016) european cluster observatory. retrieved march 15, 2018, from http:// ec.europa.eu/growth/smes/cluster/observatory/ cluster-mapping-services/mapping-tool_lv vanags, a., basarova, j., titova, n. (2002) industrian and intellectual capital clusters in the baltic states. in: european regional science association ersa conference papers, no ersa02, 62 p., vienna, austria, accessible: http://www-sre.wu-wien.ac.at/ ersa/ersaconfs/ersa 02/cd-rom/papers/248.pdf e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 20 alternative military keynesianism as a tool of civil-military cooperation in the framework of the eu defence policy http://dx.doi.org/10.5755/j01.eis.0.9.12793 alekss tiltiņš latvian national armed forces joint headquarters, krustabaznicas 9, lv-1006, riga, latvia university of latvia, aspazijas bulv. 5, lv-1050, riga, latvia baiba šavriņa professor at university of latvia, aspazijas bulv. 5, lv-1050, riga, latvia submitted 04/2015 accepted for publication 07/2015 alternative military keynesianism as a tool of civil-military cooperation in the framework of the eu defence policy eis 9/2015 european integration studies no. 9 / 2015 pp. 20-33 doi 10.5755/j01.eis.0.9.12793 © kaunas university of technology abstract during the last year the security threats to the european union have increased dramatically under the influence of military crisis in eastern ukraine and islamic terrorist activities in europe. consequently the demand for defence in the member states of the european union has become greater than in previous years. this situation leads to the dilemma when the high level of defence expenditure can hamper the financial support of other sectors of national economy. therefore it is necessary to increase the efficiency of available financial resources that have been allocated for the defence without a significant increase in defence expenditure. in order to achieve this efficiency the concept of closer cooperation between military and civil sector can be the base for complex defence support measures that use the potential of national economy. having regard to the above mentioned, the purpose of this study is to introduce the concept of civil-military cooperation that utilizes the main task of military keynesianism (to stimulate industrial development and economic growth) and functions within the framework of common security and defence policy of the european union. in order to analyse the concept the following tasks were set: 1) to modify the standard concept of military keynesianism by the analysis of different theoretical sources; 2) to identify the main advantages and deficiencies of the civil-military cooperation concept by the use of expert interview; 3) to set out the main conditions for the functioning of the civil-military cooperation concept by the use of cost-benefit analysis. the following primary qualitative and quantitative methods have been used in this research: 1) literature analysis that incorporates the study of theoretical works, research articles, as well as policy and legal documents; 2) expert interview that has been conducted after the presentation of civil-military cooperation concept to the experts from the ministry of defence of the republic of latvia and latvian national armed forces joint headquarters. 3) cost-benefit analysis of hypothetical implementation of the civil-military cooperation concept for ammunition manufacturing in the territory of the european union. the research shows that the negative impact of the identified deficiencies of the civil-military cooperation concept can be significantly reduced by the use of effective legal framework and simple proce21 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 dures of implementation. also the main conclusion of the research is that under the pressure of the high demand for defence the member states of the european union, which defence industrial base is small or non-existent (poland, baltic states et al.), can use the civil-military cooperation concept in order to attract the foreign manufacturers of military or dual-use goods by implementation of tax relief, as well as use of state infrastructure objects at a reduced price. keywords: national economy, public-private partnership, defence industry, common security and defence policy of the european union, industrial clusters, military keynesianism, military goods, tax relief. introduction the modern defence policy of the european union can be described as budget gradual cuts, which applies to the defence budgets of the member states. according to the european defence agency’s (eda) data the total defence expenditure of the eu member states decreased. by the influence of the global financial crisis and reduction of military personnel during the period from 2006 to 2011, it dropped by 21 billion euros or almost 10% and between 2011 and 2012 it reduced further by almost 3% (“european defence agency”, 2013). while stockholm international peace research institute’s (sipri) database shows the continuance of decrease of eu defence expenditure from 2012 to 2013 by 3,1% (“sipri military expenditure”, 2014). simultaneously military tasks continue to become more complicated due to the necessity of rapid reaction under the influence of modern operational environment (non-linear battlefield and hybrid warfare). therefore the demand for the expensive high-tech military equipment has increased. the existing economic situation can be described as high demand for defence in eu member states, which is determined by the threat of rather new forms of warfare and at the same time is limited by the lack of financial resources. from 2006 to 2012 operational and maintenance costs of the military equipment, as well as equipment procurement together with research and development (r&d) costs had the average share of 43% in eu defence expenditures (“european defence agency”, 2013). that means that the same 43% of eu defence expenditure are under the influence of civil1 sector that combines the majority of military and dual-use good suppliers, as well as service providers. therefore the interdependence between defence and civil sector becomes more obvious. the above mentioned trend was confirmed by the study “the development of a european defence technological and industrial base (edtib)” that was requested by european parliament’s subcommittee on security and defence and was conducted in 2013 (briani, et. al., 2013). the latter as well as earlier studies on the effects of implementation of offsets in a european defence industry (eriksson, et. al., 2007), european defence equipment market (craig, et. al., 2010) and european defence technological and industrial base (bekkers, et. al., 2009) highlights the necessity of closer cooperation between defence and civil sector, but at the same time their conclusions and recommendations are connected mostly with legal and political aspects. none of the studies offers the theoretical or practical concept of cooperation between defence and civil sector of the eu. the novelty of this research is the development of the concept of cooperation between defence and civil sector in theoretical (modification of standard military keynesianism concept) as well as in quantitative dimension (cost-benefit analysis of the hypothetical attraction of foreign manufacturer of military goods in the territory of eu member state without a developed defence industrial base). in order to address the issue that was caused by the growing demand for defence and regular decrease in defence expenditure of the eu member states it is necessary to increase the efficiency of available defence budget without significant increase in defence expenditure by the use of cooperation between defence and civil sector of the eu. therefore, the hypothesis of this study can be formulated as follows: the closer cooperation between defence and civil sector attracts foreign 1 includes private and government non-military entities e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 22 or domestic producers of defence-related goods to allocate their production in defence industrial clusters as well as promotes defence budget economy. taking into consideration the hypothesis mentioned above, authors have formulated the purpose of the study, which is: to introduce the concept of civil-military cooperation that utilizes the main task of military keynesianism (to stimulate industrial development and economic growth) and functions within the framework of common security and defence policy of the eu. in order to analyse the viability of the concept of civil-military cooperation the following tasks were set: 1) to modify the standard concept of military keynesianism by the analysis of different theoretical sources; 2) to identify the main advantages and deficiencies of the civil-military cooperation concept by the use of expert interview; 3) to set out the main conditions for the functioning of the civil-military cooperation concept by the use of cost-benefit analysis. the research methodology is based upon: 1) literature analysis that incorporates the study of theoretical works, research articles, as well as policy and legal documents; 2) expert interview that has been conducted after the presentation of civil-military cooperation concept to the experts from the ministry of defence of the republic of latvia and latvian national armed forces joint headquarters. 3) cost-benefit analysis of hypothetical implementation of the civil-military cooperation concept for ammunition manufacturing in the territory of the european union. the research shows that the negative impact of the identified deficiencies of the civil-military cooperation concept can be significantly reduced by the use of effective legal framework and simple procedures of implementation. also the main conclusion of the research is that under the pressure of the high demand for defence the member states of the european union, which defence industrial base is small or non-existent (poland, baltic states et. al.), can use the civil-military cooperation concept in order to attract the foreign manufacturers of military or dual-use goods by implementation of tax relief, as well as use of state infrastructure objects at a reduced price. also this concept can be used for the creation of the mobilization materiel reserves. theoretical modification of the military keynesianism concept the development of military keynesianism as a concept for official defence policy began in the usa during the cold war. the basis for this policy can be found in the publication of john maynard keynes “the general theory of employment, interest and money”. according to the keynesian theory, the main target of the government in the condition of economic crisis or recession is the stimulation of employment. to achieve this target government should concentrate its economic policy on: 1) stimulation of consumption; 2) increase of government investments; 3) regulation of the rate of interest (keynes, 1936). another economic concept, which has stimulated the evolution of military keynesianism and keynesian theory itself, is the concept of economic (business) cycle. the development of this concept was stimulated by two major world economic depressions in xix and xx century, i.e. the long depression (1873 – 1896) (rosenberg, 1943) and the great depression (1929 – 1939) (bernstein, 1989). by the long-term analysis of world economic data many economists such as kitchin (1923); kondratieff & stolper (1935); keynes (1936) came to the conclusion that world economy’s development fluctuates between periods of relatively rapid economic growth, and periods of relative stagnation or decline. therefore according to the concept the economic depressions are inevitable. in its turn the keynesian theory states that government can mitigate the consequences of economic downturn by involvement into some economic processes. considering the defence sector dependence on public funds, this involvement can be frequently performed in a dimension of state defence activities. the idea of the military keynesianism was formulated by polish economist michal kalecki who has paid attention to the development of business in nazi germany (custers, 2010, p. 80). although the concept itself was formulated by kalecki (1935) before “the general theory of employment, inter23 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 est and money” the main economic principles were introduced by keynes (1936). it is very important to mention that john maynard keynes has never advocated the increase of defence expenditure as the prime source of stimulation of consumption or government investments. because of his moral principles he considered that increase of war expenditures “…has only been allowed to serve the purposes of war and destruction” (keynes, 1933, para. 8). although cases of implementation and effects of military keynesianism are discussed in a broad range of papers some of which will be mentioned below, there is no unified and generally accepted definition of the concept. therefore authors will use the definition of military keynesianism concept given by muthuchidambaram in 1992: “a deliberate public policy applied by a state, through the use of a military budget as a purported tool to counteract cyclical unemployment, to stimulate industries that suffer from the impact of the economic recession and to support r&d and technological innovation and simultaneously to achieve national security” (muthuchidambaram, 1992, p. 2). authors can divide the evolution of military keynesianism into three periods: 1) initial government activities without integration of military keynesianism in government defense policy; 2) the official defense policy during the cold war; 3) the undeclared defense policy of military keynesianism. 1 initial government activities without integration of military keynesianism in govern-ment defense policy. the evolution of military keynesianism concept began in interwar period of the xx century. in the 1930s german government supported enterprises that were involved in production of military material and equipment, using the financial resources of defence budget and work supply bills. central and local government agencies used these bills to pay the firms involved in different public projects. m. kalecki (1935) stated that in this way additional purchasing power was created, effective demand was increased and production rose (kalecki, 1935, p. 199-200). as a result the strong military industrial base was created to support the future warfare. during the same time us producers of military goods didn’t get the notable support directly from government. nevertheless us government maintained the minimum capacity of its defence industry for the future mobilization by such means as: 1) the initial standardization of military equipment and allocation of the production between different contractors; 2) notification of contractors about the planned scale of production for the future mobilization; 3) implementation of simplified contracting procedures during the mobilization process. all these activities have led to the success of mobilization process in the usa during the world war ii (nagle, 1999, p. 379). by 1944 us military expenditure reached almost 40% of gdp and averaged 20% of gdp during the 1940s, which coincided with a massive economic boom (nitzan & bichler, 2006, p. 6). 2 the official defense policy during the cold war. after the world war ii the concept of mil-itary keynesianism has been integrated into the official us defence policy (nsc-68, 1950) to stimulate consumption and increase government investments in order to create additional jobs and reduce the possibility of economic downturn that could be caused by the process of demobilization within which us government terminated $20 billion in military contracts (nagle, 1999, p. 442). us government has realized that significant reduction in defence expenditure may cause unemployment as well as decrease in the scale of production. in their turn these processes may become a cause of a new depression. therefore it has been planned to increase defence expenditure on an annual basis to counter the threats of the cold war and stimulate economic development (“nsc-68”, 1950). the only positive evidence of the implementation of the concept of military keynesianism by us government could be observed during the korean war. as a result of government activities defence expenditure tripled, unemployment decreased and federal budget revenues increased (fusfeld, 1998, p. 507). except the usa other countries of the world never officially used military keynesianism as a part e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 24 of their defence policy. for instance at the end of the cold war (1988-1991) the average defence expenditure of the western european union member states2 was 2,6% of gdp with the tendency of average annual decrease by 1% pp (sipri, 2014). at the same period of time us average defence expenditure was 5,4% of gdp with average annual decrease of 0,3% pp (table 14.5-total government expenditures…, n.d.). in its turn the increase in military expenditure of ussr as well as countries of warsaw pact during the cold war can’t be defined as a policy based on principles of military keynesianism, because the economy behind the iron curtain was strongly centralized. in this case the increase in military expenditure doesn’t need to have any subordinate economic goals. the end of the cold war has stimulated the notable decrease in world defence expenditure (conetta & knight, 1997). for instance, in five years us defence expenditure felt by 9% from 1989 to 1995 (“sipri military expenditure”, 2014). therefore the official us policy based on principles of military keynesianism was discontinued in 1990s. 3 the undeclared defense policy of military keynesianism. after terrorist attacks on sep-tember 11, 2001 the coalition led by the usa declared the war on terror. since year 2001 us government increased the level of defence expenditure on a regular basis till 2012. for instance, the us defence expenditure increased by 18% from 2000 to 2002 (“sipri military expenditure”, 2014). in 2008 the us defence expenditure reached 621 billion dollars, but during and after the global financial crisis the us defence expenditure continued to rise (“sipri military expenditure”, 2014). although the increase of the us defence expenditure hasn’t stimulated rapid economic growth as it was during korean war, nitzan & bichler (2006); custers (2010) have recognized the features of military keynesianism in the modern defence policy of the us government. on the other hand from 2001 to 2006 the average increase of defence expenditure in the 15 “old” member states of the european union was 3% (chao et. al., 2008, p. 7). despite previous increase, under the influence of the global financial crisis from 2008 to 2009 the total defence expenditure of the european union decreased by 3,5% (european defence agency, 2010), marking a downward trend. in a similar way after us government decision on defence budget cuts in fiscal years 2013-2017 (“defence budget priorities”, 2012) defence expenditure decreased by 10% from 2012 to 2014 (“table 14.5-total government”, n.d.). this marks the interruption of implementation of the features of standard military keynesianism concept in the eu and the usa defence policy. in order to identify the effects of military keynesianism concept it is necessary to look at the effects of defence expenditure, which is the main tool of the concept. the effects of defence expenditure may have not only positive, but also negative impact on the economic growth and development. despite many studies of the defence expenditure and the concept of military keynesianism itself during the second half of the 20th century: nincic & cusack (1979); dunne & smith (1990); hooker & knetter (1997) there is no unambiguous proof of positive or negative effects of the implementation of the concept through the increase of military budget available funds. sandler & hartley (1995) analyzed the results of 25 researches that were conducted from 1970 to 1993 and reflected all the possible impacts of defence expenditure, i.e. positive, negative or unclear impact. in general, these researches haven’t confirmed persuasively positive or negative impact of defence expenditure. finally after the analysis of 103 researches dunne & uye (2009) came to the conclusion that most likely serious increase in defence expenditure would have negative or unclear impact on national economy (dunne & uye, 2009, p. 12). in accordance with all mentioned above, authors have concluded that modern researches of defence expenditure effects can’t prove convincingly positive or negative impact on national economy. therefore the integration of standard military keynesianism (based on increase in defence 2 belgium, france, germany, greece, italy, luxembourg, netherlands, portugal, spain and the great britain 25 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 expenditure) in the defence policy of a state is unpredictable. on the other hand there is a possibility to achieve the main target of military keynesianism (to stimulate industrial development and economic growth) without significant increase in defence expenditure. despite the evolution of military keynesianism during world war ii and the cold war when defence policy was based on conventional warfare and increase of defence expenditure, the modern warfare is influenced by permanent military threats (terrorism, asymmetric and hybrid warfare) as well as by serious cuts in defence budgets of the usa and the member states of the eu. therefore it is necessary to increase the efficiency of available defence budget without implementation of standard military keynesianism, i.e. increase in defence expenditure. instead of significant increase of government expenditure authors offer to use the policy of cooperation between military and civil sector which can be the base for alternative military keynesianism. the concept of alternative military keynesianism can be used as a combination of state defence and social policy by utilizing such defence and socio economic goals: 1) to release the military personnel from secondary functions which are not connected with their primary duties (maintenance of infrastructure, catering, field services, etc.); 2) to concentrate the resources of military sector for combat missions by involvement of civil sector into the logistics process during peace time and low intensity conflicts, i.e. peacekeeping; 3) to reduce the costs and increase the quality of functions that were taken by the civil sector, using free competition and economy of scale; 4) to develop the mobilization capacity of the civil sector; 5) to stimulate the regional development; 6) to support of domestic manufacturers of military and dual use goods; 7) to increase employment. in addition the further implementation of this concept will allow governments to utilise not only the financial resources of defence budget, but also another sources of state finances (for instance, government investments into regional development). this will increase the financial capacity of the defence sector without direct involvement of state defence budgetary funds, and also will support the second part of the hypothesis (defence budget economy). the new definition of the alternative military keynesianism could be formulated by exclusion of “military budget” from the definition given by muthuchidambaram (1992) and inclusion of “the closer cooperation between defence and civil sector”, so the new definition could be as follows: “alternative military keynesianism is a deliberate public policy applied by a state, through the use of the closer cooperation between defence and civil sector as a purported tool to counteract cyclical unemployment, to stimulate industries that suffer from the impact of the economic recession and to support r&d and technological innovation and simultaneously figure 1 theoretical modification of military keynesianism (authors’) hand from 2001 to 2006 the average increase of defence expenditure in the 15 “old” member states of the european union was 3% (chao et. al., 2008, p. 7). despite previous increase, under the influence of the global financial crisis from 2008 to 2009 the total defence expenditure of the european union decreased by 3,5% (european defence agency, 2010), marking a downward trend. in a similar way after us government decision on defence budget cuts in fiscal years 2013-2017 (“defence budget priorities”, 2012) defence expenditure decreased by 10% from 2012 to 2014 (“table 14.5-total government”, n.d.). this marks the interruption of implementation of the features of standard military keynesianism concept in the eu and the usa defence policy. in order to identify the effects of military keynesianism concept it is necessary to look at the effects of defence expenditure, which is the main tool of the concept. the effects of defence expenditure may have not only positive, but also negative impact on the economic growth and development. despite many studies of the defence expenditure and the concept of military keynesianism itself during the second half of the 20th century: nincic & cusack (1979); dunne & smith (1990); hooker & knetter (1997) there is no unambiguous proof of positive or negative effects of the implementation of the concept through the increase of military budget available funds. sandler & hartley (1995) analyzed the results of 25 researches that were conducted from 1970 to 1993 and reflected all the possible impacts of defence expenditure, i.e. positive, negative or unclear impact. in general, these researches haven’t confirmed persuasively positive or negative impact of defence expenditure. finally after the analysis of 103 researches dunne & uye (2009) came to the conclusion that most likely serious increase in defence expenditure would have negative or unclear impact on national economy (dunne & uye, 2009, p. 12). in accordance with all mentioned above, authors have concluded that modern researches of defence expenditure effects can’t prove convincingly positive or negative impact on national economy. therefore the integration of standard military keynesianism (based on increase in defence expenditure) in the defence policy of a state is unpredictable. on the other hand there is a possibility to achieve the main target of military keynesianism (to stimulate industrial development and economic growth) without significant increase in defence expenditure. despite the evolution of military keynesianism during world war ii and the cold war when defence policy was based on conventional warfare and increase of defence expenditure, the modern warfare is influenced by permanent military threats (terrorism, asymmetric and hybrid warfare) as well as by serious cuts in defence budgets of the usa and the member states of the eu. therefore it is necessary to increase the efficiency of available defence budget without implementation of standard military keynesianism, i.e. increase in defence expenditure. instead of significant increase of government expenditure authors offer to use the policy of cooperation between military and civil sector which can be the base for alternative military keynesianism. the concept of alternative military keynesianism can be used as a combination of state defence and social policy by utilizing such defence and socio economic goals: 1) to release the military personnel from secondary functions which are not connected with their primary duties (maintenance of infrastructure, catering, field services, etc.); 2) to concentrate the resources of military sector for combat missions by involvement of civil sector into the logistics process during peace time and low intensity conflicts, i.e. peacekeeping; 3) to reduce the costs and increase the quality of functions that were taken by the civil sector, using free competition and economy of scale; 4) to develop the mobilization capacity of the civil sector; 5) to stimulate the regional development; 6) to support of domestic manufacturers of military and dual use goods; 7) to increase employment. in addition the further implementation of this concept will allow governments to utilise not only the financial resources of defence budget, but also another sources of state finances (for instance, government investments into regional development). this will increase the financial capacity of the defence sector without direct involvement of state defence budgetary funds, and also will support the second part of the hypothesis (defence budget economy). the new definition of the alternative military keynesianism could be formulated by exclusion of “military budget” from the definition given by muthuchidambaram (1992) and inclusion of “the closer cooperation between defence and civil sector”, so the new definition could be as follows: “alternative military keynesianism is a deliberate public policy applied by a state, through the use of the closer cooperation between defence and civil sector as a purported tool to counteract cyclical unemployment, to stimulate industries that suffer from the impact of the economic recession and to support r&d and technological innovation and simultaneously to achieve national security”. figure 1. theoretical modification of military keynesianism (authors’) the exclusion of defence expenditure (military budget) from the definition gave more flexibility to the concept. as it is shown in figure 1 the concentration on the socio economic goals broadened this policy from the defence sector to the whole national economy of a state and at the same time shifted the paradigm of the concept from purely keynesian to the neo-liberal economic dimension using entrepreneurship as active element, which, in its turn, supports the first part of neo-liberal economic dimension military keynesianism alternative military keynesianism increase of defence expenditure as a main tool closer cooperation between defence and civil sector as a main tool defence sector as active element (use of government funds) paradigm shift entrepreneurship as active element (combination of government and private funds) keynesian economic dimension to achieve national security”. the exclusion of defence expenditure (military budget) from the definition gave more flexibility to the concept. as it is shown in figure 1 the concentration on the socio economic goals broadened this policy from the defence sector to the whole national economy of a state and at the same time shifted the paradigm of the concept from purely keynesian to the neo-liberal economic dimension using entrepreneurship as active element, which, in its turn, supe u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 26 ports the first part of the hypothesis (attraction of foreign or domestic producers of defence-related goods). finally this concept can be implemented not only by the biggest military spenders such as the usa, but also by smaller states even without properly developed defence industrial base. in order to illustrate the applicability of the alternative military keynesianism further authors will offer the concept of civil-military cooperation. civil-military cooperation concept there is a unique process of the integration of the defense sector in the eu despite the wish of some member states to retain control over national defence industrial base. the need of this integration can be illustrated with simple comparison of military expenditures of us, which is the biggest spender of military expenditure in the world, and the eu. in 2011 the total defence expenditures of us were 503 billion eur, but eu expenditures were 193 billion. in this case us defence expenditure exceeded eu defence expenditure significantly (by 260,6%) (“eu-us defence”, 2013). in this situation, the demand for defense in us is greater than in the european countries. consequently, using the government orders for the military goods and services, us corporations have an opportunity to increase their production and reach the economy of scale faster than european defense firms. that will result in less competitive capacity of european defense industry. to minimize the negative effect of this scenario, european countries should integrate their defense policies. that is why eu has made the significant step towards the creation of the single european defense market by the creation of the european defence agency in 2004 to help eu member states develop their defence capabilities for crisis-management operations under the common security and defence policy of the european union. together with the standard functions of the centralized procurement agency, one of the main functions of the european defence agency is to create a competitive european defence equipment market and strengthening the european defence technological and industrial base (“eda mission”, n.d.). in accordance with european defence equipment market and european defence technological and industrial base development policy the eu can concentrate it defence manufacturing in one or in several member states, using the defence-related industrial clusters as it is shown in figure 2. the basis for this program can be the exception to the treaty on functioning of the european union, which is formulated in section 3 (b) of article 107: “the following may be considered to be compatible with the common market: aid to promote the execution of an important project of common europefigure 2 functional scheme of civil-military cooperation concept (authors’) the hypothesis (attraction of foreign or domestic producers of defence-related goods). finally this concept can be implemented not only by the biggest military spenders such as the usa, but also by smaller states even without properly developed defence industrial base. in order to illustrate the applicability of the alternative military keynesianism further authors will offer the concept of civil-military cooperation. civil-military cooperation concept there is a unique process of the integration of the defense sector in the eu despite the wish of some member states to retain control over national defence industrial base. the need of this integration can be illustrated with simple comparison of military expenditures of us, which is the biggest spender of military expenditure in the world, and the eu. in 2011 the total defence expenditures of us were 503 billion eur, but eu expenditures were 193 billion. in this case us defence expenditure exceeded eu defence expenditure significantly (by 260,6%) (“eu-us defence”, 2013). in this situation, the demand for defense in us is greater than in the european countries. consequently, using the government orders for the military goods and services, us corporations have an opportunity to increase their production and reach the economy of scale faster than european defense firms. that will result in less competitive capacity of european defense industry. to minimize the negative effect of this scenario, european countries should integrate their defense policies. that is why eu has made the significant step towards the creation of the single european defense market by the creation of the european defence agency in 2004 to help eu member states develop their defence capabilities for crisismanagement operations under the common security and defence policy of the european union. together with the standard functions of the centralized procurement agency, one of the main functions of the european defence agency is to create a competitive european defence equipment market and strengthening the european defence technological and industrial base (“eda mission”, n.d.). figure 2. functional scheme of civil-military cooperation concept (authors’) in accordance with european defence equipment market and european defence technological and industrial base development policy the eu can concentrate it defence manufacturing in one or in several member states, using the defence-related industrial clusters as it is shown in figure 2. the basis for this program can be the exception to the treaty on functioning of the european union, which is formulated in section 3 (b) of article 107: “the following may be considered to be compatible with the common market: aid to promote the execution of an important project of common european interest…” (“consolidated versions of the treaty”, 2010). in this case the possibility of creation of defence industrial clusters and implementation of state guaranteed benefits for producers of military or dual use goods (further – defence-related goods) should be negotiated with the european commission and european defence agency, considering the existing military threats. taking into consideration the hypothesis of the study the aim of the civil-military cooperation concept is to attract foreign or domestic producers of defence-related goods to locate their production in certain defence-related industrial clusters, which are located in the territory of the eu member states, in order to stimulate the development and competitiveness of the european defence technological and industrial base as well as to support the regional development. this aim can be achieved by the concentration of production of defence-related goods, economy of scale and the reduction of transaction costs. the cooperation between civil and military or defence sector within defence-related industrial clusters will be determined by the principles of public-private partnership. therefore the responsibility of the project (including funding) will be possibly divided between defence and civil sector. also within the concept there is a possibility to combine the development of the defence sector with the regional development (use more than one ministry budget). there are three phases of the concept implementation: 1. attraction. using the system of guaranteed benefits, government attracts foreign or domestic producers of defence-related goods to locate their production in existing or newly established defence-related industrial clusters. in this case government can offer such benefits to the producers: a) direct or/and indirect tax relief; b) use of existing public owned infrastructure free of charge. 2. location. in order to utilize state guaranteed benefits, foreign or domestic producers of defence-related goods locate their production in certain defence-related industrial cluster. in this case government can impose such conditions on producers of defence-related goods: a) use the certain percent of the local labour force; b) inclusion of domestic enterprises in the supply chain; c) creation of the mobilization materiel reserves. 3. participation. domestic suppliers and service providers can act as subcontractors for the producers of defence-related goods. in this case subcontractors will take part in the supply chain of the defence-related industrial cluster. it means that the influence of the cluster will spread to other sectors of the national economy. in order to identify the main advantages and deficiencies of the civil-military cooperation concept, the expert interview was conducted in the republic of latvia in the summer of 2012. in total 9 experts of the ministry of defence (mod) new or existing defence-related industrial cluster foreign or domestic producers of defence-related goods 1. 2. location of production attraction by state guaranteed benefits participation in supply chain 3. domestic subcontractors an interest…” (“consolidated versions of the treaty”, 2010). in this case the possibility of creation of defence industrial clusters and implementation of state guaranteed benefits for producers of military or dual use goods (further – defence-related goods) should be negotiated with the european commission and european defence agency, considering the existing military threats. taking into consideration the hypothesis of the study the aim of the civil-military cooperation concept is to attract foreign or domestic producers of defence-related goods to locate their production in certain defence-re27 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 lated industrial clusters, which are located in the territory of the eu member states, in order to stimulate the development and competitiveness of the european defence technological and industrial base as well as to support the regional development. this aim can be achieved by the concentration of production of defence-related goods, economy of scale and the reduction of transaction costs. the cooperation between civil and military or defence sector within defence-related industrial clusters will be determined by the principles of public-private partnership. therefore the responsibility of the project (including funding) will be possibly divided between defence and civil sector. also within the concept there is a possibility to combine the development of the defence sector with the regional development (use more than one ministry budget). there are three phases of the concept implementation: 1 attraction. using the system of guaranteed benefits, government attracts foreign or domestic producers of defence-related goods to locate their production in existing or newly established defence-related industrial clusters. in this case government can offer such benefits to the producers: a) direct or/and indirect tax relief; b) use of existing public owned infrastructure free of charge. 2 location. in order to utilize state guaranteed benefits, foreign or domestic producers of defence-related goods locate their production in certain defence-related industrial cluster. in this case government can impose such conditions on producers of defence-related goods: a) use the certain percent of the local labour force; b) inclusion of domestic enterprises in the supply chain; c) creation of the mobilization materiel reserves. 3 participation. domestic suppliers and service providers can act as subcontractors for the producers of defence-related goods. in this case subcontractors will take part in the supply chain of the defence-related industrial cluster. it means that the influence of the cluster will spread to other sectors of the national economy. in order to identify the main advantages and deficiencies of the civil-military cooperation concept, the expert interview was conducted in the republic of latvia in the summer of 2012. in total 9 experts of the ministry of defence (mod) and national armed forces joint headquarters (jhq) were interviewed. the main criterion of the expert selection was the experience in coordination of the cooperation between defence and civil sector. therefore the expert representation included: _ two high level officials from the mod department of logistics policy, whose main functions are: a) coordination and management of the defence procurement policy; b) cooperation with the private sector enterprises; _ three high level officials from the mod crises response department, whose main function is interagency cooperation in the field of mobilization and host nation support; _ four medium level financial planning experts from jhq, who directly participate in the defence budgeting process and coordinate the cooperation with civil sector in the field of finance. the choice of the institutions has been influenced by the specifics of the concept implementation. the creation of defence-related industrial clusters in the territory of the republic of latvia will be coordinated by the mod in cooperation with experts of national armed forces and other public authorities. the leadership of the mod is authorized by the defence logistics policy-setting and mobilization management tasks that are included in the regulations of the cabinet of ministers (“aizsardzības ministrijas”, 2003). before completing the interview form respondents have been given 10 minute presentation about the civil-military cooperation concept. then respondents have been asked to complete the table consisting of two columns “advantages” and “deficiencies” using separate words or simple sentences in e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 28 order to get objective results. the results of the expert interview are summarized in table 1. during the analysis of the interview results authors have noticed that in the column “deficiencies” the answers could be interpreted as the obstacles for the implementation of the civil-military table 1 the results of the expert interview advantages number of repetitions deficiencies/ obstacles number of repetitions mitigation of the effect of deficiencies/ obstacles mod jhq mod jhq promotion of latvian economic competitiveness 4 2 unclear implementation of tax relief policy 2 2 _ development of the policy of tax relief (mod in cooperation with economic and financial ministries) _ changes in legal documents and determination the amount of tax and customs fees relief. stimulation of the regional development 4 2 the lack of qualified employees 2 2 _ improvement of qualification courses for unemployed in accordance with the requirements of producers of defence-related goods. _ training of local employees in cooperation with national educational institutions. possible increase in employment 3 1 political obstacles (support measures for military industrial complex in other country) 3 0 closer cooperation with eu and nato in order to develop common policy for the implementation of the civil-military cooperation concept. attraction of investments 3 1 the threat of corruption 0 2 creation of the administration board of the defence-related industrial cluster which consists of all stakeholders’ representatives and provides mutual control. export promotion 2 1 development of the new technologies 2 0 education and training of the employees 2 0 cooperation concept. the main criterion of data analysis was the number of repetitions of the similar answers. considering the number of repetition of the respondent answers, the main advantages of the civil-military cooperation concept are “promotion of latvian economic competitiveness” and “stimulation of the regional development” that are similar to the aim of the concept. contrary the main deficiencies/obstacles of the civil-military cooperation concept are “unclear implementation of tax relief policy” and “the lack of qualified employees”. in addition, one respondent has mentioned “unclear mechanism of subcontractor involvement” as a deficiency/obstacle of the concept. this deficiency/obstacle can be mitigated by the establishment of clear legal relationships between the producers of defence-related goods and subcontractors supported by development of contracts or mutual agreements. the measures for the mitigation of each deficiency/obstacle mentioned by experts are included in table 1. the majority of the deficiencies/obstacles can be overcome by the implementation of effective legal framework as well as initiation of political consultation with eu and nato for the source: authors’. 29 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 concept initiation. in order to prove the viability of the concept, authors will conduct cost-benefit analysis of hypothetical implementation of the civil-military cooperation concept for ammunition manufacturing in the territory of the republic of latvia. for the cost-benefit analysis authors have selected the hypothetical pattern of the civil-military cooperation concept implementation in the territory of the republic of latvia for attraction of the manufacturer of ammunition. considering the results of the analysis of purchase orders awarded by nato support agency (nspa) with a value of eur 76 800 and above (“nspa contract awards”, n.d.), which are depicted in table 2, authors have concluded that the biggest share of nspa procurements is formed by “equipment supply (including spare parts and ammo)”. therefore the foreign producer of cartridges for the small arms (further – the producer) has been selected. the following conditions and limitations have been used in calculations for the cost-benefit analysis: cost-benefit analysis of the hypothetical implementation of the civilmilitary cooperation concept table 2 purchase orders awarded by nspa with a value of 76,800 eur and above (2011-2013) purpose of the purchase order % of total 2011 2012 2013 equipment supply (including spare parts and ammo) 72 60 57 maintenance 6 13 25 it services and communication 10 11 6 other services (catering, transportation, brokerage) 8 12 8 construction and infrastructure 4 4 4 total: 100 100 100 source: authors’ calculations based on nspa contract awards. 1 the producer establishes new production line; 2 the producer has all necessary docu-mentation (licenses and authorizations) for production of cartridges for the small arms in the territory of the republic of latvia; 3 the producer opens subsidiary, which is taxpayer (the majority of employees are non-residents); 4 customs fees and costs of equipment transportation won’t be taken into account during the calculations, because the demand for ammunition in other countries is unknown. 5 the producer produces only 9x19mm nato standard ammunition for pistols. suppose that number of professional military personnel in the national armed forces of the republic of latvia is 6000 and the number of the national guard personnel is 8000. the hypothetical individual ammunition daily consumption rate is 8 pistol cartridges per person3 considering the standard capacity of pistol magazine. it means that annual hypothetical consumption rate is 40,88 million cartridges. furthermore, hypothetical mobilization reserve is a half of the annual consumption which is 20,44 million cartridges. in addition, mobilization reserve should be renewed once in five years. in order to attract the producer to locate his production in the defence-related industrial cluster in the territory of the republic of latvia, government has guaranteed such benefits during the first 2 years of business activity: _ 100% enterprise income tax and immovable property tax relief; _ 50% value added tax relief; _ use of existing public owned infrastructure free of charge.3 3 the information on real consumption rate is for official use only; therefore authors have used the hypothetical consumption rate. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 30 the producer has such characteristics (offer of entire production line): _ the ammunition production line is managed by 150 employees (including support staff); _ the capacity of ammunition production line is 30 000 pistol cartridges per hour. the government has imposed such condition on the producer: _ use of local labour force (not less than 20% of employees); _ creation and storage of the mobilization reserves for the next five years (50% of the market price is financed by the government, value added tax not applicable); considering above mentioned information, it is possible to summarize all costs and benefits of the concept in table 3. the costs of the producer consist of: table 3 total costs and benefits of the concept the producer benefits (eur) costs (eur) 3 787 132,00 3 186 560,00 benefits of the producer that are connected with business activity in the territory of latvia (eur): 600 572,00 state budget (taxes) benefits (eur) costs (eur) 467 589,79 300 468,00 subtotal state budget benefits from the labour force taxes (eur): 167 121,79 state defence budget (economy of scale) benefits (eur) costs (eur) saved 50% of ammunition mobilisation reserves’ price eur) 1 022 000,00 0 saved 30% of ammunition procurement price (eur) 1 226 400,00 0 subtotal – state defence budget economy (eur): 2 248 400,00 total state budget benefits (eur): 2 415 521,79 source: authors’. 1 the establishing of the new production line – eur 2,9 million including the raw materials for the production (“offer of entire production”, n.d.); 2 the total labour cost of 30 local employ-ees (in accordance with the imposed conditions) eur 286 560 per year (“eurostat labour costs”, n.d.), including taxes –167 121,79 per year (“nodokļu un nodevu”, 2010) hence, the total costs for the producer are eur 3 186 560. the production line is capable to produce 63,36 million cartridges per year, which exceeds the demand of national armed forces and national guard (including the creation of the mobilization reserve) by 2,04 million cartridges. the tax relief allows the producer to sell ammunition with the profit rate 10% from each pistol cartridge to the latvian government by 30% cheaper than the market price. it means that the producer is capable to reach economy of scale and sell his production at a price eur 0,07 when the average market price is usd 0,13 or eur 0,10 (“munitions acquisition cost”, n.d.). in its turn, in order to fulfil government’s requirement, the mobilization reserve of 20,44 millions cartridges will be created for five years with the price eur 0,05 per cartridge (50% of the market price). considering above mentioned information, there are such benefits for the producer: _ income from the fulfilment of national armed forces and national guard orders (40,88 millions cartridges with the price eur 0,07 per cartridge) – eur 2 861 600, subtracting the value added tax (21%) with 50% relief the net income is eur 2 561 132; _ income from creation of mobilization reserve – eur 1 022 000; _ export sales of 2,04 cartridges with the price eur 0,10 per cartridge – eur 204 000. 31 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 hence the total benefit of the producer is eur 3 186 560. the benefits of the government and the defence sector consist of defence budget savings from the economy of scale and labour tax payments from the producer. the total benefit for the state budget is eur 2 415 521. the above mentioned concept shows that the cooperation between civil and military sector is beneficial for the both parties involved and results in benefits of the entrepreneur as well as budget economy. this confirms the hypothesis of the study. although the calculations are based upon the hypothetical assumptions, they mark the trend for future development of civil-military cooperation within the defence policy of the eu and allow member states to minimise the expenditure of their defence budgets. conclusions in accordance with the authors’ research it is possible to draw the following conclusions: _ considering the trend of the eu defence expenditure decrease, it is necessary to increase the efficiency of available defence budget without significant increase in defence expenditure. _ beginning from the interwar period of the twentieth century the new defence threats were addressed mainly by the increase of defence expenditure that marked the trend of implementation of the concept of military keynesianism. _ modern researches of defence expenditure and military keynesianism effects can’t prove convincingly positive or negative impact on national economy, therefore the integration of standard military keynesianism (based on increase in defence expenditure) in the defence policy of a state is unpredictable. _ instead of significant increase of government expenditure authors offer to use the policy of cooperation between military and civil sector which can be the base for alternative military keynesianism. _ the concentration on the socio economic goals broadened alternative military keynesianism from the defence sector to the whole national economy of a state and at the same time shifted the paradigm of the concept from purely keynesian to the neo-liberal economic dimension using entrepreneurship as active element, which, in its turn, supports the first part of the hypothesis (attraction of foreign or domestic producers of defence-related goods). _ the implementation of alternative military keynesianism will allow governments to utilise not only the financial resources of defence budget, but also another sources of state finances (for instance, government investments into regional development). this will increase the financial capacity of the defence sector without direct involvement of state defence budgetary funds and also will support the second part of the hypothesis (defence budget economy). _ in accordance with european defence equipment market and european defence technological and industrial base development policy the eu can concentrate it defence manufacturing in one or in several member states, using the defence-related industrial clusters. _ the aim of the civil-military cooperation concept is to attract foreign or domestic producers of defence-related goods to locate their production in certain defence-related industrial clusters, which are located in the territory of the eu member states, in order to stimulate the development and competitiveness of the european defence technological and industrial base as well as to support the regional development. _ as a result of expert interview the main advantages of the civil-military cooperation concept are “promotion of latvian economic competitiveness” and “stimulation of the regional development”, which confirm the aim of the concept formulated in accordance with the hypothesis of the study. contrary the main deficiencies/obstacles e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 32 of the civil-military cooperation concept are “unclear implementation of tax relief policy” and “the lack of qualified employees”. _ the majority of the civil-military cooperation concept deficiencies/obstacles can be overcome by the implementation of effective legal framework as well as initiation of political consultation with eu and nato for the concept initiation. _ the cost-benefit analysis of 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(2010). ministry of finance of the republic of latvia. retrieved march 10, 2015, from http://tap.mk.gov.lv/file/files/valsts_kanceleja/ ntsp/20100603_ntsp_fm2.pdf alekss tiltiņš phd student university of latvia faculty of economy and management address aspazijas bulv. 5, lv-1050, riga, latvia e-mail: alekss_tiltins@yahoo.co baiba šavriņa professor university of latvia address aspazijas bulv. 5, lv-1050, riga, latvia e-mail: baiba.savrina@lu.lv about the authors 19 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 european integration studies no. 12 / 2018 pp. 19-31 doi 10.5755/j01.eis.0.12.20869 sub-state mobilization in ‘high politics’: the role of regional and local governance in the implementation of the european neighbourhood policy http://dx.doi.org/10.5755/j01.eis.0.12.20869 giorgio oikonomou adjunct lecturer, aristotle university of thessaloniki faculty of economic and political sciences; school of political sciences submitted 04/2018 accepted for publication 09/2018 sub-state mobilization in ‘high politics’: the role of regional and local governance in the implementation of the european neighbourhood policy eis 12/2018 abstract subnational mobilization literature has flourished since the mid. 1990s. regional and local authorities have tried, not always successfully, to utilize alternative channels of representation in the european union (eu) in different policy areas and with different scope and depth. the policy areas and the degree of subnational mobilization is greatly varied contingent on exogenous -at the eu leveland endogenous -within local and regional organisational capacityfactors. most commonly, subnational authorities (snas) find themselves involved in cohesion policy issues, environmental affairs, and social policy measures, mostly involved in the implementation phase. however, as the eu continuously emphasizes the importance of regional and local authorities in facilitating the european integration process, it has fuelled snas’ institutional ambitions and expanded their aspirations for participation in new policy areas, even in fields traditionally considered to be exercised –and monopolized–by national authorities, such as foreign policy issues. this article focuses on the role of subnational institutions in the european neighbourhood policy (enp), a relatively new policy area compared to other established eu policies. in short, the enp was introduced in 2004 and revised in 2011 and 2015. its rationale is to bring closer eu countries and their neighbours, so as to work together on issues regarding prosperity, stability and security for all. the enp constitutes a policy field for subnational authorities that aim to mobilize in the supranational arena. the european neighbourhood instrument (eni – former european neighbourhood policy instrument/enpi) is the enp financial tool which provides opportunities for “financial mobilization” to institutional actors by granting funds for implementing programmes. in addition, the european committee of the regions (cor), the official assembly of representatives of local and regional authorities in the eu, stands for another channel for subnational mobilization. through specific policy initiatives that have been established and promoted by the cor, namely the conference of regional and local authorities for the eastern partnership (corleap) and the assembly of local and regional elected e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 20 representatives from the eu and its mediterranean partners (arlem), local and regional institutions have the opportunity to actively participate in the enp. moreover, the european grouping of territorial cooperation (egtc) serves as a distinct policy tool for enhancing territorial development and cooperation, allowing for the engagement of subnational actors from different eu countries –and third countries as well. drawing on the literature of multi-level governance, it is argued that sub-state entities have managed to expand their institutional role in new policy areas that have been traditionally monopolized by central state authorities. certain types of subnational mobilization originally found on initiatives proposed and developed by the cor, the financial instrument of the enp (eni) as well as the egtc are taken into consideration and examined from a comparative perspective. keywords: arlem; corleap; egtc; european neighbourhood policy; regional and local authorities. introduction the european neighbourhood policy (enp) was initially launched in 2003 (commission of the european communities, 2003) and developed further in the following year (commission of the european communities, 2004). the primer aim of the enp was to bring closer the european union (eu) countries and their neighbours, so as to work together on issues regarding the promotion of prosperity, stability and security for all. based on principles and values such as liberty, democracy, rule of law, universality of and respect for human rights, and good governance, the enp’s scope has broaden after its revisions (2011, 2015) taking into account dimensions such as economic development that fosters stabilisation, as well as security and migration issues. in its core, the policy approach is based on norms/values (democracy; human rights; rule of law) and objectives (stability; security; sustainable development). the enp is supported by the european neighbourhood instrument (eni) which serves as the financial instrument of the policy1. according to its legal framework that applies for the implementation period 2014-20202 the enp targets particularly in promoting human rights and fundamental freedoms; equality and the fight against discrimination in all its forms; enhancing sectoral and cross-sectoral cooperation; creating better conditions for the organisation of legal migration and mobility of people; supporting smart, sustainable and inclusive development; good neighbourly relations; sub-regional, regional and european neighbourhood-wide collaboration as well as cross-border cooperation. in addition, key principles of the enp are differentiation, partnership and co-financing. the dimension of differentiation is related with the different need(s) of the partner country(-ies) and the commitment to implementing reform objectives and promoting democracy as well; the level of partnership between the eu and the partner country(-ies) and the co-financing of the programmes facilitate also the objectives of the enp. with regard to the geographic dimension of the enp, the policy applies in countries that are located in the east (6 countries) and the south (10 countries) of the eu. furthermore, the enp allows for subnational mobilization through eu institutions such as the committee of the regions (cor). in fact, the cor has launched two policy initiatives with the aim to support the implementation of the enp. firstly, the conference of regional and local authorities for the eastern partnership (corleap) deals with countries of the eastern borders of the eu; its members are the eu and the six member countries of the eastern partnership (eap): armenia, azerbaijan, belarus, georgia, moldova, and ukraine. the eap, according to the european commission and the high representative of the eu for foreign affairs and security policy, is a joint initiative of the eu and the six aforementioned countries and is based on bilateral and multilateral initiatives. the bilateral component aims to promote relations between the eu and each 1 the eni is utilized by the european external action service (eeas) as a financial tool for political coordination, consistency and effectiveness of the eu’s external action (council decision 2010/427/eu of 26 july 2010 establishing the organisation and functioning of the european external action service – oj l 201, 3.8.2010, p. 30). 2 regulation (eu) no 232/2014 of the european parliament and of the council, oj l 77. 21 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 eastern partner country, while the multilateral dimension serves mostly as a platform for political dialogue and exchange of ideas and knowledge on various policy fields: good governance, energy issues, security and economic integration. (european commission and high representative of the european union for foreign affairs and security policy, 2015a, p. 2). ordinary meetings are taking place so as to promote dialogue and facilitate the aims of the eap. on the south of the eu, the assembly of local and regional elected representatives from the eu and its mediterranean partners (arlem) is comprised of the eu and 15 countries geographically located around the mediterranean (egypt; turkey; algeria; morocco; syria–currently suspended; tunisia; albania; bosnia and herzegovina; israel; jordan; lebanon; mauritania; palestinian authority; monaco; montenegro). it serves as a political forum that allows elected representatives from the three shores of the mediterranean sea to represent their institutions, to maintain and promote political dialogue as well as facilitate interregional cooperation in the area. arlem has an observer status with the parliamentary assembly of the union for the mediterranean (ufm). the ufm is a regional organization and was formerly known as the “barcelona process” (xenakis, 1999) which initiated in the mid 1990s but with rather marginal -in effectresults. the initiative was restarted in 2008 establishing the ufm, with the aim to contributing to the euro-mediterranean political dialogue as well as promoting economic integration across 15 neighbours of the eu to its southern borders (north africa, the middle east and the balkans region)3. along with the 28 eu member states, members of the ufm are also the 15 southern mediterranean countries: albania, algeria, bosnia and herzegovina, egypt, israel, jordan, lebanon, mauritania, monaco, montenegro, morocco, palestine, syria (currently suspended), tunisia and turkey4. the ufm represents an opportunity to make institutional relations more functional by launching specific subnational programmes which cope with issues related to economy, environment, energy, migration, education and social affairs as well5. apart from the two initiatives of the cor that serve as a political platform and a forum for promoting local democracy and inter-institutional cooperation, as well as for exchanging knowledge and good practices, subnational authorities have the opportunity to participate in another policy instrument, the european grouping of territorial cooperation (egtc). the egtc is an institutional platform which facilitates cross-border, interregional as well as transnational cooperation, policy diffusion and exchange of knowledge between its members, thus promoting deeper european integration. its members can be institutions located in an eu country or outside its territory, allowing thus for the promotion of more close cooperation between institutional actors from the eu and outside its borders. the aforementioned policy tools, that is the two initiatives held by the cor (corleap; arlem) and the egtc platform allow subnational authorities to actively participate in the supranational arena, thus, expanding their cooperation with institutional actors located outside their national borders. consequently, this situation shifts the boundaries and alters the traditional role of local and regional governance from focusing mostly on domestic politics to engaging in international affairs. the central hypothesis of the paper is that local and regional authorities can play an important role in the implementation phase of the enp. opportunities for mobilization are provided through the cor, thus allowing for the involvement of snas in a new policy area. the research question deals with the examination of the policy tools that allow the cor to actively involve in the field of the enp and effectively participate in the implementation of the policy. theoretical framework 3 european external action service (2016). http://eueuropaeeas.fpfis. slb.ec.europa.eu:8084/generic-warning-system-taxonomy/404/329/union-mediterranean-ufm_en (accessed: april 2018). libya holds the status of observer. 4 ibid. 5 ibid. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 22 is principally based on the multi-level governance (mlg) concept. the analysis draws upon the comparative approach of the access points of snas to contribute to the enp. the assessment is made by appraising the impact of local and regional institutions on the implementation of the enp. thus, the purpose of this paper is to examine the role of the regional and local authorities in the implementation of the enp. drawing on the premise of multi-level governance theoretical conceptualization (hooghe and marks, 2001) it is argued that the cor plays a critical role in the implementation phase of the enp. the paper also suggests that the egtc can constitute an additional policy tool that can help realizing the objectives of the enp. methodologically, the paper utilizes empirical evidence from the euro-mediterranean regional and local assembly (arlem) and its relations with the union for the mediterranean (ufm) as well as the conference of the regional and local authorities for the eastern partnership (corleap) to underpin the interplay and the increased role as well of the sub-state authorities represented by the cor in the policy field of the eu external relations. in both cases, which are compared and contrasted, the impact of the cor serving as a political platform for discussing and exchanging ideas, in conjunction with its members’ capacity to provide assistance to respective authorities from third countries when they deal with eu projects or to facilitate policy transfer and diffusion, i.e. through best practices, allow for the implementation of the core objectives of the enp. the paper also argues that the egtc facilitates the enp objectives, by functioning as a platform for subnational collaboration. the paper is organized as follows: the next section takes into account theoretical considerations and reviews the relevant literature. part three presents opportunities for sub-state mobilization through the european neighbourhood policy and part four discusses the available access points of snas to the enp from a comparative perspective. finally, section five provides (tentative) conclusions and offers ideas for future research. theoretical considerations in the early 1990s the multi-level governance (mlg) approach appeared in the literature of eu studies by the seminal work of g. marks (1992). other academic scholars as well discussed the concept (hooghe & marks, 2001; bache & flinders, 2005; bache, 2008) and developed it further by proposing certain mlg typologies on the basis of the sharing of authority between different administrative levels (hooghe and marks, 2003). others argued about its potential for becoming a fully-fledged theory (piattoni, 2009) despite the drawbacks. mlg research dimensions have been summarized and new have been added regarding the use of the concept (stephenson, 2013). mlg functions as a precondition for subnational mobilization. according to mlg proponents, the eu policy making process has ceased to be monopolized by national governments and is rather shared by other actors as well (hooghe & marks, 2001, pp. 3-4), at least in some policy fields, stages and to some extent, mostly in the critical phase of policy implementation. respectively, multi-level interweaving and collaboration between actors from different administrative levels takes place (hooghe, 1996, p. 17). the multi-level polity setting of the eu allows regional and local institutions to search for opportunities offered in the supranational arena and take advantage of them, such as utilizing financial resources or influencing eu institutions (hooghe, 1995). by the same token, the egtc platform allows for multi-level cooperation and interweaving between institutions even from different constitutional regimes. subnational mobilization literature discusses the motives, aims, strategies and channels of local and regional representation in brussels (hooghe & marks, 1996; marks et al., 1996; jeffery, 1996; marks et al., 2002; tatham, 2008; tatham, 2010). more recently, the phenomenon of “paradiplomacy” which stands for the international activities of subnational actors has been proposed as a new research agenda (tatham, 2013; tatham & thau, 2014). 23 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 it has been argued that snas and/or their associations mobilize in the eu arena in order to search for funds (“financial mobilization”) or for posing influence on eu institutions (“regulative mobilization”) (callanan & tatham, 2014). along these two generic types of mobilization can be also taken into consideration the “cooperative” type of mobilization which aims to promote cooperation and build partnerships among actors from different levels of authority across the european territory and outside of it as well. the principal motive is the collaboration between public authorities in various policy fields, as well as the exchange of knowledge, good practices and expertise. an additional motive can be also the search for funding projects. respectively, the cooperative type of mobilization overlaps with the financial one. the ectc falls within this category of subnational mobilization as it provides the necessary multi-level institutional setting for promoting collaboration and synergies among its members, as well as facilitating the search for funds, particularly for those members which lack the necessary administrative capacity (spinaci & vara-arribas, 2009; de sousa, 2013; engl, 2016; nadalutti, 2013). since subnational actors from third countries outside the eu may become members in an egtc, this can substantially serve the objectives of the enp by, for instance, fostering democratic values and norms through the close cooperation between eu actors and their counterparts from third-countries. in other words, subnational mobilization allows for the participation of local and regional institutions in policy processes that are unfolded in multi-level institutional environments. the cor’s platforms which have been developed and are linearly related to the enp (corleap; arlem) as well as the egtc serve the idea of collaboration between snas and contribute to the realization of the objectives of the enp. the enp focuses on eu neighbouring countries that are located in two major geographical areas: in the east and the south of the eu6. respectively, the eastern partnership, the southern neighbourhood, the neighbourhood-wide cooperation and the cross border cooperation serve as four major policy mechanisms that allow for the implementation of the enp through operational programmes7. during the period 2007-2013 the policy was financially backed by the european neighbourhood and partnership instrument (enpi) which was replaced by the european neighbourhood instrument (eni) for the period 2014-2020. the majority of the programmes funded by the eni are based on bilateral cooperation between the eu and neighbouring partner countries. other types of programmes include multi-country programmes and cross-border cooperation programmes which address cooperation between one or more member-states of the eu and one or more partner countries (and/or the russian federation)8. a particular trait of the aforementioned four policy mechanisms of the enp and the types of the programmes that can be financially supported and implemented is that they all provide significant opportunities for the regional and local authorities to substantially participate in the implementation of the enp through their official representative body, the committee of the regions (cor). according to a report (cor (2016) there are five separate areas where snas develop –to some extend– forms of collaboration. the first area is related with cross-border programs and donor-driven where there are examples of good practices and “bottom-up” cooperation (i.e in ukraine, moldova, lebanon, and to some extent in jordan). the second area is related with economic development where the role of snas in local economy is linked with the degree of de6 with regard to the enp and the challenges of the policy field, see: bicchi, 2014; börzel & van hüllen, 2014; börzel et al., 2015; edwards, 2008; freyburg et al., 2009; gänzle, 2009; lavenex, 2008; lavenex & schimmelfennig, 2011; lavenex & schimmelfennig, 2009; noutcheva, 2015; sasse, 2008; tömmel, 2013; zaiotti, 2007. 7 regulation (eu) no 232/2014 ibid. 8 regulation (eu) 232/2014, ibid., article 6. the policy field: opportunities for sub-state mobilization with in the european neighbourhood policy e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 24 centralization. the higher the local authority the greater the capacity for snas to impact on local economy and vice versa. for instance, in belarus, azerbaijan, egypt, and algeria subnational institutions lack authority for local development, but in general, snas try to do as much within their competencies. the third area is funding. according to the report, the issue of low administrative capacity at the local level stands for a critical factor when it comes for applying for eu funding; however, in the field of environment and energy there are snas that cooperate (cor 2016, p. 2). finally, regarding the last two areas, that association agreements and migration issues, there is little evidence that snas may substantially contribute (ibid.). apart from the aforementioned areas that the snas may develop forms of institutional cooperation and involve to specific policy fields, the cor stands for a principal channel allowing for the fostering of international aspirations of local and regional authorities across the eu and beyond its borders. respectively, the cor has created two political forums, one for the eastern borders of the eu and one for its southern neighbourhood. the conference of local and regional authorities of the eastern partnership (corleap) represents the first platform that provides opportunity for subnational mobilization, being directly linked with the enp. the corleap initiative focuses on the eastern borders of the eu and was set up in 2011 by the cor, as a joint body of local and regional institutions from the eu and the eap countries9. it serves as a forum for political dialogue and discussion, while promotes the impact snas may have on the eap area, i.e. on issues of local democracy, stability, or by establishing and enhancing political, economic, social and cultural links in the subnational level. in other words, corleap is a territorial cooperation platform helping strengthen local and regional self-government and autonomy in the eap countries. it consists of 36 members (18 members from the cor and 18 for the eap member countries). the council of europe through the congress of local and regional authorities of europe retains observer status within corleap. for the period 2016-2017, the main areas of interest of the corleap platform were: decentralisation and public administration reform, transferring of good practices in the field of public administration and economic development, territorial cooperation10. the main objectives of the corleap are linked with the coordination of the representation of snas within the eap; the effective delivering of the enp and the capacity building at the local and regional level of the eap countries11. regarding the everyday functioning of the corleap, on the one hand the cor, through the platform, is the natural contact point for the eu institutions, whereas local and regional associations and unions from the eap members serve as contact points for corleap in their countries12, allowing for the collection and diffusion of information between its members. regarding the decision-making process, each eap member country has three seats, while the eu seats are distributed according to cor’s political composition (practically are divided between its –currently– five political groups). the bureau13 of the corleap is held responsible for monitoring the platform’s activities and for delivering reports and resolutions. the meetings of the corleap are organized in an annual basis14. furthermore, the cor has set up another political platform, the euro-mediterranean regional and local assembly (arlem) in 2010 so as to cope with the southern neighbourhood of the eu. according to the cor, the arlem is the eu’s political assembly of local and regional political representatives, and stands for the territorial dimension within the ufm, allowing elected 9 https://cor.europa.eu/en/our-work/pages/corleap.aspx (accessed: april 2018). 10 ibid. 11 ibid. 12 ibid. 13 the bureau consists of 12 members, six from the cor and six from the partner countries (ibid.). 14 https://cor.europa.eu/en/our-work/pages/corleap.aspx (accessed: april 2018). 25 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 representatives from states around the mediterranean sea to participate in a common political platform and promote dialogue and interregional cooperation as well. the arlem consists of 80 members, all representatives of the 43 ufm member states. its membership is divided up equally between the 15 mediterranean partners15 and the eu through the cor. the assembly is comprised of 40 members from the mediterranean partners and 40 members from the eu (32 cor members and 8 members from european associations of local and regional institutions engaged in and promoting the euro-mediterranean collaboration16. arlem’s core aims are the facilitation of political dialogue and interregional cooperation, the fostering of local democracy, the promotion of decentralised cooperation and regional integration in the mediterranean area, and the exchange and diffusion of knowledge and expertise among its members17. in addition, the assembly is institutionally related with the european external action service (eeas), the european commission, the european parliament, and the european economic and social committee18. it also has observer status with the parliamentary assembly of the ufm19. similarly with the corleap, the congress of local and regional authorities of europe has observer status within the arlem. the assembly holds annual plenary sessions were action plans for every country, activity reports, and recommendations are proposed and adopted20. the bureau of the arlem plans the strategy of the platform. arlem is chaired by a joint presidency, representing the mediterranean partners and the eu (through the cor)21. in addition, the commission for sustainable territorial development of the arlem presents reports on various policy issues such as: decentralisation, sustainable development in urban areas, cultural cooperation, the information society, migration and integration, small and medium-sized enterprises, trade, water management, waste management, (solar) energy, transport etc22. along with the main platforms for international cooperation within the enp, the cor has been a key player in the establishment of another, autonomous platform for territorial cooperation, the egtc (nadalutti, 2013). the egtc portrays an explicit multi-level institutional body that allows for the participation of actors from different governmental/administrative levels. local, regional and national authorities as well can take advantage of the opportunity structure of the egtc and mobilize beyond the national borders for developing institutional cooperation and extensive networking and interweaving within the territorial platform by sharing motives and pursuing common aims, exchanging good practices and implementing projects in various policy fields. the egtc has own legal personality and its main aim is the facilitation of cross-border, interregional and/or transnational cooperation between its members, aiming at promoting economic, social and territorial cohesion in the eu. since the new regulation has entered into force23 national, regional or local authorities, or bodies or public undertakings from third countries may become members of an egtc, thus, providing an additional opportunity for authorities outside the eu and serving as an official tool that can support the fulfillment of the targets of the enp. the platform is governed by a convention which defines the tasks in accordance with the legal framework (eu 15 egypt (5); turkey (5); algeria (4); morocco (4); syria (3*); tunisia (3); albania (2); bosnia and herzegovina (2); israel (2); jordan (2); lebanon (2); mauritania (2); palestinian authority (2); monaco (1); montenegro (1). syria is currenlty suspended due to the political situation. number in parenteses indicate the allocation of seats for each country within the arlem. source: cor.europa.eu/en/activities/arlem/pages/arlem.aspx (accessed: april 2018). 16 cor.europa.eu/en/activities/arlem/pages/arlem.aspx (accessed: april 2018). 17 ibid. 18 ibid. 19 ibid. 20 ibid. 21 ibid. 22 ibid. 23 regulation (eu) 1302/2013, oj l 347. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 26 regulations and the national law of the country that the egtc is seated). the egtc may implement projects along a wide variety of policy fields and can get additional eu funding as well. in fact, european structural and investment funds provide a critical financial source supporting the implementation of projects by the egtcs; for instance, in 2017 erasmus+, horizon 2020, and europe for citizens among other eu programmes co-funded projects coordinated by egtcs (committee of the regions, 2018, p. 111). a potential that the egtcs can fulfill is the submission of project proposal for financial support in the eni, the financial instrument of the enp. in that respect, the egtcs may take advantage not only from traditional structural funding but also from new eu financial instruments. this will allow for the implementation of the enp objectives in a more explicit and direct way in comparison to the cooperation and exchange of knowledge that may take place within the members of an egtc. figure one summarizes the potential of snas with regard to their opportunities for mobilization in the field of the enp. local and regional authorities can mobilize either for financial (eni) or cooperative reasons (through the cor and/or the egtc). with regard to the egtc and the cor’s initiatives, the established direct links of corleap and the arlem with the eap member countries and the ufm respectively serve as critical institutional policy tools that provide opportunities for subnational mobilization and active participation of snas in the implementation of the enp. through bilateral, multi-country and cross-border cooperation programmes the enp addresses cooperation among the eu and the 16 partner countries. subnational authorities can play a crucial role particularly during the implementation phase of the enp. the cor provides two major institutional forums for political dialogue and cooperation between snas that serve as opportunities for subnational cooperative mobilization; in addition the egtc may stand for an alternative key-player in terms of facilitating direct communication and cooperation within its members as well as acting as project coordinator and beneficiary institution in cases of implementing eu co-funded projects. with regard to the implementation of the enp for the programming period 2014-2020 the eni provides in total eur 15,4 billions24. there are two multiannual allocations, for first four years and the remaining three years respectively. bilateral programmes receive up to 80% of the total budget of the eni, multi-country programmes receive up to 35%, and cross-border cooperation up to 5%. the policy areas that are financially supported cover issues such as human rights and good governance; sustainable development; mobility and migration; natural resources; agricul24 regulation (eu) no 232/2014, ibid. figure 1 opportunities for subnational mobilization through the enp discussion 27 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 ture; transport and infrastructure; education and training; energy, mobility of persons, goods and capital25. it is estimated that for the cross-border cooperation dimension of the enpi 2007-2013 programme there were found 729 actors; the amount of funding reached 205 m. euro (183 m. was the enpi contribution); the average amount of money spent in projects was 2.1 m. euro (min.:429 thousand euro; max: 5 m. euro). in total 95 projects (4.76% from the 1994 proposals in total) were implemented by snas as major coordinators. the three distinct platforms of institutional cooperation, that is corleap, arlem and egtc, fall mostly within the cooperative type of mobilization as they mostly stand for opportunity structures for political dialogue, cooperation, transferring of knowledge and expertise. both the arlem, part of the governance system of the union for the mediterranean, and the corleap “provide operational dynamics and an integrated territorial dimension to the neighbourhood policy”26. in addition, the egtc may allow for the financial type of subnational mobilization when it submits project proposal in the eu structural and investment funds (potentially in the eni as well) and acts as a beneficiary on account of its members27. the participation of snas in an egtc results in the more effective tackling of resource constraints’ problems, such as adequate funding or skilled human capital, a situation that the weaker subnational entities face more often and is recorded particularly in snas based on partner countries of the enp. regarding the potential of the egtc as a policy instrument that could actually serve the objectives of the enp, it should be mentioned that in 2017 four egtcs had members from non-eu countries. these were tisza egtc, eucor the european campus, interregional alliance for the rhine-alpine corridor egtc and amphictyony (committee of the regions, 2018, p. 106). one illustrative example of member outside the eu is the city of ramallah (palestinian authority) that participates in the egtc “amphictyony”, a network of twinned cities and areas of the mediterranean, which is seated in greece with 39 members28 from greece, cyprus, italy, france, and albania (ibid.). by the end of 2017, 68 egtcs had been established. however, for the time being the number of authorities from eu neighbouring countries that have joined an egtc is limited. table 1 summarizes the main characteristics of the three distinct institutional channels for subnational mobilization. corleap and arlem are settled in the core of the cor’s policy for institutional involment in the enp. the egtc serves as an additional tool providing a new and alternative way of promoting subnational cooperation across the eu and neighobouring countries. the objective of stability outside the eu boarder is quite ambitious (i.e. the existence of political tensions), however, there are opportunities for international cooperation even for snas, with the aim to promote democracy and good governance. it has been argued that the enp has created an institutional framework for advancing cooperation between the eu and neighbouring countries despite the fact that major challenges such as the quality of democracy or the issue of political and economic stability still exist, thus creating obstacles for genuine cooperation (zajaczkowski, 2017). on the other hand, “the development of legislation in line with eu rules, the implementation of eu best practice, the requirements of the eu single market and eu standards for mobility and border management” have been given particular attention on account of eu institutions (european commission and high representative of the european union for foreign affairs and security policy, 2015b, p. 15). though challenges will 25 ibid. 26 https://portal.cor.europa.eu/mlgcharter/pages/european-neighbourhood-policy-and-decentralised-cooperation. aspx (accessed: april 2018). 27 for an overview of the eu funds available for snas from the southern and eastern mediterranean countries: cor (2012). 28 in 2012. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 28 continue to exist (i.e. migratory flows) snas may contribute significantly to the fulfillment of the purposes of the enp. local and regional authorities play a crucial role in promoting and enhancing democracy (committee of the regions, 2013) even outside of the eu borders. according to the cor (2013), snas have gradually become important players in the enlargement process and in foreign policy in general. the added value of their participation is found on examples of multilevel governance and “city diplomacy” during the implementation phase of the enp both in its mediterranean dimension and in the eastern partnership as well (committee of the regions, 2013). table 1 mann-whitney u test statistics (choice of tactics) corleap arlem egtc geographic area covered eu; 6 eap countries: armenia; azerbaijan; belarus; georgia; moldova; ukraine eu; 15 mediterranean countries: egypt; turkey; algeria; morocco; syria*; tunisia; albania; bosnia and herzegovina; israel; jordan; lebanon; mauritania; palestinian authority; monaco; montenegro (all members are representatives of regional and local bodies of the 43 ufm member states**) mostly eu countries (and third countries as well since 2013). members 36 (18 from the cor; 18 from eap countries) 80 (40 from the mediterranean partners; 40 from the eu: 32 from the cor+8 from local associations) snas and other authorities may apply for membership. type of mobilization cooperative cooperative cooperative/financial main objectives local democracy and the rule of law; stability and economic development; cooperation; support for civil society; increased mobility of people; energy security; providing funds for projects copying with inequality. provide a territorial dimension to the ufm; fostering local democracy, multi-level governance and decentralised cooperation; encourage north-south and south-south dialogue between snas; promote the exchange of best practice, knowledge and expertise; promote regional integration and territorial cohesion. financial mobilization, transferring of knowledge and expertise, promoting cooperation means activity reports, action plans, meetings every year: activity report, action plan, recommendations and thematic commission reports; multiple meetings within the year coordination; meetings, seminars, indirect contacts between members, project implementation co-funded by the eu _ the eu stands for an external catalyst for change in 16 of its eastern and southern neighbours by developing differentiated bilateral approaches for political, economic and cultural reasons. the role of the sub-state authorities in the implementation of the enp is crucial: both the eastern partnership as well as the southern neighbourhood, which represent core components source: http:// cor.europa.eu/en/activities/corleap/pages/corleap.aspx (assessed: april 2018); http:// cor.europa.eu/en/activities/arlem/pages/arlem.aspx (assessed: april 2018); own elaboration. * currently suspended conclusions 29 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 of the eu foreign policy, are truly facilitated by initiatives that are upheld by the cor such as the corleap, the arlem as well as the egtcs, allowing for the better fulfillment of the enp objectives. in fact, the enp is linearly connected with the eu foreign policy, aiming at bringing closer eu countries and their neighbours in the east (6 countries) and the south (10 countries). both arlem and corleap are initiatives that link the eu with the southern and eastern partners respectively, thus allowing for regional cooperation and potential policy transferring of eu values and norms. in addition, the egtc serve as an effective tool for territorial cooperation and platform for exchanging knowledge and expertise, thus facilitating policy diffusion and learning among its members. _ all in all, the analysis has shown that all three political platforms (arlem; corleap; egtc) facilitate subnational cooperative as well as financial type of mobilization. respectively the role of the regional and local authorities in the implementation of the enp is considered to be crucial. in a nutshell, sub-state entities have managed to expand their institutional role in new policy fields that have been traditionally monopolized and exercised solely by national authorities. future research may focus more on specific case studies derived from the three channels of access of snas to the enp and explore in depth certain aspects such as the consequences of mobilization of snas in the international arena with regard to the impact on domestic inter-institutional arrangements and the evolvement of the relation of national and subnational authorities of the same state. bache, i. 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(2017). “regional cooperation within the eastern partnership”. european integration studies (11), pp. 138-147. https://doi.org/10.5755/ j01.eis.0.11.18428 about the author giorgio oikonomou adjunct lecturer aristotle university of thessaloniki faculty of economic and political sciences; school of political sciences university campus, thessaloniki, greece address e-mail: giorgio.oikonomou@yahoo.com 36 issn 1822 8402 european integration studies. 2009. no 3 on the perspectives of the implementation of knowledge triangle based on lisbon strategy in estonia aksel kirch tallinn university of technology abstract the article tries to reveal some of the reasons why the national strategy of research and development and first version of lisbon strategy for the period 2005-2007 in estonia has been quite efficient. since 2000, the european commission has been measuring the innovation performance of countries with the help of the european innovation scoreboard (eis) which is the instrument developed by the european commission, under the lisbon strategy, to provide a comparative assessment of the innovation performance of eu member states annually. the research problem being solved in this article is: how to implement lisbon agenda in estonia (in 20082015). the aim of the article was to highlight the theoretical constitution of knowledge triangle based on lisbon agenda and to analyse conception problems of knowledge triangle (academic research, infrastructure of higher educational institutions, innovative enterprise) concerning estonian situation. in order to evaluate estonia’s perspectives in lisbon strategy in 2008-2015 there was made analysis on ground of european innovation scoreboard. there are two main tendencies of the development of knowledge triangle: first, innovative rearrangements done in social sphere, in economy and in higher educational sphere to fulfil tasks from lisbon strategy and, second, increase estonian competitiveness. another side of the knowledge triangle concerns creating new economic mechanisms (concrete business solutions) and creating new structure of institutions (rearrangement) to carry out new comprehensive and dynamic innovation model. according to european innovation scoreboard 2008 estonia’s place among 27 eu states is 12th. this is clearly evident that estonia is reaching the eu mean level for summary innovation index and has a relatively high growth rate for its level. keywords: research and development (r&d) and innovation policy, lisbon strategy on growth and jobs. introduction nowadays the research and development (r&d) and innovation policy is a top priority component of national economic strategy for several reasons. the innovation drives economic growth and job creation and is important not only for high-tech sectors but for all economic sectors. the change taking place in the european economy and society presuppose a greater commitment to economic competitiveness in order to preserve the european welfare model (rodrigues, 2002). for this end, the european commission updated its proposals at the beginning of 2005, in order to promote economic growth and creation of jobs through a directed partnership between the eu and its member states (com, 2005, 24). reasons of success in lisbon strategy implementation in estonia are encouraged mainly by development of information society. the major factors that have affected and contributed to the evolution of estonia’s information society include economic factors (fast transformation to market economy), the active role of the public sector, growth of the technological competency, and sociocultural factors (neighbourhood with scandinavian countries, high general education level, relatively good language skills), fast development of information and communication technologies (ict), skills and r&d competencies, inherited from the soviet period (technology centres were mainly located at the academy of sciences and two bigger state universities). the telecommunications and banking sectors are the cornerstones of the estonian information society; they are also behind major initiatives dedicated to computer training and raising public awareness. public-sector have had also important role. the governmental activities have not only been crucial in providing a favourable legislative environment but also in launching infrastructural projects and implementing innovative e-services (via application of public procurement for innovation). public-sector developments have been strongly influenced by nongovernmental organisation – foundation named “tiger’s jump” (tiigrihüppe sihtasutus) which has been a project for computerization of all estonian schools to 1998. issn 1822-8402 european integration studies. 2009. no 3 37 at the same time, as argued (kalvet, 2009) the estonian information and communication technologies manufacturing sector has become a part of the larger nordic ict manufacturing cluster. leaders of ict manufacturing-network are generally finnish and swedish companies, which have subsidiaries, affiliates, and joint ventures in estonia. centre for european reform has published report on the lisbon scorecard viii which says: “estonian businesses and foreign firms with operations in estonia are moving up the value-chain. estonia also does well on some indicators of the knowledge economy, such as internet usage” (barush, tilford, whyte, 2008). the research problem being analysed in this article is: how lisbon strategy is implemented in estonia and what is perspective of the process (in 2008-2015). in order to estimate estonia’s perspectives in lisbon strategy the analysis is made on ground of european innovation scoreboard (eis) and of community innovation survey (2006). in addition estonian government action plans for growth and jobs 2005-2007 and 2008-2011 is used as a source of information. the aim of the article is to highlight the theoretical conception of knowledge triangle based on lisbon strategy in estonia. estonia’s position at the european innovation scoreboard in 2002-2008 it is not a simple task to measure innovativeness of a state. to work out, apply and assess political measures for this it is imperative to produce certain measurement tools proper to object under consideration. we must take into consideration, firstly, that the number of proper indicators is limited. secondly, the results of innovation are immediately visible. thirdly, in short-time perspective preliminary results of innovation can be even negative. as it was mentioned before since 2000, the european commission has been measuring the innovation performance of countries with the help of the european innovation scoreboard (eis). this is the instrument developed by the european commission, under the lisbon strategy, to provide a comparative assessment of the innovation performance of eu member states annually. in addition to the eu member states, eis covers several other developed countries in respect to innovativeness. for the first time, estonia landed up at the innovation scoreboard as a candidate state in 2002. in that version the eis member states and candidate countries were strictly separated for the reason of deficient indicators of the latter. it will demonstrate dynamics of estonia according to the changes “worded” by the scoreboard 2004: “falling further behind”, 2005: “losing ground”, 2006: “trailing”, 2007: “catching up” and 2008: “moderates” (heinlo 2009). since introduction of the eis in 2000 its structure has undergone several substantial changes. it was launched as a composition of 17 indicators. then the number of indicators increased to 20, later to 26 and finally to 29 which composition will be maintained for 2008–2010. the indicators were not only added but replaced as well depending on their availability and quality. at the same time, the way of grouping the indicators was changed. at first they were divided into four groups, then into five and finally in the fresh scoreboard for 2008 the two-level structure was introduced: 3 groups with 7 subgroups. (heinlo, 2009). the newest structure of the innovation scoreboard is presented in table 1. table 1. indicators for eis, 2008–10 eis dimensions and indicators 1 enablers 1.1 human resources 1.1.1 graduates at first stage of tertiary education in science, engineering, social sciences and humanities 1.1.2 graduates at second stage of tertiary education in science, engineering, social sciences and humanities 1.1.3 population with tertiary education 1.1.4 participation in life-long learning 1.1.5 youth education attainment level 1.2 finance and support 1.2.1 expenditure on r&d in public sector 1.2.2 venture capital 1.2.3 credit towards the private sector 1.2.4 broadband access by firms 2 firm activities 2.1 firm investments 2.1.1 expenditure on r&d in business enterprise sector 2.1.2 expenditure on information technology 2.1.3 expenditure on innovation (excl. r&d expenditure) 2.2 linkages & entrepreneurship 2.2.1 smesa innovating in-house 2.2.2 collaborating innovative smes (small and medium enterprises) 2.2.3 smes renewal (entries + exits) 2.2.4 public-private co-publications 2.3 throughputs 2.3.1 european patent office patents 2.3.2 community trademarks 2.3.3 community designs 2.3.4 technology balance of payments flows 3. outputs 3.1 innovators 3.1.1 technological innovators 3.1.2 non-technological innovators 3.1.3 resource efficiency innovators 3.2 economic effects 3.2.1 employment in medium-high & high-tech manufacturing 3.2.2 employment in knowledge-intensive services 3.2.3 exports of medium and high-tech products 3.2.4 knowledge-intensive services exports 3.2.5 new-to-market sales 3.2.6 new-to-firm sales. issn 1822-8402 european integration studies. 2009. no 3 38 as one can see there is quite a definitive list on indicators. although, listed 29 indicators of the innovation scoreboard can’t capture all aspects or dimensions of the complicated phenomenon. nevertheless, the popularity of the instrument among users allows some directing conclusions after the presented overview. in general, according to expert estimation estonian development during seven years being present at the scoreboard has been quite positive (heinlo, 2009). according to the community innovation survey (cis) 2006 innovators (56% in manufacturing and 39% in services) are economically more successful than non-innovators. an enterprise was innovative if during last three years it had introduced to market a new or significantly improved product, implemented a new or significantly improved process, or had expenditure on activities specifically undertaken to develop and/ or implement a product or process innovation. by comparison, it should be emphasised that in 2004 the level of innovativeness of industrial enterprises exceeded 55% only in five european union member states, and was lower than that in sweden and finland. the innovativeness in the estonian enterprises is generally influenced by the same factors as in the eu. likelihood that the local company is innovative depends on belonging to a major concern, share of foreign equity, number of employees. companies with foreign equity were about 1,5 times more innovative than those companies based on domestic equity (heinlo, 2008). the high share of tertiary educated persons and increasing level of the innovativeness of enterprises are clear advantages for estonia. during the period of fast economic growth (up to 2008) the following aspects should be considered advantageous: significant share of innovative enterprises in respect of technological innovation as well as of non-technological innovation, an relatively high level of innovation expenditure compared with turnover, a growing number of enterprises involved in innovation co-operation, and finally the share of new products in turnover which equals to the eu mean. however, there are still some severe problems with low intensity of co-operation between estonian enterprises and universities and other r&d institutions. there exists a certain challenge for the national r&d sector to take into consideration the domestic enterprises’ needs. in comparison with other member states the shortcomings for estonia have remained the same: the shortage of patents, shortage of doctoral graduates and participants in lifelong learning per inhabitant, besides estonian employment in the medium-high and high-tech manufacturing and the knowledge intensive services is modest. in general the r&d intensity is low but the growth rate is one of fastest in the eu. following diagram allows assess the trends in innovativeness and the speed of changes. convergence of innovation performance according to eis 2008 is presented in figure (eis, 2009). issn 1822-8402 european integration studies. 2009. no 3 39 fig. 1. convergence of innovation performance in 2008 ( eis2008) it is clearly evident that during the economic growth period estonia reached the eu mean level according to integrated innovation index and had relatively high growth rate. at the same time the countries are logically grouped making it possible to follow similarities. the closest neighbours to estonia (figure) are slovenia and the czech republic. similarity of development of these countries (eu new member states) can be observed via comparing the indicators of different other fields as well. looking by the vertical axis at the position of the countries one can see that the states’ innovativeness depends on the economic structure and standard of living in these countries — on the top one can find the wealthy industrial countries (eu “old members”). estonian place according to european innovation scoreboard 2008 is among 27 eu states 12th (kubo, 2009). what are the main tendencies in recent developments of fields of knowledge triangle: academic research, infrastructure of higher educational institutions and innovative enterprise? in this aspect it is important to analyze estonian innovative rearrangements done in social sphere, in economy and in higher educational sphere to fulfil the tasks result from lisbon strategy to increase estonian competitiveness. estonian opportunity is to increase human recourses in knowledge triangle through rising knowledge-based competitiveness. we can assume that as declared by american industrial psychologists from the beginning of this century preconditions for development of knowledge based economy lay in tight and innovative connections between two knowledge management levels: level on personalities and level of companies (boudreau, 2002). innovative connections between mentioned two levels increase competitiveness of both: people and companies. concerning estonia – there have been some critical notes. for example, leader of internationally well-known it firm skype josh silverman said recently that estonian higher education system is not able to provide the company with highly qualified specialists. estonia can not keep pace with other countries in the sphere of higher education (silverman, 2009). the main problem is that young people who learn it at estonian universities are interested to work in itc companies (for example skype) before they get their university diploma, but factually, itcompany is not interested in “half-educated” specialists because they have some skills and knowledge but miss full professional background. to advance first facet of the knowledge-triangle means increase of professional knowledge and level of skills of people in general and specialists working in companies, develop competitiveness in larger context of knowledge based economy. we can distinguish in knowledge-triangle theoretical as well as practical aspects. academic studies in higher professional education sphere belong to practical aspects (institutional framework of higher education sphere). there is 68 thousand students in estonia today and more than a half of them (54%) pay fee for their studies. in total about 37 thousand students pay for their studies and studies of about 31 thousand students are state financed. this proportion has been the same about last 5 years. a rapid increase of students who study at one’s own expense in universities resulted in years 19982003, when a state created only for 1% of students state financed opportunities while places for study for private money increased about 2,5 times (kirch, 2005). students are accepted to both flows: the basis of statecommissioned study places and the ones that are not paid from the state budget funds. over the years, the proportion of students studying in state-commissioned study places and those available through tuition fee has significantly issn 1822-8402 european integration studies. 2009. no 3 40 changed. the fields of study of national priority and with increasing employment rates are: engineering; manufacture and processing (different industrial technologies and products); it sciences; environmental protection (environmental and geo-technologies); life sciences (biotechnology, biomedicine). another side of the knowledge triangle concerns creating new economic mechanisms (concrete business solutions) and creating new structure of institutions (rearrangement) to carry out new comprehensive and dynamic innovation model. institutions who are responsible for supporting estonian innovation development are: ministry of economy and communications, ministry of education and research together with bigger universities. these institutions have to make serious efforts to create well functioning environment for innovative developments. purpose of leading institutions was to create estonian development fund (edf) starting with about 500 million eek, which idea was largely taken from development strategy of finnish innovation foundation sitra. this very complicated task was carried out in 2007 (edasi. raport riigikogule 2007/2008). mission of the edf: 1) to promote innovative future visions, 2) to analyse estonian future opportunities, 3) to initiate positive change of investment traditions and 4) develop venture capital market. first management project (2007) of the edf was path-finding. researchers of the tartu university (leaded by professor urmas varblane) prepared an analysis about state of competitiveness of estonian economy and its future perspectives for years 2010-2020. the message of this research was very serious – maintaining today’s structure of economy estonia will not make a progress and continuing by same model the result may be small and enclosed economy (varblane and others, 2008). edf creation initiated important changes: research projects of the estonian development fund give meaning to estonian economic development. joint brainwork and interpretation of the trends and signals coming from the external environment into the estonian context give input for the broad-based foresight work. development fund’s 2008 foresight projects: industry engines 2018, ist_it@ 2018 and service economy 2018 (see figure 2). fig. 2. growth vision 2018. the development fund foresight framework 2008-2009 lastly was prepared edf document – white paper to estonian parliament – (on 27 of april 2009). we can say that white paper and estonian lisbon agenda are first of all strategies of economic reforms. conclusions lisbon strategy is a strategy of rebuilding the eu in present financial-economic crises, where as say paul krugman in last book “the return of depression economics and the crisis of 2008”: “the world economy turned out to be a much more dangerous place than we imagined. as readers may have gathered, i believe not only that we’re living in a new era of depressions, but also that john maynard keynes – the economist who made sense of the great depression – is now more relevant than ever… depression economics, however, is the study of situations where there is a free lunch, if we can only figure out how to get our hands on it, because there are unemployed resources that could be put to work. the true scarcity in keynes’ world – and ours – was therefore not of resources, or even of virtue, but of understanding.” (krugman, 2009). issn 1822-8402 european integration studies. 2009. no 3 41 the estonian economy is at a crossroads – could lisbon strategy help us towards new growth? the answer is complicated but there is still some hope! counting pluses and minuses we can conclude: first: there is high proportion of people with  tertiary education in society (33% in estonia in 2007). second – relatively big share of collaborating  innovative smes. the estonian growth vision 2018 puts together the  estonian development fund’s leadership in conjuction with decision makers now and in the future, throughout 2009. estonian place among 27 eu states is 12 according  to european innovation scoreboard 2008. and so the perspectives of the implementation of knowledge triangle based on lisbon strategy in estonia is optimistic. in the process of globalisation europe will need  new understanding of financial and economic integration concerning all eu member states. in the baltic sea region it means regionally distinguishable co-operation between nordic countries and their baltic neighbours – estonia, latvia and lithuania. references action plan for growth and jobs 2005-2007. for implementation of the lisbon strategy. tallinn: 2005. barush, k., tilford, s. and whyte, p. (2008). the lisbon scorecard viii. is europe ready for an economic storm? – london: centre for european reform. isbn 978-1-901229-80-6 boudreau, j. w. (2002) strategic knowledge measurement and management. in: managing knowledge for sustained competitive advantage, san-francisco: jossey-bass, 360-396. com (2005)24. communication to the spring council. working together for growth and jobs: a new start for the lisbon strategy. http://ec.europa.eu/growthandjobs/pdf/com2005_024_ en.pdf edasi. raport riigikogule. (2008). tallinn: eesti arengufond. heinlo, a (2008). innovaatilisus on jätku-valt heal tasemel. /teadus ja arendustegevus. 2006. tallinn: statistikaamet. heinlo, a. (2009). innovation scoreboard: estonia`s advantages and shortcomings. tallinn: eesti statistika kvartalikiri – quarternal bulletin of statistics estonia, 1/09. p. 50-57. eis-european innovation scoreboard 2008. (2009). comparative analysis of innovation performance. http://www.proinno-europe.eu/metrics kalvet, t. (2009). innovation policy and development in the ict paradigm: regional and theoretical perspectives. tallinn university of technology – tut press (doctoral theses, series i: social sciences, no 9). kirch, a (2005). lissaboni agendast ja eesti teadus-ja kõrgharidusüsteemi arengutest./audentese ülikooli toimetised. audentes-10 aastat juubelikogumik, 2005/7, p.183-194. isbn 9949-13-000-x krugman, p. (2009). the return of depression economics and the crisis of 2008. new york, london: w.w. norton & company. isbn978-0393-07101-6 kubo, k. (2009). eesti euroopa innovatsiooni edetabelis: kas mõõdukus innovatsioonis on meie piisav? /eesti innovatsiooni-ajakiri, no 9 (18), märts 2009, p. 21-23. rodrigues, m. j. (2002). the new knowledge economy in europe. a strategy for international competitive-ness and social cohesion. cheltenham: edward elger. silverman, j. (2009) eesti ei ole kõrghariduses sammu pidanud. epl, 7. märts, 2009. valge paber eesti riigikogule white paper to estonian parliament. april 2009 (www. arengufond.ee). varblane, u.ja teised (2008). eesti majanduse konkurentsivõime hetkeseis ja tulevikuväljavaated. eesti fookuses, 1/ 2008, eesti arengufond. issn 1736 6550 http://www.arengufond.ee/upload/editor/ publikatsioonid/publikatsioonide failid/ arengufoorumile 2008 raport.pd the article has been reviewed. received in march, 2009; accepted in april, 2009. 7 issn 1822 8402 european integration studies. 2009. no 3 r&d policy impact on research excellence kristina babelytė birutė mikulskienė mykolas romeris university abstract facing the worldwide economic recession, the public research and development (r&d) policy undergo the increasing pressure to economize and improve research performance levels in this way complying with public accountability. thus the design of r&d policy has to integrate an appropriate set of research performance criteria together with the balanced choice of relevant indicators for the allocation of scarce funds for the very purpose of pursuing scientific advancement in the frames of international rivalry. during several last decades the discourse of the eu politicians expanded with the term of “research excellence”, which became conceptual background for further eu r&d policy development. often excellence in research is used as synonym of “research quality”. nevertheless, rivalry for the highest evaluation of research performance has not yet provided with a single and fixed definition of “research excellence”. this paper aims to outline the content of excellence in research and, investigating the existing lithuanian experience to measure it, discuss the r&d policy intervention impacts on the process and the results of pursuing high level research. the methods of research used are grounded on the investigation of lithuanian legal acts, valid in the field of r&d and conditioning the performance of public r&d institutions. two levels of policy intervention: institution and individual are taken into consideration. also, in the light of research excellence measurement r&d output assessment methodology used by the government as a basic institutional funding instrument is analyzed. the conclusions mark that due to the conditions of ambiguous definition of “research excellence” the need for the methods to recognize and identify excellence in research are vital. however, its pro-active statelevel management practices should contain an umbrella of flexible, well-balanced and situation receptive procedures. therewith, the research excellence encouragement instruments within the framework of the state’s r&d policy should cover the individual and institutional level endorsed and promoted by sustainable and diversified measures. keywords: research excellence, research performance, r&d policy. introduction present policy discourse most frequently presupposes a notion of “excellence” in research as a synonym of high quality research, consequently to the perception of qualitative higher education. increasing public pressure to find a comprehensive solution between world-class quality research and development (r&d), optimum allocation of funds, and accountability, influences the design of policy, the issue to measure the research performance at the same time pursuing scientific advancement, especially on international arena. even though excellence in research is generally understood to be desirable, it is rarely defined in policy in detailed and even more rarely measured. (tijssen, 2003). the result of research is under high level of uncertainty and risk – with regard to the choice of a method of research, expected outcomes, raised hypothesis, etc., at the same time pursuing for the better, higher result. may the notion of “research quality” be the synonym of the “research excellence”? the “quality” in research pertains to the conformity of the standard requirements embodied with the ambition for the highest level of performance. therefore, under the conditions of such uncertainty, specific instruments or methods to discover higher level of quality in research is necessary. the latter pertains to the creation and development of the perception of “quality” or even “excellence” in research, especially on the state’s policy level. from r&d policy-makers’ perspective, however, modeling and measuring are sine qua for decision-making, thus, generally, r&d policy impact on research quality or excellence directly correlates to the set r&d policy objectives. as e. garfield and a. welljams-dorof states, issn 1822-8402 european integration studies. 2009. no 3 8 government policy-makers, corporate research managers, and university administrators use r&d indicators for a variety of purposes, like measuring the effectiveness of research expenditure, prioritizing strategic planning, etc. (garfield, 1992) in this way intervening the very input, process and output of research. at the same time, research quality management (basically, planning, control and improvement) is indispensible constituent of the whole r&d policy framework (vukovic et al., 2007). the aim of the article is to outline the content of excellence in research and, investigating the existing lithuanian experience to measure it, discuss the r&d policy intervention impacts on the process and the results of pursuing high level research. the methods of research used are grounded on the investigation of european initiatives as well as lithuanian legal acts, acting in r&d field. the focus on lithuanian r&d policy lays in the deeper analysis of the way r&d outputs are assessed and measured. the qualitative standards to researchers, who conduct the r&d, are investigated in the light of excellence of r&d performance. the formal assessment methodology of research production of research and higher education institutions and the order of minimum qualification requirements for the positions of scientific workers, other researchers and lecturers at research and higher education institutions are studied. the findings of such analysis presuppose consecutive results and are followed by the conclusions, forming the essential tendencies of lithuanian r&d policy with regard to encouraging “excellence” in research. is excellence the objective for research policy? even though the importance of excellence in research has never been questioned, academic attention to the very perception of “excellence” was paid in the 1970s and 1980s by sociologists and psychologists, seeking to explore the origins of the stratum of scientific elite (jackson, 1987). today research excellence has gained quite an exceptional status and has become one of the leading themes and/or aims of research and development policy, invoking the utilitarian and economic attribute with the foreground of “competitiveness”. (hicks et al., 2000). “governments need systematic evaluations for optimizing their research allocations, re-orienting their research support, rationalising research organizations, restructuring research in particular fields, or augmenting research productivity. in view of this, they have stimulated or imposed evaluation activities.” (moed, 2005, p. 15). in other words, the concept of “excellence” on public r&d policy discourse gained the form of impetus for forming the framework of r&d policy decisions originated, related or designated within frames of the demand of “excellence” in research, in a way converting one of the constituents of the collection of a certain quality management perception. (vanagas, 2004). however, it should be stressed that “excellence“ in research has never been defined as a legal concept. the very perception that it refers to the measurement of research perfomance exists across the world (patton, 2002). within the perspective of the eu, the term “research excellence“ often overlaps with the perception of “research quality“, surveying the linkage between measurement of scientific performance and science policy decisions. (leydesdorff, 2005). with the green paper on the european research area (era) (2007), the european commission launched a broad institutional and public debate on what should be done to create a unified and attractive era, which would fulfil the needs and expectations of the scientific community, business and citizens. “the right balance should be found between competition and cooperation. researchers and research institutions should be stimulated by higher levels of competition on a european level to develop world-class excellence. at the same time, they should be engaged in stronger cooperation and partnerships across europe and beyond to effectively address issues of common concern.” (green paper on the european research area, 2007, p. 12). furthermore, the search of unified guidelines on the policy level in providing clear steps for universities to enhance the quality (or excellence) of their country’s research area, and of the era as a whole, stipulated the european commission to head for the overview of the member state’s policies to promote quality/excellence in research. crest omc 3% working group on “mutual learning approaches to improve the excellence of research in universities” recently provided with the draft report (february, 2009). it offers a great variety of information relevant for the national policies to promote research excellence: best practices, lists of advantages and disadvantages of certain instruments, inventories, etc. it should be noted that no common definition for the “quality” or “excellence” in research is offered, since the very objectives of pursuit of “quality” or “excellence” frame their understandings, either by the requirement of research funders, disciplines or criteria of existing assessment instruments. nevertheless, the report states that there appears to be a common set of instruments widely implemented in all or most member states. these core set of desirable, basic instruments include ensuring excellence promotion in research through competitive and performance-oriented funding (institutional and individual), some form of evaluation or accreditation, an infrastructural development plan, and the promotion of institutional quality management. issn 1822-8402 european integration studies. 2009. no 3 9 perception of research excellence at the state’s level analyzing lithuanian r&d policy in the light of encouragement of research performance in the research and higher education institutions with the specific objective to pursue research excellence, it should be noted that none of the legal acts uses “research excellence” as a legal concept. notwithstanding, lithuania is not unique in this respect. this is not to state that in lithuania research excellence has never been as a pursuit of either academic society or r&d policy making level. however, speaking in the general terms “research excellence” is more regarded as r&d policy measure. basically, two legal acts form the perception of “quality” in research on the policy-decision level in lithuania. two different approaches could be distinguished, namely institutional and individual level. from the institutional perspective, the formal assessment methodology of research production of research and higher education institutions, approved by the order of the minister of education and science of the republic of lithuania no. isak-1215, 30th april, 2008 (oj, 2008, no 56-2128) (hereinafter – formal assessment methodology), outlines the framework of measurement of scientific production, based on any possible research outputs. the incentive targeted at individual level is the resolution of the government of the republic of lithuania no. 906 on approval of the order of minimum qualification requirements for the positions of scientific workers, other researchers and lecturers at research and higher education institutions; of the order of organization of competitions for the positions of scientific workers, other researchers and lecturers at public research and higher education institutions and of the order of awarding of pedagogical names at universities (oj, 2005, no 102-3786) (hereinafter minimum qualification requirements for the personnel of research and higher education institutions). research excellence acknowledgment: institutional level the most prominent policy making tool in respect to “research quality” at institutional level outstands in the form of the formal assessment methodology. this methodology is mainly based on the internationally acknowledged quantitative principles. the number of publications, monographies, patents, cooperation with business, governmental sectors, and participation in r&d projects locally and internationally are under consideration. according to the internationally agreed scientific criteria’s, such as average citation index, with regard to the categories of scientific periodicals, the isi database and other international databases containing scientific information, research outputs are measured every single year. it should also be noted that in the formal assessment methodology the scientific production within the field of social sciences and humanities (ssh) is assessed separately from physical, biomedical and technological (phbt) science fields, with different attributes for every assessment item of scientific production. considering of the principle that “the measurement of excellence can be based on indicators (quantitative) and “descriptors” (qualitative)” (luukonen et al., 2006, p. 250), it may be stated that the formal assessment methodology includes expert assessment of monographies; significant scientific works, their translations into other languages; material of presentations read in the scientific conferences, scientific reviews in periodicals and other continuous scientific publications, etc. in general terms, the procedural tools of the assessment of research production according to the formal assessment methodology ensure ex-post evaluation and are basically connected to the distribution of state funds (the so-called basic institutional funding). at the same time this methodology seeks to improve efficiency of research and higher education institutions and increase their international rivalry. in order to seek the policy impact of the assessment of research production of research and higher education institutions, let us analyze the dynamics of publications during the period 2000-2008. the dynamics of the number of isi articles (fig. 1) reflects the dramatic increase of scientific publication tendencies for both ssh and phbt. the set of lithuanian research journals became listed in isi database during this time. 0 200 400 600 800 1000 1200 1400 2000 2002 2004 2006 2008 year n o of is i a rt ic le s biomedical, technical and physical sciences social sciences fig. 1. publications of articles of lithuanian research and higher education institutions in isi database data source: prepared referring to the report on the activities of the centre for quality assessment in higher education in 2008. vilnius: kopa, 2009. issn 1822-8402 european integration studies. 2009. no 3 10 putting aside the assumption that the citation data depend on many factors, including research field, scientific journal, a kind of an article and author/ reader dependent factors (bornmann et al., 2008), the first glimpse at fig. 2 below indicate that the formal assessment methodology does not efficiently encourage higher quality of the published research articles – higher citation index in the isi database. 0 1 2 3 4 5 6 1998 2000 2002 2004 2006 2007 year a ve ra ge c ita tio n n o du ri ng th e pu bl ic at io n an d tw o su bs eq ue nt ye ar s biomedical, technical and physical sciences social sciences fig. 2. average citation index of articles of lithuanian research and higher education institutions in isi database data source: prepared referring to the report on the activities of the centre for quality assessment in higher education in 2008. vilnius: kopa, 2009. if the main impact of the formal assessment methodology was the burst of research production via publications, it should be named that the miner effect was that national journals increased their quality and were granted by isi citation index. from the data above it emerges that the formal assessment methodology encourages the research and higher education institutions produce more scientific publications without addressing themselves to seek for the higher number of the citations of the articles, event though the latter data indicates higher quality of the scientific production. concisely and with regard to the perception of “quality” in research, it should be stated that the formal assessment methodology presupposes the network of the standard requirements to be identified as belonging to the “qualitative research” dimension. since grounded mostly on quantitative principles, it is quite substantial supporting start for the bibliometric analysis of the research production of research and higher education institutions. present formal assessment methodology encourages the researchers, their groups or research and higher education institutions to seek that their articles are printed in the isi cited publications, however, since this provision was strengthened only in 2007, clear reflection of its successive results would be slightly too forward. the formal assessment methodology does not hint about the exact number of certain kinds of articles or likewise, it might be stated that it serves as the reference for r&d producers on what is assessed and based in certain methods on the state’s level. accordingly, the formal assessment methodology may be considered neither a stimulus for “research excellence” nor a declaration of “research quality”. therefore consecutive suggestions may follow that in order to balance the assessment of the research production of research and higher education institutions necessary changes may include, for example, assessment of scientific production of the higher level only, not every single unit of the scientific production; comprehensive expert evaluation of scientific monographies; or number of patents issued to lithuanian authors and registered in the european patent office, us patent and trademarks office or japan patent office (daujotis et al., 2002). the latter idea may be reasoned by the continuous process of pursue of scientific advancement “at all stages of research process, from basic to applied research as well as in collaboration and partnership with the business community as part of research and innovation ecosystems within non-linear complex innovation processes.” (diversified funding streams for university-based research: impact of external project-based research funding on financial management in universities. european commission expert group report, 2008, p. 5). certainly, differentiated assessment procedures with regard to separate science field should be retained (van raan, 2003; 2005), perhaps even differentiating between social sciences and humanities, in this way encouraging the quantitative as well as qualitative dimension of separate scientific production. it should be stressed that on the ground of quantitative results from annual application of the formal assessment methodology, the basic institutional funding is distributed. tight correlation between research output assessments and the funding scheme is considered as a resulting factor to strive for the research and higher education institutions for higher research performance, what, sequentially, could be named as the pursue of research quality. diversification of the research funding sources with more emphasis on the competitive research funding share by no doubts influences the strategies of the research and higher education institutions externally (flick, 2006). competitive nature of such research funding accommodates the concept of “quality” in research with a dimension of ex-ante evaluation of nonexisting, yet hypothetical research output, when dealing with good intentions and brilliant innovative ideas. the competitive research funding is based on different criteria than the so-called basic institutional funding. issn 1822-8402 european integration studies. 2009. no 3 11 with regard to the concept of “quality“ or “excellence“ in research, the problem of research measurement arises. the essential principle of competitive research funding obliges to measure not the “quality“ or “excellence“ of research output, but the ability of a researcher to produce “excellent“ research. in other words, the application for the competitive research funding does not supply the funder with the research output; it only contains the plan to pursue it. forasmuch as mentioned above, the strategies of the research and higher education institutions include instruments complying with the standard requirements to receive funding during competition, but at the same time, they pertain the ambition to show the highest performance indicators among the competitors. in succession, the scientific productivity plays a vital role within this research funding scheme. therefore, clear formulation and application of the relation of autonomy and accountability of research and higher education institutions shape the background for integrated system of organizational policies and management practices. according to m. gibbons, c. limoges, h. nowothy et al. “quality control has two main components: one is institutional and concerns the spatial position of a particular research activity in the cognitive landscape; the other is cognitive and pertains to the social organization in which such research is performed.” (gibbons et al, 1994, p. 32). freedom to decide upon the direction of the institution’s research performance results in every possible warranty of open mind of its scientific community. however, regardless restless mind of a researcher, the research and higher education institution should form the boundaries for the constructive outcomes of unequivocal drive for research. the principle of accountability, either to the research funder(s) or the society itself, should comprehend to the reason for research itself. research quality in this frame plays the role of conjunction between the researcher, research and higher education institution and the end-user, i.e., society (fujigaki et al., 2000). research excellence acknowledgment: individual level human capacity building derives as one of the most important research quality factors. the minimum qualification requirements for the personnel of research and higher education institutions indicates the perception of “quality” in research with regard to individual level. this legal act sets out compulsory minimum requirements for the persons, participating in public competition and seeking to occupy the positions of scientific workers, other researchers, lecturers at public research and higher education institutions. the minimum qualification requirements are differentiated by the scientific field, but mostly depend on the level of the position – professor, docent, chief/senior/young/ researcher, etc. in general, the number of scientific publications in isi and other international scientific databases, recognized by lithuanian research council, the number of international research projects, scientific conferences and scientific traineeships, the number of prepared monographies, textbooks and other methodological means, the number of scientific reviews, etc. are taken into account. additional specific criteria may be applied by the research and higher education institutions as employers, but the inclusion of the set minimum standards, indicated on the state’s level, is compulsory. within the frames of the minimum qualification requirements for the personnel of the research and higher education institutions the perception of “quality” deviates as a starting position for improvement. this legal act provides with the lowest obligatory limit for an individual, but at the same time allows possibilities to attain higher level. therefore it forms the basics of the perception of “quality” regarding a researcher, but surpasses the higher expectations from him/her. matching human capacity to research excellence the first attempt to match human capacity with research excellence by the research output and bring the dimension of coordination of the centres of excellence on national level and mapping of them in lithuania was first analyzed by the group of researchers in 2008 (bar auskas et al., 2008). the study provided with detailed international practice on the methods of coordination of the centres of excellence and revealed the possible scenarios for the optimization of national financing scheme of the centres of excellence. a priori the study stated that due to immense research potential in lithuania, significant to the country and abroad, the created national r&d funding system with special attention to research excellence would allow strengthening the research quality and extent of the research groups, their international significance and, most importantly, use of their results to the state’s economic and social welfare. an attempt to identify the advanced and internationally competitive groups of researchers was made. within the frames of the same study advanced and internationally competitive groups of researchers among lithuanian academic society were identified and assessed during the so-named ”call for centres of excellence”, carried out in 2008. it was based on the mapping of the groups of researchers working on similar or the same research issue as a team or a group of researchers, seeking for common result on one issue or in the same or similar field. for identification of originally formed centres of excellence the basic set of indicators were sorted according to the methodology, picking up just the most significant issn 1822-8402 european integration studies. 2009. no 3 12 indicators of research excellence (the number of phds, identifying themselves within the centre of excellence; number of scientific monographies or publications equal to them; number of publications in the periodicals, included in the list of database approved by the lithuanian research council; number of publications in foreign journals and publications of scientific references, works of applied research). certainly, additional indicators like number and size of projects, international expertise, etc. were also paid attention to. besides, the list of applied general criteria for the assessment of the centres of excellence were competitiveness, conformity between the centre’s themes and tasks, dissemination of the centre’s results and international acknowledgement. notwithstanding, it should be noted, that even though the assessment of the centres of excellence was differentiated between the technical, social sciences and humanities, it was performed one time. the permanent feature of this kind of evaluation of the centres of excellence in lithuania, like performed on a yearly basis, may supply with better coherence of the r&d policymaking measures and presuppose the solid impetus for the centres of excellence themselves to further actively perform research and strive for the highest-rated results on national and, especially, international scene. despite this, the mapping of the lithuanian research potential allowed identification of the advanced and less advanced research fields on national context at the same time enabling the segregation of the researchers themselves. conclusions similarly to every other member state of the eu or worldwide, the perception of ‘quality’ in research on lithuanian r&d policy level is a non-legal concept. however, its impact in lithuanian r&d policy discourse determines the formation of r&d policy and may be considered as the analogue constituent of the collection of certain quality management. the legal framework in r&d field conditions the very notion of pursuit of quality in research as an administrative instrument, i.e., the justification for the public funding, and at the same time refers to the purpose of effectiveness of research results. in other words, the notion of research quality on lithuanian r&d policymaking landscape pertains to the requirements of the research funding and accountability dimensions defined by the existing assessment methods or criteria, applied both – on institutional and individual level. however, policy intervention (annual assessment of research outputs) does not define the upper limit for the scientific advancement. either lithuanian research and higher education institutions or researchers and groups of them are allowed to pertain to the conformity of the standard requirements embodied with the ambition for the highest level of performance. successively, the concepts of “quality” and “excellence” in research should be differentiated. this is not to say that these two concepts are not inter-related, on the contrary, but with regard to the analysis described in this article, the concept of “excellence” within the r&d policy discourse is more likely to be identified as the subsequence of the “quality” standards and denotes the higher dimension of the “quality” itself. herewith “research excellence” plays the role of impetus for the higher research performance. nevertheless, it should be noted that coherent outlook of r&d policy with regard to the subject of quality in research, addressing both institutional and individual level, and in this way forming the basis for the state’s competitive potential in the this sphere, simultaneously influences the research input, output and process. undoubtedly, competitive research funding schemes must prevail versus the institutional funding. in succession to this, the research performance assessment methods in lithuania should be reviewed with the aim to include research carried out previously, the proposed research as well as potential for renewal in relation to the international research frontline. in other words, excellent research requires sound and pro-active management practices. references baršauskas p., et.al. išskirtinių mokslinių tyrimų vadyba. lietuvos mokslo taryba, ism vadybos ir ekonomikos universitetas, 2008. bornmann l., mutz r., neuhaus ch., daniel h.d. citation counts for research evaluation: standards of good practice for analyzing bibliometric data and presenting and interpreting results. /ethics in science and environmental policies/ vol. 8, 2008. p. 93-102. daujotis v., radžvilas v., sližys r., stumbrys e. lietuvos mokslo politika europos kontekste. vilnius: justitia, 2002. diversified funding streams for university-based research: impact of external project-based research funding on financial management in universities. european commission expert group report. brussels, 2008. http://www.eurosfaire.prd.fr/7pc/ 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projection for european union by 2030 http://dx.doi.org/10.5755/j01.eis.0.13.23709 paweł młodkowski school of international liberal arts, miyazaki international college, japan the paper contributes to a discussion on developments in output for the eu-27 group over the next 11 years, up to year 2030. it departs from a discussion on arguments of the production function, with focus on sudden changes to population in europe, its growth rate and composition. a brief study of population-decreasing events in the european historical perspective may represent an inspiring part. reasons for inconsistency in estimated parameters of production function for european countries seems to be well-explained this way. the projection for the next 11 years, up to 2030 has employed the production function framework. parameters have been estimated on the period 2004 – 2016 that matches most closely conditions that one may expect over the projection horizon. feeding the estimated production function for the 2018-2030 forecast has employed projected population by eurostat, while private capital investment has been generated by an arima model. projection is offered in two forms: (1) aggregated real output for the whole eu, and (2) the same category for each of the eu-27 countries. keywords: eu, economic growth, real output projection, common eu policy, production function, population. introduction the contribution of this paper is in a form of the real output projections for the eu countries. assessment of future growth path provides valuable insight for policymakers, and government agencies. value for economic research is in evaluating efficiency and (later) accuracy of methods tested during the empirical exercise. this paper is an attempt to deliver outcomes that are valuable for both, policymakers, and researchers. economic policy questions addressed here are eu-wide, and not country-specific. due to the gist of the framework used in formulating projections, two factors received attention. namely, these are population (labor force) developments, and private capital spending that are taken into consideration. such choice has been motivated by the current situation. european union faces discussions and decisions on managing refugees, addressing the problem of aging eu’s societies, and handling migration in the most productive manner. estimated production functions for each of eu-27 countries show which of them are characterized with the highest, and positive, economies of scale. this information may be used for allocating migrants in the most productive manner, for the sake of maximizing benefits for the eu. most recent studies focused on economic growth in the eu showed interesting behavior of production function parameters at the country-level. as reported in młodkowski (2019), one can distinguish at least two, if not three, groups of european countries that have grown in a very different manner since 2004. the reasons are possibly associated with post-accession adjustments and common eu policies. flows of goods, capital, and labor within the common market have submitted 08/2019 accepted for publication 10/2019 economic growth projection for european union by 2030 eis 13/2019 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 62 brought about permanent changes to transformation mechanism. the way factors of production are combined for the sake of the real output seem to be significantly modified, but mostly for the new member states. the group that have joined the eu in 2004 is characterized with negative coefficients for labor in production function. this, has a straight, but erroneous interpretation. a negative influence on real gdp executed by increased endowment of labor (młodkowski 2019) is simply a consequence of socio-economic transformation. such an anomaly is a consequence of substantial alterations to national population features (qualitative and quantitative) in these countries. it should be noted that instability of european population has been quite persistent in the past. these are social scientists working on ‘peace’ (brecke 2012), and historians in economic history (le may 2016) that deliver estimates of population developments. reviewing difficult european history one can spot countless examples of negative and sudden changes to composition of uncentury number of conflicts lives lost (underestimated) 19th century 152 9 262 554 20th century 130 76 011 621 total 282 85 274 175 table 1 summary review of conflicts in europe, since the 19th century. source: author, based on brecke (2012). period disease name region affected body count 1813 plague romania 70 000 1816–1819 typhus ireland 65 000 1829–1851 cholera europe 73 279 1852–1860 cholera russia 1 000 000 1857 yellow fever portugal 40 000 1866–1867 cholera russia, germany 225 000 1870–1871 smallpox germany 75 712 1899–1923 cholera europe 800 000 1918–1922 typhus russia 3 000 000 source: author, based on ackerknecht (1965), gregg (1985), patterson (1993), paneth et al. (1998), porter (2001), hays (2005), fusco (2007), lemay (2016), ross (2018), and ucla school of public health (2018). table 2 diseases in europe with more than 10 000 lives lost, since 1800. genocide name region affected body count holodomor (ukrainian genocide which is part of greater soviet famine of 1932-33) ukrainian soviet socialist republic 7 500 000 porajmos (romani genocide) nazi controlled europe 500 000 polish operation of the nkvd (polish genocide) soviet union 111 091 latvian operation of the nkvd (lativian genocide) soviet union 16 573 the holocaust / nazi genocides and war crimes nazi-germany controlled europe 17 000 000* genocide by the ustaše (serbian genocide) independent state of croatia 600 000 bosnian genocide bosnia and herzegovina 301 107 table 3 genocide in europe in 20th century. * most of non-jewish holocaust victims were polish catholics. source: author, based on rosefielde (1983), niewyk (2000), goldman (2011), calic (2012), holocaust encyclopedia. 63 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 derlying societies. these were diseases and plagues (table 1), wars, revolutions, and uprisings (table 2), supplemented by cases of genocide (table 3) conducted in a variety of ways, and with diverse motivation. with all these fact on and features of european economic system in mind, there is a serious doubt that there is a projection method that could handle forecasting for the eu effectively. on the top of instability-related issues reported above, there is still one more factor that contributed to increased difficulty in capturing transformation mechanism of inputs into output, using historical records. this has been the very process of economic integration within the common marketthat resulted in sudden, deep, and permanent changes to the composition of the working population in the eu, at country-level. these changes are symmetric, but not in the oca meaning of „symmetry-asymmetry“. there are two groups of countries within the eu that experience this very special symmetric change. new member states have witnessed substantial (in absolute and relative terms) outflow of the most productive workers to the richest eu members. rich eu states have welcome well-educated, and highly productive labor available at lower microeconomic, and macroeconomic cost. symmetrically, new member states have suffered from accumulated shortage of skilled, and educated workers, and from growing cost-of-labor. when casting this situation in labor market setup (figure 1) the postulated symmetry in the two groups of eu states becomes evident. new memebr states rich eu members l1 l0 w0 w1 w l d s1 s0 w0 w1 l0 l1 w l d s0 s1 figure 1 symmetric supply shock: labor market in the eu: new memeber states versus rich eu members (author). methodology withessing such changes to the working population in the eu one could expect a very similar symmetric effects in real output in both groups. however, there have been other factors in play that have led to an interesting anomaly reported in the empirical part of this paper. there is plenty of methods available for handling the task at hand. among endogenous growth models one can find several competing approaches. this paper employs production function as a framework traditionally used in political economy, since the original idea by wicksell. production function can serve in a wide variety of economic studies. the underlying concept is useful not only in political economy, but also in economic policy studies, industrial policy considerations, operational management, and even in economic system analysis, when ethics are involved. on the top of that production function framework allows for forecasting and simulations by capturing the very nature of transformation process that results in the real output. the idea to describe production process as the transformation of labor and capital came from wicksell. this was a common way of analyzing economic e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 64 relations already at the time of marx. the main proponents of production function framework were cobb and douglas (douglas 1976). its popularity peaked in 1950s and 1960s, when it served in studying contribution of labor and capital to the real output. as such, production function was employed in economic policy analysis, supporting decision makers in the private sector, and at government. interpretation of structural parameters of production function seem most useful in the current situation in europe. unprecedented socio-economic issues are to be addressed by all eu countries jointly. it calls for studies that have a potential to provide feedback useful in managing challenges in the most productive manner. in particular, this is about contribution of labor to output. changes to economic systems at the turn of millennia have brought further increase in the fraction of production attributable to capital. this trend has been there at least since 1950s (douglas 1976, p. 912). technological change over the last 70 years, or so, decreased demand for labor, but empirical exercise shows significant differences within eu-27 in contribution of labor to real output. in order to utilize this framework for projection, it must be fed with inputs. in this regard, one may refer to official demographic developments that are known for their high accuracy these days. in the current forecasting exercise, population statistics come from eurostat. they should be considered as credible and reliable for this purpose. the other input, capital, has been separately projected in an arima(5, 1, 3) model. the reason for employing such projection method is due to autoregressive nature of investment spending, except for rare periods of global financial crisis. there may be a serious doubt when assuming quality and composition of european labor force remains unchanged over the projection horizon up to 2030. as argued by młodkowski (2019), europe has suffered from significant instability of population characteristics for more than one millennium. the situation may be different today, with no genocide, no plagues, no wars going on, but there are migration processes that introduce new characteristics into european labor force. however, their very impact on productivity remains uncertain. further studies focused on immigrants’ productivity may shed some more light on this issue and allow for a more informed assessment of real output. for simplicity, it is assumed that migrants from the middle-east that arrived prior to 2018 will fully integrate with european societies, and start contributing to real output (and not consume more than produce) only after 2030. this allows for keeping production function parameters at the same level, as estimated on 2004-2016 data. it should be noted that any forecasting for longer time horizons should consider implications of welcoming migrants to europe. production function has been estimated with ols for each of the eu-27 countries, plus the uk, for benchmarking. in addition, an aggregate eu-wide production function has been obtained to generate eu-27 joint forecast. data sources projection of real growth in the eu eurostat remains the most useful source of historic time series, and projections for eu-27. estimation of production function parameters utilized real gdp and population data retrieved from eurostat on-line database. gross investment spending, as a proxy for capital, came from the on-line international financial statistics database, by the imf. then, feeding production function for the purpose of projections until 2030 utilized two different solutions. projection of gross capital formation was conducted in a simple autoregressive model of arima class. another variable, the population by country, was, again, provided by eurostat for the period up to 2030. presentation of real output projection for eu-27 is organized as follows. countries are divided into three groups, using criterion of the real gdp per capita, in the projection period. figure, from one to three, contain cases in decreasing order, from the richest to the poorest, with one exception of luxembourg, due to significant difference of this one small economy. luxembourg is reported as the last one in a figure with the poorest countries. 65 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 new memebr states rich eu members l1 l0 w0 w1 w l d s1 s0 w0 w1 l0 l1 w l d s0 s1 figure 2 growth projection for nine richest eu countries 2018-2030. line: gdp per capita left scale in thousands of usd. bar chart: real gdp growth rate in %, right scale. dotted line (ireland): gdp per capita in the poorest eu country (author, based on projection exercise). charts with projections offer information about annual growth rate in a form of bars (right-hand axis), and the level of the real gdp per capita in a form of a line (left-hand axis). every figure, from 1 to 3, contains 9 eu countries organized in the descending order, from the highest gdp (per capita) to the lowest, in each of the three groups: high, middle, low. the first chart in each figure offers additional information about closing the gap between the richest country in a particular group, and the poorest eu country. dotted line represents projected real gdp per capita for bulgaria. figure 2 presents the richest eu countries: ireland, denmark, sweden, netherlands, austria, finland, belgium, germany, and france. the range of the projected real gdp growth rates is within 0%-2% bracket. the lowest growth rates for the whole period are projected for germany. in spite relatively high growth rates for ireland, this country may experience the sharpest decline in growth dynamics in this group. slight decline in growth rate is expected also for denmark, netherlands, austria, and finland. other countries in this group shall keep growing at a stable, but low (below 1%) rate (i.e. belgium, germany, and france). closing the gap between ireland, and the poorest eu country seems to be very slow in the forecast horizon. figure 3 offers a mix of new member states and few bigger eu members. one can find substantial diversity here, as projected growth rates for italy, spain, greece, cyprus, and portugal are almost at zero. in the same time, malta and lithuania are expected to grow at 2%-3% annually. in case of the czech republic, and slovenia, a sharp decline in growth rate is expected, bringing them in the latter periods to situation projected for all other countries in this group. is this a manifestation of a middle-income trap? due to almost no growth in italy, the gap between this country and bulgaria seem to substantially narrow. figure 4 delivers mostly positive prospects for all countries included in this group, except for slovak republic. not only dynamic real gdp growth is going to disappear in slovakia, but there is a decline expected, in the latter period. it will effectively narrow the gap in the real gdp per capita even more. countries like latvia and romania are projected to grow at a stable 2% rate until e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 66 figure 4 growth projection for next nine eu countries 20182030. line: gdp per capita left scale in thousands of usd. bar chart: real gdp growth rate in %, right scale. dotted line (slovakia): gdp per capita in the poorest eu country (author, based on projection exercise). figure 3 growth projection for next nine eu countries 2018-2030. line: gdp per capita left scale in thousands of usd. bar chart: real gdp growth rate in %, right scale. dotted line (italy): gdp per capita in the poorest eu country ( author, based on projection exercise). 2030, improving standards of living significantly. poland, and estonia are going to systematically increase their respective real gdp growth rates, departing from 1%, and arriving at 2% per annum in the latter periods. bulgaria, as the poorest country in the eu seem to catch up effectively with the projected (almost) 4% real growth in the next 12 years. croatia and hungary shall grow steadily, without any sharp developments, at 1% per annum, until 2030. luxembourg, as an outlier, is not really suitable for comparisons with other eu members that operate totally different industrial organizations, and few more sectors of the national economy. 67 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 conclusions enough to say, luxembourg is expected to maintain its real gdp growth rate at about 2% per annum within the projection period. the reasons for this very special economy to expand are, however, different from other european countries. most recent initiatives aimed at reducing tax avoidance and curbing abuses reported by panama papers may have a strong negative impact on economic growth of ‘real’ output in luxembourg. projections of economic growth are a gentle topic for researchers and policymakers worldwide. media focus on macroeconomimc prospects issuing variety of interpretations and explain possible consequences at national, regional, and global level. governments and other institutions provide these forecasts of the real gdp using a wide range of methods, but none of them is really superior to others. in the current econometric exercise, a very simple framework has been utilized. transformation of labor and capital, as a form of presenting production dates back to marx and the very first political economy debates. the focus on these two growth factors in the current situation in the european union is not a coincidence. instability of working population in europe prevailed over past centuries. the wave of migrants from the middle east this seems to be a continuation in this tradition. real gdp projections for eu-27 for the next 11 years generated by country-level production function revealed few interesting features and probable changes to the current situation. first, it will become relatively difficult for greece to overcome problems that resulted from years of negligence and avoidance of reforms, as this country may continue stagnation similar to that in japan after 1991. second, after many years of prosperous operations and amazing macroeconomic performance, this will be ireland that depletes its resources and continues growth at a pace typical for other developed economies in europe. then, the third observation is about new member states, which continue the catch up process, avoiding successfully the so-called “middle-income trap”. in case of the eu countries with, currently, the lowest real gdp per capita, narrowing the income gap is expected over the projection horizon. among these countries, slovakia seems to be facing serious negative effects of labor force migration to richer eu member states. the results of the empirical investigation presented above allow for common eu policy to respond to the issue of distributing immigrants form the middle east in two complementary ways. first, for the purpose of expanding the real gdp, immigrants could be allocated to those economies that are characterized with the negative parameter α (bottom of table a1), which indicates net negative influence of eu integration on labor force, reflected in α parameter. the complementary policy in regard to immigrant allocation among eu countries could be based on the projected growth rate. according to this complementary idea, countries with the lowest, projected growth rates should receive the majority of immigrants. this way, national economic systems expected to experience the lowest, or declining, growth rates would receive an additional labor force. it has a potential of making the forecast presented above invalid. expanding the labor force in expected to perform poorly economies, may generate real growth of output, motivated by additional domestic demand, and abundance of otherwise scarce resource. this group would include slovakia and greece. limitations of the current research resulted from inconsistent time series that were used for estimations of structural parameters. many of the european countries included in the empirical exercise underwent significant systemic changes, and experienced substantial demographic transformations. an effort was made to cope with disturbances induced by socio-economic changes that modified the underlying production process, defined by a simple production function with labor and capital. further research has few ways to follow. first, available time series may be used to estimate a different model for domestic output and presented projections may be verified. second, the simple production function framework may be feed by updated, and adjusted, time series for labor and capital developments in the eu to provide updated forecasts. third, structural parameters (α and β) may be studied for their stability, and respective interpretation at country-level. curious investigators may well follow still few other 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(2001). 17th century: plague. gresham college. retrived march 22nd 2018, from https://www.gresham. ac.uk/lectures-and-events/17th-century-plague rosefielde, s. (1983). excess mortality in the soviet union: a reconsideration of the demographic consequences of forced industrialization, 19291949. soviet studies, 35(3), 385-409. https://doi. org/10.1080/09668138308411488 ross, d. (editor). uk travel and heritage britain express uk travel guide. the london plague of 1665. retrived february 22nd 2018, from http://www.britainexpress.com/history/plague.htm ucla school of public health. (2018). asiatic cholera pandemic of 1846-63. retrived february 22nd 2018, from http://www.ph.ucla.edu/epi/snow/pandemic1846-63.html. united states holocaust memorial museum. (2010). axis invasion of yugoslavia croatia. holocaust encyclopedia. retrived 12th february 2018. references 69 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 appendixcountry α:pop se pop β:cap se cap α+β belgium 0.85 0.36 0.24 0.05 1.09 denmark 1.3 0.4 0.24 0.02 1.54 france 1.17 0.19 0.25 0.02 1.42 germany 0.2 0.61 0.31 0.05 0.51 greece 1.45 1.46 0.23 0.04 1.68 ireland 1.33 1.14 0.24 0.09 1.57 italy 0.04 0.38 0.27 0.03 0.31 luxembourg 1.04 0.4 0.2 0.07 1.24 netherlands 1.77 0.72 0.33 0.04 2.10 portugal 0.26 1 0.2 0.04 0.46 spain 1.2 0.24 0.3 0.03 1.50 united kingdom 1.16 0.43 0.21 0.04 1.37 austria 1.21 0.49 0.37 0.07 1.58 finland 1.33 1 0.36 0.05 1.69 sweden 1.23 0.26 0.3 0.02 1.53 cyprus 0.75 0.26 0.18 0.03 0.93 czech republic 3.51 1.38 0.39 0.06 3.90 slovak republic 20.36 10.35 0.27 0.08 20.63 slovenia 4.48 1.87 0.31 0.06 4.79 malta 2.8 0.64 0.04 0.05 2.84 estonia -5.83 1.81 0.28 0.03 -5.55 hungary -5.85 2.34 0.25 0.07 -5.60 latvia -1.46 0.87 0.28 0.05 -1.18 lithuania -1.81 0.7 0.18 0.04 -1.63 poland -5.98 9.38 0.23 0.09 -5.75 bulgaria -3.92 0.78 0.17 0.04 -3.75 romania -2.25 0.6 0.29 0.04 -1.96 croatia -0.96 1.45 0.29 0.05 -0.67 table a1 production function coefficients for eu 28 (including uk). about the author paweł młodkowski phd school of international liberal arts, miyazaki international college fields of interests theory of economics, transactions costs in ge models address 1405 kano-hei, kiyotake-cho, miyazaki-shi, miyazaki 889-1605 japan e-mail: pawel.mlodkowski@gmail.com 127 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 negotiations on the transatlantic free trade area. effects of the proposed agreement on the economies of the european union and the united states of america http://dx.doi.org/10.5755/j01.eis.0.9.12801 eugeniusz gostomski, tomasz michałowski university of gdańsk, armii krajowej 119/121, 81-824 sopot, poland submitted 04/2015 accepted for publication 07/2015 negotiations on the transatlantic free trade area. effects of the proposed agreement on the economies of the european union and the united states of america eis 9/2015 european integration studies no. 9 / 2015 pp. 127-138 doi 10.5755/j01.eis.0.9.12801 © kaunas university of technology abstract the paper is devoted to the transatlantic trade and investment partnership (ttip), which is also called the transatlantic free trade area (tafta). the problem is whether ttip should be created, and if yes, what shape it should take, and how it will affect the economies of the european union (eu) and the united states (us). the aim of the paper is to answer the questions: what is the essence of the ttip agreement, what reasons for this project are and what consequences will it have? at first, the authors present a declining role of the eu and the us in the global economy. next, they analyse trade and investment flows between the eu and the us. then, they analyse main motives for ttip and present the course of ttip negotiations. in the next section, the authors discuss the main barriers to the economic relations between the eu and the us. then, they deal with controversies around the protection of investment and with concerns and risks arising from ttip. in the final section, the authors analyse political consequences of launching ttip. the authors conclude that the establishment of a free trade area covering the eu and the us could contribute to economic recovery on both sides of the atlantic. the combination of lower production costs in the us with the highest european technological potential is a prerequisite for the production of excellent products at competitive prices and their sales in international markets, which in turn can stop the trend of decline in the role of the eu and the us in the world trade. the ttip would also strengthen transatlantic political ties and make the voice of the eu and the us more powerful in the process of searching solutions of many problems of the modern world. the authors use descriptive and analytical method of analysis based on journal articles, information obtained from the internet and publications of international organizations. keywords: transatlantic trade and investment partnership, ttip, transatlantic free trade area, tafta, international economic integration, european union, united states. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 128 the paper is devoted to the transatlantic trade and investment partnership (ttip), which is also called the transatlantic free trade area (tafta). ttip is a proposed free trade agreement between the european union (eu) and the united states of america (us), which is still under negotation. the ttip deal has sparked many controversies on both sides of the atlantic. the problem is whether ttip should be created, and if yes, what shape it should take, and how it will affect the economies of the european union (eu) and the united states (us). the aim of the paper is to answer the questions: what is the essence of the ttip agreement, what reasons for this project are and what consequences will it have? this aim is achieved by using the following tasks. introduction 1 identyfing the main barriers in the current economic relations between the european union and the united states. 2 defining the arguments for ttip. 3 defining the arguments against ttip. 4 defining the economic (and political) con-sequences which ttip will have for both the eu and the us. ttip issues have found so far little attention in the literature. for example, in poland, the authors of many publications in the field of international economic relations relate to general principles of the institutional forms of international economic integration, including a free trade area, but without specific reference to ttip. one can mention such items as: świerkocki (2011) or budnikowski (2006). it is understandable due to the fact that ttip is still a project. however, yet now the proposed agreement is subject to much controversy. scientific originality and practical significance of the article are: _ special emphasis on different expectations on ttip from the eu and the us, _ analysis of the economic (as well as political) consequences of ttip. the authors use descriptive and analytical method of analysis based on journal articles, information obtained from the internet and publications of international organizations. if the agreement on ttip is concluded, we will have to deal with the most significant event in international politics in the current decade with far-reaching consequences for the entire world economy. the authors conclude that the establishment of a free trade area covering the eu and the us may contribute to economic recovery on both sides of the atlantic. the combination of lower production costs in the us and the highest technological potential of the eu is a prerequisite for the production of excellent products at competitive prices and their sales in international markets, which in turn can stop the trend of declining role of the eu and the us in the global trade. ttip should also strengthen transatlantic political ties and make the voice of the eu and the us more powerful in the process of solving many problems of the modern world. the european union and the united states of america are considered traditionally as the two biggest economic powers in the world. at the beginning of the 1990s, they together accounted for more than 45% of the global gdp on a purchasing power parity basis (ppp). their share in world merchandise trade amounted to nearly 60% and their share in global foreign direct investment (fdi) outflows was over 70%. the european union and the united states were also the two most important host economies for fdi, accounting for 60% of global fdi inflows) (see tables 1, 2 and 3). at the beginning of the 1990s, the period of the longest expansion in the history of the us economy began. after the economic slowdown of 1990/1991, in 1992-1996, the us real gdp grew on average at a rate of 3.3% per annum (figure 1). in 1997, an acceleration in economic growth in the united states was observed. over the next four years, i.e. until 2000, gdp annual growth declining role of the eu and the us in the global economy 129 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 table 1 shares of the eu, the us and bric in global gdp ppp, 1992-2013, in % 1992 1997 2002 2007 2012 2013 eu-28 24.1 22.7 22.5 20.1 17.4 17.1 us 21.2 21.3 21.1 18.9 16.7 16.5 bric 14.8 16.4 18.6 23.2 28.2 28.9 source: authors, on the basis of world bank (2015). table 2 shares of the eu, the us and bric in the value of global merchandise trade, 1992-2013, in % 1992 1997 2002 2007 2012 2013 exports eu-28 43.7 40.4 40.7 38.2 31.6 32.3 us 11.8 12.3 10.7 8.2 8.4 8.4 bric 4.8 6.4 8.3 13.4 16.9 17.5 imports eu-28 44.6 38.5 39.0 39.0 31.7 31.4 us 14.2 15.8 18.0 14.2 12.6 12.4 bric 4.3 5.6 6.9 10.8 15.5 16.0 source: authors, on the basis of unctad (2015). table 3 shares of the eu, the us and bric in global fdi flows, 1992-2013, in % 1992 1997 2002 2007 2012 2013 fdi inflows eu-28 47.4 29.6 50.2 43.2 16.2 17.0 us 11.5 21.2 11.8 10.8 12.1 12.9 bric 8.6 14.9 12.5 10.0 19.6 20.3 fdi outflows eu-28 51.9 47.5 49.7 55.5 17.7 17.8 us 20.9 20.1 25.6 17.4 27.2 24.0 bric 2.8 1.5 1.9 4.2 10.6 13.8 source: authors, on the basis of unctad (2015). rate in that country was at 4.4%. in the late 1990s, the unemployment and inflation rates in the us fell to record low levels (kotz, 2003). in 2000, the us gdp was 40% above its 1991 level in real terms. the economic expansion in the us in 1992-2000 enabled that country to maintain a stable share in the global gdp. given slow economic growth in the european union, the us gdp reached almost the level of the eu gdp (table 1). however, the positions of the united states and the european union as major economic powers in the world began to be undermined by the bric countries including, in particular, china. the gdp of the latter country increased by almost 150% between 19922000. in 2005, as a result of the continued rapid economic growth in brazil, russia, india and china, bric surpassed both the us and eu gdp in terms of ppp. in subsequent years, when the economies of the eu and the us were badly affected by the global financial and economic crisis, the relative position of bric in the world economy strengthened. in 2013, the bric gdp in ppp terms was 75% higher than the us gdp and 69% higher than the eu gdp. at the same time, it represented 86% of the total gdp of the us and the eu. in 2013, bric surpassed the united states in terms of the value of foreign trade. however, foreign trade of the european union was still as much as twice larger than bric’s foreign trade (table 2). in 2012-2013, the bric group was world’s number one fdi destination with the increasing role as a source for global fdi (table 3). in 2013, the united states and the european union together accounted for one third of the global gdp in terms of purchasing power parity, and their share in global merchandise imports and exports exceeded 40% (table 1). the data indicate a significant decline in the relative importance of the us and the eu in the global economy over the last 20 years. it is estimated that this trend will continue in the coming years. according to forecasts by pricewaterhousecoopers, in 2030, china’s gdp in terms of ppp will exceed by 31% us gdp. in the group of six largest world economies will be – beyond the two mentioned ones – the economies of india, japan, russia and brazil (pwc, 2013). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 130 the european union and the united states are the most important trading partners for each other. in 2013 the us was the main trading partner for the european union in terms of total merchandise trade (sum of exports and imports) followed by china, russia and switzerland. at the same time, the european union was the largest trading partner of the us followed by canada, china and mexico. in 2013, the united states represented 14,2% of extra-eu trade while the share of the european union in total us trade was at 16,9% (table 4). the value of eu merchandise trade with the us increased from eur 385.6 billion in 2003 to eur 484.4 billion in 2013 (european commission, 2015a). however, at the same time, the share of the us in extra-eu trade fell from 16.9% to 11,7% in eu imports and from 26.4% to 16.6% in eu exports. over that time, the eu’s share in us merchandise exports decreased from 21.4% to 16,7%, trade and investment flows between the eu and the us table 4 top trading partners of the eu and the us, 2013, shares in % source: european commission (2015a). european union exports imports partner share in world partner share in world 1 us 16.6 china 16.6 2 switzerland 9.8 russia 12.3 3 china 8.5 us 11.7 4 russia 6.9 switzerland 5.6 5 turkey 4.5 norway 5.4 6 japan 3.1 japan 3.4 united states exports imports partner share in world partner share in world 1 canada 19.0 china 19.6 2 eu 16,7 eu 17.1 3 mexico 14,3 canada 14.6 4 china 7.7 mexico 12.3 5 japan 4.1 japan 6.1 6 brazil 2.8 s. korea 2.8 while the eu’s share in us merchandise imports fell from 20.1% to 17.0% (figures 1-2). the european union records a trade surplus with the united states. in 2003-2013, it ranged from eur 359 billion to eur 500 billion annually. in 2013, among the top product groups in eu’s merchandise exports to the us were: machinery and appliances (24.8%), products of the chemical or allied industries (20.3%), transport equipment (16.9), optical and photographic instruments, etc. (7.4%) and mineral products (6.1%). main eu’s imports from the us included: machinery and appliances (26.4%), products of the chemical or allied industries (20.0%), transport equipment (10.7), mineral products (10.6%) and photographic instruments, etc. (9.9%) (european commission, 2015a). the eu and the us are also each other’s primary investment partners. in 2012, 63% of us fdi went to the eu, and 44% of fdi inflows to the us came from the eu (ash, 2013). in 2012, the united states accounted for one third of total fdi inflows to the european union from extra-eu. in figure 1 share of the us in extra-eu merchandise trade in 2003-2013 (in %) source: authors, on the basis of european commission (2015a). ppp will exceed by 31% us gdp. in the group of six largest world economies will be – beyond the two mentioned ones – the economies of india, japan, russia and brazil (pwc, 2013). trade and investment flows between the eu and the us the european union and the united states are the most important trading partners for each other. in 2013 the us was the main trading partner for the european union in terms of total merchandise trade (sum of exports and imports) followed by china, russia and switzerland. at the same time, the european union was the largest trading partner of the us followed by canada, china and mexico. in 2013, the united states represented 14,2% of extra-eu trade while the share of the european union in total us trade was at 16,9% (table 4). table 4 top trading partners of the eu and the us, 2013, shares in % european union exports imports partner share in world partner share in world 1 us 16.6 china 16.6 2 switzerland 9.8 russia 12.3 3 china 8.5 us 11.7 4 russia 6.9 switzerland 5.6 5 turkey 4.5 norway 5.4 6 japan 3.1 japan 3.4 united states exports imports partner share in world partner share in world 1 canada 19.0 china 19.6 2 eu 16,7 eu 17.1 3 mexico 14,3 canada 14.6 4 china 7.7 mexico 12.3 5 japan 4.1 japan 6.1 6 brazil 2.8 s. korea 2.8 source: european commission (2015a). the value of eu merchandise trade with the us increased from eur 385.6 billion in 2003 to eur 484.4 billion in 2013 (european commission, 2015a). however, at the same time, the share of the us in extra-eu trade fell from 16.9% to 11,7% in eu imports and from 26.4% to 16.6% in eu exports. over that time, the eu’s share in us merchandise exports decreased from 21.4% to 16,7%, while the eu’s share in us merchandise imports fell from 20.1% to 17.0% (figures 1-2). the european union records a trade surplus with the united states. in 2003-2013, it ranged from eur 359 billion to eur 500 billion annually. in 2013, among the top product groups in eu’s merchandise exports to the us were: machinery and appliances (24.8%), products of the chemical or allied industries (20.3%), transport equipment (16.9), optical and photographic instruments, etc. (7.4%) and mineral products (6.1%). main eu’s imports from the us included: machinery and appliances (26.4%), products of the chemical or allied industries (20.0%), transport equipment (10.7), mineral products (10.6%) and photographic instruments, etc. (9.9%) (european commission, 2015a). 10 15 20 25 30 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 eu exports to the us as a percentage of total eu exports eu imports from the us as a percentage of total eu impor ts figure 1. share of the us in extra-eu merchandise trade in 2003-2013 (in %) source: authors, on the basis of european commission (2015a). the eu and the us are also each other’s primary investment partners. in 2012, 63% of us fdi went to the eu, and 44% of fdi inflows to the us came from the eu (ash, 2013). in 2012, the united states accounted for one third of total fdi inflows to the european union from extra-eu. in 2010-2013, the ratio averaged 59%. in 2012, one fourth of eu fdi outflows to the rest of the world went to the us; in 2010-2013 – 32% (eurostat, 2014). at the end of 2013, the eu held eur 4 900 billion of fdi stock in the rest of the world, of which eur 1 686 billion or 34% in the us. at the same time, the united states accounted for 44% (eur 1 652 billion) of total fdi stock held by the rest of the world in the european union (eurostat, 2015). total us investment in the european union is three times higher than in all of asia. eu investment in the united states is around eight times the amount of eu investment in china and india together (european commission, 2015b). 10 15 20 25 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 us exports to the eu as a percentage of total us exports us imports from the eu as a percentage of total us imports figure 2. share of the eu in us merchandise trade in 20032013 (in %) source: authors, on the basis of unctad (2015). us fdi in the european union is mainly in the nonbank holding companies, finance/insurance, and manufacturing sectors. eu fdi in the united states is concentrated mostly 131 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 2010-2013, the ratio averaged 59%. in 2012, one fourth of eu fdi outflows to the rest of the world went to the us; in 20102013 – 32% (eurostat, 2014). at the end of 2013, the eu held eur 4 900 billion of fdi stock in the rest of the world, of which eur 1 686 billion or 34% in the us. at the same time, the united states accounted for 44% (eur 1 652 billion) of total fdi stock held by the rest figure 2 share of the eu in us merchandise trade in 2003-2013 (in %) source: authors, on the basis of unctad (2015). ppp will exceed by 31% us gdp. in the group of six largest world economies will be – beyond the two mentioned ones – the economies of india, japan, russia and brazil (pwc, 2013). trade and investment flows between the eu and the us the european union and the united states are the most important trading partners for each other. in 2013 the us was the main trading partner for the european union in terms of total merchandise trade (sum of exports and imports) followed by china, russia and switzerland. at the same time, the european union was the largest trading partner of the us followed by canada, china and mexico. in 2013, the united states represented 14,2% of extra-eu trade while the share of the european union in total us trade was at 16,9% (table 4). table 4 top trading partners of the eu and the us, 2013, shares in % european union exports imports partner share in world partner share in world 1 us 16.6 china 16.6 2 switzerland 9.8 russia 12.3 3 china 8.5 us 11.7 4 russia 6.9 switzerland 5.6 5 turkey 4.5 norway 5.4 6 japan 3.1 japan 3.4 united states exports imports partner share in world partner share in world 1 canada 19.0 china 19.6 2 eu 16,7 eu 17.1 3 mexico 14,3 canada 14.6 4 china 7.7 mexico 12.3 5 japan 4.1 japan 6.1 6 brazil 2.8 s. korea 2.8 source: european commission (2015a). the value of eu merchandise trade with the us increased from eur 385.6 billion in 2003 to eur 484.4 billion in 2013 (european commission, 2015a). however, at the same time, the share of the us in extra-eu trade fell from 16.9% to 11,7% in eu imports and from 26.4% to 16.6% in eu exports. over that time, the eu’s share in us merchandise exports decreased from 21.4% to 16,7%, while the eu’s share in us merchandise imports fell from 20.1% to 17.0% (figures 1-2). the european union records a trade surplus with the united states. in 2003-2013, it ranged from eur 359 billion to eur 500 billion annually. in 2013, among the top product groups in eu’s merchandise exports to the us were: machinery and appliances (24.8%), products of the chemical or allied industries (20.3%), transport equipment (16.9), optical and photographic instruments, etc. (7.4%) and mineral products (6.1%). main eu’s imports from the us included: machinery and appliances (26.4%), products of the chemical or allied industries (20.0%), transport equipment (10.7), mineral products (10.6%) and photographic instruments, etc. (9.9%) (european commission, 2015a). 10 15 20 25 30 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 eu exports to the us as a percentage of total eu exports eu imports from the us as a percentage of total eu impor ts figure 1. share of the us in extra-eu merchandise trade in 2003-2013 (in %) source: authors, on the basis of european commission (2015a). the eu and the us are also each other’s primary investment partners. in 2012, 63% of us fdi went to the eu, and 44% of fdi inflows to the us came from the eu (ash, 2013). in 2012, the united states accounted for one third of total fdi inflows to the european union from extra-eu. in 2010-2013, the ratio averaged 59%. in 2012, one fourth of eu fdi outflows to the rest of the world went to the us; in 2010-2013 – 32% (eurostat, 2014). at the end of 2013, the eu held eur 4 900 billion of fdi stock in the rest of the world, of which eur 1 686 billion or 34% in the us. at the same time, the united states accounted for 44% (eur 1 652 billion) of total fdi stock held by the rest of the world in the european union (eurostat, 2015). total us investment in the european union is three times higher than in all of asia. eu investment in the united states is around eight times the amount of eu investment in china and india together (european commission, 2015b). 10 15 20 25 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 us exports to the eu as a percentage of total us exports us imports from the eu as a percentage of total us imports figure 2. share of the eu in us merchandise trade in 20032013 (in %) source: authors, on the basis of unctad (2015). us fdi in the european union is mainly in the nonbank holding companies, finance/insurance, and manufacturing sectors. eu fdi in the united states is concentrated mostly of the world in the european union (eurostat, 2015). total us investment in the european union is three times higher than in all of asia. eu investment in the united states is around eight times the amount of eu investment in china and india together (european commission, 2015b). us fdi in the european union is mainly in the nonbank holding companies, finance/insurance, and manufacturing sectors. eu fdi in the united states is concentrated mostly in the manufacturing, finance/insurance, banking, wholesale trade, and information sectors (office of the united states trade representative, 2015). the need to create a free trade area covering the eu and the us has been discussed on both sides of the atlantic since the early 1990s. it has been expected that the removal of barriers to trade and investment between the eu and the us will lead to more dynamic economic development, will contribute to the decline in unemployment and will increase prosperity in the contracting countries. the first negotiations on ttip were taken in 1995 and further in 1998 and 2007. they all, however, ended in failure. the agreement on the liberalization of trade in goods and services between the eu and the united states has not been signed mainly due to the conflicting positions of the negotiating parties on agricultural trade and sanitary and health insurance standards (wódka, 2013). despite setbacks in negotiations, at the eu-us summit on november 28, 2011, the transatlantic economic council (tec) was directed to establish a high-level working group on jobs and growth. it was headed by ron kirk – us representative for trade and karel de gucht – eu trade commissioner. its task was to identify opportunities to improve bilateral trade and investment relations between the eu and the us. for this purpose, it established cooperation and held consultations with all stakeholders, including the major european and american business associations. in february 2013, the working group published the final report outlining the future agreement on the eu-us trade. in february 2013, in a joint declaration, president barack obama and president of the european commission j.m. barroso strongly supported the creation of a free trade area between the two economic powers. however, at the request of france, it was decided to exclude from negotiations issues related to music and film production. even before the negotiations began in washington, d.c., in july 2013, the european commission had requested the centre for economic policy research (cepr) to prepare a report on the economic, social and environmental effects of a transatlantic agreement. using econometric methods, cepr estimated that the elimination of tariffs and non-tariff barriers and the liberalization of services and public procurement in relations between the eu and the us would lead to an increse in the eu gdp by eur 119 billion and in the us gdp by eur 95 billion eur per year by 2017. such macroeconomic outcomes would translate to an extra 545 eur in disposable income each main motives for ttip and the course of negotiations e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 132 year for a four-person household in the eu, on average, and 655 eur for a household in the us (cepr, 2013). this would be primarily the result of the increased trade between the two negotiating parties. it is expected that as a result of a free trade agreement eu’s exports to the us would increase by 28% and additional 2.5 million jobs would be created. at least three main reasons to negotiate a ttip/tafta agreement can be identified (kobza, 2013): _ the global financial and economic crisis, which badly hit the us and the european union, and which has forced politicians and economists to look for ways to boost growth and reduce high unemployment; _ growing disillusionment with the multilateral negotiations within the world trade organisation (doha round), which have not led the developed countries to the resignation from subsidizing agricultural commodities, fuller liberalization of services and harmonization of regulations, which still hinders international trade in goods and services; _ a decrease in the importance of the eu and the us in the global economy and the growing importance of emerging economies, especially china’s centrally controlled economy; it can be opposed by the creation of a strong economic bloc based on the principles of a free market including the states on both sides of the atlantic. as a result of the global economic and financial crisis, gdp growth rate in the eu fell from 3.1% in 2007 to 0.5% in 2008, and in 2009 there was a decline in gdp of 4.4%. in 2010-2013, the eu gdp changed respectively: 2.1%, 1.8%, -0.4% and 0.1%. at the same time, there was an increase in the eu unemployment rate from 6.9% in 2008 to 8.9% in 2009 and 9.6% in 2010-2011 (world bank, 2015). meanwhile, the us gdp growth rate fell from 1.8% in 2007 to -0.3% in 2008 and -2.8% in 2009. the recession in the united states was overcome in subsequent years, resulting in an increase in gdp in 2010-2013 by 2.5%, 1.6%, 2.3% and 2.2%, respectively. simultaneously, the us unemployment rate rose from 5.8% in 2008 to 9.3% in 2009 and 9.6% in 2010, but in the following years it began to decline, and in 2013 it was at 7.4% (world bank, 2015). as the economic growth in the emerging market economies was higher than in the eu and the us, the shares of the two latter economies in the world’s gdp was decreasing (see point ‘declining role of the eu and the us in the global economy’). difficulties in reaching a multilateral agreement under the wto on the elimination of trade restrictions in agriculture and services, mainly the reduction of export subsidies and other forms of support for exports that distort international trade flows, have also argued for starting negotiations on ttip/tafta at the peak of the global crisis in 2009 and in subsequent years, instead of further liberalization of international trade in goods and services, intensified protectionist tendencies directed to protect many national economies against the crisis in the global economy were observed (bussière, et al., 2010; henn & mcdonald, 2011). in this situation, there has been a retreat from the liberalization of international trade in the global scale and solutions at the regional level have been sought. the comprehensive economic and trade agreement (ceta), which began to be negotiated in may 2009 and was successfully completed in 2014 (consolidated ceta text, 2014), is an example of the above mentioned. the negotiations on ttip/tafta began on 17 june 2013. for the eu, they are carried out by the european commission under the leadership of trade commissioner. until the end of 2014, there had been seven rounds of negotiations. the main objective of ttip/tafta is to eliminate regulatory barriers in economic relations between the eu and the us, that is, duties, non-tariff barriers and restrictions on investment, while maintaining for each party the appropriate level of protection of consumers and their health, safety and environmental protection. the results of the talks will have to be approved by the european parliament, and the final agreement will be subject to ratification by all member states of the eu and the us. each of the parties has set out its objectives and priorities. for the us, the most important issues have been: the liberalization of trade in agricultural, industrial, and consumer goods, access to the eu mar133 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 ket for us textile and clothing, and – in the area of intellectual property rights – easing some standards on geographical indications of goods. in contrast, less important for the americans are those parts of the agreement which relate to social issues, employment and labour standards (kobza, 2013). according to the “directives for the negotiation on a comprehensive trade and investment agreement, called the transatlantic trade and investment partnership” (council of the european union, 2013), important issues for the eu have been especially: elimination of all duties on bilateral trade in a short time frame (except duties on the most sensitive products) and the removal of non-tariff barriers. the eu would also like to see the full liberalization of current payments and capital flows, mutual recognition of professional qualifications, legal protection for eu investors in the us, as well as improved access to public procurement markets in the us. among very important issues in the economic relations between the eu and the us is finding a way to close the gap in the competitiveness of energy-intensive industries resulting from differences in energy rates which in the united states are three times lower than in the eu. in this connection, the eu proposes the possibility of permanent export of natural gas and crude oil from the us to the eu. until the end of 2014, there had been seven sessions of negotiations, alternately in the us and brussels. negotiations have been conducted simultaneously in the three broad areas of: _ further opening up to mutual flows of goods, services and capital, _ harmonization of standards which relate to conducting business in the eu member countries and the us, _ protection of intellectual property rights and the environment. the first five sessions aimed at identifying areas in which negotiators should move. from the sixth round, the parties started to formulate the relevant text of the agreement for an already negotiated arrangements. the negotiations should be completed and the agreement signed at the end of 2015. the immediate effect of the agreement on the abolition of customs duties and the majority of non-tariff barriers to trade between the eu and the us will be the establishment of a transatlantic free trade area. parties to the agreement will remain autonomous duties and other restrictions on trade with third countries. as a result of the trade creation and trade diversion effects, an increase in the volume of bilateral trade between the parties of a transatlantic free trade agreement should be observed (see: urata & okab, 2010; koo, kennedy & skripnitchenko, 2006). the harmonization of standards in the field of environmental protection, health care, protection of investment and intellectual property rights and the mutual recognition of technical standards should also boost the eu-us economic cooperation. before the negotiations on the creation of a transatlantic free trade area started, more than 50% of agricultural commodities and about 30% of industrial goods in eu exports to the us were subject to customs duties. duties were also applied to american exports to the eu countries. average tariff in the eu’s imports of agricultural commodities from the us was 5.7% and in imports of industrial goods 1.4%. for goods flowing in the opposite direction, duty rates were at a similar level. the average tariff level was not so high, but there were a lot of goods which were subject to much higher duties. in the case of the eu, the highest duty rates were applied to dairy products (605%) and tobacco (165%). the eu’s import tariffs were also relatively high for footwear (17%), consumer electronics (14%), household goods (14%), clothing (12%) and cars (10%) (wto, itc & unctad, 2013). abolition of customs duties in mutual trade would undoubtedly contribute to a decline in prices of imported goods, an increase in the volume of imports and in the range of products offered on both the eu and us markets. non-tariff barriers that prevent exports and imports of certain goods, reduce the volume of trade or raise the cost of exports and imports by several tens of percent are an even greater problem than customs duties in trade between the eu and the us. for example, the us apply quantitative main barriers to the economic relations between the eu and the us e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 134 quotas and tariff rate quotas, import and export bans, variable levies and other non-tariff barriers (stefaniak, 2014). additionally, there are many obstacles to trade in services. for example, in the united states, transport of people and goods between the two airports or water ports situated on the territory of the us is prohibited for foreign carriers. furthermore, the provision of professional services in the us by experts from the eu: engineers, architects, accountants, lawyers, etc., is still difficult because of the unsolved problem of the recognition of professional qualifications. the diversity of standards for the safety of people and animals, and the environment, as well as the diversity of other technical standards and the differentiated approach of both parties to the certification and obtaining authorization to sell goods have also a very negative impact on trade between the two sides of the atlantic. the automobile market is a clear example of how the different safety standards in the eu and the us may hinder mutual trade. american cars are hardly ever imported by the eu, and european cars are purchased by the americans only to a limited extent. the main additional cost which car importers must bear is not the cost of transportation from the us to europe or in the opposite direction, but the need to adapt a vehicle to the applicable national safety standards. a lot of details on the car, eg. colour and lighting set-up, have to be changed so that it could be registered in the country. reducing standards-related trade barriers is essential for the intensification of transatlantic economic cooperation. some successes in ttip negotiations can be expected in unification of standards in the automotive, aerospace and chemical industries. harmonization of standards in the agricultural sector is less hopeful (beary, 2013). difficulties with the harmonization of the european and american standards result from different cultures of standardization in the eu and the us. while the eu standardization culture is conservative and preventive, the us is more liberal and is characterized by a more easy acceptance of goods for sale and a focus on possible ex post damage compensation. therefore, achieving full harmonization of standards in trade relations between the eu and the us would be impossible, but it is feasible to reach an agreement on mutual recognition of standards (kobza, 2013). the first step is to eliminate unnecessary double technical and sanitary regulations, which make goods for foreign buyers even 20% more expensive. but in any case, the eu intends to prevent the lowering of standards related to food production, protection of consumers and the environment. subsidies for farmers are the next barrier to trade between the us and the eu which is very difficult to overcome. for many years, both the americans and europeans supported indigenous farmers by grants to make their products more competitive on the internal and international markets. both the eu and the us use high tariffs on imported agricultural and food products, eg. in the us the tariff on dairy products is 139%, on meat – 30%, on drinks more than 20%, while imports of apples and different kinds of cheese is completely prohibited. the equally difficult subject which requires a compromise in the negotiations between the eu and the united states is production of genetically modified corn and soybeans and meat containing hormones in the us. such food is acceptable for the american consumers, but not for the europeans. opening the american public procurement market to eu companies could also intensify cooperation between the eu and the us. currently, the participation of european companies in american public tenders is difficult because of the requirement of the us contribution to the foreign offer, which virtually eliminates the europeans from the public procurement market in the us. controversies around the protection of investment assumptions regarding ttip also cover the issue of foreign direct investment. as it has been presented, fdi plays a major role in the economic relations between the eu and the us. further increase in fdi flows is desirable due to their importance for the development of intra-industry trade, employment growth and improvement in the competitive positions of the eu and the us in the global economy. from this point of view, it is necessary to eliminate unnecessary bureaucratic obstacles for investors to access the us and the eu markets. 135 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the issues of legal protection of investment and the resolution of disagreements between an investor and a host country are the most controversial in the field of fdi in negotiations on ttip. the ability of foreign investors to sue the state, if they recognize that the decisions of the state authorities taken in the public interest would have a negative impact on investors’ profits is especially criticized. such actions would simply lead to the settlement of disputes by tribunals operating outside the public court system, thereby undermining the eu and national legal systems (stowarzyszenie “obywatele obywatelom”, 2014). this mechanism is called “investor state dispute settlement” (isds). costs of lawsuits against the state would always have to be borne by the government defending the interests of its citizens (an average of us$ 8 million for a trial), and also in the event of losing the case the regulations binding the hands of a foreign investor would have to be removed (wallach, 2014). investment protection is always an important part of a system of economic relations among states. investments, which are an important source of innovation and employment growth, if they are to be made abroad, must be protected against the lawlessness of host country institutions. therefore, provisions on investment protection and the possibility for investors to appeal to international arbitration courts should be included in the agreement on ttip. these regulations, however, should not be abused in the interests of large trading or industrial corporations, but also should not discriminate against foreign investors and be preferential for domestic ones. concerns and risks arising from ttip large companies and firms with significant growth potential and strong competitive positions in the market which, as a result of the elimination of barriers in the eu-us trade, will be able to increase their exports and reduce costs of operation are the biggest proponents of the transatlantic free trade area. on the other hand, among the biggest critics of ttip are trade unions, environmentalists and representatives of international organizations who care about the health of people and animals and strive for sustainable economic development. ttip critics have questioned the results of econometric forecasts, according to which, the atlantic partnership will lead to an accelerated growth and a decline in unemployment in the eu and the us. they cite the example of nafta where the prediction that it would lead to the creation of 200 thousand new jobs in the united states did not come true. in fact, the balance of jobs created as a result of growth in exports and lost as a result of strong competition from imported goods was negative and is estimated to be nearly one million jobs (gómez calvo, 2014). representatives of trade unions, environmental and consumers organizations are afraid of lowering the european standards in terms of employment and ecology, production of food, chemicals and protection of electronic databases, which are higher in the eu than in the us. representatives of the world of work stress that in the past the growth of wages and employment did not keep pace with the dynamic growth of trade in goods and capital flows between the eu and the us. a large part of the trade between the eu and the us is the trade within large corporations (lakatos & fukui, 2013), whose position will be strengthened as a result of launching ttip to the detriment of employees. in the us, in the private sector, in 2012, due to the poor climate for trade unions, only 6.6% of employees belonged to such institutions. in many american companies in which there are no trade unions wages are much lower compared to firms with trade unions. it encourages investors from europe, where employees have greater rights, to relocate production to the us. however, the authorities of the eu countries ensure that ttip will not adversely affect workers in companies because such issues as labor law, co-determination of employees in enterprises and tariff autonomy are not the subject of ttip negotiations. however, doubts of the world of work, which demands that the negotiated agreement contained provisions for the protection of workers’ rights, have not been dispelled (wötzel, 2014). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 136 consumers fear that ttip will open the european market for genetically modified american food products and hormone-treated us meat. the approach to these issues is radically different in the united states and the eu (krämer, 2013), and therefore it is considered to exclude these issues from the ttip agreement. representatives of the eu ensure that in any case ttip will lead to the deterioration of the european standards in the field of health care, including those relating to gmos and environmental protection. concerns about ttip also relate to municipal services. the inclusion of this sector in the agreement would open the way for its privatization and marketization in the eu countries, which probably would involve higher prices of municipal services and deterioration in access to these services for people with low income. if the agreement on ttip is concluded and enter into force, the atlantic economic and political power will be created. it will be able to face the challenges arising from the growing economic and political powers of china, india and brazil. the history of international economic and political relations shows that economic cooperation between the countries may strengthen political ties between them (carnegie, 2013; massoud & magee, 2009; polachek, 1997). it can therefore be expected that the emergence of the transatlantic free trade area will impede the process of reducing economic and political presence of the united states in europe which have become more involved in the pacific region. the european union, which due to ttip will integrate more deeply with the united states, will be able to play a greater role in global politics and economics. therefore, it would be more effective in preventing international conflicts and influencing the direction of social and political processes in the world. the issue which is particularly important for the eu is the possibility of importing us shale gas and oil even though they are not cheaper than gas and oil purchased from russia (since the first energy crisis in the first half of the 1970s, exports of oil have been banned in the us). however, it would make the eu independent from russian gas and oil and undermine russia’s imperial policy. ttip may also have a positive impact on the conclusion of trade negotiations in the wto doha round. the eu and the us would have experience in finding solutions acceptable to all trading partners in the field of international trade in such sensitive goods as agricultural products, textiles, intellectual property rights, etc. difficulties in reaching a compromise in this area of international trade prevent a successful conclusion of the doha round (bundesverband öffentliche dienstleistungen, 2014). political consequences of the creation of a transatlantic free trade area the analysis conducted by the authors of this study shows that the project to create ttip / tafta should be considered worth implementing, both for the eu and the us. the proposed agreement goes beyond a free trade area. in addition to the liberalization of trade in goods and services, it will cover such areas as capital flows, protection of foreign investors, harmonization of standards which relate to conducting business, protection of intellectual property rights and the environment, etc. history shows that free trade has always been conducive to economic growth and protectionism has gone hand in hand with economic and social stagnation (ben-david & loewy, 1998; wacziarg & welch, 2008; salvatore, 1993). also, the establishment of a free trade area covering the eu and the us, the core idea of which is to reduce tariffs and simplify regulations and standards, can contribute to economic recovery on both sides of the atlantic. the united states overcame the global economic and financial crisis earlier than the eu. gdp growth rate in the us has already exceeded 2%, while the eu countries are still stuck in stagnation. deeper integration of the two economic powers separated by the atlantic ocean would allow the eu to benefit from the economic recovery in the united states. the advantages of the us are labour costs in the industrial sector which are 25% lower than conclusions 137 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the average for the eu and significantly lower energy costs, which, as a result of the american shale gas revolution, can be further reduced. in contrast, the eu has the advantage of high technology and consumer protection standards. the combination of lower production costs in the us with the highest european technological potential is a prerequisite for a production of excellent products at competitive prices and their sales in international markets, which in turn could stop the trend of declining role of the us and the eu in the global trade. ttip would also strengthen transatlantic political ties and make the voice of the eu and the us more powerful in the process of searching solutions of such painful problems of the modern world as intensification of terrorism and the nationalist movements, global warming and environmental pollution, rising unemployment, threat to peace from the so-called rogue states and the lack of respect for democracy and human rights in many countries. ash, k. 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(2013). rewitalizacja partnerstwa transatlantyckiego? perspektywy transatlantyckiego partnerstwa na rzecz handlu i inwestycji (pp. 107125). in j. m. fiszer (ed.), system euroatlantycki i bezpieczeństwo międzynarodowe w multipolarnym świecie. miejsce i rola polski w euroatlantyckim systemie bezpieczeństwa. warszawa: instytut studiów politycznych pan. wötzel, u. (2014). gute handelspolitik geht nur mit sozialstandards. neue gesellschaft. frankfurter hefte, 10, 19-22. world bank (2015). world development indicators. retrieved february 12, 2015, from http://data.worldbank.org/data-catalog/world-development-indicators wto, itc & unctad (2013). world tariff profiles (p. 198). geneva: world trade organization. eugeniusz gostomski prof. habil. dr. economics and finance (science field), institute of international business, university of gdańsk address armii krajowej 119/121, 81-824 sopot, poland tel. +48 58 5231274 e-mail: egostomski@wp.pl tomasz michałowski dr. economics and finance (science field), institute of international business, university of gdańsk address armii krajowej 119/121, 81-824 sopot, poland tel. +48 58 5231273 e-mail: t.michalowski@ug.edu.pl about the authors e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 90 european integration studies no. 13 / 2019, pp. 90-99 doi.org/10.5755/j01.eis.0.13.23437 abstract factors that motivate latvian consumers to purchase products and services from social enterprises in latvia: the case of socially responsible consumption http://dx.doi.org/10.5755/j01.eis.0.13.23495 kristine casno, university of latvia daina šķiltere, university of latvia the purpose of the study is to -determine the relative importance of various factors that motivate latvian consumers to purchase products and services from social enterprises in order to provide practical suggestions and recommendations for latvian social enterprises that would allow them to improve their performance. the primary method used by the study is quantitative research by the means of an online survey of latvian consumers of social enterprise products /services. the results of the research indicate that latvian consumers find the product / service quality aspects, as well as aspects of social responsibility and convenience of the shopping location, on average, as most motivating to purchase products / services of social enterprises. however, the results of factor analysis highlight the importance of emotional aspects during on-site shopping as well as the importance of digital presence. focus on the aforementioned could lead to optimal performance of social enterprises with limited marketing budgets. authors also found that such factors as pleasant atmosphere and friendly service have the highest potential to generate repeat purchases among latvian consumers, as confirmed by a statistically significant correlational relationship between the aforementioned factors and actual purchasing behavior of latvian social enterprise consumers. online sales also have potential to increase the economic performance of latvian social enterprises. consumers who regard online shopping highly on average display a less active shopping behavior which could be improved by offering online shopping opportunities. authors also found that, while communication of social value is still recommended as vital part of social enterprise marketing, it should not be the only focus of social enterprise marketing activities and associated communication. keywords: consumer value research, social entrepreneurship, marketing, social enterprise, marketing research biruta sloka, university of latvia introduction social entrepreneurship has become a global phenomenon that is widely recognized as a powerful means of tackling social and economic problems regardless of the lack of a common understanding of the concept by researchers across the world. social enterprises, operating under tight budgets and with limited human resources and marketing capabilities, also provide a significant contribution to sustainable economic development. marketing aspects are especially important for social enterprises as they face increasing competition with commercial entrepreneurs. given the limited research available regarding social enterprise marketing and the fact that no research has been conducted on this topic in latvia yet, this study aims to prepare practical recommensubmitted 06/2019 accepted for publication 10/2019 factors that motivate latvian consumers to purchase products and services from social enterprises in latvia: the case of socially responsible consumption eis 13/2019 91 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 the social entrepreneurship dations based on scientific findings and empirical research results for social enterprises to take into account by looking at the relative importance of various factors that motivate the consumer purchasing behavior in the social entrepreneurship context. tasks of research: to analyze the concept of social entrepreneurship, its development and role in promotion of sustainable development, to identify the best practices of social enterprise marketing and the role of socially responsible consumption in the social enterprise context and to establish the relative importance of various factors that motivate latvian consumers to purchase the products and services of latvian social enterprises. research methods: analysis of scientific publications, analysis of previous conducted research and survey. for most of aspects that were evaluated by a total of 329 respondents of the survey, a 1-10 point scale was used. data obtained in the survey were analyzed by descriptive statistics by use of indicators on central tendency or location (arithmetic mean, mode, median), indicators of variability (range, standard deviation and standard error of mean), cross-tabulations, correlation analysis and factor analysis. the study applies quantitative research design to collect the opinions and purchasing behavior data of latvian consumers who have previously shopped in social enterprises working in the areas of education and culture, charity shops and design products. social enterprise customers were selected as the target audience of the research to achieve higher consumer orientation among latvian social enterprises. the results of the study highlight the importance of emotional connection with consumers as well as the importance of digital presence and recommend social enterprises to pay significant attention to such factors as pleasant atmosphere and friendly service to increase the share of repeat purchases. the authors believe the research results have the capability to provide significant added value and support in research on latvian social enterprises by the means of enhanced economic performance and resulting in finding best options for creating sustainable social impact. the social entrepreneurship: its conceptual understanding and role in promotion of sustainable development – analysis of theoretical findings social entrepreneurship, whose origins can be traced back to the end of the 20th century, has turned into a dynamically growing global movement within the last twenty years. social entrepreneurs are generating new job opportunities creating significant social impact by changing behavior and consumption patterns across the world (nicholls, 2006). social entrepreneurship is growing in both developed and less-developed countries. in the case of the latter, social entrepreneurship initiatives are supported by government, but in the case of the former – it is rather a reaction of the society to its specific needs (tkacz, 2016). several research centers and support foundations across europe and north america are devoted to promotion of social entrepreneurship on a global scale. there is a selection of universities across the world that are eager to share the best practices of social entrepreneurship with the future social entrepreneurs (nicholls, 2006). by 2010 social entrepreneurship was already spreading in europe, usa, east asia and latin america (defourney & nyssens, 2010). in 2015, according to the global entrepreneurship monitor: special report on social entrepreneurship, in most regions of the world (except latin america), the number of young social entrepreneurs (age 18-34) exceeded the number of commercial entrepreneurs of the same age group (bosma, 2016). although social entrepreneurship in the context of the aforementioned report is defined rather widely, it nevertheless confirms the acceptance of this movement, led by the so-called millennium generation, on a global scale (tkacz, 2016). it must be noted that, up to today, there is no universal understanding about the concept and what can or cannot be defined as social entrepreneurship (dacin et al, 2010). nicholls (2006) have explained the ambiguity of the term with the dynamic nature of social entrepreneurs, however, kerlin (2010) argues that the differences in understanding of the concept and the specific character and form social entrepreneurship takes e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 92 from country to country can be attributed to the weakness or strength of such factors as civil society, role of the state, market economy and international aid. nevertheless, most researchers agree that the common feature shared by all social entrepreneurs is their dual nature which manifests itself in their ambitions to primarily achieve their social mission while simultaneously maintaining orientation towards economic activity (saebi et al, 2019). as greblikaite (2012) have pointed out, what matters most is that social entrepreneurs are capable to deliver successful results at both their social as well as economic missions. social entrepreneurs are solving social and economic problems with innovative, original and modern products and services that not only increase the overall well-being of the society but also promote the growth of the economy (tkacz, 2016). as dobele (2013) has explained, the contribution that social enterprises provide to sustainable economic development is a result of both quantitative functions (such as promoting employment, especially among most vulnerable social groups, tackling poverty and promoting entrepreneurship) and qualitative functions (such as increasing the social status of vulnerable groups, generating innovations and developing entrepreneurial capabilities) that, in addition to the aforementioned, also support balanced regional development. greblikaite et al (2017) also have highlighted the potential of social entrepreneurship to balance out the differences among regions in terms of poverty rates and social exclusion. frank and shockley (2016) analyzed social entrepreneurship from the point of view of knowledge economics and political economics and conclude that its greatest source of strength is its local nature because social entrepreneurs have the best knowledge of the social problems faced by their local community and thus are more capable than the state or local governments in generation of innovative solutions. currently, the social economy of european union unites 2 million social organizations that provide jobs for more than 11 million people (european, 2019). the capacity of social entrepreneurship to solve social and economic problems is recognized and appreciated within the european union by offering different support programmes for social organizations (dobele, 2013). social enterprise marketing and the case of the socially responsible consumer the increasing popularity of social entrepreneurship has resulted in vast amounts of research regarding the concept, its possible definitions (mitchell et al, 2015) as well as individual circumstances that motivate individuals to engage in social entrepreneurship, organizational factors that affect the potential of social entrepreneurs to acquire capital and its positive effects on the well-being of society (saebi et al, 2019). however, research covering such important aspects as marketing in social enterprises is comparatively scarce (mitchell et al 2015) regardless of the fact that marketing capabilities in social enterprises are especially important, if not most important, since their success and survival depends on their ability to influence the behavior of a multitude of target audiences – consumers, grant managers, volunteers, media, employees, legislators etc. (andreasen and kotler, 2008). existing research regarding marketing aspects in social entrepreneurship suggest that product or service quality rather than social value is of utmost importance to consumers (liu et al, 2015; choi and kim, 2013; srivetbodee et al 2017; mitchell, et al, 2015). mitchell (2015) and madill and ziegler (2012) have pointed out the benefits social entrepreneurs could gain from the synergy of social marketing and social entrepreneurship, however they also note that the discipline of social marketing requires a strong focus on the customer and a well-crafted strategy, which require marketing skills that social entrepreneurs often lack. mendoza –abarca and mellema (2016) discuss the benefits of “pay-what-you want” pricing in the social entrepreneurship context. dees (2012) has recommended social entrepreneurs to ensure their created social impact and economic results are made transparent to the wider society. dees (2012) as well as roundy (2014) also recommended social entrepreneurs to apply an emotional and personal approach in communication with their 93 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 customers. another interesting field of research, that is also applicable and must be considered in the social entrepreneurship marketing context, is socially responsible consumption. juscius and sneideriene (2013) have highlighted the increasing global trend of socially responsible consumption and define a socially responsible consumer as one who is fully conscious of the effects of his/her private consumption choices and/or endeavors to bring about social change through personal purchasing power. although juscius and sneideriene (2013) characterized socially responsible consumers as well-informed about social problems, active in their social life and having faith in their ability to bring about positive changes through consumption, they note that during the decision making process such factors as the product price, quality, convenience and information about the brand prevail. devinney et al. (2010) have explained such contradiction between consumer attitudes and actions, which they call “the myth of the ethical consumer,” with the importance of the context present in the specific purchasing situations. since in latvia no research has been previously conducted regarding marketing aspects in social enterprises, authors aim to uncover the factors (including social responsibility aspects, product price and quality etc.) that motivate purchase of social enterprise products / services most and also evaluate to what degree the relative importance of these factors results in more frequent purchasing behavior. empirical research methodology and results f ri en dl y se rv ic e c o nv en ie nt sh o pp in g o nl in e c o nv en ie nt lo ca ti o n o f th e so ci al en te rp ri se o pp o rt u ni ty to s u pp o rt so ci al c au se s in fo rm at io n in t he s o ci al ne tw o rk s an d w eb si te p le as an t at m o sp he re p ri ce o f th e pr o du ct / se rv ic e q u al it y o f th e pr o du ct / se rv ic e u ni q u en es s o f th e pr o du ct / se rv ic e mean 8,03 7,12 8,44 8,49 8,13 8,33 8,24 8,53 8,09 mode 10 10 10 10 10 10 10 10 10 n 164 157 160 163 160 162 160 160 161 range 9 9 9 9 9 9 9 9 9 std. error of mean 0,171 0,220 0,138 0,144 0,157 0,147 0,158 0,151 0,161 median 9 8 9 9 8 9 9 9 9 standard deviation 2,189 2,760 1,744 1,837 1,985 1,874 1,999 1,916 2,043 table 1 main statistic indicators of respondents’ evaluations on various factors motivating to make purchases from social enterprises source: authors’ construction based on questionnaire developed by kristīne casno and survey conducted in 2019, evaluation scale 1-10, where 1not motivating; 10 – very motivating, n=329 quantitative research was used in order to collect the data. over a period of almost 2 months an online survey was distributed with the aim to reach consumers of social enterprise products through social networks with the help of latvian social enterprises as well as latvian social entrepreneurship association. the respondents, among other questions, were asked to indicate how many times during 2018 they had purchased products or services of latvian social enterprises. they were also asked to indicate on a scale from 1 (not motivating) to 10 (very motivating) to what degree various factors motivated them to make purchases from social enterprises. the survey was completed by 329 respondents (the number of fully completed surveys was 224), 84% of them female, 16% male of whom more than 80% were of age 16-45 and held either a master’s or bachelor’s degree. the number of respondents who had not made any purchases of social enterprises’ products or services during 2018 was only 63. most respondents (46.8%) had made purchases 1-4 times during 2018, 11% of respondents – 5-8 times, 5.9% 9-12 times, and 9.7% of respondents – 13 times and more. overall, the respondents indicated all of the factors provided by the authors as rather motivating, as reflected in table 1. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 94 consumers find the quality of the products / services as well as the opportunity to support social causes and convenient location of the social enterprises to be motivating the most. the high score for quality of the product / service as a motivational factor is consistent with the existing research regarding the utmost importance of product quality for social enterprises. however, the results also indicate a rather high importance of social responsibility aspects as motivational among respondents which allows to conclude that communication of social value must be an important part of social marketing enterprise in order for them to perform well and is also consistent with the existing research on the topic. taking into account that social enterprises operate under circumstances of limited human and financial resources, which makes it difficult for them to focus on all factors at once, authors applied factor analysis (results are reflected in table 2) to see if it was possible to find a smaller number of more general components that would make it easier for social enterprises to set priorities to achieve optimal performance. rotated component matrixa complex factors feelings and emotions while shopping in-store convenience in the digital environment friendly service 0,619 0,399 convenient shopping online 0,023 0,715 convenient location of the social enterprise 0,322 0,668 opportunity to support social causes 0,313 0,626 information in the social networks and website 0,144 0,772 pleasant atmosphere 0,736 0,425 price of the product /service 0,742 0,160 quality of the product / service 0,802 0,269 uniqueness of the product/ service 0,782 -0,020 extraction method: principal component analysis. rotation method: varimax with kaiser normalization. a. rotation converged in 3 iterations. table 2 the results of factor analysis source: authors’ construction based on questionnaire developed by kristīne casno and survey conducted in 2019, evaluation scale 1-10, where 1not motivating; 10 – very motivating, n=329 with the help of factor analysis, authors were able to identify two general factors that would be most important for social enterprises to focus on. the first factor combines aspects associated with the feelings and emotions generated during the in-store shopping experience. this indicates that social enterprises should strive to create a personal shopping experience aiming to make a positive emotional connection with consumers through the marketing aspects of price, product and service. the second factor combines aspects associated with convenience available to consumers in the digital environment. this indicates that social enterprises must be also actively present, communicating their social value and, if possible, also selling their products online to be able to address the needs of the digitally-oriented consumers who value their time and demand fast feedback to the questions or comments they post on social networks and other digital communication channels. 95 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 authors were also interested to discover if the degree of importance respondents indicated for the various factors correlated with the actual shopping behavior (frequency) among consumers. notwithstanding the large share of respondents who indicated that they find the opportunity to support social causes to be very motivating (41.1% of respondents in total), authors did not observe any statistically significant correlational relationships between the importance of the respective factor and shopping frequency indicated by respondents (the results of correlation analysis are provided in table 3). correlations how many times did you purchase products / services of social enterprises in 2018? opportunity to support social causes how many times did you purchase products / services of social enterprises in 2018? pearson correlation 1 0,071 sig. (2-tailed) 0,370 n 174 163 opportunity to support social causes pearson correlation 0,071 1 sig. (2-tailed) 0,370 n 163 163 source: authors’ construction based on questionnaire developed by kristīne casno and survey conducted in 2019, evaluation scale 1-10, where 1not motivating; 10 – very motivating, n=329 table 3 correlation analysis results (shopping frequency and opportunity to support social causes) such results are partially consistent with the current research on the topic of socially responsible consumption, since, even though consumers do make socially responsible purchases, the consumers who indicate the opportunity to support social causes as a very important motivating factor for them, do not necessarily shop more often. on the other hand, authors observed statistically significant positive correlational relationship between the motivational importance of such factors as pleasant atmosphere and friendly service and actual purchasing behavior and a statistically significant negative correlational relationship between the motivational importance correlations how many times did you purchase products / services of social enterprises in 2018? pleasant atmosphere how many times did you purchase products / services of social enterprises in 2018? pearson correlation 1 0,246** sig. (2-tailed) 0,002 n 174 162 pleasant atmosphere pearson correlation 0,246** 1 sig. (2-tailed) 0,002 n 162 162 **. correlation is significant at the 0.01 level (2-tailed). source: authors’ construction based on questionnaire developed by kristīne casno and survey conducted in 2019, evaluation scale 1-10, where 1not motivating; 10 – very motivating, n=329 table 4 correlation analysis results (shopping frequency and pleasant atmosphere) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 96 correlations how many times did you purchase products / services of social enterprises in 2018? friendly service how many times did you purchase products / services of social enterprises in 2018? pearson correlation 1 0,198* sig. (2-tailed) 0,011 n 174 164 friendly service pearson correlation 0,198* 1 sig. (2-tailed) 0,011 n 164 164 *. correlation is significant at the 0.05 level (2-tailed). source: authors’ construction based on questionnaire developed by kristīne casno and survey conducted in 2019, evaluation scale 1-10, where 1not motivating; 10 – very motivating, n=329 table 5 correlation analysis results (shopping frequency and friendly service) correlations how many times did you purchase products / services of social enterprises in 2018? convenient shopping online how many times did you purchase products / services of social enterprises in 2018? pearson correlation 1 -0,281** sig. (2-tailed) 0,000 n 174 157 convenient shopping online pearson correlation -0,281** 1 sig. (2-tailed) 0,000 n 157 157 **. correlation is significant at the 0.01 level (2-tailed). source: authors’ construction based on questionnaire developed by kristīne casno and survey conducted in 2019, evaluation scale 1-10, where 1not motivating; 10 – very motivating, n=329 table 6 correlation analysis results (shopping frequency and convenient shopping online) of the factor ‘convenient shopping online’ and actual purchasing behavior (the results of correlation analysis are provided in tables 4-6). the statistically significant positive correlational relationship between the importance consumers assign to the factor ‘pleasant atmosphere’ and actual consumer shopping frequency, as reflected above,suggests potentially high returns for investments in shop ambience arrangements. friendly service is also an important motivational factor that results in actual increased shopping behavior, as confirmed by a statistically significant positive correlational relationship, as reflected above. such results suggest that additional staff training may yield positive economic returns for latvian social enterprises. another factor that statistically significantly correlated with consumer purchasing behavior was ‘convenient shopping online. 97 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 the statistically significant negative correlational relationship reflected above highlights the potential for an online store to increase latvian social enterprise sales. apart from the aforementioned, authors did not find any statistically significant correlational relationships between purchasing frequency and other factors. taking into account the results of the correlation analysis, authors conclude that pleasant atmosphere (indicated by 38.3% as very motivating (score 10) and, overall, by 75% as motivating (score above 8, including)) and friendly service (indicated by 37.2% as very motivating and, overall by 67.1% as motivating (score above 8, including,), are important factors for social entrepreneurs to consider as they have a significant potential to generate a higher number of repeat purchases. also, social enterprises may want to evaluate their capabilities to set up online shopping opportunities as this factor has a significant negative effect on purchasing frequency of consumers. however, social enterprises should not focus merely on communicating their social impact in their marketing communications, as it may not result in more frequent purchase behavior. overall, authors find the results of factor analysis consistent with the correlational relationships which further underscore the conclusions made by authors. conclusions and recommendations _ latvian consumers indicate that such factors as product /service quality, opportunity to support social causes and convenient location of the social enterprise, on average, motivate them to purchase the products / services of social enterprises the most, which partially corresponds with previous research and theoretical findings _ based on the survey results, authors conclude that, given the limited resources available for marketing purposes, latvian social enterprises should pay most attention to such marketing aspects as generation of positive feelings and emotions during in-store shopping experience and ensuring convenient access to information in the digital environment (including online shopping if possible). survey results also point out that latvian socially responsible consumers who find the opportunity to support social causes as very motivating, do not actually shop more frequently. consequently, authors recommend that communication of social impact created by social entrepreneurs as well as their social mission, while holding a vital position in marketing communications, should not be the only focus of latvian of social enterprise marketing. in order to generate more repeat purchases, social enterprises should focus their marketing efforts at enhancing the shopping experience for consumers, focusing on pleasant atmosphere and friendly service in particular. if possible, social enterprises should also consider selling their products online as it may result in more frequent purchases. current research is limited to social enterprises working in the latvian b2c market and includes social enterprises working in such areas as education and culture, charity shops and design products. further research could include social enterprises working in other areas (e.g. catering etc.) and expand the scope of social enterprises to include those that operate in the b2b market. references andreasen, a. r. & kotler p. 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(2010). conceptions of social enterprise and social entrepreneurship in europe and the united states: convergences and divergences. journal of social entrepreneurship, 1(1), 32-53. https://doi. org/10.1080/19420670903442053 devinney, t.m., auger, p. & eckhardt, g.m. (2010). the myth of the ethical consumer. new york: cambridge university press. 240 p. dobele, l. (2013). social entrepreneurship development possibilities in latvia. summary of the doctoral thesis for the scientific degree of dr. oec. jelgava, latvia university of agriculture. 113p. european commission (2019). internal market, industry, entrepreneurship and smes social economy in the eu. retrieved from: https://ec.europa.eu/ growth/sectors/social-economy_en greblikaite j. (2012). development of social entrepreneurship: challenge for lithuanian researchers. european integration studies, 6, 210-215. https://doi.org/10.5755/j01.eis.0.6.1498 greblikaite, j., gerulaitiene, n., žiukaite, ž. & garcia-machado, j. j. (2017). social economy: the potential and challenges of social enterprises in lithuania. european integration studies, 11, 53-64. https://doi.org/10.5755/j01.eis.0.11.18916 juscius, v. & sneideriene, a. (2013). the research of social values influence on consumption decision making in lithuania. economics & management, 18(4), 793-801. https://doi.org/10.5755/j01. em.18.4.5062 kerlin, j. a. (2010). a comparative analysis of the global emergence of social enterprise. voluntas, 21, 162-179. https://doi.org/10.1007/s11266-0109126-8 99 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 about the authors casno kristīne cand. mg.sc.admin., cand.for doctoral student university of latvia fields of interests social enterprises, quantitative analysis address aspazijas bulv. 5, riga, lv 1050, phone. + 371 27836333 kristine_casno@yahoo.com šķiltere daina dr.oec. professor university of latvia fields of interests expert surveys, expert evaluations, social enterprises, quantitative analysis address aspazijas bulv. 5, riga, lv 1050, phone. + 371 67034753 daina.skiltere@lu.lv sloka biruta dr.oec. professor university of latvia fields of interests multivariate data analysis, social enterprises, quantitative analysis address aspazijas bulv. 5, riga, lv 1050, phone. + 371 67034753 biruta.sloka@lu.lv 73 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 towards the internationalisation process of lithuanian universities http://dx.doi.org/10.5755/j01.eis.0.9.12797 jolita greblikaitė aleksandras stulginskis university, universiteto str. 10, lt-53361, kaunas, lithuania jurgita barynienė, živilė paužaitė kaunas university of technology, a. mickevičiaus st. 37, lt-44244, kaunas, lithuania submitted 04/2015 accepted for publication 07/2015 towards the internationalisation process of lithuanian universities eis 9/2015 european integration studies no. 9 / 2015 pp. 73-85 doi 10.5755/j01.eis.0.9.12797 © kaunas university of technology abstract under the pressure of globalisation and information technologies’ revolution nowadays world is characterized as fast changing and unpredictable. in such environment organisations cannot act separately in local markets. consequently the internationalisation becomes as one of the vital preconditions for surviving in nowadays world. this paper focuses primarily on the internationalisation process which is complex and multifaceted. for this reason the authors present the deep analysis on internationalisation concept and introduce it as a process which is developed in regional, national and local – organisational levels. higher education institutions and especially universities face the challenge of internationalisation as well. universities which prepare graduates for nowadays labour market should react to ongoing changes and make their strategies orientated towards internationalisation. universities separately implement internationalisation in their institutions according to their own institutional priorities. however it is noticed that the fragmentation of internationalisation process makes a negative impact on universities activities and competitiveness. consequently the universities should think about their internationalisation strategies achieving their strategic goals. scientific problem of the article is based on fostering competitiveness of lithuanian universities in the eu or even global market, where internationalisation appears as one of main preconditions to achieve it. in developing these insights the paper aims to reveal the peculiarities of internationalisation process in lithuanian universities. to achieve this aim three tasks were solved: to analyse the development of internationalisation concept; to analyse political and strategic guidelines of internationalisation of lithuanian universities; to highlight the peculiarities of internationalisation implementation in lithuanian universities. the paper presents qualitative research methods such as: analysis of lithuanian and international scientific papers, analysis of the eu and lithuanian documents, statistical comparative and explanatory analysis and interpretation. the results of the article: there was presented the common concept of internationalisation; there were analysed political and strategic guidelines of internationalisation of lithuanian universities; there were highlighted main peculiarities of internationalisation’s implementation in lithuanian universities. keywords: internationalisation, internationalisation concept, internationalisation process, internationalisation of lithuanian universities. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 74 during last decades the process of internationalisation becomes one of the most important issues in scientific and public discussions. private and public organisations deal with one and the same question, how to become more internationalised and use this as the competitive advantage for the improvement of situation in volatile market. institutions of higher education also treat the internationalisation as the vitally important process for their existence. this issue is broadly discussed in scientific literature (knight, j., 1997, 2004, 2005, 2008; teichler, u., 2009; kreber, c., 2009; kehm, b.m., 2011; de wit, h., 2002, 2010, 2011; maringe, f., 2010; fosket, n., 2010; martin, m., 2011, bulajeva, t., 2005, 2013). furthermore internatiolisation as a process experiences changes and modifications. according to wächter b. (2004) the understanding of internationalisation recently becomes widened. it includes not only the mobility of students and scholars, but deals with joint international efforts related to structural and regulatory issues of higher education systems as such. universities recently recognise internationalisation not as a final goal, but as a process of development, a way of new thinking and understanding. internationalisation appears as a new tool for competitiveness in a global market. all higher education institutions (public or private) without exceptions act in global area and think about the strategies and actions of internationalisation. according to the oecd, during 2000 – 2011, the number of international students extremely increased. european commission declares that the number of students abroad is going to quadruple till 2030. lithuania has an aim to reach 10 percent of foreign students from total number of students in 2020. internationalisation approach is highlighted in political level as the strategic trends of higher education (he) institutions. international association of universities (iau), european universities association (eua) as well as european commission (ec) embody the significance of internationalisation which strongly relates with the priorities of europa 2020, in which education is seen as the backbone of european economic development. a lot of efforts towards smooth internationalisation process are made in national level as well. lithuanian universities deal with internationalisation processes in parallel with european commissions initiated bologna process, already from 1999, however the necessity to face internationalisation as a need for broader and more strategic perspectives appeared only later, from 2006. lithuanian universities still face a challenge of new thinking, understanding and presenting their self as a part of internationalisation process. here the scientific problem is raised for deeper analysis: fostering competitiveness of lithuanian universities in the eu or even global market, where internationalisation appears as one of main preconditions to achieve it. the main aim of this paper is to reveal the peculiarities of internationalisation process in lithuanian universities in the context. the object of the paper is internationalisation of lithuanian universities. to achieve the aim three tasks were solved: introduction _ to analyse the development of concept of internationalisation identifying main rationales of universities for internationalisation; _ to analyse political and strategic guidelines of internationalisation of lithuanian universities; _ to highlight the peculiarities of internationalisation implementation in lithuanian universities. novelty of the paper: scientific generalisation of internationalisation process of lithuanian universities is still missing. in this matter made analysis in this paper creates an added value for future scientific insights and recommendations regarding internationalisation process in lithuanian universities. the research is based qualitative research methods such as analysis of lithuanian and international scientific papers, analysis of the eu and lithuanian documents, statistical comparative and explanatory analysis and interpretation. 75 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 in scientific literature there is emphasized that the importance of internationalisation process erected under the pressure of globalisation (altbach, p. g, reisberg, l., rumbley, l. r., 2009; altbach, p. g., 2006; foskett, n., maringe, f., 2010). nevertheless, it could be found some confusion in scientific literature regarding these two concepts (altbach, p. g., 2006). globalisation nowadays is used in different context and become one of buzzwords. despite of this, globalisation influenced and accelerated many processes in nowadays societies. internationalisation is not the exception and could be treated as the contemporary respond to the globalisation. analysing the factors which influenced the internationalisation process the technological development should be mentioned as well. rapid development of information and communication technologies has led the erection of new possibilities in education field, for example distance learning, moocs and etc. in practical and strategic level the possibilities of internationalisation at home broadly discussed. internationalisation at home involves the tools which provide the opportunity to be international for non – mobile students. it involves the curriculum, didactic methods which are orientated on internationalisation. however internationalisation is not new issue in higher education agendas. according to the university fundamental mission, this institution is orientated to internationalisation. for example, the mobility of students and professors is noticed even in the middle ages. welch, a. r., denman, b. d (1997) highlight that in the middle ages greek scientists visited other countries. despite of this, scientists agree that nowadays internationalisation gathers new pace and trends. the literature on internationalisation embodies the complexity of this concept. the variety of internationalisation concepts are presented in table 1. de witt, h. (2015) extended earlier understanding of internationalization process. according to this, higher education institutions should treat themselves as global actors and think globally. such strategic thinking should be implemented in all universities actions (from research and studies to management processes). knight, j. (1997) made in depth analysis of internationalisation concept and set four different approaches, such as: development of internationalisation concept table1 the internationalisation concept definition authors a broad scope of international activities, international relations and cooperation, international study programmes and research initiatives knight, 2004 integration and infusion of an international dimensionas a central part of a university’s programs zolfaghari, sabran, zolfaghari (2009) the process of integrating the institution and its key stakeholders – its students, faculty, staff – into a globalizing world hawawini, g. (2011) the intentional process of integrating an international, intercultural or global dimension into the purpose, functions and delivery of post-secondary education, in order to enhance the quality of education and research for all students and staff, and to make a meaningful contribution to society. de wit, h. (2015) _ activity approach (the scope of activities which describe the internationalisation: curriculum, student/faculty exchange, international students); _ competency approach (knowledge, skills, attitudes and values of students, staff, administration); _ ethos approach (culture, climate which stimulates intercultural initiatives); _ process approach (incorporation of intercultural dimension in all activities (teaching, research and etc.) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 76 reid, s., et al. (2010) have acknowledged seven approaches of internationalisation which include ethos (culture of institutions with atmosphere which is friendly to internationalisation); infusion (students, staff participation); mobility (curricula internationalisation), overseas campus (new branches of universities in other countries); internationalisation through content (cultural elements incorporated in courses); internationalisation through social events (mix of local and foreign students using platform of events); competency (especially intercultural competency including knowledge, skills, abilities, values). these conceptualisations prove the complexity and contextualisation of internationalisation process. universities choose different ways of internationalisation. bartell, m. (2003) argues that it depends on structure of university, strategic approaches, and organisational culture. in the end of the 20th century, universities focused more on activity approach. however now the process approach is leading and internationalisation is understood as the systemic process. why the internationalisation is so important for universities? according to the analysis of literature, four important rationales of internationalisation could be identified. these rationales are presented in table 2. in should be noticed that these rationales are strongly interconnected (agoston, s., dima, a. m., 2012). rationales could be different according to the country/regions peculiarities (de witt, h., 2010). in particular, rationales depend on institution’s strategy, vision, mission, main priorities, human resources, financial capital. the internationalisation brings one of important goals in knowledge based economies and societies – provide the possibility to participate in global networks, to create, use and disseminate the knowledge which is essential for economic development. today universities should rethink their strategies of internationalisation. nafsa (2012) identified several major shifts for higher education institutions regarding the internationalisation: _ to create the alliances between higher education institutions. these alliances based on collaboration could help to successfully compete; _ to seek for world talents which could be enrolled in education; _ to identify the strategic partners and strengthen this partnership in order to achieve economic, geopolitical aims; table 2 rationales of internationalisation rationale description authors political rationale intensification of national identity, strengthening the mutual relations between countries. knight, j. (1997), de wit, h. (2002), altbach, p. g, knight, j. (2007); baron, b. (1993); amaral, a., tavares, o., cardoso, s., sin, c. (2015) economic rationale the match between graduates competencies and labour market which stimulates economic growth and cohesion in societies knight, j. (1997), de wit, h. (2002), altbach, p. g., knight, j. (2007), maringe, f., woodfield, s. (2013), amaral, a., tavares, o., cardoso, s., sin, c. (2015) academic rationale the implementation of international standards in learning and research process knight, j. (1997), de wit, h. (2002), altbach, p. g., knight, j. (2007), maringe, f., woodfield, s. (2013), amaral, a., tavares, o., cardoso, s., sin, c. (2015) cultural/ social rationale the improvement of intercultural competencies. these competencies are seen as main acting in nowadays multicultural societies all over the world. knight, j. (1997), de wit, h. (2002), altbach, p. g., knight, j. (2007), maringe, f., woodfield, s. (2013), amaral, a., tavares, o., cardoso, s., sin, c. (2015) 77 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 european commission pays big attention to internationalisation processes in eu. in order to stay competitive, european commission decided to rethink higher education and presented new higher education strategy (communication from the commission to the european parliament, the council, the european economic and social committee and the committee of the regions), in which three important issues are highlighted (ec, 2013): political and strategic guidelines of internationalisation of lithuanian universities _ smooth mobility including students and staff. (this dimension relates with process of competencies recognition, focuses on learning outcomes.) _ internationalisation of curriculum (experience gained abroad, languages competencies, international cooperation); _ strategic cooperation (strategic partnerships, joined/doubled degrees), in order to trigger the internationalisation. the internationalisation process in europe is influenced by european higher education area (ehea) which could be treated as facilitator achieving goals of internationalisation. erasmus + programme could be mentioned as the example of internationalisation process in europe. internationalisation as a consequence of globalisation particularly affects small states (urbanovic j, wilkins 2013; martin m. 2011). integration into international markets becomes crucially important not only for business sector but also for higher education institutions to be competative. although internationalisation was always an important aspect for universities, recently it turns into a strategic goal globally, regionally and locally. due to this fact countries choose to implement internationalisation process by different strategies according to its focus and geographical scope. maringe, f. (2010) identifies five broad categories of internationalisation strategies: _ the recruitment of international students; _ student and staff mobility; _ international partnerships, including joint programmes of study; _ international collaboration for research, entrepreneurship or development; _ internationalisation of the curriculum. fosket, n. (2010) points out that ‘being international’ also has quality dimensions not only geographical. internationalization involves institutions working with individuals and organisations from other countries and ensuring that their education and research are of a standard that is recognised as being of ‘international quality’. according to urbanovic, j., wilkins, s. (2013) at both national and institutional levels, a range of internationalisation strategies can be developed and implemented to improve the quality of higher education in small states (table 3). knight, j. (2005, 2008) and urbanovic, j., wilkins, s. (2013) state that internationalisation revolves around two basic components: internationalisation at home the actions undertaken in the institution’s home context (rather curriculum-oriented) and internationalisation abroad offshore activities. these components do not exclude one another, but are intertwined in policies and programmes (table 4). internationalisation of higher education could be achieved through geographical dimension focusing on actions in different scopes: globally, regionally and nationally. as one of the examples of a regional internationalisation strategy of higher education could be considered the bologna process. this strategy is focused on higher education in the european union region and its partner countries. the main goal of bologna process was a creation and implementation of european higher education area by 2010. it is obvious that the bologna process has stimulated higher education reforms in the majority of european countries politically and practically at both national and institutional levels. it has become a tool to make common decisions as well as create long term programmes (karveliene, r., 2014, ubanovic, j., wilkins, s., 2013). however, the bologna proe u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 78 table 3 possible strategies to improve the effectiveness of higher education internationalisation in small states (adapted according to urbanovic, j., wilkins, s., 2013) the internationalisation process in europe is influenced by european higher education area (ehea) which could be treated as facilitator achieving goals of internationalisation. erasmus + programme could be mentioned as the example of internationalisation process in europe. political and strategic guidelines of internationalisation of lithuanian universities internationalisation as a consequence of globalisation particularly affects small states (urbanovic j, wilkins 2013; martin m. 2011). integration into international markets becomes crucially important not only for business sector but also for higher education institutions to be competative. although internationalisation was always an important aspect for universities, recently it turns into a strategic goal globally, regionally and locally. due to this fact countries choose to implement internationalisation process by different strategies according to its focus and geographical scope. maringe, f. (2010) identifies five broad categories of internationalisation strategies: • the recruitment of international students; • student and staff mobility; • international partnerships, including joint programmes of study; • international collaboration for research, entrepreneurship or development; • internationalisation of the curriculum. fosket, n. (2010) points out that ‘being international’ also has quality dimensions not only geographical. internationalization involves institutions working with individuals and organisations from other countries and ensuring that their education and research are of a standard that is recognised as being of ‘international quality’. according to urbanovic, j., wilkins, s. (2013) at both national and institutional levels, a range of internationalisation strategies can be developed and implemented to improve the quality of higher education in small states (table 3). table 3 possible strategies to improve the effectiveness of higher education internationalisation in small states (adapted according to urbanovic, j., wilkins, s., 2013) establish clear goals and strategies at both national and institutional levels develop and implement a carefully planned change management programme measure and evaluate performance after internationalisation strategies are implemented allocate adequate funds for investment and improvement engage in benchmarking with the best higher education systems and institutions globally invest • in staff development to improve understanding of internationalisation goals and • methods • in training to improve the foreign-language competence of staff (teaching and nonteaching) • and students establish more international partnerships and collaborative agreements achieve economies of scale through institutional mergers attract the best international professors and students knight, j. (2005, 2008) and urbanovic, j., wilkins, s. (2013) state that internationalisation revolves around two basic components: internationalisation at home the actions undertaken in the institution’s home context (rather curriculum-oriented) and internationalisation abroad offshore activities. these components do not exclude one another, but are intertwined in policies and programmes (table 4). table 4 components of internationalisation at home and abroad table 4 components of internationalisation at home and abroad internationalisation at home campus internationalisation abroad cross-border curriculum and programs movement of people teaching/learning process delivery of programs extracurricular activities mobility of providers liaison with local cultural and ethnic groups international projects research and scholarly activity source: (adapted according to knight, j., 2005, 2008; urbanovic, j., wilkins, s., 2013). cess does not aim to harmonise national educational systems but rather to provide tools to connect them (greblikaite, j., et al., 2014). the intention is to allow the diversity of national systems and universities to be maintained while the european higher education area (ehea) improves transparency between higher education systems, as well as implements tools to facilitate: recognition of degrees and academic qualifications, mobility and exchange between institutions. lithuanian universities are actively responding to internationalisation process from 1999, after the lithuania has joined the bologna process. however, small states such like lithuania face an internationalisation as a challenge. with reference to bulajeva, t. (2013), markevičienė, r. (2013), karvelienė, r. (2014) some lithuania’s documents (period of 1999-2012) that harmonise lithuanian higher education (programme for the promotion of internationalisation in lithuanian he 1999-2010, the development plan of the lithuanian higher education system of 2006-2010, regulations of national education strategy 2003-2012) concealed the international problem. however higher education institutions understood the importance of internationalisation and in their strategic and development documents assigned the internationalisation process to the development aims (e.g. universities strategic development plans, strategic activities plans, development strategies, etc.) (karvelienė, r., 2014). in addition, concrete state documents indicating internationalisation development guidelines appear as well under the universities initiative from 2006 (2006 the study “the global practice of promotion of higher education internationalisation 79 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 and guidelines of its application”, 2008 the “programme for the promotion of internationalisation in higher education, developed for 2008-2010”, 2011 the programme for the promotion of internationalisation in higher education 2011-2012, 2013 the national action plan for internationalisation of lithuanian higher education 2013-2016). made analysis of lithuanian political and strategic initiatives based on concrete documents revealed a direct link between bologna process and lithuanian efforts towards internationalisation of lithuanian universities (table 5). made analysis of the eu and lithuanian political and strategic documents revealed, that mobility factor in the bologna process plays an important role. it appears as a connecting aspect in internationalisation process of higher education. documents introduced in the frame of bologna process are clearly focused to give mobility a boost and in this way to strengthen the internationalisation in he regionally and nationally. as an example can be taken two the above mentioned documents (table 5): the european higher education in the world strategy (2013) and the national action plan for internationalisation of lithuanian higher education 2013-2016 (2013). both documents simultaneously (regionally and nationally) pursue similar goals towards internationalisation of he through mobility. starting from 1999 lithuania has made a big progress in the process of internationalisation of he. made analysis revealed that universities and their initiatives made a big impact on identifying main obstacles of internationalisation of universities and presented strategic guidelines how to overcome them. with reference to this fact can be stated, that in small states such as lithuania it is particularly important bottom up principle where universities play the main role. national strategic and political guidelines towards internationalisation of higher education should respond to the needs and recommendations of universities. synergy between governmental and higher education institutions would create a harmonious basis for more effective implementation of internationalisation of higher education. in 2014, lithuania had 23 universities and 24 colleges of higher education, which together had around 200,000 student enrolments (ministry of education and science, 2014). the number of students was about 151 000 in 2013-2014. in the beginning of new academic year 2014-2015 the students’ number was 99 000 in universities and about 46 000 in colleges (less more than 10 percent comparing with the previous year). as opposite, according eurostat, the number of studying abroad lithuanian young people is growing every year. as in 2007 it was already stated that a lot of high quality potential students left lithuania government introduced some changes in higher education policy and its implementation. most recent changes introduced include making all state institutions public entities, allowing them greater freedom in decision-making; a new funding mechanism which is tied to the student, so that funding goes where the best students choose to go; the availability of more state supported student loans and social scholarships; various strategies to increase the quantity and quality of research output; the introduction of more courses taught in languages other than lithuanian, such as english, russian and polish; and the setting of a target to have international students accounting for 10% of total higher education enrolments by 2020 (ministry of education and science, 2011; urbanovic, j., wilkins, s., 2013, p. 6-7). although internationalisation is an important aspect of the reform of lithuania’s higher education, the ministry of education and science has identified globalisation and internationalisation as two of the greatest challenges. coping with new challenges lithuanian universities are still suffering transition in terms of quality and quantity. quality is related with overall operations at universities: study programmes, research, administration process. the management of universities becomes rather based on peculiarities of internationalisation in lithuanian universities e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 80 ta bl e 5 m os t i m po rt an t d oc um en ts in tr od uc ed in th e fr am e of b ol og na p ro ce ss . c om pa ri so n: e u & lt r eg io na l l ev el d oc um en t ( eu ) im pa c t s ta te le ve l d oc um en t ( lt ) im pa c t s or bo nn e d ec la ra tio n, 1 99 8 m ob ili ty o f s tu de nt s an d te ac he rs b ol og na d ec la ra tio n 19 99 m ob ili ty o f s tu de nt s, te ac he rs , r es ea rc he rs a nd ad m in is tr at iv e st aff . c re di t s ys te m (e c ts ) p ro gr am m e fo r th e p ro m ot io n of in te rn at io nal is at io n in l ith ua ni an h e 19 99 -2 01 0 c on ce al th e in te rn at io na l p ro bl em p ra gu e c om m un iq ue 2 00 1 s oc ia l a sp ec ts o f m ob ili ty ; i m pa rt ia l r ec og ni tio n; l ife lo ng l ea rn in g (l l p ); e c ts a nd d ip lo m a s up pl em en t ( d s ) b er lin c om m un iq ue 2 00 3 tr an sf er en ce o f s ch ol ar sh ip s, im pr ov em en t of m ob ili ty r at es ; e c ts – c re di t a cc um ul at io n; qu al ity a ss ur an ce a t i ns tit ut io na l, na tio na l a nd e ur op ea n le ve ls r eg ul at io ns o f n at io na l e du ca tio n s tr at eg y 20 03 -2 01 2 c on ce al th e in te rn at io na l p ro bl em b er ge n c om m un iq ue 2 00 5 a tt en tio n to v is as a nd w or k pe rm its ; i nt er na tio nal c oo pe ra tio n ba se d on v al ue s of h ar m on io us de ve lo pm en t 20 06 th e de ve lo pm en t p la n of th e l ith ua ni an hi gh er e du ca tio n sy st em o f 2 00 620 10 c on ce al th e in te rn at io na l p ro bl em 20 06 th e st ud y “t he g lo ba l p ra ct ic e of p ro m ot io n of h ig he r ed uc at io n in te rn at io na lis at io n an d g ui de lin es o f i ts a pp lic at io n” d ev el op m en t o f i nt er na tio na l c oo pe ra tio n in h e . l on do n c om m un iq ue 2 00 7 c re at io n of th e re gi st er o f q ua lit y as su ra nc e of e ur op ea n hi gh er e du ca tio n; a pp ro ve d st ra te gy o f w or ld w id e de ve lo pm en t o f t he b ol og na p ro ce ss 20 08 th e “p ro gr am m e fo r th e p ro m ot io n o f in te rn at io na lis at io n in h ig he r e du ca tio n, d ev el op ed fo r 20 08 -2 01 0 d ev el op m en t o f i nt er na tio na l c oo pe ra tio n in h e . l eu ve n c om m un iq ue 2 00 9 to e nc ou ra ge e h e a s tu de nt s to s tu dy a br oa d; b ud ap es t – vi en na d ec la ra tio n 20 10 b al an ce o f c oo pe ra tio n an d co m pe tit io n in in te rn at io na l a re a; in te rr el at io ns o f t he c ou nt ri es pa rt ic ip at in g in th e b ol og na p ro ce ss 20 11 20 11 th e p ro gr am m e fo r th e p ro m ot io n of in te rn at io na lis at io n in h ig he r e du ca tio n 20 11 -2 01 2 in te rn at io na lis at io n of s tu di es b ut a ls o of re se ar ch , c lo se r co nt ac ts w ith fo re ig n sc ie nc e an d ed uc at io n in st itu tio ns , t he de ve lo pm en t o f c oo pe ra tio n w ith l ith ua ni an re se ar ch e m igr an ts a nd th e st re ng th en in g of th e li th ua ni an s pi ri t. b uc ha re st c om m un iq ue 20 12 “m ob ili ty fo r b et te r le ar ni ng . m ob ili ty s tr at eg y 20 20 fo r th e eu ro pe an h ig he r ed uc at io n a re a (e h ea )”) . e ur op ea n hi gh er e du ca tio n in th e w or ld s tr at eg y 20 13 p ro m ot e m ob ili ty a nd c oo pe ra tio n be tw ee n un iv er si tie s, e u m em be r st at es a nd n oe u c ou ntr ie s. 20 13 th e n at io na l a ct io n p la n fo r in te rn at io na lis at io n of l ith ua ni an h ig he r e du ca tio n 20 13 -2 01 6) . fu nd in g fr om s tr uc tu ra l f un ds fo r im pl em en ta tio n of e ct s, pr ep ar at io n of j oi nt p ro gr am m es , o rg an is at io n of p la ce m en ts ab ro ad , s tu de nt g ra nt s an d pr om ot io n of l ith ua ni an h e ab ro ad . m ob ili ty w as r ec og ni se d as o ne o f i m po rt an t c ri te ri a ev al ua tin g th e pr og re ss o f h ig he r ed uc at io n in st itu tio ns . 81 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 achieving goal in every field of activity. quantity is tied to the number of the universities needed in lithuania as well as to the number of the students studying and willing to study in lithuania. lithuanian universities suffer two competing major trends – globalisation and regionalisation (musial, k., 2007). playing globally the need of internationalisation grows. the excellence of teaching and research is required playing internationally or on global scale. as the social actors universities play specific role engaging themselves in closer with the society and its needs. this role is implemented through the certain forms of professional training, partnership, consultancy, and research (janiunaite, b., gudaityte, d., 2007). the synergy of combining three identities – regionalism, nationalism and internationalism – is a challenge for lithuanian universities. enders, j. (2004) sees internationalisation as a universal trend in higher education. some universities have high regional trend or even local focus as their identification, for example, siauliai university or klaipeda university in lithuania. those universities serve for the region in economic and cultural terms and have their specificity in the orientation of study fields as pedagogy in siauliai university or marine studies at klaipeda university. such universities are focusing their activity on their closest locality where potential students can be accessed. the focal point focusing on local community remains up to fifty kilometres radius from the institutions. the universities based in capital of lithuania – vilnius are moving towards cosmopolitism as well as implementing quality assessment for excellence. for example, vilnius university might be well acting at supranational level, for example, in the baltic region. virtual and physical mobility of academics created transnational community in lithuanian universities. the role of academics overlapped the boundaries of generating and processing knowledge and reached the mobility of academic products. implementation of joint degree programmes can assure transnational cooperation and quality in educational process as well. the second biggest town of lithuania – kaunas suffers more transitional path for universities willing to be based on internationalism and on the other hand implementing some regional functions. kaunas university of technology participates in regional development projects and is a strong actor for regional development in the area. the university also faces some lack of students and this is leading to thought about the one university in kaunas region named kaunas university integrating three or even five universities. such changes are effecting the development of universities in two sided way. universities are willing to make changes and strengthening their positions. from the other side universities are not sure about future perspectives and reorganisations which will influence all strategies and development trends again. on the other hand eu enlargement and free flow of labour empowered to take the strategies of internationalisation for almost every university in lithuania creating new types of clients (for example, belarus, russia, kazakhstan, india, pakistan, spain, nigeria, ukraine and etc.) and stakeholders who became a requirement for future success. universities are adapting their strategies for their new potential students, especially strengthening teaching in english or russian, moving to e-teaching and e-learning. sometimes such actions are more useful to foreign students and native students suffer inconvenience lacking knowledge of foreign languages or even might be not adjusting to multicultural groups. in these cases applied management is important as means of effective internationalisation strategy implementation. the staff of universities feel more obliged to follow bologna process documents than feel the need of quality assessment in all university processes including internationalisation (urbanovic, j., wilkins, s., 2013). even the price for foreign students is rather low at lithuanian universities, but infrastructure is not sufficient and bureaucracy procedures are rather complex for administration. according urbanovic, j., and wilkins, s., (2013), there are as much benefits as drawbacks implee u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 82 menting internationalisation of higher education in such rather small countries as lithuania (see table 6). such positive aspects as improvement of quality, becoming more competitive, getting additional funds, acquiring intercultural competence are very important for universities and it might serve as precondition for playing on a global scale. despite of a lot of positive aspects internationalisation of universities in lithuania has some doubtful areas where additional attention should be paid. appropriate considerations should be made concerning costs of internationalisation, impact on quality of study and teaching, adequate competence identification, even some racial questions. developing strategies of internationalisation for concrete university should be considered according to the goals, capabilities and expected outcomes. effectiveness of internationalisation in universities should be evaluated. special attention should be paid for higher education policy debenefits drawbacks increases legitimacy of higher education systems and programmes improves international competitiveness of higher education systems and institutions improves the quality of programmes, teaching and research better prepares graduates for employment in the global labour market provides a means to increase higher education capacity international students provide institutions and nations with a new source of revenue and experience partnerships and international collaboration enable participation in large-scale high quality research promotes cultural integration and understanding – develops intercultural competence might follow international agendas rather than national interests costs of investing in infrastructure and staff development can be high/unaffordable internationalisation is often accompanied with some momentum demand, narrowing access to higher education quality might fall if international students lack language skills or motivation for study not cost-effective if insufficient demand for internationalised programmes inappropriate for domestic students who do not need international competencies low foreign language competence among faculty and students reduces quality encourages more staff members and students to join labour markets abroad might incite increased nationalism and racism among domestic population table 6 potential benefits and drawbacks of internationalisation in higher education in small states source: (adapted according urbanovic, j., wilkins, s., 2013). velopment in lithuania because of which direct influence is suffered in universities. state support in managing difficulties is sufficient and is necessary in such countries as lithuania encountering economic and social problems and still challenging transition and strong competition in higher education as well. it seems that internationalisation is unavoidable, but the level of it might differ combining with some national and regional strategies of universities. 1 according to the made analysis the interna-tionalisation of he is a nowadays topicality and a complex and long lasting process integrating international, intercultural and global aspects. internationalisation concept has various interpretations based on different approaches and rationales. but the essence of it remains that internationalisation is something important to understand widely and deeply as well as to implement correctly in universities for their better position in global market. 2 since 1999 a big progress has been achieved in the process of internationalisation of he regionally in the european union conclusions 83 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 and nationally taking into account the case of lithuania. strategic documents of the european union and lithuania have revealed main problems of internationalisation of he as well as foreseen future guidelines for its implementation. furthermore internalisation was recognised by lithuanian universities as a necessity for new thinking, understanding and representing their self as a competitive part of a global market. 3 in depth analysis of the eu’s and lithua-nian documents has revealed that mobility appears as a connecting component of internationalisation of he. successful implementation of mobility could give internationalisation of he a boost and furthermore it could accelerate the process of internationalisation. 4 the european union in the regional level and the european union member states in their national level create a management of internationalisation process of he from the strategic point of view. consequently recently appears a big demand for institutional internationalisation strategies, which would correspond to national and institutional needs as well as priorities. 5 the economic and social situation in eu and lithuania fostered various changes in universities. playing internationally became necessity, not only fashion. lithuanian universities struggle three different and related paths of regionalism, nationalism, and internationalism. 6 for each lithuanian university the strat-egy of internationalisation should be developed adapting to its uniqueness and main aims. but it should me mentioned that mostly common is regionalism versus internationalism or something in between, which is challenging and especially depends on implementation quality and effective management. the order of minister of education and science of the republic of lithuania (2013). action plan of promotion of 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(2009) internationalisation of higher education: european experiences. asia pacific education review, march, volume 10, issue 1, 93-106. http://dx.doi.org/10.1007/s12564-009-9002-7 the bologna declaration, (1999) joint declaration of the european ministers of education. retrieved from: http://www.magnacharta.org/resources/ files/bologna_declaration.pdf urbanovič, j.,wilkins, s. (2013). internationalisation as a strategy to improve the quality of higher education in small states: stakeholder perspectives in lithuania. higher education policy, 26(3), 373-396. http://dx.doi.org/10.1057/hep.2013.6 wächter b. (ed.). (2004). higher education in a changing environment. internationalisation of higher education policy in europe. bonn: lemmens, . isbn 3-932306-55-4, 8-12. welch, a. r., and denman, b. d. (1997). internationalisation of higher education: retrospect and prospect”, forum of education, 52(1), 14-29. zolfaghari, a., sabran, m. s., zolfaghari, a. (2009). internationalization of higher education: challenges, strategies, policies and programs. u.s.china education review, 6(5), 1-9. jolita greblikaitė phd social sciences aleksandras stulginskis university address universiteto str. 10, lt-53361, kaunas distr., lithuania tel. +370 61644615 e-mail: jolita19@gmail.com jurgita barynienė phd in social sciences (business and administration), lecturer kaunas university of technology faculty of social sciences, arts and humanities institute of europe address a.mickevičiaus st. 37, lt-44244, kaunas, lithuania e-mail: jurgita.baryniene@ktu.lt živilė paužaitė lecturer kaunas university of technology faculty of social sciences, arts and humanities institute of europe address a.mickevičiaus st. 37, lt-44244, kaunas, lithuania tel. +370 68669923 e-mail: zivile.pauzaite@ktu.lt about the authors e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 244 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 244-256 doi 10.5755/j01.eis.0.9.12811 © kaunas university of technology leadership values in transformation of organizational culture to implement competitive intelligence management: the trust building through organizational culture eis 9/2015 abstract leadership values in transformation of organizational culture to implement competitive intelligence management: the trust building through organizational culture http://dx.doi.org/10.5755/j01.eis.0.9.12811 andrejs cekuls faculty of economics and management, university of latvia, aspazijas blvd. 5, riga lv-1050, latvia the purpose of this paper is to explore the role of leadership values in changing of organizational culture to implement competitive intelligence. general criteria and values should be defined for observance in the processes of competitive intelligence management. organizational culture can be supportive of changes when it corresponds with the prevailing values. the aim of this study was to do an investigation within companies in latvia, research the scientific resources on this matter as well as understand the leadership values that stimulate the successful implementation of competitive intelligence management. the study was performed in two stages: first, the examination of the process of competitive intelligence and second, the determination of the role of organizational culture and leadership values in implementation of competitive intelligence. at the first stage, research was carried out regarding implementation of competitive intelligence management in latvian companies (n=60). the research in latvia shows that prospects of ci process should be evaluated from the point of view of organizational culture. at the second stage, another research was carried out regarding the role of organizational culture in the implementation of competitive intelligence technologies in latvian companies (n=39). the results showed that successful turnover of information is hindered by mutual distrust among employees. trust was found the essential element allowing for interaction within relationships and social exchanges. further, there were significant correlations between both organizational culture and ci. the main difficulties emerging in the process of implementing cultural transformation projects are related with changes in the behavior of organizations. leaders are responsible for the currently created culture, and they are the ones who have to establish the new culture. keywords: leadership values, trust, organizational culture, competitive intelligence, knowledge sharing. 245 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 along with the growing role of information, also organization leaders’ comprehension increases regarding the necessity to arrange internal processes of organization or to perform organizational changes in order to be able to give efficient response to the changes caused by external environment most sources dealing with organizational changes assume that all attempts of changes are at least theoretically appropriate to the existing situation (herold & fedor, 2008). therefore, it is topical not only to observe the changing environment, but also to elaborate such functional measures within the organization, which would ensure implementation of the potential changes. prescott j. emphasizes that implementation of the competitive intelligence system into an organization often calls forth the necessity of changing the employees’ habitual behaviors. from an organizational perspective, a growing body of evidence suggests that leadership can affect organization performance (agle, et al., 2006; waldman, et al., 2004). barrett (2006), for his part, believes that organizational culture is the mirror of this organization leaders’ consciousness; therefore, cultural transformation begins with leaders’ individual transformation. when defining “solutions” of changes within the organizational culture transformation process, unwillingness of leaders to acknowledge personal prejudices, values and habits can hinder the process of changes. organizational cultures consolidate the shared beliefs, assumptions, goals and values of their members. in addition, various researchers suggest that the shared values of organizational members, which their cultures encapsulate, contribute to the sustained success of the organizations (barney, 1986; deal & kennedy, 1982; fairholm, 1991; malphurs, 1996; peter & waterman, 1982). in culture transformation process, the leader is considered to be an expert in technical or particular aspects of the intended changes or in the general leadership of changes. if an organization as an entirety has the experience of past, culture exists in such organization. cultural value orientations shape beliefs on effectiveness of leadership styles (house, et al., 2004; kirkman, et al., 2009; thomas, et al., 2001). organizational culture has also been recognized to have an important role in assuring efforts in organizational change (ahmed, 1998; delisi, 1990; lorenzo, 1998; schneider & brief, 1996; silvester & anderson, 1999; pool, 2000). the way, in which competitive intelligence and dissemination of information will be carried out, depends on each organizational culture based on employees’ undivided understanding of collection and exchange of business information. (cekuls, 2014). introduction scientific studies show that organizational culture encourage sharing of information (abzari & teimouri h., 2008; al-alawi, et al, 2007; chin-loy & mujtaba, 2007; mcdermott & o’dell, 2001), which is one of key factors in competitive intelligence management. the study on implementation of competitive intelligence management in companies indicated the trends that employees of latvian enterprises lack motivation to share information. an important number of respondents emphasized that the results of competitive intelligence are only distributed among the authorized persons of the organization, and this could hamper informational interaction within organization. the study confirmed that power in latvia’s companies is mainly concentrated with one or several leaders who take all major decisions. in indicates that information turnover at latvia’s companies is mostly one-way. this evidence could also witness about the hierarchic system of information transfer or about shortcomings in the knowledge movement processes in general. introducing changes into organizational structure, values of organizational culture should be assessed. it is intercommunication problems that are considered to be communication defects of a certain culture. problem statement e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 246 although respondents in latvia admitted that information from people obtained within the organizational framework serve for competitive intelligence, a comparatively low evaluation in the study has been given to the statement that the existing organizational culture encourages sharing of information. in the light of this information, it was important to determine the leadership values that directly impact the process of competitive intelligence. shaw (1997) believes that organizations with low levels of trust are fighting an uphill battle when trying to implement new operating principles and processes. they are at a competitive disadvantage because every step in the change process becomes more difficult and time consuming at all levels. the definition shows that leaders should balance two mutually compensatory forces: on the one hand, the necessity to implement changes into the organization, and on the other hand, to maintain the human aspects of changes. leader’s appropriate social skills and values play an important role in the processes of changes within organization. most values come from senior leaders and permeate all levels of organizations (hambrick, 1987; kilcourse, 1994; schein, 2004). the institutional leader is primarily an expert in the promotion and protection of values (rowsell & berry,, 1993). the scientists herold & fedor (2008) argue that even though culture embodies mostly intangible characteristics of organizations, it is mainly considered an entirety of key values and opinions accepted by organizational members in the course of time, because these have turned out to be most efficient for problem solving. at the first stage, quantitative research was carried out regarding implementation of competitive intelligence management in latvian companies (n=60). in order to clarify the process of competitive intelligence management the questionnaire by calof j. and breakspeare a. (cronbach’s alpha 0.974) about stages of ci process was used: (1) planning and focusing, (2) data collection, (3) data analysis, (4) communication, (5) process and structure, (6) information and culture. at the second stage, another research was carried out regarding the role of organizational culture in the implementation of competitive intelligence technologies in latvian companies (n=39). the questionnaire was prepared on the basis of three theories: 1) the theory developed by calof j. and breakspeare a. regarding the competitive intelligence process, 2) the theory of organizational culture developed by cameron k.s. and quinn r.e. 3) the whole system approach to cultural transformation by barrett r. the results of the first research revealed a range of negative phenomena related to the competitive intelligence implementation process can be understood if considered within the context of organizational culture. the statement “our corporate culture encourages sharing information” has received the lowest score of 2.38. (using a five point likert scale) within the part “information and culture”. the better understanding of values, the less interferences hinder creation of a supporting organizational culture. the organizational culture unified within the entire organization and with elements of supportive culture, favors successful competitive intelligence management. it should be noted that before the process of reorganization of the entire system is started including also cultural transformation, it is important that management was aware of the reasons, due to which this reorganization is necessary; employees of the company, on their part, should understand why the process of system reorganization has been started at the company. the results of the study pointed out the problems in the communication system of companies in order to implement successful competitive intelligence management. in the technological process of competitive intelligence, organizational members should collaborate at all ci stages; the role of leaders is particularly important at the first stage, when the requirement is defined for competitive intelligence goal, which will determine the focus of the sphere of information. the results showed that in latvia companies do not have a solid internal communication technique study design and results 247 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 within them. the statement “there is a central coordination point for receiving of competitive information” in the survey received the lowest score averaging at 1.72 (using a five point likert scale) within the part “process and structure” of competitive intelligence. the research showed a strong positive correlation between the parts “ information and culture” and “process and structure” (r=0.866, α= 0.01). to understand how the introduction of new technologies affect organizations, it is important to understand the role of organizational culture. while organizational structure and process show the formal working methods of the organization, the values of organizational culture reveal the actual ones. when introducing changes into organizational structure, values of organizational culture should be assessed. it is important to note that another correlation between the parts “information and culture” and “data collection” was discovered. for instance, the results regarding percentage of time spent for stages of ci process (table 1) revealed that nearly the least time is spent for transfer of informatable 1 percentage of time spent for stages of ci process source: author’s. stages of ci process percentage planning and focusing 16.1 data collection 35.2 data analysis 17.7 communication 11.7 process and structure 12.3 information and culture 7.1 tion. most of respondents admitted that their companies have not established the way for employees to report their observations and provide information. the survey revealed that latvian companies spend twice as much time on gathering intelligence rather than analyzing it. the results confirmed that the main focus of gathering intelligence is on competitors’ daily operations which, according to the research 32.3% of the total time spent on competitive intelligence. however, it must be noted that this information might not correspond with the requirements of the management as only 22% of the respondents said that the reason for doing work on competitive intelligence has been communicated internally. the author believes it is important to communicate the results of the competitive intelligence research further within the company so that the management can make decisions based on it. the results of the research prove the necessity of transformation of organizational culture to implement competitive intelligence, and the creation of such set of values that motivates people support the implementation of competitive intelligence. when introducing changes within the organization, values of organizational culture should be assessed. the value system dominating in the organization and the social standards based on it, form the organizational culture, in which values determine what managers expect from their employees and employees – from their managers. taking into account the role of organizational culture in the processes of changes, organizational changes should not be considered as mutually independent, isolated events, because employees respond to the total view of the environment of changes. if there is willingness to understand how organizational context affects implementation of new technologies and what is the impact of technologies upon the organization, the role of organizational culture should be identified. at the second stage the role of organizational culture in implementation of competitive intelligence was assessed. the results showed important correlations that confirmed the results of the first part of this research: there is a strong relationship between successful competitive intelligence gathering depending on the cultural values and the current organizational culture within the company (r = 0.631, α = 0.01). 44% of the respondents believe that the organization should ensure an environment in which there is open communication and trust between the employees. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 248 72% of the respondents think that the culture of the organization is the most important aspect of ensuring successful internal communication and trust building within the company. the research showed a strong positive correlation between organizational culture and successful implementation of competitive intelligence depending on culture specific issues (r=0.964, α= 0.01). consequently, there could be a positive change within the organization if the cultural values of the organization were improved. on the other hand, 62% of the respondents say that many problems that are generally stated as “communication gap” or “inefficient level of collaboration” can be considered as imperfections in the cultural value systems. in case changes comply with main standards and values of organizational culture and become a value of the company culture, then culture plays a positive role in development of the organization and the implementation of competitive intelligence. figure 1 role of organizational culture in ci process (cekuls, 2014) without a compatible culture, a common vision, and a common organizational value-set, leadership is not the dynamic at work (fairholm & fairholm, 2000).the better is the organizational members’ understanding of values, the less interferences hindering creation of an organizational culture consistent with technological changes. experts of changes herold & fedor (2008) speak about difficulties caused by turbulent organizational environment in the process of changes. applying this concept to separate organizations, scientists speak about internal instability, which is felt by organizational members and which can encumber the employees when they will attempt to introduce some particular changes. even though the leader carefully considers what should be changed, what and how will be done, the degree of interferences should be taken into account, because employees may be disappointed by the negative response to their plans. interferences are conditions reducing efficiency of each stage of competitive intelligence, thus affecting the course of entire process. (cekuls, 2014). it should be taken into account that employees’ ability of adapting to changes is restricted, therefore the way of the best use of this ability depends on leaders. the changes, which include remarkable centralization of power and resources, will cause a much more serious and negative reaction in an open and supporting culture than in an extremely structured and bureaucratic culture. it should be noted that in organizations with hierarchical structure, differing views can emerge regarding the way information turnover should develop among organizational members at different hierarchical levels. therefore, it would be necessary to establish common criteria and values observed in the processes of competitive intelligence management. organizational culture can be supportive of changes when it corresponds with the prevailing values. prospects of the ci process should be evaluated from the point of view of organizational culture – does the existing organizational culture support implementation of the ci process (figure 1)? two alternatives can be considered: (1) to disregard culture in competitive intelligence management. in this case, organizational culture can obstruct or entirely stop efficient implementation of the role of organizational culture in competitive intelligence management done, the degree of interferences should be taken into account, because employees may be disappointed by the negative response to their plans. interferences are conditions reducing efficiency of each stage of competitive intelligence, thus affecting the course of entire process. (cekuls, 2014). it should be taken into account that employees' ability of adapting to changes is restricted, therefore the way of the best use of this ability depends on leaders. the changes, which include remarkable centralization of power and resources, will cause a much more serious and negative reaction in an open and supporting culture than in an extremely structured and bureaucratic culture. it should be noted that in organizations with hierarchical structure, differing views can emerge regarding the way information turnover should develop among organizational members at different hierarchical levels. therefore, it would be necessary to establish common criteria and values observed in the processes of competitive intelligence management. organizational culture can be supportive of changes when it corresponds with the prevailing values. prospects of the ci process should be evaluated from the point of view of organizational culture – does the existing organizational culture support implementation of the ci process (figure 1)? figure 1. role of organizational culture in ci process (cekuls, 2014) two alternatives can be considered: (1) to disregard culture in competitive intelligence management. in this case, organizational culture can obstruct or entirely stop efficient implementation of competitive intelligence in the company; (2) to develop culture compliant with organizational goals regarding competitive intelligence. in such case, the competitive intelligence plan should be supplemented with measures focused towards learning, implementation and consolidation of the desired organizational culture throughout the organization. the questionnaire performed in latvia showed that eighty five percent of respondents agree that organizational culture is able to facilitate successful process of competitive intelligence (ci) in the company. a range of negative phenomena possibly related to the process of competitive intelligence can be understood if considered within the context of organizational culture. there is a limited range of scientific sources regarding aspects of organizational culture for successful implementation of competitive intelligence management (rustman, 2002). most discussions of organizational culture (cameron & ettington, 1988; o’reilly & chatman, 1996; schein, 1996) agree with the idea that culture is a socially constructed attribute of organizations which serves as the “social glue” binding an organization together. a majority of writers have come to an agreement that it refers to the taken-for-granted values, underlying assumptions, expectations, and definitions present, which characterize organizations and their members (cameron, 2004). organizational culture includes core values and a consensual view upon the things happening in an organization. culture can be defined as an active living phenomenon, which refers to ideas and values of people and can affect people’s actions without explicitly being noticed (bolboli & reiche, 2014). organizational culture is judged by many to be a major determinant of company success (baker,, 2002) especially now organizations deal with the idea of change (coolican & jackson, 2002). ehlers (2009) has pointed out that culture consists of the following elements: norms and values, patterns of thought, opinions and attitudes, stories and myths about changes, language habits and conducts and collective expectations. the two main disciplinary foundations of organizational culture are sociological (e.g., organizations have cultures) and anthropological (e.g., organizations are cultures). within each of these disciplines, two different approaches to culture were developed: a functional approach (e.g., culture emerges from collective behavior) and a semiotic approach (e.g., culture resides in individual interpretations and cognitions) (cameron, 2004). it is a complicated task to develop and implement formal structures and processes required for maintaining trust. but many business leaders believe that hardest part of building competitive organizations and teams is managing the culture, or what is often considered the "soft side" of organizational life. they understand that values, operating principles, and norms are difficult to manage yet demand attention, for these are often key in determining how well an organization or team operates (shaw, 1997). culture is an enduring, slow to change, core characteristic of organizations. changing organizational culture is a very difficult goal to achieve, not only because culture is largely unrecognized, but because once set, commonly shared interpretations, values, and patterns are difficult to modify (cameron, 2004). theorists and practitioners speak a lot about transformation of culture, but less about impact of culture upon the changes (herold & fedor, 2008). the issue of culture is, however, often remembered for explaining difficulties encountered when implementing changes or expecting a successful process of changes. transformation of organizational culture schein (1996) believes that cultures cannot be changed arbitrarily, but can evolve as the group eliminates the dysfunctional or undesirable elements of the current culture suc does h dis ch y e s n o competitive intelligence in the company; (2) to develop culture compliant with organizational goals regarding competitive intelligence. in such case, the competitive intelligence plan should be supplemented with measures focused towards learning, implementation and consolidation of the desired organizational culture throughout the organization. 249 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the questionnaire performed in latvia showed that eighty five percent of respondents agree that organizational culture is able to facilitate successful process of competitive intelligence (ci) in the company. a range of negative phenomena possibly related to the process of competitive intelligence can be understood if considered within the context of organizational culture. there is a limited range of scientific sources regarding aspects of organizational culture for successful implementation of competitive intelligence management (rustman, 2002). most discussions of organizational culture (cameron & ettington, 1988; o’reilly & chatman, 1996; schein, 1996) agree with the idea that culture is a socially constructed attribute of organizations which serves as the “social glue” binding an organization together. a majority of writers have come to an agreement that it refers to the taken-for-granted values, underlying assumptions, expectations, and definitions present, which characterize organizations and their members (cameron, 2004). organizational culture includes core values and a consensual view upon the things happening in an organization. culture can be defined as an active living phenomenon, which refers to ideas and values of people and can affect people’s actions without explicitly being noticed (bolboli & reiche, 2014). organizational culture is judged by many to be a major determinant of company success (baker,, 2002) especially now organizations deal with the idea of change (coolican & jackson, 2002). ehlers (2009) has pointed out that culture consists of the following elements: norms and values, patterns of thought, opinions and attitudes, stories and myths about changes, language habits and conducts and collective expectations. the two main disciplinary foundations of organizational culture are sociological (e.g., organizations have cultures) and anthropological (e.g., organizations are cultures). within each of these disciplines, two different approaches to culture were developed: a functional approach (e.g., culture emerges from collective behavior) and a semiotic approach (e.g., culture resides in individual interpretations and cognitions) (cameron, 2004). it is a complicated task to develop and implement formal structures and processes required for maintaining trust. but many business leaders believe that hardest part of building competitive organizations and teams is managing the culture, or what is often considered the “soft side” of organizational life. they understand that values, operating principles, and norms are difficult to manage yet demand attention, for these are often key in determining how well an organization or team operates (shaw, 1997). culture is an enduring, slow to change, core characteristic of organizations. changing organizational culture is a very difficult goal to achieve, not only because culture is largely unrecognized, but because once set, commonly shared interpretations, values, and patterns are difficult to modify (cameron, 2004). theorists and practitioners speak a lot about transformation of culture, but less about impact of culture upon the changes (herold & fedor, 2008). the issue of culture is, however, often remembered for explaining difficulties encountered when implementing changes or expecting a successful process of changes. schein (1996) believes that cultures cannot be changed arbitrarily, but can evolve as the group eliminates the dysfunctional or undesirable elements of the current culture and builds on the strengths and virtues of the desired culture. bennis (1993) defines some clues as to how this change occurs. he posits that positive change requires doing three things: (1) gaining our trust; (2) expressing their vision clearly so that we all not only understand but concur; (3) persuading us to participate. transformation of organizational culture e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 250 cameron (2004) believes that most people are unaware of their culture until it is challenged or a new culture emerges, or until the moment when the culture is transformed as open and clear by using, for example, a system or a model. however, if cultural changes are found to be the intended goal for the organization, organizational members should engage into performing the cultural changes step by step, thus applying motion to the process of cultural transformation. the objective of these steps is to direct organizational culture from current situation to the intended future situation. these steps are described by cameron (2004), based on the work of several authors who have described successful change interventions aimed at organizational culture change (e.g., hooijberg & petrock, 1993; denison, 1989; trice &beyer, 1993; cameron & quinn, 1999; kotter, 1995). these steps initiate change in individual and organizational processes, conversations, language, symbols, and values, none of which by itself ensures that culture change will occur, but in combination they create a great deal of momentum toward fundamental culture change in organizations (cameron, 2004). inspired from reger et al., researchers bolboli & reiche (2014) have illustrated the probability of accepting culture change by members. researchers bolboli & reiche (2014) believe that in case the change in organizational culture is low defined (i.e. close correspondence between current and ideal identity), employees can admit the culture changes as needless and believe that the current state of culture is equivalent enough with the ideal situation. on the other hand, by extending the scope of defined changes, the gap between current and ideal situation will increase, thus causing organizational stress and stimulating employees to seek for solution in order to eliminate the gap. when changes in organizational culture take place, optimal situation is in case the gap between current and ideal situation is large enough, but still insufficient to take the ideal situation as unachievable. if the difference between current and ideal organizational culture is within the zone of the acceptance, probability of acceptance the culture changes by organizational members will increase. clear understanding of what the organizational culture change might mean and what it cannot mean is mentioned by cameron (2004) as one of the main steps for acceptance of culture changes. if the organization is making progress towards one particular culture, it does not mean that other types of culture should be ignored or completely rejected. it only means that certain elements should be particularly emphasized so that culture changes were successful. in the transformation process, an organization should not refuse of the main aspects, which make it unique, even though some of the aspects will be modified in the process of changes. when defining culture change, one should be aware of what will be maintained and what will be altered as a result of transformation. cameron (2004) writes that it is absolutely clear resistance to culture change will occur within the organization. as a result of changes, individual’s basic way of life will be challenged and such familiar and habitual environment will be changed. as a result, fundamental change of aspects should occur, which could cause severe resistance. leaders of change should be able to explain the changing realities to employees. leadership has been suggested as one of the most crucial factors contributing to the attitudes of employees toward their organization (buckingham & coffman, 1999; bass, et al., 2003). informing about the process of culture change is an instrument for reducing and overcoming resistance and its possible consequences. explaining the reason why culture change should be carried out might be the most important step to ensure transformation. research suggests that people tend to explain “why” to people they care about and hold in high esteem (cameron, 2004). perception of changes 251 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the research (herold & fedor, 2008) about how leaders and followers perceive the specific aspects of changes managed by leaders and how this perception is related to various results of changes – both personal and individual – showed that regarding the behavior of change launching and both stages of implementation, leaders believe they perform better than their subordinates think. the research has revealed that leaders are much more optimistic than their subordinates regarding the process of changes. data about the stage of change maintenance are interesting in that they show broad consensus between both groups. it could indicate that leaders do not spend much time in order to evaluate the process of change, to ensure feedback, to express supportive gratitude or otherwise show ceremonial behavior. experts (herold & fedor, 2008) believe it could rather be a characteristic feature of organizational culture than a quality of individual leaders. unsuccessful change can be a significant obstacle to motivation, especially if occurred repeatedly. it is important to take care of the maintenance of changes, to communicate mutually in order to find out the actual situation – how implementation of changes proceeds, so that there was minimum difference between the opinions of leaders and subordinates. inability of noticing difference in opinion will preclude leaders from improving their work. it is important to focus on the change leadership behavior in general. leaders should regularly ask for the opinion of other employees during the process of change in order to obtain an approval of the assessment of personal performance and to what extent the subordinates experience difficulties because of being unable to accept change suggestions. once culture changes have been introduced, leaders of change should be prepared to manage the organization. the new skills of leadership will have to be specified. differences between current leadership and future leadership requirements should be articulated. in the process of changing, it should be ensured that leaders’ values complied with future cultural requirements. often values are published in organizations, pasted on the walls and that is expected to change the culture. successful organizations bring values to life in everything that happens in the organization (cook, 2008). research has shown that leader and employees function at different levels depending on their values orientation (hall, 1998). employees need to know how to translate the values. if people understand the meaning, how it links to what they do, what positive impact it can have on them and their colleagues, then employees will be more motivated to put values into practice. values need to be well communicated, to become part of the culture of an organization. fukuyama (1995) believes that trust arises when people share a set of values so that certain expectations about consistent and honest behavior exist. moreover, the particular character of the values is less important than the fact that they are shared. leaders’ values of their care for followers, integrity, and competence are all necessary to foster interpersonal trust – an essential ingredient in servant leadership (covey, 1990, greenleaf, 1977; kouzes & posner, 1995; melrose, 1995; pollard,, 1996; russell, 2001; russell & stone, 2002). barrett (2006) believes that the primary task to be completed at the preparatory stage of changing the entire system is to evaluate general values of the particular company in order to find out employees’ personal values and their views about the current cultural values and the desired cultural values. the process should be started with identification of the steering group’s values and with the steering group’s commitment to change their behavior. in the research by herold & fedor (2008) about the relative impact or contribution due to the way a leader conducts the certain changes, about the leaders’ general leadership styles and about the willingness to work for the certain changes, personal trust overpowered the behavior of the leadership of smart change. not all leaders, however, enjoy close relationships with their followprocess of changing and values e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 252 ers in order to use these relationships during the changes. on their part, even those who have such behavior at their disposal can replenish their personal competences with a more relevant behavior suitable for changes. for example, the organization, the activity of which is hindered by poor internal relationship, could focus on building trust. trust plays a fundamental role in the process of social exchange by clearing individuals of their obligation (blau, 1964). he believes that the maintenance of the relationship in the long term is heavily dependent on the sense of trust established between the two individuals. fairholm and fairholm (2000) believe that leadership is a task of teaching a common vision common organizational principles and a process of instilling and encouraging trust. several studies witness that trust facilitates knowledge sharing in the organization (ghoshal & bartlett, 1994; goh, 2002; renzl, 2008; holste & fields, 2010). trust being the essential element allowing for interaction within relationships and social exchanges (young, 2006; bachmann & inkpen, 2011). thus, trust tends to crystallize the relationship between two individuals by building a virtuous spiral of exchanges (paillé, et. al, 2013). examining trust as an essential element of culture, we can understand how a lack of a trust culture permits discord and disharmony not only in organizations, but also in social institutions from the family to the world (greenleaf, 1996). shaw (1997) believes that the most critical actions for developing the appropriate culture for a high-trust organization or team are: (1) develop a common vision and shared view of competitive realities; (2) live by genuinely felt values and operating principles; (3) build familiarity across levels and groups; (4) encourage a culture of risk taking and experimentation; (4) make visible a few powerful symbols of trust and collaboration. within the literature, some previous research has been conducted on the factors affecting the development of trust. there are personal factors such as communication (selnes, 1998), ability (sichtmann, 2007), education attained (massey & dawes, 2007), experience with the task, expertise and disposition (sarker, et al., 2001). the research done by experts of change herold & fedor (2008) showed that leaders who have established relationships of personal trust will enjoy followers’ support in the period of certain changes, even though they will not do everything “by the book” when it comes to practical management of change. however, in case this behavior related to change is inappropriate or is not considered to be mutually favorable, it will exhaust the resources of trust and make changes much more difficult. the behavior of leaders has been shown to influence the perception of organizational culture among followers (block, 2003) and it is thought that the types of practices involved arise from the basic assumptions managers make in developing and attempting to implement visions/ philosophies and/or business strategies necessary for the company’s long-term survival (igo & skitmore, 2006). building trust in an organization requires a leader to engage in a difficult task, one fraught with risk (fairholm & fairholm, 2000). several forces may hinder the development of trust among group members: (1) individual (interpersonal communication, apathy and alienation, the risk of trusting others, personal selfish interest, leader sensitivity to follower needs); (2) organizational: (authority structure, the lack of effective accountability mechanisms, a history of negative trust events, organizational structure) (3) societal: (the general decay of moral values). as trust is a key relationship commodity, if not the key relationship commodity, an understanding of how to operationalize the power of the trust concept is important for managers (dowell, et.al, the trust building 253 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 2013). leader should persuade the followers to accept the change on the basis of strong mutual personal trust they have obtained from those whom they ask to change. these relationships are characterized by mutual support of various level and by mutual necessity-satisfaction that will affect followers’ disposition to act in the direction recommended by the leader. followers will act in the scope adequate with their trust to the leader that he has the experience and resources required for successful results and that the leader will support them throughout the process of change. the leader of change will listen in others’ opinion, will be open for contributions from others, will get information, find out problems together with others, will encourage, develop action plans and celebrate success. the research concluded the significance of the organizational culture and the necessity to implement competitive intelligence management emphasizing such leadership values as trust, open communication and collaboration. the results revealed a strong relationship between successful competitive intelligence gathering depending on the cultural values and the current organizational culture within the organization the research revealed that a successful turnover of information is not facilitated by a mutual distrust among employees. the main difficulties emerging in the process of implementing cultural transformation projects are related with changes in the behavior of an organization. leaders are responsible for the currently created culture, and they are the ones who have to establish the new culture. the way, in which competitive intelligence and dissemination of information will be carried out, depends on each organizational culture values. the organizational culture, a characteristic feature of which is mutual confidence between leaders and employees, will ensure successful competitive intelligence management in the organization. among the dominant values of organization, cooperation, helpfulness and availability for team work should be included. further trust is more likely when the goals or objectives for the organization or team are clearly articulated and accepted. conclusions abzari, m. and teimouri, h. 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changes have affected the set objectives and activity spheres: from the war industry – coal and steel sector – over-national control institutions the aim of which is to ensure stable peace in europe, nowadays eu has become a union that comprise more than twenty common policy and activity spheres. the integration process of europe has been continued by setting new objectives, meeting new challenges and looking for better solutions. eu budgetary funds provide support for wide scope of activities. this support regarding its scope may be changeable – starting from the whole covering of expanses and finishing with financial support of only some percents. the range of potential recipients of financial aid is also wide. not only member states but also candidate states, separate municipalities, public organizations, private enterprises, universities and even separate individuals can be among them. in many with structural funds related documents it is highlighted, that the aim of eu structural funds is to eliminate the regional and social inequalities among eu member states and to improve economical and social cohesion throughout all europe. certainly these funds is a great benefit for eu peripheral countries like ireland, baltic states, and they can substantially promote development of these countries. though one has to remember that a substantial financing also creates a risk and that inadequate use of these funds can stimulate regional inequality, social outcast, environmental degradation and corruption. ireland is one of economically most developed, industrial, trade – oriented states, that until now has managed to use means of eu structural funds most successfully. the received finances from eu support funds have considerably favoured state’s economical growth. during last five years latvia as an eu member state had available remarkable means of european union policies financial instruments, which still in the hard times of national economy keep stimulating the growth and development of the state. also in the period from 2009 till 2015 there is planned a substantial support of european union budget for latvia, which in the further years will proceed to come into state’s economy. the ability of latvia to acquire and to forward these finances for development of the most important sectors in regions is a cornerstone of a successful development of the state. considering the experience of eu peripheral state – ireland, latvia has the opportunity to compare its situation and governmental decisions in state development area, in this way evaluating main core reasons of development and analyzing mistakes of a similar country. development model of state of ireland gives state of latvia the opportunity to create to the utmost effective directions, core statements and plans of further development of state economy, which would facilitate sustainable increase of state’s development. if to compare latvia’s experience in field of economical growth development, it is obvious, that latvia has performed more in an experimental way, not regarding experiences of other countries of similar situations, not relating political, social, economical and regional targets, considering also that they always changed radically when new political forces entered the leading political environment. key words: structural funds, funding, financing, development of theories, regional equality. issn 1822-8402 european integration studies. 2010. no 4 117 introduction nowadays european union (eu) has become a union that comprise more than twenty common policy and activity spheres. the integration process of europe has been continued by setting new objectives, meeting new challenges and looking for better solutions. every new member state joining eu has to observe acquis conimunautaire1 – a principle that foresees that „candidate countries have to get ready for receiving support from european union structural funds. this is not an easy task; first of all every new member state has to get acquainted with the rules of eu regional policy and afterwards has to adjust its national legislation, administrative and financial instruments for attraction of structural funds. the better the country fulfils these tasks the more affective it will be able to use the assistance of structural funds. as the ireland’s example shows the fund assistance can provide a very important and positive support for the development of national economy” (kalniņa i., sebre a., grūberte d., 2001). ireland is one of the economically most developed, industrial and market-oriented countries which until now has most successfully used eu structural funds. the received financing from eu support funds has considerably promoted economic growth of the country. in ireland during the recent years rapid development with impressive growth and employment indicators was experienced. alongside with it ireland works intensively with quality and efficiency, insuring the existing demands of the labour market. for most part the efficiency of solving these issues is implemented with the help of eu structural funds. during last five years latvia as an eu member state had available remarkable means of european union policies financial instruments, which still in the hard times of national economy keep stimulating the growth and development of the state. also in the period from 2009 until 2015 there is planned a substantial support of european union budget for latvia, which in the further years will proceed to come into state’s economy. the ability of latvia to acquire and to forward these finances for development of the most important sectors in regions is a cornerstone of a successful development of the state. by entering eu in 1 may 2009 latvia as a new of the new member states also had an opportunity to participate in regional and structural policy processes of eu with an objective to ensure quicker proximation of latvia’s economical and social indicators to the average level of eu member states. during the last five years financing of more than 1 milliard lvl has flown into the national budget with positive balance which is 2% from 1 es basic package, which consists of the treaties establishing the basis and the underlying laws and regulations and which is binding on all eu member states. the country’s gross domestic product in the respective period (finan u ministrija, 2009). eu budgetary funds provide support for wide scope of activities. this support regarding its scope may be changeable – starting from the whole covering of expanses and finishing with financial support of only some percents. the range of potential recipients of financial aid is also wide. not only member states but also candidate states, separate municipalities, public organizations, private enterprises, universities and even separate individuals can be among them. as it is stated in many documents related to structural funds the aim of eu structural funds is to prevent regional and social inequality among eu member states and their regions and to improve economic and social cohesion in all europe. certainly these funds is a great benefit for latvia and they can substantially promote development of our country. though one has to remember that a substantial financing also creates a risk and that inadequate use of these funds can stimulate regional inequality, social outcast, environmental degradation and corruption (brizga j., 2007). when latvia started its way towards eu the following objective was set – “latvia joins eu because we want to see europe as an effective and competitive actor that plays on global scale and latvia would have to integrate and become a part of it. latvia’s aspiration to become an eu member state stands out from the basic interests of our society. latvia integrates into eu to implement interests of the society. eu is something more than just an economic conception. common values and ideals is a stable basis for creation of a family with stable, secure and happy nations. the idea of integration is alive as long as society supports it.” (hajo b., kissiov v., martikonis r., marton i. and ulca i., 2002). so the aim of latvia in european union is to promote people’s welfare and to raise the quality of life. in the period of time from 2009 until 2015 a substantial eu budget support for latvia is planned so it will continue coming into state’s economy. latvia’s ability to uptake this financing and channel it to the development of the most important sectors in regions is like a keystone for successful regional development. taking into consideration the experience of the eu peripheral country – ireland, latvia has an opportunity to compare its situation and government’s decisions in state’s development sphere thus evaluating the main development reasons of a similar state and analysing the made mistakes. the development example of ireland provides a good opportunity for latvia to create most effective further state’s economic activity directions, framework and plans that would promote constant growth of state’s development. comparing latvia’s experience in the field of economic development growth it is evident that latvia has acted more by experimenting issn 1822-8402 european integration studies. 2010. no 4 118 instead of, looking at the experience of other countries being in the same position, not binding together political, social, economical and regional objectives that were always sharply changing when the new political force entered the government. that is why the aim of the research is defined – to evaluate ireland’s and latvia’s achievements in acquisition of structural funds. the dealt tasks for implementation of the objective: to evaluate ireland’s good practice experience in 1. acquisition of eu structural funds. to analyse latvia’s experience and results in 2. acquiring eu structural funds. materials and methods in the research of the topic normative acts of the republic of ireland are normative acts – researches of irish scientists on changes in the country since its joining eu, the processed data from the home page of the ministry of agriculture of the republic of ireland and the publicly accessible data of irish central statistics office and of republic of latvia – scientific researches in the sphere of eu structural funds, the processed data in the home page of the ministry of finance, eurostat data. the main methods used – monographic descriptive method, verification of content compliance among documents of different levels, method of analysis, method of synthesis to explore problem elements and to synthesize interconnections or to formulate conformity to natural laws, collecting and processing facts, statistics, other data and specific information on the implemented activities and events of eu structural funds. results and discussion ireland’s good practice example in acquisition of eu funds ireland s one of the most centralized states in europe; it is a sovereign, independent state. there is liberal democracy with parliamentary government system in the state. it comprises about 80% of the islands of ireland, and since the 1973 it is a member state of the european union (eu). the capital of ireland is dublin, the territory occupies 70 300 square kilometres with 3.6 million inhabitants (agriculture in ireland). the irish have strengthened their local authority for the better use of the support of european union. for this reason a reform was done and all the municipalities were united into eight regions. (according to area and number of people it is very similar to the five planned counties in latvia). the only task of regional authority is coordination of relevant development projects between counties and brussels – only three civil servants perform this work and for maintenance of the new authority of each region the state spends from 70 to 140 thousand lvl per year (i. andiņš, 2002). right now only a little bit more than in 20 years, ireland’s government has achieved its economic growth and its results in recent years shows that it is the eu country with the largest gross domestic product (gdp) growth per year. as latvia, also the republic of ireland is situated in the european border, it is a small, peripheral country which 25 years ago was a back warded western european outskirts, and its only engine of the economy was agriculture (par īrijas veiksmēm, latvijas izredzēm). eu have had the greatest impact on ireland’s economy, in its influence state’s agriculture and industry strengthened (vaidere i., vanags e., vanags i., vilka i., 2008). analysing ireland in comparison with latvia in agricultural economic sphere it is obvious that at the moment agricultural development and policy in ireland is more progressive, open and developed than in latvia, it is one of the basic sectors of the country while in latvia only now the government have started discussing and planning to direct it as one of the state’s basic priorities. it should be also noted that farmland in latvia, in comparison with ireland, is much more qualitative and of high value which means that the mentioned natural resource in latvia is also more accessible than in ireland – it is not necessary to use so much additional chemicals. in latvia it is possible to grow food more naturally and biologically. in ireland industry sector highest technologies developed especially well foreign capital was attracted widely, the companies had access to the big european market. though after joining eu ireland partly lost its autonomy of economic policy, the benefits it brought were more considerable. the trade became more balanced. if in 1960 75 % from ireland’s export was directed to united kingdom then in 1980 it was 43 % and in 1995 – only 35 %. the share import of goods from the united kingdom fell from 50% in 1960 to 35% in 1995 year (vaidere i., vanags e., vanags i., i. vilka, 2006). joining eu ireland had great hopes for it. it was connected with common eu policies in different spheres as well as structural funds that allocated money for different spheres. after signing the union’s contract 1992 the priorities of the state were identified – education, idea sharing, training, youth issues, health care, culture and human rights. however it should be noted that comparing with latvia’s politicians, irish politicians and specialists can better acquire considerable resources from structural funds that allows them to improve those state spheres after signing the agreement of the union in 1992 the priorities were identified – education, idea sharing, training, youth issues, health care, culture and human issn 1822-8402 european integration studies. 2010. no 4 119 rights. though one has to admit that in comparison with latvian politicians irish politicians and specialists can get much more resources from structural funds which help them to improve such public spheres that falls out of eu. the financing was mostly channelled to the following aims: agriculture, fishery, forestry industries, tourism and 1. rural development; industrial and service sectors;2. preventing peripheral effect;3. for labour resource needs.4. the republic of ireland understands that without joining eu its development would not be so successful but here the great ability of the state to attract eu funds to such a peripheral country and use and invest them for the common state development should be mentioned. most of them were foreseen for the realization of common eu agricultural policy which served good for the state’s development (ireland agriculture, ireland republic department of agriculture official web site). overall, eu membership has given ireland the growth of investment and capital flows, new work places, more stability and hence higher welfare. analysing the successful economic growth of the republic of ireland for more than 20 years it is possible to define several internal and external reasons of state development. among these reasons eu membership and the provided opportunity to acquire the funds is to be mentioned. successfully used development possibilities and government’s action in acquiring eu funds demonstrates that the following list of reasons has been the basis for national recovery and strengthening and ensuring their positions also nowadays. peter sutherland – irish politician, economist, and member of european commission and the head of international bank has expressed in public for several times that “ireland’s membership in eu is with no doubt the most essential reason of ireland’s economic progress in recent past. it is removal of borders and liberation of dependency on united kingdom which is connected with excellent access to markets (sweeney p., 2008). the intensive work of government and agencies, substantiation of views and ability to attract additional resources from eu funds gave the country relevant development jump especially in infrastructure and training spheres (clinch p., convery f., walsh b., 2002). ireland implements and understands also that isolated use of structural funds and acquisition of finances does not ensure economic growth. it all has to be implemented in parallel with the appropriate national economic and sectoral policies, create effective institutional and administrative structures, which also contribute rational use of allocated funds. irish economy specialists’ views on acquisition of eu funds differs – one part of analysts consider that eu financing is partly wasted by investing it to social sphere instead of investing it into the development of infrastructure which still is not complete (sweeney p., 2008). it should be added that in comparison with latvia’s infrastructure ireland has accomplished considerably more. employment growth and the low unemployment rate created a situation when ireland’s population pyramid was not normal – in the middle it was very narrow, which meant that the country lacked the working-age population (sweeney p., 2008). the real current situation was as a consequence of ireland’s national period, when it experienced a rapid and disruptive migration wave in the seventies of the nineteenth century. mostly the talented, able-bodied population and people willing to work emigrated while the remaining were mostly low-skilled residents. after the 1980 situation rapidly changed young people were given better education, government paid attention to finances of education sphere, increasing them and strengthening the quality of education by offering better opportunities (material base, teachers’ salaries, etc.) for its acquisition (sweeney p., 2008). for solving these issues finances of eu funds were successfully used for retraining of people and / or their training. therefore, the possibility to increase the knowledge and skills of population was reached, as well as to provide much better quality of basic education for young people. in the result of targeted policy in 2004 the educational level in ireland was higher than the average in eu. national development, social guarantees, options and stability gave the opportunity and interest to return to many residents who had emigrated to other countries. similarly, the open state labour market helped to offset the negative deviations of the population pyramid. the flexible labour market, good quality assurance and relatively cheap labour force attracted many domestic and foreign investors (clinch p., convery f., walsh b., 2002). ireland’s education system reform has enabled the country to maintain its level of development in the future and to raise the overall quality of life. paul sweeney – a recognized and respected representative of economic sciences in ireland, analyst, an author of several economic and social scientific analytical books, considers that one of the key enablers of national development is the quality of all education levels (primary, secondary, higher, vocational, etc.) and education as such must be one of the country’s highest priorities “ greater resources should be invested in education both financial and human only then ireland will be able to sustain its economic, social and cultural success, and to ensure it fully for its people also in future” (sweeney p., 2008). ireland’s development is the most successful example of the eu member states: on date of accession in 1973 the level of its gross domestic product per capita was issn 1822-8402 european integration studies. 2010. no 4 120 only about 60% of the eu average, in1990 this indicator rose to 75%, and even after ten years has exceeded the average eu level for 20%. it should be noted that ireland’s economy is significantly dependent on the world market fluctuations, and it is affected by the situation in u.s. markets more than other european countries. thus, ireland has failed to escape from the slowdown of economic development tempo. for example, during the period from 2000 until 2005 and in 2008 reduction of gdp growth rate in ireland is observed (central statistic office, 2009). the most important sectors in ensuring growth of gdp are manufacturing, business and finance, trade, transport and communication services. the most important external factor of ireland’s success is participation in the eu, which intensified competition, broadened the scope of the market and promoted efficiency growth. in addition, ireland has for already some time privileged status in the eu. in the framework of the last programmes ireland after 1989 received substantial funds which retained the demand and facilitated the adaptation process at the open competition conditions. these additional funds promoted development of the public infrastructure and increased attractiveness to foreign investors. membership in the eu and the eu structural and cohesion funds, the single market and equal competition law is the greatest financial benefit for ireland. ireland’s national example shows that any country, whether it is located peripherally from europe, the world’s centre or at the very heart of it, there must be an active activity, a desire to develop the country in a sustainable period of time, using any of the offered opportunity external or internal. it is important to stress that the active activity of ireland’s government, agencies, and regions is the reason for the fact that the state has used the given opportunities and successfully implements them in life. improving quality of life depends on productivity growth, i.e. contribution of one employed man or the result, which is reached in one worked hour (p. clinch, convery, f., b. walsh, 2002). for any work and activity as the main meaning is productivity the importance of productivity growth as a living standard determinant is relevant which also shows the quality of life. there is a large difference whether the productivity increases for 1.5% or 3% per year. at the lower growth 46 years will pass to double life quality standards, while at the highest 23 years (as the ireland’s example shows). a country with a low productivity level will also see the low quality of life standards. the following productivity factors can be mentioned as the main modern ones well-educated and adaptable workforce, working with new technologies and modern physical infrastructure (equipment, buildings) and innovation, scientific, technological research, industrial research and development. ireland’s example demonstrates that emigration is not always a bad factor. the emigrated people study abroad, acquire good experience and return back with a greater capacity. latvian should pay more attention for returning its emigrated people back home, as their proportion and the rapid wave of emigration of 2009 shows that it is significantly large number of emigrated population for the country’s development and growth opportunities in the future. productivity is also connected with the openness to new ideas, new approaches to work, it is essential, especially if productivity and growth rate has to be preserved. most of the politicians and state development researchers, scientists and academics of the republic of ireland admit that one of the main aspects of ireland’s development has been targeted investing of eu funds in human resource. compared with the other beneficiaries of the structural funds, who have invested in human resource on average 20% of the total funding, ireland invested on average 35%. the implemented educational development and employment promotion programme in ireland has been based on two fundamental principles: education must meet the requirements of the − economy, and it has to prepare qualified human resources for the current market needs; the funding should be available as easy as possible − (janova k., 2003). acquisition of eu structural funds in latvia support of eu structural funds is provided to reduce regional disparities. thus latvia receives financing as one country not as separate regions as it is practised in the most part of eu member states. in latvia even since the beginning of planning period 2004 – 2006 different views were proposed about the application of these funds. as j. brizga notes, these funds are certainly a great benefit and can substantially promote the development of our country. they enhance the hopes that latvia will approach the welfare level of west european countries faster than before. the only concern that is related to structural funds can be expressed in two questions: firstly – will latvia be able and have enough time to uptake the due financial support? or the legal capacity and the skills of responsible institutions and project applicants to ensure that the funds reach the project implementers timely are doubted. secondly, will the allocation of financing be open and fair? in other words – there are suspicions about the possibility of corruption and non-transparent distribution of funds and latvia’s recent historic experience of squandering foreign funds proves it. these are very relevant issues. though they remain within one paradigm with cognition that structural funds is a positive benefit for latvia. should the motive of acquisition of structural funds be “faster and more”? does the inflow of great finance into the country automatically mean favourable improvements? (brizga j., 2005). issn 1822-8402 european integration studies. 2010. no 4 121 during the period of time 2004 – 2008 financial stimulus for economic development from european union and other foreign financial support has flown into latvia in the amount of 1, 55 milliards lvl which is almost three times more than 0, 54 milliards lvl that latvia has paid into eu budget during this period. this financing has come into infrastructure development of state and municipalities, it was also allocated as a support to enterprises, it was used for qualification improvement of people and for other spheres. from 2004 until 2007 additional financing of 0, 09 milliards lvl beside state budget directly from eu was received by private sector, municipalities and non-governmental organizations (finan u ministrija, 2009). also in the period of time from 2009 until 2015 a substantial eu budget support for latvia is planned so it will continue coming into state’s economy. latvia’s ability to uptake this financing and channel it to the development of the most important sectors in regions is like a keystone for successful regional development. in 2009 of 30. june in latvia the eu structural funds’ planning period of 2004 – 2006 has come to an end. now it is possible to evaluate what has been done during the previous four years and appraise to what extent the structural funds has reached the set basic objective – to reduce social and economic disparities among eu regions, that is, to approximate the socio-economic indicators of latvia to the average level of eu. 79,0 89,7 105,4 79,0 90,9 102,7 78,7 90,0 104,2 77,6 88,4 101,9 79,5 89,9 107,0 total fifg eaggf esf erdf payments to final beneficiaries interrim payment claims submited to ec received advance and interrim payments from ec source: made by the authors according to the data of the latvia ministry of finance, 2009 figure 1. uptake of eu structural funds in the planning period of 2004 – 2006 (until 31.03.2009.) in latvia, % as it can be seen in figure 1 about acquisition of eu structural funds in the planning period of 2004 – 2006, one has to conclude that latvia is one of the countries that have even exceeded 100% of repayment of structural funds for funding recipients, as latvia has taken overliabilities and have the opportunity to declare the relevant costs above 100%, thus in case of possible ec financial adjustments there is a degree of flexibility to replace the ineligible expenses with the eligible ones maintaining the opportunity to receive the maximum possible final payment. the largest repayment percentage of the eu allotment is for erdf which is followed by eaggf and fifg and as the final is the esf. also from the declared eu financing and from the received payments of the ec comparing all the funds the best indicators is for erdf followed by eaggf and fifg and as the last one but not on the whole with good indicators – esf. it is to note that latvia is one of the new eu fund member states that has attained the maximum possible advance and intermediate payment level of 95 % from structural funds’ allotment. one has to agree to what e. jermolajeva and the group of authors have said – that the impact of eu financing on the regions can be evaluated not faster than 2-3 years after its contribution and in 2008 it was already possible to analyse the impact of 2004 – 2006 (jermolejeva e., zelča s., baltere.r., 2008). the previous research shows that possibilities and interests of all regions to acquire funds within one financial instrument are not the same. the economic “reaction” of the region towards the efficiency of the invested funds is not identical as there are different economic advantages and economic development interests among regions (saktiņa d., 2008). studying eu funds’ impact in latvia, in table 1 the authors have analysed eu funds financing in latvia in 2004 – 2008 from gdp (percentage) of the respective period. the highest impact by percentage was in 2007 which is not without reason as the first activities of the planning period 2007 -2013 were started; it is also evident that in 2007 the financing within 2004 – 2006 planning period was greater. comparing eu funds’ impact in 2004 – 2006 planning period it should be concluded that by percentage the greatest financing amount was in 2005 – 2.11% from annual gdp. from 2003. until 2008. gdp are grow than 8 840 042 thousand latvian lat, or 54 %. according with eurostat data in period of 6 years from 2003. until 2008 (including) – gdp to 1 inhabitant in latvia goes closer to eu-27 level for 12.3 percent points – from 43.3% until 55.6% like average in eu-27, authors cogitate then there are partial eu fund influence. issn 1822-8402 european integration studies. 2010. no 4 122 table 1. eu structural funds financing in latvia 2004.-2008. from appropriate period gdp, % (thousand.lvl) fund \year 2004 2005 2006 2007 2008 cohesion fund cf 16 708.2 56 429.2 73 410.7 96 063.3 70 326.7 european social fund 2004-2006 esf 9 265.0 8 016.4 2 719.8 45 876.8 4 070.9 european regional development fund 2004-2006 erdf 24 404.30 24 296.10 22 286.20 107 254.00 75 292.7 financial instrument for fisheries guidance 2004-2006 fifg 1 773.7 5 556.1 2 430.4 5 687.3 696.1 european agricultural guidance and guarantee fund 2004-2006 eaggf 29 564.1 96 645.2 113 264.4 13 682.0 cf 2007-2013 27 054.0 43 286.1 esf 2007-2013 7 740.0 11 610.1 erdf 2007-2013 34 297.1 51 445.6 total 81 715.3 190 943.0 214 111.5 337 654.5 256 728.2 gdp 7 434 454 9 059 087 11 171 693 14 779 810 16 274 496 % from gdp 1.10 2.11 1.92 2.28 1.58 source: made by the authors according to the data of the latvia ministry of finance, 2009 authors agree of research group of the society “international baltic economic political study centre”, “baltic consultations” ltd is noteworthy; in their research it is concluded “…that eu funds has had positive impact on the main indicators, for example, productivity and gdp in 2004 -2006 planning period as well as that a positive impact is being anticipated for the planning period 2007 – 2013. at the same time the viewpoint that the funds might be responsible for the lack of imbalance which is observed in latvia during the last years or that these funds might be the resource of imbalance in future is supported reservedly. in fact on the contrary – most probably the funds will compensate the recession of economic activities which has recently begun in latvia and in our neighbouring baltic states.” the research group also notes “…that in latvia the impact of funds on the main economic indicators, for instance, productivity amount (gdp), inflation and external balance depends on the balance between the impact of demand and impact of supply (biedrība “baltijas starptautiskais ekonomikas politikas studiju centrs”, 2008). as the published statistical data of different institutions shows until now the money of eu structural funds was invested for satisfaction of needs of the capital riga and the territories of its area. this deepens the gap among big development centres and the rest of latvia’s territory even more. due to lack of finances most part of latvia’s municipalities and provincial towns are falling into decay. also the political emphasis which is put in the way that riga, its area and big development centres in perspective will ensure high gdp increase tempo which will multiply continuous growth of latvia’s people welfare up to the level of average eu well-to-do is very doubtful. the research group continued to verify this hypothesis also in 2008 by performing monitoring observations and researches on the unused state regional development possibilities (kei s s., tilta e., zariņa v., jesemčika a., medne a., kazinovskis a., balode g. 2008). the analysis provided estimates of the impact of eu funds in the latvian economy and society, skds data suggest that the december 2008 total slightly less than 2/3 (63%) surveyed the population that impact positively (aggregated responses very positive and more positive) , while only 5% of survey participants generally expressed a contrary position (very negative and more negative). that european union funds are not affected by the latvian economy and society, in december 2008 indicated 14% of survey participants (skds, 2008). as the authors demonstrate the eu funds in the statistical analysis of data from the fund-raising site, time period from 2004. until 2008, the riga region (riga city and pieriga) received 55% of all eu funds (aggregated and projects carried out in riga region, and nationalscale projects). latgale received the lowest share of the funding of 9%, while the remainder were divided more or less similar between zemgale, vidzeme, and kurzeme. to assess the fundraising, they look at the author’s table 2, broken down by category of expenditure. looking in table 2 data the result shows that the breakdown by category of expenditure is different in different regions, namely, 35% of the total eu funds were used for physical capital formation (category investment in equipment, buildings and other capital). the largest capital investments were made in the zemgale region (52%), followed closely followed by the vidzeme region (48%) and kurzeme region (46%). riga was the capital region and the lowest proportion was below the average latvian (23%), but the latgale issn 1822-8402 european integration studies. 2010. no 4 123 table 2.eu funds allocation by investment categories 2004.-2008. in latvian regions (milj.lvl) r iga’s region % l atgale’s regions % z em gale’s regions % v idzem e’s regions % k urzem ’es regions % su m m ar y % investment in total factor productivity 148.9 54 18.9 39 12.4 18 19.6 28 27.2 33 226.9 41 investing in technology 14.8 5 0.2 0 0.8 1 0 0 0.7 1 16.6 3 investment in equipment, buildings and other capital 63.3 23 18.3 38 36.0 52 33.4 48 38.7 46 189.7 35 investment in human capital 49.3 18 11.2 23 19.8 29 16.9 24 16.9 20 114.3 21 summary: 276.3 100 48.6 100 69.0 100 69.9 100 83.5 100 547.5 100 source: made by the authors according to the data of the latvia ministry of finance, 2009 region of 38% of funds invested capital. the largest category of investment investment in total factor productivity in latvian as a whole was 41%, and these investments will significantly differed between regions. the largest contribution to the total factor productivity conducted in riga region 54% of all investments in the region. least this heading spent zemgale region (18% of all the region’s expenditure), expenditure was close to the region of latgale latvian average (39%) but lower in vidzeme region kurzeme region (28% vs. 33%). the highest proportion in human resources invested in zemgale region (29% of all the region’s expense) in the other areas the proportions were similar. technological change was generally the lowest cost category (only 5% of total expenditure), and the largest share of expenditure was concentrated in the riga region. riga region had the largest proportion of fund expenses, which contributes to total factor productivity. vidzeme region kurzeme region zemgale region of the investments were made mainly in physical capital. in her work professor v. bikse notes that eu structural funds in latvia are not used effectively. there are three project implementation ways of eu structural funds: national, open call and grant scheme. the analysis of the implemented projects as well as participation in project calls shows that: in application of eu structural funds there is no − clear vision of what are the quintessential national problems for the solving of which eu structural funds should be channelled. frequently instead of channelling the funds to solving substantial issues for the development of latvia, they are dispersed among different ministries for financing the implementation of very similar events. there is no businesslike cooperation among ministries − to channel the funds for solving substantial problems of latvia. the money is dispersed among different public institutions for implementation of similar events not solving important issues on ministry level. besides our observations proves that at the moment − governmental institutions in latvia are not interested to cooperate with project experts of european commission, to delve into the essence of projects, to try to understand its importance, to provide their implementation because according to them it is labourconsuming process. the authors of the paper with the remarks of the professor of economics that the possible solution of the previously mentioned problems for latvia as eu member state of lower development level – “to channel more eu structural funds to elaboration of national projects involving highly qualified specialists” (bikse v., 2009). it is being done also nowadays. though for evaluation of the efficiency of the already elaborated projects additional research should be done. to promote the use of all structural funds in 2006, solutions to hampering factors of acquisition of funds were found; they were adapted in the 2004 – 2006 structural funds projects. but this work should be continued in order to prevent the observed shortcomings and not to create new barriers for project evaluation in eu funds planning period of 2007 -2013. in december 2005 the leaders of eu member states agreed on financial perspective for 2007 – 2013. during this budgeting period latvia managed to considerably increase its financing in the result of which during the next seven years it will receive 4,53 milliard euros (approximately 3,18 milliard lvl). in addition to it in 2007 – 2013 latvia will have access to eu funds – european agricultural fund for rural development – the total amount of financing is 1363 million euros, european fisheries fund, the total funding amount of which is 164 million euros and the european agricultural guarantee fund for direct payments, 1012 million euros is foreseen for it (eiropas savienības informācijas aģentūra, 2007). as the most important objectives of the use of this financing is promotion of latvia’s economic and issn 1822-8402 european integration studies. 2010. no 4 124 public competitiveness, creation of work places and productivity increase. the main strategy if the country foresees qualitative education possibilities for everybody, encouraging youth to get higher education in natural sciences and technical specialities and also to promote the research, development and innovation system of the country to reorganize economy of the industrial sectors with more advanced technologies. special attention is paid to such horizontal priority spheres as well-balanced territorial development, riga’s competitiveness in international area, equal opportunities, sustainability, macroeconomic stability and information society. more attention will be paid also to urban development and activation measures for the support of groups living in unfavourable social environment. the authors have also examined eu structural funds’ impact in one year and per one inhabitant in both countries in 2004 – 2006 planning period which for ireland was 7 years and for latvia it was 3 years. table 3. eu structural funds, including per capita, latvian and ireland, eur latvia ireland eu structural funds grant period (years) 3 7 area km2 64 589 70 300 population (in 2007) 2 275 500 4 339 000 eu structural funds programming period (eur) 625 568 826 901 000 000 eu structural funds on average per year (eur) 208 522 942 128 714 286 eu structural funds on average per capita (eur) 274.91 207.65 source: made by the authors according to the data of the eurostat analysing table 3 it is obvious that by area, number of people and eu structural funds’ financing latvia has lower indicators but calculating eu structural funds’ financing on average per capita we see that in latvian case, the funding is 67.26 eur higher than in the case of ireland. overall assessment concluded that one of the most successful examples that illustrate the principles of the eu funds is ireland. it is one of the largest recipients of eu funds. it should be noted that once it was a poor country in the eu but now its level of development than the eu average. eu funds have certainly played a role in this process. however, there is a clear difference between the most important beneficiary fund growth for example, greece does not endorse the expectations of the level of development, which was placed on the positive role of the eu funds. this suggests that the seemingly free incoming money does not automatically faster economic growth. furthermore, treatment of these funds, the financial donations, free, easy cash receipt to be the greatest possible error. an important factor is the diversion of public funds for each area and measure selection. for example, ireland is markedly different from the greek, spanish and portuguese in their priorities for the use of eu funds available for funding. a significant part of eu money about third part in ireland were driven human resources development projects. in other countries, this priority had been distributed in less than a quarter of eu funds, instead of highlighting the investment in physical infrastructure. comparing latvia’s experience in the economic growth development sphere, it is evident that latvia has worked more by simply experimenting rather than looking at the experience of other countries, having similar situations, not linking together the political, social, economic and regional objectives, taking into account the fact that they always drastically changed when the new political forces entered to lead the political environment. consequently, now latvia can be compared to ireland, when it was in a similar situation more than 25 years ago. latvia from its independence until now can be defined as one phase of development, which, unfortunately, does not create national growth, but on the contrary many former government decisions which have not been in long-term beneficial for national economic development, cause real threats to the national economic system, which can lead to a complete breakdown of the country. to create a good political, economic and regional development system, it is not necessarily to inherit it latvia had enough time, opportunity and examples to develop the country and create favourable conditions for its long-term growth. taking into consideration experience of eu peripheral country ireland, latvia has the opportunity to compare its situation and government’s decisions in national development sphere, thus assessing the main development reasons of a similar state and analyzing its errors. ireland’s national development model allows the latvian state to elaborate effective national economy development directions, guidelines and plans to promote the continuous growth of country’s development. conclusions and proposals the main conclusions about acquisition of eu structural funds in ireland and latvia are: ireland is one of the most economically advanced, industrial, trade-oriented countries, which so far has managed to use the eu structural funds most successfully. ireland’s example shows that any country, whether it is located peripherally from europe, the world’s centre or at the very heart of it, must be in active activity and have a desire to develop the country in a sustainable issn 1822-8402 european integration studies. 2010. no 4 125 period of time, using any of the offered opportunities external or internal. eu funds are a positive benefit for latvia. though the quality of structural funds’ acquisition is evaluated as law and effective less – aimless and pointless channelling of great financing part is being observed. until now the eu structural funds in latvia have not attained their objective. they have not reduced the disparities between regions and riga. on the contrary: rapid development is observed in riga but the hopes of people from the regions for the growth of welfare level did not prove right. eu funds in latvia had positive impact on the main indicators, for example, productivity and gdp in 2004 – 2006 planning period and their positive impact is foreseen also in the planning period of 2007 – 2013. support of eu structural funds in latvia should be allocated basing on regional division. the financing should be foreseen by percentage for separate regions by years, basing on such indicators as gdp on one inhabitant, number of people in the region, level of employment and unemployment, territorial development index etc. in its turn, if a region in the end of a respective year was not able to acquire the foreseen funds fully, the surplus could be accordingly divided among the rest of the state’s regions that have more actively used the funds. latvia could learn from ireland’s national activity and development experience how to recover from the economic crisis and to benefit from the eu, how to use existing resources and the available economic potential more productively and usefully developing and applying it with far-reaching development consequences for the future and creation of successful cooperation among public – employers and employees. ostensibly about the free incoming money from eu funds does not automatically faster economic growth. furthermore, treatment of these funds, the financial donations, free, easy cash receipt to be the greatest possible error. an important factor is the diversion of public funds for each area and measure selection. for example, ireland is markedly different from the other powers in setting priorities for the use of eu funds available for funding shifting the financing of human development projects. at the same time, most other eu member states as a priority had been established by the physical infrastructure development. the results show that ireland’s decision has brought the country much more successful and far-reaching implications. latvia, investing in people, it is possible to reduce the population drain from the country. investing in people is also a larger, better knowledge and opportunities for people to work, set up a business, to become socially active in the country to gradually reduce the existing socio-economic problems. taking into consideration experience of eu peripheral country ireland, latvia has the opportunity to compare its situation and government’s decisions on state development, thus assessing the main principal causes of state development of a similar country and analysing its errors. ireland’s national development model allows latvia to create maximum effective courses of action for the further development of national economy, its guidelines and plans that would promote continuous development of national growth. to promote better use of all structural funds in 2006 solutions for several hampering factors of eu structural funds’ acquisition were found; they could be applied to the structural fund projects of 2004 – 2006. but this work 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(2008) sociāli ekonomiskās attīstības izvērtējums klasifikācijā noteiktajos atšķirīgo lauku tipu reģionos, es atbalsta pasākumu ietekmes izvērtējums, klasifikācijas pilnveidošana lauku politikas īstenošanas vajadzībām. lzp ekonomikas, juridiskās un vēstures zinātnes galvenie pētījumu virzieni 2008.gadā nr. 14 – rīga: tautsaimniecības attīstības institūts, tipogrāfija p&ko, 2008 125126.lpp, 232.p. social news in ireland. online: http://www.eubusiness. com/social/scroller_newstic.html, (15.06.2009). sweeney p. (2008) irelands economic success, reasons and lessons dublin: new island, 2008. – 13., 108., 115., 134., 140. p. tirgus un sabiedriskās domas pētījumu centrs skds (2008) sabiedrības informētība par eiropas savienības fondu līdzekļu apguvi latvijā. latvijas iedzīvotāju aptauju datu analīze 2008.gada decembris rīga. 64 lpp. online: http://esfondi. lv/upload/01-strukturfondi/petijumi/skds_ rezultati_12-2008.pdf. (10.10.2009.) vaidere i., vanags e., vanags i., vilka i. (2008) regional policy and develpoment of local government in latvia and the european union. – rīga, 2008 –61.lpp, 326.p. vaidere i., vanags e., vanags i., vilka i. (2006) reģionālā politika un pašvaldību attīstība eiropas savienība un latvijā. – rīga: latvijas universitātes akadēmiskais apgāds, latvijas statistikas institūts, 2006 – 56.p , 295.p the article has been reviewed. received in april, 2010; accepted in may, 2010. 121 issn 1822 – 8402 european integration studies. 2009. no 3 monetary policy convergence in the preand postintegration period. case of baltic states and poland paweł młodkowski jagiellonian univeristy, cracow, poland abstract economic integration is perceived as a multi-phase process in which national economic policies of a group of countries or territories are systematically coordinated and substituted by common policies. we can observe that this world-wide tendency to create regional free-trade agreements, common markets and monetary unions is beneficial for their participants. it is widely recognized that benefits from coordination and giving up national policy independence exceed costs, both economic and social ones. it can be argued that the european union and the european monetary union are the role models of economic integration. in the course of integrating new member states that joined the eu in 2004, and later, one can expect that both nominal and real convergence takes place. this is of high importance especially for those countries, which intend to join the emu soon. there is a set of nominal criteria to be met, but their economic justification is not clear. they are not associated with the optimality criteria of the classical optimal currency area theory. despite they are intended to induce convergence, many economists criticize them as too strict in terms of their definitions. as a half of century of experience of the non-european monetary unions tells us (młodkowski 2007), neither inflation nor fiscal deficit represents a reason for rejecting a prospect member. it is argued that compliance with any of the criteria is achievable at lower costs (social and political) after full monetary integration due to endogenity. what matters is the monetary policy stance convergence in the pre-integration period among monetary union member states. only then substituting domestic monetary policy with a common one will not generate any shocks for the underlying economies. therefore, it would be reasonable to reform the current set of nominal convergence criteria and introduce a new one, covering monetary policy stance convergence. in order to implement this idea a convenient, simple and easy to understand method is required for capturing monetary situation. the literature on measuring restrictiveness of monetary policy is vast and still growing. one of the newest approaches that could be quite convenient for the proposed reform is based on an alternative interpretation of the money velocity short-term shocks. according to reynard (2007) these are fully a reflection of monetary policy. the paper utilizes the monetary policy stance indicator created and developed by młodkowski (2007, 2008a, 2008b, 2009) to present tendencies in monetary policy restrictiveness in four countries: estonia, latvia, lithuania and poland over the period from 1998 to 2008. hypothesis posed deals with expected tendencies in domestic policies in countries that were advancing in economic integration and became full members of the eu in 2004. similarities and differences in monetary policy stance should be attributable to some global events and regional developments. data source for the empirical study is the international financial statistics by the international monetary fund (january 2009). statistical methods cover simple correlation and co integration analysis of time series representing monetary policy stance in a form of the mpsi. keywords: monetary integration, mpsi, convergence, monetary policy. introduction economic integration covers both the private sector and public institutions shaping economic policies. there is a direct influence of strengthening international cooperation on effectiveness of achieving domestic policy goals. moving from customs unions to common markets and full monetary unions results in sequential giving up autonomy in trade policy, sectoral policies and finally monetary policy. the motivation is based on expectations that microand macro-level benefits will overweight any potentially associated costs. the most important costs are recognized as an inability to introduce country-specific measures, when needed. this is already at the stage of full economic union with three freedoms of the common market, when domestic monetary policy starts to loose its effectiveness. this is a consequence of an access to a broad selection of financial instruments by general issn 1822-8402 european integration studies. 2009. no 3 122 public. in such a setting, controlling nominal variables requires additional instruments and some of the standard tools are less effective. in particular, diversification and low-cost substitution of financial assets worldwide results in a drop of efficiency with most of monetary policy channels. loss of effectiveness is not a problem in the eu economy, as long as economic activity in every country develops according to similar paths. then the real interest rate differentials should decrease for assets denominated in different currencies. as a consequence we observe a very similar monetary policy stance among countries. attempts to conduct significantly different monetary policy would be inducing monetary shocks leading to capital flows. therefore, as long as business cycles are highly positively correlated in a group of integrated countries, monetary policy should also be similar in its stance. the scientific problem undertaken in this paper deals with similarity of monetary policy stance in a group of integrated countries that still maintain their national currencies (estonia, latvia, lithuania, poland). novelty of the proposed research results from the fact that this was not studied before. there are no studies of monetary policy stance covering more than one country at once. in addition, concerning the implemented nominal convergence criteria – the convergence of monetary policy stance is not included, despite it seems a natural prerequisite for smooth substituting a domestic monetary policy with a common one. the object of the study is the monetary policy stance and its developments in four countries that joined the eu in may 2004, and which are heading toward the emu accession. the analyzed period covers years 1998-2008. research methods cover the monetary policy stance indicator used for capturing restrictiveness in a quantitative form and simple correlation and cointegration analysis. the paper is composed as follows. part ii discusses shortly methods for measuring monetary policy and introduces briefly methodology of capturing restrictiveness of monetary policy for international comparative studies. part iii is an empirical study of monetary policy stance convergence of four countries from 1998 to 2008. the last part concludes. a new method to capture monetary policy stance there is a variety of variables that were used as proxies of monetary policy stance. there were however so far no methods that were developed for international comparative studies in this area. this was because most of methods offered up to date were very case-specific and designed for a particular country. 1 according to bernanke and mihov (1998), the first methods of capturing monetary policy stance were based on rates of change of money aggregates. this was methodologically incorrect approach since the actual restrictiveness developments depend on a final result of interaction between money demand and money supply. when measuring monetary policy stance, using only one of these two categories, one gets an improper image. another approach to measuring monetary policy was introduced by friedman and schwartz (1964) and developed by romer and romer (1989) and boschen and mills (1991). this method is based on qualitative information derived from official documents of a decision-making body (a central bank or an internal committee). the main disadvantage here is subjectivity. another problem is associated with its qualitative nature. the method allows only for recognizing timing of changes.2 most methods used in assessing restrictiveness offer quantitative information. these are: synthetic indexes combining qualitative and/or  quantitative information (mci), residuals of regression equations interpreted  as orthogonal monetary shocks (christiano, eichenbaum 1992), difference between interest rates (actual and  obtained from the taylor rule) yield curve, rates of non-borrowed reserves (bernanke and  mihov 1998). all these methods were used for one-country studies to answer questions concerning monetary policy influence on an economy. none of the known studies focused on comparative analysis of monetary policy stance developments in a group of countries. for such a quest to succeed one requires a method to measure monetary policy in a way that is independent from country-specific characteristics. there is a new way to approach monetary policy assessment, that allows for international comparative studies. theory behind this methodology is derived form the fisher’s equation and brings together developments in money demand and supply. this direction of research was suggested for many years by many authors (christiano, motto, rostagno 2007, leeper and roush 2003, mulligan and sala – i – martin 1997, imf 2008). reynard (2007) claims that short-term velocity shocks are an immanent element of the monetary transmission. therefore, there is an alternative interpretation for those short-term developments. increases in velocity of circulation means that the transaction money supply shrinks in relation to transaction demand for money. less money should be interpreted as a move toward a more restrictive policy stance. stable money velocity in 2 shapiro (1994) offers another disadvantage in the form of inability to divide all considered factors into categories of dependent and independent from monetary policy. 1 this is because the way of defining monetary policy, operational instruments used as well as characteristics of financial markets were the main inputs and factors shaping the final results. issn 1822-8402 european integration studies. 2009. no 3 123 the short run means a neutral policy. a drop in velocity appears with monetary expansion. this interpretation is based on a stylized fact about behavior of the real sector. transactions in the national economy are relatively stable and any changes reassemble the real gdp movements. even a sharp change in the number of transactions (temporary supply shock) has negligible effects on prices. therefore, the real money supply does not adjust to buffer the initial shock in 100%. in the monetary economics this feature is known as the shortterm money non-neutrality. in such a setting demand for nominal cash balances is rather constant and develops with the real gdp path. therefore, the observed shortterm shocks to velocity should be attributed to monetary policy. this is because prices are not flexible enough to fully adjust and remove entire influence of the initial real shock of the nominal gdp. for the purpose of international comparative studies money velocity itself (v=gdp/m0) is not the appropriate variable because it depicts the underlying society. information about monetary policy is provided by changes in velocity of circulation defined as δv=δgdp/ δm0. monetary policy stance index (mpsi) is nothing else but the first difference time series of money velocity. the advantages of this approach are: simplicity, intuitive interpretation, lack of the need to model non-observable variables. in this paper the mpsi will be used for analyzing monetary developments in four integrated economies that are heading toward full monetary integration. preand post-integration convergence of monetary policy stance in ellp countries the group of baltic states (estonia, latvia and lithuania – ell) started a period of a unprecedented economic growth from the moment of the eu accession in 2004. according to the world economic outlook (imf 2008), over the four-year period (2004-2007) they experienced the following total growth rates: estonia 37,8%, latvia 48,8% and lithuania 36%. poland in the same time recorded much lower growth, by 23,5%. when analyzing other new member states (romania and bulgaria) one can recognize also a dynamic growth that may be attributed to the eu accession. therefore, it should not be questioned that, in the mentioned cases, economic integration was the main driving force of the observed gdp growth. removal of trade barriers, liberalizing all bop accounts and allowing for the free flow of labor resulted in increasing the positive correlation of business cycle phases among these countries. this is nothing else but the gist of the nominal convergence criteria – that are aimed at bringing all emu countries in a similar cycle phase prior to accession. another possible interpretation is that the optimality criteria for a currency union are endogenous and strict adherence to meeting all nominal criteria is not reasonable because they will be satisfied much easier (at lower social cost) and almost automatically after full monetary integration. however, for this process to be smooth – one should remember that for substituting national monetary policy with a common one – it is necessary for all prospective members to be in the same monetary policy stance on the eve of monetary integration. otherwise, the fact of accession will result in a monetary shock associated with imposing a different stance. it could be reasonable to introduce a new convergence criterion based on similarity in monetary policy stance of all prospective emu members. using the mpsi one can answer the question about developments of this feature in estonia, latvia, lithuania and poland. high positive correlation (close to unity) indicates that monetary policy stance was identical in a pair of countries. restrictiveness was changing in the same time and in the same direction. we can observe such behavior quite often for estonia and lithuania and estonia and latvia. there are however periods of temporary divergence that are possible due to the fact of still independent monetary authorities in each of the countries analyzed. poland seems to be a quite different case. monetary policy of the national bank of poland differed in biggest extent over the studied period. in the long run we can observe however a slow but systematic increase in similarity (lipo). source: author. fig. 1. correlation coefficients for mpsi in ellp countries for a 4-quarter moving window over 1998q1-2008q1 (e-estonia, la – latvia, li – lithuania, po poland) issn 1822-8402 european integration studies. 2009. no 3 124 remarkable is a temporary convergence in monetary policy stance in 2004 of all ellp when the counties joined the european union. after this period some divergence appeared, but monetary policy in the baltic states became almost identical again in 2006. since then, high positive correlation prevailed, except for estonia and lithuania for 2007q2-2008q3 when the global financial crisis started. all other countries (estonia, latvia, poland) increased similarity of their monetary policy in the most recent period. lithuania’s divergence could be attributed to significant increase of the inflation rate in the most recent period. as a consequence, a different stance was observed due to specific countermeasures to address this problem. augmented dickey-fuller statistics indicate stationary behavior of the mpsi for all four countries (table 1). table 1. adf test for mpsi in ellp countries (critical values: * at 5%=-1.949, ** at 1%=-2.62). t-adf es -6.5593** la -7.4551** li -5.9891** po -8.6299** source: author. beta eigenvectors in two simple cointegration models (with a two-quarter lag) for mpsi in ellp countries estimated for two periods: a: 1998q1-2004q1 and b: 2004q2-2008q3 indicate that there was a change in the behavior of monetary policy stance. βa = [es la li po] = [1 3.0758 –11.936 8.2251] βb = [es la li po] = [1 –0.27686 –0.50114 –0.3394] in addition the whole system seems to return to equilibrium much faster in the latter period. the error correction mechanism is characterized with much higher absolute values of alpha coefficients for the b period. αa = [es la li po] = [0.033056 –0.056812 0.10763 –0.12167] αb = [es la li po] = [–0.33126 0.12562 2.5080 –1.6382] the presented results of a moving correlation analysis and a simple vecm model for ellp countries allow to conclude on a transition of the monetary policy in the region. conclusions after a long period of exclusion from the global economy, estonia, latvia, lithuania and poland initiated economic transformation in 1990s. they were successful and managed to move to a system based on private ownership of production factors. the enormous effort of societies in ellp countries was supported by global trends in liberalization of trade and investment and regional economic integration within europe. the phase of transformation and economic integration was finalized with accession to the european union in 2004. from that moment all these countries benefited from three freedoms of the common market. one could expect that such a framework would facilitate further real and nominal convergence. this is a matter of high importance for all prospect emu members. according to the results, obtained in the presented research, the four countries were conducting a distinct monetary policy prior to the eu accession (2nd quarter 2004). the similarity in monetary policy stance was expected to appear systematically after full economic integration. it is fully justified to claim that such a similarity in monetary policy stance, resulting from real and nominal convergence, was increasing after the eu accession. convergence in monetary policy in the analyzed period (until 3rd quarter 2008) was not only in the form of strong cointegration but also in an ability to overcome any disturbances much faster, than in the former period. all these observations based on vecm models indicate that estonia, latvia, lithuania and poland were subject to significant real and nominal convergence that should allow them to become successful members of the emu in the future. references bernanke b., mihov i. (1998), measuring monetary policy, quarterly journal of economics, august, 113 (3), pp. 869 – 902. boschen j., mills l. (1991), the effects of countercyclical policy on money and interest rates: an evaluation of evidence from fomc documents, federal reserve bank of philadelphia working paper, nr. 91 – 20. christiano l., eichenbaum m., identification of the liquidity effect of a monetary policy shock, [in] christiano l., motto r., rostagno m. (2007), two reasons why money and credit may be useful in monetary policy, nber working paper 13502. leeper e., roush j., putting m back to monetary policy, journal of money, credit and banking, vol. issue 2003, pp. 1217-1256 młodkowski p., (2007), non-european monetary unions. history and operations, wn pwn, warszawa. młodkowski p., (2008a), monetary policy of the national bank of poland and substituting bank credit with trade credit, gospodarka narodowa, 2/2008, pp. 1 – 18. młodkowski p. (2008b), similarity in economy-wide reaction for monetary policy as another oca criterion. monetary policy and trade credit, banks and bank systems, vol. 3, issue 2, pp. 5 – 13. issn 1822-8402 european integration studies. 2009. no 3 125 młodkowski p. (2009), financial integration and ability to conduct an independent monetary policy. case of japan and the usa, international journal of economic policy studies, forthcoming młodkowski p. (2007), convergence in monetary policy stance during pre-emu period case of czech republic and poland, [in] poloucek, s., stavarek, d. (eds.) future of banking after the year 2000 in the world and in the czech republic (volume xi finance and banking). karvina: silesian university, pp. 558 – 571. młodkowski p., kredyt handlowy a polityka pieniężna nbp, gospodarka narodowa nr 3/2008, pp. 1-18. mulligan c. b. and x. x. sala-i-martin (1997), the optimum quantity of money: theory and evidence, journal of money, credit, and banking, 1997, 29 (part 2: dynamic effects of monetary policy), pp. 687-715. reynard s., (2007), maintaining low inflation: money, interest rates, and policy stance, journal of monetary economics, vol. 54(5), (july 2007), pp. 1441-1471. reynard s. (2007), maintainig low inflation: money, interest rates, and policy stance, swiss national bank working papers, 2007 – 5. romer ch., romer d. (1989), does monetary policy matter? a new test in the spirit of friedman and schwartz, [in] o. blanchard, s. fisher, nber macroeconomics annual. world economic outlook 2009, imf, washington d.c. the article has been reviewed. received in march, 2009; accepted in april, 2009. 133 issn 1822 – 8402 european integration studies. 2010. no 4 the effect of competition forces and competition strategy in the market of organic products irena baraskina, baiba rivza latvia university of agriculture, department of economics abstract rapid increase of organic farming areas is observed after latvia acceding to the eu, and alongside with the support available for organic farmers in the scope of agro environment programmes. in order to ensure the growth of the sector, it is necessary to identify level of the sector’s development and analyze competition environment that affects the market attractiveness, and consequently – the changes in the capital investments investigation. in order to perform research authors made analysis of the existing competitiveness forces in the market (competition environment), identified the life cycle level of the market of organic products (the attractiveness of the sector for the development of business activities), characterized the most appropriate strategic formulations of the competition between organic farms and suppliers of conventional farming (the competition advantages in the level of enterprises), studied the elements of the product value formation (the competition advantages in the level of enterprises and the sector). the indicators, characterizing the market of organic products, give evidence, that organic farming at present faces the transition period from the period of growth to the period of maturity, which points at the expected considerable changes caused by the influence of competition forces. under the conditions of external environment factors’ consistency, the market of organic products at present has depleted its potential for the development, and only the state intervention in the management of the competition forces regarding substitute products and consumers will be able to stabilize and renew the growth of the organic market. the analysis of the value chain prove that the organic farming in latvia is peculiar with poorly developed elements of inlet and outgoing logistics, where few suppliers of agricultural products perform minimal activities in the area of marketing, and the complex of support activities necessary for the organic farming – scientifically practical research, consultations, availability of market information – is also insufficiently organized. basing on the research factors, which affect the organic farming market environment, the competition forces and elements of the product value formation chain, the authors created a hierarchy analysis model to detect which of the factors, existing in the market environment, are the most important for the promotion of the organic product market development and the stimulation of exactly which value chain core activities element can cause the most considerable effect on the development of organic product market. the method of the hierarchy analysis comes up with a convincing answer, that at present the priority measures for the promotion of the development of organic products should be the increase of the production amounts and the implementation of the integrated marketing communication activities, secondary facilitation of the processing and the outgoing logistic. key words: organic products, market, life cycle, value chain, competitiveness. introduction sustainable development of a national economy is a precondition for wealth of the society. organic farming implements agriculture participation in the socially guided market relations, providing not only sustainability of agricultural production, but as well a facilitating solution of ecological, social and ethical problems. however, incisive discussions between scientists and politicians still occur about the importance of organic farming in the elimination of global climate changes, security of food supply and its economic significance for a national economy. alongside with discussions, dedicated to the necessity to promote the development of organic farming production, the market situation testifies a rapid increase in the demand for organic farming products and services, which incorporates high potential for organic farming development and defines the necessity to investigate the main conditions for competitiveness of organic farming issn 1822-8402 european integration studies. 2010. no 4 134 products and preferable market development strategy. in the world’s scale the development of organic farming market is very little investigated in the marketing categories. the research object the competition processes in the latvia’s organic market. the objective of the research analyze the competition conditions and forces in the organic market to find out appropriate competition strategy that increases competitiveness of organic products. research methods applied in the research monographic method – for the theoretical • substantiation and formation of the discussion; method of analysis and synthesis – for researching • the market structure and processes, evaluation and interpreting of the research results; statistical methods – illustrating the advancement of • the processes; logically-constructive method – for interpreting • the research results, forming structural and hierarchy schemes, formulation of the findings and conclusions; porter’s competition forces’ analysis for analyzing of • competition forces affecting organic product market and analyzing of product life cycle in order to define latvia organic farming market development phase; method of analytic hierarchy process – for taking • a decision about the most significant value chain component and priority regarding the implemented activities for the promotion of organic farming market development. novelties of the research • the regularities of formation of organic farming • competition advantages have been identified; the life cycle period for the development of organic • farming has been identified; the method of analytic hierarchy process is applied • for the choice of the necessary measures enabling increase of organic farming competitiveness and further organic market development. the development of organic market and formation of the competition advantages of organic products organic farming is based on the multi-sector production conception and can be organized for implementation of common and uncommon, traditional or for the particular culture non-traditional agricultural production kinds. in the author’s opinion organic farming is collateral obligations, duties and responsibility, that a farm takes charge of in order to get a possibility to perform its activities in an agricultural product market, which is limited by market barriers. by this the farm gets competitiveness advantages and access to the financial instruments, created for the support of organic agriculture. at the end of 2006 in the world in total in the organic farming system there were 700 thousand farms managing 30.4 million ha of land, which constituted only 0.65 % of the world land areas used for agriculture. the largest organic farming areas is in oceania and australia – 42 %, in europe organic farming areas constitute 24 % and in the south america – 16 % of the entire world’s total organic farming areas. (willer, yussefi-menzler, sorensen, 2008) the purposes for organic farming land use in different world’s regions vary. in europe and the north america significant organic farming areas is allocated to the arable land. whereas, in australia, oceania and the south america perennial grasslands prevail in the cultivated organic areas. during the couple of last years there has been an increase in the amount of certified areas for collection of wild production, which in 2006 in the entire world constituted 3 million ha. in the scope of the european union, in the organic farming system 6.8 million ha of land were organized in 2006, which consisted of 4 % of agricultural land and which was managed by 180 thousand of rural farms. (willer, yussefi-menzler, sorensen, 2008) 42024120 4105 2873 1043 550 352 21978 63 39 0 20 40 60 80 100 120 140 160 180 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 year th ou s. h a 0 500 1000 1500 2000 2500 3000 3500 4000 4500 nu m be r areas of certified organic farms , ha number of certified organic farms source: created by the authors according to the data of the republic of latvia ministry of agriculture, 2006, 2007, 2008, 2009 figure 1. land areas of the certified organic farming and number of farms in latvia in 1998 – 2008 the main benefit for the society from organic farming could be availability of qualitative products in the market for a reasonable price. unfortunately, only the producers of honey, fruit and berries can sell more than 50% of the produced outcome as an organic production issn 1822-8402 european integration studies. 2010. no 4 135 (see table 1). especially hard situation is developing in the dairy production, where only one third of the production, which was produced in 2008, was sold as organic, although in total in the market there are realized 80% of the produced organic milk. (vēveris, 2009) the comparison of the amounts of the produced and sold production and their changes in dynamic, reveal that the most attractive markets for organic production are fruit and berry cultivation, production of eggs and honey, since with the increase of this production amounts, significantly increase also the specific weigh of the realized organic production. in the production of cheese and cream, potatoes and grain, as well as production of sheep meet there have already been observed traits of market saturation, as alongside with the significant increase of production amounts, possibilities to realize this production as organic does not increase significantly. consequently, in these markets producers have limited possibilities to receive higher sales price for conventional products. table 1. the specific weigh of the sold organic production in latvia in 2007 and 2008, % products 2007 2008 sold from the total produce sold as organic produc-tion, % from organi-cally produced produce sold from the total produce sold as organic produc-tion, % from organi-cally produced produce beef 88 33 93 41 sheep meet 63 19 71 41 milk 73 20 80 34 cream 63 69 57 37 cheese 46 64 43 40 eggs 27 21 31 24 honey 56 45 68 56 grain 59 11 44 31 potatoes 19 6 22 12 vegetables 40 16 74 44 fruit, berries 66 16 91 78 source: vēveris, 2009 being unable to receive higher price for the produced produce, after the termination of the five-year contractual obligations, a significant number of farms may discontinue organic production. (vēveris, 2009) the research of competitiveness is widely applied; however there is no one definite approach used for the measuring of competitiveness – there is consistently different choice of indicators and methods of analysis. initially the competitiveness was explained by the factors, which determined the failure of one economic unit as a success of the other one (from engl. – „win-loose”). nowadays the necessity to win the other party is open to argument, but each of the economic units instead should use their strength and cooperate with others in order to achieve its aims. (from engl. – „win-win”). moreover, the international marketing experience of the enterprises gives evidence that the financial indicators of an enterprise increase if the enterprise collaborates with its competitors but not waste its resources for fighting with competitors for better market positions. (the competitiveness of latvia economy and the importance of investment for its advancement, 2009, голубкова, 2008) the competition advantage is a difference between enterprises in any comparable dimension, which enables one enterprise to compete better than others. (портер, 2006) the competition in the market of particular goods is formed by the five main forces of competition – intensity of the competition in the scope of the sector, the force of the consumer market, the force of the product substitutes, the force of the suppliers and the threats of the potential new-comers. (see figure 2) intensity of the competition among the organic farming enterprises suppliers – mutual exchange, a few specialized enterprises product substitutes – conventional products consumers – competent in the agricultural production process potentional new-comers in the market – the certification is a restriction source: created by he authors after porter, 1980; портер, 2006; forands 2009 figure 2. the competition forces of the market of organic products the interaction of these forces determines the profitability in the particular sector or commodities market, which is measured as a return from the invested capital. after the evaluation of the competition forces in a particular sector or market it is possible to discuss the potential profitability of the sector, as well as its competitiveness. (портер, 2006, forands, 2009) there is no intensive mutual competition among organic farming producers in latvia. it is more associated with the supply of such agricultural products, which have a typically seasonal character of supply and short period for the realization of the produce. at times goat breeders and vegetable planters face difficulties in realization of issn 1822-8402 european integration studies. 2010. no 4 136 their products due to the market saturation. however, in the market environment there are conditions, which can raise the mutual competition of organic farms: the producers have little possibilities for • differentiation of the production; high barriers for the market withdrawal (five-year • period of contractual obligations since the beginning of the receipt of the area support payments); the decrease of the population’s purchasing power; • the stagnation of the market of organic farming. • since the organic products, offered in the latvia market, are supplied fresh or minimally processed, consumers can easily make comparisons both among the organic and conventional products. the main objective for minimizing of the consumers’ force over the organic enterprises is the positioning of organic products against the conventional products. latvia inhabitants regard conventional products as substitutes for organic products, and conventional products influence the price level of organic products also. the most considerable substitute product groups for organic products are regarded the products of the national quality scheme, which are marked with the trademark “qualitative product”. in the organic farm the suppliers’ force may reveal by concluding the deals regarding the supply of seed material, agents for the soil improvement, plant protection agents, feed, feed fixings and agents used for the preparing of feed supplies. in most of the cases the suppliers of the above mentioned goods are specialized and more concentrated enterprises than organic farms. this places them in a more advantageous position for the pricing. since the economic and financial condition survey made by authors in 2009 indicates that only 5% of organic farms faced the difficulties regarding purchasing of organically cultivated seed, reproduction or planting material, obtaining of an animal for the renewal of the herd and auxiliary materials for the production, the conclusion can be drawn that at present the suppliers’ force in the market of organic products is neutral. whereas, the formation of new organic enterprises in latvia is still advisable for increasing of the production capacity, which could further the achievement of the critical mass for the industrialization of the sector. the expansion of foreign organic farming enterprise activities in the latvia market of agricultural products would not be advisable. in general, agriculture is a sector, where there are little possibilities to create a unique value. the attractiveness of the organic product market for the producers is defined by the market entry barriers, which enables to positioning the products as a different and special supply, set heightened price in comparison with the conventional products, as well as earn higher profits and for the shareholders – higher return of the invested capital. therefore most appropriate strategy for organic enterprises is differentiation strategy. the focusing strategy is more suitable for those enterprises, which practice direct supplies, work in the network of the environment health farms, service the customers of the budget organizations or work in the sector of the public catering. the focusing strategy will be suitable also for small enterprises, which have no intentions or abilities to increase the amounts of the production, but which can improve in this way their professional performance in the market. the development level of the market of organic products the structure of the sector’s market is inconsistent in the time, and in order to formulate the strategy for an enterprise, it is necessary to take into consideration the development level of the sector. in every level of the development the proportion of competition forces is exposed to changes. therefore, it is necessary to formulate the adequate development strategy for the sector or an enterprise. the level of the sector’s development affects the market attractiveness, too, and consequently – the changes in the capital investments. (porter, 1980) basing on the economic and financial conditions of the organic farming survey organized by authors in 2009 and on m.porter’s defined life cycle indications of a sector, the present market development stage of the market of latvia organic products was identified. the indicators, characterizing the market of organic products, give evidence, that organic farming at present faces the transition period from the period of growth to the period of maturity, which points at the expected considerable changes caused by the influence of competition forces. the comparison of the market life cycle development with the dynamic of the areas managed by organic farms reveals that since 2006 there are observed stabilization processes in the development of organic production – consequently, the market of organic products had started to stagnate already during the period of a rapid latvia economy growth (see figure 3). d em an d introduction growth maturity decline stage of organic market development in latvia source: created by he authors after porter, 1985 figure 3 development of organic agriculture in latvia in the concept of life-cycle model issn 1822-8402 european integration studies. 2010. no 4 137 under the conditions of external environment factors’ consistency, the market of organic products at present has depleted its potential for the development, and only the state intervention in the management of the competition forces regarding substitute products and consumers will be able to stabilize and renew the growth of the organic market. otherwise, it is possible that the market could even narrow, as farmers could discontinue their organic farming after the termination of the contractual obligations bound for receiving of support payments for organic farming. in this case it will be more difficult to restore the producers’ trust in national policy than the present efforts to maintain it consistent and supportive. the importance of the value chain for the obtaining of the competitiveness advantages in the market of organic products agribusiness is characterized by the deals of low profitability products, where the competition forces are based on the production costs close to the added value, thus resulting in an insignificant profit norm. the analysis of the value chain in agribusiness has become a valuable instrument, helping to generate the competitiveness advantages. (bryceson, 2006) the analysis of the value chain is performed after dividing the value creation process in separate components, after that each of them is analyzed separately. the core activities are connected with the production of the produce and its supply in the market, whereas support activities ensure the implementation of the core activities. (caune, dzedons, pētersons, 2000). the organic farming of latvia is peculiar with poorly developed elements of inlet and outgoing logistics, few suppliers of agricultural products perform minimal activities in the area of marketing, and at present only in particular cases alongside with organic products there are offered services (for example, delivery at door, modification of the product according to the customer’s needs etc.). the complex of support activities necessary for the organic farming – scientifically practical research, consultations, availability of market information – is also insufficiently organized. in the scope of the sector the value chain can be viewed not only from the perspective of the elements of the process but also as the level of the activities of enterprises within the total food supply chain. each enterprise positioning itself at the particular level and belongs to at least one supply chain, although usually simultaneously collaborates with several suppliers and agents. thus the performance of the supply chain is influenced not only by other market participants of the appropriate level but also by business partners in other levels of the supply chain. being influenced by globalization, agribusiness becomes an even more complicated market system. the competing firms join together in the value chain of agricultural products, which enables them to use the possibilities of competition and cooperation at the same time. the building of such relationships in the practice demonstrates that both enterprises get more benefit from such cooperation than from independent deals or deals with different partners. (ondersteijn, wijnands, huirne, kooten, 2006) basically, it is the expansion of the enterprises in the way of building partnerships, by cooperation, integration or forming clusters. basing on the findings of organic farming specialists (bierande, būmane, 2006; skagale, 2008), initially the main emphasis in latvia organic farming was put on the advancement of the quantitative development by setting an aim to increase the number of organic farms and the amount of organically managed land areas. since 2008, when the criterion for the eu support payment has been defined a particular level of income from the sales of organic produce, the qualitative development of the sector is being furthered (it is connected with the increase of work productivity). at present the novelty in the business management, innovation, regional development advancement is activated by the cluster or partnership development advancement. clusters embrace both those enterprises, which perform the core activities in the product value chain and those, which provide the support activities. in the scope of the relationships of the market participants involved in latvia organic farming, it is possible to detect the indications of a growing cluster, where the informal role of cluster cooperation advancement is undertaken by association of latvian organic agriculture (aloa). the formal creation of an organic farming cluster could considerably further the efficient use of the social capital accumulated within informal cluster for the achievement of the critical mass in the sector, which, in its turn, could stimulate the dynamic further development of the cluster. the present task would be the establishment of the national organic farming cluster, but already in the next years it would be necessary to plan the accession to the stronger scandinavia or germanic language countries organic farming market cluster. alongside with the establishment of the organic farming cluster in latvia, the activities of the market participants would be coordinated to the creation of as high as possible the added value in any process of the value chain core activities. therefore it would be possible to implement coordinated activities also in science, political and infrastructure support areas. the formal necessity for the cluster formation is defined by the present slowdown of the organic farming market development due to the sector entrance in the issn 1822-8402 european integration studies. 2010. no 4 138 maturity phase. in this phase the mutual competition of the market participants’ increases and the establishment of the cluster could lessen the useless mutual competition among the enterprises and could advance the cooperation for the achievement of the common goals. the approaches for the promotion of organic farming market development in order to study the organic market development promotion possibilities, the authors have applied the method of the analytic hierarchy process (ahp), which allows systemizing the information obtained during the research to detect the optimal solution for the initially set tasks. basing on the research factors, which affect the organic farming market environment, the competition forces and elements of the product value formation chain, the authors created a hierarchy analysis model to detect which of the factors, existing in the market environment, are the most important for the promotion of the organic product market development and the stimulation of exactly which value chain core activities element can cause the most considerable effect on the development of organic product market. the higher purpose of the algorithm of the ahp was defined “the development of organic product market” (1st level), and its assessment is based on the criterion groups of the pest analysis (2nd level): political criterions, • economic criterions, • social criterions, • technological criterions. • in the third level the authors included the most important criterions for the evaluation of the value chain elements in the context of organic farming market development. in the fourth (the lowest) level – the core activities’ elements of the value chain process for obtaining of the competitiveness advantages. basically, there are integrated three methods in the research of the promotion of the market of organic farming – ahp, pest and analysis of the value chain. the experts’ panel was formed by: a professor of latvia university of agriculture, the • doctor of agronomy sciences, long-experienced president of aloa; two officials, working at the organic farming policy • developing at the ministry of agriculture of the republic of latvia; an official, working at the implementation of the • agricultural policy at the ministry of agriculture of the republic of latvia; a high-level official, representing aloa; • a director of the organic product wholesales • enterprise; a director of organic product retail enterprise; • phd student of latvia university of agriculture – • one of the authors of the article. the priority vector’s coordinates of the variant evaluation criterion groups reveal – how relevant these criterion groups are for the development of organic product market in the experts’ point of view. (see figure 4.) 0.54 0.469 0.334 0.416 0.215 0.100 0.050 0.068 0.177 0.102 0.276 0.349 0.000 0.100 0.200 0.300 0.400 0.500 0.600 political factors economic factors social factors technological factors c oo rd in at es o f th e pr io ri ty v ec to r maximum value minimum value the arithmetical mean source: created by the authors after the results of the experts’ assessments, 2009 figure 4. the experts’ evaluation of the criterion groups the experts with a relatively common assent consider that the most important is the group of economic criterions (0.349) for the development of the market of organic farming; lower assessment (0.276) experts have given to the political factors’ role in the development of the market of organic products; but considerably lower influence on the development of the market of organic products in experts’ opinion have technological (0.177) and social (0.102) factors. (see figure 4) if the experts’ opinion was comparatively equal on the criterion group with the highest given assessments – economic factors (variation coefficient 27%), then, regarding the other criterion groups, the experts’ opinion varied: in the group of political factors the amplitude between the minimum and maximum coordinate of the priority vector was 64%, in the group of technological factors – 71%, but the most considerable differences in the experts’ assessments were detected within the social factors’ group, where the variation coefficient indicated 94% amplitude. in the group of political criterions the highest importance by the experts was admitted the necessity to reduce the vat rate on the organic products (0.22) and organize the government purchase of organic products (0.17). in the group of economic criterions in the experts’ opinion the most important activities are provision of support for the formation of organic farming clusters (0.22), as the next most important measures experts claimed the necessity to retain higher support intensity issn 1822-8402 european integration studies. 2010. no 4 139 for organic farming than conventional (0.19), support the cooperation among producers (0.18) and facilitate the crediting conditions regarding investments in organic farming (0.17). in the group of social criterions experts with certainty point out, that the most important it is to implement the educational marketing communication about organic products (0.42), and as the next most important activity experts mentioned the necessity to popularize the environmentally friendly lifestyle in the society (0.30). in the group of technological criterions in the experts’ opinion the most urgent is a necessity to increase the number of the trade units (0.23), expand the assortment of organic products (0.23), as well as ensure harder control over the spread of gmo (0.22) after the criterions were interactively evaluated, the experts assessed the alternative variants of the 4th level with each of the 23 criterions; in the result the experts indicated that element of the product value formation, which at present is the most important for the development of the market of organic products. as it is illustrated in the figure 5, in the assessment of the elements of the organic product value chain the highest importance is assigned to the necessity to increase the amounts of production (0.193), and the experts’ opinion regarding this issue was comparatively similar (variation coefficient 33%), after which the next most important element of the value chain is implementation of the marketing communication (0.170, the replies vary within 38%) 0.174 0.296 0.253 0.198 0.278 0.198 0.047 0.054 0.0830.091 0.129 0.087 0.193 0.103 0.1700.165 0.153 0.119 0.000 0.050 0.100 0.150 0.200 0.250 0.300 0.350 the development of the inlet logistics the developme nt of the production the development of the out going logistics the development of processing marketing communication c oo rd in at es o f t he p ri or ity v ec to r maximum value minimum value the arithmetical mean source: created by the authors after the results of the experts’ assessments, 2009 figure 5. the experts’ total evaluation of the elements of value chain process by all criterions the equal importance to marketing activities in experts’ opinion is the necessity to develop the processing (0.165, variation coefficient 13%), only slightly lower importance in experts’ opinion is the necessity to develop the outgoing logistic (0.153, variation coefficient 22%). whereas the promotion of the inlet logistic (0.119, variation coefficient 44%) and the development of the export markets (0.103, variation coefficient 58%) in the experts’ opinion at present are less important elements of the value creation chain for the development of the market of organic products. in general the method of the hierarchy analysis comes up with a convincing answer, that at present the most important measures for the promotion of the development of organic products should be the increase of the production amounts and the implementation of the integrated marketing communication activities, as well as facilitation of the processing and the outgoing logistic. conclusions organic farms of latvia implement a multi-sector production, whereas the largest produce amounts are formed in the beef and dairy product industry leading development of latvia organic farming towards energy intensive production. there is no intensive mutual competition among organic farming producers in latvia. since the organic products are supplied fresh or minimally processed, consumers can easily make comparisons among the organic and conventional products. latvia inhabitants regard conventional products as substitutes for organic products, and therefore conventional products notably influence the price level of organic products. the suppliers’ force in the market of organic products is neutral, and formation of new organic enterprises in latvia is still advisable for increasing of the production capacity, which could further the achievement of the critical mass for the industrialization of the sector. evolution of organic agriculture in recent years has reached the transition stage from the period of growth to the period of maturity, and comprise potential for further development if notable investments will be continued into the sector. initially the main emphasis in latvia organic farming was put on the advancement of the quantitative development. since 2008 the qualitative development of the sector is being furthered. the present task would be the establishment of the national organic farming cluster, but in the coming years it would be necessary to access to the stronger scandinavia or germanic language countries organic farming market cluster. the supply chains of organic farming products in latvia are characteristic of low efficiency, as the assortment, which reaches the market, is narrow and with typically seasonal supply and low added value, which is mainly realized by the agricultural produce producers themselves. issn 1822-8402 european integration studies. 2010. no 4 140 the experts’ evaluation in the scope of the detecting the most important element of the value chain for the development of the market of organic goods confirmed that it is necessary to further the development of a complex organic products’ supply chain: alongside with the stimulation of the production, the recognition of the organic products should be raised in parallel with the development of outgoing logistic. references bierande r., būmane i. 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(1980) the analytic hierarchy process. new york: mcgraw-hill international. 287 p. skagale g. (2008) nozares pašattīrīšanās ir neizbēgama. agrotops, nr.5, maijs, 14.-18.lpp. vēveris a. (2009) bioloģisko lauksaimniecības produktu grūtais ceļš uz tirgu. agropols, 6.novembris, 3.lpp. willer h., yussefi-menzler m., sorensen n. (2008) the world of organic agriculture: statistics and emerging trends. london:earthscan. 267 p. голубкова е.н., сейфуллаева м.э. (2008) международный маркетинг. москва: дело и сервис. 256 с. портер м.е. (2006) конкурентная стратегия: методика анализа отраслей и конкурентов. москва: альпина бизнес букс. 454 с. the article has been reviewed. received in april, 2010; accepted in may, 2010. 48 issn 1822 – 8402 european integration studies. 2009. no 3 czech national anti crisis plan in a europe of knowledge context 1 ingeborg němcová stanislava mildeová university of economics in prague abstract financial crisis quickly followed with economic decline all round the globe has been reaching also the central european area including the czech republic. in february the czech government presented national crisis management plan. the first part of the article discuss the differences in eu member states approach to the crisis since the czech governmental response differs to another anti crisis programs, especially those of the largest countries. if these ones are seen mostly to assist the declining demand side the czech plan is focused on supporting the supply side. the present right-wing czech government considers a growth of a public debt more serious danger compared to a cyclical economic slowdown. this is a main issue of all the governmental approach. the czech anti crisis plan has been certainly reflecting the european economic recovery plan (eerp) basic ideas from december 2008 to some extent. this reflecting extent is a base for hypothesis formulation. the czech government has paid to the goals of lisbon strategy on growth and jobs a relatively small attention. basic hypothesis of the article is a question if the approach of the czech government under the economic crisis has been changing. the eerp requires not only short-term measures focused on fiscal boosting of the demand side of the economy but also to address the long term challenges – providing conditions to support structural changes of the economy. eerp is a part of lisbon strategy for growth and jobs in the current crisis. recent developments of the czech economy marked with bankruptcies of large producers from traditional glass and porcelain industries are confirming the need of a structural change. such a change shall respect more the development of costs (costs of labor especially) in labor intensive industries. structural change which has been predicted in the leading ideas of the lisbon strategy: getting ready and building up an information/ knowledge society and prepare an easier way for companies to go through structural changes towards economic activities using more efficiently advantages of such a society. global economic crisis can be taken also as a concentrated control of competitiveness. and competitiveness is a way of keeping europe employed. the article is focused on analyses of the czech anti-crisis plan from point of medium and long term measures of the lisbon strategy reflected in the eerp contributes to the structural change agenda. analysis will examine the following parts: support and expenditures on research and development support and expenditures of education and life-long learning measures supporting flexibility of companies and creating for them a space for structural change. finally an importance of specific measures to orient and motivate companies to move in direction of the structural change is discussed. keywords: czech anti-crisis plan, europe of knowledge, lisbon strategy on growth and jobs. introduction let start with a question: is part of the czech economy related to a knowledge economy in danger? funds for education r&d have always been economized in the cr. the upcoming crisis is requiring extra expenses on economic stabilization. are these areas going to be first victims of the crisis, since these funds will be the first economized? recommendations from the lisbon strategy and the eu for this area have not been taken as binding in the cr. the financial crisis and its impacts on countries require an active governmental stabilization policy, which will affect public finance (rising of expenses or reducing income). also, taking into account the revision of budgets of companies and families, the question on 1 the paper is a part research supported by the grant gačr 402/07/0521. issn 1822-8402 european integration studies. 2009. no 3 49 sustainability of industries of knowledge economy is legitimate. the answer will be given on the base of analysis of the available data on financing of these industries and evaluation of priorities and recommendations of stabilization programs. stabilization programs priorities in general, as they are recommended by the oecd and european economic recovery plan (eerp), will be compared. we are aware of the great simplification in limiting the knowledge economy in only education and r&d industries. but the core of the research is on describing and estimating the future approach of the czech government towards these parts of the economy, especially if the government will be under pressure of an economic crisis. the czech government has not considered a knowledge economy as a priority and only gave the minimum acceptable amount of funds. our approach to the analysis is based on system dynamics, although the feed-back which is the core of this method will not be emphasized. the oecd and eu recommend to their members to take the knowledge economy industries as one of the most important priorities of their stabilization plans. that is why we summarize the main principles and steps of these stabilization packages. since the 80s we can observe the diminishing role of the state in the economy: as a result of liberalization the share of public finance of the total gdp has been reduced and privatization cut down the public sector. the number of tax and fiscal reforms affected the size and role of automatic stabilizers built in the systems. the eu countries have more of these stabilizers built in than the u.s. these countries also declared that a present level of integration has a specific value, which should not be threatened. overview of principles of active stabilization plans the anticipated hit of the present crisis is so strong that the governments must take an active approach, an active stabilization policy. it is up to every government to pick up ingredients and find an optimal mixture for their stabilization program: a. time horizons of effects and mechanisms of different instruments and measures have to be considered and reflecting the course of the crisis priorities should be chosen. b. sectors, industries and branches where the stabilization will aim: financial sector stabilization including limiting 1. of credit crunch. part of the credibility recovery plan will be financial markets reforms. industries with the highest multiplier of 2. growth. areas with the most concentrated problems 3. (environment, infrastructure, the energy sector) use the crisis to prepare and start a new 4. structure of economy which will be a base for a long term economic growth. c side of the market – to whom and in what way will assistance come from stabilization provided: demand 1. supply 2. d distribution of costs and contributions of the stabilization and affects of the crisis. general or selective assistance1. all the economic subjects will take part in 2. financing the stabilization, but their shares differ: state using public fundsa) companiesb) householdsc) at a beginning period of crisis is very hard to estimate effects of the national stabilization plans. it is a politically legitimate to dispute distribution of costs and contributions of the stabilization and the affects of the crisis among the different social groups in the society. the same decision about distribution of costs 3. and contributions of the stabilization plan must be made while considering international aspects: home country and domestic interests1) other – foreign countries2) such a decision is important in cases of: integration area, especially regional a) integration cases of introduction of restrictive trade b) policies e. in t case the stabilization cost are covered by the state: expense side of the governmental budgets1. reducing the income side2. every country has to find its own combination. the choice will be influenced with: characteristics of the particular economy and its 1. potential political orientation of the government2. the oecd and eu recommendations european economic recovery plan (eerp) is based on a majority of principles recommended by the oecd. the present level of integration is considered important and its potential could be used for stabilizing the member states’ economy. the plan is based on two pillars and one underlying principle. the first pillar brings a massive impulse to purchasing power stimulating demand and supporting recovering of credibility. this issn 1822-8402 european integration studies. 2009. no 3 50 pillar fully respects the stability and growth pact. the second pillar is based on a direct short –term action to reinforce competitiveness of the eu in the long –term. this represents ”smart investment“ to: develope the wide spreading of knowledge and  abilities for tomorrow needs efficiently create jobs and reduce energy  consumption clean technology (construction, automobiles) to  get ready for low-carbon markets in the future infrastructure to promote efficiency and  innovations. the basic principle is solidarity and social justice. from the knowledge economy point of view the crises can be considered as a challenge to an „intelligent destruction“. sources which will be used for stabilization could be driven in a way to support basic structural changes. from the knowledge economy point of view the crises can be considered as a challenge to an „intelligent destruction“. sources which will be used for stabilization could be driven in a way to support basic structural changes. national anti-crisis plan of the cr the cr government introduced its national anticrisis plan in the second half of february, 2009. the plan does not prefer any direct stimulus to a demand side and is fully concentrated on the supply side. the aim is to create an environment for reduction of costs. part of the plan is also a number of instruments supporting export in area of insurance and crediting. these instruments are substantial in an extensively export oriented economy like the czech economy. another set of tools, like reduction of social insurance payments, is focused on preservation of jobs. actually there are three main interconnected priorities: preserving jobs through reduction of costs and keeping public finance balanced within the maastricht criteria. there is no mention of knowledge economy or investments in this area among the priorities. realization of this anti-crisis plan was stopped almost as soon as it started because of the political situation. the government which introduced this plan lost the support of the majority in the czech parliament. it is evident that this plan will be revised in the first decade of april 2009. the parliament political parties have been pushed by the president of the republic to create a temporary large coalition – every party will have its representation in the temporary government. there is a high probability that a new consensual anti-crisis plan will be set up as consent and some measures from the social democratic stabilization program will be added. recent proposal of a new governmental stabilization plan is described in the following table. scheme 1 proposal for a new consensual stabilization plan of the cr government proposal opposition proposal reducing of social insurance payments paid by employers financial subsidy to purchasing a new car (30 thousand czk) acceleration of depreciation increasing of tax reduction of families with children amendment of bankruptcy law extension of periodand growth of unemployment allowances family allowancesgrowth source: http://aktualne.centrum.cz/domaci/politika/ clanek.phtml?id=629839#tabule, 8.4.2009 it is true that the social democrats; plan, which is a part of their pre-election program, contains a part solely focused on the development of an information society. briefly said, their program reflects the eerp recommendations concerning more the knowledge society support. but none of the theses are in the negotiation. the final consent and priorities is hard to guess at this point. let’s look at the expenses on r&d and on education in more detail and compare them with the trends in the resent years. recent financing of knowledge economy industries in the cr the recent financing of knowledge economy industries in the cr were below average in the eu and oecd members. this average is about 6%; it is in the cr 4.7%. 2 demographic development cannot explain this numbers. low financing was visible at tertiary education, where the total cost per student dropped down for more than one third in 1995-2005. costs per student had stagnated in other countries, too, though there was a little decline in slovakia (6%) as well., an increased occurred only in hungary, where rescuing the general financial situation required large cuts at an expense side of the hungarian public finance after 1995. 3 the czech data have not improved to date. financing of r&d shows a different picture. the european council in barcelona (2002) recommended to the member states to give 3% of gdp to r&d and 2/3 form private business resources. that means 1% of gdp from governmental resources. according to the last available statistics from 2006, r&d received 50 billion czk and 28 billion came from private businesses. compared to 1995, it was 3.6 times more, and the gdp had risen 2.2 times. such a rate of growth of these expenses put the cr on the top of 2 education at a glance oecd indicators 2008, http://www. oecd.org/dataoecd/23/46/41284038.pdf, p.237, 30.3.2009 3 ibid issn 1822-8402 european integration studies. 2009. no 3 51 the statistics. the reason for this development was an economic growth and a new set of incentives for investors shifting their attention from labor intensive branches to branches with a higher value added. anyway, the share of r&d expenses remained 1.55% and the governmental share under 1%.4 the largest portion went to a technical r&d connected to an automotive industry. it was 2.5 more than what went to medical research and 22 times more than what went into the humanities. 5 this orientation was related to a concentration of automotive industry in the cr ant its importance for the whole economy and export. it is a little exaggerated but this used to be compared to finland (nokia). expenses of the private sector into the technical r&d brought a good number of patents as it is seen at the following scheme. scheme 2. selected indicators of a scientific and innovation profile the cr in 2006 1 2 3 45 6 7 čr oecd average notes: 1 business expenditures on r&d as a % of gdp 2 governmental expenditures on r&d as a % of gdp 3 human resources for science & technology occupations as a % of total employment 4 science and engineering degrees as % of all new degrees 5 researchers per thousand total employment 6 %of governmental expenditures on r&d financed by abroad 7 patents of foreign co-investors source: oecd science, technology and industry outlook 2008: profile of the czech republic, isbn 975-9254-04-01, oecd, 2008, p. 113, http://www.oecd.org/ dataoecd/17/34/41559010.pdf, 30.3.2009 expenses for knowledge economy planned in the national anti-crisis plan of the cr the plan is not considering any specific program towards education. there are only two steps. the first one is an offer to employers to send their employees to 4 dubská, d.: polovinu výzkumu a vývoje v čr financují firmy, hn ihned 4.10.2007, http://hn.ihned.cz/c1-22152950-polovinuvyzkumu-a-vyvoje-v-cr-financuji-firmy, 15.03.20095 ibid 5 ibid educative courses instead of laying them off. wages and salaries of these employees will be covered up to 80% from an operation plan “adaptabilita“ which is financed from the eu social fund. in the recent cases of lays off no company has used this opportunity. the second measure is connected to releasing funds from the state budget. every budgetary chapter has settled a percentage which is the potential cut off in a case of instability. this percentage is 8-10% but education has only 0.5%, and in the case of r&d, 0%. a little increase of governmental expenses on r&d has been already a part of this year budget. the total growth is 1.5 billion czk. this represents just a small increase of a percentage of gdp given to r&d. the core question will be development of private funds on r&d. there are no measures that will stimulate them in the plan. conclusions with the assumption of no dramatic development of the czech public finance within one year, we expect the sustainability and perspective of the czech industries of knowledge economy as far from their financing from public funds. there is an estimation of the same or even a little rise of public sources. uncertainty is coming from the private sector since this share was almost two thirds of the total financial sources given to these industries. references adámková, v.(2008), země visegrádské čtyřky po přistoupení k eu. praha 18.09.2008 – 19.09.2008. in: mezinárodní statisticko-ekonomické dny na vše v praze. sborník abstraktů. praha : vše, 2008, s. 6. isbn 978-80-86175-61-4. “brussels european council 11 and 12 december 2008 presidency conclusions“, council of the eu 17271/1/08, rev 1, concl 5 , brussels, 13.02.2009 “council adopts climate-energy package“, council of the eu 8434/09 (prese 77), brussels, 06.04.2009 dubská, d. (2007), polovinu výzkumu a vývoje v čr financují firmy, hn ihned 4.10.2007, http:// hn.ihned.cz/c1-22152950-polovinu-vyzkumu-avyvoje-v-cr-financuji-firmy, 15.03.2009 “ european innovation scoreboard 2008“, european commission ,http://www.proinno-europe.eu/ eis2008/website/docs/eis_2008_final_report.pdf , 4.4.2009 “economic policy reforms: going for growth 2009 czech republic country note“, oecd, http://www. oecd.org/dataoecd/22/37/42224832.pdf, 2.4.2009 issn 1822-8402 european integration studies. 2009. no 3 52 “economic policy reforms: going for growth 2009 united states country note“, oecd,http://www. oecd.org/longabstract/0,3425,en_33873108_33873 886_42224909_1_1_1_1,00.html, 2.4.2009 “education at a glance 2008: oecd, indicators“,oecd, publication: 9/9/2008, isbn: 9789264046283, http://ocde.p4.siteinternet.com/ publications/doifiles/962008041p1g011.xls, 4.4.2009 education at a glance oecd indicators 2006, oecd, paris, 2006 or revised data. www.oecd.org/edu/ eag2006, 4.4.2009 “a european economic recovery plan, communication of the commission to the european council“, com (2008) 800 final, brussels 26.11.2008 “the global plan for recovery and reform london, 2 april 2009“, leaders statement http://www.g20. org/pub_communiques.aspx 8.4.2009 “interim economic outlook, march 2009: country note united states“, oecd, http://www.oecd.org/ dataoecd/18/1/42443150.pdf, 2.4.2009 karpová, eva. (2008), příliv přímých zahraničních investic do zemí střední a východní evropy po východním rozšíření eu. současná evropa a česká republika, 2008, roč. xiii, č. 1, s. 61–80. issn 1211-4073. mildeová, s. (1994). možnosti tvorby modelového systému v prognostických postupech. politická ekonomie. 1994, roč. 52, č. 1, s. 100–107. issn 0032-3233. “národní program reforem čr 2008 – 2010“, http:// www.mpo.cz/dokument53528.html, 3.3.2009 “the prague meeting of eu heads of state and government with the us president – eu press lines“, council of the eu, 8482/09 (prese 84), brussels, 05.04.2009 “presidency compromise proposal for financing of the infrastructural projects put forward by the commission as a part of the eerp“, council of the eu-note, 7848/1/09, rev 1, brussels, 20.03.2009 “progress report on the actions of the washington action plan“, http://www.g20.org/documents/ final_annex_on_action_plan.pdf, 8.4.2009 potužáková, z. (2007), současná situace na trhu práce v evropské unii. zlín 12.04.2007. in: mezinárodní baťova doktorandská konference [cd-rom]. zlín : univerzita tomáše bati, 2007. 11 s. isbn 978-807318-529-9. “science, technology and industry outlook 2008: : profile of the czech republic“, oecd, isbn 975-92-54-04-01, 2008, http://www.oecd.org/ dataoecd/7/34/41559010.pdf, 30.3.2009 sereghyová, j. a kol.(2008), analýza aktuální konjunkturní situace v mezinárodním obchodě a prognóza jejího vývoje v letech 2008-2009, studie 1/2008, centrum konjunkturních studií a prognóz, praha 2008, isbn 978-80-254-1415-6 sereghyová, j. a kol. (2008), konjukturní situace v mezinárodním obchodě surovinami a predikce vývoje jejich světových cen v krátkodobém a střednědobém horizontu, studie 2/2008, centrum konjunkturních studií a prognóz, praha 2008, isbn 978-80-254-1664-8 sereghyová, j. a kol. (2008): zvrat ve vývoji globální konjunktury a progóza vývoje konjunkturní situace v evropě, studie 3/2008, centrum konjunkturních studií a prognóz, praha 2008, isbn 978-80-2542278-6 sereghyová, j. a kol. (2008), zvrat v dlouhodobých trendech prosazujících se ve světové ekonomice a příznaky vzniku nové geografie světového obchodu, studie 4/2008, centrum konjunkturních studií a prognóz, praha 2008, isbn 978-80-254-3091-1 “state aid: latest scoreboard reviews member states’ action to fight economic crisis“, european commission, ip/09/554, brussels, 8th april 2009, http://europa.eu/rapid/pressreleasesaction.do?refere nce=ip/09/554&format=html&aged=0&language =en&guilanguage=en, 8.4.2009 stričík, m. (2008). využívanie predvstupových a štrukturálnych fondov európskej únie. biatec. 11/2008, ročník 16. issn 1335 – 0900. “sustainability and the role of innovation policies in the current financial crisis, 2.3.-2009“, conclusions of a recent seminar held at the oecd. http://www.oecd. org/dataoecd/31/34/42230480.pdf 8.4.2009 “volební program čssd!, http://www.cssd.cz/programnadeje/ 8.4.2009 the article has been reviewed. received in march, 2009; accepted in april, 2009. 93 issn 1822 8402 european integration studies. 2009. no 3 improvement of vat system of latvia marina kuzenko ingrida jakušonoka latvia university of agriculture abstract since the beginning of the year 2008, value added tax (hereinafter – vat) revenues numbers started to drop with continuing downtrend. urgency of the research is related with the high importance of vat revenues on the state budget because they comprise more than 50 per cent of the central government basic budget income. the basic budget is the source of financing the state administration, health care, education, defense, including also employment costs; contributions to the international organizations, inter alia, operating payments to the budget of european community, financing economic development and social projects (for example, the projects of european regional development fund and european social fund) and other state expenditures. therefore vat collection is crucially vital to the macroeconomic situation in the country. on 09 march 1995 latvia adopted a vat type of turnover tax to replace, as of 1 may 1995, the old cumulative turnover tax. the latvians refer to the vat as pievienotās vērtības nodoklis, abbreviated as pvn. the vat law (saeima, 1995) has been amended by the vat (amendment) act 2004, which implemented, as of 1 may 2004, the provisions of the sixth council directive 77/388/eec of 17 may 1977 on the harmonization of turnover taxes within the european community (the sixth directive has been replaced by council directive 2006/112/ec of 28 november 2006 on the common system of value added tax (hereinafter referred to as directive 2006/112/ec)). vat is a turnover tax levied at each stage of the production and distribution. liability to vat rests with the person supplying the taxable goods or services or importing goods into latvia. however, the supplier is allowed to deduct from his vat liability on supplies made, the amount of vat paid and properly invoiced to him in relation to purchases affected by him, or vat paid by him at importation (art. 10, para. 1, clause 2 vat law). the actual burden of the tax is therefore borne by the final consumer. the objects of the research are vat revenues and vat legislation. the purpose of this research is to develop proposals for improving of vat laws, regulations and administration that would positively affect vat levy. the formulated hypothesis that vat revenues closely relate to retail turnover has been confirmed within the research. concrete proposals about the necessary amendments in the current vat legislation are outlined in this research. in order to increase vat revenues, the limitation of vat refund are required in the cases when taxable transactions have not been started yet, especially in the field of real estate. amendments in the vat law are crucially necessary for the rights to deduct vat in the acquisition of luxury cars which practically are not used for business purposes and taxable transaction. in order to ease administrative burdens for small businesses (annual turnover do not exceed lvl 100,000) which use cash accounting scheme, here idea about vat cash accounting should be promoted as well. the result would be that small business does not pay vat until its customer has paid. at the same time vat can be reclaimed on its purchases when the company has paid its suppliers. this principle would ease vat accounting and relieve cash flow in small sized companies. in the present situation, all companies use standard vat accounting and vat must be paid just after the invoice has been issued. keywords: value added tax (vat), vat application, taxation, budget, vat revenues, tax legislation. introduction vat collection is crucially vital to the macroeconomic situation in the country. the scientific problem looks at increasing vat revenues by finding solutions for required changes in the present vat law simultaneously maintaining compliance with european union law. taking into consideration fast changing vat legislation and overall economic situation, the novelty of the research is submitting topical proposals. the objects of the research are vat revenues and vat laws and regulations. the aim of this research is to develop proposals for improving of vat laws and regulations and administration that would positively affect vat levy. the economic nature of vat is a general consumption tax. therefore the logical conclusions arrive that vat issn 1822-8402 european integration studies. 2009. no 3 94 revenues should correlate with home consumption. the main part of home consumption is the amount of retail sales. consequently, the research hypothesis is formulated that vat revenues are closely related with retail turnover. in order to achieve the aim of the research, the tasks of the study are structured as follows, namely: to find relation between vat revenues and retail turnover by using correlation ratio analysis method, discover the factors which cause a negative influence on vat revenues, analyze european union laws and regulations in vat field, study the practice of other member states and establish recommendations for improving of vat levy. to examine the hypothesis and to perform the tasks of this research, particular research methods are used: calculation of correlation ratios and the analysis of vat laws and regulations within the scope of latvia and european union. the data sources about vat revenue in 2008 – 2009 from the state revenue service of the republic of latvia (hereinafter – srs), the law about the state’s budget 2009 (saeima, 2008), the data of finance ministry and central statistical bureau are used. decrease of vat payments the revenues of vat in january and february 2009 are 152.22 million lvl, which is 64.65million lvl (including 10.32 million lvl levied vat for goods revealed for free circulation) or 29.8% less than in the relevant period of the year 2008 (srs, 2008-2009). estimated vat plan is fulfilled for 77.5% or the missing amount is 44.18 million lvl. the main factors negatively affecting vat revenues are decrease of gross domestic product (hereinafter – gdp) and drop in retail turnover. there was observed the decline of economic development and insignificant growth of gdp (+1.6%) in the first six months of the year 2008 in the economic of latvia, afterwards the gdp data of summer half of 2008 refused any signs of improvement. gdp shrank by 4.6 % in the third quarter and 10.3% in the fourth quarter. total gdp decreased by 4.6% in the year 2008. the drop of the gdp was justified by decline in the said industries: in trade of 8.3%, in manufacturing of 6.5% and construction of 2.6%. there was shrinkage also in financial sphere of 6.6 %. data of the first quarter of the year 2009 maintain concerns about continuing gdp decline. for example, data obtained for january 2009 indicate that the output of manufacture decreased by 23.9% and retail turnover shrank by 19.8% in comparison with the january 2008. moreover, the retail turnover in january 2009 declined both against november 2008 by 4% and december 2008 by 12.5%. here must be noted that decline in retail turnover has a continuing trend and has been reducing during the last months (fig.1). -30 -20 -10 0 10 20 30 increase/decrease of vat payments comparing with the same period of the previous year ( %) 25,4 17,2 12,7 12,6 9 2,1 6,2 -2,4 2 -5,1 -13,4 -11,8 -23,6 -17,1 increase/decrease of retail turnover comparing with the same period of the previous year ( %) -1,6 -3,1 -3,4 0,8 -4,9 -7,3 6,3 -8,4 8,1 -13,4 -12,8 -12,5 -19,8 i ii iii iv v vi vii viii ix x xi xii i ii 2008 2009 fig. 1. increase/decrease of vat payments within a period 2008 – 2009 in comparison with the same period of the previous year (%) the most falls of the retail sales is indicated in nonfood and food consumer goods, according to the data of central statistical bureau (2008-2009). ministry of finance estimating gdp drop is 13.2% in 2009. insignificant drop in retail sales was noticed already in january 2008, although vat payments increase remained, that can be explained by vat payments made by other industries than retail. for example, the certain industries indicated apparent increase of vat payments during the first two months of 2008: electric power, gas and heating supply (+63%); wholesale trade (+14%); construction (+42%); real estate (+19%); financial services (+99%). issn 1822-8402 european integration studies. 2009. no 3 95 since the summer half of 2008 the recession of other economic industries started, vat revenues started to decline as well. analyzing the vat payments patterns of other industries than retail sales, conclusions are that in january and february 2009 significantly decreased vat payments made by wholesale trade (-29.4%), cars’ and motorcycles’ wholesale (-56%), and construction (-30.3%) industries. the payments made by retail sales in 2008 remained at the same level as in the previous period, however in the year 2009 they decreased by 8.5% (figure 1). similarly, vat payments made by financial business declined by 2%. observed vat payment reduction is drawing conclusion that decline in retail sales continues in the next months of the year as well. in order to evaluate relation between vat (x) revenue and the increase/decrease of retail turnover (y), the correlation ratio must be calculated. correlation ratio (r) formula is expressed by the following formula (krastiņš, 1998): ( ) ( ) 1 1 1 2 2 2 2 1 1 n n i in i i i i i n n i i i i i i x y x y nr x y x y n n = = = = = − = − • − ∑ ∑ ∑ ∑ ∑∑ ∑ the results of calculation present that in the period january 2008-january 2009, correlation ratio is 0.81, which means that relation between vat revenues and retail sales is strong. vat paid during january and february 2009 totaled 245.72 million lvl. in comparison with the same period of the previous year, the vat paid in the budget decreased by 20.8%, namely, in january by 23.6% and in february by 17.1%. the greatest vat payments (29.1% of the total) are made by the tax payers, whose basic business activities is wholesale trade (excluding cars and motorcycles), however in comparison with the previous year their vat payments into the budget dropped by 29.4% or 29.6million lvl. only few industries provide the increase of vat payments. the greatest growth, i.e., of 40% or 6.74million lvl, was made by electric power, gas, heating and air conditioning industries. this partly can be explained with the increase of tariffs and vat rate. the recession in the real estate business in particular strongly negatively affects vat revenue due to its surplus payments and rights to refund vat for the opened, yet not finished projects. laws and regulations of the republic of latvia are already harmonized with the european union ones, mainly with the council directive 2006/112/ec of 28 november 2006 on the common system of value added tax (2006). therefore, developing proposals for vat laws and regulations in the field of vat, european union requirements must be taken into account. proposals for the amendments of the law ‘on value added tax’ and regulations vat in latvia has been the research subject in recent years by some of finance and tax specialists, namely, kauliņa g. (2007), leibus i. (2008), rankevica v. (2006) and kuzenko m. (2008). inguna leibus has driven her attention to the vat accounting problems for self-employed persons. individuals carrying out economic activities use cash accounting method for income and social tax purposes. vat has to be accounted for standard account principle, though. in my opinion there one accounting principle for all tax purposes should be introduced, i.e., vat cash accounting should be offered for small sized companies and self-employed individuals. implementing such unified method would ease paperwork, vat accounting and improve financial system of small entrepreneurs. kauliņa g. (2007) has studied vat application problems and solutions in her doctor’s dissertation in 2007. taking into account that legislation and economic situation is fast changing, only some of the proposals given in her paper are actual today. for instance, the proposal to define unified vat levy and deduction in the case of acquisitions using factoring should be forwarded to the amendments in the law. within the framework of the research the issue about vat deduction for luxury cars is discussed. in order to improve vat revenue as well as small business environment, certain amendments in the legislation should be made. to improve the section 10 of the law ‘on value added tax’ by defining that input tax can not be refunded for acquired or leased motorcars, except motorcars intended for drivers’ training, passenger transporting, renting, as well as operational transporting means and specialized motorcars such as medical or funeral service. in accordance with the present edition of vat law, a taxable person has rights to deduct vat for acquired motorcars, including luxury cars without any limitations, provided these cars are aimed for taxable activities. at the moment, the taxable person performing taxable transactions has the rights to deduct vat even in the case if those cars are used by the companies’ management staff in order to visit company business sites. as a result, the new vehicles formally are acquired by taxable businesses because of possibility to refund vat. for example, if an individual would acquire a new car in another member state, vat shall be paid in the state budget. on other hand, if a new vehicle is obtained by taxable business, real vat payment is avoided by reverse charge mechanism. meanwhile, other member states act differently and certain limitations are set regarding vat deduction if a new vehicle is acquired. these rules and conditions are reflected in the table: issn 1822-8402 european integration studies. 2009. no 3 96 lithuania vat is not deductible for acquisition, lease and rent of motorcars, except if the business activities are taxi service or driving school. belgium vat is not deductible 50 % of the value of acquired, leased or rent of the motorcar except it is directly intended for business activities. the same principle is used for vat deduction from the relevant costs such as fuel, repair etc. finland vat from the acquisition of motorcars is not deductible if only they are not directly intended for economic activities of the business. ireland vat is not deductible for acquisition and lease of motorcar itself and fuel as well. deduction is allowed for trucks acquisition and lease, fuel and maintenance. united kingdom vat from the acquisition of motorcars is not deductable if only they are not directly intended for economic activities of the business. vat is 50% deductable if the car is used for business needs and for private needs as well. poland vat for acquired motorcars is deductible 60% (maximum pln 6,000 ~ lvl 1,100).vat is fully deductible motorcar is aimed for providing lease or rent services to clients, for trucks, its lease or rents, fuel expenses. vat is 100% deductible for maintenance and repair for all the mentioned cars. sweden vat is not deductible for acquired motorcars. vat is deductable for the acquired, leased trucks, its fuel and maintenance costs, and 50% of the maintenance and fuel costs of the motorcars provided they are used for business purposes (limitation 3000km in a year). france vat is deductible for the acquisition, lease, maintenance and fuel of trucks only. vat is not deductable for any costs of motorcars and its acquisition or lease. greece vat is deductible for the acquisition, lease, maintenance and fuel of trucks only. vat is not deductible for any costs of motorcars and its acquisition or lease. italy 85% of the vat is not deductible in the case of buying or leasing a car for business purposes. only 15% of the input vat is deductible when a motorcar for business purposes is purchased or leased. input vat from the fuel and maintenance costs can not be deducted at all. czech republic vat is not deductible for purchases or financial lease of motorcars, except the particular car is intended for reselling. input vat from the rent, fuel and maintenance costs is deductable. netherlands vat is deductible for acquisition, lease and costs of both motorcars and trucks. however, there are special conditions for vat deduction regarding motorcars. all the mentioned taking into account, implementation of this particular provision would facilitate the growth of the vat revenue to the state budget. suggested amendments in the section 10 of the law ‘on value added tax’ are that a taxable person can not deduct input vat if goods and services acquired do not refer to the carrying out taxable activities and the person is not able to proof it. the norm should be introduced together with provision that if the person within a period of one year can proof the relation of a purchase to the taxable transactions, he can deduct input vat. in any case, the rights to deduct vat should be set only within the time period of one year. paragraph 41 in the section 10 of the law ‘on value added tax’ should be amended about acquisition or creating fixed assets of value above lvl 5,000. input vat should be corrected within a period of five years according to the number or volume of taxable and nontaxable transaction carried out by particular fixed asset. the current law applies this principle only if the value exceeds lvl 50,000. the introducing of this norm would improve vat levy. for instance, a taxable person in 2007 purchases production line value lvl 20 000 plus vat lvl 3,600. the taxable person deducted vat and used this machine for taxable transaction n 2007. in the year 2008, though, the machine is not used for applicable transactions anymore. consequently, the fully deducted vat should be corrected and the difference should be paid into the budget: 3,600/5 = 720 the norm about the law ‘on value added tax’ is not applied to the goods and services delivered without any reimbursement to charity purposes because the norm is misused. excluding this rule would not expand the basis for application of vat; however it would avoid inconsistent interpretation of vat law. for example, a company bought a new car, used it for few months and then donated it to the school. on one hand, this transaction is a charity and vat law is not applied. on other hand, it can be taken as self-supply and vat should be applied to residual value because vat was fully deducted when the car was purchased. the use of reduced rates is an optional to the member states. in particular the reduced rate for medical devices because the norm is implemented broader than iii annex of the vat directive 2006/112/ec requires. in addition, the rule is difficult to administer, i.e., to check the reason for reduced rate application is possible only during the tax audit. the more efficient tools for realizing social policy should be introduced instead of applying vat reduced rate. introduce the cash flow principle regarding vat payments and deduction to the small sized companies which annual vat taxable turnover doesn’t exceed issn 1822-8402 european integration studies. 2009. no 3 97 lvl100 000 and which use cash accounting scheme. using cash accounting vat principle, the company does not pay vat until its customer has paid. vat can be reclaimed on its purchases when the company has paid its suppliers. this principle would ease vat accounting and relieve cash flow in small sized companies. in the present situation, all companies use standard vat accounting and vat must be paid just after the invoice has been issued. conclusions correlation between vat (x) revenue and the  increase/decrease of retail turnover (y) is 0.81, which means that relation between vat revenues and retail sales is strong. to improve the section 10 of the law ‘on value  added tax’ by defining that input tax can not be refunded for acquired or leased motorcars, except motorcars intended for drivers’ training, passenger transporting, renting, as well as operational transporting means and specialized motorcars such as medical or funeral service. suggested amendments in the section 10 of the  law ‘on value added tax’ are that a taxable person can not deduct input vat if goods and services acquired do not refer to the carrying out taxable activities and the person is not able to proof it. the norm should be introduced together with provision that if the person within a period of one year can proof the relation of a purchase to the taxable transactions, he can deduct input vat. in any case, the rights to deduct vat should be set only within the time period of one year. introduce cash flow principle regarding vat  payments and deduction to the small sized companies which annual vat taxable turnover doesn’t exceed lvl 100 000 and which use cash accounting scheme. the use of reduced rates is an optional to the  member states. in particular the reduced rate for medical devices because the norm is implemented broader than iii annex of the vat directive 2006/112/ec requires. in addition, the rule is difficult to administer, i.e., to check the reason for reduced rate application is possible only during the tax audit. the more efficient tools for realizing social policy should be introduced instead of applying vat reduced rate. references barr r., lavagnilio m. italy – value added tax in europe, 01.10.2005. on-line: http://online2.ibfd. org/giv council directive 2006/112/ec of 28 november 2006 on the common system of vat, 2006. on-line: http://eur-lex.europa.eu/lexuriserv/lexuriserv.do? uri=oj:l:2006:347:0001:0118:lv:pdf data of central statistical bureau, 2009. dryselius e. sweden – value added tax in europe, 01.01.2009. on-line: http://online2.ibfd.org/giv greece value added tax code. on-line: http://online2. ibfd.org/vl/ kauliņa g. (2007) pievienotās vērtības nodokļa sistēmas attīstība eiropas savienībā un latvijā. piemērošanas problēmas un iespējami risinājumi (development of the value added tax system in the european union and latvia. problems of application and possible solutions. promotion paper). promocijas darbs. rīgas tehniskā universitāte, 249 p. krastiņš o. (1998) statistika un ekonometrija (statistics and econometrics), rīga, pp.218-219. kuzenko m. (2008) ensuring of tax revenue budget plan. proceedings of the 14th international scientific conference „research for rural development 2008”. law on value added tax republic of lithuania. on-line: http://www.vmi.lt/en/index.aspx?itemid=10071126 leibusa i. (2008) individuālās uzņēmējdarbības uzskaites un nodokļu problemātiskie aspekti (problematic aspects of bookkeeping and taxation of sole proprietorship. resume of promotion paper). promocijas darba kopsavilkums. latvijas lauksaimniecības universitāte, 79 p. likums „par pievienotās vērtības nodokli” (1995) on-line: http://www.vid.gov.lv/dokumenti/tiesibu_ akti/likumi/par%20pievienotas%20vertibas%20 nodokli_jauns.doc likums par valsts budžetu 2009.gadam, 2008. on-line: http://www.fm.gov.lv/?lat/valsts_budzets/likums michalik t., buziewski j. poland – value added tax in europe, 01.09.2007. on-line: http:// online2.ibfd.org/giv ministry of finance date, 2009. rankevica v. (2006) brīvās ekonomiskās zonas latvijā un to reģionālā ietekme (free economic zones in latvia and their regional impact. resume of the phd paper). promocijas darba kopsavilkums. latvijas lauksaimniecības universitāte, 80 p. somers j. ireland – value added taxation in europe, 24.03.2006. on-line: http://online2.ibfd.org/giv issn 1822-8402 european integration studies. 2009. no 3 98 srs (2008-2009) statistika (statistics). on-line: http://www.vid.gov.lv/default. aspx?tabid=11&id=78&hl=1, 01.04.2009. taipalus p. finland – value added tax in europe, 01.01.2007. on-line: http://online2.ibfd.org/giv tomiček m. czech republic – value added tax in europe, 01.01.2009. on-line: http://online2.ibfd.org/ giv value added tax act 1994. united kingdom. on-line: http://www.opsi.gov.uk/acts/acts1994/ ukpga_19940023_en_1.htm value added tax/turnover tax in belgium. on-line: https://www.cfe-eutax.org/taxation/vattaxation/belgium value added taxation in finland. on-line: http://www.vero.fi/nc/doc/download. asp?id=3516;67701 van dongen a. netherlands – value added tax in europe, 01.10.2006. on-line: http://online2.ibfd.org/ giv van waardenburg d.a. france – value added tax in europe, 28.02.2007. on-line: http://online2.ibfd.org/ giv vat guide 2008. ireland. 174.p. on-line: http://www. revenue.ie/revsearch/search.jsp wille p. belgium – value added tax in europe, 20.02.2009. on-line: http://online2.ibfd.org/giv the article has been reviewed. received in march, 2009; accepted in april, 2009. 22 issn 1822 – 8402 european integration studies. 2010. no 4 risk society in latvia: characteristics of environmental aspects iveta briska, ritma rungule riga stradins university abstract in the conditions of the contemporary risk society the alternate nature and the variety of risks issue a serious challenge to the world community, which requires an urgent solution. today the principle of sustainable development takes an increasing significance in the policies of all countries. the concept of sustainable development is based upon the balance between financial, social and ecological resources of our planet. successful management of all these resources would ensure the sustainability. achievement of the goals of sustainable development, in its turn, requires conjoint actions of governments, local authorities, businesses and each individual. this article is aimed at the analysis of actions taken by world-wide organisations, governments, and local authorities to provide sustainable development, including legislative, institutional, regulatory and public efforts exerted at all levels in the sphere of identification, assessment and management of environmental risks under the conditions of risk society. the volume of the article unfortunately dose not allow covering of all aspects related to this issue, as well as setting up a thorough discourse in this matter. therefore, the article provides a brief analysis of theoretical base of the concept of the risk society and the idea of sustainable development and reviews legal, institutional, and regulatory instruments applied for identification, assessment and management of environmental risks applied both globally and in latvia. it also stresses the significance of rising environmental risk awareness and promotion of readiness for ecological conduct, as it would facilitate meeting the goals of sustainable development by more active participation of population in the activities targeted at the environment protection in general, and preservation and restoration of the natural resources. the article also describes the current level of public awareness of environmental problems in latvia, as well as the problems the latvian residents consider to be of highest priority in the field of environment. the readiness of the latvian population to contribute to environment protection by individual activities is also assessed on the basis of statistical data acquired in the course of the research conducted for the purposes of this article. keywords: risk society, sustainable development, environmental risks, environmental risk assessment, environmental risk awareness. introduction the term of the risk society originated in late 80s of the 20th century to describe a society endangered by modernization and human activities and the way it responds to these risks. this term is first of all associated with the works of famous sociologists ulrich beck and anthony giddens. another recently developed concept is the concept of sustainable development introduced in united nations world commission on environment and development report “our common future”, and is widely used since united nations conference on environment and development (unced), rio de janeiro, 1992. sustainable development should “meet the needs of the present without compromising the ability of future generations to meet their own needs” (bruntland, 1987). contemporary risk society faces a variety of risks, both perceived and unperceived, including global warming, exposure to urban, industrial and agrochemical pollution, industrial accidents, toxic chemicals, air, water and noise pollution and hazardous wastes. all such risks require urgent solutions to ensure proper risk management, as well as preparedness and response to these risks to facilitate economical and environmental sustainability. at the same time the ever-changing modern world experiences the changes in the sources of environmental risks, as well as in their nature and effects, which in its turn makes it necessary to develop new solutions, to issn 1822-8402 european integration studies. 2010. no 4 23 design new social institutions to monitoring the impact of these risks on the environment, and to manage the risks associated with changing conditions of the risk society. this implies collective actions at all levels. global and cross-national policies, regional and local regulations, as well as individual environmental risk perception, risk attitudes and environmental behaviour – all these factors are essential to ensure sustainable development. the object of the paper is the environmental risks aspects in latvia under the conditions of the risk society. the aim of the work is to analyse the legislative, institutional, regulatory and public aspects of environmental risk identification, assessment and management under the conditions of risk society. the following tasks have been set in order to achieve the above aims of the article: to analyze theoretical framework of the concepts of • the risk society and sustainable development; to review the legal, institutional, and regulatory • instruments applied for identification, assessment and management of environmental risks both globally and in latvia. to highlight the issue of assessment of environmental • risk awareness and readiness for ecological behaviour worldwide and in latvia. to draw conclusions on the basis of the collected • information and performed analysis. the methods used include the analysis of theoretical scientific literature and research materials related to the subject of the paper, as well as the analysis of the available statistical data. highlighting the importance of more in-depth assessment of public opinion towards environmental risks and public readiness for pro-environmental behaviour to ensure sustainable development of latvia constitute practical importance of the article. legal and institutional tools of risk management during the last years the world has been living in risk society, as defined by the german sociologist ulrich beck. according to him, “ours is the age of the smallest possible cause for the greatest possible destruction” (beck, 1995). characteristics of the risks society and interrelations within it have been debated extensively in sociologists’ works all over the world. in one of his works beck also stated that industrial society that used to be characterised by the distribution is turning now into a society, for which distributions of risk and hazard is typical. that is to say, the advanced modern world, the social production of material benefits is closely connected with risk production. accordingly, the problems and conflicts in such society are overlaid by problems and conflicts arising from over-production, definition and distribution of scientifically and technologically produced risks. another idea introduced by ulrich beck in his famous book “risk society: towards a new modernity” is that that science has changed from an activity in the service of truth to an activity without truth (beck, 1992). all this implies that the contemporary society, among other things, faces a great variety of problems requiring urgent solutions. the theorists argue that social, political and institutional reforms are necessary to accommodate the transition from industrial modernity, which was focused on the production of material goods, to reflexive modernity, which is focused on the production of knowledge, the avoidance of risk and the preservation of nature (ekberg, 2007). christopher hood, professor of government at oxford university, in his book “the government of risk: understanding risk regulation regimes” introduced the concept of a “risk regulation regime”, which enables comparative description and analysis of the rules and institutional arrangements. the book also describes various risk regulation regimes, examines major driving forces in the process of formation of such regimes, e.g. market failure, public opinion, etc., analyses the causes of regulatory failure or success, as well as distinguishes the difference between “natural” and “socially created”, state-created and market-created, “voluntary” and “involuntary”, high-tech and low-tech, individually, and corporately produced risks. (hood, 2001) considering the diversity of risks the contemporary society is exposed to and a vast variety of effects of these risks it is fair to say that these risks require a thorough and comprehensive assessment to enable their expedient management. according to giddens, another famous sociologist who approached the phenomenon of the risk society in his works, “risk calculation has to include the risk of which experts are consulted”. (giddens, 1996) both beck and giddens believe that the idea of wealth creation, which is characteristic for industrial modernity, has been obscured by the idea of risk avoidance, class consciousness has been displaced by a risk consciousness and the increased awareness of living in an environment of risk has become a major catalyst for social transformation (ekberg, 2007). to further understand the changing nature of risk and the different attitudes towards risk in the risk society, beck and giddens investigated a number of changes in our understanding of the origins and impacts of environmental and economical risks. these changes include the shift in emphasis from the risks associated with nature itself to technological risks, the shift from a realistic to a social constructivist perspective on risk, the increasing gap between actual and perceived risk, and the change in the distribution of risks. (beck, 1992) beck’s concept of the risk society is basing, among issn 1822-8402 european integration studies. 2010. no 4 24 other things, upon the rise of a new “risk consciousness” around techno-social developments (wilkinson, 2001). the environmental and health risks from technologies, for example, like pesticides, would be expected to dominate public discourses in a risk society (blok, 2008). common knowledge interlaces with issues of scientific expertise in various ways (lidskog, 1996). therefore, besides the significance of risk regulation regimes, it is necessary to analyse, how the public is engaged in active forms of experimental knowledgemaking. an intermeshing of ways of “knowing” and “acting upon” environmental risks should also be taken into consideration. ecological awareness today seems to reflect growing uncertainties and anxieties related to the changing character of late modern society. such uncertainties and anxieties do not only pertain to highconsequence risks, as exemplified by the chernobyl accident, but also to local problems of providing safe drinking water from the tap. (mol, 1993) all the above issues debated extensively in theoretical literature regarding to the risk society and the risks this society is exposed to have become a subject of worldwide empirical research in order to provide the basis for the process of decision-making in the field of assessment, management and prevention of risks at a global, national, regional and local levels. legal and institutional tools of risk management considering that global ecological problems are closely interconnected, their dependence on the state of the global economy and the level of social development in all regions of the world becomes stronger, national governments and institutions have ever less opportunities to influence ecological issues within individual states without necessity to coordinate their actions with other states and governments. until recently, coordinated actions related to solving environmental issues were impeded by the absence of an international organization, dealing with ecological, demographic, and natural resource issues at a global level. in 1972, in stockholm, the first conference of the united nations organization on environmental issues was held. during this conference there a declaration was approved, which for the first time stated the principles and recommendations on the development of the global ecological policy. at the same time by decision of the general assembly of the united nations organization, the united nations organization program on environment was approved. this specialized international organization has received extensive authorities in the sphere of management of coordinated actions among international organizations, responsible for environmental protection, prevention and reducing of ecological risks. one of the major functions of unep is a global assessment of environmental situation and natural resources, as well as providing information on the results of such assessments to governments and population. in particular, the debating document of the seventh special session of unep, held in 2002 in columbia, has outlined the tasks for national and local regulatory authorities in relation to providing of information and education in the field of environmental protection. these tasks include, inter alia, the necessity of inclusion of the section on economy of management of natural resources into economical educational programs of all educational institutions and research institutes, which could facilitate expanding knowledge on environmental issues. furthermore, importance of coordination between local and regional strategies, enforcement of information infrastructure, initiative support aiming to disclose information, as well as the development of environmental education at all levels has been highlighted (unep,2002). institutional controls represent another tool, designed to influence human behaviour and activity. these controls mostly take the form of legal or administrative restrictions. such controls are usually referred to as land use controls (icma, 2000) or activity and use limitations (edwards, 2000). these controls are most often described according to their control method or the way of their application (kostelnik, 2005). currently, along with unep, many regional and sub-regional organizations are actively involved in the process of solution of global ecological issues. these organisations include the organization for economic cooperation and development (oecd), european union (еu), organization of nordic states, council of the baltic sea states, and many others. the tasks of these organizations include the increase of population awareness on the environment protection and stimulation of development of ecological consciousness for involvement of society into solving of environmental issues. european parliament and council directive 2001/42/ ec states that the community environmental policy, inter alia, is to contribute to the preservation, protection and improvement of improvement of the quality of the environment, protection of public health, as well as prudent and efficient use of natural resources, and is to be based on the precautionary principle. environmental assessment is a significant measure for integration of ecological considerations, developing and approving plans and programs, which may have significant environmental effect in the member states, as this ensures that the impact of implementation of such plans and programs is taken into account during the development phase and before their approval. adoption of environmental assessment procedures at the planning and programming level shall be beneficial issn 1822-8402 european integration studies. 2010. no 4 25 to companies by providing a more consistent framework of actions, including appropriate ecological information into the decision-making process. the inclusion of a more extensive factor complex into the decisionmaking process shall facilitate more stable and effective solutions. to ensure a high level of environment protection a variety of systems of environmental assessment in member states a common procedural requirements (ec, 2001). the main provisions of sustainable development of the republic of latvia state that the sustainable development is a development, which supplies the needs of the current generation without causing difficulties for the coming generations in supplying their needs (latvijas vides ministrija, 1998). development is a notion of quality, which includes ideas on improvement and progress, as well as improvement of cultural, social and economic sphere. objectives of the sustainable development of the republic of latvia result from principles, defined in the rio de janeiro declaration. some of these principles related to the environmental issues include: latvia shall develop a stable national economy, which • is able to ensure the needs of the society, and, at the same time, shall ensure that the speed of economic growth exceeds the rate of pollution and the use of resources. latvia shall ensure safe and a health-safe environment • both for the current and coming generations. latvia shall ensure sufficient activities for preserving • biological diversity and protection of ecosystems. latvia shall develop a responsible attitude of • the society towards natural resources and shall continuously increase efficiency of the use of natural resources. latvia shall ensure integration of environmental • issues and shall develop broad application of environmental policy measures in the policies of other industries. latvia shall ensure that the market economy • mechanisms serve for sustainable development. latvia shall ensure the involvement of the society in • the processes of sustainable development. latvia shall evaluate its progress in the achievement of • the specified objectives of sustainable development. (latvijas vides ministrija, 1998). to solve the above tasks various policy documents have been developed in latvia both for specific sectors and general documentation, which includes the principles of sustainable development. the most significant are the long-term economic strategy of latvia and the national development plan, while in the environmental sector – environmental protection policy plan for latvia. solutions of environmental protection issues have been included in policy plans, strategies, and laws and regulations (latvijas vides ministrija, 1998). sustainable development strategy of latvia (sdsl) up to the year 2030 is a document related to the development planning, which specifies long-term priorities for the development within the territory of latvia. elaboration of the strategy has been performed by the ministry of regional development and local government of the republic of latvia (mrdlg). considering that implementation of such policy planning document involves significant impact on environment, strategic environmental impact assessment (seia) was carried out by external advisers in relation to the abovementioned plan. seia has been carried out in compliance with requirements of the law „on environmental impact assessment” and the regulation no. 157 by the cabinet of ministers of 23 march, 2004, „procedure for the strategic environmental impact assessment”. within the framework of seia, the environmental report has been prepared. environmental report is a document, containing information obtained during the process of the strategic environmental impact assessment. sustainable development strategy of latvia up to the year 2030 is a document of the highest hierarchical longterm national level development planning. in october 2007, sdsl basic report was prepared, where directions of strategy development were outlined and ideas on the sustainable development of latvia were discussed. sdsl has been developed, identifying future challenges, analyzing capitals available for latvia, and searching for the opportunities of sustainable development. within the framework of sdsl, priorities rather than single available course of action have been specified. furthermore, the most successful solutions for implementation of the chosen primary course of action have been proposed. it leaves open the choice of other consistent and non-contradictory course of actions and solutions, if they facilitate implementation of priorities. the model of sustainability requires an integrated solution of economics, environmental and social issues, thus, both vertical and horizontal collaboration mechanisms become of high importance. horizontal collaboration, for instance, among cities, institutions of different industries, or public organizations of different spheres allow combine available resources and solve issues beyond limits of influence of every individual social player. vertical collaboration for governmental level institutions, local governments and population communities provide opportunity to make more effective decisions and find the most optimal solutions. effective balancing of economic, social and environmental considerations requires active involvement of the entire society into the policy development process. providing that the major part of the society is actively issn 1822-8402 european integration studies. 2010. no 4 26 involved, it will be possible to find optimal solutions and effective response to global challenges (sia “analītisko pētījumu un stratēģiju laboratorija”, 2007). along with the above documents the “procedures for carrying out a strategic environmental impact assessment” were issued by the cabinet of ministers of the republic of latvia in 2004, as amended, specifying the types of planning documents requiring a strategic assessment, the consultations prior to the commencement of the development of these planning documents, the information to be included in the environmental accounts, the procedure of informing of the public, organisations and bodies during the preparation process of environmental accounts, the procedure of monitoring of the implementation of a planning document, as well as the procedures for notification of other states if significant transboundary impact is possible, and the procedures for informing the european commission (latvijas republikas ministru kabinets, 2004). among the documents adopted by non-governmental organizations the report by ngo of latvia should be mentioned, which stated, inter alia, that it is necessary to integrate greenhouse gas stabilization as the basic principle in all industries. another issues covered by this report is the necessity to put a greater emphasis on an active increase of power efficacy (in particular, in relation to household) and the use of renewable power resources. the document also mentioned the significance of transport sector, which should be considered the most critical in the climate policy. according to the report, the government should urgently apply both economic and legislative limitations for private vehicles, however, at the same time, to make public transport more attractive, convenient and favourable. in the sector of forestry the attraction of greenhouse gases should become one of the basic values. its development may be facilitated both by governmental policy in relation to the preservation of forests and ngo activities in popularization of this idea within the framework of other campaigns related to forests. among other problems covered by this document the role of waste management was mentioned. the report states that willingness of population to reduce and separate waste plays a great role in this sphere. though, this requires ability of government and local government to arrange systems of waste processing and management. as a separate issue the problem of raising public consciousness in relation to environment and awareness of environmental risks was mentioned. this problem should be considered as the question of the highest importance, since implementation of new legislation and policies by government, as well as effective use of such legislation and policies shall be possible only with active support by population (brizga j. at all, 2002). assessment of environmental awareness to provide comprehensive information regarding ecological risks and problems in the sphere of environment aimed at developing consciousness and conduct towards the environmental education, the most important task is to duly determine the target auditorium and to provide well-to-do quality and quantity of such the information. proper information on the ecology will enable the population to orient better in the choice of models of consumers’ conduct. the role of the governing bodies regarding this issue is in defining quality and quantity of the disseminating information in respect to the actual ecological problems, initiatives put into effect to solve these problems, as well as relating to the applicable standards and the environment protection rules. one of the most important terms and conditions of performing the task is possession of information on the current state of information received by the population, as well as the extent of perception and awareness of this information. studies on the extent of the population’ awareness is a forceful tool for meeting this condition. the results of polls of the public opinion are used in multiple studies all over the world as the means for valuing the population’ position in respect of environment protection, as well as for determining the level of environmental knowledge and the readiness to be armed with facts and figures on the environment conduct. in europe, for example, there is a research service eurobarometer carrying out studies of the public opinion in europe on a regular basis. owing to these studies since 1982 there has been provided monitoring of the attitude of the european population towards the environment protection issues. in particular, in december 2002 there were made the studies under the title “europeans’ attitude towards the environment”, which results have shown that the word “environment” is associated at the european population with a number of notions both negative (pollution, catastrophe), as well as positive (landscapes, wildlife protection). regarding environmental conditions this research has shown that the mood of optimism (“environment pollution may be stopped due to the changes happened in people’ way of life”, 45%) is almost commensurate with the pessimistic attitude (“a human being’ activities caused irreversible consequences for the environment”, 44%). pursuant to the results of this research, in the states located in the south of the european union rather than in northern europe people are more anxious about the ecological risks. the issues whereon inhabitants of europe regard themselves to be less informed (less than 40%), comprise the problems that have not been urgent already (for example, acidic precipitation) or the problems of industrial nature (chemicals, genetically modified organisms, industrial issn 1822-8402 european integration studies. 2010. no 4 27 by-products). at the same time, about a half of respondents specified that they would take any actions friendly for the environment; whereas the others marked their actions will not play any material role. a major share of the respondents considers they are ready to act only in the event, if “other people would make efforts”. among the solutions aimed at “the most efficient solution of ecological problems” more or less equal number of the europeans named the restrictions (more strict regulations), as well as the convincing method (“improvement of the general level of environmental awareness”) (eurobarometer, 2002). many studies covering the matters on environment protection and awareness of ecological risks have been also performed in the member-states of the european union. however, the number and the scope of these studies vary from state to state. for the purposes of this article the latvian market and public opinion research centre skds in april 2010 conducted the research, focused on the attitude of population towards the issues of environment protection. within the framework of the research a poll was carried out among the inhabitants of latvia aimed at clarifying their opinion regarding environment protection, to make assessment of the population’ activities aimed at the reduction of ecological risks, as well as evaluation of the level of environmental risk awareness. 1000 latvian residents from all regions of latvia at the age from 15 to 74 participated in this study. one of the aims of the study was to asses the opinion of the population regarding the level of information about general environmental issues. in this question only 3.0% of the participants indicated that they feel themselves very well informed in this field. rather well informed are 41.5% of the respondents. the answer “very badly informed” was mentioned in 42.3% cases and 7.2% of the participants regard themselves to be very badly informed about environmental problems. 6.0% indicated that they do not have their opinion regarding this matter or cannot answer this question. another matter evaluated in the study was the awareness level regarding some particular matters of environmental protection. according to the results of this research the respondents were best informed about the quality of drinking water at the place of their residents. 14.8% of the participants mentioned that they feel themselves very well informed in this field. on the other hand, 16.4% of the respondents indicated very bad level of information related to this matter. 12.8% of the respondents are very well informed about the possibilities of waste collection and utilisation at the place of residence and 17.7% were very badly informed about these possibilities. very close results were in the question regarding the level of information about the effect of household chemicals on the environment and their effect on human health. very well informed were 9.5% and 9.2% respectively and 11.5% and 12.3% in each question mentioned that they regard themselves as very badly informed about these effects of household chemicals. the question about kyoto protocol have shown that 3.7% are well informed about this matter, 17.7% feel themselves very badly informed, and 27.7% of the respondents mentioned that they have not even heard about kyoto protocol. the results of this study also show a very low level of information in such matters as greenhouse gases, natura 2000, and aarhus convention. in all these answer quite a large percent of the respondents (respectively, 27.4%, 43.9% and 55.5% answered that have not heard about these issues. the purpose of another question in this research was to find out, what natural resources people consider to be most threatened in latvia. in this question 79.9% of the respondents answered that the most threatened in latvia are forests. costal area was mentioned in 75.4% cases and rivers were indicated by 43.1% of the respondents. another question of the study dealt with the opinion of the respondents regarding the level of risks caused by different aspects. 3.5% of the respondents mentioned that growing and cultivation of genetically modified plants represent a very high risk in latvia. external environmental risks like the consequences of possible environmental accidents in neighbouring countries were mentioned in 20.9% cases as being of a very high risk. 19.0% of the respondents indicated, that they consider consequences of possible defects of hydrotechnical construction in hydroelectric power plants to constitute a very high risk as well. in the question about the readiness of the population to participate in the activities aimed at the improvement of environmental situation 50.2% of the respondents mentioned that they would certainly agree to buy and use energy saving light bulbs and only 3.1% of the participants are certainly not ready to do this. 44.5% are certainly ready and 42.4% would rather agree to plant trees. household waste was another issue, where latvian residents appeared to be rather ready to act to protect environment. 43.6% indicated that they are certainly ready to do this and 43.2% are rather ready to adopt sorting their household waste. the aim of the last question of the survey was to find out, whether the latvian residents consider that environmental protection must be a priority in relation to economic growth. in this question 34.6% of the respondents answered that they think economic growth and job creation as more important, even if it causes a certain environmental damage. 37.3%, in their turn, indicated that environmental protection must be a priority, even if it means slower economic growth and a loss of a certain number of jobs. 28.1% of the participants issn 1822-8402 european integration studies. 2010. no 4 28 could not answer this question. generalizing the results of this research, it is can be said that at present the level of information awareness at the population of latvia regarding the possibilities of environment protection is insufficient to put into effect all possible measures on the reduction of ecological risks. on the other hand, the readiness to act to protect the environment, according to the results of this study, is rather high (skds, 2010). viewing the results of the forgoing studies as a whole, it is possible to make the conclusion that over the past decades information awareness in the sphere of environment protection, as well as consciousness of ecological risks by the population in many affluent and developing countries gradually has grown. people are aware of that the concern of the environment protection ceased to be the luxury available only for the states with developed economy and the ignorance of ecological risks in the long-term perspective is related to higher costs. however, it is worth to note that up to now it is still insufficient information awareness of the population in the sphere of ecological problems. at the same time the research in this sphere does not give a full idea required for the development of comprehensive arrangements, programs, campaigns, which would facilitate the development of the conduct of ecological consciousness, both among the population masses and the top echelon responsible for decision-making in the sphere of environment protection. the efforts focused on a particular target audience based on comprehensive information regarding the extent of environmental awareness and the level of ecological consciousness of the population could materially increase the efficiency of application of the leverages of law and economy in the sphere of environment protection, as well as to drive the population to take more active part in the arrangements required for environment protection, preservation and recreation of the natural resources which in turn, would facilitate to providing a sustainable development of each state and the world as a whole in prospect. conclusions the theory of the risk society is quite extensively investigated all over the world and the results of these studies provide a material basis for governments to build their policies aimed at ensuring sustainable development of the world. however, it is necessary to coordinate the activities at all levels in order to succeed in solving this task. another essential matter to be taken into account in the development of global, national and local policies is ecological awareness of population. raising the quality of the information provided to the general public in relation to environmental issues would ensure an increase of ecological awareness and promote ecological consciousness, which in its turn would facilitate the attainment of the aims of sustainable development by adoption of ecological behaviour and more active participation of population in the activities targeted at the environment protection and preservation and restoration of the natural resources. references beck, u. 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(2007), the parameters of the risk society: a review and exploration, current sociology 55(3): 343-66 eurobarometer (2002), the attitudes of europeans towards the environment. brussels: directorategeneral environment; on-line: europa.eu.int/comm/ public_opinion/archives/ebs/ebs_180_en.pdf giddens, a. (1996), in defence of sociology: essays, interpretations, and rejoinders. cambridge, polity press. hood, christopher, rothstein, henry and baldwin, robert (2001), the government of risk: understanding risk regulation regimes. oxford, oxford university press. icma (2000), beyond fences: brownfields and the challenge of land use controls. international city/ county management association, washington d.c., 42495. issn 1822-8402 european integration studies. 2010. no 4 29 kostelnik k. m.(2005), an analysis of institutional responsibilities for the long-term management of contaminant isolation facilities, nashville, tennessee. on-line: http://etd.library.vanderbilt. edu/available/etd-03302005-112839/unrestricted/ kostelnik_dissertation_approved_032905.pdf latvijas republikas ministru kabinets, noteikumi nr. 157 “kārtība kādā veicams ietekmes uz vidi stratēģiskais novērtējums”, 2004 latvijas republikas vides ministrija, latvijas ilgtspējīgas attīstības pamatnostādnes, 1998. lidskog, rolf (1996), in science we trust? on the relation between scientific knowledge, risk consciousness and public trust, acta sociologica 39(1): 31–58. mol, arthur p. j. and spaargaren, gert (1993), environment, modernity and the risk-society: the apocalyptic horizon of environmental reform, international sociology 8(4): 431–59. public opinion research centre skds, research on the opinion of the latvian society towards the environment issues and environmental risks, 2010. sia “analītisko pētījumu un stratēģiju laboratorija”, latvijas ilgspējīgas attīstības stratēģija līdz 2030.gadam. pamatziņojums” october 2007. on-line: http://www.latvija2030.lv/upload/lias_ pamatzinojums.pdf unep/gcss.vii/6 (report of the governing council on the work of its seventh special session/global ministerial environment forum), 2002. on-line: http://www.unep.org. wilkinson, iain (2001), social theories of risk perception: at once indispensable and insufficient, current sociology 49(1): 1–22. the article has been reviewed. received in april, 2010; accepted in may, 2010. 23 issn 1822 – 8402 european integration studies. 2009. no 3 encouragement of the relationships science – business through establishment of centers for technology transfer in bulgaria (the case of the university of rousse) daniela yordanova, veliko ivanov, kiril barzev, ivan kolev, georgi mitev, daniel bratanov university of rousse abstract the high education reform in the republic of bulgaria is aiming at transforming the high schools into integrated centers for science and education, capable of adequately facing the challenging times and investing in more and more qualitative scientific work in every sphere of the social and economic life. the long period during transition caused demolition of old built relationships and connections between the scientific research work and the real practical requirements of the business. the firms suffer form insufficient financial recourses have limited possibilities to apply new technologies and to order new developments related with their concrete practical problems. it is important to pay attention to the possibilities for new technological solutions application into the practice in order to enhance the competitiveness of bulgarian firms and to provide researchers with up to date problematic for their scientific work. for realization of that goal a necessity of new type of innovation and technology transfer infrastructure establishment is being determined. the article presents a profound analysis of the tendencies in scientific research, the education system and innovation strategies in bulgaria and in particular of the university of rousse “angel kanchev”. we base our choice on the structural idea of knowledge-based economy which is seen as analytically useful by cooke and leydesdorff (2006). they link the knowledge generation to the knowledge exploitation system (mainly companies) and repulses the perception that only industries with heavy concentration of knowledge assets should be in the focus of the research. the aim of the article is to introduce to the scientific society that in bulgaria is being worked on that scientific problem and to share the experience in establishment of technology transfer office (tto) in the university of rousse, in building up the connections between the business and scientific workers and to promote a good practice which can be implemented in european union (eu) member state, due to the financial possibilities, given by the structural funds. the tasks placed for the solution of the article’s aim are: to elucidate the necessity of technology transfer enhancement between the science and the practice, to analyze the bulgarian environment and the condition of technology transfer between higher education institutes and business, to estimate the possibilities for technology transfer through establishment of tto with the use of eu financial sources and to give an example of good practice by sharing the experience, gained during the implementation of eu funded project and to estimate the multiplication possibilities. special attention is paid on the positive results after the establishment of the technology transfer office in the university, accomplished with the financial support of the european union, phare program. keywords: innovations, research, education, science, technology transfer office (tto), european union’s funding programs. introduction contemporary economic development is characterized by rapid technological change leading to knowledge generation that highly intensifies the competition between organiizations (castells, 2000). it increases even more the significance of knowledge creation, exchange and transfer for market players. thus, every company must be able to employ effectively knowledge as a tool for achieving a long term competitive advantage (lager & horte, 2002). studies investigating the new knowledge creation, exchange and transfer focus primarily on research and development (r&d) intensive industries such as information and communication technology (ict) and biotechnology (orstavik, 2004). issn 1822-8402 european integration studies. 2009. no 3 24 science nowadays becomes much more global and its influence on the human beings life becomes much more considerable. scientific innovative products can be utilized by new relations between already achieved scientific and research results at one hand and society needs from other. those needs could be summarized as solving considerable needs of industry, human resources management, national identity, bulgarian history and culture and at least but not last – the natural resources management. development of engineering sciences and innovations and provision of new scientific knowledge is key factor of this process. knowledge plays the basic role in the economic process. (bologna process, 2005). the winners on the market are those who know. nations gifted with more knowledge are more competitive. for the european union (eu) one of the key challenges is to overcome the knowledge transfer problem (morgan, 1997). relative to japan and the us, for example, the eu has a poor record of converting scientific and technological knowledge into commercially successful products and services, that is an inability to transfer knowledge from laboratory to industry and from firm to firm (commission of the european communities (cec), 1993). recent research into national and regional innovation systems (braczyk, cooke, and heidenreich, 2000) has shown that differences in innovative capacities between countries and regions are linked to the institutions which promote learning and technology transfer activities (bartlett, čučković, 2006). these in turn depend upon the existence of networks of institutions and firms that permit reciprocal exchange of knowledge and information (morgan, 1997; audretsch, 2005). such reciprocal exchanges are facilitated where the institutional structure is flexible enough to permit interaction between research institutes, university science departments and industrial enterprises. these arguments are especially relevant in the case of transition economies, where the legal system may not fully protect intellectual property rights, and where old relations of trust have broken down as research teams have been dispersed and disrupted, where foreign direct investment is low, and where large domestic enterprises may be protected from the force of oligopolistic market competition (bartlett, čučković, 2006; zahra, 1996). in these circumstances it is likely that there will be low levels of knowledge transfer both between businesses and between research institutes and business entities. this suggests a role for government intervention to stimulate the application of inventions and provide a boost to the level of innovation activity activities. in former transition economies most of the problems related with relationships and trust continue even after the existence of proper functioning of legal system. the article discusses the problems concerning technology transfer between the higher education institutions in bulgaria and firms, the necessity of creation of intermediary institutions for technology transfer and the possibilities for pointed problems solution with the financial aid of the eu. there is no experience in establishment of technology transfer infrastructure among the bulgarian higher education institutes (heis). bulgarian firms lack the innovation application experience, corresponding to market lows. the aim of the article is to introduce to the scientific society that in bulgaria is being worked on that scientific problem and to share the experience in establishment of technology transfer office (tto) in the university of rousse, in building up the connections between the business and scientific workers and to promote a good practice which can be implemented in eu member state, due to the financial possibilities, given by the structural funds. the tasks placed for the solution of the article’s aim are: 1) to elucidate the necessity of technology transfer enhancement between the science and the practice. 2) to analyze the bulgarian environment and the condition of technology transfer between heis and business. 3) to estimate the possibilities for technology transfer through establishment of tto with the use of eu financial sources. 4) to give an example of good practice by sharing the experience, gained during the implementation of eu funded project and to estimate the multiplication possibilities. the research object chosen for the article is tto in the university of rousse, established with the financial support of the eu. the used research methods include induction, deduction, analysis and synthesis. technology transfer form bulgarian high schools to entrepreneurs – problems and challenges after the changes in the economic and political environment. tendencies, resulting from the bulgarian membership in the eu bulgaria has reached a stage of economic development which requires intensive focus on effective education, research and realization of high level of innovations. the economic factors and prerequisites for such a shift are already visible. during the past 15 years under the pressure of structural changes within the bulgarian economy the organizational and institutional structure of the innovation system lost touch with market reality. a competitive technology transfer network has to be created to respond to the technology and innovation issn 1822-8402 european integration studies. 2009. no 3 25 needs of the industry. the introduction of innovations, new technologies and the development of the industrial units innovation potential have the decisive importance for the sustainability of the bulgarian production, thus improving the employability and achieving economical growth. during the last few years the industrial companies in bulgaria are under increasing pressure to meet customer demands and compete successfully on the united european markets. the current market trends are: increasing international competition, shorter product life cycle, higher quality requirements and higher delivery reliability. in addition to these market trends, technological developments also play a role offering new opportunities for applying innovative manufacturing tools, new strategies for product and process design and development. the ability of a company to adapt advanced technologies for planning and manufacturing is vital in today’s dynamic global market. the analysis of official bulgarian institutions concludes that the existing bulgarian companies very rarely use and apply innovative technologies and products. being already eu member, it is vital to improve the competitiveness of bulgarian enterprises and to increase their ability to resist to the pressure of competitors and market forces. the introduction of research innovations, new technologies and the development of the enterprises innovation potential have the decisive role for strengthening of the bulgarian production, thus increasing the employability and achieving economical growth. the investments in research and development activities, in technological development and innovations mostly influence on the productivity and the level of added value of products and services, offered by the companies on the market (cec, 2004). in the european commission’s report of innovation performance (cec, 2009) bulgaria is pointed as a catching-up country with innovation performance well below the eu average (table 1). finland, ireland, cyprus and bulgaria are the best improving eu countries within their peer groups (table 2). bulgarian rate of improvement is one of the highest of all countries and it is a growth leader within the catching-up countries. relative strengths, compared to the country’s average performance, are in human resources, finance and support and economic effects and relative weaknesses are in linkages & entrepreneurship and throughputs. over the past 5 years, throughputs and finance and support have been the main drivers of the improvement in innovation performance, in particular as a result from strong growth in private credit (25.2%), broadband access by firms (21.5%), community trademarks (67.6%) and community designs (31.0%). performance in economic effects has hardly grown, in particular due to a decrease in new-to-market sales (-5.7%) and new-to-firm sales (-3.1%). table 1. innovation growth leaders table 2. comparison of bulgarian growth with eu this raises the issue of the better involvement of the heis into the process of innovation application into the practice. in the early years of transition, the public institutes geared towards innovation and applied science has been abolished (oecd, 1999). new structures performing mainly applied research or functioning as intermediaries between science and industry have not been created on large scale. the bulgarian system has not yet recovered from this loss. despite of many successful individual activities of cooperation, in 2006 there was no clear cut profile of institutes, supporting structures and even joint initiatives, neither within the academy of science nor within the universities, which would promote efficient construction of knowledge and transfer of results. moreover, bulgaria lacked market oriented research institutions that intimately understand the needs of industry. a major reason for that is the lack of demand for industry for advanced research and, even worse, the lack of absorptive capabilities in industry. however, the problem is even more basic. (beatson, hodson, kaari, koch, kolarova, 2008). issn 1822-8402 european integration studies. 2009. no 3 26 the network of higher schools in bulgaria (population 7.8 million) involves universities, specialized higher schools and colleges. they offer different degree-level educational programmes and various opportunities for the acquisition of higher education. the colleges are independent entities that could be public or private or within the structure of the heis. the total of 51 accredited heis includes 36 public and 14 private institutions. for the 2003-2004 academic year there were 195 666 students in public universities and 32 802 in private universities. research and development (r&d) expenditure shrunk from 2.7% of the gross domestic product (gdp) in 1989 to 0.2% of the gdp in 1996 and leveled off at about 0.5% of the gdp in 2003-2004. the same trend, though at a slower pace, can be seen in the dynamics of employment in r&d and the number of public and private organisations performing r&d (european science foundation, 2008). universities receive funds from the government as a block grant, which they are free to spend as they wish; they are also free to raise their own funds and spend those as they wish without limit. approximately half of the public funding allocated to research is spent in the higher education sector. the research system is primarily based on direct budget support. competitive research programmes, though active since 1990, have increased their weight in the system since 2004. the bulgarian national science fund is the main programme-based funding instrument and was established by the bulgarian government in 1990. as of 2006, however, its contribution is dwarfed by the nine times larger direct institutional support facility through the central government budget. the main portion of the public funds for research is allocated to the academies. (cec, 2009) in addition to this funding in 2007 a grant scheme “establishment of technology transfer offices at bulgarian public research organisations grant scheme” funded by phare – economic and social cohesion programme was introduced to heis. (ministry of economy and energy, 2005). the grant scheme was focused on improvement of the competitiveness of bulgarian enterprises and promotion of higher-growth innovation environment, through improvement of the innovation infrastructure and know-how at national level. the expected result was establishment of technology transfer offices (ttos) at bulgarian public research organisations (pros) that act as: promoters of the potential innovations of pros. information and contact points for enterprises that  need innovation service. intermediate bodies between providers and  adopters of technology. technology transfer possibilities by using tto the success of technology transfer depends on proper development and effective use of networks, relationships and enhancement of trust between providers and adopters of technologies at regional level. they are the precondition for knowledge cluster (kc) formations, which are fundamental for regional competitiveness. kc formation gives firms the strategic knowledge infrastructure, which stimulates entrepreneurship and risk initiatives that are linked to the innovation process and knowledge generation. another kc advantage is the effective and sustainable coordination of industrial initiatives with the other main engines of development (universities, government, investors) (antonova, 2008; paskaleva&antonova, 2009). the beginning of the kc formation in north central planning region (ncrp) in bulgaria began when a group of researchers from university of rousse prepared a project proposal which was approved and a grant contract was signed. the project funding facilitated the establishment of tto in the university and aimed enhancement of the communication between scientists and representatives of the business, who are interested in innovation application in their firms. the tto provides solution of few major problems into the innovation application process: choice of appropriate research subject, related with  real practical problems, instead of choices, related with subject considering educational process. feasibility analysis of ideas related to rtd/ innovations – including evaluation of innovative ideas or innovations, with respect to their potential to be introduced in the economy. this stage might include variation of analyses and evaluations technical evaluation, financial evaluation, economic evaluation and intellectual property evaluation. analyses into the firms in respect with their  innovation need (rtd demand of the enterprises). provision of consultancies and assistance for  proper communication between the entrepreneurs and researchers. the need of establishment of such units is determined by the following problem. bulgarian universities researchers in general and researchers at the university of rousse in particular have always been very active in the development of new technologies and innovative products, due to their everyday teaching, training and investigating duties and responsibilities regarding students and especially phd students. nevertheless, there is a tendency in leading research that is done just for the aims of the teaching process and it is not still market oriented. during the recent years researchers do not always comply with the market demands for innovations. although the research community of the university of rousse has a considerable number of technology transfers, innovations, patents and other research and technological developments successfully introduced into practice, there is still much to be done issn 1822-8402 european integration studies. 2009. no 3 27 for the commercializing of the university research innovation products. the mission of the tto in the university of rousse is to facilitate the technology transfer process between the adopters of technology and the providers of technology in order to contribute to closing the gap between the private enterprises in rousse region, north central planning region (ncpr) and bulgaria as a whole and the providers of innovations form university of rousse and form the rousse region by matching the technological needs of enterprises with innovation and research outputs of pros that are ready for commercialization, for the benefit of the public, while seeking income for the pros and the inventor/creator, as well as enhancing industrial liaison and supporting regional economic development. tto is considered to be often capable managing these relationships through higher levels of social and human capital in comparison to research organisations, thereby enhancing knowledge flows (sirmon & hitt, 2003). the project target groups are researchers, representing the university of rousse and the union of scientistsrousse as technology, know how and knowledge providers on one hand, and small and medium enterprises (smes) from the ncpr looking for innovations to solve their production problems and representing the industrial market sectors like vacuum technology sector, manufacturing, agriculture, information and communication sector, power engineering, transport, light industries and others. based on the needs assessment study elaborated within this project and based on international practices, the scope of activities of a tto encompasses six activity fields: 1) intellectual property, patents and licenses 2) consulting and services 3) starting a spin-off company – assistance in the spin-off process 4) material sales 5) policy mainstreaming 6) networking the possible solutions of the organizational structure of this type of units are two as a department at university or as an independent legal entity (for example, association or foundation). in the case of legal independence the possibilities for organisation are several: 1) wholly owned by pro, 2) with the main shareholder – pro, and open for other shareholders, like associations of industries or 3) smes or owned by several pros acting in the same technology field. the university of rousse technology transfer office is legally established as a structural and functional unit of the research and development centre (r&ds) with a decision of the university academic board and with the relevant documentation, including statute, structure, internal rules, management board, mission, strategic and operational objectives clearly defined. a management structure is established in tto to ensure that work is carried out in a timely way, using state-of-the-art technologies, and that the work is always based on strong scientific principles. r&ds (the tto principal) is responsible for scientific coordination, for overall financial, administrative, contractual, and technical management. in the tto is employed a number of staff with the requisite project management expertise gained from past eu-funded project coordination. the tto works very close with the scientific laboratories, based on the university campus. another support for successful development of the link “science business” is the fact that rousse university has established entrepreneurship center in 2008 within the structures of the research and development sector next to tto. this center has already achieved some results, which enforce the knowledge transfer of the academics to business (pavlov, 2008). project implementation results after the legal establishment of the tto and organizational and infrastructural provision the main efforts were focused on attraction of the target group representatives and popularization of the tto activities. the results might be generalized in few directions: data base development and maintenance. three main data sources (innovative technology offers; laboratories and research equipment; and company’s technology requests) are included in it. the access to the published on the tto web site specialized information is protected by the intellectual property rights law and is provided to external users on a fee-paid basis. the tto internet address is available and accessible for use to innovation providers and technology adopters. organisation of seminars & workshops. these events are part of a wide information campaign aiming to provoke interest in tto. three seminars and two workshops were organized. the seminar’s topics included robotics and rapid prototyping, vacuum and nanotechnologies, alternative energy sources, ecological aspects of transport, food biotechnologies and ecological agriculture. the aim of the seminars was to provide possibilities for meeting, discussion and presentation of representatives of both target groups. during the seminars research teams presented 10 innovations and 7 firms presented their activities and innovation needs. the seminars were attended from more than 250 firms, which received the possibility to communicate with researchers, working in their industry field, to discuss common problems and to set the beginning of a partnership. in result of the accomplished communication in one firm was carried out rapid prototyping innovation and analyses of rtd demand in 4 companies was realized. for future functioning of the tto the team of experts developed methodologies for economical, financial, issn 1822-8402 european integration studies. 2009. no 3 28 technical and intellectual property right analysis. these methodologies were used during the market readiness evaluation of presented from university research teams innovations. the following innovation’s analyses and evaluations were carried out: financial feasibility analysis of rapid prototyping,  rapid manufacturing & rapid tooling technologies, ready for introduction in a company from the light or manufacturing industry; technical feasibility analysis of vacuum  technologies, ready for introduction in a company from the manufacturing sector; economic feasibility analysis of resource-saving  technologies, ready to be introduced in a company from the manufacturing sector; intellectual property protection feasibility analysis  of the innovation aspects of agriculture, ready to be introduced in a company from the agricultural sector; technical feasibility analysis of the emergency  risk management technologies, ready to be introduced in a company from the high disaster risk manufacturing sector; financial feasibility analysis of the alternative  energy resources, ready to be introduced in a company either in a company from the transport sector, or from the sector of power engineering. after finalizing the feasibility analysis the level of their practical applicability was defined. the developed analysis and evaluations become the basis for the tto team to make contacts with smes and industries, interested in the implementation of these innovations into their production. for preliminary attraction of entrepreneurs and researchers and informational campaign was carried out. during the project the spread information materials include 2000 leaflets, 500 cds, 500 dvds and 100 posters. conclusions the project already has positive consequences in few areas: 1) developed prototype in resource saving technologies area, which was applied in a real firm. 2) created robot for crisis management, which is being applied with directorate general civil protection in the ministry of emergency situations. the robot is functioning in cases of disasters as fire, earthquake, explosives dismantle etc. the financial aid of the eu, in particular phare program is useful and encourages the introduction of innovations in the real business. the possibilities, provided by structural funds, especially european regional development fund in its part for innovation enhancement and european social fund as financial aid for improvement of the quality of research are determinant for future connection between science, research and competitiveness of smes not only in bulgaria, but in eu as whole. the future possibilities for development of the tto in the university of rousse are related with improvement of quantity and quality of provided services, further filling in of the database with new innovation ideas and deepening of the relationship with enterprises. it is essential for the experts and managing board of tto to continue with their efforts for establishment of kc in ncpr. improvement of the quality of provided services is in direct dependency of the qualities and knowledge of the team of experts, working in the tto. that’s why the continuous training and improvement of their knowledge and skills will be crucial for the future work of the tto. as possibilities for fundraising and financing of the tto activity shall be considered not only incomes, coming form the tto’s clients but also the grant schemes, announced under the operational programme development of the competitiveness of the bulgarian economy 2007-2013. references antonova, d. (2008), development of competitive advantage by formation of regional knowledge clusters, studii economice, analele universitatii e.murgu fascilola ii, anul xv, nr.1, issn 15840972, romania, pp.105-112 audretsch, d. (2005), mansfield’s missing link: the impact of knowledge spillovers on firm growth, journal of technology transfer, 30 (1/2): 207-210. bartlett w., čučković n. (2006), knowledge transfer, institutions, and innovation in croatia and slovenia, social research journal for general social issues (društvena istraživanja časopis za opća dru tvena pitanja), issue: 3 / 2006, pages: 371399. on-line: www.ceeol.com. beatson, m., hodson, a., kaari, r., koch, p., kolarova, d. (2008), policy mix peer reviews: country report: bulgaria, crest european union scientific and technical research committee, on-line: http:// www.eurosfaire.prd.fr bologna process (2005), national report bulgaria., on-line: http://www.bolognabergen2005.no/en/ national_impl/00_nat-rep-05/national_reportsbulgaria_050311.pdf braczyk, h-j., cooke, p. and heidenreich, m. (1998), regional innovation systems, london: ucl press. isbn: 0-415-30369-9. issn 1822-8402 european integration studies. 2009. no 3 29 castells, m. (2000). the rise of the network society, blackwell publishers. treatment: 546. cooke, p., leydesdorff, l. 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(2002). success factors for improvement and innovation of process technology in process industry, integrated manufacturing systems 13(3): 158-164. ministry of economy and energy (2005), establishment of technology transfer offices at bulgarian public research organisations grant scheme – guidelines for grant applicants, ref. bg 2005/017-353.10.06, on-line: www.sme.government.bg/ianmsp/ documents/000000683/bgbg/guidelines.doc morgan, k. (1997), the learning region: institutions, innovation and regional renewal, regional studies, 31 (5): 491-503. oecd (1999), university research in transition, science & information technology, vol. 1998, no. 9, p. 31 orstavik, f. (2004). knowledge spillovers, innovation and cluster formation: the case of norwegian aquaculture, knowledge spillovers and knowledge management. c. karlsson, flensburg, p., horte, sv. uk, edward elgar publishing inc.: 204-234. paskaleva,m., antonova,d. (2009) industrial networks for innovative collaboration in sweden and bulgaria, 5th national & international hsss conference from systemic thinking to systems design and systems practice xanthi, greece:201-211 pavlov, d. 2008. technostarters and production of renewable energy, proceedings of rousse university, volume 47, book 6.1, p.p.38-42. issn 1311-3321, on-line: http://conf.ru.acad.bg/bg/docs/cp/6.1/6.1-6. pdf sirmon, d., hitt, m. (2003). managing resources: linking unique resources, management, and wealth creation. entrepreneurship theory and practice 27(4): 339-358. zahra, s. (1996). governance, ownership, and corporate entrepreneurship: the moderating impact of industry technological opportunities, the academy of management journal 39(6): 1713-1735. zahra, s. (1996). technology strategy and new venture performance: a study of corporate-sponsored and independent biotechnology ventures, journal of business venturing 11: 289-321. the article has been reviewed. received in march, 2009; accepted in april, 2009. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 120 the eu and russia shifting away from the economic logic of interdependence – an explanation through the complex interdependence theory http://dx.doi.org/10.5755/j01.eis.0.11.18501 loredana maria simionov alexandru ioan cuza university of iasi, centre for european studies, research department, bd. carol i, no. 19, corpus i, iasi, romania, e-mail: loredana.simionov@uaic.ro gabriela carmen pascariu alexandru ioan cuza university of iasi, faculty of economics and business administration, bd. carol i, no. 22, corpus b, iasi, romania, e-mail: gcpas@uaic.ro submitted 04/2017 accepted for publication 08/2017 the eu and russia shifting away from the economic logic of interdependence – an explanation through the complex interdependence theory eis 11/2017 abstract european integration studies no. 11 / 2017 pp. 120-137 doi 10.5755/j01.eis.0.11.18501 © kaunas university of technology in the aftermath of the ukraine crisis, the ongoing debate concerning the best course of action that the west should take in order to better handle russia still sparks the academia and the decision-makers. thus, the european continent is once again divided, bringing back chills from the cold war era. although the current adopted measures, namely the economic sanctions on russia’s energy and financial sectors, have undoubtedly exerted considerable pressure on the russian economy, isolating it from the western world, they have not changed, at least for now, president putin’s overall strategic vision. within this context, the current paper offers a comprehensive analysis of the nature of the eu and russia relations, in order to shed some light over the current deadlock. overall, the research aims, through an interdisciplinary approach to analyse the complex relations between the two actors, based on an evaluation of their economic interdependence and culminating with the exploration of its significance for their international political ties, considering the current economic and political context. keywords: russia; european union; interdependence; energy, power; actorness. when analysing the relations between the european union and russia, the concept most commonly used to define their interaction is interdependence (finon and locatelli, 2007; proedrou, 2007; noel, 2008; casier, 2011; vecchi, 2012; sakwa, 2012; harsem, 2013; güney and korkmaz, 2014; krickovic, 2015). the initial studies of interdependence focused on analysing the means to maximise the benefits of mutual dependence generated by trade, thus being perceived as a purely economic phenomenon (smith, 1776; hirschman, 1945; linder, 1961; vernon, 1966; leontief, carter and petri, 1977). subsequently, the interdependence concept has caught the attention of scholars from political sciences who have tried to determine the effects that economic interdependence exerts on political relations between states (baldwin, 1980; polachek, 1980; doyle, introduction 121 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 1997; barbieri, 1996; o’neal and russet, 2001). regularly, from an economic standpoint, the interdependence is considered to generate relatively symmetric relationships, with net benefits for each of those involved (heckscher-ohlin, 1991; bagwati, 1993; mikić, 1998; nurske, 2009), whereas the ir studies focus on the asymmetric nature of the interdependence phenomenon, as the disadvantaged partner registers net losses (costs) (barbieri, 1996; willet and chiu, 2001). in political sciences, the literature associates relationships of a different nature from those of international economics, as the studies are essentially concentrated on analysing how economic interdependence affects political relations and vice-versa. overall, two paradigms seem to dominate the scientific debate: the liberal paradigm and the realist one. on the first hand, the liberal paradigm argues that deepening economic relations between countries causes a higher level of mutual dependence which might come out as a ‘recipe for peace’. in other words, economic interdependence leads to the development and consolidation of bilateral political relations, greatly reducing the possibility of conflicts / tensions (o’neal and russet, 2001; doyle, 2005; maoz, z., 2009). on the other hand, the realist paradigm of interdependence is inextricably linked to the notion of power. states have a well-established hierarchy of their political agenda (morgenthau, 1948; waltz, 1979, mearsheimer, 2001; kirockovic, 2015), the main goal in foreign affairs being the augmentation of power (to influence others); it is considered that political power is an instrument which is more efficient and easier to use than economic power when it comes to achieving specific international policy objectives so that, regardless of the intensity of economic relations, states are always willing to use their military capabilities, as well as to generate conflict, if it results in increasing their political power. however, the two paradigms explain only sequentially the relations of interdependence between states, often disregarding the complexity and variety of mutual effects that the current global context can exert. for instance, a high level of economic interdependence, including the specific case of symmetrical relations, does not necessarily guarantee peaceful political relations, as the interstate economic interactions may have positive (liberal paradigm), negative (realist paradigm) or no effect on political conflicts (blainey, g., 1973, levy, j., 1989). the reality of the eu-russia relations in the recent years provides us with a differentiated picture, specific more to the realist paradigm, as the political power often prevailed; the actors proved prone to use their political leverage, to the extent of threatening with military capabilities, in order to dominate in international relations even if they have powerful mutual economic interests (e.g. the cases where russia has stopped delivering gas to ukraine, thus interrupting the transit to european customers or the recent sanctions imposed on russia). the first step in expanding the interpretation and implications of the much-nuanced relation between economic cooperation and political pressures in international relations was the concept of complex interdependence (keohane and nye, 1977). namely, the concept argues that economic interdependence relativizes the use of military force in relations between states, however only under certain specific conditions: a) when within the system of interests, apart from national governments, there are involved other relevant actors, complementary to nation states (such as multinationals or international organizations, as there are required multiple channels of interaction); b) when the intensity of economic relations is strong (with an inverse correlation between economic interdependence and political conflict); and c) when the states do not have a well-established hierarchy in promoting their political agenda, regardless of their external environment’s dynamics (table 1). as the table above suggests, if between two or more actors there is a relation of complex interdependence, the military power gradually becomes irrelevant, except for the case in which the actors were part of rival blocs; even if we were to consider two actors belonging to rival blocs, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 122 table 1 the theoretical framework of interdependence main components (instruments) realist paradigm liberal paradigm complex interdependence 1. dominant actors states represent coherent units and are the dominant actors in international relations the nation states represent coherent units, although they are not the only dominant actors within the international relations systems; globalisation and economic integration lead to emergence of new important actors, such as multinationals and other international organisations and institutions; complementary to states, within the international relations there are other actors that interfere with relevant power of influence; international organisations (intergovernmental and/or professional); multinational companies; processes specific to business internationalisation, regionalisation and globalisation thus diluting the role of nation states, as they reduce the relevance of military force in conflict resolution; 2. intensity of economic relations versus political / military conflict (relevance of military power in interstate relations) despite the intensity of economic relations, in international politics, the military power remains a fundamental instrument, efficient and easy to use economic interdependence considerably reduces the risk of military conflicts (economic integration = ‘recipe for peace’) the indirect relation between economic interdependence and political/ military conflict occurs only beyond a certain threshold of economic integration intensity (note: the opportunity cost is high and so the role of military force in settling disputes is strongly diminished, except when states belong the different regional blocs); 3. hierarchy of political agenda there is a well-established hierarchy in promoting foreign affairs, the main aim being gaining power there is no well-grounded hierarchy in promoting foreign affairs objectives, although, over the last decades the economic cooperation has outrun geopolitical rivalries there is no universal tool of shaping a state’s agenda, as there is no concrete hierarchy of the problems that a state must solve, the line between domestic and foreign policy (high and low politics) being ambiguous. source: authors’ synthesis of keohane, robert și nye, joseph (2009) în power and interdependence: world politics in transition, p. 23–24. highly intense economic relations between the regional blocks could nevertheless relativise the role of military force. the interference of other relevant actors that have considerable impact on international relations, coupled with lack of hierarchy within their political agendas (which a priori was built around the concept of power / influence / domination) enhances the reverse relation between economic integration and the use of military force, thus limiting the risk of conflict. otherwise, regardless of the intensity of economic interdependence, the struggle for political power/ leverage cannot be relativised, conflicts and threats of military use of force remain relevant. in the present paper, we propose to test eu’s ability of influencing russia, through the tools offered by the complex interdependence theory; thus, the study focuses on analysing the interplay of economic and political relations between russia and the european union. this approach is meant to foster a better understanding of the eu’s geopolitical perspectives in the region and to provide a nuanced answer to current questions regarding eu’s reduced capacity to act coherently and effectively in managing the issues of its eastern neighbours, despite of the intense economic interdependence it has with russia. the high relevance of the present paper is given by the current context of eu’s eastern border, where military power seems to play an essential role. as russia is a key trading partners for the eu (often being brought up eu’s energy dependence on russia) and the eu is an important market for russia’s exports, as well as the main investor in the federation, we are wondering 123 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 how is it possible that russia assumes the enormous economic losses generated by the political instability in the ukraine and how is it possible that the eu’s external policy instruments or the economic sanctions have not proved very efficient in influencing russia’s foreign actions, so far. nevertheless, considering that the ukraine crisis has greatly affected the eu-russia relations bringing them to an “abnormal” state of cooperation and dialogue, the current research focuses on the period before the crisis has started, namely 2007-2014. the year 2007 is considered as the moment when the union became eu27. the use of the complex interdependence specific tools in analysing interstate relations is not exclusively new, as it has been used in literature, for example, in the analysis of us-canada or us-australia relations (keohane and nye, 1977), and more recently in the czech-russian energy relations (binhacka and tichý, 2012). nevertheless, the existing studies have focused particularly on political issues, considering asymmetry as the main instrument of analysis (perceived as the most important source of either sensitivity or vulnerability), thus not exploring in depth the economic aspects of interdependence. regarding the existing case study on eu-russia relations, the conducted analyses are one-dimensional, engaging predominantly a political perspective (prozorov, 2006; finon and locatelli, 2007; proedrou, 2007; torbakov, 2013; harsem and claes, 2013). moreover, an overview of the literature regarding the relations between economic interdependence and conflict brings to light the conflicting opinions and research results of scholars. therefore, the current aims to investigate whether the relation between the eu and russia is one of complex interdependence and in this context, whether the high intensity of economic interdependence between russia and the eu relativize the use of military force. the overall assumption of the paper is that the relation between the two actors is not a complex interdependence and as such, regardless of the interdependence’s intensity, the military component remains relevant. by doing so, there are two main limits that the current paper will overcome: first, the proposed research will elaborate a thorough analysis of the economic ties, paying specific attention to their dynamics, nature and structure; second, a more nuanced approach to the complex interdependence theory thus arguing that actors who are aware of the actual and potential cost of their external actions do not necessarily refrain from using threats of military force, in order to acquire their intended outcome. therefore, the current paper is bringing up a new approach that can further clarify the political behaviour of the two actors, as well as to anticipate the possible outcomes of the current sanctions. thus, as far as the methods are concerned, considering the interdisciplinary nature of the proposed topic, the current paper is based on mixed methods research, combining qualitative and quantitative methods in order to identify the typology and nature of the interdependent relations between russia and the eu. more specifically, the research design was built on the three components of complex interdependence, although through concurrent nesting (creswell et. al, 2003). overall, the research design is based on three pillars: identifying the dominant players in russia-eu relations (1), measuring the intensity of economic relations (2) and analysing the hierarchy of each actor’s political agenda, focusing on the relation between low and high politics (3). 1) dominant actors the first pillar consists of an overview of the existing literature which focused on the analysis of the european union and russia as global actors. thus, through a qualitative approach, there will be outlined the paradigms and policies promoted by the eu and russia in order to identify the type of actor that the two powers promoted on the global stage, by analysing each individually, in terms of power (reductionist approach), as well as in relation to each other, focusing on the eu-russia system of relations (a systemic approach). taking into account the consistent literastate of the art and methods e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 124 ture on this topic, the main focus will be centred on the preferred or fostered means of interactions of both actors. thus, the hypothesis to be tested is (h1): while the eu is solely using multiple channels of interaction, the russian federation mainly uses one channel. 2) the intensity of economic interdependence the second pillar consists of measuring the intensity of the economic interdependence between the two actors by developing specific composite indices (annex 1). thus, this section will integrate an alternative quantitative method in order to increase the credibility and validate the assessment of interdependence intensity. so far, in literature the quantification of economic interdependence is reduced to trade volumes, often being neglected other important spheres of economic ties. the proposed composite indices expand the analysis to two additional spheres: energy (in terms of energy dependence on each other) and capital flows (fdis). first, energy has often been regarded as the main area in which russia and the eu are interdependent (pailllard, 2010; hogselius, 2013; kirckovic, 2015), not only for its preponderance in eu-russia trade structure, but also because of its strategic importance granted by the difficulty to substitute the provider, as well as the politicisation of the russian gas sector. second, majority of eu-russia interdependence quantitative studies overlook the importance of capital flows. considering that the eu is the main investor in russia, integrating the capital flows within the dependency indices is highly relevant. thus, the hypothesis to be tested is (h2): the economic interdependence of eu and russia is one characterized by high intensity and asymmetry (in favour of the european union). 3) hierarchy of political agenda the third component of the complex interdependence theory refers to the hierarchy of political agendas. thus, by paying specific attention to eu’s and russia’s external actions since 2000 to present, there will be determined through a qualitative approach whether there can be identified certain priorities within their agendas. this approach will regard their agendas both ways: in general, thus comparing any tendency to prioritise between high and low politics (reductionist approach), as well as towards each other (systemic approach) in order to establish if there is a common ground to foster dialogue. thus, the hypothesis to be tested is (h3): the eu doesn’t have a specific hierarchy of political agenda, whereas russia displays such hierarchy, with a clear focus on high politics goals. 1. european union and the russian federation – actorness and interactions on the global stage the reductionist approach the role that the eu assumed in its foreign policy meant that the eu as a global actor promotes a normative agenda with the central purpose of shaping, inspiring, diffusing and thus normalising its norms and values in international relations through non-coercive means, based on the principle of conditionality (tocci, 2007, 2). nevertheless, in exerting influence, the essence lies in how different resources and capabilities can be materialised within the negotiating process with other actors; the sole possession of resources (capabilities) does not automatically translate into influencing others in international negotiations; for this purpose it is necessary to be endowed with a certain bargaining power or applied power (forsberg and seppo, 2009, 1808). in other words, possession of significant resources or capabilities does not automatically guarantee influence in international relations. the eu’s main capability that can strengthen its power to influence other global players, refers to its available economic resources, which ensures eu’s ability of applying various means and multiple specific instruments, such as: to impose or lift sanctions, tariffs and other trade barriers; 125 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 to use certain institutional resources (for example, in russia’s wto accession process) or to invoke their own example of economic success and authority in relation to international standards. however, the eu’s ability to transform economic capabilities into power, through appropriate negotiation strategies is relatively low. when it comes to the reasons behind this failure, the existing body of literature outlines scholars’ lack of consensus, the main dispute stemming revolving around the main source of weakness: eu’s institutional structure and decision-making process (carr, 2001; manners, 2002; sjursen, 2006; hyde-price, 2006; dur and zimmerman, 2007; stivachtis, 2013), divergent interests of member states (lavanex, 2004; wagnsson, 2010; tocci, 2007) or eu’s normative vision of the world (tocci, 2007, forsberg and seppo, 2009; pace, 2007; lenz, 2013; larsen, 2014). moreover, the literature on eu actorness emphasises the paradox of unrealised power (baldwin, 1989; forsberg and seppo, 2009), despite eu’s obvious presence and deep economic and institutional integration within global economic and political structures, through various channels of interactions. overall, both internally (a hybrid and unique intergovernmental and supranational organization) and externally (deeply integrated within international organisations and regional economic groups) the european union can be categorised by the preponderance of its multiple channels of interaction which simultaneously relativize the realistic assertion of states as the only major actors in world politics. unlike the eu, which is perceived as a post-modern, institutional and normative power, russia is oriented towards the great powers politics of the nineteenth century. in its foreign policy, the geopolitical realism prevails, the state’s major priorities being sovereignty, territorial integrity and independence, whereas the most important principle of international law is considered on non-intervention. usually, the geopolitical realism lead to an increased tendency of perceiving international relations in terms of zero sum (light, 2008, 7). in a regional context that means that any increase of other actors’ influence is perceived by russia as an attempt to decrease its own. thus, russia perceives the imposition of foreign values and norms as a highly intrusive policy, unless they reflect russian values and traditions, insisting through its political discourse and narratives on defining russia as an ‘equal among equals’ (light, 2008, 19). the concept of sovereign democracy proposed and promoted by the russian politician vladislav surkov (2006) a decade ago, seemed to embody this conviction that russia should define its own interpretation of democracy and forbid adoption of values exported by the west. thus, in his view, surkov’s sovereign democracy represents a very different model of democracy compared to the one proposed and practiced in the west, as ‘it embodies nostalgia for the old european nation-state, as well as for a european order which gravitates around the balance of power and non-interference in the internal affairs of other countries’ (krastev, 2008, p. 75). in this context, both internally and externally, russia subscribes to geopolitical realism. in this sense, russia prefers bilateral/interstate relations instead of multiple channels of interaction, as such type of relations do not fall within its realistic logic. the synthesis of eu and russia actorness through a reductionist approach (table 2) highlights that whereas the eu is heterogeneous defined by coexistence of multiple actors and channels of interactions, the russian federation is homogenous, its core being the state (validating h1). overall, the synthesis of the existing literature regarding russia’s and the european union’s actorness emphasises major differences between the two actors, both in terms of promoted values and on the means of interaction with other international actors. a reductionist approach to overviewing the external behaviour of both eu and russia provides the premises for further analysis of the complex system of relations between the two actors. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 126 the systemic approach despite the obvious interdependence between the eu and russia, the dialogue between them is often deficient, if we consider the various events and tensions over the last decades. the main issue that highlights their differences refers to their common neighbourhood. taking into account the sensitivity that russia shows regarding the eu and nato enlargements, it is more accurate to speak of strategic rivalries or competition than strategic partnership when in it comes to their common neighbourhood. on a conceptual note, the dialogue between the two actors is often under strain. the eu’s missionary position often induces some hostile reactions from russia and it becomes an important obstacle in deepening the dialogue between the two actors. russian politicians often argue that the western (common) european values should also reflect the russian traditions. a supranational organization such as the eu, who reduces the role of the nation state in international relations cannot be appealing to russia and its realist logic of power. moreover, the institutionalisation of their dialogue through the partnership and cooperation agreement has not brought the expected results. not only that the eu policies have failed to influence russia, but the more eu insisted on diffusing its model, the more russia reaffirmed its cultural specificity and the right to have another interpretation of democracy (sovereign democracy) (okara, 2007, 8). within a specific vision of political realism, kremlin does not understand why it would need the european union to develop relations with european states (kazantsez, sakwa, 2012, 292). as russia mainly perceives international actors as nation-states, it prefers dealing with eu member states individually, as this falls within its realist logic. consequently, russia has sought to deal bilaterally with eu member states in both cases of cooperation and disputes, thus exerting some pressure on eu’s solidarity. often being accused of implementing a divide et impera strategy in order to split the eu, russia’s actions are not necessarily premeditated and carefully coordinated. as popescu and leonard noted, ‘it is more natural for moscow to deal with eu member states individually, since this is how it sees international politics as a series of tete-a-têtes meetings between great powers’ (leonard and popescu, 2007, 13-14). overall, for russia, the eu is a less credible partner than its member states. the lack of a european common voice should not be the only explanation for the eu’s inability to influence the russian federation. there is a possibility that even if the eu would be consistent and with one voice, they might not be able to choose the best strategy or to implement it properly in order to achieve its objectives vis a-vis russia, primarily because of the major differences in perceptions and values between the two actors. table 2 european union’s and russia’s actorness european union russian federation promoted values democracy, rule of law and human rights sovereign democracy interaction multiple channels interstate relations power typology soft hard main means normative, conditionality constraint, sanctions exerting influence economic power military power dominant actors normative (regional groups, international organisations, supranational institutions) realist (nation states) source: authors’ representation. 127 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 table 3 eu-russia system of relations source: authors’ representation. e u -r u s s ia s ys te m characteristics convergences divergences heterogeneous (east-west division) energy interdependence perceptions of time and space (ww2, transition, cold war, last decade) values matrix european civilisation culture, religion (universality of european model versus sovereign democracy) eu external actions do not regularly rely on its military or economic resources, even if it has these capabilities. the union prefers the soft power measures and tools which are often associated with the identity of the eu as a normative power, in contrast with the perceptions and power politics of russia. moreover, the use of hard power tools did not enhance eu power of influence over russia. if we were to consider the latest sanctions that eu has imposed following the annexation of crimea, the results are rather disappointing. apart from isolating russia and pursuing it to reduce its dependence on the union, the sanctions did not determine the federation to change its course of actions in the common neighbourhood and beyond. on the one hand, both the european union and the russian federation naturally seek to further their cooperation, as it is in their strategic interests. however, the tensions that often arise between them prove that despite their intentions, they find it particularly difficult to reach a common denominator. furthermore, this proves that their divergences arise due to their different values, perceptions and paradigms, and not because economic or geopolitical competitiveness. on the other hand, even if russia perceives itself as an integral part of the european civilization, its affiliation to the realist paradigm and the concept of power makes it naturally competitive, especially when comes into question its former satellites. 2. the intensity of economic interdependence in eu – russia relations despite the use of sophisticated methods of collecting and processing data, as well as a complex set of research tools, the perception and analysis of interdependent relations vary not only theoretically, but also in empirical studies. therefore, if katherine barbieri demonstrates through her proposed coefficients that intense interstate relations can induce tension and rivalry (barbieri, 1996), russett and o’neal argue based on their empirical methods that intense trade relations may lead to the development and consolidation of bilateral political relations (russet, o’neal, 1997). the latest criticism to both approaches comes from willet and chiu (2012), who believe the two measurement methods are too rigid, geared mainly on quantitative analysis. the experts point out the necessity to correlate quantitative and qualitative analysis, which perfectly complement each other. thus, the contradictions in literature highlight the need of a more complex quantification method which must be carefully analysed through a comprehensive set of theories that goes beyond symmetrical interdependence. overall, the methods of quantification in literature indicate a major limit: the economic interdependence is measured almost exclusively by coefficients that depend solely on the trade vole u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 128 umes (barbieri) or on the gross domestic product (russet and o’neal). therefore, it was omitted one of the most important strategic characteristics of trade: its structure. to overcome this limit, the current research proposes a method which, apart from quantifying the national economy’s dependency on trade, takes into account the energy sector, as well as the capital flows. thus, using the method proposed by russett and o’neal to measure trade dependency in relation to the gdp, the current method offers a more comprehensive coefficient by constructing an integrated index of dependency which incorporates two additional dimensions: energy and capital flows. within this framework, the intensity of economic interdependence between the eu and russia is analysed by comparing the integrated dependency coefficients in all three spheres: trade, energy and capital flows (figure 1). figure 1 eu-russia economic interdependence model interdependence (mutual dependencies) eu-russia commerce dceu= dcru= energy deeu= deru= fdi dfdieu= dfdiru= integrated index of (inter)dependence dieu=f(dceu;deeu;dfdieu) dieu=(dceu*pc)+(deeu*pe)+(disdeu*pfdi), pc= (%) , pe= (%), pfdi= (%) diru=f(dceu;deeu;dfdieu) diru=(dcru*pc)+(deru*pe)+(diru*pfdi), pc= (%) , pe= (%), pidi= (%) in the sphere of commerce, the data was retrieved from eurostat (for the eu and its member states, in millions of eur), as well as from oecd and russian federation federal state statistics service (rffsss) (for the russian federation, in millions of usd). the energy dependency is captured focusing on each actor’s specific needs and vulnerabilities: for the eu it was considered as the share of oil and gas imported from russia on total energy imports (data retrieved from eurostat, having as measure units millions of eur); whereas for russia, the dependency is reflected as the share of gas and oil exports to eu in russia’s total energy exports (data was retrieved from rffsss and the russian ministry of energy, having as unit millions of usd). regarding the capital flows, the data was retrieved from eurostat (for the eu and its member states, in millions 129 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 of eur), whereas for the russian federation the data was retrieved from central bank of russia (russian fdis in the eu and russian total capital flows). in order to better capture the intensity dynamics of interdependence, there has been considered a period of seven years, between 2007 and 2014, before the ukraine crisis. thus, by applying the proposed method of quantifying the intensity of interdependence, as described above, there were retrieved the following results (figure 2): figure 2 intensity of economic interdependence eu-russia (20072014) (authors‘ representations) *for more details regarding data and sources, please see annex 1 it may be noted that the eu dependencies (energy, trade, investment and integrated) are relatively constant regardless of the analysed period, highlighting the strategic importance of energy supplies for the eu’s economy. unlike the linear tendency of the union’s dependence, russia’s dependency recorded values that vary, thus showing a considerable decrease in trade and investment dependencies for 2008 and 2009, during the economic downturn. furthermore, it can be noted that during the 2008-2009 crisis, the trends of trade and investment dependencies are inversely proportional to that of energy dependence. thus, during the crisis, russia’s dependence on energy exports experienced a considerable increase, which can be interpreted as a measure to outweigh the considerable declines of trade and investments by increasing its energy exports. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 130 the results of the applied methods for measuring the levels of interdependence in the spheres of trade, energy and fdi’s, indicate the existence of an asymmetric interdependence in favour of the eu. however, there can be noted a relative symmetry in the energy sphere, where the eu recorded the highest values of dependence on russia. indeed, energy is the key point of the relations between russia and the european union, thus being the most intense sphere of their interdependence, which has diverse implications on eu-russia relations. on the one hand, an excessively tough stand attitude towards russia could provoke hostile reactions and would endanger the european investments, the access to the russian markets, as well as the eu energy security. on the other hand, the current european policies and practices put the eu in a position that sometimes shows political weakness and reduce the amount of european investments, particularly in the energy sector. moreover, given the two central issues: the high levels of intra-eu trade, and the difficulty in quantifying the importance of the energy sector for the economy, the implications of energy dependence has far more complex and diverse implications than the mere reporting of income from energy industry to gdp. within this context, we can characterise the interdependent relations between the eu and the russian federation as intense, despite the asymmetry that characterises all the analysed indicators of dependence (validating h2). however, the intense economic interdependence between the two actors, especially in the energy sphere does not guarantee an automatic cooperation, despite the large cost involved in disrupting these transactions. furthermore, russia’s repeated actions (economic sanctions over its trading partners in the eu or the cis, interruption of gas supply to the eu, etc.) have negatively affected the economy of the federation in exchange for increased political leverage. in other words, despite the intense economic interdependence and the high costs involved, russia is not willing to cede and give away political influence in exchange for economic benefits. this logic might be an indicator that the economic sanctions that eu imposed on russia will not have the expected effects. overall, russia’s natural resources are primarily regarded as political leverage and secondly as an economic capability; moreover, the energy sector represents one of russia’s main tools available to increase its political influence on the global stage. 3. the hierarchy of political agendas over the last decades, there has been a considerable rise in the importance of economic power opposed to the role of the military one in international relations, especially in the context generated by the accelerated processes of regional integration and globalisation. numerous groups of countries have joined hands in building regional groups around their specific economic interests, which has gradually gained importance within the hierarchy of external priorities; there have emerged new actors that reduce the role of national states on the international political relations scene; transnational companies build mutual economic interests on a global scale, thus influencing the political agendas of states (koksal, 2006; kicsi and buta, 2012; hunya, g., 2012). european union is such actor, a post-modern hybrid, a regional group of european states that is still evolving, as such, european union’s policy agenda is very complex and multifaceted. considering that the eu adapts it to different events, partners and objectives we can outline that there is no well-established hierarchy between its domestic and foreign policies. the diversity of topics and the multiplicity of interests of member states are only two of the arguments that support the absence of a solid hierarchy of themes within eu’s political agenda. it is generally accepted in literature that, in all its external actions, the eu is trying to promote its normative agenda (manners, 2002; sjursen, 2006; hardwick, 2011; smith, 2012; kavalski, 2013). thus, its objectives transcend the narrow national interests (possession) and are shared on a 131 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 global scale, defined by alfred wolfers as ‘milieu goals’ (smith, 2005, p. 3). however, when it comes to the russian federation, eu’s specific objective interfere and often contradict its normative agenda, especially those related to securing energy supplies and entering the russian markets (emerson, 2006, pp. 62-94). this contradiction between the eu’s declared normative agenda and its contradictory actions vis-a-vis russia is emphasised especially after 2004, the year of eu and nato enlargements towards eastern europe. in this regard, the normative objectives have sometimes become marginal, the focus being centred on the eu’s own interests and specific objectives (tocci, 2007, p. 38). some of the most visible examples of neglecting the normative agenda in relations with russia are the eu’s position on the conflict in chechnya, its reactions to the munich speech, or to the war in georgia. in general, the absence of a well-established hierarchy of themes on the eu’s political agenda makes it a global actor with patterns of complex interdependence (keohane and nye, 1977) (validating h3). however, in relations with russia, the eu’s agenda becomes more hierarchic with specific interests and goals, prioritising its energy and security. therefore, by promoting a more realistic approach (light, 2008) towards russia, once in a while, the eu exits the patterns of complex interdependence. to sum it up, a glance over the european union’s political agenda as a global actor reveals that despite its normative nature, in its relations with russia, the european union sometimes promotes a realpolitik type of policy, with a clear agenda where priorities revolve around energy and security. when it comes to russia’s external actions, the agenda is more focused. the main landmarks of russia’s foreign policy towards the eu confirms its willingness to reaffirm its global power. first, russia’s economic recovery has been associated with the affirmation of a political discourse based on the ‘rebirth of the russian civilization’ a secular civilization, which is both connected and also so distinct from that of europe, the federation openly exposed its desire to eliminate any existing inferiority complex (gomart, 2008, p.13). in the view of the political elite of russia, the european union has its own contradictions, and it cannot be regarded as a dynamic model of economic development. secondly, russia is always careful to distinguish europe from the european union, as it still harbours hopes of a european continent based on two pillars: a western pillar (led by the union) and an eastern one (led by russia). this approach can be easily observed in the current political and military context in the ukraine, and in the general attitude and expectations of moscow regarding the eu a dialogue between equal partners. asserting itself on the international stage, russia was not exclusively concentrated on developing its foreign policy towards the west, but also towards its former satellites: thus, kremlin has attempted to form regional groups under the aegis of russia, such as the commonwealth of independent states. however, in the process of regional economic integration of its former satellites, russia faced a number of difficulties and challenges due to its inability to move beyond the table 4 hierarchy of eu and russia’s political agendas the eu the russian federation objectives priority hierarchy objectives priority hierarchy global arena normative eu model none possession national interest high politics eu-russia relations possession energy security high politics possession national interest high politics source: authors’ representation. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 132 traditional role of power. as a result, the federation failed to establish a viable integration process that goes beyond resembling a new form of domination over its neighbours. thus, despite the efforts undertaken to reaffirm on the global stage, russia seems to be caught in a paradox: ‘geopolitical omnipresence and profound political solitude’ (trenin, 2007, p. 37). nevertheless, over the last two decades, russia’s policy seems to revolve around asserting its power on the world stage, indicating at the top of its political agenda high politics goals, the low politics priorities becoming secondary (validating h3). eu-russia relations, where to? the analysis of the three components (dominant actors, the relationship between the intensity of economic interdependence and the use of military power, and hierarchy of the political agenda) in the specific case of the european union and russia, indicates that between the two actors, there is no complex interdependence relation (table 5). subsequently, applying the complex interdependence theory to eu-russia relations, emphasizes a defining aspect of their political dimension, namely that: the lack of a complex interdependence validates the idea that, regardless of the intensity level of russia-eu’s economic interdependence, the political power and military capabilities will remain relevant. table 5 realism vs. complex interdependence between russia and the eu dominant actors economic interdependence vs use of military power hierarchy of political agenda in general eu-ru in general eu-ru in general eu-ru the eu complex interdep. (multiple channels of interaction) complex interdep. (multiple channels, although bilateral relations are common) complex interdep. (the eu itself has been formed and developed through a process of growing economic interdependence) realism (under us and nato foreign policy) complex interdep. mix of realism and complex interdep. russia realism realism realism realism realism realism source: authors’ representation. figure 3 the interdependence between the eu and russia from a political perspective (authors’ representation) russia •the persistance of realism both in paradigm and actions vis-a-vis the eu •political consensus •national interest is considered the core in russia's external actions the european union •contradiction between paradigm (normative) and some actions vis-a-vis russia •fragmentation of political power •multiplicity of interests 133 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 a step-by-step analysis, considering the above, together with the main paradigms and directions in literature, indicates where the interdependent relations between the two actors would fit into the general picture of complex interdependence. the analysis results show the predominance of realism in the system of eu-russia relations (table 3), thus maintaining the political power and military capabilities as highly relevant. moreover, as shown by the current economic and political situation between the two actors, whatever advantage the union has on economic terms, it has not been able to exert political influence over russia. however, the lack of political homogeneity within the european union, coupled with russia’s consistency in promoting the realist political paradigm in foreign affairs, grant the latest a clear advantage in negotiations (figure 3). as a consequence, when it comes to the political sphere, the interdependence between russia and eu is asymmetrical, with the russian federation holding the upper hand. on the premises of the strong interdependent economic ties between the two actors, especially in terms of energy, the current economic sanctions have strongly contributed to russia’s economic decline. nevertheless, in the realm of russia’s foreign affairs, they have proved counterproductive. moreover, the volatility of the global oil prices adds up to the lack of certainty of the current targeted sanctions, considering that if the oil prices should rise again, their impact will diminish further. since exerting pressure on the key sectors if russia’s economy might not be enough, it becomes clear the necessity to address the western strategy by political means. first, by excluding russia from dialogue and international discussion tables might add up to the deadlock, not break it. for instance, though enhanced dialogue and cooperation, russia could be engaged in other various global issues which, in turn, would avoid isolating it diplomatically and consequently discourage it from creating or searching alternative international institutions. moreover, if russia should feel important and acknowledged, it might refrain from constantly trying to prove its hard power. second, the realist nature of the russian federation, which gravitates around its national interests clearly suggests that kremlin will not back down. as a genuine realist actor, russia is highly competitive, not likely of being coerced or influenced in its policy and actions, thus exposing a strong unwillingness to compromise. within this context, the best course of action for the west must be built around russia’s competitive nature. a good starting point might be to move the competition from geopolitics to economics, by supporting the consolidation of the eurasian union project. the current evaluation of eu-russia relations represents a proof that, the mere economic interdependence, regardless of how intense that is, is not enough to bring peace through the means of cooperation and regional integration. overall, the analysis of the eu-russia relations through the theory of complex interdependence, explains why the logic of mutual benefits the win-win type of relations, is missing from the intense energy interdependent relations between the two actors. whereas the classical perception of increased interdependence implies that intense trade makes any interruption in transactions to become expensive, thus irrational, the eu-russia relations prove quite the opposite. moreover, the use of complex interdependence theory in these particular case, brings out a number of major differences in terms of paradigm and perceptions between the eu and russia, resulting into a very challenging cooperation. the results of the analysis suggest that politically russia holds the upper hand, whereas economically the eu has leverage, except for the energy sector where the interdependence tends to get symmetrical. despite the political advantage that the eu holds on russia, at the moment, the strong interdependent economic relations between russia and the eu do not directly afconclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 134 fect 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(2012). quantitative measures of economic and financial power and the rise of east asia, uc santa barbara. 18 april, 2015. available at: http://www.cgu.edu/pdffiles /spe/willett/papers/draft%201%20-%20chiu-willett.pdf. 137 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 7 / 1 1 dep. index 2007/2008 2009/2010 2011 2012 2013/2014 eu ru eu ru eu ru eu ru eu ru dc 0,0930 0,3191 0,0795 0,1480 0,0944 0,2903 0,0972 0,2327 0,0954 0,2090 de 0,1973 0,6003 0,1944 0,7945 0,1919 0,5475 0,1878 0,5762 0,1835 0,5917 di 0,0048 0,6533 0,0244 0,5217 0,0035 0,8768 0,0202 0,8528 0,0157 1,0000 pc 0,2154 0,2660 0,1902 0,2410 0,2492 0,4330 0,2593 0,4890 0,2529 0,4020 pe 0,1480 0,1800 0,1567 0,1920 0,1545 0,2640 0,1835 0,2850 0,1884 0,2570 pi 0,1940 0,0569 0,2000 0,0220 0,2560 0,0361 0,2970 0,0265 0,3060 0,0335 dd 0,0502 0,2301 0,0505 0,1997 0,0541 0,3019 0,0657 0,3006 0,0635 0,2696 annex 1 eu and russia dependence indexes in commerce, energy and fdi’s (20072014) source: authors’ calculations based on data retrieved from eurostat (eu: dc, de, di, pc, pi), rffsss (rf: dc, pc), cbr (rf: di, pi) and the ministry of energy of the russian federation (de, pe). indexes for eu-russia interdependence in trade, energy, fdi and total (2007-2013/2014)* source: authors’ representations eu-russia interdependence indexes simionov loredana maria researcher, phd alexandru ioan cuza university of iasi, centre for european studies, research department fields of research interests international relations, european integration address bd. carol i, no.19, corpus i, iasi, romania tel. +40753 817 084 pascariu gabriela carmen professor, phd alexandru ioan cuza university of iasi, faculty of economics and business administration fields of research interests regional development, european integration address bd. carol i, no.22, corpus b, iasi, romania about the authors 169 issn 1822 – 8402 european integration studies. 2009. no 3 tendencies in lithuanian labour market under the impact of economic recession jurgita barynienė kęstutis kriščiūnas kaunas university of technology, institute of europe abstract under the conditions of globalisation countries can not function sequestered and be unaffected by the various processes in the world. the global crisis made the remarkable impact on the countries’ economic and social spheres. the situation in european union (eu) countries’ labour markets became unstable. under the pressure of global economic recession in all eu erected one of the biggest social and economic problems – unemployment, which is understood as misbalance of demand and supply of labour force. increase of unemployment is entailed by many social, demographic, psychological problems. during last year unemployment rate in eu countries inceased very significant. according to the international labour organization (ilo) developed economies and the european union saw the largest increase in the regional unemployment rate – about 3.5 million people lost their jobs in this region this year. for this reason this period is called „global job crisis“. from 2002 years lithuanian economy has grown faster than in any period and there were seen positive development trends gdp was rising, investments were growing up. furthermore the labour market in lithuania has in the recent past been characterised also by positive changes the unemployment was falling, wages were growing up. fast developing market was causing specific requirements for the human resources, especially for the universities’ graduates. furthermore, the business sector forms new and specific requirements for the human resources. at that time in politicians’ and scientists’ discussions the main problem was how to solve the lack of labour force which is the main brake for the development of country’s economy. the shortage of qualified labour force was felt especially in the sectors which need highly qualified employees. in the end of 2008 the economic recession affected lithuanian labour market. the companies started to respond to the challenges which were rising under the influence of economic downturn. some of the companies were looking for the possible ways to keep their qualified labour force or use the current downtime for more education and training but the big part of companies immediately reduced their workforces to cut costs, cut production or even closed the factories. the economic recession touched not only the segment of unskilled labour force but highly qualified labour force as well. in this article the situation in lithuanian labour market is analyzed. this article strives to identify the tendencies in lithuanian labour market under the impact of global economic recession in eu context. the made research showed that the economic downturn influenced the big changes in lithuanian labour market and it is also further widening employment gaps between lithuanian regions. the overall challenge is to find efficient and sustainable responses to the economic slowdown and reduce the multiple short – term and long term consequences on the labour market. the analysis is made upon the scientific literature and research is this field, statistical data and comparative analysis of the labour market’s indicators in eu countries and lithuania. keywords: human resources, labour market, unemployment, economic recession. introduction the 21st age is the time of radical transformations in strong correlative spheres – economic, social as well as political. it is time of new possibilities and, of course, challenges. the global economic recession, started in 2008 has a major impact on economic and social life. it is agreed (soros, 2009) that this recession is one of the biggest from the 4 decade of 20 century and it has put a sharper focus on economic and social systems. the phenomenon of labour market and it‘s correlations with economic situation was reflected in scientific works. issn 1822-8402 european integration studies. 2009. no 3 170 undoubtedly the labour markets react to the economic recession very sensitive. countries started to analyze the situation and create the plans how to help their economies to recover from the global economic recession. the eu was constrainted to do steps as well. in the end of 2008, the commission in order to solve the rising problems decided to respond to the current situation in eu and initiated the plan for the european economic recovery. this plan is closely related with the renewed lisbon strategy, because there are scheduled the actions in the four priority areas of lisbon strategy people, business, infrastructure and energy, research and innovation. recent several months in lithuanian labour market are characterized as a time of high unemployment and deep pressure. according to the statistical data, in april 2009, lithuanian unemployment rate stood at 8,7 % compared with 4.3% in march 2008, making one of the highest increases in the eu. current situation stimulates to analyze the scientific problem what are the main changes in lithuanian labour market facing the global economic recession. research goal of the article is to define the changes of lithuanian labour market under the impact of global economic recession in eu context. the tasks of the research were set as follows: to reveal the theoretical background of labour  market and it’s correlations with economic environment; to analyze the general tendencies in labour markets  of eu countries; to identify current changes in lithuanian labour  market and highlight the main actions in order to come out labour market crisis. research object: tendencies in labour market research methods: the analysis of the research in the field as well as statistical data. the article consists from four parts. first part presents the theoretical point of view on labour market’s sensitivity to economic situation’s changes. the second part analyzes the tendencies in eu countries labour markets. the third part is devoted to the analysis of the lithuanian labour market situation under the impact of global economic recession. the fourth part presents possible ways in order to come out labour market recession. theoretical approach towards sensitivity of labour market to economic changes the labour market, the peculiarities of it’s functioning is the research object in many scientific works. this object is analyzed by economists, psychologists, sociologists as well as political scientists. labour defines the social status in society and is the basis for well-being and selfsatisfaction (barron, loewenstein, lynch, 1989). as it is stated in martinkus, beržinskienė (2005), sakalas. a., savanavičienė a. (2006), campbell d., craig t. (2005) and others, the labour market is understand as the usual market where employer buys the labour force and employee sells his knowledge, skills and abilities. from the economic point view the labour market is like any other market. in this context it could be mentioned the model of ideal market. beržinskienė d. (2006) emphasizes that in ideal labour market labour force supply is totally adequate to the labour force demand. another feature of ideal labour market is short time term from the moment when a person starts to look for a job. beržinskienė d. (2006) agrees that there are impossible to find the ideal labour market. nowadays labour markets are affected by many factors which made the imbalance between labour force supply and labour force demand. on the theoretical point of view, the labour market is understood as the open and sensitive system, which is influenced by many factors. keynes d. in his scientific works stated that there is strong correlation between the changes in economic environment ant the employment. to sum it up it should be stated that when the economic is rising, the unemployment is going down and when the economy is going down, the unemployment is rising up. beržinskienė d. (2006) emphasized that factors which affect labour market could be divided to: – interior (such as different and limited information; intensity of work search; tightness of an employer and an employee); – and exterior (such as economic changes; changes in the labour market structure; changes of work). additionally, very important factor is the persons abilities and skills, which can change all organization in order to profit by recession and to start the activity in new economic wave. downes a. (2009) in his research on labour market’s and economic crisis identified that labour markets effects occur through: – a fall in production (output) which results in a reduced demand for labour (i.e., derived demand) direct effect; – a decline in labour and non-labour income which leads to a fall in the demand for goods and services –induced effect and multiplier effect. the main indicator mainly used in macroeconomic to represent the labour market is unemployment rate. this rate indicates which part of labour power is unemployed. increase of unemployment is entailed by social, demographic, psychological problems. incomes of families are reducing, unemployed suffer stresses, nervous strains, alcoholic problems are increasing, people are migrating to other countries looking for a job, and the birth rate is decreasing. as the rule, unemployment rises when is imbalance between the supply and demand for the labour. under current conditions begins the crisis of employment which can be characterized by: – increase level of unemployment; issn 1822-8402 european integration studies. 2009. no 3 171 – rising the expenditures on the improving of relevance of labour force to economic conditions. when such situation rises, it is very important that employees‘ competences, skills and abilities would be adequate to demands of employers. the balance between employees competence and employees requirements is the key for labour market’s successful functioning. general tendencies of unemployment in eu countries according to the newest statistical data, the eu countries labour markets have suffered deep changes caused by global economic downturn which begins in 2008. however in should be stated that eu labour market has been less affected than united states labour market but much more than the labour market in japan. on the other hand, it should be noted that one countries’ labour markets was affected significant harder than others. the figure 1 shows that unemployment rate which for long period was drooping now has been increasing very fast especially in recent months. in figure 1 it is seen that there are significant differences between genders in european union level men have been affected by the downturn more than women, reflecting that many of the sectors hit hardest are predominantly male-oriented in terms of employment (european commission, 2009). w t m fig. 1. unemployment rates in european union source: eurostat, european commision (2009) monthly monitor on the eu employment situation and social outlook. analyzing statistical data it is seen that there are significant differences between countries labour markets’ reactions to the economic downturn – one group of the countries are increasing the investments to human resources quality in order to suspend the subsequences of economic downturn, another group of countries do not take any strategic actions. for this reason, although the downturn as characterized as the global, in some countries unemployment rates have not increased or increased insignificant. according to eurostat among the eu member states, the lowest unemployment rate was recorded in the netherlands (2.8%) (see figure 2). rises of unemployment rate was insignificant in austria, bulgaria, romania, poland, belgium. these labour markets could be characterized as traditionally strong labour markets which focus on the human resources preservation in workplaces. although statistical data shows that unemployment rates rose in almost all member states, the worst situation is in such countries as spain, latvia, slovakia, lithuania (see figure 2). in these countries the unemployment rate’s rise is fairly significant. the biggest unemployment among european union countries is in spain. as it is declared in eu employment situation and social outlook (2009), in spain unemployment has raised dramatically over the last year and alone accounts for around 40% of the total rise in unemployment in the eu since the crisis began last october. in the end of 2008, the commission in order to solve the rising problems decided to respond to the current situation in eu and initiated the plan for the european economic recovery. this european economic recovery plan is the commission’s response to the current economic situation. it should be streessed that this plan is closely related with the lisbon strategy, because there are scheduled the actions in the four priority areas of lisbon strategy people, business, infrastructure and energy, research and innovation. the one of strategic aims of plan is to lessen the human cost of the economic downturn and its impact on the most vulnerable. many workers and their families are or will be hit by the crisis. action can be taken to help stem the loss of jobs and then to help people return rapidly to the labour market, rather than face long-term unemployment. issn 1822-8402 european integration studies. 2009. no 3 172 0 2 4 6 8 10 12 14 16 18 20 nl at dk cy si cz lu bg ro mt uk fi it pl be de se el pt fr ee hu ie lt sk lv es 2008 may 2009 april fig. 2. unempoyment rates in european union countries (percents) source: eurostat, european commision (2009) monthly monitor on the eu employment situation and social outlook. there were also other initiatives how to response the challenges which erects facing the global economic crisis. world bank (2008, 2009) also has prepared comprehensive notes guiding countries in their labour market policy response to the current crisis. in the documents it is dealing with the question how should labour market policy respond to the financial crisis? all initiatives are the big step towards the rising problems solution, but in all initiatives should be the biggest attention paid to the question of human competency’s quality ant it’s conformity to economic situation. the changes in lithuanian labour market lithuanian labour market has hit very hard from the september, 2009. according to the data of lithuanian labour exchange at the ministry of social security in march the rate of unemployment in lithuania climbed to 8,7 percent, which means that some 186.5 thousand of people are now seeking work and has the status of unemployed. in february in country‘s labour exchange registered jobseekers made up 8,2 percent registered jobseekers from all country‘s working age inhabitants. comparing it is seen that during the month the rate of unemployment increased 0.5 percent. however, this growth is the lowest since the beginning of the year. during march the number of working age unemployed increased by 1.1 % point. on january unemployment grew 1.4 % point, on february – 1.3 % point. the number of unemployed who applied to the labour exchange stays high and because of the limited possibilities to employ the unemployment rate was growing. in lithuania the unemployment rates differ greatly between and within regions. statistical data shows that in april (2009), the biggest unemployment was fixed in druskininkai (15,4 percent). during april the biggest increase was fixed in šalčininkai 1,9 percent. table 1. unemployment rates in lithuanian regions (2009, april) municipality unempoyment rate (%) in april, 2009 changes with march,2009 alytus 11,4 1,5 druskininkai 15,4 1,0 kaunas 8,1 1,1 raseiniai 10,4 1,4 šiauliai 9,2 1,5 kupiškis 12,4 1,3 vilnius 8,1 1,3 klaipėda 8,1 1,1 šalčininkai 13,0 1,9 source: lithuanian labour exchange at the ministry of social security, 2009. main factor which influences such increase of unemployment rate is group dismissals. in figure 3 it is shown the comparison with the previous years two months (january and february, 2008). 47 6 2009 january, february 2008 january, february fig. 3. group dismissals in lithuania (2008/2009) source: lithuanian labour exchange at the ministry of social security, 2009 issn 1822-8402 european integration studies. 2009. no 3 173 during the february 2009, there were received 19 reports about group dismissals. during two months of 2009 (january and february), 47 reports about group dismissals were received, where 2195 employees were foreseen to dismiss. as it is seen from the figure 3 compared with the previous year the number of reports about groups dismissals increased by eight times. furthermore, the number of employees warned about dismissal – nearly ten times. analysis shows that the main reasons are: companies reorganization; bankruptcy; liquidation; other reasons. in this context it should be emphasized the problem of inadequacy of human resources competence and employers requirements. in march in lithuanian labour exchange data base there were 8.5 thousand vacancies registered, about 85 per cent of them for permanent jobs. compared with march of 2008, demand of labour force decreased more than half, but unemployment rate stay high. this situation demonstrates the deep gap between competency of human resources (abilities, skills) and employers’ requirements for the human resources competence. according to this it is necessary to make changes in order to help for jobseekers to obtain skills which are essential acting in nowadays labour market. the such situation in labour market causes economic and social problems such as the losses of gdp, highest expenses on fiscal outlay of unemployment (such as unemployment relief). furthermore, there are losings in social context the losses of human resources’ competence, increase of crime, psychological problems. for these reasons the country’s governments should assess their regulatory environments. in country is very important to protect labour market in order to preserve social harmony. if the government does not take any strategic steps, according to nowadays situation, in lithuanian labour market will be marked: increase the number of unempoyed in near future  (not so dramatically as last months); appearance of the remarkable differences between  regions increase of the demand for the highly skilled  workers, especially for those who are able to create value added products and services. insights for strengthening of balance between labour force‘s competencies and employers‘ requirements lithuanian government, business sector, universities should adequately react to the current situation. first of all, it should be taken the actions and measures to deal with the consequences of the economic downturn which could help to slow the growth of unemployment. in lithuania number of the programmes for unemployed people has been increased. that was evoked by implementation of european social fund projects „increase of employment opportunities“ and „temporary employment support“. according to the data of lithuanian labour exchange mostly, 1.6 thousand unemployed and warned about dismissals began to study under the vocational training programs. country should also consider introducing temporary youth employment programs. nowadays universities appear in new rapidly changing situation as well. demographic changes, variations in labour market and professions, new challenges for functionality of civil society have increased influence to universities. basically universities are at the forefront in meeting world changes and challenges, mostly stimulated by global economic recession (keršytė j. , kriščiūnas k., 2008). in such situation the gap between the market requirements for skills and the skills portfolio which must have the graduates has recently started to become a problem. academic community understand their responsibility in accomplishing their fundamental mission – knowledge creation, concentration, and usage – for the programmes of studies and lifelong learning, staff and human resources, for the quality of research and innovative activity (kriščiūnas k., keršytė j., 2006). however under the pressure of business sector‘s requirements, the main task of universities becomes to keep the balance between university‘s fundamental missions and the business requirements for the graduates and researchers. in current situation the studies in universities should become students orientated. gielen p., reitsma r., wilbrink w. (2000) emphasize that education should be competence based and the influence of the market is significant. in learning process significant role plays not only universities, but business enterprises and others actors as well. the strong links between these segments should be ensured. it should be stressed that education and training remain the most important means of improving employment prospects. maintaining the right skills for the labour market will ensure that, when growth returns, the skills the economy needs will be in place (international organisation of employers, 2009). there are the actors which could make the influence in order to avoid the extremely serious negative consequences of global economic downturn in labour market – government, universities and business sector. government is responsible for: – improving of the business environment; – stimulating favourable environment for innovations; – putting a sharper focus on the questions of human issn 1822-8402 european integration studies. 2009. no 3 174 resources quality and it‘s adequancy to labour market requirements. universities are responsible for: – ensuring lifelong learning processes with the recognition of the unformal qualification; – ensuring the obtaining and development of generic and transferable skills; – cooperating and maintenance the dialog with businees sector seeking for quality of human resources. business sector is responsible for: – cooperating closer with universities and others higher education schools in the preparation of graduates with needed package of competencies; – investments in the research and students studies. conclusions according to the analysis of scientific literature it could be pointed out that labour markets react very sensible to the economic changes. for this reason global economic downturn has hit european union labour markets very hard. nowadays no one country can protect it‘s labour market from such processes as global economic downturn. it was estimated that the unemployment is one of the relevant indicator which shows the real situation in labour markets. the result of the research showed that lithuanian labour market was affected by global crisis. for this reason lithuanian labour market distinguishes by big imbalance between the supply and demand for labour force. qualifications, competencies need to match the demand on labour market. it is clear that in lithuania it is needed to strength the cooperation between government, business sector and universities. avoidance of unemployment should be ensured by inducing business and by giving more resources to research. the government, universities, business sector should take the actions in order to avoid the negative consequences of global economic downturn in labour market. the cooperation between universities and business sector become inevitability. for this reason universities must react to the signal of business sector, but herewith, they must implement their fundamental missions as must. references: barron j.m., lynch g., loewenstein m. microeconomics. addison, 1989. beržinskienė d. presumptions for the development of the labour market differences in a homogeneous group of countries//engineering economics.2006, no. 5 (20). cambel d., craig. t., organisations and the business environment. oxford, 2005. downes a., labour market aspects of the global economic crisis (2009). available on internet: http:// www.ilocarib.org.tt/portal/images/stories/contenido/ pdf/iloincaribbean/meetings/gfc09/downesgfc.pdf european commision. eu employment situation and social outlook, 2009. available on internet: http:// ec.europa.eu/social/main.jsp?langid=en&catid=113 &newsid=457&furthernews=yes european commission. working together for growth and jobs a new start for the lisbon strategy, 2005. available on internet: http://ec.europa.eu/ growthandjobs/pdf/com2005_024_en.pdf european commission. a european economic recovery plan, 2008. available on internet http:// ec.europa.eu/commission_barroso/president/pdf/ comm_20081126.pdf gielen p., reitsma r., wilbrink w. towards a competent labour force: development of and experiences with competence – based education. wageningen: stoas, 2000. international organisation of employers, exiting the crisis in labour market, 2009. keršytė j., kriščiūnas k. business‘s vision on competence of researchers in knowledge based economy// european integration studies: research and topicalities / kaunas university of technology, kaunas, no.2, 2008. keršytė j., kriščiūnas k. trends of human resources development for knowledge based economy: towards competence as the synergy of knowledge, abilities and skills // european integration studies: research and topicalities / kaunas university of technology, kaunas, no 1, 2007. kriščiūnas k., keršytė j. strategic objectives of lithuanian universities implementing ideas of lisbon strategy // legal, political and economical initiatives towards europe of knowledge : proceedings / kaunas university of technology / edited by k. kriščiūnas. 2006. martinkus b., beržisnkienė d. darbo rinkos rodiklių pokyčių identifikavimas// taikomoji ekonomika: sisteminiai tyrimai, vytauto didžiojo universitetas, 2007. martinkus b., savanavičienė a. (darbo ekonomika. kaunas : technologija, 1996. martinkus b., beržisnkienė d. lietuvos gyventojų užimtumo ekonominiai aspektai. technologija, kaunas, 2005. issn 1822-8402 european integration studies. 2009. no 3 175 lithuanian labour exchange at the ministry of social security .lithuanian labour market, 2009. available on internet: http://www.ldb.lt/informacija/ darborinka/publikacijos/attachments/2877/ darbo%20rinka%202009-04.pdf sakalas a, martinkus , savanevičienė b. darbo išteklių ekonomika ir valdymas. kaunas: technologija, 2006. soros g. the new paradigm for financial markets. publicaffairs, 2008. world bank, how should labor market policy respond to the financial crisis?, 2009. world bank , labor market programs that make a difference in a time of crisis,2008. world bank, crunch time in the developing world? policy options for dealing with the potential poverty and distributional impact of the financial crises (2008). the article has been reviewed. received in march, 2009; accepted in april, 2009. 85 issn 1822 – 8402 european integration studies. 2010. no 4 value added tax (vat) affection to the lithuanian economic competitiveness. it’s application in the food sector valentinas dubinas1, albertas gapšys2 vilnius gediminas technical university1 , lithuanian institute of agrarian economics2 abstract vat is an indirect tax paid by the subscriber in accordance with the purchase the sales net. in the european union the vat system is strictly regulated, because this tax has a significant influence over the development of the eu’s single market and production by ensuring adequate competitiveness. the main document regulating the sale of production, including agricultural and food products, the vat regime across the eu is 2006, dated 28 november the european council directive 2006/112/eb on the common value added tax system. this directive regulates practically all aspects of the application of vat. in addition to this threshold, there are still some of the european council and european commission directives on the specific application of vat to the hearings. lithuania vat introduced in 1994, at 1 day, entry into force of the republic of lithuania law on value added tax nr. i 3455 which operated until 2002 30 june. since 2002, entered into force on 1 july the new version of the vat act. latest version of the law 2008 of december 18 and 23 days of the year 2009, june 26 at substantially changed the standard vat rate and abolished the former vat exemptions. eu single market, with free movement of goods, the flat agricultural commodity prices, the growing influence of neighbouring countries have a comparative advantage. realizable at the same price, indirectly, the polish producers processors a competitive advantage on reduced vat rates as compared to lithuania the producers, processors. in addition, the zloty exchange rate fall in a competitive advantage over lithuanian food products has increased (example: the price 100lt/kg, lithuanian producer processor, realized the product remains 69lt/kg, while poland 100lt/kg, it is more 45proc). the 5 or 9 per cent rate of vat is practically the price difference becomes a zloty exchange rate fluctuation. value added tax increase had a negative impact on lithuanian and vegetable sector. trading company, with its significant market power, the vat increase on to the shoulders of producers. since their accession to the eu (2004) declared in the areas of vegetables decreased by 54.8 percent (from 7.4 to 3.3 thousand hectares), potatoes 51.1 percent (from 44.8 to 21.5 thousand hectares), and potato and the purchase price for vegetable growers do not have the favourable conditions of production, compared with poland and other eu countries where this sector is developed. a lower which would help reduce prices for consumers and improve the farm financial situation. in addition, a lower rate would encourage smaller producers to register as vat payers. cereals and bakery products in use in lithuania, compared to other eu countries, is the smallest and continued to decrease. this fee must be examined in the context of other taxes as the vat rate must be optimized according to the head of household purchasing. if the vat rate raises to national size in comparison with other eu and third countries, deriving tax revenues decline due to lower national consumption and production of cash for imports, so that they benefit from a reduced vat. such as agriculture and food products, estonia vat rate is 86 per cent of the lithuanian level, in poland 77 per cent, 26 per cent in france, germany 39 per cent of the lithuanian level. unbalanced vat other taxes, and other countries to reduce government revenues for a variety of fraud. for example, sales on the markets or pillaging vat of false accounting. in only nine months in 2009 in accordance with state tax office data is not paid 154 million lt. keywords : value added tax, food sector, regulation, marketing, management. introduction relevant to the topic of analyzing the value added tax (vat), the standard rate of lithuania 21 per cent, respectively, an increase in agricultural and food products in retail prices and these products are purchased less, because the population is limited demand. the large vat trumpet depressed competitive differences between the retail and marketing the bazaar, which do not pay vat. neighbourhood countries such as poland and other eu vat rates for agricultural and food products lower issn 1822-8402 european integration studies. 2010. no 4 86 entered into force on 1 july the new version of the vat act. latest version of the law 2008 of december 18 and 23 days of the year 2009, june 26 at substantially changed the standard vat rate and abolished the former vat exemptions. lithuania key 5 percent vat rate to 31 december 2008 date has been applied to those agricultural and food products and services: fresh and chilled meat comestible offal (other than • poultry meat and edible offal); fresh, chilled, frozen, deep frozen poultry meat and • offal comestible; live, fresh and chilled fish; • agricultural companies and cooperative companies • (cooperatives) agricultural services, agricultural entities, provided their members; organic food (from 1st january 2006). • the reduced vat rate of 9 per cent under the existing tax regime applicable to residential construction, renovation, insulation services, paid for by state and municipal budgets, preferential loans granted and the state special funds (1). this rate does not apply to agricultural and food products while at the time was the debate in the government of the republic of lithuania and the lithuanian seimas of the republic of 9 percent tariff on such products. eu countries, vat rates, the practice shows that two thirds of the countries apply reduced rates of agricultural and food products. the vat standard rate discounts and their impact on the budget revenue and lithuanian agricultural and food products competitiveness for the purposes of the statutory standard rate of vat rebates, equal to 13 percent, previously referred to the agricultural and food products in 2004, lithuania has not received a budget of 52.6 million lt (see table 1), but in 2009 a standard rate in the retail trade volume fell more than 20 percent. this is almost lost in the processing industry of employment and income taxes. analyzed food products of different vat rates form the application of unequal competitive opportunities for all producers. meat, fish producers of organic products, and agricultural entities providing services to agriculture because their production is subject to preferential vat rate of 5 per cent to secure a competitive advantage in the market, compared with other food and non food products. despite the reduced 5 percent vat rate applied to meat economically justified, because the meat producers to give a competitive advantage with regard to price competition, both locally, at both eu and third country markets. than our country, so coming from other eu countries’ agricultural and food products are cheaper, and our population chooses the products of those countries. the subject matter is the vat rates of agricultural and food products in lithuania, neighbourhood and other eu countries. the aim of the article is to submit proposals for the application of vat for lithuanian agricultural and food products. objectives of the study: perform vat of agricultural and food rate 1. applicable in lithuania and neighbourhood countries comparative analysis. investigate the individual eu countries, vat rates 2. applied to influence the lithuanian agricultural and food products competitiveness. submit bids for the main agricultural and food 3. products in the vat rate applied in lithuania. topics scientific novelty is that for the first time a complex issue in the vat rate applicable in lithuania and foreign countries, differences in the influence of agricultural and food products competitiveness. according to the theory of elasticity theory justifying a possible reduction in the vat lithuanian agricultural and food prices and their impact on the consumption of the population. the practical significance is that following an analysis, based on the best possible to assess the change in revenues and sales scale dynamics in the vat rate applicable to the agricultural and food products in lithuania. test methods statistical analysis, surveys, calculation. the study period is 2004 2009. value added tax (vat) rates for agricultural and food regulation in the european union and lithuania in the european union the vat system is strictly regulated, because this tax has a significant influence over the development of the eu’s single market and production by ensuring adequate competitiveness. the main document regulating the sale of production, including agricultural and food products, the vat regime across the eu is 2006, dated 28 november the european council directive 2006/112/eb on the common value added tax system. this directive regulates practically all aspects of the application of vat. in addition to this threshold, there are still some of the european council and european commission directives on the specific application of vat to the hearings. lithuania vat introduced in 1994, at 1 day, entry into force of the republic of lithuania law on value added tax nr. i 3455 which operated until 2002 30 june. since 2002, issn 1822-8402 european integration studies. 2010. no 4 87 table 1. the existing vat rate and deviation of the rate reduction in the food sector of lithuania product group sold on the domestic market vat standard rate the existing vat rate the amount of vat at the standard rate the amount of vat under the current rate deviation of the rate reduction 2004 2009 2004 2009 2004 2009 2004 2009 2004 2009 2004 2009 2 3 4 5 6 7 8 3 4 3 4 3 4 fresh and chilled meat comestible offal 287,5 637,7 18 19,6 5 19,6 51,75 125,0 14,4 125,0 37,4 0,0 fresh, chilled, frozen, deep frozen poultry meat and offal comestible 117,3 217 18 19,6 5 19,6 21,1 42,5 5,9 42,5 15,2 0,0 meat preparations 560,7 856,5 18 19,6 18 19,6 100,9 167,9 100,9 167,9 0,0 0,0 potatoes, vegetables, fruits and berries 63,9 128,7 18 19,6 18 19,6 11,5 25,2 11,5 25,2 0,0 0,0 milk and milk products 715,3 1122 18 19,6 18 19,6 128,8 219,9 128,8 219,9 0,0 0,0 in all 1744,7 2961,9 x x x x 314,0 580,5 261,4 580,5 52,6 0,0 source: agricultural production in buying and production in 2004 and 2009. department of statistics at the lithuanian goverment .v., 2005, 2009. subject to standard vat rate of 21 percent of lithuania produced agricultural and food products to reduce the competitiveness of the fact that in some neighbouring countries and the eu, with which it has intensive trade relations, food and supplies for agricultural output, which determine the production cost and value, lower vat rates (see table 2). table 2. vat rates juxtaposition of agricultural and food products and resources in agricultural output in the individual member countries vat foods vat resources agricultural output 2004 2009 2004 2009 lithuania 18 standard, 18 agriculture and food (100 percent from the standard), 5 raw meat, raw poultry, fish, organic products, some agricultural traders (28 percent from the standard) 21 standard, 21 agriculture and food (100 percent from the standard) 5 mineral fertilizers 21 latvia 18 – standard (100 percent lithuanian level), 18 agriculture and food (100 percent from the standard), 5 specialized baby food 21 – standard (100 percent lithuanian level), 21 agriculture and food, 10 specialized baby food 18 (100 percent lithuanian level) 21 (100 percent lithuanian level), estonia 18 – standard (100 percent lithuanian level), 18 agriculture and food (100 percent from the standard) 18 – standard (86 percent lithuanian level), 18 agriculture and food (100 percent from the standard) 18 (100 percent lithuanian level) 18 (86 percent lithuanian level) poland 22 – standard (122 percent lithuanian level), 7 agriculture and food (32 percent from the standard and 39 percent from the lithuanian level), 3 – meat (14 percent from the standard and 60 percent lithuanian level) 22 – standard (105 percent lithuanian level), 7 agriculture and food (32 percent from the standard and 33 percent from the lithuanian level), 3 – meat (14 percent from the standard and 14 percent lithuanian level) 3 (17 percent from the lithuanian level) 3 (17 percent from the lithuanian level) issn 1822-8402 european integration studies. 2010. no 4 88 france 19,6 standard (109 percent lithuanian level), 5,5agriculture and food (28 percent from the standard and 31 percent from the lithuanian level), 19,6 food products sold in bars, restaurants, cafe, liquor (100 percent from the standard and 109 percent from the lithuanian level) 19,6 standard (93 percent lithuanian level) 5,5 agriculture and food (28 percent from the standard and 26 percent from the lithuanian level), 19,6 food products sold in bars, restaurants, cafe, liquor (100 percent from the standard and 93 percent from the lithuanian level) 5,5 (31 percent from the lithuanian level) 5,5 (26 percent from the lithuanian level) germany 16 standard (89 percent lithuanian level), 16 all food sold in restaurants, all beverages except milk and drinking water (100 prcent from the standard and 89 percent from the lithuanian level), 7 all agricultural and food products sold in stores (44 percent from the standard and 39 percent from the lithuanian level) 19 standard (90 percent lithuanian level), 19 all food sold in restaurants, all beverages except milk and drinking water (100 percent from the standard and 89 percent from the lithuanian level), 7 all agricultural and food products sold in stores (37 percent from the standard and 33 percent from the lithuanian level) 7 (39 percent from the lithuanian level) 7 (39 percent from the lithuanian level) source: vat rates applied in the member states of the european community/european commission directorate general taxation and customs union tax policy/doc/2008/2004 – en. brussels‚ 2004, september. vat rates applied in the member states of the european community/european commission taxation and customs union, situation at 1st january 2009/ doc/2401/2009 – en. – brussels, 2009. in table 2, at the party food, which are subject to lithuania by 21 percent vat rate of 74 percent in france taxed less, and in neighbouring poland 67 per cent, germany 29 percent less. estonia and latvia in food products exempt from vat do not apply. thus, the rate of vat in terms of lithuanian products is less competitive in the eu in the western markets. in particular, deprived of polish products. eu single market, with free movement of goods, the flat agricultural commodity prices, the growing influence of neighbouring countries have a comparative advantage. realizable at the same price, indirectly, the polish producers processors a competitive advantage on reduced vat rates as compared to lithuania the producers, processors. in addition, the zloty exchange rate fall in a competitive advantage over lithuanian food products has increased (example: the price 100lt/ kg, lithuanian producer processor, realized the product remains 69lt/kg, while poland 100lt/kg, it is more 45proc). the 5 or 9 per cent rate of vat is practically the price difference becomes a zloty exchange rate fluctuation. reduced vat rates for food use two thirds of eu countries, but their rate is very close to rates in neighbour countries. this is to avoid unnecessary market similarities between the other party, and to ensure that the first necessity of foods unlikely to be able to purchase and use of even low income citizens. lithuania has arisen in the opposite situation the crisis period, market participants who pay taxes lose their users of internal market. they compete with the informal economy business. since the beginning of 2009 changed the system of vat rates had the greatest impact on lithuanian food for consumers, which, compared to other eu countries are among the most family budget issuing food. vat rates increase very significant on the meat sector, where almost half of the output vat increased by 16 percent points in 2009, january 1, the abolition of 5 per cent reduced rate of vat of fresh meat processing plant turnover within nine months of this year compared with last year’s same period, decreased by more than 20 percent. given the increase in vat in the lithuanian market surged polish meat and its products are sold free of vat to pay or to avoid it. it should be noted that last year’s market traders turnover of pork, beef and meat products accounted for about 322 million lt, or 23 percent of the total annual sales of meat establishments amounts. neighbour countries, a reduction in the vat rate on meat and meat products, producers lose competitiveness of the lithuanian landed production, and meat products import growth means that the lithuanian meat processing industry lost their jobs, did not create new work places, not transferred to the budget of the tax, the country has entered the lowest quality meats, while the state budget did not direct the greater part of the vat tax. issn 1822-8402 european integration studies. 2010. no 4 89 100 100 7 35 21 0 20 40 60 80 100 120 140 160 180 lithuanian price polish price original value vat rate influence fig. 1. different vat rates and the zloty exchange rate impact on the competitiveness of the consumer in respect of, in percent the high volume of imports of meat products is lagging behind not only the fraction of lithuanian meat processing plants operating (do not use business plans, the capacity limited to meat processing plants and other development), but also lithuanian farmers are falling purchase prices, the destruction of beef raw materials base. polish produce competitive advantages highlighted the lithuanian markets. increasing the vat rate difference between the polish and lithuanian markets, we support the illegal import of polish products to the lithuanian market or where meat sales is exempt from vat (not accounting markets and cash registers). currently in lithuania there are more than a hundred from markets where there is trade in meat and meat products (57 percent) and vegetables and fruits (33 percent). most products sold in markets in neighbour poland, although the official meat and vegetable imports from this country diminishing. thus, the country starts thriving informal trade. value added tax increase had a negative impact on lithuanian and vegetable sector. trading company, with its significant market power, the vat increase on to the shoulders of producers. since their accession to the eu (2004) declared in the areas of vegetables decreased by 54.8 percent (from 7.4 to 3.3 thousand hectares), potatoes 51.1 percent (from 44.8 to 21.5 thousand hectares), and potato and the purchase price for vegetable growers do not have the favourable conditions of production, compared with poland and other eu countries where this sector is developed. a lower which would help reduce prices for consumers and improve the farm financial situation. in addition, a lower rate would encourage smaller producers to register as vat payers. cereals and bakery products in use in lithuania, compared to other eu countries, is the smallest and continued to decrease. due to the large shadow tax business in this industry is about 15 percent. excessive vat forced some companies to retreat into the shadows and in only nine months of the year 2009 in accordance with state tax office data is not paid 154 million lt. conclusions and recommendations the end of 2008 the polish zloty depreciation against sterling and a reduced vat rate has substantially altered the abolition of lithuanian consumer choice. the loss of a substantial part of the tax of polish meat products purchase in poland. increasing the rate difference between the polish and lithuanian markets, we support the purchase of polish products and illegal imports into the lithuanian markets. polish produce competitive advantages in the form of the informal economy highlighted the business market place. bazaar is the trade area, where taxes compared to the retail trade is different almost a fifth. on the critical situation of reduced consumer purchasing power and to avoid increasing the shadow effect on the business it is appropriate to reduce the meat and vegetables vat rate. great cities market traders, trading in meat and meat products (except farmers and meat producing companies), to review and establish adequate incomes flat income tax. issn 1822-8402 european integration studies. 2010. no 4 90 references auziņš alberts, nipers aleksejs, kozlinskis vulfs. effect of value added tax rate changes on market equilibrium. agricultural university of latvia, research papers, 13(2), management theory and studies for rural business and infrastructure development, lithuanian university of agriculture, faculty of economics and management, 2008. balkevičius v. komercijos vadyba.vilnius: 2000. bivainis j., tunčikienė ž. viešojo sektoriaus institucijų strateginis planavimas.vilnius: 2009. buškevičiūtė e., pukelienė v. valstybės mokesčių sistema.kaunas: 1998. čičinskas j., klebanskaja n. ekonomika ir verslas. vilnius: 2001. data of eurostat. data from department of statistics to the government of the republic of lithuania. data from lithuanian security stock. dubinas v.,kučinskienė m. enterpreneurship and business environment analysis in lithuania. problems of development of natural economy and entrepreneurship.riga: 2007. 72-80 p. european commission directorate general taxation and customs union tax policy/doc/2008/2004 – en. brussels‚ 2004, september. european commission taxation and customs union, situation at 1st january 2009/doc/2401/2009 – en. – brussels, 2009. hal r. varian. mikroekonomika: šiuolaikinis požiūris. vilnius: 1999. kaip pradėti verslą.vilnius : 2009. karlof b., lovingson f. vadybos koncepcijos ir modeliai.vilnius: 2006. martinkus b, žilinskas v. ekonomikos pagrindai. kaunas: 1997. mieliauskaitė v. pridėtinės vertės mokesčio įtaka žemės ūkio produktų konkurencingumui. rinkotyra. žemės ūkio ir maisto produktai.-nr.1(31). vilnius: laei, 2006. 89 96 p. gapšys a., o. eičaitė. šešėlinės ekonomikos žemės ūkio ir maisto produktų rinkoje įtaka šalies biudžetui. vadybos mokslas ir studijos –kaimo verslų ir jų infrastruktūros plėtrai. – nr. 20 (1). – kaunas: lžūu, 2010. 15 – 24 p. paliulis n., chlivickas e., pabedinskaitė a. valdymas ir informacija.vilnius: 2004. wonnasot p., wonnasot r. mikroekonomika kaunas: 1998. žvinklys j., vabalas e. įmonės ekonomika.vilnius: 2001. the article has been reviewed. received in april, 2010; accepted in may, 2010. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 148 determinants of the development of the corporate bond market in latvia http://dx.doi.org/10.5755/j01.eis.0.12.21875 natalja tocelovska university of latvia submitted 04/2018 accepted for publication 10/2018 determinants of the development of the corporate bond market in latvia eis 12/2018 abstract european integration studies no. 12 / 2018 pp. 148-161 doi 10.5755/j01.eis.0.12.21875 biruta sloka university of latvia ilja arfejevs the development of the corporate bond market in latvia while being quick and robust in the period 2012-2017 (the average growth rate 131%, median 44%), has faced major challenges in 2018 (nasdaq baltic, 2018). the latter has demonstrated the vulnerability of this alternative to banking financing method in latvia. in the environment, where the ongoing changes in the banking financing as initiated by the basel iii and capital markets union initiatives, besides to the decision on creation of pan-baltic capital market with the support of the european commission and the european bank for reconstruction and development, are bringing more emphasis on the increasing role of the corporate bond market in latvia; the need to understand its development and factors affecting this development is essential. the goal of this article is to explore the corporate bond market development frameworks as elaborated by the academic research and recognise corporate bond market development determinants, identify the determinants of the corporate bond market in latvia by running the statistical analysis. tasks of the research include examining types of corporate bond development frameworks with the focus on revealing the determinants of the corporate bond market development as recognised by the academics, performing the econometric analysis of the determinants selected and building an econometric model of the determinants of the development of the corporate bond market in latvia as well as drawing corresponding conclusions. in order to accomplish the tasks of the research the following research methods were used: analysis of the previously performed research, analysis of the legislative framework; quantitative research methods: statistical data analysis of macroeconomic data from bank for international settlement, the world bank database, bloomberg and reuters databases; financial market indicator and data analysis from nasdaq baltic, bank for international settlement, treasury of the republic of latvia, bloomberg and reuters databases; correlation analysis, regression analysis. in the result of the analysis, the determinants of the corporate bond market development in latvia were analysed, where 27 factors as detected by the theoretical analysis to be influencing the corporate bond market development in a country were applied to latvia. the regression analysis has demonstrated the influence of gross domestic product (gdp) per capita, amount of domestic savings, real gdp growth, amount of government bonds as the share of gdp and regulatory quality on the amount of the corporate bonds outstanding. keywords: corporate bonds, corporate bond market, development, factors, latvia. 149 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 the academic interest analysing the area of financial instruments and financial markets is high. while the majority of research concentrates in more transparent equity and sovereign bond segments, the corporate bond segment gets low while increasing coverage in the academic research. previous academic studies on the corporate bond market have detected two types of the frameworks as provided by the academics to analyse the development of the corporate bond market of a country: the expositive elements frameworks and comparative elements frameworks. the expositive elements frameworks provide dimensions for qualitative assessment of the corporate bond market in a country and detect the factors to influence the development. the comparative elements frameworks provide the numeric metrics for measuring the relative development of the corporate bond market in a country, thus enabling the comparison between countries besides to finding the stage of development. the study of tocelovska (2016) identified the frameworks of fabella and madhur (2003), burger and warnock (2005), braun and briones (2006), stewart (2009), and dittmar and yuon (2008) as expositive elements frameworks and world bank (2004) and wyman (2015) as comparative elements frameworks, where the expositive elements framework grouped the factors into two clusters: 1) measurement factors: size of the bond market, secondary market turnover, maturity structure of the bonds, investor base, bond issuers, 2) legal and macroeconomic factors: tax treatment of bonds, market infrastructure, and qualitative assessment of the legal and regulatory framework. while providing the fundamental background and analytical application to latvia, the analysis lacks recent increasing academic coverage in the area. moreover, the existing academic studies outstanding lack to summarise the factors as recognised to affect the development of the corporate bond market in a country and apply them to latvia in order to identify latvia specific determinants of the development of the corporate bond market. the goal of this article is to explore the corporate bond market development frameworks as elaborated by the academic research and recognise corporate bond market development determinants, identify the determinants of the corporate bond market in latvia by running the statistical analysis. in order to accomplish the tasks of the research the following research methods of analysis were used: analysis of the previously performed research, analysis of the legislative framework; quantitative research methods: statistical data analysis of macroeconomic data from bank for international settlement, the world bank database, bloomberg and reuters databases; financial market indicator and data analysis from nasdaq baltic, bank for international settlement, treasury of the republic of latvia, bloomberg and reuters databases; correlation analysis, regression analysis. in the result of the analysis, the determinants of the corporate bond market development in latvia were analysed, where 27 factors as detected by the theoretical analysis to be influencing the corporate bond market development in a country were applied to latvia. the regression analysis has demonstrated the influence of gdp per capita, amount of domestic savings, real gdp growth, amount of government bonds as the share of gdp and regulatory quality on the amount of the corporate bonds outstanding. introduction literature reviews the expositive elements frameworks provide the dimensions for the assessment of the current situation of the corporate bond market, where the number of studies reveal one or several main factors as influencing the development of the corporate bond market based on the qualitative or statistical analysis made. while the factors as identified by the academics to determine the development of the corporate bond market in a country or group of countries vary between the studies, the factors should be identified and then applied to the corporate bond market in latvia. the study of tocelovska (2016) identified the size of the bond market, secondary market turnover, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 150 maturity structure of the bonds, investor base, bond issuers, the tax treatment of bonds, market infrastructure, and qualitative assessment of the legal and regulatory framework as influencing the development of the corporate bond market in a country. the study of fabella and madhur (2003) identified primary issuance method and cross-country electronic connection, astrauskaite (2016) stressed the importance of information and communication technologies, presence of the credit rating agencies was emphasised by laeven (2014), sui (2011) and stewart (2009)), additionally, stewart (2009) detected the importance of efficient ‘repo’ market and active market makers (dealers). the study of sui (2011) pointed to information disclosure, burger and warnock (2005) identified growth rates, the research of ayala et al. (2017) detected global cyclical factors, while rajan and zingales (2003) and eichengreen and leungnareumitchai (2004) openness of the economy and internationally recognized accounting standards respectively. the factor of size the country and lending to sme segment, foreign ownership of the banks were identified by the majority of the studies as influencing the development of the corporate bond market: mu et al. (2013), bae (2012) eichengreen et al. (2008), braun and briones (2006), burger and warnock (2005), eichengreen and leungnareumitchai (2004); and astrauskaite (2016), behr et al. (2015), hasan et al. (2014), hakenes et al. (2014), popov and udell (2012), bae (2012), stewart (2009), adelegan and radzewicz-bak (2009), eichengreen and leungnareumitchai (2004), jiang et al. (2001) respectively. while the analysis of the expositive elements frameworks as explored and developed by the academics indicates four main groups of corporate bond market indicators as determined to be influencing the development of the corporate bond market of a country: size, macroeconomic indicators, legal factors (including market regulations and taxation), and presence of the securities market infrastructure; the authors group the factors into two main clusters: measurement elements of the bond market and legal and macroeconomic elements (table 1). measurement elements of the bond market legal and macroeconomic elements size of the bond market (sovereign and corporate, local and international segment) qualitative assessment of the legal and regulatory framework (including information disclosure, primary issuance method secondary market turnover, transactions of the corporate bond market lending to sme segment, foreign ownership of the banks maturity structure of government bonds (including the presence of a benchmark yield curve) tax treatment of bonds investor and issuer base of the corporate bond market internationally recognised accounting standards market infrastructure (including cross-country electronic connection, information and communication technologies, presence of the credit rating agencies, efficient ‘repo’ market, active market makers (dealers)) of the corporate bond market macroeconomic factors: country size, growth rates, global cyclical factors, openness of the economy, stable exchange rate, interest rate volatility stock market development table 1 expositive elements framework source: author’s construction based on theoretical findings 151 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 the measurement elements of the bond market are size of the bond market (sovereign and corporate, local and international segment), secondary market turnover and transactions of the corporate bond market, maturity structure of government bonds (including presence of a benchmark yield curve), investor and issuer base of the corporate bond market, market infrastructure (including cross-country electronic connection, information and communication technologies, presence of the credit rating agencies, efficient ‘repo’ market, active market makers (dealers)) of the corporate bond market, and stock market development. the legal and macroeconomic elements are qualitative assessment of the legal and regulatory framework (including information disclosure, primary issuance method), lending to sme segment, foreign ownership of the banks, tax treatment of bonds, macroeconomic factors: country size, growth rates, global cyclical factors, openness of the economy, stable exchange rate, interest rate volatility; internationally recognized accounting standards. the comparative elements framework as presented by world bank (2004) and wyman (2015) and further developed by tocelovska (2016a) complement the additional factors as influencing the development of the corporate bond market in a country (table 2). size efficiency ratio of sovereign bonds to gdp quoted bid-ask spreads (10-yr government bond yield) ratio of corporate bonds to gdp number of the counterparties providing the prices ratio of international bonds to gdp size of the quote access stability government bond yield (3 months and 10 years) volatility of sovereign bonds ratio of domestic to total debt securities skewness of sovereign bonds ratio of corporate to total debt securities (domestic) ratio of short-term to total bonds (domestic) table 2 comparative elements framework source: author’s construction based on theoretical findings while both expositive and comparative elements frameworks provide the models for assessing the development of the corporate bond market, the frameworks contain determinants as identified by the academic studies to be influencing the development of the corporate bond market. in the result of the theoretical analysis of both expositive and comparative frameworks outstanding, the authors have identified 27 factors, which are claimed by the researchers to influence the development of the corporate bond market in a country (table 3). the authors have grouped similar determinants and provided the details of the most frequent measure as applied by the researchers. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 152 factor source 1. country size (most frequent measure as defined by the academic studies: gdp per capita) mu et al. (2013), bae (2012) eichengreen et al. (2008), braun and briones (2006), burger and warnock (2005), eichengreen and leungnareumitchai (2004) 2. qualitative assessment of the legal and regulatory framework (most frequent measures as defined by the academic studies: influence of rule of law, creditor rights, property rights, lack of capital control) astrauskaite (2016), laeven (2014), stewart (2009), adelegan and radzewicz-bak (2009), burger and warnock (2005), eichengreen and leungnareumitchai (2004), fabella and madhur (2003) 3. lending to sme segment, foreign ownership of the banks astrauskaite (2016), behr et al. (2015), hasan et al. (2014), hakenes et al. (2014), popov and udell (2012), bae (2012), stewart (2009), adelegan and radzewicz-bak (2009), eichengreen and leungnareumitchai (2004), jiang et al. (2001) 4. size of the sovereign bond market (most frequent measures as defined by the academic studies: sovereign debt to gdp, turnover of sovereign debt on the exchange) bae (2012), dittmar and yuan (2008), the world bank (2004), harwood (2000) 5. stable exchange rate adelegan and radzewicz-bak (2009), eichengreen and leungnareumitchai (2004) 6. investor and issuer base felman et al. (2014), fabella and madhur (2003) 7. market infrastructure felman et al. (2014), stewart (2009) , fabella and madhur (2003) 8. tax treatment of bonds astrauskaite (2016), fabella and madhur (2003) 9. internationally recognised accounting standards eichengreen and leungnareumitchai (2004) 10. growth rates (most frequent measure as defined by the academic studies: annual gdp growth over the preceding ten years). burger and warnock (2005) 11. secondary market turnover and transactions the world bank (2004), fabella and madhur (2003) 12. interest rate volatility eichengreen et al. (2008) 13. global cyclical factors ayala et al. (2017) 14. information and communication technologies astrauskaite (2016) 15. size of the bond market the world bank (2004), fabella and madhur (2003) 16. active market makers (dealers) stewart (2009) 17. quoted bid-ask spreads(10-yr government bond yield) the world bank (2004) 18. presence of a benchmark yield curve stewart (2009) 19. maturity structure of government bonds (most frequent measure as defined by the academic studies: ratio of shortterm to total bonds (domestic), ratio of short-term bond to total bonds (international)) the world bank (2004), fabella and madhur (2003) 20. international debt (measure as defined by the academic study: international debt to gdp) the world bank (2004) 21. stock market development sui (2011) 22. openness of the economy rajan and zingales (2003) 23. efficient ‘repo’ market stewart (2009) 24. primary issuance method fabella and madhur (2003) 25. information disclosure sui (2011) 26. cross-country electronic connection fabella and madhur (2003) 27. presence of the credit rating agencies laeven (2014); sui (2011), stewart (2009) source: author’s construction based on theoretical findings table 3 determinants of corporate bond market development 153 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 the factors as revealed by the theoretical part of this paper to determine the development of the corporate bond market in a country should be further analysed for the corporate bond market in latvia. existing limitations in the availability of the historical dataset on the corporate bond segment in latvia is present. the latter is justified by the lack of consistency of corporate bond issues in the period before the growth comprehended in 2013, where the mixture of occasional corporate bonds and mortgage bonds issued before 2013 was substituted by the abrupt solid activity of the fsis. in order to get the credible and consistent data on the corporate bond market, the factors (table 3) were divided into quantitative factors (secondary data is present) and qualitative factors (secondary data is not present). this paper studies the quantitative factors. the authors identify the following factors as quantitative: country size, size of the sovereign bond market, size of the bond market, stable exchange rate, growth rates, secondary market turnover and transactions, interest rate volatility, global cyclical factors, international debt, stock market development, openness of the economy, investor base, assessment of the legal and regulatory framework. the elements are further measured by one or several factors. while the number of independent variables simultaneously influencing the dependent variable has been detected to be more than one, the need for the econometric method to analyse the influence of multiple variables on the dependent variable has been revealed and multiple regression applied. multiple regression provides two important results: an estimated linear equation that predicts the dependent variable, as the function of k observed independent variables xj, where j=1,…., k; and the marginal change in the dependent variable that is related to the changes in the independent variables estimated by the coefficients bj’s (newbold et al., 2007). the equation for k factors in the simplified form is: y = β0 + β1x1 + β2x2 + . . . + βkxk + e, e ∼ n (0, σ 2 ) (1) (hair et al. (2014), baayen (2013), pocs (2003)) x̃0 = a + b1x1 + b2x2 +....+bkxk (2) (krastins, 1998) in one multiple regression equation, one dependent and number of independent variables could be present. the practice of econometrics limits the number of independent variables as related to the number of the observations presented for analysis. krastins (1998) pointed to the number of independent variables as 2-6 and rarely 8-10, where the bigger number of independent variables requires the bigger dataset, шмойлова et al. (2000) indicated the number of factors should be 5-6 times less than the number of observations. the initial study of the dataset for the corporate bond market in latvia indicated the presence of consistent historical data for the period 2010-2017. while the availability of 8 observations has been distinguished as insufficient for the multivariate regression analysis with the number of factors exceeding 10, the need for the extended country sample was identified. the authors have selected the country sample as made by bank for international settlement, which characterised 31 country as developed: australia, austria, belgium, canada, cyprus, denmark, estonia, finland, france, germany, greece, iceland, ireland, italy, japan, latvia, liechtenstein, lithuania, luxembourg, malta, netherlands, new zealand, norway, portugal, slovakia, slovenia, spain, sweden, switzerland, united kingdom, united states. the bank for international settlement divides all countries into 3 groups: developed, developing and offshore countries, providing quarterly data on the total debt securities, domestic debt securities and international debt securities of a country. the dataset as prepared by the authors for the quantitative data analysis contained the debt securities data from the bank for international settlement database (dependent and independent variables of the regression), where the remaining factors were obtained from world bank datamethods and procedures e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 154 base (independent variables of the regression). the relative nature of the indicators was insured by analysing them as related to gdp, moreover, a logarithm of gdp indicator was introduced. indexes, as included in the group of worldwide governance indicators by the world bank, were selected due to the comparable database for the selected sample: control of corruption (captures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests), government effectiveness (captures perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies), political stability and absence of violence/terrorism (measures perceptions of the likelihood of political instability and/or politically-motivated violence, including terrorism), regulatory quality (captures perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development) and rule of law (captures perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence) (world bank database, 2018). first, the dependency analysis was made with the aim to detect the independent variables with high collinearity, which would contribute little to regression (mardia et al. (1982), everitt and dunn (2001)). the factors first were analysed for multicollinearitythe correlation matrix was constructed to verify the lack of high correlation between the factors. the factors with exposed high correlation were extracted, the scatter diagram was constructed (stata and spss software were applied). the highest correlation was observed for the worldwide governance indicators thus each indicator was tested by separately adding it to the model. two independent variables: log of gdp per capita (ppp) and real gdp growth with positive 0.4363 correlation were separately added to the model both proving to be statistically significant with the probability above 99%. the period of the analysis selected was 20102016, the number of the observations 118. the parameters for the multiple regression are revealed by the ordinary least squares method, where the following minimization problem is solved: (3) (krastins, 1998) qz the residual or unexplained sum of the square residuals; x0.i the actual value of observation i (in the sample); x̃02the predicted value of the dependent variable of the observation i (in the sample); n number of observations (in the sample). the further steps are to substitute (4) by the right side of the regression equation (3), to provide the relevant partial derivatives for all the parameters a, b1, b2, …, bk, equalize those to zero and unite to the system, where after the simplification of the normal equation system for calculating the parameters a, b1, b2 …, bk of the multifactorial regression is: (4) (krastins (1998), rencher (2002 155 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 in order to shift from the normal equation system to the exact task, the values n; sx1; sx2; …; sx0xk are substituted by the cross-sums. the linear equation system is solved where the unknown values are a, b1, b2 …, bk. the solution provides the value of a (constant of the regression model) and the values of the regression coefficients. in order to identify the factors as affecting the development of the corporate bond market in latvia this paper first provides the analytical study of the factors as added to the expositive elements framework and not applied to the corporate bond market in latvia beforein order to justify the relevance of the factors to be further added and analysed for latvia. afterwards, the regression analysis of all factors as summarised in table 3 will be run. 1 market infrastructure (including cross-country electronic connection, information and com-munication technologies, presence of the credit rating agencies, efficient ‘repo’ market, active market makers (dealers)) of the corporate bond market the corporate bond market infrastructure as represented by the securities exchange, securities depositary and securities brokers is present and developed in latvia. the stock exchange providing securities trading in latvia was founded in 1993 by four latvian commercial banks in 1994 selecting the suitable trading model, based on the platform offered by the paris stock exchange and the central depository of france. the continuous daily trading by the brokers using the remote trading terminals of securities in latvia is taking place since 1997. the focus on the bond trading segment can be detected to take place since 1999 with the introduction of accept facility. the primary market deals for the government bond trading segment have been launched since 2005. the further acquisition of the local securities exchange included first hex group in 2002, followed by the merger with om group in 2003, and finally joining the world’s largest exchange company, the nasdaq omx group, inc in 2008 (nasdaq baltic (2017b). the securities depository (latvian central depository) was fully acquired by the riga stock exchange in 2002 and became part of the group. the depository is the participant of the target2-securities, which is the legal framework between the eurosystem and each of central depositories who join it, and it platform for securities settlement that facilitates financial market stability and increases post-trade transparency (nasdaq baltic (2017). while trading of the securities in nasdaq baltic securities exchange is taking place using the same system infrastructure as the rest of the baltic and nordic markets in the group and settlement includes target2-securities infrastructure of the european union, the market infrastructure as including exchange, depositary systems and processed can be assessed as developed. there is no credit rating agencies, existing repo market and market makers for the corporate bonds for the knowledge of author. 2 stock market developmentwhile the trading of stocks in estonia became popular already in 1994-1995, not until 1997, the stock trading became popular in latvia (pelane and ukenable, 2008). the stock trading has been developing reaching eur 218.85 million in 2000 gradually decreasing below eur 50 million in the annual turnover indicator (figure 1). whilst the turnover has been decreasing, the number of the deals as made by investors with shares has been relatively stablethe average level in the period 2010-2017 is 18926 shares (figure 2). the trend in the decreasing number of shares per deal (10391 shares in 2010 falling to 3172 shares in 2017) could be treated as one of the signs of wider retail segment involvement into the stock trading process. 3 macroeconomic factors: country size, growth rates, global cyclical factors, openness of the economy, stable exchange rate, interest rate volatility results e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 156 figure 1 latvian stock market: the turnover, 2018 (million eur) source: author’s calculations based on nasdaq data (2018) source: author’s calculations based on nasdaq data (2018) figure 2 latvian stock market: the turnover, 2018 (number of shares) the dynamics of the gdp (figure 3, total, constant prices, calendar adjusted) indicates the positive slope of the country size and growth dynamics. the financial crisis 2008-2013 has affected the gdp dynamics of latvia, where in 2017 the pre-crisis quarterly numbers of growth domestic product have been reached. 4 internationally recognised accounting standardsthe accounting information as reported by the company providing economic activity in latvia is regulated by the law on accounting where the law on the annual financial statements and consolidated financial statements is providing the regulation for preparation of the financial statements. (law on accounting, 2018; law on the annual financial statements and consolidated financial statements, 2018). while the law on the annual financial statements and consoli 0 1000000 2000000 3000000 4000000 5000000 6000000 7000000 q 1 19 98 q 1 19 99 q 1 20 00 q 1 20 01 q 1 20 02 q 1 20 03 q 1 20 04 q 1 20 05 q 1 20 06 q 1 20 07 q 1 20 08 q 1 20 09 q 1 20 10 q 1 20 11 q 1 20 12 q 1 20 13 q 1 20 14 q 1 20 15 q 1 20 16 q 1 20 17 source: author’s constructed based on central statistical bureau of the republic of latvia (2018) data. figure 3 gdp in latvia, constant prices, quarterly, 19982017, thousand eur 157 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 dated financial statements is not prohibiting to use international financial reporting standards (ifrs) as the basis for financial statement preparation, companies (except the ones mentioned in the law) should also prepare the financial statements in accordance with latvian legislation. a state capital company and the parent undertaking of a group of companies may prepare financial statements in accordance with ifrs. kotowska and martyniuk (2016) summarized that smes in the countries observed by the research (including latvia) prepared the financial statements in accordance with the national accounting acts. the study of strouhal et al. (2011) has identified that there are 77% of similarities when comparing latvian legislation versus ifrs, where the measurement and recognition principles in latvian accounting practices are based on ifrs and are their simplified summary. moreover, both strouhal et al. (2011) and pwc (2018) indicated that ifrs regulated the practices, which were not described and regulated by the local legislation thus increasing the influence of ifrs. the regression was run for the country sample where the independent variable was the amount of the corporate bonds outstanding, while the independent variables were the factors selected by the theoretical analysis and identified to be quantitative for the corporate bond market in latvia: country size, size of the sovereign bond market, size of the bond market, stable exchange rate, growth rates, secondary market turnover and transactions, interest rate volatility, global cyclical factors, international debt, stock market development, openness of the economy, investor base, assessment of the legal and regulatory framework. the stable exchange rate and interest rate volatility factors were omitted due to latvia’s membership in the eu and thus relatively weak relevance of those factors. in the result of the regression analysis three models were constructed (table 4). variable total amount of the corporate bonds outstanding total amount of international corporate bonds outstanding total amount of corporate bonds outstanding issued by the financial sector issuers log of gdp per capita (ppp) 8.5247682*** 5.4957525*** 8.0797004*** real gdp growth, % -21.035614*** -15.203118*** -20.943664*** inflation, % -12.918484 -15.088568 -13.51023 stock turnover, % of gdp -0.69122551 -0.74270908** -0.73937021 domestic savings, % of gdp 8.916597** 9.0455666*** 9.5422962*** government expenditures, % of gdp -5.7470699 -0.95918583 -5,8211315 government bonds all, % of gdp -0.94946874** -0.704655** -0.91449244* government bonds international, % of gdp -0.76713586 -0.92658378 -0.93697292 control of corruption 90.673348 22.244896 79.971498 government effectiveness -61.210479 -68.838875 -54.630754 political stability and absence of violence/terrorism -43.699009 -64.386469 -53.086184 regulatory quality -281.50871*** -124.57375** -264.52317*** rule of law -19.315273 39.128813 -17.852156 constant -8372.667*** -5496.8125*** -7938.207*** r2 0.7981805 0.81480284 0.79941996 n 118 118 118 source: author’s construction based on the world bank and bank for international settlement data (2018). *** coefficient is significant at the 0.99 level. ** coefficient is significant at the 0.95 level. * coefficient is significant at the 0.90 level. table 4 results of panel regression analysis of the determinants of the corporate bonds market development e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 158 total amount of the corporate bonds outstanding = -8372.667 + 8.525* log of gdp per capita (ppp) 21.06*real gdp growth, % + 8.917*domestic savings, % of gdp 0.949* government bonds all, % of gdp -281.50871* regulatory quality. total amount of international corporate bonds outstanding = -5496.813+ 5.496*log of gdp per capita (ppp) 15.203*real gdp growth, % -0.743*stock turnover, % of gdp + 9.046*domestic savings, % of gdp 0.705* government bonds all, % of gdp -124.574* regulatory quality. total amount of corporate bonds outstanding issued by the financial sector issuers = -7938.207+ 8.08* log of gdp per capita (ppp) 20.944*real gdp growth, % + 9.542*domestic savings, % of gdp 0.914* government bonds all, % of gdp -264.523* regulatory quality. all the models constructed are statistically significant with the probability above 95%. the determination coefficients for the models constructed are 79.8%, 81.5% and 79.9% respectively. the second model demonstrates the highest level of explanation of the variability of the total amount of international corporate bonds outstanding as related to the factors i.e. 81.5%. the results of the panel regression indicate that factors affect the issuance of the corporate bonds statistically significantly (with 99% and 95% probability) being gdp per capita, real gdp growth, amount of domestic savings, amount of government bonds outstanding and regulatory quality in the country. the gdp per capita and the amount of domestic savings outstanding positively influence the amount of the corporate bonds outstanding. in contrast, real gdp growth, amount of government bonds outstanding and regulatory quality are found to influence the amount of the corporate bonds outstanding negatively. this negative relation is controversial to the number of the academic studies as covered in the theoretical partthe positive relationship between the presence of the government bonds as the benchmark for the existing of the corporate bond is traditionally established by the academics. the authors estimate the “overregulation” effect as converting the positive transparency of the market into the heavy burden to the issuers of the securities, still the regulatory influence on the corporate bond market should be further explored by the qualitative factor analysis. two additional independent variables were tested for the determinants influencing the amount of the corporate bonds outstandingthe amount of international corporate bonds outstanding and the amount of the corporate bond issues as done by the financial sector issuers. the need for both independent variables is determined by the present situation in the corporate bond market in latvia: there are no international corporate bonds outstanding while 85% of the domestic corporate debt is issued by the fsis. the determinants of development for both groups are identified: 1) for the fsi segment the same determinants as for the total corporate bonds segment 2) for the international corporate bond segment inverse influence of the stock turnover factor as influencing factor is identified. the latter inverse relationship signals the substitute role of bond and stock market while having limited application for the corporate bond market in latviawhilst the stock market is comparatively weak, the international corporate bond market is non-existent. the stock market factor influence should be further analysed as the qualitative factor _ the existing studies analysing the development of the corporate bond market were analysed and grouped by the authors into two clusters: expositive elements frameworks and comparative elements frameworks. the authors have further developed the expositive elements frameworks as previously presented by tocelovska (2016) by adding market infrastructure (including cross-country electronic connection, information and communication technologies, presence of the credit rating agencies, efficient ‘repo’ market, active market makers (dealers)) of the corporate bond market, stock market development, macroeconomic factors: counconclusions 159 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 try size, growth rates, global cyclical factors, openness of the economy, stable exchange rate, interest rate volatility, and internationally recognised accounting standards factors. _ the analytical study of the factors as acknowledged by this paper to be part of expositive elements framework indicates that market infrastructure is present and highly developed as being the member of nasdaq group, the stock exchange and securities depository share the trading infrastructure present in nasdaq group (the latter also is the participant of target2-securities framework). there is no credit rating agencies, existing repo market and market makers for the corporate bonds for the knowledge of authors. the stock market development indicates the potential increasing number of the retail investorswhile the turnover is declining, the number of deals is remaining comparatively stable. the macroeconomic factors indicate the favourable environment: the gdp growth is present and stable, the exchange rate and interest rate risks have been decreased substantially by latvia joining the eurozone. the presence of euro currency and high level of integration into the eu economy shapes the openness of the economy and global cyclical factors in a similar manner to eu countries. the accounting legislation present in latvia to the major extent replicates ifrs, where state capital companies and the parent undertaking of a group of companies may prepare the financial statements in accordance with ifrs. the rest of the companies need to prepare the financial statements in accordance with the local regulation. _ in the results of the analysis of both expositive and comparative elements frameworks the authors have detected 27 factors as influencing the corporate bond market development. for the purpose of analysis the factors were divided into quantitative (secondary data is present) and qualitative (secondary data is missing). this paper presents the analysis of the quantitative factors. _ in the result of the regression analysis three models were developed (statistically significant with the probability above 95%, determination coefficients being 79.8%, 81.5%, and 79.9%). the regression analysis of the quantitative factors has demonstrated the influence of the following factors on the amount of the corporate bonds outstanding: gdp per capita, amount of domestic savings, real gdp growth, amount of government bonds as the share of gdp and regulatory quality. the influence of the stock market was not defended in the research. the influence of the government bond market development on the corporate bond market development was found to be inverse. the results are controversial with the results of the academic research outstanding. taking into account the importance of this issue in the national context, as well as the extensive research potential, the author recommends the relationship to be further analysed in the academic research. referencesadelegan, j., radzewicz-bak, b. 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(2016). descriptive factor analysis of latvian corporate bond market. proceedings of european doctoral programmes association in management and business administration (edamba) international scientific conference for doctoral students and post-doctoral scholars. pp. 374-382. tocelovska, n. (2016a). measuring efficiency of the bond market in latvia. proceedings of the xxv the european academy of management and business economics (aedem) international conference. world bank (2004). financial sector development indicators. bond market development capital markets indicators. financial sector operations and policy. world bank database (2018). metadata glossary: worldwide governance indicators. retrieved february 2, 2018 from http://databank.worldbank. org/data/glossarymetadata/source/1181/concepts/series. wyman, o. (2015) accelerating emerging development corporate development corporate bond markets. world economic forum. tocelovska natalja msc. oec., phd candidate 2018 university of latvia fields of research interests corporate bonds, financial markets, financial instruments address aspazijas bulvaris 5, riga, latvia, tel. 29138802 e-mail: natalja.tocelovska@sseriga.edu about the authors sloka biruta dr. oec., professor university of latvia fields of research interests small and medium business, factors influencing business development, internet marketing; was researcher in esf, eraf projects and in the projects of university of latvia. she has headed the euro faculty riga centre. she is a member of latvian association of econometrists, member of association of professors of higher education of latvia and the president of latvian association of statisticians address aspazijas bulv. 5, lv – 1050, riga, latvia tel. +371 29244966 e-mail: biruta.sloka@lu.lv arefjevs ilja dr. sc. administr. fields of research interests finance, investments address k.valdemara 161, riga, lv1013, latvia tel. +37126547036 e-mail: ilja.arefjevs@inbox.lv 107 issn 1822 – 8402 european integration studies. 2009. no 3 building knowledge about strategy for growth: system dynamics approach 1 stanislava mildeová ingeborg němcová university of economics in prague abstract various social (and ecological subsystems), shaping our world, are inter-related in a very complex manner. globalization brings with it a large increase of interactions, the complexity of the decision-making problem grows, the number of unstable and disturbing effects in the competitive environment rises. we can not keep up with this level of mutual interdependence when developing our mental capabilities. we are only able to understand a small number of variables in mutual interaction and cannot imagine dynamic consequences. many models allow the determining of the optimal solution for the given moment. we make a decision and we cannot verify how this decision will influence the system in the future. every system shows dynamic properties. our mind is not able to link together all the relationships between individual items (moreover, we often do not know which items), nor to imagine their development in time. if we want to understand the complexity of the eu economy and the behavior of the system within the process of time, we have to understand its structure. this includes defining the elements of the system and marking their mutual relationships. understanding based on learning the structure of the system and its implicit formulation is the beginning of innovative thinking, and detecting the proper reasons of the problems. the main aim of the paper is to contribute to the topic of building knowledge about strategy of growth with a discussion of a strand of systems theory: system dynamics. the authors will try to develop a theoretical knowledge and made practical recommendations for the use of system dynamics methods in eu conditions, especially for decision making support in problems which are related to complex social systems with a high level of complexity. feed-back loops are recognized as the main methods for describing the problems of growth of the eu. it points out the possibilities of using the principles and tools of system dynamics methodology, as well as the limits of system dynamics. the turbulent global economic environment of the eu economy requires changes in thinking and behavior. the further purpose of the following paper is to discuss the possibility for improving systems thinking and for the support of “complexity thinking”. it is useful to provide some kind of system detachment and information on how system dynamics helps in solving complex problems within complexity in the economic environment, mainly with respect to the integration. according to their usual long-run orientation, the simulation system dynamics models are often used for various purposes – testing of the decision-making strategies and policies. the paper will emphasize the importance of system dynamics applications for the simulation of decision-making processes, strategy learning, better possibility of predicting the behaviour of complex systems (information “ex ante” and not only “ex post”) and the possibility of the system’s long-term optimization. it is obvious that we can not consider any solution to be the correct one and it is necessary to preserve the holistic view while respecting the fact that every approach has its contributions and limits. keywords: system dynamics approach, knowledge society, strategy for growth, complexity, eu system. introduction the paper is based on scientific publications and practical experience which show that human systems thinking and understanding of dynamic relations is not sufficiently evolved, and that traditional training does not fulfill the requirements set by the complexity of social systems. (mulej, m., 2005) jay w. forrester: “many of the stresses in modern life arise because people feel buffeted by forces they neither understand nor know how to control. such sense of helplessness can be traced to not understanding 1 the paper is a part research supported by the grant gačr 402/07/0521. issn 1822-8402 european integration studies. 2009. no 3 108 the systems of which we are a part. events that seem capricious when viewed locally are often understandable when seen from a broader systems perspective.” (forrester, j.w., p.9, 1994) non-systematic interferences with this system result in only seemingly working solutions, which combat the effect of the problem, but not the cause, and numerous examples from practice confirm that these solutions often bring long term problems. (sterman, j.d., 2000), (breierova, l., 1997) in the context of these necessities we will discuss how to solve specific problems in systems with dynamic complexity and possibilities for the implementation of system dynamics models as a useful tool for describing the problems of growth of the eu. system dynamics methodology is founded on a systematic approach based on a rational cause and effect relationship. even if the real world exhibits a large measure of complexity, it can be recorded in a system dynamics model. but it is not so simple, and it is still an open question in theory and practice. (schwaninger, m., 2006). at the same time this seems to be significant, reflecting important changes connected with the membership of the new countries in the eu, and the functioning of the internal market as a new challenging environment for companies. (mildeová, s., němcová, i., 2005), (stričík, m., 2008) it is typical that modern itc contributes to a significant acceleration in the flow of information. (doucek, p., novotný, o., 2009). the new environment, and the related complexity and turbulence of the international environment, necessitates changes of managerial behavior. understanding the application of system dynamics principles provides the managers with a powerful tool for the securing of suitable strategies in company management and for the business policy. highly complex problems found in business practice (sterman, j.d., 2000), could be solved with system dynamics, for example: looking for an optimal strategy, support for communication between stakeholders, planning, the possibility of testing impacts of variable scenarios, or principles of sustainability, where holism comes up. (yamaguchi, k. ,1997) it also helps to “widen the horizons” for possible variants of solutions, while keeping a global view on the management strategy process. (němcová, i., larcon, j., .p, 1998). it contributes to getting over mental barriers and to stimulating the strategic thinking of a manager. system dynamics methodology systems dynamics belongs to the servo mechanic thread and it was originally developed by jay. w. forrester (forrester, j. w., 1961) to help in the managerial decision-making process. it deals with the behavior of systems as they change in time. the analysis of the advantages and weaknesses of system dynamics begins with the following questions: “what knowledge can be obtained by creating the system dynamics model and its practical application to completion of the changes needed in the system” and “what is the role of the learning process with implementation of these changes in the real world?“ system dynamics help us to grasp the knowledge we have about the particularities of the world around us. it is a discipline which aids our better understanding of the eu systems; in order to understand behavior in complicated situations; to better recognize structures that are not evident and to see those that are fundamental for understanding complex situations. john d. sterman: “system dynamics is a perspective and set of conceptual tools that enable us to understand the structure and dynamics of complex systems. system dynamics is also a rigorous modeling method that enables us to built formal computer simulations of complex systems and use them to design more effective policies and organizations.” (sterman, j.d., 2000) in recent years the system dynamics concept has changed because of its inclusion in a number of more general system thinking concepts and systems methods. these attempts moved system dynamics from the hard concept to a much softer paradigm. (forrester, j. w., 1992) in the sixties the original system dynamics concept was very focused on mathematical modeling and the replication of real world behavior using clear positivist/ objective approaches. such a philosophical paradigm is called “hard system dynamics“. some authors included system dynamics between functionalistic, deterministic, and hard managerial disciplines. (forrester, j. w., 1991) today system dynamics has left functionalistic beginnings, and has been moving toward phenomenology and approaches close to interpretative and learning paradigms. (forrester, j. w., 2007) system dynamics model model building with stock and flow diagrams or (and) causal loop diagrams, and simulation, is at the core of system dynamics. dynamic modeling and simulation help us to understand how things work. it help us to avoid mistakes and expand our mental models, so we can understand causalities, causes and their effects. ( usta, m., 2007) reality changes in real-time. system dynamics models, in contrast, change in compressed time, which allows us to see future possible developments. the simulation allows us to look into the dynamic complexity based on an interaction between components. through the simulation we are able to control time. (mildeová, s., vojtko, v., 2006) we found system dynamics models to be an environment in which it is possible to think and invent new ways of solving complex problems. it represents a shift from the view of the world as a set of action – issn 1822-8402 european integration studies. 2009. no 3 109 reaction relationships to a mutually interconnected dynamic process. this enables us to think about what is going on around us in a different way. (mildeová, s., 2003) we see that an improvement in our ability to solve problems is a necessary presupposition for the ongoing development of cognition. how can we reach the required shift in thinking and the development of cognitive thinking? how can we understand important characteristics of complex systems such as feedback and delay? simulation with systems dynamics models improves the cognitive process, allows the enhancing of our mental models, and can help us with the desired shift in reasoning. (mildeová, s., 2006) based on such improvements we can expect plenty of benefits in various areas – from sustainable development of companies and society, to applications overlapping the frontiers of different fields, e.g., polities and economics. as opposed to using mental models separately, the computer system dynamic models enable us to take advantage of the use of dynamic characteristics, including feedback activity, and so provide logical outputs. thanks to the execution of simulations, they give us the unique opportunity to understand the complex impacts of delays and nonlinear relationships. comparison to other approaches required holistic system understanding is supported by the application of a simulation that is not connected only with system dynamics methodology. various simulation approaches could be used for the simulation of economic systems. several of them are based on a system of mathematical equations, the coefficients of which are based on historical data. the solution of the equations is usually named as the optimal solution to the problem. the optimum is a maximum (of profit, turnover etc.) or a minimum (of costs, time). (mildeová, s., 1994) the approach based on historical data (for example econometrics) is a powerful tool for decision support; however the conditions when it was first used were different from today. (čancer, v., 2006) it shows that predictions based on statistics are becoming less precise in the turbulent environment of today. methods for understanding and predicting system behavior with a model cannot only be based on statistical data anymore, but also on an understanding of the structure influencing the system‘s behavior. for the modeling of the unstructured complex system of today, the behavior of which exhibits dramatic dynamics, it is necessary to use a different tool, or to combine various approaches and integrate the econometric models in a dynamic framework. (smith, p. c., van ackere, a., 2002), (adda, j., cooper, r., 2003) by using system dynamics for the modeling of systems we can eliminate the linearity frequently occurring in econometric models. system dynamics understands nonlinearity as one of the major features of complex social systems. we believe that due to non-linearity, detailed and dynamic complexity, and the difficult determination of the target function in complex economic systems, the usual hard optimalization methods are usable only in a limited manner. however, this should not belittle their potential contribution, especially in heuristic approaches. multi-methodology concept the dynamics of the economic environment, and its internal contradictions, make using extrapolation and classical prognostic methods impossible. for the modeling of the unstructured the eu complex system of today, the behavior of which exhibits dramatic dynamics with unpredictable impacts, it is necessary to use a different tool, to combine various approaches or to integrate them. it means, for example, to accept the multi-methodology concept which is a method that combines and connects techniques, methods and methodologies from the same, and also different, paradigms of system thinking. (mingers, j., brocklesby, j., 1997) such synthesizing and dialectic methodology, which arose out of a combination of two widely used system-based methodologies – soft systems methodology (checkland, p., scholes, j., 1999) and system dynamics is soft system dynamics methodology (lane, d., oliva, r., 1998), (rodriguezulloa, r., paucar-caceres, a., 2004). this corresponds with the fact that recently the system dynamics concept has converted to the general procedures of system thinking movement and systems methods (umpleby, s., lucy, l., 2005); premises of system dynamics today leave their functionalistic beginnings tied to epistemology, and move toward phenomenology to approaches close to interpretative and learning paradigms. this process is very augural, and system dynamics is one of the most promising methods for solving complex problems. (forrester, j. w., 2007) limits at the same time however, being aware of the limitations of system dynamics methodology is necessary. the limits of systems dynamics models in form of computer models, are currently well known. (sterman, j. d., 1991) another problem in model creation is that a real soft system, and especially a complex social system, cannot be explicitly described with absolute accuracy. unless we set a purpose of the model in advance, we will run a large risk of including an unnecessarily large number of variables in the model. the model would become nontransparent and would present only a “dirty mirror” of the system it was supposed to depict. the model is not the system, it is only its depiction. some authors directly issn 1822-8402 european integration studies. 2009. no 3 110 warn against such analysts who recommend modeling the whole system instead of the problem. (sterman, j.d. 2000) sometimes agent-based models are built instead of system dynamics modeling techniques, particularly in order to simplify the implementation of critical discrete events. also there is increasing interest in combining the agent based and system dynamics modeling methods. conclusion the world is getting more complex. globalization as a processes of integration brings a high level of complexity. the term complexity signifies large increase of interactions, the number of unstable and disturbing effects in the competitive environment rises. the complexity of the eu economy and the growing complexity of an economic system of the eu members necessitates the application of modern approaches, including systems theories as well. it is important to remember that the systems movement has many roots and one of the strands of systems theory is system dynamics. although other methods may lead to understanding of behavior patterns too, we can conclude that using system dynamics models enhances the process for understanding the complexity of social systems, and facilitates the decision making process. decision-making in economic integration frameworks is a complex activity, the recognition of the impact of various policies is very complicated. systems dynamics has been chosen for understanding the problem in its dynamic, frequently trans-disciplinary, context. we founded system dynamics models to be an environment approaching problems in national economy from an international point of view. system dynamics can contribute to the experiments and study of real economical processes and that it can be used for various simulations. the impact on the new member states of the eu could be demonstrated on higher competitiveness of post-communist countries in the upcoming eu environment, higher resource allocation efficiency, consequences of various market structures, etc. keeping in mind the current limitations of system dynamics, we can consider the systems dynamics methodology an adequate method, and systems dynamics models suitable tools to support improvements in decision making in the long run and a significantly shorter learning process respected system changes of complex environments, connected with both economic transition and economic integration, references adda, j., cooper, r. 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(praeger studies on the 21st century), 1 st ed. praeger publishers, isbn-10: 0744901332 isbn-13: 978-07449013 the article has been reviewed. received in march, 2009; accepted in april, 2009. 53 issn 1822 8402 european integration studies. 2010. no 4 the role of r&d manager for public and private r&d partnership birute mikulskiene mykolas romeris university abstract global competition encourages companies to seek a more innovative way to survive. more and more complex r&d based activities are introduced, and the managerial approach is of great importance, while r&d by its nature requires special managerial dealing. meanwhile, public r&d institutions act in less competitive environment, which has conditioned lower tension and less stressful environment resulting in less innovative output. as a consequence, the managerial approach for public r&d institutions is left out of dayto-day processes. however, the fact that public research institutions, as new knowledge generators, represent a different approach concerning r&d results from r&d intensive business, which supposes to exploit r&d results, should be taken into consideration. to increase the performance of public and private partnership in r&d, the unified mutually accepted platform for both, public and private r&d sectors, is the main concern of policy makers and r&d practitioners. the managerial approach dealing with different nature of r&d performance could facilitate the public and private partnership and increase the linkages. despite many progressive transformations that have been discussed and introduced during 2007-2010 years on the national level, the managerial approach is still missing in the agenda of r&d policy in lithuania. the purpose of the paper is to investigate the key responsibilities of a r&d manager and to discus the role of the r&d manager inside public r&d institutions organisational structure, which fits the demand of public and private partnership. this research was conducted for the r&d sector that has substantial long-lasting policy support, which has the expression of extra funds allocation annually on competition basis in the period of 2002 – 2009. the biotechnology and laser technology r&d domain was chosen for the investigation. the selected r&d sectors demonstrate high excellence both in fundamental research and technological development and have long-lasting tradition cooperation between public and private institutions. the main duties of a r&d project manager are analysed. the investigation revealed the principal mission for the r&d manager to become a mediator between researchers and entrepreneurs. the duality of the r&d project manager is observed and could be expressed via competition of objectives: to be flexible for knowledge creative environment and be strict in scheduling and seeking time efficiency. the investigation has disclosed that r&d management is still not clearly conceptualised in the eyes of researchers and the managerial aspect as an opportunity for seeking results oriented r&d system is not exploited. since the organisational design is very sensitive to the positive impacts of manager incorporation in r&d process performance, when decentralisation is balanced to ensure creativity on the one hand and responsibility on the other hand, certain organisation design aspects are discussed. keywords: r&d, project management, r&d manager, public and private partnership. introduction global competition encourages companies to seek a more innovative way to survive. more and more complex r&d based activities are introduced and the managerial approach is of great importance, while r&d by its nature requires special managerial dealing. however, being time and money consuming, r&d activities are under high risk and uncertainty. therefore, public and private partnership seems to be the plausible measure which could be exploited as a stabilised factor for the private sector sharing the risk on the one hand and increasing the performance and effectiveness for the public r&d sector on the other hand. the other benefits could be named as follows: helping focus public r&d programs, increase awareness between industry, regulators and researchers, closing the gap between theory and technology (sperling, 2001). however, the fact that public research institutions, as new knowledge generators, represent a different approach concerning r&d results from r&d intensive issn 1822-8402 european integration studies. 2010. no 4 54 business, which supposes to exploit r&d results, should be taken into consideration when public and private partnerships are under discussions. meanwhile, public r&d institutions act in a less competitive environment, which has conditioned lower tension and less stressful environment resulting in less innovative output. as a consequence, the managerial approach for public r&d institutions is left out of day-to-day processes. different private and public institution attitudes to driven targets, availability of time for innovation, motivation, and desirable results place the r&d management in duality state and make public and private partnership as a form of cooperation under risk of unmanageability. to increase the performance of public and private partnership in r&d, the unified mutually accepted platform for both, public and private r&d sectors, is the main concern of policy makers and r&d practitioners. the managerial approach dealing with different nature of r&d performance could facilitate the public and private partnership and increase the linkages. despite many progressive transformations that have been discussed and introduced during 2007-2010 years on the national policy level, the managerial approach is still missing in the agenda of r&d policy in lithuania (mikulskiene, 2009 a, mikulskiene, 2009 b). the purpose of the paper is to investigate the key responsibilities of a r&d manager and to discus the role of the r&d manager inside the public r&d institutions organisational structure, which fits the demand of public and private partnership. the research method includes comparative and systematic analysis of scientific references regarding r&d project management and interviewing researchers from public and private sector. data is collected from interviews with r&d project leaders, who are herewith the leaders of informal groups and in some cases leaders of formal units as well. analytical approach r&d public and private partnership. among various definitions of public and private partnership, the following one is accepted for the base of this research: “a cooperation between public and private actors in which actors develop mutual products and/or services and in which risk, costs and benefits are shared” (klijn et al, 2003). the definition of public and private partnership in r&d as a form of cooperation could be specified as the linkage between a public or non-profit organization such as a university, research institute, or government laboratory and a private knowledge intensive company with the purpose of partnership in engaging in technology co-development or cooperative r&d, technology transfer, technology assistance, joint or grant funding. public and private partnership management background lies in the nature of r&d management. r&d management. r&d management as a research topic is on the scene for the countries, where strong industry has built its success on r&d for years and represents prominent r&d outputs suitable for further use, for instance – uk (winter et al., 2006), italy (cesaroni et al., 2004), new zealand (elias et al., 2002), china (yunsheng et al., 2007), sweden (wincent et al., 2009). during the last century, r&d management, as innovation stimulator, has passed the evolution of 5 generations, which were characterized by simultaneous progress of handling of r&d activities (jincao, 2005; park, 2005). the first generation of using r&d was expressed by corporate lab creation, what later in second generation was transformed into the whole business system incorporated r&d. the third generation is represented by the project management and portfolio management. the fourth generation puts suppliers and customers on the r&d management scene, while the next generation is represented as a network of innovation actors and stakeholders. the effective management of r&d process, when is multiple, complex to manage, and a wide variety of management targets exists, becomes a multidimensional task. every new generation adds extra managerial task to the list of a manager’s duty (wang et al. 2005). the managerial approach to r&d activities is based on the projects management, concerning project idea conceptualisation, project timing, budget, project teams and leadership. seeking to describe the main manager duties of r&d in six evolutionary generations, in the first instance it is necessary to classify r&d performance components that are outside direct r&d activities but can’t be separated from the whole system. r&d activities. the activities carried out by r&d organizations are the following: fundamental research, applied research, development, demonstration, technology scanning, and entries to the market. the described activities are characterized by the different time scale (short-term projects of 1 to 3 years for entries to the market and more than 3 years for applied research), funding resources (internal for entries to market, external for fundamental research, mixed for any other). r&d project team. innovation is the result of integrated and diverse efforts across different units in organisation. there is evidence of positive relationship between r&d team managing and r&d performance (yunsheng et al., 2007). the same situation is observed in formal and informal groups, where responsibilities are shared among participants. the organisational framework must create supportive environment for informal group activities in order the project management culture would be created successfully. in building the successful project team, four components are essential: accountability, adequate information and issn 1822-8402 european integration studies. 2010. no 4 55 resources, appropriate staffing and training, rewards for efforts (kolb et al., 2008). funding. searching for the source of project funding, participation in funding competition is a long lasting, high skill and time consuming activity, which accompanies any r&d activity. this duty might be delegated to a finance-friendly person, i.e., a manager. due to high uncertainties, long duration, r&d activities are more and more often outsourced due to the economical and managerial reason (mukherjee et al, 2007). stakeholders managing. the scientific references have distinguished the importance of timely recognition of stakeholders and proper involvement in r&d project as managerial task (elias et al., 2002). the term of stakeholders is comprehended a long list of interest parties that equally shared the responsibility of success of r&d project development. they include a sponsor, consumers, distributors, suppliers and any other parties interested in r&d. the list of stakeholders can’t be static and may vary depending on the project type, i.e., taking into regard whether research or development project is underway. public and private managerial background: nature of duality. if we argue that a manager gets the mandate to make actions coherent, we must describe the component of coherence. investigations reviewed in literature based on big international prosperous companies, such as nissan or erickson (chiesa, 2000), have revealed that r&d public and private partnership success depends on “appropriate managerial and organisational tools and mechanisms”, when it is aimed to improve the quality with every new challenging technological task however, partnership as a type of cooperation is not a spontaneous action, since it is going to connect different performance cultures, as public and private r&d is. it requires a special approach and substantial managerial efforts. the nature duality of r&d management lies in the following subjects: driving forces. a businessman’s interest to invest in r&d is driven by the financial benefit, while a researcher in a public institution is driven by the personal curiosity mainly. as a consequence, managers get the mandate which covers mediation between representatives of different cultures, nature of which is driven by very opposite forces, which must be merged in a balanced way. result orientation vs. process orientation. curiosity driven targets determine the expression of results. a researcher is focused on new knowledge while both proving and disproving of a suggested theory or analytical approach is accepted plausibly. meanwhile, r&d results which could be sold in the market and give real profit are acceptable for a company. more specifically, a researcher could sell the idea, while a company is selling goods with applicable practical value. time pressure. global competition makes pressure on r&d intensive companies to be mobile and catch new knowledge on the way. time pressure pushes companies to use tacit knowledge. as a consequence, they aim to be as close to knowledge generation as possible, to use every of knowledge spreading channels as formal or informal networks (kratzer et al., 2008). meanwhile, a public r&d organisation can operate in the self-defined time regime, which is sometimes slightly determined by external funding bodies. control level. the notion of soft management control is going to be introduced when r&d project management is considered. scholars distinguish between the manager’s role in research and development projects in terms of intensity and frequency of interaction. in research projects, the manager’s role is limited by “soft” coordination to the exchange of views in order to safeguard the free spirit of scientific creativity, while development projects require more “intense interaction” (chiesa et al., 2009) in every project phase starting from project conception definition to project finalization on time and within budget. communication. the duality of the manager’s duty lies in finding the language equally understandable by both researchers and other stakeholders from non-pure scientific world. stakeholders represent the wide range of diverging part of society, which has its own working language, priorities, and way of acting. leadership vs. assistance. the manager and leadership are comprehended as complementary categories. it has been proved that the leadership style directly influences innovation, shapes activity outputs and works as stimulus for team collaboration and identification (paulsen et al., 2009). r&d autonomy tends to suggest that it could feel the lack of assistance instead of outside leadership. it is not expected that a leader will assist. in such a case we transit to the opposed categories instead of complementary categories. coping with different r&d performing culture represented by two poles of r&d performers (publicoriented and business-oriented), special managerial efforts to facilitate public-private partnership are needed. active managerial strategies are discussed in literature (bjerregaard, 2009) and new managerial concepts should be elaborated and proposed (klijn et al, 2008). organisational design. to facilitate the public and private partnership management and coordination, certain infrastructure which could act in alignment with organisational design is needed. it is possible to distinguish two types of infrastructures: temporary (coordination body) (sperling, 2001) and permanent (r&d manager or r&d support structure). the coordination body takes the leading role for public and private partnership coordination and steering, it acts as an independent actor in the “zone” free from individual issn 1822-8402 european integration studies. 2010. no 4 56 public institution or private company stakes, and moves forward on the basis of unified stakes. this coordination body could act effectively just in the case with support of each organisational design (permanent infrastructure). as for the organisational structure, the balance between r&d centralisation and decentralisation is under discussion (chiesa, 2008). the tendencies of downsizing, outsourcing and internationalization in coherence with decentralization of r&d (christensen, 2002) were demonstrated for the last three decades. thus, the organizational design in public r&d institutions should respond to the decentralization approach for r&d management while a r&d manager is incorporated in the hierarchic structure of an organization. research the current research is constructed in the way to find out whether there exists space between researchers and businesses in lithuania for a manager mediation to increase public and private partnership and performance interaction. this analysis lets us identify the attributes which could be assigned to the role of a r&d manager. the lithuanian biotechnology and laser technology r&d domain was chosen for investigation for several reasons. firstly, both sectors demonstrate public r&d excellence. institutions were chosen according to the highly ranked scientific output (number of publications, patents, number of projects). secondly, there are several r&d intensive companies established as spinoff and now using external public r&d outputs and internally created knowledge in these sectors. there is both informal and formal cooperation between r&d intensive companies and a selected public institution. thirdly, these sectors have substantial long-lasting policy support, which has the expression of extra funds allocation annually on competitive basis in the period of 2002 – 2009. this support has been planned to prolong in the same extent. the institutional selection was made seeking to cover all possible available organisational structure (research university – one selected structural unit has 7 acting informal groups, research institute – one selected structural unit with 4 informal groups, r&d intensive companies – 2). 217 participants are covered in this investigation in total. formal and informal teams as a single undivided unit are analysed. the team size varies from 4 to 21 persons. data has been collected from semi-structural interviews with r&d project leaders, who are herewith the leaders of informal groups and in some cases leaders of formal units as well. also paperwork, analysis of existing organisational structure and active participation in r&d projects is conducted. results according to the leaders of the interviewed r&d teams, the public and private partnership has the expression of cooperation in r&d projects. however, managerial activities concerning public and private partnership are not conceptualised, except for project management. the investigation has revealed that a r&d project manager position in the formal staff list exists neither in r&d intensive companies, nor in public research institutions. projects are managed by local internal capabilities: a senior researcher manages projects in a public research organisation, or an upper-level executive takes the role of the leader of activities related with r&d. it is common without any exception that every team leader acting as a manager starts his carrier as a researcher. public r&d organisations have only a few positions of academic career for researchers: starting with a junior researcher, then senior researcher and chief researcher as the upper-level of academic career. among others requirements for the upper academic position as being active in r&d activity and taking part in scientific communication, a chief researcher should lead the r&d topic, which means being the informal leader of an informal team. actually, a dual career path is present, when, in addition to direct r&d activities, the management of r&d is assigned. the abundant evidence demonstrates that managerial activities step by step are transforming into full administrative work and takes the whole working time, while formally it is a researcher’s position with formal annual requirements for scientific outputs. the duality of occupation is the ground for r&d activity imitation. answering the question what the main duties of a r&d project leader regarding r&d management were, respondents mentioned the main tasks listed as follows: project idea generation, goals and task formulation, team formation (in many cases, informal team is settled long ago and usually incorporates researchers and engineers with the same background), project proposal writing, project management, which is called day-to-day administration, participation in direct r&d activities, paper work, ending with report writing and communication of r&d results. generally, in practice, communication is limited with the preparation of scientific publications. meanwhile, two project leaders have reported non-typical accidental communication cases: indirect communication via media when seeking public awareness (several interviews for the press about personal researcher’s lifestyle) and writing of popularisation publications. all the mentioned managerial activities are supplementary activities to the main duties of teaching and directing of r&d activities. issn 1822-8402 european integration studies. 2010. no 4 57 no special attention is given to stakeholder analysis or communication strategy with stakeholders; however, an unexpressed communication channel with governmental bodies is established and perfectly used for the time being, which has the expression of steady additional public budget allocation. communication with a wider range of stakeholders is not mentioned as the task of project leaders. meanwhile, project leaders take part in r&d policy formation on demand as external experts on the national and eu level frequently, they communicate with private partners. the most typical attitude towards r&d management is revealed by questions about the demand for a r&d manager. from the whole set of interviewed team leaders, only one leader acknowledged the demand of r&d manager who could be introduced into the horizontal structure of the team. he is leading quite a large r&d team of 21 participants. actually, team leaders of the smallest informal team assure that they tackle with r&d project management. small teams of 4-6 researchers per informal group secure the effective flow of information and sharing of new knowledge; it is easier to condition the team identity and secure the rewards for efforts. discussion duties for r&d manager. the investigation revealed that there is a gap between r&d performance and professional management practice, which causes misalignment of public and private partnership. determining the hypothetic requirements for r&d managers, only the supporting r&d activities at micro level (assisting to a scientific leader) were stressed as the main concern. this could imply that the macro level in public and private partnership was left outside r&d performance management. despite the fact that no unified description of the duties of r&d managers was traced, it is possible to define the desirable requirements for a r&d manager as r&d project team member. the role of a manager varies within organisation depending on the units or type or r&d project he or she could assist. the full list of a manager’s duties is oriented to support researchers in their every occupation making the researchers’ mind free for their direct activities and to stimulate businessoriented thinking. communication is critical to a r&d project manager. according the respondents, a manager must keep the following duties: administrative assistance in everyday duties; • communication (internal and external). • the list of duties fully corresponds to the following conceptualised requirements: non-specified higher university degree, preferably in • the same field as that of the management team; creative and communicative person; • commitment and good organisation, negotiation and • presentation skills; fluent foreign language (english is preferable) for • scientific communication; experience in the particular field is of great • importance; experience in international r&d project • management; skill to establish balance between power and • influence; commitment and responsibility; • technical expertise; • problem solving. • when enumerating the requirements for a manager, researchers were guided by the aim to have scientific freedom for themselves and delegated those activities that were extra to them. actually, researchers emphasised the commitments of a manager but nobody asked for leadership. all researchers suspiciously analysed the hypothetic suggestion to hire a manager for project management from outside, if the manager’s background were other than that of the project team. they worried about losing the control of the project performance, r&d results development and letting the project success to the hands of the manager who “could not understand the r&d particularities”. for the time being, public and private partnership is the common rhetoric for politicians; however, there is no clear translation of policy measures to policy implementers who are represented by stakeholders (r&d performers, investors, r&d results transferring bodies, customers, suppliers, media). the sole tangible measure from the side of policy public and private partnership implementation is the requirement for r&d team formation. the r&d funding bodies determined the conditions of eligible partners: they demand that public r&d performers should participate only along with private r&d supporters. despite the similarities of attitudes to r&d project management role, the strong antagonism between researchers from public research institutions and r&d intensive companies is noticed when asking about partnership on r&d project development. a company manager stated that researchers from lithuanian public institutions performed high-quality research, created wonderful, inspirited fundamental theories, but, on the other hand, the national research system worked in regime of “performance”, but not in regime of “production”. that is the main obstacle that makes r&d oriented companies to keep away from universities r&d. on the other hand, researchers from the public sector claim that companies avoid investing into fundamental research, make preference for partnership just in commercialisation project phases and prefer investing issn 1822-8402 european integration studies. 2010. no 4 58 into short-term projects. the antagonistic nature has proved the duality of managerial approach and is tightly related with the interpretation of stakeholders’ input. however, stakeholders’ management is let out of manager duties and still not conceptualised as an additional success factor for r&d. that could be generalised as weak comprehension of benefits gained from public and private partnership. different expectations, driving forces, timing pressure, commitments, organisational culture makes a r&d manager’s role highly complex. based on the analysis, the full set of a manager’s duties which could facilitate public and private partnership have been formulated and are the following: administrative assistance in everyday duties; • communication (internal and external); • communication with a stakeholder (stakeholder • identification and involvement in the project); outsourcing of management; • searching and competing for funding; • equipment support. • organizational structure has crucial impact on the duties of a manager and managerial impact on public and private partnership. therefore, a r&d manager must take the responsibility to assist r&d team and put that all above-mentioned components in to whole active system. thus, the organizational design in public r&d institutions should respond to decentralization approach for r&d management while a r&d manager is incorporated in the hierarchic structure of an organization. the degree of hierarchy is tightly related with the certainty of task units are dealing with. due to r&d uncertainty, high risk and duality of r&d management, the hierarchic degree is accepted as low as possible. on the contrary, highly bureaucratic r&d organisations are an obstruction for a public and private partnership. such organisations still avoid managerial view in the micro level of organisational design despite permanent efforts to introduce managerial offices in between the administration and r&d performers. such kind of managerial support serves more to the administration functions for the upper hierarchical level administrators ensuring better administration and control targeted at the lower hierarchy level of r&d performers instead of implementing all r&d manager duties. such kind of organisational structure contradicts the nature of r&d management and has negative impact on the emergence of public and private partnerships. hereof, good r&d performance exists in organisations, where informal teams of researchers are formed from bottom up, are assisted by a manager and supported by the organisational structure in the macro level. a r&d manager could be granted the autonomy to safeguard creativity and balance control to support flexibility. for that occurrence an r&d manager should operate in tight contact with r&d performers on the same hierarchical level as researchers of informal groups. conclusions global competition encourages companies to seek a more innovative way to survive. more and more complex r&d based activities are introduced, and the managerial approach is of great importance. meanwhile, public r&d institutions act in less competitive environment, which has conditioned lower tension and less stressful environment resulting in less innovative output. therefore, the public and private partnership seems to be a plausible measure which could be exploited as a stabilised factor for the private sector sharing the risk on the one hand, and increasing performance and effectiveness for public r&d sector on the other hand. as a consequence, the managerial approach for public r&d institutions is left out of day-to-day processes. r&d management practice is still empty or implemented by selfeducated senior researchers. to increase the performance of public and private partnership in r&d, the unified mutually accepted platform for both, public and private r&d sectors, is the main concern of policy makers and r&d practitioners. the managerial approach dealing with different nature of r&d performance could facilitate the public and private partnership and increase the linkages. the duality of duties of a r&d project manager lies in the nature of r&d, which is characterized by high autonomy level that stimulates creativity, high risk and uncertainty at multidimensional environment. that effect has direct impact on the managerial attitude, where competition of objectives must be taken into consideration. the task for a manager is to be flexible, to secure knowledge-based creative environment and be strict in scheduling and seeking time efficiency. the regardful attention should be paid on the question how autonomy of r&d activities and strict managerial control should be balanced. it is practiced that inside of a formal institutional structure, r&d project constructs its team from virtual or informal spontaneously grouped teams of researchers, and these informal groups are rather stable through the years. one of the successful factors of the investigated teams is the size, which, together with leadership, stimulates the team identity and secures high project performance. the leaders of the smallest teams express lower demand for r&d manager assistants than leaders of larger teams. the same could be underlined for the knowledge commercialisation oriented team. the investigation has revealed that there is demand for a manager who could act as a mediator for r&d staff in its contact with external non-academic world. mediation encompasses merging, stimulation, control, scanning, supporting, and networking. equally, the manager is expected to be not a substitute of a r&d team leader but a team participant with shared and assigned non-r&d activities in his/her responsibility field. the existing organisational structure functions as an obstacle rather than support for public and private partnership, since the tendency to incorporate managers issn 1822-8402 european integration studies. 2010. no 4 59 in the upper level of hierarchical structure of r&d public organisation is rather spread. the tendency: not a single respondent mentioned other new knowledge communication forms seeking contacts with industry, government or other stakeholders. that could be the guide to explain why a r&d manager is still not introduced in r&d project management – that is the inadequate conceptualisation of r&d users, clients and whole list of possible stakeholders, the recognition of which can dramatically change the researchers’ attitude to r&d outputs and, consequently, to r&d process and benefits from public and private partnership. references bjerregaard t. university-industry collaboration strategies: a micro-level perspective / european journal of innovation management, 12, 2, 2009. p. 161-176. cesaroni f., di minin a., piccaluga a. new strategic goals and organizational solutions in large r&d labs: lessons from centro ricerche fiat and telecom italia lab / r&d management, 34, 1, 2004. p. 45-56. chiesa v. global r&d project management and organisation: taxonomy / journal of product innovation management, 17, 2000. p. 341-359. chiesa v., frattini f., lazzarotti v. manzini r. performance measurement of research and development activities / european journal of innovation management, 12, 1, 2009. p. 25-61. chiesa v. r&d strategy and organization. managing technical change in dynamic contexts. imperial college press, 2008. christensen j. f. incongruities as a source of organizational renewal in corporate management of r&d / research policy, 31, 2002. p. 1317–1332. elias a. a, cavana r. y., jackson l. s. stakeholder analysis for r&d project management / r&d management, 32, 4, 2002. p. 301-310. jincao w., kleiner b. h. the evolution of r&d management / management research news, 28, 11/12, 2005. p. 88-95. klijn, e. h., teisman, g.r. institutional and strategic barriers to public–private partnership: an analysis of dutch cases’, public money and management, 23(3), 2003. p. 137–146. klijn e. h., edelenbos j., kort m., van twist m. facing management choices: an analysis of managerial choices in 18 complex environmental public-private partnership projects / international review of administrative sciences, 74, 2008. p. 251-282. kolb j. a., sandmeyer e. supporting project teams: a framework used in a university-community collaborative initiative / performance improvement quarterly, 21, 1, 2008. p. 61-76. kratzer j., gemunden h. g., lettl ch. balancing creativity and time efficiency in multi-team r&d projects: the alignment of formal and informal networks / r&d management, 38, 5, 2008. p. 538-549. mikulskienė b. open method of coordination impact on national r&d policy: the case of lithuania / the fifth year as european union member states: topical problems in management of economics and law., proceedings of the international conference, riga (latvia) 2009a. p. 107-116. mikulskienė b. policy intervention to r&d based valley creation in lithuania / european integration studies, 3, 2009. p. 42-47. mukherjee a., ray a. strategic outsourcing and r&d in a vertical structure / the manchester school, 75, 3, 2007. p. 297-309. park y., kim s. linkage between knowledge management and r&d management / journal of knowledge management, 9, 4, 2005. p. 34-44. paulsen n., maldonado d., callan v. j., ayoko o. charismatic leadership, change and innovation in a r&d organization / journal of organizational change management, 22, 5, 2009. p. 511-523. sperling d. public-private technology r&d partnership: lessons from us partnership for a new generation of vehicles / transport policy, 8, 2001. p. 247-256. wang j. and kleiner b.h. (2005), the evolution of r&d management by six generations of r&d management. management research news, vol. 28 no.11/12, pp. 88-95. wincent j., anokhin s., boter h. network board continuity and effectiveness of open innovation in swedish strategic small-firm networks / r&d management, 39, 1, 2009). p. 55-67. winter m., smith c., morris p., cicmil s. directions for future research in project management: the main findings of a uk government-funding research network / international journal of project management, 24, 2006. p. 638-649. yunsheng z. deming z., lifei z, lu l.y. r&d team governance and r&d performance. empirical evidence from chinese software enterprises / journal of technology management, 2, 1, 2007. p. 71-83. the article has been reviewed. received in april, 2010; accepted in may, 2010. 184 issn 1822 – 8402 european integration studies managerial aspects of european integration cluster analysis of expression of entrepreneurship characteristics in the eu innovative projects for sme’s and ktu regional science park jolita greblikaitė rasa daugėlienė kaunas university of technology, institute of europe abstract the actuality of entrepreneurship induces important and profound research in this area. the questions of entrepreneurship expression are valuable for business practice defining the expressed characteristics of entrepreneurship. the empirical research presented in the article is based on theoretically defined characteristics of entrepreneurship expression in economic, managerial, social cohesion, and environmental activities in an enterprise. the research problem of the article is expression of entrepreneurship characteristics and its peculiarities in the eu (european union) innovative projects for small and medium size enterprises (smes) and ktu regional science park. the research is based on cluster analysis of entrepreneurship characteristics analysing projects’ content and interviewing enterprises of ktu regional science park. the made cluster analysis reveals the different clusters of entrepreneurship characteristics combining them as connected for some reasons and actuality in enterprises and projects. researching the eu innovative projects for smes under the programme fp6 (2002-2006) two clusters were found. the first cluster is the cluster of entrepreneurial characteristics reflecting orientation to production. the second cluster is the cluster of entrepreneurial characteristics reflecting innovative orientation. the made cluster analysis allow make the assumptions that innovation and orientation to production are desirable in the activity of enterprises working by projects regime and expecting the support from the eu funds. researching the enterprises of ktu regional science park three clusters were found. the first cluster is the cluster of modern managerial characteristics. the second cluster is the cluster of entrepreneurial characteristics reflecting orientation to society development and responsiveness to society. the third cluster is the cluster of entrepreneurial characteristics striving to be competitive and socially responsible. such clusterisation of entrepreneurship characteristics expressing in the enterprises of ktu regional science park reveals that social aspects and modern entrepreneurial management are the main accents of the expression of entrepreneurship in the park. the fulfilled cluster analysis revealed that only part of theoretically grouped characteristics of entrepreneurship are expressing in practice by connecting with each other. the clusterisation allows make the assumptions on the orientation of activity in the researched enterprises. the made research is valuable for entrepreneurial enterprises clarifying their activity priorities and for smes applying for the eu funds support. also research results may be useful for enterprises valuating their activity from entrepreneurial viewpoint. keywords: entrepreneurship, cluster analysis, characteristics of entrepreneurship. introduction entrepreneurship as a phenomenon is the object for research for many years, but as any phenomenon it is changing and requires deeper investigation in fast developing economic and business environment. there should be stressed that especially expression of entrepreneurship is researched not enough. expression questions are discussed as separate factors or aspects in research works, and sometimes there is a lack of systematic approach. the research of this article is based on theoretically defined characteristics of entrepreneurship expression empirically tested in issn 1822-8402 european integration studies. 2009. no 3 185 practical business activity. these implications reveal the research problem how to evaluate the expression of entrepreneurship characteristics and its peculiarities in the eu innovative projects for smes and ktu regional science park. the research aim is to define different clusters of expressing characteristics of entrepreneurship in the eu projects for smes and enterprises of ktu regional science park. research object is entrepreneurial characteristics expressing in the eu projects for smes and enterprises of ktu regional science park. the tasks of article are: shortly present theoretical background of the research of expression of entrepreneurial characteristics; present research methodology for cluster analysis of entrepreneurial characteristics’ expression in the eu innovative projects for smes and ktu regional science park; and evaluate the research results. theoretical background for research of expression of entrepreneurship characteristics as theoretical research problem reveals, entrepreneurship concept is changing depending on economic and social development and its transformation. importance of entrepreneurship as phenomenon is nevertheless smaller than in previous economic situation, but the context and its perception may be different. analyzing research works on entrepreneurship and related questions (shumpeter, 1934; mcclelland, 1961; shapero, 1975; vesper, 1980; pinchot, pinchot, 1983; hisrich 1986, 1989; siropolis, 1986; peters, 1989; drucker, 1992; lydeka, 1996, 2000, 2001; mintzberg, 1998; jucevičius, 1998; swedberg, 2000; messeghem, 2003; grebel, 2004; zakarevičius, 2004; stokes, 2004; bannock, 2005; martinkus, žičkienė, 2006; fuller, 2001, 2006; warren, 2006; ginevičius, sūdžius, 2006; kvedaravičius, 2006; kriščiūnas, daugėlienė, 2006; janiūnaitė, 2007 ir kt.), and analysing the evolution of research schools, it is possible to disclose characteristics of entrepreneurship expression. those characteristics systematically can be divided into the appropriate groups. those groups encounter different theoretical characteristics of entrepreneurship, expressed in economic, managerial, social cohesion, and technological (also environmental) activity. those mentioned characteristics are crystalized analysing scientific theories of economy, and management, starting from schumpeter works. in totality they reflect the context of entrepreneurship concept in the economy, based on knowledge, innovation and technologies (see table 1). table 1. theoretical characteristics of entrepreneurship expression theoretical characteristics of entrepreneurship‘s expression economic activity profitability activity effectiveness competitiveness creation of new job places economic risk economic vitality added value creation meaning for financial investments risk capital investments meaning of production/ services process coordination of production factors activity dynamics value of trade mark social cohesion activity responsiveness to the owner responsiveness to investors responsiveness to employees responsiveness to society friendliness to problematic social groups managerial activity innovation creation and usage change management knowledge creation and usage human resources quality and management learning and training implementation of sustainable development concept existence of team work existence of entrepreneurial motivation organizational development leadership meaning of decision making networking appliance of intrapreneurship appliance of virtuality consumer needs‘ research technological (also environmental) activity appliance of scientific and technological research and their results appliance of new technologies usage of information technologies saving resources implementation of cyclical production implementation of cleaner production issn 1822-8402 european integration studies. 2009. no 3 186 complexity of entrepreneurship phenomenon implicates further research. one of the important questions is how evaluate expression of entrepreneurship. the question is fragmentally analysed in theoretical works and implicates more detailed studies in this sphere. combination of theoretical entrepreneurship characteristics can disclose perception of entrepreneurship expression in an appropriate researched area or object. the whole complex of characteristics should reflect fuller perception of entrepreneurship expression and penetration in practice, developing innovative, competitive, knowledge, and technology based entrepreneurial business. research methodology research is based on two researching objects – eu fp-6 innovative projects for smes (2002-2006) and enterprises of ktu regional science park. the research aim is to reveal the expression of characteristics of entrepreneurship in projects and enterprises of the park as in different areas of expression of characteristics. the analysis of the eu projects is based on content analysis identifying the expressing characteristics of entrepreneurship in the researched area. there were analysed three groups of projects: collective research, co-operative research and economic and technological development projects, devoted to the eu smes’ development. there were analysed 213 projects at all. the results of content analysis allowed to fulfill the cluster analysis of entrepreneurship characteristics expressed in the projects. the other part of the research is the research based on interviewing managers of enterprises of regional science park of ktu. enterprises of the park are considered highly entrepreneurial, competitive, and innovative. for that reason they are meaningful and appropriate for research of expression of entrepreneurial characteristics. the aim of interview is to identify entrepreneurial characteristics expressing in the activity of enterprises of ktu regional science park. the regional science park of ktu joins 44 enterprises and 25 enterprises – as associate members. interview was fulfilled in 12 enterprises, found as the most progressive and competitive in the park. the research instrument was an interview questionnaire. the questionnaire was constructed from 5 parts, based on theoretical reasoning on expression of entrepreneurship. the first part of questionnaire is devoted to relativity of entrepreneurial characteristics. the second part is appointed to research the meaning of entrepreneurship characteristics for overall business success. characteristics of entrepreneurship, meaningful for lithuanian business, are presented and evaluated by managers of the park in the third part. the fourth part of interview questionnaire was constructed for displaying entrepreneurship characteristics in researched enterprises. the fifth part of questionnaire is constructed for evolution of entrepreneurial characteristics. question types are various for seeking to guarantee reliability and exactness of information, as well as informativity. interview results’ analysis is from several stages: analytical tables are made, based on theoretical  considerations and entrepreneurship characteristics. these reflect frequency and expression of characteristics in different enterprises. analysis of characteristics of entrepreneurship is  revealed on characteristics’ level of frequency. factors and sources changing entrepreneurship  concept are analyzed by cluster analysis. the overall results evaluation is made. results of cluster analysis researching the innovative projects for smes there was found two actual clusters of entrepreneurship characteristics, expressed in them. the first cluster is the cluster of entrepreneurial characteristics reflecting orientation to production in activity of enterprises taking participation and being financed by structural funds (see table 2). table 2. cluster of entrepreneurial characteristics reflecting orientation to production economic activity social cohesion activity profitability economic vitality meaning of production/ services process coordination of production factors managerial activity technological activity human resources quality and management consumer need research appliance of scientific and technological research and their results appliance of new technologies saving resources issn 1822-8402 european integration studies. 2009. no 3 187 as it may be seen from table 2, such a clusterisation of entrepreneurial characteristics reveals a special attention to manufacturing enterprises, especially to those, which apply research in their activity. enterprises using the newest research results, new technologies, saving resources are desirable in projects activity. oriented to manufacturing enterprises seek to be profitable. they research consumer need, applying appropriate policy of human resource management. the aspects of social cohesion are not a priority in researched projects. the second cluster of entrepreneurial characteristics may be seen in table 2. clustered characteristics are reflecting innovative orientation. table 3. cluster of entrepreneurial characteristics reflecting innovative orientation economic activity social cohesion activity activity effectiveness competitiveness managerial activity technological activity innovation creation and usage knowledge creation and usage implementation of sustainable development conception appliance of new technologies saving resources innovation is a priority implementing the eu supported projects for smes. striving to be competitive and to work effectively small entrepreneurial enterprises must use innovation; create knowledge, apply new technologies. the made cluster analysis reveals such priorities of enterprises the made cluster analysis of expression of entrepreneurial characteristics in ktu regional science park is presented in table 4; 5 and 6. as it could be seen from table 4, the cluster involves characteristics expressing in economic and managerial activities. enterprises of ktu regional science park actualize those two activity spheres. the park connects smes, which are interested in applying all managerial possibilities for effective results and successful position in the market. implementation of cleaner production or pollution prevention is also a priority. environmental characteristics express in the enterprises of the park as the enterprises value environmental aspects as important in their activity. table 4. cluster of modern managerial characteristics economic activity social cohesion activity economic risk meaning of financial investments meaning of production/ services process coordination of production factors risk capital investments added value creation value of trademark managerial activity technological activity change management meaning of decision making existence of entrepreneurial motivation implementation of sustainable development concept leadership appliance of virtuality networking appliance of intrapreneurship consumer need research implementation of cleaner production the cluster of entrepreneurial characteristics is reflecting orientation to society development and responsiveness to society (see table 5). creation of new job places and responsiveness to society fits together in this cluster. also economic vitality is related with human resources quality and management, organizational development, existence of teamwork. entrepreneurial characteristics striving to be competitive and socially responsible are clusterising in the cluster, presented in table 6. issn 1822-8402 european integration studies. 2009. no 3 188 table 5. cluster of entrepreneurial characteristics reflecting orientation to society development and responsiveness to society economic activity social cohesion activity economic vitality creation of new job places responsiveness to society friendliness to problematic social groups managerial activity technological activity human resources quality and management organisational development existence of teamwork saving resources implementation of cyclical production table 6. cluster of entrepreneurial characteristics striving to be competitive and socially responsible economical activity social cohesion activity activity effectiveness profitability competitiveness activity dynamics responsiveness to the owner responsiveness to investors responsiveness to employees managerial activity technological activity innovation creation and usage knowledge creation and usage human resources quality and management appliance of scientific and technological research and their results appliance of new technologies usage of information technologies as it could be seen from table 6, in this cluster innovation of science and technology and social functions have a connection striving for innovative, knowledgebased business results. creation and usage of innovation and knowledge allow striving for effectiveness, dynamism and competitiveness. conclusions cluster analysis of expression of characteristics of  entrepreneurship revealed different in some way grouping of characteristics of entrepreneurship, presented in theoretical assumptions for research. innovation and orientation to production are the  emphasis on entrepreneurial enterprises activity, striving for financial support from various sources in the eu level. the modern entrepreneurial management is important  for enterprises of ktu regional science park. the researched enterprises give priority to production, implementing socially responsible and competitive activity. the connections among different characteristics  may be object for further researching expression of entrepreneurship. references bannock g. the economics and management of small business. – oxon: routledge, 2005. – 240 p. drucker p. f. managing for the future: the 1990s and beyond. – new york: truman talley books, 1992. – 370 p. entrepreneurship. edited by richard swedberg. – oxford: oxford university press, 2000. – 403 p. fuller t., warren l. entrepreneurship as foresight: a complex social network perpsective on organisational foresight// futures 38 (2006), pp. 956-971. available on internet: <www.sciencedirect. com>. ginevičius r., sūdžius v. organizacijų teorija. – vilnius; technika, 2007. – 325 p. grebel th. entrepreneurship: a new perspective. – london, new york: routledge, 2004. – 203 p. hisrich r. d., peters m. p. entrepreneurship: starting, developing, and 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achieving society. – new york: princeton, 1961. messeghem k. strategic entrepreneurship and managerial activities in smes// international small business journal, 2003. – sage publications, vol 21(2); pp. 197-212. mintzberg h. strategy safari: the complete guide trough the wilds of strategic management. – london: financial times prentice hall, 1998. – 392 p. pinchot, g., pinchot, e. the end of bureaucracy and rise of the intelligent organisation. san francisco, berret – koehler, 1993. – 398 p. schumpeter j. a. kapitalizmas, socializmas ir demokratija. – vilnius: mintis, 1998. – 382 p. siropolis n. c. small business management. third edition. – boston: houghton mifflin company, 1986. – 635 p. stokes d. small business management: an activelearning approach. – london: dp publications, 1992. – 408 p. zakarevičius p., kvedaravičius j., augustauskas t. organizacijų vystymosi paradigma. – kaunas: vdu, 2004. – 511 p. the article has been reviewed. received in march, 2009; accepted in april, 2009. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 64 submitted 04/2018 accepted for publication 09/2018 european integration studies no. 12 / 2018 pp. 64-76 doi 10.5755/j01.eis.0.12.21731 the evaluation of impact of mergers on the market economic activity: the case of lithuanian telecommunication sector eis 12/2018 the evaluation of impact of mergers on the market economic activity: the case of lithuanian telecommunication sector http://dx.doi.org/10.5755/j01.eis.0.12.21731 jurgita bruneckienė, jonas rapsikevičius kaunas university of technology, k. donelaicio str. 73, kaunas, lithuania this paper focuses on the merger and acquisitions valuation, the research aims to evaluate it’s impact on the market economic activity. the research problem lays upon inconsistent valuation methodology of different economic subjects in these processes and the calibration of complex valuation methodology. many researchers approach the evaluation of impact on the economic activity only by narrowing the valuation object by the firm, market or competitors, consumer and state. the aim of this paper is to show that mergers and acquisitions should not be evaluated from only one point of view because while one perspective gives a positive economic effect on the economic activity, the other perspective could show a negative effect. a valuation from only one perspective could result in a misleading understanding of mergers and acquisitions processes in the market economic activity. therefore a valuation towards mergers and acquisitions should be constructed from separate valuations angles in the economic system. a practical case study with a designed research model is carried out to show the outcomes of the process by the different participants (firm; market and competitors; consumers; government) of the economic system. the method is constructed of financial valuation tools, economic indicators, forecast methods and mathematical-statistical calculations. this paper has shown that only a case study analysis could identify the real effect of mergers and acquisitions to the economic activity. also, the paper suggests that there is a difference between national governments and european union governance of these processes, therefore a member of the union should comply with these guidelines and even transpose them into national law. keywords: mergers and acquisitions, ex-post analysis, economic activity and valuation, synergy, market, competition. abstract introduction the evaluation of mergers and acquisitions in today’s economy became an increasingly important subject in today’s economy. first of all empirical findings by čiegis and adriuškevičius (2016) suggest that economic cycles correlate with mergers and acquisitions transaction values. plus jensen (2010) states that these transactions are a proof of powerful economic forces of these processes, he also explains that not all of them are productive. the economic theory clearly shows signs that these processes lead to uncompetitive market and price changes (farrell and shapiro, 2010). the process of these strategic alliances has increased exponentially due to several reasons: from one point the national markets have become more open, also the regional monopolies markets have been transformed into international oligopolies, plus the technological advance and productivity have increased from additional value created from mergers and 65 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 acquisitions (warf, 2003; park, yang, nam and ha, 2002; stephen and gantumur, 2011). besides, the net value of foreign direct investments increases from mergers and acquisitions according to nocke and yeaple (2006), moreover, jensen (2010) states that the companies involved in m&a activity are more attractive to the investors. the firms more often use these strategic alliances in order to acquire additional synergetic value from combined resources, new strategic position, market extension possibilities. nevertheless, there is the other angle of these processes like market disruption and completion decrease factors, those according to hsieh and lin (2016) have a negative impact on the market. also from the point of sustaining the effective market for goods and services, we can see that today’s society is orientated to the consumption and the wellness of the society highly depends upon effective consumption. some practical evidence suggests the negative impact to effective consumption and even to the quality (a. krishnan and h. krishnan, 2001; steven, yazdi, and dresner, 2016). therefore, many kinds of research have been made in the evaluation of mergers and acquisitions in the different scopes: from an enterprise view, from the market and concurrent view, from customer gains or losses, from government position. as an example farrell and shapiro (2010) analyses these processes only from the product market point in the change of market structure and price. european commission in the light of this topic (2018) examines all mergers outside the boundaries of the national market and approves them only if a clear determination is made that merger has no potential harm to effective competition, the merger control in the national market boundaries are left independent to the local competition authorities. taking into consideration that impact valuation on economic activity lays upon the valuation of several different economic objects it is reasonable to assume that additional valuation methodological approach is needed in order to evaluate the total impact of mergers and acquisitions. the problem of this paper lays on the combination of identification of possible economic activity objects on the market activity and in the adjusted complex valuation model creation which can evaluate the impact from different perspectives of subjects in the economic system. therefore a unique valuation model has been designed and applied in the practical case study of lithuanian telecommunication sector. the concept of mergers and impact on the economy the concept of merger lays upon in the identification of the impact on different economic objects those are affected during the process. therefore a theoretical analysis is performed from the separate analysis objects: firm; market and competitors, customers and state. on the side of the firm we can analyze the firm benefits, which can be listed as (levišauskaitė and stravinskaitė, 2006): 1. technological advance – a bigger entity is capable to reach greater results in innovations and technology. 2. new and effective finance source measure – a situation where a company covered in losses is acquired by other company, where the acquirer becomes a capital source. 3. optimization of taxes – the acquisition or the merger can be treated as the investment and therefore the firm could pay fewer taxes. 4. diversification of risk –the risk is shared and the bigger entity has fewer chances to bankrupt. 5. the acquisition of undervalued company – in the process of acquisition undervalued company with a capability of rapid growth could rapidly increase the acquirer’s value. 6. company growth – additional growth by using both companies resources. 7. synergy effect – additional value obtained from the merger process. having a discussion about the first benefit of the firm from merger and acquisition, we could always use the concept of the economies of scale that a bigger entity is always capable to reach e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 66 greater goals. also, mester and hughes (2008) support this concept, by their research in which they conducted that the mergers in the banking sector had an impact of the development of new technologies on the banking services. besides koskinen and vanharanta (2002) explains that bigger entities with more employees could reach better results in the development of new technology and even do it cheaper. by looking at the second benefit we can clearly see a conditional case of this benefit and it works only when the conditions for the case are met. the third benefit to the firm is followed by the main business function – making a profit. devos, kadapakkam and krishshmanmurthy (2009) agree with this line taking into consideration that mergers not only increase the value of the company but also helps to optimize tax obligations. risk diversification benefit is an object of discussion because the acquisition and merger process is followed by the risk of the process which can be unsuccessful due to numbers of internal and external reasons which is stated by cartwright and schoenberg (2006). however, lileikienė and kovalčik (2014) in their case analysis of ab ‘šiaulių bankas’ has found that liquidity risk decreases, also they give a clear statement that the risk aspect depends on the proportion of assets and obligations in the company. vallascas and hagendorff (2010) agree with this thought but gives an additional opinion on the risk increase due to the weak strategical management of the company. besides mukherjee, kiymaz and baker (2005) in their research of mergers and acquisitions motives explains that risk diversification is one of the most important motives because all companies seek to maintain stable income during recessions and the strategic alliance processes help fulfil this purpose. the fifth benefit of the acquisition of the undervalued company is connected to a condition that if the acquired company is undervalued the acquirer could receive an additional benefit from the process. the sixth motive for the firm is the growth effect, taking in consideration that a bigger company will grow more rapidly. čiegis and adriuškevičius (2016) identify this motive as the foundation of the mergers and acquisitions topic and explains it through the new entries to regional and global markets. birkishaw, bresman and hakason (2000) give another opinion towards growth from new market and sector control perspectives. the most important reason for firms to initiate the process of merger or acquisition is synergy, which can be explained as additional value from the process, even though catwright and schoenberg (2006) claim that synergy is not always positive and highly depends on the management of the process. sarrazin and west (2011) explain the synergy motive through the simple mathematical logic in which these processes are being optimized: 1. lower it infrastructure costs. 2. optimization of functions, financial benefits from personnel costs. 3. lower logistics costs. 4. higher income from the larger assortment. 5. optimization of administration costs. 6. lower costs for finance sources. from this point, we can see that synergy is truly the most important motive and the benefit to the firm that comes from the merger or acquisition process. also, the synergy effect could be struck down into two points, there one point is followed by the cost optimization from synergy which helps to accomplish greater financial results. the other point is that the bigger assortment helps to expand the market share on the basis of increased revenue. impact on the market and impact on a competitor could be constructed from the table 1 area where the types of mergers are listed, depending on the merger type the market and competitor are affected more or less (for example the most harmful mergers to the effective market and 67 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 table 1 merger types and impact in the market company mergers definition and the impact on the market conglomerate a merger between firms that are involved in totally unrelated business activities. there are two types of conglomerate mergers: pure and mixed. pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions. horizontal a merger occurring between companies in the same industry. a horizontal merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service. horizontal mergers are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry. vertical a merger between two companies producing different goods or services for one specific finished product. a vertical merger occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations. most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one. market extension a market extension merger takes place between two companies that deal in the same products but in separate markets. the main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base. product extension a product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. the product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. this ensures that they earn higher profits. source: minority business development agency u.s. department of commerce (2012). competitor are horizontal). as stated by prager (1992) horizontal mergers have a direct impact on competitors, a new entity created by the merger has a new strategic position and expands from the competitor’s part. gugler and meuller (2002) state that there are two types of outcome and it depends on the new entities behavior if a new entity raise the price competitors will do the same and the profit will rise, the market structure will not change (the consumers will have the losses in this case) but if a new entity gets additional resources from the synergy and lowers the prices then the expansion comes from the competitors share of the market. keeping a discussion in the field of impact on competitors according to hsieh and lin (2016) the effect of concentration change to competitors is clearly negative. also, there is the acquisition process in the markets and alike merger there are three types of mergers horizontal, vertical and conglomerate, where horizontal and vertical acquisitions are focused on the market expansion and only the conglomerate acquisition aims to diversification of risk and does not focus on the increase of competition (pearce and robinson, 2013). the competitors’ view of the merger and acquisition process is pretty clear and has only a negative effect, even though there are certain types of mergers and acquisition that do not have a direct impact on competition, the competitors could be touched indirectly as in value chain link by vertical merger or by the product extension or market extension mergers. the only type of merger or acquisition is conglomerate, that hasn’t any impact on competition directly or indirectly, however, the future of conglomerate is held unclear because there is a high probability that in the future these companies could try to expand the market by acquiring or merging with some competitors. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 68 the point of the customer can be explained by the wellness of consumption, if the customer after a merger or acquisition has to pay more or receives less goods and services, then the losses occurs in his point of perspective. according to mishra and kumar (2011) mergers and acquisitions in india’s sectors that are orientated to the export do not make harm to the customer, in fact, they can rapidly expand the growth in the economy and also innovations, however, the sectors orientated to import results as the customer losses. however, there is still uncertainty if the mergers and acquisitions orientated to export do not really harm the foreign markets, therefore novickytė and šileika (2010) in relation with mergers and acquisitions give a conditional statement according to which if mergers and acquisition lead to scale of economy and synergy, customer wellness goes up because price goes down due to these effects, but if the process were constructed to obtain a dominant position in the market price goes up and customer gains losses. giving a consideration that the mergers and acquisitions commonly occur in oligopoly market structure, that is stated by ginevičius and kvirka (2009) is the most inefficient market on the customer’s position, the mergers and acquisitions commonly will result in customer losses. moreover, steven, yazdi, and dresner (2016) widen this area of customer losses by giving the consideration that losses could occur not only from the price but also from the quality of goods and services which are provided to the customer. the fourth object of mergers and acquisitions is the impact on the state. according to the european commission (2018), the mergers and acquisitions are held positive if it leads to the effectiveness and innovations aside with technological development. however, salleh, mahmood, sufian, othman, yaacob, nai (2016) in their research have found that the smaller entities are capable to reach better technological advance results, which gives us an uncertainty whether the mergers and acquisitions gives a positive effect in this case. on the other hand, stephen and gantumur (2011) have found a positive relationship between mergers and acquisitions in the research and development field. nocke and yeaple (2006) expand the positive effect on the government by stating that mergers and acquisitions increase foreign direct investments. however, we also have to remember tax optimization benefit to the firm which occurs in the acquisitions and mergers processes (devos, kadapakkam and krishshmanmurthy, 2009), that in the government case is a negative effect because fewer taxes will be collected to the budget. the research methodology the research methodology can be divided into two valuation parts: the valuation of forecast and fact difference and the valuation of ex-post analysis. the forecast valuation is a method proposed by devos, kadapakkam and krishshmanmurthy (2009), where at the firm level they measure the impact of a merger by forecasting the situation for non-merged companies’ and merged companies’ fact, the difference between fact and forecast values is the synergy of the process. the authors have taken the forecast modelling method and applied it to other economic objects as well, these statement of simulation projection is also approved by the european union methodology of m&a valuation (official journal of the european union, 2008/c 265/07) and also by farrell and shapiro (2010). however, there are certain indicators that in the process those cannot be forecasted and one of them is mester’s and hughes’s (2008) technological advance and innovations indicator and the other is steven’s, yazdi’s, and dresner’s (2016) service quality indicator. there are two forecast methods those are being used in this model: the moving average method (proposed by c.-y. chen, lee, kuo, c.-w. chen, k.-h. chen, 2010) and the linear trend method (proposed by gudaitis and žagūnytė, 2013), both methods allow to make accurate forecasts in the short term periods. 69 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 1 the firm valuation is constructed from fcff forecast we use hoover’s (2006) methodology to forecast the firm’s financial indicators (which are needed in order to calculate fcff for the firm): _ cogs (cost of goods and services), depreciation, other administration costs ⟶ percentage of forecasted revenue; _ gross profit ⟶ revenue cogs depreciation other administration costs; _ interest ⟶ percentages of liabilities growth; _ equity, long-term debts, long-term assets, other financial variables ⟶ additional historical assessment is needed if the dynamic in history changes significantly forecast from revenues is not accurate and the indicators should be forecasted separately. 2 for the market and the competitors’ valuation part hsieh’s and lin’s (2016) proposed hhi index is used to determine whether the merger had an impact on market structure changes, also cerasi, chizzolini, ivaldi (2009) proposed gini index is used to determine whether the merger had an impact on revenue distribution inequality between the competitors. plus, the sales revenue has been taken as an additional indicator in order to be able to identify if hhi or gini have changed from merger impact or it was affected by competitors and merger had no relation with the changes of these indicators. (3) in the case of customer impact valuation, we use a. krishnan and h. krishnan (2001) proposed average changes in quantity and prices, those are calculated as the mathematical deltas. however, as we noticed previously customer gains losses in form of quality also, to evaluate this part we added service quality indicator and according to steven, yazdi, and dresner (2016) we will measure this service quality change in relation with hhi change (the relation between concentration level in the market and the quality level show the negative/ positive impact on the customer). (4) the state valuation part in form of taxes is taken from the (1) part of firms valuation, where we measure the difference of paid taxes those according to the projection of non-merged companies’ had to be paid and the fact of merged companies that was paid to the budget. secondly the mester’s and hughes’s (2008) technological advance and innovations point is evaluated by ex-post change to see if the merger had any impact on this field. finally, we evaluate the nocke’s and yeaple’s (2006) investment point by forecasting the sector’s investments and evaluating the positive/negative impact from the difference between the fact and forecast. gradually, authors perceive the concept of economic activity as a polynomial system of supply and demand which distributes the goods and services by interactions with various objects in the market and the conception of this economic activity is characterized by the financial, economic indicators listed above in the sections (1)-(4). after applying all the steps in the research methodology we can generalize it all into one research model of merger and acquisition valuation (see figure 1). a case study analysis of lithuanian telecommunication merger using merger and acquisition valuation model a merger between two telecommunication giants in lithuania market was announced in 2015 and happened in 2016 iii quarter. before the merger ab ‘teo’ was dominant in the 6 of 8 telecommunication markets in lithuania (internet, fixed phone connection, etc.) and ab ‘omnitel’ was a mobile connection service operator, both companies there fully controlled by ‘telia sonera’ swedish capital telecommunication giant. ‘omnitel’ was acquired in 2003 with a condition that it will never be merged with ‘teo’ and they will be maintained as separate business objects. however, competition council of lithuania republic according to the decree no. 1s-122/2015 refused to open an investigation of this merger case and even refused to maintain their decision announced in 2003. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 70 1 the evaluation of firm. firstly we take the macroeconomic environment forecast (gdp and inflation), depending on this forecast we evaluate possible firms growth and by using historical data from corporate reports we forecast balance and income statement for ab ‘teo” and ab “omnitel” for 2016 and 2017 as if the merger did not occur in the market, and calculate fcff using the financial valuation methods. then we take the data from the reports of ab ‘telia’ for 2016 and 2017 and calculate the difference between consolidated firms’ forecasts and the merged firm’s fact, the change is the effect of the merger. the results listed in the table show that merger for the firm created a positive effect in three cases: first – the synergy in income, second – the benefits from fewer profit tax payments and finally – the asset turnover rate has increased which means that the new entity uses the assets more efficiently. for fcff our main indicator we can see that the effect for the first two years in total is negative, however we have to look up into investment in working capital line (which is marked by yellow) there the possible calculation error might occur due to use of external data (the authors were unable to eliminate merger investment from investment in working capital). on the other hand, catwright and schoenberg (2006) state that the synergy often is negative in the short-term period. 2 the evaluation of the market and the competitors. first, we examine the revenue data and changes, then calculate the hhi and gini indexes (where gini shows total revenue distribution inequality between firms). upon this evaluation there was public data structure changes and b2b sector data for the mobile phone, fixed telephone and internet connection services are no longer available. the change in data structure does not allow to apply the forecast according to historical data, and we could only look into the ex-post change. in the valuation of the sales impact valuation object indicators difference between fact and forecast value ex-post change (1) firm fcff synergy growth sales revenue hhi gini average expenses of customer price change positive/ negative price change positive/negative product or service quantity quantity change positive/negative quantity change positive/negative quality quality change positive/negative taxes excluded from fcff valuation taxes increase/decrease growth technological advance and innovation social economic benefit sector investments economic benefit growth figure 1 merger and acquisition valuation model source: constructed by the authors. 71 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 e ff ec t o n th e eq u at io n indicator ab 'omnitel' +ab 'teo' ab 'telia lietuva' merger effect forecast fact 2016 fr 2017 fr 2016 f 2017 f 2016 2017 e b it = sales (profit and losses statement) 346 735 350 549 345 906 370 123 -829 19 574 opex (profit and losses statement) -237 985 -239 051 -234 526 -247 932 3 459 -8 881 depriciation (cash flow statement) -60 510 -62 296 -63 233 -67 044 -2 723 -4 748 + other operating income (profit and losses statement) 4 062 4 108 1 415 1 949 -2 647 -2 159 other operating expenses (profit and losses statement) -945 -960 -2 485 -2 405 -1 540 -1 445 + interest (cash flow statement) 303 306 1 961 2 310 1 658 2 004 + profit tax (profit and losses statement) eur 5 026 5 111 5 583 2 913 557 -2 198 = ebit 56 686 57 767 54 621 59 914 -2 065 2 147 net profit 51 357 52 351 47 077 54 691 -4 280 2 340 profit tax, % 17,60% 17,60% 11,86% 54 691 -5,7% -12,3% net profit margin 14,8% 14,9% 13,6% 14,8% -1,2% -0,2% asset turnover 0,45 0,46 0,59 0,65 0,14 0,19 e c ff net profit 51 357 52 351 47 077 54 691 -4 280 2 340 + interest expenses*(1-t) 274 276 1 728 2 187 1 454 1 910 + depriciation 60 510 62 296 63 233 67 044 2 723 4 748 investments in the long term assets -62 551 -63 937 -41 976 -65 102 20 575 -1 165 investments in working capital -6 339 -11 517 -40 912 -8 662 -34 574 2 855 net working capital 51 878 63 396 48 933 57 595 -2 945 -5 801 = fcff 43 253 63 396 29 150 50 158 -14 102 10 689 revenue where was a slightly positive change for the ab ‘telia lietuva’, however, the results in revenue showed that the merger had not given a greater position to the ab ‘telia lietuva’. on the other hand gini and hhi coefficient analysis has shown that internet connection services have changed significantly and this occurred after a merger. taking a look into data from figure 3, we can see that the market structure has changed significantly after a merger, the distribution of revenue between the firms in the sector has also risen. keeping in mind that ab ‘telia lietuva” sales revenue had a slight change after the merger we can say that the change in the revenue distribution was made from a more aggressive concurrent position in the market, which implies a possibility of smaller companies’ losses. 3 the evaluation of the customer. first, we evaluate the changes in quantity and the chang-es in expenses for services. the changes in all sectors have not shown significant impact source: evaluated by the author using financial reports of ab ‘teo', ab ‘omnitel' and ab telia lietuva’ (2011-2017). table 2 the merger of ab ‘telia lietuva’ firm valuation e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 72 source: evaluated by the authors using data from the communications regulatory authority department of lithuania republic. figure 2 internet service providers market concentration of lithuania 2011-2017 figure 3 impact on ab ‘telia lietuva’ paid taxes and investments in communication sector 2011-2017 source: evaluated and calculated by the authors with data from financial reports of ab ‘teo’, ab ‘omnitel’ and ab ‘telia lietuva’ (2011-2017) and the data from communications regulatory authority department of lithuania republic. 73 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 from the merger on the market for the customer. also, the data availability was only from 2015, therefore forecast element was not applied in this valuation section. the service quality indicator also has not been evaluated due to data availability. therefore the customer valuation section is incomplete in this particular case analysis of ab ‘telia lietuva’ merger. 4 the valuation of the state. the valuation begins with the identification of the effects which we can evaluate, as for technological advances and innovations we cannot predict this indicator, therefore we are not capable to give a forecast analysis on it. in the case of ‘telia lietuva’ there was no additional value from technological advances or innovations in the merger process. secondly, we evaluate the taxes and investments on the basis of the forecast method and evaluate the difference between the fact-value 2016 and 2017. as we can see in figure 3 the state receive positive impact from ‘telia lietuva’ merger in a higher level of investments, on the other hand, there is a negative impact as the fewer taxes are paid to the budget. in this case, we have a zero effect and the government should consider what is more efficient allow discounts for taxes in exchange of investments from the private sector, or maintain tax collection level and do it by public investments. conclusions the analysis of merger and acquisition processes theoretical side has shown that this process creates a great value from the firm perspective. however, in the market perspective, this process is harmful because it changes the market structure and competitor’s position, the similar negative effect is delivered to the customer. although, we have always to look at the cause of merger or acquisition because if the process is caused by aiming to efficiency, bigger assortment, technological innovations, research and development, this process is less harmful to the customers and competitors, and is positive to the economy. the government basis is constructed by the loss of taxes and the gains from technology and investments. only a case study analysis could show the real effect of the merger. therefore, a unique analysis tool is created which can be applied as a universal method for valuation of mergers and acquisitions cases. practical research model application to ‘telia lietuva’ case has shown that a firm receives positive effect from the synergy of revenue, the market was affected negatively by the concentration change, the consumer basis was incompletely evaluated due to data availability (the analysis made with available data has not shown any significant damage to the customer). the state basis received a zero effect because as the government received losses from fewer taxes, it also receives positive effect from investment. the practical application of the mergers and acquisition valuation model also has shown its vulnerability to data availability. this case has also shown the inconsistency of lithuania competition policy, because firstly ‘omnitel’ was acquired only with a condition that it would not be merged with ‘teo’ into one entity that after 13 years anyway happened. according to the guidelines on the assessment of non-horizontal mergers under the council regulation on the control of concentrations between undertakings (official journal of the european union, 2008/c 265/07) a case of ‘telia’ merger was not compliant with these guidelines: _ ‘non-horizontal mergers pose no threats to effective competition unless the merged entity has a significant degree of market power’ – before a merger company had dominant positions in the 6 of 8 electronic communication sectors of lithuania, including in the internet service providers market where ‘teo’ and ‘omnitel’ were competitors before; _ ‘the commission is unlikely to find concern in non-horizontal mergers, be it of a coordinated or of a non-coordinated nature, where the market share post-merger of 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(2003). mergers and acquisitions in the telecommunications industry. growth and changevol. 34 no. 3, 321-344. retrieved from http://onlinelibrary. wiley.com/doi/10.1111/1468-2257.00221/epdf about the authors jurgita bruneckienė doctor of social sciences (economics) kaunas university of technology, school of economics and business fields of research interests regional economics and strategic planning, regional and urban competitiveness, smart economy, circular economy, damage of regional and urban system suffered from economic shocks, cartels address k. donelaicio str. 73, kaunas, lithuania tel. +370 37 300 576 e-mail: jurgita.bruneckiene@ktu.lt jonas rapsikevičius doctoral student of social sciences (economics) kaunas university of technology fields of research interests econometrics, financial valuation, economic activity valuation, effective competition, structural economic reforms, economic shock volatility valuation address k. donelaicio str. 73, kaunas, lithuania tel. +370 65 036 820 e-mail: jonas.rapsikevicius@ktu.edu 61 issn 1822 – 8402 european integration studies. 2009. no 3 acquisition of resources of the instrument for regional development – the cohesion fund – in latvia under conditions of global economic crisis kazimirs špoģis faculty of economics at latvia university of agriculture abstract the european union cohesion fund provides funding for large scale infrastructure development activities (projects) to reach defined goals in the environmental and transport fields, to realize goals of european union regional development policy, and to fulfil requirements of directives. the aim of formation of cohesion fund – to level the economical and social differences between european union member states’ and their regions – comes into effect in latvia. total amount of european union cohesion fund resources of period 2004 – 2006 is approximately 28 212 billion euro; expressed in prices of year 2004. resources of cohesion fund were allocated to spain, greece, portugal, ireland and all ten, in year 2004 affiliated states. financial support of the instrument for regional development – european union cohesion fund – in latvia for the 2000 – 2006 programming period amounts to eur 710 million (including ispa – instrument for structural policies for pre-accession resources). still eur 215 million of european union cohesion fund resources should be used by 2010 (including). it means that latvia must realize european union cohesion fund projects for about eur 345 million. these great resources shall be acquired in relatively short period of time and under conditions of global economic crisis. choice of this theme was made by lack of scientific basis for 2007 – 2013 programming period, since only small number of scientists is involved in researches for acquisition of european union financial instruments. the aim of this article is to analyze flexibility of instrument for regional development – acquirement of resources of european union cohesion fund under conditions of global economic crisis in latvia and to evaluate effectiveness of cohesion fund resource disposition under these new circumstances. acquirement of resources of european union cohesion fund has not been studied so much; therefore it may be scientifically interesting topic. to achieve this goal there are three tasks developed – analyzed european union cohesion fund resource acquirement status and status of insecure projects whose unimplementation may cause losses to latvia state budget; discussed about two actual problems regarding this acquirement under economic crisis conditions – the value added tax rate increase and blocked financial funds of contractors’ as a result of in–advance–established guarantees; analyzed the balance of strategy of european union cohesion fund aims and latvian economic stabilization and growth renewal program. there are developed the scientifically valid suggestions for acquirement of european union cohesion fund resources under crisis conditions. most substantial conclusion has been made in connection with distribution of resources among latvia regions. most substantial suggestion has been made regarding to arrangement and simplification of public procurement legislation – this should boost acquirement process, since the reduction of thresholds of public procurement will shorten the time of concrete contract implementation. this article consists of four chapters, the introduction and conclusions. methods of analyzing and comparison were implemented to fulfil these tasks. for further investigation of european union cohesion fund acquirement and its influence on development of latvian regions, other researches should be performed. keywords: cohesion fund, project implementation problems, acquisition of resources of cohesion fund, stabilization of latvia economy. ilze āboliņa, issn 1822-8402 european integration studies. 2009. no 3 62 introduction the aim of formation of cohesion fund (cf) – to level the economical and social differences between european union (eu) member states’ regions – comes into effect. the cf provides funding for large scale infrastructure development activities (projects) to reach defined goals in the environmental and transport fields, to realize goals of eu regional policy, and to fulfil requirements of directives. resources of cf were allocated to spain, greece, portugal, ireland and all ten, in year 2004 affiliated states. total amount of resources of period 2004 – 2006 is approximately 28 212 billion euro; expressed in prices of year 2004. that time latvia had accessible financing of 515 millions euro. choice of this theme was made by lack of scientific basis for new planning period, since only small number of scientists is involved in researches for acquisition of eu financial instruments. however, some researches have been made regarding sapard – the resource acquisition instrument of pre-accession to the eu period (čiulevičiene v., čivulevičus j., kripaitis r. 2004), as well as regarding structural fund (sf) support (millere i., medne l. 2006) and direct support(pilvere i., rukmanis a. 2006). regarding cf there has been made a cascade of studies – first, the institutional and administrative system of cf (āboliņa i. 2006, 2007); second – the management and control system of cf (āboliņa i. 2008) and third – the socio-economic influence on development of latvia (āboliņa i. 2009). at the time being there has been new circumstances emerged – the global economic crisis under which the economic situation has changed quickly almost everywhere in the world; not only in latvia. therefore it is important to perform investigation on: how to efficiently acquire cf resources during  crisis and how it influences cf scope in latvia. to analyse whether it is necessary re-estimate  allocated resource distribution possible price changes. how this resource acquisition is tied up with  latvian economic stabilization and growth renewal program of latvian economy. the aim of this document is to analyse flexibility of cf resource acquisition under conditions of global economic crisis as well as to evaluate usefulness of these expenditures in new circumstances. this aim highlighted following tasks for research: to analyse the status of cf acquisition. to discuss about topical problems on time of  economic crisis. to analyse the balance of cf project aims and  stabilization and growth recovery program implementation strategy of latvian economy. for research program realization and achievement of scope of work, the information has been taken from electronic databases, eu and national legislative acts and normative documentation as well as in scientific publications and other sources. the analysis and comparison methods have been used in this research. cf resource acquisition in latvia for programming period of 2000 – 2006 the cf financing in latvia, accordingly eu regulation 1164/1994, chapter 10, section 2 – “a suitable balance shall be struck between projects in the field of the environment and projects relating to transport infrastructure. this balance shall take account of article 130s (5) of the treaty” (european commission 1999) – has been divided into equal parts for environmental and transport sectors as well as allocated to one technical support project for capacity increase of managing authority (cf managing authority in latvia for programming period 2000 – 2006 is ministry of finance). the distribution of cf co-financing for environmental and transport sectors, accessible to latvia, is shown in table 1 (including instrument for structural policies for pre-accession (ispa) that after year 2004 are cf cofinanced). table1. cf financing for environmental and transport sectors (in millions euros) sector total cf financing financing for approved ispa projects financing for cf projects transport 257’933’331 38’864’826 219’068’505 environment 257’933’331 76’447’053 181’486’278 source: ministry of finance of latvia (ministry of finance 2007) in the next table (table 2) there are classified calculations on cf resource distribution over latvian economic sectors. as i pointed above, in the programming period of 2000 – 2006 eu regulation requires equivalent distribution of resources for both transport and environmental sectors, and this requirement has been followed (european commission 1999). however, distribution over these sectors’ branches may be named “discussable”. for example, strong support is allocated for railway development, although passenger traffic does not develop, many passenger lines are being closed. unfortunately this means that conveniences of latvian people are not affected by those 22.5% of allocated cf co-financing for railway development in transport sector. issn 1822-8402 european integration studies. 2009. no 3 63 certainly, one may say that this investment in railway infrastructure will return to latvia as transit carriage of goods, although this does not give direct benefit to state inhabitants – it is advantageous for state-owned enterprise. the fundamental objective of cf, though, is to reduce socio-economic differences among eu nuts1 and nuts2 and nuts3 regions (central statistical bureau 2009); by giving that substantial contribution to railway infrastructure it should been attained that it is beneficial to regions’ people, for instance by offering mentioned above new passenger traffic lines. regarding to environmental sector, this resource distribution is more accessible to latvian people, since touches particular nuts3 region, where projects and level of development are being realized and give certain improvements. similarly, cf co-financing for different branches is very diverse. besides technical support projects, the most cf co-financing amount 70.4% of project expenses is allocated to airport development (compare it with auto road projects). until the end of last year successfully realizing cf co-financed projects, latvia has received 495.4 millions euro, or 69.7% from approved financing of programming period 2004 – 2006. cf project contractors, in their turn, have received eur 463.4 millions or 65.2%. table 3 shows this progress more detailed. table 2. distribution of cf resources among economic sectors of latvia of period 2000 – 2006 sector number of projects total eligible cost of project average project value, millions eur cf co-financing millions eur total, % for sector, %millions eur % roads 6 377.37 27.8 62.90 150.93 40.0 21.2 railway 5 260.77 19.2 52.15 159.40 61.1 22.4 roads in total 11 638.14 47.0 58.01 310.33 48.6 43.7 airport 1 23.50 1.7 23.50 16.56 70.4 2.3 ports 2 43.40 3.2 21.70 24.40 58.4 3.4 transport sector in total 14 705.04 51.9 50.36 351.29 49.9 49.4 waste management 10 98.81 7.3 9.88 55.33 56.0 7.8 water services development 11 426.42 31.4 38.76 234.81 61.6 33.0 development of heating 1 81.21 6.0 81.21 34.61 42.6 4.9 environmental sector in total 22 606.44 44.6 27.56 324.75 57.9 45.7 technical assistance 10 46.69 3.4 4.67 34.76 76.6 4.9 in total 46 1 358.17 100 29.52 710.78 54.3 100 source: calculations by author using ministry of finance data (ministry of finance 2009a). ministry of: approved by eu projects (commitment) pad to beneficiaries payments submitted ec* received from the ec ** eur % of accessible financing eur % of commitment eur % of commitment eur % of commitment 1 2 3 4 5=4/2*100 6 7=6/2*100 8 9=8/2*100 enviroment 353’199’446 49.7% 231’585’040 65.6% 254’385’281 72.0% 234’891’481 66.5% transport 353’899’446 49.8% 230’270’728 65.1% 267’068’880 75.5% 258’339’369 73.0% finance 3’668’644 0.5% 1’605’372 43.8% 2’243’445 61.2% 2’243’445 61.2% in total 710’767’536 100.0% 463’461’140 65.2% 523’697’605 73.7% 495’474’294 69.7% * payments submitted ec + all prepayments. ** including prepayments. source: calculations by author using ministry of finance data, (ministry of finance 2009a). for example, comparing with our neighbour countries, such acquisition results are not bad at all – they as shown is picture 1 are relatively high. however, it would be necessary to consider that in absolute numbers the assignments for baltic states are very different – for instance total assignment for lithuania is nearly eur table 3. cf resource acquisition of period 2004 – 2006 until 31.12.2008 issn 1822-8402 european integration studies. 2009. no 3 64 1.55 billions, which is twice the allocation for latvia. but what concerns estonia, this proportion is just opposite – estonians have only a half of those of latvia – “only” eur 431 millions. consequently, it is obvious that in these indicators lithuania overtakes us, as already today has retrieved eur 560 millions from ec. est onia lat via lit huania 0 20 4 0 6 0 80 1 0 0 67,1 69,7 36,1 70 73,7 66,8 100 100 100 100 100 100 receiv ed pay m ent s f rom ec request ed pay m ent s f rom ec unt il 31.12.2008 com m it t ed liabilit ies unt il 31.12.2008 accessible cf f inancing picture 1. comparison of cf resource acquisition among baltic states source: data summarized by ministry of finance, (ministry of finance 2009c) problematic projects of cf until year 2010 in latvia there are 24 cf projects waiting for finishing realization. over the sectors they spread as follows: 14 projects for environmental; 9 projects of transport and one project for managing authority. more detailed information on these unfinished projects is shown in the following table 4. table 4. unfinished cf projects in latvia cf project total eligible cost of project cf co-financing payments made till 1.03.2009. still needs to be acquired eur eur eur eur track turnouts 35’201’185.0 26’430’000.0 21’144’000.0 14’057’185.0 signalling system 92’982’800.0 67’463’223.0 22’430’860.7 70’551’939.3 hot box 15’342’000.0 11’342’910.0 9’074’328.0 6’267’672.0 technical assistance for transport sector 1’535’000.0 1’304’750.0 929’878.8 605’121.3 improvements of the ten road network, project 1 159’771’000.0 78’778’727.0 70’900’854.3 88’870’145.7 track renewal on the east west railway corridor 85’997’092.6 46’499’997.0 33’091’243.8 52’905’848.7 technical assistance to ministry of transport 278’000.0 374’000.0 195’373.9 82’626.1 access roads to ventspils port terminal 36’405’005.0 15’901’397.0 9’330’346.9 27’074’658.1 reconstruction of access roads to liepaja port 13’454’179.0 8’499’519.0 6’799’615.2 6’654’563.8 transport sector in total 440’966’261.6 256’594’523.0 173’896’501.5 267’069’760.1 river basins 104’958’115.3 44’616’000.0 35’692’800.0 69’265’315.3 issn 1822-8402 european integration studies. 2009. no 3 65 technical assistance for environment sector 20’254’524.0 15’190’893.0 12’152’714.4 8’101’809.6 technical assistance for water services development in municipalities 8’915’496.0 7’310’707.0 5’848’565.6 3’066’930.4 development of water services in ventspils, stage 2 30’538’307.9 18’516’077.0 14’812’861.6 15’725’446.3 development of water services in olaine and jaunolaine 21’733’327.4 11’209’854.0 8’967’883.2 12’765’444.2 development of water services in liepāja, stage 2 25’296’262.8 21’502’863.0 17’202’289.9 8’093’973.0 development of water services in daugavpils, stage 2 33’523’422.0 16’420’991.0 13’136’792.8 20’386’629.2 solid waste management in zemgale 8’852’907.7 6’147’881.0 4’918’304.8 3’934’602.9 solid waste management in maliena 9’085’181.0 5’925’433.0 4’740’346.4 4’344’834.6 hazardous wast management system in latvia, stage 1 8’115’000.0 6’492’000.0 5’193’600.0 2’921’400.0 solid waste management in piejura 23’778’144.0 15’951’632.0 10’605’503.8 13’172’640.2 development of water services in rīga, stage 3 82’153’408.6 58’838’450.0 34’036’084.3 48’117’324.4 development of the district heating system of ventspils city in latvia 37’377’028.1 34’605’360.0 68’305.3 37’308’722.8 technical assistance for development of water service projects in latvia 3’056’478.0 2’567’441.0 1’585’447.4 1’471’030.6 environmental sector in total 417’637’602.8 265’295’582.0 168’961’499.4 248’676’103.4 technical assistance for managing authority 3’534’100.0 2’968’644.0 1’584’913.0 1’949’187.0 in total 862’137’964.4 524’858’749.0 344’442’913.9 517’695’050.5 source: calculations by author using ministry of finance data, (ministry of finance 2009b). today there is a number of cf projects that have some irregularities in project implementation plan with high implementation risk (ministry of finance 2009a): 1. project “development of the district heating system of ventspils city in latvia” the implementation progress is more than unsatisfactory, since project forecast time schedule significantly runs behind the ec defined deadline – 30 of november, 2009. as the enterprise representatives have informed the monitoring committee (cf monitoring comity 2008), construction jobs could be finished in 3. quarter of 2011. this is substantially longer period and furthermore may cause money damage to latvian state budget, if only ec will not prolong project realization deadline. at the moment there are announced procurement competitions on all activities provided in project framework. it is planned that all project contracts will be concluded in first quarter of 2009. 2. project “modernization of train service supervision system”. today from the cf co-financing total amount lvl 47.4 million, acquired are only 33% or lvl 15.8 million. therefore all possible actions are being performed to ensure successful realization of this project. for example, ministry of transport and state joint-stock company „latvijas dzelzceļš” have undertaken to ensure reinforced project implementation control. for this reason it is planned to draw in an expert – engineer who will be responsible for work realization monitoring in defined time limit. 3. project “development of water services in ventspils, stage 2” despite of comparatively good financial and job progress (today acquired are lvl 13.0 millions or 80% of cf resources), unfortunately should be considered the remarkable increase of expenses, because of what it is not possible to finish the project in initially planned range. unfortunately today it is not possible to find these lacking resources in state budget and therefore it is planned to ask for ec to agree/support the feasibility for reducing amount of required jobs in project. discussion on problems and possible solutions under conditions of global economic crisis in my previous publication (āboliņa i. 2008.) i have raised a discussion regarding problems in cf project implementation and offered various possible solutions. i have seen over the two most substantial problems of that time (years 2007/2008) and now i propose discussion on how these problems are being solved and solved under crisis conditions. the first problem is in connection with fast growth of construction sector, consequently many companies issn 1822-8402 european integration studies. 2009. no 3 66 re-profiled to act in private real estate business with much more earnings. at the time being this problem has been solved – in announced construction procurements now applies the considerable number of competitors. furthermore prices are very competitive and lower (reduction starting from 30% as in 2007/2008). there has been another problem arisen regarding realized construction procurements. in last years there were defined a specific guarantees for enterprises, who participate in large construction procurements (for instance, two years after object completion some amount of money should persist in the account for warranty repair works). consequently, enterprises who are involved in cf projects have frozen resources. unfortunately solution for this situation does not exist at the moment, as reducing these guarantees will violate public procurement law. solution suggested by me is to inform ec about those particular cases and to recover ec support again by methodically clarifying why situation became so worse. this would also help to prevent potential financial correction. the second problem regards to increase of payments. the fast economic growth facilitated development and this led to overall growth of prices. in that time the solutions were found by requesting additional resources from ec and/or latvian budget. as another alternative was the reduction of amount of works in projects, as long this did not interfere with project goals. today the situation has changed – for some projects there is an actual savings. however, one should understand how this problem had arisen – because of poor quality and robustness of project planning. at the time being situation has been changed and most essential problem in various project realisation is related to value added tax (vat) changes (increase) (saeima 1995). unfortunately decision was made without consideration of the sector specialist opinions. as a result, today implementation of eu funds projects is burdened. i would like to emphasize that this change affects every eu fund co-financed project. consequently, these problems apply to all institutions who administer eu resources, as well as beneficiaries and contractors. unfortunately responsible authorities until now did not give interpretations regarding possible solutions and rate application for diverse situations. for solving the situation the managing authority has prepared guidelines (ministry of finance 2009d) regarding vat rate application for eu funds projects unfortunately, the principle of legal certainty has not been taken into consideration (kalniete m. 2005). applying the new rate, no solutions for cost increase prevention are being offered. at the time being it is suggested to detect resources in budget framework of already approved project (using potential savings). however, not always such savings can take place. another offered solution is to reduce amount of works in project, although this is not always possible, since pretty often amount of works are reduced earlier – in previous years. by further reducing of these amounts the situation may arise, when goals defined by cf along with project implementation are not reached. the balance of cf co-financed project goals and latvian economic stabilization and growth renewal program analysing the economic stabilization and growth renewal program (cabinet of ministers 2009) one may conclude that in its form and fact it’s declarative and isn’t scientifically grounded. its defined goals are unclear. program says that it is necessary to simplify only eu fund implementation system of planning period 2007 – 2013, but there have to be acquired large amount of previous period resources – eur 518 millions. to successfully and flexible realize these projects of previous period, it is necessary urgently to improve also this system, as i pointed out in my previous publications (āboliņa i. 2008, 2009). the eu fund re-plan provided in the renewal program is related only to planning period 2007 – 2013. allocation of period 2000 – 2006 cannot be changed, since all resources are attached to ec approved projects. if there will be implemented the provided enhancements for procurement legislation, it will benefit the realisation of not yet started contracts in cf projects. for instance, if the procurement contract price level will be raised, it will shorten procurement procedures of large contracts for about two months. encouraged is the idea to define guarantee payment, if a compliant has been lodged regarding decision in time of procurement procedure. at the time being in the public procurement law (saeima 2006) has been provided an option to complain in procurement monitoring bureau (pmb) about all possible infringement. any complaint regarding particular procurement procedure temporarily suspends conclusion of contract. complaint review times in pmb are two months, and this seriously impacts terms of project realization. regulation of presence of irresponsible and abuse complaints will be assured by defining that in cases of these unfounded complaints guarantee payment will not to be returned. as positive aspect in this program is the willingness to arrange (adjust) the public and private partnership sector in latvia. previously due to shortcomings in legislation, the implementation of projects that were financed from state, local municipalities, non-governmental organizations and private capital, wasn’t possible (state chancellery 2009). realization of these projects should be encouraged, as this will facilitate financial load of all involved parties. also positively on previous period cf projects will allude the arrangement of guarantee legislation. until now quantity of guarantees were defined in technical issn 1822-8402 european integration studies. 2009. no 3 67 specifications of announced procurement tenders. as i previously pointed out, today it is extremely sensitive to review the guaranteed quantity established in contracts. by substantially reducing guarantees for contractors at the moment the procurement procedure has not been violated. arrangement of this sector will positively impact further, still not concluded contracts. conclusion the cf financial acquisition and progress of works are satisfactory, however there are some risky projects that may create a load to latvian state budget if ec won‘t approve reconciliation measures. cf projects in latvia are huge, involving eur 1.4 billions, however they do not facilitate socio-economic equalization, since great amount of them are invested in state owned enterprises that do not directly yield to society. great amount of allocated cf financing for transport infrastructure has been attached to state jsc “latvijas dzelzceļš”; smaller amount – for auto roads, although that would be direct contribution to society‘s standard of living. in environmental area in both numbers of projects and their allocated money amounts prevails the water service development, but these invested resources give immediate benefit to people. exact planning prevents problems in project realisation under both normal and global economic crisis conditions. economic crisis in latvia positively impact implementation of cf projects, since also contract costs reduces significantly (in some contracts even up to 30%). latvian economic stabilization and growth renewal program points towards resource replanning of new period and simplification of eu fund implementation system. in practice this has small impact on period 2004 – 2006 cf project realisation. references āboliņa i. (2006) documentary and institutional system (framework) of eiroopean union cohesion fund. research for rural development, international scientific conference proceeding – jelgava, pp.133 – 140; āboliņa i. (2007) instruments for regional convergence and their administration system, humanities and social science latvia nr.1 (50) – rīga, pp.70 – 88; āboliņa i. (2008) monitoring of financial support under the cohesion fund. economic science for rural development nr.17, international scientific conference proceeding – jelgava, pp 13 – 20; āboliņa i. (2009) socio – economic impact of the cohesion fund in latvia. not published materials. cabinet of ministers (2009), latvian economic stabilization and growth renewal program implementation plan. on-line: http://www.mk.gov. lv/lv/mk/tap/?pid=40109890&mode=mk&date=200 9-02-03. čiulevičiene v., čiulevičius j., kripaitis r. (2004) assimilation of sapard investment in agricultural holdings. economic science for rural development no.5 , international scientific conference proceeding – jelgava, pp.51 – 55; central statistical bureau (2009) codes of statistical regions according to nuts. on-line: http://www. csb.gov.lv/csp/content/?cat=8279. european commission (1999) council regulation (ec) no 1164/94 of 16 may 1994 establishing a cohesion fund. on-line: http://eiroopa.eu.int/eiro-lex/lex/ result.do?idreq=3&page=1&refinecode=. cf monitoring comity (2008), cf monitoring comity statute on-line: http://www.esfondi.lv/page. php?id=682. kalniete m. (2005) constitutional court verdict interpretative principle. on-line: http://www.lpia. lv/?id=836. ministry of finance (2007), cf financing for environmental and transport sectors. on-line: http:// www.esfondi.lv/page.php?id=901. ministry of finance (2009a) not published materials. ministry of finance (2009b) table of finances. on-line: http://komitejas.esfondi.lv/kf/dokumenti/forms/ allitems.aspx . ministry of finance (2009c) informative report. online: http://www.esfondi.lv/page.php?id=667. ministry of finance (2009d) guidelines for value added tax rate application to eu projects . on-line: http:// www.esfondi.lv/upload/00-vadlinijas/vadlinijas_ par_pvn_piemerosanu-2009-02-17.pdf. millere i., medne l. (2006) assimilation of the eiroopean union financioal support in hospitality enterprises, economic science for rural dvevelopment no.11, international scientific conference proceeding – jelgava,pp.104 – 111; pilvere i., rukmanis a.( 2006) expierience and provisional impact of direct support payments in latvia, economic science for rural dvevelopment no.11, international scientific conference proceeding – jelgava,pp.12 – 19; issn 1822-8402 european integration studies. 2009. no 3 68 saeima (1995) value added tax law. online: http://pro.nais.lv/naiser/text. cfm?key=0103011995030932771. saeima (2006) publict procurment law. on-line: http://pro.nais.lv/naiser/text. cfm?key=0103012006040632772. state chancellery, (2009) public and private partnership draft law. on-line: http://www.ppp.gov.lv/ fetch_1586.html. the article has been reviewed. received in march, 2009; accepted in april, 2009. 159 issn 1822 – 8402 european integration studies. 2010. no 4 structural development of grain production in the world’s regions kazimirs spogis, linda silina, dana svedere department of entrepreneurship and management abstract the paper includes the research results on structural development processes in grain production in various regions of the world obtained by analysing the structural composition of output of grain crops and assessing the development trends both in europe and the other regions of the world. the globalised market of agricultural goods impacts, to a great extent, the production of grains, especially its structure, but these markets are mostly impacted by the development of grain production, especially the trends and directions shaping the structure of total output of these crops the structural differences are observed even among particular agricultural enterprises of one region, and they are determined by strategic production goals, the structure of agricultural industries, as well as the professional capacity of management, and the impact of traditions. the research aim is to analyse the structure of total output of grain crops and to assess its development trends in europe, its regions, and other groups of countries in the world. in the research, it was concluded that the total output structure in various european regions is different, with wheat production dominating in north europe, whereas the proportion of maize production has significantly increased in the other parts of europe. but in general, the global grain market is mostly impacted by 10 largest grain producing countries, but especially grain production develops in asian countries, which can make changes in the impact of groups of countries or regions. according to the research, it was concluded that ten largest areas sown with grain crops belong to 3 asian, 2 north american and 2 european countries, as well as to australia, brazil, and nigeria, however, their areas sown with grains tend to decrease. the qualitative indicators of grain farming, in terms of productivity, also change, which is determined by the progress of genetics, technologies, and other related industries in any researched region. the qualitative structure of grain products changes in the world’s regions. the dominant crop is rice in asian countries, but the cultivation of maize also sharply increases. the structure of output of grains is very different in the european regions, and the changes taking place there are very diverse. the share of wheat absolutely dominates in western, northern, and eastern europe, whereas in southern europe wheat has been outweighed by maize over the recent years. in northern and eastern europe, where natural conditions are not appropriate for maize, the share of wheat continues to rise. in northern europe, barley is the most popular crop of feed after wheat, however, its share has significantly decreased there. the share of barley in the grain balance sheet substantially shrinks in eastern and western europe, but it is also popular in southern europe. the dominating share belongs to maize not only in southern europe, but its share increase also in eastern and western europe. in all the european regions oats are popular, but their share shrinks everywhere. rye, too, is grown in all the european regions, however, in general, it can be regarded as an insignificant product, as its share has decreased almost twice as much even in eastern europe, while in the other european regions the share of rye has decreased to 0.6-2.7%. over the recent 10 years, a hybrid of rye and wheat – triticale – was introduced in small areas. rice production is slightly progressing in southern europe. key words: grain crops, production, sown area, total output. introduction the globalised market of agricultural goods impacts, to a great extent, the output of grains, especially grain farming and its structure. only governmental interventions in the grain market or other indirect measures of protectionism can partially protect latvian farmers from a complete impact of the world’s grain market. therefore, objective and scientifically justified information on the output structure of food grains and seeds, its development trends and paces would issn 1822-8402 european integration studies. 2010. no 4 160 be important for farmers–grain producers and grain processors. such information is a basis for planning areas of land to be sown, their location, and structure as well as for tackling technological and machinery problems. the previous studies of the authors, which were conducted over the recent years, indicate that the areas sown with grain crops, their structures, as well as the output structures of grains are very different among latvia’s regions, irrespective of the small territory of the republic of latvia, due to natural and technological conditions in its regions. the main differences are determined by edaphic, technological, topographic, as well as economic conditions. the structural differences are observed even among particular agricultural enterprises of one region, and they are determined by strategic production goals, the structure of agricultural industries, as well as the professional capacity of management, and the impact of traditions. it is also important to know what’s going on both the local and european union and global grain markets, but these markets are mostly impacted by the development of grain production, especially the trends and directions shaping the structure of total output of these crops. the assessment of results of previous studies set forth the research aim: to analyse the structure of total output of grain crops and to assess its development trends in europe, its regions, and other groups of countries in the world. to achieve the aim, several research tasks are set forth: to ascertain the changes in areas sown with grain • crops and in total output of grains for the key grain producing countries; to analyse the changes in and divergence of yields of • grain crops for the world’s countries having various development levels of grain farming; to investigate the structural changes in total output • of grains in the period since 1990 for regions of the world and europe. to perform the research tasks, statistical data bases of the un’s agricultural and food organisation (fao), data of eurostat and latvian statistics, as well as the published results of previous studies of the authors were used. adequate research methods were applied to perform each research task – analysis of data-arrays and regression, grouping, and the logically constructive method. l. siliņa (2006, 2007, 2009) researched the processes of agricultural structural development in a particular territory of latvia – in kurzeme; this region was compared to other latvian regions within the classification of nuts 2 regions. researchers d. bernatonyte, z. simanaviciene (2008) revealed what changes in the foreign agricultural and food market of lithuania occurred due to its integration process in the european union. j. piecuch (2007) has analysed the development possibilities of the agricultural industry in one of the world’s regions – in portugal which depends on agricultural products very much. a group of authors under the guidance of a. sproģis (2008) has made an assessment to ascertain what changes in agriculture are possible taking into consideration the regional specialisation directions. llu professor mihejeva.l (2008) believes that the competitiveness and management of agricultural enterprises is characterised by a quantity of agricultural commodities produced per hectare, income gained from sales, and an amount of resources consumed in production and on the basis of the above-mentioned, the professor estimated a possible gross margin at various sizes of farms. areas sown with grain crops and trends of change in the output of grains to perform this task, official statistical data on the ten world’s largest grain producing countries for a 10 year period, as well as data on the rest 169 countries for the same period were analysed. the data and estimates are presented in table 1. the strategy of grain market policy in the world (all crops), according to the areas planted for grain crops, is mainly shaped by four countries – two asian countries (india and china), one north american country (usa), and russia. a special role can be played by the two big asian countries whose numbers of population are growing and shares in the world’s population are very large. however, the areas planted for grain crops have also stabilised in these countries, and a slight trend of their decrease is observed. it can be related to a need for agricultural land to produce other products, but the grain market processes have a little impact on it. a significant decrease in the areas planted for grain crops in north america can be impacted by two major factors: grain overproduction which exceeds the purchasing • power of consumers and grain processors in the world market; radical progress in the science of grain production • in the usa, which promotes a sharp increase in grain yields, creates favourable preconditions for an increase in the output of grains, while at the same time using smaller areas for grain crops. a decrease in the area sown with grain crops in russia is most likely related to political and economic reforms that were implemented in this country in 1990ies. such a hypothesis is proven by a fact that since the year 2000 the area sown with grain crops has stabilised in russia, and a slight upward trend is observed. issn 1822-8402 european integration studies. 2010. no 4 161 table 1. areas harvested for grain crops in the world’s 10 countries with the largest areas of grain crops, million ha country research years change against baseyear 2006/1994-1996 1994-1996 1999-2001 2004 2005 2006 mln. ha % india 100 101.6 97.8 99.5 99 -1 99 china 90.1 86.9 79.8 82.1 83.7 -6.4 92.9 usa 62.9 57.4 56.8 56.8 52.9 -10 84.1 russia 51.1 40.4 40.5 41.2 40.7 -10.4 79.6 brazil 19.1 17.6 20.4 19.2 18.4 -0.7 96.3 nigeria 18.1 17.5 17.7 18.3 19.2 1.1 106.1 australia 14.5 17.3 20.3 19.9 18.3 3.9 126.2 canada 18.9 17.8 16.2 15.8 15.9 -3 84.1 indonesia 14.7 15.2 15.3 15.5 15.1 0.4 102.7 ukraine 12 12.8 14.9 14.2 14.2 2.2 118.3 total of 10 countries 401.4 384.5 379.2 382.5 377.4 -24 94 share of these 10 countries in total area sown with grain crops, % 57.7 57 55.9 55.6 55.2 x x in the world 695.2 674.5 678.5 687.7 683.2 -12 98.3 other countries 293.8 290 299.4 305.3 305.8 12 104.1 source: data of the un fao statistical yearbook and the authors’ estimates the other six largest grain producing countries represent various continents – south america (brazil), africa (nigeria), north america (canada), europe (ukraine), asia (indonesia), and australia-oceania (australia). one can conclude that all the continents – their largest grain producing countries – take part in forming the world’s grain balance sheet. in total, the areas of these 10 countries planted for grain crops account for the largest share in the world’s area sown with grain crops. however, the real trends, which are shown in table 1, are also very important: the areas planted for grain crops in these 10 countries are decreasing, besides, the decrease is substantial and continuous over the recent 10 years. in the other countries, the areas of grain crops increase, but only a half of the decrease in areas of the large countries is offset by it. as a result, the world’s total area sown with grain crops decreases as well. by analysing and assessing estimates presented in table 2, it was found out whether the decrease in these areas is offset by the increase in crop yields and total output. table 2. total output of grains (seeds) in the world’s 10 largest grain producing countries, mln.tons country research years change against baseyear 2006/1994-1996 1994.-1996 1999.2001 2004 2005 2006 milj.t % china 422.9 420.3 413.2 409.4 444.1 21.9 105 usa 232.1 334.5 389.1 366.5 338.5 15.4 104.8 india 213.6 238 229.8 240 242.9 29.3 113.7 russia 69.4 67.2 76.2 76.6 76.9 7.5 110.8 brazil 46.8 50.1 63.9 55.4 59.1 12.3 126.3 france 56.5 63.4 70.5 64.1 61.8 5.3 109.4 canada 51.5 49.5 50.8 51 48.6 -2.9 94.4 bangladesh 27.9 37.9 37.8 41.1 44.8 16.9 160.6 germany 39.4 46.5 51.1 45.9 43.5 4.1 110.4 vietnam 26.2 33.9 39.6 39.5 39.6 13.4 151.1 total of 10 countries 1277.3 1341.5 1422 1409.5 1399.2 121.9 109.5 total in the world 1975.4 2084.8 2279.2 2266.6 2228.1 252.7 112.8 total in other countries 698.1 743.3 857.2 857.1 828.9 130.8 118.9 share of other countries 35.3 35.7 37.6 37.8 37.2 x x source: data of the un fao statistical yearbook and the authors’ estimates as we can see in table 2, other countries are included among the largest grain producing countries as compared to the list of the countries with largest areas planted for grain crops. asian countries absolutely dominate here – not only china and india, but also bangladesh and vietnam. a large share belongs to three european issn 1822-8402 european integration studies. 2010. no 4 162 countries (russia, germany, france). north america is represented by the same countries – the usa and canada. the following conclusions can be drawn from table 2: the world’s grain market balance sheet is regulated • by 10 largest grain producing countries, the share of which in the total output of grains accounts for almost two thirds; in these 10 countries, the output of grains continuously • increase on average by 12 million tons a year; very fast progress is observed in asian countries, • especially in vietnam and bangladesh, where an increase in the output of grains was 50-60% in the recent 10 years; a quite substantial increase was also observed in the • european countries – turkey, germany, and russia – which are included in this top 10 list; progress in the increase in grain production is stronger • in the other 170 countries, which can be regarded as a socially very important fact or process, as it ensures better nutrition in developing countries. by analysing the relative estimates, one can conclude that the share of the other countries slightly increases issn 1822-8402 european integration studies. 2010. no 4 163 table 4. structure of total output of grain in the world’s regions in 1990 and 2007, % grain crops asia north america europe south america other regions 1990 2007 1990 2007 1990 2007 1990 2007 1990 2007 wheat 23.8 25.6 29 16.4 49 49.3 25.6 17.4 32.1 26 maize 15.5 19.7 56.8 74.2 11.5 18.7 48.5 62.2 27.3 27.3 rice 56.1 54.7 1.9 1.9 20.4 16.4 10.6 12.2 barley 2.4 6.2 3.4 26 21.5 10.1 7.1 oats 2.1 1.3 5.8 4.1 2.3 1 rye 7.7 3.5 triticale 2.8 sorghum -2.2 4 2.7 5.5 3.9 9.9 16.4 millet 7.7 10 source: data of the un fao statistical yearbook and the authors’ estimates these changes have to be taken into consideration by european farmers, as maize will continue and increase pressure on grain prices in the world market. on the other hand, relatively cheap feed made of maize can increase meat production, which, in its turn, would provide better nutrition in the world. rice is the main food in asia, while in south america • it is outweighed by maize. barley is the second major component in the grain • balance sheet in europe, but its share shrinks due to the impact of maize. the share of barley also shrinks in eastern asia and oceania. the small share of oats has become even less • significant in the grain balance sheet, although healthy foods can be made of oats. rye is a specific crop produced only in europe; it is • preferred for making bread, but its share has shrunk twice as much in this region. sorghum and millet are important components of • food balance sheet for population in the african continent. the structural changes of grain farming in europe are shown in table 5. table 5. structure of total output of grain in european regions in 1990 and 2007, % grain crops europe eastern europe northern europe southern europe western europe 1990 2007 1990 2007 1990 2007 1990 2007 1990 2007 wheat 49 49.3 49.8 51.2 46.9 54.4 38.3 32 52.7 52.5 barley 26 21.5 24.2 18.7 40.5 33.3 21.1 23.4 26.5 19.5 maize 11.5 18.7 8.5 16.2 32.1 38.9 12.8 19 oats 5.8 4.1 6.8 5 10 8.7 2.1 0.4 3.3 2.8 rye 7.7 3.5 10.7 5.4 2.5 1.9 2.6 0.6 4.7 2.7 triticale 2.8 3.5 1.7 0.3 3.5 rice 3.7 4.4 source: data of the un fao statistical yearbook and the authors’ estimates a general conclusion made from the results presented in table 5 is that the structure of output of grains is very different in the european regions, and the changes taking place there are very diverse. the share of wheat absolutely dominates in western, • northern, and eastern europe, whereas in southern europe wheat has been outweighed by maize over the recent years. in northern and eastern europe, where natural conditions are not appropriate for maize, the share of wheat continues to rise. in northern europe, barley is the most popular crop of • feed after wheat, however, its share has significantly decreased there. the share of barley in the grain balance sheet substantially shrinks in eastern and western europe, but it is also popular in southern europe. the dominating share belongs to maize not only • in southern europe, but its share increase also in eastern and western europe. in all the european regions oats are popular, but their • share shrinks everywhere. rye, too, is grown in all the european regions, • however, in general, it can be regarded as an insignificant product, as its share has decreased almost twice as much even in eastern europe, while in the other european regions the share of rye has decreased to 0.6-2.7%. over the recent 10 years, a hybrid of rye and wheat • – triticale – was introduced in small areas. rice production is slightly progressing in southern europe. by analysing the most popular grain crops (wheat and barley), one can see that the annual grain balances are very volatile, which depends on several the above-mentioned factors (direct and indirect) (see figures 1 and 2). issn 1822-8402 european integration studies. 2010. no 4 164 40 60 80 100 120 140 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 year m ln . t northen europe eastern europe linear (northen europe) linear (eastern europe) a 15 17 19 21 23 25 27 29 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 year m ln . t southern europe western europe linear (southern europe) linear (western europe) b figure 1. development dynamics of wheat production in europe (1990-2007), mln. t. 15 25 35 45 55 65 75 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 year m ln . t northen europe eastern europe linear (northen europe) linear (eastern europe) a 5 10 15 20 25 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 year m ln . t southern europe western europe linear (southern europe) linear (western europe) b figure 2. development dynamics of barley production in europe (1990-2007), mln. t (a – in northern europe and eastern europe; b – in southern europe and western europe) that two figures demonstrante the claims above. conclusions the ten largest areas harvested for grain crops 1. belong to 3 asian, 2 north american and 2 european countries, as well as to australia, brazil, and nigeria, but their areas sown with grains tend to decrease, although still exceeding half of the total area planted for grain crops in the world. among the ten largest grain producers, there are 2. four asian (china, india, bangladesh, vietnam), two north american (usa and canada), and three european (russia, germany, france) countries, as well as brazil (south america). they produce almost two thirds of the world’s total output of grain. the grain market can be mostly impacted by the ten 3. largest grain producing nations, but their policies and strategies for grain farming are different. the output of grain increases very fast in asian countries as well as in several other nations. it can really change the impact of groups of countries or regions on the grain market. qualitative indicators of grain farming, in terms 4. of productivity, change, which characterises the progress of genetics, technology, and other related sciences in the country. an average yield in the usa has exceeded a rate of 6 t ha-1 and in china 5 t ha-1. the quantitative structure of output of grains radically 5. changes in the world’s regions: in asia, rice is mostly produced, while the share of maize increases fast; in north america, already three quarters of the total output is maize; in south america, too, rice and wheat areas are substituted by maize; in europe wheat dominates constantly. the structure of output of grains changes in the 6. european regions: the dominance of wheat increases in northern europe, whereas the share of maize substantially increases in eastern, southern, and western europe. the production of rye disappears in all the european regions, and the share of oats shrinks significantly. references fao statistikas gadagrāmata. 2007-2008 www.gao.org. filia...2009.08.21 latvijas statistikas gadagrāmata 2002. (2002). rīga: lr csp. 302 lpp latvijas statistikas gadagrāmata 2005. (2005). rīga: lr csp. 302 lpp latvijas statistikas gadagrāmata 2008. (2008). rīga: lr csp. 586 lpp. pasaule valstu ekonomikas vārdnīca. jumava, rīga, 2006. issn 1822-8402 european integration studies. 2010. no 4 165 špoģis, mihejeva, ruskule, plēsms j. politika, stratēģija un vadīšanas lauku uzņēmējdarbībai. ozolnieki, 1998, 219. – 258.lpp siliņa l. commercial orientaionof intraregions and districts in kurzeme. llu proceedings 19 (314), jelgava, 2007. 29 36.lpp. siliņa l., špoģis k. efficiency of the use of assets in the farms of kurzeme peninsula in latvia. european integration studies. research and topicalities. lithuania, kaunas, 2009. 143.-149.p.p. siliņa l. intrazonal agricultural resources in courland peninsula. research for rural development 2006. jelgava, 2006. 156. – 162.p.p. dalia bernatonyte, zaneta simanaviciene changes of lithuanian foreigen trade of agricultural and food products in the context of the eu integration. economic science for rural develoment nr.17, jelgava, 2008. 41-47 pp. jakub piecuch develioment of agriculture in protuguese region. . economic science for rural develoment nr.12, jelgava, 2007. 98 104 pp. spoģis j., sproģe i., sproģis a. economic science for rural develoment nr.15, jelgava, 2008. 257 264. lpp. mihejeva l. the forecast of contribution margin changes in the cultivation of plants at various level of farming. economic science for rural develoment nr.15, jelgava, 2008. 142 148 pp. grain storage techniques evolution and trends in developing countries... http://www.fao.org/docrep/ t1838e/t1838e0j.htm#grain%20trade research and development issues in grain post-harvest problems in asia... research and development issues in grain postharvest problems in asia regional reviews. http://www.fao.org/docrep/011/ ai480e/ai480e06.htm the article has been reviewed. received in april, 2010; accepted in may, 2010. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 50 submitted 04/2018 accepted for publication 11/2018 european integration studies no. 12 / 2018 pp. 50-62 doi 10.5755/j01.eis.0.12.21872 identification of smart regions with resilience, specialisation and labour intensity in a globally competitive sector – examination of lau-1 regions in finland eis 12/2018 abstract identification of smart regions with resilience, specialisation and labour intensity in a globally competitive sector – examination of lau-1 regions in finland http://dx.doi.org/10.5755/j01.eis.0.12.21872 teemu haukioja turku school of economics, university of turku jari kaivo-oja futures research centre, turku school of economics, university of turku ari karppinen turku school of economics, university of turku saku vähäsantanen regional council of satakunta the purpose of the study was to construct smart specialisation indicators for lau-1 regions in finland. established indices are based on indicators of the regions’ revealed comparative advantage and the degree of diversification in the sub-regional industrial structure. furthermore, we introduce an indicator that can be used to assess the socio-economic importance (employment) of diversification and specialisation for a region. the indices data is based on statistics finland (2015) data for the 70 local administrative unit level 1 (lau1) sub-regions in finland. the potential s3 indices measured here reveal the position of each sub-region’s smart specialisation among the 70 sub-regions in 2015. it is common economic knowledge that manufacturing industries are the most export-oriented, highly productive and thus can approximate a region’s success in international trade and competitive advantages. the study is based on three smart specialisation indices: the herfindahl-hirschman index for regional resilience (hhi), the regional relative specialisation index (rrsi) based on the balassa-hoover index (b-h), and the relative employment volume index in the manufacturing sector (limi). through index examination, we can obtain knowledge about a region’s smart specialisation status and potential. the results reveal that each sub-region has its own smart specialisation characteristics with a different risk profile. sub-regions like helsinki and tampere have a similar industrial structure to finland as a whole and are resilient: they will benefit from nationwide economic and industrial policy, and they have a good capability of resisting economic shocks. our study reveals that there are some other similar smaller (lau-1) sub-regions in finland – for example rauma. as such, it is critical that this kind of research-based basic information be taken into account when constructing sustainable strategies for regional development. similar calculations could be performed for all regions in europe. 51 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 keywords: finland, herfindahl-hirschman index, balassa-hoover index, industrial diversification, european union, regional development, revealed comparative advantage, smart specialisation. a smart region must be able to specialise enough to succeed in international competition and at the same time be sufficiently diverse in its industrial (i.e. competitive) structure to adapt to external shocks. this study concerns the specialisation and diversification of the competitive/industrial sector in lau-1 sub-regions in finland concerning their position in terms of smart specialisation. smart specialisation has been a strategic (s3) challenge in european regional development and policy for several years. despite intensive research and numerous financed projects, the actual content of s3 remains somewhat obscure. on the one hand, the goal is that each european region finds its own competitive advantages and fields of economic specialisation (foray et al. 2009, foray 2011, 2012, 2014, 2015, capello 2014, gule 2015, european commission 2014, european commission 2017). the ultimate goals are economic growth, investments and jobs (see e.g. mccann & ortega-argilés 2015, kaivo-oja, haukioja & karppinen 2017). on the other hand, any given region should be resilient to external shocks. in practice, this means that the industrial structure of the region should be diverse enough to maintain its ability to recover from setbacks. there is a strong foothold in s3 thinking according to which european regions are supposed to find their local strengths by adopting entrepreneurial discovery processes (edp) and renewing their co-operation practices with stakeholders in the spirit of the quadruple helix approach. the aim of most s3 projects is to emphasise the importance of micro-based qualitative indicators, because they can produce unique local knowledge. however, interest is also shifting towards quantitative macro indicators and statistics, because only they can reveal a region’s relative potential and economic success in relation to other regions. both kinds of information are important in order to produce sustainable smart specialisation strategies (see oecd 2013, borsekova et al. 2017). the construction of ‘smart’ indicators for europe’s smart specialisation strategies (s3) is a current but challenging topic both for academic research and for the people involved in the practice of regional development. the need for s3 indicators has been recognized but the common ground for implementing a systematic set of indicators is still lacking. there is an obvious reason for this: it is hard to create an integrated indicator system that is based on a bottom-up approach and a subjective process where local stakeholders are supposed to create a common comprehension of relevant objects of measurement and the right indicators for that purpose. unavoidably, many such subjective-based indicators must be qualitative in nature. if this is a challenging task for one region, it is almost a ‘mission impossible’ for the whole of the european union. in europe there are numerous regions whose cultural and socio-economic features may be highly distinctive; what fits well for one region may be totally inadequate for another. despite these difficulties, in its handbook ‘implementing smart specialisation’ (gianelle et al. 2016, paliokaite, martinaitis & reimeris 2015, santonen, kaivo-oja & suomala 2014, virkkala et al. 2014), the european commission presents a framework and the desirable properties that are expected from smart specialisation indicators. a bottom-up approach makes local tailoring possible, because understanding can be increased about the specific characteristics of a given region. the problem, however, is that this micro-based information cannot be used effectively to understand other regions. consequently, comparisons between regions must also be rather arbitrary. some smart specialisation scholars have even taken quite a critical attitude to macro-based indicators, almost denying their usefulness in smart specialisation considerations (oecd 2013, 77). however, quantifiable macro-indicators may at their best present a quantitative and ‘objective’ measuring tool for some phenomenon of interest, which makes a region’s relative differences and features visible, and can provide important comparative knowledge about a region’s relative position among a group of ‘smart’ regions. in contrast to such introduction e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 52 indoctrination, we see that there is no convincing research-based evidence to justify neglecting the macro aspects in academic s3 research and in the practice of regional development projects. on the contrary, we see that such omissions may even be harmful for viable and sustainable regional strategies. we propose that both approaches are needed, and the omission of one may give an incomplete, inaccurate and biased picture about what is going on in a region. thus, all aspects of micro, macro, qualitative and quantitative approaches should be exploited, because they are not exclusionary, but complementary. in order to commit to a high quality strategy building process, a comprehensive ‘both-and’ mindset needs to be adopted. as a conclusion, by using an index approach we can obtain regional profiles of smart specialisation that are revealed by general statistics, instead of local or individual qualitative assessments that are incomparable with each other. the knowledge creation in this study is based on the idea that regions in europe need relevant and as objective data as possible to recognize their true competitive advantages. competitive advantages are not isolated from other regions; rather they are related to other regions. thus, sustainable and successful smart specialisation strategies for individual regions must be compatible with this knowledge. the index approach can reveal a region’s present economic structure in industrial production. it can also support relevant background information, which enables realistic discoveries about potential new business models that originate in regions’ strengths (see e.g. johnson 2015, gheorghiu et al. 2016, jucevicius & galbuogiene 2014, paliokaite, martinaitis & sarpong 2016). this provides the foundation for knowledge-based management and strategy building, supporting bold openings for experiments and the regional strengthening of the entrepreneurial discovery processes. the s3 approach aims to support the building blocks of regional competitiveness. typical sources of competitiveness are (1) innovation and creativity, (2) agglomeration economics, (3) foreign direct investment (fdi), (4) clusters, specialisation and concentration, (5) networks and transportation costs, (6) education and research, (7) size and available resources, (8) economic structure and (9) interregional structure. regions have many ways to improve their competitiveness (thissen et al. 2013, s3 platform 2015). clear indications of competitiveness are (1) research and technological development, (2) institutions and social capital, (3) foreign direct investment and (4) infrastructure and human capital. these fundamental factors lead regions towards revealed comparative advantage with improved labour productivity and employment rate. finally, these two key factors guide regions to improvement of regional performance (gross regional product). in the final stage, the target outcome is welfare and quality of life (see thissen et al. 2013, p. 50). regional development strategies can be based on clustering, openness, diversification and specialisation. these four domains give rise to our regional strategic options: (1) cluster strategy, where a region combines specialisation and openness, (2) cluster strategy, where a region combines specialisation and clustering, (3) self-sufficiency strategy, where a region combines clustering and diversification, and finally (4) trade-dependent diversification strategy, where a region combines diversification and openness (thissen et al. 2013, p. 89). theoretical framework method and data for a smart specialisation strategy to work in regions, it is of great importance to find the best indicators that show the status of a region as plainly as possible among the comparison group. we have applied the index approach to the lau-1 regions of finland. industrial production is emphasised, which can be characterised as an export-oriented high productivity sector. three statistical smart specialisation indicators are examined: equation 1 is based on the herfindahl-hirschman index (hhi). originally, the hhi was used to measure market concentration, i.e. the market shares of the firms in an industry. it also can be used to describe a region’s economic resilience. this index can be used to identify ex ante the region's ability to 53 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 cope with external shocks, such as a financial crisis, the closure of large mills or industrial accidents. the calculation of the hhi index takes into account the extent to which the individual industries in the sub-sector employ the population in relation to the entire industrial sector's labour force in the region. the smaller the value of hhi becomes, the more versatile industrial structure the region has. a versatile industry structure reflects the economic resilience of the region: "all the eggs" are not put "into the same basket". resilience calculation enables better risk management in regional policy and regional economics (see also lahari et al. 2008, karppinen, & vähäsantanen 2015, maliranta 2005, kakko, kaivo-oja & mikkelä 2016). information on economic resilience in the region is useful for both public and private sector decision-makers, who should be aware of the instability of the global economy when they are developing and implementing regional strategies. the data for this study comes from statistics finland (2017, 2018). herfindahl-hirschman index (hhi) we have applied the herfindahl-hirchman index (hhi) to describe the ex ante resilience properties of the finnish sub-regions against asymmetric external economic shocks (herfindahl 1950, hirchman 1964). our data includes 70 sub-regions and 24 industrial sectors. the hhi measures the industry-wide diversification of a competitive sector in the sub-region. the hhi formula is as follows: (1) where x i is the number of people employed in the industrial sector (i), x is the total number of people employed in all industrial sectors in the region (s) and (n) is the number of industrial sectors. the hhi index is calculated as the sum of squared industry shares for each sub-region. the hhi uses values between [0,1]. the smaller the value, the more diversified the region, and vice versa (see e.g. kaivo-oja et al. 2017). region’s relative specialisation index (rrsi) as the hhi reflects a region’s ability to resist external shocks in an ex ante sense, we have applied rrsi as an indicator of the revealed comparative specialisation of sub-regions in an ex post sense. the rrsi measures the observable amount of the relative deviation of the region’s industrial structure compared to that of the whole country. the aim of the rrsi is to identify whether the region has succeeded in specialising to a sufficient degree to survive in global competitive markets. in the terminology of economics, the relative comparative advantage is revealed. the rrsi measures the relative disparity of the industrial structure of the region with respect to the broad industrial structure of the whole country. the higher the value rrsi index becomes, the more specialised the region's industrial production base is in relation to the entire national economy. for industrial activities, this means high productivity and economic success in good times, but on the reverse side, there is a possibly of weaker economic resilience in the event of a recession or other economic downturn. this approach is in line with the terminology of intelligent specialisation. it can be calculated in the following way (see e.g. balassa & noland 1989): = [√∑ (1 − )2=1 ] (2) where bhi i is the balassa-hoover index (bhi) for industry (i). the formula for the bhisi is as follows: information on economic resilience in the region is useful for both public and private sector decisionmakers, who should be aware of the instability of the global economy when they are developing and implementing regional strategies. the data for this study comes from statistics finland (2017, 2018). herfindahl-hirschman index (hhi) we have applied the herfindahl-hirchman index (hhi) to describe the ex ante resilience properties of the finnish sub-regions against asymmetric external economic shocks (herfindahl 1950, hirchman 1964). our data includes 70 sub-regions and 24 industrial sectors. the hhi measures the industry-wide diversification of a competitive sector in the sub-region. the hhi formula is as follows: 𝐻𝐻𝐻𝐻𝐻𝐻� = ∑ ���� �� � ���� (1) where xi is the number of people employed in the industrial sector (i), x is the total number of people employed in all industrial sectors in the region (s) and (n) is the number of industrial sectors. the hhi index is calculated as the sum of squared industry shares for each sub-region. the hhi uses values between [0,1]. the smaller the value, the more diversified the region, and vice versa (see e.g. kaivo-oja et al. 2017). region’s relative specialisation index (rrsi) as the hhi reflects a region’s ability to resist external shocks in an ex ante sense, we have applied rrsi as an indicator of the revealed comparative specialisation of sub-regions in an ex post sense. the rrsi measures the observable amount of the relative deviation of the region’s industrial structure compared to that of the whole country. the aim of the rrsi is to identify whether the region has succeeded in specialising to a sufficient degree to survive in global competitive markets. in the terminology of economics, the relative comparative advantage is revealed. the rrsi measures the relative disparity of the industrial structure of the region with respect to the broad industrial structure of the whole country. the higher the value rrsi index becomes, the more specialised the region's industrial production base is in relation to the entire national economy. for industrial activities, this means high productivity and economic success in good times, but on the reverse side, there is a possibly of weaker economic resilience in the event of a recession or other economic downturn. this approach is in line with the terminology of intelligent specialisation. it can be calculated in the following way (see e.g. balassa & noland 1989): 𝑅𝑅𝑅𝑅𝑅𝑅𝐻𝐻� = ��∑ �1 − 𝐵𝐵𝐻𝐻𝐻𝐻� ������ �� (2) where bhii is the balassa-hoover index (bhi) for industry (i). the formula for the bhisi is as follows: 𝐵𝐵𝐻𝐻𝐻𝐻�� = ��� �� �� � � (3) where xsi/xs is the share of employed in the region (s) in industry (i), and (xi/x) is the corresponding share for the country as a whole. if bhisi ≥ 1, there is a revealed comparative advantage for that industry in a subregion (s) compared to the sum of all the regions. we have used the bhi with industrial labour data. the higher the rrs index, the more specialised the structure of manufacturing industry is revealed to be in the region. if the structure of a region is similar to that of the country as a whole, the rrsi obtains a value of zero. if the rrsi ≠ 0, the industrial structure of a region differs from the country’s average. equation 4 is a simple indicator of employment in industrial production in a given region. we call this indicator the ‘labour intensity of manufacturing index’ (limis) for region (s): (3) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 54 where x si /x s is the share of employed in the region (s) in industry (i), and (x i /x) is the corresponding share for the country as a whole. if bhi si ≥ 1, there is a revealed comparative advantage for that industry in a sub-region (s) compared to the sum of all the regions. we have used the bhi with industrial labour data. the higher the rrs index, the more specialised the structure of manufacturing industry is revealed to be in the region. if the structure of a region is similar to that of the country as a whole, the rrsi obtains a value of zero. if the rrsi ≠ 0, the industrial structure of a region differs from the country’s average. equation 4 is a simple indicator of employment in industrial production in a given region. we call this indicator the ‘labour intensity of manufacturing index’ (limis) for region (s): 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿� ���𝐸𝐸��� 𝑇𝑇𝐸𝐸� �� (4) where 𝐸𝐸��� measures employment in manufacturing and te is total employment. as a third dimension, the significance of employability with the features revealed by the two previous indicators in the region still needs to be considered. the labour intensity of manufacturing index (limi) measures the region's industrial workforce's share of the entire workforce in the region. the empirical material is based on the employment statistics of industry (tol2) produced by statistics finland (lau1, statistical definition, which is used by the european statistical office in eurostat finland). the data sets are for 2015. results in fig. 1 we have reported the herfindahl-hirschman index analysis of the regional economy in finland (70 lau1 regions) in 2015. (4) where e man measures employment in manufacturing and te is total employment. as a third dimension, the significance of employability with the features revealed by the two previous indicators in the region still needs to be considered. the labour intensity of manufacturing index (limi) measures the region's industrial workforce's share of the entire workforce in the region. the empirical material is based on the employment statistics of industry (tol2) produced by statistics finland (lau1, statistical definition, which is used by the european statistical office in eurostat finland). the data sets are for 2015. in fig. 1 we have reported the herfindahl-hirschman index analysis of the regional economy in finland (70 lau1 regions) in 2015. in fig. 2 we have reported the regions’ relative specialisation index (rrsi) in finland in 2015. in fig. 3 we have reported the regions’ labour intensity in finland in 2015. fig. 4 is based on the indices (hhi) and (limi) presented in figs. 1 and 3 and equations (1) and (3). we have classified both the resilience and labour intensity of the manufacturing properties of smart sub-regions into four sub-areas (i-iv) based on their median. if a sub-region is in sub-area i or ii, its s3 properties are strong resilience in the sub-region’s economy and high/weak labour intensity of manufacturing, respectively. correspondingly, sub-areas iii and iv consist of weak resilience and weak/strong labour intensity properties, respectively. for more detailed classification purposes, the upper and lower quartiles are also shown in the figure. the coloures indicate the location of the sub-region with respect to the limi index median/quartiles classification. the names of some smart sub-regions – the ten most diversified and the five least diversified – are expressed according to the limi classification. each of the sub-regions can find a distinctive position for their smart specialisation in 2015. for example, the smart specialisation properties for the economy of the jakobstad sub-region can be characterised by a very strong labour intensity and quite high resilience in manufacturing. in tables 1 and 2 these sub-regions are explored in more detail. fig. 5 is based on the indices (rrsi) and (limi) presented in figs. 2 and 3 and equations (2) and (3). in order to achieve convenient comparisons with respect to sub-regional smart specialisation properties (i.e. hhi and rrsi with respect to limi), we have also classified here two smart specialisation features. in the case of fig. 5, the relative sub-regional specialisation and labour intensity of manufacturing properties of the smart sub-regions are classified into four sub-areas (i-iv) based on their median. if a sub-region is in sub-area i or ii, its s3 properties are a significant results 55 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 fig. 1. herfindahl-hirschman index analysis of the regional economy in finland (70 lau1 regions) in 2015. 0 10 20 30 40 50 60 ålands skärgård raahe imatra koillis-savo koillismaa åboland-turunmaa ålands landsbygd loimaa kemi-tornio jämsä keuruu sydösterbotten tunturi-lappi nivala-haapajärvi vaasa oulunkaari haapavesi-siikalatva kuusiokunnat järviseutu kehys-kainuu saarijärvi-viitasaari oulu sisä-savo itä-lappi äänekoski forssa varkaus kaustinen torniolaakso porvoo ylä-pirkanmaa savonlinna seinäjoki vakka-suomi etelä-pirkanmaa pohjois-lappi kajaani pieksämäki pielisen karjala riihimäki loviisa kyrönmaa kouvola rauma jyväskylä ylivieska mariehamns stad joutsa pohjois-satakunta ylä-savo rovaniemi salo suupohja kokkola lappeenranta luoteis-pirkanmaa raasepori keski-karjala kotka-hamina joensuu jakobstadsregionen mikkeli pori lounais-pirkanmaa hämeenlinna helsinki tampere lahti turku kuopio finland figure 1 herfindahl-hirschman index analysis of the regional economy in finland (70 lau1 regions) in 2015 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 56 in fig. 2 we have reported the regions’ relative specialisation index (rrsi) in finland in 2015. fig. 2. regions’ relative specialisation index (rrsi) in finland in 2015. 0 5 10 15 20 25 30 35 40 helsinki jyväskylä riihimäki tampere rauma joensuu varkaus salo loimaa pieksämäki lappeenranta forssa hämeenlinna pori kotka-hamina kouvola etelä-pirkanmaa oulu jakobstadsregionen sisä-savo äänekoski koillis-savo seinäjoki raasepori lahti saarijärvi-viitasaari pielisen karjala keski-karjala järviseutu nivala-haapajärvi savonlinna keuruu vaasa loviisa itä-lappi ylä-pirkanmaa ylä-savo turku luoteis-pirkanmaa kuusiokunnat haapavesi-siikalatva mariehamns stad joutsa kokkola suupohja kehys-kainuu oulunkaari pohjois-lappi koillismaa kuopio torniolaakso pohjois-satakunta lounais-pirkanmaa ålands landsbygd imatra mikkeli tunturi-lappi kemi-tornio ålands skärgård kajaani åboland-turunmaa rovaniemi jämsä vakka-suomi raahe kyrönmaa sydösterbotten ylivieska kaustinen porvoo figure 2 regions’ relative specialisation index (rrsi) in finland in 2015 57 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 in fig. 3 we have reported the regions’ labour intensity in finland in 2015. fig. 3. labour intensity in the sub-regions of finland. fig. 4 is based on the indices (hhi) and (limi) presented in figs. 1 and 3 and equations (1) and (3). we have classified both the resilience and labour intensity of the manufacturing properties of smart subregions into four sub-areas (i-iv) based on their median. if a sub-region is in sub-area i or ii, its s3 properties are strong resilience in the sub-region’s economy and high/weak labour intensity of manufacturing, respectively. correspondingly, sub-areas iii and iv consist of weak resilience and weak/strong labour intensity properties, respectively. for more detailed classification purposes, the upper and lower quartiles are also shown in the figure. the coloures indicate the location of the sub-region with respect to the limi index median/quartiles classification. the names of some smart sub-regions – the ten most diversified and the five least diversified – are expressed according to the limi classification. each of the sub-regions can find a distinctive position for their smart specialisation in 2015. for example, the smart specialisation properties for the economy of the jakobstad sub-region can be characterised by a very strong labour intensity and quite high resilience in manufacturing. in tables 1 and 2 these sub-regions are explored in more detail. 0% 5% 10% 15% 20% 25% 30% 35% ålands skärgård tunturi-lappi pohjois-lappi mariehamns stad rovaniemi torniolaakso itä-lappi kajaani kuopio helsinki joutsa koillismaa ålands landsbygd oulunkaari jyväskylä koillis-savo kehys-kainuu oulu kyrönmaa mikkeli turku kaustinen keski-karjala loviisa lappeenranta nivala-haapajärvi pieksämäki saarijärvi-viitasaari kotka-hamina kouvola savonlinna joensuu tampere sisä-savo raasepori hämeenlinna kuusiokunnat kokkola pielisen karjala luoteis-pirkanmaa sydösterbotten riihimäki åboland-turunmaa pori seinäjoki lahti järviseutu ylä-savo ylivieska pohjois-satakunta keuruu suupohja loimaa salo vaasa forssa lounais-pirkanmaa kemi-tornio porvoo imatra haapavesi-siikalatva rauma varkaus ylä-pirkanmaa jämsä etelä-pirkanmaa jakobstadsregionen raahe äänekoski vakka-suomi figure 3 labour intensity in the sub-regions of finland relative specialisation in the sub-region’s economy and high/weak labour intensity of manufacturing, respectively. correspondingly, sub-areas iii and iv consist of minor relative deviation in the sub-region’s industrial structure and weak/strong labour intensity properties, respectively. for more detailed classification purposes, the upper and lower quartiles are also shown in the figure. the colours indicate the location of the sub-region with respect to the limi index median/ quartiles classification. the names of some smart sub-regions – the ten most relatively specialised and the five least specialised – are expressed according to the limi classification. also in this case, each of the sub-regions can find a distinctive position for their smart specialisation in 2015. for example, the smart specialisation properties for the economy of the porvoo sub-region can be characterised by a very high relative specialisation compared to finland as a whole and the quite high importance of industry for its sub-regional economy. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 58 notes: iii quite similar industrial structure compared to the whole economy and weak labour intensity of manufacturing in a sub-regional economy. iv quite similar industrial structure compared to the whole economy and strong labour intensity of manufacturing in a sub-regional economy. fig. 5. classification of smart sub-regions (2) by revealed comparative advantage (i.e. sub-regional specialisation, rrsi) and labour intensity of manufacturing (limi) comparing the sub-regions’ smart specialisation properties using hhi and rrsi (i.e. resilience and specialisation) with the labour intensity of manufacturing in the sub-regions’ economy it can be observed, firstly, that the rrsi index for sub-regions – as a description of smart specialisation – produces a distribution whose kurtosis is much higher with a remarkably higher specialisation tail. concretely, this means that the industrial structure of many finnish sub-regions is quite similar in terms of the industrial structure in finland as whole but some specific lau-1 regions differ significantly from the average structure. potentially, these sub-regions have great potential to succeed in international competition because of their relative specialisation, but simultaneously they may be vulnerable. they have the potential to emerge as an area of sudden structural change. secondly, if the distribution of smart subregions with respect to specialisation is very peaked, it can be assumed that nationwide industrial and economic policy also supports the economic growth of many such sub-regions. these sub-regions are explored more specifically in tables 1 and 2. notes: iii quite similar industrial structure compared to the whole economy and weak labour intensity of manufacturing in a sub-regional economy. iv quite similar industrial structure compared to the whole economy and strong labour intensity of manufacturing in a sub-regional economy. figure 5 classification of smart sub-regions (2) by revealed comparative advantage (i.e. subregional specialisation, rrsi) and labour intensity of manufacturing (limi) fig. 4. classification of smart sub-regions (1) by resilience (hhi) and labour intensity of manufacturing (limi) fig. 5 is based on the indices (rrsi) and (limi) presented in figs. 2 and 3 and equations (2) and (3). in order to achieve convenient comparisons with respect to sub-regional smart specialisation properties (i.e. hhi and rrsi with respect to limi), we have also classified here two smart specialisation features. in the case of fig. 5, the relative sub-regional specialisation and labour intensity of manufacturing properties of the smart sub-regions are classified into four sub-areas (i-iv) based on their median. if a sub-region is in sub-area i or ii, its s3 properties are a significant relative specialisation in the sub-region’s economy and high/weak labour intensity of manufacturing, respectively. correspondingly, sub-areas iii and iv consist of minor relative deviation in the sub-region’s industrial structure and weak/strong labour intensity properties, respectively. for more detailed classification purposes, the upper and lower quartiles are also shown in the figure. the colours indicate the location of the sub-region with respect to the limi index median/quartiles classification. the names of some smart sub-regions – the ten most relatively specialised and the five least specialised – are expressed according to the limi classification. also in this case, each of the sub-regions can find a distinctive position for their smart specialisation in 2015. for example, the smart specialisation properties for the economy of the porvoo sub-region can be characterised by a very high relative specialisation compared to finland as a whole and the quite high importance of industry for its sub-regional economy. figure 4 classification of smart sub-regions (1) by resilience (hhi) and labour intensity of manufacturing (limi) 59 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 table 1 top 10 ´traffic lights´ regional development. top 10 regions of hhi and rrsi in finland in 2015 rank subregion top10 hhi limi rank subregion top10 rrsi limi 1 kuopio 7.93 7.1% 1 porvoo 35.46 21.1 % 2 turku 8.67 12.3% 2 kaustinen 34.35 12.4 % 3 lahti 8.92 17.5% 3 ylivieska 32.61 17.7 % 4 tampere 9.38 14.3% 4 sydösterbotten 19.72 15.7 % 5 helsinki 9.44 7.9% 5 kyrönmaa 16.51 11.8 % 6 hämeenlinna 9.99 15.0% 6 raahe 16.08 31.0 % 7 lounais-pirkanmaa 10.50 21.1% 7 vakka-suomi 14.44 31.6 % 8 pori 10.96 16.7% 8 jämsä 14.21 27.8 % 9 mikkeli 10.96 12.2% 9 rovaniemi 13.06 4.8 % 10 jakobstadsregionen 11.01 29.7% 10 åboland-turunmaa 12.71 16.1 % comparing the sub-regions’ smart specialisation properties using hhi and rrsi (i.e. resilience and specialisation) with the labour intensity of manufacturing in the sub-regions’ economy it can be observed, firstly, that the rrsi index for sub-regions – as a description of smart specialisation – produces a distribution whose kurtosis is much higher with a remarkably higher specialisation tail. concretely, this means that the industrial structure of many finnish sub-regions is quite similar in terms of the industrial structure in finland as whole but some specific lau-1 regions differ significantly from the average structure. potentially, these sub-regions have great potential to succeed in international competition because of their relative specialisation, but simultaneously they may be vulnerable. they have the potential to emerge as an area of sudden structural change. secondly, if the distribution of smart sub-regions with respect to specialisation is very peaked, it can be assumed that nationwide industrial and economic policy also supports the economic growth of many such sub-regions. these sub-regions are explored more specifically in tables 1 and 2. rank subregion hhi limi rank subregion rrsi limi 66 koillismaa 30.67 8.9% 66 rauma 3.89 24.5% 67 koillis-savo 31.40 10.8% 67 tampere 3.82 14.3% 66 imatra 32.71 22.6% 66 riihimäki 3.68 15.9% 69 raahe 48.15 31.0% 69 jyväskylä 3.49 10.7% 70 ålands skärgård 55.10 1.04% 70 helsinki 3.43 7.9% table 2 ranking 66-70 ´traffic lights´ regional development. the bottom five sub-regions of hhi and rrsi in finland in 2015 in table 1 the top 10 ´traffic lights´ of regional development of hhi and rrsi in finland in 2015 are listed. according to table 1, the kuopio sub-region is the most diversified (of the 70 sub-regions) but the economic significance of the industrial sector is minimal in its regional economy. the lahti sub-region, on the other hand, is diversified and at the same time its labour intensity is significant. in other words, this kind of sub-region is resilient to external shocks according to its industrial structure, and at the same time this structure has major significance for its regional development. the same goes for the lounais-pirkanmaa and jakobstad regions. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 60 in table 2 the bottom five ranked sub-regions of finland are listed. both hhi and rrsi indicators are used as reference points. in table 2 there are some interesting results when we compare them with table 1. firstly, as we can easily see, some sub-regions are represented in both the top 10 of hhi analysis and also at the bottom of the rrsi analysis list. such sub-regions are helsinki and tampere. helsinki and tampere are in the top ten group of resilience (hhi), but at the same time in the rrsi these regions are on the list of the bottom five sub-regions. this result is intuitive: the sub-regions are diversified and their industrial structure complies with the industrial structure of the whole country. these areas, helsinki and tampere, strongly determine the industrial structure of the whole country, as they are large economies on a finnish scale. regions like this benefit from the overall industrial and economic policy of finland. in the left column, attention is drawn to the sub-regions of raahe and imatra. these sub-regions have problems with resilience strategy because the value of the hhi index is high and at the same time the limi index has a high value. in finland, the sub-region of salo with its earlier large industrial nokia production had a similar economic position to the imatra and raahe sub-regions. this spatial analysis covers finnish sub-regions. the same type of analysis could be presented for all eu member states. conclusions balassa, b. & noland, m. 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(2014). smart specialization: towards the potential application of the concept for the local development. procedia – social and behavioral sciences, 156, 141–145. https://doi. org/10.1016/j.sbspro.2014.11.136 kaivo-oja, j., vähäsantanen, s., karppinen, a. & haukioja, t. (2017). smart specialization strategy and its operationalization in the regional policy: case finland. business, management and education, 15(1), 28-41. https://doi.org/10.3846/bme.2017.362 kaivo-oja, j., haukioja, t. & karppinen, a. (2017). twenty years of "growth, jobs and investments" strategy in the european union– macroeconomic developments after the maastricht treaty. european integration studies, 11, 98-109. https://doi. org/10.5755/j01.eis.0.11.18959 kakko, i., kaivo-oja, j. & mikkelä, k. 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(2005). r&d, international trade and creative destruction – empirical findings from finnish manufacturing industries. journal of industry, competition and trade, 5(1), 27–58. https://doi. org/10.1007/s10842-005-0989-0 mccann, p.; ortega-argilés, r. (2015). smart specialization, regional growth and applications to european union cohesion policy. regional studies 49(8), 1291–1302. https://doi.org/10.1080/003434 04.2013.799769 oecd. (2013). innovation-driven growth: the role of smart specialisation. oecd publishing, paris. paliokaite, a., martinaitis, z. & reimeris, r. (2015). foresight methods for smart specialization strategy development in lithuania. technological forecasting and social change, 101, 185–199. https:// doi.org/10.1016/j.techfore.2015.04.008 paliokaite, a., martinaitis, z. & sarpong, d. (2016). implementing smart specialization roadmaps in lithuania: lost in translation? technological forecasting and social change, 110, 143–152. https:// doi.org/10.1016/j.techfore.2016.01.005 santonen, t., kaivo-oja, j. & suomala, j. (2014). the next steps in developing the triple helix model: e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 62 a brief introduction to national open innovation system (nois) paradigm. journal of systemics, cybernetics, and informatics (jsci), 12(7), 74–82. s3 platform. (2015). what is smart specialisation? [online], [cited 07 june 2017]. available from internet: http://s3platform.jrc.ec.europa.eu/home sipilova, v. (2015). when regional growth does not benefit from high-tech specialization? explaining the experience of latvian regions? procedia economics and finance 30, 863–875. https://doi. org/10.1016/s2212-5671(15)01336-2 statistics finland. (2018). regional account statistics 2000–2016. [cited 21 march 2018]. available from internet: http://pxnet2.stat.fi/pxweb/pxweb/ en/statfin/statfin__kan__altp/?tablelist=true#_ ga=1.169395877.502038858.1487697945 thissen, m., van oort, f., diodata, d. & ruijs, a. (2013). regional competitiveness and specialization in europe: place-based development in international networks. new horizons in regional science. edward elgar, cheltenham, uk. https://doi. org/10.4337/9781782545163 virkkala, s., mäenpää, a. & mariussen, å. (eds.) (2014). the ostrobothnian model of smart specialisation [online], [cited 07 june 2018]. proceedings of the university of vaasa, reports 196. vaasa. available from internet: http://www.uva.fi/materiaali/ pdf/isbn_978–952–476–577–0.pdf jari kaivo-oja phd, research director, adjunct professor finland futures research centre, turku school of economics, university of turku fields of research interests rregional and national foresight systems, corporate and technology foresight, futures studies, innovation management, global foresight and international futures research. he has worked for the european commission in the fp6, in the fp7 and in the horizon 2020. he has worked in projects with the european foundation, the eurostat, the nordic innovation centre and the european parliament. research director jari kaivo-oja has published more than 150 articles in academic journals and books address fi-20014, finland e-mail: jari.kaivo-oja@utu.fi about the authors teemu haukioja phd, assistant professor university of turku, turku school of economics, pori unit fields of research interests economic growth, and sustainable development. he is the author and co-author of several scientific papers and book chapters that have been published in refereed journals and books. he holds a phd in economics from turku school of economics u school of economics address p.o. box 170, fi-28100, finland e-mail: teemu.haukioja@utu.fi ari karppinen m.sc. econ., researcher university of turku, turku school of economics, pori unit fields of research interests in the fields of regional economics and development and multinational enterprises. he is the author and co-author of several scientific papers address p.o. box 170, fi-28100, finland e-mail: ari.karppinen@utu.fi saku vähäsantanen m. sc. econ., regional advisor at the regional council of satakunta university of turku, turku school of economics, pori unit fields of research interests focused on regional economy, regional competitiveness and resilience. he is the author and co-author in numerous studies about regional economy and business cycles. he has been a project researcher at the university of turku, pori unit, but his current work at the regional council concentrates on regional development and studies address pohjoisranta 11 c, fi-28100 pori, finland e-mail: saku.vahasantanen@ satakuntaliitto.fi 40 issn 1822 – 8402 european integration studies. 2010. no 4 european union citizenship within multicultural society algis junevicius kaunas university of technology, institute of europe abstract the paradox in the formation of union citizenship is that, on the one hand, its list of rights is primarily relevant for migrants and – again apart from the parliamentary permit largely resembles the elements of enhanced denizen ship many member states had introduced before for their settled immigrants, but, on the other hand, its definition of the population to whom these rights apply excludes third country aliens, i.e. the great majority of migrants living in the territory of the union. union citizenship, first introduced in the maastricht treaty, confers a broad range of rights on national of the member states, including rights of movement, political rights, protection in non-eu states, and rights to petition. the relationship to national citizenship was clarified in the treaty of amsterdam: union citizenship is meant to supplement, not supplant, national citizenship. the european union charter of fundamental rights, signed and proclaimed in nice december 2000, laid out the range of civil, political, economic and social rights conferred both to union citizens and other persons resident in the eu. the treaty of lisbon, which was signed in lisbon on 13 december 2007 and amends the treaty on european union and the treaty establishing the european community, sought in particular to reinforce the democratic fabric of the european union. one of its major innovations is to introduce the european citizens’ initiative. it provides that “not less than one million citizens who are nationals of a significant number of member states may take the initiative of inviting the commission, within the framework of its powers, to submit any appropriate proposal on matters where citizens consider that a legal act of the union is required for the purpose of implementing the treaties”. it also provides that the procedures and conditions required for such a citizens’ initiative, including the minimum number of member states from which citizens must come, shall be determined in a regulation to be adopted by the european parliament and the council on a proposal from the european commission. the european commission welcomes the introduction of the citizens’ initiative, which will give a stronger voice to european union citizens by giving them the right to call directly on the commission to bring forward new policy initiatives. it will add a new dimension to european democracy, complement the set of rights related to the citizenship of the union and increase the public debate around european politics, helping to build a genuine european public space. its implementation will reinforce citizens’ and organized civil society’s involvement in the shaping of eu policies. the commission is convinced that european citizens should benefit from this new right as quickly as possible after the entry into force of the treaty of lisbon. the commission’s ambition would therefore be to make it possible for the regulation on the citizens’ initiative to be adopted before the end of the first year after the entry into force of the treaty. keywords: citizenship, union citizenship, identity, multicultural society, migrant, denizen ship. introduction citizenship is an evolving phenomenon. a state, according to aristotle, is a unity made of citizens. therefore, it is important to note who is a citizen, though this particular question is widely discussed and there is no one universal definition. despite the fact that the citizenship of a modern national state differs from the antique citizenship, aristotle’s point is still meaningful and shared today. every modern state regards one group of people as citizens, and the other as strangers. and today the margin between foreigners and citizens is more important than ever before, especially in the context of european citizenship. in a world influenced by globalization citizenship and a status of a citizen is a means of preventing rich countries from poor migrant people. furthermore, it deals with interstate independency, as every state has its own law for regulating the matters of citizenship. this status provides a person with certain rights but also demands certain obligations. accordingly, citizenship awards every individual not only with political rights, but absolute right for entering and residing the country, issn 1822-8402 european integration studies. 2010. no 4 41 working there and using the benefits. though the migration politics carried out in the majority european countries for at least two decades is rather limiting, the groups of migrants are becoming larger and more varied. there are no signs of possible decline and evaluating the demographical reasons, not to mention the political or economical, there are vivid possibilities for the increase of migration. finally, all mentioned aspects directly deal with identity and it remains an open question, whether member-states preserve their national identities or become a part of a european identity, if ever such exists. the paper discusses the challenges facing the european citizenship and especially emphasizes the multicultural european society. the aim of this article is to discuss the challenges facing the european citizenship in a rapidly altering modern world. object of this article – union citizenship. task of this article: to identify the main principles of eu citizenship; • to systemize the legal basic of eu citizenship • to analyses the main reasons that prevent minorities • from integrating into european society. research methods: special general scientific research literature methods – descriptive method, logical analysis and synthesis. european union citizenship: definition, evolvement, rights citizenship is an evolving phenomenon, of which there are several types. citizenship may be defined as a legal and political status which allows the citizen to acquire some rights (civil, political, social...) as an individual and some duties (taxes, military service, loyalty...) in relation to a political community, as well as the ability of intervening in the collective life of a state. the latter right arises from the democratic principle of sovereignty of people. citizens of spain, united kingdom, france, portugal, united states... – have a series of rights, granted by their constitutions, but also have obligations, with regard to their national community. in a democratic state, the citizen must fulfill those obligations since they were passed by the representatives they have voted in, using one of the main citizen’s political rights, the suffrage. citizenship is restricted to people who have that condition. people that live in a territory but lack the status of citizen are deprived of the rights and duties that citizenship involves. every state has laws to regulate the way an individual can acquire its nationality, that is to say, the citizenship. this concept of citizenship dates back to a historical period initiated with the great liberal revolutions in the late 18th century. it is a notion characterized by the pre-eminence of the state-nation as the political community that comprises the individuals. citizenship is tantamount to nationality (delgadomoreira, 2002). any person holding the nationality of an eu member state is also a citizen of the european union. the national law system in every member state settles whether an individual possesses the nationality of that particular state, as each member state thus lays down the conditions for the acquirement and loss of nationality. the main aim of the european union, mentioned in the eu treaties is the creation of a closer union among the peoples of europe. even if the free movement of people existed since the foundation of european community in 1951, it was restricted to workers. it was the single european act in 1986 that set out to create a europe without internal frontiers (single european act, 1987). it extended the right of residence in another member state to persons who are not engaged in a professional occupation, provided they have sufficient resources and social insurance cover. the concept of european citizenship is enshrined in the treaty establishing the european community. the maastricht treaty, signed in 1992, aimed to strengthen the protection of the rights and interests of the nationals of its member states through the introduction of a citizenship of the union (treaty on european union, 1992). union citizenship confers on every union citizen a fundamental and personal right to move and reside freely without reference to an economic activity. with this treaty also came additional voting rights and extra consular protection. the treaty of amsterdam signed in 1997, extended citizens rights by introducing a new anti-discrimination clause on the grounds of sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation to the treaty (treaty of amsterdam, 1997). it also reinforced the free movement of people by integrating the schengen convention into the treaty. furthermore, it affirmed the commitment of each state to educate its peoples to the highest level of knowledge possible and to tackle unemployment. the treaty of nice, signed in 2001, confirmed citizen’s rights. it facilitated for example legislating relating to free movement and residence by introducing qualified majority for the decision-making in council (treaty of nice, 2001). citizenship of the union supplements national citizenship without replacing it and is made up of a set of rights enshrined in the eu treaties: the right • to move and reside freely within the eu; the right • to vote for and stand as a candidate at municipal and european parliament elections in whichever member state an eu citizen resides; access • to the diplomatic and consular protection of another member state outside the eu; the right • to petition the european parliament and to complain to the european ombudsman; the right • to contact and receive a response from any issn 1822-8402 european integration studies. 2010. no 4 42 eu institution in any one of 20 languages; the right to access • parliament, european commission, and council documents under certain conditions; the right to non-discrimination on grounds of • nationality within the scope of community law; the guarantee of fundamental rights as upheld by • the european convention on human rights and the charter of fundamental rights of the eu; protection from discrimination based on sex, racial • or ethnic origin, religion or belief, disability, age or sexual orientation; equal access to the community civil service. • in addition to the rights attached to the citizenship of the european union that are explicitly mentioned in the treaties, there is a whole series of fundamental rights which stem from the eu treaties, the case-law of the court of justice of the european communities, the council of europe’s convention on human rights and the constitutional traditions of the member states. these rights have been assembled into a single, simple text called the charter of fundamental rights of the european union, which was proclaimed by the european commission, the european parliament and the eu leaders just before they signed the treaty of nice in december 2000. the directive 2004/38/ec of the european parliament and of the council of 29 april 2004 on the right of citizens of the union and their family members to move and reside freely (freedom of movement for workers) within the territory of the member states defines the right of free movement for citizens of the european economic area (eea), which includes the european union (eu) and the three european free trade association (efta) members iceland, norway and liechtenstein. switzerland which is a member of the efta but not the eea is not bound by the directive but rather has a separate bilateral agreement on the free movement with the eu (directive 2004/38/ec of the european parliament and of the council, 2004). multicultural union and eu citizenship through the period of past decades, europe has observed the development of two in fact opposing trends. the first is the awareness that countries can more effectively defend their own interests and prosperity if they work much closer together than in the past, to the point, actually, of merging some of their national competences within a supranational political structure: namely, the european union, a body which has progressed to a level of integration at which it has eliminated border controls between its member states, established a common currency and a common citizenship (taljūnaitė, 2005). the second trend would seem to take the opposite direction. it stresses the need for decisions to be taken as close as possible to the people affected by them, which means strengthening smaller political units such as regional authorities or even breaking up big states into smaller but more coherent ones. as examples of such moves might be cited the establishment of regional parliamentary assemblies in the united kingdom, the pressures in the basque region of spain, the secession of slovakia, and the bitter experiences in south-east europe. these examples vary considerably in detail and motivation; but seen from a long-term, historical viewpoint, the underlying message is remarkably similar. although these two trends may appear opposing they are in fact complimentary and must be considered as important elements in developing an innovative, multilayered political structure for europe. all these new states and regions, while emphasizing their own separate identities and in several cases their new nationality, see their future as being within the european union and voluntarily accept the merging of sovereignty in certain key areas, including aspects of citizenship. the question of citizenship is particularly sensitive. most states are jealous of their right to provide for their own nationals. but the idea of a supra-national code of individual rights, binding on all signatory states, is not new. in modern europe the first step came in 1950 with the council of europe’s convention on human rights backed up by the european court of human rights in strasbourg which gave citizens the right to appeal against rulings made by their own government. at roughly the same period the treaty establishing the european coal and steel community was being negotiated, setting up the supranational institutions which are still existing today in the european union. its immediate task was the coordination of an important but limited range of economic activities but its long-term purpose, as stated in the treaty’s preamble was to create “the basis for a broader and deeper community among peoples long divided by bloody conflicts”. it outlawed discrimination between nationals of the member states employed in the coal and steel industries and thereby, perhaps unwittingly, took the first step towards a european citizenship. six years later in the treaty of rome these provisions were extended to cover employment in all occupations, including the self-employed, thereby making freedom to work without discrimination on nationality grounds available for all member states’ citizens. in addition, the rome treaty banned discrimination between men and women in the matter of equal pay for equal work. a series of rulings by the court of justice subsequently extended this principal to cover retirement age, pensions and equality of treatment in other, work-related respects. in effect, the roots of this embryo european citizenship, though that term was not yet used, lay in the concept of non-discrimination. it was not until the maastricht treaty that eu citizenship was formally introduced as a legal concept. all nationals of a member state also issn 1822-8402 european integration studies. 2010. no 4 43 automatically become eu citizens who shall enjoy the rights imposed by this treaty and shall be subject to the duties imposed thereby. this is not a citizenship based on ethnicity but purely on a person’s legal status. it gives eu citizens the legal right, subject to enabling legislation, to “move freely and reside in any member state within the territory of the union”. in other words, freedom of movement was no longer confined to economic activities but became a general right to be enjoyed by students, pensioners, and indeed anyone with adequate financial means (junevičius, schafer, 2005). they may take employment or run a business, and vote or even stand as a candidate in municipal and european parliamentary elections in the member state where they now live, though not in national elections. when eu citizenship was first introduced many people feared it was an attempt to replace national citizenship and would undermine their national identity. a later treaty amendment therefore made it clear that “citizenship of the union shall complement and not replace national citizenship.” legally, therefore, a multi-layered citizenship is in existence. the question of identity is more complex. a person’s identity is easier to recognize than to define, involving as it does questions of language, culture, religion and a whole range of other factors. when shared, it can bring with it a sense of confidence and of belonging to a group. many different identities may co-exist happily within the same country though there is always the danger of discrimination which in times of crisis can lead to open conflict. it is characteristic not only of events in southeast europe, but also of northern ireland and of the riots which took place in certain industrial cities in england as well as the frequency of racial attacks in many parts of europe and elsewhere. the bitterness and residual hatred which result from such conflicts are not easy to heal. in the modern, industrial world attempts to maintain ethnically “pure” and culturally monotone societies have usually been associated with dictatorships, mostly short-lived. democracy, in its essence, allows people to develop as individuals, therefore accommodating a potentially wide variety of opinions, faiths, and ways of life (kymlicka, 2004). this variety is most noticeable in the european union which by its very nature is faced with the challenge of providing security for people with very different traditions and cultures. this multicultural aspect of the eu is evident in the many different languages spoken, and in the great diversity of religious faiths ranging from several versions of christianity roman catholic, orthodox, lutheran or calvinist to judaism, islam and several others. enlargement will further increase the union’s diversity. in recognition of this diversity the european union has in recent years placed an increased emphasis on what is best described as citizenship values. they are broadly the common values of “liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law”. recent directives express these values in more concrete terms. to the earlier legislation banning discrimination on the grounds of nationality and gender the new directives now in force add a guarantee of equal treatment – regardless of racial or ethnic origin, disability, age, or sexual orientation in employment and access to services and also a ban religious discrimination in employment. this legislation applies to all persons legally resident in the eu, whether nationals of member states or not. the full version of such rights is codified in the eu charter of fundamental rights (charter of fundamental rights of the european union, 2010). in addition, certain rights available to eu citizens only, such as the freedom to seek work or reside in any other member state, may soon also be extended to any third country nationals who have lived legally in the eu for a qualifying period of time. the european union today offers the world a vision of how people of many different cultures, countries and regions can live together in mutual respect. but there is still a long way to go, for the structure is far from perfect. in particular, what started as an agreement between governments must now involve the citizens more directly in their own future, hence the laeken summit decision that the next round of eu reforms should be prepared by a convention of citizens’ representatives both from the member states and from the european level, including observers from the applicant countries. whereas, at the beginning, closer economic integration provided the means for a closer union between peoples, the emphasis today lies equally on involving the citizens in the debate (european council meeting in laaken, 2001). racism and xenophobia in the eu member states the annual report in 2005 covers information and developments for the year 2004 concerning the occurrence of, and responses to, racism, xenophobia, anti-semitism and anti-muslim manifestations in the 25 eu member states (annual report, 2005). the five thematic areas of legislation, employment, housing, education, and racist violence and crimes are covered. the addition of the ten new member states to the eu on 1 may 2004 has resulted in a major change in data collection for this report, with ten new sets of information to be collected in each of the above areas. while not all ten of the new member states were in a position to provide data on each of the five main topic areas, a great deal of new data from the new member states has been included. issn 1822-8402 european integration studies. 2010. no 4 44 legislationa. european union monitoring center (eumc) annual report examines the state-of-play of the transposition of the directives after the first full year of operation, and also observes the forms of practical implementation. four member states – germany, luxembourg, austria and finland – were referred to the european court of justice (ecj) for their failure to satisfy the requirements of the racial equality directive, and later in the year the same four were referred to the ecj for their failures regarding the employment equality directive (council directive, 2000). several member states failed to establish a specialized body with responsibility for promoting equal treatment and providing assistance to victims of discrimination. in nearly half of the member states an existing body has undertaken the relevant responsibilities. others have established a completely new body, most of these having a multi-stranded remit to deal with all the grounds of discrimination set out in the directives. this issue has engendered arguments as to the relative advantages and disadvantages of combined-issue equality bodies as opposed to those specialized on one issue. another issue is the scope of the legislation that has been introduced, with arguments in several countries that particular areas of coverage have been omitted, as well as questions as to whether the changes regarding the shift in the burden of proof are adequate, and whether the available sanctions are truly ‘dissuasive’. although member states have introduced legislation affording improved protection to racial/ethnic minorities and populations of migrant origin under the terms of the eu directives, some have also chosen to introduce other legislative measures which serve to restrict various rights and opportunities of migrants and minorities, variously covering issues such rights to entry and citizenship, or rights to wear clothing signifying religious faith. in some member states there have been moves to redefine national minorities, advantaging some minority groups over others. if adopted, such measures would in more than one case undermine the rights of the roma population (enar schadow report, 2005). at the same time, there is encouraging evidence that some member states are introducing legislation that focuses on racist offenders. some member states (e.g. lithuania) have introduced legislation and other activities to combat and punish illegal internet use by extreme right-wing groups. there have also been various moves among member states to make it easier to prosecute racist crimes, and to increase sanctions against them. employmentb. there are mixed messages emerging from, on the one hand, policies to combat discrimination in the labor market, and, on the other hand, policies in certain member states that restrict the rights of third country nationals, and, for example, limit family unification and marriage for non-nationals. there appears to be a conflict between the need for immigrant labor, working without discrimination, and the desire by member states be seen to be doing something to limit and control immigration. whilst awareness of the illegality of racial discrimination appears to be slowly increasing, large numbers of workers hold a legal status, such as restricted work permit, which renders them more vulnerable to exploitation and discrimination, and, particularly in the case of undocumented workers, creates exclusion. in turn, exclusion can foster racist attitudes in the majority population. the national reports from most member states broadly concur on the emergence of labor markets that are segmented according to ethnic or national origin. migrant or minority ethnic workers are disproportionately grouped in the lowest occupational categories within the least prestigious employment sectors. while each member state has its own patterns, certain groups are over-represented as victims of discriminatory treatment in employment. typically, migrant workers from africa, the middle east, asia, and central or southern america experience high levels of discrimination. there is also evidence pointing to discrimination against recent migrants from eastern european countries such as russia and the ukraine. in some of the new member states, the roma are particularly vulnerable to discrimination in employment, and experience extremely high levels of unemployment (belz, 2008). evidence of inequality in employment is often explained solely with reference to people’s ‘human capital’ – for example, their level of education. this one-sided explanation has come under increasing critical scrutiny through research, including ‘discrimination testing‘ experiments, and in 2007 there were a number of these reported in various member states, taking a variety of forms. there were also specific cases of discrimination at work, concerning unjustifiable treatment, racist bullying, and dismissal, which came to light during 2007 through court and tribunal cases. although direct discrimination in recruitment is usually disguised and invisible in its operation to the victim, it was noticeable that several blatant examples concerned incidents of refusal specifically to recruit roma. on the other side, encouraging evidence of a variety of initiatives to prevent discrimination in employment has been noted. many of these are linked to european funding and/or are related to national programmes which set out to implement european directives. in a number of member states, governments, employers’ associations and individual companies have developed charters, codes, or incentives for good practice against racism and discrimination. issn 1822-8402 european integration studies. 2010. no 4 45 housingc. for the eu27, available information indicates that in the housing sector, minority groups, migrants, refugees and asylum seekers are regularly affected by discrimination and racism. there is also ample evidence to indicate that the roma are the most vulnerable group to be confronted with discrimination and racism in the housing sector. according to both official and unofficial information sources, direct examples of discrimination manifest themselves in a number of ways. examples include discriminatory housing advertisements, discrimination in the administration of accommodation waiting lists, and outright refusal by landlords, real estate agents and housing associations. in common with the employment sector, one regular method of identifying this kind of direct discrimination in the housing sector has been by experiments of discrimination testing. partly as a result of these processes of exclusion, migrants and minorities often suffer inappropriate housing conditions. statistics shows that it is more usual for foreigners than the majority population to live in small and overcrowded flats and under unhygienic and poor infrastructural conditions. there is also evidence from a number of member states that foreign nationals are asked to pay higher rents than nationals. this situation is exacerbated by the fact that foreigners are not eligible for social housing in some member states and, therefore, are forced to find accommodation in the private rental sector where rents can be pushed up. at the other end of the housing sector, information from member states such as germany and the uk indicates that home ownership is less widespread among minority ethnic and foreign populations. isolation in the housing sector is prevalent throughout the eu. examples of segregation are offered for spain, cyprus, portugal, and sweden. it seems that territorial segregation is particularly acute for the roma population in the czech republic, spain and hungary. in comparison with the above, examples of indirect discrimination in housing appear far less frequently, but it can be noted with respect to access to housing which is made dependent on nationality, duration of residence, and the financial status and economic situation of the applicant (fordman law review, 2010). reported initiatives of ‘good practice’ in housing were provided by national and local governments and ngos. some programs construct housing or buy and restore empty flats and have specific initiatives to make them available to previously excluded minorities. some municipalities in austria have special policies to over-ride the more ‘normal’ exclusion of third country nationals from council housing, and make sections of them available to foreigners. in housing projects in several countries there are agreements and contracts for the tenants on working for diversity and against racism, and there are codes of practice for municipalities to combat discrimination in access to housing. educationd. where data is available, it is evident that the educational achievements of a number of migrant and minority groups lag behind those of majority populations in member states. some evidence also points to the fact that minorities are subject to discriminatory treatment. in particular, it is the migrants from non-eu countries, as well as some national minority groups, who suffer from high rates of educational under-achievement. the disadvantaged position in education of pupils with a migrant background can also be seen in the results of the oecd pisa (the program for international student assessment) study published in december 2005. in general, this even holds true for those students whose parents are foreign born but who themselves have grown up in the reception country and have spent their entire school career there. the most vulnerable groups experiencing racism and discrimination in education are the roma and travelers. however, other non-migrant minority groups can also be identified in individual member states as being vulnerable to disadvantage and underachievement in education, such as the muslim minority in greece. in reports on educational inequality, two of the main concerns are those of segregation, and the overrepresentation of certain groups in ‘special education’. whilst several member states report these as issues for various migrant/minority groups, by far the largest number of references to these problems specifically concerns the roma. the issue of religious symbols in schools, in particular the wearing of headscarves, became rather controversial in some member states (although not in others) during 2007. the french law banning the wearing of conspicuous religious symbols in schools came into effect in 2007. in austria an attempt by one school principal to prohibit a girl from attending the school wearing a headscarf failed after school authorities made it clear that such a ban was a violation of the principle of religious freedom. in the uk there is a general tradition of tolerance towards the wearing of religious symbols, although there was one on-going dispute going through the courts during 2007 over a pupil’s desire to wear an ankle-length garment in keeping with her religious beliefs. the national reports describe a range of initiatives in education. some member states are introducing a new inter-cultural education syllabus, and new parts of the curriculum designed to address racism and antisemitism. there are many reported initiatives to address discrimination against roma children, such as the project to integrate roma children into mainstream education in slovenia, which is already producing positive results, and a new law in the czech republic which is addressing the issn 1822-8402 european integration studies. 2010. no 4 46 problem of the extreme segregation of roma children in education. eu-sponsored projects in the area of minority education are likely to have a positive impact in the ‘new’ member states by stimulating debates and opening doors for more open dialogue on minorities. racist violence and crimee. a number of incidents took place in that had repercussions on intercommunity relations and the manifestation of racist sentiments and crimes at the level of individual member states and beyond, most notably, the madrid train bombings and the murder of theo van gogh in the netherlands. among the eu there is no publicly available official data on incidents of racist violence and crime for greece, spain, italy and portugal. member states with effective data collection mechanisms and broad-based legal definitions of ‘racist incidents’, such as the uk, encourage reporting and recording of incidents. as a result, the uk, with 52,694 racist incidents reported to the police in the period 2005-2006, has the highest number of reported racist incidents among the eu25. germany has the next highest number of officially registered crimes among the eu25, with 6,474 crimes. in general, the enormous difference across the 27 eu member states in numbers of recorded incidents of racist violence and crime tells us as much about the inadequacy and inconsistency of data collection as it does about the actual extent of racist violence and crimes in the eu (jo goodey, 2007). according to both official and unofficial reports on racist violence and crime, the most vulnerable victim groups in the eu are ethnic minorities within the national population, undocumented immigrants, jews, muslims, north africans, people from the former ussr and the former yugoslavia, refugees/asylum seekers, and roma/gypsies/travelers. the particular histories and population characteristics of the new member states mean that the roma and people from the former ussr are often the targets of racist sentiments and acts. available evidence from the eu1 indicates that it is both members of extremist politically-motivated organizations, and young males and others not affiliated to such groups, who are the perpetrators of racist violence and associated crimes. an additional issue is that one third of the member states include some reference to violent and aggressive acts against ethnic minority and foreign groups by public officials – namely the police and immigration officers. against these disturbing reports, a range of positive police initiatives is reported that set out to combat racism within the police, build community relations, and/or assist victims of racist violence and crime. amongst the ten new member states a number of ‘good’ practice initiatives specifically set out to tackle the problem of police relations with the roma community. conclusions in order to create a more relevant, more equal and more inclusive citizenship within the union a number of different features has to be mentioned. there is an alternative which would bring union citizenship not only into the orbit of the transnational dynamics of liberal citizenship, but would turn it into a motor of this development. this alternative would consist of a combination of reforms. first, it would retain a distinct status of union citizenship that comes along with citizenship of a member state, but would put the harmonization of rules for acquisition, transmission and loss of national citizenships on the agenda of the union. naturalization could remain a matter of national law, but a common interest in controlling access to union citizenship would produce a european guideline fixing maximum requirements for naturalization and for citizenship acquisition at birth. secondly, such a guideline could establish the general toleration for a multiple citizenship among member states. the same principles could then be applied to dual citizenship between a member state and a third country. problems of legal pluralism, lack of protection or unjustified accumulation of duties and rights would be addressed in the framework of international conventions and bilateral commissions. the third and most important reform would supplement, rather than replace, union citizenship with a harmonized status of union denizen ship for resident aliens from third countries. ideally such a status would contain all the present rights attached to union citizenship apart from the permit for the european parliament. yet even a more modest list of rights focused on secure residence, free access to employment, free movement across internal union borders, full civil and political liberties and equal social welfare benefits would bring considerable improvement and extend important rights of union citizenship beyond the formal status. such commendations of enhanced denizen ship would remove the present perverse incentives for naturalization as an escape route from discriminatory laws against foreigners. naturalization could only then express a desire for full political integration into a national political community as well as an emerging european policy. the european vision, therefore, is not of a new continent-wide nation but of a different kind of political and social structure from any known in the past: a multilayered, multi-national, multi-regional and multicultural democracy organized on federal principles and based on mutual respect between its diverse peoples and cultures. for this new european union to function properly citizens and their organizations will need to maintain a constant watch on what is being done in their name, but this is the true meaning of a citizens’ europe. it is not simply a matter of rights but also of participation. issn 1822-8402 european integration studies. 2010. no 4 47 references annual report 2005. (2005), – summary – european monitoring centre on racism and xenophobia. on-line: http://eumc.eu.int(eumc)material/pub/ar05/ ar05_p2_en.pdf. belz h. (2008), equality transformed: a quarter – century of affirmative action. – publisher: transaction publishers, 350 p. consolidated versions of the treaty on european union and the treaty on the functioning of the european union. – official journal c 83 of 30.3.2010. council directive 2000/78/ec of 27 november 2000 establishing a general framework for equal treatment in employment and occupation. – official journal l 303, 02.12.2000. council directive 2000/43/ec of 29 june 2000 implementing the principle of equal treatment between persons irrespective of racial or ethic origin. – official journal l 180, 19.07.2000. charter of fundamental rights of the european union. – official journal c 83, 30.3.2010. delgado-moreira m. (2003), multicultural citizenship of the european union. – ashgte pub ltd, 218 p. directive 2004/38/ec. – official journal l158/77, 30.4.2004. enar schadow repots. on-line: http://www.enar-eu. org/pagegenerale.asp?doc1d=15294@&la=1&lan gue=en. east european politics and societies. – volume 17. nr. 4, 2003, 682699 p. european council meeting in laaken 14 and 15 december 2001. on-line: http://ec.europa.eu/ governance/impact/background/docs/laeken_concl_ en.pdf. feldman p. (2010), the international policies of brain gain. fordham law review. – volume 78, nr. 5, 2357 – 2442 p. jo goodey. (2007), racist violence in europe: challenges for official data collection. journal of ethnic and racial studies, volume 30, 570-589 p. junevičius a., schafer h. (2005), europos bendrijos bendrosios rinkos teisė. – kaunas, aušros spaustuvė, 423 p. kymlicka w. (2004), multicultural citizenship: a liberal, theory of minority rights. – oxford: clarendon press, 350 p. single european act. – official journal l 169, 29.06.1987. organization for economic co-operation and development. on-line: http://www.pisa.oecd.org/do cument./38/0,3343,en_32236191_42609254_1_1_1 _1,00html. taljūnaitė m. (2005), socialinė europos integracija. – vilnius, mykolo romerio universiteto leidybos centras, 220 p. treaty of european unijon. – official journal c 191, 29.07.1992. treaty of amsterdam. – official journal c 340, 10.11.1997. treaty of nice. – official journal c 80, 10.03.2001. the article has been reviewed. received in april, 2010; accepted in may, 2010. 72 issn 1822 – 8402 european integration studies. 2010. no 4 european structural funds assistance for young researchers in latvia marta mezeniece, baiba rivza latvia university of agriculture, faculty of economics abstract latvia is a small country and small open economy and its main and the most competitive recourses are highly educated society and well developed science based on the research, innovation and modern technologies. to create a well functioning innovation system as a part of knowledge-based economy several conditions has to be met to insure that all parts of national innovation system do effectively work together. latvia is considered to be a country in transition between efficiency driven and innovation driven economy after global competitiveness report 2009-2010. this means that the development of the country soon would not be possible by improving productivity adopting existing technologies or making incremental improvements in other areas. bigger and bigger role of country’s competitiveness will be in its ability to innovate. this means sufficient investment in research and development, the presence of high-quality research institutions, extensive collaboration in research between universities and research institutes as well as technology transfer to the industry, and the protection of intellectual property. as one of the main obstacles that prohibit the scientific activities development in latvia after restricted amount of funding is the lack of young scientists. the most significant reasons of ageing of scientific personnel are the insufficient number of doctoral students, brain drain of young scientists, the low percentage of research and development personnel (just 0.54% of the labour force in 2008 (eurostat)). the aim of this article is to analyse if the problems that accrue in higher education and science because of lack of young human recourse inflow can be solved by interaction of state using the european union (eu) structural funds assistance. during the programming period 2004-2006 the five main universities in latvia implemented projects under the activity ‘improvement of quality and implementation of doctoral studies and post-doctoral research’. the aim of these projects was to improve the quality and implementation of doctoral level studies and postdoctoral research in natural science and technology fields as well as to increase the number of new enrolees in the doctoral studies and provide research grants to the best doctoral students and new researchers. the research shows that the number of matriculated doctoral students in the prior study areas in the universities having implemented such projects has grown for 65.73% over the period of analysed seven years (20032009). the study concludes that eu structural funds assistance increases the motivation to start studies at doctoral level and encourage the students to choose carry out research in natural science and technology fields. in order to attract the young scientists to the research institutes the young scientists have to be involved in the research projects and the mentoring approach could be used to gain good results in the alternation of researchers’ generations by use of eu structural funds assistance. the research is mainly based on such economic research methods as grouping, chain and basis increase rate calculations. comparative, analytical and historical methods have been manly used in the paper, taking into consideration the large amount of scientific literature. keywords: eu structural funds, ageing of scientists, doctoral studies, national innovation system. introduction guidelines for development of science and technology, 2009-2013 developed by the ministry of education and science defines low number of people employed in science and research to ensure the country’s economic strategy implementation and sustainable growth, reduction in the number of scientists and aging of scientists, and insufficient number of doctoral students as one of main development problems in the field of science and technology in latvia. latvian national development plan, 2007-2013, states main three priorities: 1) an educated and creative individual, 2) technological excellence and flexibility of companies, 3) development of science and research. the main problem that is identified and has to be solved issn 1822-8402 european integration studies. 2010. no 4 73 as soon as possible is lack of young and emerging scientists working in latvian research institutions and the aging of academic personal in higher education institutions. therefore there are set several tasks to attract young scientists to scientific institutions and to motivate young people to choose a career in science, per example, improve the grant and scholarship system for doctoral studies, create a research support system for young postdoctoral scientists, motivate emigrated latvian scientists and young experts to return and work in latvian scientific institutions. the main financial instrument for solving the problem mentioned above is eu structural funds. latvia as a separate nuts ii region since 2004 is eligible for objective 1 structural funds support. one of the priorities of the single programming document, that was designed for eu structural funds intervention in latvia for the programming period 2004-2006, was development of human resources and promotion of employment. under this priority the measure “development of education and continuous training” included activity “improvement of quality and implementation of doctoral studies and postdoctoral research”. the main five universities in latvia implemented projects under this activity. the aim of these projects were to improve the quality and implementation of doctoral level studies and post-doctoral research in natural science and technology fields as well as to increase the number of new enrolees in the doctoral studies and provide research grants to the best doctoral students and new researchers. projects were completed in summer 2008 and the eu structural funds programming documents for the period 2007-2013 declared european social fund grants for master students in natural science and technology field and grants for doctoral students and young researchers in the all fields of research. there are some comprehensive researches that examine if the assistance of eu structural funds fulfilled indicators that were set in single programming document for the programming period 2004-2006 were met, although deeper study on eu structural funds support’s impact on dynamics of number of new enrolees in the doctoral studies and the number of doctor’s degree has to be carried out. there are several authors in latvia that have been writing about innovative activities (boļšakovs, 2008), innovation process and system (dimza, 2003), knowledge society (karnītis, 2004), higher education institution’s role in economic development (sloka and vilciņa, 2009), (mazūre et.al., 2009), knowledge-based economy (bikse, 2007). many studies on the research policy topic are carried out in the world, but there is lack of studies in the field of research policy that concentrate on latvian national education system as a part of national innovation system. to create a well functioning innovation system (the example of ireland’s national innovation system see in figure1) several conditions has to bee met to insure that all parts of national innovation system do effectively work together. innovative companies research and development (r&d) performers introduction and acquisition of technology technology parks, technology centers market development education and science system primary and secondary education vocational education higher education basic research financial system risk capital venture funds government investments in innovation activities research and development ensuring legislative and tax policy figure 1. the national innovation system of ireland source: science, technology and innovation. the white paper by government of ireland. department of enterprise & employment, dublin, 1996 the main conditions that ensure effectively working national innovation system are (dimza, 2003): universities conduct fundamental research at the − global level, allowing students to obtain a competitive and internationally recognized higher education. public and private professional education and vocational institutions train with necessary skills and knowledge, highly qualified and for certain sciencecapacious industry sectors suitable professionals; producing sector (mainly private) are able to invest − in innovation activities and to fund research in the country up to 80% (of total research and development spending in the country); the government creates enabling environment for − innovation, applying favourable credit policy, tax and customs policy, as well as investment policies in order to make more beneficial the private sectors investments to innovative activities; the financial sector, bought public and private, is − capable to take the risk and provide financing for innovations. vīksne d. in her research concludes that higher education institutions have started activities to involve students and academic staff in the development and promotion of innovative entrepreneurship in the respective region, thus student motivation to stay and start business in their region is created (vīksne, 2010). the next step towards efficient national innovation system is strengthening of education and science systems collaboration. issn 1822-8402 european integration studies. 2010. no 4 74 the research performed by prodan i. and drnovsek m. shows that greater numbers of years spent at an academic institution hinder the formation of academic-entrepreneurial intentions. because tenured professorships guarantee academics’ basic socioeconomic status, they are less motivated to endanger their research by redirecting interest and energy to business matters (prodan, drnovsek, 2010). therefore authors of this paper found it topically to analyze ageing of scientific personnel and other problems that accrue in higher education and science due to lack of young human recourse inflow can be solved by interaction of state using state european structural funds assistance. the aim of research is to analyse if the problems that accrue in higher education and science because of lack of young human recourse inflow can be solved by interaction of state using the european union (eu) structural funds assistance. to meet the research aim we set research tasks: analyze if using of eu structural funds assistance − in programming period 2004-2006 increased the number of new enrolees in the doctoral studies in natural science and technology fields; study the coloration between eu structural funds − support number of young scientists working in higher education institutions and the research institutes of higher education institutions. research object is young researchers and doctoral students in latvia. the following economic research methods were used for tackling the tasks: grouping, chain increment rate, basis increment rate, graphic illustration. monographic descriptive method, analysis and synthesis are used in the paper to study the problem elements and synthesize coherencies. authors studied legal framework in latvia and scientific publications in research policy, educations systems, mentoring in higher education. induction method is used for summarizing individual facts in general statements, but deduction method for theoretical explanations and logical synthesis of the empirical study. the analysis of doctoral students and working researchers in latvia is based on statistical data obtained from central statistical bureau of latvia, eurostat and the information included in reports on higher education in latvia (figures, data, tendencies) acquired from ministry of education and science during the period 2003-2009. all data analysis was performed using the statistical methods. comparative, analytical and historical methods have been manly used in the paper, taking into consideration the large amount of scientific literature. eu structural funds assistance for young researchers and phd students in latvia doctoral studies have to provide excellently educated doctors who are able to compete internationally. not only quality is an issue, but the sufficient quantity of doctoral students is a matter of great importance. although the total number of students is high – on the 10 000 population it is 554 in year 2007, however, this indicator does not provide sufficient amount of doctoral students and doctors, that could form the new generation of scientists and guarantee continuity in terms of the formation of scientific institutions. the age structure of scientists at higher education institutions and research institutes of the universities is inadequate in long term perspective (figure 2). figure 2. age structure of scientists at higher education institutions and research institutes of the universities in latvia, 2008 source: author’s calculations based on the report on higher education in latvia 2009 (figures, data, tendencies) only 7% of the total number of scientists working at higher education institutions and research institutes of the universities are under age 35. only five higher education institutions employ four and more scientists under age 35, but there are only 37 scientists (8%) under age 35 working in research institutes of the universities. the highest number 91 of young scientists works at the university of latvia and it is 48 percent of all scientists under age 35 in the sector of higher education. the total number of scientists age 65 and more is 697 or 27 issn 1822-8402 european integration studies. 2010. no 4 75 percent of all scientists working in the sector of higher education. the data sows that the highest number or scientists under age 35 are working at higher education institutions which implemented the project under activity ‘improvement of quality and implementation of doctoral studies and post-doctoral research’ and research institutes of the universities. taking into account the fact that the state budget funding for universities and scientific institutions in the year 2009 has been considerably reduced – scientific institutions, with a reduction of 41%, including sciencebased funding, which includes scientists wage fund by 52%. given this fact there is a high risk not only to attract new scientists, but also the employment of scientists in the future. after analysing available data and the scientific publications, authors deduced the reasons for the small number of doctoral students that could be both with the direct and indirect effects. directly impacting factors: proportion of state-funded study places at doctoral − level is too low (only 1462 state-funded study places at doctoral level, 31 percent of students are covering study fee); high rates of study fee for private-funded study − places at doctoral level (from 1350 to 6000 euro); low postgraduate scholarships for doctoral students − (114 euro and credit equalized grant 85 euro); low motivation for doctoral studies, which is caused − by many indirect factors. indirectly influencing factors: old-fashioned infrastructure of higher education − institutions and research institutes; low involvement of students in scientific projects at − early study phase; doctoral studies weak links with research projects − held out by research institutes in the universities (figure 2) low level of wages of academic staff and unattractive − remuneration system of scientific personnel; lack of safety factor, that doctor degree holder will − be needed in the labour market and would not fall in the risk group as overqualified workforce; remuneration system in public and private sector − (the education level does not affect the amount of wage). the eu funds assistance can help to hinder the influence of direct factors (offer monthly grant of amount 427 euro master level students in the prior study areas, 854 euro for doctoral students, and 1138 euro for doctor degree candidates (last year doctorate students) studying in the all study areas). there are some eu structural funds activities that are focused on diminishing such indirectly affecting factors of low number doctoral students as oldfashioned infrastructure of higher education institutions and research institutes – activities no. 2.1.1.3.1. ‘development of research infrastructure’ (171.5 mil eur), no. 2.1.1.3.2. ‘improvement of it infrastructure and it system for the research needs’ (17.6 mil eur), and activity no. 3.1.2.1.1. ‘modernization of premises and devices for improvement of study programme quality at higher educational establishments, including provision of education opportunities for individuals with functional disabilities’ (143.2 mil eur). low involvement of students in scientific projects and doctoral studies weak links with research projects held out by research institutes in the universities by implementing european social fund projects under activity no. 1.1.1.2. ‘attraction of human resources to science’ (57.3 mil eur). in order to attract the young scientists to the research institutes the young scientists have to be involved in the research projects and the mentoring approach could be used to gain good results in the alternation of researchers’ generations. larose s. et al. study the personal and social support factors involved in students’ decision to participate in formal academic mentoring and conclude that the willingness of enhancement in the academic mentoring depends on the student’s personality and help seeking habits (larose s., et al., 2009), therefore there is a place for further research about student’s enhancement in the academic mentoring in latvia. in order to investigate if the number of new enrolees in the doctoral studies in natural science and technology fields is caused by eu structural funds assistance, authors studied the dynamic time series of the eu structural funds assistance impact on number of students at doctoral level in latvia during the time period year 2003-2009. the data in table 1 shows that the number master’s degree gained in reporting year does decrease, but the base increase rate of number of matriculated doctoral students has grown for 47.85 percents. the number of doctoral students enrolled in the prior study areas in the universities, which implemented the esf project, has grown more (the base increase rate is for 31.15 percent higher in the year 2009) than number of doctoral students enrolled in the not prior study areas. it means that the eu structural funds assistance increases the motivation to start studies at doctoral level and encourage the students to choose carry out research in natural science and technology fields. issn 1822-8402 european integration studies. 2010. no 4 76 table 1. the eu structural funds assistance impact on number of students at doctoral level in latvia, 2003-2009 no. indicators years 2003 2004 2005 2006 2007 2008 2009 1 european social fund’s support for doctoral studies and post-doctoral research -102645 1792238 2388695 4736132 2724690 7702569 2 chain increase rate,% -0.00 1 646.05 33.28 98.27 -42.47 182.70 3 base increase rate,% -0.00 1 646.05 2 227.14 4 514.09 2 554.48 7 404.09 4 number master’s degree gained 3183 3608 3382 3173 3237 2602 2578 5 chain increase rate,% -13.35 -6.26 -6.18 2.02 -19.62 -0.92 6 base increase rate,% -13.35 6.25 -0.31 1.70 -18.25 -19.01 7 number of matriculated doctoral students 418 420 530 484 464 619 618 8 chain increase rate,% -0.48 26.19 -8.68 -4.13 33.41 -0.16 9 base increase rate,% -0.48 26.79 15.79 11.00 48.09 47.85 10 number of doctoral students enrolled in the prior study areas in the universities, which implemented the esf project 178 193 231 222 251 304 295 11 chain increase rate,% -8.43 19.69 -3.90 13.06 21.12 -2.96 12 base increase rate,% -8.43 29.78 24.72 41.01 70.79 65.73 13 number of doctoral students enrolled in the non prior study areas 240 227 299 262 213 315 323 14 chain increase rate,% --5.42 31.72 -12.37 -18.70 47.89 2.54 15 base increase rate,% --5.42 24.58 9.17 -11.25 31.25 34.58 source: author’s calculation based on the report on higher education in latvia 2009 (figures, data, tendencies) conclusions to build an effectively working innovation system, it is necessary to establish strong link between higher education institutions, research institutes and industry. support of european union structural funds have positive impact on the development on science and innovations sphere, and it is one of the preconditions for the development of states’ competitiveness. eu structural funds assistance in programming period 2004-2006 has increased the number of new enrolees in the doctoral studies whit base increase rate 65.73 percent over the period of analysed seven years (2003-2009) in natural science and technology fields. eu structural funds assistance increases the motivation to start studies at doctoral level and encourage the students to choose carry out research in natural science and technology fields. in order to attract the young scientists to the research institutes they have to be involved in the research projects and the mentoring approach could be used to gain good results in the alternation of researchers’ generations. there is a place for further research about student’s enhancement in the academic mentoring in latvia. the government have to increase proportion of statefunded study places at doctoral level up to 100 percent. other possibility to increase the number of doctoral students is to raise the amount of credit equalized grant to the eu structural funds level and additional amount that would cover study fee, keep in force the restriction, that the credit equalized grant has to bee repaid if the scholar does not get the doctor degree in five years period after start of studies. references balodis j. 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b., krūzmētra m., konstantinova e. the efficiency of mentoring programs for rural entrepreneurship economic science for rural development no.12, 2007. p. 239 – 245. sloka b. and vilciņa a. contribution of regional higher education institutions for regional development. proceedings of the international scientific conference ‘economic science for rural development’, primary and secondary production, consumption. no. 19. jelgava 2009. p. 58-63. vīksne d., mazūre g. development of human and financial resources in regional heis of latvia. economics and rural development. vol. 3, no 2. kaunas: akademija, 2007. p. 28-36. vīksne d. summary of the doctoral thesis for the scientific degree of dr.oec. assessment and development perspectives of regional higher education institutions of latvia. 2010. 65 p. the article has been reviewed. received in april, 2010; accepted in may, 2010. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 80 european integration studies no. 13 / 2019, pp. 80-88 doi.org/10.5755/j01.eis.0.13.23437 abstract brand recognition of the tex mex products in latvia http://dx.doi.org/10.5755/j01.eis.0.13.23437 ieva brence, riseba university of applied sciences, latvia juris bogomazovs, riseba university of applied sciences, latvia the foundation of successful business relies on recognition and positive experience among customers. the article examines theory of the brand and how well it is recognized in the latvian spice market, focusing on the tex mex production. there are numerous research papers on the brand management, yet no significant research has been devoted to the tex mex production branding. the research in this field is important as the latvian spice market is still growing and many different brands are offered by various manufacturers therefore the competition is tough and it is important to strengthen the market space of tex mex spices. moreover, there is an increase in the european spice market, therefore the research results are important for the european spice market in general. the purpose is to examine theoretical aspects of the brand and to evaluate the tex mex products’ brand recognition in latvia. the research novelty lays in the fact that a survey of 1011 latvian residents is used, by analyzing their habits in latvian spice market and, expecially the tex mex products. the paper contains following research methods: theory analyses; document analyses and analysis of a survey involving a 1011 latvian residents 454 females and 557 males, age group 15-74. the key results of the research: compared to the previous year, customers' attitude to the products of the brand santa maria tex mex has increased and currently santa maria is the market leader in latvian tex mex products. at the same time more than half of latvia’s people have never purchased tex mex products.to promote the visibility of the tex mex products, product tastings should be chosen as they provide further information to consumers. keywords: brand management, brand recognition tex mex products, food marketing, buying habits introduction branding has become a self-evident issue without which it is hard to imagine a successful product or service on the market. the brand expresses certain functional and emotional values of a product or idea. its mission is to be recognized, to build trust, to assert status, to guarantee quality, to intuitively let you know what users will receive. the better the brand performs these tasks, the greater the value of the brand and its owner. the company owns a brand, but its value is not found in the company itself it is in the minds of consumers (riezebos, 2003). both in latvia and worldwide, the market is saturated with food from various manufacturers, including producers of various spices and food additives, of which the large and influential market participant is santa maria, a food producer, which is part of the paulig group. santa maria is known in latvia since 1994, when as paulig baltic established its representative office in latvia with its sales and marketing team. since then, the situation has changed every submitted 06/2019 accepted for publication 10/2019 brand recognition of the tex mex products in latvia eis 13/2019 81 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 year in a positive direction.the market has increasingly seen products from different origins and manufacturers, contributing to healthy competition in the food market. this fact showed that the development strategy developed by the company is correct and the brand "santa maria" is delicious for latvian consumers and its products are needed. at the same time competition is growing and there are many market-entrants. nevertheless, not all the inhabitants still know about the tex mex production. therefore a research is necessary on analysing the tex mex products recognition in latvia. purpose: to examine theoretical aspects of the brand and to evaluate the tex mex products’ brand recognition in latvia. tasks: 1. analyze theoretical approaches to corporate brands, methods to promote their visibility, as well as the basic conditions for strategy development; 2. analyze the inhabitants’ opinions on the brand recognition of the tex mex brand; 3. draw conclusions, suggestions. the research methods – theory analysis, document analysis, analysis of a survey involving a 1011 latvian residents 454 females and 557 males, age group 15-74. to guarantee all the necessary conditions of a representative sample, a market research company “latvijas fakti” was contracted for perforning the research. the key results of the research: compared to the previous year, customers' attitude to the products of the brand santa maria tex mex has increased and currently santa maria is the market leader in latvian tex mex products. at the same time more than half of latvia’s people have never purchased tex mex products.to promote the visibility of the tex mex products, product tastings should be chosen as they provide further information to consumers. theoretical aspets of brand management various authors have defined different brands in different sources of literature (aaker, 1991, batey, 2008, clifton, 2010, de chernatony, & riley, 1997, meldahl, 2018, etc). one of the oldest brand definitions explains the following: word, term, sign , a symbol, a design or a combination thereof designed to identify goods or services to sellers or a group of sellers and to distinguish them from competitors (de chernatony & riley f. d, 1997). nowadays the importance of the brand has become much more complex and complicated, so the brand definitions are so different and ambiguous nowadays. the brand's mission is to be recognized, to build trust, to assert status, to guarantee quality, to intuitively let the consumer know what it will be (brauns, 2007). most of the brands are branded, so in the world, brand promotion is generally focused on product, service sales, or higher ranking. brand value changes the price of a product (cheverton, 2002), brand is a set of meanings (batey, 2008). the brand is even one that does not belong to the company or its owner the brand is a common sensory experience that the customer has created from any kind of contact with your company and its product or service (hammonds, 2008). strong brands arise only when the joint activity of the company's fundamental forces, combined with a unified strategy, penetrates all aspects of the company's business and takes over all the company's contacts (frolova, 2006). if the brand image gets a good reputation and recognition, then the company has a chance to grow rapidly (хейг, 2003). although much is said about the fact that nowadays people choose a brand not a specific product or service, the achievements still do depend on the product or service itself, its characteristics. market specificity is what determines the brand's relationship with the company at several levels: 1 in the informative sense, brands still have a traditional role to play to represent a product or service, inform about their market and allow to assess buyers' responses to sales and other market indicators; e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 82 2 brands are a sign of corporate ethics, policies, lifestyles, environmental protection, attitudes to personnel and the personality of a business manager, such as bill gates and microsoft (manternach, 2013). brand value is the degree of the company's brand value; this indicator may be related to financial, strategic and management benefits (riezebos, 2003). recognition characterizes brand value. brand recognition and popularity are virtually synonymous. brand recognition is more than brand recognition (sicco, 2003). before talking about brand recognition one needs to understand the current place of the brand or where a new brand might come. this can be clarified by various methods. there are two types of methodology to determine brand value based on quantitative data and qualitative data (ellwood, 2002). successful brands have two characteristics: brand vitality and brand stature. each of them consists of two more features. the brand has a brand viability when it is different from other brands in the customer's mind, and this distinction applies to the customer's needs. the brand is worthy if it inspires respect and is known in the target market (kotlers, 2007). if a company and its brand are market leaders and, if not, its managers can make their own brand assessment, which can be subjective, but at the same time can mark brand failures or problems. to create a brand, one first needs to define it. to define brand, you needs to develop a brand strategy. to get a successful brand strategy, you first need to explore market trends and your potential customer needs (meldahl, 2018). creating a brand first requires basic guidelines to understand where to start and how to lead it to the end. olins has developed various guidelines, but they are too fragmented. the more transparent version of the guidelines is: 1 brand audit assessment of the brand's market situation and the perspective to develop a unified brand development concept product, market, communication, attitude, e.g. how the cars’ markets are evaluated. design is valued what feelings are formed when sitting or driving, how much, how much fuel does the neighbors think, seeing the car standing at the door, etc.? brand audit is needed both for existing brands on the market to assess the current situation and for new brands before they are developed to determine the most successful brand positioning on the market (olins, 2005). 2 elaborating the core values of brands using a methodology for developing new or existing core values for brands, where guidelines are created for the image of the company characterising the essence, goals and ideology of the company's operations. the core values of the brand serve as a basis for creating a marketing and communication package for the company and its products. brand guidelines determine the company's personality, operating policy, and how the company communicates with its customers. the company can fully identify with the brand (corporate approach), such as nokia, or the brands can be different ("back-up approach") i.e. a number of brands, each with its own identity, but buyers look at them as a whole, such as the elvi store network in latvia. it is also possible to create brands where each brand unit is offered to the buyer in completely different ways. there are several more guidelines based on quality, difference, etc. (olins, 2005). before one start branding, it's important to differentiate who wants to build a brand, since there are several brand levels and the resulting strategies:1)product branding; 2)line branding; 3)range brand strategy; 4)umbrella branding; 5)source brand strategy; 6)endorsing brand strategy; 7) mixed approaches (келлер, 2016). 83 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 quality is a significant determinant of price premium, but adding other image dimensions doubles the predictability and understanding about price premium. the strongest determinants of price premium are social image, uniqueness and home country origin. other significant determinants are corporate social responsibility (csr) and awareness (anselmsson, vestman bondesson, johansson, 2014). the global food industry is changing in ways that require even the most seasoned and skilled food manufacturers to rethink their long-term strategy (gehlhar, et.al., 2009). there has been a sharp increase in new food product introductions globally since the late 1990s for major branded food categories. however, little is known about the motivation behind product innovation or new product introductions (gehlhar, et.al., 2009). growing consumer sophistication for convenient, healthy, environmentally friendly foods are creating greater segmentation in global food markets. mass production is being replaced with mass customization (gehlhar, et.al., 2009). the tex-mex label has been used for at least four decades to brand all mexican-american food. but the term has also faced confusion and disagreement over how it should be applied (ray wheaton, carrollb, 2017). the core issue is “whether tex-mex means americanized mexican food in general or specifically the kind from texas” (walsh, 2004, quoted by ray wheaton, carrollb, 2017). there are different particularities for branding different products and institutions. development of santa maria brand in latvia, one of the main spice production wholesalers in latvia is analysed in the next chapter. historical development of “santa maria” brand in latvia and recognition of santa maria tex mex products in latvian market santa maria is one of europe's leading brands in the spice and food additives sector and one of the most important food exporters in sweden. santa maria, originally a family business, is now a pan-european spice company with a headquarters in melndale, sweden, with around 850 employees. 80% of santa maria's shares belong to the finnish food conglomerate paulig coffee, which has played a particularly important role in coffee, various national cuisine and spices. the plants are located in sweden, denmark, estonia, belgium and holland. santa maria ab has long been the leading brand in the nordic countries, found in markets in over 35 european countries, including poland, the baltic states, ireland, holland, germany, switzerland and russia. and the strategy for the future is clear. santa maria should become tex mex (mexican cuisine) spice and product supplier no. 1 in europe. in northern europe, santa maria continues to increase its market share in the thai and indian spices segment (santa maria, www.santamariaworld.com, 2018). some facts about the origins of santa maria brand in latvia and its development are as follows. in 1992 paulig group established a branch of the company as paulig baltic opened the first santa maria spice factory in estonia and saues. in 1994, as paulig baltic started selling santa maria spices in latvia. on december 5, 2002, a representative office of as paulig baltic in latvia was established to provide marketing support for the brands of santa maria and paulig. following market trends and growing market demand, as santa maria was founded in estonia at the end of 2006 and a representative office of as santa maria in latvia dealing with brand development was established on 21 november 2006 (santa maria, www.santamariaworld.com, 2018). santa maria spices are one of the key concepts and are the leading brand in the nordic market. the assortment consists of almost 100 different spices and is the basis for all the spices found in other concepts. santa maria tex mex is the leading assortment of mexican spices and products in the nordic countries as well as in other european countries with its wide range of treadmills, cakes, spices, salsa sauces, corn chips and many other products. the tex mex concept was introduced e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 84 in 1991 and quickly achieved great success (santa maria, www.santamariaworld.com, 2018). santa maria bbq is the leading and most popular grilled food assortment in the nordic market, such as marinades and sauces. santa maria's offer is the key to success for anyone who wants to become a true grilling master (santa maria, www.santamariaworld.com, 2018). santa maria asia is an assortment of exotic flavors unique to thailand. this concept was introduced in the market in 2001 and was a great success. with these products, everyone can easily and quickly make thai dishes that have become popular since thailand has become a popular travel destination (santa maria, www.santamariaworld.com, 2018). santa maria india is the latest addition to national kitchen concepts, and one can find everything you need to prepare indian cuisine quickly and easily. santa maria's fresh herbs are an assortment of fresh, ecologically cultivated herbs and potted greens (santa maria, www.santamariaworld.com, 2018). the brand is an idea and it is important because the notions define the attitudes and actions of the population. the first point of contact with the brand is the name by which people identify a particular product or service, and this is undoubtedly of great importance in creating a brand image. brand value comes from the position it occupies in the minds of people, it must be true and fulfill its promises. so brand recognition and how people value it, who is in the minds of people, and it's not easy to measure it accurately. quantitative data brand recognition is determined by surveys that reveal the extent to which the brand, its logo, offer, individuality and awareness of its competitors are known to consumers. brand recognition is also reflected in the company's sales data compared to its competitors. in order to evaluate santa maria tex mex products brand recognition in latvia, a survey was organised in cooperation with one of the leading market research companies in latvia. a total of 1011 latvian residents were surveyed, of whom 454 were women and 557 men in age group 15-74. g en de r a g e e du ca ti o n n at io na lit y h o u se ho ld si ze c hi ld re n yo u ng er t ha n 15 in h o u se ho ld fa m ily st at u s in co m e r es po ns ib le f o r da ily s ho pp in g r eg io n (l at vi a) s et tl em en t ty pe chisquare df sig. 61,667 55,677 24,534 7,135 27,708 13,843 19,375 23,828 65,412 49,521 11,308 4 20 8 8 16 4 8 16 4 20 12 ,000* ,000* ,002* ,522b ,034* ,008* ,013* ,093 ,000* ,000* ,503 table 1 respondents answer have no idea what to cook at home therefore looking for ideas in the store(survey performed by latvijas fakti, 2018) the research started with the question of whether the respondent has ever purchased any of tex mex's products as a possible response by respondents. the survey results report that 59.8% of the respondents have never bought tex mex products. only 29.6% of respondents have purchased tex mex products over the past year and more 10.6% of tex mex products surveyed have bought more than 12 months ago. the breakdown by age group as the respondents' answers split is reflected in table 1. the results of the survey suggest that most tex mex products, over the last year, are purchased by consumers aged 15-34, purchasing 50% of the 182 respondents in the 15-24 age group and tex mex products in the 25-34 age group. acquired 45.1% of 195 respondents. respondents' answers suggest that the least tex mex products are purchased by age groups 55-64, accounting for 9.6% of 157 respondents and 65+ years 2.9% of 138 respondents. 85 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 total gender age 1011 male (454) females (557) 15-24 (182) 25-34 (195) 35-44 (162) 45-54 (176) 55-64 (157) 65+ (138) have you ever bought tex mex products? yes, in the last 12 months 29,6% 27,8% 31,1% 50,0% 45,1% 36,2% 23,9% 9,6% 2,9% yes, more than one year ago 10,6% 28,0% 29,0% 22,5% 30,3% 28,8% 33,0% 35,6% 20,3% no, have never bought 59,8% 44,2% 39,9% 27,5% 24,6% 35,0% 43,1% 54,8% 76,8% table 2 respondents answers on the tex mex production buying habits (survey performed by latvijas fakti, 2018) analyzing data by age groups, one can find the greatest popularity of santa maria brand products in the age group 25-34, accounting for 80% of 195 respondents. 70.3% of the 182 respondents in the 15-24 age group also named the tex mex products of the brand santa maria. more information included in table 4. total gender age 1011 male (454) females (557) 15-24 (182) 25-34 (195) 35-44 (162) 45-54 (176) 55-64 (157) 65+ (138) top of mind tom santa maria 17,5% 15,2% 19,4% 22,5% 26,7% 18,4% 17,6% 12,7% 2,2% virtuosso 1,9% 1,1% 2,2% 2,2% 2,6% 4,3% 0,6% poco loco 1,7% 1,3% 2,3% 2,7% 5,1% 2,5% cita 3,0% 0,4% 0,5% 0,5% 0,5% 0,6% 0,6% 0,6% table 3 respondents answers on the top of mind tom (survey performed by latvijas fakti, 2018) total gender age 1011 male (454) females (557) 15-24 (182) 25-34 (195) 35-44 (162) 45-54 (176) 55-64 (157) 65+ (138) total recognition of texmex santa maria 53,4% 46,3% 59,2% 70,3% 80,0% 62,0% 45,5% 33,8% 15,9% virtuosso 19,0% 17,0% 20,6% 28,0% 27,7% 26,4% 14,8% 8,3% 3,6% poco loco 15,1% 11,5% 18,1% 22,5% 24,1% 23,3% 10,8% 3,2% 2,2% mission 10,6% 8,1% 12,6% 14,3% 16,9% 13,5% 8,5% 4,5% 2,9% rainbow 10,4% 9,3% 11,3% 15,9% 14,9% 16,6% 8,0% 3,2% 0,7% yufka mamulleri 9,0% 7,7% 10,1% 14,8% 18,5% 12,9% 1,7% 2,5% wanted 7,0% 7,7% 6,5% 9,9% 8,2% 13,5% 7,4% 1,3% el sabor 7,0% 5,7% 8,1% 11,5% 11,3% 9,8% 4,5% 1,9% 0,7% table 4 respondents answers on the total recognition of the tex mex brands (survey performed by latvijas fakti, 2018) in frames of the table 2 the respondents answers to the top of the mind brands are summarised, santa maria being in the first place. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 86 total gender age 1011 male (454) females (557) 15-24 (182) 25-34 (195) 35-44 (162) 45-54 (176) 55-64 (157) 65+ (138) are you planning your daily purchases? mostly yes 52,2% 39,7% 62,1% 37,8% 42,2% 54,3% 54,1% 61,2% 69,9% sometimes 33,8% 41,3% 27,8% 36,7% 44,0% 39,4% 34,7% 24,7% 16,4% no, more impulse driven 14,0% 19,0% 10,1% 25,6% 13,8% 6,4% 11,2% 14,1% 13,7% table 5 resondents answers on planning the daily purchases (survey performed by latvijas fakti, 2018) total gender age 1011 male (454) females (557) 15-24 (182) 25-34 (195) 35-44 (162) 45-54 (176) 55-64 (157) 65+ (138) what brand do you buy the most often? santa maria 30,9% 27,3% 33,8% 48,9% 48,2% 34,4% 27,3% 12,1% 4,3% virtuosso 8,5% 7,0% 9,7% 12,6% 13,8% 14,1% 5,7% 0,6% 1,4% poco loco 6,4% 5,5% 7,2% 10,4% 9,7% 11,7% 3,4% 0,6% 0,7% mission 4,6% 3,5% 5,6% 6,6% 9,2% 6,1% 2,3% 0,6% 1,4% yufka mamulleri 4,5% 3,7% 5,0% 8,2% 8,7% 6,7% 1,1% rainbow 3,8% 2,9% 4,5% 6,0% 6,2% 6,1% 2,3% 0,6% wanted 3,0% 3,3% 2,7% 5,5% 3,1% 4,9% 2,8% 0,6% el sabor 2,8% 3,3% 2,3% 7,7% 2,6% 3,1% 1,1% 0,6% 0,7% cits 1,6% 0,9% 2,2% 0,5% 2,1% 2,5% 1,7% 2,5% table 6 resondents answers on the tex mex most popular product brand (survey performed by latvijas fakti, 2018) respondents were also asked on their habits planning the daily purchases. data analysis conclude that the older the person, the more often it makes a shopping list. in the age group of 15-24 years, 37.8% of 182 respondents make the list of purchases, while in the age group 55 64 the total number of 157 respondents is 61.2%. in the age group 65 and over, the list of purchases is made by approximately 70% of the 138 respondents. more information included in the table 5. analyzing respondents' responses to the most popular tex mex product brands by age group, it is concluded that santa maria's tex mex products are the most popular, if compared to other competitos. 48.9% of the respondents at age 15-24 mainly buy santa maria brand products, while virtuosso brand products are mainly purchased by 12.6%. the situation is very similar in the age grou 25 34, 48.2% of respondents mainly purchase the tex mex products of the santa maria brand and 13.8% of respondents mainly buy virtuosso brand products. more information is included in table 6. from the 1,011 respondents surveyed, 23.1% or 234 respondents reported the santa mex brand tex mex products to be their favorite. in-depth analysis of the results from 234 respondents who mentioned santa maria's tex mex products as a favorite among age groups, 36.8% of 182 respondents were aged 15-24, 35.9% of 195 respondents were aged 25-34, 23.9 % of 163 respondents aged 35-44 years, 22.7% of 176 respondents aged 45-55, 10.2% of 157 respondents aged 55-64 and 1.4% of 138 respondents aged 65 and over. more information is included in table 7. 87 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 total gender age 1011 male (454) females (557) 15-24 (182) 25-34 (195) 35-44 (162) 45-54 (176) 55-64 (157) 65+ (138) which if your most favourite brand? santa maria 23,1% 20,0% 25,7% 36,8% 35,9% 23,9% 22,7% 10,2% 1,4% virtuosso 2,8% 2,4% 3,1% 3,3% 5,1% 4,9% 1,1% 0,6% 0,7% poco loco 2,3% 2,4% 2,2% 4,9% 3,1% 4,3% 0,7% mission 1,9% 1,1% 2,5% 2,2% 3,1% 3,7% 1,1% 0,7% el sabor 1,3% 1,8% 0,9% 3,8% 1,0% 0,6% 0,6% 0,6% 0,7% yufka mamulleri 1,1% 0,4% 1,6% 2,2% 2,1% 1,8% wanted 1,0% 0,9% 1,1% 0,5% 2,1% 1,8% 1,1% rainbow 0,9% 0,9% 0,9% 2,2% 1,5% 0,6% 0,6% cits 0,9% 0,6% 0,5% 0,5% 0,5% 0,6% 1,1% 0,6% table 7 respondents answers on the most popular brand survey performed by latvijas fakti, 2018) conclusions 1 various authors have defined different brands in different sources of literature often adusting it with – word, term, sign, symbol, design or combination. there are various definitions, yet one harly cab find many research publications devoted to tex mex brand recognition. 2 santa maria is the market leader in latvian tex mex products nad the products of santa maria tex mex are the most popular among all tex mex products sold in latvia. the most popular tex mex brand in latvia, known as the first or has ever been bought, or knows only by name, is the product of sata maria tex mex. despite being the most popular brand, more than half of latvia’s people have never purchased tex mex products. referencesaaker, d. 1991. managing brand equity: capitalizing on the value of a brand name . new york: the free press. ac nielsen market data. 2018. about. retrieved april 5, 2019, from http://scandinfo.se/en/about/ anselmsson, j., vestman bondesson, n., johansson u. 2014. brand image and customers' willingness to pay a p rice premium for food brands. journal of product & brand management. baker , m. j. 2007. marketing strategy and management. 4th ed. basingstoke: palgrave macmillan. batey m. 2008. brand meaning. new york: taylor & francis group. blaits, d. 2004. mārketings: rokasgrāmata. rīga: zvaigzne abc. brauns, t. 2007. zīmola filazofija. izcili filazofi par zīmoliem. rīga: lietišķās informācijas dienests. brüggen, e., & willems, p. 2009. a critical comparison of offline focus groups, online focus groups and e-delphi. , vol. 51 . international journal of market research. https://doi.org/10.1177/147078530905100301 cheverton, p. 2002. how come your brand isn't working hard enough? london: kogan page limited. clifton, r. 2010. brands and branding. london. de chernatony, l., & riley f. d. 1997. the chasm between managers and consumers views of brands: the experts perspectives. journal of strategic marketing. https://doi.org/10.1080/096525497346811 ellwood, i. 2002. the essential brand book. over 100 techniques to increase brand value. london: kogan page limited. farhana, m. 2012. brand elements lead to brand equity: differentiate or die. information management and business review. frolova, l. 2006. zīmola veidošana un vadīšana mūsdienu organizācijā. rīga: latvijas universitātes raksti. gehlhar, m. j., regmi, a., stefanou, s. e., zoumas, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 88 ray wheaton, d., carrollb, g. r. 2017. where did "tex-mex" come from? the divisive emergence of a social category. research in organizational behavior. volume 37, pp. 143-166. https://doi.org/10.1016/j. riob.2017.09.003 riezebos, r. 2003. brand management. ,. harlow: financial times/prentice hall. rubene, e. 2009. mārketings. rīga: lietišķās informācijas dienests. santa maria. 2018, october 18. santa maria asia. retrieved from https://www.santamariaworld. com/lv/produkti/azija/. santa maria. 2018, october 18. santa maria bbq produkti. retrieved from https://www.santamariaworld.com/lv/produkti/bbq/. santa maria. 2018, october 18. santa maria tex mex produkti. retrieved from https://www.santamariaworld.com/lv/produkti/tex-mex/. santa maria. 2018, october 18. www.santamariaworld.com. retrieved from santa maria stāsts: https:// www.santamariaworld.com/lv/santa-maria-stasts/ santa maria. 2018, october 18. www.santamariaworld.com. retrieved from santa maria: https:// www.santamariaworld.com sicco, v. g. 2003. global brand strategy. kogan page publishers. swystun, j. 2007. the brand glossary. new york: palgrave macmillan. https://doi.org/10.1057/9780230626409 zīmols, z. 2018, october 30. zīmols. zīmola izveide, pozicionēšana. retrieved from http://www.zimols. com/: http://www.zimols.com/ келлер, к. л. 2016. стратегический брендменеджмент. создание,оценка и управление марочным капиталом. москва : вильямс. темпорал, п. 2003. эффективный брендменеджмент. санкт-петербург: hева. хейг, м. 2003. крупнейшие ошибки брендинга. нева. about the authors brence ieva dr.sc.administr. riseba university of applied sciences fields of interests marketing research; labour market address meza street 3, riga, lv-1048, +371 26363506 e-mail: ieva.brence@riseba.lv bogomazovs juris riseba university of applied sciences address meza street 3, riga, lv-1048, latvia e-mail: ieva.brence@riseba.lv l. 2009. brand leadership and product innovation as firm strategies in global food markets. journal of product & brand management.https://doi. org/10.1108/10610420910949013 hammonds, d. 2008. tava biznesa zīmols: kā vadīt zīmolu, piesaistīt klientus un kļūt pamanāmam tirgū. rīga: lietišķās informācijas dienests. hofs, k. g. 2002. biznesa ekonomika. rīga: jāņa rozes apgāde. jansons, v., & kozlovkis, k. 2016. mārketinga pētījumi i teorija un prakse spss 20 vidē. rīga: rtu izdevniecība. kapferer, j. n. 2008. the new strategic brand management. kogan page. kogan page. koniewski, m. 2012, october 14. http://www.research-pmr.com. retrieved from brand awareness and customer loyalty: http://www.research-pmr. com/userfiles/file/wp/brand-awareness-and-customer-loyalty.pdf kotlers, f. 2007. kotlers par mārketingu. rīga: lietišķās informācijas dienests. latvijas fakti survey. 2018. tex mex brand recognition in latvia. manternach, l. 2011. does your brand have top of mind awareness? corridor business journal. manternach, l. 2013. your brand is your most valuable asset. corridor business journal. meldahl, h. 2018, decembris 20. branding-it's more than being known by name. retrieved from http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=7&sid=744522f4-5392-4bef-99e1-ed2c64c10514%40pdc-v-sessmgr01 niedrīts, j. ē. 2008. mārketings. rīga: biznesa augstskola turība. olinss, v. 2005. par zīmolu. rīga: neputns. papiņš, k. 2018, october 30. kāpēc es saku "brends". retrieved from www.parbrendu.lv: http://www.parbrendu.lv/kapec-es-saku-brends/ 109 issn 1822 – 8402 european integration studies. 2010. no 4 social security systems of lithuania and germany: diversity of approaches juozas merkevicius, neringa bernotienė vilnius gediminas technical university abstract the healthcare system forms premises to carry out citizen’s health protection, provide health care services to the customer – the patient. the health system, its financing, structure, the peculiarity of interaction between its elements are defined by the health protection policy carried out by the country, which is determined by the countries regime, traditions, moral values, economical, political, demographical and other factors. the health protection policy forms strategic aims and the priority directions of action in the questions of health protection. many of the economic and management law are applicable in the health protection sector. the growth of the healthcare market of european union is caused by the technical medicine progress, the more diverse choice of healthcare services, the expectations of patients, and the development of information and communication technologies. acquired pharmaceutical and medicine technology innovations allow offering patients a large variety of choices to improve health. although, health protection is one of the sectors, where specific distortions arise because of the market, so government participation and resource distribution is necessary. discussions arise both in the society and different institutions, about the range of government intervention that will bring the optimal benefit, how to not create preconditions for unnaturally high demand for medical treatment services and medicaments, still guaranteeing free health protection. this way, during the formation of the health protection policy the choice between innovations and economic growth promotion, expenses control and cost reduction, searching for the benefit and effectiveness ratio. also, the democratic society principles and the mutual respect between the services provider and consumer should be implemented in the health protection domain. judging from the above regulations, we can assume that the question of health insurance is one of the most important health protection policy questions in the european union. the paper by using comparative analysis method analyzes the health care systems of federal republic of germany and the republic of lithuania. in the article is described concept and types of health insurance, is made comparison of circle of insured persons of the analysed countries, their rights and responsibilities. there is made analysis of management and funding of health care systems. lithuanian and the german health care systems have common features and differences. in both countries the health care institute has retained the essential features of the compulsory health insurance. lithuanian and german health care systems distinguishes between mandatory and voluntary health insurance. the compulsory health care scheme aims to involve all groups of persons. the countries concerned are different moral values, the ideological foundation of health insurance. lithuanian and german health care systems are different in health insurance coverage, determination of underwriting fees and collection mechanisms, many other factors. keywords: health care system, health insurance in the federal republic of germany, health insurance in the lithuanian republic, management of health care system. introduction health insurance is one of the most common ways to receive financial resources, which can be used to finance the healthcare system. the institute of obligatory health insurance is vital to the healthcare systems of both the federal republic of germany and the republic of lithuania. however, it is noticeable that the obligatory health insurance system alone cannot meet the new challenges arising in fast-changing environment or solve the problems of the growing healthcare service costs or the suitability and accessibility of the services. more often the elements of the market are integrated into the health insurance system, the importance of other financial sources– surcharges, voluntary health insurance, is increasing research problem and relevance. the republic of lithuania and the federal republic of germany differ in their economic development level, their health system issn 1822-8402 european integration studies. 2010. no 4 110 models, many healthcare indicators, but part of the health protection problems is common. because of the aging resident population, the increasing average lifespan, a larger part of the population needs long-term treatment, rehabilitation and nursing means; also more expensive medicine, examinations and treatment procedures are prescribed more often. all of this leads to the increasing of healthcare costs. every problem requires and optimal decision method – equilibrium must be found between a quality, accessible, corresponding to the expectations of the patient, service and an effective use of resources. to solve this task the health insurance institute is important, for the most part deciding the possibilities of quality or accessibility of the offered healthcare services. the federal republic of germany has a social insurance, or so called bismarck health system model, when a large part of funds, intended for healthcare financing, is received from health insurance (sinn, 2005). lithuania has a mixed model, which has both bismarck and beveridge systems elements and a dual service financing – from the state budget and health insurance funds. this fact presupposes that lithuanian and german health systems have both similar and diverse features. problems of lithuanian public sector in various aspecs were analyzed by many different scientists: b. melnikas, j. samulevičius (2009), a. makštutis, r. smaliukienė, j. vijeikis (2009), n.k. paliulis, n. jurkėnaitė (2009), ž. tunčikienė (2009), j. vijeikis (2008), o.g. rakauskienė, e. chlivickas (2007), g. davulis (2006). there are articles taking attention to aspects of organization of public sector (bivainis, drejeris, 2008) and issues of planning (bivainis, tunčikienė, 2007). there is less literature concerning health insurance in lithuania. health insurance problems and various features were evaluated by lithuanian scientists: a. dobravolskas (2009), g. černiauskas (2009). analyzing the literature, where the financing of the lithuanian and german healthcare systems, using health insurance, is compared, we can assume that the health insurance institute in lithuania got more attention at the origin of its sources. in the publication of sveikatos ekonomikos centras (1996), other countries‘ health systems are compared, including health insurance, it is evaluated which health insurance model would be best suited for lithuania, analyzing the experience of other countries. in g. černiauskas and m. schneider (1999) work the changes in the lithuanian health system are analyzed and a health insurance evaluation is provided. the development of health insurance in lithuania, lithuanian insurance system and its improvement are analyzed in some master‘s dissertations. in most of the dissertations concerning lithuanian health insurance system, the health insurance is analyzed from an economic – effect (result) point of view, and not the legal (cause) aspect. publications, prepared by world health organizations, analyze different countries‘experience in financing healthcare systems, the main, general features of health insurance and its peculiarities in different countries. literature in lithuanian language about the german health insurance system or where lithuanian health insurance system is compared to other european union old-times‘systems is missed. meanwhile, continuing the reform of lithuanian health protection system, searching for successful solutions for solving health protection problems, not only lithuanian national health system experience is valuable, but other countries, including more industrialized ones, which have a longer experience in health insurance practice, proficiency as well as their decisions in solving new problems, and mistakes that were made. there is no doubt, that a wider standpoint, abundance of information allows the appearance of new viewpoints, widening the discussion (communication) circle, form new ideas and alternatives. meanwhile, the experience, amounting to over 120 years, of the federal republic of germany, which currently is carrying out a reform of it‘s health system and searching for ways to adapt to new demands, as well as improving the health insurance institute, could be useful in widening the boundaries of discussions, connected to health insurance, and creating alternative health insurance opportunities, forming a medium for healthy competition, for the final aim to be reached – providing of quality healthcare services, including disease prevention, treatment and rehabilitation, to every citizen of the republic of lithuania and service consumer, the satisfaction of the patient. we shouldn‘t forget, that a healthier, more able-bodied society is one of the important contributors to the economic growth of the country or the formation of a civil society. research object: federal republic of germany and the republic of lithuania healthcare systems. research aim: to analyze the health insurance systems of lithuania and germany, determine their advantages and differences. research tasks: to analyze and compare the type of insurance applicable in lithuania and germany, the peculiarities of financing, prohibited person group and their rights and duties, institutions that carry out the health insurance. research methodology: the comparison analysis of lithuanian and german health system done by world health organizations, other scientific or methodical literature, statistic collections and other scientific literature sources. decentralization one of the key elements of the healthcare system of the federal republic of germany – decentralization, issn 1822-8402 european integration studies. 2010. no 4 111 is supported by federalism – the division of decision making power between the federal authorities, authorities of separate territories in the country and the delegation of public authority power to corporal establishments – organizations of service providers and buyers, like doctor and dentist associations and patient funds (world health organization, 2006). on the country level, the decisions on healthcare problems are made by the federal health protection ministry. the ministry decides on international and national health policy formation questions, personal healthcare, social health care and pharmaceutical activity strategic planning questions. the federal health protection ministry prepares projects of health system legislations, performs controlling of the healthcare system, licensing and overview functions. on the regional level 16 lands don’t have ministries that would take care of health protection problems, in some lands the health protection ministries are merged with labour and social protection, environment protection, family and youth matters. often health protection questions are solved in one the divisions of the ministry (public health services and environment hygiene questions, aids prevention and so on) (busse, riesberg, 2004) in the republic of lithuania, key healthcare questions are solved in the health protection ministry of the republic of lithuania, which prepares legislation projects, forms and carries out health protection policy, determines the main directions and priorities of the national health system development, performs health system control (health protection ministry regulations). municipal institutions are given the task to array out primary person healthcare and a part of the secondary healthcare (health system legislation, 1998). the heads of the regions are tasked with performing secondary person healthcare. thus we can come to a conclusion that both the federal republic of germany and the republic of lithuania healthcare systems are decentralized, in the federal republic of germany this is based on german lands, territories (homburg, 2003), and in the lithuanian republic – based on municipalities and regions. private and public sector relation another important feature of german healthcare system is the privatization of the systems elements. unlike other spheres, public and private sectors in healthcare can be divided by their ideology and not any other criteria. although in some spheres of healthcare private service providers dominate, like dentistry. until 2004, ambulatory care services in the former federal republic of germany territory were conducted on an office principle, whereas in the former east germany still has policlinics. in other sectors private non-profit and profit seeking service suppliers exist together with public, for example in the hospital sector. a large quantity of hospitals, including private, profit seeking ones, treats patients with obligatory health insurance and their activities are regulated by the same rules. only few private, profit seeking hospitals are not included into the so called hospital plan and don’t treat patients with obligatory health insurance (busse, riesberg, 2004). at the same time, most of the institutions providing healthcare services in the republic of lithuania are public, unprofitable organizations. the private sector is more dominating in dentistry, plastic surgery, psychotherapy and gynaecology spheres (černiauskas, murauskienė, 2000). comparing the two countries, it is clearly seen, that in the federal republic of germany, the private healthcare sector plays a more important role, meanwhile in lithuania it can be still considered as forming. healthcare financing the financing of the bigger part of german healthcare system by the obligatory health insurance, controlled through the patient funds, is common to the german health system. the rest part of financing is received from various sources, applying a decentralized funds distribution. funds, appointed for health protection are received from different ministries: health protection, defense, internal affairs, education and science (busse, riesberg, 2004). in 2005 total expenses on healthcare in germany made 10,7% of gdp, 76.9% of healthcare service total expenses, or 8,6% of gdp was covered from patient funds. in 2004 total expenses for healthcare made up 10,6% of gdp (world health organization, 2006). evaluating 1996-2005 interval, total expenses part of gdp remains constant, fluctuations happen in the boundaries from 10,2 to 10,8% (who, 2008). expenses on healthcare in lithuania consist of government and municipal budget expenses and obligatory health insurance fund expenses. the ministry of finance expenses, appointed to health protection, is distributed not only through the health protection ministry, but also thorough other ministrieslike social protection and labour. total expenses, as a part of gdp, for healthcare made up 5,89% in 2002, 5,56% in 2004, 5,79% in 2008 (lsic, 2009a). in 2008, 75.5% of the healthcare expenses were government expenses. in the mean time the expenses average of the european union in 2002 was 9% of gdp (busse, riesber, 2004). comparing a 10 year period of 1995-2005, the alteration of the total expenses as a part of gdp indicator is minor and fluctuated around 5,5% of gdp. analyzing the government expenses for healthcare as part of gdp for that same time period, we also don‘t see any noticeable changes: 4,13% of gdp in 1995 and 4% of gdp in 2005 (busse, riesberg, 2004) there is no unanimous health protection budget issn 1822-8402 european integration studies. 2010. no 4 112 that is sorted through the ministry of health protection neither in the federal republic of germany nor in lithuania, which lets us perceive health protection as a complex and environmental protection, social protection problem. health protection in the federal republic of germany receives considerably larger percent of funds from gdp. judging by the 9-10 year changes in the funds from gdp, which are used for health protection, both countries maintain quite a stable percent with minor fluctuations. personal healthcare system both lithuanian and german healthcare systems consist of a network of ambulatory healthcare and stationary personal healthcare institutions. ambulatory healthcare in germany is mostly provided by general practitioners working on contract and specialists involved in personal practice. patients can choose a doctor, psychotherapist, dentist, institution that provides obligatory help. the so called gate system, when the patient is sent to a specialist by the general practitioner, is still not implemented enough, although their competence in coordination was strengthened in the last few years and since 2004 patient funds were obliged to provide the patient direction models. doctors providing ambulatory services also provide most of emergency aid services. most family doctors visit patients’ homes (busse, riesberg, 2004). such services are provided only by some of the specialists. offices, providing immediate service during the non-working hours include consultations by telephone, patient examination at home. stationary healthcare services in the federal republic of germany are offered by both public and private stationary healthcare service providers. although the number of beds per 1000 residents and the average time of lying were significantly reduced to 6,3 beds per 1000 residents and 9,3 days, germany is still the leading country by these indicators of the 15 european union countries, that became eu members before may 2004. (world health organization, 2006). in 2002 in germany there were 2221 hospitals, that had 547 284 beds (6,7 beds per 1000 residents). 274 of those were psychiatric hospitals that had 42600 beds, 1898 general profile hospitals that had 504684 beds. 24. the number of hospitalizations per 100 residents in 2005 was 22,66. the total number of general hospitals consisted of 712 public, 758 private non-profit and 428 private profitseeking hospitals. the bed relation was as follows 54, 38 and 8 percent for public, private non-profit and public profit-seeking hospitals (busse, riesberg, 2004). the number of beds in university hospitals made up 8,3% of the total number of hospital beds. in 20021343 institutions, that had 184 635 beds (2,2 beds per 1000 residents) were assigned for prevention and rehabilitation treatment in addition to short-term treatment. comparing to general profile hospitals, the number of long-term treatment hospitals consists of 17% of public, 16% of private non-profit and 67% profit-seeking institutions (busse, riesberg, 2004). in lithuania, personal healthcare services are provided mostly in legal status hospitals of public institutions and two largest universities – vilnius and kaunas clinics. in 2008, private hospitals don‘t even reach 10% of total number of lithuania hospitals. in 2008 there were 149 hospitals in the republic of lithuania, 67 of them were general profile hospitals, 49 hospices, 29 specialized hospitals and 4 rehabilitation hospitals (lsic, 2009b). following the tendencies of change of bed numbers, a decline in number of stationary beds, from 98,8 in 1999 to 84,6 in 2004 and 81,7 in 2008 per 1000 residents, is noticeable. the average lying time in the stationary in 2005 was 10,2 days, number of hospitalizations per 100 residents – 23,8 in 2005 – higher than the average of the eu countries, even that the average of the countries that became eu members after may 1, 2004 (lsic. 2009c). ambulatory healthcare services are provided by policlinics, primary healthcare centers, ambulatories, general practitioner‘s rooms. there are 441 ambulatory healthcare institutions. primary private healthcare institutions come up to 174. comparing stationary services, private service providers dominate in germany, and public hospitals that have a legal status – in lithuania. such indicators as the tendency of reduction of beds in stationeries, hospitalization numbers per 100 residents and the average lying time in stationeries are very similar for both countries. germany and lithuania have similar personal healthcare system structures, but the model of healthcare specialists being accessible through general practitioners, family doctors, has been put to practical use in lithuania first. human resources in 2002, 4,2 mln. people, or 10,6% of all working population in the federal republic of germany worked in the healthcare sector. 37% are work part-time and 63% a full-time. in 2003, there were 3,37 doctors per 1000 residents, 9,72 nurses and 0,78 dentists per 1000 residents in germany. starting with 1997, human resources remained quite stable, although the number of part-time workers increased. over the last 50 years the number of doctors has increased drastically. on the other hand, the number of qualified general practitioners has declined, comparing to the total population and especially with the total number of doctors. 52% of accredited primary-level physicians work as family doctors, 48% as specialist in the ambulatory care field (busse, riesberg, 2004). from 1990 till 2002 the number of doctors has risen by 20% and is close to the average issn 1822-8402 european integration studies. 2010. no 4 113 of the european union. the number of nurses has risen by 8% in 2001 and is higher than the eu average. since 1995, the number of doctors in lithuania per 10000 residents remains quite stable. 40,8 doctors per 10000 residents in 1995, 39,7 doctors per 10000 residents in 2003, 40,01 – in 2008. in the mean time a increase in the number of dentists is spotted. in 1995 – 4,8 per 10000 residents, 6,9 per 10000 residents in 2003, and 7.11 in 2007 (lsic. 2009c). in 2006, the number of doctors per 10000 residents in lithuania was higher than in germany, but a slightly smaller number of nurses and dentists. both in germany and in lithuania the number of doctors, nurses and dentists per 10000 residents is higher that the european union average (lsic, 2009d). the role of associations in germany healthcare service providers are represented by doctor and dentist associations. regional doctor associations can be found in every german land. dentist associations are similar. regional associations form a federal doctor association and a federal dentist association. the german hospital organization represents hospital interests. it consists of 16 lands of germany hospital organizations and 12 hospital associations, representing various hospital types, for example: university, profit-seeking and other (busse, riesberg, 2004). in the republic of lithuania, among the significant associations, the doctor union and the medicine worker professional union are mentioned for the healthcare service providers. (černiauskas, murauskienė, 2000). in germany, regional associations and unions of doctors, dentists and hospitals are formed, which make up federal-level associations and are very important when representing the interests of service suppliers. although the role of service provider associations is increasing in lithuania, it can hardly be said that they take part in sales contract making as an equal partner for patient funds, strongly influencing price making of healthcare services or other contract elements. conclusions 1. both the republic of lithuania and the federal republic of germany use health insurance as one of the means to finance the health system. in both countries the health insurance institute has cleared the main features of health financing: obligatory for most of the population, fees not affected by risk, patient fund participation in the health insurance system. however there is a difference in moral values, which are the ideological foundation of current health insurance system. in the federal republic of germany, health insurance is thought of as an obligatory element of the civil community, whereas in the republic of lithuania – as an economic system of healthcare means. 2. in the constitution of the republic of lithuania, unlike in the federal republic of germany, a person’s right for free treatment is guaranteed, thus the government takes up responsibilities that do not always correspond to the financial possibilities of the country and creates premises for patients to get expectations that are not always economically based. 3. both in the republic of lithuania and federal republic of germany legislation obligatory and voluntary health insurance kinds are mentioned. the volume of voluntary health insurance in the republic of lithuania and the federal republic of germany differs. republic of lithuania health insurance law determines the additional voluntary health insurance, and the federal republic of germany legislation – alternative voluntary health insurance, that allows leaving the obligatory health insurance system. the legislation of the republic of lithuania does not regulate the voluntary health insurance enough. legislation of the federal republic of germany determines long-term nursing health insurance, which must cover the costs that are connected to long-term nursing. legislation of the republic of lithuania does not discern a separate long-term nursing insurance. 4. both in the republic of lithuania and in the federal republic of germany, legislation states that obligatory health insurance is mandatory for all resident groups. the legislation of republic of lithuania determines the insurees with a health insurance, regulates individuals who are insured by government funds. legislation of the federal republic of germany consolidate individuals, who have the obligation to be insured by the obligatory health insurance, individuals who are exempted from this obligation, and individuals who have the right to leave the obligatory health insurance system, choosing voluntary private health insurance. unlike in the republic of lithuania, family insurance has been established in germany – when all persons are connected by family bonds with the insuree are also insured. 5. the rights of the insurees are similar, additionally, in germany, insurees can choose the patient fund, which adds one more market element – competition, and thus affect the insurance fee regulation. the legislation of the federal republic of germany states the personal responsibility of the insuree for his own health preservation and improvement. in the legislation of republic of lithuania there is no statute on personal responsibility in the health insurance. representatives of patients and insurees with an obligatory health insurance are invited to participate in the decision-making process in the federal republic of germany, whereas in lithuania representatives of insurees and patients are included into the obligatory health insurance council. 6. the health insurance funds of the republic issn 1822-8402 european integration studies. 2010. no 4 114 of lithuania, together with budget funds, form the obligatory health insurance foundation, where funds are accounted separately from the government and municipal funds. the health foundation of the federal republic of germany that collects health insurance fees and budget funds, for individuals whose insurance is covered by government funds, and distributing funds to the patient funds is establish in 2009. before this time the patient funds in the federal republic of germany gathered the fees themselves. 7. both the republic of lithuania and the federal republic of germany health insurance fund distributions structure is similar: funds, for paying for healthcare services that were provided under contracts with service suppliers; reserves funds, patient fund administration funds. most of the funds consist of fees that are connected to work-related relationship income and are paid by the employee and employer. unlike the republic of lithuania, the legislation of federal republic of lithuania determine the lower borders of income, below which the person is exempted from paying the insurance fees, and upper borders, when a person receives the right to leave the obligatory health insurance system. the size of the insurance fee in the republic of lithuania is determined by the government, in germany – patient funds, although laws determine boundaries for this right. the legislation of the federal republic of germany determines that from 2009, the size of the health insurance fee is determined by the government. 8. only one insurer carries out health insurance in the republic of lithuania – the state patient fund and the territorial patient funds that have agreements with the service providers based on territorial principles. legislation doesn‘t denote the right to choose a fund. legislation in the federal republic of germany denotes 7 types of patient funds and a person has the right to choose one. a larger number of suppliers can promote higher competition and be beneficial to the consumer, but also increase the administration costs of the patient funds. patient funds are under the governable by the ministry of health protection, to which the health insurance law provides vast authorizations in the health insurance process, thus not allowing the health insurance process to gain a self-regulatory nature. 9. the duty of patient funds to form contracts with healthcare service providers and to execute payments for the provided services according to the contracts is regulated both in the republic of lithuania and the federal republic of germany. the legislation of the republic of lithuania establishes an obligation for the patient fund to perform a quality control function for the provided healthcare services. the responsibility for service quality and sufficiency in the federal republic of germany is determined for both patient funds and healthcare service suppliers. republic of lithuania patient funds additionally perform functions that are connected to the obligatory health insurance foundation. 10. the trend for both lithuania and germany health systems to obtain more common traits is quite visible. for the federal republic of germany to implement those health insurance elements that exist in lithuania nowadays – founding a health insurance foundation in the federal republic of germany in 2009 that collects health insurance fees and payable funds, similar to the obligatory health insurance foundation, when the government determines the size of the insurance fees. references bivainis, j.; 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(2006), highlights on health in germany 2004. who regional office for europe. copenhagen. 46 p. the article has been reviewed. received in april, 2010; accepted in may, 2010. 153 issn 1822 – 8402 european integration studies. 2010. no 4 suburban settlements in the context of urban policy: latvian example armands puzulis1, peteris skinkis2 riga planning region1, university of latvia2 abstract conditions of land ownership, land development and land development control on the urban fringe of latvia are similar to those prevailing in other baltic countries. in latvia several factors have combined to produce a situation that is unusually favourable for the individual owners of land on the urban fringe. no legal and administrative barriers, market factors such as the high and rising price of land which created and incentive to speculate in land, weak land development regulations which allowed land-owners to subdivide and sell land on a plot-by-plot basis at fully urban prices with no requirement to provide urban services. land-owners avoid any responsibility for the external diseconomies of the development they influence while selling land. they received net what buyers paid for housing sites, while leaving municipal governments to retroactively have to provide essential public services. this institutional framework has allowed the continuation of unserviced sprawl-type development in urban fringe areas in latvia, and in particular has encouraged the highly distinctive pattern of intermixture of land-uses. as a result the most important features in latvia are: the fragmentation of rural land holdings; the continuing mixture of landuse, mixture of interests of landowners as land users, developers and speculators, and the relative weakness of land development control. the present paper discusses the following main querries: what instruments are available for state and municipality, what is the role of planning in governing and guiding of urban diffusion processes to control urban sprawl in riga surroundings (pieriga) in the context of urban and spatial development policy in latvia. the question is about modern settlement in a concrete spatial and functional context due to active suburbanisation processes in riga impact area during the past 6-7 years. by defining regional policy towards cohesion, the main emphasis was laid upon application of passive economic support measures. change of implementation of regional policy measures was observed lately, namely change from support of rural areas towards support for urban centres as drivers of economic development. at the same time, urban centres changed its role and shape due to rapid economic development up to 2007. particularly larger centres received relatively small support aimed at regional development; they developed by expanding and by creating new structures of economic functional areas in direct vicinity. being outside the scope of regional policy, development in these territories took place in an unorganized manner. this was possible and was largely due to the lack of implementation of an integrated land policy in latvia, which would have allowed by means of spatial planning tools the appropriate guidance of development of large cities and their adjacent areas towards rational, sustainable and functionally effective network of settlement structure. presently suburban areas are characterised by a diverse weakly organized variety of settlement structures, which require transformations. the issue on the agenda is by what means this could be achieved. whether morphologic approach of spatial organisation and governance is self sustained and what solutions should be suggested. these querries are discursive and discordant. keywords: regional planning, boundaries, urban, governance. policy context urban policy in the european union the european union cohesion policy in recent years focused on creation of structures on the basis of policentricity, emphasising role of regions. at the same time the role of development centres as engines of international competition is enhancing. in that context suburbs play an important role as an integral part of functional city region playing complementary social, political and cultural roles and besides, this need to be explored in the context of urban and regional policy. urban regional policy in europe during the past few decades is associated with territorial cohesion and competitiveness. aspirations towards creation of more balanced and sustainable spatial structures at the same time retaining competitiveness form the idea issn 1822-8402 european integration studies. 2010. no 4 154 of policentricity, which has neither clear definition nor spatial scale. in the early 1960ties the concept of equilibrium of metropoles (métropoles d’équilibre) was introduced in france (baudelle & peyrony 2005). in some countries policentricity was realised by developing concept of “core areas” focusing on ensuring the spectrum of services to be supplied in the whole country rather than on balancing of economic development. this is also characteristic to policy in latvia (research ... 2007) during the soviet times. the european spatial development perspective regards space as a place for policies and looks at policentricity through interaction among cities and rural areas. european spatial development is based on setting up of separate dynamic economically integrated territories, which form international network of metropolitan regions (european... 1999). cooperation, clustering of cities is supported at the same time delimiting their uncontrolled expanding. rural policies support strengthening of small and medium sized towns and their cooperation as basis for diversification of rural areas. urban policy in latvia latvian urban policy in the last 20 years policy was not clearly defined. in practice the policy has been more focused on structural development of peripheries. riga in this context lost part of population and its economic potential. riga suburban area is characterised with growing population, location of services and production in proximity of the city thus creating common functional rurban area. since joining eu several policy planning documents are in place governing this field. in general, state policy planning documents are related to eu policy approaches. the national development plan of latvia for 20072013 suggests polycentric development by utilising development potential of cities and capability of creating favourable impacts on larger adjacent and surrounding territories by forming networks of cities as precondition for sustainable development of the country (latvian national ... 2006). spatial development perspective of the latvian long term development strategy (latvian long ... 2009) is aimed at creation of equivalent living and working conditions for all inhabitants, irrespective of their place of residence. this approach is based on cities, their functional networks and specialisation, particularly emphasising the strengthening of the role of riga as an international metropolis. riga metropolitan area is defined as an area of national interest, including planning principles of eu metropolitan areas. financial instruments in the field of urban policies were not in place in latvia for many years. since 20072013 programming period, a special support programme for cities is established, which envisages support for 16 units. national strategic framework document envisages a special programme for riga aimed at strengthening of its competitiveness, at the same time pointing out the necessity for priority support for lagging behind areas aimed at levelling of territorial disparities (national ... 2007). riga city, riga planning region and former riga administrative district are often excluded from eligibility to receive state support as central and most developed areas. metropolitan governance and peculiarities of land policy the pattern and behaviour of suburbanization on the fringe or metropolitan areas have been examined thoroughly elsewhere (veer 1994; sorensen 1999; daniels & lapping 1996). a major number of studies into the dynamic impacts of general urban – suburban development (kaiser & godschalk 1995) explanations have included economic, social, legal and cultural factors (mattoon 1995; maier 1998; sorensen 1999). research areas focused on land policy as a framework for implementation of plannig tools have only recently emerged as a field of investigation. in a set of papers the significance and impact of implementation of tools preventing urban sprawl in the local and community context has conducted (calavita & caves 1994; rothblatt 1994; steiner et.al. 1999; benz 2001; wiewel & schaffer 2001; mcdonald & mcmillen 2004; lupi & musterd 2006). merely economic tools can be used to achieve objectives of regional policy, whereas by differentiating support volumes and types territorially namely providing support to parts of territories, the development of the remaining territory falls outside the scope of support and becomes uncontrolled. this can be avoided if in parallel there is an integrated spatial development policy in place, which is being implemented. its most direct implementation with respect local governments level is the application of the land use policy. the key tool in its application is the territorial (physical) planning. state land policy in general is little being awared of and is little studied area. one can speak about coordination of this area only since 2008 upon approval of basic principles for land policy for 2008-2014 (basic principles ... 2009). in general, discrepancy is observed with regard to declared policy and its implementation. by formal approval of spatial planning principles and recommendations their implementation mechanism is, however, inadequate. the state has no spatial policy of its own; guidelines at regional level have not produced a tangible impact on outcomes of local level planning. it possible to argue that especially during last 6-7 years pieriga developed towards expansive and weak governed land use transformation from rural to urban or semi-urban resulting in gradually growing pressure issn 1822-8402 european integration studies. 2010. no 4 155 on infrastructure and environment, presently in the need for new solutions. new challenges of social life appear mainly because suburban settlements lack working places and substantially share daily commuting increase. significant development factor is land structure of territories, which was basically determined by land reform in 1990ties. initially, it was envisaged to implement land reform in parallel to process of territory planning, yet planning of territories lagged behind, whereas land reform was promoted by the state. regulatory legal documents were often contradictory (land ... 2002). regulatory framework for land reform, territorial planning and construction was weakly coordinated. land reform was not associated to administrative territorial reform and changes of city boundaries. according to experts’ opinion, during soviet times, development of cities was carried out in a manner of compact develpoment, which would enable further expansion of cities within the range of 50-100% in the coming years even without population growth (linkola 1994). during land reform, no designated areas were specified for this purpose. parcelation of land was not limited in suburban areas, as there were no territorial plans enforced and in place (linkola 1996) as well as other regulatory documents. unrequested land was distributed among the state and the local government. quite often local governments were not aware of their role in local land policy and failed to take advantage of making land reserves for future development needs. as a result today local governments have little land in possession, and lack of land reserves make search for solutions much harder. territorial plans of local governments do not analyse land possessions in the context of land market and further envisaged territories envisaging alteration of land use, compensations, as well as other mechanisms for ensuring public function for planning. land use regulatory legislation cannot be changed fast; it leaves an impact on investment attraction, present and future socio-economic development of the territory in question, by slowing the development. suburbanisation processes and spatial structure of pieriga riga suburban area (pieriga) is a space, where present and formerly implemented policies and interests meet and intersect in the sharpest manner. suburban area has neither clear definition nor boundaries. it can be regarded as a bordering space between two interacting areas city and rural areas, where urban and rural lifestyle interacts and is reflected in the landscape. impact area is formed around the city agglomeration area, which is the territory subject to our study here. for purposes of analysis this area was delimited to administrative boundaries of local governments of former riga district where suburban development processes are reflected in the most vivid fashion. figure 1. suburban agglomeration area urban policy of pieriga is defined in territorial plan of riga planning region and comprises main principles prevention of merging of human settlement areas, limitations with respect to parcelation of land, planning of compact human settlements, perspective argued and based on forecasts (riga planning ... 2007). at the same time several documents reveal trends being contradictory to guidelines (riga planning ... 2008). research was conducted in the summer and autumn of 2009 and was based on gis approach, analysis of territorial plans and interviews with planners and politicans of local governments (riga planning ... 2009). present built environment was analysed: construction of housing areas up to 1990 and after 1990, public services location and industrial areas, gardening settlements. envisaged construction was analysed in the context of planned settlements and planned construction sites outside the formal settlement areas. development processes in pieriga had taken unsteady path. in order to better illustrate discrepancies, one may define 3 development circles, which are characterised by differences in development processes. the closer circle forms as a continuation of riga city growth, characterised by structure characteristic to city, high prices of real estate territories within the riga beltway (bypass road). the next circle is made by territories with large land resources, large reserved areas for construction and the present mosaic of rural villages (areas outside the bypass beltway). more distant and remote territories form remote area of pieriga, where this “development pressure” is not that strongly felt and is reflected in the way of expanding of village area, reservation of some land for development purposes by landlords. naturally, they make large traditional agricultural lands and forestry areas. the division is rather conditional, as transformation of territories is determined not only by vicinity of riga, but also largely due to peculiarities of landscape. agricultural areas and privately owned forestry areas are mostly subject to transformation. the aforementioned territories would require a variety of solutions in terms of perspective planning. should the first closest circle be closely associated to physical expansion of riga city, which could become the territory of riga city if riga city gets expanded, then issn 1822-8402 european integration studies. 2010. no 4 156 the second circle contains suburban settlements which in the nearest future will not physically merge with the city, but will be closely functionally related to it. figure 2. development circles of suburban area after characteristic construction inactivity of early and mid 1990ties the most active development took place during the last decade, especially in the period 20032008. new construction areas of local territories adjacent to riga was in the range from 2-6% of the whole area of the municipal territories. these construction areas are located mostly in former agricultural areas adjacent to state roads and highways. location of newly formed villages quite often was not appropriate for intended use (meadows subject to flooding risk, inappropriate ground conditions). territorial plans of local governments reflect this construction trend most clearly. pieriga is characterised by large areas of planned villages, which often merge and form continuous settlement space. establishment of such villages is based on land structure (parcelation) and wishes of the developers. in separate local territories the planned villages cover all of the agricultural land. they make approximately 1/5 of the district area, whereas actually developed areas only 4%, which denote large land reserves and inadequate planning of territory. possibility to parcel and develop rural areas that are located outside boundaries of settlements and on similar principles as in villages is envisaged in a number of territorial plans of local governments of pieriga area. this marks dismantling of planning boundaries of settlements and dissolves differences among village as a human settlement and an open rural space. among peculiarities of pieriga settlements is the fact that they are characterised by a large number of soviet times gardening communities, which make 2,8 thousands ha (almost 1% of riga district area). they are regarded as auxiliary territories subject to development and settlement supplementary structures. during the past years they gradually transform into permanently inhabitated settlements or acquire other type of use, which is not related to human dwelling function. key issue present structures infrastructure, status of land ownership, contradiction to new living standards. table 1. present and planned construction in territories of local governments of former riga district area % of district area thousands of ha riga district area 100,0 314,0 area of villages and towns in 2008 16,3 51,1 construction area in villages in 2008 3,7 11,5 construction area outside villages in 2008 1,0 3,2 total developed construction area in riga district in 2008 4,7 14,7 planned area of villages and towns in 2009 18,0 56,5 planned construction area outside villages in 2009 3,3 10,2 total planned development construction area in 2009 21,2 66,7 settlements in pieriga area and the case of kekava local municipal territory the law of administrative territories and settlements prescribes the following gradation of human settlements (the law ... 2009): town, village and farmstead. peculiarity of pieriga area settlements can hardly be incorporated into formal categories, it also encompasses mental cultural heritage on perception of identity, which manifests itself in local tophonimes. in pieriga area this foundation is acquiring a new layer of new understanding and awareness about settlement, which was formed in a short period of time and under market conditions. awareness of a village was formed during soviet times or was inherited from older times. on one side there is a social awareness of a village a place, where people live, meet, communicate, work and associated attributes: school, post office, supermarket, church, culture centre, some manufacturing facility and etc., on the other hand, there is a new “purely residential area”, which does not have the aforementioned attributes. formally villages are determined in land use plans, which form the basis for the address register. however, village areas do not reflect actual human settlements, but rather mechanically planned one, and should therefore be regarded as tax policy tool and planning tool instead of social awareness of a settlement area. new places that were not developed before and were issn 1822-8402 european integration studies. 2010. no 4 157 not aimed to be developed as settlements – often called “meadow villages”, have their own architecture and can be regarded as a group of dwellings, which are often delineated from the surrounding area, besides internally they possibly haven’t got their own social organisation. scope of the analysis comprised latvian urban policy and planning in municipalities of riga planning region, settlement structure of kekava municipality. kekava pagasts (local rural municipality) borders riga and it has features characteristic to pieriga construction. number of population has increased during the past 10 years from 11000 to 14000, which was accompanied by intensive development of new settlements. morphologically diverse territories can be distinguished: structure of urban type construction development in rural areas, which is characterised by multistorey buldings (3-9 storeys) and close functional link with the city; rural or traditional type village development, which is based on former estate centre; new parcelled development “meadow village”, which originates on agricultural lands, areas of gardening communities; scattered development, which is not compact. it is notable, that such structures can be established within a single “planned” village. figure 3. structure of development in territory of kekava municipality in pieriga we cannot discuss the term village in its common notion. rather we can speak about rurban spaces, which gradually are being filled with new content by making functionally diverse dwelling development structure. most diverse urban forms make basis of settlements in the context of past years suburbanisation process villages, unstructured new developments of groups of dwelling houses, which have no service infrastructure and also lack of social life is observed at a given settlement there. role of local government conclusion due to sectoral and limited territorial approach, or in other words, because of lack of integrated state policy in regional development, local governments play significant, if not the cruicial role with regard to suburban spatial development. local governments play the most important role in organisation of local space. however, during the field study in local territories (riga planning region monitoring ... 2009) it was identified that many local governments are not aware of land policy tools at their disposal for promoting development of their territories, which clearly was manifested by planning in pieriga during the past few years. new settlement structure was formed due to market pressure and mostly because of speculative real estate deals, which influenced local planning process, determined and regulated land use transformations in pieriga. by changes (increase) in payable tax amounts, villages may become unattractive as settlements, which in future may lead to review of their status and formal boundaries. up to the present day, development in local government is understood by increase in number of population, improvements in transport infrastructure, presence or attraction of production and service facilities (this is partly explained by tax policies and functions of local governments). planning situation in local governments is clearly contradictory to eu and declared latvian regional policy and regional development strategies and regional spatial plans. in the nearest future it is envisaged to face the consequences of this situation. local governments are not yet aware of the significance of such situation and their responsibility for consequences, whereas people have yet not faced financial burden of territorially based decisions. the main conclusions are: municipality has no own strategy to develop spatial structure and localities, but the state with own policy has no efficient impact on building expansion process; the main influence on changes of land use and settlement structures depend on land market and municipal budget formation predominately based on personal income tax; the city and suburbs are not perceived as a particular area of regional policy. new self-sufficient solutions should be found for the area of city and suburbs. in the nearest future this could be one of key issues for new the national regional policy in latvia. references basic principles for land policy 2008 – 2014. 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(2001). learning to think as a region: connecting suburban sprawl and city poverty. european planning studies, vol. 9, no. 5. the article has been reviewed. received in april, 2010; accepted in may, 2010. 55 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 abstract legal and politological aspects of competition in bosnia and herzegovina as a paradigm of the european integration process http://dx.doi.org/10.5755/j01.eis.1.14.25287 as a country in transition and development, committed to the path towards membership in the european union, bosnia and herzegovina encounters many challenges and obstacles in terms of fulfilling the tasks set before it. quite complicated governmental and legal arrangement determines the pace of achieving the tasks that are prerequisites for the european union membership status. by signing the stabilisation and association agreement, bosnia and herzegovina assumed the obligation to gradually harmonise the national legislation with the eu legislation in the most important areas related to the internal market. in this context, one of highly important ones is the area of competition law. this paper analyses the quality of solutions provided by the normative and institutional framework of the market competition protection in bosnia and herzegovina by using the normative, historical, comparative, and content analysis methods. basic features of the stabilisation and association agreement between bosnia and herzegovina and the eu are presented through a chronological summary of the integration process of bih into the eu. the key issue discussed in this paper is that the recent legislative solutions pertaining to the organisation and method of operation of the competition body in bosnia and herzegovina, which is the reflection of state arrangement, slows down and impedes the harmonisation of competition regulations in line with the tasks laid down before bosnia and herzegovina on its path towards the eu membership. analytical overview of annual reports on the operation of the council of competition as regulatory body in bosnia and herzegovina shows that competition is a typical example of the ‘crawling’ integration of bosnia and herzegovina to the eu. it is quite obvious that the lack of political will of the ruling structures slows the integration processes down. this area requires an efficient enforcement of competition regulations whose implementation enables the companies to act in line with the law. without adequate and prompt amending of the law on competition and related by-laws there can be no positive evaluation of the european commission concerning the progress of bosnia and herzegovina. keywords: competition law, competition law of bih, council of competition of bih, european integration. european integration studies no. 14 / 2020, pp. 55-68 doi.org/10.5755/j01.eis.1.14.25287 introduction submitted 02/2020 accepted for publication 07/2020 legal and politological aspects of competition in bosnia and herzegovina as a paradigm of the european integration process eis 14/2020 kanita imamović-čizmić university in sarajevo, faculty of law samir sabljica department for market surveillance, consumer protection and competition, ministry of foreign trade and economic relations of bih the twentieth century has witnessed the transition process of former communist states in which the market system replaced the process of supervised and planned economy dominated by the state-owned monopolistic economic entities. in relation to that is also the gradually raised awareness on competition as an effective tool for promotion of innovation, increased economic growth rate, and social welfare of these states. transitional, former communist states, embark on the european integration process as a formula for economic progress and harmonise their legislations and adapt their policies to the european standards. competition law, as the mechhttp://doi.org/10.5755/j01.eis.0.13.24033 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 56 anism that protects the competition in the internal market of the european union, is one of the areas the potential candidates have to harmonise with the legal acquis before becoming fully integrated in the european union. comparative analyses on the legal frameworks of competition in the countries of central and eastern europe point to comprehensive regulation and systematic implementation as well as advocacy efforts for further harmonisation of legislations in the transition countries (olaja, 1999). therefore, appearing as fundamental determinants of the contemporary competition law, under the influence of the process of globalisation, regionalisation, and internationalisation, are the standardisation of legal rules that regulate the area of market competition (lundqvist, 2014) and the formation of various state bodies and agencies competent for the enforcement of competition law, as well as the need to act on a global level (lanucara, 2002)(barak,1981). standardisation of legal rules reduces alignment costs and is in service of liberalisation, meaning the freedom of movement of goods, services and capital. this standardisation is underlined in the regulations of substantive character that regulate prohibited conduct. that means that certain diversification of competition law in certain states occurs in procedural sense, meaning in the enforcement of competition law and the authorisation of the state body competent for its enforcement. an important role in this standardisation belongs to international organisations (davidson, 2005, p. 72) and institutions such as the organisation for economic co-operation and development – oecd and the world bank, but also the european union as an economic community of european states. the introduction of market competition protection regime in transitional countries has opened up a series of related issues for their governments, starting from whether they should introduce the competition-legal regime, which preconditions need to be created for its introduction, which legislative framework is appropriate, and which institutional structures should be established for the application of competition law? (khemani, 2003, p. 243). the opinions regarding the answers to these questions are divided. some authors consider that liberalisation and the opening of economy, which stipulates the reduction of external barriers to imports in order to allow access to foreign goods on the domestic market and thus enable competition, is sufficient, and their opinion is that the law protecting the market competition is largely irrelevant. furthermore, due to the actions of interest groups, meaning an arrangement between the domestic producers and the government, as well as the intentication of the public interest with the interest of domestic producers, the law that gets adopted can only have a “cosmetic character”. others, however, suggest that the policy of trade liberalisation has no predictable effects and that it is necessary to regulate the actions on the market in detail in order to protect the competition (williams, 2005, p. 45). the question of goals and scope of competition law in different countries is discussed as well. should the goal be defined as the protection of market competition, whereby it is necessary to make a distinction between the protection of market competition and the protection from competition? should the goals be set broadly and range from public interest, restriction of economic power, protection of small and medium-sized enterprises, or should they be made concrete? what is clear is that the economy itself creates the justification for state interventions, and the governments create specific legislative instruments after political elections which intervene in the economy, so it is possible to conclude that as the policies change, rationale and implementation of the competition policy changes with it. therefore, the eu, for example, has first determined the creation of a single market that covers the whole of eu as the goal, only to later define it as the consumer welfare. the usa had different goals in different periods, so it initially tried to protect the small and medium-sized enterprises (sme) only to later favour the economic efficiency as the goal. in the majority of jurisdictions of democratic countries, the politically popular goal today is the protection and welfare of the consumers. in terms 57 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 of the scope of regulation and the question to whom the law applies, the prevailing opinion is that there should be a general law that applies on all economic activities and sectors, regardless if it is the case of economic entities in private or state ownership when they are engaged in commercial activities and when these activities prevent, disrupt, or restrict the competition on the market by having an impact on the reduction of efficiency and consumer welfare. in the majority of jurisdictions, standardised forms of prohibited business practices defined as prohibited agreements, misuse of the dominant position and excessive concentration have been adopted. the last open question for the countries in transition is related to the formation of institutions for the application of competition law whereby it is necessary to differentiate the public and private application of competition. in terms of establishing state institutions and agencies for the application of competition law, transitional countries have different experiences. however, what is almost common to all are the circumstances that prevent the establishment of efficient institutions for the application of competition law. the first obstacle that almost all transitional countries encountered is the absence of pro-market culture and competition law accordingly. this lack of experience is closely connected with the inability to utilise the potential benefits of competition. equally so, as a consequence of inefficient experience, the majority of transitional countries cannot efficiently detect and prevent a large number of activities of economic entities that may be harmful to competition. the lack of experience with the free market often leads to situations where the non-market stakeholders make decisions on the price, entry into market, property rights and similar, or in some cases where certain economic entities, with or without state authorisation, can potentially monopolise the sale or purchase of specific goods. a particular problem, especially in the initial time period of formation of state agencies, is the lack of experts for the competition law, as well as material resources needed for the interpretation and application of competition law (davidson, 2005, p. 74). in order for the agencies for the protection of market competition to be efficient in performing their competences, the transitional countries need to follow several principles (khemani, 2003, p. 251): a agency for the protection of market competition needs to be independent and isolated from the political influence and accountable to an impartial body, for example the parliament b the separation between the process of investigation, criminal prosecution, and sentencing in the application of competition law c the establishment of the system of verification and balance through legal remedies, for example the right to appeal d efficient and expeditious resolving of cases in order to reduce the costs of procedure, especially those that hamper the operation of economic entities e the transparency of the procedure along with the protection of sensitive business information f the introduction of measures for the collection of data on relevant markets g the procedure must have a juridist form h there must be clear provisions in place that regulate the imposition of sanctions or other corrective measures which are considered necessary to deter/correct the consequences of violation of the law. bosnia and herzegovina (hereinafter: bih), a country in transition and development, which did not inherit the culture of competition law as great economic powers did, faces specific challenges concerning adaptation and enforcement of competition law on its path towards full-fledged membership in the european union. the area of market competition in post-dayton bih was an unknown thing, considering the fact that there was no tradition in terms of market competition, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 58 as well as no legal and regulatory framework in this field. without technical, professional, and material support from the eu institutions, the transposition of rules and standards in the area of competition in bih could not have been initiated. at the political level, the former european community, meaning the current eu, has asked for concrete results given that the eu is very sensitive in terms of competition and it asks for strict and consistent transposition of the competition rules into national legislations of countries aspiring for eu membership. the eu demands from eu membership candidate countries to harmonise the area of competition well before accepting them in its membership. generally, a candidate country is obligated to create all necessary conditions for the functioning of legal and institutional framework that would be identical to the one in the eu at the moment of admission to the eu. however, in bih, the process concerning the introduction of modern competition law and its enforcement, meaning adaptation to the legal acquis, is conditioned by the complicated state and legal arrangement and represents a field of political determinism. the subject of the paper is the analysis of the market competition protection system in bosnia and herzegovina in the context of harmonisation with the eu legal acquis and the efficiency of competition protection in the market of bosnia and herzegovina. it is evident that bosnia and herzegovina registers a very slow progress in terms of preparedness in the field of competition and that there is a certain inefficiency in the operation of the council of competition. the goal of this paper is to provide an answer to the question of what the cause of such condition is and to offer potential improvements. considering the commitment of bih to the membership in the eu, also provided in the paper is a retrospective review of the european integration from the aspect of competition. literature overview there are many researches and studies on the goals of competition law and policy and the importance and efficient application in the countries in development and transition. in line with that, khemani (2003) carries out a comparative study of the economies of central and eastern europe and turkey from the aspect of eu enlargement effects. in his paper, he analyses the question of the establishment of legal infrastructure that encourages fair market competition. cook, fabella, and lee (2007), raise the question what does the competition policy mean for the developing countries, and they critically analyse and examine how the different theoretical perspectives impact the policies of the developing countries. mark williams (2005) comprehensively examines the competition policy in china, hong kong, and taiwan being the countries in transition, and in the context of influence of international organisations wto, oecd, unctad, world bank, and the imf. foster (2001) and malinauskaite (2010) discuss the harmonisation of competition law in the context of globalisation and justifiability of the international competition law. the issue of the efficiency of competition protection agencies in the transition countries is discussed by davidson (2005). deša m. tomić et al. (2006) provide an overview of the foundations of competition law in the eu and the progress of croatia in terms of harmonisation with the legal acquis, which is of special importance for bosnia and herzegovina. methodology methodology used in the paper is characteristic of legal sciences and the dogmatic-normative method was used for the analysis of legal regulations that constitute the legal foundation of competition protection in bih and the eu, while the comparative method was used in terms of conformity assessment of the relevant positive regulations in bih with the eu legal acquis. the analysis of bih’s eu integration process from the aspect of competition law and in terms of the development of the competition protection mechanism in bih was conducted in line with the historical method. teleological method was applied in order to carry out the interpretation of the legal norms contained in the relevant legal acts which comprise the legal foundation of 59 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 when we talk about the european integration process, in the early 2000s, bih was primarily focused on fulfilling the conditions of the road map, which was adopted in march 2000 and contained 18 guidelines for the integration of bih into the european integration process. in terms of economic conditions carried by the road map, one was defined as the necessity to adopt the law on competition. consequent to the aforementioned bih has adopted the law on competition of bih in 2001. the next step in the european integration process was to conduct the ‘feasibility study’. the work process on the feasibility study was formally launched in march 2003, when the european commission handed over the questionnaire with 346 questions covering the areas of economic and political arrangement of bih and other areas relevant to the conclusion of the stabilisation and association agreement to the council of ministers of bih1. the study had 16 priority areas, and priority 152 stipulated the establishment of a regulatory body, council of competition of bih, which was carried out in 2004. in june 2004, the eu accepted the european partnership with bih (council decision, 2004), and the priorities were those from 16 priority areas. in october 2005, the commission assessed that bih achieved significant progress in implementing reforms from the feasibility study and suggested the launch of negotiations on the conclusion of stabilisation and association agreement, which took place in november 2005. the signing of the stabilisation and association agreement between the european communities and their member states, of the one part, and bih, of the other part (hereinafter: saa), on 16 june 20083, represents an international contract by which bih acquires the status of potential candidate for membership in the eu. during the six-year transitional period of the saa4, bih is obligated to carry out gradual harmonisation of national legislation with the eu acquis in the most important areas related to the internal market. the process of harmonisation of legislation, in line with the saa clause of active harmonisation, takes place with the assistance and monitoring of the joint bodies of eu and bih formed in accordance with the provisions of the saa, and this process also took place based on the previous interim agreement, which summarises some aspects of the saa and which was in force from 1 july 2008 to 1 june 2015. interim agreement on trade and trade-related matters had completely identical rules pertaining to competition and state assistance (article 26 of the interim agreement is identical to article 71 of the saa). the interim agreement also encompassed the provisions on the liberalisation of trade and transport, as well as other important or even key aspects of the internal market (for example intellectual ownership rights and public procurement). retrospective overview of european integration from the aspect of competition 1 in november 2003, the eu approved the feasibility study that showed the readiness of bih to undertake the next steps in the european integration process by opening negotiations on the conclusion of stabilisation and association agreement. in this context, the study identified 16 priority reform steps, which practically meant 41 new laws and 27 new institutions. 2 priority number 15. development of a single bosnian and herzegovinian economic space: establish the competition council; introduce provisions on the mutual recognition of products in the legal order of bih and implement a consistent and effective public procurement regime throughout the country; remove all duplicate licences, permits and similar authorisation requirements to allow service providers (including financial institutions) to operate throughout bih without having to fulfil unnecessary administrative requirements; create a single business registration system that is recognised throughout bih. 3 entered into force on 1 june 2015. 4 the saa entered into force on 1 june 2015 and the transitional period expires on 1 june 2021. the competition protection in the eu. teleological method has enabled the understanding of the goal why these regulations were passed. equally so, the application of this method has made it possible to determine whether the goal and meaning of legal regulations in the eu are contained in the legal order of bih. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 60 the saa has its politological5 and legal aspects, of which the following need to be highlighted: the clause of interpretative harmonisation and the clause of loyalty which the eu membership aspirant countries must abide by and continuously carry out precisely specified reforms. the eu’s justification for demanding these reforms is in the fact that it sees itself as a supranational community with specific rules, which demand of the candidate countries to adapt to key features of the current membership (analiza razvoja principa uslovljenosti eu, 2010). the second particularity of the saa is that it has the same nature of a ‘mixed agreement’, and the third particularity is defined as the purpose and goals of the saa. the purpose of the saa is the stabilisation and transition of bih economy from ex-socialist (planned) to market economy, obligatory regional cooperation with other countries of the west balkans, and possibility of admission to the eu membership (the eu is not obligated to respond positively to the application). the goals of the saa can be summarised as: _ establishment of political dialogue between the eu and bih, _ launch of gradual harmonisation of national legislation with the eu legal acquis, _ regional cooperation within the stabilisation and association process, _ promotion of economic relations of the two parties and _ gradual establishment of a free trade zone between the eu and bih, with the last two of these goals being precisely in the function of creating, conditionally speaking, a ‘common market’ between bih and the eu6. specifics of the economic-legal system of bih and the overall social-political environment had an effect on the country’s ability to establish and guarantee a single economic space in bih. the fact that confirms the deficiency or inadequacy of the activities undertaken in developing a single economic space is that up until 2001, competition law and policy did not exist on state level, and the institutions that were supposed to ensure their enforcement were formed in early 2004. therefore, the first steps towards the creation of a contemporary model of legal regulation of market competition as an instrument for the development and strengthening of a single market of bih came due to foreign pressure expressed through the project entitled ‘single economic space in bih’.7 5 in politological sense, the saa contains contextuality which is derived from article 49 of the teu: any european state which respects the values referred to in article 2 and is committed to promoting them may apply to become a member of the union. the applicant state shall address its application to the council, which shall act unanimously after consulting the commission and after receiving the consent of the european parliament, which shall act by a majority of its component members. from the copenhagen criteria – the copenhagen criteria are the conditions for eu membership, which were set at the meeting of the european council in copenhagen in 1993; and from various documents of the eu (decisions of the council, agendas, european commission reports and so on.), which plead to the candidate country to fulfil all conditions for the eu membership. politological element is reflected in the fact that there is strong ‘political pressure’ for implementation of reforms of certain content and direction that would lead to final acceptance of the acquis. more details in: analiza razvoja principa uslovljenosti eu (2010). in political sense, the principle of conditionality is strongly pronounced and it is treated as the process of exchange between the eu and candidate country in which the eu offers a realistic perspective of membership if the candidate country implements a broad spectre of domestic reforms. the ‘carrot and stick’ approach in the principle of conditionality involves withdrawal/withholding of benefits from accession and suspension or deceleration of the process, if the government of the candidate country fails to achieve progress in negotiations. 6 more details in: osnovni prikaz ssp (2008). 7 the project ‘single economic space’ within the framework of cards programme was finalised in june 2005 and it was focused on three main economic areas: a) competition, b) protection of consumers and c) freedom of transport and industrial products safety. activities of the project were created with the goal of assisting the development of a truly single market in bosnia and herzegovina, which represents an important step on the path towards european integration. 61 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 thanks to the first law on competition adopted in 2001, the council of competition was established on 1 may 2004 as an independent and autonomous body with exclusive competence in deciding on the presence of prohibited competition activities on the market of bih. the loc of 2001, which carried fundamental rules of competition based on articles 81 and 82 of the treaty establishing the european community (today’s articles 101 and 102 of the treaty on the functioning of the eu), was not fully harmonised with the acquis from this field. this is why a new law on competition (hereinafter: loc) was adopted in 2005. the loc is largely harmonised with the eu rules and regulations from the field of market competition, which ensures efficiency and transparency in its enforcement, simplifies procedures, and reduces the duration of certain stages of the procedure. the loc has expanded and more precisely defined the competences of the council of competition with regard to performing administrative and professional affairs related to different aspects of protection of market competition. this also refers to the way of conducting the procedure, making the final decisions, sanction policy and duration of the procedure. given the fact that loc regulated some matters and concepts only principally, these matters are defined in more detail by the adoption of many by-laws. by-laws resulting from the loc are partly harmonised and in compliance with appropriate secondary sources of the communautaire law. reflection of absence of political will as proof of political determinism in bih the political system as a system of government and politics implies the process of creating and making decisions which, besides resolving the conflicts in institutions and between certain groups, also create preconditions for development and functioning of a social community. the political system is a subsystem of the social system that has a pronounced influence upon it. in terms of the relation of the political and economic system as a subsystem of the social system, it is possible to speak of two diametrically opposite approaches, which are the economic determinism and political (so-called conscious) determinism. according to the concept of economic determinism and historic materialism, the process of doing business and material conditions of life determine all processes in the society and that also includes the development of the social community as a whole. according to political determinism, the impact of the economic system on the development of the social community has a subsidiary significance due to the fact that in constellation of many factors, the political system has a dominant influence because the conscious realisation of changes is not limited by anything (begić, 2000, p. 97). therefore, political will and institutions are of key significance for creating preconditions for the economic development of a country. when it comes to competition law in bih, the existence of political determinism is unquestionable. namely, the absence of political will in the set modality of legal protection of market competition hampers further development of not only competition law both in terms of updating the normative framework and in terms of operation of the council of competition, which brings into question the realisation of said goals of modalities of legal protection of market competition in bih, meaning its overall progress towards eu membership. namely, the fact is that the last amendments of the loc were carried out in 2009 and that there were no adequate activities in terms of updating the normative framework for almost a decade. altogether, when observed within the framework of european integration, competition and many other fields in the period of 2010 to 2018 reflect the negative political tendencies that slow bih down in the european integration process. lack of consent of all key political stakeholders reflects on the competition policy as well. characteristic of said period are several phenomena that ultimately negatively reflect on the creation of ‘pro-european’ system. within the framework of drafting the medium-term work programme of the council of ministers of bih for the period of e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 62 2016 – 2018, no activities related to amending the loc were included in it, given the fact that the council of competition did dot state its exact opinion on this matter, avoiding to provide a direct answer.8 in addition to this law, some other laws that were planned were also not adopted, while by-laws are either not adopted or the timelines for their adoption are prolonged9. there is a practice being gradually introduced into political reality that by blocking the agreements on legislative harmonisation with the eu standards, regulations are adopted on entity level. the process of normative alignment and harmonisation between different levels of authority in bih with the communautaire law has become difficult and slow. realisation of planned obligations is in complete regression, especially on state level, because the legislative process in the parliamentary assembly of bih is largely blocked and disabled10. at this stage, lack of coordination between state and entity parliaments and political disparity between the entities has become quite apparent. the european commission concludes that it is necessary to improve cooperation between the legislative bodies on state, entity and the level of brcko district bih, in order to ensure coordinated and harmonised alignment with the eu legislation throughout the territory of bih, and that the parliamentary assembly of bih has made very little progress in adopting legal regulations related to the eu integration11. the system of policy creation in bih is still quite fragmented. there are autonomous policy planning systems present on state and entity level12. 8 electronic correspondence between the ministry of foreign trade and economic relations of bih and the council of competition of bih from 29 may 2015 and 2 june 2015. 9 the typical example are subordinate regulations of bih from the field of technical legislation which are very important for consumer safety, where only five directives of the eu’s new approach of the planned 29 were transposed into bih legislation (directives on low voltage equipment, on machine safety, on electromagnetic compatibility, lifts and personal protection equipment), even though the deadline for transposition of all 29 directives of the eu was the end of 2008 (monitoring of the bih’s european integration process: annual report, 2011, p. 22). 10 european commission, ‘bosnia and herzegovina progress reports’ 2011, 2012, 2013 http://www.dei.gov.ba/dei/ bih_eu/paket/default.aspx?id=10098&langtag=bs-ba (accessed 23 january 2019). 11 european commission, ‘bosnia and herzegovina progress reports’ 2014 and 2015 http://www.dei.gov.ba/dei/bih_eu/paket/default.aspx?id=10098&langtag=bs-ba (accessed 24 january 2019). 12 european commission, ‘bosnia and herzegovina progress report’ 2018 http://www.dei.gov.ba/dei/dokumenti/prosirenje/?id=19825 (accessed 24 january 2019). 13 from the report of eu experts within the ipa 2011 project ‘support to enforcement of regulations in the field of competition in bih and further strengthening of competition policy, including state aid component’, 24 january 2014. 14 oj l61/1. analysis of competition legislation in bih when it comes to transposition of secondary sources of the eu competition law, and primarily the eu regulations, additional alignment is necessary with the following:13 council regulation (ec) no 1/2003 of 16 december 2002 on the implementation of the rules on competition laid down in articles 81 and 82 of the treaty, council regulation (ec) no 139/2004 of 20 january 2004 on the control of concentrations between undertakings, commission regulation (ec) no 773/2004 of 7 april 2004 relating to the conduct of proceedings by the commission pursuant to articles 81 and 82 of the ec treaty whose individual parts are still not transposed into competition legislation in bih. also, it should be a priority need to transpose into bih legislation the provisions of eu regulations referring to group exemptions of agreements in specific economic sectors such as: transport, insurance and distribution of motor vehicles, which means that it is necessary to transpose the council regulation (ec) no 169/2009 of 26 february 2009 applying rules of competition to transport by rail, road and inland waterway14, commission regulation (eu) no 267/2010 of 24 march 2010 on the application of article 101(3) of the treaty on the functioning of the european union to certain categories of agreements, decisions and concerted http://www.dei.gov.ba/dei/bih_eu/paket/default.aspx?id=10098&langtag=bs-ba http://www.dei.gov.ba/dei/bih_eu/paket/default.aspx?id=10098&langtag=bs-ba http://www.dei.gov.ba/dei/bih_eu/paket/default.aspx?id=10098&langtag=bs-ba http://www.dei.gov.ba/dei/dokumenti/prosirenje/?id=19825 http://www.dei.gov.ba/dei/dokumenti/prosirenje/?id=19825 63 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 practices in the insurance sector15 and commission regulation (eu) no 461/2010 of 27 may 2010 on the application of article 101(3) of the treaty on the functioning of the european union to categories of vertical agreements and concerted practices in the motor vehicle sector16. the main issue of the current loc is contained in article 24 which regulates the way of functioning and decision-making of this body. council of competition may make valid decisions if the session is attended by at least five members of the council of competition. decisions of the council of competition are made by majority vote of members present, provided that at least one member of each constituent peoples must vote for each decision. a member of the council of competition may not abstain from voting. the obligation that ‘at least one member of each of constituent peoples must vote for each decision’ represents the main anomaly. according to article 11 paragraph (2) of the loc, if the council of competition does not issue a decision referred to in article 41 paragraph (1) point c) of the loc, it is deemed that the concluded agreement or the conduct of the undertaking is not abuse of dominant position. this may have far-reaching consequences for competition in bih market, because if two members from two constituent peoples vote ‘for’ and two members from the third constituent people vote ‘against’, the decision cannot be made, which can be treated as a right of veto. this type of decision-making may also be the subject of political trade between members of the council of competition. failure to reach a decision may also have its ethnic reasons that are above professional and legal reasons. this is the case of a typical example of ethnic determinism which is conceptually hypostatised in article 24 and in conjunction with article 22 of the loc. the eu institutions also point to this problem through their recommendations.17 a particular specificity of the loc also refers to article 41 which regulates the duration of proceedings. the procedure for determining the violation of the law should not have time limitations, even though this is prescribed by law when it comes to prohibited agreements, determination of the individual exemptions, abuse of dominant position, and the assessment of concentration. 15 oj l83/1; note, it is no longer in force, expiration date: 31 march 2017 so it is necessary to monitor which new regulation will replace this one. 16 oj l129/52. 17 eu recommendations and operational conclusions the first subcommittee under the stabilisation and association agreement (saa) on internal market and competition, including consumer and health protection between the eu and bih, brussels, 29 november 2016; eu recommendations and operational conclusions the second subcommittee under the stabilisation and association agreement (saa) on internal market and competition, including consumer and health protection between the eu and bih, mostar, 19 september 2017; eu recommendations and operational conclusions the third subcommittee under the stabilisation and association agreement (saa) on internal market and competition, including consumer and health protection between the eu and bih, brussels, 20 september 2018 – archive of the ministry of foreign trade and economic relations. 18 competition council of bosnia and herzegovina, ‘reports’, http://bihkonk.gov.ba/category/interni-akti/izvjestaji (accessed 21 january 2019). analysis of work of the council of competition as a regulatory body based on annual work reports18, it can be seen that the council of competition has the basic task to ensure equal market conditions to company. the council of competition acts in the field of market competition by implementing the loc with the corresponding by-laws, and it is particularly engaged on preventing the anticompetitive activities of company, which can be seen through the conclusion of prohibited contracts/agreements (cartel agreements), control of concentrations, and to prevent the abuse of dominant position of economic entities that aim to remove the competitors from the market. analysing the work of this institution based on its annual work reports, it is evident that the activities of the council of competition were also focused on establishing and improving cooperation with other state and regulatory bodies and institutions of bosnia and herzegovina. http://bihkonk.gov.ba/category/interni-akti/izvjestaji e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 64 the council of competition became a member of the international competition network (icn) in mid-2005 and it also cooperates with the european commission, oecd and unctad. the council of competition has signed bilateral memorandums on cooperation and exchange of information with competition bodies of croatia, serbia, macedonia and bulgaria. in the period from 1 may 2004 to the end of 201619, the council of competition has received 689 cases, most of which refer to applications concerning notification of concentration and giving expert opinions and interpretations of the law on competition and corresponding by-laws. a smaller number of cases refer to abuses of dominant position and prohibited agreements, while the numerically smallest number of cases refer to individual exemptions. the table below provides an overview of the number of cases by years and types. 19 ibid. 20 involves prohibited agreements; the council of competition work report for 2015 did not expressly state the number of cases involving prohibited agreement and abuses of dominant position 21 involves prohibited agreements; the council of competition work report for 2016 did not expressly state the number of cases involving prohibited agreement and abuses of dominant position 22 competition council of bosnia and herzegovina, ‘reports’, http://bihkonk.gov.ba/category/interni-akti/izvjestaji (accessed 21 january 2019). year 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 to ta l number of cases by years 14 39 60 75 62 52 56 53 79 87 62 50 689 notification of concentration 3 20 42 47 29 17 19 15 23 32 23 11 281 abuse of dominant position 2 3 3 6 6 9 5 4 13 13 1620 521 85 prohibited agreements 2 1 5 4 7 5 4 12 13 18 ////// //// 71 individual exemptions 0 0 0 0 0 0 0 0 0 4 1 1 6 expert opinions and various interpretations of the loc 7 15 10 18 20 21 28 22 30 20 22 33 246 table 1 overview of received cases source: work reports of the council of competition (2005-2016)22 the law on competition has specified that the council of competition may impose a fine on undertakings in the amount ranging from 1% to 10% of the total income of the undertaking, as well as fines to responsible persons in undertakings. in the period of 2006-2016, the council of competition has imposed fines in total amount of bam 8.676.132, 00 to companies that violated the rules of competition. administrative capacity of the council of competition with 26 employees in total is not sufficient to perform the assigned tasks. additional training of the council of competition staff is required in order to increase its capacities to conduct investigations in specific cases. increase 65 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 in number of employees and their specialisation, carried out according to certain principles (for example, according to economic sectors or types of cases), would help the council of competition to strengthen its institutional capacities. in order to improve efficiency in the work on cases, additional training of employees is necessary, especially in techniques such as detecting cartels, carrying out sudden inspections, enforcing sanction mitigation policy, imposing sanctions, and carrying out economic analyses23. recommendations for improving the existing modality of legal protection of market competition 23 european commission, ‘bosnia and herzegovina progress reports’, http://dei.gov.ba/dei/bih_eu/paket/default. aspx?id=10098&langtag=bs-ba (accessed 21 january 2019). analysing the existing regulatory framework, it is possible to draw recommendations that would improve the existing modality of legal protection of market competition and that would stipulate activities in two directions, improvement of regulatory framework and activities, meaning the operation of the council of competition and of the council of ministers of bih as follows: (imamović-čizmić, 2014, p. 108): 1 since the last updating of the loc was carried out way back in 2009, it would be purposeful and on the line of recommendations of the european commission to approach the amending of the loc as soon as possible. namely, competition law and policy are one of constituent elements that serve to create the goal that can be expressed conceptually as a single market of bih. further harmonisation and continuous alignment of bih legislation with the eu legislation in this field is an order that must be fulfilled in order to join the eu. eu membership candidate country cannot negotiate on changes to the existing acquis communautaire, nor is there an option of non-transposing the appropriate legal acquis in the field of competition. 2 it is necessary to ensure consistent and proper enforcement of competition legislation primarily through institutional strengthening of the council of competition as the body that was given the task to implement this legislation. 3 in its work, the council of competition has mostly made decisions in specific cases upon request and less ex officio, and there is a justified need arising that this body should ex officio launch the procedure of investigating whether there is violation of regulations on competition, especially in the category of prohibited agreements (cartels) that are present on the bih market (for example petroleum and petroleum derivatives). 4 the council of competition provides its opinion on the alignment of drafts and proposals of laws and other regulations from the fields that have an impact on market competition, which the proposers are obligated to deliver, with the loc. there are many regulations of different levels of authority in bih which directly or indirectly concern legal regulations from the field of competition (for example the law on telecommunications, laws on trade, laws on taxi transport… or autonomous general act of the employer and similar). in order to avoid discrepancies of other regulations with the law on competition, it is necessary for the council of competition to continuously warn other administrative bodies and other institutions of their obligation to ask for opinion on compliance of regulations with the law on competition, which may have an impact on competition. 5 the council of competition needs to work more on active promotion of competition law and policy in order for different target groups, such as sector regulators professional associations, small, medium and large-sized enterprises, business and industrial associations, chambers of commerce, consumer protection associations, academic community and so on, to become better acquainted with the postulates of modern market economy, meaning with applicative competition solutions, from which the consumers would benefit as well. http://dei.gov.ba/dei/bih_eu/paket/default.aspx?id=10098&langtag=bs-ba http://dei.gov.ba/dei/bih_eu/paket/default.aspx?id=10098&langtag=bs-ba e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 66 6 development and additional improvement of the leniency programme accompanied with training of the council of competition staff to successfully detect and process cartels, which builds and strengthens its credibility. 7 the council of competition should pay special attention to detecting cartels in sectors in which it is presumed they will first appear, having in mind that the research has shown that the cartels in countries in development and transition most commonly first appear in the public procurement sector; 8 the council of competition needs to adopt the practice of imposing strict sanctions for the violations of the loc both for undertakings and responsible natural persons within undertakings, because it is considered that aggressive sanctioning policy is an efficient element in the fight against violations of the rules of competition; 9 the council of competition should carry out regular self-evaluation and assessment of the work on implementing the strategy of detection and processing of violations of the provisions of the loc; in creating the strategy, the council of competition could use the swot analysis as a qualitative analytical method, which serves to present strengths, weaknesses, opportunities and threats through four factors in order to acquire the picture of the council of competition’s potential. such self-evaluation could serve as basis for drafting the unctad’s voluntary peer review on competition policy, which is dedicated to improving the quality and efficiency of competition policy in the countries in development and transition; 10 the council of competition should introduce the practice of publishing the so-called ‘black list’ that would include those undertakings that carried out the harshest violations of the loc, for example participated in a cartel or abused dominant position by discriminating the prices and the ‘black list of managers’ that would carry the names of punished responsible persons in undertakings. introduction of this practice would result in prevention of violations of the loc and greater awareness of all participants concerning the fact who the most common violators of its provisions are. conclusions protection of market competition has multivariable positive effects for consumers, undertakings and economy in general because it encourages efficiency and leads to increased social welfare. realisation of this protection presupposes quality legal solutions and efficient enforcement by an independent, professional and well organised state body. at the same time, liberalisation of economic flows contributes to a more intense globalisation discourse that also brings standardisation of legal rules and policies by decreasing the economic sovereignty of countries in terms of creating the competition law. globalisation demands a unified regime of competition law, because it represents an important element of state economic policy whereby the law on competition becomes an instrumentality for organising economic activities in an efficient manner. national legislations are standardised particularly in the domain of substantive competition law, while in the segment of enforcement of competition law the countries still have the freedom to choose the modalities. most countries agree on the goals of the laws on competition, principles that encourage healthy competition policy, as well as appropriate means for the research and evaluation of business activities and transactions. standardisation of legal rules is carried out within the framework of international institutions and integration and it is imminent because business is becoming increasingly global. the european union rests on a single market, and this concept is sustainable only if there is strong mechanism of market competition protection in place. members of the european union harmonise their rules and become part of a complex mechanism of market competition protection. 67 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 bih is not a member of the european union, it is on the path towards membership and belongs to one of the countries with smaller markets that is still in the initial stage of enforcement of modern competition laws. bih is a complex country with highly complicated state-legal arrangement and division of competences. the federation of bih consists of cantons with their original constitutional competences, presumption of competence exists in the favour of entity in relation to the state of bih, and in the favour of cantons in the federation of bih. due to highly complex state arrangement of bih, whose constitution has divided the competences between state and entity levels, the largest part of legal regulations regulating economic relations was adopted at entity level. the law on competition of bihis adopted at state level but the whole mechanism of protection has a reflection of political determinism bearing in mind the election of members of the body in charge of enforcing competition law and the validity of its decisions. the law on competition of bih is to the greatest extent compliant with acquis communautaire, based on which the legal framework of competition law was further elaborated by adopting a series of by-laws. however, the existing law on competition also has its flaws that actually hamper further development and progress of bihin this field. this law established the council of competition in bih, and its activities should contribute to the development of a single market. one of its primary tasks is to ensure preconditions for the realisation of competition of equal undertakings, with constant control of compliance of competition regulations and sanctioning of those who do not adhere to it. efficiency and work results of the council of competition can also be measured by the number of decisions made, which prevent the activities of undertakings on the market that lead to conclusion of prohibited agreements, abuse of dominant position and concentration of undertakings with negative effects on the relevant market. based on data obtained from the annual work reports, it is possible to conclude that the number of cases resolved before the council of competition is growing, but is still not sufficient to evaluate the work of this institution as successful, especially taking into account the nature of cases and the fact that not even one was initiated ex officio. the success of competition protection bodies primarily depends on the degree of their autonomy and professionalism and the quality of human resources. the council has financial autonomy, but political autonomy is questionable having in mind the election and decision-making methods. in order for bih to remain on the path towards membership in the european union, it is necessary to undertake certain activities to improve the competition legislative framework in the sense of removing the shortcomings of political determinism and enhancing the work of the council of competition. references analiza razvoja principa uslovljenosti eu. (2010). sarajevo: council of ministers of bih the directorate for european integration. barack, b. (1981). the application of the competition rules (antitrust law) of the european economic community to enterprises and arrangements external to the common market. boston: kluwer. https://doi. org/10.1007/978-94-017-4482-9 begić, k. (2000). ekonomska politika. sarajevo: pravni fakultet. cook, p., fabella r. v. & cassey lee. (2007). competitive advantage and competition policy in developing countries. cheltenham: edward elgar. https://doi. org/10.4337/9781847205339 council decision of 14 june 2004 on the principles, priorities and conditions contained in the european partnership with bih. (2004). oj l221/10. https://doi. org/10.1007/s00330-004-2343-z davidson, k. m. (2005). creating effective competition institutions: ideas for transitional economies. asian-pacific law & policy journal, 6(1), 71-129. retrieved june 12, 2019 from http://blog.hawaii.edu/ aplpj/files/2011/11/aplpj_06.1_davidson.pdf european commission. bih progress reports. retrieved january 21, 2019 from http://dei.gov.ba/dei/ bih_eu/paket/default.aspx?id=10098&langtag=bs-ba imamović-čizmić, k. (2014). market competition mechanism in bosnia and herzegovina. saarbrücken: lap lambert academic publishing. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 68 interim agreement on trade and trade-related matters between the european communities and their member states, of the one part, and bih, of the other part. (2008). official gazette of bih international contracts 5/08. khemani, s. r. (2003). competition law and policy in the transitional market economies. in s. togan & v. n. balasubramanyam (eds.,), turkey and central and eastern european countries in transition towards membership of the eu (pp. 243-258). new york: palgrave macmillan. https://doi.org/10.1007/978-0-333-97800-9_11 the law on competition. (2001). official gazette bih 30/01. the law on competition. (2005, 2007, 2009). official gazette of bih 48/05, 76/07 and 80/09. lundqvist, b. (2014). standardization under eu competition rules and us antitrust laws, the rise and limits of self-regulation. cheltenham: edward elgar publishing. https://doi.org/10.4337/9781781954867 lucio lanucara, the globalization of antitrust enforcement: governance issues and legal responses, indiana journal of global legal studies, volume 9 issue 2, 2002,str.443 mlikotin tomić, d. horak, h., šoljan, v., pecikotićkaufman, j. (2006). europsko tržišno pravo. zagreb: školska knjiga. malinauskaite, j. (2010). harmonisation of competition law in the context of globalisation .european business law revie, monitoring of the bih's european integration process: annual report for 2010. (2011). sarajevo: foreign policy initiative bih. ojala, m. the competition law of central and eastern europe ,sweet maxwell,1999. osnovni prikaz ssp. (2008). sarajevo: council of ministers of bih the directorate for european integration. foster, s. e., (2001.) while america slept: the harmonization of competition laws based upon the european union model, emory international law review. the stabilisation and association agreement between the european communities and their member states, of the one part, and bih, of the other part. (2008). official gazette of bih 10/08. williams, m. (2005). competition policy and law in china, hong kong and taiwan. cambridge: cambridge university press. https://doi.org/10.1017/ cbo9780511494710 about the authors kanita imamović-čizmić phd. associate professor university in sarajevo, faculty of law fields of interests competition law, economic anaylsis o law, economic policy, economic policy eu. address obala kulina bana 7, 71 000 sarajevo, bih 0038762347446 e-mail: k.imamovic-cizmic@pfsa.unsa.ba samir sabljica m.sc market surveillance, consumer protection and competition address ministry of foreign trade and economic relations of bih this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 237 issn 1822 – 8402 european integration studies. 2009. no 3 entrepreneurship environment and regional policy rosita zvirgzdiņa solvita vītola school of business administration turiba elga tilta institute of economics of latvian academy of science abstract the paper analyses different aspects and problems characteristic to entrepreneurship environment in latvia after restoring of independence. the entrepreneurship in latvia develops under conditions of market economy in a rather complicated inner and outer environment influenced by different circumstances causing rapid changes. at the beginning of transition period to market economy, the entrepreneurship environment in latvia was affected heavily by decrease of production after the 1990, when during the period 1990-1993 the gdp decreased more than twice, but the formation of fixed assets six times. such fall in production is to be related in some respects to the general economic crisis characteristic to transition period to market economy in all central and east european countries. common features of this crisis were the decline in production and lowering of the standard of living. internal resources of our country were limited and insufficient, and latvia was not attractive to foreign investors. the production level of 1990 remains unachieved up to now. the recovering process of production is very slow in agriculture. the allocation of production factors in latvian regions has developed in an unbalanced way. two thirds of non-financial investments obtain riga and pierīga. lasting up to now, this unbalanced development leads to unequal production conditions, impeding negatively the activities of entrepreneurship, especially in rural areas, where a certain part of agriculture area remains still unused at all. the unused land grows over and its qualitative indicators of landscapes and biotopes become worse, but the ameliorative systems decline. the yield of crops is changing and it is lower in comparison with other countries. the decline in agriculture has led to diminishing of the role such characteristic and historically developed sphere as milk industry. to help the entrepreneur to cope with conditions affecting his activities, especially in rural areas, it is necessary to provide him with a certain support from the government, regional and local institutions. presently, there is a growing need in such business support structures as business consultation centres, business parks, industrial parks and others. however, most of the support institutions are concentrated in riga and it does not comply with the interests of today and future entrepreneurs. lack of support may be a cause of giving up of entrepreneurship by a number of entrepreneurs. as an important problem in rural areas may turn out the choice of a most suitable form of a production enterprise, being in capacity to provide a successful process, especially in the initial period. in this context, as favourable and supporting to entrepreneurs may be recommended such forms of enterprise and institutions as franchise and monitoring, providing together with financial support also the moral support. development of entrepreneurship environment in latvia is a step-by-step process, using advantages and overcoming of disadvantages. keywords: entrepreneurship, entrepreneurship environment, entrepreneur. introduction one of the main priorities of latvia is a possibly soon approach to social economic level of the eu, from which our country falls behind significantly. in 2007, the gdp per capita in our country was 1.7 times lower than the average of it in the eu, 2.3 times lower than in netherlands and 2.5 times lower than in ireland. after this indicator, latvia was in the fourth place from the end among the member states of the eu, leaving behind only poland, romania and bulgaria [central statistical bureau, 2008.]. the precondition of accelerated approaching process is intensive development of production and entrepreneurship, which, in its turn, depends on environment where it takes place. this environment may be more or less favourable. in latvia after restoration of independence, this environment has not been favourable, especially in remote from riga areas of regions. notwithstanding the regional policy, issn 1822-8402 european integration studies. 2009. no 3 238 the competitiveness of products is not high and the capacity of entrepreneurs is comparatively low. it creates a necessity to seek for ways how to activate and support the entrepreneur in such environment. the aim of the paper is to find out the opportunities how to facilitate entrepreneurship according to environment in regional context. to achieve the aim the following tasks were carried out: characterisation of development features in 1) transition period; making out of unused possibilities of production 2) enlargement; foresight of the role and place of entrepreneur 3) in production process in compliance with the environment. the research object was the production potential. the research was based on monographic method, synthesis and analysis, logical – constructive method and analysis of statistical data. results and discussion the entrepreneurship environment in latvia has developed under impact of changing conditions of transition period to market economy. the beginning of transition period was characterised by rapid decrease of production after the 1990, and it turned out as such to be more difficult to overcome than hoped initially. during the period 1990-1993, the gdp in latvia decreased more than twice, but the formation of fixed assets six times. as a result, the proportion of fixed assets in gdp decreased 3 times and in 1993 made only 13.54% of gdp. [bojārs, vilne 1996.] such decrease of production in latvia is to be in some respects related to the general economic crisis, which was characteristic to transition period to market economy and from which no one of the central and east european countries, being involved in transition period, was able to avoid. common features of this crisis were the decrease of production amount and the lowering of level of living. internal resources were limited and insufficient. certain hopes were set on foreign investments; however, without fulfilment to a great extent, because the traditional conditions of attraction of foreign investments, i.e. high economic growth, wide market and respective profitability of investments, did not exist. latvia was unattractive to foreign investors what is shown by the amount of direct foreign investments per capita, being in our country 14.3 times lower than, for example, in hungary. the transition period from planned economy to market economy in latvia turned out to be more complicated than thought initially. the mistake made in the beginning of the transition period, when our country hesitated to turn itself to modern technologies and, therefore, did not restructure the production accordingly, began to show its negative impact. there remained disregarded the idea that increasing of competitiveness of the country required carrying out of a targeted innovative policy that facilitates accelerated development of knowledge based sectors and the increase of proportion of goods with high added value in traditional production sectors. the difficulties of transition period found their reflection in economic growth. notwithstanding the high economic growth rate, characteristic to latvia for some years in succession, sometimes reaching a double figure, it has not been possible to succeed in overcoming of production decline, setting in after the 1990 (table 1). table 1. changes in production in latvia 1990-2006 (%, in comparable prices, 1990=100%) branches 1995 2000 2001 2002 2003 2006 industry 38.3 46.9 51.2 55.5 59.1 66.3 of which mining 38.8 58.8 68.6 84.8 89.3 107.7 food industry 37.8 42.8 45.7 48.0 50.9 59.2 agriculture 46.8 37.3 39.4 41.0 42.1 45.1 of which crop production 65.4 60.2 58.8 64.7 60.4 74.8 livestock production 37.8 27.0 30.3 30.1 30.9 32.0 source: latvian statistical yearbook 1999., 2004., 2007. riga. csb in 2006, the production level in the industry made only 66.3%, but in the agriculture 45.1% of the level of 1990, inter alia in the crop production 74.6%, in the livestock production – only 32%. the level of 1990 was overcome only in mining. to make up for lost time and to accelerate the increase of production it is necessary to seek for ways and opportunities how to use more rationally the production resources – land, labour force and capital – and to facilitate the entrepreneurship to focus on production of competitive products. in using of land, an essential role is played by the agriculture area. its rational use is the main support for successful inclusion of rural territories in a balanced social economic development. of the total land area of the country, making 6458.9 thousand ha, the used agriculture area made 1839.1 thousand ha or 28.5%, forests – 2929.0 thousand ha or 45.3%, but all other areas – 1456.8 thousand ha or 22.5%. of the used agriculture area, the arable land was 1188.1 thousand ha or 64.6%, the meadows and pastures – 641 thousand ha or 34.9%, but the permanent crops – 10 thousand ha or 0.5%. during issn 1822-8402 european integration studies. 2009. no 3 239 the period 2000-2007 the used agriculture area increased from 1587.1 thousand ha to 1839.1 thousand ha or of 16%, inter alia the arable land – from 969.9 to 1188.1 thousand ha or of 22.5%. [central statistical bureau, 2008]. latgale region is the richest with agriculture area. it concentrates 27% of all agriculture area given to usage and is followed by vidzeme region (21.3%) and zemgale region (20%). [lrzm, 2007.] the usage of land cannot be called rational, because a certain part of agriculture area remains still unused at all. in 2006, from 2470 thousand ha agriculture area there were used only 1855 thousand ha or 75%. although the arable land area has increased from 969.9 thousand ha in 2000 to 1205.1 thousand ha in 2006 or of 12.4%, not all arable area is used under crops. the unused land grows over, and, as a result, the qualitative indicators of landscapes and biotopes become worse. the land ameliorative systems decline. when the land grows over, the woodland increases, and this tendency is a rather stable one. according to forecasts, if such tendency will continue, the forests will soon cover one half of latvia’s territory. the yield of crops is changing and it is lower in comparison with other countries. if in 1996 the average yield of corn made 1.69 t/ha, then in 2005 it made already 2.8 t/ha. however, this indicator also is low. for example, in 2003 the yield of barley in spain made 2.7 t/ha and it was the lowest average yield level in the eu. the highest yield had the luxemburg, where in made 6.8 t/ha. the highest yield level of oats was in ireland, where it made 7.28 t/ha (http://www.agra-net.com). the highest and lowest yield indicators of certain crops in latvia were as follows: rye: 2.63 t/ha 1986-1990; 1.77 t/ha in 2000;  wheat: 2.86 t/ha in 2005; 1.77 t/ha 1995;  barley: 2.26 t/ha 1986-1990; 1.38 t/ha in 2000;  oats: 2.14 t/ha 1986-1990; 1.61 t/ha in 2000.  in ukraine and in russia the average yield of crops make 3.5 t/ha, but in kazakhstan, at the average yield of 1.9 t/ha, in several regions it makes even 5 t/ha. in latvia, the yield of crops varies of 1.59 t/ha in latgale region to 2.78 t/ha in zemgale region. the highest yield of potatoes was in zemgale region (13.39 t/ha), the lowest – in kurzeme region – (10.96 t/ha). the highest yield of vegetables was in kurzeme region (13.13 t/ha), but the lowest – in vidzeme region (8.66 t/ha). therefore it is understandable that despite the increase of production in agriculture, making in 2007 37.4%, the level of 1990 was not reached in both the crop production and the livestock production. in 2007, the production in agriculture made 50.8% of the level of 1990, inter alia in crop production 87.9%, but in livestock production – 34.5%. in 2007, the sown area made 69.2% of the sown area in 1990, inter alia the crops – 77.3%, potatoes – 50.2%. [central statistical bureau, 2008.] after the 1990, the livestock production has changed remarkably. in 2007, the production of meat made only 27.4% of the level of 1990, the production of milk – 44.5%, production of eggs – 77%, production of wool – 18.7%. if in 1990 the production of meat in latvia per capita was 116 kg, than in 2007 – 37 kg. the production of milk decreased respectively from 711 kg to 370 kg. however, the milk production has a special place in livestock production. it is one of the main income sources of employed in the agriculture. the crop production and livestock production form the basis for such sectors as processing of crops, fruits and vegetables, milk industry and meat industry. the amount and quality of processing products depends on the amount and quality of agriculture production. the labour force depends on the number of economic active population and the level of employment. in 2007, the number of economic active population in latvia was 1191 thousand, inter alia the employed 1119 thousand or 94% and the unemployed 72 thousand or 6%. during the period 2000-2007, the number of economic active population has increased of 8.6%, inter alia the number of employed – of 19.2%, but the unemployed – decreased two times. in 2007, the number of economic inactive population made 613 thousand and in comparison with the 2000 had decreased of 15.8%. in 2007, the level of employed males made 67.8%, unemployed males – 4.6%, but 27.6% males were economic inactive; the respective indicators of females made 57.0%, 3.4% and 39.6%. [central statistical bureau, 2008. p. 242] the proportion of economic active population in regions differs (table 2). table 2. proportion of economic activity of population in latvian regions (%) [central statistical bureau, 2008., p. 244] regions level of economic activity level of employment proportion of unemployed 2002 2007 2002 2007 2002 2007 riga 65.6 70.8 58.3 66.7 11.1 5.8 pierīga 63.6 67.1 56.7 63.9 10.8 4.9 vidzeme 62.1 61.0 55.6 57.0 10.5 6.6 kurzeme 60.5 65.0 52.9 61.6 12.6 5.2 zemgale 58.9 63.6 52.8 59.5 10.4 6.5 latgale 55.5 61.2 46.0 56.3 17.1 8.0 issn 1822-8402 european integration studies. 2009. no 3 240 the level of economic activity has increased more rapidly in latgale region (10.5%), then follow riga and kurzeme (7.9%), but in vidzeme it has decreased of 1.8%. the employment level has increased more rapidly in kurzeme (16.4%) and in riga (.4%), but more slowly in vidzeme (2.5%). in 2007, the lowest proportion of employed was in pierīga, the highest – in latgale. investments are characterised by changing amount, branch structure and territorial allocation. the nonfinancial investments in latvia have increased from 511.1 million lvl in 1995 to 3441.2 million lvl in 2006 or 6.7 times, but in comparison with the 2000 – 2.2 times. in agriculture, forestry and fishing, the non-financial investments have increased from 24.4 million lvl in 2000 to 138.3 million in 2006 or 5.7 times by changing of their proportion in the total amount from 1.6% in 2000 to 4% in 2006. in processing industry, during the same period the non-financial investments increased from 211.7 million lvl to 558.6 million lvl by changing of their proportion from 13.8 to 16.2%. the territorial location of investments is characterised by high level of imbalance (table 3). table 3. non-financial investments in latvian regions [central statistical bureau, 2008., p.195] regions 2000 2006 million lvl in % of the total amount million lvl in % of the total amount riga 829.5 53.9 1695.8 49.3 pierīga 218.4 14.2 617.4 17.9 vidzeme 78.6 5.1 247.1 7.2 kurzeme 227.4 14.8 382.2 11.1 zemgale 82.8 5.4 289.9 8.4 latgale 101.4 6.6 208.8 6.1 total 1538.1 100.0 3441.2 100.0 in 2006, the proportion of investments had been diminished in riga, kurzeme and latgale, but increased in pierīga, vidzeme and zemgale in comparison with the 2000. high proportion is characteristic to rīga together with pierīga, making more than 2/3 of the non-financial investment proportion in latvia. during the period 2000-2007, the gdp in latvia has increased from 4750,756 million lvl to 8717,327 million lvl or of 83%, having increased per capita from 2002lvl in 2000 to 3830lvl in 2007. the role of different regions in increase of the gdp is characterised by the added value (table 4). table 4. the added value in latvian regions (in actual prices) [central statistical bureau, 2008, p.63] regions 2000 2005 thousand lvl in % to the total thousand lvl in % to the total riga 2357755 55.4 4600844 57.3 pierīga 433009 10.2 893890 11.1 vidzeme 258120 6.1 499810 6.2 kurzeme 556662 13.1 855483 10.7 zemgale 308920 7.3 558108 7.0 latgale 334892 7.9 612863 7.7 total 4252568 100.0 8029351 100.0 in creation of the added value, the role of riga and pierīga has increased from 65.6% in 2000 to 68.4% in 2005 that underlines the growing imbalance. a certain picture of the social economic territorial development may be obtained from a comparison of the proportion of population, economic active population, agriculture area, investments and gdp in regions. so, for example, the proportion of agriculture area exceeds the proportion of inhabitants in vidzeme and latgale regions, but the proportion of investments and gdp – in kurzeme region. in vidzeme, zemgale un latgale regions, the proportion of gdp exceeds the proportion of investments, but in kurzeme it is lower of 27%. the proportion of investments in kurzeme exceeds the proportion of agriculture area 2.2 times, but in vidzeme makes 65%, in zemgale – 73.2% and in latgale – 69%. the irregular development of production has led to unbalanced welfare of inhabitants. so, for example, in 2007, the average of net wages in riga region made 322lvl per month and was of 58% higher than in latgale region. in the public sector of riga region the average of net wages was of 55.6% higher than in latgale region. in the private sector, the difference between the higher level and the lower level made 78%. [central statistical bureau, 2008., p.258] the big differences between the central part of the country formed by riga and pierīga and the territories of the periphery compel to seek for possibilities, enabling issn 1822-8402 european integration studies. 2009. no 3 241 to level these differences, simultaneously increasing the production in both the extensive and the intensive way with the orientation on production of competitive products for exports. additionally, the situation is complicated by widening of globalisation and imminent to it impact on all economic spheres from the highest to the lowest level. it requires implementing of respective regional policy that must provide a balanced and long-term development in latvian regions and different territorial areas. therefore, the implementation of regional policy must be oriented to diminishing of unfavourable differences between regions and the areas in the framework of regions. it means that there should be provided equal living, labour and environment conditions to inhabitants of latvia and equal preconditions to entrepreneurship all over our country. the creation of preconditions to entrepreneurship will relate, first of all, to the entrepreneur involved in production process – to this economic agent called also the fourth production factor. his success will depend on his skills of perceiving of market opportunities and of combining of production factors in such way that allows to obtain a possibly big gain, and how, acting in a dynamic and real environment where the profit is return to uncertainty, he will trace free niches in the market that others have not yet found, and find resources necessary to his enterprise with the aim to use them for ensuring of a place in the market. his activities will be affected by such conditions as financing, labour force, sale, initiative, knowledge, information, scientific research results, consultations, road net, raw materials, state and self-government support and different business support forms such as business parks, industrial parks, business innovation centres, accounting service bureaus and others. presently, the territorial allocation of above-mentioned conditions in latvia is a rather unbalanced one, as it is evidenced, for example, by allocation of the business support structures (table 5), which have to provide entrepreneurs with necessary services simultaneously all over the country. in addition, there exists a growing necessity of these services, especially under nowadays globalisation conditions, when the information has to provide the necessary connections between all economic spheres. in latvia, the local information is not always adequate to the information on the level of the eu. table 5. business support structures in latvian regions support forms riga kurzeme latgale vidzeme zemgale business parks 11 1 industrial parks 6 1 1 business innovation centres 3 1 virtual bureaus 3 accounting service bureaus 6 business consultation centres 553 25 27 15 15 source: data of central statistical bureau of republic of latvia different business support forms are necessary to future entrepreneurs desiring to act independently. presently, their number is not small. for example, the results of an inquiry carried out by r. zvirgzdina shows that more than one half of respondents have expressed the desire to work fully independently and single-handed that means to be free in choice of the kind of entrepreneurship, elaboration of production programme, choice of financial sources, seeking for production resources and markets, calculating prices, using profits, simultaneously taking into consideration that he will be dependent on dynamic changes in demand and supply, taste and purchasing power of consumers, price level, the laws regulating the entrepreneurship, and the political and economic situation in the country. it is significant that a great number of respondents think that the starting of entrepreneurship requires a consultant that may be a professional or experienced entrepreneur, being able to recommend how to act and to make use of scientific researches and practical skills in the case of both starting and continuing of entrepreneurship. lack of necessary consultations has led often to situations that the entrepreneurs give up the continuation of entrepreneurship. in solution of problems related to initiative of entrepreneurs and to government and self-government support, as well as to different business support forms there emerges the question what kind of enterprises and institution may be able to combine best of all the initiatives of future entrepreneurs with the possible support, taking into consideration also the appreciation and moral support. to such forms maybe long franchise and mentoring. franchise means conclusion of a contract, according to which the owner of intellectual property rights transfers to other part the rights against a payment on a settled or unsettled term to use his trademark, patent, business secret and knowledge. from other systems of contracts the franchise differs in the way that it is based on a unique product, service, business method, brand, reputation or patent. therefore, the franchise is a good way how to develop the entrepreneurship, because there are lots of things that are ready and must not be created issn 1822-8402 european integration studies. 2009. no 3 242 anew. the funds may be invested in the product and the trademark that have already conquered its place. the entrepreneur is protected from mistakes, because he will have someone who teaches and consults him. [gavare, 2005.]. taking into consideration the fact that one fifth of respondents surveyed by r, zvirgzdina have expressed desire to carry out the entrepreneurship under monitoring of a bigger enterprise allows to recognise this form of entrepreneurship as a suitable for areas removed from the centre. up to now, one of the more successful examples of using of franchise and evaluation of its positive impact in latvia, is the formation of the shop net elvi that was created in 2000. it emerged on the basis of the tendency of decrease of the number of retail shops, being caused by intensive competitiveness in trade. to protect the small traders from ruination there emerged the idea to unite the local food traders. as a result, the elvi concept was created. in 2000, the decision was made to develop a shop net based on franchise principles and with attraction of successful local retail traders. in 2003, the elvi group started consultations and training of employees as additional service to the partners. the rearrangements and introduction of new cooperation forms allowed to elvi group’s shops to increase essentially their turnover. the elvi group and the shop owners plan jointly the turnover of every shop, the profit, equipment of the shop and allocation of good groups. 0 50 100 150 200 250 300 2000 2001 2002 2003 2004 2005 2006 ik ga d ja is n et o ap gr oz ju m a au gš an as te m ps % latvija elvi fig. 1. growth rate of retail turnover in latvia and elvi group, 2000–2006 source: on the basis of published information of central statistical bureau of latvia process of mentoring application advantages and disadvantages management of action process education and consultations methods and means aims and ideas evalution of risks fig. 2. activities of mentoring process source: concept of authors issn 1822-8402 european integration studies. 2009. no 3 243 the experience of elvi evidences obviously and demonstrates the advantages of franchise, because the elvi group has become the third biggest participant in latvian food market, the experience of elvi group and other franchisors in the field of cooperation may be used preferably in latvian rural regions to facilitate and support the activities of small entrepreneurs. in activation of entrepreneurship, the mentoring may play a significant role. mentoring is a transfer of knowledge, carried out by experienced mentors and successors of experience. [tuliki, 2005.] mentoring is based on mentor’s knowledge and experience that allows to successor to evaluate the possibilities and resources, being at his disposal, and facilitate their using in solution of a concrete problem or achieving of a goal. mentoring may play a significant role in facilitating of innovations that develops presently in latvia at a rather slow pace. in latvia, only one fifth of enterprises is involved in innovative activities. the innovative activities are more related to big enterprises. conclusions the entrepreneurship environment in latvia has  developed in accordance with social economic processes. the latvian economy has not succeeded in  overcoming the decrease in production setting in after the 1990. the location of production resources is territorially  unbalanced. the use of agricultural land is insufficiently  economic: the yield of crops is comparatively low; a part of agricultural land remains unused. more than two thirds of investments are  concentrated in riga and pierīga. the preconditions of development of  entrepreneurship are allocated unevenly all over the territory. a certain part of future entrepreneurs express the  desire to work independently. acceptable development forms of entrepreneurship  in the future may be franchise and mentoring. the regional policy should be oriented to possibly  soon extermination of imbalance taking place in allocation of production factors. the principles of regionalisation should be  taken into consideration, when implementing the elements of regional policy. references franšīze – pieredzes un enerģijas laulības. http://www. db.lv/archive/article.php? resurss apskatīts 2007. gada 10. jūlijā feders, gints. franšīzēm paredz perspektīvas. lietišķā diena (16. lpp) 2001. gada 15. oktobris gavare, jana. franšīze – biznesa izaugsmes iespēja. dienas bizness. (2239), 02.12.2003. gavare, jana. franšīze – iespēja abām pusēm. dienas bizness. 2007. 08.02. gavare, jana. kā izvēlēties pareizo franšīzi. dienas bizness. (2514), 12.01.2005. gavare, jana. lems par franšīzes attīstības iespējām baltijā. dienas bizness. (1945) 26.09.2002. graham bannock, r.e. baxter and evan davis. the dictionary of economics. penguin books, 1992, 452 lpp. im kreislauf der wirtschalf (1995) bank-verlag koln melatengurtel. 320 pp j.bojārs, v.vilne. starptautiskās investīcijas. lu starptautisko attiecību institūts. rīga, 1996. latvijas lauksaimniecība un lauki. rīga. lr zm 2005. 141 lpp lapiņa, aiva. franšīze: paņēmiens drošam biznesam. dienas bizness. (1623), 11.05.2001. pētījums par uzņēmējdarbības tendencēm latvijas statistisko reģionu un tautsaimniecības nozaru griezumā 2000.-2004.gadam. http://www.em.gov. lv – resurss apskatīts 10.03.2009. sproģis, a., sproģe, i., sproģis, j. latvijas ekonomikas attīstība. tautsaimniecības attīstības problēmas latvijā. rīga, 2007. nr. 5. 6 – 30 lpp. statistical yearbook of latvia 1999. – rīga: lr csp 1999. 380. p statistical yearbook of latvia 2004. – rīga: lr csp 2004. 270. p statistical yearbook of latvia 2007. – rīga: lr csp 2007. 415. p statistical yearbook of latvia 2008. – rīga: lr csp 2008. 568. p. štokmane, linda. franšīze palīdz vietējiem konkurēt pārtikas tirgū. dienas bizness (1718), 7.lpp. 11.10.2001. latvijas zinātņu akadēmijas ekonomikas institūta gadagrāmata 2007. rīga, 2007. 172 lpp lr zm 2007 issn 1822-8402 european integration studies. 2009. no 3 244 reģionu attīstība latvijā, 2007. 245 lpp tūliki, jūsela, tūla lillia, jari rinne. mentoringa daudzās sejas. lietišķās informācijas dienests, rīga, 2005., 196 lpp werner lachamn, reinhard hauot, karl farmer. globalisierung der wirtschaft, lit verlag minstert, 2005. 321 lpp. ziņojums par latvijas tautsaimniecības attīstību. lr ekonomikas ministrija. rīga, 2008. gada decembris, 138 lpp. elvi nepublicētie materiāli http://www.agra-net.com). the article has been reviewed. received in march, 2009; accepted in april, 2009. 7 issn 1822 – 8402 european integration studies. 2010. no 4 promotion of employees knowledge building via flexible working time: theoretical concepts and evidence from latvia ieva brence, biruta sloka university of latvia abstract promotion of knowledge building and life-long learning are concepts set by the european commission for several years already. also flexible working time is an issue recommended to be applied in organisations within the eu. even more as serious economic slowdown in the last years affect labour markets and most of the organisations and employers are forced to cut salaries or even numbers of employees, an alternative instead of finishing labour relations with employees, is introduction of flexible and especially part-time employment. it allows maintaining working places and in certain cases provides greater opportunities for employees’ knowledge building. the aim of the paper is to analyse theoretical concepts of flexible working time adjustment and its interaction with knowledge building and basing on the entrepreneurs and inhabitants surveys performed by the authors, discuss possibilities for flexible working time increase in latvia that would allow knowledge building within organisations. the article reflects previous research works both on organisational flexibility and on employees’ knowledge building and research results of the surveys performed by the authors (entrepreneurs survey comprising of 1526 respondents representing private sector and employees survey comprising of 2194 respondents). it is discussed that there are both positive and negative aspects for applying flexible working time. adjustment of flexible working time allows keeping employees with organisations and, even more – allows more free time for employees whose salaries rates are subject to decrease, providing them more free time that may be used for their capacity building. the most important negative aspect concerning flexible working time adjustment, basing on inhabitants opinion, is related to lower salary levels. at the same time one should consider that most persons due to economic slowdown are subject to wage reductions and even finishing of employment relations without flexible working time adjustment. thus flexible working time, including shortened working hours is an option for the current economic situation. besides, due to reduced economic activity employers may allow more free time for employees that can be used for knowledge building. the article concludes that there are huge possibilities for increasing organisational flexibility in latvia, since most of the employers have not even thought on the possibility to adjust flexible working times. keywords: knowledge building, organisational flexibility, part-time employment, latvia. introduction changing global environment requests new skills and competencies at organisational level. besides, serious economic slowdown facing europe and latvia in the last years affects labour markets and organisations. salaries for most of the employees are decreased and even more, unemployment level has exceeded 16% at the beginning of 2010 in latvia. the authors suggest instead of finishing labour relations with employees to introduce part-time employment thus allowing maintain working places. besides, flexible working time is an efficient tool for supplementing knowledge that is necessary for organisations and thus for most of the employees. there are several ways for knowledge increase – life-long education courses financed by the employers, courses financed by employee, learning without participation in courses, courses financed by the third persons, e.g. the state. knowledge building may be limited due to the lack of financing of employers and employees. nevertheless, providing more free time for employees may still allow possibilities for professional growth even without sufficient investments. there are number of research papers stressing the necessity for knowledge building (alvesson 2004, gorelick 2005, kvande 2009, nevo, chan 2007, wright 2001). besides many research papers reflect the benefits from flexible working time (bosch, lehndorff 2001, issn 1822-8402 european integration studies. 2010. no 4 8 drew 2007, kerkhofs, chung, ester 2008, khamkanya, sloan 2009). however, not so many research works deal with the both issues. knowledge building, thus, goes on throughout a knowledge society and is not limited to education. as applied to education, however, the approach means engaging learners in the full process of knowledge creation from an early age (scardamalia, bereiter 2003). the authors of the article consider knowledge building is may be applied to organisations in case learning of employees is coordinated and their knowledge gained is necessary for further organisation development. besides, the term may be referred to any kind of learning – attendance of university (and other higher education courses), attendance of life-long learning courses, etc. basing on the previously performed research the authors have elaborated their own definition on labour market flexibility – labour market flexibility is possibility of institution (both private enterprise, state institution or non-governmental organisation) to adapt itself on changing conditions, by providing efficient use of labour force, technological and financial resources. labour market flexibility incorporates term of organisational flexibility. the research novelty is related to the fact that not many scientific papers analyse both organisational flexibility and employees’ knowledge building possibilities. statistical analyses are built on original surveys’ results performed by the authors. research object is latvian organisations. the aim of the paper is to analyse theoretical concepts knowledge building and its interaction with flexible working time and basing on the entrepreneurs and inhabitants surveys performed by the authors, discuss possibilities for flexible working time increase in latvia. the research tasks involve theoretical discussion on knowledge building and flexible working time aspects and analysis of employees’ and employers’ opinions concerning possibilities for flexible working time increase in latvia. the research methods involve content analysis both on organisational flexibility and on employees knowledge building, analysis of the eu and latvian policy documents on promoting organisational flexibility and employees skills building and statistical analysis of the surveys performed by the authors (entrepreneurs survey comprising of 1526 respondents and employees survey comprising of 2194 respondents). theoretical concepts of knowledge building and flexibility knowledge building and flexibility may be analysed both as self-contained and united terms interacting with each other. thus we try to analyse the processes both as self-contained and interactive. knowledge building is a comparatively complex issue. knowledge building is essential for organisations to cope with changing market demands (weiler 2009, kvande 2009, nevo, chan 2007, dejong, den hartog 2007, gorelick 2005, fontaine 2006, alvesson 2004,, scardamalia, bereiter 2003). knowledge building may be defined as the production and continual improvement of ideas of value to a community, through means that increase the likelihood on what the community accomplishes will be greater than the sum of individual contributions and part of broader cultural efforts. knowledge building, thus, goes on throughout a knowledge society and is not limited to education. as applied to education, however, the approach means engaging learners in the full process of knowledge creation from an early age (scardamalia, bereiter 2003). the authors of the article consider knowledge building is may be applied to organisations in case learning of employees is coordinated and their knowledge gained is necessary for further organisation development. besides, the term may be referred to any kind of learning – attendance of university (and other higher education courses), attendance of life-long learning courses, etc. knowledge has long been considered an important organisational resource, and its effective management is therefore crucial to success (nevo, chan 2007). one way for organisations to become more innovative is to capitalize on their employees’ ability to innovate. work has become more knowledge-based and less rigidly defined (dejong, den hartog 2007). life-long learning is essentials for organisations in order to keep up to date with rapidly changing knowledge (dealtry 2009, dejong, den hartog 2007, gorelick 2005, wright 2001). knowledge work is the concept used broadly for two types of knowledge intensive work: research and development organisations that are based on scientific knowledge, like biotechnology or high-technology engineering; and professional work, such as law and accounting (alvesson 2004). organisation of work, with the emphasis on individual responsibility and team organisation, together with the boundless time cultures, represent a set of strong structural forces in knowledge work. however, the disciplining processes of empowerment and individualization make the employees themselves the driving force behind the longhours work culture (kvande 2009). even in case organisation, to its owners’ consideration, is not related to knowledge work, knowledge building may be necessary in future. nearly in all industrialised countries in the west, there has been a rapid increase in the number of atypical jobs in the past few years (valkenburg, beukema 1996). fulfilment of the tasks set within the new atypical jobs issn 1822-8402 european integration studies. 2010. no 4 9 requests continuous learning and skills development. knowledge building is essential, since a decade or so ago expatriation strategies began changing to emphasize filling local positions with local managers because local managers were more familiar with the local staff, clients, markets, and cultures, were less expensive to support, and doing so assuaged a variety of political, image and ethical concerns (fontaine 2006). necessity for knowledge building is stipulated in several eu policy planning documents as well and has become of special importance within economic slowdown. the majority of policy interventions are aimed at improving job placement and investing in training and lifelong learning, improving matching processes and facilitating labour market transition, and stimulating labour demand (committee of the regions 2008). with regard to the policy formulation of the european employment strategy in the post-lisbon period, a closer look at the effects of the recession, national policy responses and future approaches to prevent or cushion the impact of economic recession on employment in the (eu) is on the agenda (weiler 2009). previous experience supports the fact that knowledge building issues will be of high importance in the agenda mentioned. also several other institutions stress the necessity for knowledge building in latvia. in 2002 latvia became signatory to the ilo’s life-long (learning) memorandum intended to promote human resources in terms of skills, knowledge and employability (ilo 2004a). necessity for knowledge building and flexible working time increase is stressed in the oecd jobs strategy as well (oecd 1994). work experience interaction with knowledge building is analysed from different perspective as well, stressing the necessity for pupils and students to gain practical skills. time management skills learned from work, and from combining work and school, are likely to be hugely beneficial to their schooling as well as their postschool life (staff et al. 2004). necessity for knowledge building is indisputable and we consider it is of special importance, since economic slowdown started. at the same time possibilities for knowledge building may be limited –due to the impossibility to combine working and learning lives. solution for promoting knowledge development, not fully used in latvia, is application of flexible working time. there are more advantages on organisational flexibility and flexible working time. many scientists argue that labour market flexibility enhance productivity, competitiveness, economic growth as well as entrepreneurship development (botero, djankov, la porta, lopez-de-silanes, shleifer 2004, siebert 2006, etc.). flexible working has emerged as a modern concept for managing office resources more effectively, efficiently, and economically (khamkanya, sloan 2009, siebert 2006, etc.). basing on the previously performed research the authors have elaborated their own definition on labour market flexibility – labour market flexibility is possibility of institution (both private enterprise, state institution or non-governmental organisation) to adapt itself on changing conditions, by providing efficient use of labour force, technological and financial resources. labour market flexibility incorporates term of organisational flexibility. flexibility issues are supported within the eu level. the european commission holds, has to be less rigid in terms of its institutions, regulations, culture and policies in effectively addressing the radical impacts of accelerated processes of globalisation, increased competition and rapid changes in the demand and supply dynamics (kerkhofs et al. 2008). flexible labour contract forms involve different factors, e.g. changing working time (flexible working time), annual working time (hours to be worker per year), unsettled labour contracts (employees agree working on when it is necessary and not exact amount of hours of working time is set in the contract), time accounts (additional free time is provided in case extra hours are worked or employee pays by working the days he didn’t come to work, e.g. due to illness), restructured/ concentrated working time (e.g. 10 hours per day, 4 days per week, etc.). unpaid vacations are also adjusted by organisations recently (employers confederation of latvia 2009). kerkhofs et.al (2008) distinguished between six different flexibility profiles within the 21 eu countries including latvia, concluding that life-course flexibility dominates in latvia (28/100), followed by the firm-oriented (24/100) and low flexibility (22/100), worker-oriented (13/100), overtime (9/100), and day-to day flexibility (5/100) (kerkhofs et.al. 2008). also negative aspects of working time flexibility are often discussed in literature. the previous research results show that a suppression of the 24 and the 168 h (sevenday) components (absence of periodicity) in the work schedules predicts reported social impairment. even if there are relatively strong 24 and 168 h components left in the work schedules, their interference with the social rhythm (using the phase difference between working hours and the utility of time) further predicts impairment (wirtz, giebel, schomann, nachreiner 2008). the authors consider that the most efficient form of labour market flexibility to be introduced in latvia for enterprises willing to promote knowledge building is part-time employment. according to the definition elaborated by the statistics office of the european union (eurostat) and used by the central statistical bureau of the republic of latvia issn 1822-8402 european integration studies. 2010. no 4 10 part-time employees are persons who usually work less than 40 hours per week, excluding those who consider themselves to be employed full-time irrespective of the number of their working hours (eurostat 2010). the oecd considers part-time fact in case person works less than 30 hours. several other definitions of part-time employment exist as well (oecd 2010). employers often decide to adjust part-time employment for maintaining employees during the time when enterprise incomes are not high (polachek, siebert 1993). besides, in case work is optimally organized, it may be ensured that employees don’t decrease their productivity, but are able to reach better results in shorter working time (buruiana, ioan 2009, bosch, lehndorff 2001, ilo 2004b). the situation is proven by several examples – e.g. unilever’s margarine plant in purfleet, which was becoming increasingly vulnerable to both external and internal competitors, with spiralling labour costs and low productivity. the company responded by introducing annualised hours, abolishing overtime and moving to seven-day continuous shift working resulting in increased employees’ leisure time and dramatic improvements in operational efficiency, the report stated (buruiana, ioan 2009). thus introduction of part-time employment don’t enable decrease in labour productivity. part-time employment may be organised in frames of reduced-time working day (e.g. employee works for four hours only, but five days per week) or in frames of reducedtime working week (e.g. employee works three full days per week). introduction of part-time employment depends on the branch, enterprise specifics, cooperation partners and clients, as well as other important factors, however, taking into account the person’s capacity curve, as well as other aspects, reduction of working days instead of working hours per one day are supposed being more efficient tool (bryson, forth 2007). there are certain particularities for managing flexible and part time employees (riley 2009, schweitzer 2009, brence 2010), however in general employers may benefit from introducing part-time work. there are advantages and disadvantages on flexible working time and in particular part-time employment, they have been summarised in table 1. table 1. advantages and disadvantages of flexible working time – view of employees and employers advantages of flexible working time (view of employees) disadvantages of flexible working time (view of employees) at least minimal income are maintained work place maintained, thus not entailing depression and other symptoms related to unemployment possibilities for maintaining qualification possibilities for gaining additional education/ attending additional courses in case two jobs are combined (person works in two jobs in frames of part-time) possibilities for gaining additional experience possibilities for choosing the most appropriate time for employee (morning hours, evening hours, etc.) possibilities for integrating into labour market persons who are not willing to work full time (due to family, personal or other reasons) greater satisfaction for work may be obtained (by excluding monotonous actions as well as necessity to remain in the working place when it is not actually necessary) easier possibility to arrive in working place (excluding the necessity to come to work during peak hours) possibilities for division of working tasks (in cooperation with the other person employed part-time in the same position) income level may not correspond to the previous level, besides it might be proportionally lower in comparison to the full-time employees additional bonuses are not provided for part-time employees (e.g. insurance) part-time employment may create inconveniences (e.g. necessity to share working table/working place with another employee) stereotype in society often exists that only persons holding lower qualification are employed part-time less security for keeping the working place (in case number of employees is reduced the first ones losing their jobs are parttime employees) smaller possibilities for training provided by employer and/or smaller possibilities for promotion problems related to extra-hours payment may occur advantages of flexible working time t (view of employers) disadvantages of flexible working time (view of employers) higher employees productivity, since less time for providing relaxation is necessary greater possibilities for using the employees strongest qualities not necessary to provide plausible free time for solving problems during working time (e.g. visiting doctor or state institution) economy of scale, when production or provision of services outside the regular working time is necessary (increased payment for additional hours work is not necessary to ensure) experience gained of employees, e.g. when working in additional job problems possible in frames of part-time employees work coordination time may be necessary for employee to fully integrate into the part-time work model and thus to guarantee efficient work problems possible concerning working time coordination among part-time employees (e.g. most of them are willing to work in the mornings, etc.) part-time model is not always possible to adapt for specialists of higher rank and qualification part-time work may provide not full load of working premises, thus not fully providing the fixed costs for rent of premises, etc. issn 1822-8402 european integration studies. 2010. no 4 11 taking into account the theoretical concepts possibilities for flexible working time adjustment in latvia and its impact on knowledge building are further analysed. possibilities for flexible working time increase in latvia flexible working time may promote knowledge building. taking into account the issue, possibilities for flexible working time increase in latvia are analysed. number of flexible and especially part-time employees is not high in latvia. according the central statistical bureau – in 2008 6,3% employees were working parttime, out of them 15% – due to studies, 5% – due to illness or impossibility to work more, 27% – since they couldn’t find full-time job, 18,6% – becase they didn’t want full time job, 5,5% – due to necessity to take care of children, 30,1% 0 due to other personal reasons. data for earlier years reflect comparatively similar trend and prove that approximately 1/3 of the persons working part-time would be willing to find a full-time job. part-time employment levels are much lower if compared to the eu-27 average (18%). thus inhabitants and entrepreneurs opinions for part-time employment increase possibilities in latvia were analysed. entrepreneurs survey involved 1526 respondents (interviewed by the phone interviews) and employees survey – 2194 respondents (surveyed by internet, selected on data base principles). results of the entrepreneurs’ survey reflect that the biggest part of them have not thought or have rejected to possibility to apply part-time employment in their institution. more than half of the entrepreneurs, if subject to wage reduction in enterprise, would reduce wages without reducing the working time. more detailed results are reflected in figure 1. 51% 25% 20% 4% reduce wage introduce part-time employment fire 10% of the employees other figure 1. entrepreneurs opinion on their action in case financial resources are decreased by 10%, 2009 the main reasons for not applying part-time employment are reflected in figure 2 and basing on entrepreneurs, are mostly related to the work specifics. threats on too low wages for employees was the second most important, however proportionately three times more seldom selected. more detailed survey results are reflected in figure 2. 51% 17% 17% 12% 3% work specifics employees would receive too small wage only the less productive employees are fired haven’t thought on the possibility other figure 2. reasons for not applying part-time employment in latvian enterprises, 2009 issn 1822-8402 european integration studies. 2010. no 4 12 most of the employers noted work specifics being the main obstacle for impossibility to reduce working time. however, taking into account the eu countries experience (part-time employment exceeds 40% in the netherlands) all the possibilities for restructuring working time in latvia has not been used. opinions for possibility to increase part-time work in latvia were gathered also in the inhabitants’ survey (persons’ aged 18-30). answering the question concerning their reaction in case employer applies them part time – 6% of the respondents working full time noted they would be satisfied with the offer, 36% would accept the offer and devote more time for studies, 7% indicated they would try to find another job, 46% answered they would try to find additional job. since most of the respondents noted that in case part-time employment is assigned, they would look for additional work or try to comprise the work with another one, adjustment of part-time work may not promote knowledge building. at the same time it is possible in case employees have expectations for possible carrier prospects in future. the authors consider the main problem for flexible working time and especially part-time increase in latvia is mostly related to the aspect of low wages employees would earn. evidence for this argument was got in frames of other inhabitants’ survey question. inhabitants were asked to note the main reason for high youth unemployment. even considering the persons work full time, results of factor analysis reflected the main reason for youth unemployment to be low wage levels. since the surveys were performed in summer 2009, when economic crisis in latvia was actual, wage factor was still noted to be the main one, despite expectations that reasons concerning current economic situation, lack of job experience or lack of education would be noted firstly. factor analysis is a statistical method used to describe variability among observed variables in terms of fewer unobserved variables called factors. the information gained about the interdependencies can be used later to reduce the set of variables in a dataset. the basic task of the factor analysis is to practically divide or form such k complex factors that are linearry dependant from the basic factors, but are not correlated within each other. it may be considered that initial r factors have been selected, out of whom k complex factors may be formed (r = 1, 2, ....., m, where k < m).basing on the afore mentioned complex factor model may be designed: k zij= ∑ lir fr+di ui , where [1] r=1 zij – i standartysed initial variable, fr – r complex factor, lir – i variable load on factor r di – i variable load on factor ui basing on the previous formula, the following model may be elaborated. k zij= ∑ lir frj+di uij, where [2] r=1 i=1, 2,...,m j=1, 2,...,m frj – complex factor fr value for the object unit j answers obtained in frames of the survey are reflected in table 2. table 2. reasons for young persons high unemployment levels in latvia, 2009 complex factors 1 2 3 low wage that doesn’t motivate young persons to search work ,711 -,143 -,244 lack of work experience -,055 ,221 ,737 state economic situation ,091 ,800 ,191 unwillingness of employers to pay adequate wages ,819 ,197 -,037 impossibility of employers to pay adequate wages ,667 ,066 ,374 uncompetitive education ,012 -,357 ,714 there are large possibilities for young people to find job in case they are really willing it -,006 -,716 ,163 as the result of factor analysis three complex factors may be driven concerning high unemployment levels of young people: wage factor (too low the wage offered); • state economic situation; • lack of education and job experience. • the authors don’t suggest the situation may be referred to all the young people in latvia; however draw attention to the trend and believe it may be attributed to people of other age groups as well – employees expect high wage, however employers consider employees often haven’t deserved it. apart from unemployment levels, number of persons leaving latvia for working in another countries providing higher salary levels should be considered. average salary levels in latvia are low at the same time increase in salaries in recent years was higher than increase in productivity levels (eurostat, 2010). issn 1822-8402 european integration studies. 2010. no 4 13 thus the authors believe flexible working time increase in latvia may have impact on many indicators – it may compensate the low salary levels, decrease unemployment level, provide free time for knowledge building (although the factor depends much on employees personal motivation), as well as increase productivity that often improves due to reduced working times. there are several possibilities for knowledge building via flexible working time, especially in case flexible working time is applied at current stage, until economic slowdown comes to an end: 1) employees who study in higher education institutions may use the reduced working times for devoting themselves more to studies, 2) promotion of knowledge building is supported by state institutions (state employment agency) allowing to participate in training courses for professional growth and life-long education of persons working part-time and being subject to unemployment threats for total value of 300 – 500 ls (approximately 430 – 710 eur), 3) in case person is interested in personal growth, adjustment of flexible (and especially reduced) working time may promote his own motivation for further knowledge building that may be used after economic development will start. taking into account the afore-mentioned the authors consider there is still space for flexible working time as well as knowledge building increase in latvia. the terms are widely united, since flexible working time allows increasing employees’ knowledge. the aspect should be used in the current situation, when working possibilities for number of persons are limited. knowledge building often result in higher productivity and salary levels, thus the current economic situation should be used for allowing higher financial returns in future. conclusions knowledge building and flexibility issues have • become an important tool for organisational development. they are supported both in theoretical research papers and in the eu and other international institutions planning documents. knowledge building and flexibility may be analysed both as self-contained and united terms. the authors believe the best results may be achieved within interaction process – flexible working time promotes knowledge building, and vice versa. knowledge building is a complex issue, not only • limited to education. the authors of the article consider knowledge building is may be applied to organisations in case learning of employees is coordinated and their knowledge gained is necessary for further organisation development. besides, the term may be referred to any kind of learning – attendance of university (and other higher education courses), attendance of lifelong learning courses, etc. employees in latvia often are not interested in • flexible working time since they consider salary levels in frames of flexible working contracts to be lower (it is really often the case). besides, employers find it difficult to adjust flexible working times due to work specifics and often even have not thought on the possibility. taking into account the world experience and • situation analysis in latvia the authors believe there are possibilities for increasing flexible working time. flexible working times would allow better possibilities for employees’ knowledge building that is actual in latvia as well. the authors don’t suppose flexible working time • in latvia will reach level of the netherlands (more than 40% of labour force is employed parttime), however believe employers should consider possibility for flexible working time application in their organisation. references alvesson, m. 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(2001), life long learning and evidencebased practice. in reviews in gynaecological practice, volume 1 (2), pp. 108 – 113. the article has been reviewed. received in april, 2010; accepted in may, 2010. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 18 european integration studies no. 13 / 2019, pp. 18-36 doi.org/10.5755/j01.eis.0.13.23550 abstract use of social network sites depending on the country of origin of the social network site user http://dx.doi.org/10.5755/j01.eis.0.13.23550 tom sander university of ludwigshafen, germany recent technological developments have determined that social network sites (snss) are also marketplaces to exchange information between members e.g. to inform individuals about new products or to cooperate with each other. such aspects of snss use are under the academic researchers’ interest worldwide. the strategy to create a market in snss for different countries can be successful if companies have a deep understanding of snss. that needs the investigation if mechanism in snss and the use of snss is similar world-wide. the aim of the research is to investigate how people use snss and to analyze reasons to use snss, as well as analyze differences of snss use depending upon the respondent’s country of origin. the tasks are to investigate similarities or differences in use of sns in different countries and compare results of sns use in germany (ger), latvia (lv), united kingdom (uk) and hungary (hu). the research methods applied are as follows: 1) theoretical studies in scientific publications and 2) analysis of survey data on sns use in germany, united kingdom, latvia and hungary. for evaluations there was used evaluation scale 1 – 6 which corresponds to the evaluation grades in german schools. the data is analyzed with main indicators of descriptive statistics, spearman correlation coefficient and partial least square calculations with warppls to investigate difference in use of social network sites between the countries. the intensity of use of snss is a kind of investment in snss e.g. time to share information. that can be defined as social capital. the main result of the current research is that the local conditions influence the global tool snss. keywords: social network sites; intercultural; social capital; use of social network sites. introduction biruta sloka faculty of business, management and economics, university of latvia the use of sns depends on the origin, gender and other demographic factors. this paper evaluates the differences in sns use between sns users in germany, united kingdom, latvia and hungary. the research question is to investigate how snss are used by individuals from different countries. the assumption is that the global snss are used by local individuals in different ways. the research investigates the behaviour of snss members from different countries. such an approach has been used already with good results and findings. there are already differences between social networks and social capital in different countries evaluated (beugelsdijk & van schaik, 2005). it is important for organizations to know more about the behaviour of individuals to use snss effectively and efficiently for the recruiting or marketing issues (li & bernoff, 2011; pentland, 2014). the research at hand concentrates on private snss. the business and private snss have different purpose, and their members provide different information depending on the kind of network. submitted 06/2019 accepted for publication 10/2019 use of social network sites depending on the country of origin of the social network site user eis 13/2019 19 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 the importance of snss in the society and economy is increasing. the sns can be used for many different issues, e.g. to cooperate with each other. the cooperation and use of snss creates values and benefits for individuals (m. granovetter, 2005; mayer, müller, & mayer, 2016). the operations and functions of snss provide many opportunities for their members. the different use of snss and innovation of the users creates new functionalities and advantages for snss members. the current research investigates snss to explore typical operations and functions. the answer of the research question is to compare and to explain the use of snss for different countries. that research is needed to provide solutions for organizations to use snss. snss have many opportunities for members. they can maintain their friendship, communicate with each other or share information. all this is easily and quickly possible world-wide with snss. the sns is used for local issues as well (sherif, hoffman, & thomas, 2006; bohn, buchta, hornik, & mair, 2014; haythornthwaite & kendall, 2010). that is the interesting issue to compare results of responses in four different countries with different cultural background. in general, social networks are used to exchange information and resources between individuals. snss are a kind of social networks. snss increase the opportunities to exchange or share information. the possible content is changing. today it is possible to exchange a new kind of content in real time between members of snss e.g. videos, audio or text messages. this constitutes a new channel for networks to organize social networks and the chance to forward information quickly and easily to a large audience (wilson, gosling, & graham, 2012). this benefits individuals. those opportunities of snss influence the social capital theory. the social capital theory is changing under those new circumstances (smith, 2008). the research explores the kind of investment in snss that influences the mechanism and operations at snss. the arrangements of the daily private life are an important part of snss. snss provide the opportunity to communicate with each other and to share information (teh, huah, & si, 2014). that support to structure and organize the daily life. the importance of snss for society is increasing and the number of members is growing. the snss provide many opportunities for members. the users are very creative and use this global tool in different ways. the snss have different operations and functionalities which can be used differently by the user. the intensity of use depends on the situation and environment of the individuals; examples of these factors might include origin, demographic factors and cultural background (pfeil, arjan, & zaphiris, 2009; sander, sloka, & teh, 2016). the behaviour at snss and use of snss is different, e.g. to share private information depends on the privacy awareness. the statement which is investigated conform the benefits for individuals to use snss. under consideration is the use of snss e.g. “duration of membership”, “time of use snss (in minutes per day)” and “number of contacts” depending on the respondent’s country of origin. the research evaluates if there are factors which influence the use of snss. the special topic for this paper is to compare different countries on differences and mutuality. the research results could be useful for the society and organizations which can use this knowledge to operate snss successfully and suitable to reach their objectives. the authors have discussed several aspects on use of sns in the article “differences in the exchange of contents of different countries in social network sites” (sander, sloka, & puke, 2017). as it is difficult to present all information in one article for this important and large topic, and additional aim of this paper is to provide further exploration into the topics discussed in the aforementioned article. the additional data provides deeper insights and further information about snss to provide a more detailed overview and to improve the knowledge about differences between countries to use snss. the collaboration depends on the origin of the user and this paper provides further deeper analysis of new data for snss and insights in operations of snss use habits depending of country. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 20 social networks are an important part of society. that is the bond of the society. the relationships between individuals create the social network. the social networks are part of the community. several aspects including trustfulness of snss are on research agenda of several scientists (dai, et al., 2014) including problems of companies communications with their customers as well as communication via social networks on research conferences (lee, brusilovsky, 2014). snss are large social networks based on an online platform or software which is accessible via the internet (boyd & ellison, 2007). sns provide additional chances and challenges on their use for new and innovative applications to increase efficiency of information exchange also in fields where some time ago mostly official channels were applied. the importance of sns is increasing and influencing the daily life of individuals. the sns creates ties between the individuals. the ties can be used to exchange and share information or resources (hampton & wellman, 2003). the relationships can be maintained and new relationships to individuals with interesting resources or information can be created. the exchange between the individuals without any borders is possible. the exchange is possible in real time, and the access to a large audience is readily available. snss offer different operations and functions that vary with the type of sns. two adequate examples are private and business snss. the difference between them is the purpose of the snss. private snss has the purpose to exchange information about hobbies or to organize leisure time for example. business snss have the task to create relationships with, e.g., customers or potential employees (sander, sloka, & pauzuoliene, 2015). the current research concentrates on the use of private snss. the demographic differences of the users influence the use of snss. research investigated differences on use of private snss between men and woman. that leads to the assumption that sns members from germany, latvia, united kingdom and hungary use snss differently (sander et al., 2017). those demographic factors explain the use of snss. the social capital theory can be used to explain the operations of snss. the theory declares mechanism in social networks and can be transferred to snss (ellison, steinfield, & lampe, 2007; ellison, vitak, gray, & lampe, 2014; sander & teh, 2014a). the structure of the social network is important for social capital. the access to an individual can have different levels of strength. the relationship determines the value, privacy or exclusivity of the information, for example. the tie in snss is differently from real social networks and can be more anonymous (granovetter, 1973; sander, 2012). social capital is the investment in snss for example intensity of use of snss or sharing resources or information. the obligations for the information and resources are the social capital. the return for the obligations can be received. the exchange of information depend on the norm of the snss – those aspects are analysed by several researchers (lin, 2001; gabher & könig, 2017). the opportunity to penalize wrong behaviour at snss is an important factor for the exchange of information and resources. the snss members expect obligations for their investment in snss. they have an advantage with their membership. that is the reason to be a member of the snss (boyd & ellison, 2007). the investment can be the time to use snss or the information which is provided. cultural differences influence social capital. the norms and regulations of a society support a quick transfer of information with low transaction costs for example. this border is needed in communities and societies to organize the daily life easily. hidden rules are not visible for a foreigner. the unknown rules and norms handicap foreigners’ ability to exchange resources easily (fussell, harrison-rexrode, kennan, & hazleton, 2006; scott & johnson, 2005; beugelsdijk & van schaik, 2005). the knowledge about the rules and norms of the community reduce transaction cost, provide a peaceful environment and support individuals to exchange resources and information. that is an advantage for sns members and explanation of the social capital theory. theoretical background 21 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 method to investigate social network sites results of analysis by descriptive statistics for the evaluations on question “what do you use private social network sites for?” the research used an online survey which has been distributed with support by university of ludwigshafen (germany), university of latvia (latvia) and obuda university (hungary). the survey has different parts, and this paper presents results on evaluations included in two questions with analysis of different aspects. the first question is “what do you use private social network sites for?” with several given options and with the scale to evaluate the analysed statements. evaluation scale is from one (for “always”) to six (for “never”). the second question is “why would you forward information on private snss?” with a scale from one (“for strongly agree”) to six (“for strongly disagree”). the investigation of this paper is to identify differences in responses between respondents from different countries and the survey questions support for the evaluation of snss. the evaluation scale used in the survey corresponds grading system in schools in germany. the participants from the united kingdom participated in the survey in november / december 2016. the participants from latvia received the link for the survey in may 2016. the german and hungarian participants received the link in october and november 2015. the research uses only respondents who have answered the question regarding their represented country with latvia, germany, united kingdom or hungary. the survey was organized in four countries by use of the same questionnaire. the answers from 73 latvian, 93 german, 68 british and 124 hungarian participants are used for the research. all participants speak german or english. the respondents are mainly young individuals under 40 years, with exception of the uk participants. the age distribution is explainable with the distribution of population of sns users in analysed countries. taking into account the analysed topics and population frame in the survey, the questionnaire was distributed mainly via universities. the respondents are experienced with private snss. most of respondents grew up with the internet and currently use the internet on a daily basis. among the representatives participating in the survey, gender distribution was: the respondents from latvia were 76.7% women, hungary had a distribution of respondents by 44.83% women, united kingdom had 29.4% female respondents and 40.65% of the german respondents were women. the first analysis is to compare median and mode to investigate the differences between the responses of respondents by different countries. the first descriptive statistical analysis is for the question “what do you use private social network sites for?” evaluations by respondents from germany and hungary have only one statement with similar mode and median. all other statements between respondents from germany and hungary are evaluated differently. evaluations by respondents from germany and latvia do not have any similar median. evaluations by respondents from hungary and latvia have three statements with the same median and mode. evaluations by respondents from united kingdom have two similar median and modes with hungary and one similar mode and median with latvia. the comparison of results between evaluations by respondents from the western european country germany and new european member (eu) countries latvia and hungary is an indication that the region of europe influences the use of snss. the two new eu member countries have more similarities in snss use with each other than with respondents from germany or united kingdom. the evaluations by respondents for item “organize groups e.g. sport groups, student groups etc.” have the same median and mode for evaluations by respondents from latvia, hungary and the united kingdom. that means this function is of interest and in use on the same level for those three countries. the descriptive statistics a various image on the behaviour at private snss for different countries. the presentation of information about themselves is evaluated differently by the participants depending on their represented country. the whole evaluation scale is used for evaluations for all analysed statements in all analysed countries. the most answers with positive tendency to “always” for analysed aspects have the latvian participants. the tendency of german participants with a e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 22 median of five provides the information that german people use less snss to present themselves in private snss. the hungarian participants, in their evaluation results, are between latvia and germany and they have a median of three of their evaluations. the results are clearer if the mode is compared between the different countries and support the tendency to “always”. german individuals vote with 68.81% on the last three stages and respondents from latvia have 61.6% on the first three stages of the evaluation scale. the search for information is an opportunity in private snss. the participants from latvia have the median 2 of their evaluations, which means they use snss very often to collect information. on the three first stages of the evaluation scale, representatives from latvia have 65.3%. respondents from germany did not use snss to collect information. the median is 4 and on the last three stages has evaluations by respondents from germany summarized 60.1%. the hungarian participants have the median three and do not have a clear tendency of their evaluations on extreme sides, in the direction of “always” or “never”. s ta tis tic in di ca to rs p re se nt o r sh ar e in fo rm at io n ab ou t yo ur se lf s ea rc h fo r in fo rm at io n c om m un ic at e w ith fr ie nd s e. g. to c ha t, w ri tin g m es sa ge s fo r a m us em en t or e nt er ta in m en t in flu en ce o th er in di vi du al s e. g. to ta ke p ar t i n an ev en t, to m ot iv at e so m eb od y fo r a pr oj ec t o r ta sk m ai nt ai n fr ie nd sh ip s o rg an iz e gr ou ps e. g. s po rt o r, st ude nt g ro up s et c. germany (n = 92 – 93) arithmetic mean 4.29 4.01 3.16 3.07 4.55 3.42 3.90 median 5 4 3 3 5 3 4 mode 6 5 1 and 2 2 6 2 6 standard deviation 1.57 1.61 1.75 1.68 1.43 1.65 1.66 range 5 5 5 5 5 5 5 hungary (n = 116 – 118) arithmetic mean 3.84 2.99 1.96 3.10 3.71 2.69 3.28 median 4 3 1 3 4 2 3 mode 4 3 1 2 4 2 3 standard deviation 1.35 1.50 1.34 1.36 1.34 1.39 1.65 range 5 5 5 5 5 5 5 latvia (n = 72 – 73) arithmetic mean 3.08 2.58 1.82 2.36 3.58 2.66 3.26 median 3 2 1 2 3 2 3 mode 2 1 1 2 3 2 3 standard deviation 1.46 1.53 1.14 1.14 1.58 1.60 1.71 range 5 5 4 5 5 5 5 united kingdom (n = 67 68) arithmetic mean 3.34 3.53 2.29 3.06 3.84 2.46 3.63 median 3 3 2 3 4 2 3 mode 3 3 1 3 6 1 3 standard deviation 1.599 1.616 1.372 1.515 1.608 1.520 1.674 range 5 5 5 5 5 5 5 table 1 main statistic indicators of descriptive statistics for respondent’s evaluations on analyzed statements for the question “what do you use snss for?” source: calculated by tom sander, evaluation scale 1-6, where 1 always, 6 never 23 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 the use of snss as a communication tool is positively rated by latvian and hungarian participants, with a median of one compared with the other countries. the hungarian participants answered with 85.5% and latvian participants with 90.4% on the first three stages on the evaluation scale. the german respondents have evaluated with values mainly forming a normal distribution for this item; this stands in contrast to the biased distribution toward “always” among the participants from latvia, united kingdom and hungary. the result of the german participant evaluations for this item is with the median three. the use of private sns to communicate has the second largest similarity in evaluations by respondents from different countries. results of survey indicate that participants’ use of private sns for amusement or entertainment has, for all four countries, a tendency to “always”.survey respondents have indicated that they use private sns to be entertained. evaluations of survey respondents by german and hungarian participants have the median three and two of the evaluations. the latvian participants have a median and mode of two of their evaluations. hungarian participants voted with 62.6%, german participants have 66.1% on the first three stages of the evaluation scale and latvian individuals have 84% on the first three stages of the evaluation scale. that means the majority of latvian respondents use private sns for amusement or entertainment. the chance to use snss to influence other individuals has mainly a tendency to never (according the evaluations and taking into account the evaluation scale). german respondents have a median five and mode six of their evaluations. the german respondents have selected 70.5% on the last three stages of the evaluation scale, which indicates a clear tendency not to use snss to influence another person. the hungarian participants have median and mode of four of their evaluations. the users of private snss from latvia have mainly agreed with the statement with their evaluations with a median and mode of three. this is a tendency and provides the information that people from latvia mainly use private snss to influence other snss member compared between the three other countries included in analysis. the largest similarities in evaluations of respondents have the evaluations on “use of private snss to maintain friendship”. the median of two are for evaluations by respondents from latvia, united kingdom and hungary and mode two are for evaluations by respondents from latvia, germany and hungary – this strongly suggests that this is the main factor to use snss. the respondents from united kingdom have evaluated four items with mode and median three. there is not a strong tendency but the general tendency for evaluations by respondents is to always. the two statements which are more positively rated by respondents are “communicate with friends” and “maintain friendship” with evaluations by respondents with median two and mode one. the result for the evaluations by respondents from united kingdom provides the result that the sns is more used as a communication tool and to organize social connections compared with the other functionalities of snss. the maintenance of relationships is an important factor for the social capital. the tie is the value of the sns for the sns member and has to be maintained as well as possible. that is an indicator for the social capital theory (ellison, et al 2014). the creation of the network is important for the user of private snss and there are only small differences in the results between the four countries. that means latvian, british and hungarian individuals more often use private snss to organize groups than german individuals. the results of the analysis in detail are presented in table 1. the differences in evaluations of respondents and mutuality are already visible with the analysis of indicators of central tendency or location and provide first insight in the operations and use of snss. the benefits of snss are presented in the results and provide several aspects of reasons why people use snss. this explains the reason to use sns as a tool for daily needs or desires. this information can be used by companies to reach the target audience and to transfer information quickly and easily with a successful and desired result to individuals. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 24 the descriptive statistics provide a first tendency and overview about the results for the question “why would you forward information on private social network sites?”. although in all analysed countries the whole evaluation scale is covered for all explored statements, the tendency of the median results of the german and british respondent evaluations are obviously more extreme to full agreement and full disagreement than the results of the respondents from latvia and hungary. the evaluations of latvian and hungarian respondents have a tendency to the middle of the scale. the evaluations by british respondents have two times a median of three, three times a median of four, and one time a median of two and five. german respondents tend to strongly disagree for median, two times median 4, once 5 and once 6. the results for the respondent evaluations by mode are similar compared with the results of the respondent evaluations by median. evaluations of hungarian respondents have five times for the analysed statements the median three, one time the median two and one median of four. the evaluations by latvian respondents have three times the median three, two times the median two and one time the median four. that is the first indication that there are differences and similarities between the countries. table 2 indicators of descriptive statistics for the evaluated aspects on question “why would you forward information on private social network sites?” source: calculated by tom sander, evaluation scale 1 – 6, where 1 strongly agree; 6 strongly disagree results of analysis by descriptive statistics for the evaluations on question “why would you forward information on private social network sites?” s ta tis tic in di ca to rs i c ol le ct ed p os iti ve ex pe ri en ce w ith fo rw ar di ng in fo rm at io n m y in fo rm at io n is vi si bl e fo r a la rg e au di en ce i e xp ec t o bl ig at io ns in fu tu re fo r m y in fo rm at io n m y fr ie nd s on p ri va te s n s s ar e ni ce an d i w ou ld li ke to do th em a fa vo r i h av e an a dv an ta ge w ith th e tr an sf er o f i nf or m at io n s om eb od y el se ha s an a dv an ta ge w ith fo rw ar di ng th e in fo rm at io n it is p os si bl e to in fo rm p eo pl e w or ld w id e in a fa st an d ea sy w ay germany (n = 91 – 92) arithmetic mean 3.98 3.25 5.38 3.73 4.42 3.88 2.65 median 4 3 6 3 5 4 2 mode 4 1 6 3 6 6 1 standard deviation 1.49 1.85 1.13 1.56 1.55 1.69 1.66 range 5 5 5 5 5 5 5 latvia (n=72 73) arithmetic mean 3.29 3.05 3.75 2.75 3.38 3.07 2.03 median 3 3 4 2,5 3 3 2 mode 3 1 3 1 and 2 4 3 1 standard deviation 1.33 1.73 1.51 1.52 1.38 1.43 1.23 range 5 5 5 5 5 5 5 hungary (n=115 117) arithmetic mean 3.43 3.67 3.43 3.29 3.28 3.26 2.64 median 3 4 3 3 3 3 2 mode 3 2 3 3 3 3 2 standard deviation 1.34 1.45 1.30 1.41 1.28 1.27 1.40 range 5 5 5 5 5 5 5 uk (n=65 – 66) arithmetic mean 3.56 3.77 4.65 3.26 4.00 3.92 2.70 median 3 4 5 3 4 4 2 mode 3 2 6 3 3 3 1 standard deviation 1.337 1.606 1.363 1.281 1.468 1.429 1.569 range 5 5 5 5 5 5 5 25 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 the main reason to use private snss is the opportunity to inform people worldwide in a quick and easy way. evaluations by latvian and german respondents have a median of two and mode of one. this confirms that the transfer of information is a reason to use snss which corresponds also to other research results conducted already some time ago (adamic, 2001). the evaluations by hungarian respondents have a median and mode of two. evaluations of respondents from all countries have mode and median of one or two for this item compared with all other items is that the item with the strongest tendency in evaluations by respondents to full agreement in the evaluation scale. the evaluations by respondents for items “i collected positive experience with forwarding information” and “somebody else has an advantage with forwarding the information” have the median and mode of three for evaluations by latvian and hungarian individuals. they are more positive in their evaluations than the evaluations by german participants with mode and median of four for the item “i collected positive experience with forwarding the information” and the mode of four and median of six for the item “somebody else has an advantage with forwarding the information”. that means there is a difference in the results of analysis by indicators of descriptive statistics between evaluations by respondents from germany and united kingdom as a western country and evaluations by respondents from latvia and hungary as new eu member countries. the results of responses by respondents for the item “my information is visible for a large audience” have the median three and mode one for latvian and german respondents. the results for the evaluations by hungarian respondents have median four and mode two. the other case is – evaluations for item “my friends on private snss are nice and i would like to do a favour” has the median and mode three for german and hungarian responses. the median for evaluations by latvian respondents is 2.5 and mode is one and two. it means that they are the most often made evaluations by respondents. this provides an indication that the result cannot generalize differences between new eu countries, united kingdom and germany. the differences between the median of the countries is very small and the mode compared between hungarian and german with latvia’s responses has a gap. latvia’s respondents’ replies tend to more strongly agree in comparison with hungarian and german respondents. the origin of the individuals is an important factor. that can explain the differences in evaluations by respondents between the countries. the results of evaluations for the items “i expect obligations in future for my information” and “i have an advantage with the transfer of information” have only small similarities in the results for the evaluations by respondents from different countries. that means that those two items present the largest difference between the evaluations by respondents from different countries but evaluations by respondents from latvia and hungary are more similar compared with evaluations by respondents from germany. evaluations by respondents from germany have the strong tendency for both items to strongly disagree e.g., the result for evaluation with six (strongly disagree) by respondents from germany for “i expect obligations in future for my information” is 66.3%. the comparison between the countries provides the result that there are clear differences between the countries for those two items. the results in detail are presented in table 2 as it was mentioned before. correlation between investment in and use of snss the influence of the investment in snss on behaviour is tested with a spearman correlation analysis. the spearman correlation analysis is selected to analyse the correlation coefficient between the ranks in statements and ranks on use of snss. the collected data have mainly an ordinal scale that requires a spearman correlation analysis. the investment is “time to use snss per day”, “duration of membership” and “number of contacts”. former research findings that this factor describes and explains the use and operations of snss are accounted for here. the factors are measurable and constitute a kind of investment in snss (williams, 2007; burdine et al., 1999; healy, 2002). the time is the investment in the private snss and an indicator of the involvement of individuals in private e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 26 snss (tronca, 2011). the duration of membership has two significant correlation coefficients for the respondents from latvia. the two items are “present or share information about yourself” and “maintain friendship”. the history and knowledge about networks influence the behaviour of latvian individuals negative to present or share information about them self or to maintain their friendship. the results of the calculation are presented in table 3. the interesting point is that only the participants from latvia are influenced by the duration of membership. all other countries do not have a significant correlation for this item. the history is an important factor for the trust in a social network and the result can be that people in latvia reduce their trust depending on the duration of membership in sns. this phenomenon appears only for “membership in years”. the “use in minutes per day” and “number of contacts” influences more than one country. the number of contacts is an indicator about the density of the network and importance of the network for private sns member (burt, 2000). the surprising result is that all values for the correlation coefficient are negative. that means people with many contacts use the private snss differently compared with member who have only a few friends. the number of contacts is the only variable with a significant correlation coefficient for hungarian respondents. present or share information about yourself maintain friendships country lv lv spearman correlation coefficient -0.319 -0.262 sig. (2-tailed) 0.008 0.031 table 3 results of significant spearman correlation coefficients for “membership in years” and the statements for the question “what do you use private social network sites for?” (included only statistically significant results) source: calculated by tom sander based on survey data, n=68 communicate with friends e.g. to chat, writing messages present or share information about yourself for amusement or entertainment organize groups e.g. sport or student groups etc. country hu ger lv ger ger ger spearman correlation coefficient -0.25 -0.31 -0.35 -0.25 -0.25 -0.38 sig. (2-tailed) 0.007 0.01 0.003 0.03 0.03 0.00 table 4 results of significant spearman correlation coefficients between the statements and “number of contacts” for the question “what do you use private social network sites for?” source: calculated by tom sander based on survey data, hu: n = 110, lv; n = 68; ger: n = 75 the item to communicate with friends has a small negative correlation with hungarian and german respondents. the preference to share information about himself/herself has a small significant negative correlation for latvian and german individuals. that means this item is negatively correlated with number of contacts and history of membership from the latvian respondents. the item “for amusement or entertainment” and “organize groups” has a negative statistically significant correlation with reasonable significance level for german individuals. the results in detail are presented in table 4. regarding comparing the differences in evaluations of respondents between the countries, it is clear that the use of sns measured “number of contacts” has more influence on the behaviour of german user. 27 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 the “time of use of snss (in minutes per day)” has the most items with a significant correlation coefficient and all countries are influenced. that means the influence on the items is mainly explainable with the time per day which is invested in the network. all items with significant spearman correlation coefficients are negative. the use of snss by uk participants is two times influenced by “time of use of snss (in minutes per day) and the german individuals are six items influenced by “time of use of snss (in minutes per day). all other countries do not have a statistical relevant result to use snss influenced by “time of use of snss (in minutes per day)”. the latvian respondents’ use of snss is influenced three times by “time of use of snss (in minutes per day)”. the factor “time of use of snss (in minutes per day)” is the only factor with a significant spearman correlation coefficient for the use of snss by uk respondents on a statistical relevant level compared with the factors “number of contacts” and “duration of membership”.. evaluations by respondents from germany and latvia have three times the same statements with a significant spearman correlation coefficient. the statement “search for information” has the spearman correlation coefficient of -0.42 for respondents from latvia and -0.43 for respondents from germany. the second statement is “communicate with a friend” has the spearman correlation coefficient -0.36 for latvian respondents and -0.39 for german respondents. the results of evaluations by respondents for these two statements are very similar. the social factor “use in minutes per day” has a similar influence for german and latvian respondents. the third item which is the only one with three countries (germany, latvia and united kingdom) is “influence other individuals” with spearman correlation coefficient -0.33 for latvian, -0.427 for british and -0.22 for german respondents. the gap between these two correlation coefficients is more than for the before mentioned two spearman correlation coefficients. this is an indication that there are similarities in the use of snss between german and latvian respondents under consideration of the use of snss. the results in detail are presented in table 5. s ea rc h fo r in fo rm at io n c o m m u ni ca te w it h fr ie nd s e. g . t o c ha t, w ri ti ng m es sa g es in fl u en ce o th er in di vi du al s e. g . to t ak e pa rt in a n ev en t, t o m o ti va te so m eb o dy f o r a pr o je ct o r ta sk p re se nt o r sh ar e in fo rm at io n ab o u t yo u rs el f f o r am u se m en t o r en te rt ai nm en t o rg an iz e g ro u ps e. g . s po rt g ro u ps , st u de nt g ro u ps e tc . m ai nta in f ri en dsh ip s country lv ger lv ger lv ger uk ger ger uk ger ger spearman correlation coefficient -0.42 -0.43 -0.36 -0.39 -0.33 -0.22 -0.427 -0.41 -0.49 -0.345 -0.36 -0.46 sig. (2-tailed) 0.00 0.00 0.002 0.00 0.004 0.04 0.00 0.00 0.00 0.004 0.00 0.00 table 5 results of significant spearman correlation coefficients between the analyzed statements and “use in minutes per day” for the question “what do you use private social network sites for?” source: calculated by tom sander based on survey data, lv: n = 68; ger: n = 75; uk n = 58 the “time to use sns (in minutes per day)” is another social factor to explore snss. the time to invest in snss is a kind of social capital (sander and teh, 2014; paldam, 2000). the “time of use of snss (in minutes per day)” has the largest number of significant correlation coefficient to explain the behaviour of individuals at snss. there does not exist any item which is influenced by “time of use of snss (in minutes per day)”, “number of contacts” and “membership in years” by the country. the correlation coefficient presents the result that it does not exist a general rule e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 28 that a factor, country or item influence each other on a statistic relevant level. only “present or share information about yourself” is for respondents from germany and latvia influenced from two factors with a significant correlation coefficient. the item “communicate with friends” is influenced by two factors for respondents from germany and latvia. the german individuals are mainly influenced by the analysed factors and have the highest number of significant spearman correlation coefficients. the amount of factors with a relevant statistically significant spearman correlation varied between the countries. for respondents from latvia there were the most factors and hungary had only one factor with a statistically significant spearman correlation coefficient. the results present the information that the use of snss influences the items depending on the respondent’s country of origin. those results are indicators that there are differences in the use of snss to receive benefits from snss use. comparing social capital indicators and motivators to forward information i e xp ec t o bl ig at io ns in fu tu re f o r m y in fo rm at io n i h av e an ad va nt ag e w it h th e tr an sf er o f in fo rm at io n it is p o ss ib le t o in fo rm p eo pl e w o rl dw id e in a fa st a nd e as y w ay m y in fo rm at io n is v is ib le f o r a la rg e au di en ce m y fr ie nd s o n pr iv at e s n s s ar e ni ce a nd i w o u ld lik e to d o t he m a fa vo r country hu hu hu uk uk lv spearman correlation coefficient -0.197 -0.209 -0.257 -0.317 -0.276 -0.277 sig. (2-tailed) 0.039 0.029 0.007 0.015 0.036 0.022 source: calculated by tom sander based on survey data, hu: n = 110; lv: n = 68; uk: n = 58 table 6 spearman correlation (included only statistically significant results) between “number of contacts” and analyzed items for the question “why would you forward information on private social network sites?” the first result for the factor “number of contacts” has only significant correlations for evaluations by respondents from hungary, united kingdom and latvia. a significant correlation does not exist for evaluations by respondents from germany. there is not any statement which is influenced by the number of contacts for evaluations by respondents from latvia and hungary, the statements influence only one country separate. the evaluations by respondents from united kingdom has “my information is visible for a large audience” and “it is possible to inform people worldwide in a fast and easy way” as statistically relevant results. the item “it is possible to inform people worldwide in a fast and easy way” is the only item for the factor “number of contacts” with statistical relevant results for evaluations by respondents from hungary and the united kingdom. that means the number of contacts do not have conformity between evaluations by respondents from latvia and hungary. the evaluations by respondents from hungary have three evaluated statements which are influenced by the number of contacts, evaluations by respondents from united kingdom has two evaluated statements and evaluations by respondents from latvia has only one evaluated statement which is influenced by the number of contacts. that means the number of contacts is obviously a more important factor for hungarian individuals compared with latvian, united kingdom and german respondents. the results of the significant correlation coefficient are all with negative sign. the results in detail are presented in table 6. the analysed statement “duration of membership in years” is important only for german respondents. latvian, british and hungarian respondents are not influenced by “the duration of membership”. the factor has only significant correlation coefficient with the statement “i have an advantage with the transfer of information”. 29 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 this statement is the only statement which is influenced by all three analysed factors of social capital. it is significantly correlated with “number of contacts” in sns and respondents from germany. other significant correlation coefficients with german respondents is the “time of use sns per day”. that means this item is the only one that is mentioned in relation to all three analysed factors for two different countries. i c o ll ec te d po si ti ve ex pe ri en ce w it h fo rw ar di ng in fo rm at io n m y fr ie nd s o n pr iv at e s n s s ar e ni ce a nd i w o u ld lik e to d o t he m a fa vo r m y in fo rm at io n is v is ib le f o r a la rg e au di en ce i h av e an ad va nt ag e w it h th e tr an sf er o f in fo rm at io n s o m eb o dy e ls e ha s an a dv an ta g e w it h fo rw ar di ng th e in fo rm at io n country lv ger uk lv ger ger uk lv lv spearman correlation coefficient -0.40 -0.37 -0.255 -0.260 -0.39 -0.281 -0.348 -0.258 -0.323 sig. (2-tailed) 0.00 0.00 0.039 0.026 0.000 0.006 0.004 0.028 0.005 source: calculated by tom sander based on survey data ger: n = 77; lv: n = 68; uk: n = 58 table 8 spearman correlation coefficients (included only statistically significant results) between “use in minutes per day” and the statements regarding motivation to exchange or share information for the question “why would you forward information on private social network sites?” i have an advantage with the transfer of information spearman correlation coefficient -0.301 sig. (2-tailed) 0.008 source: calculated by tom sander based on survey data, ger: n = 77 table 7 spearman correlation (included only statistically significant results) between “duration of membership in years” and the statement “i have an advantage with the transfer of information” for the question “why would you forward information on private social network sites?” the last analysed factor is the “time of sns use (in minutes per day)”. this factor has the most influence on the statements evaluated by respondents regarding the reason to use private sns to exchange and share information. the analysed factor influences evaluations by respondents on the reason to use snss for respondents from germany, latvia and united kingdom. the reason of use of sns “i collected positive experience with forwarding information” has a statistical relevant correlation coefficient for respondent evaluations from germany, united kingdom and latvia. in total there are five analysed items which are influenced by the “time of use of snss (in minutes per day)”. the largest influence on german, british and latvian respondents has the factor “time of use snss (in minutes per day)” with three factors for german respondents, two factors for british participants and four factors for latvian respondents. the evaluations by hungarian respondents do not have any significant correlation coefficient for this factor. they have three statements influenced by the factor “number of contacts”. all significant correlation coefficients for those factors are negative and results are included in table 8. the statistically significant spearman correlation coefficients with reasonable significance level are all negative. that means that the investment of time and number of contacts influence the intensity to use private snss. the spearman correlation analysis provides the general result that individuals in different countries differ in their use of snss. the use of snss is influenced by the invested time to use sns and efforts to maintain relationships e.g. to provide resources or information to other members. there are many reasons to use snss, but the investigated reasons have all a negative significant correlation coefficient. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 30 the data is tested with the software warppls to investigate the influence of the use of snss on the kind of information which is shared and exchanged on private snss. the indicators for the use of snss are duration of membership, number of contacts and time to use snss per day. the first analysed question is “why would you forward information on private social network sites?”. the indicators are “i collected positive experience with forwarding information”, “my information is visible for a large audience”, “my friends on private snss are nice and i would like to do them a favour”, “i have an advantage with the transfer of information”, “somebody else has an advantage with forwarding the information” and “it is possible to inform people worldwide in a fast and easy way”. the model is created as recommended by kock (kock, 2013) to estimate the relationship between the use of snss and the shared information content (kock, 2011; kock, 2010). average path coefficient (apc) average r-squared (ars) average adjusted r-squared (aars) average full collinearity vif (afvif) tenenhaus gof nonlinear bivariate causality direction ratio (nlbcdr) ger 0.167, p=0.024 0.028, p=0.197 0.017, p=0.217 1.002 0.135 0.5 hu 0.096, p=0.076 0.009, p=0.231 0.000, p=0.250 1.004 0.070 0.5 lv 0.175, p=0.030 0.031, p=0.198 0.017, p=0.221 1.002 0.115 1 uk 0.211, p=0.017 0.044, p=0.178 0.030, p=0.201 1.000 0.172 0.5 source: source calculated by tom sander table 9 results for warppls for germany, hungary, latvia and united kingdom, apc, ars, aars, afvif, tenenhaus gof and nlbcdr to analyze the differences between the countries analysis of the difference between countries with warppls use of snss benefits to share information figure 1 estimation of the influence of “use of snss” on “share and exchange of content” at snss to investigate the differences between countries in the use of snss for the question, ”what do you use private social network sites for?”; source: authors construction the average full collinearity variance inflation factor (vif) should be ideally <=3 and all countries fulfil the requirement. the tenhaus gof has different ranks. the lowest level with small is >= 0.1, medium >= 0.25 and large >= 0.36. the tenhaus gof for germany and latvia is small the united kingdom is on a medium level and for hungary below small. the result for all countries for sympson´s paradox ratio (spr), r-squared contribution ratio (rscr) and statistical suppression ratio (ssr) fulfil the requirements and have the value one. latvia has nlbcdr of 0.5 that is not ideal because the value should be above of 0.7 to be acceptable. in general, the statist values are weak, but the results once again present a difference between the nations. the results are presented in table 9. the results confirm the differences in the evaluations of the explored statements between the countries and provide an indication how the use of snss influences the behaviour to share information via snss. the results explain a relationship between use of snss and benefits to share information. this indication would be of interest for future research. the influence on the use of snss and to share or exchange of information depends on the culture. united kingdom has the largest r-squared with 0.132 and highest path coefficient with 0.363. hungary has the lowest 31 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 ars with 0.009 and apc of 0.096. latvia has the second largest apc with 0.203 and ars of 0.041. germany comes in at third place with apc 0.148 and ars 0.022. the second analysed question is “what do you use snss for?”. the indicators are “present or share information about yourself”; “search for information”; “communicate with friends”; “for amusement or entertainment”; “influence other individuals”; “maintain friendship” and “organize groups” discussion of the results all countries fulfil the vif requirements. the tenhaus gof for germany (0.121) and latvia (0.131) is small, the uk (0.435) is on a medium level and for hungary (0.093) below small. the result for all countries for sympson´s paradox ratio (spr), r-squared contribution ratio (rscr) and statistical suppression ratio (ssr) fulfil the requirements and have the value one. latvia and germany have nlbcdr of 0.5. this is not ideal, since the value should be above 0.7 to be acceptable. in general, the statistic values are weak, but the results once again present a difference between the countries of respondents. the results are presented in table 10. average path coefficient (apc) average r-squared (ars) average adjusted r-squared (aars) average full collinearity vif (afvif) tenen-haus gof nonlinear bivariate causality direction ratio (nlbcdr) ger 0.159 (p=0.028) 0.025 (p=0.201) 0.015 (p=0.222) 1.002 0.121 0.5 hu 0.151 (p=0.026) 0.023 (p=0.203) 0.014 (p=0.222) 1 0.093 1 lv 0.205 (p=0.016) 0.042 (p=0.179) 0.029 (p=0.201) 1.001 0.131 0.5 uk 0.603 (p<0.001) 0.397 (p<0.001) 0.388 (p<0.001) 1.007 0.435 1 source: calculation by tom sander table 10 results for warppls for germany, hungary, latvia and united kingdom, apc, ars, aars, afvif, tenenhaus gof and nlbcdr to analyze the differences between the countries use of snss benefits for sns member figure 2 estimation of the influence of “use of snss” on “share and exchange of content” at snss to investigate the differences between countries in the use of snss for the question “why would you forward information on private social network sites?”; source authors construction the results confirm the differences of responses between the countries. the influence on the benefits of snss depends on the respondent’s country of origin. united kingdom has the largest aars with 0.388 and highest path coefficient with 0.603. the lowest aars has hungary with 0.014 and apc of 0.151. latvia has the second largest apc with 0.205 and ars of 0.029. germany is on the third place with apc 0.159 and ars 0.015. in general, presents the data the result that the use of sns influences the benefits of the user. the research presents differences and similarities between european countries to use private snss. the statement is tested with different methods and present differences and similarities between countries. the first question analysed is “what do you use private social network sites for?”. there are more similarities between respondents from latvia and hungary compared with similarities with ree u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 32 spondents from germany. the results of sns use in new eu countries are more similar in their results. however, all countries have differences and the use of snss depends on the location of the user. this is a strong result of the research and confirms former research. respondents from germany seem to be more reserved towards the usage of snss overall. people in hungary and especially in latvia are more willing to use snss for different kind of communication and search. it might imply that information transfer via snss for companies could be more successful in the united kingdom, latvia and hungary, rather than in germany. the snss are mainly used to maintain friendship. all responses by respondents from four countries have a positive tendency to use snss to maintain their relationships and to use private snss to get in contact with their friends. organizations, when choosing snss as communication tool to convey their advertising messages must take into account that too frequent or too aggressive advertising may create negative effect. advertising messages should not be disturbing when users are communicating with friends and other members. in addition, the extent to which sns creators allow daily advertising must be taken into consideration, particularly with respect to the preference of sns users. snss might start losing their members as a result of excessive advertisement. warppls support the result that there are differences between the evaluations by respondents from different countries. the use of snss has different influence on the benefits of snss. but the results are weak and, for hungary, the result does not fulfil the gof. that has to be considered with the interpretation of the results. the countries are mainly different, and organizations cannot use a global strategy in general for a local market. the results explain that the countries have different preferences to use snss. the private snss can be used for different purposes e.g. for marketing campaigns, but the campaign has to be customized for the country to be successful. the acceptance and use of snss is fractional explainable with the social factors. the results of the significant correlation coefficients between the different social factors e.g. social status and countries have a variance. that means the influence on the use of snss depends on the social status and origin differently. individual’s anticipation of the benefit of snss is influenced by the respondent’s country of origin. there are different variants between the countries but there is not visible structure to summarize different countries in one group. this would require further research and more countries involved. to generalize the results, the research in further countries is needed to investigate deeper the similarities and differences between the regions to provide more accurate advice to social science, companies and other stakeholders. the initial result is that the origin influences the use of private snss. the social factors have different consequences depending on the countries. the social capital influences the use of snss differently. organizations need more knowledge about snss to be more successful. further research is needed that organizations can use private snss as a global tool to generate more business or the use of snss as a marketplace. the second evaluated question is “why would you forward information on private social network sites?”. the main reason for all respondents independent from their country of origin is that snss provide the opportunity to transfer information quickly and easily with the tendency in evaluations of respondents to strongly agree. the respondents for all countries have this item evaluated on median one or two. the reason to have an advantage or to get obligations is not as important for german respondents compared with the other items. they rated those two items with the tendency of their evaluations to strongly disagree compared with respondents from latvia and hungary. the influence of the investment in private snss is various. the factor “time of sns use (in minutes per day)”, “number of contacts” and “duration of membership” has a different level of influence on 33 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 conclusion and recommendations the statements. the factor significant correlation coefficient depends on the country. that means there does not exist a kind of investment in social capital that general influence the motivation to share or exchange information. the countries are influenced by different factors. some of the items are not influenced by the factors of social capital. only the statement “i have an advantage with the transfer of information” is influenced by all three factors, use of snss in minutes per day, duration of membership and number of contacts, but the significant correlation coefficient is only valid for two different countries. the result is that the influence of social factors only partially depending on the country affects the motivation to use snss for sharing and exchanging information. an effectual universal social capital factor for all countries and statements does not exist. the research requires for further investigations more factors which influence the use of snss. the result of the research is important for organizations. the knowledge about motivation to forward information at private snss can be used by organizations. the organizations need this knowledge in order to motivate their employees to forward information about open positions, for example. furthermore, we see here how the use of snss influence the motivation of snss member to forward information. the influencer of the motivation depends on the location and is different between the countries. the activities to influence the motivation to forward information via snss are different. organizations need a local strategy for countries because the results present large differences between the countries. although snss are certainly global tools, companies must employ effective local strategies to make best use of them. marketing departments and communication theories have to take into consideration the results of the statistical results presented here to optimize the transfer of information in private snss worldwide. for example to concentrate on leisure time and entertainment related content for private snss. this kind of content is accepted by respondents from all countries. another point is that the awareness of having the advantage of the ability to quickly and efficiently forward information is not recognized on the same level by all countries. that means the motivation to transfer information depends on the advantage which is perceived for the transfer. the advantage can be the access to information and to receive support of other snss member. this advantage influences the behaviour of snss users. the borders in private snss still exist, and the private sns needs a local customized strategy that organizations are successful in the use of snss. snss providers have to be aware that the motivation to use their product to forward information depends on the user’s origin. the research explains that there are differences and similarities between the countries which have to be considered. the use of snss as a communication tool is mainly accepted by british, german and hungarian snss member. latvian individuals do not have the same positive tendency in their evaluations than the evaluations by respondents from other analysed countries. people from latvia, uk and hungary use snss more intensively to search information than german respondents. there is the same situation with the opportunity to present themselves in private snss. for this item, is the tendency stronger than for the statement before. the results of evaluations by respondents for both statements are similar with their results. that is important to know for companies, because the use of snss as a tool to share and exchange information is needed to transfer content between the individuals. that can influence the communication strategy of the marketing department for example. the use of the private snss for entertainment and amusement is very important and a typical behaviour of snss user. the results for all countries are very next. that means all four groups use private snss for their leisure time. they use snss to be entertained. that can be important information for companies which produce entertainment software for private snss for example. the private snss can be used cross border as a platform to distribute the software. the respondents of all four countries have agreed that snss are a good place for entertainment and amusement on a similar level. the result has to be e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 34 references adamic, l. a. 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(2012). a review of facebook research in the social sciences. perspectives on psychological science, 7(3), 203-220. https://doi.org/10.1177/1745691612442904 about the authors tom sander university of ludwigshafen address ernst boehe str. 4. 67059 ludwigshafen germany e-mail: tom.sander@hotmail.de biruta sloka dr. oec., prof. university of latvia fields of interests public administration, social inclusion, data analysis address raiņa blvd. 19, rīga, lv-1586 +371 29244966 e-mail: biruta.sloka@lu.lv 134 issn 1822 – 8402 european integration studies. 2009. no 3 economical and regional development irish state development example for peripheral european union states baiba rivža sanda čingule latvia university of agriculture, faculty of economic abstract in baltic states, since the 90’s of the last century, when was getting independent of state’s, attention is increasingly paid to country’s regional development and problematic of economical potential. worldwide, in european union and so in latvia the features of ongoing socioeconomic crisis make draw attention to activization around decentralization and focus on questions of regional development more intensively, particularly on search of solutions for research and analysis of a more efficient economical potential and its use in regions and counties. economical development is the goal not only in estonia, latvia and lithuania, but also worldwide, in particular, in peripheries, in ulterior territories of countries – in regions. economic growth of regions and municipalities depends on several factors. one of the most important core factors is reasonable use of the economical potential, using the opportunities of increasing financial capital, attraction of investments to the administrative territory of the municipality or increased economical potential. regions and counties economic potential mostly depends on actions and activities of the certain county, how well organized, strategically farreaching and reasonable the available nature, infrastructure , financial, social and other resources are used. example of state ireland verifies that approximately during the past 25 years the state has carried out very proper macroeconomical policy, remarking also the fact that many countries had the favourable conditions, but not all of them were able to use them. state of ireland can be mentioned as a positive state economical and regional development example, as it is also located in remote part of europe, nevertheless with help of a proper macroeconomic policy and ability to create favourable economical relations with other countries (also outside eu), it is one of the most developed countries in eu. in ireland’s development period three main directions of economical policy can be marked: fiscal stabilization, open conditions of trade and investments, and industrial policy that also applies to attraction of foreign investments (especially in it sphere). irelands experience witnesses that participation in eu has given additional potentialities for economical and regional development. it ensured increase of investments and capital flow, new work places, greater stability and wherewith higher welfare. to great extent success of this state depended on the way it used the eu offered opportunities. ireland is one of economically most developed, industrial and trade-oriented countries, which till now was able to use the eu structural funds resources most effective. the resources that were gained from eu support funds have considerably stimulated state’s economical growth. the stress has to be made on the ability to pass the projects successfully and to make the national development plan successfully, which is the core document to gain funding. baltic states could learn from ireland’s economical and regional development example how to develop its relations with other countries concerning economical issues. the experience of eu countries has proved – the stronger the municipality and regions, the bigger the chance of regional development. effective municipality reforms stimulate regional development, however, each regional development policy has at least two aspects – economic and social. statement question of regional development policy is on the base of choice of regional development instruments. state’s determined, chosen instruments outline and define the regional policy outlook of every certain state. keywords: regional development, regional policy, regions, economical potential. introduction in baltic states since the 90’s of the last century, attention is increasingly paid to country’s regional development and problematic of counties’ economical potential. worldwide, in european union and so in baltic states too, the features of ongoing socioeconomic crisis make draw attention to activization around issn 1822-8402 european integration studies. 2009. no 3 135 decentralization and focus on questions of regional development more intensively, particularly on search of solutions for research and analysis of a more efficient economical potential and its use in regions and counties. economical development is the goal not only in baltic states, but also worldwide, in particular, in peripheries, in ulterior territories of countries – in regions. state of ireland can be mentioned as a positive state economical and regional development example, as it is also located in remote part of europe, nevertheless with help of a proper macroeconomic policy and ability to create favourable economical relations with other countries (also outside eu), it is one of the most developed countries in eu. in ireland’s development period three main directions of economical policy can be marked: fiscal stabilization, open conditions of trade and investments, and industrial policy that also applies to attraction of foreign investments (especially in it sphere). irelands experience witnesses that participation in eu has given additional potentialities for economical and regional development. it ensured increase of investments and capital flow, new work places, greater stability and wherewith higher welfare. to great extent success of this state depended on the way it used the eu offered opportunities. aim of the research: to identify and make analyse of the economical potential of regions, counties, and to make states’ comparison analysis: development of economical potential of regions and municipalities in ireland and latvia. the aim has certain subordinate objectives: to identify the economical potential of regions  and counties; to explore state of ireland development example; to carry out comparison analysis of states of  ireland – latvia for increase options of economical potential of regions and local governments the research was created on base of latvia’s republic laws, government’s normative documentation, special literature, personal experience of the author in work of local governments, development of ireland country and other materials. used research methods: monographic, methods of analysis and scientific induction and deduction definition of counties’ economical potential economical development is aim not only in baltic states, but also worldwide, especially in peripheries, in more distant territories. the creation of regions and counties, doubtless, is increasing the possibilities of concentration of financial means. focusing the financial means creates an opportunity to attract qualified specialist, to increase the professionalism of employees, who can improve the work of municipality in their field, attract additional financial funds, investigations and stimulate the overall development of the municipality. it also means that these specialists with their professional activity will attract more finances and investigations in favour of the municipality. for example, to prepare a good project application to some of the eu funds, it is necessary to be a quite proficient and good specialist, because there is a large competition in latvia to attract the europe’s offered investigations. municipality is the state level structure that is closer to the inhabitants. every municipality needs to care for interests and welfare of inhabitants of its territory, in that way developing infrastructure of the municipality and increasing the opportunities for inhabitants to raise their welfare. every municipality is responsible for national economy in its territory. the economic growth of the municipality depends on several factors. one of the most important core factors is reasonable use of the financial potential, taking the opportunities of increasing the financial funds, attraction of investigations for administrative territory of the municipality or raise of economical potential. the economical potential of counties is formed as a complex structure in all fields of county’s activities and competences. author of the work distinguishes the main alternatives of raising the economical potential: development of infrastructure – the mentioned alternative includes development of technical infrastructure (improvement and development of roads, streets, public transportation, water, sewerage system etc. in accordance with presentday requirements and quality); development of municipalities social structure. development of entrepreneurship in field of  innovation – the mentioned alternative includes stimulation of the environment of entrepreneurship on regional or local municipalities level (creation of entrepreneurship centres, business incubators, technological parks, help to the entrepreneurs concerning prequalification or training of the employees, cooperation of businesses, high schools etc.); stimulation of cooperation among other municipalities, non government organization’s and structures both, in counties, regions and abroad (stress on cooperation of borderland municipalities, municipality with on average equivalent indexes of the particular municipality); elaboration of field strategies for problem regions; elaboration and implementation of cities (places’) marketing conceptions. development of entrepreneurship environment  in field of finances – the mentioned alternative includes state and interstate organizations, fund subsidies and granting of credits to municipalities for creation and development of production, social and ecological infrastructure; issn 1822-8402 european integration studies. 2009. no 3 136 international organizations, investors, state and municipality funding and loans to private enterprises; regionally differenced subsidies and loans to private enterprises to stimulate creation of new productions or expanding of production, development in the problem regions; rational use of nature resources; appropriate tax policy for particular territories; creation of free and special economical zones. raising the intellectual capacity – the mentioned alternative includes dislocation of new and existing state (or state governed) enterprises and government agencies in problem regions; development of culture. help to develop innovative activities in problem regions (grants for scientific researches, for carrying out researches etc.) as a result of the mentioned alternatives of increasing the economic potential, counties can develop faster, with a higher quality, attracting new financial and social resources, thereby improving the overall development of the county. the main indexes of county’s territory economic potential growth result are: increased number of inhabitants; growth of gdp; increased tax income; increased amount of active enterprises; increased number of new working places; integration of business and education; investor contributions; increased social level; increased value of immovable property tax. it is important to define the directions and aims of territorial development, as well as to implement them purposefully, because the elaboration of the development plan is only a successful precondition of development, but it is not the development itself. development of a county is implementation of “the development plan”. municipalities when establishing counties need to elaborate development strategies for newly established counties, and as much as possible – they need to implement hem. essentially is for every county to raise attention and concentrate not only to the development and raise of economical potential of county’s own territory, but it is also important to adapt oneself into regional and state processes, in that way building a harmonious, developed, economically and socially attractive state in general. long-term development of the territory needs to be reviewed in connection with core statements and regional development, where the regional development is implemented accordingly mutually integrated planning documents. the main development directions have to be defined on basis of social interests – what kind of municipality do inhabitants want to see in the future? what are the primary problems that they spot and which of the fields, directions in the primary one that should be solved and developed? these questions need to be regarded while exploring, analyzing every county individually, and while looking into region’s, county’s development possibilities in accessibility and practicability of economical potential instruments. ireland politic finnegan say: “social interests are neither state interests, nor the simple sum of personal interests. (..) they are total field between the harmonized personal interests of citizens and state interests”. the economical potential of counties mostly depends on the work and activities of the region or county itself, how well organized, strategically far-reaching and reasonable the accessible nature, infrastructure, financial, social and other resources are used. states’ comparison analysis: development of economical potential of regions and municipalities in ireland and latvia ireland is one of the most centralized countries in europe, sovereign, independent state. the republic has liberal democracy with parliamentary government system. it encloses approximately 80% of island of ireland and since 1973 it is european union (eu) member state. the capital city of ireland is dublin, the territory reaches 70 300 square kilometres with 3.6 million inhabitants. the main natural resources are zinc, lead, natural gas, barites, copper, gypsum, limestone, dolomite, peat, and silver. bunreacht na heireann („irish constitution”) of 1937 determines general principles, that build the ground of irish legal framework. and the amendments in constitution of 1999 confirmed the constitutional status of municipalities. the municipality system is in fact created in one level, still it is quite complicated. the main units of municipality system are 29 provincial (shire) councils and 5 city councils. vanags and vilka (2005) explain, than in ireland in total are 5 municipality groups, as well as 5 district corporations, 49 provincial councils and 26 city deputies – together 114 local governments, where the municipalities of the three latter groups are not subjected to district boards. the regional issues have become outstanding in the 90’s of the past century, when in ireland in 1994 already officially 8 regional institutions were established (their members are deputies of district councils and city councils), where the main tasks of these institutions are coordination of public services on regional level and control of the use of eu structural funds. so the two biggest regional authorities were established in 1999, they are also called regional assemblies and their main task implementation of eu programs. as well on municipality level in the end of the 90’s strategic policy committees were established, and they include not only deputies and representatives of issn 1822-8402 european integration studies. 2009. no 3 137 social partners, but also non-governmental organizations and other interest groups. by the side of power of attorney of latvia’s municipalities, the municipalities of ireland have low level of autonomy, where their main range of activities are physical planning; housing fund and civil engineering; road construction and maintenance; water supply and sewerage; territorial development; environmental protection; recreation. district councils and city councils are in response of the abovementioned functions, but the municipalities of the other groups – only of part of the functions. in contradiction to ireland, latvia municipalities’ functions additionally include, for instance, ensuring of educational, cultural and social services, family court functions, that makes a remarkably larger level of authority and responsibility of municipalities. to compare with latvia’s situation, municipalities in ireland are much larger, but they have less power than in latvia. analyzing economical development activities in ireland, a conclusion can be made, that the irish people have strengthened their local authorities especially for a better use of european union help. exactly for this purpose reform was made and all the municipalities were merged in eight regions. (concerning the area and number of inhabitants very similarly to latvia’s planned five counties). only task of regional authority is coordination of high scale projects in-between shires and brussels this work is managed by only three clerks and for maintenance of every region’s new administration state spends from 70 up to 140 thousand lats in a year (budget of a small rural municipality in latvia). ireland and latvia have much in common and many differences too. latvia could learn from ireland’s action and development experience how to recover from economical crisis and to gain benefit from eu, how to use the available resources more efficient and appropriate, as well as the economical potential, through developing it as much as possible and using with farreaching development consequences in the future. ireland is a state that regained its independence from its neighbour country great britain only in the 20’s of the last century. only in a little bit more than 20 years the state reached its economical growth and its result of the last years shows, that it is eu state with the highest gross domestic product (gdp) increase in a year. in official latvian republic newspaper “latvijas vestnesis” are found information than common with latvia, also ireland is located on margin of europe, it is small, peripheral country, which 25 years ago was a backward remote part of western europe and its only economical engine was agriculture. in the country was a deep economical stagnation, mass emigration (especially of the youth) happened to other eu countries and united states of america (usa). in the eu countries’ community more poor were only portugal and greece. the main barriers of ireland’s economical development growth in different periods of time can be considered emigration of inhabitants able to work in the seventies, state’s debt crisis in the eighties and lack of qualified staff in the nineties. nevertheless at the moment since 1988, due to hard-line budget policy, the budget deficit has not exceeded 3% of gdp as set in maastricht criterions, and since 1998 budget incomes exceed budget expenses. currently state’s debt is the smallest among eu countries, that’s agreed ireland politic and man of science finnegan (2001). in 1950’s ireland passed modernization process, which brought increase of industry and urbanization and smoothing of demographical models with europe and usa. this process facilitated and helped also in ass communications sphere that favoured involvement in different international organizations and stimulated attraction of investments to the state. the process was supported by all political parties and different strata of society. the country’s development proceeded step by step, and already in the 1960’s government passed hardlined policy that was oriented onwards – core idea – to attract foreign industry investments. in 1973 ireland entered european community (ec), now – eu. since that moment trade links with continental europe and with other countries started to increase substantially, at the same time they decreased with great britain, but with a tendency of improvement of relations in-between both countries, that’s agreed vaidere, vanags e., vanags i., and vilka (2008). wherewith the former dependence from great britain was replaced by a much wider trust on eu an other countries that are connected with ireland’s economical growth and policy. general comparison, analysis of ireland and latvia are being carried out based oneconomical potential increase alternatives created by the author: general analysis of economical situation – common and common features and differences and counties’ of latvia state potentialities to develop some certain alternative, taking into consideration ireland’s action and development examples: development of infrastructure – the road, street infrastructure in ireland in the 80’s of the last century was still in a very bad state – narrow, bumpy, crumbled roads, streets. nonetheless as the leading official of municipalities and environment protection ministry kevin callen says, 1,2 billions pounds of ireland’s and eu money or 852 million lats in five years (from 1994 until 1999) were invested in national ireland’s road program for renovation and reconstruction. if to evaluate the situation in latvia, equivalent resources for road improvement are invested during 25 years. in the past years, road infrastructure in ireland is being issn 1822-8402 european integration studies. 2009. no 3 138 improved and developed fast, especially highway infrastructure of state’s national importance, increasingly new speed section highways are build, their construction is carried out in rapid speed. in the same way also in rural areas roads without asphalt cover are of a rare occurrence, even small roads that lead to the largest fields have asphalt cover. nevertheless the width of the existing roads (new roads within limits are built wider) is and after their reconstruction stays the same, because the value of land (especially the one of agricultural land) is high enough, and as well it is almost not possible to widen them – there is no space free, because everywhere on both sides stretch endless pasturable fence piled of stones, or centenarian, thorny and picturesque hedges. irish lifestyle culture manners and traditions need to be taken into consideration there, because the irish even have proclaimed the hedges national wealth; therefore, for their maintenance in an exemplary order, owners even get paid small subsidies. irish municipalities do not have big authorities as it is in latvia, for example, in internet site www. impro.lv about ireland says: “local authorities do not have equal power regarding public services, for example, public transportation issues, as well as regarding ensuring order and health protection. municipalities maintain local roads, but central governance gives the money to do that. municipalities in latvia have more to do. for instance, they coordinate the traffic of route buses etc.” ireland has a comprehensive state financed social care. provider of the health service executive (hse) is a state institution, which is responsible for leading the whole ireland’s society health and social care. hse is responsible for: hospitals, social health care, mental health care, old people care, services for people with special needs, children and families health care, register of born, deceased and marriages in registry office, organization of marriage ceremonies, environment health services, review and delivery of allowances and for many other health and social services for private persons. evidently, in latvia municipalities or district councils carry out most part of the abovementioned. ireland’s hse system is common all over the country and it has common rules in any municipality – in latvia every municipality decides by itself about many of the abovementioned issues of social infrastructure – to implement them or not (if the law allows to choose), how and how many resources to allocate them from municipality’s budget, what kind and what amount of allowances to grant, if to create old people care centres or not, etc. development of entrepreneurship environment  in sphere of innovations – development of entrepreneurship environment in sphere of innovations is usually performed with help of regional assemblies and regional authorities. practically every greater city has its own industrial, technology park, where development of entrepreneurship environment is being stimulated in regions (shires). social and family affair department is responsible for workforce requalification or training issues. one of ireland’s leading forces that enable economical growth is with law created business environment, which stimulated inflow of foreign capital. “about 40% of all the employed in manufacturing industry work in enterprises owned by foreigners” – that said vaidere, vanags e., vanags i., and vilka (2008). social partnership is also successfully developed – since 1987 all social partners – entrepreneurs, trade unions, farmers and government, are involved in economical planning process. on ireland’s municipalities’ level in the end of the 90’s strategical policy committees were created, their structure includes not only deputies and representatives of social partners but also non-governmental organizations and other interest groups, which shows the tight cooperation between municipality and nongovernmental organizations, and interest groups. the influence of non-governmental organizations and interest groups to resolutions of municipalities is remarkable – their interests are being taken into consideration very seriously and a feedback is being carried out, cooperation in a variety of events, local level projects (environmental activities, for instance, common park cleaning events. salvation of the disabled problems, e.g., funding of the disabled associations’ events, etc.), in salvation of problematic issues. since 1999 government’s policy is directed on public private partnership. it means, that a part of public sector functions (projecting, planning, funding and building spheres) entrusted to the private sector. houston (2004) think, that the main aims of public private partnership are to develop infrastructure more rapidly and to save resources. one of ireland’s rapid economics origins is also the fact that ireland’s government in the 80’s f the past century started to invest high level investments into education and training, a large part of which is financed by eu structural funds. because of a targeted policy, education level in ireland in 2004 was higher than on average in eu. vanags e., vanags i., vaidere i., and vilka i. (2008) agree high qualified work force provides contemporary manufacture structure and world level services. issn 1822-8402 european integration studies. 2009. no 3 139 facilitation of entrepreneurship environment on local municipalities’ level was performed also thanks active work of ireland’s capital city. dublin turned into international services centre, which aims to perform such financial transactions as bank services, administration of other companies, deals with securities, insurance services and investments and action of investment funds outside territory of ireland, and consequently it enabled an increase of information technologies export. wherewith research and consultative enterprises were activated, and they operate not only in capital city, but also in regional municipalities. cooperation with foreign countries takes places mostly within eu – “in 2004 approximately 64% of total ireland’s export was export to eu participating countries” (vaidere, vanags e., vanags i., vilka, 2008). remaining export is mostly to such countries as north africa, australia, the middle east and the far east. participation in eu favoured diversification of ireland’s foreign trade partners. latvia’s situation in this sphere unfortunately is weak, a low developed export, undeveloped cooperation with foreign countries. due to eu, cooperation with foreign countries, mostly with the closest neighbour countries (estonia, lithuania), is started, mostly with financing of eu funds, especially in culture and social sphere. as well with help of eu funds’ support are created several entrepreneurship centres, business incubators, support to entrepreneurs is being provided concerning requalification or training of their employees, cooperation between enterprises and high schools, but still the results are weak. it can be explained with the common world, state economical crisis, lack of stimulation and development support for entrepreneurship, agriculture in regions and general politic disbalance in the country. development of entrepreneurship environment  in financial sphere – ireland developed mainly due to efforts of central institutions in large infrastructure development projects: for development of certain sphere state created special agencies that prepare projects to gain brussels money. for instance, west region agency works successfully, it tries to create favourable conditions for attraction of entrepreneurs to state’s most depressive region, as well as information technologies agency, which cares specifically for support to computer business. also in latvia there are established regional (latgale, zemgale a.o.) development agencies, still the minimum funding for their maintenance, hiring of specialists causes feedback – the result is weak. it has to be mentioned that in latvia these development agencies are maintained not by state as it is in ireland’s example, but by local municipalities. the main trump of irish economics – it is its tax policy, it was modelled knowingly through changing the previous system radically, in that way to develop state’s entrepreneurship environment. wherewith a fast economical growth in ireland started right after entering eu, due to ireland government’s courageous decision until 1981 to cancel profit tax for foreign entrepreneurs, and from 1981 until 2000 to set it very low – only 10 percent. the state decreased taxes as well to preserve salaries nominal increment, on the one hand helping the state become more competitive, and on the other hand – increasing the effective revenue of the employed. this budget foreseen tax decrease helped the government to harmonize the so-called boom and justice program that brought the expected results. ireland created favourable tax climate for both, development of entrepreneurship and favourable investments. general tax relief, as well as special ones – for development of high technologies in the country, compose an important part of the stimulant measures body that, which are available to national and foreign companies, state of latvia lacks that all at the time. tax policy was an excellent effect for attraction of foreign investments, which gave an opportunity to facilitate manufacture development without increase of state’s external debt. in the end of the seventies and in the beginning of the eighties of the last century companies of more developed countries started to invest into countries with cheap labour force and low taxes. ireland became a magnet for enterprises of usa, canada and japan. ireland managed to attract approximately 40% american capital that was invested in foreign spheres of electronics. arrival of first transnational companies get started an avalanche, and hundreds of competitors rushed to ireland, as well as enterprises from associated spheres. when the first computer producers entered and gained success, soon after that many other computer producers, programmers, advertising companies, banks followed them. these were mostly usa companies, number of which at the time exceeds a thousand. main reasons that caused interest in the companies were the low taxes, english speaking educated labour force, and closeness of european market. however, foreign companies did not create threats for national enterprises, but gave them opportunity to meet the demand in inner market. at the time, when the local entrepreneur got strong enough, ireland’s government was ready to give for privatization strategically important objects with an idea, that issn 1822-8402 european integration studies. 2009. no 3 140 the main role there will have the local capital. in its turn in latvia everything happened as a “shock therapy” and so privatization of latvia’s enterprises was made inefficiently and irrationally. the privatization of ireland’s enterprises happened comparatively slowly and advisedly – effectively working state enterprise provided income to state budget, but less effective were sold, so giving additional income. increase of intellectual capacity – a substantial factor of ireland’s economics is knowledge based initiatives – this factor is largely stimulated by direct investments of foreign countries. in the past years state expenses for research and development have noticeably increased in ireland, especially for research in the field of information and communication technologies. concerning innovations it can be concluded, that the results would greater if a deeper and wider approach would be used. the expansion and deepening of innovation approach would include strengthening of the link between research institutions and enterprises involved in economics, increase of investments for applied researches and ensuring of managerial measures in order to start higher level education. grants for scientific research and performance of researches are implemented through successful attraction of eu funds. in latvia part of researches and grants for scientific research of course also are being implemented due to resources of es structural funds, nevertheless ireland’s experience shows, that a more successful resource attraction from eu depends on the performance of state institutions and state government’s involvement in maximum resource attraction, that is on a quite low level in latvia at the time – the total amount of assigned finances of eu funds is one of the lowest among eu countries. by the side of latvia’s action experience, ireland the most investments for entrepreneurship, intellectual development, increase of capacity, development of innovation diverts to backward regions. carrying out a general analysis of ireland’s economical and regional development example, there is a conclusion that in the past 25 years the mentioned country has chosen a right macro economical policy – many countries had favourable conditions, but not all of them used them. in ireland’s development period three main directions of economical policy can be marked: fiscal stabilization, open conditions of trade and investments, and industrial policy that also applies to attraction of foreign investments (especially in it sphere). irelands experience witnesses that participation in eu has given additional potentialities for economical and regional development. it ensured increase of investments and capital flow, new work places, greater stability and wherewith higher welfare. to great extent success of this state depended on the way it used the eu offered opportunities. ireland’s development is the most successful example among eu member states: at the moment of alignment in 1973 the level of its gross domestic product on one inhabitant reached only approximately 60% of the average eu level, in 1990 this rate increased to 75% and after another ten years it exceeded the average eu level for already 20%. it has to be taken into consideration that ireland’s economics substantially depends on the global market fluctuations, and it is influenced also by situation in usa markets more than other european countries. thereby ireland was not able to avoid the decline of economical development rate. for example in the period of time from 2000 until 2005 there is a fall of ireland’s gdp increase rate (view table1) to observe. from ireland’s central statistics data can be concluded, that in 2001 the increase of gdp compared to previous year was 12,2%, but in 2005 compared with 2004 this increase was only 1,9%. nevertheless after 2004 positive changes can be observed – the rate of gdp increase started to grow again. table 1. ireland’s gdp in period of time from 2000 until 2005 year gdp(mill.eur) gdp increase compared to previous year,% 2000 104379.0 2001 117114.1 12.2 2002 130515.4 11.4 2003 139097.0 6.6 2004 148556.5 6.8 2005 160322.0 7.9 2006 177286.0 10.6 2007 190603.0 7.5 source: ireland’s central statistics board data to ensure increase of gdp the most important spheres are industry, commercial services and finances, trade, transportation and communication services. important external component of ireland’s success is participation in eu, which considerably enforced competition, expanded market spheres and stimulated increase of efficiency. and additionally ireland has a privileged status in eu already for some while. in framework of the last programs ireland after 1989 gained remarkable funds, this retained demand and facilitated adaptation process by an open competition. these additional funds stimulated development of state’s infrastructure and increased its attractiveness to foreign investors. baltic states could learn from ireland’s economical issn 1822-8402 european integration studies. 2009. no 3 141 and regional development example how to develop its relations with other countries concerning economical issues. although the irish are trying to regain the place in economics that is hold by foreign entrepreneurs, however mostly thanks to them the society was able to get out of decline. state of latvia should control these processes harder and allow such kind of enterprises to enter our market, create latvia as an attractive state for investors, at the same time developing agricultural sphere and industry, which would stimulate return and not outflow of labour force from the country (especially youth, that is also intellectual potential). latvia also should start to export goods or services with a higher added value, not like it is, for example, for wood, to balance at least a little the deficit of current account. conclusions the experience of eu countries has proved – the stronger the municipality and regions, the bigger the chance of regional development. effective municipality reforms stimulate regional development, however, each regional development policy has at least two aspects – economic and social. statement question of regional development policy is on the base of choice of regional development instruments. state’s determined, chosen instruments outline and define the regional policy outlook of every certain state. common economical growth in ireland, which appears as a tremendous increase of gdp, has formed from a sum of such factors as: stable macro economical environment, government’s ability to decrease its expenses, decrease of unemployment, increase of export ability in sphere of high technologies and expanding of trade partners. achievements in industry and agriculture also have to accented, because they enabled ireland to turn from agricultural state to developed export-oriented state. economic growth of regions and municipalities depends on several factors. one of the most important core factors is reasonable use of the economical potential, using the opportunities of increasing financial capital, attraction of investments to the administrative territory of the municipality or increased economical potential. regions and counties economic potential mostly depends on actions and activities of the certain county, how well organized, strategically far-reaching and reasonable the available nature, infrastructure , financial, social and other resources are used. the main conclusions, while exploring and evaluating the successful example of economical and regional development in state of ireland: there are several factors that build the development of ireland: persistent macroeconomical environment, radically decreased government’s expenses, collective labour contracts that increased the labour force growth in economics, considerable investments of foreign investors, rapid tax decrease, growth of export ability in it sphere and expansion of trade partners, as well as reliance on new and trained labour force. average age of labour force in ireland is 30 years, by the side of the average labour force age in the rest of europe that is over 40 years. the main impact on trade diversification has the marketing strategy of foreign businesses that was tended towards europe and more distant states. lately ireland is strengthening trade ties with states of the middle east and several underdeveloped countries, where mainly foodstuffs are exported to. remarkable achievements are to observe in industry and agriculture, which has let ireland turn from an agrarian into a developed and export-oriented state. as the core elements for such a development scenario programs and plans are created, as well as government’s ability to implement a significant part of its plans. ireland is one of economically most developed, industrial and trade-oriented countries, which till now was able to use the eu structural funds resources most effective. the resources that were gained from eu support funds have considerably stimulated state’s economical growth. the stress has to be made on the ability to pass the projects successfully and to make the national development plan successfully, which is the core document to gain funding. example of state ireland verifies that approximately during the past 25 years the state has carried out very proper macroeconomical policy, remarking also the fact that many countries had the favourable conditions, but not all of them were able to use them. there are three directions of economical policy in ireland in this period: fiscal stabilization, open regime of trade and investments, and industrial policy that applies to attraction of foreign investments, especially in sphere of information technologies. references consolidated report of the latest developments concering local and/ or regional self-government in member states having signed the european charter of local self-government (2003) – strastbourg: council of europe, 167.p. finnegan r.b. (2001), ireland: brussels and the celtic tiger// the european union and the member states. cooperation, coordination and compromise/ eleanor e. zeff, ellen b. pirro (eds.) – colorado: lynne rienner publishers, inc., 163 – 190.p. issn 1822-8402 european integration studies. 2009. no 3 142 glasson j. (1992), an introduction to regional planning. concepts, theorv and practice. / 2nd edition london: ucl press limited., 434 p. houston e. (2004), working and living in ireland. – uk: linghtning source uk ltd, 272 p. īrijas veiksmes stāsts. varētu būt arī latvijas… (22.11.2000.) dienas bizness., 2.lpp lamentovičs v. (1996), mūsdienu valsts – rīga, 132. lpp. par īrijas veiksmēm, latvijas izredzēm. (18.02.2003.) latvijas vēstnesis, b6.lpp regional studies association an enlarged europe (1995) london: jessica kingsley publishers ltd, 299.p. rouse, paul (2001), government and agriculture in ireland, 1945. – 65’. irish economic and social history dublin: econmic and social history society of ireland, 82-83.p. somers, f., (ed.) (3.edition) european union economies a comparative study new york: addison wesley longman; 70-73.;95.;186.lpp vaidere i., vanags e., vanags i., vilka i. (2008), regional policy and develpoment of local government in latvia and the european union – rīga, 326.p. vaidere i., vanags e., vanags i., vilka i. (2006), reģionālā politika un pašvaldību attīstība eiropas savienība un latvijā – rīga: latvijas universitātes akadēmiskais apgāds, latvijas statistikas institūts, 295.lpp vanags e., vilka i. (2005), pašvaldību darbība un attīstība – rīga: latvijas universitātes akadēmiskais apgāds, 384.lpp national accounts, national income, online: www.cso. ie/statistics/nationalingp.htm ireland, online: www.europa.eu.int/comm/eurostat health services in ireland, online: www.hse.ie/eng/ find_a_service/languages/guide_to_health_ services_-_latvian.pdf zaļās salas zilzaļie brīnumi iv, online: www.impro.lv/? selected=articles&artid=zaljasala3 diarmaind ferriter, ireland in the twentieth century, online: www.irlgov.ie/en/essay/twentieth.html valsts raksturojums: īrija, online: www.knab.gov.lv/ uploads/free/country_profile_irija.pdf īrija – eiropas savienības dalībvalsts, online: www. lu.lv/biblioteka/e-eiropa/dalibvalstis/irija.html the article has been reviewed. received in march, 2009; accepted in april, 2009. 42 issn 1822 8402 european integration studies. 2009. no 3 policy intervention to r&d based valley creation in lithuania mykolas romeris university abstract globalization challenges are pushing research universities as knowledge creation institutions to take a new role in state economic development. this role is to take innovation and entrepreneurship culture creator and facilitator in the region. seeking the way to fill the existing gap between knowledge creations and the knowledge transfer in lithuania, the main role must be devoted to excellence research performed by universities. the purpose of this paper is to analyze new trends in lithuania r&d policy development concerning research infrastructure concentration and founding integrated research, study and business centers (valleys) by comparing with world widespread tendencies of research based high technology centers creation. the main objective of this study is to draw the success factors for centers flourishing and find out the main obstacles for further valley development. recent studies indicate the progressive development of lithuanian r&d sector with several black spots concerning business partnership and commercialization activities. the crucial point for policy intervention is to maintain the existing r&d capabilities and put more emphasis on the diffusion that valley ideology is seeking to cover. at beginning of 2007, the concept of valley creation has been converted to the policy decision at 2008. the investigation has revealed that the main factors for successful high technology centers development could be named as following: research excellence in certain research areas; high skilled personnel; partnership. the role of r&d intensive universities for technology industry centers formation is discussed. others factors such as availability of technology transfer instruments (spin–offs), geographical location, public and private funding accessibility, policy support, life time cycle, leadership and cross disciplinary interaction are expressed as crucial attributes that effects the new policy driven valley creation. further success of valley concept implementation lay on the progress of accompanying policy measures regarding research excellence and environment for commercialization. keywords: r&d policy intervention, tacit knowledge, lithuania. introduction globalization challenges are pushing research universities as knowledge creation institutions to take a new role in state economic development. this role is to take innovation and entrepreneurship culture creator and facilitator in the region. seeking the way to fill the existing gap between knowledge creations and the knowledge transfer in lithuania, the main role must be devoted to excellence research performed by universities and on partnership with business. such understanding comes from the usa and as good practice was spread up around the world. many empirical studies demonstrate that high technology industry centers tent to form locally on r&d intensive universities and other high excellent r&d performing institutions (smilor et al, 2007, woodward et al, 2006, bucci, 2003). such type of geographical located center development contribute high added value to economic and social development through the regional and urban development (woodward et al., 2006). many developed countries (uk, usa, denmark, netherland and etc.) or countries in their increasing development stage (china, india, taiwan) have the prominent examples of such kind of very successful r&d output exploited centers. during programming 2007-2013 financial perspective, lithuania r&d policy has faced the chance to generate breakthrough as substantial funds (around 2 billion litas) were allocated to r&d sector. taken in to account national peculiarities of r&d sector (low investment (2007 – 0,8% of gdp, disperse human capacity along large network of universities and research institutes, old fashion research infrastructure including scientific equipment) (mes, 2007), the idea of concentration of research infrastructure and incentive public r&d cooperation with business via policy driven founded technology centers were discussed and at late 2007 were transformed to policy decision concerning integrated centers, based on research university. birutė mikulskienė issn 1822-8402 european integration studies. 2009. no 3 43 the purpose of this paper is to analyze new trends in lithuania r&d policy development concerning research infrastructure concentration and founding integrated research, study and business centers (valleys) by policy comparison with world widespread tendencies of research based high technology centers creation. the main objective of this study is to draw the success factors for centers flourishing and find out main obstacles for further valley development. research method includes comparative and systematic analysis of scientific literature and lithuanian legal base regarding creation of integrated research, study and business centers, interviewing experts and personal observation by intermediate participation of the valley creation process. the personal observation is used to describe the undocumented stages of policy creation. the factors influencing the success of high tech centers development r&d infrastructure concentration and clustering mechanisms analysis is largely based on case studies. the main preconditions which are necessary for high technology centers to occur could be named as follows: research excellence in certain research areas high skilled personnel partnership the minor, but not less important success factors could be discussed. university: there are plenty of studies supporting the idea that r&d intensive university or their association is the statistical significant factor for innovation development (smilor et al, 2007). there are different channels to promote r&d by policy intervention: direct subsidies to r&d activities, subsidies on the use of r&d outputs and promoting the international spillover through trade liberalization (ghosh, 2007). this study demonstrates that the most successful one with the positive impact on economy growth is direct subsidies for r&d activities. since the research institution main activity is r&d, it seems reasonable to invest in to public institutions through specifically diverse instruments under certain conditions. on the other hand, strong and excellence r&d performed university based technology center, avoid conflict of interest trying to outsource r&d and use special incentives policy schemes, especially for high concentrated, monopolistic markets (mukherjee, 2007). technology transfer instruments. it is proved that technology transfer is more effective when it go under responsibility of university which possesses tacit knowledge. the main instrument to tackle tacit knowledge and make possible to diffuse and transfer knowledge to new product, service or technology is spin-offs. the spinoff activities demonstrate boom in regional innovation and development, when entrepreneurial spirit becomes a social norm and supported by institutional behavior (smilor at al, 2007). entrepreneurial socialization and peers with startups experience make strong influence on the boost and fall of number of spin offs. the chrestomatic example of spin off activities is massachusetts institute of technology (mit). mit experience have enhanced the understanding of favorable circumstance – five main perspectives for spin off generation: individual perspective (personality, motivation and disposition in academic entrepreneurship); social r&d infrastructure (r&d funding, local research management, institutional orientation, institutional physical infrastructure); supportive institutional altitude; legal basis regarding intellectual rights (when invention assignment is balancing between institution and individual inventor). special mit emphasis on spin off prove that university “can achieve twin objectives of excellence in academic research and contribution to economic development (o’shea et al, 2007) location. geographical localization of research university and innovative companies concentration is the fact proved by many empirical studies (johansson et al, 2007; woodward et al., 2006). woodward et al has shown that certain distance from the source of knowledge is essential. actually the particular distance depends on some factor the most substantial from them are the level of r&d funding and type of industry concentrated in the region. empirical studies and mathematical modeling have proved that distance up to 120 km around university is the effective zone for innovative industry development and even for new technology plant opening. however, the distance for knowledge creation institution is critical when the diffusion of knowledge is taking place or in other words, is on the first stage of knowledge creation chain. the geographic factor becomes crucial for knowledge transferring companies to be close to tacit knowledge specifically to research universities, when spillover tend to be substantial (van geenhuizen, 2007) and for most technologically advanced types of goods and make influence on regional export base (johanson et al, 2007). partnership and social networking. usually the complex and delicate network structure takes place in prosper technology centers, mainly in spontaneous centers. such networking culture is tightly dependent on the participants in the clusters (su, 2008) and effects on evolution of the cluster (he at all, 2009). socialization is precondition for sharing the tacit knowledge. it leads to the flexibility, especially when center participants are in tight connection with each other in production chain (customers, providers of customized or specific components or machinery, suppliers, supporting services). shared tacit knowledge let to pick up “weak issn 1822-8402 european integration studies. 2009. no 3 44 signals of change” (garrett-jones, 2004; roveda, 2008). partnership secured effective knowledge sharing thanks to reciprocal trust and convenience of communication being in the same geographic area. policy support. there are plenty of examples, when high technology research centers developed spontaneously over the years (silicon valley, rout 128), on the other hand there are not less examples, when such kind of centers become prosperous after careful planning and coordination (research triangle park, austin, san diego) (smilor et al, 2007). the interesting phenomenon is observed: the most spontaneous clusters exist in western countries (for instance usa, united kingdom, france) and policy driven clusters appear largely in the asian countries (china, japan, taiwan) (meyer, 2005). though the two approaches of center creation (spontaneous versus governmental intervention) are reasonable, the policy driven must cope with additional challenges, and mainly with social networking. if for spontaneous clusters tight networking between research, companies and venture capital forms turn to form by self demand, policy intervention cannot generate artificial demand. along different types of intervention such as funding instruments, intermediate institutions and institutional infrastructure to provide appropriate local conditions is the object for policy issues (hirch-kreinsen, 2006). funding level. when previous mentioned factors are present, the substantial funding mechanisms availability is important. appropriate balance of basic and competitive public funding schemes together with funding available for new risky, r&d oriented companies establishing, including pre-seed capital, seed capital, venture capital and governmental funds are require. life time cycle. looking through the development of the most successful center e.g. self developed silicon valley or policy driven research triangle park in north carolina (founded in 1958), austin in texas (founded in 1950), san diego in california (founded in 1950) (smilor et al, 2007), there are evidence that the first prominent commercialization activities and attraction of companies have started after 15 years of founding technology parks and strengthening the research universities. al these regions are still acting as worldwide class technology clusters. that is over 50 years of activities. leadership. not the last issue is leader of cluster. the manager with high competence in managerial approach is an important factor for make partnership of with academia world and burst the entrepreneurial spirit. leadership and outstanding individuals change visions and shape the attitudes. (su, 2008). cross disciplinary interaction. the most successful clusters are based on cross disciplinary interaction (smilor et al, 2007). research excellence. recent studies on lithuania research excellence, e.g. annual assessment institutional r&d activities and mapping of research excellence (bar auskas, 2008), comparison studies of estonian, latvian and lithuanian bibliometric indicators (alik j. 2008) evidenced the progressive development of lithuanian r&d sector with several black spots concerning business partnership and commercialization activities. the crucial point for policy intervention is to maintain the existing r&d capabilities and put more emphasis on the r&d output diffusion as israel (breznitz, 2006) demonstrated and made huge progress in moving from low technology to high technology industry case. market imperfection. costly innovation activity and demand of r&d based new technology and product development correlated with market competition level. when business sector is competitive enough, there exists positive correlation between share of resources invested in r&d and economic grow (bucci, 2003). any market competition imperfection diminishes the demand of r&d, lowers the speed of new technology adoption and raising the r&d investment can afford lower r&d output. taking in to account the economic grow correlation with market competition and demand to r&d, the special approach for lithuania r&d policy streamline should be elaborated with special focus on start ups and that is more essential on spin-off, companies originated from the research groups of university. since the macroeconomic environment has strong influence on innovation capacities and r&d application for innovation progress (cammett, 2006), composition and structure of lithuania economy (small and medium size enterprise is rather week, dominant position in the national economy has monopoly like large companies) face lithuanian policy makers to seek new, worldwide proved out, policy driven measures, which deepening the existing r&d capabilities and elaborating r&d output for more competitive globalize export market with higher abilities for commercialization. the crucial point for policy intervention is to maintain the existing r&d capabilities and put more emphasis on the knowledge diffusion that the policy of integrated centers (valleys) ideology is seeking to cover. policy intervention: integrated research, study and business centers (valleys) creation at beginning of 2007 government adopted resolution for concept of the integrated science, studies and business centers (valleys), as economy clusters, accelerating the development of knowledge society and consolidating the long-term foundation for the competitiveness of lithuania’s economy, creation. the geographical localization in one territory for presumption for policy intervention issn 1822-8402 european integration studies. 2009. no 3 45 concentration and shared or interrelated infrastructure are highlighted as main attributes for valley. the valley initiators were announced by research and study institutions and knowledge intensive businesses or associations acting as network of partnership. the threefold synergy as study, research and business collaboration was conceptualized for the first time on the action plan as legal document. the main goal was set to concentrate, upgrade and optimize the research infrastructure that would facilitate the development of high technologies, consolidate the links with research and studies, and training of researchers and other experts; to provide favorable environment for the transfer of scientific know how and technology to the business sector; to set up centers for promoting research, studies and knowledge intensive business synergies, capable of competing on the international arena. among different tasks, how to build the valley, the primary one was mentioned to upgrade the equipment of institutions established in valleys and to establish modern scientific research base employed for general research, studies and development purposes. in broader sense, valley creation policy focus on knowledge infrastructure, what sharply described by smith: infrastructure is the complex of publicly-supported organizations that produce, maintain and distribute knowledge and new technologies (smith, 2005). intentionally or not, the term of cluster was avoided in legal act content, although clusters attributes ate mentioned in valley concept. if cluster is described as “geographical proximate group of interacted companies and associated institutions in particular field, including product manufacturers, service providers, universities” (su, 2008), the geographic, university based factors are clearly underlined for valleys. though the policy intervention for valley creation was done by government as top down approach roughly drafting the main principles of valley creation, the initiative to propose content and details of valley creation and implementation was nominated to legal bodies of valleys initiators and could be comprehensible as bottom down approach for policy creation. fig. 1. the chronology representation of valley policy creation the valley creation policy drafting was broken down to several steps (fig.1): call for visions, visions evaluation together with both national and international experts, guidelines for programme development, programme evaluation. decision to issue valley creation programme depends on the level matching the conditions outlined in advance: to proof ability to conduct excellence research by formal excellence measurement criteria’s (isi publication, number of patens, level of attracting external funding), to attract technology oriented innovation intensive companies, to have clear vision on valley based technology priorities. the process runs for almost two and half year, started from summer of 2006 and finalized on late 2008, including preparation (undocumented) phases. the main factors, such as central r&d performing university, high skilled personnel, geographical concentration, cross disciplinary, which influence the success of integrated center are conceptualized in policy however, certain obstacles are presented. obstacles of policy intervention spillover. looking deeper to the valleys programmes and funding criteria’s, one may notice r&d being strengthening via building research university capacity, since competitive business dimensions are just rhetoric in objectives section but no supported by any direct measure. that was the main obstacle underlined by foreign experts. the spillover occurs when tacit knowledge is generated issn 1822-8402 european integration studies. 2009. no 3 46 in one company and is exploited in other (kirchhoff, 2007). taken in to account the lithuanian market constitution and imperfection, companies orientation to less competitive markets and the fact that present r&d are concentrated in public institutions, spillover effect could be design slightly artificially between universities and companies instead of company to company. management. the challenge for policy management was the subject of valley management that all interest (academia, companies, funding organizations, government and municipalities) would be taken in to consideration. the association was chosen as appropriate interaction and secured the objective development. hopefully association will materialize the different valley development options, such as face to face interaction of different interest, share financial, managerial ant others responsibility, implement equality and political discretion, stimulate motivation in share public and private source of funding both to pure r&d and commercialization and diffusion of knowledge. leadership. acknowledging leadership as success factor for technology center creation is typical managerial approach for technology centers creation regardless policy driven or spontaneous centers are founded. it is underlined describing usa experience. contrary to that approach, lithuanian policy creation tendencies are based on the impersonal approach. therefore the whole policy of valley creation process was design from the point of institutional view (government from the one side and research institutions together with business association from other side). this caused long and hard negotiation process which took almost two years of drafting policy directions. leadership as additional option is still missed from the stage of process of valley creation. conclusions recent studies indicate the progressive development of lithuanian r&d sector with several black spots concerning business partnership and commercialization activities. the investigation has revealed that the main factors for successful high technology center development could be named as following: research excellence in certain research areas; high skilled personnel; partnership. the role of r&d intensive universities for technology industry center formation together with others factors such as availability of technology transfer instruments (spin–offs), geographical location, public and private funding accessibility, policy support, life time cycle, leadership and cross disciplinary interaction are expressed as crucial attributes that effect the success of new policy driven valley creation. the main goal of valley policy is mislead for international community acting as possible investors, since it give the feeling that it is the policy action to foster the clustering. meanwhile the integrated centers creation is the policy intervention which makes background for future public and private partnership through increasing the role and capacity of national research infrastructure and pursuing the high research performance in certain promising r&d area. further success of valley concept implementation lay on the progress of accompanying policy measures regarding research excellence and environment for commercialization and coping main obstacles concerning valley management, leadership and stimulation of spillovers. market imperfection limits use of r&d outputs and does not stimulate market oriented r&d. however the valley policy with strong emphasize on new companies creation strategies could be the starting point for breakthrough for r&d output commercialization. references alik j. 2008. quality of estonian science estimated through bibliometric indicators. proceedings of the estonian academy of science, 57,4, 255-264. baršauskas p., et al. 2008. išskirtinių mokslinių tyrimų vadyba. lietuvos mokslo taryba, ism vadybos ir ekonomikos universitetas, breznitz d. 2006. innovation-based industrial policy in emerging economies? the case of israel’s it industry. berkley electronic press, 1-36, http :// www. bepress.com/ bap/vol8/iss3/ art3 . bucci a. 2003. r&d, imperfection and growth with human capital accumulation. scottish journal of political economy, 50, 4, 417-439. cammett m., 2006. business government relations and industrial change: the politics of “clustering” in morocco and tunisia. paper presented at the annual meeting of the american political science association, marriott, loews philadelphia, and the pennsylvania connection center, philadelphia, pa, aug 31, 2006 2009-02-04 http://www.allacademic. com/meta/p151211_index.html. garrett-jones s (2004) from citadels to clusters: the evolution of regional innovation policies in austria. r&d management 34, 3-16. ghosh m. (2007) r&d policies and endogenous growth: a dynamic general equilibrium analysis of the case for canada. review of development economics, 11, 1, 187-203. he j., fallah m.h. (2009). is inventor network structure a predictor of cluster evolution? technological forecasting and social change, 76, 91-106. hirsch-kreinsen h., jacobson d., robertson p.l. (2006) low-tech industries: innovativeness and development perspectives – a summary of a european research project. prometheus, 24, 1, 3-21. issn 1822-8402 european integration studies. 2009. no 3 47 johansson s., karlsson ch. (2007) r&d accessibility and regional export diversity. the annals of regional science, 41, 501-523. kirchhoff b.a., newbert s., l., hasan i., armington c. (2007). the influence of university r&d expenditures on new business formations and employment grows. entrepreneurship theory and practice. 31,4, 543-559. meyer k.e., nguy h.v. (2005) foreign investment strategies and sub-national institutions in emerging markets: evidence from vietnam. journal of management studies. 42, 1, 63-93. mes (ministry of education and science of republic of lithuania). (2007) science and study infrastructure optimization study. všį nacionalinės plėtros institutas. mukherjee a., ray a. (2007) strategic outsourcing and r&d in a vertical structure. the manchester school. 75, 3, 297-309. order of the minister of education and science and of the minister of economy no isak-1118 / 4-231, of 5 june 2007 of specification off the procedure for the selection and evaluation of the integrated science, studies and business centres (valleys) development visions and draft valley development programmes. o’shea r.p., allen t.j., morse k.p., o’gorman c., roche f. (2007) delineating the anatomy of an entrepreneurial university: the massachusetts institute of technology experience. r&d management. 37, 1-16. resolution of the government of republic of lithuania no. 321 of march 2007 on approval of the concept of the establishment and development of integrated science, studies and business centers (valleys). roveda c., vecchiato r. (2008). foresight and innovation in the context of industrial clusters: the case of some italian districts. technological forecasting and social change, 75, 817-833. smilor r., o‘donnell n., stein g., welborn r. s. (2007). the research university and the development of high-technology centers in the united states. economic development quarterly, 21, 203-222. smith k. (2005) changing economic landscape: liberalization and knowledge infrastructure. science and public policy. 32,5, 339-347. su y. s., hung l.c. (2008) spontaneous vs. policy driven: the origin and evolution of the biotechnology cluster. technological forecasting and social changes, doi:10.1016/j.techfore.2008.08.08. van greenhuizen m., reyes-gonzalez l. (2007). does a clustered location matter for high-technology companies’ performance? the case of biotechnology in the netherlands. technology forecasting and social change, 74, 1681-1696. woodward d., figueiredo o., guimaraes p. (2006). beyond the silicon valley: university r&d and high-technology location. journal of urban economics, 60, 15-32. the article has been reviewed. received in march, 2009; accepted in april, 2009. 76 issn 1822 – 8402 european integration studies. 2009. no 3 employees health and safety requirements and regulation in the european union algis junevičius dainora gelžinytė kaunas university of technology, institute of europe abstract occupational safety and health is a cross-disciplinary area concerned with protecting the safety, health and welfare of people engaged in work or employment. as a secondary effect, it may also protect co-workers, family members, employers, customers, suppliers, nearby communities, and other members of the public who are impacted by the workplace environment. it may involve interactions among many subject areas, including occupational medicine, occupational hygiene, public health, safety engineering, chemistry, health physics, ergonomics, environmental health, industrial relations, public policy, sociology, and occupational health psychology. in the european union, member states have enforcing authorities to ensure that the basic legal requirements relating to occupational safety and health are met. in many eu countries, there is strong cooperation between employer and worker organizations to ensure good osh performance as it is recognized this has benefits for both the worker (through maintenance of health) and the enterprise (through improved productivity and quality). in a democratic country every human has got an inborn and constitutional right to free choice of work and business, as well as to have favourable, safe and healthy working conditions. the problems of safety at work and the health of employees are extremely relevant because if someone breaks the basis of the system, people are going to suffer moral consequences. moreover, hazard often arises to one’s health and sometimes even life. to assure the legal adjustment of safety and health of employees, one has to understand the legal system of this field. occupational health and safety comprises all preventative measures aimed at protecting functional capacity, health and life of employees at work which are used or planned at all operational stages of the company to protect employees from occupational risks or minimize these risks. the main safety objective the prevention of accidents, increase safety awareness at work, it is important to avoid unsafe practices and conditions, each contributing to the creation of safe working conditions. every employee must be provided with secure and healthy working environment irrespective of the activities of the company, type of employment contract, number of employees, profitability of the company, work place, working environment, nature of work, duration of the working day or shift, citizenship, race, nationality, gender, sexual orientation, age, social background, political or religious beliefs of the employee. creation of secure and healthy working conditions in all work-related aspects is the duty of the employer. occupational safety and health measures in the company are funded by the employer. the state of occupational safety and health in companies is measured to the extent that work equipment and working conditions in the company and its units meet occupational safety and health requirements laid down in legal acts. employers have legal obligations to ensure a safe and healthy workplace. keywords: european union, occupational health and safety, occupational risks. introduction the investigation of the operating conditions and evaluation range is especially wide and takes various different steps, which everyone might determine an operating conditions of the employee. whereas in these times of science and technology development appears new and improved laws and regulations is striving to control and supervise as possible the actions of the corporations and therefore to reduce or completely avoid accidents in a workplace. creation of the safe and healthy operating conditions is an inseparable part in issn 1822-8402 european integration studies. 2009. no 3 77 work planning. employer must follow safety and healthy ensuring regulations, create suitable and innocuous work conditions; and employee – to care himself and others health, work safely, familiarize and keep the requirements of safety and healthy work regulations according performing job specification. unfortunately, the indexes of industrial injuries and occupational disease are poor whereas formation of the optimal operating conditions is the main aim for employer. problem. the personnel safety’s and health’s problem is particularly topical. violation of following system means not only a moral harm but also damage of health and some cases for life. is not easy to evaluate laws and even infringements of constitution in juridical attitude, so, after the entrance to the european union, business and systems of organizations, as well as higher requirements are raising for warrant of workers safety and health. another topical problem is concerned with occupational health and safety prevention of accident. there are realizable varying programs of prevention in all european union states in order to find a way how to reduce accidents in workplace. consequently in this article will be analyzed safety of personnel and health’s management system and other laws regulation in attitude of personnel safety and health. aim of the article is to analyze the regulation of the employees’ health and safety in the european union and to provide abilities and suggestions for their upgrading. object of the article – the employees health and safety regulation. tasks of this article: to analyze the most important legislation of  employees condition of health and safety; to identify the most important risk objects of  personnel safety and health; to establish imperfection in organization of  employees condition of health and safety company of domestic salvage and suggest possibility eliminate them. reach methods: special general scientific research literature methods – descriptive method, logical analysis and synthesis. systemic analysis of occupational health and safety legislation the need to improve working conditions is a common concern, extend to both the humanities and economic considerations (the european commission). create more quality jobs the goal, fueling european union has set the council in march 2000 in lisbon and in the same year in december in nice. safe and healthy working environment is essential component of quality work. health and safety at work is one of the most important and cutting-edge of social policies. the european union’s activities in this area of law by the european union treaty article 137. however, the act is not limited to legislation. the european commission has expanded its activities, in cooperation with the european health and safety agency and the life and work foundation for the improvement of information, advice and healthy working conditions for promotion, in paying particular attention to small and medium business enterprises. health and safety at work legal framework of the european commission treaty, 71, 94, 95, 136, 137 and 308 articles. according to article 137, the european union encourages the working environment, in order to protect workers’ health and safety through the harmonization of working conditions. to this end, the european union level is to establish minimum requirements, allowing member states to establish a better safety at the national level, where they themselves would like to. (the european parliament, 2006). since the establishment of the european economic community was to go global approach to health and safety at work towards. established a permanent safety in coal mines and the committee of the advisory committee on safety, hygiene and health at work, whose purpose was to assist the european commission to draw up and implement the measures relating to the work around the list. in 1980, under the treaty establishing the european community, the common council adopted a directive 80/1107/eec governing the protection of workers against the dangers of chemical, physical and biological agents at work. this directive was the plan, providing for the action to be taken by member countries, limiting the potential of chemical, physical and biological factors impact on employees. directive 80/1107/eec article 8, it was found that the council adopt individual directives on worker protection from chemical, physical and biological factors effects. implementing this 80/1107eec directive (under article 8), was adopted by the individual ,,a subsidiary directive’’. (the european parliament, 2006). higher occupational safety and health elements are very important for european companies operating in the space. key european union requirements on working conditions, including safety at work is determined by specific directives. the aim of the directive to take measures to improve occupational health and safety. there is a distinction of the main directives on occupational safety and health in the eu.: 89/391 eec -,,on measures for workers’ safety and health of workers at work’’ 92/85 eec -,,on labour, prohibiting work during pregnancy, given birth and breastfeeding women, and work not recommended for women wishing to preserve the function of maternity, as well as the harmful and dangerous work environment factors and their application of the’’ 93/104 ec -,,working hours’’ 94/33 ec ,,youth work’’ and others. directives set out general principles relating to the issn 1822-8402 european integration studies. 2009. no 3 78 prevention of occupational risks, safety and health, risk and accident factors, the removal of employees and their representatives information and advice. european union legislation in the framework of occupational health and safety point of view, it is crucial to the directive 89/391/eec. general directive 89/391/eec seeks to ensure the protection of workers from industrial accidents and occupational diseases, improvement of the through preventive measures, information, advice, harmonious workers and their representatives’ cooperation and training. directive applies to all european union workers, whether employed private enterprises, and public institutions or organizations. private practice and the development of local officials, this directive does not. (j. brundza, r. butkus, 2002). it complements and expands on a separate directive, 89/391/eec based on article 16., or the other, providing for the safety and health requirements for certain products or activities, the directive. incompleteness of the summary in figure 1 (j. brundza, r. butkus, 2001). this directive is validated in accordance with the ec treaty article 118 a. article 16 of this directive provides that the council, acting on a proposal from the commission under article 118 a thereof, (including-among others) take the individual directives. under european union directives, employers are responsible for their own occupational safety and health. directive 89/391 of the general health and safety management, risk identification and prevention scheme. directive 16 (1) article, it was stated that the council of the commission, pursuant to 118 of the treaty provides for measures to guarantee not less than the safety requirements of the directive, that is, less than the minimum. (the european parliament, 2006). 94/33/ec youth work other eu directives 93/465/eec conformity assessment and ce mark general product safety employers' responsibilities: occupational risk prevention: avoidance of risk, an assessment of the reasons for removal, the work places, work equipment and the choice of working and production methods of choice, replacing the dangerous by the non-hazardous or less hazardous, the safety at work policy which covers technology, employment organization, working conditions, social relations, and work environment factors, the establishment of this preference for collective security measures; occupational risk prophylaxis: osh services and other measures first aid, evacuation, fire safety information, consulting, training, and to make proposals employee responsibilities: grow and take care of their health; correct use of the means of production; the use of personal protective equipment; the use of safety equipment for the purpose; inform the employer about the hazard or risk. provided for a separate directive: work equipment; workplaces; personal protective equipment; manual handling; toxic and harmful substances; biological agents; temporary (mobile) construction; safety and (or) the health mark; recently given birth, and pregnant women; surface and underground mineral-extracting industries; mineral-extracting industries through drilling; fishing vessels; working in potentially explosive atmospheres, and the other based on 89/391 16. 89/391/eec occupational safety and health (89/392/eec change) 98/37/ec machinery (93/104/ec) 2000/34/ec working hours working hours must not be longer than: 14 hours. daily and 48 * hours. within seven days period; leisure time: not less than 11 hours. within 24 hours. holiday: at least 4 weeks per year working at night: more than 8 hours. daily; health checks and so forth. * some of the activities provided for transition periods, reducing the working time to 48 hours. 73/23/eec electrical 89/336/eec electromagnetic compatibility 97/23/eeb pressure equipment 87/404/eec simple pressure dishes 95/16/ec elevators age groups: to 18 15 ... .18 years up to 15 years working hours; portfolio: other conditions 86/188/eec protection from noise 89/106/ce building products fig. 1. incomplete summary of european union directives on health and safety at work (j. brundza, r. butkus, 2001) ec directive 89/391 lays down certain rules for the protection of workers in their places of work, for example. the requirement of first aid items. however, the main objective of the directive the introduction of measures to encourage safety and health improvement. it sets out general principles relating to the prevention of work-risk, safety and health, risk and the elimination of random factors, information, advice, staff and their representatives, and training, and general provisions for the implementation of these principles. as already issn 1822-8402 european integration studies. 2009. no 3 79 mentioned, the directive is of a general nature and is applicable to all areas of activity in both the public and the private sector, except for specific public sphere (armed forces, police). sets out the employer to take the measures necessary for the workers safety and health, including preventive measures, the risks associated with the work, to provide information and training of staff. this directive requires the employer to assess risks related to occupational safety and health at work and ensure that they receive the necessary information on safety and health and will be properly trained. the other for the working time directive is: ec directive 94/33 on the protection of youth work. it is prohibited to work for persons under 15 years old (with some exceptions) and the regulation of persons 15-18 years of age work. eec directive 93/104 concerning certain aspects of the organization of working time, daily, weekly and annual rest periods, and restricting the working week and night work. (j. brundza, r. butkus, 2001) thus, the adoption of directive 89/391/eec, lay the basis of the principle of the new occupational health and safety legislation to develop the system. under the framework directive was drafted and adopted in a separate directive on minimum safety and health requirements for employment 89/654/eec (the directive), 89/655/eec on minimum safety and health requirements for work equipment (second directive), and the other, laying down minimum requirements for the protection of workers from chemical, biological and carcinogenic effects. the separate directives on the basis of the basic directive 89/391/eec, adopted by 19 (the european parliament, 2006). risk factors in the system of safety and health the state of occupational safety and health in companies is measured to the extent that work equipment and working conditions in the company and its units meet occupational safety and health requirements laid down in legal acts. measurement of the state of occupational safety and health involves assessment of the occupational risks, i.e. the likelihood of injury or any other deterioration of the employee’s health due to the impact of the harmful and/or hazardous work environment factor(s). occupational risks must be assessed in every company. the procedure for occupational risk assessment in companies is established in the occupational risk assessment regulations. occupational risk assessment is carried out with the help of the occupational safety and health service of the company, bodies measuring the risk factors certified by the state public health service and licensed occupational safety and health experts. the assessment includes measurement of risks to employees posed by every factor (chemical, physic, biological, ergonomic, psychosocial, physical) of the work environment. when the risks are assessed, occupational risk assessment cards are completed for each risk assessment object. information in the occupational risk assessment cards must be summarized and the document of occupational safety and health status in the company must be completed in the established form. when the occupational risks are assessed, the company has to draw up a risk elimination and mitigation action plan which is used for implementation of risk prevention measures. key indicators of the occupational safety and health status are the number of accidents at work and incidence of occupational diseases. (ministry of social security and labour). depending on the technologies used in enterprises and business type is distinguished in high-risk technological objects. this is the energy, chemical industry, transport and storage of hazardous substances and other dangerous objects, which operate potentially dangerous equipment. risks associated with the risk analysis depend on the severity of possible damage which may result in analyzing the risks and the likelihood of injury (impact on the frequency and duration, the probability of occurrence of hazardous event, the possibility to avoid or to limit the damage). it should be emphasized that: risk assessment is a prerequisite for creating a  safety management system helps the company to constantly monitor the situation and avoid accidents; the absence of safety measures, in danger or  dangerous situations, sooner or later lead to accidents, and workers will be damaged; a small number of accidents in the plant, a light  of their nature or their absence should not cause any reason to automatically assess it as low-risk situation, and stop to assess the risk; absolute safety is not achieved, so the best solution  in this situation to achieve the highest possible level of safety. the main duty of the employer to ensure worker safety in all workplaces and to promote health in all workrelated aspects. in the risk assessment and providing preventive measures should first be taken on their role and importance of: the emergence of new threats, new jobs in a  restructuring or changes in the work (due to constant focus on the necessity and the like.) an increase in serious accidents and occupational  diseases work; anomalies in-out associated with employee status  (technical employees, temporary replacements), experience, qualifications, etc.; change in working time, the increase in  psychological stress or the stress of forced labor, rhythm, etc.. issn 1822-8402 european integration studies. 2009. no 3 80 unusual working times and routes. these changes should bring business to a logic of security based on technical rules, guidelines and instructions for compliance, together with the one based on the logic of prevention spacing.it is necessary to define and provide for the assessment of risk and the use of preventive measures program. this program should include the organizational, technical and human aspects of the company. this program does not exempt the company from the emergency prevention measures. thus, to achieve the company’s achievements in the field of safety, as well, and improves the company’s operations, quality and productivity. risk assessment is the need for the company manager (employer) in helping the entire group of service (s) staff, appointed by the companies and the responsibility of the manager or his authorized representative for: human capital (the safety manual, etc.);  workers’ representatives;  staff who are relevant test reports;  the work of doctors;  mercenary experts from other institutions (if  necessary). ( v. duoba, a. lupeika, 2007). risk assessment aims to determine the employee injuries or other health probability of harmful and / or dangerous work or exposure factors, the assessment of the workplace or other place of work, working arrangements, working conditions (working environment, job, work and leisure mode) meet occupational safety and health regulations ight set of occupational safety and health requirements, and provide for preventive measures that employees are protected from the risk or it would be reduced as much as possible. risk assessment of possible risk-factors in the evaluation process, which can be found in the risk of potential impact on worker health and the decision of whether the risk is acceptable or unacceptable. study, it is sufficient, or the existing precautionary measures, or even necessary to take additional factors in order to prevent hazards. in addition, the risk assessment to ensure that no worker will not hurt. the risk assessment should be established, what is the probability that the risk of causing injury, and the size of the damage will be. jobs virtually impossible without the risk. the employer must do everything possible to minimize the potential risks, and decide independently when evaluating the risk. small and medium-sized enterprises, employers should be fully informed about the additional risks when they are hired by subcontractors, or subcontractor. in such cases, the risk must be assessed in collaboration with the principal employer and the employer, a subcontractor, since it is necessary to evaluate the work activity can operate next to each employee safety and health. professional risk assessment includes risk analysis and risk assessment. risk analysis phases: hazard identification, identification of exposed persons, the risk of admissibility determination (figure 2). (p. čyras, v. grinius,2003). r is k m an ag em en t r is k as se ss m en t risk analysis • hazard identification • identification of exposed persons • determination of the admissibility of the risk risk assessment risk reduction fig. 2. professional risk management process scem (p. čyras, v. grinius,2003) in summary of the provisions set out, we want to stress that risk assessment is not in itself, but must be an integral part of the risk management, the ultimate goal – to reduce the risk of the necessary preventive measures. therefore, proper risk management controls necessary to systematically monitor and adjust the risk assessment data. occupational safety and health (osh) management system (ms) and strategy structuralized viewpoint to management warrants are fully evaluated, are applying safe work methods. it is necessary to periodical checks of applicable means’ efficiency. safe and health is requiring huge commitment of managers, active participating of workers also wellstructuralized system of the management. (international labour organization. fact on safety at work). issn 1822-8402 european integration studies. 2009. no 3 81 as a result of the ever-increasing pace of worldwide liberalization of trade and economies, as well technological progress, the number of occupational accidents and diseases are increasing in many developing countries. it is estimated that every year over 1.2 million workers are killed due to work-related accidents and diseases and 250 million occupational accidents and 160 million work-related diseases are occurring. the economic loss related these accidents and diseases are estimated to amount 4% of world gross national product. (europos saugos ir sveikatos darbe agentūra. sėkminga nelaimingų atsitikimų prevencijos vadyba.) ilo guidelines on osh-ms national guidelines on osh-ms tailored guidelines on osh-ms osh-ms in organizations fig. 3. elements of the national framework for osh management system (ilo safe work osh management systems) occupational safety and health management system implementation on two levels national and organizational. national occupational safety and health management system framework. at the national level, they provide for the establishment of a national framework for occupational safety and health (osh) management systems (ms), preferably supported by national laws and regulations. the national policy for osh-ms should be formulated by competent institution(s) in consultation with employers’ and workers’ organizations, and should consider: promotion of osh-ms as part of overall  management; promote voluntary arrangements for systematic  osh improvement; avoid unnecessary bureaucracy, administration  and costs; support by labour inspectorate, safety and health  and other services. the functions and responsibilities of implementing institutions should be clearly defined as well. figure 3 describes the elements of the national framework for osh managements systems. it shows the different ways in which international labour organization (ilo) osh may be implemented in a member state (ilo safe work osh management systems). the occupational safety and health management system in the organization. ilo-osh deals with the occupational safety and health management systems at the organizational level. the guidelines stress that compliance to national laws and regulations are the responsibility of the employer. iloosh encourages the integration of osh management system elements into overall policy and management arrangements, as well as stressing the importance that at organizational level, osh should be a line management responsibility, and should not be seen as a task for osh departments and/or specialists. the osh management systems in the organization has five main sections which follow the internationally accepted demming cycle of plan-do-check-act, which is the basis to the “system” approach to management. these sections are namely policy, organizing, planning and implementation, evaluation and action for improvement. policy contains the elements of osh policy and worker participation. it is the basis of the osh management system as it sets the direction for the organization to follow. organizing contains the elements of responsibility and accountability, competence and training, documentation and communication. it makes sure that the management structure is in place, as well as the necessary responsibilities allocated for delivering the osh policy. planning and implementation contains the elements of initial review, system planning, development and implementation, osh objectives and hazard prevention. through the initial review, it shows where the organization stands concerning osh, and uses this as the baseline to implement the osh policy. evaluation contains the elements of performance monitoring and issn 1822-8402 european integration studies. 2009. no 3 82 measurement, investigation of work-related injuries, illhealth, diseases and incidents, audit and management review. it shows how the osh management system functions and identifies any weaknesses that need improvement. it includes the very important element of auditing, which should be undertaken for each stage. persons independent of the activity being audited should conduct audits. this does not necessarily mean third party auditors. action for improvement includes the elements of preventive and corrective action and continual improvement. it implements the necessary preventive and corrective actions identified by the evaluation and audits carried out. it also emphasizes the need for continual improvement of osh performance through the constant development of policies, systems and techniques to prevent and control work-related injuries, ill-health, diseases and incidents. the main sections and their elements of the osh management system at the organization are shown in figure 4 below (ilo safe work osh management systems). policy osh policy worker participation organizing responsibility&accountability competence&training osh documentation comunication organizing continual improvement planing& implementation action for improvement evaluation policy organizing evalution performance monitoring and measurement investigation audit management review planing&implementation initial review system planning, development and implementation osh objectives hazard prevention action for improvement preventive and corrective action continual improvement fig. 4. osh management system (ilo safe work osh management systems) employee health and safety one of the most important and most developed of employment and social aspects of eu policy. over the past decades has been adopted and consistently applied to many of the community legislation, enabled to improve working conditions in eu member states and to achieve significant progress in reducing work-related accidents and illnesses. (ilo safe work osh management systems). in order to update the workers health and safety policy of the european commission in 2002 2002-2006, found community strategy. this strategy relies on a common approach to the employees feel good, taking into account the changes in the work area, and new risks (especially psychosocial nature) appearance. 2002-2006, community health workers and the safety of the conclusions of the evaluation report noted that with this strategy was updated in the prevention policy at the national level, to provide a coherent and convincing arguments in favor of the partnership to achieve common goals, and the prevention of the interested parties are encouraged to think strategically, that these goals are achieved, this strategy has drawn public attention to the occupational health and safety of the importance of keeping these components of quality management and is essential for economic efficiency and competitiveness of the factors. (2007-2012 m. bendrijos darbuotojų sveikatos ir saugos strategija, 2007). noted that the period 2002-2006 community strategy for the period significantly decreased the number of accidents at work. new for 2007-2012 strategy proposed to achieve a larger goal the total number of accidents by 25% fewer accidents at work in the 27 member states by 2012, improving the health and safety protection, and thus contributing significantly to economic growth and jobs strategy. strategies for structural scheme shown in figure 5 (2007-2012 m. bendrijos darbuotojų sveikatos ir saugos strategija, 2007). issn 1822-8402 european integration studies. 2009. no 3 83 objective: reduction of accident at work event at greater percentage by improving occupational health and safety objective: improve well being of the workers, taking into consideration development and emergence of new risks 2007 – 2012 2002 – 2006 old strategy new strategy european commission prospective results: fatal accidents at work will be decrease by 25% results: a) fatal accidents at work decreased by 17% b) accidents which caused incapacity to work for more than 3 days 20% fig. 5. strategies for structural scheme (2007-2012 m. bendrijos darbuotojų sveikatos ir saugos strategija, 2007) sustained and a work-related accidents and occupational diseases, the major decline in the period 2007-2012 the aim of the strategy. the commission considers that the overall goal of this period should be 25% reduction in accidents at work 100 000 27 eu member states, working people.%. to achieve this objective is proposed to implement the following key tasks: to ensure a good implementation of eu  legislation; to support smes in the implementation of existing  legislation; a legal framework adapted to the work area and to  simplify the development, in particular for smes; promote the development of national strategies  and implementation; to promote staff behavior change, as well as  employers’ health-friendly approach; a new potential threat to the identification and  assessment methods; to improve the supervision of the progress made; health and safety to promote the international  level. if the health and safety of workers are not properly care for, can result in terms of absenteeism, accidents at work and occupational diseases, as well as standing for work due to professional reasons, must take into account not only the human dimension and its important economic impact. with occupational health and safety problems associated huge costs hampering economic growth and adversely affect the competitiveness of eu enterprises. much of these costs must be covered by social security systems and public finances. thus, the occupational safety and health policy formulation and implementation affect the safety condition and institutions of the european union formulated and implemented employee safety and health policy. and the economic and social public welfare, it is necessary to increase efforts to improve the health and safety protection. uninterrupted, and sustained a workrelated accidents and occupational diseases, the major decline in the period 2007-2012 the aim of the strategy. (2007-2012 m. bendrijos darbuotojų sveikatos ir saugos strategija, 2007). conclusions permanent occupational safety and health 1. promotion is the most important european social and employment policy, although not all member states or the availability of resources and knowledge sufficient to address this problem. one of the most important and most developed of employment and social affairs in the eu policy is a workers health and safety. occupational safety and health problem is particularly acute because, in violation of this systems framework, by the people, not only the moral harm, but often the damage to health, sometimes caused by the risk of their lives. the legal point of view to evaluate the law, often even the safeguards of constitutional violations is not easy, so join the eu, business, organization systems, increased requirements for worker safety and health guarantee. issn 1822-8402 european integration studies. 2009. no 3 84 the main duty of the employer to ensure worker 2. safety in all workplaces and to promote health in all work-related aspects. in the risk assessment and providing preventive measures should first be taken into account in their role and importance, and the need to establish what is the probability that the risk of causing injury, and the size of the damage will be. risk assessment is not in itself but must be an integral part of the risk management, the ultimate goal to reduce the risk of the necessary preventive measures. therefore, proper risk management controls necessary to systematically monitor and adjust the risk assessment data. over the past decades has been adopted and 3. consistently applied in a number of community law, enabled to improve the working conditions of the eu member states and to achieve significant progress in reducing work-related accidents and illnesses. for occupational safety and health improvement, the commission introduced the occupational safety and health strategy for the period 2007-2012. which aims to promote a common approach to the wellbeing of workers, taking into account the changes in the work area, and the emergence of new risks, and reduce accidents. thus, for economic and social well-being of society, it is necessary to increase efforts to improve the health and safety protection. references čyras p., grinius v., kaminskas k.a ir kt. profesinė sauga ir sveikata. ergonomikos principai. vilnius: ,,technika’’, 2003. p. 404 brundza j., butkus r., deikus j., eičinas j. sauga darbe es direktyvų šviesoje: metodinė medžiaga. akademija: lietuvos žemės ūkio universitetas, 2002. duoba v., lupeika a. darbų sauga. vilnius, 2007. baublys j., jankauskas p. darbų saugos organizavimas ir ergonomikos pagrindai. mokomoji knyga. vilnius, 2003. šibilskis p., matulionis v. saugaus ir sveiko darbo organizavimas. panevėžys, 2005. tartilas j. traumų prevencijos problem air socialinė sauga. jurisprudencija: mokslo darbai, 25 (17) tomas. vilnius: ltu, 2002. šukys r., tartilas j. ir kt. žmonių sauga darbe. vilnius: technika, 2000. brundza j. darbų sauga. darbų saugos organizavimas įmonėje. kaunas : lžūu leidybinis centras, 1998. brundza j., butkus r. darbuotojų saugos ir sveikatos teisinė bazė. 2001 [žiūrėta 2009-02-15]. prieiga per internetą: <http://www.lzuu.lt/dstl/html/phare/ sem1/1_1_sk.html#ivadas>. europos saugos ir sveikatos darbe agentūra. sėkminga nelaimingų atsitikimų prevencijos vadyba. [žiūrėta 2009-02-25]. prieiga per internetą: <http://osha.vdi. lt/pdf/topics/faktai/faktai_13.pdf>. 2007-2012 m. bendrijos darbuotojų sveikatos ir saugos strategija: gerinti darbo kokybę ir našumą. 2007. [žiūrėta 2009-02-25]. prieiga per internetą: <http:// www.lps.lt/usr_img/image/naujienos/1099164312_ st06775_lt07.doc >. employees’ health and safety responsibilities. [žiūrėta 2009-01-30]. prieiga per internetą: <http://www. direct.gov.uk/en/employment/healthandsafetyatwork/ dg_4016683> ministry of social security and labour. occupational safety and health. [žiūrėta 2009-0130]. prieiga per internetą: <http://www.socmin.lt/ index.php?1826297904>. ilo safework osh management systems. [žiūrėta 2009-01-30]. prieiga per internetą: <http://www.ilo. org/public/english/protection/safework/managmnt/ download/promo.pdf>. council directive 89/391/eec of november 1989 on the introduction of measures to encourage improvements in the safety and health of workers at work. 90.j.n.l 183 of 29 06 1989. council directive of 12 june 1989 on the introduction of measures to encourage improvements in the safety and health of workers at work (89/391/eec) // official journal l’1989 nr.183-1. council directive 92/85/eec of 19 october 1992 on the introduction of measures to encourage improvements in the safety and health at work of pregnant workers and workers who have recently given birth or are breastfeeding (tenth individual directive within the meaning of article 16 (1) of directive 89/391/eec) // official journal l’1992 nr.348-1. council directive 94/33/ec of 22 june 1994 on the protection of young people at work. [žiūrėta 200901-30]. prieiga per internetą: <http://eur-lex.europa. eu/lexuriserv/lexuriserv.do?uri=celex:31994l 0033:en:html> council directive 93/104/ec of 23 november 1993 concerning certain aspects of the organization of working time. [žiūrėta 2009-01-30]. prieiga per internetą: <http://eur-lex.europa.eu/lexuriserv/ lexuriserv.do?uri=celex:31993l0104:en:htm l> the european commission. health and safety at work. [žiūrėta 2009-02-18]. prieiga per internetą: <http:// ec.europa.eu/employment_social/health_safety/ index_en.htm> issn 1822-8402 european integration studies. 2009. no 3 85 the european parliament. european parliament fact sheets. health and safety at work. 2006. [žiūrėta 2009-02-10]. prieiga per internetą: <http://europarl. europa.eu/facts/4 8 5en.htm.>. european agency for safety and health at work. [žiūrėta 2009-02-10]. prieiga per internetą: <http:// uk.osha.europa.eu/?redirpopup=1> international labour organization. fact on safety at work. [žiūrėta 2009-02-15]. prieiga per internetą: <www.ilo.org/wcmsp5/groups/public/---dgreports/--dcomm/documents/publication/wcms_067574.pdf> the article has been reviewed. received in march, 2009; accepted in april, 2009. 14 issn 1822-8402 european integration studies. 2009. no 3 brain drain problem in lithuania: possible actions for its’ solution via brain gain rasa daugėlienė rita marcinkevičienė kaunas university of technology institute of europe abstract the migration of highly qualified knowledge workers is a natural phenomenon in the globalized economy, where knowledge has become a highly valued asset. from the national perspective, this process of migration is characterised in terms of the processes of “brain drain” and “brain gain”. unfortunately for the less economically developed countries, such as lithuania, the extent of “brain drain” is greater than that of “brain gain”. however, there are few policy measures that such countries can apply in order to effectively solve the problem of “brain drain”. in this paper, we argue that the problems of “brain drain” can be most affectively addressed by taking a broader perspective and applying the policy measures for the “brain gain”. this argument rests on an assumption that if the “brain gain” policy instruments are successfully implemented, they will also solve the problem of the “brain drain”, i.e. if a country becomes an attractive place for the international knowledge workers, it will also be attractive enough for the national “brain” to stay in the country. in the paper, we support this argument with the successful examples of the “brain gain” policy measures of the european and asian countries (india, south korea, taiwan). we claim that many of these measures can also be applied in lithuania, a “latecomer” country in the globalised knowledge economy. most of the studies carried out in lithuania so far tend to focus on addressing the problems of “brain drain”, while we try to extend this perspective into a more promising field of the policy of “brain gain”. the empirical survey covered three samples of the respondents: competent managers of the progressive lithuanian companies (participants of the executive mba study programme), the high-potential lithuanian students from the national student academy and foreign students in kaunas university of medicine. the research helped identify the most significant factors and policy measures that would discourage the actual and potential “knowledge workers” from taking an emigration decision. it also helped identify the most significant factors and policy measures that would make lithuania an effective beneficiary in the international processes of the “brain gain”. keywords: brain drain, brain gain, knowledge workers migration, brain gain policies. introduction migration of the highly qualified professionals is one of the characteristics when talking about the problems of xxist century. specialists migration is an important and inevitable component of country‘s economical and social life. it‘s necessary to highlight, that orderly and properly managed migration process can be beneficial, both to individuals and to the society. however, the practice shows that this is the problematic area for many countries, as well for lithuania. in today’s knowledge society, the emigration of highly skilled professionals is not a bad factor for lithuania, the unwelcomed fact is, that they don‘t return to their home country. this process is called “brain drain” and this means that for lithuania it is very important to stop the brain drain and pursue to attract highly qualified persons from foreign countries. it is obvious that the world’s most competitive countries and regions are those that are attractive area to creative professionals. considering above mentioned aspects, the research problem being solved in this article should be constructed: what conditions should be realized, that lithuania would become an attractive place for highly skilled professionals to life and work? the object of the research – brain drain phenomenon. the aim of this article – to highlight brain drain problem in lithuania and to find/suggest possible actions for its’ solution via brain gain. issn 1822-8402 european integration studies. 2009. no 3 15 to achieve this aim there are four tasks to be solved: to crystallise the concepts of brain drain and brain  gain; to highlight the main peculiarities of brain gain  policies in european and asian countries; to explore brain drain situation in lithuania; to identify recommended actions for suppression  of brain drain and stimulation of brain gain in lithuania. as the research method it was taken theoretical analysis of the scientific works in this field. comparative analysis allowed crystallising the conceptual understanding of brain drain and brain gain phenomenon. analysis of statistical data of the survey concerning brain drain causes and brain gain possibilities was applied as well. scientific originality and practical significance of the article is: systemised theoretical features of brain drain and  brain gain phenomenon; summarized the main peculiarities of brain  circulation policies of european and asian countries. that allowed systemising actions for suppression of brain drain phenomenon in lithuania; presented situation of brain drain in lithuania and  recommended actions for the suppression of brain drain in lithuania were suggested. crystallization of brain drain and brain gain phenomenon as the world entered to the globalization and knowledge based era, brain drain and brain gain phenomenon became more relevant than any time before. the migration of knowledge workers has become a highly debated political issue relating to the globalization process as a result of the inexorable opening of national resources in a knowledge-based economy (meyer, 2001). highly qualified workers migrate across the countries with the purpose to find or to realise their work, fulfilment, life and many other needs. however, if one country meets brain gain – a very welcomed phenomenon, other nation has brain drain – harmful phenomenon. in the global context, brain drain phenomenon is the object of the political discusses and scientific researches for more than forty years. the concept of brain drain is widely analysed in scientific works (giannoccolo, 2006; balaz, williams, kollar, 2004; zweig, fung, han, 2008; le, 2008; daugėlienė, 2007; gaillard, gaillard, 1997; mahroum, 2005; meyer, 2001). researchers analyse the peculiarities of this phenomenon and give definitions, when highlighting the main features and characteristics of brain drain. according to mahroum (2005), brain drain is the permanent emigration of skilled persons from one jurisdiction to another. the “sender” jurisdictions are typically the losing ones while the “receiver” jurisdictions are typically the “brain gainers”. while rutherford (1992), provides the following definition of brain drain: it is international migration of highly qualified persons, e.g. surgeons, physicians, scientists and engineers, from low income countries to more prosperous economies. differences in salaries and research facilities, together with the over-supply of specialized graduates in less developed countries, have brought about this increase in the human capital stock of advanced countries (giannoccolo, 2006). it is necessary to stress, that different authors’ definitions of brain drain, have many similar aspects and reveal the same idea: the emigration of highly qualified people to those countries, where better working and living conditions are provided. hence, the contrary phenomenon of brain drain is brain gain. usually this process occurs in developed countries, rather than in developing ones. there could be done a generalization, that brain gain phenomenon symbolises country’s attractiveness for highly skilled people, its possibility to provide good studying, working and living conditions. it is also important to stress, that the economic effects of highly skilled international migration is obvious both in sending and receiving countries (fig.1). sending country receiving country “brain drain”, lose of  productive potential due to absence of higher skilled workers and human capital; lower returns from public  investment in tertiary education (waste of national public resources); loss of fiscal revenues  from taxation of human capital. increased r&d due to  enhanced availability of individuals with a higher stock of knowledge; inflow of  entrepreneurship; knowledge flows and  collaboration with sending countries; immigrants can foster  diversity and creativity; renewal of faculty and  researchers. fig. 1. economic effects of highly skilled international migration (solimano, 2004) the impact of brain drain phenomenon is very harmful for sending country’s economy development, its competitiveness in the knowledge based world. country loses not only the investments in tertiary education, but also educated specialists, who are the guarantee for further country’s prosperity. therefore, totally different situation occurs in receiving country, when highly skilled immigrants further stimulate r&d, provide this country with entrepreneurs, knowledge, new ideas etc., issn 1822-8402 european integration studies. 2009. no 3 16 thus contributing to its progress. the gap in economic progress, as well as in nations’ development level, between sending and receiving countries, can become very sharp and dangerous, when these processes become irrepressible. as zong (2002), highlights, that “brain drain” or “brain gain” is not simply a phenomenon of an outflow or inflow of professional migrants, and that it has to do with actual international transferences and utilization of human capital resources. in other words, what is more important is what and how countries make use of flowing talent rather than where do the exchanges take place (mahroum, 2005). the peculiarities of european and asian brain gain policies as the world entered to the xxist century – knowledgebased economy era – knowledge creation and diffusion could be named as the engines stimulating countries competitiveness, economics growth. the accumulation of human resources can be interpreted as the main pillar sustaining this process. thus there could be highlighted, that human resources, highly qualified persons/ knowledge-workers are the factors of success when trying to stimulate country’s economics development and its competitiveness as well. each country must find the recipes of success how to attract, accumulate highly skilled workers and this can represent country’s situation in a knowledge–based world. the ability to attract talents to work to one or another country depends on many factors (chacko, 2007; mahroum, 2005; gaillar, gaillard, 1997; zweig, fung, han, 2008; suntharasaj and kocaoglu, 2008). country must be attractive for highly skilled workers and give them comparatively better conditions to work than he/ she has now. but there is no one universal recipe which could ensure the success of the brain gain policy. there is a necessity to subordinate many actions. many studies analyse the policies of brain gain (saxenian, 2005; kello, wachter, 2004; chacko, 2007; vertovec, 2007; tung, 2008; tung, lazarova, 2006; mahroum, 2005). brain gain appears to be the rage in international policy circles. it’s necessary to stress, that nowadays european countries create the policies which motivate highly skilled workers to return to their motherland and to adapt their skills, knowledge. it is necessary to emphasize that the purpose of brain gain policies is to retrieve the talents or/and try to collaborate with their scientists living and working abroad. these policies can vary from immigration facilitation for researchers and highly skilled persons to tax discounts and easing of linguistic and other barriers. for some countries, the problem can be in the lack, or little, “internationalization” of the local research establishment (e.g. germany, finland, denmark); while for others the problem is perceived as a classical “brain drain” one in which financial returns and career rewards are main drivers (e.g. france, uk) (mahroum, 2005). the main peculiarities of asian countries brain gain policies are explored when analysing the best practice examples of brain gain. india, china, korea is a good example of such success. these countries organized effective policies which helped to pull their scientists, researchers back to the motherland or to collaborate with the local actors, thus developing countries economy as well as competitiveness in the knowledge-based world. table 1 and table 2, show the main features of brain gain policies in european and asian countries. table 1. common european and asian countries actions towards brain gain the development of multilateral economic, social and cultural relations; the establishment and development of high technology parks; the establishment of regulations that simplify entry and exit for highly talented people and investors holding other  countries citizenship; communication with the scientists working abroad (scientific diasporas); the application of beneficial legislation system for researchers; the introduction of beneficial taxation system for researchers; increase in financing of r&d (% gdp). issn 1822-8402 european integration studies. 2009. no 3 17 table 2. different european and asian countries actions towards brain gain european countries actions towards brain gain asian countries actions towards brain gain the creation and implementation of programmes  stimulating scientists mobility (e.g. marie curie); the accreditation of diplomas; the reduction of cultural (linguistic) barriers (e.g.  there is allowed to teach in english language, in universities). the establishment of research funds with the purpose to  fund returnees scientific activities; the creation of postdoctoral centres in order to attract  overseas ph. d’s to return for postdoctoral positions on the mainland; the establishment of world-class universities; the attraction of venture capital; the development of digital infrastructure in order to attract  it companies; remuneration of returnees corresponds to the payment in  the u.s. (in purchasing power terms); the creation of good domestic conditions for returnees. methodology for the survey of brain drain causes and possible in lithuania most of the studies carried out in lithuania (jucevičienė, 2002; žalandauskas, 2008; kazlauskienė, 2006) so far tend to focus on addressing the problems of “brain drain”, while in this paper we try to extend this perspective into a more promising field of the policy of “brain gain”. the empirical survey covered three samples of the respondents: competent managers of the progressive lithuanian companies (participants of the executive mba study programme) (26 respondents), the high-potential lithuanian students from the national student academy (28 respondents) and foreign students in kaunas university of medicine (29 respondents). when trying to evaluate brain drain causes in lithuania and possible actions towards brain gain, there was composed a questionnaire with four blocks of questions (fig. 2). questionnaire factors influencing decision to migrate demography possible political actions towards suppresion of brain drain and stimulation of brain gain a perseption of what is “a good life“ fig. 2. the blocks of questions of the survey the first block of questions helped to identify if respondents consider the possibility to emigrate (lithuanian respondents) or to stay (foreign respondents), as well as the main reasons, factors influencing a decisions to migrate. other important element, that this block of questions helped to find –what factors plays the strongest part in stopping respondents to leave their home country and what should happen in lithuania, that respondents would not consider the possibility to emigrate (lithuanian respondents), would consider the possibility to stay (foreign respondents). the purpose of the second block of questions was to find an answer – what needs represent a perception of „a good life“, and where they are better met, i.e. in lithuania or in foreign (home) country. the third block of questions was constructed when analysing european and asian countries best practise examples in brain gain. the purpose was to identify the policy measures, actions which could help to solve, suppress brain drain phenomenon in lithuania, and/or even to encourage brain gain. analysis of brain drain situation in lithuania it is important to stress, that these three samples of respondents have different characteristics. the average emba respondent is from 30 till 40 years old, married and employed as executive or has his/her own business. in other words, it is a person with a strong social and economic basis. while other respondents – the students of nacional students academy (nsa) – have totally different characteristics. these are young persons, from 18 till 25 years old, bachelors, with almost no issn 1822-8402 european integration studies. 2009. no 3 18 work experience and trying to find his/her way in life, when choosing what to do after graduation from school or university. it could be stressed, that these highpotential people are potential migrants, because they search possibilities to study in foreign countries. the third sample of respondents (kmu) is foreign countries people, from 25 till 35 years old, studying the sciences of medicine and the majority are bachelors. in other words, these respondents are potential migrants, because these professions have great demand in worlds‘ work market. the results of survey have showed, that highlyskilled people seriously consider the possibility to migrate (fig. 3). 0 10 20 30 40 50 60 70 80 90 100 yes no considered it bef ore % emba nsa 0 10 20 30 40 50 60 70 80 90 100 yes no considered it before % kmu fig. 3. self-determination to migrate the situation is dramatically bad in nsa group, where almost 90 % of respondents consider the possibility to emigrate. there scholars are high potential persons, which could be named as the future of lithuania‘s development, its’ prosperity. the results show, that they don‘t see their future in motherland and this perception has a great dangerous for lithuania‘s welfare. emba respondents are not so negative in this field. the majority of them (almost 50 %) say that they do not consider the emigration. but, under certain circumstances they would emigrate from lithuania. while, foreign – kmu – respondents don‘t see their future in lithuania and stress, that after graduation from the university they are seriously decided to come back to their motherland or go to other foreign country. the survey also helped to reveal circumstances influencing a decision to migrate (table 3). table 3. circumstances, influencing a decision to migrate emba m* nsa m* kmu m* radical deterioration of living 1. standards in lithuania; 1,72 attractive work opportunity in 1. foreign country; 1,92 losing hope to find work 1. according to qualification anywhere else; 2,20 attractive work opportunity 2. in foreign country; 2,16 radical deterioration of living 2. standards in lithuania 2,48 attractive work opportunity 2. in lithuania. 2,60 i would emigrate if i had no 3. wife/husband. 2,93 losing hope to find work 3. according to qualification. 2,95 * mean (scale from 1 to 5) as it is showed in table 3, the most important causes influencing a decision to migrate for all respondents are very similar. it is necessary to stress, that career opportunities, for highly qualified people, have a great impact. there could be done a generalization, that for nsa and kmu respondents economic circumstances as well as personal career opportunities are these factors which have the biggest influence. while for emba respondents social circumstances have more influence when considering a possibility to emigrate. the study allowed to identify the main “push – pull” factors affecting the highly qualified/potential workers to emigrate (table 4). issn 1822-8402 european integration studies. 2009. no 3 19 table 4. “pull – push” factors respondents factors m* emba unsafe living environment;1. 1,46 system in lithuania insufficiently supports my actions.2. 1,56 nmad better conditions for self-fulfilment in other countries;1. 1,33 willingness to work in accordance with the qualification;2. 1,54 better opportunities to implement initiatives abroad;3. 1,59 better living conditions abroad.4. 1,64 kmu 1. too low salary; 1,11 2. better living conditions in my home country; 1,22 3. willingness to work in accordance with the qualification; 1,25 4. better conditions for self-fulfilment in other countries; 1,32 5. limited career opportunities; 1,39 6. insufficient opportunities for carrying out my initiatives in lithuania. 1,44 * mean (scale from 1 to 3) the key pull – push factors are related to economic lithuania‘s environment. it could be confirmed, that highly qualified people are searching for selffulfilment, career opportunities. equally, they want to be professionally appreciated, thus salary could be identified as a measure to seek this. unfortunately, this shows that in lithuania there is a lack of professional opportunities and highly-qualified people feel a lack of personal/professional appreciation. according to jucevičienė et al. (2002), every person take a decision to emigrate, as well as to come back to its home country, when weighing one countries “advantages” and others “disadvantages”. this process is based on personal values, and a perception of what is “a good life”. thus in the survey there was a question which helped to identify respondents opinion about what is a “good life” (table 5). table 5. factors representing a perception of “a good life” emba m* nsa m* kmu m* professional self-1. fulfilment; 1,19 1. professional selffulfilment; 1,39 communication with family and 1. friends; 1,48 good salary;2. 1,27 2. sense of personal/ professional growth; 1,46 tolerant and good-willing people;2. 1,57 career opportunities;3. 1,27 3. career opportunities; 1,68 democratic environment and 3. respect to human rights; 1,62 sense of personal/4. professional growth; 1,31 4. communication with family and friends. 1,75 safe and clean environment;4. 1,64 communication with 5. family and friends. 1,35 professional self-fulfilment;5. 1,66 emotionally comfortable space of 6. work and living; 1,67 good salary.7. 1,69 * mean (scale from 1 to 5) for lithuanian (emba, nsa) professional selffulfilment is at a top of a perception of what is “a good life”. meanwhile to foreign respondents (kmu) this figure is only in the fifth place of importance, where communication with family and friends in their view is one of fundamental in a perception of “a good life”. other needs of lithuanian respondents associated with the perception of “a good life” are mostly reflected by career opportunities as well as by sense of professional and personal growth. it is important to stress, that foreign respondents highlight the existing of tolerant, goodwilling people and democratic environment, respect to human rights as the essential factors of “a good life”. it could be argued, that foreign countries people face with lack of tolerance and good-willing people in lithuania, while lithuanian respondents feel lack of self-fulfilment opportunities in the country. it is important to highlight, that foreign, as well as lithuanian respondents claim, that needs associated with their perception of “a good life” are better met in foreign country, but not in lithuania. it could be argued, that respondent‘s willingness to emigrate is influenced by insufficient realisation of their needs in lithuania. thus, public policy measures should focus more on the highly issn 1822-8402 european integration studies. 2009. no 3 20 skilled professional needs, in order to stop them to take a decision to emigrate and trying to implement brain gain in lithuania. the aim of the survey was to identify the most important policy measures which could help not only to suppress brain drain, but also to stimulate brain gain in lithuania (table 6). table 6. brain gain policy measures respondents policy measures m* emba greater respect to individuals from the state institutions;1. 1,32 ensuring the safe living and criminal-free environment;2. 1,44 better social guarantees and services for knowledge professionals;3. 1,44 attracting the international knowledge-intensive firms;4. 1,44 promotion of tolerance and mutual respect in the society.5. 1,52 nsa higher salaries for the professionals;1. 1,44 attracting the international knowledge-intensive firms;2. 1,54 better technologically equipped workplace;3. 1,56 creation of international competence centres/technological parks in lithuania.4. 1,59 kmu higher salaries for the professionals;1. 1,32 promotion of tolerance and mutual respect in the society;2. 1,45 increased state financing for my professional activities;3. 1,55 better social guarantees and services for knowledge professionals;4. 1,55 better technologically equipped workplace.5. 1,57 * mean (scale from 1-yes it would help me stay in lt to 3-no it does not apply to my case) basically, for emba respondents the most relevant are social factors, when economic factors do not take essential part when influencing their decision to stay in lithuania. while for nsa respondents the most important “brain gain” policy measures are related with work and career factors, i.e. higher salaries for the professionals, international knowledge-intensive firms in lithuania, better technologically equipped workplace. these are the most relevant policy measures which could influence their decision to stay in the country. the analysis of kmu respondent’s answers in the context of brain gain policy measures, helped to reveal, that higher salaries would be the most effective policy measure at convincing to stay and work in lithuania. it is necessary to highlight, that foreign students/ professionals feel the lack of tolerance in lithuania’s society, thus they stress that promotion of the tolerance and mutual respect in the society. this would be an important policy measure while convincing to stay and work in lithuania. there could be concluded, that the implementation of above mentioned brain gain policy measures could suppress not only brain drain in lithuania, but also would contribute to the attraction of foreign specialists to the country. recommended actions for the suppression of brain drain phenomenon in lithuania concerning to the best brain gain practises as well as the survey of brain gain causes and brain gain possibilities, there could be suggested recommended actions for the suppression of brain drain phenomenon in lithuania, via brain gain. in order to suppress brain drain phenomenon and stimulate brain gain in lithuania, country’s government should implement and realize a complex, interrelated social and economical policy actions and measures. the results of the survey have showed that highly qualified people do not see self-fulfilment opportunities in lithuania. equally, their needs are not satisfied in the country, thus their decision to emigrate is relatively strong. it is important to stress, that brain drain phenomenon could be more effectively suppressed via brain gain policy measures, rather than searching for answers and focus on the reasons leading to emigration of highly skilled professionals. there could be highlighted that if a country becomes an attractive place for the international knowledge workers, it will also be attractive enough for the national “brain” to stay in the country. figure 4 shows the most relevant brain gain policy measures which could suppress brain drain phenomenon and stimulate brain gain in lithuania. issn 1822-8402 european integration studies. 2009. no 3 21 recommended actions for the suppression of brain drain phenomenon in lithuania increased state financing for highly skilled professional activities better technologically equipped workplace higher salaries for the professionals better social guarantees and services for the knowledge professionals creation of favourable conditions for foreign investments creation and stimulation of greater respect to individuals from the state institutions promotion of tolerance and mutual respect in the society creation of international competence centres / technology parks in lithuania ensuring the safe living and criminalfree environment attracting the international knowledge-intensive firms social actions and measures economic actions and measures fig. 4. recommended actions for the suppression of brain drain phenomenon in lithuania via brain gain conclusions analysis of the brain drain definitions has showed that brain drain characterizes the migration of highly qualified professionals, in order to find better work and/or living conditions. there was highlighted, that brain gain emphasizes countries success, when implementing appropriate policy, with the purpose not only to retain country‘s professionals working abroad, but also to attract foreign professionals into the country. it was stressed that in the knowledge based economy, the impact of brain drain phenomenon has a very negative impact for sending countries development, its’ competitiveness. there  was concluded, that many european and asian countries faced with the emigration of highly skilled professionals. however, just few of them managed to retrieve their professionals back to the country. the analysis of best practise examples of european and asian countries brain gain policies has showed, that there were implemented many similar brain gain policy measures and actions both in european and asian sates (i.e. the development of multilateral economic, social and cultural relations; communication with the scientists working abroad (scientific diasporas); increase in financing of r&d). however, european countries pay more attention to the reduction of cultural barriers, while asian countries try to attract venture capital, establish world-class universities, etc. analysis  of the survey of brain drain causes and brain gain possibilities enabled to highlight, that in lithuania, highly skilled professionals face with the lack of work and self-fulfilment opportunities, as well as with the lack of assessment, low salary, intolerance. equally, knowledge workers stress, that needs associated with the perception of “a good life” are better met in foreign country, rather than in lithuania. thus, this is one of the most important factors stimulating their decision to emigrate. there was revealed, that lithuanian specialists are interested in career opportunities, possibility to work with the latest technologies, while foreign professionals wish higher salaries as well as greater respect and tolerance in lithuania. according to the respondents, this could play and important part when trying to stimulate brain gain as well as to suppress brain drain. there were suggested recommended actions for the suppression of brain drain in lithuania. lithuania’s government should implement social and economical actions towards the suppression of this phenomenon. issn 1822-8402 european integration studies. 2009. no 3 22 this includes the increased state 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(2008). redefining the brain drain: china’s “diaspora option”. science, technology & society, 1 – 33. the article has been reviewed. received in march, 2009; accepted in april, 2009. european integration studies 2008.indd 25 issn 1822-8402 european integration studies improvement of the university programme on the base of modularity alla anohina, janis grundspenkis, jurijs lavendels, vjaceslavs sitikovs, viktorija vinogradova riga technical university abstract the curriculum “computer systems” of rtu faculty’s of computer science and information technology is developed on the basis of classical teaching principles. the curriculum is accredited for 6 years till 2013 on academic bachelor, professional school after bachelor’s degree, master and doctoral levels. despite of the current positive state rtu institute of applied computer systems (iacs) taking advantages provided by european social fund in latvia is implementing a set of projects directed towards improvement of the educational curriculum “computer systems” and the quality of studies. total amount of the implemented projects is 486800 latvian lats for the period from october, 2005 till august, 2008. the necessity of revision of learning process, its content and objectives is determined by the following factors: latvian republic accession to the european union; explosion of industry; a new standard of informatics for secondary education in latvia. the aim of the paper is to introduce readers to practical exploitation of opportunities provided by esf in the improvement of iacs’s learning process, competitiveness of iacs’s graduates and valuable inclusion of latvian republic into the common eu scientifi c and educational area. keywords: curriculum, computer systems, course profi le, module. introduction nowadays we can observe an evolution from the industrial age to the information age that causes the rise of information society. information society requires not only abilities to use information technology and process information, but also abilities to learn new knowledge and to get new skills. these changes cause emerging of so called “knowledge work” (drucker, 1973), i.e., a new type of intelligent work. the essence of knowledge work is turning information into knowledge through the interpretation of available non-standardized information for purposes of problem solving and decision making. the great challenge for universities is how to organize teaching and learning process and to decide which curricula may promote graduates to be the knowledge workers. naturally, academics, researchers and practical workers are involved in intensive discussions on this issue. examples of publications (cohen, 2005; hardaway et.al., 2005; kowalik, 2006; patterson, 2006) and the following activities (e-learning, 2005; tencompetence, 2007; vivera, 2007) are only few that refer to this problem. starting with early 90-ies when latvia regained independence, the country has made signifi cant steps towards the development of information society (grundspenkis, 2006). sweeping changes have happened in all society, gdp is steadily growing and the number of university students is increasing very quickly. from the other side, economical situation in the country, in particular, exceptionally high demand of labour market for skilled computer science and information technology specialists has caused the extremely high number of students being enrolled yearly in the corresponding study progammes. in addition, the necessity to earn one’s living forces students to start working very early (even being the freshmen). as a consequence, new forms of education, for example, project-oriented teaching, group work, hybrid courses where only part of the lectures are traditional face-to-face ones, while others are internet supported or recorded, start to be more and more important. implementation of the basic principles of distance learning–“any time, any place and any pace” is the problem of the day. in these circumstances, universities should be fl exible to adapt to the requirements of the changing 26 issn 1822-8402 european integration studies. 2008. no 2 environment as well as to rapidly changing ideas, methods, methodologies and tools of computer science and information technology. knowledge content included in curricula must follow all changes without considerable delay (grundspenkis et.al., 2004). this is the main reason why universities continuously should modify their curricula and reconsider teaching and learning styles and modes. this is a worldwide tendency. historical background at the early 90-ies when latvia regained independence, sweeping changes concerned also education, i.e., reconstruction of the whole education process was started. strictly predetermined curricula were replaced step by step by more fl exible ones containing obligatory (compulsory) courses and electives. as a result, more possibilities appeared for students to choose courses of their own interest. serious reconstruction of engineering studies was carried out also at the faculty of computer science and information technology (cs&it) of rtu. this process was based on the survey of a great number of curricula used in usa, canada and different european countries. the main conclusion was that the experience of other universities is very signifi cant for the development of core requirements, but to get the curricula which will be accreditable and recognized at the international level and at the same time be adaptable to local conditions requires new principles. the model curriculum paradigm was chosen as the working hypothesis. the development of the fi rst curriculum, which later was called “computer systems”, was based on two relevant documents, namely, the “computing curriculum 1991” (computing, 1991) and “model curriculum and guidelines for undergraduate degree program in information systems” (is’97 in brief) (davis, 1997). in result, a model curriculum suitable for rtu was developed (grundspenkis, 1998). the concept of learning units was used to make the model curriculum as fl exible as possible taking into account constraints put on the curriculum by rules of ministry of education and science and rtu senate. the model was grounded on a fundamental body of computer science, information systems and information technology knowledge. it is worth to point out that from the very beginning the “computer systems” curriculum was realized as a 3+3 curriculum, i.e. 3 years of bachelor studies plus 3 years of master studies. in the early 90-ies it was the only computer science and information technology curriculum of such kind (all other universities kept 4+2 schema). in the middle of 90-ies the “computer systems” curriculum was harmonized with two other curricula (“automation and computer engineering” and “information technology”) which were taught at the faculty of cs&it. the idea was that the fi rst and the second year students have the same courses (except electives) while the third year students have specifi c courses for each of the three study programmes. the faculty follows this principle till nowadays. at the end of 90-ies the academic studies at the rtu were changed to 3+2+3, i.e. 3 year bachelor, 2 year master, and 3 year doctoral studies. concurrently the professional studies were started. first, the three years long fi rst level professional study (college) programme was launched at the very end of 90-ies. in the year 2004 “computer systems” professional bachelor and professional master study programmes were licenced and offered to students. evaluation of the existing curriculum the evaluation of the “computer systems” academic study programme was done in the year 2001 when the programme was submitted for accreditation. the international evaluation commission included three professors, one from each country–sweden, estonia and lithuania. the commission suggested full accreditation (for six years) of the programme. the accreditation board at the ministry of education and science of latvia certifi ed the suggestion of the international evaluation commission. at the moment the “computer systems” academic study programme is repeatedly accredited till the year 2013. during the years of realization of “computer systems” study programme the academic staff got experience how to run the teaching and learning process, and minor changes have been done each year. there are two main sources of motivation for changes: student questionnaires and requirements of employers. in general students are satisfi ed with content of courses and the whole study process. employers also are satisfi ed about knowledge level and skills obtained by students. at the same time several drawbacks of the “computer systems” have been fi xed. the most important ones are the following: insuffi cient amount of practical work in laboratories and individually, small projects, as a rule, worked out in one course, and lack of group work. suggestions and requirements received from both parties are discussed at the departments and refl ected in selfevaluation reports of the “computer systems” study programme, which are completed each year. theoretically both these activities should provide continuous improvement of the study programme. unfortunately, in practice it is not a case because experienced professors are overloaded, have not real motivation and are not able to view the programme as a system, i.e. as a whole. those are the reasons why 27 issn 1822-8402 european integration studies. 2008. no 2 the programme board made a decision to apply for the projects funded by the european social fund (esf), which are targeted towards the improvement of the study programmes in natural science and engineering. it should be mentioned that such factors as rapid development of software and information technology industry in latvia, new standard of informatics subject for secondary schools and the development of profession standards by professional organizations also triggered this decision. conceptual framework for curriculum improvement three interrelated projects with the total amount of more than 0,7 million euro have been implemented to improve the “computer systems” study programme, curriculum and syllabus. two of mentioned projects are related to master programme for academic studies one concerns basic courses which are taught during the fi rst and second year, second one includes the third year bachelor courses and master level courses. third project is related to professional bachelor and professional master study programmes. at the starting point of projects’ implementation the following goals were formulated: improvements should lead to project-oriented teaching, courses should be widely supported by e-learning environments and tools, and at least for a subset of courses hybrid educational mode should be realized in practice. to reach these goals, the methodological framework was outlined. the basic concept of the framework is two-dimensional modularity of the study programme. the horizontal dimension corresponds to the decomposition of the study programme into subsets of courses which have related topics and are taught concurrently. the vertical dimension corresponds to the decomposition of the study programme into subsets of courses which have related topics and are taught in different semesters or different study levels, for example, at bachelor and master level. as it was mentioned before experienced professors are overloaded and are not able to view the programme as a system, i.e. as a whole. visualised course representation gives more understanding on overall course number and specialisation, and analyse curriculum systematically, thus helping to determine knowledge that interconnects different courses and analyse possible changes (vinogradova, 2005). starting point for module defi nition was the investigation of the existing “computer systems” academic study programme and profession standards of a software engineer and a system analyst where general and specifi c knowledge and skills are defi ned. this activity resulted in form of so called “course profi les” which are fi lled up by experts of the corresponding courses. the essence of the course profi le is identifi cation of input/output knowledge. in fact, it is an extended course description with clear focus on prerequisite knowledge and strict formulation of outcomes, i.e. knowledge and skills obtained after fi nishing the course. in addition the course profi le contains expert’s opinion about the module in which the course should be included, as well as the statement about the current situation where such indicators as “right semester”, “correct volume”, “confl ict courses”, “student training level”, “teaching materials” and “improvement proposals” are fi xed. the gathered information allowed to defi ne modules included 2-4 courses both of vertical and horizontal dimensions of modularity. figure 1 shows a schematic representation of the two-dimensional modularity concept for the computer science specifi c courses of the two of “computer systems” study programmes. while courses taught in one semester that represent horizontal dimension of modularity are grouped horizontally, courses grouped in one module (i.e. vertical dimension) are coloured. the next step of the framework is to defi ne matrix of relations for comparison of information given in matrix with recommendations of the (computing, 2001). fig. 1. two-dimensional modularity of the curriculuim representation in figure 1 gives the professor information on overall place of the course in the curriculum, but all possible links discovered during analysis of the course profi les can not fi t this picture. “course profi les” contain information about general 28 issn 1822-8402 european integration studies. 2008. no 2 and specifi c knowledge and skills provided by the course, as well as input/output knowledge. the latest enriches curriculum system with different types of links between courses and modules. because courses in modules are interconnected by default, more interesting are links between modules presented at figure 2. fig. 2. example of the curriculum module links at the moment three types of links are identifi ed based on the link descriptions given by the professors. simple arrows denote that knowledge from one module contributes to the overall understanding of the knowledge of a connected module. solid arrows denote tight connection: either part of the course or a whole course should be taught before a connected course. the last type of links represents interconnected concepts that can be taught in both modules. this type of module connection can change over time because the connected concepts can move from one course to another. analysis of the curriculum in the context of european educational space within the project the analysis of curricula in the fi eld of computer science within the european educational space has been made. two main researches were conducted: an identifi cation of possible curricula • providing academic mobility of higher education students; a comparison of the curriculum of master study • “computer systems” taught at riga technical university with the similar curricula of other countries of european union on the level of subjects and their groups. the full list of institutions of higher education of european union was obtained by using information from the following sources: web sites of institutions responsible for higher • education in each country; a portal on learning opportunities throughout • the european space (portal, 2007); an international education directory of colleges • and universities (international education, 2007); a web site of higher education in europe from • graduateshotline.com (higher education, 2007); a directory colleges.com (college, 2007).• the following criteria were used when • selecting curricula: information about a curriculum is in english • on the web site of a corresponding institution of higher education; information about a curriculum includes • titles of study subjects, credit points for each subject, as well as semesters, when the subject is taught (only for the identifi cation of mobility opportunities); the level of a curriculum is the academic master • study (the same as the level of the curriculum “computer systems”); the title of a curriculum contains some of the • following possible words: computer science, computer systems, software engineering, software development, information systems, information technology, computing; the offered curriculum is not a distance • learning programme; the degree that students obtain after the • completion of a curriculum is master of science. taking into account the listed criteria 29 curricula in 25 institutions of higher education from 15 countries of european union were identifi ed for the research of providing academic mobility of higher education students (table 1). one part of the found institutions are the partners of riga technical university in erasmus programme (erasmus, 2007); others were examined from the perspective of potential partners. the research results show that it is very diffi cult to provide mobility of higher education students because there are essential differences among curricula. mainly only credit points of one subject can be transferred for the greater part of students studying at foreign institutions of higher education. moreover, usually these credit points are provided by subjects of a free choice or such subjects as software engineering, artifi cial intelligence and databases. the greatest number of credit points which can be transferred is 2 or 3 credits, however in this case it is necessary to consider such factors as the specialization chosen by the student at the foreign institution and subjects passed by the student in his/her local institution. in the second research much more institutions and curricula were found because there was not necessary to know a semester when subjects are taught. totally 29 issn 1822-8402 european integration studies. 2008. no 2 55 curricula in 43 institutions of higher education from 18 countries of european union were identifi ed (table 1). the focus of the research was concentrated on obligatory study subjects. the analysis of curricula at the level of subjects shows that there is an enormous diversity both in the titles and in content of subjects. totally 262 different titles of subjects were identifi ed. the most often offered subjects are presented in table 2. thirty three subjects are found in two curricula, and others only in one of curricula. table 1. distribution of curricula and institutions by countries first research second research country n u m b e r o f c u r r ic u la n u m b e r o f in st it u ti o n s n u m b e r o f c u r r ic u la n u m b e r o f in st it u ti o n s united kingdom 8 6 17 11 belgium 1 1 3 3 czech republic 1 1 1 1 denmark 1 1 2 2 greece 1 1 4 3 estonia 3 2 ireland 3 2 3 2 lithuania 1 1 1 1 italy 4 3 cyprus 2 2 2 2 luxembourg 1 1 1 1 malta 1 1 1 1 netherlands 2 1 portugal 1 1 1 1 romania 3 2 3 2 slovak republic 1 1 1 1 germany 2 2 2 2 sweden 2 2 4 4 totally 29 25 55 43 the results of the research allow to reveal general tendencies. the main attention is granted to software engineering, including object-oriented approach, project management, artifi cial intelligence (intelligent and distributed systems, data mining, etc.), databases, information systems, computer networks, compilers and research methods. all of the mentioned subjects excluding compilers are incorporated in the curriculum “computer systems”. moreover, the credits either are identical with the average number of credit points of other curricula in european union, for example, in artifi cial intelligence, modern databases, information systems, research methods, or are higher, for example, as for object-oriented approach. table 2. distribution of subjects by curricula country number of curricula software engineering 13 scientifi c research methods 11 software project management 10 modern software development methods 9 object-oriented approach 8 intelligent systems 7 compilers 7 distributed computational systems 6 information systems analysis and design 5 computer networks 5 modern databases 4 databases 4 artifi cial intelligence 3 data mining 3 formal methods 3 human-computer interface 3 operating systems 3 programming languages 3 computer security 3 conclusions and future work improvement of the already existing curriculum of “computer systems” is time and work consuming task which can be carried out only by experienced and well motivated experts–members of academic staff. the paper describes some of the steps within the developed framework which is based on the concept of two-dimensional modularity. the horizontal dimension corresponds to the decomposition of the study programme into subsets of courses which have related topics and are taught concurrently. the vertical dimension corresponds to the decomposition of the study programme into subsets of courses which have related topics and are taught in different semesters or different study levels. matrix of relations between modules has been developed and the list of interrelated topics constructed. analysis of curricula in the fi eld of computer science within european educational space allow to conclude that rregardless of the fact that there is a big diversity among curricula in the fi eld of computer science the curriculum “computer systems” at riga technical university falls within european educational space because it includes the most popular subjects. however, in order to provide good opportunities for students’ mobility it is necessary to align programmes of study within european educational space. it is worth to stress that in the current economical situation in latvia such resource-intensive and expensive project directed towards improvement of a university’s study programme may be carried out only with the esf support. 30 issn 1822-8402 european integration studies. 2008. no 2 references cohen, j. (2005), updating computer science education. communications of the acm, vol. 48, no. 6, 2005, pp. 29-31. college (2007), college and university list. online: http://www.colleges.com/index.html computing (1991), computing curricula 1991 report of the acm/ieee-cs joint curriculum task force, 1991. computing (2001), computing curricula 2001. computer science, report of the acm/ieee joint task force on computing curricula, 2001. davis, g. b. et. al. (1997), model curriculum and guidelines for undergraduate degree programs in information systems, acm, ais, aitp, 1997. online: http://webfoot.csom.umn.edu/faculty/ gdavis/curcomre.pdf drucker, p.f. (1973), management: tasks, responsibilities and practices. new york: harper & row, 1973, 839 p. e-learning (2005), “e-learning project”. the university of iowa, 2005. online: http://www.uiowa. edu/~provost/elearning/ erasmus (2007), erasmus studijas. r gas tehnisk universit te. online: http://www.rtu.lv/studijas/ sac/erasmus.php grundspenkis, j. (1998), development of model curriculum and guidelines for study programs in information systems and information technology. in: abstracts of papers from baltic it&t’98 conference, riga, april 15-18, 1998, dt media group, riga, latvia, pp. 184-188. grundspenkis, j. (2006), information society development in latvia: current state and perspectives. in: advances in information systems development–bridging gap between academia and industry, springer, ny, 2006 grundspenkis j., kirikova m. and vinogradova v. (2004), meeting educational challenges by knowledge management. college teaching & learning conference. walt disney world, florida 2004. hardaway, d., hogan, m. j. and mathieu, r. g. (2005), outsourcing the university computer lab. computer, september, 2005, pp. 100-101. higher education (2007), higher education in europe. online: http://europe. graduateshotline.com international education (2007), international education directory of colleges and universities. online: http://www.4icu.org kowalik, j. (2006), the applied mathematics and computer science schism. computer, march, 2006, pp. 102-104. patterson, d. a. (2006), computer science education in the 21st century. communications of the acm, vol. 49, no. 3, 2006, pp. 27-30. portal (2007), portal on learning opportunities throughout the european space. online: http:// europa.eu.int/ ploteus/portal/home.jsp tencompetence (2007), „tencompetence building the european network for lifelong competence development”. tencompetence, 20062007. online: http://www.tencompetence.org/ node/13 vinogradova v. (2005), modelling in education business. proceedings of the 14th international conference on information systems development: pre-conference, karlstad, sweeden, 2005. vivera (2007), “vivera – virtual network of competence for virtual and augmented reality”. vivera, 2004-2007. online: http://www. vivera.org/ the article has been reviewed. received in march, 2008; accepted in april, 2008. european integration studies 2008.indd 108 issn 1822-8402 european integration studies. 2008. no 2 the theoretical aspects of the common currency adoption in lithuania algis junevi ius egidijus liutkus kaunas university of technology institute of europe abstract monetary integration is a key prerequisite for the optimal recourses allocation inside the economic union. recent eu economic cycle harmonization and interdependent trade tends to monetary integration and shows its real benefi t. in case of the common currency adoption lithuania has to meet maastricht criterion and the latter condition is core. however in economic regard so called unoffi cial criterions of real convergence are enough weighty. real convergence criterion base is the optimum currency area (oca) theory. a currency area adopts a single currency within its area and maintains a fl exible rate regime with the rest of the world. an oca theory has been implicitly defi ned by mundell in 1961 as a currency area for which the costs of relinquishing the exchange rate as an internal instrument of adjustment are outweighed by the benefi ts of adopting a single currency. specifi cally the oca index assesses structural similarity between investigative country economy and other country or region. oca theory in general focuses on four interrelationships between the members of a potential oca: the extent of trade, the similarity of the shocks and cycles, the degree of labor mobility and the system of risk-sharing, usually through fi scal transfers. the greater any of the four linkages between the euro zone and lithuania, the more suitable a common currency. alternative tool providing the analysis of real convergence is the theil inequality index which enables to measure the degree to which country’s macroeconomic element (gdp, infl ation, current account fl uctuations and others) differs from another country. keywords: optimum currency area theory; monetary integration; common currency adoption; theil inequality index; structural economic similarity; real convergence. introduction traditionally, the theoretical literature on monetary integration has been dominated by the theory of optimum currency areas. academic and political interest in monetary integration has existed ever since mundell’s (1961) famous study pointed to a serious omission in existing exchange rate theory that was the basis of friedman’s (1953) infl uential “case for flexible exchange rates”. the omission involved the failure to develop criteria for the choice of geographically defi ned areas that benefi t from the adoption of their own monetary regimes while they let their exchange rates fl oat (grubel 2006). mundell accompanied his critical analysis by the introduction of the idea that the proper size of any area operating its own monetary regime is one that meets what he called the criteria of an “optimum currency area”. his specifi cation of these criteria was suffi ciently suggestive and at the same time ambiguous to stimulate much future research aimed at clarifying them. later some of the author’s were used these criteria in empirical tests for optimality. the optimum currency area literature initially during the 1960s was mainly theoretical and often dealt with problems raised within the context of the then predominant keynesian economic paradigm. later studies became more numerous and empirical with the development of plans for the creation of a european monetary union. most of the subsequent literature on adopting the common currency was extensively analyzed by bofi nger (1992), de grauwe (1992 and 2007), ishiyama (1975), kugman (1992), mason and taylor (1992), tavlas (1993, 1994), tower and willet (1976), horvath and komarek (2002 and 2003). 109 issn 1822-8402 european integration studies. 2008. no 2 the novelty and scientifi c problem is the lack of attempts to model a comprehensive and integrated analysis of the various aspects involved in adopting the common currency in the country. in spite of the political and economic importance of this issue very little effort has been devoted to formalize an integrated view of this subject. a multifunctional practical model involving oca and theil indexes permit to assess not only preparation of lithuania to join euro zone but also it enables to measure the costs and benefi ts of this process. in that case this would help to highlight the real convergence criteria. the lack of data is the key problem to make the right econometric analysis of development of lithuanian economy. so far there were no studies which provide recommendations for eu politicians to evaluate the preparation of european monetary union candidates. the aim of the article is to highlight the theoretical aspects of the common currency adoption in lithuania. several tasks are to be solved to achieve the aim of this article: to analyze the theoretical assumptions of the • common currency adoption; to consider the optimum currency area • theory; to highlight the most important functioning • criteria of the optimum currency area. the object of the article is a real convergence criterion. the main research method was theoretical analysis of the scientifi c works in the fi eld of monetary integration. the theoretical assumptions of the common currency adoption countries that are highly integrated with each other, with respect to trade and other economic relationships, are more likely to constitute an optimum currency area (frankel and rose 1997). an optimum currency area is a region for which it is optimal to have its own currency and its own monetary policy. this defi nition can be given some more content by assuming that smaller units tend to be more open and integrated than larger units. then an oca can be defi ned by mundell (1961) and mckinnon (1963) as a region that is neither so small and open that it would be better off pegging its currency to a neighbor nor so large that it would be better off splitting into sub-regions with different currencies (frankel and rose 1996). in case to assume the necessity to adopt the common currency it is useful to discuss mundell’s model of the shifts in demand between two countries. horvath and komarek (2002) made the essential analysis of mundell’s model of shifts in demand. it appears as follows. there are two countries a and b6, which are initially in their equilibrium defi ned as full employment and balanced trade. both countries maintain own currencies, thus each country can alter its monetary policy if necessary. now consider the shift in demand away from the products of country a to country b as depicted in figure 1. if no policy is used, the result of such a shift for country a is the decline in output and the price level and likely unemployment. if domestic spending does not decline at the level of output declines, a current account defi cit will occur and possibly a budget defi cit, too. the opposite is valid for country b. if country b prices rise at higher speed than prices in country a, then b takes partially the burden of adjustment from country a, because price increase will deteriorate its competitiveness. if country b tightens its monetary policy in order to fi ght infl ation, then the whole burden is thrown onto country a. in the case that countries use fl exible exchange rate regimes, the whole adjustment can be solved through the depreciation of the country a’s currency. but what if the national currency area (the area where the currency is actually used) does not geographically equal to the optimum currency area (the area where could be the highest welfare of using the currency). consider that the countries consist of western and eastern parts. if the aggregate demand falls only in the western parts of the countries and the opposite happens in the eastern parts, fl exible exchange rate regime does not bring countries back to the equilibrium. countries would be able to get rid of either infl ation or unemployment, but not both problems. the country can change the price of its currency and determine the quantity of national money in circulation. the question now is if there is any theoretical possibility of adjusting to the equilibrium. mundell (1961) offers some non-exchange rate means without considering transaction costs. first, there is wage fl exibility. figure 1. asymmetric shifts in demand (de grauwe 1997)7 6 in the case of the article the country a is a group of candidates countries (e.g. lithuania, latvia and estonia) to join monetary union; b is euro zone. 7 ad-aggregate demand, as-aggregate supply, p-price level, y-output; 110 issn 1822-8402 european integration studies. 2008. no 2 wage claims in the western parts are reduced and the opposite is valid for eastern parts. second, there is labor mobility. workers can move from west to east in their countries. they do this in order to eliminate the excess labor demand occurring in the eastern parts of the countries. wages remain constant. unemployment and infl ation vanish. third, there is a fi scal policy. in the surplus east regions authorities can raise taxes in order to decrease eastern aggregate demand and transfer the surplus to the western parts of each country. western parts still have a current account defi cit, but transfers fi nance it. empirically, many countries have regional redistribution systems through a federal budget because of the centralization of the government budget. as a result, when output in western region declines, the tax revenue of federal government declines. at the same time, the social security system will increase transfers to this region. transfers do not solve adjustment problems, but make it easier to live with. if the negative shock is permanent, then either it will be necessary to send the transfers forever or to adjust “painfully” in wages (horvath and komarek 2002). any kind of macroeconomic shocks effects could possibly be mitigated in the area with single currency area with the characteristics considered in the next paragraph. optimum currency area theory characteristics the theory of optimum currency areas (oca) pioneered by mundell (1961) in the early 1960s and further elaborated by mckinnon (1963), kenen (1969) and others. the oca theory determines the conditions that countries should satisfy to make a monetary union attractive, i.e. to ensure that the benefi ts of the monetary union exceed its costs. this theory has been used to analyze whether countries should join a monetary union. it can also be used to study the conditions in which existing members of a monetary union will want to leave the union. the conditions that are needed to make a monetary union among candidate member states attractive can be summarized by three concepts: symmetry of shocks;• flexibility;• integration.• countries in a monetary union should experience macroeconomic shocks that are suffi ciently correlated with those experienced in the rest of the union (symmetry). these countries should have suffi cient fl exibility in the labor markets to be able to adjust to asymmetric shocks once they are in the union. finally they should have a suffi cient degree of trade integration with the members of the union so as to generate benefi ts of using the same currency (de grauwe 2006). the optimum currency area theory tries to answer an almost prohibitively diffi cult question: what is the optimal number of currencies to be used in one region. the diffi culty of the question leads to a low operational precision of oca theory. therefore, the oca theory is a framework for discussion about monetary integration. exchange rate regimes are closely related to the oca theory, which attempts to give an answer to the choice of the regime (the oca theory distinguishes only pure fl oat and pure fi xed, what is not often the case for economic policy makers), based on structural characteristics of the economy. the interesting question is not the search for the optimal exchange rate regime, but the search for the optimal variability of the exchange rate. bayoumi and eichengreen (1997 and 1998) suggest an approach for modeling exchange rate variability, which takes into account the multiple interdependency of the economies. the purpose of such modeling is to estimate to what degree the exchange rate variability may be explained by the traditional oca criteria, as defi ned in the classical oca literature in the 1960s. the oca criterions strongly depend on openness. the advantages of fi xed exchange rates increase with the degree of economic integration, while the advantages of fl exible exchange rates diminish. two big advantages of fi xing the exchange rate were identifi ed above: 1) to reduce transactions costs and exchange rate risk that can discourage trade and investment, and 2) to provide a credible nominal anchor for monetary policy. if traded goods constitute a large proportion of the economy, then exchange rate uncertainty is a more serious issue for the country in the aggregate. such an economy may be too small and too open to have an independently fl oating currency. consider fi rst, as the criterion for openness, the marginal propensity to import. variability in output under a fi xed exchange rate is relatively low when the marginal propensity to import is high; openness acts as an automatic stabilizer, dampening the effect of domestic disturbances. consider next, as the criterion of openness the ease of labor movement between the country in question and its neighbors. if the economy is highly integrated with its neighbors by this criterion, then workers may be able to respond to a local recession by moving across the border to get jobs, so there is less need for a local monetary expansion or devaluation. of course the neighbor may be in recession too. to the extent that businesses in the two economies are correlated, however, monetary independence is not needed in any case: the two can 111 issn 1822-8402 european integration studies. 2008. no 2 share a monetary expansion in tandem. there is less need for a fl exible exchange rate between them to accommodate differences. consider, fi nally, a rather special kind of integration: the existence of a federal fi scal system to transfer funds to regions that suffer adverse shocks. the existence of such a system, like the existence of high labor mobility or high correlation of business cycles, makes monetary independence less necessary (horvath and komarek 2002). countries can benefi t from higher trade integration, which leads to the more effective allocation of resources. there are two opposite views on the outcome of higher trade integration as depicted in figure 2. the european commission’s view suggests that with higher trade integration there is further synchronization of national business cycles (if the cycle is not synchronized it is likely that there are asymmetric shocks among the countries). trade among industrial european countries is typically intra-industry trade based on economies of scale and imperfect competition. as a result, it does not lead to a higher specialization of the countries, which could cause the higher possibility of asymmetric shocks. figure 2. the views on trade integration effects on the other hand, krugman (1993) argues that higher trade integration leads to a higher specialization under the assumption of decreasing transport costs. because of the economies of scale, higher integration leads to a regional concentration of industrial activity. as a result, asymmetric shocks are more likely to occur in the future (since the output is less diversifi ed) and bring extra costs to monetary union. the problem with krugman’s view is that it implicitly assumes that regional concentration of industry will not cross the borders of the countries that formed the union, while borders will be less relevant in infl uencing the shape of these concentration effects. if so, then asymmetric shock is not country specifi c and fl oating exchange rate variation could not be used to deal with asymmetric shocks anyway. lower costs of production factors outside of the industrial centers can be expected to form, too. if monetary union is successfully implemented and considered as credible, then a further boost of convergence among countries can be expected. eliminating trade barriers, there will be trade creation in the countries of the monetary union. meanwhile it is possible that monetary union would be more closed to the outside world, so using fl exible exchange rates can be appropriate. this makes it simpler to cope with symmetric shocks. developments of macroeconomic theory in the last 30 years (lucas critique) spurred a further development of oca theory. first attempts to model oca theory were made in the 1990s (horvath and komarek 2002). the criteria of the optimum currency area functioning frankel and rose (1998) show that the higher the trade integration, the higher the correlation of business cycle among countries. furthermore, they emphasize that business cycle and trade integration are interrelated and endogenous processes to establishing a currency union. thus, they demonstrate that countries may fulfi ll the oca criteria ex post, although they did not fulfi ll them ex ante. monetary union entry raises trade linkages among the countries and this causes the business cycle to be more symmetric among the participants of the union. the arguments of frankel and rose (1998) lead to a conclusion that the costs of implementing common currency are relatively low. however, there are some doubts on the validity of the endogenous oca criteria. in a theoretical model hallett and piscitelli (2001) show that the validity of endogenous oca hypothesis is uncertain and dependent to a large extent on the structural convergence in the beginning phase of the monetary union. without the suffi cient structural convergence, implementing common currency would cause greater divergence (komarek, cech, horvath 2003). countries experiencing symmetric shocks or high trade linkages tend to have stable exchange rates. in other words the more the oca criteria among the countries are fulfi lled, the lower should be the exchange rates variability among considered countries. under this assumption the exchange rate variability could be estimated by the equation: sd(e ij ) = a + 1 sd( y i – y j ) + + 2 disim ij + 3 trade ij + 4 size ij (1) sd(e ij ) measures the volatility of bilateral nominal exchange rates, sd( y i – y j ) captures the asymmetric shocks at national level, trade ij is the proxy for intensity of trade linkages, disim ij assesses the asymmetric shocks at industrial level and size ij measure the size of the economy and assess utility from maintaining own currency (horvath and komarek 2003). these four variables represent basic oca criteria and it is believed that the lower the volatility of exchange rates is among countries, the more they are prepared to join the monetary union. 112 issn 1822-8402 european integration studies. 2008. no 2 bayoumi and eichengreen (1998) suggest how to calculate relevant variables: ”where sd(e ij ) is the standard deviation of the change in the logarithm of the end year bilateral exchange rate between countries i and j, sd( y i – y j ) is the standard deviation of the difference in the logarithm of real output between i and j, disim ij is the sum of the absolute differences in the shares of agricultural, mineral, and manufacturing trade in total merchandise trade, trade ij is the mean of the ratio of bilateral exports to domestic gdp for the two countries, and size ij is the mean of the logarithm of the two gdp’s measured in u.s. dollars”8 (eichengreen and bayoumi 2006). when calculating variable sd(e ij ) horvath (1990) uses data from ifs-imf9, the data for sd( y i – y j ) were calculated from world bank, trade ij was calculated using the data from directions of trade – imf and world bank, variable disim ij was calculated with the use of the data from monthly statistics of foreign trade oecd and size ij from the world bank data. when putting together the data matrix horvath followed the advice of bayoumi and eichengreen (1997 and 1998), this allowed him to compare the results for different time periods. bayoumi and eichengreen (1997 and 1998) fi nd little evidence that more open economy tends to fi x its currency. the analysis takes into account all the relationships between each of the economies. the expected signs of explanatory variables are as follows: the exchange rate volatility is expected to depend positively on business cycle, dissimilarity in the commodity structure of export, and negatively on the trade linkages. the expected sign of the openness is theoretically indeterminate (horvath 2003). the alternative tool to estimate the criteria of optimum currency area functioning is theil’s inequality index which is simpler and clearer than oca index. theil’s inequality index (theil 1961) is a measure of the degree to which one time series (x i ) differs from another (y i ). the index is computed as 2 2 2 1 ( ) 1 1 i i i i x y n u x y n n (2) the score returned by the theil this test is 1 – u for consistency. u varies from 0 to 1 with 1 meaning maximum disagreement. the theil’s test performs a point-by-point matching of the two time series (e.g. gdp, infl ation, current account fl uctuation of two countries or regions). if the lengths of reference and 8 from 2000 in the case of calculating oca indices for eu countries the euro is more suitable. 9 the international financial statistics (ifs) database of the statistics department of the international monetary fund. actual data do not match, a warning is issued, and only the number of pairs corresponding to the length of the shortest one is used (theil 1961). the main purpose of theil index calculations is the analysis of structural similarity between two economies. if the maximum structural agreement (e.g. between lithuania and euro zone countries) is estimated it means the perfect preparation of lithuania to join the european monetary union. when analyzing the preparation of lithuania to adopt the euro the oca theory is suitable tool but it must be assessed skeptically with some circumstances: the high exchange rate asymmetry of euro • zone and lithuania occurred in 1994 – 2002 because of litas and u.s. dollar pegging; the international researches of the common • currency adoption in lithuania were traditionally made using statistical data of manufacturing sector (including the costs of energy sector). historically the energy sector was directly governed by moscow, so the economic activity of it was not a business cycle indicator (the energy sector was mostly political issue) (vetlov 2004). there are several aspects which must be included in modeling of common currency adoption possibilities in lithuania: figure 3. the main reasons of possible dissimilarity of economic structure between lithuania and euro zone concerning oca theory it was mentioned that countries in a monetary union should experience macroeconomic shocks that are correlated with those experienced in the rest of the union. according to kuodis and vetlov (2002) and vetlov (2004) research lithuania has more comprehensive monetary policy impact mechanism. it helps to react more broadly and quickly to all macroeconomic shocks than euro zone does (vetlov 2004). consider the circumstances and aspects mentioned above it is possible to shape a multifunctional practical model involving oca and theil indexes to assess the real convergence condition of lithuania to join euro zone. noteworthy that so far there were no narrow 113 issn 1822-8402 european integration studies. 2008. no 2 research done about statistical economic symmetry in lithuania and euro zone. therefore no detailed fi ndings could be obtained on this subject. conclusions countries can benefi t from higher trade integration, 1. which leads to the more effective allocation of resources. frankel and rose (1998) show that the higher the trade integration, the higher the correlation of business cycle among countries. countries that are highly integrated with each other, with respect to trade and other economic relationships, are more likely to constitute an optimum currency area. in case to assume the necessity to adopt the 2. common currency it is essentially to analyze mundell’s model of the shifts in demand between two countries. any kind of macroeconomic shocks effects could possibly be mitigated in the area with single currency area with the oca characteristics. the existence of oca criteria (high labor mobility, 3. high correlation of business cycles, etc.) makes monetary independence less necessary. the oca area theory tries to answer an almost prohibitively diffi cult question: what is the optimal number of currencies to be used in one region. this theory determines the conditions that countries should satisfy to make a monetary union attractive, i.e. to ensure that the benefi ts of the monetary union exceed its costs. the more of oca criteria are fulfi lled among 4. the countries, the lower should be the exchange rates variability among considered countries. the exchange rate variability could be estimated by the econometric expression, specifi cally the oca index. the alternative tool to estimate the criteria of the 5. optimum currency area functioning is the theil’s inequality index. theil’s inequality index is a measure of the degree to which one time series differs from another (gdp, infl ation, current account fl uctuation of two countries or regions). when analyzing the preparation of lithuania to 6. adopt the euro the oca theory is suitable tool but it must be assessed skeptically with some circumstances. the main purpose of integrated oca and theil 7. index model would be the analysis of structural economic similarity between lithuania and euro zone. if the maximum structural agreement estimated it means the implementation of the real convergence criteria and perfect preparation of lithuania to join the european monetary union. references de grauwe p. what have we learnt about monetary integration since the maastricht treaty? jcms volume 44. no 4, 2006; de grauwe p. economics of monetary union. 2007, oxford; debrun x., masson p., and pattillo c. west african currency unions: rationale and sustainability. cesifo economic studies, 49, 3/2003, 2003; eichengreen b., bayoumi t. ever closer to heaven? an optimum currency area index for european countries. center for international and development economics research, 078, 1996; frankel j. a. no single currency regime is right for all countries or at all times. essays in international fi nance, international fi nance section, 215, 1999; frankel j. a., rose a. k. economic structure and the decision to adopt a common currency. scandinavian working papers in economics, 611, 1996; fritz b., mühlich l. regional monetary integration among developing countries: new opportunities for macroeconomic stability beyond the theory of optimum currency areas? german institute of global and area studies working paper, no. 38, 2006. grubel h. the evolution of the theory of monetary integration. research in global strategic management, vol. 12, amsterdam: elsevier, 2006; gros d., thygesen n. european monetary integration: from the european monetary system to economic and monetary union. harlow: longman,1998; hitiris t. european union economics. london1998; horvath h., komarek l. optimum currency area theory: an approach for thinking about monetary integration., warwick economic research papers, 647, 2002; horvath r., komarek l. optimum currency area theory: a framework for discussion about monetary integration. warwick economic research paper, no 665, 2003; horvath r. optimum currency area indices: evidence from 1990s. warwick economic research papers, no. 665, 2003; 114 issn 1822-8402 european integration studies. 2008. no 2 mckinnon r. mundell, the euro, and optimum currency areas. stanford university, department of economics, 2000; maes i. optimum currency area theory and european monetary integration. tijdschrift voor economie en management vol. xxxvii, 2, 1992; theil, h. economic forecasts and policy. amsterdam, ne: north-holland, 1961; vetlov i. euras lietuvos pinigai. pinig studijos, 2004/4, 2004; working paper of the international monetary fund. a model of an optimum currency area. imf working paper wp/97/76, 1997. zimmermann h. the euro under scrutiny: histories and theories of european monetary integration. contemporary european history, 2 (2001), cambridge, 2001. the article has been reviewed. received in march, 2008; accepted in april, 2008. microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 knowledge management framework proposal mirela minica florin frant university „eftimie murg” resita abstract based on production process in companies we developed a model of knowledge management that can be implemented in our university. this model is using organizational knowledge base of three entities: the research engine, the production engine and the learning engine. we try to identify several direct and indirect feedback from the production process and research process linked with external demands and internal university objectives. this model can be implemented on world wide web and internet technologies using collaborative model. keywords: academic management, research, knowledge. introduction more than a decennium, idea of public higher education that has come to dominate is that of an industry, rather than that of a social institution and identified three interrelated mechanisms: 1) academic management, 2) academic consumerism, and 3) academic stratification. (gumport, 2000). academic management assume that managers are expected to monitor the organization-environment interface, determine appropriate strategies, and develop effective bridging and buffering mechanisms. in academic consumerism public universities and colleges serve needs and interests of several types of consumers (e.g., taxpayers, employers, research funders, students) come to mind, when considering who. now the students are consumers of public higher education, and treat those as potential or current employee who seeks workforce training. academic re-stratification1 based upon the increased use-value of particular knowledges in the wider society and exchange-value in certain markets and involve academic subjects and academic personnel (clark, 2001). knowledge is the defining core of academic work and academic workers, higher education has central knowledge functions. for those reason, several concepts and technologies like: group support decision (gss), computer supported cooperative work (cscw), web based learning (wbl), web 1 knowledge is “the prime material around which activity is organized ...knowledge materials, and advanced ones at that, are at the core of any higher education system’s purposes and essence. this holds true throughout history and across societies as well”, (clark, 2001, p. 13) base course environment, open distributed processing – reference model – enterprise viewpoint2, and commonkads methodology kmm methodology can help us to find a model for an academic virtual enterprise, based collaborative paradigm, in which we centre knowledge management and intellectual capital. (bodea, 2004) conceptual model of knowledge management framework gravin (1993) defines the learning organization as one that is “skilled at creating, acquiring and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights” (p. 80) and the members of a learning organization are continually creating knowledge and increasing their capacity to produce results and take effective action (huber, 1991). knowledge management is defined as a process through which organizations create, store and utilize their collective knowledge. his process includes three stages: organizational learning (the process of acquiring information) knowledge production (the process of transforming and integrating information into usable knowledge) and knowledge distribution (the process of disseminating knowledge throughout the organization) (sarvary,1999). in universities like any organization knowledge creation is changed from tacit to explicit in four modes: socialization, externalization, combination and internalization (seci). (nonaka, i., takeuchi, h, 1995), (ahmad, 1999). the hypertext organization 2 iso/iec documents for conceptual modeling in virtual enterprise (eg. holonic, fractal and bionic) 57 issn 1822-8402 european integration studies. 2007. no 1 has “a strategic ability to acquire, create, exploit, and accumulate new knowledge continuously and repeatedly in a circular process” (nonaka, i., takeuchi, h 1995, p. 34). in our model we present a conceptual model of knowledge management inspired by nonaka’s concepts, adapted on virtual enterprise paradigm and linked on strategic plan in “ eftimie murgu” university (lipnack and stamps, 1997). we have developed and applied the concepts of knowledge management, nonaka’s hypertext organization and learning organizations to the university context, based on piccoli approach, and we try to provide a framework for drawing on the capabilities of faculty and students and managing information (ahmad, 1999) in order to increase intellectual capital and academic stratification for staff and faculties, in perspective of globalization. we use engineering representation with several feedback’s loop depending on several management processes, provided by three entities: learning engine, production engine and research engine (figure 1). learning engine has the aim to manage knowledge utilization, by giving students possibilities to use, apply, absorb the stored knowledge. knowledge acquisition and generation are made in faculty and researchers’ teams in the research engine. this engine monitoring progress and evaluating results and provide guidance for development programs, depending on a set goals for the organization. research projects and programs has a role to increase intellectual capital and generate a high value of knowledge. in the production engine, stored knowledge are using to produce and codify knowledge as part of knowledge generation and knowledge storage. this engine has a feedback from research engine, as a supervisor of managing knowledge. as we saw, we have three different feedbacks, depending on external influences in every loop. first we have direct and indirect feedback on the learning outcome gived by development programs, and indirect feedback. development programs are depending on management strategy from university and major goals from consortioum universities or partnership with other universities from globalization perspective. indirect feedback depends on interaction with social, economical environment. second loop link research engine to external demands (international programs, national strategy, educational priorities) to the production engine, as a slave engine coordinate by increased knowledge storage from project goals and directives. third loop has major role to knowledge quality, by measuring intellectual capital as a quantification of fundamental and applied results from research projects and programs3. actors and their role learning engine (le) coordinates and makes guidance for undergraduate and graduate students, and is main user of knowledge created by others engine. production engine(pe) has concerned to graduate students or post graduate students and research engine (re) bring together faculties, postgraduate student, doctoral candidate and other researcher. for le and pe we have several particular situations in “eftimie murgu” university (uem): • undergraduate students in two different faculties; • undergraduate students in one faculty and graduate students in other faculty; • post graduate students in one university and graduate students in other faculty/ university; • post graduate students in uem and graduate students in other faculty/ university ; • undergraduate students in one specialization, and graduate students in other specialization, in same faculty ; • graduate students in one specialization, and post graduate students in other in same faculty ; for this reason we will meet same actor (student) in le and pe in same time. learning is a continuous and cyclical process that provides participants at different levels in the organization either with the necessary information or the means to obtain it. re has membership from different departments from same faculty/ different faculties, or different faculties from same universities/different universities, research centers, different postgraduate students and researchers. their role in the research engine is: • select research areas to explore; • identify theories and hypotheses to formalize the exploration; • operationalize these theories and hypotheses in development projects; • establish guidelines and provide direction for learning and development; • assess the validity of the hypotheses and theories; • ensure the quality of the final product. • actors from production engine can be able to: • research the content areas of the required knowledge module; 3 these results are available as research activities in thel project: “higher education institution efficiency in romania focused on dinamics’ educational and informational demands” grant consortium ceex05-d08-66/2005-2007, director prof. ion gh.roşca, phd 58 issn 1822-8402 european integration studies. 2007. no 1 • acquire the technical skills required for its development; • confirm the final requirements for the knowledge module; • design and develop the module; • assure its quality.(piccolo,2000). learning engine describes how stored knowledge can be employed as a teaching tool. the courses are designed for undergraduate students but could be targeted to employees in any organization. an application and teaching offer the material and simultaneously allows the students to practice each skill. the graded assignments are structured so that the students cannot just passively follow the tutorials, but instead must actively apply and than verifying them. (ahmad, 1999) conclusions internet technologies and km paradigm, webbased learning environment facilitate a “cumulative knowledge building” (jarvenpaa and ives, 1994). in our model we try to three engines play a specific role in the knowledge creation process, while membership in the different engines is flexible. most important think is how undergraduate student follow this process and is coordinate by every engine until became a actos in re or a specialist in economical or social environment. even in this case he can became an actor in pe or re. references ahmad r., effectiveness of virtual learning environments in business education, focusing on basic skills training for information technology, louisiana state university, baton rouge, la (1999). bodea v., managementul cunoştinţelor în proiecte, în managementul proiectelor informatice, editura ase bucuresti, 2004. clark, b.r., the problem of complexity in modern higher education’, in rothblatt, s. and wittrock, b. (eds.), the european and american university since 1800. cambridge: cambridge university press. garvin, d.a., building a learning organization, harvard business review 71 (1993) 78–92. gumport, p.j., academic restructuring: organizational change and institutional imperatives, higher education 39: 67–91, kluwer academic publishers, 2000 lipnack j. and stamps j, virtual teams: reaching across space, time and organizations with technology (john wiley & sons, inc., 1997). massy w.f. and zemsky r., using information technology to enhance academic productivity (inter-university communications council, inc., 1995). merrill m.d., instructional design theory (educational technology publications, englewood cliffs, nj, 1994). huber g.p., organizational learning: the contributing processes and the literatures, organization sciences 2 (1991) 88–115. jarvenpaa s. and ives b., the global network organization of the future: information opportunities and challenges, journal of management information systems 10 (1994) 25– 57. nonaka, i., takeuchi, h., the knowledge-creating company: how japanese companies create the dynamics of innovation. oxford university press. new york, 1995. piccoli g. ahmad r., ives b., knowledge management in academia: a proposed framework, information technology and management 1 229–245 229, baltzer science publishers bv, 2000. sarvary m., knowledge management and competition in the consulting industry, california management review 41 (1999) 95–108 59 1learning engine indirect feedback stored knowledge production engine research engine feedback to the production process external demands project goals and directives development programs research projects and programs feedback on the research process management strategy demands fundamental and applied results direct and indirect feedback on the learning outcome figure 1. conceptual model of knowledge managemenent 60 issn 1822-8402 european integration studies. 2007. no 1 201 issn 1822 – 8402 european integration studies. 2009. no 3 quality competitiveness of latvia and strategy to improve it jānis priede roberts škapars university of latvia, faculty of economics and business administration abstract issues of competitiveness always have been important for countries and companies. countries are looking for the ways to improve business environment so the companies within the country could develop and became more competitive which is very important issue especially in economical slowdown. and companies for their part search for different tools which will give them competitive advantage in internal and external markets. quality assurance and management has been very important issue for entrepreneurs since japan showed to the entire world the power of quality and its place in competitiveness. today there are many competitiveness evaluations available with different methodology applied, for instance, world economic forum (wef) every year is presenting michael porter’s global competitiveness report and lisbon review as well, european commission publishes european competitiveness report, observatory of european smes, eu industrial structure, eu productivity and competitiveness, eu sectoral competitiveness indicators and other informative and exploration reports. these reports contain very much information about components of competitiveness and their importance. it is also a very good ground for further detailed research of the authors on the particular topic. authors in this paper will analyze overall competitiveness of world’s countries and latvia by using different competitiveness reports. this will show principal comparison of main competitiveness indicators and will highlight main areas where improvements are needed. as well as competitiveness comparison, authors in this paper will make quality competitiveness calculations and comparison of the baltic states using method developed by karl aiginger. this method uses unit value of exports as the first main indicator on quality and that will help to make conclusions about quality of goods made in latvia and also compare latvia to other baltic countries. authors will also analyze different quality assurance and management issues in latvia and make suggestions on necessary changes in latvia’s competitiveness strategy. main methods used in this research include study of scientific literature, legislation, data mining and analyzing of already collected data. the main results will contain analysis of current situation and recognition of main problems in field of business environment and quality competition. based on analysis and results authors will prepare recommendations for business environment improvements and necessary competitiveness strategy, specifically to improve quality competition. keywords: competitiveness, quality, export. introduction authors indicated a problem of quality’s place in the competitiveness of the entrepreneurship in the xxi century. in the xx century japanese entrepreneurs proved that quality is one of the main components of competitiveness. is it still important in xxi century? evaluation of quality competitiveness of latvia and suggestions for necessary strategy to improve quality competitiveness is main novelty of this paper. research object is quality competitiveness of latvia. the aim of this paper is to analyze components of competitiveness, evaluate quality competitiveness of latvia and make suggestions for necessary strategy to improve quality competitiveness. main methods used in this research include study of scientific literature, legislation, time-series, data mining and analyzing of already collected data. overall competitiveness of latvia competitiveness has increasingly gained currency across the globe. the international trade theories explain that different countries have different comparative advantages. thus, if a country is rich in natural resources or capital, it has a comparative advantage over the others issn 1822-8402 european integration studies. 2009. no 3 202 (porter, 1990). however, in the current knowledge economy, knowledge as a resource has no natural home base and can be transferred easily anywhere in comparison to natural resources. this has made the xxi century more and more competitive (pillania, 2009). competitiveness and country competitiveness rankings have increasingly become important and various studies are carried out on the subject. while competitiveness of enterprises has been studied by many scholars around the world, competitiveness of nations is a relatively new discipline (garelli, 2006). there are two internationally well recognized and popular annual rankings on the competitiveness of countries, namely global competitiveness rankings and world competitiveness rankings. the global competitiveness rankings study is conducted by the world economic forum. in this paper authors will use rankings published by world economic forum – global competitiveness report and lisbon review in order to characterize overall competitiveness of latvia. main coordinators and investigators of global competitiveness report are michael porter and klaus schwab. they define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. the level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy. in other words, more competitive economies tend to be able to produce higher levels of income for their citizens. the productivity level also determines the rates of return obtained by investments in an economy. because the rates of return are the fundamental drivers of the growth rates of the economy, a more competitive economy is one that is likely to grow faster over the medium to long run. the concept of competitiveness thus involves static and dynamic components: although the productivity of a country clearly determines its ability to sustain a high level of income, it is also one of the central determinants of the returns to investment, which is one of the key factors explaining an economy’s growth potential (porter, schwab, 2008). the determinants of competitiveness are many and complex. for competitiveness ranking of the countries, global competitiveness report introduces the global competitiveness index (gci). the gci captures this open-ended dimension by providing a weighted average of many different components, each of which reflects one aspect of the complex reality that we call competitiveness. authors group all these components into 12 pillars of economic competitiveness (fig. 1.). if we look at those 12 pillars of competitiveness in detail, than “business sophistication” pillar is the one where quality is mentioned. quality issue will be discussed by the authors later in this paper. business sophistication is conducive to higher efficiency in the production of goods and services. this leads, in turn, to increased productivity, thus enhancing a nation’s competitiveness. business sophistication concerns the quality of a country’s overall business networks as well as the quality of individual firms’ operations and strategies. the quality of a country’s business networks and supporting industries, which we capture by using variables on the quantity and quality of local suppliers and the extent of their interaction, is important for a variety of reasons. when companies and suppliers from a particular sector are interconnected in geographically proximate groups (“clusters”), efficiency is heightened, greater opportunities for innovation are created, and barriers to entry for new firms are reduced. individual firms’ operations and strategies (branding, marketing, the presence of a value chain, and the production of unique and sophisticated products) all lead to sophisticated and modern business processes (porter, 2008). fig. 1. the 12 pillars of competitiveness (porter, schwab, 2008) according to the gci, in the first stage, the economy is factor-driven and countries compete based on their factor endowments, primarily unskilled labour and natural resources. companies compete on the basis of price and sell basic products or commodities, with their low productivity reflected in low wages. maintaining competitiveness at this stage of development hinges primarily on well-functioning public and private institutions (pillar 1), well-developed infrastructure (pillar 2), a stable macroeconomic framework (pillar 3), and a healthy and literate workforce (pillar 4). as wages rise with advancing development, countries move into the efficiency-driven stage of development, when they must begin to develop more efficient production processes and increase product quality. at this point, competitiveness is increasingly driven by higher education and training (pillar 5), efficient goods markets (pillar 6), well-functioning labour markets (pillar 7), sophisticated financial markets (pillar 8), a large domestic or foreign market (pillar 10), and the ability to issn 1822-8402 european integration studies. 2009. no 3 203 harness the benefits of existing technologies (pillar 9). finally, as countries move into the innovation-driven stage, they are able to sustain higher wages and the associated standard of living only if their businesses are able to compete with new and unique products. at this stage, companies must compete through innovation (pillar 12), producing new and different goods using the most sophisticated production processes (pillar 11). weights of the three main groups of pillars at each stage of development used in the global competitiveness report are shown in figure 2. fig. 2. weights of the three main groups of pillars at each stage of development (porter, schwab, 2008) according to the global competitiveness report in year 2008/2009 latvia, lithuania and estonia was in transition from efficiency-driven economy to innovationdriven economy. that means that baltic states have to do more activities in the field of business sophistication and innovation. the global competitiveness report ranked 134 countries according to the gci score. top 10 most competitive countries in the world are united states, switzerland, denmark, sweden, singapore, finland, germany, netherlands, japan and canada (fig. 3.). fig. 3. top 10 countries in competitiveness ranking, year 2008/2009 (porter, schwab, 2008) authors separately showed competitiveness ranking of baltic sea region countries in figure 4. in this figure we can see that most competitive is denmark, than follow sweden, finland, germany, estonia, lithuania, russian federation, poland and least competitive latvia. consequently, several countries in the baltic sea region score very high on world economic forum’s global competitiveness index with denmark, sweden, finland and germany in the top 10. fig. 4. competitiveness ranking of the baltic sea region countries, year 2008/2009 (porter, schwab, 2008) according to the dr christian ketels, principal associate at harvard business school, the key strengths of the baltic sea region are its sophisticated companies, infrastructure and skill base, innovative capacity, and openness for competition at equal terms for domestic and international companies. despite its relative strengths, the baltic sea region must prepare for an increasing global competition and worsening demographics, which threaten to erode its current competitive advantages over time. to remedy these threats, the baltic sea region should draw more on its ability to cooperate across borders and work to integrate its business leaders closer in upgrading its competitiveness and business environment. the real test for the baltic sea region is whether it can create the mechanisms that will make its economies fit for the challenges of the future, such as global mobility and competition, demographic trends, climate change and increasing environmental challenges (ketels, 2007). baltic sea region have four strong leaders in region and very strong competitors in the world – denmark, sweden, finland and germany. the baltic states are far behind. if latvia is in such highly competitive region, than why it is only in 54th place in the ranking? issn 1822-8402 european integration studies. 2009. no 3 204 answer to this question we can find in figure 5. as we see, latvia has lost 10 places in ranking since year 2006/2007. fig. 5. components of latvia’s gci, year 2008/2009 (porter, schwab, 2008) authors assess, that most critical results are in business sophistication (pillar 11) and innovation (pillar 12) area. if we compare business sophistication and innovation areas with other countries in transition stage, we can see that latvia is losing positions to other countries (fig. 6.). authors in this paper further will discuss business sophistication area and possibilities to improve it in latvia. quality competitiveness of latvia the european union (eu) is a high wage region. a substantial portion of the high wages, as well as the costs for the social system, education, health and environment can be balanced by higher productivity. cost increases have been successfully curbed by increasing the efficiency of institutions and markets through the reduction of transport costs, trade barriers and currency costs. nevertheless, cost restraints have a limit, and as far as factor rewards (wages, profits) are concerned – to a certain extent also contradict the final goal of competitiveness, namely to increase the welfare of european citizens. in addition, new competitors with much lower costs are arriving, be it the emerging economies or the accession countries. these competitors will always have lower absolute costs and, and usually even after correcting for productivity differences also lower unit labour costs. the consequence for a high wage country is to compete in quality. here, pressure from the cost side is mitigated, since high wage countries have a competitive advantage: demand for high quality goods depends on disposable income and is therefore stronger in rich countries, providing them with a first mover advantage; additionally, resources in research and skilled labour support innovation. for firms, quality competition has the advantage that it enables high cost firms to remain competitive; margins needed for innovation can be earned, and price competition is mitigated. for countries, high wages become compatible with competitiveness (aiginger, 2000). fig. 6. latvia’s gci components compared to other economies, year 2008/2009 (porter, schwab, 2008) figure 7 shows labour costs per hour in main economical areas of the world – usa, japan, europe and china. fig. 7. hourly compensation costs in manufacturing, eur, year 2007 (united states department of labor, eurostat, eghbal) obvious, that europe has the highest hourly labour costs and it is impossible to compete in prices with china. issn 1822-8402 european integration studies. 2009. no 3 205 if we explore labour costs in the baltic sea region in detail, we can see that there is big dispersion (fig. 8.). as we can see in figure 8, the highest labour costs in the baltic sea region is in nordic countries: denmark (31,80 euro per hour), sweden (31,80 euro per hour) and finland (31,80 euro per hour). and the lowest costs of labour per hour is in latvia – 3,58. fig. 8. hourly labour costs in the baltic sea region countries, eur, year 2006 (eurostat, global production) according to the statistics, latvia has the lowest labour costs in the baltic sea region and one of the lowest in the eu (lower costs are only in romania – 2,82 and bulgaria – 1,71). labour costs in latvia have grown very sharply since year 2000 (fig. 9.). fig. 9. hourly labour costs in latvia, eur (eurostat) from year 2000 until the year 2007, labour costs have grown 108.93%, but the labour costs are still one of the lowest in the eu. karl aiginger made investigation how europe is positioned in quality competition in manufacturing. manufacturing was chosen because author concentrated on manufacturing since the methods used to differentiate between high quality and high costs rely on the ability to measure the product physically (by weight). the data indicate that there is no immediate danger of european industries losing their mostly quality-based competitive advantages in foreign trade vis-à-vis the low cost providers; europe has a surplus in manufacturing and specifically a large trade surplus vis-à-vis the accession countries and many emerging economies. a large part of this surplus can be attributed to europe’s ability to sell goods of a higher quality. within the triad in general, goods of high quality are traded. here, europe is making progress in selling high quality goods; making inroads in important fields, although it still has a deficit in fast moving industries and productivity, and a slow speed of change. to increase income, europe has to boost quality and productivity and increase its share of technology driven industries (aiginger, 2000). eu in general is very competitive region, but what about latvia? authors used unit value of exports method developed by aiginger to estimate the quality competitiveness of latvia. at this point authors will take a closer look on latvia’s export. exports of latvian commodities in 2007 were by 22.7% higher than in 2006 in current prices, while in constant prices – by 8.3%. exports of commodities exceeded the level of the corresponding period of the preceding year also in 2008 (january-november) (by 10.5% in current prices and approximately by 3.5% in constant prices). imports and exports of latvia are shown in figure 10. fig. 10. exports and imports of latvian commodities by quarters, million lvl (ministry of economics of the republic of latvia) during three quarters of 2008, the commodity exports were favourably influenced by changes of trade conditions and the exports unit value index increased by 10.1%, but the imports unit value index – by 9.2%. increase of exports unit value index was most substantially influenced by the rise of export prices for agricultural and food products, as well as the groups of products of chemical industry and metal-working products. in the period of january-november of 2008, exports went up in almost all groups of goods, especially metalissn 1822-8402 european integration studies. 2009. no 3 206 working products, which accounted for almost a half of the total growth of exports, as well as growth of exports of agricultural and food products (approximately one third of the total growth of exports), however, it should be noted that exports of wood and wood products rapidly decreased during this period and at present it has returned to the level of 2005. exports by the groups of countries are shown in figure 11. fig. 11. exports by groups of countries, million lvl (ministry of economics of the republic of latvia) as we see in figure 11, total export of latvia is growing every year, but export share to the eu-15 is constantly decreasing and export share to the cis is constantly increasing. that means that latvia is exporting less to the countries with high incomes and more to the countries with relatively low incomes. authors hold a view that these changes in export structure are strongly related to the quality of the exported goods. as we see 30 % of export in year 2007 was to lithuania and estonia. these countries are with a little bit higher incomes than latvia, which means, latvia can’t manufacture goods with very high quality (higher price). authors decided to calculate latvia’s quality competitiveness in three markets: eu-15, lithuania and estonia, as these three markets compiled approximately 70% of all latvia’s export. authors will use unit value to estimate quality competitiveness of latvia. the unit value (uv) of exports: this indicator is defined as nominal exports divided into kilograms. higher unit values reflect higher willingness to pay for a given product, one reason for this is the higher quality in a market with vertically differentiated products. the unit value for an aggregate is higher if a country focus on more sophisticated or higher processed goods. we can call this indicator “indicator on overall quality” since it comprises many different aspects of product quality (aiginger 2000). first, authors calculated quality competitiveness of latvia in lithuanian market. results are shown in fig. 12. as we see in figure 12, latvia has increased market share in the lithuanian market, but the export prices has been very fluctuating. correlation between the data is r2=0,539, that mean that the correlation is weak. secondly, authors calculated quality competitiveness of latvia in estonian market. results are shown in fig. 13. as we see in figure 13, latvia has increased market share in the estonian market as well in lithuanian, but the export prices has not been so fluctuating as it was in lithuanian market. correlation between the data is r2=0,8336, that mean that the correlation is quite strong. 0,50 0,55 0,60 0,65 0,70 0,75 0,80 0,85 2000 2001 2002 2003 2004 2005 2006 2007 2008 2,00 2,50 3,00 3,50 4,00 4,50 5,00 5,50 6,00 unit value market share fig. 12. market share and unit value (euro/kg) of latvia’s exports in lithuanian market (eurostat) 0,00 0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80 0,90 1,00 2000 2001 2002 2003 2004 2005 2006 2007 2008 0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0 10,0 unit value market share fig. 13. market share and unit value (euro/kg) of latvia’s exports in estonian market (eurostat) in this situation authors agree with aiginger: higher unit values reflect higher willingness to pay for a given product that means that estonian market needs higher quality goods and latvian manufacturers are offering that. issn 1822-8402 european integration studies. 2009. no 3 207 thirdly, authors chose eu-15 market, which is biggest export market for latvia. results are shown in fig. 14. as we see in figure 14, market share of latvia’s exports in eu-15 countries is quite constant, but unit value has increased very sharply since year 2005 until year 2007 (+150%) and decreased very sharply in year 2008 (-44%). correlation between the data is r2=0,0146, that mean that there is almost no correlation. estonian market share in eu-15 countries is also quite constant, but unit value is increasing every year. correlation between the data is r2=0,3235. this correlation is higher than in case of latvia, but there is still quite low correlation. lithuania since year 2000 managed to increase market share in eu15 countries and unit value as well. correlation between the data is quite high r2=0,532. unit value 0,00 0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80 2000 2001 2002 2003 2004 2005 2006 2007 2008 m arket share 0,00 0,05 0,10 0,15 0,20 0,25 0,30 0,35 0,40 2000 2001 2002 2003 2004 2005 2006 2007 2008 estonia lithuania latvia fig. 14. market share and unit value (euro/kg) of the baltic states exports in eu-15 countries (eurostat) that is highest correlation within the baltic sates. figure 14 also shows us, that estonia and lithuania has larger market share in eu-15 countries than latvia, despite higher unit value. that means that estonia and lithuania managed to sell higher quality (higher technology) goods than latvia. strategy to improve quality competitiveness of latvia authors in the introduction indicated a problem of quality’s place in the competitiveness and mentioned that japanese entrepreneurs proved that quality is one of the main components of competitiveness. what was the strategy of japan in competitive struggle after world war ii? history shows that quality of goods and business sophistication was main factors which brought japan to the leading position in quality and competitiveness in the world. of course, at the beginning low labour costs help japan to conqueror markets with purchasing capacity (case with japanese exports to the usa). authors hold a position, that this strategy is very effective – high quality goods and business sophistication and exports to the high income countries. authors will look a closer look at business sophistication in latvia. as we cleared up – business sophistication is one of the positions, there latvia should work on to gain more competitiveness. according to the authors, one of the business sophistication indicators is iso standards. the most widely used and recognizable is iso 9001 standard (fig. 15). fig. 15. top 10 countries for iso 9001:2000 certificates, 2007 (iso survey 2007) as we see in figure 15, china is leading country in the world by implemented systems iso 9001. that shows that china is working very strongly on developing business sophistication in the country and that also helps to increase exports to other countries of the world. in the baltic sea region countries the most certificates are in germany and least in latvia (fig. 16). iso survey shows that in latvia there was sharp decrease in certificates in year 2007, but latvian association for quality still has data about more than 600 companies with certificate – authors can’t explain differences in data. but still, as we can see in figures 17 and 18, that latvia is notable with great changes in annual growth on certification, comparing to estonia and lithuania, where we can observe gradualness and lasting growth. if data about iso 9001 certification in latvia is correct than authors identify here a problem. the problem involves ability of latvian companies to implement and maintain quality management system. issn 1822-8402 european integration studies. 2009. no 3 208 fig. 16. the baltic sea region countries for iso 9001:2000 certificates, 2007 (iso survey 2007) fig. 17. the baltic states for iso 9001 certificates (iso survey 2000, 2003, 2004, 2005, 2006, 2007) fig. 18. annual growth on the baltic states for iso 9001 certificates (iso survey 2000, 2003, 2004, 2005, 2006, 2007) according to the authors latvia should develop idea that government via latvian association for quality (laq) promote quality movement. government should increase funding of quality movement so laq could invite world’s leading quality experts to read lectures for latvian entrepreneurs. authors suggest making all these lectures available to the entrepreneurs free of charge or very little fee. especially important that would be for small and medium enterprises (sme). opinion about too commercialized quality movement in europe holds also leading quality expert juhani anttila. he stated this problem at the 11th annual international quality conference in year 2007, in riga. he compared quality movements in europe and usa, and admitted that in usa many things are free of charge and that promote quality movement and encourage entrepreneurs to make an interest about quality assurance and management to develop business sophistication. for example, authors suggest lowering prices for different iso standards. the most popular standard iso 9001 costs 76 euro. if entrepreneur decides to certify system – that will cost extra (depending on the size of the company). price lowering would favour that more standards reach the entrepreneurs and that will involve them in quality movement faster. the same suggestion authors have for quality awards. lowering the participation costs (630 euro for big companies and 350 euro for sme) will result in more participants and that will raise the competition and business sophistication within the latvian companies. conclusions issues of competitiveness always have been important for countries and companies. global competitiveness report is the most recognizable competitiveness comparison. this report shows that latvia’s weakest pillars are business sophistication and innovations. karl aiginger’s method uses unit value of exports to comparison quality competitiveness of countries. calculations made by authors, showed that lithuania and estonia are more competitive in quality in eu-15 countries market than latvia. according to the authors, one of the business sophistication indicators is usage of iso standards. the most widely used and recognizable standard in latvia is iso 9001 standard. to promote quality movement in latvia and encourage latvian entrepreneurs to develop business sophistication, there should be actions made by government of latvia. these actions should include funding increase for latvian association for quality (laq), so laq could invite world’s leading quality experts to read lectures for latvian entrepreneurs. all these lectures should be available to the entrepreneurs free of charge or very little fee. especially important that would be for small and medium enterprises (sme). price lowering for different iso standards would favour that more standards reach the entrepreneurs and that would involve them in quality movement faster. lowering the participation costs to the latvian quality award will result in more participants and that will raise the competition and business sophistication within the latvian companies. issn 1822-8402 european integration studies. 2009. no 3 209 references anderton r. (1999), uk trade performance and the role of product quality, variety, innovation and hysteresis: some preliminary results//scottish journal of political economy, vol. 46, november, pp. 553-570. anderton r. (1998), innovation, product quality, variety, and trade performance: an empirical analysis of germany and the uk//oxford economic papers, vol. 51, pp.152-167. aiginger k. (2000), europe’s position in quality competition. – vienna, austrian institute of economic research wifo, 59 p. aiginger k. (1997), the qualitative competition of high wage countries. measuring the position of countries on the quality ladder. austrian institute of economic research and university of linz, 19 p. aiginger k. (1997), a framework for evaluating the dynamic competitiveness of countries//structural change and economic dynamics, pp. 159-188. bernard a. b., jensen j. b. (2004), why some firms export//review of economics and statistics, vol. 86, no. 2, pp. 561-569. bils m., klenow p. j. (2001), quantifying quality growth//the american economic review, vol. 91, no.4, pp. 1006.-1030. de loecker j. (2007), do exports generate higher productivity? evidence from slovenia//journal of international economics, vol. 73, pp. 69-98. economic development of latvia. report. (2008). – riga, ministry of economics of the republic of latvia, 147 p. eghbal m. (2008), special report: china’s rising labour costs//euromonitor international. on-line: http:// www.euromonitor.com/special_report_chinas_ rising_labour_costs eurostat. (2009), on-line: http://epp.eurostat.ec.europa.eu falkinger j. (1992), towards a quality-centered economic analysis: some simple diagrams// kyklos, vol. 45, issue 4, pp. 469-482. faruq h. (2006), new evidence on product quality and trade// caepr working paper, no. 2006-019, 40 p. garelli s. (2006), changing the mindset of competitiveness. on-line: http://www.imd.ch/ research/challenges/tc060-06.cfm grossman g. m., helpman e. (1991) quality ladders and product cycles//quarterly journal of economics, vol. 106, issue 2, pp. 557-586. hallak j. c. (2006), product quality and the direction of trade//journal of international economics, vol. 68, pp. 238-265. ketels c. (2007), four baltic sea region countries in the top ten of global competitiveness. on-line: http:// www. innovations-report.de/html/berichte/ wirtschaft_ finanzen/bericht-95560.html murphy k. m., shleifer a. (1997), quality and trade, journal of development economics, vol. 53, pp. 1-15. labour costs. (2009), global production. on-line: http://www.global-production.com/scoreboard/ indicators/labourcost.htm latvian association for quality. on-line: http://www. lka.lv pillania r. k. (2009), competitiveness and emerging markets//business strategy series. vol.10, issue 2, pp. 90-95. porter e. m., schwab k. (2008) the global competitiveness report 2008-2009. – geneva, world economic forum, 513 p. porter m. (1990), competitive advantage of the nations. – new york, free press, 857 p. sheridan m. (2006), chinese laws may push up labour costs//times online. on-line: http:// business. timesonline.co.uk/tol/business/economics/ article600803.ece the lisbon review 2008. (2008), measuring europe’s progress in reform. – geneva, world economic forum, 26 p. the iso survey 2007. – geneva, iso central secretariat, 27 p. the iso survey 2006. – geneva, iso central secretariat, 25 p. the iso survey 2005. – geneva, iso central secretariat, 22 p. the iso survey 2004. – geneva, iso central secretariat, 23 p. the iso survey 2003. – geneva, iso central secretariat, 25 p. the iso survey 2000. – geneva, iso central secretariat, 19 p. united states department of labor. (2009). on-line: http://www.dol.gov the article has been reviewed. received in march, 2009; accepted in april, 2009. european integration studies 2008.indd 121 issn 1822-8402 european integration studies. 2008. no 2 managers’ perception of entrepreneurship concept in regional science park of ktu jolita greblikait rasa daug lien kaunas university of technology institute of europe abstract there is emphasized that changing environment for business precondition different and complicated conditions for practical activity, also changes of theoretical concepts of phenomena, objects and etc. entrepreneurship is not an exception. knowledge-based economy (kbe) raises new challenges for business from practical viewpoint. theoretically solved practical business questions take a new context and essence. the formed preconditions allow revealing scientifi c research problem of this article: how entrepreneurship concept is perceived in entrepreneurial enterprises in lithuania; how managers of enterprises perceive entrepreneurship concept in regional science park of kaunas university of technology (ktu), incubating more or less entrepreneurial enterprises. the aim of the article is to perform the research by interviewing managers of regional science park of ktu enterprises, in order to clarify the theoretical defi nition of entrepreneurship concept in kbe. research is based on theoretically grounded considerations on entrepreneurship concept. research implementation method is interview. interview results are based on revealing important and non-important characteristics of entrepreneurship concept by perception of enterprises’ managers of regional science park of ktu. the most important implication of research is that enterprises of regional science park of ktu are considered as highly entrepreneurial. managers of those enterprises are able to make valuable considerations on entrepreneurship concept. research is valuable as clarifying entrepreneurship concept in kbe from practical business positions. keywords: entrepreneurship; knowledge-based economy (kbe). introduction entrepreneurship as phenomenon has old traditions. the fi rst research works on its concept may be found in 1730. phenomenon has a lot of different defi nitions. it is possible to clarify a lot of characteristics, refl ecting complicated context of entrepreneurship. some tendencies of development of entrepreneurship context are seen. after world war ii researchers of social and other sciences made their work more intensive. a lot of new tendencies, paradigms and theories were developed. the new impulses might be found in entrepreneurship concept development. the impact of knowledge-based economy (kbe) is crucial for concept interpretation and perception as well. the meaning of entrepreneurship in development of economy is very important. actuality of research concerning perception of entrepreneurship concept in kbe is obvious. considering above mentioned aspects, the research problem being solved in this article should be constructed as follows: how entrepreneurship concept is perceived in entrepreneurial enterprises in lithuania; how managers of enterprises perceive entrepreneurship concept in regional science park of kaunas university of technology (ktu), incubating more or less entrepreneurial enterprises. the aim of the article is to perform the research by interviewing managers of regional science park’s enterprises, aiming to clarify the theoretical defi nition of entrepreneurship concept in kbe. the object of research is entrepreneurship 122 issn 1822-8402 european integration studies. 2008. no 2 concept and its characteristics. the tasks of article are: shortly present theoretical background of the research of entrepreneurship concept, present research methodology for determination of managers’ perception of entrepreneurship concept, and evaluate research results. crystallization of theoretical characteristics of entrepreneurship as theoretical research problem reveals, entrepreneurship concept is changing depending on economic and social development and its transformation. importance of entrepreneurship as phenomenon is nevertheless smaller than in previous economic situation, but the context and its perception may be different. analyzing researh works on entrepreneurship and related questions (shumpeter, 1934; mcclelland, 1961; shapero, 1975; vesper, 1980; pinchot, 1983; hisrich 1986,1989; siropolis, 1986; peters, 1989; drucker, 1992; lydeka, 1996, 2000, 2001; mintzberg, 1998; jucevi ius, 1998; swedberg, 2000; messeghem, 2003; grebel, 2004; zakarevi ius, 2004; stokes, 2004; bannock, 2005; martinkus, ži kien , 2006; fuller, 2001, 2006; warren, 2006; ginevi ius, s džius, 2006; kvedaravi ius, 2006; kriš i nas, daug lien , 2006; jani nait , 2007 ir kt.), and analysing the evolution of research schools, it is possible to disclose characteristics of entrepreneurship concept. those characteristics systematically can be divided into appropriate groups. those groups encounter different theoretical characteristics of entrepreneurship, expressed in econiomic, managerial, social, and technological (also environmental) activity. those mentioned characteristics are crystalized from analysing scientifi c theories of economy, knowledge management, complexity, change management, economic sociology, organizations, starting from schumpeter works. in totality they refl ect the context of entrepreneurship concept in kbe (see figure 1). theorethical characteristics of entrepreneurship in kbe economic activity striving for profitability striving for activity effectiveness striving for competitiveness creation of new job places economic risk economic vitality meaning of added value creation meaning for financial investments risk capital investments meaning of production process coordination of production factors activity dynamics value of trade mark social activity responsiveness to the owner responsiveness to investors responsiveness to employees responsiveness to society firiendliness to problematic social groups managerial activity innovation creation and usage change management knowledge creation and usage human resources quality and management learning and training implementation of sustainable development concept existence of team work existence of entrepreneurial motivation organizational development meaning of leadership meaning of decision making networking appliance of intrapreneurship appliance of virtuality appliance of consumer needs‘ research technological (also environmental) activity appliance of scientific and technological and their results appliance appliance of new technologies usage of information technologies saving of resources implementation of cyclical production implementation of cleaner production figure 1. theoretical characteristics of entrepreneurship combination of theoretical entrepreneurship characteristics can disclose perception of entrepreneurship concept in an appropriate researched area or object. the whole complex of characteristics should refl ect fuller perception of entrepreneurship concept and implementation of entrepreneurship characteristics in practice, developing activity in kbe. 123 issn 1822-8402 european integration studies. 2008. no 2 research methodology for determination of managers’ perception of entrepreneurship concept research is based on interviewing managers of enterprises of regional science park of ktu. enterprises of the park are considered highly entrepreneurial, competitive, and innovative. for that reason they are meaningful and appropriate for research of perception of entrepreneurship concept. the aim of interview is fulfi lling research of entrepreneurship concept perception by managers of the park, achieving to clarify theoretical concept of entrepreneurship. the regional science park of ktu joins 44 enterprises and 25 enterprises – as associate members. interview was fulfi lled in 12 enterprises, found as the most progressive and competitive in the park. the research instrument was an interview questionnaire. the questionnaire was constructed from 5 parts, based on theoretical reasoning on entrepreneurship. the fi rst part of questionnaire is devoted to relativity of characteristics of entrepreneurship. the second part is appointed to research the meaning of entrepreneurship characteristics for overall business success. characteristics of entrepreneurship, meaningful for lithuanian business, are presented and evaluated by managers of the park. the third part of questionnaire is devoted for meaning of entrepreneurship characteristics in selected enterprises. the fourth part of interview questionnaire was constructed for displaying entrepreneurship characteristics in researched enterprises. the fi fth part of questionnaire is constructed for evolution of entrepreneurship characteristics. question types are various for seeking to guarantee reliability and exactness of information, as well as informatively. interview results’ analysis is from several stages: analytical tables are made, based on theo-1) retical considerations and entrepreneurship characteristics. these refl ect frequency and expression of characteristics in different enterprises. analysis of characteristics of entrepreneurs-2) hip is revealed on characteristics’ level of frequency. factors and sources changing entrepreneurs-3) hip concept are analyzed. the overall results evaluation is made.4) interview results as it was mentioned earlier, the interview was implemented for several purposes. the relativity of entrepreneurship concept was disclosed by sources, changing concept, and factors, infl uencing perception of entrepreneurship concept. as the main sources, changing the perception of entrepreneurship concept by managers of regional science park of ktu, are learning and training, business science literature, government decisions and measures, business contacts and practical activity of competitors or partners. as important factors, infl uencing perception of entrepreneurship concept, were emphasized such characteristics as business science literature, eu policy, business promotion measures, and visits of experts, life-long learning, high school graduates, and business practical activity. business practical activity was mentioned as a main source and factor changing the entrepreneurship concept and infl uencing its perception. as interview results’ analysis shows, it is possible to disclose important and non-important characteristics, actual for overall business success, by perception of managers of the park (see figure 2). all characteristics can be divided into groups according enterprise activity; it means economic, managerial, social, and technological (also environmental) activity characteristics of entrepreneurship. as important characteristics of entrepreneurship for overall business success can be mentioned striving for activity effectiveness, striving for competitiveness, meaning of added vales creation, fi nancial investments meaning, coordination of production factors, activity dynamics, innovation creation and usage, existence of entrepreneurial motivation, organizational development, responsiveness to the owner, responsiveness to investors, responsiveness to employees, responsiveness to society, scientifi c and technological research and their results appliance, appliance of new technologies, appliance of information technologies (see figure 2). as nonimportant characteristics with point of interest may be mentioned such characteristics as meaning of production process, performance of consumers needs’ research, meaning of decision making. as important characteristics of entrepreneurship concept, actual for lithuanian business by perception of managers of regional science park of ktu, were mentioned and might be emphasized such characteristics as striving for profi tability, striving for activity effectiveness, striving for competitiveness, activity dynamics, innovation creation and usage, human resources quality and management, learning and training, responsiveness to the owner, responsiveness to investors, responsiveness to employees, responsiveness to society, friendliness to problematic social groups, scientifi c and technological research and results appliance, appliance of new technologies, appliance of information technologies (see figure 3). as interview results show managers 124 issn 1822-8402 european integration studies. 2008. no 2 of the park perceive that saving of resources is nonimportant characteristic for lithuanian business. it is interesting point for deeper analysis is the future because lithuania is not a country with big amounts of different resources. saving of them is a question of anxiety for everyone, not only for business. non-important characteristics creation of new job places meaning of production process risk capital investments meaning of decision making appliance of virtuality performance of consumer needs‘ research friendliness to problematic social groups saving of resources implementation of cyclical production implementation of cleaner production important characteristics striving for activity effectiveness striving for competitiveness meaning of added value creation meaning of financial investments coordination of production factors activity dynamics innovation creation and usage existence of entrepreneurial motivation organizational development responsiveness to the owner responsiveness to investors responsiveness to employees responsiveness to society scientific and technological research and their results appliance appliance of new technologies appliance of information technologies characteristics of entrepreneurship concept figure 2. important and non-important characteristics of entrepreneurship concept for overall business success by perception of managers of the park nonimportant characteristics creation of new job places economic vitality meaning of added value creation risk capital investments meaning of decision making appliance of virtuality meaning of decision making „intrapreneurship“ appliance performance of consumer needs‘ research saving of resources important characteristics striving for activity effectiveness striving for profitability striving for competitiveness activity dynamics innovation creation and usage human resources quality and management learning and training organizational development responsiveness to the owner responsiveness to investors responsiveness to employees responsiveness to society scientific and technological research and their results appliance appliance of new technologies appliance of information technologies characteristics of entrepreneurship concept figure 3. important and non-important characteristics of entrepreneurship concept for lithuanian business by perception of managers of the park the analysis of interview results revealed such characteristics of entrepreneurship, actual to the interviewed enterprises’ activity, perceived by managers of the enterprises (see figure 4). it is interesting to notice that managers perceive such characteristics as importance of fi nancial investments and risk capital investments as non-important characteristics. 125 issn 1822-8402 european integration studies. 2008. no 2 non important characteristics creation of new job places economic vitality meaning of financial investments risk capital investments meaning of production process meaning of trade mark implementation of sustainable development concept organizational development „intrapreneurship“ appliance implementation of cyclical production important characteristics striving for activity effectiveness striving for profitability striving for competitiveness coordination of production factors activity dynamics innovation creation and usage knowledge creation and usage human resources quality and management learning and training existence of entrepreneurial motivation responsiveness to the owner responsiveness to investors responsiveness to employees responsiveness to society friendliness to problematic social groups scientific and technological research and their results appliance appliance of new technologies appliance of information technologies characteristics of entrepreneurship concept figure 4. important and non-important characteristics of entrepreneurship concept for interviewed enterprises’ activity by perception of managers of the park considering all results it is possible to distinguish the most important characteristics of entrepreneurship concept, perceived as actual for the concept by managers of regional science park of ktu (see figure 5). important characteristics striving for profitability striving for activity effectiveness meaning of added value creation meaning of financial investments coordination of production factors actvity dynamics innovation creation and usage knowledge creation and usage human resources quality and management learning and training existence of entrepreneurial motivation responsiveness to the owner responsiveness to investors responsiveness to employees responsiveness to society friendliness to problematic social groups scientific and technological research and their results appliance appliance of new technologies appliance of information technologies figure 5. the most important characteristics of entrepreneurship concept by perception of the park’s managers such characteristics of economic activity as striving for profi tability, striving for activity effectiveness, meaning of added value, meaning of fi nancial investments, coordination of production factors, activity dynamics might be evaluated as traditional characteristics, which are important for entrepreneurship development. innovation creation and usage, knowledge creation and usage are managerial characteristics, important entrepreneurship concept, and especially actual in kbe. human resources’ quality and management, learning and training, existence of entrepreneurial motivation are characteristics, describing managerial side of human resources in entrepreneurship context. social activity characteristics such as responsiveness to the owner, responsiveness to investors, responsiveness to employees, responsiveness to society, and friendliness to problematic social groups were mentioned as important perceiving entrepreneurship concept in enterprises of regional science park of ktu. such technological characteristics as scientifi c and technological research and their results appliance, appliance of new technologies, appliance of information technologies are directly connected with kbe context and important in recent economic situation. the most important characteristics of entrepreneurship revealed by interviewing managers of regional science park of ktu refl ect the collection of basic characteristics of entrepreneurship in kbe analysed in theoretical works on entrepreneurship questions. 126 issn 1822-8402 european integration studies. 2008. no 2 conclusions the concept of entrepreneurship is changing 1. and relative category, in appropriate period characterising such expression of entrepreneurship in economic, social, managerial and technological activity as it is perceived as entrepreneurial. in kbe entrepreneurship concept is based on a lot of characteristics, rather “old” and newly revealed. the fulfi lled theoretical analysis concerning 2. evolution of entrepreneurship concept allowed formulating a background for empirical research aiming to clarify entrepreneurship concept in practical business activity. the empirical research was made interviewing 3. entrepreneurial enterprises in regional science park of ktu. the interview disclosed the importance of researched area to fi nal results and important and non-important characteristics of entrepreneurship concept, perceived by managers, in three levels: overall business, lithuanian business, activity of regional science park enterprises of ktu. the most important characteristics of 4. entrepreneurship perception in kbe may be mentioned these: striving for profi tability, striving for activity effectiveness, meaning of added value creation, meaning of fi nancial investments, coordination of production factors, actvity dynamics, innovation creation and usage, knowledge creation and usage, human resources quality and management, learning and training, existence of entrepreneurial motivation, responsiveness to the owner, responsiveness to investors, responsiveness to employees, responsiveness to society, friendliness to problematic social groups, scientifi c and technological research and their results appliance, appliance of new technologies, appliance of information technologies. the whole complex of implemented characteristics 5. of entrepreneurship refl ect strongly entrepreneurial activity, developing in kbe. references mcclelland d. c. the achieving society. – new york: princeton, 1961. bannock g. the 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wilds of strategic management. – london: financial times prentice hall, 1998. – 392 p. schumpeter j. a. kapitalizmas, socializmas ir demokratija. – vilnius: mintis, 1998. – 382 p. 127 issn 1822-8402 european integration studies. 2008. no 2 siropolis n. c. small business management. third edition. – boston: houghton miffl in company, 1986. – 635 p. stokes d. small business management: an activelearning approach. – london: dp publications, 1992. – 408 p. zakarevi ius p., kvedaravi ius j., augustauskas t. organizacij vystymosi paradigma. – kaunas: vdu, 2004. – 511 p. the article has been reviewed. received in march, 2008; accepted in april, 2008. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 70 european integration studies no. 13 / 2019, pp. 70-79 doi.org/10.5755/j01.eis.0.13.23500 abstract financial companies in latvia: why are they coming to the bond market? http://dx.doi.org/10.5755/j01.eis.0.13.23500 natalja tocelovska, riga graduate school of law, latvia biruta sloka, university of latvia in the period 2013-2017 latvian corporate bond market had experienced the abrupt growth of the number of public latvian corporate bond issues outstanding. the base of the expansion was formed by the financing activity of latvian financial sector issuers (fsis) with their weight in the pool of corporate bond issues listed in nasdaq riga at 85%. in 2019, fsis remain the main issuer in latvian corporate bond market (64% of the number of issues (nasdaq baltic, 2019)). the financing needs and preferences of the fsis not only shape the segment profitability but also build latvian corporate bond market sustainability. academic papers provide broad motivation for corporate debt issuing: an efficient competition to bank funding, long-term financing, improvement of the cash flow by decreasing the cost of debt, optimization of the financial structure, and efficient ownership structure. the existing research is modest on the analysis of the fsi segment as the issuer segment in the debt market while academics do analyse the corporate bonds issuance by the fsis where motivating factors stimulating fsis to come to the public debt market are seldom separated while size and characteristics of the issuers are mostly scrutinised. the aim of this article is to analyse the determinant of the development of the fsi segment of the corporate bond market in latvia by defining the factors stimulating the bond issuing decision made by the fsi segment. this article provides primary data analysis of both survey and in-depth interviews with latvian fsi segment representatives run in the period june-august 2017. the results of the analysis indicate that bank borrowing is not treated as the funding alternative for fsis where issuing debt and equity funding are the recognised funding sources of the fsi segment. the growing role of the peer-topeer platform financing is recognised and will further influence the fsi segment alternative financing. the main factors motivating fsis to come to the debt market are reputation a company gets as the result of the bond issue, strategical ambition to be present in the public market, cost of funding in the long-term (more than 3 years). the methods used in this article are scientific publication analysis, document analysis, expert survey, in-depth interviews, and statistical data analysis. keywords: corporate bonds, corporate bond market, financial sector issuers, factors, latvia karlis purmalis, university of latvia introduction submitted 06/2019 accepted for publication 10/2019 financial companies in latvia: why are they coming to the bond market? eis 13/2019 there is vast academic interest in the methods and effectiveness of corporate financing, where the research could be grouped in to two categories: exploring the market-based financing (research conducted after the financial crisis of 2008-2013): mertens & thiemann (2018), gupta & gregoriou (2018), karwowski & stockhammer (2017), maci & valentova hovorkova (2017), hardie et al. (2013); and narrowing the subject of the analysis to the corporate choice between the market and bank-based funding decision (the research conducted before the financial crisis of 2008-2013): levine (2002), fujita (2000), allen & gale (2000), boyd & smith (1998), rajan & zingales (1999), boot & thakor (1997), gerschenkron (1962). the further division and analysis of the factors as affecting the market-based funding decision of the company luck the consistency 71 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 and major interest in the academic studies. the fsi segment, as indicated among the main forming segments of the corporate bond market in a country by wyman (2015), is seldom separated for the discrete analysis by the academics. both the corporate bond market and its fsi segment attract significant interest from the market stakeholders in latvia. the country has indicated the robust growth of the corporate bond market segment in the period 2013-2017, while due to the disreputable shutdown of one of the main banks in the country (and one of the main issuers of the corporate bonds), the market has perceived substantial change (nasdaq baltic, 2019a). in the result, the corporate bond market in latvia lost its issuing leader position in the baltic region in the situation of growing activity in neighbouring lithuania, while suffering from the loss of the main local issuer. before its substantial transformation, the weight of the fsi issues in the pool of corporate bond issues listed in nasdaq riga reached 85%, while declining to 64% of the number of the issues outstanding in 2019 (nasdaq baltic, 2019). the dependency of the corporate bond market in latvia on the fsi issuers should be unveiled and studied, where the factors stimulating the bond issuing decision made by the fsi should be identified and handled consistent with the corporate bond development strategy in latvia. moreover, the importance of market financing is supported by the increasing closure of the banks in latvia and thus decreasing bank-based funding availability (financial times, 2019). no similar analysis of the corporate bond market in latvia and its fsi segment has been made before. this article aims to analyse the determinants of the development of the fsi segment of the corporate bond market in latvia by defining the factors stimulating the bond issuing decision made by the fsi segment. the research methods used in this article are: analysis of scientific publications; quantitative research methods: survey; for the data obtained by survey, data grouping by different parameters (cross-tabulation) was performed; data was analysed by indicators of descriptive statistics: indicators of central tendency or location (arithmetic mean, mode, median), indicators of variability (range, standard deviation, standard error of mean); secondary data analysis (financial market indicators and data analysis based on data from nasdaq baltic), qualitative research methods: in-depth interviews. in the result of the analysis, the factors stimulating the bond issuing decision made by the fsi segment were analysed, where the main factors detected by the research were: the reputation a company got as the result of the bond issue, strategical ambition to be present in the public market, and cost of funding in the long-term (more than 3 years). this paper contributes in two fundamental ways to the current research on the corporate bond issuance decision made by the fsis in latvia. firstly, the authors provide an in-depth analysis of the academic development of factors supporting the corporate bond issuance decision (including fsi segment factors). secondly, the authors gather the primary data and perform its analysis on the main factors motivating fsis to come to the corporate bond market in latvia. the structure of this paper commences with the review of the academic research on the factors supporting the corporate bond issuance decision: efficient competition to bank funding, long-term financing, improvement of the cash flow by decreasing the cost of debt, optimisation of the financial structure, and efficient ownership structure. the review of the academic research as focusing on the fsi segment decision for corporate funding is performed. the methodology of the primary data collection and analysis is disclosed, primary data is analysed. in the result of the data analysis, the main factors motivating fsis to come to the debt market are presented, the expected outcomes are described as well as future areas of research are proposed. corporations come to the bond market to address their financing needs where long-term oriented and cost-effective financing forms the continuity of the company and builds its competitiveness in the market. the academic literature provides broad motivation for corporate debt issuing, where maci & valentova hovorkova (2017) named the riskiness of businesses and costs of moni¬toring literature reviews e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 72 for the creditor, the accessibility of loan ratings of businesses, the overall eco¬nomic maturity of the country, the size, or phases, of life cycles of businesses, the communica¬tion of businesses with the investor community, the terms of the loan contract factors. tocelovska (2008) revealed that efficient competition to bank funding, long-term financing, improvement of the cash flow by decreasing the cost of debt, optimisation of the financial structure, and efficient ownership structure among the main factors. hameed (2007) supported efficient competition to bank funding and long-term financing factors adding the aspect of enhancing financial sector stability. the study of faulkender & petersen (2006) indicated that firms, which managed to raise debt publicly not from the bank, had 40% more debt and 50% higher leverage ratios. the latter was supported by the study of hameed (2007) stressing that the bond issuer could apply its own chosen debt structure and attract additional finance without stating the specific need for it. law & singh (2014) disapproved on the view on raising the maximum corporate funding possible stressing on the presence of the optimal level, which should be identified and applied for a company in an efficient way. the efficiency of corporate long-term financing via corporate debt was proved by harford & uysal (2014), bose & dipankor (2003), demirguc-kunt & maksimovic (2002). demirguc-kunt & maksimovic (2002) emphasised that the development of securities markets was more related to longterm financing, while the development of the banking sector to the availability of short-term financing. harford & uysal (2014) concentrated on the efficiency issues and concluded that constrained access to debt external financing encouraged managers to be more selective in their investment decisions. the choice for the financing instruments as the subject to the terms and amount of capital needed was found by the study of bose & dipankor (2003): large-scale, long-term fixed investments were best financed through long-term corporate debt. braun & briones (2006) found that the average maturity of corporate bonds was positively correlated with the size of the overall bond market and of the sovereign segment. allen & gale (2000), fujita (2000) and levine (2002) emphasised that market-based financing increased efficiency. corporate choice for bond funding from optimal capital structure perspective has been widely analysed in the academic studies. the study of faulkender & petersen (2006) revealed that large firms’ decision on the capital structure was dependent on the capital market conditions. ma et. al. (2005) provided the view that multiple financing channels (including the corporate bond market) improved firms’ capital structures, promoted competition and encouraged innovation. the investment stage is often very costly for the company and the cash flow from the revenue-generating entities are seldom enough to finance all the new investments (chorafas, 2005). tetrevova (2007) stressed that issuing corporate bonds helped financial managers to form the optimal financial structure thus positively influencing its competitiveness. the study of zelgalve & romanova (2011) highlighted the increasing role of borrowing as the stimulus for growing the asset base for latvian companies. among the negative sides of the bond issue is the lengthy initial process of prospectus writing and the relevant document gathering. for every issue, a new documentation package is prepared to regulate the cooperation between the issuer and the investors of these bonds and results in providing the conditions of borrowing for the issuer and the appropriate degree of safety for investors. still, the substantial workflow should be done only when preparing the first issue as every next issue is using similar documentation and is relatively fast from the administrative side. the other factor is the lack of flexibility. the diverse structure of bondholders makes the changes in the interest payment or nominal schedule impossible or inefficient. while providing comparatively broad analysis on the motivation of corporate bond issuance, the academic literature is comparatively modest on the analysis of the fsi segment as the issuer segment in the debt market. despite the importance of the fsi segment for the public debt segment 73 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 as exposed by braun & briones (2006): the study discovered the difference between large and small bond markets in the way that in the large markets issuers tend to be disproportionably financial institutions; the analysis of the fsi sector issuing debt securities remained rather fragmented. liu (2013) proved the external financing costs were less influenced by the size of the company than internal. wijesiri, yaron & meoli (2017) found the relationship between the size and age of microfinance institutions to the efficiency of their access to finance. tchakoute tchuigoua (2014) found that the banking sector seemed to complement the microfinance sector given that microfinance institutions in countries with developed banking sectors are more leveraged. in the result, the existing academic studies do analyse the corporate bonds issuance by the fsis where motivating factors stimulating fsis to come to the public debt market are seldom separated and size and characteristics of the issuers are mostly scrutinised. methods and procedures the methods used in this article are an analysis of scientific publications; quantitative research methods: survey; for the data obtained by survey, data grouping by different parameters (cross-tabulation) was performed; data was analysed by indicators of descriptive statistics: indicators of central tendency or location (arithmetic mean, mode, median), indicators of variability (range, standard deviation, standard error of mean); secondary data analysis (financial market indicators and data analysis based on data from nasdaq baltic), qualitative research methods: in-depth interviews. in-depth interviews and expert survey to the fsi sector were run in the period june-august 2017. the rationale for primary data collection was instigated by the lack of representative historical secondary data present (the gradual development of the corporate bond issuance by the fsi segment in latvia started in 2013 (nasdaq baltic, 2019)), where despite the growing presence of the fsi segment activity, any academic research in the area is absent. the primary data analysed in this paper has been obtained via in-depth interviews and surveys to fsi sector run in the period june-august 2017 where the participation rate reached 90% and 70% from the total number of the fsi of the corporate bonds respectively (table 1). the limitation for participants of the in-depth interviews and surveys was made to include the financial sector issuers of corporate bonds publicly listed in nasdaq riga: ablv bank, agrocredit latvia, capitalia, citadele banka, expresscredit, moda kapitāls, mogo, reverta, rietumu banka, via sms group. no similar analysis of the corporate bond market in latvia and its fsi segment has been made before. questionnaires for expert survey and interview questions were tested on the sample group. in the result of the test, content change and rephrasing to 4 out of 20 questionnaire questions and 5 out of 18 interview questions took place. companies participating in the survey ablv bank, agrocredit latvia, capitalia, citadele banka, expresscredit, moda kapitāls, mogo, rietumu banka, via sms group companies participating in the interview ablv bank, agrocredit latvia, capitalia, citadele banka, expresscredit, rietumu banka, via sms group table 1 fsi segment participation in the survey: “corporate bonds in latvia: factors that affect financial sector issuers”, 2017 source: authors’ construction based on natalja tocelovska conducted survey “corporate bonds in latvia: factors that affect financial sector issuers” conducted in juneaugust 2017 after the personal invitation for experts to participate in an expert survey and their acceptance, the questionnaire was sent to the respondents on june 19, 2017, with a weekly reminder. one of the questionnaires was fully translated into latvian as requested by the company. both english original and translated into latvian versions were sent to the respective fsi. in-depth interviews process took place in the period june 27august 3, 2017, in english, latvian or russian depending on the preferences of the interviewee. all interviews were recorded and transcribed. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 74 the results of the survey indicate the growing recognition of the corporate bond market by latvian fsis and increasing switch from bank financing where the main incentives are reputation, strategical factors and the cost of funding in the long-term. tables 2 and 3 represent the summary of the descriptive statistics of questions: “my company when in need for additional funding chooses: borrowing from the group company; borrowing outside the group company (bank borrowing); equity funding; issuing bonds; organising initial public offering (ipo)” and question: “in my company the main motivation to issue bonds for a company is: cost of funding in the long-term (more than 3 years); cost of funding in the short-term (less than 3 years); cost of issue (documentation, issue organiser, etc.); cost of market entrance (registration fees, listing fees, etc.); demand from investors; lack of funding alternative; level of competence in bond issue process by the reasonable people in my company; regulatory policies; reputation a company gets as the result of bond issue (publicity, regular meetings for the issuers, etc.); strategical ambition to be present in the public market of the survey “corporate bonds in latvia: factors that affect financial sector issuers” conducted in juneaugust 2017. one of the investigated questions analysed the selection of funding source when in need for additional resources, and the other analysed the factors, which acted as motivation to issue bonds for the company represented by the respondent. traditionally treated as the bank-based country, latvian corporate funding has perceived the stable progress in the bank loans provided to the corporate segment with its persistent growth of the newly granted corporate loans dynamics in the period of 2014-2016 and the modest slowdown expected for 2017 (tocelovska & sloka, 2017). positive latvian bank lending dynamics and the perceived availability of the bank borrowing for fsi segment is not supported by the results of the expert survey thus contradicting the results of maci & valentova hovorkova (2017). as revealed by the analysis, the choice of funding for latvian fsis when in need of additional funding is strongly dominated by issuing bonds followed by equity funding alternative (table 2). results mean std. error of mean median mode std. deviation variance range min max borrowing from the group company 5.5 1.018 5.5 5 and 8 2.878 8.286 8 1 9 borrowing outside the group company (bank borrowing) 5.11 0.949 5 3 2.848 8.111 8 1 9 equity funding 5.75 0.701 6.5 7 1.982 3.929 6 2 8 issuing bonds 8.11 0.351 8 9 1.054 1.111 3 6 9 organising initial public offering (ipo) 3.13 0.639 3 1 and 3 1.808 3.268 5 1 6 table 2 main statistical indicators of expert evaluations on fsi choice for funding source in the survey: “corporate bonds in latvia: factors that affect financial sector issuers” in 2017 evaluation scale 1 – 10, where 1strongly disagree; 10 – strongly agree source: authors’ construction based on natalja tocelovska conducted survey “corporate bonds in latvia: factors that affect financial sector issuers” conducted in juneaugust 2017 expert views on issuing bonds were homogeneous – the lowest evaluation was 6 and the highest evaluation was 9 with mode 9 (the most often chosen evaluation by the experts) and median 8 (half of the experts gave evaluation 8 or less, and half of the experts gave evaluation 8 and 9), arithmetic mean of 75 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 the expert evaluations was 8.11 with standard deviation 1.05). ipo as the alternative equity funding was commented by one of the respondents to be currently an irrational step due to the high profitability of the fsi segment. borrowing from the group is treated diversely with two modes of the range and a very broad range of the responses both indicating the split of the opinions. borrowing outside the group company is not estimated by the fsi segment as important or needed. the additional comments on the situation as provided during the in-depth interviews pointed on limited real alternative existing to the bond issuance. bank lending was pointed to exist on the modest scope, where one of the respondents indicated that only two banks were willing to provide funding for the fsi segment. moreover, the recent financial crisis of 2008-2013 tested the uneven presence of funding. 40% of the respondents mentioned peer-to-peer (p2p) platforms among the main alternative outstanding. while realising the favourable dynamics of the p2p funding, which “acts as the credit line”, the respondents noted that p2p could not be the main source due to the strong dependence on one source as well as the unwillingness to shift the whole balance sheet to p2p. while frequently mentioned and discussed during the in-depth interviews, the “lack of funding alternative” factor was not supported by the descriptive analysis of the fsi sector motivation to issue corporate bonds in the surveythe factor was mentioned as the fifth most important out of ten analysed. the results of the survey indicate that the main motivating factors for latvian fsis as approaching the corporate bond market are: reputation a company gets as the result of bond issue (publicity, regular meetings for the issuers, etc.), strategical ambition to be present in the public market and cost of funding in the long-term (more than 3 years) (table 3). the revealed influence of the cost of funding factor supports the results of tocelovska (2008). the dominance of the factors is strengthened by the low standard deviation indicator as well as a comparatively narrow range. motivating factors mean std. error of mean median mode std. deviation variance range min max cost of funding in the longterm (more than 3 years) 7.44 0.556 8 9 1.667 2.778 5 4 9 cost of funding in the shortterm (less than 3 years) 6.5 0.598 6 6 1.69 2.857 5 4 9 cost of issue (documentation, issue organiser, etc.) 6 0.726 7 8 2.179 4.75 6 2 8 cost of market entrance (registration fees, listing fees, etc.) 5.67 0.687 6 4 and 7 2.062 4.25 6 2 8 demand from investors 6.78 0.662 8 8 1.986 3.944 6 3 9 lack of funding alternative 6.56 0.729 7 6 and 7 2.186 4.778 7 2 9 level of competence in bond issue process by the reasonable people in my company 5.56 1.002 7 1 and 7 3.005 9.028 8 1 9 regulatory policies 6 0.645 7 7 1.936 3.75 5 3 8 reputation a company gets as the result of bond issue (publicity, regular meetings for the issuers, etc.) 8.11 0.2 8 8 0.601 0.361 2 7 9 strategical ambition to be present in the public market 7.56 0.444 8 8 1.333 1.778 4 5 9 table 3 main statistical indicators of expert evaluations on fsi motivation to issue corporate bonds in the survey: “corporate bonds in latvia: factors that affect financial sector issuers” in 2017 evaluation scale 1 – 10, where 1strongly disagree; 10 – strongly agree source: authors’ construction based on natalja tocelovska conducted survey “corporate bonds in latvia: factors that affect financial sector issuers” conducted in juneaugust 2017 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 76 the cost of funding while mentioned among the key motivating factors was stressed by one of the interviewees to exceed almost two times the cost of bank funding, where another comment was the necessity to provide the pledge to the bank and inability of the bank to reasonably analyse the pledge. the information as gathered during the in-depth interviews broadened the reputation factor by complementing such factors as the desire for transparency as the stimulating factor for new and potential investors and the interpretation of the exchange-listed bonds as the bond repayment guarantee from the investor side. while the main motivating factors: reputation, strategical factor and the long-term cost of funding are revealed to be the primary drivers for latvian fsis to attract public debt financing, the elements influencing the main motivating factors need to be identified (table 4). cost of market entrance (registration fees, listing fees, etc.) level of competence in bond issue process by the reasonable people in my company strategical a mbition to be present in the public market cost of funding in the long-term (more than 3 years) pearson correlation 0.521 0.618 0.831** sig. (2-tailed) 0.15 0.076 0.005 n 9 9 9 cost of funding in the short-term (less than 3 years) pearson correlation 0.277 0.762* 0.39 sig. (2-tailed) 0.507 0.028 0.339 n 8 8 8 cost of issue (documentation, issue organiser, etc.) pearson correlation 0.890** 0.63 0.731* sig. (2-tailed) 0.001 0.069 0.025 n 9 9 9 cost of market entrance (registration fees, listing fees, etc.) pearson correlation 1 0.700* 0.576 sig. (2-tailed) 0.036 0.105 n 9 9 9 level of competence in bond issue process by the reasonable people in my company pearson correlation 0.700* 1 0.725* sig. (2-tailed) 0.036 0.027 n 9 9 9 table 4 correlation of the fsi sector motivation factors to issue corporate bonds in the survey: “corporate bonds in latvia: factors that affect financial sector issuers”, 2017 evaluation scale 1 – 10, where 1strongly disagree; 10 – strongly agree ** correlation is significant at the 0.01 level (2-tailed). * correlation is significant at the 0.05 level (2-tailed). source: authors’ construction based on natalja tocelovska conducted survey “corporate bonds in latvia: factors that affect financial sector issuers” conducted in juneaugust 2017 the correlation analysis observes the statistically significant correlation with relevant significance level between the strategical ambition to be present in the public market and: cost of funding in the long-term (more than 3 years), cost of issue (documentation, issue organiser, etc.) and level of competence in bond issue process by the reasonable people in the company. moreover the cost of issue (documentation, issue organiser, etc.) is statistically significantly correlated with the cost of market entrance (registration fees, listing fees, etc.), while the level of competence 77 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 in bond issue process by the reasonable people in the company with the cost of funding in the shortterm (less than 3 years) and cost of market entrance (registration fees, listing fees, etc.). thus, revealing that four indirect factors influence the choice of latvia fsis for corporate debt market. the additional motivating factors as mentioned during the in-depth interviews are taxation and regulatory issues. the authors recommend further research on the taxation and regulatory issues as the motivating factor for latvian fsis bond issuance. conclusions _ the annual growth rate of the number of public latvian corporate bond issues outstanding rose 7 times in 2013 afterwards stabilising at 40% per annum. the base of both growth and current issues outstanding is formed by the corporate bonds issued by latvian fsis with the weight of fsis in the pool of corporate bond issues listed in nasdaq riga at 64% (dropping from 85% due to the closure of ab.lv bank and thus removing the public bonds of the company). fsi segment is the forming segment of latvian corporate bond market. the financing needs and preferences not only shape the fsi segment profitability but also latvian corporate bond market sustainability. the importance of market financing is further supported by the increasing closure of the banks in latvia and thus decreasing bank-based funding availability. _ academic papers support the view that the financial markets are not the natural first choice for the company and provide broad motivation for corporate debt issuing. most of the academic papers stress efficient competition to bank funding, long term financing, improvement of the cash flow by decreasing the cost of debt, optimization of the financial structure, and efficient ownership structure. the existing academic research is comparatively modest on the analysis of the fsi segment as the issuer segment in the debt market where academics do analyse the corporate bonds issuance by the fsis where motivating factors stimulating fsis to come to the public debt market are seldom separated and size and characteristics of the issuers are mostly scrutinised. _ this article provides primary data analysis of both survey and in-depth interview with latvian fsi segment run in the period june-august 2017. the results of the analysis indicate that bank borrowing is not treated as the funding alternative for fsis where issuing debt and equity funding are the recognised funding sources of the fsi segment. the growing role of the peer-to-peer platform financing is recognised and will further influence the fsi segment alternative financing. the main factors motivating fsis to come to the debt market are reputation a company gets as the result of bond issue, strategical ambition to be present in the public market, cost of funding in the long-term (more than 3 years). _ the information as gathered during the in-depth interviews broaden the reputation factor by complementing such factors as the desire for transparency as the stimulating factor for new and potential investors and the interpretation of the exchange-listed bonds as the bond repayment guarantee from the investor side. _ while focusing on the main factors, the correlation analysis indicates the sub-factors influencing fsis’ motivation: cost of issue, cost of market entrance, cost of funding in the short-term and level of competence in bond issue process by the reasonable people in the company. _ the strong presence and issuing initiative by fsis are found to further shape the corporate bond market in latvia. while all the identified corporate debt issuance motivating factors are longterm based: reputation, strategical market presence, and long-term funding cost, the respondents stressed the importance of taxation stability and financial and capital market commission role in the corporate bond market. _ the study recommends further research on the taxation and regulatory factors as the motivating factor for latvian fsis bond issuance. both issues should be further analysed and challenged for the sustainability of their perception by latvian fsi segment. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 9 / 1 3 78 references allen, f., gale, d. 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(2015). accelerating emerging development corporate development corporate bond markets. world economic forum. zelgalve, e., romanova, i. (2011). problems of capital structure: case of latvia. proceedings of the international conference on new socio-economic challenges of development in europe. university of latvia, 507-515. about the authors tocelovska natalja assistant professor riga graduate school of law fields of interests corporate bonds, financial markets, financial instruments. address strēlnieku iela 4-2, riga, latvia natalja.tocelovska@rgsl.edu.lv sloka biruta dr. oec., prof. university of latvia fields of interests public administration, social inclusion, data analysis address raiņa blvd. 19, rīga, lv-1586, latvia +371 29244966 biruta.sloka@lu.lv purmalis karlis associate professor university of latvia address aspazijas bulvaris 5, riga, latvia karlis.purmalis@lu.lv 218 issn 1822 – 8402 european integration studies. 2009. no 3 personnel training efficiency evaluation system: competitive ability aspect asta stankevičienė aušra liučvaitienė agnė šimelytė vilniaus gedimino technikos universitetas abstract theoretical premises of personnel training efficiency evaluation as one of the factors establishing competitive ability advantage, while emphasising changes of working productivity, are analysed in this article. the analysis of general competitive ability models and the possible application of prospective in the companies’ competitive ability surveys are necessary when trying to clarify peculiarities of modelling competitive ability as a factor which forms the competitive advantage. referring to the introduced arguments and analysis of theoretical scientific literature, the possible scheme of competitiveness evaluation is proposed. the provided methodology on the competitive evaluation may be in order to evaluate the competitiveness of a company. the elements of advantageous and efficient activity become weighty criterion assessing the competitive advantage. the criterion assists accurately and explicit of competitive advantage evaluation. in lithuania, during the period of transformation competitive advantages were formed as a part on impact of such factors as qualified and cheap labour force, cheap raw materials, etc. it is worth while to notice the significance of results evaluation resources used to achieve those results in the methodology. therefore, examining the personnel’s work efficiency as one of factors which forms the competitive advantage, it should be appropriate to identify the essence and methods of results evaluation and expenditure for resources of work (especially, in investments of personnel training). personnel training importance when company‘s competitive ability is established. after analysis of modern attitudes towards personnel training efficiency evaluation it was determined that there is no coherent personnel training efficiency evaluation system. performed analysis of questionnaire research data on companies’ attitude towards personnel training efficiency evaluation has shown that opinions of the companies also are not completely established. place of personnel training efficiency evaluation system while evaluating company‘s competitive ability is provided, with a reference to competitive ability and personnel training efficiency evaluation methods. the position of personnel training efficiency evaluation system determined in common evaluation system of competitiveness permits evaluation and not only the impact of material devices on benefit, but also the return on investments in human factor, and the impact on working profitability. the suggested objective of personnel training may have an impact on different levels of evaluation. the proposed integrated training efficiency evaluation system is based on various objectives, levels, criteria, objects and methods in evaluation, and evaluation of the effects. personnel evaluation system might be used in organizations in which the training is performed, and the system may be the basis of personnel training efficiency evaluation. the training efficiency evaluation acquires the strategic significance in the competitive advantage formation. keywords: personnel training, personnel training efficiency evaluation system, competitiveness, competitive ability. introduction the relevance and the problem of research. the authors who analyse the problem of competitive ability state that the fundamental and strategic direction of companies enhancing competitive ability which is the basis of competitive ability on intangible investments (technologies, managerial, professional and business organizational competency and etc.) the core condition of company’s competitive ability becomes ability to use up-to-dated information and knowledge, in this way, the principal competency of the company is developed. consequently, the personnel’s training appears as the basic method. appreciating attitude of lithuanian companies’ managers towards personnel training, it is likely that they admit the importance of training. although to perform personnel training some inconvenience concerning unwelcome conditions come into existence. first of all, it is the lack of financial resources and the issn 1822-8402 european integration studies. 2009. no 3 219 resistance of individual executive’s managers as well as there are some barriers created by individuals such as unwillingness to get knowledge, lack of time, etc. naturally, mentioned holdbacks are usually related to some managers’ indifference towards the performance of personnel training since it is complicated to ascertain impact of personnel training has or might have on company’s performance. such situation is related to uncertainty of personnel training efficiency evaluation due to the fact that there is no unite system of personnel training efficiency evaluation. the object of research – the system of personnel training efficiency evaluation. the used methods involve: theoretical review of concepts concerning personnel training efficiency evaluation, systematic, logical analysis and synthesis and performed analysis of questionnaire research data. the aim of research – introduce the system of personnel training efficiency evaluation and the system position in a general scene of competitive ability evaluation. the tasks of research: to evaluate the importance of personnel training  by creating competitive advantage; to represent the review of modern attitudes towards  the personnel training efficiency evaluation; to evaluate the companies’ attitudes towards the  system of personnel training efficiency evaluation, applying the questionnaire; to introduce the system of personnel training  efficiency evaluation and to define its place in general competitive ability evaluation system, considering the methodology personnel training efficiency evaluation and competitive ability. theoretical assumptions on the evaluation of the competitive ability in the scientific literature various methods are proposed to estimate the competitive ability though they are marked as separate methods evaluating the competitive ability of a country, of a product, etc. moreover, in the scientific literature might be initiated more than one general competitive ability evaluation model which analyses the competitive theory. however, there could be hardly found any empirical studies emphasising the suitability for investigation of personnel efficiency as a factor which creates the problems of competitive advantage. the analysis of general competitive ability models, and the possible application of prospective in the companies’ competitive ability surveys is necessary when trying to clarify peculiarities of modelling competitive ability as a factor which forms the competitive advantage. the scientific literature (m.porter, 1990; a.m.rugman, j.r.d’cruz, 1993; r.a. d’aveni, 1994; f.weston, k.s.chung, 1990; b.balassa, 1965; t.l.vollrath, 1991, w.j. baumol, 1998) introduces various methods used in analysis of competitive ability though generally they are applied as separate methods evaluating competitive ability of a country, of a product, etc. furthermore, some authors (r. amit and m. belcourt, 1999) state that the personnel training and evaluation of personnel training efficiency is as a company’s human resources quality determining factor which has ability to reduce risk and create competitive advantage. after the analysis of works presented above has been done, used evaluation methods could be grouped into these: 1) miscellaneous evaluation of competitive ability of all economic branches or of one economic branch in a country. an objective of the research is to determine competitive sectors of a country’s economics and evaluate the development perspectives in international markets; 2) analysis of manufacturing groups, when bonds of the chosen sector to other sectors are examined. it includes not only subjects of particular economy, but also suppliers of services and goods which in the production process are essential. even more analysis is performed according to the m. porter’s proposed methodology which examines whole production process from receiving the raw materials to delivery for a consumer; 3) evaluation of separate product (good) competitive ability. in the analysis of separate product competitive ability, size of the subject in the market and of average in branch produced production is used; 4) evaluation of environment practise. the research estimates indicators of modular living level, foreign trade, labour force potentiality, condition of infrastructure, etc. the indicators introduce conditions of development on particular economic branch. even more indicators are applied which reflecting innovations, it and communication level, interface between science and economics. evaluations of the competitive ability of country economics, or its separate branch, or of a product, or an environment of a business subject are usually performed by international organisations, independent experts groups and institutes which survey and settle ratings of countries in global context by their competitive position in an adequate market. furthermore, there are some experts from discrete countries whose objectives are to evaluate competitive ability of their own subjects and further direction of national economic development. table 1 represents the most frequent methods of competitive ability evaluation 1 1 there is attached an officially acknowledged methodology oriented especially to the potential of practice. issn 1822-8402 european integration studies. 2009. no 3 220 table 1. comparison of methods in competitive ability evaluation methodology the essence of methodology used factors possibilities to apply the methodology when assessing the competitiveness of a company 1 2 3 4 m.porter’s methods (портер, 2000). the term of competitive advantage of economic subject depends on the profitability of the subject which is determined by five strengths. 1) internal factors: conditions of demand; associated sectors; a strategy, structure and competition of economical subject; 2) external factors: government; an international practice. it can be used when assessing competitiveness on the scale of a country. the world bank’s methodology (the competitiveness of european industry, 1999) the database is composed of 49 indicators that allow assessment of a county’s economic condition and expansion possibilities in the competitive business. 1) common factors of economy expansion (gdp, gdp annual growth, standard deviation of finance distribution); 2) the dynamics of factors (investments, productivity, a structure of export) of relation between microeconomics and international economics; 3) the dynamics of financial indicators (the foreign debt, gdp growth influenced by price rate, government bonds); 4) factors of the infrastructure and the investments climate (communications, roads, railways, electricity supply); 5) factors of human resources and intellectual capital development (higher education, a life long expectancy, patents). only some of the mentioned factors can be used because the factors of the dynamics of financial indicators (the foreign debt, gdp growth influenced by price rate, government bonds) infrastructure and investments climate (communications, roads, railways, electricity supply) are assessed merely on the scale of a country, and are not differentiated in accordance with separate sectors and much less – with companies. european committee’s methodology (the competitiveness of european industry, 1999) one of the essential factors influencing competitiveness in the modern, changeable conditions of global economics is a competence to conform to rapid improvement of technologies and to immediately react to changes. 1) an annual variation of production size and working productivity (as a relation of the value-added and annual personnel’s quantity); 2) an annual variation of the busy condition; 3) an annual average production, export and import variation (when the growth of export surpasses the growth of production, and when the volume of export increases more rapidly than the volume of import, it can be inferred that increases the competitiveness of the country in the international market, or it is maintained stable); 4) factors of specialization and concentration: a coefficient of concentration; herfindal’s index; a standard deviation of parts (a dispersion measure of sectors); coefficients of specialization: balla’s index, an indicator of the geographic specialization; an index of dissimilarity (the sum of absolute discrepancies); gini’s coefficient. it can be partially applied. if an object of research is the economics of one country, for instance, lithuania, a calculation of indexes of the concentration is not necessary. besides, central and eastern europe’s, including lithuanian, structural change importance cannot be compared with results in the analysis of eu – 15 countries because the comparable countries are in different conditions of the economic development. issn 1822-8402 european integration studies. 2009. no 3 221 1 2 3 4 methodology of new zealand’s department of research, science and technologies (the world competitiveness yearbook, orla m., 1996) sectors of the country economics are subdivided into four groups according to the level of use of the equipment and technologies, i.e., high and low technologies, and technologies of medium height and medium lowness. coefficient of export/import; factors of import infiltration and directness on foreign competition rate; specialization of export; a factor of an inner trading rate. it can be used on a scale of the whole country, on condition that there will be a possibility to calculate all the factors, proposed in the methodology because not evaluating the one of them may distort results. methodology of local resources outlay (lietuvos pramonės konkurencingumo įvertinimas, 2000) competitiveness of the whole country economics, of the specific sector or of the group of a commodity is evaluated during the short-term and mediumterm period. if drc factor denotes less than 1 the production is claimed to be competitive. if drc is equal to 1, or larger than 1 the production is not competitive. drc (production is competitive, if drc >1). drc – a factor of the local financial reservoir. it can be used when the thorough information is provided about the variation of microeconomic and macroeconomics factors during the period of investigation. methodology of lithuanian economy institute (lietuvos pramonės konkurencingumo įvertinimas, 2000) the evaluation of competitiveness is performed referring to the external factors of practice in lithuanian foreign trade and industry, and the comparison of the factors with appropriate es – 15 countries’ factors. 1) disclosed comparative advantage; a part of lithuanian export of commodities in the adequate export of countries of eu; a part of import from eu which is composed of lithuanian export of commodities; percentage of export in the total lithuanian export; a part of export to eu in the total lithuanian export to eu; the netincome from lithuanian export of commodities; 2) working productivity (according to production); the working productivity (according to the value-added); the rate of the growing working productivity; the rate of growth of volume in industrial production; the rate of growth of personnel’s quantity; 3) a quality of products, a level of technologies, a level of service for customers, an installation of innovations, marketing, the qualification of the labour force; 4) scientific researches and development; a qualitative level of stock among the labour force; accessibility of financial reservoirs; a level of infrastructure in activity. it can be used to evaluate the industrial competitive, though the necessary addition on the specific factors of an examined sector should be involved when assessing the competitive of a company and determining the personnel as one of factors that forms the competitive advantage. after examining the competitive ability evaluation methods, the essential indicators are determined which might be grouped into these: 1) indicators of the measurement of the competitive advantage, 2) indicators of the profitability, 3) indicators defining the level of state support. the competitive ability of a country and a separate object of economics cannot be isolated from evaluation of possibilities in formation of competitive ability advantage 2. hence, it is noticeable that retain of competitive advantage longevity may cause some problems when 2 herein the competitive advantage is interpreted as the indefeasible competitive exclusiveness of subject in economics, when introducing more valuable than competitors’ products in the market. issn 1822-8402 european integration studies. 2009. no 3 222 such factors as customers – consumers’ needs, demand, an increase in number of market participants, innovations, an installation of modern technologies, market growth and etc. – give an ambiguous meaning to long-term competitive advantage. resources of competitive advantage usually discussed in theoretical researches are these: highest quality manufacturing, lower than competitors’ costs, more advantageous geographical situation and creating the higher value for consumers. in order, to estimate competitive possibilities of the economy subject in a market, the notion of the competitive advantage should be purposefully extended by the notion of efficient activity which would include output, innovations, an internecine compatibility in work spheres of the subject, an efficient management of a company, human enterprise of the subject, etc. furthermore, these elements of advantageous and efficient activity become weighty criterion assessing the competitive advantage; the criterion assists in accurate and explicit of competitive advantage evaluation. in lithuania, during the period of transformation competitive advantages were formed as a part on impact of such factors as qualified and cheap labour force, cheap raw materials, etc. the formation and reinforcement of competitive advantages (including not only the above mentioned) of lithuanian economy branches is one of the essential strategic objectives in the economic country’s policy while achieving the competitive ability in the international market. the recently formed view claims the competitive possibilities in the international market of economics subjects particularly depend on the personnel’s ability to use the acquired knowledge, skills and creativity. researches of this sphere are performed in such directions: a) an analysis of specific economy branches, where traditional competitive factors are used. although, in accordance with the three parameters, an application of new classification of economic branches reflects a level of technologies; a level of the intensity of manufacturing factors; level of labour force a qualification. b) an evaluation of the accumulated knowledge in country, of potential qualification, development of sectors opened to knowledge, of rate in installation of innovations, and other factors reflecting abilities of economic subjects to compete in spheres of high technologies and of the complicated production. in order, to attain aim of the article, company’s competitiveness might be evaluated using the introduced methods in competitive evaluation though possibilities of use are limited because of information lack when most indicators should be calculated, or because of the opinion formed in the company (as results of the investigation disclosed) when personnel is not adequately evaluated as a resource of competitive advantage. it is worth while to notice the significance of results evaluation resources used to achieve those results in the methodology. therefore, examining the personnel’s work efficiency as one of factors that forms the competitive advantage, it should be appropriate to identify the essence and methods of results evaluation and expenditure for resources of work (especially, in investments of personnel training). it is considered appropriate to take cognizance of the theoretical definiteness of activity, its correlation with the obtainment of competitive advantage; particular attention should be paid to personnel training efficiency evaluation. theoretical assumptions in personnel training efficiency evaluation describing the essence of training efficiency, definition of a notion evaluation should be introduced. the evaluation could be understood as determination of value. with reference to guba e. b. and lincoln y.s. (1981), “value” is understood twofold: value as merit which is interpreted as inner and outward ones. the training efficiency evaluation does not only refer to a definition of an inner or outward value, but also to the very process of training and its results. an executive manager evaluating the process of training performs: an examination of practice related to training; the search for possibilities of improvement.  these stages were called a forming evaluation by scriven m (1967). scriven m. proposed a notion of a total evaluation when after training the process is viewed as in the mass and the outward value is estimated. hamblin a.c. (1974) offered a traditional definition of the training environment evaluation: the training efficiency evaluation – any effort to get information (feedbacks) about results of training programme and to determine the value of training in the context of the provided information. different authors introduce a definition of training efficiency as seeking for objectives in learning (education): such a definition was criticized by guba e.b. and lincoln y.s. (1981) as very narrow. such an evaluation is called “determining the whole”. this evaluation is defined before the beginning of the very process of the evaluation, and it is oriented to the measured results. a guba e.b. and lincoln’s y.s. proposed approach was later called “responsive”, which differs from “determining the whole” and evaluate changing condition and new information. and more attention is paid to the description than to the measurement. besides, many scientific sources training efficiency evaluation call as a validity of a curriculum of training. the validity of curriculum as an objective evaluating the training efficiency is an estimation whether the curriculum achieved the objectives. theorists divide the process of the validity into two discreet parts – an inner and an outer one. in practice these two parts are analysed issn 1822-8402 european integration studies. 2009. no 3 223 as the whole because they can be hardly separated for their close relation. the inner validity is appointed to assess whether the training reached objectives, and the question “did the trained acquired what they wished?” must be answered. the purpose of the outer validity is to discover the possibilities of using the gained knowledge in the real situation. the close connection between the inner and outer validity stipulates the necessity of the integrated training efficiency evaluation. a.c. (1974) and kirkpatrick d.l. (1967) claim such an evaluation may involve these layers: reaction (trained personnel’s and executives managers attitude towards training, the structure of training, content and methods are applied); acquisition of knowledge and skills (facts and measures acquired by the trained); behaviour at work  (what changes took place during the period of training, and how the modern knowledge and skills are used at work); changes in an organization (what is an effect done for the company). some authors (for instance, e.f.holton, 1996), who examine these problems, improved suggestions, proposed by kirkpatrick d.l. and distinguished three levels – training, performing an individual task and general effects of an organization. others (j.j.phillips, 1996) introduce the new attitude towards the training efficiency evaluation systems which involve the reaction and anticipated actions, the training, use of the acquired knowledge, effects of practice and return on investment (hereinafter – roi). some authors (i.l.goldstein, 1986, v.kumpikaitė, a.sakalas, 2005) analyse training as process and determine the attitude of organization towards training of human resources, towards the accomplishment of a task, and an arrangement of the reservoir and career, training, professional training, adaptation and determination need of training. briefly, it could be stated that the levels of training efficiency evaluation proposed by hamblin a.c. (1974) and kirkpatrick d.l. (1967) the best focus on roi to personnel progress while emphasising changes of personnel’s behaviour, i.e. working productivity. in order to evaluate rate of growing working productivity, it is worth to choose an appropriate strategy of evaluation in accordance with the level of training efficiency evaluation. hamblin a.c. defines some strategies of evaluation depending on training results. the author believes the training may be a cause of a chain reaction in an organization, and the strategy of evaluation may be selected in every stage (table 2). a.c. hamblin’s analysis is interesting because it discloses how the evaluation can be performed in various levels, every of levels have its own possibilities of evaluation, and different reference points. the first three levels are evaluating objects in “determining the whole”, the rest depends on the feedback. different attitudes towards training are introduced as strategy chains of interrelation and evaluation. an object evaluating spectrum is very wide. it involves not only the learners and executive of their training (organization and service suppliers), but also a context of training, content and methods. table 2. strategies of training efficiency evaluation event strategy of assessment orientation teaching considers the teaching resources of learning trainees’ reaction considers the reaction the learners learning considers the process of learning the learners changes of behaviour at work considers the behaviour at work the trainees and on lookers changes in the institution development of an organization unanimous organization an impact on final objectives of organization analysis of expenditures and incoming financial aspect besides, methods, materials and variation of behaviour are used in training. the curriculum efficiency is evaluated in accordance with the above enumerated objects. consequently, the general assessment can be based on some or on all the factors. an appropriate definition of evaluating criteria is the essential task in the process of evaluation. many of organizations face some difficulties when defining a certain selection of criteria because of complications quantitatively evaluating most effects of training (an increase in personnel activity, fulfilment at work, etc.). that is why, the variety of criteria is determined by the whole spectrum of quantitative and qualitative factors: the learners’ fulfilment, customers satisfaction, personnel’s ability to solve problems, personnel’s adaptation to situation, personnel’s receptivity to innovations, changes in cultural and work atmosphere in organization, changes in product quality, changes of profit and turnover, and changes in resources efficiency use. there are also used appropriate methods of evaluation during the practice in assessing the training efficiency: table 3 introduces them. issn 1822-8402 european integration studies. 2009. no 3 224 table 3. methods of training efficiency evaluation methods of evaluation content of methods of evaluation 1. the trainees’ opinion questioning straight after the training performing an interview (questioning) with learners on the training process efficiency 2. the trainees’ opinion questioning after a certain period of time after the training performing an interview (questioning) with learners on the training process efficiency after 1, 3 or 6 months 3. the participants’ self-examination participants of the process evaluate the level of achieved objectives 4. a written form examination or testing of knowledge acquired during the training straight after the learning the level of acquired knowledge is evaluated with the help of tests and tasks 5. a written form examination or testing of knowledge acquired during the training after a certain period of time it is evaluated, whether the presentation of information is recalled after 1, 3 or 6 months, with the help of tests and tasks 6. a heads’ opinion inquiry on the evaluation of their personnel’s work after a certain period of time performing an interview (questioning) with the heads on the change of work efficiency of the personnel which participated in training 7. inquiry on 360 degrees. the thorough evaluation (questioning heads, colleagues, clients on changes of personnel’s behaviour and work efficiency after trainings, and the participants’ self-examining) 8. experiment on verification comparison of effects in work of two groups of people, one of which did not participate in training 9. supervision in the organization observations on participants’ behaviour and task performing during a certain period of time ( it is executed by the head or some external supervisors) 10. the feedback on teaching – learning investments (roti) a), an analysis of financial feedback (expenses and income analysis) b) an analysis of factors related to investments in training (calculation of indicators directly related to the performed training in the organization: common expenditure in training, expenses afforded to one trainee, a number of days afforded to one trainee, a number of trainees ); c) an analysis of the suggested objectives and of the achieved ones (it is based on the suggested objectives of training, methods of training, content, organizational aspects and their appropriateness to the suggested objectives are assessed); d) clients’ satisfaction in the activity of personnel which participated in training; e) the improvement in the climate of organization (better relations among personnel) to summarising the introduced information, it is worth to pay attention into integrated training efficiency evaluation model proposed by hamblin a.c. (1974) and kirkpatrick d.l. (1967). four levels are involved in the integrated training efficiency evaluation: an acquisition of reaction, knowledge and skills (inner validity), behaviour at work and work indicators (outer validity), training efficiency in organization (table 4). table 4. levels of integrated training efficiency evaluation level objective who executes and when methods activities 1 2 3 4 5 reaction trainees’ and executives’ reaction to training, its structure, content, methods, teaching style, etc. throughout the training course and/or after it (a lecturer) daily reviews, questionnaires, assemblies the structure of curriculum and amendment of content acquisition of knowledge and skills, change of attitude (inner validity) find out how the knowledge and skills are acquired, and whether attitude has changed throughout the training course and/or after it (a lecturer) tests, practice, a verbal quiz the adjusted course for separate trainees, the repeated training, an improvement of knowledge and skills, the change of training methods issn 1822-8402 european integration studies. 2009. no 3 225 1 2 3 4 5 behaviour at work, a completion of work (outer validity) examine the ability of trainees to apply the acquired knowledge and skills in the work environment; how trainees’ and heads’ needs were satisfied 2-3 months later (a lecturer, a department of personnel training, the direct heads) questionnaires, interviews with the former trainees and their direct heads; personnel’s observations a continual improvement and renewal of curriculum due to changes of needs effects of training on organization (evaluation) evaluate the benefit of the training (on money or non-money terms) for organization periodically. some time should pass in order that effects were noticeable in the organization refund of investments in teaching-learning inform the office of the training about the efficiency of the used procedures, and introduce the appropriate procedures after the analysis of competitive resources evaluation introduced in the scientific literature, it can be presumed that a formation of the competitiveness and of the competitive advantage is approached as a versatile and changing phenomenon. in the formation of competitive advantage more and more attention is paid to a notion of the working productivity which involves the manufacturing efficiency, innovations, internecine compatibility of spheres in the activity of the subject, the management efficiency of a company, the human enterprise of the subject, etc. the latter factor more and more often is related to process of training; economists connect it with the training efficiency evaluation (return). the training efficiency evaluation can be stated to be a complicated problem which causes lots of discussions among researches. although, radically, the training efficiency evaluation can be based on 3 elements: 1) on the objectives of training that are set (when methods of training, the content, and their appropriateness to the set objectives are examined); 2) on a psychological prosperity of an individual and a group (when the attitude is mostly paid to the trainees’ satisfaction); 3) on factors of the return on economic investments (that are not always appropriate to define the return because of large number factors determining return of training and delayed effect). naturally, to pay attention not only to the theorists’ point of views, but also to very participants’ and heads’ standpoint, needs and of process evaluation. research on personnel training efficiency evaluation a research on the customers who applied for training services and on companies offering training services was carried out on purpose to find out a problem solution of training efficiency in environment of the company. two groups of participants concerned with personnel training efficiency were questioned during survey: on the one side, vilnius city consultancies offering services for the personnel training standing, the customers who applies for personnel training services (herein, the companies of the it department) – on the other side. during the survey 278 it companies and 40 consultancies were questioned. the integrated pattern of the training efficiency evaluation proposed by hamblin a.c. and kirkpatrick d.l. was chosen for the composition of the questionnaire, and involved four levels of the training efficiency evaluation: a reaction, an acquisition of knowledge and skills (inner validity), the behaviour at work and indicators of activity (outer validity), effects of training for the company are widely used. analysis of the effects of research in it companies and consultancies (figure 1) states the problem in incompatibility of the objectives in the training efficiency evaluation exists between customers who apply for the training service and suppliers. according to the clients, fundamental objectives in training efficiency evaluation are directed towards the decision on the further training (61 percent) and towards the identifying the adequacy for expectations of the quality in the training (25 percent). only 10 percent of respondents seek for the financial payback in training. although, according to specialist experts some companies who seek to financially assess the payback of the training, or to define whether the quality of training satisfies employers’ expectations are those whose systems of the activity evaluation and motivation are not connected. thus, in essence, the quality of the training is not evaluated or it is evaluated inefficiently (because the results of analysis are not used). whereas, training service suppliers’ aims are related to feedback (83 percent) that provide an information of training efficiency methods, of the content of the training and an appropriateness of a structure that is beneficial for suppliers’ of the training only. issn 1822-8402 european integration studies. 2009. no 3 226 fig. 1. attitude towards objectives, criteria, methods, objects and levels of evaluation (%) in consultancies and it companies trainees’ knowledge and reaction (83 percent) are the most popular objects of evaluation. meanwhile, the training methodology, a content and structure as objects of the evaluation determining trainees’ knowledge and reaction are mentioned considerably rarely (relatively, 48 and 17 percent). examination with the help of tests and (trainees’ and their heads’ questioning) questioning are the most popular methods of evaluation among consultancies (relatively, 87 and 96 percent). when a certain period of time passed, only 17 percent of respondents mentioned an examination of knowledge after training, though the method is an excellent way to evaluate the success of use of the acquired knowledge in practice. in the foreign countries the verification experiment is absolutely unpopular in lithuania (4 percent), and only 61 percent of companies use the questioning for clients, although the survey of clients exposed the fact that a criterion of clients’ opinion was one of the essential. a level of trainees’ reaction (the first one) is the most popular in evaluation (83 percent), whereas the training efficiency is evaluated more rarely in the three upper levels of the evaluation. knowledge and skills play an important role (87 percent, figure 1), whereas 52 percent rank the change of behaviour at work, and only 30 percent of respondents rank effects of the training in organization. some authors prove our conclusion that claims the most popular level of the training efficiency evaluation is the trainees’ reaction; effects of the training are rarely evaluated in other levels of training efficiency evaluation to sum up, the research confirmed the presumption emphasized in the theoretical analysis: incompatibility exists in perception of training efficiency evaluation process among suppliers of the training service and customer which is, the essence and benefit of training evaluation system, especially when forming competitive advantage, is not realized. in this way, the necessity of the arrangement of the training efficiency evaluation system is motivated. personnel training efficiency evaluation and its position in the general system of the competitiveness evaluation after the theoretical principles analysis of the competitiveness and the methodology used in the competitiveness evaluation, and after the designation of the essence of improvement in continual personnel’s qualification and of impact on working productivity, and of necessity of the personnel training efficiency evaluation, there is considered appropriate to offer an integrated personnel training efficiency evaluation system, and its position in the general evaluation system of the competitiveness. there should be remarked that competitiveness of a company must be evaluated during the performance of personnel training not only according to the attainment of the competitive advantage, but also according to the return in process. thus, it is significant to determine principles of the competitive evaluation which might be used when assessing an impact of inner and outer factors on competitive advantage. none the less important to predict how the benefit of the economy subject (herein, a company) that provides a possibility to define a level of the efficient activity, and a degree of impact on factors determining the latter indicator will be assessed. referring to the previously introduced arguments and analysis of theoretical scientific literature, the possible scheme of competitiveness evaluation is proposed. (figure2). issn 1822-8402 european integration studies. 2009. no 3 227 fig. 2. a position of personnel training evaluation system in the competitive evaluation system (created by the authors) after the authors’ analysis which investigates competitiveness evaluation and determining factors, the inferences can be drawn such as both inner and outer competitive advantage forming factors can be identified. it seems likely that evaluating possibilities of an impact on company’s environment, factors of inner environment might be purposefully oriented towards the maximum efficiency in activity of a company. recently, the scientific literature grants its attention to investments on human resources which are determined as one of the possible factors composing acquired competitive advantage. that is why it is considered appropriate to determine how these factors influence the competitiveness of a company in the market. thus, it might be purposeful to find out how the objectives of the training agree with common factors of formation of competitiveness in a company. in the context of acquired competitive advantage the personnel training efficiency evaluation system (payback) is involved into the total system of factors of the competitive evaluation in company. personnel training efficiency evaluation system (payback) may be approached as one of directions to enhance the competitiveness. after the analysis of methodology in personnel training efficiency evaluation – with the reference to analysis of the research data – it may be purposeful to provide an integrated personnel training efficiency evaluation system (figure 3). the authors examine the problem of personnel efficiency evaluation in accomplished studies propose the purposeful enumeration of objectives that are influenced by training efficiency evaluation, when the formation of personnel training efficiency evaluation takes place. the information for personnel evaluation is collected after the assessment of a level of the suggested objectives accessibility. the suggested objective of personnel training may has an impact on different levels of evaluation. that is why the most significant in the stage is to properly determine the level of evaluation (trainees’ reaction; acquisition of knowledge and skills; behaviour at work, accomplishment of work; training effects on organization). the chosen levels of evaluation influence criteria of evaluation and objectives; consequently the method of evaluation is chosen and the achieved result is defined, and it permits evaluation of clients’ expectations for further training. issn 1822-8402 european integration studies. 2009. no 3 228 fig. 3. personnel training efficiency evaluation system (composed by the authors) to sum up, there can be stated that the integrated personnel training evaluation system allows to achieve the best representative results in the training efficiency when the customer’s and the supplier’s objectives training service and evaluation levels, and the understanding of criteria and objects, are matched up. conclusions 1. finally, a conclusion can be drawn: all the provided methodology on the competitive evaluation may be used evaluating the competitiveness of company. although the possibilities of use are limited because of lack of information in calculations of factors, or because of attitude of company when the personnel is not adequately evaluated as a resource of competitive advantage (a fact was confirmed by performed empirical survey). 2. the theoretical conceptual analysis in personnel training efficiency evaluation indicates that, basically, training efficiency evaluation may be motivated by 3 factors: 1) the suggested training objectives (when training methods, their content and agreement with the suggested objectives are studied); 2) the psychological welfare of individual and group (when attention is mostly paid to trainees’ satisfaction); 3) the factors of return on investments (which are not always appropriate for the training return evaluation because of plenty of factors determining training return and delayed effect, having respect to time). 3. the accomplished survey is confirmed by proposed presumption in the theoretical analysis. it says that the incompatibility exists between the customers’ and suppliers’ understanding of a process of training efficiency evaluation process, that is, the essence and benefit of training evaluation system is not realized, especially in the formation of competitive advantage. the fact motivates necessity of formation of integrated training efficiency evaluation system. 4. the position of personnel training efficiency evaluation system determined in common evaluation system of competitiveness permits evaluation and not only the impact of material devices on benefit, but also the return on investments in human factor, and the impact on working profitability. 5. the proposed integrated training efficiency evaluation system is based on various objectives, levels, criteria, objects and methods in evaluation, and evaluation of the effects. an integrated training efficiency evaluation system allows selection of an appropriate evaluation methodology and the achievement of the best representative results in training efficiency. issn 1822-8402 european integration studies. 2009. no 3 229 suggestions 1. the personnel evaluation system should be used in organizations in which the training is performed, and the system should be the basis of personnel training efficiency evaluation. in this case, the training efficiency evaluation acquires the strategic significance in the competitive advantage formation. 2. consultancies should popularise the training efficiency evaluation service in order the customers would understand the significance of the received information in the period of evaluation. thus, during the survey, the efficiency evaluation methodology, criteria, levels and the use of results in practice should be introduced to customers. 3. consultancies should more actively adapt methodologies created in foreign countries, and analysing training conditions and consulting experience they should create their own methodology. references amit, r. and belcourt, m. human resources management processes: a value – creating source of competitive advantage, european management journal, 1991. vol. 7,2. p. 174 -181. balassa, b. trade liberalization and revealed comparative advantage. the manchester school of economic and social studies, 33. assessment, new york: cambrige university press, 1965. p. 99-123. baumol, w.j., panzar, j.c., willig, r.d. contestable markets and theory of industry structure. new york, 1998. vol. 7, no. 1. d’aveni, r.a. hypercompetitione: managing the dynamics of strategic manoeuvring. free press, new york. 1994. goldstein, i.l. training in organizations: needs assessment, development and evolution, pacific grove, ca: brooks – cole. 1986. guba, e.g., lincoln, y.s. effective evaluation. josseybass. 1981. hamblin, a.c. evaluation and control of training. mcgraw-hill. 1974. holton iii, e.f. the flouved four – level evaluation model, human resource development quartely. 1996. vol. 7(1), p. 5-21. kirkpatrick, d.l. evaluation of training. in training and development handbook. new york: mcgraw hill. 1967, p. 87-112. kumpikaitė, v. and sakalas, a. the model of human resource development system focused on consistency of the organization and its employee’s . 8th conference on international hrm, international human resource management: making a difference in a world of differences. cairns, queensland, australia, 2005. lietuvos pramonės konkurencingumas (2000); accessed 20 september 2008, available from: http://www. ukm.lt/catalogs/konkurenc/…htm rugman, a., d‘cruz, j. the ”double diamond“ model of international competitiveness. the canadian experience, management international review, 1993. vol. 33, p.17-39. phillips, j.j. roi: how much is the training? training & development. 1996, april. p. 20-24. porter, m. the competitive advantage of nations. london, 1990. 885 p. orla, m., chabchoub, h. on the methodology of the world competitiveness report. european journal of operational research. 1996. scriven, m. the methodology of evaluation. aera monograph, rand mc nally. 1967. the competitiveness of european industry. report 1999. european commission, luxemburg. 1999. vollrath, t.l. theoretical evaluation of alternative trade intensity measures of reveles comparative advantage. weltwietschaftliches archive, 1991. vol. 130 (2), p. 265-279. weston, f., chung, k. s., hoag, s. i. mergers, acquisitions, restructuring and corporate control. prentice-hall. 1990. портер, м.э. конкуренция. москва: вильямс. 2000. the article has been reviewed. received in march, 2009; accepted in april, 2009. european integration studies 2008.indd 135 issn 1822-8402 european integration studies. 2008. no 2 topicalities 50 years of european union development: quantum leaps and small steps? alexandre berlin honorary director, european commission associate, institute for european studies, university of british columbia, canada based on the presentation at theu@50 symposium of the 50th anniversary of the treaty of rome (vilnius, 30 march 2007) abstract this article is based on the presentation made at the invitation of the lithuanian authorities and the european commission representation in lithuania to speak in vilnius at a symposium of the 50th anniversary of the treaty of rome in march 2007. the article reviews the foundations of the european union only fi ve years after the end of world war ii and the strong yearning for peace of the founding fathers and nations. 5o years later with the major eastward expansion of the eu the new member states while still concerned with peace and additional priorities related to ascertaining their sovereignty and developing their prosperity. there is a need to bridge the original aim of sharing sovereignty of the original 6 member states with the legitimate objectives of the new member states, though understanding and dialogue. a number of proposals are made to that effect. introduction the invitation which i received from the lithuanian authorities and the european commission representation in lithuania to speak on the occasion of the 50th anniversary of the european union was of very special signifi cance for me as i was born in vilnius but never had the opportunity to revisit. i have been a civil servant of the european commission for 35 years and since my retirement in 1999 i have lectured extensively in academia throughout the world on the european union. this background gave me perhaps a personal and different insight into the early development of the european union, and into the ways it has progressed over the years, which i would like to share with you. i cannot be pessimist about the future of europe – even eight years after my retirement as a civil servant of the european commission. with the approach of the 50th anniversary of the european union more and more is being said and written on the subject; to innovate and be original becomes almost impossible, however let me try. while we are celebrating this year this 50th anniversary, we must however remember that “europe day” is celebrated on may 9th. on that day in 1950 robert schuman (french foreign minister at that time) at a major press conference proposed a common market for coal and steel, and delegating control of these key sectors of their economies to an independent authority. the now so-called schuman plan was authored by robert schuman and jean monnet. the treaty establishing the european coal and steel community was signed on 18 april 1951 (less than one year after the proposal was made) by belgium, france, germany, italy, luxembourg and the netherlands; and the high coal and steel authority established in luxembourg. this treaty brought together the coal and steel industries, essential at that time for the war machine, of the two main partners, france and germany only 6 years after the end of ww ii. the trauma of ww ii, even if somewhat less severe in western than in eastern europe, cannot be overstressed; having overcome it, at least partially, less than 6 years after the end of the war was quite an achievement. the european policy makers were motivated by the fi rm belief that a new economic and political framework was needed to avoid future francogerman confl icts, promote long term peace, and strengthen the role of europe in the world. the european coal and steel treaty had already planted the seeds of the european economic 136 issn 1822-8402 european integration studies. 2008. no 2 community treaty: a common market with common objectives and indicators, while promoting the improvement of the living and working conditions of the labour force in these industries, setting thus already in 1951, the stage for the development of the european social model. the fundamental and priceless objective of the founding fathers of “europe” – peace – seems to have been achieved for the moment. after many centuries of repeated and very frequent wars in western europe, we now have for the fi rst time already 67 years of peace among the original 6 countries of the european union. can this and should this be weighed against anything else? as danuta huebner, the commissioner responsible for eu regional policy, remarked recently, the process has been “the most successful example of peaceful political change mankind has ever witnessed”. between the establishment of the coal and steel authority and that of the common market, recently uncovered british archives seems to show that on 10.09.1956 guy mollet, the french prime minister came to london to discuss with sir anthony eden the possibility of the two countries to merge as a union, or for france to join the commonwealth – the requests failed and one year later france signed the treaty of rome. this introduction should not be concluded without referenced to the oecd and nato treaties and the marshall plan as important precursors; however with the european coal and steel community the concept and implementation of pooling and sharing sovereignty, as an important instrument of peace, is introduced for the fi rst time. what is the european union? roger cohen recalled one year ago in the international herald tribune (24-25/2/2007) that: “jacques delors once called the european union “an unidentifi ed political object”. much more than a customs union, much less than a federal state, the eu must suffer the indignity of being an “entity” or a “thing” or a “grouping” even in it’s now 50-year-old glory. the european union concept did not have a real model on which it could be based – its basis was more a vision in the mind of a few enlightened statesmen – jean monnet and robert schuman already mentioned, as well as alcide degasperi, konrad adenauder, charles de gaulle, paul-henri spaak, just to name a few. the complexity of europe and its ever changing borders should be remembered; thus before ww i robert schuman was german (from alsace) and fought in the german army in ww i, while alcide degasperi was austrian, living in alto adige which at that time part was part of the autro-hungarian empire. the eu developed from the very beginning in unchartered territory – the future ‘territory and structure’ of the eu was terra incognita, like the interior of africa to europeans less than 200 years ago. in summary one can characterize the eu as an association of 27 countries, with very large differences in population and economic power, based on free will and not coercion as has happened often in the past; it is may-be the first non-imperial empire!! in the global context whoever all these countries are small. paulhenry spaak recalled that ‘’in europe all countries are small, but some have not noticed it’’. one should stress that the soul of europe is in its culture, civilization and diversity. the eu has 24 offi cial languages; in umberto ecco’s view ‘the language of europe is translation’. the european union is not an international organization, like the un, nato or the oecd! so what is it? the formal problem of fi nding a defi nition for the eu, without mentioned it by name, arose in relation with the negotiations and signature of international treaties in particular within the framework of the united nations, as only un member states can be signatories of such treaties. however, since in a number of instances the substance of the treaties, such as for example the convention on climate change and the now famous kyoto protocol, is covered in part by the ‘acquis communautaire’, the eu member states were not totally free to negotiate; furthermore, also part of the implementation of these treaties is the responsibility of the european union. there was therefore the imperative need to devise an approach which would allow the eu to sign and be part of the treaty, without being named specifi cally. following extensive legal discussions, the following terminology was agreed: treaties are open to the signature of the member states of the organization and to “regional economic integrational organizations” defi ned as an organization composed of several sovereign states, and to which its member states have transferred competence over a range of matters, including the authority to make decisions binding on its member states in respect to these matters. while this complex defi nition for the moment applies only to the eu, refl ecting clearly a transfer of part of the sovereignty of its member states to the european union, it could in the future apply to other similar institutions. is the term “economic” in the defi nition just described still fully appropriate? 137 issn 1822-8402 european integration studies. 2008. no 2 is the eu cohesion policy – now representing about one third of the eu budget – purely economic? the social policies of the eu are essential, as is the budget devoted to external assistance. in any case when comparing the eu budget and that of the whole un family – 120 b euros versus 20 b euros, including expenses for peace keeping operations, we see clearly in addition the difference in fi nancial scope of the two entities. understanding the institutional memory of the eu an australian parliamentary delegation visiting germany in 2001 concluded: ‘’the concept of a united europe seemed a distant reality in the decade after the war when coal and steel producers in france and germany sat down to negotiate an agreement of cooperation. yet it was these humble beginnings that led to the establishment of the european union.” with the expansion of the european union, a better understanding of the initial concept of the eu – shared sovereignty between the original six, and thus decrease of the scope of national sovereignty – among the new member states, is essential for the increased cohesion of the union. the same australian parliamentary delegation noted in its report that: “while germany remains committed to the european union other european countries have been prepared to put their national interest ahead of ideals’’. are the new member states seeing the eu mainly as a key tool to strengthen their sovereignty? with expansion, there is an inevitable divergence of interests, however this divergence must be well understood and minimized for the common good – that of all the people of the european union. progression by quantum leaps and small steps the six founding members dedicated themselves to establishing the “foundations of an ever closer union among the european people”. since the founding treaties in the 1950’s the european union has evolved considerably, both through several new treaties amending the previous ones and also through substantial administrative changes. according to roger cohen, already quoted, this “unidentifi ed political object” is defi ned by fl ux: if it stands still it dies!! this “unidentifi ed political object” is still grappling with the enlargement that followed the cold war’s end, still torn between political union and a looser association. in my view, two key and complementary approaches have been used, and continue to be used, to move the european union forward: quantum leaps and small steps. some examples of quantum leaps are the: original treaties• european single act• common agricultural policy• establishment of the internal market, including • the freedom of movement of persons throughout the european union introduction of the euro• introduction of qualifi ed majority voting for • council decisions direct elections for the european parliament• 2004 enlargement of the european union• proposed european constitution. • while examples of small steps are: some of the de facto increasing powers of the • european parliament increasing de facto role of the european court • of justice in relation to the legal interpretation of eu legislation de facto and gradual introduction of new • policies such as the environment and health, and more recently energy extension of qualifi ed majority voting areas at • the council creation of satellite agencies. • as the quantum leaps are more self evident, i shall concentrate on the importance of the small steps with two examples related to the european parliament and to the european health policy. the european parliament. following formal decisions in treaties given the european parliament budgetary and co-decision powers, these powers increased automatically with the change in the budget structure of the eu and with the expansion in the number of areas where majority voting was implemented at council. the budgetary powers of the european parliament are restricted to the non-obligatory expenses. when the decision to give budgetary powers to the european parliament was agreed, these non-obligatory expenses were only a relatively small fraction of the budget. however, with the signifi cant decrease in the budget related to agricultural expenses (obligatory), at present the non-obligatory expenses have become the largest portion of the eu budget, and thus the budgetary power of the european parliament has increased without any further specifi c council decisions. this automatic increase in power applied similarly in relation to the co-decision power of the european parliament. it is in this context that the national parliaments have to increasingly share, indirectly, the democratic 138 issn 1822-8402 european integration studies. 2008. no 2 power in the european union with the european parliament. the european parliament has as much democratic legitimacy as the national parliaments, even, may be more so, as at european level elections are based on the same electoral system. however, to balance this increasing role of the european parliament, the proposed european constitution is envisaging the direct participation of national parliaments in the european legislative process. this, in my view, is reasonable but not the suggestion made in the respectable ‘the economist’ (march 17th to 23rd , 2007) that a more robust solution would be to scrap it (the european parliament) all together and replace it by a european non elected senate – would this bring more democracy and legitimacy? the eu health policy is another example of a slowly evolving and increasing policy at eu level within the context of the european social model. i have chosen health as it has received much less publicity than the environment. in the original eu treaties of 1957 the need to protect health was only mentioned explicitly and in detail in the euratom treaty, with a whole chapter devoted to the radiation protection of workers and population. in the european economic community treaty health had mainly a negative mention – the free movement of goods and people could be restricted for health reasons. in the maastricht treaty the possibility to legislate in matters related to health and safety at work was introduced, followed by legislation related to environmental health. in subsequent treaties the possibility to legislate on matters of public health, unrelated to the economic consequences, was introduced successively following public health scandals in various eu countries – tinted blood, bse (bovine spongiform encephalopathy – mad cow disease) and sars. recent rulings of the european court of justice have also extended the benefi ts of the health policy directly to the citizens. interpretation by the european court of justice of existing legislation related to the free movement of goods has extended to powers of the european citizens the freedom to purchase medication and medical devices beyond their national borders and be reimbursed. with the most recent restructuring of the european commission, following the accession of bulgaria and romania, the eu has now fi nally a “minister of health” (commissioner kyprianou). in the framework of its health policy, the eu is tackling the threats related to infectious diseases both within the eu and at is borders. this is particularly relevant for lithuania, faced at both its borders with belarus and russia (kaliningrad) with major tuberculosis and aids epidemics. the eu is currently funding a major programme in kaliningrad aimed specifi cally at the prison population where these epidemics are almost out of control. this programme should benefi t lithuania by lessening, in time, health threats at its border. it should be also remembered that life expectancy in lithuania and its three eu neighbors (estonia, latvia and poland) is between 72 and 74 years, while in the old eu member states it is close to 80. while earlier it was considered that health will improve with wealth, however now it is more and more agreed that improving health is an important prerequisite to wealth – a healthy workforce is by far more productive, thus health should, even in the economic context, be given overall a much higher priority. the changing nature of the eu returning to the foundation of the eu, based on this ‘overwhelming’ desire not to have another war in europe, the countries founding members, and their populations, despite, or may be better because, of their confl ictual past, were willing and ready for a very close cooperation, including a loss of part of their sovereignty. this driving force, with some ups and downs, continues to motivate the founding members in their approach towards the continued development of the european union. with every expansion of the eu, these converging interests were ‘’naturally’’ diluted. the recent major two step enlargement of the eu, has included a number of countries whose independence and sovereignty have been totally or partially suppressed for one or even two generations. becoming eu members, to them, in my view, represented the best guarantee for maintaining and preserving this independence and sovereignty, a major difference in philosophy and even practical approach to that of the founding members. this dichotomy has to be fully realized and appreciated. all member states have to be fully aware of the changing nature of the eu which has also given it its dynamism, and be ready to compromise, an essential element which ensures the progress of the eu. the new member states, as newcomers, should study and understand well, for their own benefi t as well as that of the european union, the history and background of the institution of which they have become members, and be ready to accept, as much as possible, the initial goals of the eu, while maintaining their own objectives. having had now 67 years of peace among the founding members of the eu is not a small 139 issn 1822-8402 european integration studies. 2008. no 2 achievement, even if it is diffi cult to determine the contribution of the establishment of the eu towards this achievement. it is the fi rst time in several centuries that such a long period of peace has occurred. let us hope that with the enlargement of the eu and the reduced tensions in eastern europe, this long period of peace and growing prosperity will continue and extend to the whole of europe. the stability pact for south eastern europe, initiated a few years ago with the active support of the european union, as a bridge for peace, is another excellent example of the export of peace outside the eu. as a member of the executive committee of the health network within this stability pact, i can testify fi rst hand of the reality of the promotion of mutual understanding and cooperation which has been achieved. the eu has gone through six enlargements and, expansion is not yet fi nished. by including, one day, into the eu the balkan states that were involved in the last decade in the worst violence seen on the continent since 1945, the eu will further strengthen the continent and ensure peace. i feel that ireland, the ‘’celtic tiger’’ presents some similarities with the “new” eu member states which deserve to be refl ected upon; i had the privilege to work closely with the irish commissioner for a number of years, and thus gain a close understanding of the irish situation. following its independence from the united kingdom in the 1920’s, ireland remained in the shadow of britain, with respect to europe, until it joined the european union in 1973. 30 years later we can look at the irish achievements and performance in the eu. the outstanding economic achievements of ireland are too well known to be discussed at length – enough to say that the gdp of ireland is now among the highest in the eu. its performance as a member of the eu however deserves to be stressed. it has been fully, very actively and positively involved, in a spirit of cooperation, with the eu decision making process. it should be noted that ireland has joined the euro, while the uk has not. it was not afraid to forgo further ascertaining its independence, and was ready to share fully with its new partners – members of the eu – its sovereignty for the benefi t of the eu as a whole and its member states individually. the so-called ‘new’ eu member states face a similar challenge for their own benefi t and that of the eu. i am sure that they are ready and will be up to the challenge. conclusion in conclusion, the european union represents a quantum leap in european integration, with a common currency, a single market, freedom of unhindered movement of people, and new policies which go well beyond the original idea of a single customs union, as set out in the european economic community treaty. recent enlargements have recognized furthermore the triumph of democracy over dictatorship. the act of faith into the future of the original six members of the european union in 1951 has planted the seeds of peace in europe. these seeds having taken roots, have certainly contributed to the peaceful transformation and transition which has taken place in the past two decades in eastern europe and in particular in the baltic states. to paraphrase robert toulemon, former commission member, in a book ‘aimer l’europe’ published in 2007, there are three reasons to love europe: for what it has achieved and thus what it is;• for what it can be; and• for the services it can render humanity.• as a fi nal conclusion let us all agree that the eu is a project still in the making, however in constant progress. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 8 submitted 04/2018 accepted for publication 10/2018 european integration studies no. 12 / 2018 pp. 8-18 doi 10.5755/j01.eis.0.12.21232 developing intercultural negotiations skills to meet current challenges of diverse eu business environment as part of university social responsibility eis 12/2018 abstract developing intercultural negotiations skills to meet current challenges of diverse eu business environment as part of university social responsibility http://dx.doi.org/10.5755/j01.eis.0.12.21232 velga vevere, aija sannikova the university college of economics and culture rapid internationalization of the european business environment requires development of international project and team management, intercultural internal and external communications, conflict management skills, etc. these skills, in their turn, involve negotiation process (strategical, tactical and ethical aspects) and cross-cultural proficiency. development of such skills could be regarded as responsibility of the university. the purpose of the present study is to research mba students’ attitude to different negotiation tactics depending on their cultural background. the tasks of the study are: (1) to establish the theoretical framework (theories, concepts, research paradigms); (2) to work out the research design and conduct the research; (3) to interpret empirical results and work out proposal – a free standing mini-module “intercultural negotiation skills” for the university. the main research method applied is a survey using 5-point likert scale. using a questionnaire derived based on sins scale (“self-reported inappropriate negotiation strategy scale” created by r. j. robinson, r. j. lewicki and e. m. donahue) 88 mba students of the latvian universities rated 16 negotiation tactics on a 5-point appropriate-inappropriate scale. analyses of scale ratings yielded results that students’ evaluation of negotiation tactics did not depend on cultural background (the research was conducted among international students) in statistically significant way, though there were differences in responses within evaluation of certain statements. the article works out suggestions how to incorporate issues of intercultural negotiation strategies within courses. keywords: negotiation strategy; negotiation tactics; intercultural negotiations; negotiator profile; university social responsibility, sins scale. 9 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 introduction there is extensive research literature on different aspects of business negotiations: on the process, on the participants (actors), on the expected outcomes etc. let us mention a few aspects relevant for the current research. the first and the most logical starting point is the definition that sets the stage for further investigation. negotiation is a process where two parties with differences, which they need to resolve, are trying to reach agreement through exploring for options and exchanging offers – and an agreement. (fells, 2009) this definitions pinpoints main aspects of negotiations, i.e., existence of at least two parties with differences in opinion, in final goal to be reached, in preliminary and strategical and tactical plans, etc. moreover, the process of negotiation itself, give or take, consists of certain stages. in addition, finally, there is certain outcome than can be satisfactory or dissatisfactory to the parties involved. (lewicki et al., 2003) the whole situation of negotiations can be characterized by the term interdependent relationship. that is, in negotiations, both parties need each other; there is no negotiation possible if there is just one side without opposition. lewicki and others (2002) stress that one of the most important features of the interdependence is the existence of interlocking goals within the negotiating team itself (different team members may have their personal interests that may comply with the team general strategy or may not comply with it), as well as outside the team (the goals of opponents). each party can influence other party’s decisions and actions, and the choice of the strategy. theoreticians and practitioners distinguish among several styles (strategies) of negotiation. thus, for example, goldwich (2010) talks about five styles employed during the process of negotiation. in sum, they can be described in the following way: (1) avoiding – the negotiator tends to avoid any confrontation and is apt for putting off discussions, whenever encounters the opposition; (2) accommodating the accommodating negotiator is primarily concerned with rapid internationalization of the european business environment requires development of international project and team management, intercultural internal and external communications, conflict management skills, etc. these skills, in their turn, involve negotiation process (strategical, tactical and ethical aspects) and cross-cultural proficiency in expanding their reach across international borders. organizations have worked to enter new markets overseas, gain access to cheaper labor force, and take advantage of potential synergies and new ideas through merging with similar organizations in other nations. in doing so, they have encountered, and worked to solve, the variety of problems that stem from interacting and working across national and cultural boundaries. (sykara et al., 2013) the intercultural negotiations can take place in everyday business practices, conducting job interviews, doing marketing research, solving complicated issues of the diplomatic nature, etc. thus, galluccio (2015) admits that the biggest challenge today in international negotiation is to encourage negotiators to emphasize cooperative motives as opposed to trying to get the best deal for oneself. this brings forth the question of intercultural negotiation skills training and the role of university in this process. according to puukka (2008) conception of the triple bottom line of sustainability in a higher education institution, the negotiation skills development falls into the realm of the university social performance. the purpose of the present study is to research mba students’ attitude to different negotiation tactics depending on their cultural background. the tasks of the study are: (1) to establish the theoretical framework (theories, concepts, research paradigms); (2) to work out the research design and conduct the research; (3) to interpret empirical results and work out proposal – a free standing mini-module “intercultural negotiation skills” for the university. this accounts for the structure of the current article, that consists of three main parts: the one of literature review, then methodology, results and discussions, and finally – conclusions and recommendations (a proposal of free-standing mini module on intercultural negotiation skills). literature review e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 10 preserving his relationship with the other party, ready to sidestep under certain circumstances; (3) competing – the negotiator is focused upon his/her personal goals primarily and is ready to play somewhat dirty, though within the limits of the game; (4) compromising – the accent is put on the fairness and ethical negotiation tactics; (5) collaborating – the negotiator tries to reach the optimal outcome. whereas other authors (lewicki et al., 2003, fells, 2009) distinguish between competitive (distributive) and collaborative (integrative) styles. the first one is characterized by attempts to gain optimum value at the expense of the other party and is commonly referred to as the “win-lose” approach, when engaged in this style, the parties may use different tactics to win such as: persuasion, argument, power, or even threat. the latter or “win-win” style means the negotiating parties have reached an agreement after fully considering each other’s interests, such that the agreement cannot be improved upon further by any other agreement. the process of negotiations involves four phases: preparation, exchanging information, bargaining and closing commitment. (shell, 2006) apart from tactical matters, the important role in negotiations is assigned also the ethical considerations. although none of the negotiation tactics is unethical per se, some of them are more apt for ethical transgressions, especially the ones of win-lose (or “dividing a pie”) type. (vevere, 2017) the contemporary multi-cultural, multi-dimensional, complex business environment ads dimension to the negotiation process, that is, necessity to develop culturally responsive negotiation tactics and strategies. weiss (1994) speaks of five steps for choosing the appropriate strategy: 1) reflection on the personal negotiation script (considering the cultural idiosyncrasies); 2) gathering as much information as possible about the opposing party’s negotiation script; 3) consideration of relationship and additional circumstances; 4) predicting the counterpart’s approach (i.e., getting ahead by one step); 5) choice of the final strategy. (ibid.) without a doubt, the intercultural aspect has been extensively and intensively research within last decades, let us mention such authors as curry (2009), lee (2007), hofstede and others (2010), galluccio (2015), sykara (2013). these researchers have paid attention to cultural dimensions, negotiation contexts, conversation patterns, behavioral characteristics, etc. thus, salacuse (1998) defines ten ways that culture affects the negotiating style; the main factors during intercultural negotiations to be taken into account are the following: negotiating goals (contract or relationship); culturally conditioned preference for win/lose or win/win strategy; formal or informal interaction; direct or indirect communication; time sensitivity; displaying/not displaying emotions; form of agreement (general or specific); building an agreement (bottom up or top down); team organization (one leader or team consensus); risk taking (high or low). gesteland (2005) developed the typology of negotiator profiles that is of a special importance for the present study (see table 1). we can mention also research devoted to the specific features related to the negotiators’ country of origin (akizhanova, 2013; gardaševic and vapa-tankosic, 2015; rammal, 2005; varner, 2013). majority of theoreticians and practitioners agree in that knowledge and training (skills development) are basic factors for the successful intercultural negotiations. this could be regarded as a part of the university social responsibility; we believe that this particular aspect has not received the proper scholarly attention yet. thus, our investigation bring forth some new dimensions to be researched. the concept of university social responsibility is rather new; most of the universities try to incorporate it into their strategies and plans of development. reiser defines the concept as a policy of ethical quality of the performance of the university community (students, faculty and administrative employees) via the responsible management of the educational, cognitive, labor and environmental impacts produced by the university, in an interactive dialogue with society to promote a sustainable human development. (reiser, 2008) overall, the usr can be perceived as a 11 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 philosophy of a university as an ethical approach to develop and engage with the local and global community to sustain the social, ecological, environmental, technical, and economic development. (jorge and pena, 2017; mehta, 2011; muijen, 2004) the researchers have summarized the desired outcomes of usr, such as, (1) community of learners and scholars who value the pursuit of new knowledge in a society of learning and are valued members and leaders of society, and global citizens effective in diverse setting; (2) graduates who have well-balanced knowledge and wisdom, and good character; intelligent, think rationally, behave morally and ethically; possess life and leadership skills; conscious of public and common good; practice good governance and are socially responsible, able to compete in an international job market, socially responsible global leader. (schneller and thöni, 2011) puukka (2008) proposed the conception of the triple bottom line of sustainability in higher education institutions. according to him, the triple bottom line structure (economic performance, environmental performance and social performance) is applicable also to higher education institutions due to three reasons: firstly, higher education institutions have considerable direct and indirect impacts on the local and regional economies; secondly, the social responsibility of universities refers to wellbeing of staff and students, and good relations with stakeholders; thirdly, higher education institutions are both consumers of non-renewable energy and sources of technological and organizational expertise to tackle these challenges. our interest lies precisely with the social performance aspect, since it can and must involve the intercultural communication (including negotiation) skills training via case-studies, multi-national projects, free-standing mini modules. (arakelian, 2009, jack, 2009, tomalin, 2009) according to our previous research (vevere, 2016; vevere, 2017; vevere and steinbergs, 2017) of the university annual reports, the social performance of the higher education institutions comprise such areas as promotion of well-being that includes development of living (student hotels), learning and teaching environment and material technical basis enrichment; promotion of know-how (professional development of the staff, working out strategical directions in learning and science (specific directions of research), involvement of students in the research, organizing methodological seminars, etc.; ownership of staff and students (introduction and implementation of quality control system, internal audit of quality, development of good governance principles, cooperation between staff, administration and students); community involvement (involvement of industry and potential employers in evaluation of the study programs and in the study process (as guest lecturers); cooperation with professional organizations; cooperation with secondary schools and professional schools with aim to attract prospective students, offering paid and free of charge courses to the community. intercultural training then, considering the international learning and working environment today, we conclude, is an integral part of all these activities (well-being, know-how, ownership, community involvement) and of the social responsibility policy of the higher education establishment. research design. to investigate mba students’ preferences negotiation tactics depending on their nationality (culture type), we chose a quantitative research design – the formalized survey of participants. approaching the students involved in the graduate global marketing and international negotiation courses (the academic years of 2016/2017 and 2017/2018) provided a firsthand account of what negotiation tactics they felt to be appropriate or inappropriate. students were approached with the request to be questioned about their opinion during the class, they were given certain time to fill out the questionnaire without any interruption and control of the professor. the respondents received all necessary information about the purpose and procedure of the research, as well as their anonymity was guaranteed. the questionnaire was developed based on the literature study; it consisted of 16 questions divided into five groups according to methodology e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 12 5 negotiation tactics as presented in the sins scale (“self-reported inappropriate negotiation strategy scale”). (robinson et al., 2000) the following tactics were put forward: (1) traditional competitive bargaining; (2) attacking opponent’s network; (3) false promises; (4) misrepresentation; (5) inappropriate information gathering. (see table 1). no tactics statements according to sins scale 1 traditional competitive bargaining _ make an opening demand that is far greater than what you really hope to settle for _ convey a false impression that you are in no hurry to come to a negotiated agreement, thereby trying to put time pressure on your opponent to concede quickly _ make an opening demand so high/low that it seriously undermines your opponent’s confidence in his/her ability to negotiate a satisfactory settlement 2 attacking opponents network _ attempt to get your opponent fired from his/her position so that a new person will take his/her place _ threaten to make your opponent look weak or foolish in front of a boss or others to whom he/she is accountable, even if you know that you won’t carry out the threat _ talk directly to the people who your opponent reports to, or is accountable to, and tell them things that will undermine their confidence in your opponent as negotiator 3 false promises _ promise that good things will happen to your opponent if he/she gives what you want, even if you know that you can’t (or won’t) deliver these things when the other’s cooperation is obtained _ in return for concessions from your opponent now, offer to make future concessions which you know you will not follow through on _ guarantee that your constituency will uphold the settlement reached, although you know that they will likely violate the agreement later 4 misrepresentation _ intentionally misrepresent information to your opponent in order strengthen your negotiation arguments or position _ intentionally represent the nature of negotiations to your constituency to protect delicate discussions that have occurred _ deny the validity of information which you opponent has that weakens your negotiating position, even though this information is true and valid _ intentionally represent the progress of negotiations to your constituency to make your own position to appear stronger 5 inappropriate information gathering _ gain information about an opponent’s negotiating position by paying your friends, associates, and contacts to get this information for you _ gain information about opponent’s negotiation position by cultivating his/her friendship through expensive gifts, entertaining and personal favors _ gain information about an opponent’s negotiation position by trying to recruit or hire one of your opponent’s teammates table 1 bargaining tactics and statements included into the questionnaire the questions were presented in the mixed order to get truthful responses. each statement had five-point value varying from the answer “not at all appropriate” (value – 1) to “very appropriate” (value – 5). the design of the questionnaire was asked also open-ended questions regarding their gender, age, nationality and work experience. in the view of the current topic the indicator source: authors’ according to robinson et al., 2000 13 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 group negotiator’s characteristics nationality a relationship-focused formal polychronic reserved indian pakistani b relationship-focused formal monochronic reserved chinese c relationship-focused formal polychronic expressive arabic turkish greek uzbek kzakh kyrgyz armenian azerbaijani d relationship-focused formal polychronic variably expressive russian polish ukrainian e moderately deal-focused formal variably monochronic emotionally expressive french dutch f moderately deal-focused formal variably monochronic reserved baltic g deal-focused moderately formal monochronic reserved finnish norwegian swedish german table 2 negotiator profiles (including only those nationalities represented in the survey) source: authors’ according to gesteland, 2005. chosen according to the principle to include the international mba students taking the courses in global marketing and negotiations in the intercultural business environment in three (public and private) universities during the study year of 2017/2018; the language of instruction – english. this sampling approach can be described as a non-probability convenience sampling. convenience sampling differs from purposive sampling in that expert judgment is not used to select a representative sample of elements. rather, the primary selection criterion relates to the ease of obtaining a sample. ease of obtaining the sample relates to the cost of locating elements of the population, the geographic distribution of the sample, and obtaining the interview data from the selected elements. (lavrakas, 2008) the respondents have several characteristics in common– of nationality was of a special importance – all respondents were divided into seven groups (a, b, c. d. e. f. g) according to the negotiator profile typology developed by gesteland (2005) (see table 2). population sampling. once the research design was established, it was necessary to decide about the sampling unit (a unit of population chosen during the sampling process; the unit should contain one or more elements describing the population). participants of the survey were e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 14 enrollment in the mba program in latvia’s public/private university (during academic year of 2017/2018), taking a course in global marketing or in negotiations in the intercultural business environment, studying in english (this includes both local and international students). altogether 88 mba students were surveyed. data processing. for data processing the spss statistics 21 program was used to carry out the medial comparison (me) and the frequency calculation, as well as series of non-parametric tests, such as kruskal-wallis h test, mann -whitney u test, kolmogorov–smirnov test since the data obtained corresponded to the ordinal scale (ranking scale). (doane and seward, 2011; field, 2009; massey, 1951) limitations of the research. the study was carried out during the academic years of 2016/2017 and 2017/2018 in one public university and two private universities, it comprised mba students involved in two specific courses – global marketing and negotiations in the intercultural business environment because these courses included topics on intercultural communication within business environment. according to gesteland’s (2005) typology of negotiator profiles, all students fell into eight groups (see table 2) with different number of students (from 1 to 33); since it is virtually impossible to detect any tendency if the group consisted on only 1 member, the group h american negotiator) was excluded leaving the minimum of participants to 3 members (group b – chinese negotiators). despite the varying number of group members, the authors of the current research believe that the obtained results can demonstrate some tendencies that could be helpful in planning mba curriculum. research hypotheses. based on the theoretical literature the authors put forward two hypotheses: h 0 : there exists statistically significant relation between negotiator’s cultural background and preference for certain negotiation tactics/statement valuation. h 1 : there is no statistically significant relation between negotiator’s cultural background and preference for certain negotiation tactics/statement valuation. results to prove or reject hypotheses, we conducted the medial comparison and frequency division calculation. after that, we conducted a series of nonparametric tests. the first one was the kruskal wallis h test to determine (1) if there is relation between belonging to the certain group (see table 3) and choice of the negotiation tactic; (2) if there exists relation between valuation of the statements and belonging to the group. the test results demonstrate that p=1.00>0.05, it follows that there is no statistically significant relation between belonging to the certain group (according to the negotiator typology) and the choice of bargaining tactic. thus, the null hypothesis is being proved. the next step of the research was performing the kruskal wallis test to determine the relation between the statement evaluations and belonging to the negotiators’ group. (see tables 4 and 5). the kruskal wallis h test show that there exists statistically significant relation (with probability table 3 kruskal wallis test statistics (choice of tactics) tactics chi-square 0,000 df 4 asymp. sig. 1,000 source: authors’ of 95%) between the valuation of the statements and belonging to the certain negotiator’s type (p=0.00<0.05). the next nonparametric, i.e., the mann -whitney u test was performed to determine, if there is the statistically significant relation between the group f (the baltic negotiators) and 15 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 other groups in the choice of tactic (see table 6) and valuation of the statements (see table 7). it is possible to conclude that there is no statistically significant (with probability of 95%) difference between overall choice of tactics among negotiator type f (the baltic negotiator) and other types (a, b, c, d, e. g). thus, we can accept the null hypothesis. table 7, in its turn shows the mann-whitney u test results regarding differences in statement valuation between the group f (the baltic negotiator) and other groups (a, b, c, d, e, g). the results of the test show that with a probability of 95% there exists statistically significant difference between statement evaluations of the group f (baltic negotiators) and the groups a (indian and pakistani negotiators), c (arabic, turkish, greek, uzbek, kagroup n mean rank a 96 355,91 b 32 355,91 c 295 356,13 d 160 355,91 e 128 355,91 total 711 source: authors’ source: authors’ table 4 ranks table 5 kruskal wallis test statistics (valuation of the statement) no group n mean rank mannwhitney u z asymp. sig. (2-tailed) 1 a f 96 517 305,47 307,28 24669,0 -0.094 0,925 2 b f 32 517 273,47 275,09 8223,0 -0,57 0,954 3 c f 295 517 405,12 407,29 75851,5 -0,129 0,897 4 d f 160 517 337,47 339,47 41115,0 -0,116 0,908 5 e f 128 517 321,47 323,38 32892,0 -0,106 0,916 6 g f 161 517 339,28 339,57 41582,5 -0,017 0,986 table 6 mann-whitney u test statistics (choice of tactics) source: authors’ zakh, kyrgyz, armenian, azerbaijani negotiators) and e (french and dutch negotiators). although the results are not conclusive due to the highly varying number of group members, they still open the line of future research of the main influence factors. therefore, it follows, that hypothesis (h 1 ) is being partly proved. to calculate the empirical data distribution overall and within each group we conducted the kolmogorov-smirnov test (see table 8). the test results show that empirical data corresponds to the normal distribution overall and in all groups but one – b (chinese negotiators); it could be explained by the fact that this was the smallest group among others. tactics chi-square 57,934 df 6 asymp. sig. 0,000 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 16 conclusions _ in the contemporary business environment international negotiations play ever-growing role, negotiators should exhibit rather high level of intercultural competence and practical negotiation skills. thus, in the view of the university significance in the society as educational and research center, the development of cultural sensitivity, of adaptability to changing business environment, of cooperation with industry and local community can be regarded as integral part of its social responsibility strategy. thus, university can offer courses and training programs in the field of intercultural negotiations involving the academic staff and students. the courses can take different forms – be it the freestanding or integrated mini-modules (8-12 academic hours) or a part of part of continuous or lifelong education program offered by the university to the local community. _ the results of the current investigation, that consisted of the international mba students survey using the sins scale and r. gesteland’s negotiators’ typology can be used for development of the mini-module on intercultural negotiations that includes both basic theoretical instruction and no group n mean rank mann whitney u z asymp. sig. (2-tailed) 1 f g 517 161 344,99 321,87 38779,5 -1,358 0,000 2 f a 517 290,05 398,29 16052,0 -5,661 0,954 3 f b 517 278,17 223,81 6634,0 -1,949 0,051 4 f c 517 393,12 429,95 69339,0 -2,225 0,026 5 f d 517 344,65 320,76 38441,0 -1,400 0,161 6 f e 517 330,45 292,89 29234,5 -2,116 0,034 table 7 mann-whitney u test statistics (statement valuation) source: authors’ group n mean kolmogorov smirnov test asymp. sig (2-tailed). correspondence/ non-correspondence all groups 1389 2,42 7,495 0,000 cor. a 96 3,7 1,925 0,01 cor. b 32 1,88 1,358 0,050 non-cor. c 295 2,62 3,393 0,000 cor. d 160 2,23 3,274 0,000 cor. e 128 2,12 2,568 0,000 cor. f 517 2,38 4,405 0,000 cor. g 161 2,21 2,860 0,000 cor. source: authors’ table 8 empirical data distribution (kolmogorov-smirnov test statistics) 17 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 _ although the data of our research were not conclusive because of the high variability of the number of respondents in each group, we can conclude that there is no statistically significant relation between belonging to the certain group of negotiators and the choice of negotiation (bargaining) tactic. thus, all international students can be offered the same theoretical background and practical training (exercises, tests, simulations, etc.) _ nonetheless, the series on nonparametric tests (the ones of the kruskal wallis h and the mann-whitney) demonstrate that there exist differences in statement valuation within each tactic, and this will be the subject of our further investigation. in other words, it is very important to know what are the main factors influencing the valuation process. akizhanova, d. 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(2006). bargaining for advantage: negotiation strategies for reasonable people (p. 324). london: penguin books. sycara, m. gelfand, abbe, a. (eds.). (2013). models for intercultural collaboration and negotiation (p. 202). new york: springer. https://doi. org/10.1007/978-94-007-5574-1 tomalin, b. (2009). applying the principles: instruments for intercultural business training. in a. feng, m. byram, m. fleming (eds.), becoming interculturally competent through education and training (pp. 115-131). bristol: cromwell press group. varner, i. i. (2013). the role of negotiation in intercultural business communication. connexions: international professional communication journal, 1 (1), 139-145. vevere, v. (2016). social indicators of the university corporate responsibility. in 5th international scientific conference “whiter our economies 2016”. conference proceedings (pp. 64-75). vilnius: m. romeris university. vevere, v., steinbergs, k. (2017). reporting university social responsibility and university global competitiveness. in 17th international scientific conference “globalization and its socio-economic consequences”. proceedings (pp. 2856-2863). zilina: university of zilina. vevere, v. (2017). negotiation ethics as integral part of mba curriculum. in iclel 17 conference proceeding book (pp. 290-298). porto: porto university of technology. weiss, s. e. (1994). negotiating with “romans” – part 2, sloan management review, 35(3), 85-99. about the authors vevere velga dr.phil., prof. the university college of economics and culture fields of research interests management, business ethics, corporate social responsibility, cross-cultural negotiations address lomonosova 1/5 , riga lv 1003, latvia. phone +371 26463584 sannikova aija dr.oec., assistant professor the university college of economics and culture fields of research interests regional economy, labor market, social entrepreneurship, corporate social responsibility address lomonosova 1/5, riga lv 1003, latvia 97 issn 1822 – 8402 european integration studies. 2010. no 4 eu taxation policy during financial crisis algis junevicius1, kristina justinaviciene2 kaunas university of technology, institute of europe1, lithuanian academy of physical education2 abstract the paper deals with the problems of tax coordination and perspectives during and after financial crisis. as we see the 2008 financial crisis is the worst economic crisis. great depression of 1929 was financial crisis which know all world financers and we can compare these days financial crisis with 1929 financial crisis. thr 2008 financial crisis has been characterised by a rapid credit expansion, high risk-taking and exacerbated financial leverage and credit crunch when the bubble burst. in particular, it reviews the existing evidence on the links between taxes and many characteristics of the crisis. finally, it examines some possible future tax options to prevent such crises. this financial and economic crisis presents major challenges for tax administration. with the economic downturn, tax agencies are encountering growing compliance risks and greater demands for taxpayer support in the face of prospective budget cuts. this paper examines these challenges and sets out a strategy and measures for responding to them. theoretical and empirical studies suggest that an economic downturn tends to worsen taxpayer compliance in important aspects. while a drop in compliance may have some countercyclical effects on the economy, tolerating noncompliance is not an appropriate response to the crisis because it is distortionary, inequitable, and, perhaps most importantly, hampers the rebuilding of tax bases over the medium-term. the crisis therefore presents the financial authorities – central banks, regulators and finance ministries – with two challenges: the first and most urgent is to design short-term policies so as to at least limit the adverse impact of deleveraging and deflation on the real economy. we cannot make that impact nil, but we do know how to avoid the policy mistakes which turned the initial problems of 1929-30 into the great depression. fiscal and monetary policies need to be carefully designed, and – as we approach a zero interest rate and consider quantitative easing options – need to be increasingly coordinated. and there are a wide range of policies which can be taken to free up financial markets, funding guarantees, liquidity provision, tail risk insurance, direct central bank purchases of assets, and regulatory approaches to capital regulation which avoid unnecessary pro cyclicality in capital adequacy requirements. the measures announced by the chancellor of exchequer on monday were designed as an integrated package, which will have a significant impact. and if more measures are acquired they can and will be taken. it is not, however, on this challenge of short-term economic management – where the lead must be with the fiscal and monetary authorities. but instead on the second challenge: how to design the future regulation and supervision of financial services so that we significantly reduce the probability and severity of future financial crises. financial sector innovation. the fundamental macro economic imbalances have thus stimulated demands which have been met by a wave of financial innovation, focused on the origination, packaging, trading and distribution of securitised credit instruments. simple forms of securitised credit – corporate bonds – have of course existed for almost as long as modern banking. in the us, securitised credit has also played a major role in mortgage lending since the creation of fannie mae in the 1930s; and securitisation had been playing a steadily increasing role in the global financial system and in particular in the american financial system for a decade and a half before the mid-1990s. but it was from the mid-1990s that the system entered explosive growth in both scale and complexity. keywords: economics, economic policy, finances, financial crisis, tax system, taxation, indirect tax, direct tax, tax rate, vat. issn 1822-8402 european integration studies. 2010. no 4 98 introduction the financial crisis is not over. neither tax rebates nor low interest rates nor higher or lower exchange rates can do the job of reviving an economy that is burdened by debt loads that are too high. on the contrary: the policy measures that the us authorities have been applying will prolong the agony. be prepared for the challenges of extended financial turmoil and economic stagnation. economic policy as it is currently practiced is in a fix: lower interest rates may temporarily help to alleviate the financial crisis, but they exacerbate the fundamentals that are the cause of the financial crisis. equally, a lower dollar would make imports costlier for the united states, while a strong dollar comes with lower import prices. but while a low dollar would help to expand exports, a strong dollar impedes export growth. therefore, the united states will have high trade deficits as long as the economy does not fall deeper into recession. the collapse of a global housing bubble, which peaked in the u.s. in 2006, caused the values of securities tied to real estate pricing to plummet thereafter, damaging financial institutions globally. questions regarding bank solvency, declines in credit availability, and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during late 2008 and early 2009. economies worldwide slowed during this period as credit tightened and international trade declined. critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st century financial markets. governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion, and institutional bailouts. 18 a european package of spending increases and tax cuts are worth €200bn (£170bn), or 1.5% of the european union’s gross domestic product. the 27 countries would provide €170bn of the €200bn or 1.2% of european gdp while the other €30bn would come from brussels’ coffers in the form of eib loans, and accelerating payments from the cohesion and structural funds, which go mainly to the new members in central europe.2 research problem: taxation policy during financial crisis, what ways choose countries to avoid financial problems. object of this article – tax tendencies and tax perspectives in european union member states during finacial crisis. aim of this article – to identify tax tendencies during financial crisis. to expose the necessity to find the best way to normalaize finances during financial crisis. tasks of this article: to analyze 2008 financial crisis problems; to present financial policy chalanges; to uncover the taxtion policy during financial  crisis. research methods: analysis of primary, secondary literature and statistical data. financial crisis of 2008 the financial crisis that made crash of the global economy since the summer of 2007 was without precedent in post-war economic history. its size and made problems of this economic crisis are exceptional. the crisis grow by long period of rapid credit growth, low risk premiums, abundant availability of liquidity, strong leveraging, soaring asset prices and the development of bubbles in the real estate sector. in its early stages, the crisis made itself as an acute liquidity shortage among financial institutions as they experienced ever stiffer market conditions for rolling over their debt. in this phase, concerns over the solvency of financial institutions were increasing, but a systemic collapse was deemed unlikely. this perception dramatically changed when a major us investment bank (lehman brothers) defaulted in september 2008. investitors massively liquidated their positions and stock markets due to survive during this difficult time. the cross-border transmission was also extremely rapid, due to the tight connections within the financial system itself and also the strongly integrated supply chains in global product markets. eu real gdp is projected to shrink by some 4% in 2009, the sharpest contraction in its history. and although signs of an incipient recovery abound, this is expected to be rather sluggish as demand will remain depressed due to deleveraging across the economy as well as painful adjustments in the industrial structure. unless policies change considerably, potential output growth will suffer, as parts of the capital stock are obsolete and increased risk aversion will weigh on capital formation and r&d. comparison with previous crises and economic outlook if we compare the 2008 crisis with some previous stocks crashes: the 1929 great depression, the 1973 oil shock, the 1987 black monday and the 2000 it bubble. it shows the historically extreme severity of the stock markets’ decline. interestingly, the 2008 financial crisis started on the same paths as the 1973 oil shock before dropping on the same paths as the 1929 great depression. two additional interesting points are worth mentioning. first, the comparison reveals that the stock decline can be long. the 1973, 2000 and 1929 stock declines last 626, 913 and 1,025 days respectively. at the time of writing, the 2008 crisis hit its bottom-low point after 517 days. second, the return to pre-crisis levels takes very long. it took more than 7 years after the issn 1822-8402 european integration studies. 2010. no 4 99 2000 it bubble and 7 ½ years after the 1973 oil shock, while wwii never allowed stocks to return to their pre1929 levels. however -, the 2008 crisis has one of the fastest recovery rate to date. the policy response one important and welcomed difference with the great depression is that public authorities have acted to provide a policy response to the crisis. central banks have reacted in two ways to ease monetary conditions: injecting liquidity in the market and lowering interest rates. on 9th-14th august 2007, the federal reserve, the ecb and the bank of japan coordinated their efforts to respectively inject usd 64 bio, eur 229 bio, and jpy 1 trillion to provide banks with liquidities. new large injections of liquidities occurred ever since. central banks also rapidly lowered their interest rates. other central banks followed suit and many additionally engaged in programmes to offer alternative funding. in the midst of the crisis, governments were also forced to rescue banks to avoid a collapse of the whole financial system. for example, member states of the european union committed (individually) to recapitalisation of their financial institutions, guarantees on bank liabilities, relief of impaired assets and liquidity and bank funding support for a total representing 43.6% of their combined gdp (european commission, 2009). the third part of the policy response to the crisis is the fiscal stimulus packages. a first step was the economic stimulus act of 13th february 2008 which provided u.s. taxpayers with various tax credits for a total of over usd 150 billion. on 26th november 2008, the european commission unveiled the european economic recovery plan for growths and jobs (eerp), which includes a mix of tax and expenditure measures to support the real economy and to boost confidence. the plan proposes a eur 200 billion (i.e. 1.5% of eu gdp) fiscal stimulus, shared between the european commission (eur 30 bio) and the member states (eur 170 bio), and is made out of a set of proposed actions from which individual member states can choose. the various measures taken by the member states in the context of the eerp have largely been documented. the total fiscal impulse amounts to about 1.8% of eu gdp. it is however arduous to provide an exhaustive lassification of the tax measures taken by eu member states to fight the economic crisis, not the least because already decided measures may have been relabelled or modified to fit into national stimulus packages. table (1) provides a tentative typology of tax measures that were taken in the eu. generally, measures have consisted in a lowering of existing taxes but the budgetary position of some countries such as latvia, lithuania or ireland (among others) has forced those to increase taxes instead. the bulk of the measures have focused on a decrease in labour taxes, in particular by lowering personal income tax rates or increasing tax brackets. another sizeable part of tax measures has focused on decreasing corporate income taxes, alternatively lowering the rate or the base. interestingly, no country has acted to cut standard vat to try to boost consumption, the uk being the (temporary) exception.18 table 1. tax measures taken by eu-27 member states lowering taxes increasing taxes labour taxes personal income tax oe, dk, fi, fr, de, hu, lv, lt, lu, mt, nl, pl, pt, si, sk, se el, ie, uk ssc employers cz, fi, hu, nl, se ie, ro, uk ssc employees cz, nl, se, sk lt, ro, uk withholding taxes be deductions oe, bg, de, it, pt, sk, es, se capital gains ro ie deferral of reform cz, ee corporate income tax cit rate el, lu, pt, se it, lt allowances oe, bg, es, it, nl, de, fr, lt, pl, pt, si, sk value-added tax standard rate uk hu, ie, lv, lt reduced rates be, cy, cz, fi, fr, mt, ro hu, ee, ie, lv, lt property and inheritance taxes el, es, it, lu, pt environmental taxes de, nl, ro fi, it, lv, lt, si, uk source: adapted from european commission (2009c). financial policy chalanges the current crisis has demonstrated the importance of a coordinated framework for crisis management. it should contain the following building blocks: crisis prevention • to prevent a repeat in the future. this should be mapped onto a collective judgment as to what the principal causes of the crisis were and how changes in macroeconomic, regulatory and supervisory policy frameworks could help prevent their recurrence. policies to boost potential economic growth and competitiveness could also bolster the resilience to future crises. crisis control and mitigation • to minimise the damage by preventing systemic defaults or by containing the output loss and easing the social hardship stemming from recession. its mainobjective is thus to stabilise issn 1822-8402 european integration studies. 2010. no 4 100 the financial system and the real economy in the short run. it must be coordinated across the eu in order to strike the right balance between national preoccupations and spillover effects affecting other member states. crisis resolution • to bring crises to a lasting close, and at the lowest possible cost for the taxpayer while containing systemic risk and securing consumer protection. this requires reversing temporary support measures as well action to restore economies to sustainable growth and fiscal paths. inter alia, this includes policies to restore banks’ balance sheets, the restructuring of the sector and an orderly policy ‘exit’. an orderly exit strategy from expansionary macroeconomic policies is also an essential part of crisis resolution.12 tax policy during and after financial crisis the international monetary fund (imf) has argued that the global financial crisis was exacerbated (though not caused) by tax policies which fuelled the credit boom that preceded the economic downturn. the imf proposes1 that governments should consider changing the rules that have encouraged companies to seek finance using debt rather than equity, and allowed individuals to take put larger mortgages. many tax regimes allow companies to deduct interest payments against tax but not against returns on equity; this has resulted in an increase both in leveraged buy-outs by private equity organisations and in the holding of debt rather than equity by other financial institutions. the imf argues that ‘corporate level tax biases favouring debt finance including in the financial sector are pervasive, often large and hard to justify given the potential impact on financial stability.’10 finally, all tax systems should abide by a review principle whereby tax legislation is periodically overhauled and consolidated to bring it up to date and make it easier to follow. outdated laws should be removed. corporate tax rates at eu business is becoming increasingly global and companies now do more and more business across national boundaries. in response to these developments, governments around the world have lowered corporate tax rates in order to entice businesses to locate in their countries. the intellectual property issue illustrates the fact that the overall corporate tax rate – so often referred to by the uk government, which cut it to 30% shortly after coming to power in 1997 – is only a part of the overall cost of production which the tax charge comprises. governments around the world seem to have realised it is a symbolically important aspect of the initial impression an investing entity has of a location, rather as a supermarket always displays its big offers near the entrance. this has been borne out by the way corporate tax rates have changed over the past three decades; in the 1980s they were in the 50% range, by the 1990s rates in the range of 30% were the norm, but since the turn of the millennium such rates are now considered high, which is why the uk has steadily slipped down the corporate tax league table, even with a current rate of 28%.8 the symbolic power of the corporate tax rate means that governments are still reluctant to raise it. the irish government’s ‘austerity budget’ of april 2009 – in which personal taxation was raised in an effort to combat the deficits caused by the property crash and bank failures – left corporate rates alone. in 2008, japan also preferred to raise vat through individuals. further, canada, germany, russia and singapore have all cut their corporate rates. people are regarded as less mobile than corporations, and are therefore a more tempting tax target. the public finances of countries with important financial centres and/or that have seen major housing and construction booms have been particularly affected. to some extent this is deliberate, broadly in line with the distribution of “fiscal space” and serving to provide short-run demand support. but, as may be expected, public indebtedness is increasing too, and this will need to be reversed when recovery takes hold. as indicated by figure 3, the projected increase in public debt – about 20% of gdp to end 2010 – is typical for a financial crisis episode. however, the jumping-off point is considerably higher than in the past. source: voxeu.org (2009). figure 1. the fiscal position relative to previous banking crises a recent imf paper stated, however, that ‘we find evidence that lower corporate income tax rates and longer “tax holidays” are effective in attracting foreign direct investment (fdi), but not in boosting gross private fixed capital formation or growth. in other words, such tax cuts generate initial interest and investment but not long-term commitment. issn 1822-8402 european integration studies. 2010. no 4 101 conclusions eu member states participating in emu have given up the possibility of an independent monetary policy. therefore, they have fewer policy options, so they might have incentives to use taxes to achieve competitive advantages, which may intensify tax competition. however, tax burdens in the eu increased on average by almost 50% in the past 35 years, while they did not converge. since capital is much more mobile than labor it can be expected that the tax burden has partly shifted from capital to labor. yet, there is no evidence for a “race to the bottom”. countries have implemented strong policy responses to the crisis. in particular, many countries have taken tax measures as part of broader fiscal stimulus packages. they have however come short of changing tax systems. two issues have attracted some attention. the idea of a transaction tax to prevent speculative bubbles is not recent. for its proponents, such tax would reduce volatility and bring additional tax revenues. a review of the existing theoretical and empirical literature shows however mixed results and does not exclude that such a tax would instead increase volatility. a promising avenue is the development of tax systems that are more neutral with regards to the source of financing as existing systems render debt more tax-attractive, possibly leading to too high levels of leverage. eu decision-making on taxation still requires unanimity making progress in tax harmonization a difficult and cumbersome process. so far, the achievements with regard to tax harmonization in the eu have been most pronounced in the field of indirect taxes, in particular the vat. minimum rates have been set, but no maximum rates. as a result, vat rates differ across eu member states. moreover, vat tax bases differ between member states because of derogations and exemptions. less progress has been achieved with regard to harmonization of excise taxes. harmonization in this field has been very slow and often spontaneous. governments should address substantive issues of tax law that cause distortions, rather than relying on headline corporate tax rates and ‘holidays’ to attract fdi. the system should be kept as simple and homogeneous as possible in order to provide the certainty that business needs. references “economic crisis in europe: causes, consequences and responses” p. 108. european commision, luxemburg, 2009. oecd, 1998, “harmful tax competition – an emerging global issue”, oecd. european union law. seminars, legal information center, vilnius 2006 the role of fiscal instruments in environmental policy http://ec.europa.eu/taxation_customs/resources/ documents/taxation/gen_info/economic_analysis/ tax_papers/taxation_paper_19.pdf daniel j. mitchel. the global tax police: europe’s tax “harmonization” is a smokescreen to raise taxes http://www.capmag.com/article.asp?id=1346 edward cartwright and myrna wooders, the law of demand in tiebout economies http://www.vanderbilt.edu/econ/wparchive/ workpaper/vu05-w27.pdf economic crisis in europe: couse, consequences and responces http://www.britannica.com/ebchecked/ topic/584578/taxation/72010/principles-of-taxation court’s rulings,general eu taxation principles in the area of direct taxation. brussels, 7 june 2006 dieter kischel, taxud e3 http://www.abgsgov.tr/tarama/tarama_files/16/ sc16exp_court%20cases%20direct%20tax.pdf comments on the structure and rates of excise duty applied on cigarettes and other manufactured tobacco. lithuanian free market institute | 05-31-2007 http://ec.europa.eu/taxation_customs/resources/ documents/common/consultations/tax/ tobacco/39lit.pdf tax after financial crisis http://www.accaglobal.com/pubs/about/ public_affairs/unit/parliamentary_briefings/ taxafterthefinancialcrisis.pdf taxation and customs union http://ec.europa.eu/taxation_customs/taxation/vat/ how_vat_works/rates/index_en.htm nerudova danuse. department of accounting and taxation , mendel university brno. http://mibes.teilar.gr/eooks/2008/nerudova%2090109.pdf lessons for tax policy in the great recession http://www.bus.umich.edu/otpr/nta%20crisis%20 talk%20050809.pdf tax competition versus fiscal integration in europe: a european perspective http://facta.junis.ni.ac.rs/eao/eao2004/eao2004-06. pdf the financial crisis and taxation policy http://ec.europa.eu/taxation_customs/resources/ documents/taxation/gen_info/economic_analysis/ tax_papers/taxation_paper_20_en.pdf issn 1822-8402 european integration studies. 2010. no 4 102 global economic crisis http://www.globalenvision.org/tags/globaleconomic-crisis?gclid=cpr5qtmqqaecfrkj3wods rgeeq financial crisis of 2007-2010 theory http://en.wikipedia.org/wiki/financial_crisis_of_ 2007%e2%80%932010 global financial crisis http://www.globalissues.org/article/768/globalfinancial-crisis brussels spending plan http://www.guardian.co.uk/business/2008/nov/27/ europe-union-spending-recession-tax-recovery us tax payers risk http://www.bloomberg.com/apps/news?pid=washin gtonstory&sid=agq2b3xegkok the article has been reviewed. received in april, 2010; accepted in may, 2010. european integration studies 2008.indd 38 issn 1822-8402 european integration studies integration of europe as the field of interest of jean monnet project živil paužait k stutis kriš i nas kaunas university of technology institute of europe abstract following the historical perspectives of european integration it is clear that rising global changes and challenges infl uence european society’s development for evermore. and as one of the aspects of the development the phenomena of integration appears under the basis of values. as the response to society’s development and the process of integration the idea of the unique europe rises in early ages of roman empire, continued in the middle ages and passed several historical stages of various forms of integration till nowadays. the paper analyses the theoretical approach on integration as well as follows the main stages of european integration in the historical point of view highlighting main european values under which basis the integration process lasts. the paper stresses the legal, political, economic and social aspects of integration as the refl ection of european values rising in parallel with the historical movement of european integration. to strengthen the integration process the europe union implements a big variety of instruments. one of the instruments – jean monnet action was launched in 1990’s by european commission under the request of universities. the most important feature of this instrument is that to this action is directly oriented towards the european citizens and european integration studies as well as understanding through teaching, through refl ection and debate, and through the far reaching infl uence of the activities of the european centres of excellence and the jean monnet professors. the paper emphasises the expediency of the action as it is focused towards the same social disciplines refl ecting the legal, political, economic and social aspects of european integration. with reference to this the big correlation stands. after 2001 jean monnet action is open through all over the world. lithuania attends this action through the activity of universities. the paper represents the genesis and types of the activities of jean monnet action as well as the development of this action in lithuania. the specifi c attention was stressed on the case study of jean monnet action in kaunas university of technology institute of europe refl ecting the political, legal, economic and social aspects of european integration. keywords: integration, european integration, european values, jean monnet project. introduction the beginning of european integration goes from early ages of the history of the european continent. this process lasted and was closely related with the civilizations, its development, with great personalities and their ambitions as well as great ideas to make europe as strong and unique. not surprisingly that after the world war ii famous persons of europe renewed this idea with a new power and new vision. jean monnet, regarded by many as a chief architect of europe unity, even until his last days, was fi rm in his conviction that the european nations had to unite in order to survive. “…there is no future for the people of europe other than in union” (mattera, 2002). scientifi c problem: integration of europe is a dynamic though expedient process based on european values and acting in political, legal, economic and social aspects. analysing this process the demand appears to study the theoretical approach on european integration. do the historical movements of european integration bring new values and aims? does the jean 39 issn 1822-8402 european integration studies. 2008. no 2 monnet project appear as the initiative implemented of the european commission to strengthen the european integration as well as its understanding? is the project closely correlated instrument acting under the aspects same as european integration process? goal of the research to analyse the integration of europe as the fi eld of interest of jean monnet project highlighting the correlation between the process of integration and the main goals of the jean monnet action as strengthening instrument of european integration. research objectives: to analyse the main aspects of european • integration; to study the role of political, legal, economic • and social factors in the history of european integration; to analyse the trends of development of • jean monnet action and its correlation with european integration in the context of the global processes. to study the reasons of incorporation of jean • monnet project to integrated programme lll 2007-2013. to study and identify the changes in the • development of jean monnet action in lithuania and kaunas university of technology institute of europe. research methods: a• nalysis of scientifi c literature, documents and reports. case study analysis• as a method for empirical research analyzing the relevance the activity of monnet project in kaunas university of technology institute of europe to the political, legal, economic and social aspects of european integration. political, legal, economic and social factors in the history of european integration there is a risk of seeing the european integration as an isolated process, exclusively centred in the period after world war ii. the beginning of this process and the great transformation, that shaped a reality known as europe, can be noticed even earlier. the roman empire constituted the fi rst great effort to integrate an important section of our continent and the lands surrounding the mediterranean sea. middle ages brought the idea of unifi cation under the common banner of christendom. the ideas of eurocentrism and superiority of the european civilization arose in that moment. without the renaissance and the enlightenment can not be understood the ideas of tolerance, freedom, respect of human rights and democracy that that constitute the foundation of the european construction. the historical evolution of the european continent prior to world war ii and the recent integration process that has been realized in the european union are also very important moments of the process of european integration. there is a long list of towering historical personalities, who, in quite different ways, pursued an idea of europe: charlemagne, charles v, napoleón, metternich and others. the same thing could be said about intellectuals and philosophers. from rousseau to marx, from kant to leibniz, there were remarkable thinkers who proposed the idea of a european community as a long-term desirable political objective. many scientists found european integration as very interesting as well as noteworthy object of scientifi c research. with reference to thomas diez and antje wiener (2003, 2004), who systemized the analyses of understanding of european integration, can be distinguished two ways of explanation of the integration process from the theoretical point of view bringing the defi nition. the fi rst defi nition stands on the interpretation of ernst haas (1958), one of the infl uential integration theorists on neofunctionalism. once took the therefore demanding defi nition, which includes social process (the shifting of loyalties) and political process (negotiation and decision-making about the construction of new political institutions above the participating member states with a direct say in at least a part of the member states’ affairs). not all theorists include both aspects in their defi nition and that’s why it is so important that hass emphasized the social element of integration which appears as one of the most peculiar aspect of european integration model. a less demanding defi nition preferred by intergovernmentalists, coming from a different angle within the spectrum of integration theory, focuses instead on political processes, although this can be stated as “political integration”. in both of the defi nitions above, integration is fi rst and foremost a process: both neofunctionalists and intergovernalists are more concerned with the process of integration than with the political system that integration leads to. however, more lately various authors have focused specifi cally on the shape of what they call a new system of governance emerging in the eu. while they are more concerned with outcome than the process of integration (marks, 1996a, 1996b). however ben rosamond (1997) treats european integration and the emergence of the eu not only as responses of social and political aspects of integration but also of global transformation involving various 40 issn 1822-8402 european integration studies. 2008. no 2 factors. to reference to this the growth of the eu refl ects a considered refl ex to particular sorts of policy dilemma and incentive structures occasioned by changing global conditions. the european integration is intimately connected to the types of challenge posed by the intensifi cation of economic and social life associated with the global integration. resuming the thoughts above on the interpretation of the defi nition of integration can be stated that the dynamism of the process of european integration infl uences the interpretation as well as broadness of the defi nition. with reference to this the understanding the european integration can be achieved also through the retrospective analysis of european integration from the historical point of view highlight most important moments of this process via treaties: the treaty of paris (1951);• the treaties of rome (1957);• the single european act (1986) and the road • towards the treaty of the european union (1992);• the treaty of maastricht (1992);• the treaty of amsterdam (1997);• the treaty of nice (2001);• the treaty of lisbon (2007);• wiener (2002) the development of integration divides into three broad phases from the theoretical point of view: 1960s onwards – explaining integration;• 1980s onwards – analysing governance;• 1990s onwards – constructing the eu.• however following the integration process each of these phases can be characterized by main features refl ecting to those days’ reality and objectives (thomas diez and antje wiener 2004): the fi rst phase represents the development of • political and economic integration of europe towards the prevention of future war; the second phase economic, political and • also integration through law; and third phase mostly highlights the • implication of social factors to integration process. according to the analysis these three main phases, based on offi cial documents as well as treaties, brought to european integration process particularly important changes under which the formation of new values appeared as well as aims and ways how to achieve it (fig.1). on the fi rst phase of integration the political and economic factors of integration appears towards the prevention of future war under the basis of peace as new value and aim. later in the development of integration the second phase has a feature of political stagnate though legal factor of integration appears under the erection of values of democracy, tolerance and freedom. the third phase of integration brings especially important changes in european integration process and makes a big implication to european integration model with the social factor which goes with solidarity, equality and diversity. 1951 the treaty of paris 1957 the treaties of rome 1986 the single european act the road towards 1992 the treaty of the european union 1992 the treaty of maastricht 1997 the treaty of amsterdam 2001 the treaty of nice 2007 the treaty of lisbon peace democracy tolerance freedom solidarity equality diversity economic legal and political social the main factors of europe an integration european values figure 1. the pillars of european integration under the basis of european values and main factors of integration regarding to thoughts mentioned above on european integration from the theoretical as well as historical point of view can be stated that european integrations fi rstly is the process which lasts with several stages of development infl uenced of economic, political, legal and social factors under the basis of new values’ erection. development of jean monnet action as strengthening instrument of european integration european union as an organisation implements various instruments as well as initiatives to strengthen also to deepen the european integration process through various ways. one of the specifi c initiatives of european commission is the jean monnet project undertaken under the request of the universities, whose aim is to facilitate the introduction of european integration studies in universities. the peculiarity of this project is its orientation towards the european citizen. also its specifi c aim is the enhancement of knowledge on european issues through understanding, teaching, through refl ection and debate, and through the far reaching infl uence of the activities of the european centres of excellence and the jean monnet professors. the project targets those social science disciplines in which community developments are an increasingly important part of the subject studied, also refl ects the main factors of european integration i.e.: european community law, • european economic integration, • 41 issn 1822-8402 european integration studies. 2008. no 2 european political integration,• history of the european construction • process. the jean monnet action was launched in the member states of the european union in 1990. the implementation of this initiative was forced of the strengthening of social activity and social affairs in eu and was closely connected with the third phase of european integration where social factor appeared as one of the main in the integration process. the project lasted few stages of enlargement and in 2001 was extended to all candidate countries applying for eu membership and to universities anywhere in the world. in the new member states after the new eu enlargement in 2004 the jean monnet project provided a response to the need for knowledge about european integration and to the call for assistance expressed by universities in these countries to boost their own academic resources. it aimed to prepare the new generation of european affairs specialists with a view to the accession of these countries to the european union. the jean monnet project has following aims supporting and encouraging special activities (fig. 2): stimulating academic excellence in the fi eld • of european integration studies through the support for new teaching, research and debate activities at university level; fostering academic refl ection on current policy • priorities in the fi eld of european integration via centralised high-level conferences and thematic groups (bringing together jean monnet professors, policy-makers and civil society in brussels) and support for decentralised refl ection activities all over the world. supporting major institutions active• in the study of european integration. important role in the guidelines of jean monnet activities play centralised high-level conferences and thematic groups. during these meetings jean monnet professors, policy-makers and civil society in brussels discuss most actual questions of european union in the global context. following the chronological order of these global conferences can be noticed direct links of global as well as european union actualities, (european integration process via treaties), which later appears as main stresses in calls for applications for jean monnet project supporting activities: the fi rst global conference was held almost in parallel of jean monnet action implementation (brussels 27-28 february 1992) and aimed to identify fi elds of common interest for cooperation such as a world wide who’s who in european integration studies; a common newsletter or journal; scientifi c symposia; joint research projects; an up-dated data base,‘euristote’; chairs in european integration studies and networks of researchers, exchanges of scholars. jean monnet action jean mnnet conferences support for teaching activities: grants for young researchers support for ecsa and networks in in the field of european integration support for major institutions support for research activities: support for teaching activities: european modules; permanent courses; jean monnet chair & jean monnet chair “ad personam” jean monnet european centres of excellence. supports the creation of transnational research groups; supports the organization by universities and research centres. figure 2. types of activities of jean monnet actions (k. kriš i nas, ž. paužait , 2006) second (brussels 5 6 may 1994) “federalism, subsidiarity and democracy in the european union” and third “the european union in a changing world” (19-20 september 1996) world conferences were linked to the aims of treaty of european union and the treaty of maastricht signed in the meantime. fourth world conference “the euro, economic, institutional and international aspects” (brussels, 1718 september 1998) was refl ecting the main aspects of the treaty of amsterdam where were stressed freedom, security, justice, civil society, common foreign policy as well as the reform of the eu institutions. fifth world conference „enlarging the european union“ (brussels, 14-15 december 2000) highlighted the institutional reform and legitimacy of the european union, economic and fi nancial capacity to ensure the eu enlargement, perception, diversity and civil society of candidate countries. sixth conference „peace, security and stability – international dialogue and the role of the european union“ (brussels, 5-6 december 2002) refl ected on issues of international dialogue and peace, of which stability and security formed an integral part. both (fi fth and sixth) conferences were linked to amsterdam and nice treaties and its aims. seventh world conference “the european union and emerging world orders: perceptions and strategies” (brussels, 30 november 1 december 2004) took place at an important time for the european union. the eu, faced with numerous challenges on the international political scene, needed to develop and implement an effective common foreign policy. the eu’s role and capacity to act in the face of new emerging world orders were at the heart of the 42 issn 1822-8402 european integration studies. 2008. no 2 conference’s discussions. the issues addressed at the conference were focused on global economic governance and human development, globalisation and the role of international law, as well as the eu as a model for a rule-based world order. eight world conference „europe‘s challenges in a globalised world“ (brussels, 23-24 november 2006) discussed the globalised world and the eu’s model for economic prosperity and social justice, the integration of persons in an international context and the development of a peaceful world order. as such, the global jean monnet conference contributed to the shaping of an international response to globalisation, in areas like economic and social policy, migration and diversity, and international security highlighting the values such as solidarity and cohesion, equal opportunities and non-discrimination, universal access to education and healthcare, and sustainable development. the conference was very linked to treaty of lisbon signed in 2007 and known as treaty of values. summarising the chronological analysis of the thematic of world conferences, based on european integration process and its phases, can be stated that jean monnet conferences touches the most important issues of european union in the global context. also it appears as non formal guidelines for jean monet activities and infl uences its changes as well as brings new stresses and objectives. integration of jean monnet programme in new eu programme for lll 2007-2013 under the decision of the european commission made in march 2004 which adopted a communication “the new generation of community education and training programmes after 2006” (“the earlier communication”), following up the february communication on “policy challenges and budgetary means for the period 2007-2013” was indicated the commission’s intention to propose an integrated lifelong learning programme, incorporating the ensemble of existing internal education and training programmes where jean monnet programme appears as one of the instruments. the general objective of the above mentioned integrated programme rose from the main task of the lisbon strategy. integrated programme aims to contribute through lifelong learning to the development of the community as an advanced knowledge society, with sustainable economic development, more and better jobs and greater social cohesion, while ensuring good protection of the environment for future generations. in particular, programme aims to foster interchange, cooperation and mobility between education and training systems within the community so that they become a world quality reference. the new lifelong learning programme enables individuals at all stages of their lives to pursue stimulating learning opportunities across europe. integrated programme incorporates four sectoral programmes: comenius (on school education), erasmus (higher education), leonardo da vinci (vocational training) and grundtvig (adult education), one transversal programme, and the jean monnet programme (focusing on european integration), hereinafter collectively referred to as ‘the specifi c programmes’ (fi g. 3). integrated programme comenius school education erasmus higher education & advanced training leonardo da vinci initial and continuing vet grundtvig adult education transversal programme 4 key activities – policy development; language learning; ict; dissemination jean monnet programme 3 key activities jean monnet action; european institutions; european associations figure 3. the structure of integrated programme for lll 2007-2013 the jean monnet project, being an important part of integrated programme, today constitutes of a vast network of 1800 professors specialising in european integration studies. more than 250 000 young people benefi t each year from jean monnet teaching activities. almost 900 universities now offer jean monnet teaching programmes within their curricula, resulting in the setting up of over 2900 academic projects in european integration studies during the period 1990-2008. these include 124 jean monnet centres of excellence, which offer a dynamic framework for the promotion of the diverse activities of the jean monnet professors which go beyond the university boundaries, 6761 jean monnet chairs and 1982 permanent courses and european modules. since 2007 the jean monnet programme is a part of the new life long learning programme 2007-2013 and 138 projects from 38 countries have been funded in the fi rst year. development trends of jean monnet action in lithuania just after the announcement of european commission to launch the jean monnet project 2001 for candidate countries lithuania set up its fi rst activity by the jean monnet project. in 2002 ecsa network was launched in lithuania at vilnius university. during the year 2001-2008 there were involved 5 universities of lithuania in the activity of jean monet action: vytautas magnus university, 43 issn 1822-8402 european integration studies. 2008. no 2 vilnius university, university of romeris, kaunas university of technology and lithuanian university of agriculture. in reference to the data of jean monntet action in lithuania the biggest base of this activity is being established in kaunas university of technology institute of europe (ktu ei). during the year of 2002-2008 there were launched all teaching activities of jean monnet action in ktu ei: jean monnet chair, jean monnet courses and modules which were mostly linked to legal, political or economic aspects of european integration, while jean monnet european centre of excellence (jmece) launched in kaunas university of technology institute of europe in 2003 with its activity appears as multidisciplinary action. jean monnet european centre of excellence promoted the partnership of universities, students, teachers, academic and non-academic community in the fi eld of european integration studies. the centre was acting as a connective instrument involving the experts of european integration affairs in academic and not academic level as well as in local, regional and international level and spreading the information and knowledge not only within the university but also for all civil society about the main and topical questions in european studies engaging and inviting people in fl exible, interesting and mutual convenient way. jmece was acting widely within the university arranging academic and practical conferences, arranging meetings with high level experts, great offi cers of the state as well as diplomats, holding continues scientifi c seminars, celebrating the important days of the eu – involving to this activity teachers, researchers and students of kaunas universities. jmece was a partner of international research “network on enlargement and the northern dimension of eu” attending and organizing international conferences and meetings. it is interesting as well as important to highlight that during the period of 2003 and 2008 the activities of jmece were organized including all the main factors of european integration mentioned in the chapter above. the fl exibility of activities was adjusted to the relevant as well as ad hoc topics of european integration in economic, political, legal and social aspects. as the example of the multidisciplinary activity were continues academic seminar analysing the important lithuanian community questions in the fi eld of european integration before the accession and after, studying the cultural, political and economical future of the enlarged eu as well as analysing the perspectives and experiences of the lithuania membership in eu. videoconferences mostly refl ected not only on lithuanian relevant questions in the aspect of the eu but also and important question of the european integration in the global context. jean monnet action in ktu institute of europe through the activity of jmece made the learning opportunities available to various groups of interest. participants attending these activities were able to fi nd each individual learning pathway, suitable to their needs and interests at all stages of their lives in the fi eld european integration. conclusions with reference to the theoretic analysis the • european integration fi rstly is a process (marks, 1996a, 1996b), the process involving political, economic, legal and social factors acting under the basis of the erection of new values. one of the instruments to strengthen as well • as deepen the process of european integration and it understanding is european commission initiative – jean monnet action has been launched in 1990. jean monnet action is exclusive as it is directly • addressed to european citizens and has the specifi c aim to facilitate the introduction of european integration studies in social science disciplines: community law, european economic integration, political and social studies as well as the history of european construction. jean monnet action passed several stages of • development widening it’s spectrum of activities. recently jean monnet action represents the support for seven types of activities: jean monnet conferences; grants for young researchers, support for teaching and research activities, national associations and networks of lectures as well as major institutions. world jean monnet conferences play an important • role forming non offi cial guidelines for the jean monnet activities and its thematic changes under the organisation of actual european integration discussion in the global context. with reference to the lisbon strategic goal • european council identifi es coherent strategies and practical measures with a view to fostering life long learning for all. according to this integrated programme for life long learning 2007-2013 were launched and there jean monnet project appeared as one of the incorporated instruments. since 2001 when lithuania set up its fi rst activity • by the jean monnet project till now fi ve universities of lithuania are involved in jean monnet action renewing themes and applying for new projects 44 issn 1822-8402 european integration studies. 2008. no 2 constantly. the effective platform of the jean monnet activity • in lithuania was established in kaunas university of technology institute of europe. during the year of 2002-2008 there were launched all existing teaching activities of jean monnet action. jean monnet european centre of excellence • (jmece), launched in 2003 at kaunas university of technology institute of europe. it promotes the partnership of universities, students, teachers, academic and non-academic community in the fi eld of european integration studies implementing the wide and versatile activity. jean monnet action at kaunas university of • technology in its activities involve political, economic, legal and social aspects refl ecting to the most actual european integration topics not only in local but also in global context. references: 1st ecsaworld meeting, (1992), brussels 27-28 february. conference review and conclusion. a memorandum on lifelong learning (2000), commission staff working paper. on-line: http:// ec.europa.eu/education/policies/lll/life/memoen. pdf antje wiener and thomas diez (2004); european integration theory. 312 p. isbn13: 978-0-19925248-0isbn10: 0-19-925248-3 diez, thomas and wiener, antje. (2003) “introducing the mosaic of integration theory: its past, present and future” . in european union studies association (eusa) biennial conference 2003 (8th), march 27-29, 2003, pages 27, nashville, tn. education and training. jean monnet action: understanding european integration. on-line: http:// europa.eu.int/comm/education/programmes/ ajm/index_en.html enlarging the european union, (2000), brussels 1415 december. conference review and conclusion. establishing an integrated action programme in the fi eld of lifelong learning (2004), decision of the european parliament and of the council. online:http://www.see-educoop.net/education_in/ pdf/com2004_0474en01.pdf europe ‘s challenges in a globalised world, (2006), brussels 23-24 november. conference review and conclusion. federalism, subsidiarity and democracy in the european union (1994), conference review and conclusion. francois duchene (1994); jean monnet: the first statesman of interdependence. isbn 0-39303497-6 haas, ernst b. (1958), the uniting of europe: political, social and economic forces, 1950 -1957. stanford university press. hansen j. d., kristensen g., vanags a. (2003), the changing focus in european studies: eu, europe, world. eurofaculty. isbn 9984-725-91-x. 140 p. kriš i nas, k., paužait , ž. (2006), eu jean monnet project actions in institute of europe of kaunas university of technology, tiltai, vol i, p. 5-15. issn 1648-3979 marks, g. at. al. (1996b); governance in the european unijon. london: sage. marks, g. lisbet hooghe and kermit blank (1996a). european integration since the 1980s: statecentric versus multi-level governance. journal of gommon market studies 34 (2), 164-192. mattera, a. (2002), de la deuxi me guerre mondiale au „projet europèe„ de jeanmonnet. revue de droit de l‘union europèenne 1, s. 5-35. peace, security and stability: international dialogue and the role of eu, (2002), brussels 5-6 december. conference review and conclusion. postgraduate degrees in european integration, 1996. on-line: http://europa.eu.int/comm/education/ programmes/ajm/3cycle/introduction_en.html report of jean monnet project c03/0106. jean monnet european centre of excellence 2003-2004. report of jean monnet project c03/0106. jean monnet european centre of excellence 2004-2005. report of jean monnet project c03/0106. jean monnet european centre of excellence 2005-2006. report of jean monnet project c03/0106. jean monnet european centre of excellence 2006-2007. rosamond, ben. (1997), globalisation, change and european integration. in european union studies association (eusa), biennial conference, 1997 (5th), may 29-june 1, 1997, p. 24, seattle, wa. the euro, economic, institutional and international aspects, (1998), brussels 17-18 september. conference review and conclusion. 45 issn 1822-8402 european integration studies. 2008. no 2 the european union and emerging world orders: perceptions and strategies, (2004) brussels 30 november 1 december. conference review and conclusion. the european union in a changing world, (1996), brussels 19-20 september. conference review and conclusion. vademecum 2004. support for european integration activities in the fi eld of higher education. online: http://europa.eu.int/comm/education/programmes/ajm/call2004/vdm2004_en.pdf the article has been reviewed. received in march, 2008; accepted in april, 2008. european integration studies 2008.indd 71 issn 1822-8402 european integration studies. 2008. no 2 economics of european union perspectives of lithuania in knowledge-based economy: aspect of national innovation system analysis rasa daug lien kaunas university of technology institute of europe abstract the value and power of knowledge and importance of information is undeniable in the xxi century. m. polanyi (1958) stressed that humanity experience the age of great transformations. processes of knowledge creation, acquisition, dissemination and application create economic value. the result of such transformations could be interpreted as knowledge-based economy (kbe). there was highlighted that kbe is not a branch of economy. it was formed because of the need and determination to create knowledge with a view to achieving economic and social welfare which could be used to satisfy the thirst for knowledge. there was stressed in the article that key policy recommendations concerning kbe creation is to strengthen economic and social fundamentals; facilitate the diffusion of ict; foster innovation; invest in human capital and stimulate entrepreneurship in the country. in order to ensure creation and application of knowledge there should be created stabile and adequate national innovation system (nis). it is presented as a key measure for kbe problem solving. the research problem being solved in this article is: how to assess the penetration of knowledge in the state’s economy in order to present lithuania’s perspectives in kbe. the aim of the article was to highlight the theoretical constitution of kbe as well as nis in order to evaluate lithuania’s perspectives in kbe. seeking to solve scientifi c problem and to reach the aim, the conception of kbe and nis was crystallized in the article. in order to evaluate lithuania’s perspectives in kbe there was made analysis of main criteria from the macroeconomic standpoint; analyzed lithuanian situation from the perspective of global competitiveness index (gci), knowledge-based economy index (kei) as well as summary innovation index (sii). this analysis allowed highlighting the problematic positions concerning kbe expression in lithuania. keywords: knowledge-based economy (kbe); gross competitiveness index (gci); summary innovation index (sii), knowledge-based economy index (kei); innovation; national innovation system (nis). introduction as it was stressed by m. polanyi in 1958 modern humanity experience the age of great transformations. social processes of knowledge creation, acquisition, dissemination and application create economic value. the in features of society and economy of xxi century are concerned with perception of value and power of knowledge and importance of information. this infl uenced interest in r&d as well as in implementation of innovations. vital role was made by information and communication technologies (ict) (especially in the beginning of 80’s when internet was started to use for commercial interests) which stipulate creation and dissemination of new knowledge and its products. the result of such transformations could be interpreted as knowledge-based economy (kbe). there exist scientifi c works where basic conception of kbe is presented (daug lien , 2005; kriš i nas, daug lien , 2006; miller, morris, 1999; stiglitz, 1999; knoght, 1944; hayek, 1945; romer; 1989; drucker, 1989; takeuchi, 1998; nonaka, 2001; lundvall, 1999, etc.). this empowers to understand the evolution of complicated economic phenomenon. however it is important to structuralise all these theoretical statements and propose overall opinion of conception of xxi’st century phenomenon. plenty works of practicians as well as scientists are presented in order to analyse the situation of 72 issn 1822-8402 european integration studies. 2008. no 2 states’ economy development towards economy of knowledge (world bank and oecd documents; balzat, 2005; herstatt et al., 2007; johnson et al., 2003; gera, weir, 2001, etc.). kriš i nas and daug lien (2006) constructed detailed instrument for the assessment of knowledge expression in kbe. it refl ects all characteristics of kbe, though such assessment is complicated and need much of time. methodological principles of short-time and constructive assessments are still missing. lithuania is a country which has potential for development of kbe. despite that it still lagging in creation and implementation of knowledge. one possibility to solve all problems is to create good national innovation system and forecast potential actors who would be responsible for its implementation. considering above mentioned aspects the research problem being solved in this article should be constructed: how to assess the penetration of knowledge in the state’s economy in order to present lithuania’s perspectives in kbe. the object of research is national innovation system as a key measure for kbe problem solving. the aim of the article is to highlight the theoretical constitution of kbe as well as nis in order to evaluate lithuania’s perspectives in kbe. to achieve this aim fi ve tasks are to be solved: systemise the conception of knowledge-based • economy. generalize methodology for short-term • analysis of kbe expression. highlight the basic threats of kbe expression • in lithuania. highlight national innovation system as a • key measure for kbe development problem solving. systemise perspectives of lithuania in kbe.• as the research method it was taken theoretical analysis of the scientifi c works and practical papers in this fi eld. analysis of statistical data was applied as well. scientifi c originality and practical signifi cance of the article is: proposed overall conception of knowledge-• based economy. highlighted interlacement of kbe and indexes • of assessment of knowledge expression. analysing evolvent of gci, kei and sii • presented analysis of kbe expression in lithuania as well as perspectives of lithuania in kbe. highlighted the main components of national • innovation system (nis) and structuralised governmental functions organising nis. crystallization of knowledge-based economy conception modern management theories emphasize increasingly growing expression of knowledge in development processes. the effect of knowledge on cultural, social and economic development processes has been under consideration throughout all periods of human existence. the fi rst attempts of investment into intellectual capital (miller, morris, 1999), however, were noticed only in the 19 century, and the processes of knowledge creation as well as its application in the management of organizations was launched only in the beginning of the 19th c. according to stiglitz (1999) the scientifi c revolution promoted the changes in the fi eld of innovations as well as headlighted the importance of their infl uence on management processes. p.drucker, m.porter, j.naisbitt, p.senge et al., as “guru” in management science, also stress the emergence of inevitability of new theories in management and economics which is related to the increased importance of intellectual capital when competitive advantage can be achieved only by creating and applying new knowledge. r.gibson (1998) encourages theoreticians and practicians to assess the challenges of knowledgebased economy, i.e. to discard the old management models, old paradigms, rules, strategies, recipies for success, etc. this is proved by the fact that knowledge expression in management processes of enterprises started to be studied scientifi cally about the year 1989 (p.drucker’s concept “knowledge workers” (daug lien , 2007 a, b.), and the assessment of the effect of knowledge on the activity of organizations in micro-level was started in about 1994 (skandia navigator). knowledge expression for global development processes, however, was started to be analyzed in scientifi c works much earlier, in terms of transformation of economic theories. the fi rst scientifi c considerations about the effect of intangible factor on development processes were started as far back as 1944 in f.knight’s works. only when the effect of knowledge on the development processes found its place in the economic theories, the effect of their creation and application was started to be analyzed in the (micro) level of the enterprise. in the course of history the elements analyzed in economic theories and the attitude to the factors stimulating development was changing. the classical economic theory based on resources was transformed into the new development theory (romer, 1989) which explains the emergence of evolution economics and the importance of developing innovations, technologies and application of knowledge. it became clear that due to globalization processes, 73 issn 1822-8402 european integration studies. 2008. no 2 the economic growth in the world is stimulated by new factors: information, knowledge, technologies and innovations. the growth of industries of information and communication technologies (ict) demonstrates distinct orientation to information and knowledge, rather than material resources. as early as 1945 f.a.hayek, american economist, called this phenomenon of transformations as the age of knowledge and claimed that the prevailing processes of this age stipulate the formation of new scientifi c viewpoint to the driving forces of development. f.bacon’s work “the advancement of learning” (1906) contains the conception of useful knowledge which stresses that only useful knowledge should be created and developed which, with a view to contemporary management, may be treated as productive. according to bierly, kessler, cristense (2000), boisot (1998), kogut, zander (1992), lundvall (1999), maxwell (1984), miller, morris (1999), nonaka, konno, toyama (2001), rhea, teasdale (2000), in the creation of productive knowledge four essential elements of knowledge system are involved: data, information, knowledge and wisdom which semantically and hierarchically are different. different interpretation of their conception determine the contents of new paradigms of knowledge-based economy (e.g. “information society”, “knowledge society”, “digital economy”, “new economy” or “knowledge-based economy”). the latter – knowledge-based economy – is a result of economic development due to knowledge creation and application as well as globalization of the end of the 20th century (castels, 2000), the result which, through the expansion of markets and elimination of geographical isolation, changes not only economic cooperation, but also the mindset of societies (kriš i nas, daug lien , 2006) and management principles. scientifi c literature contains ideas that knowledge-based economy is, in the fi rst place, stable market economy characterized by all typical features, its one of the major driving forces being knowledge and it. as m. polanyi (1956; 1983; 1994), who devoted much attention to the analysis of development of the conception of knowledge and its infl uence on the development processes, points out that humanity is currently going through the period of dramatic transformations when the social processes of knowledge creation, acquisition, propagation and application form economic value and the result is referred to as knowledge-based economy. ict helps to develop social relations independent of time and space. the abilities of the individuals, their competence, relations and cultural identity are the essential instruments facilitating survival in the new world (rodrigues, 2002). knowledge-based economy was formed because of several important reasons. firstly, because of the need and determination to create knowledge with a view to achieving economic and social welfare which could be used to satisfy thirst for knowledge. also, because of the wish to achieve competitive advantage, thus providing necessary stable economic conditions revealed through the pursuance of effective national policy and maintenance of stable fi scal system as well as effectively functioning market. the latter conditions form the preconditions for the development of policy of innovations, creation and application of communication technologies as well as the development of human resources and innovative business. such processes can be observed only in the case if favourable conditions for creating and application of knowledge are provided. therefore, to assess the extent of knowledge expression, the expression characteristics of knowledge-based economy referred to as knowledge expression characteristics should be used. the growth of knowledge expression in development processes is claimed as being stipulated not only by changing social values and the rise of thirst for knowledge, but also by the variations in management and economic factors. this determined the occurrence of new economic paradigms which focus on the analysis of changes induced by knowledge development and application processes. the rise of knowledge expression was observed during the transitional period from industrial (1830 – the early 20th c.) to postmodernistic (late 20th c.) society when during the effi ciency revolution new knowledge was utilized for the improvement of products (taylor and ford, 1896). industrial revolution was a determinant in classifying knowledge as a tool, a process and a product, and the revolution in modern management (from 1989) ascribed knowledge to the essential factor which creates economic value. in analyzing the works by drucker (1998), porter (1998), prusak (1996), gera et al. (1998), skyrme d.j. (1997), houghton, sheehon (2000), lamberton, neitze (1999), oecd (2001), gera, weir (2001) it is possible to stress that knowledge-based economy is not a new economic paradigm which came into existance alongside with classical economy. rather, it is a continuation of classical economic evolution, when material and immaterial advantage was obtained exceptionally by creating new knowledge and applying it in every stage of management. many researchers identify the same economic processes by different concepts. analysing the works of many scientists (badaracco, 1991; boisot, 1998; burton-jones, 1999; castells, 2000; kogut, zander, 1992; kriš i nas, 2002; krogh, roos, 1996; langlois, 74 issn 1822-8402 european integration studies. 2008. no 2 2001; lundvall, 1999; maturana, varela, 1984; myers, 1996; miller, morris, 1999; romer, 1986; 1990; rugina, 1998; smyre, 2002; soete, 2002; kelly, 1997; quah, 1998; atkinson, court, 2002; 1998; dahlman, 2003; foray, lundvall, 2002; hapworth, spencer, 2003; gera, weir, 2001; gudauskas, koddertizsch, 2002; landefeld, fraumeni, 2000; trewin, 2002) it is important to highlight that knowledge expression in knowledge-based economy manifests itself through six hypothetical knowledge expression characteristics: development and application of new knowledge, human resources, innovations policies, innovative business, ict potential and utilization, effective governmental policy of the state and effi cient market with a stable fi scal system. as the conclusion of analysed above there could be stressed that kbe it is not a branch of economy. this is economy that makes effective use of knowledge for its economic and social development. this includes tapping foreign knowledge as well as adapting and creating knowledge for its specifi c needs (dahlman, 2003). kbe – it is economy friendly for knowledge acquisition, creation, dissemination and usage (daug lien , 2006). this processes could be seen analysing economic and social context of the state; situation of human resources; entrepreneurship, ict usage and innovation policy. methodology for the short-term analysis of knowledge-based economy expression normally, in seeking to determine the extent of effect of any phenomenon and development trends, assessment models are used. in order to forecast the perspectives of lithuania in kbe there could be applied instrument for the knowledge expression assessment presented by kriš i nas and daug lien in 2006. despite of particularity of suggested model there were selected other possible appellative criteria for assessment of states’ economy condition. these are: group of • macroeconomic criteria (gdp level; level of employment and unemployment, infl ation). this was selected in order to examine the tendencies of states economy growth. the main analysed criteria was fl uctuation of gdp. gross competitiveness index• (gci) and its’ evolvent presented and calculated by world economy forum. knowledge-based economy index (kbei) • and its’ evolvent presented by world bank. summary innovation index (sii) • and its’ evolvent presented by innobarometer. possible interlacement of knowledge-based economy and enumerated indexes could be explained using modelling (fig. 1). knowledge-based economy index (kei, world bank) knowledge-based economy economic regime and state management policy innovation policy innovative business ict production and usage macroeconomic criteria summary innovation index (sii) + additional criteria = gross competitiveness index (gci) fig. 1. interlacement of kbe and indexes of assessment of knowledge expression gross competiveness index (world economic forum, 2007) – a highly comprehensive index for measuring national competitiveness, taking into account the microeconomic and macroeconomic foundations of national competitiveness. it is important to stress that gci refl ects the level of knowledge penetration in state’s economy. especially through pillar which are concerned with a level of individuals education and innovations. experts of world economic forum defi ne competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. the gci captures many different componets, each of which refl ects one aspect of the complex reality. all componets are grouped in 12 different pillars called the 12 pillars of competitiveness. these pillars are: institutions – the institutional environment • forms the framework within which private individuals, fi rms, and governments interact to generate income and wealth in the economy. infrastructure – the existence of high-quality • infrastructure (effective modes of transport 75 issn 1822-8402 european integration studies. 2008. no 2 for goods, people, and services – such as roads, railroads, ports and air transport)is critical for ensuring the effi cient functioning of the economy, as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in an economy. high-quality infrastructure reduces the effect of distance between regions, with the result of truly integrating the national market and connecting it to markets in other countries and regions. macroeconomy – the stability of the • macroeconomic environment (infl ation rate, public fi nances, interest payments, gdp) is important for business and for the overall competitiveness of a country. health and primary education – a • healthy workforce is vital to a country’s competitiveness and productivity. in addition to health, this pillar takes into account the quantity and quality of basic education received by population. higher education and training – quality higher • education and training is crucial for economies that want to move up the value chain beyond simple production processes and products. this pillar measures secondary and tertiary enrolment rates as well as the quality of education as assessed by the business community. goods market effi ciency – countries with • effi cient goods markets are positioned to produce the right mix of products and services given supply-and-demand conditions, and such markets also ensure that these goods can be most effectively traded in the economy. labor market effi ciency – the effi ciency and • fl exibility of the labor market are critical for ensuring that workers are allocated to their most effi cient use in the economy. financial market sophistication – an effi cient • fi nancial sector is needed to allocate the resources saved by nations’s citizens to its most productive use. technological readiness – this pillar • measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries (ict access and usage, ict – friendly regulatory framework, ict penetration rates). market size – the size of the market affects • productivity because large markets allow fi rms to exploit economies of scale.international trade as a substitute for domestic demand in determining the sizeof the market for the fi rms of a country. business sophistication – business • sophistication is conductive to higher effi ciency in the production of goods and services. business sophistication concerns the quality of country’s overall business networks, as well as the quality of individual fi rms’s operations and strategies. innovation – technological innovation. they • are particularly important for economies as they approach the frontiers of knowledge and the possibility of integrating and adapting exogenous technologies tend to disappear. presented pillars are classifi ed into three groups: basic requirements – key for factor – driven economies; effi ciency enhancers – key for effi ciency – driven economies; innovation and sophistication factors – key for innovation – driven economies. knowledge-based economy index (kei) (kam, world bank, 2008) takes into account whether the environment is conducive for knowledge to be used effectively for economic development. it is an aggregate index that represents the overall level of development of a country or region towards the knowledge economy. the kei is calculated based on the average of the normalized performance scores of a country or region on all 4 pillars related to the knowledge economy overall performance of the economy, economic incentive and institutional regime, education and human resources, the innovation system and ict: overall performance of the economy (average • annual gross domestic product (gdp) growth; human development index (hdi); the economic incentive and institutional • regime (tariff & nontariff barriers; regulatory quality; rule of law); education and human resources (adult • literacy rate, secondary enrolment, tertiary enrolment); the innovation system (researchers in • r&d, patent applications granted by the us patent and trademark offi ce, scientifi c and technical journal articles); information and communication technology • (ict) (telephones per 1,000 people; computers per 1,000 people; internet users per 1,000 people) summary innovation index (sii) (european innovation scoreboard, 2005) the innovation indicators are assigned to fi ve categories and grouped in two main themes: inputs and outputs: innovation inputs – innovation drivers • (measure the structural conditions required for innovation potential); knowledge creation (measure the investments in r d activities, 76 issn 1822-8402 european integration studies. 2008. no 2 considered as key elements for a successful kbe); innovation & entrepreneurship (measure the efforts towards innovation at the level of fi rms). innovation outputs – application (measure • the performance, expressed in terms of labour and business activities, and their value added in innovative sectors); intellectual property (measure the achieved results in terms of successful know-how). summary innovation index as well as gci and kei are expressed as one number index. this allows keeping the methodology as simple as possible, with equal weighting applied to all indicators. using mentioned indexes it is possible to compare all countries as well as to highlight in which fi eld (knowledge creation, application or dissemination) country is leading or lagging. analysis of knowledge-based economy expression in lithuania the basic idea of this analysis is positivism. it is important to stress areas in which lithuania is leading and where there are some gaps. supposedly analysis will help to propose ways how it is possible to solve highlighted problems and develop areas where lithuanians can be proud about. analysing growth tendencies of gdp in period of 1990 – 2007 positivistic tendencies could be emphasized. the growth of gdp in mentioned period was obvious and rapid. according to lihuanian department of statistics there was calculated 10000 mln. lt. in 1993 as in 2007 this amount grew up to 95000 mln. lt. these tendencies allow making the conclusion that lithuania has the potential for economic stability and growing in the future (despite other problems which raised in the end of 2007. it is big infl ation). world economy forum (2008) highlighted similar situation about lithuanian macroeconomic stability. there was stressed that according basic requirements criteria group macroeconomic stability is quite in positive position (fig. 2). the leading countries considering competitiveness in the world are usa (1st position), then switzerland, denmark, sweden, germany, finland, singapore, japan, united kingdom, netherlands, etc. lithuania is in 38th position from total 122 world countries. as it is stressed in fig. 2, the best situation in lithuania is with effi ciency enhancers. especially highlighting higher education and training as well as technological readiness. the lagging area concerned with innovation factors. as it was emphasized in european trend chart on innovation (2005) lithuanians are those who use and apply innovations instead of new creation and then application. the most problematic factors for doing business in lithuania according world economy forum are tax rates, tax regulations, ineffi cient government bureaucracy, corruption, restrictive labour regulations, inadequately educated workforce, etc. (fig. 3). strengths weaknesses efficiency enhancers (41) higher education and training (25) goods market efficiency (44) labour market efficiency (44) financial market sophistication (54) technological readiness (38) market size (67) basic requirements (43) vieta) institutions (58) infrastructure (48) macroeconomic stability (38) health and primary education (43) innovation factors (44) business sophistication (42) innovation (48) fig. 2. evolvent of gross competitiveness index (lithuania, 2007 – 2008) 16,2 14,5 13,5 11,6 10,8 9,2 5,2 4,5 4 3,3 2,7 2,3 1,6 0,2 0 2 4 6 8 10 12 14 16 18 tax rates tax regulations inef f icient government bureuacracy corruption restrictive labour regulations inadequetely educated w orkf orce access to f inancing policy instability inadequate supply of inf rastructure poor w ork ethic in national labour f orce inf lation governement instability crime foreign currency regulations fig. 3. the most problematic factors for business in lithuania world bank presenting knowledge assessment methodology every year calculate knowledge economy index which was called as kbei. leading countries here are finland and denmark. lithuania represents 31st position among 137 world countries where leading position is in human resources as well as in ict infrastructure. lagging area as it was stressed above is creation and implementation of innovations. however there could be emphasized that lithuania rose by 12 positions in comparison with 2006. that could be interpreted as positive development and going further. analysis of evolvent of lithuanian sii presents adequate situation (fig. 4). 77 issn 1822-8402 european integration studies. 2008. no 2 fig. 4. evolvent of lithuanian summary innovation index (according innobarometer, 2005) lithuania ranks 24th place out of 33 world countries (european innovation scoreboard, 2005). its peer countries for performance include spain and slovakia. its average performance masks large differences by category. it performs slightly above the eu average for innovation drivers, due to good performance on all education indicators except for lifelong learning, and it has relative strengths in innovation and entrepreneurship, where it ranks 16th. lithuania suffers from extremely low levels of business r&d, which is partly compensated by excessive levels of university r&d funded by business. performance on patenting is near the bottom, but as with other new member states intellectual property rights is linked to knowledge creation, where lithuania’s performance is below average. despite presented statements trend results are generally favourable, except for ict investment and employment in high tech service (european innovation scoreboard, 2005). lithuania has an above average performance on innovation demand even with per capita incomes less than half the eu average. the good performance is due to high levels of capital investment, an above average youth share, near average buyer sophistication, and a below average share of fi rms who state that a lack of demand is a barrier to innovation. national innovation system as a key measure for knowledge-based economy development problem solving in the above presented chapters there were highlighted kbe areas where lithuania is lagging, all analysed indexes allowed to make the same picture – lithuania mostly is lagging in innovation policy creation and implementation. considering that the main steps could be presented how to solve mentioned problems. these are: enhance the consciousness of individuals • about innovations. construct clear and transparent institutional • infrastructure as well as stimulate partnership of government, academic society and business (triple – helix). form adequate state’s innovation policy.• pay attention to the implementation of • innovation strategy. all enumerated steps directly concern with formulation of national innovation system (nis). theoretical construction of nis is presented in figure 5 (according to roos, ferstrom and gupta, 2005). international links & infrastructure r&d business links; recruit & retain companies; imports / exports & infrastructure government policy, funding and procurement institutions education and r&d funding bodies; science, technology & innovation policy advisory bodies; standards, regulations & contract legal system; fiscal & tax policy; trade/tariff & procurement policies; decision making processes public goods health&medical environment; arts&culture; defence: space linkages technology transfer; cooperative research incubators; technology diffusion; innovation awareness; conferences clusters cluster networks; large corporations; sme’s; emerging exporters; innovative companies; r&d performing firms; start-ups /spin-offs; industry bodies; advisor services; investors / creditors people & culture education levels; innovative/creative; risk tolerance; entrepreneurship attitudes to s&t public & non-profit r&d financing resources education system teaching; higher degrees; tertiary; primary & secondary; workforce qualification intellectual property patents, etc. risk finance retained earnings; dept equity grants rewards/ incentives tax rates; grants, ect. fig. 5. theoretical constitution of national innovation system (adapted according to roos, fernstrom and gupta, 2005) actually lithuania does not have transparent and good working nis. it could be stress that lithuanian nis is mostly orientated to the positions of institutions which could be responsible for the implementation of innovation policy. there are missing concrete procedures and rules how make innovations “live” creating new products or services. 78 issn 1822-8402 european integration studies. 2008. no 2 in order to shape character and results of nis essential steps should be implemented (roos, fernstrom, gupts, 2005; balzat, et. al., 2005): identify region – specifi c advantages, paying • close attention to existing networks, fi rms, clusters and supply chains; identify complementarities, scrutinizing the • region’s assets in capabilities, infrastructure, upstream and downstream resources and skill; identify what is missing;• use incentives, networking support and • regulation. here the main function should be done by government. its liability is to ensure the functioning of triple – helix. the functions of government (according to paterson, adam and mullin, 2003) which is responsible for the construction and implementation of nis are systemised in fig. 6. central / exclusive shared liability of government liability of triple helix members policy formulation specialised advisory functions regulatory policy-making stimulation of national s&t and innovation international relations financing of innovation related activities performance of r&d and innovations creation of knowledge flows hr development ict provision political decision-making legislative function executive function funding, creation, application and dissemination fig. 6. system of functions of government organising nis all functions of government which should be implemented could be systemised into two basic groups. it is central or exclusive functions which are exclusive liability of government and directly are concerned with political decision-making as well as legislative function. and the second group of functions could be named as shared functions where responsible partners are members of triple-helix. these functions involve execution of legal acts, funding, creation, application and dissemination of innovation products or services. perspectives of lithuania in knowledgebased economy taking into account presented analysis perspectives of lithuania in kbe are positive. innobarometer (2005) presented lithuanian innovation mode. there was stressed that lithuania’s r&d initiatives mostly are orientated to adaptation of already created products / services not for creation of new. innovations are not strategic object of business sector and that should be changed. despite mentioned the tendencies of adaptation of innovations are common for many of eu countries. essential threats of lithuanian national innovation system are: linear funding model which is strongly • bureaucratically controlled; shortage of horizontal interplay between • governmental sectors which directly use r&d; missing of precise r&d funding mechanism;• closeness of institutions of governmental • sector. however positive fi rst steps are made already. the main initiatives towards innovation development in lithuania are: creation of national innovation platforms as • well as clusters; studies of economy development;• complex programmes;• valleys’ of knowledge economy;• other initiatives.• the main challenge for lithuania is whether or not to strongly encourage innovation diffusion or to encourage both creative innovation and innovation diffusion. several indicators are positive, including close to average levels of ict investment and total innovation expenditures, and above average performance on several education indicators. the greatest current weaknesses are in cooperation by smes and in broadband penetration rates as well as in intellectual property and risk capital area. any way, lithuania has quite high demand for innovations (innobarometer, 2005: 58 % of population is friendly for innovations) and great human beings potential for innovation creation and dissemination. as it was stressed in the works of herstatt, tiwari and buse (2008) as well as in working paper of johson, edquist and lundvall (2003), fi rst of all there is a need to change attitudes of society to the modifi cation of innovations. conclusions a new approach was suggested that knowledge-• based economy is the result of economic development based on knowledge management as a harmonized system of legal and economic prerequisites and managerial as well as economic mechanisms, modern technologies and human resources, the system resulting from development 79 issn 1822-8402 european integration studies. 2008. no 2 of market economy and different technologies, in particular, information technologies. knowledge expression in kbe manifests itself through six knowledge expression characteristics: human resources, innovation policy, innovative business, ict potential and usage, effective governmental policy of the state and effi cient market with a stable fi scal system. it was stressed that in order to assess the expression • of knowledge in economy or penetration level of kbe in short-term period, there could be used macroeconomic criteria, gross competitiveness index (gci); knowledge-based economy index (kei) and summary innovation index (sii). theoretical analysis allowed highlighting interlacement of kbe and indexes of assessment of knowledge expression. analysis of indexes values enabled to highlight • areas in which lithuania is leading and lagging. all of indexes proved the same: that the most lagging area of lithuania is innovation policy as well as we are the leaders considering human resources and quite positively developing in usage of ict. national innovation system was presented as key • measure for kbe development problem solving. the vital role in creation and implementation of nis was assigned to government. before construction of nis each government should identify region, complementarities, what is missing as well as to use incentives. composition and regulation of nis fi rst of all is liability of government. then other actors of state should be involves (business and academic society). role of members of triple helix is essential. perspectives of lithuania in kbe are positive. • there are enough potential (human recourses). the weakest area is in missing of real actions and measures considering implementation of ideas of nis. references daug lien , r. the peculiarities of knowledge workers migration in europe and the world // engineering economics = inžinerin ekonomika / kaunas university of technology. issn 13922785. kaunas. – 2007 (a), no 3(53), p. 57-64. url: http://www.ktu.lt/lt/mokslas/zurnalai/ inzeko/53/1392-2758-2007-3-53-57.pdf daug lien , r. the position of knowledge workers in knowledgebased economy: migration aspect // european integration studies : research and topicalities / kaunas university of technology. issn 1822-8402. kaunas. – 2007 (b), no 1, p. 103-112 issn 1822-8402 daug lien r. tendencies and prognoses for knowledge-based economy development in the european union // legal, political and economical initiatives towards europe of knowledge (ed. k. kriš i nas). proceedings of international conference. ktu, 2006. p. 24-35. isbn 9955-25077-1 european innovation scoreboard, 2005. european trend chart on innovation. on-line paper: http:// 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(1996) the use of knowledge in society // myers, p. s. (ed.) knowledge management and organizational design. butterworth-heinemann. p. 7-15 – isbn 0-7506-9749-0 krogh g. v., ichijo k., nonaka i. (2001) bringing care into knowledge development of business organizations // knowledge emergence: socia; technical and evolutionary dimensions of knowledge creation (ed. nonaka i., nishiguchi). oxford university press,m inc., 2001. p. 30-52. isbn 0-19-513063-4 nonaka i., takeuchi h. (1995) knowledge creating company. oxford univ pr isbn: 0195092694. p. 284 polanyi m. (1958) personal knowledge towards a post-critical philosophy (1958). routledge&kegan paul, london. isbn 0-22667288-3 (paperback) romer, p.m. (1990) endogenous technological change. journal of political economy ’98. p. 71102 zander u., kogut b. (1995) “knowledge and the speed of transfer and imitation of organizational capabilities: an empirical test”. paper online: http://www.stanford.edu/~mmorten/orgweb/ summaries/mse/content/zander+kogut.html the article has been reviewed. received in march, 2008; accepted in april, 2008. microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 legal component in problematic structure of programmes of scientific-technical economic progress antanas keras valerijus keras mykolas romeris university abstract formation of information society, rapid development of science and technologies predetermines considerable changes in society, both negative and positive. the changes give way not only to new possibilities but also to dangers. science and new technologies (including aspects of creation of information society) are created and implemented by executing programmes of scientific technical economic progress. however, implementation of scientific technical economic programmes precondition not only crucially important results for society but also stipulates activity of certain criminal tendencies, for example, frequency of computer crimes rose due to widely accessible internet. issues of computer crimes are solved considerably efficiently in lithuania nowadays, though they were treated inadequately at the initial stage of internet development. disintegrated approach towards the mentioned problematic issues can be cited as one of the major reasons conditioning such situation. the authors of the article argue that, scientific technical programmes, usually, lack important legal components in themselves, that should be reckoned with due respect. the articles aims to reason the importance of legal component in scientific technical programmes and innovations meant for mass usage. the following innovative cases and facts were analyzed in order to implement the objective of the article: • disintegration of approaches towards programmes of scientific technical progress; • usual disturbances of computerization and automatization (negative impacts) regarding society’s criminality; • possible rise of level of disturbances of computerization and automatization (negative impacts) in society in the context of globalization; • preferable prevention means for disturbances (negative impact). keywords: technics, science, progress, programs, law, structure, globalization, crime. introduction as it is noted in the lisbon strategy, globalization and the challenges of the knowledge economy require a radical transformation in the european economy. the eu has to realize these changes taking into consideration the society values, development conceptions as well as the envisaged eu enlargement. with a rapid and continuously speeding up pace it is vital for the eu to act in such a way as to better use the occurred favourable circumstances and to make a bigger profit. it is also essential to overcome the emergent threats that are always present in the implementation of new technologies. the eu enlargement has already occurred, a great deal of all the substantial tasks raised in the lisbon strategy have been settled; however, some of them remain unsettled. nevertheless, the most important thing is that the key priority work directions including information society development have been chosen in a right way and, undoubtedly, have been justified. there has been done pretty much in that direction and successfully is carrying on. in order to implement objectives of the lisbon strategy scientific technical programmes and diverse projects mainly focusing on the settlement of technical, technological, economic, financial, sometimes, social tasks are being prepared. however, quite often some relevant legal issues are not sufficiently touched upon. in our opinion, the latter should be paid considerably bigger attention to. it should be emphasized that in the majority of the substantial documents designed for the 15 issn 1822-8402 european integration studies. 2007. no 1 information society development, especially in lithuania, and partly in the common eu documents, it is analysed mainly what possibilities provide the information society development and the implementation of the new technologies. however, generally, there is not paid a sufficient attention to potential threats that can be raised and often are raised by the implementation of new technologies. there is no doubt such threats will definitely emerge. norbert wiener has sharply referred to them in his book [1]: “pretty before nagasaki and before the society became aware of the existence of the atomic bomb, it struck me that we were standing in front of the other social power hiding the possibilities of good and evil. factory machines, assembly-lines without workers will appear so quickly provided we make our minds up to make as much efforts to create them as we made, for example, in creating radiolocational technique in the course of the world war ii”. it is evident, today some of these issues have been already tackled. not only do mechanisms operated by the automatized systems replace little qualified (and even highly qualified) mechanical work, but they also more and more take over human work functions, make it more effective. the factoriesmachines introduced some time ago operate in addition to automatized designing systems. this raises some new and simultaneously the same problems – the implementation of the automatization, computerized systems leads to some alterations in the labour market, some problems connected with unemployment occur from new dimension, problems connected with criminality of new types occur as well. partly, some occurred problems are dealt with as follows: for example, at the moment ‘lifelong learning’ is being advocated; mastering of some novel professions involving the ones associated with the newest information technologies; gradual implementation of pupils’ universal computer literacy; pursuing computer literacy to the broader population. respective measures to fight criminality, which, besides is caused by the implementation of the new information technologies are envisaged in substantial information society development documents. the task entitled “creation of a cyber security task force” together with the other key tasks is envisaged in the european commission’s action plan “eeurope 2005: an information society for all” [2]. nevertheless, it is more typical of well-prepared eu documents. meanwhile, comparing with the eu recently acceded countries, for example, let us take lithuania, there is still no integrated approach towards the new strategies being developed, scientific technical programmes and many other projects. in particular it involves some relevant legal issues that, in our opinion, should be paid much more attention to. the articles aims to reason the importance of legal component in scientific technical programmes and innovations meant for mass usage. lack of approaches towards the complexity of the scientific technical programmes (legal perspective) evaluating activation preconditions of the criminal trends and factors as the outcome of the implementation of the scientific technical programmes, certain inertia of the legal thought should be emphasized. it is a contradictory factor. on the one hand, quite often decisions are made in a hurry, legislation appears to be unsettled, and sometimes even flawy. on the other hand, some delayed decisions lead to the unacceptable phenomena that are “flourishing” and inveterating. in order to properly adjust some unacceptable trends in the society as well as some flawy relationship among social groups, more allocation, efforts, time and other input need to be alloted. one more circumstance should be taken into account. employees of the law and order in addition to law enforcement systems may not be interested in the measures against little-known crimes. the recognition of a new crime form, description by means of legislation may impair, for instance, the indicators of the law enforcement activity (quantitative jump in the number of criminal acts will occur). such partially conservative attitude towards the prognosis of the potential new criminality forms and legal evaluation causes various problems. particularly, all this is typical within the rapid societal progress. an attention is drawn to one of the most mobile directions of such progress – scientific technical progress. the objectives of the scientific and technical progress have been concentrated on the material industrial needs for a pretty long period of time. one of the visual inscriptions of such conception is as follows [3]: s t p t t t ∂ ∂ ∂ > > ∂ ∂ ∂ here s – science, t – technical progress, p – production, t – time. under the market conditions as well as under circumstances when a miscellaneous priority is given to the economic factors such attitude may be acceptable [4]. however, it does not cover significant spheres of social life in the society [5,6]. legal regulation of the relationship between the social groups and layers participating in the process of the scientific technical progress may be emphasized 16 among those spheres. consequently, such attitude is not complex. a perfunctory attitude towards the planning, coordination and cooperation of investigations is emerging in lithuania. such attitude may be considered flawy from many viewpoints [7], in particular from legal viewpoint [8]. first of all, it would be relevant to check whether the functioning system of legal acts will be able to properly regulate: • the compatibility of the new technique measures and new production forms with societal interests (collectively) and with public interest (separately); • the compatibility by the new measures and means generated production with environmental protection, consumer health, person rights protection (moral perspective) and other interests [9, 10]. law and order will not stop technical progress even when it threatens to breach the attitude towards the angular legal principles. it seems that as an example can be organ transplantation, animal and human cloning and other achievements. having joined the innovative dynamic sally of the scientific technical progress, law and order as well as law enforcement may prophylactically reduce negative outcomes spontaneously brought into the society life by the uncontrolled implementation for the mass use of the evolutionary progress. let us analyse how legal issues related with innovation development are reflected in the lithuanian important documents. knowledge society appears to be among long-term priorities in the longterm development strategy of the lithuanian state [11]. essential development directions of the knowledge society are discussed in the strategy. however, legal issues of this societal development have not been touched upon. “lithuanian science and technology white paper” [12] prepared and published by the lithuanian scientists turns out to be a fundamental work. the book aims at defining the long-term science and technology development strategy. thus, the work has analysed strategic matters in detail; nevertheless, legal issues have only been briefly mentioned. the development directions of information society, priorities and the key works were analysed and regulated in detail in the lithuanian information society development strategy [13]. however, the establishment of legal basis and legal issues were not examined. it may be concluded, that legal issues related with innovation development are reflected in these documents insufficiently and such attitude is not complex. the national implementation programme of the lisbon startegy [14] does not directly deal with the establishment of the legal basis but big attention is paid to the employment encouragement and investment in human potential. the key objectives of employment policy are as follows: to attract and retain more people in the labour market by assuring qualitative and safe employment, modernising the systems of labour market and social security; to improve the employees’ and companies’ skills to adapt; to reduce structural unemployment, to invest more into people. dealing with these issues timely may help to solve those probelms that arise due to the computerization and automatization and that were emphasised by norbert wiener. typical disturbances of computerization and automatization in the society life from the criminogenic perspective recently a more complex, broader than g. dobrov’s [3] written attitude towards the investigation problematicality has become more topical. analogically, some time ago comparative scientific investigation began to penetrate into the positions necessary for forming of the complex attitude. eventually, comparative science investigation may become one of the most important elements of such methodology. a great deal of objective and subjective factors will make an impact on it. in the nearest past the unification needs and tendencies of algorithms were among those that were presented in the most intensive way. later on – the needs of the structurised development of information technologies and computer programmes. they were connected with the disturbances of information systems development. among those disturbances, disturbances caused by programmers’ spontaneous activity and their insufficiently compatible results should be mentioned [4]. the programme compatibility was missing. it is significant that the signs of such manifestation limit any system’s including mechanical, social, information functioning and development possibilities and its effectiveness. it reduces its reliability, increases vulnerability, breaking fears. it should be emphasized that a complex attitude towards concrete problematicality and common problematical area plays a significant role in settling the tasks of research management. a rapid development of new information and communication technologies, in particular, internet not only provides with new opportunities for citiziens, but also evokes disturbances in the society. with the use of modern information technologies, in particular, internet, the so-called computer crimes are committed. with the use of internet or modern communication measures as tools, some conventional crimes as, for instance, robbery, etc. may be committed. the thing is that these crimes are being committed in a new way and even “more effective” from criminal’s 17 issn 1822-8402 european integration studies. 2007. no 1 issn 1822-8402 european integration studies. 2007. no 1 perspective. quite often an attempt is being made to defraud money from ordinary citizens (and it happens!) by phone and often by mobile phone, having fooled a trustful person, telling him/her that his/her relative has had an accident or has been arrested by law enforcement officials and that he can only be saved having paid a solid sum of money as a bribe. such ‘trivial’ crimes are undoubtedly painful for victims and, unfortunately, recently cases of such crimes have occurred in lithuania. however, some crimes are being committed of more modern nature and ‘higher’ level when an attempt is being made to rob the passwords of client’s electronic accounts in banks via internet and, therefore, to steal money in such a way. no doubt such and similar criminal actions will further “improve” that is why a legal basis needs to be enhanced, to become more flexible, more adjusted to life, more adaptable, adequately reacting to the development of new technologies, in particular, information and communication as well as to their new characteristics and provided opportunities so as to somewhat preventively block the way to crimes that could be committed by the means of these new technologies. widely advocated and rapidly circulated payment cards are one of the vulnerable innovations. in various countries this automatized service quite often is turned into stealing tool. atm bank slots may have some reading equipment installed. it happens that cheaters copy the data from the card’s magnetic stripe while paying for the goods or services in the shops, hotels, restaurants. crimes of this kind were detected not only in the western europe; there were occurrences even in lithuania. it is predicted that in the future these cards will become (and already are becoming) more intellectual. some additional spheres of their application appear. there are some that require ‘strong security and/or mobile access (e.g. fixed or mobile access to medical data, corporate intra/extra-nets)’ [15]. undoubtedly, such complicated security and reliability issues are tackled, first of all, at the european level; however, the lithuanian practitioners should get involved in issue tackling process as well. if no adequate measures are taken, these threats will increase in the future. we can analyse how the legal basis of the information society was being created in lithuania within the framework of the european union. in the european union legal reforms related to computerization mainly occurred in the eight decade. in many western countries legislation on the person data protection was adopted since a rapid development of information technologies including internet as well as fast access to the data induced danger to interfere with private human life. in europe legislation in this sphere was adopted at different time – from 1978 (in austria, denmark, norway) to 1991 (in portugal) [16]. in the ninth decade in europe the object of the legal regulation became abuses applying computerized systems and infringement on that systems. the so-called computer crimes appeared in many countries’ criminal codes. in 1989 committee of ministers of the council of europe adopted the recommendation r89(9) for the governments of the eu countries where proposals were put forward to refer to the report by the european committee on the computer related crimes in revising or drafting legislation [17]. in general, at that time in lithuania only the first steps were being taken in that direction. in 1991 in the prepared “conception of the state informatics development on the basis of computerization” [18] together with other substantial tasks, the necessity to establish and implement regulatory mechanism (legal acts, system of economic lever) of the state informatics development was foreseen. therefore, in that significant document an attention of the authority people and scientific technical society was drawn to the fact that the works were relevant and they had to be accomplished and implemented immediately. at that time there was no legislation regulating infomatics sphere. only in several years the first legislation regulating informatics sphere was prepared and adopted at the seimas of the republic of lithuania in 1996: • law on legal protection of computer programmes and data bases [19]; • law on legal protection of person data [20]; • law on state registry [21]. during the following decade there was made a considerable progress. some serious theoretical works have appeared. the newest – a textbook entitled “informatics of law and law of informatics” [22]. this provides with presuppositions to prepare specialists of this sphere in a qualified way. on the 1st of may 2003 a new criminal code (cc) of the republic of lithuania entered into force with an appearance of the new chapter entitled “crimes against informatics”. the statistical report “data on the criminal acts committed in the republic of lithuania (form 1-g)” by the department of informatics and communication under the ministry of interior provides with the information on crimes against informatics: • erasure and alteration of computer information cc art. 196 • erasure and alteration of computer programme and disturbance of the computer network, data bank and information systems work cc art. 197 • pirating and dissemination of computer information cc art. 198 18 • illegal connection to the computer or computer network cc art. 198, par. 1 • illegal possession of equipment, computer programmes, passwords, log in codes and other data intended to commit crimes cc art.198, par. 2. this information is provided on the website of the lithuanian centre for criminality prevention [23]. an overall number of the recorded crimes against informatics in lithuania is not big. in the latter three years it has not changed considerably (table1). table 1 2004 2005 2006 recorded crimes in lithuania: cc chapter xxx. crimes against informatics 15 18 19 as foreign experience demonstrates, even now only a small part of crimes fall into the view of criminal justice (a few or several percent) [24]. the statement appears to be more correct referring to computer crimes. consequently, it can be assumed that a number of crimes against informatics committed de facto is much bigger in lithuania. nevertheless, even in such cases it is comparatively small. evidently, it is an impact of several factors: including at the moment operational legal basis, preventive activity performed by law enforcement and even insufficient “qualification” of the criminal world representatives, etc. undoubtedly, it can be expected that with the expansion of the information technologies employment, crimes of this kind will increase. besides, it is not only the quantity of crimes that counts. it is also very important to assess the damage computer crimes may cause and possible danger they may bring. the possible damage may be really huge. thus, several well-organised computer crimes, in particular, directed at the infringement of the financial system activity may lead to the occurrence of enormous losses. by the same token, information and communication technologies become the most substantial driving force of economic progress. thus, if we interfere with the functioning of the driving force, it will undoubtedly have a negative effect on economy in a really considerable way. that is why it is emphasized in the paper [25] that 20 percent of made efforts yield 80 percent of the results. properly selected efforts can yield incredibly big results. that also stands in the event of computer crime and its caused damage. potential activation of disturbances within the context of the globalization development it is likely that globalization processes may intensify, reinforce tendencies already discussed. the more psycho-physical features (intelect data) of the concrete candidate will be limited to get employed, the less his/her possibilities to get employed in the automatized production will be. it is probable that quite soon automatization in the globalization process will also usurp public services, will begin to prevail in it. hence, individuals of lower than average and even average capabilities will end up on the outskirts of the society in terms of traditional material provision. it can cause some substantial psychological shocks. at the moment their living assurance happens to be even a more complicated task. the our civilization has not accumulated weighty experience sufficiently to practically settle such tasks. the ford line idea of individuals’ of limited capabilities involvement into modern production process will loose its initial practical meaning. first of all, the idea will loose humanitarian component. as norbert wiener envisaged, industrial operation machines perform better and considerably faster in modern factories in comparison with the ones – people of limited capabilities. besides this, they will liberate employers from many problematic relationship with employee trade-unions, etc. europe had a similar situation during the first industrial revolution. in order to control the situation by adequately reacting to the rapid development of information technologies it is not enough to think only about computer literacy. it should be also taken into consideration that not all people, especially, of the elder age are able to fully master modern information technologies and acquire knowledge necessary in modern production. there is no reason to reject the version that at that period some conflicts will considerably intensify between: • inhabitants and government; • employees and employers; • more talented members of the society eligible to work in the automatization production or public services in the globalization century, and not able to settle in it, having less capabilities, individuals of slower orientation; • the self-sufficients and the deficients. lack (besides, competition as well) instigates irritation, conflicts, fight for the existential quality. therefore, it is very realistic that at that period diverse crime forms will get intensified. it is unlikely that those forms will be controlled only by the means of force structures. obviously, legal thinking will have to be referred to. stabilization of the society life and group relationship could be achieved by the means of modern legislation and public relations programme 19 issn 1822-8402 european integration studies. 2007. no 1 issn 1822-8402 european integration studies. 2007. no 1 responding to the time. the programme’s fundamentals need to be considered in advance if there is an intention to forestall complicated cataclysms in countries that are remarkably lagging behind the countries which dictate and will dictate forms and pace of globalization. the paper [26] is dealing with a new state governance essence and ten principles that can be employed for the substantial authority reform, with one of the principles being described as “preventive authority: instead of adjusting the situation, to occlude the way”. it really suits our case being described. certainly, we will not totally prevent crimes but we can reduce these risks by taking respective measures on time. conclusions 1. development conceptions, strategies and programmes of new technologies creation, implementation should be prepared by complex groups of practitioners from various areas including scientists, engineers and other practitioners representing not only the main programme direction but also, by all means, lawyers having legal knowledge as well as the perception of the issue in question in a broad sense, for instance, practitioners of informatics law. 2. it is not sufficient to think of the implementation of computer literacy while preparing the conceptions of the implementation of new technologies in addition to scientific technical programmes. it is essential to take into consideration that not all people, especially, of the elder age are able to fully master modern information technologies and acquire knowledge necessary in modern production. 3. it should be emphasized that a complex attitude towards concrete problematicality and common problematical area plays a significant role in settling the tasks of research management. 4. a legal basis needs to be enhanced, to become more flexible, more adjusted to life, more adaptable, adequately reacting to the development of new technologies, in particular, information and communication as well as to their new characteristics and provided opportunities so as to somewhat preventively block the way to crimes that could be committed by the means of these new technologies. references birbilienė b., blažys b., keras v. tendencii primenenija evm dle vypolnenija različnych funkcij upravlenija promyšlennymi predprijatijami – trudy akademii nauk lit. ssr, serija a. t.3 (96). vilnius, 1986, p.3-14. computer-related crime. council of europe. recommendation nr.r(89)9, adopted by committee of ministers of the council of europe on 13 september1989, strasbourg, 1990. denhardt r. (2001), viešųjų organizacijų teorijos – vilnius, 304 p. dobrov g.m. (1989), nauka o nauke: načala naukovedenija – kijev, naukova dumka, 301 p. eeurope 2005: an information society for all. an action plan to be presented in view of sevilla european council, 21/22 june 2002. – brussels, 28.5.2002 com (2002) 263 final. on-line: eeurope. an information society for all. communication on a commission initiative for the special european council of lisbon, 23 and 24 march 2000. on line: held d., goldblatt d., makgriu e., perraton d. (2004), globalnyje transformacijy – moskva, praksis, 575 p. http://ec.europa.eu/information_society/eeurope/2002/ news_library/documents/eeurope2005/eeurope20 05_en.pdf http://europa.eu.int/ispo/docs/policy/docs/e_europe/ com(99)_en.pdf http://www.nplc.lt/stat/atas/ird/1g/1g.htm justickis v. (2001), kriminologija. i dalis – vilnius, 440 p. keras a., keras v. (2004), informacijos trikdžių trumpalaikiai dividendai ir ilgalaikiai socialiniai nuostoliai. šiuolaikinė filosofija: globalizacijos amžius. monografija. – vilnius, ltu, 332 p. keras a., petrauskas r. informacinės technologijos ir teisė kuriant informacinę visuomenę – teisinės valstybės link. jurisprudencija. mokslo darbai 15(7) tomas. vilnius, 2000, p. 104-110. keras v. problemy formirovanija otrasli nauki i nauchnogo obsluživanija v litve.v kn. nauchno metodicheskije materialy svodnoi schemy razvitija i razmeščenija otrasli narodnogo chozeistva: nauka i naučnoje obsluživanije na perijod do 2005 g. an sssr. naučno – techničeskaja komisija po razrabotke svodnoi schemy ; gknt sssr. moskva, 1987, s.326333. 20 keras v., keras a. (2002), nusikalstamumas ir jo prevencijos plėtra. – teisiniai medicininiai smurto aspektai. monografija. – vilnius, ltu, 336 p. keras v., keras a. (2003), technogeniniai nusikalstamumo iššūkiai postindustrinėje visuomenėje. – globalizacija: taikos kultūra, žinių visuomenė, tolerancija. monografija. – vilnius, ltu, 298 p. kiškis m., petrauskas r., rotomskis i., štitilis d. (2006), teisės informatika ir informatikos teisė – vilnius, 2006, 268 p. koch r. (1999), the 80/20 principle – new york, london, toronto, 277 p. lietuvos informacinės visuomenės plėtros strategija. vilnius, 2005 – patvirtinta lietuvos respublikos vyriausybės 2005 m. birželio 8 d. nutarimu nr. 625. lietuvos mokslo ir technologijų baltoji knyga – vilnius, 2001, 192p. lietuvos respublikos asmens duomenų teisinės apsaugos įstatymas.1996 m. birželio 11 d. nr.i1374. lietuvos respublikos kompiuterių programų ir duomenų bazių teisinės apsaugos įstatymas. 1996 m. sausio 30 d. nr.i1188. lietuvos respublikos valstybės registrų įstatymas. 1996m. rugpjūčio 13 d. nr. i-1490. nacionalinė lisabonos strategijos įgyvendinimo programa. vilnius, 2005 – patvirtinta lietuvos respublikos vyriausybės 2005 m. lapkričio 22 d. nutarimu nr. 1270. snow d.m. (2004), national security for a new era. globalization and geopolitics new-york, san francisco, pearson/longman, 390 p. telksnys l., novickas j, keras a., galginaitis j., petrauskas r. ir kt.valstybinio informatikos vystymo kompiuterizavimo pagrindu koncepcija. galutinis projektas.-v., 1991. the statistical report “data on the criminal acts committed in the republic of lithuania (form 1g)”. on line: valstybės ilgalaikės raidos strategija. vilnius, 2002 – patvirtinta lietuvos respublikos seimo 2002 m. lapkričio 12 d. nutarimu nr. ix-1187. wiener n. (1961), cybernetics or control and communication in the animal and machine – new-york – london, 282 p. 21 issn 1822-8402 european integration studies. 2007. no 1 microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 polish universities contribution to academic entrepreneurship development* aranka ignasiak-szulc mariusz czupich nicolaus copernicus university faculty of european integration and regional studies abstract in the recent years there has taken place a kind of evolution of the role of universities in their local environment, the shift has been from teaching and research activities towards more involvement in the regional social and economic development. a relatively new form of university activity aimed at strengthening regional economy processes are academic business incubators. they are to offer their support to those students and academics that are planning to set up their own businesses and face the marketplace. the purpose of the article is to present how polish universities encourage students to realize their own business concepts and assist them in overcoming barriers that appear on this way. the role of universities is to offer help at the stage of initiating the business that is the most difficult for young entrepreneurs. this cooperation contributes to building the regional connections and relations network that leads to the creation of the business environment. keywords: universities; entrepreneurship; incubators. * the article is based on the results of the research project: transition and the development of the economic co-operation in the eastern borderland of poland in the context of european integration, financed with state budget funds in 2005-2007 (grant no h02c 113 28 and 1 h02c 088 29) introduction in a modern economy the process of creating knowledge is considered as one of the determinants of economic development. the capital of knowledge held by the company is not only an important factor in the production, it is also a basis for implementing internal innovations which determine the achievement of competitive advantages. universities, being research and service centres for supporting innovations in companies and places of gaining unique skills by the students, are the source of knowledge capital at the local level. furthermore, higher education facilities are perceived today as institutions which should support the initiation and development of economic life. in this way they are participating in the creation of territorial resources which constitute an indispensable base for the growth processes. this paper will focus on the university activity in the area of entrepreneurship promotion and developing beginner forms of business activity in poland. the article will use examples of academic business incubators to show growing role of universities in the regional development. academic entrepreneurship and institutional forms of its support over the last dozen or so years we could observe the evolution of the universities’ role in the local environment from education and research activities towards a stronger engagement in the regional, social and economic development. the institutions of higher learning changed their nature. in the past, they provided knowledge and mainly conducted basic research which had only an indirect connection with the industry. as the time passed they started to engage more and more in various economic projects in the cooperation with companies, such as providing research or training on order. this way universities managed to combine the theoretical aspect of their activity with practice. at the same time, spreading the idea of entrepreneurship in the academic society became an important part of their activity. the main aim of such activities is the increase of consciousness 81 issn 1822-8402 european integration studies. 2007. no 1 in the scope of initiating and developing their own economic enterprises. undoubtedly for students and scientific personnel the very idea of being enterprising is not a sufficient condition for establishing one’s own business. they often lack essential experience and knowledge necessary to establish their own company. it is often the case that outstanding scientists are unable to move around in the world of business and students with interesting ideas are lost in the tangle of bureaucracy and incomprehensible legal regulations. access to a wide financial, legal and consulting assistance creates a chance for such people and it is offered by the academic entrepreneurship support infrastructure. in the beginning it is worth presenting the notion of an academic entrepreneurship, for it is appearing more and more often in the literature connected with the regional development, transfer of technology and innovations. in a general view the academic entrepreneurship is the engagement of scientific facilities, auxiliary and administration personnel, phd students and students in the economic activity. and in a narrower sense it refers to the engagement of a scientific personnel in establishing new companies – so called spin-out (innowacje i transfer technologii, 2005). in europe the notion of an academic entrepreneurship refers to any activity supporting the relations between science and industry, as well as the pre-incubation and incubation processes for newly established companies. in the united states, as a result of a higher level of entrepreneurship within the society, this concept is mainly connected with companies created by scientific personnel using new technological solutions. the united states are at the same time an unchallenged leader in granting support to business initiatives originating at universities. the substantial influence that american universities have on promoting entrepreneurship and the transfer of knowledge to economic practice is to a large degree the result of the bayh dole act implemented in 1980. regulations of this act enabled universities to retain patents for solutions invented at their laboratories using federal means. universities may license the inventions to companies and gain fees for them, which are divided also for the creators of new solutions. the act encouraged universities to engage in research and technology transfer. companies have become more eager to purchase technologies developed by scientists, to develop them and implement into production processes, thanks to which new products are becoming more competitive on the international market. legal regulations favouring innovations caused a real boom for establishing companies using the results of scientific research held at universities, especially in the 1990’s. many new companies were established, some of which were the initiatives taken up by the employees of universities and students. in the years 2001 – 2002 licences granted to newly established companies made up 12% of the total number of licences granted by american and canadian universities, and other research institutions (nielsen, 2004). large demand from the industry led to the creation of entrepreneurship incubators and technology transfer offices at the universities for servicing companies interested in the cooperation. this received support of the state authorities, which actively participated in the promotion of creation of transfer offices and incubators. the result of these activities was the development of model solutions for the interaction of universities with the industry. thanks to them many new companies were established which substantially influenced the increase of the level of innovativeness of american economy. first concepts of entrepreneurship incubators in western europe appeared in mid 1970’s. they were treated as a tool for the creation of alternative workplaces and development of post-industrial facilities in the regions suffering from a structural crisis (matusiak, stawasz, 1998). over time they started to change their designation in the direction of supporting the companies created by young people. also, the changing trends in economy and transfer to the more technically advanced production, caused that some of the incubators started to offer their support to innovative companies, using the results of research in such branches as teleinformatics, microelectronics or biomedical engineering. the result of a quick development of entrepreneurship in various economic branches was the extension of infrastructure supporting this process. technological centres, scientific, training and consulting, and other centres were established beside entrepreneurship incubators and technology transfer offices. in the developed countries the technology transfer and support of business creation process is characterised by a variety of organisational forms. in great britain such institutions as industrial liaison offices in academic centres, academic personnel consortiums or teaching groups, in which graduates work on specific research projects (sosnowska, poznańska, 2003), have developed. and in france the organisations mediating between laboratories and entrepreneurs, and creating and coordinating networks are innovation and technological transfer centres (centres regionaux et de transfer de technologie – critt) (sosnowska, poznańska, 2003). in addition to the mentioned organisational forms, in practice one might encounter career offices and science and technology parks. career offices are helping students and graduates in moving around on the employment market and promote entrepreneurship through training, conferences and workshops on business-plan creation and establishing their own businesses. the activity of 82 science and technology parks is more complex then the previously mentioned centres. they are a cooperation platform for innovative companies, science and research institutions (including universities) and business training, consulting and financial institutions. technological parks often combine the function of a technology transfer centre and technological incubator. a specific characteristic of the park is the fact that its full offer is aimed only at enterprises characterised with innovativeness and using the latest scientific achievements. academic entrepreneurship incubators in poland entrepreneurship incubators started to appear in poland at the beginning of 1990’s, and although they were created at universities, they were not aimed directly at the academic society. the increase in the number of incubators in the following years was the result of the realisation of ,,tor #10 small business development project’’. the main goal of this project, co-financed by the world bank, was to propagate the development of entrepreneurship and actively counteract the unemployment (matusiak, mażewska, zasiadły, 2005). even though, in 1998 there were 45 entrepreneurship incubators active in poland, most of them were not academic entrepreneurship incubators (aei). academic entrepreneurship incubators are a specific type of traditional incubators, however their offer is directed to students and scientific personnel who want to set up their own businesses and try their hand at the market activities. academic incubators differ from the traditional ones in that they are treated as a prolongation of the didactic process by the possibility of establishing a company and its practical operation on the market as well as verification of the knowledge and skills gained (guliński, zasiadły, 2005). what is more, aei conduct entrepreneurship education, allow to commercialize products and technologies developed at the universities, they provide access to university laboratories and research equipment and facilitate the direct usage of the knowledge of scientific personnel and students. a broader interest in the subject of aei surfaced in 2004 at dozen or so universities and among the activists of a student business centre club forum. then a problem has arisen connected with the possibilities of creating academic entrepreneurship support structures by the universities. at that time polish legislation did not define academic entrepreneurship incubators or technology transfer centres, thus the modes of establishing them by the universities and rules of their operation were not specified. it was only the act of 27 july 2005 on higher learning facilities that filled the existing gap. article 4 item 4 of the act specifies the possibility of cooperation of a university with the economic environment through the sale or free transfer of research results to the entrepreneurs, as well as spreading the idea of entrepreneurship within the academic society in the form of a separate business. the form and scope of such a business should reflect the regulations included in the university statute (article 7). this way the act extends the meaning of regulations included in the statutes of higher learning facilities. this means that through internal regulations the universities may shape their own character and the pro-innovative attitude. one of possibilities of supporting entrepreneurship is included in article 86 of the act which states that universities may run academic entrepreneurship incubators “for the purpose of supporting economic activity within the academic society and students who are entrepreneurs”, as well as technology transfer centres for “the sale or free transfer of research and development work results for business”. the facilities mentioned may be created in the form of a trade company, fund or a general university unit. in this last case it is subject to the regulations approved by the university senate. at the turn of 2004 and 2005 universities showed a great deal of activity creating 30 aei. almost half of them was established through the student business centre club forum and academic entrepreneurship incubators foundation (matusiak, 2005). the foundation is the headquarters for a dozen or so incubators which were created at universities all over poland. students with an idea for an economic activity have a possibility of presenting them through special competitions and meetings organized by the incubators. the foundation concludes a contract with selected persons specifying the terms and conditions of entering and leaving the centre. young entrepreneurs do not need to gain their individual legal status as they are acting in the incubator as part of the foundation. thanks to this they avoid costs connected with the company registration and paying taxes. any fees connected with the operation of the incubator are covered by the foundation. the companies are obliged to cover the costs of staying in the incubator only after a few months, however the level of payments increases with the length of stay. the company may function in the incubator for a maximum of 3 years. after gaining independence and leaving the incubator economic units share a part of their profits with the incubator for a period equal to the length of stay in the incubator. the most buoyant incubators operating within the foundation are centres at the economic university in wrocław and universities in gdańsk and warsaw (guliński, zasiadły, 2005). the role of academic incubators is the aid in business initiation. to fulfil this task they are using a wide range of instruments, which include among 83 issn 1822-8402 european integration studies. 2007. no 1 issn 1822-8402 european integration studies. 2007. no 1 others technical and patent consulting services, financing, access to university laboratories and research equipment, scientific research and to databases on inventors, patents and technologies. the scope of the offered support is very differentiated (table 1) and determined by the means at hand. it is worth noting that one of the most important is the human capital. it is the experience and qualifications of the personnel that usually decide on the success of an incubator. table 1. types of support granted by 16 chosen polish incubators type of support 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 consulting, information, courses training: entrepreneurship, company establishment x x x x x x x x x x x x x x x x business plan creation x x x x x x x x x x x x x x x technology and patents x x x x x x cooperation mediation x x x x x x x finances, taxes x x x x x x x x bookkeeping, accounting x x x x x x x x x x legal issues x x x x x x x x x x x x x market analysis and marketing x x x x x x x informatics and computers x x x x x x x x x hr management x x x x x access to eu funds x x x x x x x x x x international trade and cooperation x x implementation of new services and products x x x x business management x x x x x quality management x x x technical and service infrastructure: reception, secretariat x x x x x x x telephone exchange x x x x x x x x x x copying machine, fax x x x x x x x x x x x computer network x x x x x x x x x x x x x x workshops / laboratories x x x x x access to databases x x x x x x x conference room x x x x x x x x x x financial support: lending and guarantee funds x loans and loan mediation x x cooperation with „business angels” x x x subsidies, grants, subventions x x x x x x x x venture capital x 1academic economic incubator at the university in białystok 2academic economic incubator at the technology transfer office at gdańsk university of technology 3academic entrepreneurship incubator at the technology incubator of łódź university 4„innowatik” academic entrepreneurship incubator, kraków 5academic entrepreneurship incubator, kraków 6academic entrepreneurship incubator at opole university of technology 7poznań academic entrepreneurship incubator, poznań 8academic entrepreneurship incubator at university of information technology and management, rzeszów 9academic entrepreneurship incubator at gdańsk university, sopot 10academic entrepreneurship bio-incubator at the agricultural university in szczecin 11academic entrepreneurship incubator, management and services economics branch at szczecin university 12academic technology incubator at the university technology transfer centre, warszawa 13academic entrepreneurship incubator at warsaw agricultural university 14academic entrepreneurship incubator at warsaw school of information technology 15academic entrepreneurship incubator at o. lange economic university, wrocław 16academic entrepreneurship incubator at wrocław university source: own study on the basis of: matusiak k.b., zasiadły k., koprowska-skalska e., początkiakademickich inkubatorów przedsiębiorczości [in:] matusiak k.b. (ed.), ośrodki innowacji w polsce, parp, sooipp, poznań, warszawa 2005, pp. 128-145. 84 as it turns out from the presented data most of the incubators support potential entrepreneurs at the stage of pre-incubation including the shaping of business-like attitudes, gaining knowledge on company establishment and support in business plan creation. academic lecturers play a major part in instilling the spirit of entrepreneurship among young people. they transfer the basic knowledge concerning company functioning mechanisms. students learn how the market works, how to move around it and what to do to be competitive. basic information gained in this scope help them realise their own business ideas. further aid offered in the incubator is of a practical character. most of the analysed incubators provide consulting as well as accounting and legal services, which is very desired by young people because of the level of complication of regulations and difficulties connected with it. another advantage of such a solution is the fact that the entrepreneurs, being relieved from the need to keep their accounting, may spend more time on the development of their products and services and on searching for new outlets. the most widespread form of support taken up by the analysed incubators is the help in access to the eu funds. eu funds offer support which should be supplemented with one’s own means. it should be noted here that establishing innovative business by persons who do not have market experience is connected with a big risk. this fact is the main obstacle in obtaining a bank loan for business development. lack of financial means is the most frequent problem of entrepreneurs developing their business. in this scope, an underdeveloped financial support system is a weakness of the incubators. lack of cooperation with venture capital or business angels funds causes that young businessmen suffer from the lack of means, especially in the early development stages of the business. furthermore, another frequent comments made about incubators refer to the quality of the offered training and courses (preparation and carrying out research..., research report, 2005). the complaints of entrepreneurs concern situations when not all the training courses promised while the company was entering the incubator are actually carried out and if they are, it is often by trainers of inadequate competence whose approach to the training is far too theoretical, the information they present is also easily found in available publications. there is no analysis of specific situations and problems and case studies that might bring more insight into the activities of young entrepreneurs. besides the support types listed in table 1 offered by polish incubators in practice one might also encounter such actions as: organization of competitions and programmes aimed at enterprising students and scientific personnel, entrepreneurship clubs or trainings for students at companies cooperating with the incubator. advantages resulting from the activity of universities for the benefit of academic entrepreneurship the engagement of universities in the creation and functioning of entrepreneurship incubators is a process giving benefit not only to the academic society but also in the wider regional scope. their influence on the activation of the local population, who often find employment thanks to the newly established companies, is unquestioned. the main advantage of such type of activities is the stimulation of the innovative society. the existence of a local society with enterprising and innovative characteristics is conditioning the establishment of companies. the key elements in this process are the relations and various cooperation ties between the scientific and economic societies which, if consistently developed, cause the creation of specific competences, knowledge and behaviour. the universities fill a new role consisting in shaping the enterprising consciousness and providing conditions for its development. some of the aspects of this activity are combined projects of universities and companies which include training and research projects with the participation of students and scientific personnel. while conducting research for industry the process of learning is conducted as well. this means that if one company orders a specific service then the university creates a pattern of proceedings, it organizes an appropriate set of instruments (organizational, consulting, research), essential for the realisation of the service. this way a certain kind of know-how is developed which will be used while solving technical problems for other companies. the result of this process is the increase of the level of services rendered and their greater comprehensiveness. moreover the cooperation with companies gives the universities access to practice. thanks to this it is possible to transfer this experience to their own benefit and improve the incubator’s operation by implementation of new instruments and services. scientific employees, graduates and students with innovative ideas for their own business may make them come true through the establishment of companies and using incubator support offered by the universities. the scale of popularity of such activities is the fact that by the end of 2005 in the 15 incubators gathered in the academic entrepreneurship incubators foundation there were 150 new companies established, 800 young people applied for cooperation, and the companies already operating generated pln 2 million of income (in 2005) (żuk, 2005). one should also ask what kind of benefit is 85 issn 1822-8402 european integration studies. 2007. no 1 there for the universities from the activity of incubators. well, besides making their educational offer more attractive, they are also receiving financial means by way of renting their rooms and laboratories. other benefits include (guliński, zasiadły, 2005): • the improvement of relations with the local population and business; • increase of income from the cooperation and technology transfer to graduate companies; • increase of orders for research and winning sponsors for research activity; • the improvement of the image of the university; • gaining additional means from entrepreneurship support programmes; • the demonstration effect – this solution is accessible for everyone; a resilient university with numerous economic ties has what it takes to attract skilled students and experienced scientists. then it becomes one of the key factors deciding on the attractiveness of a specific region. conclusions thanks to the engagement of universities in the promotion and support of entrepreneurship they are considered as the driving force behind economic and social development of the region1. universities encourage students to realise their own business concepts, assisting them in overcoming obstacles connected with them. the cooperation between science and industry enables to create a network of relations in the region leading to the creation of an enterprising society and increasing its competitiveness at the same time. polish incubators are young organisations which have not yet developed all services (e.g. cooperation with venture capital funds). it is expected that the legislative changes introduced will evoke yet greater engagement of universities in the creation and development of infrastructure supporting the academic entrepreneurship and students, scientific employees and graduates will make use of the offered facilities and more willingly engage themselves in the business activity. 1to stress the role played by higher schools in the economy it is worth citing the comment put in the american report of the boston bank from 1997 r. all companies established by employees and graduates of the massachusetts institute of technology, which operated in 1997, employed in total 1,1 million people and had an annual sale ca. 232 billion usd. this amount was close to gross national product of the republic of south africa and thailand from 1996!, after: j. g. wissema, technostarters and the third generation university, materials of the national conference ,,academic entrepreneurship in poland – perspective of development’’, warsaw 19 may 2006. references act of 27 july 2005 on higher learning facilities, j/l 05.164.1365. guliński j., zasiadły k. (ed.) (2005), innowacyjna przedsiębiorczość akademicka światowe doświadczenia, parp, warszawa, pp. 29, 30, 32. innowacje i transfer technologii – słownik pojęć (2005), parp, warszawa, pp. 131-132. matusiak k. b. (ed.) (2005), ośrodki innowacji w polsce, parp, sooipp, poznań/warszawa, pp. 123-124, 128-145. matusiak k. b., mażewska m., zasiadły k. (2005), rozwój lokalnych systemów wspierania przedsiębiorczości. instytucje projektu rozwoju małej przedsiębiorczości tor #10 po dziesięciu latach, ministerstwo gospodarki i pracy, warszawa. matusiak k. b., stawasz e. (ed.) (1998), przedsiębiorczość i transfer technologii. polska perspektywa, żyrardowskie stowarzyszenie wspierania przedsiębiorczości, łódź – żyrardów, p. 137. nielsen l. l., a us perspective on technology transfer: the changing role of the university, ,,nature reviews’’, march 2004, vol. 5, p. 1. preparation and carrying out research on the support of academic entrepreneurship development in poland in the scope of the transfer of technology and innovations. research report (2005), in polish, ppnt foundation of adam mickiewicz university, poznań, pp. 130-131. sosnowska a., poznańska k., łobejko s., brdulak j., chinowska k. (2003), systemy wspierania innowacji i transferu technologii w krajach unii europejskiej i w polsce. poradnik przedsiębiorcy, parp, warszawa, p. 124. żuk d., akademickie inkubatory przedsiębiorczości (2005), materials of the national conference ,,academic entrepreneurship in poland – perspective of development’’, warsaw 19 may. 86 issn 1822-8402 european integration studies. 2007. no 1 microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 problems and dilemmas of eu regional policy krystyna gawlikowska-hueckel university of gdańsk the faculty of economics abstract the aim of the eu regional policy is to increase the level of social and economic cohesion of the community. the effectiveness of this policy is not unanimously agreed upon. there are regions in europe which took maximum advantage of the structural funds and considerably decreased the gap between them and the average eu level (lisboa e vale do tejo), or even went beyond it (ireland). however, there are also regions that, despite huge transfers from the eu budget, are stagnant (southern italy) the negative examples are exploited by the opponents of the current policy. according to them, the policy’s achievement in its current shape is too expensive for the entire union (too high opportunity cost). the same transfers used to support innovativeness in the well-developed regions would lead to an increased innovativeness and modernization of the member states’ economies in general. the article’s aim is an attempt to answer the question about the policy’s future shape. it will depend on many factors (social and economic situation in the entire europe, catch-up processes, political situation, etc). a different shape of regional policy could, however, mean a return to the idea of two-speed europe, which would not be advantageous to the new member states. key words: regional policy, social and economic cohesion, effectiveness of the regional policy, catch-up processes, two-speed europe the aim of regional policy is to reduce regional disparities. it is worthwhile to stress the particular character of this policy, whose instruments (structural funds) are used to finance investment in peripheral regions. regional transfers contravene the fundamental premise of liberalism, which was a driving force behind the creation of the common market and the elimination of barriers hindering economic integration. still, there is an important argument justifying regional intervention – namely, market failures. this ineffectiveness manifests itself at several levels. for one thing, there still exit a segmentation of the common market, trade barriers and state intervention-induced competition distortion. secondly, another market failure is related to allocation and localisation ineffectiveness. thirdly, there are different living and employment standards as well as different social-policy safety nets1. finally, unequal distribution of wealth amongst countries and regions plays a part, too. each of these imperfections is corrected by means of different instruments which operate within the framework of competition, trade, industrial, social and regional policies. 1 this manifest itself in social exclusion and labour market discrimination (mainly against women). intervening in the market mechanism is controversial per se. the fundamental question that arises in this context is whether intervention actually help to eliminate market failure or whether in the long run it entrenches ineffectiveness. this question is particularly relevant to regional policy due to its specific character. this is because regional policy involves money transfers, has a substantial scope (it is second in terms of budget expenditure) and is difficult to unequivocally assess. the aim of the paper is to answer the following questions: what will the possible direction of the evolution of regional policy be?; will the current character of regional policy not be changed in the future? modifications of this policy may have a particluarly big impact on the interests of countries from central and eastern europe that joined the eu in 2004 and 2007. this is not a new problem as it resurfaces whenever eu member fees are set in each new budget perspective. in 2005, controversies over this issue were particularly manifest and hence it was very difficult to reach a compromise. that is why – and it has to be stressed – debate over the model of regional policy is of critical importance since, on the one hand, it highlights ceratin threats (on the part of the richest memebers) to the principle of cohesion and, on the other, it sends a 113 issn 1822-8402 european integration studies. 2007. no 1 signal to the least properous regions that the regionalpolicy rationale might change and that opportunities risk being missed. at first, it is essential to refer to theory that focuses on regional economic growth, regional competition enhancement and regional policy. the literature of the subject is very rich. contributors include researchers representing classic approach, keynesianism, neoliberalism, stage development, new growth theories and new trade theories. insights from urban growth theory, new institutional economics, business strategy economics, new schumpeter approach or economic geography also taken into account by researchers (martin r., 2004), (reid, 2003). the fact that the above theories have different premises and that different factors are seen as critical to growth determines the attitude towards regional policy and to its character (its instruments and areas of influence). it is impossible to refer to all these concepts, so only two of them are discussed. stage development theories highlight that core regions – thanks to their advantages – constitute engines of growth of peripheral regions, but regional policy should support economically weak regions, allowing for their actual stage of development. it is also important to reinforce spread effects by, among much else, promoting direct investment and development funds. new growth theories regard technological progress as a source of dynamic growth, which, however, does not constitute manna from heaven. there are centres that are predestined to fostering technological progress and differences in regional development are a result of regions’ technological potential and human capital. it follows that investment in r&d and improvement in human capital are a driving force behind development. so potential intervention should support such investment. even in view of these two theories it is possible to present dilemmas about the choice of regional policy. should it have a disparity-reducing character or a polarisation-inducing one? (bachtler, 1996). proponents of the former advocate state intervention, which should be addressed to the poorest regions. the aim of intervention is the restructuring of the economy, which should accelerate growth and trigger the catching-up process. the arguments adduced by advocates of the disparity-reducing theory are typical of neo-keynesianism. they include: the aforesaid market failures, imperfect information, price and wage deformation. proponents of the latter reckon that any intervention affects the market mechanism, which is the most effective, and hence they argue in favour of giving up state intervention in regional developmental processes. they claim that any intervention does not help poor regions and is a cause of their underdevelopment (levison, 1992). what character should eu regional policy have? if – in line with new growth theories – it is investment in r&d and human capital improvement that condition development, there is no doubt that economically strong regions (and metropolitan areas) are predestined to carry out such investment because they have critical mass (research institutes, universities, skilled human resources able to innovate and communities capable of absorbing it) to start it (reid, 2003), (sepic. d.). this approach holds that spread effects initiated by these centres will cause disadvantaged regions to develop and all society will benefit from economic growth. in this context two questions arise. for one thing, is there any guarantee that its current character will be preserved? secondly, what can cause its modifications? as mentioned above, the aim of regional policy is to increase eu socio-economic cohesion. with the processes of deepening and expanding integration gathering momentum, this objective has undergone evolution. in the literature of the subject regional policy is presented in stages, delineated from the perspective of its aims, which changed in line with new integration tasks2. the most noteworthy event during the first two stages was the establishment in 1972 of european regional development fund (it started functioning in 1975). regional policy got a boost in 1986-1992 and this was caused by: 1. the establishment of the common market (since 1 january 1993, but the preparations for its introduction had been under way since the single european act); 2. the accession of spain and portugal in 1986; 3. the uk-led emphasis on such a distribution of transfers from the eu budget that all member states would participate in them in a more equitable way. the single european act introduced to the eu treaty the title economic and social cohesion and the earlier statements from the treaty of rome were replaced by the phrase stating that: in order to promote its overall harmonious development, the community shall develop and pursue its actions leading to the strengthening of its economic and social cohesion. in particular, the community shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions, inlands, including rural areas (the eu treaty). the change of regional policy status prompted reform of the structural funds3 in 1988, which were meant to operate in a more co-ordinated fashion on 2 the following years mark the consecutive stages of regional policy: 1958-1974, 1975-1987, 1986-1992, 1993-1999, 20002006, 2007-2013. 3 european social fund, european regional development fund, european fund for agriculture guarantee and orientation. 114 issn 1822-8402 european integration studies. 2007. no 1 the basis of uniform rules (pietrzyk, 2000). this was supposed to enhance the effectiveness of the use of financial resources (oj, 1988). a decision was also made that regional policy would be programmed on a six-year basis. the first programming period concerned the years 1988-1993. this means that programming stages coincide with eu financial frameworks4. the reason for introducing such deep modifications was the establishment of the common market. this programme caused less developed member states to raise concern as to whether the existence of four basic freedoms would not affect negatively the eu’s economically weakest regions. richer members – at a cost of accepting the processes of integration deepening – were inclined to devote more financial resources which would contribute to enhancing their competitiveness (el-agraa, 1990). the period of 1992-1999 constitutes the next stage of significant changes. the modifications of regional policy were then caused by: 1. the signing of (1992) and the introduction of the maastricht treaty (1993), which laid the legal foundations of the monetary union; 2. the lobbying carried out by less prosperous members which feared the effects of the monetary union5; 3. the accession of austria, finland and sweden6 the most important reason for changing regional policy was the decision to establish the monetary union. the implementation of this most advanced stage of integration could have negative implications for less developed regions. the committee of regions warned against such a possibility, arguing that the participation in the monetary union could lead to the intensification of competition amongst regions, which would necessitate mitigating the negative consequences for disadvantaged regions. poorer members had reason to fear that more discipline in public finances and the need to keep down interest rates and inflation would result in slower economic growth and higher unemployment. to ally these fears, the maastricht treaty included a statement (maastricht treaty) about setting 4 since 1988 the commission and the parliament, while working out yearly budgets, use financial plans for several years. the first financial prognosis concerned the period of 1988-1992 (so-called first delors packet), the second one concerned the period of 19931999 (second delors packet), the third one is envisaged for the period of 2000-2006 (concluded in the agenda 2000). 5 spain’s lobbying is seen as particularly effective; spain agreed to support the monetary union in exchange for doubling aid for the poorest regions. this compromise was included in the cohesion protocol, which was added to the maastricht treaty. 6 the accession of finland and sweden prompted the establishment of a new objective of regional policy: aid was earmarked for regions with population density of less than 8 people per square kilometre. up the cohesion fund7, within the framework of which financial resources were to be used to cofinance investment in less developed regions particularly vulnerable to the negative effects of the participation in the monetary union8. the criterion for receiving aid was a gdp per capita lower than 90% of the eu average. greece, ireland, spain and portugal became cohesion countries9. next changes to regional policy (2000-2006) were the effect of the accession of 8 ex-communist countries from central and eastern europe together with malta and cyprus. the proposed set of reforms was a compromise allowing for the interests of candidate countries and constituted an effort to depart from regarding regional policy in terms of expenditure. it is worth noting that a heated debate preceded the berlin summit (at which the agenda 2000 was approved). this debate revealed diverging interests of members: some of them highlighted that in the long run they were bound to bear the brunt of financing cohesion policy, being so-called net payers (germany, the netherlands, sweden and austria); france refused to accept cuts in aid for framers, while greece and portugal accentuated the need to restructure their economies. in 2000-2006 regional policy objectives were reconstructed and their number was reduced to there. the main premises of the 2007-2013 stage were finally approved at the brussels summit in december 2006. the compromise was reached after the fiasco of the june summit, during which some members blocked an agreement on the budget for the next budgetary perspective. the bone of contention was related to the question of whether – if outlays were to be reduced – this reduction would include in equal proportion all the expenditure items or some categories would be maintained at the same level. it has to be said that at this stage the parties reached the consensus on one thing: there would be no cuts in spending on the increase of the eu economy’s competitiveness. this accent on competitiveness is connected with the abortive attempts to catch up with america within the framework of the lisbon strategy. its main aim was to transform the eu into the most competitive economy in the world. as we know, this task has proved too ambitious. one of the reasons for this was the failure to set into motion a knowledge-based economy and to capitalise on information and 7 this is despite the fact that the cohesion fund did not finance initiatives strictly related to regional problems. 8 financial resources from this fund were used to finance investment in railway and road infrastructure, environment protection and development of trans-european communications networks. 9likewise, proportions of quotas for cohesion countries were set as follows: 16-20% for greece, 16-20% for portugal, 7-10% for ireland and 52-58% for spain. 115 issn 1822-8402 european integration studies. 2007. no 1 communications technology (ict). this does not mean, however, renunciation of the strategy. in 2005 the european council decided to modify certain aspects and to revive the reformist efforts. it was agreed that “the eu must mobilise all its existing national and european resources, including those with cohesion policy(com (2005(24). a communiqué on joint efforts to promote growth and employment highlights the necessity of more active involvement in the lisbon strategy on the part of regions, in particular local and regional entities, and social partners. this is especially important in such domains as innovation, a knowledge-based economy, employment, human capital, support fro small and medium-sized enterprises and access to venture capital. at the same time, it was decided that cohesion policy should focus on three priority areas: 1. improvement in the attractiveness of member states, regions and cities by means of enhanced access, better-quality services and environment protection; 2. support for innovation, entrepreneurship, a knowledge-based economy through increasing the potential of r&d and ict; 3. creation of more better-quality jobs. it follows that in the priorities of cohesion policy for the period of 2007-2013 accent is placed on encouraging innovation. this confirms an assumption that the improvement of the eu’s position in the area of r&d and the creation of a knowledge-based economy has become an integral part of cohesion policy. this is also borne out by the earlier initiatives of the european commission aiming to stimulate endogenous growth of regions through increasing innovation levels (the co-financing from the erdf of regional innovation strategies within the framework of innovative actions). special attention needs to be paid to two eu programmes currently carried out with a view to promoting innovation activity: the seventh framework programme in the area of r&d and technological progress and the framework programme for supporting competitiveness and innovation. their implementation should ensure “the synergy effects between cohesion policy and those instruments; national and regional development strategy must show how this can be attained” (com(2005)02/99). programming documents clearly state that the strategy to improve innovativeness of european economies should allow for the specificity of the r&d sector, which necessitates interactions between all the agents involved in creating poles of growth. it is indispensable to create critical mass enabling the generation and implementation of innovation. this sort of concentration guarantees improvements in competitiveness; that is why “r&d in member states and less favoured regions should be developed around the existing poles of excellence. by contrast, excessive dispersion of resources should be avoided”. the sum – 2.1 billion euro – earmarked for enhancing innovation and competitiveness within the framework of the lisbon strategy confirms the weight the european commission attaches to this issue10. it is called more money for progress11. this drive for improving eu competitiveness found its reflection also in new objectives of regional policy for the period of 2007-201312. 1. convergence; 2. regional competitiveness and employment; 3. european territorial community13 . it is worth underscoring that within objective 1 financial resources are used to carry out investment in human capital and equipment, development of innovation, information society. all this is connected with enhancing competitiveness. objective convergence has been maintained (which is guaranteed by the treaty), but the emphasis on improving competitiveness is more conspicuous. is such a strategy bound to be continued during the next budgetary perspective? it seams that much depends on the pace of growth of regions falling under objective convergence and the acceleration of catching-up processes. now doubts are being cast over the effectiveness of structural funds transfers14. some highlight that, despite allocating substantial resources for greece and southern italy, the pace of growth has not been increased. bradley questions the effectiveness of structural funds transfers15. he points out that this sort of aid is not sufficient to stimulate growth in less developed regions and its impact on development can vary from region to region (de vet et al, 2004), sepic, 2005). to summarise, the debate on regional policy leads one to ask the following question: is it really reasonable to carry out its disparities-reducing variant? is its opportunity cost not too great? would regions not develop faster if money transfers were directed to economically strong regions and earmarked for increasing innovation? the current direction of regional policy is guaranteed by the treaty’s provisions. however, dilemmas related to regional policy come to the fore 10 available at: http://europa.eu.int/comm/regional_policy 11 the biggest part of financial resources will be devoted to distance learning. additionally 700m euro was earmarked for increasing competitiveness, innovativeness and r&d. 12 beside the modification of objectives, regional-policy financial instruments were changed. 13 the regulation of the european council no 1083/2006, establishing general regulations on the erdf, esf and the cohesion fund and annulling the decree 1260/1999. 14 models beutel, hermin and quest are used to make assessment. 15 bradley j., the impact of community support frameworks on objective 1 countries: greece ireland, portugal and spain 19892006, dublin, 2000. 116 issn 1822-8402 european integration studies. 2007. no 1 whenever a new budgetary perspective is worked out. the intensification of the debate is likely to be accompanied by the next rounds of accession of poorer countries. the accession of bulgaria, romania, and later croatia and turkey (?) may dramatically increase budgetary tensions. this is even more so, given that there are not many net payers and they are increasingly less willing to finance cohesion policy16. that is why the concern is that cohesion policy might be radically modified. different variants are being considered: from variable geometry, two-speed europe and concentrated approach that would allow community intervention only when the action by a member state would be insufficient17 to the horizontal option that would engage national authorities to pursue the aims of cohesion policy 18. the option of two-speed europe (variable geometry) has certain merits (an increase in competitiveness?). this means division of the current regional policy into two variants: the structural option applied to the eu-15 and the disparities-reducing one applied to countries from central and eastern europe. it seems that setting different priorities for “new” and “old” europe would result in new divisions and would be detrimental to “new” europe. hence new member states should demand that the „convergence” objective – which will ensure structural funds transfers to the poorest regions – be maintained. one has to remember that the most convincing argument in favour of the levelling-up option of regional policy is the occurrence of catch-up processes and the reduction of distance between the least affluent regions and the eu average. that is why it is imperative to make best possible use of the current programming period as the effective utilization of financial resources might determine whether the premises of the current financial perspective will be kept up in the following prorgamming period or whether they will turn out to be a “not-to-be-missed” opportunity. references a.m. el-agraa (1990), economics of the european community, new york, london, toronto, p. 336 16 this is confirmed by the last debate on the budgetary perspective for 2007-2013. 17 community intervention would be directed only at those countries with gdp per capita of less 90% of the eu average. 18 bachtler j., wishlade f., yuill d., regional policy in europe after enlargement, eprc, glasgow, p. 23-26. j. bachtler et.al. (1996), longer term perspectives on regional policy in europe, glasgow p. 23-26. bachtler j., wishlade f., yuill d., regional policy in europe after enlargement, eprc, glasgow, p. 23-26 de vet m., et al. (2004), the competitiveness of places and spaces, ecorys, rotterdam levison m. (1992), nie tylko wolny rynek. odradzanie się polityki gospodarczej, warszawa martin r. (2004), a study on the factors of regional competitiveness. a draft final report for the ec, ecorys-nei pietrzyk i. (2000), polityka regionalna unii europejskiej i regiony w państwach członkowskich, pwe, warszawa reid d.m., de martino r. (2003), the internationalization of a high-tech cluster: an investigation from three theoretical perspectives, paper presented at the conference of the european international business academy, copenhagen sepic d. (2005), the regional competitiveness: some notions, moscow the eu treaty, art. 158 (130a). oj /1988, framework regulation 2052/88(oj l 185/9/1988), „coordination” regulation 4253/88 (oj l 374/1/88, and the regulation concerning the three structural funds (erdf, esf, eaggf), oj l 374/1988. com(2005)24 com(2005)02/99. http://europa.eu.int/comm/regional_policy the regulation of the european council no 1083/2006, establishing general rules on the erdf, esf and the cohesion fund and annulling the decree 1260/1999. 117 127 issn 1822 – 8402 european integration studies. 2010. no 4 development of farm structure impacted by the agricultural reform in latgale region stanislavs skesters, dana svedere, aina muska latvian university of agriculture abstract in theoretical reviews, a land reform and an agricultural reform might cause different consequences, creating various possibilities. the consequence of a reform is directly shaped and determined by its goal. the goal of the forth land reform in latvia was the restitution of property rights on land, which were granted during the previous (third) land reform. during the third land reform, latvia was mostly an agricultural country and the land was distributed in a way that every family could have a piece of land for their own subsistence. small subsistence farms were especially characteristic of latgale. the paper presents research results on the development of agriculture impacted by the fourth agricultural reform in the most problematic region of latvia, i.e. latgale, as the rate of unemployment increased and incomes of the population substantially decreased in latgale after the reform was implemented. the research aim of the paper is to analyse the changes in the structure of farms in latgale, which were caused and impacted by the agricultural reform, the commercial orientation and output capacity of farms, and to ascertain the dynamics of value added in farms of various economic sizes. it was found in the research that the structure of small subsistence and semi-subsistence farms, which emerged as a result of the land and agricultural reform, constantly and significantly changes; the number of small and very small farms decreases, and the land resources are concentrated in large and largest agricultural enterprises. the research revealed that the largest part of farms in latgale (85%) do not produce agricultural commodities for sale or sell a small part of them, but irrespective of it, the number and share of farms producing all their agricultural products for the market gradually increased over the researched period. an analysis of total standard gross margin showed that half of it in latgale is derived from small and very small farms, but the total standard gross margin per ha of utilised agricultural area constantly rises with an increase in the economic size of farms, and the efficiency of large farms is almost three times higher than it is for small and very small farms. therefore, the dominance of small and very small farms in latgale significantly hinders an increase in the productivity of farms. an analysis of output of the key agricultural industries (crop, livestock, and dairy farming) showed that the total output of agricultural produce after the fourth reform is several times behind the level it was in the beginning of the agricultural reform. the output of meat is dramatically low. an analysis of value added showed that the amount of value added in latgale region is directly related to the consolidation of farm land and the concentration of production: with an increase in the economic size of farms, a net value added per ha of actually utilised agricultural area, per lat of total output, and per annual work unit rises. key words: latgale region, agricultural reform, farm size, production capacity, value added, gross margin. introduction, problem approach as to theoretical evaluations, the land and agrarian reform may cause different consequences as well as provide diverse possibilities. the reform consequences are directly formed or determined by its target. it is well-known that the target of the regular (fourth) land reform of latvia was the restitution of land ownership formed by the previous (third) land reform. it is also known that during the previous land reform latvia was a typically agrarian country and the land was shared in the way fit for natural farming where each family had a land plot. a particular small farm structure was created in latgale. nevertheless, during the twentieth century, europe and the entire civilized world has experienced enormous progress in science, knowledge, technique, technologies, genetics and other fields. the agrarian and food market has become global. the farmers capable to make use of their comparable or absolute advantages are those to operate successfully manufacturing compatible products. modern, specialised commercial agricultural enterprises or groups of issn 1822-8402 european integration studies. 2010. no 4 128 specialised farms, co-operative companies or joint stock companies are fit for that task. adam smith in his 18th century work „investigation of character and causes of nations’ wealth” revealed the importance of labour division and specialisation (boaz, 2006). he concluded that labour division appears to be an inevitable precondition for a civilized society. as a development problem gundars ķeniņš-kings (1999) mentions the fact that latvian farmers having enjoyed the lifestyle and work of their parents may not be called entrepreneurs in the common sense. that may explain the existence of the large proportion of natural small farms in latgale. in his other work (2004) ķēniņškings analyses and contrasts latvian, european and american farmers from the point of knowledge level and specialists’ qualification. academician oļģerts krastiņš (2001) renders data, according to which in 1935, following the third land reform, there were more than 44 thousand very small farms in latvia with the owned land area less than 1 hectare and the proportion of small farms of 1-20 hectares of land exceeding 56.7% of the total number. the proportion of farms with the land area exceeding 50 hectares was just 5.6% of the total number owning 24.2% of land. following realisation of the land reform (in the year 2005), the proportion of the unemployed in latgale was two times exceeding the average level in latvia, but the latgalian income – 1.6 times less than the corresponding average figures of latvia (in the process of changes the proportion is still the same in the year 2008). while investigating the factors of economical growth in latvia, i. čurkina (2003) has stated that latvian economical growth is achieved by means of a high proportion of capital and labour capacious production. latgale being the most problematic region of latvia, it has periodically attracted the attention of several researchers. during the last years’ period staņislavs šķesters (2008, 2009) published his investigation results on the land and agrarian reform processes and the results obtained in latgale. the published results of research disclose many questions requiring wider and more profound development investigations. to evaluate reform consequences by objective considerations and more thoroughly, classical and more complex social and economic capacity indicators are to be used. the aim of the study referred to in the present paper is to analyse the latgalian rural farm structure development caused and affected by the agrarian reform, its commercial orientation, production capacity, as well as to clarify the dynamics of the added value in the farms of different economic capacity. the study tasks involved in the aim were the following: to analyse the structure of the latgalian farm forming • the production capacity and affected by the agrarian reform; to clarify the production dynamics of the chief • agricultural branches in the context of the agrarian reform; to evaluate the possibilities of gaining the added • value within groups of farms of different economic capacity. materials and methods to solve the study tasks two information sources were used: the data of the central statistical board of the republic of latvia and economic analysis data of selected agricultural farms (csb), which was performed by the institute of agrarian economics of the republic of latvia (iae) in accordance with the unified eu methodology and the order of ministry of agriculture of the republic of latvia. methods of economic analysis and synthesis were applied, as well. structure of latgale farms forming production capacity capacity of agricultural production is formed by an aggregate of several factors and preconditions, it may be characterised by different indicators. to solve the study task, the present paper uses a complex indicator – economic magnitude of the farm, characterising its potential in creating the added value and, to a large extent, competitiveness (csb, 2007). in turn, economic analysis evaluating operative activity calculations of the farm, uses such an indicator as the total standard gross coverage of the farm (tsgc), which means also economic magnitude of the farm, in terms of money. it is calculated for each branch – a hectare of field crops, domestic animals per year, by multiplying with the branch magnitude – number of hectares and domestic animals. by summimg up all the gross coverage of branches (sbs), a total gross coverage of the farm is obtained, which is called also the economic magnitude unit of the farm. such calculations (csb) are performed annually by the latvian state institute of agrarian economics (v. bratka, e.a.), following the appropriate order of the ministry of agriculture and the unified statistic methodology of the eu commission. for studies included into the present paper, the mentioned data of csb have been used expressing economic magnitude of farms in economic magnitude units (emu), the unit value being eur 1200, or lvl 801. the latvian central statistic board (csb) data classify the latvian agrarian farms into three economic magnitude groups: 4<7.9 emu – small farms, 8<39.9 emu– medium size farms and >40 emu – large farms. structural survey results in turn are classified in a more detailed manner – as seven groups, see table 1. issn 1822-8402 european integration studies. 2010. no 4 129 table 1. classification of farms of latgale region according to production capacity, year 2007 groups of farms number of farms % of the total number agriculturally used land (aul) thous. ha % of the used aul small scale economies, emu of which <2 32589 82.5 220.0 47.9 very small (emu 2.0-3.9) 4251 10.8 71.7 15.6 small (emu 4.0-7.9) 1702 4.3 50.3 11.0 medium small (emu 8.0-15.9) 580 1.5 33.2 7.2 medium (emu 16.0-39.9) 273 0.7 34.7 7.6 medium large (emu 40.0-100) 69 0.2 22.9 5.0 large, emu of which >100 28 01. 26.4 5.8 source: csb data and authors’ calculations. according to the data in table 1 one may conclude that more than four-fifths of latgalian farms belong to the group of natural small scale economies the production volume of which is less than 2 emu. nevertheless, the next indicator shall be evaluated in particular – those natural small scale economies use less than a half of the total agriculturally used land of the region. furtheron one sixth of the aul of the region is used by very small farms (emu 2.0-3.9), the number of which exceeds one tenth of the total number of all the farms. just 28 farms of the region are currently considered to be large (emu >100), each of them managing about one thousand hectares of aul, as an average. a very small number of farms belong to the group of medium and medium large producers (0.9%), while the potential growth of them is characterised by the fact that 1% of the large (medium, medium large and large) farms of latgale is already managing almost one fifth of the aul. in the year 2007 the total number of such farms was 370 with the average aul area 227 ha. production capacity of farms is objectively appraised by the activity target – the level of manufacturing of products – proportion of products manufactured for sale (see table 2). table 2. classification of agicultural farms of latgale region according to their activity targets, years 2005 and 2007 activity target group number of farms proportion of number of farms, % 2005 2007 2005 2007 all the products manufactured for sale 367 671 0.7 1.7 at least 75% of entire products are manufactured for sale 5781 4976 6.3 10.9 natural small scale economies not producing for sale 30418 21523 66.3 54.5 semi-natural farms, selling 10-74% of manufactured products 11791 12558 26.7 31.8 all the farms 45880 39492 100 100 source: csb data and authors’ calculations as shown by the data and calculations in table 2, the share of commercial farms producing for sale is very small, nevertheless, during the last years their number has grown, which might be considered as a progress. the second group shows the farms predominantly (at least to the extent of 75%) producing for sale, their proportion is small as well, but considerably increased. the absolute number and proportion of natural small-scale economies not producing for sale at all has diminished, but it still constitutes the majority of the total number. very large is the number and proportion of the fourth group, selling a part of the production (10-74%). on the whole, the evaluation shows the small scale economies and small farms as characteristic for latgale, which either cannnot, do not know, or do not want to produce for sale and 85% of farms can be classified as natural or semi-natural ones. the author’s previous studies (šķesters, 2008) clarified the farm structure of the post-reform period as continuously changing with constantly diminishing number and proportion of natural small-scale economies the production of which being concentrated in larger commercial agricultural enterprises. the process of consolidation and concentration is going on, which is shown by data and calculations of table 2. the restructuring results or consequences are convincingly characterised by the total standard gross coverage obtained by farms (see table 3). as shown by the data and calculations in table 3 one third of the total standart gross coverage (tsgc) in the latgale region still is produced by natural smallscale economies. large percentage still is reteined by semi-natural small farms (2.0-3.9 emu), the share of which in tsgc exceeds 17%. that means, half of the tsgc in latgale still forms the natural economies and small farms. issn 1822-8402 european integration studies. 2010. no 4 130 table 3. total standard gross coverage within latgale region company capacity groups, year 2007 farm groups, acording to emu total sbs, thous. ls group percentage, % tsgc per 1 ha of the aul ls % natural small scale economies, emu <2.0 17774.01 33.0 80.79 100 very small (emu 2.0-3.9) 9250.10 17.2 129.01 159.7 small (emu 4.0-7.9) 7399.61 13.7 147.11 182.1 medium small (emu 8.0-15.9) 4951.42 9.2 149.14 184.6 medium (emu 16.0-39.9) 5290.53 9.8 152.46 188.7 medium large (emu40.0-100) 3283.70 6.1 143.39 177.5 large (emu >100) 5963.51 11.1 225.89 279.6 total 53912.80 100 source:csb data and authors’ calculations nevertheless, the post-reform situation in latgale more completely and objectively may be characterised by the tsgc per 1 ha of the really used aul. that may be considered as the management effectivity indicator. following the calculations given in table 3, the tsgs per ha consequently grows alongside with growing economic magnitude of farms and the large farms show almost three times higher effectivity than that of the first group. dynamics of the chief branch total productivity to evaluate more objectively the land and agrarian reform consequences, the analysis is made for a longer time period – 30 years (see table 4). table 4. dynamics of total production under the impact of agrarian reform in latgale,the 1975 – 2008 years time period indicator 1975 1980 1986-1990 2000 2006 2008 cereal harvest, thous.t 208.3 223.0 326.3 118.1 143.2 264.5 potatoe harvest, thous.t 120.7 109.0 78.2 15.6 15.4 109.8 produced meat, thous.t 50.0 64.3 79.0 12.5 12.1 12.6 produced milk, thous.t 276.1 251.9 315.0 217.27 178.6 155.2 source: csb data several conclusions may be drawn from table 4: production of the main cereal harvest in latgale still • hasn’t reached the pre-reform level; harvest of another particularly characteristic culture • for latgale are potatoes; dramatically lower and deplorable is the current meat • production level; although almost every latgale natural small-scale • economy and small farm is characterised by a cow or several cows, the total milk production is still lagging behind the pre-reform yield level. added value generation indicator of the net added value has ben included into the study programme with the aim to clarify the impact of land resource consolidation and production concentration upon the economic effectivity and evaluation of process development dynamics and tendences. to reach that target three indicators were selected: added value per hectare of actually used land; • added value per one lats of total production; • to evaluate labour productivity – added value per • each lats invested into agricultural labour. table 5. net added value per 1 ha of used land in different magnitude of farms of latgale region, time period of years 2003 – 2008 economic magnitude of farms years of study very small (emu 2<4) small (emu 4<8) medium large (emu 40<100) lvl % lvl % lvl % 2003 33.54 29.87 30.42 2004 101.97 100 154.72 100 118.57 100 2005 110.90 109 148.44 96 77.54 65 2006 120.67 118 136.32 88 154.08 130 2007 121.81 119 174.82 113 182.90 154 2008 109.63 107 123.46 80 156.60 132 source: authors’ calculations, following the csb data issn 1822-8402 european integration studies. 2010. no 4 131 according to the data and calculations in table 5, the following logical tendences may be traced: the added value level increases in all the economical • groups, but the pace of the increase and the achieved level differs even more considerably; the most explicit progress is marked in the group of • medium range farms, where during the last years of the analysed period the net added value has grown one point five times; during the last year of the analysed period, the third • group of farms (the medium), the yield per hectare has been higher than that of the natural small-size economies; in the time period 2006-2007 the progress has been • more rapid in the group of medium size farms (emu 40<100). as shown in table 6, evaluations do not include data on the start of the analysed period – the year 2003, as sharp differences could require another calculation methodology. the net added value provision per each ls of production is shown in table 6. table 6. net added value per 1 ls of products in different farms of latgale region, years 2003-2008 economic magnitude of farms years of study very small (emu 2<4) small (emu 4<8) medium large (emu 40<100) lvl % lvl % lvl % 2003 0.17 0.20 0.26 2004 0.53 100 0.76 100 0.63 100 2005 0.47 89 0.55 72 0.37 59 2006 0.51 96 0.56 74 0.65 103 2007 0.57 107 0.59 77 0.49 78 2008 0.45 85 0.46 60 0.41 65 source: authors’ calculations, following the csb data table 6 does not show definite regularities, nor tendencies to be explained by production costs within economic magnitude groups or technologic differences. further on, authors analyse labour productivity dependence on the economic magnitude of farms (see table 7) and its relation to the net added value level. table 7. net added value per 1 agicultural labour unit in different farms of latgale region, years 2003-2008 economic magnitude of farms years of study very small (emu 2<4) small (emu 4<8) medium large (emu 40<100) lvl % lvl % lvl % 2003 379 100 806 100 1269 100 2004 1152 304 100 3709 460 100 5089 401 100 2005 1298 342 113 3736 463 101 ... ... ... 2006 1472 388 128 3295 409 89 5381 424 106 2007 1644 434 143 3393 421 91 9424 743 185 2008 1940 511 168 2858 354 77 6337 499 124 source: authors’ calculations, following the csb data the calculations in table 7 present convincing changes and definite tendencies in the dynamics, as well as relating to the economic magnitude of farms: labour productivity in the agriculture of latgale • sharply inceases alongside with the growth of economic magnitude of farms; positive labour productivity dynamics is marked in • all the groups of economic magnitude; effectiveness of agricultural labour has progressed • mostly in the third group, i.e., the large farms (emu 40<100); the group of very small farms has undergone very • positive changes. since the year 2005 larger agricultural enterprises have emerged in latgale with emu 100<250. the study analysis of them is shown in table 8. table 8. the added value generation level in larger (emu 100<250) agicultural enterprises of latgale region, years 2005-2008 added value, ls largest enterprises (emu 100<250)2005 2006 2007 2008 per agricultural labour unit (1 alu) 6199 6157 9034 7982 per 1 ls of products 0.50 0.55 0.56 0.31 per 1 ha really used land 109.78 194.31 194.86 105.99 source: authors’ calculations, following the csb data issn 1822-8402 european integration studies. 2010. no 4 132 as shown in table 8, such large farms are manifesting high labour productivity, consequently growing net added value, counted per 1 ls of production and within the analysis period of 2006-2007 the created value added progress per 1 ha of actually used land is high. conclusions structure of natural and semi-natural farms created 1. as a result of the land and agrarian reform in latgale region consequently and radically changes as the number of natural small-scale economies and very small farms is diminishing under the impact of consolidation of land resources into large and larger agricultural production enterprises. two thirds of agriculturally used land is still owned by natural small-scale economies and very small farms. the majority of farms in latgale do not manufacture 1.1. products for sale, they are natural farms alongside with a large portion of semi-natural farms selling just 10-74% of products. economically justified is the motion of latgale’s 1.2. farm structure towards increasing the number and proportion of commercial farms manufacturing their products exclusively for sale. prevalence of natural small-scale economies and 2. small farms in latgale radically hampers production effectivity as the standard gross coverage per hectare of the actually used land in the large commercial enterprises appears to be 2.8 times greater than that of the small farms. production volume of the chief branches in latgale is 3. radically lagging behind the level registered in the prereform period and at the dawn of the agrarian reform. generation of the added value is directly related 4. to the consolidation of land areas of farms and concentration of production – under the impact of growth of economic magnitude of farms grows the net added value per 1 ha of actually used land, per 1 ls of products and per each agricultural labour unit. references agrarian farms of latvia, year 2007. 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(2008).results of the second stage of land reform in the latvian region of latgale – research of rural development, pp.67-68; šķesters s., špoģis k. (2008) process of origin and the first stage of the land reform and evaluation of results in the latgale region. economic science for rural development, no.15, pp.229-239; šķesters s., špoģis k. (2009) land market in the eastern frontier of the european union – latgale region, latvia. siauliai: siauliai university; under the impact of change, the different latvia is retained (2007). sc. head o.krastiņš, e.vanags, riga: csb, p.122. the article has been reviewed. received in april, 2010; accepted in may, 2010. 166 issn 1822 – 8402 european integration studies. 2010 no 4 information about the article’s authors baraškina irēna, phd student, agro-marketing, organic farming, international marketing, territory marketing, marketing communication; latvia university of agriculture, phone nr. +371 26155916, e-mail: irena.baraskina@ llu.lv bernotienė neringa, mgr., social science; lr ministry of health, neringa.bernotiene@sam.lt. brence ieva, mg.soc., business administration, university of latvia, ieva.brence@lu.lv. brencis ainars, mag.soc.sc. school of business administration turiba. graudu 68, riga, lv-1058, latvia, 371 29453616, ainarsb@turiba.lv specialisation: tourism and destination marketing briška iveta, mg.soc.sc, riga stradiņš university, phone: +371-29208924, e-mail: bri888@inbox.lv burinskas arūnas, mg.ec.sc., mg.law.sc., lawyer at attorney office, lithuania; e-mail: burinskas.arunas@ gmail.com. burinskienė aurelija, mg.soc.sc., ph.d. student at vilnius gediminas technical university, lithuania; e-mail: aurelija.burinskiene@vgtu.lt. čingule sanda, professional master’s degree in economics and business management, latvia university of agriculture, phone: +353862546899, email: sanda.cingule@gmail.com daugėlienė rasa, assoc. prof. dr. of social sciences (management and administration), kaunas university of technology, institute of europe; e. mail: rasa.daugeliene@ktu.lt; phone: +370 37 30 01 39 dubinas valentinas, doctor of social sciences, associative professor. science field management and marketing. vilnius gediminas technical university. phone (85) 244 21 38, mobile phone: 867438469. e-mail: valentinas. dubinas@gmail.com. dvarionienė jolanta, dr. senior researcher, cleaner production, environmental impact assessment; institute of environmental engineering, kaunas university of technology; jolanta.dvarioniene@ktu.lt gaižiūnienė jurgita, phd. student, hw management systems and their possibilities for improvement, integrated waste management; institute of environmental engineering, kaunas university of technology; jurgita. gaiziuniene@ktu.lt gapšys albertas, chief of the division of market research of agricultural products. science field – marketing of agriculture and food products. lithuanian institute of agrarian economic. phone: (85)261 09 48, mobile phone: 861616129. e-mail: albertas@laei.lt. greblikaitė jolita, lecturer of institute of europe, kaunas university of technology; tel. +370 37 300139, e-mail jolita.greblikaite@ktu.lt grizane tamara, mba, phd student department of business and management, faculty of economics, latvia university of agriculture. phone: +37126353509 e-mail: aramat49@inbox.lv. junevičius algis, assoc. prof. dr. technical sciences, kaunas university of technology, institute of europe, department of european studie; address: kaunas university of technology, institute of europe, kęstučio str. 8, kaunas. e-mail: algis.junevicius@ktu.lt ; tel.: +370 37 225216 issn 1822-8402 european integration studies. 2010. no 4 167 justinavičienė kristina, master degree, kaunas university of technology, institute of europe; liethuanian academy of physical education, project leader; email: kriste.just@gmail.com; phone: (+370) 616 30101 kreituse ilga, dr. hist., assoc. professor; riga stradiņš university; +371 67 409 161; ilga_kreituse@rsu.lv kriščiūnas kęstutis, prof. habil dr. of technical sciences, kaunas university of technology, institute of europe; +370 37 30 01 37, e-mail kestutis.krisciunas@ktu.lt latviete ilze, professional master’s degree in economics and business management, latvia university of agriculture, phone: +37126358706, email: ilze.latviete@lm.gov.lv magone iveta, mg. soc., phd student, auditor; university of latvia, economic and management faculty, aspazijas blv. 5, riga, lv-1050; e-mail: imag@latnet.lv melnikas borisas, professor, habil.dr. , social science, management and administration; economics. vilnius gediminas technical university, + 370-5-2744878, melnikas@vgtu.lt merkevičius juozas, assoc. prof. dr., social science; vilniaus gediminas technical university, juozas. merkevicius@vgtu.lt. merkuryeva galina, dr.sc., dr.sc.ing., professor at the department of modelling and simulation, riga technical university, latvia; e-mail: gm@itl.rtu.lv. meženiece marta, mg. european studies, phd student in agrarian and regional economic study programme at latvia university of agriculture; phone +371 29338033, martai_m@inbox.lv. mihejeva līga, doc.oec, professor, department of business and management, faculty of economics, latvia university of agriculture. phone: +37163025170. e-mail: efuzn@llu.lv mikulskienė birutė, assoc. prof. dr., mykolas romeris university, 8 610 02511, birute.mikulskiene@mruni.lt muška aina, dr.oec., assistant professor. indicating science fields are enterpreneurship, quality management, tourism, latvia university of agriculture, faculty of economics department of entrepreneurship and management, phone +371 26188389, aina.muska@llu.lv ozols juris, dr.phys. school of business administration turiba. graudu 68, riga, lv-1058, latvia, 371 29453616, tourism and destination marketing. pužulis armands, doctoral student in university of latvia. theses “the role of boundaries in spatial organisation in latvia”. phone: +371 22020778, e-mail: aba5@inbox.lv rivža baiba, dr. habil. oec., regional economics and development, marketing, marketing research; academician of latvian academy of sciences, latvia university of agriculture, phone nr. +371 29254469, e-mail: baiba.rivza@llu.lv rungule ritma, dr.soc.sc., assoc. prof., riga stradiņš university, phone:+26446362, e-mail: ritma.rungule@ rsu.lv siliņa linda, dr.oec., assistant professor, indicating science field is structural development of agriculture, latvia university of agriculture, faculty of economics department of entrepreneurship and management, phone +37129462090, linda.silina@llu.lv šķesters staņislavs, mg.oec., phd student, indicating science fields are land reform, land market, rural development, latvia university of agriculture, faculty of economics department of entrepreneurship and management, phone +371 26188389, stanislavs.skesters@saeima.lv issn 1822-8402 european integration studies. 2010. no 4 168 šķiņķis pēteris, doctor of geography, associated professor in university of latvia, faculty of geography and earth sciences, scientific interests: regional policy in latvia, formation and development of administrative division in latvia; changes of social structures in latvian towns and country; phone: +371 29107612, e-mail: euriks@inbox.lv sloka biruta, dr.oec., professor, university of latvia, biruta@eurofaculty.lv špoģis kazimirs, dr.habil.agr., indicating science field is agrarian economics, risks in agriculture and other, latvia university of agriculture, faculty of economics department of entrepreneurship and management švēdere dana, mg.oec., latvia university of agriculture, faculty of economics department of entrepreneurship and management, phone +37126636399, efdok@llu.lv vikmane elina, phd stud., riga stradiņš university; +371 26 456 456; elina.vikmane@gmail.com vorončuka inesa, dr. oec. professor, university of latvia, economic and management faculty, aspazijas blv. 5, riga, lv-1050 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 32 submitted 04/2018 accepted for publication 10/2018 european integration studies no. 12 / 2018 pp. 32-49 doi 10.5755/j01.eis.0.12.21870 the european mind-set, european opinion and economic developments in 2007–2017: major changes of public opinion and the european mind-set in 2004–2018 eis 12/2018 abstract the european mind-set, european opinion and economic developments in 2007–2017: major changes of public opinion and the european mind-set in 2004–2018 http://dx.doi.org/10.5755/j01.eis.0.12.21870 jari kaivo-oja, theresa lauraéus finland future research centre, turku school of economics, university of turku the purpose of the study: this study reports the major changes in public opinion in the european union. the first part of the study includes citizens’ assessments of the most important issues facing the eu at the moment. the second part of study reports the changes in (1) national economic situation evaluations, (2) european economic situation evaluations, (3) european economic crisis recovery evaluations (the impact on the crisis on jobs), (4) evaluations of euro-optimism vs. pessimism, (5) evaluations about the support for the euro area and (6) evaluations support for the euro. all these changes of the standard eurobarometer results are mirrored in relation to the long-run gdp changes of the european union (eu-28). the third part of the study analyses the four key elements of european mind-sets. in general decision theory and general systems theory, a mind-set is a set of assumptions, beliefs, methods or notations held by one or more people or groups of people. in the field of future studies, the concept and analysis of mind-sets have been discussed in many global studies. from this perspective, it is interesting to elaborate the european mind-set and its status. the study is based on the very latest “the future of europe” datasets (september 2017). from these three perspectives, this study is relevant for european integration studies. a brief description of study design and tasks: this study analyses the european mind-set in eu-27 countries and in other key regional categories of the european union in 2017. the study also analyses some changes in the european cognitive mind-set in 2006–2017. in the field of mind-set analysis, the critical issue of mental inertia will be discussed in this study. the study is based on the statistical platform of the european statistical research questionnaire which has some common platform elements in eurobarometer studies. methods: the study is based on the databases of previous eurobarometer survey studies in 2006–2015 (eurozone, eu-25, eu-28 and other regional sub-categories) and eurobarometer published in september 2017 (with eu-25 or eu-27 categories). the methods of eurobarometer studies are conventional survey study research methods and statistical indicator research methods. we compare some pre33 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 vious key eurobarometer results with the database of eurobarometer 2017. the full analysis of four mind-sets is performed with eurobarometer database of year 2017. some analyses and conceptualisations are of a pilot-type methodological nature. key results: the study provides empirical insights about the european mind-set changes in the context of the global and european economy, especially in 2017, on the basis of the latest european future oriented studies of eurobarometer research in 2006–2017. the study analyses and presents some results of the changes in the european mind-set in 2006–2017. the eurobarometer database (eu-27, eu-25 and other eu’s regional categories) are sorted in such way that we can analyse the four key elements of the european mind-set in a systematic way and draw some logical conclusions based on the eurobarometer database of “the future of europe”. a key result of the study is a novel analysis of four european mind-set categories. these four categories of reporting are global mind-set, collaboration mind-set, virtual mind-set and innovation mind-set. the primary interpretations and conclusions: the present study discusses the innovative and new indicators of european mind-set evaluation (in chapter 5.1.). these indicators are linked to the mindset analysis with the eurobarometer indicators. the economic growth in the euro area and mind-set measurements will be combined in the empirical analyses of the study. the analysis of mind-set and public opinion changes and changes of economic growth are reported for the euro area and for eu-27/ eu-28 regions. the key challenge is to develop four different mind-set indicators to evaluate economic growth and development. for the concept of a mind-set, we propose four key elements, global mindset, collaboration mind-set, virtual mind-set and innovation mind-set. we present a full argumentation of selected categories and cognitive mind-sets. the interpretation of new results is a very challenging task because there will be a eu-27 category after the brexit process. keywords: standard eurobarometer, “the future of europe” database, european union, public opinion, european mind-set, eu-28 countries, global mind-set, innovation mind-set, virtual mind-set, collaborative mind-set, economic growth, mind-set indicators. introduction the aim of this study is to report major changes in public opinion in the european union and some relevant results concerning european citizens’ future orientations. we also aim to propose and present some key indicators of european mind-set evaluation (chapter 5.1.). our contribution in this article is that we link the eurobarometer indicators to the mind-set analysis. our objective is to analyse the mind-set changes and key changes of economic growth in the euro area. in our analyses, we pay special attention to positive and negative evaluations and gaps in these positive and negative evaluations of european citizens. many corporate leaders and managers need an updated understanding of these management issues: a global mind-set, a virtual mind-set, an innovative mind-set and a collaborative mindset are all key issues in the changing environment. corporation leaders and managers need to understand the key issues which are highly relevant for these mind-sets, especially for an innovative mind-set. global mind-set is changing the threats of globalisation into opportunities. in a global mind-set, the leaders’ dynamic capability is to use a worldwide, broad perspective to comprehend the unexpected trends and opportunities towards realising personal, professional and organisation’s goals (lahiri et al. 2008, kaivo-oja & lauraeus 2018, kaivo-oja 2011). innovation mind-set is changing the threats of rapid technological change and scientific discoveries into opportunities. an innovation mind-set is a mental framework of leaders and decision makers. dynamic capability is to create the development and implementation of new fresh ideas and to solve problems and, therefore, finally implement new ways to do business and govern policy (lahiri et al. 2008, kaivo-oja & lauraeus 2018, kaivo-oja 2011). virtual mind-set is changing threats of hypercompetition into opportunities. a virtual mind-set e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 34 allows top leaders with dynamic capabilities to focus their attention on an organisation’s core competencies (lahiri et al. 2008, kaivo-oja & lauraeus 2018). collaboration mind-set is changing the threats of globalisation, sti changes and hypercompetition into promising opportunities. a collaboration mind-set as a dynamic capability enables leaders to realise the importance of partners and thereby overcome the communication, cultural and temporal barriers (lahiri et al. 2008, kaivo-oja & lauraeus 2018). our target is to present the full argumentation of selected categories and cognitive mind-sets. the study also analyses some key changes and tendencies in the european cognitive mind-set in 2004–2018. in the field of mind-set analysis, the critical issue of mental inertia will be discussed in this study. the study is based on the statistical platform of the european statistical research questionnaire “the future of europe”, which has some common platform elements in eurobarometer studies (european commission 2017). we also analyse conventional standard eurobarometer datasets (european commission 2018) to provide a big picture about changes in public opinion in the european union. figure 1 mind-sets matter in the fields of european integration policies (modification of lahiri et al. 2008) theory and methodological frame work the study is based on the databases of previous eurobarometer survey studies in 2004–2018 (eu-28) and standard eurobarometer published in september 2018 (with eu-25 or eu-27 categories). the combined methods of the eurobarometer studies are conventional survey study research methodology. the standard eurobarometer was established in 1974. each survey consists of approximately 1,000 face-to-face interviews per country. we compare some previous key eurobarometer results with the database of eurobarometer 2018. there has been scientific discussion about the eurobarometer and its scientific research design. especially höpner and jurczyk (2015) have reviewed previous surveys from 1995 and 2010 and presented some critical points of view. they have noted that the eurobarometer systemically produces “integrationist” outcomes and there are needs to be critical, if one observes the violations of the rules of good public opinion research. höpner and jurczyk (2015, 6) present the rules of a good opinion poll: 1. it must be simple and understandable. 2. it must be non-hypothetical. 3. it must require only knowledge that respondents actually have. 35 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 4. it must avoid double stimuli. 5. it must avoid unclear terminology. 6. it must not have inexact time references. 7. with multiple items, it must have both negative and positive response options. 8. it must avoid insinuation and leading questions. 9. it must have response options that are balanced, logically complete and free of overlap, and 10. it must avoid contextual effects. when we elaborate this list of ten rules, we can note that it is not easy to make a perfect survey questionnaire. we have to face this methodological problem in every survey questionnaire research project. especially when we study opinions, values and mind-sets, we must be fully aware of the restrictions of survey questionnaires. there is always the possibility of ethnocentric biases and measurement problems (see e.g. leong & ward 2006). if we expect to find and have a 100% perfect survey questionnaire, very few empirical research articles would be published in the fields social and cultural studies. as höpner and jurczyk (2015, 6) note, “single violations will always occur, even in the best opinion polls”. however, we always need critical reflections of the eurobarometer questionnaire and its questions. the eurobarometer is a series of surveys, which have been conducted twice yearly since 1973 across all the member countries of the eec/ec/eu. typically, approximately 1,000 persons aged 15 years or older are interviewed in each member country and the exact number varying according to the size of the country. for example, in germany approximately 1,500 persons are interviewed, but in smaller countries, in luxemburg, cyprus and malta, this figure is 500 persons (höpner & jurczyk 2015, 1). one strength of the eurobarometer survey is that several standard questions recur over long periods of time. this study heavily relies on this strength of the eurobarometer. another strength of the eurobarometer is that it also allows country-by-country comparisons. that is why various empirical studies have been made relying on the eurobarometer. our approach in this study can be compared to the previous survey study approach of schwartz (1994, 2003, 2006), who presented seven cultural value dimensions (hierarchy, embeddedness, harmony, egalitarian commitment, intellectual autonomy, affective autonomy and mastery). another similar kind of approach was geert hofstede’s (1979, 1980, 2001, hoofstede & hoofsted 2005) six dimensions of cultural differences (power distance, individualism, uncertainty avoidance, masculinity, long-term orientation and indulgence vs. restraint). our theoretical platform approach introduces four key elements of “european mind-set”: global mind-set, virtual mind-set, innovation mind-set and collaboration mind-set. this approach can be linked to the contribution of lahiri, perez-nordtvedt and renn (2008) and to previous global and regional mind-set analyses (see e.g. naisbitt 2006). all of these three approaches are based on survey data analysis. of course, like in all similar kinds of studies, there is a lot of room for improvement in survey data, questionnaire designs and critical interpretations. the analysis of four mind-sets is performed with the 2017 eurobarometer database. some analyses are of a pilot-type of methodological nature. “pilot-type of methodological nature” means that no one has presented a similar methodological solution before this solution. for example, (1) gap analysis, (2) the integration of the standard eurobarometer data and gdp index data, (3) combo changes analyses and (4) mind-set analyses based on the eurobarometer data are these kinds of pilot-type analyses. the study provides empirical insights about the european mindset changes in the context of global and european economy especially in 2017 (“the future of e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 36 europe”, september 2017) on the basis of the latest european future oriented studies of eurobarometer research in 2004–2018. the study analyses and presents some results of the changes in the european mind-set in 2004–2018. a key result of the study is a novel analysis of four european mind-set categories. these four categories of reporting are global mind-set, virtual mind-set, collaboration mind-set and innovation mind-set. in this chapter, we present some key empirical analyses of public opinion in the european union. in fig. 2, we report results about trust in national governments and parliaments and trust in the european union. this analysis covers the years 2004–2018. we can observe that, in the long run, trust in the european union has decreased from 50% to 40%. trust in national governments and in parliaments has also decreased in the period of 2004–2014, but in recent years, 2015–2018, trust in national political institutions has slightly increased. trust level trends in national government and trust in national parliament have been pretty much at the same level in the survey evaluation period of the eurobarometer. in the last eurobarometer study in 2018, the situation was that an increasing majority of europeans distrust national governments (61% “tend not to trust”, +2 percentage points since autumn 2017) and national parliaments (60%, +2). they also “tend not to trust” the european union but to a lesser extent (48%, unchanged). we can say that confidence in the european union and national political institutions could be at a better level. in fig. 3, we have analysed gaps between trust in the eu and national trust evaluations of european citizens. this analysis provides information about the difference in european and national policies. key finding is that europeans trust more in the european union than in their national political institutions, but after 2009 this the leading trust factor of the european union has shrunk. key finding is that trust in the european union was much higher than trust in national institutions in 2004–2008 than in the period of 2009–2018. the difference between trust in the eu and national trust variables has fallen considerably in 2009–2018. considerable fall in trust ended in 2012 and more balanced trust trend in the european union was reached in 2012–2018. in fig. 4, we report key trends of image of the european union in 2006–2018. we can say that the image of the european union has deteriorated since the beginning of the evaluation period in autumn 2006. in total, a positive image was estimated by approx. 50% of interviewed european citizens but it fell to 30% in 2011. image improved slightly to a higher level after 2013, when approx. 40% of the citizens rated the totally positive image. correspondingly, totally negative image estimate in 2006 was evaluated by 15% of european citizens. at the turn of the year 2012 and 2013, the image was totally negative for 30% of europeans. in this case, the eu’s image is at its worst. after that, the image has returned to a more positive level, with an estimated 21% of “totally negative” citizen assessments in spring 2018. in spring 2018, a majority of europeans have a positive image of the eu (40%). their proportion continues to exceed those who have a neutral image of the eu (37%), while just above a fifth of europeans have a negative image of the eu (21%). these image results have remained perfectly unchanged since spring 2017. in fig. 5, we report the gap analysis concerning citizens who had a totally positive minus totally negative image of the eu. our gap analysis reveals considerable changes in the public image of the european union. the bottom level of the image was reached in 2012–2013. after these image crisis years, the image of the european union has improved. public opinion about the key issues of the european union 37 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 figure 2 trust in national governments and parliaments and in the european union (%, trend to trust). source: european commission 2018 figure 3 gaps of trust: eu vs. national government and eu vs. national parliament, autumn 2004 – spring 2018. source: european commission 2018. note: this gap analysis informs about eu trust in relation to national institutions figure 4 the image of the eu. totally positive, neutral, totally negative, don’t know. source: european commission 2018 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 38 in fig. 6, we report trends of the leading concern at the eu level. these trend analyses reveal considerable changes in the political environment of the european union. the key changes in long-term trends have been the following: (1) since 2011, concerns about the state of member states’ public finances have fallen; (2) after 2013, there has been a reduction in unemployment concerns; (3) after 2012, concerns about immigration have strengthened strongly, (4) after 2014, worries about terrorism have increased among european citizens. a fifth finding is that europeans have not been very much worried about europe’s position in the world and climate figure 5 long-run image of the eu. gap analysis: gap = totally positive image assessments (%) minus totally negative image assessments (5) of the eu. source: european commission 2018 figure 6 the most important issues facing the eu at the moment. source: european commission 2018 change, even though these issues also show a slight increase in concern over long-term trend analysis. these changed citizens’ concerns are certainly influenced by the european union’s policy both directly and directly. the political agenda of the eu is different today than it was in 2011. certainly, the focus of migration and terrorism matters is higher than it was in 2011 in the eu. in spring 2018, immigration remains the leading concern of europeans at the eu level, with 38% of all mentions (-1 percentage point since autumn 2017). at 29%, terrorism remains in the second 39 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 position of concern at the eu level, although it has lost ground since autumn 2017 (-9, and -15 since spring 2017). the economic issues lag behind, even though they have registered slight increases since autumn 2017. the economic situation is in third place (18%, +1), ahead of the state of member states’ public finances in fourth (17%, +1) and unemployment in fifth (14%, +1). in fig. 7, we report the concerns of the most important issues in national policies in the eu region. with regard to these national concerns, we can state the following: (1) unemployment has been a major concern at the national level in the long term, but worries about unemployment have fallen since the spring of 2013 in the eu countries; (2) the economic situation has been a major concern in the eu countries in the long run evaluations; (4) other concerns such as health and social security, rising prices and pensions have since 2014 been on the same levels, (5) concerns for price levels and health and social security have fallen in a long-term perspective. concerns about immigration have risen in the national evaluations of the eu. in autumn 2018, in the first position at the eu level with 38% of mentions, immigration is seen as the most important issue facing the eu in 21 member states (up from 14 in autumn 2017). immigration is the second most important concern in all the remaining member states, except portugal, where it comes in fifth place (with 16% of the mentions). figure 7 the most important issues facing eu countries at the moment. source: european commission 2018 in autumn 2018, terrorism is mentioned by 29% of europeans and is in first position in seven countries. in these countries, it reaches its highest scores in lithuania (49%), cyprus (44%) and ireland (40%). however, terrorism is also much cited, although in second position, in the czech republic (47%), bulgaria and poland (both 42%) and latvia (41%). overall, it is the second most important issue in 15 member states. in germany, terrorism stands in equal second place with the state of the member states’ public finances, with 24% of the mentions. in autumn 2018, with 18% of the mentions at the eu level, the economic situation is in third position: it is mentioned by at least a quarter of the population in greece (30%), cyprus (26%) and spain (25%). in fourth position at the eu level, the state of member states’ public finances is mentioned by 17% of eu citizens, most strikingly in the netherlands (34%), germany (24%), and austria and portugal (both 22%). high proportions of citizens also mentioned this item in greece (27%) and finland (22%). in fifth position, unemployment is mentioned by 14% of the respondents at the eu level. it reaches its highest score in italy (28%), where it is in second place. in equal sixth e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 40 place at the eu level (level with climate change) with 11% of the mentions, the eu’s influence in the world reaches its highest score in the netherlands gross domestic product at market prices where it is the third answer given (24%). climate change reaches its highest score in sweden, where it is in second position (29%). climate change is in third place in finland (25%), denmark (24%) and ireland (15%, equal with rising prices/inflation/cost of living), and it is also mentioned by more than a fifth of respondents in the netherlands (22%). in autumn 2018, other items are mentioned by 10% or less at the eu level. public opinion and economic growth in eu-28 region this chapter provides integrated analysis of public opinion and economic growth in the eu-28 region. integrated analysis means that we present combos of eu public opinion data and eu economic growth data. a combo (or combination chart) is a chart that plots multiple sets of data using two different chart types. a typical combo chart uses a line and a column. the data base of these analyses is the eurobarometer report in 2018 (european commission 2018 and gdp index data base of the eurostat (chain linked volumes, index 2010=100, eurostat 2018). the integrations of these two key european datasets provide new information about recent socio-economic changes in the european union. analyses are reported about (1) economic situation, (2) european economic situation, (3) european economic crisis recovery (the impacts of crisis on jobs), (4) euro-optimism (or pessimism), (5) euro area attitudes and (6) euro currency attitudes. we have constructed gap analyses for these variables. the gap index data is constructed by calculating the totally positive assessments minus the totally negative assessments. in fig. 8, we report trend evaluations about economic situation and gdp index development in the eu-28 region. figure 8 economic situation (gap index) and gdp index development in the eu-28 region, years 2004–2018. sources: european commission 2018, eurostat 2018 these eurobarometer analyses reveal that economic situation analysis in the standard eurobarometer data and gdp index has been interlinked in historical trend analysis. when in autumn 2008 the economic situation was evaluated to be weakest, the gdp index was also at the lowest level. gradually, both important indices have improved and they reached about the same level in 2017 that they had in 2007. recovery from financial crisis has taken about 10 years. in fig. 9, we report trend evaluations about european economic situation and gdp index development in the eu-28 region. 41 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 figure 9 european economic situation and gdp index development in the eu-28 region, years 2004–2018. sources: european commission 2018, eurostat 2018 this empirical data based analysis reveals that european economic situation analysis in the standard eurobarometer data and gdp index has been interlinked in historical trend analysis. gradually, both important indices have improved, and they reached about the same level in 2017 that they had in 2004. this analysis is a little bit different compared to the previous analysis because there was an additional period of economic euro-pessimism in 2010–2011, which we were not able to observe in the previous index analysis. the recovery from the financial crisis has taken about 10 years. in fig. 10, we report trend evaluations about european economic crisis recovery and gdp index development in the eu-28 region. figure 10 european economic crisis recovery and gdp index development in the eu-28 region, years 2009–2018. sources: european commission 2018, eurostat 2018 this analysis does not show a clear linkage between the european economic crisis recovery data and gdp index development. especially in spring 2012, the results of standard eurobarometer were extremely negative. in this historical point, the lack of confidence and disbelief among europeans was at its peak. restoring faith to european economic gain has taken a long time. in fig. 11, we report trend evaluations about euro-optimism and gdp index development in the eu-28 region. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 42 this standard eurobarometer analysis reveals that europe’s bleak years were in 2011–2013. in this case, the mind-sets of europeans were more tinted with pessimistic shades than optimism. another moment of pessimism can be observed in spring 2016 and autumn 2016. in fig. 12, we report trend evaluations about euro area attitudes and gdp index development in the eu-28 region. attitudes towards the euro area have clearly followed economic growth development in europe. as the economy has grown strongly, the attitude towards the euro area has also become a positive one. in fig. 13, we report trend evaluations about the euro currency attitudes and gdp index development in the eu-28 region. furthermore, the attitudes towards the euro currency have clearly followed economic growth development in europe. as the economy has grown strongly, the attitude towards the euro area has also become a positive one. it is interesting to observe that attitudes towards the euro curfigure 11 euro-optimism and gdp index development in the eu-28 region, years 2007–2018. sources: european commission 2018, eurostat 2018 figure 12 euro area attitudes and gdp index development in the eu-28 region, years 2004–2018. sources: european commission 2018, eurostat 2018 43 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 figure 13 euro currency attitudes and gdp index development in the eu-28 region, years 2004–2018. sources: european commission 2018, eurostat 2018 rency were very positive in 2004–2009, but in 2010–2013 there was a period of very negative euro attitudes. the attitude to euro currency has become more positive after spring 2013. in autumn 2018, the attitude towards the euro currency reached the same level as in autumn 2009. mind-set study in the field of future studies, the concept and analysis of the mind-set have been discussed in many global studies (naisbitt 2006, lahiri et al. 2008, kaivo-oja and lauraeus 2018). from this perspective, it is interesting to elaborate the european mind-set and its status. this chapter 5 is based on “the future of europe” datasets (european commission 2017). from this perspective, this part of the study is relevant for european integration studies. the objective of this study is to present the novel analyses of four european mind-set categories. these four categories of reporting are (1) global mind-set, (2) collaboration mind-set, (3) virtual mind-set and (4) innovation mind-set. the competitive landscape is a key element for the european integration environment. globalisation, hypercompetition and rapid technical change create key preconditions for the european integration environment. the key challenge for leaders is to change the threats of competitive landscape into opportunities. the role of human mind-sets is very important in this respect. as we know, the mind matters (lahiri et al. 2008). a global mind-set or the ability to view the world using a broad perspective converts globalisation threats into growth opportunities by thinking beyond geographic boundaries, valuing integration across borders and appreciating regional and cultural diversity. an innovation mind-set is a mental framework that fosters development and the implementation of new ideas. a virtual mind-set, or the ability of managers to hand over their companies’ activities to external providers, turns hypercompetition into prospects for growth by facilitating flexibility and responsiveness. finally, a collaboration mind-set means willingness allowing companies or corporations to engage in business and other partnerships. a collaborative mind-set integrates all other mind-sets which can lead to synergy by business complementarities (lahiri et al. 2008). we can conclude that these four critical mind-sets to manage technological changes and scientific discoveries. some of them are disruptive. the ability to change global mindset: pilot results e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 44 threats into opportunities is a critical asset in the disruption and competition conditions (lahiri et al. 2008, krupp and schoemaker 2014). on the basis of the dataset of “the future of europe”, we can report an analysis of the global mind-set (fig. 14). according to first global mind-set analysis: the major global challenges are (1) social equality 45%, (2) protecting the environment 35%, (3) free trade and market economy 23%, (4) cultural diversity 19% and (5) traditions 13%. on the basis of dataset of “the future of europe”, we can report second analysis of global mindset of europeans (fig. 15). the key result of the global mind-set analysis is: in the european global mind-set, social equality and solidarity and environmental protection are the dominating mind-set in relation to free trade/market economy. cultural diversity and traditions are less dominating mind-set items in relation to free trade/market economy. figure 14 first global mind-set analysis. major global challenges. source: european commission 2017 figure 15 second global mind-set analysis. major global challenges. source: european commission 2017 global mindset: qc3 from the following items, which two our society emphasize in order to face major global challenges? global mindset: major global challenges: key trends in eurobarometer "the future of europe" in 2017 45 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 on the basis of the dataset of “the future of europe”, we can report an analysis of the virtual mind-set (fig. 16). on the basis of the dataset of “the future of europe”, we can report the second operationalisation of the virtual mind-set (fig. 17). virtual mind-set: european virtual mind-set is stronger at home use than in work use and working conditions. figure 16 first virtual mind-set analysis. the use of internet at work and home. source: european commission 2017 figure 17 second virtual mindset analysis. use of the internet at work and home. relative use: home vs. work. relative index analyses. source: european commission 2017 virtual mindset: key trend in eurobarometer "the future of europe" in 2017. internet use at home vs work-index in eurobarometer 2017 virtual mindset: d62.1 and d62.2 use of the internet at work and home virtual mind-set on the basis of the dataset of “the future of europe”, we can report the first operationalisation of the collaboration mind-set (fig. 18). according to the first collaboration mind-set analysis: most of the countries have a totally positive view (70%), a somewhat positive view (54%) and a very positive view (15%). very few countries have a very negative view (6%), but some countries have a somewhat negative (21%), or totally negative view (27%). collaboration mind-set e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 46 on the basis of the dataset of “the future of europe”, we can report the second operationalisation of the collaboration mind-set (fig. 19). the key result of collaborative mind-set analysis is: european citizens are mostly positive in relation eu-28, and the relation of very positive/very negative is 2.5, the relation of somewhat positive/somewhat negative is 2.57, totally positive/totally negative is 2.56, positive collaborative mind-set is quite strong. figure 18 first collaboration mindset analysis. positive or negative view about eu-28. source: european commission 2017 figure 19 second collaboration mind-set analysis. positive or negative view about eu-28. relational index analyses. source: european commission 2017 collaboraition of the dataset: qcs.1 as regards each of the followind countries or group of countries, do you have a positive or a negative view about it? eu-28 collaboraition mindset in relation to eu-28: a positive or a negative view about eu-28 innovation mind-set on the basis of the dataset of “the future of europe”, we can report the first analysis of the innovation mind-set (fig. 20). the key result of innovation mind-set analysis is: in general, europeans consider themselves as tolerant citizens. 47 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 figure 20 first innovation mind-set analysis. tolerance and openness to others. source: european commission 2017 figure 21 second innovation mindset analysis. tolerance and openness to others. relational index analysis. source: european commission 2017 in this study, we have presented and reported three different analyses, which were based on standard eurobarometer (european commission 2018) and “the future of europe” data (european commission 2017). _ the first analysis was a historical analysis of the changes in the european public opinion in general. we analysed the development of confidence and trust vis-à-vis the european union and the national political institutions in general. we also analyse the development of the image of the eu and general concerns of european citizens at european and national levels. the second analysis linked the analysis of the six key barometer variables to economic growth analysis. innovation minset: qc4.6 for each of these values, please tell me if they are best embodied by the eu, by other countries (or groups of contries) in the world or by both? tolerance and openness to others innovation minset: tolerance and openness to others. eu-28/other countries conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 48 _ our combo analyses (combined data charts) revealed that the moods of the european people seem to closely follow the development and changes in economic growth performance. however, there is a need to make more statistical and scientific analyses in this european policy issue, at least, and we need more statistical regression and correlation analyses, which would be worth conducting another research article. when the economy is doing well, the mood improves. if, however, economic development is weaker, people’s mood sinks, and pessimism dominates the european mind-set. this kind of sociocultural processes can be observed when we look at our combo analysis. the eurobarometer analysis also revealed that the atmosphere has not followed the evolution of economic growth completely linearly but has rather shown periods of pessimism and barometer estimates that have remained exceptionally negative. it has been taking time to restore confidence and trust back after economic and financial crisis after 2007. _ the third analysis presented the mind-set analysis on the basis of “the future of europe” datasets. this research was experimental in nature but showed that eurobarometer data offers interesting opportunities for broad and interesting european mind-set research. _ many policymakers, corporate leaders and managers need an updated understanding of management issues: a global mind-set, a virtual mind-set, an innovative mind-set and a collaborative mind-set are all key issues in the european integration environment. cognitive skills and mind-sets of global leaders are an important part of new management thinking. we can note that the awareness of mind-sets and cognitive models is significant for european integration policy. there is a need to conduct more research in this field. references european commission (2017). future of europe. special eurobarometer 467. september-october 2017. european commission, directorate-general for communication, brussels. 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(2015). how the eurobarometer blurs the line between research and propaganda. mpifg discussion paper 15/6. max-planck-institut für gesellschaftsforschung, köln, germany. kaivo-oja, j. 2011. future of innovation systems and systemic innovation systems: towards better innovation quality with new innovation management tools. ffrc e-book 8/2011. finland future research centre. university of turku. turku. kaivo-oja, j. and lauraeus, t. (2017). corporate knowledge management, foresight tools, primary economically affecting disruptive technologies, corporate technological foresight challenges 2008– 2016, and the most important technology trends for year 2017. in lorna uden, wei lu, i-hsien ting (eds.) knowledge management in organizations. 12th international conference, kmo 2017, beijing, china, august 21-24, 2017, proceedings. communications in computer and information science book series (ccis, volume 731), springer international publishing ag, cham, switzerland: 239-253. web: kaivo-oja j., and lauraeus t., (2018). the vuca approach as a solution concept to corporate foresight challenges and global technological disruption”, foresight, vol. 20 issue: 1, pp.27-49, https://doi. org/10.1108/fs-06-2017-0022 49 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 8 / 1 2 krupp, s. and schoemaker, p.j.h. (2014). winning the long game. how strategic leaders shape the future? public affairs, us, new york. lahiri, s., perez-nordtvedt, l. and renn, r.w. (2008). “business horizons, will the new competitive landscape cause your firm’s decline? it depends on your mind-set”, business horizons, vol. 51 no. 4, pp. 311-320. https://doi.org/10.1016/j. bushor.2008.02.004 leong, c-h. and ward, c. (2006). cultural values and attitudes toward immigrants and multiculturalism: the case of the eurobarometer survey on racism and xenophobia. international journal of intercultural relations, vol. 30, 799-810. https://doi. org/10.1016/j.ijintrel.2006.07.001 naisbitt, john, (2006). mind set!: reset your thinking and see the future. collins. schwartz, s. (1994). beyond individualism-collectivism: new cultural dimensions of values. cross-cultural research and methodology series, vol. 18, 85-119. schwartz, s. (2003). mapping and interpreting cultural differences arounfd the world. in h. vinkemn, s. soeters, p. ester (eds.) comparing cultures, dimensions of culture in a comparative perspective. brill, leiden, netherlands. schwartz, s. (2006). value orientations. measurement, antecedents and consequences across the nations. in r. jowell, c. roberts, r. fitzgerald, g. eva (eds.) measuring attitudes cross-nationally – lessons from european social survey. sage, london. about the authors jari kaivo-oja dr., research director,, adjunct prof. finland future research centre, turku school of economics, university of turku address tel. +358 41 753 0244 e-mail: jari.kaivo-oja@utu.fi theresa lauraéus dr., senior researcher finland future research centre, turku school of economics, university of turku fields of research interests phd (information system sciences), m.sc. (interactive multimedia, growing enterprise strategies, econ) address tel. +358 40 353 8296 e-mail: theresa.lauraeus@utu.fi e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 100 submitted 04/2015 accepted for publication 07/2015 european integration studies no. 9 / 2015 pp. 100-112 doi 10.5755/j01.eis.0.9.12799 © kaunas university of technology sustainable local development from perspective of citizens: salaspils municipality (latvia) case eis 9/2015 abstract sustainable local development from perspective of citizens: salaspils municipality (latvia) case1 http://dx.doi.org/10.5755/j01.eis.0.9.12799 inga jekabsone, biruta sloka university of latvia, economics and management scientific institute raiņa boulevard 19, rīga, lv-1586 conditions are very different in the different parts of any country, and the quality of life as well as the impacts produced on the environment depend on a variety of local factors of environmental, economic and cultural nature, and every action must cope with such local conditions, traditions, and attitudes. thereby one of the approaches on assessment of sustainable development could be based on subjective evaluation of citizens of certain municipality. during 2010-2012 in salaspils municipality (latvia) the spiral methodology for measurement of subjective well-being indicators using co-responsibility approach was approbated, which was the basis for establishing the more efficient dialogue with citizens. this research showed results related to sustainable development as well – the methodology provides alternative subjective sustainable development indicators which provides the reach material for local authorities in decision-making process. taking into account all mentioned before the purpose of paper is to analyse the results conducted during this research related to subjective sustainable development indicators contrary to objective sustainable indicators of municipality. in order to achieve the aim the tasks are formulated as follows: 1 to review theoretical background for responsible sustainable development at local level; 2 to analyse best practice of municipalities in ensuring the citizens’ engagement in promoting sustainable development in the municipality; 3 to present the methodology of conducted empirical research at salaspils municipality on assessment the well-being at local level and relation to sustainable development. research methods used: scientific literature studies, several stages of focus group discussions, statistical data analysis, spiral methodology, scenario method. the main findings of the paper – subjective evaluation of economic, social and environment differs from objective measures. it could be explained by the fact that subjective indicators capture the satisfaction of inhabitants by certain moment. in addition, objective indicators don’t show the level of satisfaction what brings each measure unit (eur, %, etc.). also the subjective perceptions of inhabitants affects mentality, culture and other background factors. in addition, it is crucial for sustainable development of the territory to ensure that society is effectively involved in preparation of planning documents of the municipality. it is proposed to use co-responsibility approach in definition and implementation of activities towards sustainable development of municipality. keywords: sustainable development, municipality, citizens’s engagement, subjective well-being, spiral methodology.1 1 the paper is prepared within state research programme ekosoc-lv project “trajectories of social and political transformation in latvia during post-crisis period” (no 5.2.6.) 101 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 the concept of sustainable development was formulated in response to a growing awareness that there are several important relationships between processes such as human and economic development, global and local environmental problems, increase in population and poverty, and changing political structure (malkina-pykh, 2002). local governments are instrumental in the judicious use of natural resources, providing public services and creating local jobs through land use and transit planning, building and infrastructure construction and rehabilitation, investments in energy, water and waste management, and economic development strategies (bercu, et al., 2015). salaspils municipality (latvia) was one of the municipalities, which participated in urbact ii project “together for territories of co-responsibility”. during this project (2010-2013) municipalities were tested out the methodology for measurement and improvement of subjective well-being. this methodology provided opportunity for society to participate in decision-making process for more sustainable development of municipality. the aim of this paper is to analyse the results conducted during this research related to subjective sustainable development indicators contrary to objective sustainable indicators of municipality. in order to achieve the aim the tasks are formulated as follows: 1 to review theoretical background for responsible sustainable development at local level; 2 to analyse best practice of municipalities in ensuring the citizens’ engagement in promoting sustainable development in the municipality; 3 to present the methodology of conducted empirical research at salaspils municipality on assessment the well-being at local level and relation to sustainable development. research methods used: scientific literature studies, several stages of focus group discussions, statistical data analysis, spiral methodology. introduction the concept of local development is defined as a particular form of regional development, one in which endogenous factors occupy a central position.the economic globalization, the international economic crisis, the increasing phenomenon of delocalization of enterprises, the evolution of internal structures of large industrial groups, institutionalization of local autonomy led to increased interest in local development (nader, et al., 2008). for that reason the academics develop many definitions of local development. as the process of local development includes intersection of several areas of intervention besides local economic policies and urban policies or the landscaping (pike, et al., 2007), there is no homogeneous understanding of the concept. the particular understanding of “development” is defined by different groups in specific time periods and places. the concept of “local development” differs both within and between countries over time (reese, 1997; danson et al., 2000; beer et al., 2003). referring to definition of “development”, it had been noted that very difficult and contentious political and economic issues have been widely obscured by the apparent simplicity of these terms (williams, 1983). local development has historically been dominated by economic concerns such as employment, income and growth (armstrong and taylor, 2000). development can even be wholly equated with this relatively narrow focus upon local economic development (beer et al., 2003, p. 5). stoper (1997) noted, that local prosperity and well-being depends upon the sustained increases in income, productivity and employment and integral to economic development. council for urban economic development in the u.s.a. defined local development as a process based on a “local activity designed and implemented by public and private agencies in the community through a set of programs and projects. this process is achieved increasing the welfare of members of communities and businesses (boyko, et al., 2012). the concept of local development e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 102 shaffer, deller and marcouiller (2006) consider that the local development, and especially economic development, approaches are very difficult to operationalize from a theoretical and practice sense, so in order to tackle the difficult different views of community economic development, they decided to offer a paradigm embodied in a star diagram (figure 1). figure 1 shows that besides the three typical elements – space, markets and refigure 1 the star of community development (moldovan et al., 2013) sustainable local development is holistic in encouraging broader notions of inclusion, health, well-being and quality of life (haughton and counsell, 2004; morgan, 2007) and incorporating understandings of the relations between the economic, social, ecological, political and cultural dimensions of development. sustainability is potentially progressive if it prioritizes the values and principles of equity and long-term thinking in access to and use of resources within and between current and future generations. sustainable development seeks to recognize distinctive structural problems and dovetails with local assets and social aspirations to encourage the kinds of local development that are more likely to take root and succeed as locally grown solutions (hirschman, 1958; stoper, 1997). heightened recognition of such context sensitivity has promoted diverse and sometimes alternative approaches to local and regional development. this connects to the recognition of the leading role of the state in more holistic, programmatic and systemic forms of local policy: environmentally sustainable development implies a more important role for the public sector, because sustainability requires a longterm – intergenerational – and holistic perspective, taking into account the full benefits and costs to society and the environment, not only the possibility of private profitability (geddes and newman, 1999). depending upon the circumstances and aspirations of particular localities and regions and often very real constraints (mainwarig et al., 2006), balances and compromises inevitably emerge from considerations of sustainable development when connected to holistic and progressive principles. making local development strategies of a community is a good way to drive local community in the desired direction. the local development strategy chosen should be inclusive and consider the relationship between private and public and citizen participation. according to regulations no 628 of cabinet of ministers “regulations on the local spatial development planning documents”, every municipality in latvia elaborate local sustainable development strategies where would be defined long-term vision of the municipality, strategic goals, long-term priorities, specialization areas of the territory and guidelines/ main principles for development and planning of the territory (spatial aspects). these guidelines include proposals for main infrastructure objects, development territories, spatial structure of nature areas and settlement structure (latvijas vēstnesis, 2014). in addition, the regulations provide instruction for ensuring the participation of society during elaboration of the strategy. before elaboration of the strategy, there should be provided the plan for public participation. the responsible employee of the municipality ensures that society is informed and involved during the elaboration process. it is stated that there should be organized public discussion about the document (at least 4 weeks). in addition to mandatory obligations, many municipalities choose to involve society in formulation of long-term priorities of the municipality (good examples would be provided in following sections). sources, there should be paid additional attention to society/ culture, rules/ institutions and decision-making process. sustainable local development 103 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 widespread concern over the state of the environment and the impacts of anthropogenic activities on ecosystem services and functions has highlighted the need for high-quality, long-term datasets for detecting and understanding environmental change (parr et al., 2003). in this context, chapter 40 of agenda 21 urges the development of indicators for sustainable development. especially, it asks countries and governments and non-governmental organizations (ngos) at the international level to identify such indicators (barrera-roldan and saldivar-valdes, 2002). it is widely believed that public institutions cannot develop a strategy for sustainable development without a quantitative knowledge of the state of the system (ronchi et al., 2002). therefore, environment and sustainable development indicators can be used to improve multiple-objective environmental decision-making under conditions of unknown variability (levy et al., 2000). several authors and international organizations provide many arguments for finding ways to standardize indicators and frameworks to compare sustainable development (e.g., ambienteitalia, 2003; luque-martinez & munoz-leiva, 2005; mascarenhas, coelho, subtil, & ramos, 2010; pintér et al., 2005; ramos & caeiro, 2010; tanguay, rajaonson, lefebvre, & lanoie, 2010; yigitcanlar & lönnqvist, 2013). they mainly claim that standardization is useful to assess and compare data, problems, contexts, cities and policy options regarding sustainable development and to synthesize highly complex issues in a simplified and compact manner to spark debate and guide further in-depth analysis and policy-making (yigitcanlar & lönnqvist, 2013). other arguments in favour of standardization are also linked to the strengthening of the capacities of cities, facilitating the evaluation of sustainable development policies (flood, 1997), enabling the benchmarking of key indicators, and reinforcing informed and strategic decision-making (luque-martinez & munoz-leiva, 2005). several indicator systems have been designed by different institutions to provide quantitative and qualitative measures to assess and study the interrelation between social, environmental, economic and institutional development at local levels (ramos and moreno pires, 2013). over the past two decades the “indicator industry”, as some call the proliferation of indicator systems (herzi & hasan, 2004), has seen fruitful debates emerging in regard to the roles, achievements, gaps and uses of sustainable development indicators for cities. sustainable development indicators aim to assess and benchmark sustainable development conditions and trends across time and space, monitor progress toward goals and targets, inform planning and decision-making, raise awareness, encourage political and behavioural changes, promote public participation and improve communication on sustainability (holden, 2013; moreno pires & fidelis, 2012). however, they are frequently set aside, manipulated or under-resourced and face major constraints, such as costs or data suitability. for this reason recently the qualitative approach for measuring local sustainable development has been used. the qualitative approach relates to the nature of local development, for example the sustainability (economic, social, environmental) and forms of growth, the type and “quality” of jobs, the embeddedness and sustainability of investments, and the growth potential, sectoral mix and social diversity of new firms. qualitative approaches focus upon subjective concerns informed by specific principles and values of local development socially determined in context within particular localities at specific times. although efforts have been made recently to quantify sustainable development factors, the approach still remains fundamentally qualitative. research has tended to concentrate however, on the “success” stories of high productivity and/or high-cohesion forms of growth, neglecting other less desirable, but widespread, types of growth (sunley, 2000). in order to implement the local agenda for baltic sea region, there were conducted research on the role of local municipalities in promoting sustainable development (project sail). there were provided analysis on different sustainable indicators available at local level and concluded that they should represent all 3 dimensions – economic, social and environment. for example, good indicators for economic dimension are income level per capita, employment rate, accomplishment of roads (km); for social dimension – unemployment rate, birth rate/ mortality; for environment dimension – quality of water and air, waste management, etc. (baltic local agenda 21 forum; 2012). measurement of sustainable local development e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 104 several sustainability indicator research projects that aimed to measure local sustainable development have been fostered over the past few years (european commission, 2009; moreno pires & fidelis, 2012). already in 1998, in the report on “sustainable urban development in the european union: a framework for action”, the european commission urged all members to embrace the importance of integrating local sustainability measures and monitoring methods into its policies and, particularly, to monitor the progress of la21 (wong, 2006). as a result, two european research projects on local indicators emerged: “making news for monitoring progress” (mineur, 2007) and the “european common indicators” (eci) project. the goal of those project was to develop specific sd indicators in 10 cities across europe involvig the media, citizens and other stakeholders in the choice of indicators, collection of data and communication of results. since then, several other eu funded research projects on the definition of conceptual frameworks or methods to develop local sustainability indicators, as well as on the evaluation of successes and failures of implementation, have been carried out (cat-med, 2012; bhagavatula, garzillo, and simpson, 2013; informed cities, 2013); ec, 2009 and van zeijl-rozema and martens, 2010). similarly in parallel to these research efforts, the european environment agency, dg regio and eurostat have also been committed to the development of urban environmental indicators through the “eea environmental indicators” initiative and through quality of life indicators from the “urban audit” project. the “urban audit experience – assessing the quality of life of europe’s cities–” is of particular importance; the project is coordinated by eurostat with the national statistics offices of member states and has been contributing to the development of a comparable database among the main european urban areas (ec, 2007). since then, the project has evolved into a more focused list of variables, a larger program with more cities to improve coverage and comparability (covering over 370 urban european centres and all cities with more than 100,000 inhabitants) and an exercise to assess the perceptions of citizens on quality of life in different countries, through a questionnaire, to incorporate a qualitative evaluation (european commission, 2005 and eurostat, 2010). together, the efforts of the last 15 years demonstrate the overwhelming number of projects in europe aimed at developing common indicators, methodologies and guidelines to assess local sustainable development. a more reduced number of research projects have been focusing on context specific indicator systems. furthermore, a literature gap can be identified when assessing how useful these efforts have been for strategic decision-making at the european level or how distant scientific knowledge is from local practice or policy change (sébastien & bauler, 2013). mascarenhas et al. (2010) further point at the lack of articulation between space, time and organizational complexity as a long standing and pressing problem to solve at the european and global levels. the european commission study on relevant funded research on sustainable development indicators (ec, 2009) identified other trends in the european research agenda and produced further recommendations. it underlined the tendency of eu indicator projects to reduce sd to its economic and environmental dimensions, disregarding social and governance aspects. several recommendations were made, including the need to rethink and restructure the sustainable development indicators landscape in areas such as governance-related or long term cross-cutting dimensions of sustainable development and the need to further explore insights that can be derived from the use of indicators (ec, 2009). the lack of official consensus, guidelines and systematic availability of common indicators for cities within eu institutions and entities remains and undermines their potential uses and real contributions to improve urban sustainable development. as it was discussed before, sustainable local strategy is good instrument to direct municipality in right way. many municipalities had chosen this platform in include society in decision-making process. for example, jaunpils municipality (latvia) created citizens forum including main ngos and best practice of municipalities in ensuring the citizens’ engagement in promoting sustainable development in the municipality 105 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 interest groups for elaboration of planning documents of the municipality. particularly there was a focus on youngsters, as it was decided by the local authorities, this group is main target audience. using different methodologies, there were collected data about priorities of development by the point of view by the citizens. at the end, participants also agreed on realization of some short-term activities that were identified during the process. all data were included in sustainable development strategy of the municipality (mūriņš, 2013). in turn, jūrmala municipality created special advisory board which included representative from all administration units in order to include society in elaboration process of territory planning documents. this board was very active especially during the elaboration of spatial plan that consists of mapping of territory by use. the opinion of this board is also topical regarding the environment issues (jūrmala municipality, 2013). the sustainable development strategy of balvi municipality was created in 48 hours during 3-day-long dotalk. at first day employees of the municipality together with local activists jointly created and selected the key challenges for the municipality. afterwards they identified specialization vision, goals, and priorities. the second part of the day was dedicated for territory spatial perspective. after this event, experts created “zero” version of strategy which was presented on the second day for the participants, inviting them in completing and improving the unveiling version of the document. at third day, a team of experts sent first version of the strategy to the local representatives (balvi municipality, 2013). one of good examples how to ensure citizens’ engagement in promoting sustainable development of the municipality was provided during the urbact ii programme project “together for territories of co-responsibilities” where 8 eu municipalities (salaspils, latvia; debica, poland; botkyrka, sweden; mulhouse, france, braine-l-alleud; belgium; pergine, italy; covilha, portugal; kavala, greece) were approbated innovative methodology for measurement and improvement of well-being indicators (urbact, 2009). the methodology (spiral) was elaborated by the experts of council of europe. the methodology is aimed at improvement of the dialogue between society and municipality using so-called co-responsibility approach (council of europe, 2008). the idea behind this approach is to foster social inclusion and improve the well-being of members among the municipality thanks to a close cooperation between public authorities, citizens and private stakeholders (urbact ii, 2012). during the research, the subjective evaluation of well-being of inhabitants are grouped by 8 well-being dimensions: (1) access to means of living; (2) living environment; (3) social balance; (4) personal balance; (5) attitudes and initiatives; (6) feelings of well-being and ill-being; (7) personal relations; (8) relations with institutions. after collection of all data, they are analyzed by designed software espoir. on the bases of inhabitants responses the subjective well-being indicators are developed. next steps includes development local action plan, which aims to improve the indicators that are in bad situation commonly by authorities and citizens in co-responsive way. in this way citizens have opportunity to participate in decision-making process for more sustainable development of the municipality. in the next section there would be analysed the results of this research related to sustainable indicators on the base of salaspils municipality. research results salaspils municipality is located in central part of latvia. it is suburban of the capital city of latvia – rīga. the municipality was formed in 2004 by reorganization of salaspils town and its countryside territory, the administrative centre being salaspils. in 2010 the countryside territory was renamed salaspils parish. about 23 thousand inhabitants are living in the administrative centre, other 2 thousand inhabitants – in rural territories. the administrative centre of the municipality is densely populated – during the soviet union times many block houses were built for the builders and workers of the hydroelectric power plant, thermoelectric power plant and nuclear power plant and different factories. salaspils is the most densely populated municipality in latvia, according to statistics, average population density in latvia is 33.8 inhabitants per km2, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 106 figure 2 the territory of salaspils municipality: potentially polluted and polluted sites source: latvian environment, geology and meteorology centre database. however in salaspils it is more than 200 inhabitants per km2. in addition, salaspils is one of few municipalities where is positive population change (1,2% from 2009 to 2014) in situation when on average population change in latvia is –3,9% in the same period. because of the comparative overpopulation, intensive traffic connection with capital city (rīga is only 18 km away), as well as some contaminating objects (see fig.2; asphalt plant, mineral plant, mechanical workshop, former nuclear power plant), municipality is one of the most poluted municipalities in latvia. further is provided analysis of different objective indicators related to sustainable local development. taking into account the availability of data at local level, as well as theoretical background provided before, the sustainable development is analysed from economic, social and environment perspectives. in context of economic dimension, salaspils could be described as one of the wealthiest municipalities in latvia, its’ inhabitants have relative high salaries, as well as personal income tax revenues to the municipality budget per capita is higher than average in country. however, in salaspils are not many enterprises – the number of economically active market sector statistical units per 1000 population is significantly lower than on average in latvia. this could be explained by the fact that salaspils could be described as high-rise area, namely, significant number inhabitants work in riga. table 1 comparison of sustainable development indicators of salaspils municipality, rīga municipality and latvia indicators of sustainable development territory salaspils municipality rīga municipality latvia economic dimension number of economically active market sector statistical units per 1000 pop. in 2013 47,9 86,8 68,6 personal income tax revenues to the budgets of local municipality per capita in 2013, eur 606,10 600,8 489,40 average salary in 2013, eur 959.00 895.00 783.00 social dimension unemployment rate in 2014, % 4.7 4.3 6.6 number of criminal offences per 1000 pop., 2014 11 30,3 22 municipal budget expenditures on health, education and social protection eur per pop., 2014 478,9 468,5 527,6 environment dimension urban waste t per km2 64,05 747,79 25,22 urban waste t per pop. 0,32 0,39 0,81 hazardous waste t per km2 14,44 14,44 0,61 hazardous waste t per pop. 0,07 0,006 0,01 source: latvian environment, geology and meteorology centre database, ministry of the interior affairs database, state treasury database, state employment agency database, csb database. 107 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 analysing social indicators, it could be concluded that unemployment rate in salaspils is relatively low, in addition, municipality is safe – in 2014 there were registered 2 times less number of criminal offences per 1000 population than on average in latvia. speaking about municipality budget expenditures, salaspils municipality spends on education, health and social protection on average less than other municipalities of latvia. it could be explained by the fact, that during last years the priority of municipality was improvement of infrastructure, as well as during these years some mayor buildings were constructed (sport hall, easement to school, boiler house, etc.). as it was written before, research on indicators of subjective well-being in salaspils municipality was conducted using spiral methodology. the research comprised participants from 25 different hofigure 3 indicator synthesis from responses of all homogeneous groups in salaspils municipality in 2011, % source: results of analysis of 25 homogenous groups in salaspils – results gained from 3 meetings. september, 2010 until may 2011(from 2867 answers). mogeneous groups (8 – 10 participants) which represented ngos, interest groups and different organizations of salaspils. figure 3 shows the results of the research indicating the dimensions of well-being and their importance by the point of view of inhabitants. inhabitants of salaspils municipality as main well-being dimension defined “access of means of living” (answers like “to have a good job”, “to have a big salary”, “to own a house”, “good education”, etc.). next well-being dimension was nominated “living environment” (responses like “green environment”, “safety at roads”, “parks where to walk”, “no waste”, etc.). as third post popular dimension was defined “attitudes and initiatives” (answers like “to express myself”, “to participating in decision making process”, “to be in ngo”, etc.). the research showed that well-being is complex concept and different it aspects are crucial for inhabitants. for more analysis of results see jēkabsone & sloka (2014) and jēkansone et al. (2013). in order to see what situation is at each indicator of all subjective well-being dimension, all results of the research were presented to the leaders of the homogeneous (focus) groups which participated in the research of data gathering. afterwards they needed to agree on which situation every indicator is (possibilities: “very bad situation”, “bad situation”, “medium situation”, “good situation” and “very good situation”). following was provided analyses of subjective well-being indicators that corresponds to sustainable local development from economic, social and environment aspects (see table 2). the economic dimension of sustainable local development is described by following indicators: “access to essential resources in general”, “purchasing power” and “employment/ work”. the leaders of homogeneous groups agreed that all economic indicators are described by bad situation. leaders agreed that the level of income is not sufficient, prices are increasing, and for many families it is difficult to ensure all their needs. it should be explained that the research was conducted during the winter of 2011, in this period was still topical saving measures by public and private sectors. in addition, during this winter there were relatively high rates for heating. despite the fact that objective measures of economic activities analysed before showed that inhabitants of salaspils lives in relatively better economic conditions, still subjectively they are not satisfied with their economic situation. further, the social dimension of sustainable development is described by following indicators: “physical security”, “leisure, culture, sport” and “social balance”. inhabitants admitted that physical security is medium – municipality is safe, the safety at roads, especially pedestrian areas, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 108 table 2 main subjective well-being indicators related to living environment in salaspils municipality d im en si o n w el lbe in g in di ca to r v er y ba d si tu at io n b ad s it u at io n m ed iu m si tu at io n g o o d si tu at io n v er y g o o d si tu at io n s it u at io n at s al as pi ls m u ni ci pa lit y e co no m ic access to essential resources in general insufficient level of income. no possibility to take care by themselves with no help. sufficient level of income. no credits. you can take care by yourself. secured aging. secured future. confidence about pension. high pension. income at competitive level. pension at appropriate age. b ad si tu at io n purchasing power you can’t pay for your rent. prices are increasing. high taxes. bankruptcy. disorganized tax system. continuous price increases. there is no possibility to help others. possibility to feed the children. there are no financial obligations. responsible borrowing. good living conditions. financial stability and independence. good reward. investments in foreign funds. the opportunity to buy qualitative products, without paying attention to the price. b ad si tu at io n employment/ work there are no opportunities to work in your country. there is no developed industry. citizens do not have access to jobs. young people are not working. inadequate salaries. high taxes. not enough money for family. opportunity to work in well-paid and interesting job. doing a job that you like. possibility to create jobs. financial stability. there is enough spare time, you can dedicate yourself and family. b ad s itu at io n s oc ia l physical security there is no security on the streets. unsafe environment. alcoholics and drug addicts abundance. high crime rates. possible violence. it isn’t safe to walk on foot and by public transport. unsafe road conditions. road safety is increasing, taking into account the safety of pedestrians. salaspils is safe. people have a high level of safety in salaspils. i am not afraid to go out at evenings. responsible drivers. low crime rate. m ed iu m si tu at io n leisure, culture, sport there is no need for culture. there are no cultural and sport events. there are no opportunities to travel, to attend entertainment events and to do sports. there is opportunity for creative expression (interest groups). it is possible to travel. there are cultural and sport events. the opportunity to attend the events that you like. there are many organizations you can join according to your interests. g oo d si tu at io n social balance there are no social guarantees, low standard of living, low social status, drug addiction. there is no social security, stable guarantees, as well as mutual understanding. lack of literacy at decision-making. happy people, there is a mutual kindness. people involved in social work. mutual kindness, satisfaction. culture level rises. high quality of life, a better future for children. m ed iu m si tu at io n e nv ir on m en t cleanliness/ pollution/ noise the big noise from the train. there are no adequate pedestrian crossing over the railroad tracks. untidy environment. bad smell. daugava is dirty. the environment is not safe and free from harmful contaminants. disorganized environment. clean, tidy, well-maintained environment. there are parks and paths, where you can ride a bike, run and walk. clean, fresh air free of odours. clean home fences. there is no radioactive waste. good food with no preservatives. eradicated modified crops. pure agriculture, which provides a clean food. there are used the latest technology to reduce pollution in the city, more people are moving on foot. b ad s itu at io n ecological balance saulkalne is incinerated waste and emitted poisonous smoke. the area is not well-maintained. there are obtained injuries. dust from the quarry. devastated environment. material recycling. not battered car driveway. ecologically clean environment. access to clean water reservoirs with the possibility of swimming. opportunity to participate in forest planting. natural resources are conserved. joint clean ups. promoted ecological products and limited unhealthy products. established public policy on the environment and the sustainable use of natural resources. b ad s itu at io n living environment in general polluted environment. you don’t live in balance with nature. disorganised environment. selling land to the foreigners. participating in cleaning environment and nature conservation activities. not building of the objects which negatively affect the nature. optimal spatial planning. there is no difference between areas in terms of pollution and development. b ad s itu at io n source: results of analysis of 25 homogenous groups in salaspils – results gained from 3 meetings. september, 2010 until may 2011(from 2867 answers). 109 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 is improved. also inhabitants agreed that there are different culture and sport events, there are many possibilities how to spend their fee time. that is why was agreed that indicator “leisure, culture, sport” is on good position. indicator “social balance” was evaluated at medium situation that means that people are happy and there is mutual understanding. at last, the environment dimension of sustainable development was analysed by following indicators: “cleanliness/ pollution/ noise”, “ecological balance”, “living environment in general”. all indicators were described as bad – inhabitants admitted that environment is disorganized, there are problems with waste management and pollution. in order to improve indicators, which were evaluated in bad situation, the next step was the elaboration of local action plan. as description of indicators already consists of certain problems and possible figure 4 defined activities for local action plan for improvement indicator “living environment in general” source: elaborated by the authors. solutions, it was the base for developing the activities to achieve higher results in future. in co-responsible manner there were elaborated the list of activities which aims improvement of certain indicators. the co-responsibility approach means that the activities are defined jointly by administration of municipality and members of society. in addition, the implementation of the activity is also common – both partners – municipality and society – provides their resources to improve some problem. the improvement of indicator “living environment in general” is provided at fig.4. all identified activities were defined in terms of needed resources (financial, administrative), timeframe and responsible person. in order to ensure the sufficient implementation of defined activities, they were incorporated in short-term planning documents of municipality – work plans of administration and municipal institutions and municifigure 5 incorporation of the methodology for researching and improving well-being in municipalities within different planning documents source: elaborated by the authors. pality budget. in this way, it is ensured that defined activities would be implemented and monitored. in order to implement the sustainable development principles in more co-responsive way, involving society into decision-making process, it is proposed to involve them in all development planning documents (see fig.5.). for example, in long-term planning documents like sustainable development strategy and spatial plan should be incorporated the principles of social inclusion, sustainable development, citizen engagement and co-responsibility approach. in medium-term planning document development programme should be incorporated the results of the research of subjective well-being indicators, describing the situation at main indicators related to different dimensions of well-being. at last, in short-term planning documents like municipality budget and work plan should be defined concrete activities addressed to improve the well-being indicators. using the existing frame for planning documentation, it would be ensured that the sustainable development principles and concrete activities would be implemented and assessed. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 1 5 / 9 110 _ taking into account that local governments are instrumental in the judicious use of natural resources, providing public services and creating local jobs through land use and transit planning, building and infrastructure construction and rehabilitation, investments in energy, water and waste management, and economic development strategies, there is increasing role the of them in insuring the sustainable development of the territory. _ in order to evaluate the sustainable development of municipality, there were used objective measures of sustainable development (statistics on average salary, unemployment rate, etc.) and subjective well-being indicators (like “social balance”, “access to essential resources in general”, etc.) by economic, social and environment dimension. _ the analyses showed that subjective evaluation of economic, social and environment differs from objective measures. it could be explained by the fact that subjective indicators capture the satisfaction of inhabitants by certain moment. in addition, objective indicators don’t show the level of satisfaction what brings each measure unit (eur, %, etc.). also the subjective perceptions of inhabitants affects mentality, culture and other background factors. _ in order to ensure the sustainable development of the municipality, it is suggested to engage the society in decision-making process. in this way would be ensured the awareness of society, optimal use of limited resources and satisfaction by realization of initiatives and expression of attitudes. _ in addition, it is crucial for sustainable development of the territory to ensure that society is effectively involved in preparation of planning documents of the municipality. it is proposed to use co-responsibility approach in definition and implementation of activities 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(2010). an adaptive indicator framework for monitoring regional sustainable development: a case study of the insure project in limburg, the netherlands. sustainability: science, practice, & policy, 6 (1), 6–17. williams, r. (1983). keywords. harper collins, london. wong, c. (2006). wong indicators for urban and regional planning: the interplay of policy and methods. routledge, oxon, uk. yigitcanlar, t., & lönnqvist, a. (2013). benchmarking knowledge-based urban development performance: results from the international comparison of helsinki. cities, 31, 357–369. http://dx.doi. org/10.1016/j.cities.2012.11.005 inga jakabsone phd student university of latvia, economics and management scientific institute address raiņa boulevard 19, rīga, lv-1586 tel. +371 27116147 e-mail: jekabsone_inga@inbox.lv biruta sloka professor university of latvia, economics and management scientific institute address raiņa boulevard 19, rīga, lv-1586 tel. +371 9244966 e-mail: biruta.sloka@lu.lv about the authors 141 issn 1822 – 8402 european integration studies. 2010. no 4 towards sustainable hazardous waste management in lithuania jurgita gaiziuniene, jolanta dvarioniene institute of environmental engineering, kaunas university of technology abstract growing consumption of goods, production and usage of various chemicals influence the amount of different hazardous waste (hw) flows. society is increasingly facing the problem how to treat and where to dispose of waste in environmentally sound, and economically efficient way, also taking into account a social aspect. waste management is one of the principal pollution problems in many countries, and its control has so far not been addressed in a sustainable analysis. each year in the european union alone people throw away 1.3 billion tons of waste, 40 million tons of which being hazardous. hw generally constitutes about 1% of the total waste amount generated in europe; nevertheless, it presents a serious risk to the ecosystem and human health if not managed and treated properly. several eu countries report hw treatment rates over 40%, the others export a large of portion of hw. recently, lots of efforts having been put into proper hw identification, treatment, recycling, storage, transportation and/or disposal, this issue is still hot among the governments of the eu. in spite of the fact that all european union legal requirements concerning hw management are transferred to member states legal framework, there are still a number of problems concerning inefficiency of an hw management system and lithuania is not the exception. the total amount of waste generated in 2008 in lithuania is about 7.8 million tons; about 145 thousand tons are considered as hw. while the incineration plant and landfill for hw is not built, hw is temporarily stored, processed, exported or managed in the companies which have the integrated pollution prevention and control (ippc) permits. it aims to manage hw in a more environmentally friendly way. however, the current hw management is not developed on an integrated approach, which allows to evaluate the environmental impact throughout the life cycle and to use cost-effective hw management processes, and all available technical and technological capabilities. the legal system determines the main hw management objectives, but compliance with them is often more formal than real. despite of the fact that waste has to be managed in accordance with the waste hierarchy principles, the hierarchy has some limitations. the latter restrictions motivate interested parties to look for the possibilities of more efficient hw management. an integrated waste management concept is considered as a tool for sustainable hw management. environmental system analysis, integrated approach and tools for hw management system assessment are discussed and brief analysis of hw management in lithuania is introduced in the paper. the aim of this paper is to analyze hw management system in lithuania and propose the tools for more efficient hw management in the context of sustainable development. keywords: sustainable development, hw management, integrated approach, environmental assessment tools. introduction recently, environmentally sound, economically efficient and socially acceptable management of various waste flows has become one of the most pressing issues of the world community pursuing all-round sustainability for current and future generations. the treaty of amsterdam has placed the principle of sustainable development and high level of environmental protection on the top of priorities. the eu community generates around 2000 million tons of waste each year, over 40 million tons of which are classified as hazardous. in spite of the fact that hw generally constitutes about 1–2 % of the whole waste depending on the country; nevertheless, hw presents a serious risk to the ecosystem and human health if not managed and treated safely. during the last decades all over the world, considerable work has been done in waste management and waste generation sectors trying to promote prevention and issn 1822-8402 european integration studies. 2010. no 4 142 achieve more sustainable waste management. lithuania is also trying to be in step with the global trends. in accordance with the requirements of the eu, by 2012 lithuania is expected to close about 300 existing landfills, which do not comply with the environmental requirements, and to build up eleven regional landfills for municipal waste. it is prohibited to dispose of hw in new regional municipal waste landfills; it is important to manage them without harming the environment and human health, while even having an economic benefit. it is planned to build up one landfill especially for hazardous waste (hw) disposal and an incineration plant for hw treatment. they are expected to be installed until the end of 2010. environmentally sound and cost-based hw management poses many challenges at various management levels not only in lithuania but also in other eu countries. eu environmental and waste legislation results from the policy decisions laid out in the sequential series of the environmental action programs (eap) and the waste management strategies. these directives represent the legal obligations required for the member states and are to be transposed into national legislation. the waste framework directive (wfd) 2006/12/ec establishes the basis for the eu waste management. the hw directive (hwd) 91/689/eec develops legislation further with regard to hw only, specifying the properties that render waste hazardous and therefore applicable to the management structures outlined in the wfd. in the future, changes to waste legislation may see the measures of hwd integrated into wfd. a list of the wastes falling within the scope of the wfd and hwd is provided in separate legislation, the european waste catalogue (ewc) 2000/532/ec. integrating the expanded hw list 94/904/ec, ewc is subject to the articles of hwd. the other eu directives focus on technical aspects of waste management (e.g. the landfill directive 99/31/ ec), or on particular waste flows through the application of producer’s responsibility (e.g. the waste electrical and electronic equipment directive 2002/96/ec, the end-of-life vehicles directive 2000/53/ec, and the batteries and accumulators directive 2006/66/ec, etc.). european legislation regarding waste has considerably increased since 1975, reflecting the waste policy of eaps. the amount of legislation has led to varied rates of transposition into the national law of the member states, and certain directives are still in the process of full implementation. in spite of the fact that all eu legal requirements concerning hw management are transferred to lithuanian legal framework, there are still a number of problems concerning inefficiency of an hw management system such as: not finely tuned hw records throughout the product life cycle and individual hw flows, lack of technological regulations, inaccurate national waste accounting data reflection of hw generation and recycling rates, whereas the records are often just a formality. the lack of strict control of records and public servants’ responsibility for the control process creates the conditions for unqualified hw management. the above-mentioned problems determine unsustainable hw management and require application of tools for more sustainable hw management. the aim of this paper is to analyze hw management system in lithuania and propose the tools for more efficient hw management in the context of sustainable development. analysis of hw management situation in lithuania and problem formulation a stronger focus on the waste including hw management started to contribute to the environment after lithuania’s accession to the eu, i. e. since 2004, and thus a more comprehensive scientific research into the waste management sphere is relatively new compared to that in the old eu member states. the earlier researches were associated with the development of technologies for waste management or analysis of different waste flows. the biggest part of waste was not handled; industrial wastes were often stored at the company’s territory. gradually, changes in consumers’ attitudes to products and waste instigated manufacturers to choose more environmentally sound processes and products and award more economically acceptable solutions. the latter decisions lead to more favourable societal aspects and at the same time all these aspects lead to sustainable waste management. increasingly used waste prevention and minimization practices in the production serve as a tool how to generate less waste. according to the eu environmental protection agency data for the year 2007, despite of all efforts the biggest part of the waste (368 kg/inhabitant from 400 kg/inhabitant) still go to the landfill in lithuania. one of the reasons for the choice of processing is a minimum of waste management costs compared to the other waste management options. hw formation in comparison to that of municipal waste is much lower. the total amount of waste generated in 2008 is about 7.8 million tons; about 145 thousand tons of them are hw. the generation of hw in lithuania is presented in fig. 2 fig. 2 indicates a decreased amount of industrial waste in the period of 2000-2002. the introduction of a new data collection system and the change of waste classifications in the year of 2000 caused a break time series. the generated amount dropped and increased again in 2003. these fluctuations are apparently due to the introduction of a new data collection system and the economic crisis in lithuania in 1998-1999. issn 1822-8402 european integration studies. 2010. no 4 143 0 50000 100000 150000 200000 250000 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 year tonnes fig. 2 development of hw generation in lithuania (national waste accounting database, environmental protection agency of the republic of lithuania) as it was mentioned above, identification and classification of hw in lithuania are performed according to the eu requirements. but it should be stressed that classification and identification of the waste started in 1992, when lithuania became an independent country. until 2000, the data on waste generation were collected from waste generators and waste management companies. therefore, the amount and composition of hw varied. for example, in 2000 and 2001, reporting the data to the eurostat lithuania distinguished two types of waste municipal waste and waste of the other origin. the latter referred to industrial waste, though the originating sectors were not specified. however, mining and quarrying were the only industrial activities for which the generated waste amount was specified. it has to be pointed out that lithuania reports no figures on the total waste generation in lithuania because the available data are considered to be incomplete (ulinskaite et al., 2006). 0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000 2004 2005 2006 2007 a m ou nt , t hazardous waste generated waste disp osal op erations waste recovery op erations waste collection, transp ortation, treatment op erations fig. 3 the amount of hazardous waste generated and managed by different operations (national waste accounting database, environmental protection agency of the republic of lithuania) the main hw management methods in lithuania are: disposal, recovery and other treatment (including collection and transportation) (see fig. 3). hw related activities are classified as recovery (r-codes) or disposal (d-codes) as defined in wfd. the other treatment covers hw collection, transportation, import, export and treatment, when some sources of hw (e.g. weee, endof-life vehicles, accumulators, etc.) are cut, pulverized, etc., separating the parts which cause potential risk to the environment. while the incineration plant and landfill for hw is not built, hw is temporarily stored, processed, exported or managed in the companies which have the integrated pollution prevention and control (ippc) permits. it aims to manage hw in a more environmentally friendly way. however, the current hw management is not developed on an integrated approach, which allows to evaluate the environmental impact throughout the life cycle and to use cost-effective hw management processes, and all available technical and technological capabilities. the legal system determines the main hw management objectives, but compliance with them is often more formal than real. this problem is clearly seen in a municipal hw management sector. the amount of household hw is extremely small. as the actual amount of municipal hw is indeterminate, a lot of difficulties arise in planning the activities of a municipal hw system. designing new hw management facilities, environmental impact assessment is carried out, but this assessment does not reflect the impact of a hw management system on the environment throughout its all life cycle. to perform a comprehensive assessment, the tools mentioned above in the paper or their combinations can be applied. sustainable hw management can be achieved by integrating different measures, assessing relevant aspects and optimizing the system. the existing problems in the hw management system can not be solved without scientific knowledge. hw generation and management problems, methods for solving them as a research object are analyzed by a series of environmental engineering studies and the majority of them are based on “end-of-pipe” approaches. different properties of waste flows, decontamination technologies, management and treatment studies have been carried out for some decades in lithuania (lapinskas and jaskelevičius, 2000; baltrėnas et al., 2004; čepanko et al., 2008). considerable scientific research was done analyzing the following: planning and optimization of non-hazardous municipal waste management, its generation and forecasting (denafas et al., 2004; denafas and rimaitytė, 2005), economic and social aspects of municipal waste management studies in the field of sustainable development (žičkienė, 2004), assessment of an impact on the environment of municipal waste management systems development, and life-cycle assessment of municipal waste management scenarios (denafas and rimaitytė, 2005; miliūtė, 2009). an integrated waste management approach and some waste minimization results achieved in lithuania industrial enterprises are presented by stani kis (stani kis, 2005), whereas application of an integrated approach to hw issn 1822-8402 european integration studies. 2010. no 4 144 management has not been analyzed yet. globally, most of the integrated waste management research is carried out into municipal waste (mcdougall et al., 2000; najm et al., 2002; morrisey and browne, 2004; erickson et al., 2005), less – into construction and demolition of waste (klang et al., 2005) and only a few into different kinds of hw (najm and el-fadel, 2004; zografos and androutsopoulos, 2008; ahluwalia and nema, 2007; zhang and roberts, 2007). here comes the need and importance of application of an integrated approach to the hw management system. for a long time it has been considered that waste management in environmentally acceptable way is based on the principles of the waste hierarchy. lately, more and more often the fact has been broached that the waste management hierarchy has several major drawbacks and because of them its application is limited. according to the waste management hierarchy, the most preferable waste management option is prevention, after it goes waste reduction or minimization lowering the amount of produced waste, after it – reuse and recycling where materials are used repeatedly or for making new products, then – recovery of energy from waste. at the end of the waste hierarchy pyramid there is the least preferable option of waste management – landfilling. for a long time waste hierarchy was considered as the main direction for management of all kinds of waste, including various hw flows. however, the waste hierarchy does not guarantee the cost-effective and sustainable hw management. mcdougall (2001) was one of the first scientists who summarized the shortcomings of waste management hierarchy in his scientific papers. main drawbacks of waste management hierarchy include the lack of scientific validity, complex application using different combinations of waste management, economic weaknesses. the above-listed deficiencies have led to the appearance of an integrated waste management concept and implementation in waste management activities as a tool for sustainable waste management. an integrated approach to waste management first of all includes waste management hierarchy (turner and powell, 1991) taking into account direct effects (transportation, collection, processing and disposal) and indirect impacts (usage of energy and materials from the waste off-site the waste management system) (korhonen et al. 2004). an integrated approach allows optimizing the existing systems, creating and implementing new ones of waste management and covers waste in physical conditions (solid, liquid and gaseous). one of the first integrated waste management (iwm) definitions was proposed by the united nations economic commission for europe (unece) in 1991, where an integrated waste management was defined as a “process of change in which the concept of waste management is gradually broadened to eventually include the necessary control of gaseous, liquid, and solid material flows in human environment” (mcdougall, 2001). recently, integrated waste management concept combines waste flows, waste collection, treatment and disposal methods with an intention to achieve environmental benefit, economic optimization, and social acceptance (coleman et al. 2003). the main principle of iwm concept is to integrate “all available waste management options into the existing geographic, environmental, and socio-economic waste management options that exist under certain geographical, environmental and socioeconomic conditions and to manage the generated waste better” (najm and el-fadel, 2003). the application of iwm principles in lithuania is a new departure and focuses on waste minimization at the generation source and provides specific examples of waste minimization practices at industrial enterprises in lithuania (stani kis, 2005). the application of the iwm concept to a municipal waste management sector in lithuania is widely analyzed by miliūtė and staniškis (miliūtė and staniškis, 2009). analysis of the literature concerned with the subject and the experience of the other eu states has highlighted the need for an integrated waste management concept and application of its principles to the hw management system in lithuania as a tool for seeking the sustainable hw management. methodology a single method of waste management could not be applied to all waste materials to be treated in an environmentally sustainable, economically efficient and socially acceptable way. systematic examination of hw management system is needed because practically each waste management system is built on closely related integrated processes. one of the aspects why integrated waste management is pre-eminent against waste management hierarchy is the fact that waste management is seen as a system, i.e. a systematic approach is applied. the systematic approach is often used in many scientific fields when environmental systems analysis studies focus on human activities’ impact on the environment and on the interaction between technical, economic, social and ecological systems using a variety of environmental assessment tools (finnaveden et al. 2007). the system can be viewed as a certain number of components interlinked in a totality. the components and relations between them from the rest of the world (environment) are isolated by system boundaries, which indicate which components belong to the analyzed system, which do not. all systems are influenced by the factors which are outside the system boundaries and at the same time can influence their environment. the interaction issn 1822-8402 european integration studies. 2010. no 4 145 between the system and its environment is characterized by the input and output parameters (fig. 1). influence on the system input parameters environment response by the system output parameters defined system fig. 1. system interaction with the environment. adapted (from klang, 2005) every individual system may have different system boundaries (e.g. physical, social, economic, time, etc.), depending on the complexity of the analyzed system. in pursuance of solution of the existing problems in the system, various models are developed. a model is a simplified representation of the real system omitting everything that is of little importance to the system response (output parameters) (klang, 2005). the prerequisite for an accurate system analysis is that the elements of the system have to be well known and described. the elements of a waste system may be: different processing methods, waste collection vehicle efficiency, factors affecting waste separation efficiency at its source and the others. in environmental system analysis a variety of tools are used either to measure its impact on the environment or to transform it into monetary units. frequently, these tools are used for decision-making on waste management activities planning or determination which waste management option or their combination is more environmentally friendly and economically efficient. the selected tools do not point out which alternative should be chosen, but give the information about the economic and environmental impacts of waste management activities. tools of the environmental systems analysis can be categorized into analytical or procedural ones (table 1). procedural tools are focused on guiding the process to reach and implement environmental decisions, while analytical tools model the systems to provide technical information for decision making (wrisberg et al., 2002). it should be noted that analytical instruments can be used as a part of the procedural tools for accurate evaluation of technical information about the decision to be taken. analytical tools can be used for accounting or change-orienting, for example, they describe the state or the consequences of that choice (tillman 2000). all the tools given in table 1 and a number of the other less common instruments possess differences, similarities, advantages and disadvantages. depending on the objectives (e.g. to assess the impact on the environment or to transform it into the monetary units, to calculate waste management costs, to make a decision concerning the waste management plan, program, project; to use it for region, nation or organization (including company), etc.) and on the desired result (e.g. natural resources, environmental impacts, natural resources and environmental impacts, economic aspects including natural resources and environmental impacts), on available resources (financial, human, time, available data, expertise, etc.), the stakeholders can choose different tools or their combination for assessment of the selected waste management system. also there are a number of characteristics for consideration when tools are to be used in combination. these are as follows: type of comparison, degree of quantification, degree of site specifically or time specifically, system boundaries, type of impacts and effects considered, information provided by different tools (moberg, 2006). table 1. the most commonly used tools for waste management systems assessment tools type cost-benefit analysis (cba) analytical environmental impact assessment (eia) procedural environmental management systems (ems) procedural input-output analysis (ioa) analytical life cycle assessment (lca) analytical life cycle costing (lcc) analytical material flow analysis (mfa) analytical risk assessment (ra) analytical strategic environmental assessment (sea) procedural material input per unit service (mips) analytical all instruments of waste management system assessment presented in table 1 help managing waste not only in accordance with the waste management hierarchy principles, but also with economic, technical aspects taken into account. it is also obvious that the reduced impact on the environment has not so serious social impact. selected tools for environmental system analysis as the name suggests, the system analysis is analysis of a system. hence, instead of considering separate parts of a large system, a more holistic approach has to be taken. there is always a larger system whose part forms the studied system, but still the systems analysis approach aims at widening the perspective and thereby avoids sub-optimization and unwanted effects. all tools of environmental system analysis presented in table 1 could be applied to the hw management system. depending on the purpose of research, the interested parties can choose any individual tool or combine some of them. a very popular analytical tool is life cycle assessment (lca). lca is particularly used for assessment of issn 1822-8402 european integration studies. 2010. no 4 146 environmental aspects of a municipal waste management system, but it could also be used for different flows of hw. lca evaluates the potential impact on the environment of waste management systems throughout all life cycle, from “cradle to grave” (coleman 2003). in contradistinction to products, life cycle boundaries of waste (including hw) begins at the waste generation and covers the collection, sorting, transporting, processing and final disposal. the results of lca lead to waste management system optimization. lcc can be used to assess the costs of hw services using the life cycle perspective. social and environmental costs may be included. ra is a broad term and includes risk assessment of both chemical substances and accidents. the latter concerns unplanned incidents, whereas the former concerns the dispersion of chemicals, which is often a part of the use of chemicals. ra of chemicals includes exposure assessment and effect assessment, while ra of accidents includes the analysis of probability and possible consequences. as to hw, ra can be used for selection the waste management and disposal sites, transportation routes with the aim to reduce the impact on the environment and society (nema, gupta 2003). sea is a procedural tool for handling environmental (and sustainability) aspects in strategic decision-making (policies, programs and plans). it is required by law for certain programs and plans. concerning the factors described in the methodology section of this paper, choice of the tools for hw management assessment is a complex process and requires practice and scientific knowledge. the suggested tools for the system management or the planning process of each hw flow are to be analyzed in detail in future research. conclusions the issue related to both hw management and environmental pollution caused by hw having already been not a new one, the need for reasonable and sustainable waste management is still one of the most common complaints. hw management is an important part of corporate management because it is directly linked to urban infrastructure, human health, and industrial environment. many products contain substances that are harmful to human health and the environment. it is of primary importance that such hw is sorted out and handled separately prior to disposal by recycling, incineration or land-filling. disposal itself is to be monitored so as to avoid the release of hazardous substances into the environment, like poorly controlled recycling. even though there are a number of laws related to hw management; they do not address hw management in its entire spectrum in some countries which have become the eu members together with lithuania. specific government agencies are mandated to manage different waste sectors, but their roles and responsibilities are not clearly defined. in addition, lack of resources, financing, technologies, capacity and skills for hw management are bringing the impact of waste to the forefront. economic 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(2008), a decision support system for integrated hazardous materials routing and emergency responce decisions. transportation research part c 16: 684–703. the article has been reviewed. received in april, 2010; accepted in may, 2010. microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 entrepreneurship support policy of local authorities – results of research in selected regions of belarus, finland, latvia and poland* aranka ignasiak – szulc nicolaus copernicus university in toruń abstract one of the most important goals of local and regional economic policy is to help entrepreneurs develop in more effective way and encourage residents to start their own business. the purpose for it is a direct linkage between development of entrepreneurship and local and regional development. in this field self-governments belong to main stakeholders and perform their tasks by supporting entrepreneurship. the range of possible policies and programmes that can be undertaken is wide. self-governments and other institutions that operate in business environment in regions develop their own strategy of actions, decide what instruments should be used, cooperate in order to achieve the best results etc. the necessity of performing tasks in the analyzed field is stressed also by european union. the eu funds support not only fostering entrepreneurship and entrepreneurs (mainly small and medium – sized, sme) but also the institutions that give such a help to entrepreneurs. the article presents some of the findings of the research conducted in 4 countries that examines the activities of self-government in supporting sme sector. the regions of belarus, finland, latvia and poland were chosen, in order to examine the strategy of local authorities in the countries representing member states of eu (both so called “old” and “new”) as well as a non-member state. the closing remarks include conclusions and advises that are the result of research conducted*. * the article is based on the results of the research project: transition and the development of the economic co-operation in the eastern borderland of poland in the context of european integration, financed with state budget funds in 2005-2007 (grant no h02c 113 28 and 1 h02c 088 29). keywords: local authorities policy, entrepreneurship support, local and regional development. introduction enterprises, especially small and medium-sized (sme), play a central role in economies of all member states of the european union. they are a key source of jobs, a main driver for innovation, employment, social and local integration. the role of the sector of smes is very important for the developed countries but for the countries that transformed their economies it plays even bigger role. it is said to play a most essential part in creating the middle class and can be one of the most effective ways not only of transforming the economy in post-communist countries but even of changing the way of thinking. entrepreneurship is a ground for business ideas and business people are more creative and can faster adopt to new economic system and its conditions. that is why the development of this sector has not only strong economic impact but also social and mental.the development of smes can help to counteract some of the problems that economies face. the impact can be seen not only on the national economy level, but it can be also very important for local and regional development. it is said (see in: m. opałło, p.243) that this influence can be particularly strong in regions that: • cope with liquidation of traditional largescale industry and old industry districts, • need to transform the industry for business oriented towards global markets, • face the necessity of changing the economy into businesses adopting new technologies, less harmful for the environment, more active in the service sector etc. the above problems are typical for regions of transition countries, that is why the self-governments should act to support the enterprises. the aim of the article is to compare possibilities of supporting the small and medium sized enterprises (smes) by the self-governments in 136 issn 1822-8402 european integration studies. 2007. no 1 selected countries and their regions. local and regional authorities play more and more important role n modern decentralized societies. the local and regional authorities, beside fulfilling the duties can: • promote the enterprise “spirit”, • create educational system appropriate to actual and future needs of employers, • offer schoolings and consulting for business, • cooperate with employer’s organisations and business self-government etc. this is not an enumerative listing but these are some of the examples of activities the local and regional authorities are entitled to make according to polish law. other examples of actions that can be undertaken, in comparison with other countries, are included in tab. below. table. the examples of economic instruments of support for entrepreneurs in selected countries instrument country in fr as tr uc tu ra l eq ui pm en t pr ef er en ce s in pu rc ha si ng o r le as in g of r ea l es ta te t ax re lie ve s c re di t a nd c re di t gu ar an te es d ir ec t f in an ci al su pp or t pa rt ne rs hi ps denmark x x x x france x x x x spain x the netherlands x ireland x x x germany x x x poland x x x x x x portugal x x x x united kingdom x x x x italy x x x source: u. kłoniewicz – górecka, b. słomińska, 2001, p. 42. one of the tasks set for the selfgovernments in poland by law is counteraction the unemployment and activation of labour market. what is more, local and regional authorities must work out and adopt the long term strategy of stimulating business activity and increasing the competitiveness of the local and regional economy. the support for entrepreneurs given by selfgovernment according to own research in order to compare possibilities of supporting the small and medium – sized enterprises (smes) by the self-governments in selected countries and their regions, the empirical research was conducted by means of interviews with international experts (the representatives of public authorities, entrepreneurs, researchers, the employees of institutions of business environment) in belarus, finland and latvia and by means of questionnaires with smes and local authorities’ representatives in poland. the selection of countries for research gives the opportunity to study the example of a country that isn’t a member of eu (belarus), the "old" member state (finland) and 2 new member states (latvia and poland); what is more the chosen regions of above countries are diversified in their development and give further possibilities of conclusions. belarus is represented by 2 regions: capital city – minsk and vitebsk region, finland by the peripherical region of lapland, latvia by its poorest region of latgale and poland by kujawsko – pomorskie voivodeship. in order to interpret the results of research properly it is important to characterize the systems of local and regional authorities and take into account differences between them. belarus is a unitary country that used to be a soviet republic of former usrr. its territorial division is accompanied by the 3 – level regional and local administration system introduced in 1991. because of a very high level of centralization, the system of local authorities can hardly be called self-government. one of the example of it is that although the representatives in local councils of deputies are elected by citizens, but the heads of the local executive and management bodies are appointed and dismissed by the president or in the order established by him, and approved by the respective local councils of deputies (v. s. fatiejew, 2003, p.151). the constitution establishes the exclusive competence of local councils of deputies on the following issues: approval of programs of economic and social development, local budgets and report on their execution, imposition of local taxes and duties in conformance with the law, determination, in 137 issn 1822-8402 european integration studies. 2007. no 1 conformance with the law, of the procedure of managing the communal property, appointment of local referenda. the selected regions of research in belarus – minsk capital city region and vitebsk region are quite different in its character. capital city of minsk is a 1.729 mil citizen metropolis and the largest political, economic, scientific and cultural centre of the republic. region of vitebsk (vitebsk oblast) is located in the north-east of the country and it boasts with a unique natural complex (it can be even called the lake district) and in future one of its opportunities of development should be great interest for the developing tourism and recreation facilities. the region possesses advantageous transportation potential, as its territory is crossed by two transeuropean corridors and yamal-europe gas pipeline. nordic finland is a country with system of authorities and territorial division that was formed through the complicated history and geo-political location. finland is a unitary state, divided (since 1997) into 6 provinces and 20 regions. the regions are highly differentiated, wit the biggest one (lapland) covering 29,5% of the country area (statistical yearbook of finland, 2003). regions are divided into sub-regions and communes – municipalities, that are self-governmental territorial units. local selfgovernment is guaranteed in finnish constitution. local authorities have the right to tax residents. local authorities co-operate in the area of services that separate municipality can not provide. in some way such a co-operation replaces the self-governments of a regional level. the examples of those areas are: hospitals, regional development and planning. some of the tasks are run by joint municipal authorities compulsory, some are voluntary. from the regions of finland to the research the region of lapland was selected. the biggest region is also the most sparsely populated. it has long suffered from its location on the periphery, but in fact the business and industrial structure has seen rapid modernization in the last few decades. some problems were coped with the help of eu funds. but still economic decline is a very real problem in areas where people live on primary production, and where there is no industry or substantial extra revenue from tourism. these areas also record the worst unemployment figures in finland. unemployment is long-term and thus structural. in latvia, the former soviet republic, since restoration of the republic of latvia in 1991, the implementation of local self – government legislation had started. the territorial administration was introduced in a democratic way, but because of quite high level of centralisation there is still the need of reform and empowering territorial authorities. latvia is a unitary state divided into 4 historical lands. the administrative division includes 5 regions but they are just connected with planning of the regional development and official statistics. on that level there are no regional authorities. those regions are divided into 26 administrative districts and 7 biggest cities. those major cities have the functions of both local and regional self-governments. the local units are 453 rural municipalities. according to the law there are 17 permanent functions of local governments and only 4 of regional (local and regional governments of latvia, 2004). the selected to the research region of latgale is situated in the southeastern part of latvia, and has a long external border with russia, belarus and lithuania. latgale faces the unusual situation of its ethnic latvian's being in the minority in the region. taking into account the level of gnp per capita it was the poorest nuts-3 region in eu in 2002. poland is a unitary state with self – government on 3 levels: 16 regions (voivodeships), 314 counties (and 65 cities with county status) and 2478 communes (municipalities). the system of local and regional authorities is based on subsidiarity rule with the wide range of competences assured by the law (e.g. communes: local taxes, public transport, social services, housing, culture, health, pre-primary and primary education; counties: road building and maintenance, secondary education, civil protection, employment; regions: economic development, higher education, social policy, regional roads management). selected to research kujawsko-pomorskie voivodeship is located in the north-central part of poland. strong points of the region are: favourable distribution of settlement network; institutions supporting business located in centers of regional government; high quality of the natural environment, creating favourable conditions for the development of agriculture, industry and tourism; significance of the region in domestic agricultural and industrial output; main urban centers of the region are important junctions of domestic transportation routes – road, rail and air; significant cultural activity and renown cultural and artist events. weak points of the region are: low level of education and professional qualifications of population; high level of unemployment, particularly among youth; low level of incomes of the population; poorly developed technical infrastructure, particularly concerning watersewage and waste storage management; inadequate network of high capacity roads and bridges; inadequate potential and technical level of health service infrastructure; relatively limited implementation of modern technologies and other. the main task of self – government in poland is to fulfil the needs of local/regional community. the experts in belarus, finland and latvia were asked if the self-government in their countries is able to 138 issn 1822-8402 european integration studies. 2007. no 1 influence the level of life of territorial community. the self-government is being regarded as the very important subject having an influence on the standard of living of inhabitants in regions of latvia and in finland. the possibilities of such action were found scarce in belarus (only 12% of experts were positive about it). is seems to confirm the thesis about the insufficient level of decentralization of public authorities system in this state. within the limits of european law public authorities in member states of eu support the development of sme sector. results of the survey among the local authorities in kujawsko – pomorskie showed that 64% of all respondents (communes and counties) offered support for sme sector in the period 2001 – 2005. respondents in selected regions abroad were asked about possibilities of supporting small and medium – sized enterprises (graph 1). 86% 100% 40% 56% 49% 47% 44% 46% 13% 7% 14% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% latgale vitebsk region belarus together yes no no response graph 1. opinion whether the self – government has the opportunity to support smes, in % of respondents in selected regions source: results of own research. possibilities of supporting the sme sector by the self – government are waking up no doubts in finnish lapland. in latvian latgale opinions on the fact that self-government authorities can offer such a help are very popular, however not all of the experts share them. in belarus almost half of experts (46%) agreed that there are no such possibilities and the actions undertaken are mostly duties. respondents were also asked what results entrepreneurs would like to achieve thanks of the support from the self – government. the replies should let to identify effects which will turn up at the local or regional economy. findings of foreign examinations were compared with results from poland (graph 2). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% the p urchase and introducing new technologies adap ting of the comp any for eu requirements creating new workplaces p romotion abroad and export creation p ersonnel skills imp rovement belarus together lapland latgale kujaws ko pomorskie* graph 2. opinion what results can be achieved by smes thanks to support from the self – government, in regions, in % *data worked out on the base of averaged results of questionnaire forms to self-government bodies and small and mediumsized enterprises. attention: it was possible to mark more than one reply so the results do not sum up to 100. source: as graph 1. in lapland entrepreneurs would like to allot the support from the local government to the goals connected with the promotion abroad and increasing export. however experts understood this purpose more widely than it is formulated in the questionnaire form. they have most often seen it as the need of 139 issn 1822-8402 european integration studies. 2007. no 1 company internationalization, that is of adapting the organization and its activity to requirements resulting from processes of globalization and of international economic integration. in lapland more often than in different examined regions, also a need of assigning more distant means of adapting the company to requirements of the eu is being discerned. on the other hand, in lapland they most rarely plan to support directly the creation of new workplaces, while in kujawsko – pomorskie it was a priority. it is resulting from serious problems connected with the unemployment in poland. however towards the fact, that rate of the unemployment in lapland is twice higher then average for finland, justified a proposal seems that in this finnish region increase in employment is suppose to be achieved indirectly, e.g. thanks to building up the position of supported companies in the international markets and their innovative potential improvement. a fact is remarkable that the purchase and introducing new technologies as a goal was the most rarely pointed out in poland, more rarely even, than in both byelorussian regions. participation of the statements of workers skills improvement was developed on average, similar in all regions level. it must be underlined that the above evaluation is just an opinion of respondents and do not illustrate the actual results that are achieved in regional economy. in fact it is very hard to evaluate them. one of the important factors that rises the chances for succeeding and achieving results needed for local and regional development is the satisfaction of beneficiates. that is why the policy of self – government in the field of enterprise support must be conducted on the base of strategic plan and with the active participation of all the parties involved. so, entrepreneurs should be involved in the process of strategy formulation and realization. in poland self – government is aware of this need and authorities often try to invite the business people representatives to initiatives addressed to smes or aimed at improvement of the quality of life in the territorial unit or its competitiveness. however, there are still not enough examples of such participation or public – private partnerships. the foreign experts were also asked if the idea of entrepreneurs’ participation in the economic policy making and realization is popular in their countries and region (see graph 3). 0% 0% 0% 20% 40% 60% 80% 100% belarus together lapland latgale yes, at stage of strategy formulation yes, at stage of decision making yes, at stage of policy realization no graph 3. whether and on which stage, the smes representatives have the possibility to participate in economic policy formulation and realization, in regions, in % attention: it was possible to mark more than one reply so the results do not sum up to 100. source: as graph 1. as it can be seen, entrepreneurs in the regions of research generally have some opportunities to participate in the process of economic policy formulating and/or realization. these possibilities were most rarely noticed in belarus. in lapland all experts pointed out the possibility of participation of smes in economic policy realization, most often in the form of public – private partnerships. the respondents were also asked to evaluate the importance of support instruments (the scale was from: 1unimportant, 2 – very little important, 3 – important, 4very important). the results were diversified. noticeable is the difference in a meaning of taxes relieves. even though a local income tax is in force in finland only, the relieves or remitting in taxes and local payments was judged as unimportant there (1,43). meanwhile in latvia, polish and both byelorussian regions (particularly in vitebsk region), where local taxes have the smaller participation in total fiscal loads relatively, assessments of this instrument were very high (from 2,91 in belarus to 3,55 in latvia). a help of advisers and an organization of training courses were assessed as the highest in finland (3,73), next making the economic information available (3,07) and help of promotional character (3,00). slightly smaller note (2,93) was given to creating the incubator of the enterprise or the technological park; it was the highest assessment granted to this instrument by all experts however. in latgale, apart from tax price concessions (3,55), a 140 issn 1822-8402 european integration studies. 2007. no 1 help in arming the land was valued high (3,05). in belarus biggest meaning (for both regions together) was granted to administrative service in offices improvement (3,03). quite big diversification in assessments were noted in both byelorussian regions, e.g. while in the vitebsk region the meaning of credit guarantees was appraised very much (3,15), whereas in capital city low (1,76). generally speaking byelorussian experts granted relatively low assessments what is particularly visible in the case of minsk. this judgement proves that the meaning of self government as the subject supporting the smes’ development in this country is generally low. comparing notes of foreign experts and polish local governments, it is possible to state that, with the exception of assessments of the help in arming the land (3,15 in poland – the highest among all respondents), the polish notes were lower then these in latvia and finland. conclusions on the base of analysis of the presented findings of examinations, it is possible to express some concluding remarks and proposals concerning the regional politics of explored states and their regions in the fields of entrepreneurship support offered by the local and/or regional government in selected countries. belarus. in spite of introducing the self – government in this country, central authority is still playing the main role in the process of creating and the realization of the regional policy in belarus. many matters of regional and local meaning are still taken in the form of central decreeing, the local authorities are dependent and they are lacking the financial autonomy. local authorities perform required tasks mainly, they rarely operate freely. experts stated that self-governments had very few possibilities to influence the standard of living of inhabitants. finland. a multitude of connections of equal partners between local governments is a characteristic feature of the model of the functioning local government in finland (called regional advice particularly in frames of self-government associations) and between these self-government bodies and institutions of surrounding the business. this cooperation, in a way, is replacing selfgovernment authorities of the regional level. the idea of participation of entrepreneurs in public life is a reality in finland, especially in form of public – private partnerships. in lapland, the peripheral region, entrepreneurs must be oriented at international markets and that is why they expect to get support that serves the realization of the purposes connected with the internationalization of the activity of enterprises. highly appreciated is also supporting the improvement of innovative potential and personnel skills. in lapland, representing the region of highly competitive economy, highly appraised are also instruments of the advisory help and the organization of training courses, workshops and the like. to quite essential help also count: enabling the development through enterprise incubators and technological parks. latvia. the local government functioning in latvia is being regarded as the essential subject being able to have an influence to improve the standard of living. very important of the development of the sme sector in latgale are outdated technologies and therefore entrepreneurs would like to allot the help received from the local authority to the purchase and introducing new technologies. support is often also needed for promotion abroad and export increase as well as adapting the company for eu requirements. entrepreneurs would like to receive tax relieves. poland. support received from the local government most often in poland is allotted to creating new workplaces, too rarely however, comparing with other examined countries, is used to promotion abroad and export increase, as well as purchase and implementation of high technologies. based on all international analyses and conducted research in the area of self – government’s support for sme sector, it is possible to form some conclusions of more universal character, namely: that an immediate association exists between support given to fostering innovation, internationalization and technological progress and the country and region competitiveness. in lapland, representing competitive finnish economy, instruments of sme support connected with technologies improvement are highly appraised. in regions of states developed not so well as finland there was rather the need for temporary support seen, for example tackling the unemployment problems. references fatiejew, v. s. (2003), rozwój regionalny i polityka regionalna republiki białoruś na przełomie xx i xxi wieku, „przegląd europy środkowej i wschodniej”, no 1(1). kłoniewicz – górecka u., słomińska b. (2001), samorząd terytorialny a rozwój nowoczesnego handlu, difin, warsaw. local and regional governments in latvia (2004), the union of local and regional governments of latvia, riga. local and regional structures in europe (2005), council of european municipalities and regions, bruxelles. opałło m. (2002), rola małych i średnich przedsiębiorstw w rozwoju regionów, [in:] przedsiębiorczość i innowacyjność jako czynniki 141 issn 1822-8402 european integration studies. 2007. no 1 rozwoju regionalnego i lokalnego, ed. w. kosiedowski, włocławek. research monitor: regional gross domestic product in europe. lancashire perspective; website of lancashire county council www.lancashire.gov.uk/environment/lancashire profile/monitors/gdpeurope2002.asp statistical yearbook of finland 2003, volume 98 (new series), svt official statistics finland, jyväskylä). the world of finnish local and regional authorities (1998), the association of finnish local and regional authorities, iisalmi. website of european commission – regional portraits, http://forum.europa.eu.int/irc/dsis/regportraits/inf o/data/en/pl02_geo.htm; http://forum.europa.eu.int/irc/dsis/regportraits/inf o/data/en/lv005_pop.htm; http://forum.europa.eu.int/irc/dsis/regportraits/inf o/data/en/fi1a_geo.htm. website of the ministry of foreign affairs of the republic of belarus, http://www.mfa.gov.by /eng/index.php?d=belarus&id=18; http://www.mfa.gov.by/ang/index.php?d=belarus &id=21. zieliński j. (2000), systemy konstytucyjne łotwy, estonii i litwy, wydawnictwo sejmowe, warszawa. 142 european integration studies 2008.indd 7 issn 1822-8402 european integration studies social evolution of europe equal opportunities for women and men in labour market and economic growth in the context of european integration j rat guš inskien jadvyga iburien kaunas university of technology abstract at present the gender equality and its policy is an important element and a priority in labour market of european union (eu) and european employment strategy (ees). the right to equality opportunities in the labour market to all women and men is one of the most fundamental principles of a modern society in european union (eu), including lithuania labour market. different theoretical approaches to equality in the society are based on culture, political, social values and economic development in the country. the paper analyzes the gap between women and men in labour market. the gap in one fi eld of life (labour market) is related with other fi elds (education, services) and might have an impact on them. the effects of these gaps may be passed from one generation to the next. the article discusses the relationships between labour market and economical growth and later checks how the theory proved itself in the case of lithuania. economical growth is one of the main concerns of nowadays economical science, because the economical growth of any country increases the welfare of its citizens. the aim of the research is to determine and characterize women and men equality in lithuania labour market and to show its relationships with economical growth in the context of european integration. research methods applied are the comparative analysis of women and men equality in labour market in european union and lithuania based on the synthesis of offi cial european community publications, scientifi c literature and systematic data analysis as well as identifi cation of gender equality dimensions using questionnaire in lithuania. keywords: equal opportunities, labour force, labour market, economic growth, european union. introduction the problem of women and men equality in science literature is analyzed by researchers from various countries and of different professions sociologists, economists, psychologists etc. the professionals of each fi eld focus on the aspects closest to their science fi eld. in years the questions about equality between women and men in different spheres of life and activities have been raised by women researchers as well as men researchers. one of the fi rst ones, who raised the problem of the difference of the salary between women and men was j. robinson (1930). in the second half of the 1970, the analysis of women and men equality increased. analysis of gender aspect was introduced into economic development and globalization problems by e.boserup (1970); facilitation of the participation of women in the labour market was analyzed by b. majnomi d’intignano (2000). sainsbury, diane (1996) characterized the social rights of women and men; the gender questions in the welfare economic country was researched by j.bussemaker, van k. kersbergen (1996), m. daly, k.rake (2003), d.sainsbury (2003); c.fagan, p.urwin and k.melling analyzed the infl uence of age and gender to social disjuncture and the long term unemployment questions (the activity level in the labour market, poverty risk); the labour problems of men and women were analyzed by al lee (2007). the fi rst analysis of economical discrimination was 8 issn 1822-8402 european integration studies. 2008. no 2 commenced by g.s.becker (usa chikago university), in 1992, for these researches he was awarded with nobel’s premium of economics (becker, 1997, 3858). he paid a lot of attention to “gender gap” in earnings in labour market, for investments in human capital as important infl uential elements to economic development (becker, 1990, 12-37). the relevance of the problem of the gender equality also shows the fact, that english economist a.k.sen (trinity college cambridge, united kingdom) was awarder with nobel’s premium in 1998. he (sen, 2003, 178216) analyzed a key role of women employment in economic development, and stated that (2003, 198) interpersonal comparisons can be used as a basis of inequality analysis between sexes. the gender equality is relevant to lithuania as well, but the literature on this subject in lithuania has grown very fast only in recent years. various aspects are being analyzed, for example, d.tureikyt (1999), a.a.mitrikas (2001) are analyzing subjective evaluation of the status of women in society; i.trink nien and j.trink nas (1999) analyze the patriarchal manifestation in traditions; j.reingardien is ventilating the problems of the strategy of equal opportunities and the theoretical discourse of violence against a woman (2004 a; 2004 b); r.brazien (2005), r.brazien and i.luobikien (2002) analyze the aspects of gender inequality and professional segregation; o.g. rakauskien (2000; 2002; 2005) is focused on the women’s contribution while creating gross domestic product and gender asymmetry in lithuanian macroeconomics; a.purvaneckas, g.purvaneckien (2001; 2006), d.tureikyt (1999) – the status of the women in lithuanian society; v.kanopien (1998; 1999) analyzes discrimination and opportunities of men and women in the labour market; a.zdanevi ius (2004) researches the trajectories of women carrier and successful carrier strategies. the purpose of the article – to explore equal opportunities of men and women in labour market and their relation to economical growth under the conditions of integration into eu. the tasks of the research: to analyze the essence of equal opportunities, its sorts and assumptions; to characterize the relation of women and men equal opportunities in labour market with economical growth; to summarize the results of exploratory questionnaire research. the methods of the research. the theoretical analysis of the problem is based on the study of science publications of foreign and lithuanian researchers, the research of empirical statistical data of lithuania and the 27 eu countries, their comparative analysis, synthesis of economical indicators. to comprehensively explore the attitude towards the realization of men and women equal opportunities the exploratory research was accomplished. the essence and principles of equal rights under the conditions of market economy some important evens for gender equality policy have happened in 2007: the 50th anniversary of eu gender equality policy and the european year of equal opportunities for all. the basis for the european employment strategy (ees) and for women and men equal integration into labour market (gender mainstreamind) were put by amsterdam treaty in 2000 are important for enlarged european union of 27 member states, including lithuania. the aspects of the state / equality (gender) of men and women equal opportunities in lithuania are expanding more and more. one of the fi rst researches under this question accomplished in lithuania was dedicated to the evaluation of the concordance of the country’s joining the eu according to the political criteria of copenhagen (the supervision of the process of joining the eu, 2002). the practice shows that stereotypes of roles of women and men in labour market are still vital. for the real accomplishment of equal rights opportunities, it is necessary to understand the effect of inequality/discrimination on the development of economics and to take actions to solve current problems. the conception of gender in the article is used based on the opinion that the differences between women and men in the society are created more by psychological, social and cultural differences than by physiology (marie-marthe gervais le garff, 1998, 50; hutton, 1997, 28-29; barancovait , 2006). the equality of genders defi nes the principle, under which different behavior, aims and needs of men and women are evaluated equally, and do not cause different outcomes, which strengthen inequality (equal …, 2004). the equality of men and women – is the principle of equal rights and same behavior with them. with the gender equality policy it is aimed for infl uence, equal distinction to fully-fl edged participation in economics, social life and decision making processes (purvaneckien g, 2001). the equal opportunity policy of men and women is systematical point of view, created to pay attention to the status of women and men, the priorities and needs in all fi elds of politics and practice, aiming to stimulate activities which are based on equal opportunities of men and women (equal, defi nition dictionary, 2007). it is stated in the science literature (jankauskait , mackevi i t , 2005, 35) that the equality of men and women covers four main aspects: equal division of authority, power and infl uence; equal opportunities to 9 issn 1822-8402 european integration studies. 2008. no 2 be fi nancially independent; division of responsibility for family and children; freedom from violence because of the person’s gender. all these fi elds are correlating: the equality of genders in one fi eld is impossible if equal opportunities in other fi eld are not created. the realization of equal opportunities is destined by: the policy of the country;• economical situation;• legal base and its realization;• the education system and its real functioning;• stereotypes vital in the society; various • traditions and other. the gender problems arising in labour market are related to the society’s stereotypes, women discrimination etc. it is obvious that there is need for exhaustive research and evaluation of labour market changes. the creation of markets economical relationships has approved that the change of social-economical processes has infl uenced women status in labour market. accomplished researches show that modern creation of fully-fl edged market is contradictory, because it covers (rima evskaja, 2007): firstly, the reduction of social programs which involve women; secondly, in the era of modern informational and computer technologies it raises higher requirements for the labour force; thirdly, because the society is “ageing” the responsibility over reproductive society problem enlarges. these problems in bigger part relate to women’s responsibility realized in family (women activity in general meaning), which is growing. because of this reason it is allowed to state, that productive activity of women is reducing. occupational policy and its infl uence on the formation of equal opportunities of the genders in labour market equal opportunities of men and women in labour market in microeconomical, macroeconomical, regional, global levels from the time approach infl uences the development of economy and is important not only for one country, but also for groups of countries. today countries of growing economy in europe face many new factors of economical development, which modify the development of economy. one of such factors is labour market and poorly analyzed its aspect – equal opportunities of genders. for the fi rst time, in 1997, in the multinational conference of european union amsterdam the “purpose of full occupation” was raised and unemployment was acknowledged as general european problem. the european council in 1997 affi rmed the occupational guideline package, which is constituted of 19 guidelines grouped into 4 “stanchions” (eu employment and social policy, 2001, 6): employment• – the purpose that the labour market is open for everybody; it covers two main strategy moments: preventive effect of struggle with unemployment and stimulation of activeness (active labour market policy); enterprise and creation of work places• – purpose, the creation of business based on innovations, retention of old working places and creation of new ones, creation of tax system more advantageous for occupation; adjustment/adaptation• – purpose: under the conditions of globalization and growing scientifi c and technological advance, to enforce the modernization of work organization, to create for the workers conditions of faster adaptation in the working places; equal opportunities• – purpose: to ensure the equality of genders when employing, applying with work related warranties etc. till the beginning of the 8th decade of xx century the economy of the eu countries was developing quite rapidly, and the unemployment rate was small. beginning from the 9th decade of the xx century, eu is suffering from enlarged unemployment, which is bigger than unemployment in japan and usa. one of the reasons, why the occupational rate in eu is smaller than in usa is that less women are in eu labour market. the european council in lisbon’s strategy has set the quantitative purpose of the level of general occupation: till the year 2010 to reach that 70 percent of employable eu residents works. when lithuania became eu member, it assumed responsibilities to accomplish the lisbon’s purposes and the requirements of the occupational guidelines – to enlarge the occupation and to enhance its quality. the purposes of lisbon’s occupation in es25 and lithuania are shown in the table no. 1. the statistical data of occupancy shows that in lithuania the occupational level of women is bigger than the level of es-25 countries, but it is smaller than the occupational level of men in lithuania, and much less than occupational level of men in es-25. 10 issn 1822-8402 european integration studies. 2008. no 2 table 1. the purposes of lisbon’s occupational strategy occupancy rate, % year 2003 year 2005 year 2010 eu-25 lithuania eu-25 lithuania eu-25 lithuania general 62.9 60.9 67.0 63.5 70.0 68.0 of women 55.1 58.4 57.0 59.3 60.0 61.0 55-64 year old residents 40.2 44.5 46.2 50.0 48.0 source: lithuania’s convergence program, 2005, 51. lithuania has harmonized national and eu legal acts and realizes them in many fi elds. at the moment the main tasks are equal gender, work force distribution in the sectors of economics and economy, security of equal dynamics of occupied number and practical realization of legal standards. in many countries, in lithuania also, the laws are advanced, but the equality de jure and de facto is not the same (valevi ien , 2003, 11-12). the realization of the strategy of integration of the gender aspect in eu uncovers complex social and economical context and national differences and achievement, while struggling with the discrimination of genders. in separate eu countries and their groups’ main characteristics of men and women labour market (economical activity, occupational indicators, and education) are defi ned in the table no. 2. the statistical data shows that the rates of men and women economical occupation and occupational indicators are high, the education level is conditionally high, and bigger part of them work in full occupancy sector. table 2. men and women labour market main characteristics in separate eu countries and their groups group of countries characteristics northern and many new eu countries northern countries 1. men and women rates of economical activity and occupational indexes are high. 2. the education level is conditionally high, and bigger part of men and women work in full occupancy sector. 3. main problem of gender equality in the occupational fi eld of these countries – big professional and vertical gender segregation in labour. 1. the active integration of women into labour market was stimulated by the attention of country to the public services of care of children and older people. 2. the country plays an important role and aims to facilitate the compatibility of professional and family roles, develops infrastructure of care of these social layers. continental european countries (holland, germany, austria, luxemburg) and united kingdom 1. the part of women in full occupation fi eld is smaller than men, and they dominate in partial occupation sector. 2. dominates the man – family supplier and his wife’s, who works only part of the day and takes care of the home contract type. 3. woman’s decision to work only a part of the day not always is voluntary. public services of children and older people care in these countries are not so fully developed as in northern countries, and the primal responsibility for housework is woman’s responsibility. southern european countries (greece, italy, spain, france) 1. partial occupation is less distributed than in other countries. 2. women occupation and economical activity rate is less than of men. 3. most of the working women work all day. 4. the family is the pillar of welfare system, and primal care source. gender work distribution into public/manly and private/womanly spheres is more obvious than in other countries. 4. gender contract in these countries is in the transitional period: transforms from still dominant man-family supplier, wife-housekeeper to dual family supplier model. source: made according to reingardien , 2004, 17-20. lithuania with inner policy means is trying to realize three main purposes: 1) to reach full occupancy, 2) enlarge work productivity and effi ciency and 3) ensure social compaction and its coverage. but the fact that not many women work various levels managing works in economy activity and politics, and the fact that their salary is smaller than men’s, although the education level of women is higher, shows that women abilities are not fully used and gender inequality is apparent. in the program of occupation enlargement under eu of the republic of lithuania, there are set 5 occupation enlargement directions: development of work place system;1) enhancement of support of occupation;2) 11 issn 1822-8402 european integration studies. 2008. no 2 enhancement of abilities to adjust to the mar-3) ket; enlargement of integrality of openness;4) occupational policy. 5) fourth occupation enlargement direction shows the importance of gender equal opportunities in labour market. enlargement of equal opportunities in labour market means creation of labour market available for everybody, the security of men and women equal opportunities in labour market, while enhancing the law of women and men equality (1998) and following the right charter of main eu rights, which forbid any discrimination. economical growth: gender aspect income differences that are determined by the individual differences of properties, and which are not related with his (hers) abilities (samuelson, nordhaus, 2000, 233-234), as unequal relationships with the equal ones, when evaluating personal workers properties not related to his working activity (pirs, 1997,133) are evaluated as discrimination in labour market. these properties are gender, nationality, religion etc. in science literature (samuelson, nordhaus, 2000, 232; samuelson, 1994, 351) it is indicated that women for the same work get 20% 30% less than men, even if they have same education and same duties. gender gap in earnings in lithuanian labour market in 2002 were quite eminent – the earnings of women constituted 81,4% of men’s earnings (the supervision of the process of joining the eu, 2002, 1) in the mean time this gap has tendency to reduce (see table no. 3). important indicators of equality of genders are laid in the table no. 3: gender pay gap (as difference between men‘s • and women‘s average gross hourly earnings for paid employees at work 15 hours) exists in every shown eu country. pay gap is smaller in the low paid countries, but the bigger share of women is paid at close to the minimum earnings. in lithuania this difference is bigger than in slovenia or ireland, but smaller than in estonia and little bigger than in latvia; absolute gap in employment rates as difference • between men‘s and women‘s employment rates show enough high employment rate in lithuania, when comparing to gender gap of employment rates with slovenia, latvia, eu27, or ireland; absolute gender gap of unemployment rates • as difference between women‘s and men‘s (aged 15 years and over) unemployment rates are shown in the table 3. the data shows, that the employment rate for women is still lower than men, despite some narrowing tendencies. the data characterizes quite good situation in the labour market of lithuania in the aspect of genders, when comparing to other eu country members. absolute gender gap in unemployment rates was getting smaller in the period from 2001 till 2006, from -5.5 proc. to -0.4 proc.; life-long learning as percentage of the • population aged 25-64 participating in education and training over the four weeks prior to the survey (2006) is an important assumption for ensuring better positions in labour market. the results of the survey show that lithuanian men and women are leastwise tended to life-long learning. when comparing the life-long learning of women and men in lithuania, it is necessary to note that women are more active participants in life-long learning, respectively 6.6 percent of women and 2.9 percent of men. table 3. gender pay gap, absolute gap in employment rates, absolute gender gap in unemployment rates and life-long learning, in percent country pay gap absolute gap in employment rates absolute gender gap in unemployment rates life-long learning women men 2001 2003 2006 2001 2006 2001 2006 2006, in percent eu-15 16 15 215 16.6 214.4 1.9 21.4 210.4 28.8 estonia 24 24 25 7.5 5.2 1.5 -0.7 8.6 4.2 ireland 17 14 9 22.0 18.0 -0.3 -0.4 8.9 6.1 latvia 16 16 16 5.2 8.0 -3 -1 9.3 4.1 lithuania 16 17 15 2.5 5.0 -5.5 -0.4 6.6 2.9 slovenia 11 19 8 9.5 8.0 0.7 1.2 16.3 13.8 1 2002 data ² eu-27 data source: eurostat yearbook, 2004, 145; european commission, 2005, 50: report on equity between women and men – 2008, 2008, 15, 17, 29. 12 issn 1822-8402 european integration studies. 2008. no 2 the data laid in the table allows us to assume that the contribution of women into the formation of the volume of gross domestic product (gdp) is smaller than of men. the theoretical work model of men and women in the picture no. 1, allows us to better understand the effect of smaller earnings on the volume of gdp. in the laid model it is assumed that: 50 percent of men and 50 percent of women 1) are participating in labour market; there are three main activity fi elds: agricultu-6) re, industry and services. work demand in these three fi elds is defi ned by the demand of negative gradient for labour right ld. it is obvious that the demand for work can be identically satisfi ed by women and men of analogous qualifi cation and abilities. 0n0 lfm lff wf wfb e ldm b a ldf wm wma fig. 1. the interplay of women and men labour market the practice shows that in the two fi rst activity fi elds (agriculture and industry) mainly work men; the women work is dominant in the service fi eld. this shows unequal situation of men (m) and women (f) in the labour market. the number of the ones occupied in labour market is directly connected to the volume of product created in the country. the men work demand is shown by straight line ld m , located in the left ordinate axis of the coordinate system, and the women work demand – ld f shown by the straight line in the right ordinate axis of the coordinate system. the segment ae of the straight line of men work demand ld m shows occupancy and the volume of created product in agriculture and industry; the segment be of the women work demand straight line ld f shows occupancy and the volume of created product in service sector. the women work demand straight line ld f is sharper; it is two times more sloping than of men. this is so because men control two work activities from three and because of this the working of circulation law in women’s labour market. factual work pay men get of w ma level, and women of w fb . it is obvious that women work pay is smaller than of men, women’s situation in the labour market is worse or discriminative. so, we can assume that in the service sector the employers get bigger profi t, than the employers of other two activity fi elds. the equality of work salary in the labour market between working women and men is shown in the point e, which shows the balance between both genders in economical activity. in such case, one third of the women working in manufacture as well as one third of men would receive equal work earnings. the triangle abe created on the fi g.1, shows not received work pay of the women, or losses of women earnings, when compared to the earnings of the man. in the dimension of all society, the triangle abe defi nes gdp losses. it is obvious that the men do not adopt the earnings difference between men and women. the weakening and exclusion of superstitions and prejudice can not secure equal opportunities and earnings of men and women in labour market. the experience of the world shows that earnings for one person are as big, as big is the investment into the human capital. when the employers consciously expect that the woman won’t work for a long time in the selected working place (may get married, have children etc.) they are not interested in professional preparation of such worker. appropriate professional preparation would enlarge the work productivity and earnings. on the other hand, not everyone seeks for bigger earnings; some seek for spiritual and not material values. 13 issn 1822-8402 european integration studies. 2008. no 2 economical analysis shows that when reducing the earning gap between women’s and men’s earnings and realizing their equal opportunities in labour market, we can win not only in the level of separate individual – a working woman (microeconomic) but also in the level of all society (macroeconomic). such position would ensure a more effective use of economical resources, and enlarge the economical commonwealth of the country. according to science literature analysis, in the 2nd picture you will see the logical effect on gdp of liquidation of the earning gap of women. as practice shows, fuller usage of the intellectual and economical potential of both genders for northern countries has secured highest index of life quality in the world (jakimavi ien , 2005, 8). biased organizational practices discrimination: at work/getting a job caused by salary harassment negative attitudes: indifference, stereotypes, prejudices. expectation of discrimination m i c r o l e v e l social distance disadvantage: economic, social, psychology m a c r o economic growth gross domestic product fig. 2. gender pay gap and economic growth services like agriculture, where women are dominant in today’s economy are very important. here work two thirds of the workers. who make about 60-70% of gdp. this is the most dynamically developing economy activity in today’s economics in developed countries of the world; it plays an important role for lithuania’s economics as well. research methodology and results aiming to learn the students’ attitude towards the situation of equal opportunities of men and women in labour market in lithuania, a questionnaire was made, and the exploratory research was accomplished in january-february of 2008. the survey attended day and evening study form students of second course of kaunas technology university economy and management faculties (n=82). the demographic characteristics of the students: questioned day time students: 32 women and 12 men; questioned evening time students: 18 women and 20 men. the youngest respondent was 19 years old, oldest – 44 years old. overall there were 61 percent of women respondents and 39 percent of men. the analysis of the results of research showed that 81.3 percent of day time women students think that men have more opportunities in labour market. to this statement agreed 75 percent of day time men students. 66.7% of evening time women students and 45.0% of men agreed to that statement. we can assume that the changes are happening, which have been infl uenced by education, science and technology advance, this is why the evaluations of unemployed youth and employed people are different. aiming to indicate the respondents’ attitude towards current stereotypes in lithuanian labour market it was asked if there are only womanly or only manly professions. the questionnaire based research showed that the respondents do not accept professional stereotypes. only 12.2% of daytime women students agreed with the stereotype, that some professions (for example teacher, nurse, salesman etc.) are suitable only for women. 25.0% of day time men students agreed with this stereotype. evening form students agreed more to the opinion that the stereotypes exist, accordingly: 33.0% of women and 40.0% of men. the research shows that men of both study forms agree more with the stereotypes which exist in our society than women. statistical data shows that women earn less than men, but the respondents who took part in the research not always agree with this opinion. 19.0% of day time women students and 33.3% of men think that it is natural that women earn less. the opinion over this 14 issn 1822-8402 european integration studies. 2008. no 2 question of evening time students distributed in this way: 38.9% of women and 40.0% of men. while analyzing the attitude that women, if only they want, can reach the same in the work carrier as men, evening form women students expressed pessimism. 84.4% of women and 83.3 of men of day time studies accepted the idea that women can reach the same in the working carrier. 50.0% of women and 85.0 percent of men of the evening study form students supported this opinion. while analyzing family supply, it was asked who supplies the family more: man, woman, both, hard to tell. 33.4% percent of day study women and 66.7% of men think that man supplies the family fi nancially. in the evening study form 22.2% of women and 45.0% of men respondents thought that men supply the family. evening study form respondents indicated that women also bring in a meaningful contribution into family’s budget. the results of empirical exploratory research show that respondents, the students of kaunas technology university, who participated in the research think that the opportunities of men in labour market are better than the opportunities of women, that women earn less than men, but according to the opinion of the respondents different genders have fairly good opportunities to make carrier. while analyzing the results of the research, it was noticed that the opinions of the day and evening program students, and this may have be the result of the fact that evening time students already have working experience and evaluate the opportunities of different genders in a more realistic manner. conclusions in the occupation enlargement program of the republic of lithuania, which conforms the strategy of european occupation, important attention is paid to non-discriminative policy, i.e. for security and development of women and men equal rights in labour market, and creation of labour market available to everyone. mostly segregated women discrimination types in labour market show with that, that women work in less prestige work places, their salary for the same work is smaller. in this process, according to the researchers, still the negative infl uence may be made by vital stereotypes in the country. in today’s lithuania, work pay split between genders is reducing, but still, not all intellectual and professional potential of the women is used. continuing to reduce the split between women and men pay, and while realizing their equal opportunities in labour market, we can win not only in the level of separate individual – a working woman (microeconomic) but also in the level of all society (macroeconomic). the results of empirical exploratory research accomplished in 2008, show that respondents, the students of kaunas technology university, who participated in the research think that the opportunities of men in labour market are better than the opportunities of women, that women earn less than men, but according to the opinion of the respondents different genders have fairly good opportunities to make carrier. while analyzing the results of the research, it was noticed that the opinions of the day and evening program students, and this may have be the result of the fact that evening time students already have working experience and evaluate the opportunities of different genders in a more realistic manner. references barancovait k. 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(2000), ekonomika, 16-e izd. (per. s angl.). moskva: sankt-peterburg, kiev: izd. dom “biljams”. sen a.k. (2003), the possibility of social choice / economic sciences 1996-2000. nobel lectures. t.persson (ed.). stockholm: world scientifi c publishing company, p.p. 178-216. stojimo es proceso steb sena: moter ir vyr lygios galimyb s (2002), vilnius: atviros visuomen s institutas. 16 issn 1822-8402 european integration studies. 2008. no 2 trink nien i., trink nas j. (1999), patriarchalizmo apraiškos lietuviškoje tradicijoje / moterys: tapatumo paieškos. vilnius: mokslo aidai. tureikyt d. (1999), lietuvos moterys: subjektyvios pad ties visuomen je vertinimas / moterys: tapatumo paieškos. vilnius: mokslo aidai. valevi ien d. (2003), amžinas gin as d l moteriškumo ir vyriškumo // kauno diena, lapkri io 17, p.p. 11-12. zdanavi ius a. (2004), moters karjeros trajektorijos. karjeros samprata ir s kmingos karjeros strategijos // sociologija. mintis ir veiksmas, nr.1, p.p. 73-88. the article has been reviewed. received in march, 2008; accepted in april, 2008. european integration studies 2008.indd 53 issn 1822-8402 european integration studies. 2008. no 2 citizen participation in regional management edita stumbrait mykolas romeris university remigijus riekašius klaip da university abstract citizen participation topic became actual in various european union (eu) projects since 6-7th decade of the xx century, when in many countries it had been started to transfer authority power from centre to regional and local government authorities with intention to make closer decision-making and implementation to the people. it is considered that decentralization can assure management, which would be more public, participatory, cooperative with community, reactive and accountable. regional level is very suitable for promotion of citizen participation ideas, because regional and local management is closest to the people. therefore eu regional policy is inseparable from enhancement and development of democracy, in order to achieve social welfare of population, economy strengthening and to reduce the differences between the eu regions. nowadays tendencies in public administration indicate that a good management is defi nable by categories of wider citizen participation, pluralism, subsidiarity, transparency, accountability, accessibility, cooperation and effi ciency. “old democracy” states try to consolidate values of democracy and at the same time to adjust effective methods of new public management, new public administration or new civil service into the management of public organisations. the main scientifi c problem in respect of looking for effective management model is to fi nd a suitable form, how to apply effective management principles from private organisations in the management of public organisations and to secure democratic principles at once. the success and effectiveness of new management systems much depends on the legal basis and the specifi c management and administration traditions of concrete state. the aim of this article is to evaluate the opportunities of citizen participation in regional management, considering the eu guidelines in respect of regional policy. the article analyses citizen participation tendencies in management of public organizations, eu position with regard to regional policy and citizen participation and the regional self-government possibilities in lithuania. the results of research show that citizen participation is really actual theme in nowadays management systems where the importance to achieve balance between democratic management principles and more effective administration is increasing. eu regional policy is based on subsidiarity principle, which underlines understanding to closer ties of decisions to the society. eu supports democratization of regional development, specifi cally stressing conveyance and transparency. citizen participation opportunities are limited in management of lithuanian regions, because of lack of legal basis, which could establish the principles of selfgovernment and the forms how citizens could be involved into management process. in consideration of public management decentralisation tendencies, it is important to discuss and assure the real modes how citizen would be able to impact the development processes and to increase the accessibility and effectiveness of public services. keywords: citizen participation, management, regional policy, regional self-government, decentralization. introduction public management faced tendencies of democratization, establishment of democratic values at the end of last century, when citizen groups became more infl uential in the process of public projects preparation, deliberation and implementation. therefore public organizations started to involve citizens and support the possibilities to encourage individual initiatives, citizen associations and structures. the question of interaction between 54 issn 1822-8402 european integration studies. 2008. no 2 citizens and government is especially important in lithuania focusing analysis on central, regional and local level management changes, consolidating public participation principles. integration into eu gave an impact to revaluate the application of the democratic norms in state management institutions and highlighted the problem of inadequate citizen incorporation in the management processes. democratic management process analysis is not forgotten in scientifi c literature, but there is a shortage of researches, where the democratic values are discussed in relation with public management, the variation of citizen and government interaction implementing the new public management ideas (new public management, new civil service etc.) or the place of citizens and possibilities to participate in the central level and the regional and local level also, when citizens are involved into the solution of public problems and they become the members of management, not only the recipients of services. the problem of citizen participation is analysed in the papers of j.s. thomas (1995), b.g. peters (2003), c.s. king, k.m. feltey, b. susel o‘neill (1998), l. terry (1998), l. deleon and r. b. denhardt (2000), n. font (1998), j.v. denhardt and r.b. denhardt (2003), d. chandler (2001), s. j. pharr, r. d. putnam, r. j. dalton (2000) etc. authors discuss the importance of participation for management, possible problems and results, the alternatives of participation forms and the government institutions position stimulating the activity of community. in the researches of l. duff (1997) and d. osborne, t. gaebler (1992) new public management tendencies and their impact on democratic management principles are studied. lithuanian scientists also are interested in democratic management and new public management combination possibilities, consequences and possible alternatives (r. civinskas (2007), j. palidauskait (2007), g. žilinskas (2007)). meanwhile v. aplikas (2006), g. ma ys (2006), j. ma iulyt , p. ragauskas (2007), e. petukien , r. tij naitien (2007), r.petrauskien , a. raipa (2007) analyse the regional policy guidelines, eu role stimulating development of regions, the alternatives of regional management and problems in lithuania. the novelty of the article is based on a little regional management practice in lithuania and still formulated citizen participation tradition. the interest on regional policy increased only during the integration process to eu, seeking to use eu support. it means that regional policy in lithuania was started to formulate because of external impact, not because of internal social and economical reasons. despite faulty practice making reforms of management structures, region as a medium level between centre and local level creates background for analysis of regional management democratization possibilities. the object of the articlecitizen participation in public management. the aim of the articleto analyse the opportunities of citizen participation in regional management, considering the eu position in respect of regional policy. the main tasks of the articleto review the concept of citizen participation and its refl ection tendencies in management; to present eu position in respect of regional policy and citizen participation; to discuss regional self-government situation in lithuania. the methods of researchsystemic analysis of scientifi c literature and conclusion fi ndings, case study and theoretical prognosis. citizen participation tendencies in public management nowadays many of politics and public administration scholars are talking about declining confi dence in political institutions and government (pharr, putnam, dalton, 2000; kaase, 1999). postcommunist societies are no exception in this case (mishler, rose, 2001). that situation leads to citizens’ apathy. one possible decision to avoid citizens’ apathy is “a more participatory style of democratic government” (dalton, burklin, drummond, 2001). that means expansion of citizen participation in decision making and implementation process: from election of public offi cials and referendum opportunities (scarrow, 2001) till citizens’ panels and citizens’ juries (lowndes, pratchett, stoker, 2001). in the recent years development of public administration is going in cohesion atmosphere of traditional public administration and new public management ideas. it is predicted that in this century the development of public administration systems based on new management concepts will speed up. but using the new public administration principles in developing “young democracy” countries, not always is positive. furthermore, in the publications of recent years some authors as l. terry (1998), r. denhardt and l. deleon (2000), b. g. peters (2003) express concern that new public management is especially problematic in respect of democratic values in public administration. narrow and selfi sh interests of concrete groups could change society interests. on the other side, should be marked that new public management involves citizens to the management processes. in 1992 d. osborn and t. gaebler published the book “reinventing government“, where the main new public management principles were presented and explained. one of themthe 55 issn 1822-8402 european integration studies. 2008. no 2 government of community: delegation, but not serving. government is responsible for better services provided to the citizen, but also it has to stimulate community to solve problems by itself, supporting citizen participation in deliberation of actual matters. the new public management agrees with idea of decentralised government, underlining the transition from hierarchy to participation and teamwork. thus the new public management ideas are favourable for citizen participation stimulation; only the question of participation forms is outstanding. in the states of “young democracy” could be recommended do not follow the “ideal” new public management model, but to introduce only those forms of practice whose are applicable to specifi c conditions and do not impact negative results for management and society. in post communist countries the development of democracy is impeded by weak participation tradition; the practice of participation is only created and without it to form active, self-government civil society impossible. post communist societies face the challenge “to engage the citizenry in meaningful participation after years of ritualized engagement of actual prohibitions on participation” (dalton, 2000). citizen participation in managementis not only the instrument to regulate political and public matters; it also gives possibility to outline advantages and disadvantages of various management aspects, different preferences of social groups and seeks to formulate the real goals. management of citizengovernment interaction is essential applying the partnership principle. application of new public management ideas in management of public sector means more than optimization of economical effi ciency; democratic management has to seek the goals, including citizen’s preferences as well. consequently despite of contradictory citizen preferences, management system has to guarantee conditions and concrete methods, how to receive and to use purposefully information necessary for formulation and realization of management goals. as a reaction to the new public management shortage of democracy, the new civil service ideology formulated. it was argued that in public administration have to dominate such concepts as democracy, selfrespect and citizen, but not the market, competition or client. new civil service ideas are coming from theories of public spirit, community and civil society, organisational humanism and new public administration. the main ideas are clearly listed in the book of j. v. denhardt and r. b. denhardt “the new public service: serving not steering”. new public service underlines that citizen participation is the essential assumption for democratic management, because public spirit means not a selfi sh interests, but social values as well. consequently the better citizen incorporation into the management is preferred. hereby civil servants and citizens would be able to work together, discussing and working out various problems in the manner acceptable for both parts. management is not a businessit has to follow principles of democracy (denhardt, denhardt, 2003). j. palidauskait says that new public management practice showed that professional public administration values (publicity, impartiality, avoidance of interest confl ict, etc.) have to be coordinated with democratic values (justice, equality, etc.), whose more emphasize public interests. when citizens act as consumers and as citizens, their position is different. in the centre of consumers view point their wishes and satisfaction possibilities dominate. citizens take care more about long-term consequences for community (palidauskait , 2007, p.85). on the other hand, conception of citizen as consumer or client is dominated in quality models and helps to solve the legitimacy problem (civinskas, 2007, p. 218). in consequence, if democracy and entrepreneurial activity are combined, economical and private management values cannot overrun legal or democratic ones in management reforms, because such is the particularity of public sector. the process of democratic management has to be accountable and transparent, when information submission standards, which are used in management processes, are foolproof for citizens. decentralization of management could root for citizen participation in development processes. decentralization can mean different things (hutchcroft, 2001). scholars fi nd arguments in favor and against decentralization (de vries, 2000), but decentralization is a way to enhance citizen participation. decentralised management with adequate political and fi nancial power together with active community groups may ensure better possibilities to fulfi l requirements. decentralization relieves the creation of civil society organizations and their nets to manage local problems. thus the effectiveness and accessibility of public services is improved and democratic citizen participation activated. new public participation or citizen participation differs from traditional citizen participation in two aspects. firstly, traditional citizen participation was more interpreted as participation in policy arrangement, therefore new participation underlines implementation of policy, i.e. assumes more management elements, needed to guarantee effective implementation process. separate segments of society, associated citizen structures are included into prepared and confi rmed policy realization. jointly citizens are incorporated not only to strategic policy planning, but to strategic management of public programs and projects as well. secondly, the concept of participation expanded in 56 issn 1822-8402 european integration studies. 2008. no 2 meaning. traditional public participation was often interpreted as consultative (adviser committees, various commissions etc.). meanwhile new public participation expanded the traditional understanding of participation, including into participation wider groups of community: consumers, clients, control prosecutors, nongovernmental organisations and other citizen institutions (thomas, 1995, p.3-4). citizen participation is not a costless process. nevertheless “with citizen participation, formulated policies might be more realistically founded in citizen preferences, the public might become sympathetic evaluators of tough decisions that government administrators have to make, and the improved support from the public might create a less divisive, combative populace to govern and regulate” (irvin, stansbury, 2004, p.55). expanding the democratic management tendencies “new public management” paradigm is trying to solve quite traditional, but nowadays especially actual problemcoordination of possible democratic management development processes and public institutions activity. it should be mentioned that in the past, unfortunately state institutions made and implemented decisions, without looking for partnership with public representatives or whole community i.e. without democratic methods and procedures. temporary development phase of society raises new requirements for organization of democratic management, coordination and creation of various forms of accountability and responsibility also the demand to search new methods of communities, citizen associations and structures activity especially at the local and regional level. two questions are important, why it is necessary to participate and where to participate. stimulation of participation per se cannot be understood as matter-ofcourse, if it is not clear, what result is expected (chandler, 2001) and how to use it effectively in the management of public organizations. as k.yang and k.callahan notes, “meaningful, authentic participation is rarely found, as many public offi cials are reluctant to include citizens in decision making, or if they do, they typically involve citizens after the issues have been framed and decisions have been made” (2007, p.249). citizens participate, if participation means real decisions (lowndes, pratchett, stoker, 2001, 2006). in summary, the newest discussions in scientifi c literature indicate, that more authorities have to be delivered for citizens in management processes, but the scope of participation depends on the features of discussed problem. there is still interesting and important consideration of participation term itself and interpretation of it in different contexts: does participation is a process, program, method or methodology. participation as a tool differs from participation as a goal or result. new management systems do not suggest unambiguous answer in respect of participation term, but acknowledgement of citizen participation necessity in management creates possibility to apply participation concept and to interpret it according the needs of concrete situation. eu position in respect of regional policy and citizen participation support for regional development is essential for stability and growth in the european union. in an increasingly globalise world, local areas and activities must compete on a much larger scale, but not all regions have the same economic, social and geographic conditions. this is even truer in the context of the enlarged union. regional policy is thus aimed at promoting a high level of competitiveness and employment, helping less prosperous regions or those with structural diffi culties to generate sustainable development by adapting to the new conditions of the labour market and world competition. in that sense, cohesion policy is a policy of solidarity through targeted intervention with eu funds aimed at helping the local areas overcome their disadvantages more easily. it is, however, also a concrete policy because it is visible to european citizens who live better in their own regions as a result. community regionalism arises from the desire to ensure that in implementing the principle of subsidiarity, the various responsibilities of the european union, member states and regions are complementary. the latter have in fact become a powerful factor in enforcing and enhancing european integration. recognition of regional importance came in 1991 with the maastricht treaty’s creation of a committee of regions (cor), the youngest of the european union’s institutions. it was created to guarantee a direct, concrete tie between the european institutions and regional or local bodies (regions or länder, provinces, and municipalities) in defi ning those community policies that affect them directly. the creation of the cor made it legally binding to consult the representatives of local and regional bodies in their sectors of competence. this guarantees a greater participation of the citizens in the growth of the eu. democracy enhancement and development is an important feature of the eu regional policy. it key and irreplaceable formregional self-government enables to achieve involvement of more citizens in the common policy, management of state and public affairs. through regional democracy, its self-government authorities a signifi cant fi eld of 57 issn 1822-8402 european integration studies. 2008. no 2 management between the lowest levellocal selfgovernment and state authorities arises. thus more possibilities to involve citizens to management of various public affairs appear. therefore, the eu supports establishment and development of in particular democratic regional bodies, what is refl ected in its legal documentstreaties ( aplikas, 2006, p.63). regional self-government institutions and independence of the macroeconomic-territorial units allows achieving the goals of the regional policy related to preservation of cultural identity, economic development, administration improvement. democratization of the eu regional policy is linked with the subsidiarity principle. this is a mode of decision making, according to which decisions must be adopted at that administrative level, at which their implementation will be most effi cient. this principle ensures closer ties of decisions to the society, as they are made at the levels, for which they are intended: local, regional or state community. application of subsidiarity is refl ected with decentralisation, the process of management functions division and closer relations with community. despite the eu institutions supportive position in respect of citizen participation, it cannot be confi rmed, that citizens of europe actively participate in various initiatives. in order to strengthen consultations with society and to encourage participation in the european initiatives, european commission included commitment to increase opportunities for interested parts to participate actively in management of problems into the strategic goals of 2005-2009. therefore european transparency initiative was established, where committee of regions actively participated (naujoji skaidri europos sanglaudos politika, 2006, p.3-4). three dimensions are outlined, whose have to be taken into account during consultations with society: objective to create better structures system • of interest groups (lobbyists) and rules, also to increase participation of civil society organizations and other related parts; establish the minimum standards of applying • consultations by commission and to ensure transparent interaction between economic interest groups and commission; discuss the possibility to declare information • about the eu support receivers. european transparency initiative stipulated to formulate communicate “d plan (democracy, dialog and discussions)”, which was published in 2005, inciting citizens actively to participate in discussions and to spill out their position. “d plan”is the fi rst stage of long-term process, which should make stronger democratic background of eu and to link them with citizen values and expectations. naturally the briefi ng and transparency are not the new terms related with management of structural funds, but practice shows, that citizens often feel the lack of information about the programs, whose are created to increase economic competitiveness, to establish new work places and to strengthen internal cohesion in the regions. 347 milliard euros are referred to the new cohesion policy in 2007-2013 and it makes more than a third of whole eu budget (naujoji skaidri europos sanglaudos politika, 2006, p.8). the european commission handling such scope budget cannot ignore briefi ng of citizen’s aspect. eu institution initiatives to improve briefi ng and publicity means in member states implementing regional policy are desirable and necessary, because it helps to motivate democratic management of regions and to stimulate citizen participation. however the main responsibility goes to the state, which is implementing regional policy and its position in respect of citizen incorporation to the management processes, is crucial. it is true to say, that eu position in respect of regional policy and citizen participation is compatible with the effi ciency provision of public managementpossibility for citizens to participate and clearly express their preferences. but citizen participation in regional management could be effi cient only when the modes of cooperation between citizens and government are consistently modifi ed together with attitude how participation is treated itself. none the less is to ensure the real opportunities to express public initiative and to get needed information quickly and by easy accessible channels. the stimulation of citizen participation and stimulating position of management institutions in the local and regional level for democratic management are two sides of the same coin. regional self-government possibilities in lithuania transition to the democratic society is becoming speedy in central and easter europe. although the progress is treated differently, the signs of democracy assessment are signifi cant in the new member states. eu integration process gave a chance to recall citizen participation question in management and the researches of participation returned to the lists of popular topics. at present public participation and management are treated as not dissociated. true, the participation in democratic society is often narrowed to the participation in the elections, but the new computer and telecommunications technologies, internet system greatly expanded citizen participation possibilities in public administration using services of government institutions, introducing suggestions 58 issn 1822-8402 european integration studies. 2008. no 2 or acting as partners in administration of services. hereby citizens become more critical to management system and actively participate in management process as partners directly or though various citizen organisations. on principle there are two standpoints to integration of participation ideas in the management of regional level. one“top-down” or “centre-down”, another“bottom-up”. long time the standpoint “topdown” dominated in regional development theories, projects and strategies. to subject to it, in separate regions differences between people living standards, social society sectors or geographical zones did not decreased. as a consequence to it, the new alternative appeared with standpoint “bottom-up”, which emphases necessity to consult with society making decisions (petukien , tij naitien , 2007, p. 241). when the principle of partnership was started to use, the background was created for incorporation of society into the processes of decision-making and implementation, sharing responsibility, experience and ideas. authors m. smith and m. beazley analysed the aspects of community participation in the partnership development. the matter of participation could be interpreted through three conceptions: government, participation and partnership. all three conceptions help to formulate “involvement circle” model, which could be used seeking to evaluate participation of actual community in partnership practice. it is important to guarantee that all member interests will be taken into consideration, creating and strengthening the structure of partnershipeach one has to present its goals on equal speaking rights. thus the mutual confi dence and equivalent participation is achieved (petrauskien , raipa, 2007, p. 254256). the conception of partnership principle in the community level or regional development programs is applicable relatively a little while ago, but it could be treated as one of the possible alternatives implementing democratic principles of management and looking for collaboration ways between citizens and government. currently regional management problems are very relevant in whole europe. the traditional regional government survives the crisis because of non-effective “top-down” management methods and incapability to cover increasingly differentiated requirements of many interest groups. in a number of cases regions and regional institutions act only as “extended arms of the state” in regional level (ma ys, 2006, p. 153). regional development problem suggests changing government term to management conception. management enables regions themselves to organise social and political integration. in lithuania also more and more is discussed about the creation of second level (counties) self-government institutions reforming the state management model in general. regional policy in the democratic state is applied on the legal basis, which usually consists of three main documents: self-government regulation of separate region, statute of region association and the states regional self-government or policy basics act. the sequence is not so important, because the democratic regional self-government may develop from bottom separate regions, or from a topat fi rst working out and enacting state regional self-government basics act. in the opinion of v. aplikas (2006, p. 119), in lithuania none of the mentioned documents, whose are essential for democratic regional policy, are enacted. in such case, legal basis of lithuanian regional policy does not meet the recommendations of eu and other countries regional organisations. after the restoration of independence lithuania started to reform the administrational division of territory and established the new territorial selfgovernment institutions. unlike other central european countries (i.e. poland, check republic or hungary), lithuania gave the priority for regional reform, but not for establishment of local territorial units. foundation of counties (apskritys) was linked with decentralization of management, but without delegation of essential functions and refusing to establish regional self-government institutions, management was only deconcentrated. regional reform was limited to creation of regions administrative structure (ma iulyt , ragauskas, 2007, p. 70). in 2000, when the act of the regional development was enacted, counties (apskritys) became the territories where the national regional policy has to be implemented. however till now counties (apskritys) and their regional councils do not play signifi cant role in the regional development process. counties (apskritys) do not have instruments to carry out regional development function without control of fi nancial resources and without power to allocate eu structural funds. in consequence lithuanian administrative regions (apskritys) are not territorial self-government institutions. nowadays regional policy is a centralised public policy in essence, because it applies states interventional instruments (duff, 1997). meanwhile regional self-government may stimulate the local community to participate in the projects and to expand citizen infl uence on the decisions of regional development, also to control application of eu support. regional institutions can infl uence citizen involvement on the regional level in several forms (ma ys, 2006, p. 157): 59 issn 1822-8402 european integration studies. 2008. no 2 to prepare for citizens the newsletters about • regional policy and its benefi ts; to organise meetings or public discussions, • during which the needed information would be introduced also the comments and suggestions of citizens would be heard; to ensure the possibility for citizens to • participate in sessions; to establish citizen representatives groups • (committees), whose would bring and discuss the main public problems with recommendations how to manage them; to look for active partnership and cooperation • forms with community organisations. in the opinion of n. font (1998), traditional ways of citizen involvement into the management, as referendum, public meetings or access to information, are limited, that’s increases the necessity to formulate new instruments to support citizen participation as consensus conferences, discussion forums, consultative citizen committees etc. for instance, various groups of problems deliberation or special projects groups, whose take care about product and services substitution, development and quality improvement matters, or consider the questions of supplied services rejection or devolution for other suppliers of services could be a good example of citizen participation (žilinskas, 2007, p. 275). authors c.s. king, k.m. feltey and b. susel o‘neill (1998) agree with this opinion and append that very often administrators of public institutions are linked to block the participation, providing only the limited information. it is important to change the attitude to the citizen participation in administrative management structures. citizens should be learned how to participate in seminars or practical groups, especially on the local and regional level. administrators have to choose the instruments of citizen’s participation together with citizens. development or regional policy in lithuania raises not only the question of management reform, but also the aspect of citizen interaction with public institutions. citizen participation engagement in the regional level should follow with the intention of regional institutions to assure the well-oriented environment through submission of information, taking into account suggestions of community and strengthening of real possibilities to participate in the management. naturally at fi rst legal basis has to be consolidated, when for citizens would be guaranteed instruments to participate and control methods indicated to verify the public institutions treat citizen opinion as important and decisive or not. and otherwise the government would be constricted and noncommittal to stimulate citizen initiative; the citizens also would not be keen to participate, if their actions will not have impact on the management results. conclusions citizen participation in the management processes is the essential part of the democratic government. nowadays modern states face the dilemma how to increase effectiveness of administration managing in democratic principles. the importance of today’s management institutions to reform their government in time and properly is evident; also the capacity to introduce innovative theoretical models applicable to management practice infl uencing the activity results of organization, culture and attitude to citizen involvement meaning. state management reforms and applicable new management and administration forms as new public management, new public administration or new civil service are pressing to evaluate, what meaning in these processes is given for citizen interaction in the management, i.e. what the goal should be achieved, by what instruments and how this impact government and citizen interaction also management results. eu regional policy is based on the democracy development and subsidiarity principle, but there are no concrete indications in which forms community should be introduced into the realization of regional development. there is understanding that regional management should be closer to the citizens in order to evaluate community demands and to guarantee possibility to present their position about problematic issues. eu does not push up to satisfy the unanimous european regional model, which basically is non-existenteach country can formulate regional management according the states demands and may freely to choose what instruments to use for achievement of the best democratic regional management results. regional level in between of local and central levelsis especially suitable for integration of citizen participation ideas. on purpose to infl uence regional policy from “bottom-up”, the regions need real powers, based on democratic structures. citizen participation in regional management processes is important, because it creates situation to apply experience of different community groups and to convince the society that citizen opinion is treated seriously and public institutions seeks to meet citizen expectations. stimulating the citizen participation the regional government responsibility to society would increase, also the effi ciency of implemented regional policy. decentralization of government in lithuania allows approaching regional development management 60 issn 1822-8402 european integration studies. 2008. no 2 to community towards the creation of possibilities for citizens to participate in consideration of regional projects and implementation also to guarantee effective control using eu support. discussing the question of regional self-government in lithuania, it is necessary to take into consideration regionalisation level and regional self-suffi ciency formulating and implementing regional development. also the practice of other states could be useful in decision-making which regional management model is most suitable for lithuania. it should be expected that such model would stimulate civic initiative “bottom-up” taking into account the principle of subsidiarity and it would be opportunity to introduce the new management instruments on purpose to increase accountability and inter-sectoral cooperation. references aplikas v. 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(ats. red.) naujoji viešoji vadyba. kaunas: technologija. p. 260-277. the article has been reviewed. received in march, 2008; accepted in april, 2008. microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 football business development in the context of european common market integration rimantas gatautis tomas karpavičius aurelijus cvilikas kaunas university of technology abstract scientific problem. football business is one of rapidly changing business sectors in europe. the development of football business structure is based on changing financial flows, which become more and more various. in the analysis of football club’s business environment there appears the conflict of two different orientations of football managers: 1) orientation to general benefit, which is mostly based on sporting success that may impact positives changes of club’s financial state and 2) orientation to profit, where the main criteria for successful club management is profit maximization. the integration of european countries markets presumes the growing attention to the second orientation, which is based on financial results maximization. the goal of this study is to determine how this orientation conditions the changing structure of football system’s management and in that way those changes influences the change of football’s financial flows. the findings. the analysis of various football specialists’ publications allows stating that one of the most important factors that influence the changes in european football business structure is the growing integration of different countries football markets. this integration conditions the growing importance of television role in football business and more intensive sport events schedule. those two factors, together with other less important factors, influence the change in european business financial flows and create the presumption for more intensive football business development. keywords: football business, business system, european market. introduction football in social life is firstly considered to be a sport – it is one of the most famous sports, which has fans in almost all countries of the world. but sport aspect is just a one part of football clubs’ structure. the other part, which is not less important, is economical aspect of football, which means an ordinary business with specific processes. football industry is a complicated system of business and sport interests, which integrate various business subjects with their specific objectives and tools for their realization in one entirety. football business is one of rapidly changing business sectors in europe. in global world football is more and more often treated as business, not sport and this makes important to analyze football from business management and financing perspective, because it becomes one of most important key factors in football environment existence. the development of football business structure in the context of european common market integration is based on changing financial flows, which become more and more various. this variety makes relevant the question in the scientific research area, how different financial flows may impact football business performance. for this reason there appears the need to determine the main factors which influence football business’ financial flows. the objective of this article is to determine the main factors that influence the changing football business’s financial flows structure. to achieve the goal of this article, the various football specialists’ publications are analyzed that allows determining the importance of growing integration of different countries football markets in europe on football business financial flows. to realize this, the main task of this study were set: 1) to define the main tendencies in football business due to growing globalization; 2) to assess the impact of football business globalization on football business financing sources structure in case of european football business. 147 issn 1822-8402 european integration studies. 2007. no 1 tendencies of football business globalization since the last decade of xx century globalization began evidence in almost all areas. globalization factors especially actively evidence in europe (including sport area) where the new economical development stage had begun after the domination of political-economical disunity and countries’ reticence. globalization also actively comes through in football where international structures, such as fifa, uefa, were formed with the purpose to organize international football matches. alongside there appeared the growing demand for international advertising tools which was created by international companies. this factor positively impacted the development of international sport tournaments. in such case small, locally relevant and from local sources financed sport tournaments developed to strong global sport structures which are unable to base their performance only on local resources. the base of global football business structure is national football associations which represent country’s football system in international arena. football associations are united by federation of international football associations (fifa), which represents football interest in all world and in all areas. the graphical view of global football business administration structure is presented in figure 1. together with fifa in global football business structure there also exist continental confederations (europe, africa, asia, oceania, south america, north and central america and caribous), which consist of national football associations. another important element of global football business structure is international football associations board which consists of national football associations of scotland, england, ireland and wales. fifa uefa europe ifab national associations (na) caf africa ofc oceania conmebol south america concacaf north and central america and caribous europe na scotland, ireland, england and wales na africa na asia na oceania na south america na north and central america and caribous na regional associations (ra) national teams clubs confederations confederations afc asia figure 1. global structure of football business administration (made by authors in accordance with: radnedge, 2004; szymanski, 1999; howie, 2004) in a level of national associations football business is organized in the scale of individual state. traditional smallest parts of national football business structure are football clubs which may conjoin in intermediate structure – regional association. usually it is practiced in bigger states (i.e. united kingdom). together with football clubs in national associations structure exist less business-oriented structures – national teams, which firstly represent the sport segment in global football structure. football clubs in modern football business structure should be treated as the backbone of football business system. individual performance of football clubs and its organization as the entire system 148 issn 1822-8402 european integration studies. 2007. no 1 conditions the income and profitability of concrete football business system. in this case it is important to determine the difference between business and sport interest in football system. a.m.rapp (2004) illustrates the conflict between economical and sport results of football club by analyzing two different types of football club’s managers (see figure 2): • general benefit-oriented manager who is interested not just in financial performance, but in sport performance of club and is ready for compromise if there is a necessity to forsake part of profit in exchange to bigger sport success. • profit-oriented manager who use to ignore sport performance results and has an interest only for club’s profit maximization. playing success club’s profitability utility curve for profit oriented manager utility curve for general benefit oriented manager curve for profitability dependence on playing success figure 2. the relation between football club‘s owners business orientation and club‘s profitability (rapp, 2004) the utility curves for both club managers are based on economics theory – the bigger amount of one element (playing success or club’s profitability) is less and less attractive in the comparison with other more and more scarce resource and otherwise. as it can be seen in presented figure the theoretical background allows assuming that profit-oriented manager is going to succeed less playing success because in any case he is trying to achieve maximum level of club’s profitability. as a.m.rapp (2004) states, the curve for profitability dependence on playing success has a form of upturned parabola which means that there exists the maximum point for club’s profitability. profit oriented managers utility curve is clearly horizontal, because he is not sensitive to playing success level. but the utility curve for general benefit-oriented manager has a form of traditional utility curve (analogous to a positive side of hyperbola). in this case the optimum for general benefit-oriented means bigger playing success but lower profitability (in comparison with profit-oriented manager). this analysis allows determining the presumption for rapid football business development – greater playing success is not a guarantee for bigger profit, so club’s manager must pay more attention to business development than sport development. such tendency can be clearly seen in the analysis of european football system’s financial flows analysis. football business globalization impact on football business financing sources structure: case of european integration traditional professional football financing model, which used to dominate in europe till the middle of pre-last decade of 20th century, is based on traditional mass entertainment events financing principle. w.andreff (2000) has named this principle as sssl model. the abbreviation sssl means spectators – subsidies – sponsors – local and it quite clearly describes the financing system of those days football. 149 issn 1822-8402 european integration studies. 2007. no 1 in this system the very first and main football’s financial source was the spectators of football match. the income from ticket sales used to made the biggest part of all football club’s income. for example in season 1970 – 1971 in france division 1 the 81 percent of average club’s income came from ticket sales and only 1 percent was income from sponsors and advertising (howie, 2004). support (government subsidy) 18% game tickets 81% sponsorship and advertising 1% figure 3. france division 1 football club‘s income structure in season 1970 – 1971 (andreff, 2000) the second biggest and on of the most important professional football financing sources till the mid 80’s in 20th century were government subsidies. government used to subsidy practically all sports. in football such subsidies had some lower impact than in other sports, because football, as one of the most popular sports in europe, was able to attract quite big and stable financing form other sources. various sports used to be most actively subsided by local government institutions which were interested in promotion of local professional sport clubs’ development. professional sport as the necessary part of public subsistence has a noticeable positive impact on region’s economical level and often is treated as the handy tool for local government’s positive image amplification (quirk, fort, 1992). such the role of professional sport stimulates the local government to keep strong sport clubs in the region and for this reason local government tend to subsidy sport clubs and motivate them to represent the interest of local region not just in sport sphere but in most public performance areas. money from sponsorship and advertising in professional football was treated only as a small additional financial flow in most european countries. in most cases this financial source was based on close connection between football club and local business. region’s major companies used to sponsor local sport clubs with the purpose to join the realization process of local community’s economic interests. the bigger impact of sponsorship and advertising on professional sport could be noticed in those countries where government subsidies for sport clubs were limited by law. as an example there can be presented the financing structure of england’s cricket clubs’ in 1978 were over 50 percent of financial flows came from private sponsors (“schweppes“, “benson & hedges“, “gillette“ etc.) mostly because this kind of sport was unable to attract the necessary spectators number for sport’s structure surveillance (andreff, 2000). at the very end of 20st century in the context of european common market integration and growing globalization the changes of professional football financing in europe began. these changes, as ch.gratton and p.taylor (2000) state, were influenced by several factors: 1) the changing business conditions in european union economical integration, 2) the growing modern technologies impact on business processes; 3) the growing globalization level. one of the main technical factors which influenced changes in football financing structure is television (szymanski, 1999; espitia-escuer, 2004; andreff, 2000). the growing role of television in various sports business systems was conditioned by modern technologies, which allowed reducing the cost of sport events translation and dispersion in different regions. the possibility to translate sport events is attractive for lot of television companies. modern technologies, which were used in television for rapid and quite cheap video translation, conditioned the formation of new powerful business structures – television companies. some of those companies used to base their business on professional sport translations and this conditioned the growing importance of new sport financing source – televisions sponsorship. this may be clearly noticed in football business financial flows’ analysis. football translations are treated as one of most attractive products for tv companies, because of some reasons: 1) football is one of the most popular sports; 2) football has a widely developed business structure that allows creating long-lasting business relations between football and tv business subjects. tv companies are interested in professional sport events translation and this stipulate them to financially support football business structure with the purpose to 150 issn 1822-8402 european integration studies. 2007. no 1 improve the quality of football matches. the higher quality of football match directly impacts the number of tv channel audience during the match translation, and this conditions the bigger financial flow for tv company from advertising services. the impact of globalization on football business financing source structure may be seen in the analysis of football clubs standpoint in case of cooperation with tv companies. till the mid 90s in 20th century, in the period of domination of closed european countries’ economies, football clubs used to avoid the cooperation with tv companies because of presumable negative impact of their financial flows. as it was mentioned above, in that time the main football clubs’ financial source used to be income from ticket sales and tv translations were treated as the threat for this financing source. the opinion dominated that tv translation can only reduce the wish for football fans to go to stadium and to choose cheaper way (tv translation) to watch football match. but the globalization effect changed such the standpoint of football clubs. the growing amount of international games and more and more stronger international football leagues forced to use the positives of tv – the spread of tv channels in other regions and even other countries – for football business development. international matches has a wider rage of fans than local matches – during the international match there are always a big part of fans that can’t go to stadium, by ticket and watch football match because of big geographical distance, the scarce size of stadium and other factors. for this reason tv companies became the necessary partners of football business system and now are being treated as one of the main tools for football business development and football sport spread. such the changes in business philosophy conditioned the changes in football financing flows structure – the main financial source became tv companies and ticket sales are now treated only as additional financial source. this can be seen in the analysis of italy division 1 football clubs financial structure. in 1988 the income form ticket sales was the main part of club’s financial flows with 71 percent of whole income, and in 1998 it felt to 36 percent (andreff, 2000). the football clubs’ financial flows structure was also impacted by some big tv companies’ new business strategy. such tv channels as bskyb, cltufa, ab sports, canal plus, etc, which considered sport matches translation to be the primary service for their costumers, began practicing the owning of football clubs’ capital shares. in this case tv company as on of football club’s owners could make strategic impact on club’s financial flows (bourg, 1999). as an example in this situation can be mentioned france professional football leagues, where in 1997 – 1998 the main financial source for football clubs became tv companies (andreff, 2000). football matches translations on tv have changed not just the structure of football clubs’ financial lows but also the size of total flows. tv translations became the primary factor for attracting the income from advertising. tv translations cardinally changed the size of football match’s audience and for this reason football match became more attractive tool for advertising spread. the fact that football match is going to be shown on tv amplifies the interest of advertising companies and this automatically conditions the growing income for tv company and, indirectly, for football club. this conditions the positive multiplier effect of tv role in football business for football business’s finance. tv companies are interested in football match’s translation (for the possibility to attract bigger tv audience) and this conditions the pretext for football match organizers to enhance the income from advertising because of bigger match’s audience. tv translations and growing financial flows conditions important changes in sport business understanding. this can be quite clearly seen in the analysis of football business’ principles changes. as football became the sport with big spectators’ audience and high income form advertising, the importance of football as business sector has amplified. the growing football clubs’ financial flows conditioned the changes in football club’s conception. football clubs are no longer being treated only as sport bases; they now are business subjects with big financial flows. for this reason most famous football clubs are now treated as a marketable business subjects with the positive profitability potential. large corporations now treat football clubs as profitable investment objects. for this reason football clubs became fully-fledged business subjects and this also had an impact of football clubs’ financial flows: the additional flows from ownership and debt stocks appeared in the structure of financing structure. as football club became business organization, there appeared bigger interest in club’s income enlargement, which is based not only on the need to cover the necessary expenses, but to create additional value for club owner (to create profit). for this reason football clubs now are mostly managed by professional managers who changed sport functionaries in club’s management process. after the football club has transformed to business organization, the sport game processes, which used to be treated as the only and substantial club’s performance part, has lost its importance and in business-oriented football club is treated as one of several main business processes. high popularity of football club, created with the help of tv companies, 151 issn 1822-8402 european integration studies. 2007. no 1 conditioned the possibility for football clubs to develop alternative commercial activities, which may be described as the selling of club’s souvenirs. such commercial performance creates highly profitable additional value, because famous football club’s souvenirs are little price-elastic and mostly depends not on the cost of souvenirs but on club’s popularity, which, in reverse, is mostly impacted by club’s sport results. the analysis of changes in football club’s financial sources structure in the context of european common market integration (and, as the result, globalization) showed that the appearance of new financing sources and the change of old ones role in football business conditioned the formation of new football business financing model that can be described as mcmmg model: media-corporationsmerchandising-markets-globalization. so, as it may be concluded, football business has experienced serious changes in football business processes understanding that resulted in the major changes in football business financing sources structure and those changes can be treated as highly dependable on economical and political changes in europe, which condition the integration of individual states’ markets. conclusions 1. football business in europe has experienced serious changes in philosophy and understating of sport business role and possibilities, and those changes were mostly conditioned by the changes in footballs business’s macro-environment. major changes in macro-environment may be treated as follows: the changes in europe political and economical situation (common market integration); growing globalization; wide spread of modern technologies. 2. while football business existed in closed economy, it was based on sssl model, where the main role in football business financing was played by ticket sales. the changes in football business’s environment conditioned the development of new football business financing model, which is named as mcmmg in accordance to the changes in financing sources structure: as the main sources now are treated tv companies, large corporate investors, stock market and merchandising. references andreff w. (2000). the evolving european model of professional sports finance // journal of sports economics, vol. 1, no 3, p. 257-276. bourg j.f. (1999). le sport l’preuve du march // gopolitique, n 66. espitia-escuer m. (2004). measuring the efficiency of spanish first-division soccer teams / m.espitiaescuer, l.i. garcía-cebrián // journal of sports economics, vol. 5 no 4, november, p. 329–346. gratton ch., taylor p. (2000). economics of sport and recreation // sport press. howie l. (2004). the offcial fa guide to running a club. – great britain: hoddr & stoughton. quirk j., fort r. (1992). pay dirt: the business of professional team sports. – jew jersey: princeton university press. radnedge k. (2004). the complete encyclopedia of football. – london: carlton book ltd. rapp a.m. (2004). explaining the bankruptcy ‘crisis’ in english football. – stanford: department of economics, stanford university, may. szymanski s. (1999). winners and losers: the business strategy of football / s.szymanski, t.kuypers. – london: viking. 152 microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 competence centres and their possible impact on lithuania’s knowledge economy development vygintas grinis vitalija vaišnoraitė kaunas university of technology institute of europe abstract establishment of competence centres is one of the main tasks on the european union agenda. the article aims to analyse the possible impact such competence centres might have in lithuania. the main purpose of competence centre is to encourage science and business collaboration in increasing effectiveness and efficiency of high added value article production. the newly established and currently not wide spread competence centres are encouraged by eu: the main goal of lisbon strategy is to set up necessary conditions for creation of critical mass in particular research areas. developing significant european competence centres, which would be ready for international collaboration and for attraction of high qualified scientists from all over the europe, could encourage competitiveness of the region as well as the competitiveness of eu itself. therefore, this would be a huge step of lithuania’s knowledge economy in catching up with the eu innovation leaders. thus, the article captures: analysis of science and business potential in lithuania, analysis of success stories of competence centres and suggestions on the possible model for boosting the development of competence centres in lithuania. keywords: knowledge economy, competence centre, centres of excellence. introduction the cutting-edge research and technology are the background of knowledge-based economy, moreover – the way to ensure the competitive advantage of the region. implementing the european industry policy in such competitive sectors as information and communication technology (ict), nanotechnology, biotechnology, it is necessary to concentrate science and research task forces. due to this the competence centres could be advantageous. the key issue in the lisbon agenda is the establishment of european centres of excellence, which would be ready for international collaboration and to attract highly qualified researchers all over the europe. such conditions are necessary seeking to reinforce the role of europe in the world-wide technology market as well as to initiate the research for solving global problems. in practical experience, both terms ‘competence centres’ and ’centres of excellence’ are often mixed, hence the paper will provide the definitions and key features distinguishing them. this article deals with the features lithuania’s knowledge-based economy, also with the situation of competence centres and their possible impact on the development of lithuanian knowledge-based economy. the aim of this article is to provide a definition for the term of ‘competence centres’ and analyse their possible impact on the development of lithuania’s knowledge-based economy. the objectives of the article were set as follows: 1. to reveal the concept of knowledge-based economy and its evolution in lithuania; 2. to indicate the role of higher education in developing the knowledge-based economy; 3. to present competence centres and centres of excellence and their main features using the international experience; 4. to forecast possible impact of establishing competence centres in lithuania. methods used: analysis of scientific literature, documents and reports. the concept of knowledge-based economy and its evolution in lithuania knowledge–based economy. the lisbon strategy for growth and jobs1 launched in 2005 sets a 1 common actions for growth and employment: the community lisbon programme. communication from the commission to the 68 issn 1822-8402 european integration studies. 2007. no 1 comprehensive array of policies and reforms designed to make europe's regulatory and economic framework more innovation friendly. this includes the crucial objective of increasing research and development spending to 3% of gdp. many authors (drucker (1994), melnikas (2003), krisčiūnas, daugėlienė (2006)) agree that the knowledge accelerates modern life. the knowledgecreation potential in each region can be used to keep competitive advantage. p.drucker (1993)2 in his famous book ‘postcapitalist society’ analyses the major world transformation from the age of capitalism to the knowledge society and how it will affect society, economics, business, and politics now and during the years ahead. p.drucker describes how every few hundred years a sharp transformation has taken place and greatly affected society worldview, fundamental values, business and economics, and its social and political structure. life long learning is the essential feature of new paradigm – so called ‘knowledge-based economy‘. according to authors k. kriščiūnas and r. daugėlienė (2006), usually four main characteristics are used to describe the knowledge-based economy: human resources, innovation policy, innovative enterprise and information communication technology (ict). human resources involve education of individuals and employees, their creativity as well as professional qualification. the management of human resources takes very important role in knowledgebased economy; it is not only employment of personnel, firing or taking care of social security, but also the usage of human resources (jewell, 2002)3. brooks and nafukho (2006)4 contend that today’s business society must use their employees’ capabilities and talent for creating competitive advantage. human capacity and their devotion lead to successful organization. resources like technologies, ict and other can be easy to duplicate, and the only way to keep the companies’ competitive advantage is to use human resources for development of ideas, implementation of innovation (brooks, nafukho, 2006). innovation policy. this kind of policy becomes the key part of all eu policy focused on the development of knowledge-based economy, enhancing council and the european parliament. com (2005) 330, 20.7.2005. on-line: http://ec.europa.eu/growthandjobs/pdf/ com2005_330_en.pdf. 2 drucker f.p. (1993), post-capitalist society – new york: harper-collins, 288p. 3 jewell, b.r. (2002) integruotos verslo studijos.vilnius, the baltic press. , 487 p. 4 brooks k., nafukho f.m. (2006), human resource development, social capital, emotional intelligence. any link to productivity? journal of european industrial training. on-line: www.emeraldinsight.com/0309-0590.htm. entrepreneurship in business and research and development (r&d). the eu can only become comprehensively innovative if all actors become involved – business, public sector and consumers. this is because the innovation process involves not only the business sector, but also public authorities at national, regional and local level, civil society organisations, trade unions and consumers. such a wide partnership for innovation will create a virtuous circle, where supply of new ideas and demand for new solutions both push and pull innovation (putting knowledge into practice: a broad-based innovation strategy for the eu, 2006)5. therefore, when formatting such policy the systematic view towards achieving complex political solution is necessary. effectiveness of innovation policy depends much on adjusted tools and reasonable political actions(european trend chart on innovation, 2004). innovative enterprise. the engine of innovative business is its unique feature to create new products and introduce them into the market. all forms of innovation need to be promoted, for innovation comes in many forms other than technological innovation, including organisational innovation and innovation in services. c. dahlman (2004)6 distincts four types of firms. the lowest level of firms are those firms which are using technologies. second level stands for firms which acquire or assimilate new technologies. the third level includes firms which have enough skills to upgrade or reverse technologies. such capabilities rarely can be met in sme. therefore, the upper level stands for r&d which is mostly presented by large enterprises. according to bou-wen lin and chung-jen chen (2006)7, the attitude innovation creation has changed – more often innovation is created by a network of companies, not by a single company. in the knowledge-based economy, the competitiveness is based on collaboration between organizations seeking to create innovation. it means that every company needs to specialise and to concentrate its core competence and search for partners which are eager to 5 putting knowledge into practice: a broad-based innovation strategy for the eu. communication from the commission to the council, the european parliament, the european economic and social committee and the committee of the regions. brussels, 13.9.2006com(2006) 502. on-line:http://eur-lex.europa.eu/lexuri serv/site/en/com/2006/com2006_0502en01.pdf. 6 dahlman c. (2004), challenge of the knowledge economy: towards a pragmatic innovation agenda. knowledge for development program. santiago, chile. 7 bou-wen lin, chung-jen chen. (2006), fostering product innovation in industry networks: the mediating role of knowledge integration. -the international journal of human resource management, 155–173 p.p. on-line: http://web.ebscohost.com/bsi/ pdf?vid=22&hid=107&sid=9c2b8a61-a015-4949-9f5e6db9033f8c4b%40sessionmgr104. 69 issn 1822-8402 european integration studies. 2007. no 1 supply complementary services. enterprises when contended with increasing competitiveness’, needs to use supplementary resources from outside organizations, because in such a way product’s life cycle is shorter (bou-wen lin, chung-jen chen, 2006). ict. ict gives an opportunity to communicate globally, to reach alienated places, to gather and to accumulate, copy and to share the information and many other things (innovation policy: updating the union’s approach in the context of the lisbon strategy)8. eu promotes research and innovation in ict, because it is the background for knowledgebased economy. knowledge-based economy expression and tendencies in lithuania. lithuania like others post communists countries has passed difficult period of reform. the changes appeared in all spheres of life. that was a great prerequisite for achieving a major breakthrough in the development of lithuanian republic. in 2004 lithuania became an eu member-state and all lithuanian companies confronted the big and strong players in eu. seeking to remain competitive, lithuanian companies needed to achieve higher quality products. in the process of perfection of the technology, employees have become the key aspect that makes essential difference between the companies. according to world bank report (2003)9, since lithuanian entered eu, it made progress in a few knowledge-based economy spheres such as ict as well as improving economic and institutional regime. but the same report said that lithuania was very weak in education and innovation spheres. r. ginevičius and r. korsakienė (2005)10 analyze tendencies of lithuania’s knowledge-based economy focusing on its dimensions. according to authors r&d are essential in the innovation creation process. it goes without saying that ict and globalisation make significant impact on the development of knowledgebased economy. lithuania’s role in the development of knowledge-based economy appears through participation in eu programmes, lots of information society projects were implemented, many strategic 8 innovation policy: updating the union’s approach in the context of the lisbon strategy. communication from the commission to the council, the european parliament, the european economic and social committee and the committee of the regions brussels, 27 p. on-line: http://europa.eu.int/comm/enterprise/ innovation/communication/doc/innovation_comm_en.pdf. 9 the world bank europe central asia region, lithuania aiming for a knowledge economy, march 2003. on-line: http://wwwwds.worldbank.org/servlet/wdscontentserver/wdsp/ib/2003/04/25/000 094946_03041204014387/rendered/pdf/multi0page.pdf. 10 ginevičius r., korsakienė r. (2005), the knowledge-based economy in lithuania: analysis of tendencies. journals of business economics and management, vol. vi, no 4, 231-239 p.p. documents prepared (e-government strategy, science and technology white book and etc.). despite of this, various innovation indicators systems shows that lithuania still lags behind european innovation leaders. according to summarised innovation index (sii) lithuania together with slovenia, hungary, portugal, czechia, latvia, greek, cyprus and malta are devoted to ‘catching up’ countries (annual innovation policy trends and appraisal report 2004 2005)11. according to lithuania’s statistics department it should be mentioned that innovations were usually created by individual companies. this objects to the bou-wen lin and chung-jen chen statement we have presented above. during the period 2002/2004 just 10.1 percent of all companies got a financial support from government for r&d activities. mostly 6.0% out of 10.1 percent companies got a financial support from state budget and 4.4% from eu. some tendencies in lithuania’s knowledge-based economy are introduced in table 1. table1. lithuanian knowledge–based economy reflecting indicators indicators 2004 2005 2006 gross domestic expenditure on r&d (gerd) by source of funds – industry: percentage of gerd financed by industry 19,90 20,80 level of internet access – households: percentage of households who have internet access at home 12 16 35 ict expenditure – it: percentage of gdp 1,4 1,6 broadband penetration rate: number of broadband lines subscribed in percentage of the population 2,5 5 8,4 source: eurostat figures in table 1 indicate that during the period of 2004/2006, there were no major changes. there was a small increase in gross domestic expenditure on r&d (gerd) by source of funds – industry (2004 19.90 %; 2005 – 20.80 %). however, indicators representing ict sector had significant changes: broadband penetration rate increased (from 2.5 in 2004 to 8.4 in 2006). level of internet access increased as well: there were 12 % of households who had internet access at home in 2004, in 2006 – 35%. 11 annual innovation policy trends and appraisal report (20042005): the european innovation scoreboard. on-line: http://trendchart.cordis.lu/scoreboards/scoreboard2005/pdf/eis%2 02005.pdf . 70 issn 1822-8402 european integration studies. 2007. no 1 the role of higher education knowledge-based economy in lithuania the scientific literature analysis showed that knowledge-based economy focuses on institutions which create intellectual products. such institutions depend on the societies’ capacity to create and encourage life-long learning. hence, b. melnikas (2006)12 states that creation of knowledge-based society and knowledge-based economy is the essential challenge for the modern society. according to b.melnikas (2006) knowledgebased economy concurrent with its infrastructure, where the main accent is higher education sector. that’s why when establishing knowledge-based society and knowledge-based economy, the focus should be on institutions of higher education sector. during the 2004/2006 period high education sector in lithuania involved: 21 high education institutions including 10 state universities, 5 academies, 6 non-state institutions. there were 138516 students studying in high education institutions during the 2004/2005 period. in 2005/2006 there was an increase in number of students – 141771. there was the evaluation of research in lithuania (1996)13 made by the research council of norway. the purpose of this evaluation was to help the lithuania’s research authorities in their efforts to develop research in lithuania. despite the many difficulties in lithuania, the evaluation had identified a number of good, even excellent research institutions and individual researchers, which met international standards. the main problem mentioned in the evaluation was a pressing and general need for better financing of lithuanian research. there were the most important measures identified: e.g. to establish a research council system; to reorganize universities and research institutes; to give university teachers more time to do research; to stimulate research personnel to broaden their field of interest and many others. it is hard to say whether lithuania’s research significantly changed since the evaluation was made, because we are still dealing with the same problems as 10 years ago. we can see this from r. ginevičius and r. korsakienė (2005), where they outline tendencies of lithuania’s knowledge-based economy as follow: • lithuania’s economy is oriented to traditional business; 12 melnikas b. (2006), aukštojo mokslo institucijos žiniomis grindžiamoje visuomenėje: raidos principai ir prioritetai. on-line: http://web.ebscohost.com/bsi/pdf?vid=15&hid=107&sid=9c2b8a61-a0154949-9f5e-6db9033f8c4b%40sessionmgr104; 13 evaluation of research in lithuania. volume i: general observations and recommendations prepared by the advisory board, and summaries of the panel reports. the research council of norway. oslo, 1996. • financing for r&d and it development is insufficient; • cutting-edge technology enterprises still play a minor role in the economy of lithuania. competence centres and centres of excellence and their main features: international experience before venturing further into the subject, it is necessary to define the term of ‘competence centres’. first, difference between terms ’competence centre’ and ’centre of excellence’ must be pointed out. there are key features that distinguish these two terms. competence centres are focused on enhancing collaboration between science and business sectors. meanwhile, centres of excellence are concerned about concentrating high competence in particular field of science. it should be emphasized that both competence centre and centre of excellence are devoted to increasing the competitiveness as well as to concentrating the scientific and technology competence of each region. researchers involved in centres of excellence must satisfy a number of criteria. first of all they must be the leaders in their research field and must have publications related to their research. according to l. čekanavičius, a. samalavičius (2005)14, newly gathered research groups or already existing scientific research institutions can become centres of excellence. to get a status of centre of excellence the number of research is not important. the most important thing is qualified scientific research, as well as the creativity of research team and the breakthrough in scientific research. a simple definition could be: a centre of excellence is a structure where r&d performed meet world standards, in terms of measurable scientific production (including training) and/or technological innovation. in any case, there can be key features listed which should be part of the concept (action for centres of excellence’ with a european dimension):15 • a ‘critical mass’ of high level scientists and/or technology developers; • a well-identified structure having its own research agenda; • capable of integrating connected fields and to associating complementary skills; • capable of maintaining a high rate of exchange of qualified human resources; 14 čekanavičius l., samalavičius a. šiuolaikiniai mokslo plėtros instrumentai: pasaulio patirtis ir pamokos. on-line: http://www.leidykla.vu.lt/inetleid/ekonom/72_2/straipsniai/str2.pdf. 15 action for "centres of excellence" with a european dimension. on-line: http://ec.europa.eu/research/era/pdf/centres.pdf; 71 issn 1822-8402 european integration studies. 2007. no 1 • a dynamic role in the surrounding innovation system; • high levels of international visibility and scientific and/or industrial connectivity; meanwhile competence centres combine academic excellence with industrial needs, and apply collaborative research results for creating innovative products. as policy instruments, they typically focus on comparatively high capability of industrial and academic participants: typically medium-large companies and high-capability smes (arnold e., deuten j., giessel j., 2004)16. competence centres have some recognisably special features relating to their role. for one – they are usually funded by three partners: industry, university and a state agency. for this reason they are very favourable in eu, because they are one of the means in reaching the aims of lisbon strategy increasing research and development spending to 3% of gdp (where the input of government should be 1/3 and industry contribution should be 2/3). moreover, competence centres are intended to have an effect on university resource allocation and strategy, in addition to reinforcing university-industry links. they involve long term contractual arrangements, requiring a much bigger commitment than traditional project by project funding of collaborative r&d. they create new on-campus structures, and therefore pose new organisational and structural demands to the universities (an international review of competence centre programmes, 2006). many countries have chosen support schemes for competence centres, for example usa has nsf engineering research centres, sweden has vinnova’s competence centres, hungary has kkk programme, and austria has k plus competence centres. every mentioned programme of competence centres emphasizes importance of science and business collaboration as the prerequisite for boosting regions’ competitiveness. sweden’s competence centres programme vinnova is an instrument of innovation and research policy. programme of competence centres trained people efficiently, produced large networks and improved the way members work together on r&d questions. it helped in providing the gradual change in university-industry relations needed to build a real ‘knowledge society’ and strengthened the knowledge communities that are core to innovation systems. its primary outputs are knowledge, capabilities and network relationships. 16 arnold e., deuten j., giessel j. (2004), an international review of competence centre programmes. technopolis group. on-line: http://www.rcn.no/csstorage/flex_attachment/hovedrapport.pdf. meanwhile danish national research foundation is responsible for approving and financing of competence centres (čekanavičius l., samalavičius a., 2005). the purpose of such foundation is to identify and finance the research teams which are eager to explore the cutting edge scientific research. such competences centre gets grants for five years. the competence centres are establishing in already existing scientific institutes, universities and other states research institutions. after five years a group of experts evaluate the competence centre, and then it is decided whether the financing will be prolonged. the main reason to launch the kplus programme was the low level of science industry co-operation in austria. kplus aims at bridging the gap between fundamental research carried out by universities and industrial r&d. other reasons to launch the kplus programme were the following deficiencies in the austrian innovation system. • short term r&d planning in industry. • dominance of smes in r&d in austria. • lack of critical mass within the knowledge infrastructure, especially the universities. • low international visibility of many austrian r&d capabilities. estonian experience. estonia has two programmes launched in order to booster the knowledge based estonia. one of them is the competence centre programme17 aiming to improve the competitiveness of enterprises through strategic co-operation between the science and industry sectors in estonia. the competence centre programme goals are: • strengthen industrial r&d capabilities in a mid-term perspective; • facilitate r&d concentration in a specific field of technology or on the basis of different fields; • enhance mid-term r&d planning and management capabilities; • increase the number of r&d specialists oriented to industry needs and to increase the mobility between the science and industry sectors; • become visible and attractive for foreign partners. competence centres are r&d collaboration of scientific and industrial partners (incl. international partners) which receives public co-funding for the building of intensive longer-term science-industry links through proposed three years r&d plan. the competence centre programme came out from the initiative ministry of economic affairs. 17 estonia inovative it sollutions. on-line: http://www.esis.ee/ ist2004/38.html. 72 issn 1822-8402 european integration studies. 2007. no 1 meanwhile, the ministry of education initiated the estonian programme for centres of excellence in research aiming on establishing conditions for highlevel research compatible with the strategy of research and development in estonia as wel as encouraging centres of excellence to join the international network according to the european union’s research policy; establishing competence centres in lithuania according to european trend chart on innovation (2004)18 the lithuania’s innovation system performs rather weakly compared to western europe. on the other hand, lithuania shares many of the challenges as well as the strengths of its baltic neighbours estonia and latvia. the main challenge lies in the group of indicators related to knowledge creation both in terms of inputs (rates of public and business expenditure on r&d) and outputs (us and european patent applications). although the level of public expenditure on r&d is almost twice as high as that of latvia and more or less similar to that of estonia, it remains well below the eu25 average. further, the level of business r&d expenditure is among the lowest in the eu25. however, there is evidence of a positive upward trend, with both public and business r&d expenditure increasing in absolute terms since 2000. creating effective links between the r&d sector and firms is the most important challenge for lithuania. in this process competence centres must play an important role, bearing in mind that centres of this kind have been successfully introduced in other european countries (e.g. sweden, austria, hungary and etc.) and can act as important structural and stable bridges between science and industry. lithuania should take into account the experience of estonia, because it learned from international good practices, via international experts. the preparation work for establishment of the competence centres should be done (see figure 2). firstly the feasibility study concerning the establishment of competence centre in lithuania should be made. following this the guidelines for competence centre program should be prepared. all above should be done considering the interest of business, science and government. it can only be speculated what the impact of implementing competence centres program in lithuania could be. but having in mind international experience, discussed in chapter 3, we could forecast that the status of r&d in lithuania could improve, as well as the links between science and business. more scientists would get involved into a business sector. 18 european trend chart on innovation: annual innovation policy trends and appraisal report lithuania. 2004-2005. on-line: http://trendchart.cordis.lu/reports/documents/country_report_lithuania_2 005.pdf. moreover, funding of r&d by source of industry could increase, as the international experience showed. all mentioned are prerequisites for developing lithuania’s knowledge-based economy. 1st step: feasibility study concerning the development of competence centres in lithuania. 2nd step: expertise work on competence centre program. 3rd step: the program of competence centres launched identified interests of business and science; financing evaluating the cc; approving cc applications; grants for cc; preparing guidelines for financing the cc; evaluation of figure 2: the preparation work for launching program of competence centres (cc) source: made by authors. conclusions in conclusion it must be mentioned that knowledge-based economy is based on many things such as scientific research, human resources, innovative business as well as innovation policy. all these areas are relevant to ict. effective national innovation policy usually becomes one of the key factors for developing knowledge–based economy. and it is described as system which involves science, business and government sectors one of the innovation intermediates, including, science and technology parks, business incubators, technology transfer institutions and innovation centres. high education institutions are important in knowledge-based economy, because of its purpose to create and disseminate of knowledge using various societies’ intellectual properties creation potential. knowledge-based economy depends much on business and science collaboration. having in mind that in lithuania the links between science and business are particularly weak, the program for competence centre would be useful, as it is in such countries like sweden, austria, hungary and etc. seeking to establish competence centres in lithuania some prerequisites must be met. first of all, feasibility study for competence centre program must be made, secondly guidelines for financing and evaluation of competence centres must be prepared. references action for ‘centres of excellence’ with a european dimension. on-line: http://ec.europa.eu/research /era/pdf/centres.pdf. 73 issn 1822-8402 european integration studies. 2007. no 1 annual innovation policy trends and appraisal report (2004-2005): the european innovation scoreboard. on-line: http://trendchart.cordis.lu/scoreboards/scoreboard 2005/pdf/eis%202005.pdf . arnold e., deuten j., giessel j. (2004), an international review of competence centre programmes. technopolis group. on-line: http://www.rcn.no/csstorage/flex_attachment/h ovedrapport.pdf. bou-wen lin, chung-jen chen. (2006), fostering product innovation in industry networks: the mediating role of knowledge integration. -the international journal of human resource management, 155–173 p.p. on-line: http://web.ebscohost.com/bsi/pdf?vid=22&hid=1 07&sid=9c2b8a61-a015-4949-9f5e6db9033f8c4b%40sessionmgr104. brooks k., nafukho f.m.( 2006), human resource development, social capital, emotional intelligence. any link to productivity? journal of european industrial training. on-line: www.emeraldinsight.com/0309-0590.htm. čekanavičius l., samalavičius a. šiuolaikiniai mokslo plėtros instrumentai: pasaulio patirtis ir pamokos. on-line: http://www.leidykla.vu.lt /inetleid/ekonom/72_2/straipsniai/str2.pdf. common actions for growth and employment: the community lisbon programme. communication from the commission to the council and the european parliament – com (2005) 330, 20.7.2005. on-line: http://ec.europa.eu/ growthandjobs/pdf/com2005_330_en.pdf. dahlman c. (2004), challenge of the knowledge economy: towards a pragmatic innovation agenda. knowledge for development program. santiago, chile. drucker f.p. (1993), post-capitalist society – new york: harper-collins, 288p. european trend chart on innovation: annual innovation policy trends and appraisal report lithuania. 2004-2005. on-line: http://trendchart.cordis.lu/reports/documents/cou ntry_report_lithuania_2005.pdf. evaluation of research in lithuania. volume i: general observations and recommendations prepared by the advisory board, and summaries of the panel reports. the research council of norway. oslo, 1996. ginevičius r., korsakienė r. (2005), the knowledgebased economy in lithuania: analysis of tendencies. journal of business economics and management, vol. vi, no 4, 231-239 p.p. innovation policy: updating the union’s approach in the context of the lisbon strategy. communication from the commission to the council, the european parliament, the european economic and social committee and the committee of the regions brussels, 27 p. online: http://europa.eu.int/comm/enterprise/innovation/c ommunication/doc/innovation_comm_en.pdf. jewell, b.r. (2002) integruotos verslo studijos. vilnius, the baltic press. , 487 p. melnikas b. (2006), aukštojo mokslo institucijos žiniomis grindžiamoje visuomenėje: raidos principai ir prioritetai. on-line: http://web.ebscohost.com/bsi/pdf?vid=15&hid=1 07&sid=9c2b8a61-a015-4949-9f5e6db9033f8c4b%40sessionmgr104. putting knowledge into practice: a broad-based innovation strategy for the eu. communication from the commission to the council, the european parliament, the european economic and social committee and the committee of the regions. brussels, 13.9.2006com(2006) 502. on-line: http://eur-lex.europa.eu/lexuriserv/site /en/com/2006/com2006_0502en01.pdf; research activities. lietuvos statistikos departamentas, 2006. estonia inovative it sollutions. on-line: http://www.esis.ee/ist2004/38.html. the world bank europe central asia region, lithuania aiming for a knowledge economy, march 2003. on-line: http://wwwwds.worldbank.org/servlet/wdscontentserver/ wdsp/ib/2003/04/25/000094946_03041204014 387/rendered/pdf/multi0page.pdf. 74 150 issn 1822 – 8402 european integration studies. 2009. no 3 development of central banking in the european system of central banks: case of latvijas banka vita pilsuma leonārs svarinskis latvijas banka rēzeknes augstskola abstract this paper discusses the development of central banking in the circumstances of the european common market, globalised banking industry and financial market complexity. central banks make up an essential part of the financial sector. the establishment of the european central bank (ecb), the formation of the european system of central banks (escb) in 1998 and the enlargement of the european union (eu) on 1 may 2004 as well as on 1 january 2007 was a turning point for the eu national central banks (ncbs). the process of the eu enlargement was accompanied by the formation of some groups of the ncbs: the ncbs of the old eu countries (eu15) and the ncbs of the new eu member states (eu12). the analysis of the performance indicators of a number of the ncbs points to substantial differences between the given groups of the ncbs and there are good opportunities for promoting the integrity of the escb. following the centralisation of a part of the decision-making process, the effectiveness and efficiency of the ncbs were questioned. specific development circumstances in each country have determined the mode of operation and the place of the central bank in the financial environment. at the same time in the context of financial market globalisation and turbulences, the central banks are subject to financial risks. the paper pursues the aim to propose solutions for further improvements in the escb’s operation and policy. in the pursuit of the objectives set, the authors have made use of such methods as the statistical analysis of indicators, and the graphic and monographic approach. the authors build their research on the analysis of operational results of the ncbs and views of a number of researchers on various aspects of modern central banking. some differences have been detected for several indicators of central banks of the eu15 and eu12 countries; they prove that there is still room for improving the integration, effectiveness and efficiency of the escb. the findings of the research suggest that there exists a closer relationship between the ncb performance indicators in the eu12 and eu15 countries and that the integration process is gaining momentum. the indicators characterising operational efficiency of latvijas banka become more aligned with those of the other ncbs, however the differences still remain. the innovative aspect of this paper lies in finding trends for the performance indicators and policy developments of the eu12 countries’ ncbs. the development of an ncb rating system and the analysis of rating position of the ncbs of the baltic states in the period between 1999 and 2007 are among the novelties of the research. keywords: european system of central banks, central banking, independence, efficiency, integration. introduction central banks operate in the circumstances of globalised banking industry and financial market complexity, and they make up an essential part of the financial sector. the establishment of the european central bank (ecb), the formation of the european system of central banks (escb), including the eurosystem, in 1998 and the enlargements of the european union (eu) on 1 may 2004 and 1 january 2007 were the turning points for the eu national central banks (ncbs). the process of the eu enlargement was accompanied by the formation of some groups of ncbs: the ncbs of the old eu countries (eu15), the ncbs of the new eu member states (eu12), including 10 eu countries which joined the eu in 2004 (eu10), and two eu countries (bg, ro), which acceded to the eu in 2007. similar to central banks in other eu10 member states, latvijas banka, lietuvos bankas and eesti pank have actively participated in the ecbs already for five years, while cooperation with ncbs in eu15 countries commenced prior to the eu enlargement; hence it is important to investigate how the entry into the escb affects the operation and performance of ncbs in eu12. the authors build their research on the analysis of operational results of the ncbs and views of issn 1822-8402 european integration studies. 2009. no 3 151 a number of researchers on various aspects of modern central banking. the innovative aspect of this paper lies in finding trends for the performance indicators and policy developments of the eu12 countries’ ncbs. the development of an ncb rating system and the analysis of the rating positions of ncbs of the baltic states in the period between 1999 and 2007 are among the novelties of the research. the paper pursues the aim to propose solutions for further improvements in the escb’s operation and policy. in the pursuit of the objectives set, we have made use of such methods as statistical analysis of indicators, and the graphic and monographic approach. the authors of this paper have conducted comparative analysis of a number of authors’ works dedicated to various aspects of the central bank operation. the study has made use of ncb financial reports for 1999–2007, eurostat data on eu population and gdp at market prices as well as average exchange rates set by the ecb. iso 3166-1alpha-2 code elements have been used for eu country names used in this paper. ncb history, cooperation and activities the origins of central banks date back to the second half of the 17th century. the gap between the foundation of the oldest ncb (sveriges rigsbank) and the youngest one (banque centrale du luxembourg) is 330 years. upon joining the euro area, luxembourg had to remodel its monetary authority (luxembourg monetary institute), and the central bank of luxembourg was established in 1998. although българска народна банка and banca naţională a româniei are ranked as the youngest members of the escb, they are the oldest ncbs in eu12 countries, founded in 1879 and 1880 respectively. five ncbs of eu10 countries (ee, hu, lv, lt, pl) were established in the first half of the 20th century, while the other five (ch, cy, mt, si, sk) came into being in the second half of the 20th century. ncbs in the baltic states were founded at the beginning of the 20th century, subsequently had to terminate their operation in 1940, and resumed it again in 1990. the formation of the escb can be viewed as an epochmaking achievement, both in institutional and economic policy terms, which was driven by ncb cooperation prior to the formation of the escb. this cooperation has gone through ascents and declines, but the broad trend nonetheless has been upward (eichengreen, 2006). there is a long and complex history of attempts at monetary cooperation in europe, following the european payments union, and the ultimate form of central bank cooperation was achieved in 1998 when the ecb was created (cooper, 2006). the closest is cooperation among the euro area central banks, as the monetary policy making process of these banks is centralised and vested in the ecb governing council. latvijas banka has been cooperating with ncbs in eu countries since the early 1990s and this cooperation has been of paramount significance at the time when a contemporary central bank was to be formed in latvia. cooperation was the closest with deutsche bundesbank and ncbs in the nordic countries. when the present eu10 countries entered the eu candidate countries’ phase, the ecb was among their ncb’s cooperation partners in a number of important areas (payment systems, statistics, etc.). the expertise of the authors supports the assumption that along with tackling monetary policy issues contemporary ncbs today are involved in the activities that are related to smooth operation of payment systems, financial stability, and collection and compilation of statistical information more often and actively than ever. the efficiency of ncbs, however, was subject to criticism, as the euro area central bank functions in the realm of developing monetary policy and its implementation, particularly after the establishment of the ecb and adoption of the euro, shrank both in number and significance. hence the ncbs of the euro area are to adjust to the new environment and proceed with effective implementation of the tasks prescribed by the escb and respective national legislation (stark, 1999). all other eu12 non-euro area ncbs in their operation shall aim at minimising potential risks and promoting successful integration in the eurosystem. within the escb, there is some contradiction between the centralised decision-making and decentralised decision implementation processes. the escb is characterised by the fact that the most important decisions are taken in a centralised manner by the ecb governing council and the ecb general council, while their implementation depends on decentralised activities of the ncbs. the ncbs are subscribers to and holders of the capital of the ecb. the share of ncbs in the subscribed capital of the ecb or the key for capital subscription is determined on the basis of the respective country’s average proportion in the eu population and gdp for the period of the last five years. the revision of the ecb capital is conducted every five years: the first on 1 january 2004 (see pilsuma, svarinskis, 2006b) and the latest on 1 january 2009 (see table 1). the share of ncbs of the eu12 in the ecb capital accounts for 13.17% (ranging from 0.0632% to 4.8954%), which is less than the share of central banks of the three largest euro area countries. narodowy bank polski accounts for 37.2% of the eu12 ncbs’ share in the ecb capital, whereas the share of the baltic states’ ncbs reaches 0.9%. the key for capital subscription affects the distribution of profit and monetary receipts but does not influence the decision-making process directly related to the execution of the escb activities. issn 1822-8402 european integration studies. 2009. no 3 152 as a result of the second regular adjustment of the ecb capital, the ecb capital share of the eu15 countries’ ncbs decreased (–0.1405 percentage points) and that of the eu12 countries increased (0.1405 percentage points). the increase or decrease in the share of subscribed ecb capital share is a reflection of changes in the significance of the economy or population in respective eu countries during the last five years. as of 1 january 2009, the share of 7 eu15 ncbs (at, be, de, dk, fr, it, se) in the ecb’s capital decreased, whereas that of 8 eu15 ncbs (el, es, fi, gb, ie, lu, nl, pt) increased. banco de españa recorded the largest increase of its share in the ecb’s capital (0.75 percentage point), while the most substantial decrease in the capital share was experienced by deutsche bundesbank (1.58 percentage points). as to eu12, the share of 10 ncbs in the ecb capital increased, while that of two of them (bg, ro) decreased. as to the ncbs of the baltic states, eesti pank, followed by lietuvos bankas and latvijas banka, recorded the largest increase of its share in the ecb capital. table 1. ecb capital structure in 2004–2009 ncb countries ecb capital subscription key (%) changes (in percentage points) (4–3) 01.05. 2004 01.01. 2007 01.01. 2009 1 2 3 4 5 eu15 of which: de fr gb it lu 89.853 21.136 14.871 14.382 13.052 0.157 86.969 20.521 14.387 13.934 12.530 0.158 86.828 18.937 14.221 14.517 12.497 0.175 –0.141 –1.584 0.583 –0.166 –0.033 0.017 eu12 of which: pl lt lv ee mt 10.147 5.138 0.443 0.298 0.178 0.065 13.031 4.875 0.418 0.281 0.170 0.062 13.172 4.895 0.426 0.284 0.179 0.063 0.141 0.020 0.008 0.003 0.009 0.001 total 100.0 100.0 100.0 – the governors of each euro area ncb have one vote on the ecb governing council but the situation is going to change when the number of the euro area countries exceeds 15; then a new ecb decision-making procedure, which allows to raise the number of the eu countries to 27, will take effect and stipulate that, though the governors of the euro area ncbs may participate in the discussion of the monetary policy issues, the number of the voting governors of the euro area central banks on the ecb governing council shall not exceed 15 (scheller, 2006). from 1 january 2009, ncb governors of four eu12 countries (cy, mt, si, sk) are sitting on the ecb general council as these countries have entered the euro area and participate in the euro area decision-making process. although the number of ncbs represented on the ecb general council exceeds 15, information at the disposal of the authors shows that the new order of rotation in the decision-making process has not been introduced as yet, hence the proportion of votes in decision-making is 6 ecb executive board’s votes against 16 ncb governors’ votes. the size of the ecb governing council is still a problem even after the reform of the ecbs and ecb statutes in 2003; and the decision-making costs will be notably higher than in the majority of other central banks (berger, 2006). the studies of the central bank governance in 113 world countries have led to the conclusion that there are various ways of forming an adequate structure. they found that the majority of boards at the end of 2003 comprised 7–9 members (lybek, morris, 2004). the issue of how strong the regional or national influence should be in the decision-making process is put to debate. the leaders of euro area ncbs shall support the interests of the eu (or the centre) in voting for monetary policy and other issues related to the objectives of the eurosystem, the authors believe that the detachment from national interests could be a problem for the leaders of ncbs. the ecb should direct its monetary policy towards the needs of its larger members, with a particular focus on germany, because the latter has always been the locomotive of european economy and when germany failed to do so, all europe suffered (why the ecb…, 2006). under the impact of globalisation processes, financial markets and financial instruments evolve buoyantly, presenting new challenges to ncbs in terms of functional perfection. characteristics of modern central bank the development and functioning of financial markets have been notably affected by the introduction of the euro and electronic trading platforms, changes in the composition and activities of the market participants, and the supply of various assets, which, in turn, present problems to ncb policies – from strategic to operational ones (barth iii et al., 2003). the environment in which central banks function is subject to changes, and so are central bank functions not only in the eu but all over the world (padoa-schioppa, 2006). the need to re-assess the functioning of the ncb and its place in managing the economy builds on several factors: deregulation of financial markets, globalisation of the banking industry, sophistication of the financial market, etc. (hawtrey, 1997). issn 1822-8402 european integration studies. 2009. no 3 153 of such factors, there are several that determine the need to re-assess the performance of ncbs and their place in the economic governance (see table 2). the ncb performance has been affected by both globalisation processes and the appearance of new financial instruments and technologies in the financial market. according to the authors, as a result of geopolitical changes (this factor should be added to international aspects in table 2) and innovations the financial complexity has increased and financial market participants are not always able to manage the new instruments and the related risks, which is well-confirmed by the 1998 financial crises in asia and russia, events in the us on 11 september 2001, and the turmoil of the global financial system caused by the us real estate market in 2007 in particular. it should be noted that the economic theory provides only limited guidelines how to manage monetary policy in the process of so complex structural corrections and institutional changes; similarly, historical knowledge is of little help to clarify the situation which seems to have no precedent (lamfalussy, 1985). ncbs cannot draw lessons from historical experience and a prudent ncb representative should be progressive and seeking for such development trends that may, in certain circumstances, turn into essential problems (ferguson, 2006). table 2. factors affecting ncb activities factor description lamfalussy’s factors (lamfalussy, 2001) hawtrey’s factors (hawtrey, 1997) macroeconomic aspects disinflation – international aspects internationalisation globalization of banking industry instrumental and technological aspects innovation financial market complexity institutional aspects deregulation deregulation in financial markets institutional evolution takes place along with the development of the economy and undoubtedly, ncbs must adjust to the new trends. in order to facilitate functioning of the financial markets in contemporary environment, central banks should boost market liquidity, improve strategic and tactical aspects of monetary policy setting (participation in transmission mechanism, drivers of information inherent in financial asset prices, communication of the central bank with the market) and market operations (including domestic liquidity management operations, foreign reserve management and interventions in the exchange market) (barth iii et al., 2003). at the same time, central banks should be realistic and pragmatic in order to correctly assess the changing financial and economic conditions, to make their political decisions on the basis of such assessments and to present the former in a transparent way to the public (trichet, 2005). the operation of a modern ncb is characterised by independence, transparency, accountability and credibility, with two more descriptive adjectives efficient (meaning economic and productive) and effective (meaning producing an effect and being powerful) often added. the studies of the meanings of the two terms lead to the conclusion that the first term is more associated with operational income and costs, i.e. the financial aspect, while the second one reflects the operational usefulness. so the analysis focuses on how knowingly (productively) central banks carry out their tasks. effectiveness demands doing the right things, while efficiency demands doing things right; he also adds a new third dimension of achievement, which he calls exploration that demands influencing things in a new way (mendzela, 2002). using exploration, central banks can greatly help the society make transition from power to knowledge and from politics to economics. ncb independence, transparency, effectiveness and efficiency the treaty of maastricht stipulates that legislation of the eu member states should ensure independence of their ncbs. however, the authors of this study think that ncbs are losing their independence to some extent due to the need to respect the ecb decisions and instructions in the conditions of major ncb influence on the decision-making process. this influence depends on the size of the economy, in which the respective ncb operates, population of the country, the share of these two indicators in overall eu indicators, and the potential of ncb’s labour resources. the european monetary institute (emi) established a list of characteristic features of ncb independence in 1997, and at that time formed the basis for the assessment of national legislation of the eu member states (emi convergence report, 1998). the concept of ncb independence comprises four aspects of independence: functional, institutional, personal and financial. the aspect of ncb financial independence has been refined due to ncb financial independence being most vulnerable to outside influence (ecb convergence report december 2006). the authors of this paper share this view because in practice there have been attempts to alter ncb financial conditions via political pressure. such was the case with latvijas banka when, upon making amendments to the law “on latvijas banka” not related to the aspects of financial operation of the central bank, the terms and conditions of profit distribution were simultaneously changed. as the escb and ecb statutes cannot be amended by legislation but only by introducing amendments to the issn 1822-8402 european integration studies. 2009. no 3 154 treaty of maastricht, which, due to the need for leaders of all countries to agree on respective amendments, is a complex procedure, the ecb ranks as the most independent central bank of the world (mishkin, 2003). the treaty of lisbon or the so-called reform treaty amending the treaty of maastricht also consolidates independence of the ecb. however, a political discussion about the ecb independence started in the summer of 2007. french official representatives, objecting to the high exchange rate of the euro, proposed that the monetary policy of the ecb should be coordinated with the governments of the euro area countries. the french stance is not supported by german authorities and ecb. consequently, the discussion between two major eu countries on policy interest rates and exchange rate policy has been renewed. when assessing national legislation of 10 eu member states (bg, cz, ee, hu, lv, lt, pl, ro, se, sk), the ecb refers to the provisions of national legislation in eight eu countries (excluding lt and sk), which the ecb considered to be problematic either from the perspective of an ncb’s independence within the escb or from the perspective of its subsequent integration into the eurosystem (ecb convergence report may 2008). as to latvia, the functional, institutional and personal independence of latvijas banka should be enhanced via amending the law “on latvijas banka”. in the opinion of the authors of this paper, ncb transparency is a reaction to the growing independence of ncbs; transparency shall be used to ensure accountability or for reporting ncb operational functionality to authorities and disseminating it to the public at large, thus providing for democratic legitimacy of an independent ncb. the authors maintain that transparency is desirable from the economic point of view as well, for it enables a higher degree of understanding in economic agents, the financial sector participants in particular, about the ncb decision-making process and operational functions, such knowledge, in turn, reducing misunderstandings in economic decisions-making, planning and forecasting economic activities, and the outcomes thereof. ncb transparency is difficult to appraise objectively and different types of transparency are difficult to compare, hence the focus should be on assessing information clarity rather than its volume (eijffinger et al., 2008). the degrees of ncb transparency differ; nevertheless, banks with a formerly lower transparency level are progressively affected by an upward tendency. this tendency is unambiguous: the period of ncb nondisclosure is over (blinder et al., 2001). although the role of transparency is acknowledged, there is no unanimity, either among academia or central banks, as to the degree of transparency and optimum communication strategy due to several factors, e.g. the size of the economy, its structure and complexity, political environment and characteristics of the ncb as an entity, goals and strategy of monetary policy, uncertainty facing policymakers, and differing appraisals of volume and type (papademos, 2008). the studies of the annual financial statements of ncbs for 1998–2006 led to a conclusion that despite some alignment in form and content, the financial reports differ overall and across the euro area countries, notwithstanding the consolidated balance sheet of the eurosystem prepared by the ecb. there are differences in reporting ncb operational expenses (e.g. differing disclosure and classification of expense) and the number of employees (e.g. the average number of employees, their number at the end of the year, full-time equivalent, etc.). however, the key items on ncb financial statements are similar, and the respective data can be used for comparison of development trends characteristic for ncb performance indicators. on the basis of practical realisation of central bank transparency (geraats, 2002), the authors of this paper have assessed transparency of the ecb and latvijas banka using a 3-point system, in which 2 points indicate full transparency, 1 point refers to transparency with room for improvement, while 0 means absence of transparency. overall, the ecb transparency assessment at the end of 2007 was 7 points above that of latvijas banka, and 9 points behind the maximum score. compared with the assessment in 2005, latvijas banka has increased its operational transparency, more explicitly formulating the procedure for using monetary instruments, which became effective in march 2007 and is aligned with monetary policy instrument procedures of the eurosystem. in order to achieve the transparency level of the ecb, the author believes that latvijas banka should focus on improving its economic and political transparency. likewise, the autonomy of the central bank’s decision-making bodies and their members shall be improved by introducing amendments to the law “on latvijas banka” in compliance with the guidelines of the ecb convergence report may 2008. under normal market circumstances, central banks should gain profit; their inability to deal with the problems of incurred loss or future negative net value would obstruct the monetary policy management and undermine independence and credibility of the central bank (dalton, dziobek, 2005). taking into account its commitments and assumed risks, the central bank must be financially strong and able to make regular profit (stella, 2002, 2008). duly accounting for impressive profit and loss shocks to which central banks are subject, they may need ample capital and reserves at their disposal. dealing with central bank efficiency, several indicators characterising the central bank expense, number of employees, staff costs, return on assets and net worth may be useful (pilsuma, svarinskis, 2006a, 2007). issn 1822-8402 european integration studies. 2009. no 3 155 ncb rating establishing a system of ncb rating would allow listing of ncbs on a comparative basis of operating indicators. for this purpose, a method enabling the comparison of performance of several heterogeneous indicators has been used. this method has been successfully applied in the estimation of the scottish index of multiple deprivation. first, ncb indicators ( jx where j=1, 2, 3, …, k) characterising banks’ efficiency and effectiveness are selected. value jx of ncb indicator i is denoted as jix where i=1, 2, 3, ..., n. assuming that the worst ncb performance corresponds to the largest value of variable jx , jix series is arranged in ascending order with fractional rank set for each ncb: n xrank r jiix j , [1]. in the event that a better performance corresponds to the largest value of jx , jix series is arranged in descending order, and as previously each ncb is assigned a fractional rank. thus, for ncb i with the best performance relative to indicator jx the value of fractional rank is n r ix j 1 , = . on the other hand, for ncb i with the worst performance relative to indicator jx the value of fractional rank is 1, == n n r ix j . to compare ncb performance on the basis of several indicators, weighted total of individual indicators is derived: ix k j ji j rwr , 1 ~ ⋅= ∑ = [2], where jw ( 1,0 => ∑ j jj ww ) are adequately selected weights of ncb individual performance indicators. the selection is done so that the weights applied to a more significant indicator are larger than those applied to a less significant indicator. however, an ncb aggregate performance indicator in terms of weighted total has the following feature: ncb performance results that are very poor relative to one indicator are offset by the same results being better relative to another indicator. to minimise such an effect, exponential transformation of fractional ranks is performed: 100/)]}23/100exp(1[1ln{23 ,ixji jrx [3]. then the ncb aggregate performance indicator is obtained as weighted total of transformed individual indicators: ji k j ji xwr 1 [4]. the choice of a constant equal to 23 in the exponential transformation can be reviewed. it should be noted that other researchers using exponential transformation in similar situations also opt for constant 23 (okrasa et al., 2006). in order to compare ncb performance indicators for 2007, the authors of the paper have used the rating methodology proposed by v. pilsuma (pilsuma, 2008b). for the purpose of assessing efficiency of the ncb performance 5 indicators are used: foreign reserves (x1), loans to credit institutions (x2), capital and reserves (x3), net interest and similar income (x4) and operating expense (x5). indicators x1, x2 and x3 are obtained from ncb balance sheets, while indicators x4 and x5 come from ncb profit and loss statements. indicator x1 represents ncb gold and foreign currency assets in foreign currencies (claims to non-residents). indicator x2 predominantly is loans to credit institutions issued in compliance with the monetary policy pursuit. indicator x3 includes ncb capital, valuation account, provisions, reserve for general bank risks, accrued losses, retained earnings and other reserves. indicator x4 includes net interest income, net results of financial operations, write-offs and changes in provisions, net income from commissions, participating income and net result of total monetary income pool (euro area ncbs). indicator x5 includes labour remuneration and other staff payments, administrative expenses, depreciation of fixed assets and amortisation of intangible assets, banknote productions costs, expenses of previous periods, other accruals and payments. in order to minimise the effects of the country size (that cardinally differs across the eu) on ncb performance indicators, the latter are related to the population of each respective eu country. the weights jw of individual ncb’s performance indicators in equation [2] shall be selected so that the weights applied to a more significant indicator are larger than those applied to a less significant indicator. first, when determining the overall rank it is assumed that all five ncb performance indicators are equally significant. consequently, the following weights are used to obtain the weighted total: 2.0 54321 ===== xxxxx wwwww (rating rrr0). in addition, other weight versions are used to accentuate ncb relationship with the economic sectors, performance efficiency and financial stability, and protection against potential risks respectively: 1) 1.0 1 =xw , 1.02 =xw , 3.03 =xw , 25.04xw , 25.0 5x w (rating rrr1); 2) 1.0 1 =xw , 1.02 =xw , 3.03 =xw , 2.04 =xw , issn 1822-8402 european integration studies. 2009. no 3 156 3.0 5 =xw (rating rrr2); 3) 3.0 1 =xw , 1.02 =xw , 1.03 =xw , 3.04 =xw , 2.0 5 =xw (rating rrr3); 4) 1.0 1 =xw , 1.02 =xw , 2.03 =xw , 3.04 =xw , 3.0 5 =xw (rating rrr4). in contrast to other ratings, rrr3 have larger weight for foreign reserves, as interest and similar income from foreign reserve management constitute a substantial part of the ncb income. other ratings have equal weights applied to foreign reserves and loans to mfi, thus reflecting similar ncb relationship with the domestic economy and external sector. in ratings rrr1 and rrr4, the weights of similar ncb income x4 and expense x5 are also similar (0.25 and 0.3 respectively), while in rating rrr1 in comparison with rrr4 provisions against potential risks or capital and reserves are more significant. weight changes determine the number of times a respective ncb takes this or that position in 1999–2007 ratings. the largest range has been observed for rating positions 9 to 13, with 14 ncbs in this range in rating rrr0 and 20 in rating rrr3 (see chart 2). nevertheless, a weight change does not affect the rated position of an ncb substantially. in 1999–2007, several ncbs occupied the same position in the same rating interval several times, with the number of times differing only once or twice. for instance, three eu15 ncbs (fi, ie, and se) took the first three positions in all ratings four, four and five times respectively. likewise, danmarks nationalbank took one of the first three positions nine times in ratings rrr0, rrr1 and rrr2 and eight times in ratings rrr3 and rrr4, whereas banca naţională a româniei was positioned below the 23rd rank seven times in ratings rrr0 and rrr3 and six times in ratings rrr1, rrr2 and rrr4. danmarks nationalbank took the first position in all ratings in 2002–2005 and 2007, with its place between the second and third positions in 1999–2001 and 2006, except for 1999 when it was ranked fourth and sixth in rrr3 and rrr4 ratings respectively. of ncbs of the baltic states, eesti pank’s rating has been the highest (eighth position in 2004 in rating rrr3). latvijas banka and lietuvos bankas were in the 10th and 11th positions in the rating rrr3 in 2004 and 2007 respectively. the analysis of the rating positions implies that compared with other ratings, the rrr2 distribution is closer to normal distribution (asymmetry coefficient ,2343.0−≈α excess coefficient ;4271.0−≈ε see chart 3). taking into account the above stated and the fact that rrr2 focuses more on ncb performance efficiency and hedging against potential risks, a detailed description of the dynamics of this rating is given for 1999–2007. 0 2 4 6 8 10 12 14 16 18 20 3 8 13 18 23 28 right boundary of interval n um be r of n c b s rrr0 rrr1 rrr2 rrr3 rrr4 chart 2. ncb distribution of position intervals in ratings rrr0, rrr1, rrr2, rrr3 and rrr4 in 1999–2007 0 2 4 6 8 10 12 14 16 18 20 rrr0 rrr1 rrr2 rrr3 rrr4 reitings n um be r of n c b s 3 8 13 18 23 28 chart 3. ncb position distribution in ratings rrr0, rrr1, rrr2, rrr3 and rrr4 in 1999–2007 in 2007 against 1999, the ncbs of eight eu15 countries and six eu12 countries improved their positions in rating rrr2; the rank of five eu15 and six eu12 ncbs was lowered, but that of two eu15 ncbs (fi and gb) remained unchanged (see chart 4). as to rrr2, the largest improvement (up by 12 positions) was recorded by българска народна банка and banca d’italia, while the positions of národná banka slovenska and česká národní banka worsened most (by 17 and 15 ranks respectively). in 2005, banka slovenije ranked best among eu12 ncbs in rrr2 (5th position); българска народна банка ranked 8th in 2007 and 10th in 2005; banka slovenije took the 15th position in 2007 and 17th in 2006; central bank of cyprus was in a lower rating position in rrr2 in 2007 (the 21st position) than in 2006 and 2005 (the 10th and 16th respectively). the authors of the paper think that these ncbs incurred some problems in connection with the preparatory process for the integration of slovenia and cyprus into the euro area. in 1999–2007, danmarks nationalbank and sveriges riksbank took the first position in rating rrr2 five and issn 1822-8402 european integration studies. 2009. no 3 157 four times respectively. česká národní banka and banca naţională a româniei were ranked in the 27th position 7 and 2 times respectively. of eu15 ncbs, the score was the lowest for banque centrale du luxembourg (the 25th position four times and 26th position five times). in 2007, lietuvos bankas ranked the highest of all baltic states’ ncbs (13th position); it was followed by eesti pank (14th position) and latvijas banka (17th position). lietuvos bankas stood lower in 1999 (24th position), fluctuated between the 23rd and 21st positions in 2000– 2003, whereas in 2004 swiftly improved its standing moving up to the 14th place (retaining it also in 2006 but falling to the 19th position in 2005). the ranking of eesti pank in rrr2 ranged from the 12th position in 2006 to the 22nd in 1999 (on 6 occasions higher than the 15th position). the position of latvijas banka in rrr2 has been from the 17th in 2002 and 2007 to the 21st in 1999 (on 6 occasions higher than the 20th position). the comparison of rrr2 results for 2003 (a year prior to eu10 joining the escb) and 2007, positions of two eu10 (lt and lv) ncbs improved, of three eu10 (cz, si, and sk) ncbs remained unchanged, and five eu10 (cy, ee, hu, mt, and pl) ncbs worsened (see chart 4). 0 5 10 15 20 25 30 dk se nl de fi at es bg pt fr it ie lt ee si m t lv el gb be cy ro hu pl lu sk cz n um be r of n c b s 200 7 2 003 19 99 chart 4. ncb positions in rating rrr2 in 2007, 2003 and 1999 the weaknesses of this methodology have to be acknowledged, as the rating does not capture the extent of the differences in ncbs in neighbouring ranks. the comparison of the results of some ncbs can be well presented in a graphical form. in this case, a comparison of ncbs of the baltic states and danmarks nationalbank has been made. the comparison of the indicators of these ncbs and total indicators of the eu ncbs in 1999–2005 shows both differences and common features; overall, however, a progressive aligning of indicators can be observed (pilsuma, 2008a). this tendency continued also in 1999–2007 (see charts 5 and 6). in 2005, per capita income (pci) was almost similar for all ncbs in the baltic states, yet it fell substantially behind the respective indicators of danmarks nationalbank and the escb. in 1999–2005, certain alignment of pci of the baltic states and escb was observed. in 2007 against 2005, pci of the baltic states’ ncbs, danmarks nationalbank and escb increased, with pci of latvijas banka, which was the highest among the ncbs of the baltic states, exceeding that of the escb as much as by 6.0%, yet being 2.9 times less than pci of danmarks nationalbank. in 2007 against 2003, the largest increase in pci was recorded for latvijas banka (2.3 times), while the respective increases for lietuvos bankas and eesti pank were 2.1 and 1.9 times. 1 10 100 1000 10000 pcr pci pce pcb ee lt lv escb dk chart 5. performance indicators of ncbs of the baltic states and denmark and the escb in 1999 (logarithmic scale) 1 10 100 1000 10000 pcr pci pce pcb ee lt lv escb dk chart 6. performance indicators of ncbs of the baltic states and denmark and the escb in 2007 (logarithmic scale) per capita expenditure (pce) of the baltic states’ ncbs approached the indicators of danmarks nationalbank and the escb and increased in 1999– 2005. in the given period, the largest increase in pce was recorded for lietuvos bankas (23.3%) while pces of latvijas banka and eesti pank rose by 13.9% and 2.3% respectively. in 2007 against 2005, the largest rise was recorded for eesti pank (51.7%), while pces of latvijas banka and lietuvos bankas increased by 38.2% and 31.1% respectively. pce of the escb rose issn 1822-8402 european integration studies. 2009. no 3 158 by a mere 4.2% in this period, while that of danmarks nationalbank decreased by 7.0%. in 2007, pce of latvijas banka exceeded those of eesti pank, lietuvos bankas and danmarks nationalbank by 26.0%, 75.3% and 15.6% respectively but was somewhat (by 4.0%) smaller than the escb’s pce. in 2007 against 2003, the largest increase in pce was recorded for eesti pank (60.7%), whereas increases in pces of lietuvos bankas and latvijas banka were 40.6% and 27.8% respectively. as labour costs and other payments to the staff figure as essential ncb’s expenditure items and per capita expenditure of ncbs of eu12 countries falls behind the respective indicators of the ecb and eu15 ncbs, the ncb expenditure in the baltic states is expected to grow, thus pushing up pce and adversely affecting the rating positions of the baltic states’ ncbs. however, pce of latvijas banka is likely to decrease in 2009 as a result of austerity measures implemented in latvia in 2009 due to the global financial market turmoil caused by the us sub-prime mortgage market crisis, which made latvijas banka reduce wages and revise the related expenditure plans for 2009 down by 15% compared to the respective expenditure in 2008 in line with the processes at other public institutions where such cuts were stipulated by law. despite a recorded substantial lag in the ncb per capita capital and reserves (pcb) in the baltic states from the danmarks nationalbank and escb levels, the difference substantially narrowed in 1999–2007. in 2007, pcc of eesti pank was two times higher than pcb of latvijas banka and lietuvos bankas and 2.5 and 5.9 times smaller than those of the escb and danmarks nationalbank respectively. in 2007 against 2003, the increase in pcb of lietuvos bankas (1.9 times) was the largest, while pcb of latvijas banka and eesti pank increased 1.7 and 1.2 times respectively. due to ncb foreign reserves in the baltic states having grown several times, attention should be paid to the building of adequate buffers to secure the central banks against the effects of potential financial risks. the ncb practice in the eu countries suggests that the financial and similar risks cause substantial additional costs, which, in turn, have already made several eu ncbs incur losses (pilsuma, 2004). per capita foreign reserves (pcr) of the baltic states’ ncbs approached the level of danmarks nationalbank in 1999–2007, yet this indicator was still several times smaller (e.g. pcr of latvijas banka was 2.3 times smaller in 2007). in 2005, only pcrs of eesti pank and lietuvos bankas were higher (by 31.9% and 2.2% respectively) than the escb pcr; in 2007, pcr of latvijas banka joined the club and the increases of all three central banks were 1.5, 1.4 and 1.7 times respectively. in 2007 against 2003, the largest increase was recorded for latvijas banka’s pcr (3.2 times), with increases for eesti pank and lietuvos bankas 2.0 and 1.9 times respectively. per capita credit to mfi (pcc) is an exception, as this indicator was equal to 0 for a number of ncbs in eu12 countries (bg, cy, ee, hu, lt, mt, and ro in 2007) due different exchange rate and monetary policies in non-euro area eu countries. the role of ncbs in the formation of mfis’ credit resources in the baltic states is expected to grow after these states join the euro area, if their respective mfis discontinue the routine practice of borrowing from their parent banks. at the same time, it should be noted that pcc of danmarks nationalbank having increased 2.9 times against 1999 was 2.6 times larger than that of euro area ncbs in 2007. the analysis of changes in other ncb performance indicators in 2003–2007 leads to a conclusion that the performance indicators of ncbs in the baltic states predominantly tend to approach the danmarks nationalbank’s indicators, albeit notable differences still exist (see table 3). table 3. performance indicators of the baltic states’ ncbs as proportion of danmarks nationalbank’s performance indicators in 2003 and 2007 (%) indicators years country of ncb ee lt lv operating expense to gdp 2003 298.2 328.2 703.9 2007 329.1 328.5 548.6 yield on net assets 2003 77.8 361.1 2511.1 2007 77.8 383.3 2116.7 number of staff per 100 thousand inhabitants 2003 179.5 242.8 308.5 2007 189.4 268.1 299.7 per capita wage and salary expenditure 2003 24.7 18.7 30.0 2007 34.1 20.7 39.0 share of wage and salary expenditure in total operational expense 2003 80.6 101.3 106.8 2007 70.4 84.5 100.9 the number of ncb staff per 100 thousand inhabitants of the respective country increased only in lietuvos bankas (by 0.7%); the indicator for latvijas banka and eesti pank decreased by 15.7% and 3.8% respectively. however, as ncb per capita wage and salary expenditure in the baltic states is substantially lower than in the ncbs of eu15 countries, the indicator increased more dynamically for ncbs of the baltic states (eesti pank by 47.9%, latvijas banka by 39.1%, and lietuvos bankas by 18.6%) than the respective indicator for danmarks nationalbank which went up 7.1%. however, the share issn 1822-8402 european integration studies. 2009. no 3 159 of this expenditure in the total operational expense of the ncbs in the baltic states dropped in 2007 to 38.3% for eesti pank, 55.0% for latvijas banka, and 46% for lietuvos bankas (for danmarks nationalbank this indicator increased by 1.0 percentage point and was 54.5% in 2007). the proportion of ncb operational expense in the baltic states to each country’s gdp dropped, most sharply for latvijas banka (1.6 times). despite the yield on latvijas banka net assets in 2007 being higher (3.81%) than at other mentioned ncbs, it recorded a decrease of 0.71 percentage point against 2003. conclusions the establishment of the ecb, the formation of the escb, including the eurosystem, in 1998, and enlargements of the eu on 1 may 2004 and 1 january 2007 were the turning points for eu ncbs. along with tackling monetary policy issues, contemporary ncbs today are involved in the activities that are related to smooth operation of the payment systems, financial stability, and collection and compilation of statistical information more often and actively than ever. latvijas banka has been cooperating with ncbs of the eu countries since the early 1990s, with this cooperation acquiring particular significance when a contemporary central bank was to be established. non-euro area ncbs in eu12 countries shall organise their activities to minimise potential risks and to promote integration with the eurosystem. latvijas banka is to proceed with strengthening its functional, institutional and personal independence and improving its transparency. on 1 january 2009, the share of eu15 ncbs in the ecb capital decreased, while that of eu12 ncbs (except bg and ro) increased. the ecb general council includes governors of 16 ncbs as of 1 january 2009, yet the new voting procedures have not been effected and should be further improved in view to a further eu enlargement process. as ncb activities are affected by the global developments, there is a need to compare ncb performance indicators to conduct activities at the optimal level. to this end, ncb ratings and performance results of latvijas banka, other ncbs in the baltic states and eu15 countries shall be used; as cardinal differences continue to exist, there is room for improving the escb operational policy to enhance the escb integration process. references annual accounts of the banco de españa 2007. online: http://www.bde.es/informes/be/infanu/2007/ balancee.pdf banca d’italia annual report. abridged version. ordinary meeting of shareholders 2007 – 114th financial year. on-line: http://www.bancaditalia.it/ pubblicazioni/relann/rel07/encf07/rel_07_abr_anrep. pdf banco de portugal annual report. on-line: http://www. bportugal.pt/publish/relatorio/rel_07_e.pdf bank of england annual report 2007. on-line: http://www.bankofengland.co.uk/publications/ annualreport/2007full.pdf bank of finland annual report 2007. on-line: http:// www.bof.fi/en/julkaisut/vuosikertomus/2007/ vk_2007.htm bank of greece annual report 2007. on-line: 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(2005), key issues far monetary policy: an ecb view – business economics, vol. 40, no. 1, pp. 22–28. why the ecb needs to rethink its role (2005), central banking, volume xvi no. 1, pp. 1–5. the article has been reviewed. received in march, 2009; accepted in april, 2009. 1 the views expressed in this paper are those of the author and not necessarily represent those of latvijas banka or latvijas banka policy. 30 issn 1822 – 8402 european integration studies. 2009. no 3 information society and quality of life antanas keras valerijus keras mykolas romeris university abstract the key objective of the long -term development strategy of the republic of lithuania, as formulated in this strategy is to create an environment for the development of the state’s material and spiritual welfare that is generally described as knowledge-society, secure society and competetive society. while implementing these objectives it is crucial to do the best in order the country’s quality of life would rise. recently, in the european union considerable attention has been devoted to the enhancement of social solidarity. an importance of social solidarity has already been emphasized in the lisbon strategy. if there is no social solidarity, the fields of social tension inevitably occur. quality of life makes a rather considerable influence on the assurance of social solidarity. consequently, an investigation of the quality of life proves to be an unquestionably topical issue. the quality of life to a large extent depends on the country’s economical and social state. nevertheless, at the current societal development stage, it also depends on the implementation and mastering of the new technologies, information and knowledge society development. modern information and communication technologies and, first of all, the global computer network internet has created preconditions and conditions to establish the information society. further development of information and communication technologies is unquestionably directly affecting the development of information society, and at the same time makes a considerable contribution to the development of the country’s or region’s economy, is directly making a strong impact on it. at the same time it is also indirectly affecting the quality of life. this paper aims at analysing of the indices that characterise the quality of life and the indices that characterise the development of information society – for lithuania and separate countries of various development level. at the same token, dynamics of these indices, their objective growth for lithuania and objective dynamics for some chosen countries should be highlighted. keywords: quality of life, information society, development, technologies. introduction while lithuania was integrating into the european union, it was important to evaluate strategic provisions of the european union. that was done in preparing the long-term development strategy of the state. the longterm development strategy of the state was approved by the resolution of 12 november 2002 of the seimas (parliament) of the republic of lithuania. the key objective of the long-term development strategy as formulated in this strategy is to create an environment for the development of the state’s material and spiritual welfare that is generally described as knowledge-society, secure society and competetive society. it is indicated in the resolution that in approving this strategy the conclusions of the lisbon european summit are taken into consideration. it was stated in the mentioned conclusions that the economy of the european union by 2010 has to become the most dynamic, most competitive, knowledge-based, additionally, universal occupation has to be achieved: “the european social model has to be modernised, investment has to be made in people as well as an active welfare’s state has to be created. people happen to be the greatest european value and the key objective of the european union policy. investment in people and the creation of an active and dynamic welfare’s state will be substantial in ensuring europe’s place in a knowledge-based economy and seeking that an emergence of this new economy would not sharpen such social problems as unemployment, social exclusion and poverty”. while implementing these objectives it is crucial to do the best in order the country’s quality of life would rise. consequently, an investigation of the quality of life proves to be an unquestionably topical issue. the quality of life to a large extent depends on the country’s economical and social state. nevertheless, at the current societal development stage, it also depends on the issn 1822-8402 european integration studies. 2009. no 3 31 implementation and mastering of the new technologies, information and knowledge society development. contemporary information and communication technologies (ict) and, first of all, the global computer network internet has created preconditions and conditions to establish the information society (is). further development of ict is unquestionably directly affecting the development of is, and at the same time makes a considerable contribution to the development of the country’s or region’s economy, is directly making a strong impact on it. at the same time it is also indirectly affecting the quality of life (ql) (quality of life – ql). the commission in 2005 proposes a new strategic framework, “i2010 – european information society for growth and employment”, laying out broad policy orientations. it promotes an open and competitive digital economy and emphasises ict as a driver of inclusion and quality of life. as it is noted in the strategy i2010, information and communication technologies are a powerful driver of growth and employment. a quarter of eu gdp growth and 40% of productivity growth are due to ict. differences in economic performances between industrialised countries are largely explained by the level of ict investment, research, and use, and by the competitiveness of information society and media industries. ict services, skills, media and content are a growing part of the economy and society. the strategy i2010 have significantly contributed to developing information society in lithuania. in the scientific work (a.keras, v.keras, 2008) were analysed connections of gross domestic product (gdp) with information society development index and index dynamics of lithuanian information society from 2000 to 2007. this paper aims at analysing of the indices that characterise the development of information society and indices that characterise the quality of life – for lithuania and separate countries of various development level. at the same token, dynamics of these indices, their objective growth for lithuania and objective dynamics for some chosen countries should be highlighted. development of the information society in lithuania lithuania join in eu in 2004. we will analyse further the indexes that characterise the development of the lithuanian information society over the last five years (from 2004 to 2008). we also will analyse index of the development of information society within other countries’context. integrated indexes of the development of the information society are necessary in order to have a such a comparative analysis possible. one of such indexes – digital opportunity index (doi). digital opportunity index (doi) has been designed to as a tool for tracking progress in bridging the digital divide and implementation of the outcomes of the world summit on the information society (wsis). as such, it provides a powerful policy tool for exploring the global and regional trends in infrastructure, opportunity and usage that are shaping information society (wisr 2007). general index doi is measured by scores from zero to one. index doi score can never be less than zero and bigger than one. index doi size is presented in the table 1 for our neighbour states and for ireland for 2004/2005 and 2005/2006 years. this table also contains ranks in europe and world ranks (wisr 2006, wisr 2007). as we can see from the table 1, index doi of the development of the information society in lithuania among our neighbour states and ireland for 2004/2005 is quite fine – we find ourselves after ireland. lithuania’s (doi=0.56) rank in europe is 20 and world rank is 32. latvia occupies 30st place in europe and 48st place in the world. table 1. digital opportunity index (doi) for 2004/2005 and 2005/2006 rank in europe 2004/2005 rank in europe 2005/2006 country doi 2004/2005 doi 2005/2006 world rank 2004/2005 world rank 2005/2006 1 1 denmark 0.71 0.76 3 3 3 4 sweden 0.69 0.70 6 9 5 7 norway 0.67 0.69 8 12 8 6 finland 0.64 0.69 17 11 11 14 estonia 0.63 0.65 20 24 19 18 ireland 0.58 0.61 31 31 20 20 lithuania 0.56 0.61 32 33 24 33 poland 0.52 0.51 39 53 30 26 latvia 0.49 0.54 48 46 33 31 russia 0.45 0.52 60 51 37 38 belarus 0.41 0.45 76 78 issn 1822-8402 european integration studies. 2009. no 3 32 denmark and sweden have gained remarkable results. denmark’s (doi=0.71) rank in europe is 1 and world rank is 3. fine results have gained estonia (doi=0.63) rank in europe is 11 and world rank is 20. index doi for 2005/2006 years increased for all countries, except poland. lithuania’s rank in europe is the same, doi increased from 0.56 to 0.61. there are some changes of rank per year – norway’s rank in europe decreased from 5 to 7. finland’s rank in europe increased from 8 to 6 and remarkable increased finland’s world rank from 17 to 11. estonia’s rank in europe decreased from 11 to 14. poland’s rank remarkable decreased in europe from 24 to 33 and world rank from 39 to 53. also decreased poland’s index doi – from doi = 0.52 to doi = 0.51. over the last five years (2004-2008) telecommunication networks in lithuania were successfully developing. an academic network litnet was developing with a great sucess. litnet has been a member of the european academic network geant since 2004. broadband computer network svdpt of the state institutions and rural area information technology broadband network rain were successfully designed. in the table 2 some important indexes that characterise the development of informatin society from 2004 to 2008 are pointed out. all indexes increased. number of mobile phone subscribers per 100 inhabitants increased from 61.0 to 146.2. in this area we have gained remarkable results lithuania’s world rank of mobile phone is 2. percent of all households owned personal computers increased from 25.0 to 48.0. percent of all households had an access to the internet at home increased from 10.6 to 47.1 (for 4.44 times). percent of households had an access to the internet at home (rural areas) increased prominently enlargement from 2.0 to 32.9 (enlargement for 16.45 times). these results are very important and will help to turn the digital divide in lithuania into digital opportunity. table 2. development of the lithuanian information society 2004 2005 2006 2007 2008 enlargement, times number of mobile phone subscribers per 100 inhabitants 61.0 89.1 127.9 139.4 146.2 2.40 number of main telephone lines per 100 inhabitants 23.9 23.9 23.5 23.4 23.7 0.99 percent of all households owned personal computers 25.0 29.0 36.5 42.0 48.0 1.92 percent of households owned personal computers (urban areas) 32.4 36.4 46.9 52.5 54.1 1.67 percent of households owned personal computers (rural areas) 11.2 13.5 17.9 23.6 34.5 3.08 percent of all households had an access to the internet at home 10.6 14.4 31.7 40.3 47.1 4.44 percent of households had an access to the internet at home (urban areas) 15.2 19.6 40.2 50.4 53.5 3.52 percent of households had an access to the internet at home (rural areas) 2.0 3.6 16.4 22.6 32.9 16.45 computer usage in enterprises 89.7 91.7 91.7 90.5 94.8 1.06 internet usage in enterprises 79.8 85.2 87.5 88.4 92.7 1.16 quality of life recently, in the european union considerable attention has been devoted to the enhancement of social solidarity. an importance of social solidarity has already been emphasized in the lisbon strategy. if there is no social solidarity, the fields of social tension inevitably occur. quality of life makes a rather considerable influence on the assurance of social solidarity. quality of life is a crucial factor. it evidently shows how strong diverse fields of social solidarity as well as contradictions are. if allowed proportions of quality of life will be breached, it can impede the evolution of the democracy-based society. the neglect of the problems related to people development level may create fundamental preconditions for order disturbance, upheaval, illegal activity, various conflicts, etc. the quality of life can be measured by human development index (hdi). the hdi provides a composite measure of three dimensions of human development: living a long and healthylife, being educated and having a decent standard of living (human development report 2007/2008). hdi, provided it is high, reflects the country’s high life level as well as reflects sufficiently good preconditions for social cohesion and even sustainable development. however, if it happens to be low, it can pose the whole range of problems. to be more precise, it is not a low hdi that causes the mentioned problems, it just reflects the situation in the country or region which issn 1822-8402 european integration studies. 2009. no 3 33 in turn may pose such problems. it is bad if hdi is low, but it is worse if there are great differences by hdi inside the country among separate inhabitants’ groups or layers. all this can trigger instability inside the country’s life, social tensions inside the country, etc. there is one more sphere where some unwanted phenomena may occur, these are the populists’ marches against common election by making promises to their electors that they will bring down the mountains, will provide their electors with anything they desire. thus, by taking advantage of the situation, dissatisfaction of certain part of people regarding insufficiently high quality of life, populists attempt to penetrate into one or other level of governance and often they succeed. on the whole, the populists’ “marches”, their success in political ratings with the help of the means of media, their success at the elections – of the municipalities, of the seimas, as well as of the president (this success is partly due to low citizens’ life level, and partly due to low civil consciousness level), is an attention-worth matter and the rise of the life level would unquestionably have positive influence on the reduction of such “success”. it is essential to remember that having penetrated into the governance, populists, as a rule, immediately forget about their decent promises. if the life level in the country is high enough and there are no glaring differences among various inhabitants’ groups, then the populists will have less “chances”, if they will have at all. if the differences are big, then the populists’ “marches” may create preconditions for instable social and even political situation in the country. it is crucial that an objective information about the country’s achievements, its life level indices in comparison with other countries of similar or higher development level would be accessible to the ordinary country’s resident, in a language understandable to him/ her. moreover, it could be noted that if the country’s quality of life becomes higher and at the same time it is likely that social solidarity of the inhabitants becomes bigger, then “speculations” will fail. nowadays, quality of life is perceived as an essential integrated characteristics. it reveals basic welfare preconditions both to the whole state’s extent and, taken separately, successful human development. it can also be adapted for the evaluation of the country’s social, economical or technical level and its future development strategy. in the table as provided below (table 3) hdi dynamics from 1990 to 2005 are pointed out. we analysed index hdi for the same group countries (11 countries) as in table 1. lithuania according to hdi is in the 43th places among 177 world countries. this result is quite respectable. lithuania’s index hdi increased 4.23%. lithuania is in the first group of world countries “high human development” countries group (hdr 2007/2008). in this group were 70 countries, which index hdi = 0.8 or over 0.8. when lithuania’s economy was in the transition period from planning economic to market economy, index hdi hard decreased from 0.827 in 1990 to hdi = 0.791 in 1995. but after that economy increased and index increased to hdi = 0.862 in 2005. index hdi from 1990 to 2005 increased for all eleven countries from table 3, except russia. russia’s index hdi decreas 1.6 %. belarus has index hdi = 0.804 and it increased 1.77 %. scandinavian countries have fine results – norway’s hdi= 0.968 (2th place in the world), sweden’s hdi= 0.956 (6th place in the world). ireland gain quite fine result – hdi = 0.959, it’s hdi increased 9.6 %. ireland according to hdi is in the high 5th places among 177 world countries. table 3. human development index (hdi) for 1990 – 2005 hdi rank 2000 hdi rank 2005 country hdi 1990 hdi 1995 hdi 2000 hdi 2005 enlargement, percent 1 2 norway 0.913 0.938 0.958 0.968 6.02 18 5 ireland 0.875 0.898 0.931 0.959 9.6 2 6 sweden 0.904 0.935 0.952 0.956 5.75 10 11 finland 0.906 0.918 0.940 0.952 5.07 14 14 denmark 0.898 0.916 0.935 0.949 5.68 37 37 poland 0.806 0.822 0.852 0.870 7.94 49 43 lithuania 0.827 0.791 0.831 0.862 4.23 42 44 estonia 0.813 0.792 0.829 0.860 5.78 53 45 latvia 0.804 0.771 0.817 0.855 6.34 56 64 belarus 0.790 0.755 0.778 0.804 1.77 60 67 russia 0.815 0.771 0.782 0.802 -1.6 issn 1822-8402 european integration studies. 2009. no 3 34 as we emphasized before, lithuania’s quality of life index hdi = 0.862 is quite decent. but there are some problems in the field of powerty and social exclusion. one of problems at risk of powerty rate in lithuania was too high 19.1 % in 2007. it may create preconditions for order disturbance, various conflicts. another problem – there are large differences of gross domestic product by county. gdp is index, which partly characterised quality of life. in the table 4 gross domestic product (gdp) per capita are pointed out. there are marked differencies of gdp between counties. gdp total by country (gdp = 29.1) largely exceed gdp by tauragės county (gdp = 13.7), which increased 48.9 % from 2004 to 2007, nevertheless it is insufficient. tauragės county is at the borderline with russia. low level of quality of life can instigate illegal activity, first of all contraband. such illegal activity nowadays often occurs in the borderline regions, such as tauragės county. marijampolės (gdp = 17.5) and alytaus (gdp = 19.1) counties are also at the borderline with russia, but they exceed the gdp of tauragės county and there can occur probably less illegal activity. klaipėdos (gdp = 29.8) county exceed the gdp not only of tauragės county, but also gdp total by country, and problems of the borderline region can be there less dangerous. table 4. gdp per capita by county and total by country (ltl thous) to ta l a ly ta us k au no k la ip ėd os m ar ij am po lė s p an evė ži o ši au lių ta ura gė s te lš ių u te no s v iln ia us 2004 18.2 12.7 17.3 18.7 11.6 15.2 13.8 9.2 16.1 15.9 26.8 2007 29.1 19.1 28.0 29.8 17.5 20.4 21.0 13.7 24.3 22.7 45.0 ignorance of life quality factors is related to an active habitants’ emigration. it impedes further country’s development. this in turn impels changes into the worser side of science, education, health protection, culture and various other spheres of a contemporary social life. eventually, relationship fields of an increased social tension may be highlighted here. one more sphere as provoking potential “social instability”– it is what a part of the media is pretty often doing, in particular, that part which is not distinguished for its impartiality and, first of all, is chasing cheap sensations in order to guarantee a bigger attention of less educated readers and at the same time to maintain possibly bigger circulation. after all, some part of the media is successfully “speculating” by resonant headlines about that is “bad”, “very bad”, “very very bad” and by having read such headlines it seems that lithuania must have “sunk” or “fallen into pieces” a long time ago, nevertheless, not only does it stand but it is also rather successfully going further in accordance with many objective indices. the part of the media very quickly proclaims the information on what is bad in our country (sometimes subjective and sometime objective information), however, it is frequently forgotten to spread the information about what is good, about progressive development tendencies and achievements... such activity format of some part of the media makes also an influence on the country’s inhabitants’ mood. the achievements in a great deal of spheres in lithuania are frequently being assessed more positively by foreign experts than by a considerable part of the lithuanian people. it is crucial that an objective information about the country’s achievements, its life level indices in comparison with other countries of similar of higher development level would be accessible to the ordinary country’s resident, in a language understandable to him/ her. moreover, it could be noted that if the country’s quality of life becomes higher and at the same time it is likely that social solidarity of the inhabitants becomes bigger, then “speculations” will fail. conclusions 1. lithuania has made serious progress in developing information society since country was entered in the european union from 2004. all indexes that characterise the development of the lithuanian information society noticeably increased. 2. telecommunication networks in lithuania were successfully developing. percent of all households had an access to the internet at home increased more than four times. percent of households had an access to the internet at home (rural areas) increased prominently – more than 16 times. these results will help to turn the digital divide in lithuania intodigitalopportunity. 3. index doi of the development of the information society in lithuania (doi=0.56) among our neighbour states and ireland is quite fine – we find ourselves after ireland and our rank in europe is 20 and world rank is 32. after one year, in 2005/2006, lithuania’s rank in europe is the same and doi increased from 0.56 to 0.61. issn 1822-8402 european integration studies. 2009. no 3 35 4. lithuania’s quality of life index hdi = 0.862 is quite decent. but there are some problems in the field of powerty and social exclusion. one of problems at risk of powerty rate in lithuania was too high 19.1 % in 2007. 5. another problem – there are large differences of gross domestic product by county. gdp is index, which partly characterised quality of life. consequently, low level of quality of life can instigate illegal activity, first of all at the borderline with russia contraband. references valstybės ilgalaikės raidos strategija. vilnius, 2002 – patvirtinta lietuvos respublikos seimo 2002 m. lapkričio 12 d. nutarimu nr. ix-1187. i2010-europos informacinė visuomenė augimui ir užimtumui skatinti. briuselis, 1.6.2005 kom(205) 229 galutinis. on line: http://ec.europa.eu/ information_society/eeurope/i2010/index_en.htm keras a., keras v. development of information societyin the context of growing gdp. european integreation studies, 2008, nr.2, 46-52 p. world information society report 2007. beyond wsis. on line: http://www.itu.int/osg/spu/publications/ worldinformationsociety/2007/report.html world information society report 2006. on line: http://www.itu.int/osg/spu/publications/ worldinformationsociety/2006/wisr-web.pdf informacinės technologijos lietuvoje, 2007. statistikos departamentas prie lietuvos respublikos vyriausybės. vilnius, 2007. informacinės technologijos lietuvoje, 2008. statistikos departamentas prie lietuvos respublikos vyriausybės. vilnius, 2008. human development report 2007/2008. on line: http://hdr.undp.org/en/media/hdr_20072008_ en_complete.pdf human development report 2006. on line: http://hdr.undp.org/en/media/hdr06-complete. pdf castells m. the rise of the network society. second edition. blackwell publishers, 2000. i2010. 2007 m. metinė informacinės visuomenės ataskaita. briuselis, 30.3.2007 kom(2007) 146 galutinis. on line: http://ec.europa.eu/information_society/ eeurope/i2010/index_en.htm lietuvos informacinės visuomenės plėtros strategija. vilnius, 2005 – patvirtinta lietuvos respublikos vyriausybės 2005 m. birželio 8 d. nutarimu nr. 625. nacionalinė lisabonos strategijos įgyvendinimo programa. vilnius, 2005 – patvirtinta lietuvos respublikos vyriausybės 2005 m. lapkričio 22 d. nutarimu nr. 1270. laudon, kenneth c., laudon, jane p. essentials of management information systems. 7th ed. pearson: prentice hall, 2007. online availability of public services: how is europe progressing? web based survey on electronic public services report of the 6th measurement, june 2006, capgemini. on line: http://ec.europa.eu/information_society/ eeurope/i2010/docs/benchmarking/online_ availability_2006.pdf preparing europe’s digital future i2010 mid – term review. communication from the commission to the european parliament, the council, the european economic and social committee and the committee of the regions, com (2008) 199. on line: http:// ec.europe.eu/i2010 communication to the spring europe council. working together for growth and jobs. a new start for the lisbon strategy. brussels, 2.2.2005. com (2005) 24 final. on line: http://ec.europa.eu/ growthandjobs/pdf/com2005_024_en.pdf the user challenge benchmarking the supply of online public services. 7th measurement/ september 2007.prepared by capgemini viešųjų paslaugų, teikiamų informacinėmis technologijomis, esamos būklės analizė 2007. vidaus reikalų ministerija, bgjconsulting. lietuvos plačiajuosčio ryšio infrastruktūros 20052010 metų plėtros strtegija. patvirtinta lietuvos respublikos vyriausybės 2005 lapkričio 16 d. nutarimu nr. 1231. the article has been reviewed. received in march, 2009; accepted in april, 2009. 126 issn 1822-8402 european integration studies. 2009. no 3 the new eu member states – the place in the integration road of the eu economy tomas razauskas borisas melnikas vilnius gediminas technical university abstract fast expansion of european union (hereafter – eu), which occurs in a quite short time just confirms, that eu as a formation of the member states helps them to reach additional positive economic effect. the eu always meets new challenges for economic evolution as it is expanded both in geographical and integration point of view, and as it has uneven economic and social level of development, different demographic situation. one of the above-mentioned challenge how to reach closer cohesion of economic development. it is not easy to seek this, especially if you know how very different economies of eu member states are. for instance, the size of production of germany which generates the largest part of eu economy is the same as twenty smallest member states all together. obviously, the eu economic development mostly depends and will depend on the biggest countries’ economic growth and that is because they will have influence on development of smaller member states. in order to seek a closer cohesion between members states in the eu one of the measures are creation of structural funds. the question: do these instruments allow to reach the said aims? according to the financial perspective for 2000-2006 approximately 90 pc of the whole eu support was accorded to eu-15; approximately 60 pc provided in financial perspective for 2007-2013. in this case emerge ambiguous situation: on the one part, insufficient concentration of eu financial support for less developed regions impede sustainable development, in the other part, citizens of the new member states get more financial support from eu budget than they pay for it. it is important to underline, that eu financial support and participating in the common market has changed two main economic rates: gdp growth and inflation. the new member countries also should not forget abilities to absorb this structural support. in this regard the old member states dominate over the new ones. for that reason one of the future challenges for the new member states to reach the same level. nevertheless, it is important to understand, that structural support is not the main reason of successful economic growth of the eu member states and eu itself. the common market is a main factor which promotes economic growth. that is why another challenge for the new member states fully integrate their economies into european economic and monetary union. eu is unique union of states, which gives particular benefit for the member states and worldwide performs a notably role. therefore trying to analyze economic processes inside eu it is important to evaluate the main factors outside eu which make the largest influence. to respond to changeable development processes of economy mostly suitable tools are the instruments of monetary and fiscal policies. it should be noted that implementation of fiscal policy on the eu level is restricted. the eu budget must be always balanced and implemented without consideration of business cycles. the policy on taxation is harmonized only on indirect taxes. the instruments of direct taxes and expenditures of national budget let for the member states to compete with each other in eu, and it is to be expected that the new member states will use these measures. the main centralized instrument to respond adequately into business cycles on the eu level is a monetary policy implemented by the european central bank. nevertheless, not all the new member states have joined the euro zone. it gives them more flexibility in control their economy, but at the same time obliges to maintain stability of national currency. key words: the european union, economical development, structural support, the european union budget, monetary politics. issn 1822-8402 european integration studies. 2009. no 3 127 introduction ten states, among those is lithuania, on the 1st of may 2004 became official members of the european union. today when being the citizen of the eu became the trivial appearance, only some people realise what would be if the situation would be different. but the economical depression forces to review the place of new member states in the european union, also the extension and degree of experienced influence. when talking about membership in the eu and its economy, as usually are mentioned two sides: positive and negative. relevant scientific researches in abroad were performed by floyd d., tyc v. 2008; durance p., godet m. 2007; colson a., corm m., yeoh p. 2006; harris p.r. 2004; potts n. 2000; roarty m.j. 1996. many lithuanian scientists were analysing the positive economical effect created by the european union excluding the influence in regard of lithuania. among such scientists could be mentioned galinienė b., dikovič o. 2008; jakaitienė a., klyvienė v., simanauskas l., šidlauskas s., kučinskienė m., garuckas r., klimašauskienė d. 2007; melnikas b., 2007; simanavičienė ž., kilijonienė a., čiegis r. 2004. but among these opinions we will hardly find consistent scientific research of the european union economy separating the limits of competency between member states and the union applying the fundamental measures of economy regulation. the perspective of the european union development in the face o the slowing economy is especially questioned today when the whole world after show up of the destructive financial crisis experiences cyclical economical depression. the fundamental instruments of economical regulation not all the time can adequately react to often volatile and both rapidly and in multiple ways functioning economical systems with many unknown figures, but at the same time these systems are almost the only units beneficial in stabilisation of situation. from here arises the purpose of the research to analyse the functioning space of the economical system of the european union and new member states and its singularity, to determine connections, to merge the problems and to suggest the decision for them. three tasks were raised for the implementation of the purpose which will be consistently analysed: to estimate the economical weight and role of new  member states in the european union, to measure the benefit of the structural support, its  importance and problematic, to analyse the measures of monetary and fiscal  politics and their influence in the context of enlarged european union emerging influence towards new member states. in the article are analysed actual problems of the eu through the application of these research methods: discussing the opinions mentioned in the articles of foreign and lithuanian scientists performing the analysis and the inspectional estimation of statistical information. cohesion between member states of european union the european union was established by 6 states on the sixth decade, first of all establishing the european community of coal and steel, and later the community of european economical cooperation and european nuclear energy, recently the union unites 27 member states. the rapid development that has occurred during the conditionally short period of time simply proves that the european union as formation of separate states helps member states to create extra positive result. the european union after developing both by the geographical and integration view and having uneven level of economical and social development, different demographical situation experiences over and over new challenges of economical development. one of them is related to the question is how to reach the bigger cohesion of economical development and to safeguard its harmonious growth all across the european union. being aware that the extents of economies of the eu member states differ very much, this is not reachable easily. for example, the member state that creates the biggest part of collective economy inside the union (germany) actually matches the part of economy created by twenty smaller member states. 1 therefore it can be inferred that the development of the eu will be deeply dependent on the economical development of several large member states which at the same time will deeply influence the economical development of the smaller member states. it is worth to say that during the period of time between 2000 and 2007 the comparative part of the eu gross domestic product, created by member states, has varied. this part which is created by the great member states, except spain, has lowered, and the part which is created by the smaller member states has extended, and the part created by some states, for example romania, has extended in more than one hundred percent. the level of uneven development of the european union indicates the fact that in 2006 six member states had 20 percent bigger gdp, that falls towards one inhabitant comparing to the average of the eu and in 11 countries it was more than 20 percent lower comparing to the average of the eu. by the comparison between the year of 2000 and 2006 it becomes obvious that in many cases (thirteen of fifteen) the member states, within which gdp that falls towards one inhabitant in 2000 was below the eu average, in 2006 have increased this part significantly. also it is noticeable, although not so 1 eurostat. european economic statistics. 2008. issn 1822-8402 european integration studies. 2009. no 3 128 distinctly, that there is happening the reverse process. the part of gdp in 2000 within ten among twelve countries, that falls toward one inhabitant was exceeding the eu average, and in 2006 such part was depressed. here can be concluded, that all around the eu during the period from 2000 to 2006 was happening the clear process of convergence. 2 despite that gdp of the richest country luxemburg that falls towards one inhabitant is more than 700 percent bigger comparing to the gdp of the poorest new member states romania and bulgaria. in regard of this reason the article no 158 of the european community establishment agreement indicates: seeking for manifold harmonious development the community develops and implements its activity which helps to strengthen its economical and social cohesion. the community especially seeks to reduce the differences of regional development and backwardness of the regions or isles having the most inauspicious conditions, including rural localities. 3 for the achievement of the consolidated goals within the european union are intended the exact measures motivating the more rapid cohesion of member states. such measures are the financial support from the structural funds. however, does the implementation of measures helps to secure the intended goals? the distribution of structural support in european union during the period from 2000 to 2006 in the purpose of the financial perspective es-15 member states (the oldtimed and developed member states) were commissioned with 213 billion eur and this is approximately 91 percent of the whole support intended for the eu regional politics, and the eu 10 member states (countries which have joined the eu in 2004) only with 22 billion eur (approximately 9 percent). 4 as mentioned by galinienė b., dikovič o. grybauskaite d. (2008), čiegis r. (2004), the support for another important sphere agriculture which for the long period of time was supported with the biggest part of the eu budget between old-timed and the new eu member states has also spread unevenly. the new eu member states just after four years after joining the eu have received half of support paid to the oldtimed eu member states for this sector. until 2007 these countries could add up to 30 percent of financial support redistributing the eu resources intended to develop the investment activity of rural development, but since 2007 2 eurostat. european economic statistics. 2008. 3 consolidated versions of the treaty on european union and of the treaty establishing the european community // official journal. – 2006, c 321 e 4 european commission. working for the regions. luxembourg: office for official publications of the european communities. 2004. this was forbidden to do. the hundred percent level of the eu support in regard of the union old-timed countries agriculture the new member states will reach only in 2013, therefore their striving as possible faster to unify the support for all farmers of the eu is natural. accorting to simanavičienė ž., kilijonienė a. (2004), there appears the double-barrelled situation: on the one part there is critical opinion in regard of the imperfect eu financial support concentration solving the problem of uneven regional development, on the other part it is noticeable that the citizens of new member states from the eu budget financial support get more comparing to what they pay in. 5 during the period from 2007 to 2013 the citizens of new member states also receive more of the financial support comparing to the old-timed countries citizens. the truth is that their citizens are paying in more into the eu budget comparing to what they receive. exception would be luxemburg where the revenue for one inhabitant is even 16170 eur and strongly segregates of general context. it is important to signify that both lithuania and other new member states during the new financial period receive almost 3 times bigger eu support comparing to the period of time from 2004 to 2006. but there should be mentioned, that the eu financial support and involvement in general market alternate two fundamental economical indexes which are gdp development and inflation. in 2000 the lithuanian budget was 20 billion ltl and eu financial support during the period from 2007 to 2013, including support for the sector of agriculture and other measures, was 36 billion ltl. this is huge injection of resources into the economy of the country that motivates the economical shake-up, development and at the same time inflation. more precisely, member states where the part of the eu support that falls toward one inhabitant is bigger usually will have more rapid development of gdp, often the inflation too, comparing to the countries where the part of the support falling towards one inhabitant is less or negative. therefore can be concluded, that in regard of inflation control successful use of support has negative influence. there should be noted that many of new member states rapidly seeking to reach the level of the oldtimed eu countries and applying the eu resources are fighting with much bigger inflation comparing to the old-timed member states. therefore while explaining this phenomenon it is worth to pay attention that after new member states have joined the eu the prices of 5 european committee under the government of the republic of lithuania. the material of information compain due to lithuanian membership in to the european union. // the division of public relations / vilnius. 2004. open europe. briefing note: european communities (finance) bill. 2007. issn 1822-8402 european integration studies. 2009. no 3 129 goods in these countries and in the old-timed member states differentiated several times although obstructions for trade within the eu were liquidated. therefore many new member states have experienced the principle of “merging dishes”, which more or less has influenced the rates of inflation development. at any rate within many sectors across new member states were attained the prices of the average european level, for example, prices of clothing, petrol, food, therefore it would be possible to presume that after this factor will disappear eventually inflation will decrease. but there appears the question what benefit this all brings to the inhabitants of the old-timed member states who in fact are financing investments in our countries? it looks like the answer would be unambiguous, but the essential positive economical influence to those countries and to their citizens would be involvement in the same general eu market. since the very beginning of the community establishment in series are developed domestic markets involving free movement of goods, facilities, persons and capital within the space of the eu, and the benefit is obvious: during the period from 1993 to 2006 as concern of domestic market within the eu were created 2 extra percents of gdp, were established 2.75 millions of new vacancies. 6 according to harris (2004), yeoh p. (2006), jatulevičienė g., kučinskienė m., garuckas r. (2007), potts n. (2000), roarty m.j. (1996), šeputienė j. (2007) it can be stated that looking to the lasting perspective the eu success will deeply depend on how after liquidation of physical barriers successful management of remaining technical and taxing obstructions, reduction of the monetary goods will interchange risk, or in other words the expansion of euro zone, formation of equal competitive conditions in respect of all subjects of the domestic market. d. klimašauskienė (2005) upraises actual problem of equal competitive conditions which are one of the most important conditions for the existence of general market. it is worth to mention that this is especially sensitive and shadow sector, therefore it is not enough to establish the legal basis safeguarding equal conditions to all. it is very important that the institutions of member states responsible for the maintenance of this field would be competent and would have adequate administrative powers. but returning to the questions of the commissioned eu financial support, discussing its extent it is important not to forget abilities of member states to apply it. how efficiently member states, including lithuania, will succeed to apply the money intended for investments and to reform economy which could be equal partner to the economies of other countries, will depend on their own. 6 european commission. a european single market for all. 2007. the benefit and problems of structural support for new member states according by gryvauskaite d. (2008), in 2007 the old-timed member states, except netherlands, have applied the resources of the eu structural funds much better comparing to new member states. trying to explain this it can be stated that the cumulative longevous experience while implementing the projects of investments supported by the eu, possession of better administrative competencies have caused the higher level of resources application within old-timed countries. as mentioned by razauskas t. (2008) jakaitienė a., klyvienė v. simanauskas l., šidlauskas s. (2007), maniokas k., vilpišauskas r., žeruolis d. simanavičienė ž., kijolienė a. (2004), together with the problem of money amount application shouldn’t be forgotten the question of their application efficiency. recently such rate for the new member states would be hardly measured and it could be stated that only in the longer perspective will be possible to see countries rapidly reforming their economies and able to act properly under the circumstances of the international competition or countries lacking of such potential. the experience of the states which have joined the union earlier can be already analyzed. the essential question for the new member states should be “how more rapidly to reform or to adjust their economy which could act and be equal partner to the economies of the developed old-timed member states”. recently the structure of economies is pretty different. in 2007 three facility sectors of es 27 have created the biggest surplus value: financial and business facilities 28.2percent, other facilities involving public administration and defence, education, public health and other22.4 percent, trade, transport and link facilities 21.1 percent. these three sectors formed more than 70 percent of all gdp. industry except the construction sector compounded 20.2 percent, construction 6.3 and the smallest percent was compounded in the sector of agriculture, hunting, forestry and fishery 1.9 percent.7 according to the “eurostat” information, in 2006 the part of agriculture, hunting, forestry and fishery sector was comparatively the biggest in the poorest member states of the eu romania 8.8 percent, bulgaria 8.5 percent, lithuania 5.2 percent, poland 4.3 percent. this can be explained by small productivity of the sector comparing to other ones. differently from agriculture, hunting, forestry and fishery the direct connection between industry (except construction) and incomes can’t be penetrated. there can be found countries the level of those is high enough and those incomes are below the average of the eu, for example czech republic (31.7 percent), 7 eurostat. european economic statistics. 2008. issn 1822-8402 european integration studies. 2009. no 3 130 slovakia (28.6 percent), romania (27.5 percent), but there also are countries those level of incomes is pretty higher comparing to the average of the eu, and such countries are germany (25.4 percent) and ireland (25 percent). three baltic states have the biggest sectors of trade, transport and link facilities: latvia34.2 percent, lithuania31.1 percent and estonia29.6 percent. there can emerge the view that the successful development of the eu essentially depends on the application of the eu structural support or on the formation of equal competitive conditions within the domestic market of the eu. but while seeking to react to constantly changeable domestic economical space and adapting to the challenges of the international markets are implemented two fundamental theoriesmonetary and fiscal politics. enlarging total expenses during the time of depressions and recessions the executive government can quicken the development of national product at the same time reducing unemployment. in the case of entire demand rapid growth, more precisely when in economics is reached absolute employment and prices start to grow the executive government, while limiting entire demand, can slow the rates of inflation. this is the proposition of the classical economical theory. but what new member states should do now when is experienced economical depression and the increase of entire expenses becomes more and more difficult because of hardly bridled budget defficiency? the budget of the european union and monetary politics the substantiality of fiscal politics, otherwise budget politics, is through the alteration of entire expenses programs or through the standards of taxing to quicken or slow the growth of entire demand. this means that intending to control and influence the processes of economical development the executive government has actively to increase or decrease expenses, increase or decrease revenues or one and another at once. but it should be signified that the european union doesn‘t perform such function. one of the main principles of the eu budget formation is that it always must be balanced. so, during the economical depression in the eu there‘s no opportunity to increase expenses through the established programs or to decrease them when appears the danger of economical overheat. differently from the national budget, revenues of the eu budget are chargeable mostly from the contributions of the member states and can’t exceed the intended legal limitsrecently it is 1.31 percent in the case of assignation for liabilities of the general eu national revenues (hereaftergross national product) and 1.24 percent in the case of the eu gnp assignations for payments. so at this time we can see that collecting revenues to the eu budget it is not intended directly to react to the economical periodicity and there appears bigger orientation towards the collection of revenues intended for implementation of the necessary eu programs independent of existing economical situation. naturally if the eu fiscal politics is not being implemented in centralization, then this prerogative belongs to member states and every member state estimating extents of the direct taxes increases or decreases its own economical competitive ability, motivates or slows the economical development, increases or decreases entire demand. considering the 93rd article of the european communities it is intended to harmonize in the eu only the indirect taxes (substantially vat and excises) because the indirect taxes can create obstacles for free movement of goods and for free offering of services within domestic market, also to distort the competitive conditions. many directives and regulations were passed seeking to regulate this sector.8 studying the differences of the main direct taxes in different member states can be gathered that in new member states the direct taxes are lower comparing to the old-timed member states.9 in opinion of the representatives of member states, which are the donors of the eu budget, the direct taxes in the level of the eu should be harmonised as the indirect ones, also it would be difficult to estimate them positively in the aspect of economical regulation. thus would be lost very important measure of fiscal politics that can flexibly influence the rate of economical development in every member state and to safeguard the eu regional competitive ability. it is important to mention another measure of fiscal politicsmanagement of the national budgets expenses. motivating the economical development there should be offered the alternative to increase the budget expenses, but even on purpose to do so, it is not so simple. the criterions of the eu convergence do not allow to surpass the budget deficiency of member state more than 3 percent from gdp10, and in countries which are close to this rate freedom of acting becomes limited. even not considering this limiting factor country which experiences economical depression, having increasing inflation and budget deficiency in the international markets should be appreciated as more precarious. this means that seeking to motivate the increase of domestic entire demand should be adopted loans from the foreign markets with precarious interest rates common for precarious loans. these facts allow the conclusion that countries experiencing variform economical problems have to overpass from consumption, which increases inflation, to efficient and rapidly dividend investment programs, able 8 european commission. the eu’s tax policy. towards a barrier-free area for citizens and businesses. 2006. 9 eurostat. taxation trends in the european union. 2007. 10 european central bank. the monetary policy of the ecb. 2004. issn 1822-8402 european integration studies. 2009. no 3 131 to decrease the budget deficiency and to prevent another economical maladybig unemployment. as was already mentioned above another fundamental measure of economical management is monetary politics. the monetary politics is implemented by the central banks seeking to safeguard the stability of prices which in most times is related with the establishment of basic interest rates and the amount of cash money in the market, what in the most cases influences currency rates. in the european union such function is attributed to the central eurobank.11 many member states seeking to establish the stability of prices do not have monetary politics or are applying it in restrained way, because either they are the members of euro zone, either their national currency has interconnected with euro (for example lithuania). agreeable with dulkys a. (2008), angeloni i., flad m., mongelli f.p. (2005), the big part of responsibility seeking to sustain not high and stable inflation falls to the central eurobank. it is natural that the extent of basic interest rates directly influences the perspectives of economical development, therefore recently the central eurobank, seeking for the economical motivation, reduces them. after we have discussed the measures of fiscal and monetary politics applied by the eu we can’t state that already are known all measures able actively influence the economical development in this region and to benefit while adapting the outside and inside factors. the eu is phenomenal structure of strong states with different cultures, different histories, different traditions, and even with different understanding about welfare that is being established. while analysing the perspectives of the future of the eu it should be better researched the processes of the eu decisions acceptance floyd d., reverte c (2008), colson a., corm m. (2006), the social politics godet m., durance p. (2006, 2007), melnikas (2007, 2008) and cultural differences which sometimes make obstructions for the deeper and more rapid integration of member states divergent among other world regions with their variety and the potential of domestic market. it is also natural that the european union doesn’t exist on its own separated from the rest of the world and is closely related with other regions by various connection systems: legal, financial, trading, it, human resources and etc. it is noticeable that the world is not static, but rapidly intermittent in respect of these connections. hence, all economical subjects are interdependent. it could be supposed that as deeper is the international integration, as stronger economical subjects are interdependent, and at the same time much more dependant on each other. therefore while analysing different economical appearances inside the european union can’t be afforded the dissociation from occurrences behind its limits. 11 european central bank. the monetary policy of the ecb. 2004. conclusions recently both new member states and the european union generally confront the cyclical economical depression. to react towards the processes of altering economical development is possible in the various ways, but most of all should be applicable monetary and fiscal measures. in such situation it was important to highlight subjects mostly determining the economical rates in the eu and strongly the destiny of other countries. after analysis of distribution of gdp created by the eu among the countries is completed, there emerges the fact that 5 great states which create 75 percent of eu gdp play the substantial role in the development of the european union. the development level of countries inside the union differs very much, therefore seeking for equivalent situation in the regions are implemented the measures of structural support. it is important to mention that the concentration of this support in the undeveloped regions is not sufficient, but in regard of new member states this is unquestioned financial support. in one or other way both for the new countries and for the old ones the biggest positive economical effect creates the involvement in general market. it is possible to state that monetary politics managed by the central bank is the measure through which implementing institutions of government can manage the rapidity of the economical development growth, in such case the measure should assure that the economy of country would develop rapidly and safely, and the management of budget is the choice of development direction. it should be known that the perspective investments in the future usually provide multiple return. therefore it is important that the new member states would successfully assimilate the european union structural support orienting the economical structure towards the fields creating bigger additional value. it should be mentioned that the eu fiscal politics is implemented in pretty restricted way, because its budget always must be balanced and pursued without consideration of cyclical fluctuations. but the comparison of statistical information has indicated that dependence between inflation and the eu financial support in member states is direct. there comprises contradictory situation when the new member states suffer from the regional backwardness and imperfectly reformed economy and infrastructure, at the same time are fighting with less ability to apply the eu resources and high inflation. when managing the economical development in the eu level the influence of taxes regulation is also minimal. there are strivings in the eu level to harmonise indirect taxes which can angle the competitive conditions within the eu domestic market, but the direct taxes and the expenses of national budgets are those measures which can be applied as competitive element in competition between countries inside the union and measure issn 1822-8402 european integration studies. 2009. no 3 132 for inducement or slowing of national economies development. the only centralised measure in the eu for the adequate response towards actual economical processes and future perspectives remains monetary politics applied by central eurobank for management of basic interest rate. should be appreciated that many new member states haven’t accepted euro and can’t be fully involved in the european economical and monetary union, although this could be especially beneficial today trying to stabilise the economies of separate counties experiencing recession. references consolidated versions of the treaty on european union and of the treaty establishing the european community // official journal. – 2006, c 321 e angeloni i., flad m., mongelli f.p. 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(2005), 14). to keep flow of fdi steady the private law rules should insure that needs of investors should be met properly. on another hand european economic growth strategy has been formulated in lisbon strategy set out by the european council in lisbon on march 2000 and it formulated strategy for european economical development. the agenda aims to create competitiveness of eu in global economy especially by promoting entrepreneurship culture. creation of entrepreneurship culture could radically change economical development in ceecs because currently namely foreign companies influences the economic development. aim of this article is to define possible trends of the process of europeanization of private law and how methods of eurpeanization of private law could be beneficial for ceecs, and their economical development. objects of research are: 1. define process of the europeanization of private law; 2. distinguish different methods of the europeanization of private law and their economical significance; 3. initiate discussion of importance of private law for european economic growth strategies, especially in ceecs. currently two models of economical development – based on fdi or promotion of knowledge based economy and especially of entrepreneurship culture, supported by financial assistance from eu have been competing in ceecs. whatever methods will be chosen (foreign or domestic with financial support from eu) it directly relies on the process and outcome of the europeanization of private law. europeanization of private law and impact to economical development 2000 european council set the objective of europe becoming the most competitive and dynamic knowledge-based economy in the world in the lisbon. 29 year 2002 this led to the barcelona european council setting an equally ambitious and more specific quantitative target to increase the total european research and development expenditure (oecd defined gross expenditure on r&d (gerd)) to 3% of gdp by 2010, from its present base of 1.9% . it had foreseen as well that one of the tools for economic growth is promotion of entrepreneurship culture. in communication from the council and the european parliament, thinking small in an enlarged europe, has been noticed that especially ceecs still lack entrepreneurship culture. as statistics shows small businesses represent the vast majority of businesses in europe. however consultation of small and medium sized enterprises in policy and law making remains low across the eu because small businesses and their employees are not always good at communicating. furthermore to be entrepreneur is a not so popular especially in comparison with other countries in other regions. in ceecs former central role of government in economical development has been replaced by an emphasis on the leading role of markets in stimulating development and the participation of the private sector. with lithuanian integration into eu, the lithuanian national economic growth policies have been revised according european model and lisbon agenda provides economic development guidelines. on another hand lithuania as other ceecs has specific aims – namely economical and social convergence with other eu countries and rapid economic development based on european and transatlantic integration processes. especially in this process is important fdi because it is the main driving force in economic growth. ceecs are competing for capital while they can not rely on domestic sources especially while transition period have not still finished and countries are still under pressure from outside factorswaves of immigrants to other countries, not mature enough political system, reforms in public sector, negative trade balance. competition for capital is unavoidable because it is impossible to loose it while winning means having billions of euros invested in local economies (kamar e.(2005), 32). but to keep the growth sustainable a state and its institutions should be active not only competing by providing low legal standards but as well have active policies: create monitoring system to find out outside factors as well changes in national market structure and to identify in due time danger and possibilities and to take necessarily actions. it is important to find out other competitive advantages then cheap labor costs and to create infrastructure for technological development and research, promote entrepreneurship culture. in lisbon agenda and in lithuanian national economic growth policies private law has been not prescribed as one of the major tools for economic growth. it could be noticed that legal dimension in eu economic policy as well in lithuanian national economic growth policies has been often neglected. but private law has been seen as being particularly important for economic growth and development in sets of recommendations from international organizations dealing with economical development – world bank, imf. first and foremost important for creation of market economy are stable and credible property rights, preferably private rather than common and adequately documented in order to create living capital. additionally a proper contract law regime and good commercial codes (including a corporate law that enhances capital investment by protecting investor rights and a bankruptcy law that enables fast exits of inefficient firms) are crucial. in addition, a credible tax regime with is important. especially with eu enlargement process, importance of europeanization of private law for economic growth should be acknowledged. european union legal order has created conditions for market economy, increased competition in ceecs. but european initiatives in private law field and economic growth policies are rather isolated from each other even then some of the elements expressly are correlated with each other. europeanization of private lawprocess perspective europeanization is rather the process coinciding with european integration but focusing rather on domestic issues of european integration. european integration has been described as activities and outcome of those activities of european institutions. european integration has certain unique features especially to be mention ambitions to participate in the process of the planning of the growth of economy. on another hand those activities of european institutions could infringe party autonomy principle but for small countries and ceecs without proper infrastructure for creation of competitive advantage, only public authorities could create conditions for economical growth by providing tools for european, national and regional economy players, due lack of traditions and eagerness to invest capital into long term projects. europeanization of private law is one of the elements of the europeanization and has been not only defined only by actions of eu institutions, but as well other actors as wellmember states, research institutes. one of the main reasons is that there isn’t any expressed competence in private law clearly attributed to eu institutions. that makes european private law system more flexible because strict hierarchy of legal rules could destroy system itself and could lead to unpredictable consequences. 30 issn 1822-8402 european integration studies. 2007. no 1 europeanization of private law should be not limited only by eu legal instruments but as well scholar initiatives and so called soft law rules. eu legal order is a peculiar one: it is torn between the constitutional and international levels. european legal order is dynamic from its nature and there is a variation between the effectiveness of eu legal acts. in comparison with european public law rules which have been discussed in society, and have been a part of general legal, political discourse, europeanization of private law has been neglected in the process of european integration, especially at first stages of it. europeanization of private law has been ignored despite a fact that european integration has economic dimension and namely private law rules insure proper functioning the common market. for example from a collection of community acts on european private law, which consist from sixty-five regulations and directives which primarily concern private law, only seven had been adopted before 1980 (basedow j. (2001), 37). additionally very often european private law has been characterized as having inconsistencies and technical deficiencies. that causes the implementation problems in the member states, which have a national legal rules characterized by general rules and principles. that makes european private law eu ad hoc, directed towards specific issues. so european private law rather is unsystematic and pointillist, and didn't change national private law systems; especially european private law is defined in core areas such as contract, torts, property and family law. systematization of private law one of the methods of europeanization of private law is systematization of private law. systematization of european private law into single source could foster and create identity in european union, similar to private law role in a state. furthermore if european private law would be not harmonized and systematized then the relationships between private law systems of the member states will be regulated by international private law. as well systematization of european private law could insure fair protection for the dispute parties because more reliable legal system would be created (basedow j. (2001), 37). technically it could be not so difficult to systematize european private law, because there are many identical legal principles, values in the member states private law systems, which can create necessarily conditions of possible convergence and systematization of private law rules. there are many similarities between private law systems of the member states, – substantive rights and remedies of private individual actors are approximately the same. as the research projects in private law area show, the outcome of the legal cases will be similar in most of member states. even the division into civil and common law countries doesn't play considerable role. furthermore member states private law rules to large extent has been affected, initiated by eu law and it definitely has been applied to large extent in national private law systems which gradually get the same features. main economical argument is that single source of the european private law could help to foster an internal market. to deal with europeanization of private law system through systematization of private law, european union institutions took several initiatives. for instance the european parliament in its resolution on the approximation of the private law of the member states called for work to be started on the possibility of drawing up a common european code of private law. furthermore in its resolution on the harmonization of certain sectors of private law in the member states, parliament urged the commission to begin work on the possibility of drafting a common community code of private law and encouraged creation of a committee of qualified scientists with partial harmonization in the short term perspective and more general harmonization in the long-term. in addition european council took position about the approximation of civil law at the extraordinary meeting in tampere of 15 and 16 october 1999 on the creation of a common zone of freedom, safety and justice within the european union. the commission in communication to the european parliament and the council in an action plan for a more coherent european contract law have foreseen practical measures of harmonization of private law. several instruments have been createdconsultations with member countries, mix of regulatory and non regulatory measures. on 11 july 2001 the european commission published a communication to the council and the european parliament on european contract law. those initiatives for systematization of european private law have similar pattern with systematization of private law in national private law systems. there are different options for systematization of private law in eu. it could be possible to systematize transnational issues of private law only, then it could be assumed that the community has competence in dealing with the outside world. competence in foreign affairs in international private law matters have been attributed to european community due to their relevance to internal market. but there is expressed fear that community competence especially in transnational issues only could create a threat to the functioning of other international organizations, because the community tries to impose its own regimes between the member states, even if it contradict to international initiatives but scholars 31 issn 1822-8402 european integration studies. 2007. no 1 dealing with europeanization of private law as a rule do not try to depict it as a set of new rules and principles and describe process of europeanization of private law as rather dynamic by its nature itself (joerges ch. (2003), 149). functional convergence one of the options for europeanization of private law is functional convergence of private law systems of the member states. reform of private law systems in ceecs wasn’t influenced by common european private law (remien o. (1992), 283). as a rule countries have chosen national private law system of the eu member states as a model for their private law system reform. so the functional convergence began during transitional period from command economy into market economy. on another hand the need of common european private law missed the right time for serving as a model in those countries (remien o. (1992), 283). lack of systematic source of private law in eu has been compensated by the ecj activities and the court has been using comparative method to fulfill the gaps in the treaty (bakker r. (1993), 334). currently newly admitted eu member states have seen their private law systems as one the symbols of the gained independence and as a tool for the competition for investments. there isn’t any consensus about the systematization of private law. firstly because it could be difficult at current level of european integration europeanization of private law especially in the form of european civil code because such competence has been not covered in eu treaty itself, or have been implicitly attributed to the competence of the eu institutions. one of the main legal arguments is that a european civil code would lead to stagnation of private law (kotz h. (1997), 55). furthermore there is subjective factor against systematization of private law in eu because diversity of laws could be more easily accepted by individuals, while it is difficult for individuals to have commitments over abstract and instrumental frameworks (hahn a. c. (2002), 282). additionally there is an opposition from the lawyers in member states, especially from common law countries. so english lawyers are rather critical towards european initiatives in private law field, civil lawyer takes a quite different view and sees these directives as the expression of a still embryonic european jus commune, after the model of justinian's corpus juris (jack a. (2001), 1). that shows that cultural divergences between european legal systems are simply unbridgeable (hahn a. c. (2002), 282). furthermore differences between common law and civil law don't allow convergence because even small differences can be essential, due different concepts and principles (collins h. (1997), 407). there is a cultural element in opposition against systematization of european private law. private law has been considered as part of a national legal culture and harmonization efforts could destroy or negatively affect national legal system. in addition the nature of private law itself is harmonization resistant, even when confronted with centrally imposed rules. one of the methods for functional convergence is a regulatory competition of private law systems, when as an outcome of competition the best rules will survive and would be transplanted from one country to another. various national private law systems interact with each other and that lead to convergence in european legal practice (jackson b. s. (1993), 29). discussions about regulatory competition are focusing on economic regulation, namely that regulation can be justified if it repairs market failures, and minimize regulatory costs (sun j.m., pelkmans j. (1998), 444), and the economics of federalismhow the federalism could foster and distort markets, and functioning of redistributive politics work in decentralized settings. but those studies have been not dealing with impact of private law to economical development. especially the distinction between competition for investments and competition using private law rules should be made. main difference is that competition for investments results not only copying of foreign law but as well formation of regulatory agencies and is not so widely used in eu (kamar e. (2005), p. 6). furthermore regulatory agencies could decrease a negative effect of competition of private law systems, then economic producers can use actual or potential movement abroad as a pressure tool on individual jurisdictions to lower domestic regulatory standards below what they would otherwise have been. company law perspective fdi as a rule have been made by transnational corporations. transnational activities of corporations have been addressed by several international organizations. the need for regulations in international level has been caused by rise to the bottom issue, when corporations get benefits from unregulated market. this process could produce undesired results for the world community. there are several international initiatives in this field, and the multinational companies’ behaviour has been regulated. so in paris based organization for economic cooperation and development (oecd) has promulgated a code of conduct for multinational corporations (i.l.m. 15 (1976), 969). additionally the united nations an international working group and the united nations centre on transnational corporations have adopted a code of conduct (horn n. (1980) 479). those initiatives have been characterised as soft law, which produces justificatory effect because one state can not claim that other state violated any rule of international law( soft law 32 issn 1822-8402 european integration studies. 2007. no 1 included) if it incorporated international law rules into domestic law order (seidlhohenveldern i. (1987), 13). additionally the soft law gradually is becoming part of legal customs (horn n. (1980), 14), which is one of the main sources of private law. the soft law has been used as one of the source in dispute settlement between countries. another element of company law regulation at international level is corporate governance. there is variety of legislations in corporate law field in different countries and corporations can choose such legislations which don't protect shareholders and creditors in order to misused company law for their own aims and especially for the benefit of managers. the justification of community institution activities in corporate law area have been based on internal market creation. eu initiatives especially in company law field are rather limited because too broad europeanization of private law in corporate law field could lack of justification. according expressed opinions the community should focus on core areas of internal market such as freedoms of movement of goods, capital, persons and services then to try reshape legal system of the member states. company law could be based on and freedom of movement of capital and freedom of establishment. there are several options open for eu regulation. one of the options would be to insure the common standards for functioning financial market. it could help to attract capital into companies then the same standards of disclosure, corporate management would be adopted. other way would be to go even further and create the unified standards for companies’ recognition to create common standards for companies creation. but it could lead to huge changes in legal system of member states because company law is tightly bound within a general bundle of public goods in a state. then specifically company laws would be altered, it could change the larger public structure in a state and cause some undesired social problems such as unemployment, since from all factors of production, capital is mostly movable. the key issue facing eu member states is to determine how much their company law can bend to allow for functional convergence, and how much formal convergence will be necessary to allow the jurisdiction to remain competitive for incorporations, yet offer protection to citizens operating under the older regime of the seat doctrine. there is opinion that competition of legal systems (barnard c. (2000), 57) will be better then a centralistic harmonisation, and introduction of european company law with common recognition standards. but as an outcome, companies will be free to move from one state (or country) to another, and they will choose for the state (or country) with the lowest standards (like in the case of american company law the state of delaware). the "home country control principle" will guarantee that this low standard will be exported from one member state to other to keep a company competitive. as a consequence of this competition eventually will evolve a uniform law of the lowest standard. this race to the bottom could arise then in a deregulated internal market, a state unilaterally lowers its social standards in an attempt to attract business from other states (barnard c. (2000), 57). but the competition of private law systems and competition in order to attract capital should be distinguished because in competition for capital it is possible to avoid the negative consequences of competition. conclusions lisbon agenda dealing with economic growth policies and europeanization of private law process are rather thinly correlated with each other. as history and comparative examples show private law could be one of the major tools in the economical development of the member states of eu (social, cultural as well). the analysis of europeanization of private law has been concentrated rather on the methods (systematization or functional convergence through competition of private law systems of the member states) then impact to economic growth. as a rule it has been argued that competition of private law systems could insure economic success especially to ceecs. but even competition of private law rules do not guarantee success in competition for investments and do not in every case lead to economic growth especially if the member states will not take any other measures. strict systematization of private law and attempts to draft single source of european private law could have even more negative effect to economic growth and push the business entities to invest capital outside of eu, and promote outsourcing to countries outside of eu and especially by increasing mandatory requirements. from the process perspective the both methods of the europeanization of private law should be used in limited extent in combination with each other. it could be desirable to let the member states to compete with each other using their private law rules. especially it could be useful for new eu member states to attract capital, to restore their business environment, which had been damaged by totalitarian regimes then all business decisions had been made by the state authorities. references baade h. (1980), the legal effects of codes of conduct for multinational enterprises in horn(ed.), legal problems of codes of conduct for multinational enterprises, bakker r. (1993), europeanization of law and lawyers v. national provincialism in legal 33 issn 1822-8402 european integration studies. 2007. no 1 education, in legal visions of the new europe: essays (ed. b. s. jackson and d. mcgoldrick) barcelona european council, presidency conclusion, 15-16 march 2002, on-line: http://www.consilium.europa.eu/uedocs/cms_da ta/docs/pressdata/en/ec/71025.pdf barnard c. (2000), social dumping and the race to the bottom: some lessons for the european union from delaware, 25 european law review 2000, 57-78. basedow j. (2001), codification of private law in the european union: the making of a hybrid, european review of private law, p.p. 1-41 collins h. (1997), the voice of the community in private law discourse, european law journal, vol. 3, no. 4, december 1997 commission communication to the council and parliament on european contract law: oj c 255, 13.9.2001; com(2001) 398; bull. 7/8-2001, online: http://www.europa.eu/bulletin/ en/200107/p104050.htm commission of the european communities, thinking small in an enlarged europe, communication from the council and the european parliament, brussels, 21.01.2003, com (2003) 26 final conclusions of the tampere european council: bull. 10-1999, on-line: http://www.europa.eu /bulletin/en/9910/i1011.htm education & training 2010; joint interim report of the council and the commission. on-line: http://www.europa.eu.int/comm/education/policie s/2010/doc/jir_council_final.pdf feira european coucil, the european charter for small enterprises, 19-20, june 2000 hahn a. c (2002), the harmonization of european private law systems and the role of comparative law, international journal of legal information horn n. 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(1966), european legal systems are not converging, 45 international and comparative law quarterly, pp. 52-81; lietuvos laisvosios rinkos institutas, europos sąjungos lisabonos darbotvarkės ir jos poveikio lietuvai įvertinimas, ekonominės ir socialinės politikos sričių integracijos poveikio analizė, online: http://www.lrinka.lt/projektai/lisabona.phtml neuhaus m. (2005), fdi: the growth engine in central and eastern europe in deutsche bank research, eu monitor, reports on european integration, july 13, 2005, no. 26, on-line: http://www.dbresearch.de/prod/dbr_intern et_de-prod/prod0000000000189108.pdf parliament resolution, on action to bring into line the private law of the member states: oj c 158, 26.6.1989 parliament resolution, on the harmonisation of certain sectors of the private law of the member states: oj c 205, 25.7.1994 remien o. (1992), illusion und realitaet eines europaeischen privatrechts, in jz, 277-284 pp. seidlhohenveldern i. (1987), corporations in and under international law, cambridge sun j. m. and pelkmans j. (1998), regulatory competition in the single market, in r. baldwin, c. scott, ch. hood, a reader on regulation, oxford, oup wai r. (2002), transnational liftoff and juridical touchdown: the regulatory function of private international law in an era of globalisation, columbia journal of transnational law 34 issn 1822-8402 european integration studies. 2007. no 1 245 issn 1822 – 8402 european integration studies. 2009. no 3 information about the article’s authors āboliņa ilze, ph.d. student; regional economics programme, faculty of economics, latvia university of agriculture,; working place: ministry of finance republic of latvia – eu funds managing authority āzena ligita, mg.sc.soc., higher school of business and culture, e-mail: ligita.azena@eka.edu.lv babelyte kristina, master of public administration; mykolas romeris university, 8 610 08139, kristinabab@ yahoo.com barynienė jurgita, phd student of social sciences, kaunas university of technology, institute of europe, +370 37 300140, jurgita.kersyte@ktu.lt barzev kiril, professor, scd, internal-combustion engines, university of ruse; e-mail: barzev@ru.acad.bg bavrina ludmila, mg.phil., phd stud, senior lecturer, baltic international academy (latvia); ict use and design in educational practice, pedagogical professional competence, esp curriculum design; phone: +371-2-26585834; e-mail: lbavrin@inbox.lv bratanov daniel, phd; robotics and crisis management; university of ruse; e-mail: dany@manuf.ru.acad.bg brunza andrius, master degree in social sciences (european studies, management and business administration), kaunas university of technology, institute of europe. e. mail: andrius.brundza@gmail.com čingule sanda, professional master’s degree in economics and business management, latvia university of agriculture, phone: +3530862546899, email: sanda.cingule@gmail.com daugėlienė rasa, assoc. prof. dr. of social sciences (management and administration), kaunas university of technology, institute of europe; e. mail: rasa.daugeliene@ktu.lt; phone: +370 37 30 01 39 gelžinytė dainora, master degree student; kaunas university of technology, institute of europe greblikaitė jolita, lecturer of institute of europe, kaunas university of technology; tel. +370 37 300139, e-mail jolita.greblikaite@ktu.lt ivanov veliko, professor, scd, resource saving technologies, rapid prototyping, tool and die industry yordanova daniela, economics, project management, labour market policies, sustainable development. university of ruse; phone +359 82 888 726; e-mail: dyordanova@ru.acad.bg jaku onoka ingrīda, dr. oec., professor, department of accounting and finances, llu, e-mail: ingrida. jakusonoka@llu.lv jankauskienė vilija, phd student of social sciences, vytautas magnus university, faculty of economics and management, department of finance, phone : +370 686 38123, e-mail: v.jankauskienė@evf.vdu.lt. junevičius algis, dr., assoc. prof., kaunas university of technology, institute of europe; kęstučio str. 8, kaunas; e-mail: algis.junevicius@ktu.lt; phone: (+370) 37-225216 kaupelytė dalia, ph.d. of social sciences, vytautas magnus university, faculty of economics and management, department of finance, phone : +370 686 19783, e-mail: d.kaupelyte@evf.vdu.lt; issn 1822-8402 european integration studies. 2009. no 3 246 keišs staņislavs, dr. oec., higher school of business and culture, str. lomonosova 1-1, riga, lv – 1019, phone: + (371) 27040011 keras antanas, dr., assoc. prof. science field – development of the information society. mykolas romeris university. tel. +370 5 27 14 571. email: antanas1k@yahoo.com keras valerijus, dr., assoc. prof. science field – comparative scientology; development of scientific technical programmes. mykolas romeris university. tel. +370 37 300 476 kirch aksel, professor for european studies, phd (sociology). tseba, tallinn university of technology. tondi street 55. +372 51 44485, aksel.kirch@tseba.ttu.ee; innovation and european society, social policy in eu university of ruse; e-mail: vivanov@ru.acad.bg kolev ivan, assoc. professor, phd; material’s cutting; university of ruse; e-mail: kolev@ru.acad.bg kreituse ilga, dr. hist., assoc. professor, riga stradiņš university; +371 67 409 161; ilga_kreituse@rsu.lv kriščiūnas kęstutis prof. habil dr. of technical sciences, kaunas university of technology, institute of europe; +370 37 30 01 37, e-mail kestutis.krisciunas@ktu.lt kuzenko marina, mag. oec., , phd student, scientific field: tax system and regional development, latvia university of agriculture (llu), phone +371 28810005, e-mail: marinak@neolain.lv liučvaitienė aušra – doctor of economics. department of enterprise economics and management, faculty of business management, vilnius gediminas technical university, sauletekio av. 11, vilnius, lithuania, phone: (370 5) 274 48 73; e-mail: ausra.liucvaitiene@vv.vgtu.lt marcinkevičienė rita, master degree in management and administration (european studies), kaunas university of technology, institute of europe; tel. +370 686 54973 melnikas borisas, habil. dr., professor and the head of the department of international economics and management of vilnius gediminas technical university, lithuania. science field and direction – international economics, management, european integration, transition processes, innovation management, knowledge-based economy creation; sauletekio 11, vilnius, lt-10223, lithuania, e-mail: melnikas@vv.vgtu.l mihejeva līga, dr.oec., latvia university of agriculture, faculty of economics, department of business and management, professor, +37163025170 mikulskienė birutė, assoc. prof. dr. of physical science; mykolas romeris university, 8 610 02511, birute. mikulskiene@mruni.lt mildeova stanislava, doc., csc., associated professor in filed of systems analysis, university of economics in prague, faculty of informatics and statistics, +420 224 095 474, mildeova@vse.cz mitev georgi, assoc. professor, phd; ecologic agriculture and water resources management; university of ruse; e-mail: gmitev@ru.acad.bg młodkowski paweł, ph.d. in economics, open economy macroeconomics, jagiellonian university, tel. +048 18-26-232-43, pawel_mlodkowski@tlen.pl nemcova ing. ingeborg, doc. csc., associated professor in filed of economic policy and european economic integration, university of economics in prague, faculty of international relations, +420 224 095 356, inge@vse. cz pilsuma vita, phd. stud. in economics, latvijas banka, +371 6702 2319, vita.pilsuma@bank.lv issn 1822-8402 european integration studies. 2009. no 3 247 priede jānis, m.oec., master of social sciences in economics, economics of entrepreneurship; university of latvia, faculty of economics and business administration, priede.janis@gmail.com. purlys česlovas, doctor of social science, associated professor, management, 3s, vilnius gediminas technical university, faculty of business management, tel 370 685373; www. vvf.sevk@vv.vtu.lt razauskas tomas, scientific interests: theory of economy; international economy and global relations; management of investment projects. vilnius gediminas technical university. phone no: 2663838; e-mail tomas. razauskas@vv.vgtu.lt rivža baiba, dr. habil. oec., latvia university of agriculture, phone: +37129254469, email: rivzab@cs.llu.lv samulevičius jurgis, associated prof. dr., department of social economics and management, vilnius gediminas technical university, science field and direction – innovation and foreign investment in developing countries, knowledge economics and management, eu economy, itc and digital economy, ph.: +37052744875, e-mail: jurgis.samulevicius@vv.vgtu.lt saulāja inese, mg.oec., latvia university of agriculture, faculty of economics, department of business and management, lecturer, phd student, +37126592655, inese.saulaja@llu.lv siliņa linda mg.oec.,lecturer, indicating science field is structural development of agricultural, latvia university of agriculture, faculty of economics department of entrepreneurship and management, phone +37129462090, linda.silina@llu.lv stankevičienė asta – assoc. professor. department of enterprise economics and management, faculty of business management, vilnius gediminas technical university, sauletekio av. 11, vilnius, lithuania, phone: (370 5) 274 48 73; e-mail: asta.stankeviciene@vv.vgtu.lt svarinskis leonārs, dr. oec., prof., rēzeknes augstskola, +371 6462 3709, ra@ru.lv. šimelytė agnė – master of industrial engineering. department of enterprise economics and management, faculty of business management, vilnius gediminas technical university, sauletekio av.11, vilnius, lithuania, phone: (370 5) 274 48 73, e-mail: agne.simelyte@vv.vgtu.lt škapars roberts, dr.oec., professor, economics; university of latvia, faculty of economics and business administration, head of department of national economy; +37167034768, roberts.skapars@lu.lv. šniukštaitė barbora,, master degree student; kaunas university of technology, institute of europe email: b.sniukstaite@gmail.com; phone: (+370) 60108159 špoģis kazimirs, dr.habil.agr., indicating science field is agrarian economics, risks in agriculture and other, latvia university of agriculture, faculty of economics department of entrepreneurship and management, phone +37163023773, efdok@llu.lv tilta elga, dr. oec., institute of economics of latvian academy of science, elga@economics.lv timoshtchenko julia, dr.sc.ing, as. professor, baltic international academy (latvia); ict use and design in educational practice; phone:+371-67100242. e-mail: julija.timoscenko@bsa.edu.lv vikmane elina, phd stud., riga stradiņš university, +371 26 456 456; elina.vikmane@gmail.com vītola solvita, mg. paed., assistant professor, school of business administration turima, solvita@turiba.lv zvirgzdiņa rosita, mba, lecturer, school of business administration turima, rosita@turiba.lv 176 issn 1822 – 8402 european integration studies. 2009. no 3 theoretical possibilities of expression of innovation in tourism sector: the case of scotland and slovenia rasa daugėlienė andrius brundza kaunas university of technology, institute of europe abstract tourism is one of the largest and most perspective branches in the world economy. european union (eu) ranks as first in the world and accounts 57, 8 percent of the world tourism market due to its unique tourist’s objects and products differentiation as well as cultural and historical distinction of each country. enlargement of eu extended markets and range of tourism services, thereby eu tourism sector went in higher and more sophisticated level of competition. expanded tourism market provides together threats and opportunities for members of eu. to turn threats to opportunities is important to form tourism sector in innovative and effective way, to employ innovative methods and knowledge. thus could secure tourism sector tight competitive positions in world economy, to encourage development of the member’s infrastructure. fast changing market’s environment is causing the specific requirements for countries towards development of tourism sector. however there is lack of findings how innovative initiatives and activities displays in tourism sector of eu countries. the formed preconditions allow revealing scientific research problem of this article: how entrepreneurial characteristics reflect in slovenia and scotland tourism sectors? the aim of the article is to highlight reflections of entrepreneurship characteristics in tourism sector, trying to determine level of innovation in tourism sectors of slovenia and scotland. there were systemized approaches of tourism system and models, as well as perception of innovation was developed in the article. as the conclusion of this analysis model of tourism system and perception of innovation were highlighted and explained. seeking to solve scientific problem and to reach the aim, entrepreneurship characteristics were crystallized in the article. the article stresses that the main elements of innovative tourism sector are proactivity, dynamism, creativity and social responsibility. as it is highlighted in the article, handling of mentioned features in various ways could signally promote development and growth of tourism sector. hypothetical model of tourism sector based on innovation was presented and explained. analyzing of the good practice in tourism sector of chosen eu countries – scotland and slovenia, there were pointed the main aspects and the key factors, building tourism sector based on innovations. matrix of comparison of entrepreneurship characteristics of chosen eu members was presented. there were analyzed differences of innovative features in different states in order to form comparable model of innovative features, observable in slovenia and scotland. conception of formed model allows applying it as a case of good adaptable practice. innovative development of tourism sector could be significant step towards stable expansion of eu, social cohesion, creation of knowledge based society. keywords: tourism sector, tourism system, innovations, entrepreneurship, entrepreneurship characteristics. introduction tourism is one of most important economic sectors in case of effective and sustainable building of eu. tourism sector efficient contributes social cohesion of europe 1. researches of scientists (shackley, 2007; page, connel, 2006; cooper, 2006; troobof, 1995; goeldner, 2003; fletcher, 2006; holden, 2003; svetikienė, 2002; grebel, 2004; gilmore, 2003; laws, 2003; seaton, lenehan, harrington, langer, 1996) proved that tourism sector is resistant to negative changes of economic situation, because market orients toward cheaper consumption during the economic crisis. in that way, tourism sector warrants economic and social stability of the state. 1 european committee of economics and social science issn 1822-8402 european integration studies. 2009. no 3 177 tourism sector is not just profitable and economically essential in case of eu formation, but either closely concerned with many other facets of economy and socioeconomic environment. tourism weighty contributes to social cohesion, increase of employment, stable development. tourism sector plays essential role in integration process of eu. tourism sector of eu have strong positions considering of high competition in global market and is warrant of stability. enlargement of eu extended markets and range of tourism services, thereby competition among corporations in tourism sector increased either. companies of tourism sector needs to assume measures to reinforce positions of tourism sector, of eu in global market. one of manner’s to reach this goal is use of innovative instrumentality and methods. scotland and slovenia are states, where tourism sectors and tourism services are formed in innovative and effective way. this way secure scotland and slovenia tourism sectors durable competitive position in context of eu. moreover, such movements help to assimilate economic and social benefits, what significant faces in society needs. good practice and experience of tourism sectors of scotland and slovenia is solid pattern on purpose to improve less developed tourism sector. either mentioned way generates potential guideline to shape comparable model of adaptable good practice. such model is based on effective exploitation of tourism potential, expansion of services variety, implementation of innovative services and increase of competitiveness. considering above mentioned aspects the research problem being solved in this article should be constructed: how it is possible to highlight the expression of innovation in tourism sector? the object of the research is the expression of innovation in tourism sector. the aim of the article is to highlight the possibilities of expression of innovation in tourism sector, trying to construct comparable model of good practice, based on innovative and entrepreneurship experience of slovenian and scotland tourism sectors. to achieve this aim three tasks are to be solved: to highlight innovation characteristics in tourism sector. to execute analysis of innovation characteristics in tourism sectors of scotland and slovenia. to compose patterns what can be used as  comparable model. theoretical analysis of the scientific works, and practical papers in this field was taken as the research method. theoretical analysis of expression of innovation characteristics in tourism sector tourism is human activity which encompasses human behavior, use of resources and interaction with people, societies, economies and environments (holden, 2003). main aim of tourism as part of business pattern (seaton, lenehan, harrington, langer, 1996) is to satisfy wants of tourists. tourism is a sophisticated system where tourists, geographical elements, business subjects of tourism are integrated and forced to interact with miscellaneous environment. such conception of tourism, have economical reflection, because of involvement of business subjects. conception of tourism is based on economical characteristics as follows (jusčius, 2001): tourism is based on humans needs to travel in various routes; tourism always consist two basic principles: travel to the desired destination and stay; travel means departure from country or region, where tourists permanently lives; tourism is temporary movement of individuals, who are using tour (subsequently tourist come back to the native residential place). these tourism describing characteristics are closely integrated with business layers and compose a system, where tourism product is on offer. the fact that a tourism product is analyzed as en economic category is determined by various reasons (jusčius, 2001): tourism product is a trade object; its consumption provides certain social and economic benefit; due to the supply and demand of tourism product, and the specific character of the elasticity of demand and supply. to highlight economical aspect of tourism product, this phenomenon could be realizable in two different ways: as package of services and as combined package of services and material goods. how to define conception of service? langvinienė (2005) characterize service as assistance, favor, gain. service is defined also as that, what could be buyable and saleable, but is not substantial (vengrienė, 1998). according to gilmore (2003) service is outcome of economically valuable activity, transformed into two different shapes – good‘s and (or) activity’s. service is also conceptualized as multi-staged phenomenon: service is an activity, which meets the requirements of consumers and its consequences don‘t contain tangible benefit; key factors are supplier and consumer, independent participants of this process (vengrienė, 1998). according svetikienė (2002) service is an item, when production and consumption proceeds simultaneously; purport and quality of item depends on provider of services, consumer and other circumstances. summarizing statements mentioned above, there were crystallized fundamental features of service, coherent to economical perception: activity reflected in trade (buy/ sale); results of activity meets requirements of consumers (they are independent); it could have tangible (goods) and intangible shapes. tourism product is whole of goods and services, which should meet consumer’s requirements all tour long (page, connel, 2006). more extensive tourism product is defined according svetikienė (2002) – tour comprised issn 1822-8402 european integration studies. 2009. no 3 178 of package of services, wherein tour consist of tourism resources (sights of nature, culture, history and etc.) and services of tourism industry. combination of mentioned conceptions highlights versatility of tourism product. page, connel (2006) notes that tourism product consist of 3 elements: tour, tourist services and goods. important to perceive that tourism product should meet all the requirements of consumer substantially, not separate. as a consequence of scientific literature analysis there was definition of tourism product crystallized: tourism product – is a package of products and services, which is provided by service provider for consumer (tourist), to meet his requirements during tour. tourism system. tourism is complicated, abstruse and rapid developing system, which make influence on various industries. tourism is business and provides specific services for tourists. it is branch of industry, comprised of various branches and various activities, which provides tourists services (bagdzevičienė, 2001). hopenienė (2005) focuses on more business orientated approach: tourism is complicated social-economical system, where strong point is multibranchional complex set, within activities of tourism organizations and intermediaries; pointful management generates presumption of formation of differential tourism products for particular markets and consumers. holden (2003) similarly highlights social feature of tourism system – important to perceive tourism as a system, where business organizations, tourists, as well as societies and environment are incorporated. in conformity with svetiekienė (2002) tourism system is interpreted as a system of elements which are essential for effective functioning of it. they are: tourism subject – tourist – who travels in host  country or abroad and have specific needs: cognitive, professional, business, ethnic, cultural, recreational and etc. he stays for one night out. tourism object – tourism companies, who provides  various services, as tour organization, hospitality, transportation, information and meets other needs of tourists. environment of tourism surroundings: natural  and cultural resources, social, economy and administrative issues. laws (2003) presented the tourism system where heightened environmental perspective is included (holden, 2003). laws (2003) model incorporates a range of different elements which together form the tourism system. important inputs to the system from an environmental perspective include natural and human resources, the use of which are encouraged by both consumer demand in the market system for tourism, and government policy aimed at increasing entrepreneurial activity and inward investment in the sector. within the overall system, three distinct subsystems are recognizable, all of which overlap and are interrelated. incorporated in the subsystems are the businesses that have been developed to cater primarily for tourists, such as tour operators, international hotel companies, global airlines, and locally owned tourism enterprises. the outputs of the system suggest that tourism will bring environmental and cultural changes. these changes illustrate the dichotomy of tourism in the sense that they can be either positive or negative. tourism can both conserve and pollute physical environment, whilst it can also bring positive and negative cultural changes, such as employment opportunities for woman or result in woman being forced into prostitution. similarly it can create economic opportunities for communities but also can result in an economic overdependence on tourism and encourage price inflation. another output of the system, which is essential for ensuring the profits of enterprises based upon tourism and helping to secure the economic benefits desired by governments, is tourism satisfaction (holden, 2003). economic, technological and political changes can also influence tourism by making it accessible to a wider proportion of the population. for instance, rising levels of disposable income, longer holidays, and greater political freedoms will all encourage travel. media and information technology developments have made more information and images available about potential tourism destinations. increasing access to, and use of, computers means it is possible to book airlines seats and holidays directly from the computer, facilitating travel (holden, 2003). in models of laws (2003) and svetikienė (2002) tourism systems clearly are highlighted subsystems and influence of the environments. though laws (2003) do not crystallize subject and object of the tourism system, what are basic elements of system. several shifts and adaptation of systems from other scientists (goeldner, 2003; fletcher, 2006; damulienė, 2003) were made and new hypothetical model of tourism system was designed. model of tourism system is presented in fig. 1. providers of tourism services consist of two subsystems: transport and hospitality. transport subsystem is comprised of entire units, who are related to carriage of passengers in three ways: water-, landand air transportation. such subsystems are vital to generate and meet all needs of tourists. tourism retailing subsystem, composed of travel intermediaries, is mediate link between providers of services and tourists. it links providers of tourism services with final consumer. mentioned services could be provided directly to the customer, bypass services of intermediaries. while services of private and public sectors, maintain activities of mentioned subsystems. to conclude, according hopenienė (2002), system of tourism business is network of collaboration, where independent, closely related tourism business units compete. according jusčius (2001) tourism as business consists of tourist profile organizations (hotels, catering, tourism enterprises and etc.). issn 1822-8402 european integration studies. 2009. no 3 179 transport subsystem global airlines locally owned bus and car companies water transportation tourism retailing subsystem travel intermediaries: agents and operators t o u r i s t s supporting services of private sector guide services; travel insurance and financial services; organization of travels; services of information and publishing; private scholastic institutions. supporting services of public sector infrastructure e.g. roads and airports; regional and national tourism organizations; institutions of education; institutions of national parks and culture objects; architectural and historical monuments; passports/visas issue services. p ro vi de rs o f s er vi ce s hospitality subsystem hotels, guest houses, sanatoriums, holiday camps, agro tourism, power supply, recreational facilities, events fig. 1. hypothetical model of tourism system (adapted according to goeldner (2003); fletcher (2006); holden (2003); damulienė (2003); svetikienė (2002)) innovation (entrepreneurship) characteristics. innovation is a process, driven by innovative solutions, or development and adaptation of existing for modern preserves. according grebel (2004) innovation it is novelty, implementation of recency, renewal, transformation. innovation (martinkus, 2006) is integrated creation, development, global distribution and effective usage of innovations in various fields. the main, specific elements and essential features of innovations are: generation of new ideas; implementation of ideas in creature process of  items and services; innovations are a key factor to emerge in economics  employment and competitive ability. tourism, as industry, is preferable to perception of innovation, where this phenomenon is defined as creation of new products, installation of new technologies, preparation of organization and methods of modus operandi. according fache (2000) innovation is whole of technological transformation, where completely new methods or inputs are used for creation of new services and products. innovation is a phenomenon consists of generation of new ideas and their shift to new products, services, process, what could be an impulse for dynamic growth of economy and employment (jones, 2003). innovation without marked and useful success on market cannot be named innovation (cumming, 1998). proper definition correlated with tourism system, in case to create tourism system based on innovative features, is proposed by ahmed (1998) – even if innovation cannot be touched, heard or examined, it will be always perceptible. dynamism is one feature related to phenomenon of innovation according to kri čiūnas (2007). dynamism is connected with agility, variability, and efficiency of entrepreneurial enterprises transferring and using new knowledge. dynamism of business may be described as such category as business mobility, which is business potency to change, to renew, to change the forms and spheres, to develop and to be more effective. social responsibility of the organization enforces the representatives of business to be responsible for their activity and made decisions. society wants business to be social responsible and many business organizations schedule social aims in their activity. an organization must be responsible for making decisions of social, global and ecologic problems (kri čiūnas, 2007). though there is no single accepted definition of innovation phenomenon, it could be consistent pattern and common features defined. innovation is perceived as new, creative mentation, designed for changes. it is an attempt to shift “status quo” with improved, efficient, modernizing vision of the future. phenomenon must be in lead by success. other vital features of innovation are efficiency, utility, and meet of consumer requirements, social responsibility and dynamism. innovation in business sector creates activity named entrepreneurship. morrison (2006) defines this phenomenon as process of mixed multidiscipline and dynamic factors, where particular combinations are reliant to characteristics, competence and abilities of entrepreneur and surrounding environment. schumpeter (1998) highlighted key factor of entrepreneurship – innovation. according schumpeter (1998) innovation is one of most difficult goal for entrepreneur. attention was paid to efficiency of production; task for entrepreneurs is to develop engine of effective production process. such perception highlights novelty and innovation, what are integral parts of entrepreneurship. disclosed linkages are a key to point an importance of innovation in economy and their occasions to develop. freel (2003) notice, that success of entrepreneur is based on factors as follows: he have vision of the future, what could occur; he knows how to introduce himself and his ideas; issn 1822-8402 european integration studies. 2009. no 3 180 he recognizes his advantages and weaknesses, and  hidden talent. entrepreneurship is a process, when individuals seek to use occasions at the maximum, even if they don’t have enough resources in the mean time (timmons, 1990). as a consequence of what was mentioned above there were crystallized 4 features of innovation (entrepreneurship) assuming the risk, creativity, independence, and reward. recently, noticeable changes in global tourism sector force its units to specialize their activities. though the rapid development of technologies and globalisation customers of tourism sector are more informed and sophisticated. thus provides greater opportunities for customers in negotiation with providers of tourism services. therefore tourism sector necessarily must transform its profile in cooperation with innovations, e.g. design of new products, services, dvelopment of modern presentation methods of country and etc. essential features of innovative tourism sector for effective functioning are (fig. 2): proactive activities, generation and implementation  of modern ideas in tourism sector e.g. at business and at national level. new and risky ventures, events, projects and other activities are pointed to promote creation and spread of tourism product; creativity on purpose to diversify tourism product  and his principles; social responsibility, where dialogue between  tourism sector and society is important, on purpose to assume responsibility and obligations of prosecuted activities and their results; dynamism, what is knowable from accelerated  potency of changes, renewal, development, efficiency. innovation (entrepreneurship ) characteristics in tourism sector proactivity dynamism creativity social responsibility fig. 2. entrepreneurship characteristics in tourism sector reflection of innovation characteristics in tourism sectors of scotland and slovenia in the above presented chapter there were highlighted 4 innovative features, shaped for tourism sector. appliance of mentioned characteristics in tourism sector is vital, keeping in mind constantly global changes of economical conditions, on purpose to restructure tourism sector in various ways. often an implementation of this goal is based on innovation, progressive ideas, modern methods and instrumentality. it is important to stress that all countries differ markedly in different fields and that should be calculated analyzing particular cases. to achieve goal of research crystallize main reflections of innovations in scotland and slovenian tourism sectors, review of innovative features of tourism sectors in mentioned countries will be performed. innovation (entrepreneurship) characteristics of scotland tourism sector. the tourism innovation group2 (tig), formed in 2002, is a private-sector led group, which aims to stimulate tourism operators into taking action to add to the quality, scope and success of tourism businesses, improving scotland’s competitiveness in tourism markets. tig comprises an active membership of over fifty businesses, representing a cross-section of tourism operators and entrepreneurs. main goal of tig is development of competitive abilities of scotland tourism sector worldwide. to achieve this goal, innovative and effective cooperation between diverse market shares, by assuming responsibility, is the main task. tig seeks to stimulate stable development of tourism business, worldwide. tig is a tourism cluster, where diffusion of good practices appears. an outcome of cluster’s activities is rise and spread of high quality commodities and services. tig is funded by key stakeholders in the scottish tourism sector: scottish enterprise, main agency of economic  development; highlands & islands enterprise; offers  miscellaneous assistance for business start up, or business improvement, via consultations, e-business solutions and other innovative actions; visitscotland, main website of national scotland  tourism organization; provides information about events and topicality of tourism sector. tig aims to innovative, to collaborate and grow the tourism economy. essential tasks could be highlighted: identification of strategic problems; stimulation of innovations in industry; incubation, preparation and implementation of specific projects; maintenance of innovations in public sector/industry; organization of meetings, discussions, events in public-business level, on purpose to support diffusion of knowledge and good practice. through active and modern activities of tig in economical system, tourism sector of scotland is constantly under the renewal, while innovative ideas are successfully implemented. reflections of innovative features in tourism sector of slovenia. main organization, which coordinates and supervises tourism sector in slovenia is directorate for tourism3. it operates as independent directorate within 2 tourism innovation group [online]: <http://www.tourisminnovation.com/index.html>. 3 slovenian directorate for tourism [online]: <http://www. mg.gov.si/>. issn 1822-8402 european integration studies. 2009. no 3 181 the ministry of the economy. the directorate has two parts: tourism development and promotion division and division for investment policy and business environment development. main areas of work are: participation in international organizations and groups in the field of tourism; guiding and participating in the development of a favorable business environment for the development of tourism and catering; preparation and coordination of the production of analyses, reports, information and other material in the field of investment policy and business environment development. development plan and policies of slovenian tourism in 2007–2011 is basic strategic document of slovenian tourism system. during this strategic period, the basic strategy aims at strengthening mutual links and cooperation in common planning, designing and marketing slovenian tourism according to principles of public-private partnership at all levels, from local to national, and at strengthening excellence in all fields and at all levels of slovenian tourism. slovenian tourist board4 (stb) is non-governmental organization. stb is a major national tourist organization for: planning and performing the promotion of slovenia as a tourist destination; linking the existing products and programmes of national importance and advancing the progress of new ones; establishment of the integral tourist information infrastructure; executing research and development work. whole of representative information about slovenia is presented in official website in two poles: on one pole – tourist information, e.g. tourist attractions, catering and etc.; on second pole – business information. such system enables entrepreneurs fast to find proper information about conditions of slovenian tourism sector and business possibilities, for instance, segments about research and development, where information about market research, statistical data, tourism marketing of slovenia is presented. national tourist association5 (nta) plays essential role in slovenian tourism system. the main aim of nta is to promote tourism in slovenia as its strategic developmental opportunity. the association performs activities of public interest in slovenia and abroad. members of nta are companies, organizations and individuals that have applied for membership of their own free will and are directly or indirectly engaged in tourism. nta members include: over 100 leading slovene companies operating in the field of tourism; over 200 renowned individual members; a number of collective members – tourist societies, agencies, hotels, casinos, ski lift and cable car operators, farmers who offer tourist accommodation, managers and caretakers of points of interest including caves, castles, caterers, private innkeepers and professional colleges and high and schools for catering and hotel trade. 4 slovenian tourist board [online]: <http://www.slovenia. info/>. 5 national tourist association [online]: <http://www.ntz-nta.si/>. international tourism institute (iti) provides services of professional research work in the field of tourism. iti develops research methods, implements programmes of tourism statistics, analyses economic and social problems and brings scientific, professional approach of treating problems in tourism into force. the institute develops education and training programmes in tourism, collects professional literature and statistic data and strengthens international scientific and professional cooperation in tourism. the main fields of work: basic and methodological research; international development projects and strategies in the field of tourism, tourism and cultural development, education, the use of alternative sources of energy, and the use of information technology in tourism; marketing strategies and analyses and entrepreneurial counseling, slovene national projects and development strategies for tourist destinations; promoting high-quality excellence in tourism. marketing agency polikons ltd. is a sample of iti activities. while marketing, together with information, communication and promotion assistance is prevailing in tourism to assure the right position, market enforcement and successful selling, polikons ltd. implements such kind of projects. main activities of polikons ltd. are projects of strategic and executive marketing, planning, and market positioning and trading of integral tourist programmes, establishment and activity of consortiums, target actions of market communications, development of guest relations and programmes of internet communication. mostly the projects are of national importance. local and foreign experts cooperate at these projects with their knowledge, international experiences and up-to date technical support. the tourist association of slovenia6 (tas) is voluntary, nonprofits, and interest based, non-governmental and non-political national association, consists of tourist societies, municipality and regional unions and other associations, junior tourist societies, tourist information centers. the goal of the tas is to take active part in tourism, together with the private and public sector and to maintain its position as an equal partner. the activities of the tas help the national tourism to be effective, the gdp growth, public awareness and promotion of slovenia as the green oasis of europe. the tas holds regular staff meetings, press conferences, counseling, workshops, festivals, evaluations, round tables, forums, polls and lectures, seminars, and other forms of education. the tas works hand in hand with the ministry of economics and other ministries, the chamber of commerce of slovenia. takes active part in the council of the rs government for tourism and collaborates with the parliament of slovenia. 6 tourist association of slovenia [online]: <http://www. turisticna-zveza.si/english.php>. issn 1822-8402 european integration studies. 2009. no 3 182 results of executed analysis and review of procedures, principles, activities and initiatives within tourism sectors of scotland and slovenia compose background of exertion of innovative features. whole in previous chapter highlighted innovative features reflects in both countries. formation of model of good tourism sector practice analysis of scotland and slovenia tourism sectors exposed, that either is based on innovative features and activities. it could be stressed that there are tight linkages between both countries innovative elements observable in both tourism sectors. basic common points of proactivity are: spread of innovative knowledge, effective system of good practice exchange, publicprivate partnership. creativity, as innovative feature, reflects in following common ways: promotion to develop innovative tourism products and services, research and analysis of tourism market, creation of interactive guides and strategic programmes. dynamism appears in both states in such common forms: quality development of tourism products and services, development and appliance of modern technologies in tourism sector, fast system of information distribution. preservation of natural resources and nature, establishment of ecofriendly business, creation of “green” tourism products and services, development of public-private networks are main general factors how social responsibility is implemented in scotland and slovenia. summarizing statements mentioned above, resume of provided analysis of reflection of entrepreneurship characteristics in scotland and slovenia tourism sectors is presented in table 1. presented model is a key factor not only to compare exertion of innovative features of scotland and slovenia, but either can be used as a model of good adaptable practice. table 1. comparable model of innovations’ features of slovenia and scotland tourism sectors slovenia scotland innovative features ways of innovative features reflection supervisor ways of innovative features reflection supervisor proactivity • process of clusters formation; • collaboration in tourism sector; • interchange of good practice; • search for international partners; • tourism directorate; • national tourist association; • slovenian tourist board; • share of innovative knowledge; • collaboration of business and public sectors; • takeover and share of good practice; • tourism innovation group; creativity • development of tourism services and commodities; • market research and analysis; • creation of national strategic programmes; • international tourism institute; • polikons ltd.; • creation of interactive guides; • maintenance of innovations; • stimulation of innovations; • tourism innovation group; dynamism • adaptation of international standarts and criterions; • development of tourism business and modern technologies; • development of high quality tourism services and commodities; • national tourist association; • tourist business units; • quick and instant system of information distribution; • contenplation of innovative ideas and support of their share; • tourism innovation group; social responsibility • solution of global, ecological, social problems; • creation of environment friendly commodities and services; • preservation of clear and pure nature; • tourist association of slovenia; • establishment of stable social networks between societies and business units; • creation of environment friendly services and commodities; • stablishment of environment friendly business; • tourism innovation group; conclusions there were systemized interpretations of tourism system conceptions. innovative features were highlighted. independence, satisfy a tourist wants, multiplex linkages between tourism business units are core elements of innovative tourism sector. crystallized innovative features are: proactivity, what is perceived as generation and implementation of modern ideas, new and risky ventures, events, projects and other activities; dynamism what is knowable from accelerated potency of changes, renewal, development, efficiency; creativity on purpose to diversify tourism product and his principles; social responsibility, where key factor is to create dialogue between tourism sector and society. national tourism system should be developed and based on use of mentioned innovative features, on purpose to enhance their positions of competition in eu and global markets, and adapt to fast developing economic conditions. analysis of scotland and slovenia tourism sectors exposed, that either is based on innovative features and activities: spread of innovative knowledge, effective system of good practice exchange, publicprivate partnership (proactivity); promotion to develop issn 1822-8402 european integration studies. 2009. no 3 183 innovative tourism products and services, research and analysis of tourism market, creation of interactive guides and strategic programmes (creativity); quality development of tourism products and services, development and appliance of modern technologies in tourism sector, fast system of information distribution (dynamism); preservation of natural resources and nature, establishment of eco-friendly business, creation of “green” tourism products and services, development of social public-private networks (social responsibility). from presented findings were formed comparable model of reflection of innovative features in tourism sectors of scotland and slovenia. this pattern could be used as model of good practice. references ahmed, p.k. culture and climate for innovation / european journal of innovation management / mcb university press, 1998. vol. 1. no. 1. p. 30–43. bagdzevičienė, r. pagrindiniai turizmo industrijos 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economic growth and the unimpeded functioning of the market. neoliberalism promotes a market-driven society where every person is a homo economicus. in competitive markets, the rational decisions of utilitymaximising consumers and profit-maximising producers will lead to market equilibrium. since 1992, the development of the estonian economy has been guided by neoliberal economic policies. decision-makers and policy-shapers tend to measure good business environment with the extent to which neoliberal policies have been implemented. however, estonia’s exceptionally high economic growth rates have not been matched by substantial improvements in the quality of life. although its economic development has been impressive from a production-oriented point of view, from a peopleoriented perspective the achievements have been much more modest. it seems that corporate welfare has replaced social welfare as an economic objective. the purpose of this paper is to critically analyse neoliberal economic policies and to demonstrate their adverse socio-economic effects in estonia. this article addresses the issue of growth versus development. keywords: neoliberalism, estonia, regional development, income inequality. introduction since estonia regained its independence in 1991, it has undergone a triple transition – a significant economic, political, and social transformation. the estonian soviet socialist republic with a totalitarian one-party system became the fully independent estonian state governed according to the principles of pluralistic democracy. the centrally administered planned economy has been transformed into a market economy (gros and steiner, 1995). estonian decision-makers and policy-formulators alike have been diligently following the advice of international financial institutions, such as the world bank and the international monetary fund, which advocate supply-side considerations of growth, since the country’s regaining of independence in 1991. these institutions view policies aimed at boosting demand as unsustainable due to their inflationary effects and the threat of increasing indebtedness (ingham, 1995). the policies of such international institutions strongly reflect neoliberal thinking with its focus on the supply side. the economic crises of the 1970s marked the decline of the dominance of keynesian macroeconomic policies and the emergence and implementation of neoliberal economic policies with the goals of liberating corporate power by introducing market reforms, including wide-scale deregulation and privatisation. today international financial institutions as well as academic circles tend to measure good business environment with the extent to which neoliberal policies have been implemented (harvey, 2005). however, the achievements of neoliberal economic policies have been very modest at best. whereas global economic growth rates averaged 3.5 percent in the 1960s and 2.4 percent in the 1970s, it subsequently decreased to 1.4 percent in the 1980s and 1.1 percent in the 1990s (harvey, 2005). in estonia, the high economic growth rates do not seem to be accompanied by similar improvements in standards of living. in 2000, average life expectancy at birth was the same as in 1980 at 65.4 years, the lowest in europe (eurostat). by critically analysing the nature of neoliberal economic theory this paper will show that the transformation of the estonian economy along 42 neoliberal economic policies has had adverse socioeconomic consequences. a brief history of the role of the state in economic thought discourse on the role of government within the economy is as old as economic thinking (samuels et al., 2003). throughout history, the state has never been prescribed such a minimalist and hands-off role as in neoliberalist thinking. initially, economics was a branch of philosophy with a focus on the prerequisities of a ‘good life’ (o’bien, 2003). in ancient greece commercial activity was frowned upon, it was considered a ‘necessary evil’ to ensure a reasonable standard of living. the governing authorities placed strict restrictions on commercial dealings. restrictions included prohibition of lending at interest and statutory price fixing. both aristotle and plato strongly advocated the regulation of economic activities (medama, 2003). the scholastics in the middle ages looked at commercial activities from a christian moral perspective, considering the ‘economic problem’ more favourably than aristotle and plato but still sinful. although lending at interest was still supported by the early scholastics, such as st. thomas aquinas, interest was to be seen gradually as the opportunity cost of lending. price controls were deemed necessary in order to minimize the adverse effects of the business cycles over the purchasing power the population. both the greeks and the scholastics viewed the promotion of self-interested behaviour incompatible with moral values thus requiring government intervention to minimize its harmful effects (medama, 2003). mercantilist thinking was similar to that of the greeks and the scholastics. in their view uncontrolled pursuit of individual self-interest would be against national interest. excessive consumption of both domestic and foreign goods harms the trade balance and the nation’s stock of precious metals by increasing the price of domestic products and increasing demand for import. economic policies were evaluated by their effect on the stock of precious metals of the nation. they included such measures, as import restriction, export promotion, protection of certain industries, subsidies to motivate workers to relocate to the industrial centers and providing enough currency to maintain national economic activity (medama, 2003). unlike earlier economic thinkers, the classical economists held a consumption-oriented view. selfinterest was no longer deemed harmful, but beneficial for society. they regarded the role of the state as a facilitator of national wealth accumulation. the government’s role was to promote national welfare and provide those institutions that cannot be provided by the private sector. classical economics was not entirely laissez-faire; the pursuit of self-interest was to be channeled by a system of laws and regulations so that it would contribute to social welfare (medama, 2003). the classicals were opposed to monopoly, and the regulation of prices as well as production. however, they were in support of the formation of trade unions, the public provision of medical care, and the regulation of prices charged by public utilities. great emphasis was based on the ‘coincidence of private and public satisfaction’ (o’bien, 2003). the years following word war ii brought along a ‘new world order’ based on a compromise between capital and labour. policy-makers were greatly worried that the demobilization of millions of soldiers would lead to a postwar recession, which they were ready to fight by stimulating demand. the beveridge report (1942) in great britain and the employment act (1946) in the united states served as blueprints for government intervention in the economy based on keynesian principles (hoover, 2003). new institutions, such as the united nations, the world bank, and the international monetary fund were founded with the objective to stabilize international relations. the general agreement on trade and tariffs rounds of negotiation were aimed to encourage free trade of goods. in the bretton woods agreement a system of fixed exchange rates were established with the us dollar as the global reserve currency. the goal of the government was to provide full employment, economic growth, and social welfare (harvey, 2005). macroeconomic policies were designed according to the principles of keynesian fiscal and monetary policies. keynes’s conceptual framework was based on an aggregative analysis that clearly distinguished between microeconomics and macroeconomics. he determined aggregate output along marshallian concepts of supply and demand. he brought attention to the possibility that aggregate supply and aggregate demand can determine levels of output at which factors of production are not fully employed. keynes blamed the great depression on a drastic decrease in aggregate demand. in keynesian economics fluctuations in aggregate demand is the cause of the business cycle. as money wages are sticky, government intervention is needed to help the economy out of recession and restore full equilibrium (parkin, 2000). keynes firmly believed that monetary and fiscal policies can successfully increase aggregate demand and decrease unemployment. hicks’s is-lm model gave the ‘canonical’ representation of the mechanism of keynesian economics. a horizontal shape of the lm curve and a vertical line of the is curve implied that monetary policy is ineffective (hoover, 2003). until the 1970s the postwar years were predominantly keynesian, emphasizing fiscal policy over monetary policy (hoover, 2003). the 1950s and 43 issn 1822-8402 european integration studies. 2007. no 1 1960s brought along high rates of economic growth in the advanced capitalist countries. the state played an active interventionist role in the economy; collective bargaining was supported, mobility of capital was controlled, public expenditures were expanding, and economic development was planned to a certain extent (harvey, 2005). the 1970s put an end to the fast economic growth of the previous decades. real interest rates were negative and profit rates were at very low levels. decreasing tax revenues and increasing public expenditures created a fiscal crisis. the advanced capitalist economies experienced stagflation; high unemployment rates were coupled with high inflation rates. keynesian economic policies did not seem to work anymore. by 1971 the bretton woods system of fixed exchange rates was abandoned, in favour of flexible rates. an alternative was the expansion of state control and more regulations over the economy that was advocated by european socialist and communist parties. another option was to deregulate the economy, to substantially decrease state intervention (harvey, 2005). the university of chicago has remained largely unimpressed by the keynesian theories and kept on focusing on the role of money. the economic crisis of the 1970s helped the rise of monetarism. milton friedman was a prominent member and advocate of the ‘chicago school’. their monetarist view emphasizes that efficient resource allocation is guaranteed by the free market and macroeconomic stability can be achieved by a stable money supply. the cause of the business cycle is fluctuations in the money supply (parkin, 2000). monetarists regard ‘unintended monetary contraction’ as the cause of the great depression. as markets automatically return to equilibrium levels in the long run, state interference is harmful and should be discouraged. in the short-term, cyclical fluctuations can be avoided by controlling the money supply by the monetary authorities (hoover, 2003). thus, it is crucial that monetary authorities remain independent of political control. in the longterm money is considered ‘neutral’; changes in the money supply do not influence real variables (mankiw, 2000). the main differences between keynesian and monetarist policies concern the length of deviations from equilibrium and the cause of these fluctuations. monetarists believe in the self-correcting mechanism of the economy with relatively short-term deviations from the natural rate, unlike keynesians who think that these fluctuations need demand-side government intervention due to the long time that adjustments take. both sides agree on the important effects of monetary policy in the short run. the main disagreement is about whether active involvement in the economy is needed (hoover, 2003). gradually, most policy-makers and economists around the world have come under the influence of monetarism. in 1976, milton friedman received the nobel prize in economics. monetarism would also become symbolic of the conservative economic policies of the thatcher government (hoover, 2003). since 1992, the development of the estonian economy has been guided by neoliberal economic policies. the only exception occurred in june 1992 when the estonian government opted out of the rouble zone and introduced a new currency, the kroon. the measure was taken despite reservations expressed by representatives of the imf, who worried about the country’s ability to accumulate the resources needed to sustain its own currency. imf and eu officials were also concerned with estonia further severing its ties with russia and the disruption of trade between them. estonia was vindicated the very next year by the run-away inflation in the rouble zone (smith, 2001). gilpin (2001) provides the following definition of neoliberalism: “neoliberalism refers to the application of the principles of neoclassical economics to economic development and other aspects of economic affairs.“ in order to understand the economic policies pursued by the authorities in independent estonia, a brief examination of the principles of neoclassical economic theory is unavoidable. neoclassical economic theory the microeconomic foundations of neoclassical economic theory can be traced back to paul samuelson’s foundations of economic analysis (1947). over the past half a century, it has not only become the basis for all areas of economics but has been used increasingly in other social sciences, such as sociology and political science (samuels, et al. 2003). this book along with the writings of other neoclassical economists signalled a methodological shift from literary to formal analysis and has drastically changed economic thought and methodology. mathematical formal analysis has replaced literary and descriptive methods. the method for solving economic problems, such as market equilibria and resource allocation, is based on ‘constrained optimisation’ with scarcity as the constraint (rizvi,. 2003). abstract modelling and formalisation meant that any problem impossible to model was to suffer neglect (gilpin, 2001). complex economic models using advanced calculus incomprehensible to ordinary individuals are presented as undisputable proof of neoliberal theory. neoclassical economic thinking is founded on the assumption of rational decision-making despite its unrealistic criteria. the foundations of this assumption are the notions of completeness and transitivity. an individual has well-defined and stable values, tastes, 44 issn 1822-8402 european integration studies. 2007. no 1 preferences, and beliefs, according to which he/she has a clear preference between choices. these choices are non-dynamic, always consistent. each person is aware of all the choices available to him/her, has all the relevant information needed to construct alternative options and is able to evaluate the consequences of the various courses of action. having compared the options, the decision-maker selects the one that offers the maximum set of benefits (klein, 2002). due to the scarcity of resources, ‘choices must be made among a limited set of possibilities’ (baumol, blinder, 1998). consumers and producers alike make optimum decisions; they choose the one that is actually best for them. neoclassical economics centres on the role of the market in allocating factors of production efficiently. the forces of demand and supply will result in a market clearing equilibrium, at which the quantity demanded and quantity supplied of a good or service are equal. due to the forces of the market mechanism, neither shortages nor surpluses can last (ingham, 1995). in perfect competition, the invisible hand of the market ensures efficient allocation of resources on its own automatically and without the need for any government intervention. in competitive markets the price of a resource equals its marginal product; in other words, factors of production get rewarded according to their respective levels of productivity (baumol, blinder, 1998). the allocation of factors of production, goods, and services are rationed according to individual preferences and relative incomes. consumers vote with their purses and wallets for the commodities that they want. goods and services will be assigned to those who are willing and able to pay the highest price for it (parkin, 2000). although the market mechanism ensures efficiency, it does not guarantee income equality, nor does it provide satisfactory answers to it (ingham, 1995). a utilitarian approach dominates neoclassical economics, where social welfare is a function of individual utilities. every decision is taken with a view to the sum of total utilities that it generates without considering the distribution of aggregate utilities among people (sen, 1999). distributional considerations are addressed in the concept of pareto optimality. a pareto improvement is possible when a person can be made better off without making someone else worse off. hence, in a pareto optimum no improvement is possible without making someone worse off; the poor and the destitute can only be improved by adversely affecting the more affluent segments of society. therefore, a non-interventionist view is preferred by neoclassical economists (ingham, 1995). neoclassical economics recognises that the market is not perfect; it has shortcomings, which lead to misallocation of resources. however, market imperfections are best remedied with the aid of market forces because governments do not have all the information needed for appropriate market intervention and because special interest groups may bias their decisions (baumol, blinder, 1998). the rise of neoliberalism giroux (2004) defined neoliberalism as “economics disconnected from its social consequences”. the rise of neoliberal theory can be traced back to the friedrich von hayek and the ‘mont pelerin society’, which was founded in 1947. whereas the neoliberal movement remained marginal, by the 1970s it gained a significant influence both over economic policy and in academic circles. its growing importance was symbolized with the establishments of various think-tanks, such as the cato institute, the institute of economic affairs, and the heritage foundation. in 1974, friedrich von hayek won the nobel prize in economics. over the past thirty years, neoliberal policy advocates have been occupying influential positions in academe, the media, executive boards of large corporations, financial institutions, government ministries, central banks, and even international monetary institutions, such as the imf and the world bank around the world (harvey, 2005). in great britain, in 1979, the government of margaret thatcher abandoned keynesianism in favour of monetarist policies. her neoliberal agenda characterized by supply-side economics signaled a substantial reduction in state intervention (hoover, 2003). this shift was followed by measures to create a more favourable business climate, such as privatization of public organizations and tax reduction. in the united states, deregulation of the economy began during the carter presidency. in october, 1979, the nomination of paul volcker as chairman of the federal reserve of the us marked a dramatic change in monetary policy. a year later ronald reagan, the newly elected president of the usa continued deregulation of the economy and implemented further tax cuts. in both countries, the keynesian macroeconomic objective of full employment has been replaced by the goal of currency stability and fiscal and monetary discipline (harvey, 2005). the collapse of the soviet union and the centrally planned economic system in the late 1980s and early 1990s strongly reinforced belief in the virtues of the free market. supply-side economics became the standard blueprint for the economic restructuring of the newly emerging market economies of the countries of central and eastern europe. neoliberal thinkers advocate the free-market principles of neoclassical economics and the case for a 45 issn 1822-8402 european integration studies. 2007. no 1 limited, non-interventionist laissez-faire government. they strongly opposed theories that supported state interference in the market (harvey, 2005). in order to maintain the market’s ability to transmit correct signals about demand and supply through price, governments should refrain from interventions and rely on the market forces whenever possible. direct interference in the market, such as subsidies, tariffs, price floors and ceilings lead to misallocation of resources. for instance, as income differentials reflect differences in productivity, high statutory minimum wages distort incentives (ingham, 1995). the welfare of society can be best advanced by motivating free enterprise and entrepreneurship. the role of the state should be limited to providing and protecting the preconditions for economic growth and the proper functioning of the market. neoliberalist theory advocates deregulation of industry, privatization of state-owned organizations, and the withdrawal of the state from many areas of social provision. it underlines the importance of market-based contractual relations (harvey, 2005). the onus is clearly placed on the individual. every person is responsible for her/his own welfare and standard of living through personal success or failure. as factors of production are rewarded according to their productivity, owners of those resources must focus on increasing productivity levels, which in turn will raise their living standards. poverty can be best eliminated through free markets and free trade. labour is treated as a mere commodity, the flow of which should be free and unimpeded. outside interference, such as trade unions, are deemed undesirable, as they decrease efficiency by distorting market forces. over the past thirty years, the power of trade unions was significantly curbed. flexibility is recommended both in skills, careers and jobs. as such, short-term employment contracts are preferred. the outcome is lower wages in terms of purchasing power, job insecurity, reduced benefits and job protection (harvey, 2005). ‘company man’ has been replaced by ‘spider woman’; people no longer can assume to ascend on the corporate ladder in the same organization. instead, they must be ready to take on short-term projects, switch jobs and even professions (magala, 2005). failure is personal; if the conditions of some people deteriorate it is because they are not competitive as a result of inadequate investment in their own human capital. an increased gap between rich and poor is unavoidable and necessary to encourage entrepreneurial risk and innovation (harvey, 2005). financial deregulation started off a wave of innovations in financial services, such as new kinds of financial markets. with new inventions in information technology and free mobility of capital, immobile resources – countries and their populations – have to compete increasingly for the mobile resource – capital (gilpin, 2001). as a result, capital’s return of income has significantly increased compared to labour’s return of income, leading to greater social inequality. the real business cycle theory goes as far as denying that involuntary unemployment exists. it posits that unemployment is voluntary; the quantity of labour supplied depends on the their compensation. workers compare the current return on their labour with their expected return. when real wages are temporarily low they withdraw their labour. this allocation of work hours across time is called intertemporal substitution (parkin, 2000). the rational expectations theory states that deflationary policy can actually be painless, as long as the authorities announce it in advance and that employees and employers alike believe the warning. under the assumptions of rational expectations interventionist governments can do very little (mankiw, 2000). the chicago view of the economy goes even further by considering monopoly a transitory market structure, a result of an efficient response to market conditions that was facilitated by the state. high levels of industrial concentration are not regarded harmful, as the ‘rivalrous behaviour of a few firms can mimic the results of competition’. as such, these market failures do not necessitate government intervention. even the inability of the market mechanism to provide public goods is questioned (medema, 2003). neoliberalist policies make society market driven. economic growth versus economic development – the neoliberalisation of estonia free market philosophies have permeated estonian society over the past fifteen years. under neoliberalism politics and economics are interwoven; democracy and unimpeded free markets are considered inseparable (giroux, 2004). neoliberalism is presented as the champion, the exclusive guarantor of individual freedom, in the promotion of which the market is deemed instrumental (ingham, 1995). any intrusion of the state is considered an attack on individual freedom and opportunities. as such, it easily lends itself to political movements that attach high values to individual liberty (harvey, 2005). capitalism is not considered a social construct that can take many different forms. neoliberalism is viewed as the natural and inevitable result of economic development. fifty years of sovietisation have left serious political and economic legacies in estonia. the soviet regime’s objective was to erase all traces of the independent estonian republic. the soviet policy towards nationalities was influenced by the desire to bridge nationalistic and ethnic differences. the ussr 46 issn 1822-8402 european integration studies. 2007. no 1 was a federal union between the fifteen republics. shaw (1995) describes this union as “federal colonialism”, whereas smith (2001) uses the term “ethnoterritorial federalism”. the party programme of 1961 referred to the peoples of the soviet union as ‘united into one family’ (shaw, 1995). khruschev spoke of a merger between the various peoples of the ussr ultimately leading to the emergence of the homo sovieticus, the new soviet citizen. all throughout the soviet era, estonians kept a very strong feeling of national identity. as in the eyes of estonians estonia has never been legally part of the soviet union, there was no formal declaration of independence in 1991. instead, according to the ‘principle of legal continuity’, they declared the end of the soviet era and the beginning of a transition period during which independence was to be restored. de jure estonia remained an independent state during the soviet era; on 20 august 1991, the first freely elected parliament formally announced de facto independence from the ussr (smith, 2001). it is questionable, how estonian estonian neoliberalism is. on the one hand, the international monetary and financial institutions have had significantly influenced the transformation and neoliberalisation of the estonian economy. a number of estonian policymakers and technocrats had been educated in western academic institutions where they acquired neoliberal ways of thinking. on the other hand, there does not appear to be any popular resistance to the neoliberal economic policies of the successive governments. despite the adverse effects of these policies, which are detailed below, no public discourse of economic alternatives seems to be taking place. in estonia the market is deemed as the key factor in economic growth. it is considered to have a ‘moralising effect’ (ingham, 1995), as it encourages people to be proactive problem solvers. it installs the virtues of punctuality, frugality, and probity. it has disrupted the status quo of the socialist era. policy makers in estonia have the conviction that the market plays a crucial role in promoting personal liberty. political and economic freedoms are considered interdependent. the country’s development has shown the features of outward looking policies, such as efforts to maximise foreign trade, to create a favourable climate for foreign investment, to follow liberal trade policies, and to take extreme measures to aid the competitiveness of producers (ingham, 1995). overall, estonian development policies have followed a normative economic approach. over the past fifteen years, all the standard stabilisation measures necessary to create a market economy were duly taken, including structural measures, such as the creation of a market environment, restructuring of industries, and the launching of privatisation. the country’s economy had been subjected to a ‘shock-therapy’ (lavigne, 1999). by 1992, prices were liberalised. by the late 1990s, privatization was completed. state monopolies were restructured, sold off or closed down. stringent banking and monetary reforms gradually brought inflation under control. as part of its economic stabilisation process, in 1992 estonia introduced its own currency, the estonian kroon (eek). it subsequently established a currency board system and pegged the kroon (eek) to the german mark (dm) at a rate of 8 eek – 1 dm (smith, 2001). as a small economy with a limited domestic market, estonia relies on foreign trade to a great extent, therefore in order to foster economic growth, all export and import restrictions were completely abolished. trade has been successfully reoriented from east to west. in order to attract foreign direct investment, the subsequent estonian governments have done their outmost to create a business-friendly environment. the country boasts some of the lowest income tax rates in the world – a proportional rate of 20 percent that the government intends to decrease further in the next few years. there is no corporate tax on reinvested profits (estonian investment agency). in order to maintain fiscal discipline, the country’s constitution of 1992 requires the government to maintain a balanced budget. this obligation can only be amended by a two-thirds majority vote in parliament (smith, 2001). the estonian economy’s transformation is considered a success story. the efforts of the country’s transformation were recognised when estonia joined the european union (eu) along with seven other former soviet block countries in may 2004. the estonian economy has consistently achieved annual economic growth rates in excess of 6 percent since 1999 (statistical office of estonia). its economy is made up of efficient industries and enterprises. estonia has enjoyed a large inflow of foreign investment; foreign capital participation affects over one third of estonian enterprises (bank of estonia). by 2004, it had the most competitive economy among the nations that have recently joined the european union. the same year, estonia ranked number 4 on the index of economic freedom ranking (the heritage foundation) behind hong kong, singapore and luxemburg. in 2006 it had the highest ranking – 20 – among the central and eastern european countries on the world competitiveness list. an important goal of the country’s authorities is the earliest possible accession to the eurozone. economic policy decisions have been in accordance with the restrictive convergence criteria in mind. the original target date for accession was 2006. this had 47 issn 1822-8402 european integration studies. 2007. no 1 to be postponed due to the high rates of inflation (bank of estonia). estonian households, overall, have been enjoying an improvement in their living standards. between 1997 and 2004, the average annual disposable income per household member increased by 36 percent in real terms (statistical office of estonia). however, income does not seem to measure adequately economic development, as the fruits of economic transformation have not been shared equally by all segments of estonia’s population. the economic shock therapy, the fast-paced privatisation, and the restructuring of the economy have put an enormous strain on society. although the country’s development has been impressive from a strictly goods-oriented view, from a people-oriented perspective, the achievements have been much more modest. the exceptionally high economic growth rates have not been matched by another significant problem is the polarised nature of regional development. there are significant differences in levels of economic activity, employment rates, and income levels between urban and rural areas, and between the capital tallinn together with its hinterland, harju county, and the rest of the country. as part of macroeconomic restructuring, a serious structural shift has taken place, leaving vast labour surpluses in regions with a concentration of heavy industry, such as the northeastern part of the country. in 2002, per capita income tax revenues in north-eastern estonia were only half of that of northern estonia. estonia’s richest district, vim’s valid in northern estonia boasted per capita income tax revenues 14.06 times higher than that of piirassaare municipality in tartu county, the poorest municipality in the country (statistical office of estonia). however, despite the high levels of income inequalities and the vast disparities between the country’s regions, there does not appear to be any resistance to the neoliberal economic policies of the successive governments. estonia has evolved into a two-tier economy. local businesses with foreign participation benefit from the transfer of technology and best practices. they achieve higher rates of productivity, efficiency and competitiveness enabling them to pay above average efficiency wages. organisations having these advantages can afford to offer higher wages with which they dominate the primary labour market. purely domestic enterprises make up the lower tier of the economy with low productivity rates, outdated technology, and inadequate access to resources. the lack of capital puts domestic enterprises at a great disadvantage. as banks mostly consider fixed assets and not earning potential when providing loans, these organisations have very limited access to capital. although they employ the bulk of the labour force, they are greatly constrained in their ability to provide competitive wages, training, and attractive career opportunities. whereas public funds have been used to create the infrastructure needed for the development of certain industries, such as information technology, telecommunications, and finance, investment in areas of basic physical and social infrastructure has been insufficient (eurostat). in addition to healthcare and education being under-funded, the physical infrastructure is also underdeveloped. although transit cargo is a major part of the nation’s economy, the road and railway networks are in a dilapidated condition. there are no motorways in the country. the underdeveloped state of the physical infrastructure also threatens estonia’s ability to continue attracting foreign investment. however, the limited amount of tax revenues seriously hampers efforts to fund development projects. the available resources are insufficient to cover the expenses of much needed improvements. large amounts of eu structural funds have flown into the country over the past few years, however, brussels is reluctant to channel financial aid to an economy with such low levels of proportional tax rates (euronews). the ultraliberal, overly business-friendly policies of the successive governments over the past one and a half decades have led to the economic and social stratification of estonian society and the emergence of high levels of income inequalities. as businesses enjoy tax exemption on reinvested profit, many households feel that they bear the brunt of economic transformation (ehin, 2002). the implementation of neoliberal economic policies has had adverse effects over the welfare of estonian society. decision-makers and policy advisors seem to confuse economic growth with development. conclusions throughout the history of economic thinking philosophers of ancient times, scholastics, mercantilists, classical as well as keynesian economists assigned the state an active role in the economy. in the post wwii ‘new world order’ the objective of the government was to provide social welfare, full employment, and economic growth. the emergence and spread of neoliberal economic policies in the 1970s reduced the role of the state to maintaining the preconditions to economic growth. according to neoliberal thinking any government interference in the workings of the economy is harmful as it leads to misallocation of resources. the neoliberal macroeconomic objectives are currency stability, monetary and fiscal discipline and the preservation of a free-market economy dominated by market based contractual relations. at the centre of neoliberal theory stands the proactive and perfectly rational homo economicus. 48 issn 1822-8402 european integration studies. 2007. no 1 in the post-socialist era neoliberalism with its emphasis on individual freedom and a minimalistic government appears very attractive as a policy option. the transformation of the estonian economy along neoliberal principles has led to the creation of an overly business friendly free-market economy. however, the country’s exceptionally fast economic growth has not translated into an overall improvement in living standards. all socio-economic indicators point to a decline in social welfare. as a result of the neoliberal economic policies of the past fifteen years, corporate welfare has replaced social welfare in estonia. references bank of estonia http://www.vm.ee/estonia baumol, w. and blinder, a. (1998) microeconomics – principles and policy. seventh edition, the dryden press ehin, p. (2002) estonian euroskepticism: a reflection of domestic politics? east european constitutional review, volume 11/12 number 4/1. new york university school of law estonian investment agency http://www.investinestonia.com euronews http://www.euronews.net/ eurostat statistical office of the european union http://epp.eurostat.ec.europa.eu gilpin, r. (2001) global political economy, understanding the international economic order. princeton university press giroux, h. (2004) the terror of neoliberalism – authoritarianism and the eclipse of democracy. paradigm publishers glyn, a. (2006) capitalism unleashed – finance, globalisation, and welfare. oxford university press gravelle, rees (1992) microeconomics. 2nd edition. longman gros, d. and steiner, a. (1995) winds of change economic transition in central and eastern europe. prentice hall harvey, d. (2005) a brief history of neoliberalism. oxford university press hoover, k. (2003) a history of post-war monetary economics and macroeconomics. in samuels, j, biddle, j, and davis, j. (eds.) a companion to the history of economic thought. blackwell publishing ingham, b. (1995) economics and development. mcgraw-hill klein, g. (2002) ‘the fiction of optimisation’. in gigerenzer, g. and reinhard, s. (eds.), ‘bounded rationality, the adaptive toolbox’. dahlem workshop reports kornai j. (1992) the socialist system, the political economy of communism. oxford university press lavigne, m. (1999) the economics of transition – from socialist economy to market economy, second edition, palgrave magala, s. (2005) cross-cultural competence. routledge. mankiw, g. (2000) macroeconomics. fourth edition, worth publishers medema, s. (2003) the economic role of government in the history of economic thought. in samuels, j, biddle, j, and davis, j. (eds.) a companion to the history of economic thought. blackwell publishing parkin, m. (2000) macroeconomics. fifth edition, addison wesley longman rizvi, a.t. (2003) ‘postwar neoclassical macroeconomics’. in samuels, j, biddle, j, and davis, j. (eds.) a companion to the history of economic thought. blackwell publishing sen, a. (1999) development as freedom. oxford university press shaw, j.b. (1995) the post-soviet republics – a systematic geography. longman. smith, d. (2001) estonia – independence and european integration. routledge statistical office of estonia www.stat.ee united nations development programme (2003) human development indicators http://www.undp.org 49 issn 1822-8402 european integration studies. 2007. no 1 microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 efficiency of central banking: measurement, cases and policy developments vita pilsuma latvijas banka leonārs svarinskis rēzeknes augstskola abstract this paper discusses the efficiency of the central banks in the field of the integration process of the european system of central banks. the authors have based their research on a number of opinions regarding the effectiveness of expenses of central banks and the analysis of efficiency indicators of the eu central banks and the european central bank. the innovative aspect of this paper lies in finding trends for the efficiency indicators and policy developments of the central banks of the eu countries. some differences have been detected for several indicators of the central banks of the eu15 countries and the central banks of the other eu countries, which prove that there is still room for improving the accountability and transparency of the european system of central banks. keywords: central banking, efficiency indicators, integrity, european system of central banks. introduction the foundation for the eu was laid 50 years ago when on 25 march 1957 the leaders of six european nations signed the treaty of rome establishing the european economic community. the treaty pursued the goal to promote the growth of trade and economy and can be treated as a basis for nations to commence also cooperation in the fields of economy and monetary policy. integration reached a new stage when the european central bank (ecb) and the european system central banks (escb) were founded at the end of the 1990s. following centralisation of a part of the decision-making process, the effectiveness and efficiency of central banks of the eu countries (hereinafter, ncbs) were questioned. the innovative aspect of this paper lies in finding trends for the efficiency indicators and policy developments of the ncbs. the paper pursues the aim to propose solutions for further improvements in the escb's operation and policy. the research builds on the analysis of eu25 ncbs and ecb operational indicators as well as views voiced by a number of authors regarding central bank expense efficiency. in the pursuit of the objectives set, we have made use of such methods as statistical analysis of indicators and graphic and monographic approach. promoting central bank operation the foundation, objectives and tasks of the central banks are closely related to historical aspect. specific development circumstances in each country have determined the mode of operation and the place of the central bank in the financial sector and economic growth management. the maastricht treaty, which was signed at the beginning of the 1990s, and the escb, which commenced its activities at the end of the 1990s, outlined new operational aspects for the ncbs. among other titles the treaty comprises "economic and monetary policy", with its chapter "monetary policy" defining the aims and tasks of the common monetary policy and the institutional structure. the organisation of the ecb is modelled on the basis of deutsche bundesbank, because after coping with the aftermath of world war ii – the collapse of the financial system –, the latter ensured the creation of a solid national currency and succeeded in strengthening the independence of the central bank. however, at the end of the 20th and the beginning of the 21st century, the efficiency of central banking was subject to criticism, as along with the establishment of the ecb and introduction of the euro in particular, the scope of central bank duties in the field of defining and implementing the monetary policy decreased. c. pauly, c. reiermann, w. reuter and t. tuma admit that the number of employees at deutsche bundesbank is overexessive, legacy and social 123 issn 1822-8402 european integration studies. 2007. no 1 benefits too expensive, its outlook uncertain and contribution to world processes questionable; they came to the conclusion that deutsche bundesbank failed to get adjusted to the new situation and, like the state itself, was lacking enthusiasm for reform processes. j. stark emphasised that central banks of the eurosystem have to adjust themselves to the new situation and proceed with effective implementation of the tasks set out by the escb and legislation of respective countries. despite classification in the same financial corporations' sector along with commercial banks, the central banks differ from those offering commercial services in their basic tasks of issuing national currency, maintaining internal and external value of currency, managing country's foreign reserves or their part, and engaging in transactions with the imf. it should also be taken into account that despite the foundation of the escb with its tasks defined under the treaty establishing the european community and the statute of the escb and the ecb annexed to it, the eu national legislation sets out additional tasks and duties for central banks. the implementation of such additional tasks and duties requires extra resources, both human and financial, the amount of which can differ from country to country. supervision of credit institutions performed by a part of the ncbs is the most resource-intensive function. we believe that the amount of resources also depends on how mature is the financial system of each respective country. for instance, the number of monetary financial institutions (mfis) differs greatly across eu countries. the amount of mfi assets and the structure of liabilities are also different. the political and administrative regimes of a country as well as the system under which its central bank carries out the set tasks, e.g. the scope of outsourcing, also affect the number of central bank staff. hence several quantitative indicators should be introduced to assess central bank operational efficiency. efficiency indicators we suggest that a set of four quantitative indicators be used in the central bank efficiency studies (see chart 1). the following equations present the coefficients of the central bank expense: 100totalgdp e ter gdp = × (1) where etotal is expense of the central bank, except interest and similar expense; gdp is the gross domestic product, at market prices, of the respective central bank's country; 100totalp e ter p = × (2) where p is the total population of the respective central bank's country; 100totalmfis mfis e ter n = × (3) where nmfis is the number of mfis (except the central bank) of the respective central bank's country; 100totalmfia mfia e ter n = × (4) where nmfia is the mfi average asset balance of the respective central bank's country. net worth staff related ratios profita bility expenditure ratios efficiency of central banks chart 1. quantitative central bank efficiency indicators the largest part of central bank operational expense is made up of staff costs, other operating expense, expense related to depreciation of fixed assets and amortisation of intangible assets as well as expense of bank note production and provisionmaking. staff costs, in turn, account for a substantial part of central bank operating costs (e.g. in 2005, staff costs accounted for 50.6% of the total escb expense). consequently, it is important to assess the central bank staff costs and the number of personnel using the following coefficients: 100 scb p n pnr p = × (5) where nscb is the average staff of the central bank; scb p e per p = (6) where escb is the staff costs of the central bank; 124 issn 1822-8402 european integration studies. 2007. no 1 scb mfis mfis n pnr n = (7), scb scb scb e per n = (8). return on assets (roa) is one of the indicators of commercial bank operating cost efficiency which can also be used in the estimation of central bank's operating quality. this indicator is useful, as it provides an overview of the return on central bank transactions, in particular in the euro area where common criteria are set for income reporting, a single monetary policy is conducted and the same monetary policy instruments are used. 100netcb net iri roa a = × (9) where irinet is the net interest income of the central bank; anet is net assets of the central bank. net worth of a central bank is the difference between its assets and liabilities, i.e. bank's equity. we support the view that a central bank can be operational in the circumstances when its equity, provisions and earnings are adequate for implementing tasks of the central bank. j. dalton and c. dziobek maintain that in normal circumstances central banks should be able to make profit, while their failure to address such problems as current losses or negative net worth will hinder the management of monetary policy and may undermine the independence and credibility of the bank. p. stella thinks that a central bank should be financially strong in line with the tasks set and risks undertaken by it; it likewise should be able to earn profit on a regular basis. on the account of central banks being generally exposed to strong profit and loss shocks, they may need capital in large amounts. a. ize has proposed to calculate capital as a simple function of international reserves held in excess over the issued currency, central bank's operating expense, interest rate premium on its debt, inflation target and the projected growth in currency, international reserves and operating expense. as foreign assets account for an important central bank asset share, the central banks are exposed to foreign exchange rate, interest rate and gold price risks and make provisions. if public is well-informed about the goals and instruments of monetary policy and if central bank's commitments to this policy are credible, the efficiency of monetary policy may be enhanced. if the participants of the financial market, investors and other interested parties learn more about the monetary policy decisions and their implementation, market efficiency is boosted. a principle of the code of best practice regarding transparency of monetary and financial policy stipulates that central banks be accountable for and confident of their integrity. the bank internal management procedures, that must be publicly available, shall ensure integrity of transactions, including the internal audit process. good governance stipulates accountability of central banks, and its role is growing along with the strengthening of central bank independence. though the principles of corporate management do not apply directly to the central bank operations, central banks abide by it more frequently. when assessing the efficiency of international standards and best practice codes, the international monetary fund and the world bank concluded that they help detect vulnerability of national institutions and specify the priorities for their strengthening. consequently, the abidance by these standards and the principles of best practice can serve as a qualitative indicator characterising operating efficiency and integrity of central banks. taking into account the single system of the ncbs and their operation within the framework of a single market, a hypothesis that central bank efficiency indicators are also similar can be proposed. on these grounds, several efficiency indicators will be further discussed. operating efficiency of the ncbs the studies of the ncb operating indicators disclosed differing degrees of central bank openness regarding the preparation of their financial statements and annual reports. for instance, the reporting of central banks' operating expense (e.g. its classification and grouping) and the staff numbers (averages, employees at end of the year, inclusion of part-time workers) differed across banks. the expenditure structure of a central bank also depends on its outsourcing policy, i.e. the delegation of certain tasks to other entities outside the bank, saves resources for staff wages and salaries but increases expenditure due to outsourcing. outsourcing of services enables banks to cut the number of employees but at the same time it gives rise to a dilemma related to safety, reliability and quality of central bank services. when doing research on the central bank staff number versus total population at the end of 1990s, the bank of england came to the conclusion that the relation between the number of central bank staff and total population of the respective country is clearly positive; a similar relation was also characteristic for 2005 (see chart 2). when comparison is made of the ncb pnrp, the range of indicators (the lowest and the highest value) is very pronounced (see chart 3). in 2005, the escb pnrp was exceeded on 13 occasions, while the ncb indicators fell below the escb pnrp in 8 cases (in 2002, 15 and 8 respectively). the central bank of 125 issn 1822-8402 european integration studies. 2007. no 1 malta posted the highest pnrp, while that of the bank of england was the lowest. among the baltic states, this indicator was the lowest for eesti pank, followed by lietuvos bankas and latvijas banka. as to central bank pnrp in the eu15 and eu10 countries, no notable differences were recorded. 100 1000 10000 100000 1000000 1 10 100 1000 staff (log s cale) po pu la tio n th ou sa nd s (l og s ca le ) chart 2. comparison of eu ncb staff and total population in 2005 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 m t lu cy lv gr be fr lt sk ie s i ee de pt p l it at cz f i nl hu dk e s se gb 2 0 02 2 0 0 5 esc b (20 0 5 ) chart 3. ncb pnrp in 2002 and 2005 and escb pnrp in 2005 the comparison of indicators for the number of central bank employees servicing one mfi or pnrmfis shows that the figure is the largest for národná banka slovenska and the smallest for banque centrale du luxembourg (see chart 4). 0.0 10.0 20.0 30.0 40.0 50.0 60.0 skgr bem t cz lv lt ee it pl fr pt s i de es gb hu nldk i e se fi at cy lu 2002 2005 escb (2005) chart 4. ncb pnrmfis in 2002 and 2005 and escb pnrmfis in 2005 no notable differences were detected for pnrp of the eu15 and eu10 countries, whereas perp of the given eu country groups overall displayed pronounced distinctions (see chart 5). in the majority of cases, this indicator was higher for eu15 ncbs and lower for eu10 ncbs, with an exception of two eu10 ncbs (the bank of malta and the central bank of cyprus) and three eu15 ncbs (banco de españa, sveriges riksbank and the bank of england). 0 5 10 15 20 25 30 35 40 45 lu fr gr it be cym t de at pt f i ie nldk s i lv es se lt hu sk e e gb pl cz eu ro 2002 2005 escb (2005) chart 5. ncb perp in 2002 and 2005 and escb perp in 2005 when dealing with the staff costs of the ncbs and ecb, a pronounced margin between the eu15 and eu10 ncb perscb can be observed (see chart 6). banca d'italia and the ecb recorded the highest perscb in 2002 and 2005, while those of lietuvos bankas and národná banka slovenska were the lowest. in 2005 compared with 2002, perscb of all eu ncbs went up. the difference between the highest and the lowest indicator was 109.5 thousand euro or 7.4 times in 2005. the difference between the highest and the lowest indicator of eu10 ncbs was 31.5 thousand euro or 2.8 times, whereas the respective difference for eu15 ncbs was 62.6 thousand euro or 2.0 times. we can expect a rise in the eu10 ncb expense in line with both increasing wages and salaries and growing costs related to retirement benefits to employees. 0 20 40 60 80 100 120 140 it ec b fr at se lu gb f i dk g r de nl be es pt ie cy hu s i m t ee cz lv pl sk lt in th ou sa nd s of e ur o 2002 2005 escb (2005) chart 6. ncb perscb in 2002 and 2005 and escb perscb in 2005 the comparison of the ncb perscb and their capital share in the ecb (depending on the shares of the respective country in the eu gdp and total population) resulted in a positive trend (see chart 7). 126 issn 1822-8402 european integration studies. 2007. no 1 0 20 40 60 80 100 120 140 0 5 10 15 20 25 ecb's capital key (%) pe r s c b ( in th ou sa nd s of e ur o) chart 7. comparison of eu25 ncb perscb and capital shares in the ecb in 2005 the main income positions of the euro area central banks are net interest income, net result on financial transactions, write-downs and risk provisions as well as net result of pooling of euro area monetary income, with all of them displaying notable income fluctuations. in 2004 and 2005, all central banks of the euro area recorded a positive net interest income. as to net result of financial operations, write-downs and risk provisions were positive only in seven cases in 2004, while net result of pooling of euro area monetary income was negative; in 2005, however, there were only four cases of negative net result on financial transactions, write-downs and risk provisions, and three cases of negative net result of pooling of monetary income. in 2004, negative net result of pooling of monetary income ranged from 6.9% of net interest income for oesterreichische nationalbank to 19.2% for banca d'italia, whereas in 2005 these banks recorded positive net result of pooling of monetary income and accounted for 1.6% and 0.3% of net interest income respectively (representing maximum and minimum indicators of positive net result). in 2004, roacb of the euro area ncbs was 1.77% but in 2005 it rose to 3.05%. with foreign reserves accounting for the major part of euro area ncb assets, central banks are exposed to market risks. as a result of revaluation on assets, several central banks have incurred losses, which, in turn, have reduced net worth of central banks. česká národní banka has gone through the longest period of losses. its net worth was positive at the end of 1996, but at the end of 2004 it turned negative, accounting for 614.6% of positive net worth at the end of 1996. in 2005, the bank earned a profit, which accounted for 15.9% of accumulated losses. the ecb also finished years 1999, 2003 and 2004 with a loss (6.1%, 3.6% and 22.9% of ecb net worth at the end of the respective previous year). the ecb loss was financed by accumulated provisions, and there was no need for euro area central banks to share it. in 2005 and 2006, the provisions accumulated to hedge foreign exchange, interest rate and gold price risks (992.0 million euro and 1379.4 million euro or 78.1% and 70.0% of ecb net interest income in the respective year) brought the ecb net profit down to zero. due to it, transfers to the general reserve fund were not made and appropriation of profit to ncbs of the euro area did not take place in 2005 and 2006. transparency and accountability of ncbs the analysis of the ncb financial statements and annual reports shows that they become more and more inclusive, enabling both the participants of the financial market and community at large to gain a detailed insight into the policy of the central bank and its implementation, bank's exposure to risks and its corporate management. despite the fact that ncbs and the ecb form a single system, the content and form of financial statements differ (different items, their classification and meaning; different rounding of indices). the bank of england differs from other banks even in the timing of financial statements (balance sheet date – 28 february). several eu10 ncbs also prepare cash flow statements and statements of recognised gains and losses. the content of such euro area ncb documents is more uniform than that of other eu ncbs. changes are likely to occur in connection with the central banks of bulgaria and romania joining the escb on 1 january 2007. as a result, the comparative analysis of data is likely to become more complicated. the recognition of gains and losses in the respective statement and profit reporting in the balance sheet are also different. the ncbs make a comparatively restricted use of the possibility to calculate the cost of their basic functions; such an estimate would greatly contribute to a more complete evaluation and comparison of the ncb operational efficiency. conclusions the analysis of the central bank operational efficiency should build on a number of quantitative indicators and qualitative surveys as well as assessment of their compliance with the standards and best practice principles. the escb should strive for a uniform financial statement submission procedure and cost price calculation of central bank basic functions; this would lead to a greater transparency and a more accurate comparison of central bank efficiency resulting in a more enhanced accountability of central banks. the study of central bank efficiency indicators should continue, with the focus not only on the central banks in the eu25 countries but also in bulgaria and romania; the studies should also include the comparison of the ncb efficiency indicators with the respective indicators of the eu candidate countries. differences observed today in efficiency indicators of the eu15 and eu10 countries indicate 127 issn 1822-8402 european integration studies. 2007. no 1 that there are opportunities for integrity and improvement of operational efficiency within the escb. references1 annual accounts of the ecb 2006. on-line: http://www.ecb.int/pub/pdf/annrep/ar2006annual accounts_en.pdf banca d'italia abridged report for the year 2005. on-line: http://www.bancaditalia.it/pubblicazioni/ricec/rel ann/rel05/rel05en;internal&action=rightframe.ac tion&parameter=pubblicazioni banco de españa annual report 2005. on-line: http://www.bde.es/informes/be/infanu/2005/inf20 05e.pdf banco de portugal annual report 2005. on-line: http://www.bportugal.pt/publish/relatorio/rel_05_ e.pdf bank of england annual report 2005. on-line: http://www.bankofengland.co.uk/publications/an nualreport/2006full.pdf bank of finland annual report 2005. on-line: http://www.bof.fi/en/julkaisut/vuosikertomus/200 5/vk_2005.htm bank of greece annual report 2005. on-line: http://www.bankofgreece.gr/en/publications/pdf/ annrep2005.pdf bank of latvia: annual report 2005 (2006) – riga, latvijas banka, 118 p. banka slovenije annual report year 2005. on-line: http://www.bsi.si/library/includes/datoteka.asp?d atotekaid=2061 banque centrale du luxembourg annual report 2005. on-line: http://www.lb.lt/eng/publications/ annuals/annual_2005.pdf banque de france annual report 2005. on-line: http://www.banque-france.fr/gb/publications/ telnomot/rapport/rap05gb.pdf berger h. 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(2004), frankfurter festung // der spiegel, nr. 26, 2004. pilsuma v., svarinskis l. (2006), efficiency and integrity of central banks' operations // opportunities and problems of economic development. – rēzekne, ministry of education and science of latvia, rēzekne higher education institution, pp. 132–142. population. on-line: http://epp.eurostat.ec.europa.eu/ portal/page?_pageid=1996,39140985&_dad=port al&_schema=portal&screen=detailref&langu age=en&product=yearlies_new_population&root =yearlies_new_population/c/c1/c11/caa10000 protocol on the statute of the european system of central banks and of the european central bank. on-line: http://www.ecb.int/ecb/legal/1341/1342/ html/index.en.html ross k. (2002), market predictability of ecb policy decision: a comparative examination, wp/02/137 – washington, imf, 26 p. stark j. (1999), europe's new megabureaucracy? // the international economy, november/december, 1999, pp. 34–35, 61. stella p. (2002), central bank financial strength, transparency, and policy credibility, wp/02/137 – washington, imf, 42 p. sveriges riksbank annual report 2005. on-line: http://www.riksbank.com/upload/dokument_riks bank/kat_publicerat/rapporter/2006/arsredovisni ng_2005_eng.pdf why the ecb needs to rethink it role (2005) // central banking, vol. xvi, no. 1, 2005, pp. 1–5. 129 european integration studies 2008.indd 88 issn 1822-8402 european integration studies. 2008. no 2 structural changes in the economy of polish regions krystyna gawlikowska-hueckel stanis aw umi ski university of gda sk abstract the paper refers to structural changes and growth dynamics in polish regions (voivodships). first, theories that relate to logics of structural changes are presented. the focus is on concept of the so-called sectoral development. also the criticism of the division of the economy into three sectors is depicted. then there are development differences among polish regions presented. statistical data analysis confi rm williamson hypothesis, as dispersion in income among regions has increased. in poland there are important changes taking place as far as the regions’ contribution to national gdp is concerned. in absolute terms gdp has increase, but the dynamics of growth differs much among regions, with mazowieckie regions being the leader. growth process is accompanied by structural changes. we concentrate on shifts of agriculture, industry and services in value added and employment. finally polish regions’ innovation capacity is judged. keywords: structural changes, regional growth, innovations. introduction the aim of the present paper is to analyse – from a regional perspective – the direction of structural changes in poland. big-scale structural changes in the polish economy result from: the elimination and evolution of old structures, • created by the command-and-control system; the emergence of new structures, qualitatively • adjusted to the demands of the market economy. structural changes come to the fore as a result of the process of the adjustment of the national economy to a dynamically changing global market. these adjustments take their inspiration from the directions of international specialisation and competitiveness. the aforesaid transformations, which are determined by effectiveness and rationality, become a source of economic growth. structural changes have a long-term character. in poland, however, there has been an accumulation of changes in a short period of time. the scope, character and depth of changes have led to an accelerated reallocation of resources, which allows us to discern tendencies and patterns during a comparatively short period of time. besides, the structure and dynamics of structural transformations in polish regions do differ. methodology of the research into structural transformations. theories investigating the patterns of sectoral changes take as their premise that each phase of development is dominated by one sector. theories of so-called sectoral development also identify factors that cause or accelerate the “decline’ of certain sectors and the growth of other sectors. these include: the size and structure of demand and technological progress. fisher (1935) classifi es sectors on the basis of the income elasticity of demand. the income elasticity of demand for products from the primary sector is lower than 0.5, for the secondary sector, it is between 0.5 and 1 and for the tertiary sector, it is higher than 1. according to fourastie (1954), the primary sector encompasses food production and the extractive (mining) industry; manufacturing belongs to the secondary sector, services to the tertiary sector. the greatest concentration of resources in the primary sector took place in the so-called primordial civilisation period. domination of the tertiary sector heralds the advent of the so-called third civilisation; this means that approximately 80% of the employed will work in services. fourastie predicts that the so-called third civilisation will eventually become established in the fi rst part of the 21st century. as clark (1957) argues, technological progress is a major spiritus movens of structural change. the 89 issn 1822-8402 european integration studies. 2008. no 2 division of the economy into three sectors is the result of the impact of technological progress. the primary sector is characterised by moderate technological progress, the secondary by fast, while the tertiary by slow2. as a result of this, an increase in the offer of the tertiary sector can happen almost only through a growth in employment. the primary sector – agriculture, forestry, hunting, gathering and fi shing – is based on the direct utilisation of natural resources and the production cycle in this sector requires a lot of time. this sector is marked by the law of diminishing returns3. the secondary sector – manufacturing – is characterised by the following aspects: production does not necessarily have to be based on the direct exploitation of natural resources; it is marked by a big scale of production, which implies that considerable capital is needed and that work needs to be effi ciently organised; secondary-sector goods are tradable and can be transported over long distances; production has a continuous character and the law of increasing returns applies. the tertiary sector encompasses services. it is in services where employment systematically increases as economies grow. workforce transfers from one sector to another are caused by changes in real income per one inhabitant as well as transformations in the demand structure (changes in consumer preferences) brought about by these changes. one of the most well-known theories is that by kuznets (1976), who, while examining the relationships between general growth and changes in the structure of production, claims that high rates of increase in the global product per head and high productivity are accompanied by an accelerated shift in the structure of production. this relationship in its positive sense is visible in well-developed countries, whereas the reverse is seen in less developed ones. this is because both changes in the rate of growth and the structure of production are conditional upon scientifi c progress and technological innovations. historically, the industries in which technological innovations concentrate become “growth industries”. apart from technological progress, changes in the demand structure and international trade (which – as a result of the existence of comparative advantages – benefi t a country) are seen as other major drivers of structural changes. the rostow theory of leading sectors is intertwined with his model of phase growth. each phase of growth is marked by three groups of industry branches, which differ from each other in 2 the thesis that technological progress in the tertiary sector is slow is now not confi rmed. 3 apart from the mechanised production, conditioned by technological and scientifi c progress. terms of growth rate, labour productivity and the potential impact on transformations in other sectors in the entire economy. rostow (1960) calls these groups of branches basic, complementary and derivative, respectively. basic sectors are the main drivers of the pace and direction of growth; they consist in a series of industry branches, whose leading role results from the utilisation of state-of-the-art scientifi c and technological solutions, the exploitation of new resources, the highest dynamic of production growth and the effectiveness of management. leading branches give impulses to creating other domains of the economy, namely, the complimentary sector. according to rostow, the choice of a leading sector is the key to speeding the rate of growth in less developed countries. the division of the economy into three sectors, which contribute, in differing proportions, to gdp growth and employment, has come in for some criticism, though. first, this three-sectoral analysis was based upon the observations of changes in employment proportions in western european countries. this, however, was not fully borne out by the evidence from such well-developed countries as the usa and canada, where the shift of labour from the primary sector to manufacturing and services took place simultaneously rather than sequentially. in singapore, for instance, in 1920 more than 60% of the employed worked in services (in america and britain in 1900 more than 50%). secondly, even in the 17th century services (trade, maritime transport) in such countries as england, portugal and the netherlands were as important as manufacturing. thirdly, while appreciating the role the industrial revolution played in human history, one has to remember that it did not take place in a vacuum. industrialisation was possible, to a large extent, thanks to the accumulation of capital through the fi nancial market, part of the fi nancial-services system. the effectiveness of infrastructure services in trade and distribution was critical to the organisation of supply chains and manufactured goods sales network (unctad 1989). one can discern here the blurring of boundaries between manufacturing and service provision. what actually happens is the “de-materialisation” of manufacturing and the “industrialisation” of services as well as an ever bigger complementariness of services and manufacturing. even though there is still debate on the rationale of the sectoral analysis of structural changes, it is useful. the following arguments corroborate this point: the structural burden in the form of the • excessive importance of the primary sector 90 issn 1822-8402 european integration studies. 2008. no 2 and manufacturing (a legacy of the communist system experienced at the beginning of the transformation) compared to other countries, e.g. of the eu. as eu member states are poland’s principal trade partners, structural disparities affect the competitiveness of polish export. one can notice changes in the structure of the • polish economy which manifest themselves in the enhanced signifi cance of services and the diminished role of the primary and secondary sectors (to a lesser extent). the sectoral approach allows us to differentiate • service activity and to determine its importance to the labour market (jobs creation) and to the competitiveness of other sectors. besides, the sectoral approach is useful because it allows us: to observe the most general patters of structural • changes that are taking place in poland and its regions; to trace employment trends and workforce • transfers between sectors; to identify the phase of development in which • poland fi nd itself and to make international comparisons and predictions; to formulate industrial policy recommendations • and to criticise government action in this area; to prepare a set of reforms, needed to carry • out necessary eu-oriented adjustments in the light of eu industrial policy directives. in line with phase theories, an increase in the share of services in the economy has to be positively assessed. this proves that an increase in labour productivity in manufacturing allowed a workforce shift from manufacturing to services. yet there are voices to the opposite. negative assessments are based on the assumption that it is manufacturing, technological progress and productivity that play a more important part in economic development (than services) (dertouzos 1989). one can adduce the following arguments against the dynamic growth of services: fi rst, manufactured goods constitute the bulk • of imports, whereas the share of services in export is relatively low. hence a shift to services contributes to the worsening of the trade balance, which in turn slows down growth; second, manufacturing is characterised by • a faster pace of productivity growth than services; thus a shift of resources to services risks slowing down the pace of productivity growth in the entire economy; third, dynamic technological changes • generating economic growth and an improvement in competitiveness are associated predominantly with manufacturing activity (most r&d is carried out in industry). the enhanced importance of services, therefore, leads to the weakening of a country’s technological competitive position4. another argument against the development of services is connected with national security, seen through the prism of dependence on other countries. deindustrialisation renders countries dependent on the provision of defence-systems parts and components from other states (audresch and yamawaki, 1993). one might counter the above arguments, pointing out that services provide infrastructure for manufacturing activity and positively affect competitiveness (whenever a manufacturer outsources high-quality services). the thesis that service jobs are worse than those in manufacturing is irrational because, for many, the tertiary sector is the only alternative to unemployment. developmental differences amongst polish regions the rate of growth of polish regions differs, which is borne out by the statistics on the change of regions’ gdp (published by the central statistical offi ce, cso thereafter). a number of factors – for instance, investment outlays, attractiveness for investors, export, domestic demand – infl uence the dynamics of gdp growth, which in turn gives, in a synthetic way, the picture of the economic situation. the current administrative divison into 16 regions (or voivodships) has been in place since 1999. that said, cso has been publishing – calculated retrospectively – gdp data for the new territorial layout since 1995. due to the inert nature of economic processes, taking into account a possibly long period of time is vital to discerning serious and deep changes. while analysing processes of regional development, special attention is paid to the following issues: acceleration of economic growth, the existence (or non-existence) of catchingup and real-convergence processes (that is, reducing disparities in terms of socio-economic development). one of the most important hypotheses concerning convergence processes was formulated by williamson (1965). this suggests that in a country in which economic growth accelerates, regional differences widen (gawlikowska-hueckel 2002). the evidence from poland (1995-2005) confi rms that hypothesis because in this period regional disproportions in gdp per capita grew. simultaneously, when poland started 4 one has to point to the fast development of so-called new services which make use of new technologies. 91 issn 1822-8402 european integration studies. 2008. no 2 the catching-up process (with the eu), inside – among regions – polarisation processes intensifi ed. in 1995 the ratio of gdp per capita of the most affl uent region (mazowsze) to that of the least affl uent one (podkarpackie) was 1.67 to 1, in 2005 it was – 2.32 to 1 (which bears witness to the divergence/uneven distribution of income5. time, gdp per capita eu level the catching up country and its regions dispersion of income figure 1: theoretical illustration of williamson hypotheses source: authors’ concept based on williamson hypotheses while analysing processes of regional development, it is necessary to take into account the point of departure since the situation at the “beginning” affects the future pace and dynamics of growth. theory and empirical research suggest that weaker regions grow faster than stronger ones. failure to allow for the departure-point potential savours of simplicity and casts doubts over the validity of conclusions. in poland, objective assessments are a bit distorted due to the specifi city of mazowieckie voivodship, in which warsaw boosts gdp per capita for the entire region. (as we know, there has been debate on excluding warsaw from mazowieckie region, which would drive down gdp per head. this in turn would allow the voivodship to meet the structural funds criteria longer.) statistical analysis carried out for 15 regions (1995-2005, counting out mazowieckie to avoid the aforesaid distortion) shows that there is a negative correlation gdp per head at start and the dynamics of regional growth. this means that poorer regions grew faster. this pattern should be categorically taken into account while assessing the regional rate of growth. for that reason, one has to be chary of assessing negatively, for instance, the relatively smaller pace 5 one shall be conscious that gdp per capita is not always the best measure of well being. even better measure could be the disposable income per capita. unfortunately such statistics are not available for regions. also remittances that fl ow from abroad to poor regions would be useful as this wealth is not produced in a region, but it is consumed in it. of growth in dolno l skie or pomorskie regions, compared to, say, wi tokrzyskie or podlaskie regions. this is because poorer voivodships simply grew faster at the beginning. as far as such voivodships as podkarpackie, wi tokrzyskie and warmi sko-mazurskie are concerned, one can discern an evident acceleration of growth in 2001-2004, after a period of slower growth. it is not legitimate, however, to predict on that basis that this tendency will be continued in the near future. the 2005 data suggest that the rate of growth in these regions actually decreased. it follows that drawing conclusions on the basis of analysis of short periods of time, which points to spectacular successes of polish regions, is simply not legitimate. experts on convergence point out that it is a long-lasting process and that reducing (eliminating) regional disparities might take decades. theoretical insights do not always correspond with the situation on the ground, which is confi rmed by the example of mazowieckie. this voivodship, albeit being the most affl uent, is characterised by the highest, long-term pace of growth. yet one has to take a particularly close look at the statistics. they show that the pace of growth of this region is not steady and uniform, and is subject to oscillations. mazowieckie, compared to other regions, grew dynamically in 1996-1999. later, however, the pace of growth fell. in 2002-2003 mazowieckie stopped coming top in gdp-per head rankings. still, in 2005 it become leader again. interesting conclusions can be drawn from the comparison of regions’ growth dynamics and structures of their economies. what is worth mentioning is the positive correlation between the share of services (including construction) and the pace of regional growth. regions with a large share of services in the structure of value added are characterised by a faster rate of growth, whereas those with a large share of manufacturing grow slowly. at the same time, the share of agriculture is not correlated with the dynamics of growth since agriculture does not contribute much to the structure of value added of the regional economies. it cannot be, therefore, a driver of growth. regional success stories have to be seen in perspective. poland’s gdp per capita is one of the lowest in the entire eu and polish regions are amongst the poorest eu areas. hence the catching-up process will take many years, there is no guarantee that all the regions will attain that aim. rankings of the wealth of regions remain stable (http://epp.eurostat. ec.europa.eu/), and spectacular successes resembling developmental leapfrogging need to be seen as an exception rather than as a rule. what is more, only 92 issn 1822-8402 european integration studies. 2008. no 2 time will tell whether poorer regions’ tendency to develop faster will continue. eu membership has given an important impulse to development. but only after some time will it be possible to say whether it is stronger in more affl uent regions (endowed with a bigger economic potential) or in poorer regions that experience the poor-grows-faster effect (http://ec.europa.eu/regional_policy/sources/ docoffi c/offi cial/reports/cohesion4/index_en.htm). changes in the value and structure of gdp gdp per head is the most synthetic indicator that characterises life quality and changes in welfare. despite certain imperfections, it is a commonly used measure. eurostat uses it also to assess the remoteness of regions. table 1: changes in regions’ shares in poland’s gdp share in poland‘s gdp in % change in 1995-2005 rank in 1995 rank in 2005 rank‘s change 1995 2005 2005/1995 (%) 2005-1995 (% points) dolno l skie 8,1 7,8 96,2 -0,3 4 4 0 kujawsko-pomorskie 5,4 4,7 87,4 -0,7 8 8 0 lubelskie 4,6 3,9 85,8 -0,6 10 10 0 lubuskie 2,6 2,4 92,6 -0,2 15 14 1 ódzkie 6,3 6,2 97,9 -0,1 6 6 0 ma opolskie 7,2 7,3 100,9 0,1 5 5 0 mazowieckie 16,8 21,4 127,6 4,6 1 1 0 opolskie 2,8 2,3 82,1 -0,5 13 16 -3 podkarpackie 4,2 3,8 91,2 -0,4 11 11 0 podlaskie 2,4 2,3 95,4 -0,1 16 15 1 pomorskie 5,7 5,7 99,3 0,0 7 7 0 l skie 15,1 13,3 87,7 -1,9 2 2 0 wi tokrzyskie 2,7 2,5 93,0 -0,2 14 13 1 warmi sko-mazurskie 3,0 2,9 95,0 -0,2 12 12 0 wielkopolskie 8,5 9,4 111,3 1,0 3 3 0 zachodniopomorskie 4,6 4,1 89,8 -0,5 9 9 0 source: own calculations based on main statistical offi ce data analysis of polish regions’ share in the creation of national gdp in 1995-2005 points to interesting conclusions: fi rst, what is striking is the advantage of the • capital voivodship of mazowieckie over other regions in terms of contribution to national gdp; mazowieckie was the absolute leader in 1995 and 2005; second, the advantage of mazowieckie in • 2005 compared to 1995 increased (in 1995 the region created 16.5% of gdp while in 2005 – 21.4%); third, less developed regions’ contribution to • national gdp decreased (lubelskie, lubuskie, opolskie, podkarpackie, wi tokrzyskie, warmi sko-mazurskie); fourth, also moderately developed regions’ • contribution to national gdp fell ( ódzkie, kujawsko-pomorskie, zachodniopomorskie, l skie, dolno l skie). pomorskie maintained its share, while ma opolskie, wielkopolskie and, as above mentioned, mazowieckie increased their share. it is important to note that in absolute terms gdp increased in all regions, but its dynamics was different. in 1995-2005 in all polish regions gdp per head increased. the greatest dynamics was observed in mazowieckie. it is not typical because usually it is poorer regions (with lower gdp per head at point of departure) that experience a higher pace of economic growth. such a big dynamics of gdp growth in the economically strongest region means that williamson’s hypothesis as applied to polish regions holds true. as for the places occupied by polish regions in gdp per capita rankings, in 2005, compared to 1995, some changes occurred. wielkopolskie region made most progress, moving up from 7th to 3rd place, and ódzkie moving up from 10th to 7th . ma opolskie, pomorskie and podkarpackie moved one place up. kujawsko-pomorskie fell from 6th to 9th, zachodniopomorskie from 4th to 6th, opolskie from 9th to 11th and lubelskie from 14th to 16th. 93 issn 1822-8402 european integration studies. 2008. no 2 one can discern a worrying trend, which has already been mentioned. mazowieckie, the best developed region, is moving ahead, increasing distance to the national average. lubelskie, the poorest region, is increasing the difference in terms of gdp per head to the national average and, to a larger degree, to mazowieckie. despite positive changes taking place in polish regions, their developmental level in terms of gdp per capita remains far from the eu average. as transpires from the analyses presented in the fourth cohesion report, fi ve polish voivodships fi nd themselves in the list of the eu’s poorest regions. this means that, positive trends notwithstanding, the distance between poland and the eu is still large. changes in value added and employment in the three sectors (agriculture, manufacturing, services) as mentioned above, in 1995-2005 growth process in polish regions were accompanied by deep structural changes. they manifested themselves in the form of a diminishing share of agriculture in value added created in each of the voivodships. as indicated earlier, poland compares unfavourably with the eu average in this respect. while agriculture’s contribution to value added is low, employment is high, which is testament to low productivity in this sector. 9,4 15,8 9,5 8,6 9,7 4,8 18,2 17,3 17,4 17,3 18,5 17,4 21,7 25,0 35,9 33,6 38,4 27,7 22,2 29,9 32,1 31,0 37,9 26,8 28,3 28,5 30,2 29,6 32,9 29,5 28,2 19,0 22,2 18,2 63,0 62,0 60,6 59,4 59,2 57,3 55,0 54,4 54,0 52,5 51,9 49,7 48,8 46,8 45,0 44,2 43,4 0% 20% 40% 60% 80% 100% z a c h o d n io p o m o rs k ie m a z o w ie c k ie p o m o rs k ie d o ln o œl ¹ s k ie l u b u sk ie œ l¹ sk ie m a ³o p o ls k ie p o ls k a w a rm iñ sk o m a z u rs k ie o p o ls k ie k u ja w sk o -p o m o rs k ie w ie lk o p o ls k ie £ ó d z k ie p o d k a rp a c k ie p o d la sk ie œ w iê to k rz y sk ie l u b e ls k ie services industry agriculture figure 2: share of agriculture, industry and services in employment in 2004 (%) source: own calculations based on main statistical offi ce data 3 8 ,4 3 5 ,9 3 3 ,6 2 5 ,0 2 1 ,7 1 8 ,5 1 8 ,2 1 7 ,4 1 7 ,4 1 7 ,3 1 7 ,3 1 5 ,8 9 ,7 9 ,5 9 ,4 8 ,6 4 ,8 7 ,4 1 1 ,8 6 ,3 3 ,3 5 ,9 6 ,8 2 ,9 8 ,5 7 ,8 5 ,5 4 ,5 3 ,7 4 ,6 2 ,8 4 ,5 2 ,6 1 ,3 0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0 40,0 l u b e ls k ie p o d la sk ie œ w iê to k rz y sk ie p o d k a rp a c k ie £ ó d z k ie k u ja w s k o -p o m o rs k ie m a ³o p o ls k ie w a rm iñ sk o m a z u rs k ie w ie lk o p o ls k ie o p o ls k ie p o ls k a m a z o w ie c k ie l u b u s k ie p o m o rs k ie z a c h o d n io p o m o rs k ie d o ln o œl ¹ s k ie œ l¹ sk ie employment value added figure 3: comparison of agriculture share in employment and in value added in regions in 2005 (%) source: own calculations based on main statistical offi ce data 94 issn 1822-8402 european integration studies. 2008. no 2 as far as the sectors’ share in employment is concerned, it is in lubelskie (34.8%), podlaskie (35.9%) and wi tokrzyskie (33.6%) where agriculture’s share is highest. the ratio of agriculture’s share in regional employment to its contribution to regional value added bears witness to the tertiary sector’s effectiveness. 25% of the employed in agriculture in podkarpackie generate only 3.3% of the region’s value added. in each of the polish voivodships agriculture is characterised by low effectiveness. that said, in some areas the ratio of agriculture’s share in regional employment to its contribution to regional value added is not as drastically low as in podkarpackie. from this viewpoint, it is warminsko-mazurskie that – with the ratio of 17.4 to 8.5 – stands out amongst polish voivodships. on average, in poland agriculture’s share in employment was 3.9 times higher than its contribution to value added. ma opolskie, wi tokrzyskie, lubelskie, mazowieckie and, as just mentioned, podkarpackie are marked by the lowest effectiveness of agriculture (as measured by agriculture’s share in regional employment to its contribution to regional value added). this stands in contrast to the situation in zachodniopomorskie, lubuskie, ma opolskie and, as just mentioned, warmi sko-mazurskie. analysis of trends shows that in 1995-2005 lubelskie experienced the largest decrease in agriculture’s contribution to regional value added (a fall of 8.4 percentage points). this means that in 2005 this region created only 46.5% of the value added generated in 1995. as mentioned above, lubelskie is the region in which the role of agriculture (as measured by its share in employment) has been highest. by the same gauge, next come podkarpackie (-6,5 percentage points), opolskie (-6,3 percentage points) and wi tokrzyskie (-6,2 percentage points). by contrast, l skie (-1,1 percentage points), pomorskie (-2,9 percentage points) and ma opolskie (-2,9 percentage points) experienced the smallest fall in the value added generated by agriculture. l skie and pomorskie are regions in which agriculture plays the least considerable part in employment creation. structural changes in 19952005 affected also manufacturing, but changes in that sector’s contribution to regional value added were not as drastic as in agriculture. in one voivodship, lubuskie, industry’s share in value added increased substantially. in 2005 it amounted to 123.7% of the value added generated in 1995. opolskie, dolno l skie and wielkopolskie experienced the relatively smallest changes. in these regions value added in 2005 constituted, respectively, 98,6%, 98,6% and 94,4% of the value added generated in 1995. mazowieckie, zachodniopomorskie and ma opolskie experienced the largest decreases in industry’s share in value added. this was, respectively, 75.1% (of the value generated in 1995), 78.8% and 80.2%. lubuskie is the only voivodship in which services’ contribution to value added decreased in 1995-2005 (a fall of 2.4 percentage points). in all other regions, the role of services (as measured by the increase in their share in valued added) increased considerably. also worth mentioning is the fact that it increased to the largest extent in less developed regions: lubuskie (11.4 percentage points), wi tokrzyskie (9.3 percentage) and podkarpackie (8.8 percentage points). polish regions’ innovation capacity innovation capacity is the ultimate element taken into account while examining polish regions’ developmental potential. as is well known, the eu compares unfavourably with the usa and japan in this respect (zieli ska-g bocka 2003). there is evidence, presented in european innovation scoreboard, that the eu – on most indicators – has not managed to catch up. while analysing europe’s innovation capacity, one has to remember that there exist considerable disparities not only between old and new member states, but also within the eu-15 and the eu-12. trends in changes in innovation capacity traced in recent years show that particular member states develop differently. this is conditioned by the pace of innovation generation and its deployment. denmark, germany, sweden and finland are leaders, while poland, slovakia, spain and estonia are lagging behind. as emerges from the research published by european innovation scoreboard (http://www. proinno-europe.eu/), poland fi nds itself amongst countries described as losing out in terms of competitiveness and innovation capacity. in this context, the problem of regional disparities assumes a new seriousness. this is due to the differences in outlays and expenditure on r&d, which implies big asymmetry. true, over the analysed decade, some changes took place; yet they were not always benefi cial to poorer regions. in 1995-2005, some regions’ share in the national outlays on r&d decreased. these are wi tokrzyskie, opolskie, warmi sko-mazurskie, zachodniopomorskie, podkarpackie, lubelskie, ódzkie, l skie and mazowieckie. by contrast, the following voivodships increased their share in the national outlays on r&d: lubuskie, podlaskie, pomorskie, ma opolskie, wielkopolskie, kujawsko-pomorskie and dolno l skie. it transpires that the situation in this respect is changing dynamically, so it is diffi cult to predict how it will evolve in the future. analysis of expenditure per capita on r&d offers another perspective from which to look at this particular aspect of regional disparities. 95 issn 1822-8402 european integration studies. 2008. no 2 1 8 8 ,7 6 5 ,8 5 5 ,3 3 7 ,9 3 9 ,5 5 7 ,3 3 9 ,3 3 9 ,8 3 7 ,9 1 7 ,4 2 3 ,5 7 ,6 1 8 ,5 2 3 ,7 4 ,1 1 9 ,4 1 1 ,5 2 2 4 ,1 1 4 6 ,1 1 3 1 ,3 1 2 9 ,1 1 2 4 ,3 1 2 0 ,0 9 3 ,6 8 3 ,9 5 5 ,5 5 3 ,2 5 1 ,2 4 6 ,3 4 1 ,3 3 5 ,5 2 6 ,7 1 5 ,3 0,0 50,0 100,0 150,0 200,0 250,0 300,0 350,0 400,0 450,0 m a z o w ie c k ie m a ³o p o ls k ie p o ls k a p o m o rs k ie w ie lk o p o ls k ie £ ó d z k ie d o ln o œ l¹ sk ie œ l¹ sk ie l u b e ls k ie k u ja w sk o -p o m o rs k ie p o d k a rp a c k ie p o d la sk ie w a rm iñ sk o m a z u rs k ie z a c h o d n io p o m o rs k ie l u b u sk ie o p o ls k ie œ w iê to k rz y sk ie 1995 2005 figure 4: expenditures on r&d per capita in poland’s regions in 1995 and 2005 (pln) source: own calculations based on main statistical offi ce data with regard to that, mazowieckie comes top (450 zlotys in 2005), with ma opolskie second (but with only 224.1 zlotys). in all other regions the value of this indicator was lower than the national average. these fi gures suggest that there is a gap between polish regions. suffi ce it to say that expenditure per head on r&d in mazowieckie was 30 times higher than in wi tokrzyskie, which fared worst in this respect. in addition, in 1995-2005 that distance grew exponentially since in 1995 expenditure per head on r&d in mazowieckie was 17 times higher than in wi tokrzyskie. the situation is aggravated by the fact that in poland’s least developed regions, expenditure on r&d per head is still minimal. one can argue that this is not a tragedy, as poor regions will not become engines of growth or innovation milieu. for poor regions more important could be to reduce civilisation gap that can be fostered by building roads, water processing plants, etc. however in the longer time perspective, undoubtedly investments in modern technologies seem a sine qua non for building sustainable competitive advantages. businesses’ inclination to invest in r&d is one of the most important indicators of increasing modernity and innovativeness. in this respect, too, regions differ from each other. it is generally recognised that companies’ share in expenditure on r&d should be as high as possible. it might be worthwhile to mention that in the following voivodships, fi rms’ contribution to national expenditure on r&d is higher than the average: pomorskie, podkarpackie, kujawsko-pomorskie, wi tokrzyskie, dolno l skie, l skie, lubuskie and ma opolskie. nonetheless, it is essential to remember that expenditure on r&d in all polish regions (and, in particular, in less developed ones) is relatively low. also another indicator, employment in the r&d sector, is testament to the asymmetry in regional innovation capacity. in 2005, the combined share of the three leaders (mazowieckie, ma opolskie and wielkopolskie) in employment in r&d constituted 49.5% of the national total. in contrast, the combined share of the “laggards” (with a share of less than 5%) – podlaskie, podkarpackie, kujawsko-pomorskie, opolskie, warmi sko-mazurskie, wi tokrzyskie, zachodniopomorskie and lubuskie – constituted only 16.4%. what is remarkable is the high value of the indicator in lubelskie: in 2005 this region’s share in national employment in r&d equalled 5.7% (in 1995 it was 5.4%). bearing in mind that overall the number of employed in r&d increased in 1995-2005, positive trends can observed in 12 polish regions. it is lubuskie that experienced the biggest increase: in 2005 the number of the employed in r&d was 171.4% higher than in 1995. in wi tokrzyskie, mazowieckie, dolno l skie and ódzkie fewer people worked in r&d in 2005 than in 1995. summary data on changes in regional gdp show that the rate of growth differs from region to region. the pace of growth is conditioned by many factors; 96 issn 1822-8402 european integration studies. 2008. no 2 hence it offers a synthesis of the socio-economic situation in a region. while analysing processes of regional development, special attention is paid to the following issues: acceleration of economic growth, the existence (or non-existence) of catchingup and real-convergence processes (that is, reducing disparities in terms of socio-economic development). the williamson hypothesis, which posits that in a country in which the rate of growth accelerates, regional disparities grow, is borne out in poland. when poland started the catching-up process, inside – among regions, polarisation intensifi ed. in poland, objective assessments are a bit distorted due to the specifi city of mazowieckie voivodship, in which warsaw boosts gdp per capita for the entire region. statistical analysis carried out for 15 regions (1995-2005, counting out mazowieckie to avoid the aforesaid distortion) shows that there is a negative correlation gdp per head at start and the rate of regional growth. this means that poorer regions grew faster. this pattern should be categorically taken into account while assessing the regional rate of growth. drawing conclusions on the basis of analysis of short periods of time, which points to spectacular successes of polish regions, is simply not legitimate. experts on convergence point out that it is a longlasting process and that reducing (eliminating) regional disparities might take decades. interesting conclusions can be drawn from the comparison of regions’ growth dynamics and structures of their economies. what is worth mentioning is the positive correlation between the share of services (including construction) and the pace of regional growth. regions with a large share of services in the structure of value added are characterised by a faster rate of growth, whereas those with a large share of manufacturing grow slowly. at the same time, the share of agriculture is not correlated with the dynamics of growth since agriculture does not contribute much to the structure of value added of the regional economies. it cannot be, therefore, a driver of growth. regional success stories have to be seen in perspective. poland’s gdp per capita is one of the lowest in the entire eu and polish regions are amongst the poorest eu areas. hence the catching-up process will take many years, there is no guarantee that all the regions will attain that aim. rankings of the wealth of regions remain stable, and spectacular successes resembling developmental leapfrogging need to be seen as an exception rather than as a rule. what is more, only time will tell whether poorer regions’ tendency to develop faster will continue. eu membership has given an important impulse to development. but only after some time will it be possible to say whether it is stronger in more affl uent regions (endowed with a bigger economic potential) or in poorer regions that experience the poor-grows-faster effect. if we take into account polish regions’ innovation capacity, differences in this respect are severely strong. expenditures on r&d calculated per capita in mazowieckie are 30 times higher than in wi tokrzyskie. moreover, between 1995 and 2005 the scope of polarisation of innovation capacity has increased. thus we can say that innovation gap among regions is higher than incomes gap. obviously we can argue that this is not a tragedy, as poor regions will not become engines of growth or innovation milieu. for poor regions more important could be to reduce civilisation gap that can be fostered by building roads, water processing plants, etc. however in the longer time perspective, undoubtedly investments in modern technologies seem a sine qua non for building sustainable competitive advantages. we could refer to ahorini (2000) who draws attention to the process of structural changes from primary and secondary sectors towards services as shift from “the economy of goods to the economy of ideas”. this – in longer time – could help in building a solid competitive advantages at regional level. the development of “economy of ideas” – in our opinion – must be accompanied by investment in innovations, r&d, research personnel etc. and we do not see it in many of the polish regions. references ahorini, y. (2000) introduction, in ahorini, y. and nachum, l., globalization of services – some implications for theory and practice, routledge, london, 1-22 p. audresch d.b., yamawaki h., (1993) the manufacturing/service interface; [in:] european economy, social europe, no 3/1993, commission of the european communities clark c., (1957) the conditions of economic progress, london, 490-491 p. dertouzos m.l., et al., and the mit commission on industrial productivity (1989) made in america: regaining the productivity adge, cambridge, mit press fisher a. (1935) the clash of progress and security, london, 25 p. fourastie j. (1954) die grosse hoffnung des zwantigsten jahrhunderts, koeln, 127 p. gawlikowska-hueckel k. (2002) procesy rozwoju regionalnego w unii europejskiej. konwergencja 97 issn 1822-8402 european integration studies. 2008. no 2 czy polaryzacja?, wydawnictwo uniwersytetu gda skiego, gda sk kusnetz s. (1976) wzrost gospodarczy narodów. produkt, i struktura produkcji, warszawa, 310 p. rostow w.w. (1969) the process of economic growth, oxford, 161 p. unctad, (1989) services and development potential, the indian context, williamson j.g. (1965) regional inequality and the process of national development: a description of the patterns. econ dev cultural change, 13 (4, part 2): 3-45 p. zieli ska-g bocka a., ed. (2003) potencja konkurencyjny polskiego przemys u w warunkach integracji europejskiej, wydawnictwo uniwersytetu gda skiego, gda sk http://www.proinno-europe.eu/ http://epp.eurostat.ec.europa.eu/ http://ec.europa.eu/regional_policy/sources/docoffi c/ offi cial/reports/cohesion4/index_en.htm the article has been reviewed. received in march, 2008; accepted in april, 2008. 99 issn 1822 8402 european integration studies. 2009. no 3 part-time employment as a promotional factor of labour market līga mihejeva inese saulāja latvia university of agriculture, faculty of economics, department of business and management abstract lisbon strategy of the european union (eu) and the respective goal for sustainable eu development provides for economically and socially agreed and equal support for the entire society, including everyone individually in the economic, political and social processes through consolidating, integrating and developing the society as well as it is possible. the labour market of latvia has changed fast over the last five years and the employment opportunities have increased. statistics over this period prove that the unemployment level has reduced and the employment has increased. in recent months latvia and other countries have been experiencing changes in the economic life. statistical data in the labour market over the previous quarter prove it. in contrast to the above described, the unemployment level has started to grow but the employment to reduce. there is a general understanding in the country that labour costs should be reduced. that means not only lowering salaries but also lowering other labour costs. the employers try to reduce labour costs by using part-time employment, split employment or distance employment, e.g. costs related to arranging an office. in general, when considering employment problems in the country, in their research the authors single out a risk group – people after the maternity leave. taking into account the current complicated economic conditions, this risk group should be specially protected. when analyzing employee motivation, it can be concluded that salary increase is not always a motivator for this risk group. when analyzing the labour market research, it can be concluded that one of the motivation factors is social guarantees and flexible work hours, especially for that risk group that returns to the labour market after the maternity leave. the unemployment situation, which has especially intensified recently in the country, attests to the employment problems. therefore in their research the authors study one of the potential factors promoting the labour market for people after the maternity leave – part-time employment. the research analyzes and evaluates data of the labour market from 2006 – 2008. they comprise employment, accounting work hours and unemployment data, emphasizing gender differences. the data analyzed are about people after the maternity leave. when analyzing part-time employment, a noticeable fact is in what way the country and the employers support the opportunity of being employed part-time. there is an issue in what form and whether at all employers could cooperate with the country to promote part-time employment. at the state level, those would be work and family balance programmes because this is a significant factor to enhance employment – so that people would want and could work. on the part of the country it is also important to provide new parents with places in the kindergartens for their children, so that parents could return to the labour market. key words: unemployment, part-time employment, maternity leave, integration. introduction over the last years the labour market in latvia has been researched much and from different aspects. there were many studies how to facilitate employment in the country. the authors of this researched have looked more deeply at female employment issues and how females are encouraged to return to the labour market after the maternity leave. females spend less time in paid employment than males. in the 27 eu member states, 29% of the employed females work part-time (30 or less hours a week) if compared to only 7% males employed part-time. males usually work longer hours – including 20% males who issn 1822-8402 european integration studies. 2009. no 3 100 work more than 48 hours a week, which is almost twice as high indicator than for that for females (12%). in eastern europe, part-time employment is not frequently met among females, but in western europe more than one third of the females work part-time. in latvia only 6.4% of the inhabitants work parttime, whereas, e.g. in norway the total number of people employed part-time is 28%, in sweden – 25%, in finland – 14%, in denmark – 25% and in holland – even 46%. if we compare latvia with its neighbours, then in estonia the indicator is 8.2%, but in lithuania – 8.6%. (o leja k., 2009) the goal of the research is to analyze the part-time employment factor as an opportunity for successful integration in the labour market after the maternity leave. to achieve the goal, the following objectives were set: to analyze the use of part-time employment in 1) eu and latvia; to analyze the legal basis for part-time 2) employment; to offer recommendations about the opportunities 3) for integrating part-time employment in the labour market. the research object is women that return to the labour market after the maternity leave. according to the laws and regulations of the republic of latvia, men can also use the paternity leave but the proportion of men who use it is very small, therefore only women were studied. the research applied analysis-synthesis, induction and deduction, graphical, as well as descriptive statistical analysis methods. the research used data of the central statistical bureau (csb) of the republic of latvia, eurostadt data about employment; scientific publications about research on employment and the labour market in latvia were analyzed; as well as economic and political recommendations to integrate these people in the labour market were looked at. 1. part-time employment in eu and latvia on december 15, 1997 the council adopted the directive 97/81/ek on unice (union of industrial and employers’ confederations of europe), ceep (centre of employers and enterprises providing) and eac (eurasian economic community) basic agreement on part-time employment. the aim of the directive is to implement the basic agreement, found in the appendix of the directive, about part-time employment that has been signed between general inter-professional organizations (unice, ceep and eac). this basic agreement deepens european employment strategy. the aim of the basic agreement is, first, to ensure that part-time employee discrimination is stopped and the part-time employment quality of work is improved; second, to facilitate voluntary part-time employment development and to enhance flexible work organization so that both employers and employees’ needs are taken into consideration. this document describes the notions ‘part-time employee’ and the ‘comparative full-time employee’ and differences between them. to ensure the equality principle in the labour market, clause 4 of the basic agreement provides the prohibitive principles, e.g. about work conditions, pro rata temporis, etc. this clause stipulates that every member state may decide about the procedure of applying it. likewise, another clause is devoted to the opportunities of part-time work hours, for example, about the employee opportunities to refuse from part-time employment, about providing information, etc. (eu directive 97/81/ek “on unice ..., 1997) in latvia, the work hours are determined by the labour law adopted on june 20, 2001 by the republic of latvia. this law and other laws and regulations that regulate legal labour relations are binding to all employers, irrespective of their legal status, and to employees if the employer employee legal relations are based on a contract. the legal labour relations are regulated by the satversme of the republic of latvia international legal norms, which are binding for latvia, this law and also other laws and regulations, as well as the collective agreement and work procedure regulations. the main functions regulated by the labour law are: the system of employment rights and its basic  principles; employee independence; international employment rights; terms; collective agreement; contract; establishing legal labour relations; employee liabilities; remuneration; employee duties and rights; terminating the legal labour relations;  work and leisure time.  the law stipulates who and in what way shall be determined part-time work hours. first, in the contract the employer and the employee may agree on part-time employment hours that are shorter than the regular working day or week. second, the employer may determine part-time work hours if it is required by a pregnant employee, a female employee after the labour up to one year. third, upon the request of the employee, the employer transfers the employee from full-time to part-time work or vice verse if the company has such a possibility. the part-time employee is the subject to the same regulations as any other employee employed on issn 1822-8402 european integration studies. 2009. no 3 101 regular basis. (labour law, 2001) in 2005 in the study of the employers’ confederation of latvia on work hours, part-time employment is classified under the employment with reduced work hours. sharing the work place, working while studying, and gradual retirement are also included in the same group. they all, in fact, are part-time employment with different specific characteristics. part-time employment is considered to be employment that is shorter than regular work hours (8 hours a day / 40 hours per week). it is provided already by the contract determining the number of work hours and if necessary, also their division across the week. most frequently part-time employees work 2030 hours a week. part-time employment can be expressed as both shorter work hours every week and less working days per week. it is especially popular among students. the new parents also like to use it as it allows them to gradually return to the labour market after the maternity leave. (darba laiks, 2005) in total, in the european union 14.2% of all the employed worked part-time in 1992, but in 2002 this indicator was already 18.1%. only in denmark a decrease in the proportion of part-time employees was observed over this period. the spread of part-time employment differs in the member states of the european union. for example, in the netherlands, about 40% of the employed are part-time employees while in greece – only 4.5%. 0 5 10 15 20 25 30 35 40 45 50 bg cz dk d e ie gr fr it lt lu nl at si sk f i se uk is ch country h ou rs males females source: designed by the author based on eurostat..., 2009 fig. 1. weekly work hours in the eu in 2004, hrs. from the data on eurostadt web page it can be concluded that not all the countries have made the data available, e.g. estonia, latvia, a.o. in total, in 2004 people in the eu worked 37.2 hours a week on average. figure 1 presents data according to the gender. in 2004 in the eu males worked 39.7 hours on average, which is above the total average for all the employees, but females worked 33.9 hours on average, which attests that part-time employment would be one of the promotional factors for females, especially when they return to the labour market after the maternity leave. in contrast, in latvia males worked 41.3 hours on average, but females worked 37.4 hours on average in 2004. (nostrādātās stundas ..., 2004) there are more females who work part-time (in 2002 in the european union the proportion of all females working part-time was 5 times bigger than that of all males). this difference is especially visible in luxemburg (even 14 times more females than males), as well as in austria and germany but it is less felt in the nordic countries. if the age is considered, it can be seen that mostly people in the retirement age and young people in the age of 15-24 work part-time. there are many females, age 25-65, who work part-time when males mostly work full-time. in the new member states and the candidate states of the european union part-time employment is not that widespread. in 2002 in all these countries only 7.8% in total were part-time employees and, in fact, in 2001 the indicator was higher – 9.8% (rumania, bulgaria, cyprus, the check republic, slovakia, estonia and latvia were among the countries where the proportion of part-time employment reduced in 2002). in 2002 most part-time employed were in rumania (11.4%), poland (10.7%0 and lithuania (9.8%), but least – in slovakia (1.9%), bulgaria (3.1%) and hungary (3.6%). issn 1822-8402 european integration studies. 2009. no 3 102 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 be cz dk d e ie gr es fr it lu hu n l si uk is no ch country h ou rs male s fe male s source: designed by the author based on eurostat..., 2009 fig. 2. use of full-time employment in eu in 2004, hrs. according to the report of the european commission on the employment, in 2003 in european union 25% of the employees had flexible work hours, i.e. they had the opportunity to choose the time they begin and end their work day. in france, germany, ireland and great britain more than 50% of the employees used one of the flexitime forms. in greece, hungary, portugal, spain and slovenia less than 10 employees had such a chance. on average in the european union flexi-time work models are available to 20% of the employees. (darba laiks, 2005) in contrast, the employers’ confederation in norway admit that three principles should be combined – competitiveness, socially acceptable circumstances and the followers’ and it requires cooperation between the government, employers and social partners. more attention was paid to setting up kindergartens, to flexible work hours, maternity leaves, youth policy, in other words, a family-friendly policy. (laiks darbam un ..., 2006) the labour law in latvia provides, for example, a 10 day paid paternity leave for the fathers and the opportunity to use an additional 3 day vacation (for parents who have 3 or more children or whose child is handicapped). in this matter the state employment agency offers the pre-retirement and retirement age people to acquire the education of an au pair, a home help, a baby sitter, etc. or e-training for unemployed mothers after the maternity leave. 2. statistical indicators of part-time employment in latvia as females do most of the household duties, take care of the children and also the dependent grown-ups, they have the longest total work week, especially if they are employed full-time. the main reason is the unequal division of the unpaid household duties among the genders. although part-time employment offers a small advantage, females still work longer in total than males who are employed full-time do. therefore, although part-time employment often is supported as a measure to balance work and family life, in total females who have such a division of work usually work longer than males do. according to the data of the csb, in latvia it is males who more work full-time: from 2005 till 2007 on average it was 94.7% of all the employed males but only 91.0% of all the employed females, which is for 3.7% less. however, taking into consideration the average indicators among the part-time employed, this tendency is absolutely opposite: 5.3% for males on average, but 9.0% for females. analyzing the data of 2007 against the data of 2005, it can be seen that in this three-year period the number of the full-time employed has a tendency to increase: by 1.5% for males but by 2.6% for females. however, the number of the part-time employed has a tendency to decrease: by 1.6% for males and by 2.6% for females. according to the authors, people do not feel secure when working part-time, which is especially issn 1822-8402 european integration studies. 2009. no 3 103 table 1. the proportion of males and females employed full-time and part-time in latvia from 2005 – 2007, % indicators 2005 2006 2007 2007/2005 male female male female male female male female full-time employees 93,6 89.4 95.3 91.6 95.1 92.0 1.5 2.6 part-time employees 6.4 10.6 4.7 8.4 4.8 8.0 -1.6 -2.6 including studied, were on training or in internships 12.1 9.6 9.5 10.7 20.1 18.2 8.0 8.6 sickness, disability 4.5 3.7 4.5 3.7 9.1 4.1 4.6 0.4 could not find full-time job 43.7 30.6 43.7 28.8 21.5 20.5 -22.2 -10.1 did not want full-time job 14.2 19.6 14.5 17.0 17.1 16.6 2.9 -3.0 took care of one’s own child/children ... 12.1 ... 7.0 ... 7.4 ... -4.7 due to other personal or family reasons 11.8 14.1 15.2 15.1 19.3 18.0 7.5 3.9 other reasons 13.7 10.4 12.6 17.6 12.0 14.2 -1.7 3.8 source: designed by the authors, based on the data of the csb, 2009 expressed among females. it is important to analyze why people choose to work part-time. a significant reason for working part-time among males in 2007 was sickness or disability, which had grown by 4.6% if compared to 2005. however, for females the reasons in 2007 were studying, training or internship, which had increased by 0.4% if compared to 2005. the research revealed that one of the most significant part-time employment reasons was taking care of children. during the threeyear period males did not have it as a reason to choose part-time employment. however, it was a significant reason for 12.1% females in 2005 and for 7.4% in 2007. if compared to 2005, in 2007 this reason had reduced by 4.7% for females. however, on average 8.8% of females mentioned taking care for children as a reason. in the authors’ opinion, if the country promoted combining work and family life, the percentage would be lower. in the new member states the difference between the division of male and female work time is significant. males work longer hours there and part-time employment is more and more related to female employment. the employment exhibits an expressed gender inequality: in some types of work females are represented in bigger numbers, in other – in too small numbers if compared to the total number of work they have. differences in work conditions (labour environment, type of work and its organization, as well as subjugation to physical risks) for males and females arise from work division according to the gender and from the fact that females work part-time more frequently than males. for example, part-time employees do not receive such help and social support than full-time employees and they are less frequently involved in team work. females who work in manufacturing more frequently perform monotonous tasks than others. in addition, although employees in manufacturing have less opportunities for training, females are even more deserted in this category – nine out of ten females employed in manufacturing reported that they had had no chance for training over the previous year. employees’ advantages if they work part-time: more free time to spend on out-of work interests  (incl. education, social activities, hobbies); for the youth – the opportunity to get included in  the labour market, to get practice along with the studies; the opportunity to stay in the market for those  people who have significant out-of work duties (for example, care for children or other people). employers’ advantages if employees work part- time: the company at least partly may maintain skills and  competencies of such people who have significant family, etc. duties; the opportunity to divide duties in the company  more optimally (for example, if execution of specific functions does not require full-time work, a part-time employee may be hired for doing it, thus saving resources). the fact that in some work places (especially the ones where team work is required) partial presence of the employee may make other colleague’s work more difficult should be mentioned as a drawback. (darba laiks, 2005) employment problems in latvia interact with attracting employees in the country, and that is approved by the research “the impact of objective and subjective factors on attracting inhabitants to small towns and rural territories of latvia”. during the research deep interviews with the inhabitants of small towns were carried out. territories for the research were selected based on several criteria: territories located far from riga (more than 100 km), territories that are not located close to employment centres (biggest cities of latvia) issn 1822-8402 european integration studies. 2009. no 3 104 (farther than 20 km), territories which have the status of specially supported territories that are close to the border of latvia (land and sea). six small towns of latvia with the surrounding territories were chosen – piltene, pavilosta, ape, dagda, akniste, viesite, which according to the administrative territorial reform could become the new area centres. mainly respondents admitted to employment problems. interviews were carried out with different groups of inhabitants in all the chosen small towns, as well as in their surrounding territories. summarizing the results of the interview, it is possible to distinguish the potential problem groups: the ones directly related to the employment: job 1) offers, remuneration, work and social security; problems that are indirectly related but affecting 2) the employment: migration, gender and age stereotypes, formal and informal impact of social networks. attractiveness is related to employment opportunities. sea and other employment projects mention the number and variety of work places, the salary level, social security and work conditions and security as significant features characterizing employment. (saulāja i., rasnača l., ..., 2007) the summary of factors affecting employment in small towns is presented in figure 3. darba vietu skaits un dažādība number and variety of work places nva un citi nodarbinātības projekti sea and other employment projects atalgojuma līmenis the level of salery soaciālā drošība social security darba apstākļi un drošība work conditions and security mājoklis habitation 1. sabiedriskais transports public transport 2. ceļu kvalitāte road quality izglītība education veselības aprūpe health care pakalpojumu pieejamība available services nodarbinātība employment source: saulāja i., rasnača l., ..., 2007 source: saulāja i., rasnača l., ..., 2007 fig. 3. the factors affecting employment in small towns in latvia employment is affected by indirect factors, such as habitation, public transport and the quality of roads, education, health care, available services. new specialists do not come to small towns where they cannot purchase a separate habitation for an acceptable price, where there are no schools and pre-school educational establishments, etc. the authors of this research pay special attention exactly to work conditions and work security because those are directly related to the risk group under study people after the maternity leave. in latvia work security comprises such factors as physical safety (conditions in the work place), job security, receiving salary in a timely manner (tautas attīstība, 2002). people in latvia do not feel secure about their work or family. the deep interviews prove it. one of the representatives of viesite municipality stated that living in latvia, you do not feel secure about yourself and your family. he considers that the state requires everyone to grow and develop with the time but everything is changing so fast that it is impossible to follow. he offers the state to support inhabitants’ education and qualification improvement. what concerns social security, the situation in latvia should be compared with the one in estonia. many respondents from vidzeme region stated that in estonia the employment situation is better. for example, an employee from ape municipality claimed that many people work in estonia because companies in latvia are liquidated due to the high costs. the respondent also said that in estonia both the minimum salary is bigger and the attitude towards people is different, which is expressed as, e.g. mandatory health insurance, and thus people feel more socially secure. in the situation in latvia it is characteristic that population (labour force) migration is mostly facilitated by the economic conditions. the salary is the main but not the only reason. the job safety level is dropping in the small towns of latvia like in any other country that is going through the transition period in economics and where the unemployment level is high. the employees very often have no opportunities to demand increasing the job safety in the company and any initiative in raising the job safety and improving working conditions may not gain support or might even be disapproved of. in such a case the employee has to make a decision whether to continue to work in the company or to look for new alternative forms of employment. looking for new employment alternatives in the best case may be time consuming, in the worst case – may add the employee to the number of the unemployed or result in too long time spent looking for job. issn 1822-8402 european integration studies. 2009. no 3 105 3. need of part-time employment – kindergartens one of the reasons why females choose part-time employment more is the family and children. although the legislation allows the parents to choose who uses the maternity leave, mainly it is chosen by females. in the authors’ opinion, one of the reasons why parttime employment in latvia should be more promoted is the insufficient number of pre-school educational establishments or kindergartens. children are to be queued up for the place in the kindergarten which many parents do not even get until the child starts attending school. figure 2 allows concluding that there are several factors in the labour market that either hinder or promote the return to the labour market after the maternity leave. the authors consider that one of the factors that affect this integration is the existence of kindergartens. (see table 2) table 2. pre-school educational establishments in latvia from 2005 – 2007 indicators 2005 2006 2007 2007/2005 (%) number of pre-school educational establishments 553 557 564 2.0 number of children in pre-school educational establishments, th. 75 77 79 5.3 number of children pre-school educational establishments in percentage from the number of children of the age 1 – 6 63 63 ... ... source: designed by the authors, based on the data of the csb table 2 data allow concluding that the number of children is growing in pre-school educational establishments: in 2007, if compared to 2005, it increased by 5.3%. at the same time the number of preschool educational establishments increased by 2.0%. the authors conclude that the increase in the number of children was more than twice bigger than in the number of pre-school educational establishments. from 2005 till 2008 the number of children in preschool educational establishments increased by 5.7%. (see table 3) table 3. the number of children in pre-school educational establishments in latvia (at the beginning of the study year) from 2005 – 2007 study year total number of children pre-school educational institutions (september 1) proportion in the total number of children 2005/2006 547346 74968 13.7 2006/2007 527086 77278 14.7 2007/2008 509833 79253 15.5 source: author’s calculations based on the data of the csb the authors conclude that the number of children in pre-school educational establishments exhibits a tendency to grow, starting from the study year 2005/2006 – for 3.1 and 2.6% respectively. table 3 exhibits that the proportion of the children studying in pre-school educational establishments is 13.7 15.5% and it is growing every year. however, the total number of children exhibits a declining tendency (-6.9%). it means that the number of children who need kindergartens has increased over this period. conclusions on december 15, 1997 the council adopted the 1. directive 97/81/ek on unice, ceep and eac basic agreement on part-time employment. its goal is to implement the basic agreement on part-time employment which supplements the directive and which has been signed by general inter-professional organizations (unice, ceep un eac). in 27 member states of eu, 29% of the employed 2. females work part-time (30 or less hours a week) if compared to only 7% of the males who work parttime. in latvia it is males who are more employed full-time: from 2005 till 2007 on average 94.7% of all the employed males, but 91.0% of all the employed females, which is for 3.7% less. the number of parttime employed has a tendency to decrease – for males by 25.0%, but for females – for 24.5%. in latvia, part-time employment is not sufficiently 3. promoted. taking into account the insufficient number of pre-school educational establishments, state institutions should take informative measures to inform society about such opportunities. issn 1822-8402 european integration 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c2d%c2t%c2s+stundas+%28vid%c7j i+ned%c7%cf%c2%29+p%c7c+dzimu ma+un+nodarbin%c2t%cebas+sta tusa+pa+ceturk%d0%d2iem&path=../ database/iedzsoc/%cestermi%f2a%20 statistikas%20dati/nodarbin%e2t%eeba%20un%20 bezdarbs/&lang=16 (28.03.2009) the article has been reviewed. received in march, 2009; accepted in april, 2009. microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 enlargement of the european union: the long term transformations towards europe of knowledge borisas melnikas vilnius gediminas technical university abstract this paper analyses the long – term trends of social and economic transition in central and eastern europe under the conditions of eu enlargement and the processes of globalization. the general and specific trends before and after eu enlargement as well as in the future are described and compared. some new non-traditional ideas and models of possible economic development in the future are discussed. the processes of development of integral european economic, social and cultural space, the processes of the creation of knowledge based society and knowledge economy are analyzed. the following features of economic transition in central and eastern europe in the period of eu enlargement and further globalization in the future deserve particular attention: intensive diversification of traditional economic structures, profound changes in all sectors of the national economic systems, creation of new forms of interregional cooperation in the new integral economic space; very uneven economic growth in the various countries, regions and sectors, increasing differences and disparities in economic and social development as well as between various groups in the society; intensive innovation processes taking various forms, and the realization of new models of innovation activities; controversial industrial development, very uneven technological progress, multiplication of high–technologies and new forms of industrial activity influencing the new quality life as well as new social and economic difficulties and problems. keywords: transformation, european union, knowledge, economic development introduction the 21st century is the age of increasingly developing transformations in the whole world and all spheres of life. transformations embody the most important attribute of the modern époque; therefore, all relevant political, social, economic, technological, ecological and other issues should be conceived and approached as issues of transformations. analysing and identifying transformations, as well as subsequently influencing their course may be understood as a very important area of the modern science. within this area of the science a number of directions can be identified, each of which may carry specific orientations towards transformations of certain origin or character. a very promising direction for research is one dedicated to the transformations in the central and eastern europe over the last 10-15 years, including the present moment and both near and more distant future. the transformations of this kind reflect on creation of integral cultural space of a new type in the entire europe; where the priority feature for these transformations is development and enlargement of the european union, determining key quantitative and qualitative changes in the life of societies of all european countries and regions. the goal of the research, dedicated to the transformations in the central and eastern europe, is to reveal core typicalities in the political, social and economic development in these countries and, based on this, create preconditions for further modernization and rapid progress of the countries of the central and eastern europe, with respect to new challenges, determined by common processes of globalization and development of the european union. in the course of the research numerous complex tasks are to be completed: • assess main trends of transformations in the countries of the central and eastern europe prior to their integration to the european union; • assess main transformations that now manifest and may do so in the future in the entire european union, with respect to the impact of both common processes of globalization and consequences of the development of the european union; • assess the idea of the creation of the integral cultural and economic space in europe and 93 issn 1822-8402 european integration studies. 2007. no 1 distinguish new issues that will inevitably arise and will have to be resolved. political, social and economic transformations in the central and eastern europe as the object of scientific research modern science understands transformations generally as changes, testifying a certain object or system to have acquired a new shape or a new state. this approach is rather universal and can find a great deal of evidence in many scientific studies. incidentally, this concept is akin to the studies examining economic transformations, especially those showing transition from the close plan economy towards the open and liberal market economy. transformations can be quite multi-faceted, and this lets us classify them according various features. one of the possible ways to classify transformations is the following: a) transformations can be classified based upon their character: • specific transformations, including political, social, economic ones, etc., • complex transformations, embracing various features of transformations; b) transformations can be understood as: • quantitative, where changes do not contain new features and where previous features are being added by new quantitative features, • qualitative, where changes acquire new features, and as a consequence of the changes qualitative features of a new type arise; c) transformations can be classified by their hierarchy, understanding their role in the entirety of various transformations: • transformations of global or more of general character, • transformations of local or specific character (randomly, the expression of local transformation may include transformations of regional character, manifesting in the geographically confined area, as well as transformations within a certain time span). it would of course be absolutely natural to classify transformations and systems in different ways than this; however, the current approach towards variety of transformations has been implemented by completion of the complex research, dedicated to the transformations in the central and eastern europe. transformations in the central and eastern europe, as well as processes of the development of the european union, have been analysed at a very broad and detailed extent. a very broad panorama of changes in the entire, especially in the central and eastern, europe, has been given in scientific publications, dedicated to the transformations. it is also worthwhile mentioning that within the most majority of scientific writings on transformations in the central and eastern europe a certain one-sided emphasis can be observed. unfortunately, transformations in the central and eastern europe are frequently perceived as an exclusive transfer of the western expertise (especially, the expertise of the western europe) to the central and eastern europe: in these cases transformations are understood as promotion and implementation of the western lifestyles in the east, and plain adaptation of these standards, applying local specificity of the central and eastern european countries. importantly, in many cases the following factor is ignored – transformations in central and eastern europe, and the development of the european union make great influence on the entire european union, and is a crucial factor for the changes both in western europe and the whole world. transformations in the central and eastern europe should be perceived a part of a complex process, involving transformations in the entire europe and the entire world. main elements of this complex process are the following: • transformations, marking the “exit” of the central and eastern european countries from the close non-democratic system of the plan economy; these transformations that occurred over the last 10-15 years, showed readiness of the central and eastern european countries to join the western world and “take over” the expertise of the western world, • transformations, marking the “entrance” of the central and eastern european countries to the european union, their adaptation to the further development in the integral space of the european union, as well as adaptation of the entire european union to the new environment; these currently undergoing transformations, show common changes within the increased space of the european union. this approach lets us conclude that development of the integral cultural, as well as political, economic, informational and other space in europe embraces several key stages, including: • transformations in the countries of central and eastern europe, prior to the integration of these countries to the european union, • transformations in the entire european union, especially in the central and eastern european countries that have newly entered the union (these transformations are intensely happening there). a more detailed description of these stages enables deeper and broader understanding of the changes occurring in the central and eastern european countries in the context of the development 94 issn 1822-8402 european integration studies. 2007. no 1 of the integral pan european cultural and economic space. transformations in the central and eastern europe prior to the integration into the european union while assessing opportunities and perspectives for further economic and social growth in the countries of central and eastern europe, it is essential to consider a number of factors impelled by political, economic and social transformations, which took place in these countries over the last 15 years and are still on. taking into account that transitions indicate a major trend of political, social and economic development of these countries, the states of eastern and central europe are referred to as transition countries. political, economic and social development in the transition countries is characterized by some features common to all of these countries as well as by specific features characteristic only of some transition states. the ability to determine both general and specific features of transformations allows us to define the situation in a particular country, the priorities of its development as well as identifying and solving most urgent problems. in determining general features representing major trends of political, social and economic development in a transition period, the following most important issues should be emphasized: 1. constant orientation toward the new quality life, implying that in the period of transition the efforts are made to realize the norms, standards, ideals, and stereotypes of new quality life. the changes associated with the quality of life take place in the period of transition, which are aimed at changing life for the better. thus, a new society based on such values as democracy, humanism and openness as well as declaring the priority of human rights, freedom and well being has been formed in the states of eastern and central europe in the time of transition. 2. a complex character of transitions, meaning that major changes are complex, embracing major areas of political, social and economic life as well as the development of modern technologies, environment protection, laws and other areas of social importance. a complex character of transitions may be considered one of the major features characteristic to the development of eastern and central european countries. in recent 10 15 years the qualitative changes have taken place in the political, social and economic structures of the society, while a new scale of values, life styles and priorities has been introduced and a new social order combining the elements of western democracy and some eastern europe's traditions has been established. 3. moreover, the complexity of transitions in these countries manifests itself in versatile effects on various sides of life, which may be controversially assessed, because the results of the changes are not definitely outlined. the uneven character of transitions implies that social changes often take place as a leap forward from one quality to another. these leaps are also characterized by profound and sudden changes. it is important to note that in the period of transition the society may experience shocks, when the traditional values and priorities are suddenly rejected, being replaced with some new values, of which the people have only superficial knowledge not being ready to adopt them. in the transition period, the formation of some political, social, economic, cultural and ideological vacuum is usually observed in the countries of eastern and central europe due to a sudden character of changes often accompanied by instability. 4. simultaneous and controversial character of transitions, meaning that different transitions may and/or do take place simultaneously, being, however, conflicting and imbalanced. as a result, the situation arises when one kind of transition is contrary to the others, which in turn may cause problems and even stresses in the society. the experience of the states of eastern and central europe provides a lot of examples of controversial transitions; when, say, social and economic changes contradict the political transitions, while the changes taking place in some countries of eastern and central europe do not conform to the transitions occurring in other states or regions of the same territory. such negative phenomena, hampering the advance of the above states, call for the idea of harmonizing the transitions of controversial character, implying balancing of different changes. 5. the innovative character of transitions, meaning that any transition accumulates some novelty. in the transition period, the innovative potential is intensely developed by providing conditions for innovative activities. the novel character of transitions may be expressed in two ways: first, the conditions are created for adapting well – known models and solutions to some situation in a new way. in this case, they are considered to be innovative. second, completely new, previously unknown models and solutions are 95 issn 1822-8402 european integration studies. 2007. no 1 made. in this case, these newly created patterns, having no analogues, are considered to be the innovations. the development of two types of novelties in the transition period emphasizes the importance of innovative activities for the countries of eastern and central europe. 6. a positive character of transitions, implying that transitions yield positive results in most cases. in spite of the fact, that both positive and negative results are actually obtained in the conditions of transition, the predominance of positive results is a particular feature of transitions. 7. the idealistic and disappointing character of transitions, meaning that this period is characterized by the recurrence of "searching for the ideals disappointment" cycles. the above cyclic character shows that at the beginning of transition the solution of urgent problems is usually associated with the achievement of certain ideals, while later the period of disappointment both in the very ideals and in the transition itself and its outcome, follows. for example, in the transition period in the countries of eastern and central europe it was much expected from democratization and free market development. however, later, the community was seriously disappointed with the results obtained. at the same time, the cycles of "idealization disappointment" demonstrate the maturing of the society in the course of transition as well as its adaptability to actual environment. 8. openness in the period of transitions, meaning that the tradition of openness, publicity and "transparency" becomes established, makes it possible to develop democracy and free market economy. however, it is evident that the patterns of "the open society" being formed in the countries of eastern and central europe do not completely conform to the long standing traditions of openness existing in western countries, especially in europe. nevertheless, the developing tendency of openness in the states of eastern and central europe is generally considered as one of the major development trends in the transition period. 9. harmonization of objective and subjective elements, implying that the character and orientation of transitions largely depend on a number of objective factors characterizing objectively existing background of political, social and economic transformations as well as on subjective elements, reflects on personal interests, influence and lobbyist activities of various subjects (i.e. individuals, groups of people of various levels, clans, etc.). the above objective and subjective elements are characterized by certain degree of coordination and harmonization, therefore, the harmony of these two factors should be considered as a naturally determined phenomenon of the development of eastern and central european countries in the transition period. it should be noted that subjective factors play a particularly important role: the interests of individual persons, groups of people of various levels, clans, etc., have a considerable effect on political, social and economic development of these countries. 10. integrity and comparable character of transitions on a world scale, meaning that local transitions are integrated into the higher – level transition systems. this indicates that the above transitions are of an international character, promoting the process of globalization as well as internationalization of political, social and economic development and demonstrating that they are comparable and can be coordinated at an international level. it may be stated that the transitions taking place in the countries of eastern and central europe are of paramount importance for their integration into the global and international political, social, economic, as well cultural and information structures, as well as being a factor contributing to the convergence of the mentality and lifestyles of the inhabitants of various countries. 11. the resonance factor, conditioning that transitions of various origin and nature could coincide in time. therefore, the community has to endure a heavy burden of a number of transitions taking place simultaneously. the phenomenon of resonance indicates itself as the timing of political, social and economic changes causing a heavy burden on the community, which in turn may threaten its safety and stability. the above – listed appropriate phenomena show general trends of transitions, which are universal and similar in all the states of eastern and central europe. along with these major trends some specific features may be observed in political, social and economic development of particular countries or groups of countries. the above trends are particularly characteristic of transitions taking place in the baltic countries, including lithuania. the baltic region is specific in many ways, therefore the transitions taking 96 issn 1822-8402 european integration studies. 2007. no 1 place in it may be considered a specific case of conformity to natural laws . the following features of transitions may be specially mentioned as mostly characteristic of the baltic states, including lithuania: 1. higher resonance of transitions, implying that in the baltic states some additional transitions associated with regaining independence and forming new modern states as well as the priority of integration into the western system took place alongside the political, social and economic transitions characteristic of other countries of eastern and central europe. this means that the transition resonance in the baltic states was caused not only by the democratisation of market relations common to eastern and central european countries, but also by the transitions associated with very rapid development of new national states and their integration into the western system. thus, transitions in the baltic states were more diverse and extensive than those taking place in other countries of eastern and central europe. therefore, it may be stated that the higher transition resonance is a major characteristic feature of the baltic region. 2. the conflicting character of national priorities and regional integration and internationalisation trends, indicating that two opposite as well as mutually complementary tendencies are developed in the baltic states. on the one hand, national businesses are seeking autonomy, even closeness and self isolation, trying to get established on the national market by the exclusive right. on the other hand, the tendency of integration of the whole baltic region and the cooperation of three baltic states in political, social and economic areas is constantly growing. though three baltic states often compete with each other, more and more possibilities are revealed to pursue the unified policy of cultural, economic and information development. needless to say that some more specific features of transitions taking place in the baltic states may be identified. undoubtedly, they may refer to one of these countries, for example, lithuania. the transitions taking place only in one of the states may be referred to as individual features characterizing the development of a particular state. thus, the analysis of individual features of transitions taking place in lithuania enables us to determine the effect of various geographical characteristics (e.g. configuration of neighboring countries, exceptional geographic position of kaliningrad region and the like) on their development. some other individual and specific factors also influence the transition processes in lithuania. among them are cultural and historical features (e.g. the influence of the catholic ethics, the development of lithuanian state and the formation of lithuanian nation, urbanization, the location of agricultural zones, etc.). the specific features of transitions taking place in lithuania complete a general system of naturally determined trends of development in the periods of transformations. the proper understanding of these phenomena helps to improve the political, cultural, social and economic life. further investigation and evaluation of naturally determined transitions and their major features would allow the states of eastern and central europe to pursue more efficient policy of improving the conditions of development as well as promoting the integration of these countries into international cultural, political, social and economic structures and spaces. transformations in the “enlarged” european union and typicalities characteristic to the development of the integral cultural, economic and social space main typicalities have developed over the recent decades in the integral economic and social space of the entire european union. among those the following could be identified: • general typicalities characteristic to the development of all large economic and social spaces that make known not only in the situation of the development of the european union, but also appear in the evolution of all civilisations and cultures, • specific typicalities characteristic to the development of the european union in particular, manifesting as historically unique phenomena of the development of civilisations and cultures. there is no strict boundary between general and specific typicalities characteristic to the development of the integral economic and social space in the european union. as general typicalities those can considered that, drawing an analogy in one way or another, have already evolved in the history of the development of other civilisations and cultures. as specific typicalities we can conceive those of the exceptional origin of the european union, its economic and social space and transformations of this space. it is important to note that among the specific typicalities as most substantial should be respected those that allow to reveal the specificity influenced by various regional factors, including the countries of the eastern and central europe. 97 issn 1822-8402 european integration studies. 2007. no 1 there can be enumerated a great number of general typicalities characteristic to the integral economic and social space of the entire european union. among those these can be considered as the leading ones: 1. typicality of the priorities of the quantitative growth and qualitative advancement manifests the fact that the development of the economic and social space in the entire european union is characterised by the two main priorities: quantitative growth (territory; population numbers; accumulated capital; trade and consumer growth) and qualitative advancement (formation of new life styles and new multicultural spaces; creation and implementation of modern technologies and organizational patterns in all spheres of life; dissemination of new values and living standards; and rise of new opportunities of further growth). this typicality demonstrates that in the situation of the development of the integral economic and social space of the european union there forms an integral european civilisation of a new type, completely harmonized with the overall system of the western civilisation, and actively participating in multifaceted cooperation with all modern civilisations and cultures; 2. typicality of the priorities of democratic attitudes, humanism, human rights and common human values proves that striving to implement the ideals of democracy and humanism is the most intrinsic value towards which the development of the european union is oriented; 3. typicality of the increasing complexity of the structure of multicultural spaces indicates that in the situation of the development and enlargement of the european union not only the diversity of the cultures, that appear in the space of the european union, increases but also processes of the increasing complexity of those cultural systems and structures occur: new characteristics and dimensions of multicultural spaces develop, that testify the increase of the variety of ethnic, confessional, regional, demographic, social, economic, political, ideological, mental and other factors. this trend allows us to state that in the situation of the development and enlargement of the european union not only the variety of cultural and multicultural spaces inevitably augments, but also qualitatively new problems influenced by this variety arise; 4. typicality of the balance in general and local factors demonstrates that in the situation of the development and enlargement of the european union an integral european civilisation of a new type is forming that possess twofold characteristics: first, general characteristics, typical to all spheres of life within the whole space of the european union; and second, local characteristics, expressing typicalities of different countries, regions and societal layers. combinations of general and local characteristics make possible to define adaptability of any local space in the common space of the european union, at the same time indicating the level of the inner harmony within the multicultural spaces; 5. typicality of predominant norms and standards implies that in the situation of the development and enlargement of the european union the uniform norms and standards have been steadily prevailing in the integral economic, social and cultural spaces. this typicality embraces all spheres of societal life – the sphere of economics, business and public administration, social behavior, political and societal life, as well as people’s everyday life and even their private lives. the uniform norms and standards comprise both formal and informal rules for behavior and acts in various life situations, development and dissemination of values and technologies of interpersonal communication. origination and increasing dominance of uniform norms and standards is a key precondition for gradual development of the integral and undivided european civilisation and culture, where general characteristics have already been prevailing, if compared to national, regional or local characteristics of other kind; 6. typicality of nonsynchronical development suggests that in the situation of the development and enlargement of the european union more and more uneven changes emerge. as it is known, societal development and headway, and processes occurring in the society may evolve in the way of various discrepancies. these discrepancies can be very diverse, including discrepancies between the pace of the development: they vary from country to country, region to region; they appear to differ in different sectors of economic and social life and different societal layers. discrepancies in changes can cause conflicts and issues of different kind; 7. typicality of cyclical development based on the “wave” principle refers to the fact that all 98 issn 1822-8402 european integration studies. 2007. no 1 processes of the development of the european union are undergoing cycles: each cycle includes a certain stage of development, that can be outlined by both quantitative and qualitative changes. this means that the transition of these stages can be compared to certain “waves”: where each wave witnesses the stepping stone of the potential of the european union, as an integral economic and social space; 8. typicality of increasing differentiation and differentiation variety exhibits that in the situation of the expansion of the european union, within the integral economic and social space new manifestations of differentiation occur, and the range of differentiation expands. it is especially notable for the reason that in the actual routine of the development and expansion of the european union rather substantial contradiction appears: on one hand, following political declarations, it is sought to align regional structures, which by the level of their development are rather unequal; economic sectors or societal layers; on the other hand, a real “alignment” is of limited scale and applies only to particular spheres of social and economic life. it is quite probable that actual differentiation is generally increasing: various discrepancies between different regions, economic sectors and societal layers deepen, within actual opportunities for improvement and modernisation, as well as actual well being and social security. this factor is essential, estimating prospectives for stability and internal security in the space of the european union; 9. typicality of balance of centripetal and centrifugal forces in the situation of the development and expansion of the european union is seen in the simultaneous manifestation of two opposite tendencies: on one hand, it is a tendency of striving to enter the common system, expressing the priority of obedience to the system; and on the other hand, a tendency of striving to strengthen the sovereignty and autonomy in the common system, expressing the priority of the selfassurance of personal wellbeing at the expense of the system. those two tendencies are advantageous for the wellbeing of the european union, provided they are mutually well balanced; such balance in its turn, can have different manifestations, including rational combination of basics of centralisation, decentralisation and selfgovernment in the systems of managing and administering processes of expansion and development. (it is noteworthy mentioning that in cases, when the balance among centripetal and centrifugal forces fails, more threats for the performance of the entire system emerge: disproportionate prevalence of the centripetal forces may lead to inefficient management and determine loss of adaptability skills in the ever-changing environment, whereas disproportionate prevalence of centrifugal forces impels fragmentation and self-destruction of the system itself. this means that vulnerability of the balance mentioned above is a very dangerous and undesirable matter.); 10. typicality of predominance of traditional leaders proposes that in the situation of the development and expansion of the european union the priority interests to be implemented are those developing in greater countries of the western europe, such as, first germany and france (these countries have historically formed as traditional leaders of the european union). despite the fact that in the situation of the development and enlargement of the european union one can observe a great variety of concerns of different countries, regions and layers of the society (moreover, this variety causes internal disagreements within the european union), prevalence of traditional leaders and their concerns is longlasting and steady. by the way, the concerns of the traditional leaders play as a key factor for the development of norms and standards, typical to the space of all the european union; 11. typicality of the expansion potential expresses the idea that the european union as an integral system has been increasingly operating within global economic, social, cultural, informational and political spaces. with this regard, the increasing expansion of the european union, as an integral system, towards the spheres of the world economies and the process of the entire political, social and economic development; 12. typicality of the adaptability in the consistently changing external and internal environment suggests that in the situation of the development and enlargement of the european union multifaceted processes of adaptation arise: the new member states of the european union need to adapt in the new to them space of the european union, whereas the “old” members of the european union have to adapt to the “enlarged” european union and “accept” new members as equal partners; besides, all european union 99 issn 1822-8402 european integration studies. 2007. no 1 as an integral system needs to adapt to the consistently changing external environment. all this allows us to admit that adaptability is a crucial precondition for the further development of the european union as an integral system. the typicalities described above, characteristic to the development and enlargement of the european union as an integral system, within the group of typicalities of this kind could be considered as of the most importance. at the same time, among very important and critical several specific typicalities exist. specific typicalities characteristic to the development and enlargement of the european union as an integral system, are multifaceted. some of these typicalities reflect on the specificity of a particular époque, whereas the others express specificity of particular regions, spheres of social and economic development or certain layers of the society. among specific typicalities expressing current era these are the most notable: 1. typicality of regulated and controlled liberalisation that reveals rather contradictory processes typical to the current development of the european union. a key feature of these processes is the following: on one hand, traditions of liberal democracy have been increasingly implemented in the society and there are apparent signs of economic liberalisation; on the other hand, both in economic and social life the “masked autocracy” has been observed which is executed by various forms of increased bureaucracy, growing regulation and limitation of the activities in different spheres, along with the increasing austere rule. in modern world in many spheres of life one can observe a substantial decline of norms and ideals of liberalism, despite the “formal” promotion or declaration of liberalism. we may admit that in the modern european union the new kind of society has been increasingly developing, with both liberalism and social awareness, where, however, liberalism will be regulated and controlled with the increasing power: every subject of any activity in all spheres of life will have opportunities of liberal choice and selfdetermination with increasing boundaries and decreasing “degree” of freedom. (it is a paradox that in the modern european union, in the situation of promotion of liberal values, bureaucratic and clerical arguments of the societal development have been strongly increasing, and new trends of centralised management emerge, that manifest in many spheres of political, social and economic life); 2. typicality of promotion and predominance of the concerns of large economic subjects demonstrates that both in overall situation of globalisation and in the specific economic and social space of the european union processes of concentration of economic activities have steadily happening. the actual situation in both economic space of the european union and global markets has been increasingly influenced by activities and opportunities of large economic subjects (here we consider large economic subjects those large enterprises that operated in international markets, networks and organisations of small and medium enterprises, and various international corporations and international economic organisations). in the situation of the development and enlargement of the european union more and more obvious becomes promotion and predominance of the concerns of large economic subjects: on one hand, this situation reinforces competitive abilities of economic subjects representing economic spaces of the european union; on the other hand, opportunities to develop free competition and initiative are violated (the violations of this kind have been increasingly growing, although public policy in economies of the european union proclaims provisions for free competition and initiative support). 3. typicality of the declining role of the state as a structure for the organization of the society indicates that in the situation of the development and enlargement of the european union in national countries the state as a key organisational structure for any society of any country has increasingly losing its previous importance and a number of opportunities to immediately influence situation in the country. in the environment of the development and enlargement of the european union the situation in its member states has been steadily influenced by overall processes of development and enlargement of the european union as a system on one hand; and potential, development and growth of the non-governmental, nonstate and private sectors. the declining role of states has been determined by such processes as development of common economic and social space in the european union, where the principles of liberal labour force mobility, capital mobility and product and services mobility are implemented; moreover, the increasing enhancement of globalisation, and 100 issn 1822-8402 european integration studies. 2007. no 1 international economic, cultural and informational relations has been also influencing the overall decline of the significance of particular states; 4. typicality of manifestation of threats and issues of a new kind allows us to conceive that each stage of the development and enlargement of the european union reveals new threats and cause new issues that are determined by various factors of moral, ideological, cultural, political, social, economic, ecological, military and informational character. ability to immediately understand these threats and issues, as well as develop and implement effective means for prevention in the modern situation in principle expresses the typicality of the development and enlargement of the european union. conclusions and recommendations research of processes of transformation in the central and eastern europe and development of the european union demonstrates that investigation of the processes and purposeful influence on them is a very important sphere of further research. the importance and the role of the research is determined by the fact that these processes demonstrate emerging political, social, economic and other problems of a new type and necessity to adequately conceive and consecutively solve these problems. newly emerging problems reflect on the development of the integral cultural space, a society of a new type and its new life styles, along with the economy of a new type in the entire enlarged european union. these problems can be defined as the problems of the scale of the european transformations, understanding that transformations of the european scale mean complex qualitative and quantitative political, social, economic and technological changes, embracing all european regions and countries, along with all societal layers and all spheres of life. in the process of resolution of problems of european scale transformations it is necessary to identify the main typicalities of transformations. these typicalities are quite diverse and can be classified by several features. main groups of transformations are the following: • typicalities defining transformations in the central and eastern europe that evolved prior to the integration of the countries of central and eastern europe to the european union; • typicalities defining transformations in the entire european union, expressing quantitative and qualitative changes in the situation of its development; • typicalities defining transformations in the central and eastern europe upon the integration of the countries of central and eastern europe to the european union, expressing further adaptation of these countries to the new conditions of political, social, ans economic life that manifest nowadays and will do so in the coming future. the majority of the transformations that may be attributed to the groups described above demonstrates: • singleness of political, social and economic development, showing new challenges, determined by processes of the development of the knowledge and information society, and processes of implementation of new values and interests, • discrepancies of changes and new issues that may be caused by non-synchronical development, differentiation between countries and regions, between various societal layers and groups and unduly uneven acceleration in different sectors of economy and social life, • probability of new contradictions and conflicts in the integral space of the european union, along with the preventive means to hamper these conflicts. typicalities of transformations may bear general and specific character applicable to certain regions, in certain situations and at certain periods. identification of typicalities of transformations allows to consecutively address numerous issues of political, social, and economic development, relevant to the european union. among these problems very important are problems of economy efficiency and compatibility increase within various national and regional systems. further research in the sphere of the issues of transformations and development of the european union, especially in the field of national and regional economic systems specialization and modernization may be appraised as of great viability references calori r., atamer t., nunes p. 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(2002), “a longitudinal analysis of globalization and regionalization in international trade: social network approach”, social forces, vol. 81, n2, pp.445-471. the sustainability of long – term growth: socioeconomic and ecological perspectives / ed. m. munasinghe, o.sunkel, c de miguel, (2001) – cheltenham, edward elgar publishing, 464 p. 102 53 issn 1822 – 8402 european integration studies. 2009. no 3 realization of professional pedagogical competence delivering ict-based courses julia timoshtchenko ludmila bavrina baltic international academy (latvia) abstract the paper gives an overview of conceptual theoretical research regarding pedagogical competence, and, specifically, professional pedagogical competence as realized at the level of higher education. the theoretical research was aimed to elicit the characteristics of the pedagogical competence in the context of higher education which would result in bringing out the guiding principles in designing instruction for the students at he level for achievement of both immediate study objectives and long-term pedagogical goals. fulfilling the function of societal integration, and, specifically facilitating participation in life-long learning has become a significant factor to evaluate the appropriateness of an educator’s performance, and consequently, the pedagogical competence. the significance of positive learning experience gained in the course of the study process is brought out in this connection as a prerequisite for effective participation in life-long learning. continuity of long-term pedagogical objectives and short-term and immediate objectives related to the study process has been thus emphasized. the ability to set forth, structure, categorize and achieve both immediate and long-term goals making use of a variety of teaching methods and aids is related to the professional pedagogical competence. relating the concept of pedagogical competence in higher education to the realities and actualities of the study process the paper looks into ict-based instructional designs as facilitating formation of positive developmental experience with the students. the paper looks into the factors conductive to formation of positive learning experience at the dynamic interface of the students-teacher, students – students and students-context interaction. pragmatic research has been carried out to identify the correlation between the factors, which as has been suggested could be responsible for formation of positive learning experience in the course of the study process. another suggestion that a combination of factors is required to provide for the positive developmental experience during the study process in the student’s perception was tested. for the pragmatic research mixed research methods have been employed: qualitative and quantitative research methods; such as structured and semi-structured interviews, documented observation, students’ feedback; factor analysis, triangulation of qualitative and quantitative findings. the data collected through specially designed questionnaires was processed by spss. the paper gives the outcomes of the data processing and the conclusion thus arrived at pertaining to realization of pedagogical competence. keywords: ict in education, pedagogical competence, pedagogy of higher education, developmental experience. introduction realization of professional pedagogical competence should be informed by the understanding of the overarching concept of competence. if the he professional pedagogical competence is to be realized in practice the principles and methods consistent with the ppc model should be clarified. the continuity of immediate teacher’s actions and the achievement of long-term goals should be provided for. an attempt is made to define a link connecting short-term pedagogical objectives to longterm pedagogical goals on which an educator should focus the efforts in delivering study courses at the he level. the object of the research is therefore professional pedagogical competence of a he educator. the research aims to elicit the factors at the students’ level providing for the appropriateness of the he educator’s performance. students’ experience was conceptualized as an area uniting the immediate and more remote perspectives of application of the pedagogical treatment. for the term to be used consistently the wording students’ experience requires characterizing, which is intended to be carried issn 1822-8402 european integration studies. 2009. no 3 54 out here. we hypothesized, that a totality of factors will be concurrently responsible for the formation of positive experience in the students’ perception. research methods included literature review to describe the models of professional pedagogical competence at he level. in the pragmatic research mixed research methods are employed: such as structured and semi-structured interviews, documented observation, students’ feedback; processing of quantitative data obtained from the questionnaires by spss and statistica, triangulation methods to interpret the quantitative data. the concept of competence the concept of competence is widely used across many disciplines and contexts in order to describe what individuals must learn, know, or to be able to in order to succeed in various occupations and activities. complex holistic nature of competence is often commented on with the components blending, merging and progressing, enabling the individual to handle challenges that occur in a specific situation in an appropriate way. the concept of competence is seen as problematic because it has many varied meanings and interpretations. (schneckenberg and wildt, n.d.), there are no single use of the concept and no broadly accepted definitions or unifying theory. (rychen and salganik, 2000). the interpretation of the concept is dependent on cultural, linguistic and national circumstances. (schekenberg & wilt, n.d; tilla,2005.). with respect to the notion of competence this paper is partially based on the assumptions of the broad international project which produced a contribution report on work that has been undertaken by the deseco program (defining and selecting competencies: theoretical and conceptual foundations) (rychen and salganik, 2000). the deseco program adopts the approach termed “conceptual pragmatism” (rychen and salganik, 2000.) to define competence. the approach features: the need for defining, selecting and assessing  competence in scientifically plausible and pragmatically relevant way is recognized; understanding of reality while also constructing it  in a manner that is consistent with the principles of human rights and democratic values shared in a modern, democratic society; practice and research are facilitated, both  theoretical and practical; the research can be narrowed to the to particular  contexts of professions, occupations, groups and individuals; attention to how competence can be identified,  transmitted and developed in specific context. hence, the approach of conceptual pragmatism to the concept of competence recognizes: functionality as ability to achieve results : the approach of “conceptual pragmatism” which is functional, because the competence is defined as the ability to successfully meet complex demands in a particular context; conceptualization of internal structure of competence: according to the functional demandoriented approach the internal structure of competence is conceptualized in the sense of an individual’s resources, such as knowledge base, skills, abilities and other; action: the components together represent a complex control system and result in a person taking action, thus “possessing the component resources the individual is also able to mobilize such resources properly and to coordinate them, at an appropriate time, in a complex situation (le boterf as cited in weinert, 2001) context dependency: actions always take place in a socio-cultural environment. the criteria for effective performance and action take form and manifest themselves as the individual acts to meet the challenges and satisfy the social interests within multiple social fields. competence is inseparable from the context in which it is developed and used. thus, the components comprising the model of competence made use of here do not exist independently of action and context. instead, they are conceptualized in relation to demands and actualized by action taken by individuals in a particular situation. in line with our aims we will try to look into the “pedagogical” and “professional” strands of competence eventually narrowing down the discussion to the context of higher education. merging the comprehensive model of competence with the notion of profession and pedagogy and situating them in the higher education, we intend to bring out recurring strands to focus on them for the purposes of our research.` profession-related strands of competence our overview has revealed that generally the definition of profession reveals commonality with the notion of competence. the issues emphasised in characterization of profession are: proficiency in one’s field,” (webbs,19171977), adherence to ethical standards “which include … the striving to be an expert in one’s calling and uphold the good name of the profession” (kasher, 2005); autonomy seen as independent decision taking: “professionals …use their own judgement in determining the appropriate approach” (kasher, 2005). value–driven actions such as provision of a valuable service to society with little or no self-interest are seen as a regular feature of a professional. as it could be expected, the purely “professional” elements will be hard to separate from particular occupational fields. thus references to “teaching profession” (weinert, 2001) or “educational professionalism” (bezzina, 2006) are common. the comprehensive reflection on the teacher’s issn 1822-8402 european integration studies. 2009. no 3 55 actions, conscious steering of his/her own professional development, ‘reflection’ about work attitude and reflection about the concept of education, are also features of the professionalism of teachers.(weinert, 2001). in terms of professional development and quality performance (1) protest against stereotyping; (2) advancement of the goals of profession; (3) developing standards for themselves and their institutions are listed. the data on the competence of teaching staff in he conducted by education and competence group (mulder et al, n.d.) come from the international journal databases and policy reports of national and international institutes (such as usde, the commission of the eu, oecd, unesco, cedefop), conference papers and the internet. careful attention has been paid to select the scientific and formal policy sources as well as academic research papers. the following competencerelated issues were thus elicited as topical for he: (1) competence for performance improvement, (2) fulfilling the promise of linking education and the labour market, (3) designing the programs complying with the needs of society. ecompetence referred to in literature (for example schneckenberg and wildt, 2006; department for education innovation, annual report, 2006) in our opinion should not be regarded as a separate entity but rather as an extension of pedagogical professional competence integrating the following assumptions found in literature: (1) academic staff play a key role in education innovation. they are the “process owners” or “gatekeepers” of the research and teaching activities within the university (kerres et al., 2005, as cited in schneckenberg and wildt, 2006). higher education teachers define and plan the (subject) curricula. staff members need to be aware of, and understand, the innovative potential of the technology that is available for their research and teaching (salmon 2004, as cited in schneckenberg and wildt, 2006) although ecompetence has a technological focus, it is not primarily dealing with the level of expertise of the individual teacher to handle specific software applications, but has to be interpreted as the ability to make appropriate judgments on the effective integration of ict into the educational context and processes. hence, with respects to professional pedagogical competence the following ideas could be elicited as central: understanding of the processes of the personality  growth in the course of studying and interactions in the environment of the educational institution; the ideas of responsibility of the educator realized  through taking into consideration the consequences of one’s actions, also in the long-term perspective and with respect to social integration; levels of the educator’s competence as greater  or smaller ability to recognize the intended and unintended consequences of individual’s actions and behavior; ethical issues in educational context, understood  as values transferred in education and realized in interaction between the students and the teacher, including democratic and human rights principles shared in democratic society. considering the context dependency strand of the overarching definition above with respect to he professional pedagogical competence we have stated that in order to characterize the competent performance of a he educator, description of the essential features of the socio-cultural environment in which he educator is performing is required. the competence in he is conceptualized as linked to the realities and actualities of modern society. therefore, the concepts and ideas of the learning information-based society form the societal and educational context in which the pedagogical competence is considered. presently, the pedagogical aims at he level increasingly tend to be related to social and economic trends in society and educators operate on the social order. competence models are multi-level in at least two respects: (1) the models comprise issues categorised as immediate, to be addressed on the spot and more long-term distant goals to be taken into account by the he educator (2) the models deal with professionals’ competence progressing from lower to higher level of proficiency.(schneckenberg and wildt, 2006) from (1) it could be implied that certain continuity should be achieved between immediate and more remote perspectives of the teacher’s performance. from (2) it could be implied that development (advancement) of professional skills is possible and expected as a likely thing to happen with an individual professional. having stated the multi-level orientation of the ppc model in terms of inter-dependence of goals and objectives of varying degrees of exigency we concluded that a kind of link to unite all the levels is required. with the purpose in view (student’s) experience was conceptualised as an area where to focus the pedagogical treatment aimed to achieve the pedagogical goals and objectives. pedagogical objectives are understood as a range of tasks a teacher faces while delivering a study course. pedagogical objectives are concerned not only with the learning outcomes or acquisition of the target subjectspecific knowledge and skills, but also with the issues of personality growth taking place in educational setting or acquisition of effective life strategies and underlying attitudes, values, and beliefs. the notion “experience” is specifically used here as relevant to the formation of attitudes, values, reflections and dispositions which are likely to underlie behaviour in line with the social order and the modern realities and actualities such as participation in lll, integration into information-based issn 1822-8402 european integration studies. 2009. no 3 56 society, sustainable development and other no less important issues. thus we could arrive to the graph in figure.1 short-term & immediate objectives related to the study process professional pedagogical competence long-term pedagogica l goals formation of positive learning experience fig. 1. experience as a link unifying multi-level components of pedagogical professional competence experience can be a confusing word as it is a notion uniting several senses, we distinguish between the experience as the immediacy of contact with the events of life and the interpretation of the event (boud et al 1997).for the purposes of the research the experience is defined both as the content and the process. the fundamental theoretician of experience, dewey, maintained that experience should be the primary concern of educationalist “the business of education ‘might be defined as an emancipation and enlargement of experience’ (dewey, 1997). experience includes what men do and suffer, what they strive for, love, believe and endure, and also how men act and are acted upon, the ways in which they do and suffer, desire and enjoy, see, believe, imagine (dewey, 1997). theoretical ideas of dewey underlie the construct of experience how it is interpreted here. dewey’s theory is that experience arises from the interaction of two principles -continuity and interaction. continuity is that each experience a person has will influence his/her future, for better or for worse. interaction refers to the situational influence on one’s experience. besides, from dewey’s ideas it follows that: education should have both a societal purpose and  purpose for the individual student. the long-term matters, but so does the short-term  quality of an educational experience. educators are responsible, therefore, for providing students with experiences that are immediately valuable and which better enable the students to contribute to society. according to dewey curricula are to be focused on content and process, thus emphasizing the studentseducator interactions. the experience conductive to formation of target attitudes, dispositions and life strategies could be viewed as the unity of the process and result or a succession of situation leading to the sum total of the experience-on-reflection which is significant to a person in a positive way. this, of course may vary across individuals and be perceived by different persons as rewarding, challenging, relevant, appropriate, developmental etc. or contributing to the personal growth in some other way. the characteristics of experience have been conceptualized as consistent with the persons becoming positively interactive, democratic and dynamic learners. some excerpts from literature seem to testify to the fact that “experience“ is increasingly being paid attention to as a source to inform educational policy and practice : the national student survey (nss) collect information on “students’ perceptions of their higher education experiences”, “mapping trends in the student learning experience” to help develop curricula and pedagogy innovations and sustainability in the students’ skills and knowledge. (nss, 2008). the importance of learning experience is increasingly recognised: the student learning experience extends beyond the walls of the classroom and laboratory and far beyond the submission and assessment of work. (the higher education academy. innovation way. annual report. 2008) the characteristics of the learning experience in the students’ perception the theoretical assumptions as below were fed into conceptualization of the characteristics of the students teacher interface to provide for the formation of positive learning experience. the vector of positive developmental experience defined in conformity with the principles of learning community (bezzina, 2006; hord & sommers, n.d.) and self-directed learner (cross, 1981; 1978; knowles,1973, 1984; mezirow, 1985) and viewed as linked to effective integration of a student into the context of higher education. the definition of the context brings to the forefront the interactions among the participants of the process. the context thus is conceptualized as “situation defined through the relationships and “interactions between the elements within the situation over time historically situated and culturally idiosyncratic. (luckin et al. n.d.). if the possibilities for positive experience are to be created at the interface of interaction between the students, the individual student and the teacher, the students as a group and the teacher, there are several issues to be focused on derived from the theoretical pedagogical assumption concerning adult learners. they are: attention to the learner’s attitudes facilitating participation in interaction with both the teacher and the students. the he teacher must create an environment in which learners feel free to express opinions, share ideas, and discuss information and experiences valuable for them (conrad & donaldson, 2004; plloff & pratt, 1999; palloff & pratt as cited in blondy, 2007). attention to the internal motivators which might be important in adult learners issn 1822-8402 european integration studies. 2009. no 3 57 knowles (1984) viewed that internal motivators such as increased self-esteem, self-actualization, or recognition are essential in adult learners. ose, 1999, expresses similar views concerning self-esteem needs and selfactualization issues in adult learners; (lieģeniece, 2002, cross, 1981) attention to the relevance of materials, methods and activities offered to the learners. adult learners tend to be problem-oriented (knowles, 1984; cross 1978) and, accordingly, their orientation toward learning shifts from one of subject-centeredness to one of problem-centeredness. (bluma, 1998; smith, 1996; 1999; lieģeniece, 2002). the assumption deals with the applicability of knowledge, understood here as being relevant to the learners experience, personal circumstances and attitudes. attention to both immediate and more distant learning outcomes adult learners are self-directed. (knowles, 1984; 1975; cross 1978) this is understood as the adult learners tending to take responsibility for themselves, and establish their own learning goals. they should find possibility to formulate own goals flexibly and find opportunities for activities appropriate to their skills level and learning styles within the course objectives (hanna et al., 2000; blondy, 2007). pragmatic research the purpose of the research was to evaluate the parameters of the study events at the students-teacher interface in order to reveal if they correlate in the students’ perception. self-assessment of the level of parameters of study event was obtained directly after the event.8 items (see the description below) were measured between the maximum value of 100% and the lowest value of 0%. overall 101 responses were obtained from the students of design school, bia doing an esp (english for the study purposes) course. the questions for the questionnaire to be administered in the research were formulated after semi-structured interviews with the students.in the questionnaire offered to the students immediately after the study event the factors as below were evaluated. the teacher’s observation during the study events were documented to be compared with the student’s feed back on the particular event. interpretation of the observation data is outside of the present paper. the quantitative data obtained were processed making use of spss and statistica. f1. comprises a number of issues at the teacher’s level to be evaluated by the respondent under the title teacher’s contribution: such as materials, choice of topics, carrier content, activities offered for the class, availability of the materials, class management; relevance of the teaching aids and methods. f2. comprises a number of issues at the students’ level under the title students’ contribution.students are regarded as a group on the receiving point of the pedagogical treatment, the issues evaluated are: the general atmosphere of co-operation, accord, harmony as opposed to passivity feeling, defiance non-cooperation, how enthusiastic, committed, involved the students seem to be. the questions concern the students’ response to the activities, willingness to participate in the activities, general acceptance or resistance to what is offered for the contact-class event or ict-mediated event. f3. comprises a number of issues at the level of the individual student-respondent under the title my own contribution. the questions are about the actual amount of activity or inactivity of the respondent, level of involvement, opportunity to function and to be heard and appreciated which was in fact realized, the general feeling of one’s significance during the contact-class event or ict-mediated event. f4. comprises a number of issues at the level of the individual student-respondent under the title control. the questions are about how the needs of the individual respondent were met, his ability to influence the course of the class, to draw attention to his requirements, the opportunity to get clarification of unclear issues, opportunity to dwell on some point for a longer or shorter time depending on the needs of the respondent, work at the respondent’s own pace, have say in the choice of topics, type of activities etc. f5. comprises a number of issues at the level of the individual student-respondent under the title experience (positive developmental).the questions are designed to find out whether on the whole the time of the person’s life can be evaluated as useful, significant, rewarding in affective and cognitive ways, whether it could be regarded as informative, offering understanding of matters of general nature relevant to the student’s personal interests and concerns at the period of life. f6. comprises a number of issues at the level of the individual student -respondent under the title anxiety. the questions are designed to find out to what extent the respondents was stressed or threatened with a chance of failure, negative consequence of active or passive behavior, uneasy, expecting to be ignored, embarrassed, shamed. f7. comprises a number of issues at the level of the individual student-respondent under the title satisfaction. the questions are designed to measure the extent to which the event met the expectation of the student, whether is was “okay”, general feeling of fulfillment, good opinion and contentment both cognitively and emotionally generated from the event f8. comprises a number of issues at the level of the individual student-respondent under the title effectiveness. the questions are designed to measure the productive development of subject-specific skills, acquisition of knowledge as perceived by the student. at the start descriptive statistics was obtained, the results are presented in the table.1 issn 1822-8402 european integration studies. 2009. no 3 58 table 1. descriptive statistics f1 f2 f3 f4 f5 f6 f7 f8 n statistic 101 101 101 101 101 101 101 101 range statistic 70 90 95 99 100 100 100 98 minimum statistic 30 10 5 1 0 0 0 2 maximum statistic 100 100 100 100 100 100 100 100 mean statistic 87.8 69.7 63.9 63.9 67.9 40.7 71.4 70.4 std. error 1.5 2.0 2.5 2.8 2.3 3.5 2.4 1.9 std. deviation statistic 15.2 19.9 25.2 28.6 23.3 35.5 24.2 19.2 variance statistic 231.7 396.6 636.8 815.9 543.3 1262.1 585.1 367.8 skewness statistic -2.0 -0.7 -0.7 -0.8 -1.1 0.3 -1.4 -1.3 std. error 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 kurtosis statistic 4.2 0.4 -0.3 -0.4 0.7 -1.4 1.6 2.4 std. error 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 kolmogorov-smirnov’s test was conducted to check the conformity to the normal distribution of the mean. the k-s test led us to the conclusion that the data do not conform to the normal distribution. therefore, to evaluate the directions and the correlation values among various factors spearman rank order correlations was chosen. the data obtained in calculations are given in table2. table 2. spearman rank order correlations f1 f2 f3 f4 f5 f6 f7 f8 f1 1 0.4 0.2 0.1 0.2 0 0.3 0.3 f2 0.4 1 0.5 0.2 0.4 0.2 0.4 0.4 f3 0.2 0.5 1 0.5 0.4 0.1 0.5 0.4 f4 0.1 0.2 0.5 1 0.3 -0.1 0.3 0.2 f5 0.2 0.4 0.4 0.3 1 0.3 0.5 0.5 f6 0 0.2 0.1 -0.1 0.3 1 0 0 f7 0.3 0.4 0.5 0.3 0.5 0 1 0.5 f8 0.3 0.4 0.4 0.2 0.5 0 0.5 1 all the data in table 2 are given till one decimal. bold-marked correlations are significant at p <.05000 shaded boxes are the average correlation among the factors under consideration (level -0. 5). correlation of f5 with f1-f4, f6-f8 was looked into separately. it was initially assumed that the strongest correlation with f5 will be observed with f1-f4. the research showed that significant positive correlation within all the groups f5-f1, f5-f2, f5-f3, f5-f4, f5f6, f5-f7, and f5-f8. a single domineering factor was not observed. although the significance is sufficiently high, among all the factors low and medium correlation is observed (for the pairs f5-f7 and f5-f8). it can be concluded that there are no domineering impact on f5 of any of the factors. in this connection we can observe integrated impact of all the factors on f5. an attempt was made to discover significant correlation between other groups of factors. significant direct inter-correlation was discovered within the pairs f2-f3, f3-f4, f3-f7, f5-f7, f5-f8, and f7-f8. it can be observed that spss data processing on the whole tally with the outcomes obtained on the data processing with spearman rank order test. it can follow that all the factors identified by us for the research have impact on the f5experience as defined above. it can be noted that the f7 and f8 were designed to be complementary to the f5 which serves the centre of the research emphasizing the personal worth and importance of the event relevant to the concerns and interests of the individual, and eventually, pertinent to the issues of personal growth. correlation between f2 and f3 might be interpreted as the group’s attitudes being conductive to the individual’s participation in the event, highlighting the issues of shared values and belonging for the positive effect of the study event. the ability to work at individuals own pace and set achievable objectives (f4control) facilitates the student’s participation in the study event (f3) and leads to general satisfaction, cognitive and emotional, derived from the study event. it can be noted that the f7 and f8 were designed to be complementary to the f5 which serves the centre of the research emphasizing the personal worth and importance of the event relevant to the concerns and interests of the individual, and eventually, pertinent to the issues of personal growth. significant direct inter-correlation within the pairs f5-f7, f5-f8 proves issn 1822-8402 european integration studies. 2009. no 3 59 that we might have been right in assuming that. also, direct inter-correlation within the pair f7-f8 indicates that productive development of subject-specific skills contributes to the general feeling of satisfaction after the study event. indirectly, the consistently high evaluations obtained under the title teacher’s contribution might testify to appropriate design and use of teaching aids and strategies by the particular teacher. at the same time the consistently low evaluations obtained under the title anxiety, show, in some way that the group of the students taking the course with the particular teacher enjoys certain psychological comfort. table 3. spss data processing reliability analysis scale (alpha) mean std dev cases 1. var00001 92 38 101 2. var00002 70 20 101 3. var00003 70 64 101 4. var00004 64 29 101 5. var00005 68 23 101 6. var00006 43 51 101 7. var00007 71 24 101 8. var00008 70 19 101 skewness coefficient shows the general tendency to reliability. f5 correlates directly (2-tailed) with f2, f3 and f4 conclusions on the pragmatic research the data obtained in pragmatic research do not disprove the hypothesis concerning a totality of factors concurrently responsible for the formation of positive experience in the students’ perception. the factors brought out in our discussion proved to correlate with positive learning experience in the students’ perception. further research is required in order to: improve the research methodology and instruments, to test the research instrument on a different sampling from the classes delivered by different teachers in several courses. self-report do not assess the characteristics of event in an objective measure, but can guide future action as they can be viewed as a resource to forecast the outcomes related to choice of the teaching tools and strategies. students tend to value teaching that recognises their individual academic and social identities and that addresses their particular learning needs. university teachers need to develop inclusive pedagogic practices and curricula that take account of the diverse interests and needs of students in each class. conclusions multi-level structure of professional pedagogical competence calls for the continuity among the levels to be provided. positive students’ experience has been conceptualized as a link between the immediate teacher’s actions at the interface of student’s teacher – interaction and long-term goals related to the societal needs to be achieved by the he educators. students’ experience underlying formation of attitudes linked to behavior can be addressed at the level of students’– teacher interaction. factors providing for effective teacher’s performance have been elicited and appear to correlate in the students’ perception. findings of the research can be used to address the choice of materials, methods, and strategies employed by the teacher to ensure effective achievement of pedagogical goals and objectives. references bezzina, ch.(2006). nurturing inclusive learning communities: the next big challenge, in scientifc papers. university of latvia. pedagogy and teacher’s education vol.700. blondy, l.c. evaluation and 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(1998), pieaugošo izglītības pedagoga profesionālā kompetence. / pieaugošo izglītības gadagrāmata. rīga, izm. boud. d. and miller, n. (eds.) (1997) working with experience: animating learning, london: routledge. cross, k.p (1981). adults as learners. increasing participation and facilitating learning. san franscisco: jossey-bass inc. cross, k.p.(1978) the missing link: implications for the future of adult education. new york: syracuse university research corp. (eric document reproduction service no. ed 095 254).on line: http://www.ntlf.com/html/lib/bib/89dig.htm department for education innovation annual report in: i. mac labhrainn,. c. mcdonald legg, d. schneckenberg & j. wildt. the challenge of ecompetence in academic staff development. galway, ireland: celt, nui galway. harding, a.f., engelbrecht, j.c., lazenby. on line: https://www. up.ac.za/dspace/bitstream/2263/7485/1/educ%20 annual%20report%202006%20lr.pdf dewey, j. (1938/1997). experience and education. macmillan. 1997 hanna, d.e., glowacki-dudka, m.,. & conceicaorunlee, s.(2000).147 practical tips for teaching online groups. essentials of web-based education. madison, wi: atwood publishing. issn 1822-8402 european integration studies. 2009. no 3 60 hord, s.m., sommers, w.a., leading professional learning communities: voices from research and practice. on line: http://www.sedl.org/change/issues/issues61.html kasher, a.(2005) professional ethics and collective professional autonomy a conceptual analysis, ethical perspectives, pp.67-97. on line: http://www.ethical-perspectives.be/page. php?lan=e&file=ep_detail&id=100&tid=909 knowles, m.s. (1984). andragogy in action. san francisco: jossey-bass. knowles, m. s. (1975).self-directed learning: a guide for learners and teachers. new york: lieģeniece, d. (2002).ievads andragoģija jeb mācīšanas „būt” pieaugušo vecumā. rīga, raka. luckin, r., du boulay, b, smith, h., underwood, j., fitzpatrick, g., holmberg, j., kerawalla, l., tunle, h., brewster,d., pearce,d. using mobile technology to create flexible learning contexts. online: http://ideas.fcs.sussex.ac.uk/~rosel/ mezirow, j. “a critical theory of self-directed learning.” in self-directed learning: from theory to practice, edited by s. brookfield. new directions for continuing education no. 25. san francisco: jossey-bass, 1985. mulder,m., gulikers,j., wesselink, r., biemans, h .wageningen university, education and competence group (european reference framework). european commission .on line: http://ec.europa.eu/education/ lifelong-learning-policy/doc62_en.htm ose, g. (1999) kā mācās pieaugušie. rīga; poligrafists. rychen,d. salganik, l. on line: definition and selection of key competencies: executive summary (30-jun-2005) www.oecd.org/ dataoecd/47/61/35070367.pdf rychen,d. salganik, l. a contribution of the oecd program definition and selection of competencies: theoretical and conceptual foundations. . ines general assembly, 2000. schneckenberg d.,wildt, j. understanding the concept of e-competence for academic staff .center for research on higher education and faculty development. university of dortmund. germany on line: www. ecompetence.info schneckenberg, d., wildt, j.: new competences for academic staff – an international investigation on ecompetence in higher education. celt webcast, january 2006, on line: http://videostream.nuigalway.ie/dortmund smith, m.k. (1996; 1999) ‘andragogy’, the encyclopedia of informal education, online: http://www.infed.org/lifelonglearning/b-andra.htm. the higher education academy. innovation way. annual report. 2008 heacademy.ac.uk on line: http://www.heacademy.ac.uk/assets/york/ documents/resources/publications/annual_reports/ annualreport2008.pdf the national student survey 2005-2007. findings and trends. published july, 2008. on line: http://www. hefce.ac.uk/pubs/rdreports/2008 tilļa, i. sociālkultūras mācīšanās organizācijas sistēma. raka, 2005 weinert, f.e. (2001).concept of competence: a conceptual classification. in d.s.rychen &l.h. salganik (eds), defining and selecting key competencies.(pp.45-65).gottingen: hofrege &huber. webbs, in “new statesman”, (1917), quoted at paragraph 123 of a report by the uk competition commission, (1977). on line: http://www. competition-commission.org.uk/rep_pub/ reports/1976_1979/108architects.htm the article has been reviewed. received in march, 2009; accepted in april, 2009. 69 issn 1822 – 8402 european integration studies. 2009. no 3 tax harmonization and tax competition in european union algis junevičius barbora šniukštaitė kaunas university of technology, institute of europe abstract the paper deals with the problems of tax harmonization and competition in the eropean union (eu). it is discussed from the tax theory point of view as well as from the view of the tax practice. several attitudes to tax competition and tax harmonization are discussed, including the tax competition theories. the paper presents several successes which have been achieved in the area of direct tax harmonization and indirect tax harmonization. harmonization failures are mentioned and discussed as well for they are the integral part of the harmonization process in the european union. on new year’s day 1993 a period of accelerated european integration has began. the physical border controls were eliminated and the last political obstacles to free migration of capital and labor were removed. the liberalization was expected to improve the allocation of resources significantly and to boost european economy. the removal of trade barriers was not free from problems. it may exacerbate existing distortions resulting from non-harmonized tax systems and even create new distortions. capital flight into low tax countries and changes in patterns of international trade caused by different value added tax (vat) rates are among the consequences that may occur. to avoid such consequences, fiscal harmonization must follow the fall of barriers. it was preferable to allocate europe’s scarce resources according to the principle of tax minimization. tax harmonization does not necessarily require centrally coordinated actions by the european governments. the competition of tax systems might also be via process of iterative adjustment, bring about requires harmonization. the european union (eu) also illustrates the role of tax competition. the barriers to free movement of capital and people were reduced close to nonexistence. some countries (e.g. republic of ireland) utilized their low levels of corporate tax to attract large amounts of foreign investment while paying for the necessary infrastructure (roads, telecommunication) from eu funds. the net contributors (like germany) strongly oppose the idea of infrastructure transfers to low tax countries. net contributors have not complained, however, about recipient nations such as greece and portugal, which have kept taxes high and not prospered. eu integration brings continuing pressure for consumption tax harmonization as well. eu member nations must have a value-added tax (vat) of at least 15 percent (the main vat band) and limits the set of products and services that can be included in the preferential tax band. still this policy does not stop people utilizing the difference in vat levels when purchasing certain goods (e.g. cars). the contributing factor are the single currency (euro), growth of e-commerce and geographical proximity.this article aim is to identify the achievement of tax harmonization process and expose the definitions of tax harmonization and competition. keywords: tax, tax system, taxation, competition, vat, indirect tax, direct tax, tax rate, differences, harmonization, eu. introduction recent changes in the rhythm of european integration and of globalization have dramatically reduced the scope for independent fiscal policies. on the one hand, the efforts to meet the maastricht criteria and the subsequent stability pact have limited the possibility of reducing tax pressure. on the other hand, the liberalization of capital movements, inside and outside europe, has increased the elasticity of location choices to tax rates. this is also the case for a limited part of the labour force, e.g. qualified labour. hence, a larger share of the tax base is being increasingly elastic to tax rates, while there is a need to maintain or increase the tax burden. in such a context, tax policies become more interdependent: increasing or decreasing the tax rate on the mobile part of the tax base is the source of externalities between countries or regions, and the source of an externality on the less issn 1822-8402 european integration studies. 2009. no 3 70 mobile tax bases (non qualified labour, sticky activities, and final consumption). research problem: tax differences between countries may cause locative distortions in the capital market because capital will move to the country with the lowest effective tax rate rather than the most efficient use. in addition, differing tax rates may lead to trade diversion, which in turn also may result in welfare losses. object of this article – tax harmonization and tax competition process in european union members. aim of this article – to identify the achievement of tax harmonization and tax competition process and expose the necessity to find the best way to have clear business competition in eu member states. tasks of this article: to expose main principles of taxation in eu  establishing treaty. to present the development of harmonization  process in eu. to uncover the definition of tax competition. research methods: analysis of primary, secondary literature and statistical data. taxation principles in eu rome treaty european union establishing treaty (further treaty) 2nd article expounded economical and social format union objectives. this treaty is not only economical there is also talking about human rights, education and etc., but the most important regulating questions is common market and economic and monetary union (emu). union goals are reaching by inoculating free movement of goods, persons, services and capital, composing relevant conditions of competition and coordinate national tax rules. union members’ duty to harmonize direct taxes is not ratified in eu jurisprudence acts. there are different taxation obstacles, which can incommode construct common market. various countries obtain departure taxes which appear as serious problem in nowadays. quantified different taxation for local or imported goods and services also large differences of taxes in other members, such as double taxation, different taxation for residents and non-residents companies. to avoid these problems we have to identify: differences of taxation systems distorting  economical neutrality. tax harmonization or at least coordinating between  members is required for performance of common market. union treaty forbid total discrimination of other  citizens or companies doesn’t matter is it open or hidden.(90 a.) e.g. case c-393/98 the general harmonization provisions (articles 94 and 95 of the ec treaty) form the main legal basis for harmonizing taxes. article 94 pertains to “directives for the approximation of such laws, regulations or administrative provisions of the member states as directly affect the establishment or functioning of the common market.” the single european act amending the ec treaty introduced article 95 stipulating that the council will adopt the measures for the approximation of the provisions aiming at the establishment and functioning of the internal market. by way of derogation from article 94 it allows for qualified majority decision-making, but according to paragraph 2 this does not apply to fiscal provisions. in addition, some non-binding instruments have been applied. in this case we have these general documents (written bellow) regulating tax coordination. the main documents regulating tax coordination: council directive 2006/112/ec – main document, regulating vat taxation order; 6th council directive 77/388/eec – by reason of state members turnover taxes coordination; council directive 2006/79/ec  regulating import vat privilege aiming cases and order; council directive 83/181/eec – by reason of directive 77/388/eec 14 article 1st part aiming to dismiss the final goods import from vat tax; 8th council directive 79/1072/eec and 13th  council directive 86/560/eec – vat resumption for persons who are taxable by foreign countries. council directive 92/12/eec – the basic document establishing the system of excise duty taxation. horizontal directive no. 92/12/eec is related to mineral oils, alcohol and alcoholic beverages and tobacco. directive further enables individual member states to impose above the scope of excise duties also other indirect taxes (for example from environmental reasons). application of these taxes does not have to signify any formalities during cross-border trade between member states. directive, except the object of taxes, also defines taxable fulfillment, production, products moving and tax payments. the directive is regulating excise duties in general and concrete types of excise duties are regulated by individual directives. ethyl alcohol and spirituous beverages excise duty regulating documents: council directive 92/83/eec  by reason of excise duty for alcohol and beverages structure harmonization. council directive 92/84/eec by reason of excise duty tariffs for alcohol and beverages unification; manufactured tobacco: council directive 92/79/eec due  to taxes for cigarettes harmonization. council directive 92/80/eec  by reason of taxes to other industrial tobacco harmonization. energy products and electric energy council directive 92/81/eec comprises unification issn 1822-8402 european integration studies. 2009. no 3 71 of basis for tax assessment and adjustment of tax structure in relation to custom tariff. this directive defines individual types of mineral oils subjected to excise duty. if the mineral oil serves to consumption, is sold or serves as fuel, then it is the object of the tax. directive stipulates that also the product, which is not directly listed as a mineral oil, but is sold or used production of electric energy as a fuel is object of the tax. council directive 2003/96/ec  restructures taxation of mineral oils on the energy products and electric energy. it extends taxation of mineral oils to coal, natural gas and electric energy. this directive sets minimum tax rates on energy products in dependence to purpose of the use. it distinguishes between energy products serving as fuel or as a mean for production of electric energy. but whether or not secondary eu legislation such as directives and regulations exists, member states’ tax systems and tax treaties must in any event respect the fundamental treaty principles on the free movement of workers, services and capital and the freedom of establishment (articles 39, 43, 49 and 56 of the ec treaty) and the principle of non-discrimination. moreover, in more general terms, article 18 of the treaty provides that every citizen of the union has the right to move and reside freely within the territory of the member states. the agreement on the european economic area extends to individuals and enterprises of eea states (iceland, liechtenstein and norway) the principles of free movement of goods, persons, services and capital, as well as of equal conditions of competition and nondiscrimination. however, secondary eu legislation does not apply in these eea states. tax harmonization tax harmonization represents the process of tax system convergence based on common set of rules. as quotes (kubatova, 1998), there can be identified three main phases during the harmonization process (the harmonization process does not necessarily has to undergone all three stages – it can finished by harmonization of tax bases, for example). firstly, the tax which is going to be harmonized has to be selected. secondly, the harmonization of tax base takes place and for the last, the tax rate is harmonized. further, there can be defined certain levels of tax harmonization: different taxes in all states. part of the taxes are common, some of the taxes  are national – partial harmonization. same taxes in all countries. the level of tax harmonization, when there are different taxes in all states can be divided further on the situation, when there is no tax harmonization (i.e. there are no double taxation conventions and no cooperation on administrative level) and on the situation, when there is slight harmonization (i.e. there are double taxation conventions and the cooperation on administrative level). (nerudova, 2008) when there are applied same taxes in all countries, the following situations can arise: different tax bases – nominal armonization harmonized tax bases – here can be identified  another two levels: different tax rates – harmonization of tax ⇒ bases same tax rates – total tax harmonization. ⇒ total tax harmonization is defined by the tax theory as the result of the structural harmonization (i.e. harmonization of the structure of taxes) and harmonization of the tax rates. tax harmonization can also be understood as the process (the tools for reaching the selected aim) and the result (harmonization of tax legislation itself) together (nerudova, 2005). ec treaty in art 93 and 94 considers as the aim of the harmonization process the establishment and smooth functioning of the internal market. if considers the tax harmonization as the tool for reaching of smooth functioning of the internal market, then we can divide tax harmonization further on positive and negative. positive tax harmonization represents the process of the convergence of the national tax systems of eu member states by the implementation of directives, regulation and other legislative tools. the result of positive harmonization is the same rules in all member states. on the contrary, negative harmonization is the result of the activity of the european court of justice (hereinafter as ecj). negative tax harmonization cannot be considered as the harmonization in real sense, for it does not provide the set of common rules, binding for all eu member states. the ecj case law is binding for the parties involved in the case. ecj case law does not comprise the means of remedies. that is the reason why the result of the negative tax harmonization cannot be the situation when there will be the same rules in all eu member states. in respect to the actual development in the area of tax harmonization, the harmonization can be further divided on direct and indirect. direct tax harmonization is understood as the classical harmonization process, which tries to harmonize the regulations directly by means of tax directives. on the contrary, indirect tax harmonization is understood as the effort to reach the harmonization of certain tax regulations by means of harmonization of different areas of law – for example commercial law or company law. at present, the situation is clearly visible in the area of corporate taxation. issn 1822-8402 european integration studies. 2009. no 3 72 if we consider the definition of the tax harmonization only as the process in the eu, then the tax harmonization can be understood as the mechanism, which enable to remove tax regulations which create obstacles to smooth functioning of the internal market or which distort the competition on the internal market. the aim of the tax harmonization in the european union is not to reach a unified taxation system, but the convergence and the pproximation of the taxation systems. the main characteristics of the value added tax in the european union are as follows: − the european system regarding the value added tax has been established and is amended based on the eu directives; − it had been planed that until 1970 all the states members at that date to implement the value added tax in their national fiscal systems; − it has been acted to the standardization of the taxation basis and levels since 1977; − some member states have negotiated to obtain vat exemptions or differential taxation levels for certain regions or territories. − the standard taxation level is established to a minimum level of 15%, the member states having the possibility to increase such level, but not more than 10 percent points. − reduced taxation levels, over-reduced levels (below 5%) and zero level are admitted for certain classes of goods and services. the case of the zero level is a characteristic of the 6th directive, its goal being to establish a minimal taxation level, namely 5%. however, in some member states and, especially in the great britain, there has been accepted the preservation of the zero level by means of waiver, without the possibility to widen the action range of such level to other goods and services. (see table 1) table 1. vat tax rates in eu members states (source: ek, 2008 july 1st data) country standard drugs accommodation food public transport books ireland 21 0 13,5 0/4,8/13,5 0 0 austria 20 20 10 10 10 10 bulgaria 20 20 7/20 20 20 20 denmark 25 25 25 25 0 25 estonia 18 5 5 18 18/0 5 spain 16 4/16 7 4/7 7 4/16 great britain 17,5 0/17,5 17,5 0/17,5 0 0 latvia 18 5 5 18/5 5 5 poland 22 7 7 3/7/22 7 0/7/22 lithuania 19 19 19 19 19 19 luxembourg 15 3/15 3 3 0/3 3 netherlands 19 6/19 6 6 0/6/19 6 france 19,6 2,1/5,5/19,6 5,5 5,5/19,6 5,5 5,5/19,6 slovakia 19 10 19 19 0/19 10 slovenia 20 8/5 8/5 8/5 8/5 8/5 finland 22 8 8 17 8 8 sweden 25 25 12 12/25 6/0 6 germany 19 19 19 7/19 7/19 7 portugal 20 20 12 5 20 20 italy 20 10 20 4 20 20 greece 19 9 19 9 9 4,5 romania 19 9 9 9 19 9 belgium 19 19 19 7 19 19 malta 18 18 18 5 18 5 cyprus 15 5 8 8 15 15 check republic 19 9 19 9 19 19 hungary 20 5 20 5/20 20 20 the perusal of the data presented above points out the compliance with the requirements stipulated by eu regarding the minimal and maximum limits as regards the standard level. it is obvious that only cyprus and luxembourg enforce the standard vat level according to the minimal value stipulated by eu (15%), the explanation for such practice being related to the classification of these states as being part of the area of fiscal paradises with low taxation. in germany, great britain, spain, czech republic, estonia, greece, lithuania, latvia, malta, holland and slovakia, the standard vat level is below the average registered upon eu level while in austria, belgium, issn 1822-8402 european integration studies. 2009. no 3 73 denmark, finland, france, ireland, italy, portugal, sweden, poland, slovenia and hungary, the standard vat level exceeds the average registered upon eu level. theoretical background of tax competition on november 5th, 1997, in its report: “measures to fight against tax competition in the european union” (european commission, bull. 6-1997) the european commission recommended a coordinated action against tax competition in europe, the objective being to reduce distortions still existing within the single market, to avoid losses on tax receipts and to establish tax structures more in favor of employment. the ecofin council of december 1st, 1997 gave its assent on the resolution relating to a code of conduct in the field of companies taxation, and approved the idea of tax harmonization on savings. in june 2000 the european council finally agreed on a compromise on taxes on savings. european countries will have to inform other countries about savings made by residents from other member states. we should expose theoretical background of this process. tax competition exists when governments are encouraged to lower fiscal burdens to either encourage the inflow of productive resources or discourage the exodus of those resources. often, this means a governmental strategy of attracting foreign direct investment, foreign indirect investment (financial investment), and high value human resources by minimizing the overall taxation level and/or special tax preferences. although often presented as a benefit for capital, tax competition is generally a central part of a government policy for improving the lot of labour by creating well-paid jobs (often in countries or regions with very limited job prospects). as quotes (nerudova, 2008), competition is generally considered as the factor, which increases market effectiveness, for it enables the effective allocation of the sources. the same is not true for tax competition. in case of the market failure, the competition is not able to ensure effective source allocation. taxes represent the market failure, for the taxpayer does not receive any equivalent for the paid tax and therefore it is not interesting for him to pay taxes in jurisdiction, in which he uses the public services. tax competition could lead to the restriction of the public sector. in extreme situation it could result in removing of the tax. according cecchini, tax competition is harmful, for it decreases the tax bases of neighboring countries and deforms the effective allocation of capital and services. the decrease of the statutory tax rates increases the competitiveness of the state. the result is the increased inflow of the good, services, capital and qualified labour force into the state with low statutory tax rates. the negative effect is represented by the decrease of the state budget revenues and implicitly also by the decrease in the economic growth of neighboring countries. certain degree of tax harmonization, mainly in the area of corporate taxation, is needed, for the present situation does not allow eu companies to fully use the advantages connected and provided by the internal market, as mentions (nerudova, 2008). tax competition can lead to the inefficiency in providing public services. as further mentions edward cartwright, the inefficiency can be found mainly in the area of the size of the redistributive programs. therefore the tax competition is perceived as harmful, mainly by the groups, which highlight the task of the redistributive programs. the author mentions that also the positive side of the tax competition can be found, for it prevents the excessive expansion of the public sector. tax competition cannot be considered as the competition in real sense. therefore it is not possible to search for the parallels between the market competition and tax competition. while in market competition, the law of supply and demand dominates, the tax competition is the play of political and economic interests. the looser in that game are immobile factors (labour force) and the winners are the owners of the capital (mobile factors). when the tax competition results in the decrease of the yield from the capital tax, the decrease is compensated very often by the higher taxation of labour force. at present there is no unified regulation of the corporate or personal income taxation in the european union. based on the above mentioned, tax competition can be considered as beneficial, for it creates the pressure on the decrease in the budget expenditures. therefore it could help to increase the competitiveness of the eu as a whole. on the other hand, unlimited and uncontrolled tax competition in the area of the mobile factors can endanger the budget revenues of eu member states and to endanger the redistributive role of public finances. as quote daniel j. mitchel let us expect the analogy between the tax competition and market competition. if the market competition results in the higher effectiveness and meets the demand, the tax competition has to result in higher budget effectiveness and in satisfaction of the voters. the result of the tax competition in the area of corporate taxation in the eu is the situation, when the tax rates in different jurisdictions reflect mainly the international aspects of taxation and partly also the preferences of the member states. the tax competition itself leads to the spontaneous harmonization effect – i.e. to the spontaneous convergence of the tax rates and therefore there is no need for artificial harmonization. as quotes (nerudova, 2008), the declaration that the tax harmonization is needed due to the internal market or monetary union, is incorrect. the above mentioned supports by the example of the u.s.a., where there are remarkable differences in taxation, even though it is the area with higher economic and political integration than european union. the fears from spillover effects to the issn 1822-8402 european integration studies. 2009. no 3 74 low tax jurisdictions are according to the author not just. higher tax jurisdiction in the eu offer qualified labour force and stable business environment. on the contrary, low tax jurisdictions try to establish on the internal market. the author adds, that in case that the process would be stopped by the tax harmonization, the european union would be less converged than ever before. the discussion on the harmfulness of the tax competition has led to the development of certain models, which has been verified on the empirical data. in the tax competition theory there can be found two basic strands. first of them highlights the role of “tax game” and tries to identify tax reaction functions, which shows the dependence of the state on the tax policies of its neighbours. most of the authors in that strand of literature have found out that the governments are adjusting the tax rates in reaction to the changes in the tax rates of its neighbours, which support to the standard tax competition theory. corporate income taxes influence the corporations in their decisions about investments placements. from that reason the tax policy of the government tries to attract the tax bases in the frame of tax competition and not the voters, for the corporate income tax influences them only marginally. edward cartwright and myrna wooders have dealt in their research with the empirical estimation of tax reaction functions in case of corporate income taxes among oecd countries. they have proved the existence of positive correlation coefficient in all the cases – i.e. the decrease in tax rate of neighbouring country was followed by the studied country. (devereux, lockwood and redoano, 2002) quote that each country behaves strategically in the process of setting up the corporate income tax rates in respect to the corporate income tax rates set in neighbouring countries. the authors point out another very important factor in the tax competition – voters and politics. the government policy makers are following the tax rates of other states, for in case that they would set higher tax rates than neighbouring countries have the government need not to be voted again in elections. the second strand in literature which can be found in tax competition theory is the influence of capital mobility on the level and structure of the tax rates. in that area the authors highlight the negative impact of capital mobility on the capital tax rates and the level of public expenditures. some authors as (garrett and mitchell, 2002) fined positive relation between capital mobility and the level of capital tax rates and public expenditures, which is in contradiction with the “race to the bottom” theory which was mentioned above. the compensation theory serves as the basis for the theoretical arguments of the authors finding the positive relation between the capital mobility and the level of public expenditures. the compensation theory is based on the idea that economic integration (and connected increase in the capital mobility) causes also secondary effects as for example recession in some sectors of economy or higher volatility in consumers incomes, which leads to the higher demand for the public expenditures, mainly in the form of social programs. the defenders of compensations theory suppose, that higher tax burden on labour as a result of increase in the capital mobility should be compensated to the tax payers in the form of special social programs, which would be financed from the increased tax revenues from that type of tax. conclusions tax competition theory suggests that small countries set lower tax rates than large countries. it appears that the five largest eu members have indeed an effective tax rate that is on average higher than in the smaller member states. the mean effective tax rate of small eu countries was 24.6%, whereas the mean effective tax rate of large eu member states was no less than 35.8%. the difference between small and large countries declined. eu member states participating in emu have given up the possibility of an independent monetary policy. therefore, they have fewer policy options, so they might have incentives to use taxes to achieve competitive advantages, which may intensify tax competition. however, tax burdens in the eu increased on average by almost 50% in the past 35 years, while they did not converge. since capital is much more mobile than labor it can be expected that the tax burden has partly shifted from capital to labor. yet, there is no evidence for a “race to the bottom”. there are two routes to integration: through harmonization and through competition. in the first of these approaches the creation of free trade requires prior alignment of the policies and practices of the states involved. under the second the favored mechanism is to promote integration as rapidly as possible, and let the consequences for rules follow from that. generally, the eu’s role in taxation has been relatively minor, so far. the eu favors tax harmonization, but it has mainly confined itself to harmonization of indirect taxes. insofar the eu has been involved in direct taxation, it mainly pertains to corporate taxes eu decision-making on taxation still requires unanimity making progress in tax harmonization a difficult and cumbersome process. so far, the achievements with regard to tax harmonization in the eu have been most pronounced in the field of indirect taxes, in particular the vat. minimum rates have been set, but no maximum rates. as a result, vat rates differ across eu member states. moreover, vat tax bases differ between member states because of derogations and exemptions. less progress has been achieved with regard to harmonization of excise taxes. harmonization in this field has been very slow and often spontaneous. issn 1822-8402 european integration studies. 2009. no 3 75 references cecchini paolo, europa’ 92 der vorteil des binnenmarktes, (baden-baden) oecd (organisation for economic co-operation and development) (1998): harmful tax competition. an emerging global issue, paris. oecd, 1998, “harmful tax competition – an emerging global issue”, oecd. europe´s tax harmonization is a smokerscreen to raise taxes”, capitalism magazine, p. 1-5. european union law. seminars, legal information center, vilnius 2006 tax harmonization: the case of germany at the beginning of the nineteenth century lessons for the twenty-first century? carsten pallasuniversity of hamburgmitchell, j., 2002, “the global tax police: review of charles m. tiebout ‘s works in washington university http://faculty.washington. edu/krumme/vip/tiebout.html#model budacia lucian constantin gabriel, the regulating legislative of romania http://steconomice. uoradea.ro/anale/volume/2008/v3-finances-banksaccountancy/188.pdf daniel j. mitchel. the global tax police: europe’s tax “harmonization” is a smokescreen to raise taxes http://www.capmag.com/article.asp?id=1346 edward cartwright and myrna wooders, the law of demand in tiebout economies http://www.vanderbilt.edu/econ/wparchive/ workpaper/vu05-w27.pdf edward cartwright. law of the demand in tiebout economies http://www.vanderbilt.edu/econ/jpconley/ documents/pe20-law-of-demand-tiebout.pdf encyclopedia brtitannica: http://www.britannica.com/ebchecked/ topic/584578/taxation/72010/principles-of-taxation court’s rulings,general eu taxation principles in the area of direct taxation. brussels, 7 june 2006 dieter kischel, taxud e3 http://www.abgs.gov.tr/tarama/tarama_files/16/ sc16exp_court%20cases%20direct%20tax.pdf comments on the structure and rates of excise duty applied on cigarettes and other manufactured tobacco. lithuanian free market institute | 05-31-2007 http://ec.europa.eu/taxation_customs/ resources/documents/common/consultations/tax/ tobacco/39lit.pdf review of european tax harmonization: http:// economic-research.bnpparibas.com/applis/www/ recheco.nsf/conjoncturenewbyeconomisten/bd1 54e11c3e213e7c12567200034916d/$file/c9902_ a2.pdf?openelement taxation and customs union http://ec.europa.eu/ taxation_customs/taxation/vat/how_vat_works/rates/ index_en.htm devereux, lockwood and redoano, 2002 http://team. univ-paris1.fr/teamperso/fontagne/gsie_sem/ chatelaisslides.pdf vat rates applied in the member states of the european community http://ec.europa.eu/taxation_customs/resources/ documents/taxation/vat/how_vat_works/rates/vat_ rates_en.pdf nerudova danuse. department of accounting and taxation , mendel university brno. http://mibes.teilar.gr/e-books/2008/nerudova%20 90-109.pdf tax competition versus fiscal integration in europe: a european perspective http://facta.junis.ni.ac.rs/eao/eao2004/eao2004-06. pdf the article has been reviewed. received in march, 2009; accepted in april, 2009. european integration studies 2008.indd 140 issn 1822-8402 european integration studies. 2008. no 2 review on the second edition of the attilio stajano book research, quality, competitiveness: european union technology policy for the knowledge society springer, 2008 in contemporary stage of european integration the topic of the book comes “just in time”. looking from outside the topic seems multidisciplinary. it is great value of the book. after reading the book it becomes evident that delivery of ideas is essential interdisciplinary. it is next great value for the book about european integration. integration is a complicated process, therefore request retrospective analysis. the book deals with origins of the european union and evolution from the treaty of rome to the treaty of lisbon. enlargement has been taken into consideration in the book as well. after studies of the fi rst part of the book the reader is involved into most sophisticated analysis of europe’s sustainability in the dramatically competing world. competitiveness of the european union is analyzed step by step in the book. from overview of member states geopolitical situation other factors of competitiveness has been identifi ed and discussed. emerging economies as well as enlargement countries have been disemboweled. the statement: the european union is successful in some high-tech industrial sectors and can compete in mature, quality-based markets, but it ranks behind the us in terms of r&d investments and patent registrations in the end of eight chapter invites the reader to look after what should be done. further author gives the answer to the previous remark: finland and sweden are investing in research more than any other union country (and more than the average of the us) and in this way they are laying the ground for long-term prosperity. the issues discussed in the book are laid down constructively and consecutively. third part of the book throws the seriously prepared reader into the jungles of knowledge based economy and donates him the vision of knowledge based society. objectives and results of the research as well as institutions and research programmes are analyzed. the vision of european institute of technology is described. it is diffi cult not to agree that entrepreneurship, innovation, and competitiveness are the main factors for success of european union in the world economies being developed towards knowledge based society. summarizing the values of the book which are not mentioned yet it is important to say the book is great for the european integration studies, written consecutively, understandably and interesting. the data given in the book are fresh and refl ects the text supportively. i hope, the book will become the table-book for everybody politician, clerk, teacher and student – who are interested in the complicated topic of european integration. jean monnet professor krisciunas kestutis, doctor habilitus, professor, director of the institute of europe of kaunas university of technology 190 issn 1822 8402 european integration studies. 2009. no 3 networking based economic development in the european union : innovation potential and strategic decisions borisas melnikas vilnius gediminas technical university abstract the new ideas of innovation and networking oriented economic development in the european union are described. prospects of economic development are getting more heavily dependent on the ability to initiate, disseminate and implement innovations in all spheres of life. this factor is of particular importance for the development and enlargement of the european union, because activation of innovations is considered to be a significant problem associated with social and economic development and the advance of science and technology in the european union. further activation of innovations is a major precondition for ensuring the competitiveness of the european economy under the conditions of globalization. to activate the innovations in the european union, the potential of innovations should be purposefully developed and effectively used. the problems of purposeful development and effective use of the innovation potential are considered now to be particularly important both from theoretical and practical perspectives. vast possibilities of activating innovations are created by favourable conditions existing in the european union for producing and effective use of various synergetic effects required for creating and developing international networks: these international networks may become the dominant formations in modern international economy. spreading of international networks implies the inevitability of transformation of international economy into an economic system of international networks. the major goal of the paper is to demonstrate new approaches to innovation activation and purposeful development of the innovation potential in the european union, taking into account the trends of globalization observed and the challenges of the knowledge – based society being created. keywords: innovations, international economy, networks, european union. introduction the economic conditions and prospects of economic development in the time of globalization and knowledge based society creation are getting more heavily dependent on the ability to initiate, disseminate and implement innovations in all spheres of life. this factor is of particular importance for the development and expansion of the european union because activation of innovations is considered to be a significant problem associated with social and economic development and the advance of science and technology in the european union. further activation of innovations is a major precondition for ensuring the competitiveness of the european economy under the conditions of globalization. to activate the innovations in the european union, the potential of innovations should be purposefully developed and effectively used. this is not only a major condition of successful development of the economy in the european union, but also a major factor influencing the solution of the significant global problems of economic development and technological advance. the importance of the innovation potential in the european union for economic development and technological advance in the world is determined by the current role of the european union and its influence on global changes. the problems of knowledge based economy creation in general and the problems of purposeful development and effective use of the innovation potential in the european union are considered now to be particularly important both from theoretical and practical perspectives. therefore, these problems are in the focus of many research and practical works. however, it should be noted that, so far, the discussion and solution of some particular problems have not been paid much attention. thus: a  dimension for describing the peculiar features of the innovation potential of the european union as a complex cultural, economic, technological as well as political and social system and space has not been suggested by researchers yet, in the process of innovation initiation, dissemination  and implementation, various possibilities of achieving synergetic effects, also including the issn 1822-8402 european integration studies. 2009. no 3 191 possibilities characteristic only of the european union, have not been thoroughly considered, modern theories of innovation and innovation  management do not offer a comprehensive analysis of the ways of creating and implementing innovations aimed at achieving technological breakthroughs and qualitative changes in the significant spheres of life of the community based on various synergetic effects, the lack of attention to the problem of  creating international network systems, closely associated with activation of innovations, can be observed both in practical activities and modern theories, there is a lack of awareness that international  economy is being transformed into a network – based economic system and the influence of this transformation on innovation activation has not been adequately evaluated. in general, preparation and implementation of appropriate strategies for creation of knowledge based economy, including strategies for innovation potential development, could be defined as an complex problem. this publication analyzes a new approach towards the way how long term strategies designed to create knowledge based economy in the european union should be prepared. this approach is a result of scientific research the object of which has been creation of the knowledge based economy in the situation of the enlargement of the european union. the objective of the completed research has been the proof of the fact that key priorities for creation of the knowledge based economy is the urge of technological advancement and enhancement of compatibility and productivity using such opportunities as specialization of national and regional economies, creation of clusters and their networks, as well as the development of so called economic “oases” and hyper-clusters in the entire economic space of the european union. the main result of the completed research is the concept of strategies oriented towards integration and synthesis, the basis for which is the universal principle of „creation of a new quality“: we should utilize this principle in elaborating and implementing the strategies for creation of knowledge based economy in the european union. the european union‘s innovation potential: development problems and priorities under the conditions of knowledge based economy creation and globalization the prospects of the development of the european union largely depend on its innovation potential, therefore, the assessment of the innovation potential and possibilities and prospects of its further development is the basis for identifying and solving the significant social, economic and technological development problems (cohendet, stojak, 2005; calori, atamer, nunes, 1999; david, foray, 2002; steinmueller, 2002; melnikas, jakubavicius , strazdas, 2000). the innovation potential in the european union should be considered an essential factor of global changes in the modern world, implying that the ability to identify and successfully solve both scientific and practical problems associated with the innovation potential development, strengthening and effective use largely determine the prospects of the european union and its role in the global system. to purposefully develop and effectively use the innovation potential in the european union, the following questions should be answered: how to define the  concept of innovation potential and the influence of innovation potential on social and economic development of the european union? what  challenges should the innovation potential be aimed to accept under globalization conditions, in particular? what are the  major innovation potential elements and how is it possible to develop this potential and increase the effectiveness of its use? it should be noted that a complex approach to the innovation potential as a system has not been developed yet. the lack of a complex approach to this problem is one of the reasons why there is a lack of purposeful activities based on realistic strategic decisions, which should be aimed at developing and effective use of modern innovation potential over the whole european union. it can be stated that the description and information about a complex approach to the innovation potential as a system is the necessary prerequisite for activating various integration processes in all spheres of social, economic and technological development of the european union. this also implies that purposeful development and the effective use of the innovation potential as a system make an important area of research and practical work. in general, a concept of innovation potential in the european union can be defined as an overall capacity of the european union as a system to initiate, disseminate and implement various social, economic and technological innovations required for responding to new challenges and requirements under the conditions of globalization (melnikas, 2002, melnikas, reichelt, 2004). the above definition may be considered universal, since it emphasizes some issues of universal character: a response to new challenges and requirements raised in the time of globalization is emphasized, innovation potential is p erceived as an overall capacity to initiate, disseminate and implement innovations in various spheres of life, issn 1822-8402 european integration studies. 2009. no 3 192 innovation potential is considered in the context of  the whole system of the european union. it should be noted that the european union may be defined in two ways (e.g. the european union as an organization uniting various states and the european union as a multidimensional international system of social, cultural, informational, economic and other areas). therefore, two attitudes to the innovation potential in the european union can be pointed out: innovation potential  of the european union as an organization unifying various states: in this case, innovation potential is approached as an overall potential of all member-states of the european union, innovation potential in the european union as a multidimensional international system of social, cultural, informational, economic and other areas: in this case, the innovation potential is approached as an overall innovation potential of social, cultural, informational, economic and other areas. these two approaches allow us to reveal the capacities of creating, developing and updating the innovation potential as well as the alternative policies of innovation activation to be pursued in the european union. the innovation potential of the european union should be perceived as a very complicated system. this view is based on two premises: the innovation potential of the european union  has many-sided orientation, the innovation potential of the european union  has a complicated structure. many-sided orientation of the innovation potential can be defined by showing the diversity of the initiated, disseminated and implemented innovations and the needs for these innovations based on the above potential. moreover, the characteristics of the diversity of innovations and their demand allow us to describe the results of innovation potential development and implementation. the diversity of innovations and needs for them can be defined by considering these issues: the innovation potential in the european union 1. should be oriented at innovations found in all spheres of social, economic and technological development, as well as in political and cultural life: the innovations in the area of social development should be oriented at spreading and establishing humane and democratic values, thereby seeking to create a new knowledge-based society, the innovations in the area of economic development should be oriented at creating up-to-date and competitive economy relying on knowledge-based economic models and standards, the innovations in the area of technological development should be oriented at creating qualitatively new technologies and their spreading in various spheres of life, primarily, at creating the alternative power system and up-to-date manufacturing industry based on high technologies in the european union, the innovations in political area should be oriented at the development of civic society in the european union eu and its member-states, realization of human rights and freedom and pursuing the policy meeting the actual needs of the society in any particular country in the european union, the innovations in cultural area should be oriented at the establishment of high moral standards as well as principles of environmentally friendly lifestyles and ethical behaviour in all spheres of life; the innovation potential in the european union 2. should be oriented at solving the problems significant to the whole european union, with the priorities given to the solution of the most urgent problems: inadequate economic measures aimed to support and increase the high level of welfare and social comfort standards of all inhabitants in the countries in the european union (implying that they are being supported and raised to a smaller extent : inability to solve these problems may cause higher social differentiation and negative social and economic effects); insufficient competitiveness of the products made in the member-states in he european union in the international markets and all over the world (these problems are associated with the growth of production costs in nearly all economic sectors, while the quality of the products does not grow correspondingly: for this reason, the competitiveness of these products is often low), deficiency and growing cost of power and raw materials (these problems are associated with the fact that the economic system in the european union is strongly affected by the growing cost of imported power and raw materials as well as the increasing deficiency of these resources), ecological problems, which are actually encountered in all regions of the european union and in all spheres of life, various safety problems including public safety as well as safety problems associated with legal, environmental and social aspects, human rights, freedom, etc. (it can be noted that in modern society safety is becoming issn 1822-8402 european integration studies. 2009. no 3 193 the main value, therefore, the orientation of innovations at safety provision is perceived as absolute priority. another factor considered to be important throughout the human history should be mentioned: the main innovations ensuring the advance of society in all times were associated with safety provision, which could also be achieved by military actions); innovation potential in the european union as 3. a system should be oriented at its sustainable and harmonious development and adaptation to the environment and global qualitative transformations: innovation potential should be oriented at the harmonious development of the all regions in the european union, implying that each region should be perceived as a unique and specific unit, satisfying currently accepted standards, as well as being competitive in the european union space, innovation potential in the european union should be oriented at being intensively used for solving social, economic, environmental, safety and other problems on the world-wide scale, thereby ensuring the ability of the european union as a system to adapt to the environment in the global sense. the above and some other characteristics allow us to show multifaceted orientation of innovation potential. on the other hand, it can be defined in a different way by showing its complicated structure. structural characteristics of innovation potential allow us to define its major elements as well as possibilities of innovation initiation, creation and dissemination, thereby determining the abilities of creating and spreading the innovations and the conditions for developing and disseminating innovations and using innovation potential. the described characteristics and their use allow us not only to see a complex nature of innovation potential, but also to reveal the possibilities of activating innovation development, dissemination and implementation. in this context, the following issues should be considered: in the 1. structure of the innovation potential, the following basic elements should be defined: in the structure of human resources accumulated in the european union, most of the resources are oriented at the creative activities of all kinds and various innovations and initiatives. the availability of this kind of human resources provides favourable conditions for innovative activities, an up-to-date material base for industrial development and provision of services as well as technological infrastructure and infrastructure required for research, experimental work and practical implementation of innovations have been created in the european union, the infrastructure for supporting and promoting the innovations in various areas and the system aimed at the development of education, science and studies (including university and nonuniversity studies) have been developed in the european union, friendly social, political, psychological, legislative and organizational environment for stimulating and developing innovations and management and administration infrastructure for supporting innovative activities have been created in the european union; the development and effective use of innovation 2. potential is closely connected with the cultural potential and the variety of cultures on the territory of the european union: the cultures developed on the territory of the european union can be identified based on various criteria (i.e. various ethnic cultures, the cultures based on various confessions and those advocated by various social and professional groups and layers as well as the culture of people in a particular region). awareness of the variety of cultures is the key factor in innovation development, different and differently identified cultural achievements accumulate various opportunities to develop and effectively use innovation potential: to activate and promote innovations, the opportunities provided by the interaction and merging of different cultures should be effectively used (the latter condition is considered to be the priority in developing the innovation potential). summing up the above statements, it can be noted that the diverse orientation and a complicated structure of the innovation potential reflect the main factors to be taken into consideration in solving the significant problems of activating and promoting innovations in order to accept globalization challenges. searching for synergetic effects: creation and development of international networks for activating innovations in the european union’s economic space the nature of innovations has been analyzed from various perspectives in a number of theories (calori, atamer, nunes, 1999; currie, 2000; dicken, 1998, eindor, myers, raman, 2004; gerber, 1999; goeransson, soederberg, 2005; grace, butler, 2005; hunt, 2000; huseman, godman, 1999; leidesdorff, 2004; melnikas, 2002; perraton, 2001, porter, 1980, olsen, osmundsen, issn 1822-8402 european integration studies. 2009. no 3 194 2003; watson, gallagher, 2007). they have shown that innovations are actually based on searching for synergetic effects and their use. this means that the solution of the problems of the creation, development and effective use of the innovation potential in the european union requires that great attention should be paid to searching for synergetic effects and promoting their use. it is well known that synergetic effects are obtained by combining the elements of different nature into a single system and creating a qualitatively new situation, achieving qualitatively new aims or getting qualitatively new results. taking into consideration that in social, economic and cultural spheres of the european union there are good conditions for obtaining various synergetic effects, we can optimistically assess the prospects of purposeful development and effective use of the innovation potential. assessing the prospects of purposeful development and effective use of the innovation potential, the following factors influencing the achievement of synergetic effects can be defined: the conditions created due to  interaction of various cultures developed in the area of the european union. the interaction of cultures and mentalities characterized by various ethnic, confessional, social, professional, demographic, regional and other features means that new lifestyles and social behaviour models, as well as processes of the formation and spreading of new values, would be developed fast and to a great extent in the european union spaces (the considered processes characterize innovations emerging in all spheres of political, social, economic and cultural life and reflect great prospects of innovation potential development), the conditions provided by the available  intellectual and creative abilities of human resources on the territory of the european union and the amount and structure of scientific and practical knowledge relating to various spheres of life and activities. the merging of the available human resources and their abilities with knowledge accumulated in various fields provides a possibility to create and use new information, thereby promoting and disseminating innovations, the conditions based on  technological potential of the industry in the european union and other sectors of economy as well as industrial capacities and infrastructure for using these capacities: by combining the elements of the technological potential and infrastructure as well as various industrial capacities into new interrelated entities, the necessary prerequisites are created for developing qualitatively new production and service systems which could operate in new organizational forms to create qualitatively new products, conditions created by the  political decisionmaking system in the european union used for further integration and organizational, legislative, informational and economic infrastructure. the european union has quite a few ways of using human, financial, material and other resources effectively and purposefully and coordinating the implementation of innovative projects and other means important to the whole european union and aimed at producing long-term qualitative changes (it can be stated that a great potential of political decisions and organizational and administrative skills for achieving synergetic effects which can be used to initiate and implement large-scale innovations has been accumulated in the european union), the conditions based on the  experience gained by the institutions, enterprises and organizations of the member-states of the european union in developing international links and cooperation in the global areas: the experience gained and the systems of the relationships are considered to be a significant precondition for promoting and developing innovations. the above circumstances and conditions allow us to reveal the prospects for extending the search for obtaining synergetic effects and their effective use, thereby increasing the innovation potential. it can also be emphasized that, actually, under all the above conditions, the stimulation, creation and dissemination of innovations may be based on the creation and development of the socalled multidimensional international networks. it can be stated that the basis of the search and use of synergetic effects is the creation and expansion of multidimensional international networks consisting of enterprises, institutions and other organizations of various types and specializations, as well as the activities of variously defined individuals and other subjects. it can also be noted that the operation of these networks can be strongly influenced by the use of modern information and telecommunication technologies as well as up-todate automated devices and robots. creation and development of international networks is considered to be the priority trend in activating innovations and increasing the performance efficiency of various enterprises and organizations under the conditions of globalization and development of knowledge based society and knowledge based economy . the most important examples of creating and developing multidimensional international networks influencing innovation activation and promotion in european union in globalization environment are as follows: issn 1822-8402 european integration studies. 2009. no 3 195 industrial and service systems characterized by a complex nature and operating as international networks. in such systems, information and telecommunication technologies as well as automated devices and robots can be widely used, and qualitatively new products can be created and distributed, complex systems  operating as international networks and aimed at developing human resources which accumulate the functions of education, science and technological development required to satisfy the creative needs of knowledge-based society in all spheres of life and to create the conditions for realizing the principle of continuous (life-long) education, the systems  operating as international networks oriented at making breakthroughs and creating qualitatively new situations in various spheres of life. the above systems functioning as international networks can be viewed as particularly important models to be applied to developing and upgrading of the innovation potential. complex industrial and service systems functioning as international networks are aimed at obtaining synergetic effects and creating and disseminating innovations in various ways: joint activities systems within the considered networks embrace various industrial, commercial, logistics, transport, financial and insurance companies and enterprises and those providing marketing, auditing, consulting, legal services, staff training, etc., as well as other companies, enterprises, organizations and individuals. in such networks, innovative organizational and management forms required for developing partnership and cooperation, as well as new organizational structures, control, self regulation, planning and work coordination methods and strategic decision-making models can be used. new kinds of products including various complex products representing, actually, a new system of activities intended to yield new results and bring about qualitative changes in the areas of their application (the emphasis placed on the complex nature of the product allows us to expose the creation and implementation of innovations based on synergetic effects) can be created in the framework of these networks, highly innovative technologies and organizational forms of a new type, primarily, technologies aimed at implementing the principles of automating and robotizing technological processes in international electronics and manufacturing, logistics and trade can be created and used in the framework of these networks. creation and development of industrial and service systems functioning as international networks also accumulates a huge innovation potential because it can stimulate the formation of economies at a qualitatively new technological level in the global areas. complex products of a new kind created based on new technologies can be used under these new economic conditions. the following complex products of a new kind are considered to be most important: international systems of production and servicing  capacities intended for creating, manufacturing and spreading the available and newly created products, as well as copying and servicing new models and types of commodity items in the global areas (e.g. systems of production and servicing capacities for producing and distributing a certain new car or airplane model, a new type of technological equipment, home appliances, furniture, clothes and other consumer goods as well as foodstuffs), the available and newly created  energy production, mining, transportation, processing, distributing and delivery systems (e.g. the systems for obtaining and transporting gas, oil and other natural resources as well as electricity, water and heat energy production, distribution and delivery, including international systems), the available and newly created various transport  systems, including multimodal transport systems, the available and newly created  urban systems (i.e. cities and towns, their districts, settlements, large industrial areas), various types of  production and servicing capacities in various branches of industry, agriculture, etc., as well as in various sectors of culture, education, health care and other spheres. the creation and development of industrial and service systems in the form of international networks also stimulates the development of qualitatively new economy at a higher technological level in a sense that it allows closer interrelationship and partnership between the systems performing various functions to be developed. this applies to the systems with business function as a priority and systems operating in the areas of research, education and culture. the maintaining of these links and cooperation results in the creation and development of international networks of higher quality, e.g. complex systems for developing human resources which should be aimed at satisfying the needs of creating knowledge-based society and economy. the main features of these systems are as follows: development of human resources is based on the  ‛life-long education’ principle, implying that every person can have an opportunity to continually issn 1822-8402 european integration studies. 2009. no 3 196 improve his/her skills to satisfy the requirements of the developing economy, social life, science and technology as well as the society and life-styles of people, the priority issue of the development of human  resources should be the formation of the creative potential for creating the conditions for developing constructive visions of the future and realizing the future plans, development of human resources should be  perceived as a continuous complex process embracing a number of processes relating to education and studies as well as raising the level of one’s professional skills in various areas, carrying out research, individual and group analytical and design work, acting as executor or manager (leader) in various sectors and at various levels, as well as increasing the competence and skills of acquiring various types of knowledge (as a complex process, development provides the conditions for every person to become a harmonious personality), various institutions and organizations should be  involved in the development of human resources to perform the functions relating to education, studies, research, professional training and consulting, as well as various enterprises and organizations where people work and gain the experience and competence in various fields (all the above-mentioned institutions, enterprises and organizations should interact, operating as a network intended to produce synergetic effects and innovations), the development of human resources should be  oriented at international priorities, therefore, institutions and organizations involved in the process should operate as international networks (based on the networks of universities, research institutes, parks of science and technologies, innovation centres as well as clusters of technologically-oriented organizations, etc., which are particularly important for satisfying the needs of the developing knowledge-based society and economy). the features considered allow us to define the complex systems which are intended for developing human resources and their role in developing innovations under the conditions of globalization. to characterize the systems operating as international networks more thoroughly, a specific type of systems operating as international networks oriented at breakthroughs and the creation of qualitatively new situations in various spheres of life should be mentioned. the systems operating in the form of international networks aimed at breakthroughs and the creation of qualitatively new situations are particularly important in globalization environment. their specific character and importance depends on the following factors: the aim of these systems operating as international  networks is to ensure that global and significant international problems associated with humanities, ecological, social, economic, technological development, international safety and other aspects relevant to the people of most countries and requiring their cooperation as well as joint efforts and resources should be successfully solved, various national and international organizations  embracing state institutions, non-governmental organizations, national and international business and public sector organizations, as well as other unions and individuals, could make the structure of these systems, based on the created systems, various kinds of  resources and capacities required for developing and executing large international projects, which could bring about breakthroughs and qualitative changes in various areas, can be integrated. it can be stated that systems operating in the form of international networks aimed at breakthroughs and creating of qualitatively new situations in various spheres of life can be considered high-level networks: they can be treated as networks whose innovative potential is adequate to accept the challenges of globalization. to sum up, it should be emphasized that all the systems described above, which can operate and are operating as international networks, can be considered promising organizational forms aimed at activating and spreading innovations in global spaces. this particularly applies to the conditions of the development and expansion of the european union. it also implies that creation, development and use of the above international networks should be considered the priority issues of activating and promoting innovations and increasing the innovation potential in the european union. transformations into the system of international networks as the priority trend in the context of knowledge based economy creation in the european union based on the increasing importance of international networks and their role in creating knowledge based economy, it can be stated that further development of international networks and expansion of the areas of their application guarantees the formation of a new type of international economy. it follows that intensive development of international networks and expansion of areas of their application can be considered a natural transformation into a new type of economy, which can be referred to as the economy based on international networks or ‘network’ economy. the main characteristic features of ‘network’ economy are as follows: issn 1822-8402 european integration studies. 2009. no 3 197 ‘network’ economy is of  international nature, therefore, when it is being developed, all economic systems become international or integrated into international economic systems, under the conditions of ‘network’ economy  development, international networks have become the main subjects of economic activities, and their share in the created gross national product is continually increasing, international networks can actually be found in  all sectors of economy, the trend of expansion of international networks and their integration into even larger networks can be observed, under the conditions of ‘network’ economy  development, every international network tends to acquire unique specialization, thereby striving to become a monopolist in particular areas of activities or in particular international markets (in this environment, a concept of competition and its forms are gradually changing: specialized monopolistic international networks are becoming partners, rather than competitors, of other such networks), international networks are  highly dynamic, capable of adapting to the continually changing environment: their dynamic character is reflected in periodic or continuous structural changes as their response to the changes in the environment in which they operate, the creation and development of international  networks is accompanied by the increase of the role of informal links and structures, management, administration and self-regulation  models based on the priority of horizontal relations prevail in international networks. realizing the nature of the ‘network’ economy’s characteristic features, we can define those of them which gradually become the distractive features of international economy as a whole. the major of these features are as follows: transformation of the forms of competition 1. when the former competitors become partners, maintaining cooperative links with each other. under the conditions of developing ‘network’ economy, large companies and enterprises, operating as international networks, become the monopolists dominating the international markets. this means that the transformation of forms of competition typical of traditional economy into the new forms which can be treated as a new type of relationship and partnership is taking place (under the above conditions, various international networks are expanding horizontal relationships and partnership, acting in the markets as mutually complementary formations); the decreasing influence of national dimensions. 2. under the conditions of ‘network’ economy, companies, enterprises and their amalgamations operating on an international scale largely determine the economic situation both in the national and international markets. this also applies to international networks. their influence on the integration processes in national economies and the formation of multinational economic spaces, taking place in the previous years, is continually growing: rapidly increasing liberalization of international trade as well as growing free flows of labour, capital and goods make more favourable conditions for further internationalization of economy, thereby activating international networks (thus, it can be stated that the emergence of international networks is a key factor of internalization of economy and, therefore, merging of national economies); the changing role of the state in economic 3. development. under the conditions of ‘network’ economy, some controversial changes relating to the role of the state in economic development can be observed. on the one hand, the role of the state in the economic development is decreasing: the economic situation is increasingly influenced by international networks in any country, with the influence of the government gradually decreasing (under the conditions of internalization of social and economic development, the state is less capable of controlling the economic development, becoming itself more dependent on the changes taking place in international spaces and on the general state of international economy). on the other hand, the state and its institutions can take an active part in the operation of various international networks, initiating their expansion and establishing the priorities of their activities. this means that the state, taking part in the operation of international networks or cooperating with them, can strongly influence the economic development and even increase its role (especially, in the areas associated with international activity of the states and participation in various international organizations). by the way, evaluating the changing influence of the state on economic development, a great emphasis should be placed on participation of the state in initiating and implementing innovations in various areas of social and economic development: it can be stated that the role of the state primarily depends on its issn 1822-8402 european integration studies. 2009. no 3 198 participation in initiating and disseminating all sorts of innovations; the increasing role of strategic planning and 4. programming. under the conditions of ‘network’ economy, the role of strategic plans and programmes prepared and implemented on an international scale is increasing: based on these plans and programmes, large and long-term projects oriented at innovations can be executed on an international scale by concentrating large amount of resources for this purpose (moreover, the scale of these projects’ realization will be inevitably growing). a significant aspect of the increasing influence of strategic planning and programming is that administration and planned regulation methods and models characteristic of planned economy will be increasingly used in international economy: this implies that tools intended for planned economy will be used in further disseminating of innovations all over the world (thus, the assumption follows from this statement that the number of features of liberal market economy will decrease, while the features of planned economy will prevail in the developing ‘network’ economy). the above characteristics reflect the trends of economic development of international networks, also including the prospects of initiating and disseminating innovations. this means that transformation into the ‘network’ economy system can actually be considered the priority of innovative changes. to sum up the above statements, a general conclusion can be made that transformation into the system of ‘network’ economy should be considered a key factor of increasing the innovation potential of the european union. it follows that for activating innovations and expanding the innovation potential the creation of international networks and increasing their effectiveness should be stimulated. based on international networks, new opportunities for purposeful increase and effective use of innovation potential will arise. conclusions and recommendations creation of the knowledge based society and knowledge-based economy in the european union is a very complex, long-term and ambiguous process. key challenges and priorities that require main attention when creating the knowledge based society and knowledge based economy are the following: the main condition , ensuring future economic growth and fast scientific and technological development in the european union, is purposeful development and effective use of innovation potential: innovation potential of the european union is perceived as a very complicated system accumulating great possibilities of initiating, creating, disseminating and implementing innovations in all spheres of social, economic, scientific and technological development. vast possibilities of activating innovations  are provided by human and intellectual resources accumulated in the european union and by its great production capacities in all economic sectors as well as highly developed infrastructure for activating and developing education, science and innovations, long-term practical experience in creating and developing high technologies and maintaining widespread international links. key innovation activating factors are the variety of cultures and deep-rooted traditions of democracy and openness, as well as trends of increasing integration and cooperation between nations. vast possibilities of activating innovations  are created by favourable conditions existing in the european union for producing and effective use of various synergetic effects required for creating and developing international networks. the following international networks are particularly important for activating innovations: industrial and servicing systemso of complex nature operating now in the form of international networks in all sectors of economy, complex systems operating as international o networks, which are aimed at developing human resources to satisfy the creative needs of knowledge based society for educational, scientific and technological development in all spheres of life and for making favourable conditions to implement the principle of ‘life-long’ (continuous) education, systems operating in the form of o international networks aimed at making breakthroughs and creating new situations in various spheres of life. spr eading of international networks implies the inevitability of transformation of international economy into an economic system of international networks. under the conditions of ‘network’ economy, new factors influencing the processes of initiation, creation, dissemination and implementation of innovations emerge. they are as follows: transformation of the existing forms of competition,  when the former competitors become partners, a decreasing role of national dimensions, essential changes in the s tate participation in economic development, an increasing role of strategic plans and  programmes. issn 1822-8402 european integration studies. 2009. no 3 199 further scientific research and practice dedicated  to creation of strategies for the knowledge based society and knowledge based economy in the european union are greatly promising and important. references altvater, e., mahnkopf, b.(1996), limits of 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(2007) – managerial practice and development – mumbai, jaico publishing house, 330 p. the article has been reviewed. received in march, 2009; accepted in april, 2009. 125 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 abstract international finance trilemma as a tool for balanced development of an economy http://dx.doi.org/10.5755/j01.eis.1.14.26318 international financial trilemma is a challenge of balancing the governmental policies ensuring healthy financial sector for facilitating economic development of a country. the scientific purpose of the paper is to develop a model of the international financial trilemma, defining the three key pillars of the international financial trilemma, the corresponding relevant metrics of economy, as well as describing expansion of financial technology as a disruptive element on a trilemma balance. taking into account the experience of other researches of trilemma concept, analogically to the energy trilemma index, the authors developed the trilemma concept for the financial sector. the paper proposes determining the financial trilemma index basing it on the following pillars: financial stability, financial inclusion and transparency. the authors analyse fintech services as disruptive element affecting the international financial trilemma index. as statistical basis of the financial trilemma and its building blocks the set of data from publicly available databases, such as the global competitiveness index, the financial development index, global findex and doing business is determined. the generally accepted quantitative and qualitative methods of economic science, inter alia comparative analysis, parameter estimation, grouping, economically mathematical modelling, synthesis, inductive, deductive and logically constructive methods have been used for the research. the financial trilemma index could be used as a tool for modelling an impact assessment of planned policy actions, as well as for developing determined steps for rising values of particular trilemma elements. keywords: finance trilemma, financial inclusion, financial stability, transparency, economy. european integration studies no. 14 / 2020, pp. 125-136 doi.org/10.5755/j01.eis.1.14.26318 introduction submitted 05/2020 accepted for publication 08/2020 international finance trilemma as a tool for balanced development of an economy eis 14/2020 olga bogdanova riga technical university the structure of a financial system of economy plays a crucial role for the development of a country and its international competitiveness. politicians are struggling to find the right balance between the three mutual complementary and at the same controversial trilemma elements: availability of financial services to consumers, safety and stability of a financial system and transparency of financial flows reflecting the level of shadow economy. implementing a certain policy a country can achieve the corresponding results in each of the trilemma dimensions – either improve availability of financial resources to its citizens or strengthen the stability of financial system or ensure higher transparency of financial flows therewith fighting the shadow economy. however, policy actions focused on one target trilemma dimension could have a negative effect to one or even two other trilemma dimensions. taking into account the strategic priorities, which might differ considerably due to a geographical region, political, economic and social background, policy makers strive for an optimal compromise between all the three dimensions. ilja arefjevs ba school of business http://doi.org/10.5755/j01.eis.0.13.24033 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 126 the scientific purpose of the paper is to develop a model of the international financial trilemma, defining the three key pillars of the international financial trilemma, the corresponding relevant metrics of economy, as well as describing expansion of financial technology as a disruptive element on a trilemma balance. the idea of finding an optimal balance of the three trilemma elements therewith ensuring the biggest common value of the total economic and social benefit of a country, has been successfully applied in other sectors, for example, energy sector. since 2010, 128 countries of the world have been evaluated according to the common methodology tracking the impact of the policies taken on the three biggest challenges in energy sector. the three trilemma dimensions characterize the performance of an entire energy system – energy security, sustainability and energy availability. the situation exposed by certain statistical factors shapes the world energy trilemma index (world energy council etc., 2019). the data on the factors is available in reliable, globally known databases; respectively, the combination of the factors can serve as a trustful basis for the further analysis of the situation at a given moment, as well as trends. another example of application the trilemma concept is proposed in construction sector, looking for the most optimal balance between district heating systems of historic buildings, bioeconomy and energy efficiency (blumberga a., freimanis r., muižniece i., etc. 2019). moreover, the monetary trilemma is focusing on the equilibrium between independent monetary policy of an economy, free capital flows and exchange rate stability (rieber, 2017). taking into account the experience of other researches of trilemma concept, analogically to the energy trilemma index, the authors developed the trilemma concept for the financial sector. the paper proposes determining the financial trilemma index basing it on the three pillars: financial stability, financial inclusion and transparency. as statistical basis of the financial trilemma and its building blocks the set of data from publicly available databases, such as the global competitiveness index, the financial development index, global findex and doing business is determined. the generally accepted quantitative and qualitative methods of economic science, inter alia comparative analysis, parameter estimation, grouping, economically mathematical modelling, synthesis, inductive, deductive and logically constructive methods have been used for the research. the general concept of financial trilemma model the trilemma concept has been used in various different fields of research. for instance, the impossible trinity or the trilemma is considered to be a fundamental contribution of the mundell-fleming framework. the trilemma assumed that a country may simultaneously choose any two, but not all of the following three policy goals – monetary independence, exchange rate stability and financial integration (aizenman, 2010). another example of application of the trilemma concept is the energy field. the world energy council considers energy sustainability to be defined by the three core dimensions– energy security, energy equity, and environmental sustainability. together, they constitute ‘trilemma’, and achieving high performance on all the three dimensions entails complex interwoven links between public and private actors, governments and regulators, economic and social factors, national resources, environmental concerns, and individual consumer behaviours (world energy council, 2019). it is important to emphasise that the energy trilemma is not supposed to be an “impossible trinity". it is rather a balanced combination of three the most important factors with the country context added. similar approach is applied for the trilemma in construction sector focusing on the best total outcome of cost and energy efficiency and bioeconomy of materials meeting the restrictions of district heating systems in historic buildings (blumberga a., freimanis r., muižniece i., etc. 2019). the main challenge of the monetary trilemma also finds itself in defining the best common value for the economy 127 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 weighting different intensity of (in)dependency of monetary policy, freedom of capital flows and exchange rate stability (rieber, 2017). the authors of the research propose the financial trilemma, which is designed in a similar approach as the energy trilemma, namely, by representing a balance of the three most important factors and the country context added. the balance of the trilemma dimensions changes due to external shocks or policy taken by the country. at the same time, the vulnerability of a financial system towards influences depends on country basic characteristics or country context – macroeconomic stability, governance or efficiency of public sector and stability for investment and innovation. the research proposes to build financial trilemma on the three key pillars: financial stability, financial inclusion and transparency. availability of capital is recognized as one of the basic factors for economic development. according to the classical economic development theories, gdp growth strongly depends on capital availability. new investments increase national production volumes, facilitating respectively economic growth (o.bogdanova, 2012). financial stability closely correlates with banking operation. financial policy defines availability of money in economy, inflation rate, currency exchange rate, stable capital flows and other important indicators encouraging either savings or spending. the regulated and coordinated banking facilitates economic growth by dampening the negative impact of volatile capital flows. together with financial intermediation services (ensuring risk sharing, capital for investments, pooling savings etc.) financial stability ensured by banking regulation and supervision affect all finance-depending sectors of an economy. (k.c.neanidis, 2019) moreover, if capital is not well supervised and managed, the risks of shadow economy considerably increase (g.buchak, g.matvos, t.piskorski, 2019) figure 1 demonstrates the schematic structure of the financial trilemma concept developed in the paper. financial trilemma financial stability financial inclusiontransparency external disruption country context figure 1 genral concept of financial trilemma (authors) financial stability can be defined as “a condition where the financial system – comprising financial intermediaries, markets and market infrastructure, is capable of withstanding shocks and the unravelling of financial imbalances, thereby mitigating the likelihood of disruptions in the financial intermediation process which are severe enough to significantly impair the allocation of savings to profitable investment opportunities” (european central bank, 2019). in the same report the european central bank defines financial stability via angles of economic growth, return on equity of banks as well as financial market returns. the international monetary fund (intere u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 128 national monetary fund, 2019) describes financial stability by using six dimensions, respectively, financial markets conditions, corporate environment, institutional investor challenges (in particular the light of falling interest rates), increase of debt in emerging and frontier markets, dollar funding of banks and sustainable finance. another framework for viewing financial stability is the one comprising real economy, corporate sector, household sector, external sector, financial sector and financial markets (gadanecz, jayaram, 2008). taken into account the previous research on financial stability, the authors define it as a well-balanced outcome of a financial sector, real economy and financial markets. specific indicators for each of these components are provided in chapter 2, table 1. availability of financial products and services (financial inclusion): well-functioning financial systems serve a vital purpose by offering savings, payment, credit, and risk management services and thereby contribute to economic development. inclusive financial systems are those with a high share of individuals that have an access to financial services (world bank, 2014; demirgüç-kunt, klapper, and singer, 2017). there is a growing number of empirical literature that documents the potential development benefits of financial inclusion, especially from the use of digital financial services, including mobile money services, payment cards, and other financial technology applications (world bank, 2019). an account ownership serves as an entry point into the formal financial sector. the existence of account makes it easier to transfer wages, remittances, and government payments. it can also encourage saving and open access to crediting. the fact of having an account is therefore often used as a marker of financial inclusion (world bank, 2019). however, account availability is not a sole comprehensive indicator for a financial inclusion. since financial inclusion is about savings, borrowings as well as payment services, the authors of the research consider several elements of the financial inclusion (i.e. daily financial services, investments and savings, lending, bank branch network density), which are supposed to cover nearly all the basic financial needs of customers. however, transparency could be generally characterised by the three main principles: first, disclosure that demonstrates the quantity of available information; second, clarity reflecting the coherence of information; and third, accuracy showing the correctness of information. (schnackenberg, 2009) transparency of financial flows is an important tool eliminating possibilities for financial crime and money laundering. typical bank transfers make visible the details of a payment and the corresponding beneficiaries. nevertheless, there are several reasons why persons might be interested in hiding the track of their financial flows, for example, avoiding payment of taxes, avoiding certain legal standards of business activity by performing an illegal activity or violating rules of a business activity (e.g. on working conditions, such as minimum wage) or avoiding certain administrative procedures (schneider, buehn, 2017). as cash belongs to a person who holds it, cash is considered to be a substantial shadow economy facilitator. according to the european police office research, the increase of overall value of euro banknotes exceeds the level of inflation and is three times more than the amount of money needed for economic performance. cash ensures an excellent opportunity to conceal the origin or true ownership of the capital, keep the control over the capital, change the form of the capital to cash or enable a prohibited activity (european police office, 2015). due to the development of new technologies, innovative financial technologies or fintechs are becoming a sound partner of cash contributing to non-recordable transactions (more information on fintechs is provided in chapter 2). fintechs refer to the entities applying innovative technologies that compete with the traditional financial institutions in delivering financial services. wider use of smartphones for mobile banking, investing services and cryptocurrencies are the manifestations of fintechs aiming at improving accessibility of financial services for a broader society (davradakis, santos, 2019). 129 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 currently, the virtual transactions using fintechs usually have their exposer in cash interaction – paying in or cashing out. the recent developments demonstrate that bitcoins selling offers for cash are becoming rather popular. some of the traders are willing to trade bitcoins even up to eur 500 000 in cash. however, in the future with the further expansion of the internet-based commercial world, fintechs could start operating only within closed internet environment without cash-connection the physical world. (european police office, 2015) to statistically characterise the level of transparency the authors of the article propose to use the schneider index of the shadow economy being annually published for 158 world countries according to the methodology of leandro medina and friedrich schneider (medina, schneider, 2018). taking into account the fast development of technologies and constantly growing share of fintechs users, the authors propose using also other factors of transparency, such as number of adults with an account paying utility bills in the past year in cash and adults without an account owning a mobile phone (demirgüç-kunt, a., klapper, l. and singer, 2017). the two mentioned factors demonstrate the correlation between the use of electronic means and an intense of cash use. country context or the basic characteristics of economy is an important background information to reflect the sensitivity of trilemma elements towards external shocks or disruptions. the authors of the research propose a scope of factors to a considerable extent shaping the macroeconomic stability of a country presuming them being dominantly relevant for further analysis of the correlation between disruption shifts and changes in trilemma balance. the set of criteria has been defined based on the analysis of theoretical and practical works on socio-economic processes of an economy (bogdanova, 2012), at the same time being relevant to the object of the current research. the list of the criteria is available in table 1 of chapter 2 and explained further in the text. gdp growth is included among the county context criteria, as it demonstrates the potential volume/ trend of demand for financial products. in case gdp growth is high, external shocks would have less negative impact on the existing eco system of the financial sector. for example, most probably, the appearance of additional financing possibilities will not push other financial products out of the market, but will cover an additional demand for financing. at the same time, a moderate gdp growth could be the result of prudent banking policy not willing to invest in high-risk business activities. gdp per capita demonstrates sensitivity of a country towards the increase of capital/ financial product prices. in case gdp per capita is low, higher financial product prices (due to high-risk investments) cause considerable barrier for financing businesses activities and are problematic for economy. inflation rate predefines expectations of a market and heath of economy. it is considered that the beneficial for a growth of economy inflation rates are between 0.5% and 4% (world economic forum, 2019) the government debt dynamics categories are based on the three criteria: general credit rating, government debt-to-gdp level, and country classification (1 if country is considered advanced, 0 otherwise, according to imf’s classification). the general credit rating for each country is computed as the average of fitch, standard and poor’s (s&p) and moody’s credit ratings. (world economic forum, 2019). unemployment rate – correlates positively with shadow economy, business activity, access to capital, etc. governance – demonstrates the effectiveness of public sector and existing regulation of a country resulting in attractiveness of the business environment. the authors propose to use the doing business index, which covers the most important fields of regulations and their enforcements of 190 different economies (world bank, 2020). stability for investment and innovation is an important factor characterising the potential willingness of a country to promote innovations and invest in business development in a certain economy. the authors propose to use the global innovation index to reflect the innovation-driven performance of a country. (cornell university etc., 2019) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 130 the scope of the mentioned above criteria is highly important while thoroughly analysing the key indicators predefining the trilemma elements. financial trilemma index a comprehensive analysis of any economic factor requires tracking the trends within certain period and making benchmarks of the developments with other economies. the financial trilemma index highlights the performance of the indicator of the financial trilemma model. the authors apply analogical approach as in energy trilemma index, granting an equal weight of coefficient 0,3 to all the three trilemma elements – availability of financial products and services, financial stability, financial inclusion and country context, as well as the coefficient 0,1 to the context factor. in defining the coefficients for the financial trilemma index, the authors applied a similar approach as in energy trilemma index. it is important to ensure the same weight coefficients for each of the trilemma elements incorporating in the trilemma index equation the principle that all the three dimensions are equally important. moreover, the trilemma elements should dominate above the context criteria as the financial trilemma index is focused primarily on the processes around financial inclusion, financial stability and transparency. financial trilemma index is expressed by the following equation: fti = 0,3 * i + 0,3 * s + 0,3 * t + 0,1 * c (1) where: fti – financial trilemma index; i – financial inclusion; s – financial stability; t – transparency; c – country context. financial trilemma index elements have been measured by 21 factors, which are grouped into 11 categories. one of important preconditions for selecting the given factors for the methodology is possibility to simply trace the value of the factor calculated by the same methodology within a given period of time. in case there are several factors relevant for one category, they are included in the algorithm splitting the value coefficient proportionally. since factors are originally expressed in different units, a data normalisation technique will be used in order to enable comparability of the factors within the categories as well as comparability of categories within the elements and finally comparability of the elements within the trilemma. the factors will be normalised according to the formula 2 provided below: f inorm = (f i – f min ) (f max – f min ) (2) where: f inorm – normalised factor i; f i – factor i; f min – minimum value of the factor; f max – maximum value of the factor. in case a positive value of a factor causes a negative impact (eg., volatility, government deficit and debt etc.) on the trilemma element, the factor value will be transformed by dividing 1 with the actual factor value. the final score of the trilemma will be calculated as the weighted sum of all its elements. consequently, the highest trilemma score should be interpreted as the most favourable in general while the lowest score should be treated as the least desirable. table 1 outlines the components of the financial trilemma index according to the relevant factors highlighted in chapter 1 of this paper classified in categories and weighted respectively by impact indexes. in addition, it also reflects the sources of information the authors propose to use for calculating the index for a given economy. table 1 systemizes the information on the idea of the key trilemma elements described previously in the article, transposing it into countable form. table 1 methodology for calculating the financial trilemma index element of index impact index category impact index factor (source of information) impact index financial inclusion 30% daily financial services 10% share of adults with cash accounts (global findex) 5% share of adults making or receiving digital payments (global findex) 5% investments and savings 5% share of adults saving any money (global findex) 5% lending 5% domestic credit by the financial sector, % of gdp (world bank) 5% bank branch network density 10% financial institutions access index fdi, bank branches per 100000 adults and atms per 100000 adults (world bank) 10% financial stability 30% financial sector 15% banking sector net interest margin, lendingdeposits spread, return on assets, return on equity (world bank) 5% banks’ capital cushion size to address expected or unexpected losses (bank for international settlements) 5% ratio of banks’ readily available short-term resources that can be used to meet short-term obligations (bank for international settlements) 5% financial markets 15% change in equity indices (bloomberg or equivalent) 5% corporate bond spreads (bloomberg or equivalent) 5% volatility (bloomberg or equivalent) 5% transparency 30% cash flow 15% adults with an account paying utility bills in the past year in cash (global findex) 7% adults without an account owning a mobile phone (global findex) 8% shadow economy 15% schneider index (schneder) 15% country context 10 % macroeconomic stability 4% gdp growth 0,5% gdp per capita 0,5% inflation 1% government deficit and debt 1% unemployment rate 1% governance 3% doing business index (doing business) 3% stability for investment and innovation 3% global innovation index (global innovation index) 3% e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 132 the country context is assessed by a weighted basket of the basic eights indicators described in chapter 1, namely, gdp growth and per capital, inflation, government deficit and debt, unemployment rate as well as indices such doing business and global innovation index. the composition of indicators resembles quite closely methodology applied by international credit rating agencies to assign sovereign ratings. as extensively studied by the researchers arefjevs and braslins (arefjevs, braslins, 2013), such indicators are gdp per capita, inflation rate, gdp real growth rate, development indicator, default indicator, external debt-exports ratio (this variable is only relevant for developing countries), and government deficit as a percentage of gdp. most of these indicators were included in the macroeconomic stability section of the trilemma’s country context while a development indicator was replaced by two above-mentioned indexes (i.e. doing business and global innovation indices). the authors propose to use the given in the table 1 factors to illustrate the key elements of the index and the categories of factors they consist of. however, in case data of a factor is not available, it could be substituted with another factor with similar characteristics. external disruption an equilibrium between the elements of the financial trilemma is to be changed in case external factors affect the situation. after disruptive impact, the trilemma finds a new equilibrium; however, particular key elements could be touched differently. nowadays, financial systems have been affected by rapid evolution in terms of costs and capability of technologies, as well as new business models, policy changes and shifts in societal behaviour. while some sectors are converging, others are emerging and the commercial value of business is shifting within as well as in and out of industries. incumbent players are looking for reinventing themselves while non-traditional players are entering the fray. a process where keeping the status quo is a change by itself, a process often ignited by the shifts in technology, society, policy and business models is called – disruption. disruptions are unavoidable, they became the central element of modern business live. therewith, an important question the policy makers have to answer is how to benefit from the disruption or how to prevent economies from their possible harmful influence. the millennials, the generation born in 1981–2000, use technologies, collaboration and entrepreneurship to create, transform and reconstruct entire industries. similarly, the new generation of consumers have substantially different expectations from the markets than their predecessors. the demand of millennials for financial services has other preferences as well. on the one hand, the traditional banks and financial institutions are often treated with contempt by millennials, since they are considered as a source of obsolete tradition and inefficiencies (davradakis, santos, 2019). on the other hand, the classical financial institutions evaluate young entrepreneurs with a higher risk due to a lack of life experience and business matureness. the banking sector is facing transition from the model of closed relations between banks and their customers based on peer-to-peer communication to the open-relations-system model, where plenty of customer data is available in public registers. customers ensure to financial institutions a reach scope of data starting from the demographic-related information, such as age, residence, employment and family status to the financial information on personal assets, savings, income and expenses. the broad data availability accelerates demand for financial technologies (davradakis, santos, 2019). the research considers (as a disruption) ensuring or increasing availability of fintechs in a given economy. currently, the intensity of use of the fintech services differs significantly between geographical 133 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 regions and countries. according to the study of the european investment bank analysing 20 different markets, the number of fintechs’ users varies from 13% of the digitally active population in belgium and luxembourg, till 69% in china and in 52% india (figure 1).(davradakis, santos, 2019). financial technologies demonstrate spectacular adoption rates for the key groups of services ranging from 75% for money transfers and payments at the top and scoring 27% (or more than 400% growth in five years) for borrowings products. (ernst&young, 2019). despite an intensive progress in affordability of basic financial services, globally about 1.7 billion of adults still remain unbanked. the account ownership is ensured almost overall in high-income economies; nevertheless, the majority of unbanked adults live in the developing world (world bank, 2019). with such a significant rate of financial exclusion in the developing world, fintechs and telecommunication companies play an important role filling in the financial isolation gap by providing mobile money and other fintech services. table 2 classifies fintech services according to categories. source: ernst&young (2009) table 2 taxonomy of fintech services category fintech services money transfer and payments online foreign exchange, overseas remittances, digital-only branchless banking, peerto-peer payments and non-bank money transfers, in-store mobile phone payments, cryptocurrency ewallet budgeting and financial planning online budgeting and financial planning tools, online retirement and pensions management tools savings and investments lending on peer-to-peer platforms, investments via crowdfunding platforms, online investment advice and investment management, online stock broking, online spreadbetting borrowing online-only loan providers, online marketplaces and aggregators for loans, online loan brokers and broker facilitation websites insurance insurance premium comparison sites, insurance-linked smart devices, app-only insurance source: ernst&young (2019) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 134 the fintech services reflected in table 2 provide a solution to the problem of missing infrastructure via mobile banking and agent banking. namely, in case of agent banking the financial service is provided by the third parties, for example, shops, service stations and post offices engaged in delivering the financial services on their behalf. (davradakis, santos, 2019). low-income people make the majority share of the unbanked in europe and central asia. half of all the unbanked adults are from the poorest 40 percent of households in the region. (world bank, 2019). the rate of account ownership is another criteria indicating access to the classical baking services. it varies across the member states of the european union significantly. in western european countries, such as france, germany, and the netherlands, the account ownership is considered to be virtually universal. the account ownership ratio is lower in some eastern and central european economies. the share is roughly 80 percent in the czech republic and the slovak republic and about 75 percent in bulgaria and hungary. in romania, just 58 percent of adults have a bank account, which is the lowest share in the european union. (world bank, 2019). impact of fintech services on financial trilemma an impact of the fintech services on economy of a country is not unequivocally clear. the main advantage the fintech services ensure is a wide availability of financial resources which are highly important for the development of any business. as it was already mentioned, the fintech services fill in the gap of missing supply on the market of financial services therewith fertilizing commercial initiatives providing them financing. at the same time, due to the technological possibilities and relatively under-regulated legal environment the fintech services allow to their clients considerably more freedom for action ensuring less tracking and reporting requirements and, therewith, less transparency of transactions. next to the advantage of simplicity and affordability of the fintech services for consumers stands the challenge of governments for eliminating possibility for money laundering, tax avoidance and other illegal activities being strongly addressed by the classical baking sector. moreover, fintechs may undermine financial stability directly or indirectly by triggering a disintermediation of regulated entities that are providing the fintech services (financial stability board, 2017). there are two broad risk types that fintechs may encounter, namely, the financial and the operational risk. the financial risk includes potential mismatches of maturity and liquidity and leverage. maturity mismatches are relevant for fintechs ensuring lending as their main activity. moreover, fintechs are subject to the operational risk that may rise from information systems, human errors, management failures and external influences. the governance control risks are higher if the fintech services are provided by the third parties to the regulated financial institutions, when they may be not a subject to the same level of oversight or scrutiny of their governance and business processes to which regulated financial institutions are. (davradakis, santos, 2019). the total effect of a given disruption element entering the financial eco-system of a country could differ from country to country. the model developed within the research ensures possibility to evaluate the impact of a disruption on the financial trilemma expressed by the set of criteria, which should be screened for a change after the disruption appears. correspondingly, for example, in a country with a very developed banking sector and high availability of financial services appearance of the fintech services would decrease the values of transparency and financial stability criteria without adding considerable value to the criteria of financial availability. however, in a developing country, by entering the market fintech services would rise the total score of financial trilemma index, by substantially improving availability of financing without harming much to already shaky financial stability and foggy financial transparency. 135 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 an economic system of a country is a complicated mechanism consisting of various mutually dependant factors. healthy functioning of the financial sector being able to satisfy customer needs plays a crucial role in development of economy. international finance trilemma comes upon the key elements addressing the main challenges of the financial sector – financial availability, financial transparency and stability of the financial system. as a result of the research the authors provide their vision for the components of the financial trilemma index delivering the pyramid of the factors shaping the input data for the index. the financial trilemma index is a tool characterising the financial system of a country regarding its possibilities to facilitate economic development. the fintech services bring a considerable breakthrough to the financial ecosystem affecting each of the financial trilemma elements of a country. up to the background disposition and the existing set of the trilemma of a country, the same disruption (e.g. the fintech services analysed in the research) could have different socio-economic reflection. the financial trilemma index is an analytical tool, which could be used for modelling an impact assessment of indicated disruptions, such as appearance of the fintech services in economy, for testing the policy actions planned, as well as for the developing of focused actions for rising values of particular trilemma elements. conclusions references aizenman, j. 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(2009). measuring transparency: towards a greater understanding of systemic transparence and accountability. case western reserve university wp-09, 2. world energy council (2019). world energy trilemma index 2019. retrieved from: https://trilemma.worldenergy.org world economic forum (2019) global competitiveness report 2019. isbn-13: 978-2-940631-02-5 world bank group (2019). financial inclusion: europe and central asia economic update. spring 2019. isbn: 978-1-4648-1409-9. https://doi.org/10.1596/32617 world bank (2020) doing business 2020. washington, dc: world bank. doi:10.1596/978-1-4648-1440-2. license: creative commons attribution cc by 3.0 igo about the authors bogdanova olga dr. oec. riga technical university fields of interests energy policy, economics, governance. address kalnciema street 6 riga lv-1007, latvia phone: +37128319554 e-mail: nameolga@yahoo.co.uk arefjevs ilja dr. sc. administr ba school of business of finance fields of interests finance, fintech, investments. address k.valdemara 161, riga lv-1013, latvia phone: +37126547036 e-mail: ilja.arefjevs@inbox.lv this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). european integration studies 2008.indd 115 issn 1822-8402 european integration studies. 2008. no 2 managerial aspects of european integration academic entrepreneurship incubators network in poland marcin skurczy ski university of gdansk abstract academic entrepreneurship incubators are one of the important tools in national strategy of innovation. they provide knowledge, know-how and technology transfer from academic society to market environment. enabling scientists and students to commercialize their ideas, they supply the market with new technologies. aei foundation is the largest network in europe, gathering more than 40 academic incubators on polish universities. it provides innovative entrepreneurs with commercial services, such as accounting, legal consultancy, marketing consultancy etc. it also serves as a knowledge and experience source offering access to laboratories, databases and technology experts. incubating companies are protected against the negative market forces and are able to concentrate on most important factors infl uencing a success of a startup company: choosing the right idea, hiring right people, building partnership with investors, and fi nding fi nancing sources or managing the organization. country policy provides different programs supporting such innovation-friendly ideas as aeis. programs could be divided on process driven or activity driven. process driven programs try to build legal and administrative background to strengthen innovative policy application, while activity driven programs focus on popularization of the entrepreneurship idea and encouraging both scientist and entrepreneurs to involve in technology transfer and commercialization of scientifi c ideas. although the process of introducing innovative concepts to the market is very important, there are still various barriers disrupting development of academic entrepreneurship incubators and in effect infl uencing emergency of knowledge-based companies. the most important obstacles are mentality and organization structures of universities, emigration of educated young people, problems with estimating value of new products, blurred laws regarding ownership of intellectual values and asymmetry of information between buyer and seller. keywords: academic entrepreneurship incubators, innovation, technology transfer, knowledge society. introduction knowledge became one of the most important factors in economy of 21st century. while access to natural resources and unqualifi ed workforce is limited, contemporary strategies focus on networking and knowledge exchange. polish membership in european union and lisbon strategy give to the centers of innovation and entrepreneurship new tasks to fulfi ll. competitiveness of the region depends on its ability to combine creatively business resources and development of business friendly market environment. universities, centers of technology transfer, entrepreneurship incubators and companies play special role in this task. one of the most important activities among that supporting innovative economy policy in poland is academic entrepreneurship incubators network. aei is the largest network of academic incubators in europe that offers proinnovative services. the network is involved in social and business projects, both of regional and national scope. more than 31 incubators on universities in poland were created. they offer services supporting start-up companies: accounting services, investment fi nancing for the companies, legal help and consultancy in marketing and technology. the objective of this paper is to show an overall concept standing behind aei, and to try to evaluate main problems infl uencing aei activities in poland. defi nition of academic entrepreneurship incubator academic entrepreneurship incubator (aei) is a specifi c type of entrepreneurship incubator 116 issn 1822-8402 european integration studies. 2008. no 2 developed in early 90s. it provides a possibility to verify theoretical knowledge for students that fi nish higher education and help them to start up their own companies. this type of incubators is an initiative of an academic organization that supports both students and academic staff in market activities10. apart from typical functions aeis promote business education and commercialization of new products and technologies. commercialization of technology is understood as all activities involved in transfer of technological or organizational knowledge to market practice. commercialization of technology can be described as a process of supplying the market with new technologies. it includes all forms of innovation diffusion and technical education11. the possible development is granted due to access to12: academic laboratories and research equipment,• consultancy in areas of technology and • intellectual property rights, knowledge and experience of scientifi c staff in • various areas, databases containing the data on researchers, • innovators, ideas, technologies, prototypes etc. narrow defi nition of aeis considers rather their functions than their potential activities. from this point of view incubator should focus on the preincubation phase of the companies. its main objective should be defi ned as laying a solid base for potential businesses. therefore its competencies should focus on activities such as: business promotion,• training,• consultancy,• analyses of market potential.• the most important resource of aei is human capital, that more than any other factor infl uences its success. this fact allows academic incubators to function even without vast infrastructure. success factors of academic entrepreneurship consulting company cambridge consultants13 prepared a report in which it described basic factors that infl uence rate of success of enterprises that are 10 akademickie inkubatory przedsi biorczo ci stowarzyszenie organizatorów o rodków innowacji i przedsi biorczo ci w polsce http://www.sooipp.org.pl/ pliki/osrodki/inkubatory_opis.pdf, p. 1 11 matusiak k.b., innowacje i transfer technologii – s ownik poj , parp, warszawa, 2005, p. 87 12 lavelle j., matusiak k.b., krukowski k., ma ewska m., zasiad y k., inkubator przedsi biorczo ci, mpips, mboir, warszawa 1997, p. 46 13 http://www.cambridgeconsultants.com/ mc_ spokespeople.shtml# an effect of academic entrepreneurship.14 the list consists of fi ve elements: way of choosing the enterprise,• human resource management,• partnership,• managing fi nancial reserves,• management.• the process of choosing the idea for an enterprise should involve both experts in area of chosen technology and market professionals. the stress should be laid on innovative ideas. an important aspect is to be aware of what potential customers would need. hr management means that incubating company that should hire the best possible specialist and engage them in the process of enterprise development. creating partnership with investors is a vital part in starting a company. good understanding of partner’s objectives can effect in mutual profi ts. unless the product is accepted by the market, starting company should try to cut the cost as much as possible, in order to prepare reserves for intensifying market efforts on later stages, after the product launch and market testing. professional management at last can provide company with elasticity to market environment and specifi cs of the enterprise and commercializing innovation. well managed company plays a role of intermediary – it connects technology changes with market and capital15. development of aies in poland a fi rst attempt of setting up academic incubator in poland was made in 1998 at warsaw university. its center of technology transfer launched fi rst program of preincubation of business ideas for university students16. program gained attention not sooner than in 2004, when ministry of economy and labor started a challenge called “academic entrepreneurship incubators”. year later, in september 2005, 30 initiatives were recognized. currently, operational program “innovative economy 2007-2013” developed by the ministry of economy and ministry of science and higher education, co-fi nanced by european funds, focuses on seven priorities: research and development of new technologies, r&d infrastructure, capital for innovation, investments in innovative activities, innovation diffusion, polish economy on international markets and building and development of information society. 14 jak w europie przechodzi si od pomys u do produktu? newsletter cordis focus, nr 276 march 2007, p.18 15 wissema j.g., technostartery – dlaczego i jak?, parp, warszawa 2005, p. 11 16 stawska a. e., student z pomys em [in:] „sprawy nauki“ nr 2 (97) / 2004, p. 28 117 issn 1822-8402 european integration studies. 2008. no 2 instruments planned in innovative economy program serve the objectives of renewed lisbon strategy. to fulfi ll the priorities, strategy will offer various incentives for innovativeness and technology transfer. exceptional role in academic entrepreneurship plays parp – polish agency for enterprise development17. it operates in 5 main areas: cooperation with academic society and central • authorities, conducting researches and preparing analyses • and reports, supporting entrepreneurship among students • and academics, providing current information in form of • internet website, discussion forums and databases, organizing seminars and conferences • promoting innovativeness, cooperation and technology transfer. currently in poland exists more than 40 academic entrepreneurship incubators. existing aeis can be grouped in three categories18: aie founded by business centre club stu-1) dents forum and academic entrepreneurship incubators foundation. they are hosted by public and private universities allover poland and are parts of academic entrepreneurship incubators foundation, with headquarters in warsaw. they offer services in accounting, management and low. entrepreneur can use offi ce equipment in the process of business development. incubated company is acquired during quizzes and individual interviews with students, which have business ideas. because an incubated company can become a part of the foundation, beginning entrepreneur does not have to bear the costs of registering and taxes. the incubation period lasts up to 3 years, depending on the maturity of the business. after leaving the incubator, a company is obliged to share the profi ts with aie for the time as long as the incubation process. academic technology incubators based on 2) university centers of technology transfer. such aip usually is a self-standing project and is a complementary support for a wider program of innovation support and technology transfer. entrepreneurs are selected for their innovativeness and are offered consultancy and training, help in technology trans17 http://www.pi.gov.pl/default. aspx?docid=1481&mid1=332 18 zasiad y k., guli ski j., inkubator przedsi biorczo ci akademickiej – podr cznik dla organizatorów i pracowników, sooipp, pozna 2005, s. 34 fer, databases access, international knowledge networks, venture capital and other sources of fi nancing19. aei based on students’ organizations activities 3) and academic offi ces of career management. academic entrepreneurship incubators foundation is the largest part of aei network in poland. network consists of 25 incubators. it hosts companies, which operate in one of 6 categories: education, trade, it, healthcare, services, and production. academic entrepreneurship incubators foundation in poland source: own study the number of the companies registered in foundation’s database reaches 45120. in cooperation with business centre club the foundation helps to fi nd business partners for companies hosted by aei. the most promising ideas developed by incubating companies are promoted to capital founds and often fi nd investors. foundation is self-fi nancing. only 4% of funds are of public origin. in 2007 as a fi rst organization of a sort, aei was audited and given quality certifi cate iso 9001:2000. academic technology incubators in poland source: own study 19 dzier anowski m., szultka s., tamowicz p., wojnicka e., analiza stanu i kierunku rozwoju parków naukowotechnologicznych, inkubatorów technologicznych i centrów transferu technologii w polsce, parp, warszawa 2005, s. 50 20 http://www.inkubatory.pl 118 issn 1822-8402 european integration studies. 2008. no 2 current initiatives promoting academic entrepreneurship and cooperation of business and science organizations in poland there are 3 main initiatives that promote academic entrepreneurship in poland. program innovator of foundation for polish science is directed to young researchers and focuses on transfer of research outcomes to business entities. two main areas of the program are education in marketing and entrepreneurship and support, including fi nancing, for innovative projects on early stage of their commercialization21. another project, called “technological fi shing-rod” is supporting commercialization of research fi ndings, as well as acquiring and utilizing funds from 7th frame program22. from the initiative of foundation of polish rectors is being created “code of partnership between science and economy”23. in the fi rst stage works focus on regulations regarding fl awless transfer of scientifi c research outcomes and other intellectual achievements to commercial entities. academy of innovation and venture capital is an example of program educating entrepreneurs in innovation activities and cooperation with science society24. it offers training for small and medium entrepreneurs that wish to develop innovative projects, particularly advanced technologically or have the ideas and lack the market knowledge or funds. vital element of the program is concentration on the possible cooperation with scientifi c centers and using their potential and research fi ndings. legal environment infl uencing aeis in poland formal background for development of entrepreneurship support institution in poland was formed on the ground of political system change in 1989. first organizations of a kind were founded independently in different regions of the country in 1990. although fi rst academic incubator was set up in 1998, only in 2006 “act on higher education” regulated rules of support of entrepreneurship initiatives by academic organizations25. it states that university can cooperate with economic organizations on the ground of26: 21 see: http://www.sgh.waw.pl/ogolnouczelniane/ fundusze_europejskie/wnioski_zlozone/2_6_zporr_tw 22 zdoli ska a., w dka technologiczna, nauka w polsce, http://www.eduskrypt.pl/wedka_technologiczna_ma_ wylowic_najtlustsze_kaski_z_naukowych_pracowni-info1678.html 23 http://www.frp.org.pl/kodeks.htm 24 http://www.vc.eucp.pl/ 25 dz. u. 2006 nr 46 poz. 328 zm.: ustawa prawo o szkolnictwie wy szym 26 ibidem, art. 4/7 both commercial and non-commercial transfer • of research outcomes, spreading the idea of entrepreneurship in • academic society, organizing market activities that are separated • fi nancially and structurally. universities are encouraged to27: support business activities of academic staff • and students as well as other non-academic entities in form of academic incubators, that can be formed as a university unit, trade corporation or foundation, create centers of technology transfer that • support knowledge exchange between university and market environment. relevant regulations regard activities of academic staff28. academic teacher: can be employed at the same time on regular • post only by one employer, should inform rector of the university about • performed commercial activities in 7 days from the beginning of the activity, can be relegated if employed on the different • post without acknowledgment of the rector. there are also additional acts infl uencing entrepreneurship potential of universities. these are: “rules of science fi nancing”• 29, “act about forms of support of chosen • innovation activities”30. above acts focus on taxation of research and development activities, purchasing knowledge and its qualifi cation in the cost structure, lowering the tax rates for those organizations that purchase or develop new technologies. the latter aims to increase competitiveness and innovativeness of the economy using different tools31: new fi nancial instrument – technology loan,• admitting entrepreneurs the status of research • and development center, changes in tax regulations,• enhancing competencies of polish agency for • enterprise development (parp). last of the tools has direct infl uence on academic incubators. new competencies of parp encompass supervising and coordinating national innovation network and supporting activities of institutions 27 ibidem, art. 86 28 ibidem, art. 109/129 29 dz. u. 2004 nr 238 poz. 2390 zasady fi nansowania nauki 30 dz. u. 2005 nr 179, poz. 1484 ustawa o niektórych formach wspierania dzia alno ci innowacyjnej 31 http://www.mg.gov.pl/gospodarka/ innowacyjnosc/polityka+innowacyjna/ustawa+o+niektor ych+formach+wspierania+dzialalnosci+innowacyjnej.htm 119 issn 1822-8402 european integration studies. 2008. no 2 operating for development of innovativeness of entrepreneurship and economy, such as technology transfer centers, technology parks, entrepreneurship incubators and other. barriers of development of aeis in poland barriers of expanding academic entrepreneurship are mostly the effect of previous political system, that were limiting business activities, emigration of young, educated people that search careers abroad and structures and mentality of universities. one of the solutions could be changes in education programs and adopting them to european qualifi cation frames. other solutions involve bringing academic society toward open markets with focus hold on entrepreneurship education and market competencies development. academic entrepreneurship incubators being active on the market of intellectual property do not have simple paths of expansion. problems with estimating value of new products, formal description of the market, ownership of intellectual values and asymmetry of information between buyer and seller infl uence negatively entrepreneurs. only 20% of university’s licenses fi nd practical application and its value is low, because of high market risk32. there is still a need for broker companies that would help in development of partnerships between science and commerce. another problematic issue is ideas being developed in incubators, mainly by students or former students. it’s hard to disagree that the majority of the concepts are of a low value and focus on offering products such as commercial sms services or various entertainment. entrepreneurship in incubators rarely involves technology transfer even if it can be supported by national and regional programs of innovation policy. conclusions academic entrepreneurship and academic entrepreneurship incubators network in poland is signifi cant to the development of an academic system, entrepreneurship behavior and country competitiveness. building knowledge based economy should be carried by both business and scientifi c organizations with the support of authorities. the better relations between academic centers and business environment, the more effective transfer of technology from innovators to industry will be. although spin off or spin out companies or individual initiatives of the academic society members are not the answer for all 32 d browski m., przedsi biorczo akademicka, e-mentor 3/2006 global problems such as unemployment or fi nding fi nancing for education, their value for society and role in economy is evident. references akademickie inkubatory przedsi biorczo ci stowarzyszenie organizatorów o rodków innowacji i przedsi biorczo ci w polsce http://www.sooipp. org.pl/pliki/osrodki/inkubatory_opis.pdf d browski m., przedsi biorczo akademicka, ementor 3/2006 dz. u. 2004 nr 238 poz. 2390 zasady fi nansowania nauki dz. u. 2005 nr 179, poz. 1484 ustawa o niektórych formach wspierania dzia alno ci innowacyjnej dz. u. 2006 nr 46 poz. 328 zm.: ustawa prawo o szkolnictwie wy szym dzier anowski m., szultka s., tamowicz p., wojnicka e., analiza stanu i kierunku rozwoju parków naukowo-technologicznych, inkubatorów technologicznych i centrów transferu technologii w polsce, parp, warszawa 2005 http://www.cambridgeconsultants.com/mc_spokespeople.shtml# http://www.frp.org.pl/kodeks.htm http://www.inkubatory.pl h t t p : / / w w w. m g . g o v. p l / g o s p o d a r k a / i n nowacyjnosc/polityka+innowacyjna/ustawa+o+ niektorych+formach+wspierania+dzialalnosci+i nnowacyjnej.htm http://www.pi.gov.pl/default. aspx?docid=1481&mid1=332 http://www.vc.eucp.pl/ jak w europie przechodzi si od pomys u do produktu? newsletter cordis focus, nr 276 march 2007 lavelle j., matusiak k.b., krukowski k., ma ewska m., zasiad y k., inkubator przedsi biorczo ci, mpips, mboir, warszawa 1997 matusiak k.b., innowacje i transfer technologii – s ownik poj , parp, warszawa, 2005 see: http://www.sgh.waw.pl/ogolnouczelniane/ fundusze_europejskie/wnioski_zlozone/2_6_ zporr_tw stawska a. e., student z pomys em [in:] „sprawy nauki“ nr 2 (97) / 2004 120 issn 1822-8402 european integration studies. 2008. no 2 wissema j.g., technostartery – dlaczego i jak?, parp, warszawa 2005 zasiad y k., guli ski j., inkubator przedsi biorczo ci akademickiej – podr cznik dla organizatorów i pracowników, sooipp, pozna 2005 zdoli ska a., w dka technologiczna, nauka w polsce, http://www.eduskrypt.pl/wedka_technologiczna_ma_wylowic_najtlustsze_kaski_z_ naukowych_pracowni-info-1678.html the article has been reviewed. received in march, 2008; accepted in april, 2008. 112 issn 1822 – 8402 european integration studies. 2009. no 3 knowledge-based economy in the european union: creation process, the main typicalities and problems of clusterization borisas melnikas jurgis samulevičius vilnius gediminas technical university abstract possibilities for the development of new forms of economic, social and technological headway designed to create and further improve economies based on knowledge & innovation are analyzed here. the main emphasis is put on national and regional economic specialization and creation of new networks of clusters in the situation of the development of the european union. we have found that clusterization oriented towards the increase of efficiency of various national and regional economies is a critical precondition for successful creation of modern economy based on knowledge & innovation, both in the whole space of the european union and particular countries. another idea a concept of creation of regional and cross-regional clusters and their networks also known as „economic oasis“ is suggested here. it is explained in the paper that in the economies based on knowledge development of clusters and their networks will soon become one of the core forms of economic and technological advancement. the authors of scientific research present the object of which has been creation of the knowledge based economy in the situation of the enlargement of the european union. the objective of the completed research has been the proof of the fact that key priorities for creation of the knowledge based economy is the urge of technological advancement and enhancement of compatibility and productivity using such opportunities as specialization of national and regional economies, creation of clusters and their networks, as well as the development of so called economic “oases” and hyper-clusters in the entire economic space of the european union. the main result of the completed research is the concept of strategies oriented towards integration and synthesis, the basis for which is the universal principle of „creation of a new quality“: we should utilize this principle in elaborating and implementing the strategies for creation of knowledge based economy in the european union. key tasks of our completed research have been the following: demonstrate the fact that knowledge based society and knowledge based economy in the european union should be created according to the universal principle of „creation of a new quality; prove the necessity to create and apply the strategies oriented towards innovation, integration and synthesis; reveal the essence of the rational specialization of national and regional economies; show the necessity of creation and expansion of regional, cross-regional and international innovation networks of clusters and economic “oases” in the european union; demonstrate the fact that networking of science and technology parks and business centers is the first stage of the knowledge based economy creation process; show the necessity of the networking of science and technology parks and business centers in the context of knowledge based economy creation processes in lithuania. keywords: knowledge based society and economy, innovation, integration and synthesis – oriented strategies, high technology, networks of clusters and economic „oases“, european union, lithuania. introduction the future of the innovation in the european union is very close linked to the creation of the knowledge based society and knowledge based economy. this means that key issues that require strategic decisions of innovation are to be considered as issues of creation of the knowledge based society and knowledge based economy. the essence of these issues could be revealed in the following: – what should the knowledge based society and knowledge based economy be in the future in the european union? – how should the knowledge based society and economy be created in the european union? striving to find answers to these questions determines issn 1822-8402 european integration studies. 2009. no 3 113 the necessity of elaboration and implementation of appropriate strategies for creation of knowledge based society and knowledge based economy. in its turn, in order to ensure elaboration and implementation appropriate concepts and methodologies of preparation and justification of strategic decisions should be used. the article analyzes a new approach towards the way how long term strategies designed to create knowledge based economy in the european union and in the countries of the european union (for example – in lithuania) should be prepared. these tasks have been of a priority when attempting to create a modern knowledge based society and knowledge based economy in the european union. creation of knowledge based economies in the european union as a sphere of complex scientific research knowledge based economy is a new stage of social and economic development indicating that a society of a new type is being formed which is characterized by new quality of life and new possibilities for further modernization. creation of knowledge based economy should be considered as a very important object of scientific research. as we might know, there are numerous publications in the contemporary scientific research practice dedicated to the creation of knowledge based economy. (cohendet, p., stojak, l., 2005; currie, w., 2000; david, p.a., foray, d., 2002; ein-dor, p., myers, m., raman, k.s., 2004; farnsworth, k., 2005; goeransson, b., soederberg, j., 2005; grace, a., butler, t., 2005; hunt, s.d., 2000; huseman, r.c., godman, j.p., 1999; merrill, r.e., sedgwick, h.d., 1997; leydesdorff, l., 2004; steinmueller, w.e., 2002). summarizing the completed research allows us to conclude that in addition to the already developed research directions some new and greatly prospective directions might additionally be elaborated: one could expect that the research in the directions mentioned above could allow to define new approaches towards the concept of the knowledge based economies, and the assessment of the conditions necessary for successful implementation of such economy. it is especially important for the new approaches to thoroughly prepare and implement the strategies designed to create knowledge based economy. scientific research dedicated to the creation of knowledge based economy can be completed in two important new directions including: 1. to create knowledge based economy it is necessary to evaluate the political, social, cultural, economic, information and technological environment. when completing the research in chosen directions there should be assessed whether political, social, economic, information and technological environment is adequately or inadequately favorable for creation of knowledge based economy: if the findings show that such environment is inadequately favorable, adequate ways to influence this environment should be sought in the course of the research. main priorities for the research in this direction are connected to definition of common to the entire world phenomena of the economic, social, technological or other progress, along with assessment of features of the development typical to either large regions of the world and various groups of countries (for instance, analyzing possibilities for creation of knowledge based economy it is necessary to thoroughly examine regularities of the development of the european union and prospects for the quantitative transformations in the economic, social and cultural space of the european union) 2. creation of visions and patterns of knowledge based economy. completing the research in this direction it should be defined what kind of knowledge based economy should be in the future and how it should function. key priorities of this direction could be: – structure of the future knowledge based economy, – principles and mechanisms of the functioning of this economy – factors of growth, along with orientations of economic, social and political development; 3. elaboration, justification and implementation of the necessary strategies for the creation and further modernization of the knowledge based economy. completing research in this direction there should be a decision made about how there will be the transition from current economy to the visionary economy based on knowledge executed; what should the strategies of the transition be; and what should the policies of the society and the state be dedicated to the creation to the knowledge based economy. main priorities of the research in this direction are: – completion of political, economic, legal and other prerequisites for creation and further development of the knowledge based economy, – transformation of the current economic system, in order to create future knowledge based economy based on the current one, – international co-operation in the spheres of innovations and technologies, – training of human resources in preparation of solid intellectual foundation for the knowledge based economy. the new directions of the scientific research mentioned earlier reflect on a wide panorama of the issues that should be examined before creating the knowledge based economy. it is obvious that analysis of these issues is directly oriented towards the fact that issn 1822-8402 european integration studies. 2009. no 3 114 adequate methods of management are used that would allow to prepare and implement strategies appropriate to the changes happening in the society. strategies designed to create knowledge based economy in the european union contemporary economic principles and practices confirm that in efficiently operating economic systems their surplus value is created at greater extent. this statement works in all cases where ways to increase efficiency and compatibility on the scale of both particular economic subjects and large national and regional economic systems (boldrin, m., canova, f., 2001; bond, e., syropoulos, c., winters, l.a., 2001; chortares, g.e., pelagidis, t., 2001; dutta, m., 1999; guy, m., 2001; redding, s.,venables, a.j., 2004; sangmon, k., 2002) the main precondition to ensure high efficiency and compatibility of any economic system is to achieve that any economic system should be properly specialised. hummels, d., ishii, j., kei – mu yi, 2001; huseman, r.c., godman, j.p., 1999; melnikas, b., 1997; olsen, t.e., osmundsen, p., 2003). under the proper specialisation we understand the situation where the range of products produced within the economic system guarantees magnification of the surplus value within this system: the economic system should be exceptionally oriented towards the series of products, services and activities, whose structure allows to achieve potentially greater surplus value or higher velocity of the increase of this value. for the sake of the rationalisation of the national or regional economic system various means may be implemented. these means should create a solid complex, and have to be long-term and consecutive. the idea of the means should ensure that the entire economic system of particular region or country is developed as a large macro-cluster or hyper-cluster. these large macroor-hyper-clusters may be multi-profiled and oriented towards creation of different and diverse final products, and it is very important to create final products that are compatible in global markets. it is obvious that large macro – orhyperclusters in particular countries or regions should meet the following requirements: – large clusters of this kind function as open systems, maintaining both internal and external economic and technological relations in international and global markets, – inside of the large clusters of this kind various specialised clusters can be created within incorporated diverse institutions of science, research and education, enterprises of production and services, business incubators, parks of science and technology, centers for innovation, and industrial, trade, transportation and communication companies. development of large economic systems in a way of clusterisation may be of great variety. a very prospective method to implement this way is creation of regional (territorial) or sectorial “oases”. in general “oasis” can be explained as an economic system, possessing extremely advantageous political, legal, economic and other conditions for activities and development. these conditions are as a rule exclusive and in their presence the “oasis” as economic system receives various privileges or extremely beneficial environment is created for it. “oases” can be established on behalf of political will of a state or even a group of states: by the way, the idea of regional “oases” is very viable in the improvement and implementation of regional policy of the european union, with the intentions of creation of “oases” ”not only in particular countries, but also regions, comprised of regions of different countries. regional “oasis” is one where exceptionally advantageous conditions for economic development are created in a territorially outlined area (region). this area may coincide with systems of administrative territorial division of particular countries or may not. sectorial “oasis” is one where exceptionally advantageous conditions are created for particular branch of economy, and particular segments of business or public sector. creating and developing “oases” it is very important to consider demographic situation, possibilities to attract, concentrate and efficiently utilise human and financial and other resources, as well as possibilities rapidly expand various innovations. the idea of the “oasis” and opportunities to promote this idea in the situation of the development of the european union has been described quite comprehensively (melnikas, b., 2002, 2003, 2004). summarizing the statements given above, we may confirm that the concepts of proper rationalization of national and regional economic systems, as well as concepts of creation of macro-or-hyper-clusters and “oasis” are of great importance, ensuring progress in the entire space of the european union. the idea of clusters, their networks and “oases”, oriented towards rationalism of specialization of regional economies is very promising, when creating the knowledge based economy in the european union. the implementation of this concept should be based on the universal principle of „creation of a new quality” when planning to prepare and implement appropriate strategies oriented towards integration and synthesis. networking of science and technology parks and business centers as the first stage of the knowledge based economy creation process: the case of lithuania the 21st century knowledge revolution created new opportunities and possibilities for the access and use issn 1822-8402 european integration studies. 2009. no 3 115 of knowledge and information. the transition towards a knowledge economy requires from policy makers to understand the comparative strengths and weaknesses not only their countries but economic systems also and then act upon them to develop appropriate short and long term policies and investments. edmund phelps nobel prize winner in economics maintain that there are two economic systems in the west. several nations including the us, canada and the uk-have a privateownership system marked by great openness to the implementation of new commercial ideas coming from the entrepreneurs. the other system-in western continental europethough also based on private-ownership, has been modified by the introduction of institutions aimed at protecting interests of “stakeholders” and ”social partners”. the both systems include employer confederations, big unions and monopolistic banks. according some authors both of them (europe, north america) represent corporate downsizing, or the dark side of global economy. all economies and especially new born post communist market countries are looking for the personal way of development. in today’s global economy, knowledge has become an even more decisive factor of competitiveness, productivity and growth. the global digital/knowledge economy offers unprecedented opportunities to produce and sell on a mass scale, reduce costs, and customize to the needs of consumers – all at the same time. whether you live in a large country such as the usa or china, mid-sized country such as india or canada or a smaller country such as lithuania, your potential market is of the same global size. and you can source (net source) inexpensively wherever you wish. various management writers have for several years highlighted the role of knowledge or intellectual capital in business. the economic integration and globalization are the two trends of current development of the world economy. in the global digital village every individual or small business can go global and directly compete with any company. competition in the goods and services market has been brought to new, higher levels, and permanently so. developed countries can no longer hide behind politically motivated barriers, physical or other walls to protect themselves from competition from developing countries or emerging markets. rather than clinging to old models, individuals and corporations in developed and (increasingly) in developing or transition nations need to upgrade their competitive advantages through more education and training. new information and communication technologies (ict), especially the internet (increasingly wireless), bring new opportunities, to concentrate on core competencies, specialize and increase trade and investment flows. for these gains to occur, however, what needs essential transformation is the corporation itself. corporations need to change the ways they do business, they must become more flexible, amorphous networks of international entrepreneurs and knowledge managers working on particular projects. how such corporations should be governed is a new challenge before the managers working under the conditions of the global knowledge economy. in the global economy any country, if it is serious about rising its standards of living must open its economy so as to avoid itself of opportunities of trade, interact with and learn from it. modern growth strategy was developed at harvard by m.porter (porter, m., 1990), where the different stages of competitive development of the nations are presented. a.lahti ( lahti, a., 2007) resumed porter’s economic growth stages presenting them in the form of chart and named them like global challenge and the new economics: stage a : factor-driven. practically, any of the internalized or globalized industries have drawn their competitiveness from the basic factor conditions, such as low-cost labor and access to national resources. firms typically produce commodities more than specialities. the rate of technology and r&d investments is low. the local economies are highly sensitive to fluctuations in commodity prices and exchange rates. there are only a few truly international firms. domestic demand for exported goods is modest. the role of foreign firms is considerable, as they act as a channel for foreign markets and they bring foreign technology, knowledge and management with them to the host country. technology is assimilated through imports, imitation, or foreign direct investment (lahti , a., 2007). stage b: investment-driven. in the investment-driven stage, countries develop their competitive advantages by improving their efficiency in producing standard products and services which become increasingly sophisticated. while the advanced technology still comes mainly from abroad, with licensing and joint ventures, local firms’ invest in process technology and modernization of production facilities etc. firms often produce under contract to foreign manufacturers that control marketing channels. home demand is still rather undeveloped, and related and supporting industries are not functioning optimally. it is typical to this stage that wages and input prices are higher than before and employment is increasing. public policy concentrates on long-term matters. one of the major areas are infrastructure projects. harmonization of customs, taxation, and corporate law may allow the economy to integrate more fully with global markets ( lahti, a., 2007). stage c: innovation-driven. in the innovation-driven stage, the number of industries operating successfully at international level increases and broadens. firms create new technologies and methods and compete with low costs due to high productivity rather than low production issn 1822-8402 european integration studies. 2009. no 3 116 factor costs. home demand increases and becomes more sophisticated. clusters are well developed, fostering innovation and technological change. a country’s competitive advantage lies in its ability to produce innovative products and services at the global technology frontier using the most advanced methods. institutions and incentives supporting innovation are crucial for further development. the economy becomes stronger against outer shocks, like cost shocks, because of its ability to compete with technology and product differentiation. improvements related to externalities, market imperfections and incentives are important to develop the well-functioning factors, product and financial markets (lahti, a., 2007). stage d: wealth-driven. unlike other stages the wealth-driven phase is driven by past accumulation of wealth and becomes unable to generate new wealth. firms become more vulnerable to uncompetitiveness. they innovate less and the investment rate decreases. employees begin to lose motivation and so on. the result is that firms lose competitive advantage compared with foreign firms and may even start to move their headquarters from their original home country to other countries. the standard of living and welfare is still rather high. the policy attempts in this stage try to increase the dynamism of the economy, innovations and profitability (lahti, a., 2007). first three stages involve successive upgrading of a nations competitive advantages and will be associated with progressively rising economic prosperity. the transition through the four stages is not automatic since countries may get stuck in a stage. most investmentintensive economies are finding that their relatively high-cost labor make them vulnerable from really lowerwage countries, such as china, india. the transition towards knowledge economy requires to understand the comparative strengths and weaknesses of their countries, make evaluation of its opportunities and threats. every country possesses its own strengths and weaknesses, opportunities and threats. in spite of the heavy burden of the soviet occupation legacies, after regaining its independence in 1990 lithuania embarked on a path of determined, radical, and sustained reforms aimed at re-establishing democracy and functioning market economy. it succeeded remarkably and is now regarded europe’s transformation success story. at the same time lithuania was in position how to answer the question: what could and should a low – income country with an educated population do to exploit new opportunities associated with the knowledge revolution? when the wto&itc team compared lithuania’s ict industry with similar industries of countries in the region. the conclusion was made that the industry is developing and expanding its activities across the region. in the eu market, activities related to sub-contracting or onshore software application were taking place. although conclusion was made, that lithuanian ict industry is relatively small compared to the ict market of poland for example, it has good growth potential driven by niche areas and niche products. in today’s world separate market participants are unable to achieve good results which knowledge economy requires. the key for solving problems are networks, clusters and other common activities. in the network of such knowledge institutions there are very popular objects of knowledge economy such as knowledge camps, houses, towers, islands, technological parks, valleys, etc. at the present time in lithuania five programmes of integrated research, higher education and business centers (valleys) are under preparation. the integrated research, higher education and business center (valley) is a research, higher education and knowledge-intensive business potential concentrated in a single territory, which has a common or related infrastructure and purposefully contributes to the creation of knowledge-based society and knowledge-based economy. by developing valleys in lithuania it is sought to create clusters of research, higher education and knowledge-based economy of an international level, to speed up the creation of knowledge-based society and to strengthen lithuania’s competitiveness. valleys in lithuania are created seeking to concentrate, renew and optimize the infrastructure, which would enable state-of-the-art technologies and other most promising sectors of science, technologies and business to be developed, relations between scientific research and higher education to be strengthened, close interaction between scientific research, science, higher education and knowledge-intensive business to be ensured, as well as to engage in training researchers and other specialists. also, it is sought to develop scientific co-operation of the highest level on the national and international scale, to attract necessary foreign investments of great intellectual potential, and on the basis of research and higher education, as well as knowledge-intensive business to create clusters of knowledge-based economy. at the present time the following centers are working on programmes and have already presented the improved visions: vilnius saulėtekio technologijų slėnis (vilnius sauletekis technology valley), vilniaus santaros slėnis (vilnius santara valley), the kaunas integrated research, higher education and business centers nemunas & santaka, the integrated research, higher education and business center (valley) for the development of the maritime sector of lithuania(klaipeda). in our paper we are going more widely present the knowledge based project –“sunrise valley”. “sunrise valley” in vilnius is one of innovative centers, which was deliberately modeled after the silicon valley, issn 1822-8402 european integration studies. 2009. no 3 117 california, where “eastman kodak”, “general electric”, “intel fairchild”, “lockheed”, “hewlett packard” and other companies started and developed their activities. knowledge economy clusters are successfully created near universities in different countries. very successfully towards this direction are developing our neighbors-nordic countries. in recent years finland and sweden twinkled their resources for rd especially in the last decade that influenced growth of high tech level of production in exports of those countries. technological parks “kista” and “technopolis” are well known knowledge economy clusters in all over the world. the neighboring country poland also has great achievements in this field of activities. poland is successfully developing 45 ha square technological park “technoport” near the capital warshaw. good conditions for successfully activities started in vilnius “sunrise valley” where special social enterprise “sunrise valley” in may of 2003 was established. vilnius university and vilnius gediminas technical university, well known lithuania’s corporate leaders: alna, sonex, omnitel, bite gsm, ekspla, laser research institute, the members of the knowledge economy forum of lithuania were foundators of this public unit. in february of 2004 this project was joined by municipality of vilnius, which became shareholder of this establishment. in reality “sunrise valley” accumulated theoretical and practical potential of the best lithuanian research institutes, universities, think tanks, consultants, firms and organizations and is ready to tap into the growing stock of global knowledge and adapt it to local needs. in the long run (till 2015) “sunrise valley” the largest unit of lithuania’s knowledge cluster must be developed into the largest innovation centre in the baltic states, where high added-value products and services will be created. such a vision for “sunrise valley” in the year 2005 was predicted by international consortium “centre for strategy and evaluation services”, famous technological parks from great britain, sweden and experienced local business partners. according to the evaluations by the year 2015 in territory of 2,5 ha about 150 new high tech enterprises with more than 3000 employees will be created, among them: innovation center for the development of laser and it as well as the formation of business incubator and a scientific– technological park. it will be companies established by universities and research centers, where students, professors and researchers from those institutions will work. conclusions and recommendations creation of the knowledge based society and knowledge based economy in the european union is a very complex, long-term and ambiguous process. key challenges and priorities that require main attention when creating the knowledge based society and knowledge based economy are the following: 1. creation of knowledge based society and knowledge based economy in the european union should be oriented towards the solution of the following problems: – problems of insufficiency and increase in the cost of energy and raw-material, as well as problems of secure and reliable import of these resources, along with problems of creation of alternative energy and economies oriented towards alternative raw materials, – problems of new prospective markets necessary for implementation of production in the european union, and problems of its development and introduction, – problems of the required potential development for state-of-the-art products, as well as problems of compatibility of the products oriented towards high technologies in the global markets, – problems of social security, economic well-being, as well as social, legal and ecological environment improvement; 2. in the strategies designed to create the knowledge based economy in the european union main emphasis should be put on the following priorities: – rational specialization of national and regional economies, ensuring high compatibility both in the european union and in global markets, – transformation of national, regional and sector economies into the macro –or hyper –clusters and systems of such clusters, – development of clusters and networks of economic “oases” in the entire space of the european union, – further development of clusters and networks of economic “oases” as key organizational structures characteristic to the system of the european union; 3. in the situation of the further development of the european union the following provisions should be implemented: – issues of modernization and compatibility increase for the national, regional and sector systems should be tackled in the strategies oriented towards integration, – issues related to creation of the integral and undivided knowledge based society and knowledge based economy should be tackled in the systems oriented towards synthesis in the entire space of the european union. the research on knowledge based economy creation in lithuania as well as in other countries of the european union concludes that: – the transition towards a knowledge economy requires that policy makers understand the issn 1822-8402 european integration studies. 2009. no 3 118 comparative strengths and weaknesses of their countries and then act upon them to develop appropriate short and long term policies and investments, – lithuania will need to develop higher added-value market niches that will precisely call upon the lithuanian capabilities to create an entrepreneurial economy that is integrated continentally and globally : knowledge economy provides such opportunities especially in the context of knowledge and innovation in the european and global business, – bridging science and business together provides a compelling platform to research 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(1999), the world trade organisation and africas marginalisation”, australian journal of international affairs, vol.53, n1, pp.83-94. the strategy of knowledge management. a mckinsey quorterly reader. 2006. www.mckinseyquorterly.com sunrise valley. http://www.sunrisevalley.lt the article has been reviewed. received in march, 2009; accepted in april, 2009. microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 trends of human resources development for knowledge based economy: towards competence as the synergy of knowledge, abilities and skills jurgita keršytė kęstutis kriščiūnas kaunas university of technology, institute of europe abstract in the 20th century the globalization and fast development of information and communication technologies influenced the rising of economy which is based on knowledge. in this contemporary economy the knowledge, it creation and usage becomes the most important factors which determinate the successful competitiveness of countries. the knowledge is broad concept and this concept involves knowledge as well as knowing. it should be emphasized that this scientific paper is mostly oriented to knowing which is reflected by human resources’ competence. in this paper it is stressed that the engine of economy which is based on knowledge is human resources that are able to create, disseminate and use new knowledge in their activity. the emergence of knowledge – based economy transformed the structure of labour market and highlighted new requirements for the human resources’ competence. the special attention is given for the highly skilled workers, that are able not only to work in the ordinary environment, but to create new knowledge as well. this paper outlines the core trends of human resources development for knowledge –based economy. authors using qualitative analysis evaluate the crucial role of the quality of human resources for the economy. this paper focuses in particular on the question which specific abilities, generic and transferable skills as well as competence drive knowledge – based economy. authors determinate the core ways for training and development of human resources quality, which could interconnect abilities, skills and competence for the creating new knowledge, innovative products and services. keywords: human resources, knowledge – based economy, abilities, competence, skills. introduction in the contemporary economy knowledge and knowledge based activity becomes the necessity for countries which strive to be most competitive in the world. impact of knowledge to the development of economy is evident and crucial. most importantly, the transition towards a global economy, based on acquisition and application of knowledge depends extensively on quality of human resources. the importance of human resources in economy of knowledge has been analyzed in many scientific papers and official documents. although adam smith quite early (1776) envisaged the importance of individual’s abilities and skills for the wealth of societies, the detailed analysis of human resources influence to the economy started only in the xx century (becker (1962, 1964), schulz (1961, 1962), mincer (1958, 1962, 1974)). in the contemporary economy human resources were recognized as the key element for knowledge – based economy development (laroche (1998), malhorta (2000), stickley (2005), melnikas (2003) et al.). in rapidly changing world the importance of knowledge, abilities and skills in every human endeavour should be observed. there is broad consensus in scientific literature that quality of human resources becomes the main element for economic success and help for individuals achieve social well – being within their communities, regions and nations. the highly skilled human resources is the main axle of organizations because on these resources depend the processes of knowledge creation, usage, dissemination and commercialization. in scientific papers there are still open questions – what is the content of competence of highly – skilled worker and what are the ways for obtaining of best competence. this publication strives to find answers to these questions. research purposes: 61 • to highlight the role of highly – skilled human resources for the development of knowledge – based economy; • to analyze the content of human resources competence; • to determinate the ways for obtaining the best competence. research methods: the analysis is made upon the scientific literature and research in this field. the article consists of three parts. first part of article highlights the importance of human resources quality for knowledge – based economy. alongside, the requirements of the contemporary economy for the quality of human resources are discussed. the second part is dedicated for the analysis of highly – skilled human – resources’ competence content. the last part of article is devoted to the discussion on the question – what are the best ways for developing highly – skilled workers competence. exploiting possibilities of knowledge – based economy – new challenges for quality of human resources the few last centuries have witnessed several fundamental transformations and each of these transformations had fundamental implications for nature of society. under the influence of globalization and fast development of technologies (especially information and communication technologies (ict)) the knowledge, it usage and dissemination become the most important factors for the successful activity. in contemporary economy companies are not orientated only to physical assets. daugėlienė r., volodzkienė l. (2005) stressed that human resources, their knowledge, are the most valuable resource of modern society, more important than natural resources and accumulated asset. very important becomes intellectual capital (i.e. intangible assets) which consists from human capital (knowledge of organization’s people, talents, skills), also structural capital (patents, databases, networks and etc.) and customer capital (relations with customers and suppliers)(see figure 1). according to this, quality of human resources becomes a key determinant for productivity. k. kriščiūnas and r. daugėlienė (2006) highlight that the individual knowledge is the background of organization’s knowledge and the part of organization’s knowledge as well. individual knowledge and organizational knowledge have the interdependent relationship. the economy which is based on knowledge provides new opportunities and also new challenges, especially for quality of human resources. human resources are the main axis of knowledge – based economy participating in processes of: • knowledge acquirement (by learning); • creation of new knowledge; • configuration of knowledge, usage of knowledge (knowledge based activity); • dissemination of knowledge. human capital structural capital customer capital tangible assets intangible assets figure 1. the intellectual capital model (stewart, 2003) the organizations, acting under the conditions of comtemporary market, should be orientated to the workers and their knowledge, skills and qualification (mathis r., jackson h., 2006). pfeffer j. (1998) stresses that under the conditions of hyper competition, workers are the main recourses and guarantee for business success. within organizations, and much more, within economies, the human resources are being increasingly recognized as a critical asset. in knowledge – based economy it is needed to consider new category of workers – knowledge workers. the term “knowledge worker” is coined by peter drucker in 1959 and means one who works primarily with information or one who develops and uses knowledge in the workplace. davenport t.h. (2005) highlights that the primary purpose of knowledge workers’ jobs involves the creation, distribution or/and application of knowledge. nowadays the knowledge workers could be defined the workers who have theoretical knowledge, high professional education, are involved in knowledge management and, finally, have high competence. therefore, in knowledge based economy it is necessary to analyze the highly – skilled workers, because this category of workers plays a key role in the generation of new knowledge. highly skilled workers, first of all, are the knowledge workers. this category of workers have strong basis of theoretical knowledge, high professional education. in their activity highly – skilled workers not only acquire new knowledge or are able to configurate it, but they also are able to create new knowledge through research as well as adapt these knowledge in their activity. in contemporary economy the demand of these workers is rising. marios – ines bastos (1999) points out that 62 issn 1822-8402 european integration studies. 2007. no 1 increasing demand of highly – skilled workers in labour market was influenced of their ability to improve their skills continually and to conform to the rapid changing environment. highly – skilled human resources benefit to a company could be a form of developing of business intelligence, increasing value of intellectual capital. within organizations highly – skilled workers tend to be closely aligned within the organizations growth prospects (davenport, 2005). towards competence as a synergy of knowledge, abilities and skills the meaning of competence is not so easy educes because of its complexity. competence is seen as one of the most valuable resources of individuals and organizations, but many scientists agree, that it is not very clear how the term of competence is understood and how it should be defined (paloniemi s., 2006). the concept of competence was analyzed by schoonover s.c. (1998), martinkus b., sakalas a., neverauskas b. (2002). according to the competence definitions analysis, competence is not only the excellent performance in the particular work conditions using abilities and skills, but also concept of competence involves personal effectiveness. streumer and bjorkquist (1998) in their papers emphasized that there are two understandings of competence – british and german. in british case the competence is understood as the individual’s capability to perform the tasks. in the german case the competence is understood more broadly. according to this understanding, competence is not only knowledge and skills, but content of competence includes the professional identity. paloniemi (2006) emphasized that in addition to knowledge and skills, attitudes and aptitudes are part of professional competence. the other question what kind of abilities and skills should acquire highly – skilled human resources for the best competence? to answer this question it is needed to make distinction between the abilities and skills. abilities are usual understand as the natural talent. they are developed in the early of life and are not taught in university. for this reason abilities will not be analyzed in this scientific paper, although the authors do not deny their importance for the individuals. skills can be obtained and developed in universities or in workplaces. their importance in the content of highly – skilled workers competence is growing and growing up. skills can be generic and specific. generic skills are fundamental for successful funcionating. usually this kind of skills are related to basic language and quantitative literacy and, more broadly, to the ability to process information and use it in problem – solving and in learning. specific skills are usually related to the operation of particular technologies or production processes. specific skills are more difficult to develop than generic skills. analysis showed that for highly – skilled workers acting under the conditions of knowledge – based economy are important: • personal effectiveness; • critical thinking; • communication skills; • networking and team working; • lifelong learning. below there is given detailed analysis of the main skills of highly – skilled human resources. as it is pointed out above, for the competence of highly – skilled workers is very important the personal effectiveness, because the competence is not only knowledge or skills. the category of personal effectiveness consists from: • self – discipline; • individual motivation; • initiative; • features of leadership; • awareness of self limitation; • career planning (career management); • training needs (life long learning). above mentioned skills are necessary for highly – skilled workers in order to achieve their goals. furthermore, the highly – skilled workers should obtain and develop the skills of critical thinking. critical thinking is one of the important skills for highly – skilled human resources. it should be pointed out that critical thinking is very complex process. critical thinking is promoting by teaching and, especially, by research making. in could be highlighted that the workers with strongly developed critical thinking see the problem where the others can not see the problem yet. in this case, workers with critical thinking easier see the new possibilities, new markets, new niches and etc. the highly – skilled human resources should have research skills and understand the research techniques, research environment as well as research management (time management, prioritization and etc.). under the conditions of knowledge based economy there is important not only the making of research, but also commercialization of research results. other very important bloc of skills is communication skills. communication is the key – the abilities to interact effectively with a variety of individuals and groups to facilitate gathering, integrating, and conveying information in many forms. taking about communication skills, there should be defined to types of communication internal and external. effective communication starts with the skills of listening, speaking and questioning. internal communication is based on the communication with 63 issn 1822-8402 european integration studies. 2007. no 1 the others specialists. it is very important to be able to prepare well -structured scientific and subject text, documents as well as to present them for the colleagues or broader auditorium. external communication is based on the ability to communicate with the mass media, politicians, broad society. the specialist working under the conditions of globalization can not work separately. therefore it is necessary to consider the teamworking and networking. teamwork has become an important concept for human resources. teamwork is essential for competing in today's global market and, according p. vanagas (2004), from the work in team can benefit and organization, and every worker. teamwork is the ability to work together toward a common vision, to direct individual accomplishments toward organizational objectives. in a teamwork environment, people understand and believe that thinking, planning, decisions, and actions are better when done cooperatively. additionally, the emphasis should be placed on the importance of lifelong learning. the lifelong learning became the object of discussions and scientific papers. the importance of lifelong learning is emphasized and in the documents of european union. in 2001 the european union adopted the communication on making a european area of lifelong learning a reality in which lifelong learning has become the guiding principle for the development of education and training policy. the communication sets out concrete proposals that aim to make lifelong learning a reality for all. lifelong learning is a critical approach to the professional development. the knowledge – based economy characterizes by the fast changes in all fields of life. in order to be competitive in the labour market the employees should react to these changes very adequately. the person should renew the knowledge all the time, constantly, because it is getting old very fast. for this reason it should be aimed for bigger importance of lifelong learning. the emerging of lifelong learning concept reflects that the changes are the characteristic of contemporary economy. the persons can act successfully in such environment only if they permanently improve knowledge and develop their skills. lifelong learning is important because provides: • continuing professional development; • voluntary acquisition of new knowledge and skills. highly – skilled workers should understand the importance of life long learning for the development of their abilities and skills because the knowledge, the abilities and skills of highly – skilled workers are developed through lifelong learning. for the competence of highly – skilled workers the important role plays the experience. the experience can be understand as a learning through practical doing. gained experience is a prerequisite for the best competence of highly – skilled human resources. in figure 2 there is shown the evolvent of the competence content of highly – skilled workers. competence abilities and skills: • communication (internal, external) • problem seeing • making prognoses • research skills and • techniques • research management • commercialisation of • research results • ethical issues • computer literacy • ability to present ideas • ability to take decisions • pursuing of team’s aim general knowledge expierence personal effectiveness: • initiative • motivation • features of leadership; • self – discipline; • awareness of self limitation; • career planning; • training needs life long learning figure 2. the competence content of highly – skilled human resources 64 issn 1822-8402 european integration studies. 2007. no 1 it should be stressed that the interplay of knowledge, abilities and skills gives the synergy effect. the synergy of knowledge, abilities and skills influences the success and quality of highly – skilled workers activity. the competence is a cluster of features of character, knowledge, abilities and skills. the content of competence which is pointed out above is nessesary for the highly – skilled workers. it should be emphasized that the successful activity of individual has the direct influnce for the organization success. ways towards the best competence for knowledge – based economy looking at whole cluster of knowledge, abilities and skills which are needed for quality of human resources acting in knowledge – based economy, it is very important to answer the question what are the ways for obtaining the best competence. the mentioned abilities and skills could be achieved through four different channels: • discipline modules; • specific modules; • learning by researching; • participating in conferences and seminars. the discipline modules provide general education core i.e. generic knowledge. besides the generic knowledge, it is needed to have specific knowledge and skills, for example project management. the specific modules provide these specific knowledge and skills. it should be emphasised that discipline modules and specific modules should be very closely related. learning by researching. research and development are very important stages for innovation processes. specialists acting in knowledge based economy have to understand importance of research and development and to have good command of research and development methods in their specific area (lapina, koke, 2006). it is very important to understand that research is one of the best ways for learning and development of critical thinking (i.e. learning by doing). it should be mentioned that for highly – skilled human resources participating in research plays very big role. they should be involves not only in frontier research which develops the critical thinking of highly – skilled human resources. highly – skilled human resources should be involved and in the practical research which provides the skill to transfer obtained knowledge to final product. participating in scientific debates (for example, seminars and conferences) provides communication skills. the attendance in conferences and seminars are essential for highly – skilled human resources. they should be encouraged to present their work at conferences and publish the results of research. in the processes of providing of mentioned knowledge, skills and abilities, the main role plays universities, business and wide society (see figure 3). specific modules discipline modules learning by researching participating in conferences c o m p e t e n c e u n i v e r s i t i e s f i r m s knowledge specific skills critical thinking wide society communication skills figure 3. main trends of best competence development universities role in these processes is clear – they must provide the high quality education which is based on research. universities should ensure the high level education, provide best opportunities to generate as well as develop new ideas and entrepreneurial skills, risk taking and creativity. only with help education could be developed well educated human resources. universities should concentrate on the ensuring the accessibility of higher education and the permanent improvement of human resources competence, enhancing the efficiency of higher education institutions and guaranteeing of the quality of higher education. science and research should be totally integrated. universities should not only provide knowledge, but develop the transferable skills of students. universities commit their responsibility in accomplishing their fundamental mission – knowledge creation, concentration and usage – for the 65 issn 1822-8402 european integration studies. 2007. no 1 programmes of studies and lifelong learning, staff and human resources, for the quality of research and innovative activity (kriščiūnas k., keršytė j., 2006). furthermore, business should actively participate in the processes of human resources competence improving. the business sector should promote the learning by researching. wide society should ensure the providing of communication skills. the findings shows, that the universities, authority, industry and business, society at large should concentrate towards strengthening the knowledge, abilities and skills providing for human resources. conslusions 1. the analysis of new and rapid changes in the economy and demand of knowledge based economy forms new requirements for the quality of human resources development for new environment of knowledge. 2. the competence of highly – skilled represents a dynamic combination of knowledge, abilities and skills. the best competence of highly – skilled workers is based on interplay of knowledge, abilities and skills. 3. new generation of highly – skilled specialists for the successful activity in knowledge based economy should demonstrate personal effectiveness, critical thinking, features of team working, communication skills and have lifelong learning needs. contemporary economy requires the flexible and initiatives specialists. 4. university plays big role in the human resources development. university must not only give for students deep and broad knowledge, but develop the skills and teach them to be critical. 5. the universities’ studies should concentrate on only on the providing of knowledge, but also, on providing and developing skills for accumulation and usage of knowledge. 6. it should be stressed that development of human resources for knowledge based economy overpasses university’s borders. it is needed strong colloboration between universities, industry and wide society. all of them are responsible in the development of highly – skilled human resources for knowledge based economy. 7. private sector must take part in the development of human resources and support them. references becker, g. investment in human capital: a theoretical analysis, the journal of political economy, vol. 70, no. 5, part 2: investment in human beings,1962. becker, g. human capital: a theoretical and empirical analysis, with special reference to education. new york: columbia university press, 1964. communication „making a european area of lifelong learning a reality“. brussels (2005). on line: http://eur-lex.europa.eu/lexuriserv/ site/en/com/2001/com2001_0678en01.pdf čiutienė r. šarkiūnaitė i. darbuotojų kompetencija organizacijos konkurencingumą lemiantis veiksnys // ekonomika. nr. 67 (2), 2004. isbn 1392 1258. davenport t.h. thinking for a living, harvard business school press, 2005. daugėlienė r., volodzkienė l., the assessment pecularities of human resources impact to the knowledge economy’s development // enlarged european union in house of europe: new internal and external problems: proceedings / kaunas university of technology / edited by k. kriščiūnas. isbn 9955-09-931-3. kaunas, 2005. keršytė j., kriščiūnas k. žiniomis grįstos plėtros lietuvoje gairės ir jų atspindys es struktūrinių fondų panaudojimo i ir ii laikotarpio prioritetuose // tiltai. priedas : mokslo darbai / klaipėdos universitetas. kn. 2, ekonominės ir socialinės plėtros europinės dimensijos. issn 1648-3979. klaipėda. – 2006. kriščiūnas k., keršytė j. strategic objectives of lithuanian universities implementing ideas of lisbon strategy // legal, political and economical initiatives towards europe of knowledge : proceedings / kaunas university of technology / edited by k. kriščiūnas. isbn 9955-25-077-1. kaunas, 2006. koke t., lapina g. innovation centered curriculum – a tool for competitive europe //legal, political and economical initiatives towards europe of knowledge. proceedings. – technologija: kaunas, 2006. isbn 9955-25-077-1. malhorta y. knowledge assets in the global economy: assessment of national intelectual capital, 2000. on – line: http://www.kmnetwork.com/intellectualcapital.ht m 66 issn 1822-8402 european integration studies. 2007. no 1 maria-inês bastos, europe and developing countries in the globalised information economy, 1999, routledge. martinkus b., neverauskas b., sakalas a. vadyba: specialistų rengimo kiekybinis ir kokybinis aspektas. kaunas: technologija, 2002. mathis robert, harold jackson j. human resources management. thomson south-western, 2006. isbn 0324289588. melnikas b. transformacijos. – vilnius, vaga, 2003. isbn 5-415-01637-6. mincer, j. investment in human capital and personal income distribution,” journal of political economy 66, 1958. mincer, j. schooling, experience and earnings, columbia university press: new york, 1974. pfeffer j. the real keys to high performance //leader to leader. 1998, no.8, spring. paloniemi s. experience, competence and workplace learning // journal of workplace learning. vo. 18 no. 7/8, p. 439 450. on line: www.emeraldinsight.com/1399-5626.htm schoonover s., schoonover h., nemerov d., ehly c. competency based hr applications, 2000. schoonover s.c. human resource competencies for the year 2000: the wake-up call. sodiety for human resource management, 1998. schultz, t. w. investment in human capital. the american economic review 1(2), 1-17, 1961. skills development in the knowledge – based economy// conference summary report. moncton, new brunswick. available: http://dsppsd.pwgsc.gc.ca/collection/c89-4-68-1999e.pdf smith a. an inquiry into the nature and causes of the wealth of nations, 1776. on – line: http://geolib.com/smith.adam/woncont.html stewart, thomas a. wealth of knowledge: intellectual capital and the twenty – first century organization. westminster, md, usa: doubleday publishing, 2003. streumer j.n., bjorkquist. key qualifications in work and education //moving beyond traditional vocational education and training:emerging issues, kluwer, dordrecht. 1998. vanagas p. visuotinės kokybės vadyba. – kaunas, technologija, 2004. isbn – 9955-09-748-5. žiniomis grįstos ekonomikos link: žinių skvarba ir raiška : monografija / kęstutis kriščiūnas, rasa daugėlienė. kaunas, 2006. 225 p. isbn 995525-058-5 67 issn 1822-8402 european integration studies. 2007. no 1 143 issn 1822 8402 european integration studies. 2009. no 3 efficiency of the use of assets in the farms of kurzeme peninsula in latvia linda siliņa kazimirs špoģis latvia university of agriculture, faculty of economics department of business and management abstract the paper summarises the results of research on the efficiency of managing assets in farms of the kurzeme peninsula in latvia. the research presented the results on the asset structure. the calculations included several indicators, e.g. output values compared to the total asset value. to reflect the polarity of the results, data on groups of farms whose economic indicators differ sharply were used, namely those whose economic size is from 4 – 8 units of economic volume (uev) for small farms and from 40 to 250 uev for large farms. based on the research results, it can be concluded that the group of small farms does not exhibit significant changes in the output volume over the analysed period, but the group of large farms shows development trends because both the output value and the total asset value have grown. in addition, the purchase price of products or current assets was evaluated, putting emphasis on the analysis of the prices of grains and milk. the analysis of the prices of grains, which reflects the current assets of farms, including the opportunity for the asset increase, led to a conclusion that the prices are stable but the price in the industry rose in 2007. in its turn, the price of milk has fluctuated over the respective period. the second component of the analysis – the value of assets – has significantly increased during the recent years. such a divergence in processes explains a phenomenon shown in table 1 that the output value estimated per lvl 1 of the total value of assets has not increased, but even substantially decreased during the recent years. in these enterprises and companies, the long-term investments (assets) have strongly grown, and the output value has also risen. at the end of the analysed period, the output of any large agricultural enterprise was 25 times that of any small farm. with a recession strengthening by the end of 2008 and in the beginning of 2009, the milk market shrank as the purchasing power of population significantly decreased and sales of cheese and other milk products tumbled. the low purchase prices of milk, to a great extent, are determined by the very fragmented milk processing industry in latvia because many small milk processors spend a lot of funds for self-maintenance, which could be paid to milk suppliers. the total cost of intermediate consumption has more than doubled over the analysed 5 years, which could essentially impact profitability unless such a sharp increase in costs is synchronically followed by an increase in prices of key agricultural products or an increase in financial support from the government and the eu. in the group of medium farms, the increase rate sharply rose and the net incomes, in absolute terms, tripled during the first four years, but in the last year of the analysed period – sharply decreased again. keywords: assets, efficiency, agriculture, farm. introduction the structure of long-term assets (investments), the composition of all assets and their total capacity change in farms and commercial agricultural enterprises in latvia. these processes have several causes, and they might cause significant consequences. the presently available researches on the structure and dynamics of assets have been fragmentary and episodic (kalniņš, 2002, sabulis, 2002, ivans, 2008, pilvere, 2008, vehkamaki, aro, ylatalo, 2008, buģina un muktupāvela, 2008 a.o.). it is assumed that agricultural efficiency is determined not only by various uncontrollable natural resources or factors, but also by the composition and structure of industries and other resources. purposeful and scientifically motivated management of long-term investments, planning of current assets are of great importance. economic performance indicators of farm groups of various sizes are annually analysed by scientists of the latvian state agrarian economics institute (lsaei) (lauku saimniecību datu...., 2001 2008). issn 1822-8402 european integration studies. 2009. no 3 144 in her studies, researcher pilvere i. (2008) has analysed agricultural land areas, support payments, changes in profit and turnover, and profitability, however, no detailed evaluation of return on assets was carried out. silina l. (2008) has researched the polarisation of assets, incomes, profits, and structure and the process of convergence on kurzeme farms, however, no detailed evaluation of asset efficiency was carried out. unfortunately, the economic efficiency of agricultural output, in most cases, is low in latvia. the value of assets, especially long-term investments, has increased substantially or sharply over the recent years. a low value-added reduces or even makes the competitiveness of latvian agricultural goods impossible in markets of the baltic or east european countries. all these facts prove the urgency for the topic of studies included in this paper. the research object is assets in agriculture. the research aim is to evaluate the efficiency of managing assets in farms of the kurzeme peninsula. the following research tasks have been set forth to achieve the aim: to evaluate the efficiency of managing assets by  output in the groups of small and large farms; to analyse the changes in purchase prices impacting  the efficiency of assets; to evaluate the changes in resources used for  intermediate consumption on farms; to analyse the impact of economies of scale on  farm profits and net incomes. the following research methods – analysis and synthesis, the inductive and deductive method, the graphical method, as well as the time-array method – were used in the research. in the present research, data of the central statistical bureau (csb) of the republic of latvia and the lsaei on groups of farms of various economic sizes were used, and scientific publications on findings in the field of asset management were analysed. asset capacity in the total value of output the efficiency of managing assets might be evaluated by several indicators. one of them is the ratio of the output value to long-term assets or current assets, or to the total value of assets. to analyse the capacity of the total value of assets, calculations were carried out for two antipodal groups of farms in the region – small farms (4 ≤ 8 uev) and large (40 ≤ 250 uev) agricultural enterprises (companies). to estimate the capacity, ratios of the output value to the total value of assets and to current assets were calculated. the estimates for small farms are given in table 1. table 1. efficiency of managing assets by output in small farms of kurzeme region in 2001-2007 year output value in real prices, lvl output value per lvl 1 of total value of assets, lvl current assets, lvl 2001 11421 0.57 1.53 2002 13900 0.45 1.84 2003 12755 0.67 1.62 2004 11151 0.50 1.55 2005 7668 0.36 1.26 2006 14361 0.47 1.57 2007 13961 0.38 1.44 source: author’s estimates according to sudat data according to the data of table 1, one has to conclude that the value of output in small farms has not significantly changed and was within the range of 11-14 thousand lvl over the analysed period, except for 2005 when the value of output was twice as small as in 2002 and 2006. such a decrease could be impacted by yearly or seasonal weather conditions. the second component of the analysis – the value of assets – has significantly increased during the recent years. such a divergence in processes explains a phenomenon shown in table 1 that the output value estimated per lvl 1 of the total value of assets has not increased, but even substantially decreased during the recent years. however, the economic performance of small farms do not characterise economic possibilities because the managerial and professional level is not high there. entirely different results of economic performance, i.e. results of managing assets, are observed in large agricultural enterprises, which are shown in table 2. in these enterprises and companies, the long-term investments (assets) have strongly grown, and the output value has also risen. at the end of the analysed period, the output of any large agricultural enterprise was 25 times that of any small farm. by estimating the output value per lvl 1 of the total value of assets, it was found that it is much higher in large agricultural enterprises than in the group of small farms. issn 1822-8402 european integration studies. 2009. no 3 145 table 2. efficiency of managing assets by output in large agricultural enterprises of kurzeme region in 2001-2007 year output value in real prices, lvl output value per lvl 1 of total value of assets, lvl current assets, lvl 2001 192565 0.67 1.64 2002 168620 1.04 1.77 2003 189147 0.89 1.45 2004 249248 0.76 1.60 2005 180469 0.36 1.08 2006 308930 0.62 1.55 2007 351737 0.67 1.84 source: author’s estimates according to sudat data purchase prices impacting the efficiency of managing assets it is assumed that purchase prices of agricultural commodities, which are paid by food processing or trade enterprises to farmers, might have an especially significant impact. for the analysis, data on two major agricultural products – grain in the crop industry and milk in the livestock industry – were used. table 3. dynamic relationships among purchase prices of grain, its total output, and purchased quantities in latvia’s nuts-2 region in 1999-2007 year wheat purchase price, lvl/t average purchase prices for all grains total output of grains grains sold to food processing enterprises lvl/t % thsnd.t. % thsnd.t. % 1999. 60.30 58.17 100.0 783 100.0 294 100.0 2000. 61.19 60.50 104.0 924 118.0 33 112.2 2001. 59.14 57.82 99.4 928 118.5 430 146.3 2002. 59.58 58.45 100.1 1029 131.4 434 147.6 2003. 63.10 61.56 105.8 932 119.0 370 125.8 2004. 67.91 65.27 112.2 1060 135.4 452 153.7 2005. 61.56 59.80 102.8 1314 167.8 535 182.0 2006. 77.83 73.33 126.1 1159 148.0 470 159.9 2007. 132.11 123.83 212.9 1535 196.0 693 235.7 source: csb data and the author’s estimates several conclusions and explanations were made from the estimates included in table 3: during the first 7 years of the analysed period, the  wheat purchase prices were stable and slightly increased only in 2006, whereas sharp changes took place in 2007 – the prices doubled. it could be caused by changes in grain prices in the world market, bur also by the market situation in the eu and a smaller output of grains in 2006; in the first half of the analysed period, the purchase  prises of all grains were stable, but during the recent five years the prices have increased, however, the prices were very volatile: in 2004 they increased by 12%, but in the next year the prices fell again to an average level of many years. a significant increase in the average prices of grains was in 2007; grain processing enterprises or their wholesale  intermediate enterprises have purchased the same quantities of grains from producers over six years; a difference was observed in the years when larger quantities of grains were produced – small reserve quantities were purchased; there was a substantial increase in the quantity of  grains purchased in 2005, but big changes took place in the last year of the analysed period; there is no explicit relationship between the  purchased quantities of grains and their prices and the total output of grains, although the output has not significantly changed but gradually increased. the estimates (see table 4) of the dynamic relationships among purchase prices of milk, its total output, and purchased quantities are a basis for certain findings: the purchase price level for milk has fluctuated  within a wide range in the analysed period: in the first half of the period, the prices rose quite evenly – up to 119%, but since 2004 after joining the european union, the changes became more explicit and the prices increased by lvl 60-70 per ton during four years. however in 2008, the milk purchase prices dropped again in latvia due to the impact of the world milk market; issn 1822-8402 european integration studies. 2009. no 3 146 table 4. dynamic relationships among purchase prices of milk, its total output, and purchased quantities in latvia’s nuts-2 region in 1999-2007 year milk purchase price milk output sold to milk processing enterprises ls/t % thsnd.t % thsnd.t % 1999. 80.59 100.0 798.7 100.0 390 100.0 2000. 87.17 108.2 825.0 103.3 398 102.0 2001. 95.52 118.5 848.0 106.2 403 103.3 2002. 94.09 116.7 813.7 101.9 385 98.7 2003. 96.09 119.2 785.7 98.4 436 111.8 2004. 131.06 162.6 786.4 98.5 464 119.0 2005. 155.2 192.6 810.3 101.4 502 128.7 2006. 162.77 202.0 815.1 102.0 592 151.8 2007. 183.31 227.5 841.6 105.4 631 161.8 source: author’s estimates according to csb data the purchase price level for milk fell very sharply  in the second half of 2008: at the turn of 2007/2008, the price reached lvl 238 per ton, whereas by the end of 2008 it fell up to lvl 170 per ton; a substantial increase in the quantity of milk  purchased for processing followed an increase in the purchase price of milk: already in 2006, 54% more milk was purchased than in 2002. very extensive changes were observed also in the recent years; the extensive changes in the prices and quantities  have not significantly impacted the output of milk. it can be explained by existence of the international milk market in the baltic countries, but an increase in the quantity of milk purchased for its processing could occur due to a decrease in consumption of unprocessed milk. with a recession strengthening by the end of 2008 and in the beginning of 2009, the milk market shrank as the purchasing power of population significantly decreased and sales of cheese and other milk products tumbled. the low purchase prices of milk, to a great extent, are determined by the very fragmented milk processing industry in latvia because many small milk processors spend a lot of funds for self-maintenance, which could be paid to milk suppliers. as to the structural aspect, the small and fragmented processing industry hinders also development of agricultural specialisation and economies of scale as well as economic interests. further in the research, the attention was paid to wheat farms of various economic sizes in order to identify a relationship between purchase prices and economies of scale, assuming that a higher price is possible if selling larger quantities of products. such an element as a possibility of higher quality for products from larger enterprises, where modern technologies and equipment is used, was included in the research conception. but higher quality ensures higher prices and larger incomes. the purchase prices for wheat from farms of various economic sizes are shown in table 5. table 5. relation of wheat purchase prices to economies of scale in nuts 3 kurzeme region in 2007 indicators groups of farms of economic sizes 2 ≤ 4 4 ≤ 8 8 ≤ 16 16≤ 40 40≤100 100≤250 >250 wheat purchase price, lvl/t 94 80 134 118 117 137 140 % 100 85.1 142.5 125.5 124.5 145.7 148.9 wheat yield per ha, tons 2.6 3.1 2.5 3.1 3.2 4.1 2.1 wheat output value, lvl 224 187 2449 9772 32493 135396 45516 wheat sold, tons (output value/ price) 2.4 2.3 18.3 82.8 277.7 988.3 325.1 source: author’s estimates according to sudat data the table 5 data and estimates show the very large role of economies of scale: for large farms, the wheat price is 1.5 times higher  than for small farms and significantly higher than for medium farms; several factors determine a higher price for large  wheat farms: higher technological quality of grain achieved o by producing grain of equal roughness; transportation of grain is cheaper if a farm o supplies large quantities etc.. the output value of wheat in large farms (100≤250  uev) is four times larger than in medium farms issn 1822-8402 european integration studies. 2009. no 3 147 (40 ≤100 uev) and 55 times larger than in small farms (8 ≤16 uev); the high output value of wheat in large farms is  composed of not only a higher prise, but also a higher yield per every hectare of area sown; large farms still have a large potential for increasing  yields. costs of resources in intermediate consumption the estimates regarding the resources used in intermediate consumption and their changes are shown in table 6. according to the estimates shown in table 6, the largest increase in costs was observed for fertilisers and health protection means (medicines, pesticides) for table 6. costs for groups of resources used in intermediate consumption in latvia’s nuts-2 region in 2003-2007 indicators 2003 2004 2005 2006 2007 energy (fuel, lubricants, electricity,) costs, mln. lvl 40.8 18.0 58.8 67.5 79.2 % 100.0 117.6 144.1 165.4 194.12 fertiliser and plant and livestock protection costs, mln.lvl 32.0 39.0 55.4 55.2 79.0 % 100.0 121.9 173.1 172.5 246.88 feed costs, mln.lvl 89.9 96.2 111.1 142.8 181,1 % 100.0 107.0 123.6 158.8 201.44 other costs, mln.lvl 72.1 81.5 102.8 112.6 157.7 % 100.0 113.0 142.6 156.2 218.72 intermediate consumption in total, mln.lvl 234.8 264.7 328.1 378.1 491.7 % 100.0 112.7 139.7 161.0 209.4 source: latvian electro-technical commission data and the author’s estimates plants as well as livestock. of course, these are energy intensive products as energy is used in their production. the costs of fuel, lubricants, and electricity have risen at a very fast rate. over the recent years, feed costs also sharply increased. such changes can be explained, first of all, by a large increase in energy prices. the total cost of intermediate consumption has more than doubled over the analysed 5 years, which could essentially impact profitability unless such a sharp increase in costs is synchronically followed by an increase in prices of key agricultural products or an increase in financial support from the government and the eu. a third possibility is not excluded as well – technological, logistical, and other processes are optimised to reduce the intermediate consumption of resources. changes in profit and income analytical estimates were done for small, medium, and large farms for a five year period and shown in table 7. table 7. profits in small, medium, and large farms in kurzeme in 2003-2007 year small farms (4≤8 uev) medium farms (16≤40 uev) large (100≤250 uev) enterprises lvl % lvl % lvl % 2003 755 100.0 3172 100.0 35079 100.0 2004 1032 136.7 8623 271.8 60636 172.8 2005 1232 163.2 6309. 198.9 37311 106.4 2006 2169 287.3 17293 545.2 56292 160.4 2007 576 76.3 11682 368.3 108658 309.7 source: sudat data and the author’s estimates according to table 7, one can conclude that: in the group of small farms, increases in profit  were observed from 2003 to 2007 when the highest average profit was reached; a very sharp decrease in profit was in 2007 – by 23.7% as compared to the base year and a fourfold decrease as compared to 2006; however, in large farms the year 2007 was  successful and the profit was 3 times larger than in the base year and twofold larger than in the previous year – in 2006; in the group of medium farms, increases in profit  are followed by a sharp decrease in it in 2007. issn 1822-8402 european integration studies. 2009. no 3 148 table 8. net income dependency on economic sizes of farms in kurzeme in 2007 indicators groups of farms of economic sizes 2 ≤ 4 4 ≤ 8 8 ≤ 16 16≤ 40 40≤100 100≤250 >250 net income of farms, lvl 3647 6692 12017 21595 48277 127152 (45233) increase rate, % 183.5 79.6 79.7 123.6 163.4 x net turnover of farms, lvl 3740 8118 16442 39031 99068 379678 511735 increase rate, % 117.0 102.5 137.4 153.8 283.2 34.8 ratio of net turnover to net income, % 102.5 121.3 136.8 180.7 205.2 298.6 ... source: sudat data and the author’s estimates after analysing a relationship between the net income and the net turnover, one has to conclude that the net incomes have steadily risen along with an increase in the net turnover of farms, respectively, the larger is the net turnover of a farm, the larger is the net income. however, there are differences among the groups of farms in the ratios of the net turnover to the net income, but the positive trend does not change. the sharp decrease in the net incomes in the group of large farms causes doubts and is not used in this evaluation. the analysis of the net incomes shows certain trends by groups of economic sizes. in the first four groups, the increase rate is flat, but for medium and large farms it is much higher. the increase rate of the net turnover is higher, except for the last group, the data credibility causes doubts. table 9. net incomes in small, medium, and large farms of kurzeme region in 2003-2007 year small farms (4≤8 uev) medium farms (16≤40 uev) large (100≤250 uev) enterprises lvl % lvl % lvl % 2003 3971 100.0 8165 100.0 42291 100.0 2004 4504 113.4 13766 168.6 80600 190.6 2005 6193 155.9 17468 213.9 62933 148.8 2006 8054 202.8 25719 315.0 78190 184.9 2007 6692 168.5 21595 264.5 127152 300.7 source: sudat data and the author’s estimates over the analysed period, the net incomes of small farms have progressively increased till 2006, while a decrease was observed in 2007. in the group of medium farms, the increase rate sharply rose and the net incomes, in absolute terms, tripled during the first four years, but in the last year of the analysed period – sharply decreased again. a different pattern and rate of changes was observed in large farms – the net income sharply increased in 2002 as well. conclusions the value of output in small farms has not  significantly changed and fluctuated, but the output value estimated per lvl 1 of the total value of assets has not increased, but even substantially decreased during the recent years. in large enterprises and companies, the long-term  investments (assets) have strongly grown, and the output value has also risen. it was proved in the research that the purchase  prises of all grains were stable, but the prices have increased during the recent five years. there is no explicit relationship between the  purchased quantities of grains and their prices and the total output of grains, although the output has not significantly changed but gradually increased. however, the extensive changes in the milk  purchase prices and quantities have not significantly impacted the output of milk. in the structural aspect, the analysis shows that the  small and fragmented processing industry hinders also the development of agricultural specialisation and economies of scale as well as economic interests. for large farms, the wheat price is 1.5 times higher  than for small farms and significantly higher than for medium farms, but the high output value in large farms is also caused by higher grain yields. the total cost of intermediate consumption has  more than doubled over the analysed 5 years, which could essentially impact profitability. the analysis of a relationship between the net  income and the net turnover showed that the net incomes have steadily risen along with an increase issn 1822-8402 european integration studies. 2009. no 3 149 in the net turnover of farms, respectively, the larger is the net turnover of a farm, the larger is the net income. in the group of medium farms, the increase rate  sharply rose and the net incomes, in absolute terms, tripled during the first four years, but in the last year of the analysed period – sharply decreased again. references buģina v., muktupāvela k. 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(2002)on value-based approach in development of agricultural enterprises. opportunities and solutions of rural development at the beginning of 21st century. international scientific conference reports. jelgava, pp.368-374. siliņa l.(2007) commercial orientation of kurzeme intra-regions and districts. llu proceedings. jelgava, pp. 29.– 37. siliņa l.(2008) polarisation and convergence of values and structures of assets, revenues, incomes, and profits in kurzeme farms. economic science for rural development. pp. 212. – 229. vehkamaki s., ylatalo m., aro e. (2008) resources use and entrepreneurship on dairy farms in south strobothnia (finland).economic science for rural development. jelgava, .pp. 203-209. the article has been reviewed. received in march, 2009; accepted in april, 2009. 207 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 abstract factors contributing to the development of e-commerce by the degree of use in latvia http://dx.doi.org/10.5755/j01.eis.1.14.26385 several studies have recognized that e-commerce can have a positive impact on business, making enterprises work faster, more efficient and more economical. taking into account different degrees of e-commerce use, it is important to analyse the factors contributing to the development of the e-commerce in respective enterprises, so decision-makers can develop the strategy accordingly. purpose of the study is to analyse the factors contributing to the development of the e-commerce in latvia by the degree of use of e-commerce. the tasks of the study: 1 to review theoretical background of factors contributing to the development of the e-commerce depending on the degree of use of e-commerce in the enterprise; 2 to review existing research of factors contribution to the development of the e-commerce in eu; 3 to analyse the results of conducted survey among latvian entrepreneurs in context of factors contributing to the development of the e-commerce. research methods used in preparation of the paper: scientific publication and previous conducted research results analysis, analysis of the results of the survey on latvian entrepreneurs. survey results are analysed using indicators of descriptive statistics (indicators of central tendency or location arithmetic mean, mode, median), indicators of variability (indicators of dispersion range, standard deviation and standard error of mean), analysis of variance anova are used. the survey showed that there are significant differences in the assessment of the groups of factors “social factors” and “regulatory factors” between entrepreneurs who take full advantage of e-commerce opportunities and those who do not use them at all. in order to promote the use of e-commerce possibilities, different trainings and programmes should be developed to improve the knowledge, skills and competences of employers and employees in the area of e-commerce. keywords: e-commerce, factors, entrepreneurs, latvia. european integration studies no. 14 / 2020, pp. 207-216 doi.org/10.5755/j01.eis.1.14.26385 introduction submitted 05/2020 accepted for publication 07/2020 factors contributing to the development of e-commerce by the degree of use in latvia eis 14/2020 in the early 1990s, a new term appeared around the world electronic commerce. e-commerce has completely changed the traditions of business operations and development, enabling sales, buying, offering and receiving, providing information and providing support remotely. there are ongoing studies on factors that promote the development of e-commerce (e.g. abdullah et al., 2019; gajewska and zimon, 2018; martinez-lopez et al., 2015; yoon and occena, 2015). mostly, the factors that influence the development of e-commerce are divided in such categories: technological factors, social factors, economic factors, political factors and psychological factors (see more viehland, 2000; shah alam et al., 2011; makki and chang, 2015; kabango and asa, 2015). ina gudele latvia university of life sciences and technologies inga jekabsone riseba university of applied sciences http://doi.org/10.5755/j01.eis.0.13.24033 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 208 regarding the development of e-commerce in latvia, latvia as a whole ranks 17th among 28 eu member states according to the digital economy and society index (desi) for 2019 results, with the level of digitization slightly below the eu average. evaluating latvia's performance since 2014, latvia has made significant progress in the area of digital public services, as well as in the connectivity dimension. however, the level of digital skills of the population is low, as is the use of digital technologies in enterprises. according to the recent data, only 5% of sme turnover comes from online segment (24th among 28 eu member states) (european commission, 2019). thereby, the it is important to analyse the factors contributing to the development of e-commerce from the perspective of the enterprises that do not use the e-commerce possibilities. taking into account all mentioned before, the purpose of the study is to analyse the factors contributing to the development of the e-commerce in latvia by the degree of use of e-commerce. in order to achieve the purpose, the tasks are formulated as follows: 1 to review theoretical background of factors contributing to the development of the e-commerce depending on the degree of use of e-commerce in the enterprise; 2 to review existing research of factors contribution to the development of the e-commerce in eu; 3 to analyse the results of conducted survey among latvian entrepreneurs in context of factors contributing to the development of the e-commerce. research methods used in preparation of the paper: scientific publication and previous conducted research results analysis, analysis of the results of the survey on latvian entrepreneurs. survey results are analysed using indicators of descriptive statistics (indicators of central tendency or location arithmetic mean, mode, median), indicators of variability (indicators of dispersion range, standard deviation and standard error of mean), analysis of variance anova are used. factors contributing to the development of e-commerce: theoretical framework several authors in their publications compare the development of e-commerce and digital environment in developed and developing countries mention the factors that contribute to the development of e-commerce (such as choshin and ghaffari, 2017; sebora et al., 2009). with the development of technology, communication network infrastructure diminishes its importance as mobile communications evolve, which are much cheaper and allow the digital environment to be used with all its services using only mobile phones, which to some extent replace computers. the use of infrastructure and the equipment itself is becoming cheaper. sridhar and sridhar (2006) propose to determine the level of development of e-commerce in developed countries according to the development of telecommunications infrastructure, divided into several sub-sections, which allows to determine the level of development of the same factor as population using the internet, quality of internet services (data rate), also taking into account the data security aspect, regulation, payment methods on the internet and cultural characteristics, user behaviour. kalinic et al. (2016), analysing the factors influencing e-commerce in serbia, where historically technology and economy developed similarly to latvia, also emphasizes the influence of the same four main factors on e-commerce development (technological, political, economic and educational factors), the situation was largely similar from both from the point of view of users and enterprises. in addition to the above-mentioned factors, wang and liu (2015) mention another important factor the cultural factor, which significantly influences both the development of the digital environment itself and the use of this environment from the users' point of view. the development of the digital environment and e-commerce also leads to the formation of other influencing factors, such as the trust of cooperation partners in each other, openness, access opportunities, trust (kabango and asa, 2015). 209 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 in turn, authors such as zaied (2012), who studied barriers to the development of e-commerce, divided them into six categories: economic barriers, regulation, organisational barriers, social and cultural barriers, technical problems. wang and liu (2015) propose to analyse a total of 12 factors influencing the digital environment and e-commerce, including development, adding to all of the above a group with social factors such as standard of living, human capital and price index, urbanization level and diffusion of technology. the results of the scientific literature review are illustrated in fig.1. factors contributing to development of e-commerce economic factors technological factors social factors regulatory factors psychological factors political factors figure 1 factors contributing to the development of e-commerce: summary of scientific literature study (abdullah et al., 2019; gajewska and zimon, 2018; martinez-lopez et al., 2015; wang and liu, 2015) all the findings of these authors' studies on the factors influencing the level of development of the digital environment and e-commerce do not differ significantly from country to country or region. their main meaning and impact are equal, only the level of detail of the influencing factor differs. in each country, one or the other factor is more or less weighty. empirical research results in order to analyse the factors contributing to the development of e-commerce in latvia, a survey for entrepreneurs was developed. the aim of the survey was to find out what factors influence the use of e-commerce in latvian enterprises, incl. how these factors differ depending on the intensity of e-commerce use. the survey was conducted from november 2019 to january 2020. the survey was distributed using the contact channels of latvian internet association and latvian chamber of commerce and industry (in total more than 500 enterprises were asked to fill the survey). in total, 77 enterprises representing all regions of latvia, as well as various sectors of the national economy, participated in the survey. taking into account significant number of sme1 1 according to recent data from central statistical office of latvija, in 2018, there were 174 792 economically active enterprises in the market sector, 174 541 of them smes e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 210 in latvia, the sample is rather small. however, the enterprises represent different economic sectors, regions and economic outcomes, so the results of the survey could be analysed to provide an impression on sme sector of latvia. overall, the majority (57%) of the surveyed enterprises partially use e-commerce opportunities, a quarter of enterprises admitted that they make full use of e-commerce opportunities. in turn, 14% of enterprises admitted that they do not use e-commerce opportunities (see fig.2). it should be mentioned that in order to avoid the subjectivity, in the survey the explanation was provided to answers “fully used” and “partly used”. “fully used” means that enterprise fulfils all three criteria: sales goods and services on internet, promotes goods and services on internet and communicates with clients on internet. “used partly” means that enterprise fulfils only one or two criteria mentioned above. figure 2 answers to the question "does your enterprise take full advantage of e-commerce opportunities to grow your business?" 14% 57% 25% 4% 0% 10% 20% 30% 40% 50% 60% not used at all used partly fully used no opinion 4,20 3,40 2,50 2,70 2,80 2,90 2,10 2,20 2,80 2,70 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 regulatory factors social factors (human skills) technological development political factors economic factors fully used not used at all 7,2 6,6 6,4 6,7 6,2 5,4 5,3 5,5 6,5 7,2 2,8 6,5 4,1 3,5 8,3 7,3 6,3 6,9 3,5 2,7 2,5 7,4 7,4 7 7,9 6,1 7 6,6 8 8,8 8,5 7,8 8,4 7,7 8,4 8,1 6,3 6,7 4,4 5,6 5,1 4,6 8,4 8,9 8,5 8,1 5,7 6,1 5,3 8,6 8,6 8,6 7,9 6,8 7,8 7,6 0 1 2 3 4 5 6 7 8 9 10 telecommunication network development mobile network coverage employee skills leadership skills manager 's attitude creative atmosphere in the enterprise competitors' activities positive success stories state aid business environment in the country activities of non governmental organisations availability of eu funds eu policy municipal policy existence of financial resources in the company the desire to develop employee training opportunity a leader in the company leader in the municipality leader in the country leader of non-governmental organisations world market trends technological development in the world employee knowledge managerial knowledge tax policy e-commerce legislation investment opportunities fully used not used at all source: authors‘ conducted survey, number of respondents 77; research period: november 2019 january 2020 further analysis is on assessment of the importance of groups of e-commerce factors between enterprises that do not use e-commerce at all and those that take full advantage of e-commerce (see fig. 3). this selection was done in order to find the differences in evaluation of factors from the perspective of the use of e-commerce in the enterprises. figure 3 answers to the question “please rank the groups of impact factors in order of importance (1 is the most important) that most influence e-commerce development by the degree of use of e-commerce 14% 57% 25% 4% 0% 10% 20% 30% 40% 50% 60% not used at all used partly fully used no opinion 4,20 3,40 2,50 2,70 2,80 2,90 2,10 2,20 2,80 2,70 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 regulatory factors social factors (human skills) technological development political factors economic factors fully used not used at all 7,2 6,6 6,4 6,7 6,2 5,4 5,3 5,5 6,5 7,2 2,8 6,5 4,1 3,5 8,3 7,3 6,3 6,9 3,5 2,7 2,5 7,4 7,4 7 7,9 6,1 7 6,6 8 8,8 8,5 7,8 8,4 7,7 8,4 8,1 6,3 6,7 4,4 5,6 5,1 4,6 8,4 8,9 8,5 8,1 5,7 6,1 5,3 8,6 8,6 8,6 7,9 6,8 7,8 7,6 0 1 2 3 4 5 6 7 8 9 10 telecommunication network development mobile network coverage employee skills leadership skills manager 's attitude creative atmosphere in the enterprise competitors' activities positive success stories state aid business environment in the country activities of non governmental organisations availability of eu funds eu policy municipal policy existence of financial resources in the company the desire to develop employee training opportunity a leader in the company leader in the municipality leader in the country leader of non-governmental organisations world market trends technological development in the world employee knowledge managerial knowledge tax policy e-commerce legislation investment opportunities fully used not used at all source: authors‘ conducted survey, number of respondents 30; research period: november 2019 january 2020 the initial comparison between entrepreneurs who take full advantage of e-commerce opportunities and those who do not use them at all differs in their assessment of the most important groups of factors influencing the development of e-commerce. as can be seen in fig.3, the assessment of the factor groups “social factors” and “regulatory factors” is quite different, i.e. 211 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 entrepreneurs who do not use e-commerce opportunities at all, their assessments of the factor groups “social factors” and “regulatory factors” rated as less important in the development of e-commerce compared to entrepreneurs who take full advantage of e-commerce opportunities. to determine whether there are significant differences in the assessments between enterprises who take full advantage of e-commerce opportunities and those who do not use e-commerce rights at all, an f-test was performed to see if there was a significant variation between these samples. the calculations showed that in all cases the value of f was lower than the critical value of f. this means that the null hypothesis of equal variations in both samples cannot be rejected at the significance level α = 0.05 and the variations in both samples (entrepreneurs who do not use e-commerce at all and entrepreneurs who take full advantage of e-commerce) are the same. the t test was then performed on the averages of both samples, i.e. the null hypothesis (ho) was put forward that the averages of both samples (entrepreneurs who do not use e-commerce opportunities at all and entrepreneurs who make full use of e-commerce opportunities) for each group of factors are equal at a significant level α = 0.05. the calculation showed (see table 1) that the statistical value of t has been higher than the critical value of t at the significance level α = 0.05 for such groups of factors as “social factors” and “regulatory factors”. this means that the null hypothesis has to be rejected and there are significant differences between the means of the two samples. therefore, it must be concluded that there are significant differences in the assessment of the groups of factors “social factors” and “regulatory factors” that affect the development of e-commerce, between entrepreneurs who take full advantage of e-commerce opportunities and those who do not use them at all. in other cases (factor groups “economic factors”, “political factors” and “technological factors”) there are no differences between the importance of factors in the development of e-commerce between enterprises that do not use e-commerce opportunities at all and those that use e-commerce opportunities fully. table 1 tresults of t-test two-sample assuming equal variances (group of factors) by the degree of use of e-commerce group of factors t statistical value t critical value result economic factors 0,135 2,055 ho cannnot be rejected political factors 0,236 2,055 ho cannnot be rejected technological factors 0,416 2,048 ho cannnot be rejected social factors 2,446 2,051 ho rejected regulatopry factors 2,766 2,051 ho recected source: authors‘ conducted survey, number of respondents 30; research period: november 2019 january 2020 next, an analysis was made as to whether there are differences between specific factors between entrepreneurs who make full use of e-commerce opportunities and those who do not use them at all (see fig. 4). an initial comparison shows that the average score for each factor differs the most for factors such as “leader in the country” (the difference in the average score between entrepreneurs who do not use e-commerce at all and those who take full advantage of e-commerce is 56%).), “leader of ngo” (difference 53%), “leader in the municipality” (39%), “competitor activity” (37%), “ngo activity” (36%) and “positive success stories” (32 %). on the other hand for the factors “managerial knowledge”, “existence of financial resources in the company”, “state support” and “business environment in the country” the difference in assessments in average between entrepreneurs who do not use e-commerce opportunities and those who fully use e-commerce opportunities, is below 10%. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 212 figure 4 answers to the question "please rate on a scale of 1 (not significant) to 9 (very important), (10-no opinion) factors that you think affect the use of e-commerce in your business” by the degree of use of e-commerce 14% 57% 25% 4% 0% 10% 20% 30% 40% 50% 60% not used at all used partly fully used no opinion 4,20 3,40 2,50 2,70 2,80 2,90 2,10 2,20 2,80 2,70 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 regulatory factors social factors (human skills) technological development political factors economic factors fully used not used at all 7,2 6,6 6,4 6,7 6,2 5,4 5,3 5,5 6,5 7,2 2,8 6,5 4,1 3,5 8,3 7,3 6,3 6,9 3,5 2,7 2,5 7,4 7,4 7 7,9 6,1 7 6,6 8 8,8 8,5 7,8 8,4 7,7 8,4 8,1 6,3 6,7 4,4 5,6 5,1 4,6 8,4 8,9 8,5 8,1 5,7 6,1 5,3 8,6 8,6 8,6 7,9 6,8 7,8 7,6 0 1 2 3 4 5 6 7 8 9 10 telecommunication network development mobile network coverage employee skills leadership skills manager 's attitude creative atmosphere in the enterprise competitors' activities positive success stories state aid business environment in the country activities of non governmental organisations availability of eu funds eu policy municipal policy existence of financial resources in the company the desire to develop employee training opportunity a leader in the company leader in the municipality leader in the country leader of non-governmental organisations world market trends technological development in the world employee knowledge managerial knowledge tax policy e-commerce legislation investment opportunities fully used not used at all source: authors‘ conducted survey, number of respondents 30; research period: november 2019 january 2020 however, in order to find out whether there are significant differences enterprises’ assessment of the factors influencing the development of e-commerce, depending on whether they make full use of e-commerce or not at all, an f-test for sample variations was initially performed. its results showed that in all cases the value of f was below the critical value of f. this means that the null hypothesis of equal variations in both samples cannot be rejected at the significance level α = 0.05 and the variations in both samples (entrepreneurs who do not use e-commerce at all and entrepreneurs who take full advantage of e-commerce) are the same. the t test was then performed on the averages of both samples, i.e. the null hypothesis (ho) was put forward that the averages of both samples (entrepreneurs who do not use e-commerce opportunities at all and entrepreneurs who make full use of e-commerce opportunities) for each factor are equally at the significance level α = 0.05. t test calculations are shown in table 2. comparing the statistical values of t with the critical values of t, it must be concluded that the null hypothesis (ho) about the average equality of both samples must be rejected at the significance level α = 0.05 for the following factors: _ mobile network coverage; _ employee skills; _ manager's attitude; _ creative atmosphere in the company; _ competitors' activities; _ positive success stories; _ desire to develop; _ employee training opportunity; _ leader in the country; _ leader of non-governmental organisations; _ global market trends; _ technological development in the world; _ employee knowledge. 213 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 table 2 results of t-test twosample assuming equal variances (individual factors) by the degree of use of e-commerce factor t statistical value t critical value result telecommunication network development 0,960 2,048 ho cannnot be rejected mobile network coverage 3,159 2,048 ho rejected employee skills 2,591 2,048 ho rejected leadership skills 1,265 2,048 ho cannnot be rejected manager 's attitude 2,429 2,048 ho rejected creative atmosphere in the enterprise 2,570 2,048 ho rejected competitors' activities 4,148 2,048 ho rejected positive success stories 3,749 2,048 ho rejected state aid 0,304 2,051 ho cannnot be rejected business environment in the country 0,746 2,048 ho cannnot be rejected activities of non governmental organisations 1,343 2,051 ho cannnot be rejected availability of eu funds 0,746 2,048 ho cannnot be rejected eu policy 0,836 2,048 ho cannnot be rejected municipal policy 0,839 2,051 ho cannnot be rejected existence of financial resources in the company 0,234 2,048 ho cannnot be rejected the desire to develop 2,925 2,048 ho rejected employee training opportunity 3,415 2,048 ho rejected a leader in the company 1,428 2,048 ho cannnot be rejected leader in the municipality 1,801 2,048 ho cannnot be rejected leader in the country 3,166 2,048 ho rejected leader of non-governmental organisations 2,342 2,048 ho rejected world market trends 3,142 2,048 ho rejected technological development in the world 2,836 2,048 ho rejected employee knowledge 2,786 2,048 ho rejected managerial knowledge 0,007 2,051 ho cannnot be rejected tax policy 0,604 2,051 ho cannnot be rejected e-commerce legislation 0,962 2,048 ho cannnot be rejected investment opportunities 0,157 2,048 ho cannnot be rejected source: authors‘ conducted survey, number of respondents 30; research period: november 2019 january 2020 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 214 this means that the average assessment of these factors differs significantly between enterprises that do not use e-commerce opportunities at all and those that do not. in other cases, factors related to telecommunications network development, managerial skills, state aid, the average score does not differ significantly between enterprises that take full advantage of e-commerce and those that do not use e-commerce at all. based on an analysis of the results obtained, the authors provide specific recommendations for the development of the digital environment stakeholders, with an increased focus on factors that have a positive impact on the development of e-commerce in business development and economic strengthening: _ national authorities, in cooperation with non-governmental business organisations, should become contracting educational institutions, which should develop a variety of vocational training, lifelong learning and non-formal education training programmes for business leaders and employees, by increasing their competence in the practical use of the digital environment for business development, including the use of e-commerce. _ municipalities, in cooperation with non-governmental business organisations, can step up the best examples of e-commerce in business development and export promotion, involving central and local media. this will provide a positive example and an initiative for other entrepreneurs to transform their business into a digital environment. _ national authorities, in cooperation with local governments should continue the course launched on the development of broadband infrastructure, providing high-quality infrastructure in areas where data transmission coverage has not yet been provided with the quality required for the use of e-commerce for business purposes. it will also make a significant contribution to regional development by giving a signal to entrepreneurs about the availability of adequate digital infrastructure in remote regions, creating companies or branches there. conclusions and recommendations _ a study and data analysis by the authors show that the potential of e-commerce in latvia is greater than the use of existing opportunities. the factors defined by many authors show that the environment leading to the successful use of e-commerce for business development. it has threatened that, through a complex engagement with the more empowered parties company management, public authorities, local governments, educational institutions and non-governmental organisations have the potential to successfully develop digital transformation in companies by promoting the use of e-commerce for economic growth. _ overall, the majority (57%) of the surveyed enterprises partially use e-commerce opportunities, a quarter of enterprises admitted that they make full use of e-commerce opportunities. in turn, 14% of enterprises admitted that they do not use e-commerce opportunities. this shows that entrepreneurs in latvia are at different stages of development in the use of e-commerce opportunities, thus training and informing entrepreneurs about the use of e-commerce opportunities is topical, especially in the regions of latvia (kurzeme and latgale). _ at the same time, when analysing the importance of different groups of e-commerce factors depending on how intensively entrepreneurs use e-commerce opportunities, there are significant differences in the assessment of factor groups “social factors” and “regulatory factors” between entrepreneurs who make full use of e-commerce opportunities and those who do not use them at all. those who do not take advantage of e-commerce at all consider the factor groups "social factors" and "regulatory factors" to be less important than those who take full advantage of e-commerce. this shows that regulation and human skills are a major obstacle to achieving a higher level of e-commerce use. 215 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 _ on the other hand, analysing the impact of individual factors on the development of e-commerce, depending on the intensity of use of e-commerce opportunities, it must be concluded that there are significant differences in the assessment of factors. enterprises that take full advantage of e-commerce consider following factors to be very important in the development of e-commerce: mobile network coverage, employee skills, managerial attitude, creative atmosphere in the company, competitors' activities, positive success stories, desire to develop, employee training opportunity, a leader in the country, a leader of non-governmental organizations, market trends in the world, technological development in the world, employee knowledge. thus, in general, those who have more knowledge, skills and competencies in the use of e-commerce, on the one hand, also give a higher assessment of the factors influencing the development of e-commerce, on the other hand, highly value the factors that belong to groups of factors. social factors (e.g. desire to develop, employee knowledge, employee training opportunities) and “technological factors” (e.g. mobile network coverage, technological development in the world). _ it is clear that “technological factors”, which include data transfer infrastructure in latvia, are developed at a good level, so respondents do not regard it as a disruptive factor for e-commerce, while it is highly relevant to the “competitor activities” factor, which shows that when they see the growth of other competing companies or the positive experience of similar companies using digital experience. technology in the development of its business could give a positive impact to the management of the company, which is considered to be a highly impacting factor, to focus on the uptake of e-commerce in its activities. references abdullah, l., ramli, r. bakodah, h.o. othman, m. 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(2015). factors influencing e-commerce development: implications for the developing countries. international journal of innovation and economic development, 1 (1), 59-66. https://doi. org/10.18775/ijied.1849-7551-7020.2015.11.2006 kalinic, z., rankovic, v., kalinic, l. (2016). factors influencing e-commerce development in serbia. facta universitatis: economics and organisation, 13(3), 287-300. makki, e., chang, l. (2015). e-commerce acceptance and implementation in saudi arabia: previous, current and future factors. international journal of management research and business strategy, 4 (3), 29-44. martinez-lopez, f.j., esteban-millat, i., cabal, c.c., gengler, c. (2015). psychological factors explaining consumer adoption of an e-vendor's recommender. industrial management & data systems, 115 (2), 284310. https://doi.org/10.1108/imds-10-2014-0306 sebora, t.c., lee, s.m., sukasame, n. (2009). critical success factors for e-commerce entrepreneurship: an empirical study of thailand. small business economic, 32 (3), 303-316. https://doi.org/10.1007/ s11187-007-9091-9 shah alam, s., ali, m.y., mohd jani, m.f. (2011). an empirical study of factors affecting electronic come u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 216 merce adoption among smes in malaysia. journal of business, economics and management, 12 (2), 375399. https://doi.org/10.3846/16111699.2011.576749 sridhar, v., sridhar, v. (2006). e-commerce infrastructure and economic impacts in countries: case of india. in sherif, k. (ed.), electronic business in developing countries: opportunities and challenges (pp. 63-87). hershey, pa: idea. https://doi. org/10.4018/978-1-59140-354-8.ch004 viehland, d.w. (2000). critical success factors for developing an e-business strategy. proceedings of 6th americas conference on informatics systems, 13, 911-915. wang, x., liu, l. (2015). empirical research on the influence factors of e-commerce development in china. the open cybernetics & systemics journal, 9(1), 7682. https://doi.org/10.2174/1874110x01509010076 yoon, h.s., occena, l.s. (2015). influencing factors of trust in consumer-to-consumer electronic commerce with gender and age. international journal of information management, 35 (3), 352-363. https:// doi.org/10.1016/j.ijinfomgt.2015.02.003 zaied, a. (2012). barriers to e-commerce adoption in egyptian smes. international journal of information engineering and electronic business, 3, 9-18. https://doi.org/10.5815/ijieeb.2012.03.02 about the authors gudele ina mg.ing. latvia university of life sciences and technologies fields of interests e-commerce, public administration, internet technologies. address liela street 2, jelgava, lv-3001. phone: +37127842437. e-mail: ina.gudele@gmail.com the research was supported by the national research programme “latvian heritage and future challenges for the sustainability of the state” project “challenges for the latvian state and society and the solutions in international context (interframe-lv)” jekabsone inga dr.sc.admin., assist.prof. riseba university of applied sciences fields of interests public administration, citizens’ involvement, regional and local development, data analysis, e-commerce. address meza street 3, riga, latvia, lv-1048. phone: +37127116147. e-mail: jekabsone_inga@inbox.lv this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 86 issn 1822 8402 european integration studies. 2009. no 3 stimulating pension funds investments to venture capital: opportunities in european union countries dalia kaupelytė vilija jankauskienė vytautas magnus university abstract various researches show that venture capital supports higher-risk investments in young, potential startups by reducing existing financing gap for companies without performance history, reinforces dynamic entrepreneurial spirit by producing innovative and cutting-edge technology and products for knowledgebased economy, boosts economic strength by creation of jobs and revenues in venture-backed companies. considering the total impact venture capital could make on the long-term economic growth, most of the eu countries have pointed the development of venture capital as one of the major priorities as venture capital. insufficient market of investors for venture capital funds do not allow to reach significant level of venture capital investments in eu countries. the higher level of venture capital investments can be achieved by stimulating investments of institutional investors into venture capital funds. investments of well capitalized pension funds to venture capital could be very important source of long-term financing, which might ensure sustainable and continuous venture capital growth. from other side, pension funds stimulation is important not only to venture capital funds creation and development, but also to overall social insurance and pension systems in european countries, because of negative demographic europe tendencies like aging society with increasing life expectancy, declining birth rates. private pension systems creation and development, which would allow to get higher individual pensions, as financial stability for retired people, become one of the major priorities of governments. in many eu countries, there are quite many various legal restrictions for pension funds investments and assets allocation, which reduce the potential higher financial return from invested assets. this raised question, are there any research for pension funds investments into venture capital funds, how pension funds investments are related to venture capital, why pension funds do not invest into venture capital, what kind of instruments can be created and implemented in eu countries for stimulating investments of pension funds to venture capital. the aim of this paper is to provide main obstacles and stimulating instruments of venture capital investments development through pension funds, by explaining the relation between venture capital funds and pension funds investments and the features of pension funds activities in eu countries and main problems. theoretical analysis of the scientific works, research papers, practical fields in this research field, statistical data analysis allowed highlighting the problematic positions concerning pension’s funds investments into venture capital funds. though main investors in venture capital funds in eu countries in 2003-2007 periods are pension funds, there are still problems in legal environment, pension funds assets allocation, geographical investments limitation. main obstacles and stimulating instruments of venture capital investments development through pension funds and overall situation improvement are presented in this paper. keywords: venture capital, venture capital funds, investments, pension funds, pension systems. introduction venture capital is important ensuring sustainable growth and the increase of employment, creating innovation and having impact to knowledge-based economy. considering the total impact venture capital could make on the long-term economic growth, most of the european countries have pointed the development of venture capital as one of the major priorities. pensions funds with other institutional investors (insurance companies, banks, public bodies, etc. ) are the main sources for fundraising venture capital. pension funds investments to venture capital funds make not more than 25 % of pension funds assets in europe and are increasing constantly. pension funds invest the largest part of their assets to the venture capital in great britain, sweden issn 1822-8402 european integration studies. 2009. no 3 87 and netherlands, though pension funds investments to venture capital is underdeveloped in europe in comparison to usa, where pension funds investments make more than 50 % investments to venture capital (barros et al., 2005). according to european venture capital association point of view, investments of well capitalized pension funds to venture capital are very important source of long-term financing, which might ensure sustainable and continuous venture capital growth. despite of that, private pension funds have to be developed themselves in most of the european countries. analysis of pension funds investments to venture capital funds raises many questions: what the infrastructure of financial market must be for venture capital raising developing, what regulations are required for pension funds in order to invest into venture capital with more potential gain, what special instruments can be created and implemented in european countries for stimulating investments of pension funds to venture capital the aim of the research: to analyze the main limitations of pension funds investments to venture capital in eu countries and define main measures for promoting pensions funds investments into venture capital. the tasks of the research: to present the importance of venture capital investments; to explain the relation between venture capital funds and pension funds; to analyze the features of pension funds activities in eu countries and main problems; to provide main obstacles and stimulating instruments of venture capital investments development through pension funds. the object of research: investments of pension funds to venture capital. main results of research are: as venture capital investments and activities of venture capital funds gain more international cross-border character, the geographical limitation for pension funds investments to venture capital should be revised. also, eu countries should develop not only venture capital investments through pension funds, but pension funds market itself. only by making coordinative actions, european union countries might reach long-term impact, which will positively influence their economic growth. as the research methods it was taken theoretical analysis of the scientific works, research papers, practical fields in this research field. also of statistical data was applied as well. the importance of venture capital investments the creation and development of the alternative venture capital markets, which finance companies in early stages and especially high-tech sectors, progressively takes up a important position in economic policy formation. main reason for venture capital market creation and stimulation is that venture capital has positive influence on stable growth of economy and increase of employment (botazzi and da rin, 2002, european commission, 2003, oecd, 2001). when economies become dependent from innovation and entrepreneurship in order to reach continuous long-term growth (botazzi et all, 2003, nelson and romer 1996, oecd, 2001), governments try to adapt venture capital stimulation methods, which have been successfully implemented in usa (megginson, 2004). these efforts require huge investments, but still now the best and proper political instruments, enabling to create active venture capital markets, not known enough. mostly venture capital market is developed in usa. there are several reasons, why venture capital creation and development in usa has impressive venture capital investment results. one of the first building steps toward a professionally-managed venture capital industry was the passage of the small business investment act of 1958 in us. the 1958 act officially allowed to license private, small business investment companies, which help the financing and management of the small entrepreneurial businesses in the usa. the other legislation, which had a significant impact on venture capital, was a series of changes in employee pension funds lows during 1970s. the pension funds were allowed to invest in independent investment funds, including venture capital funds (kenney, 2000). according various authors (bygrave and timmons, 2002, lerner, 1998, bartlett, 2000), with these few exceptions and decisions in legislation changes, us government has only a limited role in creating and developing venture capital industry. venture capital has been the main driving force behind some of the most vibrant sectors (information technologies) of the usa economy, financing the growth of technology based firms as microsoft, compaq, oracle, etc. (jeng, wells, 1998). during the 1960s-1970s, venture capital firms focused their investment activity primarily on starting and expanding companies, which were exploiting breakthroughs in electronic, medical or data-processing technology. as a result, venture capital came to be almost synonymous with technology finance. in europe, venture capital started in earnest about 1980s-1990s (evca, 2002), when venture capital industry in usa was highly developed. the growth of international competition, the lack of innovative ideas and projects, continuous high-technologies renewal and new knowledge creation led to the individual governments’ decisions to initiate, develop and support the creation of active venture capital sector. unfortunately, in some european countries these efforts to create similar institutions, stimulating entrepreneurial ideas and local abilities, were inefficient. gompers and lerner (1998) issn 1822-8402 european integration studies. 2009. no 3 88 identified the reasons of venture capital stagnation in eu countries such as the lack of entrepreneurship spirit for new ideas implementation, the lack of experienced venture capitalists, which needed for venture-backed companies management, the lack of sustainable infrastructure for ideas, projects generation and performance. most of european venture capital funds and venture capital management companies survived only by selling and buying companies’, mergers and acquisitions and only few coincidence investments to start-ups (jakubavicius et al, 2008). mostly venture capital industry is developed in united kingdom. tannon and johanson (2005) states, that venture capital gap, comparing usa with united kingdom venture capital fundraisings and investments, has grown last years, but venture capital industry in united kingdom is more mature than other well developed countries in europe. the venture capital industry in united kingdom started rapidly grow after liberalization of banks, pension funds legislation, when various institutional investors were allowed to invest into venture capital funds. more, the reformation of legal and tax system in united kingdom, has accelerated the development of reliable and attractive venture capital industry. as various literature shows, venture capital development in eu faces various legal acts problems, related to institutional investors possibilities to invest into alternative assets – venture capital, but this determinant was one of the most important for venture market creation and development. the relation between venture capital investment and country’ financial system venture capital investments usually are made through venture capital funds. venture capital funds creation in financial market structure was influenced by the financial gaps between capital and credit markets. this gap was fueled by investors, which showed readiness for higher risk, but potential higher than average returns from invested equity capital. so, venture capital funds acts as financial intermediary between investors and venturebacked companies (fig.1). company, which seeks venture capital investment, can finance its performance by individual investors or indirect through venture capital fund. it is important, that the more individual and/or institutional investors indirectly invest through venture capital funds, the higher risk of venture capital funds is (anderson, napier, 2005). such suggestion shows, that the transfer of financial risk to venture capital funds responsibility reflects the conservative aims of the banks and general view into risk diversification. private investors funds of funds venture capital fund venture capital fund venture capital fund venture capital fund company company company company direct investment investment into venture capital funds individual investors companies insurance companies banks pension funds funds of funds charity funds fig. 1. venture capital fund as financial intermediary (adopted according anderson, napier, 2005; blotevogel, 2005) the authors of venture capital research papers (black, gilson, 1998; hyytinne, pajarinen, 2001; alen, gale, 2000; johnson, 2000; jeng, wells, 1999; schafer, 2002; mayer, schoors, yafeh, 2003; anderson, napier, 2005) form an opinion, that there is a very strong relation between financial system structure and venture capital investments. their researches (mayer, schoors, yafeh, 2003) show that there are significant relationships between sources of finance of venture capital firms and their investment activities within countries. in particular, banks, insurance, and pension fund-backed venture capital firms invest in later stage activities, and venture capital firms relying on private individual investors and corporations favor earlier stage activities. individual and corporate-backed funds invest more in it, software, and electronics in preference to manufacturing sectors, while the reverse holds for insurance and pension fundbacked funds. bank and pension-backed funds invest domestically, while individual and corporate-backed funds invest globally. financial intermediary-backed funds, therefore, are focused on late-stage investments in relatively low-tech domestic industries, while individual and corporate-backed funds invest globally in early-stage activities in high-tech industries. it is obviously, that venture capital funds forms their investment strategies according to the investors types and financial system, dominated in particular countries. also, it is important to understand, that various investors has not equal possibilities to invest into risky venture capital (alen, gale, 2000). as commercial banks, pension funds, insurance companies are open to various decisions of risk diversification, but their obligations are long-term, which orientate investment into less risky sectors. the sources of venture capital funds depend also on proceeding reforms in particular countries, new financial intermediaries and ongoing creation or development of new financial institutions. issn 1822-8402 european integration studies. 2009. no 3 89 the features of pension funds activities in eu countries due to demographic europe tendencies, aging society, pensions as financial stability for retired people become one of the major priorities of governments. mostly pension systems in european countries are public, where pension payments depend on proportion between working people and paying contribution on social insurance people. as european countries faces demographical tendencies as increasing life expectancy and declining birth rates, countries with public pension reallocation systems, may encounter incapability to ensure pensions for retired people in near future. according to eurostat data (2008), the old age dependency ratio is expected to increase substantially from its current levels of 25.4% to 53.5% in 2060. whereas in 2008 in the eu27 there are 4 persons of working age (15-64 years old) for every person aged 65 years or over; in 2060 the ratio is expected to be 2 to 1. this situation requires the creation of private pension systems and long-term growth of economy in short time period. also, the governments must determine how the pension funds must be managed, publicly or privately, even taking into account, that private pension systems have advantages comparing with public systems (cebi, thorning, 2004). private pension systems further the development of capital markets, reduce capital costs, reduce stock prices fluctuations, and increase trade turnovers. private pension systems increase investments, also encourage economical growth and productivity. raising finance through pension funds may be vital for less developed eu countries. private pension systems generate higher investment returns (iglesias, palacios, 2000), but their risk is smaller comparing with public systems. despite of the countries governments’ efforts to create private pension systems, pension funds in eu countries make not more than 30 % of gdp, comparing with 75.5 % average in oecd countries. pension funds play more significant role only in the economies of netherlands, great britain, and, in smaller extent, in sweden and ireland (fig.2). as nobody can ensure the concrete pension funds investment return in future and fluctuations of investment returns are quite significant, private pension funds must target investments into assets class in investment portfolio (antolin, 2008) with higher returns. investment into venture capital can provide a higher financial return comparing with average in financial marker. in countries, where supervisory institutions and legal acts allow pension funds, as institutional investors, to diversify the investment portfolio by choosing venture capital, has already showed dramatic input into results of pension funds returns. fig. 2 .the assets of pension funds in various countries (% of gdp, 2007) (according to oecd, 2008) the relation between venture capital investments and pension funds pension funds are one of the financial sources for venture capital funds rising. (fig.3). pension funds investments, which are raised by saving accounts, pension plans in pension systems, can be reinvested into venture capital funds for getting particular repayment and capital gains. fig. 3. the link between pension funds and venture capital (evca 2001) issn 1822-8402 european integration studies. 2009. no 3 90 theoretically, pension funds investments in eu cannot be limited by investment into private capital. but in particular markets, free reallocation of pension funds assets is restricted due to unfavorable fiscal policy and regulation, which hampers pension funds investments in venture capital. these restrictions reduce the potential ability to gain higher return on venture-backed investments. yet in 1999 us pension funds amounted to 38 % of all venture capital financial sources (jeng, wells, 2000). empirical researches show, that after 1979 us labor department relaxation of the employee retirement income security act (erisa), allowing pension funds to invest into venture capital, the venture capital market increased by from 39 million usd to 570 million usd just one year later (gompers, lerner 1998) fig. 4. main sources of venture capital finance 20032007 in eu (according to evca, 2007) though commercial banks dominated in european venture capital market, after 2000 pension funds started to gain a greater influence in venture capital investments (schertler, 2001). main investors in venture capital funds in eu countries in 2003-2007 period are pension funds (23%), banks (15.6) (fig.4) main obstacles and stimulating instruments of venture capital investments development through pension funds for venture capital market development, there is a huge demand for long-term sources of finance, like pension funds or insurance companies (winton, 2005) also pension funds development is very important for all european society. this leads to the conclusion, that pension funds must be able to improve an opportunity to use valueadded, created by growing companies. according to european commission, ecofin, europe must perform huge preparatory work for the maximization of the of venture capital sector potential in order to eliminate the difference between eu and us institutional investors capabilities to invest into venture capital. main barriers, which are faced by institutional investors, must be reviewed and reduced. huge at al. showed (2006), that tax system, financial market development is not main determinants for venture capital development. this forms a point of view, that pension funds regulation could be very important for venture capital development. pension funds investments in usa and great britain have started to develop after implementation of „prudent man“ principle. the implementation of „prudent man“ principle in eu countries would encourage prudent level of diversification, by not limiting the asset allocation quantitatively. structural changes, which prohibit pension funds investments into venture capital, elimination, would allow increasing a list of instruments, by which pension funds would reach the better results of returns. thus, legislators and supervisory institutions must be concerned to remove the restrictions, which limit the allocation of pension funds assets. for stimulation of pension funds investments into venture capital, it is important to reduce the restrictions on investments between individual countries. although theoretically the capital movement is free in eu, in some eu countries international pension funds investments are prohibited. as venture capital market is developing and become more international, the geographical limitation for pension funds investments to venture capital stops the pension funds investments into venture capital. in countries with smaller financial market and not developed venture capital market, where pension funds are not allowed to invest into private capital, local innovative, with huge potential companies may attract international sources of finance. such scenario shows, that even economy of country gains due to economical growth, rising income, employment, competitiveness, the gain of venture capital is useful only for foreign investors, not local pension funds, as financial sources provider. pension funds investments limitations to higher-yield areas also reduce the ability to get higher pension after retirement. so, national governments and supervisory institutions must be interested to revise geographical restrictions for pension funds investments. conclusions venture capital is very important source of finance for creating and ensuring long-term economic growth and job creation. this accentuates the need of venture capital development as one of main underlying tasks in european union countries, trying to reach the usa level of venture capital investments. despite of that, one of the main problems for creating and developing venture capital in eu countries is insufficient market of investors, also undeveloped market of pension funds. generally, venture capital investments are made through venture capital funds, which perform as financial issn 1822-8402 european integration studies. 2009. no 3 91 intermediary between investors of venture capital and companies, seeking for venture capital. pension funds as institutional investors also invest in venture capital funds, typically in market-oriented financial systems. investments of well capitalized pension funds are one of the main investors group to venture capital funds in eu countries. this lead pension funds as very important source for long-term venture financing, which might ensure sustainable, continuous venture capital growth. due to the demographic tendencies, the creation and development of private pension funds in eu countries is one of the major priorities trying to ensure financial stability of retired old people. despite of the countries governments’ efforts to create private pension systems, pension funds in eu countries make not more than 30 % of gdp, comparing with 75.5 % average in oecd countries. pension funds play more significant role only in the economies of netherlands, great britain, and, in smaller extent, in sweden and ireland. pension funds investments in usa and great britain have started to develop after implementation of „prudent man“ principle. the implementation of „prudent man“ principle in eu countries would encourage prudent level of diversification, by not limiting the asset allocation quantitatively. policy-makers and supervising institutions should be interested to cancel the limitation of pension fund assets allocation. instead of that, special mechanisms should be defined, which would evaluate the peculiarities of private equity, venture capital and other forms of alternative investments. as venture capital investments and activities of venture capital funds gain more international crossborder character, the geographical limitation for pension funds investments to venture capital should be revised. as the results of the research show, eu countries should develop not only venture capital investments through pension funds, but pension funds market itself. only by making coordinative actions, e|u countries might reach long-term impact, which will positively influence their economic growth. references allen, f., gale, d. (2000) comparing financial systems, mit press. anderson, t., napier, g. (2005) the venture capital market global trends and issues for nordic countries, iked,online paper: http://www.iked.org/ pdf/the%20role%20of%20venture%20 capital,global%20trends%20and%20 issues.pdf. antolin, p. (2008), pension fund performance // oecd working papers on insurance and private pensions, no. 20, oecd publishing, oecd. barros, p.p.p., berglof, e., fulghieri, p., gual, j., mayer c., vives, x (2005) integration of european banking: the way forward. london: cepr. black, b. s., gilson, r.j. (1998) venture capital and the structure of capital markets: banks versus stock markets, journal of financial economics, vol. 47, pp. 243-277, online paper: http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=46909. blotevogel, r. (2005) a principle agent approach to understanding the net asset value in vc, eif staff paper, online papers http://www.altassets.com/pdfs/ aprincipal-agentapproach.pdf. bygrave, w. b. and j. a. timmons (1992) venture capital at the crossroads, boston: harvard business school press bottazzi, l., marco da rin (2002) venture capital in europe: europe and the financing of european innovative firms, economic policy, 17 (1), 229— 69. bottazzi, l., da rin. m , giavazzi, f. (2003) research, patents, and the financing of ideas: why is the eu growth potential so low? in andré sapir and mario nava (eds) economic policy-making in the european union, brussels, european commission. çebi p. thorning m. (2004) international council for capital formation. private pension expansion in the eu: obstacles and opportunities. presented at a forum co-sponsored by the iccf and the istituto bruno leoni, “pensions, reform or die,” milan, italy june 17, 2004. european commission (2003) communication on the implementation of the risk capital action plan, comm (2003) 654, brussels. eurostat (2008) population and social conditions. eurostat statistics in focus, 72/2008, online paper: http://epp.eurostat.ec.europa.eu/cache/ity_ offpub/ks-sf-08-072/en/ks-sf-08-072-en. pdf. evca yearbook (2006) evca, thomson financial, pricewaterhousecoopers. evca yearbook (2007) evca, thomson financial, pricewaterhousecoopers. evca white paper (2001), “policy priorities for private equity: fostering long-term economic growth”, evca white paper. gompers, p., lerner, j. (1998) what drives venture capital fundraising? brookings papers on economic activity (microeconomics), 149– 192. hege, u., palomino, f., schwienbacher, a. (2006) venture capital performance: the disparity between europe and united states. issn 1822-8402 european integration studies. 2009. no 3 92 hyytinen, a., pajarinen, m. (2001) financial systems and venture capital in nordic countries: a comparative study. helsinki: etla, elinkeinoelämän tutkimuslaitos, the research institute of the finnish economy,2001, 56 p. keskusteluaiheita, discussion papers, issn 07816847; no. 774, online paper: http://www.etla.fi/ files/596_dp774.pdf. iglesias a., palacios r.j. (2000). managing public pension reserves: part i evidence from the international experience. world bank, january 2000. jakubavičius, a., jucevičius ,r., jucevičius, g., kriaučionienė, m., keršys, m. (2008) inovacijos versle procesai, parama, tinklaveika, vilnius: lietuvos inovacijų centras jeng, l.l. ir wells, p.c. (1998) the determinants of venture capital funding: evidence across countries, national bureau of economic research (nber ), online paper: http://papers.ssrn.com/sol3/papers. cfm?abstract_id=103948. jeng, l.l. and wells, p.c. (1999) the determinants of venture capital funding: evidence across countries. journal of corporate finance 6, pp. 241-289. kenney, m. (2000) note on „venture capital“, brie working paper 142, online paper: http://brie. berkeley.edu/econ/publications/wp/wp142.pdf. lerner, j. (1998) boom and boost boom and bust in the venture capital industry and the impact on innovation, negotiation, organizations and markets research papers, harvard nom research paper no. 03-13, online paper: http://papers.ssrn.com/sol3/ papers.cfm?abstract_id=366041. lerner, j. (1998) venture capital and private equity: a course overview , harvard business school finance unit; harvard university entrepreneurial management unit; national bureau of economic research (nber), online paper: http://papers.ssrn. com/sol3/papers.cfm?abstract_id=79148. mayer, с., schoors, k., yafeh, y. (2003) sources of funds and investment activities of venture capital funds: evidence from germany, israel, japan and the uk, working paper 9645, national bureau of economic research, online paper: http://www.nber. org/papers/w9645.pdf?new_window=1. mayer, c., schoors, k., yafeh, y. (2005) sources of funds and investment activities of venture capital funds: evidence from germany, israel, japan and the united kingdom // journal of corporate finance 11 (2005) 586–608. megginson, w. (2004) towards a global model of venture capital? journal of applied corporate finance, 17 (1), 8—26. nelson, r., romer, p. (1996) science, economic growth, and public policy, in bruce smith and claude barfield (eds.) technology, r&d, and the economy, washington, dc, brookings institution. oecd (2001) drivers of growth, paris. oecd (2008) pension markets in focus, december, 2008, issue 5, oecd. schafer, d. (2002) how important is the venture capital industry? an assessment based on comparison of the u.s. and the german financial systems, aicgs/ daad working paper series. schertler, a. (2001) venture capital in europe’s common market: a quantitative description. kiel institute of world economics, working paper, 29 november, online paper: http://www.intech.unu. edu/publications/eifc-tf-papers/eifc01-4.pdf. tannon, j., johnson r. (2005) transatlantic private equity: beyond a trillion dollar force, journal of private equity, vol. 8(3), winton, a. (2003) institutional liquidity needs and the structure of monitored finance. review of financial studies 16, 1273– 1313. the article has been reviewed. received in march, 2009; accepted in april, 2009. european integration studies 2008.indd 128 issn 1822-8402 european integration studies. 2008. no 2 business’s vision on competence of researchers in knowledge – based economy jurgita keršyt k stutis kriš i nas kaunas university of technology institute of europe abstract fast changing market’s environment is causing the specifi c requirements towards the human resources. in the economy which is based on knowledge the special attention is given for researchers which create new knowledge, products, processes, methods and systems. these specialists play the crucial role in the current economy. alongside the universities and research institutions, especially demand of high competency researchers is felt in business’s sector. this sector becomes the important source of employment for researchers. however nowadays situation shows that europe has a shortage of researchers, especially in business sector. the main scientifi c problem is the fi nding of the ways, how to liquidate this shortage. this paper particular focuses on the question what competencies of researchers are distinctive for business sector acting in economy based on knowledge and achieving excellent performance characteristics. authors outline the signifi cance of research for business’s success using quantative and qualitive analysis, experience of such organizations as “nokia”, “philips” and others. in this article there are constructed the recommendations for the education and training system which would be able to respond to ongoing changes and prepare the competent specialists which, without any barriers, should be absorbed in the business sector. keywords: knowledge – based economy, human resources, researcher, business sector, competency. introduction the 21st age is the period of radical transformations in many spheres. these transformations cause many changes in various fi elds of human life. a lot of challenges are connected with the rising of the economy which is based on new knowledge creation, dissemination and usage. in this new economy knowledge is recognized as the main key for the productivity, growth and competitiveness. in contemporary economy the business sector is facing the new rising challenges as well. the economy of last decades of industrial period was characterized as stable, slowly changing and predictable. nowadays the business organizations act in global, very fast changing and complex environment. according to this, business companies should become more fl exible, more open and faster react to rising challenges. soete (1996) emphasized that important challenges arise from this shift in the focus of the economy towards knowledge – based products. the knowledge based activity should be strong fi rm in the business sector and in industry as well. reacting to the changes, the customers needs are changing as well and for this reason the traditional market segments are disappearing or fragmenting and business organizations needs to adjust their products accordingly (goffi n k., mitchell r., 2005). under such conditions the products or/and services also become more complex, based on knowledge, high value added and usually trans -/ multi disciplinary. in order to stay competitive the business organizations should pay attention to the research. research becomes inevitability for all business organizations which strive to act successfully in contemporary economy. in order to meet the emerging challenges, business organizations need relevant educated and trained human resources. the importance of human resources and their competency for the competitiveness and growth was emphasized in many scientifi c works (laroche (1998), malhorta (2000), melnikas (2003) and etc.). fast developing market is causing specifi c 129 issn 1822-8402 european integration studies. 2008. no 2 requirements for the human resources, especially for the universities’ graduates. furthermore, the business sector forms new and specifi c requirements for the human resources, especially for the researchers. although it is recognized that highly – skilled human resources in research are the cornerstone for all europe’s competitiveness, the segment of researchers is not enough strong in europe and it is felt the shortage of researchers especially in business organizations. identifi cation of business sector requirements for the competency of highly – skilled human resources and especially for researchers is a key for their sustaining competitiveness in the international market. in scientifi c works there is the open question which competencies of researchers are distinctive for the business sector acting in knowledge based economy? this article strives to fi nd the answer to this question. research purpose: to identify the list of abilities and skills of researchers which are important for business sector in contemporary economy. the tasks of the research were set as follows: to present the content of competency of • human resources acting under the conditions of knowledge based economy; to highlight the researchers importance for • business organizations in contemporary economy and analyse the business’s sector requirements for researchers; to emphasize the universities role in the • preparation process of researchers for knowledge based business. research object: researcher’s competencies for business sector. research methods: the analysis is made upon the scientifi c literature and research is this fi eld as well as statistical data. the article consists from three parts. first part presents the understanding of the content of competency of human resources in knowledge based economy. the second part of article shows the researchers situation in business sector. in this part there are crystallized out the business sector vision on researchers’ competency. the last part shows the universities role preparing researchers for business. the content of competence is there something new? the emergence of knowledge based economy has raised new wave of discussions about the demand for high level competency. the conception of competence is not easy to describe because of it complexity. there are many scientifi c works on this analysed topic all over the world (schoonover s.c., 1998; streumer, bjorkquist, 1998; martinkus b., sakalas a., neverauskas b., 2002 and others). the scientist unanimously agreed that the competence of human resources is the dynamic combination of knowledge, abilities and skills. learning and acquisition of competence and skills are the most important tools for the achieving individual and organizational goals (niemi, 2003). the content of competency in the economy which highlights the knowledge is remarkably changed comparing with previous decades. new and rapid changes in economy, the growth of new economic activities, especially in such fi elds us manufacturing and services require the specialists with broad content of competency. keršyt j., kriš i nas k. (2007) in earlier research according to the works of other scientists formatted the model of competence which is required for highly -skilled human resources acting under the conditions of knowledge emphasizing economy. the authors identifi ed four important blocs from which consists the content of competence: general knowledge;• personal effectiveness;• abilities and skills• ; experience.• keršyt j., kriš i nas k.(2007) emphasized that human resources competence is a synergy of knowledge, abilities and skills and for this reason is very important to develop all of these blocs. general knowledge is important for every specialist, however in nowadays economy it is not enough to have broad portfolio of general knowledge obtained. notably, more and more important become personality type and other abilities and skills. other signifi cant bloc identifi ed by scientists is personal effectiveness. personal effectiveness includes self – discipline, individual motivation, initiative, features of leadership, awareness of self limitation, career planning (career management) and training needs (lifelong – learning). rapid changes cause an increased need for broad portfolio of abilities and skills of employees. scientists agreed that abilities and skills are fundamental for successful activity. there should be made distinguish between the conception of ability and skill in order to avoid misunderstandings. abilities are given by birth and they are developing in kindergartens and schools. the skills are developing through the programmes in universities. they are acquired purposefully for specifi c activity. the bloc of skills includes communication’s skill, the having of critical thinking, abilities to work in teams and networks. these skills are acquired and developed through all life. in scientifi c works it is often declared that experience (learning through practical doing) is the 130 issn 1822-8402 european integration studies. 2008. no 2 prerequisite for the best competence of highly skilled human resources. archer w., davison j., (2008) emphasized that experience is vital to enhancing graduates employability skills. rapid changes cause an increased need for lifelong learning. in the 21st century in order to adapt to continuously changing opportunities and market demand, employers need to learn though all life. lifelong learning is important for highly –skilled human resources as well because it is a main key for professional development. specialist should have self study ability and necessity to learn and gain new knowledge for the developing their qualifi cation continuously (koke t., lapina g., 2006). although there many documents initiated by european union commission (such as “memorandum on lifelong learning”, “making a european area of lifelong learning a reality” and etc.) many european union countries still are lagging in the developing of this fi eld. in concluding it is should be mentioned, that contemporary economy needs the specialists, which demonstrate personal effectiveness, critical thinking, features of team and network working, communication skills and have the needs and motivation to learn through all life. relevance of researchers’ competency for business sector as it was mentioned above in contemporary economy, business organizations act in very fast changing and unpredictable environment. basically the superior position is guaranteed only through the creation of new knowledge implemented in new products and/or services. these circumstances cause an increased attention to researchers and their involvement in business sector’s activity. to adapt and maintain competitiveness in response to changing consumer requirements and technological change, business sector need appreciate organizational structure and skilled workforce which could manage rising challenges. defi nitely, all changes have a signifi cant impact on the structure of employment and on the type of labour requirements. knowledge era required well organized research and discussions on the inevitability of researchers’ employment in a private sector are the object of many conference and seminars. researchers as are the most valuable category of workers in knowledge based economy. researchers are viewed as the main element of research and development system. they are defi ned as professionals engaged in the conception and creation of new knowledge, products, processes, methods, and systems and are directly involved in the management of project (european commission, 2003). researchers are the potential knowledge creators. europe region focuses on the dilemma how to create attractive and competitive european researcher’s labour market. unfortunately, despite of many initiatives for the strengthening the segment of researchers in europe, this region has a shortage of researchers. in fi gure 1 there is shown the proportions of researchers in to sectors – business sector and public sector. figure 1. total number of researchers per world region, 2004. business enterprise sector (lower bar) and public sector (upper bar) source: european commission (2007).europe in global research landscape. luxembourg: offi ce for offi cial publications of the european communities. in competitive economies based on result of research like united states, japan or south korea, the great majority of researchers are employed in business sector. it is shown by fi gure 1 that the united states lead globally in terms of the number of researchers in business sector. in 25 countries of european union only about 49.2 percent of all researchers are employed in the business enterprise sector, meanwhile in the united states about 80.6 percents of all researchers and in japan about 67.9 percent all researchers work in business organizations. to answer the question why the united states have the higher proportion of researchers in business sector than european union is quite diffi cult. analysing statistical data is evident one fact european researchers still choose the emigration to north america or other countries because of better employment conditions and better opportunities. europe must thoroughly rethink two moments – the business sector’s attractiveness for researchers and the researcher’s competency’s conformity to business sector’s requirements. business enterprises pay big attention to the increasing the researchers part in their activities, because it is the one way to stay competitive facing 131 issn 1822-8402 european integration studies. 2008. no 2 rising challenges of changing economy. in europe union there are companies which are trying to strengthen the researchers’ segment in their activity. such companies as “siemens”, “intel”, “ibm research”, “philips” declare that researchers are a vital part of the new industry and play crucial role. according to the statistical data, about 32 500 researchers work in “siemens”. “intel” has about 7 000 researchers, “ibm research” – 3 500 researchers and “philips” – 2 100 researchers employed in research activities. the business enterprises already are able to raise special requirements for the researchers developing knowledge based activity. more employers of business sector often emphasize personal effectiveness bloc as the crucial for the highly – skilled researchers. good researchers: should be self – discipline (managing his/her • time, learning process and etc.); should be motivated;• should be initiative (self starter or taking the • responsibility in different situations); should be able to manage his/her career ( to • feel the “ceiling” of career); should have the needs for training through all • life. according to the changes partly attributed to globalisation and hyper competitiveness, business organizations are forced to distribute their activity in many countries. over passing the nationals markets borders the organizations need the researchers that are able to work in different countries and with specialists representing different cultures. much more, the products for nowadays customer become trans -/ multi disciplinary, that means that during their creation participate specialists from different scientifi c fi elds. under such conditions, researcher must have well developed communication skills. first of all, they should be able to prepare documents, present them for the colleagues professionally. secondly, researchers should communicate with external environments’ actors as well. they should be able to present their ideas for mass media, and for customer’s society, which is waiting for new products and /or services. in particular, the team working and networking skills become necessity for researchers. the organizations act in corporation’s networks. knowledge is being created in different countries and under the process of knowledge confi guration knowledge becomes the products. such conditions highlight the ability to codify the knowledge. researcher must be able to with specialists of the same scientifi c fi eld as well as with scientists from others scientifi c fi elds. researchers should be able to work in international teams as well, usually on trans / multi disciplinary projects and environments, while maintaining a strong independence and scientifi c personality. the problem seeing and critical thinking are seen especially important for the researchers. researcher should be open minded and fl exible within different and rapid developing research subject. human resources in research should be able in the fi eld of many problems to fi nd the main important, main signifi cant one. they must understand the need of research and techniques of research making, be able to do correctly research according all ethic requirements, and be able to present the results of research. ritzen jo in eua conference “research as a key to a europe of knowledge” declared the goal to create “t-shaped researchers” in which the downstroke represents depth of specialist knowledge in a discipline and the cross-stroke represents breadth and fl exibility. t-shaped researchers should be prepared for roles and skills not clearly articulated in advance. in concluding it should be said that business enterprises value researchers’ critical thinking, communication skills, team working or networking skills, personally much more than their degree qualifi cation. researchers should be not only highly skilled, but capable to work in trans -/ multi disciplinary team, with high degree of fl exibility enabled by lifelong learning approach. these skills become the core stone of organization competencies. business enterprises agreed that today they look not only for the “entrepreneurial scientist, but also for the “non – conformist inventor”. in order to attract the researchers with above analysed skills business sector should to establish attractive conditions for researchers to work. in knowledge intensive and complex society close cooperation between private sector and universities must be ensured. universities role in the development of graduates and researchers for business nowadays universities appear in new rapidly changing situation as well. demographic changes, variations in labour market and professions, new challenges for functionality of civil society have increased infl uence to universities. basically universities are at the forefront in meeting world changes and challenges, mostly stimulated by globalisation and technological novelties. the gap between the market requirements for skills and the skills portfolio which must have the universities graduate has recently started to become a problem. more and more research is taking place in non academic environment. regarding to this, there should 132 issn 1822-8402 european integration studies. 2008. no 2 be made the clear distinguish between the universities researchers and researchers working in business. the necessity for the distinguish rises from the different aims of universities and business sector‘s research. universities are more oriented towards long-term research projects which are recognised as essential to the knowledge-based society. meanwhile private business organizations are focusing on the market orientated research. researchers should be prepared not only for academic environment. for this reason education and training system should respond to on going processes in the economy and society as well. acting under such conditions, universities must ensure the broad education for the graduates that they could respond the complex demand of academic institutions, business enterprises, and society at large. the universities must prepare the researchers that are oriented to complex market and have the work related skills. it should be stated that the development of the researcher for knowledge based society crosses the borders of university, because needed skills are developing and through the work experience, and special extra activities. for the development of high level researchers are relevant responsible all interlinked actors – universities, business organisations and society at large. the skills should be acquired by wide scale of courses, seminars, training activities and disputes. on the job training and mentoring is extremely important. it should be emphasized that the links between these different actors should be ensured. in knowledge intensive economy new and improved pathways to co-operation between the business sector and knowledge institutions must be ensured. the universities are already receiving strong signals from the employers that skills they see as the crucial. it should be ensured the possibility to study abroad in order to improve the communication skills and team working with different specialist from different countries. universities understand their responsibility in accomplishing their fundamental mission – knowledge creation, concentration, and usage – for the programmes of studies and lifelong learning, staff and human resources, for the quality of research and innovative activity (kriš i nas k., keršyt j., 2006). however under the pressure of business sector‘s requirements, the main task of universities becomes to keep the balance between university‘s fundamental missions and the business requirements for the graduates and researchers. figure 2 illustrates the cycle of competence development according to the labour market requirements. gielen p., reitsma r., wilbrink w. (2000) emphasize that education should be competence based and the infl uence of the market is signifi cant. in learning process signifi cant role plays not only universities, but business enterprises and others actors as well. the strong links between these segments should be ensured. labour market demand for specific competency universities supply of competence learning processes assessment of competence standards of competence b a l a n c e e d c a t i o n m a r k e t figure 2. circle of competency development source: made by authors analysis shows that doctoral level studies and postdoctoral period (position of researcher who has completed his or her doctoral studies) become essential not only for academic level, but for business sector as well. notably in knowledge based society the importance of post -doc is increasingly raising. in previous decades the post doc the bigger demand has in universities, research institution. the emergence of 133 issn 1822-8402 european integration studies. 2008. no 2 knowledge based economy highlights the post doc signifi cance for business sectors. besides, business sector is crucial for the development of post doc activity. conclusions: intensifi ed competition, technological advances, changing business environment and customers needs, create new requirements for human resources competency in europe of knowledge. business organizations are infl uenced economic and industrial change as well and must respond to it. according to this, they must be oriented to research and development. for this reason researchers become the power which is able to create high added value and carry out innovation processes driving the whole economy. in erecting new knowledge economy business organizations, especially huge innovative enterprises, need researchers with broad range of abilities and skills (communication, team working, networking, lifelong learning, critical thinking). particularly, business sectors’ employers emphasize the personal effectiveness and personality richness of workers. the universities are facing the raising requirements for new and broader competency as well. the cooperation between universities and business sector become inevitability. for this reason universities must react to the signal of business sector, but herewith, they must implement their fundamental missions as must. references archer w., davison j. (2008) graduate employability. the view of employers. the council of industry and higher education, uk. european commision (2000). a memorandum on lifelong learning. on line: http://ec.europa.eu/ education/policies/lll/life/memoen.pdf european commission (2001). making a european area of lifelong learning a reality. on – line: http://ec.europa.eu/education/policies/lll/life/ communication/com_en.pdf european commision (2003). researchers in the european research area: one profession, multiple careers. on–line: http://ec.europa.eu/research/ fp6/mariecurie-actions/pdf/careercommunication_en.pdf european commission (2007). europe in global research lanscape. luxembourg: offi ce for offi cial publications of the european communities. gielen p., reitsma r., wilbrink w. (2000). towards a competent labour force: development of and experiences with competence – based education. wageningen: stoas. goffi n k., mitchell r. (2005) innovation management: strategy and implementation using the pentathlon framework. palgrave macmillan, new york. keršyt j., kriš i nas k. (2007) trends of human resources development for knowledge based economy: towards competence as the synergy of knowledge, abilities and skills // european integration studies: research and topicalities / kaunas university of technology, kaunas. keršyt j., kriš i nas k.(2006) žiniomis gr stos pl tros lietuvoje gair s ir j atspindys es strukt rini fond panaudojimo i ir ii laikotarpio prioritetuose // tiltai. priedas : mokslo darbai / klaip dos universitetas. kn. 2, ekonomin s ir socialin s pl tros europin s dimensijos. kriš i nas k., keršyt j. (2006) strategic objectives of lithuanian universities implementing ideas of lisbon strategy // legal, political and economical initiatives towards europe of knowledge : proceedings / kaunas university of technology / edited by k. kriš i nas. koke t., lapina g. (2006). innovation centered curriculum – a tool for competitive europe //legal, political and economical initiatives towards europe of knowledge. proceedings. – technologija: kaunas. laroche m. (1998) on the concept and dimensions of human capital in a knowledge-based economy context. – university of ottawa. malhorta y. (2000) knowledge assets in the global economy: assessment of national intelectual capital. on – line: http://www.kmnetwork.com/ intellectualcapital.htm martinkus b., neverauskas b., sakalas a. (2002) vadyba: specialist rengimo kiekybinis ir kokybinis aspektas. kaunas: technologija. melnikas b. (2003) transformacijos. – vilnius, vaga. niemi h. (2003) competence building in life – wide learning/ innovation, competence building and social cohesion in europe. ed. by pedro conceição, manuel v. heitor and bengt – åke lundvall. edward elgar publishing limited, uk. ritzen jo (2004), research as a key to a europe of knowledge. maastricht, netherlands. 134 issn 1822-8402 european integration studies. 2008. no 2 schoonover s., schoonover h., nemerov d., ehly c. (2000).competency based hr applications. schoonover s.c. (1998) human resource competencies for the year 2000: the wake-up call. society for human resource management. soete l. (1996), globalisation, employment and the knowledge – based economy in oecd. employment and growth in the knowledge – based economy, paris: oecd. the article has been reviewed. received in march, 2008; accepted in april, 2008. 210 issn 1822 – 8402 european integration studies. 2009. no 3 the model of modern innovation influence to competitiveness at recession česlovas purlys vilnius gediminas technical university abstract the article deals with influence of modern innovations on enterprises competitiveness. the different concepts of competition, from d. ricardo and h. adams up to m. porter and kim chan and r. mouborgne are analysed. the results of comparative analysis are provided in table 1. different models of competition and competitiveness are analyzed. there is stressed that very important role plays m. porters‘ 5 market forces, diamod and dubble diamond models and latest modifications made in the model. some drawbacks of competitiveness models from k. lancaster up to a. rugman and latest authors as well as the author are submitted in table 2. the weakness of the diamond model discovered and modification of diamond model is made by incorporating the innovation in the model as it is proposed in picture 1. the importance of innovations for competition of enterprises is disclosed. the definitions of innovation and competitiveness of different authors are submitted. innovation as risky process in competition from j. shumpeterian economic view to innovation up to p. drucker and mcmeekin and d. soutterton commercionalization as well as eu innovation policy are analyzed. short analysis of lithuania’s position in the eu economy on innovation is made. the g. brennan’s optimistic idea on innovations at recession period that innovation could be a chance for companies to leapfrog their competition is stressed. some data from fray’s analysis demonstrating the idea mentioned are provided in the article. according to ch. frey, founder and editor of innovation tools, innovation climate has improved in 47,5 % of companies, and only for 25,9 % of respondents – has worsened at recession. but because the customers even at recession tend to the innovative, reasonably priced and hypedup products and because the markets at recession are tightened, it is good time to invest in research and renew the products, processes, structure and management as main elements of competitiveness, as it has been recommended by lisbon strategy. the impact of main areas of innovation on competition criteria (goals) is shown in picture 2 and impact of main elements of management improvement is shown in picture 3. thus model of interaction between main innovation management factors shows direct and indirect influence of innovation on reengineering, competitiveness and employees satisfaction. the importance of innovative enterprises of lithuania for the competitiveness of lithuanian economy is stressed. it well demonstrates analysis of activity of innovative enterprises a uab “five continents”, uab “ alna”, uab “information technologies centre”. but main point in the article is methodology for construction the model of direct and indirect influence of segregated elements of innovation management on segregated criteria of organizational competitiveness. the main suggestion is to enhance the activity of organizations at recession by improving strategies mainly by restructuring, training the personnel and management. key words: innovation, innovative models, competitiveness, interaction between innovations and competitiveness. introduction innovative, oriented to change enterprises are the keystone of countries economy and competition beacons. innovation and new technologies become inevitable for withstand the constraints of competition challenges in overstocked markets at recession period. although there are many scientific publications on the subjects of innovations and competitiveness, but the interaction is still not discovered between them suitably. especially is not discovered the influence of segregated elements of innovation model for a segregated elements of competitiveness. for implementation of innovations very important role play information technologies, the development of which is very fast and accelerated in the recent years. information and newest technologies for effective information by itself and newest technologies for effective information collection, handling and submission become more important for competition than ever. it also demonstrates investigation activity of 13 lithuanian companies working with and creating issn 1822-8402 european integration studies. 2009. no 3 211 information technologies by themselves e.g. uab: „penki kontinentai“, „informacinės technologijos“, „alna“, „ sonex technologies“, „ baltic amadeus“, etc. the m porter‘s diamond model to demonstrate the role of some factors for competition and its place between the other factors is often used by different authors as background for analysis of competition factors. but the main point of the article is methodology of construction of the model of influence of segregated elements of innovation on segregated criteria of organization competitiveness. the model and conclusions are formulated on basis of research and data from research booked by the ministry of economy and european commission and innovation tools research. data on activity of the entities mentioned are collected from information published in different information sources. for the reason of property rights protection non published data from the enterprises are used only for formulation of findings and suggestions. subject of research – innovation models proposed in scientific literature, situation in implementation of innovations in world economy and lithuania and results of activity of innovative enterprises in lithuania. the goal of research – determine the influence of modern innovations for competitiveness and suggest the model of interaction between innovation elements and competitiveness criteria as well as suggestions for improvement of interaction between innovations and competitiveness. the methodology of research – logic analysis of scientific literature, reports, statistic data published and some unpublished research materials (only for formulating model and suggestions). conceptual overview of competition theories the essence of competition were analyzed by many variety of authors. first concept of competition has been formulated in xix century by a. smith (1904) and d. ricardo (1817), j. clark (1887), r. ely (1901) h. adams (1887), who examined the conception of monopoly and oligopoly price discrimination, and dynamics of processes in the markets. schumpeter, j. (1934) described competition as fight of old with new. according to him market accepts the new sceptically, but if innovators succeed to implement novelty the competition tools withdraws enterprises using old technologies, while j.clark pays much attention to the competition restrains and limitation factors. nowdays in global economy competition theory is based on eight main factors of competition: national economy potential, economy internacionalization, government activity, financial sector, infrastructure, management, science and technology, and human resources. baldvin and m. porter (1996) accented that well known five market forces express the essence of competition: existing present competitors, bargaining forces of suppliers and buyers, new competitors and possible substitutes. at the end of xx century has been spread different concepts: of market share, as the main criteria of market power, scale economies, generic strategies, mergers and acquisitions, competitive environment etc. the variety of concepts on competition still exists and are highlighted differently by different authors (see table 1). table 1. concepts of competition authors concepts (statements) of competition vanberg (1996) framework of rooles, conditioning pecularities of functioning and could serve as target for purposeful undertaking of human beings. international wocabulary (1990, 2000) 1) rivalry of manufacturers for favorable economic conditions. (economic aspect) 2) one of the forms of fight for the same conditions for existence or reproduction of single or few organisms (biological aspect) saviotti kraft (2004) style that companies compete for products selected by consumers. the interaction intensity proportional to product advantages. m.porter (1990) dynamic developing process, sustainable developing area in which appear new products and marketing streamlines, new markets and market segments and new manufacturing processes. kerber (2006) „test of hyphotesis on competition“ were the knowledge are generated and promulgated through imitation. jucevičius (2006) competition is notably complex category but not situation or mode measured by one or few parameters by using all possible conditionning within the frame of concentric range of competition and right for free choose. source: šliburytė l. (2000. p. 34). issn 1822-8402 european integration studies. 2009. no 3 212 the concepts of competition are changing according to changes in generic management concepts from f. taylor up to egovernance as well as competition theories from a. smith and d. ricardo up to intelligence in rivalry and „blue ocean“ strategy. aggressiveness, commitment, confidence, competition, voluntary cooperation are not only attitudes or behavior: it‘s rather intangible assets. the variety of competition concepts (paradigms) can be grouped in three groups: 1) resource – based view suggests that firms over time accumulate unique resources and skills that allows firms get distinctive competences; 2) the country industry view or related to the external view of competition; 3) business network approach that accents the importance of business relations (buyer seller relationships, cooperation, etc.). j. strandskov (1999) from arhus school of business argues that each of the paradigms relies on three different sets of sources: firm specific advantage (fass), localization specific advantages (lsas), and relationship specific advantages (rsas) accentuating the role of human resources for firm competitiveness ch. kim and r. mauborgne (2005) stressed that organization can become great only if it recognizes people as main factor of activity effectiveness. the sixth principle of „blue ocean“ strategy presented by them stresses that to build peoples trust and commitment deep in the ranks and inspire their voluntary cooperation, organizations need to build execution into strategy from the very beginning. also it must be counted all kind of resources including psychological ones. conceptual analysis of innovation theories and policy there are different concepts of innovation treated in scientific literature. most often innovations are treated as risky process oriented for change for converting knowledge into competitive product or service. according to j. schumpeter innovation is more economical than technological phenomenon. any technological invention will be not accepted as innovation if it will not motivate economy or net profit growth. a. mcmeekin and d.southerton (2007) holds that invention becomes innovation only when it is commercialized. a. jakubavičius, r. strazdas. k. gečas (2003) stressed that it doesn’t matter what would be a technological invention, it will be never accepted as an innovation, if it doesn’t stimulate the economy and solid-profit increasing. in order to get a solid-profit organization has to get unique advantage in comparing with competitors in internal and global markets. according to european commission, innovation policy – as a generic policy – is set of actions intended to raise the quantity and efficiency of innovative activities. in turn, innovative activities are the creation, adaptation and adoption of the new products, processes or services. by creating a culture that encourages and respects employee contribution, organization can continuously outpace the competition what is very important by implementing the new innovation model. a. mcmeekin and d. southerton (2007) are pointing out, that innovation means an integrated creation, development, general prevalence and efficient resort of the new technologies in daily human activity. thus the companies ought to follow s. derry‘s (2009) suggestion quickly and effectively weed out those ideas and innovations that do not meet five basic selection criteria: value, suitability, acceptability, feasibility, endurance. ch. kim and r. mouborgne (2005), are right by suggesting six market transformation steps and stressing that though of market constrains it is possible to predict how to change market convention and how to create „blue ocean“ and readjust the market systematically. though it is known for the government that the background of productivity and competitiveness of industry and country prosperity are the innovative, oriented to changes and adaptation of latest knowledge enterprises, lithuania is one of less developed countries in eu in the contention. as has been stressed by b. melnikas, a. jakubavičius, r. strazdas (2000). lithuania has significantly lower output from input for innovations than poland, greece, hungary, slovac republic, check republic, malta or romainia and bulgaria. analysis discovered that according to 5 innovation criteria: motivation of innovation, knowledge creation, dispersion, implementation and intellectual property, lithuania falls in cluster with greece, spain, bulgaria and russia. according to innobarometer (2004) estimation lithuania was on the 5th place from the bottom between eu countries on intellectual property, on 7th place in knowledge creation and only on entrepreneurship and innovations – on the middle of the line. only 8.9 per cent of entities that has an opportunity to get support from innovation support schemes has seized the opportunity. that is because only ¼ of lithuanian companies are investigating in research of the new technologies, ¾ of lithuanian entities does not provide innovative activity. innovative activity of the remainder entities are limited by adaptation of innovative technologies created in developed countries. thus strategic innovative models offered in scientific literature are used too slightly in lithuania. innovation as key factor of competitiveness at recession special attention to innovations ought to be paid at recession period because there is little chance to invest for market expansion: all markets are shrinked. for illustration the innovation climate survey, provided by ch. frey (march 2009), founder and editor of innovation tools may be submitted. according to survey (352 companies investigated) innovation climate has improved in 47,5 % of companies, and only for 25,9 % of respondents – has worsened (of which for only 8 % issn 1822-8402 european integration studies. 2009. no 3 213 – got significantly worse). looking at budget used for innovation as an objective criteria it seems that recession all in all has positive impact: in 28,2 % companies innovation budgets has increased and 36,9 % did not changed the budgets whilst only 18,2 % decreased by more than 30 %. one half of companies (50,9 %) use – incremental innovation (product innovation) strategies, whilst breakthrough innovation and disruptive innovation get a lot of press these days as an inadequate at recession period. as g. brennan (2009 ) stresses: while others are tightening their belts, truly successful companies use the recession as a chance to leapfrog their competition. they know that if they focus on innovation while others are cutting costs, they will quickly catapult past everyone else. for innovation to be more than a modern word it has to be incorporated into a business‘s structure. for this a. bruce (2009) suggests six „ps“ model for innovations to be successful: planning, pipeline, process, platform, people, and performance as an elements of an integrated framework. recession encourages the enterprises and employees to work harder, to plan tighter, to speed the processes. as st. lindegard (2009) points out to get the best out of the recession situation companies usually: 1) clean up the portfolio and get rid of „livingdead“ projects; 2) pay more attention to develop better processes and set sharper deadlines to make innovation more efficient; 3) pay more attention to external partners to get extra funds for innovation; 4) larger companies can acquire innovation cheaper as the price promising smaller companies drops. g. brennan suggests 7 creative ways that innovation can help for recession – proof the business: 1) use open innovation to reduce r&d costs; 2) use process innovation to reduce operating costs; 3) use innovation to match supply and demand; 4) solve the customers pain; 5) fail cheaply; 6) before you can multiply, you must first learn to divide; 7) use innovation to improve supplier‘s business. and he stresses the bottom line by saying “use innovation to leapfrog the competition“. but the model does not show which of the elements in the circle is more important for enterprise competitiveness than another one. thus, it is a necessity to estimate and rate them by impact power criteria. s. derry (2009) stressing the importance of employees creativity at recession points out that once company have set an integrated innovation framework and trained employees in innovation tools and processes they are going to generate a lot of ideas. innovation and competitiveness interaction models for reaching competitiveness task in 7th and 8th decades of xx century enterprises most attention paid to advertising and branding. than attention has been noted for improvement of productivity and value added. to-day most attention is noted for how to survive and improve competitiveness in global markets at recession. at recession competitiveness became even more important and complex problem. thus as c. franczek (2008) pointed out the roots of company – human potential – could be strenghtened by long-lasting hedging strategic policy by safeguarding good management, high skills, and innovative environment. one of the main ways to become competitive in knowledge society is implementation of perspective innovations. that is why interaction between innovations and competitiveness became very important for research and practice. in the chain of competition models described in literature, very important role plays m. porters‘ 5 market forces and diamod and dubble diamond models and latest modifications made by different authors, including nine factors model. the advantages of the models are that by using more factors the better accuracy is reached. but the models also have some drawbacks. special attention for m. porters dimond model analysis by the scientists from lithuania and other countries has been provided. the weak points of the model has been analyzed by the k. lancaster (1966), c. baird (1975), s. oster (1999), a. rugman (2000), v. snieska and v. kavaliauskaite (2003). some drawbacks of competitiveness model from k. lancaster up to a. rugman and latest authors as well as innobarometer are submitted in the table 2. table 2. some drawbacks of m. porters‘ diamond models no authors short comments 1 k.lancaster (1966), c. baird (1975) customers get satisfaction from and are oriented to characteristics of goods/services but not form goods itself 2 v. kvainauskaitė, v. snieška (2003) the model is difficult to implement in practice, and in well-stocked markets it is about impossible to get enough information on every product. 3 s. oster (1994) model can not discover competitiveness factors in integrated economies. 4 a. rugman (2000) model does not fit correctly for developing economies: it has been constructed for well developed ones. 5 č. purlys model does not estimate innovations as factor influencing competitiveness composed by author issn 1822-8402 european integration studies. 2009. no 3 214 on the basis of the publications new diamond model, modified by the author is proposed in picture 1. the main improvement of the diamond model is incorporation of innovation as the very important influence factor for organizational competitiveness at recession. chance enterprise strategy and structure enterprise competitiveness governmental policy connected and related industries factors influencing activity employe emotivati on international competition innovation iimplementation picture 1. modified theoretical model for research of competitiveness (original from porter, m. 1990) the higher turbulence of market the more difficult to estimate the demand of goods/services as well as other factors influencing competition. demand capacity depends on prices of the goods. but the customers usually tend to the innovative, reasonably priced and hyped-up products that usually are ensured by implementation of innovations. and whereas implementation of innovations became an important factor to ensure competitiveness it ought to be included in diamond model. as it is proposed in the model, implementation if innovations play few roles: it influences competitiveness directly by price wars and offensive („red ocean“) strategies and indirectly through motivation of employees and all factors of enterprise activity and sometimes via lobbistic activity through governmental policy. thus it is good time to invest in research and renew the products, processes, structure and management as main elements of competitiveness, as it has been recommended by lisbon strategy and european commission. the model of said above could be as shown in picture 2. competitive advantages the main criteria (goals) product ( price/quality) sales increase process profit structure customers satisfaction management employee creativity picture 2. model of competitive advantages influence on companies results in turn every of advantages are complex. let’s look at management element (advantage) in detail. the management as well as product has a very strong impact to all criteria (goals) of competition: sales, profit, customer and employee satisfaction as process influence mainly on customers and employee satisfaction while profit is influenced mainly by product, structure and management. thus selection of competitive strategy depends on prioritization of goals. for example if company needs badly to increase sales or/and profit it must improve product structure and management, if company wants to increase employees creativity it must improve process, structure and management, etc. looking for management improvement from the innovation point of view the main elements will be research and development, creativity training, information technologies and knowledge management. thus model of interaction between main innovation management factors and competitiveness at recession period ought to be as it is shown in picture 3. issn 1822-8402 european integration studies. 2009. no 3 215 results research & development operational 2-3 years in advance creativity trainning reengineering and job enrichment new products information technologies new ideas for quality and growth competitiveness new skills employees creativity knowledge management employee satisfaction and loyalty sales expansion and profits picture 3. interaction model of innovation and competitiveness at recession period (by author) as it is viewed from the model the interaction is quite complex: some are direct when others – collateral or both as for competitiveness. the model ought to be filled out by feedbacks but than the picture as it is composed becomes difficult to grasp. most complicated is influence to competition of new ideas and new skills. according to our investigation (2008) it is seen especially in communication and information technology enterprises, as uab“penki kontinentai“, „alna“, uab „įnformacinių technologinių centras“ etc. that reached very good results on information technology: many of them are microsoft partners and some has gotten „golden partners of microsoft “ awards. almost all are growing rapidly, has very important contracts and are working for latvia, kazachstan, uzbekistan, united kingdom, etc. as an example, the competitive capacity of uab „penki kontinentai“ could be demonstrated by its growth rapidity in 2001-2007 as it is shown in table 3. table 3. uab „penki kontinentai 2001-2007 activity results, mln. ltl criteria 2001 2002 2003 2004 2005 2006 2007 2008 data still not availableconsolidated turnover 25,0 76,8 80,2 82,7 220,0 305,0 382,0 of it: products 25,0 65,5 67,0 60,3 93,0 144,0 178,0 services – 11,3 13,2 22,4 127,0 261,0 204,0 source: http://www.5ci.lt research showed that the very important elements of competitiveness of the firms are skilled employees and quality of products (software and equipment) and services in software implementation concentration resources for creativity training and knowledge management at recession period is most important and effective strategies for competitiveness in nearest future, though at operational period it seams as waste of time and money. as research shows the best policy at recession period is concentration of efforts on processes reengineering creativity training and knowledge management. especially it is recommended for enterprises working on information technologies. as p. sloan (2009) stresses on his interview „they need people who are disruptive, .... people who are challenging ..... people with challenged thinking, ..... people who are counter-cultural“. newly thinking creative people determine future of lithuania, the small country with only resource – its people. following of winston churchill quotation we are out of time and we are out of money, therefore, gentleman, we will have to think. there is no other way for lithuania’s competitiveness as creativity training and knowledge management. conclusions innovations is the life blood of competitive company. the ability to produce innovative product using the most advanced methods becomes the dominant source of competitive advantage in knowledge society. even a single winner product that will emerge from the issn 1822-8402 european integration studies. 2009. no 3 216 innovation process can highly effect the competitiveness of the company. against all the recession odds global markets still present many opportunities for expansion for companies willing act as innovators. companies in every country and all industry sectors must innovate to survive in recession. innovation typically adds value for organization but may also have negative effect, because it is always connected with risk. as innovations are estimated in few aspects: as beneficial and risky, as phenomenon and as a process, as technological and social, all aspects should be analyzed carefully at recession period. to follow the lisbon strategy innovation must become one of key factors ensuring competitiveness. to get the best out of the recession situation the companies ought to: 1) clean up the portfolio and reject not very effective projects; 2) pay more attention to develop better processes and sharpen deadlines; 3) pay much attention to external partners to get funds for innovation; 3) use process innovation to reduce operating costs; 4) use open innovation to reduce r&d costs; 5) use time and resources available for skill and creativity development and knowledge management. references adams, h. (1887) relations of the state to industrial action. publications of the american economic association.1, january, 471-549). baird, c. (1975) prices and markets// microeconomics. new york. london. prentice hall (2009). baldvin, r. and. porter m. (1996). the political economy of u.s. import policy. pnkaj, gh. and michael spence (1986) modeling global competition. in m. porter competition in global tndustries . boston : harvard business school press. brennan, g. (2009). 7 straegies for innovating way out of the recession. one-line:http://www. innovationtools.com/ articles/enterprised etails. asp?a=399 bruce, a. building an effective framework for innovation. innovation tools. one-line. butkus, f-s. innovation management in the contexst of operative management of enterprises//organizacijų vadyba:sisteminiai tyrimai nr. 27, p.p. 35-45. byrd, j. 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(2004). innnovation: a guide to literature in fogerberg, jan, david ,c..movery and richard nelson. oxford book of innovations (2004) the oxford univesity pressp. p.1-26. innobarometer (2004).one-line: http://ec.europa.eu/ public_opinion/flach/fl164_eu.pdf). 2008-09-17. jakutavičius, a., strazdas r., gečas k. (2003). inovacijos: procesai, valdymo modeliai, galimybės. vilnius: lietuvos inovacijų centras. kim ch., mouborgne r. (2005). blue ocean strategy. how to create uncontested markei space and make the competition irrelevant . hrvard business shool press. issn 1822-8402 european integration studies. 2009. no 3 217 kotter j. (2002). the heart of change: real-life stories of how people change their organizations. harward business school press. lindegard st. vhy short term innovation can be a good thing.one-line:2009-03-20. http://www. innovationtools.com/weblog/innovation-weblog. mcmeekin, a., southerton d. (2007) innovation and final consumption social practices, instituted modes of provision and intermediation. monchester: center for research on innovation and competition. melnikas, b., jakubavičius a.. strazdas r. inovacijų vadyba. mokomoji knyga. vilnius: technika, 2000. oster, s. (1999) modern competitive analysis. third. ed. oxford university press. porter, m.(1996). the competitive advantages of nations new york. porter, m. 1998. competitive strategy. techniques for analyzing industries and competitors. new york. the free press. ricardo, d. (1817). on the principles ot political economy and taxation. london:john murray. rugman, a., hodgetts m. (200). international business. a strategic management approach. london. sloan, p. who killed our business? an interview, part 2.: http://www. ideaconnection.com/articles/00071who-killed-our-business-part-2.html. 2009-03-21. smith, a. (1904). an inquiry into the nature and causes of the wealth of nations. london: mathews &co.,ltd. sulivan, d. (2002) famework for managing development in the networked organization. journal of computers in industry( elsevier science publishers b. v. 47 (1), p.77-88. schumpeter, j. (1934) the theory of economic development , cambridge, m.a. harvard university press. boston. schumpeter, j. (1950). capitalism’s and democracy. new york. šliburytė, l. ekonomikos subjektų konkurencinės aplinkos vertinimas // socialiniai mokslai, ekonomika, daktaro disertacijos santrauka. kaunas: kauno technologijos universitetas, 2000 (in lithuanian). tomke, s. (2003) experimentation matters. unlocking the potential of new technologies for innovation. harward business school press . strandskov, j. sorces of competitive advantage and business performance in the european meat processing industryworking paper , fabruary, 1999 . arhus university library. the article has been reviewed. received in march, 2009; accepted in april, 2009. european integration studies 2008.indd 31 issn 1822-8402 european integration studies. 2008. no 2 ict use in creating environment supporting study process at university level julia timoshtchenko ludmila bavrina baltic international academy (latvia) abstract the paper gives an account of a piece of research on ict-based designs supporting study process at higher education level. the research was conducted with the aim to fi nd out how a set of ict-based elements and arrangements can serve to facilitate the achievement of pedagogical objectives important for an effective study process. the pedagogical objectives were formulated within the framework of andragogy. special attention was paid to successful adjustment of a student to the context of higher education, acceptance of the specifi c requirements of the context, awareness of the processes in the groups of students, fi nding means to address members of heterogeneous groups. the process of adapting to the particular he context with its requirement, rules, implicit and explicit relations with the teachers and peers might cause diffi culties and impede learning. the students entering the university-level studies are diverse on several lines, including their previous life and teaching/learning experience, attitudes and expectation. while a number of approaches are found in pedagogical (andragogical) literature emphasizing the distinctive characteristics of individuals to be targeted and taken into consideration to facilitate incorporation into the study environment, a need is felt for a unifying approach in delivering instruction, embracing a collective perspective. the groups of students were considered from a structuration perspective developed in social studies by a. giddens because it helps to look into the processes of adjustment to a new environment in group interaction with the environment, makes clearer than other perspectives how to achieve consistent transformations in attitudes and behavior, suggests possibilities of intervention to facilitate the target transformations in attitudes and conduct. specifi cally, the notion of “practical conscience” was fed into the design of ict environment supporting study process. current pedagogical ideas on effective teaching/learning approaches are reviewed as to their correspondence and correlation to the considerations employed for creating the ict-based elements and arrangements supporting teaching/learning. the outcomes of pedagogical treatment the students received was evaluated in terms of affective factors, motivation, self-esteem and other criteria specifi cally developed for the purposes of this research. keywords: ict in education, higher education, pedagogy, andragogy, practical conscience, affective factors, self-esteem, learning motivation. introduction this paper is related to the issues of pedagogy in the sense that pedagogy is primarily concerned with the personal growth, which is taking place in educational setting. the target group looked into here is adults entering undergraduate studies. currently, andragogy has been considered more relevant to the specifi c issues of adult education. however, andragogy is not viewed as being dichotomous to pedagogy; rather they are on a continuum. (knowles, 1984). andragogical principles draw on maslow’s hierarchy of human needs with the emphasis on the higher order needs for love affection and belonging, esteem needs, and the need of self-actualization. a range of issues specifi c for andragogy are clarifi ed through humanistic psychology, thus similar to pedagogy emphasizing personality development in the educational setting. historically the higher education has always had a 32 issn 1822-8402 european integration studies. 2008. no 2 social integrative function. the modern view of how the social integrative function could be realized is expressed in literature and supported in a number of documents.(esib n.d.).one of the most vital current issues on the agenda of adult education is participation in lifelong learning (europe-education & training – lifelong learning, n.d.). positive developmental experience has been identifi ed as facilitating further participation in lifelong learning (cross, 1981). accordingly, negative or unsuccessful learning experience is regarded as a factor, which might preclude or hinder further participation of adults in education (carp, peterson, and roelfs, 1974 as cited in cross, 1981). thus providing such experience has become an important task for an educationalist. the aim of this paper is to explore means and methods to be employed to ensure positive and developmental experience for the target group of adults entering undergraduate studies. for the purposes of this research the vector of developmental experience was defi ned in conformity with the principles of learning community (bezzina, 2006; hord & sommers, n.d.) and self-directed learner (brookfi eld, 1985; cross, 1981; 1978; knowles,1973; mezirow, 1985). positive learning experience is viewed as linked to effective integration of a student into the context of higher education. the research question has been formulated by the authors as follow: how ict can be used to help create positive developmental learning experience for the students entering studies at university level. theoretical framework and defi nitions our research aims to reveal the meeting points and dynamics among the context (of university studies) the learner’s experience and the support provided by ict design context the defi nition of the context as given in luckin et al. is viewed as relevant for the research, as the defi nition brings to the forefront the interactions among the participants of the process (in our case, the interactions among the participants of the study process) and their relationships. in other words, those are issues defying straightforward explanations, while being implied in everything which takes place during the study process. therefore, the context is understood as: a situation defi ned through the relationships and interactions between the elements within the situation over time. more specifi cally, in the case of a learner’s context we can describe it as a situation defi ned through social interactions that are themselves historically situated and culturally idiosyncratic. (luckin et al. n.d.). relevant to our research purposes luckin et al. also acknowledge the importance of the context and ability to understand it for positive learning experience. it is also evident that getting the context right can lead to better learning experiences. (luckin et al. n.d.) the theory of structuration exploring the dynamics or the forces that tend to produce activity and change among the contextexperience and ict as above we are initially based on ideas of a.giddens and his theory of structuration for several reasons. the theory of structuration, deals with the evolution and development of groups and organizations. the theory views groups or organizations as 1. systems with («observable patterns of relationships and communicative interaction among people creating structures»). systems are produced by actions of people 2. creating structures (sets of rules and resources). systems and structures exist in a dual relati-3. onship with each others such that they tend to produce and reproduce each other in an ongoing cycle. this is referred to as the «structuration process.» there exists a dynamic interplay “practical 4. consciousness” (tacit, take-for-granted knowledge) and “discursive consciousness” (knowledge/reasons that can be verbally articulated) as social agents refl exively monitor and rationalize their activities/practices. practical consciousness is emphasized to a greater extent in this process (giddens, 1986). the notions of practical consciousness and practices give us the theoretical template to facilitate transformations that take place in the process of application in practice, enables us to form the target skills and approaches as kinds of transformations occurring in the study process. desantis’ idea that ait (ict in our text) can be viewed as sources of social structure (desantis, 1994) provides a necessary link to ict elements as a component of the context as understood in our research. and further, the specifi c act of bringing into action the rules and resources from advanced information technology (ait) is regarded as the structuration process by which social structures (whatever their source) are produced and reproduced in social life.”(desantis, 1994). when the social 33 issn 1822-8402 european integration studies. 2008. no 2 structures of the information technology are brought into action, they may take on new forms. that is, interpersonal interaction may refl ect rules and resources that are modifi ed from the information technology. when a group uses rules built into a supporting system forum, it is (1) employing the rules to act, and more than this (2) it is reminding itself that these rules exist, working out a way of using the rules, perhaps creating a special version of them. in short, the group is producing and reproducing the forum’s rules for present and future use. therefore, in the process of structuration “enduring sets of cognitive scripts are created bringing about a kind of transformation” (desantis, 1994). new forms of social structures can emerge in social interactions. only through appropriation – when the structures are used and accepted they become institutionalized. through consistent use structures become stabilized in group interaction if the group reproduces them in similar form over time. in sum, the social structures available within advanced information technologies provide occasions for the structuring of action. desantis also relates to the “spirit” in the group interaction, observing that in their actions and interaction groups may strive for a spirit of effi ciency or democracy. (desantis, 1994). the idea of ‘spirit” emerging as groups are employing technologies is relevant to our aims to achieve attitudes and to achieve transformations in attitudes. such aims can, supposedly, be achieved if target actions charged with the desired attitudes are produced and reproduced until they are institutionalized. the assumptions of a.giddens and g.desantis were fed into the ict design for several reasons: they provides means for pedagogical • intervention required to achieve the target transformations in the students’ attitudes through modeling the behaviour they have the potential to infl uence the • development and consolidation of the students’ attitudes the theoretical assumptions central for our research do not disagree with the theory more traditionally drawn upon by educators, such as the socio-cultural, (vygotsky, 1978,) social • constructivism approach based upon the principle that the process through which an individual’s mental functioning develops is an interaction between that individual and her socio-cultural environment. the nature of this interaction infl uences the nature of her resultant mental processes. thus emphasis is laid upon the importance of learners’ interactions with their environment as the precondition for formation attitudes. social learning theory postulating that people • can learn by observing the behavior is of others and the outcomes of those behaviors; people are often reinforced for modeling the behavior of others. bandura, 1977 suggested that the environment also reinforces modeling. andragogical assumptions as implemented in the e-territory design supporting the study process. the following assumptions were fed into the e-territory design: adult learners bring previously accumulated 1. experience with them to the learning environment. the experience should be viewed as an important resource for both learners and facilitators (knowles 1980) if a possibility is provided both for the learner and the teacher to draw on the heterogeneity within the group of the learners. however, the experience can also be a limiting factor and affect learning negatively through preconceived notions about reality, habitual ways of thinking and acting, and prejudices developed through life experience (blondy, 2007). therefore, direction of attitudes development should be to a greater openmindedness. the teaching methods consistent with this assumption will be group discussions, collaborative assignment, projects. consequently, the online learning environment should feature provisions for such activities and assignment. emphasizing participation in group activities and team assignments as a necessary precondition of making the most of the learners’ experience, l.c. blondy highlights the importance of the learners underlying attitudes in doing so: learners must be willing to participate in class discussions and team projects during which they share their personal experience and knowledge and facilitators must create an environment in which learners feel free to express opinions, share ideas, and discuss information and experiences valuable for them (conrad & donaldson, 2004; plloff & pratt, 1999; palloff & pratt as cited in blondy, 2007) and further on collaboration between learners requires establishment of a safe environment where learners are not afraid to share ideas, experiences, and learning through conversation and exchange of information. (conrad & donaldson, 2004; plloff & pratt, 1999; palloff & pratt as cited in blondy, 2007). however, the ways to achieve such attitudes cannot be too straightforward. l.blondy suggests “carefully constructed 34 issn 1822-8402 european integration studies. 2008. no 2 discussion questions” (blondy, 2007), and as concerns discussions concerning the course content “facilitator should craft question” for the discussion (blondy, 2007). however, the ways to achieve such attitudes, which might require overcoming social or cultural differences, cannot be too straightforward. modeling behavior through postings drawn from the teacher’s data base and exemplifying the appropriateness of such debates could create perceptions about the teacher-learner greater role symmetry in the higher-education context and encourage participation in such discussions. discussion questions are posed regularly with the sample answers actual responses to the questions elicited previously could facilitate participation, as well as established procedures requiring the students to post their comments regularly. the comments and posting should be in any language – english, latvian or russian best fi tting the learner puposes, and the comment should be substantive, not simply “it is interesting” or the like. adult learners are self-directed.2. this is understood as that the adult learners are more capable of taking responsibility for themselves, and establish their own learning goals. however, the teacher should not assume that self-directedness is an inherent feature of adult learners, rather the direction of the development should be in the direction towards self-directedness. there are several implications of this assumption for the elearning environment. the possibility to formulate own goals fl exibly and fi nd opportunities for activities appropriate to their skills level and learning styles within the course objectives (hanna et al., 2000). in our case the learners were informed what activities will be acceptable within the confi nes of the course with the samples works and comment to them provided. flexibility of the learner’s approach must be supported by the possibility to choose from the materials and task available to achieve the course objectives. therefore a wealth of materials should be provided, as well as guidance and encouragement in the learning process, which might come from the teacher, the fellow students, and from the understanding that such approach fi ts well into the requirements and expectations inherent in the context. adult learners’ motivation to learn is facili-3. tated by internal factors. in making decision concerning entering higher-educations adult learners might be infl uenced by some external motivators, such as cultural and social beliefs, however knowles (1984) viewed that internal motivators such as increased self-esteem, self-actualization, or recognition are essential in adult learners. ose, 1999, expresses similar views concerning self-esteem needs and self-actualization issues in adult learners; lieeniece, 2002, cross, 1981. the implications for the e-learning design should be in fi nding ways to provide the individual learners with acknowledgements that their contributions to the course are appreciated. l.blondy suggests “feedback from both the teacher and peers must be frequent and sincere to foster trust, mutual respect, and collaboration. (blondy, 2007;). and adds that the learners should not feel ”invisible or ignored” (blondy, 2007). adult learners are problem-oriented4. . as a person matures his time perspective changes from one of postponed application of knowledge to immediacy of application, and accordingly his orientation toward learning shifts from one of subject-centeredness to one of problem centeredness. (smith, 1996; 1999; lie eniece, 2002). the assumption deals with the applicability of knowledge, which is understood here as being relevant to the learners experience, personal circumstances and attitudes. however, the learners might not be clear about or able to identify what exactly they need to know (bullen as cited in blondy, 2007.) this fact highlights the importance of possibility to share information and to profi t from other learners’ to expand one’s thinking, on the one hand and creating assignment which relevance can be readily appreciated by the learners. pragmatic research research design. initial stages. at the beginning stage of the research a questionnaire was administered to survey the students’ teaching-learning attitudes. the questionnaire was designed to evaluate how the students’ attitudes are consistent with the andragogical attitudes and approaches ensuring effective integration into university-level environment. the questionnaire was created based on propositions of d.bluma concerning the directions of paradigm shift towards “innovative approaches” (bluma, 1998).the fi ndings thus elicited revealed the following: there was no consistency in the students’ ideas • concerning either preferred teaching methods, responsibility for the learning outcomes, roles of the teacher and the students in the study process, or whether the requirements 35 issn 1822-8402 european integration studies. 2008. no 2 and learning skills at the university level should be different compared to the students’ previous educational experience. almost all the sheets (of total 85) showed contradictions in answers to specially designed recurring questions measuring the same parameter. the overwhelming majority of students (68) also demonstrated that they are not willing or prepared to be actively involved in the decisions that affect them in their educational setting. structured interviews conducted by the teacher and involving students randomly selected from all the 10 groups also gave grounds for the conclusion that the students are not free from the educational experience where they were treated as dependent from somebody else’s decisions. the students were entering the educational setting with the preconceived notions from their past. besides, the same structured interviews specifi cally designed by the teacher revealed a signifi cant level of anxiety as concerns the process and outcomes of the study course. overall, the conclusions from the preliminary stages provided the grounds for the conclusion that transformations both in the students’ learning attitudes and study skills will be required for their effective integration into university-level environment. 10 groups of undergraduate students (total of 127 students) working for their bachelor degree in various areas of design participated in the research. overall the instruction can be described as blended learning with regular face-to-face classes combined with the study support and extension in the teaching-learning territory. the design of e-learning environment. design of the ict based learning-teaching territory supporting the study process is central for the research conducted by the authors and expounded here. the learning – teaching environment is called forum. for each of the two study courses separate area in forum was allocated consisting of several subdivisions. the subdivisions were as follows: study process. materials and assignments.1. the subdivision, also called “no-cover textbook” comprises texts specially selected for the web-designers and interior designers accordingly, illustrations, exercises, tasks and assignments, specifi cally created for the professions in line with the state-of-art for englishforprofessional-and-study-purposes courses. postings from the teacher for the respective groups of students are regularly placed there. the postings convey information on the course objectives, criteria of assessment, fi nal evaluation, as well as the regular updates on the class work and home assignments. additional exercises and workouts may be placed into this division at the teacher’s discretion. the teacher is the moderator for the division; while the students enjoy the status of users only. students’ work. 2. this division is intended for the specimens of the students’ actual works produced in response to the assignments. the student’s works are both from the teacher’s database compiled during a number of courses delivered over a period of time and currently produced. both students’ and teacher’s comments are found here. special care has been taken to include the works and comments, which might contribute to the formation of the “practical consciousness” as expounded above. besides, the division is regularly updated. similarly, the teacher is the moderator for the division; students enjoy the status of users only. questions and discussions. 3. the division is meant for opinions and comments to be placed here. therefore, the design of the e-learning environment forum, also referred to as e-territory is intended to implicitly form and consolidate attitudes in line with the assumptions and processes of andragogy. the assumptions and processes with the implications for the ict-supported are examined with reference to l.c.blondy, 2007. outcomes on the course completion. on the course completion structured inter-1. views were conducted. the questions concerned the general atmosphere, the clarity of the course goals, relevance of the materials to their profession, ability to make their own routes through the course materials, feelings of safety and general comfort versus anxiety and unease throughout the study process, peer peer and teacher – learner attitudes. on the whole, the students expressed a high degree of satisfaction, varying from 9.4 to 9.7 in 10 point scale across the groups surveyed. higher appreciation of the course is found in evening groups and the part-time group, which might be understood as experiencing defi ciency of communication in other courses the students valued the e-support provided in our course and compensating for the shortage. research took the form of four case studies 2. (day groups: interior designers and web de36 issn 1822-8402 european integration studies. 2008. no 2 signers, evening groups: interior designers; part-time group of interior designers, total of 127 students) with the teacher continuously documenting the following data: students’ participation in the study process• : visits to forum, works produced in response to the assignment; comments and questions posted (students behavior, in conformity to the structures and resources) students’ evaluation of the task types• and activities (students’ attitudes, tasks relevance, ability to set own goals ) self-reports on types of resources actually• used, incl. those additionally provided or recommended by the teacher (behavior) levels of clarity – confusion, safety/• comfort-anxiety instances of individual behavior and • attitudes instances of collective behavior• learning outcomes based on the portfolio • assessment for the fi nal assessment the students were to produce “student’s portfolio” comprising the tasks and assignment compiled during the course. the structured requirements for the portfolio were posted in forum and allowed fl exible approach to the tasks completion fi tting the skills level and personal preferences. an example of the task: create an ad advertising interior designer services to be place in the internet etc. other major requirements being to make a presentation, to present an individual work involving information selection, editing and presentation according to certain criteria etc. some fi ndings elicited from the case studies from 117 students in day department required to make a presentation only 2 persons opted for individual presentations. the rest of the students joined into groups sharing the activities and responsibilities effectively identifying the strengths and weakness of each member of the group. of all the students from all the groups only 4 persons failed to meet the requirements for the course for various reasons. all the persons were from the part-time group of interior designers. later two of them enrolled on the course for the second time. some instances of individual behavior were remarkable: a students provided a fi le with translations of all the texts into the latvian language (which is quite a sizable job), and all the tasks completed to be placed in the forum for the benefi t of the next generations. some students volunteered to improve the illustrations provided for the pictures tasks by the teacher (found better, more impressive and relevant). in a number of cases the students exceeded the teacher’s expectations, improving the structural schemes suggested for the individual works, demonstrating remarkable ability to explain, persuade, clarify some issues to the peers and doing so on their own initiative. many were also quite willing to set examples and serve role models for the groups mates. the fi ndings from the case studies allowed us to make the following conclusions: the students’ behavior demonstrated during the study course allows us to make the following conclusion: during the study process the transformations in the students’ attitudes have been in the direction of from individuals idea of how the school should • operate towards shared norms and values from isolation into competing individuals • towards collaboration and collective shared responsibility towards learning from others and shared • concern for the quality improvement in structures and study materials towards more confi dence about one’s skills • and objectives towards more clarity about the requirements • and attitudes they might encounter at the university-level studies. those transformation are in line with ch.bezzina’s suggestions concerning what should be required from the individuals to adjust to and be included into a broader social context of learning communities and life long learning. (bezzina, 2006) and m. whetley observing that “education becomes a moral act” expected of a self-actualized valueoriented personality (whetley, 2004). conclusions structuration perspective or understanding how human action is guided and created by the underlying “practical consciousness” provides opportunities of pedagogical interventions through introducing virtual actors and modeling the target behavior thus enabling the students witnessing the behavior to implicitly create perceptions about group organizational culture, group norms, what is expected from them and how it can be translated into their activities. ict-based environments supporting study process at the university level carry the potential to facilitate the transformations in the students’ attitudes underlying the behavior ensuring effective integration in the context of university education. 37 issn 1822-8402 european integration studies. 2008. no 2 ict-based environments supporting study process at the university level carry the potential to make the learning-teaching experience more favorable and rewarding. references bandura, a. (1977) general theory:, social learning theory, prentice-hall, englewood cliffs, n.j. bezzina, ch.(2006). nurturing inclusive learning communities: the next big challenge, in scientifc papers. university of latvia. pedagogy and teacher’s education vol.700. blondy, l.c. evaluation and application of andragogical assumptions to the adult online learning environment. journal of interactive online learning. vol.6.number 2, summer 2007. online: www.ncoir.org/jiol bluma, d. (1998), pieaugošo izgl t bas pedagoga profesion l kompetence. / pieaugošo izgl t bas gadagr mata. r ga, izm, 1998. cross, k.p (1981). adults as learners. increasing participation and facilitating learning. san franscisco: jossey-bass inc., cross, k.p. the missing link: implications for the future of adult education. new york: syracuse university research corp., 1978. (eric document reproduction service no. ed 095 254). on line: http://www.ntlf.com/html/lib/bib/89dig. htm desantis, g. & poole, m.s. (1994) capturing the complexity in advanced technology use: adaptive structuration theory,in organization science, vol. 5, pp. 121-147. on line: http://citeseer.ifi .unizh.ch/context/870264/0 europa education and training lifelong earning on line: http://ec.europa.eu/education/index_ en.html esib policy paper: a social dimension to higher education”on line www.esib.org giddens, a. (1986).the constitution of society. outline of the theory of structuration. university of california press berkeley & los angeles. hanna, d.e., glowacki-dudka, m.,. & conceicaorunlee, s.(2000).147 practical tips for teaching online groups. essentials of web-based education. madison, wi: atwood publishing. hord, s.m., sommers, w.a., leading professional learning communities: voices from research and practice. on line: http://www.sedl.org/ change/issues/issues61.html knowles, m.s. (1984). andragogy in action. san francisco: jossey-bass. knowles, m. s. (1975).self-directed learning: a guide for learners and teachers. new york: association press. knowles, m.s. (1980). the modern practice of adult education: from pedagogy to andragogy. chicago: follett. lie eniece, d. (2002).ievads andrago ija jeb m c šanas „b t” pieaugušo vecum . r ga, raka. luckin, r., du boulay, b, smith, h., underwood, j., fitzpatrick, g., holmberg, j., kerawalla, l., tunle, h., brewster, d., pearce, d. using mobile technology to create flexible learning contexts. online: http://ideas.fcs.sussex.ac.uk/~rosel/ mezirow, j. “a critical theory of self-directed learning.” in self-directed learning: from theory to practice, edited by s. brookfi eld. new directions for continuing education no. 25. san francisco: jossey-bass, 1985. ose, g. (1999) k m c s pieaugušie. r ga; poligrafi sts. smith, m.k. (1996; 1999) ‘andragogy’, the encyclopedia of informal education, online: http://www.infed.org/lifelonglearning/b-andra.htm. vygotsky, l.s. (1978). mind in society: the development of higher psychological processes (m. cole, v. john-steiner, s. scribner, e. souberman, trans.). cambridge, ma: harvard university press wheatley, m.(2004) turning to one another: simple conversations to restore hopes for the future, in, educational leadership. vol.61, no.8. the article has been reviewed. received in march, 2008; accepted in april, 2008. european integration studies 2008.indd 46 issn 1822-8402 european integration studies. 2008. no 2 development of information society in the context of growing gdp antanas keras valerijus keras mykolas romeris university abstract over the decade the development of information society to a large extent has been determined by the lisbon strategy and the job as initiated in it: the european council and the european commission are invited to prepare a comprehensive and exhaustive action plan for electronic europe eeurope. over the decade both the eeurope initiative and the eeurope 2005 action plan as well as other documents as prepared in this fi eld and the newest document – the i2010 strategy – have determined the development of information society in the whole european union, including lithuania. of particular importance is the i2010 strategy – a strategy for digital technologies as intended for growth and job creation. the european commission’s annual progress reports – being very signifi cant documents – are helpful in assessing the achieved results as well as specifying plans for further works, activity directions and pace. the fi rst report of this kind assessing progress in the implementation of the i2010 strategy has already appeared. lithuania over eighteen years of its independence has made a tremendous progress both in developing its economy and creating as well as evolving country’s information society. creating long-term development strategy of the state of lithuania, the lisbon strategy was taken into account, whereas creating the strategy for information society development in addition to other documents related with information society development in lithuania, the mentioned european documents as intended for the information society development were taken into account. undoubtedly, the creation and development of information society to some extent depend on a country’s level of economic development, which is partly characterised by gdp (gross domestic product). this article deals with the newest indicators for the information society development in lithuania and their relation with gdp, what indicators are in lithuania and how they look like in comparison with countries of various development level. keywords: development, strategy, information society, gdp, indicators. introduction the issues of the development of information society are becoming more and more topical for both well-developed and of weaker development level countries. the creation and development of information society to some extent depend on the country’s level of economic development, which is partly characterized by gdp (gross domestic product). the leading countries of the eu have gained fi ne results in both developing economy and increasing gdp as well as in expanding information society. after the restoration of its independence in 1990, lithuania could not boast of having a properly developed information infrastructure. there were no modern data transfer networks in lithuania, practically, we did not have computer networks, only their pilot fragments; essentially, only – initial rudiments of such networks. such a situation does not surprise – the country’s economic potential was pretty different from the more developed countries, and gdp per capita did not reach usd 2000. practically, the most advanced at that time in lithuania was a computer system for collective usage of the lithuanian academy of sciences, which via communication channels linked institutes of the academy of sciences with computer centre of the academy, being in the institute of mathematics and cybernetics. of signifi cant importance is the fact that the system in addition to works as implemented in kaunas university of technology, vilnius gediminas 47 issn 1822-8402 european integration studies. 2008. no 2 technical university and vilnius university contributed to preparing specialists and users for working under the future conditions with future computer technology and computer networks. upon restoration of lithuania’s independence, the creation and development as well as implementation of modern computer networks began not only in science institutions but also in other life spheres of the state – in economy, management, etc. there were two reasons in lithuania which determined successful development of the computer networks. the fi rst being – independent lithuania was already able to receive modern information technologies, including technologies of computer networks, which, due to socalled embargo, could not be obtained by the soviet union (and lithuania till recovery of independence). embargo was no longer a threat to the independent lithuania. of particular importance was the second reason – in the last year before the restoration of independence lithuania had managed to prepare qualifi ed specialists who were able already not only to successfully master modern computer networks and work with them in independent lituania, but also further develop them in the future. over eighteen years of its independence lithuania has made a tremendous progress in both developing its economy and creating as well as evolving country’s information infrastructure and information society. over this decade the lisbon strategy and its initiated and later prepared documents by the eu, regulating the development of information society – eeurope, the eeurope 2005 action plan and other documents as well as the new i2010 strategy have signifi cantly contributed to creating and developing information society in lithuania. some time has already passed since the announcement of the lisbon strategy, a few works have been accomplished, a great deal of essential documents regulating further works within the spirit of the lisbon strategy have been prepared and adopted. apparently, not all the objectives and tasks as foreseen in the lisbon strategy were implemented, some were amended by subsequent documents taking into consideration the real situation and the course of events, some were not implemented. nevertheless, the key task as solved by means of the strategy was that it determined the main strategic directions, which should lead towards further development of the european union meeting challenges of a new decade related with globalisation and rapidly developed as well as evolved knowledge economy and with particularly important problem solving of social cohesion. all this made an undeniable impact on lithuania, its economy development as well as creation and development of information society. the paper aims at analysing index dynamics of the lithuanian information society development in the latter decade, their connections with gdp and what the newest indexes of the lithuanian information society development are in the context of gdp in comparison with other countries of various development level. development of the information society in lithuania over the last decade over the last decade till 2000 lithuania fulfi lled a remarkable number of the signifi cant passages applying the information technologies as well as establishing and developing computer networks. there were signifi cant achievements gained but weak results occurred as well. telecommunication networks were successfully developing. an academic network litnet was developing with a great success. other computer networks were being created too – computer network vikt of the state institutions and various commercial computer networks. the cellular phones came into more common use; however, the main telephone line was still prevailing. as for the households, their computerisation was really weak. from 2000 to 2001, in lithuania the sociological research was carried out ( aulauskas m.p., 2001) and it proved the fact that citizens’ value provisions are ambivalent: on the one hand, they are favourable for the informatisation of the country since the development of the information society is related to the optimistic perspective of a democratic society, on the other hand, too pessimistic evaluation of the actual state and too critical attitude towards the actions of the authorities tend to relate such a perspective only with further future. optimistic evaluation – even 72.3 percent of the respondents of the age of 15 and older – directly relate the processes of the informatisation with the expectations of a better life. even 72.8 percent of the respondents believed the computerization to be favourable and very favourable for the economic welfare of the country. such an evaluation is without doubt both a great optimism and challenging the authority, that should justify this optimism. we will further analyse how the information society has been developed in our country over the last decade. in the table as provided below (table 1) some of the important indexes that characterise the development of the lithuanian information society in addition with gdp dynamics from 2000 to 2007 are pointed out. 48 issn 1822-8402 european integration studies. 2008. no 2 table 1. development of the lithuanian information society 2000 2001 2002 2003 2004 2005 2006 2007 number of mobile phone subscribers per 100 inhabitants 9.8 14.6 29.3 47.1 61.0 89.1 127.9 139.4 number of main telephone lines per 100 inhabitants 32.6 33.8 32.9 26.8 23.9 23.9 23.5 23.4 percent of all households owned personal computers 5.3 8.5 12.0 19.3 25.0 29.0 36.5 42.0 percent of all households had an access to the internet at home 2.3 3.2 4.1 6.2 10.6 14.4 31.7 40.3 number of pc per 100students (general schools) 2.5 4.0 4.6 5.1 6.5 number of pc per 100 students (universities) 4.4 4.7 5.3 5.5 6.4 gross domestic product (gdp), eur 3528 3893 4329 4763 5276 6055 6989 as we can see from the table the growth of the most important indexes that characterise the development of the information society, in a few cases, is remarkable enough. mainly, the number of cellular phone subscribers per 100 inhabitants increased – from 9.8 to 139.4 whereas the number of main telephone lines per 100 inhabitants decreased from 32.6 to 23.4. nevertheless, this decrease is positive because it proves that the users are adopting modern technologies – from the main telephone line to the mobile one. supplying the households with the computers increased prominently – from 5.3 percent up to 42.0 percent, and one part of the households who has an access to the internet at home from 2.3 up to 40.3 percent. there are some problems with computerization of schools. the number of the computers at school should be raised since in 2006, 100 students shared 6.5 computer in the secondary schools, whereas in the universities 6.4 computer was shared by 100 students. but it is not enough for schools and universities. it is necessary to bear in mind that the development of the country’s information society in the future will highly depend on the capacity of the students to use the information technologies. the very positive result in the education and science system assuring the access to the internet for the users should be noticed – all the universities, science institutions, colleges, majority of schools are connected to the academic network litnet (which has been a member of the european academic network geant since 2004) and can use the internet. besides, at present the broadband network rain is on the verge of being fi nished, which will ensure the broadband connection with all the rural regions of the country. it should be noted that even though less than half of the population (from 16 to 74 years old) of the country uses computer and internet; nevertheless, the young people use it more actively: 88.1 percent of the young people use the computer (from 16 to 24 years old), and respectively 84.2 percent use the internet. these are quite fi ne results that allow making favourable prognosis for the further development of the information society in lithuania since by developing the information society it is very important that as more people as possible in the country would be able and eager to work with the computer and internet. the index doi of the lithuanian information society and gdp within the context of other countries in this decade the key works in creating information society undoubtedly have encompassed a very rapid internet (as well as broadband networks) development, a fast increase in the number of computers, an increase in the number of households possessing computers (also with an access to internet), creation and development of egovernment in addition to a great deal of other important works. indexes of the development of information society may be analysed in two aspects. firstly, we can analyse separate index dynamics within the country and witness the progress made. however, if only separate aspects (both internationally and in the international context) will be touched upon, it will be quite diffi cult to compare the results of the lithuanian information society development and gdp within other countries’ context. integrated indexes are necessary in order to have such a comparison possible. one of such internationally acknowledged indexes of the information society development could be mentioned digital opportunity index (doi). as it is indicated in the work (digital opportunity index (doi) – methodology), index doi has been developed as an instrument that help to witness a progress as achieved by reducing digital exclusion, and implementing the resolutions of the world 49 issn 1822-8402 european integration studies. 2008. no 2 summit meeting on the issues of information society. this index – it is a powerful instrument of an appraisal of the strategy and activity directions as well as of the gained results intended for the examination of the global and regional tendencies of infrastructure development, its possibilities and utilisation. these tendencies characterise information society, refl ect its development level. doi, fi rst of all, focuses on the utilisation of the new technologies including broadband and mobile internet. at the same time it refl ects, how the newest technologies are being implemented in a concrete country by creating and developing information society. an index doi encompasses the following eleven criteria characterising opportunities, infrastructure and utilisation: opportunities percentage of population covered by mobile cellular telephony, mobile cellular tariffs as a percentage of per capita income, internet access tariffs as a percentage of per capita income), infrastructure proportion of households with a fi xed line telephone, mobile cellular subscribes per 100 inhabitants, proportion of hoseholds with internet access at home, mobile internet subscribes per 100 inhabitants, proportion of hoseholds with a computers, utilisation internet users per 100 inhabitants, ratio of (fixed) broadband internet subscribers to total internet subscribers, ratio of (mobile) broadband internet subscribers to mobile internet subscribers). general index doi is measured by scores from zero to one. index doi score can never be less than zero and bigger than one. its main advantage is that the index (as well as its constituent parts are separate criteria out of the eleven as described above) is standardised and may be used for the intercomparison of both separate countries and separate regions. table 2. digital opportunity index (doi) 2005/06 – world; hdi and gdp per capita ranks doi rank country doi value hdi rank gdp per capita rank gdp per capita rank minus hdi rank* doi rank minus hdi rank** 3 denmark 0.76 14 8 -6 -11 6 netherlands 0.71 9 12 3 -3 9 sweden 0.70 6 13 7 3 10 united kingdom 0.69 16 11 -5 -6 11 finland 0.69 11 14 3 0 13 luxembourg 0.69 18 1 -17 -5 18 austria 0.67 15 9 -6 3 19 germany 0.66 22 20 -2 -3 21 spain 0.65 13 24 11 8 23 belgium 0.65 17 15 -2 6 24 estonia 0.65 44 44 0 -20 26 france 0.64 10 18 8 16 28 italy 0.63 20 21 1 8 30 slovenia 0.62 27 31 4 3 31 ireland 0.61 5 4 -1 26 32 portugal 0.61 29 35 6 3 33 lithuania 0.61 43 46 3 -10 34 malta 0.60 34 36 2 0 36 hungary 0.59 36 38 2 0 39 cyprus 0.57 28 30 2 11 42 czech republic 0.57 32 34 2 10 44 slovakia 0.55 42 41 -1 12 46 latvia 0.54 45 49 4 1 49 greece 0.53 24 29 5 25 53 poland 0.51 37 48 11 16 * a positive fi gure indicates that hdi rank is higher than gdp per capita rank, a negative the opposite. ** a positive fi gure indicates that hdi rank is higher than doi rank, a negative the opposite. development of information society and gdp dynamics in lithuania over this decade was analysed in the previous part of this work. furthermore, by means of comparative analysis, we will examine general index doi and gross domestic product (gdp), which characterise information society following the newest data – what 50 issn 1822-8402 european integration studies. 2008. no 2 lithuania has gained, what well-developed countries have achieved, what the newest eu member states have gained and how lithuania and its neighbours look with respect to these issues in a general context of the countries of the world. index doi size by scores is presented in table 2 for all eu member states. this table also contains data on what priority the eu member states take by locating themselves among all 181 countries of the world countries as analysed in the report (world information society report 2007) by both index doi and gdp. as we can see from the data of table 2, the index doi of the development of the information society in lithuania among the eu countries is quite fi ne – we fi nd ourselves after slovenia, ireland and portugal. we are very slightly lagging behind from slovenia, but have the same doi as ireland and portugal. considering that the development of the information society in the contemporary world essentially determines the economic expansion, we could state that in lithuania the preconditions for the development of the information society and economic expansion exist. they need to be employed in the best of way in the years to come. it is important to assess what for the country pays greater attention – either for the growth of gdp or for the development of the information society. leading countries of eu – denmark, united kingdom and other countries pay great attention for both of them – for the development of the information society and for the growth of gdp. examining the data from table 2, it is noticed that slovenia, the economy of which was also remarkably stronger before entering the eu, and gdp was much higher than of the other new eu member states, has a good position both according to hdi, and according to gdp, and according to doi. it could be stated that this is also the goal for lithuania in the nearest future – to seek for the country’s strong economy (fi ne gdp index), well developed information society (fi ne doi index), good quality of life according to hdi that could contribute to assuring stronger social cohesion as it is emphasized in the lisbon strategy. at the moment lithuania and estonia according to gdp are in the adjacent positions – estonia is in the 44th place among 181 world countries, whereas lithuania is in the 46st place. thus, from this point of view they are close enough to each other. according to doi, estonia is in the 24th place, whereas according to hdi – in the 44th place in the world. according to doi, lithuania is in the 33rd place in the world, whereas according to hdi – in the 43rd place. therefore, it could be pointed out that according to the quality of life, even if quite slightly, we have overtaken estonia. apparently, estonia is more concentrated on the contemporary digital technologies; nevertheless, lithuania’s lagging behind according to gdp is really slight, and according to the development of the information society and its index doi, we have the possibilities to improve our position in the future, especially bearing in mind our human potential in the sphere of the information technologies and the gained fi ne position according to this indicator at the moment among the new eu member states. by examining the baltic countries it could be noticed that sweden and finland have gained brilliant results (table 2). according to doi and hdi, they have signifi cantly surpassed estonia, lithuania and latvia. it is true that finland, occupying the 11th position according to hdi in the world, is slightly lagging behind sweden – that respectively occupy the 6th places in the world. bearing in the mind the troublesome historical road as walked through in the twentieth century, the soviet union’s aggression and following actions of the soviet union, the results that finland has gained are without doubt very good. lithuania has got many things to learn from the experience of finland, both in developing economy, expanding information society and improving the quality of life in the country. it is interesting to analyse what results in developing information society according to doi index were achieved by the countries that had gained different results according to hdi index. these results also are provided in table 2. the results show that some of the countries, having the high hdi index, have gained fi ne results according to doi (sweden, netherlands); nevertheless, ireland according to hdi occupies the 5st place, but according to doi, occupies just the 31st place. even though ireland, according to the succession slightly overpasses lithuania (33rd place according to doi ), it has the ratio of the same size doi = 0.61. by examining the baltic countries – leaders according to hdi and the world countries that are situated next to them according to hdi index, it could be observed that both estonia and lithuania (respectively being in the 44th and 43st place according to hdi ) pay more attention to the development of the information society, paying less attention to the improvement of the life quality. other countries – portugal, malta, hungary, slovakia pay approximately the same attention to the development of the information society and to the improvement of the life quality. we can draw a conclusion that in the future our countries also will be more attempting to implement technologies and at the same time to set up as much as possible better conditions to the improvement of the life quality. it must be main priorities in the future policy of our countries. 51 issn 1822-8402 european integration studies. 2008. no 2 conclusions leading countries have achieved good results 1. both according to the improvement of the quality of life and according to the development of the information society; nevertheless, the part of them pay greater attention to the improvement of the life quality. evidently, these countries suppose that the gained level of the development of the information society meets the needs of the development of economy and social sphere of the country. at the same time it proves that more attention is paid to greater social cohesion, as it is emphasized in the lisbon strategy. rapidly developing countries, including estonia 2. and lithuania, are more orientated towards the development of the information society, being as a precondition for a faster economy development, even though lithuania is more attempting to balance both priorities – the development of the information society and the improvement of the life quality. lithuania has made a tremendous progress since 3. 2000 in creating and developing information society, in particular, in the internet development and cellular phone utilisation spheres. if the pace of this development is maintained in the forthcoming decade, fairly good 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information society report 2007. beyond wsis. on line:http://www.itu.int/osg/spu/publications/worldinformationsociety/2007/report. html the article has been reviewed. received in march, 2008; accepted in april, 2008 39 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 abstract immigrant integration: the role of ngo’s in lithuania for upholding immigrant assimilation http://dx.doi.org/10.5755/j01.eis.1.14.26371 migration and migrant movement are one of the most contested phenomena in the contemporary world due to the large-scale displacement of the people across the globe due to socio-political unrest in the form of wars, internal rebellions, and political upheaval. it led to the scenario of people’s movement across the borders in search of better living conditions and safety. however, the aspect of immigration and immigrant integration and assimilation is not a conducive process, and the immigrants must overcome a lot of socio-political hurdles and hardships for the assimilation and integration into the host society. regarding the actors facilitating immigrant integration, one of the significant actors is the ngos, which facilitates the integration of the immigrants into society. these facilitate through the mechanisms of advocacy measures. in this scenario, this article tries to find out how the ngo’s facilitates immigrant integration and assimilation in lithuania and what are the mechanisms they employ for immigrant integration and assimilation. the task includes analyzing the qualitative interview conducted with ngo europos namai, who are voicing for the rights of immigrants and envisaging measures for migrant integration through their lobbying, education, awareness, cultural integration, and media mechanisms. by analyzing the interview and data sets on immigration in lithuania, this paper aims to find out how does the ngos act as a facilitating force for political debates, communication, political decision making, and to create a favorable environment for immigration integration into the lithuanian society. the primary interpretation is that the third sector organizations play a significant role in the migrant integration into the society, and these possible findings could be made useful for other regions and countries where they are migrant influx and still lack conducive mechanisms for immigrant integration. keywords: immigrant integration; lobbying; advocacy; decision making; lithuania. european integration studies no. 14 / 2020, pp. 39-54 doi.org/10.5755/j01.eis.1.14.26371 immigration as a phenomenon is one of the most contested issues in modern times and beyond the “political agenda” has penetrated the socio-cultural, economic, academic, and demographic spheres. this, during modern times, has been facilitated mainly due to the high influx of immigration and migrant movements facilitated by globalization together with the human displacement due to wars, rebellion, and social unrest in various parts of the globe. immigration thus shapes the major discussion in the socio-political spheres, and immigrants tend to migrate to the western and developed societies due to the higher standard of living and employment opportunities. this facilitates more and more people who intended to emigrate. according to the united nations (2013) estimated statistics, the intention to immigrate either due to displacement or for better living, there were around 232 million international immigrants, which is 50 % more introduction submitted 05/2020 accepted for publication 07/2020 immigrant integration: the role of ngo’s in lithuania for upholding immigrant assimilation eis 14/2020 muraleedharan vishnu kaunas university of technology http://doi.org/10.5755/j01.eis.0.13.24033 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 40 than during 1990. among these, most of them (136 million) emigrated to the developed western nations with most of them (60%) were from the least developed countries. one of the underlying factors of immigration is the formulation of fear and preconceived notions it creates, especially in the minds of the local population. regarding this, the greatest impact has been created by the media through their news reports and articles which visualize the immigrants as threats to the socio-cultural and economic fabric of the society. according to the transatlantic trends survey (2014) report, there is a growing trend of fear as the majority of the people in europe and north america are impacted by the “underlying fear” about immigration. according to the united nations (un, civil society unit), “a non-governmental organization (ngo) is any non-profit, voluntary citizens group which organized on a local, national, or international level. task-oriented and driven by people with a common interest, non-governmental organizations (ngos) perform a variety of services and humanitarian functions, bring citizens concern to governments, monitor policies, and encourage political participation at the community level”. the article aims to analyze immigrant integration measures, focusing on the ngo advocacy primarily through advocacy for immigrant assimilation through the advocacy measures of lobbying, media management, cultural awareness, and acquiring national and european funds. this article sets the following tasks: 1 to address the importance of ngos in immigrant integration. 2 to evaluate the ngo’s advocacy measures, which facilitates immigrant integration in the lithuanian context. advocacy measures of ngos, in the form of lobbying, media management, cultural awareness, and acquiring national and european funding, can advance proactive measures for immigrant integration in lithuania. the article depicts the result of the original research, which was carried out by primary data interviews with the ngo europos namai, which was founded in 1999, and can act as a significant facilitator for immigrant integration through their project bukim pazistami. also, the article analyzes secondary data by exploring the facebook discourse of the ngo for half a year from november 01, 2018, until may 02, 2019. the paper developed through the introduction followed by the research gap, theory, methodology, literature review, analysis of the primary and secondary data along with conclusions and references. following the commencement of sedentary life and settlement among human beings and the advancement in the socio-cultural sphere initiated the beginning of various socio-cultural and political institutions and along with the public and private institutions, the institution of the third sector and “voluntary organizations” emerged (brown & korte,1989). an ngo is also termed a non-profit organization (npo) as the term itself states that the intention is not the pursual of financial benefit, but for the welfare of the vested goals for the common good (grobman, 2002). the significance of ngo’s gained prominence during the second half of the nineteenth century and received attention in the united nations due to the significant humanitarian and social aspect and was mentioned and classified in the un charter (mostashari, 2005). an ngo is defined as any entity which seems to be independent of the government regulations and which is not inclined by any political allegiance and affiliations and is not intended for financial gains and out of the criminal activities (willetts, 2002). in the views of rahman (2003), the basic characteristics that qualify for being an ngo depend upon five significant attributes, which are “nongovernmental, voluntary, non-commercial, accountable and on political.” even though the research on ngo’s is still evolving, and under debate, the main classification of ngo’s categorizes into operational ngo’s and advocacy ngo’s (willetts, 2002). 41 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 regarding this classification, the major difference is that the operational ngos will facilitate the funding for carrying out the assigned and intended works. in contrast, the advocacy ngo’s even have a similar role will carry out activities for the betterment of the attributed interest of the organizations through advocacy measures (mostashari, 2005). however, these are classed as “third sector” organizations in which the public and private sectors termed as a first and second sector (korten, 1990; mostashari, 2005). in holistic terms, the ngos broadly termed as “third sector” or “non-profit” organizations, which classifies those which are outside of the first and second sectors (pharr, 2003). it consists of individuals and organizations which are outside of the governmental and market considerations and intended to work for the welfare of the specific and targeted groups (brown et al., 2000). it enables the interaction and association of people who have similar aspirations and allows them to cooperate for the fulfillment of those aspects, which can bring common good (pharr, 2003). it contrasts with the membership of both the public and private actors in which the membership is either based on monetary consideration or a citizenship aspect (olson, 2009). it also enables them to be a part of different groups that incline their orientation. in contrast, in the public sector, it is difficult to be a member of more than one political group. it enables individuals to access the resources on a broader aspect, thereby facilitating allocation for social welfare (whitley, 1999). it is a significant aspect as unlike the members of the political organizations who have broader reach and influence over the resources, the members of the third sector lack the influence to avail themselves of broader resources, but with greater numbers and organizational strength through coalition aspect, they are enabled to have access and control over resources (perez-diaz, 1998). in the sociological and political context, the aspect of social movements classified on the aspect of its reach and impact depend on whether their activities are national or global. in this context of this paper, immigration is perceived as a social movement with a global scale that has implications both at the international and national levels, especially of the receiving nations (minkoff, 1997; ericson & doyle, 1999). lithuania is a young european union baltic nation, and since 2004 has received a significant amount of immigration due to the accession and membership to the eu. this creates a situation for the need of immigrant integration mechanisms. it shows the significance of this article as there is a lack of considerable research on the aspect of immigrant integration measures in lithuania by the ngo’s with their advocacy measures. the relevance of this paper is that unlike other countries and regions where the third sector and its activities have been deeply researcher, in the lithuanian context, it is still an unexplored area and under-researched. one of the significant researches carried out in this field was conducted by a group of researchers who published a monograph titled “undiscovered power: a map of lithuanian civil society”. it was formulated using various national and european databases and explored the impact and reach of civil societies in the lithuanian society, public, and impact on governmental policies. it thus generally covers the attributes of ngo’s without explicitly exploring the effect of specific categories of ngo’s as per their characteristics (ziliukaite, 2006). another aspect regarding the relevance is the lack of proper scientific study looking at the element of human rights ngo’s in lithuania. most of the studies which were conducted are having a general attribute like the above-stated monograph and look at the aspect of push and pull factors of emigration rather than push and pull factors of immigration. while one study titled “mapping of social orientation: the case of lithuania” looks at the aspect of immigrant integration measures of the ngo’s looking at the element of european migration fund for asylum seekers and the measures for skilled immigrants. however, it did not comprehensively cover the actions of ngo’s for immigrant integration through the media measures and new media mechanisms, the integration activities e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 42 conducted at the grass-root level and to remove the barriers using the ngo activities. thus, in this context, this paper tries to comprehensively explore all the attributes of the human rights ngos in lithuania looking especially at these measures of ngo europos namai (zibas, 2018). ngo’s face considerable pressure, especially in societies that have higher inclinations towards socio-cultural norms (lewis & kanji, 2009). it is particularly significant in the case of lithuania due to the former soviet occupation, which creates a lack of trust of the local population towards foreigners. another considerable challenge is governmental control in ngo management, especially in totalitarian, authoritative, dictatorial, and democratic governance with lesser transparency (mukasa, 1999). another significant challenge is the availability of dedicated volunteers, who can demonstrate an aspiration for the common welfare and staff with a dedication to work in the third sector with enhanced commitment with lesser pay structure in comparison to the public and private sector (vilain, 2002). the growth and momentum attained by the ngo’s led to the convinced notion among the public actors and practitioners that the ngo’s are in the core of a “quiet revolution” (fisher, 1997). it seems relevant due to the growth of various humanitarian ngos in lithuania, especially the bukim pazistami, which was founded in 1999. it makes them visualize them as social actors who are inclined to do common “good” without the attribution of profit or political affiliation. it makes the ngo the preferred option of major international charitable and welfare organization, which enables them to reach out to the needy by allocating the funds to the ngo thereby enabling to rectify the odds of the social and economic system (hulme & edwards,1997). this aspect and the effective implementation of the intended projects enable more and more actors to trust ngos as the prominent actor to channel facilities for the fulfillment of socio-economic goals (keck & sikkink, 2014). another significant aspect of the operation of ngos is the behavioral attribution of the staff and employees as, unlike the public and private sectors which are often driven by professional and monetary benefits, ng’s are inclined more by social commitments and the goal of the betterment of the society (hulme & edwards,1997). hence this article explores the advocacy measures of the ngos for immigrant integration in the lithuanian context. theory of the research: network institutionalism according to malhorta (2000), ngos need to viewed as the significant social actor, which facilitates social interaction, which was limited by the other social actors due to the lack of social and human resources, which facilitates an imbalance in the social sphere. one of the significant drawbacks regarding the ngo research in the academic arena is the lack of research on the theoretical significance of ngo relations to other social actors and its impact on the social setting. this article explores the ngo’s interaction with other social actors and the measures for interaction in the context of immigration by looking through the lens of network theory. network theory explores the aspect of networks and interactions between the public, private, and third sectors. it explores the diversity of interest and conflicting nature of these enterprises and the point of cooperation and amicability among them. this article explores those natures of these actors, which enables collaboration among them despite their differences and conflicting nature because of the dependency on the “resources,” which can be beneficial for immigrant integration (ohanyan 2008). these are the financial, institutional, and human resources that facilitate immigrant integration, which was enabled by cooperation between ngos and public and governmental actors. these are channeled through advocacy measures such as lobbying, media management, creating public awareness, and influencing public actors for the acquiring national and european funding for immigrant integration. from the sociological point of view, network theory is stated to be a mechanism that will enable the actors to have a meaningful interaction among themselves more intensively than with the actors from outside the “organizational” structure (wooten & hoffman, 2008). however, the main limitation regarding the network mechanisms is the lack of its “egalitarian” nature and the imbalances in the allocation of the resources between various actors. from this 43 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 article's perspective, this is viewed as the main constraint for the ngos in accomplishing their intended actions. this aspect is overcome through the mechanism of advocacy activities through which the ngos convey their intentions to the public and private actors, thereby facilitating the allocation of resources. the theoretical aspect of the network theory has an interdisciplinary nature and has its linkage to “sociology, anthropology, political science, and public administration.” the enhanced globalization aspect, with the weakening of national administrative structures and the significance of the international institutions and market forces, along with the rise of third sectors leads to the growing significance of the network theory on the global scale (swank & duane, 2002). thus, network theory was able to rectify the odds in the global and national administrative and network mechanisms (reinicke et al., 2000). increasing immigration into the developed western nations has led to the growth of humanitarian ngos which facilitates immigrant integration and assimilation measures by coordinating with other actors in the institutional network by influencing the policy formulation and assisting in policy implementation, which depicts the role of ngos in overcoming the “governance” and administrative vacuum”, which were created due to the growth of transnational institutions and due to the impact of global governance (marsh, 1998). one of the significant aspects of the network mechanism is to overcome the odds of policy and administrative machinery, which is facilitated by ngos. it is accomplished through the network mechanism of the ngo’s which have a wider reach and grassroots implications. it enables the penetration of the policy benefits to the lower levels of the social strata, benefiting the weaker and more deprived sections of society which are largely neglected due to the lack of proper administrative and managerial mechanisms of the public institutions, together with the bureaucratic constrain and “hierarchical” aspects (ebrahim, 2005; lindenberg & bryant, 2001). due to this, the article considers the context of network theory, which connects the ngo measures for immigration integration through the network interactions with public and private actors such as the government, media, private sector, and host community. methodology ngos through their advocacy measures, play a prominent role, along with policy actors, for the facilitation of the immigrant integration measures. they enable communication between the immigrants and the local communities, which enhances trust between these constituencies. lithuania is a young independent baltic country in the european union with a population of 2.79 million. in the lithuanian context, immigration is a recent phenomenon, unlike other western european countries, due to the previous soviet occupation, and the phenomenon of immigration started from 2004 after the membership of the european union (eu). for analyzing the advocacy measures of the ngo, the paper classifies the advocacy activities into four aspects, such as lobbying, cultural awareness, media orientation, and acquiring the funding for facilitating immigrant integration activities. these are explored by using primary data by interviewing the coordinator of the ngo europos namai who oversaw the integration project bukim pazistami. also for analyzing the communication aspect of the ngo, facebook discourse of the ngo has been taken for half a year from november 01, 2018, till may 02, 2019, which identifies the media mechanism for disseminating immigrant perceptions by sharing the immigrant testimonies with the immigrant integration seminars, discussions and debates in various municipalities of lithuania covering educational institutions, public institutions, youth centers, and libraries. identifying the advocacy measures of the ngo’s for immigrant integration immigration is one of the most contested phenomena in western societies due to the large inflow of people from developing and underdeveloped nations, caused by a variety of socio-economic and literature review e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 44 political scenarios. it led to a situation of immigrant crisis and the need for immigrant integration. unlike other western societies in which the issue of immigration is a long-debated issue due to the higher volume of immigrants for decades, this is a recent phenomenon in lithuania due to the younger aspect of the nationhood and its more recent accession to the eu. it led to the immigrant arrival from the period of 2004, and it is necessary to identify the immigrant integration measures from the lithuanian context. therefore, this article analyses the immigrant integration measures in the lithuanian background, looking at the ngo advocacy and integration measures. with regard to advocacy, ngos are organizations that assist deprived sections of the society who cannot fulfill socio-cultural requirements alone. immigration and immigrant integration are one such section of society that requires assistance for assimilation into the society, especially since the measures are taken by other social actors like the government appear to be inadequate (parker, 2003). this is mainly due to the different social and cultural contexts of the immigrants, for which integration needs to be facilitated by another party. ngos, through their advocacy activities, facilitate interaction between different stakeholders, thereby enhancing the relationship for achieving the goals of the organization. it is accomplished when the subject of interest of the ngo’s whose voices were less heard due to the lack of bargaining powers which sideline their attention towards the public and private forces in the society. it brings the ngo to the frontline for voicing these needs (stromquist, 1998; meyer, 1999). they also intervene when there is a lack of consensus with public actors and those implementing such policies, which leads to the breakdown of these mechanisms which hampers the interest of the weaker sections (reisel & sama, 2003). ngos pursue these through various advocacy measures such as “lobbying,” creating consensus with the policymakers, providing an expert legal and public opinion, staging “conferences, demonstrations.” in the context of immigration, these advocacy measures seem to have a great impact, as through these measures the ngo’s effectively lobby for the immigrant's policy formulation and implementation and through the mechanisms of conferences, public events they orient the local communities and educate them regarding the significance of immigration and to remove the negative perceptions and stereotypes thereby facilitating immigration (hudson, 2002). thus, through these measures, the ngos rectify the odds in the social system and provide relief to deprived sections of the society (vachani & smith, 2004). regarding the advocacy activities of the ngos, these are classified as “insider” and “outsider” activities. insider activities are through those measures in which the ngo tries to influence policymakers to make progressive and desirable policy decisions for deprived sections of the society. in contrast, through outsider activities, they try to influence and educate the public regarding various social issues and to make a positive public approach towards those issues. these measures enable ngos to create an overall impact in the social sphere regarding the objectives they targeted towards by making their influence in the public, private and social system (peterson, 1992; kolk & van tulder, 2002). a significant aspect of the ngo mechanism is the influence they exert on the “institutional” mechanism in the form of advocacy measures such as “pressure group” lobbying, demonstrations, and protest mechanisms. these measures enable the ngos to influence the institutional settings of the public and private institutions, thereby directing towards the measures which align with the ideals of the ngo mechanisms. these have a significant impact on various policy measures. regarding immigrant integration measures, these pressure and lobbying tactics of the ngos have greater relevance as it enables them to lobby for favorable public policies for immigrant integration measures and policies for enhanced immigrant intake and assimilation. also through these measures, they were able to formulate the perception of the local population to have an accommodative mindset towards immigrants and to orient the private actors towards the benefits of immigrant accommodation into employment which can 45 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 harness the immigrant skills and benefits from the knowledge sharing for the wellbeing of the community (mahon & waddock, 1992). these measures by the ngos enable a situation of “mutual dependence” between the public, private and third sectors, which leads to progressive aspects in the social, cultural, economic, political, and demographic sphere, especially concerning immigration (perez-diaz, 1998). this mutual dependence seems particularly relevant in the times of globalization and the conceived notion of a global village that facilitates global movement (sanderson, 2002). this enhanced social movement in the phenomenon of globalization also leads to disturbances in the social, cultural and environmental sphere in which the perceived presence and cooperation between the three sectors can mitigate the dangers of degradation and can enhance sustainability (london & hart, 2004; douglas & judge, 1995). lobbying is perceived as one of the significant advocacy measures of the ngo through which they seek to influence the legislators and policymakers for policy measures that suit the objectives of the organization (beyers, 2008; kluver, 2011). the act of lobbying will either be done solely by an ngo or in alliance with other ngos who have the same objectives regarding a topic (beyers et al., 2008). the central aspect which distinguishes the ngo from other sectors is that it is entirely out of the interference and management of the government and semi-governmental institutions and is instead managed by individuals and entities who have an orientation towards a particular issue of the society and seeks to make changes with the advocacy measures (lewis, 2010). due to these characteristics, they are termed “non-profit” entities (willetts, 2010). another characteristic which distinguishes ngos is that other than the governmental control, it eliminates other actors such as “religious” organizations, “academic” entities, “political” organizations, and “criminal” entities and “business” organizations (charnovitz, 1996). in the case of immigration, this seems relevant as regarding this article as the lobbying for immigration and immigrant integration has been carried together by different ngos such as europos namai, red cross, caritas, and diversity group. case study: advocacy mechanisms of bukim pazistami as a newly independent country in the baltic region from the soviet occupation in 1991, the establishment and the development of ngos is a recent phenomenon. these circumstances led to a challenging situation for ngo measures, especially for the advocacy and grassroots movements. although the phenomenon of ngos is broadly defined, this article explores explicitly the ngo’s who are focusing on immigrant rights and their integration. however, unlike other western european countries which have a large network of ngos specialized in the human rights movement due to the large-scale immigration and refugee crisis, this is not particularly visible in eastern europe, especially the baltic region, due to the late independence of the baltic countries and their accession to the european union. regarding international immigration, immigration to lithuania is a recent phenomenon and started mainly after eu membership on may 01, 2004. lithuania has begun attracting international labor and skilled migration, especially from other eastern european countries such as belarus, ukraine, russia, and recently from developing countries in asia, africa, and latin america. figure 1 shows the number of immigrants in lithuania from 2004-2018. regarding the prospective aspect of immigration to lithuania is that of being an eu country that facilitates the immigrant’s free movement across the european countries to have market access for employment and skill development. another aspect is the higher standard of the lithuanian educational institutions, which provides quality education with the european framework and accreditation, which attracts international students from across the globe. it enables students to have a european accredited educational qualification at an affordable cost and access to the eu markets. also, the reasonable cost of living allows immigrants with a lower economic background to sustain themselves in e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 46 5553 6789 7745 8609 9297 6487 5213 15685 19843 22011 24294 22130 2016220368 28914 0 5000 10000 15000 20000 25000 30000 35000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 36 15 16 2 0 5 10 15 20 25 30 35 40 migrant integration activities migrant testimony cultural awareness legal information figure 1 number of immigrants in lithuania from 2004-2018 source: europos migracijos tinklas. lithuania with access to the european market. the significant challenge for immigrants is the lack of local language skills for employment, as most of the jobs require proficiency in lithuanian together with english or russian, which presents challenges for the immigrants. also, the recently integrated mechanism and the lack of contact with the other parts of the world makes the local population have hesitation for close cultural connections. in this regard, it is the ngos who are focusing on immigrant integration play a significant role in immigrant assimilation and cross-cultural integration. the role of advocacy has been facilitated by ngos in lithuania by creating social and cultural awareness and integration about other cultures and their practices, advocating for humanitarian development for immigrant intake through socio-cultural events, thereby familiarizing the aspects of different cultures. these are achieved through socio-cultural activities in public places, including recreational centers and libraries, schools, and educational institutions, and by conducting classes for imparting local language skills and providing counseling and emotional assistance for immigrants. another aspect is the use of lobbying by ngos to enhance the immigrant’s accessibility for the entry by conducting lobbying with the legislators and pro minded institutions and to access national and eu funds for facilitating immigrant integration. the bukim pazistami project under the european namai from 2017-2019 works under the umbrella organization ngo information support foundation, which is the broader organization that acts as a coordinator for various ngo activities in lithuania, which covers all the broader themes of ngo management. regarding immigrant integration, in close cooperation with caritas, red cross and diversity group it makes proposals and implements projects under the banner “lithuanian identity-mosaic of nations,” which is funded by the eu asylum, migration and integration fund. it enables the humanitarian ngos in lithuania to work together on a platform for social awareness regarding the displacement and immigrant crisis across the globe, the benefits of skilled immigration, cultural diversity, the richness of immigration, and the need for immigrant intake under the eu platform as a member state. findings of the study to understand the role of ngos in immigrant integration in lithuania, an interview was conducted with the coordinator of europos namai, who is also the lead organizer and communication manager of international cooperation of the cultural integration activities of the ngo known as 47 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 bukim pazistami. the interview focused on the role of ngos in lithuania regarding advocacy, lobbying, and measures envisaged for immigrant integration. according to the coordinator, the significant measures of the ngo regarding immigrant integration classified into four measures, such as lobbying, cultural awareness, media orientation about the immigrants, and acquiring national and european funds for integration measures. figure 2 below shows the advocacy activities of europos namai. n g o -e ur op s n am ai ngo lobbying influencing legislators and politicians for pro-immigrantion policies cultural awareness “komunikacijos kampanija # bukimpazistami communication campaign # lets get to know each other campaigns in universities, schools, public libraries and public gatherings to make awareness and integration broadcast the official information's, immigrant stories and testimonies through newspaper and television. promotes the advocacy through social media networks media orientation funds for integration measures and policies from eu asylum, migration and integration fund acquiring national and european funds to share immigrant perception and stories immigrant testimonies regarding the ngo measure for the lobbying, the coordinator was not implicitly citing the efforts for lobbying and to whom the lobbyist mainly approaches and what means they employ for it. however, she mentioned that the main lobbying activities of the ngo are done on a coordinated basis together with other major humanitarian ngos like caritas, red cross, diversity group. it enables ngos to find consolidated measures from the governmental authorities for immigrant integration. the second mechanism is the measures envisaged for creating cultural awareness regarding the immigrants to facilitate amicable integration in society. as lithuania is a young country and has a lack of proper exposure to outsiders, unlike other western european countries, it finds it difficult for the appropriate cultural integration of the immigrants and to embrace the immigrant cultural aspects. also due to the negative media-driven perception of the immigrants, especially refugees and asylum seekers, concerning socio-cultural and religious inclinations, a sense of fear is created among the host societies especially in the case of lithuania as according to the ngo “a large part of the lithuanian population would not want their neighbor or co-worker to be a foreigner, but only a few of them know or have interacted with them. it is because of the lack of knowledge and personal experience that there is a fear of others”. figure 2 advocacy activities of europos namai source: author e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 48 in this context, the ngo through the cultural awareness program aims to facilitate the communication and interaction between the locals and the immigrants. it is facilitated through the program “komunikacijos kampanija # bukimpazistami,” which means communication campaign # let's get to know each other in which the ngo shares the experience, perception, and insights of immigrants about lithuania. also, it depicts how they feel and differentiates their experiences between here and their home country and how they make accommodations for the cultural practices and habits in lithuania. it is conducted on a broader national scale. it covered all the municipalities as the event covered 60 municipalities across the country, which led to interactions between the locals and the immigrants, and the event lasts for around 2 hours in which the moderator also facilitated the interaction and communication between the immigrants and the local community members. these mainly held in public institutions like schools, colleges, and public libraries. in these communication events, the immigrants who are either students or professionals who are working in lithuania and represent both the other european countries and third-country nationals present their opinions and experiences and presents about their home country, its culture, cuisine, and cultural practices. through these, they try to connect to the lithuanian people, thereby trying to remove the stereotypes which impede integration. regarding social media and normal media support for the event, the ngo is spreading the message of cultural integration through their social media networks of facebook, instagram, twitter, and youtube whereas they share the experiences of those cultural events with visuals and videos and also make short videos of the immigrant testimonies and share these through youtube, which enables the public to have access to those events if they were not able to physically participate. it allows them to be virtually connected to the migrant testimonies, thereby molding their perception and to remove stereotypes, myths, and beliefs towards other cultures and practices. also, regarding this, the media provides support for these events and publicizes these events and testimonies through their print and digital media platforms such as 15mn.lt and the national radio network known as lrt in which the testimonies of the immigrants are published. it enables a broader reach for the immigrant views to a wider audience. some of the immigrant testimonies about lithuania are. according to liang wenming, tai chi & qi gong teacher, “if i have to choose the place to live, i would like to choose vilnius. i feel comfortable here” (wenming, 2019). as per feyza, a student from turkey, “i started learning lithuania, and i started speaking with people sitting in bus stations. i feel like those people have to see me not only as a muslim girl, but as a foreigner coming to their country, respecting their country, and learning their language” (feyza, 2019). in the opinion of kindness nigness, who is from nigeria and now working, a student and a volunteer for caritas, “now i am in lithuania, and this is my home. if i left, i would miss the lithuanian peace. in the beginning, only when i arrived in lithuania, i felt different, lonely, frustrated, and to face racism. but as now three years here and studying at the vilnius university and a caritas volunteer, i boldly call lithuania my home” (nigness, 2018). according to olesia, who is working as a ballet dancer, “impressions in lithuania are very warm, although the weather is cold, the atmosphere is cozier, but also the sky is bluer, even the residents are more pleasant. here you can go down the street, and people simply smile” (olesia, 2018). thus from the above-stated testimonies, we can perceive the integration measures together with the integration events as the ngo covered the testimonies of those who are working and studying in lithuania and explore on a broader geographical basis covering other european countries together with the third countries in asia, africa, and the middle east. as the event covered, all the municipalities of lithuania also enable us to have an understanding regarding the immigrants. it 49 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 was viewed as a significant aspect, as most of the rural villages and municipalities have not seen or communicated with the immigrants because the majority of the immigrants are settled in the major towns of lithuania, such as vilnius, kaunas, and klaipeda. it is mainly due to the young nature of the country and the lack of industrial and commercial establishments in the rural regions. as the author of this paper and a participant of the project bukim pazistami, i visited together with the coordinator to a few rural areas, including high schools and public libraries. i shared my experience and perception towards lithuania and the socio-cultural, historical, and political practices of india. i find these experiences a great eye-opener as a migrant, like the local stereotypes regarding the immigrants, the migrants also formulated the stereotypes regarding the local communities. during these visits, i was able to remove these stereotypes and was able to break the stereotypes of the local communities also. about the local stereotypes towards the immigrant with an asian name and appearance, during these events, the coordinator starts these events with a quiz with questions about the immigrant nationality, marital status, age, and occupation. from this, we can understand the stereotypes as most of the respondents stated that the immigrant is a person from either india, sri lanka, nepal, and is married and having 5/6 kids and having an it job. it shows the stereotypes about nationality, which, according to the respondents, have been shaped by the news from media and films. as an immigrant, i have the stereotype that the locals are not cordial, warm, or are interested in oriental culture. it got shattered with the love and warmness towards the indian culture and the passion for the movies and cultural aspects. thus, through these visits, the ngo was able to remove the stereotypes and to formulate positive perceptions in both the immigrants and the local communities. the third advocacy measures of the ngo for immigrant integration is media orientation. regarding the media orientation and support, the coordinator stated that the media networks such as the national radio lrt and newspapers such as 15min.lt support and publish the report regarding the integration event of bukim pazistami and share the immigrant testimonies. also, newspapers such as 15min.lt, delfi, which takes initiatives for sharing the immigrant experiences in lithuania by writing news articles and national radio lrt program “ryto garsai (morning sounds), which shares the immigrant perspectives and experiences. through these measures, the media acts as a facilitator and shape positive perceptions for immigrant integration. the final advocacy measure of the ngo for immigrant integration is the means of acquiring national and european integration funds and grants. it is facilitated by ngo information support foundation through which the grant “lithuania identity – mosaic of nations,” funded by eu asylum, migration and integration fund implemented for immigrant integration. the project is intended to inform society about the changes we are overcoming as a country in the global refugee crisis processes. it is mainly an information campaign, with activities combining articles in media outlets, tv broadcasts, and social media. thus, with the above advocacy measures the ngo is actively acting as a facilitator and a link between the immigrants and locals for immigrant integration in the society. figure 3 shows the media activities of the ngo using the social media platform, the article analyzed the social media activities of the ngo by analyzing the facebook post for half a year from november 1, 2018, to may 2, 2019. the analysis aims to understand the cultural activities of the ngo for the immigrant integration and cultural exchanges between the immigrants and local communities. from the analysis, it perceived that the number of facebook post totaled 67 during the given period in which the post covered the major themes of the activities of the project, with 36 posts covering the migrant integration activities of the ngo by organizing the events in different municipalities covering educational institutions, youth centers, and public institutions. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 50 5553 6789 7745 8609 9297 6487 5213 15685 19843 22011 24294 22130 2016220368 28914 0 5000 10000 15000 20000 25000 30000 35000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 36 15 16 2 0 5 10 15 20 25 30 35 40 migrant integration activities migrant testimony cultural awareness legal information figure 3 distribution of post shared in the ngo from 01 november 2018-may 2, 2019 source: facebook page, bukim pazistami also, greater significance was given to migrant testimonies and sharing these through media and social media, especially facebook, as this theme has been represented 15 times during the time. other two themes which were covered are the cultural awareness in which seminars and discussions have been conducted for the immigrant communities to give an overview of the socio-cultural aspects of the country and to familiarize others with the challenges and opportunities which highlighted 16 times and the legal information regarding the residence permit and legal measures which were mentioned 2 times in the posts. along with the analysis of the social media activities of the ngo, it is important to explore public participation in the activities of the ngo. this was evaluated by analyzing the public following and the number of likes, shares, and significant public comments for the ngo during the given period. the facebook page of the ngo was established in october 2017 and had around 1,082 followers for the social profile, which, according to the overall demographics and population, looks a significant number. table 1 depicts the public participation in the activities of the ngo as, during the taken six months of the facebook post, there were 1,075 likes and 107 shares for the post. characteristics total numbers number of likes 1075 number of shares 107 table 1 number of viewers of facebook post from november 1, 2018-may 02, 2019 source: facebook page, bukim pazistami also, the article looks at the user's active participation in the ngo’s facebook activities, and it shows that unlike other ngos in the more socially active western countries and the united states, which have a large migrant population, the participation in lithuania seems less vibrant. it can be mainly attributed as priorly mentioned the newly independent nature of the country and the aspect of fear of outsiders due to the soviet occupation in the past. however, the ngo’s especially the europos namai along with red cross, caritas and diversity group provides the orientation to the community to remove the notions of fear and to embrace the immigrants who can facilitate as a source of community socio-cultural enrichment, which can offer a new dimension to the lithuanian identity. it is reflected in the user participation, as the ngo was able to gather 1,075 likes and 107 shares for the social media posts. also, they were able to collect some significant comments on social media posts with mixed opinions. the below-mentioned posts show the embracing approach of the public towards the events of cultural integration activities: “many thanks to the whole team. you are real, warm, and very vibrant, organized, and smart. thank you on behalf of the entire community. good luck to you until a pleasant next meeting.” (anonymous 1, 29 april 2019 facebook, bukim pazistami) “it was a great event with such kind people.” (anonymous 2, 29 march 2019 facebook, bukim pazistami) thus, the article comprehensively investigated the immigrant integration activities of the ngo’s in society by exploring the advocacy activities of the ngo in the lithuanian context. to understand the advocacy activities of the ngo, the article explored the qualitative content analysis using the interview from the coordinator and the analysis of the facebook discourse. thus, from the analysis, we were able to understand that the ngo using its advocacy and social media platform is actively facilitating immigrant integration. these measures are enabling the local communities to perceive the immigrants as a positive aspect of the society who are bringing effective workforce and human resources, vibrant cultural diversity, economic aspects, demographic dividend and who embraces the lithuanian cultural aspects rather than to look them on the background of fear and suspicion. therefore future research should explore the continuity of the activities of the ngo, the changing public perception of the local communities by facilitating discourse analysis, and explore the new legal and social measures envisaged by the public authorities and policymakers, which encourages further immigrant integration measures. conclusions _ the findings of the study state that measures for immigrant integration need to be viewed as a vital aspect of immigrant assimilation in society. as immigrants are people and communities who immigrate to another destination for diverse socio-political, economic, and cultural reasons, the lack of proper integration measures can lead to tensions, chaos, and struggles between them and the local communities. _ therefore, significant measures should envisage for facilitating immigrant integration, and the ngos can play one of the significant roles. in this regard, the ngos through the mechanism of advocacy acts as a promoter for the amicable immigrant integration and to enhance the trust and faith of the local communities. it facilitates advocacy activities in the form of lobbying, cultural awareness, media orientation, and acquiring the national and european funds for immigrant integration activities through which it acts as a channelizing force for coordinating the activities of actors such as public, private and third sector organizations through the means of network institutionalism which reduces the conflicting nature of these actors and ensures the resource allocation for immigrant integration and assimilation. _ thus, through these advocacy measures, the ngo channelizes the communication between the immigrants and local communities, which enhances the trust and faith among each other. these through the medium of media and communication enhances the confidence and wider public reach. it promotes the sharing of the experiences and cultural diversity, which can disrupt the preconceived notion and the stereotypes between each other. _ thus, this article explored the role of ngos in facilitating immigrant integration using advocacy measures in the context of lithuania. from the analysis of the interview and the facebook discourse, the article clearly states the advocacy measures and the mediatized communication of the ngo for the immigrant integration in lithuania. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 52 references about us | outreach.un.org.ngorelations. 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(2018). mapping of social orientation: the case of lithuania. diversity development group, lithuanian social research centre. available online: http://raccombat-project. eu/wp-content/uploads/2018/03/mapping-social-orientation-lt. pdf. žiliukaitė, r., ramonaitė, a., nevinskaitė, l., beresnevičiūtė, v., & vinogradnaitė, i. (2006). undiscovered power: a map of lithuanian civil society. about the author muraleedharan vishnu master of public policy and administration kaunas university of technology fields of interests public policy, political communication, migration, media studies address a. mickevičiaus 37, lt-44244 kaunas, lithuania, phone: + 37069695392 e-mail: vishnuvalayil@gmail.com this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). european integration studies 2008.indd 143 issn 1822-8402 european integration studies. 2008. no 2 requirements’ for the preparation of the article 1. general requirements show, who and how has analyzed the scientifi c problem of the article in native country as well as 1. in foreign (name of the author, year), so grounding the scientifi c problem of the article in the introduction. at the end of the article has to be literature list (no 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moguerou, ph. the brain drain of ph.d.s from europe to the united states: what we know and what we would like to know. european university institute. 2006. 41 p. on line paper: http://cadmus.iue.it/dspace/ bitstream/1814/4286/1/rscas+2006.11.pdf >12 pt about the authors: surname name, academic degree and name, indicating science fi eld and direction; institution, phone, e-mail (11 pt) 230 issn 1822 – 8402 european integration studies. 2009. no 3 the impact of the socio-economic factors on the electoral behaviour in young eu member states: problem-posing and methodological approach. the case of latvia and estonia elīna vikmane ilga kreituse riga stradiņš university abstract in representative democracies elections are one of the mostly widely used conventional forms of political participation, whereas electoral activity is among the most important factors for development of a civic society particularly important for new eu member states. the economic voting theory stresses that successful work of political parties in the government results in increase of economic indicators and overall growth of the state increases the level of well-being of its people, by also leaving a positive impact upon the eventual re-election chances. the most popular indicators for researching the impact of the economic situation upon the electoral choice are: gdp per capita, unemployment rate, price increase or the inflation rate. during the last years in scientific literature significant attention is paid to the analysis and forecasting of dynamic series of macroeconomic indices. application of quantitative methods in political science is inhibited by the large amount of narrative information which is difficult to quantify for the further processing. research has been carried out in relation to the saeima elections in 1995, 1998, 2002 and 2006 in latvia and elections of riigikogu in 1995, 1999, 2003 and 2007 in estonia. the economic voting trends have been determined by means of a time series model garch (p,q) (generalized auto regressive conditional heteroskedasticity) using statistics on the number of votes given to parties which were represented in the previous coalition from the total number of votes given in latvia and estonia, the number of votes given to the opposition parties of the previous government, newly established parties and parties that have failed to obtain the required number of votes for entering the parliament in latvia and estonia, average inflation rate in the country, changes in the unemployment rate per year, gdp per capita, expressed as changes in real prices in usd per year, changes in the average gross salary per year. autocorrelation function ratio values have been used for more convenient data analysis. the research shows that the comparative analysis the analysis of dynamic series of macroeconomic index which characterize the economic process in question and causations of political behaviour can be successfully used. although the socio-economic factors in the aggregate are to be considered a determinant of electoral choice and especially manifest such are in estonia, thereby making conclude that the economic voting theory in this country coincides with the electoral practice, however in latvia this can be observed only partially. keywords: elections, re-election, electoral activity, electoral choice, socio-economic factors. introduction in representative democracies elections are one of the mostly widely used conventional forms of political participation, whereas electoral activity is among the most important factors for development of a civic society. although it is not the sole indicator of existence of a civic society, it is deemed a material component of the social capital. it involves trust and legitimacy to the state power and its chosen political and economic path. the problem of electoral participation as one of the most widespread types of political participation in the world has been described by numerous authors. the decreasing electoral activity in the usa and the factors whereupon such decrease is based is among the issues that have been researched most (campbell, converse, miller, stokes, 1960; alford, lee, 1968; barzel, silberberg, 1973; karnig, walter, 1974; blank, 1974; silberman, durden, 1975; kim, 1975; kau, rubin, 1976; settle, abrams, 1976; filer, 1977; murray, vedlitz, 1977; crain, deaton, 1977; cebula, murphy, 1980; preuss, 1981; caldeira, patterson, 1982; rosenstone, 1982; patterson, caldeira, 1983; carter, 1984; cebula, murphy, 1984; ostrosky, 1984; conway, 1985; foster, 1984; gilliam, 1985; tucker, 1986; durden, gaynor, 1987; petrocik, 1987; lehman, schlozman, 1987; cox, munger, 1989; bauer 1990; davis, 1991; jacobson, 1992; hill, leighley, issn 1822-8402 european integration studies. 2009. no 3 231 1993; filer, 1993; matsusaka, 1993; merrifield, 1993; ansolabehere, 1994; jackson, 1997; grofman, 1998; franklin, hirczy de mino, 1998; shachar, nalebuff, 1999; hogan, 1999; janda, berry, goldman, 1999; hill, leighley, 1999, etc.). similar interest has been devoted to the electoral participation in the european countries – both by comparing with each other and with other democracies (seidle, miller, 1976; powell, 1980; powell, 1986; jackman, 1987; blais, carty, 1990; crepaz, 1990; colomer, 1991; radcliff, 1992; kaempfer, lowenberg, 1993, beetham, 1994; jackman, miller, 1995; hoffmanmartinot, 1996; leduc, niemi, norris, 1996; blais, dobrzynska, 1998; lijphart, 1999; blais, 2000; perea, 2000; kraaykamp, 2001; endersby, 2002; siaroff, merer, 2002; mattila, 2002, etc.) by consequently explaining the obtained results. separate european countries have been discussed less frequently (rosenthal, sen, 1973; denver, hands, 1974; denver, hands, 1985; eagles, erfle, 1989; lutz, 1991; kirchgässner, schimmelpfennig, 1992; denver, halfacree, 1992; hansen 1994; hoffmanmartinot, 1994; kirchgässner, himmern, 1997; pattie, johnston, 1998; allers , 2000; kraaykamp, 2001; geys, heyndels, 2002; søberg, tangeras, 2003; ashworth, 2004; martiksinen, martikainen, wass, 2005, etc.) however, it does not mean that the importance thereof is less essential. the research of cee countries has been launched comparatively recently (przeworski, 1995; bell, 1997; bohrer ii, pacek, radcliff, 2000; colton, 2000; the world bank transition: the first ten years, 2002; kostadinova, 2003; racz, 2004, etc.). it concerns the electoral participation in cee by mostly discussing the impact of the socialistic system on high/low voting activity in the restored democracies. electoral participation is based upon long-term factors (affiliation to a particular social group, identification with a particular political party, values) and short-term factors (assessment of candidates, social and political events and especially –economic issues). numerous researches indicate that in the course of time long term factors lose their relevance, whereas the impact of short term factors upon the electoral behaviour, economic voting particularly, is gaining ever increasing importance (freire, lobo, 2005). considering above mentioned aspects the scientific problem of the article is whether theories of rational choice, economic voting and resources correspond to the behavior of the voters in cee countries after the reestablishment of independence. the novelty of the research is analysis of the influence of the socio-economic factors on the electoral behavior and especially upon the re-election in latvia and estonia, sucessfully determining the economic voting trends by means of a time series model. the object of research is the influence of socioeconomic factors on the activity and choice of voters in parliament elections. the aim of the article is to highlight economic voting as an influencial determinant of the electoral activity and choice upon the re-election in latvia and estonia. to achieve it three tasks are to be solved: (1) systemise the theories describing correlations between socio-economic and voting variables, (2) apply appropriate quantitative methodological approach; (3) find out wheter economic voting theory fits to describe actual voters’ behavior in parliament elections latvia and estonia, and what diferences can be observed in both countries. as the research method will be used analysis of statistical data by means of a time series model garch (p,q) (generalized auto regressive conditional heteroskedasticity). theoretical framework the electoral activity is subject to a number of factors. first of all those are the socioeconomic factors. secondly it is the social and political mobilization. it has been hypothetically assumed and proven in the conducted researches that the electoral activity is high in the countries where the level of participation in political parties and trade unions is also relatively higher (siaroff, merer, 2002). participation in political parties is of special importance for increasing electoral activity. it is considered that the above accounts for 20% of the total number of electoral factors (siaroff, merer, 2002). however, conduct of a comparative international research that would reflect precise information is encumbered due to unavailability of proper data, especially in cee. thirdly, it is the voting system and institutional restrictions, fourthly – party fragmentation, competition and party system polarization that also influence the level of electoral participation. according to the huberinglehart scale, if the difference between radical leftwing parties and radical right-wing parties that have obtained al least 10% of votes, is higher than 3.75, the system is considered polarized. at such circumstances the electoral activity is higher (siaroff, merer, 2002). the founders of the resource theory verba and nie are of the opinion that electoral participation is based upon such variables as education and income. the social and economic status is measured by an indicator which consists of two or three components: education, income and occupation. the critical point of the resource theory is obvious – the components, when taken separately, cannot explain the huge difference that exists among electoral activity in similar developed countries. even more: the level of education and income in countries with higher electoral activity are not higher. moreover, the research of campbell and rokkan proves that election participation rate is higher among individuals with better education than that of low educated individuals. similar parallels can be drawn among the levels of education: the higher the socioeconomic status, the more favourable issn 1822-8402 european integration studies. 2009. no 3 232 the individual is towards participation in elections (pettersen, rose, 2002). lipset (1960) clearly structures the correlation between the social nature and electoral participation, by paying considerable importance to the status. the individuals of lower social groups are characterized by lower level of education, and political participation, insulation and economical insecurity. they read less and are less interested in political issues. these tendencies are mutually interlinked. the economic voting theory supplements the theory of rational choice, by stressing that successful work of political parties in the government results in the increase of economic indicators and overall growth of the state increases the level of well-being of its people, by also leaving a positive impact upon the eventual re-election chances. the most popular indicators for researching the impact of the economic situation upon the electoral choice are: gdp per capita, unemployment rate, price increase or the inflation rate. these indicators are selected because they represent the national economy and at the same time are simple enough; in order the voter could be informed thereabout and could interpret such. sometimes these indicators are supplemented with tax indicators or the amount of foreign debt of the country. niemi, bremer, and heel (1999) express concerns about the increasing power of mass media in defining the diverse economic and social issues that are linked to the economic situation and development of the country and are of importance. increasing growth indicators, higher income and lower inflation in the months before the election lead to higher public support to the existing government. it is considered, that individuals that are not satisfied with the economic situation or economic development in the country blame the government and therefore are electorally and politically active. lipset (1960) indicates that individuals affected by the inflation, monopoly exploitation, depression or structural changes in the economy, might search the solution, by turning against the existing government by means of high electoral activity. the current power elite is awarded with re-election, in the event the economic situation was good or has improved, thus is “punished” if the income on personal or national level has relatively decreased. anduiza-perea (2005) calls it “retrospective voting”, because the voters asses the past activities and results of the politicians. nevertheless, there are at least four factors that encumber impartial outcome of researches on economic voting. first of all, it is the punishment factor. rosenstone (1982) considers that the motivation to punish the government is much higher than the one of awarding it. it means that in elections individuals tend to express their dissatisfaction more actively than their satisfaction; moreover, economic depression reduces the capacity of political participation of an individual. the research of becker (2002) on the voters’ behaviour proves that people satisfied with their socio-economic status and general situation in the country in most cases are also satisfied with the current government. in comparison anduiza – perea (2005) is of the opinion that an individual will choose a party which is ideologically close to him/her or a party with whom one identifies him/herself with, by adding that individuals are able to analyze the economic competency of the political parties and their electoral choice is directly linked to such proficiency. secondly, the assessment is encumbered by the ego-centric valuation versus sociotropic valuation. the majority of people are egocentric voters. it means that they evaluate the economic indicators on the basis of the fact whether the economic policy of the state has been favourable for them as individuals. thirdly, the comparison options are an encumbrance for impartial assessment. the work of the current government is compared with the performance of the same government some time ago. likewise the voters can compare the results of the work of the government with the work results of some other political party when it was at power. the work of the government can be compared with the work of the government of some other country. such comparisons often can double or otherwise overlap. besides, different social groups make different comparisons. consequently, there is no single comparative system on the basis of which the achievements of the economic policy could be estimated. fourthly, the economic policy is not the only factor for selection of a political candidate or a party. to a considerable extent the social profile age, sex, social affiliation, regional belonging, occupation, economic and social status affect voting. besides, it can be influenced also by the identification with some particular political party, party leader, some topical issue and even the weather. niemi (1999) proves that the perception of the economic situation by voters is based upon the economic reality – to a considerable extent it reflects the actual economic situation in the country. although it is affected, depending upon affinity to a particular political party, because the members of the leading political force tend to assess the economic situation more positively and to slight extent, it also depends upon the demographic characteristics of the individual. freire (2005) specifies that the perception of economy is more important at the moment when the voter gives his vote for a political party at force or a party in opposition than the affiliation to a definite social group. methodological approach statistical analysis as a quantitative research method can explain coherency or causations. many models require the synopsis of historical data. all quantitative forecasting techniques depend on the existence of issn 1822-8402 european integration studies. 2009. no 3 233 adequate and precise outgoing data. data are written quantities of activities, objects and events that are applied in order to reflect some operation. data of historical type contain and display the information about completely finished operation. they sum up the information about the operation in general or every activity in particular. historical data is usually applied in order to forecast the operations of various events (gutmanis, 2007). application of quantitative methods in political science is inhibited by the large amount of narrative information which is difficult to quantify for the further processing. during the last years in scientific literature significant attention is paid to the analysis and forecasting of dynamic series of macroeconomic indices. it is necessary to use statistical data, which characterize the economic processes in question, in the analysis of economical problems various in their content. these statistical data are usually expanded in time, besides one and the same data time series are used in terms of content for solving various problems. at the same time the experience in the world shows that the main attention is paid to model identification problems, selection of endogenous and exogenous indices. especial interest is brought about by the processes which are in so called „transformation” regime, that is, processes which are stationary in essence nevertheless during the period of research they feature instationary time series properties. during the last 10 years in scientific literature financial time-rows are described with endogenous variables, exogenous variables, and residuals ( ) 1 2 ,stx k n, = , , ..., ty , tu , which are given with formulas, ( ) 0 1 1 1 n n n s t m t m ms t m t m m s y b a y b x u 1 n t l t l t l u cu where t is { , }t t z is time series of mistakes with conditional mean value and conditional dispersion. 2 2 1 2 1 2{ , ,...} 0 { , ,...}t t t t t t te e the economic voting trends have been determined by means of a time series model garch (p,q) (generalized auto regressive conditional heteroskedasticity) (gutmanis, 2007): 2 2 2 2 0 1 1 p q t k t k k t k t k k k in the time series model each year’s elections consist of vote 1 .... n = constant + opvote + infla + unemplo + income + wages + error, where vote lat / vote est are the number of votes given to parties which were represented in the previous coalition from the total number of votes given in latvia and estonia; opvote lat / opvote est – the number of votes given to the opposition parties of the previous government, newly established parties and parties that have failed to obtain the required number of votes for entering the parliament in latvia and estonia; infla = average inflation rate in the country %; unemplo % changes in the unemployment rate per year, income gdp per capita, expressed as changes in real prices in usd per year, wages = changes in the average gross salary per year. unemployment pertains to persons who are capable of working and want to work, but cannot find a job. unemployment level in the country pertains to percentage of unemployed against the number of residents of the state in working age category – both employed and unemployed residents. employed person in latvia and estonia is a person from 15 to 74 years of age. average monthly gross salary is established by dividing gross payment fund by the number of the employees for whom the salary has been calculated within a certain period. number of employees who work part-time are re-calculated in full-time units. statistical data which are related to the changes within the course of one year in latvia are used in connection with the year of elections because parliament elections take place in the tenth month of the year while data which are related to the changes within the course of one year in estonia are used in connection with the last year before the elections, because parliament elections take place in the third month of the year. therefore it would not be proper to compare socioeconomic indices of latvia and estonia instead of tendencies which correlate with socioeconomic and electoral data thus forming causations and particular features of the country. the compactness level of statistical relationship between two random quantities can be measured by means of correlation pair coefficient. in the view of the fact that coefficient measures the correlation which exists among the members of the same time series, it is called autocorrelation coefficient. by performing the analysis of quantity r(τ) depending on the value of τ, one usually speaks about autocorrelation function r(τ) the chart of which is called also a correlogram. autocorrelation function is measureless, i.e. it does not depend on the measurement scale of time series to be analyzed. choice (selection) analogue of autocorrelation function is determined by means of formula (gutmanis, 2007): .1,...,1, 0ˆ ˆ ˆ1 ˆˆ 1 ˆ 1 2 1 t x t xx tr t t t t t tt issn 1822-8402 european integration studies. 2009. no 3 234 time series model coefficients are not standardized therefore it is more convenient for data analysis to apply coefficient values of autocorrelation function that permits to evaluate the compactness of relationship as insignificant (from zero to 0.33 excluded), average (from 0.33 to 0.67 excluded) and significant (from 0.67 to 1). research has been carried out in relation to the parliamnet (saeima) elections in 1995, 1998, 2002 and 2006 in latvia and parliament (riigikogu) elections in 1995, 1999, 2003 and 2007 in estonia. official data from lr statistical bureau, statistical bureau of the republic of estonia, central intelligence agency, central election commission, national election commission and state employment agency are used in the research. results the attitude of estonian electorate towards inflation rate fluctuations is based upon the performance of the government and the voting for parties that were in the government is closely inversely proportionally linked to the inflation rate, what means that in case the inflation rate in estonia increases, accordingly increases the share of electorate that, by punishing the leading parties, vote for opposition or other parties. in latvia, although this connection is negative i.e. adversely proportional, the impact of inflation upon the choice of the electorate barely exceeds the border of insignificance. it could have several explanations – inflation in the country is not associated with the work of the government and therefore the electorate is not punishing the political parties for that or it is probable that the motivation behind the electoral choice of latvia’s electorate is based upon some other factor, not economic voting. a similar situation is observed also with regard the impact of the gross domestic product upon the re-election possibilities of the political parties – in estonia this connection is very close thereby confirming that gdp growth is considered an achievement of the government. in latvia changes in gdp are not linked to electorate choice, thereby demonstrating that the situation in the neighbouring countries differs. by considering the insignificant role of the above outlined two important socio-economic factors, it might seem that the impact of socio-economic factors upon the choice of the electorate is rather small. though, the close correlative link of the unemployment rate and salaries with the votes given to political parties, which formed the previous government, overthrow the previous assumption. fluctuations in the unemployment rate are estimated to be an important motivation for the voters when making their choice at the ballot-boxes as in latvia, so in estonia. another factor of importance in latvia is salaries. the correlation is proven by the fact that voters associate increase in the salaries with successful work of the government and in order to preserve this tendency in the next elections, they will vote for these parties which formed government at the moment when the salaries were subject to considerable increase. in estonia the salary indicator has smaller impact upon the choice of the electorate. the fact that salaries are directly proportionally linked to the inflation and adversely proportionally linked to the employment level, makes conclude that the salary factor is of subordinated importance and depends on the impact of other macroeconomic factors conclusions acquiring of results with quantitative research methods in the political science is inhibited by the amount of narrative information. in many cases it is difficult or impossible to quantify them for further processing. nevertheless in the research of political involvement and comparative analysis the analysis of dynamic series of macroeconomic index which characterize the economic process in question and causations of political behaviour can be successfully used. the results of research show that although the socioeconomic factors in the aggregate are to be considered a determinant of electoral choice and especially manifest such are in estonia, thereby making conclude that the previously described theories coincides with the electoral practice in estonia, however in latvia this can be observed only partially. in latvia electoral choice is 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(2002), campbell and rokkan revisited: is norway still a “special” case? university of oslo, 20 p. przeworski a. (1995), sustainable democracy cambridge university press, 140 p. issn 1822-8402 european integration studies. 2009. no 3 236 racz b. (22004) regional voting trends in hungarian national elections 1985-2002. // east european quartlerly. – vol.xxxvii – no.4, pp.439-459 radcliff b., davis p. (2000), labor organization and electoral participation in industrial democracies // american journal of political science, pp.132-141 rosenstone s.j. (1982), economic adversity and voter turnout // american journal of political science vol.26 – no.1, pp.25-46 siaroff a., merer j.w.a. (2002), parliamentary election turnout in europe since 1990 // political studies. – vol.50 – no.5, pp.916-927 the challenge of democracy: government in america (1999), janda k., berry i., goldman i. (ed.) houghton mifflin co, 98 p. verba s., nie n., kim j. (1978), participation and political equility the university of chicago press, 383 p. the article has been reviewed. received in march, 2009; accepted in april, 2009. microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 directive on services: the impact on lithuanian market algis junevičius živilė žižytė kaunas university of technology institute of europe abstract the free movement of people, goods and services inside the european union (eu) is one of the main benefits for citizens and businesses people in the eu, which provides wider ranges and price competition. services encompass 70 percents of gnp and employment in the eu member states. unfortunately, different countries have different regulation systems, which make legal and administrative barriers for service providers. such situation blocks the free ways of providing cross-border services and increasing cross-border competition in service markets. the directive on services 2006/123/ec is a part of the economic reform process launched by the lisbon european council (the lisbon agenda) with a perspective of making the european union the most competitive and dynamic knowledge-based economy in the world by the year 2010. the objective of the directive is to provide the necessary legal framework that will eliminate the barriers to the freedom of establishment for service providers and the free movement of services between the eu member states, giving both, the providers and the recipients of services, the legal certainty they need to exercise these two fundamental freedoms enshrined in the treaty. this article aims to identify the services directive‘s impact on lithuanian service market. keywords services, free movement of services, competition, directive, lithuanian service market, export of services, import of services, foreign trade. introduction free movement of services is as important as the free movement of goods, capital or people in the european internal market. services are everywhere, accounting for between 60 and 70 percents of economic activities in the european union and a similar proportion of overall employment. however, despite the progress in some specific service sectors, the overall internal market for services is not yet working as well as it should be. although, free movement of services is one of the main objectives for european union, but the contemporary situation in the internal market does not reveal real freedom. 1 different countries have different regulation systems, which make legal and administrative barriers for service providers. any individual or legal person, who wants to establish or provide services across the border, encounters some barriers (such as administrative procedures, licensing regimes and other kind of discrimination). such situation blocks the free ways of providing cross-border services and increasing cross-border competition in service 1 a single market for services. the eu single market. on line: http://ec.europa.eu/internal_market/top_layer/index_19_en.htm markets. one of the objectives european union reveals is to create the strong relationship between eu member states in order to reach economic and social progress. in this case, it is very important to eliminate all the barriers for free movement of services. directive on services and its use in practice is one of the methods how to eliminate those barriers in the internal market for services. research problem: on the 12th of december, 2006 by the european parliament and the council, the new directive on services was adopted as the directive 2006/123/ec. all eu member states must adopt the new directive up to the year 2010 by removing legal and administrative barriers to the development of service activities between eu member states. following the process of eu economic development and essential role of directive on services the demand appears to analyse the directive and its impact to lithuanian service market. object of this article is directive on services. aim of this article – to analyse directive on services and identify the directive’s impact on lithuanian service market. tasks of this article: • to study directive on services; 22 • to analyse lithuanian service market; • to identify the directive’s impact on lithuanian service market. research methods: analysis of primary and secondary literature. directive on services the directive on services in the internal market (commonly referred to as the bolkestein directive) is an initiative of the european commission which aims to create a single market for services within the european union. the former european commissioner for the internal market, frits bolkestein, has drafted the leadership and his name is popularly referred to this directive. in january 2004 the european commission introduced a directive’s proposal for the european parliament and the european council concerning services in the internal market. it was called “the draft of directive on services”. this directive was a major tool, embodying the efforts of the eu commission in the process of accomplishing the lisbon agenda, which intends to make the europe “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”. the proposed directive intended to create a general legal framework in order to eliminate barriers to the freedom of establishment for service providers and the free movement of services between the member states. the draft directive on services had been heavily criticised from different sides but the directive was adopted on the 12th of december, 2006 by the european parliament and the council, as the directive 2006/123/ec. the objective of the directive on services is to achieve a genuine internal market in services by removing legal and administrative barriers to the development of service activities between eu member states. the object of the directive on services is all services, which can be supplied whether for provider, manufacturer or consumer, however, except those services, which are regulated by specific legislation (financial services, telecommunications, transport, etc) (see table 1). table 1 directive on services application. (made by authors) the draft directive on services 6174/04 compet. the directive on services 2006/123/ec not applicable for: • financial services; • telecommunications; • transport services. not applicable for: • financial services (banking, credit, insurance and reinsurance, professional or individual pensions, shares, investments, funds, payments); • telecommunications; • transport services; • port services; • services provided by temporary employment agencies; • healthcare services; • audiovisual services; • gaming activities; • certain social services (related to social housing, childcare and aid for people in need); • private security services; • cases of tax discrimination. there are two ways how to provide a service abroad. first, when service supplier goes to other country to establish he’s own business. that means he is going to stay, work in foreign country and compete with local businessmen. second, when service supplier goes to provide service to other country and comes back (movement of services). in one or other way, service suppliers meet a lot of legal and administrative barriers. the directive provides the necessary legal framework that will eliminate the barriers to the freedom of establishment for service providers and the free movement of services between the eu member states. barriers to the freedom of establishment will be eliminated through: 1. administrative simplification measures in eu member states, to make it easier for a service provider in one member state to become established in another member state; 2. certain principles which authorization schemes must respect, i.e. they must not discriminate the service provider on grounds of nationality, the authorization schemes should be objectively justified (they must be in the public interest) and the objectives 23 issn 1822-8402 european integration studies. 2007. no 1 cannot be attained by means of a less restricted measure; 3. the prohibition of particularly restrictive legal requirements; 4. the obligation to assess further certain other legal requirements.2 in order to eliminate barriers to the free movement of services the proposal provides: 1. the free movement of services under which eu member states would respect the right of service providers to provide services in a eu member states other than that in which they are established; 2. the right of recipients, including consumers, to avail the services of other member states. irish consumers will benefit from more suppliers offering an increased competition which is spread in different sectors of the economy; 3. rights for recipients who obtain services from a provider established in another member state, including information on services and their providers. 2 the proposal aims to establish mutual trust between member states through: 1. mutual assistance between national authorities with a view to effective supervision of service providers and the services they provide; this is known as an administrative co-operation; 2. harmonization of some legislation e.g. professional insurance, dispute settlement, exchange of information, etc; 3. measures for promoting the quality of services; 4. encouraging the drawing up of codes of conduct, in particular for certain services such as the regulated professions and estate agents. 2 lithuanian service market calculation of gross domestic product (gdp) growth, a key indicator of economic development, has been revised this year. previously, changes in gdp were measured at prices of 2000, while now they are calculated on the basis of average prices in the preceding year. according to the dnb nord bank survey, lithuanian gross domestic product is annually growing. the biggest growth rate of 10,3 percent per year was experienced in 2003, while the growth of real gdp in the first half of 2006 was 8,5 percent (see diagram 1). 2 services directive: final text. directive 2006/123/ec of the european parliament and of the council of 12 december 2006 on services in the internal market. on line: http://eurlex.europa.eu/lexuriserv/lexuriserv.do?uri=celex:32006l01 23:en:not 4,1 6,6 6,9 10,3 7,3 7,6 8,5 0 2 4 6 8 10 12 2000 2001 2002 2003 2004 2005 2006 1h year p er ce nt source: dnb nord bank diagram 1 real gross domestic product (gdp) annual changes, percent as for gdp by kind of economic sectors, the biggest growth rate of 56,7 % in 2005 and 57,5% in 2006 was experienced in service sector. while in industry it was 25,1% in 2005 and 24,9% in 2006. the gdp in construction was 8,5% (2005) and 9,8% (2006). in the same way, in agriculture, forestry and fishing sector gdp was 9,7% in 2005 and 7,8% in 2006 (see diagram 2). 24 issn 1822-8402 european integration studies. 2007. no 1 56,7 57,5 8,5 9,8 25,1 24,9 9,7 7,8 0 20 40 60 80 100 120 2005 2006 year p er c en t services construction industry agriculture, forestry, fishing source: dnb nord bank diagram 2 structure of gdp by kind of economic sectors, percent lithuania made tremendous progress reducing unemployment over the past four years. as the number of employed people grows, so does the employment rate. the highest number of persons employed was in service sector 58 percent. in industry 30 percent and in agricultural, hunting, forestry sector 12 percent (see figure 3). agricult ural, hunt ing, forest ry 12% indust ry 30% services 58% source: statistical department3 diagram 3 persons employed in economic sectors in 2006, percent analysis, made by dnb nord bank, of foreign direct investment (fdi) flows in lithuania, shows that the biggest share of fdi in the first half of 2006 was also in service sector.3 after everything that has been said, we can state that service sector is very important for lithuanian economic development. it attracts foreign investments, creates more jobs and high growth of gross domestic product. in this case it is very mportant 3 statistical department of republic of lithuania. on line: http://www.stat.gov.lt/lt/ to identify the directive’s impact to lithuanian service market. the directive’s impact to lithuanian service market in this part of article we will try to identify the directive’s impact to lithuanian service market through export and import of services. according to the dnb nord bank lithuanian economic survey of 2006, lithuania’s integration into the eu induced acceleration of foreign trade growth. improvements in export conditions gave a strong momentum for exports of goods which, according to the estimates of statistics lithuania, were 32.8 billion litas (at fob prices) last year and exceeded the indicator of 2004 by 27.1%. it was the fastest growth in the last five years (see diagram 4).4 4 the survey of lithuanian economy 2006. dnb nord bank. on line: http://www.dnbnord.lt/en/about/reviews/ 25 issn 1822-8402 european integration studies. 2007. no 1 source: dnb nord bank diagram 4 exports and imports of goods, ltl mio the national balance of payments for 2005 published by the bank of lithuania shows that exports of services grew by the same margin as exports of goods (27.1%) to 8.4 billion litas, while imports grew 25.9% to 5.7 billion litas, thus significantly improving the balance of services. more than half of the exports of services comprised transport services. the volume of such services rendered to foreigners in 2005 grew 17.4% compared with 2004 (see diagram 5), while their imports jumped 35.2% and the balance reached 1.9 billion litas remaining at the similar level as in 2004. a large share of foreign trade surplus (505 million litas) fell on travel. exports of travel services grew 18.4% in 2005 to 1.5 billion litas, while imports grew 16.8% compared with 2004. as lithuanian retail chains continued penetrating the neighbouring markets, the fastest growth in 2005 was recorded by exports of commercial intermediation and traderelated services which leaped 7.4 times to 746 million litas. 5 source: dnb nord bank diagram 5 exports and imports of services, ltl mio according to bank of lithuania in q4 2006, the growth in the export of services continued to be significantly weaker than the growth in the import of services, and the positive trade surplus of services contracted by 16.2 million litas. in 2006, the export of services made up 9.94 billion litas (an increase of 15% year on year) and the import of services made up 6.96 billion litas (an increase of 21.8%). the positive trade surplus of services made upn2.98 billion litas in 2006, increasing by just 54 million litas year on year (see table 2). like in previous years, changes in the export and import of services were mainly brought about by transport and travel services. transport services accounted for 53.6 per cent and 43.7 per cent of the total export and import of services. export and import of these services expanded almost to the same extent in 2006 compared to 2005, whereas the positive trade 26 issn 1822-8402 european integration studies. 2007. no 1 surplus of services increased by 375.8 million litas. export and import of road services and other auxiliary transport services were characterised by the strongest growth among all types of transport services. the surplus in the balance of road transport services accounted for 57.8 per cent of the total positive trade surplus of services and for three quarters of the total trade surplus of transport services. in conclusion, according to statistic the growth in the export of services continued to be significantly weaker than the growth in the import of services in 2006. it comes to reason, that lithuanian service suppliers still meets some barriers for free movement of services. but the situation is in progress as the statistic shows that more than half of the exports of services comprised transport services and travel. the adoption of the directive on services will remove legal and administrative barriers to the development of service activities between eu member states. so we can state, that the directive on services will have a positive impact to lithuanian service market by creating possibilities not only for transport services and travel but for other kind of services exports as well. lithuanian service suppliers will have more possibilities to establish or provide services across the border. table 2 development of export and import of main types of services and contributions 2006, year on year, % (bank of lithuania) export import change contributions change contributions total services 15.0 15.0 21.8 21.8 transport services 20.8 10.6 21.8 9.5 travel services 11.0 3.3 20.6 7.5 other services 5.8 1.1 23.9 4.8 total transport services 20.8 20.8 21.8 21.8 sea transport -6.2 -0.9 19.9 4.8 air transport -23.3 -1.3 9.4 0,5 railway transport -8.7 -1.7 24.1 2.6 road transport 47.2 20.0 46.3 13.1 pipeline transport -38.2 -0.7 -24.9 -4.6 other transport services 35.6 5.4 41.7 5.4 conclusions 1. services encompass 70 percents of gnp and employment in the eu member states. free movement of services is one of the main objectives for european union. although the contemporary situation in the internal market doesn’t reveal to freedom establish or provide services. different countries have different regulation systems, which make legal and administrative barriers for service providers. in this case, it is very important to eliminate all the barriers for free movement of services. directive on services and its use in practice is one of the methods how to eliminate those barriers in the internal market for services. 2. on the 12th of december, 2006 by the european parliament and the council, the new directive on services was adopted as the directive 2006/123/ec. the objective of the directive on services is to achieve a genuine internal market in services by removing legal and administrative barriers to the development of service activities between eu member states. the object of the directive on services is all services, which can be supplied whether for provider, manufacturer or consumer, however, except those services, which are regulated by specific legislation (financial services, telecommunications, transport, etc). all eu member states must adopt the new directive up to the year 2010 by removing legal and administrative barriers to the freedom of establishment and to the free movement of services. the directive will guarantee service providers more legal certainty if they want to exercise two fundamental freedoms (freedom of establishment and freedom to provide services) enshrined in the ec treaty. 3. as expected, lithuania’s integration into the eu induced acceleration of foreign trade growth. service sector is very important for lithuanian economic development. it attracts foreign investments, creates more jobs (58 percent of persons worked in 2006) and high growth of gross domestic product. as for gdp by kind of economic sectors, the biggest growth rate of 56,7 % in 2005 and 57,5% in 2006 was experienced in service sector. according to statistic the growth in the export of services (15%) continued to be 27 issn 1822-8402 european integration studies. 2007. no 1 significantly weaker than the growth in the import of services (21,8%) in 2006. but the situation is in progress as the statistic shows that more than half of the exports of services comprised transport services and travel. good export indicators in 2005 and at the beginning of 2006 suggest that competitiveness of lithuanian companies is improving and give hope for rapid economic development in the next few years. 4. 4. the directive on services will have a positive impact to lithuanian service market by creating possibilities not only for transport services and travel services export but for other kind of services export as well. lithuanian service suppliers will have more possibilities to establish or provide services across the border. besides, it will have positive affect by creating more job places in service sector. of course, high competition will influence better quality and good price of services for customers. references services directive: final text. directive 2006/123/ec of the european parliament and of the council of 12 december 2006 on services in the internal market. on line: http://eur-lex.europa.eu/ lexuriserv/lexuriserv.do?uri=celex:32006l 0123:en:not a single market for services. the european union single market. on line: http://ec.europa.eu/ internal_market/top_layer/index_19_en.htm free movement of services. ministry of economy the republic of lithuania. on line: http://www.ukmin.lt/lt/es_vidaus_rinka/paslaugo s/ internal market and services directorate general. on line: http://ec.europa.eu/dgs/internal_market/ index_en.htm statistical department of republic of lithuania. on line: http://www.stat.gov.lt/lt/ the survey of lithuanian economy 2006. dnb nord bank. on line: http://www.dnbnord.lt/ en/about/reviews/ review of the balance of payments of the republic of lithuania in q4 and 2006. bank of lithuania. on line: http://www.lb.lt/news/ pg.dll?f=1&did=1551&lng=en 28 issn 1822-8402 european integration studies. 2007. no 1 microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 the aarhus convention and access to environmental justice in the eu and serbia stevan lilić university of belgrade law school lawdem center for environmental law and the promotion of environmental protection abstract environmental protection has become on of the major global concerns that is addressed as an "environmental crisis" which is spreading not only to economy and politics, but also to law. this is the reason why it must be resolved through international environmental cooperation and organizational mechanisms. consequently, this has resulted in growing demands for legal regulation ensuring efficient environmental protection, involving the concept of "access to environmental justice". although the original ec/eu treaties only had indications of a european environmental policy, the maastricht treaty (1992) defines the aims of the new union which include a common environmental protection policy. in this context, the aarhus convention (1998) focuses on access to information, public participation in decision-making and access to justice in environmental matters and is substantially linked to international human rights and basic constitutional rights and freedoms. access to environmental justice, as defined by the aarhus convention rests on the basic human right to a fair trail. serbia has not joined the aarhus convention, but once current political obstacles are surpassed, it is reasonable to assume that serbia would ratify the convention and ensure its citizens "access to environmental justice". keywords: aarhus convention, access to environmental, eu law, serbia i. introduction environmental protection has become on of the major global concerns. consequently, this has resulted in growing demands for legal regulation ensuring efficient environmental protection. at the core of the issue is the objective to achieve a new approach in legal response which would render efficient environmental protection by utilizing legal methods and instruments to give interested parties access to environmental justice. within the world legal framework different forms of legal regulation have been put into effect that include international, regional and domestic systems of protection. given the unprecedented nature of the many environmental issues, massive bodies of legislation have been created through international treaties, eu regulations and directives, as well as domestic laws and regulations (salzman, thompsom jr. 2006; wolf, white, stanley, 2002; ferry 2001; morand-deviller 1987). following the rapid development of environmental issues, the problem of compliance with new rules necessarily arose, especially because quite a few of them had specific characteristics which created new situations for administration, for tribunals and for the public itself. within the eu, as well as within its member states the functioning of agencies and the possibilities for the public to have the new rules enforced was in need of being clarified (kiss 2002, p. v). from the international point of view, the un aarhus convention (adopted in 1998) focused on access to information, public participation in decisionmaking and access to justice in environmental matters. the convention penetrated into issues which have previously been perceived as domaine résérvé of individual states, making them now issues of international law (ebbeson 2002, p. ix). ii. environmental crisis and sustainable development throughout the ages, human society has been confronted with numerous challenges that have been noted as world matters and global issues. today it is generally accepted that one of such issues is environmental protection. this is supported by the fact that in literature, as well as in everyday life, environmental issues are addressed as issues of an "environmental crisis", defining them as "…circumstances and influences which exist in the environment and which threaten the stability and 7 issn 1822-8402 european integration studies. 2007. no 1 functioning of the processes in the biosphere and the society" (todić, vukasović 2002, p. 1). searching for the causes of this environmental crisis, researchers most decisively point to the activities of man and mankind. historically speaking, human influence on nature has always been present. however, this presence has previously been of a local character. since the time of the industrial revolution, this influence has changed. from mid 20th century, these issues caused raising concerns and efforts have been made to identify the causes and factors that have lead to this. generally speaking, two factors have been the cause of alarming concern regarding environmental protection: a) the raising population of the planet and b) the existing production models. both of these processes cause the decrease of natural recourses and disruption in the environmental balance. apart from the growing population, the issue of unleveled development of the developed and underdeveloped countries and regions of the world is linked to the matters of food supplies, poverty and hunger. the possibilities of the poor nations to cope with this problem are very limited and this, in turn, puts pressure on natural resources. in this context, the majority of international documents stress that poverty is the one of the main factors limiting the efficient solution to environmental issues (beckerman 2003). apart from the factors causing the environmental crisis; we can also identify the major environmental issues the world is faced with today. they include: • global warming and high concentration of damaging gases, • damaging influence of uv radiation on animal and plant life, • overexploitation of non-renewable natural recourses, • excessive contamination of the air, water and soil, • lack of drinking water, • presence of heavy metals in the food chain. the enumerated causes and factors indicate that the very existential model of modern mankind is in jeopardy. the environmental crisis is spreading not only to economy and politics, but also to law. what is indisputable, is that this a crisis of a global proportion and that it demand and global solution. this is the reason why this type of problems must be resolved through international environmental cooperation and international organizational frameworks and mechanisms. the answer to the environmental crisis is contained in the concept of "sustainable development" in modern environmental policy and law as set out in the rio declaration (1992). this means that the existing economic and social models are basically respected, but provided that the needs of the future generations is not deterred by the needs of the world today. from the point of view of organized society this involves the concept of the access to justice in environmental issues. iii. international aspects and origins of eu environmental policy the seriousness of environmental protection has resulted in the conclusion that solutions need the participation of the world community. this is best illustrated by the fact that today there are over 250 international treaties in this area and many more on the bilateral level. environmental issues are also dealt by many international organizations. this had the crucial role in resolving environmental issues and many of them have produced rules and principles for their regulation. the most important role is that of the united nations which made a vital change in the perception of environmental policy and law issues at the un conference on the human environment held in stockholm in 1972 (stockholm declaration). also, the un environmental protection program was established (unep). in the period following the conference, there is a growing number of international, regional and other organizations dealing with environmental protection, including the eu (ec). this is of consequence for serbia, as one of the few remaining european countries that have aspirations toward joining the eu (prokopijević 2005). the origin of the european union is linked to three treaties of the 50-ies (treaty of the coal and steel community 1951, the treaty of rome 1957 and the euroatom treaty 1958). at that time the issues of environmental protection was not in the focus of the exisiting agreements. with the notable exception being the euroatom treaty (1957) which stipulated that it had authority of adopting mandatory standards for radioactive contamination. the original treaties had as their main aim economic objectives. however, two articles of the treaty establishing the european community, (treaty of rome 1957) had indications of the european environmental policy. although in a very general manner, article 2 of the treaty of rome called for minimal measures in regard to the quality of life within the framework of harmonized and balanced development of economic activities, while article 46 focused on the justified prohibition of export and import with the aim of protecting health, human life, as well as animal and plant life. the following years, however, would focus on new ideas that would result in a number of documents supporting ec/eu environmental awareness. the un stockholm conference (1972) inspired the paris conference of the same year, a date that would be marked as the birth of the ec/eu environmental policy. the paris declaration stresses the main aim of 8 issn 1822-8402 european integration studies. 2007. no 1 the ec/eu environmental policy as being the lowering of risks for living conditions, and in these endeavors due attention must be given to environmental issues. the recommendation of this declaration was that the communities adopt action plans in the area of environmental protection (as in others fields). there were a number of subsequent action plans adopted, of which the first action plan (1973-1976) was most significant because it defined the general principles, goals and action to be undertaken in the field of european environmental policy. at the time, the main instruments were resolutions, which represented general instructions, leaving to the member states the options of implementing measures in them. this first action plan on environmental policy basically had three divisions: some of the principles were to be realized on the communities level, some on the member-state level. finally, some of the measures were to be implemented within action plans in other respective fields. the further development of the eu continues with the adoption of the single european act (1986) which amended the previous treaties, particularly the eec treaty adding a new chapter vii under the title of "environment" with three new articles (130r, 130s and 130t) which, as the main goals of the community, include "protection and development of the quality of the environment, the protection of human health and the rational use of natural recourses. the maastricht treaty, by which the ec was transformed into the european union (1992), defined several diverse aims of the new union, including a common cultural policy, common policy for consumer protection, as well as a common environmental protection policy. environmental protection is now one of the priority goals of the eu and the principle of subsidiarity incorporated into it. the fundamental sources of eu environmental law are the already mentioned founding treaties. they have set the framework for the legal regulation of this field. apart from them, sources of eu environmental law are the legal documents adopted by the institutions and bodies of the union, which include regulations, directives and decisions (www.europa.eu.int/eur-lex/en/about/pap/ process_ and_players2.html). regulation are directly applicable and obligatory for all member states of the union, and thus do not need support from national legislation, as is the case with regulation (ec) no 1655/2000 of the european parliament and of the council of 17 july 2000 concerning the financial instrument for the environment. directives are binding in respect of the aim to be achieved, but leave to the national legislation options for the means and mechanisms of their implementation, as is the case with directive 2004/35/ce of the european parliament and of the council of 21 april 2004 on environmental liability with regard to the prevention and remedying of environmental damage. decisions are binding in respect of to who it may concern, including memberstate, individuals or legal persons, as is the case with decision no 1600/2002/ec of the european parliament and of the council of 22 july 2002 laying down the sixth community environment action programme. apart from these, there are other acts of the eu that are not legally binding, but which represent important documents in realizing the eu environmental policy. these include recommendations, opinions and. environmental protection standards adopted by international organizations (as is the case with the aarhus convention). the harmonization of legal documents of the member-states is regulated by chapter vi of the eu treaty and sub-chapter 3 that deals with the approximation of laws. these articles prescribe that council may adopt directives for the approximation of statutes, by-laws and administrative regulations of the member-states which are vital for the functioning of the common market (article 94 of the treaty establishing the european community consolidated text). if the commission concludes that there are discrepancies in the statutes or administrative acts in the national legislations that jeopardize common policies, it will consult with the member-stats and if the consultations do not result in positive solutions, adopt recommendations with respective measures. in this way, by harmonizing legislation and adopting general acts which are directly implementable, an integrated and harmonized system of legal rules is established in the legal system of the union, including the field of environmental protection. today, the legal system of the eu enables citizens and their association's participation in policy decision-making in environmental issues. not only can the citizens directly take part in deciding environmental law issues, but also take respective action and initiate procedure in protecting environmental fundamental rights. iv. the aarhus convention in the preamble of the convention on access to information, public participation in decision-making and access to justice in environmental matters (aarhus convention, 1998) was adopted in aarhus, denmark in june of 1998, and entered into force on october 30 2001, the parties to this convention, inter alia, recalling principle l of the stockholm declaration on the human environment, recalling also principle 10 of the rio declaration on environment and development, recalling further general assembly resolutions 37/7 of 28 october 9 issn 1822-8402 european integration studies. 2007. no 1 1982 on the world charter for nature and 45/94 of 14 december 1990 on the need to ensure a healthy environment for the well-being of individuals, recalling the european charter on environment and health adopted at the first european conference on environment and health of the world health organization in frankfurt-am-main, germany, on 8 december 1989, affirming the need to protect, preserve and improve the state of the environment and to ensure sustainable and environmentally sound development, recognizing that adequate protection of the environment is essential to human well-being and the enjoyment of basic human rights, including the right to life itself, recognizing also that every person has the right to live in an environment adequate to his or her health and well-being, and the duty, both individually and in association with others, to protect and improve the environment for the benefit of present and future generations, considering that, to be able to assert this right and observe this duty, citizens must have access to information, be entitled to participate in decision-making and have access to justice in environmental matters, and acknowledging in this regard that citizens may need assistance in order to exercise their right and recognizing that, in the field of the environment, improved access to information and public participation in decisionmaking enhance the quality and the implementation of decisions, contribute to public awareness of environmental issues, give the public the opportunity to express its concerns and enable public authorities to take due account of such concerns, agreed that "in order to contribute to the protection of the right of every person of present and future generations to live in an environment adequate to his or her health and well-being, each party shall guarantee the rights of access to information, public participation in decisionmaking, and access to justice in environmental matters in accordance with the provisions of this convention." (art. 1) the convention further states that (art. 3).: "each party shall take the necessary legislative, regulatory and other measures, including measures to achieve compatibility between the provisions implementing the information, public participation and access-to-justice provisions in this convention, as well as proper enforcement measures, to establish and maintain a clear, transparent and consistent framework to implement the provisions of this convention.(…) each party shall promote environmental education and environmental awareness among the public, especially on how to obtain access to information, to participate in decision-making and to obtain access to justice in environmental matters. (…)." in regard to access to environmental information, the convention, inter alia, states that (art. 4-5): each party shall ensure that, public authorities, in response to a request for environmental information, make such information available to the public, within the framework of national legislation, including, where requested and subject to subparagraph (b) below, copies of the actual documentation containing or comprising such information: a) without an interest having to be stated; b) in the form requested unless: it is reasonable for the public authority to make it available in another form, in which case reasons shall be given for making it available in that form; or the information is already publicly available in another form. the environmental information shall be made available as soon as possible and at the latest within one month after the request has been submitted, unless the volume and the complexity of the information justify an extension of this period up to two months after the request. the applicant shall be informed of any extension and of the reasons justifying it. a request for environmental information may be refused, inter alia, if: a) the public authority to which the request is addressed does not hold the environmental information requested; b) the request is manifestly unreasonable or formulated in too general a manner; or c) the request concerns material in the course of completion or concerns internal communications of public authorities where such an exemption is provided for in national law or customary practice, taking into account the public interest served by disclosure. in regard to public participation in decisions on specific activities, the convention, inter alia, states that (art. 6-8): each party shall apply the provisions of this article with respect to decisions on whether to permit proposed activities (listed in annex i); shall, in accordance with its national law, also apply the provisions of this article to decisions on proposed activities not listed in annex i which may have a significant effect on the environment. to this end, parties shall determine whether such a proposed activity is subject to these provisions; and may decide, on a case-by-case basis if so provided under national law, not to apply the provisions of this article to proposed activities serving national defense purposes, if that party deems that such application would have an adverse effect on these purposes. the public concerned shall be informed, either by public notice or individually as appropriate, early in an environmental decision-making procedure, and in an adequate, timely and effective manner, inter alia, of: a) the proposed activity and the application on which a decision will be taken; b) the nature of possible decisions or the draft decision; citizens) the public authority responsible for making the decision; d) the envisaged procedure, including, as and when this information can be provided. (…) each party shall make appropriate practical and/or other provisions for 10 issn 1822-8402 european integration studies. 2007. no 1 the public to participate during the preparation of plans and programmes relating to the environment, within a transparent and fair framework, having provided the necessary information to the public. (…) each party shall strive to promote effective public participation at an appropriate stage, and while options are still open, during the preparation by public authorities of executive regulations and other generally applicable legally binding rules that may have a significant effect on the environment. in regard to access to justice, the convention, inter alia, states that (art. 9): each party shall, within the framework of its national legislation, ensure that any person who considers that his or her request for information has been ignored, wrongfully refused, whether in part or in full, inadequately answered, or otherwise not dealt with in accordance with the provisions of that article, has access to a review procedure before a court of law or another independent and impartial body established by law. in the circumstances where a party provides for such a review by a court of law, it shall ensure that such a person also has access to an expeditious procedure established by law that is free of charge or inexpensive for reconsideration by a public authority or review by an independent and impartial body other than a court of law. final decisions shall be binding on the public authority holding the information. reasons shall be stated in writing, at least where access to information is refused. (…) these provisions shall not exclude the possibility of a preliminary review procedure before an administrative authority and shall not affect the requirement of exhaustion of administrative review procedures prior to recourse to judicial review procedures, where such a requirement exists under national law. (…) in order to further the effectiveness of the provisions, each party shall ensure that information is provided to the public on access to administrative and judicial review procedures and shall consider the establishment of appropriate assistance mechanisms to remove or reduce financial and other barriers to access to justice. iv. access to environmental justice environmental justice "…has developed as a movement and concept of social science, with focus on the "unfair" distribution of the negative impact of modern society, such as risk exposure, but it also pertains to the means available or rather the lack of means available for those affected to achieve acceptable decisions. [note: for one example, r.j. lazarus, "pursuant environmental justice: the distributional effects of environmental protection", 87 northwest university law review (1993) 787, identifies five means of pursuing environmental justice in the u.s.a., which include both rethinking the substance of environmental laws and litigating civil rights associated with environmental protection.] from this perspective, it is quite clear that environmental and social justice, by whatever standard, presupposes effective access to the administrative and legal system, so that rights can be vindicated and existing laws on the protection of health and the environment can be evoked. [note: cf. cappelletti and garth, "access to justice: the worldwide movement to make rights more effective" in cappelletti and garth (eds.), access to justice, vol. iii, emerging issues and perspectives (sijthoff and noordhoff, alphen an den rijn, 1979), page 6, where they argue that "access to justice" focuses on "two basic purposes of the legal system the system by which people may vindicate their rights and/or resolve their disputes under general auspices of the state. first the system must be equally accessible to all, and second, it must lead to results that are individually and socially just. (…).]" (ebbeson, 2002, p. 8). within the so-called "three pillars" of the aarhus convention i.e. access to environmental information, participation in environmental issues decision-making and access to justice, the "access to environmental justice" segment can be defined as "a means of having erroneous administrative decisions on environmental issues corrected by a court or another independent and impartial body established by law." (ebbeson 2002, p. 8). the right to access to justice deals with two basic situations. "first, any person who considers that his or hers request for environmental information has been ignored, refused or not dealt with in accordance with the convention shall be ensured access to a review procedure before court or another independent body (art. 9/1). second, any member of the public having sufficient interest or maintaining impairment of a right shall be ensured a review procedure before a court of law or another independent and impartial body, to challenge the substantive and procedural legality of any decision, act or omission concerning "specific activities", which may affect the environment (art. 9/2). access to justice in not limited to cases where the participatory of informational rights of the aarhus convention are infringed, but must also be granted in order to challenge the substantive legality of the decision. in addition to decision concerning specific activities, the parties shall ensure access to justice in cases concerning other relevant provisions of the convention (e.g. decisions on plans and programmes) "where so provided under national law (art. 9/2). (…) it essentially remained a matter for national law to determine what constitutes a sufficient interest and an impairment of a right, this must be defined in consistency with the objective of the convention, to give the public concerned "wide access to justice" (art. 9/3)." (ebbeson 2002, p. 14). 11 issn 1822-8402 european integration studies. 2007. no 1 the aarhus convention is substantially linked to international human rights and basic constitutional rights and freedoms (hayward 2005). access to justice, as defined by the aarhus convention rests on the basic human right to a fair trail. this connection can be seen in relation between the aarhus convention and other international documents pertinent to the protection of human rights such as the universal declaration of human rights (1948), the international covenant of civil and political rights (1966), and particularly the european convention of human rights (1950). the aarhus convention definition of access to justice as access to a review procedure before a court of law and/or another independent and impartial body established by law derives from the basic human right to a fair trail and public hearing as prescribe by the universal declaration of human rights (hancock 2003). the european convention for the protection of human rights and fundamental freedoms (1950) states that: "in the determination of his/hers civil rights and obligations or of any criminal charge, everyone is entitled to a fair and public hearing within a reasonable time and by an independent and impartial tribunal established by law (art. 6/1). although, the aarhus convention is not structurally and institutionally attached to the european convention of human rights (the aarhus convention is also open to non eu states), the similarity of language suggests that, "despite the autonomy of the aarhus convention vis-à-vis the echr, the case-law of the european court of human rights provides some indication on what may qualify as independent and impartial under the aarhus convention as well." v. environmental justice in serbia referring to the case of serbia, which to this day has not joined the aarhus convention, it should be mentioned that at present the eu ascension process of this country is "on hold", pending fulfilling conditions related to the cooperation with the international tribunal for war crime for the former yugoslavia. however, once the obstacles are surpassed, it would be reasonable to conclude that serbia would ratify the aarhus convention and ensure its citizens "access to environmental justice". as pointed out: "serbia (and montenegro) is not member of the aarhus convention. the previous federal republic of yugoslavia, due to well-known circumstances regarding the position of the county, was not even included in the preparatory activities concerning the drafting and adoption of the convention. fry did not take part in the ministerial conference at which the convention was adopted, although ngo representatives from fry participated. the first initiatives linked to the aarhus convention in serbia were initiated in 1999 by the regional environmental center for central and eastern europe and its office in belgrade. since then a number of activities focused on creating conditions for the ratification and implementation of the aarhus convention have been realized. (…) all these activities have contributed to informing the general public, as well as to creating a favorable atmosphere and raising public awareness regarding not only the aarhus convention, but environmental issues in general as well. these activities also contributed to governmental preparation for the acceptance of the aarhus convention. on these grounds, one can expect that further activities regarding preparation for a more intensive acceptance of the aarhus convention. basically, the preparations deal with further harmonization of the legislation, the creation of an institutional framework for implementing the convention, securing technical equipment for institutions, education and further work on raising pubic awareness." (đorđević, katić, 2004, pp. 11-13). on the other hand, it could be said that in the existing constitutional and statutory framework, the "spirit" of the aarhus convention, at least in regard to environmental information (if not so much in regard to access to environmental justice), can be detected. thus, the new constitution of serbia (2006) states that: "everyone is entitled to a healthy environment and due and full information as to its state." (art. 74/1). also, the law on free access to information of public significance (2004), inter alia, states that: "it is considered that a justified interest of the public to know (…) always exists when pertinent information that authorities poses relate to endangerment and protection of health or the environment (…)." (art. 4). vi. conclusion concluding, we can highlight the four main features of access to justice in environmental law issues. a) environmental protection has become on of the major global concerns. consequently, this has resulted in growing demands for legal regulation ensuring efficient environmental protection. within the world legal framework different forms of legal regulation have been put into effect that include international, regional and domestic systems of protection. given the unprecedented nature of the many environmental issues, massive bodies of legislation have been created through international treaties, eu regulations and directives, as well as domestic laws and regulations. b) the aarhus convention on access to information, public participation in decision-making and access to justice in environmental matters (1998, entered into force 2001), provides for "three pillars of environmental justice". they include access to environmental information, participation in 12 issn 1822-8402 european integration studies. 2007. no 1 environmental issues decision-making and access to environmental justice. in the european union, the aarhus convention will bind the member-states that ratify the convention, but also all 27 member-states once the convention is ratified by the eu. in this case, the convention is binding in regard to the legislation of all member-states regardless of the fact if an individual member-state is party to the convention or not. c) the aarhus convention, inter alia, draws its substantial values from similar international and european human rights documents, including the european convention on human rights, particularly in the field of "access to justice", as the aarhus convention provides for a review procedure before a court of law and/or another independent and impartial body established by law. d) in the case of serbia, once that this country ratifies the aarhus convention it will be a step closer in the harmonization of its human rights standards and its legislation and court standards of rendering environmental justice within the general framework of the eu legal system. references salzman j, thompson jr. b.h. (2006), environmental law and policy, concepts & insights series, 2nd edition, foundation press, hayward t. (2005), constitutional environmental rights, university press, oxford, 2005. prokopijević m. (2005), uvod u pravo evropske unije (introduction to the law of the eu), beograd. đorđević s., katić m. (2004), vodič kroz praktičnu primenu arhuske konvencije i mali ekološki rečnik (practical guide for the application of the aarhus convention), regionalni centar za životnu sredinu za centralnu i istočnu evropu, kancelarija u srbiji i crnoj gori, beograd. beckerman w. (2003), a poverty of reason sustainable development and economic growth, the independent institute, oakland. hancock j. (2003), environmental human rights: power, ethics and law, critical security series, ashgate publishing. ebbeson j. (editor) (2002), access to justice in environmental matters in the eu, kluwer international, the hague. kiss a. preface, in ebbeson j. (editor) (2002), access to justice in environmental matters in the eu, kluwer international, the hague. ebbeson j., comparative introduction, in ebbeson j. (editor) (2002), access to justice in environmental matters in the eu, kluwer international, the hague. wolf s., white a., stanley n. (2002), principles of environmental law, cavendish, london. todić d., vukasović v. (2002), ekološka kriza u svetu i odgovor međunarodne zajednice (environmental crisis in the world and the response of the international community), savezni sekretarijat za rad, zdravstvo i socijalno staranje, beograd. ferry s. (2001), environmental law examples and examinations, second edition, aspen law and business. morand-deviller j. (1987), le droit de l'environnement, presses universitaires de france, paris. aarhus convention convention on access to information, public participation in decisionmaking and access to justice in environmental matters. (source: http://www. unece.org/env/pp/documents/cep43e.pdf.) rio declaration on environment and development. (source: http://www.unep.org/ documents.multilingual/default.asp?documenti d=78&articleid=1163) stockholm declaration, united nations conference on the human environment (source: http://www.unep.org/ documents. multilingual/default.asp?documentid=97&artic leid=1503) unep united nations environmental protection program (http://www.unep.org). eurl-ex (source: http://www.europa.eu. int/eurlex/en/about/pap/ process_and_ players2.html) treaty establishing the european community consolidated text. (source: http://eurlex.europa.eu/en /treaties/dat/12002e/pdf/ 12002e_en.pdf.) single european act (1986). (source:http:// europa.eu.int/eur-lex/en/treaties/selected/livre 509.html) convention for the protection of human rights and fundamental freedoms, 1950. (source: http: //www.mediacenter.org.yu/code/ navigate.asp?id=262) regulation (ec) no 1655/2000 of the european parliament and of the council of 17 july 2000 concerning the financial instrument for the environment. (source: http://eurlex.europa.eu/lexuriserv/lexuriserv.do?uri=c elex:32000r1655:en:html) 13 issn 1822-8402 european integration studies. 2007. no 1 directive 2004/35/ce of the european parliament and of the council of 21 april 2004 on environmental liability with regard to the prevention and remedying of environmental damage. (source: http://eur-lex.europa.eu/lexuriserv/lex uriserv.do?uri =celex:32004l0035:en:html) decision no 1600/2002/ec of the european parliament and of the council of 22 july 2002 laying down the sixth community environment action programme. (source: http://eurlex.europa.eu/lexuriserv/site/en/oj/ 2002/l_242/l_24220020910en00010015.pdf) 14 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 80 european integration studies no. 14 / 2020, pp. 80-89 doi.org/10.5755/j01.eis.1.14.26829 abstract enhancement of retail consumer loyalty in latvia by means of social media communication http://dx.doi.org/10.5755/j01.eis.1.14.26829 social media communication has become an important tool both in relying information to potential consumers, as well as in creating experience sharing opportunities. the purpose of this paper is to examine the impact of’ social media communication on the loyalty formation in retailing. the tasks to be carried out are: 1 to research theoretical framework of social media communication and loyalty; 2 to work out methodology for empirical research; 3 to carry out research on consumers’ perception of retail stores online communication. within the framework of the current study the authors employed a method of customer survey. applying the non-probability snowball sampling method the questionnaire was distributed via e-mails and facebook groups (n=327). the general population in this research consisted of the economically active latvia residents in 2020. the authors used 5-point likert scale (1-low evaluation, 5 – very high evaluation). the spss program was used for this purpose, the following indicators were calculated: arithmetic mean (x-), median (me); mode (mo); variation; standard deviation; variation coefficient. the research question posed in the article was the following: what role does social media play in enhancing consumer loyalty in retailing? findings: 87% of all respondents have noticed the communication of latvian retail store networks on social media and 60% of all respondents have chosen to follow the profile of social networks to one of them, which indicates the untapped opportunities of companies in this respect. evaluating the communication of latvian retail store chains, the arithmetic average is 2.68, but for communication on social media 2.72. it means that in order to increase these indicators, latvian retail store chains must develop a communication strategy taking into account both the values of the target audience and the basic principles of building relationships with customers. the current research results can serve as grounds for the strategy development. keywords: consumer loyalty, retailing, social media communication, consumer engagement, ewom. introduction iveta linina turiba university submitted 06/2020 accepted for publication 07/2020 enhancement of retail consumer loyalty in latvia by means of social media communication eis 14/2020 velga vevere eka university of applied sciences the pandemic of coronavirus has affected the global economy immensely, the long-term effects are to be seen in the foreseeable future. one of the spheres, among others, hit hard is the retail trade since due to the quarantine conditions there is an inevitable drop in sales (less number of customers means less profit inevitably) and growing competition among retailers. at the same time these new circumstances compel retail enterprises to develop new modes communication and new online sales points, since a number of retailers/consumer goods companies have shifted their focus to online sales in view of a surge in consumers’ willingness to spend online during the outbreak (pricewaterhousecoopers, 2020). studies of the effects of covid-19 upon economy http://doi.org/10.5755/j01.eis.0.13.23562 81 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 is to be expected in the near future, however, the current crisis actualizes the significance of online communication for retail enterprises, more specifically, communication of social responsibility (in relation to the environment, to the customers, to the community and to the employees). the authors of the present article in 2019 have conducted the research of the impact of corporate social responsibility upon the customer loyalty formation in retail sphere in the baltic countries (linina et al., 2019). it was a two-phase research. the first phase consisted of the retail customer survey; considering the aim of the research and characteristics of the respondents the standardized questionnaire was used. all respondents were offered the similar statements in the identical order, the evaluation was according to 5-point likert scale. the non-probability snowball sampling method was used to gather information, namely, the first set of respondents were contacted by the means of e-mail, they, in their turn, identified the next set of respondents, and so on. as the result 1446 questionnaires were admitted as valid: 673 from latvia, 388 from lithuania, and 385 from estonia (the population – residents of all countries). the respondents answered two sets of questions: (1) about factors that influence their choice of supermarket – the assortment of goods (including the local and eco produce), the price level, the product placement and shopping convenience, the marketing activities, the service quality, and, the most important, the attitude toward employees and employment policy (different social programs), the responsible attitude to environment, as well as participation in the social projects and organizing them; (2) about the same factors within the context of their evaluation of the supermarket. these differences entailed that the consumers’ expectations were not fully met, and the certain steps taken in the direction of the ethical business practices can facilitate changes in the consumption patterns (for example, the corporate social responsibility activities can become a significant factor of the supermarket choice). in order to investigate the existing gap mentioned above, the authors carried out the second phase of research – the expert survey (n=9). based on the objectives of the research and taking into account the peculiarities of the expert group, the authors selected the following characteristics of the expert survey: an individual survey, in which experts participate independently; off-site survey where experts provide individual answers without the direct assistance of expert organizers; closed questionnaire, where each expert is not informed of the answers of the other experts; 10-point likert scale questionnaire (1very low to 10 – very high evaluation). the main conclusions from the research were the following: (1) the comparison of supermarket selection criteria evaluations with the actual supermarket performance indicators showed that the five selection criteria (assortment of products, including local and eco products, marketing activities, quality of service, employee attitude and employment policy and responsible attitude to environment) were ranked higher than the actual supermarket ratings; (2) customers in the baltic states demonstrated a relatively low loyalty ratio for the company; (3) comparing the customer survey with the expert survey led to the conclusion that the most divergent indicator was the price level, which according to the experts was the most important in the choice of the shop; (4) both surveys exhibited the false loyalty phenomenon, namely – that the location of the store (convenience) was the key factor in choosing the particular shopping point, rather than reputation, image and social activities (linina et al., 2019). in authors’ opinion, one of the reasons for the latter conclusion was the insufficient communication in social media. this led to the development of the current research the and the following research question: what role does social media play in enhancing consumer loyalty in retailing? literature review the theoretical basis of the current research consists of two conceptual frameworks – the first concerning the loyalty formation mechanisms in retailing, while the second one – the role of retailers’ online communication in the loyalty building. in general, the loyalty can be defined as result of the consumer's perception of the supply (product, service, brand, etc.), which has led to positive attitudes (cognition, trust and emotional) and positive action regarding the offer (repeate u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 82 ed purchases, additional purchases, high consumption intensity, etc.) (linina & zvirgzdina, 2016). the research literature exhibits an array of loyalty models, but for the purpose of the current research we would like to stress three of them, respectively, the one-dimensional, the two-dimensional, the three-dimensional, and the four-dimensional ones. historically speaking, the scene was dominated by the one-dimensional model, where the loyalty was determined by the results of consumers’ behavior – their preference for a certain offer in the market or, in other words, the repeated purchase (bass, 1997). although the repeated purchase is a significant indicator of loyalty, it does not take into account the factor of consumer attitude. thus, having identified the shortcomings of the one-dimensional loyalty model, the researchers suggest investigating this category from a two-dimensional point of view, that includes the above mentioned attitudinal loyalty (khan, 2009). attitudinal loyalty is a psychological attachment to a company or selected brand which is often in the form of a long-term and ongoing relationship with the brand (day, 1969). this approach provides an opportunity to analyze consumer loyalty not only from the point of view of the end result (repeated purchases), which can be due not only to loyalty but also to the psychology of consumer behavior. there were also weaknesses in the two-dimensional approach to the development of the nature of loyalty in research. the proposal to obligatory study and quantitative assessment of consumers' awareness of the offer was a particular objection. in order to overcome this obstacle, the three-dimensional model was proposed, namely, it presupposed that loyalty was made up of consumers’ thoughts and feelings toward the brand that are manifested as action (worthington et al., 2009). in other words, the three-dimensional model of loyalty included such aspects as, cognitive loyalty, behavioral loyalty, as well as affective loyalty. in the late 20th and 21st centuries, the research on the essence of loyalty and its practical implications was dominated by r. oliver (1999), who worked out the four-dimensional consumer loyalty model. in this regard, the researcher, in the context of attitudinal loyalty, also highlighted the emotional dimension (i buy because i like this offer) and the trust dimension (i buy because i trust this offer), which together with the cognitive dimension influenced the decision of repeated purchase. oliver described the loyalty formation process consisting of four stages: a consecution of cognitive loyalty, affective loyalty, conative loyalty, and action (behavioral) loyalty. in such a progressive sequence of customer behavior one can observe that attitudinal loyalty leads to behavioral loyalty (taghipourian et al., 2015; hoffmann, 2013). figure 1 consumer loyalty model (linina &zvirgzdina, 2016) consumer value perception target audience specifics, consumptions experience monetary value (price, other consumer costs) consumer loyalt attitudinal loyalty action loyalty cognitive, emotional, conative repeated purchases, recommendations etc. product/brand value monetary value (price, other consumer costs) socail value (status, prestige etc.) service professionalism factors influencing consumer loyalty (antecedents) consumer loyalty dimensions (antecedents) 83 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 based on the analysis of the advantages and disadvantages of loyalty models discussed above, the authors recommend to introduce the conceptual consumer loyalty model for the practical use (see figure 1). this model is versatile in its nature, but can be used in practice, taking into account the peculiarities of the industry / product / brand. it might be concluded, that the consumer loyalty processes include the following logically related elements: factors influencing loyalty (values); perception of consumer values; peculiarities of the target audience; consumer satisfaction; and dimensions of consumer loyalty. through the consumer loyalty model in retailing exhibits the majority of the features depicted in the conceptual model depicted above, there are particular idiosyncratic features that should be taken into account customer loyalty means that customers are committed to buying merchandise and services from a particular retailer. loyalty is more than simply liking one retailer over another. loyalty means that customers will be reluctant to switch and patronize a competitive retailer. it is possible to distinguish the following aspects of loyalty building: building a strong brand image, creating a unique positioning in the target market, offering unique merchandise, providing excellent customer service, implementing a customer relationship management program, and building a retail community (levy et al., 2014; hoffman, 2013). in the light of the current research (online communication and loyalty) the last two aspects seems of be of higher importance. in other words, these are so-called “how” (or performance) factors (clottey et al., 2008; deka, 2016). summing up the previous research in the field, the authors of the current article have come up with the specific features of the consumer loyalty in the realm of retailing: 1 customer can be loyal to the outlet/store due to the following factors: availability of the product/brand he is satisfied with, satisfaction with the product/price ratio, satisfaction with the service quality, social factors; 2 perception of the afore mentioned factors depend on the geographic, demographic, economic, social and psychological characteristics of the target audience, though the importance of the factors can differ (e.g., despite the satisfactory price level, service quality the customer can still be not loyal in case of unavailability of the necessary product/brand); 3 unlike other industries, the retail trade can have a fairly large number of the false loyal customers (making purchase only due to the advantageous location of the store) and the ones who although satisfied, are not re-purchasing, since they focus on sales and price discounts; 4 the attitudinal loyalty relates mainly to the product/brand values and the relation "product / brand value consumer expenses", but the behavioral loyalty to service quality. therefore, it is imperative to pay attention to both dimensions of loyalty; 5 the consequences of consumer loyalty are different, but the main thing about it is to make repeated purchases. other signs of loyalty low price sensitivity and positive "mouth-to-mouth" communication are less typical because they concern specific products/brands rather than retailers (linina &zvirgzdina, 2020). moving to the second are of our conceptual framework, i.e., the employment of social networks in building retail consumer loyalty, we have to admit that literature in the field covers quite broad spectrum of issues – from the role of consumer references and the rewarding engagement strategies, from the electronic word of mouth (e-wom) and creation of online communities to the online communication strategies (ali, 2016; leonardi et al., 2013; poturak & softić, 2019; pütter, 2017; schivinski & dabrowski, 2014). thus, l. m. rehnen and others (2017) and l.m. lekhanva (2013) devoted their research to the consumer engagement, particularly. they concluded that although the rewarding per se could enhance the consumer loyalty there existed a danger that offering rewards might make consumers undermine the value of the product in question. c. m. sashi (2012), in his turn, created a consumer engagement model consisting of seven stage u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 84 es: connection, interaction, satisfaction, retention, loyalty, advocacy, and engagement. all in all these stages were based on two pillars – interaction and emotional attachment, that by definition accords to the definition of social media as the collective of online communications channels dedicated to community-based input, interaction, content-sharing and collaboration (neti, 2011). consumers are adopting increasingly active roles in co-creating marketing content with companies and their respective brands. in turn, companies and organizations are looking to online social marketing programs and campaigns in an effort to reach consumers where they ‘live’ online (hanna et al., 2011). word of mouth marketing within s-commerce referred to the sharing of opinions and feedbacks regarding products. this process, when monitored by the company, can play a significant role in the consumer loyalty enhancement, especially when, there is a high level of competition represented by products that are rapidly introduced to the market. (kaplan & haenlein, 2010). karjaluoto and others are (2014) interested in examine how customer’s intention to post wom can influence his/her repurchase intention. our age of digital media makes the shopping experience entirely different – instead of visiting shopping sites physically modern consumers check retailers’ websites beforehand. in the presence of social media, some businesses offer virtual tours of their retail outlets that can provide potential shoppers with guides to convenience features such as parking and opening hours; helping customers to make decisions to frequent certain shopping destinations. besides that, the websites allow potential buyers immerse themselves in the previous customers’ experiences, as well as to leave their feedback afterwards (villarejo-ramos et al., 2014; de keyzer, 2019). still, the most important conclusion, in our opinion, to be derived from the theoretical literature regarding the role of online communication in creating retailer-consumer relationship are the following: the modern consumption patterns require from retailers pay attention to the pre-purchase (information about produce, store opening hours, client service, etc.) and post-purchase (consumer feedback, warranties, etc.) communication. methodology within the framework of the current study, in order to find out the attitude of buyers towards online communication of the retail enterprises in in latvia, the authors employed a method of customer survey (rust et al., 2004). the survey procedure consisted of seven subsequent stages: 1 the standardization of the questionnaire and determination of its openness. taking into account the goal of the survey and characteristics of respondents, the authors chose the standard open questionnaire. it means that all respondents were offered the similar questions in the similar sequence, that made possible the objective comparison. the questions had one-answer option according to the 5-point likert scale. 2 the choice of sampling and questionnaire distribution method. the questionnaire was created in the google documents environment. applying the non-probability snowball sampling method (kristapsone et al., 2011) the questionnaire was distributed via e-mails and facebook groups. in the result, 327 questionnaires were recognized as valid. the general population in this research consisted of the economically active latvia residents in 2020. at the 95% data reliability level and the 5% margin of error, the minimum number of respondents in the sample was calculated at 315 respondents (arhipova & bāliņa, 2006,). the respondents’ social-demographic characteristics are depicted in the table 1. 3 determining how to obtain the required information. taking into account the fact that all respondents were retail store customers, it was a high probability that they had enough information, as well as shopping experience. yet another question was – would they be willing to share necessary and truthful information. in order to increase the level of interest, the authors 85 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 no. characteristics number of respondents number % 1. gender female 294 90 male 33 10 sum 327 100 2. age 0–25 46 14 26–45 141 43 46–64 131 40 65 > 9 3 sum 327 100 3. income 0-700 89 27 701–1500 235 72 1500> 3 1 sum 327 100 table 1 social-demographic characteristics of respondents source: authors‘ 87 % 13 % notice do not notice figure 2 noticeability of retailers’ communication in social media of the paper wrote in the introduction of the questionnaire that filling in the questionnaire could contribute to improving the quality of retailers’ communication. 4 formulating the questions. it is a difficult task, since the faulty formulation can entail respondent’s refusal to answer or to supply the incorrect answer. in order to avoid such problems, the authors used simple sentences avoiding vague terms, avoid prompting questions; hidden alternatives and assumptions, value statements making sure that all questions are caser specific (dillman, 2007). 5 sequence of questions. in obtain the maximally precise information, the sequence of the questions were the following: from general to specific, the more complicated ones were asked in the second half; each block was completed before moving to the next one; the demographic information was gathered at the very end in order not to lose the potential respondent before even when he/she started filling out the form (in case if respondent does not wish to reveal personal information). 6 determining the form of questions. the authors used 5-point likert scale (1-low evaluation, 5 – very high evaluation). in case of several possible answers it was duly noted. the authors did not employ open-ended questions in order to collect data viable for quantitative processing. 7 data processing. the spss program was used for this purpose, the following indicators were calculated: arithmetic mean (-x ̄), median (me); mode (mo); variation; standard deviation; variation coefficient (kristapsone et al., 2011). for the questions with several possible answers, the frequency analysis was used. upon processing the survey data the conclusion was reached that latvia residents notice retailers’ communication in social media, because 87% of respondents gave the affirmative answer to the question (see figure 2). regarding following one or another retail chain online communication almost half of respondents (40%) admitted doing so (see figure 3). this is a high figure and indicates that shoppers e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 86 60 % 40 % follow do not follow figure 3 followership to retail chain store profile on social media need information and the fastest way to get it is on social media. in turn, it gives companies the opportunity to communicate directly with their customers and also to build relationships with them to achieve loyalty. in order to successfully communicate with customers to build relationships and ensure loyalty on social media to retail store chains, it is essential to ensure that this communication meets the expectations of customers. within the framework of the survey, respondents were given the opportunity to evaluate the communication of latvian retail store chains with customers in general and on social media in particular on the likert scale in a 5-point system, where 1 is a very low rating and 5 is very high (see table 2). retail chain store communication a ri th m et ic m ea n a ri th m et ic m ea n st an da rd e rr o r m ed ia n m o de m ea n sq u ar e de vi at io n d is pe rs io n va ri at io n evaluation of communication in general 2.68 0.05 3.00 3.00 1.08 1.16 0.09 evaluation of communication in social media 2.72 0.05 3.00 3.00 1.10 1.21 0.09 table 2 evaluation of retail chain store communication both indicators were assessed very similarly, where the arithmetic mean when assessing the communication of latvian retail store networks was slightly above the average, i. e., 2.68, but in social media particularly it was slightly higher 2.72. in both cases, there was a very large amount of variation, which indicated the difference in opinion of the respondents regarding these issues. this assessment showed that companies had the opportunity to improve communication with customers, which could be the basis for developing relationships with them as the basis for loyalty building. in order to understand buyers’ desires, the respondents were asked what would encourage them to follow the retail store chains in the social media. summarizing these answers, the proposed factors were ranked according to their importance, where 1 meant the most important aspect, but 6 the least important one: 1 information about new produce 2 possibility to express one’s opinion 3 product advertisement 4 experience of other consumers 5 information about company activities 6 competitions and lotteries. 87 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 from this ranking it follows that the most important aspects enhancing the consumer loyalty through social media communication are two: product information (supplemented by advertisements) and consumer feed-back opportunities, whereas the lowest ranking positions, i.e., 4th and 5th respectively were assigned to information about company activities, as well as competitions and lotteries. taking into account the results obtained in this study, retail companies in latvia can develop a social media communication strategy both by defining the target audience and adapting the content to this target audience. conclusion 1 the study included a survey of 327 respondents, 90% of whom were women and 10% men. the largest majority of respondents, 83%, are economically active latvians aged 26-64, whose average income is more than 1,500 euros per month after taxes. the survey is considered representative as it involved 327 respondents, representing 95% data reliability and 5% error margin. 2 87% of all respondents have noticed the communication of latvian retail store networks on social media and 60% of all respondents have chosen to follow the profile of social networks to one of them, which indicates the untapped opportunities of companies in this respect. 3 evaluating the communication of latvian retail store chains, the arithmetic average is 2.68, but for communication on social media 2.72. in order to increase these indicators, latvian retail store chains must develop a communication strategy taking into account both the values of the target audience and the basic principles of building relationships with customers. developing social media communication strategy, the retailers must set clear short-term and long-term objectives in order to ensure the effectiveness of communication. 4 taking into account the results obtained in the survey, latvian retail store chains for communication on social media need to create content according to 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(2004). return on marketing: using customer equity to focus marketing strategy. journal of marketing, 68, 109 127. https://doi.org/10.1509/jmkg.68.1.109.24030 villarejo-ramos, á. f., sánchez-franco, m. j., garcía-vacas, e. m. & navarro-garcía, a. (2014). modelling the influence of ewom on loyalty behaviour in social network sites. in strategies in e-business (pp. 11-28). new york: springer. https://doi.org/10.1007/978-1-4614-8184-3_2 worthington, s., russell-bennett, r., and hartel, c. e. j.(2009). a tridimensional approach for auditing brand loyalty, journal of brand management, 17, (4), 243-253. https://doi.org/10.1057/bm.2009.24 about the authorslinina iveta dr.oec. turiba university fields of interests marketing, marketing communications, sales management, customer relationship marketing. address 68 graudu st., riga lv-1058, latvia, phone: +37126306922 e-mail: iveta.linina@turiba.lv vevere velga dr.phil. eka university of applied sciences fields of interests philosophy, business ethics, corporate social responsibility, marketing communications, brand management. address 1/5 lomonosova st., riga lv-1019, latvia, phone: +37126463584 e-mail: velga.vevere@gmail.com this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 90 european integration studies no. 14 / 2020, pp. 90-102 doi.org/10.5755/j01.eis.1.14.26375 abstract between the state and the kin in latvia: one-person household social security from social antropological perspective http://dx.doi.org/10.5755/j01.eis.1.14.26375 one-person household is the dominant type of household in today’s latvia. research on kinship in contemporary europe suggests that weak kinship ties are characteristic of institutionally strong countries where individuals once incapacitated due to illness, disability, or old age can reckon on some social security. kinship ties are not particularly strong in latvia, nor does its social security system compensate for their weakness: the statistical data show that of all household types, one-person households are the most exposed to the risk of poverty, especially those of people over 64 years of age. the aim of the article is to provide a socio-anthropological insight into the ways in which the policies implemented by various political regimes in latvia over the last one hundred years have promoted the formation of an economically independent individual, thus directly and indirectly weakening family and kinship ties. drawing on our ethnographic data, we explore instances when the state welfare system failed to provide an individual with social security and inquire into the degree the family and kinship ties in such circumstances are likely to be re-established. the fieldwork findings suggest that the person whose next of kin needs additional assistance or care, faces a dilemma: either to provide support to the vulnerable relative while compromising his/her own economic stability, or to delegate care obligations to the state. however, our data also show: while the country’s social assistance system at times falls short of meeting the necessities of one or another vulnerable group, its social insurance system nevertheless has significantly shaped the sense of moral obligation in intergenerational relationships. tasks of the article are (1) to survey recent theoretical approaches and research findings on interaction between kinship and the state, (2) to outline the consequences for latvians’ family and kinship ties of the policies implemented by consecutive political regimes over the previous century, and (3) to analyse the role of family and kinship in contemporary latvia drawing on own ethnographic data as well as statistics and studies on kinship and paying a particular attention to the issue of social security of one-person households. keywords: kinship, family, state, one-person household, social security. introduction kristīne rolle riga stradins university in recent decades, in conditions of increasing precariousness of jobs and unprecedented mobility of populations, family structures and the role of kinship have undergone a sea of change in many societies. one of the outcomes has been the continuous growth of one-person households in europe. that has also been the case in latvia: whereas mere 14 per cent of all households qualified as such in 1993 (zvidriņš, ezera, goša, & krūmiņa, 1996, p. 29), their proportion had risen to 25.1 per cent in 2005 and 35.3 per cent in 2019 (csb, 2020a). households with three or more persons were undergoing an opposite trend (ibid.). currently, the one-person household is the most common household type in latvia. submitted 05/2020 accepted for publication 08/2020 between the state and the kin in latvia: one-person household social security from social antropological perspective eis 14/2020 agita luse riga stradins university http://doi.org/10.5755/j01.eis.0.13.23562 91 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 small families and weak family ties are typical of societies in the north and west of europe with developed welfare systems, and conversely, large families and strong family ties are more common in countries with weak institutional support (heady, 2012; viazzo, 2010). the growth of the number of one-person households in latvia could indicate a strong state support that is likely to reduce an individual’s reliance on family and kinship. however, the statistics show that nearly a half of such households (17.1 per cent) comprise people over 64 years of age, almost three quarters of whom are at risk of poverty (csb, 2019). this development raises at least two questions: first, what are the factors that have contributed to such a pattern of relationships among the kin and, second, are the vulnerable relatives’ family and kinship ties intensified, to support them in situations when the state is unable to provide one-person households with sufficient social security? to answer these questions, we have structured our paper along the following lines: _ we briefly survey recent theoretical approaches and research findings on the interaction between kinship and the state; _ we outline the policies implemented by different political regimes that have affected latvians’ family types and kinship ties; _ discussing ethnographic data as well as other studies on kinship in latvia, we analyse the contemporary practices of kinship, paying special attention to the issue of social security of one-person households. the data of central statistical bureau of latvia (henceforth: csb), the survey of health, ageing and retirement in europe (share) database, and eu statistics on income and living conditions (eu-silc) mostly have served us for advancing our research questions. in order to answer these questions, we draw on our fieldwork findings and discuss them in the context of anthropological, ethnological, and sociological studies on kinship in other european countries. we depart from the premise that ethnography, “by virtue of its intersubjective nature, is necessarily comparative. given that the anthropologist in the field necessarily retains certain cultural biases, his observations and descriptions must, to a certain degree, be comparative.”(eb editors, 2020). ethnographic fieldwork has been our main research approach and, correspondingly, the main source of our data. we conducted our field research in 39 households in rural areas (including small towns) of latvia in the period between june 2017 and december 2019. as characteristic in the contemporary ethnography (ibid.), we have developed close relationships with our 60 informants, to elicit specific information on such topics as lifestyle, occupation, family and kinship ties, and intergenerational transmission of memory. of the all surveyed households, 14 were one-person households (9 of them run by women and 5 by men). our intention is to analyse ethnographic data, to achieve a deeper insight into the household type that is, according to the statistics, among the most widespread in latvia and at the same time subject to the greatest poverty risk, namely, one-person households with single inhabitants of over 64 years of age. kinship and the state in the academic discussion historically, individuals in many parts of the world have depended on their kin in meeting each other’s economic, social and cultural needs. this dependence has ensured both intergenerational cooperation and the inheritance of material and cultural artefacts and skills across generations. family and kin ties have been the main channel for transmission of domestic skills and local social standing as well as world-views and social values (bertaux &thompson, 1993, p.1). for most of the 20th century, there seemed to be little incentive to research patterns of kinship in complex nation-states, such as countries of western or eastern europe recently, however, scholars researching contemporary kinship practices have pointed out the decisive role that the state plays in them (fink & lundqvist, 2010; thelen, 2018). during the last two decades of the 20th century, questions focussing on kinship gradually recaptured european socio-cultural ane u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 92 thropologists and sociologists’ attention. one of the reasons was the realization that the expected prosperity of the modern nuclear family, allegedly fuelled by economic transformation and the modernization of nations, did not materialize, and a great diversity of families and kinship systems persisted in europe. moreover, western european welfare systems, shaped by neo-liberal policies, had accumulated an impressive number of unresolved problems. around the turn of the millennium, national policy discourses in nearly all countries had come to frame the welfare state as overburdened (grandits, 2010). “demands that individual citizens and their family/ kin take more responsibility for their social security have become louder” (ibid., p.23). the term social security has acquired markedly different meanings in various fields of practice and inquiry. in social policy it has mostly referred to “any of the measures established by legislation to maintain individual or family income or to provide income when some or all sources of income are disrupted or terminated or when exceptionally heavy expenditures have to be incurred” (abel-smith, 2020). social anthropologists, in their turn, have emphasized that social security cannot be reduced to a material or instrumental basis: meeting such basic needs as food, shelter, health and care, also has to do with people’s feelings or trust and existential security (benda-beckmann & benda-beckmann, 1994; zacher, 1988). “individual people differ in their perception of uncertainty and insecurity and in their willingness and ability to live with them. this will depend on the personal economic situation of the individuals and on their psychological constitution, and it will be strongly influenced by the social organization in which they live” (benda-beckmann & benda-beckmann, 1994, p. 7). however, most people will positively value certainty when confronted with difficulties to provide for the next meal or their children, or to survive when they become frail due to a serious illness, disability, or old age (ibid.). responding to the growing concerns about feasibility of social security in contemporary societies, over previous two decades, social anthropologists as well as sociologists have increasingly addressed the questions surrounding this multidimensional concept (schwarcz & szőke, 2014; thelen, thiemann, & roth, 2017; thiemann, 2016), also in latvia (bela, 2018; bela & rasnača, 2015; lāce, 2012; reinholde, 2018; zīverte, 2014). in the context of public discussions throughout europe about family policy, an international, interdisciplinary research project with an anthropological agenda, entitled "kinship and social security” (kass) was conceived in 2003 (heady, 2012b). this as well as other extensive studies on kinship in contemporary europe conducted over the last two decades, noted that the role of kinship was much more central in southern and east europe, while the state tended to support vulnerable nuclear families in the northwest of the continent. some contributors argued that as the economy develops, kinship ties weaken (viazzo, 2010). it is noteworthy that researchers identified macro-regional family patterns not only in terms of geographical location, but also as ensuing from different systems of welfare provision. the kass authors were seeking to answer whether a strong welfare state tends to lead to reduced family/kinship support. no clear causal direction, however, was established. on the other hand, evidence suggested that in a number of countries a strong welfare state had not led to crumbled family/kin relations but instead often strengthened family/kin support and networks (evertsson, 2012, p. 28). discussions on social security patterns related to the two broad types of kinship and social organization have ensued from research in historical demography conducted since the 1980s (hajnal, 1982; laslett, 1983). these studies had suggested that notable macro-regional tendencies in composition of households and marriage patterns existed in the continent and introduced the notion of the hajnal line, or a broad division between “strong family countries” and “weak family countries”. this macro-regional approach has been criticized for ignoring the cultural, economic, 93 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 demographic, and ecological differences (in relation to the baltic population cf. plakans & wetherell, 2005; puur et al, 2012). one of our intentions in this study is to add to this spectrum of practices, spread along the northwest to south-east axis of europe, an outline of interaction between welfare regimes and kinship patterns in latvia, one of the two baltic states whose territory the hajnal line crosses (plakans & wetherell, 2005, p.108). more particularly, we endeavour to answer the following questions: how far have the social security regimes implemented in latvia by different state formations in the course of the previous century, superseded mutual assistance patterns within family and kinship networks? have the state-advanced welfare policies made kinship ties redundant as far as an individual’s social security is concerned? last, but not least: in what ways can an analytics of biopolitics contribute to identifying the forces shaping kinship systems? since michel foucault introduced the term biopolitics in the 1970s, it has served as an analytic lens in a number of disciplines, including social anthropology. on the level of social theory, thomas lemke has advanced a methodological approach, the analytics of biopolitics, to examine life processes, e.g., life-expectancy, illness, or abandonment, as results of social practice and political decision-making, rooted in specific rationalities and normative choices (lemke, 2010, p. 434). the questions that lemke has posed are relevant also for analyzing welfare and family policies in latvia: “what forms of life are regarded as socially valuable, which are considered ‘not worth living’? what existential hardships (..) attract political, medical, scientific and social attention, which are seen as intolerable, a priority for research and in need of therapy, and which are neglected or ignored?” (ibid.). the state welfare system in latvia in recent years no longer succeeds to protect some vulnerable social categories against poverty (cf. bela & ņikišins, 2018; constitutional court of the republic of latvia, 2020) (elsewhere in europe too, the welfare systems have been posited as overburdened, as the kass project confirmed). analysed biopolitically, such a development reflects not only neo-liberalism or economic constraints of the globalized world but also changing regimes of truth, hierarchies of value that the states unequally assign to their subjects’ lives, and the ways in which the subjects comport themselves vis-à-vis the goals set by one or another authority (lemke, 2010, pp. 432–433). in relation to contemporary latvia, we endeavour to clarify what are the practices through which the value of single elderly people’s lives is being determined. family and kin ties in contemporary latvia "there are no more houses left here. how many are left now? one, two, three, four [counting to herself] only 4 out of 12 families have remained. women the same age as me. the children of two are in daugavpils they work in the customs. there [points with her hand] another neighbour, he's 60. that's all that's left. regina is 74 and lives on her own in a farmstead inherited from her father in the countryside located 40 km from the nearest city daugavpils and more than 200 km from the capital riga. regina's two sons have been living in the uk for more than 15 years, with their spouses and regina’s six grandchildren. regina's story could be rehearsed in many places the departure of the population and the retention of the elderly is a common picture in the countryside (bela & elksne, 2020; dzenovska, 2018; hazans, 2019; trapenciere, 2020). our ethnographic observations show that the largest households (consisting of 4 to 7 people) are those of families with minor children. a more common type of household consists of 1 to 2 people who are childless or whose grown-up children live elsewhere. adult children mostly stay with their parents in two cases: either they have remained single (unmarried or divorced) or some family members need to be looked after due of their illness. in the period from 1990 to 2018, the population of latvia decreased by 27.5 per cent (734 thoue u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 94 sand); part of it was due to a particularly rapid emigration that took place during the global financial crisis of 2008-2009 (krūmiņš, 2019, p.14). demographic shifts brought about a decrease in both the total number of households and the size of an average household (āboliņa, 2019, p.88). the census, conducted every decade, shows a sustained trend towards a decline in the average household size (see figure 1). 2,4 2,6 2,8 3 3,2 3,4 1959 1970 1979 1989 2000 2011 average household size 36,8 39,2 38,8 33,2 33,5 32,3 34,9 31,7 44,7 73,5 78,9 8,5 29,2 67,4 72,8 74,9 0 10 20 30 40 50 60 70 80 90 2004 2006 2008 2010 2012 2014 2016 2018 at-risk-of poverty index by one-person household type (%) 1 person household up to 64 years of age 1 person household 64 years and older figure 1 average household size (number of persons in the household) a closer look at the statistical data on demographic trends over the last two decades confirms that the number of households without offspring is steadily increasing. while 66 per cent of all households were childless in 2005, their proportion had reached 73 per cent in 2019 (csb, 2020b). as regina’s story (related above) and other ethnographic observations testify, the geographic distance among members of family and kin is increasing. adult children are less and less likely to stay with (or near) their parents, especially in rural areas, a trend that is determined by many factors, among the most prominent being limited employment opportunities in rural areas. studies conducted in other european countries likewise show that practical domestic assistance among family members is shrinking as the geographical distance between them increases (heady, 2012a). besides, our ethnographic interview data demonstrate: although people are able to identify various kinship ties over at least 4-5 generations, mostly those are parents and children who maintain close and regular relationships throughout their lives (their intensity, though, varies at different stages of life). when the geographical distance between them increases, the patterns of domestic help and mutual care, essential aspect of these relationships, change or even disappear. in some cases, the left-behind parents may compensate for that by forming a mutually supporting relationship with a more distant relative or even with a person outside the kin group who lives nearby or with whom a close emotional connection has been established (we illustrate that below, relating kārlis’ life-history). a multitude of factors may account for the decline of the role of family and kin ties as a basis of an individual’s social security. among the most prominent have been industrialization and urbanization in the first half of the 20th century, collectivization of agriculture in post-world war ii years, transition from the planned economy to the free market during the previous three decades, particular social policies implemented by one or another government as well as changing cultural values. in the following section, we take a closer look at the interests pursued by the various political regimes and the changes they brought about in the patterns and practices of family and kinship. (created by authors). sources: central statistical bureau of the council of ministers of the latvian ssr, state statistics committee of the republic of latvia, and central statistical bureau of latvia. 95 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 soon after latvia came into being as an independent state, it started to build its social welfare system. among the first steps were introduction of a pension system, based on the principle of social insurance (rajevska 2019). by the end of the interwar period (in 1938) the latvian state used 13.1 per cent of the state budget for social insurance (while the average in europe was 9.3 per cent) (runcis, 2012, p.125). this system, however, only included citizens connected with a workplace, leaving out most of the women, generally housewives (ibid.). after the ussr annexed latvia in 1940, the paternalistic soviet model of welfare was introduced. the state took on itself to meet its subjects’ needs (defined within the state regime of truth, not by the subjects themselves), regulate their actions in matters that affected them as individuals, and shape the citizens’ relationship to the state as well as to each other (cf. moors, 2019). the enormous human losses caused by the world war ii and deportations (zvidriņš, 2011) made it necessary to address demographic issues. the soviet biopolitics saw women as a resource for reproduction of population that would compensate for the loss of labour. consequently, the state aimed at promoting the autonomy of women and supporting their economic independence, while never leaving out of focus their reproductive function (selezneva, 2016, p.1). the soviet propaganda promoted a socialist family model as a progressive type of union whose members were mutually independent economically (in contrast to the former family model in latvia, the bourgeois family, whose members were said to be economically dependent on each other) (runcis, 2012, p.126). the state provided free education and health care, secured employment, housing, pensions, and family benefits (rajevska, 2020). moreover, the public infrastructure – kindergartens, hospitals, and nursing homes as well as orphanages, pioneer camps, reformatories, and sobering rooms – was extensively developed. that enabled the economically active population, especially women, to delegate care for their young, elderly, sick, mentally distressed, alcoholic, and delinquent relatives, previously considered obligation of family or kin, to institutions (cf. rockhill, 2010; moors, 2019). to sum up, the social policy implemented by the soviet state aimed at ensuring demographic reproduction and maximal employment of the population, with an additional target of emancipating the individual from both dependence on the family and the duties toward the kin (cf. runcis, 2012). however, the social policy had not led to the envisioned effects: most citizens lived in crowded apartments, were coping with shortage of food and waiting in long ques for other necessities. consequently, family and kin ties continued to play an important role in ensuring economic viability as well as social security (viewed from an anthropological, rather than politico-ideological vantage point, these needs had not been met). after the restoration of the country’ independence in the 1990s, a social security system was introduced that centred on municipal services of social assistance (reinholde, 2018, p. 73). reforms in social policy aimed at reducing the role of the state and increasing the individual's own responsibility for his or her well-being in the field of housing, pensions, social insurance and social assistance (rajevska, 2019). at the same time, the social policy of the 1990s, as stukuls observed, reflected a certain tendency toward re-establishing the patriarchal family model in latvia and ‘domestication’ of women. for some time, that model also received legislative support: the special child allowance for single mothers, established in the post-war ussr, was eliminated in 1991. the process of divorce was made longer and more costly in 1993 (stukuls, 1999, pp.547548). benefits were only offered to those mothers who stayed at home (ibid., p.543). thus in spite of the popular rhetoric praising motherhood, the free market realities and the state policies of the 1990s made the position of women, particularly mothers, precarious (ibid., p.546). as time passed, it became ever more evident, however, that the citizens’ economic activity was not only in the interest of the state, but also of the citizens themselves: a number of social security benefits state, family, and kinship e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 96 and services (pensions, sickness, unemployment, childcare benefits) were only available to those who were or had been employed and contributed to the tax revenue. in recent decades, as the working-age population has been shrinking (due to low birth rates, economic migration and other reasons) and life expectancy increasing, the state has attempted to facilitate the employees’ participation in labour market as long as possible. it is for this reason that the retirement age keeps rising and additional measures were introduced. for instance, in order to prevent the mothers’ long absence from the labour market and thus losing their competitiveness, an amendment of the labour act, passed in 2004, enabled also the fathers to opt for paternity leave and receive childcare allowance (sedlenieks & rolle, 2016, p.31). nevertheless, those who care for small children or the sick and the elderly, often struggle to reconcile work and family life (lāce, 2012; lūse et al., 2016; millere, 2012). one-person households in post-socialist latvia to sum up, during the last one hundred years, two priorities have been consistently present in the biopolitics implemented in latvia: to maximize the population’s reproduction as well as its economic activity. to achieve this, each regime has utilized a different policy, but their cumulative result had been to directly or indirectly reduce the individual's dependence on and need for family and kinship as a resource of social security. the impact of economic liberalism on fragmenting the family and kinship relations is something taken for granted since latvia has been implementing a market-based economic regime for the last 30 years. however, the statistical data show an additional trend: not only is the number of one-person households increasing (see the introduction of this paper), but also the proportion of people in such households at risk of poverty (see figure 2). in particular, one-person households in the age group over 64 are most at risk of poverty in latvia, according to the criteria adopted for measuring poverty in the european union (cf. dobelniece, 2020a). 2,4 2,6 2,8 3 3,2 3,4 1959 1970 1979 1989 2000 2011 average household size 36,8 39,2 38,8 33,2 33,5 32,3 34,9 31,7 44,7 73,5 78,9 8,5 29,2 67,4 72,8 74,9 0 10 20 30 40 50 60 70 80 90 2004 2006 2008 2010 2012 2014 2016 2018 at-risk-of poverty index by one-person household type (%) 1 person household up to 64 years of age 1 person household 64 years and older figure 2 (created by authors). at-risk-of poverty index by one-person household type. source: csb almost 75 per cent of these households were reported to experience poverty in 2018 (csb, 2019). the statistical data indicated an allegedly positive trend during the global financial crisis, when the total income level also decreased in other household types, thus reducing the income gap. that did not mean, however, that the living standards of single persons at retirement age had improved, rather the social security of society in general had deteriorated. the data show that, for example, the availability of health care services for people over the age of 65 in latvia is one of the lowest in the eu. more than half of the elderly in one-person households find it difficult to afford care services (the average proportion in the eu being 16.7 per cent, in estonia 23.2 per cent, and lithuania 9.2 per cent) (eurostat 2020a). more than one third (36.8 per cent) of the elderly living in one-person house97 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 holds mention financial issues as a reason for not using professional homecare services (eurostat 2020b). figure 2 also underlines the significant income differences between the economically active and inactive people living in one-person households. the main and often the only source of income for retired people (in 94.6 per cent of cases) is the pension (share latvia, 2020). such a high number of the elderly at risk of poverty raises the question of whether, in situations when the state is unable to guarantee their social security, family or kin still provide some support as they historically used to do. the official statistics is unlikely to grant an answer, since it mainly records indicators of formal economy, whereas significant interactions between family and kin members often take place within the informal economy and therefore remain off the record. nor can such transactions be easily detected via quantitative research methods: in a recent survey, for instance, 29.5 per cent of respondents in latvia refused to disclose the income of their household (bela & ņikišins, 2018, p. 120). systematic ethnographic observations and interviews, on the other hand, can highlight significant kin relations, including those that are instrumental for social security. our data demonstrate that the role of kinship has changed over time. the character of relationships within the kin group, income level, health status as well as other factors may have a significant impact on whether an individual will see kinship ties or the state welfare system as the primary source of his/her social security. kinship ties (provided such exist and are acknowledged) still constitute an important resource that grants some sense of security for individuals in the most vulnerable positions. at the same time, our interviewees’ narratives also identify issues that reduce the likelihood to receive support from kin members. the experience of inguna (55 years old) demonstrates that the family or kin may not always be able to offer support for a vulnerable relative. in 2015, i lost my job. around the same time my mother's (75 years) health deteriorated. she lived on her own and i was taking care of her i went to her every day to wash her, give her the medication, clean the apartment and prepare food. i received 56.90 euros every month for her care. once i asked the social service if my travel expenses could be reimbursed, and they advised me to look for some part-time job instead. my mother is bedridden: she needs me in the morning, during the day and in the evening. where can i find such a job? i have to say a huge thanks to my husband who enables me to stay out of employment and take care of my mother. on the other hand, he is rarely at home since he holds two jobs. nevertheless we still return to the conversation time and again, shouldn’t i start working again, because it's hard with money all the time." as inguna's experience reveals, the individuals who choose to offer practical support for their family or kin members fall out of the labour market and may themselves be at risk of poverty. in has also be noted in a sociological analysis on social exclusion in latvia: “as it is mostly women who take care for children, sick family members or the elderly, they face a higher poverty risk and find it more difficult to enter the labour market” (lāce, 2012, p.253). thus, in situations when a vulnerable family or kin member needs everyday care or assistance, the rest of the family or kin face a dilemma either to provide that care, at the same time falling prey to the risk of poverty, or to leave the provision of care in the hands of the state. for inguna’s mother that would have meant moving to a nursing home, a solution that is often perceived as morally questionable and that the younger generation often postpone as long as other possibilities have not been exhausted. the nursing home clients themselves experience their existence there as social death that “calls in question the value of life itself” (žabicka, 2015, p.69). serious health problems, such as inguna's mother experiences, make one completely dependent on the persons in one’s social surrounding. the next of kin may assess the degree to which he/she feels morally responsible for the frail relative as well as how capable he/she is to provide practical assistance. inguna’s decision to take care of her mother rather than to entrust that care to public authorities largely e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 98 depended on the resources available in her marital family but also on her understanding of her role as a wife and a daughter. in situations when seniors are still able to take care of themselves even though they only command basic subsistence, he or she may refuse the support of family and kin. one explanation can be that, in spite of relative poverty, they perceive their situation as economically stable. marija (69) lives on her own in her countryside house after her husband passed away a few years ago. her monthly retirement pension in 2019 (at the time of the interview) was just 360 euros – while 409 euros was at-risk-of-poverty threshold for one-person households in latvia the previous year (csb, 2020c). according to marija, “it's not much, but enough”, so she refuses the monetary assistance that her adult children have offered. such a decision ensued from marija’s desire not to endanger the economic and social security of her offspring: "my son wants to help me, but i say that i already have my pension. he has a family, children, they need his money more than i do. nevertheless, sometimes i find money on the kitchen table after he has gone”. an important resource for marija is her vegetable garden, tending which allows her to reduce significantly the cost of subsistence: "as long as i can move and am fit, everything is fine". this is a contemporary reality: intergenerational relationships in which both the seniors and their grown-up children are trying to find a balance between maintaining reciprocity, meeting moral obligations, and ensuring own socio-economic viability. the interview data, however, testify about another outcome of the social insurance system: restricted as the insured individual’s means of subsisting at times are, knowing that a kin member is socially insured can serve his or her relatives as moral excuse for weakness or absence of intergenerational relations. in cases when intergenerational relationships for one or another reason are strained and wrought up by conflicts, the state-guaranteed pension can legitimate the distance that the offspring keep from an elderly person. two of our interviewees, katrīna and her daughter evija, outlined such a situation speaking about katrīna’s father kārlis, formerly a collective farm labourer. katrīna, born in the early 1980s as the fourth child in kārlis’ family, also has three younger siblings. their parents had received a flat in a kolkhoz village, and all seven children grew up there. after the collective farm disintegrated in the early 1990s, the children dispersed from the village leaving the parents behind and visiting them less and less frequently. katrīna’s mother died in 2015 whereupon relations between kārlis and his offspring – seven children and at least twice as many grandchildren – nearly dissolved. evija, katrīna’s daughter, (aged 17) had not seen her maternal granddad since early childhood while katrīna herself was only able to describe the general situation of her father’s current life: “dad lives in [name of the village] and receives his pension. and he lives on his own. namely, at times on his own and at times with his girl-friend – he has met one of his age. when he wants to be on his own he returns to his flat, spends some time there again.(..) but i don’t know that woman”. the severed ties between kārlis and his offspring is far from being an exception: in a number of other interviews we likewise came across stories of economically and socially vulnerable persons, including seniors, being left with little or no practical support from their offspring or other relatives. there might be a number of reasons behind such an attitude, including disagreements over a person’s moral choices, such as forming partnerships or leading a lifestyle of which that his/her relatives disapprove. in this story, however, katrīna’s reference to her dad’s pension and the flat that he owns is noteworthy: according to her, kārlis’ basic needs are met. katrīna’s utterance seems to imply that in the given circumstances, the previously widespread norm of adult children taking care for their aging parents no longer holds. the boundary between the state and 99 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 kin is likely to remain deeply ambivalent in the area of care for the elderly, as also other ethnographers have lately remarked (thiemann, 2016, p. 205, cf. thelen et al, 2017). the focus of state social policies on the economically independent individual, as well as conditions of market economy have changed the way people in latvia understand their relationships, both to their kin and the state. the latter as well as the former is seen as a reciprocal one: the individual works and pays taxes, whereas the state, via social insurance, pledges a retribution in the case of the person’s illness, unemployment, old age or other incapacity for work. keeping in mind this reciprocity, the civic society exerts a constant pressure on the state demanding adequate social security for its vulnerable categories who are at risk of being unable to make ends meet. conclusion the policies of previous political regimes have resulted in emancipating individuals from economic (and largely also social) dependence on their family or kin ties. as the historical outline of consecutive social policies, our ethnographic observations as well as statistical data testify, one can note in latvia a steady decline of the co-residence and household patterns, previously largely based on the logic of family and kinship. comprising a relatively greater diversity of co-residents, in terms of age as well as income and physical strength, such households were likely to guard their weaker members against poverty and abandonment. policies over the last century have gradually shifted both the moral obligation and the protective function from the kin or co-residence group to the state. the ethnographic data demonstrate that the state has in various ways impacted relations among the kin. however disputable or overburdened the system of social insurance and social assistance may be, it has steadily transformed the character of intergenerational reciprocity as well as the understanding of moral duty towards one’s parents. the seniors endeavour to prolong their socioeconomic independence thus resisting their children’s commitment to assist them. for the adult, working age people, in turn, the state has reduced one potential source of economic instability by easing their care obligations toward their elderly relatives. the state welfare system has also enabled the grownup children to legitimize their distancing from the parents, in particular, when the relationships are strained. at the same time, as the fieldwork data demonstrate, confronted with a predicament of illness, frailty or poverty, individuals living in one-person households might still draw on the ties of kinship or relatedness as an essential resource. however, relatives who take full care of their elderly risk losing employability in the labour market and thus jeopardize their economic stability. 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(1996). latvijas iedzīvotāju paaudžu nomaiņa [informatīvs krājums]. rīga: ogres tipogrāfija. žabicka, a. (2015). dzīves un nāves izpratnes veidošanās sociālās aprūpes centrā. in zinātniskie raksti: 2014.g. sociālo zinātņu nozares pētnieciskā darba publikācijas (pp. 57-69). rīga: rīgas stradiņa universitāte about the authors kristīne rolle msc. doctoral programme in sociology rīga stradiņš university fields of interests rural anthropology, rural household economy, kinship. address dzirciema iela 16, riga, latvia, lv-1007 phone: +37167062662 e-mail: kristine.rolle@rsu.lv agita luse phd. faculty of communication rīga stradiņš university fields of interests medical anthropology, state and kinship, transmission of memory, social inclusion, forced migration. address dzirciema iela 16, riga, latvia, lv-1007 phone: +37167062662 e-mail: agita.luse@rsu.lv this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 137 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 abstract the impact of inward fdi on the growth of advanced ex-ports in central-eastern european region http://dx.doi.org/10.5755/j01.eis.1.14.27557 the main objective of the paper is to examine the potential factors which, according to the literature, may be impacting the structure of exports by allowing more exports from high and medium-high research and development intensive sectors. in the paper, particular emphasis is put on the foreign direct investment’s role in export advancement. apart from foreign direct investment inflows, the research examines the impact of trade openness, gross capital formation, gross domestic savings together with research and development and human capital related factors, on the phenomenon. the research group consists of eight central – eastern european economies, accessed to the european union in 2004. the statistical data utilized in the research is retrieved from commonly available statistical databases. in the study ordinary least squares panel data regression is applied. three separate models are estimated for three varying time frames (within the years 2000 – 2018), depending on the variables data availability. obtained results suggest a strong positive correlation between trade openness, investment factors (savings and capital formation) expressed in growth rates, and high and medium-high research and development intensive manufacturing exports. even though foreign direct investment inflows are identified as statistically significant in two of the estimated models, the coefficient for the variable is low. the results are partially consistent with the literature on the topic. trade openness and foreign direct investment inflows have both been identified as relevant factors in the previously conducted studies. in contrary to previous findings, the investment-related macroeconomic factors, such as gross domestic savings and gross capital formation appear as significant variables. also, in the estimated models, factors related to research and development have no relevance. keywords: foreign direct investment, international business, international trade, exports, high technology ex-ports. european integration studies no. 14 / 2020, pp. 137-145 doi.org/10.5755/j01.eis.1.14.27557 introduction submitted 06/2020 accepted for publication 07/2020 the impact of inward fdi on the growth of advanced ex-ports in central-eastern european region eis 14/2020 export of advanced technology products is one of the measures of international competitiveness of economies, therefore examining factors that may affect the development and changes in the commodity structure of export is of key importance in the context of building a globally competitive economy. foreign direct investments (fdi) are commonly considered an opportunity for economic development for investment-accepting countries as due to their nature they may affect many aspects of the economy of a receiving country, including exports advancement. the strength and the direction of this correlation may vary between investment receiving countries. the paper examines the correlation between export of products manufactured using high and medium – high research and development (r&d) intensive technologies and the inflow of fdi per capita. other variables which are used in the model are: gross domestic savings (gds, as a percentage of gross domestic product (gdp)), gross capital formation (gcf, as a percentage of gdp), trade openness (as a ratio of imports and exports of goods and services to gdp), r&d agata maria gorniak kozminski university http://doi.org/10.5755/j01.eis.0.13.24033 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 138 spend, number of researchers per million, employment rate in high and medium high technology manufacturing sectors. the research group consists of eight economies of central-eastern europe, whereas the studied timeframe covers the years 2000 – 2018, for which three different models with different time range are estimated. in the first part of the paper, a literature review is presented, indicating channels of inflowing fdi impact on the export sophistication together with a brief presentation of other factors relevant for the study. the subsequent part of the paper provides a description of the data, model and its assumptions, and is followed by presentation of the study findings and conclusions. the results obtained from this simple panel estimation may complement the existing literature and lead to further research. literature review fdi as a factor impacting high – technology exports in the literature, fdi is often recognised as one of the factors that affect export. apart from their possible effect on the intensity of export activity, thus contributing to changes in the volume and value, foreign investments may also lead to a development in export by means of changes in the export structure. this leads to a country becoming engaged in a circulation of more technologically advanced goods. the strength of this relationship and its occurrence is determined by many factors, such as the degree of economic development in the host country, the examined industry, the level of its technological advancement or the investor’s country of origin. researchers indicate an overall positive correlation between inflowing investments and the diversification and advancement of the export structure of the host country. nonetheless, there are different approaches and provisions made when examining this phenomenon, which result in some discrepancies between the results obtained or indicate a need for the specific criteria to be added to the conclusions. presumably, two of the most common methods of research are those that divide the studies group by the country’s level of development and the sectoral analyses. for example, correlations between fdi inflow and exports advancement can be observed only in relation to developing economies, additionally with a significant time lag of five years that is added to the model (iwamoto, nabeshima, 2012). in the sectoral study where the fdi inflows are included together with the fdi encouraging policies, it has been revealed that sectors determined as key for fdi promotion policies are able to generate more advanced exports. since investments are often considered a technology carrier and an opportunity for domestic companies to learn, many countries use investment incentives, seeing fdi as a chance for a technological and economic development (smarzynska javorcik, 2004). nevertheless, the positive effect of promoting fdi that resulted in the inflows increase is visible similarly only in the developing countries (harding, smarzynska javorcik, 2011). in other studies, it has been proved that the correlation is higher in sectors originating from the host country, not originally focused on export where foreign investors may more effectively implement their knowledge and the applied technologies (banga, 2006). in the literature, there are mentioned two main ways in which fdi may impact export structure, namely, by direct export activity of foreign entities and by the spread of technologies and domestic companies learning from foreign investors (iwamoto, nabeshima, 2012). export activity of foreign entities foreign companies that transfer some or all of their production to the host country may affect its trade balance. in theory, foreign investors have an impact on the export structure and capabilities, being engaged in the exporting activities, therefore they may directly enhance the level of exported goods (iwamoto, nabeshima, 2012). apart from changes in the export volume and val139 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 ue, value added created in the recipient country is also significant. foreign investors’ activity may give a misleading impression of the level of technological advancement of exported products, specifically in a short time, export structure may not reflect resources and level of knowledge of domestic production. the reason for this phenomenon lies in the nature of fdi, which serve for fragmenting production process and transferring a part of it abroad, thus reducing the costs of manufacturing final products. therefore, it may happen, that in the less developed economies, some advanced technology, semi – finished products, are imported, and subsequently exported after some basic industrial treatment. as a result, exported items are far more technologically advanced than indicated by the potential and the level of development of the fdi host country (van assche, gangnes, 2007; xu, 2010; zhu, fu, 2013). spread of technologies and acquisition of knowledge by domestic companies in the literature, fdi is commonly considered one of the important factors that make diffusion of knowledge and technology possible, which has been proven mostly by the microeconomic studies (keller, 2004). there are yet many studies related to the spread of knowledge and technology by fdi which differ in their assumptions and approach (for example firm-level, sectoral or cross-country and global analyses). in addition, the strength of this relationship is determined by many conditions on which the existing studies do not completely agree. these factors include, among others, level of economic development, support for research and development by the host country and importantly, microeconomic determinants. in case of the macro or global level, the studies indicated varying effects based on the country’s stage of development, r&d investment or size, similarly to the effects of export activities of foreign firms. according to van pottelsberghe de la potterie and lichtenberg (2001), the inflowing fdis from countries that make intense investments in research and development do not allow for a productivity growth through technology transfer, if the country itself does not invest in r&d highly. however, in the case of making investments in a host country that has high investments in research and development the transfer is noticeable (van pottelsberghe de la potterie, lichtenberg, 2001). spread of technologies from the inflowing fdi is definitely not simple phenomena to be captured, presumably more thoroughly examined by micro level studies. other determinants impacting the high – technology exports there are several other factors, apart from fdi, mentioned in the literature and described as the ones impacting the export structure. such variables as: trade openness, education, exchange rates, migration, domestic savings, gross capital formation (tebaldi, 2011), human resources, r&d related factors (sandu, ciocanel, 2014), infrastructure (zhang, 2007), can be found in the previous research. even though the variables presented in the literature vary, they seem to concentrate around the areas of technological development and r&d, fdi inflows, macroeconomic factors and human resources. the results indicate positive correlation of high technology exports with trade openness and human capital (tebaldi, 2011). infrastructure as a factor explaining growth of advanced exports appears to lead to mixed results, depending on the time frame covered by the model (zhang, 2007). as it comes to the research and development factors (r&d spend), these are identified as significant when a remarkable time lag of two years is applied, also the private r&d spend is recognized as more relevant (sandu, ciocanel, 2014). moreover, the research leads to the conclusion that the increase in the share of the advanced manufacturing of the country results in an increase in the share of the advanced exports. similar observation is made in reference to the value added generated which correlated with per capita advanced exports (zhang, 2007). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 140 empirical model data and variables based on the theoretical framework and previous study, a simple model with macro level variables is estimated. the choice of variables in the model is based on the literature research and identification of factors commonly associated with export development, the model partially utilizes selection of variables applied by tebaldi (2011). the included variables are: fdi per capita inflows, investment factors such as gross capital formation and gross domestic savings (tebaldi, 2011), human capital and r&d related factors, which include r&d spend, employment in high and medium-high technology intensive sectors and number of researchers per million of population. there are three estimations executed, for different time frames. the time frames are determined on the basis of the variable’s data availability. all of the independent variables are transformed into first–differences percentage changes to allow to control for non-stationarity. standard stationarity tests (levin-lin-chu and others) have been performed and proved the lack of existence of it in most of the variables before the transformation (at the level). the expected outcome is positive sign correlation of the dependent variable with the independent variables. independent variables used in the model: _ fdi inflows per capita – the data comes from unctad database. the values are expressed in us dollars at current prices. the utilized data range for the variable is 2000 – 2018. _ gcf (gross capital formation) as a percentage of gdp – the data comes from world bank database (world development indicators). the utilized data range for the variable is 2000 – 2018. _ gds (gross domestic savings) as a percentage of gdpthe data comes from world bank database (world development indicators). the utilized data range for the variable is 2000 – 2018. _ trade openness – is a ratio of imports and exports of goods and services to gdp. the data is derived from world bank database (world development indicators). _ r&d spend (gross domestic expenditure on research and development) – the data comes from oecd. the values are expresses in millions 2015 us dollars in constant prices and ppp’s. the utilized data range for this variable is 2000 – 2018, noting that 2018 data is temporary (will be most likely adjusted) and some of the values during the time range are based on calculations applying different methodology. _ number of researchers in r&d per million – the data comes from world bank (world development indicators). the data is only available until 2017, hence the time range for this variable in the model is 2000 – 2017. _ employment in high and medium-high technology manufacturing sectors – the data comes from eurostat and is available only since 2008. therefore, the utilized time range is 2008-2018. the variable is captured as a ratio of the employees in the above-mentioned sectors to the total employment. dependent variable is export of high and medium-high r&d intensive activities (values in us dollars), reported and classified by oecd. the groups of products that belong to high and medium high technology are: pharmaceutical products, electronic products, computers, optical products, aircraft, spacecraft and associated machinery (categories in high r&d intensive manufacturing), chemicals, weapons, ammunition, machinery and equipment, electrical equipment, motor vehicles, trailers, transport and railroad equipment, military flying vehicles, medical equipment/ instruments (categories in medium-high r&d intensive manufacturing) (oecd, 2020). the reason for adding the medium-high technology goods into the model is the fact, that according to oecd classification, only three groups of manufactured products may be classified under high 141 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 r&d intensive. therefore, adding medium–high group of products extends the group and makes the research more meaningful. also, in the literature, export advancement has been investigated using both high and even medium technology products (zhang, 2007). table 1 below presents the data for the descriptive statistics for the both variables at the level, before transformation and for the percentage changes of the variables included in the regression. variable mean median sd min max high and medium – high industry exports (mln usd) 32302 15183 34531 256 134100 fdi inflow per capita (as % of gdp) 442,6 378,2 409,9 -1512 2065 gross capital formation (as % of gdp) 25,14 24,66 5,024 12,37 41,45 gross domestic savings (as a % of gdp) 24,53 24,96 5,109 10,69 34,52 trade openness (imports and exports as % of gdp) 127,4 127,5 30,06 58,08 190,2 r&d spend 2180 956,8 2457 122,5 14067 number of researchers per million 2392 2323 745,8 1346 4476 employment in high and medium-high tech 6,395 6,850 3,485 1,300 11,50 %δ high and medium – high industry exports 13,99 13,78 17,86 -36,50 73,28 %δ fdi inflow per capita -210,1 -0,7917 2528 -29190 2985 %δ gross capital formation 0,1367 0,4745 11,72 -55,64 46,34 %δ gross domestic savings 1,656 1,603 8,419 -34,47 50,56 %δ trade openness 2,573 1,891 7,097 -16,12 25,48 %δ r&d spend 7,084 6,965 13,02 -33,31 56,73 %δ number of researchers per million 3,632 3,816 7,662 -21,00 48,01 %δemployment in high and medium-high tech 0,8783 1,539 7,949 -26,32 25,71 table 1 descriptive statistics for the variables method the model is estimated using ordinary least squares (ols) regression method. panel data for eight central – eastern european economies, members of the european union since 2004, is used. ols regression (instead of fixed or random effects models) has been determined as appropriate by adequate tests performed. moreover, the fact the percentage changes of the first differences of the variables are applied, supports the choice of the ols model. presentation of the results the table 2 below presents the results of the estimations, the coefficients with their significance and the standard errors. additionally, the results for the heteroskedasticity tests (wald) together with the r-squared values for the models are included in the table. even though time frame is short, tests for serial correlation (wooldridge) has been conducted. the results are not presented in the table, but it has proven no first-order correlation in all three models. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 142 dependent variable: exports from industries of high and medium high r&d intensive activities, usd mln (%δ) panel of 8 countries: czech republic, estonia, hungary, latvia, lithuania, poland, slovakia, slovenia variable (1) 2000–2018 ols (2) 2000–2017 ols (3) 2008–2018 ols fdi inflow per capita (%δ) 0,0010** (0,0005) 0,0010* (0,0005) 0,0005 (0,0003) gross capital formation (%δ) 0,2450 (0,1652) 0,3170* (0,1688) 0,3649** (0,1504) gross domestic savings (%δ) 0,3713* (0,2225) 0,3378 (0,2298) 0,0518 (0,2166) trade openness (%δ) 0,7356*** (0,2123) 0,7553*** (0,2196) 1,0046*** (0,1879) r&d spend (%δ) 0,1573 (0,1062) number of researchers in r&d per million (%δ) 0,2139 (0,1762) employment in high and medium-high tech (%δ) 0,1777 (0,1438) constant 10,5534*** (1,5382) 10,8702*** (1,5931) 3,5575*** (1,2525) number of observations 144 136 80 wald test ρ = 0,1748 ρ = 0,2492 ρ = 0,0857 r-squared 0,3165 0,3167 0,6172 adjusted r-squared 0,2917 0,2905 0,5913 table 2 presentation of the study results legend: p < 0.1*; p < 0.05**; p < 0.01*** interpretation of the results all three models indicate strong positive correlation between the growth rate of high and medium-high exports development and the growth rate of trade openness. the coefficient for the trade openness is highest among all of the statistically significant variables. other variables’ significance and their coefficient values differ between the models. even though fdi inflows per capita is significant and positively correlated in two of the models, the coefficient value is low for the variable. both gcf and gds which are investment indicators display similar levels of coefficients and are positively correlated with export development. none of the research and development, education and employment related factors is identified in the estimations as significant. presumably, a significant time lag would have to be added to the regression model in order to observe these effects or a division between private and public spend would have to be made, as it is stated in the literature (sandu, ciocanel, 2014). the results are partially consistent with tebaldi findings (2011), where trade openness and fdi inflow have been also identified as significant positively correlated factor. the results differ in terms of gds and gfc impact, as in 143 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 tebaldi’s research these are identified as not significant. in the results, the author indicates that in his research group of over 90 countries within 28 years, the export advancement is human capital intensive, not capital intensive (tebaldi, 2011). this is contrary to the findings of this paper, which indicates significant capital involvement in the export advancement in central-eastern europe. possibly, the shorter timeframe for the research and different specification of the countries chosen to the panel cause the difference in the results obtained. conclusion the research uses panel data regression estimation to study the effects of fdi inflows together with other variables on the growth of exports of high and medium–high r&d intensive manufactured products. fdi matters for explaining the phenomena, but on a limited level. the obtained results suggest positive and significant impact of fdi inflows, however, compared to other significant variables, quite low in value. as the countries from the region are still receiving mixed type of fdi (some may be only internal market-oriented), the overall effect of fdi may show blurry picture. what is more, a 2008 study on the investment development path of the economies from the region indicates that none of the examined economies is at stage three of their investment development path (boudier-bensebaa, 2008), which would mean moving towards more advanced inflowing investment structure. an in-depth sectoral study for the central-eastern european economies could indicate whether the fdi inflows are directed towards r&d intense sectors. there are other variables, used in the model, that demonstrate higher values of the coefficient and therefore, stronger impact on high technology exports growth. trade openness is a variable that not only indicates the level of country’s engagement in foreign trade transactions, but also reflects its overall economic performance. it can be concluded, that in the central-eastern european region companies from the countries participating in internationalization through trade patterns significantly develop the exports structure. trade appears to be the factor which allows for the learning and technology spillover to the domestic companies. also, notably in the short period, gross capital formation is a factor that positively correlates with trade development. this may indicate that the high-tech export activities require some capital intensity in the region in the short term. the panel is based on relatively short period of time which may be the main reason of why the impact of r&d is not visible in the results as significant. most likely, a longer time frame together with some significant time lags would have to be applied in order to better examine the relation. to conclude, it may be stated that this simple panel regression model compares relevant macro level factors and presents an overall suggestion of which factors matter for the export advancement. it also sheds some light on the relevance of fdi among other variables, which is positively significant but not strong. references banga r. 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(2010). the sophistication of exports: is china special?, china economic review, 21, pp. 482493. retrieved june 2nd, 2020, from: https://cn. ceibs.edu/sites/default/files/faculty-profiles/cv/ xubin/chinaspecial.pdf https://doi.org/10.1016/j. chieco.2010.04.005 145 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 about the author gorniak agata maria phd student kozminski university fields of interests international economics, international business. address jagiellonska 57 03-301 warsaw, poland phone: +48 667 378 040 e-mail: agatamariagorniak@gmail.com this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). zhang k. h. (2007). determinants of complex exports: evidence from cross-country data for 19851998. economia internazionale / international economics, 60(1), pp. 111-122. retrieved june 2nd, 2020, from: http://www.iei1946.it/repec/ccg/ zhang%20111_122.pdf zhu s., fu x. (2013). drivers of export upgrading. world development, 51, pp. 221-233. retrieved de-cember 10th, 2019, from: https://core. ac.uk/download/pdf/82121375.pdf https://doi. org/10.1016/j.worlddev.2013.05.017 european integration studies 2008.indd 81 issn 1822-8402 european integration studies. 2008. no 2 an integrated financial market solution: target2-latvia vita pilsuma latvijas banka leon rs svarinskis r zeknes augstskola abstract this paper aims at analysing the role of central banks in enhancing smooth operation of payment systems towards an integrated eu fi nancial infrastructure. the research is based on a number of views regarding the signifi cance of payment systems for the implementation of the central bank’s monetary policy and improvement of the fi nancial market development process. the novelty of this research is the assessment of the launch of target2 in the eu countries, including latvia. regarding target2latvija, the authors have evaluated its objectives, tasks, legal framework and launching within the fi rst wave of migration to target2, and have conducted the analysis of indicators determining the operation of payment systems. in the context of large value euro payments, the single shared technical platform, uniform legal framework and similar services across the eu are the advantages of target2. smooth integration into target2 is the basic condition for the convergence of eu12 with the euro area countries in the payment system area. keywords: target2, central banking, payment systems. introduction a secure and smoothly operating payment system is a precondition for effective functioning of the fi nancial market. central banks play an essential role in this respect as they ensure the maintenance of payment systems in the name of monetary policy implementation and engage in payment systems oversight. this paper concentrates on one of these roles – the maintenance and operations of the interbank payment system. in recent decades, the role of payment and securities settlement systems in the economy has increased notably. in the current globalisation environment, operation of a modern payment system promotes business competitiveness as payments are fast and secure. the objective of a central bank is not only to manage the monetary conditions of the economy, but also to support the development and maintenance of safe payment and settlement systems. a payment system is a signifi cant component of the fi nancial infrastructure, and its smooth operation is a driver of country’s economic processes. the preparation for the adoption of the euro in the 1990s required that an adequate payment system be established within the eu. the idea was supported by both the national central banks and commercial banks in the eu countries. in 1995, the council of the european monetary institute (emi) decided to set up the transeuropean automated real-time gross settlement express transfer (target) system, establishing links among real-time gross-settlement (rtgs) systems of central banks in the eu countries. the eu enlargement and technological evolution of payment systems acted as drivers for building target2, a payment system of the new generation, which was launched on 19 november 2007. this research paper aims at assessing the introduction of the new payment system and the fi rst results of its operation in latvia and other eu countries. in the pursuit of the objectives set, we have made use of such methods as statistical analysis of indicators, and the graphic and monographic approach. central banks and payment systems the authors of this paper share the view that central banking and payment systems are inextricably linked and that roles of central banks in the fi eld of 82 issn 1822-8402 european integration studies. 2008. no 2 payment systems are changing in a number of ways as a result of progressing globalisation, increasing complexity, and the emergence of new players and services (tumpel-gugerell, 2008). the role central banks play in the area of payment systems has emerged and evolved historically (goodhart, 1990). the importance of payment systems in facilitating both real and fi nancial transactions in an advanced monetary economy as well as in implementing and transmitting central banks’ monetary policy decisions is critical (manning, russo, 2008). financial stability is a broad concept, encompassing different aspects of the fi nancial system, with infrastructure being one of them (schinasi, 2004). payment systems are among the most important components of this infrastructure. to keep funds on account with the central bank is the safest way of depositing, for the central bank ensures free accessibility to them for settlements, preventing the liquidity risk and credit risk with respect to settlement assets of the system’s participants. systemically important payment systems deserve an ever growing attention across the globe. to promote the development of reliable and effi cient payment systems, the committee on payment and settlement systems of the bank for international settlements published core principles for systemically important payment systems, acknowledged by governors of the g-10 central banks. the basic principles therein lay down core criteria for a systemically important payment system to be internationally acknowledged as adequately safe and effi cient. according to the assessment carried out by the international monetary fund (imf) in 2001, the eurosystem maintains high transparency of the payment system policy, and overall, target complies with the basic principles of systemically important payment systems. the main objective of the eurosystem is to ensure that target evolves along the lines of a system that ensures high concentration of transactions, • fi nancial market stability, payment effi ciency and risk hedging; provides broadly harmonised services to better • meet the customer needs; guaranties cost effi ciency;• is apt to adjust quickly to future developments, • e.g. the enlargement of the eu and eurosystem. the importance of fi nancial integration for the smooth and effective transmission of monetary impulses throughout the euro area is large. target is an example of a central bank service which is conducive to fi nancial integration. it will be achieved through a harmonised service level, single price structure, and harmonised set of cash settlement services in central bank money for retail payment systems, clearing houses and securities settlement systems (papademos, 2007). a new generation of target target and now also target2 are the rtgs system of eurosystem’s central banks via which largevalue and urgent payments are executed. target provides immediate intraday fi nality and settlement in central bank money. target uses gross settlement which means that each transfer is settled individually. target can be used for all credit transfers in euro, both interbank and customer payments, and there is no upper or lower value limit for payments. the target system has contributed to a high degree of liquidity in the euro money market. the launching of target on 4 january 1999 enabled euro area money markets to integrate effi ciently in the single euro money market practically overnight. target is developed as a decentralised payment system combining central bank rtgs of 13 euro area countries and the payment mechanism of the european central bank (ecb). in addition, rtgs of denmark, estonia, poland and slovenia as well as the uk have also joined target (with sweden not participating in target since 2007). these 18 systems are all interlinked in order to provide a uniform platform for the processing of euro payments. the development of target pursued the objectives to serve as a benchmark for the processing of • euro payments in terms of speed, reliability, opening times and services level; to facilitate the conduct of single monetary • policy and promote the integration of euro money market; to contribute to the integration of fi nancial • markets in europe by providing its users with a common payment and settlement infrastructure. the imf acknowledges that target has fulfi lled the policy objectives for which it was set up and largely met the needs of the market. the authors of the present research share this view and believe that the target system has enhanced the eu fi nancial market growth, which in turn determined the need for improving and upgrading the system. as a decentralised system, the harmonisation of target would require the improvement of each individual system component. such transformations, however, would be more resourcesand time-consuming as well as less stable. what are target2 benefi ts over target? to answer, a number of target2 specifi c features can be pointed out: 83 issn 1822-8402 european integration studies. 2008. no 2 highly effi cient, resilient and competitive;• pan-european liquidity management;• single interfaces leading to harmonised • services at a single price; fl exible enough to accommodate future • customer needs; able to handle euro area enlargement.• as a result of discussions within the eurosystem, on 16 december 2004, the governing council of the ecb authorised banca d’italia, banque de france and deutsche bundesbank to develop and operate the single shared platform (ssp) of target2. information and control module (icm) of the ssp allows the participants of target2 to obtain online information and gives the possibility to submit liquidity transfer orders, manage liquidity and initiate backup payments in contingency situations. a simultaneous migration of participants in target to target2 could result in an enormous risk and reduce fl exibility of the transformation process; therefore the eurosystem opted for the country window approach, splitting countries into four migration waves within a six month period during which both systems would be operational (see chart 1). t a r g e t 2 18.02.2008 19.05.2008 15.09.2008 19.11.2007 at, cy, de, lv, lt, lu, mt, si be, fi, fr, ie, nl, pt, es dk, ee, ecb, el, it, pl contingency window chart 1. country windows of the target2 and its start dates the fi rst migration wave comprises three eu15 countries and fi ve eu12 countries, including two baltic states. the second migration wave includes only eu15 countries, while the third wave is made up of three eu15 countries, two eu12 countries, including estonia, and the ecb. the fourth is the contingency window for cases when a central bank or banks of a country fail to complete the migration process. the launching of target2 built not only on technical solutions but also on a new legal basis. legal framework the statutes of the escb and ecb stipulate that one of the primary tasks of the escb is to promote the smooth operation of payment systems. the related issues are also regulated by the eu legislation, with the provision to ensure effi cient operation of payment systems incorporated in the central bank laws and regulations of the eu countries. the decision on the development of target was taken by the emi council, ecb predecessor, in 1995. duly accounting for the projected enlargement of the eu, in october 2002, the ecb governing council resolved to allow the new eu member states to connect to the target system. a strategic decision to proceed with the development of target2, the next level of the target system, was simultaneously taken, projecting its launch after 2005. although like target, target2 is legally structured as a multiplicity of rtgs systems, the rules of target2 component systems have to be harmonised, to the greatest extent possible, with certain derogations in the event of national law constraints. it implies that a uniform set of regulatory provisions is applied irrespective of the country in which the target2 system operates, and a step towards closer convergence with the eu regulations is made. it will alleviate the participation of those banks in the payment systems whose structural units are located in several eu countries. the legal framework for target2 rests upon guideline ecb/2007/2 of the ecb general council of 26 april 2007, which is binding on euro area central banks. this guideline becomes binding on central banks of other eu countries upon concluding the agreement on a trans-european automated real-time gross settlement express transfer system (target2). in order to comply with the guideline provisions in latvia, the council of latvijas banka passed a resolution on participation in target2, projecting to join the system and to start the operation of target2-latvija as of 19 november 2007. the objective of launching target2-latvija was to make payment systems ready for the introduction of the euro and to provide the banks with the euro banking facility making settlements in central bank money with immediate fi nality. in order to implement the harmonised conditions for participation in target2, the council of latvijas banka: approved “system regulations for participation • in target2-latvija” and agreement samples for participants and ancillary systems for participation in target2-latvija; resolved that latvijas banka’s electronic • clearing system (eks) starts operation within target2-latvija on 1 january 2008; decided on the amount of fees for liquidity • reservation in the maximum amount of target2-latvija intraday credit. the authors presume that the development of the legal framework for target2 was a time 84 issn 1822-8402 european integration studies. 2008. no 2 and effort-consuming process, requiring lengthy harmonisation of the documents with the ecb, with effective planning of activities missing at the concluding phase of launching target2. hence the decision to introduce the country window approach should be treated positively. from the systemic point of view, the inclusion of both the eu15 and eu12 countries in the fi rst wave of migration was also a gain of the approach. target2 going live on 19 november 2007 and 18 february 2008 the ecb announced the successful connection to target2 of the countries of the fi rst and second country windows respectively. as a result, currently 15 eu member states, of which 11 are euro area countries, participate in target2. on 31 january 2008, the eurosystem hosted a conference on preliminary assessment of the contribution of target2 to the european integration and main impacts of target2 on bank organisation and functioning of the market. a very good start of target2 illustrates the ability of the eurosystem, together with the users, in building a major market infrastructure. the cooperation among banca d’italia, banque de france and deutsche bundesbank in developing ssp is assessed positively and is defi nitely a valuable asset for the future (v. bonnier, 2008). target2 has fulfi lled the banking industry’s vision of an integrated market for payment services in euro (p. poncelet, 2008). due to the so-far short life of target2, the relevant statistical information is limited. deutsche bundesbank summarised the results of the fi rst day of target2 operation, which show that 171.3 thousand transactions with a value of 833.4 billion euro were conducted. at the end of the migration period, the daily average volume of target2 is expected to amount to 380,000 payments (bruneel, 2007). compared with the daily average number of transactions (326.2 thousand) and their value (2 092 billion euro) conducted via target in 2006, the target2 fi rst-day results were around two times lower. the bulk of transactions on the fi rst day of target2 operation were on account of germany (94.2% of transactions and 87.1% of value), followed by austria and luxembourg in respect to the value and slovenia and luxembourg in respect to the number of transactions. cyprus, lithuania, latvia and malta conducted 101 transactions (0.06% of total) worth 88.1 million euro (0.01% of total). the average transaction volume was in the range between 68.4 thousand euro in the case of lithuania and 24.0 million euro in the case of austria. on the fi rst day of target2 operation, the average transaction value was 4.9 million euro, accounting for 77% of the average value of a target transaction in 2006. target services in the baltic states as of 19 november 2007, the go live day of target2-latvija, 21 banks (100% participation), one foreign bank branch, latvijas banka, the treasury and the latvian central depository participate in it. the number of banks in target2-lietuvos, the system of lithuania, is considerably smaller, with 2 banks (22%), one foreign bank branch, lietuvos bankas and the central securities depository of lithuania participating. overall, the fi rst wave of migration to target2 was made up of 259 direct participants, 2 925 indirect participants and 7 ancillary systems. an increase in the volume of payments handled by target-latvija has been observed, while the value of these transactions has been unstable possibly due to seasonal volatility (see chart 2). in the case of target2-lietuvos bankas, the volume of handled payments has stabilised, while the value is on an upward trend (see chart 3). 0 1 2 3 4 5 6 7 8 xi xii i 2007 2008 i n t h o u s a n d s 0 0.5 1 1.5 2 2.5 3 3.5 4 i n b il li o n s o f e u r o value volume chart 2. payment instructions handled by target2-latvija 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 xi xii i 2007 2008 i n t h o u s a n d s 0 0.5 1 1.5 2 2.5 i n b i l l i o n s o f e u r o value volume chart 3. payment instructions handled by target2lietuvos bankas estonia (and also poland) has opted for another solution. eesti pank (also narodowy bank polski) connected its ep rtgs system to target via 85 issn 1822-8402 european integration studies. 2008. no 2 a bilateral link with banca d’italia’s rtgs on 20 november 2006. in turn, banka slovenije decided, for effi ciency reasons, not to develop its own rtgs system, but to use deutsche bundesbank’s rgts system to connect to target. target services in estonia are used by two banks, one foreign bank branch and omx tallinn. as this system has been operational for over a year, its performance can be assessed over a longer time span. substantial fl uctuations in both volume and value of the handled payments were observed, reaching the peak in may and june 2007 (see chart 4). in the case of estonia (similar to latvia), the value of handled payments posted a decline in january. 0 1000 2000 3000 4000 5000 6000 xi xii i ii iii iv v vi vii viii ix x xi xii i 2006 2007 2008 0 100 200 300 400 500 value (in millions of euro; right-hand scale) volume (left-hand scale) chart 4. payments handled by eesti pank’s ep rtgs link with target 0 2000 4000 6000 8000 xi xii i 2007 2008 ep rtgs via target target2-latvija target2_lietuvos bankas chart 5. number of payments handled via target in the baltic states the comparison of the value of payments handled in the baltic states via the two target systems in november and december 2007 and in january 2008 shows that a notably smaller value of payments was processed via eesti pank’s ep rtgs (see chart 6). the largest value of payments was handled via target2-latvija in december (3.7 billion euro). the value of payments handled via target2lietuvos bankas in january exceeded the respective indicator for target2-latvija. on average, the value of payments handled daily via target2latvija was between 66 million euro in november and 192 million euro in december, whereas the respective value handled via target2-lietuvos bankas ranged from 34 million euro in november to 92 million euro in january. at the same time, the value of payments handled via eesti pank’s ep rtgs has not reached 10 million euro. a notably larger average daily value per payment handled was recorded for the target2-lietuvos bankas (2.7 million euro in january; see chart 7). 0 1000 2000 3000 4000 xi xii i 2007 2008 i n m il li o n s o f e u r o ep rtgs via target target2-latvija target2_lietuvos bankas chart 6. value of payments handled via target in the baltic states 0 500 1000 1500 2000 2500 3000 xi xii i 2007 2008 i n t h o u s a n d s o f e u r o ep rtgs via target target2-latvija target2_lietuvos bankas chart 7. average value of payments handled via target in the baltic states evolution of the payment systems latvian banks have made essential adjustments to their internal payment systems to speed up and improve customer payments. they offer a number of new products using modern bank technologies. cashless payment instruments in electronic form, payment cards and payments to institutions issuing electronic money using internet or telephone banking services are used more and more extensively. the importance of cashless payments in non-bank mutual settlements is gradually growing. consequently, the volume and value of payments handled by payment systems of the central banks have increased, and the authors expect that it will continue to increase in the future as well. this is well-supported by the value 86 issn 1822-8402 european integration studies. 2008. no 2 and volume of customer target payment fl ows (see chart 8) as well as by the performance indicators of the other two latvijas banka’s payment systems (rtgs sams and electronic clearing system eks; see charts 9 and 10). 0 10 20 30 40 1999 2000 2001 2002 2003 2004 2005 2006 in t h o u s a n d s 0 10 20 30 40 50 i n b il li o n s o f e u r o val ue number of payments chart 8. daily average of customer target payment fl ows 0 50 100 150 200 250 2000 2001 2002 2003 2004 2005 2006 2007 in t h o u sn d s 0 5 10 15 20 25 30 35 in m il li o n s sams (right-hand scale) eks (left-hand scale) chart 9. volume of payment instructions handled by sams and eks of latvijas banka y = 1 3 0 38 e 0.2 1 3 8x r 2 = 0.8 7 7 4 0 2 0 ,0 0 0 4 0 ,0 0 0 6 0 ,0 0 0 8 0 ,0 0 0 1 0 0 ,0 0 0 2 00 0 2 0 0 1 20 0 2 2 0 03 2 00 4 2 0 0 5 20 0 6 2 0 07 in m il li o n s o f la ts s ams eks expon. (s ams ) chart 10. value of payment instructions handled by sams and eks of latvijas banka securities settlement systems also form an essential part of the fi nancial infrastructure, hence their development ranks important; however, the integration of these systems has not yet come close to the high level achieved by the payment systems due to the advance of target2. therefore the eurosystem develops also target2-securities for securities settlement and a new level of correspondent central banking model cbm2 for collateral management. the authors of the paper support the view that target2 and the two other systems in an independent but integrated way will allow effi ciency to be increased, market integration to be stepped up and competition to be fostered (g. tumpel-gugerell, 2008). these will be important challenges for the central banks in eu countries and also for other players of the fi nancial market. conclusions payment systems play an essential part in ensuring the implementation of central banks’ tasks. it is vital for the eu to develop payment systems that would facilitate the integration of the fi nancial market and support the conduct of a single monetary policy. target2 is a more up-to-date rtgs system ensuring a uniform legal framework and similar payment services in any country participating in target2 as well as facilitating the integration and competitiveness of the eu fi nancial market. the fi rst target2 performance indicators show an upward trend; the dynamics of other payment systems’ indicators point to an increase as well, hence the volume and value of payments via target2 are expected to grow. the functioning of this system is a positive phenomenon requiring a further in-depth analysis when all projected countries have joined it and time series required for the assessment of the system’s performance indicators and seasonality effects accumulated. the completion of the go live target2 as well as the development of target2-securities and ccbm2 are among the most important challenges for central banks and other fi nancial market players in the eu countries. references background information on target2. – on-line: http://www.bsi.si/library/includes/datoteka. asp?datotekaid=2842 bank of latvia: annual report 2006 (2007) – riga, latvijas banka, 118 p. bonnier v. (2008), target2 project management and change-over from a “level3” perspective. – on-line: http://www.ecb.int/events/pdf/conferences/t2conf/3cb_assessment_project_management080131.pdf bruneel d. (2007), target2 as a project // press conference on the launch of target2. – online: http://www.ecb.int/paym/target/target2/ html/target2launch.en.html#bruneel 87 issn 1822-8402 european integration studies. 2008. no 2 core principles for systemically important payment systems. part 1 – the core principles. report of the task force on payment system principles and practices. – basel: bis, july 2000. – online: http://www.bis.org/publ/cpss34ep1.pdf correspondent central banking model (ccbm). procedures for eurosystem counterparties (2007) – franfurt am main: ecb, 20 p. decision of the european central bank of july 2007 concerning the terms and conditions of target2-ecb (ecb/2007/7) (2007/601/ec). offi cial journal of the european union, l 237, 08.09.2007, pp. 71–107. ecb target annual report 2006 (2007) – franfurt am main: ecb, 66 p. euro area: report on observance of standards and codes assessment of observance of the imf code of good practices on transparency in monetary and financial policies – monetary policy and payment system oversight, and the cpss core principles for systemically important payment systems (target and the euro1 payment systems), country report no. 01/195. – washington: imf, october 2001, 30 p. european central bank annual report 2006 (2007) – frankfurt am main, ecb, 248 p. future developments in the target system // ecb monthly bulletin, april 2004. – franfurt am main: ecb, 2004, pp. 59–65. goodhart c. (1990), the evolution of central banks – london: the mit press cambridge, massachusetts, 205 p. guideline of the european central bank of 26 april 2007 on a trans-european automated realtime gross settlement express transfer system (target2) (ecb/2007/2) (2007/600/ec). – offi cial journal of the european union, l 237, 08.09.2007, pp. 1–70. guideline of the european central bank of 30 december 2005 on a trans-european automated real-time gross settlement express transfer system (target) (ecb/2005/16) (2006/21/ ec). – offi cial journal of the european union, l 18, 23.01.2006, pp. 1–17. manning m., d. russo (2008), central banks, stability and the financial infrastructure // payments and monetary and finacial stability. ecb-bank of england conference 12–13 november 2007. – frankfurt am main: ecb, pp. 5–13. papademos l. (2007), financial integration in europe – march 2007. on-line: http://www.ecb.int/ press/key/date/2007/html/sp070328.en.html payment instructions handled by bank of latvia interbank funds transfer systems. – on-line: http://www.bank.lv/images/img_lb/statistika/ ms-stat/lb_sistemu_stat.xls payment instructions processed in the payment system target2-lietuvos bankas. – on-line: http://www.lb.lt/eng/payments/litast.htm#b5 payment systems of the lietuvos bankas. – on-line: http://www.lb.lt/eng/payments/litasr.htm payments settled through real-time gross settlement system of eesti pank. – on-line: http:// www.eestipank.info/dynamic/itp/itp_report.jsp? reference=116&classname=epstat&lang=en poncelet p. (2008), the contribution of target2 to european integration. – on-line: http://www. ecb.int/events/pdf/conferences/t2conf/contributiont2europeanintegration080131.pdf protocol on the statute of the european system of central banks and of the european central bank. on-line: http://www.ecb.int/ecb/ legal/1341/1342/html/index.en.html schinasi g. j. (2004), defi ning financial stability. wp/04/187. – washington: imf, 18 p. settlement systems of eesti pank. – on-line: http:// w w w. e e s t i p a n k . i n f o / p u b / e n / m a j a n d u s / f i nantskeskkond/maksesysteem/arveldus.html t2 conference in paris (31 january 2008). summary of the high level remarks panel. – online: http://www.ecb.int/events/pdf/conferences/ t2conf/t2conference080131.pdf target and payments in euro // ecb monthly bulletin, november 1999. – franfurt am main: ecb, pp. 41–51. tumpel-gugerell g. (20080, payments and monetary and finacial stability // payments and monetary and finacial stability. ecb-bank of england conference 12–13 november 2007. – frankfurt am main: ecb, pp. 31–37. 1 the article has been reviewed. received in march, 2008; accepted in april, 2008. 1 the views expressed in this paper are those of the author and not necessarily represent those of latvijas banka or latvijas banka policy. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 172 european integration studies no. 14 / 2020, pp. 172-184 doi.org/10.5755/j01.eis.1.14.26569 abstract public financing support options to micro-enterprises for innovation http://dx.doi.org/10.5755/j01.eis.1.14.26569 innovation related to the technological advances of entrepreneurship are essential in industry 4.0 and are essential for economic development of the micro companies. the availability of sufficient funding is one of the factors promoting innovations in companies. the study investigates the availability of public financial support for micro-enterprises the largest enterprise category in latvia (approximately 94 %), focusing on those for whom the introduction of innovations is essential for their growth. in an ad hoc survey of companies registered in latvia in nationally defined sectors, entrepreneurs disclosed their sources of funding over the three-year period: 2015-2017. valid responses from 2511 companies, of them 1879 were micro-enterprises, revealed not only the diversity of their financial sources but also the reluctance of external financiers to support companies willing to innovate. out of the micro-enterprises surveyed, which required new or additional funding during the three-year period in question, 21% stated that the goal of funding was “the development and introduction of new products or services”. innovation as an important factor was stated by 28 % micro-enterprises. according to the survey data processed by spss, micro-enterprises still prefer internal financing (64%) among many sources, whereas only 11 % of the respondents used public funding. the micro-enterprises, for which innovation is important, relied solely on internal finance (65%), while public support was used by 13 %. based on the results of the study of latvian companies, the need to improve the availability of financing for micro-enterprises is highlighted by creating a targeted\external funding offer in the form of a financial instrument based on public finance support. keywords: finance institutions; financial instruments; micro-enterprises; public financing; state aid. introduction ilona beizitere riseba university of applied sciences the fourth industrial revolution (industry 4.0) emphasizes innovations as technological advances in business. to remain competitive, companies need to be innovative, which means that they need to adjust their strategies offering products and services in a more innovative way. the losers will be not only companies that are late in introducing innovative solutions, but also the national economy as a whole (schwab, 2016). access to finance promoting their companies and public financial support is a way for the state to provide support to them. financial support is one of the three main drivers of innovation performance external to the company (european commission, 2016). allocating the necessary resources to financial markets plays an important role, not only in the performance of companies as a whole, but also in the introduction of innovations in the company (kerr, nanda & rhodes-kropf, 2014). submitted 03/2020 accepted for publication 05/2020 public financing support options to micro-enterprises for innovation eis 14/2020 ieva brence latvia university of life sciences and technologies biruta sloka university of latvia http://doi.org/10.5755/j01.eis.0.13.23562 173 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 the study focuses on the availability of finance to micro-enterprises, which according to the european classification system (european commission, 2003) is the most common type of non-financial companies. in europe they represent 93 % of all businesses and employ 30 % of thr eu employees (kraemer-eis, et al., 2019). micro-enterprises also form the largest share of companies in latvia, where they account for 94 % of all the economically active enterprises (central statistical bureau of latvia, 2019). their role in latvian economy is comparatively higher than on average across the eu, with a business turnover of 26 % against the eu average of 17 % (ministry of economics of the republic of latvia, 2019b). in terms of employment growth, micro-enterprises in latvia have developed, with an increase of 10.8 % in the 2014-2018 period (european commission, 2019). this highlights the need to support the smallest-sized companies. although it is possible for companies of any size to be innovative, statistics do not provide an opportunity to estimate the number of innovative companies in the micro-enterprises group. so far, neither latvia (central statistical bureau of latvia, 2020) nor europe (oecd/eurostat, 2019) lists innovative companies in a group with less than 10 employees (corresponding to the number of micro-enterprises employees), but innovative companies are identified only among larger peers. according the definition “an innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations. the minimum requirement for an innovation is that the product, process, marketing method or organisational method must be new (or significantly improved) to the enterprise” (central statistical bureau of latvia, 2020). among other things important for development of the companies it was found that the level of innovation in companies in latvia is lower than the average in the eu member states (ministry of economics of the republic of latvia, 2019b), moreover there is a deterioration in access to public financial support, including guarantees, compared to 2017 (european commission, 2019). previous studies have shown improved access to finance as the most effective way of removing the barriers for company growth (e. g. beck & demirgüç-kunt, 2006). however, a survey by the european central bank reports that access to finance largely remains a problem for the european micro-enterprises as compared to companies of other size classes, with 9 % of micro-enterprises reporting it as their biggest problem in 2019. this is an improvement since 2014 when 15 % of the micro-enterprises reported it as their most essential problem (european central bank, 2019). in contrast, the survey safe (kwaak, et al., 2019) have stated that 56 % of surveyed innovative firms face barriers to obtaining funding, while 14 % have indicated that they do not have sufficient collateral or guarantees to obtain it. the survey sought to establish how prevalent was the problem of accessing external funding among companies, depending on their size and according to the legal address of the companies of latvia. to investigate the current situation in latvia, the services of a professional research company the marketing and public opinion research center (skds) were used to conduct a representative survey for field work in order to obtain an ad hoc online survey (wapi). it was conducted among the enterprises registered in latvia to establish the financial sources predominantly used by the entrepreneurs, to find out the main constraints on the enteprises’ growth and the importance of availiability of public funding support to overcome them. this article examines the use of public support funding among micro-enterprises which have recognized that a lack of innovation is essential to their growth. by looking at the perceptions of businesses of public financial support implemented through the financial offers from the joint stock company development finance institution altum (altum). the aim of the work is to investigate the differences in ambitions to access finance, including public financial support, between both micro-enterprises in general and the micro-enterprises willing to innovate. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 174 a computer assisted web interview (cawi) questionnaire was sent out to all companies with publicly available e-mail addresses in the period between october 1, 2017 and january 25, 2018. the request to fill out the questionnaire was addressed to the person in charge of the company’s finances. the target population included all companies across the territory of latvia with activities in sectors eligible for public support. the entire segment studied included all the active businesses registered in the register of enterprises of the republic of latvia with the 11 defined nace codes, i.e. 32 308 companies in total. for improved representativeness data were weighed by the share of the sector. responses of 2511 companies were considered valid, of which 1879 replies were provided by micro-enterprises. businesses were invited to reveal their financial sources over the period of three years: from 2015 to 2017. the results deemonstrated, that majority of micro-enterprises still prefer internal finance among many sources, and only small part of the respondents used public funding. surprisingly, while the micro-enterprises for whom the innovations’ financing is very important, relied solely on internal finance (65 %), whereas 13 % of the respondents used public funding. in contrast, venture capital funds and business angel investments suitable for supporting innovative companies were not used at all. this suggests that despite the policy measures established and implemented for improving access to public finance, including for the micro-enterprises there have been few targeted actions for making these measures work, and the proposals drafted may be delayed. it should be noted that the term “innovation” was not specified in our survey. by analyzing the answers, we relied on the entrepreneurs' own knowledge and perception of innovations, but the official defintition of this term was taken into account as it is available. a second aspect in the context of the assessment was availability of public funding to micro-enterprises in the situation of seemingly ample availability of eu funds to latvian businesses. the current situation, with eu member states receiving significant public financial support, continues to show that lack of access to finance is one of the main obstacles to the growth of micro-enterprises including innovative ones (masiak, moritz & lang, 2017b; kraemer-eis, et al., 2019; oecd/european union, 2019). microenterprises financing – theoretical aspects the issue of access to finance for micro-enterprises with respect to available public support has not been a topic widely studied. focused issues on support for innovative micro-business with public funding are also rarely addressed. therefore, the literature review includes sources with conclusions on accessibility of finance also for other businesses, when they are relevant for micro-enterprises. a range of authors have made attention to the study of the smallest businesses, as well as start-up companies. since newly established companies are predominantly very small and do not exceed the size of micro-enterprises conclusions on start-ups have also been included. for example, brown & lee (2017) have acknowledged that small firms are different from big firms, and these features have significant ramifications for their ability to obtain finance and the problems related to financing seem particularly acute for the smallest firms and new start-ups. until recently, access to finance was considered to be one of the biggest obstacles to the development and growth of such businesses, especially for those starting a new business. at the time, informal financing seemed to be crucial for business development. in addition, innovative companies usually need a significant, larger amount than traditional business, because they need additional funds for market research, research to implement their idea (reynolds, et al., 2005). it is possible that world bank researchers (schiffer & weder, 2001) were among the first to highlight company size as an obstacle to their development. an important conclusion of the study was that smaller companies have significantly greater problems with access to finance than larger companies. thus, one of the main objectives in developing support policies for micro-en175 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 terprises in order to create a level playing field among companies is to find a way to mitigate the effects of this difference. a survey (masiak, et al., 2017a) of the eu member states companies (according to the eu definition of smes) report that micro-enterprises differ from small and medium-sized companies in their funding models. the results reveal that micro companies most often rely on internal financial sources. also, micro-enterprises appear to be less financed by subsidized loans or grants, although they are often targeted by special support programs. traditionally, debt finance in banks, a type of financing with a low to medium risk profile, is suitable for companies with proven business models. the availability of alternative financial instruments offered by the eu has changed this traditional risk-sharing approach, as it provides access to finance for higher-risk companies, such as for start-ups, high-growth and innovative companies. equity financing is more suitable for young and innovative smes, especially in the seed and early stages. the contribution of business angels can also be important in financing early-stage companies (oecd, 2015). research suggests that financial instruments should be tailored to companies according to their size, degree of risk, business life cycle, level of novelty and other criteria, as in many places this type of public finance support in their current form are only available to a small number of smes (oecd, 2018). despite the substantial measures undertaken by authorities to increase financial support, it is found that small businesses, particularly start-ups, face some obstacles (ruchkina, et al., 2017; klein, et al., 2019). the most recent data show that micro-enterprises are less active in using external financial instruments than their larger peers, the reason possibly posed by difficulties in accessing them (european central bank, 2019). similar observations are made in australia, where micro-enterprises including innovators are more likely to face barriers to accessing funding, although public support programs are offered (asbfeo, 2019). a study on investments by the european angels fund have found that angel investments are an indispensable source of venture capital funding, especially for young, small and innovative startups and disproportionally target smaller companies. with the help of national programs, business angels in several countries (germany, spain, ireland, denmark, austria, finland and belgium) were able to fill the funding gaps left by official venture capitalists with their unique investment approach (gvetadze, et al., 2020). in addition, after two years of the angel investments, there has been a positive impact on companies' performance: employment, total assets and in particular turnover. another important source of finance for start-ups and micro-enterprises to drive growth through innovation is venture capital funds. this source of finance is important not only for companies themselves, but also for the economies of eu member states as a whole (botsari, et al., 2019). according to this study, the investment of venture capital funds in latvian companies is one of the lowest among the eu countries. the effect of the european funds guarantee programs is more pronounced for smaller and younger firms, and micro-enterprises benefit most from guaranteed loans. guarantee schemes set up to support innovative companies (in italy and the nordic countries) contribute to an increase in intangible assets, which is a reliable sign of innovation in a company (brault & signore, 2019). an innovation mind-set is a mental framework that fosters development and the implementation of new ideas. many policymakers, corporate leaders and managers need an updated understanding of management issues: a global mind-set, a virtual mind-set, an innovative mind-set and a collaborative mind-set are all key issues in the european integration environment. cognitive skills and mind-sets of global leaders are an important part of new management thinking (kaivo-oja & lauraéus, 2018). the launch of new micro-enterprises, especially the development of innovative ideas, requires not only access to funding, but also mind-set support for the implementation of their initiative in the form of advice and counseling. according to a study (smus, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 176 2017), the entrepreneurs receiving support in the form of both investment and consulting in accelerator centers are more likely to achieve better business results. several authors (e.g. hall, et al., 2000; beck & demirgüç-kunt, 2006; beck, et al., 2008; moritz, et al., 2016) have emphasized the importance of company size in accessing finance, stating that small businesses are more restricted in this area than larger companies. they also have accentuates the importance of financial institutions that may provide for appropriate funding and enable access. the amount of eu funding allocated to each country in the multi-annual plan is based on market failure research and thus also limits the amount and focus of state aid funding. mazzucato (2015) have emphasized the role of public agencies not only in addressing market failures, but also in providing broader support to companies in shaping public policy. such an active approach can help to better target public finances than simply helping a large segment of smes. mazzucato & semieniuk (2017) emphasizes the role of state aid as the main risk-taking for business support, and a successful support policy must itself be innovative. vivarelli (2013) emphasizes that public support, in order to be used as effectively as possible to achieve nationally important goals, must be focused on carefully selected target groups of companies. in addition, banks and financial institutions should not apply the same standards to all companies (janda, rausser & strielkowski, 2013). policy makers should avoid some mistakes when drawing up programs of public support financial instruments. contrary to the fact that the european angels fund business angels have made the largest investments (65 %) in the ict sector (gvetadze, et al., 2020), it should be noted that most fast-growing companies are companies in day-to-day business and service sectors, for which timely and appropriate support is important (brown & mason, 2016). brown & lee (2017) have drawn attention to the fact that companies can look for opportunities to use state aid loans in the absence of more suitable debt-based financial products in banks. empirical research results and discussion case processing summary reliability statistics n % cronbach's alpha n of items cases valid 1879 100,0 0,823 13excludedaa 0 0 total 1879 100,0 source: authors’ constructions table 1 data reability tests by spss a listwise deletion based on all variables in the procedure. results a company survey was carried out in early 2018 to establish the options of micro-enterprises in latvia for obtaining funding and the potential sources. the aim of the survey was to find out the funding needs in strategically important sectors, the importance of “access to finance”, the preferences of companies when choosing the sources and the extent to which micro-enterprises have sought for public support and obtained it. the survey data processing, reability tests (table 1) have been done by the data analysis programme in the spss environment and report a high cronbach’s alpha coefficient (table 1). in response to the question “what types of financing does the company use now or in 2015-2017?”, 64 % of a total of 1869 micro-enterprises indicated that they relied solely on internal financing (loans from the owner, relatives, friends or related companies, proprietary investment in fixed assets, or undivided profits). the survey allowed micro-enterprises to indicate more than one source of financing. among the prevailing sources of external financing mentioned by the rest of the micro-enter177 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 prises were: altum loans – 4 %, eu funds – 6 %, bank loans guaranteed by altum – 3 %, long-term or short-term bank loans, credit line, overdraft – 11 %, lease financing – 13 % and supplier or contractor debt – 10 %. other sources appeared rarely, e.g. only 10 micro-enterprises mentioned venture capital funds and business angel funds. growth impediments were rated on a scale of 1 to 5. micro-enterprises that responded to “almost restrictive” (4) and “restrict” (5) are considered as limited. the total number of micro-enterprises whose access to finance factor limits their growth was 667 or 35 % of all surveyed micro-enterprises. access to finance is most limited by micro-enterprises operating in the following areas: construction (29 %), tourism (17 %), information and communication services (11 %), woodworking (7 %). the number of micro-enterprises which indicated that their lack of innovation limited their growth was 269 or 14 % of all micro-enterprises. the lack of innovation is most limited by micro-enterprises, which has been operating in the following areas: construction (26 %), tourism (21 %), information and communication services (14 %), wood processing (11 %). it is noteworthy that the distribution of priority sectors is identical. in addition, the information and communication services sector is not the first. the survey revealed that existing micro-enterprises in the start-up phase of a company (up to 2 years – 7 %) feel less the need for innovation for their growth. their need is most recognized later, in 2 to 5 years of development (34 %). in total, 48 % of micro-enterprises who value innovation are also concerned about access to finance (130 out of 269). in turn, among those for whom access to finance is important, 19 % of micro-enterprises also gave important value to innovation (130 out of 667) main 33% 22% 26% 8% 11% not constrained almost not constrained not affected / hard to say almost constrained constrained 0 10 20 30 40 50 60 70 loan from owner retained earnings additional equity investments by the owner other borrowings from relatives, friends or affiliates leasing debts to suppliers and contractors bank short-term loan, credit line or overdraft funding from eu funds loan from altum (including mezzanine loan) bank loan with p artial altum guarantee bank long-term loan new owner or investor attraction other sources of financing (on-line loan p latform, etc.) factoring 33% 22% 26% 8% 11% not constrained almost not constrained not affected / hard to say almost constrained constrained 0 10 20 30 40 50 60 70 loan from owner retained earnings additional equity investments by the owner other borrowings from relatives, friends or affiliates leasing debts to suppliers and contractors bank short-term loan, credit line or overdraft funding from eu funds loan from altum (including mezzanine loan) bank loan with p artial altum guarantee bank long-term loan new owner or investor attraction other sources of financing (on-line loan p latform, etc.) factoring figure 1 evaluation of microenterprises in latvia for which finances were important about the "impact of the lack of innovation on the company's growth” in 2017 (n = 667) source: authors’ constructions 33% 22% 26% 8% 11% not constrained almost not constrained not affected / hard to say almost constrained constrained 0 10 20 30 40 50 60 70 loan from owner retained earnings additional equity investments by the owner other borrowings from relatives, friends or affiliates leasing debts to suppliers and contractors bank short-term loan, credit line or overdraft funding from eu funds loan from altum (including mezzanine loan) bank loan with p artial altum guarantee bank long-term loan new owner or investor attraction other sources of financing (on-line loan p latform, etc.) factoring figure 2 the sources of funding most frequently used by micro-eneterprises in latvia for which both „access to finance” and „lack of innovation” had impact on the company’s growth in 2015-2017 (n=130) source: authors’ constructions results are included in figure 1. in order to analyze micro-enterprises for which both access to finance and innovation are important, the answers to the question were analysed: "what types of financing does the company use or has used in the last three years (2015-2017)?" each micro-enterprise could indicate several sources of funding (figue 2). surprie u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 178 singly, informal funding has been the most popular. only 17 micro-enterprises of this group had used public financial support (bank loans guaranteed by altum, altum loans, including mezzanine and eu fund-based financing). venture capital funds and business angels, on the other hand, were not used at all. answering the question "for what purposes has the company you represent needed new or additional financing in the last three years?" 21 % of all respondents stated that the purpose of funding was: “for the development and introduction of new products or services”. but in the group of micro-enterprises for which innovations were important it was more – 28 %. in all isolated groups of micro-enterprises, most relied solely on internal financing (loans from the owner, relatives, friends or related companies, proprietary investment in fixed assets, or undivided profits) – results are reflected in table 2. among the most popular sources of financing in 2015-2017 was leasing, which in terms of frequency of use competes with public financial support (bank loans guaranteed by altum, altum loans, including mezzanine and eu fund-based financing). micro-enterpreises that were important to innovate had less often used bank financial products. table 3 distribution of microentereprises in latvia depending on the attitude to apply to altum for new or additional funding in the period from 2015 to 2017 not allocated (n=1879) accesss to finance (n=667) innovation (n=269) accesss to finance un inovacijas (n=130) turned to the bank 8% 14% 6% 7% did not turn 30% 40% 34% 42% didn't turn, but consider doing so 11% 21% 14% 22% hard to say 1% 1% 1% 0% no response 51% 24% 45% 29% responses factors essential for growth source: authors’ constructions although out of the surveyed micro-enterprises 49% indicated new or additional finance needs in 2015-2017, however, only a small proportion of surveyed micro-enterprises turned to altum (8 %) or at least considered doing so by 11 % (data are refected in table 3). of those micro-enterprises for which the access to finance was an essential factor, more companies applied to altum (14 %) or considered such an option (21 %). in contrast, those for whom the lack of innovation was the main impediment to growth were less: 6 % and 14 %, respectively. looking in more detail at the micro-enterprises group for which both access to finance and the introduction of innovations are important for growth – it was found that only 7 % approached altum, but 22 % of micro-enterprises considered such an option. table 2 distribution of microenterprises in latvia by the most frequently used sources of funding depending on the attitude towards the importance of some factor for its growth in the period from 2015 to 2017 not allocated (n=1879) accesss to finance (n=667) innovation (n=269) accesss to finance un inovacijas (n=130) internal finance, solely 64% 57% 65% 65% leasing 13% 15% 13% 12% public support finance 11% 15% 12% 13% bank finance (long-term and shor-term) 11% 14% 9% 9% financial sources factors source: authors’ constructions 179 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 the question of why the micro-enterprises did not consider applying to altum for funding was answered by 31 % of the respondents. notably 53 % indicated that they lacked knowledge about the funding possibilities offered by altum, whereas 19 % thought that altum would not support their financial needs (table 4). representatives of other micro-enterprises groups had quite similar views. most of the micro-enterprises that had acknowledged the lack of both financing and innovation as a significant obstacle to the growth of their company were not sufficiently informed about the altum offer (60 %). in addition, 19 % of them did not believe that they have had the opportunity to finance altum. table 4 grounds for the micro enterprises in latvia to address their funding needs to altum in the period from 2015 to 2017 answers to the question: why didn't the company turn to altum to get the necessary financing? not allocated (n=591) accesss to finance (n=284) innovation (n=101) accesss to finance and innovation (n=58) no/insufficient knowledge about altum’s offer 53% 57% 53% 60% disbelief that altum would provide for the required funding 19% 23% 20% 19% better sources of funding available 11% 4% 10% 3% other reasons 5% 6% 5% 7% hard to say 12% 11% 12% 10% source: authors’ constructions discussion in turn, of those micro-enterprises for which innovations are important (n=269) and which indicated the availability of other better sources of financing (n=10), in fact, the following sources were indicated as used in 2015-2017: retained earnings – 6, additional owner's investment in share capital – 3, loans from the owner – 8, from relatives, friends or related companies – 2, leasing – 2, factoring – 1, eu funding – 1. in contrast, from the micro-enterprises group, for which it is important to innovate and obtain financing (n=130), 9 entrepreneurs applied to altum to obtain it. as a result: request declined by altum – 2; granted by altum, but declared by me – 2, granted by altum in part – 3; granted by altum in full – 2. a range of financial instruments providing for state aid have been developed in the eu to offer alternative financial products instead of traditional debt financing. financial instruments are measures of financial support provided on a complementary basis from the budget in order to address specific policy objectives of the eu in the form of equity or quasi-equity investments, loans or guarantees and other risk-sharing instruments (regulation (eu, euratom), 2018). from the 4.4 b eur planned for entrepreneurial support in the multi-annual financial framework of 2014-2020 in the priority “competitiveness of small and medium enterprises”, the amount allocated to latvia was 334.3 m euros (ministry of economics of the republic of latvia, 2019a). after deducting the share of the intermediaries, the amount available to the final beneficiaries (commercial companies) through difrerent financial instruments in the financial institution altum and the accelerator and venture capital funds has been 162.46 m euros. essentially, eu grants funding in the form of state aid for every member state on the condition that it will be solely used to target market failure. the progress report on implementation of financial programs has established that despite the measures to ensure sme access to finance in the latvian financial market, market failure persists (ministry of economics of the republic of latvia, 2017). the report recommended maintaining altum’s interventions in funding the small businesses, given the differences in the lending policies and financing conditions of altum and the commercial banking sector. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 180 in addition to public funds altum attracts private resources through partnerships with a number of hedge funds. they are set up with state aide funding to support start-ups in the early stages of their business cycle or to implement new, innovative projects. the government of latvia has allowed the funds repaid or released within the framework of financial instruments to be re-directed to other programs. however, the use of risk and acceleration funds has not gained popularity (ministry of economics of the republic of latvia, 2019b). in turn, in their final evaluation of the contribution of eu funds for business support in the 2007-2013 programming period in latvia, the authors (ernst & young baltic, 2018) found that previous activities focused on innovation and high added value in companies were not targeted. it is recommended that support for start-ups be further implemented, including support for the creation of new high-growth companies and innovation activities. latvia is one of the few countries that has developed a separate law for public support of innovative start-ups that might be rapidly developed to a global scale. in 2019 there were more than 400 start-ups that complied with the criteria in the legislation; however, in early 2020 only 6 of them obtained support from the state financing programme (investment and development agency of latvia, 2020). yet, the study (gatewaybaltic, 2019) found that several start-ups were needed a loan for development but had been prevented from turning to altum on account of the private guarantee requirement for securing the loan. such requirements are, in fact, inappropriate in the initial stage of a business when the success of the business is still under question. this study on start-ups concluded that the initial goal for supporting them has become outdated. the most recent survey (altum, 2020a) among more than 300 new entrepreneurs in latvia which have started a new business or business project over the past three years established that the majority or 85 % of the entrepreneurs initially sourced it from internal funding, which is more than the share of 76 % recorded in 2017. even though the surveyed entrepreneurs perceived altum as the most popular institutional financing source, they also indicated their perception that there would be less available funds in the coming year. the ec encourages member state governments, in collaboration with researchers, to find solutions to support entrepreneurship in order to overcome the covid-19 crisis and its consequences. in most eu countries, immediate government intervention is aimed at supporting the small business sector and in particular their liquidity (mason, 2020). in latvia, the main emphasis is on issuing short-term loans and providing loan guarantees so that banks can continue to lend to companies experiencing short-term liquidity difficulties to support suspended or restricted commercial activities (altum, 2020b). therefore, mason (2020) calls for timely support for innovative, high-growth and potential high-growth enterprises, given that such enterprises could provide a sustainable way out of the crisis in the medium and long term. using examples from the uk's crisis-based public support offers for smes, the author recommends that innovative, high-growth enterprises develop public financial support products, involving investments of venture capital funds and business angels. conclusions the eu has developed a wide range of financial instruments that can be applied to support micro-enterprises and to implement innovative initiatives, and international research confirms that they are targeted at focused support to promote both the growth or performance of an individual company and a positive contribution to the national economy. however, the availability of the public financing support to micro-enterprises in latvia is discussible. positive policy initiatives to support young innovative enterprises are not matched by appropriate public financial support programs. their conditions do not meet the needs of companies. although sufficient public funding have been accumulated in latvia for many micro-enterprises the availability of financing instruments still remain a challenge, especially for those which want to promote their growth and competitiveness through innovation. 181 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 a survey of latvian enterprises provides an overview reveals shortcomings in the supply of public funding for micro-enterprises and especially for innovation. on the other hand, the actual amount of funding required by micro-enterprises in latvia has not been fully assessed: many micro-enterprises refrain from turning to altum. accessibility is also affected by the willingness, approach and readiness of the entrepreneurs themselves. some recommendations are made based on the our research: _ it would be worthwhile for business policy makers to activate, stimulate risk capital support for micro-enterprises, especially start-ups, for the implementation of innovative ideas, and to create a more focused diversified funding offer with this external source. _ the founders and managers of micro-enterprises should assess their chances of obtaining funding and turn to an appropriate funder. if the project contains innovative ideas, then it is recommended to go to venture capital or accelerator funds (which are supported by public investment). _ as financial institutions, instruments and markets have changed significantly in recent years, there is a need to raise business awareness of these changes and, in particular, of the offers of public financial support. acknowledgements thanks to the marketing and public opinion 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(2016). the fourth industrial revolution. (p. 171) world economic forum, switzerland. smus, t. r. (2017). sources of support and funding innovative start-ups. international solutions. kwartalnik naukowy uczelni vistula, 2(55), 127-142. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 184 schiffer, m., weder, b. (2001). firm size and the business environment: worldwide survey results. international finance corporation. discussion paper no. ifd 43. august 2001. the world bank. retrieved from http://documents.worldbank.org/ curated/en/574601468739143195/firm-sizeand-the-business-environment-worldwide-survey-results https://doi.org/10.1596/978-0-82135003-4 vivarelli, m. (2013), is entrepreneurship necessarily good? microeconomic evidence from developed and developing countries. industrial and corporate change, 22(6), 1453-1495. https://doi. org/10.1093/icc/dtt005 about the authors beizitere ilona mg.oec., candidate for doctoral degree riseba university of applied sciences fields of interests micro-enterprise development; micro-enterprise financing, state aid for micro-enterprise. address 3 meza iela, riga, lv-1048, latvia, phone + 37126566887. e-mail: ilona.beizitere@gmail.como.uk ieva brence dr.sc.admin., latvia university of life sciences and technologies fields of interests companies financing, influence of different factors on economic development of regions. address liela iela 2, jelgava, lv-3001, latvia phone + 37126363506. e-mail: ieva.brence3@gmail.com biruta sloka dr.oec. professor, senior researcher university of latvia, faculty of business, management and economics, institute of economic and management research fields of interests statistical analysis of different factors influencing economics and management decisions. address aspazijas bulv. 5, riga, latvia, lv-1050 phone +37129244966 e-mail: biruta.sloka@lu.lv this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 e-education tools as a way to esf possibilities developing in latvian rural areas jurijs lavendels vjaceslavs sitikovs riga technical university abstract statistical data of utilization of the means of european social fund in latvia shows that its largest part ends up in riga. first of all, this is due to relatively small amount of applications submitted from regional entities due to preconception that the preparation of application is too complicate and this assumption causes incredibility in own forces. the paper describes the approach and measures by what riga technical university (rtu) within co-funded by european social fund (esf) project intends to improve ability of regional entities and inhabitants to uptake opportunities provided by esf. the core of measures is specially developed continuing educational courses covered either overall issues of project management customized to wide auditorium as well as information regarding particular activities and calls. to draw replaying of recorded materials near to live event the network of supporting points consisting of appropriately equipped premises and appropriately trained coordinators whose will play a role of presenters and mediators to information holders are developed. this network will be expanded by upper-layer supporting points governed by first level coordinators. at the same time the library will be enriched by additional learning courses and records of informational events related not only to esf activities. keywords: european structural funds, regional development, project application, e-environment, further education. introduction there are relatively small amount of applications for european social fund (esf) in latvia projects submitted from regional entities. analyse of inhabitants’ awareness about acquisition of european structural funds in latvia (skds, 2005) shows that only 7 percents of respondents who could be potential applicants compel themselves to write a proposal. from our point of view, the main reason is the preconception that the preparations of applications are too complicated and this assumption causes incredibility in own forces. these fears are proved by the fact that only one third of those who decided to apply to funding consider that the process of preparation and submission of project application was simply or rather simply than hard-earned (pkc, 2005). one of the main aims of esf is developing of human resources and promoting integration into the labour market (spd, pc, 2004). data about acquisition of esf programs in education (aved, 2005) shows that more than half of approved projects and more than half of amount of funding is realizing in riga. it is necessary to investigate the reasons of such situation and elaborate particular set of measures for situation improvement. we consider one way to improve the situation to be the appropriate continuing education of regional entities’ representatives and inhabitants, giving them the same knowledge and skills as in metropolis in issues related to the submission of applications. this education envisages distance learning which would increase their competitiveness in national programs, open calls and grants and therefore facilitate increasing of their level of life and promote accession of the republic of latvia to the european union. description of current condition in republic of latvia applications for esf projects usually prepare special people, who either digest methods of project drawing up self-taught, attending, for example, esf announced project competition seminars about particular activities, or external project drawing up specialists. there are just few serious courses, such as organized by the ministry of education and science project manager courses about eu funds, it projects 87 issn 1822-8402 european integration studies. 2007. no 1 and project application drawing up. these courses take place in riga and because of high participation fee are financially beneficial only for big organizations, such as leading high education institutions, to prepare specialists for esf state program support. in riga and biggest cities project application drawing up can be digested by consulting with more sophisticated application writers, as well as with representatives of agencies responsible for particular activities. for instance, it could be (moes, 2004) agency for vocational education development (http://www.piaa.gov.lv). such consultations could be both in presence and by postal courses like e-mail. in provinces it is possible to consult practically with piaa employees only using e-mail. thinking about first project application for people without any special knowledge frequent and informal consulting, which can be possible mainly in riga, is necessary. just mentioned partly explains big amount of project application from riga and rather small amount of project application from provinces. to motivate province organizations and inhabitants to participate in eu funds’ project competitions and other activities serious work with dormant people, who are interested in it, is necessary. suitable form for this work is further educational courses in provinces. there are a lot of continuing education programs offered in latvia. principally those programs envisage: • full-time training; • extramural teaching, where trainee receives teaching materials; • few distance learning courses, where trainee receives teaching aids by post or e-mail. no one of offered training forms fully satisfy potential project applicants’ and executors’ requirements. it is due to following reasons: fulltime further education courses are organized in riga and cities, thus it is difficult for province inhabitants to attend courses because of their immobile lifestyle. moreover, attending a course with several days of business trip obligates potential submitter to prepare project application, but people, at least psychologically, are not ready for it. extramural and e-courses usually organize further education in concrete narrow profession specializations, prescribing that participants already are specialists in concrete reviewed area. further education programs usually are developed for long time. in the case of eu fund activities it is difficult to predict when and for what activity the course must be produced. therefore in training course for potential project’s applicants two parts must be prescribed – universal general part and variable part related to concrete activity (opened call). for province inhabitants, starting working with concrete project application must be clear, that they will get all information that is provided in centralized applicants’ seminars, which they could not attend. the possible solution is to draw up informational part of centralized seminar, so that it will be available to potential interested all over the country. we came to a conclusion that a set of concrete measures, which provides province inhabitants’ involvement in eu fund’s activities, potential project applicants’ training, notification and consultation offices in their places of adobe, is necessary. by our opinion, the most convenient way of involving province inhabitants in eu fund activities is usage of learning-communication environment on the web. main idea the basis of proposed campaign is implementation via internet in the form of distance learning specially developed course consisting of two parts. first one is devoted to overall issues of project management adapted to wide auditorium. second one devoted to specifics of esf projects’ application and implementation. to support fulfilment of mentioned above course (especially its second part) is created multi-level technical-human environment covering the whole country (lavendels, 2006). this environment is providing conditions for course studies also after project completeness (multiplicative effect). integrated approach and preconditions within the framework of activity, specially devoted to enhancement of the economically relevant continuing training opportunities (moes, 2004) two projects are implemented: • “informational technologies for motivating latvian provinces to take advantages of opportunities provided by esf” (hereinafter “rtu project” in distinguishing with projects as subject matter); • and “informational technologies for further education of latvian province teachers of informatics”, which is developed together by rtu and institute of mathematics and informatics of latvian university. rtu projects’ timeliness is confirmed by the fact, that later on new national program “regional eu structure fund informational centre establishment and activity” was announced (fm, 2006), that solves problems touched in rtu project on highest level. projects are parts of integrated set of measures “informational technologies to form universal learning-communication environment on the web” and envisage technical, methodical and information technologies solutions to form universal learningcommunication e-environment in state with 88 issn 1822-8402 european integration studies. 2007. no 1 supporting points in provinces. integrated approach envisages variety of measures, int. al. participation in esf projects to achieve both direct project aim, and prepare conditions for further esf projects execution developing universal learning-communication environment on the web. facilities developed during mentioned projects, together with supporting infrastructure will be used as a base for further esf supported activities’ realization in latvian provinces. concerned rtu project has several preconditions. first of all in such a way during the partially funded by esf project “informational technologies for inclusion of the young people with special needs into education and society” (lavendels, 2005) rtu is drawing up methods for development of communication environment for groups of inhabitants with specific needs. from other hand is realized approved by the ministry of education and science further education programme “e-course for practical computer using in teaching of programming and adopting of application programs” (isec, 2004, sitikovs, 2005). thus was acquired first experience in organizing via the web further education with properties of classical classroom teaching (grundspenkis, 2005, grundspenkis, 2006). general aim projects’ general aim is to facilitate human resources’ development and encourage improvement of situation in labour market by securing high level of employment and struggle against unemployment, as well as realizing equalization of regional economical distinction. to gain the aim it is necessary to stimulate latvian provinces’ organizations and inhabitants to maintain situation improvement in regions, int. al. to employ abilities, which offer eu fund activities both in form of national program, and projects’ competition form, that project is pointed at. project envisages the set of concrete measures, which will make possible province inhabitants to get main knowledge in their places of adobe to participate successfully in esf activities, thus to stimulate both personal situation improvement, and regional development. project contributes to average-term aims defined in single programming document (spd, 2004) and programme complement (pc, 2004) – competition ability’s development and employment improvement, human resources development and infrastructure improvement, as well as structural policy’s horizontal aim following-up – information society’s formation, region development and gender equality. project work results will further valuable accession of the republic of latvia to the european union. direct aim of work and main activities direct aims is further e-education on the web of latvian province inhabitants for drawing up and execution of project applications for esf supported activities competition, to motivate province organizations and inhabitants to participate in esf activities. to achieve mentioned above aim the following was done: • development of equipment for preparing voice and video materials accordingly with project needs; • setting up a set of supporting points in all latvian areas as well as appropriate training of their responsible persons coordinators; • development of computerized learning course about project organization and its implementation in general as well as for esf project application and realization particularly; • implementation of these learning courses on the web using network of supporting points; • creation of urgent information about esf activities in computerized form and its deployment on the web to motivate latvian province inhabitants to participate in those events; • preparation of provisions for computerized learning courses self-dependency after projects are finished. target group projects’ direct target group are latvian province state establishment and municipality employees, who are interested in offered by esf opportunities. province organizations and inhabitants want to participate in esf activities, but do not have necessary knowledge and support for successful drawing up project application and its realizing. developing environment for province inhabitants’ e-further-education in their places of adobe latvian province organizations’ and inhabitants’ possibilities to take advantages on opportunities provided by esf are drawing near to city inhabitants’ opportunities. gender equality currently in provinces is appreciable level of unemployment, usually limited demand is for lowqualified rough labour performers, thus provinces’ women have worse employment opportunities than men. as the result of the project qualified performer level of employment must rise, namely, demand for esf project applications’ potential writers and executors, int. al. for typical women positions: 89 issn 1822-8402 european integration studies. 2007. no 1 secretaries, specialists in document drawing up, accountancy and calculation, must come in sight in latvian provinces. by this medium by the result of project’s activity in long period of time particularly for province women employment opportunities must grow. the project envisages continuing e-education, directed towards eu fund digestion, for province inhabitants in their places of adobe. in this manner gender equality is more strengthen, as province women, taking into consideration their lifestyle (housekeeping connected with farming, insufficiency of junior children educational establishments), have problems in improving their professional knowledge in fulltime studies far away from their places of adobe. investment in regional development provinces’ involving in digestion of esf resources and execution of esf projects directly stimulate regional development. preparing specialists for esf activities’ execution, project will form people in provinces who can take part in european unions’ joint actions for regional development upon the bottom of regional planning documents that determine development priorities and support the set of particular measures. by these mediums project also makes a relevant contribution in regional development. development of informational society project involves trainees in information technologies and web usage in their daily work and prepares them for new digestion of computer usage. project prescribes realization of learning process by using informational technologies, wherewith project activity itself stimulates informational society’s formation in state provinces. usage of informational technologies rouses interest directly in young people, in this manner directly young people are involved both in project’s direct activities, and informational society’s formation. description of the course one of the most respected standards in the field of pm is developed by project management institute “a guide to the project management body of knowledge (pmbok). ansi pmbok2000” (pmbok, 2000). this document has the overall nature and could be implemented in any kind of projects. nevertheless each particular project has its own (and maybe unique) properties, in most cases caused by assumptions and constraints related to project sponsors. one of such case is features of specific requirements to projects funded by esf in latvia. (sitikovs, 2006). what is regarding to the second part of the course that for province inhabitants starting work on concrete project application must be clear that they will get all information that is provided in centralized applicants’ seminars, which they could not attend. the possible solution is to record informational part of centralized seminar, so that it will be available to potential interested all over the country. but there are two issues related to recording and replaying correspondingly. simple recording of event to videocamera could not provide necessary quality (for instance slides shown on the wall-screen have much worse quality than originals power-point-slides) and simple video-recording will be huge in size as a file. so special cutting of video, slides and sound is necessary to provide both appropriate quality and minimum size of file. from other hand simple replaying of recorded event is not equivalent to participation on this event. first of all it is related to impossibility to ask a question. so it is necessary to implement some mechanism allowing providing analogue of feedback from listener to presenter. technological solution the idea is to use a technology when into the file is recording not an image, but only changes against previous picture. in this case showing a static image like a slide will not require any volume of storage. usage of such approach (exactly screenflash – see www.unflash.com) made a good showing (sitikovs, 2005). provision of feedbacks the idea is not to replay recorded event on user’s pc, but to organize some equivalent of seminar – public demonstration of recorded event to the group of participants. for this case is necessary to settle up a set of supporting points covering the whole country. on the first stage a set of 5 supporting points in all latvian areas is established. the supporting point consists of appropriately equipped premises (school’s computer lab, library’s hall etc.) and appropriately trained responsible person – coordinator. during public demonstration of electronic course coordinator plays a role of presenter with a responsibility to answer to questions raised during the presentation or to play a role of mediator between auditorium and seminar’s holders. on first stage of its growing the network of supporting points was used for promotion and education regarding esf activities. then the network will be expanded by second level of supporting points subordinated and reported to coordinators of first level points. second level supporting points will work under the same rules as first one with single distinction that second level points coordinators are mediators between their 90 issn 1822-8402 european integration studies. 2007. no 1 auditoriums and first level points coordinators. at the same time library of presentations will be extended by additional learning courses and records of additional informational events related not only to esf activities. usability of results project’s work results mainly are anticipated to esf activities support and esf projects applications’ compilers and executors. preparing specialists to execute esf activities, project prepares people in provinces, who can take part in joint european union regional development measures, on the ground of regional planning documents that determines development priorities and supporting measures. thus project invests as well in regional development. project’s target group acquires new knowledge via the web, wherewith it will be drawn nearer informational technologies usage in daily routine – informational society’s formation will be stimulated. conclusions within the rtu project “informational technologies for motivating latvian provinces to take advantages of opportunities provided by esf” first phase of learning-communication environment on the web is developed. this environment will be further maintained and expanded. modernizing and developing the environment further education courses will be reconsidered. thus from the course about particular activities outdated topics could be removed, but instead new topics about outstanding esf offers will be included. acquired abilities in project organization and information technologies skills will provide growth of latvian province inhabitants’ economic activity in longer period of time. references aved (2005), “agency for vocational education development. news release 2005/5-6.” 16p. online: www.piaa.gov.lv/admin/files/esf_decembris_20 05.pdf fm (2006), ”to be implemented new national programme of european social fund.” (in latvian). ministry of finance, february, 2006. 1p. on-line: www.esfondi.lv/events.php?id=1&arhivs=all&ac tion=event&category=45&eid=719 grundspenkis j. et. al. (2005), principles of creation of friendly environment for elearning and collaboration of the young people with special needs. / in information systems for hrm and education. saint petersburg, russia, 20-21 september 2005, pp. 73-77. grundspenkis j. et. al. (2006), compatibility of the principles of computer-based and classical teaching. / in web based communities, san sebastian, spain, 26-28 february 2006, 335-339 p. isec (2004), pedagogues’ continuing education programmes catalogue. for teachers of informatics. a2-9014142254. e-course for practical computer using in teaching of programming and adopting of application programs (in latvian). on-line: isec.gov.lv/cedu /kat/kat.shtml?19. lavendels, j. and sitikovs, v. (2005), nowadays webtechnology for inclusion of the young people with special needs to education and society. / in “knowledge society challenges for e-learning”. isbn: 9955-09-874-0, kaunas, lithuania, 26-27 may, 2005, pp. 116-121. lavendels, j. et. al. (2006), multi-level technicalhuman environment for promoting european programmes in latvian regions. / in 4th international conference "citizens and governance for sustainable development (cigsud)", september 28-30, 2006, vilnius, lithuania.5 p. moes and aved (2004), the third priority “development of human resources and promotion of employment”. 3.2. measure “development education and continuing training”. 3.2.4. activity “enhancement of lifelong learning network and capacity building, course development and implementation for the continuing training needs of greater society (e.g. public sector employees) and development of the strategic outline and cooperation mechanisms for the life long learning”. 3.2.4.2. subactivity “enhancement of the economically relevant continuing training opportunities”. guideline for open call (in latvian). 52p. on-line: www.piaa.gov.lv/admin/files/esf_3.2.4.2.pdf pc (2004), programme complement. latvia objective 1 programme 2004 – 2006. 168p.online: www.esfondi.lv/image/upload/tiesibu_akti/pc 2004 05 14.pdf pkc (2005), “european structural funds and regional development” (in latvian), november, 2005, 77 p. on-line: www.esfondi.lv/upload/01strukturfondi/petijumi/es_sf_un_teritoriju_attist iba_latvija.pdf pmbok (2000), guide to the project management body of knowledge, (pmbok® guide), 2000 91 issn 1822-8402 european integration studies. 2007. no 1 edition, project management institute isbn: 1880410230, 2000 sitikovs, v. and lavendels, j. (2005), post-graduate etraining for teachers of informatics of rural secondary schools. / in ist 6th framework programme great opportunity for cooperation & collaboration, isbn 9984-32-178-9. riga, latvia, 6-7 april 2005, pp. 41-44. sitikovs, v., lavendels, j. (2006), standard ansi pmbok in the context of european social fund’s projects in latvia. / in 4th international scientific conference „business and management 2006”, 5-6 october 2006, vilnius, lithuania. 4 p. skds (2005), ”awareness of society about acquisition of european structural funds in latvia. results of inhabitants‘ polling.“ (in latvian), october, 2005, 15 p. on-line: www.esfondi.lv/upload/01strukturfondi/skds_rezultati_10-2005.pdf spd (2004), single programming document. latvia objective 1 programme 2004 – 2006 319p. online: www.esfondi.lv/image/upload/spd2003_12.pdf 92 microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 foreign direct investments contribution to knowledge economy in poland stanisław umiński research centre on european integration university of gdańsk abstract the paper is aimed at presenting the new trends in foreign direct investment (fdi) incoming to poland. the focus is on the role that fdi play in building knowledge based economy. the 2006 constitutes a year with the highest value of fdi inflow ever registered in poland. cumulated fdi in poland equal to 108 bn usd. thus it is a good time to ask questions about foreign investors’ contribution to knowledge economy. keywords: foreign direct investment, knowledge based economy. introduction the scientific problem research in the article relates to the role that incoming foreign direct investments play in building the knowledge economy in poland. according to preliminary data, value of fdi incoming to poland acceded 100 bn usd in 2006. in fact 2006 constitutes a year in which the highest value of incoming fdi was ever registered. it is estimated at 14,7 bn usd. so far, the highest value was registered in 2004 when the inflow was 12,9 bn usd. as poland is more penetrated by fdi, it is a good time to ask what are new trends in fdi to poland and to focus on the topic of fdi and knowledge based economy. the aims of the paper are as follows: • to depict why poland shall attract fdi, • to show why technology oriented fdi are important for the polish economy, • to describe the changing pattern of fdi in poland and consequences of these changes for poland’s economy move towards the knowledge based economy. the main task of the article is to judge if the observed changes in foreign direct investments are bridging the gap between current technological advancement of the polish economy and the goal which is far more technologically competitive economic environment. fdi in poland, basic facts and figures some years ago, at a conference on the strategy of poland’s membership in the eu (kułakowski, stępniak, umiński, 1994) i formulated several reasons why poland shall attract fdi: • fdi’s high propensity and ability to export and invest, • their experience in operating in competitive, international markets that would reduce accession shock, • technology transfer important for poland’s modernizing economy, • relatively (in comparison with domestic enterprises) low energy consumption and therefore environmental friendness, • low domestic capital resources needed for modernisation processes. the above formulated reasons still hold. of course poland since 2004 is a member of the eu. thus we cannot still say about reduction of the accession shock. there was in fact virtually no accession shock the presence of fdi was important and beneficial for the economy: • for most foreign direct investors there were no shock because they came to poland just because of the anticipated eu membership, • foreign investors were penetrating poland’s economy since the beginning of the 90 (paiz, 2007). therefore the “competition effect” exerted on domestic enterprises forced them to invest and that time can be regarded as a preparation to functioning within competitive, demanding, international economic environment, • many domestic enterprises have been cooperating with foreign investors. thus, for them it is much easier to export as they have learned from more experienced partners and 118 issn 1822-8402 european integration studies. 2007. no 1 have been using their distribution and sales channels. as far as technology is concerned, we must realize what is poland’s position in technology rankings (cordis, 2007). in fact, poland’s position in this respect is not tremendous. as it was stated by the european commission in “european trend chart on innovation. annual innovation policy trends and appraisal report. poland 2006” it is widely acknowledged that poland is not one of the most innovative economies in the world. however, what is extremely interesting about poland is the fact that there are two tales to be told. on the one hand, poland's overall performance in comparison with other countries is rather bleak. on the other, the level of investment in innovation is raising. one of the major problems is that polish companies do not sufficiently invest in innovation. moreover, companies focus their investments on new machinery and equipment and only small percentage is allocated for innovation activities. furthermore, the innovation expenditures are concentrated in five metropolitan regions including mazowieckie, slaskie, wielkopolskie, malopolskie, and dolnoslaskie. this highly correlates with the geographical pattern of incoming fdi. till the end of 2006 fdi in poland reached 108 bn usd. it is relatively high value, but per capita fdi value in poland (2,8 ths. usd) is lower than in czech republic (6,3 ths. usd) and hungary (6,7 ths. usd). 4,9 6,4 7,3 9,3 5,7 4,1 4,6 12,9 9,6 14,7 0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 figure 1: yearly inflow of fdi to poland (usd bn) source: national bank of poland, preliminary data for 2006 trends and changes in fdi in poland as value of fdi invested in poland increases year by year, their character is changing. the main alterations are: • rising share of greenfields, • increasing share of service sector, • growing reinvested earnings. rising share of greenfields is an important fact that shall be taken into account when we analyse fdi inflow and their influence on poland’s economy. during the conference in kaunas in 2006 together with dr dorota ciołek we presented the paper on technology transfer and fdi. we have assessed assets and labour productivity changes in polish manufacturing as well as total factor productivity (tfp). we are continuing this research based on more actual statistical data. our recent research based on statistical data from enterprises’ financial statements f01 and f02 till 2005 proves earlier observations. labour productivity in foe (foreign owned enterprises) is – much – higher than in domestic ones. on the other hand, fixed assets productivity and total factor productivity are lower in foe than in domestic enterprises. taking this into account, we could say that inflow of fdi does not contribute to building knowledge based economy as tfp (treated as a measure of technology and knowledge creation and transfer) remains lower than in domestic enterprises. but we shall look deeper into the character of the incoming fdi. the greenfields share is rising. according to the polish information and foreign investments agency data, in 2002 greenfields share in total fdi inflow was 37 per cent, it raised to 51 percent in 2003 and 58 per cent in 2004. greenfields generate positive results for the economy as they mean installation of new machinery, equipment and therefore technology (bringing the gap towards what we mean by knowledge based economy). in opposite to privatization-oriented fdi, greenfields are not able to generate – from the moment of foreign investor entrance – sales revenues (umiński 2001; ciołek umiński 2007) . it will take time, till assets of foes will start to “produce” revenues (which begins with time legs, especially in greenfields). foes’ assets are rather competitive and constitute a solid base for foes future business activity. a symptomatic trend of assets productivity equalization between foes and domestic enterprises is observed in 1998-2005 period. in domestic enterprises assets productivity was declining, in foes was increasing. similar trends were observed in tfp levels. increasing share of service sector is another characteristic feature of polish fdi. if we agree that knowledge based economy is the one based on services, their rising share must be reckoned as a positive trend. moreover, observation of world trends prove fdi to be more services oriented. in fact poland ranks high as a place for locating services fdi (see for instance a.t.kearney’s rankings). we must remember however that a shift towards services may prove to be detrimental for exports. exports rest primarily on manufacturing, as – traditionally – services are “nontradables”. so far, in 2006 – according to the national bank of poland – foe are positively contributing to good export performance of poland. nevertheless in the future it may constitute some risk for exports. growing reinvested earnings reveal good and improving financial conditions of foe operating in 119 issn 1822-8402 european integration studies. 2007. no 1 poland. in a long time perspective it constitutes a good base for attracting further foreign investors (npb, 2006). the role of fdi in a move towards knowledge based economy (kbe) united nations economic commission for europe defines kbe neither as just the digital economy (which incorporates the production and use of computers and telecommunication equipment) nor as the networked economy, which incorporates the telecommunication and networking growth. it relates to the knowledge-based economy as a multi – dimensional complex and broader phenomenon in which a rapid growth of ict technologies is taking place, icts penetrate all the spheres of human activity, knowledge and information are decisive factor of social, economic, technological and cultural transformation. according to oecd, features of the kbe are: knowledge diffusion, human capital upgrades and organizational changes (oecd, 1996). therefore we can formulate the following questions, answer to which will tell us if fdi inflow contributes to the move towards kbe: 1. do fdi promote transfer of knowledge to poland and it diffusion in poland? 2. do fdi work in favour of creation an open, demanding, “learning” economic environment in poland? 3. is the structure of incoming fdi oriented towards hi-tech sectors? 4. do foe introduce new organizational schemes and upgrade human capital? 5. do domestic enterprises benefit from foe presence? if yes, how? 6. do foe engage in innovation and research and development activity in poland? as we realize, there is no simple answer to any of these questions. 1. from theoretical point of view, as well from applied research we know, that fdi means not only transfer of “physical” capital but also intangible assets, technology, organizational skills and “know-how”. these are so called tacit elements, that in fact are brought with fdi. this is proved for instance in questionnaire surveys done on the population of foreign owned and domestic enterprises. 2. fdi inflow itself leads to the opening of the economy. as the national economy becomes more penetrated by fdi, it is getting open for ideas, exchange of people, knowledge etc. this process relates to both: incoming foreign investors as well as domestic enterprises that found themselves in a different, more open economic environment. 3. the structure of the incoming fdi is changing. as it was stated, fdi are becoming more service oriented. the most developed economies in the world (regarded as much closer to the kbe model than poland) are in fact services economies. within manufacturing in fact we observe higher share of high-tech and medium high-tech sectors in the activity of foe in comparison with the domestic enterprises. 4. foreign direct investors are introducing new organizational methods. this is proved by many surveys done in poland. as far as human capital upgrades are concerned, is difficult to unequivocally judge results of fdi inflow. they depend on economic sectors’ characteristics. 5. this question is the most difficult and complex to answer. the changes are occurring. the problem is their positive or negative influence for instance on domestic enterprises. as it was shown by d. ciołek and s. umiński (2006) productivity of domestic enterprises is (positively) influenced by the entrance of foreign investors to nace. evaluation of significance tests in the model reveals that tfp changes in domestic enterprises depend on foes share in nace’s assets, sales revenues and employment. there is an interesting correlation visible if we take into account time legs in the econometric model. in the first year, when foreign capital comes to the nace, tfp in domestic enterprises increases. but in the second year, tfp in domestic companies declines. the framework for interpretation of this phenomenon is given to us in the so called competition effect in technology transfer models. increased share of foreign capital in the nace mobilizes domestic enterprises in their efforts to sustain the market position. in the first year they are trying to face new competitors and are undertaking adjustment measures. but in the longer run the increased competition turns out to be serious and severe. domestic companies – after they use simple reserves of competitiveness – are not able to stand the competition. specific factors and development barriers differ in case of each enterprise. they include problems with access to funds (bank credit), bureaucracy, unstable law regulations or lack of knowledge on foreign markets (in this area foes are much better than domestic enterprises). on the other hand domestic enterprises that are cooperating with foes, 120 issn 1822-8402 european integration studies. 2007. no 1 report important positive learning and spillover effects. 6. according to polish information and foreign investments agency, there are about 40 research and development centers in poland run by foreign owners. they predominantly work for automobile, chemical, air and food and beverages industries. they employ 4,5 ths. of research personnel (gus, 2006). r&d activity is conducted in poland for instance by: general electric, samsung, ibm, motorola, delphi, philips, abb machinery, lucent technologies, kroll ontrack, microsoft, oracle, pliva and siemens. data from gus (poland‘s bureau of census) reveal relatively higher expenditures on innovation activity in enterprises with foreign capital than in domestic ones. in 2004 foes accounted for 36,4 per cent of poland‘s total innovation outlays in manufacturing, and respectively 20 percent in research and development. as we see, foes share in poland’s innovation outlays is lower than in r&d expenditures. this reveals the character of technology transfer to poland by fdi, which rests mainly on import of machinery and equipment. we must remember however that it is a world wide phenomenon that foreign direct investors rather base their overseas activity on the knowledge generated in their home markets(1992). nevertheless the character of r&d activity performed by trans-national corporations (tncs) is changing. as gerybadze and reger (1999) found in their interesting survey, nowadays tncs place r&d activity in most dynamic and leading markets or close to the markets regarded as point of sales, where the new or improved product can be tested. also costs of r&d personnel play more important role. conclusions 1. as we see there are no simple answers to the question regarding conjunction between incoming fdi and the process of building knowledge based economy. one must be conscious there is no one, widely accepted definition of the kbe. but if we agree with lundvall and johnson (1994) that knowledge in kbe concept consists of: know-what, know-why, know-how, and know-who, we rather agree that fdi contribute to building of the kbe. know-what and know-why are relatively formalized and easily transferable and re-produced in a form of codified information. foreign investors show superiority in tacit elements of knowledge transfer, which are know-how and knowwho. these are firm-specific and constitute the competitive advantages that foe rely on in their foreign expansion. 2. the role of fdi in poland’s innovations expenditures is relatively high and seems to be growing. on the other hand the question remains how to promote poland as a place for location r&d intensive activity. it seems that stable investment climate, good economic prospects are sine qua non it this respect. as time goes by, good opinion about poland as a favourable place for such investments, diffused by those that already invested in the country, will attract further ones. 3. kbe to which foe contribute will be clustered around specific locations (jensen, sinani 2005). it is so because foreign investors like to collocate. if they like certain locations, next will come to the neighbouring locations. the consequence will be knowledge clusters of foes and indigenous enterprises localised most probably in mazowieckie, slaskie, wielkopolskie, malopolskie, and dolnoslaskie regions. 4. observation of technology transfer via fdi to poland leads us to the conclusion that due to incoming foreign investors poland is making a so called leap frog. let us for instance look at changes occurring in foreign trade. poland became a leader in for instance automobile production (incl. parts, engines and other components) and lcd tv sets production. these are not strictly high-tech activities if we take oecd classifications into consideration. nevertheless for an economy like polish, that not so long ago did have completely different structure of exports, this is a real leap frog or a move on a technology ladder. references ciołek d., umiński s. 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(1994) the learning economy, journal of industrial studies, 1994, 1(2), 23 p. oecd (1996) the knowledge-based economy, oecd/gd(96)102, paris 1996, 10 p. umiński s., (2001) foreign capital in the privatization process of poland, transnational corporations, volume 10, number 3, december 2001, unctad, 90 p. paiz, polish information and foreign investment agency, 2007. online: http://www.paiz.gov.pl /index/ 122 221 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abstract importance of integrating sdgs into business process by telecommunication operators: opinion of estonian customers http://dx.doi.org/10.5755/j01.eis.1.15.28779 sustainable development is recognized by the united nations as a challenge for social and economic policy hughes&johnston (2005), an urgent call for action by all countries addressing all groups of stakeholders (mio et al., 2020) and one of the main priorities for business community all over the world (tsalis et al., 2020). successful implementation and achievement of these goals should be a result of joint efforts of all countries and nations. and while a general success is observed in case of certain sdgs, others still require joint efforts and cooperation on both national and international level. a vital role is assigned to businesses which can also contribute to achievement of sdgs by integrating them into everyday processes. purpose: the aim of the research was to reveal the customers opinion on the importance of embedding sdgs by businesses into everyday process in estonia. the telecommunication operating companies were chosen due to their central role in the modern business world and huge impact on nearly every aspect of society. there was conducted a survey in a form of questionnaire among customers of these companies and 512 responses were collected in a period of september 2020 –february 2021. results of the study demonstrate stakeholders concern on the achievement of the sdgs and revealed that the embedding of several sdgs: number 3 (good health and well-being), 4 (quality education), 6 (clean water and sanitation), 12 (responsible consumption and production), 15 (life on land) into business process is considered by customers to be the of the highest priority. authors believe that the study with its findings intends to benefit sdg implementation by business companies in estonia and provides a pattern for further developments of sustainable policies and strategies. this work provides one of the first studies in estonia contributing towards understanding of whether businesses are supposed to embed the sdgs into their activities as seen by customers. keywords: agenda 2030, sustainable development, sdg, telecommunication industry, implementation. sustainable development is recognized by the united nations as a challenge for social and economic policy hughes&johnston (2005), an urgent call for action by all countries addressing all groups of stakeholders (mio et al., 2020), and one of the main priorities for business community all over the world (tsalis et al., 2020). as a result of stakeholders’ deep concern and active involvement the sustainable development goals were formulated intending to change and foster the implementation of sustainable development allen et.al (2017) and addressing main important issues like peacekeeping, protecting human rights, reducing inequalities etc. as presented in table 1. (united nations, 2021). european integration studies no. 15 / 2021, pp. 221-230 doi.org/10.5755/j01.eis.1.15.28779 submitted 03/2021 accepted for publication 06/2021 importance of integrating sdgs into business process by telecommunication operators: opinion of estonian customers eis 15/2021 natalie aleksandra gurvitš-suits tallinn university of technology introduction and literature review anna-liiza lvova tallinn university of technology e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 222 goal no. sdg more information on the goal 1 no poverty end poverty in all its forms everywhere 2 zero hunger end hunger, achieve food security and improved nutrition and promote sustainable agriculture 3 good health and well-being ensure healthy lives and promote well-being for all at all ages 4 quality education ensure inclusive and equitable quality education and promote lifelong learning opportunities for all 5 gender equality achieve gender equality and empower all women and girls 6 clean water and sanitation ensure availability and sustainable management of water and sanitation for all 7 affordable and clean energy ensure access to affordable, reliable, sustainable and modern energy for all 8 decent work and economic growth promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all 9 industry, innovation and infrastructure build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation 10 reduced inequality reduce inequality within and among countries 11 sustainable cities and communities make cities and human settlements inclusive, safe, resilient and sustainable 12 responsible consumption and production ensure sustainable consumption and production patterns 13 climate action take urgent action to combat climate change and its impacts 14 life below water conserve and sustainably use the oceans, seas and marine resources for sustainable development 15 life on land protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss 16 peace and justice strong institutions promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels 17 partnerships to achieve the goal strengthen the means of implementation and revitalize the global partnership for sustainable development table 1 diversity dimensions source: authors’ basis 17 goals by the united nations the latest document “the 2030 agenda for sustainable development” emphasizes a “world free of poverty, hunger, disease and want … free of fear and violence … with equitable and universal access to quality education, health care and social protection … to safe drinking water and sanitation … where food is sufficient, safe, affordable and nutritious … where habits are safe, resilient and sustainable … and where there is universal access to affordable, reliable and sustainable energy.” (united nations, 2021). this document also requires changes in global mentality to implement the sdgs (tremblay et.al, 2020) and achieve a collective success. successful implementation and achievement of these goals should be a result of joint efforts of all countries on all levels and is challenging not only the countries to achieve these goals but also “the evaluation practice 223 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 of multinational and national organizations” (meyer, 2020). it would also have a vital impact on the well-being on society and planet (silva, 2021). biermann et al. ,2017 believes that these goals have a great potential, however their success depends on various institutional factors such as “the extent to which states formalize their commitments, strengthen related global governance arrangements, translate the global ambitions into national contexts, integrate sectoral policies, and maintain flexibility in governance mechanisms.” (biermann et al. ,2017). however, there is a raising concern there whether sdgs address real problems of nations, particularly the developing world (khalid et.al, 2020). according to kroll et.al. (2019) there is observed a positive development for certain goals, while in case of sustainable consumption and nature there is a need “to foster innovations and policies that can make our cities and communities more sustainable, as well as strengthen institutions and spur climate action” (kroll et.al., 2019). the reason maybe the complexity of goals and diversity among countries, insufficient understanding and addressing of interactions between the formulated goals and related targets (breu et.al, 2021). this is also confirmed by studies of zhang et al. (2019) claiming that while according to agenda 2030 the sdgs are universal and applicable in every country it gives no details on interaction on these goals thus making their implementation more complicated. numerous studies have investigated the interactions between sustainable development goals (kunčič, 2019, ramos&laurenti, 2020; scharlemann, 2020; breu et.al., 2021) aiming to contribute to their successful achievement. warchold et.al (2020) conducted a research for the year 2016 to understand sdgs and suggests that synergies should outweigh the trade-offs and it is important to address all inequalities among countries with no exceptions. numerous studies analyse performance of countries in their progress towards sdgs achievement and successful implementation outlining the ones attracting most attention and revealing difference in implementation: allen et.al (2020) explored the progress of sdg implementation in australia and their results reveal the mixed performance on the sdgs, with strong progress in goals relating to health and education and poor progress in goals relating to climate action and reducing inequalities. findings of xie et.al (2021) revealed that south korea considers ecological sustainability a matter of high importance while social sustainability dimensions are mostly addressed in china and japan. it should be noted that estonia has been successful in implementation of sdgs and in 2019 it appeared to be the tenth in the global sustainable development report with achieving a distinguished progress in quality education, effective healthcare organization, high employment rate with minimal long-term unemployment, and a high proportion of renewable energy in overall energy consumption. (sustainable development goals knowledge…, 2020). while several sdgs like gender equality, reducing risk of poverty achieved less progress and still need to be actively targeted (sustainable development goals knowledge…, 2020) these gaps could be overcome by the contribution of the business companies to the fulfilment of sdgs by embedding them into business strategies. this is also the matter of growing attention and raising concern among stakeholders as according to garcía-sánchez et.al (2020) there is a growing interest from institutional investors related to the embedding of sdg into the business strategies of sustainable and responsible development. santos&silva (2020) investigated the reasons and ways of incorporating the sustainable development goals (sdgs) into the strategies of large portuguese companies. their findings suggest that among different reasons there should be outlined “the understanding of the 2030 agenda as an ethical and social contract followed by concerns over managing stakeholders” by the selected companies. effectiveness of positive practices contributing to sdgs are shown by google, apple, microsoft, amazon and facebook by providing their data centers with renewable energy patchell&hayter (2021) and caribbean tour operators designing new products and services implementing fair labor and operating practices. (milwood, 2020). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 224 different studies examined the sdgs implementation by various businesses: avrampou et al. (2019) examined whether the reported performance of small leading european banks was in line with supporting the sdgs and their findings reported low level of contribution being diversified to individual sdg goals. cai&choi (2020) have investigated the possibilities of textile and apparel supply chains to comply with the sdgs. the results of the study confirmed that while some goals like “responsible consumption and production”, “clean water and sanitation”, and “climate action” receive a considerable amount of attention the other ones like “no poverty”, “reduced inequalities”, “life below water” and “life on land” gained least attention. they also noted that the stakeholders’ initiatives could have a strong impact on the focus and actions of companies. (cai&choi, 2020) kandler rodríguez (2020) investigated which sdgs are most mentioned in the sustainability programs of two hospitality companies of costa rica and stated that most closely these programs would support the achievement of the following sdgs: sustainable cities and communities, responsible consumption and production, climate action. the literature overview enables to conclude that companies are shifting their focus towards the sdgs implementation into their strategies and examples of positive contribution in different countries are numerous and impressive. the main motivators are ethical and social responsibility as well as raising concern among stakeholders. however, little is known about the opinion of estonian stakeholders on this matter. therefore, authors decided to fill this gap by the present study aiming to determine the opinion of estonian respondents on the importance of embedding sdgs by businesses into everyday processes. hence, the telecommunication operating companies were chosen due to their growing impact on every aspect of society and important role in everyday life. almost all estonian people use their services being well aware of their activities and visit websites of these companies quite often. the main aim of this research is to reveal the customers opinion on the importance of embedding sdgs by businesses into everyday process in estonia. therefore, authors have set the task to arrange a survey among the customers of these companies in order to find out their opinion on the importance of embedding sdgs by businesses into everyday process in estonia. the study with its findings intends to benefit sdg implementation by business companies in estonia. this study also provides one of the first in estonia contributing towards understanding of whether businesses are supposed to embed the sdgs into their activities as seen by customers. the authors conducted a survey, which consisted of questions related to the importance of incorporation of the sdg by the business companies: opinion of customers. the languages of the questionnaire were estonian and russian. to present the questions and make it possible to collect data, an online survey engine google forms was used, authors also distributed questionnaires personally to respondents via email or in a paper form. the survey included three single choice questions, where respondents were asked about their awareness of social responsibility, whether it adds value to the image of the company and the importance of disclosing information on sustainable development of companies. the main part consisted of linear scale questions, where respondents were asked to rank each argument from 1 (strong disagreement) to 5 (total agreement) in order to express their agreement or disagreement with each statement. the arguments presented the sdg definition together with the full detailed explanation as provided in table 1. this table in short is summarizing all the information about the sdgs and gives respondent a good overview of all goals. estimated time for the survey completion was between 10 to 15 minutes. research design and methods 225 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 the survey was conducted among users of services provided by telecommunication company currently operating in estonia. pilot survey was organized prior to the survey period, which received positive feedback from respondents and therefore, the questionnaire was distributed in estonia during the period of 22.09.2020-22.10.2020 with 230 responses received (this data was used by one of the authors in the master thesis) and 01.12.2020 01.02.2021 (282 responses were collected). in total 512 responses were collected and authors consider this data as a basis for new and independent research presented in this article. this information was compiled and analysed. table 2 shows demographic data of the survey. age of respondents number of respondents percentage of respondents 26 years and younger 157 30,7% 27-50 years 321 62,7% 51 years and older 34 6,6% total: 512 100% education of respondents number of respondents percentage of respondents bachelor 227 44,3% master 184 35,9% phd 4 0,8% other 97 19% total: 512 100% work experience of respondents number of respondents percentage of respondents < 1 year 34 6,6% 1-5 years 98 19,1% 6-10 years 115 22,5% 11-15 years 100 19,5% > 15 years 165 32,2% total: 512 100% table 2 general data about respondentss source: authors’ . it should be noted that 95% of the respondents claimed to be aware of what social responsibility and associated benefits for the business entity. they also agreed with the statement that a company should provide information to stakeholders about its sustainable development. more than 80% of respondents also confirmed that socially responsible behaviour would add value to the reputation of the company. the following tables represent the opinion of respondents on the importance of sdgs implementation into business practices of telecommunication operators. authors have divided 17 sdgs into three groups “people, planet and society”. table 3 represents data for the “people” section data of the table 3 reveals that in the opinion of respondents from “people-orientated” sdgs the most important ones the companies should contribute to is “quality education” (average score 4.02) and “good health and well-being” (average score 3.82). these results are in line with the data of estonia’s voluntary national review 2020. according to this review estonia is generally successful in implementing the sdgs, with the main strengths: accessible and quality education, effective e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 226 sdg 1 2 3 4 5 average score clean water and sanitation 23 4,49% 27 5,27% 59 11,52% 157 30,66% 246 48,05% 4,13 affordable and clean energy 25 4,88% 37 7,23% 64 12,50% 154 30,08% 232 45,31% 4,04 climate action 31 6,05% 44 8,59% 116 22,66% 127 24,80% 194 37,89% 3,80 life below water 21 4,10% 37 7,23% 92 17,97% 164 32,03% 198 38,67% 3,94 life on land 19 3,71% 27 5,27% 67 13,09% 148 28,91% 251 49,02% 4,14 table 4 embedding sdgs into business processes by telecommunications companies operating in estonia group 2planet (rated by likert scale, 1not important at all; 5 very important) source: authors’ . healthcare organisation, high employment rate with minimal long-term unemployment, and a high proportion of renewable energy in overall energy consumption. (sustainable development goals knowledge…, 2020) the results of the present research confirm the fact that estonia works hard on achieving the abovementioned sdgs as this is expected and highly valued by its inhabitants. this also enables to conclude, that estonian people are concerned with the implementation of the selected goals and consider business companies to make their contributions by implementing them into everyday business processes. the data of estonia’s voluntary national review 2020 also pointed out that several sdg areas still require improvement: “need to focus on establishing gender equality (although decreased, the wage gap still remains among the highest in europe), decreasing the risk of poverty for women and disabled people, including families with disabled children, establishing effective waste management and recycling, decreasing greenhouse emissions, and maintaining natural diversity” (sustainable development goals knowledge…, 2020) these findings are confirmed by the data presented in table 4 related to the “planet” section.. sdg 1 2 3 4 5 average score no poverty 42 8,20% 58 11,33% 95 18,55% 165 32,23% 152 18,95% 3,64 good health and well-being 28 5,47% 46 8,98% 85 16,60% 186 36,33% 167 32,62% 3,82 quality education 27 5,27% 35 6,84% 56 10,94% 177 34,57% 217 42,38% 4,02 gender equality 32 6,25% 64 12,50% 100 19,53% 138 26,95% 178 34,77% 3,71 zero hunger 51 9,96% 75 14,65% 101 19,73% 142 27,73% 143 27,93% 3,49 decent work and economic growth 42 8,20% 55 10,74% 99 19,34% 197 38,48% 119 23,24% 3,58 reduced inequalities 55 10,74% 31 6,05% 133 25,98% 126 24,61% 167 32,62% 3,62 table 3 embedding sdgs into business processes by telecommunications companies operating in estonia group 1-people (rated by likert scale, 1not important at all; 5 very important) source: authors’ . data of the table 4 reveals that in the opinion of respondents from “society-orientated” sdgs the businesses should embed in their activities the sdgs aiming to provide “clean water and sanitation” (average score 4.13), which is in line with the results of research performed by cai&choi (2020) while the “climate action” (average score 3.80) received least attention, contradicting their results. in authors opinion such controversial results are highly influenced by covid-19. as 227 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 sdg 1 2 3 4 5 average score industry, innovation and infrastructure 38 7,42% 52 10,16% 75 14,65% 154 30,08% 193 37,70% 3,80 sustainable cities and communities 25 4,88% 45 8,79% 127 24,80% 145 28,32% 170 33,20% 3,76 responsible consumption and production 13 2,54% 18 3,52% 62 12,11% 162 31,64% 257 50,20% 4,23 peace, justice and strong institutions 42 8,20% 55 10,74% 135 26,37% 109 21,29% 171 33,40% 3,61 partnerships for the goals 47 9,18% 49 9,57% 139 27,15% 112 21,88% 165 32,23% 3,58 table 5 embedding sdgs into business processes by telecommunications companies operating in estonia group 3 – society (rated by likert scale, 1not important at all; 5 very important) source: authors’ . disease outbreak outlined the importance of health measures helping to prevent getting infected (unicef, 2020) and also happened to have some positive effects on wildlife (bates et al., 2020). manenti et al., 2020). table 5 represents the data for the “society” section. conclusions data of the table 5 makes it obvious that at the first-place business should contribute to the achievement of “responsible consumption and production” (average score 4.23). the fact that this goal gained most attention is also confirmed by the findings of kandler rodríguez (2020 and cai&choi (2020) claiming that this goal also gained most attention and is prioritized by companies. in authors opinion this is also due to growing debates over the consumer society in mass media and growing number of examples of minimalism in everyday life. “partnership for the goals” gained least attention and importance but in authors opinion this is considered by most respondents to be reached on the state and international level. the sdgs represent a real challenge to the worldwide community and a call for an urgent action on all levels. the main focus should be addressing all inequalities across the world with no exception. successful implementation of these goals would require joint efforts of all stakeholders. effectiveness of positive practices contributing to sdgs are already shown by large well-known companies in different countries. numerous companies have included sdgs into their sustainability programs and strategies of future development. latest research findings demonstrate that companies are nowadays focusing on the sdgs implementation being driven by ethical and social responsibility and initiated by stakeholders’ concern. these developments were also confirmed by the present research, where stakeholders demonstrated high level of awareness of csr also stating that company should provide information on sustainable development. current study focused on stakeholders’ opinion on the sdg importance of embedding the sdgs into everyday business processes with the main task to arrange a survey among the customers of telecommunication companies. these companies were chosen due to their growing impact on every aspect of society and important role in everyday life and almost all estonian people use their services being well aware of their activities and visit websites of these companies quite often. the task was reached by summarizing and analyzing findings of the survey. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 228 the results revealed several sdgs as the top areas of contribution: sdg 12 „responsible consumption and production”, sdg 15 “life on land”, sdg 6 “clean water and sanitation” and sdg 4 “quality education”. in authors opinion these results are highly influenced by the covid -19 outbreak, which led to the transformation of human conscience and shifted the priorities by highlighting the importance of environmental health and long-lasting values like good health and education. the study also concludes that sdg related activities should be highly prioritized by companies and boosted by their business activities. in general, it can be concluded that joint efforts are required to make agenda 2030 a real action plan for everybody and contribute to the successful achievement of the sdgs. these results give a good understanding of stakeholders’ opinion on the importance of sdg achievement and a role of business community in this process. however, they should be treated with caution as the sample of the respondents is quite small and while the rate of response was quite high, still the results of the survey cannot be generalized. in future it may be useful to differentiate respondents according to age, social status, working experience etc. and arrange survey among different groups. the study also provides a good path for future research in this area as well as a guidance for companies’ managers in preparing strategic plans for the companies and attracting potential investors. references allen, c., metternicht, g., & wiedmann, t. 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(2019). research progress on the interlinkages between the 17 sustainable development goals and their implication for domestic study. shengtai xuebao/ acta ecologica sinica, 39(22), 8327-8337. https:// doi.org/10.5846/stxb201902200299 united nations (2021). retrieved february 16, 2021, from https://www.un.org/en/ e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 230 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). gurvitš-suits natalie aleksandra phd. tallinn university of technology fields of interests financial and non-financial reporting, sustainable business development, sdg, prme. address akadeemia tee 3, tallin, 12618, estonia, + 372 6 204007, natalja.gurvits@ttu.ee lvova anna-liiza maсс / master of arts in social sciences tallinn university of technology fields of interests financial and non-financial reporting, sustainable business development. address akadeemia tee 3, tallin, 12618, estonia, +372 58 132 152, annleelv@gmail.com microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 the role of public aid in the development of small and medium enterprises marian oliński university of warmia and mazury in olsztyn abstract this article presents the problems of supporting small and medium-sized enterprises. small and medium enterprises meet a lot of useful functions in each market economy. dynamic development of this sector has a considerable influence on the growth of the whole economy. enabling this growth requires applying efficient instruments in economic policy as well as in certain regions policies. nevertheless public aid directed to the small and medium-sized enterprises has to meet the law requirements and should characterize the suitable level of efficiency. so apart from showing the scale and level of support also the efficiency of support were shown. keywords: small and medium-sized enterprises, public aid introduction peculiarities of small and medium-sized enterprises (smes) cause that (independently from the economic system), there are facing a lot of barriers which slow its development, often unknown to the bigger companies. these barriers include a lot of different areas. in economic discussions and articles about smes, barriers are divided in different ways (for examples very often are conspicuous: market and social barriers, financial, law, information, connected with infrastructure and economic policy and so on). on the other hand, small and medium-sized enterprises sector plays a significant role in any market economy. therefore, business promotion policy has to consider this kind of enterprises. promotion strategies have to be developed based on the weaknesses and strengths of polish smes. a concept of business promotion by central government, voivodships, counties, towns must adapt to the economic conditions of the smes (oliński 2003, p. 69). it should be emphasized that every developed country runs active economic policy towards small and medium enterprises from many years. in poland the authority to grant the public aid has almost 3 thousand different kind of institution. most of them are community institutions. it is important to mention that the development programme should guarantee the aid, not care. besides, building the effective system of support it should be characterized by simplicity and concreteness (lack of inordinate enlargement of structure and doubling the tasks). the main objective of the article is the attempt to describe the role of public aid in the process of supporting the small and medium-sized enterprises. in the article the scale of public aid were shown and also the estimates of support. the main task has to be solved in this article is how to estimate the profitability of using the public aid – what is the main problem of central and local governments. the public aid in the process of supporting the development of small and medium enterprises in the specific meaning the public aid contains only the domestic funds. according to this rule it doesn’t contain the structural funds, though it could be consider as a form of public support. besides the domestic aid and structural funds added together decides about intensity of public support for the enterprises (misiąg 2005, p. 9). besides as it mentioned above the law of public aid granted in poland is very strictly connected with european law, since the polish accession to european union it has to apply the european law. the criteria of qualifying the specific means to the public aid contain the 87 article in the treaty of european union. according to this article the support for the enterprises falls within the regulations of public aid, however few conditions must be fulfilled: • it is distributed from the public funds or from the state; • it has the selective character (the privilege of specific trade articles or specific enterprises); 143 issn 1822-8402 european integration studies. 2007. no 1 • threatens the competition or influence the trade between european union countries (treaty of european union dz. urz. we l 83 z 27.03.1999 r., str. 1-9). in the present moment, there are a lot of discussions about the specific conditions of public aid system going on the high level of authorities. the public aid should be aimed towards increase of competitiveness, particularly in the group of small and medium-sized enterprises. the public aid directed towards big companies is ineffective and will be diminished. the chairman confirms this direction publicly “our country will gradually diminish the amount of public aid towards big-sized companies and aim them towards small and medium-sized enterprises. these activities are considered to be the way of increasing the competitiveness and innovation of this kind of enterprises” (kamiński, pogański 2004, p.3). in the area of economic policy of european union, the most often division of public aid is division on three basic categories: • sector aid, • regional aid, • horizontal aid. the sectoral aid is connected with restructurization the specific branches of economy such as mining, steelworks, shipbuilding industry etc. and also single companies. it concerns the mitigation of social effects of the restructurization. this aid is often surveyed with great attention and it is allowed only if it is possibility of diminishing the production abilities. the regional aid is connected with diminishing the regional differences in development. in the european union the delayed region is region with gross domestic product less than 75% of european average. the basic condition of this kind of aid is submission by beneficiary the application form before conducting the labor under specific project. the horizontal aid is connected with realization of specific goals. differently from the regional aid the area doesn’t matter. also differently from the sectoral aid the branches doesn’t matter. the most important ways of support in the sphere of horizontal aid are trade subsidies, the aid in supporting the creation of new places of work, the innovation work, the development of research and development sphere, and also the support of small and medium-sized enterprises. the directions from european union countries are based on the conviction that public aid should be realized horizontally or regional because this kind of aid will allow better stability of development (surdej 2000, p. 23). the small and medium-sized enterprises are considered to be the main factor influencing the long term development and that’s why their support is taken as a horizontal aid. the scope and intensity of support of small and medium-sized enterprises in poland as it mentioned above one of the most common division of public aid is division into three spheres: sectoral, horizontal and regional. the structure of aid changes throughout the years very rapidly (picture1). 24,2 30,1 24,1 17,9 70,7 32 28,8 73,5 64,4 31,9 33,6 10 50,5 49,9 1,3 3,7 3,4 4,6 2,7 9,7 21 1 1,8 40,6 43,9 16,6 7,8 0,3 0% 20% 40% 60% 80% 100% 1999 2000 2001 2002 2003 2004** 2005** sectoral horizontal regional others * for example public aid suuporting export development, social aid, ** transport aid excluded picture 1. appropriation of public aid source: own study based on reports on state aid in poland granted to entrepreneurs in 1999, 2000, 2001, 2002, 2003, 2004, 2005, office for competition and consumer protection (uokik), warsaw. initially in the years 1999-2000 the biggest support was granted in the sphere of horizontal aid. so it was allocated in protection of environment, the maintenance of employment, research and development, support of small and medium-sized enterprises, restructurization. in the year 2003 the biggest amount of resources was directed towards sectoral aid, which totally achieved the level of 71%. in the next years 2004 and 2005 the biggest support was again mostly directed towards horizontal aid. the value of horizontal aid in the year 2005 was lower by about 2 632, 8 mln pln than aid distributed in the year before. mainly because of almost complete lack of aid directed on restructurization. the value of the aid given in the year 2005 total 1 048,5 mln pln (28,8% of general value of the aid), 82,4% of that was distributed into restructurization of mining industry (863,8 mln pln). in the year 2005 there wasn’t any aid directed towards steelworks industries and also for the motor companies. the regional aid represents 21,0% of total aid, most of that exactly 664,5 mln pln was conducted for the support of new investments. the value of the aid, which wasn’t qualified to any group total 12,4 mln pln and mainly it was aid about social characteristics directed towards individual consumers – 9,2 mln pln was divided into subject subvention to the school and university books. 144 issn 1822-8402 european integration studies. 2007. no 1 0,6 6,17 61,9 136,6132,9 67,5 304,6 0 100 200 300 400 19 99 20 00 20 01 20 02 20 03 20 04 20 05 w m ln p ln 0 4 8 12 16 20 w % support for sme share in total aid picture 2. smes support -in million plnand share in total aid in 1999-2004 source: own study based on reports on state aid in poland granted to entrepreneurs in 1999, 2000, 2001, 2002, 2003, 2004, 2005, office for competition and consumer protection (uokik), warsaw. also the support of small and medium-sized enterprises changes throughout the last few years. since 1999 until 2002 the value of the aid has grown very fast and in the year 2003 has stopped and achieved the level of the year before, and in the year 2004 has fallen down to 50% of its initial value. the support of small and medium-sized enterprises in the year 2004 total 67,5 mln pln and it was much smaller than in the years before (146,6 mln pln in the year 2003, 136,6 mln pln in the year 2002 and 304,6 mln pln in the year 2005). in the year 1999 didn’t take any part in the horizontal aid, in the year 2000 total 4% of horizontal aid, and in 2005 almost 17%. so the progress was impressive. in the year 2005 similar to 2004 about 59% of total aid was directed into big companies. the high level of support for these kind of enterprises is the result of high individual support for those who benefited the public aid. if we analyze the amount of beneficent according to its size, only 7% of this amount represents the big-sized companies. the other beneficiary small and medium-sized enterprises represent the rest of the enterprises. in the area of support of small and medium-sized enterprises it is worth mention the impressive growth of value in the year 2005 – 304,1 mln pln comparing to the 67,5 mln pln in the year 2004. it is result of much bigger aid from the polish agency for enterprise development (parp) – 260,1 mln pln (table 1). the aid was given mainly from the support programme called the support of investments in small and medium-sized enterprises which has the residence on the polish ground. the total amount of the funds was 237,5 mln pln. programme was the part of sectoral programme – the growth of enterprise competitiveness. the programme of support of small and medium-sized enterprises also is realized by the regional marshals. in the integrated operational programme of regional development for the years 2004-2006, the programme for the support of investments in small and medium-sized enterprises was prepared. in the year 2005 total amount of 22,1 mln pln was shared into enterprises. the table 1 shows that most important form of the public aid directed into small and medium-sized enterprises are subsidies. the most important bodies which decide about destiny of the funds are the chairman of polish agency for enterprise development, marshals of the regions and also the regional financial institutions. these institutions respond for 96% of aid given to the sector of small and medium-sized enterprises. its role in the area of the distribution the funds and the amount of the aid are very important. these institutions are strictly connected. the regional financial institutions are part of national service system, which was established by polish agency for enterprise development in the year 1995 due to the realization of programme phare 1995 –step i. table 1.public aid appropriating on development small and medium-sized enterprises in poland in 2005 supporting institution worth of aid (mln pln) dominated category of support chairman of parp 260,1 subsidies marshals 22,1 subsidies financial regional institutions 12,1 subsidies minister of the treasury 6,2 selling of public property city presidents, towns lords, chiefs officer of a group of villages 3,2 remission of tax arrears fiscal offices and customs 0,8 remission of tax arrears chairman of national fund for environment protection and water system 0,1 preferential loans suma 304,6 source: report on state aid in poland granted to entrepreneurs in 2005, office for competition and consumer protection (uokik), warsaw 2006, p. 24–25. the polish agency for enterprise development coordinates the national service system and also support them in the sphere of organization the participants of network. the estimation of profitability of using the public funds in the small and medium-sized enterprises the effectiveness and profitability of using the public funds in the small and medium-sized 145 issn 1822-8402 european integration studies. 2007. no 1 enterprises often base on the opinion of interested enterprises. the opinions of entrepreneurs could be consider as a valuable source, because they know very well their own businesses and can monitor them all the time. so they can check the influence of support they get. the opinions are very valuable and worth further analysis. of course they have the dose of subjectiveness. the opinions show the small effect of support caused by the complicated procedures and also show the problem of the proper clearance from the given aid. from the other hand the positive evaluation of the given aid could not be connected with its effectiveness of the profitability of the enterprise. there are many factors which could influence the effectiveness of the enterprise such as prosperity in the specific branches, which leads to better profitability of the enterprise. so the public aid is only one of the factor which influences the profitability of the company. that’s why a very important role plays different activities aimed to objectiveness the effect of public aid given to the small and medium-sized enterprises. the example of such activities could be a enforcement of describing the product indicators (direct effect of the public aid measured by the specific indicators for example the number of services given to the enterprises) or by the result indicators (direct influence of the investments given to the social and economical surrounding after the realization of the project, for example the number of the enterprises which benefited from the services; measured every year or after the realization of the project. if we take into consideration the cautiousness in the evaluation of the effect of public aid one of the better ways is evaluation of the profitability of using the public funds. besides in many cases the public aid could be considered as a quasi-investment. for example we could check if the public aid effects in growth of enterprises income and so the companies gives more money to the national budget due to the higher taxation. if we analyze the effectiveness of the public aid we can use the financial indicators often used in the economical analysis (for example in the indicator analysis we could use the financial indicator such as quick test, the profitability indicators and so on). so the ways of measuring the effectiveness of the public aid can be numerous. it is worth mention that local and regional authorities could force the beneficiary to show the data and information about the enterprise (when the enterprise doesn’t fulfill its duty the authorities could force them to giving back the aid or put financial penalty), so the evaluation of effectiveness could be conduct very easily due to the lack of information barriers. conclusions nowadays the significant part of well developed economies could be described as “mixed economies”. it means that even if the private companies are dominant, some kinds of activities are run by public subjects. apart from the private and public structure, also important role plays the state by law agreement, the describing the directions of politics, the institutional solutions, and the support instrument which influence the behavior of small and mediumsized enterprises etc. one of the kind of instruments which directly influence the functioning of the private enterprises is public aid. as it mentioned above, there are no direct connection between the role of the small and medium-sized enterprises and its share in the public aid. the common opinion which emphasizes the limited aid influence on the enterprises profitability doesn’t mean that it should be used with better effect. the most often description of the public aid is define as a activity caused advantages in the enterprises and also liability in the state budget. but we have to look into public aid more commercially. it is just attitude in the area of giving aid to the small and medium enterprises. so the advantages and disadvantages should take place only in short terms of time. in the long term of time the advantages should be mutual, and public aid should be considered as long term investments benefit both sides enterprise and state. the public aid is definitely an economic category and it should not be considered without separation from market reality. references kamiński a., pogoński m. (2004), pomoc publiczna dla przedsiębiorców w polsce, in: przegląd podatkowy nr 10 (162) warszawa, polskie wydawnictwa profesjonalne. misiąg f. (red.) (2005), pomoc publiczna dla małych i średnich przedsiębiorstw. mity i rzeczywistość warszawa, polskie wydawnictwo ekonomiczne. oliński m. (2003), adjustment of polish small and medium enterprises to operate under conditions of european integration, in: friedrich p., tkaczynski j.w. (red.) business promotion activities in poland and germany toruń, tnoik, 69 p. reports on state aid in poland granted to entrepreneurs in 1999, 2000, 2001, 2002, 2003, 2004, 2005, warsaw, office for competition and consumer protection (uokik), surdej a. (2000), polityka państwa wobec sektora małych i średnich przedsiębiorstw we włoszech warszawa, polska fundacja promocji i rozwoju małych i średnich przedsiębiorstw. 146 231 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abstract influencer marketing from a consumer perspective: how attitude, trust, and word of mouth affect buying behavior http://dx.doi.org/10.5755/j01.eis.1.15.28803 influencer marketing is a marketing method that more and more companies are using when it comes to marketing brands. the purpose of the study has been to gain a deeper understanding of how social media influencers affect consumers' buying behavior. to understand this, consumers' attitudes and confidence in the phenomenon have been relevant factors to examine. the study also aimed to find out whether word of mouth (wom) or social media influencers have the greatest impact on consumers' buying behavior. the results have shown that social media influencer's impact on consumers' buying behavior depends on whether attitudes are positive or negative. consumers with positive attitudes towards social media influencers have a greater tendency to acquire what is marketed in comparison with consumers who have negative attitudes towards social media influencers, who instead refrain from buying. factors that increase confidence in social media influencer are whether the consumer feels connected, honesty and that social media influencer in markets products / services within its area of expertise. what has been shown to play a significant role when it comes to influencing consumers' buying behaviors and attitudes is what the environment's perceptions, opinions and experiences about the phenomenon look like wom. it has emerged that the respondents have a greater confidence in their surroundings than they have in social media influencers. this study will adopt a qualitative approach towards collection and analysis of data. hence this study will investigate influencer marketing from a consumer perspective through a qualitative method with the help of semi-structured interviews. the researcher will conduct a minimum of 5 semi-structured interviews and analyze the data to formulate the required findings of this study. keywords: atitude, buyer behavior, social media influencer (smi), impact, trust, word of mouth (wom). since the beginning of the internet, the world has changed a lot. it started as a place there web pages were created for the purpose of informing to a place where internet users can create themselves content. according to a report from the internet foundation (2016), 53% of internet users are on at least one social media since 2010 in one way or another. social media is described as internet-based technical applications based on web 2.0 and which allows the creation and exchange of content created by users. the term web 2.0 first began to be used in 2004 for the purpose of describing platforms where content is no longer created and published by individuals, but changed continuously by all users in different ways. there are many different types of social media, some of which are youtube, instagram, facebook and snapchat. social media users have the opportunity to share their views. balakrishnan et al. (2014) write that social media influencers (smi) are social media users who have created a kind of credibility in a specific industry through his activity on social media. these smis have access to a large group european integration studies no. 15 / 2021, pp. 231-241 doi.org/10.5755/j01.eis.1.15.28803 submitted 01/2021 accepted for publication 06/2021 influencer marketing from a consumer perspective: how attitude, trust, and word of mouth affect buying behavior eis 15/2021 kamaldeep singh turiba university introduction e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 232 of people who regularly follows smi's activity on social media and in general smis are perceived by others users as credible (ki et al., 2019). to unlike celebrities or public figures that have become known through traditional media is smis are usually people who have created sympathetic online personalities and are very visible for its followers through the creation of viral content on social media (lou & yuan, 2019). smis are considered to be human brands using their platform to present their ideas; photos, their expertise and sponsored products (taillon et al., 2020). the sponsored posts published by smis are exchanged for compensation company or brand that the post is sponsored by (campbell & farrell, 2020). this is called for influencer marketing and is about companies using smis to promote consumers' brand awareness and influence their purchasing decisions via social media. influencer marketing is a type of viral marketing where smi shapes consumers' attitudes through posts on their social media (freberg et al., 2011). technological developments have influenced consumers' preferences and behaviors. factors that change consumer behavior in the market are technological development, access to different choices, trends in society and improved economy of the population. consumers are becoming more and more informed because of the internet, which does it is more difficult to influence consumers via traditional media. social media has contributed to consumers changing their consumption habits by giving consumers a new way of finding, judging and choosing different goods and services. lou and yuan (2019) write that mass communication channels such as television, radio and newspapers are no longer dominant sources for consumers to find information on. instead, consumers use social media or virtual communities for information exchange and relationship building, which are channels that smis use this has led to social media in recent years has become a significant advertising platform that enables brands to reach out to consumers via the internet. lou and yuan (2019) believe that the most important factors are the relationship between the consumer and smi and the credibility of smis. based on the previous research presented, the information on how consumer behaviors are affected by influencer marketing deficient in several respects on how a source's credibility affects consumers' attitudes, buying intentions and actual buying behaviors in contexts other than traditional media. the information is also deficient in that previous studies have mainly studied how smis work electronic wom can influence consumer behavior, hence the interest in exploring how traditional wom is influences buying behaviors in relation to influencer marketing. with that said, it is relevant that fill this research gap by reviewing the attitudes and trusts of consumers smi and how these factors affect buying behavior as well as examine how traditional wom is affects consumers in connection with influencer marketing. the aim of this study is to gain a deeper understanding of consumers' attitudes towards the phenomenon of influencer marketing and how this in turn affects buying behavior. to understand consumer attitudes, it is of great importance to find out how their trust in social media influencers looks like. the study also aims to find out whether wom or smis have the greatest impact on consumer buying behavior. credibility that companies use influencers as a complement to their other marketing has become increasingly common. studies from 2019 show that influencers' credibility, attractiveness and similarity to its followers tends to both create brand awareness and increase brand value (jiménez-castillo & sánchez-fernández, 2019). what counts as an influencer? an influencer is a person who mainly acts and moves on social media, and has an influence or an opportunity to influence what people behavior or purchase intentions (brown & fiorella, 2013). on social media, these people translate into followers. the one has the ability to influence other people can be anything from literature review 233 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 "celebrity" to "micro-influencer". the goal of influencer marketing is for companies to spread their message in a credible way through these people who then previously holds a high level of trust among his followers (cooley & parks-yancy, 2019). influencers communicate with their followers in a genuine way which results in them in turn interacting with the influencers content and engage with the information by, for example, liking, commenting, save and forward the content to their friends. these activities are called engagement and are a variable that determines how effective an influencer is for marketing purposes (hughes et al., 2019). as a company, choosing to collaborate with the person with the largest following may seem like it influence on their followers compared to traditional "celebrities" in terms of trust and experience of a more personal contact (djafarovaand rushworth, 2017; de veirman et al., 2017). influencers who collaborate with companies on social media thus have a greater chance of implement a profitable campaign, thus not saying that the issue of size no longer plays any role as soon as it is moved to social media. minor influencers, such as micro influencers, on the other hand, tend to have more successful campaigns in promoting divergent products, as their following is based on a more intimate form of loyalty and trust (oliveira et al., 2019). another study from 2017 shows, for example, that micro influencers with 1,000 followers generate about four percent more engagement per post than the influencers' more 10,000 followers (dinesh, 2017). word of mouth (wom) trust plays a central role in the buying process as consumers specifically seek experience and credibility of goods or services (grabner-kraeuter, 2002). morgan & hunt (1994) defines trust as trust in an exchange partner's reliability and integrity (schlesinger et al., 2016). reliability and integrity in this context are associated with consistency, competence, honesty, justice, responsibility, helpfulness and kindness. grabner-kraeuter (2002) believes that there are many consumers who are skeptical of e-commerce functional mechanisms, its processes and effects as well as the quality of the goods offered on the internet. this may be because the consumer has no experience of or does not consider e-commerce being credible. the recipient is the one who feels trust while credibility is found at the sender. hence, the study uses both concepts, confidence to understand what in the recipient that makes it feel trust and credibility to understand what the user must have in order for it to be perceived as credible. a source's credibility is based on the communicator's reliability, attractiveness and expertise (djafarovaandrushworth, 2017). lou & yuan (2019) also mention that it is more likely that consumers accept or trust smi's views when they work with brands that are related to smi's personal expertise. this means that an smi that for example, having knowledge in makeup becomes more credible when reviewing a makeup-related product or service. lee & kim (2020) believe that the brand's credibility and smis credibility affects how consumers respond to advertising. this can mean that of the brand reputation in the market and that the consumer sees that the post that smi posted is sponsored by the brand influences the consumer's response to advertising. according to djafarova and rushworth (2017) consumers perceive individuals with a larger following as more attractive and credible. a built-up trust between consumer and company contributes to very positive results for the company such as loyalty to the company, repeat customers and product choices. marôpo et al. (2020) believe that due to youtubers, smis on the platform youtube, shares their experiences, feelings and opinions, they create trust in their followers. this also explains why mainly teenagers can more easily relate to these micro-celebrities (smi) which they follow in contrast to traditional celebrities from, for example, the film industry. youtubers are perceived as equal and reliable than theirs personal stories make them seem accessible and credible. that e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 234 they are perceived on this way also has to do with the fact that they can easily interact with their followers but also that smi usually be close in age with their followers, which means that smi is considered capable of creating content which suits the followers. lou & yuan (2019) mention one earlier study shows that consumers can have as much confidence in smis as in their friends. the primary data in the study were collected using semi-structured interviews. semi-structured interviews are the interview technique most used in qualitative research (kallio et al., 2016). kallio et al. (2016) believe that this is due to the interview format has proven to be both versatile and flexible. in semi-structured interviews the interviewer uses an interview guide that touches on various topics that are relevant to purpose of the study (bell et al., 2018). to be able to take part in the reality of consumers interviews were used in the study in order to find out how the research subjects perceive the phenomenon of influencer. interviews allow the subject to participate in a discussion there the person shares their lived reality, which gives the researcher an opportunity to experience reality as the person does. one of the main benefits of the form of the interview is that it thus enables reciprocity between the interviewer and the respondent (bolderston, 2012). this thus leads to the interviewer having the opportunity to ask follow-up questions based on the respondent's answer at the same time as it gives the respondent space to express their own self. a total of 13 interviews were conducted, of which eight were online interviews and five were telephonic interviews. the interviews lasted until theoretical saturation was achieved.the theoretical saturation was considered to have been met when the data collected had been sufficient to be able to be analyzed on the basis of the theoretical framework and to be able to answer the study research questions. results and analysis have been divided based on the study's theoretical framework which includes attitude, subjective norm, credibility and wom. the collected data has been compiled and reported by reviewing how the negative and positive attitudes affect how individuals perceive one phenomenon. but also how wom and the subjective norm affect consumers' attitudes and purchase intentions as well as the factors that make individuals feel confident in smis. attitude because the purpose of the study is to understand consumers' attitudes and buying behavior towards influencer marketing, it was considered of great importance to examine consumer attitudes. as as mentioned earlier, attitudes are a crucial factor in consumer behavior. when asked how the respondents perceive the phenomenon influencer marketing, according to the respondents. the majority of those with different attitudes believe that the positive thing about influencer marketing is that it is one way for those to be informed about for the unknown or new products. "i think it's good that they do and i can get new ideas on what i can buy." respondent 3 “... i think it's good because through them you can partake of much and much as you may not have discovered, i kind of do not watch tv to enjoy a new product or any new post. ”respondent 5 respondent 4 describes influencer marketing as a win-win situation because it often in in connection with an smi marketing something, discount codes are offered to the followers. also respondent 2 and 3 mention that it is positive because discount codes are usually offered when smi markets products. respondents 1 and 5 themselves consider that they have no negative attitudes versus influencer marketing. however, both respondents 2 and 4 mention that they are aware of that smi advertises to get money. respondents 3, 4 and 9 believe that influencer marketing is positive because they receive information and are informed about, for example, new products. methodology findings and analysis 235 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 seven of the respondents mention that they believe that smi mainly advertises to make money on that. of these seven respondents, respondents 2, 4, 5, 8, 10 and 12 feel that smi has to say if a product is not genuine because it makes money from marketing the product. several of the respondents mention that they are unsure whether the product actually works as smi describes it. respondents 1, 6 and 13 believe that there are other negative aspects with influencer marketing such as that it can create class gaps in society and that it leads to overconsumption and that they engage in surreptitious advertising. “the negative is that it can lead to purchasing power and overconsumption because you might only buy to take advantage when you get a discount code even though you do not need it.” respondent 1 “i consider this to be a negative aspect as it leads to more people feeling compelled to achieve certain goals to please others in their environment, even if they do not have the assets or the means to do so. i think this creates social divisions. it puts pressure on young people who grow up and mainly seem to be the target group where influencers reach out, regardless of the truth or falsehood of the product or marketing." respondent 6 respondents 13 and 7 believe that influencer marketing can be annoying if it happens too a lot of advertising. the question regarding what the respondents think when they see an influencer marketing a product or service was answered by all respondents. the majority of respondents convey that there is a concern that smi does collaborations and advertising for companies only to get paid and that their reviews of the products thereof do not become credible or genuine. concepts genuine and credible are a recurring word that many of the respondents used when answering the question. many of these respondents thus feel that smi does not actually use the product or know if it actually works. “the first thing i think about is if this person actually uses the product and that they have received payment for marketing the product, i.e. if the influencer is credible." respondent 2 “companies get their message out through the influencer and the influencer in turn gets paid to perform these advertisements. this makes me even more skeptical of them, as the content of their advertising does not can be classified as credible." respondent 6 “but most of the time it does not feel completely genuine, which really all types of advertising in my opinion do not feels.”respondent 10 respondents 4, 5, 9 and 12 believe that they may be attracted and interested when they see an smi as advertise. respondents 3 and 13 describe it as not being influenced by influencers marketing and that they do not think anything special when they see an influencer advertising. the last question asked in relation to the theme of attitude was whether consumers will be more influenced to buy a product or service if it is a popular influencer made the advertisement. respondents 2, 6, 8, 9 and 11 claim that they had been influenced by advertising from a popular smi because they are probably a person who can themselves like and look up to which leads to that probably trust the person. they also mean that it is an smi that you like coming the person most likely to advertise products that will interest you the followers. these respondents therefore believe that they had probably bought products from an smi which they like. respondents 3, 12 and 13 believe that they can be affected by the fact that it is a popular one influencer but that whether it will lead to a purchase depends mainly on other factors. respondent 3 says that it had only been affected by this by having previous experience and further product information. respondent 12 who believes that it depends on how the advertisement is designed and how the products are reported says: e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 236 “it probably depends on how they market the product. rebecca stella is one of the influencers i follow and like and she usually advertises things and at the same time show different videos how to apply or use the product. this makes me more interested and maybe even gets me that product.” respondent 13 claims that it may be affected depending on what kind of product it is but that in the person's age, it does not matter how popular an smi is. respondents 1, 4, 5, 7 and 10 state that they are not affected by how popular smi is, but it depends on their own judgment of smi, the need for the product and find out other information about the product. “no, certainly not if it's not something i really like or need or not interested in, i will not buy it no matter who markets it.” respondent 1 “if i feel like it's honest and not just doing this for the money, this is where i fall, i'm does not fall for how popular it is." respondent 7 credibility because trust plays a central role in the buying process and the study examines how buying behavior affected, it was of great importance to examine how consumer confidence in the phenomenon looks. the first question in the theme of trust was whether consumers had bought something like marketed by an smi. respondents 1, 3, 4, 5, 7, 9 and 10 say they have bought someone or some products marketed by an smi. the main reasons given by the respondents 1, 3, 4 and 5 mention why they bought the product is that they either heard a lot about the product from several places or that smi has offered a discount code in connection with its marketing. “yes, i bought x-brown (eyelash extender), but have not used it long enough for to be able to give a rating on the purchase itself. but from other people's feedback, it should have helped and worked. it remains to be seen what i think.” respondent 4 “that i then got to see an influencer advertise and also give a discount code on that product led to a purchase." respondent 3 the remaining respondents who bought a product marketed by an smi believe that it is the very marketing that smi did that led to them becoming interested and attracting them the purchase. respondents 2, 6, 8, 11, 12 and 13 have not accepted any offer as an smi advertised for. both respondents 11 and 13 believe that they have not accepted any offer because they do not follow any smi on their social media. respondent 8 says that it did not buy somewhat because it is a bit skeptical of influencer marketing regarding how credible smis really are. respondent 2 claims that it did not receive any offer due to that the products or services that smis usually market do not interest the person. the second question in the theme of trust was asked to find out what makes consumers feel credibility for smi. respondents' views on what makes them feel that one smis are credibly varied. respondents 2, 6, 7 and 9 believe that it is necessary to know someone community or affiliation with smi and that one follows the person and perhaps followed the person for a longer period. this affiliation or community can be, for example similar interests. other respondents who had similar responses were 4, 5, 10 and 12 believe that the person becomes more credible if it shows the products and their properties but also that smi himself tested it and can convey his honest opinion. the respondents believe that smi can do so in such a way that it shows, for example, before and after the result of the product or what it contributed with. “on the other hand, is it skin care that the person himself tests and posts videos and maybe even and with a result, this can make the influencer more credible.” -respondent 5 respondents 5, 11 and 13 believe that an smi that markets products within its own area of expertise becomes more credible. 237 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 "if it has knowledge of what it markets, it feels more credible." respondent 11 respondents whose answers were not the same as anyone else's were 1, 3 and 8. respondent 1 believes that an smi will be reliable if it raises both the positive and negative in its marketing aspects of the product or service so that it does not just feel like the person is getting paid to speak well of the product. respondent 3 says that it is difficult for an smi to be credible in its advertising as it gets paid for it. last but not least respondent 8, who believes that it could be more credible if several smis advertised the same product or service. the respondent also means that it probably would have played if smi had made collaborations with a company for a longer period and that if it is a larger company that is behind the product marketed. the third question was whether it matters to the respondent what type of influencer it is. the question is intended to investigate whether consumers feel more confident in, for example, one larger or smaller smi. the majority of respondents believe that it does not matter how big a smi is. the main factors that seem to play a role for these respondents are about they are honest in their marketing, affiliation with smi and whether smi advertises products within their own expertise. “there is one that i follow who is very big jon olsson, sometimes when he recommends one camera, it was the camera i mentioned earlier that i bought and i have bought it since he knows this with cameras and knows what he is doing and that was why i felt i could trust on him ”respondent 7 respondent 12 believes that what actually matters is the person's own about an smi. respondent 8 conveys that it can both play a role but at the same time that it does not have to. the respondent describes it as follows: “yes it does matter i would probably consider a bigger profile as more credible. i was probably attracted more of a larger profile that markets something than one that has type 100 followers… fixed at the same time type still maybe not, it might feel more authentic if there is any smaller profile like market something other than these biggest profiles that do. because it feels like the bigger ones the profiles may be more bought by companies. ” respondents 2, 3, 11 and 13 state that how big an influencer is matters. the respondents believe that larger smis feel more reliable because they believe that a larger smi cannot just lay up anything and that there is a reason why the person is so great on social media. “yes it does, it feels credible if the person has more followers. i think one with so many followers do not have followers just because there is something interesting about the person.” respondent 11 the last question that deals with the theme of credibility is: in what way does the brand affect you which an influencer advertises for? respondents 1, 2, 3, 4, 7, 8, 9 and 11 say that a larger brand plays a certain role in their for their buying intentions. respondents 1, 2, 3 and 4 mean that a brand that is well known makes them feel safe because they feel they have both more knowledge and can search for information about the product being marketed. they mean too that a well-known brand feels more reliable because it is already established in the market. respondents 4 and 9 also say that it feels more reliable because you yourself may have had it before brand experience. respondents 6, 10 and 13 claim that the brand itself does not play a role without what matters is smi's credibility and previous experience. respondent 5, 7 and 12 says that if an smi markets a new product, it may interest the person but that it still chooses to read about the product on the internet. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 238 wom word-of-mouth highlights how consumers can be affected by other people giving theirs opinions about a purchase. this aspect is important to investigate as we as researchers get a deeper look insight into how consumers' buying behaviors can be shaped by the recommendations of others. when asked if the respondents know anyone who has bought an item due to influencers marketing, everyone answers yes except respondents 5, 6, 12 and 13 who say they do not know anyone who have bought something through influencer marketing. the remaining 9 respondents who answered yes the question also received a follow-up question where they had to answer whether the person has shared theirs experiences around the purchase. respondents 2, 8 and 9 answer that they know people who have bought products via influencer marketing, but that they do not really remember what it was and therefore could not answer on the follow-up question. respondents 1 and 3 say that they can be more influenced to a purchase when it comes to the opinions of others. respondent 3 believes that if a person had recommended one product or service, it would have had a positive effect on them. “the person has talked about their experience of the purchase and thought that the product was very good and recommended product. the product was not something that interested me so that's why i was simply interested in buying it, but had it been something else that interests me the person's judgment had affected me.” -respondent 1 “yes, my husband bought a pair of wireless headphones because his favorite football player was advertising for them. maybe not an influencer, but someone he looked up to who influenced him to one buy. he was a little disappointed as the quality was not the best, but they were still good. he was satisfied in the end.” -respondent 4 respondent 7 answers that someone in her vicinity traveled to a holiday resort due to a influencer advertised the destination. the person in question had nothing negative to say about themselves the experience. respondent 10 believes instead that there are some in the area who bought things like marketed by influencers, not because they are influenced by the influencer itself but because it has existed an interest in the product it and those influencers have given away discount codes. the next question within the wom theme was asked to find out whether the respondents themselves had advised against it or recommended an item marketed by influencers. the answers collected show that respondents 1, 2 and 7 have given recommendations for products that they themselves have been satisfied with thanks to influencer marketing. "yes i have. it was soap for the face, there are a few different types that are adapted for different skin types so i recommended this for one person because i thought it would fit persons. the person became interested but i think she may not have thought it was so affordable" respondent 1 respondent 3 replies that she did not make recommendations based on influencer marketing, however generally believes that if there is something she considers to be happy with, she recommends it the product. especially if she knows that someone in the area has been looking for a product like herself had good experiences of. respondents 4, 9, 10 and 12 answer that they absolutely recommend or advise people in their environment if they themselves have their own experience of the product. the respondents highlight also in their response that it does not only apply to products purchased due to influencer marketing, without products of which they have experience in general. is it a product that they know people in their surroundings are interested in and have their own experiences around that product, says respondents that they are honest about whether it was positive or negative. 239 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 respondent 5 believes that she is not affected by influencer marketing and says that if it is something that she herself is interested in, her own information search will be made for it. respondents 6, 8, 11 and 13 say that they have not bought anything as an influencer marketed and therefore they have not been able to express their views on that issue. when it comes to the question of how respondents are affected by someone around them had positive or negative experiences about influencer marketing is a result of respondents' answers in chapter 4.2. this question will also be analyzed based on the wom theory as it intends to find out how the opinions of others affect other people. as previously mentioned, the respondents are influenced by what people around them have to say. respondents 1, 2, 3, 4, 5, 7, 8, 9, 11 and 13 say that they had probably avoided buying something if they heard negative opinions about products just as they had become more interested of positive opinions given by someone around them, this because they have a larger trust in them. respondent 7 answers: “... with both positive and negative experience, i want to take part in the reasons why the experience was as it was. i want to investigate it myself but also take part in other people's opinions to decide. ” respondent 12 believes instead that there is of course an impact when it comes to positive or negative opinions, but that it is they who decide whether to buy something or not even if it may be that it has been perceived as negative by others. “probably depends on what it is as some people may have different opinions on products that do not fit them, but which might have suited me. it probably depends a lot on what it is and how bad / good their own experiences are.”respondent 12 the results show that confidence in influencer marketing looks different depending on how people's attitudes towards the phenomenon look like. previous studies on the phenomenon have emerged that the reason why consumers follow smis is because they share similar interests with smi, that you feel some community with the person and how reliable the person is. what we have come to in this study is what consumers get to feel confident in smis is belonging to the person, to feel that the person is honest and that the person has expertise in what it markets. previous studies also show that consumers with positive attitudes towards an smi would generally intend to buy a product that smi markets, which has also emerged in this study then most consumers who have positive attitudes towards the phenomenon also have took part or could take part in offers marketed by smis. in the same way leads to negative experiences and negative attitudes of influencer marketing to a reduced trust and interest in smis, which contributes to consumers not wanting to take part in what offered and refrains from buying. the study shows that wom has a major impact on consumers buying behaviors when trust in the environment is greater than trust in smis. this is because that the wom receiver has a type of relationship with the wom transmitter (family, relatives, friends, etc.). consumers therefore prefer to listen to the recommendations of those around them than to smis recommendations. that the opinions and recommendations of the environment have a great conviction and the impact on consumers' buying behavior also appears in other studies that believe that the wom transmitter is considered credible as they are usually independent of the product / service and not seeks to influence the wom receiver to its advantage. the problem that can arise with the fact that there is an overrepresentation of women in the study is that the results cannot tell if these perceptions are present in the whole population, social media users in india, so the selection will not be representative. based on the conclusions, we can see that there are certain tendencies for phenomena in the sample which means that these perceptions may also be present in the population. what the results show is that men seem to conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 240 have one more negative attitude towards the phenomenon while women seem to look at the phenomenon on a more positive way. and that the women are the only ones who bought something marketed by an smi. these conclusions can contribute to the improvement of existing marketing strategies influencer marketing. the conclusions can help the companies that use influencers marketing to be able to understand how to build trust and achieve positive attitudes of the audience this by being aware as a company that wom affects consumers very much in their purchasing decisions (bataineh, 2015). by being aware of this it is important as a company to live up to what is marketed so that it does not arise negative consumer experiences. as a company, it is also important to work with smis that possess an expertise in what to market for consumers to feel confidence in advertising. the conclusions can also be of great help to these smis so that they can focus on advertising products within their own area of expertise as it has been an important one factor for consumers to feel confident. they can also design their advertising and portray themselves according to the factors that form positive attitudes among consumers such as offering discount codes. the study also intends to contribute to further research in influencer marketing, consumer behavior in relation to influencer marketing and smi and how they affect consumers. we believe that further research in this area is required as this phenomenon is still relatively new, which, as previously mentioned, leads to new buying behaviors. 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(2020). understanding the relationships between social media influencers and their followers: the moderating role of closeness. journal of product & brand management, 29(6), 767-782. https://doi.org/10.1108/jpbm-03-2019-2292 young, k., (2017). social media captures over 30% of online time. globalwebindex. about the author this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). kamaldeep singh ph.d student turiba university fields of interests business administration. address graudu iela 68b, riga lv-1058, latvia kampreet0001@gmail.com e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 192 european integration studies no. 14 / 2020, pp. 192-206 doi.org/10.5755/j01.eis.1.14.26381 abstract idea management system application type impact on idea quantity http://dx.doi.org/10.5755/j01.eis.1.14.26381 idea management system application considers idea quantity as the key to idea management success. the aim of this paper is to examine how different idea management system application types impact idea quantity. the authors conducted empirical research by conducting a survey based on adaptive structuration theory framework. in the research paper, an analysis of 447 responses was included. the study shows how to separate idea management system application types impact by idea quantity. the target group consisting of commercially available web-based idea management system applied enterprises bias present in the survey research may limit the generalisability of the results. the study contributes to the discussion about the idea management system application type impact on the idea management results by showing that different idea management system application types lead to different idea management results. keywords: idea management systems, idea quantity, survey research, web-based idea management, innovation. introduction elina mikelsone ba school of business and finance innovation management and application of information technologies in organisations has become increasingly more relevant over the last few decades. web-based idea management systems (ims) fall in line with the current developments (e.g. growing importance of ict, the spread of open innovation and co-innovation, etc.) in all previously mentioned considerations, ims is a manageable systematic tool to generate and evaluate ideas. the use of web-based ims has become a part of the organizational culture in various enterprises and web-based ims are used by many well-known organizations such as boeing, p&g, volkswagen, xerox, pentax, heineken, panasonic, sony, fujitsu, electrolux, volvo, etc. the authors expect that throughout the following years the role of web-based ims will grow as even more organizations will start to apply them. many good examples show positive effects on organizations performance that use web-based ims. for example, bt group is using its ims webstorm which helped the company acquiring 10 000 new ideas in the seven years between 2005 and 2012. realization of these ideas has helped the company to increase its revenue by 100 million pounds and improve customer loyalty (bright idea, 2010). another example is bruce submitted 05/2020 accepted for publication 07/2020 idea management system application type impact on idea quantity eis 14/2020 aivars spilbergs ba school of business and finance tatjana volkova ba school of business and finance elita lielā ba school of business and finance jānis frišfelds maastricht university school of business and economics http://doi.org/10.5755/j01.eis.0.13.23562 193 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 power, the only privately owned nuclear power station in canada. in two years since it started using ims idealink open, it has acquired more than 2700 new ideas and more than 10 000 participants have participated in their ims process (generation, development). the use of ims can lead to both a decrease in costs and an increase in revenue (brain bank, 2014). application cases show that this tool gives the possibility to connect internal and external idea creators and evaluators in the idea management (im) process and these systems could connect different entrepreneurship areas, for example, intrapreneurship and innovation management, opportunity identification and creation. but there is a lack of research on the web-based ims application types and their respective results. authors of this paper aim to explore web-based ims application type impact on its application results. to fill the gap, authors apply theoretical and empirical approach with the main aim to examine how different ims application types impact ims results. applegate (1986) is the first researcher mentioning im and to begin im and ims research. since then there have been several academic perspectives on how to research im and ims. a majority of researches focuses on systematic aspects of im and ims (e.g. bailey and horvitz, 2010; barczak et al., 2009; bjork and magnusson, 2009; coughlan and jahanson, 2008; flynn et al., 2003; galbrait, 1982; gish, 2011; green et al., 1983; korde and paulus, 2016; vandenbosch et al., 2006) and structural (e.g. bassiti and ajhoun, 2013; bergendah and magnusson, 2014; divakaran, 2016; luo and tobia, 2015; narvaez and gardoni, 2015; poveda et al., 2012; summa, 2004; voigt and brem, 2006; westerski and iglesias, 2011; wooten and ulrich, 2015). structural literature sources focus on design and the process, but systematic literature sources focus on social capital, creativity, cognition, etc. (rose and jensen, 2012). authors have revealed in the previous researches that there are multiple types of research available with a structural perspective that provide a theoretical base for ims concept exploration. literature about ims overviews mostly focus on existing ims and their application and potential improvements (e.g. summa, 2004; bakker et al., 2006; coughlan et al., 2008; bothos et al., 2008; bjork et al., 2009; barczak et al., 2009; beretta, 2015; tung et al., 2009; bailey et al., 2010; hrastinski et al., 2010; holzblatt et al.,2011), but some researches also aim to research development of new ims (e.g. flynn et al., 2003; vandenbosch et al., 2006; bothos, et al, 2009; iversen, et al., 2009; bansemir et al., 2009; bettoni et al., 2010; xie et al.,2010; bothos et al., 2012; lowe and heller, 2014). this paper aims to be part of the first type of papers which explores existing systems focusing on commercially available systems. most researches that explore existing ims research focus on one or a few ims but this research is based on a survey across multiple different ims users. ims has not been given sufficient scientific attention and it should be researched how different ims types impact its application results (van den ende et al., 2015). this research is aiming at providing a contribution to fill this gap. first, the paper will help researchers and ims users to understand the basic ims application types and their potential results. second, the exploration of different ims types and their results could motivate entrepreneurs to re-evaluate their current approach to im. third, developers and users of web-based ims see the potential of these systems but positive outcomes often do not occur and that is one of the reasons why organizations do not use them in the long term (desanctis and poole, 1994). due to these reasons, it is important to explore web-based ims application types and their results, to explain what results companies could expect based on different application types. in this paper, im is defined as a systematic, manageable process of idea generation, evaluation, and repeated idea generation and evaluation. the ims is defined as a tool, tool kit or complex system which provides systematic, manageable process in im (mikelsone and liela, 2015). the authors use 2 ims classifications: based on involved idea sources (internal, external, mixed) and based on the application focus (active, passive). the research aims to answer the research question: how different ims application types impact idea quantity? to answer these questions 4 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 194 hypotheses will be tested that are based on the 3 types of ims and 4 dimensions of the results: _ (h1) active ims provide higher idea quantity than passive. _ (h2) external ims provide higher idea quantity than internal. _ (h3) mixed ims provide higher idea quantity than internal. _ (h4) mixed ims provide higher idea quantity than external. figure 1 summarizes the motivation for this paper. aim gap to fill (academic topicality) overall topicality (trends and practical topicality) use theoretical and empirical approach to examine how different ims application types impact ims application idea quantity. main literature gap – no research on how ims application types impact idea quantity. it application and innovation management in organizations is more relevant now than ever before. trends to match – (1) in the age of knowledge tools that provide means for acquiring, evaluation and development of knowledge and ideas are extremely important; (2) the growing role of ict increases the importance of web-based tools that support the innovation process; (3) web-based ims is becoming more important in the context of open innovation and co-innovation, giving them access to both internal and external sources of ideas and knowledge. figure 1 research development motivation source: created by author’s this paper fulfils an identified need to clarify ims types and their impact on idea quantity. this paper creates academical contribution: it researches different classifications of ims and their impact on idea quantity. practical contribution web-based ims application types and their idea quantity could help to evaluate the potential application of ims in different scenarios. the rest of the paper is structured as follows. the second section introduces the theoretical background. the third section continues by presenting the research methodology. the fourth section provides the answers to the research questions through conducted research. this structure can be seen in figure 2. in tr o du ct io n th eo re ti ca l b ac kg ro u nd methodology findings conclusions research instrument data collection data analysis basic data characteristics ims application type impact on idea quantity summary implications future research directions source: created by author’s figure 2 paper structure secon 1 secon 2 secon 3 secon 4 secon 5 theoretical background idea management system basic assumptions in this paper, the definition of the im is based on the following assumptions that that im is: (1) systematic process; (2) manageable process; (3) main parts of im are idea generation, evaluation, and repeated idea generation and evaluation (if it is needed). based on these assumptions ims is a tool, tool kit or complex system which provides systematic, manageable process in im (mikelsone and liela, 2015). table 1 provides a detailed description of ims, characterising all previously mentioned elements with its sub-elements. 195 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 table 1 ims main characteristics ims tool, tool kit or complex system which provides systematic, manageable process of: idea generation (preparation, capture/gathering of ideas, retention, enhancement) idea evaluation (screening, selection, retention) continuation of im (concept development, distribution of ideas, support during implementation with repeated im and rewarding, retention) e.g. korde and paulus, 2016; wooten and ulrich, 2015; summa, 2004 e.g. westerski, 2013; summa, 2004 e.g.summa, 2004 source: based on mikelsone, volkova and liela (2019) there are 3 im types: external, internal and mixed im. external im means external idea generation and evaluation (main im sources – experts, partners, customers and other stakeholders outside the organization) (e.g. bothos et al., 2008; tung et al., 2009; westerski et al, 2011; bothos et al., 2012). internal im is internal idea generation and evaluation in an organization (main im source employees) (e.g. iversen et al., 2009; fatur et al., 2009; bansemir et al., 2009; glassmann, 2009; klein and lechner, 2010; bettoni et al., 2010; selart and johansen, 2011; shani et al., 2011; moss et al., 2011; deichmann, 2012; aagaard, 2012, 2013; poveda et al., 2012; bassiti and ajhoun, 2013, wood, 2003). mixed im idea generation and evaluation involving internal and external sources (e.g. fritz, 2002; nilsson et al., 2002; voigt et al., 2006; brem et al., 2007; enkel et al., 2009; brem et al., 2009; sandstrom and bjork, 2010; baez and convertino, 2012). idea management system application types for this research the authors have applied two categories for classifying ims application: (1) based on the involved im source; (2) based on the im application focus. there are other possible categories for ims classification: based on the provided process functions (limited, full, extra) and based on the ims price type (monthly payment, yearly payments). the last two types of classifications will not be investigated further as they focus on systems, not on their application type. authors based on the ideas divide all ims application cases as follows: _ internal ims by involvement internal idea creators and evaluators; _ external ims by involvement external idea creators and evaluators; _ mixed ims by involvement internal and external idea creators and evaluators. based on the application focus all systems could be divided as “active” and “passive’’, therefore, there are passive and active ims. passive ims collect all ideas in an unfocused manner, but active ims provide functions to collect ideas in a focused manner and most cases includes idea evaluation possibilities. ims type descriptions are provided in table 2. table 2 ims application types classifications classification criteria: based on the application focus passive ims active ims functions type of focus functions type of focus focus on idea generation unfocused process focus on all im dimensions focused process classification criteria: based on the involved im source description main im source description main im source description main im source ims that allows involving only internal im sources employees ims that allows involving only external im sources crowds, experts, clients, etc. ims that allows involving internal and external im sources employees; clients, experts, crowds, etc. source: based on mikelsone, volkova and liela (2019) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 196 idea management system application results quality and quantity of ideas are most often used as measurements for im and ims application, and as a result, should be considered as the main elements of the web-based ims application outputs. denis and garfield (2003) have revealed that decision support system processes may encourage more participation that also provides a challenge to research this element in the ims context. wooten and ulrich (2015) had researched feedback importance in the idea management process, based on the conclusion that managers face a decision about if and how to provide in-process feedback to the idea generators about the quality of submissions. their research revealed that directed feedback benefits the average quality of entries submitted. the stimulus that impacts web-based ims application and its results can also be researched. the authors have concluded that there is no common view on ims output elements, except idea quality and quantity, and involvement. it would be advisable to create ims effectiveness evaluation tool that would include the most important output elements. in this research, authors will apply the most frequent researched ims output variables idea quantity, idea quality and involvement. idea quality could be defined as the average quality of generated ideas (idea creativity) (selart & johansen, 2011; deichmann, 2012; bjork & magnusson, 2009). idea quantity could be defined as a number of ideas generated (maccrimmon & wagner, 1994; korde & paulus, 2016; girotra & ulrich, 2010; deichmann, 2012). there is an additional variable chosen to research results – involvement or number of involved people (dennis & garfield, 2003; deichmann, 2012). in this research, authors focus on idea quantity. methodology research instrument for measuring web-based ims application results a questionnaire was created for web-based ims applied companies. the survey was conducted in the summer/autumn of 2018. methods for obtaining primary data are described in table 3. this survey results allowed to compile data on ims in 8 blocks, according to adaptive structuration theory: (1) type of ims; (2) tasks; (3) organization system; (4) adaptation and type of use; (5) ims results; (6) organisational effectiveness; (7) new structures; (8) problems with the use of ims. table 4 highlights the survey block ims results. a total of 186 elements are summarized in 8 question blocks. in this paper, the applied survey block is ims results. the questionnaire was created and distributed in english, as the dominant language of the ims and its use in english. all criteria were based on literature analysis and updated scales were based on the results of the case studies as used to describe the results of the application of ims. data collection the survey was conducted on the survey platform 'the questback' (https://www.unipark.com/) created by unipark. this platform was chosen because it is: (1) focused on academic surveys; (2) widely recommended by world-class researchers; (3) provides data security required by ims representatives bsi-certified data centre in accordance with iso 27001; (4) complies with the requirements of the eu general data protection regulation. to test the questionnaire, it was sent to 9 companies that conducted a survey and were able to comment on any question. the test was done in 3 rounds, the questionnaire was sent to 3 companies using the ims when comments were received and based on the feedback the questionnaire was improved. in the third round, comments on the structure or clarity of the questions were no longer provided. based on the tests, the time of completing the questionnaire was determined (20-30 minutes). after the test, the survey results were deleted. it should be noted that to reach the target audience more accurately, the authors asked ims developers to distribute the survey to their clients. it was stipulated that the survey should only be sent to companies using the system in question to the person in charge of the ims (mostly think-tanks, innovation managers or business managers). in the authors' private communication with 107 ims 197 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 table 3 primary data selection un analysis description aim data selection data analysis period steps ims application types impact on the results survey of the enterprises that applies web-based ims (n>400) statistical analysis (frequency distribution, standard deviation, t-statistics, degrees of freedom (df), critical values (tc) and p-values, etc.) 3r quarter of 2018 1 survey development based on literature analysis and developed classifications. 2 round survey test (data not included in the analysis). 3 survey distribution to 107 web-based ims developers, that they could distribute to their clients. 4 400 valid surveys. 5 standard deviations to evaluate the data consistency for the analysis. 6 data analysis through selected methods source: created by author’s question scale based on idea quantity what is the average number of ideas created per task? none based on the literature studies and empirical case studies conducted by the authors using internal ims to 10 using external ims 11 100 using mixed ims 101 1000 using active ims 1001 5000 using passive ims 5001 10 000 more than 10 001 table 4 questionnaire section – ims results source: created by author’s developers and the information published by the ims concerned, it was concluded that the ims employs around 70, 000 100,000 companies (derived from the average number of ims clients). invitation for their system applicants to involve sent to 108 idea management system creators – crowdicity, viim, ideasmine, idea drop, ideanote, receptive, crowdworx innovation engine, ideawake, sideways 6, organisedfeedback, exago smart, ideation360, prodpad, vetter online suggestion box, idealab, groupmap, ideaflip, ideafox, imindq, innovation cloud, innovation5g. com, mindview 7, we thinq, exo platform, ideascale, hype innovation, mindmanager, milanote, innovation platform, kindling, coggle, datastation innovation cloud, sprintground, be-novative, brainstorm, idearium, stormboard, mangoapps, nova-innovate innovation management software, wizeline, comapping, featuremap, glint innovation, ideacomb, mindomo, soapbox, sprint, wave, work by innocentive, braincatena, brightspars, bubbl.us, cognistreamer, de idee management tool, e-zassi, easycrit, evsm, firefly, gainx, germ.io, headstarter, hifish, hives.co, id-force, id8 enterprise, ideabox, ideabridge, ideafactory, ideakeep, idealinker accelerate, ideasbank, idhall sc, includer, indonis, inno360, innoengines, innosabi, innovation agora, innovation central, innovationcast, innovationstation, innovbook, itonics ideation, mindapp, nosco, novamind, onyx cloud ideas, orchidea, pit, postwaves, socialjsideas, solverboard, sophia, talkfreely, verve, vocoli, yambla, accept360, idea glow, ideaspotlight, idea management software by planbox, brightidea, idealyst, online suggestion box, flagpole, spigit idea management software, academy of ideas. data analysis to validate data for the further analysis the pre-analysis was conducted by using the following methods: _ point estimation and interval estimation – ‘’the process of providing a numerical value for a population parameter based on information collected from a sample. if a single figure is calculated for the unknown parameter, the process is called point estimation. the process of providing a e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 198 numerical value for a population parameter based on information collected from a sample. if an interval is calculated which is likely to contain the parameter, then the procedure is called interval estimation” (everitt & skrondal, 2010); _ frequency distribution – “the division of a sample of observations into a number of classes, together with the number of observations in each class. acts as a useful summary of the main features of the data such as location, shape, and spread” (everitt & skrondal, 2010); _ mean of the group to get the average value of the group; _ standard deviation – to measure the spread of a set of observations; _ modal and medial class (interval) – to observe the most frequent and ‘’the value in a set of ranked observations that divides the data into two parts of equal size” (everitt & skrondal, 2010); _ coefficient of variation to measure “the spread for a set of data defined” (everitt & skrondal, 2010); _ confidence interval – to range the values, calculated from the sample observations, that is believed, with a particular probability, to contain the true parameter value (of the population); _ sampling error – to observe “the difference between the sample result and the population characteristic being estimated” (everitt & skrondal, 2010). _ to test the hypothesis the following data analysis methods were applied: _ significance tests for a population mean number for the result variable. _ the t-test was used to measure statistically significant variations between ims types. it was applied to test the hypothesis. _ calculating p-values for the given test statistics and the degrees of freedom. findings basic data characteristics – idea quantity respondents frequency distribution based on survey data is shown in figure 3. the further detailed analysis consists of the arithmetic mean of the group, standard deviation, modal and medial class (group), coefficient of variation. arithmetic mean of grouped data is calculated as follows: for the unknown parameter, the process is called point estimation. the process of providing a numerical value for a population parameter based on information collected from a sample. if an interval is calculated which is likely to contain the parameter, then the procedure is called interval estimation” (everitt & skrondal, 2010);  frequency distribution – “the division of a sample of observations into a number of classes, together with the number of observations in each class. acts as a useful summary of the main features of the data such as location, shape, and spread” (everitt & skrondal, 2010);  mean of the group to get the average value of the group;  standard deviation – to measure the spread of a set of observations;  modal and medial class (interval) – to observe the most frequent and ‘’the value in a set of ranked observations that divides the data into two parts of equal size” (everitt & skrondal, 2010);  coefficient of variation to measure “the spread for a set of data defined” (everitt & skrondal, 2010);  confidence interval – to range the values, calculated from the sample observations, that is believed, with a particular probability, to contain the true parameter value (of the population);  sampling error – to observe “the difference between the sample result and the population characteristic being estimated” (everitt & skrondal, 2010). to test the hypothesis the following data analysis methods were applied:  significance tests for a population mean number for the result variable.  the t-test was used to measure statistically significant variations between ims types. it was applied to test the hypothesis.  calculating p-values for the given test statistics and the degrees of freedom. 4. findings 4.1.basic data characteristics – idea quantity respondents frequency distribution based on survey data is shown in figure 3. figure 3. respondents frequency distribution for idea quantity based on sample data source: created by author’s the further detailed analysis consists of the arithmetic mean of the group, standard deviation, modal and medial class (group), coefficient of variation. arithmetic mean of grouped data is calculated as follows: �̅�𝑥 = ∑ �� ∗ �� �� � (1) where 𝑚𝑚� ith class (group) midpoint, 𝑓𝑓� frequency of the ith class (interval), 𝑛𝑛 sample size, 𝑛𝑛 = ∑ 𝑓𝑓��� . the standard deviation of grouped data is calculated as follows: 𝑠𝑠 = ���� ∗ �1 − � �� (2) where 𝑠𝑠� = ���� ∑ 𝑓𝑓� ∗ �𝑚𝑚� − �̅�𝑥� �� � 𝑚𝑚�ith class (group) midpoint. 0 50 100 150 200 1-10 11-100 101-1000 1001-5000 5001-10000 >10000 active ims pasive ims internal ims external ims mixed ims (1) where: mi ith class (group) midpoint, ƒi frequency of the ith class (interval), n sample size, for the unknown parameter, the process is called point estimation. the process of providing a numerical value for a population parameter based on information collected from a sample. if an interval is calculated which is likely to contain the parameter, then the procedure is called interval estimation” (everitt & skrondal, 2010);  frequency distribution – “the division of a sample of observations into a number of classes, together with the number of observations in each class. acts as a useful summary of the main features of the data such as location, shape, and spread” (everitt & skrondal, 2010);  mean of the group to get the average value of the group;  standard deviation – to measure the spread of a set of observations;  modal and medial class (interval) – to observe the most frequent and ‘’the value in a set of ranked observations that divides the data into two parts of equal size” (everitt & skrondal, 2010);  coefficient of variation to measure “the spread for a set of data defined” (everitt & skrondal, 2010);  confidence interval – to range the values, calculated from the sample observations, that is believed, with a particular probability, to contain the true parameter value (of the population);  sampling error – to observe “the difference between the sample result and the population characteristic being estimated” (everitt & skrondal, 2010). to test the hypothesis the following data analysis methods were applied:  significance tests for a population mean number for the result variable.  the t-test was used to measure statistically significant variations between ims types. it was applied to test the hypothesis.  calculating p-values for the given test statistics and the degrees of freedom. 4. findings 4.1.basic data characteristics – idea quantity respondents frequency distribution based on survey data is shown in figure 3. figure 3. respondents frequency distribution for idea quantity based on sample data source: created by author’s the further detailed analysis consists of the arithmetic mean of the group, standard deviation, modal and medial class (group), coefficient of variation. arithmetic mean of grouped data is calculated as follows: �̅�𝑥 = ∑ �� ∗ �� �� � (1) where 𝑚𝑚� ith class (group) midpoint, 𝑓𝑓� frequency of the ith class (interval), 𝑛𝑛 sample size, 𝑛𝑛 = ∑ 𝑓𝑓��� . the standard deviation of grouped data is calculated as follows: 𝑠𝑠 = ���� ∗ �1 − � �� (2) where 𝑠𝑠� = ���� ∑ 𝑓𝑓� ∗ �𝑚𝑚� − �̅�𝑥� �� � 𝑚𝑚�ith class (group) midpoint. 0 50 100 150 200 1-10 11-100 101-1000 1001-5000 5001-10000 >10000 active ims pasive ims internal ims external ims mixed ims . 0 50 100 150 200 1-10 11-100 101-1000 1001-5000 5001-10000 >10000 active ims pasive ims internal ims external ims mixed ims 0 20 40 60 80 100 120 140 160 active ims pasive ims 0 20 40 60 80 100 120 140 160 180 internal ims external ims 0 20 40 60 80 100 120 140 160 180 internal ims mixed ims 0 20 40 60 80 100 120 140 external ims mixed ims source: created by author’s figure 3 respondents frequency distribution for idea quantity based on sample data 199 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 the standard deviation of grouped data is calculated as follows: for the unknown parameter, the process is called point estimation. the process of providing a numerical value for a population parameter based on information collected from a sample. if an interval is calculated which is likely to contain the parameter, then the procedure is called interval estimation” (everitt & skrondal, 2010);  frequency distribution – “the division of a sample of observations into a number of classes, together with the number of observations in each class. acts as a useful summary of the main features of the data such as location, shape, and spread” (everitt & skrondal, 2010);  mean of the group to get the average value of the group;  standard deviation – to measure the spread of a set of observations;  modal and medial class (interval) – to observe the most frequent and ‘’the value in a set of ranked observations that divides the data into two parts of equal size” (everitt & skrondal, 2010);  coefficient of variation to measure “the spread for a set of data defined” (everitt & skrondal, 2010);  confidence interval – to range the values, calculated from the sample observations, that is believed, with a particular probability, to contain the true parameter value (of the population);  sampling error – to observe “the difference between the sample result and the population characteristic being estimated” (everitt & skrondal, 2010). to test the hypothesis the following data analysis methods were applied:  significance tests for a population mean number for the result variable.  the t-test was used to measure statistically significant variations between ims types. it was applied to test the hypothesis.  calculating p-values for the given test statistics and the degrees of freedom. 4. findings 4.1.basic data characteristics – idea quantity respondents frequency distribution based on survey data is shown in figure 3. figure 3. respondents frequency distribution for idea quantity based on sample data source: created by author’s the further detailed analysis consists of the arithmetic mean of the group, standard deviation, modal and medial class (group), coefficient of variation. arithmetic mean of grouped data is calculated as follows: �̅�𝑥 = ∑ �� ∗ �� �� � (1) where 𝑚𝑚� ith class (group) midpoint, 𝑓𝑓� frequency of the ith class (interval), 𝑛𝑛 sample size, 𝑛𝑛 = ∑ 𝑓𝑓��� . the standard deviation of grouped data is calculated as follows: 𝑠𝑠 = ���� ∗ �1 − � �� (2) where 𝑠𝑠� = ���� ∑ 𝑓𝑓� ∗ �𝑚𝑚� − �̅�𝑥� �� � 𝑚𝑚�ith class (group) midpoint. 0 50 100 150 200 1-10 11-100 101-1000 1001-5000 5001-10000 >10000 active ims pasive ims internal ims external ims mixed ims (2) where: for the unknown parameter, the process is called point estimation. the process of providing a numerical value for a population parameter based on information collected from a sample. if an interval is calculated which is likely to contain the parameter, then the procedure is called interval estimation” (everitt & skrondal, 2010);  frequency distribution – “the division of a sample of observations into a number of classes, together with the number of observations in each class. acts as a useful summary of the main features of the data such as location, shape, and spread” (everitt & skrondal, 2010);  mean of the group to get the average value of the group;  standard deviation – to measure the spread of a set of observations;  modal and medial class (interval) – to observe the most frequent and ‘’the value in a set of ranked observations that divides the data into two parts of equal size” (everitt & skrondal, 2010);  coefficient of variation to measure “the spread for a set of data defined” (everitt & skrondal, 2010);  confidence interval – to range the values, calculated from the sample observations, that is believed, with a particular probability, to contain the true parameter value (of the population);  sampling error – to observe “the difference between the sample result and the population characteristic being estimated” (everitt & skrondal, 2010). to test the hypothesis the following data analysis methods were applied:  significance tests for a population mean number for the result variable.  the t-test was used to measure statistically significant variations between ims types. it was applied to test the hypothesis.  calculating p-values for the given test statistics and the degrees of freedom. 4. findings 4.1.basic data characteristics – idea quantity respondents frequency distribution based on survey data is shown in figure 3. figure 3. respondents frequency distribution for idea quantity based on sample data source: created by author’s the further detailed analysis consists of the arithmetic mean of the group, standard deviation, modal and medial class (group), coefficient of variation. arithmetic mean of grouped data is calculated as follows: �̅�𝑥 = ∑ �� ∗ �� �� � (1) where 𝑚𝑚� ith class (group) midpoint, 𝑓𝑓� frequency of the ith class (interval), 𝑛𝑛 sample size, 𝑛𝑛 = ∑ 𝑓𝑓��� . the standard deviation of grouped data is calculated as follows: 𝑠𝑠 = ���� ∗ �1 − � �� (2) where 𝑠𝑠� = ���� ∑ 𝑓𝑓� ∗ �𝑚𝑚� − �̅�𝑥� �� � 𝑚𝑚�ith class (group) midpoint. 0 50 100 150 200 1-10 11-100 101-1000 1001-5000 5001-10000 >10000 active ims pasive ims internal ims external ims mixed ims , mi ith class (group) midpoint. the median (me) of grouped data is calculated as follows: the median (𝑀𝑀𝑀𝑀) of grouped data is calculated as follows: 𝑀𝑀𝑀𝑀 = 𝑥𝑥��,� + �∑�� �������� ∗ ∆�� ��� (3) where 𝑥𝑥��,� lower class boundary of the interval containing the median, 𝑐𝑐𝑐𝑐���� – cumulative frequency of the interval before the median interval, 𝑐𝑐�� frequency of the median interval, ∆��the median interval width. medial interval is interval for which accumulated frequencies first time is equal or larger than half of the sample size. coefficient of variation (cv) is calculated as follows: 𝐶𝐶𝐶𝐶 = ��̅ *100% (4) point estimates were aggregated and are provided in table 5. table 5 point estimates for idea quantity source: created by author’s as shown in table 5, the medians for all ims types are less than the means of the generated ideas. these differences indicate some asymmetry in the distribution of respondents more often a smaller number of ideas are generated, but less often a large number of ideas. there is a particularly large difference between these indicators for passive ims as well as for internal ims as frequency distributions are skewed mean values does not give a good idea of a typical value that can be expected in case of using these types of ims. the calculated coefficients of variation also indicate similar passive and internal ims has more variation, relative to its arithmetic means than other ims application types. further described is the interval estimation for the population mean. the confidence interval for the population means µ is calculated as follows: �̅�𝑥 ± 𝑀𝑀𝑀𝑀 (5) where 𝑀𝑀𝑀𝑀 margin error, 𝑀𝑀𝑀𝑀 = 𝑡𝑡���,�/� ∗ �√� (6) 𝑡𝑡���,�/�value of t distribution for the selected confidence level and sample size, 𝛼𝛼 level of significance and 100*(1𝛼𝛼)% confidence interval. the upper confidence limit (ucl) is calculated as follows: ucl = �̅�𝑥 + 𝑀𝑀𝑀𝑀 (7) the lower confidence limit (lcl) is calculated as follows: lcl = �̅�𝑥 − 𝑀𝑀𝑀𝑀 (8) confidence intervals (ci) provide the lower confidence limit (lcl) and the upper confidence limit (ucl) that are likely to contain the true parameter value (of the population). the value 95% refers to the probability that the interval will capture the parameter being estimated (tan & tan, 2010). 95% confidence interval estimates are aggregated in table 6. table 6 mean values, margin errors and 95% confidence interval estimates for idea quantity ims type n mean median s cv active ims 439 4138,6 3392,1 3500,6 85% pasive ims 306 1141,1 96,7 2313,7 203% internal ims 411 1284,3 396,1 2299,2 179% external ims 371 4377,1 3875,5 3543,5 81% mixed ims 337 4420,1 3842,6 3771,4 85% ims type mean me lcl ucl active ims 4138,6 167,1 3810,2 4466,9 pasive ims 1141,1 132,3 880,9 1401,4 internal ims 1284,3 113,4 1061,4 1507,3 external ims 4377,1 184,0 4015,4 4738,9 mixed ims 4420,1 205,4 4016,0 4824,2 (3) where: xme,l lower class boundary of the interval containing the median, cfme-1 – cumulative frequency of the interval before the median interval, fme frequency of the median interval, δme the median interval width. medial interval is interval for which accumulated frequencies first time is equal or larger than half of the sample size. coefficient of variation (cv) is calculated as follows: the median (𝑀𝑀𝑀𝑀) of grouped data is calculated as follows: 𝑀𝑀𝑀𝑀 = 𝑥𝑥��,� + �∑�� �������� ∗ ∆�� ��� (3) where 𝑥𝑥��,� lower class boundary of the interval containing the median, 𝑐𝑐𝑐𝑐���� – cumulative frequency of the interval before the median interval, 𝑐𝑐�� frequency of the median interval, ∆��the median interval width. medial interval is interval for which accumulated frequencies first time is equal or larger than half of the sample size. coefficient of variation (cv) is calculated as follows: 𝐶𝐶𝐶𝐶 = ��̅ *100% (4) point estimates were aggregated and are provided in table 5. table 5 point estimates for idea quantity source: created by author’s as shown in table 5, the medians for all ims types are less than the means of the generated ideas. these differences indicate some asymmetry in the distribution of respondents more often a smaller number of ideas are generated, but less often a large number of ideas. there is a particularly large difference between these indicators for passive ims as well as for internal ims as frequency distributions are skewed mean values does not give a good idea of a typical value that can be expected in case of using these types of ims. the calculated coefficients of variation also indicate similar passive and internal ims has more variation, relative to its arithmetic means than other ims application types. further described is the interval estimation for the population mean. the confidence interval for the population means µ is calculated as follows: �̅�𝑥 ± 𝑀𝑀𝑀𝑀 (5) where 𝑀𝑀𝑀𝑀 margin error, 𝑀𝑀𝑀𝑀 = 𝑡𝑡���,�/� ∗ �√� (6) 𝑡𝑡���,�/�value of t distribution for the selected confidence level and sample size, 𝛼𝛼 level of significance and 100*(1𝛼𝛼)% confidence interval. the upper confidence limit (ucl) is calculated as follows: ucl = �̅�𝑥 + 𝑀𝑀𝑀𝑀 (7) the lower confidence limit (lcl) is calculated as follows: lcl = �̅�𝑥 − 𝑀𝑀𝑀𝑀 (8) confidence intervals (ci) provide the lower confidence limit (lcl) and the upper confidence limit (ucl) that are likely to contain the true parameter value (of the population). the value 95% refers to the probability that the interval will capture the parameter being estimated (tan & tan, 2010). 95% confidence interval estimates are aggregated in table 6. table 6 mean values, margin errors and 95% confidence interval estimates for idea quantity ims type n mean median s cv active ims 439 4138,6 3392,1 3500,6 85% pasive ims 306 1141,1 96,7 2313,7 203% internal ims 411 1284,3 396,1 2299,2 179% external ims 371 4377,1 3875,5 3543,5 81% mixed ims 337 4420,1 3842,6 3771,4 85% ims type mean me lcl ucl active ims 4138,6 167,1 3810,2 4466,9 pasive ims 1141,1 132,3 880,9 1401,4 internal ims 1284,3 113,4 1061,4 1507,3 external ims 4377,1 184,0 4015,4 4738,9 mixed ims 4420,1 205,4 4016,0 4824,2 (4) point estimates were aggregated and are provided in table 5. table 5 point estimates for idea quantity ims type n mean median s cv active ims 439 4138,6 3392,1 3500,6 85% pasive ims 306 1141,1 96,7 2313,7 203% internal ims 411 1284,3 396,1 2299,2 179% external ims 371 4377,1 3875,5 3543,5 81% mixed ims 337 4420,1 3842,6 3771,4 85% source: authors’ constructions as shown in table 5, the medians for all ims types are less than the means of the generated ideas. these differences indicate some asymmetry in the distribution of respondents more often a smaller number of ideas are generated, but less often a large number of ideas. there is a particularly large difference between these indicators for passive ims as well as for internal ims as frequency distributions are skewed mean values does not give a good idea of a typical value that can be expected in case of using these types of ims. the calculated coefficients of variation also indicate similar passive and internal ims has more variation, relative to its arithmetic means than other ims application types. further described is the interval estimation for the population mean. the confidence interval for the population means µ is calculated as follows: the median (𝑀𝑀𝑀𝑀) of grouped data is calculated as follows: 𝑀𝑀𝑀𝑀 = 𝑥𝑥��,� + �∑�� �������� ∗ ∆�� ��� (3) where 𝑥𝑥��,� lower class boundary of the interval containing the median, 𝑐𝑐𝑐𝑐���� – cumulative frequency of the interval before the median interval, 𝑐𝑐�� frequency of the median interval, ∆��the median interval width. medial interval is interval for which accumulated frequencies first time is equal or larger than half of the sample size. coefficient of variation (cv) is calculated as follows: 𝐶𝐶𝐶𝐶 = ��̅ *100% (4) point estimates were aggregated and are provided in table 5. table 5 point estimates for idea quantity source: created by author’s as shown in table 5, the medians for all ims types are less than the means of the generated ideas. these differences indicate some asymmetry in the distribution of respondents more often a smaller number of ideas are generated, but less often a large number of ideas. there is a particularly large difference between these indicators for passive ims as well as for internal ims as frequency distributions are skewed mean values does not give a good idea of a typical value that can be expected in case of using these types of ims. the calculated coefficients of variation also indicate similar passive and internal ims has more variation, relative to its arithmetic means than other ims application types. further described is the interval estimation for the population mean. the confidence interval for the population means µ is calculated as follows: �̅�𝑥 ± 𝑀𝑀𝑀𝑀 (5) where 𝑀𝑀𝑀𝑀 margin error, 𝑀𝑀𝑀𝑀 = 𝑡𝑡���,�/� ∗ �√� (6) 𝑡𝑡���,�/�value of t distribution for the selected confidence level and sample size, 𝛼𝛼 level of significance and 100*(1𝛼𝛼)% confidence interval. the upper confidence limit (ucl) is calculated as follows: ucl = �̅�𝑥 + 𝑀𝑀𝑀𝑀 (7) the lower confidence limit (lcl) is calculated as follows: lcl = �̅�𝑥 − 𝑀𝑀𝑀𝑀 (8) confidence intervals (ci) provide the lower confidence limit (lcl) and the upper confidence limit (ucl) that are likely to contain the true parameter value (of the population). the value 95% refers to the probability that the interval will capture the parameter being estimated (tan & tan, 2010). 95% confidence interval estimates are aggregated in table 6. table 6 mean values, margin errors and 95% confidence interval estimates for idea quantity ims type n mean median s cv active ims 439 4138,6 3392,1 3500,6 85% pasive ims 306 1141,1 96,7 2313,7 203% internal ims 411 1284,3 396,1 2299,2 179% external ims 371 4377,1 3875,5 3543,5 81% mixed ims 337 4420,1 3842,6 3771,4 85% ims type mean me lcl ucl active ims 4138,6 167,1 3810,2 4466,9 pasive ims 1141,1 132,3 880,9 1401,4 internal ims 1284,3 113,4 1061,4 1507,3 external ims 4377,1 184,0 4015,4 4738,9 mixed ims 4420,1 205,4 4016,0 4824,2 (5) where: me margin error, e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 200 the median (𝑀𝑀𝑀𝑀) of grouped data is calculated as follows: 𝑀𝑀𝑀𝑀 = 𝑥𝑥��,� + �∑�� �������� ∗ ∆�� ��� (3) where 𝑥𝑥��,� lower class boundary of the interval containing the median, 𝑐𝑐𝑐𝑐���� – cumulative frequency of the interval before the median interval, 𝑐𝑐�� frequency of the median interval, ∆��the median interval width. medial interval is interval for which accumulated frequencies first time is equal or larger than half of the sample size. coefficient of variation (cv) is calculated as follows: 𝐶𝐶𝐶𝐶 = ��̅ *100% (4) point estimates were aggregated and are provided in table 5. table 5 point estimates for idea quantity source: created by author’s as shown in table 5, the medians for all ims types are less than the means of the generated ideas. these differences indicate some asymmetry in the distribution of respondents more often a smaller number of ideas are generated, but less often a large number of ideas. there is a particularly large difference between these indicators for passive ims as well as for internal ims as frequency distributions are skewed mean values does not give a good idea of a typical value that can be expected in case of using these types of ims. the calculated coefficients of variation also indicate similar passive and internal ims has more variation, relative to its arithmetic means than other ims application types. further described is the interval estimation for the population mean. the confidence interval for the population means µ is calculated as follows: �̅�𝑥 ± 𝑀𝑀𝑀𝑀 (5) where 𝑀𝑀𝑀𝑀 margin error, 𝑀𝑀𝑀𝑀 = 𝑡𝑡���,�/� ∗ �√� (6) 𝑡𝑡���,�/�value of t distribution for the selected confidence level and sample size, 𝛼𝛼 level of significance and 100*(1𝛼𝛼)% confidence interval. the upper confidence limit (ucl) is calculated as follows: ucl = �̅�𝑥 + 𝑀𝑀𝑀𝑀 (7) the lower confidence limit (lcl) is calculated as follows: lcl = �̅�𝑥 − 𝑀𝑀𝑀𝑀 (8) confidence intervals (ci) provide the lower confidence limit (lcl) and the upper confidence limit (ucl) that are likely to contain the true parameter value (of the population). the value 95% refers to the probability that the interval will capture the parameter being estimated (tan & tan, 2010). 95% confidence interval estimates are aggregated in table 6. table 6 mean values, margin errors and 95% confidence interval estimates for idea quantity ims type n mean median s cv active ims 439 4138,6 3392,1 3500,6 85% pasive ims 306 1141,1 96,7 2313,7 203% internal ims 411 1284,3 396,1 2299,2 179% external ims 371 4377,1 3875,5 3543,5 81% mixed ims 337 4420,1 3842,6 3771,4 85% ims type mean me lcl ucl active ims 4138,6 167,1 3810,2 4466,9 pasive ims 1141,1 132,3 880,9 1401,4 internal ims 1284,3 113,4 1061,4 1507,3 external ims 4377,1 184,0 4015,4 4738,9 mixed ims 4420,1 205,4 4016,0 4824,2 (6) where: tn – 1,α/2 value of t distribution for the selected confidence level and sample size, α level of significance and 100*(1– α)% confidence interval. the upper confidence limit (ucl) is calculated as follows: the median (𝑀𝑀𝑀𝑀) of grouped data is calculated as follows: 𝑀𝑀𝑀𝑀 = 𝑥𝑥��,� + �∑�� �������� ∗ ∆�� ��� (3) where 𝑥𝑥��,� lower class boundary of the interval containing the median, 𝑐𝑐𝑐𝑐���� – cumulative frequency of the interval before the median interval, 𝑐𝑐�� frequency of the median interval, ∆��the median interval width. medial interval is interval for which accumulated frequencies first time is equal or larger than half of the sample size. coefficient of variation (cv) is calculated as follows: 𝐶𝐶𝐶𝐶 = ��̅ *100% (4) point estimates were aggregated and are provided in table 5. table 5 point estimates for idea quantity source: created by author’s as shown in table 5, the medians for all ims types are less than the means of the generated ideas. these differences indicate some asymmetry in the distribution of respondents more often a smaller number of ideas are generated, but less often a large number of ideas. there is a particularly large difference between these indicators for passive ims as well as for internal ims as frequency distributions are skewed mean values does not give a good idea of a typical value that can be expected in case of using these types of ims. the calculated coefficients of variation also indicate similar passive and internal ims has more variation, relative to its arithmetic means than other ims application types. further described is the interval estimation for the population mean. the confidence interval for the population means µ is calculated as follows: �̅�𝑥 ± 𝑀𝑀𝑀𝑀 (5) where 𝑀𝑀𝑀𝑀 margin error, 𝑀𝑀𝑀𝑀 = 𝑡𝑡���,�/� ∗ �√� (6) 𝑡𝑡���,�/�value of t distribution for the selected confidence level and sample size, 𝛼𝛼 level of significance and 100*(1𝛼𝛼)% confidence interval. the upper confidence limit (ucl) is calculated as follows: ucl = �̅�𝑥 + 𝑀𝑀𝑀𝑀 (7) the lower confidence limit (lcl) is calculated as follows: lcl = �̅�𝑥 − 𝑀𝑀𝑀𝑀 (8) confidence intervals (ci) provide the lower confidence limit (lcl) and the upper confidence limit (ucl) that are likely to contain the true parameter value (of the population). the value 95% refers to the probability that the interval will capture the parameter being estimated (tan & tan, 2010). 95% confidence interval estimates are aggregated in table 6. table 6 mean values, margin errors and 95% confidence interval estimates for idea quantity ims type n mean median s cv active ims 439 4138,6 3392,1 3500,6 85% pasive ims 306 1141,1 96,7 2313,7 203% internal ims 411 1284,3 396,1 2299,2 179% external ims 371 4377,1 3875,5 3543,5 81% mixed ims 337 4420,1 3842,6 3771,4 85% ims type mean me lcl ucl active ims 4138,6 167,1 3810,2 4466,9 pasive ims 1141,1 132,3 880,9 1401,4 internal ims 1284,3 113,4 1061,4 1507,3 external ims 4377,1 184,0 4015,4 4738,9 mixed ims 4420,1 205,4 4016,0 4824,2 (7) the lower confidence limit (lcl) is calculated as follows: the median (𝑀𝑀𝑀𝑀) of grouped data is calculated as follows: 𝑀𝑀𝑀𝑀 = 𝑥𝑥��,� + �∑�� �������� ∗ ∆�� ��� (3) where 𝑥𝑥��,� lower class boundary of the interval containing the median, 𝑐𝑐𝑐𝑐���� – cumulative frequency of the interval before the median interval, 𝑐𝑐�� frequency of the median interval, ∆��the median interval width. medial interval is interval for which accumulated frequencies first time is equal or larger than half of the sample size. coefficient of variation (cv) is calculated as follows: 𝐶𝐶𝐶𝐶 = ��̅ *100% (4) point estimates were aggregated and are provided in table 5. table 5 point estimates for idea quantity source: created by author’s as shown in table 5, the medians for all ims types are less than the means of the generated ideas. these differences indicate some asymmetry in the distribution of respondents more often a smaller number of ideas are generated, but less often a large number of ideas. there is a particularly large difference between these indicators for passive ims as well as for internal ims as frequency distributions are skewed mean values does not give a good idea of a typical value that can be expected in case of using these types of ims. the calculated coefficients of variation also indicate similar passive and internal ims has more variation, relative to its arithmetic means than other ims application types. further described is the interval estimation for the population mean. the confidence interval for the population means µ is calculated as follows: �̅�𝑥 ± 𝑀𝑀𝑀𝑀 (5) where 𝑀𝑀𝑀𝑀 margin error, 𝑀𝑀𝑀𝑀 = 𝑡𝑡���,�/� ∗ �√� (6) 𝑡𝑡���,�/�value of t distribution for the selected confidence level and sample size, 𝛼𝛼 level of significance and 100*(1𝛼𝛼)% confidence interval. the upper confidence limit (ucl) is calculated as follows: ucl = �̅�𝑥 + 𝑀𝑀𝑀𝑀 (7) the lower confidence limit (lcl) is calculated as follows: lcl = �̅�𝑥 − 𝑀𝑀𝑀𝑀 (8) confidence intervals (ci) provide the lower confidence limit (lcl) and the upper confidence limit (ucl) that are likely to contain the true parameter value (of the population). the value 95% refers to the probability that the interval will capture the parameter being estimated (tan & tan, 2010). 95% confidence interval estimates are aggregated in table 6. table 6 mean values, margin errors and 95% confidence interval estimates for idea quantity ims type n mean median s cv active ims 439 4138,6 3392,1 3500,6 85% pasive ims 306 1141,1 96,7 2313,7 203% internal ims 411 1284,3 396,1 2299,2 179% external ims 371 4377,1 3875,5 3543,5 81% mixed ims 337 4420,1 3842,6 3771,4 85% ims type mean me lcl ucl active ims 4138,6 167,1 3810,2 4466,9 pasive ims 1141,1 132,3 880,9 1401,4 internal ims 1284,3 113,4 1061,4 1507,3 external ims 4377,1 184,0 4015,4 4738,9 mixed ims 4420,1 205,4 4016,0 4824,2 (8) confidence intervals (ci) provide the lower confidence limit (lcl) and the upper confidence limit (ucl) that are likely to contain the true parameter value (of the population). the value 95% refers to the probability that the interval will capture the parameter being estimated (tan & tan, 2010). 95% confidence interval estimates are aggregated in table 6. table 6 mean values, margin errors and 95% confidence interval estimates for idea quantity ims type mean me lcl ucl active ims 4138,6 167,1 3810,2 4466,9 pasive ims 1141,1 132,3 880,9 1401,4 internal ims 1284,3 113,4 1061,4 1507,3 external ims 4377,1 184,0 4015,4 4738,9 mixed ims 4420,1 205,4 4016,0 4824,2 source: created by author’s a 95% ci means that if the study will be conducted multiple times with corresponding 95% ci for the mean constructed, author’s expect 95% of these ci’s to contain the true population mean (tan & tan, 2010) and it could be between 3810 to 4467 ideas generated in active ims, for passive ims between 881 to 1401, for internal ims between 1061 to 1507, external ims between 4015 to 4739 and mixed ims between 4016 to 4824. hypothesis testing – idea quantity basic data set analysis showed that it is possible to test the hypothesis on the gathered data. that is the reason why further in this paper the authors conduct significance tests for population mean number of ideas created (idea quantity). a respondent’s frequency distribution shows the main trends that will be tested: (1) active ims provides higher idea quantity than passive ims; (2) external ims provides higher idea quantity than internal ims; (3) mixed ims provides higher idea quantity than internal and external ims. see in figure 8. hypothesis tested: (h1) active ims provide higher idea quantity than passive: source: created by author’s a 95% ci means that if the study will be conducted multiple times with corresponding 95% ci for the mean constructed, author’s expect 95% of these ci’s to contain the true population mean (tan & tan, 2010) and it could be between 3810 to 4467 ideas generated in active ims, for passive ims between 881 to 1401, for internal ims between 1061 to 1507, external ims between 4015 to 4739 and mixed ims between 4016 to 4824. 4.2.hypothesis testing – idea quantity basic data set analysis showed that it is possible to test the hypothesis on the gathered data. that is the reason why further in this paper the authors conduct significance tests for population mean number of ideas created (idea quantity). a respondent’s frequency distribution shows the main trends that will be tested: (1) active ims provides higher idea quantity than passive ims; (2) external ims provides higher idea quantity than internal ims; (3) mixed ims provides higher idea quantity than internal and external ims. see in figure 8. figure 8. respondents frequency distribution for idea quantity based on sample data source: created by author’s hypothesis tested: (h1) active ims provide higher idea quantity than passive: h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h2) external ims provide higher idea quantity than internal: h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h3) mixed ims provide higher idea quantity than internal h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h4) mixed ims provide higher idea quantity than external h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 as sample sizes un standard deviations differs, the test statistics are calculated as follows, (moore et al. 2016): 0 20 40 60 80 100 120 140 160 active ims pasive ims 0 20 40 60 80 100 120 140 160 180 internal ims external ims 0 20 40 60 80 100 120 140 160 180 internal ims mixed ims 0 20 40 60 80 100 120 140 external ims mixed ims (h2) external ims provide higher idea quantity than internal: source: created by author’s a 95% ci means that if the study will be conducted multiple times with corresponding 95% ci for the mean constructed, author’s expect 95% of these ci’s to contain the true population mean (tan & tan, 2010) and it could be between 3810 to 4467 ideas generated in active ims, for passive ims between 881 to 1401, for internal ims between 1061 to 1507, external ims between 4015 to 4739 and mixed ims between 4016 to 4824. 4.2.hypothesis testing – idea quantity basic data set analysis showed that it is possible to test the hypothesis on the gathered data. that is the reason why further in this paper the authors conduct significance tests for population mean number of ideas created (idea quantity). a respondent’s frequency distribution shows the main trends that will be tested: (1) active ims provides higher idea quantity than passive ims; (2) external ims provides higher idea quantity than internal ims; (3) mixed ims provides higher idea quantity than internal and external ims. see in figure 8. figure 8. respondents frequency distribution for idea quantity based on sample data source: created by author’s hypothesis tested: (h1) active ims provide higher idea quantity than passive: h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h2) external ims provide higher idea quantity than internal: h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h3) mixed ims provide higher idea quantity than internal h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h4) mixed ims provide higher idea quantity than external h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 as sample sizes un standard deviations differs, the test statistics are calculated as follows, (moore et al. 2016): 0 20 40 60 80 100 120 140 160 active ims pasive ims 0 20 40 60 80 100 120 140 160 180 internal ims external ims 0 20 40 60 80 100 120 140 160 180 internal ims mixed ims 0 20 40 60 80 100 120 140 external ims mixed ims (h3) mixed ims provide higher idea quantity than internal source: created by author’s a 95% ci means that if the study will be conducted multiple times with corresponding 95% ci for the mean constructed, author’s expect 95% of these ci’s to contain the true population mean (tan & tan, 2010) and it could be between 3810 to 4467 ideas generated in active ims, for passive ims between 881 to 1401, for internal ims between 1061 to 1507, external ims between 4015 to 4739 and mixed ims between 4016 to 4824. 4.2.hypothesis testing – idea quantity basic data set analysis showed that it is possible to test the hypothesis on the gathered data. that is the reason why further in this paper the authors conduct significance tests for population mean number of ideas created (idea quantity). a respondent’s frequency distribution shows the main trends that will be tested: (1) active ims provides higher idea quantity than passive ims; (2) external ims provides higher idea quantity than internal ims; (3) mixed ims provides higher idea quantity than internal and external ims. see in figure 8. figure 8. respondents frequency distribution for idea quantity based on sample data source: created by author’s hypothesis tested: (h1) active ims provide higher idea quantity than passive: h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h2) external ims provide higher idea quantity than internal: h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h3) mixed ims provide higher idea quantity than internal h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h4) mixed ims provide higher idea quantity than external h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 as sample sizes un standard deviations differs, the test statistics are calculated as follows, (moore et al. 2016): 0 20 40 60 80 100 120 140 160 active ims pasive ims 0 20 40 60 80 100 120 140 160 180 internal ims external ims 0 20 40 60 80 100 120 140 160 180 internal ims mixed ims 0 20 40 60 80 100 120 140 external ims mixed ims (h4) mixed ims provide higher idea quantity than external source: created by author’s a 95% ci means that if the study will be conducted multiple times with corresponding 95% ci for the mean constructed, author’s expect 95% of these ci’s to contain the true population mean (tan & tan, 2010) and it could be between 3810 to 4467 ideas generated in active ims, for passive ims between 881 to 1401, for internal ims between 1061 to 1507, external ims between 4015 to 4739 and mixed ims between 4016 to 4824. 4.2.hypothesis testing – idea quantity basic data set analysis showed that it is possible to test the hypothesis on the gathered data. that is the reason why further in this paper the authors conduct significance tests for population mean number of ideas created (idea quantity). a respondent’s frequency distribution shows the main trends that will be tested: (1) active ims provides higher idea quantity than passive ims; (2) external ims provides higher idea quantity than internal ims; (3) mixed ims provides higher idea quantity than internal and external ims. see in figure 8. figure 8. respondents frequency distribution for idea quantity based on sample data source: created by author’s hypothesis tested: (h1) active ims provide higher idea quantity than passive: h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h2) external ims provide higher idea quantity than internal: h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h3) mixed ims provide higher idea quantity than internal h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 (h4) mixed ims provide higher idea quantity than external h0: �̅�𝑥�� − �̅�𝑥�� ≤ 0 and ha: �̅�𝑥�� − �̅�𝑥��> 0 as sample sizes un standard deviations differs, the test statistics are calculated as follows, (moore et al. 2016): 0 20 40 60 80 100 120 140 160 active ims pasive ims 0 20 40 60 80 100 120 140 160 180 internal ims external ims 0 20 40 60 80 100 120 140 160 180 internal ims mixed ims 0 20 40 60 80 100 120 140 external ims mixed ims 201 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 0 50 100 150 200 1-10 11-100 101-1000 1001-5000 5001-10000 >10000 active ims pasive ims internal ims external ims mixed ims 0 20 40 60 80 100 120 140 160 active ims pasive ims 0 20 40 60 80 100 120 140 160 180 internal ims external ims 0 20 40 60 80 100 120 140 160 180 internal ims mixed ims 0 20 40 60 80 100 120 140 external ims mixed ims figure 8 respondents frequency distribution for idea quantity based on sample data 0 50 100 150 200 1-10 11-100 101-1000 1001-5000 5001-10000 >10000 active ims pasive ims internal ims external ims mixed ims 0 20 40 60 80 100 120 140 160 active ims pasive ims 0 20 40 60 80 100 120 140 160 180 internal ims external ims 0 20 40 60 80 100 120 140 160 180 internal ims mixed ims 0 20 40 60 80 100 120 140 external ims mixed ims source: created by author’s as sample sizes un standard deviations differs, the test statistics are calculated as follows, (moore et al. 2016): 𝑡𝑡 = �̅� � �̅� ��� � �� � �� � �� (9) where �̅�𝑥� and �̅�𝑥� means of comparable sample variables, 𝑠𝑠�� and 𝑠𝑠�� variance (standard deviation squared) of comparable samples variables, 𝑛𝑛� and 𝑛𝑛� sample sizes of comparable samples and compared with t-statistics critical values 𝑡𝑡�,�, where degrees of freedom (𝑑𝑑𝑑𝑑) for the t-test statistics are calculated as follows: 𝑑𝑑𝑑𝑑 = ���� � �� � � � �� � �� �� � � �� � �� � � ������ � � �� � �� � � ������ (10) also, p-values were calculated for given test statistics and the degrees of freedom. the p-value is the probability of obtaining a value of the test statistic as extreme as or more extreme than the actual value obtained when the null hypothesis is true. thus, the p-value is the smallest significance level at which a null hypothesis can be rejected, given the observed sample statistic. calculated t-statistics, degrees of freedom (df), critical values (tc) and p-values are aggregated in following table 7. table 7 hypothesis test statistics for idea quantity source: created by author’s from test results, authors would reject the null hypothesis 1, 2, 3 and conclude that sample data provide strong evidence to support conclusions that: (h1) active ims provide higher idea quantity than passive; (h2) external ims provide higher idea quantity than internal; (h3) mixed ims provide higher idea quantity than internal. these conclusions are supported by very low p-values (<0,0001). regarding h4 authors cannot reject the null hypothesis because t < tc and p-value >0,05 – so sample data does not give sufficient evidence that mixed ims provide higher idea quantity than external. 5. conclusions  there is strong statistical evidence to support conclusions that: o active ims provide higher idea quantity than passive. o external ims provide higher idea quantity than internal. o mixed ims provide higher idea quantity than internal. o paper does not have sufficient evidence that mixed ims provide higher idea quantity than external.  this research fulfils an identified need to clarify ims types and their impact on the results – idea quantity. this research delivers the following academical contribution: ‘ o (1) it is the widest web-based ims empirical research based on the survey; o (2) approbated classifications of ims; o (3) it researches different classifications of ims and their impact on idea quantity.  the practical contribution of the research results helps to understand what kind of results enterprises could expect from different ims application types.  research results highlight the benefits/implications of adopting different types of ims for organizations. these contributions also provide managers with a richer set of theoretical tools, pairs tested t df tc p -value aims vs pims 14,07 741,05 1,96 <0,0001 iims vs eims 14,31 623,41 1,96 <0,0001 iims vs mims 13,36 531,54 1,96 <0,0001 eims vs mims 0,16 688,74 1,96 >0,05 (9) where 𝑡𝑡 = �̅� � �̅� ��� � �� � �� � �� (9) where �̅�𝑥� and �̅�𝑥� means of comparable sample variables, 𝑠𝑠�� and 𝑠𝑠�� variance (standard deviation squared) of comparable samples variables, 𝑛𝑛� and 𝑛𝑛� sample sizes of comparable samples and compared with t-statistics critical values 𝑡𝑡�,�, where degrees of freedom (𝑑𝑑𝑑𝑑) for the t-test statistics are calculated as follows: 𝑑𝑑𝑑𝑑 = ���� � �� � � � �� � �� �� � � �� � �� � � ������ � � �� � �� � � ������ (10) also, p-values were calculated for given test statistics and the degrees of freedom. the p-value is the probability of obtaining a value of the test statistic as extreme as or more extreme than the actual value obtained when the null hypothesis is true. thus, the p-value is the smallest significance level at which a null hypothesis can be rejected, given the observed sample statistic. calculated t-statistics, degrees of freedom (df), critical values (tc) and p-values are aggregated in following table 7. table 7 hypothesis test statistics for idea quantity source: created by author’s from test results, authors would reject the null hypothesis 1, 2, 3 and conclude that sample data provide strong evidence to support conclusions that: (h1) active ims provide higher idea quantity than passive; (h2) external ims provide higher idea quantity than internal; (h3) mixed ims provide higher idea quantity than internal. these conclusions are supported by very low p-values (<0,0001). regarding h4 authors cannot reject the null hypothesis because t < tc and p-value >0,05 – so sample data does not give sufficient evidence that mixed ims provide higher idea quantity than external. 5. conclusions  there is strong statistical evidence to support conclusions that: o active ims provide higher idea quantity than passive. o external ims provide higher idea quantity than internal. o mixed ims provide higher idea quantity than internal. o paper does not have sufficient evidence that mixed ims provide higher idea quantity than external.  this research fulfils an identified need to clarify ims types and their impact on the results – idea quantity. this research delivers the following academical contribution: ‘ o (1) it is the widest web-based ims empirical research based on the survey; o (2) approbated classifications of ims; o (3) it researches different classifications of ims and their impact on idea quantity.  the practical contribution of the research results helps to understand what kind of results enterprises could expect from different ims application types.  research results highlight the benefits/implications of adopting different types of ims for organizations. these contributions also provide managers with a richer set of theoretical tools, pairs tested t df tc p -value aims vs pims 14,07 741,05 1,96 <0,0001 iims vs eims 14,31 623,41 1,96 <0,0001 iims vs mims 13,36 531,54 1,96 <0,0001 eims vs mims 0,16 688,74 1,96 >0,05 and 𝑡𝑡 = �̅� � �̅� ��� � �� � �� � �� (9) where �̅�𝑥� and �̅�𝑥� means of comparable sample variables, 𝑠𝑠�� and 𝑠𝑠�� variance (standard deviation squared) of comparable samples variables, 𝑛𝑛� and 𝑛𝑛� sample sizes of comparable samples and compared with t-statistics critical values 𝑡𝑡�,�, where degrees of freedom (𝑑𝑑𝑑𝑑) for the t-test statistics are calculated as follows: 𝑑𝑑𝑑𝑑 = ���� � �� � � � �� � �� �� � � �� � �� � � ������ � � �� � �� � � ������ (10) also, p-values were calculated for given test statistics and the degrees of freedom. the p-value is the probability of obtaining a value of the test statistic as extreme as or more extreme than the actual value obtained when the null hypothesis is true. thus, the p-value is the smallest significance level at which a null hypothesis can be rejected, given the observed sample statistic. calculated t-statistics, degrees of freedom (df), critical values (tc) and p-values are aggregated in following table 7. table 7 hypothesis test statistics for idea quantity source: created by author’s from test results, authors would reject the null hypothesis 1, 2, 3 and conclude that sample data provide strong evidence to support conclusions that: (h1) active ims provide higher idea quantity than passive; (h2) external ims provide higher idea quantity than internal; (h3) mixed ims provide higher idea quantity than internal. these conclusions are supported by very low p-values (<0,0001). regarding h4 authors cannot reject the null hypothesis because t < tc and p-value >0,05 – so sample data does not give sufficient evidence that mixed ims provide higher idea quantity than external. 5. conclusions  there is strong statistical evidence to support conclusions that: o active ims provide higher idea quantity than passive. o external ims provide higher idea quantity than internal. o mixed ims provide higher idea quantity than internal. o paper does not have sufficient evidence that mixed ims provide higher idea quantity than external.  this research fulfils an identified need to clarify ims types and their impact on the results – idea quantity. this research delivers the following academical contribution: ‘ o (1) it is the widest web-based ims empirical research based on the survey; o (2) approbated classifications of ims; o (3) it researches different classifications of ims and their impact on idea quantity.  the practical contribution of the research results helps to understand what kind of results enterprises could expect from different ims application types.  research results highlight the benefits/implications of adopting different types of ims for organizations. these contributions also provide managers with a richer set of theoretical tools, pairs tested t df tc p -value aims vs pims 14,07 741,05 1,96 <0,0001 iims vs eims 14,31 623,41 1,96 <0,0001 iims vs mims 13,36 531,54 1,96 <0,0001 eims vs mims 0,16 688,74 1,96 >0,05 means of comparable sample variables, si 2 and sj2 variance (standard deviation squared) of comparable samples variables, ni and nj sample sizes of comparable samples and compared with t-statistics critical values tν,α, where degrees of freedom (df) for the t-test statistics are calculated as follows: 𝑡𝑡 = �̅� � �̅� ��� � �� � �� � �� (9) where �̅�𝑥� and �̅�𝑥� means of comparable sample variables, 𝑠𝑠�� and 𝑠𝑠�� variance (standard deviation squared) of comparable samples variables, 𝑛𝑛� and 𝑛𝑛� sample sizes of comparable samples and compared with t-statistics critical values 𝑡𝑡�,�, where degrees of freedom (𝑑𝑑𝑑𝑑) for the t-test statistics are calculated as follows: 𝑑𝑑𝑑𝑑 = ���� � �� � � � �� � �� �� � � �� � �� � � ������ � � �� � �� � � ������ (10) also, p-values were calculated for given test statistics and the degrees of freedom. the p-value is the probability of obtaining a value of the test statistic as extreme as or more extreme than the actual value obtained when the null hypothesis is true. thus, the p-value is the smallest significance level at which a null hypothesis can be rejected, given the observed sample statistic. calculated t-statistics, degrees of freedom (df), critical values (tc) and p-values are aggregated in following table 7. table 7 hypothesis test statistics for idea quantity source: created by author’s from test results, authors would reject the null hypothesis 1, 2, 3 and conclude that sample data provide strong evidence to support conclusions that: (h1) active ims provide higher idea quantity than passive; (h2) external ims provide higher idea quantity than internal; (h3) mixed ims provide higher idea quantity than internal. these conclusions are supported by very low p-values (<0,0001). regarding h4 authors cannot reject the null hypothesis because t < tc and p-value >0,05 – so sample data does not give sufficient evidence that mixed ims provide higher idea quantity than external. 5. conclusions  there is strong statistical evidence to support conclusions that: o active ims provide higher idea quantity than passive. o external ims provide higher idea quantity than internal. o mixed ims provide higher idea quantity than internal. o paper does not have sufficient evidence that mixed ims provide higher idea quantity than external.  this research fulfils an identified need to clarify ims types and their impact on the results – idea quantity. this research delivers the following academical contribution: ‘ o (1) it is the widest web-based ims empirical research based on the survey; o (2) approbated classifications of ims; o (3) it researches different classifications of ims and their impact on idea quantity.  the practical contribution of the research results helps to understand what kind of results enterprises could expect from different ims application types.  research results highlight the benefits/implications of adopting different types of ims for organizations. these contributions also provide managers with a richer set of theoretical tools, pairs tested t df tc p -value aims vs pims 14,07 741,05 1,96 <0,0001 iims vs eims 14,31 623,41 1,96 <0,0001 iims vs mims 13,36 531,54 1,96 <0,0001 eims vs mims 0,16 688,74 1,96 >0,05 (10) lso, p-values were calculated for given test statistics and the degrees of freedom. the p-value is the probability of obtaining a value of the test statistic as extreme as or more extreme than the actual value obtained when the null hypothesis is true. thus, the p-value is the smallest significance level at which a null hypothesis can be rejected, given the observed sample statistic. calculated t-statistics, degrees of freedom (df), critical values (tc) and p-values are aggregated in following table 7. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 202 table 7 hypothesis test statistics for idea quantity pairs tested t df tc pvalue aims vs pims 14,07 741,05 1,96 <0,0001 iims vs eims 14,31 623,41 1,96 <0,0001 iims vs mims 13,36 531,54 1,96 <0,0001 eims vs mims 0,16 688,74 1,96 >0,05 source: created by author’s from test results, authors would reject the null hypothesis 1, 2, 3 and conclude that sample data provide strong evidence to support conclusions that: _ (h1) active ims provide higher idea quantity than passive; _ (h2) external ims provide higher idea quantity than internal; _ (h3) mixed ims provide higher idea quantity than internal. these conclusions are supported by very low p-values (<0,0001). regarding h4 authors cannot reject the null hypothesis because t < t c and p-value >0,05 – so sample data does not give sufficient evidence that mixed ims provide higher idea quantity than external. conclusions there is strong statistical evidence to support conclusions that: _ active ims provide higher idea quantity than passive. _ external ims provide higher idea quantity than internal. _ mixed ims provide higher idea quantity than internal. _ paper does not have sufficient evidence that mixed ims provide higher idea quantity than external. this research fulfils an identified need to clarify ims types and their impact on the results – idea quantity. this research delivers the following academical contribution: ‘ 1 it is the widest web-based ims empirical research based on the survey; 2 approbated classifications of ims; 3 it researches different classifications of ims and their impact on idea quantity. _ the practical contribution of the research results helps to understand what kind of results enterprises could expect from different ims application types. _ research results highlight the benefits/implications of adopting different types of ims for organizations. these contributions also provide managers with a richer set of theoretical tools, enabling them to make better decisions regarding the selection of ims that are the best for achieving the results in the given context. web-based ims types and their impact on the ims results could help to evaluate the potential application of these systems in different application scenarios. _ this research concentrated only on commercially available web-based ims, but further research could include insights from non-commercially/private ims, as well as real-life ims. additional research should be done to compare real-life and web-based ims. also, detailed research is needed to explore why standard deviations and coefficient of variations are so high. _ further research should provide evidence on what benefits the different classes of ims provide to organizations and also on other ims results, such as, idea quality and involvement. this also coincides with van den ende et. al. 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(2006). integrated idea management in emerging technology ventures. in ieee international conference on management of innovation and technology proceedings of the international conference in singapore, china, ieee: singapore, 211215.https://doi.org/10.1109/icmit.2006.262153 westerski, a. (2013). semantic technologies in idea management systems: a model for interoperability, linking and filtering, universidad politécnica de madrid: spain. westerski, a. & iglesias, c.a. (2011). exploiting structured linked data in enterprise knowledge management systems: an idea management case study. in enterprise distributed object computing conference workshops proceedings of the 15th ieee international in finland, helsinki, 2011, ieee: helsinki, 395-403. https://doi.org/10.1109/edocw.2011.14 westerski, a., iglesias, c.a. & nagle, t. (2011). the road from community ideas to organisational innovation: a life cycle survey of idea management systems. international journal of web bases come u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 206 munities, 7(4), 493-506. https://doi.org/10.1504/ijwbc.2011.042993 wood, a. (2003). managing employees' ideas from where do ideas come. journal for quality & participation, 26(2), 22-26. wooten, j.o. & ulrich, k.t. (2015). idea generation and the role of feedback: evidence from field experiments with innovation tournaments. production and operations management, 26(1), 80-99. https://doi. org/10.1111/poms.12613 xie, l. and zhang, p. (2010). idea management system for team creation. journal of software. 5(11), 1187-1194. https://doi.org/10.4304/ jsw.5.11.1187-1194 about the authors miķelsone elīna phd. ba school of business and finance fields of interests idea management, innovation management, it management. address k.valdemara str.161, riga, latvia phone:+371 26418258 e-mail: elina.mikelsone@ba.lv aivars spilbergs dr.oec. ba school of business and finance fields of interests ddata analysis, risk management. address k.valdemara str.161, riga, latvia e-mail: aivars.spilbergs@ba.lv tatjana volkova dr.oec. ba school of business and finance innovation management, business model innovations. address k.valdemara str.161, riga, latvia e-mail: volkova@ba.lv elita lielā dr.oec. ba school of business and finance fields of interests innovation management, business model innovations. address k.valdemara str.161, riga, latvia e-mail: elita.liela@ba.lv jānis frišfelds masters student maastricht university school of business and economics. fields of interests it management, idea management, supply chains, logistics. address nassaustraat 36, 5911 bv venlo e-mail: jfrisfelds@gmail.com this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). european integration studies 2008.indd 17 issn 1822-8402 european integration studies. 2008. no 2 european social security policy: challenges and possibilities algis junevi ius inga kvedaravi i t kaunas university of technology, institute of europe abstract the impact of the european union on social security is quite complex and enigmatic. at the starting point, there is a genuine paradox: whereas the construction of a large and unique market supposes, among many others prerequisites, the harmonization of social security systems, this harmonization is left to the good will of the member states since social security is not truly within the competence of the union. in these conditions, it is quite obvious that a thought and organized harmonization is absolutely unreachable. beyond the threat of systems of social protection in the european union contracting, the issue arises of their restructuring and alignment. given the common challenges they all face (ageing populations, family instability, unemployment, social exclusion and job insecurity), the priority for the reform debate is the redefi nition of fundamental rights and the need to draw a distinction between conditional and universal rights. through a brief review of eu social policy development and role in european integration theory, this article will argue that, despite its expansion, eu social policy lacks vital fi nancial and political muscle to signifi cantly affect national welfare regimes and create a european welfare state. moreover, its broad guidelines and fl exible implementation may even encourage national social policy diversifi cation rather than harmonization. keywords: european union, social security policy. introduction d. pieters (1998) defi nes social security as set of instruments, which create solidarity between people, who lost (or it is a danger to lost) income or who had a particular expenditures. in some countries social security defi nition is presented in the legislation and it is natural that social security is recognized differently in different countries. because of this reason and because of very high social security level in some of european union countries it will be very diffi cult to harmonize member states social security systems in most recent time. however certain coordination is necessary (a. tatham, 1999). l. dromantien (2004) affi rm that social security of european union conversely to nacional level is one of the eu policy’s directions, which’s content is not only recourses redistribution to the social needs, but also social regulation of these areas, which are linked with common market, i. e. work law, demands of safe work, social rights of migrant workers, equality of genders. problem. social security of european union has coordination characteristic and do not seek to harmonize social security schemes of member states. in order to guarantee social rights of migrant workers european union regulate this area with regulation 1408/71, which was changed in 2004 to regulation 883/2004, which simplifi ed and modernized regulation 1408/71. this change was a response to changed circumstances in eu. following the process of social security development the demand appears to analyze the basic challenges, which all member states face in the area of social security. aim of this article is to analyze social security policy of european union in the perspective of social dangers and social systems. object of this article – social security of european union. tasks of this article: 18 issn 1822-8402 european integration studies. 2008. no 2 to study european social model development;• to identify challenges of european social • model and to defi ne it’s future; to analyze lithuanian social security system • and compare it’s statistical indicators with eu’s. research methods: analysis of scientifi c literature and analysis and interpretation of statistical data. european social model: from social space to coordination the european social model (esm) has two notions. in a narrow sense, it defi nes the constitutive elements of the supranational role of the european union in introducing uniform regulations and in setting standards for the harmonization of laws in the area of social protection. in a broader view, it describes the common core in providing welfare that underlies the diverse understandings of the welfare state and its role in the eu and its member states. the two notions are linked. the more member states share a common understanding of what kind of basic protection and social security should be provided by the national welfare state, the less regulation is needed at the supranational level. however, with this common understanding eroding, due to deregulation and privatization policies favored in many transition countries and in some older member states, the traditional european social model is challenged. a major consequence of this challenge is the need for the european union to defi ne at the supranational level which minimum protection has to be provided for its citizens, and thus has to make explicit the previously tacit common understanding of the basic elements of social protection. furthermore, in doing so the european union defi nes the limits for deregulation and privatization of social protection pursued by member states (r. rogowski, 2004). the esm is not a reality in the sense in which we think of national welfare states, it is an overarching aspirational model incorporating the broad parameters to which european welfare states conform. it is based on a broad conception of social policy encompassing a wide range of ‘interventions for social purposes’ (kleinman and piachaud, 1993). in the eu context the social dimension relates not to direct provision of services but is designed to prevent, mitigate or alleviate the social consequences of economic development within the european union. while structural and cohesion funds contribute to its implementation, it is primarily implemented through regulation, in particular directives, which must be implemented in member states either by legislation or collective agreement, and recently an open method of policy coordination. the esm is constantly a work in progress; it refl ects a tension between aspirations and statements of values expressed at the eu level and subsidiarity. key statements on it are included in eu treaties and in documents of the european council – for example, the treaty of the european union (1992), the amsterdam treaty (1997) and the treaty of nice (2000); the lisbon (march 2000), nice (december 2000) and laken (december 2001) councils – but its most consistent articulation emanates from the european commission (european commission, 2003). while this section focuses on the development of the european social-policy framework it is acknowledged that this does not take place in a vacuum. market integration impacts on social policy, not only in terms of the general context, but particularly in terms of social and health services that have a market dimension where issues of competition arise. in the early days of the european economic community the dominant focus was on the creation of an economic union through the free movement of goods, capital, services and labour. while article 119 in the treaty of rome referred to the right of women to equal pay with men this inclusion in the treaty related to the prevention of market distortion rather than being an explicit social-policy commitment. yet, this and other articles which made it possible for the commission to prepare directives on equal treatment proved highly signifi cant as the source of fi ve genderequality directives between 1975 and 1986.1 a series of social-action programmes directed against poverty was initiated in 1975 and continued until 1994 with a break between 1980 and 1984.2 while these programmes had little impact on the extent of poverty due to their very limited range they were important politically in refl ecting recognition of poverty and social exclusion (p. abrahamson, 1997). in the early 1980s the idea of ‘a social space’ was put forward by the french presidency but the major focus during the 1980s was on market building and the creation of the single market. this culminated in the single european act (1986). the preamble to the act includes a statement of principle affi rming a commitment to promote fundamental rights as expressed in the convention for the protection of human rights and fundamental freedoms and the european social charter. while this act did not provide a framework for the development of social policy it marked some progress and refl ected the view expressed by jacques delors, who was appointed president of the commission in 1985, that ‘any attempt to give new depth to the common market which neglected this social dimension would be doomed to failure’ (j. delors, 1985). 19 issn 1822-8402 european integration studies. 2008. no 2 in 1989 all members of the european community, with the exception of the united kingdom, adopted the community charter of the fundamental social rights of workers. the preamble to the charter affi rmed that ‘the same importance must be attached to the social aspects as to the economic aspects, and [. . .] they must be developed in a balanced manner’. it refl ected progress for citizens as workers but was not legally binding on national governments (b. deacon, 2003). the coordination of social security through secondary regulation started in 1958 with council regulations 3/58/eec and 4/58/eec. however, they were only forerunners of the famous regulation 1408/71/eec, the bible of social security coordination, and regulation 574/72/eec. the most important aim of regulation 1408/71 is protection against discrimination on grounds of nationality in relation to entitlements to contributory and non-contributory social security benefi ts. regulation 1408/71/eec introduced a number of principles in addition to nondiscrimination based on nationality on which coordination is based. the main principles are: (1) at any particular time only one social security system can apply to a worker; (2) social security systems can be exported within the community – with exceptions; (3) time periods can be accumulated; (4) the affected states have to share the cost proportionally. the regulation serves four main purposes. (1) prevention of (positive or negative) confl icts of laws; (2) equal treatment of workers from different members states; (3) repairing breaks in the employment carrier that result from moving to another member state; (4) removing territorial criteria in relation to payment of benefi ts. the open method of coordination (omc) has increased the competence of the european union to regulate areas where the traditional community legislative processes are weak, or where new areas require coordination of member state policy, either as part of the spillover of the integration project as a result of economic and monetary union, or as a result of the case law of the european court of justice. the omc is viewed as an aspect of new, experimental governance, which is part of the response by the eu to regulatory shortcomings. this article explores the normative aspects of the omc using case studies. the article examines the conditions in which the omc emerges, the conditions upon which it thrives, and the claims that are made for its effectiveness as a new form of governance (e. szyzczak, 2006). table 1. key differences between the omc and the traditional “community method” (a. jassem, 2004) omc community method aim greater convergence of national policies towards common european objectives harmonisation of national policies instruments “soft law” mechanisms: guidelines and indicators, benchmarking and sharing of best practices, multilateral surveillance legally binding legislation: directives, regulations, decisions enforcement compliance is voluntary. there are no sanctions effectiveness results from multilateral surveillance, peer pressure, “naming and shaming” implementation of community rules is monitored by the european commission infringement proceeding before the european court of justice in case of breach of community law key players key role of member states (council + european council) reduced role of the commission no formal role for the parliament, ecj, committee of the regions and economic and social committee institutional triangle composed by the commission, the council and the parliament central role of the commission in the initiation, formulation and implementation of eu policies intergovernmentalism versus suprationalism more inter-governmental decisions taken by consensus more supranational central role of the commission (a supranational body) qualifi ed majority voting as a rule the open method of coordination is a radically innovative approach to eu governance based on “soft law” mechanisms and mutual learning. it has been devised as an instrument to share best practices and increase policy convergence in areas which remain a primary responsibility of national governments but are of concern to the eu as a whole, such as the long term unemployment, ageing population or the necessary reform of social protection systems. in contrast to the traditional “community method”, it aims at 20 issn 1822-8402 european integration studies. 2008. no 2 coordination rather than harmonisation of national policies. it commits member states to work together towards shared goals while respecting legitimate national diversity. it is also more intergovernmentalist and voluntaristic than the traditional ec methods (a. jassem, 2004). challenges and future of european social security system the existence of common challenges in european countries requires a certain convergence of social models, even though responses are often isolated. to overcome the fi nancial problems raised by the economic slow-down, the rise in unemployment and the ageing of the population, member states have sought to contain their social budgets. in general, those most af fected by unemployment have adopted stricter conditions for access to benefi ts and/or reduced the period for which these are provided (denmark, france, germany, spain, the united kingdom). countries which had shifted certain types of unemployed persons over to more generous disability schemes have had to review their approach and tighten their legislation in this respect (italy, the netherlands). a number of countries have raised the retirement age (particularly germany and italy) or increased the qualifying period for full retirement pension (as france did in 1993) (s. g. ross, 2000). further economy measures have led to some countries making family benefi ts degressive as a function of family income (germany, italy). in the fi eld of healthcare, in addition to measures designed to increase cost-sharing by insured persons, two tendencies are emerging. the fi rst of these is the trend towards universal health coverage, with some european countries gradually transforming their insurance schemes into universal national schemes (for example france, which in january 2000 introduced universal health coverage, known as cmu). second, market mechanisms have been introduced into the provision of healthcare, and sometimes into the conditions for fi nancial coverage (particularly in the netherlands, portugal and the united kingdom). another common challenge is to combat poverty. considered a priority in the european commission’s social agenda, action to assist unemployed or otherwise disadvantaged people is increasingly being addressed at national level through social “activation” measures. most european countries, as described in greater detail below, have strengthened the job seeking requirement of their unemployment benefi t and social assistance schemes. they are tending to emphasize measures to improve the employ-ability of unemployed workers and those encountering diffi culties in fi nding work, and are establishing closer links between employment policy and social protection. the primary redistribution function of their social protection systems is thereby being gradually combined with the function of reintegration into the labour market. the logic of passive assistance and benefi ts is giving way to logic of active measures based on conditions of reciprocity between the categories concerned and the community. they are therefore endorsing the idea that while benefi ciaries have rights, they also have duties towards society, which itself bears part of the responsibility for the process of social exclusion. the third major challenge is the reevaluation of pay-as-you-go retirement schemes. the united kingdom is currently the only country to have opted to replace a public pension scheme with a private system. serps (the state earnings related pension scheme) has been made optional and less advantageous. since 1987, to supplement their basic pension, british employees have had the choice of serps, a fully funded enterprise scheme or individual retirement plans. in other countries (such as belgium, germany, portugal, italy and france), the measures adopted consist mainly of fi nan cial readjustments and/or additional measures to introduce a small dose of individual funding to compensate the envisaged reduction in the pensions provided by public schemes. these measures take various forms, such as retirement savings plans, pension funds or wage funds. for example, in germany the reform undertaken by the schröder government, entering into force in january 2002, adopts this approach. based on the development of company pension funds, it envisages the maintenance of old-age pensions at the level of 70 per cent of the average net income, of which 67 per cent is to be provided through the public pay-as-you-go system. however, the threat of partial privatization of public pension schemes will be more acute as from 20052006 when the baby boom generations retire. in practice, the convergence seen so far has concerned employment and the containment of budgets, to the detriment of equality of income and so cial protection. with the transition to the euro, this third variable in the incompatibility triangle already referred to by several authors may well be further sacrifi ced (t. iversen and a. wren, 1998). although it is diffi cult to envisage a european social model in view of the diversity of the national components, it is nevertheless possible to speak of a “european social identity”, or indeed of a “common european project”. these concepts relate to common fundamental values based on the principles of justice, equality, social solidarity and in come security, as well as the will, which is also shared, to reconcile economic effi ciency with social justice. they are based on a specifi c conception of solidarity which is more collective than individual, and involves a certain 21 issn 1822-8402 european integration studies. 2008. no 2 redistribution of income. this consists in some cases of worker solidarity based on bismarckian systems closely related to work, and at times of national solidarity through beveridgean models guided by the criteria of needs and universality. the redistribution function, which was recognized and legitimized during the fordist period, still has the support of moderate liberals, authors of various persuasions and the population of the member states insofar as it sustains demand and economic activity (the keynesian effect) and ensures a certain level of social cohesion. but it is now combined, as seen above, with the function of reintegrating unemployed workers and the benefi ciaries of social assistance, based on a logic of fi nancial rationalization and collective solidarity. the european social dimension can only fi nd real legitimacy through the establishment of greater solidarity at eu level. several mechanisms could be envisaged to resolve certain common challenges and construct a par tially integrated social europe. an increase in the budget would appear to be an essential fi rst stage (european commission, 1998). the latter have been calling for some years for a compensatory mechanism to reduce their negative bal ance in the eu budget (austria, germany, the netherlands and sweden). however, it is becoming increasingly evident that a budget maintained at 1.27 per cent of eu gdp is not compatible either with the requirements of expansion towards the east or with the rise, as recalled above, of regional and social imbalances. raising it to 2.5 per cent, or a little more, is a pre requisite according to the recommendations of the macdougall report (1977) as part of a pre-federal logic. the margin for intervention by eu authorities would be reinforced. however, this fi rst step towards federalism would need to be rapidly supplemented by a certain level of political progress with a view to the centralization of budgetary policy at eu level. the european budget will have to become an instrument of macro-economic regulation in euroland to supplement centralized monetary policy, with the capacity to take on debts for the implementation of common action. this would also presuppose its progressive fi nancing from specifi c resources (a certain proportion of vat, taxes on the monetary income of the european central bank, taxes on co2). the establishment of a european reserve fund designed to ensure a certain fi scal and social balance between member states could also be envisaged. this fund could provide additional resources to national schemes in defi cit or fi nance minimum benefi ts determined according to an eu standard. in the fi eld of retirement benefi ts, all the member states of the european union will be confronted between now and 20052010 with fi nancial imbalance in their public pension schemes as a result of the retirement of the baby boom generations. since the massive privatization of these schemes would give rise to major disadvantages which are now recognized (aggravation of social inequalities, reemergence of poverty among the elderly population, increased monetary instability on fi nancial markets, deterioration of the social status of the lowest skilled workers), it would appear to be logical and legitimate to organize a system of solidarity at eu level (s. chapon, ch. euzeby, 2002). for the present, eu social policy development will continue to be uneven, but will maintain a low/ medium-level development trajectory. this will obviously depend on a number of key developments including: the overall development of the eu, the success or failure of emu, and the integration of the new member states of eastern europe. 30,7 29,1 29,3 17,8 19,6 29,5 20 13,4 26,7 26 20,7 22,9 26,1 13,3 12,6 28,5 20 24,9 17,2 24,3 32,9 26,3 0 5 10 15 20 25 30 35 dnk aut bel cyp cze deu esp est fin grc irl isl ita ltu lva nld pol prt svk svn swe uk picture 1. social expenditure as percentages of the gdp in the eu, 2004 (social expenditure, 2006) how the eu deals with these major challenges will certainly be essential for setting the stage for future eu social policy expansion or stagnation. other, more special factors include: the political composition of key member state governments, the growth of social policy linkages to the eu legal system and implications of ‘soft law’ (cram, 1997), the success of ‘mainstreaming’ social policy into the general eu policy process (geyer, 1999; room, 1995), the growing infl uence of the parliament, and 22 issn 1822-8402 european integration studies. 2008. no 2 increasing impact of social policy pressure groups. clearly, its fate remains uncertain and contingent (r. geyer, 2000). lithuania in the context of european social security policy different social policy concepts vary in terms of the role of the individual (liberal approach), family (catholic approach), employer (conservative approach) and the state (social democratic approach) in the process of protection of various needs. modern social systems are based on the liberal, conservative and social democratic socio-political concepts (d. bernotas, a. guogis, 2005). the social security system of lithuania is made up of a social insurance component and a social assistance component. at a discursive level, the explicit principles guiding the social security system are universality and solidarity, which are an integral part of the european union jargon on social policy. the social insurance component comprises pension, sickness, maternity (paternity), health, and unemployment and work accident insurances. the system, based on the pay-as-you-go principles, sets out to guarantee an income for insured persons for the aforementioned contingencies. the rights and benefi ts are based on the contribution rate and on the length of contribution and the system is fi nanced by contributions by the insured persons and by the insurer (j. s. o’connor, 2006). the eu’s expenditure on social affairs measured in relation to the gross domestic product (gdp) and per capita in ppp-euro, broken down by functions, is shown in the picture 1. the picture shows that the biggest part of gdp is assigned for social security in sweden, denmark, germany, and belgium (from 29.3 to 32.9 percentages of gdp). lithuania (13.3 percentage) is the second from the bottom by this indicator and overtake only latvia (12.6 percentage). this means that our country is one of the lowest expenditure assigned ones for disadvantaged people. although expenditure in absolute numbers for social security is growing each year, but because of developing economy and rising infl ation, assignedresources are not enough for all demands. 0 10 20 30 40 50 60 200 2004 2000 2004 2000 2004 2000 2004 em ployers protected persons general governm ent contributions social contributions other receipts eu-25 eu-15 lt picture 2. social production receipts by type (as % total receipts), 2004 (social protection in the european union, 2007) the disparities between countries are partly related to differing levels of wealth and also refl ect differences in social protection systems, demographic trends, unemployment rates and other social, institutional and economic factors. in 2004 the main sources of funding of social protection at eu-25 level were social contributions, which made up 59.5% of all receipts, plus general government contributions from taxes (37.3%). social contributions can be broken down into contributions paid by the persons protected (employees, selfemployed persons, retired persons and others) and those paid by employers (see picture 2). the european average masks major national differences in the structure of social protection funding. more than 50% of all receipts are funded by social contributions in the lithuania. the differences are historical and due to the institutional reasoning behind social protection systems. northern european countries, where government funding dominates, are steeped in the “beveridgian” tradition (in this type of system, it is enough to be a resident in need in order to be eligible to claim social benefi ts). other countries are strongly attached to the “bismarckian” tradition, in which the system is based on the insurance concept (in the form of contributions). however, the divergence between european countries is gradually declining, with more funding from tax revenue in the countries where it used to be low (france, germany, italy and portugal, for example) and with more from contributions in the countries with high levels of government funding on the other. the share of other receipts (property income and other receipts) was low: 3.2% in 2004 for eu-25. however, it was well about 5% in lithuania (social protection in the european union, 2007). 23 issn 1822-8402 european integration studies. 2008. no 2 the main problem of lithuanian social security system – the level of fi nancing. expenditure on social security in lithuania is less than 14 percentage of general domestic product (gdp) and average of eu is about 23.2 percentage of gdp (picture 1). these infl uence both lower level of social security benefi ts and weaker developed social service system than in other eu countries. although social problems are more severe in lithuania because of low living level, but in all areas lower part of gdp is assigned than eu average (table 2). unemployment and social exclusion is particularly poorly fi nanced in lithuania: only about 12 percentage of eu level. it is natural that lithuania still fail to keep pace with old eu member states and eu average, because lithuanian social security system is still developing (benefi ts increasing, changing size of social insurance, etc.). besides there is lower living level in lithuania. table 2. structure of expenditure of social protection in 2004 (social protection in the european union, 2007) es-25 es-15 lithuania old age and survivors 12 12,2 6,1 sickness/health care 7,4 7,5 3,8 disability 2,1 2,1 1,3 family/children 2,1 2,1 1,1 unemployment 1,7 1,8 0,2 social exclusion 0,9 0,9 0,3 conclusions european social security policy segregates 1. from other policy areas in its regulation form – coordination, which left independent decision to each member state. european social model left a mark in each treaty of eu and developed from idea of social space to regulation 1408/71, which purpose is to avoid a situation in which the employee is not or doubly insured. the main challenges of european social model are 2. fi nancial problems, rise in unemployment, ageing of the population, poverty and reevaluation of pay-as-you-go retire ment schemes. the european social dimension can only fi nd real legitimacy through the establishment of greater solidarity at eu level. lithuania managed to create social security 3. system, which suit traditions and attitudes of european union. however lithuania still gives signally lower part of gdp to social security than in other eu member states because of lower life level and straggled economy from west europe. overall fi nancing problem effects concrete branch of social security development and welfare of citizens in lithuania. references abrahamson, p. (1997) ‘combating poverty and social exclusion in europe’, bernotas d. guogis a. evaluation of social security in lithuania, latvia, and estonia: achievements and drawbacks. 2005. chapon s., euzeby ch. towards a convergence of european social models? 2002 deacon b. the eu social policy of accession countries: the case of lithuania / b. deacon ir c. de la porte. 2003. [ži r ta 2008 – 02 – 14]. prieiga per internet : <http://www.epoc.uni-bremen.de/ publications/pup2003/fi les/budapest_delaporte. pdf>. delors, j. (1985) ‘preface’, in j. vandamme (ed.) new dimensions in european social policy, pp dromantien l. europos socialinio modelio problema integracijos procese // socialinis darbas. 2004 nr. 3 (1). p. 14 – 24 european commission (2003) strengthening the social dimension of the lisbon strategy: streamlining open coordination in the field of social protection. european commission. 1998. finansing of the european union. iversen t., wren a. equality, employment and budgetary restraint, the trilemma of the service economy. 1998. jassem a. an introduction to the open method of coordination (omc). 2004. [ži r ta 2008 – 01 – 14]. prieiga per internet : <http://www. epha.org/img/pdf/epha_briefi ng_ on_omc_ aj_20050216fi nal.pdf>. kleinman, m. and piachaud, d. (1993) ‘european social policy: conceptions and choices’, o‘connor j. s. policy coordination, social indicators and the social-policy agenda in the european union. 2006. [ži r ta 2008 – 01 – 14]. prieiga per internet : <http://esp.sagepub.com/cgi/content/abstract/15/4/345>. pieters d. vadas pagrindinius socialin s apsaugos principus. vilnius, 1998. p. 145 geyer r., the state of european union social policy, 2000 24 issn 1822-8402 european integration studies. 2008. no 2 rogowski r. the european social model and coordination of social policy / r. rogowski, e. kajtar. 2004. [ži r ta 2008 – 02 – 10]. prieiga per internet : <http://www.siswo.uva.nl/tlm/ confbuda/papers/papers_fi les/wp8%20rogowski%20kajtar%20-%20european%20social%20 model.pdf>. ross s. g. doctrine and practice in social security pension reforms. 2000 social expenditure. 2006. [ži r ta 2008 – 01 – 10]. prieiga per internet : <http://www.nom-nos.dk/ nosbook/chapter%2010.pdf>. social protection in the european union. 2007. [ži r ta 2008 – 02 – 10]. prieiga per internet :<http:// www.iesf.es/fot/ks-sf-07-099-en.pdf>. szyszczak e. experimental governance: the open method of coordination. 2006. tatham a. europos s jungos teis . vilnius, 1999. p. 426. the article has been reviewed. received in march, 2008; accepted in april, 2008. microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 innovation in study methodology for enhancement of competitiveness of the graduates of electronics study gundega lapina university of latvia ilmars slaidins riga technical university abstract in recent years a gap between the competence and qualification of the university graduates and the labour market demand is continuously growing. that is the main reason of the overall, government supported university study curricula review and upgrade in the country, as well as motivation for introduction of new pedagogical approaches to enhance active learning. this paper deals with first activities of implementation of the contemporary study methodology into electronics study program at the riga technical university. the new curricula will introduce innovation in the study process: the change of the learning paradigm – enhancement of active learning. besides that, the innovative aspects of the new methodological approaches lie in the meeting of the market driven requirements and development of competitive new specialists. additionally to the individual benefits of new specialists and their future employers, the new study curricula will bring remarkable impact to the competitiveness of the university and will raise the image of the whole country. innovative approach is used in the curricula development based on application of the enterprise knowledge development method. keywords: study curricula, innovation, learning methodologies. introduction the fast developing technologies and continuous innovation, especially in ict sector, are causing the specific industry requirements towards the university graduates. in order to remain competitive in the rapidly changing world, the companies are looking for high level specialists, having professional and social competences, ability to learn continuously and adapt to the changing world. universities have to make an effort to prepare specialists for the future labour markets. there have been numerous studies made at different levels about the compliance of study curricula to the fast changing requirements of labour market. these studies conclude with recommendations for curricula developers. however, there does not exist a universal solution, therefore every university has to implement the curricula changes, taking into account the recommendations and their accordance to the local conditions. national governments are paying special efforts to implement the lisbon strategy. there are several national support programs launched for education and research development, especially in the engineering sciences. these european and state support programs give an opportunity for all the universities to improve and develop the study curricula, even if the universities own budget is modest. comprehensive needs analysis, formation of capable project team, professional project management, and motivated students are the most important factors for new university curricula development. the novelty of this work is in evaluation of the study program development as a classical innovation process, the output of which is a more competitive university graduate. the new study program includes innovation in methodological approaches, which ensure the meeting of the market driven requirements and development of competitive new specialists. the aim of this article is to demonstrate the study curricula development as an innovation process and to analyze the innovation in study methodology as an essential factor for preparation of competitive graduates. in order to reach the aim, whole curricula development is considered as an innovation process, based on research and theories. especial attention is program 75 issn 1822-8402 european integration studies. 2007. no 1 paid to the implementation of the new study methodologies. the theoretical background of the methodologies contains references to the constructivist theories (piaget, dewey, bruner, biggs). constructivist theories opened the era of student centred, activity based learning methods, which were developed by piaget and dewey adherents and known today as active learning, interactive learning, project – based learning, problem-based learning, cooperative learning, research-based learning: the methods which make students to construct their knowledge themselves and within this process gain competitive academic, professional and social skills. the article is based on the former studies, literature and document analysis and the first results of implementation of rtu project for professional electronics curricula development. this article gives an estimated impact of new study curricula to the competence and professionalism of the graduates. change of the learning paradigm – from subject centred studies to active, student-centred studies in the end of the 20th century, entering the era of knowledge economy, also the education paradigm had to change. however, the paradigm change in education always go slowly and cannot catch the other changes (beļickis, 1994). besides the global and european education paradigm change, latvia experienced also a change in society structure, where the old principles have collapsed and new ones are not developed yet. the change of paradigm has caused protracted and unsolved changes in all spheres of life, including education. in the new paradigm, a human with his welfare, competence, and willingness to learn is in the centre (anspaks, 2003). however, education is the weakest part in latvian national innovation system (brunner, 2003). everyone knows that the new education paradigm includes the change from subjectcentred studies to student-centred studies, but how to organize this change? the possible solution for education recovery is innovation. innovation does not necessarily mean completely new products or methods. innovative study methodologies can be methodologies, which are not currently used or underestimated in the existing conditions. implementing the well-known methods in a new way or new area also is an innovation (dimza, 2003). it is essential that implementation of these methods brings positive outcomes – university graduates, characterized by the qualification and competence meeting the labour market needs. developing of a specialist for the existing and future labour market, it is necessary to remember that the labour market main requirement for future specialist is professional competence and ability to learn continuously (t.koke, g.lapina, 2006). the university graduates have to be prepared for life-long learning and continuous construction of a new knowledge. the constructivist theories are based on targeted construction of new knowledge on the basis of the students experience. constructive learning always includes interaction and cooperation between participative parties. constructive learning is “learning by doing” – term introduced by john dewey in last century (dewey,1938); it is experience based learning, learning within cooperation. essential part of the constructive learning is experimenting which leads to experience. j.dewey has defined that experience is a keyword that approximates and unites people. the concept of experience includes targeted experiment, the result of which is scientific cognition. another part of experience is the emotional experience, which is obtained in problem situations and creative activities (anspaks, 2003). the dual nature of experience is emphasizing its essential role in the constructive learning process. in constructive study process student is not a passive knowledge recipient. the student is constructing his knowledge and thus gaining the integrated skills (čehlova, grinpauks, 2003) – academic, social and professional skills. the learning process contains several stages: actualization of existing knowledge, assimilation– transfer of the knowledge and its adaptation to the new situation, creation of new knowledge (piažē, 2002). in constructive learning the process is student – centred, and it is based on interactive learning, discussion, activities. the student has his own responsibility to utilize the teacher’s knowledge and support to construct the knowledge, train the skills and gain attitudes (biggs, 2003). the teacher has the role of advisor, offering problems, cognitive tasks and his support to solve them. the teacher respects student’s attitude and opinion. the teacher maintains supportive learning situation, allows to make mistakes and to correct them, to explore and to formulate conclusions (rubene, 2003). there is a range of methodologies developed in the constructivist school, all based on “learning by doing” principle, active and targeted involvement of student in the construction of his knowledge and building his competitiveness. david pratt supports opinion that the study methodologies have to prepare a student for a working life – if there is a competition in the working life, the study methodologies have to develop ability of competitiveness (prats, 2000). developing this idea, we can assure that the skills, required in the labour market, can be developed in the study process, by using the appropriate methods. the project management and presentation skills can be acquired in project –based learning. problem solving skills could be obtained in problem based 76 issn 1822-8402 european integration studies. 2007. no 1 learning and communication skills – by using interactive learning methods – such as discussions, interviews etc. teamwork skills could be developed using projects, cooperative learning in groups, teamwork etc. in the knowledge economy it is essential for the students to understand innovation processes and the importance of its stages. knowledge economy means appraisal of research. in order to be able to appraise research significance in the knowledge economy, the students have to practise research. in future every high qualified specialist has to have a good command of research methods. at university it could be done by using research-based learning and discovery learning methods. there is available a range of well-developed active learning methods. any of these methods would train some skills to the students. using the active learning methodologies, students learn to be active and to learn, that is the most necessary ability for their future competitiveness. however, the usage of these methods depends on the methodological knowledge of the academic staff, as well as enthusiasm and willingness to implement these methods in the study program. this is another challenge faced in the new study program implementation process. “lack of ability to look in future, disassociation from tomorrow’s education problems is the most dangerous for our pedagogy, because it is leading to nowhere”, is saying famous latvian professor j.anspaks. he is supported by another professor, j.beļickis (beļickis, 1994), who in this situation is suggesting really radical changes – those teachers and professors who are not willing to learn and acquire new knowledge, have to be retired. in the fast changing society everyone has to follow these changes. this opinion corresponds to the innovation theories – “that must be the goal, for both nations and companies: not just surviving, but achieving international competitiveness”, says m. porter. only the ones which will aim for competitiveness will survive. the individuals and companies with the highest innovation capacity are the ones, which are learning continuously. in order to be competitive in the knowledge economy, learning has to be a way of life (bessant, 2003). after the long years of accustomed subject– centred learning – reading lectures, the academic staff has difficulties to change their style. they have to acquire the new methodologies and to implement them in the study process. however, in the current situation there is no motivation to that. development of a new study program, introducing new subjects and modern methodologies, including the academic staff training, is the best solution to adapt to the new education paradigm and to produce competitive university graduates. esf project “innovative solutions in rtu electronics study program for promotion of knowledge economy development in latvia.” the collapse of the electronic industry in latvia in the early nineties of last century has reflected also in the higher education. the labour market demand for electronics engineers diminished, the number of students decreased. the poor state financing for research and education caused a range of problems in education. when in the middle of 90-ties the electronics renaissance began, there appeared new problems – inadequacy of study curricula and consequently the qualification the graduates to the new market demands. the electronics study curricula has not been reviewed for 15 years, the laboratory equipment has not been changed for more than 20 years, there have appeared new technologies and new requirements for industry, the study approaches and methodologies have developed, and the students also have changed. in order to improve the situation, several studies and activities were performed. there were several european projects supporting reviewing of the electronics curricula compliance to the industry requirements, evaluation of study program, and development of the new profession standard of electronics engineer (reg.nr. ps 0255). as a result of these studies it is clearly stated what qualification, skills and knowledge of the electronics program graduates is expected. the biggest problem is – how to reach the required level of the graduates. there was made a comparative study in faculty of electronics and telecommunications of the riga technical university. the electronics professional study program was compared to the ec fp5 project „career space” recommendations for curricula development in 21st century (lapina, slaidins, 2005). three main conclusions were made – the study content has to be changed according to the industry requirements, the study methodology has to be changed and the qualification of the academic staff has to be improved according to the fast developing electronics industry content and implementation of the new methodological approaches. these studies gave an impulse for development of a new project “innovative solutions in rtu electronics study program promotion of knowledge economy development in latvia” (vpd1/esf/piaa/06/apk/3.2.3.2./0107/0007). the project was developed by the faculty of electronics and telecommunication, and is funded by the european social fund. the main aim of the project is to develop a new – professional electronics study 77 issn 1822-8402 european integration studies. 2007. no 1 program, corresponding to the industrial requirements and international recommendations, develop electronics study program modules and improve program implementation in general. the new program will have improved content, including e-based learning and innovation management course. the new program will differ from the old one with teaching and learning methodologies, which will be based on constructivism theories and will involve students into active and deep learning. the project foresees following activities: development of the new study curricula and study materials (including specific electronic subjects and the innovation management course), purchase of modern laboratory equipment and development of practical laboratory works, and choice of the most appropriate study methodology. the project activities include also piloting the new courses, licensing of the new study curricula and marketing activities. all the activities are covered by the quality management system. idea marketing activities research and development prototype – pilot course industrial model – improved course market requirements production – implementation competitive product in the market invention – new approaches, methodologies ipr– licensed program figure 1. curricula development innovation process. what are the innovative solutions in the new study program? according to innovation definition, innovation is a process of implementation of new scientific, technical, social ideas into marketable and competitive product or service (national program on innovation, 2003). the project activities assure a full cycle of innovation in the study program development: the market requirement leads to the idea of study program development, review of the program compliance to the industry requirements is made (including the analysis at the pre-project stage, as well as project research activities), the prototype development (pilot course), marketing, improvement of the course based on the analysis of piloting results and launching to the market as a competitive product. the innovation process of the new curricula development is shown in the figure 1. the innovative solutions in this process are – new approaches, new methodologies, updated program content, that lead to a competitive study program which prepares the new specialists with competitive advantage. in the current stage the program developers are in course development stage and innovation management course already in piloting stage. as well as any innovation process, the course development is a team work, where are 32 experts are involved (electronics industry, higher education programs, electronics higher education, quality management, innovation) and 90 students for project pilot studies. during the development stage the new subjects are being developed, including the content and methodology. innovative approach was applied the enterprise knowledge development (ekd) method (bubenko, 2001). it maintained well structured and effective brainstorming, open discussion and reaching consensus among experts involved on solutions to be applied in the new study programme development. the project experts discussed the most important and common program development questions, such as the program compliance to the industrial needs, latvian electronics engineer profession standard and international requirements. taking into account the ec fp5 project career space recommendations and the project team opinions, there should be implemented new study methodologies in all the subjects. 78 issn 1822-8402 european integration studies. 2007. no 1 experts agreed that it is important to develop problem analysis and research skills on graduates, learning skills and anxiety for knowledge, as well as communication and teamwork skills. it was also agreed that content and methodology must be updated. it was proposed to strengthen academia – industry collaboration and exchange. it was devised to stimulate merging of learning process to real product development conditions. the active learning methodologies were presented to the project team, including academic staff. the basic idea presented was that in the learning process the students have to learn the skills which are very demanded in companies: team work, research work, problem solution, project management, presentations. all these skills can be acquired during the studies, if appropriate study methods are used. however, in this stage the biggest problem in the new curricula development and implementation is the old fashion and conservative approach of the old generation academic staff. the piloting of the new course has already proved that the students, in spite of the conservative opinions, are open to new methods: cooperation, teamwork, discussions, etc., and are welcoming the new active study methods. conclusions implementation of innovation in education unambiguously leads to a competitive product – competitive student in the labour market. not only the competitiveness of the individuals grows, but also competitiveness of the companies employing these graduates will grow, and this will increase the national competitive advantage in the global market. development of a new study program was examined as an innovation process. in order to reach successful result – new, competitive study program, an innovative approach was applied for analysis and research – the enterprise knowledge development (ekd) method. it maintained well structured and effective brainstorming, open discussion and reaching consensus among experts involved on solutions to be applied in the new study programme development. implementation of the well-known methodologies in a new environment is an important innovative aspect of the study program improvement. it includes the academic staff pedagogic training and change of teaching and learning style. implementation of active learning methodologies in the new curricula requires big efforts, but is the only way how to reach competitive advantage. references anspaks j.(2003), pedagoģijas idejas latvijā – rīga, raka, 476 p. bessant j. (2003), high-involvement innovation. building and sustaining competitive advantage through continuous change uk, cranfield university,wiley, 246 p. beļickis i. (1994), izglītības humānā paradigma un latvijas izglītības reforma. rīga., 56 p. biggs j. (2003), teaching for quality learning in university, uk, the society for research into higher education &open university, 310 p. brunner j. j. (2003), higher education: changing conditions, problems, challenges and policy option – world bank report, 52 p. bubenko j.a., persson a., stirna j. (2001) d3:apendix ekd user guide 2001. royal institute of technology (kth) and stockholm university. bruner j. (2001), the culture of education, cambridge, massachusetts, london, england, harward university press, 136 p. čehlova z., grīnpauks z. (2003), skolēnu integratīvo prasmju veidošanās – rīga, raka, 113 p. dewey j. (1938), experience and education, coller books, macimilillan publishing company, new york, 51 p. dimza v. (2003), inovācijas pasaulē, eiropā, latvijā, rīga, latvijas zinātņu akadēmijas ekonomikas institūts, 205 p. garleja r. (2006), cilvēkpotenciāls sociālā vidē – rīga, raka, 199 p. grulke w., silberg. (2002), lessons in radical innovation financial times, prentice hall, pearso education, uk, 297 p. gudjons h. (1998), pedagoģijas pamatatziņasrīga, zvaigzne abc, 395 p. koke t., lapina g. (2006), innovation centred university curriculum – a tool for competitive european conference legal, political and economical initiatives towards europe of knowledge proceedings, kaunas university of technology, technologia, kaunas. lapina g., slaidins i. (2005), “analysis and perspective development of riga technical university professional study programme in electronics” research papers on adult pedagogy, university of latvia, riga, 75-85 p. maslo i. (2006), no zināšanām uz kompetentu darbību – rīga, lu akadēmiskais apgāds,186 p. min m., olsson l., and rivza p. (2004), joint accreditation report on study program in 79 issn 1822-8402 european integration studies. 2007. no 1 electronics -riga, 2004, on-line: http://www.rsf.rtu.lv. piažē, ž. (2002), bērna intelektuālā attīstība, rīga, pētergailis, 313 p. porter m. (1998), on competition usa, harward business review, 483 p. prets d. (2000), pedagoga rokasgrāmata. izglītības programmu pilnveide rīga, zvaigzne abc, 383 p. rubene z. (2003), jauniešu kritiskās domāšanas izpēte studiju procesā universitātē –promocijas darbs pedagoģijsas doktora zinātniskā grāda iegūšanai, rīga, lu, 240 p. vigodskis l. (2002) domāšana un runa, rīga , eve, 391 p. “self-evaluation report. study program in electronics”, riga, 2004, on-line: http://www.rsf.rtu.lv new ict curricula for the 21st century, career space, 2001, on-line : http://www.carreerspace.com kooperatīvā mācīšanās, rakstu krājums (2004) rīga, raka, 331p. national program on innovation (2003), on-line: http://www.innovation.lv/ltc/engl/innovat/nip_ mk_010403_e.pdf 80 e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 78 abstract european integration studies no. 15 / 2021, pp. 78-94 doi.org/10.5755/j01.eis.1.15.28805 submitted 03/2021 accepted for publication 06/2021 the european administration as facilitator of the european integration process: organizational and ethical implications from the proliferation of european union agencies eis 15/2021 introduction the european administration as a facilitator of the european integration process: organizational and ethical implications from the proliferation of european union agencies http://dx.doi.org/10.5755/j01.eis.1.15.28805 the purpose of this study is to explore the evolution of eu administration by focusing and critically examining the role of eu agencies in advancing the european integration project. the research question deals with identifying the factors that account for the formulation of eu agencies and the reasons behind their sharp increase in numbers since the 2000s. the tasks are to analyse critical eu agencies’ parameters such as their typology, the policy area they deal with, origin of their resources and funding, and their output. in addition, transparency and accountability issues accompanying the proliferation of eu agencies are also considered. emphasis is placed on the evolution of the european administration as expressed by the establishment of various types of agencies since 1975 thereafter. methodologically, the research utilizes quantitative data based on annual eu budgets as well as official reports and policy papers issued by main eu institutions (european commission, european parliament, european court of auditors) and agencies, analyzing them from a historical perspective. as a result, it is argued that the proliferation of eu agencies has advanced the process of european integration, namely the eu enlargement and expansion in new policy areas following successive reforms of the treaties. however, concerns regarding accountability and transparency issues remain in place. keywords: eu administration, eu agencies, european integration, accountability, transparency. the formulation of the european union (eu) administration dates back at the early 1950s following the establishment of the european community of coal and steel (1951), the european economic community (1957), the european atomic energy community (1957) and their respective institutional bodies. at that time, european services and directorates were only a handful and public servants represented a very small number, accounted for very low budgetary expenses, in absolute figures. for instance, in 1958 only 15 directorates general (dgs) were existed (hooghe and raul, 2017, p. 189), and in 1960 there were only 2,614 appointed public officials1 serving the institutions of the european communities. at that time, only one institutional body outside the core eu institutions had been established in the form of an agency.2 throughout the 1970s the number of the permanent european civil servants across eu institutions were less than 10,000 however, this threshold was surpassed in the 1980s. since then, there has been a considerable giorgio oikonomou university of the peloponnese 1 permanent posts. 2 euratom supply agency (esa) was established in 1958. 79 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 increase in the number of public officials serving the eu, nowadays accounting for approximately 37,000 permanent posts, along with newly created dgs. a considerable number of those eu officials have been appointed in eu agencies, with various contract terms and conditions. the increase in the number of administrative staff is directly related with the expansion of the eu institutions and the establishment of new forms of administrative bodies. the eu administrative expansion is strongly related with the process of enlargement of the eu and the transferring of competences from the national to the supranational (eu) level since the very establishment of the three communities and thereafter. in other words, the processes of enlargement and deepening of the eu account for much of the administrative growth of the eu in terms of building new institutions and creating posts for hiring eu civil servants. in fact, contrary to the very first period of the formulation of the european bureaucracy and the period that followed the merger of the executives and the councils of the three communities in 1965, after 2000 there has been a multiplication of new institutional bodies, entailing in particular the creation of a plethora of new eu agencies. for instance, approximately 25% (that is 11 out of 43) of the eu agencies had been established prior to 2000 within a period of 40 years, whereas three out of four eu agencies (32 out of the 43 in total) have been established within the last 20 years (european court of auditors, 2019). in addition, the number of staff appointed in eu agencies has also increased remarkably, since officials working in eu agencies have doubled in the years 2006–2020. the aim of this article is two-fold: a) first, to analyse the rationale behind the establishment of eu agencies and discuss the challenges that arise from accountability and transparency issues, b) second, to critically examine the role of eu agencies in facilitating the process of european integration. the research question deals with the implications created by the proliferation of new administrative bodies, at arm’s length from the core eu administration, and the overall impact on the process of european integration. the aspiration is to genuinely contribute in the discussion about the potential of eu agencies to fruitfully promote the process of european integration, while effectively tackling accountability and transparency issues. certain organizational and functional dimensions of the ‘agencification trend’ at the eu level are examined by covering all types of existing eu agencies. in this respect, the article explores the typology of eu agencies, the policy area they deal with, the origin of their resources and funding, and their final output. the research design is primarily based on the utilization of quantitative data derived from annual eu budgets and official reports and policy papers issued by main eu institutions (european commission, european parliament, european court of auditors), and agencies, analyzing them from a historical perspective. the capacity of eu agencies to promote european integration is investigated taking into consideration accountability and transparency issues. the main argument of the article suggests that the proliferation of eu agencies has advanced the process of european integration, as the latter is reflected in consecutive eu enlargement waves and the expansion of the eu in new policy areas as well, following successive reforms of the eu treaties. however, the considerable increase of the number of institutions at arm’s length from the eu core administration has challenged the capacity of the eu bureaucratic apparatus to be in full accordance with accountability and transparency criteria. the following section presents an overview of the burgeoning literature on eu agencies. then, is examined the role of eu agencies considering the european integration project. the empirical part presents aggregate data of eu agencies, regarding their number and staff. the next section critically examines challenges lay ahead for eu agencies. finally, conclusions are drawn from the analysis. the ‘agencification phenomenon’ in the eu, that is the establishment of a growing number of autonomous public bodies at arm’s length from their eu principals –predominantly the european commission3 and the council– has gained currency in european studies from the 1990s literature review e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 80 onwards and research has mushroomed (i.e. see danielsen and yiesilgagit, 2014; dehousse, 2008; egeberg et al. 2015; egeberg and trondal, 2011; groenleer et al., 2010; majone, 1997, 2002; rittberger and wonka, 2011; thatcher, 2011; trondal and jeppesen, 2008, riddervold and trondal 2017; ripoll servant and busby, 2013; wonka and rittberger, 2010). the growth of the number of eu agencies is related with the delegation of “regulatory tasks to non-majoritarian regulatory organizations, such as agencies and other independent regulatory bodies” in industrialized countries (rittberger and wonka, 2015, p. 236). in fact, the ‘eu agencification’ trend comes after the emergence of the broader agencification strand of literature based on new public management (npm) postulations, according to which authority and competences can be decentralized either territorially (to subnational authorities) or functionally (to semi-autonomous bodies) (laking, 2005); the second dimension pertains to the eu. in general, verhoest (2018) focusing on europe, defines agencification as “the creation of semi-autonomous public organizations ‘at arm’s length’ from government” (verhoest, 2018, p. 327). he also offers a working definition of the term ‘agency’ proposing that is referred to an “organization that is structurally disaggregated from the government or from units within core ministries” and “operates under business-like conditions” (verhoest, 2018, p. 328). moving on to the eu-level, the previous definitions can be partly used to describe eu agencies, at least from a structural point of analysis. apparently, the profound exception in the case of the eu is that instead of a national government, eu agencies are hold accountable –at least the vast majority of them, but not all– to european institutions rather than to national governments. then, from a functional point of view, the examination of the raison d'être behind the establishment of eu agencies has also been flourished. likewise, other studies explore under-researched aspects such as the emerging interinstitutional dynamics and eu decision-making processes in which eu agencies have the competencies to impact upon (kelemen and majone, 2017; kreher 1997; rittberger and wonka, 2015). literature on eu agencies analyses their involvement in the eu governance system from different angles. thus, they have been viewed as: a) “multi-level network administrations”, b) single eu institutions, and c) essential “components of an emerging administrative space” in europe, whereas these views are interchangeably combined (trondal, 2007, pp. 966). similarly, egeberg and trondal (2016) portray an elaborate picture of the agencification phenomenon, exploring the concept from a holistic perspective. they examine the evolution of eu agencies based on a conception of three different yet not mutually excluded “images”, which can be found mixed “over time and across agencies” (ibid., p. 2). they show that the proliferation of eu agencies can be analysed from an intergovernmentalism, supranationalism, or transnational technocracy point of view. according to the authors, the “intergovernmental image” suggests that the key-agents for the establishment of eu agencies are national governments, which apparently, succeed to retain control upon them, and through them, over eu policy areas. in this image, eu agencies are not embedded in any hierarchical order and enjoy autonomy. close to this image seems to be the argumentation derived from isomorphism according to which the formulation of eu agencies follows a more general trend found –initially– on the national level, and which is then transposed and diffused into the supranational level (christensen and nielsen, 2010, p. 178). contrary to the intergovernmental approach, the “supranational image” shows that eu agencies are organic part of the eu administration, embedded closely into the commission, thus situated within a centralized supranational bureaucratic apparatus at the expense of organizational autonomy (egeberg and trondal, 2016). in the same line of arguments, egeberg and trondal (2011, p. 882) find in their study that eu agencies “find 3 hence ‘commission’ 81 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 themselves much closer to the commission than to the council and national ministries”. however, it should be noted that there is no clear evidence so far whether eu agencies have been embedded in the supranational architecture of governance or have contributed “to retaining national control over regulatory processes” inasmuch as literature presents mixed evidence (egeberg and trondal, 2018, p. 77). lastly, the “transnational technocracy image” reveals that eu agencies are connected but in a loosened way with national agencies and eu institutions as well, keeping their autonomy, yet without the existence of accountability mechanisms (egeberg and trondal, 2016, p. 5). majone (1997) highlights another dimension of the participation of eu agencies in the eu governance system by providing insights on the role of transnational agency networks. in his seminal work (majone, 1997) regarding the participation of eu agencies in transnational networks, he argued that unless agencies actively participate in transnational networks, core characteristics such as their credibility and reputation will not be sufficiently assisted. majone also claims that since some agencies have granted only information competences and lack rule-making power, they could pursue networking with other institutions, particularly with national agencies at the member state level, so as to increase their capacity to “regulate by information” rather than directly through decision–making processes (majone, 1997). kelemen and majone (2017) suggest that the creation of eu agencies attests the institutional innovation within the eu. according to the authors eu agencies’ mushrooming since the 1990s paved the way for the delegation of executive powers into new at arm’s length bodies, and is evident of the different and expanded policy areas they can intervene, particularly those that have been granted with regulative power. in addition, interinstitutional politics account for much of the variation found on the institutional structure and scope of power in many of the agencies. in this respect, the degree of compromise between the commission and the two (nowadays) co-legislative bodies (european parliament and the council) are the key-determine factors (kelemen and majone, 2017, p. 256). according to the same authors, crises (such as the fiscal and the refugee crisis) are causally related with the creation of specific agencies (i.e. the european banking authority) as well as with the expansion of the authority of existing bodies (i.e. frontex and european asylum support office) due to centralization pressures for effective management. the interinstitutional dimension is also emphasized by kelemnan (2002) who focuses on the rationale behind the establishment of eu agencies. according to his study, politics have significantly contributed to the institutional design of eu agencies. he suggests that the establishment of eu agencies can be attributed to political compromises between main eu institutional actors, legislative on the one hand such as the council and the parliament, and executive on the other such as the commission (kelemnan, 2002). from an empirical point of view, christensen and nielsen (2010) conduct research considering 25 eu agencies. firstly, they find that the allocation of power between the commission and the member states has not been altered on account of the structure of eu agencies (ibid., p. 177). then, they argue that most of the eu agencies have been delegated with informational tasks, whereas a smaller group have broader competencies; however, the authors suggest that it is difficult to draw a dividing line and separate those with executive power from those with informational tasks (ibid., pp. 179-180), a point that is also underlined by other scholars (i.e. see trondal, 2007, p. 966). the same authors argue that the institutional design of eu agencies vary albeit in a reverse way: the higher the degree of their authority the more they are embedded into the eu institutional architecture, due to the existence of formal limits and constrains that have been put in place by eu agencies’ principals (basically from the council for primarily safeguarding governments’ powers) (christensen and nielsen, 2010, p. 200). they also do not support the proposition for a positive relation between eu agencies’ regulatory competences and the degree of autonomy they enjoy since they do not find clear evidence (ibid.). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 82 rittberger and wonka (2015) summarize the research over eu agencies underlining the existence of three different research strands. first, they state that eu agencies' institutional choice and design, though based on functional needs (“demand-size”), is not a “natural” solution aiming at facilitating the implementation of eu policies, but a matter of governance arrangements (“supply-size”) between political actors (intergovernmental such as member states vis-a-vis supranational like commission or policy networks). on the basis of power of the involved actors and politics, eu agencies or networks are chosen as the suitable organizational solution for implementing (or regulating) eu policies, considering the delegation of power of national authorities on the one hand, and the degree of accountability and autonomy on the other (rittberger and wonka, 2015, p. 254). secondly, the authors stress the fact that eu agencies can have an effect on the implementation of eu policies domestically, and this depends on their mandate as well as on the available resources at the national level: the lesser the resources, the higher the implementation effect of eu agencies domestically. finally, they hold that since political actors involved in the genesis of eu agencies have opted to demarcate the authority of the latter, a variety of control and accountability mechanisms have been created for effectively supervising their tasks; however, they conclude that this is a matter of the “on-going research” (ibid.). finally, particular attention is drawn over accountability and transparency issues (i.e. braun and busuioc, 2020; buess, 2015; busuioc, 2010; busuioc et al. 2011; busuioc and groenleer, 2013). emphasis is placed on the fact that autonomy and accountability are different sides of the same story and keeping a balance between them is a challenging task, considering the opposing interests of major eu institutional actors (principally the commission vis-à-vis the council, and the european parliament to some extent, particularly after the lisbon treaty and the institutional empowerment of the latter). in a nutshell, the study on eu agencies has flourished over the years, particularly since the mid. 1990s. having presented aspects of their administrative and institutional environment, the next part proceeds with analysing the overall role of eu agencies in the european integration project. european integration is linearly linked with the scope and depth of different policy areas the eu deals with. in 1960 the major activities of the european economic community (eec) were developed in fields that included external relations, economic and financial affairs, the internal market, competition issues, social affairs, agriculture, transport, issues regarding the association of overseas countries and territories, and administrative affairs. apart from the institutions and the rather limited –compared to present– scope of policy fields characterized the predecessor of the eu (the communities), eu’s human resources seem also to have followed the organizational needs of their time. for instance, in 1960 there were only 2,614 appointed public officials working for the eec. however, as the process of european integration was unfolding, the administrative structures of the eu, particularly within the commission (directorates-general; ‘dgs’), gradually multiplied and from 15 dgs in the late 1950s nowadays there are more than 40 dgs. in addition, eu public servants nowadays reach approximately 60,0004 allocated in a variety of eu institutional structures (approximately half of them within the commission whereas the others are employed by other main and advisory eu institutions, agencies and other bodies). subsequently, the european integration project as it has been taken shape through: a) the signing of successive treaties (single european act; ‘maastricht’, ‘amsterdam’, ‘nice’, ‘lisbon’), b) the gradual transferring of competencies from the national to the supranational –european– level, and c) the enlargement waves in the eu which substantially increased the size and the complexity of the eu, ensued the gradual expansion of the european public bureaucracy, as a whole, in terms of human resources and structures. the european integration scheme and the role of eu agencies 4 considering permanent staff, temporary and contract agents. 83 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 prima facie, improving institutional capacity has been a constant conundrum. at the eu level, the increasing regulatory burden, deriving from the internal market programme according to the provisions of the single european act (sea), put significant pressure on the eu’s administrative capacity since technical knowledge and professional expertise would be key-factors to tackle public policy issues. the absence of such key-factors at that time was the starting point of criticism for those who argued that the capacity of the commission to effectively tackle advanced and complex problems was barely sufficient, let alone the fact that the commission could not provide guarantees for neutralizing political interference from other actors, such as the member state governments and the european parliament (rittberger and wonka, 2015, p. 236). the criticism gave rise to pressures for the establishment of other bodies, namely agencies, as a primary tool for the economical, effective and efficient way for dealing with increasingly technical issues that demanded high expertise and absence of political interventions. in addition, since the commission lacked (and still lacks) substantial legislative competencies for the harmonization of eu regulatory law, eu agencies served as a “politically acceptable and functionally appropriate institutional devise” (rittberger and wonka, 2015, p. 236) so as to facilitate regulatory policy coordination at the eu member state level. from another perspective, mounting pressures for increasing the administrative capacity of the eu so as to deal with competences attributed by successive eu treaties heavily impacted on the emergence of eu agencies in the eu institutional landscape (christensen and nielsen, 2010). however, is should be stressed that apart from functional approaches, politics also played their role since interinstitutional arrangements between eu agencies’ principals (namely the commission and the council) also resulted in their appearance and organizational shaping in the eu institutional landscape (dehousse, 2008; egeberg et al., 2015, p. 342; kelemen, 2002). furthermore, as already mentioned, the ‘supranationalization’ of member state competencies, as well as successive eu enlargement waves significantly expanded the eu’s authority functionally, regulatory, and territorially, thus challenging existing eu’s bureaucracy (largely the commission) for effective response. the advent of eu agencies in the eu architecture of governance aimed at facilitating the process of eu integration by alleviating the commission from time-consuming tasks, such as providing information, or from highly demanding tasks such as issuing elaborate reports on issues requiring technical knowledge and expertise. overall, eu agencies have been attributed with significant multifaced roles within the eu bureaucratic apparatus. considering the variety of their tasks, most of the eu-level agencies provide information, coordinative tasks, or policy advice whereas a few agencies have the authority to participate in decision-making processes and provide regulatory frameworks (european commission, 2008). in other words, eu agencies significantly contribute to the every-day implementation of eu’s administrative tasks, allowing for the commission to focus more on its executive tasks and policy design rather than considering how to deal with policy implementation. in this respect, it has been naturally argued that eu agencies have facilitated the expansion of eu’s administrative capacity (christensen and nielsen, 2010, p. 178). the agencies of the eu have been embedded in the institutional scene in consecutive ‘waves’, following the process of european integration. leaving aside the esa, as the very first agency of the former communities, the first two eu agencies were established in 1975 (eurofound, cedefop) with mostly information responsibilities. a second ‘wave’ of eu-agency creation took place within the years 1990-1994 when eight new eu agencies were added next to the pre-existing structures. the third –massive– ‘wave’ of new eu agencies’ creation was initiated in 2002 and lasted until 2011, adding 29 more eu agencies of various types, from regulatory to coordinating tasks or providing information. the fourth and last wave –significantly weaker compared to the e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 84 previous two– started in 2014 adding so far three new eu agencies. the supranational interinstitutional arrangements at the eu level entailed the expansion of the eu executive order. as figure 1 depicts, along with the expansion of the core eu administration (the bureaucracy of the main eu institutions) evident by the multiplication of administrative tasks (mainly of the commission) and the gradual increase in the numbers of structures (i.e. dgs) and eu staff, eu agencies also contributed in the expansion of the eu bureaucracy for a period of 45 years. but then, questions arise regarding the proliferation eu agencies in terms of their number, type, policy area they deal with, available resources and output. the following section presents original quantitative data taking into consideration not only the case of eu agencies but other institutional bodies as well, in order to provide a better picture of the eu administrative contour. figure 1 the expansion of the hybrid model of the eu administration source: own elaboration. data since the establishment of the very first eu agency (esa in 1958), a plethora of new eu institutional bodies have been created, within and close to (at arm’s length) official eu institutions. the vast segment of these new institutions has been taken the formal status of ‘agency’, however, there also other types referred to as ‘other bodies’. to better highlight eu agencies and other bodies, this section provides aggregate data for all organisations at arm’s length from the main eu institutions, thus considering all eu agencies and other bodies. the data have been collected from reports and documentation issued by the commission, the european court of auditors, and the european parliament, as well as by utilizing eu budgetary figures. regarding the typology of eu agencies, the european court of auditors categorizes eu agencies in three distinct groups: a) decentralised, b) executive, and c) other bodies, whereas the commission follows a different taxonomy according to which there are five distinct agency groups: a) decentralised, b) executive, c) agencies under the common security and defence policy (csdp), d) euratom agencies and bodies, and e) other organisations (joint undertakings). in addition, beyond legal provisions, various definitions for decentralised agencies have been used referring to as “regulatory agencies”5, “traditional agencies” or “satellite agencies” (european parliament, 2006, p. 8). respectively, there is no such a thing as a commonly accepted taxonomy for what exactly constitutes the category “other bodies” as provided by (main) eu institutions.6 for instance, agencies that are characterized as ‘other bodies’ by the european court of auditors are labelled as ‘decentralized’ by the commission.7 however, it should be noted that the commission recognizes the fact the eu agencies can be classified in different ways (european commission, 2008, p. 7). 5 often “the dichotomy between regulatory and non-regulatory agencies is ambiguous” (trondal, 2007, p. 966). 6 in 2005 commission launched an initiative for an inter-institutional agreement (iia) over the clarification and standardization of functions and working methods of eu agencies established under the first pillar; although the european parliament supported the initiative, it was council’s resistance that did not allow for fruitful cooperation on the issue. 7 such a case is the single resolution board (srb). 85 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 organizationally, eu agencies share features such as the existence of “a management board, executive director and additional scientific committees” (scholten and van rijsbergen, 2014, p. 1227). focusing on the policy area eu agencies exercise their mandate, many eu policy fields have gradually become part of their policy outputs. indicatively, policy areas in which eu agencies cope with are: justice, freedom, security; common fishery policy; lifelong learning; internal market; enlargement; health and consumer protection; transport and energy; environment, equality between women and men; maritime and transport safety; transport and energy; social policy and employment; working conditions, labour market trends, quality of life, and social inclusion; space policy (european commission, 2009). thus, the involvement of eu agencies in a great deal of policy areas in conjunction with their (multiple) tasks –participation in decision-making processes, regulation, dissemination of information, coordination, provision of technical knowledge and high expertise– signifies the critical role of eu agencies in supporting and promoting the project of european integration per se. the financial component of eu agencies and other bodies reveals a variety of resources. according to the european court of auditors (2019) there are four broad sources of revenues: a) revenues assigned by the commission for delegated tasks (approximately €1.2 billion) (some decentralized agencies fall within this category), b) contributions from the eu budget (approximately €1.8 billion) (for most of the decentralised agencies and all executive agencies), c) fees, charges and contributions from national supervisory authorities (approximately €1.0 billion) (a few decentralised agencies fall within this category), and d) contributions from credit institutions to the single resolution fund and the single resolution board (srb) (approximately €6.9 billion) (european court of auditors, 2019, p. 11). following the above classification, the vast majority of eu agencies are subsidized by the eu budget, some agencies are subsidized by the commission, some agencies have resources based on fees, charges and contributions from national supervisory authorities, whereas only a handful of eu agencies and other bodies are fully financially independent (i.e. srb).8 finally, with regard to the final output, commission distinguishes agencies and other bodies that can adopt “individual decisions which are legally binding on third parties” (i.e. echa); agencies that assist the commission and member states (when necessary) by providing technical or scientific expertise and/or inspection reports (i.e. emsa); agencies which are in charge of operational activities (i.e. frontex); agencies that are responsible for gathering, analysing and disseminating information (i.e. cedefop, ecdc); and finally, agencies that provide services to other eu agencies and institutions (i.e. cdt) (european commission, 2008, p. 7; see also scholten and van rijsbergen, 2014, p. 1225). following the taxonomy of the european court of auditors which classify eu agencies within three groups (decentralised, executive, other bodies), table 1 summarizes the above features of eu agencies. 8 only two joint undertakings (sesar; fusion for energy) are included in the eu budget whereas no available financial data were found for other organisations of this type (joint undertakings). typology traits decentralised executive other bodies number 34 6 3 policy area various policy fields specific policy areas nuclear industry, innovation, banking union funding eu budget/fees, charges and contributions from national supervisory authorities eu budget eu budget, fully selffinanced (srb) output regulative tasks; coordination; dissemination of information specific delegated tasks; dissemination of information coordination, innovation table 1 typology and main traits of the eu agencies (n=43). source: european court of auditors (2019); own elaboration e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 86 graphs 1-3 follow the taxonomy of the publications office9 of the commission and present a total number of fifty-five (55) –at the time of writing– agencies and other institutional bodies which are categorized in five groups: decentralised agencies, executive agencies, agencies under the common foreign and security policy – cfsp, euratom agencies and other bodies, other organisations.10 according to this classification, all forty-three (43) decentralised and executive agencies and other bodies considered by the european court of auditors are taken into account; additionally, twelve more are also examined (three agencies under cfsp and nine other organisations –joint undertakings). the reason for selecting this dataset is to capture the full picture of the agencification trend within the eu, instead of focusing on eu agencies and other bodies that fall only within the mandate of the european court of auditors –in other words financed solely by the eu budget– whereas excluding other organisations that are financed directly by member states (such as agencies under the cfsp) or from other sources. according to graph 1, more than half of the eu agencies and other bodies are decentralised agencies (35 in total; 65%), signifying the importance of this type of eu agencies in the european integration process. interestingly, other organisations (joint undertakings) constitute the second largest group of other bodies, whereas executive agencies are in the third place. finally, agencies functioning under the cfsp and euratom agencies and other bodies fill in the picture of the broad eu ‘agencification landscape’. 9 publications office of the european union (2011). 10 in contrast to the division adopted by the european court of auditors (three groups). 2 2 6 21 4 6 1 1 3 1 8 0 5 10 15 20 25 30 35 1958-1980 1981-1990 1991-2000 2001-2010 2011-2020 decentralised agencies executive agencies euratom agencies and bodies under cfsp other organisations decentralised agencies 35 64% executive agencies 6 11% euratom agencies and bodies 2 4% under cfsp 3 5% other organisations 9 16% 1958-1980 3 5% 1981-1990 1 2% 1991-2000 7 13% 2001-2010 29 53% 2011-2020 15 27% 679 654 677 698 176 153 2558 3260 3570 5090 5931 7721 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 2006 2007 2008 2010 2015 2020 e u a ge nc ie s' s ta ff permanent temporary graph 1 number and proportion of eu agencies and other bodies per type (n=55). source: publications office of the european union (2011); own elaboration. graph 2 shows the proliferation of eu agencies and other bodies from the early period of the euratom supply agency (esa, established in 1958) up to 2020. as it is shown, the ‘agencification booming’ took place with the third massive wave of establishing eu agencies, initiated at the early 2000s. more than half (29 in absolute numbers; 53% in relative numbers –see graph 3) of the total number of eu agencies and other organisations have been established within the first decade of the 2000s, signifying the catalytic role of the eu eastern enlargement with ten new member states (2004) and the impact of two successive treaties (nice in 2001; lisbon in 2007) on the efforts for advancing the functional capacity of the eu administration. all in all, 80% of all eu agencies and other bodies were established after 2001 (graph 3). furthermore, as it is shown (graph 2) decentralised agencies are the forefront of the eu agencification trend (twenty-one new agencies); at the same time, their total number is sharply increased (from ten to thirty-one). in addition, all six executive agencies are created within the 87 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 2 2 6 21 4 6 1 1 3 1 8 0 5 10 15 20 25 30 35 1958-1980 1981-1990 1991-2000 2001-2010 2011-2020 decentralised agencies executive agencies euratom agencies and bodies under cfsp other organisations decentralised agencies 35 64% executive agencies 6 11% euratom agencies and bodies 2 4% under cfsp 3 5% other organisations 9 16% 1958-1980 3 5% 1981-1990 1 2% 1991-2000 7 13% 2001-2010 29 53% 2011-2020 15 27% 679 654 677 698 176 153 2558 3260 3570 5090 5931 7721 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 2006 2007 2008 2010 2015 2020 e u a ge nc ie s' s ta ff permanent temporary graph 2 establishment of new eu agencies according to their type (1958-2020; n=55). 11 although executive agencies are established for a specific period of time. according to christensen and nielsen (2010, p. 177) executive agencies “may be seen as temporary expansions of commission capacity rather than as autonomous agencies” due to the fact that they have a predefined time of operation and seize to exist after their mandate expires (for example, the european agency for the reorganization of the balkans seized to operate in 2008). 12 according to the authors, ‘de novo’ bodies are eu institutional structures established “to carry out a much narrower range of tasks”. 13 according to the european court of auditors (2020, p. 13) in 2019 approximately 15% of the total staff employed by eu institutions and agencies. considering that court examines only those agencies and bodies under its mandate, the percentage is estimated to be slightly higher. 14 established in 1975. 2 2 6 21 4 6 1 1 3 1 8 0 5 10 15 20 25 30 35 1958-1980 1981-1990 1991-2000 2001-2010 2011-2020 decentralised agencies executive agencies euratom agencies and bodies under cfsp other organisations decentralised agencies 35 64% executive agencies 6 11% euratom agencies and bodies 2 4% under cfsp 3 5% other organisations 9 16% 1958-1980 3 5% 1981-1990 1 2% 1991-2000 7 13% 2001-2010 29 53% 2011-2020 15 27% 679 654 677 698 176 153 2558 3260 3570 5090 5931 7721 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 2006 2007 2008 2010 2015 2020 e u a ge nc ie s' s ta ff permanent temporary graph 3 establishment of new eu agencies per decade, 1958-2020 (n=55). source: publications office of the european union (2011); own elaboration. source: publications office of the european union (2011); own elaboration. same period.11 the ‘agencification impetus’ slows down after 2010 since a total sum of seven agencies are established along with eight other organisations (joint undertakins). finally, an interesting organizational aspect of eu agencies is the number and the conditions of employment of their staff as well as the level of representation of eu member states. according to hodson and peters (2017, p. 11), approximately 15,000 public officials worked in 2013 for ‘de novo’ bodies.12 this number was higher than the combined number of officials working for the european parliament, european court of justice and the council (ibid.).13 regarding the 2006-2020 period and the respective conditions of employment of eu staff, graph 4 reveals an interesting trend: the number of permanent staff has dramatically shrunk over the years, whereas, at the same time, temporary employment contracts (both temporary and contract agents) have sharply increased. the shift becomes more impressing when delving with some individual agencies. for example, in cedefop –one of the oldest eu agencies14– in 2005 40% of its staff was permanently employed, whereas in 2020 only 11% of its staff was working as permanent staff.15 the trend is identical for eurofound16 where in 2005 all employees (91) were working under permanent contracts whereas in 2020 only 12% of the staff (11 out of 80) were employed for an indefinite period of time. the cone u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 88 15 own calculations based on data extracted from the eu budget of the respective years. 16 established in 1975. 17 all eu agencies are legally bound to abstain from any discrimination policy on the basis of nationality, and recruit staff from the broadest eu geographical area, where applicants’ qualifications are highly alike. 2 2 6 21 4 6 1 1 3 1 8 0 5 10 15 20 25 30 35 1958-1980 1981-1990 1991-2000 2001-2010 2011-2020 decentralised agencies executive agencies euratom agencies and bodies under cfsp other organisations decentralised agencies 35 64% executive agencies 6 11% euratom agencies and bodies 2 4% under cfsp 3 5% other organisations 9 16% 1958-1980 3 5% 1981-1990 1 2% 1991-2000 7 13% 2001-2010 29 53% 2011-2020 15 27% 679 654 677 698 176 153 2558 3260 3570 5090 5931 7721 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 2006 2007 2008 2010 2015 2020 e u a ge nc ie s' s ta ff permanent temporary graph 4 evolution of eu agencies’ staff by conditions of employment (2006-2020). source: eu budget data (respective years); own elaboration. ditions of employment are evident of the flexibility of eu agencies to adjust their workforce according to their functional needs, thus rendering them with organizational autonomy and capacity to effectively decide on –otherwise– rigid expenses. however, this flexibility signifies the potential loss of technical knowledge and expertise for an eu agency with the termination of the employment, since it is highly unlikely that temporary staff would share and diffuse its knowledge with other colleagues within the eu agency. regarding the type of agencies, the data show that approximately 90% of all the administrative staff work in decentralised agencies, thus justifying the greater proportion of this particular organizational type (see graph 1). lastly, another interesting aspect is the representation of nationals of eu member states in eu agencies’ staff. in general, available data show that most of the eu agencies experience geographical imbalances related with the composition of their staff, yet certain reasons seem to provide justification for this (european commission, 2018).17 the so-called “seat” effect (distance from the main eu institutions), the composition of epso lists (small numbers of certain member state nationals), and the ability to attract staff from particular member states stand for reasons that create under or over-representation of nationals from certain member states (ibid.). the commission’s report reveals that frontex deals with both overand under-representation issues; sweden in over-represented in the ecdc; finally, greece, portugal, estonia, lithuania, latvia, ireland and slovakia are over-represented in the ema vis-à-vis the netherlands, germany, and luxemburg. the expansion of the eu in new policy areas is a consequence of the eu transformation initiated by successive treaties, thus facilitating the process of european integration. the latter is directly connected with the ‘supranationalization’ of responsibilities, a phenomenon which can be best described by the transferring of member state competences into the european level (eu) in various policy fields, such as in finance (monetary policy, fiscal coordination), competition, environment, international trade, home and justice affairs. in some of these areas the eu is solely responsible for exercising authority; in other the eu shares responsibility with member states or has simply coordinating role. the expansion brought about the need for increasing the capacity of the eu administrative apparatus. the organisational type that was selected to tackle pressures allowing for an effective eu administrative response, was that of eu agencies, defined as “bodies set up by the communities having legal personality”.18 in the same line of argumentation, it has been suggested that eu agencies emerged as a consequence “of the quantitative expansion of eu jurisdiction” (kreher, 1997, p. 241). eu agencies serve discussion: european integration by “agencification”? 89 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 as an instrument of promoting coordination, supervised monitoring, and facilitating regulatory compliance within the eu (kreher, 1997, p. 241). similarly, it has been argued that agencies have allowed the eu to expand its administrative capacity to better cope with its tasks (christensen and nielsen, 2010). furthermore, european parliament (2016) has stated that “is considerably less costly to carry out the tasks assigned to the agencies at the eu level than by the member states”. from another perspective, a critical factor that impacts on european integration and is related with the establishment of eu agencies and other bodies, is interinstitutional politics. as it has been held, on the one hand the council has a preference on intergovernmental structures whereas the european parliament seeks for the creation of structures underlining transparency issues (kelemman, 2002, p. 95). in that respect, the commission has tried to balance between opposing institutional interests (council vis-à-vis european parliament) by transferring competencies to supranational specialized structures at arm’s length from its jurisdiction (instead of keeping them within its jurisdiction) in fear of council’s rejection (ibid.) from an eu policy perspective, the council has showed more interest in relation to second and third pillar agencies (dehousse, 2008, p. 803) so as to better secure its interests. in other words, taking for granted that interinstitutional politics matter, the ‘clash’ between institutions affect the establishment of eu agencies as well as the scope of their mandate. in addition, it may change the ‘institutional format’ of the agency, entailing the establishment of a particular (preferred) type of agency instead of others, altering the overall monitoring status, i.e. by allowing for more (less) subjection to common financial regulations (i.e. by the european court of auditors); hence it may lead on political compromises at the expense of accountability and transparency. in essence, agencies’ autonomy and control are affected by organizational, task-related factors and politico-administrative culture as well (verhoest, 2018). at the eu level, agencies’ autonomy is highly affected by the ‘parental’ supervisor. buess (2015) examining the accountability and legitimacy of eu agencies by assessing the member-states' representation on their management boards suggests that “there is still no consensus on the ‘right’ criteria for assessing euas’ legitimacy” (buess, 2015, p. 97). however, from a more practical point of view, european court of auditors has expressed criticism for cases regarding accountability and transparency issues with regard to financial management practices followed by some eu agencies. for instance, it finds “recurrent shortcomings” examining agencies’ financial management, regarding overdependency on contractors, external consultancy, and interims (european court of auditors, 2019, p. 22).19 in addition, it has stated that temporary agency staff and consultants are not always used in compliance with the legal provision (ibid., p. 25) since using external staff may not be cost efficient in comparison “to the use of own statutory staff” (ibid., p. 26). most importantly, the european court of auditors reveals accountability and transparency problems by emphasizing the fact that “the same budgetary and discharge procedure” does not pertain to all agencies (ibid., p. 31)20 and that “accountability and transparency should be applied to all eu-related bodies”. by the same token, cases have been reported where eu agencies fail to adopt or follow commonly used transparency practices. for instance, an inquiry conducted by the european ombudsman on how the european centre for disease prevention and control (ecdc) gathered and communicated information during the covid-19 crisis ended in suggestions for improving its transparency practices. at first, it should be noted that the role of the ecdc is highly critical in gathering and disseminating information as well as on conducting surveys on public health issues. in fact, the agency was created 18 article 185(1) of the 2002 financial regulation (oj l 248). see also european parliament (2006, p. 7). 19 with reference to twelve agencies. 20 the european court of auditors makes explicit references to certain eu agencies, focusing on self-financed agencies (euipo, srb, cpvo), where for some the discharge procedure is subject to own budget committees (instead of applying the same rules). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 90 in 2004 in light of the outbreak of the severe acute respiratory syndrome (sars) in 2002 in order to identify and critically assess potential threats to public health. ecdc’s strategic role is also recognized in terms of supporting national epidemiological centres by disseminating information. however, the european ombudsman’ inquiry (2021) suggested that the agency should “consider the general public ‘as a primary audience’ ” as well –next to current stakeholders– and that it should revise its communication strategy so as to make available, by principle, all survey results to public. though european ombudsman recognized ecds’ institutional and functional limits (i.e. in terms of mandate and power; financial and human resources; or publication objections raised by member states), it recommended that improvements can take place, particularly in terms of information dissemination to the wider public, and most importantly, encouraged the use of more eu official languages rather than publishing information in only one (english). the successive waves of creating new eu agencies may allow for some future projections. for example, scholten and van rijsbergen (2014) claim that “further agencification is likely to persist” pointing out that this will happen “at the risk of increasing the democratic legitimacy deficit and accountability gaps, because these issues are not regulated explicitly by the treaty or any other legally binding act” (pp. 1254-1255). in the same vein, the authors argue that “the proliferation of agencies results in a democratic legitimacy deficit, which has a special detrimental effect in the eu” (scholten and van rijsbergen, 2014, p. 1255). apparently, the divergence found in accountability and transparency practices between eu different agencies and different types of agencies as well, is highly problematic by nature. in fact, such practices rather delegitimize the eu to tackle perplexing public problems and can also fuel euroscepticism. surely, the proliferation of eu agencies without setting common institutional boundaries21 that follow the same accountability and transparency mechanisms for all eu agencies, is problematic “from the democratic legitimacy perspective” (scholten and van rijsbergen, 2014, p. 1255). yet, the european integration process has been benefited by the very existence of eu agencies. their proliferation has served as a catalyst for allowing eu administration to respond more effectively in its tasks by freeing european commission from merely implementing tasks and focusing on its founding role, that is on more strategic policy initiatives that originally serve the process of european integration. in a nutshell, the fundamental conundrum pertaining to eu agencies lays on the dilemma that characterizes all autonomous governance institutions. on the one hand, the ‘functional’ argument posits that agencies must be flexible as organizational structures and autonomous from political interventions to deliver effectively, efficiently and economically policy results. on the other hand, the normative argument implies that agencies must be held account to political institutions for their (in)action and policies (rittberger and wonka, 2011, p. 784; busuioc et al., 2011), thus setting boundaries in their autonomy. balancing between these (seemingly) opposing choices stands for a ‘gordian knot’ rather than a simple matter of choice. no matter how difficult is for this knot to be cut, their very existence and functioning has contributed in the european integration project. in other words, the establishment of eu agencies is a necessary condition for the eu integration process, but surely not sufficient per se. this article has presented substantial aspects of the eu agencification phenomenon, by considering all eu-related agencies and other bodies and examining the raison d'être of their creation in conjunction with other organizational and functional dimensions. it has been argued that the proliferation of eu agencies and other bodies has allowed for the facilitation of the european integration process by freeing the commission to act more strategically in policy making instead of 21 except for executive agencies which are subjected to the same legal framework (see council regulation (ec) no 58/2003). evidently, this is not the case for decentralised agencies which are characterized by a variety of different legal provisions. conclusions 91 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 being involved in tasks of scientific nature demanding technical knowledge. the eu enlargement and expansion in new policy areas following successive reforms of the eu treaties are related with the sharp increase of the number of eu agencies, particularly after the 2000s, whereas interinstitutional politics have served as a mediating factor for shaping the institutional status of eu agencies. in sum, the multiplication of eu agencies serves the process of european integration by providing high expertise and delivering effective policy results; however, concerns regarding accountability issues remain. further research on how the eu should address accountability and transparency gaps pertaining to eu agencies, taking into account societal perceptions regarding the level of citizens’ trust on independent –at arm’s length– eu bodies, are expected to fruitfully contribute not only in theory but also in practice of the eu agencification literature. the author would like to thank the anonymous reviewers for their helpful comments and, in particular, their suggestions. referencesbraun, c. and busuioc, m. 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"credibility, complexity and uncertainty: explaining the institutional independence of 29 eu agencies", west european politics, 33(4), pp. 730-752. https://doi. org/10.1080/01402381003794597 93 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abbr. name type acer european union agency for the cooperation of energy regulators decentralised berec office agency for support for berec decentralised cdt translation centre for the bodies of the european union decentralised cedefop european centre for the development of vocational training decentralised cepol european union agency for law enforcement training decentralised chafea consumers, health, agriculture and food executive agency executive cpvo community plant variety office decentralised eacea education, audiovisual and culture executive agency executive easa european union aviation safety agency decentralised easme executive agency for small and medium-sized enterprises executive easo european asylum support office decentralised eba european banking authority decentralised ecdc european centre for disease prevention and control decentralised echa european chemicals agency decentralised eea european environment agency decentralised efca european fisheries control agency decentralised efsa european food safety authority decentralised eige european institute for gender equality decentralised eiopa european insurance and occupational pensions authority decentralised ειτ european institute of innovation and technology other bodies ela european labour authority decentralised εμα european medicines agency decentralised emcdda european monitoring centre for drugs and drug addiction decentralised emsa european maritime safety agency decentralised enisa european union agency for cybersecurity decentralised eppo european public prosecutor’s office decentralised era european union agency for railways decentralised ercea european research council executive agency executive esa euratom supply agency euratom esma european securities and markets authority decentralised etf european training foundation decentralised euipo european union intellectual property office decentralised eu-lisa european union agency for the operational management of large-scale it systems in the area of freedom, security and justice decentralised eu-osha european agency for safety and health at work decentralised eurofound european foundation for the improvement of living and working conditions decentralised eurojust european union agency for criminal justice cooperation decentralised annex list of eu agencies and other bodies (n=55). source: publications office of the european union (2011); https:// europa.eu/europeanunion/about-eu/ agencies_en (accessed: 2 february 2020). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 94 oikonomou giorgio phd., adjunct lecturer university of the peloponnese, school of social and political sciences, department of political science and international relations fields of interests eu administration, european integration, multi-level governance, multi-level administration, subnational mobilization. address 1 aristotelous st. & athinon ave, gr-20132, corinth, greece giorgio.oikonomou@yahoo.com this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). abbr. name type europol european union agency for law enforcement cooperation decentralised fra european union agency for fundamental rights decentralised frontex european border and coast guard agency decentralised gsa european gnss agency decentralised inea innovation and networks executive agency executive rea research executive agency executive srb single resolution board decentralised bio-based industries joint undertaking other bodies european high-performance computing joint undertaking other bodies fuel cells and hydrogen 2 joint undertaking other bodies imi 2 joint undertaking other bodies clean sky 2 joint undertaking other bodies ecsel joint undertaking other bodies shift2rail joint undertaking other bodies sesar joint undertaking other bodies f4e fusion for energy joint undertaking euratom satcen european union satellite centre under cfsp eda european defence agency under cfsp euiss european union institute for security studies under cfsp european integration studies 2008.indd 62 issn 1822-8402 european integration studies. 2008. no 2 e-citizen’s concept and initiatives in kaunas region ligita valalyt k stutis kriš i nas kaunas university of technology institute of europe abstract this paper aims to answer the question “what does a concept of the e-citizen consists of in kaunas region and why?” generally the concept of the e-citizen is directly related to the vision of eeurope, i.e. with all to the development of eeurope directed actions, which are highly attended of european union in recent years. analyzing the e-citizen’s subject, it is essential to examine the issue of e-service, because the e-citizen’s vision is shaped by using e-service concept, which aims to involve every citizen, family, school, enterprise and administration in the digital era. the research problem includes e-citizen’s concept and the initiatives in kaunas region, thus highlighting the interaction between dimensions of e-services and e-citizen, also both why those initiatives are required and what is an outlook in this range for kaunas region. the main task is to answer the question concerning e-citizen’s concept by analyzing the e-initiatives in lithuania and kaunas region. these e-initiatives are underlying goals of eeurope and i2010. the aim of the research is to module the picture of kaunas e-citizen and show a value of mentioned initiatives for the inhabitants of kaunas region by analyzing the implemented and continuing e-region’s projects. keywords: e-citizen; kaunas e-region; the strategy plan of e-kaunas; e-europe; i2010; e-service; e-government; e-learning; e-health; e-security; e-culture. introduction today nobody has a doubt about wide spread of it to all areas of social life, infl uencing the interactions between citizens and government, legal and political processes between them (o. bar kut , a. mikalauskien , r. skyrius, 1999). today‘s government is oriented to the society that successfully applies available resources of information and knowledge. the development of electronic services (hereinafter – e-services) is one of the aspects revealing such a situation. the topic of e-services is analysed by both, lithuanian and foreign authors, widely. r. gudauskas (2000), t. talandis (2004), j. aleknavi ius (2001; 2003), k. andrijauskas (2007), d. dzemydien , r. naujikien , (2007) wrote about e-services. in his research m. asgarkhani (2005) emphasizes the worth and effi ciency of the public e-services, inducting social, cultural and ethical impact on the citizens. a. ancarani (2005) widely studied the quality of e-services paying attention to the increasing of transparency, productivity and effi ciency of e-services in the public sector mostly. while a. sahai, j. ouyang, v. machiraju, k. wurster (2000) examined the creation of e-services’ system for meeting demand of business sector. s. croom, r. johnston (2003) analysed the issue of e-business development. r. t. rust and p. k. kannan (2003) analysed e-services as the development of business opportunities. g. piccinelli, c. preist, c. partolini (2001) highlighted “business-to-business” (b2b) interactions, where e-services were analysed as the decision of implementation of the new services of business. whereas l. aversano and g. canfora (2002) designed models for the introduction of e-services to the business processes, i.e. models the processes, services and composition of processes, and on the basis of it generates models of labor fl ow and interaction with available services. r. t. rust, k. n. lemon (2001) analyzed the critical aspects of e-services for the effi cient interaction with the consumers. j. m. field, g. r. heim, k. k. sinha (2004) oriented to the development of the model of quality assessment and management of e-services. d. gefen, d. w. straub (2003) highlighted the most important differences between b2c e-services and traditional services provided to the customers online. moreover, 63 issn 1822-8402 european integration studies. 2008. no 2 consumer confi dence in e-services was investigated. an assumption can be made that analyzed topic is multidisciplinary, because it is an object of interest of the researchers of social and technical sciences. rapid globalization processes and the creation of information society have a new weight on information and innovations (especially technical). technology progress is one of the most signifi cant factors on the economical growth at the moment. scientifi c problem: what are the most important initiatives creating the e-citizen concept in kaunas region? what perspectives could be supposed? novelty of the problem is revealed through the development of e-services initiatives, which determine structural changes, competitive advantage and economic growth in kaunas region. research aim – to highlight e-citizen‘s concept and initiatives in the kaunas region, in purpose evaluating the perspectives. research tasks: to defi ne the term of 1. e-services; to give 2. eeurope vision; to evaluate the situation of 3. e-services in lithuania and kaunas region; to characterize the impact of 4. e-citizen‘s initiatives and perspectives in the kaunas region. research object: e-citizen‘s concept and initiatives. research methods: analysis of the eu legal acts and specifi c literature, and contemplation of the perspectives of initiatives of the kaunas region. the term of electronic services t. talandis (2004) notices wide spectrum of e-services and proceedings, including new business models, public administration methods, new media types and new economical and political relationships. according to the legal website europa (2002), e-service is a service or resources online, improving communication among citizens, business and european institutions. j. aleknavi ius (2001) notices that e-service is a service which fulfi ls targets, deals with the problems or transfers data and is provided on the web. citizens, businesses and other e-services can use e-services. they can be provided through various devices of information. (j. aleknavi ius, 2001). public service includes communication of citizen or business unit with public institution. (e.g., inquiry and answer to the question, fi lling of various documents, submission, accounts...) (j. aleknavi ius, 2003). public e-service gives an opportunity to perform various needed operations and get information digitally to a person in the place of his occurrence and trough the public networks of computers. provision of public e-services is evaluated on the basis of maturity models (k. andrijauskas, 2007). services of the fi rst phase – mean a provision of information (d. dzemydien , r. naujikien , 2007). second phase includes original information and explanations, and the help on any public e-service online. in virtual setting document forms, which could be printed and fi lled, are accessible. when transferring public e-services to the third and fourth maturity phase, the problems of natural and legal persons’ identifi cation in the government’s information systems should be solved and the connection of the public administration redesigned. such a strategy is scheduled of the development of the public administration till the year of 2010 (d. dzemydien , r. naujikien , 2007). picture1. e-services classifi cation and users (formed by l. valalyt , 2008) vision of electronic europe recently, the eu institutions pay attention to the development questions of information considerably. in march in the year of 2000 european council confi rmed the initiative “electronic europe – information society for everyone (e-europe)” (eeurope 2005 action plan, 2005). the aforementioned eeurope initiative is designed on the basis of nowadays policy. the initiative purpose is to reduce the differences of access to the internet and its usage of the member sates, and to fi nd common decisions of problems as well. the main aim of e-europe is to involve every citizen, family, school, enterprise and administration institution to the digital era; to create computer sophisticated europe that is sponsored by cultured, ready to fund and develop ideas business; to ensure that process will be socially attractive, encourage consumer confi dence and strengthen social cohesion. in order to eliminate or reduce the barriers, the directive inspire (2007/2/ ec), which aim is to develop essential spatial data, was initiated; to harmonize data according to the common standards; to create metadata and administration; to exchange national spatial data between governmental institutions in the territory of europe (commission communicate…, 2008). the aforementioned directive is valuable, because allows reaching information for the society and other stakeholders; equalizes formats 64 issn 1822-8402 european integration studies. 2008. no 2 of spatial information and it’s presenting; establishes periodicity of updating of spatial information; implements the means of spatial information analysis and it’s presentation in various layers; due to the occurrence of the coordination of common actions (k. andrijauskas, 2007). according to the usa experience, new technologies can accelerate growth and create new job places, because of the fact that in the companies providing internet services work about 2.3 million direct employees, apart the impact to the non-direct employment that is 1.6 million (eeurope, 2005). the main parts of e-europe that form the picture– vision of eeurope are the following: e-learning is a mean for organization of internal and external trainings for the workers, providers, business partners, pupils or students. the following method extends the organization opportunities of trainings, saves working hours and reduces the training, administration and communication costs. e-business – is a purchase and sale online. e-business could be divided into two parts – a purchase and a sale. b2c is sales, while b2b includes electronic transfer of data (purchase and sales). systems of b2e exist as well. many companies are looking for the decisions for all three types of transactions. e-health includes means with main purpose to facilitate communication between patients and doctors; to improve the level of health services in the member states. the bigger part of electronic means is initialized in order to tackle with the existing problems (e.g. long queues near reception desk, lack of information on some illness) (a. rapolevi i t , 2007). e-government can be understood as the government that is available in the electronic space, and its government function is implemented trough it. e-government is one of the means used to improve the quality of society and government communication; to modernize a governance; to implement the reform of state while adapting to the requirements of knowledge society successfully (m. kiškis, a. kraujelyt , 2006). when creating e-europe, a few problems were found: expensive, insecure, slow connection of the internet and e-commerce; citizens’ lack of information for the usage of ict; lack of the dynamic business and services provided; unsatisfactory active governmental sector that could give new opportunities for the development of the new programs and services. in june of the year 2002 european commission formulated the action plan “e-europe 2005: information society for everyone”, according which an access to the infrastructure of broadband network and development guidelines of provided e-services is given for everyone (e-business, e-learning; e-inclusion; e-health) (eeurope 2005 action plan, 2005). in june of the year of 2005 the i2010 umbrella eu strategy of ict development, which extended the initiatives of e-europe, was confi rmed. i2010 is concentrated to the convergence of the industry of telecommunications, providers of the internet services and content industry, e.g.: media’s depolarize (commission communicate ...., 2005). the most signifi cant eu documents related with e-europe are showed in the 2nd fi gure. eeurope 2002 eeurope + 2003 eeurope 2005 i2010 accent: access accent: content aim: knowledge/ availability aim: motivation, skills, trust accent: transformation, convergence, competitiveness measurement: readiness, quantity estimation measurement: intensity, quantity estimation measurement: impact, scatter of good practices figure 2. eu policy when developing information society (strategy on the creation of information society, 2005) situation of e-services in lithuania and kaunas region lr home offi ce research (2008) indicated that maturity index of public e-services for citizens – 51 %. only 5 of 26 services are provided maximally: tax return and consultation on incomes and property; search of free work places, etc. the committee of 65 issn 1822-8402 european integration studies. 2008. no 2 information society to the lr government (2007) presents data revealing that 66 services are transferred to the electronic space in kaunas region, i.e. 45 % of all services. lr home offi ce research (2008) indicated that the common maturity index of the public services to business is 62 % and exceeds the common maturity index of public services to citizen, which is 51 %. only 6 of 16 public services are provided to business maximally (taxes declaration; pay back and pay customs, etc.). it is obvious that most of public services are not provided in an ultimate level and only a few of them meet the requirements of the fi fth level. when comparing the transfer of the public services for business, european tendencies predominate in lithuania – the public services for the business are transferred much faster than for citizens. only 5 of 20 public services for business and citizens scheduled on the eu directives are transferred to the electronic space. today, in lithuania about 70 % of public sector services are transferred to the e-government, average of eu – 75 %, estonia – 90 %. it is scheduled that till the year of 2010 all the member states provide 12 e-government services for citizens and 8 e-government services for business. electronic declaration system (lt. eds) – the project of the state tax inspectorate was awarded with the “good practice” label of the year of 2007 (the epractice.eu good practice label is only given to 10% of the cases published on the web portal). lithuanian labor exchange website was awarded in the year of 2007 in the category of e-government as “the best e-content project” in vilnius (ivpk, 2007). good conditions and necessity to implement e-city project are in kaunas region. in the kaunas strategic plan (2004) the main accent is given to the intensive education of information society and development of the knowledge based economy, ensuring the competitiveness of kaunas region. all the aforementioned actions will make public life of city much more effective and convenient. all the conditions for e-city development are in kaunas region – citizens’ abilities to use it; strong intellectual potential of it and telecommunications, mechanics, electrotechnics and pharmacy in the universities, structures of business; compact city; developed infrastructures of it and telecommunications. the most signifi cant factor stopping e-city development is the absence of e-content (e-content consist of e-banking, e-business, e-communication, e-government; e-information, e-health and e-transport sectors). in kaunas city, like in all the country, e-banking services expand widely and the number of the users of these services grows as well. e-business segment developed services for the citizens incompletely but between enterprises e-business is used on a mass scale. e-communication is one of the reasons for the usage of the internet. in kaunas city, like in other lithuania’s municipalities, e-government sector has made a signifi cant progress during the last several years. e-information is rapidly spreading part of the e-content. it can be simply uploaded to the internet and is frequently searched of citizens. kaunas has perfect conditions to be the e-health leader, because medical services for the citizens of all the country are provided in kaunas, moreover, it has a strong potential of medicine and pharmacy. e-transport sector has done a progress – an e-ticket, which is the fi rs step to the presentation of the city’s e-citizen card, ensuring the effi ciency and practical services of the public transport for citizens, was presented. due to the universality of the city’s e-card, private sector’s integration to the development of the e-city can be reached and education of information society, and attractiveness of the city ensured. since the year of 2003 under the triangular agreement among kaunas municipality, kaunas city and tampere city (finland) the project “kaunas e-region” has been started to be implemented by the municipalities. r. gatautis and v. pukas (2007) notice that this program was developed due to the support of phare 2001. the results of the aforementioned support were the research of the viability of e-kaunas region; current situation analysis and planning of the most signifi cant future goals in six areas (see figure3). tampere model was used as the guidelines of developing program of kaunas e-region. picture 3. the complex of projects that were implemented in kaunas region (partnership program of information society, 2004) the general objectives of the project are to enhance the process of lithuania’s integration to the eu (eeurope dimension); to create a partnership between kaunas and tampere regions for the strategic development of information society (etampere); to contribute to the sustainability of the development of information society in the whole baltic region (enorth dimension). the main results of the projects are the following: feasibility study of kaunas eregion; partnership program of information society of the kaunas region; subroutines of implementation model of the kaunas eregion (see table 1). 66 issn 1822-8402 european integration studies. 2008. no 2 a. andr nas (2003) notices that kaunas municipality has started the fi rst transaction of electronic self-government implementation in autumn of the year of 2001 (pilot project “interactive map of kaunas investment” (http://www.kaunas.lt/ kim); “model of spatial consulting-room”; e-selfgovernment conception; analysis of public services provided by kaunas municipality). a. lukoševi ius (2004) notices that kaunas using available potential and experience of international partners has a chance to be the leader of e-health (e-cluster of e-health is noticeable). kaunas territory map of business is made and supervised by the park of high-technologies of information of kaunas and funded by the kaunas municipality as well. the aforementioned website is an interactive online system of the search and analysis of the geographic and objective information, including whole the areas of the performance of enterprises and whole enterprises of the kaunas region (lr ministry of economy, 2007). table 1. objects of the initiatives of kaunas eregion (l. valalyt , 2008) e-democracy e-business e-infra to strengthen the processes of democracy by providing information of the decision making processes via the internet to the public and increase interactivity between decision makers and citizens. to improve business skills of the information society, especially between smecompanies, and create the ecosystem for the support of innovations. to create the infrastructure that supports the development of the information society. it must be reliable, easily accessed, speedy and low cost. e-health e-municipality e-abilities to improve health care and make it more cost/effective by utilizing ict in all the levels of healthcare system. public services should be provided electronically and together with the private sector. the aim is the quality and cost effective service production. to make sure that all the citizens have skills, access and motivation in order utilize the services of information society fully. schools should utilize elearning possibilities whenever it is appropriate for the learning and instruction. according to the e-kaunas strategic plan for the period of 2006 – 2015 (2006), e-kaunas is defi ned as the competitive european and global world city, where it usage is associated with daily actions, giving much bigger benefi t to the society and business. in the end of the year of 2007 the idea of introduction of e-citizen card in kaunas was pronounced. this card is one part of e-kaunas project. the aim of the aforementioned initiative is to facilitate settlements that are less than 200-300 lt. a. ba ili nas (2007) notices that kaunas inhabitants have had an e-ticket for the settlements of public transport (initiative was completed) in the fi rst phase. in the second phase much wider packet of services is introduced i.e. more settlement functions are incorporated into the card. the authors of the project work with the kaunas website as well, i.e. the internet portal about the events of kaunas region, provided various services, business institutions and private sector, science institutions, etc. the project e-kaunas includes municipality and the transfer of the municipality companies to the e-space. this ekaunas project would get near 300 mln. lt hopefully. ekaunas (id, e-signature; e-commerce, e-tickets in transport, theater, e-public utilities (data of accounts, settlements), e-studies book, driving license, e-social insurance. the competence centre of the e-services project of kaunas public company “technopolis” that main aim is to create the public infrastructure enabling the development of e-services for the small and medium enterprises and public sector is between 15 best implemented projects of the eu. today, projects related with the e-citizens concept are implemented in kaunas region. the creation of the system of electronic ticket for the public transport and passengers’ information. one of the project partners is kaunas municipality (19 494 850.80 lt). vytautas magnus university is implementing the project “mean of information translation online” (5 585 600.00 lt). the aim of the project is the creation of means for online machine translation from english into lithuanian and the exploration of the service of free machine translation in the websites by invoking available specialists of the lithuanian language, cumulating lithuanian resources and “know-how” from the international hegemonic, and it companies in range of machine translation. the project “the system of patient registration in advance” (7 350 378.00 lt), despite the fact that this project is implemented by the public company santari k s clinic of the hospital of vilnius university, the main partners of the project are from the kaunas region (6 partners). the main purpose of this project is to create the system of patient registration in advance, which integrates the separate registration system of the medical institution. the project “broadband network of information technology of rural area rain” (73 676 946.15 lt) is implemented in all the territory of lithuania. the 67 issn 1822-8402 european integration studies. 2008. no 2 main object is to provide the broadband access for all the rural public administration institutions, hospitals, laboratories, schools, museums, libraries, public internet access points and also for the rural residents and business companies. the project “e-health services” (19 077 834.00 lt) is implemented as well, despite the fact that this project is implemented by the lr ministry of health, one of the most important partners is kaunas clinic of medical university in this initiative. table 2. number and support sum of the projects in kaunas region (lr finance ministry, 2008) funding projects 269 implementing at the moment: 184 finished: 85 bpd support 233 962 978.18 lt kaunas university of technology is the most active institution in creation of e-citizen concept and initiatives in kaunas region. this university implements the project such as “the creation of academic e-publishing system of lithuania” (3 367 000.00 lt) that aim is the creation of e-publishing system of science and studies, including e-documents’ arrangement, storage, search and presentation to the users invariant manners. the aim of the next project “remote learning network grounded by the ict development in lithuania” (3 508 529.00 lt) is to create the infrastructure of distance studies and create suitable conditions for the lithuanian science institutions to provide high quality distance studies in all lithuanian regions by creating the dynamic knowledge society, reducing rural areas and urban exclusion. the main aim of the project “the creation of science, information system of studies and experimental implementation in lithuania” (2 855 600.00 lt) is to create liemsis academic infrastructure, which would increase the availability of liemsis services and ensure effective usage of the resources of science institutions. due to the project “integral education activity of the system of distance learning in lithuania” (4 129 986.00 lt), institutions of lithuanian science and studies can provide distance learning in lithuania’s regions. due to the project “the creation of lithuania’s virtual library and full text database” (3 655 900.00 lt), the process of life long learning is complemented by innovative learning manner, lithuania’s virtual library and vddb is created too. the project “lithuania’s e-documents accumulation of science and studies and presentment to the readers” (3 267 486.00 lt) empowers organization, keeping and presentation of e-documents of science and studies to the academics, students and to the society later. “l a” implements the project “the elements of the computer license for the lithuania’s e-citizen” (8 538 588.00 lt) that allows getting skills and abilities of the computer license and increase the level of computer skills. the aforementioned skills empower an employee to be competitive in the labor market and improve the access to the work information. this project is implemented in all the territory of lithuania. the association of the lithuanian chambers of commerce, industry and crafts implements the project “the development of basic education and career education systems, and creation of suitable conditions for the life long learning in the e-education fi eld” (2 878 658.00 lt) aiming to train shape abilities of all the schoolmasters to use the ict means in the education process. one of the successful projects is kaunas municipality project “education of computer literacy for the economically active citizens in kaunas region” (525 730.00 lt). the aim of this project is to fasten the processes of information society and to create the knowledge based economy in kaunas region, to strengthen human resources and their integration to the labor market, and reduce the exclusion in kaunas region. this project is the continuing of the fi nanced project of phare 2001 “kaunas e-region: iv partnership program”/ subprogram e-skills/ www.kaunaseregion.lt (european agency of social fund, 2008). summarizing all implemented initiatives that form and infl uence e-citizen concept in kaunas region, the conclusion can be made that many initiatives are designed for the development of infrastructure, technical preparation, development of it skills and for the instrument (e-library …) creation. those indicators allow upstarting the new initiatives. the e-kaunas vision is being implemented in reality. effect and perspectives of the e-citizen’s initiatives in kaunas region the kaunas region eregion projects are the way for the implementation of e-kaunas vision. citizens get signifi cant benefi t – comfort, time saving, easy access, reduced corruption, development of skills. kaunas experience could be a good example of practice for other regions. technical setting. e-citizen’s concept implemented in the kaunas region improved public access to the internet and paid much attention to the computer literacy. in order to make signifi cant infl uence, the aforementioned moments should be presented as substantial for the initiatives, but the created infrastructure isn’t the ultimate result. this infrastructure could be non-functional without 68 issn 1822-8402 european integration studies. 2008. no 2 e-content (e-skills, e-services), therefore, the necessity is to improve and develop e-infrastructure. economic setting. e-citizen’s initiatives infl uence competitiveness and investments of kaunas region directly. the projects noted in this article were initiated by the science institutions and city municipality. such a situation shows that business initiatives are limited but the perspective of science and business collaboration could be the solution. growing science and technology park “technopolis” is one of the perspectives for the implementation of this solution. the mission of “technopolis” is to encourage collaboration among the higher education, research institutions and innovative enterprises of the state. this action should encourage wider business involvement to the creation process of e-citizen concept in kaunas region. the creation of e-citizen card promotes business integration into the development of e-city as well. in the e-transport sector the need for noticing the development of infrastructure of the transport information is. at the moment, the modern integrated system of traffi c control is being prepared to introduce. all aforementioned and forthcoming initiatives would allow citizens of kaunas region to get public and business services, exchange information and communicate rapidly and handily; business would have possibility to optimize business processes and increase the productivity and competitiveness; state institutions would have possibility to provide services coming up the expectations of citizens. table 3. perspectives of the e-citizen‘s concept side effect: growing info exclusion; health problems; psychological problems; data security problems. expected effect: e-citizen’s concept set; openness; competitiveness; investment. e-business e-learning e-health e-government creative initiatives skills, abilities/ empowerment infrastructure social setting. every new initiative infl uences many running processes in the society. e-citizen initiative could infl uence social setting as well. the basic problem is the increasing rates of info exclusion or digital exclusion; psychology, heath (related with the usage of it devices) and data protection problems. in conclusion, impact of the e-services can be not only positive. one negative impact is discomfort due to the lack of skills or technical problems, which are highlighted, when the vision is going to be implemented into reality. but good practices develop positive solutions to the e-citizen’s vision. conclusions e-service – all services, which easier communication • among three institutions (government, citizens and business) and are required through ict. eeurope• vision creation with the help of three documents. in the latest strategy the convergence and content is accented. implementation of the public • e-services in lithuania and kaunas region gets behind the eu average; however, it made a big progress comparing with previous year. ktu implements the biggest part of the projects related with e-citizen’s concept. all the initiatives could be included to the phase of infrastructure preparation in the kaunas region. the aforementioned initiatives are the basis for further initiatives. e-citizen initiatives perspectives: increase of • science, business and public collaboration of the state with the e-citizens initiatives; further development of existing infrastructure. references aleknavi ius j. paslaug teikimas nuotoliniais b dais: valstyb s institucij sipareigojimai ir gyventoj bei verslo poreikiai. 2003 ancarani a. towards quality e-service in the public sector:: the evolution of web sites in the local public service sector// managing service quality, 2005. vol. 15. is. 1. p. 6 – 23. issn: 0960-4529. prieiga per internet : http://www.emeraldinsight. com/10.1108/09604520510575236 andr nas a. epaslaugos: viešasis administravimas. 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reviewed. received in march, 2008; accepted in april, 2008. 111 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abstract energy research infrastructures in europe and beyond: mapping an unmapped landscape http://dx.doi.org/10.5755/j01.eis.1.15.28840 european research and innovation policy highlights the importance of transnational scientific collaboration, international collaborations in science concentrates and magnifies resources for conducting research and foster innovation. often, individual institutions, or even individual european countries, cannot provide the right capabilities by themselves. joint facilities and research infrastructures (ris) are therefore of high importance, and through horizon 2020 and horizon europe nearly €5 bn eu funding is set aside for these institutions. considering the large-scale funding and the perceived importance of ris, a better understanding of their roles, functions, and usefulness is highly relevant to of european integration studies. while ‘research infrastructures’ has become a fixed terminology of eu-policy, conceptually defining ris remain a matter of academic debate. we contribute to the “what is an ri?”-discussion by synthesizing existing literature and presenting novel empirical data from the energy domain mapping of the horizon 2020-project research infrastructures in the international landscape (riscape). we provide insights into the process of mapping an hitherto largely unknown landscape of global energy ris. these insights touch upon both definitional issues relevant to the ri-field and methodological concerns for future landscape analyses. finally, the article suggests that when it comes to energy research, ri-terminology might be misplaced as a catchall modern synonym for “gold standard world-class science”. keywords: research infrastructures (ri), energy research, landscape analysis, european science policy, horizon europe, europeanisation, horizon europe. research infrastructures (ris) are receiving increasing attention in the political organization of scienceand innovation systems. this is particularly true at the level of the european union, where some even talk of a ‘political hype around ris’ (hallonsten, 2020). the argumentative logic behind the hype is such that modern scientific advancements require facilities and investments beyond the capabilities of individual organizations, beyond even the capabilities of individual european countries. “multinational collaboration in largeand mid-scale research infrastructure (ri) is increasingly essential, as cutting-edge research requires costly and sophisticated instrumentation and national governments face financial constraints” (moskovko & teich, 2020). by pooling european integration studies no. 15 / 2021, pp. 111-124 doi.org/10.5755/j01.eis.1.15.28840 submitted 02/2021 accepted for publication 06/2021 energy research infrastructures in europe and beyond: mapping an unmapped landscape eis 15/2021 mikkel stein knudsen finland futures research centre, turku school of economics, university of turku introduction marianna birmoser ferreira-aulu finland futures research centre, turku school of economics, university of turku jari kaivo-oja finland futures research centre, turku school of economics, university of turku jyrki luukkanen finland futures research centre, turku school of economics, university of turku e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 112 european resources, the european scientific community attains necessary capabilities, which would otherwise be impossible to reach. ris provide more or less the perfect marriage of narratives for a european science, technology, and innovation (sti)-policy dominated by the simultaneous and linked forces of globalization and accountability (elzinga, 2012). research, technological development, and innovation policy has become the second-largest europeanized policy area in budgetary terms (biegelbauer & weber, 2018), and ris fit nicely within dominant policy frames of “europe as laggard” and “grand challenges” (biegelbauer & weber, 2018; ryan, 2015). “tackling grand challenges” is now a ubiquitous frame in science and politics (kaldewey, 2018), lending further legitimacy to the concept of research infrastructures: topics tackled by science today are so ‘grand’ that no one can go at it alone. an economic logic for research infrastructures is also put forward. they are considered as a strategic ‘pillar’ and an ‘engine of growth’ (moskovko et al., 2019), and they are hailed as transformative (european commission, 2020). they are also recipients of significant amounts of european funding. budgets for research infrastructures ran up to € 1.7 billion in the 7th framework programme for research and technological development (fp7, 2007-2013), and € 2.48 billion in the horizon 2020 framework programme (2014-2020) (european commission, 2020). similar amounts of funding are expected for the new horizon europe-programme (2021-2027). despite strong political prioritization and the considerable economic budgets, academic attention for ris has been lagging. research infrastructures remain a surprisingly understudied object of interest. much of the actual published literature on ris thus stems from authors and co-authors themselves involved in ris. a majority of the academic ri literature is, therefore, in this sense, the story as told by the ri community itself. the other key source of ri literature has derived from a rather small group of scienceand technology studies-scholars with a particular dedication to the field. however, with, in relative terms, a wealth of new publications (see e.g. cramer & hallonsten, 2020; cramer, 2020; beck & charitos, 2021), more neutral/critical reflections have probably been published within the last few years than in the entire preceding period. this article is somewhat of a hybrid between the internal ri/external sts-outset identified in the existing literature. it is born out of the horizon 2020-funded project research infrastructures in the international landscape (riscape), which ran three years from 2017-2019 intending to map international ri-landscapes across eight different scientific fields. the project funding was part of the targeted european funds for ris, and a majority of the consortium had direct ties to existing ris. the authors of this article contributed with the analysis of the energy research domain, without any formal ties to research infrastructures (a reflection in part of the lack of previous coordination within the european energy ri landscape in comparison to within other scientific disciplines). the basic value proposition of the project was to illuminate a previously unknown aspect of ris of central importance to the development of european policy, namely which research infrastructures exist outside the eu? before this mapping exercise, research infrastructures have been held up as a necessity for europe to succeed in the global scientific competition, but the identification and contribution of similar organizations elsewhere have been, essentially, a blind spot. little has been known about outside organizations, what kind of features these organizations embody, and what the potential would be for shared collaborations to the benefit of european researchers. since literally billions are devoted to ensuring european institutions can compare themselves favorably with others, this lack of knowledge is problematic. similarly, potentially allocating large-scale funding only to replicate similar facilities elsewhere may not be the best use of public funds. the motivation for providing a mapping of this unmapped landscape of non-eu research infrastructures was therefore clear. the research methodology for the mapping exercise, and therefore for this article, was primarily based on qualitative, semi-structured interviews 113 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 with international ris supplemented by data gathering through fieldand desktop research. the results of this mapping exercise are available in the final project report (asmi et al., 2019) and through extensive domain mapping reports (all publicly available through the project website, www.riscape.eu). for this reason, this article focuses less on the outcomes, but instead concerns some of the key steps needed to perform this mapping of an unmapped energy research infrastructures-landscape: i how can a globally relevant research infrastructure be defined? ii what constitutes an ‘energy research ri’? iii which organizational aspects should be mapped? iv what kind of potential for internationalization of ris can be identified? v how could future mapping exercises be improved methodologically? by answering these questions, we provide insights on how the field of ris can be mapped, and we simultaneously contribute to the emerging academic discussion on research infrastructures. our study also provides sparks for the discussion on whether scientific contributions scale with size (cf. d´ippolito & rüling, 2019) or not (cf. fortin & currie, 2013). the findings suggest that at least for the energy research domain, ascribing sti-primacy to research infrastructures as a ‘modern gold standard’ of science disproportionally benefits certain types of institutions, perhaps at the expense of the majority of the field. in other words, the article presents how the collection of information to the riscape-project was done and reflects upon the process of the project itself. this guides us to suggest solutions for the challenges we faced, and which we believe might be emblematic of any attempt to map research infrastructures, at least within the energy research domain. the study, therefore, provides empirical novelty with an overview of energy ris and general insights for the emerging ri literature. our study also provides sparks for the discussion on whether scientific contributions scale with size (cf. d´ippolito & rüling, 2019) or not (cf. fortin & currie, 2013). the findings suggest that at least for the energy research domain, ascribing sti-primacy to research infrastructures as a ‘modern gold standard’ of science disproportionally benefits certain types of institutions. this could very well be at the expense of the majority of the field if funding allocation follows a political ri-prioritization. at the end of the article, we also use the project process experiences to suggest alternative ways for future mapping projects. the article first situates research infrastructures in the context of european integration. this is followed by a section on data, methods, and the riscape-project. the main analytical section is structured by the five mapping elements described above. finally, the article is concluded with a conclusion. the historical development of scientific cooperation in europe and the establishment of common research organizations and research facilities has been well documented in the sti literature (see e.g. cramer et al., 2020; hallonsten, 2012, 2014b; papon, 2004, 2009). this development is tightly interwoven with the establishment of post-war intergovernmental collaboration in europe on the one hand, and the cold war advancement of “big science” competition in e.g. nuclear physics on the other. the launch of the european organization for nuclear research (cern) – to this day, perhaps the most prominent research infrastructure in europe – in the 1950s was europe’s first postwar experience in large-scale cooperation (cramer et al., 2020). it is worth noting also that there is an element of anachronisms here; terms such as research infrastructure or similar colloquial terms such as “big science” or “megascience” were not used at the time, but instead, they are applied retrospectively to previously established institutions. research infrastructures in european integration e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 114 after an early enthusiasm, interest in shared european facilities waned over the next decades. this is not necessarily a unique european story. our riscape-analysis shows that many international energy ris were similarly established in the period between 1945 and 1960 – and only very few in the decades following that. still, a considerable chunk of the available academic ri literature is essentially a europe-focused retelling of post-war historical geopolitics, and then of the later dilemmas faced on the bumpy road towards increased european integration. the actual scientific relevance of the facilities often takes sidestep in this literature to the roles played by diplomacy in establishing them, and to their role in establishing diplomatic cooperation in return. viewed through this historical lens research organizations, nominally purely about science, are mired by complexity, “deeply embedded in (geo)politics and characterised by the same horse-trading as the jigsaw puzzle of political agreements that make up the european union.” (hallonsten, 2012). in retrospect, every major collaborative effort was conceived and established on an ad hoc-basis, and new shapes and forms emerged for every new project. final decisions on any project are made at the highest political level, and decades of establishing and not-establishing facilities reflected developing high-politics trends. this is not just a thing of the past, but something that seemingly continues to this day. national participation in projects, such as the example of russia participating in the european xfel-project, is still seen as “the pursuit of [their] interests by other means” (hallonsten, 2014b). the participation agreement has been characterized as a much-needed symbolic act of unity in an otherwise ‘cold encounter’ of the german chancellor merkel and russian president putin in a 2007 high-level summit. over the past 15 years, a distinct terminological and legal framework has developed around ris in the european sti-policy landscape. this includes the introduction of formal institutions such as the european strategy forum for research infrastructures (esfri) and european research infrastructure consortiums (eric). the european strategy forum for research infrastructures provides a bior triannual roadmap of esfri projects, which are new ris in progress towards implementation, and esfri landmarks, which are successfully implemented ris. established ris are (sometimes, although not always) organized with the unique legal framework of a european research infrastructure consortium (eric) (lindstrøm & kropp, 2017; moskovko et al., 2019; ryan, 2019; moskovko, 2020). untangling the development of research infrastructures in europe from political processes of european integration is difficult. the “concept of ris has a political origin and apparent political usefulness (…) it was most likely invented by eu policymakers for political purposes” (hallonsten, 2020). a critical examination of european ri policy might raise the question of whether increased prioritization of ris is a necessary function of a desire for europeanization of science, or whether increased europeanization is a necessary result of changing scientific needs. both statements probably have some truth to them. as the xfel-case highlights, ris’ function in european integration processes is thus not limited to science itself, but also helpful for science diplomacy. by showcasing attractive access to large-scale european research activities, eu ris can be a useful tool for eu external foreign policy (for literature on ri’s science policy function, see moedas, 2016; flatten, 2018; moskovko & teich, 2020; for eu’s external engagement in science and research, see e.g. prange-gstöhl, 2017, 2019). european stakeholders have also attempted to upload the ri-concept to a wider international level – to some success. the oecd global science forum (gsf) has adopted the term (oecd, 2017), co-opting the previous megascience forum established in 1992. the group of senior officials under the g7/g8 has done significant work in advancing ris (gso, 2017). countries such as australia and south africa have also published national research infrastructure roadmaps in the european vein within recent years. academic literature on non-european ris is 115 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 also sparse, although there are notable exceptions related to at least china (qiao et al., 2016; xu et al., 2017) and brazil (caliari et al., 2020). riscape can, as an international mapping funded by the european commission after an initial call process, be seen as another means of extending the european scientific and diplomatic footprint outside the european region. this study and its data are based on the riscape-project, which maps the non-eu ri-landscape across eight scientific fields. from its outset, the project was developed as a complimentary resource to the existing esfri landscape analyses (e.g. esfri, 2018) of european scientific fields. it was therefore constructed on the assumption that the european landscape is known, and that the onus was on mapping the unknown landscape outside the european research area. each scientific field has its field-specific characteristics. while riscape strived to have a project-wide systematic and shared methodology, refined through a series of internal project workshops, the mapping also needed to allow for domain-relevant circumstances. the general methodology of the project is visualized in figure 1. this shows the analytical sequence from identifying an ri, prioritizing and pre-selecting them against accepted criteria, making contact, gathering information directly from organizations, interpreting the gathered information, and analyzing it in condata and methods figure 1 riscape-methodology (asmi et al., 2019) text with the rest of the collected information. the content, challenges, and results of some of these steps are described in more detail in the next chapter. riscape aimed to collect information mainly through virtual, directed interviews with ri-representatives based on a specific riscape-questionnaire. the original design of the project research methodology thus heavily emphasized the use of semi-structured in-depth interviews (see e.g leech, 2002). the project-wide questionnaire consisted of 56 questions (available from the project website), most of which were open-ended. the questionnaire was designed for the interviews to last for about one hour. since some of the questions related to practical details, these could be prefilled limiting the time needed, and the questionnaire was thus designed so that the interviews themselves could be done in around one hour. however, for our work package the actual interview sessions took up to 3,5 hours to conduct, and the time potential interviewees would need to spend was a major barrier for engagement. in general, organizing the information collection proved to be rather difficult, and methodological adjustments were made accordingly, cf. chapter 4. initial information gathering came through utilizing known european sources. for the energy research domain desk research and virtual contacts were supplemented with a stakeholder workshop in brussels in july 2017 with representatives of european energy ris listed on the esfri-roadmap or receiving horizon 2020 research infrastructure-funding. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 116 in total, 37 international energy ris were contacted, with 11 of these interviewed with semi-structured interviews. three of the interviews were conducted face-to-face, while the rest was done through phoneand video meetings. the distribution of the non-eu energy research infrastructures is shown in figure 2 (the sum of the numbers exceeds 37, due to many ris being active in more than one energy research subfield). figure 2 identified non-eu energy research infrastructures (asmi et al., 2019). a majority of the identified ris were located in north america (primarily in the usa) and asia. the project did not identify any ris for the final list in neither the asean region nor africa. this could be a result of initial bias within both researchers and stakeholders approached during the project: ris tend to pop up on the map in regions, where we knew where to look. while steps were taken to handle this concern, it is hard to conclude, whether the issue was entirely eliminated. one originally identified ri in south africa was left off the final list for commercial reasons, cf. chapter 4. this chapter highlights the most important and challenging steps of the mapping process, key results related to the ri-landscape, and considerations with implications for similar exercises in the future. defining relevant research infrastructures the political hype around ris has not been matched by any comprehensive definitional or categorization work (hallonsten, 2020). this is perhaps best illustrated by the fact that a total of 60 ris have appeared on esfri-roadmaps, 1042 infrastructures are available in the online meril-database (mapping of the european research infrastructure landscape; meril, 2021), while caliari et al. (2020) identifies no less than 4857 research infrastructures in brazil alone. cramer et al. (2020) suggest a useful differentiation between “research infrastructures” and “research infrastructures”. anderson (2013) reminds of the definition of infrastructure in the american heritage dictionary as ‘the basic facilities, services and installations needed for the functioning of a community or society’ (cf. anderson, 2013). we might say that research infrastructures (non-capitalized) provide functions for a scientific community (a research group, a department, or an institution), while research infrastructures provide functions for the (global) scientific community. this is illustrated in figure 3, which was adapted from the south african ri roadmap (department of science and technology, 2016) for the riscape energy work package. mapping an unmapped energy ri-landscape: steps, results, and considerations 117 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 figure 3 zooming in on the right research infrastructures international relevance does not in itself make for a meaningful ri-definition, however. for riscape, additional guiding principles were devised through the identification of commonalities between ri-definitions in previous scientific and policy literature (asmi et al., 2019). first, ris are meant for research and science purposes. for an organization to fit the criteria of being an ri, it is, therefore, a necessary condition that it is concentrated on supporting science. this may sound self-evident, but it has major implications for mapping the energy ri landscape in the energy sector. firstly, and perhaps most importantly, it excludes commercial actors for whom research and supporting science is only a secondary goal of the organization. in energy research, private and commercial actors make for a large share of total r&d spending, yet they don’t show up on the ri-landscape when this criterion is applied. secondly, the line between commercial units and ‘real’ research entities is often blurred among potential ris. as an example, nuclear facilities surveyed in riscape enable the pharmaceutical industry with industrial and medical radioisotopes. supplying rare and valuable products right now is often as important to the organizational narrative of societal impact (and the financing of its activities), as its contributions to long-term scientific advancements. determining the balancing of dual scientific/ commercial purposes proved to be tricky during the mapping and case-by-case evaluations had to be made. in the end, for example, one research reactor identified by gso (2017) was left off the map as ‘too commercial’. thirdly, some facilities, especially related to nuclear research, also perform dual balancing acts between serving national security needs and benevolent ideas of supporting the scientific community. the second guiding principle is that the mapping should not be limited to a universal definition of institutional arrangements. various ri definitions use different terms such as institution, organization, facilities, resources, and services. however, the distinction also used for the esfri-roadmaps between single-sited, distributed and virtual ris have become commonplace, and these concepts were also used for riscape’s mapping. a third guiding principle is the concept of uniqueness used by some of the definitions. ris, at least those of international interest, must be distinguishable from each other, of a particular nature, or of a particular interest. this is in the vein of the distinction above, namely that capitalized ris serve the global scientific community. a fourth guiding principle is the suggestion of access. ris do not, per sé, need to be public organizations, but they should be accessible for public scientists in some form or another and serve a diverse range of users beyond those employed by their own organization. this principle has been less pressed by academic attempts to define the nature of ris, but it is often integrated into policy considerations of ris. it is also an explicit feature of the eric-regulations (moskovko et e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 118 al., 2019). for the mapping of the energy research sector, the national security elements inherent in e.g. nuclear research may complicate this aspect to some extent. a fifth and final guiding principle is longevity. longevity is often overlooked by existing definitions, but long time horizons are often implicitly assumed in both scientific and policy documents. for mappings such as riscape identifying organizations would also, quite frankly, be slightly pointless, unless the organization was thought to play a role in the future. the second step of the mapping process was to identify the features of energy ris. the esfri strategy report and roadmap (esfri, 2018) divides the energy domain into five main areas, which themselves comprise several specific fields (illustrated including interrelations in figure 4). boundary issues are also challenging. energy ris are to a great extent interdisciplinary undertakings (esfri, 2018: 48), and riscape identified clear links between energy ris and physics (e.g. with nuclear synchrotrons), as well as with health research (nuclear medicine), engineering, and materials research, green chemistry, high-performance computing, and environmental science. figure 4 energy ris interplay (esfri, 2018) the 2018 esfri roadmap features two esfri landmarks in the energy sector and four esfri projects. jules horowitz reactor (jhr) is an experimental reactor facility intended to provide scientific breakthroughs on nuclear fuel and materials. european carbon dioxide capture and storage laboratory infrastructure (eccsel) was officially recognized as an eric in 2017. two of the four listed esfri-projects are in nuclear research (multi-purposes hybrid research reactor for high-tech applications, myrrha; international fusion materials irradiation facility-demo oriented neutron source, ifmif-dones), while two others are related to renewable energy (european solar research infrastructure for concentrated solar power, eu-solaris, european windscanner facility, windscanner). windscanner is a distributed ri focused on the characterisation of wind fields, while all other projects and landmarks are single-sited ris. remarkably, no esfri ris exist for the important cross-cutting building blocks (cf. figure 4) of energy systems integration and cross-sectional energy ris. defining energy research and energy research infrastructures 119 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 the two esfri renewable energy (re) ris differ from the four other ris by orders of magnitude when it comes to the expected capital costs. windscanner and eu-solaris have expected capital costs of around €6 million, ifmif-dones has an expected cost of €420 million, while the other three ris have capital costs exceeding €1 billion (esfri, 2018: 16). in other words, construction costs run more than 100 times over for the largest single-sited ri compared to the only distributed ri. the riscape-mapping identified similar conclusions outside europe. the ´cheapest´ ri in the dataset, canadian wind ri windeee, suggested their construction costs as around €30 million, while expert estimations at japan atomic energy agency suggested capital values as large as €100 billion. overall, this is a notable finding with implications for the considerations of research infrastructures as a research policy tool. identified energy ris inside and outside europe are likely to be single-sited organizations with very high capital costs in proportions highly different from the make-up of energy research in general. by explicitly excluding commercial research, implicitly excluding research closer to market maturity, and by focusing more or less only on facilities set-up for long-time focus on single „grand challenge“ research question, the design of ris is probably a bad fit to many ongoing energy research activities. this was also indicated through riscape‘s workshops with european partners, where participants suggested preferences for agility, speed, and continuous relevance over long-term institutional commitments. for these organizations, variable geometries in research networks and collaborations may thus be preferable to institutionalized ri-status. riscape‘s mapping of the international ri landscape placed a particular emphasis of some organizational issues of special interest to the project‘s stakeholders. some of these attributes reflected an original project focus, some stemmed from initial project findings, and some were explicitly suggested by project partners at the funding body, the european commission. the selection of organizational aspects of interest therefore not only divulges new information on potential international partners but also highlights the mindset of the european ri community. for the riscape energy domain, the first attribute mapped was the source of funding. the majority of interviewed ris receive direct funding from respective federate governments. the russian nuclear facility jsc state scientific centre research institute of atomic reactors (riar) is a stateowned joint-stock company (under rosatom), which no longer receives direct federal funding, but instead finances its activities through commercial contracts with russian and international clients. these contracts are equivalent to multi-annual funding, as they run for periods up to 10 years. interviewed ris, with minor exceptions, all professed to have either statutes or a business plan. operational time horizons extend significantly beyond traditional 3-5 year science projects, although financial time horizons might differ from the scientific facility planning. for example, two brazilian ris noted that although they are strategic ris, there is no long-term financial commitment from the government. funding decisions are instead negotiated yearly. this could make them a challenging partner to work with unless the european ris are ready to embrace uncertainty. some international ris have very broad research portfolios, and they are therefore difficult to compare with european ris with a more focus. complementarities are perhaps easiest to identify within nuclear research, where organizations are fewer, and the scientific purpose of each is more elaborated. for surveyed international ris, access for external researchers varies. some proclaim a 95%-100% access of their services available for external parties, while others only have facilities externally available less than 25% of the time. some nuclear facilities limit certain types of access to internal personnel. for decades, the principle that access to and sharing of data is essential to the conduct and advancement of science has been noted (arzberger et al., 2004). data policies have therefore become an important element of organizing research institutions, at least in europe (yu et al., 2017; ryan, 2019). international ris were also asked about data policies; however, this subject did not mapping forms and functions of particular interest e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 120 raise the same kind of interest among the surveyed ris, as it seemingly does among european ris and european funding organizations. external academic literature on ris often focuses on evaluating impacts in terms of both scientific knowledge creation and socio-economic benefits. in particular, scientometric approaches have been applied (del bo, 2016; carrazza et al., 2016; qiao et al., 2016), although contributions of research infrastructures are often hard to trace through traditional measures of scientific progress such as bibliometrics, publication, and citation counts (hallonsten, 2014a; mayernik et al., 2017). with the recent ‘fetishization of accountability’ in science (elzinga, 2012) costs, impacts, and benefits for the wider society are also measured. investments in science, here in research infrastructures, are thus weighed against themselves, just like any other large public investment (cló & florio, 2020). today, a positive cost-benefit analysis (cba) is necessary for ris to gain access to european funds, and a cba should be carried out in the preparatory phase of new esfri-projects. studies show e.g. the economic impact of technological procurement at cern (castelnovo et al., 2018), the derived social benefits of large-scale ris (florio & sirtoti, 2016), or the technology transfer, spillover, and impact of entrepreneurship derived from them (scarrá & piccaluga, 2020). riscape‘s responding ris follows scientific impacts closely, either by the ri itself or by a third party (an almost even split among respondents). it is common to publish an annual report of the ri‘s scientific achievements online. socio-economic impact, however, is not followed to near the same degree among the responding ris. an outlier is riar in russia, which showcases its importance for the development of dimitrovgrav city and the ulyanovsk region (the city and region, where its located). for riar, it is important to be able to attract talented scientists to the. the organization, therefore, publishes such regional data as local health of citizens, average salary, etc. this was one of the best examples in the study of a surprising best practice, which might inspire both european ri practitioners and academic observers of the field. an important part of mapping was to identify potential opportunities for further collaborations with europan entities. many surveyed ris already partake in collaborations with european researchers and organizations. some respondents noted international organizations and initiatives – eureka, iaea, mission innovation as important for developing international partnerships. the international and joint initiatives generally seemed to be valued higher than initiatives based on european outreach. a clear feature in interviews and other research was the pride many energy ris outside europe held of their self-developed facilities (for example, in nuclear energy research), which can be served as complementary to the eu facilities. for example, china has become largely self-sufficient in reactor design and construction, and relative to the rest of the world, one of its major strengths is the nuclear supply chain. in south korea, national fusion research institute prides itself on having constructed the world-class fusion research device named kstar with domestic technology. it also gets involved in the iter korea project, which has a long timeline until 2042 and beyond. at the same time, ris generally express satisfaction with using technologies from the eu countries to improve their own facilities, and some of the non-eu ris also attach great importance to the cooperation with the eu ris. summarizing, we identified a great deal of interest in collaborating with european ris, but conditional on the terms and interests of the surveyed organizations. increasing collaborations with european partners is not an organizational priority in itself for non-european ris. as riscape set out to map the unknown landscapes, we attempted to actively limit known biases and to uncover information in parts of the world the european research community was less familiar with. this quickly proved challenging. for example, for desk research and information gathering, a simple, but major methodological challenge was to look beyond only organizations with regularly updated english-language websites. many large-scale organizations do not seem integration and internationalization potential methodological considerations for future mapping exercises 121 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 to put much effort into general communication outreach to english-speaking audiences, but perhaps instead find other avenues of reaching their scientific audiences. even with identification and contacts in order, linguistic and cultural challenges proved more notable than assumed at the outset of the project. for the energy domain mapping, we, therefore, added researchers with various local cultural and language skills to the team. native-tongue interviews were eventually conducted in english, russian, chinese, and brazilian. there was a clear tendency among the answers that more detailed answers were given in the respondent’s mother tongue compared to when respondents were forced to respond in english. some interviews were also conducted face-to-face with visits at the international facilities which provided the interviewer with a much richer understanding of the reality and environment of the surveyed ri. for similar, potential organizational mappings, it might therefore be suggested to put more emphasis on cultural and linguistic skills, and the ability to reach respondents within their natural environment. this would most likely be at a cost of more simplified and systematic cross-field data collection, but reward the examining researchers with richer and more informative results. similarly, to enhance international ri collaboration, european organizations should probably be advised to be open to meeting different organizational, legal, linguistic, and budgetary frameworks even within the same ‘global research scientific community’ of their given fields. this article presents the landscape analysis mapping of international research infrastructures (ris) in the energy research domain, which was carried out as part of the horizon 2020 riscape-project. the article presented both how information was collected and reflections upon the process itself. we provide guidelines for how to define globally relevant research infrastructures, and how this question can be approached with the specific focus on the energy research field. a lot of emphases is being put on ris in european union policy. this is also reflected by the allocation of hundreds of millions of euros annually of european funds, which are dedicated to supporting and developing ris. despite this strong policy preference for the concept, academic attention has been limited, and knowledge of the field outside the european research area almost non-existent. this article helps alleviate these dual issues with a particular focus on international energy research. the global mapping reflected the definitional problems with categorizing ris and the boundary issues which quickly arise when trying to identify ris unique to the energy domain. the mapping also showed skewed distributions of the energy ris, which is suggested as an endemic feature of trying to squeeze the ri framework down on the energy research field: it disproportionally benefits specific types of single-sited institutions with large-scale construction costs. in europe, funding for energy ris is thus dominated by nuclear research institutions (1 eric, 2 esfri projects) and for a ri working with carbon capture and storage (ccs, 1 eric). renewable energy ris exist on the esfri roadmap but at a scale of 100 times lower capital costs. issues such as energy efficiency or smart energy distribution are not covered by ris at all. the international mapping showed somewhat identical situations outside europe as well. a notable finding of this article is therefore that there might arise a future paradox if european research policy simultaneously prioritizes research infrastructures as a favored research mechanism and seeks to prioritize the transition to non-nuclear sustainable energy as a forefront european grand challenge. the article also showcases some of the organizational aspects, which the european ri-community stresses in its examination of international research infrastructures: economical information, such as construction costs, annual budgets, and main sources of funding; legal frameworks, such as the existence of statutes; organizational policies, such as data policies and access policies; and scientific impact, including the ways the organizations themselves follow and measure these. our mapping showed us that these lenses were indeed very ‘european’, and that conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 122 a global ri-mapping will not result in answers to the above aspects within a few preselected choices. instead, identified international ris are very a very heterogeneous group. while potential for greater international ri-collaboration was identified, openness to alternative organizational frameworks is therefore a necessity to harness the collaborative potential finally, our study provide insights on methodological improvements for future mapping exercises. data collection proved to be much more efficient and rich when international, regional expertise was added to the research team. this should be considered also for future international landscape analyses, in which designing teams with a variety of linguistic and cultural skills might be more 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(2016). scientific effects of large research infrastructures in china. technological forecasting and social change, 112, 102-112. https://doi.org/10.1016/j.techfore.2016.07.029 ryan, l. (2015). governance of eu research policy: charting forms of scientific democracy in the european research area. science and public policy, 42(3), 300-314. https://doi.org/10.1093/scipol/scu047 ryan, l. (2015). balancing rights in the european research area: the case of erics. european intellectual property review, 41(4), 218-227. https://doi. org/10.1093/scipol/scu047 scarrà, d., & piccaluga, a. (2020). the impact of technology transfer and knowledge spillover from big science: a literature review. in technovation. in press, available online. https://doi.org/10.1016/j. technovation.2020.102165 xu, w., xu, y., & li, j. (2017). a study of ri clusters based on symbiosis theory. sustainability, 9(3), 396. https://doi.org/10.3390/su9030396 yu, h., wested, j. b., minssen, t. (2017). innovation and intellectual property policies in european research infrastructure consortia part 1: the case of the european spallation source eric. jornal of intellectual property law & practice, 12(5), 384-397. https://doi.org/10.1093/jiplp/jpx022 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). knudsen mikkel stein m.sc. finland futures research centre, turku school of economics, university of turku fields of interests research infrastructures, technology foresight, innovation policy, futures studies. address rehtorinpellonkatu 3, 20014 turun yliopisto, finland. mikkel.knudsen@utu.fi ferreira-aulu marianna birmoser m.sc. finland futures research centre, turku school of economics, university of turku fields of interests futures studies, sustainability, international development. address rehtorinpellonkatu 3, 20014 turun yliopisto, finland. marianna.b.ferreira-aulu@utu.fi kaivo-oja jari dr. finland futures research centre, turku school of economics, university of turku fields of interests futures studies, foresight, innovation, sustainability transitions, energy research. address rehtorinpellonkatu 3, 20014 turun yliopisto, finland. jari.kaivo-oja@utu.fi luukkanen jyrki dr. finland futures research centre, turku school of economics, university of turku fields of interests energy research, sustainability, renewable energy, energy foresight. address rehtorinpellonkatu 3, 20014 turun yliopisto, finland. jyrki.luukkanen@utu.fi european integration studies 2008.indd 141 issn 1822-8402 european integration studies. 2008. no 2 information about the article’s authors anohina alla, dr.sc.ing. in computer systems since 2007, lecturer. her main research fi elds are intelligent tutoring systems, computer-assisted assessment systems and artifi cial intelligence. she has seven years’ experience of teaching in the fi eld of computer science. she has participated in several research projects related with the development of educational software. riga technical university, phone +371 67089595, e-mail: alla. anohina@cs.rtu.lv bavrina ludmila mg.phil., senior lecturer; baltic international academy (latvia); pedagogical and andragogical issues in higher education, pedagogical professional competence, esp curriculum design; phone:+371-2-26585834; e-mail: lbavrin@inbox.lv berlin alexandre, ph. d., honorary director, european commission; e-mail: alberli@attglobal.net čiburienė jadvyga dr., assoc. prof. of social sciences (economics), kaunas university of technology, faculty of economics and management, phone: +370 37 30 05 76, e-mail: jadvyga.ciburiene@ktu.lt daugėlienė rasa, assoc. prof. dr. of social sciences (management and administration), kaunas university of technology, institute of europe; e. mail: rasa.daugeliene@ktu.lt; phone: +370 37 30 01 39 gawlikowska-hueckel krystyna, professor, university of gdańsk, the faculty of economics; kkhueckel@sopot.pl greblikaitė jolita, phd student of social sciences institute of europe, kaunas university of technology; tel. +370 37 300139, e-mail jolita.greblikaite@ktu.lt grundspenkis janis, dr.habil.sc.ing. since 1993, professor of computer science. he is the dean of the faculty of computer science and information technology, the director of the institute of applied computer systems and the head of the department of systems theory and design. his research interests are agent technologies, knowledge engineering and management, and structural modelling. he participated in 2 projects within fp 5 and fp 6, managed several projects funded by latvian ministry of education and science and esf, as well as he was a coordinator from latvia in socrates/ erasmus projects mocuris, ecet and dec, leonardo da vinci project socsimnet. riga technical university, phone +371 67089581, e-mail: janis. grundspenkis@cs.rtu.lv guščinskienė jūratė, dr., assoc. prof. of social sciences (sociology), kaunas university of technology, faculty of social sciences, phone: +370 37 30 01 44; e-mail jurate.guscinskiene@ktu.lt junevičius algis, dr., assoc. prof., kaunas university of technology, institute of europe; kęstučio str. 8, kaunas; e-mail: algis.junevicius@ktu.lt; phone: (+370) 37-225216 keras antanas, dr., assoc. prof. science fi eld – development of the information society. mykolas romeris university. tel. +370 5 27 14 571. email: antanas1k@yahoo.com keras valerijus, dr., assoc. prof. science fi eld – comparative scientology; development of scientifi c technical programmes. mykolas romeris university. tel. +370 37 300 476 keršytė jurgita, phd student of social sciences, kaunas university of technology, institute of europe, +370 37 300140, jurgita.kersyte@ktu.lt kriščiūnas kęstutis prof. habil dr. of technical sciences, kaunas university of technology, institute of europe; +370 37 30 01 37, e-mail kestutis.krisciunas@ktu.lt kvedaravičiūtė inga, master degree student; kaunas university of technology, institute of europe; e-mail: ingkved@super.lt 142 issn 1822-8402 european integration studies. 2008. no 2 lavendels jurijs, dr.sc.ing. in technical cybernetics since 1987, associated professor of computer science. he has 7-years experience in post-graduate education of secondary school’s teachers in informatics and he is a methodical leader of several ongoing projects supported by european social fund and european community. riga technical university, phone +371 67089575, e-mail jurisl@cs.rtu.lv liutkus egidijus, master degree student; kaunas university of technology, institute of europe; e-mail: egidijus.liutkus@stud.ktu.lt mickevičienė monika, phd student of social sciences institute of europe, kaunas university of technology; tel. +370 37 300139, indicating science fi eld and direction: assessment of competitiveness of organization in eu single market. institution e-mail monika.mickevičienė@ktu.lt paužaitė živilė phd student of social sciences institute of europe, kaunas university of technology; tel. +370 37 225216, e-mail zivile.pauzaite@ktu.lt pilsuma vita, ph. stud. in economics, latvijas banka, +371 6702 2319, vita.pilsuma@bank.lv riekašius remigijus, assoc. prof. dr., klaipėda university, phone: +370 686 24780, e-mail: remigijus. riekasius@ku.lt sitikovs vjaceslavs, dr.sc.ing. in technical cybernetics since 1982, associated professor of computer science. he is an experienced computer science teacher and a specialist in project management. he has the grade of project management professional (pmp) awarded by project management institute (pmi). he managed a couple of large-scale international projects of software development and implementation. he is the member of euroscience, eden, the expert of european social fund in latvia, and project manager of several ongoing projects supported by european social fund and european community. riga technical university, phone +371 67089583, e-mail vss@latnet.lv skurczyński marcin, ph. d. in economics, specialization in relationship marketing and market research at university of gdansk, institute of international business; tel. +48 (58) 523 13 84, e-mail: marcin.skurczynski@ core.org.pl stumbraitė edita, phd student of social sciences (public administration); mykolas romeris university, phone: +370 687 22834, e-mail: estumbraite@yahoo.com svarinskis leonārs, dr. oec., prof., rēzeknes augstskola, +371 6462 3709, ra@ru.lv. timoshtchenko julia, dr.sc.ing, assistant professor, baltic international academy (latvia); ict use and design in educational practice; phone:+371-67100242 ; e-mail: julija.timoscenko@bsa.edu.lv uminski stanislaw, phd., research centre on european integration, university of gransk, poland. e-mail: uminski@univ.gda.pl valalytė ligita, master student in european studies, kaunas university of technology, institute of europe, phone +370 686 50788, e-mail: ligita@technopolis.lt vinogradova viktorija, mg.sc.ing. in computer systems since 2003, currently doctoral student. her doctoral thesis topic covers use of knowledge management tools in curriculum management. in 2006 she participated in rtu “computer systems” curriculum audit performed in the queste project. she is a project manager assistant of several ongoing projects supported by european social fund and european community. riga technical university, phone +371 67089559, e-mail viktorija.vinogradova@cs.rtu.lv žitkus leonas, dr., assoc. prof., kaunas university of technology, institute of europe; kęstučio str. 8, kaunas; indicating science fi eld and direction: assessment of european integration consequences, european dimensions of management. institution: kaunas university of technology, institute of europe. phone: +370 37 300138 e-mail: leonas.zitkus@ktu.lt 217 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 abstract contemporary innovation challenges – future of adoption artificial intelligence: case of estonia http://dx.doi.org/10.5755/j01.eis.1.14.26143 nowadays artificial intelligence is gaining popularity and brings changes into everyday lives and business. latest research outline various options and challenges related to the implementation of artificial intelligence in different fields (garbuio&lin, 2019; kumar et.al, 2019; tambe et.al 2019). it is obvious that its adoption will have a notable significant impact on certain industries. however, it also requires complete understanding and awareness of main constraints and benefits. the aim of the present research is to find out the possibilities of adoption of the artificial intelligence in accounting industry in case of estonia and its impact on the role of the accountant in the future. the main research question focuses on whether estonian accountants are aware of the new opportunities related to the implementation of artificial intelligence and their openness to these challenges. authors conducted a survey among estonian accounting professionals and the results revealed limited knowledge, with people being aware of the meaning but having little or no idea about the basic components of artificial intelligence and wide range of a potential application. during the research, it became obvious that only few companies in estonia are already using artificial intelligence: among the main reasons of non-adoption are lack of experience, lack of qualified professionals and the general complexity. authors believe that the results of this study provide a starting point for companies involved in providing various modern technical support for accounting industry and may contribute to the raising awareness and further development of active successful adoption of artificial intelligence in estonia. keywords: artificial intelligence, accounting, financial accounting, reporting, skills. european integration studies no. 14 / 2020, pp. 217-225 doi.org/10.5755/j01.eis.1.14.26143 introduction and literature review submitted 05/2020 accepted for publication 07/2020 contemporary innovation challenges – future of adoption artificial intelligence: case of estonia eis 14/2020 nowadays artificial intelligence is gaining popularity being widely adopted in the modern world (chan 2020) and bringing major changes into everyday lives and business; supporting both social and economic activities and attracting attention in various countries on different continents (lu et al. 2018). its high growth potential has attracted close attention and according to zawacki-richter et al. (2019) has become “one of emerging fields in educational technology”. and while it is much spoken and written about discussing pros and contras (singh et al. 2020) still no single definition could be found in relevant literature. in authors opinion the one formulated by tecuci (2011) stating that “artificial intelligence (ai) is the science and engineering domain concerned with the theory and practice of developing systems that exhibit the characteristics we associate with intelligence in human behaviour” could be considered as applicable to every industry and business area. such rapid growth and increasing attention have generated high research interest, identifying various options and challenges related to the implementation of artificial intelligence in differvaleria gavrilova metaan as natalie aleksandra gurvits-suits tallinn university of technology http://doi.org/10.5755/j01.eis.0.13.24033 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 218 ent fields (garbuio&lin, 2019; kumar et.al, 2019; tambe et.al 2019). findings of contemporary researchers reveal the results of application of artificial intelligence in telecommunication industry (jiayin et.al 2007), digital media (damiano et.al 2019), digital marketing (zeeshan&saxena 2020) and engineering (tzuc et.al 2020) outlining promising results and new possible areas of implementation withing each industry. abeyratne (2017) has no doubt that with time artificial intelligence would play a vital role in air transport, and findings of qian et al. (2020) suggest that its successful integration would result in achieving “smart process industry”. and if the implementation of artificial intelligence looks natural in the world of computer technologies (tang et al. 2020) demanded and welcomed in medicine (wilhelm, d.; ostler, d.; mueller-stich, b.; et al. 2020; herrmann et al. 2020), especially in trauma surgery (tjardes, t.; heller, r. a.; pfoerringer, d.; et al. 2020), then it seems less real and therefore quite surprising that artificial intelligence methods are extensively used for forecasting of oil prices (sehgal&pandey 2015), modernization of entrepreneurship (safargaliev et al. 2020) and financial services (arslanian&fischer 2019), there it comes to the question whether the implementation of artificial intelligence is safe enough or we are facing the threat: substitution of financial practitioners (stein smith 2020) or total machine takeover (mainzer 2020). it is not a secret that to some extent everyone is concerned about the changes that would come along with the implementation of artificial intelligence as in spite of it strengths in knowledge representation, reasoning and planning (qian et al. 2020) its encompassing is generating concerns about ethical perspectives and risks (boddington 2017). being intrinsically good the idea of the implementation of artificial intelligence could trigger emergence of various ethical issues (neubert&montanez 2020) as in some cases the information technology is not uniting but separating people into “groups of truth” (sikdar 2018). moral aspect is also discussed by danaher (2019), who is stating that the rise of artificial intelligence and robots will “suppress our moral agency and increase the expression of moral patiency” (danaher 2019). therefore, it is still unclear what personal traits will be required to enable successful cooperation of human and non-human intelligence and how we can prepare ourselves to the usage of artificial intelligence. the scope of the present research is the usage of artificial intelligence in the accounting field, as the crucial point is that this area being quite computerized and digitalized nowadays, especially in estonia, still requires significant human interaction. and while the usage of artificial intelligence could improve business efficiency and reduce number of errors, it may also cause the loose of job by accounting professionals (shi 2020) by having a significant amount of jobs being taken by artificial intelligence (brougham&haar 2017). numerous researchers outline that artificial intelligence could be effectively used for external and internal audit and control (askary et al. 2018; bowling& meyer 2019; munoko et al.2020) providing error-free and unbiased information, however, still there may appear tensions among stakeholders, which in turn may generate ethical conflicts (munoko et al.2020). however, it is obvious that one should agree with the opinion of leading auditing and accounting professional companies and organizations stating that it is a contemporary challenging technology (kpmg 2019) having high potential for change (kpmg 2020), making possible to “do things that have never been done before” (pwc 2017), which inspires new possibilities of operating business (ey 2020) and making ourselves ready for the new world of modern innovative technologies (acca). the main aim of this research was to find out possibilities of adoption of the artificial intelligence in the field of accounting in case of estonia and its impact on the role of the accountant in the future. the main research question focuses on whether estonian accountants are aware of the challenges related to the implementation of artificial intelligence and their openness to these challenges. authors are also willing to find out the main benefits and constraints associated to 219 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 the implementation of artificial intelligence in accounting field in case of estonia. for the present study, the authors have chosen survey as a method of quantitative research due to a wide sample of respondents. the questionnaires were distributed via groups of professional accountants in estonia during the period of 28.10.2019-24.11.2019 and 02.03.2020 10.04.2020. in total 152 responses were collected in the process. this information was compiled, analysed and results are summarized and presented in the clear and understandable way.the remainder of the paper is organized as follows: after the linkage of the research topic to current literature, authors provide a practical insight into the awareness of the artificial intelligence, main areas of implementation companies identifying the main reasons and associated benefits. furthermore, authors present the results of the survey conducted among estonian accounting professionals, and these findings are taken as a basis for concluding remarks. research design the authors conducted a survey, which consisted of 12 questions related to the implementation of the artificial intelligence. one question was taken from the acca survey and the remaining were created by the authors. the languages of the questionnaire were estonian and russian. to present the questions and make it possible to collect data, an online survey engine google forms was used. the survey included one single choice question, where respondents were asked to choose one option from a list of arguments; one multiple choice questions, where respondents were asked to select several options and several linear scale question, where respondents were asked to select rank each argument from 1 (strong disagreement) to 5 (total agreement) in order to express their agreement or disagreement with each statement. the survey was conducted among professional accountants in business and public organizations currently working in estonia. teachers and scholars from the accounting field were not included, except students currently undergoing an internship in the field of accounting. the questionnaires were distributed via groups of professional accountants in estonia during the period of 28.10.2019-24.11.2019 with 87 responses received (this data was used by one of the authors in the master thesis) and 02.03.2020 10.04.2020 (65 responses were collected). in total 152 responses were collected in the process and authors consider this data as a basis for new and independent research presented in this article. this information was compiled and analysed. table 1 shows demographic data of the survey. table 1 demographic data of the survey status sample accountant 90 chief accountant 32 cfo 5 managing director 4 assistant accountant 8 accounting intern 5 other 8 total 152 education bachelor 72 master 37 status sample other 43 total 152 work experience < 4 44 5-9 28 10-14 33 15-19 24 20-24 16 > 25 7 total 152 status sample type of the company public 10 private 142 total 152 size of company 1-9 employees 55 10-49 employees 59 50-249 employees 18 more than 250 employees 19 other 1 total 152 source: author’s construction based on the results of the conducted survey e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 220 data of the table 1 makes it evident that most respondents are either accountants or chief accountants with either bachelor or master’s degree mostly employed by private companies. the next section represents the results of the survey. the aim of the first question was to find out whether respondents are familiar with the focus of the survey and the results revealed that the majority of respondents (82%) are familiar with the term “artificial intelligence”, however, the awareness of related terms is quite low: big data – 54%, machine learning – 34%, deep learning – 27%, artificial neural network – 20%, expert systems – 17% and for the 18% of the respondents all terms are non-familiar. in author’s opinion, this is due to the increasing appearance of the term “artificial intelligence in mass media and various journals. and while other terms seem to be more specific and less frequently cited, people seem to have no related associations. based on the acca survey authors also investigated whether the artificial intelligence is also implemented in the companies represented by the respondents (acca…2019), the results of the survey revealed that: it is actively used only in 11% of companies, 51% have no plans for implementation, 24% are not able to answer this question, 10% of the companies are at the stage of discussing possible ways of implementation, 2% are at the test stage and 2% are starting to implement. it should also be noted that results of the survey revealed that 69% of respondents strongly disagree or rather agree with the statement that artificial intelligence can totally substitute accountant, while 23% were not able to answer and 9% agreed with this statement. table 2 summarizes main reasons why companies should use artificial intelligence as well as the main areas of implementation. results data presented in the table 2 makes it obvious that the implementation of artificial intelligence should be applicable mostly to financial accounting and reporting as it saves time, deals with various routine tasks, and reduces usage of paper. however, the areas of accounting requiring also managerial and audit skills seems to be less suitable for the interaction of non-human intelligence. more detailed information about the tasks that might be performed by artificial intelligence is presented in table 3. table 2 main reasons, associated benefits and areas related to implementation of artificial intelligence in the field of financial accounting (in % of respondents) main reasons and associated benefits strongly agree or rather agree main areas strongly agree or rather agree saving time 97% financial accounting 97% automation of routine job processes, constant access to data 97% reporting 97% increased speed of data processing, data and memory size 93% cost accounting 88% data reliance 91% financial planning 87% increased productivity 90% forensic accounting 86% reduction of paper usage 86% accounting for salaries and wages 78% reduction of errors 78% taxation 77% saving money (reduction of expenses) 70% internal audit 75% increased trustworthiness and accuracy 57% managerial accounting 63% source: author’s construction based on the results of the conducted survey 221 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 table 3 main tasks, which could be automated by the implementation of artificial intelligence in the field of accounting (in % of respondents) automated tasks strongly agree or rather agree issuance and acceptance of invoices 95% financial reporting 95% yield forecasting 93% filling in and submitting declaration forms 93% real time inventory accounting 92% analysis of debts and receivables 89% forecasting and optimisation of costs and expenses 86% real-time assets accounting 85% forecasting and optimisation of investments 82% budgeting 81% forecast and optimization of taxes 70% strategical planning 63% managerial reporting 49% non-financial reporting 46% source: author’s construction based on the results of the conducted survey as becomes evident from the table 3 artificial intelligence could automate mostly standard process, there operations do not vary widely: issuance invoices, preparing financial reports and taxation declarations, while more complicated tasks involving non-standard situations and approaches like optimization of taxes, non-financial reporting and managerial reporting still require human efforts, knowledge and skills. these findings also supported by the results presented in the table 4, confirming that artificial intelligence is mostly suitable for data processing, controlling and monitoring and least suitable for handling problems requiring creative and critical thinking, ethical consideration and the ones handling force-majeure situations. table 4 main constraints and tasks making implementation of artificial intelligence not possible in estonia (in % of respondents) main constraints in accounting field in estonia strongly agree or rather agree main tasks non-suitable for implementation strongly agree or rather agree shortage of implementation experience 99% solving of problems requiring creative thinking 93% shortage of professionals 96% consulting 92% complexity of artificial intelligence 94% independent decision making 91% need of large investments 78% finding solutions to ethical problems and dilemmas 90% complexity of calculating the cost of implementation of artificial intelligence 66% management of exceptions 86% shortage of rules and standards 66% discussions 84% big associated risks 61% handling of force-majeure situations 76% ethical consideration 53% interpretation of data and results 53% distrust 43% controlling and monitoring 39% source: author’s construction based on the results of the conducted survey e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 222 among the main obstacles of non-implementation of artificial intelligence is estonia respondents outlined lack of experience, experienced professionals, and the complexity of this process in general. they also disclosed the main skills and personal traits required for successful implementation, which are summarized and presented in table 5. as clearly illustrated by table 5 in order to cope with the usage of artificial intelligent at workplace accountant needs to be strong in it and digital fields, be creative and able to think critically as well as willing to keep up to date with the latest developments in the area of accounting; while social and managerial skills are least required as no active communication process is taking place. however, these changes and innovations would require accountants to become more adaptable, cooperative, ethical, and open-minded. the results of the research revealed that in general respondents are aware of the artificial intelligence, however they consider it to be quite complex, time and resource consuming and its implementation looks complicated. this is proved by the fact that only few companies are either actively implementing it in their everyday business activities and several are considering the implementation. in line with findings of several researchers it seems that the usage of artificial intelligence in accounting field could be most successfully used in financial accounting and reporting as well as filling in various taxation declarations, i.e. quite standardized areas with strict guidelines and requirements. while when it comes to more creative and open-minded fields like managerial accounting, strategical planning, and non-financial reporting the human factor plays a primary role. in authors opinion, still most respondents associate artificial intelligence with automated machine, which could be used to optimize certain routine processes, but has little to do with tasks requiring creative and critical thinking. and while respondents agreed that the implementation of artificial intelligence may improve job productivity, assist in data processing and monitoring and save time it is still quite expensive and non-useful for consulting, managing of situations requiring creative and non-standard thinking or the ones involving ethical issues. it was also interesting that while audit companies being excited and welcoming the new world of challenges and changes enabled by the artificial intelligence , according to the survey results the internal audit were not number one in the list of possible areas of its implementation. table 5 main skills required for successful cooperation and implementation of artificial intelligence (in % of respondents) main personal and interpersonal skills strongly agree or rather agree main personality traits strongly agree or rather agree it knowledge and skills 98% adaptable 97% digital competence 97% cooperative 93% continuing professional development skills 95% ethical 88% data processing, processes monitoring and evaluation skills 93% open minded 86% critical and creative thinking skills 92% creative 84% knowledge of accounting standards and legislations 92% critical ability 83% managerial skills 54% openness 79% social skills 53% helpful 68% source: author’s construction based on the results of the conducted survey conclusions 223 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 references abeyratne r. 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(2020). explorative study of artificial intelligence in digital marketing. doi: 10.1007/978-3-030-43192-1_107 https://doi. org/10.1007/978-3-030-43192-1_107 about the authors gavrilova valeria ma metaan as fields of interests financial accounting and reporting. address laki põik 6, 12915, tallinn, estonia. e-mail: valeriagavrilova8@gmail.com gurvitsh-suits natalie aleksandra phd tallinn university of technology fields of interests csr, social audit, financial and non-financial reporting. address ehitajate tee 5, 19086, tallinn, estonia. e-mail: natalja.gurvits@taltech.ee this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). editorial note the main aim of the journal is to analyse scientific and practical problems in the scope of european integration processes. the articles are brought under three wide, multidisciplinary and interdisciplinary themes. 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poland as well as analysis of decade of sustainability reporting in eu from the perspective of nasdaq omx baltic main list is presented. old-new trends or possible balance for challenged european integration processes in nordic-baltic cooperation are presented. managerial aspects are reflected via analysis of involvement of employees in increasing the efficiency of production processes for smes in the baltic states and corporate social responsibility in the latvian retail sector. highlighted european trends in business incubation through open innovation approach. it is a key to stress that journal invites scholars submit manuscripts from different countries. material of the manuscripts submitted for publication to the journal must be of a high scientific level and previously unpublished. since the 2002 kaunas university of technology prepares and publishes scientific works under the theme of european processes in the field of politics, economics, management, law, and cultural dimensions. at the present, the annual scientific journal european integration studies is published once a year. the papers published in journal are abstracted and indexed by international databases: web of science: emerging sources citation index, ebsco bsp, ebsco ceeas, index copernicus, ceeol, base, miar, lituanistika, doaj. journals in esci have passed initial editorial evaluation and can continue to be considered for inclusion in products such as scie, ssci, and ahci, which have rigorous evaluation processes and selection criteria. papers published in the european integration studies undergone a formal process of double-blind peer review by two appointed external reviewers. it is believed that the articles included in the journal, being selected and reviewed, are of high scientific quality were actual scientific problems are solved, deserve wide distribution. editor hope that presented new scientific ideas and ways of problem solving will help to develop research not only for academics and students but and for wide representatives of society that seek to improve their knowledge in eu ropean integration processes. in conclusion, the editor would like to thank all authors of the articles for their willingness to share the ideas with others. rasa daugėlienė microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 the role of individual performance for efective public management: european union and lithuanian case studies algis junevičius indrė seniūnaitė kaunas university of technology institute of europe abstract performance is one of the key terms of modern public administration. most of reform proposals speak in one or another form of strengthening performance or of introducing new performance measures/instruments into public sector organizations. traditional public administration is usually poor in offering stimulating job contents, particularly because of over-bureaucratized regulations and narrow decision-making competencies which limit the job autonomy of civil servants. in contrary, implementing performance appraisal into public personnel management makes job more attractive regarding to career perspectives (clear and secure promotion) and extra payments for outstanding performance. keywords: individual performance, performance management of public personnel, performance related pay, career linked to performance, appraisal procedure of european union officials’, lithuanian public officers’ appraisal system. introduction the performance of staff is crucial to the success of any organization. performance measuring in public institutions became as much popular as in private organizations because of the competition between these sectors attracting qualified employees. adopting appraisal policy, which is one of the main factors motivating staff, helps to maintain competent personnel and to attract new qualified people. regarding to annual performance measurement of public officers, employees can comprehend corresponding outcomes: the connection between his good performance and motivators, such as increased salary, promotion, increased respect and recognition. because of this linking outstanding performance to rewards, performance measurement policy is a good tool for improving public service. research problem – indetermination of the appropriate reward tools in different appraisal policies seeking to promote commitments for performance within the public workforce. research purpose is to answer mainly these key concerns: how performance-orientation of the public workforce can be realized to motivate officials, what are the main rewards for effective assessment appraisal in practice, what are the examples measuring performance of public personnel in european union and lithuania? this article concentrates on following goals in order to understand performance assessment managing public personnel: • to describe appropriate concepts and tools of hrm for performance management orientation, to identify the main methods of performance assessment, • to analyze 2 types of rewards related to performance: performance related pay and performance related to promotion, • to verify how performance appraisal is being applied in lithuanian civil service personnel management • to clarify european union performance-based career structure. research object: assessment of officials’ individual performance. research methods: • analysis of nonfiction literature; • analysis of juridical literature; • analysis of statistical data. the main concepts of performance assessment managing public personnel. very often performance is related with famous “3 e” (economy, efficiency and effectiveness) definition: the relation between minimal and effective cost (“economy”), between effective cost and realized 35 output (“efficiency”) and between output and achieved outcome (“effectiveness”). the main purpose of implementing performanceorientation into public sector officials’ management is to promote commitment for “performance” within the public workforce. public servants are expected to achieve high performance for positive results of their activities with regard to economy, efficiency and effectiveness and to achieve the performance targets set by their superiors. advanced performance management focuses on 3 main lines [2]: • task-oriented: based on results as opposed to personal traits, and measuring results against pre-defined goals and targets; • participative: involving the employee as well as his or her supervisor, both in the setting of goals at the beginning of the rating period and in appraising results at the end; • developmental: the evaluation process should do more than rate employees – it should assist them to improve their performance, and to identify any training or other support that may be required to this end. the performance orientation of public servants can be described by the two adequate factors ability of an individual employee and on his/her willingness to show performance. such a performance-orientation of the workforce can be realized by appropriate concepts and tools of human recourses management policy [1]: tools for ability: • effective recruitment and selection procedures (attracting and selecting “high performers”); • education and training concepts and instruments, including management development and leadership training for building necessary skills and attitudes of performance management; • adequate job placement which allows the utilization of existing potentials and capacities of personnel (including regular rotation etc.); • frequent performance-based reviewing and appraisal of task-fulfillment (including feedback to subordinates); tools for willingness: • attractive motivation and incentive systems which motivate for performance; • stimulating leadership behavior of managers (including adequate recognition of the performance shown by subordinates); • rewarding good performance with material and immaterial rewards (including performance-related pay); • promotion and career development of employees with positive performance. transparency of performance (targets, inputs, costs, outputs, outcomes) qualificatio n of personel performance motivation (performancerelated incentive structures) performan cerelated rewards ability willingness performance orientation fig.1. performance orientation: ability and willingness. the main methods assessing performance of officers’ performance assessment is one of the key tools of public personnel management in developed countries. the main methods of performance assessment are [8]: 1. rating (assessor assess officer’s performance as outstanding, good, insufficient and ect.). 2. essay reports (can be open, there supervisor describes officer’s performance, training needs and potentiality, or structural, when assessor answers special questions about officer’s performance). 3. list of control statements (using statements about officer’s performance, which assessor can mark as appropriate). 4. critical coincidence (supervisor gets positive and negative performance descriptions’ lists and he/she must keep records about good and bad examples of officer’s work). 5. obligatory option (supervisor gets different work descriptions, he/she assess officer according to them, but supervisor is not informed about the suitable performance description). 6. levelling (simple levelling – listing employers according to their performance perfection; alternative levelling – listing the best, the worst, second from the best performers and ect., pair levelling – every officer is compared with another one and results are used for final leveling). 7. obligatory apportionment (special categories are created and officers are apportioned according to these categories, for example, 10 pc. of the best, 20 pc. of outstanding, 40 pc. of good, 20 pc. of sufficient, 10 pc. of insufficient). 8. management by goals (special goals are set, which are measured quantitatively and qualitatively in officer’s performance). in lithuanian and european union public personnel performance assessment rating method is used. 36 issn 1822-8402 european integration studies. 2007. no 1 relating performance to rewards developing performance indicators at the level of the individual raises the issue of relating performance to rewards. rewards may be non-monetary, such as recognition and increased work flexibility in exchange for more accountability, or monetary, including linking pay to performance. a lot of countries have developed a performance appraisal system for public sector employees, at least in formal terms. in countries where no reforms of the pay system have taken place, priority is often given to promotion policies, position re-classification and other non-pay instruments. table 1. different emphasis in initiatives by country [7] relatively more emphasis put on monetary incentives relatively more emphasis put on promotion-career opportunities australia canada denmark finland italy korea new zealand sweden switzerland united kingdom united states austria france poland portugal a detailed analysis of the emphasis of different hrm systems shows that in spite of the fact that most countries are developing performance related-pay schemes, and despite a few exceptions, the emphasis on monetary incentives for good performance is relatively stronger in position-based systems, while the emphasis on career or promotion is stronger in career-based systems [7]. performance related payment in public sector performance related payment (prp) system comes more and more popular, which is widely used in private sector. studies have identified various positive and negative factors for implementing performance related payment. table 2. performance related pay: positive and negative factors [2]; [3]. positive negative m ot iv at io n it can foster individual motivation, by recognizing effort and achievement and rewarding it in a concrete way it is only one element in the staff management system and cannot make up for serious deficiencies elsewhere. if pay is perceived by staff to be inadequate, performance bonuses of a few per cent are unlikely to motivate employees and may simply be seen by them as a minor pay supplement. c om pe tit iv en es s introducing prp is seen as necessary to compete effectively with the private sector for the most talented employees. performance payments tend to be small by comparison to normal pay owing to budgetary constraints a cc ou nt ab ili ty political reason: it refutes any idea that civil service employees are unaccountable and overpaid, by showing that their level of performance is monitored there is often a large time-lag between the end of the appraisal period and the payment of the related reward le ve l o f p ay m en t governments may see prp as a way of containing salary costs by reducing automatic progression through salary levels, or on the contrary as a way of lifting an overall salary ceiling, with nonpensionable financial rewards. even where performance-pay schemes allow for variable payments, most employees tend to receive similar ratings: managers appear unwilling to differentiate among their subordinates the first wave of prp policies were in the 1980s. the governments of canada, denmark, the netherlands, new zealand, spain, sweden, the united kingdom and the united states were among the first to adopt prp in one form or another. a second round started in the early 1990s, with the adoption of prp policies in australia, finland, ireland and italy. most recently, countries such as germany, korea, and switzerland, as well as some in eastern europe (the czech republic, hungary, poland and the slovak republic), began to put prp mechanisms in place. in 2004, france started experimenting with prp for top level civil servants (director’s level) in six pilot ministries [3]; [6]. mostly, countries which have developed the strongest links between performance appraisals and 37 issn 1822-8402 european integration studies. 2007. no 1 pay as employee incentives are those which have the highest delegation of responsibility for human resources and budget management – usually positionbased systems. however, this has started to change and prp policies have now been introduced into some career-based systems such as hungary and korea. [3] korea finland norw ay germ any de nm ark australia new ze aland sw e de n italy hungary spain france portugal gre e ce japan luxe m burg unite d states canada be lgium aus tria m exico ice land united kingdom ire land czech re public low hr delegation high no t l in ke d p er fo rm an ce to p ay li nk ed fig.2. connection between performance appraisals related pay and delegation degree in some countries [10]. the form of payment varies considerably across countries. two main types of system can be identified (in many cases the two are combined in a single policy) [4]: • merit increments, which take the form of either a fixed or variable increase which is added to and can become a permanent part of the basic pay. pay progression is therefore linked, wholly or in part, to individual performance rather than seniority. • bonuses, which are one-off payments which are not consolidated into basic pay. they may be expressed in either cash terms or a percentage of the basic pay. they can be distributed independently of the level of salary. performance-related pay system has its’ positive and negative factors, but for effective functioning it must be seen as fair and equitable by all employees. linking performance to promotions: european union performance-based career structure some have argued tying career advancement to performance is more important than linking performance and pay. there is no doubt of the need to ensure that the best people rise to management levels, but it is not advisable to make performance appraisals the sole factor in promotion decisions. [2] still, an effective and reliable performance evaluation mechanism can play a valuable role in promotion decisions. this, incidentally, can help to ensure that the evaluation process retains its relevance and credibility in the eyes of employees. good example for linking performance to promotions can be illustrated by the new european union officials’ appraisal system – career development review (cdr). the main idea of cdr system – a variation in career speed depending on the level of performance. to make appraisal more objective the performance of individual officials is now quantified by merit points and priority points. the annual appraisal of officials is the basis for awarding merit points counting towards promotion. officials changing jobs will take their accumulated points with them to their new post. key indicators conduct, performance and abilities are evaluated using a new standard appraisal form [5]. merit rating of officials expressed in terms of points: 1. above average: 17-20 points 2. average: 12-16 points 3. below average: 10-11 points if performance is insufficient, the official will receive a low score or zero points. the overall performance of jobholders is expressed in merit points awarded in the appraisal procedure and in priority points awarded in the subsequent promotion procedure. 38 issn 1822-8402 european integration studies. 2007. no 1 the appraisal procedure. performance in the post is ranked with up to 20 merit points on three criteria (up to 10 for performance, up to six for ability and up to four for conduct) by the line manager in the light of a dialogue on the agreed job description, task assignment and objectives. table 3. performance measurement form [5] performance rating ability rating conduct rating 910 outstanding 6 outstanding 4 very good 78 very good 5 very good 3 good 6 good 4 good 2 sufficient 5 sufficient 3 sufficient 1 poor 34 poor 2 poor 0 insufficient 02 insufficient 01 insufficient the promotion procedure. priority points are awarded in a "second round", the promotion procedure, which starts at the beginning of april every year, after completion of the formal stages of appraisal [5]: 1. the director-general is able to award up to 10 points for special services to the directorate-general . 2. up to two additional priority points per official may be awarded by the promotion committees. the promotion committee assesses activities performed in the interest of the commission. the maximum score that can be attained in an appraisal and promotion exercise is thus 32 points. an official scoring under ten points is not eligible for promotion. the new system also ensures that assessors make a clear distinction between the fastest and the slowest careers. assessors are in turn assessed on the quality of their appraisals. this is designed to ensure that they take great care when writing career development reports. promotions thus are based purely on merit and performance over time, expressed in terms of points awarded each year in the appraisal exercise. officials accumulate points until they reach the promotion threshold. points accumulated over and above this threshold remain on their account. performance appraisal in lithuanian public personnel management structure the evaluation system used in lithuanian public sector is interrelated with remuneration. the interface of the productivity of the public servant’s performance, qualification and remuneration induces the public servant to work more efficiently as he or she will be remunerated for attempts and results achieved. this system also creates a possibility to develop career since one of the encouragement instruments is promotion of the public servant. since 1995, after adopting the law of officer’s, performance assessment was adjusted in lithuanian public personnel management. the main failing of this law – assessment was more formal thing and it had no motivation effect. after adopting the law of lithuanian public service in 2002, lithuanian public officers’ appraisal system was improved: officer’s performance was linked with promotion and salary: direct relation with the good assessment of the officers’ work and promotion opportunity, salary system with motivation affect because of perk and premium use. depending on assessment of officer’s performance officer could get a qualification class (i, ii or iii, from which the highest is i), or his/her qualification class could be raised. it also affected officer’s salary: due to the qualification class officer could get a bonus from 15 to 50 percent of his/her salary. the extraordinary allowance for a very good performance is an instrument for encouragement of the public servant taking into consideration his administrative capacities. lithuanian officers’ 5 key indicators of assessment [9]: • performance load; • performance quality; • performance complexity; • abilities to utilize possessed knowledge; • communication and cooperation skills. public officer’s work can be assessed by his/her supervisor as very good, good or insufficient. when officer’s work is assessed as very good or insufficient, special committee of assessment asses officer’s performance again. when committee of assessment access officer very good, it suggests to officer’s supervisor [9]: • to raise officer’s qualification class [obligatory]; • to promote officer [optional]; • to leave the same (the highest) qualification class and premium, which officer receives for the qualification class, if institution is not able to promote officer [optional]. when special committee of assessment access officers insufficient, it suggests to officer’s supervisor: • to improve officer’s qualification [obligatory]; • to reduce officer’s qualification class [obligatory]; • to down-grade officer [optional]; • to fire officer, if he/she was assessed as an insufficient twice [obligatory] 39 issn 1822-8402 european integration studies. 2007. no 1 assessment of officer’s performance very good s u g g e s t s to raise officer’s qualification class to promote official salary, which depends on qualification category perk, which depends on qualification class. components of officer’s salary: fig.3. officer’s performance related to pay. assessme nt of officer’s performan ce very good s u g g e s t s to raise officer’s qualification to promote promote without concourse raise the qualification class the leader of institution can: fig.4. officer’s performance related to promotion the system of performance evaluation of civil servants in lithuania is subject for improvement. today, many public servants do not know what is expected from him, the dialogue between administration and the public servant is not stressed. this dialogue should help each civil servant to discover goals and tasks set for him. only after the strategic planning system is fully implemented in lithuania, the performance of the public servant will be interrelated with the goals, strategy and administration culture of an institution or agency. conclusions the following statements draw inferences from this article: • the performance orientation of public servants can be described by the two adequate factors – ability of an individual employee and on his/her willingness to show performance. • there are a lot of methods to measure individual performance of officers’. the most popular of them is rating method, which is also used in european union and lithuanian public personnel assessment practice. • developing individual performance in public sector raise the issue of relating performance to rewards, which can be non-monetary or monetary. • there are number of positive and negative factors of implementing performance related pay in public personnel, but for effective functioning it must be seen as fair and equitable by all employees. mostly, countries which have developed the strongest links between performance appraisals and pay as employee incentives are those which have the highest delegation of responsibility for human resources and budget management – usually position-based systems. • an effective and reliable performance evaluation mechanism can play a valuable role in promotion decisions. • usage of some reward for individual performance is more advantaged when it is combined with other rewards for good performance. • the new european union officials’ appraisal system – career development review – a variation in career speed depending on the level of performance. the overall performance of jobholders is expressed in merit points awarded in the appraisal procedure and in priority points awarded in the subsequent promotion procedure. key indicators – conduct, performance and abilities. • lithuanian public officers’ appraisal system is inked with promotion and salary: direct relation with the good assessment of the officers’ work and promotion opportunity, salary system with motivation affect because of perk and premium use. still, the system must be improved taking into consideration an issue of the missing dialogue between administration and the public servant, who should know what is expected from him and whose performance must be interrelated with the goals, strategy of an institution. references assessing performance-orientated hrm activities in selected oecd countries. a review of ten years of modernisation: the hrm perspective. human resources management (hrm) working party meeting oecd headquarters, paris, 7-8 october 2002. individual performance management . administrative & civil reform./ the world bank. on-line: 40 issn 1822-8402 european integration studies. 2007. no 1 http://web.worldbank.org/wbsite/external /topics/extpublicsectorandgovern ance/extadministrativeandcivilse rvicereform/0,,contentmdk:20133441~me nupk:1828910~pagepk:148956~pipk:216618~t hesitepk:286367,00.html#3 paying for performance: policies for government employees. policy brief. oecd, 2005. performance-related pay of government employees: assessing reforms across oecd member countries. oecd, 2003. reforming the commission: performance-based career structure. on-line: http://ec.europa.eu/reform/2002/chapter02_en.ht m#3_5 perspectives on reforming pay in government organizations: a short review in history, research and theory so far, and main trends in oecd member countries. / experts meeting, oecd, paris, 2003 trends in human recourses management policies in oecd countries: an analysis of the result of the oecd survey on strategic human recourses management. / public governance and territorial development directorate, public governance committee, paris, oecd, 2004. online: http://appli1.oecd.org/olis/2004doc.nsf/43bb6130 e5e86e5fc12569fa005d004c/9af0f2e9e8fb0304c1 25700b003b7a13/$file/jt00184766.pdf pivoras s. tarnybinės veiklos vertinimas lietuvos valstybės tarnybos personalo vadyboje. politologija n. 1(33). p. 56 – 74. the law of lithuanian republic public service. 2002 m. april 23 d. nr. ix-855, vilnius performance-related pay policies across 12 oecd countries: brief overview./ performance-related pay policies for government employees, oecd 2005. 41 issn 1822-8402 european integration studies. 2007. no 1 microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 the entrepreneurship in the regional development strategy on the example of the province of warmia and mazury (poland) krzysztof krukowski university of warmia and mazury in olsztyn abstract the warmińsko-mazurskie region has one of the highest unemployment rate in european union countries (27,3%). one of the most important task of local authorities is to limit this phenomena by creating the environment to develop entrepreneurship and particularly by development the sme sector. the conditions of development of sme sector are one of the most important part in local development strategies. the factors of sme development influence the development of whole region. the amplification of local economy has a big impact for the development of local community. in the article the strategy analysis of warminsko-mazurskie was conducted. the main objective of the analysis was to show the elements of strategy directly connected with the development of sme sector. one of the objective in the strategy was totally commited to this sector. it sounds: “well developed entrepreneurship”. during the analysis it turned out that all instruments of supporting the enteprises should be laid on sme sector, particular those which arise lately. keywords: region, sme sector, the strategy of development. introduction the province of warmia and mazury is among the regions of poland with the highest registered rate of unemployment (23.7%). therefore the most important role of its regional authorities is to create the foundations for the development of the local economy, and the development of small and medium enterprises in particular. the development strategy adopted by the provincial authorities depends on the conditions in and the character of the local economic environment. the conditions in the macro environment of the local business sectors play a very significant role. those conditions are of economic, political, legal and technological nature. if we assume that they are the same for all businesses operating in the country, regardless of the region, then the conditions influencing the economic development on the local level are of great importance. strengthening local economy on the provincial level is very important for the development of local communities. thus the activities promoting entrepreneurship should originate in the strategic goals included in the development strategy of the province and should enable successful achievement of those goals. if the local authorities want to facilitate the development of the region and foster entrepreneurship, they have to determine the key goals in the economic policy included in the development strategy. among the objectives which have an influence on business activity, the following are most often included in regional development strategies: development of entrepreneurship, multifunctional development of rural areas, a decrease in unemployment, an increase in employment in the agricultural and food industries, development of local tourism, an increase in the income from activities outside agriculture, promotion of entrepreneurship in the local community. the following study analyzes the development strategy of the province of warmia and mazury. its purpose is to present those parts of the strategy which concern small and medium enterprises (smes). social and economic profile of the province of warmia and mazury the province of warmia and mazury is located in north-eastern poland and covers the area of 24,203 km2, which constitutes 7% of the whole area of poland. the province was established following the administration reform of january 1, 1999, and is one of 16 provinces in poland. the province accounts for 3% of the polish gdp, and its gdp per capita stands at pln 9,000, ranking it 12th in poland. to the north, the region of warmia and mazury borders kaliningrad region (the russian federation). in the north west, the province has access to the vistula 130 issn 1822-8402 european integration studies. 2007. no 1 lagoon (zalew wiślany). there are 49 towns and 3,900 villages in the province. the capital of the province, olsztyn, plays the role of a regional metropolis. there are 17 land powiats (districts) in the province of warmia and mazury, and two urban powiats – towns having the rights of a district (olsztyn and elbląg). the network of powiats comprises 116 gminas (communes), including 16 urban gminas, 33 urban-rural gminas and 67 rural gminas. what’s characteristic of the region is an even distribution of the powiat towns and networks of small gminas. the province is inhabited by 1,463,000 people, which accounts for 3.8% of the population of poland. there are 103.7 women per every 100 men. this figure is similar to the national average which stands at 105.7. 60.1% of the population of the province live in cities and towns, and 39.9% live in rural areas. because of the low number of inhabitants and a relatively large area, the province of warmia and mazury is the least densely populated region in poland. rural gminas in the province of warmia and mazury have a strong agricultural potential. the size of an average farm is twice as high as the average in poland and stands at 16.5 hectares. the share of people working in agriculture is the lowest in poland and stands at 9.3% of the population per 100 hectares. more than a half of individual farms in the region earn its income from producing for the market. in the powiats of giżycko, pisz, olsztyn, mrągowo, ostróda and ełk, fishing plays a significant role. sea fishing takes place in the areas located on the coast of the vistula lagoon (zalew wiślany). the region of warmia and mazury is an attractive destination for tourists. it boasts the land of great mazurian lakes, the vistula lagoon (zalew wiślany), iława lakeland, olsztyn lakeland, ełk lakeland, and vast forests (puszcza piska, puszcza borecka, lasy taborskie and lasy iławskie). those areas do not fully benefit from their natural richness because their tourist infrastructure is not sufficiently developed. what is characteristic of this region is that its tourist facilities are concentrated by the lakeside, and that the number of tourists depends on the period of the year. out of 55,600 sleeping places offered by 900 tourist facilities in the province, only 15,000 are available all year round. there are 91,000 businesses in the region. most of them operate as sole proprietorships under the polish civil code (73,181), representing 79.9% of all businesses in the region. companies operating under the polish code of commercial companies and partnerships constitute merely 3.3% of businesses in the province. there are 62.5 businesses per 1,000 inhabitants of the province, out of which 50 operate as sole proprietorships. the province of warmia and mazury is much less industrialized than most other provinces in poland. the province’s share in the total value of industrial production sold stands at 2.5%. the province also represents 2.9% of the total employment in poland. it hosts about 9,900 production companies and its industrial production is dominated by the production of food, furniture, wood products and tyres. the province of warmia and mazury is lagging behind in terms of technical infrastructure. however, it is the provision of water and electricity that are in the best condition. all of the cities and gminas have access to water intakes and operate water distribution networks. access to the water supply system in the rural areas ranges from 20% to 100%. fortunately, the deficiencies of the system are gradually eliminated. however, the development of the water supply network is not accompanied by an increased investment in sewage management. some towns and most gminas do not have a developed sewage management system. holiday resorts dotting the lakesides, which do not have a proper sewage management system, are a significant source of problems. some areas of the province are connected to gas networks. the supply of natural gas in the rural areas is scarce. only 51% of the cities and 3% of the villages are connected to the gas network. the arrangement of roads in the province includes connections of regional and national importance. the road network in the province ensures good internal connections. however, only 21% of the local roads are paved (compared to the national average of 46%). the road network in the province is in a poor technical state. conditions for the development of medium and small enterprises (smes) in the province the swot analysis was used in the formulation of the development strategy of the province of warmia and mazury. it was used in order to determine the conditions for the development. however, the strategy does not include a separate swot analysis concerning the conditions for the development of medium and small enterprises (smes). some of the strengths of the province of warmia and mazury, listed in the strategy, facilitate the development of smes either directly or indirectly. the following factors influence the development of this sector in a direct way: • natural conditions favourable to the development of tourism, agrotourism and the so called „clean industry”, • potential for production of high quality food products, 131 issn 1822-8402 european integration studies. 2007. no 1 • diversified industry, • ample labour resources. the conditions influencing the development of smes include: • location near the border – in the future it will be the border of the eu, • access to the baltic sea, • available, and as yet not utilized, investment areas, • regular distribution of towns of a regional, rather than only local, importance, • closeness to the planned a1 and via baltica motorways. among the factors limiting the growth of the sme sector in the province of warmia and mazury (weaknesses) are, and will be in the near future, the following: • location far from business centers of national importance, • poorly developed industry, • poor technical infrastructure, particularly in the rural areas and small towns, • insufficiently developed tourist infrastructure, • high unemployment rate, • insufficient level of inhabitants’ education (which does not meet the local needs), • lack of highly-qualified personnel, • poor communication networks both within the province (railway, bus system) and with the rest of the country, • lack of business information centres, investor relations centres and institutions promoting export. most of the factors mentioned above will directly influence the entrepreneurial potential of the province. while designing the strategy, apart from determining internal factors (strengths and weaknesses), it is crucial to determine those conditions in the environment which positively influence the development of smes in the region (opportunities), and those which limit their development (threats). similarly to strengths and weaknesses, opportunities and threats can have a direct and indirect influence on the development of smes. the following factors can be identified as direct threats: • economic slowdown or a crisis in poland, • inconsistent and unstable legal framework, • lack of a stable government policy supporting smes. the following factors can have an indirect influence on the development of smes: • lack of legal, economic and financial preferences and incentives for tourism, • lack of interest from companies from outside the region to create jobs in the province • economic crisis in neighbouring countries, • flight of foreign capital and a lack of interest from new foreign investors. the swot analysis included in the strategy of the province mentions the following direct and indirect opportunities for the development of smes in the region: • economic boom caused by an increased interest from foreign investors, • development of ecological farming and food processing (attraction of new investors), • increased domestic demand for tourism and recreation in the region all year round, • inflow of highly-trained people to the region, • development of ecological education through the development of agrotourism, • development through increased cooperation with foreign partners, • membership in the european union. the conditions presented in the swot analysis should be used in the decision making process with respect to the future of the sme sector, and should help the decision makers to choose the activities influencing the development of this sector in both a direct and indirect manner. when making decisions and choosing solutions, the local authorities should remember about four basic guidelines connected with the swot analysis: • we should build on our strengths, • we should improve our weaknesses, • we should avoid the threats, • our success may depend on how well we respond to the opportunities in our environment. those guidelines and a detailed analysis of the regional economy should be the basis for the formulation of the strategic goals. strategic goals of the province connected with the support to smes one of the strategic goals of the province concerns entrepreneurship. it is called a ‘welldeveloped entrepreneurship’. from the point of view of the formulation of strategic goals, it is formulated in the wrong way. from the methodological point of view it does not meet the basic criteria for strategic goals. it is neither measurable nor achievable. on top of that, it is also not specific enough. we can assume that this was caused by the application of the method of active strategic planning (metoda aktywnego planowania strategicznego) in designing the strategy. this method assumes that a strategic goal is, at the same time, a result which is achieved when the operational goals are met. within such a strategic goal 132 issn 1822-8402 european integration studies. 2007. no 1 the operational goals are chosen, and they are to lead to a decrease in unemployment and a rise in the standard of life of the inhabitants of the province. in this case, those responsible for the formulation of the strategy were inconsistent because the strategic goal defined by them is different, and does not necessarily involve a decrease in unemployment or an increase in the standard of life of the inhabitants. the designers of the strategy departed from the method of strategy formulation. operational goals (whose role is to help achieve the strategic goal) concerning the development of entrepreneurship, are listed below: 1. an effective policy for supporting smes at the local level. it takes the form of: helping smes comply with the norms, standards, iso management systems (management of quality, environment, health and safety at work), total quality management (tqm) used in the eu; facilitating access to training, information and technological innovations; partnership with the business selfgovernment at the local and regional levels; creating a network of organizations supporting entrepreneurship and cooperating with the local authorities; obtaining eu funds (pre-accession and structural) for the promotion of entrepreneurship and assistance for fledging entrepreneurs in setting up and initial management of their businesses; stable and long-term tax relieves in gminas; supporting activities aimed at increasing exports, with particular attention paid to kaliningrad region. economic relations with kaliningrad region, owing to its location are a significant opportunity for the development of smes in the province of warmia and mazury; supporting the development of the research and development (r&d) infrastructure available to smes. 2. a large number of domestic and foreign investors. the goal is to be achieved through an increased inflow of capital into the region. to attract the capital, it is necessary to: create a consistent programme promoting investment in the region; prepare and develop the territory in which the investment will take place; create a system of investor service, coordinated on the regional level and responsible for preparation of professional investment offers; promote and ensure effective operation of the special economic zones. the special economic zones should be home to companies operating in those economic sectors which are new to the province, or are few in number; create promotion strategies and pr campaigns aimed at external investors. 3. creation of the right climate for an active society. this goal will be achieved through: fostering entrepreneurial and innovative attitudes and business activity; introduction of suitable teaching programmes at schools; fostering local leaders – identification of outstanding individuals, training, and creation or working conditions for them and monitoring of their achievements; training the local authorities with respect to cooperation with potential investors, local social groups, and ngos. 4. an increase in the economic potential, in particular of smes, and improvement in their competitiveness. numerous activities are aimed at increasing the economic potential of the province and they have been already planned. however, an increase in the number of businesses is not, in itself, sufficient. those businesses must be able to compete successfully on the market. in this case, innovation and access to capital play a decisive role. therefore it is necessary for the province of warmia and mazury to: • establish regional innovation centres and ensure the transfer of new technologies, • create innovative local segments and develop business consulting organizations. bodies responsible for agricultural consulting should also advise on the implementation of new technologies, • create cooperation centres initiating and facilitating development of regional cooperation, • create a technology park, • support initiatives from local businesses and persons interested in designing, production or use of renewable energy, • found a regional economic information centre, • implement the ‘regina’ programme for the promotion of quality, • establish accredited certification bodies responsible for the certification of products, services and systems in terms of quality and environmental management, • build a trade and conference centre, • organize regional fairs for products and services, • support and create financially strong and universally available credit guarantee funds and launching a subsidy and microfinance funds, • support the development of fishing in the vistula laghoon. 133 issn 1822-8402 european integration studies. 2007. no 1 5. development of the information society. in the modern economy, information is just another factor of production, along with resources, capital and labour. the regional programme for increased access to the internet will help to overcome the existing information barrier. it will help companies and business institutions to collect information about the sources and ways of raising capital. apart from the operational goals leading to the achievement of the strategic goal concerning the development of entrepreneurship, the development of smes is also included in other strategic goals. the achievement of the goals related to education, technical infrastructure and restructuring of the rural areas will translate into the development of the sector of smes as well. with respect to the education, the strategic goal is to create an efficient education system adjusted to the needs of the region’s economy and supporting the development of human resources. in the modern market economy the competitiveness of a region is highly dependent on the quality of its human resources, understood as professional qualifications, skills and the general knowledge which enable individuals to change their jobs during the span of their career life. to achieve this strategic goal, the following operational goals have been formulated: creation of the educational system matching the needs of the labour market (a bank of information on the needs of the labour market and possibilities of vocational learning will ensure direct connection between the educational system and the needs of the labour market). the following goals concerning the development of technical infrastructure influence the development of smes: development of infrastructure in the rural areas (basic technical infrastructure plays an essential role in the economic development of rural areas, which means better technical state of roads, farms’ access to the water supply network, good sewage management, proper storage of manure, development of telecommunications services and access to natural gas); infrastructure on the borders of the country meeting the needs of trade and tourism (efficient border crossing points with access roads in a good state of repair, favourable political climate between the bordering states will enliven international cooperation with europe and strengthen trading cooperation with kaliningrad region, a situation which is a tremendous opportunity for the province of warmia and mazury which has cooperated with kaliningrad region for many years). the realization of the goal related to creating new posts outside agriculture will also positively impact the development of smes. this goal assumes that the number of businesses in rural areas will increase by 2% and employment will rise by 1.5% annually. the strategy of the province of warmia and mazury also includes goals connected to the restructuring and development of urban areas creating the environment for new types of business activity. those goals assume that, in elbląg, olsztyn and ełk, which are considered urban centres playing a significant role in the development of the province, there are some areas (development areas) which require restructuring and modernization, or new investment in order to create conditions for the development of new kinds of economic activity. transformation of those development areas will influence the restructuring process of the province and will increase its competitiveness. therefore the authorities should improve access to those urban development areas, support investment in order to create conditions for the development of business activity and promote environmentally sound investments (elimination of environmental conflicts). conclusions when designing a strategy, it is important to remember about all the functional areas influencing the development of entrepreneurship. however, it should also be remembered that it is the programme for the development of entrepreneurship that has the biggest influence on the development of a region. therefore, the lack of such a programme can be considered as a serious disadvantage of the development strategy of the province of warmia and mazury. such a programme will be probably designed in the future. on the other hand, an extensive approach to the development of the sme sector is a great advantage of this strategy. the strategic goals pertaining to this sector can be found in the areas which ale not directly linked to this sector. the development strategy should strengthen the development of smes, or “home business”, rather than attract new branches or change the location of existing businesses (luke, 1988). all the instruments strengthening and supporting local business environment should be aimed at the development of smes, and particular attention should be paid to the newly created smes, or those in the development phase. the development of entrepreneurship brings the local community both social and economic benefits. among those benefits are: improved standard of life through increased income, an increase in the number of companies operating in the areas which are most needed in the local environment, creation of jobs, increased entrepreneurship of the local citizens, integration of the local business environment, a decrease in labour outflows (krukowski, mioduszewski 1999). 134 issn 1822-8402 european integration studies. 2007. no 1 we should carefully monitor the realization of provincial strategies because the achievement of the goals constituting those strategies should translate into an increased quality of life in the local communities. we should also remember that it is not enough to merely formulate the programmes for the development of entrepreneurship, but it is crucial to allocate the physical and financial resources necessary for the realization of those programmes. references krukowski k., mioduszewski j. (1999) promocja przedsiębiorczości w strategiach rozwoju gmin, w: uwarunkowania rozwoju przedsiębiorczości gospodarczej na obszarach wiejskich w kontekście integracji europejskiej olsztyn, university of warmia and mazury. luke s.j. and other (1988), managing economic development – a guide to state and local leadership strategy san francisco, jossey – bass publishers, 1988. strategia rozwoju społeczno-gospodarczego województwa warmińsko – mazurskiego do roku 2015 (2000) olsztyn,. 135 162 issn 1822 – 8402 european integration studies. 2009. no 3 specifics of territorial marketing strategy planning ligita āzena staņislavs keišs higher school of business and culture abstract presently, all over the world and in latvia there is to be seen a tendency that the territories are competing among themselves on the subject, which one of them and with what offers they will be able to attract tourists, to attach the inhabitants, and to attract entrepreneurs and investors, etc. to make these measures effective, it is necessary to elaborate an appropriate development plan, to create a strategy related to every territory and oriented to satisfaction of certain needs of society. such strategy requires to be elaborated separately for every group of society or target market, defining precisely the most appropriate offers and the related to them measures. for better understanding of this strategy it is necessary to study the theoretical considerations on the topic of the locality marketing, of the opportunities of its use, and the planning process of the strategy. the marketing approach requires that the territory have to pay a special attention to development of its product in accordance with the needs of society, making use of all its resources and potentials. to provide a more effective marketing impact certain target market groups become singled out in the framework of territorial marketing, such as tourists/visitors, local population/employed, entrepreneurship/ production, export market. taking into consideration that nowadays the role of the strategies of marketing complex, being implemented worldwide, is growing, the elaboration of them must be related to the real situation, to financial and other opportunities, foreseeing the possible problems beforehand. what are the nowadays tasks of territorial marketing in the europe? nowadays, there are vast opportunities to develop further the european single market and turn it into the biggest market of the world. therefore, it is necessary for the territorial development to define new indicators of competitiveness. strategic planning of the market is a ceaseless process that is oriented to the growing world market and to the adaptation of its requirements. such approach may be related also to latvia’s situation. nowadays in the europe, the competition is high, and therefore the interest in elaboration of locality marketing strategy increases. the intensifying of localities’ competitiveness is stimulated by different factors of development of the global economy. therefore, the territories have to increase the level in different areas, for example, in education system, export area, and they have to pay attention to other critical factors to come up against the challenges of global market. key words: territorial marketing, marketing, locality, development, strategy, target market. introduction presently, all over the world and in latvia there is to be seen a tendency that the territories are competing among themselves on the subject, which one of them and with what offers they will be able to attract tourists, to attach the inhabitants, and to attract entrepreneurs and investors, etc. to make these measures effective, it is necessary to elaborate an appropriate development plan, to create a strategy related to every territory and oriented to satisfaction of certain needs of society. such strategy requires to be elaborated separately for every group of society or target market, defining precisely the most appropriate offers and the related to them measures. for better understanding of this strategy it is necessary to study the theoretical considerations on the topic of the locality marketing, of the opportunities of its use. aim of the paper – to get acquainted with theoretical findings on the topic of the planning process of territorial marketing strategy and to study on their basis how the territorial marketing strategy might influence the development of the territory. to achieve the aim the following tasks are carried out: to characterise the territorial marketing and the target market categories, to study the modern most urgent territorial marketing tasks in europe, to analyse territorial marketing advancing methods and applied strategies during the period of transition economy, formulate the conclusions summarizing the theoretical findings. the methodological basis of the research is formed by foreign scientists’ studies, publications in media and author’s observations. issn 1822-8402 european integration studies. 2009. no 3 163 results and discussion essence of territory and territorial marketing what begins the territory with? usually, with the local residence, lovely recollections, however, the territory is a locality. independently on its size, the market term – marketing becomes added to it under nowadays circumstances. every locality or territory is possession of its improvement forms, unique and inimitable sites, people and events. this circumstance is the basis of the principal differences in economic, social and political activities areas. therefore, the main task is to study and to analyse the needs of the society and the ways of their satisfaction to make it possible to develop precisely such territory that may be attractive to a certain group of inhabitants or to a part of society, being interested in. this consideration is closely related to the marketing. marketing is the process of planning and development of the concept of ideas, goods and services, the process of pricing, advertising and distribution, the aim of which is to further the businesses, which satisfy individual and organisational targets (kotlers 2006). from the marketing point of view, the use of marketing concepts may help the territory to attract tourists, entrepreneurs and investors, and inhabitants who may find that to live, study and work in this locality might be advantageously and even prestigiously. it may be related to both the big and the small territories. territorial marketing: essence and types. in the literature, there are many and different definitions of the territorial marketing. some authors assume that the regional marketing becomes developed on regional level, taking into consideration the specifics of the region. others, in their turn, pay attention to the image development of the territory, including the cities; they are convinced that it helps to attract entrepreneurs and inhabitants. however, it would be more correctly to define the territorial marketing, formulating that it is a marketing that complies with the interests of inner and outer objects of the territory, in which the respective territory is interested in. in this context, it may be formulated that the objects of territorial consideration are concrete products, being offered in both the inside and the outside of the territory (траут 2005.). region, territory, and locality – offers the consumer role of its opportunities not only to themselves, but also to others. however, to be able to speak about the marketing approach, the territory should pay a special attention to development of its products in accordance with the needs of inhabitants, using all its resources and potentials, without concentrating the attention of the whole region exclusively on itself. best of all, the essence of the territorial marketing is reflected by the society or its part, being interested in the products of the territory. the outer part of the society is interested in the welfare development of the territory because it desires to bring out a part of gained benefits (resources, knowledge, finished products, and financial resources) to benefit personally or to get benefits for their enterprises. the inner part of society relates its welfare (personal and business) to welfare of the territory. from the territorial point of view, both positions seem to be interesting, however, the approach to these parts of society must be different (траут 2005.). consequently, it means that there should be developed a different marketing approach and strategy. strategy – it is all that makes the product different and unique, and this uniqueness is also seen by the clients. and, namely, the marketing forwards the strategy (панкрухин 2007.). however, it should be taken into consideration that under certain circumstances both these parts of the society may be interested in development of the territory or, on the contrary, may be not interested in development of the territory. what kind of interests the society may have when speaking about territory? predominantly, they are related to effective use of advantages provided by competitiveness, i.e. the residency, the entrepreneurship and the non-residency. if analysed more detailed, it may be the size of the market, purchasing power of demand, development of infrastructure, opportunities and level of culture, education and health care, raw materials and labour force (profile, qualification, amount, costs) etc. (траут 2005.). for a better understanding of the needs of every part of the society, it must be made a more detailed analysis of the target market categories of the territorial marketing: tourists/visitors, local residents/employees, entrepreneurship/production, export market. territorial marketing target market groups tourists and visitors during the last years, the number of tourists and visitors has increased rapidly. it was facilitated by both the introduction of a single currency and the development of tourism worldwide and in the europe. tourism develops in both inside and outside of the country’s borders. it is a very significant economic indicator, because it provides considerable income and investments in a certain territory, creates new jobs and develops entrepreneurship. worldwide and in the europe, there are territories (cities), engaged basically in tourism only, and the income is provided exclusively by this area. these territories are continuously involved in improvement of their territorial values, to which belong the creation of the image, planning of special arrangements, development of infrastructure etc. the market of tourists and visitors consists of two different tourist groups: entrepreneurs on business trips and tourists on pleasure trips. therefore, the territorial issn 1822-8402 european integration studies. 2009. no 3 164 marketing specialists have to develop completely different marketing strategies. the aim of business trips is to participate at conferences and discussions, to get acquainted with the locality, to conclude a deal. the aim of the tourists is to get acquainted with the locality, to pay a visit to relatives, friends. in accordance with the tourism development concept, the territorial development requires from marketing specialists a systemic and long term marketing strategy oriented to the definition of potentials and differences of local territories. the principal strategic priority must be oriented to definition of precise and specific target market to which the territory plans to move all its resources (панкрухин 2007.). the territory has continuously to create new values. therefore, there is necessary a process of development of values, during which an additional difference will be created, with which it might be possible to work on a precisely defined target market. the smaller is the size of a territory, the more important it is to offer to the target market something unique and unrepeatable. local inhabitants and employed for every locality, a very important target market is the local inhabitants and employed. recently, the “cheap” labour force or the unqualified labour force was the one that was sought most of all, but nowadays a change of priorities has taken place. therefore, the preference is given to a qualified labour force, to men of substance and to healthy people, being honest tax payers and in capacity to become residents in a certain territory. an important indicator of every territory is taxes. the inhabitants and the employed are the principal, but in some localities, the only tax payers. to achieve the set objective, the localities use different strategies and their forms. in the europe, there are known the cases when the localities use comparatively original measures how to attract inhabitants. for, example, the switzerland town okselosunda created the slogan “we are seeking inhabitants”. the principal strategic direction was related to elaboration of an appropriate offer – attractive and convenient houses to live in, high quality of life and a clear development programme of the locality to improve the attractiveness of the locality (панкрухин 2007.). analysing this example, one gets a clear image that it may be possible to attract the inhabitants only then if the locality marketing has taken into consideration the requirements of the potential target market, the life style and requirements to environment. presently, the most important accent in attraction of inhabitants is placed on the quality of residence – fresh air, convenient housing, and advantageous getting to big cities, developed infrastructure and technologies. looking at the target market from the point of view of segmentation it may be seen that the inhabitants are family people. therefore, when elaborating the marketing strategies, the specific family models should be taken into consideration (котлер 2005., асплунд 2005., рейн 2005., хайдер 2005.). new families without children;  families with little children (up to 6 years) (full  nest) families with school children and teenagers (7-12  un 13-19) (full nest) families with adult children, who are materially  independent (full nest) families with the children living separately (empty  nest) every target market group has it own specific characteristic size and, accordingly, also specific needs. therefore, some cities build kindergartens and schools, because in this locality there are many families with little children or schoolchildren. because for the full nest family model it is important that there is education in the locality and that it is of corresponding quality; whereas, for empty nest model there are quite other needs and requirements regarding the location. entrepreneurship / production the third, not less important target market group is the entrepreneurship, production and investment attraction. this is one of the most significant target market groups, because it is important to provide the inhabitants with jobs and working places, obtaining in such way revenues from tax payments and lowering the level of unemployment. at the same time, this purpose market is the most demanding, increasing its requirements continuously to both the locality and the locality marketing strategy. because the entrepreneurship develops; and it increases the requirements to locality and its future development strategy. before the choice of the locality, a careful research becomes carried out on the topic of labour force in the planned locality, an analysis of production costs and circumstances is made, the amount of taxes and possible tax reliefs studied, the immovable property evaluated etc. presently, there are in the europe prepared territorial ratings with listing of different parameters – geographical, administrative, information accession, labour force qualification, strategic location, development of production and economy, effectiveness of public government, infrastructure etc. (панкрухин 2007.). in some cases, there may also be of importance personal reasons of entrepreneurs – personal contacts (friends), interests (culture, sports, nature). taking into consideration the growing requirements of entrepreneurship, the locality marketing uses different methods of attraction and attaching of entrepreneurs. almost in all countries there are organized investment seminars, meetings and presentations with prior target market groups, created non-commercial organisations, funds of investment attraction – both national and regional (панкрухин 2007.). issn 1822-8402 european integration studies. 2009. no 3 165 entrepreneurs regard the locality as a potential “address”, evaluating different factors, determining the locality’s attraction. all indicators of locality’s attraction become divided in two groups: strong factors and weak factors. the strong factors may be measured by objective indicators. the weak factors do not subject to measurements, and they have a more subjective nature (траут 2005.) in elaboration of locality marketing strategy, it should be necessary to use these factors as indicators to develop the attractiveness of the locality from the viewpoint of target market. presently, it is important to act and not to wait for help from others. market economy requires a quick action and finding of ones own style. only the in-depth locality strategy will provide the expected and planned results. export market the fourth target market is the enlarging of exports – locality’s capability to produce more products, being bought by other territories, people and enterprises. for, example, there is a small town boskopa in netherlands, which is one of the biggest exporters of flowers in the whole europe. the other localities have also developed a strong export image. as one of the examples there is milan with its worldwide known couture. such are also audi and mercedes in bavaria and munich with their qualitative automobile brands and a strong strategy. on the other hand, it is necessary to avoid the production of non-standard products, because it may not attract the necessary attention or create the opposite effect – anti-advertising. it must be taken into consideration that strong image of locality attract also tourists. what are the nowadays tasks of territorial marketing in the europe? nowadays, there are vast opportunities to develop further the european single market and turn it into the biggest market of the world. therefore, it is necessary for the territorial development to define new indicators of competitiveness. strategic planning of the market is a ceaseless process that is oriented to the growing world market and to the adaptation of its requirements (котлер 2005., асплунд 2005., рейн 2005., хайдер 2005.). such approach may be related also to latvia’s situation. nowadays in the europe, the competition is high, and therefore the interest in elaboration of locality marketing strategy increases. the intensifying of localities’ competitiveness is stimulated by different factors of development of the global economy. therefore, the territories have to increase the level in different areas, for example, in education system, export area, and they have to pay attention to other critical factors to come up against the challenges of global market. territorial marketing strategies when territories begin to move towards the market, it is necessary to make some important strategic decisions. there are four important strategies that may be used to attract tourists, inhabitants and employed, entrepreneurs, and to increase exports. territorial marketing strategies: image marketing 1. locality’s attraction marketing 2. infrastructure marketing 3. human marketing 4. image marketing the principal target of the image marketing is to create, develop and broaden the positive image adopted by the society. this may be the cheapest strategy, although the costs are depending on the image of the locality and on the necessity to change it. it is cheaper because it does not require a radical restructuring of infrastructure and changing of other factors because of a more intensive use of existing resources. the most important instruments of the image marketing are the communication measures that demonstrate the opening of the territory to new contacts and stimulate them to get better acquainted with the territory. there are known several kinds of strategies; and different is only the situation of their use and the target that must be achieved: a positive image, a weakly expressed image, too traditional image, a contradictious image, a mixed image, a negative image, too attractive image (котлер 2005., асплунд 2005., рейн 2005., хайдер 2005.). locality’s attraction marketing locality’s attraction marketing means elaboration of such measures that make a locality attractive to a certain group of people. it also means the increase of locality’s competitiveness, because the locality’s attractiveness is related closely to development of the tourism. the locality’s attractiveness may be provided by arranging of environmental localities, creating pedestrian footpaths and bikeways, museums, historical and trade zones, architecture, culture and sports developments etc. (котлер 2005., асплунд 2005., рейн 2005., хайдер 2005.). infrastructure marketing no marketing activity in image development can replace the activities directed to arranging and development of territory. the core of territorial marketing is civilized market relations in the territory. the territory must provide convenient living, working and development conditions; therefore it is necessary to develop the infrastructure of residential areas, production issn 1822-8402 european integration studies. 2009. no 3 166 zones, market infrastructure and recreation zones. the territories carry out a whole complex of different measures: political, judicial, scientific and other measures oriented to arrangement of business, social-economic and culture life corresponding to infrastructure. to bring into effect the infrastructure marketing the following instruments are used: exhibitions, fairs, thematic parks, culture and art days, hotels’ activities and tourism, conferences, transport, bank system, communication, tax policy, educational institutions, culture, health care and sports institutions (котлер 2005., асплунд 2005., рейн 2005., хайдер 2005.). human marketing human marketing is related to inhabitants and employed. dependently on situation, every territory may determine its priority of locality – to offer a high qualified labour force or an economically bargaining cheap labour force. or, on the contrary, to stimulate the resettling of inhabitants, if the territory is overpopulated or the unemployment level in it is high. to put into effect the human marketing strategy there are used different approaches, for example, famous people, energetic local leaders, qualified specialists, enterprising people, people, having come from other localities (панкрухин 2007.). planning of territorial marketing strategy territorial marketing plan has to include the improvements in territorial planning, infrastructure, basic services, for example, in health care, security and education, development of attractiveness and involving of people. before preparation of territorial marketing plan, the territories have to achieve the following: understanding of the strong and the weak sides of  the inner and the outer environment; understanding of the needs of the target market  groups; preparation of a real vision of territory’s future  and its transformation; elaboration of action plan to bring into effect the  vision; attaining of unanimity between different  participants of the territory (self-governments, entrepreneurs, inhabitants); evaluation of results in every phase of the plan.  the elaboration of territorial marketing plan (further in the text – plan) includes 5 principal phases: phase 1: organisation of elaboration of the plan – this phase includes the decision making on elaboration of marketing strategy, planning of finance for this target, appointment of responsible person/organisation etc. phase 2: evaluation/analysis of the territory – before elaboration of the strategy it is necessary to carry out the analysis of the territory. there exist different types of analysis – aggregation of statistical information, researches, inquires etc. it must be estimated what is to be analysed and how it must be done, as well as to be gathered the accessible information types and the missing information. it is important to evaluate not only the inner territorial indicators, but also their relation to outer environment. one of the most common methods in this context is the swot analysis or the analysis of the strong and the weak sides, of opportunities and threats. swot analysis may be carried out regarding the all territory as a whole, as well as regarding every branch, every target group separately. under present changing circumstances, the inner and outer environment of the territory is to be analysed at least once in 6 months (kalve 2005.). in the territorial marketing, a great role is played by the competitiveness of the territory; therefore it is necessary to compare the evaluation of the competitiveness of the territory with other territories. the territorial competitiveness, including the competitiveness of cities, is defined by the competitiveness policy council of the eu as a capacity of production of goods and services satisfying the criteria of international markets, where at the same time the citizens achieve a growing and longlasting welfare level. phase 3: elaboration of the plan – during this phase, the strategy becomes elaborated on the basis of the carried out beforehand studies and analysis, and it includes: vision – defining of territorial vision or future  aspect; setting of development targets – especially  indicating the desirable development tendency; market research and marketing segmentation  to evaluate the potential target markets and the related to them marketing activities; definition of the task – very concrete, defining the  due data, amounts and responsibilities; preparation of programmes for accomplishment of  the tasks – grouping of projects for accomplishment of similar tasks, planning of possible alternatives; choice of projects – support of self-governments  and attraction of funds to the real projects and to the projects to be implemented to achieve the prior targets. phase 4: implementation of the plan that includes several activities to achieve concrete targets: formation of groups involved in implementation  of the project preparation of action programmes of individual  projects detailed elaboration of implementation plan  providing of accessibility to appropriate finance  resources elaboration of the schedule of report meetings.  phase 5: evaluation of implementation of the plan – development of the system of surveillance indicators issn 1822-8402 european integration studies. 2009. no 3 167 that may be of help in evaluation of the direct results of the strategy, as well as evaluation of the impact of these indicators in a longer period. what strategy should be chosen? is it possible to choose a certain strategy and to focus on realisation of it for a longer period, for instance, for 10-15 years? it would be better and more correct to implement strategies of marketing complex, taking into consideration the real situation, the possible problems, the financial and other opportunities during the whole period. there might be of interest and usefulness the recommendations elaborated by a. pankruhin. what may be useful for a territory during the transition period? the most simple way might be the elaboration of a complex development programme, the definition of functioning principles, infrastructure development tendencies, advantages of competitiveness, the seeing about friendly relations between the inhabitants and the creation of publicity with the slogan: “we are good, we are nice, come to us!”. if the financial situation is low, then it is better to develop an image that corresponds to the real situation, to find out its advantages and to attract certain people interested in and investors. it is always important to provide, first of all, for the inhabitants and entrepreneurs, and only then to think about tourists. the biggest guarantee for further development is the residents and entrepreneurs. in the cases, if the territories are not strong enough financially and less developed, then it is possible for them to join together. they may differ dependently on both the development level and the marketing potential (траут, дж.2005.) conclusions summarizing the study of theoretical findings, it may be concluded: presently, there is to be seen a tendency that the  territories compete on the subject what offers they have to use to attach the inhabitants, to attract tourists, entrepreneurs and investors etc; the marketing approach requires that the territory  would pay a special attention to development of its own products that comply with the needs of society, using all its resources and potential; the territory has to develop a different marketing  approach and strategy for every target market group; in the framework of the territorial marketing,  special target market groups become singled out: tourists/visitors, local residents/employed, entrepreneurship/ production, export market; it is important to determine the indicators  of territorial competitiveness for territorial development; as territorial advancing methods may be used the  image marketing, locality’s attraction marketing, infrastructure marketing, human marketing; the role of strategies of marketing complex, being  presently implemented worldwide, increases, linking them with the real situation, the possible problems, the financial and other opportunities; the marketing plan of the cities has to include the  improvements in planning of cities, infrastructure, basic services, for example, in health care, security and education, creation of attractiveness and involvement of people. references kalve i. apseglot pārmaiņu vējus. stratēģiskā un pārmaiņu vadība – rīga, biznesa augstskola turība, 2005. – 296 lpp. kotlers, f. mārketinga pamati, rīga: jumava, 2006. 647.lpp. котлер, ф., асплунд, к., рейн, и., хайдер, д., маркетинг мест, stockholm scool of economics in saint petersburg, 2005. 376.с. панкрухин, а. п. маркетинг, москва, омегал, 2007. 654.с. траут, дж. траут о стратегии, санктпетербург, питер, 2005.,188.с. deffner a., liouris c. city marketing: a significant planning tool for urban development in a globalised economy// http://ideas.repec.org/p/wiw/ wiwrsa/ersa05p395.html liepājas pilsētas sociāli ekonomiskās attīstības programma 2008.-2014.gadam. eds a.jacquemin, l.r.pench europe competing in the global economy. brussels, the office for the official publications of european communities, 1997. stratēģiskās analīzes komisija liepāja kā attīstības ceļvedis. – rīga, apgāds „zinātne”, 2008. – 247 lpp. vanags e., vanags i., krastiņš o. pašvaldību pirmais pašvērtējums. – rīga, latvijas statistikas institūts. 2006. – 140 lpp. vanags e., vilka i. pašvaldību darbība un attīstība. – rīga, latvijas universitātes akadēmiskais apgāds, 2005. – 384.lpp. eds a.jacquemin, l.r.pench europe competing in the global economy. brussels, the office for the official publications of european communities, 1997. kotler p., haider h.donald, rein irving marketing places: atracting investment, industry and tourism issn 1822-8402 european integration studies. 2009. no 3 168 to cities, states and nations. – new york, the free press, 1993. – 388 lpp. kearns g., philo c. selling places the city as cultural capital, past and present – great britain, pergamon press ltd., 1993. – 316 lpp. kotler p., jatusripitak s., maesincee s. the marketing of nations: a strattegic approach to building national wealth. – new yourk, the free press, 1997. – 451 lpp. ābeltiņa a. pilsētas attīstības inovatīvā komponente // www.turiba.lv/darba_tirgus_2008/pages/abeltina_ lv.html driķe n. vairāk apmierināti ar dzīvi ir ļaudis radošās un pievilcīgās pilsētās // (sk.internetā 26.06.2008) www.liepajniekiem.lv rencis v. iezīmējas daugavpils turpmākās attīstības pamatnostādnes (21.11.2006.)// www.daugavpils.lv seimuškāne l. latvijas pilsētu pieredze // http://www.unesco.kuldiga.lv/index. php?lang=lv&id=51&apid=46 choosing amsterdam: brand, concept and organisation of city marketing // www.iamsterdam.com the article has been reviewed. received in march, 2009; accepted in april, 2009. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 160 european integration studies no. 15 / 2021, pp. 160-169 doi.org/10.5755/j01.eis.1.15.28902 abstract financial literacy self-evaluation of young people in latvia http://dx.doi.org/10.5755/j01.eis.1.15.28902 regular and proportionate voluntary savings in private pension funds can become an important part of oldage pensions. however, this can happen if the savings are made for a long period of time. this justifies the target group of the 3rd pension level, which are young people who have started to receive a regular income from their professional activity. one of the most discussed issues in promoting voluntary pension savings is the level of financial literacy. in addition to other motivating factors, such as financial incentives, the level of knowledge of the population about the opportunities to participate in the third pillar of pensions makes them want to build up voluntary savings. effective communication of information to a precise target audience is one of the main tasks of government agencies in formulating pension policy. in order to assess the impact of various socio-economic factors on young people's knowledge of savings for pension formation, a survey of latvian youth was conducted in february-march 2021, addressing youth organizations and universities. the survey is designed using closed and semi-closed questions, in several questions respondents were asked to provide ratings using the likert scale. the survey provides answers to the question about the level of knowledge of latvian youth about the current pension system, emphasizing the investor's right to handle investments in private pension funds, as well as the basic conditions for creating savings at the 2nd and 3rd pension levels. the task of the study was to analyze the respondents' financial literacy self-evaluation answers based on the main socio-economic factors gender, age and income. the results of the study confirm that the level of financial literacy of young people differs according to age, gender and income level. keywords: pensions, voluntary savings, financial literacy, young people, social security. the importance of voluntary pension savings in pension funds is growing in latvia and in the world. based on the profitability aspect of long-term savings, it is important to accumulate as early as possible and to create preconditions for greater involvement of young people in pension planning and savings. publicly available information, as well as scientific research, shows that it is young people who are least involved in voluntary pension accumulation. in most of developed countries' pension policies are based on three pillars, so the issue of young people's readiness to think about and plan for pension savings at an early age is a priority. one of the most discussed issues among academics in promoting voluntary pension savings is the level of financial literacy. financial literacy is the basis for government-designed support mechanisms, including financial incentives, to deliver results and people's level of knowledge to participate in the third pillar of pensions and to build up voluntary savings. submitted 02/2021 accepted for publication 06/2021 financial literacy selfevaluation of young people in latvia eis 15/2021 evija dundure university of latvia biruta sloka university of latvia introduction 161 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 however, the desire of pension policy makers to involve the population in the formation of pension savings and to shift the investment risk to people's responsibility poses certain challenges. it is difficult for people, especially younger ones, to make long-term decisions such as the desired amount of pension and the amounts that must be postponed today in order to create it (kotecha, kinsella &arthur, 2010). attempts are being made to raise the level of financial literacy for people to choose in favor of voluntary savings (strauss, 2008). in addition, it is important to note that while widely available information can improve financial literacy, there are behavioral barriers, including short-sightedness, cynicism and inertia, that hinder the accumulation of assets today (wicks, horack, 2009). since 2014, latvia has implemented a strategy for promoting the financial literacy of the population (www.finansupratiba.lv), which highlights the importance of the aspect of financial literacy of young people in reviving the tradition of financial planning and savings. the tasks defined in it include the improvement of the state education content with the aim to ensure the possibility to develop financial literacy at each level of education, ensuring the availability of information, development of educational websites, as well as implementation of other educational activities important to ensure that the education level and financial literacy level could be improved. the aim of this study is survey financial literacy level in the issues of the pension system in latvia. analysis was performed to investigate the self-evaluations young people of knowledge on pension system by age group, by gender and by presence of regular income from their professional activities. to achieve the aim of the study, the ways in which young people obtain information about the pension system in latvia, the level of young people's knowledge of the current pension system, emphasizing the investor's right to manage investments in private pension funds, as well as basic conditions to create savings at the 2nd and 3rd pension levels were analysed. to conduct the research, a survey method was used, addressing youth organizations and educational institutions. the survey is designed using closed and semi-closed questions, in several questions respondents were asked to provide ratings using the likert scale. the survey data were analysed using descriptive statistics: indicators of central tendency or location (arithmetic mean, mode, median), indicators of dispersion or variability (range, standard deviation and standard error of mean), cross-tabulations performed by age group, by gender and by presence of income from the young people professional activities – their own work. empirical research was performed to get knowledge about young people financial literacy related to pension issues as it is important to suggest special activities if the financial literacy is low to make sure that inhabitants will be willing to contribute to their future well-being. financial literacy is a very deep researched aspect world-wide especially after the global financial crisis in 2009 with special attention to financial literacy of inhabitants in different parts of the globe – in europe (magistro 2017; romanova & kudinska, 2017; angelini, bertoni, stella. & weiss, 2019). special attention is paid also to insurance literacy (mare, dragos, dragota & dragos, 2019). researchers have investigated if the financial literacy influences financial decisions and decision making, financial behaviour (nicolini. & haupt, 2019) and different approaches in european countries (nicolini, 2019) as well as level of financial education (xiao. & porto, 2017; amari, salhi & jarboui, 2020). researchers from estonia have conducted a study how subjective and objective knowledge of finance, behaviour in managing personal finances and socio-economic status affect financial well-being (riitsalu & murakas, 2019) where one of the conclusions state that providers of finanliterature review e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 162 cial services should address these more in the design of their services and communication. social marketing of financial literacy is becoming more and more important (batraga, praude, salkovska. & afoniceva, 2018; batraga, salkovska, legzdina, rukers & bormane, 2018). economic situation in country is important to organise several activities (daugeliene, 2016; daugeliene & liepinyte, 2012). financial literacy and quality of life has a special importance facing the health problems (pahlevan sharif, naghavi, sharif nia & waheed, 2020). researchers have discovered that there are differences in financial literacy of youth (garg & singh, 2018), by gender (okicic & kakes, 2019). findings of their study has suggested that differences in financial knowledge, financial attitudes and financial behaviour between young women and men can be confirmed (okicic & kakes, 2019). this aspect has to be taken into account organising marketing activities and preparing training programs to increase financial literacy of the population. savings for future needs are investigated in the relation of financial literacy (thomas & spataro, 2018). communication aspects are considered as important for financial literacy (de goeij, van campenhout & subotic, 2018). meanwhile, academics (angrisani & casanova, 2019) have compared individuals' subjective and objective assessments of financial literacy and investigated whether the observed discrepancies are related to different behaviors in pension planning. under-confident people rarely announce that they have developed a retirement plan. however, unlike overconfident people, they seem to be most eager to receive more information about pension planning. and that could mean they might be better prepared for retirement than the self-confident. the impact of perceived and actual financial literacy on financial behavior was also examined, revealing that the combined measure appears to provide a better understanding the phenomenon (allgood, walstad, 2016). the study of researchers garg and singhh (garg & singh, 2018) reveals that the financial literacy level among youth is low across the most part of the world that has become a cause of concern. also, it has been observed that various socio-economic and demographic factors such as age, gender, income, marital status and educational attainment influence the financial literacy level of youth and there is an interrelationship between financial knowledge, financial attitude and financial behaviour (garg & singh, 2018). researchers have found that risk and tolerance are among the important aspects in retirement savings (tavor & garyn-tal, 2016) and that financial incentives have importance for retirement savings (jordan & treisch, 2010). researchers have found that the main factors influencing financial literacy were as follows: educational level, financial attitude, financial knowledge, financial behaviour, gender, household income and investments. the consequences of financial literacy were the behaviour of incurring avoidable credit and checking fees, credit score, and the willingness to take investment risks. the authors also find some methodological, cultural, economic and theoretical moderations effects between financial literacy and antecedent/consequent constructs (santini, ladeira, mette. & ponchio, 2019). models of retirement savings are issues discussed on political level and by academic researchers (rey-ares, fernandez-lopez. & vivel-bua, 2018). questions on possibility of financial literacy inclusion for requirements for residence permits are on research agenda for academic researchers (collins. & yousem, 2021) and for level of financial literacy and respective financial well-being (chavali, mohan raj. & ahmed, 2021). researchers have investigated influence of life-style, financial literacy, demographic aspects on financial well-being (zahra & anoraga, 2021). influence of education has a big importance (lucey & henning, 2021). several other aspects has also some importance, but not so big as mentioned and analysed above. 163 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 this study was conducted to answer the question of whether the level of financial literacy can be related to differences in gender, age group and the existence of income from their professional activities for young people in latvia and to investigate – are there differences of knowledge on pension issues for young people if they get income from their professional activities or not to observe part of society ready to be contributors for their own as well as society well-being or they are willing to get only support from the society. survey of young people from latvia on their knowledge about several financial aspects including knowledge about needs and possibilities for future pension savings was conducted in february – march, 2021. the questionnaire for the survey was prepared taking into account theoretical findings in research in other countries and interest to evaluate the financial literacy of young people related to their knowledge and their views on pension savings to have inhabitants thinking about their long-term well-being in their retirement period as the current situation indicate that there is quite a big share of inhabitants in latvia who did not pay attention to their retirement financial situation which in graet extent depend from the person’s personal contribution to the social security contributions by respective persons. main statistical indicators of respondent self-evaluations on their knowledge of pension system in latvia in 2021 are included in table 1. survey results indicate that young people in latvia have evaluated their knowledge about the pension system in latvia on middling level: with arithmetic mean 2.84 (in scale 1-5), most often given evaluation was 3, characterised by mode; half of respondents gave evaluation 3 or less and half of respondents gave evaluation 3 or more, characterised by median. for evaluations by respondents it was covered all evaluation scale and the indicators of variability indicate that the evaluations were quite different by young people. as it was pointed out in several theoretical findings reflected in the scientific publications that financial literacy for youngsters differ by age, by gender and by income level where for income level it is important their income from their professional activities. distribution of evaluations on knowledge of young people about the pension system in latvia in 2021 by gender is included in table 2. evaluations by respondents indicate that the evaluations by gender are alike but it is important to know – do those evaluations differ: are the differences statistically significant by appropriate empirical research results statistical indicators values n valid 204 missing 5 mean 2.84 standard error of mean 0.076 median 3 mode 3 standard deviation 1.091 variance 1.190 range 4 minimum 1 maximum 5 table 1 main statistical indicators on knowledge evaluation on pension system in latvia in 2021 source: authors’ calculations based on survey in 2021, n=204; evaluation scale 1-5, where 1-very bad; 5-very good significance level – the average evaluations of respondents was tested – do the average levels of evaluations by gender differ statistically significant. main statistical indicators on arithmetic means of knowledge evaluations on pension system in latvia in 2021 by gender are included in table 3. the arithmetic means of the evaluations of financial literacy in the pension system are higher for men, thus confirming the conclusions of previous studies on this factor. whether thosse averages of ratings by the respondents differ statistically significant by gender has been tested by t-test. the results of testing statistical hypothesis on difference of arithmentif means of the evaluations by gender are included in table 4. data of hypotheses testing included in the pree u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 164 evaluations gender total female male other number share (%) number share (%) number share (%) number share (%) 1very bad 18 11,6 5 11,1 0 0 23 11,3 2 43 27,7 11 24,5 2 66,7 56 27,6 3 60 38,7 10 22,2 1 33,3 71 35,0 4 28 18,1 10 22,2 0 0 38 18,7 5-very good 6 3,9 9 20,0 0 0 15 7,4 total 155 100 45 100 3 100 203 100 table 2 distribution of evaluations on knowledge evaluations on pension system in latvia in 2021 by gender source: authors’ calculations based on survey in 2021, n=203; evaluation scale 1-5, where 1-very bad; 5-very good gender mean n standard deviation standard error of mean minimum maximum range median female 2.75 155 1.010 0.081 1 5 4 3 male 3.16 45 1.313 0.196 1 5 4 3 other 2.33 3 0.577 0.333 2 3 1 2 total 2.83 203 1.091 0.077 1 5 4 3 6 3,9 9 20,0 0 0 15 7,4 155 100 45 100 3 100 203 100 table 3 main statistical indicators on knowledge evaluation on pension system in latvia in 2021 by gender source: authors’ calculations based on survey in 2021, n=203; evaluation scale 1-5, where 1-very bad; 5-very good levene's test for equality of variances t-test for equality of means f sig. t df sig. (2-tailed) mean difference standard error difference equal variances assumed 8.076 0.005 -2.216 198 0.028 -0.407 0.184 equal variances not assumed -1.921 59.908 0.059 -0.407 0.212 table 4 main statistical indicators of t-test on differernces of knowledge evaluation on pension system in latvia in 2021 by gender source: authors’ calculations based on survey in 2021, n=203; evaluation scale 1-5, where 1-very bad; 5-very good vious table indicate that there are no statistically signifficant differences in self-evaluations on pension system knowledge by gender. the other aspect covered in scientific publications that resprsentatives from different age groups have different level of financial literacy. our investigations on knowledge about the pension system in latvia by age groups were examinded in the next part of our empiricalresearch. distribution of evaluations by young persons on pension system in latvia in 2021 by age group is included in table 5. evaluations by respondents indicate that the evaluations by age group are alike but it is important to know – do those evaluations differ statistically significant with certain significance level. main statistical indicators on knowledge evaluations by young persons on pension system in latvia in 2021 by age group are included in table 6. 165 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 evaluations age group total 18-20 21-23 24-25 26-30 1very bad 9 7 3 4 23 2 29 12 4 11 56 3 20 31 9 11 71 4 12 10 6 11 39 5-very good 3 7 1 4 15 total 73 67 23 41 204 table 5 distribution of evaluations on knowledge evaluation on pension system in latvia in 2021 by age group source: authors’ calculations based on survey in 2021, n=204; evaluation scale 1-5, where 1-very bad; 5-very good age group mean n standard deviation standard error of mean minimum maximum range median 18-20 2.60 73 1.037 0.121 1 5 4 2 21-23 2.97 67 1.087 0.133 1 5 4 3 24-25 2.91 23 1.083 0.226 1 5 4 3 26-30 3.00 41 1.162 0.181 1 5 4 3 total 2.84 204 1.091 0.076 1 5 4 3 table 6 main statistical indicators on knowledge evaluation on pension system in latvia in 2021 by age group source: authors’ calculations based on survey in 2021, n=204; evaluation scale 1-5, where 1-very bad; 5-very good sum of squares df mean square f sig. between groups 6.416 3 2.139 1.818 0.145 within groups 235.246 200 1.176 total 241.662 203 table 7 main statistical indicators of analysis of variance (anova) on knowledge evaluation on pension system in latvia in 2021 by age group source: authors’ calculations based on survey in 2021, evaluation scale 1-5, where 1-very bad; 5-very good the arithmetic means of the assessments gradually increase with increasing the age group, which is not surprising, however, in this sample group the age group 21-23 has a slightly higher arithmetic mean ogf the evaluations than for the group aged 24-25. whether these estimates differ statistically signifficant depending on the age group, we have tested it by the analysis of variance – anova where there are compared arithmetic means of the evaluations and tested – do they differ statistically significant. the results of testing statistical hypothesis on difference of average evaluations on youngsters knowledge about pension system in latvia by the age group are included in table 7. analysis of variance (anova) results indicate that the average evaluations by age groups do not differ statistically significant by significance level less than 0.145. main statistical indicators of correlation analysis on young people knowledge evaluations on pension system in latvia, age group and gender in 2021 investigating the relation of those analysed aspects mentioned before are reflected in table 8. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 166 knowledge evaluation on pension system in latvia age group gender knowledge evaluation on pension system in latvia pearson correlation 1 0.130 0.112 sig. (2-tailed) 0.065 0.112 n 204 204 203 age group pearson correlation 0.130 1 -0.043 sig. (2-tailed) 0.065 0.538 n 204 209 208 gender pearson correlation 0.112 -.043 1 sig. (2-tailed) 0.112 0.538 203 208 208 table 8 main statistical indicators of correlation analysis on knowledge evaluations on pension system in latvia, age group and gender in 2021 source: authors’ calculations based on survey in 2021 correlation analysis results indicate that the knowledge level evaluations of young people in latvia on pension system has close correlation with age groups where the correlation coefficient is statistically significant with significance level less than 0.065 and is not statistically significant with gender. the other aspect indicated in scientific publications was that there are different financial literacy levels of young people depending from the income level. this aspect was analysed also in our empirical research where the main results are included in table 9. table 9 crosstabulation on knowledge evaluation on pension system in latvia by age group and by regular income from professional activities source: authors’ calculations based on survey in 2021, evaluation scale 1-5, where 1-very bad; 5-very good evaluations by regular income from professional activities age group total 18-20 21-23 24-25 26-30 yes 1-very bad 2 4 0 2 8 2 11 3 2 3 19 3 11 16 6 5 38 4 7 7 4 11 29 5-very good 3 5 1 4 13 total 34 35 13 25 107 no 1-very bad 7 3 3 2 15 2 18 9 2 8 37 3 9 15 3 6 33 4 5 3 2 0 10 5-very good 0 2 0 0 2 total 39 32 10 16 97 results of analysis show that the evaluations of young people having or not having income from their professional activities are different. how different are those results in relation of presence or absence of income on the professional activities are investigated by symmetric measures – main results of this analysis are included in table 10. 167 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 regular income from professional activities value asymp. std. errora approx. tb approx. sig. yes interval by interval pearson’s r 0,184 0,097 1,918 0,058c ordinal by ordinal spearman correlation 0,207 0,096 2,164 0,033c n of valid cases 107 no interval by interval pearson’s r -0,014 0,089 -0,135 0,893c ordinal by ordinal spearman correlation 0,044 0,100 0,432 0,667c n of valid cases 97 table 10 symmetric measures on crosstabulation on knowledge evaluation on pension system in latvia by age group and by regular income from professional activities a. not assuming the null hypothesis. b. using the asymptotic standard error assuming the null hypothesis. c. based on normal approximation. the results of analusis indicate that the evaluations of financial literacy increase if person is older and if the person has income from the professional activities and has quite different situation if there are no income from young personds professional activities. the results of this analysis confirm that there are necessary activities from different institutions to increase the financial literacy level of young people and to make educational and moral support for their professional activities. » financial literacy and saving models are on investigation of many academic researchers with special attention to retirement savings. » persons by different gender and different age groups as well as different income levels from the person’s professional activities have different motivations for retirement savings for voluntary pension models. » young people knowledge and motivations for voluntary pension savings differ by age groups – older groups of young people are better informed about pension system, but the correlation is not statistically significant with significance level less than 0.065. » young persons who have income from their professional activities by increasing their age have higher financial literacy level. conclusions references amari, m., salhi, b. & jarboui, a. 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(2017). financial education and financial satisfaction: financial literacy, behavior, and capability as mediators. international journal of bank marketing, 35(5), 805-817. https://doi.org/10.1108/ ijbm-01-2016-0009 vicente, m.r. & lopez, a.j. (2017). about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). dundure evija master of business administration, doctoral student university of latvia fields of interests voluntary savings role in pension system adequacy. address aspazijas bulv. 5, riga, latvia, lv 1050, +371 29493458 dundure.evija@gmail.com sloka biruta dr.oec. professor university of latvia fields of interests multivariate data analysis, social marketing, quantitative analysis. address aspazijas bulv. 5, riga, lv 1050, + 371 29244966 biruta.sloka@lu.lv 251 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abstract social entrepreneurship intentions among business students in latvia http://dx.doi.org/10.5755/j01.eis.1.15.29111 theoretical literature has identified a number of factors that determine social entrepreneurship intentions. social entrepreneurs play an important role in the economic and social developments of the communities in which they operate. they are a special type of entrepreneur, driven by a variety of motives, including the alleviation of poverty, hunger or illiteracy; the improvement of human health; the reparation of social, legal or economic injustice; and the preservation of the environment for future generations. the career aspiration of social entrepreneurs can be encouraged if youths are given early educational exposure when they are young. the purpose of this study is to identify social entrepreneurship intentions among business students in latvia. the tasks are the following: (1) to accomplish analysis of special literature; (2) to work out methodology; (3) to carry out the empirical research; (4) to work out conclusions. the empirical research involves the survey of business students, applying snowball sampling method and using 5-point likert scale questionnaire. the results are interpreted using methods of descriptive and inferential statistics. the conclusions of the research have a practical value, as they make it possible to identify the problematic areas of business education in regard to the social entrepreneurship. keywords: social entrepreneurship, business education, entrepreneurship intentions, career aspirations, social responsibility. the concept and practices of social entrepreneurship play more and more significant role in the contemporary society, permeated by the social and economical inequality, that has become the most obvious during the covid-19 crisis (unemployment, decrease of income, access to education, et.). it is not to say that socially orientated businesses are able to change the economic and social problems directly and immediately, rather – they have become one of the decisive drivers of long-term sustainability. discussions related to social entrepreneurship have taken place in latvia, applied and scientific researches have been carried out, proposals have been made for the development of social entrepreneurship. among publications we would like to mention here ''latvia on the road to social entrepreneurship'' (lešinska et al., 2012), “the development of social entrepreneurship in latvia: the role of municipalities'' (lukjanska et al., 2017), “social enterprises and their ecosystems in europe. country report latvia” (līcīte, 2018), “development of social entrepreneurship in european integration studies no. 15 / 2021, pp. 251-259 doi.org/10.5755/j01.eis.1.15.29111 submitted 01/2021 accepted for publication 06/2021 social entrepreneurship intentions among business students in latvia eis 15/2021 velga vevere eka university of applied sciences introduction edgars cerkovskis eka university of applied sciences aija sannikova eka university of applied sciences e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 252 latvia” (sannikova & brante, 2018). the legal framework and existing practices of social entrepreneurship in latvia are described in the publication “social entrepreneurship in latvia: a brief overview of the current situation. ecosystem mapping” (social entrepreneurship association of latvia, 2018). let us mention here a few main conclusions of the document regarding the problematic areas. in brief, they are the following: the development of social enterprises is hindered by the lack of business skills among entrepreneurs and the high level dependence on the european financing and various grants; all in all, many entrepreneurs view their companies by analogy with ngos and charity organizations, whereas by definition the social entrepreneurship is a merger of business and social goals. in addition, it is important to mention that there is no clear understanding about goals of the social enterprises among the general public. the european commision report “a map of social enterprises and their eco-systems in europe, country report” (2015) contains a valuable information about latvia as well. summarizing these publications, we can see that the social entrepreneurship in latvia is driven by external forces rather than developed domestically, so in this context the discussion is not about opportunities and problems of social entrepreneurship development, but rather about adaptation of the already existing models. the social enterprise law of latvia was adopted in 2018 (legal acts of the republıc of latvıa, 2017). the law defines the social enterpreneurship and its place in the latvian business environment, as well as the process of asignig the according status. the adoption of the law facilitated the fast development of this enterpreneurship form there are up to 200 legal entities that could be considered de facto social enterprises, yet a precise number is unknown. most social enterprises are relatively new, having been established only within the last 2 to 5 years, and usually do not employ more than 10 people. the enterpreneurs and other organizations who consider themselves to be socially oriented are united in the “social enterpreneurship association of latvia”. the goals of this association are to advocate enterpreneurs’ interests at at local, regional and national levels, to create a common platform and enhance capacities of the members, as well as to inform society about the social enterpreneurship (seal, 2018). thinking about future of the social ebterpreneurship it is important to educate futre enterpreneurs business students instilling in them beliefs about what is right and what is wrong and about the social importance of their future venture (yujuico, 2008). the aim of the current research is to identify social enterpreneurship intentions among business students in latvia. to reach the aim the following tasks were set: (1) to accomplish analysis of special literature; (2) to work out methodology; (3) to carry out the empirical research; (4) to work out conclusions. the researchers have showed a keen interest in the realm of social enterpreneurship, here we can mention investigations by alvord and others (2004), austin and others (2006), dacin and others (2011), dees & anderson (2006), mair & noboa (2006), seelosa & mair (2005), shina & titko (2017) and others. according to some researchers, the social entrepreneurship development is influenced by the three main factors – the demand (public desire for social services/products, as customer or user), the supply (social entrepreneurs) and third – because of the environment and institutional factor that influence the previous two factors (sekliuckiene & kisielius, 2015). despite the interest in the subject, there is no agreement regarding the definition and scope of it (dobele, 2013). if in one case it is extremely broad (e.g. eu policies), then in another – it regards particular industry. the same goes for the legal framework. in order to come to some common denominator, we should distinguish three related elements: social entrepreneur (subject), social entrepreneurship (process), social enterprise (object). to describe social entrepreneurship as literature review 253 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 a process, the definition of yunus (2007) is often used. according to him, social business is a financially sustainable organization created to solve a social problem. first and foremost, it is a business, though socially orientated, directed towards the social impact. a social business has products, services, customers, markets, expenses, and a revenue like a regular busines, it is noloss, no-dividend, self-sustaining company that repays its owners’ investment. it is not a charity, but a business in every sense. the european commission uses the term 'social enterprise' to cover the following types of business: » those for who the social or societal objective of the common good is the reason for the commercial activity, often in the form of a high level of social innovation; » those whose profits are mainly reinvested to achieve this social objective; » those where the method of organisation or the ownership system reflects the enterprise's mission, using democratic or participatory principles or focusing on social justice (european commission, 2018). since the current research is devoted to the business students attitude to social enterpreneurship, it is necessary to understand the enterpreneurship intention formation process. in our investigation, when developing questions for our survey, we employ the intention formation model provided by j. mair and e. noboa (2006), that presupposes such elements as desirability, moral judgement, personality characteristics and possibility of financial support. empirical studies in this field have been carried out by c. bazan and others (2020) f. m. alsaatay and others (2014), a. i. sutha & p. sankar (2016), andriyansah & zahra (2017), n. j. setiadi & m. puspitari (2014), s. ashour (2016) and many others. despite the fact that forementioned articles have had different research focus, they all stress necessity of students‘ education in the field of social enterpreneurship. this study adopted a quantitative research approach because the study involved conducting some statistical analyses to interpret data collected from the respondents. with the aim of identifying social entrepreneurship intentions among business students in latvia, the target population for the study comprised business administration students of three private universities. the sample consisted of the undergraduate, graduate students and doctoral students registered at the designated institutions for the 2020/2021 academic year; 171 questionnaires were filled out, 167 of them were recognized as valid. the questionnaire was administred in latvian, thus international students were not included. it was done deliberately, since the study was conducted against the background of the latvian business environment. this study employed a convenience sampling technique because it tends to be more cost effective and convenient compared to probability sampling techniques (ghauri et. al., 2020; malhotra, 2017). convenience sampling is a non-probability sampling technique where elements of a sample are obtained as a result of availability. the elements in this case happen to be in the right place and at the right time convenient to the researcher. respondents were students attending classes taught by the authors of the article. the questionnaires were administred administered during classes via google forms. the students were informed that their results would be confidential and that the filling out questionnaire was strictly voluntary affair, no bearing any impact on their grades int he respective subjec whatsoever. the questionnaire contained two types of questions – first, statements to be evaluated according to the likert scale (fully disagree -1; fully agree – 5); second – multiple choice questions with two options – to check a single box or to check several boxes). prior to the main survey a pilot survey was conducted (n=20), after that some of the question formulations were changed to fitt better to the research design and to be more comprehensible by students (wording of statements). the questionnaire consisted of 35 items divided in 6 blocks (a – f) (see table 1). methodology e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 254 sections of questionnaire item codes measurement demographic profile a1 – a3 multiple choice questions (1 answer to be selected) social goals of entrepreneurship b1 – b4 5-point likert scale intention to engage in social entrepreneurship c1 – c4 5-point likert scale attitude to possible engagement in social entrepreneurship d1 – d6 5-point likert scale characteristics of a social entrepreneur e1 – e7 5-point likert scale challenges faced by the social entrepreneur f1 – f11 multiple choice questions (several answers can be selected) table 1 summary of questionnaire design source: authors’. the first section (a) contained questions related to the socio-demographic profile of the respondents, that is, gender, study level (college, bachelor, master or doctoral) and work experience (see table 2). total, % education level (% of group) work experience in years (% of group) college bachelor master doctoral 0 1-4 5-10 10> w 73 27.4 55.6 16.1 0.8 13.7 43.5 21.8 21.0 m 27 38.3 29.8 31.9 17.0 48.9 14.9 19.1 table 2 circular options for furniture sorted according to the eu waste management hierarchy source: authors’. as it can be seen from the table, the majority of the respondents are studying in the bachelor program, as well as the majority has work experience of 1-4 years, among the respondents 73% were women, 27% men. the age factor of the respondents was not taken into account since they all are students. the section b of the questionnaire comprised statements regarding students‘ perception of the social goals of enterpreneurship in general. the statements to be evaluated by 5-point likert scale was the following: b1 „the operation of socially oriented companies is very important for society“; b2 „from a societal perspective, the social goals of entrepreneurship are more important than making a profit“; b3 „the main purpose of the business is to make a profit“; b4 „the goal of business is both profit and the solution of social problems“. the section c, in its turn, was devoted to the students‘ intention to engage in the social business (to be evaluated according to the 5-point likert scale). the statements included: c1 „i plan to start my own business in the next 5 years to meet the needs of society“; c2 „i plan to start my own business with the aim to meet the needs of the society“; c4 „i am ready to start a business with the aim of meeting the needs of society“; c5 „i do not plan to get involved in social entrepreneurship.“ the section d regarded the students‘ attitude towrds social enterpreneurship carrerwise (to be evaluated according to the likert scale): d1 „i think social entrepreneurship could contribute to my career“; d2 „i think i could get support to start my dream project“; d3 „i think my innovative project will change society“; d4 „i think we need to start a business first, then focus on social projects“; d5 „if i started a business, my goal would be to help people“; d6 „ as an entrepreneur, i would support social entrepreneurs financially or otherwise.“ 255 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 the section e statements (to evaluated according to 5-point likert scale) were designed to know students opinion about the caracteristic features of an socially responsible enterpreneur. namely, the enterpreneur: e1 offers innovative solutions; e2 is socially responsible; e3 is ready to take risks; e4 is ambitious; e5 is strategically minded; e6 has imagination; e7 is focused on the end result. the sectio f containes the multiple answer possibilities (the respondents could check any number of boxes) related to the possible challenges enterpreneurs could face. the list included such problematic aspects as: f1 to convice others about own ideas; f2 – to attract funding; f3 working remotely; f4 recruitment of employees; f5 fundraising; f6 obtaining the support of business people; f7 government support; f8 product / service quality assurance; f9 retention of employees; f10 competition with other social entrepreneurs; f11 lack or absence of knowledge about social entrepreneurship. cronbach’s alpha reliability measure was used in this study. ghauri et. al. (2020) describe cronbach’s alpha as a measure of intercorrelations of items that are used to measure the underlying construct. the result of the measure was α=81, that indicates the good internal consistency of the questionnaire. the results were processed by the means of spss. in order to make conclusions about the business students‘ intentions and attitudes the mann-whitney u test, kruskal-wallis test, kmo and bartlett's test were performed. the responses were further processed and analyzed in the results and discussion section below. regarding importance of the socially oriented enterprises (b1) among men and women. applying the non-parametric mann-whitney u test to the data set, it appears that women value the role of social enterprises much higher than men, because rankw = 85.93> mean rankm = 78.93 (fig. 1). however, the test p = 0.356> po = 0.05, which indicates that the scores of both groups are results and discussion figure 1 mann-whitney u test results for the set of answers to question b1 are the activities of socially oriented companies very important for society? (source: authors’.) statistically the same. the next table represents the students’ attitude to the goals of social entrepreneurship (b1b4) according to work experience criterion. the results of the non-parametric kruskal-wallis test show that the education level of the respondents (total = 167) influences the assessment of social entrepreneurship social goals and business goal priorities, because for question b2 test p = 0.002 <p0 = 0.05, but for question b3 test p = 0.014 <p0 = 0.05 (see table 3). education factor b1 b2 b3 b4 test statisticsa,b kruskal-wallis h 1.832 14.641 10.655 5.278 df 3 3 3 3 asymp. sig. .608 .002 .014 .153 table 3 kruskal-wallis test (nonparametric2 independent samples). test results by gender criterion for set of answers to questions b1, b2, b3, b4 (evaluation of goals of social business) a. kruskal wallis test; b. grouping variable: education source: authors’. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 256 education factor c1 c2 c3 c4 test statisticsa,b kruskal-wallis h 1,082 3,543 2,989 2,533 df 3 3 3 3 asymp. sig. .781 .315 .393 .469 table 4 kruskal-wallis test (nonparametric2 independent samples). test results by criterion education for the set of answers to questions c1, c2, c3, c4 (entrepreneurship intentions) a. kruskal wallis test; b. grouping variable: education the results regarding students’ intention to engage in the socially oriented business according to the education criterion (c1-c4) is depicted in the table 4. conclusion: education does not affect the desire to engage in social entrepreneurship, because in all groups of answers pt> po = 0.05. education factor d1 d2 d3 d4 d5 d6 test statisticsa,b kruskal-wallis h 9.849 3.524 3.697 3.840 5.438 4.575 df 3 3 3 3 3 3 asymp. sig. .002 .318 .296 .279 .142 .206 table 5 kruskal-wallis test (nonparametric2 independent samples). test results by criterion education for the set of answers to questions d1, d2, d3, d4, d5, d6 (attitude to possible engagement in social entrepreneurship) a. kruskal wallis test; b. grouping variable: education education factor d1 d2 d3 d4 d5 d6 test statisticsa,b kruskal-wallis h 2,864 6,722 7,579 7,294 5,091 1,715 df 3 3 3 3 3 3 asymp. sig. .413 .081 .056 .063 .165 .634 table 6 kruskal-wallis test (nonparametric2 independent samples). test results by criterion work experience (years) for set of answers to questions d1, d2, d3, d4, d5, d6 (attitude to possible engagement in social entrepreneurship) a. kruskal wallis test; b. grouping variable: work experience table 5 represents students’ attitude to their possible engagement in the social entrepreneurship, taking into account the criterion of education. conclusion: education level influences the connection of personal career with social entrepreneurship, but does not affect the desire to get involved in solving social problems important to society. source: authors’. source: authors’. source: authors’. correlation between students’ attitudes towards socially oriented business and their respective work experience is depicted in the table 6. conclusion: work experience (in years) influences the connection of personal career with social entrepreneurship, but does not affect the desire to get involved in solving social problems important to society. after that the factor analysis was used to reduce the number of factors d1-d6 and to determine the interrelationships of several variables. bartlett's test of sphericity test was performed, which shows that the data are valid for factor analysis, because p = 0.000 <po = 0.05. the principal axis factoring method was used to obtain factors from the data set, but the varimax method was used for factor rotation. assessing the factor loads, it can be seen that the respondent's goals are characterized by 2 groups of factors (fig. 2): 257 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 figure 2 factor analysis results for data d1-d6 after factor rotation (source: authors’.) 1 component 1 factors that characterize the respondents' goal of engaging in social entrepreneurship to promote the socio-economic growth of society. the group includes factors d2, d4, d3, d6; 2 component 2 factors that characterize the respondents' subjective goals. the group includes factors d5 and d1. as it can be seen in the figure 2, the first component is mostly correlated with factors d2 (possible support for starting dream project), d4 (starting business first, after that engaging in social entrepreneurship) and d3 (impact of innovative projects on society). at the same time the second component is mostly correlated with factor d5 (personal intention to engage in social business). i is important to note that students do not see socially oriented business as means for advancement of their future career (d1), whereas placement of factor d6 demonstrates that students have a strong intention to support social initiatives in future. the aim of the current research was to identify latvian business students’ intention to engage in the social entrepreneurship, taking into account the significance of the urgency of the matter in the today’s world riddled by economic crises. in order to that the students’ survey using 5-point likert scale was carried out (167 questionnaires were recognized as valid). the survey contained questions regarding students’ socio-demographic profile (age, education and work experience), general attitude towards social business, intention to engage in social entrepreneurship, attitude to possible engagement in social entrepreneurship, characteristics of a social entrepreneur, challenges faced by the social entrepreneur. to process results the statistical (non-parametric) tests were performed. the main results can be summed up as follows: » applying the non-parametric mann-whitney u test to the data set, it appears that women value the role of social enterprises much higher than men; » the results of the non-parametric kruskal-wallis test show that the education level of the respondents influences the assessment of social entrepreneurship social goals and business goal priorities; » at the same time, it has to be concluded that education does not affect the desire to engage in social entrepreneurship, because in all groups of answers pt> po = 0.05; conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 258 » education level influences the connection of personal career with social entrepreneurship, but does not affect the desire to get involved in solving social problems important to society; » as to impact of work experience, it can be concluded that work experience (in years) influences the connection of personal career with social entrepreneurship, but does not affect the desire to get involved in solving social problems important to society; » factor analysis demonstrates that the first component (factors that characterize the respondents' goal of engaging in social entrepreneurship to promote the socio-economic growth of society) is mostly correlated with possible support for starting dream project), starting business first, only after that engaging in social entrepreneurship and belief impact of innovative projects on society. at the same time the second component (respondents’ subjective goals) is mostly correlated with personal intention to engage in social business. i is important to note that students do not see socially oriented business as means for advancement of their future career, whereas they express their intent to support (financially or in other ways) social entrepreneurship in future. the results obtained in the current investigation point at the future research directions, namely, the ones related to educational aspects (teaching; 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(2008). creating the world without poverty. social business and the future of capitalism (p. 297). new york: public affairs. about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). vevere velga dr. phil. eka university of applied sciences fields of interests critical thinking, corporate social responsibility, business ethics, corporate governance, marketing communications. address 1/5 lomonosova street, riga lv1003, latvia, +371 26463584 velga.vevere@gmail.com cerkovskis edgars mba eka university of applied sciences fields of interests regional economics, digital means in business studies, social entrepreneurship, circular economy. address 1/ lomonosova street, riga lv-1003, latvia, +371 26136998 e.cerkovskis@gmail.com sannikova aija dr.oec. eka university of applied sciences fields of interests statistics, social entrepreneurship, circular economy. address 1/5 lomonosova street, riga lv 1019, latvia. aija.sannikova@inbox.lv microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 the concepts of information and knowledge societies: affinities and distinctions živilė paužaitė kęstutis kriščiūnas kaunas university of technology institute of europe abstract the human society experience continual and never ending process of development in social, cultural, economical, and technological as well as others aspects. the scientific literature analyses and presents several periods of its development. recently the society appears in very dynamic and constantly changing stage in which technologies, information and knowledge play very important and significant role in contemporary society. with the reference to these processes the phenomena of information and knowledge societies rises. this paper analyses the affinities and distinctions of the concepts of information and knowledge societies as the results of the development of society. keywords: information society, knowledge society, development of society. introduction simultaneously going various changes influence human society’s development. due to these changes and particularly due to the appearance of information communication technologies two phenomena: information and knowledge societies appeared. as concern some similarities between the features of these paradigms the concepts started and still, in some cases, continue to be used in parallel. consequently the scientific problem appears – to study the origins of the concepts of information and knowledge societies as well as to identify their affinities and distinctions in scientific level in pursuance its’ clear understanding and usage. goal of this paper the analysis of the concepts of information and knowledge societies and to identify the affinities and distinctions. research objectives: • to study the ict input on society’s development; • to analyse the aspects of the evolution of the concept of the information society; • to analyse the preconditions of the knowledge society appearance; • to identify the affinities and distinctions of the concepts of information and knowledge societies’ paradigms. research methods: analysis of scientific literature and eu, un, unesco documents as well reports. the ict input on society’s development the simultaneous growth of the internet, mobile telephony and digital technologies with the third industrial revolution – which, at first in the developed countries, has seen much of the working population migrate to the service sector – has revolutionized the role of knowledge in societies. these technologies play an important role not only in economic development, but also in human being development. in late 1970s new technologies as a panacea for education and health care for the most underprivileged in the us recurring industrial and monetary crises in japan structural unemployment in europe figure 1. the effect of new technologies on economies in late 1970s. 50 issn 1822-8402 european integration studies. 2007. no 1 in the face of some economic difficulties, in the late 1970s, the growth of new technologies seemed like a panacea for many nagging domestic problems (see fig. 1), such as: education and health care for the most underprivileged in the united states, the recurring industrial and monetary crises in japan and structural unemployment in europe. for the developing countries, the promise of “technological leapfrogging”, of being able to skip the stages of industrial development by adopting the most advanced technologies directly and to capitalize on their tremendous potential, held out special appeal (fig. 1) the diffusion of information and communication technologies appeared as new opportunities for development. under the influence of these changes the creation of information society started. following these processes and analysing the development of information society the formation of other phenomena – knowledge society appeared (see fig. 2). at first it rose as a vision and as far as later it emerged as another, wider and multidisciplinary stage of activities. the diffusion of information and communication technologies creates new opportunities for development information society knowledge society figure 2 ict as a new opportunity for society’s development some aspects of the evolution of information society the social dimension of information society has been an integral part of the visions of computer networking for several decades. since the 1960s, different technology developers have had quite different visions of the use of information and communication technologies: • donald davies (1965) (the leader of a team in the u.k. national physics laboratory that developed many core ideas of what later became known as the arpanet and the internet) was searching for a socioeconomically important new technology, inspired by policy initiatives looking for national competitiveness in the emerging computer networking technologies; • other developers of computer networks were more interested in making complex calculations using advanced computers; • in the u.s., computer networking for example emerged as an economically efficient way to use expensive mainframe computers remotely. the users of computer networks were expected to be researchers and technology specialists. the two perspectives – focusing on technological systems and on society – have been visible in the information society discussions for several decades. in the 1980s and early 1990s, these views became integrated in a very specific way: information society was started to be understood as an economic issue, and technology was understood as the driving force that made economic development and growth possible. due to these processes as well as the global, geographic, economic and social preconditions and changes the formation of the paradigm of information society started in social sciences. in japan, an ongoing discussion on the need to transform the manufacturing-based economy toward an informationalized economy had been going on since the late 1960s. in the 1980s, japan and the european countries created large research programs that focused on new telecommunications and information technologies. in 1992, the newly elected clinton/gore administration made information infrastructure one of its key policy areas. soon after, the internet and the world wide web moved from the periphery to the center. the rest is history. each country and region found the legitimization for information society initiatives from its current situation (see also fig. 1): • in the u.s., information society was introduced as a solution to the u.s. infrastructure crisis (schneider, 1996); • in japan, information society was seen as an answer to the “hollowing out” of japanese manufacturing as well as the problems created by the continuing endaka, the high valuation of yen (west, dedrick, & kraemer, 1996); • in europe, information society was introduced as a way out of unemployment for high competence workers. • policy initiatives in japan, europe, and the rest of the world were launched in response to the high-profile american dream of a new knowledge-based world (kahin & wilson, 1997; bohlin, aizu, & oniki, 1999; ducatel, webster, & herrmann, 2000a). in the u.s., the social legitimization of the information society was to a large extent based on such assumed consumer benefit. the social dimension came in mainuly through the belief that open and 51 issn 1822-8402 european integration studies. 2007. no 1 universal access to services would be necessary for balanced socioeconomic development. in europe, the emphasis was more on the role of “consumers” as members of a civil society. the government and the public sector were often seen as providers of services for the citizens, and information society was an opportunity to reorganize, for example, health care systems, education, and political processes. in general, compared with the u.s., in europe the public sector was perceived more as an active participant in the information society development, creating the institutional basis for the new socioeconomic order by designing new regulatory regimes, organizing the production of human resources, and by providing services. much of the early discussion in europe was related to the impact of icts on employment. in this sense the japanese focus on industrial competitiveness and the european focus on job creation were close to each other. the juncture and ongoing situation attracted the attention of the policy makers of social affairs. their reaction had a reflection in politic and administrative documents, which made a big impulse towards the development of information society. for example, the european commission white paper on growth, competitiveness, and employment (cec, 1993), was one of the first documents which introduced the theme of information society in a structured way. it was presented as a central concern for policy, started by asking why the paper was written. the answer was unambiguous: “the one and only reason is unemployment.” ict had become a core ingredient in technological keynesianism. more broadly, the three concepts that were used in the white paper, growth, competitiveness, and employment, well describe what the public discourse on information society was about: economic growth was based on competitiveness, and the end result was expected to be full employment. in the reports published by the european commission in the 1990s, information society was therefore constructed around a strong economic and technical focus. although the european discussion emphasized more the social dimension than the u.s. discussion, both put the expected economic impacts on the central pillar. economic actors, therefore, were the main actors. the so-called bangeman report, “europe and the global information society – recommendations to the european council,” (cec, 1994) pointed out that the development of information infrastructure is the primary responsibility of the private sector. public authorities, in turn, need to “set new rules of the game,” control their implementation, and launch public interest initiatives. the reports and communications were framed in a context of a global “race” for economic competitiveness. “social” was primarily understood to be a question of economic growth. in its communication in 1996, “europe at the forefront of the global information society,” the european commission stated that: the information society is not a challenge for the future but one for the present. decision makers are now fully aware that europe’s future in the global economy will be shaped by the speed and success with which it exploits the opportunities arising from the new information and communication technologies (ict). (cec, 1996). similar request for urgent and broad adoption of information and communication technologies also underlies the more recent eeurope initiative. in contrast to the european commission, the european parliament has more systematically emphasized societal issues. in its 1996 resolution it commented the bangeman report and commission’s action plan by clearly stating that information society is not only an issue of economic competition: parliament draws attention to the need for the information society to develop within a framework designed to prevent the exclusion of unqualified workers, the aggravation of inequalities between regions, the sidelining of the female population, the violation of privacy and the undermining of cultural differences. it feels that the new forms of electronic distribution should be fully exploited in order to disseminate public information to all citizens, and calls on the authorities concerned to guarantee free access to information infrastructures, particularly for all educational establishments, cultural organizations and libraries. (ep, 1996) although in the early policy statements the european commission emphasized the economic and technological dimensions of the ongoing transformation, the commission, however, has increasingly highlighted the importance of the social dimension. already in 1995, the commission set up a high-level expert group (hleg) to analyze the social aspects of the information society. according to the hleg information society can be defined as: …the society currently being put into place, where low-cost information and data storage and transmission technologies are in general use. this generalization of information and data use is being accompanied by organizational, commercial, social and legal innovations that will profoundly change life both in the world of work and in society generally. (hleg, 1997). the experts noted that technological development is always a process where new needs and new technologies are mutually articulated. technology is always socially embedded. a too narrow focus on technological issues, therefore, easily misses much that is of importance when we try to understand the ongoing transformation. 52 issn 1822-8402 european integration studies. 2007. no 1 the hleg further argued that whereas the emergence of earlier technological clusters created high intermediate demand for material goods, information economy creates a high demand for skills and tacit knowledge. according to the hleg, we therefore should view the information society as a “learning society”. there the demand appears to start talking about the new features of current society’s development, which process turns to the stage of knowledge society creation (see also fig. 2). preconditions of knowledge society appearance with reference of the analysis of scientific literature and some documents can be stated that the origins of the appearance of the knowledge society emerge approximately in the same time as information society. knowledge society appears phenomenon. information, communication, and computation technologies (iccts or icts) are not about technological functionality anymore; instead, the drivers and constraints for technology development are increasingly found in the social dimension. although technology has always been fundamentally a social issue, when icts penetrate everyday life, these technologies become protean platforms for social change. based on the results of the current work, it, indeed, seems that a new type of society is emerging. even when we discount all the hype around new technologies and the new economy, we have to admit that the ongoing transformation is a profound one. it changes lifestyles, organizations, politics, and values. the term “knowledge society”, which the academic peter drucker used for the first time in 1969, came into its own in the 1990s, in particular with the detailed studies by researchers such as robin mansell(1998) and nico stehr(1994) as we shall see, the idea emerged in the late 1960s and early 1970s, at about the same time as the notion of “learning societies” and lifelong education for all, which is surely not a coincidence. unesco played its part, if modest, in this change, as is exemplified by the publication of the report of the international commission on the development of education, learning to be (faure et al., 1972). in addition, the idea of the knowledge society is inseparable from studies on the information society, whose premises appeared with the growth of cybernetics. from the 1960s to the publication of manuel castells ”information age” trilogy (1996, 1997) in the late 1990s, the notion of information society in a way summed up the changes and trends that the earliest trailblazers described or foresaw – technology’s penetration of the power structure, the new economy based on scientific knowledge, changes in the workplace, etc. with reference to the analysis of the scientist can be stated that the stage of society’s developments called as information society can not be the last stage of this process and gradually gains some other features which construct the other phenomena – knowledge society. the consequences of the rise of information and knowledge society themes on the institutional level are important for defining research, education and innovation policies. even before the first phase of the world summit on the information society (geneva, 10–12 december 2003), the international community’s reflections in this area had been followed up by a number of initiatives, such as the world conference on higher education (unesco, paris, 5–9 october 1998), the world conference on science in budapest, “science for the twenty-first century: a new commitment?” (unesco/icsu, 26 june – 1 july 1999), and the world summit on sustainable development (johannesburg, 26 august – 4 september 2002). this interest in the issue also translated, during the preparation of the geneva summit, into the organization of regional summits and initiatives on governmental and non-governmental levels. the intellectual and scientific communities, and civil society in general, were involved in this effort, as is illustrated by the many works on new scientific knowledge production methods, innovation, learning societies and the links that unite knowledge societies, scientific research and lifelong education for all. in addition to these initiatives by government, the private sector and civil society, and the emergence of mixed initiatives bringing together those three players – such as the world bank’s global knowledge initiative and the united nations information and communication (un ict) task force – are also worth mentioning. it is very far from being the case, then, that governments have disregarded the transition to a new technological and social paradigm. today, the concept of the knowledge society has become an essential framework of reflection not only for most member countries of the organisation for economic development and co-operation (oecd), but also for many emerging economies and developing countries, especially in east and southeast asia, latin america, the caribbean, sub-saharan africa, central and eastern europe and the arab states. the consolidation of the conception of knowledge society was started was presented in various documents as well as in handbook of knowledge society foresight (2003) put by european foundation for the improvement of living and working conditions. it maintains that: knowledge 53 issn 1822-8402 european integration studies. 2007. no 1 society involves the intersection of several related trends: • the development of information societies based on the large-scale diffusion and utilisation of new information technologies (it), which have allowed for unprecedented capabilities in ‘capturing’, processing, storing, and communicating data and information. • more generally than just in the it case, the increasing importance of innovation (especially technological, but also organisational) as an element in corporate and national competitiveness, and in strategies to increase the efficiency and effectiveness of organisations of all types. • the development of service economies. the bulk of economic activity, employment and output is taking place in service sectors of the economy. ‘service’ is an important management principle in organisations in all sectors, and specialised services (especially knowledge-intensive business services) provide critical inputs to organisations in all sectors on a vastly increased scale. • knowledge management arises as a specific issue: knowledge generation, dissemination and usage of new knowledge, where organisations seek to apply formal techniques and new information systems to help them make more effective use of their data resources (e.g. data mining), information assets (e.g. enterprise resource systems) and expertise (e.g. human resource development, groupware and collaborative systems). • other important developments, related to the points above, include globalisation, changes in demographic structures, in cultural practices, and in environmental affairs. although can be stated that this description has to be added by others trends which are very important and were pointed in unesco world report “towards knowledge societies” (2005). the report promotes the concept of knowledge societies involving the concept of information society. unesco expert believes that, in addition to technological, infrastructural and economic forms of information, dimensions of knowledge rooted in community, culture and social identity must equally be addressed. for unesco, the use of information and communication technologies (ict) must be linked to the recognition that knowledge is the principal force of the social, political, cultural and institutional dimensions of development, founded on human rights. the plurality inherent in the concept of knowledge societies implies diversity, variety and openness to choice. accordingly, unesco wants to ensure that information societies evolve into knowledge societies, in which people can access and exchange quality information and ideas that are relevant to their life and development. through its proposals, unesco is responding to the three main challenges in building knowledge societies: • first, to narrow the digital divide that accentuates • disparities in development, excluding entire groups and countries from the benefits of information and knowledge; • second, to guarantee the free flow of, and equitable access to, data, information, best practices and knowledge in the information society; and • third, to build international consensus on shared values and principles. • there are four principles that are essential for the development of equitable knowledge societies: • freedom of expression; • equal access to education; • universal access to information, especially in the public domain; • giving expression to cultural diversity. according to unesco experts, knowledge societies should be based on a strong commitment to human rights and fundamental freedoms, including freedom of expression as defined in article 19 of the universal declaration of human rights and pluralistic and independent media. knowledge societies should allow the full realization of the right to education and of all cultural rights. in knowledge societies, access to the public domain of information and knowledge for educational and cultural purposes should be as broad as possible. an important principle of knowledge societies should be encouraging and giving expression to cultural and linguistic diversity. in recognition of these principles, unesco experts present three strategic objectives: • to foster digital opportunities and social inclusion, by using ict for capacity-building, empowerment, governance and social participation; • to strengthen capacities for scientific research, information-sharing, cultural creativity and performances and exchanges in knowledge societies; and • to enhance learning opportunities through access to diverse content and delivery systems. 54 issn 1822-8402 european integration studies. 2007. no 1 the analysis of the concepts of information and knowledge societies: affinities and distinctions the unesco report, which was done on 9 november 2005, came a week after the european parliament overwhelmingly adopted an eu lifelong learning programme, designed to inject momentum into the eu's drive towards its goal of becoming a vibrant knowledge-based economy. it was stressed in the report that knowledge societies are not to be confused with information societies. there were emphasised the affinities and distinctions which can be described as such: information societies are based on technological breakthroughs that risk providing little more than “a mass of indistinct data” for those who don’t have the skills to benefit from it; knowledge societies, based on knowledge generation and utilisation, contribute to the well-being of individuals and communities, and encompass social, ethical and political dimensions. cultural and linguistic diversity are also central to the development of knowledge societies. the stakes are high, stresses the report, for the cost of ignorance is greater than the cost of education and knowledge sharing. it argues in favour of societies that are able to integrate all their members and promote new forms of solidarity involving both present and future generations. nobody, it is stated in the document, should be excluded from knowledge societies, where knowledge is a public good, available to each and every individual. with reference to the analysis of the scientists on ongoing processes and changes can be stated that society’s development is dynamic and constantly changing process. on the one hand it is still the same human society but on the other hand it is the human society which all the time observing its environment, processing information and changes in the environment and producing “new meaning” that is part of that society’s response to the challenge of change (understanding knowledge societies, 2005). however one stage of changes can not be distinguished sharply from another one. it is dynamic and versatile process where one stage of the process involves the features of the other. for instance the concept of information society covers ones features which can be recognised in knowledge society concept also. beside the affinities, both of these paradigms are being directed towards development of the societies as well as bring big and new benefits. another one common feature of these concepts is based on the accessibility to the new opportunities and especially technical ones (of course this element is easier to implement in developed countries, but it always stands as one of the main objectives which should be achieved as much broadly as it possible in all over the world). according to the analysis of the concepts (which were done above) of the information and knowledge societies the wider interpretation of the knowledge society appears. it could be stated that the concept of knowledge society almost completely covers and involves the concept of the information society. information society rises as the most important precondition for knowledge society’s creation and its features strengthening. without the capacities of the information society the appearance of knowledge society would not be possible. conclusions • the diffusion of information and communication technologies brought new opportunities for development of multidisciplinary stage of activities on which the information society and the knowledge society started to appear. • although the origins of the information and knowledge societies started to rise approximately in the same time (in 1960s) with the appearance of information and communication technologies, the concepts of the paradigms started to be considered in institutional-political as well as academic level for several decades. • with the reference to the analysis of scientific literature and various politic and administrative documents could be stated that human society is the same one but constantly changing towards development. the stages of the development of the society are very connected to each other and cover the features which can be common. due to this, one stage of the development can not be distinguished sharply from another one. • with reference to the analysis of the concepts could be stated that the concept of knowledge society can be interpreted more broadly then information society, which means that the concept on knowledge society almost completely involves the concept of information society enabling its creation. • knowledge society’s paradigm depends upon the information society’s paradigm: have the common infrastructure – information and communication technologies. • information communication technologies are necessary but not sufficient condition for a knowledge society, which requires more than just the active implementation of new technologies. 55 issn 1822-8402 european integration studies. 2007. no 1 references abbate, j. 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society’s demands, for example, sustainability. starting from 2015, circularity is an important aspect of sustainability. furniture is among the product groups with a significant impact on the material footprint, therefore approaches to increase material efficiency and circularity are of high value. with this research, the authors investigate the market’s maturity, i.e. the readiness of suppliers to offer circular furniture and services, as well as the readiness of municipalities to uptake it. 20 companies and 27 municipalities took part in the survey. results show that the surveyed companies currently are more ready to offer more circular products and services than municipalities require in the procurement tenders. most surveyed municipalities are maintaining and repairing the furniture by themselves that is a circular approach but without outsourcing. the market consultation before the tendering could help to understand the market abilities better and lead to more circular purchasing contracts. this is an important task considering the importance of public procurement in promoting a circular economy. keywords: circular economy, circular procurement, furniture, green public procurement, market maturity, sustainable procurement. the circular economy (ce) is an innovative approach to eliminate emerging environmental problems caused by increasing resource depletion, accumulation of non-recycled waste, growing environmental pollution and climate change. the concept of the ce is an increasingly attractive approach to tackling current sustainability challenges and facilitating a shift away from the linear “take-make-use-dispose” model of production and consumption (klein, ramos et al., 2020). the development of this new paradigm started nearly half a century ago in the minds of innovative designers, promoted by thinktanks such as the ellen macarthur foundation (webster, macarthur, 2016) or iges – the institute for global environmental strategies (ministry of environment, japan, 2019) and injected in policies and strategies of different countries in the world. thus, ce is on the rise in the european union, japan, canada, the usa, china, etc. the concept of ce is increasingly receiving attention from companies, academics, and policy-makers as a practical approach to address the current sustainability challenges and transform the linear “take-makeuse-dispose” model of production and consumption into a circular model of resource managesubmitted 03/2021 accepted for publication 06/2021 the market’s maturity for public procuremento of circular furniture: a study from latvia eis 15/2021 jana simanovska the latvian environmental investment fund inese pelsa university of latvia, the faculty of business, management and economics http://dx.doi.org/10.5755/j01.eis.1.15.29017 introduction 243 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 ment (esposito et al., 2018). there are many definitions of ce, and the authors would like to forward the definition by geissdoerfer and co-authors that is based on a thorough literature review, defining ce “as a regenerative system in which resource input and waste, emission, and energy leakage are minimised by slowing, closing, and narrowing material and energy loops. this can be achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling (geissdoerfer et al., 2017). ce is seen as one of the approaches to reach sustainable development goals defined by the united nations. the european union launched its first ce action plan in 2015 (european commission, 2015), and further on embanked ce as one of the basic stones in the new strategy document for reaching a more sustainable economy i.e. “the green deal” (european commission, 2019). “in a ce, carbon dioxide emissions would halve by 2030 and resource consumption by cars, construction materials, real estate land, synthetic fertilizer, pesticides, water use, fuels and non-renewable electricity could drop by 32% by 2030 and 53% by 2050, compared with today (accenture, 2016). thus, ce is high on the political agenda and now there is a need for the actions to implement it in our life. it shall be noted that the ec directive on waste (european parliament, 2008) already in 2008 introduced the waste management hierarchy corresponding to a circularity approach setting the following priority order for waste management: (a) prevention, (b) preparing for re-use, (c) recycling, (d) other recovery i.e. energy recovery and (e) disposal. a review of existing and proposed policies for advancing ce identified three policy areas that could potentially have a high impact on ce: 1) reuse, repair, and remanufacturing policies; 2) green public procurement and innovation procurement, and 3) policies for improving secondary materials markets (milios, 2018). public procurement is a process where authorities purchase products and services from entrepreneurs to fulfil their functions, and the volume of public procurement in the eu makes up 14% of european gross domestic product and thus can substantially influence markets (european commission, 2017). the basic principle of public procurement is the best purchase for value, but not only in monetary terms, but also in more general needs of society. there is no doubt among eu and national policymakers that the financial volume of the public procurement can help to reach strategic policy goals such as promoting an innovative and sustainable economy (european commission, 2017). integrating ‘circular principles’ into procurement practices can help public sector buyers take a more holistic approach to sustainability while also achieving potential savings (european commission, 2017). with growing interest in sustainable development, this issue is also being addressed by research and guidance of supply chain management (craig et al., 2008), and the use of principles of sustainable supply chain management in the public procurement process (preuss, 2009). currently, ce is gradually becoming more prominent in eu and national policies, and public procurement is seen as one of the most promising policy interventions to improve resource efficiency throughout the economy pushing the market to search for innovative, resource-efficient solutions (öhgren et al., 2019). thus, public procurement activities can drive sustainable development by creating demand-side pressure in markets (testa et al., 2012). public procurement promoting the transition towards the circular economy is called circular procurement. it can be seen as a specific case of the green public procurement promoting products and services with a reduced material footprint or better recycling options. this aim is fulfilled by including circular requirements in the selection criteria of bidders, technical specifications of the product or service or contract clauses for the procurement contracts. there are two types of tendering methods allowed by the law: the lowest price or most economically advantageous tender (european commission, 2014) with the help of a weighing system applying award criteria, that in their nature correspond to the three types of criteria mentioned above. eu citizens e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 244 support the strategic use of public procurement to achieve sustainability objectives (keulmans et al., 2017). nevertheless, there are many obstacles for such strategic procurement, and one of them is also the readiness of the market to deliver the requested goods and services (grandia, meehan, 2017) i.e. the so-called market maturity. furniture is among the product groups with a significant material footprint – in 2011, furniture was in 8th place among products groups with the highest material footprint (giljum et al., 2016) therefore approaches to reduce the material footprint and increase circularity in this sector are of high value regarding circularity. office furniture can be seen as one of the most attractive and interesting pro duct groups from the perspective of circular procurement, as it is durable, technologically stable, and there is a high potential for reuse and reconditioning of used furniture (öhgren et al., 2019). over one million pieces of office furniture are discarded each year in europe (parikka-alhola, 2008), and if some of these are reconditioned and re-used, it would bring significant environmental gains and monetary savings for the procuring agencies since reconditioned furniture is sold at approximately 50–80% of the price level of new furniture (gutowski et al., 2011). the circular economy requires fundamental changes in societal, industrial and consumption patterns (böhringer, rutherford, 2015). manufacturing companies have a driving role in ce implementation since they are the designers of products and services (pieroni et al., 2021). to achieve ambitious targets, companies will need to innovate their business models significantly, improving the consumption stage instead of focusing only on production and end-of-life strategies, i.e. recycling (pieroni et al., 2021). therefore, besides understanding the public demand for sustainable procurements, greater insight is needed to see how to combine buyers’ motivations to save costs, sellers’ motivations to increase returns, and the sustainability requirements arising from policies and public demand (rainville, 2021). consultation with external groups, including potential suppliers, other government agencies, and experts helps to supplement internal knowledge and improve procurement outcomes (rolfstam, 2012). thus, both – the readiness of the procurers to seek circular products and services and the readiness of the market to deliver goods and services complying with these expectations are important research questions to understand the development of circular public procurement and could help the development of the national policies. with this research, the authors wanted to broaden the knowledge on the market maturity in latvia for circular services and products i.e., the readiness of suppliers to offer circular furniture and services, as well as the readiness of municipalities to uptake it. as a method for the research, the authors performed an online survey asking furniture suppliers and municipalities to fill an online questionnaire. municipalities were asked about their size, procurement practices, yearly volume, and circular criteria for the procurement of furniture. enterprises were asked about their size, markets, and circular approaches in furniture production, supply, and service. the questions were formulated so that answers of the producers and procurers were compatible for further analysis. the circular options the authors developed based on the eu waste hierarchy, sorting the existing approaches from literature and advice of the project team of the circular pp project1, as well as eu and latvian green public guidelines for furniture, see the table 1 compiled by the authors. the questionnaire contained questions about the demographic characterisation of companies and municipalities, circular approaches concerning production (and purchase) of furniture, application of new business models and circular approaches at the end-of-life cycle of the furniture. the questioning was performed in spring 2020, approaching companies and municipalities via circular pp project contacts, as well as with the help of the latvian chamber of commerce and industry (lcci), and the association of latvian municipalities. methods 1 interreg baltic sea region program enabling project called “using innovation procurement and capacity building to promote circular economy” (circular pp) 245 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 hierarchy of circularity priority * potential actions potential for new business models waste prevention 1 prolongation of the life span of the furniture intensification of the use (more users or multifunctionality) design for repair and maintenance reduction of material used to achieve the functionality needed restrictions to toxic substances maintenance services of furniture leasing or rent, or sharing of furniture product – service system reuse 2 reuse of existing furniture reuse of product parts: renovation design for reuse (easy adjusting) collection of used furniture, reselling or renting recycling 3 choice of recyclable materials restriction for toxic substances use of recycled material collection of outdated furniture, delivering to furniture producers producing new furniture, using recycled materials renovation and refurbishment of the client’s furniture energy or material generation 4 collection of materials for combustion collection of materials for material generation use of regenerated material in the design of new furniture landfilling 5 table 1 circular options for furniture sorted according to the eu waste management hierarchy * from 1 (highest) to 5 (lowest) 27 municipalities and 20 enterprises participated in the questionnaire. in latvia, in 2020 there were 119 municipalities (the survey covers 23% of latvian municipalities), and 837 furniture producing enterprises (the survey covers 2,4 % of furniture companies). most surveyed municipalities (63%) spend from 1–10 thousand euro per year on the procurement of furniture for the needs of the municipality. for subordinated organisations, such an amount is spent by 54% of municipalities. only 26% spend from 10–50 thousand euro for the needs of the municipality. for the needs of subordinated organisations, 20% of municipalities spend 10–50 thousand euros. the majority of the municipalities (63%) apply a partly centralized approach in procurement: the purchaser is the municipality, but each institution (the recipient of the furniture) sets its requirements. 18% of municipalities allow their subordinated institutions to procure separately and only 11% apply a centralised approach. enterprises that participated in the questionnaire mostly represented micro and small size enterprises (56% employed less than 10 persons, 22 % employed from 10 till 49 persons). the yearly turnover for 65% of the participating companies was below 2 million euro, for 30% of the companies from 2–10 million. the most important markets were latvia (35%), the baltic states (24%), scandinavia (17%), and other european countries (20%). most of the participating companies identified themselves as furniture producers (48%), 18% as furniture refurbishers, and 6% as providing repair services. 9% identified themselves as furniture suppliers. comparing the answers of the municipalities and furniture producers and suppliers, one can see, that the companies are much more open toward the circular approach than the municipalities. however, according to the results of the questionnaire, the majority of municipalities (63%) are maintaining and repairing the furniture by themselves without outsourcing. only a small part of municipalities has requested circular approaches, but did not receive a reply from the market, see figure 1. results e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 246 figure 1 application of circular criteria in furniture procurement by municipalities 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% use of recycled materials in furniture production labeling of plastic parts (> 50g) for better recycling extended warranty for new furniture (> 2 years) use of outdated furniture parts in furniture production maintanance of manufactured furniture furniture repair services furniture maintenance service spare parts for delivered (manufactured) furniture use of packaging from recycled material supplier collects packaging of delivered goods declaration of presence of substances of very high concern (substances licensed under reach and their candidates) have not considered considered, not planned plan to apply asked, not received offer applied 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% use of recycled materials in furniture production labeling of plastic parts (> 50g) for better recycling extended warranty for new furniture (> 2 years) use of outdated furniture parts, refurbishment of furniture warranty for refurbished and remodeled furniture maintenance services for the manufactured furniture spare parts of delivered (manufactured) furniture repair services for the furniture uses packaging from recycled material reuse of packaging (manufacturer, supplier) declaration of presence of substances of very high concern (substances licensed under reach and their candidates) have not considered considered, not planned plan to apply doing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% return of unnecessary furniture furniture rental furniture leasing resfurbishment of obsolete furniture have not considered considered, not planned plan to apply asked, not received offer applied figure 2 application of the principles of circular economy in the production, sale, and maintenance of furniture by companies 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% use of recycled materials in furniture production labeling of plastic parts (> 50g) for better recycling extended warranty for new furniture (> 2 years) use of outdated furniture parts in furniture production maintanance of manufactured furniture furniture repair services furniture maintenance service spare parts for delivered (manufactured) furniture use of packaging from recycled material supplier collects packaging of delivered goods declaration of presence of substances of very high concern (substances licensed under reach and their candidates) have not considered considered, not planned plan to apply asked, not received offer applied 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% use of recycled materials in furniture production labeling of plastic parts (> 50g) for better recycling extended warranty for new furniture (> 2 years) use of outdated furniture parts, refurbishment of furniture warranty for refurbished and remodeled furniture maintenance services for the manufactured furniture spare parts of delivered (manufactured) furniture repair services for the furniture uses packaging from recycled material reuse of packaging (manufacturer, supplier) declaration of presence of substances of very high concern (substances licensed under reach and their candidates) have not considered considered, not planned plan to apply doing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% return of unnecessary furniture furniture rental furniture leasing resfurbishment of obsolete furniture have not considered considered, not planned plan to apply asked, not received offer applied compared to the municipalities, companies are more open for the provision of circular products and circular services. for example, more than 50% of companies are reusing packaging, but only 15% of the municipalities have requested such a service from the companies. the majority of companies offer spare parts, but only one-third of municipalities request this. none of the municipalities have requested to use recycled materials in furniture production although such requirements could be one of the drivers for the development of the recycled materials market. figure 3 application of the principles of a circular economy in procuring new services in the furniture procurement by municipalities. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% use of recycled materials in furniture production labeling of plastic parts (> 50g) for better recycling extended warranty for new furniture (> 2 years) use of outdated furniture parts in furniture production maintanance of manufactured furniture furniture repair services furniture maintenance service spare parts for delivered (manufactured) furniture use of packaging from recycled material supplier collects packaging of delivered goods declaration of presence of substances of very high concern (substances licensed under reach and their candidates) have not considered considered, not planned plan to apply asked, not received offer applied 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% use of recycled materials in furniture production labeling of plastic parts (> 50g) for better recycling extended warranty for new furniture (> 2 years) use of outdated furniture parts, refurbishment of furniture warranty for refurbished and remodeled furniture maintenance services for the manufactured furniture spare parts of delivered (manufactured) furniture repair services for the furniture uses packaging from recycled material reuse of packaging (manufacturer, supplier) declaration of presence of substances of very high concern (substances licensed under reach and their candidates) have not considered considered, not planned plan to apply doing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% return of unnecessary furniture furniture rental furniture leasing resfurbishment of obsolete furniture have not considered considered, not planned plan to apply asked, not received offer applied 247 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% taking back furniture that is not necessary for the customer furniture rental furniture leasing refurbisment of the customer's obsolete furniture have not considered considered, not planned plan to apply doing 0% 20% 40% 60% 80% 100% take back of obsolete, unecessary furniture take back of furniture after leasing auction of furniture donation of furniture have not considered considered, not planned plan to apply asked, not received offer applied 0% 20% 40% 60% 80% 100% collection of obsolete, unnecessary furniture from client have not considered considered, not planned plan to apply doing figure 4 application of the principles of a circular economy by the offering of new services by companies. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% taking back furniture that is not necessary for the customer furniture rental furniture leasing refurbisment of the customer's obsolete furniture have not considered considered, not planned plan to apply doing 0% 20% 40% 60% 80% 100% take back of obsolete, unecessary furniture take back of furniture after leasing auction of furniture donation of furniture have not considered considered, not planned plan to apply asked, not received offer applied 0% 20% 40% 60% 80% 100% collection of obsolete, unnecessary furniture from client have not considered considered, not planned plan to apply doing figure 5 application of the principles of a circular economy in procuring new services at the endof-life of the product. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% taking back furniture that is not necessary for the customer furniture rental furniture leasing refurbisment of the customer's obsolete furniture have not considered considered, not planned plan to apply doing 0% 20% 40% 60% 80% 100% take back of obsolete, unecessary furniture take back of furniture after leasing auction of furniture donation of furniture have not considered considered, not planned plan to apply asked, not received offer applied 0% 20% 40% 60% 80% 100% collection of obsolete, unnecessary furniture from client have not considered considered, not planned plan to apply doing figure 6 application of the principles of a circular economy by offering new services by companies at the end-oflife of the product. comparing the readiness for the new services that can help to prolong working life and intensify the use of furniture, also here companies are more ready to offer new services – refurbishment, leasing, rental and taking back unnecessary furniture. also concerning the end of the life of the products, the majority of municipalities have not considered circular options yet. some circular practices, however, exist: a quarter of the municipalities have donated outdated furniture (assumingly to other municipal institutions) and sometimes perform auctions, but there is a willingness to try out more options. although the number of companies is too small to create a representative picture with this research, one can see that several companies are ready to offer more circular services than municipalities require yet: it might be related to the fact, that companies also serve private persons and other businesses which might be quicker to use new approaches if they are economically beneficial. most of the companies that participated are micro and small size companies which might be more ready to offer new services to get market access. however, furniture production is an important business branch in latvialatvian furniture manufacturers are the 45th largest furniture exporters in the world, exporting 419 million usd worth of furniture in 2018 (united nations comtrade information on exporting countries by nace code 94, 2021). these findings show how important market consultations are before the tenders to see what the market can offer. however, the authors think that money that municipalities spend on furniture is too small to really impact the market and also to make strategic procurements. the current practice that municipalities have decentralised or partly decentralised procurement, allowing the discussion e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 248 development of tender specifications by the subordinated institution might be a barrier for strategic procurement. such approaches as joint procurements, where several municipalities participate and thus enlarge financial volume and framework contracts for a longer period might be solutions for this problem. the ongoing administrative reform that will unite a part of municipalities might have a good impact on the procurement practices in municipalities by increasing the volumes of single procurements. the findings are not giving an answer why the municipalities are more hesitant for circular approaches than enterprises. these results are worth contemplating in light of the procurement policy in latvia where the ministry of finance is in charge of the development of the procurement policy, but the ministry of environmental protection and regional development is responsible for the implementation, monitoring, and evaluation of green public procurement (gpp) (pelsa, 2019). directive 2014/24/ eu and directive 2014/25/eu were transferred to latvian legislation by the public procurement law and public services provider procurement law both coming into force in 2017. the same year, the cabinet of ministers approved regulation no. 353, determining the application of gpp: implementation, supervision, evaluation, as well as control. these regulations set seven groups of goods and services where the application of gpp criteria provided in regulation is mandatory: office paper, printing devices, computer hardware and infrastructure of information and communication technologies, food and catering services, cleaning products and services, internal lighting, street lighting, and traffic lights. the regulation also provides gpp criteria for voluntary groups of goods and services, including furniture. the voluntary criteria for furniture also include circular options such as a longer warranty period (at least 3 years), the availability of spare parts or components having an equivalent function for at least three years, presence of toxic substances (substances licensed under reach and their candidates) etc. there are positive trends in the application of the gpp in latvia. according to information from the procurement monitoring bureau of latvia, in 2019 the share of self-reported green public tenders by procurers accounted for 17.3% of all procurements in financial terms performed under the public procurement law or 515 million euro. in terms of the number of purchases, it made up 13.2% or 1,500 purchases. however, out of 205 furniture purchases made in 2019, only 14 were self-reported made in accordance with gpp requirements, respectively 6.8% or in financial expression it consists of 545 thousand euro or 6.4% from all furniture tenders (8.5 million euro). this corresponds to the results of the survey, where only a minority of municipalities have included circular criteria in their procurements. in latvia, there are one-level municipalities – 110 counties and 9 republic cities (riga, jurmala, liepaja, ventspils, daugavpils, rezekne, jekabpils, valmiera, and jelgava). population per municipality ranges from 1,300 inhabitants to more than 500,000. given the large differences in size, it is reasonable to assume that at least some smaller municipalities might lack sufficient resources and expertise on environmental topics, as well as, on purchasing (legislation). the better understanding of the barriers for green, sustainable, circular procurements could help for policy development in this field and could be a task for further research. last year (2020), the latvian government adopted the action plan for the transition to a circular economy 2020–2027 (circular economy plan). the plan requires to improve the market for secondary raw materials, procure reusable and recycled goods through green public procurement and the development of cooperation with neighbouring countries. the circular economy plan refers to low productivity in latvia compared to the eu average (labour productivity per person employed and hour worked , 2021), an important indicator of the circular economy. although businesses are interested in reducing their production – latvian smes are in the top ten at the european union level in terms of implementing resource efficiency measures, the share of green 249 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 products and green services in the activity of smes is low (sba fact sheet latvia, 2017). consequently, there is a large need to promote circularity and sustainability in the latvian business sector and public procurement could be one of the instruments. the knowledge on behaviour of the municipalities and barriers towards strategic, circular and sustainable public procurements could help in development of future policies. 20 companies and 27 municipalities took part in the survey about their readiness to offer and uptake circular furniture and services. although the number of participants among companies cannot represent the market, it is sufficient to understand about availability of circular furniture offers on the latvian market. results show that surveyed furniture enterprises currently are more mature to offer circular products and services than municipalities currently require. but most surveyed municipalities (63%) are maintaining and repairing their furniture by themselves that is an important circular approach but without outsourcing. the market consultation before the tendering could help to understand the market abilities better and lead to more circular purchasing contracts. this is an important task considering the importance of public procurement in promoting a circular economy. the authors are grateful to the interreg baltic sea region programme enabling project called “using innovation procurement and capacity building to promote a circular economy” (circular pp), many thanks to the project team, especially the mentors, mervyn jones and take padding, pianoo, and closest colleague zane bilzēna, and the latvian chamber of commerce and industry. conclusions accenture. 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(2016). the circular economy: a wealth of flows: 2nd edition. about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). simanovska jana dr.sc.ing. the latvan environmental investment fund address the latvian environmental investment fund eksporta street 5, riga, latvia vidzeme university of applied sciences, cesu street 4, valmiera, latvia, jana.simanovska@va.lv pelsa inese mg. oec. university of latvia, the faculty of business, management and economics address aspazijas boulevard 5, riga, latvia, inese.pelsha@gmail.com 47 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abstract critical thinking competence and its impact on acquisition of basic principles of enterpreneurship among business students in latvia http://dx.doi.org/10.5755/j01.eis.1.15.29248 critical thinking is mental process of analysis and evaluation of information. the source of information can be experience, reflection, observation, communication, etc., as well as study process. business education is based on the ability to navigate the market situation and make informed decisions. the aim of the research is to determine correlation between business students information processing skills according to certain criteria and students’ self-evaluation of their information processing skills. based on this, the authors of the investigation study the theoretical basis of critical thinking with the monographic or descriptive method, with the help of a questionnaire assess students' ability to critically evaluate the situation and make decisions based on it. this study will provide an understanding the need for critical thinking and its development in the process of business education. two research questions are put forward: (1) what is the self-assessment of critical thinking skills by the business students?(2) what are the differences between the self-assessment and the assessment according to the proposed criteria? in the result, the authors conclude that by studying the importance of critical thinking in educating business students, it is possible to increase market understanding and decision-making competence for students. critical thinking is the skills of business students to start a successful business. keywords: critical thinking; critical thinking in business; information assessment; 21st century skills; red model for critical thinking. globalization of the market is increasingly affecting companies, forcing them to seek solutions for competitiveness and development. the development of the company is based on the ability to orientate in the market situation and to make informed decisions. decision making process, on its turn, is based on the ability to critically evaluate and process information. this calls for a special type of skills, the one of critical thinking – mental process of analysis and evaluation of information, recognition of the fake content, misleading data, etc. the source of information can be experience, reflection, observation, communication, etc., as well as study process. according to the research of pearson education (2013), the highest rated skills today are good analysis and problem-solving skills; good judgment and decision making; good overall job performance; the ability to evaluate the quality of information presented; creativity; job knowledge; and the potential to move up within the organization. critical thinking skills, perhaps more than any other business skill set, can make the difference between success and failure. business education european integration studies no. 15 / 2021, pp. 47-54 doi.org/10.5755/j01.eis.1.15.29248 submitted 01/2021 accepted for publication 06/2021 critical thinking competence and its impact on acquisition of basic principles of enterpreneurship among business students in latvia eis 15/2021 iveta linina turiba university velga vevere eka university of applied sciences introduction e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 48 plays a special role in developing critical thinking skills. the aim of the research is to determine correlation between business students information processing skills according to certain criteria and students’ self-evaluation of their information processing skills. in order to achieve the aim, the following tasks were set: 1 to analyze the essence of critical thinking and the theoretical basis of its formation. 2 to determine the level of critical thinking of business students. in order to assess the level of critical thinking of business students, the following limitations have been set: the problem is studied mainly from methodological aspect and the age of the respondent of the survey is not taken into account. the research period was from january 1, 2021 to march 1, 2021. the following research methods have been used: the logical-constructive method for the literature review and creation of conceptual framework; the business students’ survey (n=276) applying 10-point likert scale. the authors of the current research are daily involved with these issues being professors at the private universities in latvia, teaching such subjects as critical thinking, problem solving, international marketing and research methodology to business students of the bachelor, master and doctoral levels. there exists a variety of definitions of critical thinking depending on the field of application and its functions. some value the reasoning process specific to critical thinking, while others emphasize the outcomes of critical thinking, for decision making or problem solving. for the purpose of the current research we employ a definition proposed by the foundation for critical thinking that describes the critical thinking as the "intellectually disciplined process of actively and skilfully conceptualizing, applying, analysing, synthesizing or evaluating information gathered from, or generated by, observation, experience, reflection, reasoning, or communication, as a guide to belief and actions” (the foundation for critical thinking, 1987). this definition comprises, in our opinion, the vital characteristics of this thinking mode, namely, the acquired (taught) abilities to work with information and apply results of reflection in the practice. in addition, the critical thinking involves the art of argument creation. this process is thoroughly described by t. bowel and g. kemp in their joint book “critical thinking: a concise guide” (bowell & kemp, 2020). the authors argue that it is very important to tell whether an argument is being given, exactly what the argument is about, and whether one ought to be persuaded by it. r. paul and l. elder (2019) present a list of the characteristics of critical thinkers. these characteristics include the following activities: raising vital questions and problems, formulating them clearly and precisely; gathering and assessing relevant information, using abstract ideas to interpret it effectively; coming to well-reasoned conclusions and solutions, testing them against relevant criteria and standards; thinking open-mindedly within alternative systems of thought, recognizing and assessing as need be, their assumptions, implications, and practical consequences; and, finally, communicating effectively with others in figuring out solutions to complex problems. moreover, critical thinking requires the use of self-correction and monitoring to judge the reasonableness of thinking as well as reflexivity. thus, critical thinking ability can be viewed as one of the most important components in 21st century skill roadmap alongside with communication and collaboration, innovation, media literacy, technology literacy, productivity and accountability, leadership and responsibility (chu et al., 2017). critical thinking was not only the first among the 21st century skills but is the foundation for three other essential 21st century skills: communication, collaboration, and creative thinking (dwyer et al., 2015) these skills have been called “the four c’s. d. f. halpern & h. r. riggio h. r. (2013), eggers and others (2017), bell and loon (2015) focus on the outcome or utility aspect of critical thinking, in that critical thinking is conceptualized as a literature review 49 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 tool to facilitate decision making or problem solving in everyday life and business. thus, business leaders take major actions every day, from hiring and firing to reviewing financial earnings reports, participating in board meetings and handling public relations crises. these are the precise areas in which critical thinking comes into play, as business leaders use this skill to make tough decisions, such as letting an employee go or issuing a press release when scandal threatens to tarnish a company’s reputation (karr, 2009). today’s business environment calls for leaders’ ability to change, rethink and prepare for mobility, innovation, flexibility, agility, and change, as well as to work in a socially networked society, where new and emerging technologies continuously increase global communications (li & ma, 2017). advancement of the new technologies, in its turn, requires particular skills to find information inside and outside the organization, to organize and process it avoiding traps of misinformation. leaders (executives) should encourage all members of the organization to exercise critical thinking within the organization stressing that these particular skills would help in their career advancement within organization and in their overall contribution to the organization’s success (employees want to be identified with a successful organization and a successful and professional career). s. natale & f. ricci (2006) and f. ricci (2014) write about necessity to integrate critical thinking within the workplace by creating an awareness of the importance of critical thinking within each schedule of events, group meetings, planning, and project management coordination, analysis of financial reports, and organizational trends and projections. this would lead to building a team of administrators and employees with the ability to use critical thinking techniques through self-directed leadership and an expansion of the pool of leaders ready to take on new and creative organizational activities as a result of becoming good decision makers and problem solvers. chartrand, ishikawa & flanigan (2009) in their report admit that people who score well on critical thinking assessment are also rated by their supervisors as having good problem solving skills, good judgement and decision making abilities, creativity, the ability to evaluate information, etc. all in all, critical thinking process is being described as the pearson’s red model, where r stands for the recognition of assumption (ability to separate fact from opinion); e – for the evaluation if arguments (analysing information objectively and accurately, questioning the quality of supporting evidence, and understanding how emotion influences the situation); and d delineates the drawing conclusions (bringing diverse information together to arrive at conclusions that logically follow from the available evidence). at the same time, elicor (2017) argues that critical thinking treated as a normative principle and balanced with a pragmatic orientation provides a rational framework for resolving conflicts. other authors put their stress upon teaching and educational aspects and inclusion of the dedicated course in the curriculum. because success in our technically advanced society requires critical thinking competence, and because education is the principal means of preparing students for an active and responsible life, it is imperative that educational establishments focus on fostering and developing of critical thinking skills. s. a. nonis and g. i. hudson (2019) write about the developing skills of marketing students by the means of including specific themes and practical tasks in different courses (such as, marketing, management, market research, etc.). among the recent studies we can mention the ones by r. andrews (2015), r. barnett (2015), k. thomas and b. lok (2015). all in all, these studies exemplify the need for critical thinking skills in business education. yet other researchers are engaged in the problem of assessment of the level of students’ critical thinking, here we can mention such authors as a. s. ünsar and e. engin (2013), m. karakoc (2016), b. critchley (2011,; a. khalifa (2009), t. laurer (2005), s. k. bandyopadhyay and j. szostek (2018), f. w. brown & a bielinska-kwapisz (2015). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 50 within the framework of this research, in order to find out the students' ability to obtain information and critically evaluate it, a traditional method was used a survey was organized with the help of a questionnaire. the survey was conducted in three latvian higher education institutions among students studying in the business management program to identify the students' ability to distinguish false information from the facts. preparing to use this method involves certain steps. let us characterize them briefly. first, determining the standardization and degree of openness of the questionnaire. taking into account the purpose of the survey and the characteristics of the respondents, the authors of the paper chose a standardized open questionnaire. this means that all respondents were offered the same questions in the same order, which ensures an objective comparison of answers. the questions were selected with one answer version according to the 10-point likert scale, as well as multiple choice questions. second, determining the surveying method. the authors of the paper chose the following option the survey was created in the google forms. questionnaires were distributed via e-mails using the personal contacts of the authors, as well as placed in the facebook platform. thus, the sampling method can be deemed as one of the snowball type; the census a total number of all latvian business students in 2019. at the 95% reliability level and the 5% margin of error, the minimum sample size was calculated of 258 respondents (arhipova & bāliņa, 2006), 276 answers were recognized as valid for the current research. third, determining the ways students’ obtain information and testing the questionnaire. at the same time, it is very important to make sure that the respondents have the necessary information to answer the questions raised. in order to do that focus group discussions and a pilot research were carried out. fourth, question formulation according to the principles: use of simple words and sentences, avoiding ambiguous words and questions, avoiding prompting questions, hidden alternatives, etc. (payne, 1978; erdos, 1983). fifth, sequence of questions. the sequence of questions is also an important step, as it affects the respondent's interest in answering questions accurately. in order to avoid mistakes, the authors followed the special recommendations: at first general questions were asked, but then specific questions; relatively difficult questions were placed in the of the questionnaire; questions related to one theme have to be completed before moving on to the next theme. sixth, determining the form of the answer. in order to be able to provide a quantitative assessment and perform an appropriate analysis, the authors used a likert scale with a ten-point rating, where 0 stands for no rating and 10 very high rating. besides that, part of the questions contained multiple answer possibilities. the questionnaire consisted of multiple choice questions regarding information sources; trust in public leaders (naming particular personalities; public persons’ responsibility for possible consequences; number of personal social media profiles; reading fiction books apart from the school assignments; opinion about what advertisement is. besides that, there were also such questions: “latvia public media distribute false information”, “information distribution in latvia is in hands of governing circles”, “european and public media distribute false information”, “information source influences information reliability”, “to what extent do you believe that covid-19 is an imagined affair?” “to what extent you judge content by the title alone”, “to what extent do agree that in case of doubt you look for additional information?” and others. two questions were directly related to students’ self-evaluation – “evaluate your personal interestedness in social-political processes in latvia” and “evaluate your ability to distinguish false information from true information”. seventh, use of statistical methods for processing and analysis of student survey results. using the spss computer program, the authors calculated the following indicators: arithmetic mean methodology 51 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 (x ̅); arithmetic mean standard error; median (me); mode (mo); amplitude of variation; standard deviation (kristapsone et al., 2016). for questions with possible multiple answers, the percentage of answers in the total sum of answer options was calculated. in order to find out whether there is a connection between the respondents' self-assessment and other factors, correlation coefficients were calculated (arhipova, bāliņa, 2006). two research questions are put forward: » rq1: what is the self-assessment of critical thinking skills by the business students? » rq2: what are the differences between the self-assessment and the assessment according to the proposed criteria? the responses were further processed and analyzed. first, the issue of students' self-assessment in recognizing false information was addressed (see table 1). in this question, students rated their skills in recognizing false messages on a 10-point scale, where 0 meant that students were not able to distinguish false information from the real one at all, and 10, where they were always able to do so. results and discussion assessment criterion arithmetic mean arithmetic mean standard error median mode amplitude of variation standard deviation recognition of false information (student’s selfevaluation) 7.22 0.85 8.00 8.00 8.00 2.54 source: authors’ table 1 students' self-assessment in recognizing false information analyzing data obtained, it can be concluded that students evaluate their skills in recognizing false information quite high, because the arithmetic mean is 7.22. but we look at the range of variations, it appears large. as the median shows, the most common grade was 8, but no student rated herself with 0 and 1. in order to find out whether there is a correlation between the respondents' self-assessment and the factors that indicate the reasons for not recognizing false information, a correlation coefficient was calculated. the authors' calculations of the correlation coefficient between the respondents' self-assessment (on a 10-point scale) and three factors limited sources of true information, belief in populist personalities and recognition of world-renowned latvian scientists showed that the correlation existed, but it was rather weak. the negative correlation coefficient indicates that when one indicator increases, another decreases, but the positive correlations means, that if one increases another increases as well. the very weak and weak correlations mean that level of a student’s self-evaluation has no bearing on factors that may affect his or her ability to recognize false information or the student's own ability to objectively assess himself or herself in relation to recognition of false information (see table 2). factors that make it possible to recognize false information student‘s self-evaluation in recognizing false information number of information sources used -0.156 belief in populistic personalities 0.104 ability to recognize world renowed latvian scientists -0.121 source: authors’ table 2 correlation coefficients that show the relationship between a student's selfassessment in recognizing false information and factors that indicate a lack of ability e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 52 calculation of the correlation coefficients demonstrate that the higher the student's self-esteem, the less information sources he/she uses. belief in highly populist well-known personalities, there is a weak but positive correlation with high self-esteem. a similar situation is observed regarding the recognition of scientists. the fewer scientists are recognized, the higher degree of students’ self-evaluation regarding their skills in recognizing false information. these correlation coefficient calculations show that students have great difficulty in assessing their ability to distinguish false information from true information objectively. respondents were asked if in case they have doubts about credibility of information, they look for additional information (see figure 1). figure 1 students' desire to seek additional information in case of doubt (source: authors’) the answers to this question made it possible to find out that in the case of doubts about the truthfulness of the information 96% students are ready to look for additional information. 1 as a result of the survey it was found out that students, when evaluating their skills to distinguish false information from the true one, have assessed themselves relatively high, with the arithmetic mean of 7.22. 2 the calculations of the correlation coefficient demonstrates that students are more likely to be unable to assess their skills in recognizing false information; the more limited the student's information sources are and the less he is able to recognize world-class latvian scientists, the higher he evaluates his skills in recognizing false information. as well as those whose self-esteem is higher have higher trust level in populistic personalities. but because the correlation is weak, this conclusion cannot be fully applied to all respondents. summarizing all the information obtained in the study, it can be concluded that students studying business have problems with objective self-assessment in recognizing false information, but the positive is that students are still ready to look for (96%) additional information in the case of doubt. conclusion references andrews r. 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(2013). a case study to determine critical thinking skills of university students. procedia social and behavioral sciences, 75, 563 569,. https://doi.org/10.1016/j.sbspro.2013.04.061 linina iveta dr. oec. turiba university fields of interests customer relationship marketing, critical thinking, marketing communications, sales management. address 68 graudu street, riga lv-1055, latvia +371 226306922 iveta.linina@turiba. vevere velga dr.phil. eka university of applied sciences fields of interests critical thinking, corporate social responsibility, business ethics, governance, marketing communications. address 1/5 lomonosova street, riga lv-1003, latvia +371 26463584 velga.vevere@gmail.com about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 125 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 abstract involvement of employees in increasing the efficiency of production processes for smes in the baltic states http://dx.doi.org/10.5755/j01.eis.1.16.31135 iveta linina, rosita zvirgzdina turiba university, latvia kamila tišlerová prague university of economics and management, czech republic european integration studies no. 16 / 2022, pp. 125-134 doi.org/10.5755/j01.eis.0.16.31135 submitted 04/2022 accepted for publication 06/2022 involvement of employees in increasing the efficiency of production processes for smes in the baltic states eis 16/2022 in the current global market, companies are focusing on ensuring their competitiveness. in today’s business environment, there are no uniform standards or models that would ensure business development and efficient use of the existing resources. there are different management support standards, models, systems, however, the unifying criteria of these systems are a satisfied customer and reduced costs, which will be the basis for ensuring long-term competitiveness. thus, the involvement of employees in increasing the efficiency of production processes is essential and can be a decisive factor in ensuring the sustainable development of smes (small and medium-sized enterprises). in order to identify the factors contributing to the competitiveness of smes, the authors of this article have studied the nature of employee involvement in manufacturing companies. in order to achieve the set goals the monographic or descriptive method were used, the authors have studied the theoretical basis of employee involvement, analyzing the development trends of the sme sector in the baltics and empirically studying the needs of employee involvement and influencing factors in the production of the smes in the baltics. this study will provide companies with an understanding of the impact of employee involvement and the need to increase the efficiency of production processes. analyzing the theoretical aspects, the authors have defined a unified approach to this situation from the point of view of its essence. finally, the authors conclude that the involvement of employees in increasing the efficiency of production processes is one of the tools for ensuring the competitiveness of companies. keywords: production, employees, process efficiency, competitiveness, smes. at a time when the covid pandemic is making it difficult for raw materials to be sourced globally in virtually all sectors, and demand is running short of supply and prices are rising, companies have to look for new solutions. in such circumstances, it is especially important to use the available resources rationally, improving product quality and reducing costs. improving efficiency has always been an issue, and more and more companies are now raising the issue of how to increase productivity, reduce losses and create a system of the continuous improvement. reducing the number of employees by reducing labor costs is not a long-term solution. in order to promote a more rational operation of the company, with the existing human resources, knowledge and equipment, companies need to find solutions that will ensure long-term development and competitiveness, involving all employees in the process. the aim of the research is to identify the influence factors for employee involvement to ensure the efficiency of the company’s processes introduction e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 126 and to increase competitiveness. to achieve this goal, the following tasks are set: 1. to evaluate the theoretical aspects of increasing the efficiency of processes to ensure the successful involvement of the company’s employees; 2. to find out the factors influencing employee involvement to increase production efficiency. research period: january 1, 2021 to january 1, 2022. limitations of the research: to ensure the objectivity of the research, only production processes will be studied. the monographic or descriptive method was used to analyze the theoretical basis, but a survey was used to increase the efficiency of employee involvement processes. this study will provide companies with an understanding of the impact of employee involvement and the need to increase the efficiency of production processes. the methodological basis of the research is the research of several scientists, such as a.k. aletaiby, d. besterfield, a.v.jiju, z. driņķe et al. the goal of every business is to make a profit. in the current situation of the covid pandemics, the resources are limited and it is therefore necessary to increase the return on these resources or work more efficiently. one of the most important resources is time. it is the most limited of all resources and at the same time the most important in the work process. however, time is also a unique resource, because if, for example, other resources such as money, labor, or raw materials can be found, then time cannot be rented, hired, or acquired in any other way (drucker, 2017, 41-42). the word efficiency has two meanings: efficiency doing the right things and effectiveness doing the things right. researcher koontz points out that efficiency is the achievement of a company’s goals with the least possible resources (koontz, 2010, 9). the authors agree with this definition, because in essence it brings together both doing the right things and doing the right things. in turn, researcher robbins, explaining that efficiency is both to achieve the best results with the least resources, as well as to achieve the highest goals (robbins, 2017, 9). summarizing the two definitions, the authors believe that doing things right is related to the company’s tactical or short-term goals, while doing the right things involves a long-term strategy, and both of these factors are equally important. the company has two parties involved in achieving its goals management and employees. leadership an effective leader practices the following: asks what needs to be done; asks what is right for the company; develop an action plan; take responsibility for their decisions; takes responsibility for communication; looking for solutions rather than problems; leads productive meetings and uses we instead of me. the first 2 points provide the necessary knowledge, the next 4 help to turn knowledge into action, while the last 2 involve the whole company and make them feel responsible (drucker, 2017, 12). the task of management is to create an appropriate environment, because it promotes the responsibility of employees, then the company is likely to achieve its product quality goals, because each of the employees will be involved in running the company (mrotek, 2014). the authors agree with these points, as it is important that responsibilities and tasks are delegated and that the employee is provided with the necessary management support to perform their duties. employees are at the heart of every business and are undeniably its greatest asset. therefore, it is important to motivate employees accordingly, as well as to pay regular attention to the company’s microclimate. in order to be effective, it is important that every employee is aware of their goals and objectives. because if the goal is not set, then the employee’s productivity decreases. accordingly, employees play a huge role in the company, because through their direct actions, using their knowledge and skills, they influence the achievements of the whole company (kaļķis, 2014, 30). involvement of company employees in increasing the efficiency of processes 127 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 in order for employees to be able to perform their duties qualitatively, it is necessary that the company’s internal standards and processes are clearly defined. they help maintaining order and make daily work easier by reducing losses, which is important for efficiency gains. by the quality we mean a great product or service that meets or exceeds customer requirements (besterfield & et al., 2021, 7). figure 1 relationship between the human factor and the organization’s goal and operational efficiency (kaļķis, 2014, 30)s researcher z. driņķe has conducted a detailed study of quality definitions, and considering that the study is conducted on the possibilities of improving production efficiency, the most appropriate definition of quality would be that quality / compliance is a set of characteristics defined by an individual, company or other organization. used in the evaluation of the production process of the product and / or service and / or the value in use of the manufactured product (drinke&bruksle, 2018, 85-72). the employee involvement is one of the approaches to improve quality and productivity. it promotes the employee loyalty and sense of belonging to the company, which motivates to increase quality indicators at all levels of the company. therefore, managers should motivate employees to take responsibility and communicate effectively to improve the quality of all aspects of their work. this will improve employees’ sense of belonging to the company (aletaiby, 2017, 12). a process is any activity that requires resources and is managed to convert input values to output values (driņķe, 2019, 61). in essence, a process model can be represented in the following diagram (see figure 2), where a process can be defined as the interaction between people, materials, methods, procedures, and the environment to create either the final product or a new resource for the next process. such a process must be efficient, controlled and adaptable, subject to certain conditions imposed by policies, restrictions or regulations (besterfield, 2021, 123). figure 2 process scheme (besterfield 2021, 123) e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 128 the end result of this process model is a customer satisfaction, or, if not achieved, a feedback to improve the process. before starting the process, it is necessary to set goals and develop a strategy, which should include the information about the type of process, the time when the activities will be performed and the required resources (kaļķis, 2014, 11). the authors would like to point out that this is a continuous process of improvement. d. besterflid points out the steps that should be taken to improve the operation of system processes: every operation of a system should be considered a process; all processes must be efficient and adaptable; anticipate changes in customer needs; manage ongoing processes by reducing production waste, cycle time, etc .; maintain the ability of employees to critically evaluate performance; reduce or eliminate the production of defective products; evaluate activities that do not add value to the product or service and prevent them; eliminate irregularities at all stages of the process; apply standards to enhance a company’s competitive advantage and innovate to achieve quality breakthroughs (besterfield, 2021, 121). d.besterfield supplemented the scientist’s deming circle with 7 steps (see figure 3). the process involves the following steps: 1 identification of an opportunity, 2 process analysis, 3 solution development, 4 implementation, 5 result analysis, 6 solution standardization, and 7 future planning (besterfield 2021, 137). the introduction of continuous improvement provides the company with innumerable benefits (driņķe, 2019, 68). entrepreneurs always have to make decisions: either to develop new business opportunities or goals, or face the consequences of external circumstances when a decision has to be made. typically, the risk factors are analyzed at senior management meetings and they are based on the factual evidence. the facts may be the result of the internal audit of the quality system, customer claims or complaints, etc. (driņķe, 2019, 69). there is another side to the company’s processes suppliers. the company and the supplier are interdependent because they have the same goal to satisfy the end consumer. given that both the supplier and the buyer have limited resources, they need to work together to increase the return on investment (besterfield 2021, 149). the authors believe that this increases the opportunifigure 3 continuous process improvement cycle (besterfield 2021, 130) 129 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 ty for both parties to optimize resources and costs, and create value. thus, the authors conclude that relationship management is an important factor in improving the efficiency of the company. analyzing the theoretical approach to achieving the efficiency, the authors consider two methods – the lean and the six sigma. the lean’s philosophy is to create the highest quality products at the lowest cost and on-time delivery (jiju, 2016, 23; linina, vevere & zvirgzdina, 2018, 602-611). in order to achieve this, the following basic principles of economical production and the sequence of their implementation must be observed: the value of the product / service to the customer must be determined, the organization’s internal flow value map must be developed, the process value chain, traction effect and radical process improvement must be created (babris, 2016, 26). the process identification and visualization are important (the technological companies use technological process flows, the service companies use process schemes) (babris, 2016, 29). it is a scheme that includes all the activities that create value for the customer and that are necessary for the production process to go through the entire flow from development and production to the delivery of the product or service to the customer (dunska, 2018, 191). the authors agree that the lean is a process of endless improvement that needs to be streamlined to create more added value for the customer, as well as a motivating work environment for employees involved in generating ideas and business owners, as such a company will always be one step ahead of competitors, quality of profitability and innovation (babris, 2016, 30). the key performance indicators (kpis) improve work efficiency, both individually and at the company level. these indicators serve as a tool for evaluating employees, but it is important whether these indicators are in line with the principles of the lean ideology, so it is important which performance indicators are used: they must be visualized and located in the workplace of a particular group or team; they must be simple and comprehensible to all employees; they must be vulnerable; they must be followed by the entire team at the operational meeting; at any deviation, the problem must be analyzed, the cause found, and the problem solved (babris, 2016, 66). according to the philosophy of the lean, it can be said that the company achieves the best results if the remuneration of employees is related to both the individual goals and the overall goals of the company(linina&zvirgzdina, 2018, . the competence matrix, on the other hand, is a method of reflecting the existing and required skills of each employee to perform key responsibilities and replacing other colleagues in the event of absence or increased workload. comparing the existing skills with the required ones, it is determined what skills the employee must acquire, and an individual development plan is drawn up for their acquisition (babris, 2016, 70). in general, the authors conclude that the lean philosophy includes a variety of efficiency tools aimed at reducing losses and increasing material flow and traction. the six sigma is both a statistical concept that measures the number of non-compliances in a product or service and a methodology for improving quality. sigma is the greek symbol for σ, which means standard deviation. in the 6sigma process, there are six standard deviations (sigmas), which means that the chance of non-compliance is 3.4 per million. (besterfield, 2014, 14). according to the authors, this means that in order to achieve the quality of 6 sigma, there must be no more than 3.4 cases of non-compliance per million cases. in order for a company to implement the 6 sigma method, it must meet the following criteria: the company must have result-oriented management and problem-solving methods and capabilities. 6 sigma’s ideology is based on the following factors: critical aspects of quality; error; process capacity; variation and 6 sigma development (janeska, 2018, 7). according to the authors, the e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 130 goal of 6 sigma is to implement a strategy to improve processes and eliminate defects. to do this, 6 sigma offers a range of tools that fall into the following categories: tools for generating ideas and gathering information; data collection tools; tools for data and process analysis and tools for statistical analysis (pande, 2002). surveys of users in the field are used to study people’s attitudes and behavior. in the framework of this study, in order to directly and indirectly find out the involvement of production company employees in the assessment of the involvement of company processes in the baltic states, a traditional method was used a survey with the help of a questionnaire (rust et al., 2004). the survey was conducted in all three baltic countries to identify problems in employee involvement in increasing the efficiency of production processes. preparing to use this method involves several steps. taking into account the purpose of the survey and the characteristics of the respondents, the authors of the paper chose a standardized open questionnaire. this means that all respondents were offered the same questions in the same order, which ensures an objective comparison of answers. the questions were selected with one answer variant according to the likert scale in a 5-point system, where 1 is the lowest rating and 5 is the highest rating. the survey was created on the google forms website and translated into lithuanian and estonian to reduce the possibility of misunderstandings. the questionnaire with the improbable random snowball method (kristapsone, kamerāde et al. 2011, 71), using the author’s personal contacts, was sent via e-mail to the respondents, who further shared this link. the questionnaires were also distributed through various industry associations in all three baltic states. the questionnaires filled in by 1248 respondents were recognized as valid for the research, including 673 research table 1 socio-demographic indicators of the survey respondents (created by the authors) no. socio demographic indicators of respondents number 1. gender women 542 men 706 in total 1248 2. age 0–25 106 26–40 306 41–55 532 56–63 301 64 > 3 in total 1248 3. income after taxes 0–250 86 251–500 218 501–750 376 751–1000 433 1001 > 135 in total 1248 from latvia, 388 from lithuania, and 385 from estonia. residents of all three baltic states were included as a general group on january 1, 2020. at the 95% confidence level and the 5% margin of error, the minimum sample size in each country was calculated 385 respondents (arhipova & bāliņa, 2006, 98–104). in all three baltic countries, the general set was reached. the characteristics of the respondents are summarized in table 1. the main questions of the survey were focused on the employees ‘understanding of the company’s processes, the involvement of employees in these processes from the employees’ point of view, as well as on ensuring and increasing the efficiency of the company’s business processes. the questions were summarized in 4 blocks employee self-assessment in managing direct work responsibilities, employee interest in increasing company efficiency, company motivation system evaluation in increasing efficiency and employee awareness of company values, goals, mission and vision. the answers were compiled and the results were calculated with the spss program. 131 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 after summarizing the calculations, it can be concluded that the assessment of the block of questions about the employee’s self-assessment in the management of direct work responsibilities is assessed quite high 3.97 (x ̅ = 3.97; me = 4.00; mo = 4.00), but not 5 points, which indicates a small but possible lack of knowledge, skills or competencies in the self-assessment of employees. in the block of questions about the employee’s interest in participating in the company’s table 2 evaluation of employee involvement in the company (created by the authors) in vo lv em en t o f em pl oy ee s in th e co m pa ny ‘s pr oc es se s to en su re e ffi ci en cy a ri th m et ic m ea n a ri th m et ic m ea n st an da rd e rr or m ed ia n m od a s ta nd ar d de vi at io n d is pe rs io n va ri at io n employee self-assessment in managing direct work responsibilities 3.97 0.04 4.00 4.00 0.75 0.57 0.04 employee self-assessment of interest in increasing the efficiency of the company 2.88 0.04 3.00 3.00 0.94 0.89 0.07 motivating the employee to increase efficiency 2.72 0.05 3.00 3.00 1.10 1.21 0.09 employee awareness of the company‘s goals, mission and vision 2.48 0.05 3.00 3.00 1.08 1.16 0.09 efficiency improvement processes, the evaluation was slightly above average (x ̅ = 2.88; me = 3.00; mo = 3.00). it is this in-depth understanding of the issue that will allow a full understanding of the nature of the problem and is the aim of the next study. one of the reasons for employees’ above average (x ̅ = 2.72; me = 3.00; mo = 3.00). but in the block of questions about employee awareness of the company’s values, goal, mission and vision, the average rating is the lowest only 2.48 (x ̅ = 2.48; me = 3.00; mo = 3.00), which indicates a deep problem in this question. result figure 4 benefits of lean six sigma (created by the authors) based on the analysis of theory and empirical research, the authors propose a combined lean six sigma (lss) method, which will cover all aspects of employee involvement to increase efficiency. the lean six sigma (lss) approach is based on a methodology that increases the value of a company by providing rapid improvements e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 132 to increase customer satisfaction, reduce operating costs, increase process speed and operational excellence (tetteh, 2015, 13). each of these methods has its strengths and weaknesses, so it would be appropriate to use synergies between the two methods, as lean cannot provide statistical control of processes, but six sigma cannot significantly improve process speed to achieve excellence. the authors conclude that combining the data-based method of the six sigma data with the lean loss prevention tools provides a highly effective tool for faster efficiency improvements. to solve process-related problems and find the causes, the lss uses a five-step methodology (dmaic) detect, measure, analyze, improve control. by using lean and six sigma efficiency solutions, a company can improve production efficiency, and it is important to outline the steps why and in what order the company should take to figure 5 result of employee involvement (created by the authors) achieve increased production efficiency. involving employees in the processes of increasing the efficiency of production processes is the most difficult, but at the same time the most important point, because everyone must be involved in the processes in order to jointly search and implement the best solutions, which will essentially lead to changes in the company’s culture. because a person by nature employees are not interested in changing their habits and resist change. so we expect the resistance. but real change can only begin if the employee understands what it would bring to him, the customers and the company as a whole. involving all employees in solving problems will allow finding a solution faster. the lean is a process of endless improvement that needs to be refined to create more added value for the customer. therefore, the goal is to introduce a culture of continuous improvement, which will be based on improvement planning, implementation of improvements, analysis of results; and strengthening the processes resulting from improvements. the authors believe that if the company’s management, in the current situation, implements these lean six sigma tools to increase production efficiency and be able to persuade employees to use them, then the company’s production efficiency will be increased and the company will ensure competitiveness. conclusions 1 in today’s current situation, when resource prices are rising, increasing the efficiency of production is the basis for ensuring competitiveness. 2 in order for the employees of a manufacturing company to be interested in ensuring and increasing the efficiency of the company, it is important to communicate the company’s values and goals to each employee and to develop a motivation system that encourages employees to participate in the company’s processes. 3 in order to assess the abilities, skills and competences of employees and compare them with those required, manufacturing companies must develop an evaluation matrix and an individ133 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 aletaiby, a. k. (2017). key success factors of total quality management and employees performance in iraqi oil industry. 13th ipgrc 2017 full conference proceedings (p. 13). university of salford. retrieved 2 march, 2022 from http://usir.salford. ac.uk/id/eprint/43863. babris, s. (2016). lean risinājumi efektīvākam biznesam. rīga: madris ltd., p.191. besterfield, d. (2014). quality improvement (9th.). pearson education ltd, p.259l. isbn 0907776132. besterfield, d. besterfield, c. besterfield, g, & besterfield m. (2021). total quality management (5th.). uttar paradesh: pearson india education services pvt, ltd, p.622. isbn 9788131764961; eisbn 9788131776308. drinke, z.; bruksle, i. (2018). quality management system as tool for international corporate development and competitivness increase in small and medium compenies. economic science for rural development, proceedings paper, pp. 65-72. doi https://doi.org/10.22616/esrd.2018.007 driņķe, z. (2019). kvalitātes vadības sistēmas latvijas mazo un vidējo uzņēmumu konkurētspējas paaugstināšanai. rīga: sia „biznesa augstskola turība“.-161l. pp. drucker, p. (2017). the effective executive: the definitive guide to getting the right things done. harper business, p.1931. isbn: 9780062574350. dunska, m. m. (2018). lean efectiveness method application in creative indrusties of. new challenges of economic and business development 2018: productivity and economic growth (p.12). riga: university of latvia. retrieved 2021. gada 26. 10. isbn 978-9934-18-344-7 janeska, m. z. (2018). modern concepts of the six sigma methodology for improving the quality. annals of ‚constantin brancusi‘ university of targu-jiu. economy series (1), p.4-13. issn 2344 3685 issn-l 1844 7007. doi 10.30657/pea.2017.15.11. jiju, a. v. (2016). lean six sigma for small and medium sized enterprises. new york: taylor&francis group, references p.238l. doi: https://doi.org/10.1108/tqm-01-2021-0014 jiju, a. vijaya, s. laux, c. & cudney, e. (2020). the ten commandments of lean six sigma. emerald publishing, p.143l. doi: https://doi.org/10.1108/ tqm-01-2021-0014 kaļķis, h. (2014). biznesa ergonomikas vadība. rīga: gutenberg print, p.155. koontz, h. (2010.). essentials of management. tata mcgraw-hill education, 2010, p.464.isbn-13: 9780-07-014495-8; isbn-10: 0-07-014495-8. kristapsone, s., kamerāde, d.e.a. (2011). ievads pētniecībā: stratēģijas, dizaini, metode. raka, riga, p.284. mrotek, j. (2014). www.linkedin.com. retrieved 10.25.2014. from https://www.linkedin.com/ pulse/20141106190850-228512303-the-role-ofleadership-in-total-quality-management-tqm. linina, i., vevere, v. & zvirgzdina, r. (2018). six sigma application analysis in small and medium-sized enterprises (sme) in latvia. 4th international conference on lifelong education and leadership for all (iclel), univ lower silesia, wroclaw, poland. proceedings paper, pp. 602-611. web of sience. linina, i., zvirgzdina, r. (2018). enhancing efficiency of smes in latvia. economic science for rural development, prociding book issue 48, pp. 163-171. doi https://doi.org/10.22616/esrd.2018.081 pande, p. h. (2002). what is six sigma? mcgraw-hill, p.97. isbn-13: 978-0071381857; isbn-10: 0071381856. robbins, s. (2017). management (14 th.) new york: pearson, p.753. isbn-13: 978-0134527604. rust, r., lemon, k., zeithaml, v. (2004). return on marketing: using customer equity to focus marketing strategy. journal of marketing, januar, vol. 68, pp.109 127. https://doi.org/10.1509/ jmkg.68.1.109.24030 tetteh, e. u. (2015). lean six sigma approaches in manufacturing, services, and production (1th.). hershey: igi global; business science, p.366. isbn 978-1-4666-7320-5; isbn 978-1-46667321-2; isbn 978-1-4666-7323-6. https://doi. org/10.4018/978-1-4666-7320-5 ual development plan that also allows employees to replace each other during absenteeism or increased workload. the evaluation matrix will make it possible to see gaps in the knowledge and skills of employees and will allow targeted training to address them. 4 summarizing the theoretical findings on efficiency and its provision to increase the efficiency of the production company’s production processes, the implementation of the combined lean six sigma methodology would be more appropriate, which would comprehensively cover all processes in the company and focus on ensuring its development and increasing competitiveness. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 134 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). iveta linina dr. oec. turiba university fields of interests customer relationship marketing, critical thinking, marketing communications, sales management address 68 graudu street, riga lv-1055, latvia +371 226306922 iveta.linina@turiba.lv rosita zvirgzdina dr. oec. turiba university fields of interests economics, finance, management address 68 graudu street, riga lv-1055, latvia +371 226306922 rosita@turiba.lv kamila tišlerová ph.d prague university of economics and management fields of interests marketing, marketing communications, economics, management address w. churchill sq. 1938/4 130 67 prague 3 – žižkov, czech republic +420 721042011 kamila.tislerova@centrum.cz european integration studies 2008.indd 98 issn 1822-8402 european integration studies. 2008. no 2 high-tech sector in lithuania: present situation and future perspectives leonas žitkus monika mickevi ien kaunas university of technology institute of europe abstract the scientifi c problem what systemic ties relate the high-tech sector with other elements of the socioeconomic system, and which of these elements mostly hinder the development of this sector is analyzed in this paper. authors seek to identify the high-tech sector as part of the country’s socio-economic system. the paper consists of four parts. the criteria, according to which individual areas of activity are ascribed to the high-tech sector, are analyzed in the fi rst part. there is stated that sectoral and product approaches to the reckoning of activity in the high-tech or other sector is poorly informative. so called horizontal approach is much more acceptable in the case of the search of scientifi c problem solution in this paper. it is tried to explain how high-tech sector affects individual elements of the country’s socio-economic system in the second part. three main types of impact are marked out and discussed – stimulation of creativity, improvement of other sectors’ activity and stimulation of general socio-economic changes. the preconditions for the development of high-tech sector as part of the country’s socio-economic system are identifi ed in the third part. they are presented as the components of the value chain metaphor. statistical data illustrating preconditions for development of the high-tech sector in lithuania are presented and compared to those of other countries in the last part of the paper. keywords: high-tech, socio-economic system, development preconditions, types of impact. introduction in each stage of economic development there exist areas referred to as modern areas of development. modern areas are those in which the technologies applied, raw materials used, products or services provided are based on the most recent achievements in science and technology. these areas play an extremely important role. it is considered that it is these areas that for the most part determine the future of the country’s economy by changing the existing structure into a more advanced one, which matches the challenges of globalization and which provide better possibilities to more effi ciently utilize the available resources. theoretical and scientifi c works and practical studies suggest that in the present stage of world economy development, the areas of high-tech industry and services are also referred to as “modern” in the sense discussed. these are the areas existing at the junction of science and industry and based on direct “conversion” of research results into products or services. currently, the sector of high-tech industry and services creates slightly over 2% of export production. the articles requiring a lot of input of raw materials, power, and labor, and which are characterized by rather low value added are dominant. naturally, lithuania, as most middle and east european countries (and not only them), is likely to face the danger of lagging behind such leaders, as usa or scandinavian countries, where the level of high-tech development forms the basis for economic and social welfare. everybody whose practical and scientifi c interests are related to the country’s socio-economic development is fully aware of the danger. the country’s strategic documents (lietuvos moksl akademija, 2007) provide for specifi c goals aimed at changing the existing situation and measures to achieve them. the researchers and expert practitioners pay much attention and efforts for addressing the issues of high-tech sector development, nevertheless, the development of this sector remains the most important problem, the solution of which, together 99 issn 1822-8402 european integration studies. 2008. no 2 with other steps, requires further theoretical analysis. the problem analyzed in this paper can be formulated in the form of the question: what systemic ties relate the high-tech sector with other elements of the socioeconomic system, and which of these elements mostly hinder the development of this sector? the aim of the paper is to identify the high-tech sector as part of the country’s socio-economic system and show the elements of the system mentioned as most infl uential to the development of this sector. in pursuing this goal, the paper addresses these problems: the criteria according to which individual 1. areas of activity are ascribed to the high-tech sector, are analyzed. the explanation how high-tech sector affects 2. individual elements of the country’s socioeconomic system is given. the preconditions for the development of 3. high-tech sector as part of the country’s socioeconomic system are identifi ed. statistical data illustrating preconditions for 4. development of the high-tech sector in lithuania are presented and compared to those of other countries. in the paper the analysis of scientifi c literature, statistical data and legal documents, the methods of systemizing and synthesizing of the information obtained were used. high-tech sector as the activity area the concept “high technologies” (high-tech) defi nes such sectors and products in which, compared to other sectors and products, a considerably bigger part of the fi nal cost of the product or service is covered by the r&d expenditure. this index is applied in regard of the sector or product (service); therefore, it is relevant to discuss high technologies sector (sectoral approach) or product (product approach). together with higher expenditure on r&d, high-tech sector is characterized by: high demand for employment of scientifi c-• technical personnel; big share of patents and licenses in the value • of the enterprise; strategic cooperation between enterprises and • research centers; rapid aging process of technologies applied;• the need for frequent replacement of facilities, • i.e. need for capital, higher than in other areas (hatzichronoglou, 1996; university of south florida, 1998; wojnicka, 2004; turowski, 2007). sectoral approach. in the classifi cation of oecd economic activities, four types of production are distinquished: high, medium-high, medium-low and low technologies (see table 1). the areas and fi elds of production fall into a certain sectoral group in terms of the amount of r&d expenditure in the fi nal value of the product. this division of production fi elds into sectors is most acceptable because of its simplicity. theoretically, r&d expenditure in certain fi elds of production may vary with time, and the fi eld may be requalifi ed, but, practically, since the year 1990 major changes leading to this, have not occurred. table 1. oecd classifi cation of products by activity (cpa) (perspektywy…, 2006) cpa activity expenditure for r&d in 19911999, % of gdp high-tech 35.3 aircraft production 13,3 30 offi ce machinery and computers 9,2 32 radio, television and communication equipment 8,0 24.4 pharmaceutical products, chemicals for medicine 10,5 33 medical, precision and optical instruments; watches and clocks 7,7 medium high-tech 34 motor vehicles, trailers and semitrailers 3,5 24 without 24.4 chemicals, chemical products and man-made fi bers 3,1 31 electrical machinery and apparatus n.e.s. 3,9 29 machinery and equipment n.e.s. 2,1 35.2, 35.4, 35.5 other transport equipment 2,9 remark: lithuanian department of statistics also presents data according to this classifi cation (statistics lithuania, 2007) product approach. here, the share of r&d expenditure in the total value produced is measured not as an average for each fi eld, but, rather, for individual products of different fi elds. this approach is based on expert measurement of different products. this is regarded as an essential shortcoming of this approach, 100 issn 1822-8402 european integration studies. 2008. no 2 because of the resulting subjectivity element. in addition, the application of product approach does not allow comparison of the information obtained with other statistical production indexes made up for each sector. the oecd list (table 2) of high and medium-high technologies products comprises several hundreds of articles of different fi elds of industry. the table shows their codes according to the nace (nomenclatures des activites de communite europeene). table 2. subgroups of products ascribed to high-tech sector according to oecd classifi cation (perspektywy…, 2006) aircraft production 35.5 35.31.1; 35.31.2; 35.31.3; 35.31.4; 35.31.5; 35.31.9; 35.32.5; 35.32.7; 35.33; 35.34; 35.35 offi ce machinery and computers 30 30.01.12; 30.01.2; 30.02.11; 30.02.12; 30.02.13; 30.02.21; 30.02.22; 30.02.23; 30.02.24 radio, television and communication equipment 31-32 32.11.1; 32.11.2; 32.11.3; 32.11.4; 32.12.1; 32.12.2; 32.12.3; 32.13; 2.14; 32.15.1; 32.15.2; 32.17; 32.21; 32.22; 32.23; 32.24; 32.25; 32.26.1; 32.26.2; 32.26.3; 2.26.4; 32.26.5; 32.27.1; 32.27.2; 32.27.3; 32.31; 2.32; 32.33; 32.34; 32.36; 32.37.1; 32.37.2; 32.37.3; 32.37.4; 32.37.5; 31.22; pharmaceutical products 24.4 24.41.4; 24.42.1; 24.42.2 chemical products 23-24 24.13.1; 24.13.2; 24.12.2; 24.2; 23.31; 23.32; 23.33; 23.35medical, precision and optical instruments 33 33.11.1; 33.11.2; 33.11.3; 33.11.4; 33.11.8; 33.15.3; 33.15.5; 33.15.6; 33.15.7; 33.12; 33.23; 33.24.11; 33.24.12; 33.24.13; 33.24.14; 33.25.2; 33.25.4; 33.25.7; 33.25.8; 33.26.1; 33.26.2; 33.26.3; 33.26.4; 33.29.2; 33.29.6; 33.27; 33.28.1; 33.28.2; 33.28.3; 33.28.4; 33.28.5; 33.28.6; 33.28.7; 33.28.8; 33.28.9; 33.30; 30.31; 33.41.3; 33.41.4; 33.42.1; 33.42.2; 33.42.3 electrical machinery 31 32.18; 31.62.11; 31.62.12; 31.62.13; 31.62.14; 31.62.15; 31.62.16; 31.62.21; 31.62.22; 31.62.23; 31.62.24; 31.62.25; 31.62.71; 31.62.72; 31.62.73; 31.62.74 non-electrical machinery 29 29.11.23; 29.41.4; 29.41.5; 29.41.6; 29.56.7; 29.56.57 machinery and equipment 29 29.61; 29.62; 29.63; 29.64; 29.65; 29.66; 29.67; 29.68 horizontal approach. the approaches discussed above are based on the ascription of the industry branch or individual article to a particular sector on the basis of the single quantitative index (r&d expenditure share in the fi nal value of the product); this is, as a rule, related to the subjective approach of the estimators. the horizontal approach aimed at supplementing the mentioned quantitative index with the qualitative criteria, e.g. potential commercial exploitation. according to this criterion, such branches, as biotechnology, informationcommunication technologies, space technologies or materials engineering are to be ascribed to the hightech sector. the results of these branches fi nd a wide application in other branches of industry, i.e. they can be successfully sold. in japan there exists another understanding of high technologies, where their defi nition is considerably closer to the horizontal, rather than to sectoral or product approach. though japan uses r&d expenditure index, it is, however, associated with technologies which can serve as the basis for radical changes in economic facilities (e.g. microelectronics, biotechnology, development of new materials). the japanese approach is aimed at basic technologies characteristic of long-term and multiscope applications (perspektywy…, 2006). another example of horizontal approach may be the defi nition used by nc board of science and technology, north carolina, usa, combining sectoral and product approaches with the terminology of american electronics association. according to this defi nition, high technologies are such technologies which facilitate the work of highlyskilled employees engaged in developing researchoriented products. they include microelectronics, manufacture of precision equipment, biotechnology, i.e. technologies which are directly connected with research, engineering or it. why high-tech? despite the fact that the contribution of industries ascribed to high-tech sector into gdp is not very big even in leading countries in this respect, the economic 101 issn 1822-8402 european integration studies. 2008. no 2 perspectives of the countries are mostly measured in terms of development level of this particular sector. the importance of technical advance as the factor determining long-term growth in modern economy is highlighted in both theoretical works and practical studies. for example, according to p.a. samuelson, two-thirds of usa economic growth is determined by such interrelated factors as education, innovations and technological advance. as far back as 1957, r.solow proved that economic growth depends on the level of engineering and technology by 80% (turowski, 2006). in measuring the so-called growth competitive index, the world economy forum considers economic advance as one of the essential indexes (j.blanca et al., 2004). according to its own methodology, this organization divides the countries of the world into core innovators and non-core innovators. the gci (growth competitiveness index) for these groups is measured on a different basis: for core innovators: gci=1/2 of technology • index, ¼ of public institutions index, ¼ of macro-economic environment index ; for non-core innovators: gci=1/3 of • technology index, 1/3 of public institutions index, 1/3 of macro-economic environment index; technology index (ti) is also measured differently: for core innovators: ti =1/2 of innovations • sub-index, 1/2 of ict sub-index; for non-core innovators: ti=1/8 of innovations • sub-index, 3/8 of technologies transfer subindex, ½ of ict sub-index. even though these indexes do not directly refer to high-tech sector, its impact on the growth index is obvious due to the fact that enterprises of this sector appear to be highly innovative. the high-tech enterprises are also characteristic of rather active cooperation with research institutions and other partners. this fact is essential in measuring sub-index of technology transfer which accounts for almost half of technology index of the non-core innovators. the question how the high-tech sector is important for the economic development of the countries may be answered in the following way: the analysis of theoretical and practical research sources shows that development of high-tech products and services acts as a catalyst of economic development. this effect is characteristic of the following features: the effect is of a long-term nature. it means 1. that development and manufacture of hightech products do not yield profi t unless the need of these products is identifi ed by other production sectors and society at large. the effect is permanent. the countries regar-2. ded as leaders of high-tech development and production, have long been rated highest in competitiveness, living standards, gdp and its growth. beyond doubt, it is not that this accomplishment is the result of high-tech sector alone; nevertheless, the correlation is obvious. the effect is multi-directional, i.e. the opera-3. tion of high-tech sector affects different areas of economy of the country by stimulating and transforming them so that qualitatively new level of economic and social development can be achieved. the latter feature calls for more detailed elucidation. figure 1 illustrates three main trends of the effect of the results (products and services) of high-tech sector: promotion of creativeness;• improvement in operation quality of other • (low and medium-low technologies) sectors; promotion of general socio-economic changes.• promotion of creativeness. the high-tech sector is distinguished among other branches of production by its creativeness, e.g. relatively biggest number of technological and technical innovations is created and fi nds application in this particular sector. in the creative process there operate two forces supplementing and stimulating each other. on the one hand, the intensity of research and development determine the fact that the products developed in the high-tech sector are subject to aging, and their lifecycle gets shorter. on the other hand, rapid aging of the product and shortening of its durability leads the enterprises to increase expenditure on research aimed at developing new modern processes and products. with growing intensity of scientifi c research, the supply of goods and services characteristic of competitiveness, unique properties and high added value is also growing. technical and technological innovations accompanied by the occurrence of new, unknown products and processes or/and modifi cation of the already existing ones are generated. new products and services are marked by higher effi ciency, wider application, and ability to perform new functions. more often than not, the new products or services resemble the old ones only by their names, due to the increased complexity (e.g. number of constituent parts) and all technical as well as other essential parameters. in addition, irrespective of the sophistication of structure, the trends for minimization of measurements, as well as increase of precision, effi ciency, reliability, ergonomics and feasibility are evident (nowakowski, szymoniuk, 1998). 102 issn 1822-8402 european integration studies. 2008. no 2 r&d and high-tech sector traditional sectors of industry high-tech product general socio-economical change: new strucrute of economy, new structure of employment, new structure of demand. demand and sources new quality of life imput of state productivity, competitiveness, new quality of products demand for innovations demand and sources fig. 1. three main trends of the results of high-tech sector development of other sectors. rapidly growing introduction of modern technologies into the market serves as a source for technological advance in the economy at large. though the areas of economy belonging to medium-low sectors (agriculture, food industry, textile, land transport, etc.) do not produce technically elaborate products, their competitiveness for the most part is the result of achievements of the areas belonging to high-tech sector. the introduction of products of the high-tech sector into the market causes the rapidity of technical advance in all economy. this progress is also promoted by the fact that innovations based on new technologies in one area of activity lead to search for innovative solutions in other areas (turowski, 2005). another phenomenon occurring in economy in general caused by innovativeness and creativeness of the high-tech sector is also signifi cant. the introduction of new products and services into the market initiates not only their life-cycle, but also dissemination of information about them. the success of the product or service stipulated by the activity of high-tech sector results in the so-called imitation, i.e. the move by other companies to produce analogous products or services. this move, though, fails to enhance the value of the invention itself, but it tends to spread knowledge and increase potential for implementation. the growth in the number of such “imitators” encourages competition not only between them, but, also, between high-tech developers and manufacturers, as it shows the necessity to proceed with the research and further development of products, processes and services. in this way, every innovation becomes the basis for the creation of the following one. k.kelly (2001) compared this to a chain reaction: one successful innovation may produce tens or hundreds of other innovations. promotion of general socio-economic changes. the country’s economy is a complex socio-economic system characterized by a particular structure typical to the country’s stage of development. the structure of economy is understood as the picture of its individual elements refl ecting both present situation and future development trends. the structure represents proportions of separate parts of economy and their interrelationship. a specifi c role in the formation of the country’s economy structure at the present stage of development of global economy is played by industrial areas and branches based on manufacture and application of high technologies. “modern” areas in this sense have existed and do exist in each stage of economic development. modernness is expressed by the innovative technologies applied as well as innovative raw materials and products manufactured. the areas and branches of industry normally play the role of a driving force in economy as a whole. their existence and growth for the most part result in changes in economic structure and enhanced effi ciency of exploitation of resources. technical advance which is the primary cause of birth of new areas of industry, have a positive effect on the effi ciency of new as well as old branches of industry. the essential feature of the developing branches and fi elds of industry is their capability to penetrate other areas and branches leading to restructurization of economy of the country (region, group of countries) and creating favorable conditions for growth of productivity; as a result, there occur new requirements for labor force, new consumption habits and capacity, new attitude to ergonomics, 103 issn 1822-8402 european integration studies. 2008. no 2 safety, durability of products and other characteristics (neelankavil, alaganar, 2003). the development of high-tech sector and penetration of its results into traditional branches is related to positive changes with respect to competitiveness in the structure of employment: the demand for low-skilled and narrow specialization workers declines, and that for high-skilled workers grows. even in the 70’s most of the oecd countries saw an increasing growth in the number of highskilled mental workers compared to the one of lowskilled workers, while the number of physical workers in all the countries was constantly decreasing. the study carried out in 50 countries demonstrates that the tolerance rate r2 between the input of modern industries (electronics, precision mechanics, machine building, chemistry, publishing and paper production) into the general output of production and the number of skilled workers engaged in these branches is higher than 0.6 (turowski, 2006). new structure of employment contributes to the implementation of high-tech achievements in other areas of industry and, equally, to the improvement of productivity and competitiveness of the country. it is important, however, to emphasize that several negative effects of this phenomenon are also evident. the reality of developed countries show that due to the absorption of the results of high-tech sectors, employment in other sectors decreases, though the output of these sectors is by no means diminishing, but, rather, is growing. accordingly, productivity of human resources is also growing; however, the degree of their exploitation is decreasing, which has a negative impact on the sector’s competitiveness. in addition, employment decline may cause the growth of income disproportion, which is also regarded as a negative tendency in economic development (turowski, 2006). development of high-tech sector affects not only general effi ciency of the country’s economy, but, also, causes changes in the demand structure of the goods and services supplied. this is related to the fact that high-tech sector’s products characterized by high innovativeness) develop additional demand, thus, contributing to the emerging new needs of the consumers (or consumption). consequently, the importance of value of consumer goods quality also grows, the products characterized by high rate of processing and consumer parameters, time, labor and environment-saving effect are in great demand. the consumers become increasingly aware of the growing demand for such products and rise in quality standards, so, their expectations also grow. they become more demanding in assessing the products and less tolerant for differences between expectations and declared features of goods. prerequisites for high-tech sector development in lithuania in assessing the importance of high-tech sector for economic development of the country as well as unsatisfactory results of this sector in lithuania, it is essential to analyze the preconditions for improvement. the necessity of the sector’s development is highlighted in strategic development documents of lithuania; nevertheless, the country’s government has been under permanent pressure because of inactivity. it should be stressed that most critics overestimate the importance of funding research and scientifi c development, as the only factor leading to success. finance is, beyond doubt, very important, but far from panacea. consolidating the experience of different countries and international organizations, the following generalized elements infl uencing the creation of value added in high-tech sector, can be distinguished (oecd, 2006): the government policy in fi nancing, export, 1. human resources, etc. assessment of the effect of these policies;2. real volume and structure of r&d funding;3. real amount and quality of human resources 4. and situation in training; possibility to participate in r&d globalizati-5. on process. government policy policy effect assessment r&d human international funding resources cooperation value created fig. 2. value creation chain metaphor adapted for high-tech sector government policy. several main areas, for which the policy pursued by the government is essential for high-tech development, can be differentiated, because market economy mechanisms fail to assist in reaching the desired goals. firstly, it is the reform of public research institutions. this is supposed to increase the interest of these institutions (in the fi rst place, universities) to community and economy needs. secondly, it is promotion of r&d carried out in several directions: direct funding;• indirect fi nancial support ( research tax • deductions, establishment of foundations, etc.; 104 issn 1822-8402 european integration studies. 2008. no 2 programs worked out for enterprises groups • (e.g. small or mediumsize companies). thirdly, it could be promotion of implementation of innovations (i.e. practical application of research results). in the present stage, the partnership between business companies themselves, business companies and research institutions or regional (international) cooperation are of the utmost importance. besides, the innovations policy itself is supposed to refl ect the challenges of intensifi ed globalization processes and increasingly growing role of services in economy. together with the policy of promotion of implementation of research results, the state’s viewpoint to ensuring human resources for this sector and creating favorable conditions for international cooperation is very important for high-tech development. these policies will be discussed bellow. assessment of the effect of policy. this element ensuring functioning of the high-tech sector is rather new. the growth of importance of assessing the effect of policy is stipulated by the increased growth of the importance of the policy itself. assessment acquires a decisive impact for the effi cient management of public funds allocated for r&d. it has been observed that development tendencies of relations of high-tech sector enterprises with research institutions as well as consumers of the products of these enterprises lead to create and apply sophisticated tools of policy assessment. the viewpoint that it is necessary to abandon the so-called institutional, one-time assessment and pass over to periodical continuous actions seems to dominate. besides, the impact of globalization has to be refl ected in the practice of policy assessment: international propagation of information on assessment methods and their results should be encouraged, comparative analysis of assessment results on an international scale should be carried out and institutional as well as legal basis of this assessment should be worked out. funding of r&d. as mentioned above, a driving force for high-tech sector is research; therefore, the importance of funding is doubtless. currently, the eu states are facing the task that r&d funding in a few coming years should amount to 3% of gdp (i.e. usa level). the growth of the amount of funding is not the only trend of development of this area. the funding structure is also changing: between 1990 and 2003, the expenditure of the services sector on research grew by 12%, while that of the production sector accounted for only 3%. currently, the expenditure of the services sector for this purpose accounts for 25% (oecd, 2006). development of human resources. the growing demand for highly skilled workforce in the areas of engineering and technologies is witnessed throughout the world. the demand for graduates involved in science and technologies is also growing incessantly. paradoxically, the number of graduates in these areas has been declining at present in the usa and eu; therefore, many countries have been taking measures to motivate the young people to take up studies aimed at science and technologies. apart from this, study program reforms and quality improvement programs are in progress; also, new fl exible study forms are being introduced. human resources policy has to be aimed at developing demand for highly skilled workers and researchers, particularly, in europe, where the number of researchers engaged in industry is lagging well behind that in the usa and japan. there is one more trend in addressing the problem of human resources, i.e. attraction of women to research. in most developing countries, women account for only 30% of engineering graduates and 25-35% of researchers (oecd, 2006). involvement in globalization process. until recently, the trend of r&d development was far less internationalized than others. currently, globalization in r&d area is of double character. firstly, the processes of adjustment of products created in some countries to the markets of other countries; secondly, researches connected to developing high-tech sector are transferred to such countries as china, singapore, taiwan or israel. unlike in low technologies, the factors determining such processes are not costs, but, rather, human resources. assessment of preconditions for high-tech sector development in lithuania the scope of this work restricts the possibility of more comprehensive analysis of high-tech sector development in lithuania, i.e. to identify the reasons of the current situation or to give more precise future forecasts. even the identifi cation of the current situation is impeded by inadequacy of statistical information supplied by different sources. for example, the oecd issued review (oecd, 2007) indicates that in the year 2006, almost half of the state funds allotted to research was distributed through universities, while, according to the data of the lithuanian department of statistics (statistics lithuania, 2007) , only 5,3% of expenditure for r&d formed the funds of universities. this chapter will give assessment of high-tech sector development in two aspects: high-tech sector dynamics within several re-1. cent years and, high-tech sector’s situation within the context 2. of other countries. the main assessment indexes will be export of industries of high and medium-high technologies, 105 issn 1822-8402 european integration studies. 2008. no 2 direct foreign investment into these areas, the share of value added in the common value created in processing industries, r&d funding and indexes illustrating training of human resources. as it was mentioned above, the main driving force for high-tech development is r&d; therefore, the funds allotted are recognized as the essential index of future perspectives of this sector. unfortunately, lithuania in this respect and other central and east european countries (and not only them) lag behind the leading countries (table 3). no essential changes in lithuania since the time indicated in the table 3 occurred: in the year 2006, the funds allotted for r&d accounted for 0.76% of the whole gdp (ragauskas, 2007). other eu countries cannot boast of major achievements in increasing this index, either. the situation may be improved by “3% action plan” adopted in eu in 2003, which provides for raising this index to 3% (i.e. reaching the usa level). table 3. expenditure for r&d and export of high-tech sector in 2004 of some eu countries (perspektywy …, 2006) country eu (25) cz dk ee ie cy lv lt lu hu mt fi se gb expenditure for r&d, % of gdp 1,92 1,89 2,52 0,82 1,17 0,35 0,38 0,68 1,78 0,95 0,27 3,48 3,98 1,88 export share of high-tech sector, % 18,2 13,5 14,8 9,9 29,1 15,9 3,2 2,7 29,1 24,6 55,9 17,7 13,8 22,7 there is another paradox the explanation of which requires a more comprehensive analysis: hightech export size by no means depends on the index discussed above (table 3). the high-tech sector’s export amount of such countries as malta, cyprus or luxemburg is disproportionately big compared to their expenditure for r&d. lithuanian high-tech and medium high-tech sectors create around a fi fth of all value added in processing industry. this is a fairly low fi gure, besides, its growth is rather slow: 19.2% in 2003, 20.1 in 2004, 20.1 in 2005, 20.8 in 2006 (statistics lithuania, 2007). the export development indexes of high-tech and medium-high tech sectors represented in table 3 indicate that export growth rate of some branches of this sector (e.g. offi ce machinery, computers, or motor vehicles) are higher than the average growth rates of all industry. the growth rates of direct investment into high-tech and medium hightech sectors are also higher than average (fig. 3). total growth of fdi, % office machinery and computers medical, precision and communication equipment manufacture of motor vehicles and equipment 23,5 % 146 % 184 % 117 % fig. 3. total growth of fdi into some of lithuanian high-tech and medium high-tech sector areas between 2003 and 2006 (according to the data of lithuanian department of statistics). these facts show that lithuanian high-tech and medium high-tech companies are capable of competing in the european and world markets. the worst situation among all the factors related to development of the sector in question is human resources and their training. currently, the experts’ opinion and data of special studies indicate that properly trained specialists are a more important problem than funding or other factors. for example, the results of a pilot survey of the need for high-tech specialists show that the shortage of specialists is relevant for 75% of employers in biotechnologies, 62.5% in laser technologies, 60.4% in mechatronics, and 81.3% in information technologies (pocius, 2007). the statistics of training uppermost specialists (doctors of science) shows that lithuania lags behind not only the leading european countries, but also its nearest neighbors. the number of the maintained theses in three largest universities of lithuania (in 2003118, 2004-129, 2005-163, 2006-115) is only comparable to the number of theses prepared in one sweden university (linchoping), i.e. 162, while in lund university the yearly number of theses is 500, and stockholm university boasts of as many as 1900 doctoral students (ragauskas, 2007). the funds allocated for r&d and doctoral studies are also 106 issn 1822-8402 european integration studies. 2008. no 2 very different. the same author gives the following fi gures: oxford university 249.61 thousand lt/ year for one person, berlin technology university 244.99 thousand lt/year for one person, lund university – 180.19 thousand lt/year for one person , royal university of technology – 119.21 thousand lt/year for one person, stockholm university – 102.22 thousand lt/year for one person, kaunas university of technology – 13.76 thousand lt/year for one person. due to these reasons, the companies of lithuanian high-tech sector experience bad shortage of professionals, which is still worsened by training quality, brain-drain and other problems. conclusions and generalizations the analysis of criteria according to which 1. certain areas of economic activity are ascribed to high-tech sector, shows that sectoral or product approaches are, in the fi rst place, objective, secondly, they lack informativeness. in this case, horizontal approaches to what is to be ascribed to the high-tech sector are far more acceptable. the defi nitions discussed in this work and applied in japan and usa, link its separate elements with characteristics of socioeconomic system of the country, i.e. economic structure, labor structure, high-tech production demand, etc. the effect of high-tech sector on the social 2. system of the country is durable, i.e. felt not at once, permanent and multi-directional. the latter feature means that the high-tech sector affects the country’s economy and society by stimulating and transforming them which results in a new level of development. the work differentiates three main trends of this effect: stimulation of creativity leading to meeting the demands of the high-tech sector itself, improvement of other sectors’ activity which means transfer of high-tech products and services to lower-tech sectors, stimulation of general socioeconomic changes leading to formation of the new economic structure, encouragement of labor force quality improvement and structural changes in the demand for goods and services. the creation of value added in the high-tech 3. sector is more considerably than in other sectors determined by the state’s policy of fi nancing, export, human resources and other areas, as well as by reasonable assessment of these policies ensuring feedback between government and the sector’s subjects (enterprises, associations, etc.). funding and structure of r&d are understood as the main factors of the sector’s development; nevertheless, the amount and quality of human resources as well as their training should by no means be neglected. at present, there is a lack of highly skilled workforce both in lithuania and europe. the urgent need to participate in the process of researches and in the global dissemination of their results is one of the new elements in the preconditions ensuring hightech sector’s development. the review of the current situation in lithuania 4. gives the explanation of the existence of differing opinions about the future of high-tech sector. on the one hand, the growth of export and fl ows of direct foreign investment into this sector give hopes that in the future it will occupy the position in the country’s socio-economic system equal to that in leading countries. on the other hand, the results illustrating the preconditions for the sector’s development (research funding, situation in human resources) are fairly unfavorable. it is obvious that the government actions should be aimed at radical changes in the development of high-tech sector in lithuania. references blanke j., pana f., 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(pranešimas konferencijoje). on-line: www.thinktank.lt/konferencija/pdf/ragauskas_2007_12_13_vilnius_2.pdf report on the microelectronics industry in florida’s i-4 corridor region (1998), university of south florida. statistics lithuania (2007) // statistical yearbook of lithuania, vilnius. turowski k. (2005), sektor wysokiej techniki jako glowne zrodlo wzrostu we wspolczesnej gospodarce swiatowej, in: ed. d.kopycinska. funkcionowanie gospodarki polskiej w warunkach integracji i globalizacji, szczecin, universytet szczecinski. turowski k. (2006), sektor wysokiej techniki jako czynnik rozwoju kapitalu ludzkiego – implikacje dla konkurencyjnosci polskiej gospodarki. on-line: http://micro.univ.szczecin.pl/bp/index. php?=h38f8 turowski k.(2007), postrzeganie gospodarki opartej n awiedzy w centrach transferu technologii oraz parkach technologicznych, in: ed. k.piech, e.skrzypek. wiedza w gospodarce, spoleczenstwie, przedsiebiorstwach: pomiar, charakterystyka, zarzadzanie, warszawa, instytut wiedzy i innowacji. wojnicka e. (2004), system innowacyjny polski z perspektywy przedsiebiorstw, gdansk, ibngr. the article has been reviewed. received in march, 2008; accepted in april, 2008 microsoft word izanga.doc issn 1822-8402 european integration studies. 2007. no 1 the position of knowledge workers in knowledge-based economy: migration aspect rasa daugėlienė kaunas university of technology institute of europe abstract the influence of workers for economy development is unquestioned phenomenon. the modern managerial theories highlight the emergence of new engines which stimulates the growth processes of economy. knowledge and information consider as new types of growth engines totally changed the features of xxi’st century’s economy. as a consequence of usa’s economy’s transformations new class of workers – knowledge workers – emerged in the early 1960’s. it is a key to stress that economies’ of different world countries are shaped by many microand macro-factors. one of them is migration. as a rule knowledge-based economies’ (kbe) are particularly sensitive for the consequences of knowledge workers migration. mentioned factors stimulated the choice of the object for the research. wherefore comparing and systemizing different scientific works the definition of knowledge workers and classification of knowledge workers categories considering occupation are presented in the article. the analysis is pointed out to the explanation of factors of knowledge workers migration in the individual and governmental level. the conclusion was made that migration of knowledge workers usually causes the effects of “brain drain”, “brain gain”, “brain circulation”, “brain exchange” and “brain waste”. the expression of these is analyzed in the article as well. in order to suggest the concrete actions how to suspend and attract knowledge workers to lithuania the tendencies of knowledge workers migration in eu and the world were presented in the article. there was highlighted the main destinations of knowledge workers migration as well as the traditional consequences of knowledge workers migration for the country’s economy. keywords: knowledge workers; knowledge worker’s migration; “brain drain”; “brain gain”; “brain circulation”; knowledge worker’s migration factors. introduction the features of knowledge-based economy (kbe) differ from resource-based economies. new occupations like financial and management consultants, information technology analysts, project engineers and computer technologists have emerged in response to demands of modern corporations. incumbents of these new occupations have been referred to as knowledge workers. they are expanding occupational groups and are increasingly being considered as key expert groups in advanced western economies (drucker, 1989; baldwin, 2001; beckstead, 2003; lavoie, 1998; lee, 1996; mahroum, 1999; massey, 1998; tam, etc., 2005; kriščiūnas, 2006). many of theoretical findings concerning knowledge workers are made in the organizational management level. (tam, etc., 2005; alvesson, 2000; kanter, 1998; zuboff, 1988; causer and jones, 1996; raelin, 1985, etc.). however theoretical and practical findings about the knowledge workers importance for overall economy development are still missing. the accumulation of human capital is especially relevant to the knowledge-based economies. in this light the topic of knowledge workers migration gains new importance and becomes a sensitive issue with developmental implications. this phenomenon is analysed by scientists (ferro, 2006; docquier, marfouk, 2006; castles, miller, 2003; massey, 1998; sassen, 1994; lowell, findlay, 2001; straubhaar, 1998; 2000; wolff, 2006) as well as oecd and european commission. there is emphasised the complication of measurement of this worker’s type migration. nevertheless scientists’ agree that international mobility of highly skilled workers represents an increasingly large and complex component of global migration streams. the phenomenon of highly skilled migration can assume the features of brain drain – the massive flow of intellectual human capital directed to the most 103 issn 1822-8402 european integration studies. 2007. no 1 developed countries – facilitated by selective immigration policies (lowell, findlay, 2001) and by knowledge-based metropolitan economies in search of qualified resources (sassen, 1994). totally the consequences of population migration are analysed do not emphasizing knowledge workers category. however the consequences of “brain drain” are very painful for knowledge-based economies. the problem of knowledge workers migration is topical almost for four decades. starting from 60’s – 70’s when the first wave of knowledge workers migration raised. and the second wave which started in 90’s. the motives and effects of knowledge worker’s migration for economy development were different. considering mentioned above the research problem being solved in this article should be constructed: how to systemize and construct the definition of knowledge workers in order to highlight the specificity of knowledge workers migration in europe and world and to suggest the actions making possible to reduce the negative “brain drain” effect and to retrieve “the brain”? the object of research is knowledge worker’s migration. the aim of the article is to highlight the position of knowledge workers in knowledge-based economy in order to analyze the migration tendencies of knowledge workers in europe and word and recommend certain actions for the solving of a problem of “brain drain”. to achieve this aim four tasks are to be solved: • to classify the occupations in order to crystallise the conception of knowledge workers; • to analyze theoretical interpretations of worker’s migration an highlight the effects of knowledge workers migration; • to analyse the tendencies of knowledge workers migration in europe and world; • to emphasize the results of knowledge workers migration for the country’s economy; • to analyze the determinants which affect the knowledge workers solution considering migration; • to present recommendations for policy makers how to suspend and attract knowledge workers. as the research method it was taken theoretical analysis of the scientific works in this field. analysis of statistical data concerning knowledge workers migration was applied as well. knowledge worker’s conception the main drivers of evolution of economy as well as society are changing (kriščiūnas, daugėliene, 2006). one of the consequences of transformations is the change of individual thinking, scope of work and the total needs of local and global market. here the new conception arises in many of scientific as well as in practical works (drucker, 1989; baldwin, 2001; beckstead, 2003; lavoie, 1998; lee, 1996; mahroum, 1999; massey, 1998; tam, etc., 2005; kriščiūnas, 2006; daugėlienė, 2005; zhao et al., 2000; baldwin, 2001, etc.) – this is knowledge workers. for the first time term “knowledge worker” was mentioned by peter drucker in his work “landmarks of tomorrow” (1959). there was stressed analysis to the individual who consider the accumulation and dissemination of information as one of the assumption for identification of problem as well as for decision making. in the later works of drucker (1989; 2001), lee et al., (1998), zhao et al. (2000), baldwin, gellatly (2001) there was highlighted that the rise of the “class” succeeding the industrial blue-collar worker is not an opportunity but challenge to him. the share of knowledge workers in total amount of workforce is rising all the time. the shift from “blue collar” workers to knowledge workers in the united states started in 1990. different situation, according to drucker (2001), was in industrialized europe – the united kingdom, germany, france, belgium, northern italy, where the belief is still deeply ingrained that industrial, blue-collar work, rather than knowledge. the scientist raises the question: will europe be able to react the way the american done two decades ago? considering the latest figures about the economic growth of leading countries of europe – denmark, finland, and sweden – perspectives should be evaluated as positive for europe development and challenging for united states which economic growth seems to be in “positive-stagnation” position in comparison with european progress (daugėlienė, 2006). the conception of knowledge workers presented in the latest works of drucker, lee et. al., miller differ from that presented in the modern scientific literature. drucker (1989) highlighted some basic characteristics of knowledge workers: the most of work they perform by arms. but the salary depends on level of qualification acquired during informal learning; the most part of their work day these workers have to perform not experienced work (e.g. nurse obliged to check the patient’s bed, answer the phone callings, perform other administrative work); however these workers feel themselves as „professionals“ not „physical workers“; consider themselves as “associates” not subordinates. for, once beyond the apprentice stage, knowledge workers must know more about their job than their boss does – or else they are no good at all. in fact, that they know more about their job than anybody else in 104 issn 1822-8402 european integration studies. 2007. no 1 the organization is part of the definition of knowledge workers; identify the work as the way of living, the possibility for self realisation as well as knowledge acquisition and dissemination. the miller‘s w.c work „fostering intellectual capital“ (1998) represent the knowledge workers as individuals who use intellect in order to transform ideas into product or service. in other words, in order to commercialise knowledge. this process is very important in knowledge economy because stimulate the emergence of intellectual products as well as services (kriščiūnas, daugėlienė, 2005). considering the conditions of modern transformed economy there is a necessity to re-look and correct the conception of knowledge workers. there should be pointed out that knowledge workers are individuals who accumulate, create and disseminate knowledge during the performance of job. they “produce” innovative ideas and use modern technologies in their activity. they cooperates and do not avoid challenges as well as positive risk. knowledge workers consider as top company asset (rogoski, 1999). they are a group that gives the emerging knowledge society it’s character, it’s leadership, it’s social profile. knowledge workers may not be the ruling class of the knowledge society, but they already are it’s leading class (drucker, 2001). and, what is very important to understand for each individual of xxi century – each knowledge worker should change the way of thinking and manage oneself. they have to think and behave as a chief executive officer. bender (1998), halal (1998), mcginn and raymond (1997-98) define knowledge workers considering the characteristics which are common for this category of workers (e. g. lowers, doctors, programmers, teachers or scientists). this is high qualification professionals. other scientists (miller 1998; shea 1998; verespej 1999; gordon 1997) characterising knowledge workers highlight the high skills of individuals (inborn talent). these declare that knowledge workers are individuals who can analyse and systemise information which will be used for decision making. the third method for explanation of knowledge worker phenomena is to stress the education and competence of individuals (munk 1998; allee 1997). taking into account standart occupation classification, beckstead and vinodrai (2003) highlighted the classification of knowledge workers professions. the scientists enumerate such groups of workers as leaders and managers; representatives of business, science and engineering, technical science, health care, education, law and social sciences as well as representatives of art and culture. beckstead and vinodrai (2003) where not single scientists who presented the classification of knowledge workers. classification of occupations into knowledge, data, service and goods workers (as it is seen, the classification is more detailed) was presented by wolff (2006). the author enumerates 267 occupations. the systemized and adapted scheme is presented in figure 1. professional (highly competent) workers classification of occupations intangible assets physical assets knowledge workers data workers service workers goods workers architects programmers engineers judges lawyers scientists lecturers designers writers sale s engineers pharmatics teachers pilots construction inspectors office managers advertising agents cleaning service waiters stewardesses hairdressers cosmetologists policemen health aides painters jewelers and watchmakers machinists electricians metal platers truck drivers technical (highly qualified) workers figure 1. classification of occupations wolff’s (2006) classification of occupations into knowledge, data, service and goods workers demonstrates the variety of occupations types and highlight the difference between those individuals using intangible assets for decision making and creation of intellectual product (knowledge and data workers); and those who apply physical assets in order to produce tangible materials (service and goods 105 issn 1822-8402 european integration studies. 2007. no 1 workers). in scientific works there can be met other interpretations of terms presenting workers categories. knowledge workers are called as professional (high competence) workers. and workers who apply or use knowledge and create tangible products are interpreted as technical (highly qualified) workers. theoretical analysis of different conceptions of knowledge worker allow to construct the whole definition and consider that knowledge worker is – this is highly skilled individual who is able to convert knowledge, intellect, wisdom and ideas into tangible innovative product or service. on the other hand, knowledge worker can create tangible products, to teach other people by transferring own competence and skills. knowledge worker is not only who things how to work. knowledge worker can use others intellect for the creation of innovative, value added products. usually two categories of workers – knowledge and qualified – are interpreted as the same. this research maintains that the difference between knowledge and qualified worker is obvious and should be highlighted. as it was mentioned above, knowledge workers apply, create and transfer knowledge and ideas in order to create innovated product. contrarily, qualified workers are more specialists (craftsmen) than creators. that is why the difference between qualified and competitive workers exists. the problem of knowledge workers migration is needed to be solved in knowledge-based economies. it is economically sensitive for the “source” country. skilled migration and brain drain assuredly affecting the landscape of many nations: their positive and negative consequences in both origin and destination countries enter social and political policy agendas and debate in academic discussions. this phenomenon – even if numerically limited – represents an important intersection of contemporary, international migration flows, labour markets and economies. theoretical interpretations of worker’s migration basically the term migration represents temporal or permanent movement of human beings inside the residential country or from one country to another. migration of people firstly is connected with such terms as immigration (this means entering the country); emigration (leaving the country) and transit (person enter foreign country through the third country where he / she receives more experience, new knowledge). there could be highlighted two types and concrete motives of knowledge workers emigration: • compulsory emigration which could be encouraged by possible threat in residential (native) country. usually the motives for this emigration are based on political, religious, ethnic or racial issues. compulsory emigration could be interpreted as long emigration (this depends on the duration of emigration); • voluntary emigration which usually could be stimulated by the search of better economic or social conditions to live. wish to leave native country could be based on the family situation when family members do not want to live separately. voluntary emigration could be stimulated even by trying to hide criminal actions. voluntary emigration could be interpreted as permanent or long emigration. this depends on motives and the purpose of migrant. problem of international mobility usually cover two aspects: migration of qualified and non-qualified workforce and migration of knowledge workers. meaningful to stress that mostly all studies concerning migration problem is oriented to the total migration trends not differentiating skilled and not skilled workers. the scientific studies of possible factors of people migration inspired to construct a scheme of factors which influence the individual decision migrate or not to migrate (fig. 2). the analysis is based on two points of view: individual and governmental (country’s) level. the analogical scheme could be applied for assessing the factors of knowledge workers migration. macro-sociological perspective individual actions level (migrate – not migrate) economic aspects social aspects political aspects macro-economical perspective demographic conditions labor market conditions governmental actions level (suspend – encourage migration) macro push – pull factors micro push – pull factors figure 2. scheme of factors influencing individual’s choice concerning migration the scheme enhances that the main influence on individual’s choice migrate or not to migrate depends on governmental actions (policy). this could be oriented to the suspension or encouragement of migration. it is obvious that demographic conditions and labour market conditions (those are the most sensitive in a case of migration) from the macroeconomical perspective directly depends on 106 issn 1822-8402 european integration studies. 2007. no 1 governmental policy and strategies concerning the development of kbe. governmental actions create a background for the macro-sociological factors (economic, social; political) which affect individual’s choice concerning migration. from the macrosociological perspective micropush – pull factors exists. these could be interpreted as different psychological factors, view points of friends and family members. macropush – pull factors usually flows from the governmental actions. that is why they are concerned with the total economic situation in country. the effects of knowledge worker’s migration the consequences of knowledge workers migration are more obvious and economically as well as socially sensitive for sending (source) country. in many countries, foreign-born persons represent a significant percentage of persons with tertiary education (oecd, 2006). this fact substantiates the importance of consequences of knowledge workers migration. nevertheless massey (1993), ferro (2006), docquier, marfouk (2006), castles, miller (2003), wolff (2006), lien, wang (2005), moguerou (2006), panescu (2005) emphasize the complication of measurement of knowledge workers migration consequences. usually the knowledge workers migration phenomenon is directly concerned with “brain drain”, “brain gain”,”brain bank” and “brain circulation”. scientists mention and other terms like “brain waste” or “brain exchange”. these terms concerning the effects of migration of knowledge workers could be systemized and interpreted as positive or negative for knowledge-based economy development (fig. 3). negative effect for kbe development positive effect for kbe development brain waste brain gain brain circulation brain drain brain bank brain exchange figure 3. knowledge workers migration consequences and effects for kbe development usually “brain drain’ is interpreted as negative effect of knowledge workers migration for the kbe development. but, it is important to stress that “brain drain” can arise and very positive effect when persons emigrate in order to share knowledge what is called “brain exchange”. here negative effect could be encouraged just in one case when highly competitive persons leave country for a long period or even for all live. this situation should be evaluated as “brain waste” and totally negative effect for kbe development. “brain exchange”, “brain circulation” and “brain gain” is very welcome in different countries especially for those with law human capital potential. here should be highlighted that short period “brain exchange” ad “brain circulation” can arise positive long-term dynamic economical as well as social effect in sending country. modern managerial theories emphasize and “brain bank” effect which means that country should collect and save “brain” in order to ensure the kbe development. summarizing the information found in different scientific and practical studies the conclusion could be made that intensity of knowledge workers migration depends on probability to migrate; if the result of migration is positive we are speaking about brain gain; otherwise – when country feels the loss of human potential it is affected by brain drain. the source countries usually are interpreted as brain drain countries or source countries and the effect of knowledge workers migration from these countries is obviously negative. the benefit from migration depends on human capital transferability across country (lien, wang, 2005). brain drain may occur when the exogenously or endogenously determined probability to immigrate is large. experts affirm that knowledge workers migration causes positive and negative consequences both for “source” and “purpose” countries (see table 1). 107 issn 1822-8402 european integration studies. 2007. no 1 table 1. positive and negative effects of knowledge workers migration for „source“ and „purpose“ countries effect for „source“ country effect for „purpose“ country d is ad va nt ag es loss of investments in education of individuals; loss of high competence specialists; the negative changes considering demographic situation; decline of producing amounts. declines the ambitions of local habitants to seek for the highest qualification; possibility to lose the know-how potential. l on gte rm m ig ra ti on a dv an ta ge s return of migrants with new competence, new relations with foreign partners; decline of unemployment level; the growth of average wages. knowledge workers invest in competence as well as in adaptation to new life circumstances; growth of gdp; growth of investment in r&d; total growth of economy. d is ad va nt ag es decline of financing of social security; rapid growth of wages in those sectors where the shortage of workforce because of migration is obvious. loss of resources; the consumption of immigrants is minimal as they expect to return to the „source“ country. sh or tte rm m ig ra ti on a dv an ta ge s decline of unemployment level; return of knowledge workers with new competence. growth of gnp; payment of taxes; occupations which are not popular between local inhabitants are occupied by immigrants. knowledge workers migration tendencies in europe and world modern economies rely on human expertise and compete in attracting the best competencies. however, migration of the highly skilled remains limited as most international migrants are medium and lowskilled persons (oecd, 2005). in resent years there has been a growing move towards international recruitment and mobility of the highly skilled. while there seems to be a rather balanced pattern of international mobility among different countries, there is concern that “brain drain” occurs in some developing countries (straubhaar, 2000). furthermore, lack of data on the permanent and temporary flows of migrants according to skill levels in many oecd countries make international comparisons difficult (oecd, 2005; 2007). the basic analysis of emigration tendencies considering education level of emigrants show that the biggest size between emigrants from sweden, france, germany, poland, lithuania, usa, ireland and g. britain in 2000 where those with tertiary education (eurostat, 2007). according to oecd data migration of knowledge workers streams are primarily directed towards four destinations. the united states is first, with over 7.8 mln. highly skilled expatriates. the eu follows with 4.7 mln., before canada and australia, with 2 and 1.4 mln. highly skilled foreign residents, respectively. over half of these migrants come from outside the oecd area. in addition to the 6.7 million highly educated persons involved in intra oecd skill flows, the region has attracted 10.1 million from nonoecd countries. non – oecd migrants make a greater contribution to the highly skilled than mediumor low-skilled migrants. us, japanese and korean emigrants represent a very small share of the total population. european natives are more likely to go abroad, especially if they are highly educated. two-thirds of oecd-area highly skilled expatriates are european. emigration is particularly frequent from the united kingdom and austria, and also common from eastern europe. whereas knowledge workers migration to and from japan or korea is limited, the share of immigrants to the united states exceeds by far that of us expatriates. the vast majority of oecd countries are also net beneficiaries of highly skilled migration when immigration from non-oecd countries is taken into account. however, a number of european countries have more highly skilled expatriates in the oecd are tan they host from non-oecd countries. the united states, france, portugal, spain and the united kingdom benefit from a strong colonial heritage or linguistic advantages and seem best able to attract highly skilled workers from non-oecd countries. the united states has one non-oecd highly skilled person for ten natives. in the eu, mobility of knowledge workers is primarily intraeuropean, although traditional inflows from north africa and eastern europe are significant. in the total oecd area, about 4% persons with tertiary education are immigrants from other oecd countries. those from non-oecd countries account for about 6% of all current residents with tertiary attainment. net stocks of foreign-born persons with tertiary attainment are highest in the traditional “settlement” countries of australia, canada and us, but also in luxembourg and switzerland. other 108 issn 1822-8402 european integration studies. 2007. no 1 countries relatively with high level of immigrats with tertiary education are sweden and france (8-9%). quite a few countries have close to zero net movements overall, essentially because they gain as many as they lose to within-oecd migration (austria, united kingdom, italy, netherlands, new zealand) or they do not show many movements in general (japan and korea) (oecd, 2006). the situation of lithuania’s emigrants who did not declare the emigration is shown in table 2. table 2. lithuania’s emigrants considering former professions type of workers in comparison with total emigrants (%) knowledge workers 21, 0 service and trade workers 6,5 qualified workers 28,3 elementary professions 7 without profession 37,2 shown proportions of emigrants from lithuania confirm the trouble concerning the problem of knowledge workers migration. 21 percent could be evaluated as dangerous for lithuania’s economy. because of status of small country as well as source country (in most of cases) lithuania suffer from brain drain. policy changes encouraging the brain circulation or brain exchange should be made by appropriate policy makers. the results of knowledge worker’s migration for the country’s economy common results of migration to the country’s social, cultural and economical life are: • threats for the civil society as well as for the intellectual potential; • influence on country’s image as well as reputation in the world; • economical and social effect. the last one is the object of this article. several economical and social effects of migration for the development of kbe in the country could be enumerated: • decline of unemployment level which could manifest as the consequence of workers emigration; • deficit of workforce as a result of workforce emigration; • the growth of salaries because of short supply of workforce; • better working conditions as a result of employers wish to attract specialists; • fluctuations of gnp which can be stimulated by the growth or decline of economy; • aging population as a result of emigration of young people and families; • tensions in the system of social security directly depend on aging population. the emigration of young people can stimulate total destruction of social policy. the size of persons who needs for the social support can excced working once; • “brain drain” which is the most painful result of knowledge workers long emigration. the determinants affecting knowledge worker‘s decision to migrate international migration is influenced by many factors. however some may be more relevant for unskilled people than for highly-skilled migrants, particularly in the context of increasingly knowledgebased economies, the traditional push-pull framework identifies a number of factors affecting international migration. however, as moguerou (2006) states, some specific elements related to the structure of national innovation systems might be more relevant for understanding the international mobility of knowledge workers in particular. the author emphasize that a push-pull framework is traditionally used by researchers to study international migrations. on the one hand, favourable conditions in the receiving countries, such as high salaries, high living standards, good work conditions and career opportunities, pull migrants to the receiving country. on the other hand, unfavourable conditions in the sending country push the highly skilled people to leave. here moguerou (2006) suggests some simple methods how to affect knowledge worker’s decision to move. first, it is a necessity to eliminate income differences between home and destination country and to ensure relevant rewards for skills. second, to create attractive labour market conditions. third, coordinate immigration incentive policies. according to mahroum (1999), immigration legislation remains very important in the international mobility of the highly skilled. special legislation favourable to skilled immigrants are likely to allow countries to benefit from a growing international pool of knowledge workers. in addition to immigration legislation, other factors, such as taxation, openness in communication, business expansion overseas, safety, political determinants, are other important factors in the choice of migrants to relocate. fourth, it is very important create stabile and efficient national innovation system and the agglomeration effects. the quality of research infrastructures, the financial support for academic research, research policies favourable to the development of r&d, or the reputation of universities or public labs, are some factors affecting the decision to migrate. high salaries, good opportunities for hightech entrepreneurship, employment opportunities in 109 issn 1822-8402 european integration studies. 2007. no 1 innovative sectors, the perspective of having a successful scientific career, are other factors outlined by the literature (mahroum, 1999; technopolis group, 2001). the private sector may also play a role in attracting foreign talents. the quality of research staff, working conditions and wages in the private sector are important factors. however, even in the private sector, reputation may have in influence on decision to move. agglomeration effects and the existence of “knowledge intensive clusters” may be crucial in explaining the international mobility of knowledge workers in the context of increasingly knowledgebased economies. mahroum (1999) highlights the classification of knowledge workers or as he points – highly skilled migrants and types of influencing factors and policies of them migration (see table 3). table 3. a classification of knowledge workers mobility, types of influencing factors and policies (mahroum, 1999) group type of push & pull factors type of policies managers & executives benefits and remuneration business-oriented engineers & technicians economic factors (supply and demand mechanisms) the state of the national economy immigration legislation income tax academics & scientists bottop-up developments in science nature & conditions of work institutional prestige inter-institutional and intergovernmental policies entrepreneurs governmental (visa, taxation, protection, etc.) policies financial facilities bureaucratic efficiency governmental and regional policies immigration legislation students recognition of a global workplace accessibility problems at home inter-cultural experience intergovernmental, and interinstitutional policies immigration legislation as the mapping of table 3 reveals, different policies should be tailored out to suit the very different organisational and cognitive structures of the various sectors and professions. various groups of professions are driven by different push and pull factors. therefore, supplementary and complementary immigration and non-immigration legislation, such as income-tax allowances, investment capital tax relief, and copyright legislation should be introduced to encourage the inward flows of skills and expertise. recommendations for actions in order to suspend and attract knowledge workers the governments particularly those of caching-up countries have to construct legal basis which would: • stimulate “brain circulation” and temporary “ brain exchange”; • suspend “brain drain”; • convert “brain drain” into “brain bank” and; • retrieve “the brain” from foreign countries. in order to achieve these tasks governmental policy of each country should be oriented to the: • promotion of the development of human capital; • development of friendly environment for the creation and application of new technologies; • stimulation of cooperation of industry and research institutions; • development of social dialogue in order to enforce society for the promotion of development of science and technologies. summarizing some recommendations could be proposed. governments seeking to suspend and attract knowledge workers after they emigrated should normalize salaries; develop the system of r&d as well as higher education financing system; to stimulate cooperation of private and research sectors; create ict clusters; to stimulate the brain mobility between academic and public sectors; to simplify the system of workforce mobility and; to promote scientists from other countries which estimates the social, economical as well as cultural processes of their country. conclusions it was newly stated that knowledge worker is highly skilled individual who is able to convert knowledge, intellect, wisdom and ideas into tangible innovative product or service; he or she can create intangible products, to teach other people by transferring own competence and skills. knowledge worker is not only who things how to work. knowledge worker can use others intellect for the creation of innovative, value added products. knowledge workers are the main creators of kbe; and the effects of knowledge workers migration are particulary painful and sensitive for kbe evolution; 110 issn 1822-8402 european integration studies. 2007. no 1 all occupation can be generally classified as professional 9high competence) workers and technical (highly qualified) workers depending on whether they are producers (knowledge and data workers) or users (service and goods workers) of knowledge; two types (compulsory and voluntary) and concrete motives of knowledge workers emigration were analysed. it has been discovered that the solution of individual to migrate or not to migrate depends on governmental actions. these construct the macroeconomical situation in the country which affects the macro-sociological perspective for the choice to migrate or not to migrate. micro-push-pull as well as macro-push-pull factors of individual migration are important because of physiological nature of these; effects of knowledge workers migration for “source” and “purpose” countries are different. negative affect manifest when the “brain drain” occurs with the main consequences of “brain waste”. however the “brain exchange” or “brain circulation” positively affects both “source” and “purpose” countries. the main directions of knowledge workers migration: usa, eu, canada and australia. usa, japanese and korean emigrants represent a very small share of the total population. emigration is particularly frequent from the united kingdom and austria, also common from eastern europe. the most benefit from the knowledge workers immigration receives united kingdom, sweden, finland, and france. nevertheless, the most knowledge workers emigration countries are ireland, united kingdom, france, germany and italy. lithuania in many of cases should be interpreted as “source country” which feel economic and social damage because of “brain drain”. the determinants affecting knowledge workers decision to migrate are concerned with income differences; conditions of labour market; immigration incentive policies; stabile and efficient national innovation system. these factors should be efficiently regulated by proper governmental policy. different types of policies should be applied to different groups of knowledge workers. for example, businessoriented should be applied for managers and executives; inter-institutional and intergovernmental policies should be applied for academics and scientists and etc. references akkoyunlu, s. migration and the efficiency of european labour markes / akkoyunlu, s., vickerman, r. 2001. prieiga per internetą: http://www.kent.ac.uk/economics/research/1euro pe/akkoyunlu-vickerman.pdf baldwin, j.r. a firm-based approach to industry classification: 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prieiga per internetą: http://www.statcan.ca/english/studies/75001/archive/e-pdf/e-0025.pdf 112 e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 78 abstract decade of sustainability reporting in eu: main changes and trends. case of companies listed on nasdaq omx baltic main list http://dx.doi.org/10.5755/j01.eis.1.16.31241 natalie aleksandra gurvitš-suits tallinn university of technology, estonia inna sidorova acma/cgma, estonia european integration studies no. 16 / 2022, pp. 78-86 doi.org/10.5755/j01.eis.0.16.31241 submitted 03/2022 accepted for publication 06/2022 decade of sustainability reporting in eu: main changes and trends. case of companies listed on nasdaq omx baltic main list eis 16/2022 recent decades have shown an increasing importance of sustainability reporting worldwide (fernan-dez-feijoo et al., 2014) and as a result significant developments of corporate sustainability reporting frameworks (kücükgül et al, 2022). nowadays the eu law requires certain large companies to disclose information regarding the way they operate and manage social and environmental challenges, (european com-mission, 2021) thus making corporate sustainability reporting a powerful communication tool contributing to transparency and accountability of businesses. the main aim of this article is to investigate whether sustainability reporting has become a common practice among commercial organisations and find out the main features of the elements that are being disclosed. this study fills a gap in determining the main changes and trends in sustainability reporting within baltic countries. the main aim of this article is to determine whether sustainability reporting has become a common practice among commercial organisations and establish main trends and features of disclosed items. main results of the study reveal that non-financial disclosures are being actively implemented by the companies who publish such disclosures in dedicated sections of annual financial reports. however, the number of standalone sustainability reports still remains low. it has also been established that the most common non-financial disclosures are: personnel related policies, client-oriented strategy, iso certificates held by the respective organisations, emas registration, sdg and gri referring. authors believe that the main reason for slow growth of standalone sustainability reports is a lack of well-defined, universal, worldwide accepted standards. the results of this research are completely in line with latest developments within the iasb, confirming that there is a definitive need for international sustainability reporting standards which will add to the transparency, credibility and comparability of non-financial reporting. these standards will provide companies with a new starting point in preparation of non-financial reports and make it easier for stakeholders to make decisions based on the information presented. authors believe that this survey would contribute to the current sustainability reporting practices among companies and serve as a basis for those searching for the optimal reporting tool. also, it would shed light on the importance of implementing international sustainability reporting standards highlighting main obstacles, benefits and paths for future developments. keywords: corporate social responsibility, esg, eu directive 2014/95eu, non-financial reporting, sustainability reporting, sdg. 79 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 introduction recent decades have shown an increasing importance of sustainability reporting worldwide (fernandez-feijoo et al., 2014) and as a result significant developments of corporate sustainability reporting frameworks (kücükgül et al, 2022). nowadays the eu law requires certain large companies to disclose information regarding the way they operate and manage social and environmental challenges. (european commission, 2021) thus making corporate sustainability reporting a powerful communication tool contributing to transparency and accountability of businesses. the kpmg survey of corporate responsibility reporting conducted in 2020 revealed that there is a growing trend in csr reporting all over the world – 80% of companies worldwide are reporting on sustainability, with the highest reporting rate observed in north america (90% of companies) and the highest growth since 2017 observed in france, india, malaysia and japan (kpmg, 2020). the survey also revealed that the americas are still playing a leading role in sustainability reporting, whereas rates have remained static in europe since 2017. however, almost all industry sectors worldwide exceed 70% reporting rate (kpmg, 2020). according to the kpmg survey, the underlying trend for companies to include sustainability information in their annual reports remains static and most common for pakistan and finland. it is also worth noting that while the global reporting initiative (gri) still remains a dominant standard for sustainability reporting, a “significant majority of companies connect their business activities with the sdgs in their corporate reporting” (kpmg, 2020). it should also be mentioned that so far baltic countries have not been included into the kpmg surveys. therefore, less is known about the current situation, main changes, latest trends as well as perspectives of future development of sustainability reporting in these countries. at the time of conducting the present research the latest most significant developments in the field of sustainability reporting are as follows: » the european commission has adopted a proposal for a corporate sustainability reporting directive (csrd), to amend and replace the current non-financial reporting directive (nfrd) (xbrl the business reporting standard, 2022). » in order to meet the needs and demands of stakeholders to receive information on sustainability-related performance and risks of companies, on 3 november 2021 the ifrs foundation trustees announced creation of a new standard-setting board—the international sustainability standards board (ifrs, 2022). » issb published the first proposed standards general requirements and climate exposure drafts announced for consultation (ifrs, 2022). » ifrs foundation and gri signed a cooperation agreement issb and gssb to create an interconnected approach for sustainability disclosures (ifrs, 2022). » the eu commission’s proposal for a corporate sustainability reporting directive (csrd) envisages the adoption of eu sustainability reporting standards. the draft standards are to be developed by the european financial reporting advisory group (efrag) and the first set will be adopted by october 2022 (an official website of the eu, 2022). this study fills a gap in describing the main changes and trends in sustainability reporting within baltic countries. the main aim of this article is to determine whether sustainability reporting has become a common practice among commercial organisations and establish main trends and features of disclosed items. main results of the study reveal that non-financial disclosures are being actively implemented by the companies who publish such disclosures in dedicated sections of annual financial reports. however, the number of standalone sustainability reports still remains low. it has also been established that the most common non-financial disclosures e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 80 are: personnel related policies, client-oriented strategy, iso certificates held by the respective organisations, emas registration, sdg and gri referring. authors believe that the main reason for slow growth of standalone sustainability reports is a lack of well-defined, universal, worldwide accepted standards. the structure of this paper is organised as follows. after the linkage of the sustainability reporting topic to current literature, we provide a practical insight into non-financial reporting and its linkage with integrated reporting. furthermore, we perform an analysis of sustainability reporting employed by the businesses operating in the baltic states market. the listed companies from nasdaq omx baltic stock exchange are evaluated in order to find out the changes in main trends and features of sustainability reporting. literature review the contemporary literature widely discusses the following trends within the context of sustainability reporting: influence of the eu directive 2014/95eu on quality and quantity of non-financial reporting and the linkage between sustainability reporting and the sdgs in different countries and jurisdictions. several studies investigate the impact of the eu directive 2014/95eu on non-financial reporting within different countries (mazzota et al, 2020, mio et al, 2021, posadas&tarquinio, 2021 ottenstein et al., 2021).) aiming to discover whether significant changes occurred in quality and quantity of reporting. contemporary studies outline that before the eu directive came into force european csr reports “were not scored high on credibility, leaving much room for improvement” (lock&seele, 2016). studies of zanellato&tiron-tudor (2021) revealed that the directive already had an impact on the non-financial reporting a year before its implementation by providing a small increase in the sustainability reporting. increase in the quality of reporting after the implementation of the directive was noted among german and italian listed companies (mion&adaui (2019) and also among companies listed on warsaw stock exchange (matuszak&różańska, 2021). findings of balluchi et al. (2021) also showed a good level of credibility among the 152 italian business entities as well as a high level of understandability already during the first year after (2018) after the implementation of the eu directive. findings of bolotin, 2019 also reveal positive impact of the eu directive on the non-financial reporting among baltic companies, which are in line with the earlier studies of gurvits&sidorova, 2012, which revealed continuous uptrend in the number of social and environmental accounting disclosures among baltic companies listed at nasdaq omx baltic. results of the study conducted by agostini et al., (2021) suggest that in case of italian listed companies directive affected the quantity but not the quality of the reporting. results of fernandez-feijoo et al., (2014) indicate that listed companies tend to be more active in disclosing non-financial elements, tending to provide more information but with less credibility than the private ones. lippai-makra et al. (2022) suggest that in the context of hungary directive there has been a moderate impact on the reporting, as the level has grown from low to medium only. tarquinio et al. (2020) noted that most of the companies they analysed during a three-year period have improved their disclosure ranking. studies of post directive reporting practices made by korca et al. (2021) also reported increase in quantity of non-financial reporting with quite insignificant increase in quality. views presented in the today’s management literature maintain that the major factors influencing the extent of a company’s sustainability reporting are company size (bhattacharyya, 2014, fuertes&garcía, 2013), stakeholder power (nicolò et al., 2020), strategic posture (chiu&wang, 2015), profitability (hernández-pajares&pocomucha valdivia, 2021), ownership (glushkova&gurvits, 2019) and media visibility (bansal, 2005). 81 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 numerous studies tend to find a correlation between the sustainability reporting and their contribution to the sdgs (calabrese et al., 2021, gerged&almontaser, 2021). pizzi et al. (2021) suggest that only a limited number of companies explicitly disclose information about their contribution to the sdgs. it seems like companies tend to concentrate on several selected sdgs in their business and reporting practices, which is also in line with the country’s commitment (gunawan et al., 2020). findings of haywood&boihang (2021) who investigated south africa’s top 100 listed companies revealed that as of 2017/2018 financial year in spite of the growing trend only 11% of companies have incorporated the sdgs into their business model and strategies. bose&khan (2022) discovered that the sdg referred reporting is a growing trend worldwide being more developed in shareholder-oriented countries as well as in developing countries, moreover, their findings suggest that “companies in developing countries did higher company-level sdgs reporting than those in developed countries” (bose&khan, 2022). findings of garcía-sánchez et al. (2021) indicate that the main drivers of integration of sdg into non-financial reporting are institutional pressures at the country level, size of an organisation and incentives associated with the monitoring of financial analysts and demands of investors, together with the specialisation and size of the board of directors. in general, it can be summarised that the eu directive 2014/95eu had a crucial positive impact on the quantity of the non-financial reporting while quality and the sdg implementation still remains the issue. research design the aim of this research is to investigate whether sustainability reporting has become a common practice among business companies within a recent decade and find out the main features and trends of non-financial reporting. companies listed on the main shares trading list of the nasdaq omx baltic were analysed for the purpose of this research, as authors believe that listed companies tend to be more advanced in csr reporting in comparison with the non-listed ones. therefore, in order to analyse main changes within the last 10 years there were industry 31.12.2010 31.12.2020 basic materials and industrials 2 1 consumer discretionary 11 7 consumer staples 5 6 financials 3 4 health care 3 2 industrials 7 6 real estate 2 2 technology 0 1 telecommunications 2 2 utilities 2 2 total participating companies 37 33 table 1 participating companies by industry. source: annual reports of selected companies for years 2010 and 2020. chosen information disclosed on the nasdaq omx baltic data obtained from the stock-exchange website (nasdaq baltic, 2022), websites of companies and the annual financial reports of companies as of 31.12.2010 and 31.12.2020. the total number of cases was 37 and 33 (4 latvian, 13 lithuanian and 16 estonian) companies respectively. table 1 presents the sample distribution among industries. authors looked into presentation, type and main features of sustainability reporting for the selected companies. results are presented in the next section. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 82 results of the research clearly reveal a growing trend in sustainability reporting within the baltic countries. authors note that disclosure by creating a dedicated section in the annual report is still prevailing over the standalone reporting. a summary of findings is presented in table 2. results table 2 presentation of social accounting disclosures for companies listed on the main list of nasdaq omx baltic as of year 2010 and 2020 (number of disclosures, %) source: annual reports of participating companies for years 2010 and 2020. presentation of disclosures 2010 2020 inside the annual report 24 (65%) 24 (73%) standalone sustainability report 6 (16%) 11 (33%) inside yearbook and the strategic plan 0 3 (9%) presentation of disclosures estonia latvia lithuania total inside the annual report 15 (94%) 0 9 (69%) 24 (73% standalone sustainability report 2 (13%) 2 (50%) 7 (54%) 11 (33%) inside yearbook and the strategic plan 1 (6%) 0 2 (15%) 3 (9%) table 3 presentation of social accounting disclosures by country among baltic companies listed on the main list of nasdaq omx baltic as of year 2020 source: annual reports of participating companies for the year 2020. table 4 standalone sustainability reporting by industry: baltic companies listed on the main list of nasdaq omx baltic as of year 2020 source: annual reports of participating companies for year 2020, website of nasdaq omx baltic (main list). industry standalone non-financial reports (% from total number of standalone reports submitted) percentage of the total number of surveyed companies in the respective industry basic materials 1 (9%) 100% consumer staples 3 (27%) 50% financials 2 (18%) 50% health care 1 (9%) 50% industrials 1 (9%) 17% telecommunications 2 (18%) 100% utilities 1 (9%) 50% it should be noted that several companies prepare both standalone sustainability reports as well as provide information about non-financial performance in a dedicated section of their annual financial report. in regard to the preferred way of reporting among countries the highest rate of commitment to standalone sustainability reporting was shown by lithuanian companies, while estonian companies prefer to make disclosures within the annual financial report. a summary of the results is presented in table 3. among the selected companies the highest rate of commitment to standalone sustainability reporting was shown by companies involved in production of basic materials as well as telecommunication companies. a summary of the results is presented in table 4. 83 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 industry sdg referring gri referring iso 14001 iso 9001 iso 45001 ohsas basic materials 0 0 1(100%) 1(100%) 0 1(100%) consumer staples 0 0 1(17%) 1(17%) 0 0 consumer discretionary 2(29) 0 3(43%) 2(29%) 0 1(14%) financials 0 0 0 0 0 0 health care 0 0 1(50%) 0 0 0 industrials 0 3(50%) 6(100%) 5(83%) 6(100%) 4(67%) real estate 0 0 0 0 0 0 technology 0 0 0 0 0 0 telecommunications 1(50%) 1(50%) 1(50%) 0 1(50%) 0 utilities 2(100%) 2(100%) 2(100%) 1(50%) 1(50%) 1(50%) table 5 allocation of types of sustainability disclosures by industry among baltic companies listed on the main list of nasdaq omx baltic as of year 2020 source: annual reports of participating companies for year 2020, website of nasdaq omx baltic (main list) data presented in table 4 shows that standalone reporting is mostly preferred by companies of the consumer staples sector, which may be explained by the high level of competition and the desire of conanines to stand of of the crowd in attracting new customers. in spite of the latest trend to integrate sdg into non-financial accounting and reporting in regard to the contribution of the sustainability reporting to the sdgs the number of referring companies still remains low (less than 25% of the selected companies). companies tend to be more active in reporting of various certifications like iso14001, iso9001, iso45001 and ohsas, which is demonstrated by the findings of the current research presented in table 5. as demonstrated by the data in table 5 reporting on compliance with international standard for occupational health and safety management systems (ohsas) is more common for the companies of the industrials sector, there, indeed, these requirements play are crucial for the successful operations. the same is valid for the iso 14001 standard, which specifies requirements for environmental management systems, in order to develop and implement environmental policy and objectives. this standard has a growing popularity in estonia and worldwide (gurvits, habakuk, 2016) and according to the latest data available from the iso survey 2020 the highest number of iso certificates is issued for companies of production sector (iso survey, 2020). this is also true for the iso9001 – quality management systems, as this certification adds value to the production process conforming to international requirements. in authors opinion gri reporting is less popular and mainly implemented by the companies of the industrials sector due time and effort consuming reporting process. the sdg referring seems to be not widely implemented yet and is only gaining its popularity. companies also disclose information about iso45001, iso 50001:2012 and iso 22000/ fssc 22000 certification, compliance with the iso 13485 quality management system and en60601-1 safety standard as well as the iso 37001 anti-bribery management standard for better management. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 84 the results of this study revealed that sustainability reporting is growing in popularity among the selected listed baltic companies. as already stated in the practical part of this paper, non-financial reporting received a boost in 2018 after the eu directive 2014/95eu became mandatory and has been implemented. however, it should be noted that the most popular form of sustainability reporting still presents as disclosures that are added into the annual financial statements while publishing of standalone sustainability reports is less popular. in the author’s opinion it may be largely explained by the fact that the preparation of standalone non-financial reports is quite time and effort consuming. it is also worth mentioning that that the lack of universal international standards makes it difficult for the companies to issue sustainability reports, which would satisfy the needs of all relevant stakeholders. the results of the present research are completely in line with latest developments within the iasb, confirming that there is an absolute need of international sustainability reporting standards which will add to the transparency, credibility and comparability of non-financial reporting. these standards will give companies a new starting point in preparation of non-financial reports and make it easier for stakeholders to make decisions based on the information presented. this is also confirmed by the low level of gri reporting expressed by the selected companies. it should be mentioned that the companies involved into the industrials and productions sector tend to more actively report on various certifications like iso14001, iso9001 and ohsas which adds value to socially responsible and reliable way of operating business. it is also notable that while the sdgs are widely implemented by various companies in their business policies and strategies they are still yet to become an inevitable part of sustainability reporting. only few companies of consumer staples sector base their reporting practices on referring to sdgs and implementing these goals as a guideline for non-financial reporting, which in authors opinion is largely explained by their desire to stand of the crowd and being more competitive. seems like there is a need to provide companies with more information on possible interlinkage of sdgs with business, sustainability and non-financial reporting. the authors are also aware that this study has several limitations: first the research included only listed companies, while the performance of non-listed companies may reveal other trends and challenging results. second, only two years were chosen – before and after the implementation of the eu directive 2014/95eu, while it would also make sense to investigate the 10-year period – to reveal a trend in reporting defining all changes and newcomers. authors believe that this survey would contribute to the current sustainability reporting practices among companies and serve as a basis for those searching for the optimal reporting tool. also, it would shed light on the importance of implementing international sustainability reporting standards pointing out main obstacles, benefits and paths for future developments. conclusions and discussion references agostini, m., costa, e., & korca, b. 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(2021). voluntary disclosure of sustainable development goals in mandatory non-financial reports: the moderating role of cultural dimension. journal of international financial management and accounting, doi: https://doi.org/10.1111/jifm.12139 posadas, s. c., & tarquinio, l. (2021). assessing the effects of directive 2014/95/eu on nonfinancial information reporting: evidence from italian and spanish listed companies. administrative sciences, 11(3) doi: https://doi.org/10.3390/admsci11030089 tarquinio, l., posadas, s. c., & pedicone, d. (2020). scoring nonfinancial information reporting in italian listed companies: a comparison of before and after the legislative decree 254/2016. sustainability (switzerland), 12(10) doi: https://doi.org/10.3390/ su12104158 zanellato, g., & tiron-tudor, a. (2021). how cultural dimensions are shaping social expectations: the case of european state-owned enterprises‘ nonfinancial reporting. journal of applied accounting research, doi: https://doi.org/10.1108/jaar-04-2021-0116 xbrl the business reporting standard. big news! europe to get mandatory digital esg disclosure using inline xbrl. retrieved from: https://www.xbrl.org/ news/big-news-europe-to-get-mandatory-digitalesg-disclosure-using-inline-xbrl/ on 20.01.2022. about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). natalie aleksandra gurvitš-suits phd, associate professor tallinn university of technology fields of interests financial and non-financial accounting and reporting, sustainable finance and business management address ehitajate tee 5, 19086, tallinn, estonia +372 6 204007 natalja.gurvits@taltech.ee inna sidorova mba acma/cgma fields of interests financial and non-financial accounting and reporting, sustainable finance and business management inna.sidorova@iese.net e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 22 european integration studies no. 15 / 2021, pp. 22-33 doi.org/10.5755/j01.eis.1.15.29134 abstract design thinking method implementation in personnel certification procedures http://dx.doi.org/10.5755/j01.eis.1.15.29134 personnel certification is one of the most effective tools for implementing human resources development processes and procedures. by certifying employees, either enterprises, institutions or organizations strive to expand their capabilities by acquiring new or improving already existing knowledge, skills, abilities and experience in order to improve the efficiency of performing professional duties. the purpose of the article is theoretical and methodological justification, practical testing and evaluation of personnel certification processes using design thinking procedure. the research goal is achieved by setting and solving the following tasks: to investigate the theoretical and methodological basis of design thinking procedure, to establish the possibilities and ways of its practical application in the processes of human resource development of the organization; » to improve the implementation of international certification processes for professional drillers with the help of the prototyping tool; » to develop recommendations and evaluate the influence on the certification procedures according to the international standards. the draft study presupposes the analysis of the preparatory and final stage of international certification of oil and gas enterprises personnel, as well as the development of recommendations for their improvement, by using design thinking procedure. the study combines methods of quantitative and qualitative analysis. in particular, statistical analysis tools are used to study the results and evaluate the influence on personnel certification. qualitative methods are used to establish intellectual, psychological and professional options of a person, by applying prototyping tools. based on the results of the study, it is planned to obtain: » design thinking procedure integrated into the process of international personnel certification of oil and gas enterprises, which will increase the efficiency of human resources development; » improved approach to the organization of international certification procedures for professional drillers, which is based on the use of prototyping tools; » a list of influences on the certification procedures according to international standards and an approach to their evaluation. keywords: personnel certification, design thinking, human resources development, formal education, non-formal education. galyna malynovska, ivano-frankivsk national technical university of oil and gas submitted 04/2021 accepted for publication 06/2021 design thinking method implementation in personnel certification procedures eis 15/2021 larysa mosora, ivano-frankivsk national technical university of oil and gas sviatoslav kis, ivano-frankivsk national technical university of oil and gas tetiana topolnytska, ivano-frankivsk national technical university of oil and gas yaryna kalambet, ivano-frankivsk national technical university of oil and gas 23 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 international personnel certification is an important component of the human resources development of drilling enterprises in the oil and gas industry. specialists, certified according to international standards, get the opportunity to perform drilling operations both in ukraine and abroad. for domestic enterprises that implement drilling processes, an important task is to have such specialists in their staff. in this case, business entities can expect an increase in the share of orders for providing works and services on the domestic and foreign markets. the acceleration and expansion of the processes in international integration of the state into the european and global economic space will have a positive effect for ukraine (zvirgzdina, skadina & vane, 2020; briffaut & saccone, 2002). personnel certification is, first of all, a short-term training result of a person, as well as receiving educational services by means of formal and non-formal education by him or her. the formal format of certification of an employee takes place when the activities specifics of business entities in a particular industry presupposes the availability of employees whose professional characteristics must be periodically updated and necessarily complied with national or international standards (kis, et. al., 2020. a). otherwise, the employee may not be allowed to perform certain types of work. providers of formal educational services in the field of personnel certification can be both public and private organizations. the main condition for their existing on the market is the availability of a permission (accreditation, license, etc.). the document states the possibility of conducting training and certification, and also confirms that the staff of the educational institution has certified teachers-trainers. the main goal of participating in a short-term curriculum, training, webinar, seminar, etc.in the format of non-formal education is not to obtain a certificate, but to master new or improve the level of proficiency in previously acquired skills (kis, et. al., 2020. b). training and certification of a person often becomes an impetus for drastic changes in their professional activities. in practice, certification processes are implemented within two formats. the first one is when the initiator and the customer of educational services is the enterprise. an employee applying for certification does not always show professional and psychological commitment to accept new knowledge. the second one is conscious and purposeful training and certification of a person at their own expense in order to develop and ensure changes in their professional activities. a mandatory element of certification is the applicant's passing of qualification exams. psychological, physical or professional unwillingness of a person to participate in this procedure may be one of the reasons for unsatisfactory results and non-receipt of a certificate. therefore, an important problem that requires analysis, research and generalizations, is the search and justification of methodology in order to improve the academic performance and quality of the implementation of enterprise personnel certification processes. academic performance is the efficiency indicator, that is, the ratio of the quantity of students who passed the exam and received certificates to the total number of applicants. the quality of certification is the number of specialists who received a high score based on the results of the qualification exam.(maleka, et. al., 2020; amakiri & luke, 2015; malynovska, et. al., 2020). the main novelty element of the proposed study will be the design thinking procedure, adapted for the first time to the processes of personnel international certification of domestic oil and gas enterprises as an effective tool for preventive impact on reducing the success of certification. taking into account the above, the purpose of the article is theoretical and methodological justification, practical testing and evaluation of personnel certification processes for design thinking procedure. introduction research problem novelty aim e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 24 the research goal is implemented by setting and achieving the following goals: » to investigate the theoretical and methodological basis of design thinking procedure, to establish the possibilities and ways of its practical application in the processes of human resource development of the organization; » to improve the approach to the implementation of international certification procedures for specialists-drillers with the help of the prototyping tool; » to demonstrate the practical feasibility, stages and procedures of using design thinking in the processes of international certification of oil and gas enterprises personnel; » to develop recommendations and evaluate the influence on the certification procedures for drillers according to international standards. the object of the research is the processes of personnel certification of oil and gas enterprises according to international standards. the draft study presupposes the analysis of the preparatory and final stage of international certification of oil and gas enterprises personnel, as well as the development of recommendations for their improvement, by using design thinking procedure. the study combines methods of quantitative and qualitative analysis. in particular, statistical analysis tools are used to study the results and evaluate the influence on personnel certification. qualitative methods are used to establish intellectual, psychological and professional options of a person, by applying prototyping tools. modern conditions of economic and social development are characterized by the dominance of non-material factors. together with traditional material resources they allow business entities to achieve significant competitive advantages on the market. the main role in the creation, usage and accumulation of non-material resources belongs to a person with an inherent level of intellectual development, professional knowledge, abilities, skills, experience that require constant improvement and development. one of the most effective means of providing the development of an employee's personality is education, that includes a fairly wide list of forms, methods and approaches today. their selection and usage by hr management of business entities requires careful attention to the quality of educational services and offered educational products. an equally important component of the implementation of personnel development processes, in our opinion, is the preliminary identification of the needs and opportunities for the employee to acquire new knowledge, skills and abilities. it is also advisable to establish the need to use alternatives in the organization of training, both in form and content (gama & edoun, 2020; dirani, 2012)., in our opinion, this approach will, firstly, allow to reduce the unproductive costs of an employee or enterprise associated with training, and secondly, to reduce the negative impact on the psychoemotional state of a person (görgens-ekermans & roux, 2021), who for various reasons did not get the desired result from participating in training. to solve the above problem, it is possible to use various procedures and approaches that allow us to conduct a preliminary analysis and make optimal management decisions based on its results (kis, et. al., 2020. b; malynovska, et. al., 2020). in our opinion, the results of analytical activities based on objective data about the employee will not be more informative, but a creative way to solve the problem might be. it is the creative approach that is the basis of the methodology of design thinking, which in modern socio-economic and political realities is increasingly becoming an effective tool for improving processes and procedures implemented by business entities, representatives of non-profit and state organizations (brown, 2009; buchanan, 1992; dorst, 2011; johansson-sköldberg, woodilla, & çetinkaya, 2013; nielsen & christensen, 2014). the offer of trainings, seminars, and webinars on issues related to the theory and practice of design thinking is available on the market of educational services. and it attracts the increasing attention number of interested participants from the business environment, representatives of educational institutions and public authorities. theoretical, methodological and applied aspects of design thinking presentation of the main material main objectives object research methods 25 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 procedure are currently addressed by increasing number of scientists from various scientific fields and industries (cross, 2001; chou, 2018; garbuio, at. al., 2018; kimbell, 2011; tselepis & lavelle, 2020). the main characteristics that most often describe the procedure of design thinking are, first, the implementation of the accumulating ideas process, second making risky decisions in the early stages of designing, third – understanding the goals, behavior, needs and inclinations of consumers, fourth – testing ideas and checking their perception by consumers, fifth – changing approaches to the perception of product value (micheli, at. al., 2019; lawson, 2006; shilekhina, 2013). most scientific research publications or journalistic style ones presented on free information resources indicate that the use of design thinking methodology involves the implementation of certain stages. in our opinion, the most practice-oriented model is the classic five-stage model by the hasso-plattner institute of design at stanford. it includes the following stages: empathise, define (the problem), ideate, prototype, and test. design thinking involves the use of tools to ensure the effective implementation of each of the stages. lidetka & ogilvie (2015) scientists focus on such methods as mind mapping, empathy mapping, brainstorming, rapid prototyping, customer co-creation, and others. despite their popularity, these tools have not yet gained popularity among domestic business, non-profit and state organizations. moreover, they are rarely used in the educational environment. in this regard, the russian scientist noted that it is advisable to use design thinking and its tools for education, taking into account the implementation of procedures as elements of the business process or the traditional process of providing educational services by subjects (ivanova, 2019). in the first case, three stakeholders should take part in modeling using design thinking procedures. they are an educational institution, business, non-profit, state organizations, and a client (consumer). in our opinion, as a result of three-way interaction, the probability of a positive solution to the previously formulated problem increases. in most scientific publications and analytical and journalistic material (dorst, 2011; johansson-sköldberg, woodilla, & çetinkaya, 2013; nielsen & christensen, 2014; glen, at. al., 2015; val, at. al., 2017; weinberger, at. al., 2020), which relate to the characteristics and results of applying the design thinking procedures, authors focus on the main positive effect of the model. it is the quality improving of the product offered to the consumer, in particular, educational services. at the same time, the predicted and actually obtained quantitative characteristics from the implementation of the improvement process are missing or fragmentary represented. as a rule, its impact on changes in the psychoemotional state, motivation and behavior of the end user is not taken into account. in our opinion, considering the process of providing educational services as a business process, it is necessary to understand that, in addition to qualitative effects, the use of design thinking as a methodology for improving a product (service) will allow us to obtain quantitative results. in particular, for the subject, customer of educational services, it is possible to predict the economic effect. this effect will manifest itself in cost savings or receiving the additional benefits. in the first case, it is reffered to reducing unproductive spendings on educational services, which occur . preventive using of design thinking will allow to minimize them by making decisions about the feasibility and possibility of training employees. as for the additional benefits, the new knowledge, skills, abilities and experience of employees obtained and confirmed by the relevant document have impact on their labor productivity, which increases as a result of improving approaches to the implementation of certain processes of economic activity. an equally important though not often mentioned in scientific and other sources qualitative effect of applying design thinking procedures to improve the educational process will be the improvement of the emotional and psychological state of the individual. as a result of successful completion of training, the level of its validity and readiness to apply new knowledge increases (görgens-ekermans & roux, 2021; boyatzis, 2018; bakker, 2017; kahn, 1990; scheer, noweski, & meinel, 2012; van aalst, 2009; weinberger, at. al., 2018). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 26 it can be predicted that reducing the number of negative learning outcomes, increasing academic performance and quality will increase the market popularization level for educational institutions that form educational services. this also will contribute to the growth of the individuals and structures rating that directly implement educational services in form and content (daniel, 2016; ney & meinel, 2019; nielsen & stovang, 2015; scheer, noweski, & meinel 2012). the main effect of the above given consequences combination will be an increase in the volume of orders for personnel training services. for an educational institution, this means additional income, an increase in its financial capabilities for material, technical and methodological support of the providing educational services process. in order to demonstrate the practical feasibility and effectiveness of applying design thinking procedures in the educational environment, the authors of this study pay attention to the process of training and international certification of oil and gas enterprises personnel. this process is implemented in the ivano-frankivsk national technical university of oil and gas (ifntuog) under the following programs: «drilling fluids according to the api (american petroleum institute) standards» and «well condition monitoring, prevention and elimination of fluid occurrences during well drilling in accordance with iwcf (international well control forum) standards». as of the beginning of 2021, the authoritative international organization iwcf confirmed the authority of the training drilling center (tdc) ifntuog as the primary structure that can carry out certification of oil and gas industry employees at all levels (ifntuog training drilling center, 2021). the main customers of educational services in the above given aims of certification are public and private oil and gas well drilling enterprises, as well as oil and gas production ones. ifntuog has been providing educational services under international certificate programs since 2004. during this period, more than 1,200 people were trained and certified according to iwcf standards, and more than 300 people were trained under api ones. the author's observations of the certification process during 2018-2020 made it possible to highlight the implementation of the following main procedures: » selection of applicants for training and certification, which is carried out by specialists of the hr division of the enterprise that is the educational services customer; » full-time or online applicants trainig, which in form and content meets the established international standards and is implemented by pre-certified teachers-trainers; » conducting a qualification exam in compliance with the established requirements, the results of which confirm or do not confirm the success of training and grant the person the right to receive a certificate. actual data on the scope of training and certification of oil and gas companies in ifntuog according to iwcf and ari standards (ifntung training drilling center, 2021; ifntung 2021) during 2018-2020 allow us to establish the following trends in the proportion of individuals who have successfully completed training and received an international certificate: » at the 2nd level according to iwcf standards – up to 90%; » at the 4th level according to iwcf standards – up to 85%; » under the program «drilling fluids according to the api (american petroleum institute) standards» – up to 95%; in general, the analysis of the results of international certification of oil and gas enterprises employees in ifntuog based on the available information allows us to draw the following conclusions: 1 the highest level of achievements based on the results of training is demonstrated by employees participating in the certificate program «drilling fluids sccording to the api (american petroleum institute) standards». 27 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 2 during 2018-2020, there can be observed an increasing trend in the proportion of staff members who have received positive results from the two qualification exams provided for by the iwcf curriculum. 3 the lowest achievemt rate is recorded in the iv-th level of certification, which is usually attended by individuals from among the personnel of the drilling crew or engineering and technical workers responsible for making decisions on ensuring trouble-free operation of the well. 4 taking into account the cost of educational services in two areas of certification, as well as other additional expenses of enterprises to ensure the participation of one employee in training events, it can be assumed that direct average annual financial losses for business entities during 2018-2020 were to 10-15% of the amount of funds provided by the budget of enterprises for professional development of personnel. thus, an obvious problem at the final stage of the process of international certification of oil and gas industry specialists is that individual employees receive negative (below the established standards) results when passing final exams. without denying the effectiveness of the efforts made by all stakeholders to achieve maximum quantitative equality between applicants and actually certified individuals , we consider it necessary to demonstrate additional opportunities for improving certification procedures by applying design thinking procedures. first of all, the authors of the study interviewed two instructors of the ifntuog tdc, who are full-time employees of the university and have experience in the certification according to iwcf standards. currently, both highschool teachers have been certified and have the status of authorized representatives of an international organization. they are asked to answer the following question: «in your opinion, what are the key factors influencing the results of qualification exams of individuals applying for an international certificate according to iwcf standards?». at the same time, it is noted that it is necessary to assign an appropriate rating to each selected factor and establish its proportion in the formation of the overall result. based on the results of the survey, it is possible to form a list of personal and professional characteristics that, according to respondents, should be inherent in applicants for successful participation in international certification (table1): factors (characteristics) that affect the results of qualifying exams rating share in the formation of the overall result, % age 4 10 work experience 9 5 direction of preliminary qualification (compliance of the received education with professional functions) 10 5 place of basic professional education (educational institution) 11 5 psychoemotional and physical state during participation in training and passing qualification exams 1 25 participation in similar training events, previous training and certification experience 2 15 experience in practical application of theoretical provisions provided for in the international curriculum 3 10 skills in working with computer equipment 5 10 level of proficiency in basic mathematical tools 6 5 skills in working with geological information 8 5 degree of responsibility for making decisions on the organization of the production process 7 5 total amount x 100 source: authors’ own study table 1 summary results of the interviews with the instructors of ifntung training drilling center e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 28 thus, the summarized results of interviews with ifntuog tdc instructors shown in table 1 allow us to draw the following conclusions about the priority of factors that influence the success of participation of oil and gas company personnel in international certification: 1 the most important thing for successful certification is the psychoemotional and physical condition of the individuals, who study and then pass the qualification exam. expanding the content of this factor through clarifying questions allowed us to establish that, first of all, it is talked about the internal experiences of a individuals , their fear through the belief in the inability to master the scope of new information and get a positive result. it is also talked about an excitement for the perception of a negative result by colleagues and management. it is worth noting that this result is supported by the results of a study by a number of authors (boyatzis, 2018; görgens-ekermans & roux, 2021; bakker, 2017; kahn, 1990; judge & picollo, 2004; cheung & wong, 2011; seymour & geldenhuys, 2018). in addition, an important component is the physical or health condition of a person during training and at the time of passing the qualification exam, which affects concentration. 2 the second in the list of factors is the previous participation of individuals in various certification programs, including the lowest level, which are provided for by the international certification according to iwcf standards. almost 100% of those who have completed preliminary training and certification in the 2nd level or previously participated in similar training programs successfully pass the qualification exams. 3 a person with production experience related to the direct use of tools and technologies, the study of which is provided for in the curriculum, perceives and processes theoretical material faster, and solves practical problems more confidently. 4 based on many years of experience in conducting training sessions, iwcf instructors assume that the best results are shown by people aged 25-40 years who belong to the basic working age group. this is mainly due to the best skills in computer equipment and technology. 5 with respect to all the other factors that affect the successful implementation of certification procedures, it is advisable to note that the four above listed factors together make up 50% and this confirms their belonging to the priority category. the next stage of solving the problem of using design thinking methodology was a survey of people who have been trained and certified according to iwcf standards. the survey was held in 2020 by offering 50 respondents a questionnaire. the content and technology of filling it out provided for assigning a point score to pre-defined factors that, in our opinion, the procedures associated with conducting training sessions characterize. thus, former students are asked to answer the following question: "evaluate the proposed factors for the importance of their impact on the results of your training (1 point – "very important", 2 points – "important", 3 points – "not important")." the form and content of the questionnaire, as well as the results of a generalized analysis of respondents' answers, are shown in table 2. thus, the results of the survey show that more than 90% of people consider the most important factors influencing the results of their training to be: » availability of constant contact and feedback with teachers-instructors, » maximum focus of educational technologies on solving typical tasks for the qualification exam. it should be noted that in the instructions proposed by iwcf for preparing students for international certification, accredited certification centers are primarily recommended to pay attention to ensuring close interaction between "student–teacher–instructor". in addition, it is necessary to adapt the theoretical and practical educational material to the questions of the upcoming qualification exam 29 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 factors the value of importance availability of handouts during training that reflect the content of theoretical and practical courses 2 use of multimedia presentations by teachers-instructors 3 providing constant feedback between teachers-instructors and students during classes 1 solving tasks typical for the qualification exam during classes 1 demonstration of the equipment and technologies operation principles of the real production process during classes 2 source: authors’ own study table 2 questionnaire to determine the importance of factors that affect learning outcomes as much as possible. in our opinion, other factors contained in the questionnaire, despite the lower results of respondents' assessments of the importance degree, should be taken into account in the implementation of the training procedure. teachers-instructors, when discussing the results of the survey, agreed with the opinion that the availability of handouts, multimedia presentations, imitation of technological processes and demonstration of equipment are mandatory elements of the educational process, which strengthen the role of the main factors. it should be noted that the importance of establishing positive psychoemotional contact with teachers-instructors and training supervisors is confirmed by the results of research by a number of scientists, and regardless of whether this training takes place in person maertz at. al., 2007; gentry at. al., 2007; monteiro de castro at. al., 2016; mathur & prasad, 2014; kahn, 1990), or online (beinicke & kyndt, 2020; alemdag, gul cevikbas & baran, 2020; billett & choy, 2013; eraut, 2004; francisco, 2020). the conducted interviews and questionnaires allowed us to move on to the prototyping stage, which is provided for by the procedures of design thinking. in our case, the objects of prototyping will be the procedures for selecting, training and conducting a qualification exam with applicants for international certification. at the stage of selecting applicants for training, specialists of the hr division of the enterprise, that is the customers of educational services, in our opinion, are advisable to take into account objective factors-characteristics of employees as a priority. the list of such characteristics includes the experience of their previous training and certification, as well as the practical application of theoretical provisions provided for in the international curriculum. in addition, you need to pay attention to your computer skills. the timely and effective response of the applicant to situations that arise during the implementation of organizational and educational procedures, as well as procedures related to passing the qualification exam, depending on the level of their exam assessment. this approach will allow to create an optimal current sample of students for training with a high probability of their further certification. on the part of both individual employees and the enterprise, we can expect to step up actions to achieve compliance of the objective characteristics of the individual with the factors defined in table 2. in accordance with the foregoing ideas, the main improvements in the implementation of training procedures for students should be an increase in study time for solving typical tasks. teachers-instructors are recommended to increase the duration of training of students in the format of a dialogue. a new type of qualification exam procedure, the technology of which is clearly regulated by iwcf, is focused exclusively on the need for early normalization of the psychoemotional and physical state of a person. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 30 during january-february 2021, the effectiveness of applying improved approaches to the implementation of international certification procedures for personnel of oil and gas enterprises in ifntuog was checked. in particular, the ratio of the number of people who successfully passed the qualification exams (114 people) and the total number of participants (120 people) is 95%. prototyping the procedures of the certification process and its implementation in accordance with the proposed approaches will allow obtaining both economic (reduction of unproductive costs for personnel training by enterprises) and social effects. the essence of the latter is to reduce the level of demotivation of employees who, as of a certain period of time, did not pass certification based on the results of preliminary selection, to increase the productivity of teachers-instructors and the level of prestige of an educational institution in the market of educational services. the results of the study make it possible to: 1 confirm the importance and necessity of applying design thinking methodology to improve the efficiency of implementing human resource development processes of ukrainian oil and gas enterprises. quantitative and qualitative growth of certified drillers according to the international standards will accelerate the processes of european and global integration of the ukrainian oil and gas industry. domestic enterprises and specialists will be able to be competitive in foreign markets of oil and gas services and labor. 2 adapt the procedures of design thinking to solve the problems of improving the process and procedures efficiency of international certification of domestic oil and gas enterprises personnel. 3 prove the practical feasibility and effectiveness of using design thinking procedures with the involvement of all interested parties that take part in the certification processes of oil and gas industry personnel according to international standards. taking into account the achieved scientific and practical results of the research, we witness the need for their expanded use to improve other educational and scientific processes that are implemented in ifntuog. 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(2018). having a creative day: understanding entrepreneurs' daily idea generation through a recovery lens. journal of business venturing, 33(1), 1-19. https://doi.org/10.1016/j.jbusvent.2017.09.001 zvirgzdina, r., skadina, h., & vane, a. (2020). requirements for cfo within the business model. european integration studies, 14, 186-191. https://doi. org/10.5755/j01.eis.1.14.27558 the paper was prepared within the framework of the joint ukrainian-lithuanian r&d project “competence development of lithuanian and ukrainian public sector employees using design-thinking methodology”. agreement no. s-lu-20-5. 33 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 malynovska galyna ivano-frankivsk national technical university of oil and gas fields of interests personnel management, human resources development, formal and non-formal education. address karpatska street, 15, ivanofrankivsk, 76019, ukraine +380 993381274 oleg_st_ya@yahoo.com mosora larysa phd, associate professor ivano-frankivsk national technical university of oil and gas fields of interests organization of civil service, system of public administration, personnel management. address karpatska street, 15, ivanofrankivsk, 76019, ukraine +380 342547285 larysamosora85@gmail.com kis sviatoslav doctor of science, professor ivano-frankivsk national technical university of oil and gas fields of interests management of human capital development, intellectualization of enterprises. address karpatska street, 15, ivanofrankivsk, 76019, ukraine +380 993381274 svjatkis@gmail.com about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). topolnytska tetiana phd, associate professor ivano-frankivsk national technical university of oil and gas fields of interests foreign economic activity of enterprises, image of enterprises. address karpatska street, 15, ivanofrankivsk, 76019, ukraine +380 342547285 rtcb@ukr.net kalambet yaryna phd in philosophy, associate professor ivano-frankivsk national technical university of oil and gas fields of interests management of human capital development, personnel management. address karpatska street, 15, ivanofrankivsk, 76019, ukraine +380 504331763 olegstya@gmail.com e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 238 european integration studies no. 14 / 2020, pp. 238-248 doi.org/10.5755/j01.eis.1.14.25492 abstract restrictive factors for micro-company growth in latvia http://dx.doi.org/10.5755/j01.eis.1.14.26567 every country is interested in entrepreneurship development as entrepreneurs form the basis for economic development, so academic researchers are looking for supportive and restrictive factors in business development. in latvia, the majority of companies are micro and small enterprises. the aim of the paper is to investigate the restrictive factors related to the successful development of the company in latvia, depending on the number of employees. tasks of the research evaluate the limiting factors influencing the development of micro-companies; find the most important factors that limit the involvement of employees and experienced managers in companies in the country, regions; compare the impact on companies by number of employees. applied research methods: scientific publications and previous research analysis; survey of companies related of different aspects of business development; deeper analysis on factors limiting entrepreneurship development. the general population consists of all active companies registered in the register of enterprises of the republic of latvia in strategically important sectors. a questionnaire of our survey was developed for companies selected at random and the replies of 2511 companies, of which 1879 were micro-enterprises, were considered valid. the technical fieldwork of the survey was conducted by the marketing and public opinion research center (skds) (interviewers conducted as cawi computerized web interviews). data analysis was performed by spss, the main indicators of descriptive statistics were used for the analysis of survey data: indicators of central tendency or location arithmetic mean, mode, median; indicators of variability standard deviation, standard error of mean, range; cross-tabulations by regions and by number of employees, analysis of variance anova and factor analysis with varimax rotation. the results point to the main restrictions on business growth: increase of expenses on labour or production and unavailability of qualified employees or experienced managers. keywords: company growth; micro-company; experienced managers; qualified employees; restrictive factors in company development.introduction every country is interested in entrepreneurship development as entrepreneurs form the basis for economic development, therefore academic researchers are looking for supportive and restrictive factors in entrepreneurship development. in latvia, most companies are micro and small enterprises. the aim of the paper is to investigate the limiting factors related to the successful involvement of employees in the development of micro-enterprises in latvia. according to the researchers (european commission, 2019) micro, small and medium-sized enterprises (smes) play a particularly important role in the non-financial business economy of latvia. although the total value added and employment share of smes and large enterprises submitted 05/2020 accepted for publication 07/2020 restrictive factots for micro-company growth in latvia eis 14/2020 ilona beizītere riseba university of applied sciences biruta sloka professor, university of latvia ieva brence latvia university of life sciences and technologies http://doi.org/10.5755/j01.eis.0.13.23562 239 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 increased at similar rates between 2014 and 2018, however the value added of smes increased by 29.9% and that of large enterprises by 29.1%. employment growth for smes was significantly lower, rising by only 6.3% for smes and by only 5.0% for large companies. it should be emphasized that the main drivers of sme value added growth were small enterprises with an increase of 36.7% in 2014-2018. in terms of employment growth, micro-enterprises showed an increase of 10.8% over the same period. most recently, in 2017-2018, the total value added of smes increased sharply by 14.0%, while the growth of sme employment was much lower 2.9%. experts (european commission, 2019) predict that the rapid growth of value added will continue, increasing by 14.5% in 2018-2020. over the same period, employment in smes is projected to increase by 4.0%, with most of this increase coming from micro-companies, where employment is projected to increase by 6.1%. as a result, around 20 600 new jobs are likely to be created in smes by 2020. therefore, the tasks of the research were: to evaluate the limiting factors influencing the development of micro-companies in latvia; to find the most important factors limiting employees and experienced managers involvement in micro-companies in the country, in the regions and by the number of employees. in our study, we focused on micro-companies (i.e. enterprises with less than 10 employees and a turnover or balance sheet total of less than eur 2 million) as defined in the european classification system (european commission, 2003). applied research methods were used to perform the tasks: scientific publications and previous realized research analysis; survey of micro-companies related of different aspects of the company development; deeper analysis on factors limiting entrepreneurship development. the general population consists of all active companies registered in the register of enterprises of the republic of latvia in 11 strategically important sectors that were entitled to receive state aid. a total of 32 308 enterprises were selected by nace codes. the questionnaire of survey was sent for companies selected at random from publicly available e-mail addresses in january 2018. in order to explore in depth the question of what factors significantly limit the growth of the company, the respondents were asked to answer on a scale of 1-5, where 1-not limiting, 5-limiting. the technical fieldwork of the survey was performed by the marketing and public opinion research center (skds), the interviewers conducted as cawi computerized web interviews. the responds were provided by the managers, board members, directors or accountants of companies representing all regions of latvia, and, ensuring greater representativeness, the data were weighted according to the share of sectors. data analysis of survey was performed by spss, the main indicators of descriptive statistics were used for the analysis of survey data: indicators of central tendency or location arithmetic mean, mode, median; indicators of variability standard deviation, standard error of mean, range; cross-tabulations by regions and by number of employees, analysis of variance anova and factor analysis with varimax rotation. theoretical findings researchers in many countries are looking for the best possible conditions for the company's development several aspects are mentioned, including the size of the company, employees, innovation, intellectual capital, local regulations (block et al., 2012; bolen et al., 2016; corvino et al., 2019; daugeliene & liepinyte, 2012; ferraro & veltri, 2011; gherhes et.al., 2016; hanley & o'gorman, 2004; tu et al., 2014). different countries have diverse and specific approach (long kweth et al., 2014). co-operation with educational institutions, including universities and sme are on researchers agenda (cantù et al., 2015; matlay, 1999; zekos, 2003). in many cases labour force, clever and experienced managers are on key importance for success of the company (maurer et al., 2011, mcqueen & yin, 2014). in different regions, it could be different results even if the managers are well experienced, employees are trying their best and innovative entrepreneurship is taking place (andreeva et al., 2016, daugeliene, 2016). the authors (andreejeva et al., 2016) have https://datubazes.lanet.lv:5879/insight/search?q=michael hanley https://datubazes.lanet.lv:5879/insight/search?q=bill o'gorman https://datubazes.lanet.lv:5879/insight/search?q=bill o'gorman https://datubazes.lanet.lv:5879/insight/search?q=harry matlay https://datubazes.lanet.lv:5879/insight/search?q=georgios i. zekos https://datubazes.lanet.lv:5879/insight/search?q=robert j. mcqueen https://datubazes.lanet.lv:5879/insight/search?q=zhaowen yin e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 240 proposed and tested the hypothesis that, in this environment, the economic growth in the country and the region is increasingly determined not so much by large businesses, but by many small innovative companies. the study (andreeva et al., 2016) confirms that the most justified strategy for the development of innovative entrepreneurship in the region is the strategy of cooperation between different types of companies in order to overcome their weaknesses, enhance existing opportunities and activate the innovation and entrepreneurial capacity. access to financing by enterprises are on regular evaluation agenda (kwaak et al., 2019) preparing also comparisions of performance by different countries. the researchers (lussier & sonfield, 2015) were examining six significant differences were: “small” firms are more likely to employ non-family member managers, are more likely to engage in the formulation of succession plans, are more likely to utilize outside advisory services, make greater use of sophisticated financial management methods, and have a more formal management style than “micro” firms; but the influence of the founder is greater in “micro” firms. interest of academic researchers (paoloni & dumay, 2015) was devoted to the relational capital of micro-enterprises run by women in the startup phase. they have developed the caos model of micro-entrepreneurship consisting of the following components: examining the personal characteristics of the female entrepreneur (c); the environment in which the micro-enterprise operates (a); organizational and managerial aspects (o); and the motivations for starting a new business (s). using this model, the authors are able to link these factors and classify different types of connections, as a result, it is possible to identify the kind of existing relations. the analysis revealed that networks with informal and permanent relationships are predominant, which support the need to reconcile work with family and involve relatives and friends in the network. the authors' study highlights the lack of strategy in women-run micro-enterprises (paoloni & dumay, 2015). women in microenterpise management is on importance (sandberg, 2003), and they pointed to the need for government support for networking activities and other programs that promote collaboration and pooling of resources. different technical and it solutions (arendt, 2008; flynn, 2017; roberts & wood, 2002; teague, 1994) influence good organisation of microenterprises. researchers world-wide (budhwar et al, 2002; fielden et al., 2000; keen & etemad, 2012; matlay et.al., 2005; prijadi et al., 2020) have found that financing is one of the most important driving forces of microenterprise development. according to experts (european commission, 2019) smes policy priorities for latvia lies in the area of “skills & innovation”. they point out that, despite significant progress since 2008, latvia is still well below the eu average in terms of skills and innovation. this is latvia's weakest performance in the area implementing the small business act for europe. however, little progress has been made here: although the percentage of smes innovating is well below the eu average, the figure shows a slight improvement (15.2% in 2016 compared to 10.2% in 2014). unfortunately, latvia lags behind most of the eu in terms of the integration of companies' digital technologies. researchers have found that one of the factors hindering this development is the shortage of qualified specialists and the still low proportion of ict specialists. more than half of all latvian companies wishing to hire ict specialists report difficulties in filling vacancies. according to this development, latvia is characterized by a high percentage of companies that prepare their own employees, and their indicators are well above the eu average. the percentage of companies that provide ict skills training to their employees improved, reaching 9.6% in 2018 (8.6% in 2017). among other things, new and nascent entrepreneurs who claim that their product or service is new to customers are in line with the eu average (european commission, 2019). experts have pointed to other factors that need to be overcome in sme policy in latvia and pracsituation analysis https://datubazes.lanet.lv:5879/insight/search?q=robert n. lussier https://datubazes.lanet.lv:5879/insight/search?q=matthew c. sonfield https://datubazes.lanet.lv:5879/insight/search?q=paola paoloni https://datubazes.lanet.lv:5879/insight/search?q=john dumay https://datubazes.lanet.lv:5879/insight/search?q=paola paoloni et.lv:5879/insight/search?q=john dumay https://datubazes.lanet.lv:5879/insight/search?q=karl w. sandberg https://datubazes.lanet.lv:5879/insight/search?q=martyn roberts https://datubazes.lanet.lv:5879/insight/search?q=michael wood https://datubazes.lanet.lv:5879/insight/search?q=paul teague 241 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 tical realisation of entreprenurship. the lack of private investment in research and development, as well as the recent difficulties faced by smes in accessing bank finance, limit economic development in all sectors. focusing on increasing productivity and expanding export opportunities, especially in the field of cross-border e-commerce, will be crucial for the development of the latvian economy (european commission, 2019). in a survey aimed at identifying the problem that is most pressing to the company, respondents were asked to assign a degree rating to each of the problems given. the ranking is calculated (kwaak et al., 2019) based on grades by survey respondents. given the highest problem identified, they were ranked as follows: 1 the availability of skilled staff; 2 finding customers for their products or services; 3 the costs of production or labour (labour costs include wages, employee benefits and payroll taxes paid by an employer); 4 regulations (european and national laws and industrial regulations); 5 competitions; 6 the access to finance. table 1 most pressing problems during april to september 2019 for smes in the eu28 and in latvia. percentages in the table indicate the percentage of smes that consider a specific problem to be the most urgent problem most pressing problem in the eu28 in latvia availability of skilled staff 26 25 finding customers 22 10 costs of production or labour 12 16 regulations 12 10 competitions 12 19 access to finance 7 10 other 8 10 source: based on data from kwaak et al., 2019. the results of the survey (kwaak et al., 2019) showed that in 2019, the availability of qualified staff and experienced managers, which has become an increasingly important issue over the years, is the most pressing problem facing eu28 smes. according to 26% of smes, this is the most urgent problem. small (10-49 employees) and medium-sized (50-249 employees) companies are most likely to express shortages of qualified staff or experienced managers (29% and 30%, respectively), large companies (with 250 or more employees) consider this problem to be important to a lesser extent (26%), while micro-enterprises (with no more than 9 employees) express this problem the most urgency are the least (22%) compared to other size-classes. the survey found that the cost of inputs for the production process deteriorated more often than improved in the six months from april to september 2019. from 2014 onwards, a net deterioration of costs has been observed in each survey year. in terms of the proportion of smes reporting them, these deteriorations in costs outweigh the improvements in turnover. an important restrictive factor on growth is the deterioration in labour costs (including social contributions). this is reported by 58% of all smes in the eu-28, but only 5% have experienced an improvement in labour costs. there are no reports of net improvements from smes in any eu member state. there is a clear link between changes in company size and changes in labour empirical research results e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 242 costs. the largest deterioration in labour costs was experienced by large companies (net 62%), the least by microcompanies (net 45%). however, there is not always a relation between the size of the enterprise and changes in other costs (consisting, inter alia, of material and energy costs). small and medium-sized companies have experienced the most deteriorations in other costs (net 57%), micro-companies (net 53%) and large companies (net 52%) experienced deteriorations in other costs less often (kwaak et al., 2019). such aspects are mentioned also in other publications. in this paper, the empirical research is based on the survey of companies in latvia on their limiting factors for company development. the main statistical indicators of the factors limiting the development of company in latvia are included in table 2 and table 3. thirteen key restrictive factors were used in the business questionnaire which was used in survey of entrepreneurs in latvia identified in the various studies of researchers in many countries and recommended by local experts. empirical research results table 2 main statistical indicators of limitating factors for company development in latvia (part 1) statistical indicators market for products/ service realisation competition access to finance increase of expenses on labour or production unavailability of qualified employees or experienced managers changes in laws and regulation n valid 2511 2511 2511 2511 2511 2511 missing 0 0 0 0 0 0 mean 2,84 2,99 2,93 3,45 3,34 3,49 std. error of mean 0,029 0,025 0,028 0,025 0,027 0,026 median 3 3 3 4 3 4,00 mode 1 3 3 3 5 5 std. deviation 1,437 1,266 1,384 1,254 1,377 1,315 variance 2,066 1,603 1,914 1,572 1,897 1,730 range 4 4 4 4 4 4 minimum 1 1 1 1 1 1 maximum 5 5 5 5 5 5 source: authors’ calculations based on the survey of companies in latvia, n=2511. evaluation scale 1-5, where 1-not limiting, 5-limiting. table 3 main statistical indicators of limitating factors for company development in latvia (part 2) statistical indicators tax burden unstable company cash-flow bureaucracy in public institutions changing rules of regulation shadow economy political situation lack of innovations n valid 2511 2511 2511 2511 2511 2511 2511 missing 0 0 0 0 0 0 0 mean 3,96 3,10 3,22 3,65 2,74 2,49 2,29 std. error of mean 0,023 0,026 0,027 0,027 0,028 0,027 0,024 median 4 3 3 4 3 2 2 mode 5 3 5 5 1 1 1 std. deviation 1,161 1,319 1,365 1,328 1,384 1,339 1,196 variance 1,349 1,739 1,864 1,764 1,916 1,792 1,429 243 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 source: authors’ calculations based on the survey of companies in latvia, n=2511. evaluation scale 1-5, 1 not limiting, 5 limiting. statistical indicators tax burden unstable company cash-flow bureaucracy in public institutions changing rules of regulation shadow economy political situation lack of innovations range 4 4 4 4 4 4 4 minimum 1 1 1 1 1 1 1 maximum 5 5 5 5 5 5 5 data indicate that the most limiting factors for company development are changes in laws, increase of expenses on labour or production, unavailability of qualified employees or experienced managers. to find common aspects of analysed 13 factors which were selected as limiting company development. as thirteen factors are a lot and it can make difficulties in decision-making it was decided to apply dimension reduction with keeping all information using one of the most commonly used methods of multivariate analysis factor analysis with varimax rotation which was concluded in six iterations. results of the factor analysis are included in table 4. source: authors’ calculations based on the survey of companies in latvia, n=2511. evaluation scale 1-5, where 1 not limiting, 5 limiting. initial limitating factors for micro-cpompany development component 1 2 3 4 market for products/service realisation 0,063 0,175 0,026 ,794 competition 0,040 0,090 0,190 ,795 access to finance 0,039 0,656 0,319 -0,254 increase of expenses on labour or production 0,316 0,133 0,725 0,222 unavailability of qualified employees or experienced managers 0,131 0,197 0,753 0,049 changes in laws and regulation 0,837 0,013 0,196 0,087 tax burden 0,700 0,053 0,374 0,102 unstable company cash-flow 0,027 0,580 0,304 0,118 byrocracy in public institutions 0,768 0,293 0,053 -0,018 changig rules of regulation during the process 0,861 0,140 0,099 0,006 shadow economy 0,251 0,548 0,127 0,188 political situation 0,506 0,558 -0,148 0,136 lack of innovations 0,100 0,660 -0,017 0,241 extraction method: principal component analysis. rotation method: varimax with kaiser normalization. a. rotation converged in 6 iterations. table 4 complex factors of limitating factors for micro-company development in latvia (rotatted component matrix) the authors have named four complex factors, and they are: 1 legislation determined conditions 2 financing conditions 3 labour market restrictions 4 production realisation conditions. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 244 more detailed are analysed labour market restricting factor consisting of initial factors: increase of expenses on labour or production and unavailability of qualified employees or experienced managers. main results are included in table 5. as the data in table 5 show, there are differences in the assessments of these factors in the regions of latvia. to assess the significance of the evaluations by entrepreneurs in different regions, the testing of significance of the average estimates in the regions using analysis of variance anova was applied. the anova results are shown in table 6. as data of the table 6 indicate there are differences in evaluations of those factable 5 main statistical indicators of labour market restricting factors for microcompany development in regions of latvia region where company is located increase of expenses on labour or production unavailability of qualified employees or experienced managers rīga mean 3,38 3,29 n 1238 1238 std. deviation 1,267 1,394 median 4 3 pierīga mean 3,51 3,42 n 330 330 std. deviation 1,248 1,368 median 4 4 vidzeme mean 3,42 3,32 n 318 318 std. deviation 1,243 1,352 median 3 3 kurzeme mean 3,45 3,44 n 275 275 std. deviation 1,259 1,353 median 4 4 zemgale mean 3,57 3,32 n 190 190 std. deviation 1,214 1,352 median 4 3 latgale mean 3,76 3,44 n 160 160 std. deviation 1,168 1,386 median 4 4 total mean 3,45 3,34 n 2511 2511 std. deviation 1,254 1,377 median 4 3 source: authors’ calculations based on the survey of companies in latvia, n=2511. evaluation scale 1-5, where 1 not limiting, 5 limiting. table 6 anova on evaluations of labour market restricting factors for microcpompany development in regions of latvia labour market restricting factors sum of squares sum of squares (values) df mean square f sig. increase of expenses on labour or production between groups 26,522 5 5,304 3,391 0,005 within groups 3918,023 2505 1,564 total 3944,546 2510 unavailability of qualified employees or experienced managers between groups 9,519 5 1,904 1,004 0,414 within groups 4751,392 2505 1,897 total 4760,910 2510 source: authors’ calculations based on the survey of companies in latvia, n=2511. evaluation scale 1-5, where 1 not limiting, 5 limiting. 245 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 table 7 main statistical indicators of labour market restricting factors for company development by number of employees in latvia tors in the regions of latvia. to assess the significance of the evaluations by entrepreneurs in different regions, the testing of significance of average evaluations of companies by number of employees using analysis of variance anova was applied. results of anova are included in table 7. as data of the table 7 indicate there are differences in evaluations of those factors in companies depending from their size in of latvia. to assess the significance of the evaluations by entrepreneurs in different regions, the testing of significance of average evaluations in companies by their size using analysis of variance anova was applied. results of anova are included in table 8. number of employees in the company increase of expenses on labour or production unavailability of qualified employees or experienced managers 1–4 employees mean 3,31 3,11 n 1413 1413 std. deviation 1,318 1,430 median 3 3 5–9 employees mean 3,56 3,61 n 466 466 std. deviation 1,210 1,313 median 4 4 10–49 employees mean 3,69 3,66 n 477 477 std. deviation 1,094 1,205 median 4 4 50–249 employees mean 3,67 3,71 n 136 136 std. deviation 1,068 1,155 median 4,00 4,00 250–499 employees mean 3,33 3,33 n 15 15 std. deviation 1,047 1,291 median 3,00 3,00 500 employees and more mean 3,25 2,75 n 4 4 std. deviation 0,957 1,258 median 3,5 3 total mean 3,45 3,34 n 2511 2511 std. deviation 1,254 1,377 median 4 3 source: authors’ calculations based on the survey of companies in latvia, n=2511. evaluation scale 1-5, where 1 not limiting, 5 limiting. table 8 anova on evaluations of labour market restricting factors for company development by number of employees in latvia labour market restricting factors sum of squares sum of squares (values) df mean square f sig. increase of expenses on labour or production between groups 70,810 5 14,162 9,158 0,000 within groups 3873,736 2505 1,546 total 3944,546 2510 unavailability of qualified employees or experienced managers between groups 174,074 5 34,815 19,013 0,000 within groups 4586,836 2505 1,831 total 4760,910 2510 source: authors’ calculations based on the survey of companies in latvia, n=2511. evaluation scale 1-5, where 1 not limiting, 5 limiting. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 246 conclusions as result of factor analysis the authors have named four complex factors, and they are: 1 legislation determined conditions; 2 financing conditions; 3 labour market restrictions; 4 production realisation conditions. the overall conclusion is that, despite the fact that in the review of latvia (european commission, 2019) admits that „skills & innovation has been the latvian government’s priority for the past few years, giving smes opportunities to fund creation of new products and services, up-skill and reskill the labour force and transfer knowledge and technologies from scientific institutions to smes”, 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(2014). how does cooperation affect innovation in micro-enterprises?. management decision, 52(8), 1390-1409. https:// doi.org/10.1108/md-07-2013-0388 about the authors beizītere ilona mg.oec., riseba, university of applied sciences fields of interests micro-company development, qualified labour, public support for companies. address meža iela 3, riga, latvia, lv 1048, phone + 37126566887 e-mail: ilona.beizitere@gmail.com sloka biruta dr.oec., professor, senior researcher university of latvia fields of interests mmarketing, qualified labour, application of quantitative analysis. address aspazijas bulv. 5, riga, latvia, lv 1050, phone + 37129244966 e-mail: biruta.sloka@lu.lv brence ieva dr.sc.admin., senior researcher latvia university of life sciences and technologies fields of interests micro-company financing, qualified labour, experienced managers. address liela iela 2, jelgava, lv-3001, latvia. phone +37126363506. e-mail: ieva.brence3@gmail.com research was supported by the national research program “interframe-lv” and the national research programme project “towards the post-pandemic recovery: economic, political and legal framework for preservation of latvia's growth potential and increasing competitiveness” (“recovery-lv”). zekos, g.i. (2003). mnes, globalisation and digital economy: legal and economic aspects. managerial law, 45(1/2), 1-296. https://doi. org/10.1108/03090550310770875 this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 104 european integration studies no. 14 / 2020, pp. 104-116 doi.org/10.5755/j01.eis.1.14.26367 abstract estimating production function before covid-19 pandemic in europe http://dx.doi.org/10.5755/j01.eis.1.14.26367 the purpose of the study is to discuss consequences of pandemic events for estimating the economic growth mechanism in the european union. the most recent covid-19 growing death toll has drawn the attention of the impacts of such unexpected, but not unprecedented situations have on society and economy. in the current study the focus is on estimating the economic effects of a disease, which reduces the working population. it turns out that the prominent basic production function framework may fail to deliver consistent results, when analyzing transformation of labor and capital into output in all 27-eu member countries. this is because of the asymmetric impact of covid-19 on each individual eu-country. a historical perspective on epidemic death toll shows that europe experienced numerous periods of similar demographical developments. those were individual countries, regions, or most recently the whole continent (and the world) that suffered from outbreaks of a deadly disease. the paper offers a meta-analysis, and draws from numerous sources to provide as wide as possible coverage on population-decreasing events. due to similarity in their economic consequences, information about death toll of wars and genocide cases supplements the narration. conclusions draw the attention to the fact that in the post-covid-19 era any growth related studies will suffer from the lack of time series that describe the new underlying transformation mechanism that is responsible for generating the gdp at country and eu-level. the contribution of the paper is in offering a point of reference for any future studies that will try to assess pandemic effects in regard to economic growth, economies of scale or any other production function framework element. jel code: e230, e270, f220, o47. keywords: production function, pandemic, economic growth, new member states, growth mode, covid-19. introduction paweł młodkowski1 school of international liberal arts, miyazaki international college this paper focuses on the consequences of pandemic events (and other population decreasing events) for european production function. this particular analitical framework (i.e. the production function) has been used for studying economic growth for many years. the tradition to capture the transformation mechanism for output was started by cobb and douglas (douglas 1976). simplification of the number of, the nature, and relationship between factors of production makes empirical studies convenient, but at the same time biased. therefore, when one employs the production function, one should remember that it should be used with caution. the literature offers extensions of the production function resulting in modeling the economic growth based on more than just two factors of production. restricting the transformation mechanism to only capital and labor has been a far-reaching simplification for the sake of empirical ease of studies based on it. a prominent extension of the original production function was offered by mankiw, romer, and weil (1992). by introducing just one more argument (i.e. human capital) to the prosubmitted 05/2020 accepted for publication 07/2020 estimating production function before covid-19 pandemic in europe eis 14/2020 1 the author would like to thank two anonymous reviewers for helpful comments on the previous version of this paper, and express appreciation for dr. baktygali salimgereyev for excellent research assistance. http://doi.org/10.5755/j01.eis.0.13.23562 105 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 duction function, they achieved astonishing results. their model was able to explain about 80% of the international variation of income per capita. however, these are still the original factors of production that drive the output dynamics. as was shown by młodkowski (2020), there has been an anomaly in a group of the eu countries due to sudden qualitative and negative quantitative changes to population (l). studies of economic growth attract much attention worldwide. focusing on capturing and explaining gdp dynmics in the european union belongs to the most demanding of them all. not only diversity in unity, but also unobserved integration processes create phenomena that call for further investigation. there have been a series of focused studies, explaining preand post 1999 egroth patterns (młodkowski 2018), problematic projections of economic growth (młodkowski 2019), and anomalies that undermine prominent econometric methods, as valid tools of output studies (młodkowski 2020). the european union is an important player in the global economy. there are many good political reasons to properly capture the transformation mechanism responsible for creation of gdp at member-country level, as well as in an aggregate approach. as explained already in młodkowski (2020) eu-growth studies have been a challenge. the reason is in dynamic changes to the underlying social, legal and institutional framework. as a consequence of economic integration of 27 member states, the nature of socio-economic relationships keeps changing. in particular, what seems crucial for the following narration, and the empirical study is a significant alteration of the composition of the working population in almost all eu-member countries. this disturbance to empirical investigations has been present since the expansion of the eu that started in 2004. these dynamic alterations redesigned the growth mechanism at a country level. what one can observe in the post-2004 period should be attributed to the eu-integration (młodkowski 2018). as will be revealed in the historical perspective below, similar reasons may disrupt any growth studies covering other periods in european history. covid-19 pandemic contributes to problems with estimating the transformation mechanism not only due to the asymmetric impact on each individual eu member state, but also because of asymmetric effects on different social, gender, and age groups. as it has been made public, covid-19 is much more dangerous for elderly, for men, and for people with co-existing health problems. this, in turn will result in a post-pandemic labor force that does not match the characteristics of the working population before 2020. as such, covid-19, if effectively contained, will create a new economic situation due to a new labor force with different characteristics than before. this means that any former studies (młodkowski 2018) and models (młodkowski 2019, 2020) that utilized production function to forecast economic growth in europe will become obsolete, and outdated. the purpose of this paper is to draw attention to the fact that the transformation mechanism will be different from before, and characteristics of labor force "employed" in the production function will be different. there should be, therefore, a call for new empirical investigations into the nature of economic growth that reflect the new conditions in which the gdp is generated. the current study presents a historical review of events resulting in declining european populations in the past. the purpose is to convince the reader that population instability in europe is its imminent characteristic. for the purpose of any growth-related studies, the instability presented with references to diseases, wars, and genocide should be understood and interpretted as the instability of qualitative and quantitative features. this instability becomes obvious, when compared with much more hermetic countries, like china, or japan (masui and młodkowski 2019). the time series analysis delivers an image of a very stable population growth in europe, with not much variation over the last millenium. the paper is organized as follows. the initial section offers a brief review of population decrease u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 106 ing events in europe, since the late middle ages. the narration attempts to match population features with their impact on growth estimations. it focuses on changes in population growth rate, and its composition. this paper contributes to a discussion on the european union economy experiencing unexpected, but not unprecedented changes in the working population. extensive data mining resulted in a compilation of a consistent set of time series that capture the eu‘s population (figure 1), and fixed capital formation in the eu (figure 2), as two arguments in the classical production function. various sources have been used, including the international financial statistics, by the imf (for private investment spending), and world development indicators, by the world bank (for population and the real gdp). the production function was estimated on records covering the period from 2004 to 2016, as the most closely matching mechanics that may be expected over a mid-term projection horizon. however, with the currently happening negative and asymmetric changes to the eu-27 population, country-level parameters are reported to serve as a reference point for any post-covid-19 growth studies based on the same framework. the contribution of this paper is the estimation of production function parameters at the country level for all 27 eu member states. this should assist any further studies focusing on differences in the transformation mechanism before, and after covid-19. estimated production functions for the european countries show, which of them have been characterized with the highest, and positive, economies of scale. such information seems to be highly useful in assessing economic consequences of covid-19. the post-pandemic period will bring many challenges. the european union will face decisions on managing changes in working population, resulting not only from refugees and aging of the eu’s society, but the past and any future similar viral diseases. empirical results presented in this paper may allow for much better-informed political decisions for the sake of the whole eu-27. pandemic, diseases, plagues, and other population decreasing events in europe historical fluctuations of european population cast against output tell a straight story (figure 1). there is a positive relationship between the number of the inhabitants, and the output of the territory they inhabit. y = 3,7951x 0,0043 r² = 0,3038 -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 0,0% 0,1% 0,2% 0,3% 0,4% 0,5% 0,6% 0,7% 0,8% 0,9% 1,0% 1,1% 1,2% g d p, p p p (c on st . 2 00 5 in te rn at io na l $ ) population (rate of change) y = 0,1986x + 0,0126 r² = 0,5431 -20% -15% -10% -5% 0% 5% 10% 15% -60% -40% -20% 0% 20% 40% 60% g d p, p p p (c on st an t 20 05 in te rn at io na l $ ) ( ra te o f c ha ng e) gross capital formation (rate of change) figure 1 growth rate for gdp and population in europe, 1800-2017 with a linear trend source: młodkowski (2020). 107 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 the picture of the relationship between the population and the economic growth becomes clear, when rates of growth are cast against each other (figure 1). the consequences of any declines in the working population for the production function become straightforward. in 2020, the european population has reached almost 600 million. in the past, many countries experienced sudden and deep declines in their populationss. the reasons were in bloody wars, and pamdemics. brecke (2009, 2012) offered us estimates that are still incomplete. the presented losses understate lives lost. population declining events, their geographical coverage, and associated fatalities are presented in table 1, table 2, and table 3. when it comes to endowment of capital, the picture is also clear (figure 2). investment is strongly positively related with output. y = 3,7951x 0,0043 r² = 0,3038 -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 0,0% 0,1% 0,2% 0,3% 0,4% 0,5% 0,6% 0,7% 0,8% 0,9% 1,0% 1,1% 1,2% g d p, p p p (c on st . 2 00 5 in te rn at io na l $ ) population (rate of change) y = 0,1986x + 0,0126 r² = 0,5431 -20% -15% -10% -5% 0% 5% 10% 15% -60% -40% -20% 0% 20% 40% 60% g d p, p p p (c on st an t 20 05 in te rn at io na l $ ) ( ra te o f c ha ng e) gross capital formation (rate of change) source: młodkowski (2020). the conflict database by brecke (2012) is most informative in this regard. it happens that there have been more than 1.1 thousand conflicts in europe since year 1400 that involved fatalities. century number of conflicts lives lost (underestimated) 15th century 304 436 700 16th century 248 1 736 420 17th century 238 12 126 620 18th century 95 7 160 420 19th century 152 9 262 554 20th century 130 76 011 621 total 1167 106 734 335 source: młodkowski (2020). table 1 summary review of conflicts in europe, since the middle ages estimated body count of all war-like conflicts amounted to 106,734,335. due to the nature of such events, one can‘t really offer precise or credible estimates. the european population suffered in reality much more serious losses than reported here. it was wicksell, who proposed capturing output dynamics by studying the transformation of labor and capital. empirical applications in the 20th century and popularizing the production function frameworks are credited to douglas and cobb (douglas 1976). interested readers may find interesting insights into characteristics of the framework in daly and douglas (1943), e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 108 browne (1943), williams and douglas (1945), lomax (1950), and leser (1955). even though there has been a stable decline in the contribution of labor to output (douglas 1976, p. 912), endowment of labor remains still a crucial argument. evolution of structural parameters in estimated production functions reflects changing technology and ability of each argument to contribute to output. due to globalization, and omnipresent utilization of modern technologies, national economic systems became much more unstable than before. there have been significant changes to the manner, in which production has been organized. modern technology allowed for distant work from home in many sectors and professions, as a protective response to covid-19. one of the possible future research directions may be estimation of distant-work mode on productivity of labor. in this regard one may expect significant differences among industries and sectors. distant-work mode is possible mainly in services, and only those, which can be provided without any physical presence at the workplace. for all other sectors and business activities, covid-19 seems to be detrimental and assessment of the negative effects in each sector will be another venue for future research. due to covid-19, one can expect substantial changes in the qualitative characteristics of the labor force employed in each national economy. according to recent studies in the field (młodkowski (2018, 2019, 2020) the new member states have supplied workforce to the old eu since 2004. as a consequence, the population living in the new member states has declined, and became older, as the out-going migrants were the young generation. covid-19 affected strongly the older generation, which may be reflected in the official statistics by reduction in the average age of citizens in some countries. another type of effect are labor force deficits in many categories. these range from medical doctors to industrial production line workers. under such realignment, resulting in qualitative and quantitative alterations of the labor force, applying the production function in output studies (and projections) may become problematic. estimating structural parameters on historical records, including the period before the eu was formed, will create a point of reference for future post-covid-19 studies. procedures that have assessed α and β have delivered a highly unique approximation of a manner, in which the factors of production have been transformed into output. however, these had been different before the eu was formed (młodkowski 2018), and have been different after new member states have joined the common market (młodkowski 2020). these will be also different in the post-covid-19 era, when the first official statistics become available for estimations. at the time of this study completion, in the mid-2020 any released estimations of pandemic effects on the gdp should be considered as pure speculation and given no credibility. this is still too early for any rigorous analysis. one must remember that projections based on parameters estimated on records reflecting already nonexistant economic relationships are not valid anymore. according to młodkowski (2020) the production function framework requires very special characteristics of the labor proxy. this is about the stability of the argument, when it comes to its qualitative and quantiative changes over time. covid-19, as changing both the quality and quantity of the l variable makes the continuity of the time series questionable. in europe it is obvious that the structural parameter at l (i.e. β) should not be expected to be stable. diseases (table 2), famines, wars (table 1), and genocides (table 3) led to a new manner in which l and c were transformed into the real gdp. growth literature explains output dynamics as driven by demographics. in europe, population has been steadily growing. the average growth rate in europe has been at 0.65% since year 1400. the standard deviation of population growth for the same period was at 0.69%. volatility of this process has been indeed low. the story is quite different, when one studies the behavior of private in109 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 period disease name region affected body count 1603 plague england 30 000 1625 plague england 35 000 1629–1631 plague italy 280 000 1636 plague england 10 000 1647–1652 plague spain 150 000 1656 plague italy 1 250 000 1663–1664 plague netherlands 24 148 1665–1666 plague england 100 000 1668 plague france 40 000 1679 plague austria 76 000 1720–1722 plague france 90 000 1738 plague balkans 50 000 1770–1772 plague russia 50 000 1813 plague romania 70 000 1816–1819 typhus ireland 65 000 1829–1851 cholera europe 73 279 1852–1860 cholera russia 1 000 000 1857 yellow fever portugal 40 000 1866–1867 cholera russia, germany 225 000 source: młodkowski (2020), based on ackerknecht (1965), gregg (1985), patterson (1993), paneth et al. (1998), porter (2001), hays (2005), fusco (2007), lemay (2016), ross (2018), and ucla school of public health (2018). table 2 diseases in europe with more than 10 000 lives lost, since 1600 vestment. this variable (k) has been highly volatile. the average rate of growth was at 0.68%, with the standard deviation as high as 10.08%. compared with the volatility of population, one can see a tremendous difference. consequences of stable behavior of proxy for l in the production function are straight. when population grows without sudden reversals, the labor force remains the same fraction of the population. this makes β to perform well for transforming l into output. positive, and gradual changes in population will deliver consistent and robust results. stability of qualitative characteristics of l allows the estimated β to be interpreted as reflecting the quality of labor. the setup, in which the total population serves as a proxy for the labor in production function assumes that every new member of a society contributes in the same manner to creation of output. as explained by młodkowski (2020), this is the case only, when a population grows steadily. specific knowledge is then accumulated and passed from one generation to another. in the case of productive skills, they are perfected. this can be seen in the real life cases in hermetic countries that did not expereince events reducing their population, or modifying composition of the underlying society. a good european example would be switzerland, which remained neutral, avoiding any losses caused by wars. offering an analysis motivated by covid-19 one should recoge u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 110 genocide name region affected body count holodomor (ukrainian genocide which is part of greater soviet famine of 1932-33) ukrainian soviet socialist republic 7 500 000 porajmos (romani genocide) nazi controlled europe 500 000 polish operation of the nkvd (polish genocide) soviet union 111 091 latvian operation of the nkvd (latvian genocide) soviet union 16 573 the holocaust / nazi genocides and war crimes nazi-germany controlled europe 17 000 000* genocide by the ustaše (serbian genocide) independent state of croatia 600 000 bosnian genocide bosnia and herzegovina 301 107 table 3 genocide in europe in 20th century source: młodkowski (2020), based on rosefielde (1983), niewyk (2000), goldman (2011), calic (2012), holocaust encyclopedia. * most of non-jewish holocaust victims were polish catholics. nize the nature of effects generated by this kind of population-reducing factor. a disease (or a plague) affects negatively all fractions of an underlying society at more-or-less the same magnitude. as a consequence, part of the knowledge and skills accumulated previously is lost (permanently or temporarily), and a growth model based on the estimated production function fails to deliver credible projections. in case of covid-19, there seem to be asymmetric effects. it has been recognized by the who that covid-19 is much deadlier for one gender. in addition, it has extremely strong negative effects on elderly. young people of both genders are among the victims of covid-19, but the majority of fatalities worldwide are elderly, with men affected relatively more than women. genocide presented in table 3 serves as supplementary information on still another reason for population instability in europe. its nature is different from wars and diseases. its impact on the composition of the labor force is also different, and is worth mentioning here, as it is relevant for the argument of the production function in question (l). genocide is a focused extermination of a specific ethnic group in a society. this makes it asymmetric and this way even more negative. due to genocide some unique skills and knowledge might have been lost forever with the departure of the only bearers of them. production function parameters estimated on records that include periods of any population declines, symmetric or asymmetric ones, will be biased. the problem is not with the fitness of an econometric model, which could even be reasonably high. the problem is in the usefulness of the β parameter for any conclusions or policy discussions, not to mention projections. the lack of actual continuity in the underlying economic mechanism is what one should acknowledge. changing the composition of the population means different charateristics of the labor force. this is about knowledge and skills, which become idiosyncratic for the period. this is a quirk of history. the consistency of time series is no more. estimated parameters of a production function are no longer compatible with the underlying society and the economic system. 111 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 country-level european production function in pre-covid-19 period originally, production function simplyfies the transformation mechanism to only labor (l) and capital (k). the following empirical investigation utilizes this design to deliver estimates of structural parameters for all 27 eu member states in the period preceding outbreak of covid-19. f(k,l) = akα lβ; k,l ≥ 0 (1) as long as the changes in the population (l) are slow and gradual it reflects rather well any changes in the underlying output driver. however, when population suddenly declines (actually it is the population growth rate that declines), the framework becomes less useful. the contribution of labor to output should always be positive (for an alternative interpretation see młodkowski 2020). the current study reveals that this was a common feature for most of the eu-states in the pre-covid-19 period. the eu population was dynamically changing its composition at the country-level from 2004 to 2016. after 16 years of economic integration, there was a new composition of the labor force in each eu country. integration-fueled changes were deep and happened in a relatively short period of time. the same can be said of effects generated by the spread of covid-19 in the most affected eu countries. as of mid-2020, these were: italy and spain. covid-19 fatalities added to the volatility of the labor force in the eu, which was due to intra-eu migration, and refugees from the middle east. eu member states suffer from analogous problems experienced in the past. any prospective analysis, like a projection of economic growth, in the european union becomes a real challenge. the current covid-19-related developments in the underlying labor force seem to create serious issues. one could find some hints for interpretation in a recent work by jorgenson et al. (2017). the authors find a significant link between education (associated with quality of labor) and economic growth in the u.s. currently, the european union witnesses a sudden, unexpected but precedented changes in its population. the crucial argument drawn from the modern literature on growth is about the quality of labor. empirical analysis (jorgenson et al. 2017, for the u.s.) indicated a strong link between education, labor productivity, and output. skyrocketing number of covid-19 generated deaths in the u.s. seems to be another possible hot topic for future growth studies of the american economy. european union has been described as the old continent, which reflects the fact of aging of all european societies. covid-19 seems to affect mostly the older generations, changing the composition and age structure in some countries in a significant manner. this results in a very different (age) structure of the european labor force in the post-covid-19 era. while the whole european union faces a problem of persistent lack of jobs for young, well-educated, eu-citizens (in spain youth unemployment was at 56.1% in 2013, 57.9% in 2014, 36% in 2018, and 30.6% in january 2020), the current covid-19 age-structure impact may change the situation in this regard. there were some positive forecasts by oecd regarding the spanish unemployment rate in 2018 and 2019 (oecd 2017), which turned correct, but they did not consider any pandemic effects on positions open due to the demise of older workers. the european union in 2020 is far from being homogenous. eu countries fall into more than one category for historical factors of growth and growth patterns over the periods preceding covid-19. for the purpose of capturing the transformation of labor and capital into output, a simple economic model was used, based on a production function with a constant (equation 1). estimation of structural parameters was done on observations for eu27. the procedure was restricted to the most recent consistent records, from 2004 to 2016. this design was motivated by the fact that earlier economic performance in the new member states was based on a different estimation of production function for eu states in the pre-covid-19 era http://www.nber.org/people/dale_jorgenson http://www.nber.org/people/dale_jorgenson e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 112 legal and institutional framework. there was a very different manner of transformation of factors of production into output. only after full eu accession (from 2004, or for some states even later) the national economies started to operate in a similar manner, which may be a good reference point for any studies in the future. for a prospective analysis (projection of economic growth in the eu up to year 2030) based on parameters estimated here, interested readers should refer to młodkowski (2019). the author assumed that the population in the eu will follow the path defined by eurostat‘s demographic projections. however, at that time, there was no covid-19 in play. the gdp growth rate may be suppressed to some unspecified degree through pandemic effects. these may be in regard to age structure and quality of labor force. less skilled, young employees are about to replace the older generations, which suffer from covid-19 relatively more. capital fuels economic growth in the european union. it comes from domestic savings, but recently there has been another source of this vital growth driver. this is the global expansion of china (table 4) that is responsible for supporting eu growth with chinese savings. 2008 2009 2010 2011 2012 2013 2014 2015 2016 29.51 4.84 5.59 16.5 17.11 13.37 29 33.84 55.83 table 4 nominal value of chinese foreign direct and portfolio investment in the eu, 2008-2016 (bln usd) source: author, based on china global investment tracker by american enterprise institute. when it comes to interpretation of the results, there is only one country that seems to exhibit negative returns to scale: portugal, but its parameter for l is not statistically significant. all other eu states seem to experience positive returns to scale, with the netherlands and austria at the top of the list. there is an annomaly in the case of the structural parameter estimated for population (l). all small eu countries that joined after 2004 have an excessively high assessment of this element, and at the same time, it is statistically significant. the interpretation of such an anomaly requires an unorthodox and holistic approach to production function, as can be found in młodkowski (2020). the case of the biggest eu economy is also puzzling. germany‘s estimated parameter for population is negative (not statistically significant though). the historical review of causes of instability of european population served its purpose. readers should be aware of the fact that european countries have witnessed similar demographic developments either due to pandemics, wars, and genocide. covid-19 that hit the european union from early 2020 is really nothing new in terms of its nature, and socio-economic effects. european countries still experience economic growth that can be explained by modeling transformation of capital and labor. much of the growth in the new member states comes still from the working of eu accession-related factors. will the growth in the eu continue in these new conditions? eu member states that have lost workforce due to migration, may face serious problems to sustain growth with covid-19 reducing both, the domestic demand, and the domestic labor force. factors associated with catching-up via modernization will decline in their significance. foreign capital flowing into the eu may be a supportive factor in this unfortunate situation, but will it keep flowing from china that also suffers from covid-19? there are many vital questions to-be-answered about the future of the old continent, and its ability to keep up with the rest of the world, when additional negative factors, like covid-19 create a new situation. 113 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 table 5 positive structural parameters of production function in the eu, 2004-2016 country l se of l k se of k belgium 0.92 0.1 0.26 0.04 denmark 1.33 0.1 0.23 0.02 france 1.19 0.06 0.24 0.02 germany -1.55 0.98 0.52 0.16 greece 1.67 0.77 0.26 0.02 ireland 1.69 0.26 0.36 0.05 italy 0.56 0.26 0.26 0.03 luxemb. 0.86 0.21 0.19 0.11 netherlands 2.06 0.21 0.34 0.05 portugal 0.32 0.78 0.1 0.03 spain 1.32 0.15 0.26 0.03 austria 1.69 0.32 0.37 0.13 finland 1.3 0.34 0.41 0.08 sweden 1.07 0.08 0.33 0.02 cyprus 0.87 0.06 0.23 0.02 czech rep. 3.88 0.34 0.48 0.05 malta 3.51 0.28 0.01 0.06 slovakia 27.09 5 0.4 0.17 slovenia 6.82 0.67 0.37 0.04 estonia -4.55 0.56 0.3 0.03 hungary -5.28 0.91 0.28 0.07 latvia -1.65 0.29 0.34 0.06 lithuania -1.42 0.19 0.24 0.05 poland -42.42 12.54 0.34 0.12 bulgaria -3.52 0.17 0.2 0.02 romania -2.19 0.31 0.28 0.06 croatia -1.57 1.09 0.25 0.06 source: : author e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 114 the production function framework is suitable only for cases with stable characteristics of working population over time. the currently developing covid-19 pandemic creates a big challenge for any growth related studies that employ population or any other proxy of the work force. production function framework is able to accommodate trends in growth factors (here: k and l), and deliver consistent results only, when the trends are positive, while the growth mode (extensive versus intensive) does not matter. however, in all other cases of the intensive growth mode, any negative trends in production function parameters make this framework invalid for output studies. this feature of production function framework has been discovered, while estimating structural parameters on the eu data over the period 2004-2016. it was labeled (młodkowski 2020): eu-production-function-anomaly. it may be concluded that attempts to project the economic growth trajectory with production function estimated at the country-level may fail. the reason is in the altered mechanism of transformation of labor (l) into output. when production functions are estimated on historical data, then the associated structural parameters reflect characteristics of the underlying working population. any sudden negative or positive developments in the number of citizens, or in the structure of the population, along with its productivity, make the production function transfromation outdated. prospective analysis does not seem to be viable. there might be a potential solution for the anomaly observed in most of the new member states. the negative assessment of l parameter might be avoided by introducing additional variables to the transformation equation. these should probably capture any ‘intensive’ factors characterizing the production process. however, there is no solution in the case of covid-19 negative effects on working populations. other findings and observations that open new areas for economic growth studies, are as follows. the eu countries were not homogenous in terms of the growth mode. the asymmetric impact of covid-19 adds to this diversity. most of the new member states experienced intensive growth after accession. the ‘old’ eu-12’s growth was extensive. it was fueled by intra eu migration, and by further capital accumulation, supported by growing inflows of chinese savings. however, these were mostly eu-12 countries that suffered from covid-19. therefore, the expected relative strength of pandemic effects on economic growth should be expected to a far less extent by the new member states. this may add to their growth rate in the post-covid-19 era, also due to stronger internal demand. the final conclusion is that economic growth studies in the eu face the issue of inconsistent and idiosyncratic transformation mechanisms over time. projecting the trajectory for the gdp at a 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(1945). production function, economic record, june 1945. this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 186 european integration studies no. 14 / 2020, pp. 186-191 doi.org/10.5755/j01.eis.1.14.27558 abstract requirements for cfo within the business model http://dx.doi.org/10.5755/j01.eis.1.14.27558 the concept “business modeling” has become commonplace in everyday business due to the rapidly changing market situation, fierce competition and digital transformation trend that affects every business. other player can appear unexpectedly and bring a new business model to the market, typically fueled by innovative technologies and ideas, and render everyone else obsolete. to remain successful shifting of business environment is required as well as an updated management capability not only to modernize processes, but also to select, empower and appreciate workforce. one of the key roles in any business organization plays the chief financial officer (cfo) that contributes and determines the wellbeing of the business. the role has become more important because of the new technological influence and therefore is more needed by business organizations. this paper aims to formulate requirements for cfo for companies that are going to establish a new business model or to reinvent the existing one. the result of this paper forms the basis for conclusions about the role of the cfo while modelling business, contribution to the modelling success and about requirements that the cfo has to meet. keywords: business model, cfo, new role, digital age, transformation. introduction rosita zvirgzdiņa business university turiba technology has caused seismic changes in business models (bm) (muller, 2017). to remain successful shifting of business environment is required and an updated management capability in order to modernize processes, select, empower and appreciate workforce. the digitalization trend involves also risks and one of them is the team, that works on the current model and creates changes within the enterprise. there is a shortage of people who have both technical expertise and additional skills that will enable them to work well inside an organization (forbes, 2017). on the one hand, business model is an excellent tool which entrepreneurs can use in order to adapt their activities to new market challenges. on the other hand, business modelling as a process contributes to the education of a digitally advanced and successful team workers. by modelling new business, the goal can be achieved by using business modelling by processes allowing for costing deliverables, controlling operations and designing information systems aligned with business procedures and organization (briffaut et al 2002). the finance function plays an increasing role in key decisions related to the business model and configuration of the business portfolio. risk assessment, compliance, audit, and corporate governance have become extremely important. these new demands have significantly impacted the profile of the cfo. subsequently, soft skills have become just as important as hard skills. and soft skills cannot be outsourced. this means a complete transition which also affects business modelling. the aim of this research is to define the role of the cfo for companies that are going to establish a submitted 05/2020 accepted for publication 07/2020 requirements for cfo within the business model eis 14/2020 helena skadiņa business university turiba alīda vāne business university turiba http://doi.org/10.5755/j01.eis.0.13.23562 187 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 new business model or to reinvent/widen the existing one as well as to determine requirements for competences that need to be present to be competitive in the information and knowledge economy. various methods were used in the research: the theoretical part consists of the scientific literature analysis. the research data were processed by continuous comparative analysis, using open coding, level 2 coding, axial coding and content analysis method with inductive and deductive approach (martinsone et al., 2016). semi-structured interviews with 3 business experts (rainer schubert (rs)) and dr. alfred orlowski (oc)), representing entrepreneurship in germany (tax adviser company “admedio gmbh, represented by ao, the cit gmbh, represented by rs) and in malta (papaya ltd, represented by o. cernisevs, (oc)), were conducted during the course of the research. the choice of the experts was based on the diversity of their expertise in several business areas: reinvented its business and adopted to new market demands (ao); helps young entrepreneurs to establish new business (rs); created a new business in fintech industry in malta (oc). the companies represented by experts are completely different and unrelated to each other. in interviews, experts were asked to assess the significance of the new role of the cfo by using the likert scale with points 1-5, where is 1(irrelevant); 2(unimportant); 3(moderate); 4(important); 5(very important). the data are presented in the form of figures. theoretical aspects to achieve the goal of this research the authors studied theoretical aspects of business models and the role of the cfo in particular. following important findings could be noticed: the concept of "business model" in literature is becoming an increasingly widespread topic. business modelling perspective has been changed over time in to the technology dependence or digital transformation’s direction (mueller, 2017: 276) and made customer a well-informed market player. digital transformation affects everything, making it faster, wider and more systematic (matzler, 2016: 966). according to bdi only 55% of european business executives have been contemplating the impact of technology on their companies; only 30% believe to be ready for the technological transformation (bdi, 2015). the technological development forces each company to rethink its further actions, identify areas and processes that require customization and improvement; this rethinking process needs to take place, if the company aims to ensure its sustainability in the long term and strives to improve its competitiveness. a business model is at the core of any successful entrepreneurship, because no matter how good or unique an idea may seem, it must have “a viable way of making money that is worthy enough for future investment and to sustain itself” (tomaro, 2017). the content of the business model and its robustness are the success and failure of business in the company. and people are those, who contribute to notable changes by offering different and diversified approaches based on client needs and interests and by improving processes and assigning them a different kind of speed and quality. the human factor is a driving force for business model and has a great impact on its competitive position. especially for a new business venture, the entrepreneur establishes the vision and rules, charts the course of direction, but it is still the employee who must translate and make the founder’s vision and policies a reality for sustainable growth and success.(jensen et al, 2006)) it involves ongoing learning and instilling the whole business model across the company including the executive team and board, and then living the new business model every single day. there is really only one function that has financial and operational visibility into all other functions – the office of the cfo (ifac, 2013) today, the cfo is the ceo’s right-hand person. the classical role of “record-keeper” of the cfo has been also transformed. the role “has been leveraged by the new technological breakthroughs of the information age” (daraban, 2018) and allows to use much more data, information and knowledge for the decision process. the range of responsibilities of the cfo has expanded, driven by complexity as a result of globalized capital and markets, regulatory and business drivers, growth e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 188 in information and communications, and changing expectations of the role of the cfo (ifac, 2013). “cfos must own the business model” (sloat, 2019). according to ifac a professional chief financial officer (cfo) should be an effective organizational leader; be able to balance the responsibilities of stewardship with business partnership and to act as the integrator and navigator for the organization; should effective lead the finance and accounting function and bring professional qualities to the role and the organization. (ifac, 2013). the training, expertise, and experience professional accountants bring to the cfo role should be seen as an advantage specifically in terms of uniting an ethical and technical mindset together with business acumen (daraban, 2018). companies shape the cfo role to meet current needs and expectations, particularly in terms of the expectations and in relation to the existing composition and skills of senior management. the type of organization, whether it is in the public or private sector, and its history and culture also influence the type of cfo required. company´s size is also a crucial determining factor in the type of cfo employed. small businesses generally need to consider the appropriate time to hire a cfo. research results to determine the set of capabilities and competences that are needed by modelling new business or reinventing/widening the existing one the authors of this paper used interviews and asked experts to analyze and evaluate approach, skills and abilities of the cfo as well as to assess the characteristics of their existing cfo´s in the company. according to experts, the cfo should “take notice” (interview with rs, 12.12.2019., further rs). not only because of “potentially new source of income, but also because of far-reaching consequences” (rs). this includes “revenue recognition, shortening the time frame for adapting and responding to customer requirements” (rs) and means that the cfo also should participate in the processes and their optimization, in the forecasts and scenario development of the company for its sustainability in the future and effects on the current situation. the impact on financial and non-financial kpis as well as the expanded digital ecosystem require “a different kind of planning with dynamic real-time data and functions for predictive analysis” (interview with ao, 12.12.2019., further ao). “part of this intelligence will come from humans and part from systems” (rs). since the cfo operates a lot of information, he/ she should be “the scientist who generates data, manages the it architecture” (oc). this means that it skills are also very desirable in order participate in the company´s technological progress. analysing the answers obtained during the interviews, the authors have created thematic categories that allowed to define the scope of cfo´s characteristics (see table 1). table 1 characteristics of cfo generates data, plans with dynamic real-time data is able to focus employees on their goals, focuses on finding talent manages it architecture, recognizes and takes advantage of the opportunities for innovation cfo organizes and coordinates rules and regulations, builds lasting legacies measures, and creates performance and value, develops evaluation criteria brings people and technology together the authors have compiled a summary of the requirements that the modern cfo has to have from expert point of view and those which the cfo actually have in the existing business models. the basis for this summary was the importance assessment of characteristics presented by the interviewed experts (see figure 1). it becomes clear that all of the mentioned skill sets could not always be achieved and are in some areas desired. the experts explained this with the lack of new talents, few committed applicants, 189 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 scarcity of the labor market etc. however, the ao emphasized that this problem can be solved in the company by performance-based rewarding the cfo. this option could lead to the “ability to focus employees on their goals ….” (ao). other experts believed that performance-related pay could not be appropriate in all cases and models. and it can “reduce pay equity and can make a company liable to costly equal pay challenges” (interview with oc, 20.12.2019., further oc). the stated lack of knowledge by the employees is the consequence of the high technological development speed that is overcoming the development speed of educational programs. the cfo brings his own business and strategy skills into the mix “by measuring, managing and creating performance” (rs). this shows the role of the cfo in creating added value. the cfo also contributes to this by coordinating data, ensuring automatism in the billing and also being responsible for the correct selection of reliable employees. “by changing the metrics and finding new business models to transform the company” (oc) and making it profitable “he must also be an engineer” (rs): he is someone who “…organizes and coordinates rules and regulations” and “builds lasting legacies that will guide the company for years” (ao). from rs point of view, the focus is more on the market, since decisions are based on data and reasons rather than experience: “the cfo must also be a bit of an architect who brings together the legal, financial and market-specific data and also interprets it correctly” (rs). as a coach, he is someone, who “focuses on finding talent and leading it outside of the finance department” (rs). cfo brings people and technology together by driving performance through skill development across the enterprise. this feature contains the communicative skills of the cfo, who also creates this connection between the employees within the company. cfo has to be able to present systematically and to evaluate new business ideas: “poses problems, questions decisions and makes companies profitable” (ao). the cfo is “confronted with new tasks and questions” (oc): transparency with regard to structures, processes and dependencies, even for completely new business models with previously unusual performance and earnings models. “development of evaluation criteria for new companies and development of suitable measuring points for processes, resource use in the transformation of individual business models” (ao) and “development and evaluation of concrete future scenarios instead of budget-driven extrapolation of the status quo” (oc). to foster innovation, the cfo has the opportunity to act as a role model for innovation. “he has to be able recognize and take advantage of the opportunities for innovation” (rs) that are available. there was also a lot of discussion about how the company can achieve and develop all of the above-mentioned characteristics and skills among its employees, especially the cfo. in this con required approach of the cfo in the enterprise real approach of the cfo in the enterprise figure 1 evaluation of the importance of the characteristics of the interviewed experts (created by the authors) e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 190 text, the experts were asked to name the options used in their companies that lead to the meeting the most of the requirements (see figure 2): figure 2 methods and techniques for qualification and education of the cfo in the enterprise “employees learn all the tasks which are required for each job they take on” (rs). if the cfo knows the expectations and functions of all occupations surrounding him, it will be easier for him to grasp the importance and the challenges of the tasks. “cooperation is essential” (oc). “job rotation breaks up monotony” (ao). this provides job stability and equips him for better opportunities to earn promotions. learning experiences “engage employees” (ao). this method makes building a strong experience upon "practice" and a comprehension” (rs) possible and “reinforces understanding of subject matter” (oc). additionally, it helps for the cfo to cope with the latest trends in the company´s business and helps to understand “what your new tasks are and also adapt to the new project more effectively” (oc). another way how to keep the cfo up to date and contribute to his qualification, is the option to send him to relevant conferences that help him meet the same professionals, share opinions. this also extends the cfo's knowledge horizon and "leads to new contacts for the company itself" (rs). and another important method, which was shared by the experts, was about how the company can train and shape the cfo. the experts spoke about the possibility of further training courses and seminars. in a globalized job market, continuous qualification is actually essential even after initial training. on the one hand, “it is a part of the employee's loyalty to the company” (oc); on the other hand, “the employee can bring new knowledge and insights into the company” (rs). employees who take part in further training “are generally more satisfied with their work” (ao). to summarize, it must be mentioned, that the role of the cfo is currently under review internally and externally. economic uncertainty, increased regulatory requirements, balance sheet adjustments and increased control by investors pose major challenges and cause an increasing change on the executive levels. conclusions _ the business model is a role-playing game involving all company’s employees. this means that the cfo also should participate in the processes and their optimization, as well as in the forecasts and scenario development of the company for its sustainability in the future and their effects on the current situation. _ the cfo holds many of the more powerful operational roles, and the decisions he or she affects the forward-moving vectors of the organization. it means, that the cfo is more involved than ever in shaping company culture, having a far wider impact on the business than before. the cfo is someone who organizes and coordinates rules and regulations in the company and builds lasting legacies that will guide the company for years. 191 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 _ the cfo has become increasingly playing a strategic, shaping role instead of classic administrative tasks. faced with advances in technology and growing responsibilities, the cfo must adapt to be effective. as a result, soft skills are as important as hard skills. as a coach, he 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(2017). 9 proven business models to consider for your startup. retrieved from https:// www.huffingtonpost.com/nina-tomaro/9-proven-business-models-_b_7949932.html. access 20.07.2020 about the authors zvirgzdina rosita dr.oec., professor business university turiba, commerce department fields of interests entrepreneurship, innovation, strategy, finance. address graudu 68, riga lv 1058, latvia. mob. +37126408253. e-mail: rosita@turiba.lv skadina helena mba, lecturer business university turiba, commerce department fields of interests finance, business models, strategy. address graudu 68, riga lv 1058, latvia. mob. +37128802488. e-mail: helena.skadina@gmail.com biruta sloka mba, lecturer business university turiba, commerce department fields of interests medicine, strategy, globalization. address graudu 68, riga lv 1058, latvia. mob. +37129113189 e-mail: vanealida@gmail.com this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 180 issn 1822–8402 european integration studies. 2014. no. 8 information about the article’s authors avotiņš valdis, dr.phys, researcher, ventspils university college, + 371 29240951, valdis.avotins@venta.lv balode gunta, latvian rural advisory and training centre. barynienė jurgita, lecturer, kaunas university of technology faculty of social sciences, arts and humanities institute of europe, e-mail: jurgita.baryniene@ktu.lt bogdaņecs aleksejs b. oec., quality manager, novikontas maritime college, +371 29511079, ab@novikontas.lv buligina ilze, phd student, public administration, university of latvia, 00371 29478176, ilze.buligina@gmail.com, čižauskaitė-butkaliuk aurelija holds a master degree (2012) in management and bachelor degree (2009) in economy from siauliai university with a focus on knowledge based economy, phone: +370 604 39999, e-mail: aurelijacizauskaite@gmail.com daugėlienė rasa, associate professor, phd in social sciences (management and administration); kaunas university of technology, faculty of social sciences, arts and humanities, institute of europe. scientific research areas: processes of european economic integration; development of knowledge economy; challenges of countries’ economic government, e-mail: rasa.daugeliene@ktu.lt dubra elena dr.oec., professor, economics, directions – macroeconomics and social economics; university of latvia, faculty of economics and management, phone +371 67034762, e-mail: elena.dubra@lu.lv figueroa francis espinoza is a associate lecturer/researcher at the catholic university of the north, antofagasta. chile. email contact: frespi@ucn.cl. her research interests focus on international relations and higher education policies, and how european influences are affecting the development of domestic policies in chilean and mexico higher education. recent publications include articles such as: the bologna process as a hegemonic tool of normative power europe (npe): the case of chilean and mexican higher education”, (2010, 2011), externalization versus internationalization of higher education: the case of the bologna process in latin america (2008); european influences in chilean and mexican higher education; the bologna process and the tuning project (2008); the european union as a postmodern actor (2006) and other areas including postmodernism and communication (2005) and critical theory and communication (2004). greblikaitė jolita, assoc prof., dr. of social sciences at the faculty of social sciences, arts and humanities, institute of europe, kaunas university of technology; e-mail: jolita.greblikaite@ktu.lt, field of interest: cross-cultural management and enterprise ethics, entrepreneurship. jermolajeva elita, dr.oec, associate professor, daugavpils university, + 371 2944989, elita.jermolajeva@du.lv fernández gonzález manuel joaquín dr. paed., researcher at the institute of pedagogical sciences, university of latvia. research on pedagogical leadership, quality of education and professional identity. novikontas research, +371 67399999, nr@novikontas.lv kantāne ināra, dr.admin, researcher, university of latvia, + 371 29491763; inara.kantane@lu.lv kaivo-oja jari is research director at finland futures research centre at turku school of economics. he has worked in many eu commission projects in 6th and 7th framework programs. jari kaivo-oja is adjunct professor at the university of helsinki (faculty of sciences) and at the university of lapland (faculty of social sciences). he has worked for the nordic innovation center (nic), for the finnish funding agency for technology and innovation tekes, for the european foundation, for the rand europe, for the european parliament and for the eurostat. currently he works in co-operation with the chinese academy of social sciences (cass), which is one of the leading think tanks of the world. his research activities are focused on foresight tools and methodologies, on innovation management, on global sustainability and modern management and governance theories. e-mail: jari.kaivo-oja@utu.fi keiss stanislavs, dr. oec., professor, vice-rector for scientific affairs, head of the department of economics at the university college of economics and culture (latvia) ), phone +371 26117462,e-mail: s.keiss@eka.edu.lv issn 1822–8402 european integration studies. 2014. no. 8 181 kriščiūnas kęstutis, prof. habil. dr., research and pedagogical activity are concentrated in the field of social sciences (management and administration branch), main orientations are european integration, knowledge management, knowledge based economy and society; institution: ktu, faculty of social, arts and humanities, institute of europe, e-mail: kestutis. krisciunas@ktu.lt. laitinen ilpo, phd. adjutant professor, university of lapland. ilpo.laitinen@hel.fi lasmane anita, dr. psych.,assoc.prof, university college of economics and culture, phone number: +37129115177, e-mail: anita.lasmane@gmail.com, line antra, mag.soc.,lecturer, riga teacher training and educational management academy, phone number: +37129466120, e-mail: antra_line@inbox.lv, młodkowski paweł, ph.d. in economics, professor, university of information technology and management in rzeszow 2 sucharskiego street, 35-255 rzeszow republic of poland; e-mail: pawel.mlodkowski@gmail.com ozola sandra latvian university undergraduate student, novikontas maritime college, +371 26868500, so@novikontas.l paužaitė živilė, lecturer, kaunas university of technology faculty of social sciences, arts and humanities institute of europe, +370 68669923, e-mail: zivile.pauzaite@ktu.lt pervazaitė dovilė, master degree; faculty of social sciences, arts and humanities, institute of europe, kaunas university of technology; e-mail: dovile.pervazaite@gmail.com pukis maris dr. oec., doc. at department of public administration, faculty of economics and management, the university of latvia, riga, latvia, address: 19 raina blvd., riga, lv 1586, latvia, phone: 00371 29197602, e-mail: maris@lps.lv seimuskane lillita lecturer at department of public administration, faculty of economics and management, the university of latvia, riga, latvia, address: 19 raina blvd., riga, lv 1586, latvia, phone: 00371 29287088, e-mail: lilita.seimuskane@gmail.com semjonovs dmitrijs mg. paed, deputy director, novikontas maritime college, +371 29219371, ds@novikontas.lv sloka biruta, dr. oec., professor, university of latvia, faculty of economics and management; phone: +371 29244966; e-mail: biruta.sloka@lu.lv stariņeca olga, doctoral student, msm; university of latvia +371 25984905 olga.starineca@lu.lv stenvall jari, phd, professor, phd, school of management university of tampere, jari.stenvall@uta.fi šukė margarita, consultant, free movement of workers, european employment services network in lithuania, klaipėda city, e-mail: margarita.sukys@gmail.com tilta elga, dr. oec. institute of economics of the latvian academy of sciences (latvia), phone +371 28600687, e-mail: elgatilta@inbox.lv umiński stanisław, habil., ph.d., working in research centre on european integration of gdańsk university and vice president of institute for development. participant and coordinator of many research projects on european integration, fdi and international trade done for poland national centre for sciences, european commission and regional authorities; uminski@univ.gda.pl ursin klaus af, phd. senior lecturer. university of tampere. klaus.af.ursin@uta.fi vevere velga, dr.phil., associated professor, business ethics, leadership ethics; the university college of economics and culture, +371 26463584, e-mail: velga.vevere@gmail.com virtanen petri, phd, professor, phd, school of management university of tampere, petri.virtanen@uta.fi vitkutė evelina agota, mag. jur., university of vilnius, attorney at law, lithuania, +370 682 07733, evelinavitkute@yahoo.co.uk. issn 1822–8402 european integration studies. 2014. no. 8 182 voronchuk inesa, prof. dr.oec.; university of latvia +371 67034727 inesa.voroncuka@lu.lv vorslava maija phd.student. at department of public administration, faculty of economics and management, the university of latvia, riga, latvia, address: 19 raina blvd., riga, lv 1586, latvia, , phone: 00371 26145436, e-mail: vorslava.maija@gmail.com zosule madara turiba university, +371 67616022, madaraz@turiba.lv zvirgzdiņa rosita dr.oec. docent, turiba university, +371 67617096, rosita@turiba.lv žitkus leonas, dr., prof., kaunas university of technology, institute of europe; science field: european integration impact on functioning of economic subjects; tel.: +370 37 300138; e-mail: leonas.zitkus@ktu.lt 41 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 abstract main priorities for a green deal towards a climate neutral europe http://dx.doi.org/10.5755/j01.eis.1.16.31331 inese pelsa, signe balina university of latvia, the faculty of business, management and economics, latvia european integration studies no. 16 / 2022, pp. 41-51 doi.org/10.5755/j01.eis.0.16.31331 submitted 04/2022 accepted for publication 06/2022 main priorities for a green deal towards a climate neutral europe eis 16/2022 in 2019, the european commission (ec) issued a communication on the european green deal (egd), which marked a major transformation of the national economy to ensure a europe neutral in 2050. one of the biggest challenges today is climate change, which is leading to environmental problems. to reduce these threats and risks to the world and humanity, the un adopted 2015 the paris agreement, the united nations (un) framework convention on climate change, which sets out actions to reduce the effects of climate change. in 2019, the ec issued a statement stating that the european union (eu) would be the first climate-neutral part of the world in 2050. to achieve this goal, activities, and goals to reduce greenhouse gas emissions by 55% by 2030 are set within the framework of the egd. transformation processes will be a comprehensive change in all sectors of the tangible economy, making the eu’s economy competitive, and innovative, promoting resource efficiency, moving to a clean, circular economy and halting climate change, preventing biodiversity loss, and reducing pollution. the article analyzes the goals and significance of the egd toward a climate-neutral europe. the aim of the article is to analyze the planned activities of the egd, to evaluate the involvement of the state and society in achieving these goals. keywords: green deal, climate-neutral europe, priorities. introduction historically, the 17th-19th centuries marked a large increase in production, leading to an increasing increase in the use of non-renewable resources. with the significant increase in the period of industrialization, the development of science, and the emergence of new opportunities, the level of human comfort and the desire to live better have increased. human needs have become increasingly important and environmental considerations have been less and less taken into account in the production of goods in a way that ensures the comfort of life. in the middle of the 20th century, scientists increasingly pointed out that the most important consideration for the existence of society and economic growth are man-made consequences, risks wars, uneven economy, limited natural resources, and ecological problems. and in light of these considerations, another very important aspect is overcrowding. according to un data, until the 21st century. by the end of the year, the number of people will reach 11 billion. and given these aspects of the consumer society, the increasing use of non-renewable resources, the exchange of goods, and the creation of large mountains of waste make it necessary to talk about environmental problems. our planet can’t observe our wastes. for us to function properly and exist in society, environmental and ecological issues have become part of our daily lives, as we increasingly need to think about access to water, quality, food security through sustainable energy, and waste reduction (sikora, 2021). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 42 the russell einstein manifesto, published in 1955, is the beginning of the concept of sustainable development. it highlighted the dangers of nuclear weapons and, with the help of this manifesto, issued in london during the cold war, called on world leaders to find peaceful solutions to conflicts. from now on, the term “sustainable development” has been increasingly used to denote the importance of ensuring a level playing field for future generations and the need to take political responsibility for decisions made or not made (butcher, 2005). the concept of sustainable development attracted public attention in 1972 when the scientists of the club of rome published the book “limits to growth”, in which possible world development scenarios were programmed with the help of a computer. although this book was published in 1972, its position is still valid today: modern civilization has limits to growth determined by nature itself, and people, if they want to survive, have to think of a border beyond which unintended consequences begin (meadows, d.m., meadows, d.l., randers, j., behrens, w.w., 1972). 2100 was marked as the year of the crisis when the world will no longer be able to ensure the survival of civilization without changing its habits. 1973 was marked by the global energy crisis, and this year the german-born british scientist e.f. schumacher published a collection of essays “small is beautiful”, which analyzed and emphasized low-tech policy as a very suitable solution to the principle of “bigger is better” (schumacher, 1973). in 1972, world leaders reaffirmed scientists’ concerns about the environment, and in 1972, the first un environment conference was held in stockholm. this conference marks a turning point, as several principles were adopted to ensure that environmental issues are properly managed and that solutions are sought between economic growth, water, air pollution, and the role and existence of man in the world. the concept of “sustainable development” was first published in gru harlem bruntland’s 1987 report ” our common future, also known as the bruntland commission’s report. definition of sustainable development” is as follows: “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (united nations, 1987). the concept of sustainable development is described by the venn diagram, which includes the three “e” (environment, economy, and equality). for society to be able to adhere to the basic principles of sustainable development, there is more and more talk about the inclusion of the fourth “e”, which is education. sustainable management reduces natural disasters, food insecurity, mass migration, etc. risks that would require an extraordinary response, as well as significant costs. thus, the issue of sustainability is relevant for economic policymakers. aware of the consequences and challenges of climate change, the european union unveiled a comprehensive european green plan in 2019 to ensure economic transformation and facilitate the european union’s transition to a climate-neutral economy. the goal is to reduce greenhouse gas emissions by 55% by 2035 and to be a climate-neutral part of the world by 2050 (european commission, 2019). although the eu’s target of reducing ghgs by 55% by 2030 initially seems sufficient to mitigate the negative effects of climate change, the intergovernmental panel on climate change (ipcc) assessment is not sufficient to reduce ghg trends and meet the target 1,5 degrees to reduce the temperature. consequently, to meet these commitments, the eu must reduce ghgs by at least 65% by 2030 compared to 1990 to comply with the principle of fairness of the paris agreement. to comply with the principle of justice in the paris agreement, the signatory countries must commit themselves to being leaders in promoting climate neutrality in the member states with greater emissions responsibilities and greater financial resources. over the last 15 years, green economies have become increasingly important and have been given an increasing role by policy makers. the green economy encompasses many different concepts, such as the green growth, the circular economy, cleaner production approaches, the bioeconomy, dematerialisation and tools such as life cycle assessment (loiseau, et.al., 2016). the key elements of green growth consist of the synergies between economic activities and literature review 43 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 environmental challenges (wanner, 2015). green growth aims to make capitalism greener by incorporating technology innovation, green investment and green consumption (ossewaarde et.al., 2020). the key concept of green growth is that economic growth can be “decoupled” from negative environmental impacts, thus arguing that economic growth is possible without the excessive, reckless use of “natural resources” (machin, 2019). given the fundamentals of green growth, new solutions can create new jobs, new, innovative technologies, increase production and change consumption patterns. one of the key aspects that osserwaarde considers is that external factors, such as biodiversity loss and pollution, which economists call climate change, are leading to new investment. for example, to reduce the use of non-renewable resources, solar and wind energy are offered as alternatives to energy production. as a result, new solutions, innovations, new jobs are created, which significantly affect economic development and promote gdp growth. by defining the symbiosis of environmental protection with economic development in this way, it does not raise concerns about the possibility of regression and massive job losses, which would affect the decline in living standards. according to machin, the creation of green growth does not affect the structures of oligarchic power (machin, 2019). prior to the endorsement of green growth in the eu, the concept of green growth began in documents of international organizations oecd, un and world bank. one of the milestones was in 2005 with the fifth ministerial conference on environment and development in seoul, and fifty-two governments in asia-pacific agreed to “green growth” (d’souza, 2017). after this conference, green growth was the most widely accepted decision and solution to address environmental problems and halt the degradation of the natural environment (sandberg, et.al., 2019). in europe 2020, the ec made it clear that it is possible to combine environmental protection with gdp growth, so the environmental friendliness of the economy was also seen as a favorable factor for growth and growth. in december 2019, the eu introduced its egd, arguing that “tackling climate and environmental-related challenges (…) is this generation’s defining task”. ec presented egd as’ a new growth strategy to make the eu a fair country and a prosperous society” (european commission, 2019 a). one of the aims of the egd is to tackle the ecological crisis and tackle climate change and its consequences, with a view to making the eu the world’s first climate-neutral part by 2050. the egd program aims to pursue two strands: to ensure the well-being of all and to overcome the anthropogenic state, which is indicated as the reduction of floods, droughts, heat waves. the eu is therefore adopting major transformation measures aimed at reconfiguration. the european economy is undergoing a major process of economic transformation, giving priority to environmental issues. it can therefore be pointed out that the eu is making a revolutionary choice towards a new eu that is in harmony with the biosphere (slatin, 2019). the concept of green growth includes the harmonization of the economy and ecology, replacing the existence of an ecologically degrading industrial economy. (loiseau, et. al., 2016) consequently, evaluating from this perspective, environmental protection is not an expensive constraint, but a high-return investment opportunity (rosenbaum, 2017). research methodqualitative analysis methods were used in the development of the article. initially, a literature review was performed, evaluating the scientific literature scientific articles, books on sustainable development, green growth, green economy. subsequently, the un, ec documents on sustainable development, the green course were evaluated, evaluating the set goals and the planned measures to achieve them. quantitative methods were used to analyze the secondary data. hypothesis: in order to achieve the goals of the egd, it is necessary to develop a model for the assessment of environmental problems in order to promote the full involvement of government and society in achieving the goals. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 44 results the aim of the article is to analyze the planned activities of the egd, to evaluate the involvement of the state and society in achieving these goals. climate changes and causes. all these aspects: rapid industrialization, energy use, agricultural practices, transport, pollution are made rising temperatures, an increase in extreme weather events, loss of wildlife and biodiversity. figure 1 shows the total ghgs in the eu from 1990 to 2019, where ghg reductions were observed during this period. significant ghg reduction in 2009 was affected by the global financial and economic crisis, which significantly reduced industrial activity. if we compare the changes caused by ghgs, then in 2019. there is a 24% reduction in ghg compared to 1990 and in absolute terms, it is 1182 million tonnes. figure 1 greenhouse gas emissions (including international aviation, excluding lulucf), trend, eu, 1990-2019 source: european environment agency (online data), eurostat picture 1 the overall volume of ghg emissions (kg/ per capita per year) in european countries in 2019 source: eurostat data 100 90 80 70 60 50 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 index (1990-100) 45 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 comparing the data with the european union member states, ghg emissions per capita can be concluded that the largest share is caused by emissions from agriculture, transport, and energy. iceland, luxembourg, ireland, and denmark have the largest share of stare in the eu member states. ghg emissions from transport as well as ghg emissions from production account for the largest share in these member states. the agenda 2030 circular economya circular economy is an innovative approach to eliminating emerging environmental problems caused by increasing resource depletion, accumulation of non-recycled waste, growing environmental pollution, and climate change. the concept of the circular economy is an increasingly attractive approach to tackling current sustainability challenges and facilitating a shift away from the linear “take-make-use-dispose” model of production and consumption (klein, ramos, et al., 2020). the development of this new paradigm started nearly half a century ago in the minds of innovative designers, promoted by think tanks such as the ellen macarthur foundation (webster, macarthur, 2016) the institute for global environmental strategies (ministry of environment, japan, 2019) and injected in policies and strategies of different countries in the world. thus, ce is on the rise in the european union, japan, canada, the usa, china, etc. the concept of the circular economy is increasingly being used to address sustainable development issues and to transform the linear economy into a resource-efficient economy model (esposito et al., 2018). it is clear that modern farming, in line with the principles of the linear economy, destroys the ecosystem, causing ecological problems. thus, one of the solutions is the circular economy, which offers more sustainable solutions ensuring a longer product life cycle and materials are reused, thus extending their life cycle and are used in the production of new products. there are many definitions of circular economy, and the authors would like to forward the definition by geissdoerfer and co-authors that are based on a thorough literature review, defining circular economy “as a regenerative system in which resource input and waste, emission, and energy leakage are minimized by slowing, closing, and narrowing material and energy loops. this can be achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling (geissdoerfer et al., 2017). “circular economy is seen as one of the approaches to reach sustainable development goals defined by the united nations. the european union in 2015, the united nations general assembly adopted a resolution transforming our world: a sustainable development agenda for 2030, or agenda 2030 (united nations, 2015 a). it sets out 17 sustainable development goals (sdgs) and 169 sub-targets to reduce global poverty and poverty. global development is sustainable. sdg is balanced in three dimensions: economy, social aspects, and the environment. the sdgs are relevant to all countries and can only be achieved by joint efforts, at the same time part of the sdgs is largely in line with the challenges and goals of the national level. given the relatively wide range of topics covered by the sdgs, countries choose the most relevant goals for them to focus on by 2030, according to the priority goals to be achieved at the national level, thus adapting the sdgs to their needs and incorporating national and societal sdgs into national development planning. higher-performing countries take the initiative to promote the development of other countries, reduce poverty and play a key role in promoting sustainable development. to build a success the concept of sustainable development of the concept is important to involve scientists, leaders, and entrepreneurs, and that is why conferences and forums are held to look for the best, most appropriate solutions. the agenda 2030 envisages that the whole society, incl. citizens, businesses, politicians, national associations, the united nations, and other institutions. the european union has already begun work on the next programming period, with agenda 2030 as the framework (united nations, 2015 a). the 13th aim is “climate action”, which includes taking urgent action to combat climate change and its impacts. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 46 launched its first circular economy action plan in 2015 (european commission, 2015), and further on embanked ce as one of the basic stones in the new strategy document for reaching a more sustainable economy i.e. “the green deal” (european commission, 2019). the european green deal activities in the light of the paris agreement to reduce air temperatures by 1.5 degrees, the ec launched a comprehensive european green deal (edg) in late 2019, setting outsmart and comprehensive, horizontal measures to ensure that by 2030. eu ghg reductions by 55% compared to 1990. the overarching goal is to make the european union the world’s first climate-neutral part by 2050. an important document adopted by the european parliament in april 2021 is the european climate act, which aims to transpose ghg emission reductions into law (european parliament, 2021). achieving this ambitious climate goal requires a transformation of the eu industry, thus stimulating sustainable economic growth, fostering technological innovation, creating new jobs, and improving the environmental and social performance of citizens. egd promises to protect citizens from environmental harms and impacts, and to be just and inclusive. wellbeing is to be put at the centre of economic policy. by assessing the sectors with the highest ghg emissions, the ec has developed policies and targets to transform and adapt these sectors to meet climate neutrality goals. the key sectors are clean and secure energy at an affordable price, industry based on the principles of the circular economy, smart mobility with an emphasis on the transition to the electric car, agriculture (using organic products), etc., and the european climate pact integration (european commission, 2019 b). although the eu is responsible for only 9% of global ghg emissions, according to eurostat, the eu’s commitment to lead by example is to encourage other parts of the world to take significant steps to accelerate climate neutrality. the transformation of the economy, as envisaged in the egd, requires changes to include environmental protection and climate issues as a horizontal principle in other legislation, which would also provide financial benefits in both the short and long term (miccinilli, 2020). the integration of these criteria into legislation must derive from international law, such as the paris agreement (united nations, 2015 b), the un agenda 2030 (un 2015 a), and the sustainable development goals. the egd aims to improve the well-being and health of citizens and future generations by promoting waste-free production, smart mobility, the construction of low-emission buildings, biodiversity, clean air and water, renewable energy production and use, and a circular and collaborative economy, greenhouse gas emissions and removals by sinks. the eu has already started to modernize and transform the economy with the aim of climate neutrality. much remains to be done, starting with more ambitious climate action in the coming decade. edg activities can be divided into 3 blocks: 1 climate change targets to reduce ghg emissions (through transformation processes in sectors such as energy efficiency, mobility, construction, energy) 2 environmental aspects, ensuring biodiversity, reduction of pollution; 3 a healthy and sustainable food system, ensuring an increase in organic food production through short supply chains, to ensure environmental and health aspects. (european commission, 2019 a). cleaning our energy system. according to the european environment agency, the eu’s largest source of energy comes from non-renewable oil and natural gas. according to eurostat, energy production accounts for 75% 47 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 picture 2 the european green deal activities of total eu ghg emissions. this is therefore one of the key elements in contributing to the eu’s goal of climate neutrality. according to the ec, it will take about 25 years to bring about change, and for the eu to be ready in 2050, significant changes are needed now. to ensure the transition to clean energy, the egd includes the following principles: 1 a secure and affordable eu energy supply; 2 creating a digital eu energy market 3 improving energy efficiency and maximizing the use of renewable energy sources. to achieve the set goals, it is necessary to increase the share of renewable energy consumption, which in 2020 accounted for about 22.1% of the energy consumed in the eu. compared to the eu target of 20% in 2020, + 2% is met (eurostat data). in the eu in 2020, sweden (60%), finland (44%), and latvia (42%) use the most renewable energy. malta (11%), luxembourg (12%), and belgium (13%) have the lowest share of renewable energy. according to the egd, the increase in renewable energy can also have a positive effect on employment. the goal is to reach an eu average of 40% for renewable energy. the proposals promote the use of renewable fuels, such as hydrogen, in industry and transport. one of the goals is for 2030 to reduce the reduction of final and primary energy by 36% 39%. green deal – mobility whereas the transport sector accounts for 25% of total ghg emissions, of which 75% is accounted for by road transport. within the egd, a change in the mobility of activities is planned. mobility change includes the goal of identifying clean vehicles, and electric cars, and providing the necessary infrastructure to ensure charging. the egd aims to reduce ghg emissions from the transport sector by 90% by 2050. to achieve this goal, activities are needed that will promote the development of sustainable and intelligent transport. to ensure the planned ghg reduction by 2030 and reduce dependence on source: european commission the european green deal (2019) e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 48 fossil fuels, then according to ec estimates by 2030 will be more than 30 mln. emission-free cars (for comparison, in 2018 there were 292 million registered cars in europe (statista, 2018)) and more than 80 thousand emission-free trucks. consequently, such changes are projected to reduce the impact of fossil fuels. another important aspect of this change is the provision of charging points and sufficient capacity for electric vehicles. by 2025, around 1 million public charging and refueling stations will require 13 million zero and low emission vehicles. green deal – construction and building renovation in the european union, buildings account for around 36% of total ghg emissions and are the largest consumer of energy, consuming around 40% of total energy. one of the challenges facing the eu is that most buildings are not energy efficient and use most fossil fuels. thus, one of the activities is the renovation of buildings, where the main goal is to at least double or even triple the volume of renovated buildings, which is currently only 1%. the renovation of buildings must reduce both ghg and maintenance costs for heating and cooling. the egd stipulates the construction of new buildings by 2030. must be done to ensure zero emissions to the building. the public sector must meet these requirements by 2027. to achieve zero-emission building construction, new buildings must use very little energy and make maximum use of renewable energy sources, and must not cause emissions to ensure the full functioning of the building. farm to fork to promote the production of quality food, one of the activities under the egd is the eu’s “farm to fork” strategy, which aims to assess and reflect on all stages of the food supply chain to improve the sustainability of the food supply chain. it is important to implement this strategy, it is necessary to analyze it together with the biodiversity strategy because sustainable agriculture must take nature protection into account. farm to fork strategy sets out the following objectives: » to reduce the total use and risks of chemical pesticides by 50% by 2030 and to reduce the use of more dangerous pesticides by 5030 by 2030. » return at least 10% of agricultural land with very diverse landscape features. » by 2030, 25% of the eu’s agricultural land must be organic (european commission, 2020). eu industrial strategy one of the goals to achieve the goals of the egd is to make changes in industrial processes towards climate neutrality. the eu’s industrial strategy aims to encourage and support the industry to move towards innovation, growth and global competitiveness. it is important to make economy transformation process changes in industrial processes to reduce dependence on others that provide critical materials. it would also boost the production of new products and boost competitiveness in the eu. (european commission, 2021). the eu is facing major changes to meet the goals set out in the egd. any significant change requires the involvement and understanding of all parties involved in the ongoing processes. as pointed out sica (2019), the egd is a transition that will encourage criticism of ecologically harmful cultures and provide solutions to go beyond green capitalism. as stated in the egd, “transformational change” must be achieved by investing in large companies, with an emphasis on large technology companies that can contribute to and have a significant impact on “digital transformation”. in order to promote and implement the activities set out in the egd, changes are needed both in the setting of priorities at the national level, in the changing aspects of production 49 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 in business, and in the changing way of thinking and attitudes in society. in order to promote the process of economic transformation for the development of green industries, it is necessary to develop information and green technologies. given the need for specific knowledge here, the state must carefully target subsidies for individual training as well as research. therefore, the priority is research and knowledge that contributes to green growth and the achievement of the goals of the green course. new solutions are needed a new approach. as indicated above, public support and subsidies are also needed to ensure sustainable energy systems. by making such subsidies and supporting specific sectors, it is a political choice, which means redistributing funding between sectors and contributing to the greater development of a sector. which, in turn, significantly affects the composition of the economy, as well as changes in the composition of society. in the case of the transformation process, it is also necessary to talk about institutional changes and changes in the field of taxation, because non-environmentally friendly solutions will be subject to a higher tax burden and green investments will be supported and subsidized. to promote green growth, change involves a very wide range of policy instruments, including increased support for research, differentiated tax treatment, green public procurement, investment in green technologies. an important aspect is the setting of emission standards in sectors of the economy, such as manufacturing, transport and energy (rosenbaum, 2017). the requirements set by the egd will also significantly affect the change of society’s debts in ensuring their quality of life. and it should be emphasized here that the richer the consumer is, the more he can afford it, and therefore the higher the ghg (transport, housing, clothing). and that is why, like the richer member states, the wealthiest consumers should lead by example in achieving the goals of the egd. in order to change the habits of the society, it is essential to involve the state closely, subsidizing, for example, the purchase of an electric car, thus promoting the purchase of emission-free transport. but the question is whether the amount of the grant will be able to provide full support to the middle-income person to buy this environmentally friendly vehicle. the commitment and involvement of all stakeholders is crucial to achieving the goals of the egd. in the current situation, people are very concerned about work, livelihoods, housing and bills, and the eu institutions (including the member states) should work with people to bring about lasting change. because, as the egd points out, citizens are and should remain the driving force. conclusionto promote green growth, change involves a very wide range of policy instruments, including increased support for research, differentiated tax treatment, green public procurement, investment in green technologies. the eu aims to become the world’s first climate-neutral part by 2050. this means that eu countries must reduce their greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. consequently, changes in climate, energy, transport, and tax policies are expected. the egd will bring about change in all sectors of the economy, introducing principles such as sustainable development and the circular economy. the egd sets out a set of goals, strategies to be implemented over the next 10 years to promote europe as the first climate-neutral part of the world and to facilitate the process of economic transformation. the egd ensures a comprehensive transition of the economy to green growth. it is not only about reducing ghg emissions, it is about transforming the economy and society. the european green deal is the eu’s flagship initiative. achieving the objectives of the egd requires promoting industrial change, ensuring clean energy, changes in transport, food, agriculture, construction, and changes in taxes and social benefits. it is essential to add value to the protection and restoration of the natural 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(2016). the circular economy: a wealth of flows: 2nd edition. about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). inese pelsa mg. oec. the university of latvia, the faculty of business, management, and economics fields of interests economy address aspazijas boulevard 5, riga, latvia inese.pelsha@gmail.com signe balina dr. oec., professor the university of latvia, the faculty of business, management, and economics fields of interests ict, econometry, sustainable development address aspazijas boulevard 5, riga, latvia signe.balina@lu.lv 55 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abstract digital agenda, new technologies and education for the integration of europe: an economic study http://dx.doi.org/10.5755/j01.eis.1.15.28296 new technologies are a key factor for integration in europe by enabling citizens to solve their daily problems and interact with people everywhere. the european commission established the digital agenda for europe with the aim of improving the speed of navigation, establishing a single market for telecommunications and achieving a digital single market. we highlight the importance of applying new technologies in the field of education, since teaching and learning through these means will contribute to increasing creativity and reasoning capacity, allowing for more interactive and participative learning. the horizon report and the new emerging technologies proposed by that report are analysed, and are aimed not only at facilitating learning, but also at enabling a more integrated europe. it also presents some technological ideas to be developed in the educational field that will enhance the development and integration of the eu member states. furthermore, in order to analyse the influence of the use of the internet and new technologies on other socio-economic variables, a regression analysis has been carried out. the objective is to study whether in any way the fact that citizens use the internet affects variables such as gross domestic product, unemployment or human development index which may affect the integration of europe. keywords: europe, integration, new technologies, education, socio-economic variables. the development of new technologies is a key element for globalisation in europe. they are essential for competitiveness in an increasingly digitalised world economy. therefore, more than 20 billion euros from the european regional development fund (erdf) and the cohesion fund are available for investments in the field of information and communication technologies (ict) during the 2014-2020 funding period (nigohosyan and vutsova, 2018). these investments are aimed at creating a single digital market, where all people can interact globally. the specific objective of ict research and innovation is to enable europe to support, develop and exploit the opportunities offered by the progress of new technologies for the benefit of its citizens, businesses and scientific communities. to ensure a secure, open and fair digital environment, the european commission has developed the strategy for the digital single market (frosio, 2017; lucian, 2018), which is structured around three pillars: improving access of consumers and businesses to digital goods and services in europe, creating the right conditions for the success of digital services and networks, and realising the full growth potential of the digital economy. the european commission measures through the digital economy and society index (desi) (russo, 2020) the progress of the different european union countries towards a digital society and economy, providing information on the digital performance and competitiveness of european countries. european integration studies no. 15 / 2021, pp. 55-62 doi.org/10.5755/j01.eis.1.15.28296 submitted 03/2021 accepted for publication 06/2021 digital agenda, new technologies and education for the integration of europe: an economic study eis 15/2021 javier cifuentes-faura university of murcia introduction e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 56 for this reason, this paper reviews the desi report and the horizon report to analyse their latest advances and evidence, and it provides a regression analysis to study whether in any way the fact that citizens use the internet and new technologies affects some variables socio-economics. the desi report is structured around 5 dimensions (table 1), the first two contributing 25% each to the overall value of the index. the integration of digital technology represents 20%, the use of internet services by citizens and the dimensions of digital public services each contribute 15%. dimensions meaning 1 connectivity fixed broadband, mobile broadband, fast and ultrafast broadband and prices 2 human capital internet user skills and advanced skills 3 use of internet citizens' use of internet services and online transactions 4 integration of digital technology business digitisation and e-commerce 5 digital public services e-government and e-healthsource: own elaboration table 1 students' self-assessment in recognizing false information digital technologies figure 1 shows the countries with the most advanced digital economy by 2019, i.e., with the highest digital performance. finland, sweden, the netherlands and denmark and the united kingdom are the countries with the most advanced digital economy. on the other hand, bulgaria and romania occupy the last positions in this ranking. these countries are among those with a lower per capita gdp (gdppc), and can be associated, among other things, that having a lower gdppc influences the level of digitalization of the country. figure 1 countries with advanced digital economies in the eu in 2019 source: desi 2019, european commission europe must work to reduce this technological gap between countries, encouraging investment in very high capacity networks to meet the growing connectivity needs of europeans. currently, the progress of countries is based on increasing the knowledge of their citizens, which is a challenge in the field of education, since it requires the incorporation of icts. education drives growth, innovation and job creation. this is why it is so important for europe to invest in digital skills on a continuous basis in order to achieve greater development and integration among its member states. 57 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 it is undoubtedly very important that new technologies should advance and that europe should take steps to implement them among its citizens. it is also essential, however, that they are introduced in the field of education, an area fundamental to europe's development. since 2004, and on an annual basis, the horizon report has been published, showing the trends, challenges and technological developments that will have an impact on teaching and learning (jonhson et al., 2012; adams becker et al., 2017). the 2019 report (alexander et al., 2019) forecasts 6 technologies that will be implemented in the short, medium and long term in educational institutions (table 2). horizon report short term (one year or less) medium term (two to three years) meaning » mobile learning » analytics technologies » mixed reality » artificial intelligence » blockchain » virtual assistants table 2 emerging technologies predicted by the 2019 horizon report. both mobile learning and analytical technologies are already implemented in many education systems. among their advantages, the total accessibility and interaction of the contents, the connectivity and the access at any time and place stand out. augmented, virtual and mixed reality have enabled mobile learning to become more active and collaborative. lai and hwang (2014) highlight the ease of consulting the necessary information in real time through mobile devices. berns et al. (2017) and martín-ramos et al. (2017) relate the use of mobile devices to classroom teaching and pedagogical evaluation using various techniques: simulations in the case of the former and the collaborative agenda on the part of the latter. in the context of big data and artificial intelligence arises the use of analytical technologies in everyday life. with them, all existing data can be interpreted to improve institutions and the experiences of students and teachers (reyes dixson and nuñez maturel, 2015; andré et al., 2017; malik, 2019). some institutions have already implemented business intelligence systems (cobo et al., 2016) and are using it, for example, to help students who need support, customize content, reduce workloads and produce educational applications. mixed reality (combination of virtual reality and augmented reality) allows the creation of new spaces in which both objects and real or virtual people interact so that students can access simulations that help them to better approach real situations within their learning process and experience them first-hand. many studies focus on the progress this method is making (lindgren et al., 2016; birt et al., 2017; chen and duh, 2018). the advances that will take the longest to apply to the educational system are blockchain technology and virtual assistants. the first of these began to be applied in the financial world and now the education sector is studying how to adopt it for use in transactions such as smart contracts or identity verification. the works of grech and camilleri (2017) and chen et al. (2018) show us some of its applications such as improving the security of grades, academic records, minutes ..., and the student can have his academic certificate anywhere or anytime. virtual assistants are used to answer user questions. students can use them, for example, to measure study time and become more efficient. one strategy for improving interactivity is to use virtual teaching assistants to augment and amplify interaction with human teachers (goel and polepeddi, 2016). a virtual reality assistant based enhanced technology for learning primary geography is proposed by lv and li (2015). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 58 through any of the technologies discussed, students will be able to engage in more active and dynamic learning, and it will serve them in many aspects of their lives. it will not only enable the student to better develop his or her skills, but it will also enable him or her to have more knowledge in the future. thus, through mobile learning students can quickly access content and information, learn more about other cultures or communicate with other students and people anywhere in the world. by enhancing this learning in the classroom we can have a more cohesive europe where the use of technologies is promoted. that is why budgets should be allocated to buy tablets and mobile devices for the classroom so that students can develop their technological skills. however, not only must we invest in the purchase of technological materials, but also in ensuring adequate internet speed that allows immediate and effective communication. other actions in which europe must invest are the creation of online platforms for self-learning (artificial intelligence), with the aim of optimising training and improving student participation. this would increase completion rates. some platforms already use artificial intelligence to examine data and find patterns to help identify which lessons are effective and which need to be improved. an answer correction system could be put in place to enhance errors in the following questions so that the parts where the student fails are further reinforced. in this way, the user is not only evaluated by his or her successes, but also learns from his or her own mistakes. these tools could, for example, contribute to improve the learning of a language, favouring a greater cohesion among european citizens, by knowing a greater number of languages. on the other hand, it would be a good idea to invest in educational robotics, so that robots act as tutors in virtual courses. this digital learning will provide students with a more complete learning experience, and they will be able to obtain help more easily. they could access knowledge when they need it, by having the opportunity to ask questions in natural language as they would with another student or a teacher. in this way, if the implementation of intelligent tutors is promoted, it will be possible to optimize the search and use of content among an immense amount of available resources. a regression analysis is set out in the following sections to highlight the importance of new technologies and the use of internet in europe. education and new technologies are key to european integration. for this reason, in this work we wanted to verify the importance that ict and the internet are having in europe. from the data obtained from eurostat, we have obtained the percentage of individuals who use the internet during the year on some occasion. two periods have been compared, 2009, during the economic crisis, and 2018, the recovery period. furthermore, in order to analyse the influence of the use of the internet and new technologies on other socio-economic variables, a regression analysis has been carried out. the objective is to study whether in any way the fact that citizens use the internet affects variables such as gross domestic product (gdp), unemployment or human development index (hdi). it is assumed that the countries whose citizens use the internet most have also received more education in its use. all countries have significantly increased the number of users using the internet through new technologies (figure 2). luxembourg tops the list of european countries whose population is using the internet most in 2018, with 97 per cent of the population having used it at some time during that year, compared to 87 per cent in 2009. it is followed by the united kingdom, the netherlands and finland with 95% of the population. these countries also tend to be the most advanced in education, generally performing well in the pisa report produced by the oecd, especially finland, which stands out for having one of the best education systems (simola, 2005; kupiainen et al., 2009; rautalin, 2018). if we compare 2009 with 2018, romania (+52%) and cyprus (+42%) have experienced the greatest variation in the increase of individuals using the internet in this period. investment in results methodology 59 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 figure 2 percentage of individuals who have used the internet during the year 2009 and 2018. source: own elaboration based on eurostat database. new technologies and education, and greater connection through the internet can be very satisfactory for the development of future generations and for the integration of europe. table 3 shows the bivariate correlations between the different variables in 2009 and 2018. there is a strong direct correlation in both years between the new technologies (measured as the percentage of interacting citizens who use the internet at some time each year) and the logarithm of gdp. these data reveal that the countries with the greatest economic development are those that use the internet the most. this may be due to the fact that a greater allocation of economic resources may make it possible to invest more in the purchase of technologies and in teaching them. ict log gdp unemployment hdi ict 2009 1 0.662 -0.130 0.282 2018 1 0.794 -0.354 -0.094 log gdp 2009 0.662 1 -0.120 0.301 2018 0.794 1 -0.168 -0.042 unemployment 2009 -0.130 -0.120 1 0.042 2018 -0.354 -0.168 1 0.135 hdi 2009 0.282 0.301 0.042 1 2018 -0.094 -0.042 0.135 1 table 3 correlation matrix in order to analyse the influence of the use of the internet and new technologies on other variables related to the specific socio-economic context of each country (ionescu, 2013; chen and neshkova, 2020), a regression analysis has been carried out. the dependent variable is the percentage of citizens using the internet. the independent variables are the logarithm of gdp per capita, the unemployment rate and the hdi. the gdp aims to measure the country's economic growth (angelache, and sacla, 2016), while the hdi measures human development through other indicators such as life expectancy, educational attainment and income (eren et al., 2014). the hdi data are taken from the human development report published worldwide by the united nations development programme (undp) and the gdp and unemployment data from the eurostat database. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 60 2009 2018 unstandardized coefficients standardized coefficients unstandardized coefficients standardized coefficients (constant) -79.847** (35.191) -13.478 (16.392) log (gdp) 32.749** (8.395) 0.626 23.130** (3.582) 0.755 unemployment -0.225 (0.588) -0.058 -0.442* (0.234) -0.223 hdi 9.645 (15.974) 0.096 -1.025 (3.667) -0.033 r2 0.670 0.825 r2 adjusted 0.449 0.681 table 4 coefficients of the regression model standard error in parentheses ** p-value <0.05, *pp-value<0.1 the data in table 4 show that, in the two years studied, the regression model has a high explanatory power, especially in 2018 (see adjusted r2, which indicates what percentage of the variation in the dependent variable is explained jointly by all the independent variables and varies between 0 and 1, the closer to 1 the model's adjustment to the variable to be explained). standardised regression coefficients allow the relative importance of each independent variable within the equation to be assessed. in general, a variable is more important the higher (in absolute value) its normalized coefficient is. the variable with the highest weight in 2009 and 2018 is the one related to gdp. it would be very positive to encourage collaborative learning through new technologies, since it will be possible to make groups of like-minded people to carry out tasks together, increasing the effectiveness of learning. these groups could be interconnected all over the world. it has become clear that there are many benefits associated with digital education and that its practice is, and will be, even more essential. europe must therefore ensure that all citizens have access to the internet and the necessary digital skills, working to develop quality education. we are at the beginning of the fourth industrial revolution and the digitisation of eu countries to be able to compete in the era of the data economy and artificial intelligence are issues that must be on the union's agenda. it is essential for europe to invest in technologies for education, as this is a key aspect of promoting integration between countries. relations between member states and citizens would be strengthened. however, at present, there are still countries that do not have the same opportunities in terms of technologies because they do not have the necessary financial resources. the european union must try to alleviate these problems, since the new technologies are bringing those who use them closer together, but excluding those who do not. therefore, education policies have a lot to say in terms of preventing or, at least, compensating for these inequalities in access to information and knowledge. within the education system, it will be necessary to articulate measures that benefit the learning and use of new technologies for less advantaged groups. in this process, teachers should be provided with the appropriate tools and training to use ict at all levels of education, promoting more inclusive and personalised education and training systems. europe must create a dynamic digital single market to access the benefits of the digital age. the conclusion 61 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 governance and transparency of collective rights management must be improved and adapted to technological progress. the challenge is great, but the benefits will be even greater, leading to a truly equitable, fair and inclusive society. it was important to raise awareness of the need to learn new technological methods. this acquired knowledge can be put into practice during your working and personal life, contributing to a greater connection between all regions. the new technologies are an incredible advance in society and europe must continue to promote and propose measures such as those described for the 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(2005) the finnish miracle of pisa: historical and sociological remarks on teaching and teacher education, comparative education, 41(4), 455-470. https://doi.org/10.1080/03050060500317810 cifuentes-faura javier predoctoral researcher university of murcia, spain fields of interests public economy, transparency, public policies address faculty of economics and business +34 868883898 javier.cifuentes@um.es about the author this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 52 abstract integration of latvian immigrants in germany through psychological well-being and engagement with the cultural community http://dx.doi.org/10.5755/j01.eis.1.16.31164 solveiga blumberga, mara vilcane riseba university of applied sciences, latvia european integration studies no. 16 / 2022, pp. 52-63 doi.org/10.5755/j01.eis.0.16.31164 submitted 04/2022 accepted for publication 06/2022 integration of latvian immigrants in germany through psychological well-being and engagement with the cultural community eis 16/2022 introduction to raise and/ or increase a psychological well-being of latvian immigrants in germany and facilitate their integration, the latvian association where latvian immigrants have an opportunity to come together, mark holidays, cherish traditions, as well as get involved in amateur art groups, has been founded. some quantitative studies on immigrants’ satisfaction with life in germany are available, but studies on the latvian immigrants in germany have not been conducted so far. the aim of the study is to research the psychological well-being of latvian immigrants and their engagement with their cultural community in germany. to define 6 dimensions of well-being in a sample of the latvian immigrants in germany, survey on psychological well-being, and a survey developed by the authors on attracting immigrants to the community were used as data collection methods. findings of the research showed that, the most important dimensions of the psychological well-being of the latvian immigrants are described by articles of the life purpose scale. it means that the latvian immigrants in germany strive to fulfil their goals and make their lives better with purpose to integrate into the german environment. respondents rated high also the environmental mastery dimension, meaning that latvian immigrants are able to provide for their daily needs abroad. articles of the personal growth scale were rated low. it shows the fact that the latvian immigrants are unable to facilitate their personal growth, though in germany they receive higher salary than in latvia, as this salary is still in the low-wage segment of germany. the autonomy scale resonating with the status of immigrants and their dependence on various authorities is also evaluated very low. articles related to the affiliation scale showed that the most important engagement factors for the latvian immigrants in germany were emotions, latvian traditions, and latvianness. the inspiring people scale received the lowest evaluation among the engagement factors. in addition, the distance factor was evaluated with low scores, what can be explained in two ways – either the association is too far from the place of residence or the distance is insignificant, and some latvians will visit the association, regardless of it. keywords: immigrants, psychological well-being, integration, immigrants’ engagement, latvian association. during recent years, latvia has been experiencing emigration and forming the latvian diaspora abroad. in 2020, 36,730 immigrants from latvia were counted to be residing in germany (urmersbach, 2020). although those people live in germany, many of them are not assimilated into the german environment, perform low-skill jobs and their psychological well-being is low as well. issues on cultural differences and cultural identity are topical in western countries. however, there are politically and socially well-integrated immigrants also in an ethnically and culturally heterogeneous societies. (algan, bisin, manning, & verdier, 2013), (sutton, 2022). in this context, a phenomenon of multiculturalism, running counter to the theory of assimilation, according to 53 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 which immigrants are brought together within their own culture to promote their integration, can be pointed out. these issues have already been studied in america in the past. (glazer & moynihan, 1970), (lorenzo-blanco, et al., 2019). activities, such as coming together, celebrating holidays, cherishing traditions and involvement in amateur art groups improve life quality of the latvian immigrants in germany, thus helping them to overcome psychological barriers to their integration in the country, however a problematic aspect exists business wise, and it is related to finding factors that would help to attract immigrants to latvian diaspora organizations. in addition to the integration of immigrants, their well-being, including such aspects as self-affirmation, quality of life, life satisfaction, mental health, and others, is also important. (huppert, 2017). recently, well-being has been associated with leisure, as it has a potential to increase the former. thus, certain correlation between the concepts brings satisfaction and happiness; quality of life improves, and other positive experiences occur (teo, bentley, & nguyen, 2020). gibson has studied how well-being is related to spending free time. however, studies on the latvian immigrants in germany have not yet been conducted. although these people live in germany, many of them perform low-skilled jobs and their psychological well-being is poor. to raise and/ or increase psychological well-being of the latvian immigrants in germany and to facilitate their integration, latvian communities and associations where the latvian immigrants have an opportunity of coming together, marking holidays, cherishing traditions, as well as getting involved in amateur art groups, have been opened. these activities improve quality of life of the latvian immigrants in germany, thus helping them to overcome psychological barriers to integration in the country. however, a problematic aspect exists business wise, and it is related to finding factors which may help to attract immigrants to latvian diaspora organizations as to the place, where success stories of other immigrants living in germany for longer time can be found, that can be source of inspiration and support to newcomers who have just arrived and still looking for their ways to settle down. therefore, attracting immigrants to the cultural community is crucial (tartakovsky, patrakov, & nikulina, 2021). the latvian cultural association mentioned in this study is the one of the westphalia region of north rhine-westphalia, germany, and it operates as a non-governmental public benefit organization receiving tax benefits from the german tax authorities. at the same time, funds from the european union, the society integration foundation, the ministry of foreign affairs, the ministry of culture, the world association of free latvians, and the latvian national cultural centre are being acquired within the framework of various projects. psychological well-being among immigrants in psychological well-being, an emphasis is put on personal growth, development, self-realization, and it is defined as an extent to which a person is fully capable to function. it also includes the use of inner potential and fulfilment of person’s “true nature”. high level of psychological well-being is related to a person’s ability to act autonomously in his/ her life; ability to overcome challenges of the environment; ability to experience personal growth and cultivate good relationships with other people; ability to see the meaning of life and accept him/ herself (ryff & keyes, 1995), (şafak-ayvazoğlu, kunuroglu, & yağmur, 2021). positive relationships are placed among the most important aspects of life, and people are actively looking for emotional and psychic interaction with others. strong bonds can give a sense of stability in difficult times and be a source of joy for the person. achievements include attempts to reach certain goals, moving forward in life and feeling that a person is able to perform daily activities (anglim, horwood, smillie, marerro, & wood, 2020), (madi, bobowik, verkuyten, & basabe, 2022). such aspects as success, power and competence are being sought deliberately and are part of well-being. seligman’s theory of well-being (2011) is a complement to his authentic happiness theory (2002), and it was revising three different paths to take to happiness: entertainment and positive emotion, engagement and purport. leisure activities can also affect an individual’s well-being. therefore, research on how a person feels during various leisure activities has been carried out. (bragina & voelcker-rehge, e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 54 2018). the covid-19 pandemic and isolation connected to human isolation had a negative impact on psychological well-being (brooks, u.c., 2020). relatively little is known about the well-being of immigrants in germany, especially the latvian ones. some qualitative studies on how differently migrants interpret their new life in germany exist: part of them is very satisfied, but some – very dissatisfied. quantitative research works show that immigrants are generally satisfied with their lives in germany and that differences between the well-being of germans and immigrants are small (kämpfer, 2014). an average level of well-being among immigrants from different places does not differ significantly, it is approximately the same. therefore, the authors assume that the research on all immigrants can be attributed to the group of latvian immigrants as well (european social survey, 2021). subjective well-being is largely based on life satisfaction. its author compared the available data of the ess (european social survey) collected by interviewing people at different times with a purpose to find out a level of well-being of immigrants and the local population (european social survey, 2021). it should be noted that always, except during the economic crisis, the level of well-being of germans was higher than that of the immigrants, as the latter are often not given an opportunity of the best jobs or education due to various deficiencies (language, culture). the authors explain high level of immigrants’ well-being during the 2008 economic crisis by the fact that germany enjoyed economic stability also during the crisis, unlike immigrants’ home countries. so, living in germany, they had a higher level of subjective well-being. this phenomenon can be explained by quoting böhnke and kohler: “if a person is allowed to choose between two countries where to live, he or she will choose the one with the highest possible level of well-being”. (böhnke & kohler, 2010). well-being is a precondition for successful engagement into the society and integration. people with a high level of well-being can better see opportunities in different aspects of life (education, labour market, partnerships) and thus shape their lives better. persons with a low level of well-being keep a distance and are fearful (hadj abdou, 2019). the one who is not involved in social relationships outside the family, does not rely on others and does not talk about his/ her feelings with others, and consequently has worse chances to shape his/ her life (kämpfer, 2014). several authors have been concerned with a question of why the well-being level of immigrants and local germans differs. immigrants are in a relatively worse situation because germany is not their homeland, and their dimension of well-being is not on the same level as it would be there. first of all, it should be noted that immigrants’ potential in working life, as well as in terms of language skills, education and work experience, is not seen equivalent to the one of the local population (chiswick & miller, 2007), . in the scientific literature, this phenomenon is being called “brain abuse”, because, unfortunately, skilful persons are unable to compete with locals in the labour market (liversage, 2009). it might be a cause of the unemployed status, worse working conditions, and lower income (honkaniemi, juárez, katikireddi, & rostila, 2020). the authors note that migration is often caused by a wish to raise living standards, that can lead to frustration and low level of well-being in case of a failure. similarly, immigrants are unable to realize also the second dimension, because they have narrower social networks and less human contacts that are close – in most cases immigrants leave social contacts in their native countries and due to incomplete language or culture knowledge, age or different value systems, they cannot be established in their new home country (hans, 2010), (wimark, haandrikman, & nielsen, 2019). migration is like a critical turning point in life which brings up various situations, including conflicts of identity, experiences of discrimination, insecurity, assimilation pressure, and cultural shock that negatively affect well-being (kämpfer, migration und lebenszufriedenheit, 2014). therefore, reaching out to the community representing their homeland is especially important for immigrants – it becomes the first contact point in their new home country germany, where they can share experiences and get advice on how 55 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 to settle down better. during recent years several scientists have studied this phenomenon and found out that meeting religious and spiritual needs of immigrants strengthens human development potential and helps to overcome various challenges (acquaye, 2018). migration is largely a step towards improving life quality and well-being. however, a few studies show that people possess very high levels of stress during these transitions, which can have a negative impact not only on their well-being, but also on mental health (carlsson & sonne, 2018). upon arrival to their new home country, immigrants face such experiences as long distance from relatives and families, social isolation, loss of identity and roles, barrier of language and cultural differences, and discrimination (bekteshi & kang, 2018), (ghergina, plopeanu, & necula, 2020). attracting immigrants to a cultural institution and its characteristics the most important marketing tool to attract visitors to a cultural institution is communication through social media. digital environment is an alternative way for a business to communicate with its consumers (heinemann, 2008). lately, consumers want everything to be available quickly, conveniently and no matter where they are, so digital channels are being used more and more, as they allow people to be present at all concerts and events from a sofa while being at home the pandemic also contributed to the spread of digital activities among consumers. distance as an attraction factor was chosen to find out how far migrants are willing to go for reaching their cultural community and meeting other latvians, as it is one of the demographic attraction criteria. it has been proved that people belonging to a certain homogeneous group may have similar interpretations. if this technique is being applied successfully, it can cause emotions in the person and facilitate the attraction process (bekk, spörrle, & felser, 2009). to attract visitors emotionally, a company’s goals should be set with purpose to increase consumers’ satisfaction, awareness, as well as to gain and retain trust (hein, 2021). a popular person in a video-clip or advertisement can evoke positive emotions in consumers, because if a consumer associates him/ herself with that person and finds it likeable, the former is more likely to choose a product or service advertised by that person (bruhn, 2016). in terms of quality, it is one of the attraction criteria when it comes to specifics of the services – consumer satisfaction is proportional to the quality of performance (sauerwein, 2000). it means, – the higher is the quality of classes and events in the cultural association, the more visitors it will manage to attract. according to experts’ viewpoint and with reference to affiliation, latvianness, traditions and emotions as factors of attraction, one of the needs and characteristic traits latvians possess, is a need to be together, sing and dance, thus reflecting one of the most important motives to participate in activities. another crucial factor facilitating engagement of the population in folk arts is related to moral values and needs. the family also plays an important role – children whose parents are engaged in amateur groups often get involved in them later (zobena & tisenkopfs, 2005) (tisenkopfs & pisarenko, 2008). it is also known that processing of advertisements requires human energy, and it is proved that 0.0004% of advertising impulses penetrate the human subconscious, even though this information has not been intentionally processed, however perceived by the brain, thus causing a purchase of a product or service, and this decision is determined by senses (hörnschemeyer, 2016). therefore, it is important to present the advertisement or information about the company in such a way that it is also perceived unconsciously, for example, with colours, sounds – in ways that facilitate emotional belonging. since 1998, the cultural association has been operating as a meeting house for latvians living in the north rhine-westphalia region. the association facilitates activities of the diaspora not only for the purpose of preserving latvian identity, but also to promote transcultural identity. the association also supports the newspaper lettische presseschau – an informative portal about what is happening in latvia, thus providing an opportunity to find out about events in latvia in e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 56 the german language. the aim of events and activities organized by the cultural association is to restore full-fledged activities of the organization, independently offering compatriots and other interested people access to the latvian environment, promoting mutual cooperation among diaspora communities, emphasizing such values as strengthening national identity, promoting civic participation and maintaining ties with latvia, at the same time supporting newcomers and helping them to integrate into the german environment. information about activities is disseminated on the facebook page and home page of the cultural association, in latvieši.com portal; informative e-mails are being sent to the members of the association on regular basis, as well as event posters are made and placed in the association catalogues. the cultural association operates as a non-profit non-governmental organization that acquires investments from the european union, the society integration foundation, the ministry of foreign affairs, the ministry of culture, the world association of free latvians, the latvian national cultural centre, while the german financial authorities have granted tax reliefs as the association operates for the benefit of the society. research instruments and results the aim of the study is to research psychological well-being of the latvian immigrants and their engagement into the cultural community in germany. tasks of the research: to analyse the scientific literature on psychological well-being and engagement; to characterize the cultural community as a factor promoting integration; to carry out an empirical study on the psychological well-being and engagement of latvian immigrants; to draw conclusions and develop proposals for the latvian culture community regarding integration of the latvian immigrants in germany. research questions are the following: what is an assessment of the psychological well-being of latvian immigrants; what are the key factors attracting immigrants to the cultural community; are there statistically significant correlations between immigrants’ psychological well-being and attraction factors? two surveys were used to obtain the data: c. ryff’s (ryff, 1989) survey of psychological well-being, which has been adapted in latvia (voitkāne, miezīte, 2001). this survey is a theory-based tool for measuring all aspects of psychological well-being and consists of six scales: self-acceptance; positive relationships; autonomy; environmental mastery; life purpose; and personal growth (oecd, 2013). the second part of the survey is about attracting immigrants to the cultural association as members, participants of the groups and visitors while they come to events. the survey is designed and developed by the authors in 2021, and it is based on the attraction factors and aspects identified through analysis of the theory. 564 latvians live in münster (wiens, 2021). an invitation to participate in the study was sent to 125 latvians, who were the visitors of the latvian cultural association. the sample of the study consists of 78 persons (latvian immigrants) who responded to the invitation to participate in the study. the respondents of the research are visitors and potential visitors of the latvian cultural association in germany, in the city of münster and its area. due to the constraints of the covid pandemic, questionnaires were sent to respondents by mail and returned in the same way. gender distribution of respondents was as follows: 81% or 63 out of them were women and 19% or 15 – men. most respondents (41%) belonged to the age group 31-40. the next group (24%) consisted of visitors aged 41-50, followed by respondents (21%) aged 51-60, whereas respondents aged 21-30 and 61-70 compiled 5% of visitors, but 71-80 years old respondents – 4%. if taking into consideration the level of education of the respondents, most of them or 61% had higher education, 31% – vocational education, but 8% – secondary education. respondents were asked to indicate how long they have been living in germany. 4 respondents fell in the category up to one year, which made up 5% of the respondents, 6 respondents or 8% have lived in germany for 1-5 years, 28 respondents or 36% – for 6-10 years, 27 respondents or 35% – for 11-20 years and 13 respondents or 57 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 17% – over 21 years. current tendencies show that the majority out of those visiting the cultural association belong to so-called new exile – the diaspora. however, the institution has been also visited by people of an old exile or their descendants. according to the results of the survey, authors have found out that in the first year after arriving to germany from latvia, people are not yet looking for contacts with latvian organizations. respondents were asked how far their place of residence was located from the cultural association. most respondents or 42% indicated the distance of 10 km; 20% – of 10-50 km; 18% of respondents – 51-100 km, but 19% – 100 km or more to reach the cultural association. summing up the results of the psychological well-being survey, it was found out that the following scales received the highest evaluations: environmental mastery and life purpose. the lowest rated scales were as follows: autonomy and personal growth. high score in the environmental mastery scale means that the latvian immigrants can meet their daily needs even when they are abroad. articles of the scale life purpose received high evaluations, meaning that latvian immigrants in germany strive to fulfil their goals and make their lives better. the lowest rated scale is autonomy, meaning that life of latvians in germany is not autonomous, and they often shall obey someone else’s rules and regulations. low evaluations were given to the articles of the personal growth scale. it shows that latvian immigrants are often unable to facilitate their personal growth though in germany they receive relatively higher salary than in latvia. figure 1 median and arithemtical mean of the psychological well-being survey results according to the scales 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 5 5.1 5.2 positive relationships autonomy environmental mastery personal growth life purpose self acceptance psychological well-being median arithmetical mean 0 1 2 3 4 5 6 distance emotions quality affiliation people latvianness senses traditions engagement median arithmetical mean the authors evaluated median and arithmetic mean of the survey on engagement. the following scales received high evaluations: traditions, latvianness and emotions. the lowest rated scales were people and distance. traditions, emotions and latvianness were highly evaluated, meaning that the latvian values are important to latvians in germany, and they gain positive emotions by cherishing latvian traditions and socializing. thus, integration in germany has been facilitated by discussing success at work, improvement of language skills, as well as other important everyday life spheres. the scale inspiring people convincingly occupies the lowest position in the percentage analysis, meaning that people involved in the latvian association do not inspire visitors. the low rating of the distance scale can be interpreted in two ways: either distance is important for people, so this scale received low evaluations, because the association is far from home and not easy to reach, or distance is not important for respondents, they still go to events and therefore these articles are evaluated as irrelevant. 12 scales of the engagement survey are positive and 3 – negative. statistically significant correlations have been found. the authors have made also correlation analysis using the spearman correlation coefficient. fifteen statistically significant positive and negative correlations between the psychological well-being survey and consumer attraction survey scales have been found and shown in table no. 1. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 58 positive relationships autonomy environmental mastery personal growth life purpose selfacceptance s pe ar m an c or re la tio n co effi ci en t distance correlation coefficient -,015 -,107 ,214 -,009 -,069 ,187 two tailed level of significance ,894 ,351 ,060 ,935 ,550 ,102 emotions correlation coefficient ,172 -,023 ,345** ,055 ,076 ,309** two tailed level of significance ,132 ,839 ,002 ,631 ,507 ,006 quality correlation coefficient ,199 -,042 ,369** ,060 ,091 ,351** two tailed level of significance ,081 ,712 ,001 ,602 ,429 ,002 affiliation correlation coefficient ,144 -,111 ,316** -,066 ,042 ,273* two tailed level of significance ,209 ,334 ,005 ,568 ,713 ,016 inspirational people correlation coefficient ,031 -,285* -,013 -,239* -,228* -,042 two tailed level of significance ,786 ,012 ,912 ,035 ,044 ,713 latvianness correlation coefficient ,122 -,051 ,253* -,030 -,006 ,229* two tailed level of significance ,289 ,658 ,025 ,794 ,962 ,043 senses correlation coefficient ,097 -,013 ,286* -,012 ,019 ,303** two tailed level of significance ,400 ,910 ,011 ,917 ,866 ,007 traditions correlation coefficient ,165 -,064 ,302** ,121 ,077 ,269* two tailed level of significance ,148 ,579 ,007 ,292 ,500 ,017 table 1 spearman correlation coefficient of the psychological wellbeing survey and consumer attraction survey scales 59 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 5 5.1 5.2 positive relationships autonomy environmental mastery personal growth life purpose self acceptance psychological well-being median arithmetical mean 0 1 2 3 4 5 6 distance emotions quality affiliation people latvianness senses traditions engagement median arithmetical mean some quantitative studies on immigrants’ satisfaction with life in germany and other countries are available, but studies on the latvian immigrants in germany have not been conducted so far. laura sūna has carried out a qualitative research on the cultural and media identity among latvian immigrants in germany, trying to respond to the objectives close to the above mentioned research work (sūna, 2019). in its turn, this quantitative study on the integration of latvians through cultural associations and well-being of latvians is a novelty, because so far there are no studies that have examined correlations through the indicators of integration related to the care of the respective culture and psychological well-being. figure 2 median and arithemtical mean of the engagement survey results according to the scales conclusions » the findings of the survey reveal that among crucial factors for the latvian cultural association in germany, supporting the integration process, traditions, emotions and latvianness have been noted. the above-mentioned results prove the fact that the latvian values are important for latvians in germany and facilitate their integration in the country, as coming together evokes discussions on one’s success at work, improvement of language skills, and other important spheres of everyday life. » the lowest rated scale is inspiring people with convincingly lowest position according to the percentage analysis, which means that people engaged into the latvian association do not inspire visitors. to improve visitors’ attitude towards people involved in the cultural association, communication and/ or marketing courses could be offered to the staff and group leaders so that they can learn to present themselves better and treat visitors more kindly and inspiringly. » the distance scale received low evaluation that can be interpreted in two ways – either distance is important for people, so this scale was given low values as the location of the association is far from home and not easy to reach, or distance is not important for respondents, as they still go there and, therefore, consider these articles irrelevant. due to the fact that many respondents evaluate the distance from the cultural association to their place of residence with low scores, the authors of the article suggest opening a “fellow travellers centre” on the association’s website, offering cooperation opportunities. thus, people planning to go to the association would be enabled to enter an information of their city and planned travel date in the form of advertisement, offering to share the road with others. » according to the results of the survey, latvians in germany have highly evaluated the environmental mastery scale, meaning that latvian immigrants are able to meet their daily needs even when they are abroad. articles of the life purpose scale are also highly valued. it means e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 60 that latvian immigrants in germany strive to fulfil their goals and improve their lives. in this context, the authors recommend introducing, so called, help meetings for those latvians who have just arrived to germany, where knowledge of how to look for a job, write a job application, find language courses, and solve everyday problems would be shared. that would help attracting new visitors (the survey shows that very few latvians visit the cultural association), as the association would be a place providing support and positive emotions and helping newcomers to integrate into the society. as an alternative, also cooperation with the german employment agency providing respective counselling services could be established. » the lowest evaluations were given to the autonomy scale, which means that life of latvians in germany is not autonomous and they often have to comply with regulations set by others. to improve the autonomy of latvians living in germany, they should be encouraged to attend integrative classes, such as language and further education courses. regular advisory meetings should be set up to find solutions. articles of the personal growth scale were given low evaluations. it shows that latvian immigrants are often unable to facilitate their personal growth though in germany they receive relatively higher salary than in latvia. » correlation between the scales of environmental mastery and emotions shows that those germany based latvians, who have evaluated highly their skills to meet daily needs, consider emotions as a crucial factor and look for them in the cultural association and vice versa. » the correlation between the scales emotions and self-acceptance indicates that positive emotions gained in the cultural association help accepting oneself and one’s life and vice versa. » in turn, the correlation between highly evaluated quality of services at the latvian centre in munster and highly evaluated environmental mastery scale indicates that services provided by the cultural association are highly valued, if respondents have given high values to the articles of the environmental mastery scale. » the correlation between inspirational people and personality growth is negative. it means, that the latvians who have reached certain achievements in their lives and given the highest evaluation to growth, evaluate the people of the cultural association lower than people who have evaluated their growth less positive. the authors, responding to the above mentioned, suggest persons who work at the association to take part in the courses of psychology or sales thus finding ways how to become more charismatic and open and gain more sympathies among visitors of the association. » the study showed that the higher value is given to inspiring people in the cultural association, the lower is respondents’ control over their lives and the more they are influenced by others and vice versa. respondents who evaluated people in the cultural association with high scores, evaluated their personal growth as low, respectively when people in the association were given low values, the personal growth was highly valued. respondents would like to attend personal growth activities in the cultural association. visitors of the cultural association can facilitate their own psychological well-being by improving aspects that affect it, such as setting small goals for life, self-acceptance, and increasing their individual autonomy. visitors should set goals for self-development and integration – initially it takes only time contribution to sort out free online resources and video lectures to implement this proposal. each visitor of the association, taking into account his/ her own wishes and time possibilities, can start the above-mentioned activity immediately. it should be done on regular basis and preferably introduced to a person’s weekly routine. as the next step for raising the psychological 61 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 well-being of visitors, the authors suggest visitors to set a career or further education goal. it may help to achieve greater autonomy in life, which, in turn, allows an individual to become more independent. it might include either an acquisition of the driving license to reach a place of work or leisure facilities without being tied to the schedule of the public transport or the next level of a language course, thus improving communication skills and increasing one’s autonomy, or a new education or further training to achieve career goals in long term perspective. visitors should set a goal immediately after receiving the recommendation and start activities to improve their psychological well-being within 6 months. the budget is individual and everyone has to decide how much he/ she can afford to invest in personal development. » the research carried out is of great significance, as it is an attempt to tackle and understand real problems in the latvian immigrant lives, because their conditions related to psychological well-being are not equal to the german ones. this is a sociological problem, which should be researched, in order to get a better understanding about it and find possible solutions. the limitation of this research is a limited number of the study participants and a limited region in germany. results of the study cannot be generalized to the entire immigrant population of germany. references acquaye, h. e. 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(2021). jahresstatistik 2020. https:// www.stadt-muenster.de/fileadmin/user_upload/ stadt-muenster/61_stadtentwicklung/pdf/jahr/ jahres-statistik_2020.pdf: stadt münster. wimark, t., haandrikman, k., & nielsen, m. (2019). migrant labour market integration: the association between initial settlement and subsequent employment and income among migrants. geografiska annaler, series b: human geography, 101(2), pp. 118-137. doi: https://doi.org/10.1080/04353684.2019.1581987 zobena, a., & tisenkopfs, t. (2005). latvija. pārskats par tautas attīstību. rīga: ano attīstības programma, lu sociālo un politisko pētījumu institūts. 63 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). solveiga blumberga dr. psych., asoc.prof. riseba university of applied sciences fields of interests business psychology, organizational psychology, business address meza 3, riga, latvia, lv1048 +37126461229 solveiga.blumberga@riseba.lv mara vilcane bsba, technology project manager riseba university of applied sciences fields of interests psychology, business, culture, business psychology address meza 3, riga, latvia, lv1048 +4915787505736 maravilcane@gmail.com 22 issn 1822–8402 european integration studies. 2014. no. 8 constructing public services – european approach jari stenvall university of tampere, school of management kalevantie 4 33104 tampere, finland jari.stenvall@uta.fi ilpo laitinen municipality of helsinki, finland ilpo.laitinen@hel.fi klaus af ursin university of tampere, school of management kalevantie 4 33104 tampere, finland klaus.af.ursin@uta.fi petri virtanen university of tampere, school of management kalevantie 4 33104 tampere, finland petri.virtanen@uta.fi jari kaivo-oja university of turku, finland jari.kaivooja@gmail.com http://dx.doi.org/10.5755/j01.eis.0.8.6954 our research aim is to study how the new service-oriented approach is socially constructed in the practices of public services and which role identity formulation plays in the construction process. from the service science point of view, we present three different generations of service thinking. the differences between these generations lie in the nature of services and in the ways in which the service system should be developed, and what kind of learning processes each service reform contains. third generation services are constantly developing interactive processes where learning is based on local knowledge and experiences. they follow the logic of open systems theory. our second task is to present the conceptual framework for understanding public services as knowledge creation processes. our empirical task is to do a qualitative analysis based on a sample of interviews among social and health service managers and experts in four european cities (barcelona, den bosch, glasgow, greater london area). the focus is in the importance of identity: how it develops in the service reform processes. the key results in qualitative analysis show that interviewees stress identity being one of the key elements developing in new process-like services where professional approach is integrated with knowledge of clients and communities. street level bureaucrats´ open approach in connection with active role of service users results to unique solutions in service delivery. shared identity developed in a reform process constitutes a key element in this kind of public services. keywords: construction, public services, service integration, identity. introduction in many countries one of the most significant trends of change concerning the public sector has involved services and their concept (hartley & skletcher 2008). this has been described as transfer from production-oriented to service-oriented approach (osborne 2009). it has not been just a question of developing the services but in a wider sense of how, for example, cities and regions organize their operations with respect to civil society. there are several underlying reasons for the changes in services. straitened economic circumstances together with technological progress have offered novel ways to realize services. the needs and expectations of citizens and service users have changed. users have, for instance, higher levels of education and they demand personal service (e.g. pasquier & villeneuve 2012). this has created a new kind of operating environment for learning and intelligent public organizations (virtanen, stenvall & kinder 2014). the question is no longer what the service users – such as pupils and their parents – can learn from the public sector, but also what public organisations can learn from them, or how public organizations can utilize intelligent solutions to create conditions for personal learning among the service users. this kind of services can be called as issn 1822–8402 european integration studies. 2014. no. 8 23 third generation services (harisalo 2013; laitinen & stenvall 2014). in this article, we discuss the social construction of the third generation public services and the way in which this is influenced by the theoretical concept of public services and the theory-in-use (see brunsson & sahlin-andersson 2000; argyris & schön 1974). our research aim is to study how the new service-oriented approach is socially constructed in the practices of public services and what role does identity formulation play in the construction process. our hypothesis is that knowledge is an essential element in the construction of the identity of third generation services. several studies have concentrated on issues related to how organization sciences, practices, knowledge, and constructing are linked together (gergen 1994; gergen & gergen 2004; damargo-borges & rasera 2013). our article is a qualitative study with a special focus on the third generation services implemented in social and health care systems. the research material consists of interviews from cities and regions in several different countries, such as barcelona, glasgow, den bosch, and the greater london area. the material has been gathered from service development projects in which the aim has been to shift over to services with the customer in the centre. three generations of service science in our view, service thinking can be divided into three generations and they can be analysed and defined using the framework presented by risto harisalo (cf. harisalo 2013, 51). the differences between these generations lie not only in concepts of the nature of services but also in the ways in which the service system should be developed, and what kind of learning processes each reform contains. the first generation of service science concentrated primarily on single public services and service sectors. the objective was to understand the laws governing certain services, such as design services or health care and social services. services were organised identifying the customers’ needs, but largely with a production-oriented approach. from the perspective of the public sector, the first generation services included the view that each service constitutes an independent unit or a sector that must be examined from its internal conditions and circumstances. in these models, each sector has its own professionally trained staff. professionalism is strong in many public service sectors – a central feature of the first generation service science is hierarchy. services are organised with a productionoriented approach, top-down. legally supported professional conditions define how services are produced and for whom. the laws governing services are context-dependent, and the operating logic of one service sector – such as health care services – cannot be transplanted to another sector. the second generation service science aimed at comprehensive organising, arranging services in order to solve each customer´s problems. this carries the notion that sectorally organised service systems operate with too narrow views in solving the problems their customers have. the second generation service science regards service models as solutions to the customers’ problems (e.g. rummer & branche 1990). often these solutions are even tailor-made to the customer. this means that the connections between products and services are understood (normann 1995). therefore, a service can, for instance, include consultation and a solution based on technology. similarly, second generation services emphasize operational integration. this means than customers – or clients – might be provided with services being processes collaboratively produced by several groups of professionals. this directs focus to the information and skills necessary for integrating functionally separated services. operating across organisational borders acts as a central catalyst for learning (kinder 2000).the second generation service science stresses a comprehensive approach to services, because several factors are simultaneously affecting the ability to produce them appropriately. therefore, the organisation of the service system focuses on issues such as structures, culture, processes, and cooperation. services of the third generation are based on the view that services shall be organised according to what is outlined for open systemic thinking (chesbrough 2003; prahalad & ramaswamy 2004). from this perspective, services are constantly developing interactive processes, where reformation and learning are based on information, experience, and in-process learning, regarding the realization of services as well as the planning of service processes. in third generation services it is, thus, possible to apply the methods of learning by experience and learning by doing (cf. e.g. argyris 1977; kolb 1984). third generation services employ such concepts as coproduction and co-creation. the former refers to services being implemented and their contents defined together with the customer (bovarid 2007; needman 2008; pestoff & brandsen 2010). co-creation, on the other hand, refers to planning the services together with the customers (chathoth et al. 2013; grönroos & voima 2011; vargo et al. 2008). today, many services are developed in the spirit of open innovation paradigm. motivational issues are key issues for the development of new services for service innovations. user-driven innovations are needed more and more (meyer & schwager 2007, santonen, kaivo-oja, & antikainen 2011). technological solutions are also a part of third generation services. especially ubiquitous technologies are having big impacts on the development of third generation services (kristensson et al. 2008, kaivo-oja 2013). the use of technology enables, for instance, the transfer of information, the involvement of customers into services, and the production of interactive information. constructing, knowledge, and identity in public services – conceptual framework for nearly 20 years there has been burgeoning recognition among organizational researches that organization identity provides a promising framework for understanding organizations (blader et al. 2012). the discussion on identity is important in organizations that have people with several kinds of professional backgrounds. the challenge is to create a shared identity in the new organization environment (blader et al. 2012). from this point of view, the constructing of third generation services is promising in new social and health care organizations aiming at integrating the activities of several professional groups. it is not clear what the concept of identity means in practice (see for instance asford & fred 1989; blader et all issn 1822–8402 european integration studies. 2014. no. 8 24 2012; shultz et al 2013; ravazi & shultz 2006. kodein & greenwoord 2014). there is no consensus about an exact definition of the concept of identity in the literature, nor is there any precise agreement on the dimensions of identity. in other words, identity is an elastic concept. from the construction perspective, identity is considered here representing the entity´s central, enduring and distinctive properties (jian 2011, 49). the concept of organizational identity emphasizes autonomy, boundaries and collective resources as basic characteristics of given entity. identity also contains the idea of something possessing special characteristics while being a part of a highly general category, like a service system. (brunsson and shalin-andersson 2000, 59; alvesson et al. 2008.) in the identity process, we try to find answers to the following questions. firstly, we have to ask who we are (run & golden 2011). secondly, we ask why are we different compared with other organizations. in this context, discussions on identity are about insider-outsider aspects and about inclusion and exclusion as well (gioia et al. 2010). in construction process – like that of construction of third generation services – people try to recognize unique aspects of given organization and its practices. in the construction process people create identity by defining boundaries (santos and eisenhardt 2006). the boundary theory addresses how individuals and collectives form and shape boundaries in order to categorize and simplify stimuli. boundaries create perimeters for a given domain, such as “service” and “system” (ashforth et al., 2000 knapp et al. 2013). as advanced by organizational scholars, the boundary theory focuses on, for instance, how people and organizations enact boundaries. the constructing of organizational practices is a comprehensive process. it is obvious that reforming public services links identity, working practices and knowledge strongly together. as new structures and working arrangements are created, employees are normally required to form new kinds of activities. such changes rearrange the existing order modifying the ways in which these are differentiated from practices in other organizations and systems. these processes define new boundaries altering the ways in which people relate to each other (paulsen 2003). constructionism emphasizes the contextual value of knowledge production and its practices. it claims the need of involvement and collaboration of those who will use the knowledge (camargo-borges & rosera 2013, 2–3). according to this, it is possible to make the hypothesis that the construction of third generation services is a localized and contextual process. the constructionist theory is very sensitive to changes generating new forms of practices, identity and knowledge. data and method the research material has been collected in the cities of barcelona, den bosch, glasgow, and the greater london area. the choice of the target cities was affected by reformoriented thinking, with respect to their integrated social and health services and the related new service models. in the cities mentioned above, numerous people were interviewed, both individually and in groups; all in all, there were 100 informants. each personal interview lasted an hour, while the group interviews took 90 minutes each. the interviews were conducted in a semi-structured manner. all site visits and interviews were conducted between may and august 2012. in each city, the interviewees represented two distinct groups of professionals, the senior management of social and health services and, secondly, leading experts. in the autumn 2012, after the interviews, discussions on the subject were arranged through detailed questions and supplementary material delivered via e-mail. the interviews were transcribed and analysed in the autumn in 2012. as a part of the methodological triangulation, literary material in each target city was used along with interviews and observations. the researchers also endeavoured to pay attention to what was not included in the documentation and other written material, or what people did not want to include in it (laitinen 2009). this documentation was used as complementary material. the documentation gathered in the target cities included plans, reports, reviews, assessments, and studies of services and their integration. a need for developing models of operation was identified as the common premise for the cities chosen for the comparison – their aim has been to reduce bureaucracy, increase effectiveness, and make the production of value in collaboration with the customer more efficient than before. constructionist methodology has affected how we have analysed our data. empirical method is not understood here as conveying the correct knowledge about reality, but as a phenomenon defined and studied with a help of specific theory and its methods. the results of a systematic observation of reality are a priori circumscribed by the theory used. the constructionist invitation is to comprehend how adopted aspects of the world are socially structured, thereby opening up space for a variety of alternative intelligibilities. methodologically, the challenge is not so much in giving the correct interpretation of the phenomenon as in broadening the possibilities of understanding (see for instance camargoborges and rosera 2013, 2–3; mcnamee and hosking, 2012). identity – we do it differently on the basis of the data, it is obvious that people implementing third generation services stress the importance of identity creation. the interviewees used the terms “new” and “old”, the “previous services” and the “existing services”. they emphasized the uniqueness of new services. they compare their services to other public services. ways of thinking among the interviewees reveal that they consider themselves as primary movers in public services. the interviewees also find third generation services as a sort of revolution in the public service system. so, if we were to ask people using our services what the difference is, they would say it’s the fact that they tend to have one care coordinator. they no longer have multiple assessments. they may still have some specialist assessments, but we’ve significantly reduced that. from the perspective of knowledge, the ideology – we do it differently – is connected with learning from experience (see schön 1983). as an interviewee put it: “we discovered it was actually something quite unusual going on”. actually, on the basis of experience, many interviewees have seen that the world has changed and that is why it is issn 1822–8402 european integration studies. 2014. no. 8 25 very important to work differently. this does not just concern practices but the mind-set of services as well. this is the way of thinking that argyris (1978) has called double loop learning. identity – we do it differently – does not concern the practices of public services only. many of the interviewees see that change processes towards third generation services are very different compared with change processes in traditional service systems. they argue that third generation services should be developed with a bottom-up approach instead of top-down. bottom-up processes create new kind of knowledge for public services. knowledge becomes contextual, depending on actors, communities, working practices etc. in our data, many interviewees emphasize knowledge they have gained during the developing process. this is in accordance with postmodern organization philosophy (see e.g. gergen 1994) stressing local context and interaction processes in knowledge creation. professional identity and working practices there are strong connections between professional identity, boundaries, and organizational identity. the possessions of professions are typically based on knowledge, which creates autonomy and boundaries in relations to other professions. some interviewees consider that one purpose of the construction of services is to create conditions for using professional knowledge: but one of the problems with this model is that people feel quite afraid of doing this bit in the middle, because they are thinking “ i’m not a social worker, if something goes wrong, it’s me…”, so they are quite frightened of doing this work.” hence, it seems on the basis of the data that the working culture is changing heavily in third generation services. this might weaken the boundaries within organizations but perhaps produce boundaries between organizations. the viewpoint is that professional workers produce knowledge together within organizations. in this respect, there may be differences between organizations. because we’ve got the same values we say to staff we don’t want people fighting over service users – if they need a service, deliver it and we’ll worry about who will pay as we’ll sort it out, if you can’t. and over the years, less come to us because that culture is getting sorted out at the head of service level. team managers sometimes still have a bit of that’s mine and that’s yours, but that’s breaking down. this is well-being and the different disciplines, care, and well-being, we bring them together to have that holistic view. cure, care and welfare were very isolated structures in services and we thought it was more cost efficient and better for the care as a whole that they start working together more. professional identities may change within organizations in the third generation services. this is the outcome of collaborative working practices. the boundaries between professions are not so clear any more. single interviewees took up the consideration that professional identity should be based on the ideology that people are good in finding solutions together for practical problems or phenomena. this means that the contextual knowledge of services is especially important for professional identity. we created some roles which were very much like a health & social care worker. in mental health, instead of having social workers, community psychiatric nurses, and occupational therapists we created mental health practitioners. and the social workers also know a lot of things outside nursing, caring, health things. now we are trying to build a network to assist this group of families. to sum it up, professional identity, organizational identity, and contextual aspects go hand in hand in third generation services. the construction of services is based on traditional professional knowledge, a framework of collaboration, and localized knowledge. clients and communities clients and communities are important in third service generation. the identity of services is based on an open system approach. the system is open not only for professional knowledge but for the viewpoints coming from service users and the community as well. the construction process of services is happening through the interaction of different kinds of actors. many interviewees argued that it is just open approach that gives uniqueness to the services they deliver. services are also constructed employing the idea that service users are in the centre. the purpose is to create a holistic approach for handling service users’ problems. this requires a multi-professional approach. the service users’ problems are unique and none of the professions have sufficient knowledge by themselves. many interviewees emphasize again that the central role of service users is what makes third generation services different from the “old” services. new kinds of practices have been developed to be a part of the third generation service ideology. these have strengthened the position of service-users in these systems. especially coproductive practices have given an active role for serviceusers. these kinds of practices have an effect on professional identity. co-production also means that professional servants understand that they do not have all knowledge of the situation of service-users. but the client is in the centre. he has to confirm the possibilities, he is the owner of his own problem and information, and he is the boss of who is going to care for him in the end. the director. but the supporting carers are the inner circle for the clients, but you also have an outer circle. like an onion – peeling the onion. we try to put the client in the centre and then the professionals around them. in many cases, knowledge accumulated in the community (and its networks) is crucial for services. there are connections between knowledge of service users and of the community. there is knowledge concerning service users in the communities. for this reason, professional workers need the ability to work in collaboration with the people around the service-users: people are living – they are not just patients. they are part of the neighbourhood, a family, and you have to look at all those different things. contextual knowledge is meaningful in third generation services. this makes services not only unique but useful for issn 1822–8402 european integration studies. 2014. no. 8 26 the community. some interviewees paid attention to local conditions which have affected constructing of services. as open systems, services might influence their environment by creating local identity. identity has grown. and we sometimes referred to it as being an island. the area looks inward a bit, it doesn’t relate particularly well to its neighbours third generation services are constructed by localized identities and knowledge. it is possible that a local service system is very different compared to service systems in other areas. in the local context, the ideology of third generation services decreases the boundaries between servants, serviceusers, and the community. conclusions in this article we have analysed how the construction of third generation services is connected with organization identity. public service organizations try to create a unique mind-set for their activities. this creates an identity that is different compared with previous services. knowledge is an essential element in the constructing of identity. the following forms of knowledge are extremely important in the construction of third generation services: (1) holistic multi-professional knowledge, (2) knowledge of the service-users, and (3) community based knowledge. the purpose is to create conditions in which there are prerequisites for the utilization and production of professional and individualized service-user knowledge. it seems that constructing third generation services is produced by contextual knowledge. due to this, the local – learning by doing – process is meaningful in the construction of services. typically the process decreases boundaries between local actors and produces a common framework for working with service users. local and contextual identity means that it is difficult to produce generalized detailed understanding of the characteristics of third generation services. the reality is relative. services are constructed uniquely depending on the conditions. the philosophy of third generation services is based on the way of thinking of post-modern organization. hence we argue that it is, for instance, possible to produce knowledge on which kind of identity and contextual ideology are affected in service development. it is important to concentrate on the issue of what kind of local and contextual factors construct the developing process of services. our main point is that third generation services should be analysed differently. the mainstream in the literature on public services has top-down perspective. many researchers have concentrated on the issue of how a general approach – like ideology of public governance – is affecting public services (osborne 2006; osborne et al. 2013; virtanen, stenvall and kinder 2014). local and contextual learning processes are important in third generation services. the construction of identity and knowledge is an ongoing process in third generation services produced through local, human interaction. according to our data, local actors – like street level bureaucrats – make the essential choices concerning public service policies (see lipsky 1980; tuurnas, stenvall et al. 2014). for this reason, we should analyse third generation services using the bottom-up perspective. we should also pay attention to how local and contextual solutions are constructed in the general approach of services in policy context. references alvesson, m., ascraft, k., thomas, r. 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(2008). on value and value co-creation: service systems and service logic perspective. european management journal, 26, 145– 152. http://dx.doi.org/10.1016/j.emj.2008.04.003 virtanen, p., stenvall, j., kinder, t. (2014). the evolution of public services from co-production to co-creation and beyond – new public management’s unfinished trajectory? university of tampere and university of edinburgh. the article has been reviewed. received in april, 2014; accepted in june, 2014. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 146 european integration studies no. 14 / 2020, pp. 146-155 doi.org/10.5755/j01.eis.1.14.26379 abstract tax incentives as a part of governments’ applied mechanisms for the third pension pillar in estonia, latvia, and lithuania http://dx.doi.org/10.5755/j01.eis.1.14.26379 the main objective of the improvements to public pension systems is to create a balanced three-pillar pension structure and increase public accountability for pension capital formation. most pension systems are based on the first two pension system pillars – mandatory contributions in the state compulsory unfunded pension scheme and the state-funded or accumulated pension scheme in pension funds. however, the pension level adequacy has been reached by adding the third pension system pillar voluntary investments in private pension funds. governments are private pension system policymakers by defining a legal framework and providing tax incentives for voluntary investments for retirement. in the baltic countries – estonia, latvia, and lithuania, the third pension pillar is at an early stage of its development, and as such, should be particularly stimulated. this research focuses on the tax incentives utilized by the governments of estonia, latvia, and lithuania and aims to ascertain and compare the effectiveness of the tax incentive policies applied to the third pension pillar by the governments of the three baltic countries. it questions the effectiveness of the incentive mechanisms the governments of the baltic countries have chosen, which include involving most of the population in the private pension saving programs. the research methods used are the analysis of scientific publications on the previously conducted research, acts of legislation of baltic countries, as well as an analytical study of statistical data on the development of voluntary pension fund contributions in estonia, latvia, and lithuania. the research results indicate that the tax incentives are the mechanism to motivate the population to create savings in the third pension pillar in all three baltic countries. however, latvia being the country with the highest coverage rate of the third pension pillar has the most unfavorable conditions for creating savings. there are no tax incentives on returns on investment and tax-exempt withdrawals in latvia, while estonia and lithuania have all positions tax-exempt. a more detailed analysis of the tax incentives at the contribution stage explains the underdeveloped third pension pillar in lithuania, as lithuanian personal income tax reliefs are targeted at low or medium wages or gross income. the research has highlighted the impact of tax incentives on voluntary savings for retirement in the three baltic countries, opening a discussion about the effectiveness of governments' applied mechanisms. keywords: government, pensions, tax incentives, third pension pillar, voluntary savings. evija dundure university of latvia, latvia submitted 05/2020 accepted for publication 08/2020 tax incentives as a part of governments’ applied mechanisms for the third pension pillar in estonia, latvia, and lithuania eis 14/2020 biruta sloka university of latvia, latvia http://doi.org/10.5755/j01.eis.0.13.23562 147 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 introduction in the era of an increasingly aging population, pessimistic forecasts have been developed for future pension replacement rates. countries face the need to balance their national social budgets: their revenues and expenditures, leading to a reduction in the amount of state-guaranteed future pensions. recent developments in pension systems are based on their expansion to include second and third pillar in an attempt to create a balanced pension model. one of the greatest challenges of governments is to increase public accountability for pension capital formation by creating private pension savings in the third pension pillar pension funds. in recent years, empirical research has made considerable progress in analysing the factors influencing the third pension pillar formation. most studies of voluntary savings for retirement focus on individuals' characteristics such as financial literacy (ricci & caretelli, 2017), education and income level (vivel-búa, rey-ares, lado-sestayo & fernández-lópez, 2019; daugeliene, 2016; botos & botos. 2020), gender (kumar, tomar & verma, 2019; foster & smetherham, 2013), acculturation and ethnic identity (fontes, 2011). meanwhile, other studies have been carried out on how institutional factors influence the third pillar development, such as incentives to save privately or reforms of the whole pension system (le blanc, 2011). researchers have studied the interaction of pillars in multi-pillar pension systems and have made comparison of canada, denmark, netherlands and sweden (sørensen, et. al, 2018), where authors have concluded that the relative importance and the role of the different pension pillars vary from country to country, and according to age, income, gender and socio-economic dimensions as well as between generations. (sørensen, et. al., 2018) have stressed that “in many countries, the generosity of public benefits is set to decrease increasing the importance of private pensions”. (sørensen, et. al., 2018) have concluded that “this will shift risk and uncertainty from employers and pension institutions to individuals”. “thus, risks and uncertainties related to private pensions will become more important, raising questions about the division of responsibilities between public and private pensions, and about the potential of mitigating such risk through pillar interaction” (sørensen, et. al., 2018). studies on pension system development (medaiskis, 2001) and evaluation of the 3 pillar pension funds in lithuania (jurevičienė & volkova, 2014) have focused on different aspects the third pillar pension funds including the correlation between tax incentives and effectiveness of the third pillar pension fund. to varying degrees, governments influence the involvement of population and the provision of adequate pensions with incentives that are suppressed by legislation. the organisation for economic co-operation and development (hereinafter oecd) has published enlightening overviews of pension system developments and public policy reforms carried out in the oecd countries with the analyses of the global tendencies (oecd, 2019). however, in order to evaluate the effectiveness of a country's pension reform, it is useful to compare developments before and after the reform. longitudinal studies of pension reforms provide the useful basis for practical implication for further legislation improvements. the debate continues about the best strategies implemented for government incentive packages and their success in achieving the goal of engaging citizens in building up savings. on the one hand, the third pension pillar reforms influence development in the long run and as such do not allow one to identify the dominating factor financial incentives, the availability of information, or the marketing efforts made by government and service providers (börsch-supan, coppola, & reilheld, 2012). on the other hand, researches conducted on the uk pension system have confirmed that retirement savings growth depends on the increase in contribution ceilings (chung, disney, emmerson & wakefield, 2006; disney, emmerson & wakefield, 2007) stated by the government. special attention by academic researchers has been paid to the life cycle aspects of the conhttps://datubazes.lanet.lv:2080/authid/detail.uri?authorid=57216510007&amp;eid=2-s2.0-85083744219 https://datubazes.lanet.lv:2080/authid/detail.uri?authorid=57217901837&amp;eid=2-s2.0-85083744219 http://datubazes.lanet.lv:3537/ehost/viewarticle/render?data=dgjymppp44rp2%2fdv0%2bnjisfk5ie46brnt6aytrck63nn5kx95uxxjl6urum2pbbiskaeulirt1kyq55zy5zyit%2fk8xnh6ueh7n%2fivauptlgyprzosqqkhn%2fk5vxj5kr84lpfueac8nnls79mpnfsva%2bntvgwqbrjtpzkh%2fdj34y73poe6urjkpia&vid=3&sid=9fc85f0c-7591-4aeb-9d3a-76bbf497a668@sdc-v-sessmgr03 http://datubazes.lanet.lv:3537/ehost/viewarticle/render?data=dgjymppp44rp2%2fdv0%2bnjisfk5ie46brnt6aytrck63nn5kx95uxxjl6urum2pbbiskaeulirt1kyq55zy5zyit%2fk8xnh6ueh7n%2fivauptlgyprzosqqkhn%2fk5vxj5kr84lpfueac8nnls79mpnfsva%2bntvgwqbrjtpzkh%2fdj34y73poe6urjkpia&vid=3&sid=9fc85f0c-7591-4aeb-9d3a-76bbf497a668@sdc-v-sessmgr03 https://datubazes.lanet.lv:2080/authid/detail.uri?authorid=57199998737&amp;eid=2-s2.0-0009849652 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 148 sumption and savings behaviour of the society (attanasio & weber, 2010). the life cycle simulation provided on the people of the united states and japan (hayashi, ito & slemrod, 1988) savings and house purchase decision dependability on tax system showed a small impact of tax incentives on people's decisions. there are doubts of tax incentives positive impact on volume of national saving (anton, bustillo & fernandes-macias, 2014; daugeliene, & liepinyte, 2012). however, there is no clear evidence that pension fund contributions are generated by diverting other household assets or pre-planned savings therefore tax incentives might stimulate increase of household savings. in estonia, latvia, and lithuania, the third pension pillar is at an early stage of its development, and as such it should be particularly stimulated. although in all the three baltic countries pension systems have been compared by academic researchers (rajevska, 2016), no special attention has been paid to the comparison of these incentives and the dependability of savings from them. therefore, this analysis aims to fill this gap by focusing on the incentives utilized by the governments of estonia, latvia, and lithuania. the aim of this research is to ascertain and compare the effectiveness of the third pension pillar tax incentive policies applied by the governments of the three baltic countries to create balanced and adequate pension systems. this research questions the effectiveness of the incentive mechanisms the governments of the baltic states have chosen, which include involving most of the population into the private pension saving programmes. the research methods used are the analysis of scientific publications on previous conducted research, acts of legislation of baltic states as well as an analytical study of statistical data on the development of voluntary pension fund contributions in latvia, estonia and lithuania. the research has highlighted the impact of governance mechanisms on voluntary savings for retirement, opening a possibility to recommend the use of the best practice in the future development. results and discussion figure 1 gross pension replacement rates: average earners at retirement age and age 80 source: oecd (2019), pensions at a glance 2019: oecd and g20 indicators, oecd publishing, paris pension adequacy in most countries of the world has been analyzed by oecd and world bank in their statistical and analytical overviews. to present the retirement income level of countries, replacement rates are calculated. replacement rate is an indicator describing the level of retirement income after retirement as a percentage of individual earnings at the time of starting the retirement period. replacement rates are the degree to which pension systems allow typical workers to maintain their previous standard of living when they switch from work to retirement. according to figure 1, at the end of 2019 gross pension replacement rates of estonia, latvia, and lithuania were below the oecd average (oecd, 2019). comparing all three baltic states, latvia's gross replacement rate (44.6%) was higher than in lithuania and lower than in estonia it was about 5% lower in estonia (47.1%) and almost twice as high as in lithuania (23.6%). 149 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 the gross replacement rates at age 80 differ from those at retirement age due to the indexation of pension benefits in payment, which do not follow wages in many countries. thus, the estimated replacement rate decline in latvia was about 13%, in lithuania 17%, but in estonia only 2%. although all three pension systems of baltic countries consist of three parts: (1) mandatory contributions based on the state compulsory unfunded pension scheme, (2) the state-funded or accumulated pension scheme in pension funds, and (3) a compulsory contribution-based private pension scheme in pension funds, the replacement rates calculated by the oecd included only the first two mandatory parts. meanwhile, the pessimistic forecasts of social budget strains resulting from the prolongation of life expectancy and reducing the share of the working-age population have led to discussions in academy and government institutions about possible scenarios. contributions into the third pension pillar – private pension funds are one of the solutions. besides, according to robert holzmann, a world bank expert (holzmann, 2012), the countries having lower replacement rates for state-guaranteed pensions accumulate more in private pension funds. the academics orazio p.attanasio and agar brugiavini in their research (attanasio & brugiavini, 2003) on substitutability between private and pension wealth in italy after the pension reform found the evidence of higher level of private savings in the situation of reduction of pension wealth. the beginning of the third pension system pillar in latvia and estonia can be dated earlier than the second pillar was established. voluntary savings for retirement of both countries started with the respective legislation dated 1998 for estonia (oecd, 2011) and latvia (groduma, 2002). in lithuania, both the funded pension system parts the second and the third pillar, were introduced in the year 2004 (bitinas, 2011). in contrast to latvia and estonia, lithuania chose the quasi/mandatory approach to the formation of the second pillar of pensions. that could be the reason for a less developed third pension pillar in lithuania in comparison with estonia and latvia. figure 2 number of voluntary pension fund contracts as a share of the number of active population aged 20-64 in latvia, estonia and lithuania, 2018 based on the reports of financial supervision institutions of all three baltic states and the statistical office of the european union at the end of 2018, latvia demonstrated better results compared to lithuania and estonia in the share of the population creating private pension funds (figure 2) as the instruments for the third pillar of the pension system. to enlarge ultimate total pension replacement rates by encouraging people to save voluntarily, the governments have introduced incentive systems. according to the oecd classification (oecd, 2019), financial incentives are the most common types of incentives. usually, those are in the form of tax reliefs and can be applied in three stages – on contributions, return of investment, and the withdrawal of funds. if national regulations provide tax exemptions, the financial profitability of private pension schemes increases; if the position is taxed, the savings become less financially viable. it can be seen in table 1 that latvia is the most disadvantaged country in the stages of returns of investment and withdrawal in comparison with the other two countries. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 150 tax incentives: contributions however, it is useful to make a deeper analysis in the part of contributions and the limits of tax exemptions. the national regulations on personal income tax (hereinafter – pit) of estonia (parliament of republic of estonia, 1999), latvia (parliament of republic of latvia, 1993) , and lithuania (parliament of republic of lithuania, 2002) provide several limitations on the contributions to the voluntary savings causing differences in the financial incentives at this stage. all three countries' regulations limit the sums to be paid to pension funds with the full pit exempt principle. there are two kinds of limitations – the limit in the percentage of pit payer gross annual income and aggregate limit of contributions to voluntary pension funds. limit estonia latvia lithuania limit of gross annual income as a base for pit reliefs 15% 10% 25% aggregated limit of contributions provided in voluntary pension funds 6 000 eur 4 000 eur 2 000 eur applicability only pension funds pension funds and life insurance pension funds and life insurance pit rate for employees applicable to a base for pit reliefs 20% 20% 20% table 2 personal income tax (pit) incentives, 2019 source: elaborated by e.dundure based on personal income tax regulations of estonia, latvia and lithuania as can be seen from the table above, the limitations differ considerably across the three baltic states. the limits of gross annual income as a base for pit reliefs vary from 10% for latvia to 25% for lithuania, the aggregated limit of contributions provided in voluntary pension funds varies from 2000 eur for lithuania to 6000 eur for estonia. the specified financial incentives apply to the investments into pension funds for all three countries, and into life insurance companies with the agreements more extended than ten years for latvia and lithuania. the tax rate for the employees' category applicable to a base for pit reliefs is equal to all three countries and does not do a favour to any of them. to evaluate the ultimate benefit from pit financial incentive, the maximum gross yearly salary as the base for pit incentives was calculated according to the formula: maximum gross annual salary = aggregated limit of contributions *100/ limit of gross annual income according to the calculation of limitations of pit incentives covered maximum gross annual salary, lithuania has the smallest yearly salary limit 8000 eur, latvia and estonia have equal annual salary limit of 40000 eur. country contributions returns of investment withdrawal estonia tax-exempt tax-exempt tax-exempt latvia tax-exempt taxed tax-exempt if contributions made by the individual taxed if contributions made by the employer lithuania tax-exempt tax-exempt tax-exempt table 1 financial incentives for voluntary savings in private pension funds, 2019 source: elaborated by the author based on oecd (2019) financial incentives for funded private pension plans 151 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 source: elaborated by the author based on personal income tax regulations in latvia, estonia and lithuania figure 3 personal income tax incentives covered contributions in pension funds exposure in gross income level in latvia, estonia, and lithuania in 2019 we can see from figure 3 that lithuania has the highest financial incentive rate for the gross income level up to 8000 eur in a year. however, for the gross income from 8000 eur to 40000 eur a year lithuania does not have any pit incentives to save, while estonia and latvia have. therefore, lithuania is targeting smaller salary or gross income (till 667 eur a month) receivers than it is in latvia and estonia (till 3333 eur a month). however, in lithuania the gross annual income limit as a basis for pit relief (25%) is, on average, twice as high as in the other two baltic countries (10% and 15%). the ultimate sums of incentives could diversify more if we compare three baltic countries' other tax incentives for pit, such as not applicable with tax basic exemption and exemption for children. those are exemptions different for each country and mostly changing according to a tax policy of each country. the main purpose of just mentioned exemptions is the reduction of poverty, and they are targeted at the lowest income recipients in society. lithuania having the smallest limit of an aggregate sum in contributions (figure 3) might be at risk to reduce the real financial incentives effect of additional pit reliefs. according to the pit regulation of lithuania, the non-taxable income of 4200 eur in 2020 is stated if the annual income of an individual does not exceed the amount of twelve minimum monthly wages. it leads to only 3800 eur income as a basis for other tax reliefs, including for contributions into voluntary savings for retirement. this additional factor questions the effectiveness of financial incentives to contributions at small aggregate limits. tax incentives: returns of investment according to oecd (oecd, 2019) analyses of thirty-six member countries, most of them do not levy a tax on investment on voluntary savings for retirement in pension plans. estonia and lithuania are among them. however, latvia is one of the 11 oecd member countries that have the tax on return of investment. moreover, the tax rate is one of the highest ones – at the level of 20% and equal for all types of asset classes, duration of the investment, or other parameters. latvia's determination to include the capital increase formed by pension funds in the taxable base of the pit was proved by the fact that it was started already in 2010. from the year 2018, the rate of 10% was increased to 20%. the administration of the pit on return of investment has e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 152 been carried out upon withdrawal only. on the one hand, it makes it difficult to forecast the final pension savings amount; on the other hand, it gives a chance to pay for accumulated returns at the end of the saving period. tax incentives: withdrawals although, according to table 1, estonia and lithuania have tax-exempt withdrawals of private pensions, certain conditions should be met. to have pit exemption in estonia, private pensions can be received not earlier than at age 55 and for life annuities contracts. regulations in lithuania provide for the withdrawal period tied to the statutory pension age and for a tax-free payment not earlier than five years before it. latvia has differentiated voluntary savings according to the payer of contributions – whether it was an individual person or an employer on behalf of an employee. if a person has made contributions by himself/herself, the withdrawals are pit exempt. for the contributions provided by the employer, pit should be paid. the extra tax might be a reason for insufficiently developed pension plans created for employees in latvia. figure 4 presents an overview of the contributions of individuals and employers into private pension plans in latvia from the year 2012 to the year 2019. the slightly growing trend of employers' contributions did not lead to a higher share in the amount of total contributions. on the contrary, the share of employers' contributions reduced from 30% in 2012 to approximately 15% in 2019. source: elaborated by e.dundure based on reports of financial and capital market commission in latvia www.fktk.lv figure 4 latvia contributions by pension plan participants and employers in the third pension pillar funds, thousand eur this trend questions the effectiveness of the government tax policy for employers' contributions to private pension plans. contributions by employers to private pension plans in latvia in 20122019 are included in figure 5 together with linear trends and exponential trends. data indicate that with every year contrbutions of employers to private pension plans are increasing, linear trend indicates that annualy increase of contributions by employers increase in average by 359,94 thousand eur with coefficient of determination r2 = 0,7823. trend analysis indicate that for tendency of contribution by employers it is better to use exponential trend as for this trend r2 = 0,7978. that is good indication for development of private pension funds in 153 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 figure 5 latvia contributions by employers in the third pension pillar funds and trends 2012-2019, thousand eur conclusions latvia. taking into account experience in other countries more motivation and support for such contributions would be useful – respective legislative regulation could be developed and for researchers more deepe analysis on correlation between tax incentives and effectiveness of the third pillar pension fund could be carried out in future. the main goal of the current study was to determine the tax incentive mechanisms the governments of the baltic countries – estonia, latvia, and lithuania have chosen in the promotion of the population voluntary savings for retirement. the main conclusions are: _ in all three baltic countries, tax incentives are the mechanism to motivate the population to create savings in the third pension pillar. _ according to the calculated pension replacement rates, lithuania has the lowest rate among the three baltic countries, and the least developed third pension pillar; therefore, the private pension savings should be more stimulated. _ from the perspective of tax incentives, latvia has the most unfavourable conditions for creating savings. in latvia, there are no tax incentives on returns on investment and tax-exempt withdrawals for employers created pension funds, while all positions are tax-exempt in estonia and lithuania. _ as a result of detailed analyses of personal income tax incentives at the stage of contributions, certain limitations have been recognized for all three countries. lithuania's personal income tax incentives have been targeted to smaller salary or gross income (till 667 eur a month) receivers than it was in estonia and latvia (till 3333 eur a month). this finding supports the idea that a tax incentive at the stage of contributions is the motivator to create savings in the third pension pillar system. _ contributions by employers to private pension funds increase in latvia during last decade, more motivation and support for such contributions would be useful – respective legislative regulation could be developed. the scope of this study was limited in terms of tax incentives as part of financial incentive mechanisms. an issue that was not addressed in this study was whether the baltic countries have non-tax incentives for private pension savings and what their impact might be. future research should, therefore, concentrate on the investigation of non-tax incentives and the voluntary savings aspect in the second e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 154 anton, j., de bustillo, r., muńoz & fernandez-mazãas, e. 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(2016). adequacy and equity of pensions as a function of pension system institutional design: a case of the baltic states, doctoral dissertation, university of latvia ricci, o. & caretelli, m. (2017). financial literacy, trust and retirement planning. journal of pension economics and finance, 16(1), 43-64. sørensen, o. b., billig, a., lever, m., menard, j.-c. & settergren, o. (2016). the interaction of pillars in multi-pillar pension systems: a comparison of canada, denmark, netherlands and sweden. international social security review. 69(2), 53-84. https://doi. org/10.1017/s1474747215000177 the financial and capital market commission in latvia (2019), operations of private pension funds. retrieved on 5th march, 2020 from https://www.fktk.lv/ en/statistics/pension-funds/quarterly-reports/ vivel-búa, m., rey-ares, l., lado-sestayo, r. & fernández-lópez, s. (2019). financial planning for retirement: the role of income. international journal of bank marketing, 37(6), 1419-1440. https://doi.org/10.1108/ijbm-09-2018-0253 about the authors dundure evija master of business administration, doctoral student university of latvia fields of interests voluntary savings role in pension system adequacy. address aspazijas bulv. 5, riga, latvia, lv 1050 phone +37129493458 e-mail: dundure.evija@gmail.com biruta sloka dr.oec. professor university of latvia fields of interests multivariate data analysis, social marketing, quantitative analysis. address aspazijas bulv. 5, riga, lv 1050, phone + 37129244966 e-mail: biruta.sloka@lu.lv this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 117 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 abstract the shift of the policy towards fdi in european union: determinants and challenges http://dx.doi.org/10.5755/j01.eis.1.14.27556 since 2016, a change in the policy on foreign direct investment (fdi) can be observed in the european union. this change was significantly influenced by global processes, which resulted in a particular interest in direct investments carried out by transnational corporations from china, india or russia. in particular, countries such as france, germany and the united kingdom, observed a significant increase in the number of mergers and acquisitions of domestic enterprises in 2010-2016. therefore, in 2018 the process of creating a european screening mechanism was initiated, which entered into force in march 2019. at the same time, at the end of 2019, the outbreak of a covid-19 virus pandemic stopped the process of further globalization by breaking global supply chains, and by restricting the flow of goods, people and capital. keywords: fdi, screening mechanism, european union, globalization, covid-19. european integration studies no. 14 / 2020, pp. 117-124 doi.org/10.5755/j01.eis.1.14.27556 introduction submitted 06/2020 accepted for publication 07/2020 the shift of the policy towards fdi in european union: determinants and challenges eis 14/2020 aleksandra borowicz faculty of economics, university of gdansk the european union has always been at the centre of investors' attention in terms of investing capital. the entry of foreign capital from a third country in the form of fdi means free access to the common market, i.e. employees, technologies, know-how but also enterprises. therefore, foreign capital seeks to enter the european market in order to be able to benefit from the absorption of resource. on the other hand, the progressing globalization, and in particular the development of technology and information, significantly influenced the growing interest of countries in the inflow of investments in the form of fdi. regional economic integration was conducive to capital integration, and incoming fdi began to be seen as a significant benefit for the host economy. regardless, globalization seems to have peaked in recent years. unctad calls the period of recent years the "slowbalization" period. the term is currently widely used to depict the meaning the period when globalization loses its dynamics, which was observed in the scope of foreign direct investment, portfolio investment or trade. all these elements began to shrink in relation to their share in gdp. growing tension, and even trade war on the us-china line, are adding more pieces to the puzzle. staring from 2016 world investment report underlined that fdi lost its momentum. the rate of the expand of the international production by multinational entities (mnes) has slowed down (wir, 2017). some of the experts declare that the world economy shall forget about globalisation and slowbalization will strongly arise from regional integration and globalisation (kapellian, 2020). the turn of 2019/2020 is the last factor that changes the global situation, because of the pandemic outbreak. the emergence of a global pandemic, which significantly affected the functioning of the global economy, meant that economic relations, and including the area of fdi, will no longer be the same. unctad reported in march 2020 that fdi flows in 2020-2021 will be reduced http://doi.org/10.5755/j01.eis.0.13.24033 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 118 by 30-40% instead of 5-15% as reported at the beginning. transnational corporations felt a drop in sales, and were forced to revise their financial forecasts. the industries that are hit hardest were: the raw materials industry1, airlines, and the automotive industry (unctad 2020). the purpose of the article is to identify and describe the factors that significantly influenced changes in the european union's policy towards foreign direct investment, and to discuss these changes. the article will analyse the phenomenon of foreign direct investment in the eu in recent years. the observed inflow of fdi to the eu caused a specific reactions in each of member states, which will be discussed in this article. the second topic to be analysed will be possible consequences of the outbreak of covid-19 in the area of eu policy. this article falls within the recent research trend on foreign direct investment, in the context of the changing global environment as a result of a pandemic. what's more, the article may bring new voice to discussion in the area of policies towards fdi, formulated by countries and the european union during the period of return to growth and building economic resilience to shocks. the research methods used in this article are analysis of statistical data to, and analysis of official documents related to the policy of the european union in the field of foreign direct investment. why foreign direct investment are important? foreign direct investment has a significant impact on the host country's equipment in the area of production, in particular: capital, technology and employment (salamaga 2013, 22; lehnert, benmamoun, zhao 2013; brenton et al. 2001). research highlights the positive impact of fdi on european economies in the form of new technologies, market access, job creation or wage increases. the extent of this impact depends on the absorption capacity of the economy (blomström, kokko 1998, 247 -277; crespo, fontoura 2007; dachs, betina 2014, 214-232). research on the relationship between mergers and acquisitions and the value of exports has shown that fdi complements and supports host country exports (carril-caccia, pavlova: 2018). umiński (2002) indicates the occurrence of so-called indirect effects, that consist of improving the quality and the modernisation of used techniques, through the process of learning to modify, adapt and develop technologies. in addition, transnational corporations play an important role in regional and local economies. m. forsgren (2008) listed the following roles: dominant entity, coordinating entity, entity creating and sharing knowledge / technology and the international networks. on a national scale, fdi stimulates gdp (woźniak 2008; anyamele 2010; abbas et.al 2011) as well as employment (rozen-bakchner 2017; estrin 2017; jude & silaghi 2016). 1 this effect has been enlarged by the plunge of prices on the oil market in march 2020. 2 own study based on unctad data accessed on 16.07.2019 and world investment report 2019. in 2016 and 2018, two controversial events took place on the german market, that were related to attempts of taking over companies by chinese investors. germany blocked the second transaction regarding the transmission company. however, the transaction regarding kuka ag, which was taken over by midea, has been finalized. at the end of july 2018, germany blocked the acquisition (catrain&theodoropoulou 2019: 1-2). global foreign foreign investment has fallen to $ 1.4 billion in 2018. what's more, this decline has been visible since 2015. however, the european union remains at the forefront of both inward and outward fdi stocks. in 2018, it recorded 31.3% and 37.1% share in global fdi. however, it should be mentioned that this share fell from around 50% in the early 1990s2. according to data of eurostat in 2018 the inflow of fdi came in over 25% from u.s.; 18,9% from great britain, and 10% from switzerland. china stood for only 2,8%. in recent years in the european union, on the initiative of italy, france or great britain started why did the european union introduce the fdi screening mechanism? https://thelawreviews.co.uk/author/profile/1014258/eleni-theodoropoulou 119 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 a discussion on the inflow of foreign investments from third countries. although only 0.4% of enterprises in the eu are controlled by capital from third countries, they generate around 6% of employment and 11% of value added. in the global economy, a trend has been observed associated with the growing role of fdi inbound developing economies, but also such as russia and china. in this case, the increasing involvement of capital from these regions in the european union is particularly visible. the involvement of chinese capital in the form of fdi in the years 2010-2016 increased 15-fold in the eu (hanemann, huotari, kratz 2019). despite the fact, that the share constitutes about 2% of incoming fdi (compared to 40% share of the usa), this does not change the fact that the degree of chinese capital penetration in the european union is growing dynamically (bickenbach, liu 2018, 15-22). at the same time it must be mentioned that this penetration is unequal between ms. the following countries: france, germany, great britain, the netherlands, italy and sweden in 2016 stood for 76% of m&a’s in european, whereas the rest of 22 ms represented 24% (bourgeois 2018, 35). nevertheless the key problem for ec was not only the dynamics of engagement of chinese investors on european market. the rules of the game considering the role of the state in the process of aquring the european companies is questioned by ec. research carried out for the european commission in the process of preparing the legal framework for tools controlling the inflow of fdi from third countries indicates that enterprises controlled by foreign capital from outside the eu have a significant share in assets. in 2016, the surveyed enterprises that were capitally dependent on companies from third countries accounted for only 2.8%, but represented approx. 35% of the assets of the surveyed enterprises. only 9.3% of enterprises with foreign capital are listed on stock exchanges. as much as 45% of the assets of listed companies belonged to companies controlled by capital from third countries, which shows that these companies are relatively larger than european companies. greenfield investments focused in the following industries in 2017 (ec 2019): _ pharmaceutical and chemical _ electronics, electronic equipment and machinery _ motor vehicles and transport equipment _ gas and electricity _ computers and it services _ financial and insurance services. european commission pointed out the role of the state-owned companies has risen. fristly, as the entities undertaking standing behind the fdi, but also as a target of third countries investors. the risk that arises form this context is closely connected with the threat of acquiring and controlling critical technologies, infrastructure or sensitive information. it brings a challenge for securing the public order (ec, 2017). what is fdi screening mechanisms? the idea that the european commission promoted in the context of work on the control mechanism of the fdi entering poland has two dimensions. firstly, the european union has sought, and continues to follow the course to ensure equal access for investors from third countries to the common european market. secondly, to introduce such a mechanism that will allow observing and verifying the actions of investors in the common market. the european union has clearly indicated that it is open, and interested, in the inflow of fdi from third countries, but not at all costs. this process is to serve socio-economic development in the eu, and not pose a threat to public security and order (ec 2017, p. 5). in particular, the european commission drew attention e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 120 to the situation when fdi is carried out by enterprises financed from public funds or directly state enterprises, which significantly affects the creation of unequal conditions of competition. the fdi screening mechanism came into force in 2019. earlier analysis revealed that 12 out of 28 member states had a mechanism for monitoring incoming fdis. ec pointed out, that in march 2020, already 14 countries were using screening mechanism (ec 2020). most frequently, member states used provisions for sectors considered strategic, as energy or telecommunications, but there were also provisions with a more horizontal wording, related to maintaining security and public order. the criteria applied refer to both qualitative criteria related to obtaining control over the acquired company, and quantitative criteria related to shares or the number of votes (ec 2017). the tools used by the member states are perceived as a manifestation of the restriction on the free movement of capital and freedom of entrepreneurship, as they also involve investors from european union countries (art. 49 and art. 63 tfeu). at the same time, the laws ensuring security and public order in member states justify the solutions undertaken at the level of individual countries. this is also provided for in the treaty, which furthermore allows for taking into account proper justification and equal treatment of investors3. thus, they were found to comply with the principles of proportionality of law. the concept finally presented by the european commission is significantly different from the provisions in individual member states. the european commission has clearly indicated that the operation of this mechanism is to be based on cooperation and exchange of information between member states. furthermore, areas that the eu has identified as being of strategic importance, mainly relate to those ensuring security and public order, in particular research in technologically intensive spheres under horizon 2020, space (galileo) or trans-european networks (tens). the mechanism itself consists of several tools that can be used by the european commission or member states (cremona 2018: 60): _ monitoring by the european commission of incoming fdi, and in particular investments directed to sectors of strategic importance for security and public order, implemented by enterprises controlled by capital from third countries. _ coordination of the exchange of information between member states on the situation in the area of zib. _ adapting these regulations to the legal order at member state level. _ screening of fdi by the european commission in a situation where foreign investment may significantly affect european programs and projects. although it seems that the european commission is taking over the competences of the member states or its actions overlap with the competences of the member states, art. 65 paragraph 1 point b tfeu clearly indicates the specific scope of situations where member states may impose restrictions (tfeu, 2012). new challenges european union faces in the area of foreign direct investment undoubtedly, the european union's activities in the field of domestic market protection were justified. the growing involvement of chinese, russian or indian capital in european companies and their acquisition in recent years has meant that the eu could not passively watch this phenomenon. the more that a significant part of the member states had mechanisms for monitoring fdi. for example, in july 2015, the "act on control of certain investments" came into force in poland, which provides, first of all, for ex-post control of investors, and secondly, it seems to be 3 see more: article 49 and 63 of treaty on functioning of european union. 121 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 insufficient, as it does not apply to foreign investors and generally. some sources indicate that the role of the office for competition and consumer protection (uokik), which could monitor investments being carried out in poland, should be strengthened (izdebski et al., 2016: 30-31). the regulation of the council of ministers in issued 3.12.18 supplements these activities, which indicates the list of protected companies. they come from the chemical, telecommunications and energy industries (( dz.u. 31.12.2018, poz. 2524) since 2019, more than 35 investments have been notified in the european union. however, it is now crucial to change the approach to foreign direct investment in the context of the ubiquitous coronavirus pandemic. as previously mentioned, a change in the face of globalization will be of significant importance for further activities in the area of fdi policy. on the one hand, it will face a situation in which the largest enterprises will be weakened and may become the target of acquisitions of enterprises supported by third-country governments. on the other hand, the european economy will suffer from a pandemic. forecasts predict a contraction in gdp throughout. preliminary estimates forecast that the first quarter of 2020 in the entire eu will end with a reduced gdp of -2.7% compared to the previous year's quarter (table below). percentage change compared with the previous quarter percentage change compared with the same quarter of the previous year 2019q2 2019q3 2019q4 2020q1 2019q2 2019q3 2019q4 2020q1 euro area 0.1 0.3 0.1 -3.8 1.2 1.3 1.0 -3.3 eu 0.2 0.4 0.2 -3.5 1.5 1.6 1.3 -2.7 table 1 growth rates of gdp in volume (based on seasonally adjusted data) source: eurostat, preliminary flash estimate for the first quarter of 2020, https://ec.europa.eu/eurostat/ documents/2995521/10294708/2-30042020-bp-en.pdf/526405c5-289c-30f5-068a-d907b7d663e6 retrieved: 01.06.2020 pandemic context to policy towards fdi in european union policy towards foreign investment will be one of the key elements in rebuilding the european economy. currently, changes have been made to the provisions for foreign investors in the european commission document "communication from the commission guidance to the member states concerning foreign direct investment and free movement of capital from third countries, and the protection of europe's strategic assets, ahead of the application of regulation (eu) 2019/452 (fdi screening regulation) 2020 / c 99 i / 01." the issue of guidelines for member states points precisely to the health sector, which is particularly important for the safety and health of eu citizens in the face of a pandemic. what's more, the message indicates that in transactions involving fdi, one should depart from quantitative approaches to investment assessment, because at the initial stage of development of start-up companies this value may be limited, but the technology and research that fdi affects may be strategic. furthermore, the regulation setting out the framework for monitoring fdi is extended to all sectors. the outbreak of the covid-19 pandemic has reinforced the ongoing phenomena of policy towards foreign investors in the eu. on the one hand, support for the inflow of capital that is desired in the european union in the face of the economic slowdown. on the other hand, seeking to rebuild economic resilience to possible economic shocks creates a wave of protectionism. due to the fact that member states are very diverse in terms of incoming fdi, this should be particularly cautious. countries such as germany, france and italy are exposed to dynamic capital penetration from third countries. this applies not only to companies of strategic importance, but also to stable enterprises, important for regional communities in terms of employment or cooperation with suppliers in a given location. in this context, the position of central and eastern european e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 122 countries whose economies still rely on capital inflows in the form of fdi should also be taken into account. the slowdown in the area of foreign investment may result in the emergence of pressure and competition race to attract foreign investment. to sum up, there are several important elements that give a new context and impose a number of challenges in the area of policy towards foreign investors in the european union: the european union should continue to monitor the inflow of foreign investment from third countries in order to be able to react on an ongoing basis in situations where it is taking place in strategic and technologically intensive sectors. the legal framework related to fdi monitoring in the health sector should become a key element of policies towards foreign investors at member state level due to the prevailing pandemic. the european commission and the member states should be cautious about foreign investors, because in the process of rebuilding economies, foreign capital, especially for central and eastern european economies, is still an important element in the context of job creation, technology flow and foreign trade. so the protectionism is not an answer for the global slowdown. limited global flows of foreign direct investment will exert pressure in the process of competing for fdi in countries that have hitherto been attractive in terms of investment placement. at the same time the ongoing monitoring will create a framework for policy makers to be vigilant for third countries behaviour. already it is witnessed that after 2016 the dynamics of m&a’s by chinese investors decreased. the actions undertaken by eu brought raised awareness on the ms level. due to interrupted global supply chains, foreign investment will be relocated to the european union, especially in countries open to foreign investors. conclusion the european union's actions in the area of policy reorientation towards foreign investors are not new on the global stage. countries such as the usa, canada and australia have for many years had a legal framework for controlling fdi in their economies. due to the complicated legal system in the european union, the tools proposed by the european commission are based on cooperation and exchange of information. the emphasis is on the fact that the entry of a foreign investor into one member state results in unrestricted access to the european common market. thus, the observed growing number of mergers and acquisitions in the european union since 2010 has resulted in the adoption of a mechanism for monitoring fdi from third countries in 2019. the reasons for that was rising role of fdi in the form of m&a which in 2010-2016 were highly concentrated in six countries: france, germany, italy, the netherlands, sweden and great britain. the undertaken discussion within eu initiated in 2016 resulted in the rise of the awareness on ms level. fdi screening mechanism can be considered as a moderate form of protectionism, which focus on the support of countries to prevent from predator investments based on utilization of stateowned entities and focused on the access to key assets and technologies from the eu perspective. the outbreak of pandemic in 2020 it gives a new context. especially the sector of broadly understood as health, shall be protected to support the public safety and public order in time of unforeseen shocks. independence of eu and its ms in this area will significantly affect the vulnerability of economy and society to shocks. the turn of 2019 and 2020 has identified several new challenges facing the european union as a whole and each member state. the spectre of economic slowdown, redefining globalization in favour of deepened regional economic integration, interrupted global supply chains contribute to a change in thinking about foreign direct investment. affected weak industries need protection against uncompetitive takeover practices by state-owned companies from third countries. strong enterprises will need recapitalization to rebuild their potential. a particularly interesting 123 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 issue will be the strategy of eu countries which have been actively competing for foreign direct investment such as poland, the czech republic and hungary so far. the screening mechanism towards fdi in this changing global surrounding will strongly influence the shift in the transmission channels of fdi, which will differ in selected countries. this direction shall be taken into consideration in further research. referencesabbas q., akbar s., nasir a.s., ullah h.a., naseem m.a. 2011. 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krakowie, kraków about the author aleksandra borowicz ph.d. assistant professor faculty of economics university of gdansk fields of interests economics and finance. address armii krajowej 119/121, sopot, pl e-mail: aleksandra.borowicz@ug.edu.pl this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 226 european integration studies no. 14 / 2020, pp. 226-237 doi.org/10.5755/j01.eis.1.14.26381 abstract marketing communications of latvian social enterprises from a consumer perspective: practical suggestions for improvement http://dx.doi.org/10.5755/j01.eis.1.14.26373 the purpose of this study is twofold to contribute to the further understanding of social enterprises’ marketing by providing a consumers’ perspective on the content that social enterprises generate in order for them to be able to better understand their strengths and weaknesses and to establish a reference point with regards the current situation in social enterprise marketing which will allow to compare and measure improvement in the future and, if needed, provide fact-based evidence to assist social enterprises in their call for support from public authorities. for data anlysis such quantitative research methods were used as analysis of descriptive statistics (indicators or central tendency or location (arithmetic mean, mode, median), indicators or variability (range, standard deviation and standard error or mean), testing of statistical hypothesis with t-test and analysis or variance anova. results of the research indicate that social enterprise consumers are supportive of social enterprises and their cause and are also interested in the marketing content provided, however, the full potential of word-of-marketing is not used, suggesting that there is significant room for improvement. with regards marketing communication content, social enterprises are most appreciated by consumers for aesthetic and interesting content. on the drawback side – the greatest challenges for social enterprises are to provide content on a regular basis and achieve visibility. since the comparatively lower evaluations for aforementioned characteristics may be directly associated with lack of financial resources and skills, authors recommend greater support from ministry of welfare of republic of latvia for development of support programs with the aim of increasing the marketing skills of social enterprises as well as promoting close win-win cooperation between commercial outdoor, print and online media holders and social enterprises (e.g. in the form of subsidized advertisement spaces while they are not used by commercial clients in return for lower taxes) in order to help social enterprises reach higher visibility. keywords: social enterprise, marketing communications, social entrepreneurship, consumer research, marketing research. introduction social enterprises are increasingly receiving recognition from consumers and public authorities worldwide for their ability to target social and economic problems with a commercial approach thus achieving a double or at times even triple bottom line. often characterized by a non-profit background, their marketing skills are below par compared to their commercially-oriented counterparts which, among others, is a significant challenge social enterprises are faced with. while the amount of research with regards marketing aspects of social enterprises is steadily increasing, this specific topic is still relatively under-researched, especially in latvia, where, to submitted 05/2020 accepted for publication 07/2020 marketing communications of latvian social enterprises from a consumer perspective: practical suggestions for improvement eis 14/2020 kristīne casno university of latvia, latvia daina šķiltere university of latvia, latvia biruta sloka university of latvia, latvia http://doi.org/10.5755/j01.eis.0.13.23562 227 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 authors’ current knowledge, there are only few research studies published (kerlin, 2010; young, lecy, 2014; bartha, bereczk, 2019; blagoycheva, 2019, dobele, 2013). thus the purpose of this study is twofold to contribute to the further understanding of social enterprises’ marketing by providing a consumers’ perspective on the content that social enterprises generate in order for them to be able to better understand their strengths and weaknesses and to establish a reference point with regards the current situation in social enterprise marketing which will allow to compare and measure improvement in the future and, if needed, provide fact-based evidence to assist social enterprises in their call for support from public authorities. tasks of research: 1) to analyze recent research findings on social entrepreneurship, the state of the discipline in europe and in latvia as well as recent research findings with regards social enterprise marketing; 2) analyze the survey results (survey was carried out from 24th of january to 31st of march, 2019): i.e. the evaluations provided by respondents on various characteristics of social enterprise marketing content. for analysis or survey results the following statistical analysis methods were applied: descriptive statistics (indicators or central tendency or location (arithmetic mean, mode, median), indicators or variability (range, standard deviation and standard error or mean), testing of statistical hypothesis with t-test and analysis or variance anova. the results of research accentuate overall support and interest in social economy on behalf of social enterprise consumers and highlight both the strengths and weaknesses of the marketing content generated by latvian social enterprises. social enterprises today are well-recognized on a global scale for their capability to address various social and economic problems (bandyopadhyay, ray, 2019 b; nicholls, 2006; berbegal-mirabend, et. al. 2019), to promote sustainable development (bartha, bereczk, 2019; blagoycheva, 2019, dobele, 2013), and drive innovations (monroe-white, zook 2018; tkazc, 2016). having originated as a public response to the failures of government and public organizations to provide the required level of social services (satar, et. al. 2016; mitra, et. al. 2019; bandyopadhyay, ray, 2019 b; nicholls, 2006), social enterprises achieve a double or even triple (people, planet and profit) bottom line (bandyopadhyay, ray, 2019 c). social enterprises are also referred to as one of the approaches to “socializing capitalism” which, as brdulak, et. al. (2019) note, “…sensitize the economy to the needs of citizens, shaping their quality of life” and bring more balance to the economic processes by highlighting and solving social issues which capitalism in its pure form has left behind (brdulak et. al. 2019). although a relatively new phenomenon, social entrepreneurship has become a widely discussed research topic across the world as researchers have tried to gain an in-depth understanding of the concept (kerlin, 2010; young, lecy, 2014) and of the variety of social enterprise types (defourny, niesens, 2017; līcīte, 2018 b, saebi, 2019) as well as of marketing aspects associated with social enterprises (bandyopadhyay, ray, 2019 b; tsai, et. al. 2019; berbegal-mirabend, et. al. 2019; casno, et. al. 2019 a, b). increasingly attention has been paid also on how to best educate the future social entrepreneurs and prepare them for challenges of social enterprise management (mitra, et. al. 2019). due to the unique and inherently dual nature of social enterprises reflected in their ambitions to combine social and economic goals, researchers are divided in their opinions with regards to which sector social enterprises belong to – the for-profit, non-profit or the so-called third sector – a hybrid model of the previous two (satar, et. al. 2016). in the same manner, there is also a lack of consensus with regards a universal definition of a social enterprise (singh et al, 2015; berbegal-mirabend, et. al. 2019; bandyopadhyay, ray, 2019 c; young, lecy, 2014; defourny, niesens, 2017), however, there is a unified understanding about a social enterprise as primarily focused on solving social problems by applying a business-like approach (nicholls, 2006; young, lecy, 2014; bandyopadhyay, ray, 2019 a; satar, et. al. 2016) which clearly makes it distinctly different from a traditional commercial enterprise or a non-profit organization. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 228 overview of current situation in europe and latvia as of 2020, social economy provides jobs to 13.6 million people across member states of european union (european, 2020 a). as bartha and bereczk (2019) note, social enterprises in the central eastern european region are characterized by weak financial viability which coincides with observations of ūlande, līcīte (2018) regarding the situation in latvia where social enterprises must rely on donations or grants to make ends meet and often operate in “survival mode” (ūlande, līcīte, 2018). bartha and bereczk (2019), based on their research of social enterprises in hungary, argue that in order to enhance the ability of social enterprises to earn their own income, public policy should focus on developing the business-mindset of social entrepreneurs’ as well as provide continued access to grants and other forms of financial support, as these factors are found to have the most significant impact on financial viability of social enterprises in hungary (bartha, bereczk, 2019). the development of social economy across european union member states is not uniform, however, much effort and financial support is invested towards improvement. across europe, government support provided to social enterprises varies significantly. while the social economy of great britain is the most well-developed, some countries have not passed any legislation to support their social economy yet (european, 2019). insufficient public awareness about social enterprises and social entrepreneurship is characteristic of many european union member countries (european, 2019), including latvia (ūlande, līcīte, 2018). support for social economy, also coined “economy that works for people” (european 2020 a) is indeed needed as the life-span of social enterprises is shorter than that of traditional enterprises (berbegal-mirabend, et. al. 2019). european union is strongly appreciative of the significant role social economy plays in the public welfare sector of its member states (european, 2020 b). with the aforementioned in mind, cooperation between social economy and traditional enterprises has been a recent research topic of european commission, recognizing the vital role social economy plays in securing sustainable development. research results indicate that key to successful cooperation between social economy and traditional enterprises is development of a win-win model between partners, highlight 16 different forms of cooperation that are currently applied to a greater or lesser extent and recommend greater support in terms of various legal policies that could further incentivize the aforementioned partnerships (european, 2019). the recognition and strong support provided to social economy by european union provides favorable conditions to further development of the social entrepreneurship field in latvia and motivating people be economically active in social entrepreneurship. the field of social entrepreneurship in latvia is young but highly potential. it took close to 10 years, since the introduction of the concept of social entrepreneurship in latvia in 2009 (līcīte, 2018, a), for the law of social enterprise to come into force on the 1st of april, 2018 (saeima, 2017). the long-term effectiveness of the social enterprise law has been a source of debates, resulting in several challenges and considerations being highlighted that will require further elaboration (ūlande, līcīte, 2018). while there are approximately 200 social enterprises in latvia, not all of them have decided to pursue the official status of a social enterprise (līcīte, 2018, a). most de facto social enterprises operate as service providers in the social services and healthcare sphere, the largest being latvijas samariešu apvienība (samaritan association of latvia) with an annual turnover of more than 5 million eur and 700 employees (ūlande, līcīte, 2018). majority of social enterprises which have gained the official status are work-integration social enterprises that produce various design products (līcīte, 2018 b; register, 2020). while the concept of social enterprise is politically and legally accepted in latvia, the understanding of the concept within society is rather narrow social enterprises are primarily equaled with work integration enterprises (european, 2020 a; ūlande, līcīte, 2018). ūlande, līcīte (2018) argue that while the partnership among various stakeholders within the latvian social enterprise ecosystem has im229 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 proved over the past years, disbelief and skepticism among government and municipality institutions regarding the potential of social enterprises in providing effective solutions to social and economic problems is still widespread (ūlande, līcīte, 2018). despite the aforementioned, the number of social enterprises with official status, majority of them newly established, is steadily growing (casno et al, 2020 b). while most social enterprises are based in riga, the success of various support programmes has led to an increasing number of social enterprise initiatives in other cities and rural areas (ūlande, līcīte, 2018). although the field of social entrepreneurship is expanding, a significant drawback for most social enterprises in latvia is lack of sufficient financial confidence to acquire loans or capital investments social impact investment as a discipline in latvia is only at the very early stage of development (ūlande, līcīte, 2018). considering the characteristics of development of social entrepreneurship in europe and specifically in latvia, the role of stronger, more professional marketing is invaluable for further growth of social economy. marketing – a much needed key element for social enterprise success marketing plays a significant role in securing long term sustainability for social enterprises (bandyopadhyay, ray, 2019, a, b; satar, et. al. 2016; batraga, et. al. 2018 a, b; daugeliene & liepinyte, 2012). they are deemed to be pioneers of responsible marketing who have significant potential to bring about not only increased economic and social value but also sustainable social change, provided they apply a more strategic and professional approach to their marketing efforts (bandyopadhyay, ray, 2019 c). an excellent overview of social enterprise marketing aspects that have previously been in the focus of academics is provided by bandyopadhyay, ray (2019, b). however, product and service marketing is a serious challenge for many social enterprises (bandyopadhyay, ray, 2019, a, b), including those operating in latvia (līcīte, 2018 a, b; lis, et. al. 2017). as indicated by bandyopadhyay, ray (2019, b) marketing efforts in social enterprises are generally characterized by lack of skills, focus on mere promotion of products without a deeper strategy beyond, low-cost marketing approach relying on personal networks and social platforms, inherent battle between social and economic aspects, legacy mindset of inferior role of marketing, lack of financing, importance of awareness building and need to simultaneously cater their marketing efforts to different stakeholders (bandyopadhyay, ray, 2019, b). researchers are increasingly paying attention to the marketing aspects of social enterprises and providing practical recommendations with regards various marketing applications and innovations in this sphere as it is important also for the society – to encourage activities of social inclusion and motivating for entrepreneurial activities to the part of society often being not so confident in their success and abilities of self-realisation and getting recognition as their produced goods or services are realized in the market. although social enterprises may increase their performance by integrating the best marketing practices of traditional enterprises (newbert, 2012), social enterprise marketing is unique due to the duality of their mission and necessity to meet the needs of various stakeholders under circumstances of limited resources (bandyopadhyay, ray, 2019, b). satar, et. al. (2016) also have argued for a unique approach to social enterprise marketing and consider social marketing a viable option (satar, et. al. 2016). singh, et. al. 2015, daugeliene, 2016, however, highlight that for social marketing to succeed, the internal and external context (environment) of the social enterprise should be integrated in the campaigns and the socioeconomic profile of consumers as well as the type of social enterprise should be taken into account (singh et al, 2015). berbegal-mirabend, et. al. (2019) accentuate how important it is for social enterprises to have a well-crafted mission statement and argue that such components as customers and product or service offer should be the primary focus for social enterprises when building their mission statements as they are associated with higher economic performance, however, the relative importance of various mission statement components changes depending on the maturity and size of the social enterprise (berbegal-mirabend, et. al. 2019). researchers have also provided recommendations for social enterprises for e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 230 more efficient communication and relationship-building with their target audiences. tsai, et. al. (2020) recommend social enterprises to focus on increasing transparency of their social impact and overall benefits provided to the larger society, as well as to focus on operational transparency to increase consumer confidence in product quality and implement word-of-mouth marketing practices (tsai, et. al. 2020, p. 359). bandyopadhyay and ray (2019 a) argue that relationship marketing is essential for social enterprises to gain acceptance of their new products and services and increasing their value which results in more sustainable operational outcomes due to stronger relationship with target audience and surrounding community (bandyopadhyay, ray, 2019 a). casno, et. al. (2019, a, b) highlight the role of pleasant in-store shopping experience for consumers and the significance of digital presence as factors that motivate socially responsible purchases in latvia the most (casno, et. al. 2019 a) and also investigate the information channel preferences of latvian social enterprise product and service consumers which suggest that the top three communication channels with the highest potential to drive social economy are social networks, followed by television and radio (casno, et. al. 2019, b). according to the opinion of authors, the amount of research concerning marketing aspects of social enterprises is slowly increasing, however, this topic is still relatively under-researched given the critical role it plays for social enterprise sustainability and may never lose its actuality given the everchanging and dynamic challenges posed by the modern world. in latvia, according to the knowledge of authors, only several research articles are available on the topic of marketing aspects of social enterprises, therefore authors hope to further expand the knowledge regarding social enterprise marketing and provide practical recommendations to assist social entrepreneurs in their decision-making processes. empirical research methodology and results for data collection purposes, authors applied quantitative research design in the form a survey which requested respondents to evaluate the various characteristics of social enterprise marketing content on a scale 1-10 in order to be able to conduct a more detailed analysis and respond with a “yes” or “no” to questions reflecting their actual interest in the marketing content provided by latvian social enterprises and if they have recommended social enterprise products or services to anyone. survey realized with survey tool questionpro which ensures excellent monitoring of the survey process and get survey data in spss format to make deeper analysis of the obtained data in the survey. social enterprise customers are estimated as 5% of the active population (csb of latvia, 2019), it means do you follow the activities of social enterprises in social networks and other information channels (website, information in the media etc.)? yes 41,6 % no 9,7 % no answer provided 48,6 % source: authors’ construction based on questionnaire developed by kristine casno and survey conducted in 2019, n=329 figure 1 summary of respondents’ responses to the question if they follow the activities of social enterprises in social networks and other information channels 5% from 800 000 persons are 4000 persons. survey was available online and was filled out by 329 respondents (8,22% of the hypothetical population), 224 of whom completed the survey in full. respondents were mainly of female gender, of age group 16-45 with a higher education degree and majority had made a purchase from a social enterprise at least once in 2018. overall, a significant proportion of respondents are interested in the informational content provided by social enterprises, as confirmed by the summary of responses in figure 1. the above 136 positive responses from respondents indicate that social enterprises are well-capable to attract and retain the attention of their customers, however, taking into account that overall 174 respondents had made purchases from social enterprises in 2018, authors con231 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 have you ever recommended purchase of social enterprise products or services to your firiends or acquaintances? yes 42,6 % no 8,5 % no answer provided 48,9 % source: authors’ construction based on questionnaire developed by kristine casno and survey conducted in 2019, n=329 figure 2 summary of respondents’ responses to the question if they have recommended purchase of social enterprise products or services to their friends or acquaintances clude that almost 22% of them did not pursue further interest in social enterprise activities, which also taking into account the high share of respondents who did not provide an answer to this question, indicates a significant potential for social enterprises to improve the effectiveness of their marketing. an almost equally high proportion of respondents have also recommended the products and services of latvian social enterprises to their friends or acquaintances as reflected in figure 2, which confirms relatively strong support of social economy on behalf of the consumers or social enterprise products and services and a positive word-ofmouth marketing trend. however, taking into account that 174 respondents actually made purchases in 2019, almost 20% of them may not have been confident enough to recommend a social enterprise due to various considerations. while the aforementioned results confirm interest in and support to the latvian social economy, they also clearly highlight that there are significant opportunities for engagement with existing and potential audience that social enterprises are not fully exploiting. as not all customers have to think about marketing aspects not all respondents have provided their evaluations related to marketing communications context of latvian social enterprises (not all aspects were asked to be evaluated), a little more than 120 respondents (for different analyzed aspects from 123 respondents to 126 respondents) provided their opinions regarding marketing communications of social enterprises they are familiar with by evaluating several characteristics, as reflected in table 1 below. table 1 main indicators of descriptive statistics for survey question “to what extent the marketing communications content of latvian social enterprises you are familiar with corresponds with these characteristics?” (scale 1-10) statistical indicators aesthetic interesting noticeable convincing regular captivating n valid 125 124 126 126 123 123 missing 204 205 203 203 206 206 mean 7.45 7.42 6.83 6.94 6.39 7.17 standard error of mean 0.158 0.144 0.172 0.176 0.201 0.177 median 8 8 7 7 7 8 mode 7 8 7 7 7 8 standard deviation 1.762 1.608 1.931 1.979 2.235 1.962 variance 3.104 2.587 3.729 3.916 4.994 3.848 range 9 8 9 9 9 9 minimum 1 2 1 1 1 1 maximum 10 10 10 10 10 10 source: authors’ construction based on questionnaire developed by kristine casno and survey conducted in 2019, n=329 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 232 on average, social enterprise customers are rather modest in their evaluations of provided characteristics of social enterprises’ marketing communications content – while mean indicators are clearly above average for all characteristics, they do not reach 8 or above for any of the characteristics provided which highlights marketing challenges of social enterprises and is consistent with previous research. social enterprises are currently doing best at generating aesthetic and interesting content but would need to work most on increasing the regularity and visibility of the content they provide as well as on the ability of the actual message to bring in sales. opinions of respondents do vary across age groups (age groups above 56 years were excluded from analysis as they were represented by only 3 respondents in total), as reflected in table 2 below. table 2 main statistical indicators by age group for survey question “to what extent the marketing communications content of latvian social enterprises you are familiar with, corresponds with these characteristics?” (scale 1-10) age group aesthetic interesting noticeable convincing regular captivating 16 25 mean 7.36 7.82 6.73 7.09 6.55 7.36 n 11 11 11 11 11 11 standard deviation 1.362 1.722 2.328 2.663 2.697 1.912 26 35 mean 7.52 7.40 6.72 6.98 6.34 7.11 n 58 57 58 57 56 57 standard deviation 1.678 1.438 1.673 1.747 2.193 1.887 36 45 mean 7.32 7.36 7.00 7.10 6.44 7.38 n 38 39 39 40 39 37 standard deviation 2.028 1.678 2.077 1.997 2.049 1.977 46 55 mean 7.60 7.53 6.73 6.27 6.73 6.80 n 15 15 15 15 15 15 standard deviation 1.682 2.031 2.282 2.154 2.404 2.305 source: authors’ construction based on questionnaire developed by kristine casno and survey conducted in 2019, n=329 respondents of age groups 46-55 and 26-25 find the aesthetics of social enterprise marketing communications to be most appealing compared to the mean indicator of all respondents for this characteristic. respondents of age group 16-25 find the content most interesting, however, the age group of 36-45 find the content to be most visible and convincing, compared to other groups. with regards regularity, the age group of 46-55 have provided the most favorable evaluation but age groups of 36-45 and 16-25 are most captivated by social enterprise marketing content. across all age groups, except for age group of 46-55, the greatest concern of social enterprises should be the regularity of the content they provide. social enterprises with age group of 46-55 years as their target audience, should particularly focus on the ability of the content to convince, as this age group on average has provided the lowest evaluation for this characteristic compared to others. while social enterprises are doing a little better at reaching the audience of 36-45, compared to others, visibility is the second major concern that social enterprises should pay attention to across all age groups. although differences in evaluations among various age 233 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 groups are not statistically significant, they still provide a valuable insight and a general roadmap for enhancing the marketing efforts across various age groups. overall, comparatively low evaluations on content regularity and lack of its visibility indicates that the visually pleasing and interesting marketing messages of latvian social enterprises often may not reach their audience either because of constraints of financial or human resources or lack of skills to select the appropriate medium of communication which is consistent with previous research in the field of social enterprise marketing. opinions of respondents regarding various characteristics of social enterprise marketing content also vary across the place or residence of respondents, as reflected in table 3 below. table 3 main statistical indicators by regions for survey question “to what extent the marketing communications content of latvian social enterprises you are familiar with, corresponds with these characteristics?” (scale 1-10) place of residence aesthetic interesting noticeable convincing regular captivating riga mean 7.46 7.34 6.82 7.00 6.43 7.15 n 74 74 74 74 74 73 standard deviation 1.896 1.762 1.996 2.020 2.270 2.032 administrative territories surrounding riga mean 7.00 7.18 6.67 6.41 5.59 6.75 n 17 17 18 17 17 16 standard deviation 1.275 1.237 1.910 1.372 1.698 1.291 kurzeme mean 7.78 7.56 6.44 6.70 6.11 7.22 n 9 9 9 10 9 9 standard deviation 0.667 0.726 1.810 2.312 2.028 1.922 vidzeme mean 7.59 7.88 7.18 7.00 6.63 7.41 n 17 16 17 17 16 17 standard deviation 1.839 1.500 1.944 2.092 2.473 2.320 zemgale mean 7.63 7.63 6.88 7.63 7.71 7.63 n 8 8 8 8 7 8 standard deviation 2.200 1.847 1.808 2.200 2.498 1.923 source: authors’ construction based on questionnaire developed by kristine casno and survey conducted in 2019, n=329 respondents residing in the administrative territories surrounding riga have evaluated the marketing content of social enterprises below average across all characteristics and have provided only slightly above average evaluation with regards to the regularity of the marketing content which indicates that, for social enterprises operating in this area, this may be a major concern. respondents from kurzeme and vidzeme are especially appreciative of the aesthetics of the marketing content and consider it more interesting compared to other groups. however, respondents from zemgale have indicated higher than average evaluations for regularity of the content e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 234 which may indicate that social enterprises from this area may be better equipped in this position. although the differences in evaluations among various respondent groups based on their place of residence are not statistically significant, they may also provide valuable insight with regards the areas of marketing communications content where social enterprises operating in particular area are doing better than others or, on the contrary, may need significant improvement. with regards the gender of respondents, women on average tend to provide more positive evaluations than men across all characteristics of marketing communications provided, as reflected in table 4 below. table 4 main statistical indicators by gender for survey question “to what extent the marketing communications content of latvian social enterprises you are familiar with, corresponds with these characteristics?” (scale 1-10) gender n mean standard deviation standard error of mean aesthetic female 111 7.61 1.722 0.163 male 12 5.92 1.564 0.452 interesting female 110 7.55 1.548 0.148 male 12 6.25 1.865 0.538 noticeable female 112 7.02 1.796 0.170 male 12 5.33 2.188 0.632 convincing female 112 7.16 1.809 0.171 male 12 5.25 2.137 0.617 regular female 109 6.61 2.130 0.204 male 12 4.75 2.137 0.617 captivating female 109 7.35 1.868 0.179 male 12 5.75 2.221 0.641 source: authors’ construction based on questionnaire developed by kristine casno and survey conducted in 2019, n=329 furthermore, authors find these differences to be statistically significant, which indicates that latvian social enterprises may be more effective at communicating with female rather than male audience. this also suggests that male audience may be more critical of social enterprise marketing content and may potentially demand greater effort on behalf of latvian social enterprises. overall, authors have highlighted that social enterprise consumers are supportive of social enterprises and their cause and are also interested in the marketing content provided, however, research results indicate that the full potential of word-of-marketing is not used suggesting that there is significant room for improvement. with regards marketing communication content, social enterprises are most appreciated by consumers for aesthetic and interesting content. on the drawback side – the greatest challenges for social enterprises are to provide content on a regular basis and achieve visibility. current research focuses on social enterprises working in the latvian b2c market and includes social enterprises working in such areas as education and culture, charity shops and design products. further research could expand the scope of social enterprises to include those operating in the b2b market and also include social enterprises working in other areas (e.g. catering etc.). another innovative and valuable path of future research area would be to study social enterprise marketing from the point of view of social enterprises themselves. 235 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 conclusions and recommendations _ majority of social enterprise customers are interested in the marketing content provided by latvian social enterprises and have previously recommended social enterprises’ products and services to others, thus highlighting a general positive attitude and support towards social economy. however, there are significant relationship-building and sales opportunities that are not fully exploited and indicate a need to create a stronger bond with consumers as well as to increasingly pay attention to quality aspects of products and services which are significant for the success of word-of-mouth marketing, those aspects could be deeper analyzed in future research _ while social enterprises are currently best-skilled at providing aesthetic and interesting marketing content, some of the biggest challenges are to ensure its regularity and visibility. since the lower evaluations for aforementioned characteristics may be directly associated with lack of financial resources and skills, authors recommend greater support from ministry of welfare of republic of latvia for development of support programs with the aim of increasing the marketing skills of social enterprises as well as promoting close win-win cooperation between commercial outdoor, print and online media holders and social enterprises (e.g. subsidized advertisement spaces while they are not used by commercial clients in return for lower taxes) _ overall, marketing communications content provided by latvian social enterprises is higher evaluated by women than by men. with regards age groups, respondents of age 16-25 find the content of social enterprise marketing particularly interesting, respondents of age 46-55 and 26-25 have provided the highest evaluations for aesthetics, however, respondents of age group 46-55 have provided the lowest scores for the ability of content to 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(2014). defining the universe of social enterprise: competing metaphors. voluntas: international journal of voluntary & nonprofit organizations, 25(5), 1307-1332. https://doi.org/10.1007/ s11266-013-9396-z about the authors casno kristīne cand. mg.sc.admin., cand.for doctoral student university of latvia fields of interests social enterprises, social enterprise marketing, quantitative analysis. address aspazijas bulv. 5, riga, lv 1050, phone. + 37127836333 e-mail: kristine_casno@yahoo.com šķiltere daina dr.oec. professor university of latvia fields of interests expert surveys, expert evaluations, social enterprises, quantitative analysis. address aspazijas bulv. 5, riga, lv 1050, phone. + 37167034753 e-mail: daina.skiltere@lu.lv sloka biruta dr.oec. professor university of latvia fields of interests multivariate data analysis, social enterprises, quantitative analysis. address aspazijas bulv. 5, riga, lv 1050, phone. + 37129244966 e-mail: biruta.sloka@lu.lv the paper is developed within the national research programme interframe-lv. this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 48 issn 1822–8402 european integration studies. 2014. no. 8 pattern of financial flows within the european union: first insights about creditor-debtor country relationship rasa daugeliene kaunas university of technology, faculty of social sciences, arts and humanities institute of europe mickevicius str. 37, lt44320, lithuania e-mail: rasa.daugeliene@ktu.lt pawel mlodkowski university of information technology and management in rzeszow 2 sucharskiego street, 35-255 rzeszow republic of poland e-mail: pawel.mlodkowski@gmail.com http://dx.doi.org/10.5755/j01.eis.0.8.7014 the paper presents an explanation for accumulation of foreign liabilities referring to herd behavior fueled by the common market mechanism allowing for some role by the new member states of 2004. citizens of the new eu member states of 2004 started to diversify asset portfolios available within the common market. residents of other eu regions observed additional outright demand for real estate, which created appreciation expectations. they took, therefore, long positions in this market. however, speculative transactions were mostly financed by imported capital from eu-creditor countries. foreign liabilities of piigs countries systematically grew. the authors observe asymmetry in terms of eu-creditor engagement in this process. the real estate market in some eu regions experienced a boom from 2004 to 2008. it was started by cash holders (foreigners) and became later leverage-fuelled by residents. when external buyers disappeared from the real estate markets, the appreciation impulse for real assets associated with the foreigners vanished. locals in found themselves in long positions in significantly inflated real assets without any chance for recovering the original cost due to deficient demand. when explaining the reasons for intra-eu financial flows authors offer eu-solidarity interpretation in the spirit of tirole (2012). considering mentioned the scientific problems were raised: how the pattern or scope of financial flows in the eu could be evaluated? what is the relation between creditor – debtor considering investment in real estate in pigs countries? the aim is to present and discuss about the pattern of financial flows within the european union (between creditor countries – germany, france, the uk; and debtor countries – piigs) and to propose a mechanism for building up real assets boom. in order to reach the aim four tasks are to be solved: briefly present the milestones of financial flows liberalization in the european union; provide methodological substantiation of empirical investigation of the intra-eu (between creditor countries – germany, france, the uk; and debtor countries – piigs) financial flows; present considerations about the problem with capital flows in european union; to analyze the situation of financial flows in creditor and debtor countries as well as to present stylized insights about creditor-debtor relationship considering investment in real estate in piigs countries. research methods: empirical investigation defining variables that describe the object of investigation; bop statistics, ecb database as well as imf and ifs statistics was used as source of information. the authors try to observe the international investment position defined for bilateral positions between creditor (germany, france, the uk) and debtor countries (pigs). the restriction of analysis of financial flows pattern was made to only several of the eu countries (germany, france and the uk, as creditors and pigs group: portugal, italy, greece, spain). motivation for this decision is based on the following observations, that there are only few countries that we recognize as the eu-based debtors. these are those eu-members that experienced debt-related problems. the main results of the research – offered an alternative approach to understanding a fraction of the debt created due to common market and european financial area. analysis of situation of financial flows in creditor and debtor countries as well as stylized insights about creditor-debtor relationship considering investment in real estate in pigs countries was provided. alternative scenario (four steps) as an explanation of the mechanism behind the process of foreign liabilities accumulation in the eu before the debt crisis of 2009 was presented as well. keywords: debt crisis, financial flows, balance of payments, iip, european union. introduction the post-crisis period witnessed multitude of research initiatives aimed at explaining variety of issues associated with causes and consequences of financial turmoil. in the literature, one could recognize several most popular topics. their popularity results from their significance for economic policy: (1) the role of debt [private and public] in the economic issn 1822–8402 european integration studies. 2014. no. 8 49 downturn, (2) financial intermediaries and regulation of their international activities, (3) international capital flows and their role in generating aggravating and prolonging the debt crisis. the article offers an original explanation supported by an empirical investigation of the intra-eu financial flows (by referring to the private investments in real estate in piigs countries). this presupposes the novelty of the article. it will be left for further studies to present a formal theoretical model for the evaluation of behavior of agents considering different investment decisions. the eu-citizens optimizing their utility functions in the long run may present more solidarity with fellow members of the eu than with citizens of the rest of the world. this, in turn, allows for postponing repayment, as the credibility of the eu-based debtors is, in some respect, enhanced by the fact of the eu-membership. other authors (spiegel, 2008; waysand, ross, & de guzman, 2012; lane, 2012; lane, 2006) may underestimate belief in the euinstitutions and the eu legal framework, when explaining observed behavior and international capital flows (within the eu). there is only one, up to date, explicit attempt to capture specific relationships in a model describing some form of solidarity between countries that belong to a regional economic integration association (tirole, 2012). these statements first presuppose to raise scientific problems: how the pattern or scope of financial flows in the eu could be evaluated? what is the relation between creditor – debtor considering investment in real estate in piigs countries? the aim of the paper is to present and discuss about the pattern of financial flows within the european union (between creditor countries – germany, france, the uk; and debtor countries – piigs) and to propose a mechanism for building up real assets boom. in order to reach the aim four tasks are to be solved: • briefly present the milestones of financial flows liberalization in the european union; • provide methodological substantiation of empirical investigation of the intra-eu (between creditor countries – germany, france, the uk; and debtor countries – piigs) financial flows; • present considerations about the problem with capital flows in european union; • to analyze the situation of financial flows in creditor and debtor countries as well as to present stylized insights about creditor-debtor relationship considering investment in real estate in pigs countries. research methods: empirical investigation defining variables that describe the object of investigation; bop statistics, ecb database as well as imf and ifs statistics was used as source of information. the main results of the research – offered an alternative approach to understanding a fraction of the debt created due to common market and european financial area. the study was focused on countries suffering from excessive external private debt that have been members of the eurozone. analysis of situation of financial flows in creditor and debtor countries as well as stylized insights about creditor-debtor relationship considering investment in real estate in pigs countries was provided. alternative scenario (four steps) as an explanation of the mechanism behind the process of foreign liabilities accumulation in the eu before the debt crisis of 2009 was presented as well. milestones of financial flows liberalization in the european union free movement of capital belongs to fundamental principles of the european union. it seems to be one of necessary conditions to reach political and economic community of all member states, as full liberalization of “capital movements” was included in the article 67 of the treaty of rome in 1957 (ec 1957). then, effective integration of “capital movements” was among directives of the single european act in 1988. in 1990, free movement of capital became mandatory. during the madrid european council 1997–1998, regulatory framework for capital markets was established. another meaningful milestone for free capital movements was the introduction of euro on the 1st of january 1999. and then, under lisbon program of 2008–2010, one of objectives defined was an effective integration of financial services. summarizing the historical background it could be find july 1990 as the moment of full liberalization of capital movements between member states. however, establishing european financial area required further, progressive liberalization, which covered capital operations in financial market securities and operations involving financial credits. it is worth to mention that the european union foreseen potential problems resulting from international capital flows and created a special legal framework for dealing with international liquidity issues. financial assistance is offered in a form of loans to be granted up to 12 billion eur. the european commission, on behalf of the european community, contracts on the capital markets or with financial institutions these loans. there is also an alternative scheme for cases requiring quick response. support is available by the european central bank. this option however is restricted under very short-term financing facility program. methodological substantiation of empirical investigation of the intra-eu financial flows the empirical investigation of the intra-eu financial flows starts with defining variables that describe the phenomenon we wish to study. the first idea is to refer to the balanceof-payments and international investment position statistics. first, we look at aggregated data presenting bilateral net positions (assets minus liabilities) for few pairs of countries. then, we investigate changes in the pattern three main categories of foreign investment developed over the period 2001–2009. the bop statistics is a source of information about three main categories of financial flows that together represent the core subject of our analysis. these are: direct investment, portfolio investment, and other investment. financial flows that are recorded as direct investment represent investment in the ownership of domestic real assets and companies by foreign investors interested in the longterm engagement and in influence on management. there are other recent studies (desatnicov & akiba, 2013) that deal with this category of international financial flows. they try to recognize factors driving the fdi using vast sets of panel data. desatnicov & akiba (2013) show empirically that political issn 1822–8402 european integration studies. 2014. no. 8 50 risk factor is significant for the fdi flows. as such, this result supports assumption that intra-eu financial flows are facilitated by the fact of the eu membership of debtors and creditors, and the resulting lower political risk for any forms of foreign investment. two other kinds of foreign financial flows, namely portfolio investment and other investment have potentially significant role in creating private and public holdings of debt issued by residents of a foreign country. portfolio investment represents financial flows resulting from transactions of purchasing financial instruments like shares (up to 5% of total number of shares outstanding) and debt instruments, like bonds. one should be also aware of the fact that ‘other investment’ category must also be decomposed in order to retrieve the necessary information on the debt holdings. this particular category of financial flows covers a broad fraction that represents trade credit extended in foreign trade. having no role in the debt crisis in the eu, this form of foreign indebtness represents no interest for this study, and shall be omitted in the empirical exercise. the rest of ‘other investment’ category represents mostly transactions with domestic banking sector, and is of high importance for our study. for the purpose of empirical investigation, we refer to the ecb database on the eu balance of payments for selected countries that represent our subject here. main source of time series is however the on-line database by the international monetary fund, the ifs. some information is retrieved from a separate dataset on trade and investment. annual time series cover assets and liabilities in pairs of countries over the period 2001–2009. we try to observe the international investment position defined for bilateral positions between creditor (germany, france, the uk) and debtor countries (pigs). why do we restrict our analysis of the financial flows pattern to only several of the eu countries (germany, france and the uk, as creditors and pigs group: portugal, italy, greece, spain)? motivation for this decision is based on the following observations. there are only few countries that we recognize as the eu-based debtors. these are those eumembers that experienced debt-related problems like (1) insolvency, (2) debt repayment rescheduling, and (3) credit rating degrading (reis, 2013). the idea to cover other, or all eu countries in this group does not seem to be reasonable. first, there must be another group of those that extended loans to the eu-debtors, as we intend to study only the intra-eu financial flows. second, the new eu-members are still not able to provide substantial financing due to relatively lower levels of income, and in the same time these countries do not seem to be able to create excessive private and public debt due to cultural and institutional barriers. however, one new member state is included in the empirical analysis to some extent, but it is neither a debtor nor a creditor in our story. there is a multitude of studies that cast sets of socioeconomic factors against international capital flows (desatnicov & akiba, 2013; forbes & warnock, 2012; borio, mccauley, & mcguire, 2011), but some most recent publications undermine the importance of any variables capturing macroeconomic factors on both sides of these flows (geanakoplos, 2009; lane, 2010). in particular, lane & milesi-feretti, (2012) suggest that behavior of the current account balance in the period 2005–2008 has not been shaped by any observable developments of macroeconomic variables. these observations, based on systematic investigations, indicate that foreign creditors acted without considering the classical factors reflecting ability to recover the capital they provided. from the ancient times creditors used to monitor closely variables that describe debtor activities and the resulting financial position. however, in case of the debtors of the piigs group, eu-based creditors neglected to observe developments that signaled moral hazard and irresponsibility of the private and public borrowers (barnes, 2010). this, in turn, allows for posing a hypothesis on the drivers of the intraeu capital flows that is the core scientific question we try to address here. lane (2013, p. 10) claims that this discreet increase in the current account dispersion over the period 2003–2007 is ‘a very unusual phase in the history of international capital flows’. we do not agree with this simple explanation that the observed net imbalances resulted from a combination of (1) a perceived reduction in financial risk, and (2) a perceived improvement in the ability of the financial system to absorb risk events. according to lane (2013), these two factors were responsible for making net capital flows more sensitive to macroeconomic fundamentals. this is somehow inconsistent with empirical studies (lane & milesi-feretti, 2012), by this particular author. there is also blame on the same set of factors for facilitating the leverage-fuelled property booms in some countries that we study here. considerations about the problem with capital flows in european union the original perception of the cause–consequence or, the co-occurrence when current account imbalance is considered binds this variable with growth and growth expectations. it has been present in the literature on emerging economies that even a deep deficit is acceptable, as it is a necessary by-product of quick economic transformation (brown & lane, 2011). the idea supporting this approach to dangerous, and unacceptable, otherwise, external position is based on several assumptions. discussing them should reveal the motivation of our research and the problem with capital flows we wish to study. first, emerging economies in central and southern europe faced a wide gap after about half of century of central planning system. closing this gap could have been achieved by either internal process of capital accumulation and modernization, or by importing all the missing factors of production. the first way was rejected as unfeasible, time-consuming and slow in terms of the catch-up process. the other way to close the development gap required importing investment goods and capital. together with exploding consumption of imported products, this situation resulted in serious deterioration of foreign assets depleting reserves in many cases. this, in turn, led to few sudden stops in post-communist countries and the czech republic in 1994 is a prominent case here. acceptance of large current account deficit was therefore justified by expectations concerning future effects of quick, foreignfinanced economic transformation. after several years of hard-time market reforms, and associated current account deficit, emerging economies were expected to enter a path of long-term dynamic growth. this would allow for turning the deficit into a surplus and help to repay foreign liabilities issn 1822–8402 european integration studies. 2014. no. 8 51 created over the transformation period. such scenario draws heavily on an assumption that foreign capital inflows finance pro-growth initiatives and not current consumption, private and public alike. this was a story of some, but not all, emerging economies in central and southern europe. many countries failed in efficient reforming production capacity and are problematic members of the eu after about 24 years since entering transformation period. as a consequence, the credit provided by external sources in the form of accepting permanent balance of payments imbalance, has been wasted. in addition, both the debtor countries and creditor ones alike experienced adverse effects of the financial turmoil. neglecting real reforms and referring to creative accounting in public finance instead of fiscal consolidation is, however a much more common sin in the european union, not restricted to the new member states of the 1st may 2004. our story offers an alternative approach to understanding a fraction of the debt created due to common market and european financial area. we focus on countries suffering from excessive external private debt that have been members of the eurozone. the situation of financial flows in creditor and debtor countries the debt crisis in europe that emerged in 2009 did not hit emerging economies as much as some of the so-called oldeu-member states (blanchard, 2007). continuous foreign liabilities accumulation by portugal, ireland, italy greece and spain (piigs) was however of diverse nature and exposed these countries to diverse risks and different adverse effects. therefore, analyzing these cases cannot be a joint exercise. the pattern of bilateral net investment positions in figure 1 shows diverse engagement of eu-creditors (germany, france, and the uk) in financial net flows to eu-debtors (portugal, ireland, italy, greece, and spain. figure 1. bilateral net investment positions of germany, france and the uk with greece 2001–2009 source: authors, on the basis imf database on trade and investment. in case of greece, all of the eu-creditors used to have positive net investment positions until 2004, with the uk moving below the line, while france and germany continued to extend credit to greece. france outpaced germany in financing greek excessive domestic absorption. figure 2. bilateral net investment positions of germany, france and the uk with ireland 2001–2009 source: authors, on the basis imf database on trade and investment. ireland seems to be a very different case, from other of the eu-debtor countries. the net positions with germany and france seem to be balances, while the uk is a net debtor for the whole period covered by the empirical analysis. figure 3. bilateral net investment positions of germany, france and the uk with italy 2001–2009 source: authors, on the basis imf database on trade and investment. italy is a country that depends heavily on financial flows coming from germany. other eu-creditors maintain rather balanced net positions, and therefore are relatively immune to domestic developments in italy, in comparison with germany. figure 4. bilateral net investment positions of germany, france and the uk with portugal 2001–2009 source: authors, on the basis imf database on trade and investment. issn 1822–8402 european integration studies. 2014. no. 8 52 portugal shows strong financial dependence on financial flows coming from france. the period preceding the debt crisis (2004–2008) witnessed stabilization of substantial positive net investment position with this particular country. following year 2008, france continued to increase its net creditor position with portugal. in the same time the uk and germany maintained balanced net investment positions with germany moving systematically above the line from 2004. figure 5. bilateral net investment positions of germany, france and the uk with spain 2001–2009 source: authors, on the basis imf database on trade and investment. spain falls perfectly into the stylized facts scenario we try to present here. all of the eu-creditor countries start dynamic growth in terms of net investment positions with spain from 2004 to 2009. both, germany and france, hold the leader position, providing substantial amount of foreign financing to this particular eu-debtor. as a consequence, they are most exposed to risk of default of spanish borrowers, but the uk is not free from this problem too. what may be of common root here is the fact that, according to giavazzi & spaventa (2011), creation of foreign liabilities was matched by current consumption spending and investment expenditure in the non-traded sector, namely real estate. eichengreen (2010) offers a similar observation. as such, there were no actions that would result in building up and expanding repayment potential of economies welcoming foreign capital inflows. therefore, the rationale for accepting external imbalances, presented above for emerging economies, was not present in case of the piigs group. presentation of stylized insights about creditor-debtor relationship considering investments in real estate in pigs countries. what made the creditors extend financing over so many years despite there were no signs of fiscal and private sector consolidation? we offer a quite different explanation for the observed pattern of capital flows within the european union, and we ‘blame’ the new member states of the 2004, and the eu common market mechanism. the story begins with an observation that a panic or any other herd behavior is initiated by few but becomes a problem when undertaken by majority that is not fully aware of the underlying situation, and is not prepared for consequences of their own actions. from the moment of the eu enlargement on the 1st of may 2004, ten new member states entered a period of equalizing marginal utility of assets they hold. with the full economic integration, the common market offered possibility of international diversification that was not available before this systemic change. wealthy citizens of the new member states started to purchase real estate in attractive locations in portugal, italy, greece and spain. therefore, we claim that the real asset prices boom in southern regions of the eu was initiated by foreigners holding sufficient funds to purchase even high-value real assets without recourse to creation of liabilities. there was an additional factor that made this scenario much more common and attractive not only for the wealthiest citizens from the new member states. the period 2004–2008 witnessed a systematic, stable and continuous appreciation of national currencies against the euro, in countries adopting free float exchange rate regime. this nominal development made all acquisitions of foreign assets in spain, portugal, italy and greece much cheaper until the late third quarter of 2008. figure 6. nominal exchange rate against euro and the usd of a new member state1 national currency in the period from 2004-05-01 to 2008-12-04 source: authors, on the basis of a national bank of poland exchange rate database. if these additional real estate transactions were restricted to foreigners only, the scale and scope of the debt crisis of 2009 would be much more modest. however, this was not the case. locals observed this behavior and interpreted economic consequences of increasing demand with the long-run fixed supply of land available and the fixed supply of residential real estate in the shortto mid-term. expecting that inflow of foreign direct residential investment from the new member states after may 2004 will result in appreciation of real estate, locals started to take long positions in such assets. this investment strategy was based, however, on private foreign debt creation, as there was insufficient domestic capital pool. local banks were eager to extend financing for real estate investment observing positive rends in the collateral value due to real asset inflation. it refers both to financing of outright acquisitions of existing houses and condominiums, and to financing construction of such. for 1 as a „new member state“ authors interpret countries which joint eu in 2004 as they have experienced systematic and permanent appreciation of national currencies, until mid-2008. issn 1822–8402 european integration studies. 2014. no. 8 53 almost four years (2004–2008) this investment strategy by residents of southern regions delivered a handsome rate of return. it became a self-feeding process. due to long-term and systematic appreciation of real assets it encouraged even more new debt-financed investments. depreciation of the euro created returns differentials that were increasing until late 2008 (curcuru, thomas, warnock 2013). most of investments in real estate were based on borrowing foreign capital via local banks. international capital continued to flow within the european union. summarizing, the stylized insights we offer as the explanation of the underlying mechanism of the path to the eu private debt crisis of 2009 are as follows. step one: citizens of the new eu member states of 2004 started to diversify asset portfolios with real assets available in attractive locations in southern regions of the eu. motivation for investment in foreign real estate came from the classical ‘equalization’ of marginal utility of holdings of each category of available assets. in addition, the motivation was enhanced by systematic and persistent appreciation of national currencies against the euro. original purchases were made without recourse to debt financing due to two main reasons. first, buyers were foreigners and local banks found it problematic to extend mortgages to such customers. second, banks at home countries (new member states) refrained from providing financing for real estate investments in remote regions. as a consequence, we were able to observe a growing inflow of foreign direct investment in real estate markets in portugal, italy, greece and spain from the late 2004. it is indicated by a transition in correlation between average rates of change of direct investment in the reporting economy, and portfolio investment in debt instruments, other investment (liabilities), and other investment (liabilities) of other sectors (non-banks). from the 2004 other investment liabilities mimic more closely developments in the foreign direct investment with the correlation reaching almost 0,8 after only 0,73 in the preceding period (see table 1). simultaneously, significance of sectors responsible for creating foreign liabilities in the form of other investment also changes. this is reflected in increase in the correlation between the other investment liabilities (total) and other investment liabilities of “other sectors”, namely households from 0,53 to 0,77. while the fdi developments were not significantly matched by private nonfinancial sector foreign liabilities before 2004 (correlation at 0,28), afterwards the relationship is much more pronounced with correlation coefficient at almost 0,54. table 1. correlation coefficients for quarterly changes in the iip for the period 1999q1–2004q1 and 2004q2–2009q2 for spain 1999–2004 fdi pi debt oi liab. oi oth.sec. fdi 1 0,74 0,73 0,28 pi debt 1 0,53 0,12 oi liab. 1 0,53 oi oth.sec. 1 2004–2009 fdi pi debt oi liab. oi oth.sec. fdi 1 0,56 0,78 0,53 pi debt 1 0,42 0,56 oi liab. 1 0,77 oi oth.sec. 1 source: authors, on the basis of the ifs database, imf, washington d.c. step two: residents of southern eu regions observed additional demand for real estates. this, in turn, created appreciation expectations. locals wished to benefit using speculation scheme. they took long positions in the real estate. however, these speculative transactions were mostly based on borrowed funds. in countries with insufficient domestic savings, local banks initiated foreign capital inflows from other emu member states. figure 7. iip categories quarterly, spain 1999q1–2009q2 source: authors, on the basis of the ifs database, imf, washington d.c. foreign liabilities systematically grew (as seen in figure 7). there was no exchange rate risk associated with this borrowing. propensity to use foreign financing was therefore higher than otherwise. step three: real estate market in southern regions experienced boom. it was started by cash holders (foreigners) and became leverage-fuelled by residents, but borrowing flew from abroad. step four: reversing appreciation trend of national currencies in late 2008 and severe depreciation in mid-february 2009 resulted in making real estate investment for the new eu-member states citizens unattractive and relatively more expensive. external buyers disappeared from the real estate markets. the appreciation impulse for real assets associated with foreigners vanished. locals in southern regions found themselves in long positions in significantly inflated real assets without any chance for recovering the original cost due to deficient demand. on the other side of their balance sheets they recognized liabilities of stable nominal value, for which collateral value shrank. there is common perception in the literature, and at european institutions that the valuation effects are significant in scale and scope, when wealth of nations is considered. one may find supporting evidence and interpretations in galstyan & lane (2013), european commission (2010), coeurdacier & martin (2009), and gourinchas, rey, & truempler (2012). due to the debt crisis in europe one may suggest a substantial shift of the wealth from eu-creditor countries to eu-borrowers due to investment in real estate. inflated prices of real assets resulted in transferring additional value in excess of the intrinsic value, and recover of this excess is no longer possible as the downward trends in prices continue. in the same time, eu-borrowers postpone and reschedule repayment of loans extended before the crisis issn 1822–8402 european integration studies. 2014. no. 8 54 of 2009, so the lenders do not recover amounts provided and suffer from adverse wealth effects. conclusions the authors have found that there exist different bilateral engagement (net investment positions) between the eucreditors (germany, france, and the uk) and eu-borrowers (greece, ireland, italy, portugal, and spain). mainly france finances portugal. spain is financed by all three eu-creditors with the uk least engaged. germany finances italy, while ireland has small scope of financing by germany, and provides substantial credit to the uk, just like greece. this situation we find confusing to some extent. data availability makes it difficult to proceed with in-depth studies of the problem in most cases. however, it has been possible to find support for our claims, and to show a design of the herd behavior initiated by citizens of the new member states of 2004. the authors tried to present an alternative scenario as an explanation of the mechanism behind the process of foreign liabilities accumulation in the eu before the debt crisis of 2009. in order to show the dynamics of intra-eu financial flows we have used information about bilateral investment positions for pairs of countries, eu-creditors and eu-debtors. in addition, we looked also at the aggregated iip categories, without geographical decomposition to support our claims about the role of the common market and of herd behavior before and after new member states of 2004 joined the eu. the stylized insights about creditor-debtor relationship considering investments in real estate in pigs countries find strong support in empirics, and spain is the best match for the story authors offer. other of the eu-borrowers also present support for the proposed scenario. however, they show the posed trends to a lesser extent, as the scope of foreign direct investment in real estate markets has been relatively smaller in italy, portugal, greece and ireland. concluding, it is a key to stress few points. the common market mechanism allows for asset portfolio realignment for new entrants and old eu-members. in spite of fear disseminated in the new member states by anti-eu propaganda, the scope of buying out land and property has been of small scale. serious problems, according to idea proposed, have been caused by opposite financial flows of direct investment in real estate, originating from the new member states and arriving to spain, portugal, greece and italy. these financial flows spawned not only herd behavior among locals in southern regions, but also initiated foreign borrowing to explode to finance real estate markets boom. with the foreigners discouraged by global financial turmoil in 2008/2009, external demand for residential assets vanished. it left locals with portfolios of inflated, but shrinking, real assets and fixed value of associated (foreign) liabilities that sponsored speculative strategies. ideas for further research. analysis of available economic policy options to solve the arouse problems has been beyond the scope of this paper. however, it has been already valuable to shed some light on an alternative mechanism that describes behavior of some agents creating foreign liabilities that, in turn, lead to debt crisis. there have been several areas of potentially interesting and valuable further research. one can list here a deeper study of developing relationship between foreign investment in real estate and domestic credit extended on the basis of externally borrowed funds. another direction should be a study on transfers of the wealth between nations and shall focus on the scope of valuation trends between real domestic assets purchased on the basis of foreign liabilities, and the value of such within the euro area. references barnes, s. 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(2013). “on returns differentials”. 1077. available from internet: http://www.federalreserve.gov/pubs/ifdp/2013/1077/ ifdp1077.pdf. http://dx.doi.org/10.3386/w18866 deseatnicov, i. & akiba, h. (2013). reconsideration of the effects of political factors on fdi: evidence from japanese outward fdi. review of economics & finance, better advances press, canada, vol. 3, february, 35–48. eichengreen, b. (2010). imbalances in the euro area. mimeo, uc berkeley. retrieved april 14, 2014, from http://emlab.berkeley.edu/~eichengr/imbalances_euro_ area_5-23-11.pdf european commission (2010). the importance of valuation effects for external asset positions in the euro area. quarterly report of the euro area 9(1), 29–36. forbes, k. & warnock f. e. (2012). capital flow waves: surges, stops, flight and retrenchment. journal of international economics 88(2), 235–251. http://dx.doi. org/10.1016/j.jinteco.2012.03.006 galstyan, v. & lane, ph. r. (2013). bilateral portfolio dynamics during the global crisis. european economic review 57(1), 63–74. http://dx.doi.org/10.1016/j. euroecorev.2012.10.002 geanakoplos, j. (2009). the leverage cycle. nber macroeconomics annual 24, 1–66. giavazzi, f. & spaventa, l. (2011). why the current account matters in a monetary union in the euro area and the financial crisis (miroslav beblavy, david cobham and l’udovit odor, editors). cambridge university press, 59–80. issn 1822–8402 european integration studies. 2014. no. 8 55 gourinchas, p.-o., rey h., & truempler k. (2012). the financial crisis and the geography of wealth transfers. journal of international economics 88(2), 266–285. http://dx.doi.org/10.1016/j.jinteco.2012.05.008 lane, ph. r. (2006). the real effects of european monetary union. journal of economic perspectives 20, 47–66. http://dx.doi.org/10.1257/jep.20.4.47 lane, ph. r. (2010). international financial integration and the external positions of euro area countries. oecd economics department working paper no. 830. http:// dx.doi.org/10.1787/5km33sqg0m9s-en lane, ph. r. (2012). the european sovereign debt crisis. journal of economic perspectives 26(3), 49–68. http:// dx.doi.org/10.1257/jep.26.3.49 lane, ph. r. & milesi-ferretti, g. m. (2012). external adjustment and the global crisis. journal of international economics 88(2), 252–265. http://dx.doi. org/10.1016/j.jinteco.2011.12.013 lane, ph. r. (2013). capital flows in the euro area. european economy, economic papers no. 297. reis, r. (2013). the portuguese slump and crash and the euro crisis. brookings papers on economic activity, issue 1, no. 46, 143–210. http://dx.doi.org/10.1353/ eca.2013.0005 spiegel, m. (2008). monetary and financial integration in the emu: push or pull? review of international economics 17(4), 751–776. http://dx.doi.org/10.1111/ j.1467-9396.2009.00847.x tirole, j. (2012). country solidarity, private sector involvement and the contagion of sovereign crises. retrieved april 14, 2014, from http://idei.fr/doc/by/tirole/ countrysolidarity0919.pdf european community, the treaty of rome, 1957. waysand, c., ross, k. & de guzman, j. (2012). european financial linkages: a new look at imbalances. imf working paper no. 10/295. the article has been reviewed. received in april, 2014; accepted in june, 2014. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 24 abstract relationships in the digital age: self-disclosure and communication in social networking sites http://dx.doi.org/10.5755/j01.eis.1.16.31632 loreta huber, monika martinaitytė kaunas university of technology, lithuania, faculty of social sciences, arts and humanities european integration studies no. 16 / 2022, pp. 24-40 doi.org/10.5755/j01.eis.0.16.31632 submitted 05/2022 accepted for publication 06/2022 relationships in the digital age: self-disclosure and communication in social networking sites eis 16/2022 with the development of new technologies and rise of social media, the desire to communicate and share information is seen as a primary driver of social networking sites, where the aspect of self-disclosure becomes one of the key characteristics for interpersonal attraction. the aim of the research is to examine how people communicate, self-disclose and maintain relationships on social networking sites and to find out how the use of computer-mediated communication relates to relational development and maintenance. mturk tool and social media posts were utilized to gather information. statistical data analysis program spss was employed: confirmatory factor analysis (cfa) and scale analysis and construction were performed. the investigation revealed significant differences between males and females self-disclosure practices on social networking site facebook with outstanding differences depending upon the country of living, relationship status, perceived positive and negative rewards, benefits and satisfaction. the results of the study open path for future research within the framework of communication privacy management theory in line with the social penetration theory with an aim to analyse how self-disclosure inter-correlates with privacy concerns. keywords: relationship; computer-mediated communication; social network sites; penetration; self-disclosure. introduction with the development of new technologies and rise of social media, the desire to communicate and share information is seen as a primary driver of social networking sites, where the aspect of self-disclosure, that is related to the implications of openness in interpersonal relationships, becomes one of the key characteristics for interpersonal attraction. thus, it is important to analyse and evaluate how the use of computer-mediated communication relates to relational development and maintenance, especially as users of social networking sites more frequently find themselves engaging in various forms of self-disclosure online. self-disclosure is considered to be a key aspect in developing intimacy and closeness with others as well as maintaining relationships on social networking sites, including romantic partners, friends or family members. it is closely related to social penetration theory, as it states that this process depends on the disclosure both in terms of depth, stages of penetration and breadth as well as rewards and costs rationale. users of social networking sites share intimate information next to peripheral to gain trust in their partner. they disclose themselves gradually, which is the main principle of social penetration theory. as these sites are becoming more favoured, it is important to investigate how people self-disclose to others on social networking sites, how this process affects communication, and maintenance of relationships. 25 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the decision whether to self-disclose online is rather complex and multidimensional, individuals have the urge to self-disclose, but at the same time they carefully weigh possible harmful or beneficial consequences (krämer & schäwel, 2020). luo and hancock (2020) found that self-disclosure captures both positive and negative indicators of psychological well-being, positive being self-esteem and satisfaction, while negative indicators being depression, loneliness, and anxiety. research by pew research center found that social networking sites can be a source of conflict and annoyance, as people reported that they felt jealous or unsure about their own relationship, because of their partners interacting with others (vogels & anderson, 2020). fortunately, people are usually good at leveraging self-disclosure in a way that gratifications are increased and disadvantages are minimised (krämer & schäwel, 2020). additionally, the results of the study by cheung et al., (2015) showed that the perceived benefits and social influence are significant factors that determine self-disclosure and relational maintenance on social networking sites. on the other hand, a study by błachnio, przepiorka and pantic (2016) examined the relationship between facebook use, self-esteem, and life satisfaction and it was found out that facebook intensity is negatively related to satisfaction with life. therefore, excessive use of social networking sites affects users’ quality of life. since few research studies aim to understand how social networking sites are affecting self-disclosure in a context of relational development have been carried out, the authors of the study make an attempt to answer the following question that is the scientific problem of the research: – how self-disclosure on social networking sites affects communication and the development of interpersonal relationships. the aim of the research – to examine how people communicate, self-disclose and maintain relationships on social networking sites. tasks of the research: 1 to discuss aspects of communication relationships in the digital age with the focus on self disclosure in a context of social networking sites; 2 to evaluate self-disclosure in a context of social penetration theory; 3 to analyse if self-disclosure practices on social networking sites influence communication, relational building, and maintenance. research methods: analysis of scientific literature, quantitative research method, confirmatory factor analysis. the following hypotheses were raised: » h1. self-disclosure on social networking sites differs depending on demographic indicators such as gender, country of living and age; » h2. self-disclosure on social networking sites differs depending on relationship status; » h3. self-disclosure practices on social networking sites correlates with perceived negative and positive rewards; » h4. self-disclosure practices on social networking sites correlates with gained benefits and overall satisfaction. the results obtained in this research prove that people are able to connect through social networking sites as the activity is enhanced by building and maintaining relationships online. the findings suggest that the desire to communicate and share information is seen as a primary driver to use social networking sites. analysis of self-disclosure in the context of social penetration theory reveals that every individual has a certain personality structure with layers that are becoming more visible when self-disclosing, this process is dependent on depth and breadth of e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 26 penetration, different stages of penetration, rewards and costs rationale and reciprocity. ultimately, the results have shown that self-disclosure practices differ depending on the demographic factors, such as gender, age, and a country of living, additionally, self-disclosure differs depending on relationship status in both male and female groups. the correlations show that there are strong links between self-disclosure and gained positive and negative rewards as well as between self-disclosure, benefits, and satisfaction. building and maintaining relationships in the digital age technology has remarkably changed the way people communicate and build relationships in the digital age. different surveys show that instead of talking to each other people text messages, prefer skype calls in lieu of face-to-face meetings or use symbols such as smiling faces instead of clearly articulating their feelings. consequently, with the prevalence of social networking sites, a growing number of studies can be seen in attempts to explain the self-disclosure phenomenon of social networking sites (cheung, lee, & chan, 2015). cheung et al. define social networking sites as “online platforms that facilitate the construction of social networks or social relations among people who share similar interests, backgrounds, and/or real-life connections” (2015, p. 3). in a context of social penetration theory, it is important to consider how these social networking sites affect interpersonal communication. when speaking about today’s profiles on social networking sites, people have the urge to self-disclose on social media platforms which is affordanced by various social media applications as well as challenges that come together (krämer & schäwel, 2020). ellison and boyd observe that there were three distinguishing characteristics in the early days of their establishment, namely profile, lists of contacts and the ability to navigate such contacts. however, as social networking sites have evolved, their main characteristics and importance have shifted from self-presentational message to an individual portrait as an expression of an action (ellison & boyd, 2013). by joining social networking sites, people create a public profile and connect with their friends. individuals often reveal much of their true identities in the process of making a profile by publishing personal information, photographs, and personal preferences (cheung et al., 2015). the interactions between people and thus the profiles serve several roles on a social network platform as they are used to identify and display relationships, delineate who can access what content and serve as a filter through which viewers can browse profiles and discover friends in common (ellison & boyd, 2013). huang, ma, chung and jian (2019) described social networking as the creation of social communication technologies and noted that social networking online has become ubiquitous in recent years, with the two most popular sites being facebook and twitter. in addition, social media usage has become increasingly mobile, in large part thanks to social apps. as of october 2019, whatsapp was one of the most popular mobile messenger app worldwide with over 1.6 billion monthly active users. as of january 2020, the mobile social media penetration in asian countries was high due to mobile-first connectivity in these markets. data provided by business data platform statista (2020) imply that based on a comparison of the number of active accounts on the top social network in each country to the population, south korea ranked third with a social media usage penetration of 87 percent, sweden ranked tenth with 73 percent, denmark – fourteenth, with 71 percent, israel and usa – fifteenth, with 70 percent. the most used social network worldwide was youtube with a 90 percent penetration rate followed by instagram with 83 percent. “since its inception in 1996, social media has managed to infiltrate half of the 7.7 billion people in the world. social network platforms almost tripled their total user base in the last decade, from 970 million in 2010 to the number passing 3.81 billion 27 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 users in 2020” (dean 2020). “despite various challenges over the past few years, facebook is still top of the pops when it comes to social networking. trends in user numbers reported in the company’s earnings announcements suggest that the platform should have already passed the historic 2.5 billion monthly active users (mau) mark, and user numbers continued to grow steadily across most countries during 2019” (kemp 2020). a b2b writer sarah aboulhosn (2020) reports 4. 74% of high-income earners are facebook users. in addition, facebook use is prominent among high-earners, and even surpasses linkedin, which reaches just 49% of users making more than $75,000. youtube is the only social media platform with more reach at 83% of high-income earners. as for behavior on social networking sites, individuals demonstrate various patterns and designs of social media behavior from reporting quotidian activities to espousing polemical opinions. there are users who are observers restraining from active engagement but rather choosing passive role of observing others. whichever way, it is obvious that as social media has become a principal mode of social interaction in the past decade, “self-expressive profiles and postings on sites such as facebook have become an outlet for individuals’ motivated social behavior” (hart et al 2015, p.33). if to speak about previous research, different studies have found preliminary evidence suggesting that regional differences influence actions in the use of social networking sites (ku, chen, & zhang, 2013). for example, it was found that relationship maintenance was the primary reason why americans use social networking sites (ku et al., 2013). moreover, age and gender might affect how individuals disclose information about themselves. a research by li, cheng and teng (2020) showed that “voluntary sharing of private information, which is decided by the users themselves is a spontaneous activity” (p. 12); not to mention the fact that, “the older users get, their willingness to disclose mandatorily is more significant than to share voluntarily” (p.12). when speaking about younger users of social networking sites, a study by hall and pennington (2013) showed that it is more important for facebook users to present themselves at a younger age. ultimately, the study suggested that a dishonest facebook user is more likely to upload a profile picture at a younger age. when speaking about gender, a study by lin and wang (2020) provided strong support for existing gender differences in information sharing on social networking sites. although the results implied that women and men attach similar importance to social interaction and on social networking sites both want to be connected to others, women emphasize social links and engagement more than me do. the study also showed that females place a significantly greater importance on privacy risk in the development toward information sharing compared to males. in particular, social networking sites attract a large number of users because of their new media features, consequently, subjective standards are likely to have the same impact on behavioural intention across genders (lin & wang, 2020). furthermore, it is important to point out that in social networking sites an environment in which the boundaries between private and public contact begin to blur and social contexts collapse facilitates not only personal, but also entertaining and positive self-disclosure, while at the same time cultivating a sense of connection (utz, 2015). on the other hand, due to the collapsed contexts on social media, users of social networking sites often post to all their friends on the site or a large group of them. posting a relatively intimate content may make the target audience more visible than the potential audience, and may increase the sense of belonging to a smaller or closer community (utz, 2015). people might not see every planned post from one of their social networking site’s friends and, instead, they might see a post that was not specifically meant for them (utz, 2015). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 28 it is also observed that people have a strong motivation to protect their privacy and it needs to be carefully considered because certain decisions need to be taken in order to objectively evaluate the situation when self-disclosing (krämer & schäwel, 2020). compared to traditional social interactions, which are constrained by environmental factors such as time and location, the digital connection is continuous and boundaryless (osatuyi et al., 2018). methodology of the research, participants, measures and procedures research methods employed in the study were analysis of scientific literature, quantitative research method, confirmatory factor analysis. for the empirical investigation a survey research was carried out. questionnaire was developed and placed on qualtrics website. there were two tools employed for gathering data in this research, one of them being facebook post, the other tool was mturk which had already been successfully used in psychology and other social sciences as a mechanism for conducting research (buhrmester et al., 2011). furthermore, the questionnaire demonstrated that despite the fact that respondents were able to earn some money, the respondents claimed that the main reason for their involvement, was their intrinsic motivation, such as enjoyment. a package of statistical data analysis program spss 25.0 was used to process the obtained data, perform factor analysis and scale construction. as mentioned, the survey was first published on facebook with 170 respondents taking active part in it. further on, the survey was later uploaded on aforementioned mturk system which additionally attracted 329 participants. the data was collected for 6 months. the period of data collection was pre-pandemic time. the questionnaires were filled out by 499 participants, however, when uploaded on to the aforementioned statistical analysis program, it showed that 17,3% respondents did not finish the survey. therefore, results obtained from 411 participants were used in the present analysis, 162 (39.4%) of which were recruited with the help of facebook post and the remaining 249 (60.5%) participated in the survey via mturk platform. male participants made 54.3% of the sample (n = 223), and female participants constituted 45.3% of the sample (n = 186). participants ranged in age from 16-89 years old with a mean age of 30.10 (sd = 10.45, median = 28 years old). in terms of country participants currently live, 31.6% of the representatives mentioned lithuania, 27.5% noted united states of america, 18.5% were from india, 5.1% mentioned brazil, 3.9% noted united kingdom. the respondents from canada and france and contributors from germany, italy and spain covered between 1% and 2% of all partakers. less than 1% of the participants were from australia, denmark, greece, ireland, luxembourg, mexico, north macedonia, poland, portugal, romania, the netherlands, turkey and venezuela. due to the fact that the main focus of the survey was about self-disclosure and communication on social networking sites participants were asked some questions related to this process. the respondents were asked to mark their relationship status. the results demonstrated that 40.1% of the entries indicated their marital status as married, 38.9% as single, 15.3% were dating, 3.2% noted that their relationship status was complicated and lastly, 1.9% marked that they were divorced. partakers were also asked about the social networking site they prefer and use most often. the data shows that the contributors mostly use facebook and instagram with the percentage of 55.2% and 33.6% respectively. when asked how often they use their favourite social networking site, 82,2% marked the answer “daily”. the parties were also asked how many friends/followers/connections/matches they have on social networking site they use most, and the most common answer was between 101-500 with a percentage of 46.5%. in addition, the participants were asked to provide approximate percentage of the total number of the size of their social network they regularly interact with, and the answers proved that almost half of the participants (44%) interact with 25% or less of their circle on the social networking site. 29 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 measures. there were measures adopted from previous studies and used as a sample with the aim of improving content validity, however some items were also re-worded to reflect the context of current study on self-disclosure (table 1). construct items sources self-disclosure behaviour (sd) sd1: i am an active participant on social networking sites sd2: i post messages frequently on social networking sites sd3: i have a comprehensive profile on my favourite social networking site adapted from cheung, lee and chan (2015), concluded by ampong et al., (2018); adapted from venkatesh et al., (2008), concluded by (osatuyi et al., 2018). shallow disclosure (shd) shd1: i regularly share information on any topic i consider interesting on social networking sites shd2: i regularly share a variety of casual information about myself on social networking sites shd3: i regularly share interesting updates about my daily activities with everyone on social networking sites adapted from altman and taylor (1973), concluded by osatuyi et al., (2018). negative rewards (nr) nr1: i separated with someone on social networking sites nr2: i felt mistrusted on social networking sites nr3: i felt betrayed on social networking sites adapted from altman et al., (1969). intentions (in) in1: i am always honest in my self-disclosures on social networking sites in2: my self-disclosures on social networking sites are completely accurate reflections of who i am in3: i always feel completely sincere when i reveal my own feelings and experiences on social networking sites adapted from wheeless and grotz (1976), concluded by huang (2016). positive rewards (pr) pr1: i noticed that my relationships with certain people became stronger because of social networking sites pr2: i noticed that my physical intimacy with certain people increased because of social networking sites pr3: i noticed that my emotional intimacy with certain people increased because of social networking sites adapted from c. p. lin (2011). satisfaction (st) st1: i am satisfied with my online social life on social networking sites st2: my online social life on social networking sites is close to my ideal st3: so far, i have obtained the important things i want from my online social life adapted from diener et al., (1985), concluded by huang, (2016). benefits (bn) bn1: i established a lot of friendships through social networking sites bn2: i maintain a lot of friendships through social networking sites bn3: i believe that overall social networking sites help me to expand my social circle adapted from krämer & schäwel (2020). deep disclosure (dd) dd1: i am consciously aware of what i am revealing about myself on social networking sites dd2: i am consciously aware of what i am sharing on social networking sites dd3: i only share personal information with people i feel close and connected to adapted from altman and taylor (1973), concluded by osatuyi et al., (2018). source: created by the authors of the research. table 1 questionnaire items e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 30 self-disclosure practices. the first subtopic consisted of three items all concerning the self-disclosure practices and behaviour on social networking sites, the items by venkatesh, brown, maruping, & bala (2008) as well as cheung, lee, and chan (2015) were embraced. examples of items in this subtopic were “i am an active participant on social networking sites”, “i post messages frequently on social networking sites” and “i have a comprehensive profile on my favourite social networking site” (concluded by ampong et al., 2018; osatuyi et al., 2018). it was expected that participants will think about their overall behaviour on the sites and evaluate it. shallow disclosure. the second subtopic of the survey was about participants’ shallow disclosure on social networking sites. items for this scale were adopted from social penetration theory and referred to breadth of penetration (adapted from altman & taylor, 1973, concluded by osatuyi et al., 2018). the three items of this subtopics were “i regularly share information on any topic i consider interesting on social networking sites”, “i regularly share a variety of information about myself on social networking sites” and “i regularly share interesting updates about my daily activities with everyone on social networking sites”. these items gave insight on breadth category and frequency, which refers to how much information individuals give away about themselves and how much they self-disclose on social networking sites. deep disclosure. the next subtopic of the survey was related to the deep disclosure of participants behaviour on social networking sites and was also adopted from social penetration theory by altman and taylor (1973, concluded by osatuyi et al., 2018). records for this subtopics were “i am consciously aware of what i am revealing about myself on social networking sites”, “i am consciously aware of what i am sharing on social networking sites” and “i only share personal information with people i feel close and connected to”. these items also relate to views on privacy and personal feelings of individual as people tend to disclose their deepest layers to others when the relationship is deep enough, whereas the public image is visible to others. these items helped to evaluate how people reveal their layers on social networking sites. positive rewards. this fourth subtopic was about the positive rewards individuals get when they are self-disclosing and communicating on social networking sites. the items for this scale were acquired from study by lin (2011) and included statements such as “i noticed that my relationships with certain people became stronger because of social networking sites”, “i noticed that my physical intimacy with certain people increased because of social networking sites” and “i noticed that my emotional intimacy with certain people increased because of social networking sites”. these reflect mainly social rewards such as social validation, self-expression, relational development and are attained through self-disclosure (derlega and grzelak, as cited in bazarova & choi, 2014). negative rewards. the following subtopic was about negative rewards gained on social networking sites, specifically going into detail about participants’ negative emotions and feelings. the units were adopted from a study by altman et al. (1969). the records regarding negative rewards were “i separated with someone on social networking sites”, “i felt mistrusted on social networking sites” and “i felt betrayed on social networking sites”. the answers provided by the participants concerning this topic gave valuable information about the darker side of social networking sites. intentions. the sixth subtopic included items that are related to participants’ intentions towards social networking sites and were adapted from wheeless and grotz (1976, concluded by h. y. huang, 2016). the entries concerning intentions were “i am always honest in my self-disclosures on social networking sites”, “my self-disclosures on social networking sites are completely accurate reflections of who i am and “i always feel completely sincere when i reveal my own feelings 31 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 and experiences on social networking sites”. these items helped to evaluate to what extent participants feel honest and truthful to themselves when self-disclosing. satisfaction. this subtopic encompasses the listing that deals with general satisfaction of the participant regarding his social networking sites, the items were adapted from diener, emmons, larsen and griffin (1985, concluded by h. y. huang, 2016). the entries for this subtopic were “i am satisfied with my online social life on social networking sites”, “my online social life on social networking sites is close to my ideal”, “so far, i have obtained the important things i want from my online social life”. benefits. the last subtopic of the survey was about overall benefits gained on the social networking sites where the listings were adapted from krämer and schäwel (2020). entries regarding benefits were “i established a lot of friendships through social networking sites”, “i maintain a lot of friendships through social networking sites” and “i believe that overall social networking sites help me to expand my social circle”. these items helped to evaluate if participants had a chance to build and maintain relationships on the social networking sites. procedures. to measure the process of selfdisclosure on social networking sites an online survey was conducted that helped to analyse how individuals disclose themselves and behave on the internet. it was decided to use english as lingua franca, thus the survey, i. e., the questions were formulated in english. there were eight subtopics in the survey, which consisted of a varying amount of survey-questions each. in total there were 24 items rated on a 7-value scale, four (4) demographic and five (5) questions related to the usage of social networking sites. the demographics collected refer to the gender, age, country of living, and the status of relationship. whereas questions regarding the usage of social networking sites were about the most frequently used sites, the duration of the participant’s registration period, frequency of usage, social network size and percentage of interactions. the items of the survey are not questions, but rather statements that are rated with the described scale by the participant. the chosen scale for 24 items ranged from ‘strongly disagree’ to ‘strongly agree’. the likert scale was chosen because it is lucid and easy to understand and identify with, so the participants feel taken seriously when participating in the survey. moreover, the likert method is widely used as a standard psychometric scale to measure responses, as the scale has a procedure for facilitating survey construction and administration, data coding and analysis (q. li, 2013). asking for agreement and disagreement also gives the participant a sense of their opinions being validated, which is a good way to assess their disclosures on social networking sites. factor analysis. after the sample was presented, the reliability of the scale needed to be checked. the first step to do this is a confirmatory factor analysis (cfa) which is based on the analysis of correlations between variables and the transformation of the initial variable space into a smaller measurement (factor) space (vaitkevičius & sudargienė, 2006). in this confirmatory analysis, the number of factors and the variables describing them are reported before the analysis. the purpose is to verify if the available data support those defined factors (vaitkevičius & sudargienė, 2006). with this statistical method the underlying constructs of all items can be identified. confirmatory approach was chosen because there were eight measures used to explore self-disclosure practices on social networking sites. for this reason, the settings in statistical data analysis program (spss) were changed in a way that eight fixed factors were found and displayed. the general self-disclosure behaviour on social networking sites was represented by the construct “self-disclosure” and three of its items. the second construct was “negative rewards”, the third one was “intentions”, the fourth is “positive rewards”, the fifth one was “satisfaction”, sixth is “benefits”. the questionable seven and eighth factors, which represent items of deep disclosure e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 32 were decided to be removed from the analysis, because of the aforementioned low eigenvalues. after the analysis it was decided that self-disclosure behaviour of shallow and deep disclosure would only be represented by the construct “self-disclosure”. scale analysis. to check whether these found constructs are measured in a reliable way cronbach’s alpha was calculated and interpreted, additionally cronbach’s alpha if item is deleted was also included. in general, a construct is measured reliably by its items when alpha has a minimum value of 0.7 (gilem & gilem, 2003). according to gliem and gliem (2003), an alpha with the value of 0.6 is already questionable but everything below this should be taken out of the survey because there is no reliability given. the construct “self-disclosure” scored highest at 0.853. the constructs “negative rewards”, “intentions”, “positive rewards” and “satisfaction” and “benefits” all scored between 0.7 and 0.8., so the value of the coefficient alpha is quite high and appropriate for the analysis. it also needs to be considered that these constructs are only measured by three items and that this can also be the reason for a lower coefficient alpha, as it increases with the number of items (spector, 1992). statistical analysis was performed with a package of statistical data analysis program spss 25.0. the data was coded, values were standardized, averages and statistical significance were calculated. results scientific literature analysis has suggested that self-disclosure depends on demographic factors, therefore the first hypothesis was formulated: h1: self-disclosure on social networking sites differs depending on demographic indicators such as gender, country of living and age. to test this first hypothesis that self-disclosure is determined by demographic factors, self-disclosure practices were compared between different genders, countries of living, and age groups. the student’s t criterion (when comparing two groups) and kruskal wallis test (for more than two independent samples). the results are displayed in tables 2-4. for the analysis by gender, there were 223 males and 186 females compared in terms of self-disclosure practices on social networking sites. the results are displayed in table 2. gender self-disclosure practices on social networking sites self-disclosure negative rewards intentions positive rewards satisfaction benefits means, standard deviations females (n=186) 4,13 (± 1,57) 3,52 (± 1,55) 5,03 (± 1,13) 4,55 (± 1,34) 4,76 (± 1,17) 4,93 (± 1,28) males (n=223) 4,60 (± 1,59) 3,89 (± 1,59) 5,08 (± 1,15) 4,70 (± 1,37) 5,08 (± 1,07) 5,01 (± 1,21) p 0,003 0,019 0,580 0,243 0,003 0,518 source: author’s table 2 self-disclosure practices by gender (n=409) the analysis of the research results showed that there are statistically significant differences between males and females self-disclosure practices on social networking sites. compared to females, males are statistically significantly more likely to have greater self-disclosure behaviour, gain negative rewards and be satisfied with their social networking sites (p<0,05). no statistically significant difference was found between the intentions, gained positive rewards and benefits of males and females. these study results partially confirm the first hypothesis of the study that self-disclosure depends on demographic factors in terms of gender. for the analysis by country of living, it was decided to compare means for the two countries with the highest response rates which were lithuania (n=130) and united states of america (n=113). the results are displayed in table 3. 33 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the analysis of the research results showed that there are statistically significant differences between those, who live in lithuania and in the united states of america on self-disclosure practices on social networking sites. compared to residents of lithuania, the respondents living in the united states of america are statistically significantly more likely to have greater self-disclosure behaviour, honest intentions towards social networking sites, are more satisfied, gain more benefits and positive rewards on social networking sites (p<0,05). no statistically significant differences were found between gaining negative rewards of residents of lithuania and the united states of america. these study results confirm the first hypothesis raised in this study that self-disclosure depends on demographic factors in terms of country of living. for the analysis on self-disclosure on social networking sites by age, all the respondents were grouped into five age groups: under 25 (n=173), 26-35 (n=139), 36-45 (n=60), 46-55 (n=25), 56 and over (n=12). the results are displayed in table 4. table 3 self-disclosure practices by the country of living (n=243) source: author’s country of living self-disclosure practices on social networking sites self-disclosure negative rewards intentions positive rewards satisfaction benefits means, standard deviations lithuania (n=130) 3,61 (± 1,39) 3,45 (± 1,32) 4,60 (± 1,13) 4,40 (± 1,17) 4,32 (± 1,01) 4,65 (± 1,29) united states of america (n=113) 4,81 (± 1,56) 3,83 (± 1,87) 5,45 (± 1,09) 4,81 (± 1,56) 5,37 (± 1,04) 5,16 (± 1,31) p 0,000 0,072 0,000 0,021 0,000 0,003 age groups self-disclosure practices on social networking sites self-disclosure negative rewards intentions positive rewards satisfaction benefits mean ranks, means, standard deviations under 25 (n=173) 181,72 4,12 (± 1,55) 209,44 3,79 (± 1,35) 172,21 4,76 (± 1,11) 200,35 4,66 (± 1,15) 167,13 4,55 (± 1,18) 201,12 4,97 (± 1,16) 26-35 (n=139) 230,51 4,69 (± 1,66) 212,21 3,82 (± 1,78) 232,51 5,29 (± 1,17) 217,38 4,72 (± 1,48) 238,09 5,25 (± 1,01) 210,43 4,99 (± 1,33) 36-45 (n=60) 208,63 4,49 (± 1,42) 183,09 3,43 (± 1,49) 200,98 5,08 (± 1,03) 186,05 4,43 (± 1,39) 217,73 5,11 (± 0,88) 206,36 5,02 (± 1,19) 46-55 (n=25) 218,30 4,56 (± 1,60) 217,96 3,93 (± 1,97) 260,08 5,61 (± 0,84) 216,12 4,73 (± 1,49) 227,80 5,20 (± 1,13) 195,18 4,93 (± 1,13) 56 and over (n=12) 199,21 4,28 (± 1,59) 140,13 2,83 (± 1,59) 264,42 5,64 (± 1,14) 200,17 4,41 (± 1,35) 256,42 5,39 (± 1,13) 211,67 5,06 (± 1,24) p 0,009 0,149 0,000 0,463 0,000 0,951 table 4 self-disclosure practices by age group (n=409) source: author’s e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 34 the analysis of the results showed that there are no statistically significant differences between different age groups and gained negative, positive rewards and benefits. however, statistically significant differences were found between different age groups and self-disclosure, intentions, and benefits. the respondents under 25 have statistically significant lower self-disclosure, are less satisfied and not always have honest intentions towards social networking sites (p<0,05). these study results confirm the first hypothesis of the study that self-disclosure depends on demographic factors in terms of different age groups. furthermore, scientific literature analysis discussed how self-disclosure influences relational development, therefore the second hypothesis was formulated: h2: self-disclosure on social networking sites differs depending on relationship status. in order to test this hypothesis and determine whether the self-disclosure practices of people with different relationship status is different, it was decided to evaluate and compare the averages of the self-disclosure practices of males and females in terms whether they are single, dating/in a relationship or married. the kruskal wallis test was used for several independent samples. the results are displayed in tables 5-6. age groups self-disclosure practices on social networking sites self-disclosure negative rewards intentions positive rewards satisfaction benefits mean ranks, means, standard deviations single (n=61) 81,70 3,98 (± 1,59) 92,05 3,59 (± 1,28) 71,85 4,60 (± 1,29) 89,97 4,67 (± 1,24) 67,95 4,25 (± 1,14) 89,26 4,98 (± 1,25) dating (n=42) 66,93 3,55 (± 1,52) 81,27 3,27 (± 1,49) 89,52 5,07 (± 1,07) 82,19 4,51 (± 1,20) 83,35 4,67 (± 1,17) 80,87 4,76 (± 1,42) married (n=72) 105,63 4,67 (± 1,53) 88,49 3,59 (± 1,79) 100,79 5,29 (± 0,93) 89,72 4,57 (± 1,47) 107,70 5,24 (± 1,06) 91,09 5,00 (± 1,25) p 0,000 0,565 0,004 0,693 0,000 0,564 table 5 women self-disclosure practices in terms of relationship status (n=186) source: author’s the examination of the results showed that there are no statistically significant differences between women with different relationship status on gained benefits, positive and negative rewards. nonetheless, statistically significant differences were found between women with different relationship status and self-disclosure, intentions, and satisfaction. dating women have statistically significant lower self-disclosure, while single women not always have honest intentions towards social networking sites and are less satisfied (p<0,05). these study results confirm the second hypothesis of the study that self-disclosure depends on relationship status. the same self-disclosure assessment was performed in the male group depending on their relationship status. the analysis of the research results showed that there are statistically significant differences between male relationship status and almost all self-disclosure practices, except gaining negative rewards. more specifically, the difference is significant in self-disclosure, intentions, positive rewards, satisfaction, and benefits. dating men have statistically significant lower self-disclosure and perceived benefits, while single men not always have honest intentions towards social networking sites, gained fewer positive rewards and are less satisfied (p<0,05). these study results confirm the second hypothesis of the study that self-disclosure depends on relationship status. in order to test the third hypothesis, whether self-disclosure correlates with perceived positive 35 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 and negative rewards it was decided to assess how women’s and men’s self-disclosure correlates with positive and negative rewards. the third hypothesis was formulated: h3: self-disclosure practices on social networking sites correlates with perceived negative and positive rewards. for this purpose, a pearson’s correlation test was performed separately in groups of men and women to determine the relationship between self-disclosure and positive and negative rewards. the results are displayed in tables 7-8. age groups self-disclosure practices on social networking sites self-disclosure negative rewards intentions positive rewards satisfaction benefits mean ranks, means, standard deviations single (n=99) 93,29 4,30 (± 1,66) 101,75 3,84 (± 34) 87,95 4,73 (± 1,16) 96,45 4,53 (± 1,21) 89,03 4,82 (± 1,14) 97,60 4,89 (± 1,10) dating (n=20) 92,40 4,45 (± 1,33) 87,25 3,43 (± 1,37) 118,53 5,32 (± 1,00) 98,28 4,53 (± 1,53) 104,13 5,09 (± 0,98) 87,45 4,65 (± 1,10) married (n=93) 123,59 5,09 (± 1,43) 115,69 4,18 (± 1,83) 123,66 5,39 (± 1,14) 120,03 4,91 (± 1,48) 125,61 5,44 (± 1,00) 120,07 5,22 (± 1,33) p 0,002 0,097 0,000 0,017 0,000 0,013 table 6 men self-disclosure practices in terms of relationship status (n=223) source: author’s correlations self-disclosure negative rewards positive rewards self-disclosure pearson correlation 1 sig. (2-tailed) negative rewards pearson correlation .306** 1 sig. (2-tailed) .000 positive rewards pearson correlation .627** .309** 1 sig. (2-tailed) .000 .000 table 7 correlations between self-disclosure and positive and negative rewards in the male group (n=233) source: author’s the analysis of the results of the study in a male group showed that there is a strong correlation between self-disclosure and perceived positive and negative rewards, but men are gaining more positive than negative rewards in social networking sites (p≤0,01). the same analysis in the group of women found that there are also strong correlations between self-disclosure and positive and negative rewards (p≤0,01). these correlations showed that when self-disclosing, men are gaining more negative as well as more positive rewards than women. these study results confirm the third hypothesis of the study that self-disclosure correlates with perceived positive and negative rewards. the fourth hypothesis was raised: h4: self-disclosure practices on social networking sites correlates with gained benefits and overall satisfaction. this hypothesis was tested in terms of if self-disclosure correlates with gained benefits and overall satisfaction on social networking e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 36 table 8 correlations between self-disclosure and positive and negative rewards in the female group (n=186) source: author’s correlations self-disclosure negative rewards positive rewards self-disclosure pearson correlation 1 sig. (2-tailed) negative rewards pearson correlation .259** 1 sig. (2-tailed) .000 positive rewards pearson correlation .512** .201** 1 sig. (2-tailed) .000 .006 sites. pearson’s correlation test was performed to evaluate the links between self-disclosure and gained benefits as well as overall satisfaction. the results are displayed in table 9. the examination of the results showed that there are strong correlations between self-disclosure and perceived benefits and satisfaction. these study results confirm the fourth hypothesis source: author’s table 9 correlations between self-disclosure, benefits, and satisfaction (n=411) correlations self-disclosure satisfaction benefits self-disclosure pearson correlation 1 sig. (2-tailed) satisfaction pearson correlation .286** 1 sig. (2-tailed) .000 benefits pearson correlation .588** .357** 1 sig. (2-tailed) .000 .000 of the study that self-disclosure correlates with gained benefits and overall satisfaction (p≤0,01). ultimately, it is necessary to discuss the overall results of the study that prove social penetration theory to be a useful theoretical framework for the analysis of self-disclosure in communication, relational maintenance, and development on social networking sites, in particular, when evaluating self-disclosure behaviour, perceived negative and positive rewards, intentions, satisfaction and gained benefits. the research revealed a fairly comprehensive picture of how people self-disclose themselves to others. the study revealed that males are statistically significantly more likely to have greater self-disclosure behaviour, gain negative rewards and be satisfied with their social networking sites, compared to females. no statistically significant difference was found between the intentions, gained positive rewards or benefits of males and females. respondents living in the united states of america are statistically significantly more likely to have greater self-disclosure behaviour, have less honest intentions towards social networking sites, are more satisfied and gain more benefits and positive rewards on social networking sites when compared to residents of lithuania. no statistically significant difference was found between gaining negative rewards of residents of lithuania and the united states of america. 37 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 statistically significant differences were found between different age groups and self-disclosure, intentions, and benefits. respondents under 25 have statistically significant lower self-disclosure, are less satisfied and not always have honest intentions towards social networking sites. no statistically significant differences were found between different age groups and gained negative, positive rewards and benefits. statistically significant differences were found between women with different relationship status and self-disclosure, intentions, and satisfaction. dating women have statistically significant lower self-disclosure, while single women do not always have honest intentions towards social networking sites and their level of satisfaction is lower. no statistically significant differences were found between women with different relationship status on gained benefits, positive and negative rewards. there are statistically significant differences between male relationship status and almost all self-disclosure practices, except gaining negative rewards. the difference is significant in self-disclosure, intentions, positive rewards, satisfaction, and benefits. dating men have statistically significant lower self-disclosure and perceived benefits, while single men do not always have honest intentions towards social networking sites, gained fewer positive rewards and are less satisfied. there are strong correlations between self-disclosure and positive and negative rewards. these correlations showed that when self-disclosing, men are gaining more negative as well as more positive rewards than women. there are strong correlations between self-disclosure and perceived benefits and satisfaction. these correlations confirm that self-disclosure correlates with gained benefits and overall satisfaction. conclusions the main theory employed in this research helped to evaluate self-disclosure behaviour in a context of different stages of disclosure and penetration, depth, and breadth, as well as the assessment of rewards and costs rationale. self-disclosure and its effects on relational development and maintenance were analysed in the context of social networking sites, especially with the development of new technologies. the research carried out in this study proved that self-disclosure is an important aspect of building and maintaining relationships, as it affects the closeness and intimacy of individuals. this study employed social penetration theory as a theoretical framework for analysing self-disclosure and communication, however, the analysis did not consider one important issue related to social networking sites, which is privacy. future studies could use communication privacy management theory in line with the social penetration theory to analyse how self-disclosure intercorrelates with privacy concerns. given the increasing number of social networking sites use and blurring boundaries between private and public contacts, privacy notions would reveal what people tend to disclose and what information is concealed. it would be also useful to know what elements and themes users of social networking sites implement on their profiles and whether they are familiar with the opportunities to manage and control the access to their public profiles and personal information. the investigation on how people build and maintain relationships in the digital age solicited the analysis of self-disclosure in the context of social networking sites which revealed that: » males are statistically significantly more likely to have greater self-disclosure behaviour, gain negative rewards and be satisfied with their social networking sites, compared to females. no statistically significant difference was found between the intentions, gained positive rewards or benefits of males and females; » respondents living in the united states of america are statistically significantly more likely to have greater self-disclosure behaviour, have less honest intentions towards social networke u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 38 ing sites, are more satisfied and gain more benefits and positive rewards on social networking sites when compared to residents of lithuania. no statistically significant difference was found between gaining negative rewards of residents of lithuania and the united states of america; » statistically significant differences were found between different age groups and self-disclosure, intentions, and benefits. respondents under 25 have statistically significant lower self-disclosure, are less satisfied and not always have honest intentions towards social networking sites. no statistically significant differences were found between different age groups and gained negative, positive rewards and benefits; » statistically significant differences were found between women with different relationship status and self-disclosure, intentions, and satisfaction. dating women have statistically significant lower self-disclosure, while single women do not always have honest intentions towards social networking sites and their level of satisfaction is lower. no statistically significant differences were found between women with different relationship status on gained benefits, positive and negative rewards; » there are statistically significant differences between male relationship status and almost all self-disclosure practices, except gaining negative rewards. the difference is significant in self-disclosure, intentions, positive rewards, satisfaction, and benefits. dating men have statistically significant lower self-disclosure and perceived benefits, while single men do not always have honest intentions towards social networking sites, gained fewer positive rewards and are less satisfied; » there are strong correlations between self-disclosure and positive and negative rewards. these correlations showed that when self-disclosing, men are gaining more negative as well as more positive rewards than women; » there are strong correlations between self-disclosure and perceived benefits and satisfaction. these correlations confirm that self-disclosure correlates with gained benefits and overall satisfaction. aboulhosn, s. 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(1976). the measurement of trust and its relationship to self‐disclosure. human communication research, 3(3), 250-257. https:// doi.org/10.1111/j.1468-2958.1977.tb00523.x e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 40 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). loreta huber professor fields of interests media communication, semiotics of culture, media accessibility address faculty of social sciences, arts and humanities, kaunas university of technology, lithuania mickevičiaus st. 37, lt44244 kaunas, lithuania +370 626 76 555 loreta.huber@ktu.lt orcid id: https://orcid.org/0000-0001-5453-7995 monika martinaitytė b. a. in communication and information management technologies fields of interests media communication, social networking, computer-mediated communication address faculty of social sciences, arts and humanities, kaunas university of technology, lithuania mickevičiaus st. 37, lt44244 kaunas, lithuania monika.martinaityte@ktu.edu 13 issn 1822–8402 european integration studies. 2014. no. 8 legal regulations of free movement of workers in the european union as a boost to business development and employment: case study of eures network activities in lithuania zivile pauzaite, jurgita baryniene kaunas university of technology mickeviciaus str. 37, kaunas, lithuania e-mail: zivile.pauzaite@ktu.lt ; jurgita.baryniene@ktu.lt margarita suke european employment services network in lithuania, klaipėda city naikupes str. 27a, 93202 klaipeda, lithuania e-mail: margarita.suke@gmail.com http://dx.doi.org/10.5755/j01.eis.0.8.6972 after lithuanian’s accession to the european union (eu) in 2004, the citizens of lithuania gained one of the four freedoms of the eu: it is a freedom to move, work and live in another eu and european economic area (eee) country. now workers can live in one country and work in another, they can even work in more than one country. while lithuanian business can look for specialist in another eu country if there are no any in lithuania. consequently the free movement of workers did effect on the lithuanian business development and employment itself. during the economic crisis the unemployment rate started to grow in many eu countries. especially youth unemployment appeared as one of major issues. for lithuanian economy high unemployment rate was and still is a serious problem. the free movement of workers is a challenge not only for the lithuanian citizens but for employers as well. according to the strategy europe 2020, the mobility could be as a solution in reducing high unemployment, which was reached during the economic crisis. with reference to the above, it could be stated that balanced labour movement could play a significant role in boosting business development and employment in the eu and the eee. the dissemination of information about legal regulations of free movement of workers takes an important place in this regard. accordingly a network of consultants, the european employment services (eures), initiated by the european commission (ec) is highly focused to this issue. eures is acting in all the members of the eu as well as eee. eures is responsible for information, advice and placement services for jobseekers and employers wishing to benefit from the principle of the free movement of persons. the network has its consultants in ten cities of lithuania as well and it covers all main regions of the state. considering the above mentioned, the article solves the scientific problem: how eures network’s activities could impact employment and business development in the eu and lithuania? the aim of this paper is to study peculiarities of legal regulations of free movement of workers in the eu and importance of eures network’s activities as well as its relevance to employment and business development in the eu and lithuania. to achieve this aim three tasks were solved: to present the main topicalities of employment and its relevance to business development in the eu and lithuania; to analyse the legal aspects of free movement of workers in the eu; to highlight the main eures network’s activities reducing unemployment in the eu and lithuania. the paper presents a combination of several research methods: comparative analysis of lithuanian and international scientific works; comparative analysis and interpretation of the eu legal documents, strategies and practical papers; comparative and explanatory analysis of secondary statistic data; the paper includes the case study of eures network activities in lithuania. the results of the article: there were presented the main topicalities of employment and its relevance to business development in the eu and lithuania; there were highlighted the main legal aspects of free movement of workers in the eu; there were highlighted the main eures network’s activities, reducing unemployment, balancing labour market and boosting business development in the eu and lithuania by disseminating information about free movement of workers. keywords: european union, free movement of workers, legal regulations, business development, employment, eures. introduction unemployment situation in eu enforce to find ways to stop unbounded growth. this issue is a relevant topic analysed by lithuanian and foreign scientists in several aspects: martinkus, stoskus, berzinskiene (2009), ferragina, pastore (2008), marelli, patuelli, signorelli (2012), pavelka (2012), chung, bekker, houwing (2012) emphasise in their research an unemployment, its problems and ways to solve and reduce high unemployment rate; scientists like berzinskiene, juozaitiene (2011), neverauskienė, moskvina (2010), šakienė (2009) highlight in their research a labour issn 1822–8402 european integration studies. 2014. no. 8 14 market measures reducing unemployment in general and repečkienė, kvedaraitė, žvirelienė, glinskienė (2012), rakauskienė, žukovskis (2010), shucksmith (2013) emphasise a labour market measures reducing youth unemployment. doyle, hughes, wadensjö (2006), iglicka (2006), gilpin, henty, lemos, portes, bullen (2006), donaghey, teague (2006), carrera (2005), dolvick, visser (2009), dobson, sennikova (2007), manolo (2006), pettinger (2009) examine legal topicalities, of free movement of workers responding to accepting countries (like uk, ireland, sweden) and immigrating workers. ferragina and pastore (2008) introduce mobility as a tool to contribute in making high unemployment differences persistent. the comparative analysis of scientific works revealed that unemployment problems and issues of free movement of workers are relevant topics not only for lithuanian scientist but also for many eu scientists as well. the unemployment situation in the eu is an important issue and it is highly emphasised by european commission. due to this a lot of statistical data are collected and disseminated in eurostat statistical database for deeper analysis in this field. accordingly it was chosen in a paper to use comparative and explanatory analysis of secondary eurostat statistic data to analyse and the overall eu and lithuanian unemployment trends. while legal aspects and political initiatives focused towards free movement of workers are highlighted in the eu legal documents: treaty of establishing european community, ec regulations no.883/2004 and no.987/2009 about social security rights, directive 2004/38/ec on the right of eu citizens to move and reside freely within the territory of the member states; strategies and practical papers: strategy 2020 which encourage free movement of workers for sustainable development and ec communication com (2012) 173 final, where member states are recommended to promote free movement of workers for balanced labour market. to reveal the above mentioned aspects the comparative analysis and interpretation of the eu legal documents, strategies and practical papers is used in this paper as one of the research methods. beside legal documents, strategies and practical papers ec puts a lot of efforts towards various kind of initiatives to boost efficient free movement of workers, effective business development and accordingly to balance a labour market and reduce an unemployment. considering the above mentioned, the article solves the scientific problem: how eures network’s activities could impact employment and business development in the eu and lithuania? novelty of the paper: • there are a lot of scientific works analysing free movement of workers in general, however free movement of workers as one of the solutions to reduce growing unemployment rate in the eu is not deeply analysed; • case study of eures network activities in lithuania presents a new approach to the network. it appears as a tool helping to balance eu labour market and to boost business development. to achieve this aim three tasks were solved: to present the main topicalities of employment and its relevance to business development in the eu and lithuania; to analyse the legal aspects of free movement of workers in the eu; to highlight the main eures network’s activities reducing unemployment in the eu and lithuania. the aim of this paper is to study peculiarities of legal regulations of free movement of workers in the eu and importance of eures network’s activities as well as its relevance to employment and business development in the eu and lithuania the main tasks were: to present the main topicalities of employment and its relevance to business development in the eu and lithuania; to analyse the legal aspects of free movement of workers in the eu; to highlight the main eures network’s activities reducing unemployment in the eu and lithuania. the paper presents a combination of several research methods: • comparative analysis of lithuanian and international scientific works; • comparative analysis and interpretation of the eu legal documents, strategies and practical papers; • comparative and explanatory analysis of secondary statistic data; • case study of eures network activities in lithuania. topicality of business development and employment in the european union the economic crisis highlighted a high unemployment rate in all european union and especially youth unemployment (shucksmith, 2013; rakauskienė, žukovskis, 2010) in rural areas. high unemployment reduces citizen’s income, downward states economics and financial situation. accordingly, it is expedient to analyse eu’s unemployment trends in the overall as well as to consider the situation of each country, and to emphasise the lithuanian unemployment trends. regarding to this comparative and explanatory analysis of secondary eurostat statistic data was used in the paper. according to eurostat unemployment statistics, unemployment rate in european union countries dramatically started to grow after the economic crisis (see figure 1). the chart shows that since 2008 the unemployment started to grow, during 2011 stopped growing and gradually decreased, but not for a long time. after the 2011 the unemployment rate started to grow again and reached the highest unemployment rate in the last 8 years. the chart also shows that not only european union has high unemployment rate but euro area countries as well, while the recent has a slight higher unemployment rate after 2008. it could be concluded that after economic crisis bigger influence to euro zone countries. according to the european commission’s publication labour market developments in europe 2013 there were 19.231 million unemployed in july 2013 in the euro area and 26.654 million in the eu. the scientists marelli, patuelli, signorelli (2012) in their paper empirically assessed the evolution of european regions in terms of both employment and unemployment during the recent financial crisis and global recession. referring to pavelka (2012), many people, who became unemployed in the time of economic decline, remained unemployed and moved into the category of longterm unemployed. issn 1822–8402 european integration studies. 2014. no. 8 15 figure 1. unemployment rate in eu-28 and ea-18, period 2004–2012 (eurostat, unemployment statistics, unemployment rate in eu-28 and ea-18, period 2004–2012) january 2014 the eu’s overall unemployment rate was 10.8% comparing with 2013 same month it decreased by 0,2% (eurostat, unemployment statistics, harmonised unemployment rate by sex). according to the eurostat statistics, the highest unemployment rate was (see figure 2): in greece – 28 % and spain – 25.8%; while the lowest was in austria – 4.9%. lithuania’s unemployment rate was 11.3% higher than eu-28 by 0.5%, but still lower by 0.7% than ea18, which was 12%. figure 2. unemployment rates, seasonally adjusted, january 2014 (eurostat, unemployment statistics, unemployment rates, seasonally adjusted, january 2014) with reference to eurostat unemployment statistics, recently youth unemployment in the eu appears as a major issue. regarding to statistics youth unemployment rate is far higher than total. after the economic crisis youth unemployment rate uncontrollably was increasing and in january 2014 it reached 23.4% (see figure 3). youth unemployment rate is more than twice (12.6%) higher as total unemployment rate; it does reflect the employment problems of young people. figure 3. youth unemployment rates, eu-28 and ea-18, seasonally adjusted, january 2000–january 2014 (eurostat, unemployment statistics, youth unemployment rates, eu-28 and ea-17, seasonally adjusted, january 2000–january 2014) however lithuania’s unemployment rate has different tendencies in the period 2003–2013 than in other eu countries (see figure 4). either after economic crisis the total and youth unemployment rate start to grow rapidly, but it stopped growing in 2010 and slightly were decreasing. youth unemployment rate is unlikely lower than total. according to kvedaraite, repeckiene, glinskiene and zvireliene (2012) in lithuania youth unemployment regularly starts in june and july each year, after students graduate form higher education institutions. in 2013 total unemployment rate was 10.9% and youth unemployment was 6.3%. figure 4. total and youth unemployment rate in lithuania, 2003–2013. (lithuania labour exchange, labour market, total and youth unemployment rate in lithuania, 2003–2013) however the unemployment rate’s range is very linked to emigration. according to rakauskiekė o. g., ranceva o., (2012), young people (aged 15 to 29) make up 40.8% of all lithuanian emigrants. for the most part, young employable people leave: every other migrant is 20 to 34 years old and this tendency remains stable from 2001. in 2008, one fifth of all emigrants were inhabitants aged 25–29, 13% were 20–24, 14% – 30–34; in 2007, 18, 13 and 14% respectively. in 2010, 22.3% of emigrants were aged 25 to 29, 18.2% were aged 20 to 24, 14.4 percent were aged 30 to 34. in 2010, people from 35 to 54 made up one fourth of all emigrants; in 2009 – one third. with reference to rakauskiekė o. g., ranceva o., (2012) it is obvious that emigration causes lithuania lose many young employable people. 77% of emigrants are aged from 15 to 44. šakienė (2009) was identifying problems caused by lithuanian unemployment regulation policy in her paper and became with the result that main problems are caused by unemployment benefit policy. quite often young people leave lithuania because of low income, difficult life conditions, the lack of workplaces and miserable opportunities for self-realisation. focus on young and mobile people is crucial, as they are the main group of interest, who needs knowledge in free movement of workers, guarantees on their rights as well as encouragement and support for the involvement to business sector. the secondary statistical analysis shows that eu has to develop measures in order to reduce unemployment and especially youth unemployment. the unemployment situation in europe influence economies and business development of all member states. in the member states there is not enough of money inflow to the member states’ budget from the employment and there is money outflow for the unemployment benefit. issn 1822–8402 european integration studies. 2014. no. 8 16 accordingly an efficient free movement of workers could appear as one of the solutions in reducing the high unemployment rate in the eu and in boosting business development. potentially mobile workers could move to another eu country to work. during that period one could gain necessary experience, to develop one’s skills and to improve knowledge of foreign language. jobseeker with working experience and gained competence would get employment easier in his native country and would integrate into a labour market faster. moreover, business could benefit from experienced employee. however the reinforcement of an efficient free movement of workers in the eu is a major challenge. and one of its reasons is the legal aspects of free movement of workers as well as dissemination of information about it. legal aspects of free movement of workers in the european union after the biggest eu enlargement in 2004 the legal issues of free movement of persons as well as workers became an important issue and a relevant research object. a number of scientists: doyle, hughes, wadensjo (2006), iglicka (2006), gilpin, henty, lemos, portes and bullen (2006), donaghey, teague (2006), carrera (2005) emphasised the legal aspects of free movement of workers moving to eu15 countries after the enlargement of eu in 2004. carrera (2005) highlighted the theoretical aspects of free movement of workers and its adoption to practice as well as emphasised a need to overcome barriers for efficient free movement of workers and to make free movement and residence rights more inclusive. while doyle, hughes, wadensjo (2006), gilpin, henty, lemos, portes, bullen (2006), donaghey, teague (2006) pointed out the movement of workers from central and eastern europe to western countries. scientific works highlighted the eu socials security regulation problems for eu15 member states and especially cases of ireland, sweden and uk. it was stated that social security rights there were positively conducive to immigrants that a number of applicants started to grow and it made a negative effect to established national systems of labour market regulation. iglicka (2006) analysed legal aspects of free movement of youth and especially students. according to scientist a number of students from eastern europe in universities of the eu15 started to grow. due to this it became essentially important to raise an issue of education and resident rights for students as potential labour power and a boost to business development. the ec responding to on-going changes in the eu constantly initiates the development of legal regulations of free movement of workers in creating various legal documents. one of the first documents, which included regulations for free movement of workers, was treaty of establishing european community (ec treaty articles 39–42 on the free movement of workers, 1997-10-02). the treaty gives a permission to move in european community. the 39–42 articles include all the basic regulations for free movement of workers. according to dolvick and visser (2009) the freedom of movement incudes employment, remuneration and other employment and working conditions, abolition of any discrimination against workers of member states on grounds of nationality. according to ec treaty articles 39– 42 member states by a joint program encourage the exchange of young workers. furthermore, based on ec treaty, council encouraged member states to liberalize the movement of workers by abolishing those administrative procedures and practices and those jobs right qualifying periods applicable under national legislation or previous agreements between member states. by ec treaty articles 39–42, there was taken necessary measures to ensure social security rights for migrant workers and their dependents, in accordance with the laws of the several states (dobson and sennikova, 2007). there were created two ec regulations no.883/2004 and no.987/2009, which recites social security rights moving across europe, like right to pension, sickness benefit, maternity leave or unemployment benefit. another important document regulating free movement of workers is european parliament and council directive 2004/38/ec on the right of eu citizens and their family members to move and reside freely within the territory of the member states. the biggest value of this directive, that it explains all the eu citizens’ rights in other member states. currently, the european union’s desire is to overcome the economic downturn and one of its consequences – high rates of unemployment. in pursuing its objectives, the eu offers to member states to take the initiative in reducing unemployment. the european commission has prepared a ten-year european economic recovery strategy 2020 (europe 2020 a strategy for smart, sustainable and inclusive growth). the document states that within 10 years the eu should strive to create more jobs. the strategy presents measures to member states how to achieve a decline in unemployment and employment growth, as well as recommendations, how to address the problem of youth unemployment (chung, bekker, houwing 2012). european union strategy 2020 has 7 flagship initiatives; however one of these initiatives – “youth on the move” is essentially important, whereas it is directly related to the free movement of workers (com (2012) 173 final. briuselss 2012.04.18). the aim of this initiative is to promote students’ and trainees’ mobility, as well as to improve employment situation of young people in the eu. on the basis of this framework the european commission has established goals in the european union level: • to explore ways promoting mobility programs for young professionals in entrepreneurship; • to launch a youth employment framework outlining policies to reduce youth unemployment with member states and social partners to promote the integration of young people into the labour market through apprenticeships, internships or other work experience, including eures job system, which aims to increase youth possibilities for facilitating mobility across the eu. due to economic crisis young people experience difficulties finding a job. more than five million young europeans are looking for a job. indeed more than half of young people in europe are willing or keen to work abroad, but lack of job search support or cash discourages many of them from taking a first step. at the same time, while the current job outlook may not seem too bright, many vacancies remain unfilled due to the lack of suitable job applicants among the available workforce. employers are missing out on many young european mobile workers who could make issn 1822–8402 european integration studies. 2014. no. 8 17 their businesses more innovative and competitive (your first eures, job 2012–2013 guide). flagship initiative “youth on the move” includes a pilot programme – “your first eures job”. the programme is established in 2012. its specific target is to help young people (aged 18 to 30) to find work and to help employers find young workers in other member states. with companies operating across a wider geographical area and educational qualifications more easily recognisable in other european countries than ever before, young people have access to more employment opportunities and businesses have access to a larger pool of talented workforce. accordingly “your first eures job” could help to reduce labour market imbalances at eu level by boosting job mobility between in particular eu countries with high youth unemployment and those countries facing skills shortages in specific economic sectors. a particular emphasis is put on encouraging participation of small and medium sized enterprises (sme’s) in the action in order to tap the potential of sme’s to recruit young mobile workers (your first eures job, 2012–2013 guide). eu citizens are using the right of free movement in order to find a work in another eee country. according to dobson and sennikova (2007), manolo (2006) and pettinger (2009) migration had an important positive effect on eu-15 economies (for example in uk, ireland and sweden) because it alleviated labour shortages and skill bottlenecks. likewise free movement of workers can: deal with labour storages, prevent wage inflation, diminish the rise in unemployment, make more flexible labour markets and fill undesirable jobs as well as to boos a business development. the eu regulations ensure that mobile workers are equally treated and their rights are protected. furthermore, social security regulations protect social security rights for mobile workers, which allow moving across europe with gained social security rights to another eee country without losing them. summarising the above made analysis of legal documents and eu initiatives, can be stated, that legal regulation of free movement of workers as well as political guidelines towards its implementation is a significant factor towards successful free movement of workers in the eu. consequently it has a direct impact to further aspects such as balanced migration flows and balanced labour market; lower unemployment rate and bigger involvement of workers to business sector – especially to smes. however the dissemination of information about legal regulations of free movement of workers is an important factor in this regard. quite often eu citizens need basic information on their rights as well as guidelines, where they could look for a job. consequently, in 1993 the ec has launched a new initiative – eures european employment services is a network of national consultants. activities of eures network towards an employment in the european union disseminating information about legal regulations of free movement of workers with reference to european job mobility laboratory, before the crisis, there were large-scale movements from the eu12 into the eu15, particularly to the uk, ireland and sweden. workers were and are mobile and moving to work from country to country. consequently there is a constant demand for the information about their rights. the established by ec eures network is responsible for exchanging information between national and international consultants in order to help workers to look for a job in all over the eu and eee countries. the european job mobility portal gives a clear description of eures mission, which is to provide information, advice and recruitment/placement (job-matching) services for the benefit of workers and employers as well as any citizen wishing to benefit from the principle of the free movement of persons. during the period of two decades from its establishment the eures network has developed. while in the beginning of networks establishment its main goal was to ensure and to encourage a closer cooperation between national employment services in the eu (dobson and sennikova, 2007), nowadays eures became more sophisticated and gained more important role. as it is mentioned in strategy 2020, the network is directed to potentially mobile jobseekers and employers willing to recruit from other member states. related to the strategy 2020 mobility is becoming an important factor to balance european labour market, while eures could become a tool helping to implement it. according to 17th january 2014 proposal (com/2014/06 final) the eures network at eu level accounts for approximately 150,000 placements per year: 50 000 through eures advisers and 100 000 through european job mobility portal. according to the latest data of the european job mobility portal (refreshed on the 2nd of june, 2014), there were more than 1.5 million vacancies announced in a portal. while the eures survey results (swd/2014/09 final) shows, that the main problems working abroad are lack of language skills (52%) and lack of information on finding a job (24%). the survey exposed that 43.05% jobseekers 2006–2012, who have applied for eures services were interested in job search information and 17.09% were interested in information in general eures services. with reference to eures survey results it can be stated that there is still a lack of awareness of eures services at the eu level and there is a demand from jobseekers for reliable information about job search opportunities abroad as well as legal rights of free movement of workers. to reveal a case of the lithuanian eures network activities in disseminating information about free movement of workers it was chosen a case study method based on the analysis of eures surveys and reports and ec recommendations. eures lithuania network was established in 2003 and there are 10 eures bureaus in every territorial public employment services (territorial labour exchange). according to lithuanian eures database in 2013 there were approx. 24 thousand consultations provided about living and working conditions in eee countries and 147 information events organized for both potentially mobile workers and employers wishing to work and recruit in the eu and eee countries. in 2012 with lithuanian eures advisors help only 11 jobseekers from other countries managed to find a job in lithuania, while 373 found a job abroad. with reference to this can be stated, that lithuanian labour market and business sector experience bigger outflow then inflow of workers through eures network channels, while in such countries like uk, ireland and sweden it works in opposite. and due to this aspect those countries’ economies and business sector is gaining bigger benefit. however countries “sending” or issn 1822–8402 european integration studies. 2014. no. 8 18 “accepting” of workers mutually benefit from one common factor – harmonised and balanced labour market. with reference to lithuanian eures statistics lithuanian jobseekers in 2013 were mostly interested in information about job search and social security rights. however, according to eures survey results, there are still a lot of jobseekers in lithuania who are still not aware of eures. these workers have a lack of information on their rights and labour market situation in the eu. quite often lithuanian jobseekers approach eures networks after they face job search problems in other countries or when they get into troubles regarding their social security rights already being abroad. regarding to this it can be stated, that a need of eures network for lithuanian citizens is relevant, however its visibility must be strengthened. it seems to be a tendency not only of lithuanian citizens’ not being aware of eures network’s activities, while in the guidelines of the commission (swd/2014/09 final) it is stressed to increase bigger awareness of eures in the eu overall and to provide reliable and professional information to both jobseekers and employers. each country has its own system of hosting eures network bureaus across the country. lithuanian eures bureaus are incorporated into every territorial public employment services (territorial labour exchange). personnel of eures network in lithuania gives information and consultation for those who want to know about job opportunities, living, working and studying conditions in eu countries, also for lithuanian employers who are looking for workers in other eu countries. however responsibilities and management of personnel is divided between hosting country and ec. such combined management brings some difficulties in division of eures personnel functions in lithuania. it is related with an issue, that quite often a mission of eures network is interpreted and understood in lithuania with negative approach. lithuania, especially during the economic crisis, experiences the brain-drain and emigration. due to this fact lithuanian territorial public employment services has a strong obligation trying to employ lithuanian citizens in their native country, while its subdivision eures bureaus’ advisers put all their efforts offering open vacancies abroad. theoretically both sides are working towards balanced labour market, however one – in the level of lithuania and another – in the level of the eu. practically, besides mutual efforts to reduce an employment and to consult workers about their rights, both sides experience contradiction in term, which makes curtain influence to its activities and direct duties. accordingly it can be stated, that bigger autonomy of eures bureaus in lithuania would make its development and activities more flexible and purposeful. eures bureaus in the eu are highly encouraged by ec to cooperate together with other ec initiatives and resources: like europe direct, eurodesk, solvit, european information centres and etc. close cooperation between above mentioned initiatives increases its awareness as well as helps to solve one’s problem faster and more comprehensively. lithuanian eures bureaus follow ec recommendations regarding closer cooperation between ec initiatives and resources; however mostly in national level. while it should be more and with bigger divers developed towards international level and could reach all potentially mobile workers and could solve their needs. a need for changes in lithuanian eures network activities is timely responding to currently raising needs for changes in eures network at large. in 2014, ec presented and eu’s council of ministers and the european parliament adopted a “proposal for a regulation of the european parliament and of the council on a european network of employment services workers’ access to mobility services and the further integration of labour markets” (com/2014/06 final). the proposal stresses a need to improve the eures network as well as to develop it to a stronger and more transparent as well as flexible tool providing more job offers, increasing the likelihood of job matches and helping employers, especially small and medium enterprises, to fill job vacancies. these improvements would benefit jobseekers and businesses of all sizes, but particularly smes, since currently they may not be able to afford to recruit abroad without the services that eures provides free of charge (improvement of the eures job search network). according to the ec, the current level of cooperation between pes in member states is insufficient in terms of mutual learning and benchmarking. a stronger legal basis is public employment services in the eu needed to foster cooperation beyond what currently takes place in the context of eures and to facilitate labour market projects financed by the european social fund. the possibility of extending eures to traineeships was raised in the ec’s proposal on a quality framework for traineeships (eprs, briefing, 2014). accordingly to these remarks a pilot programme “your first eures job” is considered to become an official and permanent part of eures. lászló andor, a commissioner for employment, social affairs and inclusion, has highlighted in the proposal, that „the reformed eures would facilitate labour mobility and contribute to achieving a truly integrated eu labour market“. in summarising the above analysed reports, surveys and documents can be stated that lithuanian eures network currently experiences raising need for changes and improvement, which are relevant to new rules and recommendations presented by ec for the improvement of eures network at large. the improvement process will bring new changes for lithuanian eures network and will reinforce the network to contribute to integrated and balanced eu labour market. conclusions • according to the made analysis of secondary statistic data, it can be stated that the eu experiences a high rate of unemployment as a consequence of economic crisis. it makes an impact to economies and business development in all member states of the eu. the analysis has revealed that a major problem of unemployment is between young people. however lithuanian youth unemployment rate range depends on their mobility. lithuanian young people solve their problem of unemployment by leaving a country (because of low income, difficult life conditions, the lack of workplaces and miserable opportunities for self-realisation) and trying to integrate to a labour market abroad. issn 1822–8402 european integration studies. 2014. no. 8 19 • the result of secondary statistical analysis revealed a need for the eu measures to reduce unemployment and especially youth unemployment in the eu as well as in lithuania. as one of the solutions is a balanced labour market in the eu strengthening the free movement of workers and involvement of possible workers into business sector all over the eu. the eu intra-mobility of workers is a challenge for member states in their national level as well as a major challenge to the eu itself. • comparative analysis and interpretation of the eu legal documents, strategies and practical papers revealed a fact, that legal regulation of free movement of workers as well as political guidelines towards its implementation is a significant aspect towards successful free movement of workers in the eu. consequently it has a direct impact to further aspects such as balanced migration flows and balanced labour market; lower unemployment rate and bigger involvement of workers to business sector – especially to smes. • according to the made analysis, it can be stated, that beside ec’s efforts towards the legal regulation of free movement of workers, there is still a need for bigger development of legal basis in this field (social security rights, equal rights of immigrants and registration obligations necessary for ensuring immigrant right in other eu and eee country). political guidelines and practical initiatives of the ec (strategy 2020, its flagship initiative “youth on the move” and a pilot programme “your first eures job”) make a significant contribution towards its implementation. however, according to the analysis, the eu citizens quite often still need basic information on their rights as well as guidelines where they could look for a job. the european employment service (eures) initiated by ec takes an important place in this regard by disseminating information about legal regulations of free movement of workers and supporting the involvement of potential workers to a labour market. • case study, based on the analysis of official reports, surveys and documents, revealed, that lithuanian eures network currently experiences raising need for changes and improvement, which are relevant to new rules and recommendations presented by ec for the improvement of eures network at large. according to the ec recommendations eures network should become a stronger, more flexible, and transparent tool providing consultations, dissemination of information, increasing the likelihood of job matches and helping employers, especially small and medium enterprises, to fill job vacancies. due to this a pilot programme „my first eures job“ is foreseen as an official part of eures activities. these improvements would benefit jobseekers and businesses of all sizes, but particularly smes. • according to the made analysis there is a need as well for a closer cooperation between eures network’s consultants and public employment services as well as others ec initiatives (such as europe direct, eurodesk, solvit, european information centres and etc.) locally and internationally. close cooperation between above mentioned initiatives increases its awareness as well as helps to solve one’s problem faster and more comprehensively. the eures improvement process will bring new changes for lithuanian eures network and will reinforce the network to contribute to integrated and balanced eu labour market. references berzinskiene d. and juozaitiene l. 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(2013). how to promote the role of youth in rural areas of europe? newcastle university, uk. power point presentation. available on the internet: http://www. desenvolupamentrural.cat/system/uploads/attachment/ nv_asset/1292/1._mark_shucksmith_rural_youth_ catalonia.pdf. the article has been reviewed. received in april, 2014; accepted in june, 2014. 39 issn 1822–8402 european integration studies. 2014. no. 8 public trust and participation depending on ethnicity in latvia maija vorslava university of latvia, latvia address: 19 raina blvd., riga, lv 1586, latvia e-mail: vorslava.maija@gmail.com lilita seimuskane university of latvia, latvia address: 19 raina blvd., riga, lv 1586, latvia e-mail: lilita.seimuskane@gmail.com maris pukis university of latvia, latvia address: 19 raina blvd., riga, lv 1586, latvia e-mail: maris@lps.lv http://dx.doi.org/10.5755/j01.eis.0.8.6870 low public trust in public power institutions is still an urgent problem among the member states of the european union. according to the latest standard eurobarometer 80 data, the trust continues decreasing. in latvia trust indicators are also markedly low – 17% residents of latvia trust in the national parliament, 21% – in the government, but the indicator of trust in political parties is explicitly critical – it constitutes only 6%. since the eurobarometer research only includes citizens’ opinion, we can assume that the trust indicators are even lower. the population of latvia consists of the latvians, who are the titular nation – 59.6%, the russians – 27% and other national minorities, for instance, the ukrainians and the byelorussians. the issue of the integration of the russian speaking people has been topical in latvia since the mid 90ties, however, as a result of the unsuccessful integration policy, there is still an alarming number of non-citizens in latvia, which, according to the office of citizenship and migration affairs of latvia data, in 2012 constituted 17% of the population of latvia and which is the third highest indicator in the european union. democracy in latvia can only function well when all residents of latvia, regardless of their ethnicity, undertake the responsibility for their country and participate in the public and local government administration. therefore this publication aims at researching whether the indicators of public trust and participation differ, depending on the ethnicity of residents in latvia. the authors also wanted to find out whether the issue of ethnicity has vital importance with regard to the improvement of public trust and participation in latvia. the research is based on the public opinion poll that was conducted by the authors and the marketing and public opinion research centre (skds) in latvia in july 2012. in order to elaborate the research design, a case study method has been used. the data analysis methods, such as the grouping of statistical data and their depiction in tables and document analysis, have been used. the research results show that the trust in national level institutions is affected by different factors, including the ethnicity issue. the acquired research data in correlation with the nationality structure in statistical regions acquired in 2011 population census process in latvia, affirm already mentioned conclusion, than public power institutions in latvia (data of the central statistical bureau of latvia) are more positively evaluated by respondents in regions with most number of latvians, i.e. vidzeme region (87% latvians), kurzeme region (76% latvians). keywords: citizens’ trust, local governments, national government, participation, ethnic composition. introduction one of the globalization features is migration; especially topical is the migration of workforce. the reasons for migration are diverse – the search for better living standards, the opportunities for work and education and other. during last half a century the rapidly increasing international migration has raised justified disquiet and anxiety about the national state traditions and the identity of the core nation in its own country because the ethnic composition has drastically changed in many countries over the last century. therefore the migration issues are particularly addressed in the process of political decision-making (castles and miller, 2009). latvia has had a particularly bad effect of the free movement of workforce in the european union because in the 21st century approximately 200,000 nationals or 9% of all the population have emigrated from latvia (hazans, 2011). the same way due to the world war ii consequences a large number of inhabitants from the soviet union entered latvia, as a result of which latvia is populated by 59.6% of the latvians, who issn 1822–8402 european integration studies. 2014. no. 8 40 are the core nation of latvia, 27% of the russian inhabitants, as well as by other minorities – the byelorussians – 3.6%, the ukrainians – 2.5% and other (statistical yearbook of latvia, 2013). consequently, the issue of integrating the russians has been topical in latvia since the mid 1990ties, but due to the unsuccessful integration policy in latvia there is still an alarmingly large number of non-citizens, which is the third highest indicator in the european union. according to eurostat, the official statistics board of the european union, data that have been gathered about year 2011 the highest proportion of the people who are non-citizens is found in luxembourg – 43% from the total number of residents. as the second comes cyprus where 20% of the total number of residents are not citizens and as the third – latvia where 17% people of all the population are non-citizens or the citizens of another country (see figure 1). however it should be mentioned that both in cyprus and luxembourg the large proportion of the people who are not the citizens of the given country is constituted by the citizens of other european union member states, whereas in latvia and estonia we can see an alarmingly large number of the non-european union countries’ citizens that includes the citizens of russia and non-citizens (mainly former soviet union citizens, who are permanently resident in these countries but have not acquired any other citizenship). figure 1. share of non-nationals in the resident population (% of total number of population), 2012 source: eurostat. residents’ unwillingness to participate in the processes of political decision-making and the low trust in the national parliament and government of one’s own country is an issue of the same topicality as the migration in the european union (seimuskane, vorslava, 2013). in the member states of the european union, including latvia, the indicators of public trust in the national parliaments and governments are measured twice a year amid many other indicators. the latest eurobarometer 80 (public opinion in the european union, fieldwork: november 2013) data show that on average 25% residents trust the national parliament of their country and 23% residents have trust in their national government, the trust in the national parliament and government of one’s own country among the european union member states continues decreasing. according to public trust in the public power of each country, the countries can be divided into four large groups: • countries with medium-high level of public trust. this group includes sweden (trust in parliament – 34%, trust in government – 57%), finland (58%; 50%), austria (54%; 50%), luxembourg (41%; 51%), malta (51%; 48%); the netherlands (41%; 37%), belgium (48%; 48%), denmark (58%; 40%), and germany (44%; 38%); • countries with medium level of public trust. this group ranks estonia (35%; 38%), hungary (34%; 37%), slovakia (28%; 29%), united kingdom (24%; 24%), and the republic of cyprus (18%; 26%); • countries with low level of public trust. this group lists france (14%; 24%), poland (17%; 19%), latvia (17%; 21%), lithuania (11%; 20%), ireland (18%; 17%), bulgaria (14%; 20%), the czech republic (12%; 16%), croatia (12%; 16%), and romania (11%; 16%); • countries with very low level of public trust. this group includes portugal (11%; 15%), greece (12%; 10%), spain (8%; 9%) and slovenia (6%; 10%). italy (10%; 10%), in latvia trust indicators are markedly low and latvia belongs to those member countries of the european union whose level of public trust is defined as low – 17% residents of latvia trust in the national parliament, 21% – in the government, but the indicator of trust in political parties is explicitly critical – it constitutes only 6% and is one of the lowest in the european union. since the eurobarometer research only includes citizens’ opinion, we can assume that the trust indicators are even lower. comparatively larger trust is felt by the residents of latvia towards local governments, in autumn 2013 eurobarometer 80 data showed that 48% of the residents of latvia trusted in local governments. it is in every country’s interests to maintain the social peace and enhance country’s stability on the basis of the mutual trust of inhabitants and inhabitants’ trust in the power of the state and local governments. the aforementioned leads to the conclusion that there is a problem in latvia – society’s trust in the public power and participation in political processes is low, however, another important aspect is that the degree of trust and participation among various ethnic groups differs, which, in the opinion of the authors of this article, is a significant problem. public trust and participation on the given basis in latvia has not been properly researched yet. therefore the authors of this article have set the task for this article to research the situation concerning the issues of public trust and society’s participation in latvia and how these issues are influenced by the ethnic composition of the population of latvia, particularly, the large number of russian-speaking residents in latvia. the stability in the country is only feasible when either large ethnic groups of society – the core nation or the latvians and the russians – trust and participate in the political processes. in order to study this problem, the authors have created a theoretical frame through which they have dealt with such concepts as public trust and political participation as well as the aspects of political participation motivation. in issn 1822–8402 european integration studies. 2014. no. 8 41 the research part the authors have used the method of case analysis so as to analyse the case of latvia – how ethnicity influences participation and public trust in the state and local governments. the analysis of political documents, grouping of statistical data, analysis and imaging have been performed. in order to perform in-depth research of participation habits and differences of public trust among the russian-speaking people and the latvians, the authors have used the opinion poll, conducted by lilita seimuskane and the market and public opinion research centre (skds). political participation motivation and public trust residents’ participation in national processes and public trust in power have always been a topical issue for the researchers of politics since both these important aspects ensure the legitimacy and stability of power in the country. those researchers of politics who regarded elections as the principal and only instrument of democracy (dahl, 1956, sartori, 1987) held an opinion that the application of other types of participation is unnecessary, obstructive and can even pose a threat to the stability of democracy. robert dahl argued that the majority of people are not interested in the issues concerning politics and only a very small part of people make decisions in various groups of society. while researching the reasons for residents’ non-participation, r. dahl concluded that a greater probability of participating in political processes was observable when a resident positively valued the probable benefit from the participation, reasoned that it was essential to achieve an alternative solution to the existing one and believed that they would be able to contribute to the change of results. according to r. dahl, those individuals who possess the necessary knowledge and skills will get involved as well as when the individual is ready to overcome various circumstances in order to act successfully. at the final stage of the 20th century the theory of participation democracy became topical and recognized (almond&verba, 1965, pateman, 1975) – it values participation as significant and necessary for democracy since the participation raises residents’ awareness of democratic procedures, teaches tolerance, responsibility and enhances the interest in politics and political skills but public administrators must give an account to the residents. residents’ tendency to get involved in different public processes varies – it was substantiated by researcher robert inglehart in his written work “the silent revolution” (1977). he concluded that there were two types of orientation: materialistic (material welfare, state security, stable economics) and post-materialistic (when the material values lose their importance, individuals’ involvement in decision-making processes, participation in the solution of different problems at one’s work and/or place of residence, advancement towards more humane society come forward). r. inglehart has made a conclusion that through the change of generations and at the time when welfare replaces poverty society’s orientation also changes – the post-materialistic values substitute the materialistic ones. political scientist sidney verba (1970) has researched the social aspects of political behaviour. political behaviour is associated with the participation in those cases when the activities by which an individual attempts to influence the process of decision-making or the very political decisions are observed. political behaviour depends on upbringing, acquired education and social status. the question why some people are politically active while others are not interested in political processes has always been urgent. s. verba’s explanation for it relates to the resources, available to the individual and personal initiative. as to residents’ participation in political processes, a major role is played by the civil society because not always residents possess sufficient motivation, knowledge and skills to get involved in the political processes individually. the civil society or community can take several forms. people unite in social movement and interest groups, which is essential in the political performance. not only the representation of specific interests but also the relationship between the society and the government often depend on the performance of these organisations. the consolidation in groups is facilitated by the possibility that joint and coordinated performance is likely to attract more attention from the society (putnam, 1995). in order to form an active civil society, people must train themselves to do it, it is necessary to train the skills of the involvement in interest groups and democratic procedures. such skills as arguing, presentation and persuasion must be trained. participation also has a psychological impact on the individual – it enhances civic consciousness and the interest in politics. participation has the function of interaction which teaches tolerance, solidarity, reciprocal respect, mutual trust, the sense of justice and lenience. participation encourages the feeling that the individual belongs to the society and emphasizes the common interests of society (pateman, 1975). as to the civil society and residents’ motivation to get involved in political processes, theorists admit that the trust among the members of society or the social trust is important. sociologist and political scientist robert putnam (1995) was one of the first who spoke about the necessity for organisations to socialize their members by teaching them trust, cooperation and solidarity. r. putnam argued that trust also characterizes people’s readiness to accept and fulfil the decisions made by state power. in his opinion, the political and civil culture of society is characterized by the knowledge about political events, keeping track of political processes and also the attitude towards them as well as the political life in general. individual’s involvement in political processes depends on the motivation and the sense that his/her action will be beneficial, profitable or useful otherwise. although democracy gives an individual the best opportunities to influence the political situation and conditions in the country, more often it remains unused. since democracy defends individuals’ rights and safeguards their interests, it is not remarkably necessary for oneself to get involved actively in the adoption or suggestion of laws. whereas the fact that social trust also enhances political trust in power has been emphasized, for instance, by researchers gabriel almond and sidney verba (1965): “belief in the benignity of one’s fellow citizen is directly related to one’s propensity to join with others in political activity. general social trust is translated into politically relevant trust.” to ensure that the country is developing and the political leaders implement reforms, undertake risks and take the country in the chosen direction, public trust plays a crucial role because it shows voters’ support for the chosen policy. issn 1822–8402 european integration studies. 2014. no. 8 42 public trust in power ensures the stability, viability, and vitality of a democratic country (warren, 1999). the reviewed theory leads to the conclusion that in democratic society public trust plays a vital role in the provision of the stability and development of the country. residents’ participation and public trust are mutually supplementing phenomena because individual’s participation in political processes facilitates public trust concerning power and trust among society members. the same way we conclude that participation skills depend on individual’s motivation, social status, upbringing, acquired civil education and collaboration skills. analysis of the case of latvia political and civil participation is essential in latvia, otherwise the residents can dangerously become alienated from the state. society’s tendency to become alienated from the power in latvia is observable from the public trust indicators. for example, in 2003 the government was trusted by 46% of latvian citizens, the parliament – by 39% of citizens, and the political parties – 14%. over last ten years public trust has decreased by half. in autumn 2013, according to eurobarometer 80 data, the government is only trusted by 21%, the parliament – 17% and political parties – 6% of citizens (see figure 2). local governments enjoy comparatively much higher trust level – local governments are trusted by 48% of citizens, which is a relatively good indicator also among the european union countries. although these data are not pleasing in general, the fact that the eurobarometer studies do not include the data on non-citizens should be taken into account and the number of non-citizens is considerably large in latvia, constituting 17% of all population. this suggests that, in fact, society’s support for the power at the local and national level is much lower. figure 2. political trust in governing institutions (percent, %) source: standard eurobarometer (2003–2013). in democratic society one of the main political involvement mechanisms is the participation in the elections at the local and national level. 46% of citizens participated in the last local government elections, which were held in june 2013, but 59.4% of those having the right to vote took part in the last saeima elections in 2011 (source: the central election commission of latvia, 2013). it is not that these indicators are critically low but voters’ activity during last elections was the lowest since the restoration of independence in latvia. as to the elections of local governments, the issue about providing the possibility for the non-citizens of latvia to participate in local government elections is still urgent in latvia. in several european union member states, including estonia, where the problem of non-citizens is similar to latvia, a non-citizen is provided with an opportunity to vote in local elections if he/ she has resided in the particular local government for a certain period of time. in comparison to other european union countries, such an opportunity does not exist in latvia. the latvian government offers the russian-speaking residents to acquire the latvian language and go through the naturalization process as the only opportunity for receiving voting rights in the elections at the local and national level. likewise the residents of latvia have taken part in a row of referenda over the recent years. as one of the referenda examples, we can mention the referendum in 2012 in which it had to be decided whether the russian language should be granted the status of the second official language. although, according to the central election commission data, 78.9% of those having the right to vote voted against such an initiative, this referendum played a vital role in the mutual relationship between the latvians and the russians as well as this referendum strikingly revealed the attitude of the russianspeaking people towards the ongoing processes in the state of latvia. while evaluating the involvement, the participation in political parties, non-governmental organizations, the organization and attendance of rallies and protest actions should be regarded as equally important elements with the participation in elections and referenda. over last five years the number of public organizations, their unions, associations and establishments has risen by 12%. according to the data of the register of enterprises, 14,704 organizations were registered in latvia in august 2011. however, these organizations unite a comparatively small part of the residents of latvia – moreover, it tends to decrease. there is also a tendency for linguistically segregated – latvian and russian-speaking – non-governmental organizations to form (golubeva, ijabs, 2009). the involvement of the residents of latvia in political parties is explicitly low, which can be explained by residents’ alienation from power. the research paper „democracy level in latvia. democracy audit”, which was published by the university of latvia in 2005 and in which the methodology, elaborated by the international institute for democracy and electoral assistance (idea), was used, showed that only 1.5% of residents were taking part in political parties at that moment. there is no reason to think that in 2014 this situation might have improved. equally important residents’ involvement mechanisms are the meetings with the local and national level deputies, the visits to the commissions of the saeima, the sittings of the cabinet of ministers and local governments, addressing collective and/or individual applications to the public and local government bodies. the analysis of whether the residents are provided with such opportunities shows that the inhabitants of latvia are given plenty of opportunity to get involved in the state and local government performance. pursuant to the rules of procedure of the saeima, there are several ways in latvia how society’s representatives can turn to the parliament: issn 1822–8402 european integration studies. 2014. no. 8 43 • private person’s application to the saeima; • a meeting with the members of the saeima; • visits to the sittings of the saeima commissions; • a legislative initiative. the same way as the opportunities for residents to get involved in the performance of the saeima that are prescribed by the laws and regulations of the republic of latvia, the residents can also participate in the performance of the government and local governments. in order to illustrate the wide opportunities for residents to get involved, it must be said that, if a resident has a wish, by prior announcement, he/she can attend the sittings of the parliament of latvia, the government and local governments, as well as can make a speech there, and, if his/her opinion is substantiated and justified, most probably resident’s opinion will be heard. taking into account that residents’ civil activity is low, the government and the saeima of latvia as well as the local governments consider the opportunities and constantly introduce new participation mechanisms. on february 1, 2012 the president of latvia announced the amendments to the rules of procedure of the saeima that provide the inhabitants with a completely new instrument – a collective application by which the parliamentary agenda can be influenced. the collective application, as it is defined in the rules of procedure of the saeima, or the agenda initiative provides that a particular number of inhabitants may submit a law or the amendments to a law that must be included in the agenda of the saeima. at the moment the interest in local government referenda has also increased and the legislation obliges the government of latvia to prepare a respective draft law. there are ongoing discussions about the problems of the introduction of local government referenda (vorslava, 2013). the main issues are proposed: • which issues can be reasonably voted by residents in a referendum; • how to make sure before the referendum that the voted result will be feasible; • how to make sure that the issues under review do not contradict the basic principles of the constitution; • how to ensure technically that the referendum data are plausible if they are organized electronically or in a mixed system. although the government and the saeima constantly attempt to introduce new participation mechanisms, there is no discussion about the main issue – in order to ensure the involvement and active participation of a resident of latvia in the political and civil processes, several other pre-conditions must be established. first of all, a resident must understand what the power is doing and the way how he/she can influence the political processes. this factor in latvia is influenced by both the knowledge of official language and the level of civic education. secondly, residents must be motivated to get involved – feel that they will be able to have some impact. although in the curricula of general education schools of latvia civic education issues are included in the contents of various social science subjects, latvian school children’s achievements in civic education are lower than the indicators of other eu countries and over the last decade they have worsened (čekste, geske, grīnvelds, kangro, 2009). as a result the latvian youth stand out against the background of both the baltic states and other european countries by poorer knowledge about the system and principles of civil society as well as about the civic participation and mutual collaboration skills, which manifests itself as a negative attitude towards the state. in general the results of civic education are better in schools with the latvian language of instruction than in schools which implement minority education curricula. it is indicative of larger alienation of minority schools from the state. latvian and minority school children have different views on their link with latvia and latvian citizenship. while analysing the political documents in latvia, the political document “the guidelines of national identity, civil society and integration policy 2012–2018” must be mentioned with regard to society’s participation and differences that are observable among the russians and the latvians in latvia. this document provides several important cognitions regarding the participation problems in latvia and the following factors are mentioned as the most essential and influencing ones: • residents do not believe in their ability to influence the social and political processes in the country. • the level of latvian young people’s civic education is insufficient which results in scanty participation skills to get involved in the political processes. • non-citizens are not motivated enough to acquire the citizenship that allows for the political participation. on the basis of eurobarometer 78 data, the residents of latvia most frequently obtain the information about the processes in the state, the local governments and the european union directly from the media – television (83%), the internet (56%), the radio (38%), and the press (29%). therefore, when speaking about participation and trust in power, the attention should be drawn to the analysis of media environment and it must be found out how reliable are individual media as a source of information in the opinion of the russians and the latvians. the differences among the latvians and the russians are important. for instance, the latvian public television is trusted by 88% of the latvians and 56% of the russians but the commercial channel “the first baltic channel”, which is broadcasting in russian, is trusted by 27.6% of the latvians and 62% of the russians. the press, which is written in latvian, is trusted by 80% of the latvians and 41% of the russians, but the press, which is written in russian, is trusted by 27% of the latvians and 72% of the russians (šulmane, 2010). the aforementioned data confirm that the society of latvia is split; the latvians and the russians formulate their opinion on the basis of the information that is provided by different information spaces. therefore we conclude that there are grounds to hold a view that the latvian and russian participation habits and trust in the state of latvia are relevantly different, and it requires indepth researches. public trust and participation depending on ethnicity in latvia in order to comprehend the participation habits and trust in the national and local power of these two large ethnic groups – the latvians and the russians –in depth, the authors use the latvian residents’ poll, conducted by lilita seimuskane and skds in july 2012. in this article the authors analyse the data, obtained from the study, on the basis of the ethnic principle. issn 1822–8402 european integration studies. 2014. no. 8 44 this poll aimed at researching the level of trust of the residents of latvia and residents’ readiness to use various participation forms and factors that influence society’s involvement in the performance of local governments. stratified random sampling was used in the poll and 1050 inhabitants of latvia at the age from 15 to 74 years were surveyed, including the residents from all regions of latvia in the selection, which is representative selection in the case of latvia and allows making conclusions regarding the society of latvia in general. the survey data was analysed using spss statistics program. to find out whether the residents are ready to get involved in the local performance, the residents were asked a question – would you be ready to involve if the decision made by the local government contradicted the interests of local residents? while analysing respondents’ answers, obtained through the study, in the distribution between the latvians and the representatives of other nationalities, we stated that the latvians had relatively more often (40%) expressed their readiness to get involved in particular activities, if the local government of district/republic adopted a decision that would interfere with their interests, than the representatives of other nationalities in total (27%). if we look at the distribution of answers concerning the same question only between the representatives of two nationalities – the latvians and the russians in latvia, we acquire evaluation that is similar to the previous one. the russian representatives less frequently (27%) had expressed readiness to get involved in particular activities in case the local government of district/republic adopted a decision that would not comply with the interests of local inhabitants (see figure 3). figure 3. citizens̀ s readiness to get involved in activities in case local authority adopted a decision which in interfered with their interests (percentage of all respondents) source: author’s calculations on survey conducted by lilita seimuskane and skds, 2012 (n=1050). the surveyed representatives of various nationalities more often pointed out that they would not get involved in any kind of activities in relation to the decisions of local government. 45% of the surveyed latvians pointed it out, comparatively more frequently – 57% of other nationality and russian people had expressed a view that they would not get involved in any activities, even if the local government made a decision that would harm their interests (see figure 3). by other nationality people this study means all residents, except for the latvians. the fact that the opinion of other nationality people coincides with the opinion of the russians can be explained by the tendency for other nationalities (for instance, the ukrainians, the byelorussians) to speak russian and thus the information is received from the mass media in russian. considering the options of advocating for residents’ interests in the local government and its institutions, the respondents were offered to assess several forms of participation. after aggregating the study data according to the average value, the majority of respondents found such 5 forms of advocacy and influencing self-government’s decisions effective: • local elections – 6.35 • use of mass media in advancing a particular agenda – 6.29 • use of social media in advancing a particular agenda – 6.28 • personal contacts with members and officials of the local government – 5.94 • local referendum – 5.81. pursuant to the legislation of the republic of latvia, only the citizens of the republic of latvia can participate in local elections but the manifestations of residents’ involvement in the mass and social media are difficult to measure. taking into account the fact that the study shows a quite low indicator of residents’ activity in relation to the decisions of local governments, which may affect inhabitants’ life, the authors researched how much and how often over last three years the study respondents have used an individual opportunity to discuss and solve an urgent issue together with a local deputy or official. figure 4. whether citizens̀ s had any personal contacts with deputies of the local government during the last three years (percentage of all respondents) source: author’s calculations on survey conducted by lilita seimuskane and skds, 2012 (n = 1050). 0 % total latvians foreigners rusians 10 % 20 % 30 % 35 % 50 % 40 % 45 % 15 % 27 % 27 % 57 % 57 % 15 %16 %15 % 40 % 50 % will engage wont engage don’t know/no answer 0 total latvians foreigners rusians 20 30 40 50 60 70 80 90 100 10 % 13 % 8 % 8 % 86 % 83 %16 % 91 % 91 % 1% 1% 2% 2% yes no don’t know/no answer issn 1822–8402 european integration studies. 2014. no. 8 45 although in general the residents had prioritized such a way of interaction quite highly among the given ways of participation, respondents’ answers reveal that over last three years only 13% of all respondents replied that they have met a local deputy to discuss an urgent issue (see figure 4), slightly more often 21% – a local official. over last three years 86% of the surveyed people have not met a local deputy, but 77% – none of the local officials. by comparing respondents’ answers among the latvians and other nationality people, one can conclude that the latvians have used this opportunity more frequently (16%), but other nationality and russian people very seldom – only 8%. figure 5. whether citizens`s had any personal contacts with official members of the local government during the last three years (percentage of all respondents) source: author’s calculations on survey conducted by lilita seimuskane and skds, 2012 (n = 1050). although the surveyed have indicated the meeting with a local official more often than with a local deputy, in this aspect also the latvians have done it comparatively more frequently (26%), but other nationality people in total and the russians have used this opportunity nearly two times less (14%) (see figure 5). the most frequent answer of the surveyed respondents is that over last three years they have met neither a local deputy nor an official. it was pointed out by 91% of other nationality and russian people regarding the meeting with a local deputy and nearly 85% – regarding the meeting with a local official. it can be concluded from the obtained study results that, in comparison to the latvian people, other nationality people are more detached from the local government. in both cases concerning the latvians and other nationality people the reason for their non-involvement could be not only misinformation but also the lack of information about the variety of the legal means which can exert an influence on the state or local decisions. the lack of knowledge about one’s opportunities also lessens the wish to meet the representatives of power. figure 6. coherence between public appraisal of local governments’ performance and trust in different level of public authorities – local government, national parliament and government (percentage of all respondents) source: author’s calculations on survey conducted by lilita seimuskane and skds, 2012 (n = 1050). the acquired research data in correlation with the nationality structure in statistical regions acquired in 2011 population census process in latvia, affirm already mentioned conclusion that public power institutions in latvia are more positively evaluated by respondents in regions with most number of the latvians, i.e. vidzeme region (87% latvians), kurzeme region (76% latvians) (central statistical bureau of latvia, 2012). whereas in regions where the proportion of the latvians is less than half – in latgale (46%) and riga (40%) respondents have assessed their trust in the national government as the lowest (figure 6). in general the obtained data lead to the conclusion that, in comparison to the latvians, the russian nationality residents tend less to participate in local governments’ performance as well as they feel less trust in the local and national level power in latvia. the reason for such indicators might be the inability of the latvian language and the attitude towards the state in general as well as an opinion that their participation is not likely to have a positive effect. although the tendency for the russian nationality residents to participate is lower than for the latvians, the latvians do not tend to get involved in local governments’ performance actively either. on the basis of the conducted analysis of the case of latvia, the authors have made conclusions in the final part concerning the issue of participation and public trust in latvia depending on the ethnicity as well as have expressed suggestions how to improve the situation. 0 total latvians foreigners rusians 20 30 40 50 60 70 80 90 100 10 % 21% 14% 14 % 77 % 73 %26% 84 % 84 % 2 % 2% 2% 2% yes no don’t know/no answer 0 10 30 40 50 latgale riga citizen trust in local government’s citizen trust parliament satisfaction with local government’s citizen trust in national government’s pieriga zemgale vidzeme kurzeme venspilis 60 70 80 90 20 41% 17% 17% 15% 20% 16% 22% 14% 25% 18% 24% 19% 25% 36% 40% 40% 44% 42% 49% 44% 51% 42% 56% 46% 49% 57% 84% 91% issn 1822–8402 european integration studies. 2014. no. 8 46 conclusions • within the context of participation and public trust, a crucial role in the case of latvia is played by the split in society which is facilitated by the ineffective integration of the russian speaking people in latvia and the existence of two different media spaces. • despite the broad opportunities for the participation in the state and local government related processes that are secured by the legislation of the republic of latvia, residents use this opportunity rarely and inactively. for instance, half of the surveyed respondents replied that they would not take any action even if the local government adopted a decision in contradiction to their interests. • in order to enable the residents of latvia to participate in the state and local governments’ performance, several pre-conditions must be in place: the residents must know the latvian language, must have good civic education and developed participation skills in the state administration processes. • having compared the opportunities for residents’ participation in local government’s performance and decision-making that are consolidated by the legislation of the republic of latvia, it is found that residents value these participation mechanisms as less effective. they are more optimistic about the possibilities to participate in local elections, the use of mass and social media to make an issue topical, personal contacts with local government’s deputies/ officials, local governments’ referenda and signature collection, and petitions. • the study results show that, in comparison to the latvians, the russian people are more detached from the local and national level power in latvia. for instance, the latvians have relatively more often used an opportunity to meet a local official, 26% of the latvians have done it, but other nationality people in total and russian people have taken this opportunity almost two times less (14%). • the involvement in political processes among the latvians and the russians is lessened by the low and insufficient level of civic education. • but among the russians an additional obstacle is the lack of knowledge of the latvian language that diminishes the possibilities to get involved in political processes even more. • in order to enhance public trust in the local and national level power, we should take into account the problems of both these ethnic groups to get involved in the solution of the state and local government related issues. suggestions • in order to facilitate participation and restore the public trust in power in latvia, the government and local governments in latvia should constantly seek new ways how to inform and educate the society about the issues that are relevant to the state. at the contemporary time of information and opportunities, we must be able to arouse the interest of the youth and middle-aged people in the issues that are related to the public administration and explain the role of residents themselves in democracy. • local governments are advised to conduct a selfassessment procedure of participation process in order to evaluate the strong and weak stages of the process on a compulsory basis, to perform an audit of the organizing and decision-making procedures, and to assess the compliance with residents’ needs and communication forms. the present situation in latvia already shows that, in order to express their opinion, the residents use the ways of collaboration and communication beyond the official participation framework. • in order to improve the level of civic education, schools should introduce the subjects that are related to state administration. by these subjects the schoolchildren should be taught about the power distribution principle, various responsibility spheres of public institutions, the process of decision-making in the state and local governments as well as the possibilities for a resident to influence these processes. • particular attention should be paid to role-plays during which the young people learn about the basic principles of the non-governmental organizations, labour unions, political parties and local governments’ performance and undergo practical training how to influence the processes. • a targeted integration policy whose basic principle is to motivate the russians to learn the latvian language shall be formed at the state level. the politicians must be able to give the russians an explanation of what opportunities they will be given by this, including the possibility to participate in the parliamentary and local elections as well as the involvement in other state administration related issues. • the politicians must draw attention to reducing the effect of two media spaces. first of all, to ensure that the latvian public television is available to everybody in the frontier regions so that the inhabitants would not have to use the information that is broadcast by the russian speaking media, and, secondly, to consider the contents of media so that it would be comprehensible and attractive to both the latvians and the russian speaking people. references almond, g., & verba, s., 1965. the civic culture. 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1822–8402 european integration studies. 2014. no. 8 knowledge management and possibilities of professional development in public sector inesa voronchuk university of latvia, latvia aspazijas blvd. 5, lv-1050, riga, latvia e-mail: inesa.voronchuk@lu.lv olga starineca university of latvia, latvia aspazijas blvd. 5, lv-1050, riga, latvia e-mail: olga.starineca@lu.lv http://dx.doi.org/10.5755/j01.eis.0.8.6844 one of the important parts of human resource management (hrm) is knowledge management and professional development of employees of each organisation. there are no doubts that it is vital for general organisations development and sustainability. professional development of public sector employees is necessary for developing environment. there should be training programmes especially for public sector institutions’ employees from new european union countries. for this study authors make the assumption that public sector employees are all officials, civil servants, staff and employees engaged in public sector organisation activities and employed by these organisations. the problem outlined in this paper is connected to the assumed to work in public administration employees that do not have relevant education to fill appropriately opened vacancies on the market. the aims of the study is to define the areas of a group the most required occupations on latvian labour market in public administration and propose the justified ways of professional development of current and future employees in public administration. the objective of the authors is to present the historical overview on knowledge management and learning concepts applying monographic research. one more objective of the paper is to compare and generalise the definitions of the terms ‘knowledge economy’ and ‘knowledge management’. the task of the authors was also to analyse the job standards and requirements for the public sector employees. this analysis helped to identify what kind of education and skills are important for public administration employees. authors also made a research on lifelong education possibilities for public service servants and employees based on case of latvia. the main conclusion after the analysis of definitions of the term ‘knowledge management’ is that it is possible to consider knowledge management as a process of making decisions connected to the activities for leveraging knowledge of people in the organisation, to improve their performance. according to the analysed standards of the chosen for the analysis occupations the main knowledge requirements for some public sector occupations are at the following fields: communication, country language and foreign languages, finance, labour relations, law, legislation, occupational health and safety, professional terms, professional ethics, project management, record keeping. only professional terms and record keeping requirements could not be covered by offered courses within analysed master programmes on public administration or management. however, beside formal education, public sector employees can take massive open online courses, participate in special trainings or be trained on the working place to improve or gain some skills that have not been developed at school or university. conclusions mainly are based on the quantitative data and the pilot small range studies. applicable conclusions are made using inductive method. based on the research authors propose the most suitable set of subjects, which could be proposed for further professional development in public sector. there are possibilities proposed for public sector employees for their further professional development. however, there is a need of special education programme development based on new tendencies and standards for public service employees. keywords: public sector, knowledge management, professional development, human resource management. introduction one of the most important parts of the organisation is human resources (hr). people in the organisation can add value by their abilities to do something, by their skills and knowledge. therefore, one of the human resource management (hrm) parts is knowledge management (km). in 1999 bertels and savage wrote that ‘we are at the beginning of a 10-to 50-year transition to a knowledgebased economy’. now 15 years later we should admit that authors of the quote recognised the right trend. knowledge of people employed by the organisation is the core value of issn 1822–8402 european integration studies. 2014. no. 8 169 this organisation. hr are valued more by their knowledge not only by their abilities and skills. organisations needs knowledgeable people with high education and to satisfy the demand society become even more educated each year. in latvia at service sector employers are not amazed by master degree of their employees, it is usual practice, necessity. in case of latvia this trend could be supported by the statistical data. within other studies authors had compared the education level of the latvian parliament deputies, the results are following: since 1998 more than 93% of the parliament deputies have higher education. as it was defined by becker (1975) one of the nobel prize laureates and co-former of the ‘human capital theory’ ‘human capital’ is the stock of competencies, knowledge, social and personality attributes, including creativity, cognitive abilities, embodied in the ability to perform labour so as to produce economic value. professional development of public sector employees is necessary for developing environment. there should be training programmes especially for public sector institutions’ employees from new european union (eu) countries. in 2012 public administration and defence, compulsory social security amounted to 5.9% of latvian gross domestic product (gdp) by central statistic administration data (2014). this is relatively small part of the latvian economy in general, but it is a part of knowledge-based economy, therefore, knowledge management should be performed as good as possible to regulate the gross of the economy at many other aspects and areas. the problem posed in this paper is connected to the assumed to work in public administration employees that do not have relevant education to fill appropriately opened vacancies in the market. the aims of the study is to define the areas of a group the most required occupations on latvian labour market in december 2013 in public administration and propose the justified ways of professional development of current and future employees in public administration. for this study authors make the assumption that public sector employees are all officials, civil servants, staff and employees engaged in public sector organisation activities and employed by these organisations. this paper presents the results of the research on knowledge management and professional development particularly in public sector. the objective of the authors is to present the historical overview on knowledge management and learning concepts applying monographic research. one more objective of the paper is to compare and generalise the definitions of the terms ‘knowledge economy’ and ‘knowledge management’. as the result the job standards and requirements for the public sector employees particularly in latvia are analysed. this comparison helps to identify the gaps in existed education programmes for public sector employees in latvia. authors also made a research on lifelong education possibilities for public service servants and employees based on case of latvia. based on the research authors describes the most suitable set of subjects, which could be proposed for further professional development in public sector. there are possibilities proposed for public sector employees for their further professional development. terms ‘knowledge economy’ and ‘knowledge management’ the development of terms ‘knowledge economy’ (ke) and ‘knowledge management’ shows the importance of some hrm activities for organisation. ‘the 20th century was defined as a century of the industrial society, the end of the 20th century as a century of the information society, and the early 21st century has become a century of the knowledge society, where knowledge is a significant resource of manufacturing and an essential factor of individual wellbeing. one of the components of the knowledge society is the knowledge economy.’ (lapiņa, i. et al., 2013) drucker (1969) apparently was the founder of the term ‘the knowledge economy’ writing about it in his book the age of discontinuity. later on drucker wrote for the november edition of the economist (2001) that ‘the next society will be a knowledge society. knowledge will be its key resource, and knowledge workers will be the dominant group in its workforce.’ (lingenfelter, p. e., 2012) education is one of the values of nowadays people. ‘employment in the knowledgebased economy is characterised by increasing demand for more highly-skilled workers.’ (oecd, 1996) as powell and snellman (2004) define ‘knowledge economy as production and services based on knowledgeintensive activities that contribute to an accelerated pace of technological and scientific advance as well as equally rapid obsolescence’. the production of services is growing in some countries. there is a transition to the ‘knowledgebased economies – economies which are directly based on the production, distribution and use of knowledge and information’ (oecd, 1996) happening. according to white et al. (2012) knowledge-based economy is based on: • open innovation • education • knowledge management • creativity that are set on information and communications technology infrastructure. ‘the term ‘knowledge-based economy’ results from a fuller recognition of the role of knowledge and technology in economic growth. knowledge, as embodied in human beings (as ‘human capital’) and in technology, has always been central to economic development.’ (oecd, 1996) in country and organisational level ‘knowledge’ has not the direct connection with something ‘intellectual’ (drucker, p. f., 1992) rather with ‘capital’ that can be managed. ‘the most important step toward the ‘knowledge economy’ was, however, scientific management – that is, the systematic application of analysis and study to manual work, first pioneered by frederick w. taylor (1856–1915) in the last decade of the nineteenth century.’ (drucker, p. f., 1992) so, then the term of ‘knowledge management’ appeared about one hundred years later. authors summarised some definitions in the chronological sequence as they appeared in publications (table 1). ‘the definitions and activities involved depend largely on which they are intended for, and every firm has different approach to their knowledge management practices. in the literature, knowledge management is concerned with capturing a firm’s stock of expertise through creation, issn 1822–8402 european integration studies. 2014. no. 8 170 collection, storage and application’ (bollinger, a. s. & smith, r. d., 2001; ishak, n. b. et al., 2010). table 1. definitions of the term ‘knowledge management’ author (year) definition hedlund (1994) ‘addresses the generation, representation, storage, transfer, transformation, application, embedding, and protecting of organisational knowledge’ pettrash (1996) ‘getting the right knowledge to the right people at the right time so they can make the best decision’ laudon and laudon (1998) ‘the process of systematically and actively managing and leveraging the stores of knowledge in an organisation’ o’dell and grayson (1998) ‘managing the organization’s knowledge by creating, structuring, dissemination and applying it to enhance organizational performance’ ‘conscious strategy of getting the right knowledge to the right people at the right time and helping people share and put information into action in ways that strive to improve organizational performance’ brooking (1999) ‘the process by which we manage human centred assets’ ‘the function of knowledge management is to guard and grow knowledge owned by individuals, and where possible, transfer the asset into a form where it can be more readily shared by other employees in the company’ alavi and leidner (1999) ‘process to acquire, organize, and communicate knowledge of employees so others may be more effective in their work’ hubert (2000) ‘conscious strategy of putting both tacit and explicit knowledge into action by creating context, infrastructure, and learning cycles that enable people to find and use the collective knowledge of the enterprise’ groff and jones (2003) ‘the tools, techniques, and strategies to retain, analyse, organize, improve, and share business expertise’ andriessen (2004) ‘organizing and optimizing knowledge processes’ frappaolo (2006) ‘the leveraging of collective wisdom to increase responsiveness and innovation’ jennex (2007) ‘the practice of selectively applying knowledge from previous experiences of decision making to current and future decision-making activities with the express purpose of improving the organization’s effectiveness’ firestone (2008) ‘km refers to activities aimed at enhancing knowledge processing. these activities are interventions designed to affect how knowledge processing is done’ stankosky (2011) ‘leveraging relevant knowledge assets to improve organization performance, with emphasis on improving efficiency, effectiveness, and innovation’ source: authors’. the development of term’s km definition is summarised in table 1. at the end of 20th century defining km authors make focus on the result. reach the best possible organisation performance is the goal of usage of employees’ knowledge. definitions of the 21st century seek the same goal; however, such words as ‘innovation’, ‘strategy’, ‘tool’, and ‘collective wisdom’ appear. knowledge should be improved, employee need to know, why they are the part of the organisation, what kind of value they bring by their knowledge. now it is clear that the most important is not having a good performance, it is important to develop, innovate, and be different and knowledgeable. people responsible for km in the organization will identify who and how can help to reach the targeted performance, what should be done to maintain the same level of performance of the organisation. according to truneček, j. (2004) ‘knowledge management is the process of managing knowledge (both explicit knowledge and tacit knowledge) in the organization. the objective is to improve storing, creation, sharing and use of knowledge in the organization and so improve performance of individual workers and the organization as a whole. knowledge management is concerned with the state of knowledge and with the flow of knowledge’. (šikýř, m., 2008) benjamins (2001) sorted km definitions into three groups according to the focus of management activities: • process-oriented • results-oriented • technology oriented as it was discussed before. authors have noticed the same sequence. some km definitions are describing the plan of activities that should be done in order to realize knowledge management (e.g., hedlund’s, alavi’s and leidner’s definitions); some km definitions are oriented on result: ‘best decision’ (pettrash, g., 1996) and ‘organizational performance’ (o’dell, c. and grayson, j., 1998); others are focusing on technology, ‘conscious strategy of putting both tacit and explicit knowledge into action by creating context, infrastructure, and learning cycles that enable people to find and use the collective knowledge of the enterprise’ (hubert, c., 2000) or ‘the tools, techniques, and strategies to retain, analyse, organize, improve, and share business expertise’ (groff, t. and jones, t., 2003). analysing definitions, authors have used the tool from the web site www.wordcounter.net to enquire the keyword density of all summarised definitions. as the result the rating of the common words from the definitions was set: • 15 (9%) – knowledge • 4 (3%) – people • 3 (2%) – decision • 3 (2%) – process • 3 (2%) – leveraging • 3 (2%) – organization • 3 (2%) – performance • 3 (2%) – improve • 3 (2%) – activities • 2 (1%) – transfer. the most popular word that was used 15 times (9% of the text) is of course ‘knowledge’. other words reflect the core meaning of the term. for example, it is possible to consider that ‘knowledge management’ is a process of making decisions connected to the activities for leveraging knowledge of people in the organisation, to improve their performance. this can be a new definition of the term based on quantitative approach for definition analysis. ‘the broad field of km introduces new options, capabilities, and practices to assist public administration to issn 1822–8402 european integration studies. 2014. no. 8 171 great advantage. it becomes a new responsibility to manage knowledge to strengthen public service effectiveness and improve the society it serves.’ (wiig, k.m., 2002) therefore it is important to realize the broad possibilities of km and the main concept of it. knowledge management concept and models knowledge management is a set of management activities that objective is to organize knowledge creation, development, sharing, evaluation and sustainability within organisation. km concept could be explained based on knowledge concept. ‘knowledge is a much broader concept than information, which is generally know-what and know-why components of knowledge.’ ‘other types of knowledge – particularly know-how and know-who – are more tacit knowledge [see next section] and are more difficult to codify and measure.’ (lundvall, b.a. and johnson, b.h., 1994) lundvall and johanson (1994) created the taxonomy of knowledge (figure 1). for public sector administrative employees are essential know-what and know-why knowledge as it is a gerund of knowledge that helps make knowledge-based and analytical work. organisations need to be sure that their employees will fulfil their job tasks efficiently. based on this assumption it is possible to consider that the job descriptions are made based on such a motive as well as job standards. so, organisations need also control the knowledge level of their current employees as in the changing and developing environment the need of specific and new knowledge is required. figure 1. concept of knowledge (adapted from lundvall, b. a. and johnson, b. h., 1994) organisations may require manage the process of control the knowledge need, spread, transition, sharing and implementation for the work. therefore km models might be a practical tool in this case. according to butler (2000) km models are depending on motives of the organisation. for the public sector these motives could be following (butler, y., 2000): • controlled innovation and change • cost focused • cost reduction • do more with less • funding constraints • productivity focused • public service • staff reductions • strict reward regimes. so, the concept of km (figure 2) is based on some activities related to the knowledge within organisation (knowledge of people employed for the organisation) that are made to reach the exact objectives/ goals, i.e., have exact motives. these motives can be related to financial performance, development of the organisation, employees’ performance, motivation of employees, etc. figure 2. concept of knowledge management (adapted from lapiņa i., 2013) the first part of knowledge management process is connected to some activities. different authors outline different activities (table 2). table 2. knowledge management process models/ framework author (year) elements wiig (1993) creation and sourcing compilation and transformation dissemination application and value realization marquardt (1996) acquisitions creation transfer & utilization storage dibella and nevis (1998) acquire disseminate utilize davenport and prusak (2000) generation codification and coordination transfer source: authors’. mostly all of them have the beginning part of generating, storing, sharing knowledge and the end part, when used, irrelevant, outdated knowledge are utilized. the most important detail of km process that is not reflected, e.g., in figure 2, is feedback. the process should issn 1822–8402 european integration studies. 2014. no. 8 172 be systematic. at the end of the process the evaluation of objectives accomplishment need to be fulfilled. if the needed goal is not reached, a new set of activities can be designed. in case to identify the best set of the exact activities these possible actions with knowledge should be discussed. concept of learning: knowledge and learning it is useful to consider the learning principles to understand how knowledge can be managed. there are some terms associated to the learning process such as memory and knowledge. according to gale encyclopedia of psychology (2001) hermann ebbinghaus (1850-1909) worked on psychological researches on memory and one of the researches results was the forgetting curve development. studying human memory ability, he identified how people remember information during the period of time. people usually remember new information for a short period of time. table 3. use of the explicit knowledge in the workplace condition explicit knowledge work process organized tasks routine orchestrated assumes a predictable environment linear reuse codified knowledge create knowledge objects learn on the job trial-and-error self-directed in areas of greatest expertise meet work goals and objectives set by organization teach trainer designed using syllabus uses formats selected by organization based on goals and needs of the organization may be outsourced share knowledge extract knowledge from person code store and reuse as needed for customers e-mail electronic discussions forums type of thinking logical based on facts use proven methods primarily convergent thinking evaluation based on tangible work accomplishments not necessarily on creativity and knowledge sharing source: smith (2001). forgetting curve is moving up after the next memorization, i.e., a person remember the same information for the longer period of time after each next memorization. so, to remember things for the longer time, people should repeat this information for the several times. each person has each own better approach to learn things. it depends on the type of knowledge and the style of learning. classically knowledge is split to two types: tacit and explicit knowledge. ‘tacit knowledge is practical, action-oriented knowledge of ‘know-how’ based on practice, acquired by personal experience, seldom expressed openly, often resembles intuition’, when ‘explicit knowledge is academic knowledge or ‘know-what’ that is described in formal language, print or electronic media, often based on established work processes, use people-to-documents approach.’ both are important for a work. (smith, e. a., 2001) however, explicit knowledge seems to be more important for public sector administrative employees, because of the characteristic of the job. explicit knowledge type usage on work place is described in table 3. explicit knowledge is base for public sector employees as it is characterised by strict organisation, formal approaches, clear logic and concreteness. explicit knowledge is associated with written communication. therefore explicit knowledge is more oriented on sustainable knowledge transition. each person can have or try to implement defined learning style that depends on many aspects (type of thinking, way of preferred knowledge sharing and information perception type. according to the mentioned and many other aspects there are some different learning styles have been developed. authors paid attention on cognitive approach to learning styles that characterise people learning preferences depending on their attitude to the collaboration with other people during learning process. these grasha-reichmann students learning styles are (grasha, a. f., 2002): • avoidant style • participative style • competitive style • collaborative style • dependent style • independent style. another set of people learning style that should be considered is fleming’s vark model that is based on the people perception of the ‘world’. each person is batter perceiving information from the external environment by one or various senses. there are 4 learning styles based on senses (fleming, n. d., 2001): • visual (by seeing) • auditory (by listening to) • reading-writing preference (by characterized in written form information; logical understanding and language) • kinesthetic (by touching, smells, movements, taste). education programmes should consist of a set of different learning methods to be able to provide learning materials for all four people groups according to their learning styles. of course each person use more than one learning style that most probably could also influence on new information remembering. as it was mentioned in spite of knowledge type people can learn something and remember for a long period of time by repeating things to remember. remembering however is not the main activity during learning process as gained from the learning knowledge is different. in mid of the last century benjamin bloom considered to split thinking behaviours to the three domains: cognitive (based on knowledge), affective (based on attitude) and psychomotor (based on skills). (anderson, l. w. and krathwohl d. r, 2001) authors are focusing only on cognitive domain for this study. cognitive is a knowledge based domain, consisting of six levels. according to the revised bloom’s taxonomy these six domains are summarized from issn 1822–8402 european integration studies. 2014. no. 8 173 lower to higher order thinking skills (anderson, l. w. and krathwohl d. r, 2001) in table 4. table 4. the cognitive processes dimension categories cognitive processes remembering recognizing recalling relevant knowledge from long-term memory understanding constructing meaning from oral, written, and graphic messages through: interpreting illustrating classifying summarizing concluding comparing explaining applying carrying out or using a procedure through: executing implementing analyzing breaking material into constituent parts, determining how the parts relate to one another and to an overall structure or purpose through: differentiating organizing attributing evaluating making judgments based on criteria and standards through: checking critiquing creating putting elements together to form a coherent or functional whole; reorganizing elements into a new pattern or structure through: generating planning producing source: anderson and krathwohl (2001). each cognitive process can be realised depending on the knowledge dimension. there are four types of knowledge dimension in the sequence from concrete to abstract knowledge (anderson, l. w. and krathwohl d. r, 2001): • factual o knowledge of terminology o knowledge of specific details and elements • conceptual o knowledge of classifications and categories o knowledge of principles and generalizations o knowledge of theories, models and structures • procedural o knowledge of subject-specific skills and algorithms o knowledge of subject-specific techniques and methods o knowledge of criteria for determining when to use appropriate procedures • metacognitive (‘knowledge of [one’s own] cognition and about oneself in relation to various subject matters’) o strategic knowledge o knowledge about cognitive tasks, o including appropriate contextual and conditional knowledge o self-knowledge. explicit knowledge is cognitive one, thus factual, conceptual, procedural and metacognitive knowledge is essential for public sector employees and they need to be developed through the learning process. this knowledge is important to fulfil public sector employees’ daily tasks which they can manage through the cognitive processes. all these knowledge should be gained already from the first years of personality development. it is important to develop knowledge and people ability to go through the cognitive processes in the work place gaining the professional education, especially at the administrative field. summing up the whole concept of learning it is possible to conclude that employees from public sector need preferably lifelong education to gain explicit knowledge using appropriate tools in case to cover their relevant learning styles. this assumption is also supported by the further research described below. education requirements for public sector organisations’ employees the example of transition to the knowledge-based economy can be demonstrated on case of latvia. the number of highly-educated people employed in latvia has been increased for 12 years (figure 3). figure 3. number of employed people with higher education in latvia at the last quarter of a year (2002 – 2013), thousands (lr centrālā statistikas pārvalde, 2014b) even number of latvian highly educated inhabitants searching for job had increased (figure 4). the edge of 2009 and 2010 is related to the recession and critical circumstances in latvian economy. relatively the percent of highly educated job seekers has also increased from 9.3% in 2002 till 18.4% in the 3rd quarter, 2013. figure 4. number of people with higher education searching for job in latvia at the last quarter of a year (2002 – 2013), thousands (lr centrālā statistikas pārvalde, 2014a) issn 1822–8402 european integration studies. 2014. no. 8 174 this group is not the first places among other latvian job seekers; however the number has increased for 12 years. the reason of this tendency could be the increase of opened positions on labour market that requires the higher education to fulfil daily tasks. this is a smooth transition to the knowledge – based economy. more employers require for the highly educated employees, more people get the higher education to be competitive on the labour market. there are some occupations’ or professional standards that include qualification education skills and ability requirements for the exact profession. there are international standards as well as standards that are adapted for some countries’ legislation. authors has analysed few standards to identify what kind of education and skills are important for public administration employees. international standard classification of occupation (isco) occupational standards (os) in latvia and united kingdom (uk) standard occupational classification (soc) were used as resources by convenience sample as they include needed for the analysis information and are available on english or latvian language. they were also chosen to have broader view at the general occupational standardisation local (latvian) and other european country case. the occupations analysed (see table 5) are the object of another further study on hr selection therefore these specific occupations were chosen for this study as well. these occupations can be grouped into major groups: • communications (customer service specialist) • economics and finance (accountant economist financial analyst) • law (lawyer legal assistant legal counsel) • management (organisation manager/ managing director project manager). all of them are essential for public servants especially on the public administration field. the occupations representatives were demanded on public sector labour market in december 2013. analysing the standards it was clear that os in latvia was created based on isco as they have common occupations codes. isco document includes the description and tasks of the occupational groups as well as examples of the occupations classified in isco or elsewhere. uk soc document also has general information on each group of occupations additionally providing typical entry routes and associated qualifications. latvian os document is more detailed as it also includes the list of necessary skills abilities and knowledge to fulfil exact tasks and to be qualified representative of occupation according to the standard. using the web sites www.writewords.org.uk and www. wordcounter.net authors identify what phrases and words are the mostly used in descriptions of requirements for the chosen occupations. this analysis helps to identify what kind of common requirements in knowledge and education are essential for representatives of the chosen occupations. in general the main stress according to the analysed occupational standards is maid for such fields as: • communication • country language and foreign languages • finance • labour relations • law • legislation • occupational health and safety • professional terms • professional ethics • project management • record keeping. table 5. list of analysed occupations according to isco os in latvia and uk soc standard code occupation isco 42 (4222) customer services clerks (contact centre information clerks) os in latvia 422207 customer service specialist uk soc 7219 customer service occupations isco 3313 accounting associate professionals os in latvia 3313 01 accountant (the 4th level of qualification) uk soc 2421 chartered and certified accountants accountant (qualified) isco 2631 economists economist os in latvia 263102 economist uk soc 2425 actuaries economists and statisticians economist isco 2413 financial analyst os in latvia 241302 financial analyst uk soc 3534 finance and investment analysts and advisers financial analyst isco 2611 lawyers lawyer os in latvia 261101 lawyer uk soc 2419 legal professionals lawyer isco 3411 legal and related associate professionals legal assistant os in latvia 341102 legal assistant uk soc 2419 legal professionals isco 2619 legal professionals not elsewhere classified legal counsel os in latvia 261901 legal professionals uk soc 2419 legal counsel isco 1120 managing directors and chief executives os in latvia e.g. 112001 organisation manager uk soc e.g. 1139 functional managers and directors os in latvia 242201 project manager uk soc 2424 business and financial project management professionals project manager source: international labour office (2012) latvian cabinet of ministers’ regulations (2010) office for national statistics (2010). results show that for administrative employees of public sector the most important field of knowledge are connected to the humanities and social sciences as well as some practical issn 1822–8402 european integration studies. 2014. no. 8 175 and linguistic skills. conclusions are based on inductive analysis and small range of sample. job descriptions are usually developed based on these requirements and standards. employers are expecting to have defined proficiency at exact fields because exact skills set and knowledge will help to fulfil daily job tasks. if person is not able to do his/her work there are two certain and contrast decisions could be made: find new person for the positions or assess the gaps in knowledge and select the most suitable option for further employee education and professional development. education possibilities for public sector organisations education public administration programs are created according to the occupation standards and actualities – social and technological development. there are a lot of possibilities to earn for instance master degree in public administration or management or take courses of other related programmes. public administration programmes are developed in many schools in europe. baltic states, uk, the netherlands, italy, greece, germany, france, scandinavian countries’ etc. schools and universities offer different bachelor master and doctoral programmes on the field. the attention of authors is focused on the content of the master programmes. do the requirements of occupational standards match the offer of the educational institutions? for this purpose the authors used convenience sample of european schools and universities that offer public administration or management master programmes and publish a list of courses in english or latvian on their web sites. eight this kind of programmes was chosen for the further analysis of the programmes’ content ( table 6). the compulsory and optional courses are taken in the range. table 6. list of public administration / management programmes country school program finland university of vaasa master of administrative sciences france a school for government service (école nationale d’administration) public service and applied education germany hertie school of governance executive master of public management ireland institute of public administration master of arts – public management latvia university of latvia public administration romania university babes-bolyai master public administration spain universitat autònoma de barcelona master public administration the netherlands radboud university nijmegen compass: comparative public administration source: web sites of university of vaasa école nationale d’administration hertie school of governance institute of public administration university of latvia university babes-bolyai universitat autònoma de barcelona and radboud university nijmegen. according to the analysis there are three groups of related and common courses that are the most popular at the range: • public administration/ comparative public administration/ research traditions in public administration/ public administration and management tools/ communication in the public administration/ contemporary public management/ public management risks and accountability/ public sector management/ public management and ethics/ methodological seminar of public management • project management/ project assessment • human resource management/ public human resource management/ organisation human resources and management/ managing human resources/ personnel management. each of these subjects is included in three or more programmes out of eight. other courses could be grouped to the groups by the key words ‘analysis’ ‘communication & information’ ‘development’ ‘economics & finance’ ‘ethics’ ‘government/ governance’ ‘history and culture’ ‘law’ ‘management’ ‘methods’ ‘organisations’ ‘planning’ ‘policies’ ‘research’ and other. therefore master programmes analysed can cover quite all public sector occupations standards analysed (see table 7). professional terms and record keeping requirements could not be covered by offered courses within master programmes analysed. mentioned groups of courses exists because they are actual it is also proved by occupational standards. these courses will help to gain knowledge on exact and social sciences through the formal education. unfortunately not all public sector current employees will be able to start study at university to broaden lack of knowledge in some fields that has been developed for the last time. besides formal education the population of informal online education is increasing nowadays. there are a lot of courses free of charge and for pay offered by different universities around the world. these courses are usually called as ‘massive open online courses’ (moocs). for instance the education company coursera offers 585 (on january 21 2014) different moocs from 108 partner institutions in english chinese french russian spanish portuguese turkish ukrainian german arabic italian and japanese. authors have checked what courses are offered for public sector professionals. there are some moocs provided by coursera connected to the public disciplines e.g.: • introduction to public speaking • public economics • introduction to environmental law and policy • constitutional law • property and liability: an introduction to law and economics • introduction to international criminal law • the law of the european union: an introduction • law and society • law and the entrepreneur • english common law: structure and principles • technology and ethics • understanding russians: contexts of intercultural communication • globalization and you • logic: language and information issn 1822–8402 european integration studies. 2014. no. 8 176 • practical ethics • citizenship and u.s. immigration • introduction to philosophy • making better group decisions: voting judgement aggregation and fair division etc. table 7. courses matched the requirements required field name of course/subject communication communication and public relations organisations introduction to intercultural communication finance economics finances and methods decentralisation and local financial autonomy economics and public finances finance public finance public sector budgeting and accounting professional ethics ethics public ethics law and legislation budgetary law european and comparative administrative law law public international law public law urbanism law actors institutions policies environmental policies financial policy of the public sector and local governments public policies regional and community policies territorialisation of public policy project management project management project assessment country language and foreign languages semiotics writing academic english labour relations and occupational health and safety human resource management public human resource management organisation human resources and management managing human resources personnel management source: web sites of university of vaasa école nationale d’administration hertie school of governance institute of public administration university of latvia university babes-bolyai universitat autònoma de barcelona and radboud university nijmegen. the moocs can also help to gain knowledge at the areas which are vital for some public sector occupations. also there are a lot of additional possibilities to educate hr. internal informal education experience sharing external educative events trainings and lifelong education programmes. latvian public sector employees can use european lifelong learning programmes possibilities. for example international formal and informal adult education can be realizes through the grundtvig lifelong education program. locally national employment agency (nea) in latvia realizes european social fund’s (esf) project „lifelong learning activities for employees”. public institutions should only assess knowledge of their employees or identify the need of exact their skills development. afterwards employees can receive esf resources to cover part of expanses on education. esf resources can get all employed people in latvia (except civil servants) at the age of 25 or older; who have receives the last formal or informal education at least one year before. employees can use receives esf resources for example at professional education further training and examination centre (pitec) having choosing different kind of programmes: • accounting – skills development • basics of social care • business etiquette • computer science • computerised accounting • development of communication skills • fundamentals of business • project management • record-keeping etc. these courses can fill the gap in formal education programmes complementing them. there are a lot of possibilities to gain knowledge in many areas using different tools and approaches from internal specially designed trainings till formal education at high schools. based on the analysis there are some important areas of explicit knowledge that public sector employees should have: • communication (record-keeping, ethics, public speaking etc.) • computer science • finance and economics • professional ethics and business etiquette • law and legislation • project management • country language and foreign languages • labour relations and occupational health and safety. knowledge in those areas can be improved constantly; however it needs to have gotten knowledge in long term memory gotten knowledge need to be used. thus organisation knowledge managers should identify relevance of the exact knowledge and plan professional development of the employees taking in account personal learning style and experience of the employees as well as organisational goals and needs. porter (1998) mentioned that ‘old notion of comparative advantage less relevant. instead competitive advantage rests on making more productive use of inputs which requires continual innovation.’ in terms of public sector this idea can be interpreted as a need of continues development, of lifelong learning of organisations’ employees to create competitive advantage for the organisation. becker et al. (2001) considered the employer’s investment in staff training and development is not just a profit-making tool but also a recruitment and retention tool. this is especially important because the human capital as opposed to other types of capital doesn’t belong to the organization but to the employees themselves. discussion on the 22nd network of institutes and schools of public administration in central and eastern europe (nispacee) annual conference (2014) there was a discussion on need public administration (pa) programs development as well as specials pa faculties development. pa should be separate issn 1822–8402 european integration studies. 2014. no. 8 177 discipline that should be based on relevant general subjects and adapted to the local peculiarities. for instance some program developers are strongly against such an approach when pa program students’ main subjects are law or economics. authors agree that public sector employees that work in public administration need to have pa education, besides, afterwards there are a lot of possibilities to use for further professional development that are adapted to the newest tendencies (training programs, courses, etc.). professional development asks the basic knowledge of professionals. the idea of the professional development lies in the most appropriate approach for gaining new professional knowledge, skills and experience for each individual professional or a group of professionals. knowledge society is frequently developing and asks for the better and more adaptive specific education for the concrete field of work. educational institutions should cover specially designed pa programs based on market requirements and tendencies. however, thinking about actuality of the subjects it is essential to update programmes thing on it strategically. conclusions km process has holistic essence. km is a part of human resource management. km activities depend on exact motives and goals that sometimes might be caused by factors outside the organisational environment, e.g., technological development, legislative, political or economic changes. according to these factors and general organisational objectives the plan of management activities connected to the human capital can be established. these activities need to be connected to hrm principles and other hrm activities. outcomes of these activities’ fulfilment should be assessed in case to check if objectives were reached. so, the process needs to be circulated. knowledge management is connected to some knowledge and learning processes. taking in the account aging society of the europe and understanding the learning process of average person it is possible to develop education programme for adults which will combine formal and informal education. based on practical research the following authors concluded that if school has public administration or other public sciences related program only for locals in local language than it could include different specific subjects actual for the country. in general the result of the study shows that for the specific public service occupations is need the special set of courses to help further public service specialists gain the basic knowledge and skills to fulfil their specific tasks according the job description and occupation standards. after employees’ knowledge evaluation and definition of knowledge types and areas that should be gained or improved planning of some education activities comes. the choice of the tool should be chosen not only by availability of the needed programme, but also taking into account learning specialities of each employee. sometimes it is possible to improve tacit knowledge by socialisation processes, i.e., informal education, when some explicit knowledge could be gained only by formal approaches in education (visiting courses or studying, e.g., at university). knowledge in public administration or other public discipline is applied; 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(2002) knowledge management in public administration. journal of know ledge management. issn 1367–3270. no. 3, p. 224–239. the article has been reviewed. received in april, 2014; accepted in june, 2014. 183 issn 1822–8402 european integration studies. 2014. no. 8 requirements’ for the preparation of the article 1. general requirements 1. show, who and how has analyzed the scientific problem of the article in native country as well as in foreign (name of the author, year), so grounding the scientific problem of the article in the introduction. 2. at the end of the article has to be literature list (no less 25). all the sources of the list have to be referenced in the article, indicating the family names of the authors and the publication year, e.g. (molle, w., 2006). 3. the literature sources of the article must include as much as possible isi (http://www.isinet.com/isi/) cited journals (normally, no less than 20 articles). 4. the structure of the article should be as follows: • title of the article • full first name of the author and the family name • author’s working place, country • abstract of the article (about 3000 characters with spaces). the abstract should present: (1) the purpose of the study, (2) the tasks (3) the primary methods used including a brief description of the study design, (4) the key results that address the specific questions asked (including quantitative summaries or comparisons), and (4) the primary interpretations or conclusions drawn; • keywords (at least 5); • introduction, indicating the article’s scientific problem, novelty, aim, tasks, object, research methods, main results • text of the article • conclusions • list of references 5. presenting an article, the following data about the author has to be added separately: • name, first name, working place and it’s address • academic degree and name, indicating science field and direction, phone, e-mail • spheres and subjects of academic interests • other supplementary information added as a free choice of the author. 2. requirements for the preparation of an electronic form of an article to european integration studies issn 1822–8402 european integration studies (times new roman, 11 pt, bold) >12 pt title (times new roman, caps lock, 12 pt, bold) >12 pt name surname (times new roman, 12 pt, bold) >12 pt name of author’s university, country (times new roman, 10 pt, italic) e-mail: ????@????.???? >10 pt >10 pt >10 pt text of abstract (times new roman, 10 pt, italic) (about 3000 characters with spaces; one column) >10 pt keywords: ???????, ???????, ???????, ???????, ???????. >12 pt issn 1822–8402 european integration studies. 2014. no. 8 184 introduction (times new roman, 10 pt) (two columns) >12 pt title of the paragraph (times new roman, bold, 10 pt) (two columns) >12 pt text (times new roman, 10 pt) (two columns) >12 pt conclusions (times new roman, 10 pt) (two columns) >12 pt >12 pt references style of citation: apa 6th ed. (american pshycological association 6th edition) format the list of references is presented in one column (10 pt) according to the alphabet. references (not less than 25 resources, wide use of isi (http://www.isinet.com/isi). here are some basic reference forms (journal article; working papers; book; book chapter; the internet address). journal article: broner, f., didier, t., erce, a., & schmukler, s. l. (2013). gross capital flows: dynamics and crises. journal of monetary economics, 60(1), 113–133. working papers: artige, l. & nicolini, r. (2006). evidence on the determ inants of foreign direct investment. the case of three european regions (no. 07) (p. 33). retrieved from http://www2.ulg.ac.be/crepp/papers/crepp-wp200607.pdf book: daugeliene r. (2011). es ekonomine integracija: priezastys, raida, perspektyvos (p. 281). ktu: technologija. book chapter: o’neil, j. m., & egan, j. (1992). men’s and women’s gender role journeys: metaphor for healing, transition, and transformation. in b. r. wainrib (ed.), gender issues across the life cycle (pp. 107-123). new york: springer. internet access: european commission. (2013). taric consultation methodology. retrieved december 14, 2013, from http://ec.europa.eu/ taxation_customs/dds2/taric/taric_consultation.jsp?lang=en&taric=&endpub=&meastext=&area=ru&regulation=&lan gdescr=&meastype=&simdate=20131025&startpub=&ordernum=&goodstext=&level=&expand=true data about authors: surname name, academic degree and name, indicating science field and direction; institution, phone, e-mail (10 pt) the author presents a 8–12 pages long article (e-version). the submission should be done on-line: http://www.eis.ktu.lt/ index.php/eis page format: text of an article should be laid out on a4 format (210 x 297 mm) page with the following margins set: top – 200 mm, bottom – 200 mm, left– 200 mm. and right – 100 mm. requirements for the preparation of an electronic form of an article journal: • first line 0,5 cm; • the main text of the article should be arranged in two columns with 5 mm spacing between them and in single line spacing; a reference list in alphabetical order should be given at the end of the text. 28 issn 1822–8402 european integration studies. 2014. no. 8 eu initiative of better regulation and its status in lithuania evelina agota vitkute attorney at law zirgo g. 3a-23, vilnius, lithuania e-mail: evelinavitkute@yahoo.co.uk http://dx.doi.org/10.5755/j01.eis.0.8.6745 implementation of better regulation is one of the top matters on legislative agenda of the european commission. the main purpose of better regulation is to create more proper regulatory environment, i.e. legal acts that better meet the needs of business and society. at the eu level it is stressed that the different measures of better regulation, such as regulatory impact assessment, reduction of administrative burden, simplification and codification of legal act, etc., should directly contribute to the achievement of sustainable growth of economy and jobs. although member states are constantly encouraged by the european commission, they still are rather reluctant regarding better regulation activities. they tend to adopt exhaustive better regulation policies, but usually refrain from result-orientated actions. aim of the article is to determine the actual situation of better regulation initiative in lithuania and make proposals for its improvement. by employing rigorous research methods it is sought to define the main features of better regulation and assess better regulation actions carried out by the eu and member states. better regulation activities of lithuanian regulators and legislators are analysed separately. the analysis also includes critical assessment of the latest legal developments such as newly adopted law on legislative framework and law on reduction of administrative burden. the article is supported by conceptual ideas of european scientists that make research on better regulation. conclusion is drawn that better regulation activities in lithuania do not create actual and significant results yet. there is no single system of implementation of better regulation principles – separate, unrelated laws are adopted, also there is an unhealthy trend to regard particularly the reduction of administrative burden as the only (important) measure of better regulation. also, lithuanian regulators do not sufficiently refer to good practices of better regulation already collected at the eu level. in order to achieve progress of better regulation initiative in lithuania, it is proposed to form clear concept of better regulation, basically, by choosing the law on legislative framework as the main tool for such purpose. as well, the importance to make research on better regulation in lithuania is emphasized and further research vectors are proposed. keywords: better regulation; regulatory reform; legislation procedures; regulatory impact assessment; reduction of administrative burden. introduction currently the eu and lithuania implement the initiative of better regulation, which has the main purpose to create proper regulatory environment, i.e. legal acts that better meet the needs of business and society (european commission, 2014a; ministry of economy, 2014). the eu and lithuanian national institutions continuously adopt specific programmes and new legal acts related to this initiative, thus it can be stated that better regulation is currently among the most important and even, as indicated by some authors, among the most fashionable goals of the public administration (allio, 2007, p. 82). better regulation in the eu has passed several stages of development. at first, better regulation was understood only as better law-making in the sense of legal technique (european commission, 2002; radaelli and meuwese, 2009, p. 644). later, in the lisbon strategy the eu set a goal for itself to become the most competitive knowledge-based economy in the world (european council, 2000, cl. 5). then the european commission started to emphasize that better regulation should significantly contribute to achieving sustainable economy growth and jobs (european commission, 2005, p. 2; radaelli, 2007, p. 190; van den abeele, 2010, p. 57). the scale of better regulation actions implemented by the european commission is impressive. thousands of legal acts have been reviewed, codified and simplified during the last decade. it is officially stated that performed changes in regulation reduced the administrative burden on european companies by almost one third (european commission, 2010, p. 3–4). in lithuania more consistent performance of better regulation measures started in 2008, when the government approved the programme on better regulation. in accordance with this programme, the ministry of economy has taken certain initiatives aimed to improve regulatory environment. by the end of 2012 two entirely new laws were adopted in connection with better regulation – the law on reduction of administrative burden and the law on legislative framework. in december 2013, the government formed a special better regulation supervisory commission, which should act namely in the area of reducing administrative burden. although certain documents were adopted, upon carrying out a more detailed analysis, it can be stated that better regulation in lithuania is still at the early stage of formation. issn 1822–8402 european integration studies. 2014. no. 8 29 european scientists make wide research on better regulation processes ongoing at the eu level and in their countries (laffan, 2001; baldwin, 2005; eijlander, 2005; radaelli, 2005; 2007; allio, 2007; kaeding, 2007; kirkpartrick and parker, 2007; lofstedt, 2007; radealli and de francesco, 2007; staroňová, pavel and krapež, 2007; torriti, 2007; meuwese, 2008; prosser, 2008; radaelli and meuwese, n.d.; 2009; radaelli and o’connor, 2009; theodoropoulos, 2009; verschuuren, 2009; flückiger, 2010; jyrki, 2010; robinson, 2010; van lochem, westerman, 2010; van den abeele, 2010; vogel and van den abeele, 2010; bomhoff and meuwesse, 2011; smismans, 2011; de francesco, radaelli and troeger, 2012; dunlop, maggetti, radaelli and duncan, 2012; karpen, 2012; korkea-aho, 2012; mak, 2012; messerschmidt, 2012; popelier, 2012; torrit and löfstedt, 2012, etc.). these researches, mostly performed in the areas of law, politics, economy and public administration, enable to assess the reasonability, efficiency of better regulation and various changes happening due to its implementation. scientists emphasize that better regulation has a significant impact on various legislation procedures and it is expected that the role of better regulation in the future should only increase (radaelli, 2007, p. 203–204; torriti, 2007, p. 249; radaelli and de francesco, 2007, p. 196; radaelli and meuwese, 2009, p. 639; smismans, 2011, p. 511–512). meanwhile, better regulation processes in lithuania are not yet researched sufficiently. to the best knowledge of the author, there are no researches currently performed in lithuania regarding the implementation of better regulation. application of better regulation measures should have a significant impact on current legislation procedures and quality of legal acts; also it may be an important tool ensuring higher competitiveness of lithuanian investment environment. therefore, there is a natural need for performing research and properly assessing how the legislation mechanisms currently existing in lithuania could or should be reformed due to better regulation initiative and how the quality of legal acts could or should change. the goal of this article is to determine the actual situation of better regulation initiative in lithuania and to make proposals for its improvement. the objectives of this article are to define the main features of better regulation formed in the eu, to overview better regulation actions carried out in lithuania and to assess them critically, as well as to emphasize the need for research in lithuania in connection with the ongoing changes. in writing this article the rigorous scientific methods were employed. the analytical method was used in assessing scientists’ papers related to better regulation initiative. the comparative method was used in analysing better regulation initiative being implemented in the eu and lithuania and individual measures of better regulation. the logical, systemic and critical methods were used in order to assess the situation of better regulation initiative in lithuania. the historical research method was used in analysing the development of better regulation initiative. the teleological research method was used in analysing a number of travaux perparatoire materials – preparatory documents of the eu institutions, drafts, resolutions, reports of working groups, etc. concept of better regulation documents and literature prepared by the european commission give various descriptions but no generalised concept of better regulation. better regulation is usually regarded as an umbrella term, covering various measures of creating and ensuring better regulatory environment (european commission, 2006; allio, 2007, p. 73; radaelli and meuwesse, 2009, p. 645; bomhoff and meuwesse, 2011, p. 145). one of the most interesting definitions is proposed by bomhoff and meuwesse, who indicate that better regulation means rules, according to which “regulation in general” is regulated (2011, p. 144). there is certain debate among scientists over the nature of better regulation. it is often discussed, which aspects of better regulation measures, legal or economic, are more important. some authors emphasize that better regulation is, first of all, related to use of various legal means, such as application of legal principles and legal techniques, therefore, it is “restricted to the art of law-making” (flückiger, 2010, p. 213; messerschmidt, 2012, p. 359, 360). meanwhile, the others accentuate different side of better regulation – the aim “to look wider” and to supplement various legal reasons with more explicitly economic rationality (bomhoff and meuwesse, 2011, p. 146; torriti and löfstedt, 2012, p. 173– 174). in the latter case it is usually stressed that legislative techniques used is just one instrument of better regulation among a number of other non-legal measures (karpen, 2012, p. 155). the above-mentioned discussion reveals the versatile nature of better regulation initiative. however, it may not be denied that namely legislative methods and procedures are the essential part and the main form of expression of better regulation. therefore, the main support should be given to those authors, who emphasize particularly the legal aspect of better regulation and indicate that better regulation is, first of all, a certain alternative for traditional law-making, which seeks to enhance the quality and justifiability of regulation (popelier, 2012, p. 262; de francesco, radaelli and troeger, 2012, p. 491). practically the concept of better regulation can be best revealed by naming specific better regulation tools. in spite of the development of better regulation initiative, the european commission formed rather clear and stable list of better regulation measures. better regulation measures could be presented in a number of ways, but it is suggested to divide them into three groups, depending on the stage of legislation procedure, in which they are applied: 1) measures applied before the adoption of legal acts are: anticipated regulatory impact assessment, determination of possible administrative burden on business and on the society, selection of the most suitable regulatory instruments (forms of legal acts), drafting legal acts that meet the requirements of legal technique (european parliament, european council and european commission, n. d.; european commission, 2007a; 2009; 2012b; verschuuren, 2009); 2) measures applied after the adoption of legal acts are: assessment of the efficiency of already effective legal acts and need to amend and change them, simplification, codification and recasting of existing legal acts, proper issn 1822–8402 european integration studies. 2014. no. 8 30 implementation of the eu legal acts in national legal systems of the member states (european commission, 2001b; 2007b); 3) measures applied throughout the whole legislative cycle are: performing consultations with stakeholders before undertaking adoption of new regulation or changing the existing regulation, ensuring the publicity of law-making processes and accessibility of legal acts to the society (european commission, 1997; 2002c; 2012a). better regulation measures applied in the eu are summarised in picture 1. picture 1. better regulation measures applied in the eu (source: the author) implementation of better regulation at the eu level the white paper european governance adopted by the european commission in 2001 is considered as the start of formal establishment of better regulation policy in the eu. it set forth the aim to reform the activities of the eu institutions and, in this way, to overcome specific challenges faced, such as that in some areas the eu institutions cannot work as effectively as national governments of the member states, that the eu lacks many other sources of traditional power, that activities of the eu institutions often are too far from citizens and many people do not have a possibility to feel and appreciate the positive impact of the eu activities, etc. (european commission, 2001a, p. 7; laffan, 2001, p. 711). the white paper named many specific lines of action that the european commission proposed to all the eu institutions to follow, e.g. to encourage inter-institutional cooperation, to set minimal standards of ethical behaviour, etc. among these lines of action, the aim of better regulation was for the first time specifically indicated – to constantly improve the quality, efficiency and simplicity of legal acts (european commission, 2001a, p. 17, 20–26). a specially formed mandelkern working group determined that during many years the european community had adopted a big number of complicated legal acts, therefore, the regulatory environment in europe should be improved in essence (2001, p. 7). this working group prepared the detailed report with recommendations how separate actions of better regulation should be implemented. creation of better regulation measures was the basis for very intensive actions of the european commission. for example, since 2005 the european commission drafted and implemented 640 initiatives aimed at simplification, codification or recasting of legal acts. over 4,450 legal acts were annulled, 1,750 of these legal acts were annulled because they were codified or recast (european commission, 2012c, p. 9). also, the set aims of reducing administrative burden were considerably exceeded. at first it was sought to reduce the administrative burden on companies and persons by 25% by 2012. however, the european commission tabled such regulation improvement proposals that enabled to reduce the administrative burden on the european companies even by 31% or by eur 38 billion (european commission, 2010, p. 3–4). in 2010 it was stated that certain aims of better regulation initiative were successfully implemented. as a result, better regulation was renamed as smart regulation, in this way emphasising the transition to a certain new, qualitatively different stage of this initiative. the main idea of smart regulation is that better regulation principles must simply become a permanent part of the law-making process, as the european commission indicated – “a part of the commission’s work culture”, in this way ensuring better regulation quality in all law-making stages (european commission, 2010, p. 2, 11; korkea-aho, 2012, p. 398). in 2012, as a part of smart regulation, a special regulatory fitness and performance programme (refit) was created. main tasks of this programme is a constant monitoring of legal acts applicable in the eu, identification of burden created by them, defects, non-efficient provisions, as well as assessment how eu legal acts are implemented in national systems of the member states (european commission 2012c, p. 3). though certain actions of the european commission towards implementing better regulation seem very active and successful at first sight, they are criticised by scientists researching better regulation. first of all, a critical view is held of particularly large work volumes performed by the european commission – it is believed that the coverage was too broad and consultants hired for performance of some actions were not competent enough. besides, better regulation initiative was often implemented more formally, e.g. by annulling a certain number of legal acts only for the sake of a certain “rhetoric effect” (lofstedt, 2007, p. 426–427, 440–441). it is also noted that though better regulation measures are publicly announced, reports about their fulfilment are submitted, still there is no clear and official description how better regulation is organised at the eu level, what duties and responsibilities of the main actors are. that has resulted in certain overlapping of initiatives and processes (allio, 2007, p. 78–79). this issue also relates to the fact that better regulation measures are discussed only in european commission communications and other non-compulsory documents of soft law. namely for this reason better regulation initiative cannot be evaluated by the court of justice of the european union (messerschmidt, 2012, p. 359–360). some authors hold that it may be done on purpose, in order to avoid possible judicial control over better regulation processes (mak, 2012, p. 302). issn 1822–8402 european integration studies. 2014. no. 8 31 need to involve the member states as it was mentioned, white paper european governance, which introduced the concept of better regulation, raised specific problems of the eu, which were clearly different from those of the member states. therefore, it may seem that better regulation measures have been necessary only for the eu institutions. however, this is not true. legal regulation in europe is carried out on two levels – the eu level and the member states. several times the european commission noted that the eu institutions solely would not be able to ensure reduction of regulatory burden if the member states did not take relevant measures, as in many cases they were responsible for the final implementation of the eu law (2005, p. 2, 8; 2012c, p. 11; 2013, p. 13). for the above reasons, from the very beginning of better regulation the member states were asked to apply better regulation measures related namely to transposition the eu legal acts into their national legal systems (european commission, 2002b, p. 16–18). for example, the member states were encouraged to take active actions in order to avoid the so-called “gold-plating” – creation of additional and unnecessary administrative encumbrances by improper transposition of directive provisions (european commission, 2003, p. 5; hansard society, 2005, p. 3). while the eu passed into a qualitatively new level of smart regulation, it was accentuated that though the member states made a progress in some better regulation aspects, but only few of them adopted such a wide better regulation system as the eu. therefore, the member states were encouraged to set national better regulation priorities and take wider actions towards their implementation (european commission, 2012c, p. 10–11). thus, it can be understood that the member states are currently encouraged to take all relevant better regulation measures (not only with regard to transposition of the eu law). the member states are encouraged to follow good practices of the eu, choosing and adapting better regulation measures of the eu so that they would be compatible with legislation traditions of the relevant member states (mandelkern group on better regulation, 2001, p. 38; estep, 2004, p. 31; radealli and meuwese, 2009, p. 641). there is no uniform evaluation of the progress achieved by the member states in the area of better regulation. as some scientists indicate, one may have an impression that the member states have implemented exhaustive better regulation policies, but in many cases such measures existed mostly in name and not in substance (staroňová, pavel and krapež, 2007, p. 279). this is also confirmed by information published on the website of the european commission about good practices of the member states in implementing better regulation measures. it provides better regulation documents prepared by just a few member states, such as the united kingdom, luxembourg or germany (european commission, 2014b). wider research has also shown that many member states have actually implemented better regulation measures only in several pilot projects (radealli and meuwese, 2009, p. 649–650). the status of better regulation in lithuania is similar, too. better regulation processes in lithuania specific actions of better regulation in lithuania started in 2008, when the government approved the programme on better regulation. this programme for the first time in the context of lithuanian law has determined for the concept and the main principles of better regulation, such as necessity (regulation is undertaken only when that is necessary), proportionality (selected regulation measures correspond to regulation purposes), transparency (process of adoption of legal acts is public, legal acts are simple and understandable), accessibility (legal acts are accessible to the public) and accountability (decisions taken are reasonable and accounted for to the public) (programme on better regulation, 2008, cl. 4–5). the programme also clearly indicated the results sought by it, i.e. more attractive business and investment environment, transparent legislation procedures, efficient implementation of legal acts, smaller administrative burden on entities, simpler and shorter procedures in connection with issuance of licenses, permits and other documents, transparent transposition of eu directives into the national law, wider use of information technologies for provision of public services, less corruption (programme on better regulation, 2008, cl. 20). the programme on better regulation stated that lithuanian institutional and legal system was not ready for the implementation of better regulation policy. although some better regulation measures were defined in lithuanian legal acts and applied practically, but they were planned and implemented inconsistently, they were scattered in various programmes and other legal acts, different institutions were responsible for their preparation and implementation (programme on better regulation, 2008, cl. 13–14). under the said programme, the ministry of economy was appointed as the authority responsible for implementation of better regulation in lithuania, i.e. the ministry was assigned to prepare plans of the implementation better regulation measures and methodological recommendations, also to make proposals for programme improvement (programme on better regulation, 2008, cl. 25). some of the aims of the programme on better regulation were partially implemented, e.g. selected competent authorities reviewed regulations of certain areas and made lists of legal acts, which should be replaced or amended for the purpose of simplification, an amendment to the government rules on legislation was initiated, also, as a result of several expert studies, the methodology of identification and assessment of administrative burden on citizens and other persons and the methodology of identification of administrative burden on economic entities were adopted by the government (ministry of economy, 2008, p. 5; 2010, p. 4–5; jurevičius, balčiūnas & bartkus, 2009; baltic legal solutions lithuania, 2011; deloitte lietuva, 2011). also, better regulations actions are further continued, e.g. the ministry of economy has indicated that it intendeds to prepare an example of good practices of ex-ante impact assessment of draft decisions on business conditions (ministry of economy, 2014). some significant activities related to better regulation were also performed separately, not within framework of the programme on better regulation. for example, during the years 2009 – 2012 the project “improvement of result-oriented governance” was implemented. it was aimed at introducing elements of result-oriented and evidence-based governance in the public sector by referring to successful international practices. the third stage of this project was dedicated for the improvement of the impact assessment of the decisions which issn 1822–8402 european integration studies. 2014. no. 8 32 is one of better regulation measures (lithuanian government, 2014). experts prepared a detailed analysis of impact assessment of the decisions and legal acts in lithuania and presented recommendations on the improvement of impact assessment based on international practice (estep, public policy and management institute and jacobs&associates, 2010). still, one of the most significant events of better regulation initiative in lithuania is the adoption of two new laws by the end of 2012 – the law on reduction of administrative burden (effective from 1 july 2013) and the law on legislative framework (effective from 1 january 2014). the adoption of these laws should change the status of better regulation actions in lithuania. better regulation measures stipulated therein should become not only implementation of political programme but also legally binding obligation to all authorities to constantly follow the principles and rules of law-making and reducing administrative burden. the law on reduction of administrative burden is in essence intended for one better regulation measure – the aim to ensure that legal acts would not establish obligations unreasonably causing administrative burden on persons and business. it is indicated in the preamble of the law that unreasonable and disproportionate administrative burden has a serious negative impact on residents of the country, on the economy and business environment. this law sets forth principles and measures of reducing administrative burden and establishes how constant monitoring of administrative burden should be performed (law on reduction of administrative burden, 2012, art. 1). the explanatory note of the law reveals why it was sought to establish the main principles of reducing administrative burden namely at the statutory level: “<...> the purpose of reducing administrative burden and the principle of better regulation cannot be achieved by subordinate legal acts. besides, in the absence of a specific law regulating this area, there are no systemic actions of reducing administrative burden and there is no control. therefore, having assessed the legislation tradition and practice in the republic of lithuania, this draft law is aimed at establishing the practice of regulation of the administrative burden institution, which is under formation” (auštrevičius, et. al., 2012). please note that this law is rather short – it mostly gives principles and goals but it does not formulate specific rules of behaviour applicable to state institutions. the law gives references to methodologies of reducing administrative burden that were prepared earlier and approved by the government (law on reduction of administrative burden, 2012, art 3). the law on reduction of administrative burden also provides for establishment of a special governmental body – better regulation supervisory commission, the purpose of which would be to perform assignments related with assessment of administrative burden and application of measures for its reduction in state and municipal institutions and bodies (law on reduction of administrative burden, 2012, art. 8). at the end of 2013 the government formed such commission and established that it would consist not only of representatives of state institutions, but also of non-governmental organisations or even associations representing interests of private persons and public institutions (resolution on the formation of better regulation supervisory commission (2013). the law on legislative framework, which was also adopted in 2012, for the first time defined the concept of legislative process, also directly identified essential legislation principles, such as expediency, proportionality, respect to human rights and freedoms, openness and transparency, efficiency, clarity, consistency (law on legislative framework, 2012, art. 2(5), 3). in general, this law is aimed at regulating the whole law-making process; therefore, its regulatory scope is considerably wider than that of the law on reduction of administrative burden. from the perspective of better regulation initiative it is very important that the law on legislative framework regulates three better regulation measures – anticipated regulatory impact assessment, consultations with the public on drafted legal acts and the obligation to plan and publish legislative initiatives. until the adoption of this law, these measures were regulated only by implementing legal acts and now they are transposed at the statutory level (law on legislative framework, 2012, art. 2, 7–8, 15–16; methodology on the anticipated regulatory impact assessment, 2003; work regulation of lithuanian government, 1994). specific procedures of application of these better regulation measures are still not known as they will be later on elaborated in implementing regulations and will greatly depend on practical application of such legal acts. better regulation measures currently established in lithuanian legal acts are shown in picture 2. picture 2. better regulation measures established in lithuania (source: the author) better regulation problems in lithuania and lack of researches better regulation actions carried out in lithuania seem rather active at first. however, upon greater scrutiny it can be noted that implementation of better regulation measures does not give actual and tangible results – in lithuania many regulatory areas still do not conform to modern standards of good regulation. legal acts (especially implementing regulations) that regulate some specific areas of administrative law are particularly complicated, inconsistent, have issn 1822–8402 european integration studies. 2014. no. 8 33 contradictory provisions. due to these reasons very often business and private persons and even professional lawyers face with difficulties while applying legal acts in practice (monkevičius, 2008, p. 11; lithuanian confederation of industrialists, 2013; jankaitytė, 2013). such situation in lithuania is not so unique. scientists radealli and meuwese, who research better regulation, indicate that better regulation phenomenon is particularly politicized in eu and most member states, therefore, usually there is a certain gap between adoption of this initiative and its implementation (2009, p. 649–650; n.d., p. 12–13). it means that public administration usually seeks to adopt as many documents establishing better regulation as possible, but pays much less attention to their practical implementation. upon overview of the situation of better regulation initiative in lithuania, it can be stated that lithuania has both problems – those related to the adoption of better regulation and to its implementation. this may be demonstrated by following arguments. first, lithuanian institutions pay most of their attention to practical implementation of exclusively one better regulation measure – reduction of administrative burden. initially, the programme on better regulation approved by the government in 2008 was a rather consistent document – it contained references to better regulations goals set out at the eu level, widely and clearly identified various better regulation measures (programme on better regulation, 2008, cl. 1–2, 6–8, 18–19, 24). however, during the practical implementation of the programme on better regulation, a clear problem has arisen – annual plans of programme implementation were mostly committed to the sole measure that is least related to qualitative law-making, i.e. to the reduction of administrative burden. meanwhile, performance of other better regulation measures, such as consultations with stakeholders, anticipated regulatory impact assessment, simplification of legal acts, was planned rather sporadically (lithuanian government, 2008; 2009; 2011; 2012). such a tendency can be partially explained by the fact that reduction of administrative burden is most often prioritised by public administration namely due to its specifics and direct impact on business (korkea-aho, 2012, p. 400–401). however, such exceptionality of administrative burden reduction measure is not grounded as it is neither accentuated nor supported in the eu documents or in the programme on better regulation. second, the new law on reduction of administrative burden has affirmed the misleading assumption about reduction of administrative burden, as the core of better regulation, at the statutory level. the explanatory note of the law on reduction of administrative burden indicates that reduction of administrative burden is a significant measure, but it does not explain why it was decided to specifically regulate only this measure. some measures indicated in the law as exclusively forming part of reduction of administrative burden actions (e.g. annulment, reduction, consolidation or improvement of the existing regulation, data and information exchange among institutions) should be regarded as other independent better regulation instruments (law on reduction of administrative burden, 2012, art. 3). also, as it has been mentioned, a special better regulation supervisory commission, which will supervise exclusively implementation of administrative burden reduction goals, was formed. in this way, lithuania will have a situation where many better regulation measures will be used only for achieving one of better regulation goals – reduction of administrative burden. there will be a special commission in lithuania, which, judging by its name, should take care of improving the quality of legal acts and legislation procedures, but actually will be responsible only for application of relatively narrow administrative burden reduction measure. third, the law on legislative framework that could properly establish other better regulation measures was not properly linked to better regulation initiative. the law on legislative framework by its essence is an instrument that could directly contribute to implementing better regulation in lithuania. however, by looking at the explanatory note of the law, it is evident that the law has not been directly related to better regulation initiative (ministry of justice, 2010). there is an impression that this law, which is particularly significant for better regulation, was adopted for absolutely different, unrelated purposes. probably due to these reasons the law on legislative framework does not list all better regulation measures directly related to legislation, e.g. there are no provisions regarding simplification and codification of law, nor is the specifics of transposition of the eu legal acts into national legal acts regulated in detail. also, this law has not remedied the situation where administrative burden reduction is actually regarded as the main better regulation measure in lithuania. significant improvements of current regulatory scope of the law on legislative framework could be considered. fourth, the implementation of better regulation initiative in lithuania does not have sufficient theoretical and scientific basis. in spite of the fact that certain issues of relationship of the lithuanian and eu law, the implementation of the eu law in the national system and some legislative problems are researched (andriuškevičius, 2004; 2008; šedbaras, 2006; bakaveckas, et. al., 2005; paužaitė-kulvinskienė, 2005, 2009; ambrasaitė-balynienė, et. al., 2010; prapiestytė 2006; kargaudienė, 2006; valančius, 2007a; 2007b; urmonas, 2007; 2009; valančius and kavalnė, 2009; rasulevičius, 2011; kondratienė, 2012; deviatnikovaitė, 2013; šimašius, 2004; šlapkauskas, 2004; monkevičius, 2008, arlauskas, et. al., 2012; mikulskienė, 2013; miežanskienė and šlapkauskas, 2013, etc.), the said research is not directly related to better regulation initiative. as it has been mentioned, better regulation involves interdisciplinarity – it is evident that the reasonability and efficiency of better regulation measures can be assessed by representatives of various social sciences, especially of law, economics, public administration and politics. still, better regulation is first of all treated as a particularly broad regulatory reform (de francesco, radaelli and troeger, 2012, p. 491), therefore, it is presumable that one of the biggest contributions into research of this initiative could be made namely by scientists of law. conclusions • though the programme on better regulation is officially being implemented in lithuania, however it may not be regarded as successful. first of all, its results cannot be felt – the regulatory environment is still too complicated. second, with regard to actions performed until now, it is obvious that there is no single system issn 1822–8402 european integration studies. 2014. no. 8 34 of implementation of better regulation – separate, unrelated laws are adopted, also there is an unhealthy trend to regard the reduction of administrative burden as the only (important) measure of better regulation. it is also noteworthy that lithuania does not sufficiently refer to good practices of better regulation already formed at the eu level, therefore, it is considerably lacking behind the better regulation developments happening at the eu level. • clear formulation of the better regulation concept in lithuania would contribute to more successful implementation of better regulation initiative. better regulation could, first of all, be regarded as a mean for performance of a wide scope regulatory reform. such reform could be aimed at changing many already effective legal acts in the area of administrative law, both in terms of quantity and quality, and at setting strict requirements for drafting and adoption of new legal acts. the new law on legislative framework could become one of the main tools for giving the correct better regulation concept and providing for clear better regulation measures. current version of the law and its scope of application should be adjusted – it should relate legislative measures to better regulation initiative more clearly, identify all better regulation measures necessary for the lithuanian legal system, describe their purposes, content and main requirements for their application. in the future the incorporation of the law on reduction of administrative burden into the regulatory scope of the law on legislative framework could be considered. in this way unreasonable advantage given to the measures of reducing administrative burden compared with other better regulation measures could be corrected. • in order to achieve progress in terms of better regulation initiative in lithuania, it is necessary to discuss better regulation concept and consider which of better regulation measures are required for the lithuanian legal system. within this context, the role of research on better regulation issues should be emphasized – namely such research, particularly in the field of law, could contribute to proper establishment of better regulation initiative in legal acts in lithuania and more efficient practical implementation of this initiative. the following research vectors in connection of better regulation in lithuania could be proposed: (1) proper transposition of better regulation initiative applied at the eu level and application of its individual measures in lithuania; 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(2010). better regulation: a critical assessment. available from internet: http:// www.etui.org/publications2/reports/better-regulation-acritical-assessment. work regulation of the lithuanian government (1994). official gazette, 1994, no. 63–1238. the article has been reviewed. received in april, 2014; accepted in june, 2014. 159 issn 1822–8402 european integration studies 2014. no. 8 ethical leadership: student perceptions of exercising ethical influence in organization velga vevere the university college of economics and culture, latvia the university of latvia lomonosova 1, korp. 5, rīgā, lv-1019 latvija e-mail:velga.vevere@gmail.com http://dx.doi.org/10.5755/j01.eis.0.8.6987 today’s rapidly changing economic and social environment requires reconsideration of leadership issues, a special attention paying to ethical issues that are an integral part of socially responsible business. there are numerous studies on the subject matter of ethical leadership but until now the matter of developing business students’ ethical leadership competences has been hardly touched. this is one of the gaps to be filled if we want to speak about the europe of knowledge at all. the purpose of the present study is twofold: to summarize the previous research in the field of ethical leadership and to research latvian business students’ perception of ethical leadership. hence the tasks of this study are: to conceptualize main notions of the ethical leadership; to disclose the concept of power bases and social influence;) to work out the research design and to perform the survey on student perception of the ethical aspects of exercising influence; to interpret results and work out practical suggestions for teaching business ethics. the primary method used in the present inquiry is quantitative survey applying the likert scale (the sample of probability is n=206 – business students attending classes in business ethics taught by the author of the present paper). the students were asked to put themselves in the shoes of the business organization manager and to decide for themselves what steps they would take in order to influence their subordinates. the results were grouped according to five power bases (coercive power, reward power, legitimate power, expert power, referent power). no form of power is inherently immoral; still some of them (especially related to power and coercion) can be more unethical in certain circumstances. the results of the survey showed that ethical issues of business leadership in general were of no special concern for students, although they recognized some critical aspects and cases of unethical behavior. the results made it possible to work out suggestions how to improve the course plan in business ethics (introducing new aspects related to leadership; including more subject related case study discussions; preparing practical exercises, etc.). keywords: business ethics, ethical leadership, ethical influence, coercive power, reward power, legitimate power, expert power, referent power. introduction today’s rapidly changing economic and social environment requires reconsideration of leadership issues, a special attention paying to ethical issues that are an integral part of socially responsible business. there are numerous studies on the subject matter of ethical leadership but until now the matter of developing business students’ ethical leadership competences has been hardly touched. this is one of the gaps to be filled if we want to speak about the europe of knowledge. the significance of the problem is related to the fact that today’s business students are future business leaders, so it is necessary to educate them in ethical issues, in general, and to develop their skills in leading a business organization in ethical way, in particular. to work out the teaching design it is necessary to find out current students’ opinion about these issues. the purpose of the present study is twofold: to summarize the previous research in the field of ethical leadership and to research latvian business students’ perception of ethical leadership. hence the tasks of this study are as following: to conceptualize main notions of the ethical leadership; to disclose the concept of power bases and social influence; to work out the research design and to perform the survey on student perception of the ethical aspects of exercising influence; to interpret results and work out practical suggestions for teaching business ethics. this accounts for the structure of the present paper. it consists of two theoretical parts – the first chapter of the article is devoted to the concept of ethical leadership, where the main stress is placed on the social learning perspective of ethical leadership proposes that leaders influence others via modeling (observational learning, imitation and identification) since this particular approach, in our opinion, allows us to develop a model of ethical leadership starting from the bottom up, i.e., taking into account the particular business situation and ethical organizational culture, and to work out specific criteria for management. the focus of the second chapter is the power/interaction model of the interpersonal influence originally developed by j. r. p. french and b. h. raven. the social influence was defined as a change in the belief, attitude, or behavior of a person (the target of influence), which results from the action of another person (an influencing agent). social power was defined as the potential for such influence, the ability of the agent to bring about such change using resources available to him or her. the following three parts are devoted to the empirical research – the survey of business students’ perception of different power issn 1822–8402 european integration studies. 2014. no. 8 160 (reward, coercive, legitimate, expert, and referential) bases and their ethical implications. the method employed is the quantitative survey of the students of the two latvian private business schools who attend the course in business ethics; the sample of probability is n=206. the results are depicted in the tables and figures; they are compared and interpreted. in the conclusion the author points out the significant aspects of the ethical leadership, as well as offers the recommendations for further development of the business ethics curriculum. concept of ethical leadership although ethical issues in business leadership have been a matter of importance for quite a long time period, perspectives taken have been either philosophically grounded, i.e., relying on the general concepts of justice, truthfulness, etc. (langlois, l., 2008; painter-morland, m., etenbos, r., 2011), or looked at from the solely managerial perspective (i.e., authentic/inauthentic, transformational/transactional leadership styles). moreover, in many cases there exists a dissociation of ethics from business practices; this leads to perception of moral deliberations as a hindrance on the road to success. (millar, c., poole, e., 2011) still since the task at hand is to create the theoretical background for the empirical research on business students’ perception of exercising ethical influence, we will not attempt to give a comprehensive literature overview on the subject of business ethics and leadership; rather we will delineate the main directions and developments pertaining the subject, in order to be able to work out an appropriate survey design and an according model for result analysis. in order to structure studies on the subject ethical leadership we propose to employ a three-level model of analysis of ethical business leadership developed by daniel e. palmer; he distinguishes the following levels: ethics of the leader, the means of ethical leadership, and the heart of leadership. (palmer, e.p., 2009) the first level implies focusing upon the ethical behavior of business leaders qua individuals. they are expected to exhibit high personal moral standards and to serve as role models for their followers. it has been noted that those leaders who behave according “high morals” are probably less prone to moral transgressions in their business practices. (bowie, n. e., 2005; zaccaro, s. j., at al., 2008) although most of the researchers stress this relation, a different concern with the first level of analysis is that focusing upon the personal morality of leaders may pose the danger of leading us to hold leaders personally accountable to a higher standard of morality than we do others. (palmer, d. e., 2009) this can lead to the heightened expectations the leaders are not being able to live up to. in her research on business executives’ perception of ethical leadership catherine marsh (marsh, c., 2013) stresses such value perspectives as mindfulness, engagement, authenticity, and sustainment. the value perspective of mindfulness is composed of the valued approaches of ethical leadership: observation, time for reflection, systems thinking, rational process, and dialogue and questioning. the value perspective of engagement, representing involvement in ethical action embraces diversity, cultivates relationships, terminates relationships, and encourages risk taking. authenticity represents personal integrity, self-knowledge; whereas sustainment is composed of the valued approaches of ethical leadership: no illusions, hope, and holistic approach to work and life. the second level of analysis concerns the means of ethical leadership. according to palmer (palmer, e.p., 2009), one way to look at it would be from the viewpoint of specific actions that are taken in performing leadership functions. another way would be to view the means of leadership in terms of styles or models of leadership. the latter approach allows better understanding of the diverse actions within the particular leadership model. at the same time, we should admit that none of the leadership styles is inherently moral or immoral, although some of them (for example, those which are orientated towards performance solely, or those exhibiting large power distance tend to discern ethical dimensions – everything goes when the job has to be done). the way how leaders’ ethical/ unethical behavior affects their subordinates is being analyzed in various research papers, the attention of investigators mostly is paid to such aspects of leadership as unethical behavior of followers, multifoci social exchange perspective, trickle-down effect of ethical influence, phenomenon of social distance, relationship conflict, leadership of ethics, etc. let’s dwell on these possible outcomes briefly. in choosing models for appropriate behavior, individuals are likely to pay attention to and emulate behaviors from credible and attractive role models. given their positions in organizations, supervisors are often deemed legitimate models for normative behavior. (mayer, d. m., et. al., 2012; ghahroodri, h.k., et al., 2013) multifoci social exchange perspective presupposes that ethical leaders at different organizational levels impact subordinate behavior in different ways; employees intentionally direct their commitment towards specific ethical leaders depending on their appraisal of those leaders and their relationship on professional and personal levels (hansen, s.d., et.al., 2013) but there is also empirical evidence that organizational level ethical leadership affects employee behavior through the mediator of supervisory ethical leadership or, in other words, the ethical influence “trickles down” to employees by the way of immediate supervisors. (mayer, d.m., et al., 2009) the concept of social distance in the ethical leadership literature is being tied up with the phenomenon of influence perception by followers – leaders’ unethical decisions are evaluated more harshly in higher social distance; lower social distance between the evaluator and the leader causes the evaluator to consider more the thoughts and motives of the leader and other circumstantial information, which in turn affects the extent to which the leadership behavior is considered ethical. (tumasjan, a., et al., 2011) ethical leadership and relationship conflict management – working under ethical leader, employees may become more willing to allow coworkers to express their opinion, avoid personal attacks on coworkers, and demonstrate respect and consideration for coworkers’ needs. (mayer, d. m., et. al., 2012). all the above mention factors make it possible to develop the concept/model of the leadership of ethics (eli – ethical leadership inventory) consisting of three phases. (spangenberg, h., theron, c. c., 2005) the eli thus interprets leadership as a complex, continuous process expressing itself in an extensive array of inter-dependent behavioral actions. the process essentially entails three sequentially linked phases (a) the development and selling ethical vision for the unit, based on an assessment of internal and external environment of the unit, (b) the preparation of the unit for the implementation of issn 1822–8402 european integration studies. 2014. no. 8 161 the ethical vision, and (c) the bold yet honest implementation of the vision by continually monitoring, revitalizing, fine-tuning and orchestrating a multitude of prerequisites for realizing the ethical unit vision. the third level of ethical analysis, according to d. e. palmer (palmer, d. e., 2009) presupposes a common mission and vision. viewed from this angle the leadership appeals to two elements: telos, which represents the common good to be sought, and a vision, or projection of how that good will be achieved. if there is no balance between these two elements can lead to the ethical failures in organization. thus the ethical leadership can fail if the leader’s vision is inherently in conflict with the mission of the business or vice versa when the vision is centered upon the mission that is inherently unsupportable. so there exists a close link between good leadership and sustainable business practices (bowie, n., 2005; kaptein, m., 1998; sarwar, c.i., 2013) and in the long run being ethical leads to the ethical organizational culture and to the public and financial success. this concept has been developed by c. e. harshman and e. f. harshman (2008), they emphasize four basic factors that influence the leadership style – organizational context, individual properties, situation, and social role taken up by the leader. the phenomenon of ethical/unethical leadership style is being explored by a wide range of theoreticians and practitioners from the viewpoints of general business ethics, as well as from the managerial perspective. it is not our task in the present paper to describe differences between these two approaches; rather we would like to delineate the ethical components of leadership. it has been admitted in the research literature that transformational and charismatic leaders are thought to be ethical leaders who model ethical conduct (brown, m. e., mitchell, m.s., 2010), in sum, they are regarded as authentic leaders (walumbwa, f.o. et.al., 2008; yukl, g., 2008; george, b., 2003). the contrast of the transformational as authentic leadership and transactional as inauthentic leadership styles is analyzed by k. s. groves and m. a. larocca (2011) and o.turunc, m. celik and i. s. mert (2013), as well as by m. e. brown, l. k. trevino, d. a. harrison (2005) in their seminal work in the field “ethical leadership: a social learning perspective for construct development and testing” and its companion peace “ethical leadership: a review and future directions” (brown, m. e., trevino, l. k., 2006), the above mentioned articles lays down the basic principles of the new conception of the social learning perspective that entails the construct of ethical leadership. transformational leadership is defined as a process where leaders and followers engage in a mutual process of raising one another to higher levels morality and motivation. (turunc et. al., 2013) transformational leadership includes five leadership dimensions: idealized attributes, idealized behaviors, inspirational motivation, intellectual stimulation, and individualized consideration. such leaders earn credit and respect from their followers considering their needs above their personal needs, and taking into account moral consequences of their key decisions (groves, k. s., larocca. m. a., 2011). they influence others by developing collective vision and inspiring them to look for a common good, rather than their self-interest. it should be noted thought that in some cases the transformational leadership can exhibit characteristics of unethical behavior as well, for example, if followers are being manipulated into believing in sacrificing their personal interests. at the same time, the ethical leaders can use the transactional-type influence processes such as standard setting, performance appraisal, and rewards and punishments to hold followers accountable for ethical conduct. (trevino, l. k. et al., 2003) thus there is only a partial overlapping between transformation and ethical leadership. transactional leaders, on the other hand, aim at controlling others and supporting the existing status quo in the leader/ follower relation by exercising different forms of power (the question of the power and power bases will be discussed in the next chapter of the present article). m. e. brown and others have found that ethical leadership is related to these other leader styles and characteristics, but none of these is broad enough to encompass all than an ethical leader is seen to do. they propose to view ethical leadership within a social learning framework. (brown, m. e. at al, 2005) a social learning perspective of ethical leadership proposes that leaders influence others via modelling (observational learning, imitation and identification). in our opinion, this construct of ethical leadership is the most fruitful as it allows: (a) to develop a model of ethical leadership starting from the bottom up, i.e., taking into account the particular business situation and ethical organizational culture; (b) to work out specific criteria for management. m. e. brown and others propose that leaders become attractive, credible, and legitimate ethical role models by engaging in ongoing behaviors that are evaluated by the followers as normatively appropriate. (ibid.) they have worked out ten-item instrument to measure perceptions of ethical leadership – the ethical leadership scale (esl), which includes such aspects as: (1) listening to what employees have to say; (2) disciplining employees who violate ethical standards; (3) conducting his/personal life in an ethical manner; (4) having the best interests of employees in mind; (5) making fair and balanced decisions; (6) are trustworthy; (7) discussing business ethics or values with employees; (8) setting the behavioral example; (9) defining success not only by results, but also the way that they are obtained; (10) always asking question “what is the right thing to do?” (brown, m.e., trevino l. k., 2003) i sum, the difference of this model from all others lies in the fact that evaluation is being done by followers. they define ethical leadership as the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making. (brown, m. e. et al., 2005) power/interaction model of interpersonal influence forms of power and influence have long been the matters of interest in philosophy, social psychology, management and organizational behavior studies, cultural studies, etc. to illustrate this statement let us mention just one line of reasoning, represented by french social philosopher michel foucault whose concern for power is a leading motif in many of his works, but most of all “discipline and punish: the birth of prison” (foucault, m., 1995). here he talks of the body politics (the ways people are being controlled by reducing the distance, almost nullifying their individualities). in the chapter entitled “panopticism,” he speaks metaphorically of the way we are controlled by authority: that our respect for issn 1822–8402 european integration studies. 2014. no. 8 162 those in power springs not from the actual strength of authority, but rather from an individual’s fear of the authority. the building of panopticon is a circular building made up of multiple rings of holding cells, one on top of the other. in the center of these rings is a tower, to observe the activity of the prisoners, workers, etc. each cell is large enough for a single person, and separated from the next by a wall; this way, prisoners cannot see each other, and thus function as individuals. the front of the cell is blocked with bars, so that the prisoner is visible from the tower, and the back of the cell has a window so that the prisoner is illuminated with sunlight and cannot hide. the main thing is that that any prisoner can see the tower, feel it watching him, and know that he is powerless to escape its gaze; but that at the same time, the guard in the tower need not be looking at that exact prisoner. (ibid.) so the result is the state of anxiety, the state of being permanently watched or supervised (in the management literature it has been called the abusive supervision). c. anderson and l. berdhal (2002) define power as the ability to provide or withhold valued resources or administer punishments. the important property of power is that it is contextual, related to a particular relationship in a group. it is interesting, that according to the fore mentioned research that having high power is associated with a higher level of rewards and lower level of threats in the environment and people with higher power tend to be me more approach orientated. (ibid.) still it doesn’t say a lot about the ethical aspects of leadership, since event he approach orientated bosses are as exposed to inhibition tendencies as lower rank managerial staff. a. h. b. de hoogh and d. n. den hartog (2009) speculate on the subject matter of ethics and power, concluding that ethical leadership can be defined as the process of influencing in a socially responsible way the activities of an organized group toward goal achievement. another topic related to exercising the interpersonal influence. the type of behavior used in an effort to influence the attitudes and behavior of another person is called an influence tactic. (yukl, g., 2009) these tactics are classified in the following way: proactive (related to the immediate task at hand); impression management (used to influence view targets view the agent); rational persuasion (using logical arguments); appraising (explaining how carrying out a request will benefit the target personally); inspirational appeals (appealing to values and ideals); consultation (encouraging the target to suggest improvements); collaboration ((offering to provide relevant resources and assistance); ingratiation (using praise and flattery); personal appeals (asking for support out of friendship); exchange (offering an incentive); coalition tactics (citing the support of others as reason for target to agree); pressure (making demands or threats). (ibid.) the influence tactics from the receiver (target) side is being investigated by j. e. barbuto and g. t. gifford (2009); they state that influence trigger is to be understood as a target’s reaction to an influence of attempt; each time an agent attempts to influence a target, some type of trigger will occur for the target. still as one of the most successful models for analyzing leaders’ influence on their subordinates, as recognized by a number of researchers (rahim, m.a., 2009; koslowsky, m., schwarzwald, j., 2009; johnson, c.e., 2012) is the one called the power/interaction model of interpersonal influence. this model was created by j. r. p. french and b. h. raven (1959), later it was developed and diversified in order to adapt to the contemporary business situations (azoult, l. et al., 2013). the social influence was defined as a change in the belief, attitude, or behavior of a person (the target of influence), which results from the action of another person (an influencing agent). social power was defined as the potential for such influence, the ability of the agent to bring about such change using resources available to him or her. these resources are represented in six bases of power (raven, b. h., 2008) let us characterize each base subsequently. coercive power is based on a subordinates perception that their supervisor has the ability to punish them if they fail to conform to the influence attempt; in other words, it is a function of the perception of subordinates of the extent to which their supervisors can inflict punishment (firing, suspending, ridiculing, demoting, reprimanding, etc.) for undesired behavior. reward power is based on the perception of subordinates that their supervisor can reward them for desired behavior; in other words, it is associated with the ability to provide positive inducements for desirable behavior (pay raises, promotions, bonuses, or recognitions). legitimate power is based on the internalized values of subordinates which dictate that the supervisor has the right to prescribe and control their behavior and they have the obligation to accept the influence; the power is vested in the rights, duties, and responsibilities of the position, not the personal properties of the power holder. expert power is based on the subordinates belief that that their supervisor has adequate professional experience, training, special expertise, and access to knowledge. referent power is based on the desire of subordinates to identify and associate with their supervisor; here control is dependent on the supervisor’s charisma or personal magnetism to attract subordinates to follow them. informational power – the supervisor carefully explains to the subordinate how the job should be done differently, the subordinate understands and accepts the reasons and changes his/her behavior. later on raven reconceptualized the original taxonomy and proffered model of eleven tactics. coercion and reward were separated into personal an impersonal; adding personal coercion and personal reward helped to understand why some instances of social influence required surveillance. legitimate power was differentiated into four tactics, all of which reflected various social norms. the definitions for expertise, reference, and informational tactics remained to their original formulations. it is of a particular interest to know what bases of power strategies are most likely to be effective. a power strategy, which works almost immediately where surveillance is necessary (reward or coercive power) may not be long lasting if the continued surveillance is impossible. if on one hand the reward power ten to lead to greater satisfaction on the part of employees, and thus might increase influence in a broader range of situations, the, on the other hand, the coercive power can be more effective in influencing a subordinate who has jeopardized the success of the overall organization. the manner in which the power strategy is utilized also affects its success or failure. the power/interaction model of interpersonal influence is an attempt how the process operates and the conditions that determine effectiveness and ineffectiveness of social influence. it can be concluded that a leader who is more aware of, either formally or informally, of the various options in social power strategies will be more issn 1822–8402 european integration studies. 2014. no. 8 163 successful and effective. (raven, b. h., 2008) the question of ethical aspects of leadership remains open as none of all power tactics is inherently ethical or unethical; leaders draw their power from the variety of sources. the morality of the particular power source depends on the ends or goals it serves. still the power linked to the organizational position (coercion, reward, and legitimate) is more likely to be abused than expert and referent powers. thus extreme coercion can be devastating to individuals, attacking their dignity and basic beliefs, their moral values. (johnson, c. e., 2012) powerful individuals, who fail to master their negative emotions, project them to others. moreover, these people are more susceptible to judgment biases, namely, they are not interested in how others feel, and thus they are acting on harmful stereotypes; powerful people protect their positions by attacking those they perceive as threats. at the same time having too little power can pose ethical dilemmas. powerless employees can’t achieve serious goals; they don’t have any control over their environment. they try to maintain the amount of power they have and take out frustrations on others. selecting the appropriate tactic is one of the more important choices, and ethical considerations play the central role. according to johnson there are four most widely used organizational influence strategies: impression management, deception, emotional labor, and the communication of expectations; each of them contain a set of ethical variables. although being a part of everyday business practices impression management can be perceived as an act of manipulation. therefore, targets of impression management tactics have an ethical responsibility to ensure that agents aren’t unduly or unfairly shaping decisions and outcomes. deception is defined as knowingly trying to mislead others. in the organizational context deception this most often appears as self-interest and role conflict. role conflict acts as a stimulus, providing the reason to lie; rewards them provide the motivation to engage in lying. (johnson, c. e., 2012) it is possible to reduce role conflicts not setting too high expectations and keeping line of communications open in order to resolve possible conflicts. emotional labor is a special form of image management, more specifically; employees manage their feelings so that they can present the desired bodily and facial displays and hold back their anger contacting customers. this entails its own special set of ethical issues, that is, the private feelings are more or less owned by the company, this can be quite costly emotionally for them and can lead to the total burnout. communication of expectations – the ethical dilemmas can arise both from too high and too low expectation levels set for employees. too high level, as we have already said, can lead to lying and hiding truth (no one wants to appear a looser in the eyes of the supervising officer); whereas distrust can create indifferent or even negative attitudes to management and projects a t hand. apart from analyzing moral components of leadership in general, it is necessary to turn to ways business students gain their knowledge about business ethics, about real processes within the field – successes and failures. and perhaps the most important question is how to close the gap between general philosophical considerations and real organizational practices. here we can agree with a. palma-angeles (213) that the aim of a business ethics course should not be merely presenting ethical theories, principles, and concepts. more than anything it should capacitate students with tools necessary to understand their environment, take on their moral dilemmas, and make ethical decisions. to accomplish this, the course must start with students’ experiences and then introduce the theories and concepts as tools for reflection and analysis. as well as teaching business ethics should rely on students’ own personal experiences in the beginning in order to graduate to the theoretical level of expertise in the end. m. j. thomson (2013) stresses that reframing business ethics in the management education curriculum may, for example, challenge the relevance of traditional ethical theories to ethical debate whilst not rejecting their role in the discourse of moral philosophy. business ethics in its traditional form did not enter mainstream management education, and in its twentieth century format, failed to impact mainstream business education and practice. this leads to the necessity to establish the current status of so-called “ethical consciousness” of business students to develop and introduce new teaching approaches – both technical (based on interactivity) and conceptual (based on modern management and ethical theories). and since today’s students are our future leaders their moral standing becomes of a special importance. these theoretical considerations, two models, i.e., the social learning perspective on ethical leadership and power/ interaction model of interpersonal influence helps us to formulate the research questions for the present investigation, as well as to work out methodology. the research questions are the following: • what are the most popular leadership styles/power bases in students’ perception? • are students orientated towards “hard” (coercive, reward) or “soft” (expertise, referent, legitimate) powers? method research design. in order to investigate beliefs held by students, we chose a quantitative research design – formalized survey of participants to explore their opinion about optimal ways of exercising ethical influence. approaching the students involved in under-graduate business ethics courses provided a first-hand account of how they make use of the knowledge and all factors that influence it. students were approached with the request to be questioned about the leadership styles. the questionnaire was developed on the basis of literature study; it consisted of twenty questions divided into five groups (accordingly 4 questions concerning each of the power bases); questions were presented in the mixed order to get the truthful response from the surveyed. each question had three possible answers: agree; neither agree, nor disagree; disagree. the actual questioning was performed by the author of the present article; the respondents received all necessary explanations about the purpose of the research. sample. once the research design and interview method were established, it was necessary to make a decision about the sampling unit (a unit of population chosen during the sampling process; the unit should contain one or more elements describing the population). participants of the survey were chosen according to the principle to include students taking the course in business ethics in two private business schools in the study year of 2013/2014. this procedure can be described as a probability (element) sampling, i.e. single stage procedure where sampling unit contains only one element, issn 1822–8402 european integration studies. 2014. no. 8 164 namely, involvement in the class of business ethics. (smith and albaum 2012) altogether 206 students were surveyed. analysis. results of the semi-structured interviews were assigned values from 1 to 3 on the lickert scale, accordingly 1 for “disagree” 2 for “neither agree, nor disagree”, 3 for “agree”. then a quantitative summary of all results was created. finally, all results were ranked according to the frequency of mentioning within each of 5 question groups. research and discussion what are the most popular leadership styles/power bases in students’ perception? are students orientated towards “hard” (coercive, reward) or “soft” (expertise, referent, legitimate) powers? in order to give the answers to these research questions we added up all positive answers to each of 20 questions, the divided these answers into 5 groups according to which power base the particular answer is alluded. the maximum of possible positive answers within each reference group is 206 x 4 = 824 (total number of respondents x number of questions within the category). the results are depicted in the tables 1–5 accordingly. but before turning to discussion of the results, let’s dwell briefly on the most characteristic features of the each of power bases one more time, since it is important for making conclusions. thus the leadership power bases can be described in the following way: • reward power depends on being able to assign the value to followers’ actions, • coercive power is based on penalties or punishments, • legitimate power resides in the official and administrative position; • expert power is based on the characteristics of the individual; • referent (role model) power rests on the admiration one individual holds for another. the respective choice of the course of actions entails certain ethical consequences as it was described above, some of the leadership modes are more subjected to possible ethical violations, obvious or hidden manipulations by the leaders. still first of all we have to look at the summary results of the positive answers (in our article we leave aside the neutral and/ or negative responses since our interest lies in the students’ preferential power model, the analysis of correlations between different power models is to be undertaken in the next article of the series devoted to teaching business ethics in business school). table 1. sum of students’ positive responses to using the reward power no. question sum of “agree” answers 1 increasing their pay level 117 13 helping them get a pay increase 111 16 providing them with special benefits 96 17 helping them get a promotion 101 total 425 source: author’s. we have to state that the ethical aspects of the reward power are related to the just or unjust distribution of the awards. students’ answers to the questions involving their potential actions within the mode of reward power (pay raise, promotion, etc.) demonstrate that a little bit more than half of them (425 out of 824) are positive. this outcome compelled us to conclude that material or immaterial incentives were not on the top in students’ must-do list. in our opinion, this could be explained by two main reasons: first, by the financial and psychological consequences of the recent global economic recession; second, by the fact that students en masse, perhaps due to the lack of experience, didn’t believe in the value of investing into the staff development. table 2. sum of students’ positive responses to using the coercive power no. question sum of “agree” answers 3 giving undesirable job assignments 39 9 making the work difficult for them 9 11 making things unpleasant here 3 12 making work distasteful 4 total 55 source: author’s. the use of the coercive power base turned out to be extremely unpopular among the business students, although the distribution of answers among four possibilities were a bit surprising, namely, 39 out of 55 responses stressed the giving undesirable job assignments as the dominant manipulative tool, although the rest of possibilities (i.e., making the work difficult, unpleasant or distasteful) seemed almost the same. we think that the reason could be the unconscious wish of students to look better in their own eyes, as well as in the eyes of the prospective interpreters of the results. more precisely, assigning the hard-to-do or someone-must-to-do jobs could seem less vicious from the psychological viewpoint, namely, this rests on the belief that the final result is what matters and all assignments lead to the accomplishing the task at hand. moreover, the results demonstrated that students were aware of the possible negative consequences – the excessive use of power by the leaders resulting in the total moral irresponsibility of their employees (no rights to personal opinion, no voice, no responsibility, and no accountability). table 3. sum of students’ positive responses to using the legitimate power no. question sum of “agree” answers 5 making them feel that they have commitments to meet 138 14 giving them feeling that they have responsibilities to fulfill 196 18 giving them the feeling that they have duties to serve 191 20 making them recognize that they have tasks to accomplish 198 total 723 source: author’s. the results depicted in the table 3 speak by themselves, i.e., 723 out of 824 positive responses are given to controlling the followers within their professional lives by using the position of the leader. the overwhelming preference for this power issn 1822–8402 european integration studies. 2014. no. 8 165 base could be explained by the fact, that all respondents were students in the program of business administration, i.e., the future managers and/or leaders. at the same time this position could be the source of the ethical manipulations resulting in satisfaction of the leaders’ ambitions. on the other hand, this approach could result also in the empowerment of the staff, as they feel their significance. table 4. sum of students’ positive responses to using the referent power no. question sum of “agree” answers 2 making them feel valued 197 4 making them feel like i approve of them 139 6 making them feel personally accepted 172 7 making them feel important 182 total 690 source: author’s. the high level of positive responses to the statements regarding the referent power base (690 out of 824) show that the students as future leaders were aware of the power of encouragement, since employees tend to go an extra mile for the leader who vales them as personalities and professionals. interestingly enough, one of the statements stand out with its considerably lower level of positive answers, namely, the statement “making them feel like i approve of them” (139 responses out of 690). in our opinion, this could be explained by the predisposition of the students as future leaders not to exhibit their weakness, because the straightforwardly expressed approval might lead to the loss of their authority whereas the stating of their position could be a matter of prime importance for young leaders. still this mode of power also could be the source of the ethical manipulation, though the milder form of it in comparison with the direct coercion. in this case the leaders should understand his responsibilities even more as they pull the invisible strings and they could appeal to the moral sense and consciousness of their followers. table 5. sum of students’ positive responses to using the expert power no. question sum of “agree” answers 8 giving them good technical suggestions 188 10 sharing my experience and/or training 182 15 providing them with job-related advice 183 19 providing them with needed technical knowledge 181 total 734 source: author’s. the expert power alludes to knowledge, skills, education, and certification; as a result employees who are not in positions of authority can be very influential because they possess the valuable information. it is important to take a notice that in contrast to other previously described power bases (the reward, the coercive, the legitimate, the referent ones), the bearers of the expert power could be both – the leaders and the followers. 734 out of 824 positive responses show that the students see here the paths to empower themselves by making themselves irreplaceable as valued employees and unique as business leaders (the one who simultaneously have the administrative power and the expertise in their business realm). nevertheless, this can entail some moral consequences. in other words, the expert power can be like a double-edged sword – the relationships between the boss and the follower could be quite complicated if the subordinate is more knowledgeable than the supervisor. this could lead either to the suppression of any initiative from below (and that is morally unacceptable) or to the leader’s losing the sense of leadership (in some cases it can result in the humiliation of the subordinates, and this is morally unacceptable as well). the overall picture of positive responses we can see in th figure 1. figure 1. students’ preferences for particular power bases the graphic demonstrates that among the business students surveyed the most positive responses received the statements referring to the legitimate, the referent and the expert bases, while clearly the least value was assigned to the coercive power base as sometimes necessary short-term solution to everyday business matters, but not serving the goal of the sustainable business development that necessarily involves ethical responsibilities and moral soundness of the leaders. our research shows that the students are more orientated towards “soft” power modes that rest on mutual relations between the leaders and the subordinates, on the discussion/negotiation culture, on the academic knowledge and professionals skills and competences. the “hard” power mode, on the other hand, is not as popular among the business students; they tend to disregard the reward and/or coercive, the “carrot and/or stick” approach that refers to a policy of offering a combination of rewards and punishment to induce the desired behavior. this could be explained by the students being aware (at least partly) of the ethical dubiousness of being the manipulators as well as of being manipulated by others. besides that, the survey results show that a special place among students is being assigned to the legitimate or position power; as it was stated above, we believe that the main reason for such phenomenon lies in the fact that all respondents involved in the survey were the business administration students, that is, the future leaders in their own perception, this factor shaped their overall attitude to the proposed statements. we believe also that such distribution of the students’ responses was the result of the previous discussions, case study analyses within the study course of business ethics. limitations of the research the fact that only those students who were enrolled in course of business ethics and had participated in class discussions on the subject were surveyed set some limitations issn 1822–8402 european integration studies. 2014. no. 8 166 for the research; namely, they probably had some prior theoretical knowledge and emotional disposition to one or another question. perhaps the distribution of answers would be different if students without any knowledge about ethical leadership would be questioned as well. we can mention another factor that possibly influenced results – the previous job experience as a manager or as an employee, or the lack of it at all. moreover, some of the students were small business owners, but the questionnaire was not discriminatory (i.e., it didn’t contain questions about students’ employment), as the result we obtained only general results. without any doubt, those having had worked in some position would have a different perspective in comparison to those fresh out of school. despite these limitations, we nevertheless believe that our research was representative (all respondents were first or second year business students) and it has exposed some prevailing tendencies that should be taken into account and thought of when developing the future curriculum for business studies. conclusions our research was grounded in two theoretical models: the one of the social learning perspective of ethical leadership developed by m. e. brown, l.k. trevino and d. a. harrison; and the one of the power/interaction model of interpersonal influence conceived by j. r. p. french and b. h. raven. in our opinion, the combination of those made it possible to create the research design for the investigation of the students’ perception of the ethical aspects of leadership. this matter is of the special importance as these students are our future leaders; therefore, their concern for the morality of their actions is the basis of the sustainable business development. of course, not all of them will be our future ceos or business managers, but the knowledge of the leadership ethics would be beneficial for any carrier in business. none of the described leadership modes (i.e., based on the reward, the coercive, the legitimate, the expert and the referential power) is a priori ethical or unethical, each of them presupposes some level of influencing others. still, the so-called “hard” powers are more apt to ethical transgressions in comparison with the “soft” ones. the students should recognize the pluses and minuses, ethical risks of each of the power modes. the survey results prove that the students questioned have more positive attitude towards the expert, the referent and the legitimate powers, the ones that are being recognized as elements of the transformational leadership. one of the reasons for such orientation is the fact that all participants of the survey had previously participated in the classroom discussions and case study analyses during the lectures on business ethics. this outcome proves that the discussions, as well as readings of the theoretical literature and the research articles can influence the students’ opinion about the leadership ethics and can form their moral stance regarding certain business issues. at the same time we can speak of the limitations of the current research since all students were informed about the basic ethical concepts and dilemmas. perhaps, the result would be different if the respondents had been chosen from the student groups not learning business ethics. the second aspect to be considered here: the respondents had different professional backgrounds – some of them were fresh out of the high school and didn’t have any working experience, while others had worked or even owned the small businesses. still, we believe that this survey exposed the general tendencies in students’ perception of the modes of exercising ethical influence in business organizations. thus we can conclude that the curriculum of business ethics should include the aspects of the ethical leadership, as 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the impact of leadership styles on ethical behavior. journal of academic research in economics, 5(1), pp. 60–85. walumbwa, f. o., avolio, b. j., gardner, w. l., wernsing, t. s., peterson, s. j., 2008. authentic leadership: development and validation of a theory-based measure. journal of management, 35, pp. 89–126. yukl, g., 2008. leadership in organizations, pearson education. yukl, g., 2009. power and the interpersonal influence of leaders. power and interdependence in organizations, cambridge university press, pp. 207–21. http://dx.doi. org/10.1017/cbo9780511626562.014 zaccaro, s. j., gulick, l.m., khare, v. p., 2008. personality and leadership. leadership at the crossroads, praeger publishers, pp. 13–29. the article has been reviewed. received in april, 2014; accepted in june, 2014. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 26 european integration studies no. 14 / 2020, pp. 26-38 doi.org/10.5755/j01.eis.1.14.26774 abstract exploring tendencies in migrants’ legal consciousness research and uncovering factors for socio-legal integration http://dx.doi.org/10.5755/j01.eis.1.14.26774 the current state of scientific discourse on legal consciousness occurs within a range of topics of enquiry. in this scope of research, a trendline of publications emerged which employs a narrower focus on the aspects of migrants‘ legal consciousness. as there were no systematic research aspirations in this particular field, this research explores the current scientific discourse, addresses factors for sociolegal integration and uncovers further paths for scientific enquiry as well. the following investigation adopts a method of systematic literature review which covers the time frame of research of three decades since 1990 and introduces the main tendencies in scientific research on migrants’ legal consciousness. it addresses their geographical spectrum and particular reasoning that leads to scientific research. the other task was set to highlight the main factors which were identified to be affecting migrant’s legal consciousness and socio-legal integration as equally. the results of the investigation revealed a relatively small, but growing body of literature exploring migrants’ legal consciousness with a considerably narrow geographical division of the research, concentrating mainly to one continent, and with a dominant focus to national (versus comparative) context. therefore the current field of scientific literature on migrants’ legal consciousness could benefit from the dissemination of investigations in the varied cultural environments and legal systems, as well as launching comparative studies while addressing a varying legal status. this research indicates a range of factors which plays a role in shaping migrants‘ consciousness, though few of them come into frontline while referring different migrants’ legal status. these include, but are not limited to the list, covering legal framework and social norms or ideals of the host country, as well as the encounter with the institutional sector and cultural heritage. keywords: legal consciousness, migration, integration, legal culture. the scope of legal consciousness’ research ramunė miežanskienė kaunas university of technology the trendline in socio-legal studies has been marked by a profound and constantly evolving body of literature which is featured by a variety of theoretical and empirical frameworks (creutzfeldt et al., 2019). while navigating in this field, comprehensive scholars‘ attention was dedicated to individuals‘ relationship with law and the studies of the considerably flexible paradigm of legal consciousness (l.j. chua & engel, 2019). alongside the response to migration-related challenges in society, the attention to migrant‘s legal consciousness research had been also a part of this field of interest. in a broader context, addressing migrant‘s relation to the host country‘s legalities means addressing migrant‘s integration process in a certain angle (leisy j. abrego & lakhani, 2015; agnieszka kubal, 2009; waldrauch & hofinger, 1997) which in turn serves in providing insights how to mitigate very often challenging migrant‘s transition to a new socio-legal environment. the current state of scientific discourse on legal consciousness occurs in different topics, ranging from but not limited to individual‘s relation with justice system‘ institutions as courts or police submitted 06/2020 accepted for publication 08/2020 exploring tendencies in migrants’ legal consciousness research and uncovering factors for socio-legal integration eis 14/2020 http://doi.org/10.5755/j01.eis.0.13.23562 27 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 (farmer et al., 2015; feng & he, 2018; khorakiwala, 2018; klambauer, 2018; pennington, 2015; tarasov, 2015), exploited in the employment relationship (blackstone et al., 2009; casebeer, 2008; kirk et al., 2017; marshall, 2005), dedicated to family life-related aspects (de hart & besselsen, 2020; liu, 2018; wang, 2019) or education (egorov & umnyashova, 2017; huang, 2016; ma, 2018). the field of research in legal consciousness has also been well theoretically and methodologically grounded by profound scholars as leisy j. abrego, simon halliday, lynette j. chua, david m. engel, marc hertogh and others who have represented narratives and theories ranging from north america to europe. if to address the last decades of the research field in legal consciousness, there could be noticed a sprung of the diversity of investigations. a considerably large number of research aspirations come in line with a narrower focus to the particular aspects of legal consciousness referring to gender (bendall & harding, 2018; digregorio, 2016; park et al., 2016), religion (arsenovich et al., 2019; barak-corren, 2017), migration or minority aspects (s. gleeson, 2010; graca, 2018; ho & chua, 2016). the branching of the research area has also led to more elaborate reviews regards the researches on legal consciousness. therefore, after more than a decade after the introduction of the concept of legal consciousness to the migration research field, there comes a need to overview the scientific input and to consider what the following applications or the prospects of this line of research could be. following this, this paper aims to explore and introduce the scope and tendencies in research dedicated to migrant’s legal consciousness while using a systematic literature review. the primary need for systematic literature review lies in the demand for more elaboration and distinctiveness in scientific discussion, considering the major trends underlying in this field of research. as it is already mentioned, it also contributes to following up and highlighting the trendline of research over a longer period in scientific discourse in the larger spectrum of legal consciousness research. therefore, this paper is targeting to introduce and fill the gap in legal consciousness researches as there was no particular scientific aspiration to present the topic using a method of systematic literature review. in this way, the following research will present a constituent step forward in scientific knowledge in this sub-field of legal consciousness research. the main tasks of the investigation were set to: 1 introduce the tendencies of scientific research, dedicated to exploring migrants’ legal consciousness in the time frame of three decades (1990 – 2020); 2 explore the spectrum of migrant’s legal consciousness research referring to the range of geographical research distribution and concentration; 3 present the main consolidated factors which were identified to be affecting migrants’ legal consciousness. the beforementioned tasks were addressed by comprising two sets of publications whereas the detailed procedure of selection is explained further on in the methodology paragraph. methodology while seeking to address the topic comprehensively the research employed a systemic literature review method to identify a set of relevant publications for further exploration. the particular method was chosen as a suitable framework which allows gathering information in a structured way to present research of particular interest. the selection procedure for the publications was conducted in three stages: 1) identification, 2) selection and exclusion of records, and 3) assessment for eligibility and conclusion of two samples for further investigation of publications. while seeking to identify the scope of literature, which was dedicated to legal consciousness, the initial search has addressed three of the world’s leading search engines with a vast coverage of e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 28 _ clarivate analytics n=540 records _ scopus n=318 records _ ebscohost n=878 records _ total sum of records n=1736 _ set of records, after removal of dublicates n=932 _ first sample of records n=34 _ second sample of records n=25 identification selection and exclusion assesment for eligibility, inclusion/ exclusion a s s e s m e n t for eligibility, i n c l u s i o n / exclusion figure 1 selection procedure for the publications to be reviewed (produced by the author, 2020) social science research: clarivate analytics, scopus and ebscohost. the chosen databases encompass a wide range of disciplines, topics and thematical range for socio-legal studies as well. the following systematic review has addressed publications within a time frame from january of 1990 to april of 2020 which covers a time range of three decades. the search was conducted using keywords „legal consciousness“ to directly address the theoretical framework of legal consciousness as it is covering individual‘s relation to law, and do not diverge the search to addressing the spheres of legal culture or legal systems. to obtain a comprehensive search of scientific literature the key-term was not narrowed to the search only in publications‘ titles, but also included the content of abstracts and key wors of scientific production in the following type of sources: academic articles, books, conference materials and dissertations. the broadened range of search allowed to identify studies, where the theory of legal consciousness was not used as the leading one, but the research object addressed the conceptual frame of „legal consciousness“, for example, race or gender theories. the data gathering has been conducted in april and may of 2020, which resulted in the identification of 1736 records (initial stage). at the second stage, the duplicates were removed and the number of 932 publications for the review was identified. though in the second stage the content of the publications was not challenged by questioning whether the articles were investigating legal consciousness as a primary research aim or just as a part of the context. this was done in the third stage, where publications were coded using the software package for qualitative and mixed methods research -“maxqda“. at this stage, publications were coded according to the main inclusion/exclusion criteria whether publication addressed the topic of migrant’s legal consciousness. during the selection and exclusion stage, there was also a standard form used to code publications with the following codes while identifying: a) the general characteristics of the publication (authors’ identity, year and type of the publication (b) characteristics of research (methods for data collection and their combinations, geographical region that study has covered). for the analytical purposes that would correspond to the tasks, two sets of samples were designed. the first two tasks that aim at introducing the spectrum and tendencies of research the sample no. 1 consisted of 34 publications. for deeper analysis which is required for the third task to be completed, the second sample was developed in accordance to these inclusion/exclusion criteria: a) the possibility to access the full version of publication; b) the paper presented and elaborated data of original research; c) empirical investigation was conducted and introduced to scientific discourse. after this procedure, the second sample encompassed 25 articles. the key results of the conducted research revealed that more than half of publications addressing migrants’ legal consciousness originates from one continent and nearly all of them were dedicated to explore national contexts. a considerably narrow geographical division of publications implicates http://apps.webofknowledge.com/home.do?sid=e2r4hmhb4gzilj4t7fa 29 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 a gap and a possibility of scientific aspirations on migrant’s legal consciousness in other cultural settings as well as the possibility for comparative research. the current main body of literature is concentrated on a set of few countries and narratives where the interest of researching particular migrant groups (as undocumented migrants) prevails. therefore the current scope of research of scientific literature on migrants’ legal consciousness could benefit from the dissemination of investigations in the varied cultural environments and legal systems, also gain from the inclusion of migrants’ with varying legal status, as well as launching comparative studies. while exploring the main factors which informs legal consciousness and in this way produces input to socio-legal integration this research found that migrant’s legal status gave rise to put different aspects into the spotlight. in a case of undocumented migrants’ situation, the prevailing factor which informs and obtains a power to shift legal consciousness was situated in the legal framework of the host country as well as particular social norms and ideals of the host country too (to be precise meritocracy in the usa). if to refer to the factors shaping detained and asylum seekers’ legal consciousness, the encounter with an institutional sector and immigration officials was introduced to be the main driver. the field of cultural heritage and disadvantageous positions in certain structures (a case of employment) was indicated to be one of the leading factors to impact to documented migrants’ legal consciousness. though it also has to be taken to the account that the limitations of this research provide insights but do not allow to generalize these findings, because of a lack of broader scope of research in varying cultural surroundings. tendencies and features of research on migrants’ legal consciousness during recent decades, socio-legal studies have attracted scholars’ attention which had its impact on the research of legal consciousness as well. the review of academic publications since 1990 (932 in total up to april of 2020) indicate a high number of studies, adopting the concept of legal consciousness which has been increasing since 2001 and shows an acceleration from 2015 to 2018 (see: figure 1.). there could be also noticed that these studies have drawn more of scholars’ attention around the same time as the topic of migrants’ legal consciousness has launched. in general, the spectrum of publications on migrant’s legal consciousness has been covered from 2004 (see. figure 2.). figure 2 a trend of publications, adopting a concept of legal consciousness and addressing migrant’s legal consciousness (produced by the author, 2020) while accurately addressing these numbers there should be also noticed, that the overall interest in the topic of migrants‘ relation to the host countries‘ law could not be generalized by the frequency of research only looking through the lens of the concept of migrants‘ legal consciousness. due to the usage of different concepts and variety of interest in the field, there are other studies which methodologically might be leading to a different platform of scientific interest while exploring migrants relation to host country‘s legalities, legal system or institutions. in these cases the scientific enquiry or insights might be overlapping, but not the theoretical approach. while addressing literature on e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 30 undocumented migrants‘ situation emily ryo has identified at least two bodies of research that examine legal consciousness: one is focusing on how individuals understand their illegality and the impact of those understandings on their identity formation, legal mobilization, and integration. the second body of research „focuses more directly on evaluative judgements that immigrants make about the law and legal authority, intending to understand the nature and determinants of those attitudes, and their effects on cooperation or compliance with legal authority“ (ryo, 2017, p. 107). therefore, migrants‘ relation to the host countries‘ law (in a broad sense) might be reflected using other concepts as „legal attitudes“, „crimmigration“, „rights consciousness“ which presents a related, but also a different angle of view. considering given, this research is focusing on the conceptual framework of legal consciousness mainly because of a grounding reason the methodological framework of legal consciousness. it (mostly) covers not a particular, but a complexity of lear of phenomena which in turn produces a comprehensive scientific approach. as j. chua and david m. engel notice, „legal consciousness does not simply refer to legal awareness, nor is it meant to measure knowledge—or ignorance—of the law“ it is the ways in which people experience, understand, and act in relation to law (l.j. chua & engel, 2019, p. 336). on the other hand, scholars admit, that the field of legal consciousness literature is not considered to be monolithic as well. while addressing the scope of legal consciousness studies the same lynette j. chua and david m. engel research reveals that there is no unanimous theoretical approach of the application of legal consciousness theory. their exploration results in naming three different schools „identity, hegemony, and mobilization“ where researchers admitted to pursue different goals and deploy the concept of legal consciousness in different ways. nonetheless, the theoretical framework of legal consciousness stands on a common ground of subjectivity as individuals‘ understandings, interpretations and responses (lynette j. chua & engel, 2019). this, in turn, provides a substantial background and presumable methodology for further exploration. if to address the main features of scientific discourse on migrant’s legal consciousness, it might raise a few considerations about their locality and concentration. while investigating those publications which explores migrant’s legal consciousness at a closer range (sample no. 1), we find a great part of them concentrated on a national level (94 %) and stemming mainly from one continent – north america (61.76 %) (see figure no 3 and 4). figure 3 geographical distribution of publications dedicated to migrant’s legal consciousness (produced by the author, 2020) while scholars’ provide grounding for research, there could be identified at least two types of rationale in the background in terms of research locality. one of them would constitute a need to address a certain (in this case marginalizing) aspect of social life – challenges related to migrants’ situation as restrictive policies that placed irregular migrants in precarious situations (tungohan, 2018) or challenges associated with low-wage work and the particular vulnerability of immigrant workers (s. gleeson, 2010). the second aspiration for research would constitute the theoretical 31 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 aspirations which focus on scientific enquiries. why migrants act, how they act and why they do, what they do? this corresponds to a more than one school of legal consciousness that framed as „identity, hegemony, and mobilization“. for example, l. albrego reveals aspects of new rights-granting law immigrants’ claims-making behaviour while addressing social construction of first and 1.5 generation undocumented immigrants (leisy abrego, 2008; leisy j. abrego, 2011). we might also find the question how (and why not) migrants mofigure 4 levels of geographical research inquiry addressing migrant’s legal consciousness (produced by the author, 2020) bilize law. this is portrayed in the research of x. he, l. wang and y. su by addressing the question of why migrant workers choose disruptive actions over legal ones (xin he et al., 2013). the before mentioned concentration of studies on migrant’s legal consciousness could be partially explained by overviewing the location of main diasporas of migrants around the world as this could to some extent indicate the emergence of the topic. the world migration report 2020 provides a list of twenty countries, hosting the largest numbers of international migrants (see figure 5) throughout the three decades (the same time frame as this research is addressing). there could be indicated that 34 publications that focus on migrant‘s legal consciousness fall into the list of just nine countries: usa, canada, united kingdom, china, myanmar, germany, south africa, ukraine, south corea (see figure no. 5) there are only two which are relatively small in number in terms of publications and were not indicated to be in the list (hosting the largest numbers of international migrants in the united nations‘ list). these are south corea and myanmar. as the number of migrants in the host country seems to be explaining the scientific interest in their relation to welcoming country’s legal system, but it does not explain extremely low levels of scientific interest in other countries which also welcomes a large number of migrants (russia, india, saudi arabia etc.). in this case, the scholarly interest could be partially affected by the general trendline of the migrants' related state policy in the welcoming country. figure 5 twenty countries or areas hosting the largest numbers of international migrants (millions) united nations department of economic and social affairs, 2020 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 32 if to go further in asking what would be scientific aspirations for migrant‘s legal consciousness research, we would find questioning what triggers the rise of this particular theoretical approach? if to assume that the problem in society has given rise to the topic, it barely explains the current locality of migrants legal consciousness research coverage. for example, both of the continents of europe and north america have experienced challenges related to migration. though they were vastly introduced to the european society’s debate since 2014 (berry et al., 2015), it did not result in the trend of research, dedicated to migrant’s legal consciousness in europe (figure 3). as there could be noticed once again, a considerable part of research on migrants’ legal consciousness is allocated in north america (see. figure 3). an enquiry comes into forth whether this is an influence of a profound theoretical school which is set up regionally, and/ or theory applicability related to the conceptual socio-legal framework deriving from differences of legal systems or generally legal culture. this question provides an additional stimulus for further scientific investigations. the considerably narrow geographical division of the research production might implicate few assumptions: firstly, the indication, on one prevailing theory and methodology as well as a circle of leading scholars (further addressed in the next section) in this spectrum of research. secondly, the gap of scientific knowledge about migrant’s experiences in other countries and cultural settings that have not been addressed yet. addressing features of migrants’ legal consciousness and factors which informs it by following the general overview of empirical investigations which address migrant’s legal consciousness, we would find them conducted and spread throughout just more than a decade (since 2005). while trying to fulfil the third task of this research, the attention will be paid to the main features of legal consciousness and factors which informs it. in this section, the results of original empirical research from 25 publications will be examined (see the second sample table 1 and 2). to be precise regards scientific insights on migrants‘ legal consciousness it is important to address the legal status of the target group of migrants/interviewees and respondents, which have participated in particular empirical researches. as is discussed before, the immigration status is considered to play a major role in affecting migrant‘s legal consciousness. for example, s. gleeson highlights that immigration status might be affecting the legal consciousness of immigrant workers in their approach to claims-making (shannon gleeson, 2010, p. 563). the second sample has addressed a range of legal statuses of migrants‘ in welcoming society: official residents employees, undocumented migrants, asylum seekers, detainees or even re-emigrants. therefore, beforementioned variety implicates a visible diversity in the scope of the results of research. there should be mentioned that more than 2/3 of research in a sample had been addressing undocumented/irregular status of migrants‘ and, like in a previous sample (no.1), the continent of north america dominates by investigating a particular cultural and sociolegal context of two countries (the usa and canada). the leading scholar's role in this set of research is performed by l. j. abrego encompassing investigations focused on the topic of undocumented migrants (deferred action for childhood arrivals (daca) recipients and their families‘ situation (abrego, 2008, 2011, 2018, 2019). the same context was also explored by other empirical research in the sample (farrell-bryan, 2016; swan & clark-ibáñez, 2017). a relatively small number of investigators indicates about strong leadership in the particular trendline of research focused on undocumented migrants. far less attention was dedicated to the exploration of regular migrants‘ legal consciousness and factors which informs it. considering the latter segment, there is no particular country of dominance or leading scholars role. 33 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 no. author(s) year title of the publication 1. l. j. abrego 2008 legitimacy, social identity, and the mobilization of law: the effects of assembly bill 540 on undocumented students in california 2. l. j. abrego 2011 legal consciousness of undocumented latinos: fear and stigma as barriers to claims-making for firstand 1.5-generation immigrants 3. l. j. abrego 2018 renewed optimism and spatial mobility: legal consciousness of latino deferred action for childhood arrivals recipients and their families in los angeles 4. l. j. abrego 2019 relational legal consciousness of u.s. citizenship: privilege, responsibility, guilt, and love in latino mixed-status families. law and society review 5. k. m. casebeer 2008 of service workers, contracting out, joint employment, legal consciousness, and the university of miami 6. t. docarmo, r. rosales 2019 legal consciousness among asylum seeking immigrants in the us: from expectations of fairness to increasing legal cynicism 7. d. farrell-bryan 2016 immigrant youth, social identity, instability: legal consciousness and the effects of deferred action for childhood arrivals 8. a. garcía 2016 local laws and undocumented mexicans’ political engagement: why immigrant destinations matter 9. s. gleeson 2010 labor rights for all? the role of undocumented immigrant status for worker claims making 10. l. macia. 2016 experiences of discrimination in an emerging latina/o community 11. c. menjívar 2011 the power of the law: central americans’ legality and everyday life in phoenix, arizona 12. s. m. muñoz 2016 undocumented and unafraid: understanding the disclosure management process for undocumented college students and graduates 13. s. m. muñoz 2018 unpacking legality through la facultad and cultural citizenship: critical and legal consciousness formation for politicized latinx undocumented youth activists 14. c. e. santos, c. menjívar, r. a. vandaalen, o. kornienko, k. a. updegraff, s. cruz 2018 awareness of arizona’s immigration law sb1070 predicts classroom behavioural problems among latino youths during early adolescence 15. a.a. smith 2005 legal consciousness and resistance in caribbean seasonal agricultural workers* 16. r. s. swan, m. clark-ibáñez 2017 perceptions of shifting legal ground: daca and the legal consciousness of undocumented students and graduate 17. e. tungohan 2018 living with compromised legal status: irregular temporary foreign workers in alberta and the importance of imagining, strategizing, and inter-provincial legal consciousness* 18. p. k. virdi. 2013 barriers to canadian justice: immigrant sikh women and izzat* table 1 publications representing the context of north america (usa and canada*)/comprising the second sample source: produced by the author, 2020 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 34 while trying to answer the question what are the main factors informing migrant’s legal consciousness and what features of legal consciousness it might bring forward the researchers addressed a broad contextual framework, ranging from evaluating cultural background (p.k. virdi, 2013), restrictive policies and legal framework (a.a. smith, 2005; tungohan, 2018), societal views (swan & clark-ibáñez, 2017), institutional interaction (docarmo & rosales, 2019) and welcoming countries‘ social norms and ideals (l. abrego, 2008; farrell-bryan, 2016). though applying a lense of migrants‘ legal status, few factors come into the front line. research exploring the legal consciousness of undocumented migrants reveals that the role of the legal framework of a welcoming country is of primary importance. while exploring legal consciousness of migrant youth in usa richelle s. swan and m. clark-ibáñez notices that after initiation of the deferred status policy for childhood arrivals, which have granted at least a temporary, but legal status of residency, „perceptions of the legal system, its various symbols, and its actors changed significantly“(swan & clark-ibáñez, 2017, p. 82). l. albrego research also confirms the power to shift legal status by the mean of the legal framework. it is revealed that through particular legal regulation migrant students were able to reposition themselves and „shift legal consciousness from being against the law to being with the law—able to mobilize the law by using it as a resource in their favor“ (leisy abrego, 2008, p. 729). even more, while exploring how youth make sense of laws and how laws affect their socio-emotional development e. santos notices, that awareness itself about strict immigration laws “can impact their educational and psychological prospects, and even their friendships and relationships”(santos et al., 2018, p. 1673). a verifying assumption comes from s. a. garcía‘s research which reveals that the design of local immigration laws profoundly shapes the nature of democratic participation for marginalized immigrant groups (garcía, 2016). though e. tungohan in his investigation on irregular migrants‘ situation argues, that the presence of restrictive policies that place irregular migrants in precarious situations do not create a uniformly chilling effect on their actions and their life choices (tungohan, 2018, p. 207). if to address the features, of undocumented migrant’s legal consciousness d. farrell-bryan mentions the aspect of meritocracy which comes into forth no. author(s) year title of the publication 19. s. graca 2018 portuguese culture and legal consciousness: a discussion of immigrant women’s perceptions of and reactions to domestic violence 20. x. wang he, l.y. su 2013 above the roof, beneath the law: perceived justice behind disruptive tactics of migrant wage claimants in china 21. e. l. e. ho, l.j. chua 2016 law and ‘race’ in the citizenship spaces of myanmar: spatial strategies and the political subjectivity of the burmese chinese 22. a. kubal 2015 legal consciousness as a form of social remittance? studying return migrants’ everyday practices of legality in ukraine 23. t. masiangoako 2018 rationalising injustice 24 h. schwenken 2013 “the eu should talk to germany” transnational legal consciousness as a rights claiming tool among undocumented migrants 25. s. singer 2019 “desert island” detention: detainees’ understandings of “law” in the uk’s immigration detention system source: produced by the author, 2020 table 2 publications representing the context of countries from africa, europe and asia / comprising the second sample 35 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 (a meritocratic legal consciousness by which migrants must prove their deservingness) which was also identified by l. albrego (leisy abrego, 2008; farrell-bryan, 2016). finally, e. tungohan notices a „developing inter-provincial legal consciousness requiring migrants to actively develop an awareness of legal norms claim rights for themselves“ (tungohan, 2018, p. 208). the examination on what might be the key factors that affect detainees and asylum seekers‘ legal consciousness brings into spotlight the initial encounter with institutions of a welcoming country. the might be portrayed as a part of an „inaccessible system“ (singer, 2019) or having a credit of respect witch tend to shift to cynicism throughout the detention process (docarmo & rosales, 2019). while approaching detainees situation s. singer finds differing modes of legal consciousness featuring law as an oppositional force to be battled against or avoided, but also a system of rules which can be manipulated with the requisite access to knowledge and resources (singer, 2019, p. 28). researchers dedicating their attention to migrants, having the legal residency (or navigating in between) in the host country where focusing to employment (casebeer, 2008; x. he et al., 2013; adrian a. smith, 2005; tungohan, 2018), violence against women (graca, 2018; preet kaur virdi, 2013) or migrants‘ social remittance (a. kubal, 2015). a. a. smith pays attention to the relationship between legal knowledge and the successful assertion of legal rights, which might be complicated by an individual's understanding of law's utility (a.a. smith, 2005, p. 105). x. wang he, l.y. su indicates that migrant workers’ perception of justice is shaped by their disadvantaged status as well as political and business elite (xin he et al., 2013). e. l. e. ho and l.j. chua investigate people’s negotiations with the law in political-legal regimes that do not subscribe to liberal democratic norms. their research explores how burmese chinese deploy to navigate oppressive laws and in this particular context legal consciousness is characterized by vulnerability under the rule of an ethnocratic state (ho & chua, 2016). the role of cultural capital is also highly important in migrants’ legal consciousness research as well and is stated to be one of the factors to inform it (p.k. virdi, 2013). while overviewing the results of the empirical research we find a range of factors which play a role in shaping and shifting migrants’ legal consciousness. as it is noticed that different factors come into the spotlight while referring to the legal status of newcomers in a host country, it might imply a differentiation of interaction with a host country’ law. in simple terms – addressing the legal framework it provides to migrants and setting up different measures to mitigate the challenges in relation to the host countries law accordingly. conclusion 1 the investigation on the tendencies on migrants’ legal consciousness research reveals a considerably narrow geographical division and contextual locality of publications. more than half of them originates from one continent (north america) and nearly all are dedicated to explore and refer to national contexts. a considerably narrow geographical division of publications implicates a gap and a possibility at the same time for further scientific enquiry on migrant’s legal consciousness. the researchers’ aspirations could lead to other cultural settings providing insights for the comparative approach on migrants’ legal consciousness as well as provide additional knowledge about migrants’ socio-legal integration processes. 2 there could be noticed a range of main factors which were indicated to inform migrants’ legal consciousness in terms of the context of their legal status. in the case of undocumented migrants’ situation, the prevailing factor which informs and obtains a power to shift legal consciousness was observed to be the legal framework of the host country alongside with restrictive immigration measures. the other, but nevertheless important aspect considered to be the particular social norms and ideals of the host country. while referring to the factors playing a role in shaping detained and asylum seekers’ legal consciousness, the encounter e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 36 with an institutional sector and immigration officials were introduced to be as the leading drivers to affect legal consciousness, including their power to participate as a push factor for changes towards legal cynicism. the aspect of cultural heritage and disadvantageous positions in particular employment structures were indicated to be those highlighted factors that were addressed by scholars and identified to play a role while investigating documented migrants’ legal consciousness. references abrego, l. 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(2019). justice, emotion, and belonging: legal consciousness in a taiwanese family conflict. law and society review, 53(3), 764-790. https://doi. org/10.1111/lasr.12422 about the author miežanskienė ramunė phd student kaunas university of technology fields of interests migration, legal consciousness, legal socialization. address a. mickevičiaus g. 37, lt-44244, kaunas, lithuania, phone: +37067549775 e-mail: ramune.miezanskiene@ktu.lt this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 138 european integration studies no. 15 / 2021, pp. 138-159 doi.org/10.5755/j01.eis.1.15.29062 abstract strengthening lithuanianlatvian cross-border cooperation in the context of international trade http://dx.doi.org/10.5755/j01.eis.1.15.29062 the article analyses the strengthening of the competitiveness of countries based on crossborder cooperation through the prism of international trade indicators. due to the increase in international competition, countries, especially small economies, are finding it increasingly difficult to maintain their position in the global market and remain competitive if this position is pursued individually. it is therefore necessary to review competition strategies and reassess opportunities and competitive advantages, as well as to promote coopetition between border region companies at institutional level. the article presents a new approach to regional competitiveness, which is achieved not through the development of the competitive advantages of the regions of individual countries, but through their cooperation and thus achieving common benefits. this is particularly relevant for border regions, as their uniqueness allows them to exploit cross-border region cooperation, which can generate added value by utilising the potential of cooperating regions to complement each other and become a competitive hub for economic growth. only a strategic partnership based on regional cooperation will promote cooperation between manufacturers in different regions and ensure the achievement of co-creation and international development goals. the article analyses the case of lithuania and latvia as an example of cross-border cooperation, as internationally these countries are often matched and treated as one region, but in fact they compete fiercely with each other for better positions in foreign markets. this also shows that lithuania’s and latvia’s foreign trade with the european union (hereinafter the eu) accounted for the largest share of their foreign trade. secondary statistical data of the eu-28 eurostat of 2010 2019 and finger kreinin, rca, and lafay indices were used for the study. after assessing the convergence of the lithuanian and latvian export structure according to the fki index during the study and finding that the export structure of these countries is very similar, the relative comparative advantage of exports by individual product sectors was assessed on the basis of the rca index and the comparative advantage on the basis of the lafay index. the study showed that both countries had comparative advantages in the same product groups. the identification of common points of contact has highlighted economic activities, the development of which could be given more attention through the cooperation between the countries, and which would ensure overall economic benefits. the article concludes with strategic recommendations and measures to promote cross-border cooperation and increase the region’s competitiveness. submitted 01/2021 accepted for publication 06/2021 strengthening lithuanian-latvian cross-border cooperation in the context of international trade eis 15/2021 ineta zykienė kaunas university of technology rūta laučienė klaipeda state university of applied sciences rasa daugėlienė kaunas university of technology aistė leskauskienė kaunas university of technology 139 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 the article contributes to the regional economic subject literature, as the concept of cross-border region competitiveness is developed by promoting not the competition of individual regions, but their cooperation by discovering common similarities in economic development. the article presents methodological logic and empirical calculations that would allow policy makers to develop cooperation strategies with those border regions with which it is expedient to cooperate for greater economic benefits. promoting regional development and reducing regional disparities not only between regions within the same country but also between different countries requires the patient and consistent work of governments, businesses and academia, as well as individual communities, to develop measures and initiatives to promote cross-border cooperation. keywords: competitive advantage, regional cooperation, coopetition, finger kreinin index, rca index, lafay index. states in the modern world are participants in the global economy, so it would be difficult to find a state that is completely unrelated to the world economy. the involvement of countries in the political, economic and social life of the world requires the constant search for solutions to promote the growth of countries while ensuring the well-being of the population. on the one hand, countries may try to distance themselves from the influence of other states, but in that case, the consequences can be painful or even catastrophic. on the other hand, the countries can cooperate, look for common points of contact and, using each other’s advantages, solve current problems and common challenges. the implementation of eu cohesion policy aims to promote balanced and sustainable territorial development and reduce disparities between individual eu regions. one part of the eu cohesion policy process is cross-border cooperation (hereinafter cbc) program to promote export development. this cbc program promotes cross-border cooperation by contributing to the growth of regions of the countries and improvement of the quality of life through cross-border co-operation (european commission, 2012, 2017). studies analysing regionalisation issues (bruneckienė and palekienė, 2012; norvaišienė and lakštutienė, 2012) highlights the specifics of border regions and widely emphasizes cross-border cooperation between countries and proposes to strengthen it through joint activities, information, business and population involvement, and joint project development. research analyzing the economic issues of international development also emphasizes the strengthening of cross-border cooperation, as only the principle of competitive cooperation addresses pragmatic issues related to cross-border cooperation, such as selection of a partner country, solution of common challenges, experience exchange, and obtaining of necessary resources (makkonen, williams, weidenfeld, & kaisto, 2018). the subject literature identifies coopetition as one of the forms of national or international cooperation where competition and cooperation between two or more stakeholders take place at the same time (cho, moon, yin, 2016; luo, 2007; grauslund and hammershøy, 2021). in this case, the companies, by cooperating with each other and sharing resources, commit themselves to common goals in certain areas (to merge), while in other areas they may compete intensively. coopetition, helps both sides improve internal skills and technology while protecting their competitive advantage by reducing costs, risks and uncertainties associated with innovation. this principle of cooperation is also applicable at the regional level, when regions develop relations based on mutual cooperation in order to strengthen each other and thus gain an advantage internationally (pietrewicz, 2020). scientific works are usually based on subject literature, expert insights, case studies, conducting formal surveys, informal interviews with relevant specialists, and interested parties in order to find out and present proposals for closer, more effective cooperation between the parties. in order to strengthen economic cooperation between the countries, this article proposes to identify common points of contact in international trade by analysing foreign trade indicators in order to introduction e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 140 take targeted measures to strengthen these areas and to form a competitive strategy. thanks to the analysis of foreign trade indicators, it is possible to properly and objectively assess the position of a certain country at the international level and their competitive advantages. lithuania and latvia were chosen for the analysis, as they are linked by a common history, similar experience, and geographical proximity. also, while on the one hand, lithuania and latvia are two different countries competing with each other for a better position in foreign markets, for higher investments, on the other hand, these countries are viewed as one region internationally. in the last period of 2010-2020 the economies of lithuania and latvia developed unevenly. the influence of external forces, such as the global financial crisis and the coronavirus pandemic, played a significant role in this. at the beginning of the period under review, the threat of their bankruptcy was even discussed in the wake of the severe downturns in both countries. in the current period of coronavirus pandemic, it is crucial to maintain or even strengthen foreign trade, as it is important to maintain the availability of goods when countries restrict the movement of people. as foreign trade has a significant impact on both the lithuanian and latvian economies, and these countries internationally are considered as one region, it is necessary to determine the extent to which lithuanian and latvian export structures were similar and in which sectors the countries had a comparative advantage in trade with the eu. the foreign trade of lithuania and latvia with the eu was chosen due to the fact that according to the data provided by eurostat, during the period of 2010-2019, foreign trade with the eu country accounted for the largest portion of international trade. study problems: many researchers studying international economic, political and social processes emphasize cross-border cooperation between countries and suggest strengthening it through joint activities, but the inclusion of economic analyses would help identify targeted economic activities that need to be promoted. the identification of joint economic activities in which countries have a competitive advantage over other countries can strengthen cooperation between countries by promoting sustainable regional development and growth, i.e. achieve the benefits of competitiveness through cooperation. the novelty of the article is in the presentation of the concept of cross-border region competitiveness by promoting not the cooperation of individual regions, but their cooperation by discovering common similarities in economic development. the article presents methodological logic and empirical calculations that would allow policy makers to develop cooperation strategies with those border regions with which it is expedient to cooperate for greater economic benefits. analysis of cross-border region competitiveness through cross-border cooperation can be used over time and during economic challenges. to this end, the article provides recommendations for strategic cooperation and the measures needed to overcome it. the study problem is formulated by asking the following questions: whether lithuania’s and latvia’s foreign trade with other eu countries followed the same trends, and whether lithuania and latvia had a comparative advantage in foreign trade in the same product groups and what measures, aimed at the promotion of regional growth, could be taken at the institutional level to promote economic cooperation between countries. research object: competitive advantages of the lithuanian-latvian border region. the aim of the study is to assess the international competitiveness of lithuania and latvia and to identify common points of contact in international trade by strengthening cross-border economic cooperation. the objectives of the study: 1 describe the importance of cross-border cooperation, the benefits of coopetition and the concepts proposed at international level for assessing the comparative advantage of a given product or sector. 141 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 2 determine the level of similarity of the lithuanian and latvian export structure in trade with the eu. 3 determine which sectors of lithuania and latvia had a comparative advantage in trade with the eu. 4 provide strategic recommendations and measures to promote cooperation between the countries. research methods: systematic, comparative and logical analysis of subject literature based on methods of comparison, classification, systematization and generalization; secondary data analysis; calculation of rca, lafay, and finger kreinin indices. the article is prepared in the following order: first of all, the analysis of foreign literature presents the concept of cross-border cooperation for sustainable development of countries and the scientific concepts proposed to assess the comparative advantage at the international level. the second part defines the methodology of the study of the relative advantage of the analysed countries. the third part evaluates the obtained results of the comparative advantage and provides recommendations. cross-border regions have recently received increasing attention in the subject literature, and the concept of border regions is becoming significant not only at the academic but also at the political level for macroeconomic reasons (bruneckienė, palekienė, 2012; makkonen, williams, et al. 2018; norvaišienė and lakštutienė, 2012; vulevic, castanho, naranjo gomez, loures, cabezas, fernández-pozo, & martin gallardo, 2020). researchers attribute the following features to the specifics of the border region: the adjacent regions are far from the main economic centers of the countries, which does not ensure rapid economic development, they have an unattractive geodemographic situation, since the age and skills of the population are not conducive to business development, not all border regions have developed sufficient economic cooperation to benefit from cooperation networks, which is partly due to insufficient industrial development in border regions. through the implementation of regional policy the government aims to reduce disparities in economic and social development. for these reasons, it is necessary to analyse the possibilities of strengthening cross-border cooperation rather than competition in order to create more favourable conditions for investors, increase employment, generate higher added value, and accelerate the implementation of innovations (cho, moon, yin, 2016). one element of the eu policy integration process is the cross-border cooperation (hereinafter cbc) program. according to the european commission (2012, 2017), the main objectives for the development of cbc are promote the social and economic development of the border area, improve employment opportunities, provide better services (health care, education, infrastructure, etc.), and cultural dissemination. scientific insights regarding benefits of cross-border cooperation are provided in table 1. analysis of literature author impact of cross-border cooperation sohn (2014) cross-border integration results from the strategic behaviour of actors in actively mobilizing borders as resources not only in social, cultural, but also economic terms. kurowska-pysz and szczepanska-woszczyna (2017) cross-border cooperation allows organizations to achieve significant results internationally through active collaboration, leveraging each other’s strengths, available resources, and competitive advantages. daume (2018), cross-border cooperation in the regions is the solution of common problems in the border region, when the challenges and areas of development are the same in both countries and the regions compete separately in the same fields. source: author's table 1 the impact of crossborder cooperation in subject literature e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 142 close cooperation between the countries creates a network of contacts that helps companies in different countries to develop economically and enables local communities to remove cultural and social barriers and pursue common interests across borders. in border regions, cooperation rather than competition would lead to mutual benefits in terms of territorial cohesion and the promotion of cross-border development. then, working together based on the principle of cooperation rather than competition, sharing knowledge and experience, it is possible to achieve the desired goals in the international market. the subject literature distinguishes the concept of coopetition in terms of collaboration (cho, moon, yin, 2016; luo, 2007; grauslund and hammershøy, 2021) at both national and international levels. researchers refer to coopetition as one of the more complex forms of mutual relationships where there is competition and collaboration between two or more stakeholders. according to cho, et. al. (2016) small countries lack large market sizes and adequate labour, while less developed countries have uncompetitive industries, in which case only through mutual cooperation can the gaps in resource sharing be easily overcome. the authors also point out that in order to maximize profits, instead of using all the activities of the value chain in one country, companies seek to operate internationally, thus expanding the options that become the engine of cooperation between the parties. researchers (luo, 2007; grauslund and hammershøy, 2021) identify cooperation with competitors as an effective way to achieve rapid improvements in production efficiency, quality control, and product innovation in both domestic and foreign markets. it must be emphasized that coopetition combines cooperation and competition and occurs between competitors at both national and international levels. according to authors, international companies, by cooperating with each other and sharing resources, commit themselves to common goals in certain areas (to merge), while in other areas they may compete intensively. coopetition, according to authors, helps both sides improve internal skills and technology while protecting their competitive advantage by reducing costs, risks and uncertainties associated with innovation. grauslund and hammershøy (2021) agree that cooperation between competitors generates benefits for all participants in the cooperation network, e.g. improving financial results, ensuring economies of scale. this type of cooperation is not limited to the establishment of joint ventures, joint manufacturing, marketing development, but also includes joint international collective efforts, e.g. improving the industrial infrastructure of the host country, pressure of local authorities for market accessibility or fair competition, sharing global distribution channels, forming clusters for manufacturing, development or supplying resources domestically or abroad. according to luo (2007), the elements of coopetition, cooperation, and competition are dynamic and constantly changing, so not only long-term institutional planning is important, but also continuous monitoring to create an active cooperation network between entrepreneurs and regional institutions. this approach is supported by pietrewicz (2020), who identifies international cooperation as a strategic synergy involving competition, cooperation, and coordination. the latter suggests an analysis from the perspective of strategic management, as the choice of coordination mechanisms can affect the effectiveness of collaborative strategies and become a source of competitive advantage. the cross-border competitiveness of regions in the international market is the result of pooling of the strengths of the cooperating regions. danilevičienė and lukšytė (2017) describe the competitiveness of the region as its ability to achieve high productivity and ensure the comprehensive well-being of the population. according to žitkus and mickevičienė (2013), competitiveness in the modern world is becoming the dominant and even mandatory type of status of entities at all levels, including regions. according to the authors, competitiveness changes from a means of functioning to a goal of functioning, therefore it is necessary to treat competitiveness as an 143 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 aspiration for regional development. in order for small economies with a small domestic market, and scarce natural resources, to remain competitive, it is necessary to analyse the international trade trends of these countries in order to identify changes in foreign trade. the structure of foreign trade is constantly changing as the needs of human consumption change over time. for this reason, there is a need to constantly look for solutions and ways to improve trade relations. according to kogut-jaworska and ociepa-kicinska (2020), each region has specific resources that, when incorporated into global processes, become key success factors. according to the authors, given the endogenous capacity of the region, its resources, key competencies, and competitive advantages, higher growth of regional competitiveness and faster development should be ensured. regional specialization reflects the uniqueness and originality of each region, which creates preconditions for sustainable development and strengthening of cooperation. strengthening of the cross-border cooperation not only makes it possible to harmonize the development of areas in crossborder areas, but is also an appropriate means of utilising the competitive advantages of the regions. this requires identifying the similarities between the different regions and developing them together, thus gaining the overall competitive advantage of the border region in the international market. charles (2018) describes the similarity of the export structure of the two countries as the correspondence of their export structure: i.e. the export structure of one country is considered to be similar to that of the other country if the goods constituting the exports of both countries belong to identical categories of goods. the index method is the most commonly used in the subject literature to assess regional similarities in international trade operations. xu and song (2000), andreosso-o’callaghan (2008), jenkins (2008), kaitila (2010), dudzevičiūtė and tamošiūnienė (2015), wang and liu (2015), charles (2018), maryam, banday and mittal (2018), wang, et. al. (2020) used the finger kreinin index (hereinafter fki) to assess the similarity of exports between two countries or groups of countries in the context of the world market. this index was proposed by finger and kreinin in 1979. according to jenkins (2008), the calculation of the fki aims to compare only the export patterns of the studied countries, i.e. relative and not the absolute indicators are used to compare the export structures of chosen countries. assessing the similarity and trend of exports, it is possible to identify whether or not specific regions specialize in the same sectors and compete with each other. if the assessment reveals increasing competition, i.e. products and services of similar sectors are exported, then it is expedient to develop exports for both regions together and not separately, thus gaining an international advantage. according to kaitila (2010), if countries have similar export structures, the quality of their exported products can vary greatly. a more developed country is likely to have a higher level of productivity and produce better quality goods than a less developed country, so it is necessary to assess the level of international competitiveness and specialization of the country’s goods or certain sector. for that various scientific concepts are proposed. many scientific works can be found in lithuanian and foreign literature, for example, bender and li (2002), khan and batra (2005), vitunskienė and serva (2006), andreosso-o’callaghan (2008), sanidas and shin (2009), sabonienė (2011), jackman, et. al. (2011), beaudreau (2016), abbas and waheed (2017), maryam, banday, and mittal (2018), which use the concept of revealed comparative advantage when assessing a country’s export competitiveness. according to wang, et. al. (2020) one of the oldest theories of comparative advantage is that the basis of international trade is the relative difference in production costs. each country should produce and export its own comparative advantage products and import products with comparative disadvantages. comparative advantages in trade are not gained in a few days, usually comparative advantages are acquired over a long period of time. the concept of revealed comparative advantage (hereinafter rca 1 ) was proposed by balassa e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 144 (1965). the rca 1 indicator is calculated on the basis of structural indicators of international trade. table 2 provides the insights of scientists regarding the implementation of rca 1 indicator. author implementation fields of rca 1 indicator abbas and waheed (2017) analysis of the competitiveness of an industry or sector based on relative export performance. khan and batra (2005) point out key factors influencing the change of rca1: structural change, increased global demand, and trade specialization. sanidas and shin (2009) analysis of trade performance of different countries. table 2 implementation fields of rca 1 indicator source: author's according to jackman, et. al. (2011) and beaudreau (2011), currently there are two most prominent theories of comparative advantage: ricardian theory and the theory of heckscher-ohlin. ricardian theory states that a comparative advantage exists between countries due to different technologies in the industry. theory of hexer-ohlin states that the state has a comparative advantage in the production of a commodity that is relatively intensive to abundant resources. according to erokhin, the relative advantage discovered by diao and du (2020) is one of the most important parameters to determine the competitiveness of products in the global market. different rca modifications are used in the subject literature. these modifications were made in order to calculate and evaluate the data of the studied countries as accurately as possible. the article uses a modified rca 2 model proposed by vollrath (1991) to assess the country’s foreign trade. it is used because, unlike rca1, indicator rca 2 also measures imports from the country under analysis. another indicator that analyses the contribution of a particular sector to a country’s trade balance is the proposed lafay index (zaghini, 2003; sanidas and shin, 2009; blancheton and becuwe, 2018; erokhin, diao, and du, 2020). erokhin, diao, and du (2020) agree with zaghini (2003) that in order to assess the contribution of a particular sector to the trade balance, it is important to eliminate the influence of cyclical factors and one of the best methods to do so (unlike rca 1 and rca 2 ) is calculation of the lafay index. the lafay index used in order to assess the benefits of international trade for the economies of border regions, takes into account not only exports but also imports, which makes it possible to estimate flows of domestic trade and re-export. in this sense, the lafay index complements the analysis that can be provided by applying the comparative advantage measurement methods presented above. thus, after a scientific analysis of the literature, it has been found that many scientific works, analysing the strengthening of cross-border cooperation between countries to achieve sustainable development through foreign trade indicators, when examining the level of export similarity, can be found in both lithuanian and foreign literature. the index shows the competitive advantages that can be focused on and combined to provide overall benefits. it is a tool for assessing the current situation in the region and formulating a competitive strategy. the researchers are also analyse various possible scenarios to promote cross-border regional cooperation. castanho, et. al. (2016), kurowska-pysz, et. al. (2018), and vulevic, et. al. (2020), in their analysis of cbc projects, identified factors that could lead to greater economic benefits for cooperation network participants when developing cross-border cooperation on a coopetition basis (table 3). in the subject literature, the authors emphasize that the maximum benefit from cross-border cooperation is generated when the cooperation is complex and viable. for this reason, researchers 145 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 author factors affecting cooperation positively factors affecting cooperation negatively castanho, et. al. (2016) consistent cooperation strategy, setting common goals and common plans; political transparency and involvement, relations between regions; community involvement; the seeking to improve the quality of life of the population in cooperation strategies, increasing the attractiveness of the border region for living. kurowska-pysz, et. al. (2018) relevant values of partners, equal involvement of partners, clear and acceptable expectations. inadequate communication methods between partners, unequal involvement and cooperation of partners, insufficient resources and opportunities to develop crossborder cooperation, unfavourable legal regulation, unfavourable economic and social situation. vulevic, et. al. (2020) governance arrangements, administrative procedures, legislative differences (e.g. custom procedures and taxation rules). table 3 factors that promote and hinder cross-border cooperation source: author's (kurowska-pysz, et al. 2018; castanho, 2019; castanho, et. al. 2019) emphasize that international cooperation must be based on three, rather than one or two, aspects of sustainability: economic, social and environmental. comprehensive evaluation of the goal and result of the cooperation allows to involve all stakeholders (institutions, business, researchers, community, non-governmental organizations) and allows to implement cooperation strategies on the principle of co-creation. this is stated by castanho (2019), who proposes a smart cross-border planning process for the development of a cross-border cooperation strategy, i.e. focus not on a few problematic areas in the regions, but on a broader strategy that meets social, economic, and environmental needs. in order to reduce the threats posed by internal barriers, kurowska-pysz, et. al. (2018) proposes that stakeholders in the cooperating regions be provided with timely expertise and information on the conditions for cross-border cooperation, its development models, and the benefits of such cooperation. according to the authors, this will encourage the involvement of stakeholders, which will determine the viability of the cooperation network. thus, it is necessary to emphasize that the nature of cooperation between regions is changing in order to increase the well-being of the population: neither competition, nor the competitive advantages of individual countries, are important, but cooperation. through cooperation, regions have identified their strengths and weaknesses, identified areas where they have gained a competitive advantages, on which they can focus and combine to achieve shared global benefits. after systematizing the results of the subject literature, the authors propose to increase the competitiveness of border regions based on the principle of cooperation, taking into account the assessment of different indicators of international trade of regions. the article is based on the methodological scheme presented in figure 1. in order to analyse, compare and evaluate the foreign trade indicators of the studied countries for comparative advantage, it is appropriate to first determine the similarity of the export structure data and methodology e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 146 evalua�on of regional fingerkreinin index (fki). convergence of export structure detected no convergence of export structure detected no or weak compe��on between regions. regional coopera�on is not crucial. evalua�on of revealed compara�ve advantages by rca1 and rca2 priority sectors for coopera�on iden�fied regional compe��on in certain sectors detected, regional coopera�on is crucial. figure 1 methodological scheme of the study source: author's of the countries. the fki is used to determine the similarity of the export structure. the fki is calculated according to the formula below, which estimates the similarity of the export of the two countries ‘i’ and ‘j’ to the market ‘k’, where ‘x’ indicates the export of 1 priduct. s(ij, k) = ��min�x1ik / xtik �, �x 1 jk / xtjk �� · 100 1 (1) s(ij,k) – fki index; x1ik / xtik part of the product 1 from country i to country k; x1jk / xtjk part of the product 1 from country j to country k; the resulting index values range from 1 to 100. if the resulting fki value is 0, it shows completely different export structures of the countries, if the resulting fki value is 100, it shows the complete similarity of the countries’ exports. since the paper analyses a period of several years, if the value of the index increases during the study period, it indicates the convergence of the export structure of both countries with increasing competition between them. if the value of the index decreases during the period under review, it indicates a growing level of specialization between the countries and increasingly complementary trade relations. according to maryam, banday, and mittal (2018), the fki is used to understand the comparative strengths and weaknesses of the analysed states vis-à-vis other countries. this is a certain starting point from which to determine whether competitive or complementary trade relations have developed between the countries during the period studied. to determine in which sectors the countries studied had a comparative advantage, indicators determining the level of comparative advantage are used: the standard balassa rca model (hereinafter rca 1 ) and the modified rca model (hereinafter rca 2 ) proposed by vollrath (1991). xij�xit xwj�xwt rca1 = (2) rca 1 standard balassa rca model xij export of product j of country i; xit total export of the country i; xwj global export of the product j; xwt total global export. 147 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 if the index value obtained is greater than one, this means that a country’s share of exports of a particular product is higher than its corresponding share in the group of countries in question. then, according to bender and li (2002), it can be argued that a country specializes in the export of a particular product and has a comparative advantage over the study base. when the value of the indicator is equal to one, it indicates that a country has a neutral comparative advantage, which means that a country’s position vis-à-vis position of the other countries is average. when the value of the indicator is less than one, the situation of a country is worse than that of other countries. in an article by andreosso-o’callaghan (2008) analyzing foreign trade, he proposed the use of a modified rca 2 model to evaluate rca 1 outcomes. according to vollrath (1991), positive rca 2 values indicate that the country has a relative comparative advantage, negative that the country does not have a relative comparative advantage. the relative comparative advantage of rca 2 is calculated using the following formula (3). xij�xit xwj �xwj rca2 = (3) rca 2 standard balassa rca model mij export of product j of country i; mit total export of the country i; mwj global export of the product j; mwt total global export. as mentioned above, the lafay index is used to assess the contribution of a given sector to the trade balance in order to eliminate cyclical factors according to zaghini (2003), the lafay index is calculated for country ‘i’ in the production of the relevant product ‘j’ according to the following formula: lfiij =100 � ‒ � · ; xij ‒ m i j xij + m i j j=1 ��xij‒ mij� ��xij + m i j� j=1 n n j=1 xij + m i j ��xij + m i j� n (4) xij export of product j of country i; mij import of product j of country i; as this index measures the contribution of each group to the total trade balance, for this reason: lfiij =0� j=1 n (5) if the calculated value of the lafay index is positive, then the product has a comparative advantage. the higher the value of this index, the higher the level of specialization. if the calculated indicator is negative, it means that the country does not have a comparative advantage. in order to determine the level of similarity of the lithuanian and latvian export structure and to assess the countries’ relative advantage in trade with the eu countries, the data on exports and imports to the 28 eu countries provided by eurostat were used. the sitc06 classification provided by eurostat was chosen for the study, according to which the groups of foreign trade products are divided into the following main groups: food, beverages, tobacco; raw materials; mineral fuel, mij�mit mwj�mwj e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 148 lubricants, other materials; chemical products; other manufactured goods; machinery and transport equipment; other products not classified elsewhere. total number of observed elements: 480. table 4 provides descriptive statistics for indicators which have the biggest share of export and import in lithuania and latvia. data descriptive statistics mean median maximum minimum std. dev. total export lt 14005.32 13823.20 17425.40 9553.700 2203.383 total export lv 7532.960 7675.600 9445.400 4839.100 1347.204 total import lt 16837.73 17090.40 22064.00 9993.500 3773.887 total import lv 10642.46 10644.85 13157.40 6713.900 1798.611 export lt chemicals and related products 2238.56 2280.40 2791.90 1401.90 397,368 export lt food drinks and tobacco 2392.980 2373.150 3243.500 1533.000 559,739 export lt machinery and transport equipment 1998.750 1901.350 3079.700 1161.200 701,723 export lt mineral fuels, lubricants and related materials 2745.930 2414.850 4560.200 1607.900 991.3006 export lt other manufactured goods 3797.450 3688.450 5214.800 2407.400 947,104 export lv food drinks and tobacco 1080.780 1080.450 1439.200 672.0000 238.3018 export lv machinery and transport equipment 1623.430 1776.900 2076.300 919.1000 376.7030 export lv other manufactured goods 2440.080 2364.050 3027.900 1650.100 410.9593 export lv raw materials 1195.620 1151.800 1519.800 948.0000 165.9557 import lt chemicals and related products 3027.750 3008.550 3939.300 2024.800 589.0029 import lt food drinks and tobacco 2634.530 2771.200 3100.200 1819.000 398.0404 import lt machinery and transport equipment 5693.930 5721.750 7914.500 2968.900 1563.139 import lt other manufactured goods 4213.320 4381.850 5501.000 2555.900 970.1787 import lv chemicals and related products 1360.070 1320.550 1718.900 1000.700 221.7128 import lv food drinks and tobacco 1841.840 1807.350 2499.600 1207.700 394.9892 import lv machinery and transport equipment 3218.680 3281.250 4055.600 1775.100 663.3830 import lv other manufactured goods 2754.79 2778.85 3365.30 1768.80 426.84 import lv raw materials 455,670 461.10 559.80 298.50 74,162 table 4 descriptive statistics source: author's lithuanian exports in the analysed period averaged 14005.32 million euros and fluctuated from 9553.7 to 17425.40 million euros. latvia’s export was lower, averaged 7532.96 million euros during the period analysed and fluctuated in a similar range from 4839.1 to 9445.4 million euros. in lithuania, import was also higher and averaged 16837.73 million euros, and in latvia 10642.4 million euros. other manufactured goods accounted for the largest share of export in both countries, while machinery and transport equipment accounted for the largest share of import. thus, the structure of export and import in both countries is similar. the stationarity of the indicators was tested and the results of the unit root test confirmed that all the indicators had stationary time lines. the calculations were performed using the econometric software eviews 12. 149 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 the presented figures (see figures 2 and 3) show the foreign trade of lithuania and latvia with the eu countries. volumes of lithuania’s foreign trade with the eu in 2010-2019 were higher than in latvia. both lithuania and latvia had a negative foreign trade balance throughout the analysed period, and this negative indicator was growing every year. at the beginning of the analysed period, lithuania’s negative foreign trade balance was not large, on average amounted to -479.77 millions euros in 2010-2012., and latvia’s -2745.23 million euros. in 2013 2019 lithuania’s negative foreign trade balance averaged -3840.69 and became higher than latvia’s -3265.61. thus, both lithuanian and latvian foreign trade followed similar trends: both exports and imports grew in both countries, and both countries had a negative growing foreign trade balance. figure 2 lithuania ‘s foreign trade with the eu 2010 2019 million euros source: eurostat (2020) source: eurostat (2020) figure 3 latvia’s foreign trade with the eu 2010 2019 million euros e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 150 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 usa 15.5% 14.4% 15.1% 15.6% 17.5% 18.1% 19.0% 18.9% 17.7% china 51% 52% 51% 52% 50% 50% 49% 49% 47% 46% 46% table 5 lithuanian, latvian fki 2010-2019 source: author's calculations of the fki for 2010-2019 showed (table 5) that the value of the index is high, which proves the convergence of lithuanian and latvian export structure and during the analysed period the value of this index had increasing tendency. calculation results show the increasing competitiveness of lithuania and latvia for exporting the products of analysed sector. source: author's figure 4 rca 1 index of lithuania for 2010 2019. source: author's figure 5 rca 1 index of latvia for 2010 2019 results as the convergence of export structure was proved we continue further with the analysis in order to distinguish the export specialization by calculating rca 1 index. results of rca 1 index (see figures 4 and 5) indicate that both lithuanian and latvian foreign trade specialization in relation to the eu followed similar trends. both countries mainly specialized and had a competitive 151 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 advantage in the export of the same products: food, beverages, tobacco, raw materials, mineral fuels, and lubricants. based on the calculated value of the rca 1 index lithuania in 2010-2019, compared to other sectors, had the largest relative comparative advantage in the export of mineral fuels, lubricants, and other materials. however, a negative trend was observed, i.e. each year the value of the rca 1 index in this group of products decreased, which means a decreasing relative comparative advantage. during the analysis of the share of mineral products’ exports to the eu, it was found that in 2010-2014, exports of mineral fuels, lubricants, and other materials accounted for 27.7% of the entire export structure. however in 2015-2019 this figure shrunk twice and to 13.0%. the decrease in the indicator was due to the fact that export volumes increased throughout the period, i.e. when compared 2019 to 2010, it was found that total exports to the eu increased by 82.4%, but after comparing changes in mineral fuels, lubricants, and other materials during the respective period, it was found that it decreased by 18.4%. the other two groups of products in which lithuania had the largest relative comparative advantage in 2010-2019, were: food, beverages, tobacco (average value of the indicator was 1.68), and raw materials (average value 1.71). during the analysis of the share of food, beverages, and tobacco exports to the eu, it was found that in 2010-2019, export of the goods from these groups accounted for an average of 16.9% and raw materials for 5.9% of the entire export structure. latvia based on the calculated value of the rca 1 index in 2010-2019. compared to other sectors, had the largest relative comparative advantage in exports of raw materials. the value of the rca 1 index of raw materials was the highest in the baltic states. however, the calculation showed that in 2010-2019 latvia’s exports of raw materials accounted for only 16.1% of the entire export structure. the large value of the relative comparative advantage rca 1 was due to the fact that eu raw material export to other countries averaged 3.5%. latvia, like lithuania, had the largest relative comparative advantage in 2010-2019 in the export of food, beverages, tobacco (average value of the indicator was 1.41), and mineral fuels (average value 1.18). during the analysis of the share of food, beverages, and tobacco exports to the eu, it was found that in 2010-2019, export of the goods from these groups accounted for an average of 14.3%, while mineral fuel and lubricants for 7.8% of the entire export structure. latvia had also had a relative comparative advantage in exports of other manufactured goods (the average value of the indicator was 1.21). thus, comparing the relative comparative advantage of lithuania and latvia according to the rca 1 indicator, it was established that the states had an advantage in the same groups of goods (food, beverages, tobacco; raw materials, mineral fuels, and lubricants’ export). latvia also had an advantage in the export of other manufactured goods, and lithuania’s position in relation to these groups of products was neutral. this proves once again that there is strong competition between lithuania and latvia for exports to eu countries. calculations of rca 2 index for 2010-2019 were also performed in order to evaluate the relative comparative advantage of the countries (see figures 6 and 7 p.152). based on figures 6 and 7 according to the rca 2 index, it was found that in both lithuania and latvia, positive rca 2 values were obtained in those product groups where rca 1 values were the highest. lithuania had the biggest relative comparative advantage in terms of rca 2 in exports of mineral fuels, lubricants, other materials (the average value of the rca 2 index for the period of 2010-2019 was 2.34), and raw materials (the average value of the rca 2 index was 0.75). after evaluating the imports, it was established that in foreign trade of food, beverages, and tobacco, lithuania has gained a relative comparative advantage rca 2 since 2014, other manufactured goods since 2015. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 152 figure 6 rca 2 index of lithuania for 2010 2019. figure 7 rca 2 index of latvia for 2010 2019. latvia, based on the calculated value of the rca 2 index, had the largest relative advantage in raw materials 2010-2019 (the average value of the rca 2 index during the period of 2010-2019 was 3.48) when compared to other sectors. latvia also had a small relative comparative advantage in foreign trade in other manufactured goods (the average value of the rca 2 index during the period of 2010-2019 was 0.21), and since 2011 latvia had a relative comparative advantage in exports of other products not classified anywhere else (the average value of the rca 2 index during the period of 2011-2019 was 0.33). however, rca 2 showed that after assessing imports over the period under review, latvia did not have a relative comparative advantage in foreign trade of food, beverages, and tobacco. in summary, it can be stated that after assessing the volume of imports, it was found that both countries had relative comparative advantages in those product groups where rca 1 values were the highest, lithuania in exports of mineral fuels, lubricants, other materials, and raw materials, latvia in exports of raw materials. this shows that the countries also compete for imported goods. the lafay index was used to assess the relative comparative advantage of the countries (see figures 8 and 9). source: author's source: author's 153 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 the lafay index, same as rca 1 and rca 2 , shows similar trends for both countries during the period under review. the calculation showed that according to the lafay indicator, lithuania had a comparative advantage in the export of mineral fuels, lubricants, other materials, and raw materials during the period under review. lithuania, since 2014, has also had a comparative advantage in the foreign trade of other manufactured goods and food, beverages, and tobacco. according to the lafay indicator, latvia, throughout the period under review, had a comparative advantage in foreign trade of raw materials and other manufactured goods. latvia, as of 2011, had also have a comparative advantage in the foreign trade of other products not classified elsewhere. thus, in summary, it can be stated that without assessing the impact of imports, the common points of contact between lithuanian and latvian foreign trade in the context of the eu are types of economic activities of food, drinks, tobacco; raw materials, and mineral fuels. promoting these areas by strengthening economic cooperation between countries can help countries become more competitive in the eu context. if the volume of imports from the eu is taken into account, then the common points of contact are determined in the exports of raw materials and other figure 8 lafay index of lithuania for 2010 2019 figure 9 lafay index of latvia for 2010 2019 source: author's source: author's e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 154 manufactured goods. this is the starting point for cross-border cooperation planning, as priority industrial sectors have been identified where cross-border cooperation is appropriate. it is important to emphasize that these results are not static and will change over time, especially after the commencement of cooperation, so the methodological logic proposed by the authors of the article allows for a timely evaluation of both countries and, based on the results of the analysis, as a measure of monitoring, should ensure a flexible adjustment of cooperation measures or a shift in priorities. the results allow to provide strategic recommendations aimed at the development of joint common points of contact based on the principle of cooperation, so that it would strengthen the joint competitiveness of lithuania-latvia as a border region instead of lithuania and latvia competing separately. the calculated results confirmed that only by promoting cross-border cooperation between lithuania and latvia, it is possible to ensure joint competitiveness of these countries in the international market. according to the authors, in order for cooperation to be successful and achieve its goals, it should take place in a way that ensures the cooperation of all stakeholders and seek the common good of the border region. this requires that: » cooperation would be understood as a long-term and focused (not chaotic) process that requires agility and smartness in making strategic decisions. » development of cooperation strategies would involve business, government, ngos, and academia through networking. the cooperation strategy should be shaped by listening to the needs of the business. » the cooperation strategy must classify measures into different levels: cross-border region, sector, country. the guidelines must be defined by local institutions working together with all groups of interest. » the cooperation strategy should identify the specific strengths of the cross-border region (each country complementing other’s competitive advantages), which would be exploited as strengths for international development, and treat weaknesses as new opportunities to promote business development. the authors, taking into account the suggestions from the subject literature and the calculations made in the empirical part, provide strategic recommendations to the authorities of the countries on what measures are crucial in order to increase cross-border cooperation (see table 5). the measures identified are intended to be implemented at both governmental (cooperation) and institutional (stakeholder involvement, management of the cooperation process) levels. proposed measures are in line with durability of interreg latvia-lithuania cbc program 20142020 and the interreg border orientation paper latvia-lithuania 2021-2027, specifically with the orientation points for growth, competitiveness and connectivity. these cooperation measures will ensure the durability of results which were achieved implementing interreg latvia-lithuania cbc program 2014-2020 and will be the guidelines for sustainable cooperation planning and management in next programming period – 2021-2027. the measures should be integrated in development of cross-border region strategy, and the authors for maximum results propose to follow the stages in the process of developing a cross-border cooperation strategy offered by kurowska-pysz et al (2018). the sequence of the planning process will assure involvement of different institutions, real time monitoring and assurance of vital network between the interest parties. authors also emphasize that the success of the implementation of the measures will depend not only on the prepared documents and timely evaluations, but also on the institutional recommendations 155 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 strategic directions measures smartness of crossborder region » identification of cross-border region specifics and development of cooperation strategies by setting joint priorities. continuous monitoring, analysis and assessment and updating of the cross-border region’s competitive advantages in individual sectors and business environment. networking » regular organization of meetings between business, academia, and the public sector institutions in various forms. » initiation of educational events for scientific and business institutions, during which the inventions created by academia and methods how to apply them in business would be introduced. » involvement of education and science, business and public institutions in the development of joint projects for the transfer of knowledge and its practical application according to the example of business enterprises. » promotion of cross-border centers of excellence and innovation technologies and exchange centers. » encouraging research and study institutions to carry out research and experimental development activities with commercial potential. » organization of forums and fairs to encourage business and science to establish initial contacts, encourage companies to be more active in innovation and take advantage of opportunities provided by cooperation. » initiation, participation and co-financing of ideas and projects aimed at the increase of productivity. quality of public services » joint development and implementation of business acceleration, entrepreneurship and apprenticeship programmes; » transfer of good practices, joint trainings and exchange of staff between cross-border institutions for the purpose of acquiring strategic leadership competencies in order to anticipate and manage future changes and mobilize the necessary resources in the crossborder region. table 5 factors that promote and hinder cross-border cooperation source: author's conclusions and personal competencies, which are related to the ability to solve the problems without deviating from the implementation of the cooperation priorities. 1 the development of a cross-border cooperation strategy to strengthen economic cooperation between countries, including the analysis of countries’ foreign trade indicators, identifies those economic activities in which the countries concerned have a relative comparative advantage and identifies common targeted economic activities that could be promoted. the use of indicators fki, rca1, rca2, and lafay is an appropriate tool to assess the areas of competition between the parties and to determine the directions of cross-border cooperation. the long-term trends in the trade relations of the analysed countries are determined on the basis of the fci, and the indicators of rca 1 , rca 2 , and lafay show sectors in which the studied countries had a relative comparative advantage. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 156 2 the fki has shown that there is a convergence of the structure of lithuanian and latvian export to eu countries with increasing competition between these countries. the results of rca 1 and rca 2 indicators also confirmed the competition between lithuania and latvia not only for export of goods, but also for imported goods. the lafay index confirmed strong competitive trends and allowed for the refinement of sectors, where both countries have a competitive advantages. the results of the study allowed to identify priority industrial sectors for cross-border cooperation in order to minimize losses due to competition, and the principle of cooperation combines advantages and thus increases the competitiveness of lithuania-latvia as a border region. 3 the methodology of the article proposed by the authors is universal for all regions and allows to perform not only initial but also timely assessment of regions over time. from an institutional point of view, this instrument kit is suitable for use as a monitoring tool, which should ensure a flexible adjustment of cooperation instruments or a shift in cooperation priorities. 4 the results of the calculations confirmed that only promotion of cross-border cooperation between lithuania and latvia can ensure the joint competitiveness of these countries in the international market, provided that the cooperation of all stakeholders takes place and the common prosperity of the border region is sought. proposed cooperation measures will ensure the durability of results which were achieved implementing interreg latvia-lithuania cbc program 2014-2020 and will be the guidelines for sustainable cooperation planning and management in next programming period – 2021-2027. the success of the proposed measures at governmental and institutional 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(2013) konkurencingumas kaip regiono plėtros siekinys. viešoji politika ir administravimas, 12(3), 430-441. https://doi. org/10.5755/j01.ppaa.12.3.4008 159 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). ineta zykienė phd in social sciences (economics) school of economics and business, kaunas university of technology, lithuania fields of interests regional investment attractiveness, smart development, location attractiveness for business development. address k. donelaičio st. 73, 44249 kaunas, lithuania ineta.zykiene@ktu.lt rūta laučienė lecturer klaipeda state university of applied sciences, faculty of technology international economics, lithuania fields of interests international economics, foreign trade. address jaunystes street 1, lt-91274, klaipeda, lithuania r.lauciene@kvk.lt rasa daugėlienė assoc. prof., phd in business management and administration faculty of social sciences, arts and humanities, kaunas university of technology, lithuania address k. donelaičio st. 73, 44249 kaunas, lithuania rasa.daugeliene@ktu.lt aistė leskauskienė b.a. in social sciences (economics) school of economics and business, kaunas university of technology, lithuania fields of interests fdi, investments in fintech, regional investment attractiveness. address k. donelaičio st. 73, 44249 kaunas, lithuania aiste.andriuskeviciute@ktu.edu. 74 issn 1822–8402 european integration studies. 2014. no. 8 insight into relevant to the eu globalisation and market development processes after the second world war stanislavs keiss the university college of economics and culture lomonosova 1/5, rīga, lv -1019, latvia e-mail: s.keiss@eka.edu.lv elga tilta institute of economics of the latvian academy of sciences akadēmijas laukums 1, lv-1050, rīga, latvia e-mail: elgatilta@inbox.lv gunta balode latvian rural advisory and training centre rīgas str. 34, lv-3018, ozolnieku district, latvia e-mail: gunta.balode@gmail.com http://dx.doi.org/10.5755/j01.eis.0.8.6832 the purpose of the study is to analyse the topicalities and specifics of globalisation and market development processes since the second world war until the end of the 20th century, in the context of their impact on urgent problems related to development of economic thought. to achieve the aim, the following tasks were fulfilled: 1) to study historical events related to development of the market economy; 2) to analyse the changes, caused by historical processes, in economic theory under the conditions of globalisation; 3) to find solutions related to research problems in the area of economic thought. the following methods were used in the study: monograph, historical study, synthesis and analysis, logical-constructive method, analysis of historical facts and statistical data. in the study of historical events, mainly on the basis of the monograph and historical study methods, the attention was, generally, paid to different changes the world had experienced since the second world war: such as the development of globalisation processes, having taken their beginning already during the second world war; the more and more rapid rotations, taken up by globalisation processes; the sharp getting up of market regulation; the more and more visible role played by anew established cross border political, financial, military and economic organisations. in the analysis of the changes in the economic theory the attention was, on the basis of synthesis and analysis, logicalconstructive method and others, paid mainly to the domination of the cyclic economic development, being recognised, in the economic theory, as a self-evident norm also under conditions of the globalisation; to the beginning of domination of political relations over economic regularities in the society; to the tendency of endeavour to explain the economic relations with mathematical-statistical methods (keišs, s., 2012: 52; krilovs, l., 2003:151-155). as a result of the research, the authors have tried to find ways how to substantiate the changes in economic theory and in the policies of the countries of market economy under the conditions, when there takes place a declaratively propagated support to the liberalism and to democratic values, but, in the real life, a tendency of a growing dominance of regulation of the market processes may be observed. latvia, as a post-socialism country, is especially interested in finding of the necessary attitude in this context. keywords: globalisation, cross border organisations, regulation of market processes, economic development, changes in economic thought. introduction since the end of the 18th century until the 1930th, the history of the development of economic thought has been made richer by innovative search in the study of regularities of development of the society. however, it must be recognized that, under the conditions of market economy, the cyclic economic development and financial economic crises are explained as self-evident. and, during the last century, little has been achieved in this area, and the study of it is still a challenge to economic science. if earlier, it has been accustomed to speak about the cyclic crises of overproduction, being typical to market economy, then, under the impact of globalisation the today reality evidences that they have turned into consumption crises of issn 1822–8402 european integration studies. 2014. no. 8 75 a chronic nature. insolvency problems are faced not only by the business companies and households, but even by national states (keišs, s., 2012: 54; krilovs, l., 2008: 33–36). such is the reality of the first decade of the 21st century. it all evidences that, since the 1920s, in the development of economic theory, there takes place a lack of new approaches in the research area related to economic theory. the innovative approach is still insufficient in the study of economic processes, regularities and legislation of the society. it is confirmed, solely, by the last financial economic crisis of the 2008, because the causes of the crises are to be related to an excessive stimulation of consumption by a great many of the countries of market economy that is incommensurable with the increase of the productivity in the economy on the whole. the emergence of disproportions between the consumption and the economic growth rate of the countries is related, in a most direct way, to the crediting policy carried out by the institutions of financial market, by stock exchanges and the banks. the motivation of a maximal profit-making, which influences, essentially, the mortgage crediting amounts and an inadequate increase in the value of immovable property, in comparison with their real market value, dismantled, in point of fact, the regularities of demand and supply, existing in a free market economy (keišs, s., 2012: 54; kučinskis, j.,2000: 212–216). the second world war changed the economic, political and social situation in the world and the europe significantly, involving the national states into overcoming of the implications created by the war. in the process of overcoming of the implications of the war, the society was confronted with such phenomenon as a more and more rapid rotations of globalisation processes, having taken their begin already during the second world war, as well as a sharp increase related to market regulation processes. due to the financial economic crisis of the 1929–1933, as well as the second world war, the destroying implications of which was pressed to experience the society, there turned up, in the global processes, a line of activities (galbraith, j.k., 1988). the united nations organisation (uno) was established. at the monetary and financial conference, organized by the uno in bretton woods (new hampshire state, usa) in july, 1944, there was discussed the topic related to cessation of activity of the latin coin union, because, during the interwar period, the gold standard had lost, gradually, its role in cross border payments (latvijas, 1984: 728). when the bretton wood agreement came into effect in the 1944, as the principal currency of the bretton wood monetary system became recognized the dollar, being, at the same time, the main reserve currency. as a result of the above mentioned conference, and according to the agreement, adopted by 44 representatives of the states (without ussr) (politiskā 1987: 38), there were established the international monetary fund (imf) and the international bank for reconstruction and development (ibrd), later called world bank (wb). in 1947, the general agreement on tariffs and trade (gatt) was established. the aim of the gatt, which later was changed into the world trade organisation (wto), was to facilitate the free market and to decrease the tariffs all over the world, to restrict the protectionism and interference of the state into regulation of the market processes. the wto began to function on january 1, 1995 (šreters, h. j., 2004: 141–142). in 1973, the breton wood monetary system ceased to function (latvijas 1982: 2.sējums, 134). taking into consideration that the us dollar began to lose its role as the means of international payments rapidly, the usa interrupted, in the 1971, one-sidedly, the exchange of the dollar against the gold. with the breakdown of the bretton wood monetary system (1971–1973), there ceased to exist also the official gold market and the centralized gold reserves of the state could get into the free market only (vēciņš, ē., 1993: 136). since the 1978, the jamaica monetary system started to regulate the monetary and financial relations on the global scale (latvijas, 1982: 134). the jamaica monetary system was established in 1976 in kingston (jamaica) on the basis of the agreement attained by the international monetary fund (imf) because of the reform of international monetary system. the implications of the second world war changed the economic situation in europe essentially. there were formed both economic and political alliances, as well as military alliances. in the post-war period, there developed, on the basis of the agreements between the ussr and the germany (molotov-ribbentrop pact), a dangerous aggressive socialist area in the east of the europe – the ussr, and, as a result, a line of the countries of the league of nations lost their national independence (inter alia latvia, lithuania, estonia). but, in the post-war period, because of retaining of the soviet armed forces in the occupied east european countries, the social revolution took place in them, and, as a result, they were turned into satellites of the socialism system. very soon, there began the rivalry of two political systems related to re-division of the influence in the world. the cold war continued until the collapse of the berlin wall. with the collapse of the berlin wall, in 1989, and uniting of both states of the germany, there began, in point of fact, a decline of the communist ideology and the existence of the ussr, the introducer of that ideology. all these processes have left, in the turn of the century, an intransient impact on the development of the society and the economic theory. the purpose of the study is to analyse the topicalities and specifics of the globalisation and market development processes since the second world war until the end of the 20th century in the context of their impact on urgent problems related to development of the economic thought. to achieve the aim, the following tasks were fulfilled: 1) to study historical events related to development of the market economy; 2) to analyse the changes, caused by historical processes, in economic theory under conditions of the globalisation; 3) to find solutions related to research problems in the area of economic thought. the research object is globalisation challenges and specifics of market development process since the second world war until the changes in the end of the 20th century. the following methods were used in the study: monograph, historical study, synthesis and analysis, logical-constructive method, analysis of historical facts and statistical data. issn 1822–8402 european integration studies. 2014. no. 8 76 discussion and results economic cross-border organisations established during the second world war and the earlier after-war period and their role in that time, a typical feature in the development of market processes was the formation and activities of cross border political organisations. to the most important cross border political organisations, the aim of which was to overcome the implications of the second world war and to facilitate the development of the market processes under conditions of globalisation, belong the united nations organisation (uno), the international monetary fund (imf), the international bank for reconstruction and development (ibrd), later the world bank (wb), the general agreement on trade and tariffs (gatt), later the world trade organisation. in this period, there was born the idea, involving the establishment of the united nations organisation (uno). the beginning of the uno is to be sought on january 1, 1942, when the representatives of 26 states signed, in washington, the declaration of united nations, in which they agreed to form a common war alliance against the hitler’s ass countries (germany, italy, japan) (politiskā 1987; 32). however, the resolution of establishment of the united nations organisation was adopted only on october 30, 1943. the aim of this organisation was to provide support, peace and international security, as well as the development of cooperation between the countries (politiskā 1987; 32). in fact, the uno was a replacement of the league of nations that was established after the first world war at the paris peace conference, in 1919, and with signing of its statutes by 44 countries. the usa had not been a member of the league of nations. the establishment of the league of nations was linked to the break down of german, russia, easthungarian and ottoman empires, as well as to facilitation of the formation of new national states. actually, the league of nations ceased its activities in the 1939, but, formally, it was liquidated in april, 1946 (politiskā 1987: 682). it is worth to be mentioned that, already before the beginning of the second world war, not only the usa, but also the great britain, france, germany and ussr started to demonstrate themselves as super powers. during the period between the wars, the league of nations was not able to restrict the expression of the selfish interests, shown by these european countries. the inability of the league of nations became apparent. already in the 1930s, it was obvious that the league of nations would not be able to prevent the second world war in the europe (deksnis 1996: 20–21). during the second world war, at the monetary and financial conference, organized by the uno in bretton woods (new hampshire state, usa) in july, 1944, there was discussed the topic on cessation of the activity of the latin coin union, taking into consideration that during the interwar period, the gold standard had, gradually, lost its mission and its role in cross-border payments had decreased to the lowest notch. the latin coin union, established by france, belgium, switzerland and italia in the 1865, was based on the frank, and it was allowed to its member states to mint the gold and silver coins. although this union came to a halt in the 1926, the monetary bimetallism system, in the form of gold and silver coins, continued to exist in several countries. in latvia, for example, its defined gold coverage of the national currency, lvl – 0.2903226 grams – was taken into account even until the 1936. since the 1944, when the bretton woods agreement came into effect, the us dollar was recognized as the principal currency of the bretton wood monetary system. it was, simultaneously, also the main reserve currency. all cross border transactions with the gold got, actually, reduced on exchange of the gold against the us dollars, with the mediation of the new york reserve bank (vēciņš 1993: 136). according to all national currencies, there was defined the gold content (a fixed number of grams), but as to the international payments they were based on a fixed exchange rate of the currency. every country, involved in this system, evaluated its monetary unit in the gold or in the us dollars that provided the stability of the currency of these countries and eased the mutual cross border payments. on the basis of the agreement of bretton woods monetary and finance conference the so called bretton woods monetary system was formed. the bretton woods monetary system outlined the fact that a currency system of cross border regulation was created in the world. in result of the above mentioned conference, in compliance with the agreement adopted by 44 representatives of the states (without ussr) (politiskā 1987: 38), there were established the international monetary fund (imf) and the international bank for reconstruction and development (ibrd), later called the world bank (wb). the international monetary fund was established with the conviction that a common activity on the level of the world is necessary to facilitate the stability of economy, like as the uno was established with the conviction that a common action on the level of the world is necessary to provide the political stability. in the 1944, the international monetary fund was entrusted with the task to provide economic stability after the second world war and to rescue the world from new global economic catastrophes in the future. the imf was recognized as a cross border political organization, the statute and regulating norms of which were obligatory to be taken into account by all independent countries and their central banks. the international monetary fund was authorized to carry out an international pressure also on such countries that would not fulfil their commitments related to an adequate maintaining of the total demand in the world. it was planned that the imf could, in the form of loans, support also the provision of the liquidity of the balance of payments for the countries, being affected by economic recession or being not able to provide the facilitation of the total demand in the world on account of their own resources only (stiglics 2010: 19). the imf was established as a social institution, the finances of which were formed by instalments of the constitutors. to a certain degree, the imf functions like a joint stock company: its share capital is formed by instalments of the member states at the moment of signing of the capital. with enlargement of the number of member states of the imf, the instalments into the fund are paid, without any exception, by all member states of the imf. actually, the imf is functioning as a profit organisation. of course, it does not fulfil the functions of the issn 1822–8402 european integration studies. 2014. no. 8 77 governments of the countries of the world, therefore it does not give also an account to the citizens of the countries, which are financing it (the instalments of the countries, as it is well known, are carried out from the money of taxpayers); it does not also give account to inhabitants of the countries, the life of which it influences. the imf communicates only with the prime ministers, ministers of finance and the central banks of the member states. the statute of the imf defines that the member states have to provide a free and unrestricted exchange of their currencies and that they have to inform the imf about the changes in the financial and monetary policy that might influence the economy of other countries. with accession to the imf, the member states bound themselves to adapt their policy to its recommendations. however, the imf is not an institution of the primary loan. such functions are delegated to the world bank. the imf is the first and principal overseer of the monetary and currency exchange policy and it follows how it becomes taken into account. the surveillance is carried out with the help of consultants, who analyse the economic and financial situation in the member states and consult their governments (bojārs, vilne, 1996: 15). for a close cooperation with the imf, the international bank for reconstruction and development was established, the tasks of which include the analysis of economic development tendencies of the countries – the members of the bank, to provide a consultative support and, in the case of necessity, to provide the countries also with the loans. during the first post-war decade, the international bank for reconstruction and development financed the restoration of the war-torn economy. only during the period 1948–1951, about 13 billion us dollars were invested into the war-torn european economies that today would correspond to a 130 billion us dollar equivalent (čangs 2011: 105). when the europe gained strength, the international bank for reconstruction and development turned their attention to the financing of development of the poorest countries of the world (bojārs, vilne 1996: 13). the bretton woods conference discussed also another, not less important, question related to stabilisation of the finances and to development of the international trade. the bretton woods agreement invited to establish also a third international economic institution – the world trade organisation that would manage the international trade relations, similarly as the international monetary fund was entrusted with the management of international financial relations (stiglics 2010: 22). already at that time, the participants of the conference were aware that there was a necessity of such international organisation that would be able to stimulate a free flow of goods and services in international transactions and to provide the development of a liberal trade, similarly, as it had been before the first world war and continued until the middle of the 1920s. however, the establishment of such organisation was not as successful as it had been intended. it was caused by the circumstance that, in the post-war period, the political reality turned out to be quite another as expected, and to disregard it could not even the biggest players of the global economy such as the usa, great britain, france and others. as it is well known, already after the first world war, the countries, responding to the instability of the world’s economy, started a creating of trade barriers. the free trade system of the world ceased to exist in the 1932, when great britain, beforehand a consequent protector of a free trade, introduced the tariffs. before that time, already in the 1930, the usa, with introducing of the tariffs, abandoned the free trade system, but such countries as germany and japan changed their liberal trade policy, creating high trade barriers and cartels that were closely related to the fascism ideology and to the keeping of foreign aggressiveness (čangs 2011: 51). in 1947, there followed the general agreement on tariffs and trade (gatt). the aim of the gatt was to facilitate the free market and to decrease the tariffs all over the world, to restrict the protectionism and the interference of the state into the regulation of market processes. later, the gatt was changed into the world trade organisation (wto). the wto began to function on january 1, 1995. if the second world war destroyed the order of the first liberal world also in the sphere of the international trade, then, in the post-war period, there were started the activities to restore the economic routine that had functioned during the years of the gold liberalism. in this advance, a historically significant progress in liberalisation of the trade between the rich countries was achieved during the early negotiations related to the general agreement on trade and tariffs (gatt). however, in the majority of the countries, the policy of protectionism and state interference into regulation of trade processes still continued, inter alia, in the developing and communism countries (čangs 2011: 51). the gatt or the general agreement on tariffs and trade was instituted only in the 1947. the aim of the gatt was to facilitate a free trade and to diminish the tariffs all over the world. one of the functions of the gatt was to facilitate the diminishing of the tariffs between the countries with the highest status of a preferential treatment, the other – to allow the member states to protect their economy against an unfair foreign competition, through enforcing of antidumping means and duties against the subsidising of the export. although the gatt succeeded in lowering of the tariffs considerably, it got into difficulties with achievement of cross border consensus in relation to these problems. the gatt functioned until 1994, when in 1995, a half of a century after the end of the second world war and three quarters of the century after the big depression, it was renamed into world trade organisation (wto) (stiglics 2010: 23). in 1973, the bretton wood monetary system ceased to function (latvijas 1982: 2.sējums 134). taking into account that the us dollar began to lose, rapidly, its role as a means of international payments, the usa interrupted, in 1971, one-sidedly, the exchange of the dollar against gold. with breakdown of the bretton wood monetary system (1971– 1973), there ceased to exist also the official gold market and the centralized gold reserves of the states could reach the free market only (vēciņš 1993: 136). in 1978, the jamaica monetary system began to regulate the monetary and financial relations on a global scale (latvijas 1982: 2.sējums 134). the jamaica monetary system was established in 1976 in kingston (jamaica) on the basis of the agreement related to the reform of international monetary system and attained by the international monetary fund (imf). issn 1822–8402 european integration studies. 2014. no. 8 78 today, the wto, imf and wb are important players in the management of the global economy, on which there depends the support for the countries, having got into difficulties. the wto acts on a global scale to provide liberalisation not only in the trade, but also in other spheres, such as, for example, the regulation of the foreign investment and the protection of intellectual property. the imf is responsible for accession of the finances by the countries, which have to solve their shortterm problems, but the world bank answers for the long-term investments (čangs 2011: 53). the results of the activities of the mentioned above as well as of the other organisations depend, to a great extent, on the political system of the country. political competition of the systems the implications of the second world war had changed the economic situation in the europe significantly. in the post-war period, there formed a dangerous and aggressive socialistic camp in the east of the europe – the ussr , on the basis of pre-war agreements between the ussr and the germany (molotov-ribbentrop pact), in result of which a number of the countries, the members of the league of nations (inter alia latvia, lithuania, estonia), lost their independency, but during the post-war period, because of maintaining of the soviet army in the occupied east european countries, there took place the victory of socialist revolution in them, and, as a result, they were changed into satellite states of the socialist system. in january, 1949, the socialist bloc countries established the council for mutual economic assistance (cmea) – an international intergovernmental organisation of a multilateral economic cooperation between the socialist countries (politiskā 1987: 602). it was a political challenge to the west, because the ideas of a worldwide revolution, with the ussr as the ideological driving force, got strength rapidly. the answer from the allies to such challenges came soon. on the april 4, 1949, in washington, 12 countries instituted the north atlantic treaty organization (nato) (politiskā 1987: 756). the nato was established as a counteraction to the ussr to block the enlargement of the influence zone of the ussr in the europe, as well as further of the world. for strengthening of the economic cooperation, 6 european countries established the european coal and steel community (ecsc), in the1951, to solve the problems related to a rational location of production capacities, to facilitate the modernisation of the industry and the increase of productivity, as well as to regulate the competition. however, its principal aim was to unite the control over the main strategic coal and steel industries of the member states, mainly the france and the west germany, to provide that the war between the member states would be impossible. in march, 1957, the six countries of the ecsc – the federative republic of germany, the france, the italy, the belgium, the netherlands, and the luxembourg, entered into the rome agreement treaty on establishment of the european economic community (eec) and the european atom energy community (“euratom”). on the july 1, 1967, the merger treaty, related to uniting of these institutions into the european community, came into force. in 1992, the european economic community changed into the european union (eu). also in the military sphere, the two political systems demonstrated their power. on may 14, 1955, eight socialist states established the military warsaw treaty organisation (politiskā 1987: 731). the signing of the warsaw treaty in may, 1955, may be regarded as the east block’s answer to the accession of the federative republic of germany to the nato military alliance, because the warsaw treaty union was established in a week after this event. during the post-war period, the relationship between the two competitive systems of the world (the socialism and the capitalism) continued to escalate and get up not only in the europe, but also on the global scale. after the second world war, in 1945, two super powers – the usa and the ussr developed. the countries, collaborating with the usa were called the west block countries, but territories controlled by the ussr – the east block countries. the representatives of the most powerful countries of the world had to understand that the ussr would not give up the spread of the ideology related to a worldwide socialist revolution. also stalin was not going to bring out the soviet army from the occupied countries, but continued to carry out the policy of socialism victory walk in the europe and in the world. as the beginning of the cold war is regarded the march 5, 1946, when the former prime minister of the great britain, winston churchill, speaking in fulton (usa), announced that an “iron curtain” had been dropped between the ussr and the rest of the europe. in his turn, the president of the usa, harry truman, aiming to help the greece and the turkey to overcome the threats of communism, announced, on the march 12, 1947, that his country would support free nations, opposing to subjection. this announcement, having gone down into the history as the “truman doctrine”, introduced curb tactics of communism expansion into the foreign policy of the usa. in their turn, the developments between the victorious countries continued to expand already in the territory of the germany. on the may 23, 1949, on the basis of the occupation zones of the usa, the great britain and the france, the federative republic of germany (frg) was established, but on the october 7, 1949, in the occupation sector of the ussr, the democratic republic of germany (drg) was established. on the may 26, 1952, the government of the drg closed the border and established the borderland between the both parts of the germany and the berlin, but, at night of the august 13, 1961, the army troops of the drg started building of the berlin wall, which was pulled down only on the november 9, 1989. together with the fall of the berlin wall and merging of both german states, the decline of existence of communism ideology and of its introducer – the ussr, took, in point of fact, its start. also on the global scale, the world continued to split into two parts. on the september 2, 1945, the democratic republic of vietnam was proclaimed. in the territory of vietnam, there began a war (1946–1954), which continued, with some interruptions, from the 1955 even until the 1975. in september 1948, the korean national democratic republic was proclaimed. the korean war broke out and continued from 1950 to 1953. in october 1949, the chinese democratic republic was proclaimed. although, during the post-war period, as a result of different events, the socialist ideology continued to be issn 1822–8402 european integration studies. 2014. no. 8 79 adopted by a range of new countries, however, after the death of stalin (march 5, 1953), the social and national liberation attempts began to take place not only in the ussr, but also in the satellite countries controlled by the ussr. in summer of the 1953, a mass strike of political prisoners began in forced labour camps of political and special regime, established in vorkuta city area, a remote northern arctic zone, the cause of which was the decree of the supreme council on amnesty that was attributed to different categories of prisoners, but not to the political prisoners, regarded still as being dangerous to the political ideology of the ussr. in the middle of the june 1953, the impressive labour rebellion in pilzen, czechoslovakia, was bloody suppressed by the tanks of the prague communist regime. some days later, on the june 17, 1953, the first biggest national rebellion in the socialist encampment took place in the capital of other satellite of the ussr – the drg. on the october 23, 1956, with shooting at a peaceful student demonstration in the budapest, there took the beginning the hungary rebellion of the 1956. in budapest, the stalin sculptures were overturned and the soviet symbols torn off. however, the hungarian army changed the sides. the new hungarian prime minister, imre naģs, announced about the leaving of the warsaw treaty block. however, on the november 4, additional soviet army forces came into the hungary, and an armed suppression of the national movement began, which ended with the suppression of national selfdetermination rights by the occupation state on the november 10, 1956. the manifested by the ussr ideas of a worldwide revolution found a fertile sole also in the america. in 1959, fidel castro came to power in the cuba and declared that he is a marxist and protector of the socialist ideas. in the may, 1961, f. castro announced that cuba is a socialist republic. in result of such announcement, the diplomatic relations between the usa and the neighbouring cuba, being only 90 miles from the florida, became strained dramatically. in its turn, the ussr, being concerned that the nuclear arsenal of the usa was located in the territory of the turkey, i.e. 150 miles from the border of the ussr, was interested in the balance of forces to its favour. to defend the socialist cuba against a possible invasion of the usa, the leader of the ussr, n. hruščov, accepted, in the summer of the 1962, the plan of installing of soviet rockets in the cuba. in 1962, the relations between the ussr and the usa culminated in such degree that could lead to a nuclear war. in the history, the intensity of this conflict is described as the cuban or caribbean conflict. during the caribbean (cuban) crisis, the contrariety of the social systems intensified to a white heat that was one of the most serious threats to the peace in the world since the korean war. as it is well known, during the period 1961–1972, there was no one meeting of the leaders of the usa and the ussr. ideological struggle of the systems the success of the ussr in conquering of space created a contemplation in the population about the long-term existence of the socialist system, notwithstanding that wages were not paid, the social security system of population as good as did not exist. during the cold war, all possible funds were channelled to financing of the military industrial complex. during the cold war, there took place a competition in creation of new weapons of mass destruction, the use of which might be able to influence not only several nations or countries, but the further existence of the whole humanity. the competition of social systems took place also in the ideological campaign. in the beginning of the 1960s, the ussr announced that, in 1980s, its population would live in the communism. in 1961, the soviet press published the text of the project of the programme of the communist party that promised that the today soviet people generation would live in the communism. in the case of latvia, the reflection of such ideology may be observed in the information of that time, being published by the press, propagated and disseminated otherwise. fifty years ago, the readers of the magazine ‘zvaigzne’ (january 5, 1962) could find in the article “vārds 198%.gadam!” a description of the benefits of socialism and the prognosis of development of communist life standard and to find out that in the 1980s the soviet people will live in communism. the editorial board, preparing the commentary, in the form of an anonym reportage and interview, had, in the introduction of its paper, written the following: “1981! what are we feeling, pronouncing this number? impatience? appreciation? perhaps all of it? we know – that much of it all, being only intended and planned today, will be then implemented long ago already. the soviet country will be way ahead of america. … every family will have an individual, comfortable flat. we will have the shortest working day, the best supply, the highest social life culture, and the highest life standard in the world. we will have much of that we cannot even fancy today, because the life developed by communists is richer than the most adventurous fantasy. and yet – everybody of us desires to have a closer look at the future. therefore we give the word to nineteen eighty one!” the publication mentions that the communication between the cities will be maintained by missile planes. the flight from riga to moscow will take fifteen minutes. the baltic sea will be turned into a freshwater lake, because several dams in denmark will zone it off from the cold and salty north sea. because of the climate changes, the holidaymakers will stay in riga jūrmala longer, the harvest in fields will not get wet, but, instead of strawberries, the grapes will be cultivated. of course, publications may provide also a great many of fantasies to influence people ideologically. irrespectively the fact that, since september 22, 1921, the republic of latvia was a member state of the league of nations, the government of the independent latvia concluded, in the 1939, a treaty with the ussr that provided the possibility to locate military basis and a contingent of army troops of the ussr in the territory of latvia that, for the republic of latvia, was the most essential mistake in strategic development of an independent state. in relation to the russian – finland war, the ussr was, in 1939, excluded from the league of nations. in their turn, the inhabitants of the independent latvia, having, in result of molotov-ribbentrop pact, got into the influence zone of ussr, experienced the june 17, 1940, when the ussr occupied latvia. on the june 14, 1941, the first deportation of inhabitants took place, but in the march (25–28), 1949, before the beginning of the collectivisation, there was the second deportation – the deportation of the enemies of the socialist system. a deportation to siberia of creative intelligentsia, politicians, deputies of the saeima of republic of latvia and the self-governments, leaders of the political parties, officers and other latvian people of different issn 1822–8402 european integration studies. 2014. no. 8 80 nations took place, irrespective of the promise that, with the collectivisation, the lifestyle of the farmers in latvia would not be deranged. however, the deportation of the people to the ussr created a fear to the population that did not vanish from their memory up to the 1991 – the restoration of independence of latvia. also in the socialism camp – in the czechoslovakia socialist republic, in the middle of 1960s, the communist regime became more and more unpopular. in order to create “socialism with a human face”, on january 5, 1968, alexander dubček was elected the leader of the communist party, and in april, 1968, the so called programme of action was proclaimed. it was a totality of several reforms and plans. although dubček’s initiatives got a vast support of the population, yet the leadership of the ussr, with leonid brežnev at the head, perceived them as the first steps of derange of the soviet system. the leadership of the ussr could not tolerate that during the cold war one of its satellites moved to western democracies. in the night from the august 20 to 21, 1968, five states of the warsaw pact invade into czechoslovakia. as a result, dubček was arrested by soviet armed forces and taken to moscow. insight into the course of politico-economic developments from the great depression the usa was led out by the new deal carried out by the president franklin roosevelt and his administration. on the basis of reforms, the us dollar was freed from the gold standard, the introduction of a strong economy regime in the financial area was started all over the country, a progressive tax system was introduced, the state organized large building projects of infrastructure, successfully was solved the diminishing of debt burden of bank debtors, the rights of trade unions were strengthened, the minimal wage introduced, the maximal length of working day defined, the social security system (supports, pensions, health insurance and others) introduced. the course, carried out in result of the reforms in the usa, bore fruit, and was the main sponsor of the economies of the european countries destroyed during the war (marshal plan) and, at the same time, the most serious competitor (judrupa, i., 2007: 20–23). the main principles of the new deal, based on the use of protective mechanisms of the inner markets of the countries, provided economic growth impulse for the countries of the world in both the west and the east. this model is characterized by a mixed economy (large public or state and self-government sector, private sector and cooperation), progressive tax system, strong regulation of financial area and social infrastructure, social guarantees, guaranteed, state subsidized health care and education, strong trade unions, state responsibility for welfare of all citizens and human rights, democracy. such system provided a sufficiently high employment level, equalized the stratification tempos of population and facilitated solitaire development of the society (galbraith, j.k., 1994). the inability of one of the classical advocates of the “gold standard”, the great britain, to hold the gold as the measure of the currency value of the countries, led to the use of this situation in its own interests by the former british colony – the united states of america, having suffered relatively small losses during the second world war, but profited well on account of the warring countries, through financing their expenses, created by the war, and, as a result, the warring countries had been turned into debtors of the usa. the after-war currency system created great advantages to the usa, because, if other countries were, for covering of their foreign debts created by deficits of the balance of payments, pressed to set to their gold reserves or to restrict the consumption, and to facilitate the export, then the usa was able to repay their foreign debts in their inner currency, without taking into account the externals. in such way, it continued until the middle of the 1960s. in 1971, the usa was no more able to convert dollars, i.e. to exchange them against gold. the trust to dollars and to the rate of their exchange diminished, and the bretton wood system collapsed. since 1971, the states abandoned stable currency rates and turned to freely floating exchange rates. the crisis of the bretton wood monetary system began in the end of 1960s because of devaluation of the sterling pound of great britain. the bretton wood monetary system had served nearly 30 years as an international instrument of economic development. it was stimulated by the existence of a great number of economic contradictions and the instability, as well as by the cyclic crisis of the world. also the increase of inflation made a negative impact on the prices and the competitiveness of the companies all over the world, resulting in instability of the exchange rate. the instability of the balance of payments of the countries (chronic deficit in the usa and great britain; an active balance in germany and japan) created a floating of the exchange rate. at the beginning, the bretton wood system was very stable, because all countries were in need of dollars; but, in the course of time, a “shortage of dollars” emerged. the breakdown of the bretton wood system led to the devaluation of the dollar. the confusion set in all over the international payments. at one and the same time, there existed the official and the free market exchange rates. after the second world war, the balance of payments of the usa began to worsen, as the dollars, in the form of different investment projects, inter alia, the marshall plan and loans, began to flow out of the usa. as a result, the negative balance of payments of the usa began to increase, and, in the 1970, it was even 10 billion usd. the deficit of the balance of payments meant a greater outflow of the dollars from the usa, followed by a decrease in gold reserves. in other countries, a rapid increase in amount of dollars took place. the amount of dollars increased rapidly in germany, as well as in france, great britain and italy. the changes in the power of the world were followed by: • devaluation of the pound, 1967; • devaluation of the franc of france, 1969; • revaluation of the west germany mark, october, 1969; • devaluation of the dollar, 1971. in 1971, the usa ceased, one-sidedly, the exchange of the dollar against gold, because the us dollar began to lose rapidly its role as a means of payment. in 1973, the bretton wood monetary system ceased to function (latvijas 1982: 2. sējums 134). with breakdown of the bretton wood monetary system (1971–1973), the official gold market ceased to exist, and, after that, the centralized gold reserves of the countries could get into the free market only (vēciņš 1993: 136). since the 1978, the monetary and financial relations on the global scale began to be regulated by the jamaica monetary system latvijas 1982: 2.sējums 134). the jamaica monetary issn 1822–8402 european integration studies. 2014. no. 8 81 system was created in the 1976 in kingston (jamaica) on the basis of the agreement achieved by the countries of international monetary fund (imf) on the subject of reform of the international monetary system. with acceptance of the jamaica monetary system the bretton wood monetary system ceased to exist. the period from 1930s to 1980s may be called the period of a non-liberal policy in economics. since 1980s, the nonliberal policy was abandoned in the world, and the neoliberalism appeared (čangs 2011: 51). in the post-war period, the reality got into contradiction to the economic theory of keynes, being based on the importance of the role of the national states in regulation of the market processes. as it is well known, the global economy experienced the crashes created by the financial economic crisis of the 1929–1933 (galbraith, 1988). the theoretical justification for overcoming of the implications, created by the crisis, was provided by the british economist j.m. keynes (1883–1946). in the book “general theory on employment, interest and money”, published in 1936 (keynes, 1947). john maynard keynes disclosed the causes of the great depression and developed methods for improvements of the economy. to this publication, his name is related as the founder of the theory of macroeconomics (samuelson, p., 2010) . before the terms macroeconomics and microeconomics were not used because a general concept economics took place instead. only in the 1941, a little known economist of the statistical institute of netherlands, p. de wolf, mentions it, for the first time, in one of his publications, attributing to microeconomics the single persons or families, but to macroeconomics – the large groups, various strata of society, and nations (гукасьян, г. м., 2001: 8). if, after the great depression, the economic theory of keynes revived the economic life of the countries, having experienced the crisis, than in the end of the 1960s the global economy faced new globalisation challenges. in the 1970s, the ideas of monetarism (monetary policy) could be observed at the horizon, the basics of which were formulated in support to a free market economy that foresees a minimal interference of the state into economic relations (krilovs l., 2009: 65). a new wave of liberalism or the neoliberalism appeared, proclaiming that the countries have to accept such rules of the play that are written by international organisations. it meant that the national states could no more participate actively in the regulation of the economic processes in their countries because of the possibility to come into the contact with trespass of a signed agreement (keišs, s., bramanis, d., 2011:170). the founder of the monetary economic theory is the economist of the usa milton friedman (1912–2006), the nobel prize laureate in economy. (потапова, и.с., 1998: 112). friedman was one of the most consequent advocates of the monetarism and the free market, in opposition to keynesianism or the welfare state idea. the concepts of the monetary theory are based on the changes in the amount of the money, being regarded as the main cause of changing fluctuations in economic development. in result of regulation of the amount of the money, the price level, the income of the population and the employment become influenced, but the stabilization of the amount of the money in circulation provides also the stability of the economy on the whole (ekonomikas 2003: 231). new globalisation challenges to the economic science since 1980s in the beginning of 1970s, the economy of the world faced events, having been unforeseen previously. the first and the most important of them was the problem created by huge debts of the third world (bojārs, vilne 1996:7). since the 1980s the non-liberal policy was, all in all, abandoned in the world, when the neo-liberalism appeared. in the end of the 1980s, the failure of so called import substitutions in industrialisation (isi), based on protectionism, subsidies and regulations, had become too obvious, in the developing countries, to be ignored. the idea of import substitutions in industrialisation means that an underdeveloped country begins itself to produce the products, being, previously, used to be imported, replacing, in such way, the imported industrial products by local equivalents. it could be achieved artificially, making the import more expensive through the tariffs and import quotas or the subsidies to local producers. in the 1930s, this strategy was accepted by a number of latin america countries. in that time, most of the developing countries were not able to practise the strategy of isi, because they were either colonies or subjected to “unequal agreements”, prohibiting them to determine the tariffs. the isi strategy was adopted by most of the developed countries after obtaining independence, from the middle of the 1940s to the middle of the 1960s (čangs 2011: 51–52). the east asian economic “miracle” that already practised the free trade and was opened to foreign investments, was like an alarm-clock to other countries. after the third debts crisis in the 1982, a number of developing countries abandoned the state interference and protectionism and adopted neo-liberalism. these tendencies, oriented to a global integration, were crowned by the collapse of communism in 1989 (čangs 2011: 52). in the official globalisation history, the earlier period after the second world war is reflected as an imperfect globalisation time. while, among the rich countries, the integration developed essentially, accelerating their growth, most of the developing countries refused fully, till 1980s, to take part in the global economy, so abstaining from economic progress (čangs 2011: 56–57). neo-liberalism neo-liberalism is interpreted as a discipline that supports the free market, a minimal interference of the state into economic relationship, as well as private property rights (бартенев, с.а., 2000: 161). the economist bred delong indicates to the two basic principles of neo-liberalism; they are: a close contact between the developed and developing countries that is the best way, how to accelerate the movement of technologies. it is the main precondition to provide that the poor countries could become well-off; all in all, the governments lack the ability to manage big industrial and commercial companies, therefore the state administration must be scaled down and it must fulfil the most essential tasks – distribution of income, governing of judicial system, provision of public benefits and others. the other sectors must be privatized (delong, j.b., 2000). issn 1822–8402 european integration studies. 2014. no. 8 82 as one of the brightest basics of the neo-liberalism, there is mentioned the principle, elaborated in the 1970s during the new york crisis, and used later, for the first time, internationally, during the mexico crisis, in the 1982, i.e. that the state has, at all costs, to protect the financial institutions. with the aim to rescue the new york investment banks, during the mexico crisis, the imf and the treasury of the usa joined into a guarantee for the mexico. wherewith, there was started, for the first time, the approach that these institutions provided a loan to the government (demokratijas, 1993: 47; harvey, d., 2009). beginning with the 1982, the imf provides the lending on condition that the countries, having got into problems, accept only such policy as the liquidation of the deficit, the tax increase and the increase of the interest rates that causes a shrinking in economic growth of the country, as it is mentioned by stiglics (stiglics 2010: 20). the ideas and initiatives related to creation of international economic institutions were good; however, in the length of time, they changed, gradually, into a fully different kind of institutions. the keynesian orientation of the imf that accentuated the market failure and the role of state in creation of working places was replaced by the market mantra of 1980s, a part of “washington consensus” – the agreement between imf, world bank and treasury of the usa on the subject of the “right policy” of the developing countries that proclaimed a sharply different approach to development and stabilisation of economy (stiglics 2010: 23). a lot of ideas, included in it, were developed as the answer to the problems of the countries of latin america, where the governments had let the budget out of hands, and the free monetary policy had created a wild inflation. in some countries of the latin american region the achieved, after the second world war, economic growth became exhausted, as if because of the excessive interference of the state into the economy. but the ideas that were developed, say, for solution of the specific problems of the countries of latin america, were afterwards accepted as suitable by the countries all over the world (stiglics 2010: 23). despite the lack of evidences, the liberalization of the capital market became realized as the only solution related to acceleration of economic growth of the country. stiglics remarks that the economic policy, being the basis of development of the washington consensus, and introduced by the developed countries, turned out as inappropriate to the countries in their early development or transition stage (stiglics 2010: 23). for example, the majority of industrially developed countries, as well as the usa and japan, had developed their economy on the basis of a clever and selective protection of some production industries as long as they became strong enough to compete with foreign companies. although the all-embracing protectionism has not always functioned in the countries, having tried to use it, similarly as unsuccessful has also turned out a too rapid liberalisation of the trade. in case of pressing of developing countries to open their market to imported products that compete with products of certain industries, such ones that are dangerously sensitive according to competition of more powerful rivals from other countries, may lead to catastrophic implications in both areas the social and the economic. in developing countries, there takes place a systematic wiping out of working places; the poor farmers are not, simply, able to compete with subsidised products of the europe and the america, before the industrial and agricultural sector had not been in capacity to become stronger and create new working places (stiglics 2010: 23–24). according to approved history, the neo-liberalism policy that was realised during this period and the events, related to it, are the result of developments of the global economy of the world. because of the potential of liberalism and welfare, it is to be compared even with “the golden era” of liberalism (1870–1913) (čangs, h., 2010: 11). to find answers to the questions, remaining still unanswered, it is necessary, in economic theory, to carry out studies of globalisation and market development processes. conclusion under globalisation conditions, the market processes and problems of social economic development influence, in one way or another, all countries of the world. the evaluation of this influence and making use of its positive sides and the avoidance of the negative ones depend on the condition how far the development of the economic thought keeps step with the challenges of globalisation. otherwise, the coming into being of a line of surprises and wrong explanations are unavoidable that may lead to undesirable implications. it is evidenced by several striking examples. if in the beginning of the 20th century, there dominated, in the economic theory, the thought that all misfortunes of the society were caused by the crises of the overproduction, then, in the end of the 20th century, the society was subjected to the experience of the implications of excessive overconsumption crises. in the end of the 20th century and in the beginning of the 21st century, even the national states had got into solution of insolvency problems, borrowing the money, inadequately, in the domestic and international markets. in the first decade of the 21st century, this tendency affected, especially painfully, also some countries of the eu. similarly, it is with the events in the ukraine, if we look in the context of the globalisation. it leads to the conclusion, that the reason is to be sought in the circumstance that, there is, as regards the development processes of the society, taking place insufficient attention to the topicality related to the study of economic regularities. if the society would be functioning normally, i.e. accordingly to adequate scientific concepts, then there could not be created a situation that, on the global scale, the politicians decide on the problems that are related to satisfying of the needs of the society. in economic theory, the discussion, involving economic laws, became exhausted during the period from the first world war to the second world war. instead of it, the economic science fell apart into microeconomics and macroeconomics, where there, as a norm, was adopted the concept of a cyclic development of economy. if we respect the laws of the nature and are not going to contradict them, it should be used the same attitude according to the laws of development of the society. it is time to return to fundamental researches in the economic science. without such researches, it is impossible to come to a balanced development that is free of cyclic crashes of the crises. also the wars and the annexation of foreign territories form not the way to increase the wealth of a nation. it is important for every country to find, in the due time, its best way for a further development, taking into consideration issn 1822–8402 european integration studies. 2014. no. 8 83 all inner and outer processes and their interaction. especially important the interaction of these processes turns out to be in the small countries, because they must be prepared to react adequately to the developments, taking place in the big countries. in relation to the small countries, including latvia, as a special problem, related to seeking for solution in the globalisation context, may turn out their history, especially, for the period of involvement into the structure of the ussr, because it may be, not always, understandable for the representatives of the western countries. the assistance in understanding of the public processes and the development of economic thought of the post-socialism countries may provide, first of all, the scientists, having lived under conditions of the centralized command economy or carried out researches related to these problems. therefore, as a topicality, there has become fundamental, theoretical and practical researches in ones own country, cooperating, in this area, with other post-socialism countries and the western countries. references „vārds 1985 gadam!’ žurnāls „zvaigzne”, 1962.gada 5.janvāris, nr.1, 5–6 lpp. bojārs, j., vilne v., 1996. starptautiskās investīcijas. lu starptautisko attiecību institūts. rīga, 1996. – 265 lpp. deksnis, e. b., 1996. eiropas savienība, mīti un īstenība. junda, rīga, 192 lpp. delong, j.b., 2000. globalization and neoliberalism http:// econ161.berkeley.edu/econ_articles/reviews/alexkafka. html demokrātijas pamati. 1993. zinātne, rīga, 47 lpp. ekonomikas un finanšu vārdnīca, 2003. apgāds norden ab rīga, 514 lpp. galbraith, j.k., 1988. the great crash, 1929. houghton mifflin company, boston, 206 p. galbraith, j.k., 1994. a journey through economic time. houghton mifflin company, boston, 255 p. hadžūns, č., 2011. sliktie samarieši. no angļu valodas tulkojis pēteris treijs. apgāds „zvaigzne abc”, rīga, 384 lpp. harvey, d., 2009. is this really the end of neoliberalism? http://www.counterpunch.org/harvey03132009.html judrupa, i., 2007. eiropas valstu ekonomika. rtu izdevniecība, rīga, 332 lpp. keišs, s., 2012. challenges of globalization to economics science and latvia. journal: economic and culture & ekonomika un kultūra. ekonomikas un kultūras augstskola. rīga vol.5. pp. 51–66. keišs, s., bramanis, d., 2011. latvian regional development in the context of global economy. journal: economics and culture & ekonomika un kultūra. rīga vol.3. pp. 160–180. keynes, j. m., 1947. the general theory of employment, interest and money. macmillan and co, london, 403 p. krilovs, l., 2003. ekonomiskās domas vēsture. lekciju konspekts, i daļa. rtu izdevniecība, rīga, 216 lpp. krilovs, l., 2008. ekonomiskās domas vēsture. lekciju konspekts, i daļa. rtu izdevniecība, rīga, 44 lpp. krilovs, l., 2009. ekonomiskās domas vēsture. lekciju konspekts, iii daļa. rtu izdevniecība, rīga, 105.lpp. kučinskis, j., 2000. jaunā pasaules kārtība un mēs paši. jēkabpils, 349 lpp. latvijas padomju enciklopēdija. 1984, 5.1.sējums. galvenā enciklopēdiju redakcija. rīga. 762 lpp. latvijas padomu enciklopēdija. 1982, 2.sējums. galvenā enciklopēdiju redakcija, rīga. 732 lpp. politiskā enciklopēdija. 1987. galvenā enciklopēdiju redakcija, rīga, 780 lpp. samuelson, p., 2010. economics. 19th ed. new-york: mcgraw-hill, 715 lpp. stiglics, dž. j., 2010. globalizācija un neapmierinātība ar to. sia „biznesa augstskola turība”, rīga, 246 lpp. šreters, h.j., 2004. eiropas savienības leksikons. politika. ekonomika. vēsture. kultūra. tulkots no vācu valodas. jumava, rīga. 267 lpp. vēciņš, ē., 1993. naudas lietas. skaidrojošā vārdnīca. zvaigzne, rīga, 170 lpp. бартенев, с.а., 2000. история экономических учений в вопросах и ответах. юуристь, москва, 192 с. гукасьян, г.м., 2001. экономическая теория: ключевые вопросы: учебное пособие. под ред. д.э.н. добрынина а.и.. 3-е изд., доп. инфра-m, москва, 199 lpp. потапова, и.с., 1998. история экономических учений. учебное пособие. мгиу, москва, 233 с. the article has been reviewed. received in april, 2014; accepted in june, 2014. 69 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 abstract cost-effectiveness of prison system development – comparison of the european countries http://dx.doi.org/10.5755/j01.eis.1.14.26384 the possibility to achieve successful resocialization of former prisoners back into society is an ongoing public debate, making it challenging for policymakers to implement prisoner rehabilitation programs capable of maintaining the public safety while allocating public funds in the most efficient way. the main aim of this study is to examine what is necessary for an investment in prison system development to be justified. the hypothesis of this study suggests that such investment can be cost-effective by reducing crime and recidivism rates in the long term by ensuring proper rehabilitation of prisoners. accordingly, this research compares various european countries regarding their imprisonment standards and costs in order to conclude which countries operate in the most effective way and what is crucial to obtain a decrease in the reoffending rates. the key results suggest that it is possible to find a correlation between such variables as the imprisonment costs, incarceration rates and the recidivism rates. it is possible to draw parallels between the amount of money countries spend on one prisoner a year and the recidivism rates of such countries, suggesting that the reoffending rates can be reduced by increasing the amount of resources allocated for the improvement of prisoner’s lives. furthermore, such an investment should not only take the form of establishment of a proper environment for successful rehabilitation – prisoners should be provided with education and work possibilities to prepare them for life outside the prison walls. moreover, the study highlights the need for post-release support mechanisms capable of re-integrating former convicts back into society, since such mechanisms could reduce the likelihood of re-offending. keywords: european imprisonment practice; human rights; imprisonment costs; recidivism; rehabilitation. european integration studies no. 14 / 2020, pp. 69-79 doi.org/10.5755/j01.eis.1.14.26384 introduction submitted 05/2020 accepted for publication 07/2020 cost-effectiveness of prison system development – comparison of the european countries eis 14/2020 elina kruze riga graduate school of law janis priede university of latvia the possibility of achieving a successful re-socialization of prisoners back into society is an ongoing public debate (costelloe & warner, 2003) making it challenging for policymakers to decide on the implementation of rehabilitation programs which would serve the purpose of maintaining the public safety while allocating public funds in the most efficient way. while decades away application of penalty derived from the desire for revenge and was applied through different means of punishment, policymakers of the 21st century are trying to develop correction measures in a way that would be profitable to both society and the offender. despite the fact that the overall imprisonment rate of europe has experienced a continuous decrease during the last years (council of europe, 2018), some european countries remain to have relatively high incarceration rates. since high prison population creates high costs, the main aim of this research is to conclude what is necessary for the investment in the development of a prison system to be justified. as one of the major causes of the high prison population is the high http://doi.org/10.5755/j01.eis.0.13.24033 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 70 number of convicts repeatedly incarcerated for property-related offences, the primary purpose of the rehabilitation programs established in the prison facilities of various european countries is to ensure a proper re-socialization of former convicts back into society. since the reoffending rates of the european countries range from 20% to 70% (council of europe, 2014), the aim of this research is to come to a conclusion of what the countries with high recidivism rates are lacking. accordingly, this research is dedicated to the question of what is necessary for an investment in prison system development to be cost-effective in the long term. hypothesis of this study suggests that the investment in prison system development is cost-effective by reducing crime and recidivism rates in the long term if a proper rehabilitation of prisoners is ensured. this article applies two legal research methods – the doctrinal method and the comparative method. firstly, it looks at the development of the european system regarding the legal framework of the standard imprisonment rules. secondly, it compares different punitive systems, finding a correlation between their imprisonment costs and effectiveness in order to determine which countries operate most effectively based on the rate of reoffending. accordingly, the qualitative research method is used to explain the existing practice and success of three completely different prison systems, namely the practice of norway, the netherlands and latvia, and the quantitative research method is applied to analyze imprisonment conditions and costs, using the regression analysis in order to find out what effect these costs have on incarceration and recidivism rates in the long term. in order to reach the aim of the research, the tasks of the study are formulated as follows: 1 to review the movement towards the modern european imprisonment practice; 2 to gather data regarding imprisonment conditions and costs in the chosen european countries; 3 to calculate the correlation between the incarceration costs and reoffending rates; 4 to compare different penal systems regarding the prison conditions, costs and the success of prisoner’s rehabilitation programs. the key findings of this research suggest that the investment in prison system development can be cost-effective if a proper rehabilitation of prisoners has been ensured not only during the time of their incarceration but also after release. since the high prison population can be reduced by achieving a decrease in reoffending rates, it is of crucial importance to establish post-release support mechanisms capable of ensuring proper resocialization of former prisoners back into society. moreover, acknowledging the wide range of issues faced by ex-prisoners by the time of their release, such as unemployment and lack of education, it would be in the interest of any state to take the appropriate measures to increase employer’s willingness to provide former convicts with job possibilities through employer-support mechanisms, possibly leading to decrease of reoffending rates. european imprisonment practice high incarceration rates create high costs. since almost all the european countries have abolished the death penalty, the most applied means of punishment for a crime committed have taken the form of imprisonment. during the 19th century, the concept of a prison in the view of the european countries experienced a radical change, resulting in a prison being described as “a place of personal reform” and “a testing ground for judging readiness for release” (european prison rules, 2006). the united nations standard minimum rules for the treatment of prisoners states that the main aim of imprisonment is to protect citizens against crime, at the same time trying to rehabilitate offenders in order to reduce the recidivism rates (un standard minimum rules for the treatment of prisoners, 1957). accordingly, it is the rehabilitative aim that has recently gained an increasing support in europe (meijer, 2017). whilst a definition of the term “rehabilitation” has not been provided at the european level, it has been used as a synonym for such expres71 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 sions as “resocialization” and ”reintegration”. although the idea of the means of rehabilitation has been expressed in the domestic law of various european countries, the rehabilitative ideal varies from one country to another (martufi, 2018). the european court of human rights has provided that the “process” of rehabilitation entails the possibility of prisoners to engage in such activities as education, work and vocational training (murray v. the netherlands [gc], 2016, § 101). it is worth mentioning that among with various rules for acommodation, the un standard minimum rules has been an essential source for the guidance of prison system management regarding such matters as eduaction, treatment of prisoners and after-care matters, setting international standards below which no state’s penitentiary system should fall. however, the extent of rights guaranteed to convicts in practice varies between countries (unesco, 2018). when comparing prison systems of different countries to find out which practices are most profitable to society in the long term, it is essential to look at prison conditions and costs, the approaches established to prepare prisoners for life after release and how effective they are based on recidivism rates. in the following part, the incarceration rates, costs and recidivism rates of 27 countries, namely 25 member states of the european union, the united kingdom and norway, are analysed. firstly, a country’s gdp per capita is compared with the amount of money spent on prisoners a year. gdp per capita has been computed, dividing the annual gdp of a country in the year of 2018 (statista, 2018) with the population rate in the same year (statista, 2018), estimated in euros. costs per one prisoner a year have been computed, firstly finding the number of prisoners in each country in 2018, dividing the population rate by the incarceration rate of the same year (statista, 2018) and further dividing the amount of money spent on the prison system a year by the number of prisoners. since the latest official data of imprisonment costs in european countries has been provided by the council of europe in the annual penal statistics report of 2018, annual imprisonment costs have been derived from this report. as stated in the report, costs of imprisonment estimate the budget spent by penal institutions, including health care, costs of security, administration, services, as well as support and rehabilitation programs (council of europe, 2018). figure 1 draws a trend of correlation between the gdp per capita and the costs per one prisoner, showing that the bigger the gdp, the more a country is spending on its prisoners. the correlation figure 1 author’s calculations based on data regarding imprisonment costs and gdp per capita of the european countries, in 2018, available on statista. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 72 coefficient is 0.91, which is a strong positive correlation in the amplitude of -1.0 to 1.0, meaning that for a positive increase in gdp per capita there would most likely be a positive increase in the amount of money spent on one prisoner per year as well. related determination coefficient r2 of the two variables is 0.82 in the amplitude of 0.0 to 1.0 it is a strong fit, meaning that 82% of the variations in the amount of money spent on prisoners by the european countries can be strongly influenced by the change in the gdp. it can be seen from the graph that three clusters of countries have appeared. such eu countries as luxembourg and malta have been excluded because of the lack of information regarding imprisonment costs. in the first group, which consist of 15 countries, both gdp per capita and money spent on one prisoner per year do not exceed 30 000 euro. for most of these countries, both variables are similar. italy is placed in between two clusters, as its gdp per capita is lower than 30 000 euro while it spends almost 50 000 euro per year for one imprisonment place. the second cluster consists of 7 countries which spend 40 000 euro to 72 000 euro per prisoner a year while the gdp per capita of countries vary between 35 000 euro and 45 000 euro. although finland’s and germany’s gdp per capita is almost identical (around 40 000 euro), finland spends 63 529.62 euro per one imprisonment place, while germany allocates the amount of 46 809.41 euro for the costs of one prisoner a year. the third group consists of 4 countries – sweden, denmark, ireland and norway. it should be noticed that although the gdp per capita of sweden is 46 238.61 euro which is close to the values of some countries of the second cluster, the amount of money spent on one prison place of the country is almost three times bigger – approximately 131 610.72 euro, which is one of the highest numbers spent on one imprisonment place. it is also notable that denmark, with a gdp per capita of a bit more than 50 000 euro, is spending more than twice the amount on one prisoner – almost 119 887.60 euro. another country allocated in the third cluster is ireland, with the gdp per capita of 66 345.83 euro, spending one and a half times more on one prisoner – 91 144.31 euro. the fourth member of this cluster is norway – a country with the highest gdp per capita of approximately 74 070.54 euro, spending almost twice the amount for one figure 2 author’s calculations based on data regarding incarceration rates and gdp per capita of the european countries, in 2018, available on statista 73 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 imprisonment place – based on the method of calculations used in this paper and data available, around 143 953.08 euro, which is almost twice the amount of the annual gdp per capita. secondly, the relation between the gdp per capita and the incarceration rate is examined in order to determine whether the wealthier states have fewer prisoners than the ones with a lower gdp. the correlation between the two variables of gdp per capita and the incarceration rate is -0,57. although it is not a significant one, the negative correlation means that for an increase in one variable, a decrease in the other one is most likely to appear. in this case, it can be assumed that if the gdp per capita increases, the incarceration rate of a country is most likely to decrease, as a higher gdp per capita means that the standard of living of a country increase. the determination coefficient of the two variables is 0.32, meaning that in one third of the countries examined the change in the incarceration rates can be predicted due to the change in the gdp. as can be seen from the graph, three identifiable clusters of countries have appeared. the countries creating one cluster in the first graph have now been divided into two groups. the first group of countries consist of latvia, lithuania, estonia, poland, czech republic, hungary and slovakia. this cluster of countries has the highest incarceration rate in the european union – 180 to 240 people out of 100 000 citizens are imprisoned. annual gdp per capita of these countries varies between 12 000 euro and 20 000 euro. the second group of countries consists of portugal, spain, romania, bulgaria, greece, italy, croatia, the republic of cyprus with incarceration rate between 70 and 140 people per 100 000 citizens, and slovenia with the lowest incarceration rate of this cluster – in this country, only 65 out of 100 000 citizens are imprisoned. although the incarceration rate of these countries is almost two times smaller than the one of the first group, there is no significant difference in gdp per capita – for the second group countries, it varies between 7700 euro and 29 000 euro. an interesting phenomenon is the geographical composition of both groups of countries since both the unemployment rate (trading economics, 2019) and the level of happiness of people (eurostat, 2019) in the countries of the first and the second cluster do not differ significantly, one may connect the geographical position of both clusters with the differences of incarceration rates because of climate differences. it can be seen that countries of the second cluster are located closer to the equator and have lower incarceration rates. researches have shown that homeless people have frequently committed crimes punishable by imprisonment in order to spend some time off the streets (abadi, 2018). although not the only possible explanation for the difference between both clusters, one of the reasons for a higher imprisonment rate in countries with a colder climate could be the fact that homeless people are more likely to commit a crime to receive shelter for the cold months of the year in places further away from the equator. the third cluster of countries consists of 12 countries, 11 of which have the annual gdp per capita between 35 000 euro and nearly 75 000 euro. the incarceration rate of these countries varies between 50 to 100 people per 100 000 citizens – this group consists of countries that are wealthier than the ones of the other two clusters. as can be seen from the graph, countries with the lowest incarceration rates are finland, the netherlands, sweden, denmark and norway. although included in this group of countries, the united kingdom has gdp per capita of 36 000 euro, at the same time having 145 out of 100 000 citizens behind bars. during the last 25 years, the imprisonment rate of the uk has doubled, and the authorities continue increasing the amount spent on prisoners in overcrowded prisons by reallocating funds from rehabilitative programs (jenkins, 2019). finally, figure 3 examines the relation between costs per one prisoner a year and recidivism rate in order to see whether the hypothesis put forward in this paper can be confirmed by comparing eu countries which have provided for such information. recidivism rate shows the percentage of prisoners who, after being released from prison, return to it after they have committed another crime. e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 74 figure 3 author’s calculations based on data regarding costs per prisoner a year and recidivism rates of the european countries, in 2018, derived from coe reports correlation between the two variables of annual costs per prisoner and recidivism rate is -0.49, comparing 13 countries which have made the information about reoffending rates available to the public. determination coefficient of the countries examined is 0.24. when calculating the correlation of these countries, it should be taken into account that spain has provided the recidivism rate of 0.3 only for the territory of catalonia (capdevila & serentill & puig & pueyo & ferrer & lopez & bou & pedro, 2015). without the recidivism rate of spain, there is a stronger negative correlation of -0.62, and the determination coefficient changes to 0.41. as it can be seen from the graph, five countries – czech republic, france, netherlands, denmark and norway – create a negative slope, and the correlation rate of these countries is -0.99, which is a perfect negative correlation, meaning that there is a high possibility that with an increase in the amount of money spent on prisoners the rate of recidivism is being reduced. determination coefficient of the five countries is 0.99, creating an absolute fit and meaning the recidivism rate of these countries is strongly influenced by the changes in the amount of money spent on prisoners. it is worth mentioning that norway, which firmly believes in restorative justice, aiming to rehabilitate offender, not to punish it (sterbenz, 2014), has one of the lowest incarceration rates of 65.4 people per 100 000 citizens and the lowest recidivism rate of 20% in the world. in norway, the loss of freedom is looked upon as punishment itself, and even the inmates of the high-security prison have a duty to engage in such activities as work, educational and rehabilitative programs, which cost much money but have proved to be cost-effective in the long term, significantly reducing the recidivism rate (giertsen & alnaes & de vos & jacobsen & dietrichson & horn, 2019). even though reasons for high incarceration rates vary from one country to another, there is a trend of criminalisation of such social problems as substance dependency, poverty and lack of proper education (heard, 2016). one of the main reasons for high prison population rates is the practice of sentencing a significant number of convicts to serve long imprisonment terms for property-related offences; this kind of practice leads to high prison density, often resulting in various human rights violations due to overcrowded detention facilities. given that the majority 75 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 of prisoners are going to be released at some time in the future, it is a safety imperative of every society to ensure that detention facilities have the resources necessary for the establishment of proper rehabilitation programs. although there is no one answer provided to the question of what the most effective rehabilitative approaches of prisoners are and what cost-benefit they bring to taxpayers, it can be assumed that rehabilitative programs can be cost-effective once they reduce the rate of reoffending. therefore, the imprisonment practice of one country from each cluster is further analysed in order to examine what are the reasons for different rehabilitation practices and their outcomes, namely the ones of norway, the netherlands and latvia. in the 1980s the prison system in norway was utterly different than it is nowadays, with the focus on security and having the recidivism rate of 60 – 70% (papendorf, 2006). ten years later, the norwegian correctional service changed the prison system entirely by the introduction of various reforms, starting to focus more on rehabilitation than punishment and offering different educational programmes and other activities to prison inmates who had previously been locked up in their cells most of the time. nowadays, there is no overcrowding present in norwegian prison facilities, and the correctional officers are highly trained to assist convicts through their rehabilitation process. while in most of the countries socio-educational workers and correctional officers are two different professions, the officers of norwegian prisons are both. since norwegians strongly believe in the rehabilitative approach, prison conditions are created in a way that makes a convict’s life in both open and closed prisons as similar to the outside world as possible. moreover, all prisoners are provided with primary and secondary education, additional training in a wide range of different courses, and even with the possibility to enrol in higher education studies. like nowhere else, norwegian prisoners have the access to music classes, concerts and theatre, and they are obliged to spend at least one hour a day outside, where they can take part in various sports programs together with prison officers. although offenders imprisoned have a “duty of activity”, they are not ordered to participate in activities against their will – if they refuse to take part, an order to work is an alternative to such activities (giertsen & alnaes & de vos & jacobsen & dietrichson & horn, 2019). in general, all prisoners have an opportunity to have a job which they can lose as a punishment for bad behaviour, and sometimes they can even apply for a transfer to another prison which offers a broader range of jobs. by creating a regime under which almost of all the prisoners do take part in education, work and other programmes, the re-offending rate of norway has significantly decreased to only 20%. therefore, it can be concluded that the country has established a system which is cost-effective due to its capability to reduce the prison population by successful reintegration of former convicts back into society. an unusual situation has appeared in the netherlands – during the last 15 years, the prison population has almost halved, resulting in a shut-down of 29 prison facilities in the last five years (douw & van’t hoff, 2019). having an incarceration rate of 54.4 people out of 100 000 citizens, the netherlands has one of the lowest prison population rates in the world. even after starting to rent out places in prisons to other countries, it does not have enough prisoners to fill up the remaining 30 prisons (boztas, 2019). the main reasons for such a situation have been told to be both the declining crime rates and increasing use of imprisonment alternatives, such as financial fines. dutch government studies on prison capacity have helped the policy-makers to understand that an increase in shorter sentences and alternative sentencing rather than unnecessarily long imprisonment terms is an essential factor in reducing the prison population. since has not been proved that long imprisonment sentences lead to lower crime rates, the imposition of imprisonment alternatives has proved to be beneficial in some cases. conditions of prison facilities in the netherlands are considered up to recommended material standards (douw & van’t hoff, 2019). e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 76 as there are no other education possibilities than distance training courses available, and the only activity inmates are obliged to attend is work. since the current recidivism rate of the netherlands is 48%, there have been new rehabilitation programs established in order to reduce the probability of reoffending. a non-profit prison care organisation has established a program that invites entrepreneurs to prison to allow them to meet inmates in person, providing offenders with an opportunity to work outside prison walls during the day time in order to establish connections with their future employers (batist, 2019). out of the 68 ex-prisoners who joined the project before being released, 43 have successfully been reintegrated back into society, having stable employment and a place to live. since one of the main reasons for reoffending is the unemployment of former convicts, establishment of projects ensuring the re-introduction of prisoners back into the labour market can be cost-effective in the long term, reducing the likelihood of reoffending. the incarceration rate of latvia is relatively high – 194 people out of 100 000 are imprisoned in the existing nine prison facilities (ministry of justice, 2018). even though new models of resocialization programs have been implemented in the recent years, the rate of recidivism has not decreased; the reduction in the number of people imprisoned is the result of changes in the policy of criminal punishment, not a success of sufficient rehabilitation programs. the inappropriate accommodation conditions leading to overcrowding and violations of human rights is only one of the issues present in latvian detention facilities. according to the statistics of 2018, one fourth of the prisoners serving their sentences in latvian prisons have been incarcerated at least for the fourth time for property-related crimes (state control of the republic of latvia, 2019). latvian probation service has stated that one out of five prisoners commits a crime during the first year after being released (latvian probation service, 2017) due to various problems hindering the re-socialization of prisoners. although in most prisons inmates are offered to attend to employment, educational or vocational programs, having additional access to outdoor yards and gym, there are some prisons where the daily exercise hour outside remain the only activity accessible for inmates, and for the remaining day, prisoners are locked up in their cells (kamenska & pūce & laganovska, 2013). there are not enough employment opportunities present – mostly prisoners sew uniforms or practice woodworking, and it has resulted in a situation where demand for jobs exceeds supply. while around half of prisoners are enrolled in educational programs, only one out of four convicts are working in prison; despite the fact that entrepreneurs are willing to expand their businesses by increasing work opportunities for prisoners, the prison infrastructure does not allow for that. since the most significant part of the prison population in latvia is created by thieves, robbers and those convicted of drug-related offences (central statistical bureau of latvia, 2019), it is often the case that 30-year-old convicts sent to prison for committing one of the crimes mentioned above have no basic knowledge and no social skills; for many inmates, prison is the first workplace. therefore, the lack of work-related education during the time of imprisonment is preventing former prisoners from being successfully re-introduced in the labour market, leading to high recidivism rates. if the recidivism rate of 51% was reduced to 50%, the number of re-offenders sent back to latvian prisons would decrease by 37 people; knowing that one prisoner costs approximately 14 939.45 euro a year, 552 759.65 euro would be saved annually. as most of the offenders are sentenced after committing a property crime, it may be supposed that those 37 people would not have to serve a term of up to 5 years, increasing the amount of money saved to roughly 2.76 million euro. another important factor which should be considered is the employment – supposing that 37 people would earn the minimum wage of 430 euro, an amount of 15 910 euro per month would be earned, outweighing the cost of one prisoner a year. the overall savings could be calculated by adding up the money saved on imprisonment expenses of 37 people with the amount of money they would earn in five years, making a total of roughly 3.72 million euro. acknowledging how much resources 77 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 0 / 1 4 would be saved if the recidivism rate was reduced by only 1% and how important part of the re-socialization process the employment of ex-prisoners is, in a country where employers are highly unwilling to provide offenders with job opportunities (kupčs & zvirbulis, 2019) it would be in the interest of both the society and the authorities to take the appropriate measures in order to increase the entrepreneur’s willingness to employ former convicts. conclusions _ an establishment of policies oriented on re-socialization of prisoners back into society can be cost-effective if a proper rehabilitation of offenders is ensured not only during the time of imprisonment but also after release, meaning that the hypothesis of the research can be confirmed. _ the decrease in reoffending rates can have a positive impact on incarceration rates, reducing the number of people who return to prison repeatedly. accordingly, a decrease in the prison population would reduce the annual expenses of providing prisoners with the basic needs, allowing to allocate funds to the improvement of prison facilities and further implementation of rehabilitation programs. _ it is possible to find a correlation between such variables as the imprisonment costs, incarceration rates and the recidivism rates of the european countries. countries with lower incarceration rates tend to have a higher annual gdp; accordingly, the wealthier the state, the more resources it is willing to allocate to the improvement of convict’s lives. _ the correlation between the annual imprisonment costs of a prisoner and the recidivism rate is noteworthy, as the correlation of the money spent on prisoners a year and the reoffending rates of the countries examined is -0.62; moreover, the data of five countries create strong negative correlation of -0.99 which, taken together with the determination coefficient of 0.99 suggests that there is a high possibility that the reoffending rates can be reduced by increasing the amount of resources allocated for the improvement of prisoner’s lives. _ the qualities offenders have gained during the rehabilitation processes in prisons, such as vocational training and education, should not be wasted by weak post-release support measures. therefore, it is of crucial importance to establish proper after-release mechanisms which would promote a continuation of the rehabilitation of prisoners by ensuring their capability of living a self-supporting and law-abiding life outside prison walls. _ in order to ensure offender’s willingness to change, it is necessary to create the appropriate environment; assuring proper accommodation and non-existence of human rights abuses in the detention facilities is essential for achieving one’s correction, not further damage. _ even if during the imprisonment term offenders have gained all the qualities necessary for living a self-supporting life, former convicts face various difficulties after release. discrimination, lack of work history, occupational skills and experience in the job-seeking processes are only some of the problems faced by ex-prisoners. therefore, it is important to take the measures necessary to establish mechanisms helping offenders to find an employee to the greatest extent possible. _ one of the main problems is the lack of stage between imprisonment and freedom. it is of crucial importance to provide prisoners with work-related education during their imprisonment and proper employment after release. therefore, an establishment of projects ensuring the re-introduction of prisoners back into the labour market can be cost-effective in the long term since one of the main reasons for reoffending is the lack of post-release supporting mechanisms. _ acknowledging the employer’s unwillingness to employ former convicts in latvia, it would be in the interest of the authorities to establish prisoner employer’s support mechanisms through tax reliefs or the introduction of wage subsidies, since such privileges could increase 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(2018). protecting the human rights of prisoners. retrieved march 27, 2020, from https:// en.unesco.org/courier/2018-4/protecting-human-rights-prisoners united nations standard minimum rules for the treatment of prisoners (31 july 1957), para 58. retrieved from https://www.unodc.org/pdf/criminal_justice/ un_standard_minimum_rules_for_the_treatment_ of_prisoners.pdf about the authorskruze elina ll.b in law and business institution: riga graduate school of law fields of interests human rights law, european union law, doctrinal analysis. address address: strelnieku street 4k-2, riga phone: +371 27193748 e-mail: eliinakruuze3@gmail.com priede janis dr. oec. professor institution: university of latvia fields of interests economics, quantitative research, competition, industry. address address: aspazijas bulv. 5, riga phone: +371 67034973 e-mail: janis.priede@lu.lv this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 131 issn 1822–8402 european integration studies. 2014. no. 8 youngsters’ motivations and difficulties for choosing seafarer career. the case of latvia manuel joaquin fernandez gonzalez, dmitrijs semjonovs, aleksejs bogdanecs, sandra ozola novikontas maritime college – novikontas research 17a duntes str., lv-1005, riga, latvia nr@novikontas.lv http://dx.doi.org/10.5755/j01.eis.0.8.7323 the contribution of maritime academies is of first importance to the shipping industry. in order to respond to the growing demand for qualified seafarers in the european maritime community, the quality of recruitment campaigns should be enhanced, taking in consideration prospective students’ believes and fears about the profession. based on career motivation theory and on the concept of “generation”, the aim of this study was to investigate youngsters’ reasons for choosing or rejecting seafarer profession, and to investigate regional and gender differences. in order to answer the research question, a sequential mixed-method study, using open-questions and a questionnaire, was conducted at the novikontas maritime college, in riga, among participants of the concourse “enkurs” from february to may 2014. 219 answers to the questionnaires and 144 to the open questions were recorded. after the analysis of scientific literature, the following research tasks were implemented: first, the questionnaire and open questions were elaborated and piloted; then data collection and preparatory data cleaning was done; after that, data were processed and analysed; the data analysis methods were cronbach’s alpha, kolmogorov-smirnov test, mean of ranks (mr) and median, chi2, spearman’s rank correlation coefficient, cross tabulation and t-test. finally, the interpretation of the results and elaboration of conclusions and recommendation was done. the main “reasons for choosing seafarer profession” were “stable employment” (mr=4.42 in a 5 point likert scale) and “travelling and seeing new places” (mr=4.42), followed by “good salary” (mr=4.38). the main “dissuading factors” were “difficulties for family life” (mr=3.94) and “studies are too expensive” (mr=3.17). statistically significant differences between regions and between genders were found: respondents from latgale and vidzeme were more attracted by seafarers’ team spirit than respondents from other regions. for respondents from riga, the lack of family life is not such a severe obstacle compared with other regions. females seem to be more attracted by travelling and more concerned about bad influence of seafarer work on health than males, while males are more attracted by the salary and prestige of the profession than females. in the last section these findings were compared with recent research and contrasted with the opinion of professional seafarers and real data about these issues, especially about family life, cost of the studies and health problem, for correcting what was wrong and confirming what was right in respondents’ perceptions. some recommendations for adapting career promotion campaigns to the needs of potential students are put forward. the results of this study will help maritime education and training (met) teachers to adapt their discourse to the needs of students. also prospective maritime education students will find useful to reflect on the positive aspects and dissuading factors of this profession and to have a real picture of work at sea, in order to make a well informed choice of profession. keywords: seafarer, career choice, career barriers, career motivations, latvia. introduction shipping is a high productivity industry. the marine and maritime economic sectors forming the eu’s ‘blue economy’ represent roughly 5.6 million jobs and account for a gross value added (gva) of €495 billion (ecorys, 2012). each worker is estimated to have generated €88,000 of gdp, significantly above the eu average of €53,000. the contribution of maritime academies is of first importance to the field: the skills and experience of seafarers are vital to the smooth functioning of the shipping industry. it is essential that seafarers are properly trained and have a thorough understanding of the intricacies and complexities of working in a maritime setting. this is important in terms of safety, efficiency and ensuring the maritime environment is protected. ultimately, it is the professionalism of seafarers that ensures the smooth running of the shipping industry and, in turn, global maritime trade. indicative estimates suggest there were approximately 38,000 students/cadets in maritime academy – type training in 2012, an 11 per cent increase from 2004 (oxford economics, 2014). in spite of these figures, as per latest statistic from world maritime administrations, the average age of acting seafarers is growing. professionals are getting older and the number of new graduates is not compensating this tendency steadily. moreover, crew shipping companies have difficulties for recruiting shipping officers with university level. the latest baltic and international maritime council (bimco) and the international shipping federation (isf) report suggests that the current shortage of officers corresponds to 12% of the total issn 1822–8402 european integration studies. 2014. no. 8 132 workforce (46,000 officers) by the year 2010 (ier, 2000). as stated in a recent document mapping maritime career path (dearsley, 2013:4), the european maritime community faces a major challenge in training sufficient numbers of young people to adequately supply the current and future needs of european union member states commercial trading fleets. there is also a huge, and growing, demand for european trained and qualified seafarers, both officers and ratings, to work in the numerous and varied industrial sectors that to some extent rely on a steady stream of seafarers qualified in accordance with the imo standards of training, certification and watchkeeping convention (stcw) recruitment campaigns are one of the main actions to implement for solving this situation. a recent study concluded that “maritime education and training institutions have to explain young people all merits of maritime profession and show possibility for them to find emotional attractiveness and realization of their interests if they choose maritime professions” (berzins & barbare, 2013:17). in the last years there are some career promotion campaigns at international and national levels, with good results. at the level of the international institutions, the “go to sea!” campaign was launched in november 2008 by the international maritime organization (mason, 2008) in association with the international labour organization (ilo), the “round table” of shipping ngos – bimco, ics/isf, intercargo and intertanko – and the international transport workers federation. the aim of this campaign was to promote seafaring as an attractive option for young people. the campaign focussed on the rewarding, stimulating and longterm prospects of seafarer career, not only at sea but also in the broader maritime industry. collaterally, the “go to sea!” initiative opened an umbrella under which industry and governments could organize their own recruitment campaigns. at national level, in denmark a “world careers” publicity campaign was launched by the danish shipowners’ association in 2008. the number of students entering programmes increased noticeably in 2009 and 2010. in norway also, in 2007, the norwegian maritime forum launched a recruitment campaign to highlight maritime sector opportunities to young people. since then, the total number of students has increased by 42% to reach 1,500 in 2013. in latvia some efforts were done during the last years. since 2007, the latvian maritime administration conducts the competition “enkurs” to familiarize secondary school students with seafarers’ profession. latvian maritime academy is also trying to attract high school students to the maritime sector, participating as one of 10 partners on the european commission project “youth4job”, aimed at promoting the first transition for young people from education to the labour market. the impact of the career promotion campaigns depends on their quality and pertinence. and for improving quality, it seems useful to find out what is preventing those youngsters who are already interested in maritime profession from making a first step to enter maritime industry. it is possible that those youngsters who are interested in seafarer professions are influenced by their friends and relatives with misrepresented information and several myths. myths regarding sea profession, as for example, the long duration of the seafarers’ contract (more than 6 months), the supposed impossibility for seafarers to have a normal family life or the danger tied to seafarer profession due to lack of safety and security onboard, etc., came from a deep past, but they are still very strong in society. however, time is moving forward. nowadays seafarers’ work is safer, and the stability and remuneration of the profession has considerably improved. improvements have been done at institutional level: imo and ilo recently upgraded existing legislations connected with seafarers, among them maritime labour convention (mlc) that entered into force in 2013 and the stcw manila amendments that entered into force in 2012. regarding the number of professional seafarers, latvia holds the 5th place in europe with more than 13 thousand seamen, two maritime colleges and the latvian maritime academy with over 500 students. the pool of the latvian seafarers is stable for the last 4–5 years but the number of graduates from maritime institutions is declining (gailitis, 2013). latvian seafarers are well known among first class ship-owners and have stable and well paid positions on board of their vessels and ashore in their offices. in order to keep the number of seafarers at least on the same level it is necessary to increase numbers of students in maritime educational institutions. in a recent study (berzins & barbare, 2013), it was found that in latvia like in other european highly industrialized countries, youngsters (16–18 y.o.) today found less attractive working on board and a little proportion of them is still interested in the seafaring profession. it is essential to investigate what is attracting and what is frightening the young generation in seafarer profession in latvia. recently several surveys were conducted in latvia on youngsters’ opinions about seafarer profession by the latvian maritime administration and the latvian maritime academy (berzins & barbare, 2013). in lithuania, recent research has been conducted about the relationship between motives of choosing maritime professions and students’ approaches to learning (kalvaitiene, bartusevičiene & sencila, 2011). these researches addressed a large public, including any secondary education students (with and without interest in the seafarer profession) as well as higher education students already involved in maritime education. for enhancing the quality of career promotion campaigns, it seemed important to the authors of this study to focus exclusively on high-school students who were already familiar with maritime profession, in order to solve more accurately their doubts and correct their false perceptions, therefore facilitating their choice of this profession. the aim of this research was to grasp the beliefs about seafarer profession of high-school students who are familiar with maritime profession in latvia. the research question is twofold: 1) youngsters’ reasons for choosing seafarer profession; and 2) factors that could dissuade them from becoming a seafarer. some additional questions regarding youngsters’ interest in and information about seafarer profession, as well as regional and gender differences, were also addressed. in order to answer the research question, a sequential mixed-method study, using open-questions and a questionnaire, was conducted at the novikontas maritime college, in riga, among participants of the concourse issn 1822–8402 european integration studies. 2014. no. 8 133 “enkurs” from february to may 2014. 219 answers to the questionnaires and 144 to the open questions were recorded. after the analysis of scientific literature on career motivation theory and on the concept of “generation”, the following research tasks were implemented: first the questionnaire and open questions were elaborated and piloted. then we made the data collection and preparatory data cleaning. after that data were processed and analysed. the data analysis methods were cronbach’s alpha for reliability analysis, kolmogorov-smirnov test for analysing the level of data, mean of ranks and median for statistical analysis, chi2 for statistical significance analysis, spearman’s rank correlation coefficient, and cross tabulation and t-test for comparison of groups. finally, the interpretation of the results and elaboration of conclusions and recommendation was done. this research will be useful for offering to youngsters a real picture of work at sea. it will help to improve the contents of the information delivered to prospective seafarer students in career promotion campaigns. identifying present fears and myths about seafarer profession will help to improve the quality of information about seafarer career that is delivered to them by several channels (presentation in the schools, information in websites, forums about carrier choice etc.). the research will be useful also for pedagogical staff from maritime education: a better knowledge of students’ fears and expectations will help teachers to adapt their discourse to the needs of students in the first month of their studies. also prospective maritime education students will find useful to reflect on the positive aspects and dissuading factors of this profession, in order to make a well informed choice of profession. theoretical bases of the research in this section we present first the concept of generation applied to youngsters, then the theory of career motivation and barriers underpinning the research. concept of generation: generations’ issue is becoming crucial for adjusting educational approaches and to provide qualitative carrier information to diverse students. the diversity of students requires making changes in teaching and learning approaches (hebblethwaite, 2010) and in carrier information processes. generational theory affirm that people born within an approximately 20-year time period share a common set of characteristics. each generation is shaped by its biography, economic and social conditions, technological advances, and other societal changes they have in common. people with common birth years relate to and develop common beliefs and behaviours around. these commonly held beliefs and behaviours then form the personality of that generation (strauss and howe, 1991; coomes and debard, 2004). following the classification of generation done by n. howe and w. strauss (howe & strauss, 2003), high-school students participating in this study belong to the millennial generation – (1982–2000). according to r. debard (debard, 2004), millennial youngster have a high level of trust toward authority, a committed loyalty to institutions, most admire a hero of integrity, build parallel careers, look for meaningful work as main reward, have an intruding involvement in parent–child relation, they are protected as children, want to receive feedback whenever they ask for it, and have a craving for community. this generation learns by connectivity and discovery. they are plugged into technology and their learning is inductive and non-linear. these characteristics will serve to the discussion of results and the elaboration of recommendations. career motivation and barriers: several factors have an influence on career choice. there is an interplay among environmental (e.g., social, cultural, and economic) and person (self-efficacy, outcome expectations, and goals) variables in the career choice process. for example, the quality of the educational experiences to which one has been exposed, the financial support available, the wishes of influential others (parents, teachers, peers) and personal interests may affect career choice. for this study, social cognitive career theory (scct; r. w. lent, s. d. brown, & g. hackett, 1994) is used. scct emphasizes cognitive-person variables that enable people to influence their own career development, as well as extraperson (e.g., contextual) variables that enhance or constrain personal agency. social cognitive career theory extends a. bandura (bandura, 1986) social cognitive theory (sct) to academic and career behaviour. according to sct, peoples’ level of motivation and actions depend more on what they believe that on what is objectively the case. the perspective on scct is based on three main components: self efficacy (beliefs about own ability to successfully complete a task), outcome expectations (beliefs related to the consequences of a specific behaviour), and life goals, which include both intrinsic (meaningful relationships, personal growth, contribution to the community) and extrinsic (wealth, fame, and image) aspirations. study of contextual supports as well as barriers has been advocated by several academics (lent, brown and hackett, 2000), proposing additional context-focused research and practice directions derived from scct. the perception of positive aspects of the profession has an influence in career choice. there is a difference between prospective students’ primary interests and goals. primary interests are likely to prompt corresponding goals (e.g., social interests lead to intentions to pursue a social-type career or to dissuade to pursue an individual-type career); goals, in turn, promote choice-relevant actions (e.g., applying for a training program related to one’s goal). the perception of beneficial factors (e.g., ample support, few barriers) is predicted to facilitate the process of translating one’s interests into goals and goals into actions. students’ primary interests and goals were included in this investigation. the perception of negative aspects of the profession (barriers) has also an influence in career choice (albeit & luzzo, 1999). research on career-related barriers emerged largely from the literature on the restriction of women’s career development (swanson & woitke, 1997; mcwhirter, torres& rasheed, 1998), and has subsequently been extended to the study of men’s and racial-ethnic minority group members’ career development. high-school students (males and females) have been found to perceive very soon barriers to their future college attendance and work lives (mcwhirter, 1997; mcwhirter, hackett & bandalos, 1998). this conclusion supports the relevance of our study about dissuading factors for the choice of seafarer profession. issn 1822–8402 european integration studies. 2014. no. 8 134 barriers are defined as events or conditions, either within the person or in his or her environment, that make careerrelated tasks (career choice formulation, career choice implementation, career advancement) difficult. (swanson & woitke, 1997). this study focuses rather on the task “career choice formulation”, not in its implementation or in career advancement. barrier perception can engage beliefs (myths) about the self or the career, which extend beyond the mere presence or absence of real barriers, because barrier perceptions represent, at least in part, people’s phenomenological constructions of reality. perceptions of barriers are influenced also by several factors, such as coping efficacy (beliefs about own ability to manage or negotiate the obstacles), dispositional affect (own tendencies to experience negative or positive affect), and outcome expectations (beliefs about the consequences of performing particular behaviours). for example, if one perceives oneself as being able to cope effectively with the scientific contents of seafarer education, s/he would be less likely to define them as an important barrier (guay, senecal, gauthier & fernet, 2003). the present study uses scct categories (interests and goals, contextual supports, barriers, outcome expectations, and person variables), applying them to the maritime career context, investigating the positive aspects and dissuading factors of seafarer career for prospective first-generation college students (gibbons & shoffner, 2004). we paid specially attention to the respondents’ interpretation (active phenomenological role) in processing both positive and negative aspects of profession. in the questionnaires, questions were not formulated “in general”, but “for you personally”, as we were interested in capturing respondents’ personal perception of these aspects, not in a general evaluation of them. methodology in order to answer the research questions, a study was conducted by novikontas research (nr) at the novikontas maritime college, in riga, among participants of the concourse “enkurs” from february to may 2014. nr was created in 2011 and provides research on two fields: definition and enhancement of human capability of seafarers, educators and managers; and effectiveness of training processes for improving human capability. four researchers are currently involved in the work of nr. the new knowledge generated by nr serves the interests of novikontas group in lithuania and latvia as well as the maritime industry and society elsewhere. the competition “enkurs” is organized every year by the lma to introduce young people to the maritime industry and its capabilities. secondary schools from different latvian regions send a team of 10 high-school students interested in participating in this competition. the concourse includes different tests, including survival exercises in the swimming pool, search and rescue exercises in fire-fighting containers filled with smoke, different ship handling exercises using navigational simulation equipment, engineering exercises using different mechanical tools and equipment, etc. design and chronology of the study the study had a sequential mixed-method design, combining qualitative and quantitative methods —i.e., survey and interviews. mixed methods (teddlie & tashakkori, 2012) allowed combining the high reliability of scientifically validated quantitative research instruments with the interpretative phenomenological approach, where participants construct and provide meanings based on self-perceptions of their previous experience. in february 2014 the questionnaire was elaborated and piloted collaboratively, and the open questions were prepared. data were collected in march-april 2014, during the 3 initial sessions of the concourse “enkurs”. in april-may data were processed and analysed, and the interpretation of the data and elaboration of conclusions took place in may-june 2014. description of the research instruments the survey was conducted in 2 parts: first the qualitative phase and then the quantitative one. for the qualitative part of the research, the open-ended question “what do you like/ dislike in seafarer profession?” was given to respondents. they had to list individually what they perceive as most important pros and cons of the maritime profession for them, and write their list on a sheet of paper or in a computer that was provided to them. right after this, respondents were asked to fill the questionnaire “youngsters’ motivations and difficulties for choosing seafarer career”. the questionnaire had 4 parts (see table 1): the first one was about respondents’ interest about seafarer profession and availability of information. the second part concerned respondents’ perception of positive points about seafarer profession. 12 factors were listed, including material (salary, work stability), professional (work style, necessary competencies), personal (eagerness for travelling, love of nature), and social (communication, family life) aspect. the third part concerned respondents’ perception of dissuading factors in seafarer profession. 9 factors were listed, including also material, professional, personal and social aspects. for these 3 parts respondents used a 5 point likert scale. finally, some demographic information was required from respondents (age, gender, region), and a two final question for evaluating the questionnaire (“do you have any comments about this questionnaire”) and the interest in the research (“if you are interested in receiving the results of this study, please write here your email”) were asked. respondents answered the questionnaire sometimes on paper and sometime in an electronic google form, in function of the availability of computers. the electronic version of the questionnaire was set up using google forms to improve reliability, minimizing errors in data transcription. the reliability test of the questionnaire proved that reliability was good (cronbach’s α= 0.65). respondents as mentioned above, this study focused on high school students who are interested in seafarer profession. the participation in the survey was one of the compulsory activities of this concourse “enkurs 2014”, but it was made clear to the participants that the results of the competition were independent of this research. in analysing the question of whether respondents wishes to receive the results of the study, it was found that 33% of students (n=69) said that they are interested in study, and provided their e-mail addresses. only 2% of respondents said that they were not interested in the results of the study. 65% of respondents did not respond at all (this question was not mandatory). respondents’ evaluation issn 1822–8402 european integration studies. 2014. no. 8 135 of the questionnaire was quite positive: 64 respondents said that questionnaire was very interesting, correct and with the clear goal. some of the respondents mentioned that this questionnaire pushed them to think more seriously about becoming seafarers. data processing, coding and analysis the objective of the qualitative analysis of free answers was to find respondents’ most common first encouraging and dissuading factor in seafarer career choice. in order to prepare the analysis, two researchers working simultaneously read the answers and coded the first encouraging and dissuading factor mentioned by respondents in an ms excel file. the questionnaires were administered electronically, introducing the answers collected in paper into the google form. this work was done by two researchers working simultaneously to enhance the reliability of the process. after that, data were downloaded into an excel file from the google form. after preliminary data cleaning, data were imported into the spss_19 software package for further analysis. the data analysis methods were cronbach’s alpha for reliability analysis, kolmogorov-smirnov test for analysing the level of data, mean of ranks and median for statistical analysis, chi2 for statistical significance analysis, spearman’s rank correlation coefficient, and cross tabulation and t-test for comparison of groups. results 219 answers to the questionnaires were recorded. as regards the question: “are you interested in becoming a seafarer?,” 40% of respondents (n = 88) were interested or very interested. to the question “do you think that there is enough information about the profession of a seafarer? 64% of respondents (n = 148) answered “probably enough” or “absolutely enough”. as regards the question “reasons for choosing seafarer profession”, the highest rated answer were “stable employment” (mean of ranks mr=4.42) and “travelling and seeing new places” (mr=4.42), followed by “good salary” (mr=4.38). the results of the analysis of the 3rd question “dissuading factors in seafarer profession” showed that highest rated dissuading factor is “difficulties for family life” (mr=3.94). surprisingly, the second most popular answer was table 1. structure of the questionnaire “youngsters’ motivations and difficulties for choosing seafarer career” code description of the variable interest in and information about seafarer profession a1 interest in seafarer profession {1=not at all interested; 2=not very interested; 3=neutral; 4=somewhat interested; 5=very interested} a2 information about seafarer profession {1=not at all enough; 2=rather not enough; 3=neutral; 4=probably enough; 5=absolutely enough} reasons for choosing seafarer profession b personal reasons for becoming a seafarer {1=not important at all; 2=not really important; 3=neutral; 4=somewhat important; 5=very important} b.1. i will have a good salary b.2. i will have stable employment b.3. i love nature and the sea b.4. i like to travel and to see new places b.5. it is a kind of tradition in my family b.6. i like to be alone, far from cities b.7. i will have wide responsibilities on board ship b.8. i like risk and challenges b.9. i will like to feel part of a team on board ship b.10. i like discipline on board b.11. i like to meet people from other countries b.12. to be a seafarer is a prestigious work dissuading factors c important factors that could dissuade from becoming a seafarer {1=not important at all; 2=not really important; 3=neutral; 4=somewhat important; 5=very important} c.1. studies are too expensive; i cannot afford them c.2. it is difficult to combine seafaring and family life c.3. it will be boring to be so long on board ship always with the same people c.4. i do not like to be cut off the world: probably on board ship there is not internet c.5. it will be like the army, too much discipline for me c.6. seafaring is bad for my health c.7. it is a difficult career; too much competition c.8. i found negative information in the media about the maritime profession c.9. the profession of seafarer is not socially respected profile data d.1. age {years} d.2. sex {1=female; 2=male} d.3. region {1=kurzeme region; 2=latgale region; 3= zemgale region; 4= vidzeme region; 5=riga region} source: authors’.. issn 1822–8402 european integration studies. 2014. no. 8 136 “studies are too expensive” (mr=3.17). another interesting finding was that respondents rated very low the dissuading factor “negative information in the media” (mr=1.59, the lowest rate). summarising the results, respondents were firstly attracted by stability of profession and travelling opportunities, and also by good salaries. and they are mostly dissuaded by difficulties in having a family life and the cost of studies. the results of qualitative analysis shed light on these results also. 82 first positives factors and 62 first negative factors were recorded. the first positive factors most frequently mentioned spontaneously by respondents were “i will have a good salary” (37%, n=30) and “i like to travel and to see new places” (33%, n=27). the first dissuading factor most frequently mentioned was “it is difficult to combine seafaring and family life” (79%, n=54). other interesting answers regarding positive aspects of profession were: responsibility that strengthen character, interesting studies, possibility of learning foreign languages, physical activity, uniforms that attract girls, possibility of meeting women from other countries, possibility of getting free form mother-in-low for a while... and regarding negative aspects of profession: danger to be captured by pirates, dangers at sea (storms, to be drowned), confinement in a metal box, living in a cabin, possibility of contaminating the sea, hard studies, little free time on board, seasickness, do not taste seafood... these answers give a good insight in students’ perceptions and could enrich questionnaires in further research. correlations were analysed to investigate the factors that appear linked in respondent’s perceptions. there was not significant correlation between positive and dissuading factors. statistically significant positive correlations were found between item “i will have wide responsibilities” and item “i like discipline on board” (rs=0.54, p<0.05), and between item “i will like to feel part of a team” and item “i like discipline on board” (rs=0.548, p<.05). in the dissuading factors, statistically significant positive correlations were found between item “it will be boring to be so long on board” and item “i do not like to be cut off the world” (rs=0.605, p<.05). these correlations indicate that respondents who like discipline also want to have responsibilities and like feeling part of a team, whereas respondents who do not like to be cut off the world do not want to spend long time on board. some additional research questions were analysed, looking for differences between regions and between genders. as regards “difference between regions” (see table 2), statistically significant differences about the positive factor “i will like to feel part of a team” was found (p<.05). respondents from latgale and vidzeme are more attracted by seafarers’ team spirit than respondents from other regions. statistically significant differences about dissuading factor “difficulties in family life” (p=0.001) were also found. for respondents from riga, the lack of family life is not a severe obstacle compared with other regions (especially zemgale) as regards “difference between genders” (see table 3), statistically significant differences about positive factor table 2. comparison by regions (cross-tabulation) regions criteria level kurzeme latgale zemgale vidzeme riga total team spirit low count 9 1 1 4 2 17 % within regions 11,7% 3,4% 3,6% 8,5% 5,3% 7,8% middle count 16 3 10 3 11 43 % within regions 20,8% 10,3% 35,7% 6,4% 28,9% 19,6% high count 52 25 17 40 25 159 % within regions 67,5% 86,2% 60,7% 85,1% 65,8% 72,6% total count 77 29 28 47 38 219 % within regions 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% difficulties for family low count 9 3 1 5 10 28 % within regions 11,7% 10,3% 3,7% 10,6% 26,3% 12,8% middle count 7 7 4 6 11 35 % within regions 9,1% 24,1% 14,8% 12,8% 28,9% 16,1% high count 61 19 22 36 17 155 % within regions 79,2% 65,5% 81,5% 76,6% 44,7% 71,1% total count 77 29 27 47 38 218 % within regions 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% source: authors’. table 3. comparison by gender (t-test for equality of means) females males criteria mr sd mr sd sig. i will have a good salary 4.00 .858 4.41 .684 .012 i like to travel and to see new places 4.70 .571 4.40 .764 .038 to be a seafarer is a prestigious work 3.25 1.20 3.75 1.00 .040 seafaring is bad for my health 2.95 1.31 2.25 1.07 .007 source: authors. issn 1822–8402 european integration studies. 2014. no. 8 137 “i will have a good salary” was found (p=0.012; females : mr=4.0; males: mr=4.41), as well as for factor “i like to travel and to see new places” (p=.038; females: mr=4.7; males: mr=4.4) and “to be a seafarer is a prestigious work” p=.040: females: mr=3.25; males: mr=3.75). females seem to be more attracted by travelling than males, while males are more attracted by the salary and prestige of the profession than females. statistically significant differences were also found about the dissuading factor “seafaring is bad for my health” (p=.007; females: mr= 2.95; males: mr=2.25). females seem to be more concerned about bad influence of seafarer work on health than males. these differences between genders and regions will be taken into account for the formulation or recommendations. we compared the results of this research with those of the latvian maritime academy research (berzins & barbare, 2013). even if the students involved in this research were higher education students already involved in maritime education, this comparison can shed light on high-school students’ expectancies (see table 4). the main difference in the positive factors is that latvian maritime academy students, who are already involved in seafarers’ world, give less importance than “enkurs” students to factors stability of work (7% versus 20%), while “enkurs” students are less attracted by the salary than participants in lma research (23% versus 35%). the perception of difficulties for family life is the most dissuading factor in both researches, but this factor is less important for “enkurs” participants than for participants in lma research (47% versus 65%). danger of profession is the least dissuading factor for both sets of respondents. conclusions what did we learnt with this study? summarizing, it can be concluded that: 40% of respondents are interested in profession and 65% consider to be well informed about it. respondents do not think that media denigrate this profession. this research helped to highlight the importance for young generation of social factors as dissuading factors (difficulties for family and for connections), and the attractive character of material (wages and stability) and personal (travelling) aspects: youngsters who are interested in seafarer profession are attracted by the good salaries, but for them, a good salary is not the most important aspect of the profession: stable employment and travelling now reached even a higher level of importance. they also think that this is not a highrisk profession. respondents associate this profession with discipline, responsibilities and feeling part of a team, but also with being cut off the world, spending long periods of time on board. the most important dissuading factor was difficulties for family life, but its relevance is less marked than in previous research. it seems that youngsters interested in the profession are already more aware of the possibility of having a family life, even if they are still afraid about the eventual difficulties. students still perceive seafarer profession as an isolating one, it seems that they are afraid about the lacking connectivity with relatives and friends through internet on board. finally, students think that studies are too expensive, and this is a new element that did not appear in previous research. there are also some regional and gender differences: males are more attracted by the salary and prestige of the profession, while females are more attracted by travelling and they are dissuaded by health and risk issues. discussion are students right in their perceptions? in our opinion, some of them correspond to reality, but some other are rather the product of myths and lack of information. in this section we will discuss the main results of the research on the light of the knowledge of the reality of the profession. this will help to confirm or reject their assumptions and to elaborate useful recommendation for career promotion campaigns. interest in the profession. participants’ relatively high interest in the profession can be explained by the fact that they have been already familiarized with it during the competition “enkurs”. this familiarization may have increased their interest in this profession, having a positive influence on the popularization of seafarer profession. males are preferable target group for seafarer’s profession. females mostly do not consider connecting their life with sea, even after better familiarization with the profession. information about the profession. several of respondents’ answers denote a good knowledge of some aspects, and an insufficient one in others. respondents’ perception of being well informed has to be confronted with the kind of information they actually have: whether it is relevant and up-to-date. the lack of new and objective information amongst young people on the maritime industry trends, opportunities and possible challenges is one of the most relevant problems for efficient recruitment (berzins & barbare, 2013). as regards the quality of the information they received, participants in this study, as they were somehow interested in the profession, probably looked for and found appropriate –non deformed information in the media. however, it is possible that without this previous interest, youngsters use other channels of information that are not so objective. table 4. comparison with latvian maritime academy research results positive aspects lma nr dissuading factors lma nr good salary 35% 23% away from home and family 65% 47% travelling 28% 20% long-term work in confined space 10% 17% stable outlook 7% 20% knowledge required by profession 7% 15% romance 7% 17% danger and responsibility 7% 9% interesting job 12% 16% other 11% 12% other 11% 4% source: authors’. issn 1822–8402 european integration studies. 2014. no. 8 138 stability of the work. this can be considered as one of the most attractive factors for prospective students after the world financial crisis, when a number of people residing in latvia became jobless. this stability is a reality, based on the following facts: shortage of seafarers all over the world; international character of seafarer profession (the diploma of seafarer is recognized by potential employers all over the world); mobility of the industry: if crisis appears in one part of the world, shipping shifts to another place, where there is not crisis. besides that, the training of seafarers also brings benefits away from employment on ships and ports. their skills are highly valued by firms in the wider cluster of maritime-related industries across europe (sorn-friese & iversen, 2009). an earlier survey in the uk (gardner et al., 2003) showed that for around 16,000 jobs it was preferred to hire a former seafarer and considered essential for half of these positions. more broadly, seafarers enjoy a genuinely international career and in an increasingly globalised world such experience is highly valued beyond maritime-related companies. salary. participants are right about the high level of salaries for seafarers. of course, salary depends on different parameters, such as type of shipping direction (e.g. maritime, offshore, fishing, etc.), vessel type (e.g. tanker, reefer), employment rank (rating or officer), incomes of shipowners’ etc. anyhow, in comparison with ashore professions, seafarers’ salary is much higher especially for officers. as an example, the salary of rating on tanker ships can vary from €900 to €1,700 per month. in the position of junior officer (3rd or 2nd officer, 4th or 3rd engineer) salary can vary from €3,000 to €5,500 per month. in position of senior officers (master, chief officer, chief engineer, 2nd engineer) salary starts from €7,000 per month and higher. if we take as example offshore fleet, the salaries can be even twice higher in same ranks. in latvia and other countries with similar level of economical situation, it is really difficult to have such salaries working ashore in other professions travelling possibilities. respondents are right in this point also: seafarers of any rank have the possibility of travelling and getting acquainted with a lot of cultures, including such exotic as japan, kenya, argentina, etc. however, it’s not always possible to choose the country of destination, as many ships trade mostly in one or two regions. the time spent in foreign ports allows a certain contact with these countries, but not a really deep one. family life. actually, this factor of the seafarer profession needs an especial attention. it is true that there are absences from home and that, during the offshore periods, seafarers need to pass certificates and courses that take time away from family life. however, absences from home are now shorter (2–3 month contract duration becomes quite standard in merchant fleet), and seafarers have more vacation days than shore workers. seafarers’ vacations can reach till 6 month in a year, instead of 5–6 weeks for ordinary ashore employees. moreover, in a recent study addressing the balance between seafarers and family life (thomas, sampson & zhao, 2003), it was concluded that the negative consequences of seafaring for family life can be minimized by shorter trips, continuous employment (rather than employment by voyage) and opportunities for partners and families to sail. isolation. respondents were quite concerned about working in confined space. this problem is known as “ship prisoning”. however, modern ships have a lot of opportunities for rest (swimming pools, gyms, huge videolibraries, etc) and unlimited possibilities for communication (skype, e-mails, internet surfing, etc.). sure, on-board internet technologies are not so advanced as ashore technologies and internet speed is slower, but it is good enough for staying in touch with family members and friends. nowadays, when distance learning educational programs become popular, seafarers even can make their studies while working on-board. results of this study show that schoolboys maybe are not aware about such opportunities on board. the cost of studies. one of the surprising results of this study is that respondents are reticent to engage in seafarer career because of the cost of the studies. if we compare the cost of higher maritime education institutions with all other study programs we will have a clearer picture. in order to obtain the qualification of marine officer in latvia, students should spend 3–4.5 years, depending on the institution and the study program they chose. the study fees vary between around €4,200 and €10,000. the professional qualification obtained when the study program is completed is exactly the same and it does not depend on the educational institution or the price of the study program. if we compare the duration of studies and tuition fee for other professions, for example, to get a business manager qualifications in the university of latvia (governmental), students spend 4.5 years and the tuition fee for the entire period of studies is around €5,500; in riga technical university (governmental) to get an engineering degree it is necessary to study for 4.5 years and the total tuition fees is €4,300; in turiba institute (non-governmental) – 4.3 years duration and €7,900 to get qualification of manager of enterprises/ institutions. it can be concluded that in some of the programs, obtaining the qualification of ship officer can cost the same money and time as obtaining other qualifications. moreover, students of maritime educational institution can work and gets a good salary during their studies. this allows them to cover the education fees by themselves, without needing to take a credit or to request the financial support of the family. health and security. some respondents were concerned about the possible negative impact of seafarer work on health. it is clear that life on board can affect health and during work periods seafarers can have illnesses and injuries. based on the information provided by insurance companies (the swedish club, 2012), underlying causes of seafarers’ illnesses are obesity, poor diet, smoking and physical inactivity. and the underlying causes of injuries are the deficient equipment on deck, poor lightning, “cat walks” and grating damaged during loading and unloading, equipment not secured for sea, not issuing or following work permits and risk assessments, and taking short cuts. on the other hand, on board seafarers have the possibility of making physical exercise on the ships, and the dietetic requirements of seafarers’ diet are generally well respected. this aspect seems not to be well known for respondents. as regards security, even if information about the safety, security and piracy go through mass media, which often shows and exaggerates the bad sides of this question, it seem that issn 1822–8402 european integration studies. 2014. no. 8 139 youngsters are aware that nowadays seafarer profession is a safe one. in fact, shipping is one of the safest industries with highly developed safety systems and redundancy. for every step in maintenance, repair or standard operational processes there are developed clear procedures. nowadays, security standards in ship-building are very high and risk of accidents are minimized, as well on board of the ships as during the work on the decks. summarizing, seafarers’ profession does not seem to be especially unhealthy or insecure, if shipboard procedures are respected and seafarers use the possibilities for healthy life offered to them. recommendations based on the conclusions of this study, the following recommendations are put forward for improving career promotion campaigns in the secondary schools: • target on males, but not exclusively. take into account gender differences, adapting the presentation to the public: males are more attracted by the salary and prestige of the profession than females, while females seem to be more attracted by travelling than males. females also seem to be more concerned about bad influence of seafarer work on health than males. • propose familiarization through concourse such as “enkurs”. • provide addresses of good websites where objective information can be found. • check in social media and popular online information channels the kind of information that youngsters receive spontaneously. even if good information is available, bad information is also available. • confirm the obvious things with precise data: stability of work, security, possibilities to travel, good salaries. • include information and advice about having a fulfilling family life. • explain (or better show on a video) how communication with relatives happens on board (skype, internet connection speed, etc.), and how often they will see them face to face. youngster do not like to be cut off the world do not want to spend long time on board. • explain well safety and health issues, with concrete examples. • insist on the discipline and responsibilities issues, and about the fact of feeling part of a team. • consider regional differences: students from latgale and vidzeme seem to be more attracted by seafarers’ team spirit than respondents from other regions. for respondents from riga, the lack of family life is not a severe obstacle compared with other regions. this researched focussed on students that participated in “enkurs” and have already some kind of motivation for becoming seafarer, but who do not know still the 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identifies dominating significant constituents in nasdaq baltic companies. tasks: a) to identify intellectual capital and business performance ratios for the analysis, b) choose normalisations proxies, set number of control and moderate variables and period of impact to evaluate. primary research methods: panel time-series sample of 92 companies and a 6-year observation of companies listed on the baltic stock exchange between 2013 and 2019. this article contributes to the development of intellectual capital theory, value-based management theory and resource-view theory. elaborating on the analysis of the financial statements, as audited and public data, thorough analysis of the companies’ intellectual capital and its components has been undertaken improving the methodology of the evaluation of the impact, identifying research gaps and expanding the theoretical impact models. this study reveals a significant and positive relationship between intellectual capital and its components and sales / growth rate and profitability of the companies; identifies dominating significant constituents in nasdaq baltic companies. expanding number of ic components, number of control and moderate variables and, crucially, testing for approbation of normalization proxies and adjusting ic components for value added or assets, provides thorough and accurate analysis of the impact. keywords: intellectual capital, extended impact models. as ic has gained impetus in the leap jump period of the knowledge-based companies, growth rates and scale of such companies have been one of the entrepreneurial wonders. capitalization of s&p 500 over recent years has been mostly driven by intellectual capital or intangible values. researchers agree that the terms “intangible assets”, “trademark”, “good repute”, “intellectual property” in accounting and valuation activities do not cover everything that should be included in the new concept. it is about managers using intangible assets as a management object, and the main purpose of this activity is to increase the value of the company by involving previously unused reserves such as knowledge, competence, corporate structures, information technology, customer satisfaction, etc. purpose of the study: investigate the level of relationship between 151 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 intellectual capital and its components and sales / growth rate and profitability of the companies; identifies dominating significant constituents in nasdaq baltic companies. tasks: a) to identify intellectual capital and business performance ratios for the analysis, b) choose normalisations proxies, set number of control and moderate variables and period of impact to evaluate. primary research methods: panel time-series sample of 92 companies and a 6-year observation of companies listed on the baltic stock exchange between 2013 and 2019. intellectual capital as serious research item was recognised only in the beginning of eighties last century as in the most recognised database scopus there started to be indexed scientific papers on intellectual capital: in 1981 – 1 paper; in 1984 – 3 papers. since that time it was expanding exponentially reaching 507 scientific papers indexed in scopus in 2021. in first four months in 2022 it was already indexed 177 scientific issues (scopus, 2022). the dynamics of the research on intellectual capital (ic) is included in figure 1. theoretical background figure 1 dynamics of the research on intellectual capital indexed in scopus, 1980 -2021 (scopus, 2022) 0 100 200 300 400 500 600 1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930313233343536373839404142 the dynamics shows positive and exponential growth. the research on ic is divided into four blocks reflecting the evolution and four stages of the research. at the first stage of the research, researchers were initially concerned with theory building and raising awareness, i.e., the value communication stage. the second stage was characterized by gathering evidence to justify ic as a management technology, i.e., ic measurement models‘ creation and dynamics aspect. the third stage allowed us to understand ic in practice and is known for wide approbation ground of the models within the organizations and even nation-states. and finally, the fourth stage is a big step forward ecosystems and extended analysis of the company in the environment. the research before 1997 was sporadic, fragmented, and primarily based on case studies that call this period a non-science period. analysis of the research on ic and other related peer-reviewed articles proves that composition and classification of ic is getting more extensive and richer (ferenhof, et al, 2015) over the recent years. (see figure 2.). first, the dominating structure of human capital and structural capital has dissolved confidently by introduction of the relational capital and in the light of recent transfer to the fourth stage of the research by introduction of the social capital. the two latter are still sometimes used as synonyms that they are not. second, each of the four components stratified into numerous layers. third, due to the proven fact of the components’ interrelations, in most of the cases the sub-capitals are not strictly affiliated to one or another capital group and due to the on-going e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 152 discussions on the definitions of the groups can also partly overlap. the numbers of definitions, classifications, measurement models, and target groups (dumay, et al., 2015) using ic measurement systems are growing constantly. the initiative of ic research was presented by enterprises and commercial entities. later models were also developed for the non-profit organisations, educational institutions and government bodies. figure 2 intellectual capital cocitation analysis, 2016 -2020 source: author’s construction from scopus stage: designation period focus and line of research studies of reference 1st stage: development of a theoretical framework end of the 1980s and the 1990s focus: organizational ic line of research: ic focused on awareness of its importance in creating and managing a sustainable competitive advantage kaplan and norton (1992, 1996), stewart and losee (1994), edvinsson and malone (1997), stewart (1997a, b), sveiby (1997) 2nd stage: development supported by empirical proof 2000 to the end of 2005 focus: oic line of research: it is defined as a phase where approaches to measurement, management, and communication of ic are in evidence; more supported by empirical proof; conceptualization of specific aspects of ic, such as accounting, reports, and the measuring of ic; different classifications are created which help to define and group the different methods of assessing ic mouritsen et al. (2000), baum et al. (2000), sullivan (2000), andersen and mclean (2000), lev (2001), chatzkel (2004), bontis (2004), andriessen (2004), bounfour and edvinsson (2005) 3rd stage development of implications arising from use of ic in an organization’s management 2006 to 2010 focus: oic line of research: practical analyses with more profound implications of ic management, considering different types of organization mouritsen and roslender (2009), reed et al. (2006), dean (2007), schiuma and lerro (2008) and martín-de castro (2014), 4th stage development of ric and nic 2011 to the present day focus: nic and ric line of research: ic in the context of ecosystems, at the national and regional levels. roos and o’connor (2015), beretta (2019), vrontis (2020), diez-vial (2019), aversano (2020) source: author’s update based on pedro et al. (2018) elaboration based on guthrie et al. (2012), dumay and garanina (2012, 2013), labra and sánchez (2013), roos and o’connor (2015) table 1 intellectual capital research focus by stages 153 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 intellectual capital impact assessment explored within the number of the research papers represented by javornik, et. al. (2012), jordao, et. al. (2018), lin (2018), nadeem, et. al. (2017), pedro, et. al. (2018), scafarto, et. al. (2016), sardo, et. al. (2017), khalique, et. al. (2020), chen, et. al. (2020), uslu (2020), almutirat (2020) have shown the research gaps and opportunities for future research. majority of the research are focusing on the profitability ratios, adjusting for value added and analysing current periods. number of authors have indicated the gaps for the further research and methodological developments such as taking into account that number of the ic components is constantly growing, not yet clearly defined and overlapping pedro, et. al. (2018) and paoloni (2020), performance ratios have reached the number of 300 and there is a need for the composite ratios and selection of the limited amount of indicators according to the need of the particular target group (barhatov, 2014), lack of longitudinal analysis as most of the research used static data and does not analyse the time span (when the impact can be seen in the future not in the same period ulum, et. al. (2014); vishnu & gupta (2014); bayraktaroglu, calisir & baskak (2019) and contradictions in the findings morariu (2014), sardo (2018), scafatto (2016), xu (2020) are all engines for the further research. the positive effects of ic have been studied and demonstrated in static models as generally positive. the research gaps are long-term dynamic analysis or longitudinal effect and a detailed analysis of the impact of ic components and in particular composite ratios. the number of ics and indicators is increasing, the results are contradictory, and there is a lack of studies on control and moderator variables and normalization proxies within the impact models, which is providing space for manoeuvre the current study is addressing on ic component changes over time, meaning, direction and sign. research questions: » what ratios to choose for the analysis of the performance of the companies of around 300 ratios on evaluation of the company available? » how do group performance indicators for the different purposes and target groups? » what are the intellectual capital efficiency measures to use? » how to evaluate the impact of the efficiency of ic on the performance of the company? » how long does it take to see the intellectual capital impact (longitudinal analysis)? » how to choose between normalization proxies for the intellectual capital variables, i.e., choosing between adjustment for assets, value added, or sales revenue? research methods used in the research are bibliographic analysis, comparative quantitative and qualitative analysis, constructed research samples and visualization, systematization of indicators and integrated coefficients, ols panel regressions and longitudinal regressions. according to management theory, a company’s operations can be affected by a wide variety of factors, such as the industry, size, level of development, economic cycle, life cycle, etc., the author avoids the risks of interpreting influencing factors by all establishments on a ceteris paribus basis. the main objective of the current study is to analyse the influence of intellectual capital on the firm’s growth rate treating costs as investments. conceptual models tested in international research have been improved by expanding the number of indicators in the impact analysis by adding composite coefficients on the efficiency and financial side and the number of variables, control and moderator variables on the ic side, also testing normalization surrogates for each indicator, comparative analysis and visualization of separate indicators, developing the possibilities of analysis and promoting the theory of resources and changing the perception of ic from a static to a dynamic view, an analysis of the impact of longitudinal intellectual capital efficiency has been performed, and a summary of the results and finally, the study is based on a unique database, and the ic data of companies in the baltic region are used for comparative efficiency analysis for the first time. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 154 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽4 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽5𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽6𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽7𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽8 𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽9𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼1 … 𝐼𝐼𝐼𝐼 + 𝑒𝑒𝑒𝑒; 𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 𝑃𝑃𝑃𝑃𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸𝐷𝐷𝐷𝐷 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅&𝐷𝐷𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑅𝑅𝑅𝑅𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 + 𝑝𝑝𝑝𝑝𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝑝𝑝𝑝𝑝𝑐𝑐𝑐𝑐𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀ℎ𝐶𝐶𝐶𝐶 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑇𝑇𝑇𝑇 + 𝐵𝐵𝐵𝐵𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐷𝐷𝐷𝐷𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐹𝐹𝐹𝐹𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑅𝑅𝑅𝑅𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 (1) where: perf – selected performance variables; hce – human capital efficiency; rce – relational capital efficiency; prce – protected capital efficiency; pce – process capital efficiency; sce – social capital efficiency; ince – innovation capital efficiency; age – age control variable; size – size control variable; lev – leverage control variable; dummy lv – nasdaq riga; dummy lt – nasdaq vilnius; dummy est – nasdaq tallinn; dummy main list – companies in nasdaq main list dummy industry 1…n – dummies for each nace industry t – current period; i – nasdaq companies; εi,t is the error. human capital efficiency (sobakinova, et. al.; 2019 biedenbach, et. al. 2019; dash, et. al. 2020; hutahayan, 2020; alqershi, et. al. 2020; hussen. 2020; huang, et. al. 2020; mubarik, et. al. 2020) first discussed in articles by ante pulic in 2001, 2004 and 2008 and recognized as one of the crucial elements of the analysis by numerous researches dzenopoljac, et.al. (2017). majority of authors have adjusted personnel costs to added value. within the current research, sales revenue is used as adjustment as it helps to avoid interpretation issues when the value added number is negative. 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽4 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽5𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽6𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽7𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽8 𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽9𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼1 … 𝐼𝐼𝐼𝐼 + 𝑒𝑒𝑒𝑒; 𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 𝑃𝑃𝑃𝑃𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸𝐷𝐷𝐷𝐷 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅&𝐷𝐷𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑅𝑅𝑅𝑅𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 + 𝑝𝑝𝑝𝑝𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝑝𝑝𝑝𝑝𝑐𝑐𝑐𝑐𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀ℎ𝐶𝐶𝐶𝐶 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑇𝑇𝑇𝑇 + 𝐵𝐵𝐵𝐵𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐷𝐷𝐷𝐷𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐹𝐹𝐹𝐹𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑅𝑅𝑅𝑅𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 (2) marketing is concerned with the task of developing and managing customer relationships. in order to standardize the proxy for the measurement of relational capital: 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽4 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽5𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽6𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽7𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽8 𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽9𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼1 … 𝐼𝐼𝐼𝐼 + 𝑒𝑒𝑒𝑒; 𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 𝑃𝑃𝑃𝑃𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸𝐷𝐷𝐷𝐷 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅&𝐷𝐷𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑅𝑅𝑅𝑅𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 + 𝑝𝑝𝑝𝑝𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝑝𝑝𝑝𝑝𝑐𝑐𝑐𝑐𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀ℎ𝐶𝐶𝐶𝐶 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑇𝑇𝑇𝑇 + 𝐵𝐵𝐵𝐵𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐷𝐷𝐷𝐷𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐹𝐹𝐹𝐹𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑅𝑅𝑅𝑅𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 (3) research and development (r&d) expenditure has been used extensively in the literature as a proxy for innovation capacity1. the efficiency of innovation is calculated the following manner: 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽4 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽5𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽6𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽7𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽8 𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽9𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼1 … 𝐼𝐼𝐼𝐼 + 𝑒𝑒𝑒𝑒; 𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 𝑃𝑃𝑃𝑃𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸𝐷𝐷𝐷𝐷 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅&𝐷𝐷𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑅𝑅𝑅𝑅𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 + 𝑝𝑝𝑝𝑝𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝑝𝑝𝑝𝑝𝑐𝑐𝑐𝑐𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀ℎ𝐶𝐶𝐶𝐶 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑇𝑇𝑇𝑇 + 𝐵𝐵𝐵𝐵𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐷𝐷𝐷𝐷𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐹𝐹𝐹𝐹𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑅𝑅𝑅𝑅𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 (4) 1 anifowose, m., rashid h.m.a., annuar h.a., ibrahim, h. (2018). intellectual capital efficiency and corporate book value: evidence from nigerian economy. journal of intellectual capital, 19(3), 653; 155 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 intellectual property / intangible assets are defined in this study as protected capital which is legally protected rights concerning ownership of specific assets such as trademark, patent, industrial design and copyright (anifowose, et. al., 2018). 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽4 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽5𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽6𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽7𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽8 𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽9𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼1 … 𝐼𝐼𝐼𝐼 + 𝑒𝑒𝑒𝑒; 𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 𝑃𝑃𝑃𝑃𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸𝐷𝐷𝐷𝐷 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅&𝐷𝐷𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑅𝑅𝑅𝑅𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 + 𝑝𝑝𝑝𝑝𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝑝𝑝𝑝𝑝𝑐𝑐𝑐𝑐𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀ℎ𝐶𝐶𝐶𝐶 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑇𝑇𝑇𝑇 + 𝐵𝐵𝐵𝐵𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐷𝐷𝐷𝐷𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐹𝐹𝐹𝐹𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑅𝑅𝑅𝑅𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 (5) the two measurement indicators for the process capital can be used investment in information technology and administrative expenses (scafarto, ricci & scafarto, 2016): 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽4 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽5𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽6𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽7𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽8 𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽9𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼1 … 𝐼𝐼𝐼𝐼 + 𝑒𝑒𝑒𝑒; 𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 𝑃𝑃𝑃𝑃𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸𝐷𝐷𝐷𝐷 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅&𝐷𝐷𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑅𝑅𝑅𝑅𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 + 𝑝𝑝𝑝𝑝𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝑝𝑝𝑝𝑝𝑐𝑐𝑐𝑐𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀ℎ𝐶𝐶𝐶𝐶 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑇𝑇𝑇𝑇 + 𝐵𝐵𝐵𝐵𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐷𝐷𝐷𝐷𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐹𝐹𝐹𝐹𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑅𝑅𝑅𝑅𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 (6) social capital can be measured within the ic ecosystem in the fourth stage of the research as support to the society beyond the company. the relations can be causal. 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽4 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽5𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽6𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝛽𝛽𝛽𝛽7𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽8 𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝛽𝛽𝛽𝛽9𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼1 … 𝐼𝐼𝐼𝐼 + 𝑒𝑒𝑒𝑒; 𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 𝑃𝑃𝑃𝑃𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝐸𝐸𝐸𝐸𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸𝐷𝐷𝐷𝐷 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑅𝑅𝑅𝑅&𝐷𝐷𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀 𝑅𝑅𝑅𝑅𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 + 𝑝𝑝𝑝𝑝𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝑐𝑐𝑐𝑐𝐶𝐶𝐶𝐶𝑝𝑝𝑝𝑝𝑐𝑐𝑐𝑐𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀ℎ𝐶𝐶𝐶𝐶 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇𝑅𝑅𝑅𝑅𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑇𝑇𝑇𝑇𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃 + 𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝑇𝑇𝑇𝑇 + 𝐵𝐵𝐵𝐵𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐶𝐶𝐶𝐶𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 = 𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐷𝐷𝐷𝐷𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑀𝑀𝑀𝑀𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑇𝑇𝑇𝑇 𝐹𝐹𝐹𝐹𝑀𝑀𝑀𝑀𝑃𝑃𝑃𝑃𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑐𝑐𝑐𝑐𝑀𝑀𝑀𝑀𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃 𝑆𝑆𝑆𝑆𝑅𝑅𝑅𝑅𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝐶𝐶𝐶𝐶𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 (7) the measurement of control variables are chosen for the current research: 1 lev, t is the natural logarithm of the leverage of the current period, given by the ratio of book value of total debt of the current period to total assets of the current period; 2 sizei, t is the size of the current period, given by the natural logarithm of total assets of the current period; 3 agei, t is firm’s age of the current period, given by the natural logarithm of the number of years of existence of the firm of the current period sardo & serrasqueiro (2017). moderating variables within the current research are: 1 nasdaq list – main or secondary; 2 country – latvia, lithuania, estonia; 3 nace – fifteen industries. historically the performance financial ratios can be divided into market value ratios, financial leverage, liquidity and solvency, profitability and asset efficiency or turnover ratios. a growing number of the new diverse ratios like value-added ratios (reaching 300), for example, has created the critical mass of the data to analyze and need to establish the layers of analysis and limit it to the bearable scale. the initiative undertaken by a number of researchers is to shift the financial performance analysis paradigm from the object of the analysis to the subject or stakeholder interests. one of the solutions offered by sorokin is to combine the matrix integrating both classification approaches by homogeneity (five groups of financial coefficients) and stakeholders (fiveplus groups of the stakeholders) and types of the decisions, opening the matrix for the additional ratios if needed in each particular case. there is a space for maneuver, flexibility, and tailored made systems in each particular research or business case. analyzing companies’ fact sheets as well as company yearly reports one can see the ratios companies, nasdaq, and morning star has selected to analyze. comparing ratios in the matrix and facts sheets and financial report we can obtain the following ratios (see the table 2.). the main aim of the current research is to limit the analysis to strategic, income, and investment decisions. elaborating on the classification by sorokin the framework can be enriched by the e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 156 business performance composite ratio and sales revenue growth rate. the ratios of strategic and investment decisions groups selected for the analysis are: elaborating on the approach the model for the analysis is developed. by doing so the analysis of the ratios is simplified and systemized, the stakeholders can see the overlapping areas in decision making and the area of responsibility is clearly defined. decision / stakeholder owner management borrower (creditors) strategic roe, p/e, va, gr, rbs operational na investment roa, roi financial na na table 2 modified matrix of selected nasdaq baltic financial ratios based on approach by m. sorokin source: construction by nellija titova based on sorokin matrix and nasdaq baltic data according methodology by sorokin (сорокин, 2006). name description formula roa return on assets ebit / net operating assets roe return on equity net profit / equity roi return on investments net profit / cost of investments p/e price/earnings share price/ earnings per share gr growth rate sales t/ sales t-1 rbs rate of business success r1+r2+r3+r4 va value added see section 1.3 table 3 business performance ratios selected for the impact analysis source: nellija titova construction data and research period: » both dependent and independent variables are based on nasdaq baltic data for the period 2013-2019 for estonia, latvia and lithuania from both primary and secondary lists of companies / issuers; » all companies issuers are included in the data base with no exclusions; » data is reliable, valid and legitimate as it is prepared according to eu regulations – yearly financial statements and supplements; » it is required by law to publish the data so the source is nasdaq baltic webpage, where the information is stored in pdf format documents and was manually processed to the data base; » financial data come from morningstar.com analysis; » problem of missing data – unbalanced panel data, pdf only, different currencies, different approaches in notes. the data was collected primarily from the balance sheet, profit and loss statement and notes, where major cost positions where explained, of the nasdaq baltics (latvia, lithuania, and estonia) stock issuers, nighty two companies, for the period 2013-2019. panel data, combination of time series and cross section, is structure of the research database. 157 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 as companies do not report all the data and have presented the notes to the financial reports in different formats or scale of reporting, the data panel is unbalanced. panel data analysis allows identifying the same cross-sectional relationship at different points of time and accounts for individual heterogeneity. in this case fixed effect panel data model will be estimated to treat the unobserved individual heterogeneity for each company to be correlated with the explanatory independent variables. due to the lack of data on innovation capital efficiency and social capital efficiency, they are not used in the analysis. due the small number of companies represented in each industry at this stage dummies for the industry are not used. results due to missing values and outliers, the data cleaning process demanded consideration to avoid significant effect on the final statistical results. consistency checks served to identify the data, which are out of range, logically inconsistent or have extreme values. the missing responses were treated carefully to minimize their adverse effects by assigning a suitable value (neutral or imputed) or discarding them methodically (case wise or pair wise deletion). for each of the variables first and second quartiles were calculated, obtaining in quartile range, upper, lower bounds, and outliers identified. outliers were further excluded from the analysis. return on assetshypothesis 1. intellectual capital has positive significant impact on roa hypothesis 2. intellectual capital has positive significant impact on roa with a time lag return on assets is one of the main strategic performance indicators of the company. return on total assets provides the foundation necessary for a company to deliver a good return on equity. a company without a good rota finds it almost impossible to generate a satisfactory roe. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (8) ebit is the amount remaining when the total operating cost is deducted from total revenue, but before either interest or tax has been paid. the total operating cost includes direct factory cost, plus administration, selling, and distribution overheads. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (9) in the case of the extended model for roa significant and positive change is identified in size and leverage level of the company as control variables as well as relational capital of previous period meaning expenditures related to the sales and marketing. companies in the first list complying with special requirements for the financial status demonstrate a positive correlation with roa as could be expected. adding the human capital component, we still see leverage as a defining factor and, usefully for the further analysis, human capital proxies adjusted for the assets in period t and t-1 meaning expenditures on personnel including bonuses, training, and insurance have a significant and positive impact on return on assets. following with process capital element we do not see the impact. the only variable having a relatively low impact is expenditures on it systems and board salaries adjusted for value-added in period t-1. what matters is the age of the company, size, and leverage level. protected capital does not explain the return on assets. nevertheless, adjusting expenditure on intangible assets in the current period adjusted for the sales revenue and protected capital adjusted for the assets in the previous period for the first list of the companies we can diagnose the positive impact. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 158 summarizing panel data analysis of ic impact on roa the following equation might be created with variables filtered out from the individual variables’ analysis: 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (10) parameter b standard error t sig. 90% confidence interval observed powera lower bound upper bound intercept -32.007 6.275 -5.101 0.000 -42.382 -21.631 1.000 nace 2.793 1.497 1.866 0.064 0.318 5.269 0.585 list 5.054 1.800 2.808 0.006 2.078 8.031 0.875 size_ln 2.304 0.544 4.233 0.000 1.404 3.204 0.995 lev_ln -1.593 0.437 -3.641 0.000 -2.316 -0.869 0.976 rce_ca_1 46.930 15.092 3.110 0.002 21.977 71.883 0.927 pce_cva_1 2.011 1.005 2.001 0.047 -3.674 0.349 0.636 [country=1] 2.825 1.509 1.872 0.063 0.330 5.320 0.587 [country=2] 2.561 2.169 1.181 0.239 -1.025 6.148 0.322 [country=3] 0 . . . . . . table 4 intellectual capital components’ impact on return on assets parameter estimates 2012-2019 source: nellija titova calculations based on nasdaq baltic data narrowing down the number of variables we run extended regression including all variables identified at previous levels and include them in one regression. the majority of the variables are still significant allowing for the extraction of the major ic factors behind the roa. the regression (significance 0.019) shows significant results (see the table 4.1 “intellectual capital components’ impact on return on assets, parameter estimates, 2012-2019, nasdaq baltic”) with an adjusted r2 of 33%. main conclusions of impact analysis that control variables as the nasdaq baltic list, size, age, and leverage are defining the roa. on the intellectual capital side expenditures on relational capital (expenditures on sales and marketing) and process capital (expenditures on it systems and board salaries) in the previous period are behind the increasing return on assets in the current period. choosing between proxies – ic expenditures adjusted for value added, sales revenue, and assets, the analysis helps to extract two – adjusted for value added and assets. the latter can be explained by partial correlation as the sum of assets is used in both roa and proxy formulas. the explanation power of this regression is 33% that means that there is another non-ic factor behind the success. still, this is a clear indication of the decision to spend on marketing, sales, it systems, and strong motivation system for the board in the previous period (t-1) combined with listing in the first nasdaq baltic list, being a large enterprise with control for the debt of the company brings a meaningful increase in return on assets in the current period. regression roe hypothesis 4.3. intellectual capital has positive significant impact on roe hypothesis 4.4. intellectual capital has positive significant impact on roe with a time lag 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (11) 159 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (12) table 5 intellectual capital components’ impact on roe, parameter estimates, 2012-2019, nasdaq baltic source: nellija titova calculations based on nasdaq baltic data parameter b standard error t sig. 90% confidence interval observed power lower bound upper bound intercept -4.928 4.648 -1.060 0.291 -12.625 2.770 0.281 list 15.606 4.063 3.841 0.000 8.877 22.334 0.985 rce_ca_1 155.972 54.015 2.888 0.005 66.529 245.414 0.890 pce_cva_1 8.609 1.941 4.435 0.000 -11.823 5.395 0.997 prce 48.539 24.308 1.997 0.048 8.288 88.791 0.634 prce_1 49.914 24.590 2.030 0.044 -90.633 9.196 0.646 [country=1] 5.410 3.940 1.373 .172 -1.114 11.935 0.392 [country=2] 2.282 4.729 .482 .630 -5.549 10.112 0.139 [country=3] 0 . . . . . . continuing with return on equity at an individual component level among rce proxies rce adjusted for assets in period t and t-1 were selected, human capital did not contribute significantly to roe, process capital adjusted for the value-added proved significance of it systems and board salaries expenditures in previous period on the financial results of the current period, protected capital adjusted for the sales revenue is significant for both t and t-1 period. control variables and moderate variables appeared to be only size and leverage ratio that matters in roe case. diminishing the number of variables analysing ic impact on roe full regression included 10 variables and short one limited the number of variables to seven (see formula 12 including control variables (see table 5). final model is significant at 0,011 with explanatory factor r2 = 0,4 and adjusted r2 = 0,34. the model illustrates the factors behind the increase in return on equity in the current period. main conclusions of impact analysis that the nasdaq list is the only control variable that has a significant impact on roe. it can be explained by the fact that first list companies have special requirements on the financial status. on the intellectual capital side expenditures on relational capital (expenditures on sales and marketing) adjusted for assets in the previous period from the roe. process capital (expenditures on it systems and board salaries) in the previous period are behind the increasing return on equity in the current period adjusted for value-added. finally protected capital expenditures appear to be significant at 0,05 both in the current and previous period adjusted for the sales revenue which means investments/expenditures on it systems and board salaries pay off in the current and next period. therefore, nasdaq companies generous to support marketing and sales, it systems and strong motivation system for the board in the previous period (t-1) combined with listing in the first nasdaq list, can promote an increase in roe in the current period. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 160 hypothesis 4.5. intellectual capital has positive significant impact on roi hypothesis 4.6. intellectual capital has positive significant impact on roi with a time lag 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (13) return on investments is one of the main strategic performance indicators of the company. a calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments (morningstar, 2019). 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (14) applying the same method to the return on invested capital ratio two final regression models can be analysed, i.e., full and short version of it: 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (16) preselected individual variables are 5 ic variables’ proxies and all control and moderate variables and short version include the reduced number of variables selected by significance factor that are four on ic side and control and moderate variables (see table 4.3. intellectual capital components’ impact on roic, parameter estimates, 2012-2019, nasdaq baltic). explanatory power is relatively low for these regressions of 20% that is within significance interval in case of panel data analysis. summarizing the analysis of ic impact on roic nasdaq list and size of the company is defining roic on the control and moderate variables side. it can be explained by the fact that first list companies have special requirement on the financial status and the fact that big companies also are big scale investors. regression roi table 6 intellectual capital components’ impact on roic, parameter estimates, 2012-2019, nasdaq baltic source: nellija titova calculations based on, nasdaq baltic data parameter b standard error t sig. 90% confidence interval observed power lower bound upper bound intercept -17.731 5.947 -2.981 0.003 -27.568 -7.893 0.907 list 3.737 1.467 2.548 0.012 1.311 6.163 0.814 size_ln 1.576 0.499 3.158 0.002 0.750 2.401 0.933 hce_hca_1 9.247 2.691 3.436 0.001 4.796 13.699 0.962 pce_cva_1 1.862 0.757 2.459 0.015 -3.115 0.609 0.789 prce 22.657 9.696 2.337 0.021 6.619 38.696 0.753 [country=1] 0.688 1.491 0.462 0.645 -1.778 3.155 0.136 [country=2] 0.322 1.801 0.179 0.858 -2.657 3.301 0.105 [country=3] 0 . . . . . . 161 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 on the intellectual capital side compared to roa and roe where human capital did not appear as significant for the return on invested capital personnel expenditures does matter for the next period, i.e., t-1 period expenditures influence return in the next period. similar to roa and roe, process capital (expenditures on it systems and board salaries) in the previous period are behind the increasing return on invested capital in the current period adjusted for value-added. finally, also similarly to roe, roa also for roic protected capital expenditures appear to be significant at 0,05 both in current and previous period adjusted for the sales revenue that means investments/ expenditures on it systems and board salaries pay off in the current and next period. in turn expenditures on relational capital (expenditures on sales and marketing) do not appear globally significant. therefore, nasdaq first lists companies generous to support personnel in terms of salaries, bonuses, insurance, training, etc. and it systems and strong motivation system for the board in the previous period (t-1) as well as current expenditures on intangible assets, ensure a high level of return on invested capital in the next period. growth rate limiting the number of variables to significant dependent variables the regression for the sales revenue growth is following: 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (17) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙 = 𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (9) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (10) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (11) return on equity is one of the main strategic performance indicators of the company. according to welsh (2003), this ratio is arguably the most important in business finance. it measures the absolute return delivered to the shareholders. a good figure brings success to the business – it results in a high share price and makes it easy to attract new funds. 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝑃𝑃𝑃𝑃 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (12) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽1𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽2𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽3𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽4𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽6𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝐿𝐿𝐿𝐿𝑃𝑃𝑃𝑃𝐿𝐿𝐿𝐿𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐷𝐷𝐷𝐷𝑚𝑚𝑚𝑚𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼𝐸𝐸𝐸𝐸 + 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸 + 𝑒𝑒𝑒𝑒 (13.) 𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑡𝑡𝑡𝑡𝐷𝐷𝐷𝐷𝑃𝑃𝑃𝑃𝐼𝐼𝐼𝐼 𝐻𝐻𝐻𝐻𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 𝐻𝐻𝐻𝐻𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙 (𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻) = 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑁𝑁𝑁𝑁 + 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑁𝑁𝑁𝑁𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁 ∗ (1−𝐵𝐵𝐵𝐵𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑅𝑅𝑅𝑅𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑁𝑁𝑁𝑁 𝑓𝑓𝑓𝑓𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼) 𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐼𝐼𝐼𝐼𝑁𝑁𝑁𝑁𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑁𝑁𝑁𝑁𝑙𝑙𝑙𝑙𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (15) 𝑃𝑃𝑃𝑃𝑅𝑅𝑅𝑅𝐼𝐼𝐼𝐼𝐻𝐻𝐻𝐻 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐿𝐿𝐿𝐿𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝐶𝐶𝐶𝐶𝑡𝑡𝑡𝑡 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑇𝑇𝑇𝑇1 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃1 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (16.) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼_𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑒𝑒𝑒𝑒𝑃𝑃𝑃𝑃𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑡𝑡𝑡𝑡 + 𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒_𝑙𝑙𝑙𝑙𝐼𝐼𝐼𝐼 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_1 + 𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙 + 𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐷𝐷𝐷𝐷𝐼𝐼𝐼𝐼𝑡𝑡𝑡𝑡𝑃𝑃𝑃𝑃𝐷𝐷𝐷𝐷 (17) 𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝑚𝑚𝑚𝑚𝑙𝑙𝑙𝑙𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑤𝑤𝑤𝑤𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = 𝛽𝛽𝛽𝛽0 + 𝛽𝛽𝛽𝛽3𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽5𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽7𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶1𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽8𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽10𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + 𝛽𝛽𝛽𝛽11𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐻𝐻𝐻𝐻𝑃𝑃𝑃𝑃_𝐻𝐻𝐻𝐻𝑙𝑙𝑙𝑙𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 (181) (18) control variables: lnsizeti moderate variables: country the model appears to be significant with adjusted r squared 0,831. according to the analysis (see table 4.4. “intellectual capital components’ impact on the sales growth rate, parameter estimates, 2012-2019, nasdaq baltic”) the major factor to influence sales is to spend on the personnel and board salaries, it systems and intangible assets like patents, brands, know-how, etc. parameter b standard error t sig. 90% confidence interval observed poweralower bound upper bound intercept 2.979 0.392 7.598 0.000 2.331 3.628 1.000 size_ln 0.736 0.031 24.056 0.000 0.685 0.786 1.000 hce 5.896 0.502 11.741 0.000 -6.726 -5.066 1.000 hce_hca 3.129 0.307 10.200 0.000 2.622 3.636 1.000 pce_1 4.320 1.065 4.055 0.000 -6.081 2.558 0.992 pce_pca 12.314 1.732 7.109 0.000 9.450 15.178 1.000 prce 0.210 0.664 1.821 0.070 -2.309 0.111 0.567 prce_prca 3.644 0.992 3.673 0.000 2.004 5.284 0.978 [country=1] -0.165 0.101 -1.630 0.105 -0.332 0.002 0.492 [country=2] 0.119 0.116 1.030 0.305 -0.072 0.311 0.272 [country=3] 0 . . . . . . table 7 intellectual capital components’ impact on sales, parameter estimates, 2012-2019, nasdaq baltic source: nellija titova calculations based on nasdaq baltic data e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 162 proxy of intellectual capital adjusted for assets provides higher quality data compared with adjustment with sales revenue and value-added. process capital (it and board salaries) is the only factor of period t-1 that has an impact on sales revenue in period t. the efficient management system is key success factor behind volumes, pricing policy, and sales increase. control variables such as leverage and size prove to have significant impact on the company growth rate. discussion government agencies in cooperation with industry associations / chambers of commerce and nasdaq baltic in all three baltic states may re-evaluate reporting recommendations on intellectual capital, including intangible assets, and its components, extending beyond intangible assets to include social capital, human capital, etc., clearly defining structure of components and taking into account the experience of other countries working on mandatory and voluntary reporting of ics. in addition, impact analysis at the national and micro levels of companies, as well as industry-level research, can contribute to defining strategies for economic development and sustainability. companies must publish their annual accounts on the nasdaq website. as companies use different individual approaches to the notes to the financial statements when reporting to nasdaq baltic, nasdaq baltic can more clearly define the requirements for the notes to the financial statements submitted by companies, harmonize the description structure and specify the required data and data formats. conclusions » main conclusions of ic impact analysis on return on assets are that control variables such as the nasdaq list, size, age, and leverage are defining the roa. on the intellectual capital side expenditures on relational capital (expenditures on sales and marketing) and process capital (expenditures on it systems and board salaries) in the previous period are behind the increasing return on assets in the current period. choosing between proxies – ic expenditures adjusted for value added, sales revenue, and assets, the analysis helps to extract the two: adjusted for value added and for assets. the latter can be explained away as a technical fluke of partial correlation since the sum of assets is used in both roa and proxy formulas. the explanation power of this regression is 33%, which means that there is another non-ic factor behind the success. still, this is a clear indication in favour of spending on marketing, sales, it systems, and strong motivation system for the board in the previous period (t-1) combined with listing in the first nasdaq list, being a large enterprise with control for the debt of the company bringing meaningful increase in return on assets in the current period. » main conclusions of ic impact analysis on return on equity are that the nasdaq list is the only control variable that has a significant impact on roe. it can be explained by the fact that first list companies have special requirements on the financial status. process capital (expenditures on it systems and board salaries) in the previous period are behind the increasing return on equity in the current period adjusted for value-added. finally protected capital expenditures appear to be significant at 0,05 both in the current and previous period adjusted for the sales revenue which means investments / expenditures on intangible resources pay off in the current and next period. therefore, nasdaq companies generously spending on marketing and sales, it systems and strong motivation system for the board in the previous period (t-1) and protected capital combined with listing in the first nasdaq list, can expect an increase in roe in the current period. » roi compared to roa and roe, where human capital did not appear as significant, for the return on invested capital personnel expenditures does matter for the next period, i.e., t-1 period expenditures influence return in the period t. similar to roa and roe, process capital (expenditures on it systems and board salaries) in the previous period are behind the 163 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 increasing return on invested capital in the current period adjusted for value-added. nasdaq first lists companies generous to support personnel in terms of salaries, bonuses, insurance, training, etc. and it systems and strong motivation system for the board in the previous period as well as current expenditures on intangible assets, ensure a high level of return on invested capital in the next period. » research proves that for the companies registered in estonia, latvia and lithuania, issuers of the nasdaq baltic stock exchange, growth rate is significantly influenced by the funds spent on employees as salary, insurance and other personnel costs as well as compensation to board members and costs of it services. control variables such as leverage and size prove to have significant impact on the company growth rate. » the developed ic longitudinal impact model can be used to support and purposefully develop a policy for effective use of the ic and other 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(2006). с разумом и эффективностью: матрица финансовых показателей. финансовый директор, 9, 58-64. funding option: riseba univesrity of applied sciences 165 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). nellija titova mg. oec, candidate for phd riseba university of applied sciences, vice rector for development fields of interests analysis of development of intellectual capital in companies in the baltic countries listed in the baltic stock exchange, application of different statistical models for analysis address meža iela 3, latvia, nellija.titova@gmail.com biruta sloka prof. dr. oec. university of latvia fields of interests application of different research methods for quantitative analysis of business development address aspazijas bulv. 5, riga, lv-1050, latvia, + 371 29244966 sloka@lu.lv 93 issn 1822–8402 european integration studies. 2014. no. 8 integration of poland’s regions with the european union – assessment of intra industry trade relations stanisław uminski research centre on european integration, university of gdansk ul. armii krajowej 119/121, 81-824 sopot. poland e-mail: uminski@univ.gda.pl http://dx.doi.org/10.5755/j01.eis.0.8.6770 the purpose of the study is to present and assess international trade relations of poland’s regions, with focus on the intensity of intra industry trade (iit) with the eu countries. this kind of trade is treated as a measure of integration of poland’s region’s economies with the eu market. the particular tasks addressed in the paper are: description of inspirations to deal with international trade at regional level; formulation of a concept of region as a small, open economy; assessment of intra industry trade links in static and marginal formula at regional level for poland’s regions. the proposed approach is a novelty in both ways: (a) studies on international trade for poland’s regions are not so much developed; (b) intra-industry trade at regional level is a new topic that sheds light on real integration with the eu markets. the method used in the research is a standard formula of iit as proposed by grubell and lloyd, weighted according to product’s shares in trade volume. also the marginal iit formula is used, as proposed by m. brülhart. calculations were done for four-digit combined nomenclature groups of products. as expected, intensity of iit for regions is lower than for the whole country. there are important differences observed for poland’s regions. as regions differ per se, also in terms of iit one observes differences that reflect: proximity to the eu internal market, gdp per capita differences, role of foreign direct investments in region’s economies, structure of industry and exports as well as overall competitiveness. five groups of countries have been distinguished. iit intensity is the highest for relations with “the old“ eu member states. also for the “new“ member states is relatively high. it corresponds to the main message of iit theory, that predicts stronger iit among integrated economies. keywords: poland’s regions, intra-industry trade, foreign direct investment, integration, regional differences. introduction international trade analyses are conducted in regard to countries, groups of countries (for example groups of integrated countries, such as the eu); or at the level of particular branches of industry. it is usually overlooked in theory and in empirical research that streams of exports (and imports) come from specific locations (see more in k. gawlikowska-hueckel and s. umiński, 2013). the nature of those streams determines the form of trade relations established by economic entities with foreign markets. a couple of issues inspired my interest in the topic of international trade in regard to regions: • an increase in the role of regions’ in contemporary economic processes, • integration of poland’s economy (with the eu) under the conditions of free flow of goods, capital, services and labor, • subsidiarity as the fundamental principle of relationships within the european union, but also as an encouragement to decentralization, • observed processes of polarization in regional development, • furthermore, “transfer“ of the discussions and empirical research devoted to competitiveness into the regional level. in recent years, an increase can be observed in the interest of regional authorities in export-related issues. it is primarily due to a realization of the fact that economic situation of a region depends more and more upon relations with international markets. in the eyes of regional authorities, especially after poland joined the european union, international aspect of interdependence gained new meaning – as a factor that influences mainly the labor market. secondly, local selfgoverning authorities take part in promotion of exports. the effectiveness of such promotion requires an appropriate diagnosis of the situation and trends. region as a small, open economy in classic economic models the processes of reasoning and concluding were based on “single-point“ economy, without any spatial dimension. crucial issues such as “how to produce“, “who is producing“ or “for whom the production is“ – were analyzed in the world where problems such as distance or transport costs do not exist, neither do the spatial dimension. our intention is not to thoroughly present various concepts and definitions of a region, because it is a subject of numerous elaborations and much research (see for instance j. zaucha, 2007, p. 185). above all, it is about pointing out a relatively new role in which regions appear. this new role is participation in international economic relations (see more in s. umiński 2012). regions are perceived most of all as parts of a country (that is in the internal aspect), whereas their external aspect of functioning is overlooked and goes unnoticed. this issn 1822–8402 european integration studies. 2014. no. 8 94 dimension gains importance, because of the development of globalization and intensification of international economic relations between countries, which implicates a growing dependence of socio-economic situation in the region on international economic processes (see more in: j. zaucha, d. ciołek, t. brodzicki, e. głazek, 2014, p. 206–244). overview of definitions and ways of perceiving regions and their functions leads to a conclusion that their participation in international economic processes is being neglected. one dimension of this participation is the role of a region as an exporter and an importer. the realization of the fact that a region functions as an exporter, inclines us to accept the concept of a region as so-called small, open economy. it is, in a way, a direct transfer of an approach represented by international economics in regard to countries to the regional dimension. the idea of region as an example of a small, open economy is applied to theoretical deliberations and to empirical research (m. eswaran, a. kotwal, b. ramaswami, w. wadhwa 2007, p. 11; m. llop, a. manresa, 2007; k.n. harilal, k.j. joseph 2000, p. 8). j. zaucha and j. szlachta (2012, p. 21) show how region can prepare to react to global economic shocks. intra-industry trade – a concept applied to regions accepting a concept of region as an exporter and an importer, as well as region as a small, open economy – allows us to apply international trade theory to interpret trade relations between a region and foreign countries. the subject of research in this elaboration is an intra-industry trade (iit). it is one of the most important trade theories. it has been chosen primarily because it proves to be an adequate tool used in research of the nature of trade between the integrating countries (regions). the second reason to study the iit is the apparent lack of elaborations on that topic – which is a serious incentive to research iit in poland’s regions (nuts 2). at the same time, the intensity of trade connections with the european union market can be investigated. it is iit theory that explains trade overlap phenomenon, in which country/region is both exporter and importer of the same goods (or their variants). according to a. zielińska-głębocka (1997, p. 95-96), there are three basic factors that constitute a base for iit. these include: product diversification, economies of scale and imperfect competition. iit happens between similar countries (especially the industrialized ones) that are close in the level of development and have similar consumers’ preferences. above all, it is significant for the european union member states that removed trade barriers and between which integration of markets occurs. another extremely important factor conductive to iit intensification is emphasized in the literature. aforementioned factor is the fragmentation of production between countries (p.r. krugman 1979, oecd 2002, y. yoshida 2008, c. marrewijk 2008) with the use of foreign direct investment (fdi), especially by supranational corporations. more and more often, fdi is taken into consideration in research in regard to iit intensity. still, the type of iit (whether vertical or horizontal) that is determined by fdi, is the matter of discussion. fdi that is taken into account as an explanatory variable in modeling, mirrors the fact that iit is being looked at differently. it is perceived by economists not in a “traditional“ way anymore, a phenomenon derived from “demand for variety“, but as a result of the fragmentation of production, meaning locating particular parts of added value chain in different countries. the introduction of distinction between horizontal and vertical, investment and trade linkages created a vast area to interpretation of relations between trade and fdi, especially between intra-industry and intra-firm trade (oecd 2002). in the case of poland, similarly to the countries of eastcentral europe, intensification of trade links with other countries was accompanied by fdi inflow. a consequent thesis can be formulated as follows: due to the high share of enterprises with foreign capital in exports and imports, fdi was one of the main determinant of changes in international trade, its growth, structural changes and competitiveness. therefore, we can expect positive correlation between share of enterprises with foreign capital in foreign trade and the intensity of iit, because it is the activity of foreign investors (mostly supranational corporations) that leads to the growth of the fragmentation of production between countries. the literature on the subject points to horizontal diversification (in terms of features), and to vertical one (in terms of quality). it was as early as 1979 that p.r krugman (1979) pointed out that the development of vertical iit is stimulated by international fragmentation of production, whereas horizontal by “demand for variety“. according to l. fontagne and m. freudenberg (1997, p. 10), countries that differentiate in economic structure or in income level, will engage in iit (in the range of products diversified vertically). on the other hand, very similar countries will experience high intensity of iit in the range of products that are also similar, but differ only in variants (horizontal diversification). the above statement is, in some sense, contradictory to the fundamental message concerning the nature of iit, as it allows the opportunity of iit between countries that differ considerably (see also: j. caetano and a. galego 2007, p. 169). the analysis of research on iit, that has been produced over the past few years, allows us to formulate a conclusion that these reflections considered two main movements. first of them, represented by already mentioned l. fontagne, m. freudenberg and n. peridy (1997). not only did they call attention to the necessity of consideration of so called simple overlapping of imports and exports streams within one branch, but also to horizontal and vertical iit. the second movement is represented by m. brülhart, who is an author of many publications devoted to problems of iit measures. m. brülhart is a supporter of using so-called dynamic measurement of this kind of trade. he is the author of iit computing methods in marginal terms. in his works, he refers to the previous proposals of c. hamilton, p. kniest and d. greenway (d. greenway, et.all., 1994), which take into account changes in trade volume between particular moments in time. m. brülhart makes a distinction between traditional iit measures (static) and dynamic, and at the same time also singles out quasi-dynamic measurement, which concerns changes in iit intensity over time and change in marginal intra-industry trade (miit) under conditions of balanced trade turnover. the idea of miit concerns investigating the meaning of iit in the trade change, not the iit itself. issn 1822–8402 european integration studies. 2014. no. 8 95 what can we expect while analyzing iit at regional level the availability of detailed statistical data poses a great encouragement to examine iit intensity at the level of regions. the diversification of economic structures, industrial base of particular regions, and different profiles of specialization in international trade that result from this, force us to expect that we deal with different iit intensity in particular regions. what can be further anticipated is that in each region different products are characterized by its high/low intensity. for example in the region, where both exports and imports are oriented towards the car industry, we may expect that in this branch iit indices will be on high level. studying iit on regional level means that we analyze the scale and nature of the fragmentation of production with greater probability, than if we were to analyze it traditionally; as is done on the level of a country “demand for variety“. when wondering about the nature of iit analysis at the regional level, a few hypotheses can be stated: 1. at region level, lower iit intensity can be expected. lower than it is for the whole country. with a definite level of data aggregation (according to product groups) for the whole country, iit indices are usually higher. imports and exports overlap, although the analysis concerns trade of business entities that have their head offices in various locations (y. yoshida, 2008, p. 1 and next). the following situation can happen at national level if we examine the trade of different entities: one entity is, for example, only the importer of a given product, and the other one only is the exporter, but is located in a different region. in that case, the analysis considers “demand for variety“. as we are interested in production or cooperation linkages, the regional level of analysis should be more appropriate. iit relations appear if the trade takes place within the same companies, or as a part of their group. from that point of view, it would be optimally if we could examine iit nature not in, so to say, artificially separated/ “imposed“ administrative regions, but referring to the idea coined by p.r krugman and a.j. venables (1995). their concept of seamless world suggests iit examination in naturally separated areas, where companies cooperating with the world and with each other (creating specialized clusters) are located. 2. we may expect (due to the differences between regions in regard to the level of economic development) that we will deal with dissimilar levels of iit intensity. more developed regions should be characterized by higher iit intensity than those on the lower level of development. 3. moreover, we may expect that iit intensity is positively correlated with the participation of the companies with foreign capital in regions’ international trade. it is a result of the role that fdi plays in international trade development in general, but mostly in the fragmentation of production between countries. 4. because iit refers mostly to the countries that are in strong economic integration (trade partners), following thesis can be formulated: high iit intensity will be a domain of those regions that are characterized by strong trade linkages with the eu countries, in which we deal with advanced trade liberalization (in formal and practical sense). iit intensity for poland’s regions data of customs chamber and polish central statistical office (from the extrastat/intrastat system) have been used to assess iit nature in this paper. the location of the seat of the entity that exports and/or imports is criterion for assigning exports and import flows to a particular region. the resulting image of export at regional level should be treated as approximate. we must be aware of such distracting factors as: intermediate trade, as well as the cooperation between enterprises beyond the boundaries of the regions. the data are provided according to the headquarters localisation of a subject declaring international trade transactions. the intensity of iit in total trade, registered for regions, has been measured with the use of the grubell-lloyd index due to following formula1: 3 into account changes in trade volume between particular moments in time. m. brülhart makes a distinction between traditional iit measures (static) and dynamic, and at the same time also singles out quasi-dynamic measurement, which concerns changes in iit intensity over time and change in marginal intra-industry trade (miit) under conditions of balanced trade turnover. the idea of miit concerns investigating the meaning of iit in the trade change, not the iit itself. what can we expect while analyzing iit at regional level the availability of detailed statistical data poses a great encouragement to examine iit intensity at the level of regions. the diversification of economic structures, industrial base of particular regions, and different profiles of specialization in international trade that result from this, force us to expect that we deal with different iit intensity in particular regions. what can be further anticipated is that in each region different products are characterized by its high/low intensity. for example in the region, where both exports and imports are oriented towards the car industry, we may expect that in this branch iit indices will be on high level. studying iit on regional level means that we analyze the scale and nature of the fragmentation of production with greater probability, than if we were to analyze it traditionally; as is done on the level of a country “demand for variety“. when wondering about the nature of iit analysis at the regional level, a few hypotheses can be stated: 1. at region level, lower iit intensity can be expected. lower than it is for the whole country. with a definite level of data aggregation (according to product groups) for the whole country, iit indices are usually higher. imports and exports overlap, although the analysis concerns trade of business entities that have their head offices in various locations (y. yoshida, 2008, p. 1 and next). the following situation can happen at national level if we examine the trade of different entities: one entity is, for example, only the importer of a given product, and the other one only is the exporter, but is located in a different region. in that case, the analysis considers “demand for variety“. as we are interested in production or cooperation linkages, the regional level of analysis should be more appropriate. iit relations appear if the trade takes place within the same companies, or as a part of their group. from that point of view, it would be optimally if we could examine iit nature not in, so to say, artificially separated/ “imposed“ administrative regions, but referring to the idea coined by p.r krugman and a.j. venables (1995). their concept of seamless world suggests iit examination in naturally separated areas, where companies cooperating with the world and with each other (creating specialized clusters) are located. 2. we may expect (due to the differences between regions in regard to the level of economic development) that we will deal with dissimilar levels of iit intensity. more developed regions should be characterized by higher iit intensity than those on the lower level of development. 3. moreover, we may expect that iit intensity is positively correlated with the participation of the companies with foreign capital in regions' international trade. it is a result of the role that fdi plays in international trade development in general, but mostly in the fragmentation of production between countries. 4. because iit refers mostly to the countries that are in strong economic integration (trade partners), following thesis can be formulated: high iit intensity will be a domain of those regions that are characterized by strong trade linkages with the eu countries, in which we deal with advanced trade liberalization (in formal and practical sense). iit intensity for poland’s regions data of customs chamber and polish central statistical office (from the extrastat/intrastat system) have been used to assess iit nature in this paper. the location of the seat of the entity that exports and/or imports is criterion for assigning exports and import flows to a particular region. the resulting image of export at regional level should be treated as approximate. we must be aware of such distracting factors as: intermediate trade, as well as the cooperation between enterprises beyond the boundaries of the regions. the data are provided according to the headquarters localisation of a subject declaring international trade transactions. the intensity of iit in total trade, registered for regions, has been measured with the use of the grubell-lloyd index 1 : ∑ = + + = n i i r 1 ii iiii i )im (ex |im ex| )im (ex a (1) where: − (ex i + im i ) represents global value of foreign trade of i branch in region, − |ex i im i | is the absolute value of difference between exports and imports of i branch in the region, − a means participation of i branch in the sum of exports and imports of region. figure 1 presents g-l indices for poland’s regions (this is overall iit intensity, not broken by groups of countries). firstly we conclude that – as it was expected – iit intensity is lower for particular regions, than for poland as a whole. highest g-l indices are observed for regions that are regarded as top exporters (wielkopolskie, śląskie, małopolskie, mazowieckie and pomorskie), have high share of automobile industry products in exports (wielkopolskie, śląskie, małopolskie) and have strong trade links with the eu markets (mostly germany): wielkopolskie, śląskie, opolskie. podkarpackie does not belong to a group of leading exporters, however it reveals high share of high-tech 1 while approaching the practical analysis of iit, one has to be aware of the fact that there are many measures of its intensity. our goal is not to present them in detail, because they have been broadly described and applied in theoretical literature on the subject as well as in their practical aspect. the diversity concerns global measurement formulas, as well as those applied to the level of particular branches. see more in: t. brodzicki (2011 and 2013). (1) where: • (exi + imi) – represents global value of foreign trade of i branch in region, • |exi – imi| – is the absolute value of difference between exports and imports of i branch in the region, • a – means participation of i branch in the sum of exports and imports of region. figure 1 presents g-l indices for poland’s regions (this is overall iit intensity, not broken by groups of countries). firstly we conclude that – as it was expected – iit intensity is lower for particular regions, than for poland as a whole. highest g-l indices are observed for regions that are regarded as top exporters (wielkopolskie, śląskie, małopolskie, mazowieckie and pomorskie), have high share of automobile industry products in exports (wielkopolskie, śląskie, małopolskie) and have strong trade links with the eu markets (mostly germany): wielkopolskie, śląskie, opolskie. podkarpackie does not belong to a group of leading exporters, however it reveals high share of hightech products due to aircraft industry presence in the region. on the other hand, lowest intensities of iit are observed for regions situated in a distance from the eu-15 member states. these are: podlaskie, świętokrzyskie, warmińskomazurskie and kujawsko-pomorskie. they are generally regarded as less competitive exporters, with relatively high share of agricultural products. it shall be stressed however that iit intensity is strongly influenced by region-specific factors, mainly being industrial structure and presence of foreign direct investors that determine pattern of trade relations. 1 while approaching the practical analysis of iit, one has to be aware of the fact that there are many measures of its intensity. our goal is not to present them in detail, because they have been broadly described and applied in theoretical literature on the subject as well as in their practical aspect. the diversity concerns global measurement formulas, as well as those applied to the level of particular branches. see more in: t. brodzicki (2011 and 2013). issn 1822–8402 european integration studies. 2014. no. 8 96 figure 1. iit intensity measured by g-l index for poland’s regions (2011) source: own calculations based on customs chamber data as it was expected, intensity of iit is not the same in trade relations that enterprises established in particular regions have with different groups of countries. apart from eu15 and new ue member states, the following groups were distinguished: far east, russia+ukraine+belarus and “other countries“. figure 2 depicts iit intensity differences for groups of countries. iit indices were calculated as averages for 16 regions. figure 2. iit intensity measured by g-l index for poland’s regions by group of countries (2011) comments: g-l index has been calculated for each group of countries as an average of iit indices for 16 regions of poland source: own calculations based on customs chamber data the ability to join international cooperation networks is the basis for iit to exist. although, in the traditional approach; due to the basic message of iit theory, it is mostly about the similarity of demand and so-called “demand for variety“. therefore – as most of the foreign trade of poland’s regions is with countries with higher gdp per capita – regions’ high gdp per capita shall positively contribute to iit intensity. we see a positively correlation indeed (see figure 3). figure 3. correlation between gdp per capita of region (nominal value, ths. pln) and iit intensity (g-l index) for 2011 source: own calculations based on customs chamber data in the open economy, especially under conditions of intensive inflow of fdi, the high level of development is correlated with the inflow of foreign capital. it is essential to remember that iit is often equated with intra-firm trade. the dependency between share of enterprises with foreign capital in exports and iit intensity is presented on figure 4. an interesting regularity can be observed. correlation is higher in case of regions, where foreign enterprises share exceeds 45 per cent. it may indicate that a greater role of fdi in iit stimulation is possible after achieving a specific fdi involvement limit in region’s economy (a definite “critical mass“). the same regularity has been identified for miit static index (see s. umiński 2012, p. 240). figure 4. correlation between the share of enterprises with foreign capital in region’s exports and intensity of iit (2008) source: own calculations based on customs chamber data miit assessment so-called marginal formulas are used in the iit dynamic dimension. thanks to their application, role of iit in trade’s change can be assessed, and not a change in trade itself. so, the miit provides us with very interesting information on the evolution of trade relations. miit intensity has been measured for years 2009–2011 according to the m. brülhart’s formula (2009, p. 407) for particular four-digit groups of cn classification: issn 1822–8402 european integration studies. 2014. no. 8 97 di ch th th m ac pa an co ch t fi 20 so su (2 is cl th fr on pr ca sh of 20 dr re m s ime han he m he e miit cco arti m nd ons han m w w a he igu 011 our a uch 200 s clo lose m he r rom n th rese alcu how f m 011 raw elat mii so-c ensi nge mii evol t i rdin cul mii nex ide nge: mii whe it w and resu ure 5 1 fo rce: acc h a w 9-2 ose e to miit resu m pe he d ente ulat w ch miit 1. t w an ive it a call ion can it p luti nte ng lar f i iit xt ering : t iit ere: ∑ = i t = ults 5: m r e ow ord way 201 e to o on t s ults erio disa ed ted han t in the ny n ly h asse led . th n be pro ion nsit to fou = it t agg g p ∑= ∑ = δ n 1i ( | t 20 s ar mii eu-1 wn ding y th 1) i zer ne). show of od to aggr on wi ngea n ch pi non high essm ma han e as ovid of t ty the r-di 1−= greg prod n i ∑ =1 δ δ (| e 011 a re p it in 15 a cal g to hat t is o ro) ws res o pe reg n fi ith able han ctu n-te h g me argin nks sses des trad has e m igit | − gate duc it w δ it ex ex and res ndi and lcul o m the of to or the ear erio atio gur sta e na nge ure enta g-l nt nal to t ssed us de r s b m. b t gro e e| δ δ ed cts mi + it |x | d t 2 ent ices d ne latio m. b ch otal tot e dy rch od. on l re atic atur of is r ative l ind for the d, a wi rela been brü oup ex ex it for gro i iit + δ | | 2009 ted s fo ewons brülh ang lly i tally ynam bas mo leve 5 t g re o tota rea e co dice rmu ir a and ith v ation n m ülha ps o | x t it + r ea oups it t δ δ im im on r po ue s ba har ge i inte y in mic sed oreo el o take -l of ii al t lly onc es ( ulas appl no ver ns. mea art's of c | δ+ δ ach s' p it it m |m figu olan e m ased rt, m n tr er-in ntra c na on ove of d e l for it – trad mi clus (tha s ar lica ot a ry i asur s fo cn im im δ re part |) ure nd’ emb d on mii rade ndu a-in atur mi er, th data ow rmu – as de v ixed sion at s re u atio cha inte red orm cla m m it it egio ticip 5. ’s re ber n cu t s e be ustr ndus re o iit hey tha er ula. s m volu d – ns. f show used on, r ang eres fo mula ssif | | t on d pati egio r sta usto shou etw ry c stry of t t ind y ar at w val th miit ume – th for w s d in role ge in ting or y a (2 fica due ion ons ates om uld ween har y ch trad dice re h we u lues he t re e be hus r m stati n the e of n tr g in yea 2009 ation e to in s for s s c be n pa ract hara de r es c heav use. s th res elate etw it many ic p e ii f iit rade nfor ars 9, p n: (2 o th ov (3 (4 r pe cham int arti ter ( acte relat can vily . m han sult es t ween is y re pict it d t in e it rma 20 p. 4 2) he vera 3) 4) erio mbe terp icul (the er ( tion be y de miit n th ts a to th n 2 diff egio ture dyn n tr self atio 09407 for all od 2 er d pret lar y en i (ind ns. vo epen t in he achi he s 009 fficu ons e of nam rade f. s on o -20 7) f rmu trad 200 data ted yea inde dex thu olati nde dic on ieve sha 9 an ult wi f iit mic e's so, on 11 for ula de 9a in ars ex is us ile ent es nes ed are nd to ith t) 5 w c h o r h s b p p m g p t r i b b t m i a a c p a i a o b s f c t v b h w i d c a m r p i u o d l p c r we catc hav of reg hig sinc bec phe pol mem geo pol the reg it i bas be trad mat inte ana asse cho pre and is g an of a but see frag cert tow var be hig wit ind det cor acc me reg pro in i un of div lev per cog reg ob chin ve c inte ion gh sh ce caus enom land mb ogra land eu ion is h sis o ass de tter co th erna alys ess osen dom d th th grea aly agg t als ms gme tain ward riety iit an ghes th t dustr erm rrela cord ssa de ion ospe inte dou fore vaga el, rspe gnit du ion bser ng chan ern ns th har 20 se o me d’s ber aph d’s u nal l hard of s sum cha r wi onc he atio sis d ed n – min heir he r ater zes greg so i to enta n ex ds y“. t in im st in the rial mina atio danc ge eepe ns, b ecti erna ubte eign atio suc ectiv tive ue to ns o rve up nce natio hat re o 09 of c non reg sta hica tra new leve d to such med ang ill b lus abo onal don for – nant reg resu r fo s of gati in t o atio xten iit nten mpor nten eu l st atio on w ce w of t ene both ve atio edly n tr on o ch a ve e va o th of p rela pro e to ona are of au on cris n th gion ates al p de w m el a o f h re tha ges, be p ion ove l e ne fo r si as tly gion ults or t f tha ion the be on nt – t, a nsity rtan nsit u c truc on with wit the ed h in dir nal y ii rad over as i of alue he f pola ativ oce com al tr e to uto ne c is t han ns w s t patt rela mem allo form elati at b th pola ns e p econ for r ixte it bet ns. of the at ty of ter re of – a as y an nt a ty o oun ctur of h th th th the ana n st rect l tra it i de a r th .e. sci e. fact and vely ess me rad op mo can that n ca we than tern atio mb ows mul ive beca he s ariz pres nom regi een re twe iit wh ype sta rrito elev pr a de a nd i asp of i ntrie re, ii he r he eory alys tatic ion ade is o anal he n pro ient t tha are y hi in clo de s exp obile n o t hi an b hav n n sh ons er to ate ly s aus situ zing sen mic ion nu efle een t ca hole e of atist oria van odu epa phe its c ect iit es. fd it reg exp y. ses c an n in the of l lyse natu omo tific at e e ch igh wh oser seem port e in bse t th be ve m for hift hav sta see m shor e o uatio g in nted cs ns. h ut ects int alcu e co f tra tica al sy nt; ucti artur eno cha of for ho di a int ion pec of nd m res eory ess es ( ure otio c st enti har mi hich r to ms ters ndu erve hose obs mi r e ts ve ates e ho ore rt p of th on n up d p con her s-2 s t egr ulat oun ade al d yste it ion. re ome ange f di r re owe acti tens ns’ g tati f ii mar sear y sh s us (com of on e tudi ties acte iit h re o th to s an ustri e lo e re serv it euin bee . a ow e in peri he of pcom pap ncep re, t 2 re trad ratin tion ntry are ata em. re . c from enon es ( iver egio ever ivit sity gd ions it rgin rch hall sefu mp int effic ies, s wh eriz lev gio he le de nd ies ow egio ved ind -15 tra en s ana the n-de od div pa min er pts the egio de ng ns i y th e se in . re efer con m t n r (ref rsiti ons r sp ty) y. i dp p s, a pro nal h. t l be ulne pare tern cien , it hich zed vels ons ead eter at t in e m ons is dice . t ade. stro lysi ese epth of t vers artic ng y sh m foc ons rel cou ndi han ensi the egio rs seq the refl flec ies is pec pla it r per as w ofil asp the e pu ess ed w natio ncy wo h ar by s. t les ders rmin the exp miit ’ ec tha es h thi . d ongl is shi h c tim e ii cula year heds migh cus of latio untr icat for tive e sy ona to quen tra lect ted am obs cific ay rem cap well les pect gra ut in for with ona y). h ould re l y sp this ss a . pr ne sam port t in con at f high is duri ly i of ifts onc me (3 it ar r rs. s l ht is o f p ons ries te th r se e to yste al le th ntly adit ting d by mon serv c fa imp main pita l as fo t, c avit nto r th h o al tr how d h loca peci s m adva rod the me ts an ndic nom for her cle ing inte tra are clus 3 y par reg ligh be on f olan s t s (as hat epar owa em eve he y, i tion g “ y m ng r ved acto por ns a. t s w r e can ty c ana e p othe rade wev have ated ific migh anc duct e m tim nd ces mies 8 o for early la ensi ade e di sion ear rtici gion ht us fore nd. that s of its rate ards of l of pro it i nal dem miit regi d in ors rtan in thes with each be conc alys prac er a e at ver, e s d in ex ht p ced t str miit me imp . t . a out r ne y ast ifie da iver ns o rs). ipat ns i on sefu eign ii t h f th int e re s the pro f an oce s – app man t) se ion rel (re nt r po se s the h o see cep ses ctica aspe t re fro ign n di xpor prov in ruct t. rev port this anot of ewsho ye d w ata rsifi on it m tion in t n h ful n tr t w happ he e ten egio e le odu naly ess – to pro nd eem s. t lati egio role osit stay e m of en a pt u of i al s ects egio om nific ffer rts a ve a iit ture for veal ts – s is ther f 16 -ue ows ars with for fied the may n in this how for rade was pen eu) sity ons evel ucts ysis of o a ach for m to the ons onal e in tive y in main the as a used iit side s of onal the cant rent and a t e r l – s r 6 e s , h r . e y n s w r e s n ) y . l , s f a h r o e s l n e n n e a d t. e f l e t t d (2) and next aggregated for each region due to the formula considering products groups’ participation in overall trade change: it n i itt miitwmiit ∑ = = 1 (3) where: di ch th th m ac pa an co ch t fi 20 so su (2 is cl th fr on pr ca sh of 20 dr re m s ime han he m he e miit cco arti m nd ons han m w w a he igu 011 our a uch 200 s clo lose m he r rom n th rese alcu how f m 011 raw elat mii so-c ensi nge mii evol t i rdin cul mii nex ide nge: mii whe it w and resu ure 5 1 fo rce: acc h a w 9-2 ose e to miit resu m pe he d ente ulat w ch miit 1. t w an ive it a call ion can it p luti nte ng lar f i iit xt ering : t iit ere: ∑ = i t = ults 5: m r e ow ord way 201 e to o on t s ults erio disa ed ted han t in the ny n ly h asse led . th n be pro ion nsit to fou = it t agg g p ∑= ∑ = δ n 1i ( | t 20 s ar mii eu-1 wn ding y th 1) i zer ne). show of od to aggr on wi ngea n ch pi non high essm ma han e as ovid of t ty the r-di 1−= greg prod n i ∑ =1 δ δ (| e 011 a re p it in 15 a cal g to hat t is o ro) ws res o pe reg n fi ith able han ctu n-te h g me argin nks sses des trad has e m igit | − gate duc it w δ it ex ex and res ndi and lcul o m the of to or the ear erio atio gur sta e na nge ure enta g-l nt nal to t ssed us de r s b m. b t gro e e| δ δ ed cts mi + it |x | d t 2 ent ices d ne latio m. b ch otal tot e dy rch od. on l re atic atur of is r ative l ind for the d, a wi rela been brü oup ex ex it for gro i iit + δ | | 2009 ted s fo ewons brülh ang lly i tally ynam bas mo leve 5 t g re o tota rea e co dice rmu ir a and ith v ation n m ülha ps o | x t it + r ea oups it t δ δ im im on r po ue s ba har ge i inte y in mic sed oreo el o take -l of ii al t lly onc es ( ulas appl no ver ns. mea art's of c | δ+ δ ach s' p it it m |m figu olan e m ased rt, m n tr er-in ntra c na on ove of d e l for it – trad mi clus (tha s ar lica ot a ry i asur s fo cn im im δ re part |) ure nd’ emb d on mii rade ndu a-in atur mi er, th data ow rmu – as de v ixed sion at s re u atio cha inte red orm cla m m it it egio ticip 5. ’s re ber n cu t s e be ustr ndus re o iit hey tha er ula. s m volu d – ns. f show used on, r ang eres fo mula ssif | | t on d pati egio r sta usto shou etw ry c stry of t t ind y ar at w val th miit ume – th for w s d in role ge in ting or y a (2 fica due ion ons ates om uld ween har y ch trad dice re h we u lues he t re e be hus r m stati n the e of n tr g in yea 2009 ation e to in s for s s c be n pa ract hara de r es c heav use. s th res elate etw it many ic p e ii f iit rade nfor ars 9, p n: (2 o th ov (3 (4 r pe cham int arti ter ( acte relat can vily . m han sult es t ween is y re pict it d t in e it rma 20 p. 4 2) he vera 3) 4) erio mbe terp icul (the er ( tion be y de miit n th ts a to th n 2 diff egio ture dyn n tr self atio 09407 for all od 2 er d pret lar y en i (ind ns. vo epen t in he achi he s 009 fficu ons e of nam rade f. s on o -20 7) f rmu trad 200 data ted yea inde dex thu olati nde dic on ieve sha 9 an ult wi f iit mic e's so, on 11 for ula de 9a in ars ex is us ile ent es nes ed are nd to ith t) 5 w c h o r h s b p p m g p t r i b b t m i a a c p a i a o b s f c t v b h w i d c a m r p i u o d l p c r we catc hav of reg hig sinc bec phe pol mem geo pol the reg it i bas be trad mat inte ana asse cho pre and is g an of a but see frag cert tow var be hig wit ind det cor acc me reg pro in i un of div lev per cog reg ob chin ve c inte ion gh sh ce caus enom land mb ogra land eu ion is h sis o ass de tter co th erna alys ess osen dom d th th grea aly agg t als ms gme tain ward riety iit an ghes th t dustr erm rrela cord ssa de ion ospe inte dou fore vaga el, rspe gnit du ion bser ng chan ern ns th har 20 se o me d’s ber aph d’s u nal l hard of s sum cha r wi onc he atio sis d ed n – min heir he r ater zes greg so i to enta n ex ds y“. t in im st in the rial mina atio danc ge eepe ns, b ecti erna ubte eign atio suc ectiv tive ue to ns o rve up nce natio hat re o 09 of c non reg sta hica tra new leve d to such med ang ill b lus abo onal don for – nant reg resu r fo s of gati in t o atio xten iit nten mpor nten eu l st atio on w ce w of t ene both ve atio edly n tr on o ch a ve e va o th of p rela pro e to ona are of au on cris n th gion ates al p de w m el a o f h re tha ges, be p ion ove l e ne fo r si as tly gion ults or t f tha ion the be on nt – t, a nsity rtan nsit u c truc on with wit the ed h in dir nal y ii rad over as i of alue he f pola ativ oce com al tr e to uto ne c is t han ns w s t patt rela mem allo form elati at b th pola ns e p econ for r ixte it bet ns. of the at ty of ter re of – a as y an nt a ty o oun ctur of h th th th the ana n st rect l tra it i de a r th .e. sci e. fact and vely ess me rad op mo can that n ca we than tern atio mb ows mul ive beca he s ariz pres nom regi een re twe iit wh ype sta rrito elev pr a de a nd i asp of i ntrie re, ii he r he eory alys tatic ion ade is o anal he n pro ient t tha are y hi in clo de s exp obile n o t hi an b hav n n sh ons er to ate ly s aus situ zing sen mic ion nu efle een t ca hole e of atist oria van odu epa phe its c ect iit es. fd it reg exp y. ses c an n in the of l lyse natu omo tific at e e ch igh wh oser seem port e in bse t th be ve m for hift hav sta see m shor e o uatio g in nted cs ns. h ut ects int alcu e co f tra tica al sy nt; ucti artur eno cha of for ho di a int ion pec of nd m res eory ess es ( ure otio c st enti har mi hich r to ms ters ndu erve hose obs mi r e ts ve ates e ho ore rt p of th on n up d p con her s-2 s t egr ulat oun ade al d yste it ion. re ome ange f di r re owe acti tens ns’ g tati f ii mar sear y sh s us (com of on e tudi ties acte iit h re o th to s an ustri e lo e re serv it euin bee . a ow e in peri he of pcom pap ncep re, t 2 re trad ratin tion ntry are ata em. re . c from enon es ( iver egio ever ivit sity gd ions it rgin rch hall sefu mp int effic ies, s wh eriz lev gio he le de nd ies ow egio ved ind -15 tra en s ana the n-de od div pa min er pts the egio de ng ns i y th e se in . re efer con m t n r (ref rsiti ons r sp ty) y. i dp p s, a pro nal h. t l be ulne pare tern cien , it hich zed vels ons ead eter at t in e m ons is dice . t ade. stro lysi ese epth of t vers artic ng y sh m foc ons rel cou ndi han ensi the egio rs seq the refl flec ies is pec pla it r per as w ofil asp the e pu ess ed w natio ncy wo h ar by s. t les ders rmin the exp miit ’ ec tha es h thi . d ongl is shi h c tim e ii cula year heds migh cus of latio untr icat for tive e sy ona to quen tra lect ted am obs cific ay rem cap well les pect gra ut in for with ona y). h ould re l y sp this ss a . pr ne sam port t in con at f high is duri ly i of ifts onc me (3 it ar r rs. s l ht is o f p ons ries te th r se e to yste al le th ntly adit ting d by mon serv c fa imp main pita l as fo t, c avit nto r th h o al tr how d h loca peci s m adva rod the me ts an ndic nom for her cle ing inte tra are clus 3 y par reg ligh be on f olan s t s (as hat epar owa em eve he y, i tion g “ y m ng r ved acto por ns a. t s w r e can ty c ana e p othe rade wev have ated ific migh anc duct e m tim nd ces mies 8 o for early la ensi ade e di sion ear rtici gion ht us fore nd. that s of its rate ards of l of pro it i nal dem miit regi d in ors rtan in thes with each be conc alys prac er a e at ver, e s d in ex ht p ced t str miit me imp . t . a out r ne y ast ifie da iver ns o rs). ipat ns i on sefu eign ii t h f th int e re s the pro f an oce s – app man t) se ion rel (re nt r po se s the h o see cep ses ctica aspe t re fro ign n di xpor prov in ruct t. rev port this anot of ewsho ye d w ata rsifi on it m tion in t n h ful n tr t w happ he e ten egio e le odu naly ess – to pro nd eem s. t lati egio role osit stay e m of en a pt u of i al s ects egio om nific ffer rts a ve a iit ture for veal ts – s is ther f 16 -ue ows ars with for fied the may n in this how for rade was pen eu) sity ons evel ucts ysis of o a ach for m to the ons onal e in tive y in main the as a used iit side s of onal the cant rent and a t e r l – s r 6 e s , h r . e y n s w r e s n ) y . l , s f a h r o e s l n e n n e a d t. e f l e t t d (4) and t = t2011 and t2009 the results are presented on figure 5. figure 5. miit indices for poland’s regions for period 2009–2011 for eu-15 and new-ue member states source: own calculations based on customs chamber data according to m. brülhart, miit should be interpreted in such a way that the change in trade between particular years (2009–2011) is of totally inter-industry character (then index is close to zero) or totally intra-industry character (index is close to one). miit shows the dynamic nature of trade relations. thus the results of research based on miit indices can be volatile from period to period. moreover, they are heavily dependent on the disaggregation level of data that we use. miit indices presented on figure 5 take lower values than the ones calculated with static g-l formula. the results achieved show changeable nature of iit – as miit relates to the share of miit in change of total trade volume between 2009 and 2011. the picture is really mixed – thus it is difficult to draw any non-tentative conclusions. for many regions with relatively high g-l indices (that show static picture of iit) we observe relatively high miit levels. this might prove a catching up process in which regions less advanced in iit have chance to come closer to the leaders. product structure of international trade seems to determine the miit. for regions that are top exporters and at the same time reveal high share of automobile industries in exports and imports – since 2009 one can observe low miit indices. this is because of crisis that hit those regions’ economies. another phenomenon than can be observed is that for 8 out of 16 poland’s regions we have miit indices higher for new-ue member states than for eu15. this clearly shows geographical pattern shifts in trade. during last years, poland’s trade relations have been strongly intensified with the eu new member states. analysis of trade data for regional level allows to see how these shifts are diversified. it is hard to formulate more in-depth conclusions on the basis of such relatively short period of time (3 years). it may be assumed that because of the diverse iit participation in trade changes, the situation of particular regions in this matter will be polarizing in upcoming years. conclusions the above presented paper sheds light on how international economics concepts might be useful for analysis done for regions. here, the focus is on foreign trade assessed for sixteen nuts-2 regions of poland. iit was chosen – as it reflects trade relations that happen predominantly between integrating countries (as of the eu) and their regions. the results of iit calculations indicate that its intensity is greater for the whole country than for separate regions. analyzes of that type of trade are sensitive towards the level of aggregation of statistical data in the system of products, but also in the territorial system. regional level of analysis seems to be relevant; it refers to the process of fragmentation of production. consequently, it is – to a certain extent – a departure from the traditional approach towards iit, as a phenomenon reflecting “demand for variety“. iit intensity and its changes (reflected by miit) seem to be an important aspect of diversities among regions. the highest intensity of iit for regions is observed in relations with the eu countries. however specific factors (regional industrial structure, fdi activity) play important role in determination of iit intensity. it remains in positive correlation with the regions’ gdp per capita. these stay in accordance with the expectations, as well as with the main message of the theory. deepened analyses of iit profiles for each of the regions, both in static and marginal aspect, can be seen as a prospective direction in research. the gravity concept used in international trade theory shall be put into analyses of iit. undoubtedly iit is of less usefulness for the practical side of foreign trade analyses (compared with other aspects of divagation over the nature of international trade at regional level, such as i.e. promotion efficiency). however, from the perspective of scientific studies, it would have significant cognitive value. due to the fact that entities which are located in different regions of poland are characterized by specific exports and imports structure (in the aspect of products, but also in the geographical one), the economic crisis shall have negative impact on iit intensity in a different way. following scenario should be expected especially in regions in which car industry plays an important role. it is a branch which was afflicted with the crisis in the first place, moreover in two different ways: through reduced demand for new cars and through delocalization of production and cases of taking it “back“ to the foreign investors “home“ countries. iit in the traditional aspect is determined by similarities of income, demand preferences or demand structure. economic crisis contributed to the diversification of dynamics of economic growth in the european union member states. poland, compared with other countries, is characterized by the rapid pace of growth. moreover, this tendency results in “catching up with“ the european union standards. poland gdp per capita in 2007 (due to pps) formed 54 per cent of the eu average and till 2011 increased to 63 per cent (eurostat). issn 1822–8402 european integration studies. 2014. no. 8 98 the above-mentioned tendency should positively contribute to the growth of iit intensity of poland’s regions with the eu. an essential question needs to be posed: why is it proper to analyze intra-industry exchange? the theoretical approach suggests that iit influences redistribution of income to far lesser extent than the trade based on the model of comparative advantage and factors’ intensity. 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provided by feldstein (2008) on the necessity for global readjustments, both in the u.s. and in main trading partners. the purpose is to address the main arguments in the scientific and political debate on persistent to date, there has been no publication that challenged the opinions leading to totally wrong forecasts concerning the global imbalance. with a perspective of more than 10 years of post-2008-crisis developments, and together with empirical evidence one can easily see how erroneous were the arguments formulated in 2008. the tasks included a systematic review of all arguments formulated by martin feldstein in 2008, and casting them against empirical evidence. the u.s. current account (ca) deficit has continued for many years, since 1982, and has not changed, as foreseen by feldstein. the primary method is a simple comparative analysis, supported by basic macroeconomic data. they allow to reveal multiple processes leading to further deterioration of the u.s. trade balance. neither savings rate domestically nor abroad adjusted to give a basis for solving the global imbalance. in the same time, all traditional arguments presented on global imbalances seem undeniable. however, an alternative interpretation of the imbalance does not recognize the ca deficit as “a gift to the u.s. economy”. this paper sheds new light on the “global imbalance”, suggesting that increasing domestic absorption by china may be an important factor in resolving the u.s. problematic and persistent trade deficit. disaster-scenarios may be not there in the u.s. to experience. future developments may be far from those announced, and previously expected by feldstein in his seminal paper. a careful reader may conclude that all coming changes and adjustments will be slow, gradual, and will not cause any major issues in the global economy. such conclusions seem most justified by hard data and therefore encouraging. as the topic remains central to open economy empirical macroeconomics, continuation of studies on this issue seems natural. the u.s. and china will remain the biggest economies, and, as such, they are central to the global situation. keywords: global imbalance, u.s., current account, foreign exchange reserves, the dollar. in the stabilization period after the global financial crisis) economists returned to ‘global imbalances’ (obstfeld & rogoff 2009, whelan 2010), as a popular topic. there have been a few methods for assessing the imbalance (bracke, et al. 2008). in general, the term refers to consequences of a specific consumption and saving pattern of american economy. the continuing (massive) deficit in the u.s. trade and current accounts calls for a new approach to its interpretation and analysis. in the traditional approach to balance of payments (bop) and national accounts, these deficits have been indeed “the most striking features of the current global economy”. global and national institutions responsible for macroeconomic stability focused on the topic (king 2011). no wonder that also distinguished scholars (feldstein 2008) expressed their deepest worries about the situation they observed, analyzed, and reported to the u.s. presidents. there were also others, asking a similar question about nature and sustainability of the global imbalance (de mello & padoan 2010). it was the imf explicitly expressing worries about the situation (blanchard & milesi-ferretti 2011). european integration studies no. 15 / 2021, pp. 125-137 doi.org/10.5755/j01.eis.1.15.28787 submitted 03/2021 accepted for publication 06/2021 assessment of feldstein’s ‘global imbalance’ eis 15/2021 paweł młodkowski school of international liberal arts, miyazaki kokusai daigaku introduction 1 i thank david bywaters for very helpful comments. i thank baktygali salimgereyev for excellent research assistance. all remaining errors are my own. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 126 after year 2008, there has been a quite stable current account balance, remaining below 3% of the gdp (figure 1). the most recent records show that in 2017 the situation remained unchanged. some observers claim that the u.s. economy can’t continue to have trade deficits of such magnitude. m. feldstein (2008) was right, forecasting significant decline in ca deficit in the coming years (i.e. after 2007). this paper discusses the reasons a) why the traditional interpretation of the u.s. current account deficit is not valid in these times of globalization, b) why the changes are not needed in the u.s. saving rate, and c) why the value of the dollar may not decline. figure 1 current account balance: nominal and as percent of the gdp, 2007-2017 (author, based on bea statistics). when evaluating traditional arguments on global imbalances, one may have an impression that they are all based on the bretton woods system still operating. not only are the fixed exchange rates long gone for most developed countries, but new paradigms for the open economy are there. nobody conducts devaluations anymore, and the chinese exchange rate policy is far from the ‘beggar-thy-neighbor’ cases known from the past. liberalization (in the broad sense) has replaced institutional arrangements (i.e. bretton woods system, erm) with market mechanism. for some (see stiglitz), this situation calls for more active participation by national governments, and for protection, but that is not pursued in this paper. what matters is that the current global situation may have another interpretation. however, the traditional bop analysis leads to consistent conclusions, based on erroneous assumptions. previously, institutional arrangements guided international transactions and relationships, and the dollar was the global currency due to political decision. since 1972 the dollar has served in the same capacity because of market participants’ decision. this has had very different consequences for the u.s. economy. more on consequences for small open economy can be found in ‘dominant currency paradigm’ by casas, et al. (2017). an alternative interpretation pursued here is based on the diligent application of the fact, rather than institutions and economic policy, that there are market forces in play. altogether, they invalidate many arguments provided so far on global imbalances and expected rebalancing schemes. 127 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 figure 2 external value of the us dollar 1973-2017 (author, based on the federal reserve, https:// www.federalreserve. gov/releases/h10/ summary/.). the main rebalancing scheme expected by feldstein (2008) was based on a significant decline in the external value of the dollar. even though there has been significant decline in the u.s. current account deficit since 2008 (from almost 5% of the gdp to 2.75%), this cannot be attributed to the lower value of the dollar. figure 2 offers a brief review of the external value of the u.s. currency since 1973. there has been a strong positive response to the u.s. political situation in december 2016. this particular factor will receive more attention later, as “making america great again” plays no small part in the sustainability of the otherwise unsustainable imbalance. when compared with the decade ago (2008-first dotted vertical line), the value of the usd is higher in 2018 no matter which index is used. when compared with early 1990s, the value is basically the same (except for index “other important trade partners”). only when compared with its value in 1970s, the dollar does seem to be worth about 8% less. if really the global rebalancing will materialize through depreciation of the dollar, it has not started yet. its value seems to be quite stable, suffering on average 2% depreciation per one decade over the last four decades. the observed decline in the current account deficit since 2008 has been driven therefore by some other factors and forces omitted by feldstein (2008). after reaching its lowest value in 2011 (second dotted vertical line), the usd has climbed up, no matter which index is used to capture its external value (figure 2). reductions in the u.s. current account deficit do not necessarily imply lower aggregate trade surpluses in the rest of the world. (presumably they would, if world trade “balanced”, but typically the data showed in 1980s the world had a big deficit with itself, while since 1990 it is about an exponentially growing global trade surplus.) the reason is in changes within the chinese economy that imply expansion of domestic demand for imported products. exporters seem to be switching the destination for their products already, supplying consumers in china, and maintaining their respective trade surpluses. at the same time, a reduction in any country’s trade surplus does not necessarily reduce aggregated demand. many, if not most, of ‘trade surplus economies’ have grown dynamically over the last two decades, or so, with exception for japan and germany. what follows is not only a change in consumption patterns, but also an expansion e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 128 of the domestic absorption, which develops independently from the u.s. trade policy. there may also be no negative response of employment to these adjustments. the decline of the u.s. deficit (and surplus) may not be so ‘inevitable’ as claimed by feldstein (2008). it is worth mentioning here that the traditional macroeconomic analysis assumes the level of current account deficit at 5% of gdp, as potentially problematic. de mello and padoan (2010) provided some post-crisis scenarios for sustainability using also 5% as a reference. this benchmark was developed on the basis of real life experience of (many) small open economies in the late 20th century. such systems are, however, very different from the u.s. system with respect to ‘sustainability’ factors. sustainability of the u.s. current account deficit has been driven by several factors. three of them seem to be crucial. the dollar has been the most important international currency for (1) trade, (2) reserves, and (3) investment. they were, however, neglected by m. feldstein (2008). there is a recent contribution to this discussion concerned with the dominant currency paradigm by casas et al. (2017). studying merchandise trade from 1979, one can see (figure 3) that u.s. exports have remained low, matching (i.e. financing) no more than 65% of imports in 2017. how can the u.s. current account imbalance be sustainable? figure 3 u.s. nominal trade deficit, and share of merchandise imports financed by merchandise exports 1979-2017. in 1980 u.s. exports financed 93% of merchandise imports. the plaza accord in mid-1980s seem to be responsible for the rebound, but the end of the bubble economy in japan in 1991 reversed the trend again for the next 15 years, or so. the following years, until 2006 witnessed indeed a very special, and worrisome, situation with stable deficit oscillating around 700 billion usd in the period 2005-2008. no wonder it motivated many economists to issue warnings and call for rebalancing by the means of economic policy and facilitating market adjustments. even though the global financial crisis has executed a pressure on the trade deficit, the merchandise trade imbalance since 2011 was back on the same track as in the pre-crisis period. there has also been a quite stable share of imports financed by exports in the most recent period (at 65%). no actual rebalancing can be observed, so far. this has been as if market participants have been not aware of the ‘severity’ of the global imbalance at hand. so how has the trade deficit been financed since 2008? exports manage to finance only between 60% and 65% of merchandise imports. (note: there is a difference between a current account balance, and a merchandise trade balance, which is particularly great for a country such as the us which is a successful exporter of services). “a nation that buys more than it sells must finance the difference by borrowing from the rest of the world or by selling assets.” the u.s. economy does it in both available manners, with the former slowly diminishing in significance, and the latter gaining momentum. 129 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 the u.s. remains the deepest and the most diversified financial market in the world. this unique feature allows it to finance part of the current account balance by selling financial assets. in particular, these have been equity, along with debt (corporate and public), that have attracted foreign savings. sale of financial assets continues, as the rest of the world purchases claims on u.s. companies’ profits, and becomes owner of entire businesses (prominent examples are: cit group, blackstone, and ingram micro that have changed ownership since 2013). private funds keep coming to the u.s. in a variety of ways, but the expected returns have not been the only reason for that, as observed already by feldstein (2008). the situation changed dramatically in 2007, following the global financial crisis. since 2013 net portfolio investment seems to be significantly reduced, and foreign capital has been no longer provided to the u.s. economy at the previous scale. since 2015, non-residents have contributed more long-term capital to the u.s. than the u.s. investors exported in the form of fdi, with 2017 witnessing a slight reversal towards the previously observed pattern. this change calls for additional elaboration, as it was unexpected, and unforeseen by m. feldstein (2008). there was a unique feature of the u.s. economy over many decades, until 2014. it served as a global financial intermediator. in the real terms, this intermediation utilized a straight scheme. short-term foreign capital was flowing in (amounts in excess of the current account deficit), and long-term capital was exported from the u.s. benefits materialized due to the difference in rates of return. short-term (i.e. portfolio) investment in the u.s., as the more liquid one (i.e. less risky), paid lower rate of return to foreign investors taking long positions in dollar-denominated financial instruments. net portfolio investment in the u.s. used to be positive (figure 4). in the same time, the u.s. economy exported long-term capital, receiving a rate of return in excess of the rate paid on the short-term liabilities (positive net portfolio investment). flows of long-term capital (i.e. direct investment) used to be negative (figure 4: until 2014). this indicated an outflow of long-term capital. such a situation generated substantial benefits for the figure 4 capital flows: current account balance (cab), net portfolio investment (pi), fdi, and other investment (oi) and their total as a share of the current account deficit, 2007-2017 (author, based on the u.s. international transactions accounts data from the bea.). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 130 u.s. economy due to financial intermediation. america benefited because the rate of return on long term capital invested outside u.s. was greater than the cost of short-term capital that was provided by other countries in the first place. borrowing at a low rate (from other countries), and providing financing at a higher rate (to other countries), along with transformation of the nominal (from multiple small deposits to few big loans), and the term (from short to long-term financing) belong to the very nature of every banker. there has been a similar scheme in the case of the uk, but not in any other country or region. for example, financial flows within the eu, and debtor-creditor positions are of a very different nature. they are also motivated by totally different considerations than in case of the u.s., as argued by daugeliene and młodkowski (2014). the composition of portfolio investment (equity versus debt) may suggest the actual beneficiary of financial instruments purchased in the u.s. it was claimed by feldstein (2008) that main u.s. trade partners’ governments accumulate foreign exchange reserves to maintain competitiveness and “sustain […] export surpluses”. such interpretation seems to fit perfectly in the environment, where ‘beggar-thy-neighbor’ policy is the everyday practice. however, the actual motivation for governments to buy and maintain large foreign exchange reserves denominated in the dollar may be much more complex (eichengreen et al. 2017). according to an investigation by du, im, and schreger (2018) into changes in preferences of investors for u.s. treasury bonds, there seems to be some empirical support for arguments formulated by feldstein (2008). traditionally, investors preferred u.s. t-bonds over instruments issued by other ‘nearly default-free’ governments. for decades, these preferences reduced borrowing costs for the u.s. federal government. du, im, and schreger (2018) report disappearance of ‘specialness’ of mediumand long-term u.s. government bonds. this change occurred after the global financial crisis, and a new situation has continued since. it could be concluded that except for short-term t-bills, “investors, both public and private, [became] less willing to keep adding dollar bonds to their portfolios”, as foreseen by feldstein (2008). however, among reasons that may be responsible for this new situation du, im, and schreger (2018) do not list portfolio adjustments resulting from the fear of loss resulting from a decline in the value of the u.s. dollar. the situation presented in figure 5 with negative net equity investment in the u.s. in 2013, 2015, and 2016 indicates a significant change in private investors’ decisions. following the ‘foreign investors type recognition’ method (by feldstein 2008) one can conclude that foreign governments, which are supposed to invest in debt instruments, reduced then the pace of accumulating usd-denominated assets. since 2013, private savings have been divested from the u.s., and foreign governments have been adding foreign exchange reserves in usd-denominated assets much more slowly. if these trends continue, the scenarios formulated by feldstein may really materialize. the most recent records of foreign exchange reserves holdings reveal a substantial expansion in all of them, except for russia and china (figure 6). there has, indeed, been a staggering surge in the total value of chinese foreign exchange reserves from 2008 to 2014 but reserves maintained in 2018 are already below the 4 trillion reached in the preceding years. russia and china reduced their holdings of foreign exchange reserves in the most recent period, which is reflected in a decline of net debt investment in the u.s (figure 5). if other main reserve-holders follow the same path, then the depreciation of the dollar foreseen by feldstein (2008) may indeed materialize. on top of that, changes in the level and composition of foreign exchange reserves holdings may also affect global interest rates, as discussed by młodkowski (2011). the global economy seems to suffer from excessive liquidity. alterations of demand for particular currencies, while portfolio composition is rearranged, may have local, or even regional, impact on the cost of capital for private and public sectors alike. 131 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 figure 5 composition of net portfolio investment in the usa, debt versus equity, 2007-2017 (author, based on the u.s. international transactions accounts data from the bea.). figure 6 foreign exchange reserves of china, japan, russia, south korea, and oil-producing countries, in 2008 and 2018 (author, based on cofer, by the imf, world bank.). after accumulating sufficient foreign exchange reserves to discourage speculative attacks on currencies managed under hard pegs (conventional pegs in 2012: 43 and in 2017: 44, according to areaer, by imf 2018) may be a reason for the lower demand for the dollar. empirical evidence available in 2018 undermines the ‘satiation’ argument formulated by feldstein (2008, p. 118). both south korea, and taiwan significantly increased their respective foreign exchange reserves holdings over the last decade, both in nominal and relative terms. south korea moved from 201 to 379 billion – by 94%, while taiwan from 189 to 314 billion – by 66%)2. precautionary demand for usd, as the main reserve currency in 2008 seems to be understated by feldstein (2008). observing japan increasing its foreign exchange reserve holdings by about 20% over the last decade indicates that it might be associated with “stimulating trade surplus”. however, the recent 2 south korea: https://fred.stlouisfed.org/series/tresegkrm052n, taiwan: https://fred.stlouisfed.org/series/tresegtwm194n e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 132 substantial decline in chinese foreign exchange reserves holdings from 4 to 3 trillion, does not fit with the “stimulating trade surplus” narrative. indeed, the chinese economy seems to have diverted from perpetual ious, and started managing its trade surplus in a new manner. in summary, the large trade and current account deficits of the united states still continue, but at a significantly lower scale than around 2008. the u.s. economy no longer receives “a permanent gift”. instead, it provides real assets to foreign investors. non-residents acquire ownership of u.s. enterprises and real estate. this is a process that causes u.s. citizens’ property to shrink. the dollar will not fall, because private investors are willing to increase their holdings of u.s.-based property. according to the research division of national association of realtors (nar 2017), foreigners increased their spending on real estate in the u.s. 2.5 times, between 2011 ($66.4 billion) and 2017 ($153.9 billion). the increased demand for ownership in the u.s. may trigger another asset-bubble in the financial and real estate markets. therefore, one may claim that fall of the dollar has started already, but domestically, due to inflation. the national saving rate in the u.s. has been historically low (table 1). when domestic absorption in relation to domestic production results in a small surplus only, it does not allow for investment in business equipment, housing, and other structures. it also makes exporting the surplus to other countries not an option. this is all about just another national accounting identity that implies that the difference between savings and investment be matched by trade balance. the permanent trade deficit means negative net domestic savings. role of national savings 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 usa 15.5% 14.4% 15.1% 15.6% 17.5% 18.1% 19.0% 18.9% 17.7% china 51% 52% 51% 52% 50% 50% 49% 49% 47% 46% 46% table 1 gross national saving rate in the us and china as % of gni (gdp for china) 2007-2017. source: author, based on economic report of the president, 2017 (for u.s. data), and world economic outlook database (for china). feldstein (2008, p. 118-119) claimed that low national saving is the “fundamental cause” of the global imbalance addressed here. national savings are the sum of three elements: (1) household savings, (2) retained earnings, and (3) government budget balance. although the u.s. government deficit was not considered problematic at 1.5% of the gdp in 2008, it is its nominal, not relative (to gdp) size that matters for the global imbalance. it was feldstein (2008) who had already foreseen two developments in regard to u.s. national saving. in general, he expected the saving rate to increase. figure 7 net private savings rate in the u.s. as a percentage of the gni, 2008-2016 (author, based on world development indicators by the world bank.). 133 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 this has already materialized since 2010 (figure 7, and table 1). the other correct expectation was “the government deficit (…) potentially heading for trouble in the next decade”. indeed, it was 2009, when the general government deficit hit almost 13% of the gdp, and continued as a double-digit for three years (figure 8). however, the reasons seemed very different from what feldstein (2008, p. 119) explained. public savings, although still negative, seem to be under control, stable, at around 5% of gdp since 2013 (figure 8). there will probably be a change after the recent us tax cuts. straight return to double-digit percent of gdp deficit, may not be there, however, due to acclaimed 2018-economic recovery. why did private savings, after a 5-year period (2010-2014) of growth start to decline? the most recent developments in residential construction may shed some light on possible reasons. data reported for 2017 (table 2) indicate that the u.s. economy is on a similar track, as in the pre-2008 period. figure 8 nominal federal government deficit, and general government deficit, as % of gdp (author, based on federal reserve economic data (left chart), oecd database (right chart).). the new trend in construction industry (table 2), after 2011’s low, suggests that the trade deficit will receive no longer any support from lower residential investment domestically. rising prices of real estate, reported in 2017 and 2018 (nar, 2018) have led to another rapid rise in household wealth. one can already observe growing level of mortgage refinancing with equity withdrawal, after substantial reversal in this regard in the preceding decade. housing starts 1,202,100 units up 2.4% from a year earlier housing completions 1,152,300 units up 8.7% from a year earlier housing permits 1,263,400 units up 4.6% from a year earlier table 2 u.s. housing market statistics for 2017. source: author, based on national association of realtors (nar). it seems that a poor-performance-decade is also over for stock markets. the stock prices are also likely to outperform earnings in the future, in the way that they had been doing so before 2008. the reducing trade deficit has not been supported by higher spending on american-made goods and services, domestically and abroad (table 3). there are many reasons for that. while feldstein ibt fafh ee er income before taxes (ibt) 1 food away from home (fafh) 0.353 1 entertainment expenditure (ee) 0.55 1 exchange rate annual average (er) -0.26 0.57 0.351 1 table 3 correlation coefficients between nominal exchange rate, income and domestic consumption spending categories 2006-2017. source: author e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 134 (2008, p. 120) addressed only relative prices, one should also point out quality. this is another, even more important factor. there is much stronger environmental consciousness outside u.s. that drives consumer behavior. this is supported nowadays by strong tax-incentives for using fuel-efficient and eco-friendly solutions outside the us. eu and japan are good examples here. the decline of the dollar relative to the euro, the yen, and other currencies (although not witnessed so far) does not seem to be sufficient for other countries to increase consumption of u.s. products. there are some american products that still compete in global markets with japanese, and european. even as the dollar declines, the u.s. products will not become really more attractive to buyers at home and abroad, due to other factors that drive consumer decisions these days. a good example could be the persian gulf region, where consumers prefer japanese (personal vehicles), and european (heavy trucks: renault, man, mercedes) products over american ones. the reasons are in reliability and higher efficiency of the former two, and not the relative price. one could find few of “making america great again” themes already in feldstein’s (2008) suggested rebalancing scheme. this is mainly about promoting a change in domestic consumer behavior. in particular, it was about switching consumption from imported products to made-in-u.s. after a decade, or so, one can conclude that this scenario has still not materialized, in spite of intensive propaganda, since 2016, and protectionist trade policy by the current administration in 2018. according to the correlation coefficients reported in table 3, american consumers respond positively to exchange rate appreciation, expanding their spending on domestically-produced goods & services. appreciation of the dollar seems to have a much stronger positive impact on decisions to buy food away from home than in the case of entertainment spending. the response of the same categories of non-tradables to changes in income is somehow symmetrically reversed in terms of magnitude. so if it has been not the declining dollar that led to reducing the trade imbalance, what has been the reason(s)? feldstein (2008) saw his balancing scheme via the decline in the external value of the dollar, and kept repeating it like a mantra throughout his paper. real life developments have led to adjustments in very different ways, while the dollar has appreciated, since 2011 (figure 2). why has the dollar not declined relative to the euro, and why has it hardly declined at all relative to the japanese yen, and the chinese yuan? feldstein (2008, p. 122) pointed out devaluation expectations, but did not address how these expectations are formed. another argument dealt with the positive difference between interest rates on euro bonds and dollar-denominated bonds. actually, the latter issue has disappeared for mid-term and long-term bonds, as reported by du, im, schreger (2018). even with these positive rate differentials disappearing, the fall of the dollar is nowhere to be seen. forming expectations according to the misleading statements of the u.s. government, and international financial institutions, does not seem to be really the case in the world of efficient (foreign exchange) markets. although the two biggest foreign exchange reserve owners (china and japan) still maintain substantial dollar holdings, the last decade (2008-2018) witnessed a sharp appreciation (2008: 1 usd = 110 jpy and 2013: 1 usd = 78 jpy) and then depreciation (2015: 1 usd = 125 jpy and 2018: 1 usd = 110 jpy) of the yen that can hardly be attributed to observed developments in foreign exchange reserve holdings. somehow, this has still not resulted in the foreseen decline of the dollar. the actual rebalancing scheme has been observed in the latter half of the previous decade. it has been far from what feldstein (2008) advised, and foresaw. he postulated a substantial reduction in the external value of the dollar. in such a scenario, all foreign holders of greenbacks would suffer a substantial loss. benefits would be there only for the u.s. as fiat money is really debt, depreciation would mean that for many decades the debt was created in a strong currency, but resolving global imbalance 135 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 when it comes to repayment, the debtor calls for reducing the real value (i.e. purchasing power) of the liability to-be-repaid. accumulation of trade-induced debt in strong currency allowed u.s to purchase cheaply from the rest of the world, with all its consequences, benefiting the domestic economy. however, when the time came to repay the debt, feldstein (2008) postulated a scheme that would ease the pain of giving up equivalent in other assets, by a substantial reduction in the real value of the liability. if it really comes to substantial decline of the dollar, it will result in wealth transfer at the global scale. wealth transfer that is addressed here is both international, and intergenerational. it should not be denied that there has been enormous effort invested in developing production by emerging economies. their rapid growth came at a cost of sacrificing contemporary consumption for the purpose of accumulating capital. it has been motivated by expectations of improved living standards, and expanded consumption in the future. hard and diligent work, along with saving a substantial fraction of income may, however, become the most disappointing virtues in the developing world. such demoralizing scenario depends critically on the actual decline of the dollar, if it really materializes. the global imbalance has been in fact an inter-temporal imbalance of consumption. the u.s. economy has already been consuming in excess of its contribution to the global gdp for about 40 years. such a comfortable situation has been made possible only due to decision of the rest of the world to consume less ‘today’, and receive a promise to have higher consumption in the future. pieces of empirical evidence presented here suggest that this ‘future’ is now. the u.s. economy has offered real and financial assets to foreigners at the unprecedented scale. the official foreign exchange reserves have greatly declined already in china, suggesting the nationality of most of the foreign homeowners in the u.s. this particular expansion of chinese-owned property even caused the chinese monetary authority to introduce semi-restrictions on foreign exchange available to citizens investing abroad. the decline of the dollar is neither required nor necessary to solve the global imbalance. the rest of the world has claimed u.s.-based assets exchanging perpetual ious for real estate and firms. foreigners have become, sole owners of underlying real u.s. assets (as owners of firms), and not only, as it was before, of shares in profits generated by u.s. corporations. dynamically growing demand has already pushed prices of both up. this inflow of purchasing power should be appreciated, as it fuels activity in the u.s. construction sector, and thus indirectly in all other sectors that supply materials and technologies to homebuilders. u.s. economy enjoys win-win situation, while the global imbalance has been gradually resolved. appreciation of the dollar makes imported inputs cheaper every year, since 2011. on the top of that, most welcome form of foreign investment – fdi – has become positive (net fdi) already in 2015 and 2016 for the first time in history. most recently observed adjustments in savings in u.s. and the rest of the world (figure 9, figure 8, figure 7, table 1) make the situation much less dramatic than it was reported back in 2008. the u.s. economy has still provided a reasonable equivalent for its external debt accumulated over the past several decades. there seem to be no reasons to sound an alarm, and issue warnings on ‘greater instability’ coming, when increasingly large imbalances are resolved. the last decade witnessed substantial changes to income, domestic absorption, and production in all countries that effectively matter for the global imbalance. it seems that time has come for the u.s. to finally start settling its debts. this has been achieved without the international ‘transfer’ of wealth that would deprive many nations of the fruits of their hard work. it would be most inappropriate to induce the fall of the dollar to ease the pain of settling accumulated external debt. such a scenario would make sacrifices of hune u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 136 dreds of millions, due to postponed consumption for a few generations most void, pointless, and disappointing. the only potentially negative effect might be in a relative fall of living standards in the u.s. because of purchase of ‘better’ u.s. assets by the rest of the world. however, this does not seem to represent any real problem. empirical evidence available in mid-2018 suggests that claims on ways to solve global imbalance found in feldstein (2008) were erroneous. in particular, (p. 124) it was not ‘a more competitive dollar’ that was the key to shrinking the trade deficit (after 2009), although this idea was supported by ‘most professional economists’. this was, therefore rather about the approach pursued by the imf, and g-7, and criticized by feldstein that was much more appropriate. slow and gradual adjustments in u.s., and in the rest of the world have led to stabilizing ca deficit at 2.5% of gdp for already an extensive period 2009-2017. the stability of the current situation, in spite of significant political developments, suggests that the world could be safe again. the u.s. economy is a double (if not triple) winner. for decades it enjoyed paying for its excessive consumption with perpetual ious. settlement of the accumulated debt is achieved, however, not by the foreseen reduction in consumption, as originally understood. the u.s. economy provides real assets to foreigners in the primary, and secondary, real estate market. insights into the revealed intentions of foreign buyers (nar, 2018) indicate that the u.s. economy will receive benefits from the surge in incoming skilled workforce in the future, as today’s house owners move to the u.s. with their families. until then, there will still be another issue to-be-handled by u.s. authorities. in the current situation there are large injections of high-power money. this special expansion in the money supply will not remain neutral for the price level. repatriation of substantial purchasing power to the u.s. has a great potential for fueling inflation, and not only in the real estate market. the provision of additional high-power money to settle transactions in any domestic market by foreigners delivers real cash for all other domestic transactions. the more inflated prices of the initial assets acquired, the more money supply expands. with the supply of other goods lagging behind, purchasing power of the dollar must adjust downwards. mid-2018 reported a takeoff of the cpi, and the fed’s response, seems to fit this narrative perfectly. there has been more migration of purchasing power in the global economy than just the return to the u.s. countries that accumulated dollar-denominated reserves expand in a variety of directions. the u.s. remains the main destination due to the biggest capacity to absorb this spending. however, further analysis seems most desirable with investigation into the nature of non-u.s. destinations of fdi originating from trade-surplus economies. the real issue concerns the effects that differential gdp growth rates, and their associated savings rates, have on trade and exchange rates. references artige, l. & nicolini, r. (2006). evidence on the determ inants of foreign direct investment. the case of three european regions (no. 07) (p. 33). retrieved from http://www2.ulg.ac.be/crepp/papers/ crepp-wp200607.pdf blanchard o., & milesi-ferretti g.m. (2011). (why) should current account balances be reduced?, international monetary fund research department, february, 2011. https://doi.org/10.2139/ssrn.1774984 bracke t., bussière m., fidora m., & straub r. (2010). a framework for assessing global imbalances, ecb, occasional papers series no. 78 frankfurt, january 2008. daugeliene r. & młodkowski p. (2014). pattern of financial flows within the european union: first insights about creditor-debtor country relationship, european integration studies: research and topicalities, 8, 48-55 [doi: http://dx.doi.org/10.5755/j01.eis.0.8.7014]. de mello l., & padoan p.c. (2010). are global. imbalances sustainable?: post crisis scenarios, oecd. economics department working papers, no. 795, oecd , paris. https://doi.org/10.5202/rei.v2i1.23 137 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 du w., im j., & schreger j. (2018). the u.s. treasury premium, journal of international economics, 112, 167-181 [doi: 10.1016/j.jinteco.2018.01.001 ]. https://doi.org/10.1016/j.jinteco.2018.01.001 eichengreen b.,mehl a. j., & chitu l. (2018). mars or mercury? the geopolitics of international currency choice, nber working paper no. 24145, issued in december 2017. https://doi.org/10.3386/w24145 feldstein m. (2008). resolving the global imbalance: the dollar and the u.s. saving rate, journal of economic perspectives, 22(3), 113-125. https://doi. org/10.1257/jep.22.3.113 feldstein m. (2008). resolving the global imbalance: the dollar and the u.s. saving rate. nber working paper 13952. https://doi.org/10.3386/w13952 king, m. (2011). global imbalances: the perspective of the bank of england, financial stability review, 15, 1-8. młodkowski p. (2011). foreign exchange reserve management in the eurozone and the global interest rates, european integration studies: research and topicalities, 5, 145-151. [doi: http://dx.doi. org/10.5755/j01.eis.0.5.1090] national association of realtors (2017) 2017 profile of international activity in u.s. residential real estate. nar research department, july 2017. obstfeld m., & rogoff k. (2009). global imbalances and the financial crisis: products of common causes, cepr discussion papers 7606, london, nov.2009. whelan k. (2010). global imbalances and the financial crisis, note, eu directorate general for internal policies, brussels, 8 march 2010. młodkowski paweł ph.d. in economics jagiellonian university fields of interests open economy macroeconomics. address 1405 kano-hei, kiyotake-cho, miyazaki-shi, 889-1605 miyazaki pawel.mlodkowski@gmail.com about the author this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 170 european integration studies no. 15 / 2021, pp. 170-181 doi.org/10.5755/j01.eis.1.15.28804 abstract analysis of the legal and regulatory situation of uncovered corporate bond issuance in the baltic states: is there a common framework possible? while the development of the baltic corporate bond market is based on the uncovered bond segment, the elaboration of the legislative base has a devoted emphasis on the covered bonds. the shift from a country-focused to the pan-baltic-focused capital market has been publicly acknowledged by the governments (ministry of finance of the republic of latvia, 2018) and is in line with the ongoing capital markets union initiative of the european commission (the high level forum on the capital markets, 2020). moreover, a pan-baltic covered bond legal and regulatory framework has been initiated (ministry of finance of the republic of lithuania, 2019). the strong demand for the corporate bond segment in the baltics (the average number of issues listed in the period 2009-2019 reached 44) where no covered bonds are traded on nasdaq baltic (nasdaq baltic, 2020) creates the need for a unification of the uncovered corporate bond legislation. the existing academic research is relatively modest on analysing legal frameworks of corporate bond issuance. the studies examine the division between domestic and international (typically eurobonds) legal issuance frameworks with more focus on the legislative frameworks as related to the terms of issuance. few articles consider a new supranational bond issuance framework, while the interpretation of the issue is radically diverse. there is no existing academic research on the legal framework of the uncovered corporate bond issuance in the baltics. the aim of this research is to reveal the feasibility of the development of a pan-baltic uncovered corporate bond issuance framework by analysing the existing legal and regulatory documentation of the corporate bond issuance in the baltic states. the research provides a limitation for the corporate bond issuance process legislation in the form of information disclosure requirements and the prospective situation of a default of an issuer. the research presents the primary data analysis of the in-depth interviews with pan-baltic legal professionals in the corporate bond issuance segment conducted in the period december 2019-march 2020. the research demonstrates that the concern of the information disclosure for the issue of corporate bonds is covered under the new regime of the prospectus regulation, where further harmonisation of the smaller scope of issues is needed. the national insolvency laws in the baltics are yet different and need to be harmonised for the default of the issuer. in the result of the research, the idea of a proposal for a pan-baltic legal and regulatory framework for uncovered corporate bond issuance is evaluated as feasible action corresponding both to the goals of the capital markets union and a pan-baltic capital market development. the research methods used in this article are scientific publication analysis, document analysis, and in-depth interviews. keywords: corporate bonds, corporate bond issuance, legal and regulatory framework, baltic states, cmu. submitted 01/2021 accepted for publication 06/2021 analysis of the legal and regulatory situation of uncovered corporate bond issuance in the baltic states: is there a common framework possible? eis 15/2021 natalja tocelovska riga graduate school of law agne eglite riga graduate school of law http://dx.doi.org/10.5755/j01.eis.1.15.28804 171 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 introduction the ongoing capital market integration in the european union, particularly the capital markets union initiative, influences the legal and regulatory frameworks of member states and their development patterns (european commission; progress report, 2019). the baltic countries stand out for their proactivity, where an agreement on the creation of a pan-baltic capital market is concluded and supported by the european commission and the european bank for reconstruction and development. this measure should help to overcome the limited scope of an individual market (ministry of finance of the republic of latvia, 2018). the first step of the baltic capital market agreement is the creation of a pan-baltic covered bond framework (ministry of finance of the republic of lithuania, 2019). while the established focus on the covered bond segment may be an untapped potential of the baltic corporate bond market, its historical development indicates strong demand from issuers of uncovered bonds (all listed corporate bonds in nasdaq baltic are uncovered (nasdaq baltic, 2020)). a comparable legal framework for corporate bond issuance is not available at the european union. if the corporate bond issuance framework is developed and implemented at the pan-baltic level, it could be further scaled to the baltic-scandinavian or european level. no similar analysis of the legal framework for corporate bond issuance in the baltics has been made before. the aim of this research is to reveal the feasibility of the development of a pan-baltic uncovered corporate bond issuance framework by analysing the existing legal and regulatory documentation of corporate bond issuance in the baltic states. the research provides a limitation for the corporate bond issuance process legislation in the form of information disclosure requirements and the prospective situation of a default of an issuer. while the integration of capital markets at the pan-baltic level extensively utilises the concept of covered corporate bonds, this research provides an additional limitation for the definition of the corporate bond instrument an uncovered corporate bond. for the national legislation of the default of the issuer, a method of comparing the most recent official translation of legal documents with manual translations of the respective parts of new amendments was used. the research presents the primary data analysis of the indepth interviews with pan-baltic legal experts in the field of corporate bond issuance conducted in december 2019-march 2020. the article is structured as follows: first, the literature review provides an analysis of the corporate bond issuance framework as studied by scholars. second, the authors present the analysis of the eu and pan-baltic legislation that provides the legal framework for corporate bond issuance, with the main focus on two processes in the corporate issuance: information disclosure and a probable event of default of an issuer. the prospectus regulation is highlighted as the supranational source of law regulating information disclosure requirements, and the national laws of the baltic states are identified as regulating the prospective situation of a default of an issuer. as a result of the literature review, analysis of the existing legal framework and primary data obtained through in-depth interviews, the main factors evaluating the possibility of introducing a unified baltic legal and regulatory framework for the uncovered corporate bond issuance are presented. this study contributes to the current research on corporate bond issuance legislation in two ways: the authors present an in-depth analysis of the baltic corporate bond issuance legislation at the national and supranational levels; the authors evaluate the proposal for a pan-baltic legal and regulatory framework for uncovered corporate bond issuance. despite the wide application and trade opportunities of corporate bonds, academic research lacks a common division of legislative frameworks as the base of the issuance. scott & wellons (2002) argued that nearly all capital markets could be included in a three-tier structure categorised as domestic markets, foreign markets and external or “offshore” markets also referred to literature review e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 172 as euromarkets. gozzi et al. (2015) discovered three characteristics of debt issues in domestic and international markets, where each market specialised in bonds with different features: large international bond issues with shorter maturity and presumably involving fixed interest contracts compared to domestic issues. more studies indirectly presented the division of legislative frameworks while relating to the terms of bond issuance. chamon et al. (2018) related the choice of jurisdiction to the bond price and found that in times of crisis, governments could borrow at lower rates under foreign law while baker et al. (2003) related the lowest cost maturity to the debt market conditions. cortina et al. (2018) showed that firms from developing countries borrowed shorter-term in domestic bond markets, while the differences in international issuances were significantly smaller. guedes & opler (1996) and stohs & mauer (1996) linked the credit rating of the borrower to the maturity of bond issues. fan et al. (2012) found that a country's legal and tax system, corruption, and the preferences of capital suppliers explained a significant portion of the variation in leverage and debt maturity ratios. bazzana et al. (2018) found that while placing bonds simultaneously in the domestic and eurobond markets, the companies in russia faced a higher level of covenant protection for the issues placed in the domestic market to compensate for the different levels of creditor protection. petrasek (2010) accented that global bonds intended for multimarket trading, were offered concurrently in two major markets, for example, the us bond market and eurobond market, as well as the trading, clearing and settlement could be conducted between the markets. fuertes & serena (2018) noted that companies issuing global bonds were financially sound and large, and could comply with strict, demanding regulations, including extensive public information disclosure. the analysis of academic papers reveals more focus on the legal framework of the eurobond issuance. eurobond market is subject to a comparatively lighter regulationissuers must disclose information in a private manner, to a narrowed set of potential qualified investors. informed investors have a relatively high level of expertise to deal with such possible obstacles as informational asymmetries surrounding the issuer’s company value and agency problems. traditionally eurobonds are less standardised, where in cases of distress, the liquidation can be conducted more efficiently, as parties have the expertise (fuertes & serena, 2018). trioa (1986) emphasised that the eurobond market was by definition an international legal framework, hence it was regulated beyond the single regulatory domain of one country, while fuertes & serena (2018) indicated that eurobond framework was essentially developed to bypass the local jurisdictions. sfez (2014) endorsed that one of the specifics of the eurobond market was the lack of the jurisdiction of a single state or regulation of central bank, in practice the organisational matters were to a large extent dealt by financial intermediaries. horn (1977) referred to eurobonds as mostly bearer-bonds. scott & wellons (2002) acknowledged the international bond markets in their essence as the response to government policy in many countries, which restricted foreign borrowers to issue securities in the domestic market. as indicated by rich (1980), the international market for debt securities was impacted by norms of practice, highly relevant in respect to eurobond issue. the goal in the choice of governing law of the eurobond issue and corresponding agreements is to have an effect and be enforceable, accompanying the principle of freedom of choice of the governing law (rich, 1980). while dividing the legislative frameworks on domestic and international, with the separate category of eurobonds as international bond issuance, the academics considered the supranational framework for bond issuanceeurobondsas the common bonds issued by the members of the european union (eu) and potentially introduced as an instrument of its stabilisation policy: beetsma & mavromatis (2014), corsetti et al. (2019). the latter suggested that the issue of a non-defaultable eurobond as performed by a “euro area fund” (which could be similar to the 173 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 european stability mechanism) could be introduced. jarocinski & mackowiak (2018) concluded that such a non-defaultable eurobond was already present in the form of interest-bearing reserve deposits at the european central bank. the european perspective has also been stressed by academics studying the regulatory power: the creation of a pan-european bond market by euro-area governments where financial intermediaries as providing infrastructure for the secondary market was stressed pagano & thadden (2004). an initiated pan-baltic covered bond legal and regulatory framework, as a potential model of a pan-european bond, lacks academic interest, while being recognised as a positive regional initiative within european covered bonds market creation (bajakic, 2019). the research methods used in this article are scientific publication analysis, document analysis, and in-depth interviews. in the process of legal document analysis, the authors have detected a sizeable diversity between the local legislation documents as present in the local language only. the latter has indicated the need for practitioners’ comments on the legislation both for legal documents outstanding and their application on the baltic level. in-depth interviews were conducted with the legal specialists from lithuania, estonia and latvia directly involved in the corporate bond origination process as legal advisors to the issuers. the interviews took place in the period december 2019-march 2020. the selection process of the legal firms contacted included two criteria: the activity of the legal firm in the corporate bond segment and a pan-baltic geographical scope. there is no information on the legal advisors to the corporate bond issues present in the public space, the bond issue documentation, or on the nasdaq baltic level. although there is a publicly available list of certified advisors of the nasdaq baltic (legal firms and investment firms), the main purpose of those advisors is consulting the potential issuers in the first north list. companies on first north are subject to the rules of first north and not the legal requirements for listing or admission to trading on a regulated market (nasdaq baltic, 2020). while the certified advisors’ list could be a proxy for the legal companies active in the corporate bond origination segment, only eversheds sutherland bitāns is active on the baltic level (nasdaq baltic, 2019). the list of the legal firms was further extended by the international ranking of the legal firms active in the baltic banking, finance, and capital markets area by legal 500 and baltic financial and corporate area by iflr1000. both rankings provide a diverse picture of the leading baltic firms in the segment, moreover, the segment as provided by legal 500 is narrower than the one of iflr1000. in the result, the limitation for participants of the in-depth interviews was made to include the representatives of legal firms having expertise in banking, finance and capital markets listed in legal 500 and iflr1000 rankings tier 1 and tier 2 categories in latvia, lithuania, and estonia, complemented with the investigation of publicly acknowledged legal expertise in baltic local corporate bond issues. the interviewed persons were six practising lawyers representing cobalt, tgs baltic and eversheds sutherland bitāns. all interviewees had management positions with more than 5 years of expertise in financial and commercial law matters and considerable personal experience working with corporate bond issues. no similar primary data collection on the legislation of the corporate bond market in the baltics has been made before. the interviews took place online, where the interview questions were sent to interviewees one month before the event. the interview questions contained 15 questions, which were subgrouped by the area of corporate bond issue procedure elements: current regulation of corporate bond issue, information disclosure requirements in the process of a corporate bond issue, supervision, tax considerations, potential situation of the default of the corporate bond issuer, discussion of existing pan-baltic initiatives and potential initiative for pan-baltic unified legal and regulatory framework for corporate bond issuance. all interviews were conducted in english, recorded, and transcribed. methods and procedures e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 174 the process of corporate bond issuance can be described as a complex legal framework where several legislative areas are present on the national level. for the european union member states, on the national level, the regulatory framework for corporate bond issuance can be characterised as more aligned yet, diverse due to the inconsistent interpretation of the supranational european union legislation. the present disparity in national legislation affects both issuers and investors of the corporate bonds: issuers have to overcome the overlapping requirements and costs, while investors have to research a divergent domestic regulation. the remaining challenge for the legal and regulatory framework of corporate bond issuance in the european union is to become more efficient while benefiting from improvements in bond markets throughout the legal sources in the legal hierarchy. in the regulation process of corporate bond issuance on the supranational level, two legislative sources: the mifid ii directive (directive 2014/65/eu, 2014) and information disclosure in the format of the prospectus (european commission; securities prospectus, 2019) should be highlighted. the latter was underlined by strampelli (2018) as the extensive eu action regarding a particular aspect relevant to the corporate bond issue process. both, the transposition and implementation of the mifid ii and regulation (eu) 2017/1129 (2017) (prospectus regulation) contributed to shaping national legislation and aligning it between the member states. the remaining aspects as left to national competence and creating the dissimilarities between the member states are aimed to be further reduced by the creation of a unified capital market throughout the european unioncapital markets union (cmu). the european commission (ec) in the cmu progress report has indicated the commitment fulfilment and stressed the importance of national measures and reforms. the areas requiring the centre of attention by the european commission for national level improvement are the national tax regimes, efficiency, and duration of insolvency procedures (european commission; progress report, 2019). based on the limitation provided, this research further investigates two focal areas in the corporate bond issuance process legislation: the information disclosure requirements and the prospective situation of a default of an issuer. the prospectus regulation applies to prospectuses as a form of information disclosure to be published when securities are offered to the public. it aims to simplify the rules and procedures that companies are required to apply when they are drawing up, securing approval, and distributing approval. the first action towards harmonisation was the directive 2003/71/ec on rules on prospectuses to be published when securities were offered to the public (directive 2003/71/ec, 2003), the content was amended with the adoption of the directive 2010/73/eu. the directives have introduced an opportunity of a single passport (mutual recognition) for the issuers, which allows the prospectus to be valid in all other member states when approved in at least one eu member state (european commission; securities prospectus, 2019). the prospectus regulation forms a part of the cmu and is aimed to improve the shortcomings of the prospectus regime under the prospectus directive (com/2016/0723 final 2016/0359 (cod), 2016). the prospectus regulation reduces the overloaded burdens and costs on the issuers, especially on small and medium-sized enterprises (smes). the main changes introduced by the prospectus regulation concern compulsory requirements, main components, a new standardised and simplified form of prospectus, as well as the introduction of a european online database (regulation (eu) 2017/1129, 2017). in article 3, the prospectus regulation determines the eu prospectus as a compulsory requirement of capital raised publicly over 8 million eur, thus raising the previous threshold by 3 million eur. furthermore, the rules of article 14 allow for a simplified disclosure regime for secondary issuances for companies aiming to issue additional securities in the form of shares or debt securities. the prime condition for the company endeavouring to benefit from this regime: having been listed for 18 months on a regulated or sme research results and discussion 175 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 growth market beforehand. the observation of the aforementioned articles indicates the general aims of the legislator. moreover, the prospectus regulation brings a novelty to the prospectus regime by establishing the eu growth prospectus. it is targeted for the particular benefit of smes and is characterised as a proportionate disclosure regime. the focus of the legislator can be revealed from article 15 of the regulation the stimulation of smes’ participation in the financial markets (regulation (eu) 2017/1129, 2017). accordingly, the interpretation of the intentions of the legislator supports the information disclosure regime as an attracting factor for market participation. during the interviews, the baltic experts positively evaluated the changes introduced by the prospectus regulation, emphasising the introduction of eu growth prospectus, simplified prospectus regime, regulation of advertisement, description of risk factors, requirements of summaries as well as the extent of certainty for expected requirements for issuers and advisors. from their experience working with the prospectus regulation, the challenges were faced from the requirements and approval of the prospectus summarythe new regime does not provide a template of the contents of summary, as present for the old regime. however, as recognised by experts, the prospectus regulation in practice has validated to be improving the corporate bond issuance procedure, by providing clearly stipulated requirements comprehensible for the issuer and advisors. based on the expert opinion prospectus regulation in practice has achieved the aims set by the eu. from the investor perspective, the main positive contribution of the prospectus regulation is in the form of relatively easier decision making and analysis of the relevant information due to a more comprehensive and concise manner of information disclosure. article 6(1) of the prospectus regulation requires the assets and liabilities, profits and losses, financial position, and prospects of the issuer and any guarantor; the rights attaching to the securities; the reasons for the issuance and its impact on the issuer to be mandatorily disclosed. these core elements were defined as allowing enough information to be provided for the investor to be able to conduct informed decisions in a manner, which does not extensively overload the issuer. (regulation (eu) 2017/1129, 2017). additionally, article 7 of the prospectus regulation provides requirements of the summary to be prepared in a language understandable and concise enough for the investors’ perception. the summary is a key tool for the investor to analyse the nature and risks of the issuer, the guarantor, and the securities as the essence of the offer. the legislator has strived to balance the interests of issuers and potential investors whilst creating a substantive harmonised rule (regulation (eu) 2017/1129, 2017). when commenting on the prospectus regulation application from the investor perspective, one of the baltic experts interviewed welcomed the more lenient approach to the format of the prospectuses and acknowledged the new approach of risk factor disclosure resulting in regulators’ increased attention of risk factors disclosure and wording. based on the new approach in practice the risk factors disclosed are focused on investors’ interest perspective. another expert evaluated the increasing harmonisation of rules across the eu, including the prospectus regulation, as a beneficial direction increasing the level of certainty for investors. it was complemented by the opinion on supervisory authority possessing improved power of controlling the risk factors in the summary and the prospectus. as a result of the prospectus regulation, the information disclosure part of the publicly offered corporate bond issues is harmonised across all the eu. yet, baltic states have to achieve a uniform national regulation for the gaps of prospectus regulation. issues not amounting to the mandatory applicability threshold of prospectus regulation are one of the areas requiring harmonised regulation in the baltic states. as acknowledged by the experts during the interviews, in the baltic states no best practices or guidelines for the legal compliance of corporate bond issues have been developed. such soft law instruments are advised to be introduced at the pan-baltic e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 176 level based upon the expert experience and recommendations. the study proposes the baltic state legislative bodies to set the prime focus of establishing a harmonised legislative coverage for the corporate bond issues outside of the mandatory application of the prospectus regulation. the prospective situation of a default of an issuer is another milestone of the corporate bond issuance legislation. the national insolvency procedure’s efficiency and time span have a profound influence on both cross-border investments and capital flows (european commission; progress report, 2019). corporate bond investors need to rely on legal certainty and research the corresponding state’s insolvency proceedings before the investment. the crucial factors considered by the potential bondholders include the hypothetical situation of the insolvency of a bond issuer company, the situation of bondholder not receiving a coupon, or/and par value of the bondthe occurrence of a situation of default. investors are ordinarily attentive towards the possibility of the issuer claiming insolvency, with the focus on the rights and position of the bonds. the general principle underlying the insolvency regulations in the event of insolvency the creditors are considered in an order of priority. the key concern is the order of precedence of creditors’ rights (com/2015/0468 final, 2015). another principle is that the claims of the owners of the company are considered only after the order of creditors is satisfied (celik, 2015). the importance of insolvency laws has been repeatedly acknowledged by the eu when addressing national insolvency, tax, and securities laws as creating barriers for the free flow of capital. the ec particularly has stressed the differences in national insolvency laws as causing uncertainty and posing several legal risks accordingly. the ec has proposed a new approach to the insolvency regime as part of cmu, concurrently including the possibility of early restructuring and second chance (com/2015/0468 final, 2015). this legislative proposal can be considered as the next step complementing the existing eu insolvency framework. the main eu legal act in the field of insolvency is the regulation on insolvency proceedings (regulation (eu) 2015/848, 2015). additionally, the baltic states are following a proactive stance and participating in a project aiming regional harmonisation of rules, ahead of eu legislative initiatives. this project is the nordic-baltic insolvency network, established in 2010, where academics and expert practitioners from sweden, norway, denmark, finland, estonia, lithuania, and latvia have produced several recommendations addressing the goal of harmonisation of national insolvency rules of these countries (nordic-baltic insolvency framework, 2016). insolvency procedures are still subject to substantive differences. the laws regarding insolvency procedures in the eu are to a major extent originating in the member state-level legislation, closely tied with national company laws. in latvia, the main legal act governing insolvency is the insolvency law (insolvency law, 2019). relevant for the situation of insolvency of a bond issuer company, according to section 2 paragraph 1 of the insolvency law, it applies to legal persons. moreover, according to section 2, paragraph 4 of the insolvency law the scope of this legal act also covers the insolvency proceedings of the financial and capital market participants whose activities are supervised by the financial and capital market commission. sections 7 and 8 of the insolvency law define the distinctions between secured and unsecured creditorsthe secured creditors being creditors possessing claim secured by commercial pledge, in contrast to an unsecured creditor having a claim which is not secured by any of collateral measures. chapter xiii addresses creditors’ claims. section 73 specifies the submission procedure of creditors’ claims, as well as verification and administrator’s decision. furthermore, the satisfaction of creditors' claims in legal insolvency proceedings has to be conducted according to chapter xxi section 118 of the insolvency law. the satisfaction of creditors' claims in legal insolvency proceedings has to be conducted in the order of firstly covering the costs of the insolvency proceedings. second in the line of satisfaction order are the claims of the insolvency control service and employee claims. an underlying principle of the in177 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 solvency law is the requirement of the division of claim amounts in principle and ancillary debts and the establishment of proportions (insolvency law, 2019). as confirmed by the baltic expert, the creditor’s line and categories in the insolvency law are the main legal sources of bondholder’s rights as a creditor in latvia, yet the consideration of default of the issuer can be included in the prospectus. in lithuania, the enterprise bankruptcy process is regulated by the enterprise bankruptcy law of the republic of lithuania and applies to legal persons only. article 21 of the enterprise bankruptcy law specifies the rights of the creditors and relevant procedural aspects (enterprise bankruptcy law, 2012). likewise, in latvian insolvency law, in lithuania, the satisfaction of creditors’ claims has to be done in a specified sequence. in enterprise bankruptcy law it is stated in articles 34, 35, and 36. before the satisfaction of the creditor’s claims is considered, the expenses relating to the administration of the enterprise bankruptcy shall be paid first from all types of funds of an enterprise in bankruptcy and a bankrupt enterprise (enterprise bankruptcy law, 2012). following, from all the proceeds obtained from the sale of the pledged assets of the enterprise or by transferring the pledged assets, the creditor’s claims which are secured by a pledge and/or mortgage should be satisfied. article 35 specifies the sequence of the procedure of the satisfaction of other claims and determines this sequence procedure to be conducted in two stages. the first stage requires the creditors’ claims to be satisfied in the sequence established in this article, not including the computed interest and default interest. during the second stage, the remaining part of the creditors’ claims (interest and default interest) shall be satisfied in the same sequence (enterprise bankruptcy law, 2012). as commented by the baltic experts during interviews, in lithuania, the bondholder interests are partly realised throughout bondholders’ trustee, supervising the status of the bond issuer. such legal institute has not been indicated by experts to be present in latvia or estonia. lithuania underwent a recent change in insolvency and enterprise reconstruction regime as the new law was introduced from january 1, 2020. the baltic experts indicated no significant changes in respect to bondholders, to their position and rights as creditors. in estonia, three legal acts regulate bankruptcy and insolvency procedures, where the main one related to the default of the issuer is the bankruptcy act (bankruptcy act, 2019). section 2 article 41 is devoted to blocking securities in the register of securities and states that pursuant to the bankruptcy order, securities, or securities accounts registered in the securities register shall be blocked. additionally, article 44 of the bankruptcy act in conjunction with chapter 5 section 1 specifies the procedure of creditors’ claims by explaining the term of claims, claim itself, settlement of claims, and other details. section 2 continues by determining the measures of protection of creditors’ claims. furthermore, the creditors’ claims are satisfied according to the distribution process specified in chapter 9 of the bankruptcy act (bankruptcy act, 2019). the steps of creditors’ claims satisfaction must be fulfilled by having a notion of two additional requirements. the requirements of the next step shall be satisfied after the satisfaction of the requirements of the previous step. if the property has not enough value to satisfy all the requirements of one creditor stage (category), the claims of the same rank shall be satisfied in proportion to the size of the claims. additionally, article 154 introduces the distribution ratio, which is the proportion that a creditor from each category/ranking has the right to receive. the ratio is based upon the value of the sale of bankruptcy estate and amount and on the specific claim (bankruptcy act, 2019). experts clarified that no special legal provisions are present for bondholders in case of the default of an issuer, thus bondholders’ position in the creditor’s rankings depends on whether the bonds are secured. if the bonds are unsecured, the respective bondholders are positioned in the last ranking of creditors’ claim satisfaction. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 178 analysis of the baltic corporate bond issuance process legislation in the form of the prospective situation of a default of an issuer has revealed the lack of unified insolvency legislation despite the initiated nordic-baltic insolvency framework cooperation, eu actions undertaken, recommendations provided in the insolvency law area and the pan-baltic-focused legislative actions in unifying capital markets. the baltic experts evaluated the key national insolvency acts of the baltic states as inconsistent in their approach of creditors’ claims satisfaction. the primary difference underlies in the division of creditors claim more detailed in to primary and ancillary claims and the satisfaction of this division. the experts have underlined that in latvia, lithuania, and estonia there are no specific provisions relating to bonds or notes; the rights of the creditors are considered to be dependent on the types of the financial instrument – whether or not they are senior, subordinated, covered, or other types. the discrepancies in the creditors’ claims satisfaction order and principles are revealed and identified as one of the areas requiring harmonisation among the three baltic states. the certainty for a bondholder of the position of bonds between the other creditors’ claims in case of the distress of the issuer is a fundamental consideration demanding harmonised approach of the national legislators. european commission’s recommendations regarding insolvency barriers are evolving. baltic states have already presented a will to harmonise divergent, nationally deeply entrenched primary law during the process of developing pan-baltic covered bond legal and regulatory framework (ministry of finance of the republic of lithuania, 2019). based on the research results, the authors consider the pan-baltic insolvency law harmonisation as a prolonged and complex process, referring to the extensive cmu development process and the differences in national legal systems. » the existing studies analysing the legal framework for the corporate bond issuance process have been divided by the authors into three groups: the traditional division between domestic and international (typically eurobonds) legal frameworks for issuance; the indirect division of legal frameworks by relating them to the terms of bond issuance; and a supranational framework for bond issuance eurobonds as the common bonds issued for the member states of the european union and possibly introduced as an instrument of their stabilisation policies. » from the perspective of developing a pan-baltic uncovered corporate bond issuance framework, the authors highlight two existing frameworks, as pointed out by scholars: eurobond and eurobond. eurobond is the existing and widely used legal framework for international bond issuance. it is subject to comparatively less regulation, as it is not under the jurisdiction of a single sovereign or regulated by a central bank the organisational matters are largely handled by financial intermediaries. a eurobond as a common eu bond lacks a unified structure research on this instrument suggests a non-defaultable eurobond as carried out by a "euro area fund" (which could be similar to european stability mechanism), interest-bearing reserve deposits at the european central bank, or a product similar to the eurobond as created by eurozone governments for the pan-european bond market. the latter (if applied to the corporate sector) would correspond to the establishment of a framework for pan-baltic corporate bond issuance. » the analysis of the existing legislation on corporate bond issuance shows that the concern of information disclosure in corporate bond issuance is covered by the new regime of prospectus regulation. due to the prospectus regulation, the part of information disclosure in the issuance of publicly offered corporate bonds is harmonised across the eu. however, the baltic states need to achieve a uniform national regime for the gaps of prospectus regulation. issues that do not meet the mandatory applicability threshold of prospectus regulation are one of the areas in need of harmonised regulation in the baltic states. this research suggests the development of pan-baltic recommendations/guidelines for disclosure of information conclusions 179 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 in corporate bond issuance as guiding documents also for private placements as one of the requirements of pan-baltic legislative solutions. » as emerged from prospectus directive, prospectus regulation has harmonised information disclosure rules across the eu. this research recognises the changes introduced by prospectus regulation as beneficial for the corporate bond issuance process, highlighting the introduction of the eu growth prospectus, the simplified prospectus regime, the regulation of advertising, the description of risk factors, the requirements for summaries and the level of certainty for the expected requirements for issuers and advisors. the challenges as highlighted by this research relate to prospectus summary requirements and approval the previous regime provided the template for summary content, which is not present in the new regime. » the analysis of the national insolvency laws in the baltics reveals their divergence and the need for harmonisation: in latvia, the main relevant legal act is the insolvency law, in estoniathe bankruptcy act, in lithuaniaenterprise bankruptcy law. there are different approaches to the concept of insolvency, as well as to the division of creditors' claims into main and ancillary claims to determine the general principles of creditors' satisfaction. therefore, from the perspective of potentially creating a unified pan-baltic legal and regulatory framework, insolvency law should be addressed as a potential area of alignment to create a safe environment for investors. the ec particularly has stressed the differences in national insolvency laws as barriers for the free flow of capital causing uncertainty and posing several legal risks. the ec has proposed a new approach to the insolvency regime as part of cmu, concurrently including the possibility of early restructuring and a second chance. the laws regarding insolvency procedures in the eu are to a major extent originating in the member state-level legislation, closely tied with national company law, and still subject to substantive differences. the pan-baltic insolvency law harmonisation is considered by this research as a prolonged and complex process, referring to the extensive cmu development process and the differences in national legal systems. however, baltic states have already presented the ability to harmonise specific key legal rules of primary law during the process of developing a pan-baltic covered bond legal and regulatory framework. the results of the analysis are consistent with the concerns of ec, which highlight the differences in national insolvency laws as a source of uncertainty and various legal risks. » the research reveals the development of a pan-baltic uncovered corporate bond issuance framework as feasible. additional development of a pan-baltic legal solution is required in the area of information disclosure for issues not meeting the mandatory applicability threshold of prospectus regulation, and for the insolvency law area where the creditors’ claims satisfaction order and principles are identified as the areas requiring harmonisation. » the authors recommend further research on the potential development of a unified legal and regulatory framework of uncovered corporate bond issuance in the baltics to broaden the national legal act research base with the civil code, commercial law, and tax law, as well as to include the standpoint of national regulators and exchanges. references bajakic, i. 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(1986). an overview of the eurobond market, north carolina journal of international law and commercial regulation 12(3), 331-374. about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). tocelovska natalja assistant professor riga graduate school of law fields of interests corporate bonds, financial markets, financial instruments. address strelnieku iela 4 k-2, riga, lv-1010, latvia, natalja.tocelovska@rgsl.edu.lv agne eglite research assistant riga graduate school of law address strelnieku iela 4 k-2, riga, lv-1010, latvia, agne.cakure@rgsl.edu.lv e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 182 european integration studies no. 15 / 2021, pp. 182-193 doi.org/10.5755/j01.eis.1.15.28829 abstract possibilities and restrictions on the use of unmanned aircraft systems in security work in latvia unmanned aircraft systems (uas) have become available not only in the military environment, but to every member of society. they can be effectively used in security work, although, if used unprofessionally, ua can pose a threat to the public or the protected object. the aim of the article is to find evidence that the use of ua for the protection of a security object can be of a technical nature. with the introduction of ua as a part of technical equipment for security work, it would be possible to immediately inspect the guarded object and track and/ or detain persons with criminal intent, or transfer the data obtained by the video camera recording system to the state police. the primary data of the research was collected using the survey method, where the general set of research was compiled by security companies that have received the required license for the provision of technical security by the state police. the experience of using uav in latvia and in the international environment has been analysed using the case study method; secondary data has been obtained from statistical databases and scientific literature, as well as from publicly available sources. the results of the research theoretically reflect the effectiveness of the use of ua and uas in security work, which will provide an opportunity to reasonably conduct practical research in the security industry environment. keywords: security work, technical support, unmanned aerial vehicles (ua), unmanned aerial systems (uas), drones. it is human nature to constantly look for easier ways to survive and to live, to develop values, to gain wealth and to protect it. such a "drive" encourages the diverse development of different technologies and technical solutions. in order to use recognizable and regulatory abbreviations in this study, the authors of the study use the terms and concepts defined in the eu commission delegated regulation (eu) 2019/945 on the service of unmanned aircraft systems and third country unmanned aircraft systems’ operators. an unmanned aerial vehicle (hereinafter ua), is any aircraft operated or designed for autonomous operation or piloting from a distance without a pilot in the aircraft, but unmanned aircraft systems (hereinafter uas), are unmanned aerial vehicles and the equipment used to control it remotely. influenced by the rapid development of technology, opportunities for the use of ua have been discovered in agriculture (muraru, cardei, muraru, sfîru, condruz, 2019); forestry; construction; in conducting fire detection and its localization as well as in search and rescue work, to name submitted 01/2021 accepted for publication 06/2021 possibilities and restrictions on the use of unmanned aircraft systems in security work in latvia eis 15/2021 vilnis veinbergs turība university ivita kisnica turība university http://dx.doi.org/10.5755/j01.eis.1.15.28829 introduction 183 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 a few (brohi, jhanjhi, 2020; schulzke, 2018). for example, in agriculture one of the uses is the honeybee fertilization, where ua has great potential to improve the health of the honeybee queen and the whole colony (brutscher, baer, niño, 2019, 18). with the use of a non-traditional type of counting, the ua has shown that, with the digital video and camera capabilities, the system is able to accurately count waterbird populations in previously inaccessible locations (dundas, vardanega, o’brien, mcleod, 2021, 11). the use of ua promotes research on a variety of animals, such as formerly unavailable shark behaviour research (butcher et al., 2021, 22), as well as ua's successful disaster assessment and human rescue efforts (eames et al., 2021, 14). considering the diversity of the ua models and the variety of their size dimensions, as well as the diversification of ua technical structure solutions and the development and use of data storage and transfer technologies, ua as a base carrier or as a transport, can be practically used in the economic sector or in a number of the security industry sectors. this article seeks evidence that the use of ua is recognized as practical in a wide range of economic sectors, as well as whether the use of ua, as shown in several studies noted in the work, is effective and usable in safety work. in addition, taking into account the specifics of security work, the article discusses the rules of ua flights and the use of uas. in order to find out the attitude of latvian security industry companies in relation to the use of ua and uas in security work, the authors of the article have conducted an empirical study to find evidence that the use of ua in security protection is important technical support to improve the work. the authors of the article, when started the research, put forward a hypothesis a latvian security company uses ua and uas in security work. the empirical study was based on the survey method using both semi-closed questionnaires in electronic format and using the telequest method (phone-phone). the results of the empirical research are maintained and reflected in the research results and the discussion section of the article. in order to learn the experience of using ua in different industries, the authors of the article study the research available in scientific databases. despite the fact that not all research is directly aimed at investigating ua-specific flights, ua equipment, that has been deployed on a flying device, can be valuable for security work. uas historical experience the vast majority of society do not think about the ways how various practical things became obvious to use in everyday life. that is, preserved food in metal cans, high-strength glue, also knows as "super glue", high-strength adhesive tape used in plumbing and elsewhere, night vision devices, the internet, which today is an integral part of everyday life for the society, and a few dozen more goods which were initially classified and used solely for military needs, but now is a part of our daily lives. one of the latest innovations in the civil society is the digital camera, which initially was used as a military equipment deployed on spy satellites in the 1970s to obtain high-definition data. it is believed that the first purpose-driven unmanned aerial vehicle was built in 1849, when austrian empire's air balloons with explosive bags attached to them were sent off over venice to blow the besieged and starved place from a height, in order for it to surrender. however, the origin of this ua is quite primitive and was influenced by the wind flow, but the detonation of explosives was controlled by thin copper wires (rpav, 2003). similarly, using wind power in 1898, during the spanish-american war, the u.s. military equipped the so called “dragons” with cameras to obtain the historical experience and diversity of unmanned aerial vehicles e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 184 data on enemy fortification positions (nguyen, 2019). during the second world war, the german side invented the anti-tank guided missile (atgm); in russian противотанковая управляемая ракета (птур), and from 1944 to 1945, the germans were able to fire more than 100 test shots. this ua/rocket was further developed by both swiss and french designers. as technology developed, so did the above-mentioned equipment, and since the 1990s, when the united states used predator and hellfire to launch missiles (tristam, 2019) in order to destroy ground targets during various conflicts, ua has been controlled at a higher level and the ideological direction and the tasks entrusted are comprehensively usable. this is confirmed by koslowski and schulzke: “ua shows how military technology interferes in non-military security strengthening operations” (koslowski, schulzke, 2018, 320). application of ua in a multidisciplinary environment today, there are a considerable amount of researchers who spend time researching the advantages, technical solutions and disadvantages of ua and uas, or even their negative consequences. according to romanian researchers, the use of ua to obtain surveillance data for public protection and security is highly beneficial, "the breakthrough in the development of artificial intelligence and deep neural networks opens up a new perspective for providing such solutions with human accuracy". a study on new solutions was carried out at the polytechnic university of bucharest, which, by automating the processing of identification data of persons and objects, made it possible to take immediate action without wasting time on manual data processing (ionescu, ghenescu, răstoceanu, roman, buric, 2020, 2; 6). the uas used to fertilize the honey bee queen have proven to be a valuable partner. the queen bee mates with several male bee type uas. therefore, at the very beginning of her life, the queen obtains sperm to fertilize the egg for the rest of her reproductive life (brutscher, baer, niño, 2019). ua was used in topographic works to obtain microtopographic data, which allowed to obtain high spatial resolution images from a sensor height of 100 m and a swath width of 171 × 128 m, from which were calculated the height differences in the study area (lou, et al., 2021). to find new insights into the behaviour of sharks and to change the society's dogma that sharks are "death machines," a team of researchers used ua to track sharks from the air, which allowed data to be obtained quickly and over long distances with a high degree of efficiency. researchers note that documenting the behaviour of sharks in other ways is difficult due to their aggressive and sporadic nature, but ua offers an opportunistic method of data collection that greatly facilitates the work (butcher, et al., 2021). a special program using uas was set up to identify and neutralize rebels in pakistan. intelligence analysts, using data from long-term air surveillance and interception of communications, identified the insurgents, which made it quick to target them (mir, moore, 2019; restrepo, 2019). within the framework of a joint project of european and african scientists, the fire safety of african savannas was studied, or more precisely the material of burning savannas. using ua in south africa and mozambique, the researchers explained the effects of different fractions of combustible materials (shrubs, bark, broken trees, grass) on ignition. uavs, equipped with multispectral cameras, along with meteorological data from era-5 obtained the necessary data to model the degree of fire hazard (eames, et al., 2021). a valuable assessment of ua usage was given in the human searching work in a post-disaster environment using signals received by the phone. ua communicates with mobile devices that help with human search as it travels through the rubble of the disaster. “extensive simulations 185 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 have been performed and the results have shown the benefits of the proposed scheme from both a drone and a survivor perspective” (mezghani, mitton, 2020, 16). researchers in australia used quadrocopter-type ua in their research to survey koalas. digital thermal imagers were installed on the ua, as well as using the dji pilot (android) ua motion, programmed in parallel with linear motion the lawnmower principle, with 10% coverage. in addition, stationary surveillance cameras were placed on the ground, as well as cameras with a 4k colour camera technology (witt, beranek, howell, ryan, clulow, 2020). in the survey area searching for a living / warm object with thermal cameras is a promising and effective method that can be an alternative to high-energy floodlights. belgian and others researchers are proposing a new approach to detecting oil spills in port areas. the researchers have come to the conclusion that by using ua and thermal infrared cameras, it is possible to detect the fact of oil spills quicker, thus reducing natural pollution and the cost of oil product collection works. researchers suggest using uas equipped with cameras with other capture spectra, such as shortwave infrared or hyperspectral imaging cameras (de kerf, gladines, sels, vanlanduit, 2020; duan et al., 2020). an important support for ornithologists are the uas, that are able to quantify the number of birds more accurately compared to the traditional method of human walking and counting from the ground. this is especially important in larger bodies of water and larger groups of birds. for work, uas were equipped with a 20 mp camera at 60 frames per second (dundas, vardanega, o’brien, mcleod, 2021). ibid., researchers observed that uas can be valuable in open areas, in the countryside, and in water bodies, but are considered problematic for accurate quantification of birds or animals in all habitat types. this can be hampered by shrubs and grasses, where birds often nest and are virtually impossible to observe from above. thanks to small-scale ua and uas technologies as well as reasonably located uas battery charging stations, border control costs can be reduced, both by reducing the cost of using live force to patrol the surveyed area and by installing fencing and other specialized control and protection equipment. small uas consume little energy, which allows them to survey larger and more remote areas, as well as places that are inaccessible to humans. in addition, the ua is able to replace the batteries in the base charging station by itself in offline mode. uas, detecting a significant loss of battery capacity, goes to the base charging station, where, by disconnecting the spent batteries, is able to insert the charged batteries by itself (mirzaeinia, hassanalian, lee, 2020). avoiding border guards from visually heavy and grand walls, barbed wire and other types of wire, uas fencing is virtual, which pays little attention to the public and the media (koslowski, schulzke, 2018). the information obtained above shows that the experience of nationally important and confidentially developed equipment and evolving technologies is being taken over in the multidisciplinary non-military / civilian life. in the first chapter, the authors of the article have found evidence that ua and uas are used comprehensively and in most industries. different variations in ua sizes, specifications, and equipment are applicable for security operations. quadcopter-type ua is a successful solution for inspecting a guarded object, both obtaining data statically and at a certain height as well as when moving vertically and horizontally. it should be noted that the effectiveness of the uas for the protection of a specified object is also observed in the fact that it can be used in places that are difficult for people or equipment to access, such as bushes, swampy environment, water, etc. when providing security services, three types of ua can be used: in the air ua, in water unmanned e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 186 underwater vehicle, on land unmanned surface vehicle. these three types of devices or groups of devices can be controlled in one system, or each group can have a separate, autonomous control system (dghaym, et al., 2021). uas is recognized as a successful solution when applied in automatic mode in cases when the guarded object is located in remote areas and the security staff patrol is not able to inspect it in time. accordingly, by equipping ua with video or photo techniques emphasizing different spectra, it would be possible to trace the subject of a criminal offense and gaining an evidence base for proving a crime. ua minimizes the human factor, saves capital on the salaries of patrol staff and technical means of transportation, and makes it possible to carry out surveillance in areas where the access is difficult or completely denied, etc. in this chapter, the authors have found evidence that the use of ua and uas is a good support in many sectors of the economy, as well as successful in scientific research, however, is the use of such a technical solution so safe and complete, or does it have negative consequences? the answers to this question are sought in the next section. introduction to uas application problems when using uas, the data acquisition and processing issues should be taken into account (lemaire, crispim-junior, robinault, tougne, 2021). since the flying objects with cameras are noticeable in latvia, we all feel worried whether our privacy will not be violated. uas provides unprecedented opportunities not only to monitor the protected area, but also anyone living in their movement route and data acquisition sector. regarding the amount of delicate data, us researchers point to the situation where the use of uas improves certain aspects of border security while creating data leakage risks that should be avoided (koslowski, schulzke, 2018). leakage of acquired data and loss of control of the uas may cause interruption of service, leakage of information or, if the control is taken over by a third party, endanger the protected object or another person. the solution to this problem is found in smart contracts based on blockchain technology, which helps to manage the security of sensors and devices, creates uas smart contracts with different ledgers and platforms, and offers a high-level approach with a conceptual framework (chinnaiyan, balachandar, 2020). in addition, the use of uas requires a well-trained technical support and control panel staff, an invulnerable control system algorithm and the security of its protection against unauthorized technological intrusion (radu, remzi, 2017; yañez-badillo, et al., 2020). uas technological advances and the improvement of information processing technology are only part of the success. the key to success is considered to be the competence of the ua pilot and the degree of pilot’s professional training, especially in driving the ua out of sight and in various meteorological conditions (butcher, et al., 2021). studies on the use of ua in beach rescue operations (del-real, díaz-fernández, 2021) indicate that about half of the beach holidaymakers would be satisfied or they would not be uncomfortable in situations where ua would be used to inspect or rescue beaches. in addition, in a 100% urban environment such as singapore, people have more trusting attitude towards ua and its presence is less negative in comparison to people’s from rural areas. however, small uas can cause the drivers to pay extra attention, distracting them for a few seconds, which can increase traffic or number of accidents (tan, lim, park, low, yeo, 2021). some studies point to the negative effects of the noise caused by ua. part of the public may experience discomfort, unpleasant associations with life experiences such as the effects of humps and bee bites, or discomfort while being in their own private area where they should feel safe and protected from data leakage. however, "someone" may obtain personal data without author187 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 ization. also, at the subconscious level, the perceived noise makes humans nervous and raises anxiety levels. a study carried out by the european commission on aircraft, road and rail noise shows that there are slight differences in the impact thresholds for a given transport, but it is the aircraft noise that is more harmful than noise from other types of transport. (european commission, 2002). there are also discussions of a similar nature about power plants the shaft rotor blades of generators installed in wind farms generate similar air splitting noise as ua. moreover, ua propeller noise is complemented by engine noise. for these and other reasons, studies have recognized that ua-induced noise is a factor that can put public pressure on the use of uas (tory, clark, 2021). however, the noise generated by ua during the provision of security services can be positive, as this noise or psychoacoustic approach can serve as an initiator of discomfort to a person guided by a criminal intent to deter or partially restrict criminal activity. the comprehensive experience and consequences of the use of ua and uas have prompted the public to pay close attention to the conditions of use of uas. therefore, in march 2019, the eu commission delegated regulation no. 2019/945 which lays down requirements for the operation of unmanned aircraft systems and the design, manufacture and maintenance of remote identification devices as well as their marketing in the eu environment and for the operation of third country uas in the single european sky. in may 2019, the eu commission issued regulation no. 2019/947 which specifies the uas operating standards and the regulation of the activities of the persons involved in this process, including remote pilots and organizations. in the interests of the citizens of the republic of latvia, the use of all types of state airspace is regulated by the law on aviation. within the competence of this law, an additional regulatory framework is issued, which clarifies, explains and indicates the conditions for the safe use of state airspace for civil and military aviation. at present, ua flights in latvia are regulated by cabinet regulation no. 368 of 13 august 2019 “procedures for unmanned aircraft and other aircraft flights”, but they will be in force no later than the 1st of july, 2021. in accordance with the law on aviation, the cabinet of ministers of the republic of latvia plans to issue unmanned aircraft flight regulations, which should enter into force no later than the 1st of july, 2021. in this regulatory enactment it is planned to determine the criteria for the use of ua in the airspace of the republic of latvia, the procedure for facilitation, restriction and prohibition of their flights, as well as to determine the procedure for the circulation of information required for unmanned aircraft flights. the full deadline for the implementation of the relevant regulations is set for the 1st of january, 2023. starting from the 31st of december, 2020, security companies that use uas to provide a service must register as operators. an operator in accordance with eu regulation no. 2019/945 means any legal or natural person who operates or intends to operate one or more uas. the operator is the owner of the uas, but the remote pilot is the person responsible for the safety of the ua flight, both manually controlling the ua and monitoring the ua flights in automatic mode with the possibility to intervene and take control of the ua at any time. implementing regulation no 2019/947 provides that member states have the possibility to create their own specific airspace structure uas geographical areas, where the flight conditions must be complied with by all uas operators and remote pilots. these restrictions mainly concern the distance from the defined area, meaning, not exceeding 50 m in the horizontal plane, except up to 500 m from prisons and military facilities, including static warships in the port area and at sea, and to be used not closer than 5000 m in the horizontal plane from a certified aerodrome runway threshold or a helicopter aerodrome control point. in instances where the density of crowds restricts the free movement of people and the avoidance of a crashed ua, such as public events, shopping malls and marketplaces, the uas operator legal framework for the use of ua and uas e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 188 must provide instruction and make sure that people are aware of the risks and know how to act in an emergency. choosing the fastest, shortest and safest flight path outside human dense areas and for a flight at a height of no less than 30 m above the ground or water surface and no less than 10 m above the obstacle, avoiding overflights of people, animals, buildings and structures as far as possible, but no higher than 120 m from the ground or water surface, it is planned in the regulations of the cabinet of ministers to allow ua to fly over the properties owned by third parties without the consent of their owners, possessors or users. such a condition is considered positive for a security service provider using ua. an assessment of the main legislation on ua flights and the use of uas shows that they are comprehensible and specifically point to prohibitions or restrictions on the use of ua and uas. according to the authors, the legal references reflect the public concern for the protection of both natural persons and objects important to the state and the eu, which does not preclude the use of ua in security work outside the restrictions and prohibitions. in the following section, the authors of the article summarize and reflect the results obtained in an empirical study on the attitude of latvian security industry companies in relation to the use of ua and uas in security work using the survey method. in order to achieve the aim of the study to find evidence that the use of ua in the protection of the security object is an important technical support to improve the quality of security work as well as to learn the security industry's opinion on the use of uas in security activities, the authors of the article based the study on primary data obtained in the period from the 15th of january to the 20th of february, 2021. the sample of research respondents consists of security companies, which in accordance to the provisions of sections 3 and 6 of the security activities law are entitled to provide technical security services. according to the state police database (state police security industry licenses, 2020), by the end of 2020, the number of 41 security industry companies have received licenses for the provision of technical security in latvia. in order to learn whether the difference of opinions between the respondents is based on the duration of the service, we divided the sample of respondents into 5 groups. up to 5 years from 6 to 10 years from 11 to 15 years from 16 to 20 years over 21 years the whole sample of respondents 2 4 7 6 14 33 table 1 numerical division of latvian security companies according to their experience in the duration of security service provision source: authors’ the sample of respondents received partially closed questionnaires in electronic form, to which 7 respondents replied. the remaining 34 respondents were identified by the authors of the article using the telesquest method (phone phone). 26 respondents responded to the telesurvey. therefore, a total of 33 respondents participated in the study, which is 80.5% of the possible. the respondent companies employ from 30 to 1200 employees, but the number of guarded objects of the companies involved in the survey ranges from 1 to 1600. the results of the survey indicate that none of the surveyed companies used ua or uas during the provision of security services. however, 9% of respondents have taken the ua for a test. this shows the interest of the security industry in the use of modern technologies for the provision of the service, as well as to invest in the acquisition of new technologies and integrate them into the support group for the technical means of providing the service. research methodology research results and the discussion 189 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 different perceptions are formed about the reasons for using or not using ua or uas. slightly more than half (52%) of respondents admit that they have not used ua because it was not needed yet, but 18% of them have thought about it. 12% of respondents indicate that the reason for non-use is to be found in the failure of technical parameters, more precisely, in batteries. they acknowledge that this is a significant obstacle to the usefulness of involving uas in technical support. respondents admit that they do not use ua, because there is uncertainty with the regulatory framework and such a step requires significant financial investments, as well as expenses and inconveniences in staff training. about 15% of respondents point to the potential inconvenience of using uas in an urban environment, as it can be difficult to pilot between buildings. some respondents provide services in the vicinity of the aerodrome, but flights with ua in the vicinity of the aerodrome (not closer than 5000 m) are prohibited. the economic factor of human resources and the permanent location of ua in the protected object are the main reasons for using uas. in addition, surveying a protected object with ua would take a significantly shorter time, which would take considerably longer or even impossible with traditional methods. the answers provided by the respondents to the question “what are the main disadvantages of using or not using uas” reveal that 39% of respondents conclude that the main obstacle to using uas is the regulatory framework that significantly restricts the use of uas in security work, but 21% do not know or do not know because they know little about such devices. it is stated that, to successfully apply uas in security work, it would be necessary to significantly improve the performance of the uas management program and the sustainability of battery operation. about 21% point to the difficult use of uas due to various meteorological conditions, and some respondents have no opinion at all. one respondent accurately indicated that the inconvenience or the inefficient use of uas is in the survey of objects with limited visibility, such as canopies, horizontal architectural niches, gaps. an argument for such a statement is found in ornithological scientific studies on bird counting, when uas is ineffective in situations where birds hide under shrubs and grasses. the absolute majority of respondents, except for 9%, indicate that it would be worthwhile to integrate us and uas into the security system of the common facility, however, 12% of respondents do not know whether this is a good solution. of the total, 27% acknowledged that uas has future and the uas solution will improve the overall quality of the security service provision. one respondent stated that uas can provide area / perimeter alarm video verification, which can reduce the involvement of statically placed cameras. taking into consideration the many scientific studies where ua with different types of equipment have been used, the authors of the article explained the opinion of respondents about the possible equipment or what equipment should be attached to ua to make the security service more complete and customers more satisfied with the quality of service. all of the respondents provided answers. the whole sample agrees that the ua can be equipped with a camcorder. the video camera should be multispectral with a high resolution, one respondent indicated that it would be desirable to equip the ua with a camera with biometric facial recognition software. the camcorder also should have a photo function. 45% of the respondents indicated that it is desirable to use ua also as a carrier of sound equipment, because in times when an accidentally strayed or a criminal subject should be warned, it is desirable to send a message or even an alarm signal to this person. one respondent indicated that it is desirable to equip the ua with a gas spraying device in order to prevent and, therefore, more easily capture the subject of the crime. some respondents indicated that the ua could be equipped with an additional light carrier; walkie-talkie e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 190 signalling station; motion detectors as well as a fire detection system. one respondent indicated that it would be desirable to equip the ua with a taser (dart-type electric shock weapon) with the aim of temporarily impairing the physical ability of a living object (neuromuscular disability), thus, it would be possible for the security guards to detain or deter a person in a safer way with a lower risk to public safety and health. one of the most important proposals is the instruction of one of the respondents on the implementation of a high-quality operating software that could perform uas management in an effective and safe manner. it should be noted that such a current of the message was perceived by 81% of the respondents at the time of the telesurvey. such findings have also been indicated in other scientific studies, when the quality of the system maintenance software for the peculiarities of the required tasks is considered to be an important factor for the success of the use of uas. however, no clear correlation was found between the values of the answers provided between the groups of respondents in terms of their experience in the field of security. the hypothesis of the empirical research put forward by the authors of the article a latvian security company uses ua and uas in security work, has been completely overturned. empirical research proves that a latvian security company does not use ua and uas security services at all, although an insignificant part of respondents admitted that they have tried or thought about using such technical support to protect objects and maintain security of public events. the main reasons or obstacles for a latvian security company to make full use of ua and uas security work are the significant costs of uas and its equipment and the burden imposed by legal acts. the theoretical section reveals that taking into account the experience of using ua in various sectors of the economy such as agriculture, fire safety, protection of state borders, maintaining internal security, rescue operations, obtaining microtopographic data, even in such a delicate work as fertilization of the queen bee, likewise in the security work ua and uas are fully usable and can operate as a significant technical support in order to improve the quality of the protection. the following statements serve as evidence: 1 accuracy of tasks, saving money on the salaries of patrol service personnel by excluding the human factor, carrying out surveillance in an area where the access of a person is difficult or completely denied, etc.; 2 deploying various types of equipment on a ua, such as a multi-spectrum high definition video camera; light sensor; a sounding device or even an audible alarm; gas spray equipment; walkie-talkie signalling station; fire detection system; taser, etc.; 3 small ua consumes little power; 4 uas can be valuable on open ground in both fields and water bodies; 5 by automating the processing of identification data of persons and objects obtained, immediate action can be taken without loss of manual data processing time; 6 visually heavy walls, barbed wire and other types of wire can be replaced by uas; 7 a psychoacoustic approach can serve as an initiator of a feeling of discomfort in a person driven by criminal intent in order to deter or partially restrict a criminal activity. the study found data that point to the downside of using uas, such as the high cost of purchasing the original equipment; possible data leakage; the troublesome ability of the uas to navigate with the conditions of the geographical environment interacting with the objects of the urban environment; green mass stands in the territory of the protected object; canopies, places which conclusions 191 e u r o p e a n i n t e g r a t i o n s t 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(2020). a dynamic motion tracking control approach for a quadrotor aerial mechanical system. hindawi, shock and vibration, volume 2020, article id 6635011, 17 pages, doi: https://doi.org/10.1155/2020/6635011, 16. h 193 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). veinbergs vilnis mg.soc. turiba university fields of interests security, personnel psychology, business management, public relation. address 68 graudu street, riga, lv-1058, latvia, +37129464463, vilnis.veinbergs@turiba.lv kīsnica ivita mpa. turiba university fields of interests business ethics, security, public relation. address 68 graudu street, riga, lv-1058, latvia, +37127881884, ivita.kisnica@turiba.lv 115 issn 1822–8402 european integration studies. 2014. no. 8 investing in skills and innovation – new strategic tasks for public administrations ilze buligina university of latvia, latvia aspazijas bulv. 5, lv – 1050, riga, latvia e-mail: ilze.buligina@gmail.com biruta sloka university of latvia, latvia aspazijas bulv. 5, lv – 1050, riga, latvia e-mail: biruta.sloka@lu.lv http://dx.doi.org/10.5755/j01.eis.0.8.5241 evidence shows that in the labour market the most demanded specialists are those with high-level vocational skills, implying also their competence for innovation. the latest eu policy initiatives explicitly call for innovation in vocational education and training (vet) systems. this is a relatively new vet policy development. at the same time, it is not yet sufficiently discussed how innovation in vet systems could be best translated in practical terms. traditionally innovation has been related to the research and development domain, and little routine practices exist regarding the vet system. the present paper will explore the opinions and estimations by public administrators and experts regarding the value and importance of approaches and institutional mechanisms to promote innovation in vet. the focus of the research is on the training need of innovation competent labour force in the vet system, and on the existing and needed co-operation and institutional mechanisms to secure such training. the aim of the research is to study the opinions and views of education policy makers and experts regarding the relevance of co-operation among various stakeholders in the training of innovation competent labour force, as well as and regarding the suitability and effectiveness of the existing and potential institutional mechanisms to secure such co-operation. in order to carry out the research, the following tasks were set – 1) to analyse of scientific publications in order to identify relevant policy approaches and academic discourse regarding the research topic; 2) to carry out empirical study – expert survey of public administrators and data analysis of the survey results; 3) to analyse the empirical findings against the background of the current policy and academic trends. research methods: textual and literature analysis were based on study of policy and legal documents, and research articles. the empirical study was based on the survey of opinions and interviews with policy makers, administrators and experts in higher education, research and vocational education and training, representatives of the employers’ organisations. to carry out the empirical research, a questionnaire was developed and tested among high level experts. based on the material obtained from the survey, analysis was carried out. qualitative analysis has been complemented by quantitative analysis through applying the indicators of central tendency or location (arithmetic mean, mode, median), as well as indicators of variability (variance, standard deviation, standard error of mean, range). based on the textual analysis and empirical study, conclusions have been made. the research shows that the current developments in eu vet policy regarding the training of innovation competent labour force finds reflection also in the present academic discourse. however, in practice the attitudes of relevant stakeholders are still relatively conservative regarding innovation in vet, and innovation is still primarily seen as pertaining to the domain of higher education, research and development. at the same time, politically and academically, there are not yet clear guidelines available as to practical measures how public administrations could address the new challenges. for this reason studies on the implementation of innovation by vet systems should be continued, involving in empirical studies a wider spectrum of relevant stakeholders. keywords: vocational education, innovation, labour force, tasks, public administration. introduction vocational education and training (vet) is increasingly becoming a top priority in european policy making. this proves evident through the analysis of recent eu policy documents on education and training, e.g. et2020 (council conclusions, 2009), the bruges communiqué (the bruges communique, 2011), rethinking education: investing in skills for better socio-economic outcome (communication from the commission, 2012) and other. for example, the europe 2020 flagship initiative (europe 2020, 2010) claims that the starting point for further successful economic developments is to create excellent and modern education systems in all member states. the report‚ global governance of science’ issn 1822–8402 european integration studies. 2014. no. 8 116 (report of the expert group, 2009) shows that research and training processes are more than ever linked to the global and societal developments. the various european case studies, for example, like oecd/ceri study of systemic innovation in vet (oecd/ceri study, 2008) clearly indicate to the new trends in vet developments in relation to innovation. consequently also the overall research on vet obtains more priority and relevance. one of the reasons for the interest of governments and other bodies to commission such studies is the belief that vet holds key to economic prosperity of the country (winch, 2012, p. 55). if to assume that educated human resources are the key progress factor in the european context, the national training function deserves special attention (iatagana et al. 2010, p. 5144), and this refers also to vet. thus, varied aspects of training and assessment in vocational education and training involving educators and public administrators have been researched seeking the best balance, best approach and best results (breauer, k., et al, 2006). lot of attention of researchers is devoted to the effect of training on vocational education students and their professional development (emir, o., 2013). academic research is devoted also to the priorities in development of vocational skills (hassal, t., et al, 2005), also in course development strategy aspects (lee, s.f., lo, k.k., 2003). under the particular circumstance when the role of vet has been increasingly acknowledged and promoted, and given the reported evidence of the positive relationship between innovation and measures of performance (hashi and stojčič, 2012), it is clear that “different capabilities of firms to generate and implement new knowledge” determine their relative position in the industry (hashi and stojčič, 2012). thus, the links between vet and innovation are becoming more prominent if compared to the previous tradition where innovation had been primarily linked to the higher education and research systems and the training of high level specialists in technologies alone. as claimed in the report “taking european knowledge society seriously” (taking european..., 2007), an important change in the governance of innovation would be strategic development of improved european institutional capacity to deliberate and resolve normative questions concerning the prior shaping of science and innovation, also recommending structured ways of appraising the projected benefits of innovation. the innovation union european innovation partnerships, announced by the europe 2020 flagship initiative calls for mobilising actors across the innovation cycle and across sectors around an overarching target in order to speed up innovative solutions to societal challenges (europe 2020, 2010), thus indicating the focus of policy initiatives concerning the implementation of innovation. these factors are especially important for the present research, since it concentrates on new forms of approaches and stakeholder alliances in public administration to facilitate vet innovation in the context of labour force training. relevant policy discussion has been devoted also to the issue of ‘demandside’ and ‘supply side’ in innovation policies. this indicates to the growing awareness amongst policy makers for the need to better exploit the power of public spending for innovation and the emerged focus on searching solutions to societal challenges (trends and challenges, 2011). as indicated by previous research, there is supportive evidence for arguments that there is a continuing need for policy prescriptions that encourage the building of institutional framework and organisational capabilities to better connect to national innovation systems (dodgsona et al, 2011, p. 1153). as mentioned above, it has often been claimed that the most obvious innovation-related human capital issue relates to the sufficient number of such technological specialists as scientists and engineers. although vital to the so called technological innovation, this is, however, not the only aspect of the innovation process (bennett et al, 2004, p. 72-73). this bears a particular relevance to the present study, as according to our observations (which we will further attempt to substantiate also by our empirical study) the innovation process is still being primarily associated with the ‘technological innovation’ whereas the concept of innovation in vet to a much higher degree should be viewed in the context of the overall innovation process as such. due to the rate of introduction of new technologies, the skill sets required of the broader labour force are growing and also changing with ever greater rapidity (bennett et al, 2004, p.74). consequently, the ‘broader labour force’ needs to be involved in the innovation process, and under such circumstances the previous institutional approaches may prove to be obsolete or ineffective. the culture of innovation, among other things, must be increasingly based on openness and diversity (kearney, 2004, p. 61). the question arises on the attitudes of still existing mental models and institutional mechanisms – should they be reviewed, challenged or reformed to allow space for new developments to respond to the new demands in implementing the process of innovation. in our opinion any reform needs to be carefully prepared and preceded by relevant studies or surveys. to this end, in the research we have attempted to study the attitudes of relevant stakeholders in latvia regarding the existing and potential implementation of innovation process in vet. the novelty of the research is in its approach to link the vet system in latvia with the processes of innovation and the training of innovation competent labour force at all levels. this issue according to our knowledge has not yet been addressed in research in latvia. to carry out the empirical research on the above indicated issues, apart from the textual analysis consisting of the analysis of relevant policy documents and academic discourse regarding the research problem, also an empirical study in the form of a survey has been carried out. for the implementation of the empirical study, a questionnaire was developed and experts were asked relevant questions to evaluate the current situation. before the implementation of the survey the questionnaire was tested among proved professionals in the above mentioned fields and corresponding amendments made. the questionnaire was developed in such a way that the relevant opinions of stakeholders could be analysed in a detailed way and from several perspectives. in order to carry out the research, the following tasks were set – 1) through textual analysis to identify relevant policy approaches and academic discourse regarding the research topic; 2) carry out empirical study and data analysis among public administrators and experts based on a pre-prepared questionnaire; 3) analyse the empirical findings against the background of the current policy and academic trends and issn 1822–8402 european integration studies. 2014. no. 8 117 draw relevant conclusions. our intention was to find out if the education policy makers and experts saw it relevant in the training of innovation competent to secure co-operation between various relevant stakeholders and if the existing and potential institutional mechanisms are relevant and important for this. textual and literature analysis were based on the study of policy and legal documents, and research papers. the empirical study was based on the survey of opinions and interviews with policy makers, administrators and experts in higher education, research and vocational education and training, representatives of the employers’ organisations. to carry out the empirical research, a questionnaire was developed and tested among high level experts. based on the material obtained from the survey, analysis was carried out. qualitative analysis has been complemented by quantitative analysis through applying the indicators of central tendency or location (arithmetic mean, mode, median), as well as indicators of variability (variance, standard deviation, standard error of mean, range). based on the textual analysis and empirical study, conclusions have been made. the research shows that the current developments in eu vet policy regarding the training of innovation competent labour force finds reflection also in the present academic discourse. at the same time, politically and academically, there are not yet clear guidelines available as to practical measures how public administrations could address the new challenges. a wide range of approaches exist, however, most policy makers and academics agree that innovation and training have close links and they need to be viewed in the context of labour market activities and the competitiveness of the particular economy in question. in practice the attitudes of relevant stakeholders are still relatively conservative regarding innovation in vet, and innovation is still primarily seen as pertaining to the domain of higher education, research and development. theoretical framework the problem of innovation and training, and the link between them has been much discussed in academic discourse from various perspectives. even though it is not always explicitly discussed in the vet context, in many cases it can be easily attributed to the vet domain, as the borderline between education types and levels in the context of current labour market developments is becoming increasingly blurred. the design of public-sponsored training programs, for instance, may benefit from knowledge on which attributes are consistently associated with better labor-market outcomes galdo, j. & chong, a., 2012). policy co-ordination for technological innovation and for training is usually under the supervision of different ministries or departments which is a complicated issue even in the case of higher education, not to speak about vet which by tradition formally and also conceptually is not linked to innovation and development. at the same time, in the context of latest developments in national economies and labour market, strengthening co-operation between these fields might have a potential for growth. the potential gains from complementarities are enough to justify a serious effort of policy co-ordination in the areas of technology adoption and training (boothby, d., dufour, a. & tang, j., 2010). there is an increasing awareness that innovation and technologies alone do not produce the desired results unless complemented by respective training component. this is really crucial, as well as the choice of models for the training of labour force to implement technological innovation. in order to successfully adopt new technologies and integrate them within an organization, firms have to obtain new skills and/or to upgrade the skill level of their existing workforces, but this usually asks also for organisational change (boothby, d., dufour, a. & tang, j., 2010). consequently, the revision of the existing institutional mechanisms has to be done, in order to evaluate their correspondence to the needed change. another issue is to review if the existing approaches are systemic enough, in order to secure an integrated set of institutional mechanisms. this is challenging in itself, since new situations may arise continuously, often without clear context and forecast, and all this has to be addressed by formalized means. one of the most striking features of innovation policy discussions in national governments and international policy organizations has been the adoption of the terminology of systems thinking and in particular the language of national innovation systems (niss) (dodgsona m., hughes, a., fosterc, j. and metcalfed, s. 2011). at the same time dodgsona et al point to the limitations of the nis approach and speak about the high level of overall uncertainty when implementing certain entrepreneurial schemes or policies. their research indicates that success may depend upon what market conditions and internal configurations actually emerge. their implication is that an illusion might be created about optimal outcomes of rational decision-making, but in the reality these survivors are the outcome of a vast experiment in which failures are inevitable) (dodgsona m., hughes, a., fosterc, j. and metcalfed, s. 2011). these factors by all means have to be taken into consideration when developing national innovation and training schemes, but nevertheless it does not interfere with overtaking the good practice even of it has emerged by chance and not as a result of well-designed public policy. at the same time, various contradictory factors, including regulatory factors should be taken into consideration when discussing the labour force developments, not only at national but also at european level. thus, according to european employment policy analysis, starting in 2001, the eu council recommendations for the individual countries did mention the need to adapt employment regulations with a balance between flexibility and security for the labour force (alessandria, g. and delacroix, a., 2008). the implication here is that by such policies, where the security of the labour force is being addressed as an important social issue, the labour market flexibility is being restricted, which in fact hinders proper labour market developments. consequently, the governments and public policies have to make difficult choices when deciding on their employment models, especially during the crisis periods. this is also the case in latvia, and balance is to be continuously sought, weighing out optimal and needed solutions when taking decision on vet policies. still, it is evident that there are considerable differences in performance, measured by levels of productivity, among innovators and non-innovators (hashiab, i. & stojci, n., 2012). it is also clear that national economies have to make issn 1822–8402 european integration studies. 2014. no. 8 118 conscious choices as to the innovation policies, i.e., in what ways they obtain and implement innovations and how their workforce is being trained in this respect. the role of and importance of local technological developments as the most suited for the specific national economy (although in the context of developed and developing economies) has been pointed out by researchers, stressing that the need for foreign technology to be appropriate to the specific socio-economic and technical context of a developing country implies that developing countries cannot rely on foreign technology for technological upgrading and that local innovation is of crucial importance (fu, x. and gong, y., 2011). absorptive capacity of domestically owned firms increases the effects of the spillovers, but foreign investment influences the economic development of the host country only in the case of sufficient absorptive capability of the advanced technologies available in the host country (eryigit, n., demirkay, h. and ozcure, g., 2012). although in a different context, this presents a challenge also for latvia – as in a small country (economy) this may be a crucial decision which influences the direction of national economy and the investments in research and respective labour force traiconsequently, in the present day context of the global economic development, none questions that human resources represent the essential element of the competition, both on national and international level. moreover, in the global competition of the computerized economy, the quality and the inventive human resources would be the main factors that make the difference between the countries of the world (iatagana, m., dinua, c. & stoica a. m., 2010). consequently, today‘s education and training sector has come much closer to the traditional labour market organisations than it was in the previous decades. therefore also new respective institutional mechanisms have to be put in place as a response to these new challenges. one of the reasons is the fact that many countries due to the economic crisis cannot any more afford to fund ineffective vet systems, especially regarding the competence and innovation capacity of the trained labour force. thus, they have to enhance the co-operative approaches between their training and labour market sectors and invent mechanisms that make such co-operation possible and effective. the role of labour market institutions and organisations, such as state employment services, employer’s organisations and sectoral associations, is increasing. labour market institutions have significant effects on the structural features of the economy, and changes in labour market institutions alter the deep structure of the economy (zanetti, f., 2011). thus, the new tendencies to bring together the training and employment systems through corresponding institutional mechanisms, in our opinion, if used appropriately, can enhance the effectiveness of education and training systems to promote innovation and improve its ability to influence the overall economic developments. moreover, they indicate to the importance of the sense of property that social partners share, e.g. regarding the dual approach for work and education, stressing that in some cases this shared property brings along the appearance of some groups of regional knowledge that makes the transfer of technology and innovation easier (iatagana, m., dinua, c. & stoica a.m., 2010). andergassen et al have researched and proved the impact of innovation investment basically in human resources, on the structure and long-term growth of an economic system. according to their studies, a long-term growth rate straightforwardly results as a positive function of employment devoted to innovation generation, and flows of expected profits are dependent on the size of innovation-oriented employment (andergassen, r., nardini, f. & ricottilli, m., 2009). devaro et al use the term innovation regarding workers adapting a product to changing market demand with innovation being directed by a manager or instigated by the worker, as in the case of delegated authority. in their opinion specialized workers have a productivity advantage over multi skilled workers, since their expert knowledge of a given product makes them better at adapting a product to changing consumer demand. their implication distinguishes between product innovation with adaptation of a product in response to changing market signals, and process innovation, such as occurs when workers suggest cost-cutting measures. they argue that specialists are better at product innovation (devaro, j. & farnham, m., 2011). given the multiple existing approaches toward innovation and training in scholarly discourse, it should be noted that there is no uniform preferred or dominant approach, rather the overall uncertainty and non-predictability is being stressed. at the same time, the need for original and entrepreneurial attitudes becomes evident, and the needed link with the world of labour is self-evident. for this reason it becomes clear that innovative and entrepreneurial approaches have to be integrated into the training systems, regardless of the level of training, and that, training systems should integrate interactive learning that fosters creativity and innovation, based on the experience of entrepreneur models, where there need to be networks and links also with local businesses and the labour market (llorent, v. j., 2012). consequently, according to relevant academic discourse, multiple approaches can be considered for translating innovative approaches in vet into practice. therefore the research approach was to find out the present opinions of vet and research experts regarding the role and potential of innovation in vet in latvia, to what extent closer cooperation between policy makers, administrators and research experts at various levels could contribute to the effectiveness of innovation in vet, as well as to analyse the opinions of experts concerning the existing and potential institutional mechanisms to secure the training of competent labour force. research approach to carry out the research on the above indicated issues, apart from the textual analysis consisting of analysis of relevant policy documents and academic discourse regarding the research problem, also an empirical study in the form of a survey has been carried out. for the implementation of the empirical study, a questionnaire was developed and experts were asked relevant questions to evaluate the current situation. before the implementation of the survey the questionnaire was tested among proved professionals in the above mentioned fields and corresponding amendments made. the questionnaire was developed in such a way that the relevant opinions of stakeholders could be analysed in a detailed way and from issn 1822–8402 european integration studies. 2014. no. 8 119 several perspectives. as the research interest primarily lies in the training of competitive labour force at all levels and the role of vet system for preparing such labour force, also the questions were formulated accordingly. evaluations had to be made in scale 1 – 10, where 1: fully disagree; 10: fully agree. based on the material obtained by the questionnaire, the primary analysis of the opinions of the various target groups has been conducted and the results compared. by the empirical study the opinions of relevant stakeholders regarding the respective research problems have been analysed. the target group for the empirical study (sample) were a relatively limited number of high and medium level public administrators in education and research, as well as research experts from various research institutions (practically all relevant experts were approaches at the start of the survey). the approach to the selection of the target group was pre-determined by the relatively controversial nature of the research questions, in the context of the currently predominating traditional opinions regarding innovation, vet, higher education and research, as will be shown later on. thus, exclusively such public administrators and experts were selected who have a significant experience in education and research, and who apart from their major field of competence are highly aware of the priorities and processes in the overall education system and therefore would have an informed and well considered opinion. the selected group also performed the initial expertise of the developed questionnaire (which will be described further on). around 35 high and medium level administrators and experts were addressed (asked to participate) in the survey. due to several reasons around 15 experts finally could not participate in the survey (in some cases due to business and non-availability during the time of the survey, however in some cases the possible reason for non-participation might have been reluctance of experts to give opinions on potentially controversial or politically sensitive issues; this is only our assumption, given the high administrative or political position (status) of the expert approached – regardless the explicit statement in the questionnaire that the results will be analysed and applied anonymously and in a generalised way. nevertheless, the representation included: ministry of education and science (moes) civil servants of the department for policy co-ordination, department of vocational training, department of higher education, department of research, study and research administration, ex-officials currently implementing eu vet projects, latvian technology park. the survey was carried out at the beginning of 2012, and it should be noted that due to the reorganisation of moes in the middle of 2012, the names of departments have changed. such a concentrated choice of high level professionals, in our opinion, was a precondition for obtaining a well considered professional opinion as a focus point for our overall research, despite the relatively limited number of experts. our aim at this stage of the research was not to secure quantitative representation. instead, we concentrated on the opinions of a limited number of high level experts. especially given the fact that the intention of is to survey several other types of target groups and to compare the opinions between them. the qualitative analysis has been complemented by quantitative analysis by applying the indicators of central tendency or location (arithmetic mean, mode, median), as well as indicators of variability (variance, standard deviation, standard error of mean, range, etc.) as well as cross-tabulations. this has enabled us to draw conclusions regarding the research problem based on which further practical recommendations for possible steps in policy making could be prepared and taken. empirical study the overall empirical study carried out by the research team concerns a wide variety of issues. however, the present paper is devoted to particular aspects of the study concerning the importance of co-operation between various stakeholders, e.g. in higher education (he), vocational education and training (vet) in research policy making and in public administration regarding the training of competent and innovation capable labour force and the corresponding institutional mechanisms to train such labour force. also the respective institutional mechanisms have been at the centre of attention in the present research. analysis of answers has been presented regarding the following research specific questions/ statements: table 1. statistical indicators of expert evaluations on statement “competent and innovation oriented labour force training need closer co-operation” stastatistical indicators policy makers of administrators of higher education and research professional education and research higher and professional education higher education and research professional education and research higher and professional education valid 20 20 20 19 19 19 mmissin 1 1 1 2 2 2 memean 7,80 6,35 7,35 7,79 5,37 6,53 std. error of mean 0,49 0,61 0,47 0,37 0,57 0,49 memedian 8 7,5 8 8 5 7 momode 10 8 8 8 7 and 8 8 std. deviation 2,19 2,74 2,08 1,62 2,48 2,12 variance 4,80 7,50 4,35 2,62 6,14 4,49 range 8 9 7 5 8 6 minimum 2 1 3 5 1 3 maximum 10 10 10 10 9 9 source: author’s calculations of expert survey results, evaluation scale 1-10, where 1 – not important; 10 – very important. issn 1822–8402 european integration studies. 2014. no. 8 120 1. in the training of competent and innovation capable labour force closer so-operation is needed between various stakeholders: a) he and vet policy makers; b) he and vet administrators; c) he and research policy makers; d) he and research administrators; e) vet and research policy makers; f) vet and research administrators. 2. the existing institutional mechanisms ensures the training of high level innovative specialists. 3. the existing institutional mechanisms ensures the training of medium level innovative specialists. 4. the existing institutional mechanisms ensures the training of lower level innovative specialists. the results of the analysis of the expert answers to the statements nr. 1 ‚in the training of competent and innovation capable labour force closer so-operation is needed between various stakeholders‘ are presented in table 1, figure 1 and figure 2. data of table 1 confirm that the evaluations are lower for vocational education. the great variance in responses confirms that respondents had different views on professional education: higher evaluations of experts were given for policy makers of higher education and research, as well as for administrators of higher education and research. the results of expert survey confirm that experts gave very high evaluations to almost all statements. the lowest evaluations are for the co-operation between administrations of vocational education and research, where arithmetic mean of the expert evaluations was 5.37 with median 5 (half of experts gave higher evaluation than 5, half gave lower than 5). no one of experts gave higher evaluation than 9 for this statement – experts have not found it possible to give the highest possible evaluation. indicators of central tendency or location of expert evaluations on statement „competent and innovation oriented labour force training need closer cooperation“ are included in figure 2. the results of the expert survey have indicated that the highest evaluations are given by policy makers of higher education and research but the lowest evaluations are given figure 1. arithmetic means of expert evaluations on statement „competent and innovation oriented labour force training need close co-operation“ source: author’s calculations of expert survey results, evaluation scale 1-10, where 1 – not important; 10 – very important. figure 2. indicators of central tendency or location of expert evaluations on statement “competent and innovation oriented labour force training need closer co-operation” source: author’s calculations of expert survey results, evaluation scale 1-10, where 1 – not important; 10 – very important. issn 1822–8402 european integration studies. 2014. no. 8 121 by administrators of vocational education. in general average evaluations are around the same (arithmetic mean, mode, median) for almost all evaluated statements. the results of the analysis of the expert answers to the statement „the existing institutional mechanisms ensures the training of high level, medium level and lower level innovative specialists‘ are presented in table 2. table 2. statistical indicators of expert evaluations on statement ‚the existing institutional mechanisms ensures the training of high level, medium level and lower level innovative specialists‘ the existing institutional mechanisms ensures the training of high level innovative specialists medium level innovative specialists lower level innovative specialists n valid 20 20 18 missing 1 1 3 mean 4,75 4,50 4,28 std. error of mean 0,70 0,56 0,54 median 6 5 5 mode 8 5 5 std. deviation 3,11 2,52 2,27 variance 9,67 6,37 5,15 range 8 8 7 minimum 0 0 0 maximum 8 8 7 source: author’s calculations of expert survey results, evaluation scale 1-10, where 1 – not important; 10 – very important. survey results indicate that experts give rather low evaluations for the statement. only for the evaluation on training of higher level specialists are higher, but still the arithmetic mean of this evaluations is only 4,75; median is 6 and mode is 8. for all statements no expert gave evaluation higher than 8. the views of experts differ greatly – it is confirmed by the high values of indicators of variability. indicators of central tendency or location of expert evaluations on the statement „the existing institutional mechanisms ensures the training of high level, medium level and lower level innovative specialists“ is included in figure 3. the results of the analysis of the expert answers confirms that indicators of central tendency or location for those statements are low, except for the statement „the existing institutional mechanisms ensures the training of high level innovative specialists“. clearly, more relevance is being attributed to the possibility of training of innovation competent specialists at higher level, with traditionally less importance of innovation competence at medium and lower level. it does not comply with the current eu policy priorities, and calls for revision of vet priorities regarding the labour force training. it has implication also to the european qualification framework where level 5 qualification refers to highly qualified medium level specialists. it gives the agenda for public administrators to develop the legislative regulation to support training of innovative specialists for all levels: higher level, medium level and lower level specialists. conclusions as a result of the research the following conclusions can be drawn: • the eu policy making is undergoing a change with new emphasis on innovation in all education and training sectors and closer links with the labour market developments. • the academic discourse addresses the issue of innovation and training in a variety of contexts, still without clear indications on best possible paths in future. • both – the policy developments and academic discourse stress the need for new approaches and mechanisms to promote links between innovation and training. • today‘s education and training sector has come much closer to the traditional labour market organisations than it was in the previous decades. therefore also new respective institutional mechanisms have to be put in figure 3. indicators of central tendency or location on statements „the existing institutional mechanisms ensures the training of high level, medium level and lower level innovative specialists‘ source: author’s calculations of expert survey results, evaluation scale 1-10, where 1 – not important; 10 – very important. issn 1822–8402 european integration studies. 2014. no. 8 122 place as a response to these new developments. • most policy makers and academics agree that innovation and training have close links and they need to be viewed in the context of labour market activities and with the competitiveness of the particular economy in question. • in practice the attitudes of relevant stakeholders are still relatively conservative regarding innovation in vet, and innovation is still primarily seen as pertaining to the domain of higher education, research and development. • traditional attitudes also prevail regarding the relevance of co-operation between policy makers and administrators in higher education, vet and research concerning the implementation of innovation. • revision of the existing institutional mechanisms has to be done, in order to evaluate their correspondence to the needed change. this is extremely challenging, since new situations may arise continuously, often without clear context and forecast, and all this has to be addressed by formalized means. • bringing together the training and employment systems through corresponding institutional mechanisms, if used appropriately, can enhance the effectiveness of education and training systems to promote innovation and improve its ability to influence the overall economic developments. • innovative and entrepreneurial approaches have to be integrated into the training systems, regardless of the level of training. • among public administrators in latvia co-operation between public administrators and policy makers in higher education and research are seen as relevant, however, co-operation between vet policy makers and administrators with their counterparts in the research sector is being seen as irrelevant. • according to the opinion of public administrators and experts in latvia the existing institutional mechanisms currently cannot ensure the training of medium level innovative specialists, therefore new institutional mechanisms need to be sought. • revision of vet priorities regarding the labour force training might be needed in latvian public administration in vet. it gives the agenda for public administrators to develop the legislative 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(2012). research in vocational education and training. british journal of educational studies, 60(1), 53-63. http://dx.doi.org/10.1080/00071005.2011.650944 the article has been reviewed. received in april, 2014; accepted in june, 2014. issn 1822–8402 european integration studies. 2014. no. 8 editorial since 2002, institute of europe of kaunas university of technology prepares and publishes scientific works under the theme of european integration. starting 2007 year the journal has got an issn code. at the present the annual scientific journal european integration studies: research and topicalities (issn 1822-8402) is published once a year (in september). the papers published in journal are abstracted and indexed by international databases: ebsco (central & eastern european academic source database coverage list), ebsco (business source complete) and doaj (directory of open access journals). papers published in the european integration studies: research and topicalities undergone a formal process of double blind peer review by two appointed external reviewers. the main objective of the journal is to analyse problems and actualities considering european integration processes. the articles are brought under the three main themes. these are social evolution of europe, economics of european union as well as managerial aspects of european integration. it is believe that the articles included in the journal, being selected and reviewed, are of high scientific quality were actual scientific problems are solved, deserve a wide distribution. editors hope that presented new scientific ideas and ways of problems solving will help to develop research not only for academicians and students but and for a wide representatives of society which seek to improve their knowledge in european integration. in conclusion, editors would like to thank all authors of the articles for their willingness to share their ideas with others. kęstutis kriščiūnas, rasa daugėlienė e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 34 european integration studies no. 15 / 2021, pp. 34-46 doi.org/10.5755/j01.eis.1.15.29114 abstract assessment and development  of public servants using the  design thinking methodology for  the reforms and innovations introduction http://dx.doi.org/10.5755/j01.eis.1.15.29114 the purpose of the study is to investigate the features of assessment of public servants’ characteristics and their ability development to introduce reforms and innovations in public authorities using the design thinking methodology. the following tasks were set: 1) to investigate the problems of assessing the personal qualities and behavioral characteristics before and after training activities; 2) to find out what peculiarities of the introduction of reforms and innovations in public authorities should be taken into account in the assessment of public servants and their practice-oriented training; 3) based on the results of the research, to determine the features of the use of design thinking methodology in the public servants development. to achieve the research objective, the dialectical research, content analysis, questionnaire survey, expert assessment, methods of statistical analysis, and modeling were used. the results of the study testified that in many cases the method of self-assessment of personal qualities does not ensure the indicators objectivity. therefore, such indicators should be compared with expert estimates. based on the analysis of the results of empirical research in the public sector, the peculiarities of the reforms and innovations introduction related to bureaucracy and political influence, drivers of reforms and their outcomes, strict control over the use of resources, evaluation of the performance of public servants have been identified. the research allowed substantiating the proposals for the use of the design thinking methodology in training of public servants and evaluation of its results. keywords: design thinking; assessment; training; public servants; innovation; reform. for the reforms and innovations introduction, the personal qualities and behavioral characteristics of public servants are no less important than the level of their professional knowledge and skills. therefore, in 2016 oecd started to unpack the complex topic of skills and capabilities for public sector innovation. its beta model of skills to promote and enable innovation in public sector organizations contains user centricity, curiosity, insurgency, iteration, data literacy, and storytelling (oecd 2017, p. 8). nesta competency framework for experimental problem solving is more structured. it includes three groups of core skills, namely working together, leading change, and accelerating learning (each of them is divided into 4-5 components), as well as the following key attitudes: empathetic, curious, agile, action-oriented, reflective, courageous, outsubmitted 01/2021 accepted for publication 06/2021 assessment and development of public servants using the design thinking methodology for the reforms and innovations introduction eis 15/2021 mariana orliv, ivano-frankivsk national technical university of oil and gas brigita janiūnaitė, kaunas university of technology valentyna goshovska, national academy for public administration under the president of ukraine rasa daugėlienė, kaunas university of technology introduction 35 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 comes-focused, imaginative, and resilient (nesta, 2019). content analysis of these two models allows us to conclude that the formation of core skills and attitudes for reforms and innovations introduction in public authorities is possible through the use of design thinking methodology. this social technology can deliver the following benefits to public decision-making: strengthening the ability to detect problems; a human-centric perspective of defining the user needs by focusing on the person not on the product; problem solving through creativity, multidisciplinarity and teamwork; application of experimental and holistic approaches to reduce risks; targeted solutions as a starting points for continued innovation. however, the main problems of using this methodology in the assessment and development of public servants are, firstly, the complexity of measuring the design thinking mindset of public servants; and secondly, the need to take into account the peculiarities of the reforms and innovations introduction in public authorities. these problems need to be addressed in a way that ensures not only a practice-oriented training, but also a real change in attitudes and behavior of public servants through transformative learning (dzvinchuk, petrenko, orliv, mazak & ozminska, 2020) to increase executive capacity of public authorities in the context of sustainable development. unfortunately, the experts who are trying to measure the design thinking declare that their tools are not valid or are not real tools and they use tools that “a bit manufactured [fabricated]” (schmiedgen, spille, koppen, rhinow & meinel, 2016). besides this, there is always the possibility of ethnocentric biases (kaivo-oja & lauraeus, 2018). therefore, the most valid measurement tools are feedbacks and customers satisfaction (dosi, rosati & vignoli, 2018). however, such measurement can be a problem because of long-term of reform implementation in the public sectors. beside this, the peculiarities of the reforms and innovations introduction in public authorities depend on the bureaucracy and political influence, drivers of reforms and their outcomes, strict control over the use of resources, specifics of performance management, open collaboration with stakeholders, etc. these features need to be taken into account in the process of training and assessing the ability of public servants to implement changes and promote increased executive capacity of public authorities. the purpose of the study is to investigate the features of assessment of public servants’ characteristics and their ability development to introduce reforms and innovations in public authorities using the design thinking methodology. to achieve this purpose, the following tasks were set: 1 to investigate the problems of assessing the personal qualities and behavioral characteristics before and after training activities based on results of empirical research using known self-assessment tools; 2 to find out what peculiarities of the introduction of reforms and innovations in public authorities (related to bureaucracy and other public sector system qualities) should be taken into account in the assessment of public servants and their practice-oriented training; 3 based on the results of the research, to determine the features of the use of design thinking methodology in the public servants development. the research was carried out at three stages. on the first stage we found out whether it is appropriate to rely on the results of self-assessment of personal qualities and behavioral characteristics in the process of planning training activities and determining their effectiveness. the results of questionnaire surveys and expert assessment of two groups of extramural master students, who in 2020 completed their studies under the program “public administration and management” at the ivano-frankivsk national technical university of oil and gas (it gave them the right to hold senior positions in public authorities), were used for analysis. self-assessment of the first group (n 1 = 74) was conducted using the methodology created by e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 36 peter koestenbaum (2002) based on the leadership diamond model. the choice of this tool is due to the fact that “among all the models of leadership diamonds, it is the closest to solving the problem of personality assessment regarding satisfaction with the components of the leadership vocation and formulation of recommendations for their further development, as it allows assessing the level of provision of each of the established by the “leadership diamond” model list of criteria such as vision, ethics, reality, and courage” (dzvinchuk, ozminska, orliv & petrenko, 2021, p. 2). self-assessment of the second group (n 2 =91) was conducted using the woodcock–francis test (dzvinchuk, orliv & petrenko, 2021), which provides an evaluation of 11 important managerial characteristics, namely: self-management skills; clear values; personal goals; continuous self-development; problem solving abilities; creativity; impact on others; understanding the features of managerial work; ability to manage; ability to teach; team building skills (woodcock & francis, 1986). to determine the feasibility of using known self-assessment tools, we conducted a questionnaire survey and expert assessment of a control group of respondents interested in the objectivity of the indicators (n3 = 16). this group included lecturers (87.5% of which have managerial experience) selected to participate in the implementation of the joint ukrainian-lithuanian r&d project “competence development of lithuanian and ukrainian public sector employees using design-thinking methodology”. for this category of respondents we can reliably determine the implementation of learning outcomes in further professional activities. the methodology of their assessment was chosen taking into account the results of the first two experiments. on the second stage the peculiarities of the introduction of reforms and innovations in public authorities which should be taken into account in the assessment of public servants and their practice-oriented training (based on the analysis of theoretical and empirical research conducted by scientists in different countries) were clarified. to resolve the contradictions identified in scientific publications, we conducted a correlation analysis, which allowed investigating how index of innovation is influenced by different cultural dimensions. the empirical basis for correlation analysis is the data from the european innovation scoreboard 2019 (european commission, 2019) and the results of the globe research program (global leadership and organizational behavior effectiveness), which is one of the most large-scale and prestigious international management research projects in social sciences ever (globe, 2020). selected cultural dimensions indicate what is important for a society (future orientation, uncertainty avoidance, performance and human orientation), how is society organized (institutional collectivism) and how does society interact (assertiveness, power distance). to identify the main barriers to innovation in the public authorities in ukraine, we also conducted a questionnaire survey of 195 public servants of the ministry of justice of ukraine after their acquaintance with the design thinking methodology. on the third stage we identified the features of the use of design thinking methodology in the public servants development based on the results of the first two stages of our research. the results of self-assessment under the leadership diamond model of the first group of extramural master students (dzvinchuk, ozminska, orliv & petrenko, 2021) showed that, on average, respondents have the most developed vision and ethics (4.11 score on a five-point scale) and the least developed courage (3.89 score). we were going to take these indicators into account during the next revision of the master’s program. however, we surprised that, firstly, the vision of all public servants, including ordinary officials, is at the same high level as ethics (82.2%), and secondly, the average courage is also unexpectedly high (77.8%). the results of the self-assessment of managerial characteristics of the second group of extramural master students revealed using the woodcock-francis test on a ten-point scale were more informative (dzvinchuk, orliv & petrenko, 2021). their generalization is presented in table 1. assessing the personal qualities and behavioral characteristics of public servants 37 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 indicators average score maximum total score minimum total score dispersion standard deviation сoefficient of variation grade self-management skills 6,70 10 1 4,28 2,07 30,85 9 clear values 6,58 9 4 4,02 2,01 30,47 7 personal goals 6,67 10 2 3,76 1,94 29,06 8 continuous selfdevelopment 7,31 9 1 4,30 2,07 28,39 11 problem solving abilities 6,14 9 5 3,35 1,83 29,78 6 creativity 5,42 9 3 4,85 2,20 40,63 1 impact on others 7,21 10 3 4,57 2,14 29,65 10 understanding the features of managerial work 5,55 9 4 6,14 2,48 44,65 4 ability to manage 5,56 10 2 8,67 2,94 52,96 5 ability to teach 5,49 10 1 5,79 2,41 43,78 2 team building skills 5,54 10 1 6,07 2,46 44,50 3 source: authors’ based on (dzvinchuk, orliv & petrenko, 2021). table 1 generalized results of the second group assessment among the average scores, the continuous self-development (7.31) and impact on others (7.21) are the highest, while the creativity (5.42) and ability to teach (5.49) are the lowest. indicators of standard deviation and coefficient of variation indicate that “ability to manage” has the largest range of self-assessments. beside this, some respondents do not understand the relationship between the managerial characteristics, in particular the respondent with a minimum total score. the combination of self-assessment with the expert assessment of respondents allowed detecting cognitive bias in the vast majority of master students, which manifested as the effect of dunning-krueger (4.4%) or klans-imes (74.7). the last indicator shows that the vast majority of respondents lack self-confidence and courage. thus, if the results of the first experiment are questionable, the results of the second one confirm that in many cases the method of self-assessment of personal qualities does not ensure the indicators of objectivity. therefore, in the third experiment with the control group, we used the following methods: self-assessment under the leadership diamond model by peter koestenbaum (2002); self-assessment of design thinking mindset using the tool developed by dosi, rosati and vignoly (2018) which has already validated via the kaiser-mayer-okin’s test and the bartlett’s test; and the expert assessment. we evaluated outcomes of learning by design thinking methodology two months after the training activities. such approach allows, firstly, to analyze whether it is enough to have leadership qualities for change implementation in public organizations, and secondly, to determine the feasibility of using known self-assessment tools. for this, we grouped the results of self-assessment of design thinking mindset into indicators “vision”, “ethics”, “reality”, and “courage” and compared them with the results of self-assessment under the leadership diamond model. after that we compared the results of above mentioned self-assessments with the results of expert assessment taking into account the facts of the learning outcomes implementation in professional activity (table 2). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 38 indicators n 1 n 2 n 3 n 4 n 5 n 6 n 7 n 8 n 9 n 10 n 11 n 12 n 13 n 14 n 15 n 16 n ̅ results of self-assessment of design thinking mindset being comfortable with ambiguity 2,8 3,2 4,0 4,4 3,0 3,0 3,8 3,2 3,8 4,0 3,6 4,2 3,6 3,4 2,6 3,2 3,5 embracing risk 2,5 4,5 3,0 4,0 3,5 2,5 2,5 2,0 3,5 3,0 4,0 2,0 3,5 3,0 1,5 2,5 3,0 human centeredness 3,7 4,3 3,7 5,0 4,3 4,0 4,7 4,3 3,7 4,7 4,0 3,0 4,0 5,0 3,0 3,7 4,1 empathy 3,8 3,3 4,0 4,8 4,8 4,0 4,5 3,8 4,5 5,0 3,5 4,0 4,5 4,5 5,0 2,5 4,2 mindfulness and awareness of process 3,7 3,0 3,3 3,7 4,0 3,0 4,0 2,7 3,7 4,7 3,7 4,3 3,7 4,7 3,3 3,7 3,7 holistic view 3,7 3,7 4,0 3,7 4,0 3,3 4,0 4,0 4,0 5,0 4,0 4,7 4,0 4,0 3,3 3,3 3,9 problem reframing 5,0 5,0 4,0 5,0 4,7 4,7 5,0 4,0 4,3 5,0 5,0 4,7 4,3 4,0 5,0 4,7 4,7 team working 3,8 4,8 4,5 4,3 4,8 3,8 4,5 4,3 3,3 4,5 4,3 4,0 2,5 4,3 4,3 3,8 4,1 multidisciplinary collaboration 4,3 5,0 5,0 5,0 4,3 3,8 4,3 3,8 4,3 5,0 4,0 4,8 4,3 4,8 3,5 3,8 4,4 open to different perspectives 4,8 4,5 5,0 5,0 4,5 5,0 4,3 3,5 4,3 4,8 3,5 4,5 4,3 4,8 4,5 4,0 4,5 learning orientation 4,5 4,8 4,8 4,5 4,3 5,0 4,8 3,5 4,0 4,3 4,2 4,2 4,0 4,2 4,5 3,3 4,3 experimentation or learn from mistake 3,5 4,2 4,2 4,0 3,7 4,3 3,7 3,7 3,8 4,2 3,7 4,0 3,8 4,7 4,0 3,8 4,0 bias toward action 3,5 4,5 4,3 4,0 3,5 3,8 4,0 3,3 3,3 4,0 3,5 3,3 3,3 3,5 2,8 3,3 3,6 critical questioning 5,0 4,7 4,3 5,0 5,0 4,3 4,0 4,3 3,7 4,0 3,3 4,3 3,7 5,0 4,7 4,0 4,3 abductive thinking 3,0 3,3 3,8 4,0 3,5 4,0 3,8 3,5 4,3 4,3 3,8 4,0 4,3 4,8 3,3 3,5 3,8 envisioning new things 3,3 3,3 3,3 4,0 4,0 4,0 3,7 3,7 3,7 4,7 4,0 4,7 3,7 3,7 4,3 2,7 3,8 creative confidence 3,0 4,0 3,3 3,5 3,8 4,5 4,0 3,8 4,8 4,8 3,3 4,0 4,8 5,0 4,0 3,5 4,0 desire to make a difference 3,7 4,0 5,0 4,0 3,7 4,3 3,3 3,3 4,0 5,0 4,3 3,0 4,0 4,7 3,7 2,7 3,9 optimism to have an impact 3,7 4,7 5,0 4,7 4,3 4,0 4,3 4,0 4,3 4,7 4,3 3,7 4,7 4,0 3,3 2,3 4,1 average score 3,8 4,1 4,1 4,3 4,1 4,0 4,1 3,6 4,0 4,5 3,9 4,0 3,9 4,3 3,7 3,4 4,0 bringing the results of self-assessment of design thinking mindset to indicators of the leadership diamond model vision 3,3 3,4 3,7 3,9 3,8 3,8 3,8 3,7 4,0 4,7 3,9 4,5 4,0 4,2 3,6 3,2 3,8 ethics 4,0 4,2 4,3 4,8 4,6 4,2 4,5 4,0 4,0 4,8 3,8 3,9 3,8 4,7 4,2 3,5 4,2 reality 4,4 4,0 3,7 4,4 4,4 3,9 4,5 3,4 4,0 4,9 4,4 4,5 4,0 4,4 4,2 4,2 4,2 courage 3,2 4,2 4,1 4,1 3,6 3,8 3,7 3,3 3,9 4,2 3,8 3,5 4,0 4,0 3,1 3,0 3,7 average score 3,7 4,0 3,9 4,3 4,1 3,9 4,1 3,6 4,0 4,6 4,0 4,1 3,9 4,3 3,8 3,5 4,0 results of self-assessment under the leadership diamond model vision 3,7 4,0 3,7 4,2 3,7 4,1 3,8 4,2 4,4 4,6 4,0 4,1 4,3 4,4 4,5 4,5 4,1 ethics 3,9 4,3 3,9 4,3 3,9 4,3 4,0 4,2 4,3 4,9 4,0 3,1 4,4 4,3 3,5 4,8 4,1 reality 4,1 4,2 3,8 4,5 4,1 3,9 4,2 4,2 3,8 4,7 3,4 3,9 3,9 4,6 3,8 4,9 4,1 courage 3,5 4,6 3,8 4,6 3,5 3,8 3,7 3,6 4,1 4,2 3,7 3,5 4,0 4,5 3,0 4,1 3,9 average score 3,8 4,3 3,8 4,4 3,8 4,0 3,9 4,1 4,2 4,6 3,8 3,7 4,2 4,5 3,7 4,6 4,1 table 2 the results of the control group assessment 39 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 source: authors’ indicators n 1 n 2 n 3 n 4 n 5 n 6 n 7 n 8 n 9 n 10 n 11 n 12 n 13 n 14 n 15 n 16 n ̅ results of expert assessment average score 4,4 4,0 4,1 4,4 4,0 4,1 4,2 4,1 4,0 4,6 4,4 4,2 4,0 4,6 4,2 4,3 4,2 the use of learning outcomes in professional activity ∑ scientific research + + + + + + + + 8 project management + + + + + 5 cognitive bias design thinking mindset assessment < < < < < < 6 leadership assessment < > < < < < < > 8 grouping the results of self-assessment by the design mindset questionnaire into indicators “vision”, “ethics”, “reality”, and “courage” revealed that, firstly, the leadership diamond model does not take into account “multidisciplinary collaboration”, “learning orientation”, and “critical questioning”, and secondly, the correlation between the results of evaluation by two methods are absent, only for “courage” correlation is positive but not strong enough (0.683). comparison of the results of two self-assessments with expert assessment and organizational performance ensured the detection of cognitive bias for 6 respondents by the tool of the design thinking mindset and for 8 respondents by the tool of the leadership diamond model. in the second case the tendency not only to display of effect of klans-imes (n 1 , n 3 , n 7 , n 11 , n 12 , n 15 ), but also dunning-krueger (n 2 , n 16 ) is revealed. the type of cognitive bias coincided with the two methods for only three respondents. the results of the self-assessment roughly correspond to the results of expert assessment and organizational performance for only nine respondents (n 1 , n 4 , n 5 , n 6 , n 9 , n 10 , n 11 , n 13 , n 15 ). in addition, the respondent n 16 assessed himself situationally. thus, two self-assessment tools for seven respondents (43.8%) gave results which are absolutely different. all this leads to a low level of trust in various self-assessment tools. in particular, the results of a questionnaire survey of 106 senior and middle-level government officials, which we conducted in 2017, show that only 9.4% of respondents use self-assessment questionnaires to determine their leadership and other personal qualities (orliv, 2018, p. 79). thus, the results of the first stage of the study testify that in many cases the method of self-assessment of personal qualities does not ensure the indicators objectivity. therefore, before the training activities such indicators should be compared with expert estimates. if expert assessments are not available, average indicator (which characterize the sample as a whole) should be used in shaping the content and teaching methods. after training, it is necessary to assess a behavior change and the use of new knowledge and skills in professional activities. while summarizing the results of empirical research published in peer-reviewed journals on the identification of factors that affect the public sector innovations, we found a number of inconsistencies. they mostly relate to differences in the assessment of the impact of bureaucracy and other restrictions in public authorities on their innovativeness. in particular, results of multilevel analysis conducted by lapuente and van de walle (2020) indicate that the bureaucratic politicization has a negative impact on receptiveness to new ideas and is negatively associated with the pro-innovation index. however, according to demircioglu and audretsch (2018), in bureaucratic peculiarities of the introduction of reforms and innovations in public authorities e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 40 public organizations dissatisfied employees value invention and innovative ideas that can increase organizational performance. they claim that individual employee efforts may be more important than leadership support and an existing positive climate, which do not have a statistically significant impact on innovation complexity. in this context, the results of our survey of 195 public servants of the ministry of justice of ukraine conducted in 2020 deserve attention. the respondents pointed the following main barriers to innovation in public authorities: bureaucracy (42.9%); unwillingness of public servants to change (41.9%) and low level of their motivation (35.2%); lack of time (34.3%), funding (21.9%), necessary knowledge and skills (20%) and leaders (19.1%). therefore, we also investigated how the innovativeness is influenced by the bureaucracy and leadership behaviors of ceos in different cultures and countries (dzvinchuk, orliv, janiunaite & petrenko, 2021). the results of analysis confirmed a strong inverse correlation between bureaucracy and innovation index (-0.793 with the level of significance <0.01). positive but not strong enough correlation between participative leadership and innovation index (0.597 with the level of significance <0.1) means that it is important not only to involve others in decision-making, but also to create innovative culture, attract motivated professionals who have the necessary competences for innovative changes introduction and provide the availability of resources for overcoming obstacles. this is confirmed by the results of our experiment with the control group as well, because the motivation, access to resources and influence in decision making of lecturers from different departments were unequally. the same opinion was held by berry and berry (1990), teodoro (2009) and other scientists. however, while analyzing the condition for innovation in australian public sector, which is estimated by the world bank (2020) and quality of government institute (2021) as a leader by the level of government effectiveness, demircioglu and audretsch (2017) prove that budget constraints do not have any statistical effect on public sector employees’ innovation. indeed, in highly developed countries resource constraints can often be a driver of reforms. however, using the results of such studies, we should take into account that according to the european innovation scoreboard 2020, australia at the time of these studies had r&d expenditure public sector relative to the eu at 113.6. despite the fact that in 2019 this figure decreased by 4.1 points, australia strengthened its position as a strong innovator (european commission, 2020). for comparison, in ukraine, which is a modest innovator, this figure is only 2.1. thus, without investment in the public sector it is impossible to increase the level of its innovativeness. under such conditions, the hypothesis of the canadian researcher borins (2001) that “innovators are more likely to be responding to internal problem before they reach crisis proportions, or taking advantage of opportunities, such as the availability of new information technology” (p. 314) for ukraine will not be confirmed. therefore, not all results of studies conducted in developed countries with a high level of innovativeness may be generalizable to modest innovators without taking into account different cultural dimensions, administrative traditions (oikonomou, 2019) and resource constraints. in particular, the results of correlation analysis between cultural dimensions of different countries (globe, 2020) and their innovation index (european commission, 2019) are presented in figure 1. as shown in it, the impact of future orientation and uncertainty avoidance on innovation index is very strong (0.928 and 0.895 respectively with the level of significance <0.01). a positive statistically significant relationship was found between performance orientation and innovation index (0.635 with the level of significance <0.05) as well as between institutional collectivism and innovation index (0.500 with the level of significance <0.1). these dependencies for the public sector need to be explained. it is generally considered that uncertainty and risk are unavoidable in innovations implementation. however, there is a significant difference, namely: risk being decision making in the context 41 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 personal and social qualities manifested into the system attitudes and behavioral characteristics awareness of the barrier and efforts to overcome it organizational culture and participative leadership interaction with stakeholders ability to perform personal qualities knowledge and skills design-thinking mindset propensity for cognitive bias public sector system qualities bureaucracy and political influence key reform trends strict control over the use of resources the need to balance between different criteria transparency understand observe point of view ideate prototype test matrix of knowledge and awareness problem tree analysis “5w” method interviewing observing empathy map customer experience map storytelling clustering of information discussion brainstorming ranking of ideas three-dimensional modeling role-playing game storyboard, etc. experiment feedback figure 1 visualization of the results of correlation analysis between cultural dimensions and innovation index of known options and their likely outcomes, and uncertainty being decision making in the context of unknown options and outcomes (tversky & fox 1995; riabacke, 2006; osborne & brown, 2011).to be successful, an innovation process must avoid uncertainty and deliver lower costs of change and risks (liedtka, 2018), for instance, through building a portfolio of options, strategic planning, performance management, etc. it explains the strong correlation (0.858 with the level of significance <0.01) between the uncertainty avoidance and future orientation (the extent to which individuals engaged in future-oriented behaviors such as planning, investing in the future, and delaying gratification), as well as a positive statistically significant relationship (0.675 with the level of significance <0.05) between the uncertainty avoidance and performance orientation (the degree to which a collective encourages and rewards group members for performance improvement and excellence). however, achieving high performance through the use of effective tools is often hampered by a strict control over the use of budgets that are generated by taxpayers. although such control can prevent or detect inefficient use of resources and corruption, it constrains innovations in the public sector. an unexpected result of our analysis is a weak correlation between human orientation and innovation index (0.214). it can be explained by the fact that people tend to resist change when we are not dealing with administrative service innovation, which ensures their highest quality for citizens, but with governance, process or conceptual innovation. the situation is exacerbated when the recovery of the state’s economy becomes impossible without radical measures aimed at the long term (the most striking example is the reform of balcerowicz in poland), which are accompanied by a temporary drop in production, rising unemployment, reduced budget subsidies, etc. this is a long and difficult path, as the citizens does not support such measures. in all likelihood, a society do not want the public sector to be as innovative as the private sector, it wants the public sector to be more innovative than it traditionally has been (borins, 2001, p.311). therefore, most experts are in favor of incremental change. in any case, the principle of human-centeredness need to be applied with due regard for the goals of sustainable development and key reform trends in the policy area (digitalor e-government, collaboration and cooperation, focusing on outcomes and results, flexible employment, etc.). if the drivers of reforms are political decisions, new policies or strategies rather than internal problems of public authority or new opportunities created by technology, then the analysis of alternative solutions for change should take into account relevant government regulations and programs for which budget funds are allocated. after e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 42 all, according to the results of empirical research of bertelsmann foundation (2020), effective policy implementation is the most important factor among those that contribute to the strong steering capabilities of public authorities. besides this, in public authorities we have to choose not only between quality and efficiency, but also between equity and efficiency, following rules and achieving results, customer and citizen orientation, tax financed or user charges for public services, etc. the results of study by danish and norwegian scientists conducted on the basis of data from the cocops executive survey (coordinating for cohesion in the public sector of the future) show that east europe, nordic, anglo-saxon and other countries have different balancing needs between these criteria (greve, laegreid and rykkja, 2016, p. 88-90). considered peculiarities of the introduction of reforms and innovations in public authorities related to bureaucracy and other public sector system qualities influence the behavior of public servants and their social interaction, and therefore should be taken into account in the assessment of public servants and their practice-oriented training. the results of the first two stages of our research testify that in the process of training of public servants we should take into account the following three components: (1) personal qualities; (2) public sector system qualities; (3) personal and social qualities manifested into the public sector system. the first component, in addition to design thinking includes knowledge and skills in strategic planning, project management, sustainable development, etc. the second component provides accounting features of public sector analysed on the second stage of our research. the third component is formed in the process of public servants’ professional activity under the influence of political, bureaucratic, financial and other factors. (figure 2). personal and social qualities manifested into the system attitudes and behavioral characteristics awareness of the barrier and efforts to overcome it organizational culture and participative leadership interaction with stakeholders ability to perform personal qualities knowledge and skills design-thinking mindset propensity for cognitive bias public sector system qualities bureaucracy and political influence key reform trends strict control over the use of resources the need to balance between different criteria transparency understand observe point of view ideate prototype test matrix of knowledge and awareness problem tree analysis “5w” method interviewing observing empathy map customer experience map storytelling clustering of information discussion brainstorming ranking of ideas three-dimensional modeling role-playing game storyboard, etc. experiment feedback figure 2 personal, social and public sector system qualities features of the use of design thinking methodology in the public servants development since most innovations in the public sector are process ones (de vries, bekkers, & tummers, 2015), in determining the methodology of assessment and training of public servants using the design thinking methodology, we should define both results-oriented and process-oriented requirements which are reflected in the matrix of approaches and requirements (table 3). the kirkpatrick model is appropriate for using both processand result-oriented requirements because it provides the following types of evaluation: (1) reaction measures immediately after the training activities to determine the level of satisfaction of participants; (2) learning outcomes based on the results of testing prototypes developed during training; (3) change in behavioral 43 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 individual-centric approach system-oriented approach processoriented requirements methods of assessment and training provide the ability of a public servant to use the design thinking methodology in professional activities for the reforms and innovations introduction assessment and training using the design thinking methodology take into account the features of the reforms and innovations introduction in the public sector, therefore they provide the steering capacity of public authorities result-oriented requirements the functional capacity of public servant to introduce reforms and innovations using the design thinking methodology has increased assessment and training using the design thinking methodology contribute to the implementation of projects focused on the reforms and innovations introduction in public authorities source: authors’ table 3 matrix of approaches and requirements characteristics; (4) results as a positive impact on organizational performance which should be determined in a few months after training or during the annual performance appraisal of a public servants (according to ukrainian legislation it combines self-assessment with the assessment of the supervisor and the head of the department). since the technology of the design thinking process and features of its stages in general are described in the scientific literature (brenner & uebernickel, 2016; müller-roterberg, 2018; tu, liu & wu, 2018), there is no need to dwell on these issues in detail. in forming proposals for the use of the design thinking methodology in training of public servants it is important to adhere to the following principles: human centeredness taking into account the goals of sustainable development and key reform trends in the policy area; incrementalism; multidisciplinarity of project teams; creativity; iterativeness of design processes; consistent application of divergent and convergent thinking; use of holistic and experimental approaches; focus on achieving smart goals; development of the most simplified but meaningful prototypes. therefore, personal, social and public sector system qualities from the figure 2 should be taken into account in the application of all methods shown in figure 3, except for brainstorming. personal and social qualities manifested into the system attitudes and behavioral characteristics awareness of the barrier and efforts to overcome it organizational culture and participative leadership interaction with stakeholders ability to perform personal qualities knowledge and skills design-thinking mindset propensity for cognitive bias public sector system qualities bureaucracy and political influence key reform trends strict control over the use of resources the need to balance between different criteria transparency understand observe point of view ideate prototype test matrix of knowledge and awareness problem tree analysis “5w” method interviewing observing empathy map customer experience map storytelling clustering of information discussion brainstorming ranking of ideas three-dimensional modeling role-playing game storyboard, etc. experiment feedback figure 3 design thinking process at the stages of “ideate”, “prototype” and “test” the most important task is further implementation of the decision. therefore, starting from the formation of criteria for ranking ideas, the public sector system features as well as personal and social qualities manifested into public authorities are important. in particular, it is necessary to take into account the peculiarities of organizational culture, aware the barrier and efforts to overcome it, etc. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 44 the results of the study testified that in many cases the method of self-assessment of personal qualities does not ensure the indicators objectivity. this is due not only to the problems of ensuring the validity of self-assessment tools, but also to the possible cognitive bias even in university lecturers who have significant experience in assessing others. therefore, self-esteems should be compared with expert estimates before training activities. comprehensive evaluation of learning outcomes according to the kirpatrick model involves determining the change in behavioral characteristics of participants as well as positive impact on organizational performance, which should be determined in a few months after training or during the annual performance appraisal. to increase the use of learning outcomes in professional activity of public servants, it is necessary to take into account the peculiarities of the public sector in the process of their assessment and development. therefore, open-ended questions should be included in the questionnaires to clarify the awareness of the barrier to the reforms and innovations introduction. besides this, the following peculiarities of the public sector should be taken into account during training activities: bureaucracy and political influence; key reform trends; strict control over the use of resources; the need to balance between different criteria (quality and efficiency, equity and efficiency, following rules and achieving results, customer and citizen orientation, tax financed or user charges for public services, etc.) and ensure the transparency of public authorities. these features affect the organizational culture and participative leadership, attitudes and behavioral characteristics of public servants, their interaction with stakeholders and ability to perform. therefore, in training of public servants using the design thinking methodology, the public sector system features should be taken into account in the application of all methods except those that require creativity, including brainstorming. conclusion references berry, f.s. & berry, w.d. 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(1986). unblocked manager. a practical guide to self-development. wildwood house ltd, missouri, usa. world bank (2020). the worldwide governance indicators. retrieved march 28, 2021, from https://info. worldbank.org/governance/wgi/ the paper was prepared within the framework of the joint ukrainian-lithuanian r&d project “competence development of lithuanian and ukrainian public sector employees using design-thinking methodology”. agreement no. s-lu-20-5. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 46 orliv mariana associate professor, doctor of science in public administration ivano-frankivsk national technical university of oil and gas fields of interests public administration, human resources management, design thinking, innovation in public sector. address karpatska street 15, 76019 ivano-frankivsk, ukraine +380 676503545 m.orliv@nung.edu.ua janiūnaitė brigita professor, doctor in social sciences kaunas university of technology fields of interests social innovation, educational innovation, digital learning tools, competence development in public sector. address k. donelaičio street 73, 44249 kaunas, lithuania +370 68608927 brigita.janiunaite@ktu.lt goshovska valentyna professor, doctor of political sciences national academy for public administration under the president of ukraine fields of interests public administration, personnel management, in-service training for public servants, parliamentarism, political leadership. address antona tsedika street 20, kyiv, 03057 +380 674452011 v.goshovska@gmail.com about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). daugėlienė rasa associate professor, doctor in social sciences kaunas university of technology fields of interests public governance, eu development issues, economics of european integration, eu policies. address k. donelaičio street 73, 44249 kaunas 370 68608927 rasa.daugeliene@ktu.lt 195 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abstract do business booms trigger corruption? http://dx.doi.org/10.5755/j01.eis.1.15.29160 in the literature, the nexus between economic growth and corruption is well covered, but there are only few studies on cyclical variations of corruption. for example, galbraith (1997) claims that embezzlement flourishes in business booms and withers in recessions, and gokcekus and suzuki (2011) support the claim by finding a positive correlation between transitory income and corruption. this paper retests the argument and produces conflicting results. it is found that corruption shrinks as transitory income increases meaning that economic booms foster integrity rather than corruption. moreover, the negative correlation is strong in high-income countries and in those with sound rule of law which points to developed countries, whereas the effect remains relatively weak in countries with low income or poor rule of law which points to developing countries. the finding is relevant also from the perspective of the european union. keywords: business cycles; embezzlement; permanent income; transitory income; rule of law. the economic literature on corruption includes lots of studies on the correlation between economic development and corruption. a common finding is that corruption tends to diminish as national income rises (e.g. mauro, 1995; la porta, lopez-de-silanes, shleifer and vishny, 1999; treisman, 2000; mo, 2001; pande, 2008; mallik and saha, 2016). still, only few empirical studies have tackled the question of the short-term correlation between business cycles and corruption. this viewpoint is an emerging one due to the growing understanding that cycles and human psychology are organically intertwined. this idea was originated by keynes (1936) and developed by minsky (1975). akerlof and shiller (2009) provided a more recent contribution to the discussion on “animal spirits”. behavioral analyses emphasize that individuals’ rational calculus often leads to unwanted outcomes. a warning example of that is the financial crash in 2008 with its aftermath. the crash was prepared by investment bankers’ wretched rent-seeking and amplified by exuberant market players, and the result was a global economic disaster. quiggin (2010), varoufakis (2011), blyth (2013) and cooray and schneider (2018), among others, have analyzed the origins of business cycles and their occasional bursting into manias and panics. galbraith (1997) provided an intuitively appealing explanation to the linkage between business cycles and devious activities. he argued that there always exists a considerable amount of undiscovered embezzlement in business life, and that it varies with economic cycles. in good times, people are not only greedy but also courageous, which promotes rent-seeking and makes the “bezzle” grow. in downturns, people become cautious and suspicious and money is audited meticulously. rigid business discipline makes the bezzle shrink. european integration studies no. 15 / 2021, pp. 195-207 doi.org/10.5755/j01.eis.1.15.29160 submitted 03/2021 accepted for publication 06/2021 do business booms trigger corruption? eis 15/2021 kouramoudou kéïta faculté des sciences economiques et de gestion de l’université de kindia, guinée mission d’appui à la mobilisation des ressources internes (mamri), primature, conakry, guinée introduction hannu laurila faculty of management and business, tampere university, finland e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 196 gokcekus and suzuki (2011) performed an empirical study on the nexus between business cycles and corruption. they took the proposition of galbraith (1997) under scrutiny and provided an econometric test on the theory. the results indicated that corruption and long-term economic growth are negatively correlated, but that the correlation between corruption and short-term cycles is positive. in other words, the findings supported galbraith’s argument that corruption elevates in economic booms and shrinks during economic downturns. this paper aims to provide another empirical test on the hypothesis that the extent of corruption is positively correlated with economic cycles. this is done simply by following the study of gokcekus and suzuki (2011) with more extensive data and an alternative indicator of corruption. applying the original framework, both economic growth (namely changes in permanent income) and business cycles (namely changes in transitory income) are tested as possible determinants of corruption. after securing the robustness and comparability of the results, the main finding is that the postulated positive relationship between corruption and business cycles does not hold in general. moreover, it is found that the negative correlation between business cycles and corruption is stronger in developed countries than in developing countries. the rest of the paper is organized as follows. section 2 specifies the model and the data used. section 3 presents the estimations with various techniques and reports the results. section 4 discusses the findings and maps paths for further investigations. the paper considers the effects of long-term and short-term evolution in gross domestic product (gdp) on corruption. the long-term evolution means economic growth measured by changes in permanent income, and the short-term evolution means business cycles measured by changes in transitory income. the focus is on the short-term effects that is on the connection between business cycles and corruption. the modelling technique follows that of gokcekus and suzuki (2011), who in turn applied the original formulation of mélitz and zumer (2002). in the modelling, all country variables are expressed relative to the whole sample of countries. the basic regression model reads: cori,t =γ0 + γ1pii + γ2tii.t + μi,t. (1) on the left-hand side of equation (1), cor i,t stands for the level of corruption in country i (i = 1,…, n) in period t (t = 1,…,t) relative to the average level of corruption over all the countries in the sample. thus, cor i,t is derived by dividing the value of the corruption indicator for country i in period t by the average corruption indicator value in the sample 1,…, n over the timespan 1,…,t. on the right-hand side of equation (1), pi i denotes country i’s permanent income and ti i,t denotes its transitory income at t. both are measured in terms of gdp per capita and relative to the whole sample. permanent income pi i is derived by dividing country i’s gdp per capita value at period t by the average gdp per capita value over t = 1,…, t in the sample i = 1,…, n. thus, pi i is the average of country i’s income shares over time. transitory income ti i,t captures temporary deviations from permanent income pi i so that ti i,t measures the difference between pi i and country i’s income share over t = 1,…,t. the parameters γ denote the coefficients to be estimated, and μ is the disturbance term. the parameter γ0 is the intercept, and γ1 reflects the response of corruption to the development of longrun average income pi i thus capturing permanent changes in the variable cor i,t . the parameter γ2 reflects the response of corruption to variations in transitory income thus capturing short-term cyclical changes in cor i,t . these two income effects can be separated, since the permanent effect modelling and data 197 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 remains even when there are no deviations in the time series, whereas the transitory impact hinges on such deviations. decomposing equation (1) yields: cori = γ0 + γ1pii + ηi. (2) cori,t − cori = γ2tii,t + εi,t , (3) where cor i is the average of country i’s cor i,t over the time span t = 1,…,t, and ηi,t and εi,t are the new disturbance terms. because equations (2) and (3) add up to equation (1), it follows that ηi,t⁺ εi,t = μi,t. since it is quite plausible that the effects of changes in transitory income on corruption are not instant, possible lags in these influences should be considered. to accomplish this, equation (3) can be re-written as follows: cori,t − cori = � k j = 0 γ2,t ⁻ jtii,t + νi,t , (4) where j = 0, …, k denotes the number of lags, the cumulative sum of the time-specific coefficients γ2,t ⁻ j captures the cyclical behaviour of corruption, and νi,t is the error term. note that in panel data econometrics, the estimates of γ1 and γ2 in equations (2) and (3) are identical to those resulting from the estimation of equation (1). the parameters γ1 and γ2 are referred to as “between” and “within” coefficients, respectively, and they can be interpreted as different estimators of a single parameter γ. for this reason, equations (2) and (3) are usually estimated separately. the data used by gokcekus and suzuki (2011) consisted of 39 countries over the time span 1995-2007. for the economic variables permanent and transitory income, they collected gdp per capita information from the world bank’s world development indicators databases (in constant us dollars). as the corruption variable, they adopted the corruption perception index (cpi) from transparency international. our data used in the estimations of equations (2), (3) and (4) are somewhat different. we use balanced panel data from 110 countries (listed in appendix) around the world over the time span 1984–2011. the economic variables are calculated from country-wise time series of gdp per capita at constant prices (purchasing power parity in 2011 international dollars). the data are collected from the world economic outlook 2014, imf website. as the corruption variable, we use the international country risk guide (icrg) index which takes a bit broader view on corruption than the cpi index. while both indices consider mainly political corruption (like patronage, partisan finance and nepotism), the icrg index pays more attention to the linkage between politics and business (like side payments and bribes connected with applications for licenses and permits). thus, it is somewhat more closely related to business life than the cpi index. the original icrg index values vary from 0 to 6, where 0 indicates utmost risk of corruption and 6 indicates perfect integrity. for interpretational ease, we rescale the data so that cor = 7 – icrg. thus, cor varies from 1 to 7 with 1 indicating minimum and 7 maximum risk of corruption. for example shleifer and vishny (1993) and mauro (1995) showed that corruption makes gdp and incomes shrink, while a common observation also is that low incomes cause corrupt behavior (e.g. mauro, 1995; knack and keefer, 1995; mo, 2000; swaleheen, 2011). therefore, instrumental variables are needed to correct possible endogeneity or bidirectional causality between corruption and income. gokcekus and suzuki (2011) used absolute geographic distance from the equator (latitude) to instrument gdp per capita based on the presumed correlation between e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 198 corruption and countries’ proximity to the equator. however, the exogeneity of this instrument may be questionable because latitude may correlate with incomes, say, due to colonial history. (see also chowdhury, 2004; keefer, 2007.) we instrument permanent and transitory income by the share of gross savings from gdp, denoted by savings. the data come from the world economic outlook 2014. we are aware that savings may not be a perfect instrument for incomes because of exogeneity problems: savings facilitate investments which affect incomes. corruption is usually uncommon in high-income countries, where the capacity to save and invest is high, and vice versa. thus, the correlation between savings and income is not necessarily zero. as another instrument, we use the variation of precipitation (rainfall) from one year to the next. we follow miguel, satyanath and sergenti (2004), who use rainfall to instrument gdp growth when studying the impact of economic conditions on the probability of civil conflict in 41 african countries. the data come from the monthly estimates of the global precipitation climatology centre (gpcc). the variable for country i in year t is denoted rainfall i,t and proportional variations in rainfall are denoted δrainfall i,t = (rainfall i,t – rainfall i,t-1 )/rainfall i,t-1 . yet, the exogeneity problem may again exist since precipitation conditions agriculture, which contributes substantially to gdp and incomes in many of the sample countries. moreover, rainfall depends on geography since the biggest accruals are recorded near the equator, which leads to the issue with the latitude instrument commented above. in any case, diagnostic tests must be made to validate our choices of the instrument variables. the results of the first-stage ordinary least squares (ols) estimations of the income variables against the chosen instruments are presented in table 1. dependent variables: permanent income transitory income first-st. 1 first-st. 2 first-st. 3 first-st. 4 first-st. 5 first-st. 6 constant 8.208a (0.042) 9.096a (0.022) 8.205a (0.042) 0.053a (0.007) 0.007a (0.007) 0.101a (0.018) savings i,t 0.042a (0.001) 0.042a (0.001) 0.002a (0.0003) 0.001a (0.0006) δrainfalli, t 0.005b (0.0007) 0.000b (0.0000) 0.001b (0.0001) 0.001c (0.0001) adjusted-r2 0.1589 0.0811 0.1591 0.0494 0.065 0.0594 f-test (p-value) 6.22e-08a 7.36e-12a <2e-16a 2.09e-12a <2e-16a <2e-16a number of obs. 3080 3080 3080 3080 3080 3080 table 1 first-stage regressions notes. estimations are based on ols a. statistical significance at 0.1 percent level; b. statistical significance at 1 percent level; c. statistical significance at 5 percent level; d. statistical significance at 10 percent level table 1 shows that the estimated coefficients of the instrument variables are positive and statistically significant in all versions 1-6. thus, the instrument variables provide sound information about both permanent and transitory income variables. the statistical significance of ∆rainfall i,t seems much weaker than that of savings i,t but the effects are not comparable: by the f-test, the null hypothesis that the former effect is weaker than the latter is rejected (the p-value is throughout less than 5 %). the robustness of the results was also verified (but not reported here) by fixed 199 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 equation (2) equation (2) equation (2) equation (3) equation (3) equation (3) constant 0.596a (0.149) 3.500a (3.869) 0.602a (0.148) 0.653a (0.009) 0.346a (0.009) 0.523a (0.009) permanent income 0.1747a (0.016) 0.494 (0.425) 0.175a (0.016) transitory income 0.613c (0.324) 1.921c (1.696) 0.515b (0.317) residuals (first-st. 1) 0.047b (0.017) residuals (first-st. 2) 0.279a (0.4254) residuals (first-st. 3) 0.046 (0.017) residuals (first-st.4) 0.295a (0.327) residuals (first-st. 5) 1.559 (1.696) residuals (first-st. 6) 0.896 (0.437) adjusted-r2 0.6607 0.6591 0.5802 0.4824 0.3997 0.3219 wu-hausman (p-v.) 0.0478c 0.0348b 0.439 0.0012b 0.112 0.125 conclusion iv iv ols/iv iv ols/iv ols/iv observations. 3080 3080 3080 3080 3080 3080 table 2 exogeneity test notes. estimations are based on ols a. statistical significance at 0.1 percent level; b. statistical significance at 1 percent level; c. statistical significance at 5 percent level; d. statistical significance at 10 percent level effects estimations. the second-stage instrument estimations are shown in table 2. table 2 shows that the coefficients of the first-stage residuals 1, 2 and 4 (included as independent variables in the basic models) are statistically significant so that the exogeneity hypothesis is rejected. the p-value in the wu-hausman test is less than 5 %. due to existing endogeneity, ols is biased towards consistent instrumental variables (iv) estimators. the first-stage residuals 3, 5 and 6 show statistically insignificant coefficients which suggest exogeneity. the wu-hausman p-value is greater than 5 %. yet, endogeneity does not appear a big problem, since the ols and iv estimates are similar. with two instruments on a single endogenous variable, the sargan test necessitates simultaneous use of both instruments. for equation (2), the test gives probability lower than 5 % (p-value = 4.79e-05), which rejects the exogeneity hypothesis of instruments. this invalidates at least one of the instruments used. more importantly, for equation (3), the probability is greater than 5 % (p-value = 0.288) meaning that the instruments are exogenous and therefore valid. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 200 column equation (2) equation (3) equation (4) 1 2 3 4 5 6 7 ols iv-2sls iv-2sls 2sgmm 2sgmm 2sgmm 2sgmm constant (γ 0 ) 0.959a (0.060) 0.596a (0.169) 1.115a (0.004) permanent income (γ 1 ) -0.214a (0.006) -0.174a (0.018) transitory income (γ 2 ) -0.362a (0.054) -0.452a (0.401) -0.456 -0.521 -0.553 transitory income (γ 2,t ) -0.398a (0.464) -0.410b (0.325) -0.263b (0.421) transitory income (γ (2,t-1) ) 0.058b (0.351) -0.27c (0.320) 0.122 (0.293) transitory income (γ (2,t-2) ) 0.160c (0.312) -0.442c (0.257) transitory income (γ (2,t-3) ) 0.030 (0.203) year 2006 0.018c (0.053) 0.026d (0.063) 0.015 (0.026) 0.035 (0.033) year 2008 0.031 (0.058) 0.042 (0.052)d 0.025 (0.041) 0.046 (0.050) year 2010 0.036d (0.042) 0.047 (0.058) 0.018 (0.072) 0.057 (0.085) year 2012 0.021 (0.062) 0.020 (0.037) 0.036d (0.046) 0.024 (0.092) year 2014 0.062 (0.003) 0.053 (0.030) 0.022 (0.052) 0.065d (0.036) number of observations 110 110 110 5830 5830 5521 5384 adjusted-r2 0.4592 0.4358 0.0627 wald teste 90.5a 102.43a 164.465a 174.47a 159.27a 143.14a sargan testf (p-value) 0.438 0.274 0.762 0.348 table 3 full sample estimations notes. the robust standard deviations are in parentheses below the estimated coefficients of the explanatory variables. ols = ordinary least squares; iv-2sls = instrumental variables two-stage least squares; 2sgmm = two-stage generalized method of moments. a. statistical significance at 0.1 percent level; b. statistical significance at 1 percent level; c. statistical significance at 5 percent level; d. statistical significance at 10 percent level; e. the null hypothesis of the wald test checks whether permanent income (pi i ) = 0 for equation (2) is rejected; f. the over-identifying test (sargan test) shows that the instruments are not correlated with residuals. the test is robust to autocorrelation (p-value > 0.05) saying that the instruments are valid. we test whether permanent and temporary changes in gdp per capita have statistically significant effects on corruption. in the estimations, all data are log-transformed to make them conform more closely to normal distribution and to correct possible skewedness. consistent with the above tests on the instruments, equations (2), (3) and (4) are estimated with appropriate techniques. the estimations results concerning the full sample are reported in table 3. results 201 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 in table 3, columns 1 and 2 present the estimation results concerning the effect of long-run income changes on corruption. column 1 shows the results from ordinary least squares (ols) estimations and column 2 shows the results from the instrumental variable two-stage least squares (iv-2sls) estimation methods. recalling table 1, the wu-hausman test verifies that both methods are equally applicable. table 3 shows that both estimation techniques yield the expected result that there is a statistically significant negative correlation between permanent income and corruption. in other words, integrity improves with economic growth. the finding is consistent with gokcekus and suzuki (2011) as well as with the voluminous literature on the relationship between economic growth and corruption (e.g. shleifer and vishny, 1993; mauro, 1995; knack and keefer, 1995; mo, 2001). the estimation results of equations (3) and (4) presented in columns 3–7 of table 3 concern the effects of short-term income fluctuations that is business cycles on corruption. as the wu-hausman test implies that endogeneity does not constitute a big problem and ols and iv-2sls methods are equally applicable, the estimations reported in column 3 are produced by the iv-2sls method. the estimation results in columns 4-7 are produced by the two-stage generalized method of moments (2sgmm) system proposed by blundell and bond (1998). in both iv-2sls and 2sgmm estimations, the instruments are used simultaneously but added to the automatically generated instruments in the latter case. the iv-2sls and 2sgmm estimation results suggest a negative link between transitory income and corruption. the clearly negative coefficient estimates for equation (3) (-0.362 with iv-2sls in column 3 and -0.452 with 2sgmm in column 4) are statistically highly significant indicating that an increase in transitory income unambiguously dampens corruption. in other words, business booms seem to reduce rather than increase corruption. this confronts the original argument of galbraith (1997) and its empirical support by gokcekus and suzuki (2011) that booms should stimulate rent-seeking and pump up corruption. in table 3, the estimations of equation (4) test whether the lagged effects of changes in transitory income predict variations in corruption. gokcekus and suzuki (2011) made the test with one period lag (k=1), but here equation (4) is estimated separately with one, two and three period lags. the results from the 2sgmm estimations are presented in column 5 (k=1), column 6 (k=2) and column 7 (k=3). recall that the effect of transitory deviations in income on corruption is appraised through the cumulative sum of the estimates of the coefficient γ2 in equation (4). in column 5, the estimated coefficient of transitory income at period t is γ2,t = -0.398, and that in period t-1 reads γ2,t ⁻ 1 = -0.058. both are statistically significant (at 0.1 % and 1 % levels, respectively). it follows that the aggregate effect of transitory income (the cumulative sum of the two estimates) is -0.456. likewise, in column 6 with k = 2, the coefficient estimates of transitory income are statistically significant, and the cumulative effect is -0.521. with k = 3 in column 7, the coefficients are less significant, and the cumulative impact is -0.553. overall, the findings are in line with the estimation results of equation (3) thus supporting the conclusion that economic booms reduce corruption, and vice versa. at this point, it is reasonable to test the robustness of our findings. as the first robustness test, we make a closer comparison to the estimations of gokcekus and suzuki (2011). to accomplish that, we focus on the 39 countries investigated in their paper (the countries are marked by ® in appendix). if our main results still hold within that sample, they should be reasonably robust thus indicating that our conflicting findings are not solely based on the differences in the sample of countries under scrutiny. our estimation results concerning the select 39 countries over the time span 1984–2011 are reported in table 4. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 202 in table 4, the estimates of the coefficients of the variables of interest are consistent with the conclusions of the regressions on the total sample in table 3. more specifically, the estimation results of equation (3) show that the estimated coefficients of transitory income are all negative and statistically significant at 0.1 % level. the aggregate effects of transitory income on corruption also remain negative for all the three k values in the estimations of equation (4). column equation (2) equation (3) equation (4) 1 2 3 4 5 6 7 ols iv-2sls iv-2sls 2sgmm 2sgmm 2sgmm 2sgmm constant (γ 0 ) 0.264a (0.072) 0.947a (0.274) 0.837a (0.291) permanent income (γ 1 ) -0.538a (0.004) -0.283a (0.016) transitory income (γ 2 ) -0.904a (0.563) -0.743a (0.249) -0.759 -0.783 -0.801 transitory income (γ 2,t ) -0.452a (0.103) -0.529b (0.231) -0.402b (0.135) transitory income (γ (2,t-1) ) -0.307c (0.391) 0.328 (0.214) -0.635 (0.246) transitory income (γ (2,t-2) ) -0.582c (0.632) 0.197c (0.134) transitory income (γ (2,t-3) ) 0.039 (0.259) number of observations 39 39 39 3821 3821 3570 2350 adjusted-r2 0.4247 0.3970 0.0968 wald teste 24.721a 38.034a 42.515a 35.26a 41.781a 56.429a sargan testf (p-value) 0.133 0.473 0.284 0.425 table 4 estimations based on select 39 countries notes. the robust standard deviations are in parentheses below the estimated coefficients of the explanatory variables. ols = ordinary least squares; iv-2sls = instrumental variables two-stage least squares; 2sgmm = two-stage generalized method of moments. a. statistical significance at 0.1 percent level; b. statistical significance at 1 percent level; c. statistical significance at 5 percent level; d. statistical significance at 10 percent level; e. the null hypothesis of the wald test checks whether permanent income (pi i ) = 0 for equation (2) is rejected; f. the over-identifying restrictions test (sargan test) postulates in its null hypothesis that instruments are not correlated with residuals. since the test is robust to autocorrelation (p-value > 0.05), the instruments are valid. the general finding from table 4 is that business booms make corruption diminish and recessions make it bloom. so, in spite of the selection of the sample countries, the contradiction between our results and those of gokcekus and suzuki (2011) still remains. this suggests that the reason for the difference in results must be simply due to the different time coverage, which was 1995-2007 (13 years) in their study and considerably longer 1984–2011 (28 years) in ours. we make a final robustness test by using still another measure of corruption, namely the control of corruption (cc) statistics from the worldwide governance indicators (wgi) set provided by the world bank. the index is commonly used and similar to transparency international’s cpi since it is also constructed as a hybrid index from surveys of perceived corruption. due to the availability of data, the 203 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 estimations include 94 countries (marked by * in the list of countries in appendix) and the study period covers years 1984–2011. the estimation results of the first robustness test are reported in table 5. column equation (2) equation (3) equation (4) 1 2 3 4 5 6 7 ols iv-2sls iv-2sls 2sgmm 2sgmm 2sgmm 2sgmm constant (γ 0 ) 0.115a (0.314) 0.763a (0.147) 0.621a (0.138) permanent income (γ 1 ) -0.225a (0.002) -0.164a (0.029) transitory income (γ 2 ) -0.644a (0.306) -0.592a (0.302) -0.614 -0.637 -0.671 transitory income (γ 2,t ) -0.371a (0.214) -0.477a (0.205) -0.521b (0.126) transitory income (γ (2,t-1) ) -0.243b (0.158) 0.175 (0.186) 0.249 (0.164) transitory income (γ (2,t-2) ) -0.335c (0.412) -0.376c (0.128) transitory income (γ (2,t-3) ) -0.023 (0.259) number of observations 94 94 94 1222 1222 984 927 adjusted-r2 0.4473 0.4106 0.1034 wald teste 52.85a 46.479a 39.248a 43.71a 47.25a 61.253a sargan testf (p-value) 0.211 0.395 0.138 0.213 table 5 robustness test using the control of corruption (cc) index notes. the robust standard deviations are in parentheses below the estimated coefficients of the explanatory variables. ols = ordinary least squares; iv-2sls = instrumental variables two-stage least squares; 2sgmm = two-stage generalised method of moments. a. statistical significance at 0.1 percent level; b. statistical significance at 1 percent level; c. statistical significance at 5 percent level; d. statistical significance at 10 percent level; e. the null hypothesis of the wald test checks whether permanent income (pi i ) = 0 for equation (2) is rejected; f. the over-identifying restrictions test (sargan test) postulates in its null hypothesis that instruments are not correlated with residuals. since the test is robust to autocorrelation (p-value > 0.05), the instruments are valid. table 5 shows that our previous results remain mainly unaltered with high statistical significance. thus, the final robustness test confirms our findings which challenge the original argument of galbraith (1997) and especially its empirical verification by gokcekus and suzuki (2011). a further question of interest is to study the occurrence of corruption in a comparative context. for example, li and wu (2007), mallik and saha (2016) and fisman and golden (2017) point out that corruption is a country specific phenomenon. we concentrate on cyclical fluctuations in income and differentiate the countries with respect to income level, and rule of law. we suppose that these characteristics make a rough demarcation between developed and developing countries with different expectations concerning the effect of business cycles on corruption. in developed countries with high income and strong rule of law, it is expectable that the negative effect of a change in transitory income on corruption exposed by our analyses above stays negative. the intuition is that, since economic booms generate profits, labor income and tax revenue, the institutional anti-corruption and auditing mechanisms as well as public concern should be e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 204 equation (3), 2sgmm rl income strong weak high low transitory income (γ 2,t ) -0.662a (0.301) -0.008c (0.138) -0.340a (0.164) -0.012c (0.024) number of observations 39 1092 39 1092 wald testee 42.54a 41.18a 57.41a 41.18a sargan testf (p-value) 0.486 0.240 0.193 0.152 table 6 estimations according to the levels of rule of law and income notes. the robust standard deviations are in parentheses below the estimated coefficients of the explanatory variables. a. statistical significance at 0.1 percent level; b. statistical significance at 1 percent level; c. statistical significance at 5 percent level: d. statistical significance at 10 percent level; e. the over-identifying restrictions test (sargan test) postulates that instruments are not correlated with residuals. since the test is robust to autocorrelation (p-value > 0.05), the instruments are valid. strong rl countries: finland, norway, denmark, sweden, switzerland, new zealand, austria, iceland, luxembourg, netherlands, canada, united kingdom, germany, ireland, singapore, united states, australia, malta, france, hong kong, japan, chile, spain, portugal, belgium, cyprus, israel, republic of korea, taiwan, hungary, greece, qatar, botswana, kuwait, italy, poland, argentina, morocco, ghana. weak rl countries: uganda, zambia, mexico, colombia, dominican republic, mozambique, peru, el salvador, niger, bolivia, indonesia, islamic republic of iran, albania, pakistan, bangladesh, togo, honduras, gabon, kenya, paraguay, guatemala, senegal, sierra leone, nicaragua, cameroon, republic of congo, venezuela, cote d’ivoire, madagascar, sudan, guinea, vietnam, jamaica, guinea bissau, guyana, ecuador, democratic republic of the congo, angola, haiti. high-income countries: qatar, united arab emirates, luxembourg, kuwait, norway, switzerland, singapore, saudi arabia, bahrain, united states, denmark, oman, netherlands, austria, germany, canada, sweden, belgium, australia, france, italy, iceland, hong kong sar, japan, finland, united kingdom, the bahamas, ireland, cyprus, spain, new zealand, greece, israel, malta, taiwan province of china, portugal, gabon, hungary, trinidad and tobago. low-income countries: mozambique, ethiopia, democratic republic of the congo, malawi, niger, burkina faso, sierra leone, uganda, guinea bissau, togo, guinea, mali, madagascar, the gambia, tanzania, bangladesh, haiti, senegal, ghana, vietnam, india, kenya, zambia, cameroon, china, cote d’ivoire, sudan, nicaragua, pakistan, angola, honduras, guyana, bolivia, philippines, morocco, sri lanka, republic of congo, syria, albania. enforced thus fostering integrity and vice versa. on the other hand, in developing countries with low income and weak rule of law, corruption may respond differently to economic fluctuations. if corruption is long-lived, persistent, and embedded in public mentality, any short-term fluctuations in income should not cause notable changes in the corruption rate (see e.g. reinikka and svensson, 2005; asongu, 2013; rosenbaum, billinger and stiglitz, 2013). we split our sample of countries to high-income and low-income countries according to the average gdp per capita figures from imf’s world economic outlook 2014. concerning rule of law (rl), we use average country-wise indices calculated from the world bank’s worldwide governance indicators (wgi) dataset to construct strong rl and weak rl countries. the time span is now 1996–2014. the countries are sorted according to the two factors so that the estimations are based on four sub-samples, each including 39 countries. the high-income sub-sam ple includes the 39 wealthiest countries in the whole sample and the low-income sub-sample includes the 39 poorest countries. likewise, the strong rl sub-sample includes the top 39 countries in the index ranking and the weak rl sub-sample includes the bottom 39 countries in the ranking. the findings regarding the estimations with respect to the demarcation according to rule of law and income are summarized in table 6. to save space, only the 2sgmm estimations of corruption against transitory income γ2,t are reported. table 6 shows that the finding of the negative effect of transitory income on corruption remains negative and statistically significant in all the four sub-samples characterized by income and rule of law. thus, the main correlation seems to be independent of the differences in these character205 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 conclusions istics. however, the results also show that in countries with high income and/or strong rule of law, corruption is more sensitive to business cycles than in the countries with low income and/or weak rule of law. this aligns with our expectation of somewhat different responses. (see also khan, 2004; davigo and mannozi, 2007.) to put it more generally, economic booms tend to reduce corrupt practices notably in wealthy and properly institutionalized surroundings (like in developed countries). this somewhat contradicts the argument of galbraith (1997). meanwhile, the negative effect is much weaker in surroundings described by low income and weak institutions (like in developing countries). this is reasonable since, in many developing countries, corruption is so established that any business cycles are quite irrelevant to it. (see also fisman and golden, 2017.) the paper presented an econometric study on the effects of changes in national income on the risk of corruption in a worldwide balanced panel sample over 1984–2011. the study was inspired by the studies of galbraith (1997) and gokcekus and suzuki (2011), which suggest that long-term economic growth reduces corruption while short-term economic booms trigger it, and vice versa. the analyses of the paper verified the former argument that permanent income and corruption are negatively correlated but contradicted the latter argument that the correlation between transitory income and corruption should be positive. the results clearly showed that also business cycles are negatively correlated with corruption. in other words, business booms dampen rather than trigger corruption. the conclusions remained valid after thorough robustness tests. the paper also investigated if the short-term effects differ between countries. the countries were classified according to income level and the state of rule of law. the main conclusion about the negative effects on corruption remained unchanged, but its sensitivity to business cycles was found to be higher in high-income and/or strong rule of law countries than in these with low income and/or weak rule of law. since former characteristics are typical for developed countries, our findings challenged the original insight of galbraith (1997), which reflects mainly developed business practices. a possible explanation for different sensitivities of corruption to business cycles is that, in developed countries, short-term changes in incomes have a stronger institutional effect than in developing countries. economic booms yield more resources to the existing anti-corruption machinery and activism, and vice versa. on the other hand, in many developing countries, corruption is so deeply rooted in the socioeconomic system that any transitory economic fluctuations don’t have much influence on the common practice. however, there are some caveats in the present study. first, the results seem to be data dependent. compared to gokcekus and suzuki (2011), we derived differing results merely by using more extensive data and alternative corruption indices. second, even our data is not sufficient for a strict testing of the proposition of galbraith (1997). business embezzlement is only one character of corruption, and it is not properly monitored by any of the applied corruption indices. third, the joint framework originated by mélitz and zumer (2002) may be questionable. the framework is reasonable when investigating regional redistribution but maybe less so in the present context. finally, sometimes it is disruptive behavior (particularly in the financial sector) that causes business cycles, and not the other way around. in further studies, the gaps mentioned above should be filled. first, more exhaustive data on firms’ and banks’ corrupt behavior should be used because the general indices on perceived corruption focus mostly on political corruption. the world bank enterprise survey of business managers provides more accurate bribe incidence and bribe depth indices, but only for select countries from 2002 on. second, the basic framework should be elaborated to fit more aptly to the context. and third, the direction of causality between business cycles and corruption should be examined. the behavioral patterns highlighted by galbraith (1997) and akerlof and shiller (2009) are certainly worth of closer scrutiny. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 206 akerlof, g. a. and shiller, robert, j. 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"the global minotaur. america, the true origins of the financial crisis and the future of the world economy", london and new york: zed books. https://doi.org/10.5040/9781350251052 references 207 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 appendix list of countries/ territories in the sample notes. the full sample of 110 countries (excluding south korea). *countries (94 in total) covered by robustness tests with alternative ‘control of corruption’ (cc) index from the wb. ® countries (39 in total) included in the sample of gokcecus and suzuki (2011) albania* ethiopia lebanon sierra leone* algeria finland*® luxembourg* singapore *® angola france*® madagascar south africa*® argentina*® gabon* malawi* south korea® australia® germany*® malaysia*® spain*® austria*® ghana* mali* sri lanka* bahrain* greece*® malta* sudan* bangladesh* guatemala* mexico*® sweden*® belgium*® guinea morocco* switzerland*® bolivia* guinea bissau mozambique* syrian arab rep.* botswana* guyana netherlands*® taiwan (chinese province)* brazil*® haiti new zealand*® tanzania* bulgaria* honduras* nicaragua thailand*® burkina faso hong kong sar*® niger* the bahamas cameroon* hungary*® norway*® the gambia* canada*® iceland* oman togo* chile*® india*® pakistan* trinidad and tobago* china*® indonesia*® panama* tunisia* colombia*® iran* paraguay* turkey*® costa rica* ireland*® peru* uganda* cote d’ivoire* israel* philippines*® united arab emirates cyprus* italy*® poland* united kingdom*® democratic rep. of congo* jamaica* portugal*® united states*® denmark*® japan*® qatar* uruguay* dominican republic* jordan* republic of congo* venezuela*® ecuador kenya* romania* vietnam* egypt* korea, republic of* saudi arabia* zambia* el salvador kuwait* senegal* about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). keïta kouramoudou phd in economics faculté des sciences economiques et de gestion de l’université de kindia, guinée mission d’appui à la mobilisation des ressources internes (mamri), primature, conakry, guinée fields of interests corruption, econometrics, public policy. e-mail kouramoudou.keita@mamri.gov.gn laurila hannu phd in economics faculty of management and business, tampere university fields of interests corruption, finance, public economics, urban economics. address fi-33014 tampere university, finland +358503185998, hannu.laurila@tuni.fi e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 208 european integration studies no. 15 / 2021, pp. 208-220 doi.org/10.5755/j01.eis.1.15.29047 abstract general aspects and perspectives of immigrant diversity in organizations more than 10% of the world's working-age population are migrants. migration issues are particularly relevant in europe, as 2.7 million people came to europe in 2019 alone. according to the report “wwwforeurope”, the quantity of research investigating cultural diversity is on the rise, the authors of the report dohse and gold (2014) have also noted that cultural diversity affects critical economic variables economic growth, innovation, and the social welfare. therefore, gelfand et al. (2017) argue that research on organizational behavior should include more theories of cultural diversity. there has been little such research in lithuania, so this article aims to analyze immigrant diversity perspectives in lithuanian organizations. the qualitative empirical research was conducted using expert interviews. content analysis was conducted using nvivo software. the results show that lithuania has a low level of immigrant diversity, but therefore there is currently a growing interest and awareness related to this topic. immigrant diversity is occurring in international organizations, globally born companies, organizations expanding into foreign markets or organizations founded by immigrants themselves. two types of organizations (according to immigrant diversity perspectives) were categorized: 1) monolithic organization (this type is more prominent, based on resistance and “discrimination-and-fairness” paradigms and highly related to the cultural context of the country); 2) multicultural organization (focus on “integration-and-learning” and “access-and-legitimacy” paradigms). keywords: immigrant diversity, immigrant integration, multicultural organization, monolithic organization. according to the oecd report “international migration outlook 2019”, more than 10% of the world's working-age population are migrants. these numbers are projected to continue rising. migration issues are particularly relevant in europe, as 2.7 million immigrants came to europe in 2019 alone, and 5.1% of the eu are non-eu citizens (eurostat, 2021) and these figures continue to rise due to military conflicts in syria, afghanistan, iraq, and elsewhere. immigrant diversity is not a new concept, but it is a topic that raises many practical and scientific issues and unused potential. gelfand et al. (2017) analyzed the scientific literature on work behavior over the last 100 years and found that “an important direction of this era is the growing importance of cultural diversity”. growing societal mobility and migration due to globalization have affected not only countries but also companies facing increased immigrant cultural diversity (lozano and escrich, 2017). according to the report “wwwforeurope”, the quantity of research investigating cultural diversity is on the rise, the authors of the report dohse and gold (2014) have also noted that cultural diversity affects critical economic variables economic growth, innovation, and the social welfare. therefore, gelfand et al. (2017) argue that research on organizational behavior should include more theories of cultural diversity, so this topic is gaining more researchers attention. research submitted 02/2021 accepted for publication 06/2021 general aspects and perspectives of immigrant diversity in organizations eis 15/2021 dovilė balevičienė vilnius university, kaunas faculty loreta huber vilnius university, kaunas faculty http://dx.doi.org/10.5755/j01.eis.1.15.29047 introduction 209 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 has been conducted analyzing immigrant diversity on various levels: team, organization, city, region, country as well as joint levels. the influence of immigrant diversity training programs on organizations is widely researched as well. however, few studies take into account the national context, even though many authors (rabl et al, 2018; manoharan & singal, 2017; knights & omanovic, 2016; janssens & zanoni, 2014; roberge & dick, 2010; rodriguez-garcia, 2010; nishii & ozbilgin, 2007) emphasize the importance of context. therefore, in this research sets out to provide understanding of the context and perspectives on diversity, that influence diversity management, equal work conditions, etc. analyzing immigrant cultural diversity research it was observed, that dominant studies were conducted in u.s. and western european countries, while research in other countries was found to be lacking (jankauskaite, 2018). the topic of immigrant diversity is barely researched in lithuania (where the proportion of immigrants varies considerably from usa or western europe), so this article aims to analyze immigrant diversity perspectives in lithuania. the objectives: 1 discuss diversity dimensions and immigrant diversity. 2 analyze immigrant diversity perspectives. 3 investigate immigrant diversity perspectives in lithuania. firstly, this article will discuss diversity dimensions, types of immigration, immigrant diversity, and immigrant diversity perspectives in organization. further on, an investigation of immigrant diversity perspectives in lithuania will be discussed. qualitative empirical research was conducted using expert interviews. data was collected using the interview method, content analysis was conducted using nvivo software. there are various ways to define diversity, with many authors using the terms dispersion, heterogeneity, dissimilarity, divergence, and variation in interpreting diversity (manoharan & singal, 2017). diversity is a subjective thing in which group members identify differences in social identities and characterize other group members as “similar” or “dissimilar”. according to o’reilly et al. (1998) a group is diverse if it consists of individuals with different characteristics that shape their social identity. tajfel (1982) was one of the first to develop a theory of social identity by emphasizing social differences, and the author argued that individuals want to belong to groups in which they can have an exclusive and positive identity. loden and rosener (1991) define diversity as differences between different members of a group. the authors distinguished two dimensions to define the differences: 1) the primary dimension gender, ethnicity, race, sexual orientation, age, physical or mental abilities, and characteristics; 2) secondary dimension personal identity, education, geographical location, religion, languages, marital status, work style and responsibilities, work experience, income, and communication style. harrison, et al. (1998) distinguished two dimensions hidden (personality, attitudes, values, beliefs) and visible (age, gender, race, ethnicity, disability, weight). primary / visible diversity dimensions include culture, social class, and languages, and the second / hidden dimension include health beliefs and recreational interests. arredongo (2004) suggests including a third dimension that would cover historical events experienced. kilduff, et al. (2000) distinguish demographic and cognitive dimensions. the demographic dimension includes gender, age, and other visible aspects, and the cognitive dimension includes knowledge, values, abilities, and other invisible aspects. harrison and klein (2007) distinguished three types of diversity: segregation (showing the extent of differences between group members), variation (showing the distribution of group members, e.g., country of origin), and differences (showing inequalities between group members, e.g., income inequality). the dimensions of diversity are summarized in table 1. diversity dimensions, types immigration and immigrant diversity e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 210 primary – visible dimension second – ”softly” hidden dimension third – ”hard” hidden dimension race ethnicity gender age physical attributes culture religion nationality sexual orientation country of origin social status family status lifestyle education languages values beliefs political views group norms assumptions attitudes feelings table 1 diversity dimensions source: loden & rosener, 1991; harrison, et al., 1998; kilduff, et al., 2000; vegt & janssen, 2003; arredongo, 2004; mazur, 2010; mor barak, et al., 2016. according to the oecd report international migration outlook 2019, more than 10% of the world's working-age population is migrant (oecd, 2019). these numbers are projected to continue to rise due to military conflicts in syria, afghanistan, iraq, and elsewhere. an immigrant is a person who has moved to another country for more than a year and who has personal, economic, or other interests in that country. according to repečkaitė (2009), the term “immigrant” is used with a negative connotation it is a consequence of the nationalist discourse on migration. in english, there is a hierarchy between the terms “expatriate” (associated with high social status and prestige) and “immigrant” (associated with unskilled work). in the report rilla, et al. (2018) suggest distinguishing another type of immigrant international talent. international talent is a highly qualified immigrant, and international talent includes professionals, experts, expert / professional family members, students, researchers, philanthropists, or returnees. the term international talent is not widespread, it is usually used to describe the term “economic immigrant” a person who has come to a country from a foreign country for economic reasons, but an economic immigrant can be both high and low-skilled. in the united nations convention on the rights of migrants, a “labor migrant” is a person who has been, is, or is about to engage in gainful employment in a country of which he is not a national. some of the most famous international talents and economic migrants are considered to be sergey brin, nikola tesla, elon musk, levi strauss, arianna huffington, mario molina, zaha hadid, madeleine albright, rupert murdoch, george frederic handel, robert maxwell, arnold schwarzenegger, etc. another type of immigrant is a “political immigrant” who has arrived in a foreign country due to political persecution, discrimination, war, and armed conflict. a refugee is a person who, because of persecution in his or her own country or for fear of such persecution, is forced to flee their home country. such persecution is usually related to race, religion, nationality, membership of a particular social group, or political beliefs. often, the term refugee has a negative connotation, and refugees are associated with challenges in societies, but there are many examples where refugees contribute to the well-being of a country to which they have immigrated. albert einstein, sigmund freud, victor hugo, thomas mann, freddie mercury, bob marley, lord maurice saatchi, etc. are considered to be among the most famous refugees. because these types of immigrants can be different, the table 2 summarizes the types of immigration. immigrant diversity is a complex type of diversity, because it is broader than a birthplace and involves different aspects of immigration (legality, duration, migration reason, etc.). immigrants, 211 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 aspect type legality legal immigration illegal immigration immigration to a country without violating its laws. immigration in violation of national law. scale internal immigration cross border (international) immigration immigration to another place in the country (city, town, village). immigration to live in another state. duration permanent immigration temporary, seasonal and shuttle immigration immigrant permanent relocation. immigrants move to a new place of residence with a specific goal, after reaching this goal the immigrant returns to the previous place of residence. migration reason voluntary immigration forced immigration immigrants are looking for better, better-paid jobs, higher education, living in different climates and in different social, cultural, economic, political, or technological environments. immigrants seek to avoid political or religious persecution, discrimination, wars, and armed conflict. immigrates due to natural disasters (floods, hurricanes, earthquakes, volcanic eruptions, droughts). immigrants are forced to be evicted elsewhere. table 2 types of immigration source: authors. even from the same country, can be different, according to connor (2014) immigrant communities are becoming increasingly culturally diverse socio, economic or political status, reasons for immigration (work, professional development, family, discrimination, etc.), religion, etc. verovec (2007) proposed the term “super diversity” to describe the increased number of different countries of origin, reasons for immigration, cultures, religions, age differences, etc. in the face of great cultural diversity, both the state and the immigrants themselves face a variety of challenges. according to connor (2014), immigrants in the european union are not constrained by demographic aspects (gender, country of origin, religion, and age), but foreign language skills and education are a common challenge. studies by harward scholars have found that immigrant’s cultural diversity does not correlate with ethnic, linguistic, or other types of cultural diversity (alesina, et al., 2016). the authors also found that the cultural diversity of immigrants is positively related to economic well-being. it is therefore appropriate to use various measures to integrate and encourage immigrants. for example, the procedure for obtaining a start-up visa (startup visa). start-up visas can be obtained by foreigners who intend to implement new technologies or other innovations significant for countries economic and social development. the start-up visa initiative started in the usa in 2011, other countries that have already validated the initiative: the netherlands, denmark, france, ireland, italy, spain, the uk, new zealand, australia, canada, chile, singapore, lithuania, israel, etc. immigrant diversity does not only influence societies, but also organizations. most organizations have to involve immigrant related aspects to diversity management and human resources management practices. the literature generally analyses immigrant diversity issues and challenges; however, stahl et al (2017, p.2) argue that organisations can benefit from adopting a more positive outlook to immigrant diversity: “examining the positive side of differences is not only beneficial theoretically in terms of filling this gap in the literature, but is also crucial for the practice of international and global business”. when managed effectively, immigrant diversity offers the flexibility, creativity, innovativeness, and other benefits to the organization. so, there is a need to understand different immigrant diversity perspectives in organizations and how they influence organizations. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 212 cox (2001) was one of the first to distinguish 3 types of organizations according to diversity: 1 a monolithic organization is a typical organization in which cultural equality predominates and minorities are assimilated, integration is minimal and inequality prevails. 2 pluralistic organization organizations seek to exploit cultural diversity through aa (affirmative action) and eeo (equal employment opportunity) programs, but the organizations themselves remain monolithic, with minorities being assimilated. 3 multicultural organization cultural differences are assessed, the aim is to integrate minorities into all levels of the organization and informal groups. based on cox (1994), cox & blake (1991), thomas & ely (1996) described the existing paradigms and proposed their paradigms for cultural diversity in an organization: 1. resistance paradigm resistance to change, ignoring equal opportunities, and diversity policy; 2. discrimination and fairness paradigm based on the premise that all individuals are equal, minorities must assimilate; 3. the access and legitimacy paradigm is based on the exaltation and benefits of cultural differences, which are used to find new niches and exploit other opportunities for diversity; 4. integration and learning paradigm based on the integration of cultural diversity into the organization, inclusive organizational culture prevails, employees are treated as the most important strategic resources and investment. very similar to the previous approaches are indicated by adler (2002) when analyzing the possible variants of the culture junction: 1. the dominance of one culture (includes monolithic organization and the paradigm of resistance); 2. coexistence of cultures the elements of both cultures do not contradict each other and can be used to achieve the goal, as solutions are sought between the two cultures (includes pluralistic organization, paradigms of discrimination and fairness and access and legitimacy); 3. intercultural cooperation cultural groups can influence each other's attitudes, and new ideas and problem-solving approaches can emerge at the crossroads of two cultures (involving a multicultural organization and a paradigm of integration and learning). according to empirical research, 113 organizations in austria (podsiadlowski, et al., 2013) singled out 5 perspectives on cultural diversity (starting with the perspectives most commonly used by the organization surveyed and ending with the least frequently used): 1 access perspective. 2 the perspective of integration and learning. 3 the perspective of “color-blind”. 4 the perspective of fairness. 5 the perspective of reinforcing homogeneity. fisk et al. (2018) distinguished typologies of cultural competencies in organizations (table 2) by levels of institutionalization and cultural diversity management. the highlighted cultural competencies also describe the organization’s approach to cultural diversity management. figure 1 approaches to cultural diversity according to typologies of cultural competencies (fisk, et al., 2018) degree of institutionalization d iv er su ty m an ag em en t low high low compliance-based (e.g., efforts aimed at legal compliance) disengaged (e.g., no full integration across organization but do not address all groups or stakeholders) high ad hoc (e.g., lack of permanent changes; efforts are episodic but proactive) inclusive (e.g., long-standing proactive efforts internally and externally) maitanace of heritage culture and identity r el at io sh ip s ou th am on g gr ou ps + + + integration asimilation multiculturalism melting pot separation marginalization segregation exclusion strategies of ethnocultural groups strategies of larger society perspectives on immigrant diversity in organizations 213 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 schonwalder and triadafilopoulos (2017) argue that in europe, attitudes towards migrants' cultural diversity are shifting from highlighting differences to new assimilationism, which would abandon the stratification of migrants. however, the term assimilation is not acceptable to many researchers, so the term multiculturalism is more commonly used. thus, according to rodriguez-garcia (2010), berry (2016), schonwalder & triadafilopoulos (2017), there are 3 main ways to integrate migrants into society: 1 assimilation or republican model migrants must adapt to the culture of the country (e.g. france). 2 multicultural or pluralistic model integration of migrants' cultural diversity into society (e.g. sweden, the netherlands, the uk, and canada). 3 segregationist or separation model division and separation of representatives of different cultures. segregation is sometimes seen as part of multiculturalism (e.g. germany, austria, and switzerland). summarizing many of the different approaches to cultural diversity berry (2016) formed the division of intercultural strategies of ethnocultural groups and the general public (figure 2). the author singled out 4 generalizing strategies: 1) integration multiculturalism; 2) assimilation – melting pot; 3) separation segregation; 4) marginalization exclusion. figure 2 intercultural strategies in ethnocultural groups and the larger society (berry, 2016) degree of institutionalization d iv er su ty m an ag em en t low high low compliance-based (e.g., efforts aimed at legal compliance) disengaged (e.g., no full integration across organization but do not address all groups or stakeholders) high ad hoc (e.g., lack of permanent changes; efforts are episodic but proactive) inclusive (e.g., long-standing proactive efforts internally and externally) maitanace of heritage culture and identity r el at io sh ip s ou th am on g gr ou ps + + + integration asimilation multiculturalism melting pot separation marginalization segregation exclusion strategies of ethnocultural groups strategies of larger society all in all, immigrant diversity perspectives could be categorized into 5 types: 1. assimilation (monolithic organization; discrimination and fairness paradigm; the dominance of one culture; perspective of reinforcing homogeneity); 2. integration (multiculturalism; integration and learning paradigm; intercultural cooperation); 3. segregation (separation; the dominance of one culture); 4. marginalization (exclusion; monolithic organization; resistance paradigm; the dominance of one culture; perspective of reinforcing homogeneity); 5. exploitation (pluralistic organization; access and legitimacy paradigm; coexistence of cultures; access perspective). the qualitative interviews research strategy was chosen, because qualitative research offers openness and flexibility and due to the sensitivity of the research topic, researchers are conducting face-to-face interviews and obtaining expert opinions and attitudes about the topic being investigated. an exploratory (content-driven) study was performed using the expert interview method. interviews are conducted with experts because researchers seek to obtain objective information from people who have knowledge and experience in any field. experts are defined as individuals who are responsible for the implementation, development, and control of decisions, strategies, or policies, and who understand the processes and trends in a particular area of knowledge (neuman, 2006). a semi-structured interview was used, which was chosen due to the optimal conditions to reveal immigrant diversity perspectives and the absence of strict formalization. the questionnaire was compiled for the research, the questions are designed to understand the prevailing culture in the country (cultural context), the peculiarities of immigrant diversity in lithuania and immigrant research methods e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 214 diversity perspectives in lithuanian organizations. the experts were selected using purposive sampling by meeting one of the criteria: 1 more than 5 years work experience in the field. 2 more than 5 years experience conducting research in immigration field. altogether, 12 interviews were conducted with both lithuanian and non-lithuanian experts, in both lithuanian and english language. interviews lasted for approximately 1 hour and they were conducted during 2020 may october. experts from the field represented these organizations: ministry of social security and labor, diversity charter, office of the equal opportunities ombudsperson, africo, migrant talent garden, primum esse, red cross and various universities. after the interviews, transcribed texts with iniciatial codes were sent to the experts, to check reserachers interpretation of their beliefs. during and after data collection, the author took notes on emergent themes. interviews and observations were coded into categories and subcategories without premade code setbook (inductive coding). for content analysis nvivo software was used. one researcher did coding, other researcher oversaw the codes and items in codes. interview questions: 1 how do you understand diversity and immigrant diversity? 2 please decribe country‘s cultural context related to immigration. 3 what influence does the country's culture have on businesses and other organizations? how? 4 what influence does the country's culture have on immigrant diversity and its management practices? how? 5 what type of business and other organizations have immigrant diversity in lithuania? 6 what are business and other organizations attitutes related to immigrant diversity? please give examples. 7 does business and other organizations value immigrant diversity? please give examples. 8 does immigrant diversity posed any particular challenges or opportunities? 9 how business and other organizations usses immigrant diversity? 10 what immigrant diversity management practices are employed in companies and other organizations? please give examples. the study found that experts define diversity as differences between different members of an organization. many experts agree that the term "diversity" is ambiguous and highly context sensitive. experts stressed that diversity can be of different types age diversity, gender diversity, marital status, educational diversity, etc., and one of the types can be immigrant diversity. immigrant diversity can also be divided into different dimensions that are intertwined (e.g., ethnic, racial, linguistic, religious, and other types of diversity): “i would include culture, nationality, race, citizenship, and language in immigrant diversity. what sometimes intertwines with religious diversity” (expert 1). experts emphasized the importance of the organizations they represent in educating about what diversity is: “we try to avoid normality and the notion that diversity is a universal good and everyone needs it; we try to rationalize and contextualize, because not every context requires diversity” (expert 3). almost all experts pointed out that diversity and especially immigrant diversity in lithuania is a “sensitive and complex” topic. as many as 8 experts used the term “sensitive” when talking about diversity in lithuania. experts pointed out that even training on this topic is difficult to organize. the africo organization shared its experience in organizing immigrant diversity trainings and singled out that the experts conducting the trainings must be familiar with the country's culture: “we try to explain the context of lithuanian cultural diversity to experts in the context of cultural diversity, racism prevails not so much as ignorance, but as disinterest in other countries and the immigrant diversity perspectives in lithuanian organizations 215 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 spread of stereotypes” (expert 3). this is in line with an important aspect of diversity training failure that has often been identified in the scientific literature: training is not adapted, and other countries use us diversity training material that does not fit the context of other countries, regions, or organizations. table 3 presents the categories and subcategories of immigrant diversity and country context identified in the expert interviews. categories sub-categories codes no. lithuania cultural context stereotypes n=7 discrimination n=5 preconceived notions n=4 social exclusion n=6 diversity dimensions age n=10 gender n=11 education n=10 work experience n=7 social status n=6 disability n=8 sexual orientation and identity n=6 immigrant diversity level in lithuania low level of cultural diversity in the country n=9 average level of cultural diversity in the country n=1 high level of cultural diversity in the country n=2 immigrant diversity dimensions nationality n=9 religion n=9 language n=9 citizenship n=8 race n=7 country of origin n=8 ethnicity n=8 diversity management first steps: a growing focus on diversity and the need to manage immigrant diversity n=10 first steps: understanding the benefits of diversity management (awareness) n=8 implementing diversity management n=7 table 3 cultural context and immigrant diversity source: authors. most of the experts pointed out that the level of immigrant diversity in lithuania is low and cultural diversity is not typical for companies operating in lithuania, and organizations / companies with culturally diverse employees are atypical cases. when talking about the level of cultural diversity, experts often compared lithuanian and western european countries or the usa. nevertheless, 2 experts noted that there are many people of different nationalities in lithuania: “although our country may seem closed and “monocultural”, we have a lot of people of different nationalities in lithuania and there is a lot of cultural diversity, we may not emphasize it” (expert 7). almost all experts pointed out that foreign capital companies are more likely to have higher immigrant (and other types of diversity) and take over the values prevailing in headquarters: “large foreign companies are much more open to cultural diversity” (expert 7) and “when they come, they bring their history and system of values. these companies have already gone much further into diversity management than lithuanian capital companies” (expert 2). also, the good e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 216 examples of foreign capital companies encourage other lithuanian organizations to change and influence the prevailing cultural norms in the country. the experts also pointed out that there are exceptional organizations in lithuania, whose leaders thought about internationalization and diversity from the very beginning when creating the company. however, such companies are exceptional, and most companies are starting to operate locally and continue to expand into foreign markets and transform. thus, the growth of diversity in companies is often associated with development in foreign countries: “our companies did not decide to become “diverse”; they were simply hit by “diversity” (expert 3). nevertheless, there are not many such companies, one of the reasons being cultural differences: “because even with a common narrative that there is a shortage of it specialists in lithuania, most it companies are afraid to employ foreigners, usually motivated by excessive cultural differences” (expert 3). it was noted that employers prefer to hire immigrants from countries that are in close proximity and have similar cultural norms: “i notice a lot of discrimination towards people from certain countries. lithuanians are more likely to accept ukrainians, belarusians, but are less likely to accept people from countries further away.” (expert 5) and “one business owner would constantly tell me: “i only want immigrants from russia, ukraine or belarus […] don’t offer asians or africans for the job” and he kept fighting them and always suggesting different candidates till he gave up and hired one immigrant from asia […] and it turned out that he (employee) was doing a good job, so he (employee) got a promotion after 3 months” (expert 10). experts explains this by using eastern european history of occupation and less noticeable cultural differences. in addition to cultural differences, the experts singled out other obstacles to hire immigrants stereotypes, closedness of the country, lack of tolerance, conservatism, fear of implementing change. thus, in summary, 4 types of lithuanian organizations can be distinguished, which are characterized by immigrant diversity: 1 foreign capital companies that “transfer” their values to a department or company in lithuania. 2 organizations that hire immigrant due to development (mostly expanding abroad) or labor shortages. 3 “born global” companies. 4 organizations founded by culturally diverse founders (i.e. “lithuanian capital, a medium-sized company that started a family business because the family itself is culturally diverse it immediately gives a tone they are very open, employ migrants, refugees and other people who are not a middle-aged caucasian men with an education (expert 2)). experts point out that both in lithuania and in the world, more and more attention is paid to diversity and diversity management: “we are starting to talk about it, but we are still at the stage where we still deny the existence of the problem. but the noticeable tendencies are that [...] organizations will have to adapt to it” (expert 4). the experts themselves emphasize the importance of the organizations they represent in stimulating debate, training, developing guides and other tools related to diversity and its management, which raise awareness of these issues. with these initiatives, organizations can better understand the benefits of diversity management and implement diversity management practices: “it is not diversity itself that benefits, but diversity management this is probably the answer to why organizations implementation from raising awareness to adopting certain measures in the organization” (expert 1). so, first steps towards immigrant diversity in lithuania are: 1 a growing focus on diversity and the need to manage immigrant diversity. 2 understanding the benefits of diversity management (awareness). 3 immigrant diversity management practices. 217 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 during the interview experts gave examples that could fit into all immigrant diversity perspectives (cox, 1994), (cox & blake, 1991), (thomas & ely, 1996): 1 marginalization and segregation (resistance paradigm) (n=12). 2 assimilation (“discrimination-and-fairness” paradigm) (n=9). 3 exploitation (“access-and-legitimacy” paradigm) (n=9). 4 integration (“integration-and-learning” paradigm) (n=7). resistance and “discrimination-and-fairness” paradigms are more common in lithuania because of the cultural context of the country. the focus is on following the law and immigrants must assimilate. immigrants are usually hired as a “cheaper” labor or due to the lack of specialists in that field in lithuania. therefore, experts pointed out that immigrants do not have the opportunity to make full use of their skills due to the language barrier and non-validation of their qualifications: “immigrants, who often do not speak the language, do not have the most pleasant jobs. although quite often in their country they belong to a higher social group and when they come here, they have to do those jobs that do not correspond to their qualifications” (expert 5). the “access-and-legitimacy” paradigm is the focus of international companies that are trying to use immigrant diversity as an asset for reaching specific markets (usually the immigrant home market), knowing specific languages and cultural context, developing new products, finding solutions to problems. the “integration-and-learning” paradigm is also more noticeable in international companies, based on the integration of cultural diversity into the organization, an inclusive organizational culture prevails and employees are treated as the most important strategic resources and investment. in summary, two types of organizations (table 4) can be distinguished according to different immigrant diversity perspectives: 1) monolithic organization; 2) multicultural organization. experts monolithic organization multicultural organization immigrant diversity perspective resistance and “discrimination-andfairness” paradigms. “integration-and-learning” and “access-andlegitimacy” paradigms. reason of hiring immigrants “cheaper” labour. not enough specialist in lithuania or “no other choice”. immigrant knowledge of languages, specific markets, and their culture. immigrant skills and knowledge immigrant qualification lower qualification. higher qualification. immigrants at top level positions very rare. more common. organization view on immigrant diversity focus on challenges. focus on potential benefits (business case perspective). diversity management practices diversity management practices for all employees: hr practices, diversity plans and policies, positive and open culture, flexible work hours, diversity in marketing, mentorship, etc. immigrant diversity management practices: cultural events, prayer or meditation spaces, language courses, cultural diversity training, english or russian as a business language, culture committees, etc. diversity management practices for all employees: hr practices, diversity plans and policies, positive and open culture, flexible work hours, leadership diversity, diversity in marketing, mentorship, etc. table 4 types of organization according to immigrant diversity perspectives source: authors. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 218 noticed that a lot of companies in lithuania are trying to move from “monolithic” organization to “multicultural” organization by starting to use diversity management practices that address age, gender, disability, sexual identity, and other dimensions of diversity. however multicultural organizations are also using diversity management practices that are orientated to towards integration of migrant employees. diversity is a subjective thing in which group members identify differences in social and cultural identities and characterize other group members as “similar” or “dissimilar”. immigrant diversity is a type of diversity, that is complex because of different types of immigration and other diversity dimensions (religion, age, education, skills, etc.). immigrant diversity does not only influence societies, but also organizations. when managed effectively, immigrant diversity offers various benefits to the organization, however that depends on immigrant diversity perspective and cultural context. immigrant diversity perspectives were categorized into 5 types: 1) assimilation; 2) integration; 3) segregation; 4) marginalization; 5) exploitation. lithuania has a low level of immigrant diversity, therefore there is currently a growing focus on immigrant diversity, increasing awareness of this topic and the need to manage diversity (i.e., to implement various diversity management practices). immigrant diversity is occurring in international organizations, globally born companies, organizations expanding into foreign markets or organizations founded by immigrants themselves. in lithuania a monolithic type of organization is prominent, in which immigrants are assimilated, integration is minimal, and inequality prevails. resistance and “discrimination-and-fairness” paradigms are more common in lithuania because of the cultural context of the country. multicultural type organizations are less 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(2007). super-diversity and its implications. ethnic and racial studies, 30(6), 1024-1054. https://doi.org/10.1080/01419870701599465 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). balevičienė dovilė ph.d. candidate vilnius university, kaunas faculty fields of interests cultural diversity, culture management, diversity management, organizational innovativeness. address muitinės street. 8, lt-44280 kaunas, lithuania +370 676 25255, dovile.baleviciene@knf.vu.lt orcid id https://orcid.org/0000-0002-4948-0477 huber loreta professor vilnius university, kaunas faculty fields of interests cross-cultural communication, cultural diversity, organizational communication. address muitinės street. 8, lt-44280 kaunas, lithuania +370 626 76555, loreta.ulvydiene@knf.vu.lt orcid id https://orcid.org/0000-0002-7434-7117 97 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 this article is devoted to the problems and challenges in the implementation of policies for socio-economic transformation of regions in bulgaria about the european green deal. the conceptual change at the european level necessitates the definition of new priorities for the bulgarian state in its path towards a more equitable transition to a green economy. the main objective of the authors is to analyze and assess the development opportunities and challenges for the bulgarian economy on the path to a green and equitable transition. the authors examine the economic changes in the bulgarian regions. the paper defines the methodology of the scientific approach to such research, using the system, network, geographical, cartographic, and comparative methods. the paper outlines the necessity of introducing smart systems at the city and region levels to manage the territory and its development more effectively. special attention is paid to energy problems and the need for energy transformation in countries like bulgaria. in addition, the need to strengthen cross-border cooperation in the balkan region to build integrated models in different sectors and industries to make the transition to a new type of socio-economic development more sustainable and equitable is also recognized. keywords: fair transition, governance, system, models, regional development, economy, smart systems, information. abstract regional aspects and development opportunities in bulgaria in the context of the european green deal http://dx.doi.org/10.5755/j01.eis.1.16.31043 kamen petrov, nikolay tsonkov university of national and world economy, bulgaria european integration studies no. 16 / 2022, pp. 97-109 doi.org/10.5755/j01.eis.0.16.31043 submitted 05/2022 accepted for publication 06/2022 regional aspects and development opportunities in bulgaria in the context of the european green deal eis 16/2022 introduction in 2021, the european union (eu) embarked on a new course of development that imposes profound socio-economic changes on member states. the widely touted deal is a response to deepening global climate changes. at the heart of the ambitious plan is the overarching goal of achieving a climate-neutral european economy by 2050. the green deal, therefore, necessitates talking about a just transition to a neutral european economy, and the financial and regulatory aspects of the transformation are linked to this circumstance (sikora, 2021). the eu must therefore make a new technological leap based on a just transition. therefore, based on the climate neutrality strategy, the eu will propose long-term policies for a just transition that have their regional specificities. in this sense, the green deal can be defined as a roadmap for the implementation of key policies to achieve climate neutrality (siddi, 2020). there are different european practices to implement a green transition. green transformation can be defined as combining economic growth with caring about the environment to guarantee a high quality of life for present and future generations at the level which is attainable due to civilizational development, as well as to effective and rational use of the available resources (cheba, bąk, szopik-depczyńska, ioppolo, 2022). the deal’s four pillars would be carbon pricing, sustainable investment, industrial e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 98 policy, and a just transition (claeys, tagliapietra, zachmannq, 2019). about securing funding to implement reforms in the context of the green deal, the european commission has established a european recovery fund. a major part of it is related to the energy transition and the construction of photovoltaic, wind, and geothermal power plants. by 2030, 21-22 gw of pv is needed annually in the eu to reduce emissions by 55% (kougias, taylor, kakoulaki, jäger-waldau, 2021). a just transition cannot happen without the necessary digital and software tools (platforms) to manage territorial development and change in key social areas education, health, transport, tourism, and trade. the result of all this is the legitimization of the development model of modern society. official authorities, academia, business, and citizens play a key role in drawing up an adequate model for development and transformation. in practice, innovation and new technologies are at the heart of green development. they are the product of an effective business-science nexus and the regional innovation systems that have been formed. therefore, most of the transition will take place in individual regions, which necessitates the formation and implementation of an effective regional policy. our understanding is that the new scientific postulates of regional development should be subordinated to the philosophy of the “green deal”. at the same time, countries such as bulgaria are not yet ready with their regional plans for a change toward a green economy. certainly, several other countries have similar problems, and others even worse. here is the place to point out that scientists and real businesses should jointly seek solutions to push humanity towards the green transition in the fairest possible way. the green transition will affect all sectors of the economy, not only the eu but the whole world. in practice, this will mean more regionalization of the economy, which will require a complete transformation not only in the way electricity is produced and transported but also in all types of businesses that have to restructure the way they operate. in recent years, the bulgarian state has increased penalty payments for carbon emissions. strategic sectors of the national economy are orienting towards coal mining and the use of coal for power generation. at the same time, the different territories in bulgaria are characterized by large socio-economic and demographic disparities. these tendencies are reinforced by the fact that bulgaria is a periphery country in the eu. regional policy has failed to achieve its main objectives economic convergence and social cohesion of the country with western europe. these conditions increase the economic and financial cost of bulgaria’s green transformation. and this fact makes a just transition in bulgaria even more difficult. in general, the changes can be framed in several directions energy, transport, sustainable cities, smart regional development, green jobs, and a circular economy. the circular economy covers all sectors of the economy. therefore, to successfully meet the eu’s resource efficiency targets by 2030, the transition to a circular economy model should become a state priority. this implies that the concept should be expanded not only to waste reduction and recycling but also to the disruption of the dependence between economic growth and waste production (ivanova, v., 2021). regional development as a process in bulgaria will be subject to the european and national policy for the formation of a carbon-neutral, digital, and smart economy. therefore, a key concept for the regional development of bulgarian regions should be the development of e-government elements and the introduction of digital government mechanisms that use big data for management decision-making in the system of state and municipal administration. in the field of the regional economy, achieving digitalization of sectors and clusters of the economy, as well as various spheres of public life at the level of the region, municipality, and locality, the use of big data as a factor in the development of the economy, social sphere, state, and municipal gov99 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 ernment. in the intelligent management of regional development, the use of new terminology is required to fill with content the spatial development of innovative development processes of individual territorial communities. first and foremost is the notion of “big data” (yaqoob, hashem, gani, 2016), which characterizes the digital data set, the large size, whose rate of increase or complexity requires significant computing power for processing and special software tools for analysis and presentation in the form of human-perceived results. another concept related to the development of regional technologies is the internet of things (iot) (shafique, khawaja, sabir, qazi, and mustaqim, 2020). it is a computer network that connects physical objects equipped with embedded information technologies to interact with each other or with the external environment without human intervention. another variety is cyber-physical systems (cps) (lee ea, 2015), which are intelligent network systems with embedded sensors, processors, and devices that are designed to interact with the physical environment and support the operation of computer information systems in real-time. cloud computing (dersingh, charanyananda, chaiyaprom, domsrifah, and liwsakphaiboon, 2019), is an information technology model for providing ubiquitous and convenient access via the internet information and telecommunications network to a common set of configurable computing resources (the “cloud”), data storage devices, applications, and services that can be instantly provisioned and offloaded with minimal or almost no operational cost to the provider can also be important in supporting regional development. thus, in regional development, there is a need for an open data network (casas, murgante, scorza, 2016). through it, conditions are created for the use of information created by state bodies, their territorial bodies, local government bodies or organizations subordinate to state bodies, local government bodies, or received from these bodies and organizations, which must be published on the internet in a format providing its automatic processing for reuse without prior modification by a person (machine-readable format) and can be freely used by any person for any purpose consistent with the laws. this creates the conditions for the promotion of e-government at the regional level, which can be an important element toward a fair transition to a green economy. the methodological approach in the research based on the above, the authors set as their main objective to analyze the challenges and the regional specificities of the green transformation of the economy and just transition in bulgaria. within the framework of the objective thus defined, several research tasks can be defined: » to analyze and assess the problems and processes that are developing because of the implementation of the green transition in bulgaria » to reveal the key directions of the green deal in bulgaria » to outline the framework of the new regionalization of the bulgarian economy in the context of the socio-economic transformation of the regions. the derivation of a methodological apparatus of such an attempt to assess and analyze the processes and phenomena in the regional development of bulgaria through the prism of the just transition requires a fully interdisciplinary approach. in this sense, the choice of proper approaches and scientific methods and the way of constructing a publication content form the scientific value of work (kasakliev, somova, gocheva, 2019). that is why the authors use the network approach given the interdisciplinary nature of the research field. the network approach builds on classical approaches and methods, representing a modern tool for the analysis and assessment of dynamics in socio-economic systems. this approach imposes the need to justify the need to present scientific results based on expert assessment in modeling the most important factors e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 100 and processes that have an impact on the transformation process. this also determines the leading scientific approach to be built on spatial (horological) and geographical analysis. the authors use trend analysis, comparative, descriptive, systematic, analytical, graphical, geographical, cartographic, historical, and statistical methods of scientific research. geographical analysis is the basis for clarifying the territorial and spatial projection of the objects, processes, and phenomena under study. the mathematical-statistical method is applied to represent the socio-economic situation and energy problems. the cartographic method is basic for the representation of regional development, the focus of which is enhanced by the graphical and tabular presentation of the main facts used in the scientific work. the descriptive method in the analysis of the sources used, as well as the review of international and national regulations, is fundamental to the development. this scientific development, through a complex methodology, including approaches and scientific and private methods of analysis and structuring of theoretical knowledge, building on them with practical evidence of the applicability of iot (internet of things) platforms as a means of digitalization of processes related to the national development of the country (goryachko, choporov, preobrazhenskiy, kravets, 2020), (montanarella, panagos, 2021). this is realized through the developed iot platform, under the name angie, which is characterized by its uniqueness at this time in the technology market in bulgaria. angie platform is a gps tracker with multiple business applications. using this platform scientists and businesses monitor business assets remotely in real-time. angie locator is a good monitoring solution: » vehicles service fleet, trucks, bicycles, motorcycles, refrigerated trucks, etc. » mobile assets valuable shipments and pallets, construction and cleaning equipment, machines, etc. figure 1 illustration of angie functionality 101 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 » animal species farm or stray animals. » management of work teams and sos signaling in case of accidents » customized solutions. through the platform, several best practices are provided where these technologies are applied and have a direct effect on revenue optimization, increasing business efficiency and self-control as a result of the complex system action. development of smart systems in different regions table 1 regional innovation performance nuts region rii risk group change bg31 north-west 26.0 236 emerging 4.7 bg32 north-central 34.9 230 emerging + 2.1 bg33 northeastern 35.5 229 emerging + 8.4 bg34 southeastern 27.2 234 emerging 0.7 bg41 southwestern 55.6 199 emerging + 11.4 bg42 south-central 35.7 228 emerging + 6.2 source: regional innovation scoreboard 2021 (2021). going through an equitable transition brings to the fore the search for solutions across the entire scope of the national economy. this means adapting scientific solutions more quickly to practice and imposing models that mitigate the negative effects on bulgarian society of the transition to a green economy. in this regard, different models can be applied in different directions digitalization of business processes, introduction, and improvement of e-governance, smart development of regions and the economy, development of r&d with applied character for the introduction of new green technologies and innovations, the introduction of circular economy and strengthening of the science-business link. therefore, the process of green transformation of the economy must go hand in hand with the digitization of all state and business systems for the smart development of regions. in this sense, key features of future development are related to automation (autonomy), electrification, connectivity, and smart (rational) resource management. given its geography, bulgaria has a large area of arable land, and agriculture is an important part of the economy. therefore, proper management of soil resources, including conservation, is of particular importance for the bulgarian state (hakrama, frasheri, 2018). in practice, this is the essence of the upcoming green and digital transformation of european countries. the first angle is in the field of business process automation using artificial intelligence, which is embedded in several new technological solutions (gholami, mohammadi, 2018). data transmission networks are increasing speed to such an extent as to provide speeds that enable instantaneous data transfer and processing. platforms for processing and visualizing the generated data are an essential part of the digitization of business processes. a good example in this respect is the proposed framework for designing pharmaceutical management information systems (du, cheng, yao, 2021). a good example that illustrates the potential for smart development in the context of the green economic transformation of regions in bulgaria is the innovation assessment in 2020. tab. 1 shows that there is a certain contrast in development. a careful analysis of the planning regions in bulgaria shows that the south-west planning region introduces the most innovations. in this region is the capital city sofia, in second place in the northeast region with the leader city varna, e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 102 and in third place in the south-central region with the leader city plovdiv, which is the second-largest city in the country. the overall overview shows that it can be argued that the leading innovation regions are also the leaders in terms of productivity level. in addition, the methodology shows that to overcome the regional disparity, it is necessary to increase innovation spending and r&d funds in the other three planning regions. in addition, it is necessary to illustrate purely regional profiles of the territories independently in the case of the presentation of the bulgarian planning regions. in recent years, it has become increasingly difficult to collect reliable primary, empirical material needed to inform the research and to prove the relevance and importance of a topic whose popularity is gaining momentum in the public domain. companies will feel the solutions from the green deal in two directions. the first aspect is the introduction of many regulations in terms of production, waste, and what changes they must initiate in order not to harm the environment, and the second element is the ways of financing businesses, which will also be in line with environmental requirements. a good example in this respect is the emerging chinese cities (witkowski, 2017). thus, r&d has to look for solutions related to the management and organization of society in the new conditions. in this direction, it is necessary to present the policies designed to serve most regions within the national economy, which should strive to precisely achieve these objectives, namely: better quality of life, preservation of local lifestyle and culture, and economic competitiveness to attract investment. these three objectives should be at the heart of the smart initiative to achieve a just transition. the means to achieve these goals are telecommunications and software platforms that allow mobility, access to administrative services, e-education, and e-health, vital to retain local populations and stem the flow of migration to the big cities. optical infrastructure has a significant positive impact on business development. the ability to quickly access and exchange information and ideas facilitate the adoption of innovations, increases the innovation capacity of business organizations, and stimulates their innovation activities. it stimulates the introduction of new and effective business models and strategies and the improvement of the overall organization and management of activities. for example, the framework figure 2 national and international support of the gcn operator (source: http:// www.gcn.bg) outlined in figure 2 for building a national backbone network is an expensive undertaking. for this reason, companies that already have or will soon have a completed fiber-optic infrastructure are becoming a determining factor in the development of the country’s telecommunications sector. but on the other hand, as a result of the provided access to the internet, the management of transport chains and logistics of various materials and products is being improved (tsonkov, petrov, berberova-valcheva, 2022), and the processes of making deliveries are being optimized, and several innovations are being introduced, such as electronic invoicing, contracting, working from home, online payment, e-commerce, new consumer services, online coordination of joint activities, and obtaining services from the public administration. another important aspect when comparing different technologies is energy consumption, as over time it is a major contributor to operating costs and direct environmental impact. a comparative assessment of the energy consumed per port for different types of interfaces and network elements is shown in table 2. the difference between the consumption of interfaces of the same 103 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 table 2 comparative assessment of energy consumption interface type network element port density consumption of port energy (w) 1000base-bx co switch high 4.4 1000base-bx switch in the cabinet medium 4.8 1000base-bx switch in a building low 6.7 1000base-bx co switch high 4.3 1000base-bx switch in the cabinet medium 4.8 g-pon-olt co switch low 22.3 source: https://www.mtitc.government.bg/upload/docs/bulgarian_plan_for_nga__2013_final.pdf (2013). type can be explained by the fact that a node with a high port density is more energy-efficient than one with a low density. for comparison, gb/s ethernet and point-to-point architecture are used in the study. it is shown that the energy consumption is up to 84% less when using the gpon solution. with aon, the power consumption even increases significantly in the case of placing equipment outdoors, in which case the speed reduction has almost no impact on the overall power consumption. this means that new innovative technologies need to be developed. of course, our task is to outline the processes, not to go into them in detail. due to rapid technological developments, other technologies may also be able to provide next-generation access services in the future. for example, end-user connectivity may be provided through a combination of wired and wireless technologies. the development of telecommunications in a region is determined by the general social and technical level of the region. the reverse is also true: the level of telecommunications strongly influences its socio-economic development. internet access as an important part of communication connectivity directly influences the economic upswing, and the need to cover the so-called “white areas”, territories deprived of telecommunication infrastructure is increasing. the technological possibilities of some new products and services are being revealed that develop public communications. according to the authors, modern possibilities of digital transformation in socio-economic systems increase the possibility of intensive interaction of objects of these systems regardless of their geolocation (stetsuyk, maevsky, maevskaya, 2018). this approach is strongly connected to green policy applications’ use (batty, m. et al., 2012). after 2015, the countries of the european union are increasingly moving towards imposing models of development of smart cities and regions, which cover increasingly larger territories and areas of gravity (lusikka, kinnunen, kostiainen, 2020). in this regard, there is some experience with the development of national and municipal strategies for the development of smart cities and regions. these include smart city programs and initiatives in the european union, china, canada, russia, the united states, and others. also, nearly 100 smart city programs are being implemented in india. with several hundred smart cities around the world by 2020. in smart systems, we should have connectivity with each other within a unified concept for the region. the major subsystems include intelligent transportation system (its) (arabsheibani, kanani sadat, abedini, 2016), geographic information system (gis) (hasan, hussain, nizamuddin, and mahmood, 2018), security system (lv, kong, zhang, jiang, lv and lu, 2020), e-education and e-health (maung, phyo, and tun, 2015). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 104 focusing on the bulgarian economy, it turns out that it is highly dependent on energy production, including electricity. in addition, it can be said that the bulgarian economy is resource-intensive. this creates several challenges for the bulgarian economy because despite everything it is quite energy-dependent on russia, but on the other hand, bulgaria is a member of the european union. this predetermines the need for a qualitative change in the energy system and possibly greater diversification of energy production sources. although an important decision has recently been taken at the eu level to declare nuclear energy and natural gas as clean energy that does not have a co2 footprint, this is not a great option in the new situation. the fact is that coal, together with petroleum products, is now considered to be a strong co2 pollutant, which directly affects the coal-producing regions and the baseline capacity to produce electricity from coal. at this stage, the bulgarian state has basic capacities mainly nuclear, coal, and renewable energy sources (res). the problems in our country are mainly related to the finding that the upper segment of the existing generating capacities has an almost exhausted technical capacity and needs to be renewed. in the last ten years, the bulgarian state has not effectively fulfilled its commitment to reach 20% of the production of electricity from renewable sources. as we know, the main problem before maintaining a constant supply of electricity is balancing the system because res cannot produce energy for 24 hours. they are highly dependent on climatic conditions and the strength of sunshine. the problems in this direction are organizational because a reliable national map of the opportunities for alternative sources of electricity generation has not yet been built. this fact implies restructuring of the bulgarian energy sector and taking several important steps. this restructuring is related to the relocation of base and sub-superstructures, regulating the quality of electricity. this process does not preclude the regionalization of electricity production and supply. i.e., deployment of res and other power plants by region, which shortens the production and supply chains and their connection with regional economies in territorial terms. this process necessitates the construction of a possible new reactor. at the same time, the possibility of locating small mobile nuclear reactors in the vicinity of large-scale production complexes can be considered, given the proven efficiency achieved. another local energy resource available to the country is energy from renewable sources (hydro, wind, solar, geothermal, and biomass energy). the share of energy from renewable sources in primary energy production in 2018 is 21.52% (according to nsi data). already in 2012, bulgaria achieved the mandatory national target of 16% share of renewable energy in the gross final energy consumption in the country for 2020 (energy strategy of the republic of bulgaria until 2020). in the following years, the achieved share of renewable energy in gross final energy consumption continued to exceed the national target table 3 implementation of the national target and sectoral targets (2011-2018) source: according to shares tool 2018, eurostat. 2011 2012 2013 2014 2015 2016 2017 2018 renewable energy (re) – electricity 12,6% 15,8% 18,7% 18,7% 19,1% 19,1% 19% 22,1% renewable energy heat and cooling energy 24,8% 27,2% 29,2% 28,5% 28,9% 30% 29,9% 33,3% renewable energy – transport 0,8% 0,6% 5,8% 5,7% 6,4% 7,2% 7,2% 8,1% gross final consumption of energy from re 14,2% 15,8% 18,9% 18% 18,3% 18,8% 18,7% 20,5% the need for energy regional change in development 105 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 set for 2020, with the main contribution to this being increasing the use of renewable energy in the heat and cooling sector. switching to green energy also means abandoning coal-fired power plants. in addition to nufigure 3 structure of the produced electricity by types of energy carriers (2019) source: energy strategy of the republic of bulgaria until 2020 (2013). clear power, the use of gas and hydrogen as fuel must be stepped up. naturally, the construction of renewable energy sources should continue mainly wind and photovoltaic power plants. wind farms are highly dependent on the climatic features of the territory. that is why they can be located only in some regions of bulgaria. photovoltaic plants have a greater application. that is why the capacities can be distributed by regions, as in northeastern bulgaria are based on wind and gas power plants, central bulgaria photovoltaics and wind power plants, and southwestern bulgaria gas, and photovoltaic power plants. examples of such are the construction of facilities in southeastern bulgaria, where a wind farm and gas power plant will be built, as well as a hydrogen storage facility. it has been proven that hydrogen can be transported in smaller quantities (up to 15%) as a ratio through gas pipelines mixed with natural gas. it is also interesting that in the operation of coal-fired power plants, if the product is mixed with hydrogen, the efficiency will increase significantly, and the harmful emissions will be reduced twice as much. this may be a temporary transitional situation before the plants are closed. in this direction, the bulgarian mining industry can still work effectively. in this situation, however, most of the extracted material can be used for export, which will increase the life of the extractive industries and thus preserve jobs. in other parts of the bulgarian state, there are different solutions. for example, in the region of southwestern bulgaria, it is planned to build a gas power plant and photovoltaics, and a hydrogen storage facility will be built. in this case, it is important to mention that in the case of natural gas fuel plants, if this natural gas is enriched with about 15% hydrogen, then all these measures will achieve a new territorial location of energy and start production entirely on green energy. but, the problem of the possible construction of nuclear facilities, which are necessary for the formation of base power, must be solved. this will lead to the creation of new jobs and stimulate the economy of northern bulgaria. provided that bulgaria cannot build a new nuclear power plant, we can seek joint participation with greece, serbia, and romania to build new energy facilities that are important for geo-economic development, both in the bulgarian economy and within the framework of energy cooperation in southeast europe. this approach will be able to encourage the development of alternative sources of energy in the border regions. in addition, it is important to look for appropriate economic and social approaches to the development of regional energy. this process may involve the creation of green jobs, the closure of production, and the creation of new high-tech ones, as well as the introduction of a circular economy characterized by regional and national scope with the use fluid oils imported coal hydroelectric power plant gaseous renewable sources nuclear power local coal fi el d1 field2 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 106 of cross-border energy networks or the creation of regions with clean energy. of course, the transition to a green economy is accompanied by electrification of transport, the introduction of new industries and technologies (eg robotics, semiconductors), and the orientation of bulgarian regions to the economy 5.0 (innovation strategy for the smart specialization of the republic of bulgaria 2014-2020, 2015). this also implies the creation of a network of electric charging stations and other types of infrastructure for the electrification of the regions, robotization of production, and opening of new industries with high added value. thus, a high degree of autonomy of production in terms of the technological process will be achieved, and the installation of photovoltaic systems on the roof structures of buildings will achieve energy efficiency and electricity autonomy (sustainable energy strategy development of the republic of bulgaria until 2030 with horizon until 2050, 2021). this also applies to residential and public buildings. many green technologies are already being offered in the construction of roads and buildings. all this will change the organization and planning of cities for some to become autonomous. the restructuring of the economy in the context of a fair transition, as it turned out, implies the closure of some and the opening of other proceedings. from this point of view, the social transition is on the agenda. it concerns the retraining of human resources and measures to improve the demographic situation of individual regions in bulgaria. that is why the condition and territorial location of secondary and higher schools in bulgaria is important to link them to the improvement of the socio-economic condition of the bulgarian regions. finally, research and development units and “pure” science, the creation and implementation of innovations are key to the development of high-tech industries and their balanced distribution across the territory based on close interaction between science and business. speaking of the economic development of individual regions, they must use the data effectively. from this point of view, the black sea region must open to the sea to fully build a blue economy, and the northern border areas must make the most of the potential of the danube river. it is important to use the potential of the regions in combination with active state policy and investment activity. this implies the application of some models for spatial economic planning of the territory, considering the costs of labor, water, and energy and relate to business efficiency, potential market, and future sales revenues. from this point of view, in the spatial planning of the bulgarian economy, considering the territorial peculiarities, we should use the potential of our national territory. in addition, as a member of the european union, the importance of cross-border cooperation and networking of cross-border geoeconomic development should not be overlooked. conclusions with the present presentation and the focus on some possible aspects of the spatial development of the modern nation-state, we have outlined only a small part of the guidelines of the need to implement a just transition. in practice, finding the possibility of implementing effective just transition mechanisms is key to making the transition to a neutral economy in an equitable way, so that no one is left behind. the authors outline the main issues related to the green transition in bulgaria as social, economic, energy, financial and territorial. it is very important that when implementing the green transition, the bulgarian state attempts to mitigate its effects, also trying to overcome the negative processes of depopulation of the regions and social and economic imbalances in the national territory. at the same time, according to the authors, it is very important to combine the construction of renewable energy sources, a digital economy, and the implementation of information technologies to stimulate smart development and smart governance. 107 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the transition to a green economy requires a socio-economic transformation in bulgarian regions. the transition requires the development of regional development policies that include the following areas energy, smart development, transport, the opening of new industries and green jobs, and a new regional policy. in this regard, the authors are aware of the conceptual shift in the formulation of future regional policy, proposing new concepts to underpin it. it also means that each country should identify the important priorities for creating a socio-economic environment that has an effective relationship with nature. the burden of the green transition will fall on the bulgarian regions. this means that, as part of the green transition, transport must be electrified and regional connectivity improved by building a digital economy. as has become clear, due to the serious socio-economic lag and regional disparities, it is crucial to forming a model for the development of the country for a just transition. this equitable transition involves the relocalization of economic activities in the national space. that is, a new spatial structure of the national economy will be formed based on the green transition. due to the resource-oriented economy of bulgaria, the state should diversify the sources of energy by also building solar, wind, and geothermal power plants. this raises the question of the future of nuclear energy, which, according to the authors, is an alternative for providing energy for the bulgarian state. last but not least, the balkan countries should continue to work towards building cross-border transport, energy and education connectivity, and shared capacity. only such an approach will yield sustainable results and enhance balkan cooperation and security among the countries in the region. this article is part of the research project ni-5/2022 concept and publication of a scientific journal at the 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(eds) smart energy in the smart city. green energy and technology. springer, cham. https://doi.org/10.1007/978-3-319-31157-9_14 siddi, marco (2020) the european green deal: assessing its current state and future implementation. internet sources: european union countries, ecological indicators, volume 136, https://doi.org/10.1016/j. ecolind.2022.108601 ministers‘ council of bulgaria, energy strategy of the republic of bulgaria until 2020. innovation strategy for the smart specialization of the republic of bulgaria 2014-2020, 2015. sustainable energy strategy development of the republic of bulgaria until 2030 with horizon until 2050, 2021. 109 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). kamen petrov phd, associate prof. the university of national and world economy fields of interests regional development, geoeconomics, urbanism, city development, geodemography, regional policy address students district, 19 december 8th str., 1700 sofia, bulgaria, +359 888 617 850 petrovk@abv.bg nikolay tsonkov phd, associate prof. university of national and world economy fields of interests regional development, geoeconomics, smart development, city development, regulatory policy, emerging markets and regions development, economic security of regions address students district, 19 december 8th str., 1700 sofia, bulgaria, +359 888 241 031 kolio_tzonkov@abv.bg 9 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abstract developing intercultural competence through design thinking http://dx.doi.org/10.5755/j01.eis.1.15.28930 tetiana hantsiuk ivano-frankivsk national technical university of oil and gas, ivano-frankivsk, ukraine cultural competence, as the ability to interact effectively with the culturally diverse others, is a key component to your success in the globalized world. developing cultural competence gives us an insight how to benefit from the diversity within intercultural interactions. everyone may misinterpret the cultural differences due to the low level of cultural competence. that can influence further cooperation with different cultures. therefore, it is very important to foster students’ intercultural skills, in particular by using different learning techniques and implementing new ideas into the traditional teaching methods. one of them isdesign thinking as a practice that encourages collaboration and can help students to manage intercultural challenges. hence, the research problem for this study is to reveal the correlation between the development of students’ intercultural competence and design thinking method application. the purpose of the study is to summarize and synthesize the research on cross-cultural interactions and design thinking to build a framework that shows how the implementation of the design thinking method into the learning process facilitates the development of students’ intercultural competence. the tasks of the research are: a to review the main contributions to the field of design thinking by analysing multidisciplinary studies on how design thinking fosters development of variety competences including intercultural competence; b to design the framework to reveal the correlation between the components of intercultural competence and the stages of design thinking process; c to observe the changes in the students’ intercultural competence level by analysing learners’ responses to the case of intercultural misunderstanding at the beginning of studying the cross-cultural communication classes and after finishing the course. d the study uses mixed approaches such as quantitative and qualitative methods, scientific literature studies, intercultural competence assessment, grouping, comparative analysis, synthesis, inductive and deductive methods. the key results are presented in the framework that demonstrates the ways how design thinking method supports the development of intercultural competence. this framework can be used by educators to teach intercultural competence and everyone involved in cross-cultural interactions, and who would like to benefit from the diversity. keywords: cultural diversity, culture, design thinking, intercultural communication, intercultural competence. european integration studies no. 15 / 2021, pp. 9-21 doi.org/10.5755/j01.eis.1.15.28930 submitted 03/2021 accepted for publication 06/2021 developing intercultural competence through design thinking eis 15/2021 khrystyna vintoniv ivano-frankivsk national technical university of oil and gas, ivano-frankivsk, ukraine nataliia opar ivano-frankivsk national technical university of oil and gas, ivano-frankivsk, ukraine bohdan hryvnak ivano-frankivsk national technical university of oil and gas, ivano-frankivsk, ukraine e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 10 in today’s extremely globalized world the role of intercultural interactions and cultural competence accordingly has increased. the establishment of international contacts requires not only good communication skills but also a high level of intercultural competence because the lack of cultural understanding increases the probability of cross-cultural differences and problems occurrence. cultural competence refers to the “process by which individuals and systems respond respectfully and effectively to people of all cultures, classes, races, ethnic backgrounds, religions, and other diversity factors in a manner that recognizes, affirms and values the worth of individuals, families and communities, and protects and preserves the dignity of each” (national association of social workers, 2015). numerous attempts were made to define this concept regarding intercultural competence. in its broadest sense, intercultural competence is defined as “a complex of abilities needed to perform effectively and appropriately when interacting with others who are linguistically and culturally different from oneself” (fantini et al., 2006). the intercultural competence should be constantly developed as it gives us an insight how to benefit from the diversity within intercultural interactions. everyone may misinterpret the cultural differences due to the low level of cultural competence. it can influence further cooperation with different cultures. therefore, it is very important to foster students’ intercultural skills, in particular by using different learning techniques and implementing new ideas into the traditional teaching methods. one of them is design thinking as a practice that encourages collaboration and can help students to manage intercultural challenges. hence, the research problem for this study is to reveal the correlation between the development of students’ intercultural competence and design thinking method application. this article aims to summarize and synthesize the research on cross-cultural interactions and design thinking to build a framework that shows how the implementation of the design thinking method into the learning process facilitates the development of students’ intercultural competence. the article sets the following tasks: a to review the main contributions to the field of design thinking by analysing multidisciplinary studies on how design thinking fosters development of variety competences including intercultural competence; b to design the framework to reveal the correlation between the components of intercultural competence and the stages of design thinking process; c to observe the changes in the students’ intercultural competence level by analysing learners’ responses to the case of intercultural misunderstanding at the beginning of studying the intercultural communication classes and after finishing the course. research methodology includes the pre-course and post-course survey conducted at intercultural communication course in which 89 undergraduate students from six academic groups were enrolled since 2018. for the purpose of this research, the generally accepted quantitative and qualitative methods, scientific literature studies, intercultural competence assessment, grouping, comparative analysis, synthesis, inductive and deductive methods have been applied. the aim of design thinking is to develop a variety of competencies and skills. many scholars have written about how to implement design thinking into the educational process to better prepare students for the 21st century workplace. we selected 14 papers out of 50 for a meta-synthesis review focusing mainly on five key competences: 1) creative competence, 2) problem-solving competence, 3) project competence, 4) communication competence (including foreign language competence), and 5) intercultural competence. the first group includes 3 articles about creative competence. r. steinbeck (2011) considers deintroduction literature review 11 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 conceptualization of european identity theoretical background sign thinking as a human-centred creativity approach and shares their experience about the implementation at a stanford university and a university of colombia. the other authors (kijima et al., 2021) analyse a 3-day design thinking workshop in japan and reveal that female youths showed greater creative confidence such as voicing their opinions and attitudes toward failures. according to r. clark et al. (2020), applying design thinking in an engineering course can foster students’ creativity and sustainability. the second group is based on the analysis of 3 articles about problem-solving competence. on the basis of different universities in latvia a. vintere (2019) considers four approaches to developing problem-solving skills in higher education and one of them is design thinking. the other authors (melles et al., 2015) discuss the problem-solving nature of design thinking and compare it to problem-based learning and enquiry-based learning approaches. following d. piotrowska (2015), prototyping from design thinking method can improve creativity and innovation in problem solving. the third group reviews 3 articles about project competence. z. galeeva et al. (2018) tested a five-step model and successfully implemented design thinking process in teaching to develop students’ project thinking ability. in (serpes et al., 2017) the authors underline the importance of introducing design thinking in management schools to make students innovation-ready and present a conceptual model with five key learnings. the research (lebid et al., 2020) is based on several ukrainian universities and it examines how students can learn design thinking skills through participation in project-based activity. the fourth group outlines 3 articles about communication competence. the new interesting approach is described by z. sandorova (2019) as the author uses design thinking in teaching english for tourism students and analyses the advantages and disadvantages of this method. another author (pope-ruark, 2019) interviewed four teachers to discover the correlation between design thinking and technical and professional communication programs. a new approach to design thinking is presented by l. borissova (2020) that suggests using design thinking in written communication as it can help to gain specific knowledge and skills. the fifth group presents only 2 articles about developing intercultural competence. k. thoring, c. luippold and r. mueller (2014) demonstrate how culture can affect the design thinking process in an educational environment. the authors created the framework by mapping six design thinking parameters to g. hofstede's five cultural dimensions, demonstrating that different values in each cultural dimension influence the ability to adjust design thinking requirements such as process, team, space, and mind-set. n. schadewitz in her research (2009) developed eleven design patterns for cross-cultural collaboration showing that diverse cultures have a lot of design solutions to facilitate collaborative activities. there are numerous publications concerning the first four groups. we chose three articles that we consider the most relevant in each group but managed to find only two articles for the fifth group. thus, the review of the literature reveals a research gap in understanding how design thinking can help to strengthen students’ intercultural competence. for the purpose of this research, intercultural competence is defined as the set of attitudes, knowledge and skills that are necessary for effective interactions with people who are culturally different from each other. this approach was well developed by the association of american colleges and universities (aac&u, 2009) that represents more than a hundred colleges and universities across the united states. they suggested the intercultural knowledge and competence value rubric which determines the following six key components of intercultural competence: e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 12 figure 1 intercultural competence cube model 1 attitude of openness is expressed when you develop interactions with people from other cultures and you value these interactions without making any judgements; 2 attitude of curiosity leads to asking sophisticated questions about other cultures and articulating answers to these questions that represent different cultural viewpoints; 3 knowledge of cultural self-awareness means that you shape understanding of your own cultural rules and biases; 4 knowledge of cultural worldview frameworks shows that you realise the complexity of elements important to members of another culture; 5 with skills of nonverbal and verbal communication you can understand cultural differences in verbal and nonverbal communication and negotiate effectively in accordance with these differences; 6 skills of empathy are the ability to analyse intercultural experience from both your own perspective and several other worldviews and to act respectfully taking into account the feelings of another cultural group. to illustrate components of intercultural competence we suggest the cube model in which six sides represent each intercultural competence element (figure 1). in this paper we intend to develop intercultural competence by the means of design thinking, so it is important to define the concept of design thinking. design thinking can be conceived as a “human-centred methodology” that supports and drives effective innovation (bauer et al., 2008). according to t. brown, “design thinking is widely understood as a human-centred approach to innovation that includes inspiration, ideation and implementation that appears equally cyclical and iterative understanding people as inspiration, prototyping, building to think, using stories, and having an inspired and inspiring culture” (brown, 2008). there are variety of design thinking models but the most noticeable of them is the model designed by the hpi school of design 13 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 thinking (plattner et al., 2009). according to this model, design thinking process comprises six stages. referring back to our research aim, we reviewed the stages described in (hasso plattnet institut; carroll et al., 2010; müller-roterberg, 2018) and we understand them as following: » “understand” is about developing an understanding of the challenge, the problem, the need or the requirement; » “observe” is the phase of detailed research and on-site observations that are carried out on the customer's need or problem; » “point of view” is the step to consider information about users’ needs and to create so-called “persona” to see the problem from users’ perspective; » “ideate” is the stage to practice brainstorming to generate as many ideas as possible, then to structure the ideas and to vote to choose the one for realization; » “prototype” is used to create a simple model to visualize the idea of problem solution; » “test” is the final stage where the model we created should be tested with the people it was designed for to learn if it works. the aim of this stage is to get the feedback and to improve the solution. thus, design thinking is “a human-centred approach to innovation,” (carlgren et al., 2016), and it is used “to guide the instruction of traditional subjects to cultivate students’ 21st century skills” (lin et al., 2020), in particular, this innovative approach can be applied to foster intercultural competence in educational settings. the research was conducted at intercultural communication course (9 ects credits) at the ivano-frankivsk national technical university of oil and gas in ivano-frankivsk, ukraine. the participants were 89 undergraduate students from six academic groups enrolled in the course since 2018. at the beginning of the course the students voluntarily responded to three open questions based on intercultural misunderstanding case and after finishing the course the same students were invited to participate in the post-course survey based on the same cross-cultural misunderstanding case and were asked to respond to the same questions to reveal the changes in their intercultural competence levels. all the students identified themselves as the ukrainians. the council of europe white paper on intercultural dialogue states that the intercultural approach is a forward-looking model for managing cultural diversity (council of europe, 2008). the document argues that teaching and learning intercultural competences is one of certain preconditions that should be met in order for intercultural dialogue to thrive, and assigns to education professionals the specific responsibility of fostering intercultural competences in learners. the appropriate forms of intercultural education can have a significant impact on the intercultural competence of young people (barrett, 2012). the promotion of intercultural competence is crucial for tackling some of the most profound challenges that european societies currently face (barrett, 2018). intercultural communication classes may help foster intercultural competence to get the students ready for future cross-cultural interactions. we have been implementing the design thinking practice into teaching intercultural competence at the ivano-frankivsk national technical university of oil and gas and have been observing the changes in the students’ intercultural competence level by analysing learners’ responses to the case of intercultural misunderstanding at the beginning of studying the cross-cultural communication classes and after finishing the course. we considered six academic groups that took cross-cultural communication classes since 2018, i. e., the changes in 89 students’ intercultural competence levels were observed over the last four years. the students were presented with the case1 of cross-cultural misunderstanding inresearch methodology findings e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 14 troduced by chuck calahan in the mooc “improve your intercultural competence” at the british digital education platform (futurelearn) and after that, they were asked to reflect on three questions that were to show the level of students’ intercultural competence: how do you think you would feel and what you would do if you went through this critical incident? (the attitude of openness, the attitude of curiosity). what actually happened in the situation described? (knowledge of cultural self-awareness, knowledge of worldview frameworks). how do you think the indigenous woman felt in this case? (skills of non-verbal and verbal communication, skills of empathy). as classroom talk analysis can illuminate the nature of discussions and illustrate how intercultural learning unfolds (heggernes, 2021), classroom conversation was chosen to collect the responses. we consider each of these questions and students’ responses at the beginning of the course. it should be mentioned that all of the ukrainian students associated themselves with mohle and her behaviour was accepted and familiar to them. the responses to the first question “how do you think you would feel and what you would do if you went through this critical incident?” could be drawn into three main categories: » ignoring the situation (the responses like “i would find the other way to get to the office”, “i would walk several more blocks to bypass that fruit and vegetable stand”, “i would take the earphones not to hear her”, etc.); » negative communication (“i would yell at her in return”); » positive communication (“i would explain her that i meant nothing bad”, “i would ask her what is happening”, “i would ask my co-workers why the woman behaves this way”, etc.). the questionnaire results illustrate that less than 8% of students would show openness in this situation of intercultural interaction, and only 5,6% would demonstrate an attitude of curiosity by asking questions about the reasons for the local’s behaviour (figure 2). when responding to the second question (“what actually happened in the situation described?”) all the students agreed about the intercultural misunderstanding. we would divide the possible answers into two: » mahle was misinterpreted, i. e., her nodding hello was misinterpreted by an indigenous lady; » mahle misinterpreted the local woman, i. e., clenched fist and the words might be misinterpreted by mahle. all the students supposed the girl to be misunderstood by the local woman (“the woman was offended by nodding”, “the woman was insulted by eye contact”, “the girl humiliated the elderly woman and showed disrespect by making eye contact”, etc.), and just two students, i. e. 2,2%, assumed that the meaning of indigenous gestures could also mean something different. in such a manner, the students demonstrated some level of cultural self-awareness as they were con1 short scenario of the case (futurelearn): the case study involves a recent graduate of purdue university who graduated with a degree in engineering and a minor in business administration. mahle was hired by a very large, global equipment company. mahle was given an assignment overseas with her company. she was living in an apartment just a few blocks away from her office, and on her way to work every morning in this foreign country, in a different culture, she began to have an experience with one of the indigenous people who lived there in that city. it was a manager of a fruit and vegetable stand, and as mahle walked past the fruit and vegetable stand every morning on her way to work, this woman made eye contact with mahle and mahle nodded hello to her. however, one morning mahle encountered what we call a critical incident. this elderly woman raised her arm in the air with a clenched fist and began yelling at mahle: “foreign girl! foreign girl! brown girl! brown girl!!” mahle initially felt uncomfortable and perhaps threatened, and so she started walking much faster to get to the office that particular morning. the same thing happened next morning, and the morning after that. my question for you is, how do you think you would feel if you went through this critical incident that mahle just experienced? 15 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 figure 2 students’ reflections on the first question “what do you think you would do if you went through this critical incident?” at the beginning of studying intercultural communication course* * ic-yy-n (yyyy) – the name of students’ group, where ic – the specialty abbreviation, yy – the year of entrance, n – the group number, (yyyy) – the year of students’ questionnaire іс-18-1 (2021) іс-17-1 (2021) іс-16-1 (2020) іс-15-1 (2019) іс-14-1 (2018) іс-14-2 (2018) ignoring the situation 15 10 15 13 13 13 negative communication 0 1 1 1 0 0 positive communication 3 0 1 0 1 2 15 10 15 13 13 13 0 1 1 1 0 0 3 0 1 0 1 2 0 2 4 6 8 10 12 14 16 a m ou n t o f s tu d en ts q.1 what do you think you would do if you went through this critical incident? scious of the fact their behaviour is shaped by their cultures (nodding hello is an appropriate behaviour for them), but they missed the one that we also interpret the world based on our cultures (the yelling person makes us feel uncomfortable). the respondents also showed the minimal knowledge of cultural worldview frameworks in the way that they were able to recognize that local people may perceive non-verbal cues in the manner their culture dictates (the woman might perceive nodding as an insult) and no more than one student expected the woman to behave depending on what is appropriate in her culture (communicating so loudly might be culturally determined manner of interaction). hence, the majority (98,9%) of students demonstrated: 1) knowledge of cultural self-awareness in a part of awareness of cultural influence on their own behaviour, and 2) knowledge of cultural worldview frameworks in a part of understanding of cultural effect on how people perceive the situation. only 1,1% responded in the way to show 1) knowledge of cultural self-awareness in both awareness of cultural influence on your own behaviour and awareness of cultural influence on your perception; 2) knowledge of cultural worldview frameworks in both understanding of cultural effect on how different people perceive the situation and understanding of cultural effect on how people act (figure 3). figure 3 the components of cultural self-awareness and worldview frameworks knowledge e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 16 we could only subjectively evaluate if the students have the skills of empathy and skills of non-verbal and verbal communication, based on their responses to the third question «how do you think the indigenous woman felt in this case?». we are able to see the correlation between the answer to the previous question and to this one. the students that demonstrated the knowledge of cultural self-awareness and the knowledge of cultural worldview frameworks (1,1% of respondents) also showed the skills of empathy as long as wiliness to put themselves into the shoes of indigenous woman, to find out the reasons for her behaviour and the meaning of her verbal expressions and non-verbal cues. the rest of the students supposed that the local woman got angry for no logical reasons and there was no sense in demonstrating empathy. in this way we outlined an approximate level of the students’ intercultural competence at the beginning of studying intercultural communication. it was decided to “utilise design thinking to explore possible solutions to complex problems through interdisciplinary working in small groups” (tang et al., 2020) and to apply the design thinking approach to such activities as learning through projects realization, case studies, role plays, simulations, and films analyses, that are all practised within the intercultural communication classes to develop intercultural competence. when implementing the principles of design thinking into the process of teaching intercultural communication, we noticed that the above mentioned intercultural competence elements are interrelated with the design thinking stages. the process of obtaining intercultural competence in our interpretation looks like the stairs where to go upper you should pass the below steps first. to achieve the knowledge of cultural self-awareness and cultural worldview frameworks students must develop the attitudes of openness and curiosity, as well as they are able to gain the communication skills and skills of cultural empathy based on the knowledge of cultural self-awareness and cultural worldview frameworks. the parallel could be drawn between the process of developing intercultural competence and the stages of design thinking as both come in a linear manner. we found out that each element of intercultural competence has the corresponding stage of design thinking process that develops the component the best. for the purpose of this research, we consider the design thinking process model introduced by hpi d-school (plattner et al., 2009) implemented into the students’ project realization within intercultural communication classes. so, the understanding and observing design thinking stages foster the development of openness and curiosity attitudes as these stages involve interviewing, observation, and interpretation. during these stages team members try to gather as much information about the topic as possible which is achieved through the research (thoring et al., 2011) and involves wiliness to interact with diverse people (practising openness in other words) and searching or asking for the relevant information (i. e., practising curiosity). the main idea of point of view and ideation phases is to condense to a single prototypical user’s (müller-roterberg, 2018) problems or needs and to generate solution-oriented ideas. in the context of intercultural communication projects realization, to perform these design thinking stages students should gain understanding of other person’s needs and problems that might differ from their owns. this understanding consequently cultivates the development of cultural self-awareness and cultural worldview frameworks knowledge. prototyping and testing steps are intended to create a solution prototype and to test it. elsback k. & stigliani i. (2018) stay that the design thinking tools, among others, typically include “developing a holistic understanding of user experience through customer journey mapping” and “require individuals to empathetically engage in learning about the user experience”. based on that insight we suggest that prototyping is suitable to practise empathy in the way that within 17 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 this stage students try to feel the problem, to put themselves into the other person’s shoes, to demonstrate “the ability to understand and respond to other people’s thoughts, beliefs, values and feelings” (council of europe, 2014), and to create a prototype of the chosen solution. furthermore, it is reasonable to train intercultural verbal and non-verbal skills during the testing stage within which students are able to practice intercultural communication and test their prototypes. during each stage of design thinking we recommend to emphasize the development of certain intercultural competence element. in this way, the design thinking method application supports the development of students’ intercultural competence most effectively. this approach is presented in the framework below (figure 4). figure 4 the framework of correlation between the components of intercultural competence and stages of design thinking process the council of europe (council of europe, 2014) states that since intercultural competence is a combination of attitudes, knowledge and understanding, skills and actions, assessment of intercultural competence development needs to include both analytical measurement – involving multiple measures – and holistic judgments of individuals’ performance. that is the reason we decided to conduct the post-course survey after implementing the framework into intercultural communication course. after finishing the course the same students were invited to participate in the survey based on the same cross-cultural misunderstanding case they discussed at the beginning of the course. the participants were asked to answer the same questions on how they would feel and behave if they found themselves in the same situation. the responses happened to differ from the ones before studying intercultural communication. according to the first question responses, 91% of students demonstrated intercultural openness and almost 88% experienced curiosity trying to figure out the local’s motives (figure 5). after finishing the course most of involved students couldn’t answer the second question as they required some extra information. they concluded that mahle acted in a way that was accepted for her and her reaction to the local woman’s behaviour was shaped by her own assumptions. however, they couldn’t explain the woman’s behaviour. we interpret that as demonstrating the knowledge of cultural self-awareness and worldview frameworks. the participants supposed that the local responded based on what is appropriate for her and were reluctant to judge without additional information (figure 6). participating in other course activities besides case studies analysis students keep consciously asking questions such as “why do i act the way i do?” and e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 18 -18-1 (2021) before -18-1 (2021) after -17-1 (2021) before -17-1 (2021) after -16-1 (2020) before -16-1 (2020) after -15-1 (2019) before -15-1 (2019) after -14-1 (2018) before -14-1 (2018) after -14-2 (2018) before -14-2 (2018) after ignoring the situation 15 2 10 2 15 0 13 1 13 2 13 0 negative communication 0 0 1 1 1 0 1 0 0 0 0 0 positive communication 3 16 0 8 1 17 0 13 1 12 2 15 15 2 10 2 15 0 13 1 13 2 13 00 0 1 1 1 0 1 0 0 0 0 0 3 16 0 8 1 17 0 13 1 12 2 15 0 2 4 6 8 10 12 14 16 18 a m ou nt o f st ud en ts q.1 what do you think you would do if you went through this critical incident? awareness of cultural influence on your behavior awareness of cultural influence on your perception understanding of cultural effect on how people act understanding of cultural effect on how people perceive before 98.9% 2.2% 1.1% 98.9% after 98.9% 93.3% 96.6% 98.9% 98.9% 2.2% 1.1% 98.9%98.9% 93.3% 96.6% 98.9% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% pe rs en t o f pa rt ic ip an ts q.2 what actually happened in the situation described? figure 5 students’ responses to the first questions “what do you think you would do if you went through this critical incident?” before starting and after finishing the course of intercultural communication -18-1 (2021) before -18-1 (2021) after -17-1 (2021) before -17-1 (2021) after -16-1 (2020) before -16-1 (2020) after -15-1 (2019) before -15-1 (2019) after -14-1 (2018) before -14-1 (2018) after -14-2 (2018) before -14-2 (2018) after ignoring the situation 15 2 10 2 15 0 13 1 13 2 13 0 negative communication 0 0 1 1 1 0 1 0 0 0 0 0 positive communication 3 16 0 8 1 17 0 13 1 12 2 15 15 2 10 2 15 0 13 1 13 2 13 00 0 1 1 1 0 1 0 0 0 0 0 3 16 0 8 1 17 0 13 1 12 2 15 0 2 4 6 8 10 12 14 16 18 a m ou nt o f st ud en ts q.1 what do you think you would do if you went through this critical incident? awareness of cultural influence on your behavior awareness of cultural influence on your perception understanding of cultural effect on how people act understanding of cultural effect on how people perceive before 98.9% 2.2% 1.1% 98.9% after 98.9% 93.3% 96.6% 98.9% 98.9% 2.2% 1.1% 98.9%98.9% 93.3% 96.6% 98.9% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% pe rs en t o f pa rt ic ip an ts q.2 what actually happened in the situation described? figure 6 students’ level of cultural self-awareness and worldview frameworks knowledge assessment made up of the second question of the survey conducted at the beginning of studying intercultural communication course (before) and after finishing it (after). “why do people behave in the manner they do?”, or “how do i feel the situation?” and “how do people different from me perceive the same situation?” which also indicate the knowledge of cultural self-awareness and worldview frameworks. skills of empathy and skills of non-verbal and verbal communication are the last part of intercultural competence we evaluated within this research. the third question of the survey was asked for this purpose and these question responses also changed in comparison with the responses the students gave at the beginning of the course. the majority (96,6%) of the respondents accepted that the indigenous woman’s behaviour is shaped by her culture that may differ from theirs and concluded that they should understand and respect it. through this research we identified how the implementation of specific design thinking tools into education environment (particularly into the project realisation method) facilitates the development of specific intercultural competences within intercultural communication course. the framework of correlation between the components of intercultural competence and stages of design thinking process was designed to demonstrate these findings. 19 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 this study is the first step to reveal the ways design thinking method implemented in learning environment influences the development of students’ intercultural competence. design thinking is widely discussed by the scientific community. this paper overviews multidisciplinary studies within the field of design thinking and identifies a research gap in existing literature on how design thinking can help to strengthen students’ intercultural competence. it is possible to draw a parallel between the process of developing intercultural competence and the stages of design thinking as both come in a linear manner. the key results suggest that each element of intercultural competence has the corresponding stage of design thinking process that develops the component the best. to demonstrate that correlation the framework as an approach to show the effectiveness of improving certain intercultural competence during each stage of design thinking process was designed for both educators’ and researchers’ usage. the survey of undergraduate students for use in the research was conducted at the beginning and after finishing the intercultural communication course. we could observe the increase in students’ intercultural competences such as attitudes of openness and curiosity, knowledge of cultural self-awareness and worldview frameworks, skills of empathy and skills of non-verbal and verbal communication. the questionnaire was intended to help educators to understand how design thinking implementation into learning environment affects students’ intercultural competence level. intercultural competence can be taught in numerous ways and use various approaches, e. g. humour and irony (gornostaeva, 2019) or heavy metal music (guberman, 2020). however, based on the results of the study, we recommend educators to take into consideration our framework of students’ intercultural competence and design thinking process correlation and to use design thinking method to develop intercultural competence at their classes. our further research will try to determine how involving case studies and movies analysis in the learning process helps to develop students’ intercultural competence. references association of american colleges and universities (aac&u). 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(2020). developing critical thinking, collective creativity skills and problem solving through playful design jams. thinking skills and creativity, 37. issn 1871-1871. https://doi.org/10.1016/j.tsc.2020.100696 thoring, k., & müller, m. r. (2011). understanding design thinking: a process model based on method en21 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 gineering. international conference on engineering and product design education, 8 & 9 september 2011, city university, london, uk. retrieved from https:// www.researchgate.net/publication/234065413_understanding_design_thinking_a_process_model_ based_on_method_engineering thoring, k., luippold, c., & mueller, r. (2014). the impact of cultural differences in design thinking education. design research society's conference. retrieved from https://www.researchgate.net/ publication/261357176_the_impact_of_cultural_ differences_in_design_thinking_education vintere, a. (2019). pedagogical approaches to problem solving in higher education. research for rural development, 2, 255-259. https://doi. org/10.22616/rrd.25.2019.077 hantsiuk tetiana phd in public administration, associate professor ivano-frankivsk national technical university of oil and gas, ukraine fields of interests intercultural communication, information and analytical support mechanisms. address 15 karpatska str, ivano-frankivsk, 76019, ukraine +380 997994222 tetiana.hantsiuk@nung.edu.ua vintoniv khrystyna phd in history, associate professor ivano-frankivsk national technical university of oil and gas, ukraine fields of interests archives, ukrainian diaspora, mass media. address 15 karpatska str, ivano-frankivsk, 76019, ukraine +380 673429605 khrystyna.vintoniv@nung.edu.ua opar nataliia phd in public administration, associate professor ivano-frankivsk national technical university of oil and gas, ukraine fields of interests higher education quality, e-services, english academic writing. address 15 karpatska str, ivano-frankivsk, 76019, ukraine +380 957825418 nataliia.opar@nung.edu.ua about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). hryvnak bohdan phd in philosophy, associate professor ivano-frankivsk national technical university of oil and gas, ukraine fields of interests philosophy of education, science of law. address 15 karpatska str, ivano-frankivsk, 76019, ukraine +380 506851024 bohdan.hryvnak@nung.edu.ua the paper was prepared within the framework of the joint ukrainian-lithuanian r&d project “competence development of lithuanian and ukrainian public sector employees using design-thinking methodology”. agreement no. s-lu-20-5. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 166 abstract artificial intelligence and competition law – challenges for bosnia and herzegovina http://dx.doi.org/10.5755/j01.eis.1.16.31225 kanita imamović čizmić university of sarajevo – faculty of law, bosnia and herzegovina european integration studies no. 16 / 2022, pp. 166-176 doi.org/10.5755/j01.eis.0.16.31225 introduction submitted 04/2022 accepted for publication 07/2022 artificial intelligence and competition law – challenges for bosnia and herzegovina eis 16/2022 the digital economy is characterized by new business models based on the use of electronic communications and digital technology for the production and distribution of goods and services. big data is becoming an invaluable resource in the functioning of the digital economy. in order to survive in the market and be more competitive, firms are changing the way they make their strategic decisions and are increasingly resorting to the use of big data and technologically advanced tools, such as pricing algorithms. companies increasingly use computer algorithms to improve their pricing models, adjust services and predict market trends, which is recognized as a model to increase efficiency. the use of algorithms in everyday business brings benefits to businesses, consumers and, ultimately, society as a whole, but it also raises a number of legal issues. many questions also arise in competition law, which aims to protect the competition process in the market by banning certain business practices. use of algorithms can be new sophisticated method, which will make easier for companies to reach and maintain collusion without any formal agreement or human interaction. the use of algorithms contrary to the provisions of competition law, raises the question of whether competition authorities need to improve existing tools for detecting prohibited agreements as well as a number of other issues. bosnia and herzegovina is a country in transition with a small open economy, which has the status of a potential candidate for eu membership. modern competition law in bosnia and herzegovina is the result of foreign pressure and meeting the conditions for membership in the european union. lawmakers in bosnia and herzegovina face the challenge of harmonizing competition law with the acquis and improving methods and tools that would enable the council of competition, as a body to protect competition in bih, to respond to the use of algorithms for illicit business practices. the paper aims to investigate whether and to what extent business processes in bosnia and herzegovina have been digitized, i.e. whether business entities use algorithms and to what extent, and whether and to what extent the bih council of competition is ready for challenges of competition law in digital economy. keywords: competition law, algorithmic cartels, digitalisation, council of competition due to the accelerated digitalisation process of the economy, the conditions of market competition also change, and the companies accept the new rules of the market game if they want to keep on playing it. aware of the benefits that the digitalisation of the economic process brings, when resolving the fundamental issue of determining the prices of their outputs as well as making various business decisions, the companies use artificial intelligence, meaning business algorithms. pricing algorithms serve the companies to carry out the assessment of the situation on the market in terms of the demand and predictions regarding the change in prices of their outputs, as well as to analyse and predict the actions of buyers and then make business decisions based on that. however, it happens in practice that the pricing algorithms are used as an instrument for the realisation of cartel agreements which distort, restrict, and prevent competition on 167 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 a specific market and decreases the consumers’ welfare. due to their specificities and the fact that it is the case of a relatively new occurrence, algorithmic cartels represent a challenge for the competition bodies both in terms of detection and analysis of the prohibited conduct. bosnia and herzegovina is a country in transition and development with a small open economy, which just started to move towards the adoption of a modern competition law in the early years of the 21st century. it is clear that this process is long and slow and that the development of competition law culture and awareness on the legal protection of competition requires some time. this is especially true when it is the case of a country such as bosnia and herzegovina, which functioned under command economy for almost the entire second half of the 20th century. modern competition law in bih is largely harmonised with the european law and there are legal and institutional preconditions for the protection of market competition in bih. in terms of institutional preconditions, the law on competition of bosnia and herzegovina established the competition council as the body in charge of public application of the competition law. the competition council is a small body with a small budget, and as such, it faces challenges concerning the application of competition law in digital economy. as one of its tasks, the competition council is obliged to promote competition in order to see the development of competition law awareness between the companies and consumers, and the second one is related to ensuring the continuous development in terms of acquiring knowledge and skills in order to detect prohibited actions in the digital environment. the task of this paper is precisely to examine whether and to what extent the digital processes in bosnia and herzegovina are digitalised, meaning whether the business enterprises use algorithms and to what extent, and whether and to what extent the council of competition of bih is ready for the challenges pertaining to the application of competition law in the context of the digital economy. the basic premise is that the higher level of digitalisation of business operations and the usage of business algorithms creates greater opportunities to misuse them in terms of violations of the competition law. in order to respond to the set task, a survey was conducted among the bodies for the protection of market competition in bosnia and herzegovina, republic of croatia, republic of serbia, and montenegro. the paper is structured in two segments. the first segment presents the theoretical framework of the problem in which the relation between the digitalisation of business operation and the possibility of emergence of algorithmic cartels has been outlined. the second segment carries an analysis of the status of digitalisation of operation in bosnia and herzegovina on the basis of secondary sources, as well as the presentation of the poll results. the theoretical framework of the problem posed the digitalisation of the economic process has resulted with the fact that the combination of large data and the use of computer algorithms is considered a way to achieve the competitive advantage of the company. namely, even though the digitalisation process is slow, a growing number of companies reach their commercial and strategic decisions based on results and the use of various algorithms which serve to enhance their business models, adapt the services, and predict market trends. the use of computer algorithms in business operation ensures the companies a greater efficiency in doing business, and also brings forth the benefits to consumers in terms of new, better, and more customised products and services. the use of computer algorithms in everyday business opens up many regulatory issues. one of the areas that will certainly require modernisation is the competition law, which is designed in order to protect the market competition process for the purpose of ensuring the consumer welfare. computer algorithms have been around ever since the computers were invented, but it is only recently that they have acquired the level of complexity and the scope of action with which they can significantly affect the lives and rights of individuals (bošković batarelo, n. d.). intuitively, an e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 168 algorithm is a sequence of rules which should be executed in the correct order in order to perform a specific task. therefore, an algorithm is a logical sequence that generates an output from the default input, whether it is the case of a method for solving mathematical problems, a recipe for food or a music sheet. an algorithm is an unambiguous, precise, list of simple operations applied mechanically and systematically to a set of tokens or objects (e.g., configurations of chess pieces, numbers, cake ingredients, etc.) (wilson & keil, 1999). algorithms are also associated with the concept of artificial intelligence (ai), a branch of computer science that studies and designs intelligent agents which should be capable of performing tasks of significant difficulty in a way that is perceived as “intelligent” (swarup, 2012).1 the simplest definition of ai is computers performing tasks that were previously thought only capable of being performed by human beings or requiring human intelligence. ai also encompasses machine learning in which machines use rules to analyse data, identify and recognize patterns, and make predictions (shields, 2019, p. 14). machine learning represents a segment of artificial intelligence which has a goal to create intelligent machines by using algorithms that learn by repeating the data and experiences. deep learning is a segment of machine learning that enables the computer systems to learn with the help of a complex software which tries to replicate the activity of human neurons by creating an artificial neuron grid and which can be within supervised or non-supervised systems (solaiman, 2021, p. 1109). on the use of algorithms and artificial intelligence in business operation, meaning on “business algorithms” which refer to the use of complex algorithms in order to improve the business decisions and automation of the process for the purpose of increasing the competitive advantages of companies write stucke and ezrachi (2016). although a certain number of companies are still at an early stage of adopting algorithms, which depends on the economy digitalisation degree of each particular state, a growing number of companies at the global level rely on them today for predictive analytics and optimisation of business processes. therefore, the companies use algorithms in order to project future outcomes based on analysing the available data on the facts that took place. by using algorithms, the companies can perform demand estimation for their products and services, predict the change of prices, predict the actions and preferences of consumers, estimate the risks and predict endogenous or exogenous shocks that might affect the situation on the market, such as the entry of new competitors, changes in foreign currency exchange rates, inflation or wars. by using algorithm outcomes in decision-making, the companies create preconditions for more efficient business operation because they can plan their strategies better, while the decisions on investments and development are based on deeper and more precise analyses. on the other hand, more efficient operation is the result of the fact that business enterprises use algorithms in order to reduce the production and transaction costs, segment the consumers or create optimal prices (oecd, 2017, p. 13). all this leads to a conclusion that digitalisation and the use of algorithms represent a competitive advantage for a company and change the conditions of competition on the market. the emergence and use of digitalisation and artificial intelligence has placed the legal science and practice before numerous challenges. one of the scientific areas that certainly has to move towards reconceptualization, modernisation and improvement in order to respond to the demands of reality is the competition law. competition law has a goal to protect the competition on the market in order to ensure the consumer welfare and also enable all benefits carried by the competition in terms of lower prices and larger assortment and quality of products, larger investments in research and development, 1 artificial intelligence was the field of work of john mccarthy in 1956. it is most certain that the modern use of the concept of artificial intelligence is different than the one in first stages when the machines were programmed by giant lists of detailed rules with the goal of reproducing human thoughts. the use of algorithms that “teach machines to learn” has made artificial intelligence more efficient. 169 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 larger efficiency of business operation and finally larger degree of the economic development of the country (barry & macculloch, 2001, p. 10; orbach, 2013). competition law prohibits business practices which violate, restrict or prevent market competition. one of such prohibited business practices, which are labelled as anticompetitive in all competition law regimes, are cartels. cartels are, therefore, prohibited agreements that contain serious restrictions of market competition (so-called hard core restrictions) because they fully eliminate the competition at the expense of other market competitors, consumers, and economy as a whole. it is the case of agreements which have a goal to restrict the market competition by price fixing, restricting the production or dividing the market or consumers. these restrictions are considered particularly harmful because fixing the prices or restricting the production leads to buyers paying higher prices or not being supplied with the necessary quantities of the products (kapural, 2008, pp 83-92.) in charge of protecting the competition are special public bodies that have several tools at their disposal to detect and process cartel practices known under the name repentance program. however, as much as algorithms serve to increase the efficiency of business operation, the practice shows that it sometimes happens that the companies use algorithms in order to fix prices, which means that algorithms become instruments for the realisation of cartel agreements (algorithmic cartels). indeed, in generating greater efficiency, algorithms create huge pro-competition effects. at the same time, the concern over the risks that algorithms create is growing, which is an argument for the authors who contest the economic and social benefits of the use of algorithms. from the perspective of competition law, algorithms represent a unique challenge. even though they can be used to improve the operation of business enterprises, algorithms also enable the enterprises to more efficiently “collude” on the conditions of sale and activities on the market. cartels are very similarly defined by laws in the majority of competition law regimes, which is a consequence of the impact of globalisation on the standardisation of legal rules. laws often provide an exemplary list of the potential business practices that are characteristic for the cartels. the application of artificial intelligence or the issue of instrumentalising algorithms for the purpose of cartel agreements are in the focus of work of ezrachi and stucke (2017). according to their opinion, there are four possible scenarios for the use of algorithms (ai), and they are: 1) messenger; 2) hub and spoke; 3) predictable agent; and 4) digital eye. in the messenger scenario, it is the people who consciously and deliberately use artificial intelligence as an instrument to implement a cartel. in the hub and spoke scenario, one algorithm is used to fix the price by several other firms (users) who did not have a previous agreement on pricing, which results with an increase and balancing of prices. in the predictable agent scenario, different players on the market use individual, but very similar algorithms which operate interdependently. this situation results with tacit collusion (or conscious parallelism) and yet again this practice leads to higher prices. in the digital eye scenario, individual algorithms learn about the market and “autonomously define the funds for the optimisation of profits”. this case is highly problematic on its own due to the “autonomy” of algorithms which create the “conscious parallelism” and the question raised is whether an individual can be held responsible for the increase in prices (krausová, 2019, pp. 79-84). since the competition may be threatened in many markets due to “algorithmic collusion”, it is important to analyse the algorithmic cartels and assess the implications of law and competition policy (isgenc, 2021). also, it is particularly important to examine whether the existing tools and regulatory framework which the competition bodies use to detect and process the “classical cartels” can respond to the challenges of anti-competition instrumentalisation of algorithms for the purpose of collusion. this conclusion is supported by the fact that certain relevant international institutions, such as oecd, as well as the bodies for the protection of market competition in france and germany agree in terms of the fact that some anti-monopoly tools e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 170 need to be adapted in order to fully review the implications of the new economic reality on the market competition policy (lacerda, 2017, p. 30). to analyse the situation in terms of digitalisation of the bosnian and herzegovinian economy and business operation in the scope of this research has a goal to create an image on how many preconditions for the realisation of “cartel agreements” the companies have. bosnia and herzegovina is a country of complex state arrangement, a country in transition and development, with a small open economy. according to the world bank data, bosnia and herzegovina’s gdp amounted to 9.79 billion usd in 2020, while the per capita gdp amounted to 6180.00 usd with a total population of 3.3 million (world bank, n. d.). the transition process of the economic system from the command economy towards market economy was initiated in the 1980s and there are various opinions concerning the quality and successfulness of it (stojanov, n. d.). following the footsteps of the neighbouring countries which used to be federal states within the sfr yugoslavia, and bearing in mind the benefits of membership in the european union, bosnia and herzegovina has opted for the path towards membership in this european community. on this path, bih faces numerous challenges regarding the fulfilment of criteria for membership and the reports of the european commission speak of the slow progress the country is making. in terms of the digitalisation of the economy in bosnia and herzegovina, august 2021 saw the launch of the study on digital transformation of companies in bosnia and herzegovina, created in cooperation between the association for digital transformation in bosnia and herzegovina, deutsche gesellschaft für internationale zusammenarbeit (giz) gmbh, and the federal ministry for economic cooperation and development (bmz) of the federal republic of germany (udruženje za digitalnu transformaciju, 2021). the goal of this study is to contribute to the policy making and dt growing mechanisms through the evaluation of the level of digitalisation of business in bih, as well as to help identify the barriers and motivational factors. methodological framework of the study is harmonised with the following two international reports the digital economy and society index (desi) (european commission, 2020) and digital transformation scoreboard 2018 eu (probst et al., 2018). the aspect of measuring the digitalisation of business operation was conducted in four directions: electronic exchange of information, social media, big data, and cloud. according to the study, 24% of the companies in bih have integrated internal processes and use electronic exchange of data, which is why bih is positioned on the very bottom of the european countries in terms of this indicator. only turkey, romania, hungary, and bulgaria are positioned below bih. the use of social media means that the company has a user profile, account, or a user licence, depending on the demands and type of social media. bosnia and herzegovina, meaning the companies that were tested in bih, is once again at the very bottom of the table. namely, only 14% of the companies use a minimum of two social media (i.e. they have a user profile, account, or a user licence). again, only hungary, bulgaria and romania are behind bih. when it comes to companies that analyse large data from any source of information, there are only 5% such companies in bih. cloud indicator shows the percentage of companies that buy at least one of the following services of cloud computing: database hosting, accounting software applications, crm software, and computer power. the use of e-mail in the scope of cloud services is present with 7% of the companies in bih, while this is the case with 27% of the companies in the eu. among the companies that participated, cloud technologies were mostly adopted by large companies (57.1% of them), they are then followed by micro companies (48.8%), medium (40.7%) and small-sized (35%). “electronic trade” within the eu desi index is measured by using the three basic indicators: small and medium-sized enterprises (sme) which trade over the internet, e-trade profits and cross-border internet sale. sme sales over the internet is an indicator digitalisation of the economy and business operation in bosnia and herzegovina 171 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 that shows the percentage of smes that trade over the internet and thus attain at least 1% of their turnover. the analysis includes all companies with 10 to 249 employees (without the financial sector). according to the study, bih has registered a drop in 2020, unlike large number of the eu countries. in 2020, denmark, ireland, and iceland were at the top of the list with 36%, 35%, and 34% of companies that attain at least 1% of their income from electronic trade. on the bottom of the table are bulgaria, turkey and northern macedonia. bih is a little below the eu 27 (17% of the companies in bih, and 19% of the companies in eu 27). however, in terms of medium-sized enterprises, there has been a growth in most of the countries. the data for bih shows that it sits just a little below the eu 27, and in front of 10 european countries. when it comes to income from e-trade, the study shows that the overall turnover of small-sized enterprises from e-trade amounts to 5% in bih, 14% in denmark, and 2% in bulgaria and cyprus. there is a visible trend of decline in revenues in bih since 2018. however, the biggest decline in revenues from e-trade was registered in ireland (from 29% in 2019 to 13% in 2020). when it comes to the percentage of companies that buy online, bosnia and herzegovina is at the bottom of the list of european countries in this aspect as well. in terms of cross-border internet sales referring to the percentage of small and medium-sized enterprises (smes) that make electronic sales to other eu countries (without the financial sector), according to the study, a total of 9% of small enterprises from bih make electronic sales to other eu countries, which positions it above the eu 27. in relation to the regional countries, croatia and montenegro are in front, while serbia sits behind bih. for the purposes of this research it is also necessary to present the findings from the study which say that only 9% of the companies use big data and analytics, and the largest adoption rate is in companies that have 10 to 49 employees (15%), which is followed by companies that have 50 to 249 employees (13%). on the other hand, a very small number of large (7.1%) and micro companies (5%) use some sort of data analytics. the adoption of artificial intelligence positively correlates with the company’s size. the bigger the company, the bigger the probability that it will adopt some of the technologies of artificial intelligence. as far as micro companies are concerned, artificial intelligence was adopted by 2.5% of the companies. the analysis of the study data leads to the conclusion that the level of digitalisation of business in bih is low. when this conclusion is joined with the assumption on correlation of the level of digitalisation of business and the emergence of cartel agreements, it can be said that the possibilities of using business algorithms for the purpose of violating the competition law in bih are quite small. the general framework agreement for peace in bosnia and herzegovina (dayton peace accords), in its annex 4, has established the constitutional arrangement of bosnia and herzegovina that consists of two entities (federation of bih and rs) and brcko district and specified their competences. annex 4 (the constitution of bih) guarantees a single economic space in bosnia and herzegovina, and in terms of the division of economic-political competences, the principle of economic federalism is applied. the competence of regulation and protection was assigned to the state institutions of bosnia and herzegovina. modern competition law starts to emerge in the 2000s and is a consequence of foreign influence expressed through the drafting of the project entitled “single economic space in bih)2. disorganised social ambient for doing business, disintegration of the economic space, and the economic stagnation alone have largely contributed to the fact that up until 2002, only some instruments of 2 project entitled “single economic space” within the cards programme was completed in june 2005 and it focused on three key economic areas: a) competition, b) consumer protection, and c) freedom of transport and safety of industrial products. project activities were created with the goal to assist the establishment of a truly single market in bosnia and herzegovina, which represents an important step on the path towards european integration. competition law in bih – algorithmic cartels and the challenges they carry e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 172 competition law and policies were regulated in an isolated manner and unsystematically, and also only within few entity-level trade laws. in order to achieve the tasks set within the project “single economic space in bih”, the process was launched in 2001 to construct a legal pyramid for the protection of market competition in bosnia and herzegovina, and it is today comprised of: constitution of bih, entity constitutions, law on competition of bih (loc), law on administrative procedure, law on trade of fbih (lex specialis), law on trade of rs (lex specialis), law on consumer protection of bih, law on copyright and related rights and law on the collective management of copyright and related rights, laws on electric utility company and telecommunications (law on electric power, law on transmission of electric power, regulator and system operator in bih, law on communications), laws from the field of transport (law on aviation of bih, entity railway laws, law on posts of bih), criminal laws (state and entity-level), law on business entities of fbih, law on business entities of rs, law on public enterprises in fbih, law on public enterprises in rs, law on foreign trade policy of bih, other laws and bylaws of the council of competition (organisational and substantive, regulations concerning penal policy and group exemptions etc.). the law on competition of 2001 represents the first law to contain modern solutions for the protection of competition, but it also had a series of limitations: constitutional division of competences between the state and entities, low level of integration of the economic space of bosnia and herzegovina, underdeveloped institutions, placement of the protection of competition and consumers on entity-level in the same body – offices for the protection of competition and consumers, highly scarce substantive legal regulations of monopolistic actions, including a new instrument –concentration control, and a complete absence of sanctions for anti-competition offences. because of these reasons it was necessary to approach to the passing of a new law which would be harmonised with anti-trust law of the european union. based on article iv, paragraph 4a of the constitution of bosnia and herzegovina, parliamentary assembly of bosnia and herzegovina, at the session of the house of peoples held on 29 june 2005, adopted the law on competition – loc. this was the first official legal act that followed the practice and solutions of modern european legislation – legal acquis of the european union, adopted with the goal to fulfil the obligations on the path towards european integration. the loc is for its most part compatible with rules and regulations of the european union from the field of market competition. the application of loc should result with greater efficiency and transparency in the procedure for the protection of market competition in bosnia and herzegovina, in the sense of simplified procedures, reduced duration of certain stages of the procedure and similar. in the application of loc and other pieces of legislation regulating the issue of competition, the dominant principles are lex specialis derogat legi generali and lex posterior derogat legi priori (imamović čizmić, 2014, pp. 5556). the law on competition of 2005 is largely harmonised with the european standards, which was also an obligation of bosnia and herzegovina according to the article 71 of the stabilisation and association agreement. consequently, the loc in its article 4 almost identically regulates the cartel agreements as it was done by article 101 of the treaty on the functioning of the eu, which means that there are legal presumptions for tackling these socially undesirable business practices in the economy of bih. the eu competition law leaves it at the disposal of member states to freely create the bodies for the protection of competition in the sense of structure and competences. from article 20 to article 62, the loc regulates the composition, competences, and the procedures of the council of competition as the body in charge of implementation of the law. the manner in which the regulation of the issues of structure, competences, and operation of the coc was carried out implies that the coc should perform the role usually played by the market competition regulators in transitional countries. however, unlike some other transitional states, the operation of coc is affected by the specificities of the legal order, sui generis of the 173 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 state arrangement, disintegrated economic space and slow pace of bosnia and herzegovina’s economic recovery. when it comes to cartel agreements, the coc has a significant instrument in terms of detecting them at its disposal, determined by the regulation on the procedure for granting immunity from fines (leniency policy) (“official gazette of bih” no. 34/10). the regulation foresees the conditions under which the companies are granted immunity from fines if they submit evidence on a voluntary basis relating to the presence of cartel agreements and violations to the article 4 of the loc, unknown to the coc at the moment of submission and which would enable issuing a specific resolution authorizing an initiation of proceeding against the company suspected of violating the law. according to the work reports of the coc for the period of 2017 to 2021 (table 1), the coc has solved a relatively small number of cartel agreements, which was expected considering the small market and undeveloped competition law culture, which is a presumption for detecting the consequences and characteristics of this type of prohibited actions. table 1 the number of solved cases of cartel agreements of the council of competition subject 2017 2018 2019 2020 2021 prohibited agreements (cartels) 5 4 3 1 4 125 given the set goal of the research, and in order to apply the comparative method, an online survey was created and sent to market competition protection bodies of bih, republic of croatia, and republic of montenegro, countries that share the competition law legacy of the former sfry. all of the selected states have committed to the path towards eu membership whereby only croatia is a full member of the eu. the survey was structured in five questions and has the goal to determine whether the competent bodies had any experiences in solving algorithmic cartels and what their perception of readiness, in terms of technical and human capacities for solving such cases really is. regarding the first question that stated “in the period from 2017 to 2021, before the competition body you operate in, was processed the following number of cases of prohibited collusion (cartels)” – the following answers were offered: a) 0-3 b) 3-5 c) 5-10 d) 10 and more. the second question referred to the “perception of the existence of cartels in practice” and the body for the protection of market competition was asked for an opinion whether the processed number of “cartel” cases corresponds to the situation in practice. the answers offered were: a) less than actual business practices that violate legal provisions that prohibit cartels, b) corresponds to the situation in practice, c) i have no perception on the correspondence of the number of processed cases with the number of realised legally banned cartel business practices. the third question had the goal to examine whether and to which extent the cases of algorithmic cartels appear before the body in charge of protection of competition. the question read “within the processed cases of cartel actions in the period from 2017 to 2021, there were”. the answers offered were: a) there were no “algorithmic cartels” b) there were less than 10% of “algorithmic cartels” c) there were 10% to 30% of “algorithmic cartels” d) there were 30% to 60% of “algorithmic cartels” e) there were more than 60% of “algorithmic cartels”.3 45 3 two decisions were made to suspend the proceedings. 4 one request for determining a prohibited agreement was suspended. 5 the report encompasses data on prohibited agreements and abuse of dominant position e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 174 the fourth question had the goal to determine the type of algorithmic cartels that are solved before the competition protection body. the question read “the largest number of “algorithmic cartels” that were processed had the characteristics of”. the answers offered were: a) a classic cartel agreement where the companies deliberately used pricing algorithms to carry out their secret plans and colluded in coding the algorithms to align the prices, b) cartel agreement where the competitors used the same or similar algorithms without initial agreement, hiring the same computer firm so the collusion on prices resulted as a consequence of that fact, c) cartel agreement where the companies develop algorithms for determining the prices with the goal of maximising the profits by setting the prices above those in the competitive market. other competitors also followed that strategy in order to support the competitor’s scheme, d) cartel agreement which arose due to the use of self-learning algorithms. finally, within the fifth question, an attempt was made to examine the assessment of readiness for the challenges of solving the algorithmic cartels from the very competition protection bodies. the question read “in the context of the existence of “algorithmic cartels” on a relevant market, which is defined by the law on competition applied by the competition body you operate in, do you consider that: a) considering the growing degree of digitalisation of business and higher probability of an emergence of “algorithmic cartels”, it is necessary to increase the material and human capacities in the sense of acquiring new technology and enabling additional education of the staff in charge of the cases in order to be able to answer the challenges of detecting and processing this type of prohibited activities in an adequate manner, b) competition body in which i operate is properly equipped in the sense of technology and knowledge and able to respond to the challenges of emergence of a larger number of “algorithmic cartels”, c) in this moment it is impossible to give an assessment on readiness of the competition body i operate in to the challenges of emergence of “algorithmic cartels”. within the three-week period that was given, the survey was completed by two bodies for competition protection, the one from bosnia and herzegovina and the one from montenegro, which is enough for a comparative analysis. the analysis of replies on survey questions shows small or almost no differences at all in terms of the situation in practice and the perception of readiness for the challenges of solving the algorithmic cartels from the very competition protection bodies. namely, the number of cartel cases before the council of competition for the reference period was 10 and more, and before the agency for protection of competition of montenegro 5 to 10, which was to be assumed considering the size of the economy, meaning the size of the market of the two countries. furthermore, the replies from both bodies point out that there were no (or it was an insignificant number) algorithmic cartel agreements, which was also expected considering the degree of digitalisation of business in these countries. the perception of both bodies to the challenges of solving algorithmic cartels is the same. namely, the need to increase the material and human capacities in the sense of acquiring new technology and enabling additional education of the staff in charge of the cases in order to be able to answer the challenges of detecting and processing this type of prohibited activities in an adequate manner was confirmed. in line with the analyses of survey results, it is possible to draw a conclusion that the number of algorithmic cartels in the competition law practice of bih corresponds to the degree of digitalisation of business in bih and that the council of competition is aware of the challenges that this occurrence brings, as well as the need to improve the financial, material, and human capacities in order to be able to properly process this type of violations to the competition law in bih in the future. 175 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the use of algorithms in business processes is increasingly becoming the model to raise the competitiveness of companies because they ultimately lead to the reduction of expenses and greater efficiency. in order to better position themselves on the market, more and more companies make their commercial and strategic decisions based on results and the use of various algorithms which serve them to improve their pricing models, customise their services, and predict market trends. the use of pricing algorithms is not forbidden, but it is forbidden to collude on prices via algorithms. namely, the competition law has developed a special category of prohibited actions under the name of algorithmic cartels which include a minimum four scenarios of violations to competition law through the use of pricing algorithms. algorithmic cartels represent a challenge for competition bodies both in terms of detecting them and in terms of determining the responsibility for the violations to competition law. the paper examines the issue of the existence of algorithmic cartels in competition law in bosnia and herzegovina and the readiness of the competition council to respond to the challenges posed by the existence of cartel agreements. the basic premise is that the higher degree of digitalisation of business operation creates greater presumptions for the existence of this type of prohibited agreements in competition law. the paper is composed of two segments, the theoretical one, which served to present the conceptual framework of the set segment, and the research segment. in the research segment, the results of the survey are provided and the conclusion is drawn. generally, in the case of bosnia and herzegovina as well, a hypothesis is confirmed that the process of digitalisation conditions the existence of algorithmic agreements and that detecting and processing them requires an adjustment of methodological tools, which stipulates the improvement in terms of financial, material, and human capacities of competition bodies. conclusion barry, j. r. & macculloch, r. 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(2016). when competition fails to optimize quality: a look at search engines. yale journal of law & technology, 18, 70-110. https://doi.org/10.2139/ssrn.2598128 swarup, p. (2012). artificial intelligence. international journal of computing and corporate research, 2(4), http://www.ijccr.com/july2012/4.pdf udruženje za digitalnu transformaciju (2021). "studija o digitalnoj transformaciji kompanija u bosni i hercegovini" i faza. retrieved april 13, 2022, from https://www.udt.ba/studija-o-digitalnoj-transformaciji-kompanija-u-bosni-i-hercegovini-i-faza/ wilson, r. a. & keil, f. c. (1999). the mit encyclopaedia of the cognitive sciences. mit press. world bank (n. d.). the world bank in bosnia and herzegovina. retrieved april 13, 2022, from https:// www.worldbank.org/en/country/bosniaandherzegovina kanita imamović čizmić phd, associate professor university of sarajevo – faculty of law fields of interests economic policy, law and economy, competition law, regulatory impact assessment address: obala kulina bana 7, 71 000 sarajevo, bosnia and herzegovina +38733483648 k.imamovic-cizmic@pfsa.unsa.ba about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 84 issn 1822–8402 european integration studies. 2014. no. 8 integrated evaluation of the sustainable development of knowledge based economy in baltic countries kestutis krisciunas, aurelija cizauskaite-butkaliuk kaunas university of technology, institute of europe of faculty of social, arts and humanities, lithuania mickevicius str. 37, kaunas, lithuania e-mail: kestutis.krisciunas@ktu.lt, aurelijacizauskaite@gmail.com http://dx.doi.org/10.5755/j01.eis.0.8.6961 baltic countries are faced with a variety of challenges, determined by globalization, economic competition, technological changes, promotion of innovation, protection of environment and other factors. they are discussed in conferences, publications of social researches as well as declared in strategic documents. sustainable development and promotion of knowledge based economy being perspective directions in socio-economic development are still problematic areas in lithuania taking into account the context of other european union (eu) countries. for example, estonia, which joined eu in 2004, like lithuania and latvia, demonstrates better results. understanding of this discrepancy is one of the objectives of this article. our viewpoint is that not enough has been done to evaluate results in development of knowledge based economy by taking into account leading parameters of environmental sustainability (energy intensity in the economy, level of sustainable consumption and production, correlations between climate change and energy, prevalence of sustainable transport, consideration of natural resources). on the other hand, it is not perspective to evaluate the level of sustainable development without the analysis of the intensification of the main pillars of knowledge based economy like level of innovations and education. it seems that it is important to look at local, national and global context as well as research in private and public sectors. the progress in both – socio-economic and environmental sectors is likely as a holistic result. not occasionally main documents of eu fixating the principles of the sustainable development and the knowledge based economy are written in close correlation: the priority of the strategy of europe 2020 is to develop smart, sustainable and inclusive economy. eco-friendly environment is promoted in innovation union (the strategy of eu) too. in the communication from the commission to the european parliament, the council declared that knowledge is the currency of the new economy and that sustained and greater investment can increase the competition level within national borders. the purpose of the study is to evaluate the level of sustainable development and knowledge based economy in baltic countries by using the original integrated multi-criteria sustainable knowledge based economy index. the following tasks were used: 1) to reveal the importance of sustainable development and knowledge based economy for baltic countries in the context of the countries of eu, 2) to analyse indicators of sustainable development and knowledge based economy in baltic countries in 2008–2012 year period, demonstrating contemporary situation and possibilities for improvement. the research was made, using quantitative and qualitative methods: literature analysis, statistical classification, systematization, synthesis, comparison and generalization. the aim of the study was reached using the original integrated multi-criteria sustainable knowledge based economy index. it consists of the following sub-indices: socioeconomic development, environment, human resources, innovation and information communication technologies. determined index is useful because of its flexibility (on demand there can be changed indicators, periods and sub-indices). it could help to evaluate any interdisciplinary things (objects of low, socioeconomic, knowledge, environmental, technologies). creating and using new methodologies for evaluating different aspects of countries development could help in fostering their competitiveness. keywords: knowledge based economy, sustainable development, sustainable knowledge based economy index, integrated evaluation, multi-criteria index. introduction development processes in the baltic region could be defined as an important factor of complex societal modernization in the baltic countries as well as in central and eastern europe (melnikas, b., 2008). lithuania, estonia and latvia, like other countries in europe, are facing many challenges and need to: create job opportunities for everybody, especially the young, get the economy back on track, make companies more competitive in the global market, solve the challenges for an ageing population, secure resources like food and fuel, fight global warming, improve smart and green transport (european commission, 2013). all those challenges are interdisciplinary (objects of law, socio-economy, knowledge, environmental, technologies) and have a strong correlation with the competitiveness of the economies of the baltic countries. the principles of sustainable development and aspirational knowledge based economy are mentioned in strategic documents of eu as well as in documents at national, regional and local levels. modernization of countries’ economies and issues pertaining to the formation and implementation of mentioned policy are widely discussed in academic and practical environments. sustainable development and knowledge issn 1822–8402 european integration studies. 2014. no. 8 85 based economy like complementary principles and processes for competitive and modern economy are analysed in the publications: krisciunas (2010), melnikas (2008, 2010, 2011), ciegis, kareivaite (2012), sirbu, doinea, mangra (2009), nguyen (2010), sabau (2010), ivancheva (2013), wang, ma, weng, wang (2004), grizans, vanags (2010) and others. the sustainable development and the knowledge based economy are especially important in long-term approach and they have to have a methodology of the evaluating of the processes. nevertheless, till now a suitable aggregated indicator has yet to be created. the aim of the study is to estimate the level of sustainable development and knowledge based economy in baltic countries by using the original integrated multi-criteria sustainable knowledge based economy index. the following tasks are defined: 1) to reveal the importance and coherence of sustainable development and knowledge based economy for baltic countries in the context of eu, 2) to analyze indicators of sustainable development and knowledge based economy in baltic countries in 2008-2012 period, analyzing the contemporary situation and improvement possibilities. the research was made, using quantitative and qualitative methods: literature analysis, statistical classification and systematization, synthesis, comparison and generalization. the aim of the study has been reached using the original integrated multi-criteria sustainable knowledge based economy index. it consists of the following sub-indices: socioeconomic development, environment, human resources, innovation and information communication technologies. determined index is quite universal because of its flexibility (on demand there can be changed indicators, periods and sub-indices). it could help to estimate any interdisciplinary things (as objects of law, socio-economy, knowledge, environmental, technologies, etc.). creating and using new methodologies for estimating different and correlated aspects of countries’ development could help in fostering their global competitiveness. theoretical approach to the estimating of sustainable development and knowledge based economy in the countries sustainable development is a concept which was introduced and become popular after 1987 when the world committee for environment and development report “our common future” also known as the brundtland report was distributed. here the concept is defined as being “that development that satisfies the needs of the present without compromising the future generations` possibility of satisfying their own needs” (united nations documents, 1987). the scientific theories of sustainable development are based on three key development principles: • the principle of stability means time long enough for reproduction of the development potential. however, development is not a linear process; declines and rises are possible as well as periods of accumulation and use of the accumulated development resources, • the principle of balance means an optimal proportion among the constituent parts of development, • the most important and up until recently the least appreciated development principle is social orientation, which means, that evaluation of situations has to be first of all carried out depending on their impact on the standards and the quality of life of the population (tamosiunas, t., butkaliuk, r., 2013). sustainable development is a long-term strategy, ensuring clean and healthy environment as well as an increasing standard of living for the present and future generations (kareivaite, r., 2012). sustainable development concept in 1987 highlighted only two domains – economic and environmental. at present scientists are counting economic, environmental, social, political-organizational and ethical domains (cepinskis, j. et al., 2002). grizans, vanags (2010) are pointing, that the sustainable development is the interaction of economic, social, demographical, political, cultural, technological, scientific, and environmental processes. that interaction has to penetrate all levels: society, business, and authorities. the number of connected interdisciplinary things (objects of law, socio-economy, environment, technologies) is increasing. it means that necessity to create an innovative, flexible method for estimating the progress of sustainable development exists. in the eu’s sustainable development strategy (council of the european union, 2006) it’s declared, that the key objectives of the strategy are: environmental protection, social equity and cohesion and economic prosperity. also, it seems that it is not perspective to evaluate the level of sustainable development without the analysis of the intensification of the main pillars of knowledge based economy like level of innovations and education. according to janez potočnik, former european commissioner responsible for science and research (2004 – 2009), and currently serving as european commissioner for environment, the development of modern science undergoes three major periods, associated with concrete human values: (i) the age of truth: from the renaissance to the enlightenment, i.e. the 16th–18th centuries; (ii) the age of progress: during the industrial revolution, i.e. the 19th century; (iii) the age of responsibility: since the emergence of „knowledge-based society, i.e. the second half of the 20th century until nowadays (as cited in ivancheva, l., 2013). the term “knowledge industry” was extended to “the knowledge economy” by peter drucker. as he stated almost four decades ago, “knowledge has become the central factor of production in an advanced, developed society” (as cited in ivancheva, l., 2013). in 1996, the term of knowledge based economy first appeared in the international organization documents used by the organization of economic cooperation and development. knowledge based economy was understood as the economy that is based on the producing, distributing and using of knowledge and information. currently, knowledge has been considered wider as the driving force of improving productivity and realizing the economic growth (wang, z. et al., 2004). knowledge based economy and sustainable development are evolving concepts that describe complex, dynamic social and environmental realities mostly, by means of the imperfect analytical framework provided by neo-classical economics (sabau, g., l., 2010). krisciunas (2010) cites economists as colander, holt, rosser (2004), that in the vein of ecological economics, believe that the neoclassical “holy trinity” of rationality, greed, and equilibrium, is being replaced by the holy trinity of purposeful behaviour, enlightened self-interest, issn 1822–8402 european integration studies. 2014. no. 8 86 and sustainability, considerably broadening the scope of what is the mainstream. numerous theories and indicators have been developed in the attempt to show that knowledge based economy can promote sustainable development through more innovation sustained by economic growth (sabau, g., l., 2010). wang et al. (2004) points that both concepts are related with economic growth. however, they relate to the physical and economical geographical factors respectively, and hence display different spatial diffusion process. the eu’s strategy, adopted at the lisbon summit in 2000, whose strategic objective proclaims that by the year 2010 eu economic should become the most competitive knowledge based economy in the world, capable to maintain sustainable development and create new generation workforce, and to be consensual with the concerns of the world’s developing countries (sirbu, m. et al., 2009). regrettably that written target in the eu’s sustainable development strategy has not been achieved. the eu is still facing the challenges, which are more qualitative, than quantitative. melnikas (2011) notes these factors: • transformation of society, opportunities and perspectives of modernization, contemporary challenges in the field of improving the quality of life, • globalization and global transformations, their impact on societal being, • knowledge-based society and knowledge economy: challenges of creation, trends and controversial phenomena, • sustainable development as a key challenge of society development, • innovations in various areas of life, scientific and technological progress fostering, development of higher technologies sector, • networking, new forms of organizations and effective management, • interaction processes and convergence of business and public sector, • national economies and their problems, perspectives of international business. in the document europe 2020 (a strategy to help europe emerge stronger from the crisis and prepare the eu economy for the next decade) the european commission has identified three key drivers for growth, which will be supported through actions at both eu and national levels: • smart growth (fostering knowledge, innovation, education and digital society), • sustainable growth (making eu production greener and more resource efficient while boosting competitiveness), • and inclusive growth (enhancing labour market participation, skills acquisition, and the fight against poverty) (european commission, 2014a). ones again we can see, that all challenges are about the principles of sustainable development and the processes of knowledge based economy. sustainable development and knowledge economy creation processes are complicated and interconnected. specific and adequate theoretical attitudes has to be developed. the attitudes are characterized by orientations to exceptionally wide and deep scientific cognition and suitability to apply them under the conditions of great uncertainty (melnikas, b., 2010). in this research an attempt was made to create the method for the estimation of the sustainable knowledge based economy index – which could help researching those interconnected aspects. methodology of sustainable knowledge based economy index the methodology of integrated multi-criteria indices, such as presented in the article, was used by simanskiene, ciegis, ramanauskiene (2011), tamosiunas, butkaliuk (2013) and kareivaite (2012). the authors used the estimation method when evaluating the sustainable development. considering growing challenges for modern and competitive economies the importance of assessing knowledge based economy combined with sustainable development is increasing. using specific indicators allows for the evaluating of economic, social, and environmental objectives of national development. if environmental, social, economic, innovation, human resources, information and communication technologies indicators are integrated into one, they could form one index reflecting a wide context. integrated indices display various important qualitative aspects of the researched phenomena and at the same time demonstrate how the changes of those indicators influence the dynamics of common integrated index change. understanding of sustainable development and knowledge based economy versatility and searching for necessary compatibility of ecological, economic and social, innovation, human resources, information and communication technologies sphere policies require innovative methodologies based on the newest statistical data. the challenge is to create an instrument for the measurement of the level of sustainable development and knowledge based economy based on known indicators. the aim of the study was to determine and to use the original integrated multi-criteria sustainable knowledge based economy index (iske). the construct of this research is presented in fig. 1. determination of sub-indices estimation of the subindices of each baltic country estimation of the countrie’s indexes socioeconomic development sub-index the sub-indices of lithuania the change of the iske in baltic countries environmental sub-index human resources subindex the sub-indices of estonia innovation sub-index the sub-indices of latvia information communication technology sub-index figure 1. the construct of the research firstly, there were determined sub-indices, which are the most important for knowledge based economy (socioeconomic, human resources, innovation and information communication technology sub-indices) and sustainable development (socioeconomic development and issn 1822–8402 european integration studies. 2014. no. 8 87 environmental sub-indices) of lithuania, estonia and latvia in the period 2008–2012. it helps to evaluate the differences between them according to their sub-indexes. using results of the first step of research, as next step there is presented the evaluation of every sub-index of lithuania, estonia and latvia. it enabled to determine the strongest and the weakest aspects of the countries’ objectives. using results of the second part of the research, differences of the sustainable knowledge based economy index iske of the baltic countries could be estimated. integrated index is estimated by the formula: iske = σiaisi, (1) were si – separate sub-indices of sustainable knowledge based economy index, ai – the weight of sub-indices (on condition that sai=100). the iske includes five sub-indices: socioeconomic development sub-index (ssed), environment sub-index (se), human resources sub-index (shr), innovation sub-index (si) and information and communication technologies sub-index (sict). therefore: iske = a1ssed + a2se + a3shr + a4si + a5sict, (2) were a1-5 are the weight of ssed, se, shr, si, sict indices (on condition that sai =100). each of the sub-indices in its turn consists of indicators. the estimation formula is: sx = σiaiii, (3) were ii are the indicators of sub-indices, ai are the weight of indicators (in this case sai=20), sx – any separate sub-index. if, while forming an integrated indicator, the growth of the value of certain constituent indicators is assessed as a positive and desirable process, change of the index of such indicator from 0 to any greater figure should signify a favourable process, while indices of the indicators, decrease of which is a desirable process, ii is recalculated according to the formula: ii = 1/ii. (4) the indicators, used in this research, have been taken from the database of the eurostat (european commission, 2014b) and from the innovation union scoreboard 2014 (european commission, 2014d). the indicators were analysed in the period between 2008 and 2012. the processes as sustainable development or knowledge based economy, according to tamosiunas, butkaliuk (2013), are important in the long run, that’s why they have to be analysed in retrospective point-of-view so that essential changes during 5 years could be visible. estimation of sustainable knowledge based economy index of the baltic countries in the world economic forum’s (2013) report “rebuilding europe’s competitiveness it’s noted, that europe is currently facing important economic and social challenges. recent years have seen stagnating economic growth, rising unemployment leading to social tensions, and sovereign debt crises, exacerbated by the fact that the future outlook remains uncertain. these challenges should not be regarded as signs of “the inevitable decline” of europe in a globalized world economy, but rather as drivers of a transformational action to better adapt europe to a new competitive environment. the following indicators were selected to determine socioeconomic development sub-index (ssed): • real gdp per capita (euro per inhabitant), • market integration – foreign direct investment intensity (% of gdp), • labour productivity per hour worked (euro per hour worked), • people at risk of poverty or social exclusion (percentage of total population). the highest values of those indicators in 2012 were in estonia, and lowest – in latvia. for example, real gdp per capita in estonia were 9500 euro per inhabitant, in lithuania – 8100 euro per inhabitant and in latvia – 6800 euro per inhabitant; labour productivity per hour worked in estonia were 11,20 euro, in lithuania – 10,30 euro and in latvia – 8,20 euro. nevertheless analysis of sub-index ssed showed different tendencies (fig. 2): figure 2. the evolvement of sub-index ssed in the baltic countries during 2008–2012 in the analysed period the sub-index decreased in all countries. as it was mentioned in the methodology, the weight of the sub-index in the first year (2008) was 20. the sub-index values of lithuania and estonia fell during 2009 and didn’t increase until 2012. latvia’s sub-index slightly derives in the period 2009–2011. the main reason for it could be positive changes in market integration. in latvia’s case the average value of inward foreign direct investment flows were higher than outward. in estonia this indicator was negative. the number of people at risk of poverty or social exclusion increased. in the same time labour productivity per hour in all countries had been increasing. the level of sustainable development of knowledge based economy is impossible without evaluating the environment sub-index (se). as the world’s population grows, the demand for non-renewable resources rises. they also argued that the consumption of materials per capita also increases with the increase of living standards. between 1960 and 1984 the world’s total consumption of energy had increased by 46 percent due to population growth and 54 percent through increased per capita consumption levels (nguyen, t., t., 2010). the indicators evaluating the se were: • for greenhouse gas emissions base have been taken emission in the year 1990 (this indicator shows trends in total man-made emissions of the ‘kyoto basket’ of greenhouse gases. the ‘kyoto basket’ of greenhouse issn 1822–8402 european integration studies. 2014. no. 8 88 gases includes: carbon dioxide (co2), methane (ch4), nitrous oxide (n2o), and the so-called f-gases (sf6). these gases are aggregated into a single unit using gas-specific global warming potential (gwp) factors). the eu as a whole is committed to achieve at least a 20% reduction of its greenhouse gas emissions by 2020 compared to 1990. this objective implies: -a 21 % reduction in emissions from sectors covered by the eu ets (emission trading scheme) compared to 2005 by 2020; – a reduction of 10 % in emissions for sectors outside the eu ets. to achieve this 10% overall target each member state has agreed country-specific greenhouse gas emission limits for 2020 compared to 2005 (council decision 2009/406/ec), • share of renewable energy in gross final energy consumption (%) (this indicator is determined on the basis of data covered by regulation (ec) no 1099/2008 on energy statistics), • resource productivity (index, 2000 = 100) (resource productivity is gross domestic product (gdp) divided by domestic material consumption (dmc). dmc measures the total amount of materials directly used by economy. it is defined as the annual quantity of raw materials extracted from the domestic territory of the focal economy, plus all physical imports minus all physical exports), • energy consumption of transport relative to gdp (index, 2000 = 100) (this indicator is defined as the ratio between the energy consumption of transport and gdp (chain-linked volumes, at 2000 exchange rates). the energy consumed by all types of transport (road, rail, inland navigation and aviation) is covered, including commercial, individual and public transport, with the exception of maritime and pipeline transport). evolvement of environment sub-index is presented in fig. 3: figure 3. the evolvement of sub-index se in the baltic countries during 2008–2012 in estonia the level of greenhouse gas emissions in 2012 was lower than in 2008. the biggest positive development of this indicator was in lithuania (from 5 in 2008 up to 5,75 in 2012). the biggest percent of share of renewable energy in gross final energy consumption in 2012 is in latvia (35,8%), and minimal in lithuania 21,7 %. the fastest growth of this indicator is in estonia (from 5 in 2008 to 6,63 in 2012). in latvia and estonia the level of resource productivity was growing, but in lithuania in 2010 and 2011 the growth was negative. in energy consumption case lithuania demonstrates the best results. the friendly-environment is maintained in all baltic countries in a stable manner in that period. the rising role of science for the modern society is indicated as well by the wide spread of new concepts as “knowledge society”, “knowledge-based economy” or “sustainable development” (ivancheva, l., 2013). according to nguyen (2010), many authors believe that knowledge, in the form of both – appropriate education and development of human resources, does not only contribute to current economic growth but in the long term, is also likely to contribute solutions to the global problems relating to sustainability. for determination of the human resource sub-index (shr), the following indicators were chosen: • percentage of population aged 30–34 having completed tertiary education, • mathematics, science and technology enrolments and graduates (isced 5–6), • participation rate in education and training (last 4 weeks, age from 25 to 74 years) (%), • employment rates of young people not in education and training by sex and educational attainment level (isced 3–6). these indicators might illustrate development of the subindex, including the level and subject of education, the situation in long-life learning, employment rates of youth depending on education level. the best results of not normalized data of the indicators are as follows: the indicators for population having completed tertiary education, and employment rates of young people were best in lithuania; the indicators for mathematics, science and technology enrolments and graduates, as well as participation rate in life-long learning were best in estonia. evolvement of sub-index shr is presented in fig. 4: figure 4. the evolvement of sub-index shr in the baltic countries during 2008–2012 human resources in baltic countries are developing slowly but steady. if countries search to boost knowledge based economy as well as strengthen sustainable development, in the context of other eu countries, they have to be more agonistic. it’s very important for competitiveness, creativity and responsibility in general. in description of the research and innovation performance in eu member states it’s pointed (european commission, 2013b), that estonia need to enhance the quality of the higher education system and to address the non-absorption of highly-skilled graduates in firms. estonia has improved its scientific quality and production but still faces the challenge of increasing the excellence and internationalization of its research institutions. estonia has improved its performance issn 1822–8402 european integration studies. 2014. no. 8 89 in public-private cooperation although it still performs well below the eu average. one important aspect of the latvian research and innovation system is the lack of highly qualified scientists and engineers, a lack which is correlated to the low numbers of new doctorates awarded and graduates in science and engineering. moreover, it can be seen from the above graph that the share of researchers in business enterprise is extremely low and employment in knowledge-intensive activities is still below the eu average. in fact, latvia suffers an important outflow of graduates and researchers to the united states and other countries, many scientists preferring to pursue their careers abroad (european commission, 2013b). the lithuanian science base is insufficiently competitive and is not well connected to european science networks. due to unattractive research careers, the science support is also threatened by an insufficient supply of human resources. links between education, research and the private sector are very weak. the reform of the science support is expected to make the lithuanian research and innovation system more efficient and better performing in the years to come (european commission, 2013b). intan-soraya, kok-wai (2010) points, that existing literature recognizes the positive influence of a firm’s intellectual capital on innovative capability and on various other financial and non-financial performance measures such as profitability, revenue growth, return on assets, return on equity, customer satisfaction, and product and service quality. different components of intellectual capital, which are human, social, and organizational in nature, both individually and jointly influence a country innovative capability. for the analysis of the innovation sub-index (si) the successive indicators have been taken: • employment in technology and knowledge-intensive sectors (% of total employment), • public r&d expenditures (% of gdp), • number of enterprises in high-tech industries and knowledge intensive services, • exports of high technology products as a share of total exports. the level of data for lithuania in 2012 was lower, than in other baltic countries. the changes of sub-index si are presented in fig. 5: figure 5. the evolvement of sub-index si in the baltic countries during 2008–2012 the biggest positive progress in innovations have been estimated in estonia which might be because of the biggest growth of exports of high technology products and of the number of enterprises in high-tech industries and knowledge intensive services. in all indicators of baltic states the developments were positive (normalized values were more then 5) except exports of high technology products in lithuania (normalized value was 4,46). in innovation union scoreboard, 2013 lithuania ascended from modest to moderate level, only because of the number of new doctorate graduates. in lithuania’s profile of research and innovation performance (european commission, 2013b), it’s noted, that the main strengths of it are the size of its public research sector and the good supply of new graduates. human resources and innovations are complementary, but the instrument, measures for the implementation of the targets are necessary too. all analysed countries have opportunity to use eu’s financial instruments (for example horizon 2020) and implement europe’s 2020 flagship initiative aimed at securing europe’s global competitiveness. by coupling research and innovation, horizon 2020 helps to achieve this with its emphasis on excellent science, industrial leadership and tackling societal challenges. the goals for the countries are world-class science, removing barriers to innovation and making it easier for the public and private sectors to work together in delivering innovation. one of the horizon 2020 programme sections is information and communication technologies, which underpins innovation and competitiveness across a broad range of private and public markets and sectors (european commission, 2014c). for determination of the development of information communication technology sub-index (sict) (fig. 6) the following indicators were chosen: • individuals’ 5 or 6 level of computer skills (% of the total number of individuals aged 16 to 74), • individuals’ 5 or 6 level of internet skills (% of the total number of individuals aged 16 to 74), • individuals using the internet for interacting with public authorities (% of individuals), • share of enterprises’ turnover on e-commerce (%). figure 6. the evolvement of sub-index sict in the baltic countries during 2008–2012 the best results seem to be in lithuania and latvia. in these countries the main positive changes started in 2009. in lithuania development was stable, but in 2012 the share of enterprises’ turnover on e-commerce ceased its upward growth. positive enterprises’ receipts from sales through issn 1822–8402 european integration studies. 2014. no. 8 90 electronic networks are very important in the countries’ ict development, because of the close correlation with the development of the information literacy of human resources, with promotion of other e-skills (like e-government). in 2012, the world bank group (2012) adopted ict sector strategy. 3 regional priorities for europe and central asia were presented: deepening reforms for improved competitiveness, social sector reforms for inclusive growth and climate action for sustainable growth. baltic countries show positive results in ict’s sector, but because of the dynamic environment, they always have to renew their own targets. in the world bank group ict sector strategy were mentioned three pillars, so the baltic states can pay attention to them: 1. transform: making development more open and accountable, and improving service delivery for instance, education, health, and financial services; 2. innovate: developing competitive it-based service industries and fostering ict innovation across the economy with a focus on job creation, especially for women and youth; 3. connect: scaling up affordable access to broadband including for women, disabled citizens, disadvantaged communities, and people living in remote and rural areas. european grid infrastructure’s position paper in common strategic framework for future eu research and innovation funding points, that accelerating the development of e-infrastructures in europe will enable them to get a key enabling factor in making the europe 2020 strategy for europe a reality. these innovations will help the european research community to derive the knowledge it needs from the data deluge to tackle the societal challenges facing europe both now and in the future (european grid infrastructure, 2011). using results of determined sub-indices, estimation of the results in lithuania (fig. 7), estonia (fig. 8) and latvia (fig. 9) are presented. figures reflect the strongest and the weakest aspects of the sustainable knowledge based economies development. figure 7. the evolvements of sub-indices iske in lithuania during 2008–2012 level of sub-indices of lithuania is not steady. strongest indicator of sustainable knowledge based economy is in ict sector. in environmental, human resources and innovation sectors, the development is very slow and not steady. it might be the reason why the dynamics of socioeconomic development in the country is negative (in the year 2008 the value was 20, and in the year 2012 was 17, 93). figure 8. the evolvements of sub-indices iske in estonia during 2008–2012 in estonia socioeconomic development sub-index increased only in 2012 and almost reached the level of the 2008 year. the highest competitiveness indicator in estonia might be because of the best results achieved in the innovation sector. in estonia employment in technology and knowledge-intensive sectors, public r&d expenditures as well as in exports of high technology products in the context of eu countries is quite high. estonia needs to accelerate development of human resources and environment protection. it might help to strengthen development of the sustainable knowledge based economy level in the country. figure 9. the evolvements of sub-indices iske in latvia during 2008–2012 the best results latvia demonstrates in ict’s and innovation’s sectors. the implementation of the policy in those sectors in 2012 helped the country to reach the same level of socio-economic development, as it was in 2008 year. it’s important to mention, that as reasonable level of sustainable development could be accepted the level when all used sub-indices are quite equal. in that context the biggest problem still seems in lithuania, and the lowest – in estonia. issn 1822–8402 european integration studies. 2014. no. 8 91 using the results of the second part of the research, following will be evaluated the development of the iske in the baltic countries (fig. 10). figure 10. the evolvement of iske in baltic countries during 2008–2012 the leader in the development of sustainable knowledge based economy according proposed methodology is latvia. although, as it was mentioned earlier, the separate indicators have the biggest values in estonia, but in the long term point of view, the best development is in latvia. conclusions • sustainable development and knowledge based economy aspects in estimation of countries development are complimentary and reflects their welfare and competitiveness. both of them are often analysed and discussed in theoretical works as well as in the strategic documents at global, eu or national level. • new methodologies for estimating different but correlated aspects of countries’ development could help in fostering their global competitiveness. the methodology of creating and utilising of sustainable knowledge based economy index is proposed in the article. this index is quite universal because of its flexibility (on demand there can be changed indicators, periods and sub-indices). it could help to estimate any interdisciplinary aspects in countries’ development. • development dynamics and level of the sustainable knowledge based economies in lithuania, latvia and estonia have been researched by evaluating the interdisciplinary sectors: socio-economic development, situation in environment protection, innovations, human resources as well as information and communication technologies. authors take the position that countries’ economic sustainability is possible, if all of these objectives are developed equally. • using the proposed sustainable knowledge based economy index a methodology estimation of different development aspects in baltic countries has been made. estonia’s seems the strongest in innovation, in contrary, this aspect in lithuania seems to be its weakness. although separate researched indicators have the biggest values in estonia, in long run view, dynamics is the best in latvia. references cepinskis j., smilga e., zirgutis v. 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(2013). insight report rebuilding europe’s competitiveness. retrieved april 14, 2014, from http://www3.weforum.org/docs/wef_ rebuildingeuropescompetitiveness_report_2013.pdf the article has been reviewed. received in april, 2014; accepted in june, 2014. 7 issn 1822–8402 european integration studies. 2014. no. 8 the eu exerting an ideational power beyond its frontiers? latin american universities and european model as a good example of the transmission of europe of knowledge: the case of chile and mexico francis espinoza figueroa the catholic university of the north, chile 0610 angamos ave. antofagasta ii region, chile e-mail: frespi@ucn.cl http://dx.doi.org/10.5755/j01.eis.0.8.6973 the eu as an ideational actor has a significant impact upon non-european countries. it is impacting on its periphery and the world. this paper studies the implications and lessons learnt of the european experience for other countries and regions. the eu seen as a ‘global teacher’ (adelman 2009, 170), therefore, refers to a notion of the union spreading and exporting its models beyond the geographical boundaries of europe. it presents a powerful image of the eu as an international actor, endorsed it with a special capability, a force that manifests a pedagogic potential for establishing its (external) relationships. therefore, its power is not ‘deposited’ in its material capabilities for exerting physical strength, but rather it is to be found in its ability to structure/organise, (to shape) knowledge. the main purpose of this paper is to examine the growth of european ideas circulating throughout the field of latin american higher education (he), as part of the bologna process. the objectives are focused on observing the fact that the union is exerting an ideational power which can observe through the manifestation of a set of procedures, methods and tools that have contributed to the transformation of chilean and mexican he. europe is considered as a ‘model-maker’ or ‘modelofferer’ impacting on latin american higher education (he) from the ‘birth’ of universities and study centres here, whilst latin america has been seen as a traditional ‘model-taker’. this phenomenon requires a rigorous analysis of european ideational factors present within normative power europe (npe), not only through a cluster of ideas, norms, principles and values but also through analysing language. therefore i analyse such claims, focusing on chile and mexico, and argues that the impact of european influences upon received countries is mediated by domestic circumstances. the article makes a contribution to both existing understanding of the european union’s influence over latin america and latin american he, and also seeks to advance upon existing debates around the notion of normative power europe in particular, by illustrating how the npe literature would benefit from a deeper consideration of the use of language and considering translation processes of receiver countries. with an inductive approach for this research, i.e. from particular to general observations, the problem is described firstly through what was observed early in the case studies. however, it is fundamental to note here that this research goes beyond a simple case study, because this did not involve an in-depth, longitudinal (over a long period of time) examination of a single instance or event, i.e. of a case. furthermore this investigation does not ‘rest’ only upon the analysis of cases considered as part of concrete data, but it also makes a theoretical contribution, opening up the debate on the eu as an ideational power rather than as a material force and, after all, on the processes of the receptiveness of this powers by non-european actors. this aspect is readily acknowledged because the area of research chosen, namely higher education (he), deserves analysis within the ‘battlefield’ of ideas. keywords: ideational power, europe of knowledge, bologna process, tuning project, latin american higher education. introduction as we shall observe throughout the article, this approach does not belong specifically to european studies and their corresponding focal issues such as european foreign policy, on the processes of enlargement and integration. certainly the field of he has not been studied in depth by scholars who refer to the eu as an influential actor/power beyond the limits of europe. i realised throughout the investigation that there was a need for re-thinking the research about the eu as an ideational power, considering: (a) leaving behind analyses of the transmitter (the eu) in order to focus on the recipients of european influences; (b) the study of european influences as part of a wider phenomenon. for example, we must take into account the presence of limited, even mediated effects (lazarsfeld and katz, 1950)1 rather than direct effects; and (c) the point that domestic policies of non-european countries play a fundamental role in mediating european ideational influences. from the 2000s until the present day, the development of certain rapid changes has been observable in a significant number of latin american higher education (he) 1 ftp://intranet.dei.polimi.it/users/carlo.piccardi/variedsc/wa07.pdf. issn 1822–8402 european integration studies. 2014. no. 8 8 institutions as the result of an intervenient variable within the process, – a sort of external influence. this phenomenon can be described as the manifestation of new ideas circulating throughout the field of latin american higher education (he), especially in chile and mexico. at the outset it can be seen that these ideas have transmuted into a set of procedures, methods and tools applicable for transforming chilean and mexican he. such ideas were not coming, as they usually did, from the us: instead they were arriving from the eu as part of a more significant phenomenon occurring in europe, in the form of the bologna process and its executive instrument, the tuning project. the following preliminary question shows certain gaps within the ‘state of the art’ of phenomena that justify the existence of this presentation. is the eu an influential actor in the field of higher education (he)? this question is extremely relevant because any influential actor in the area of he could constitute a hegemonic power or superpower on the two fronts of material and ideational sources. in terms of material factors, nowadays the field of he embodies the most important aspect of training human resources, the power of human capital (ridderstrale & nordström 2000). therefore, a superpower could exert supremacy within the core of productive processes and determine the course of future ‘economic waves’. considering ideational aspects, europe could exert an intellectual hegemony (robertson 2009) based on a pedagogic force which offers models of teaching and learning (as seen in the bologna process) within the area of he. the only literature analysing european influences in he upon overseas countries is fairly recent. the eu seen as a ‘global teacher’ (adelman 2009, 170) refers to a notion of the union spreading and exporting its model beyond the geographical boundaries of europe. this idea presents serious connotations when analysing european influences reaching beyond europe. it presents a powerful image of the eu as an international actor, endorsed it with a special capability, a force that manifests a pedagogic potential for establishing its (external) relationships. therefore, its power is not ‘deposited’ in its material capabilities for exerting physical strength, but rather it is to be found in its ability to structure/organise, (to shape) knowledge. therefore, the historical relationships literature shows europe as a ‘model-maker’ or ‘model-offerer’ impacting on latin american he from the ‘birth’ of universities and study centres there. by contrast, latin america is seen as a ‘modeltaker’, which transplants foreign patterns into its he in order to reach a certain degree of global influence, in the line with the trends of superpowers. as a starting point, this paper claims that european influences upon non-european countries might be studied considering the eu as an ‘influential actor’. an influential actor produces longterm effects which can be observed within complex and intersubjective spheres of ideatic2 structures or systems. firstly, it is necessary to characterise the ‘actor’ in order to understand its dynamics and range of influence. it is argued here that the union is distinguished by exerting a ‘special 2 this concept, coming from literature and media studies, makes reference to ideologies, epistemologies, social constructs, social norms and laws. power’, or at least a different from traditional powers. its power depends on its constitutive nature and its ways for establishing its internal and external relationships. secondly, having characterised the influential actor, it is important to analyse and understand the nature of the eu’s influences. certainly some scholars rescue the idea that the union exerts material or ideational sways, even both. owing to the fact that the empirical experience and data were observed on abstract fields of language and ideas, it is fundamental to argue here that an influential actor exerts an ideational power rather than a material force. thirdly, even though there are no perceivable studies of impact of european influences, the ‘dissenting side’ of normative power europe constitutes the first attempt to fill the gap of this aspect. these narratives show real discourses of perception of others about european performance and actions. this is the case of the publication normative power europe: introductory observations on a controversial notion (2009) edited by andré gerrits. the impact of the bologna process and the tuning project upon chilean and mexican higher education (he) the bologna process and the tuning project are considered the most significant intergovernmental agreements to reforming the european higher education system. according to ruth keeling both processes have contributed to stabilising and establishing “an emergent policy framework for the eu in higher education” (2006: 203). though for the rest of the world, the restructuration of european he means nothing without what bologna experts call the external dimension of this phenomenon. this dimension is based on exportation of a european model and ideational practices that characterise a ‘bologna language’. in practical terms, the effects of the bologna process on chilean and mexican he can be observed in the process of strengthening of the role of state and he institutions. specifically, this is seen in the design of public policies and the planning of institutional policies through formal mechanisms such as the development of specific policies and the execution of institutional adjustments. when one claims that a certain phenomenon is influential, the concept of influence signifies the impact or effects of someone or something over someone or something. therefore, there are actors involved in the phenomenon and a timing process (time frame), during which the effects are seen. in this research three general actors could be examined, namely, the eu, chile and mexico. the role of the eu was seen as impacting on domestic policies (university/institutional and public policies), i.e. it should be seen as the ‘persuader’ or influential power. the role of chile and mexico might be to implement the bologna process in their own internal policies; in this case both were actors who represent the other side of the coin, the ‘persuaded’ or influenced actor. taking into account the timing process of effects on both fronts, institutional/university and governmental, different changes have occurred quite independently. for example, whilst universities have worked on the ways of teaching and learning and the structuring of curricula, the design of public policies has focused on diffusing and implementing the bologna process through the alfa tuning latin america project. besides this, new actors within higher education issn 1822–8402 european integration studies. 2014. no. 8 9 institutions and governments, such as the council of rectors (vice-chancellors) of chilean universities (cruch) and the consortium of mexican universities (cumex) in mexico, have played a significant role in diffusing and managing european influences concretely this phenomenon was characterised by the presence of significant changes specifically in three fields of he: a) the execution of institutional adjustments within the planning of institutional policies, b) the development of specific public policies and c) the use of ‘bologna language’ in institutional and official documents, in speeches and in expressing the opinions of experts and academic authorities. in terms of the need for adjustments to be made at both levels of he, public and institutional/university, in chile the main actors were the ministry of education, the national accreditation commission (cna) and the council of rectors of chilean universities (cruch). these actors have played the roles of manager and controller of the development of chilean domestic policies, following the european model, working hard to consolidate policies, funding programmes and regulatory frameworks to bring the ‘bologna-isation’ processes to the ‘home’ front. the traditional universities (25 universities belonged to cruch) have allied solely with the model offered by europe and they have implemented strategies to sort out these adaptation processes successfully. these chilean universities have changed their undergraduate and postgraduate programmes in order to align themselves with the bologna process. through this change, these influences have affected the upper levels of chilean higher education, such as the alignment of its academic and administrative structures, the systems of university government, and currently the ways of teaching and learning and the structuring of curricula. in terms of chilean public policies, european ideas have had a significant impact on three main aspects: a) the mechanism of allocating public financial resources (mecesup) b) a new culture of planning and assessing projects for he and c) in an indirect way, the national accreditation system which has come under european influence. taking into account university policies, european ideas have had a strong impact on the design of curricular architecture and the processes of curricular re-engineering in the 25 chilean traditional universities. in addition, the impact is visible in the construction of a national academic credit system (stc – chile) and processes of internationalisation of he institutions. in the case of mexico, the main actors were the secretariat of state education (sep), the consortium of mexican universities (cumex), and the national association of universities and institutions of higher education (anuies). considering the design of public policies, the main actor, the secretariat of state education has played the role of a simple diffuser of the bologna process and the tuning project. its instruments for circulating information have also been the eulac/alcue and the tuning latin america project. cumex’s universities and technological institutions have been direct ‘recipients’ of the process. in parallel, the anuies has coordinated workshops and conferences, disseminating amongst mexican institutions the ‘state of the art’ of process and its activities of adapting and implementing it by different universities and technological institutes. the consortium of mexican universities (cumex) has performed as the head of the process, leading not only campaigns to promote of bologna, but also suggesting ‘loudly’ its implementation amongst its he institutions. taking into account the design and implementation of public policies, one of the effects of european ‘guidance’ was notable in the development of a new culture of planning and assessing projects for he. another public policy implemented as a result of the impact of european ideas, was the placing of the national tuning centre firmly within the secretariat of state education. furthermore, it was possible to discern an indirect impact on the accreditation and evaluation process of he through the national centre for the evaluation of higher education (ceneval). european ideas have had an impact on three significant university policies: the internationalisation process of mexican he institutions; the design of curricular architecture and the implementation of the tuning methodology. actors in both countries have played the roles of diffusers and coordinators of the bologna process within each country involved. however, bologna has impacted on chile more strongly on both fronts, public as well as university policies. in contrast, mexico was affected only in the planning of institutional/university policies. chile has followed domestic policies determined by the ministry of education and the council of rectors (cruch) to implement its changes in higher education, while mexico has preferred to concentrate on international policies and has joined large agreements such as eulac/alcue, using the latin america tuning project as an umbrella to make changes. mexican technological institutes and some public and private universities, taking into account welcome suggestions from the oecd, have made some sporadic efforts to follow the bologna process and the tuning project3. at this point, we have to recognise that in both chile and mexico, the tuning latin america project was simply the vehicle of diffusion, the diffuser of the bologna process, because, as some mexican authorities argue, mexican universities are implementing the tuning project but ‘à l’ européenne’. in the case of chile, the universities began the process of ‘negotiating’ with their european partners before tuning latin america was fully articulated. actually, if, like some mexican academics, one assumes the death of tuning latin america, no major effects of european influences could possibly be observed. however, the main argument of this thesis was that one of the weightiest tools of the process of formally instituting a political dialogue has been the bologna process with its intrinsic tuning project. the eu as an ideational power the european union, as one of the significant participants in the decision-making processes in the global sphere, produces effects upon other actors through what it can do and does well, i.e. playing an international role as an actor, – as a ‘distinctive agent’ (smith 2003, 104). at the moment, the existing literature has been focused on answering the following two questions: (i) is the eu an influential actor in the international arena? in general terms, one can argue that there is a 3 interview with ruth vargas, expert in the tuning latin america project, antofagasta, chile, april 20th 2008. issn 1822–8402 european integration studies. 2014. no. 8 10 significant amount of literature supporting the view that europe represents an influential actor that exerts power in the global sphere through its material and ideational capabilities. however, the union is mainly seen as a force which does not exert any coercive power (laïdi 2008, 5). certainly, europe is seen as a different kind of actor, exerting neither hard power nor soft force. the eu constitutes a ‘hybrid’ entity (manners & whitman 2003, 388; cf. wiessala 2006, 19) posing/exercising a ‘sui generis’ nature/presence (whitman 1998, 2/15) through a mosaic of capabilities and tools. one may recognise that the eu offers very attractive models by which it establishes its external relations exerting power in a different and ‘gentle’ way. it is observable, then, that the ‘european’ literature is mainly focused on the role of the eu within the international arena: the eu as a global (bretherton & vogler 2006) or an international actor (smith 2001, 289). this argument that the eu plays a role as an influential actor in the international arena contributes to identifying, within the existing literature, different aspects of the power of exertion as a phenomenon of influence and compliance (cialdini 2007). (ii) is the eu an ideational power in the global arena? european approaches supporting the idea that the union constitutes a power exerting ‘magnetism’ and producing noncritical ‘complaisance’, institute the notion of what whitman et al. consider as europe behaving as an ‘ideational actor’ (2011). hence, europe as an influential actor is necessarily an actor that exerts power ideationally, a crucial aspect which justifies the existence of this paper. these ‘leitmotivs’ are connected by a common denominator: the implicit idea that europe produces effects upon others operating in different fields of activity and co-ordinating its external relationships based on value-driven external policy (youngs 2004, 415). what kind of ideational power does the eu exert? it is a difficult task to answer this question, owing to the fact that historically europe has exerted different kinds of power. on the one hand, the eu as an ideational power is a notion originally presented, within the existing literature, through two significant claims: the introduction of the sociocognitive dimension for studying europe (hyde-price 2004; tonra 2010) through a constructivist ‘lens’, and the third dimension of power, which supports the idea of ‘shaping normality’ (berenskoetter 2007). a formal interest for studying the eu ideational factors emerges with constructivist scholars. a good example of this is the book the social construction of europe (2001) edited by thomas christiansen, knud erik jørgensen and antje wiener. in this tome, ideational elements of the union are observed in three main areas: the constitution of ‘social ontologies’ and ‘social institutions’ on the permanent processes of integration and enlargement, the transformative impact of europe, and phenomena of identity formation. with regard to the third dimension of power, although this argument concentrates all the previous aspects of power, it is certainly more complex to define. in the first instance, it reminds us of foucault’s conception of non-visible methods of exerting ‘institutionalised’ power. thus power is not something material or tangible, it is not “something that is (or can be) centrally controlled by an orwellian ministry of information, but something that works through diffuse ‘capillaries’ contained in seemingly neutral practices of people working in institutions such as hospitals or prisons” (berenskoetter 2007, 10). this power can establish parameters of ‘normality’ amidst a social construction of reality. so whoever claims to shape the discourse on what constitutes the normal, imposes a normative character through a discursive power that determines canons of ‘normativeness’. even though a constructivist notion of normative aspects of power necessarily implies an implicit analysis of ideas, it is difficult to find scholars studying a continuity of european ideas circulating outside europe. ian manners argues that “the diffusion of ideas in a normatively sustainable way works like water on stone, not like napalm in the morning” (manners 2008b, 80). certainly the study of cartographies of ideas is a complex issue in social sciences, because ideas do not constitute ‘material factors’ which provide empirical evidence of impact, influence or even of hegemony of a superpower. ideas constitute ideological factors imposing a non-material superstructure according to a marxist perspective. conclusions i summarise my paper as a significant effort towards demonstrating european influences upon non-european countries. the field of this research, higher education (he), constitutes one of the contemporary interests for the eu and other superpowers to exert an intellectual hegemony (robertson, 2009). the main theses of the present research could be concluded as following: 1. european ideational factors, observed on a series of discursive practices, materialize through significant events namely declarations, meetings, policies and the use of a european ‘language’. within the preliminary analyses, european ideas belonging to the bologna process were observed as part of the core of chilean and mexican events. norms are analysed taking into account how chilean he made use of them. eu principles and processes of transmission of norms and ways of exerting npe followed european patterns of analysis. 2. european effects upon chilean and mexican he are seen as part of an influential process characterised by the presence of non-concrete and ‘volatile’ aspects of discursive practices. therefore this premise sought to understand it as an ideational phenomenon encapsulated in a series of european notions about harmonising he. 3. i argued that an influential actor, such as the eu, exerts a kind of power based on its own conceptions (ideas, values, beliefs, norms) about reality which produces ideational, cognitive and learning effects. changes of opinion, attitude and behaviour observed as a result of an influential agent could be described as part of more complex processes of compliance and adoption of new patterns of understanding and action. 4. therefore, as a result of the substantial incidence of the union upon chilean and mexican he specifically through the tuning latin america project, the eu has been called ‘a global teacher’ (adelman, 2009). this concept has profound implications that have not been addressed by the existing literature mainly because the field of higher education has not been considered as part of field of studies of european influences upon non-european countries. however the idea of the union as a global teacher presents serious issn 1822–8402 european integration studies. 2014. no. 8 11 connotations when analysing european influences beyond europe. it concentrates a strong content defining the eu as an international actor and empowering it with a special power, a force that manifests a pedagogic potential for establishing its (external) relationships. therefore, its power is not ‘deposited’ in its material capabilities to exert physical strength, but it is placed in its conditions of structuring/organising (shaping) knowledge, giving lessons, being a tutor and ruling states of the ‘classroom’ of the world politics. the eu’s ‘pupils’ relates to it through learning affairs, following its patterns, models and guidelines. 5. therefore this paper argues that as a result of the arrival of european ideas and language in chilean and mexican he, their influence has been observable both in spoken and written conversations. european influences ‘coloured’ and ‘informed’ the criteria to evaluate and design institutional/university projects and public policies. in addition, it was possible to observe the development of a new culture for planning and assessing he projects. it is important to note here that all these analyses were worked with latin american documents and people. so the perspective of ‘receiver’ countries (chile and mexico) was always present and it contributed to the observation of true receptiveness process, i.e. how these countries socialised, did own (internalise), adhered and criticized the normative presence of the eu through the bologna process and the tuning project. references adelman, clifford (2009). the bologna process for the u.s. eyes. re-learning higher education in the age of convergence, washington, dc: institute for higher education policy. location reference: www.ihep.org/ research/globalperformance.cfm. berenskoetter, felix & williams, m.j. 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(editor), (2011). normative power europe: empirical and theoretical perspectives. palgrave studies in european union politics, palgrave macmillan. http://dx.doi.org/10.1057/9780230305601 wiessala, george (2006). re-orienting the fundamentals. human rights and new connections in eu-asia relations. asghate publishing limited, hampshire, england. youngs, richard (2004). normative dynamics and strategic interests in the eu’s external identity. jcms, 42 (2), blackwell publishing ltd, pp. 415–35. zgaga, pavel (2006), “external dimension” of the bologna process (first report), working group of the external dimension of the bologna process. the article has been reviewed. received in april, 2014; accepted in june, 2014. 9 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 abstract a critical reassessment: the european cloud university platform and new challenges of the quartet helix collaboration in the european university system http://dx.doi.org/10.5755/j01.eis.1.16.31353 jari kaivo-oja finland futures research centre, turku school of economics, university of turku, finland kazimieras simonavičius university, vilnius, lithuania european integration studies no. 16 / 2022, pp. 9-23 doi.org/10.5755/j01.eis.0.16.31353 submitted 04/2022 accepted for publication 06/2022 a critical reassessment: the european cloud university platform and new challenges of the quartet helix collaboration in the european university system eis 16/2022 jari stenvall tampere university, faculty of management and business, finland the european commission has presented how it intends to give europe a lead in the data-driven economy by enabling cloud-based services and world-class infrastructures for industry, scientists, and public services. in 2011 we discussed and proposed the cloud university platform for the european union in the european integration studies. the purpose of the study is to deliver a critical reassessment of the european cloud university platform. today a new european open science cloud (eosc) will offer europe’s 1.7 million researchers and 70 million science and technology professionals a virtual environment to store, share and re-use the large volumes of information generated by the big data revolution. the eosc will be underpinned by the european data infrastructure, deploying the high-bandwidth networks and super-computer capacity necessary to effectively access and process large datasets stored in the cloud. there is also a target to build a single market for the internet of things: with the right standards for interoperability, and open cross-sector platforms for iot devices and services to connect seamlessly, and scale-up, up anywhere in the eu. our assessment is focused on the european open science cloud (eosc) and its operational functioning and implementation process. the study is based on conventional assessment methods and tools. the methodology is a mostly mixed methodology (with both qualitative and quantitative data analytics) and it pays attention to argumentation logic and actual policy planning process and operational implementation of the eosc. the role of research infrastructures (ris), as well as cross-border innovation management approach are emphasized in recent transnational european research and innovation policy. support for ris form important pillars in the horizon 2020-framework, as well as in the horizon europe-framework based on the idea that modern science requires unique global competitive capabilities, which individual institutions, or even individual european countries, often cannot provide by themselves. there are very good reasons to perform a critical assessment, because according to the european cloud initiative, over the coming 5 years, the european commission will put forward proposals to meet the €4.7 billion investment need to integrate and consolidate data infrastructure. these vital proposals will bring together the eu and other sources, including member states and private investments. by 2017, all scientific data produced by projects under the €77 billion within the horizon 2020 research and innovation programme will become open by default to ensure that the scientific community can re-use the enormous amount of data they generate. this change is not marginal and needs more e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 10 reflective discussions. the primary database of reassessment is the documents of the european open science cloud (eosc) and (1) associated european commission work programme (overview of institution-wide deliverables), (2) the strategic plan (department strategy, objectives for 2016-2020) and (3) other eu management plans and scientific discussion associated with platform economy research. these eu documents were published after our original eis article. the key results of critical reassessment are: (1) there are concrete needs to strengthen links between the european open science cloud, industry 4.0 strategy and industry 4.0 curriculum in europe, (2) the concept of platform needs more discussion in the future developments of the european open science cloud (eosc), (3) country-level university and research community participation in the eosc requires more discussion and more updated operational implementation plans and programs, and (4) there is need to plan symbiotic digitalized innovation eco-system policy and economic growth policy framework for the european union. we summarise our critical reassessment with a critical note that there are big integration challenges of the european open science cloud. keywords: european open science cloud, big data, industry 4.0, higher education, european integration, digitalization, platform economy, open science policy, open innovation paradigm, collaboration framework of european universities, data governance, digital platforms, data infrastructure, european data politics, data policy. disclosure statement authors declare that they have no competing financial, professional, or personal interests from other parties. introduction we know that today a new european open science cloud (eosc) will offer a virtual environment to store, share and re-use the large volumes of information generated by the big data revolution (see central european university 2021). in the european union there are about 1.7 million researchers and 70 million science and technology professionals who can use this system and associated knowledge services. historically, in july 2020, the eosc association was set up to provide a single authoritative voice for advocacy and represent the broader eosc stakeholder community in the european union. this new association aimed to become operational by early 2021 and rapidly expand its membership in the european union. this is not a marginal policy issue for the future of the european union (european commission 2021). today we can note that the eosc is a strategic cornerstone of the european digital transformation strategy and mission. the eosc will be underpinned by the european data infrastructure, deploying the high-bandwidth networks and super-computer capacity necessary to effectively access and process large datasets stored in the cloud system. there is also a target to build a single market for the internet of things: with the right standards for interoperability, and open cross-sector platforms for iot devices and services to connect seamlessly, and scale up, up everywhere in the eu. eosc’s practical implementation is supported by a european data infrastructure that deploys high-bandwidth networks and large supercomputer capacity, which will be needed for the efficient use of digital resources and further processing of large datasets stored in the cloud system. the aim is to build an internal market for the internet of things (iot) in the european union, both with the interoperability standards and with open cross-cutting platforms for technical iot devices and services. this new european infrastructure enables seamless network connections and scaling up across the european union. our critical reassessment is focused on the european open science cloud (eosc) strategy and its operational functioning and implementation process. methodologically his study is based on conventional assessment methods and tools. the methodology is the mixed methodology approach (with both qualitative and quantitative data analytics) and it pays attention to argumentation logic and actual policy planning process and operational implementation of the eosc. 11 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the education landscape across europe has been changing and there has been a process of international vision building. at the 2017 gothenburg summit, eu leaders outlined a broad vision for education and culture. in its december 2017 official conclusions, the european council called on the eu member states, the council, and the commission to take forward a number of initiatives. the gothenburg summit outlined the future of the european union’s university policy. it aims to strengthen strategic partnerships across the eu between european universities. this new policy framework encourages the establishment of some twenty “european universities” by 2024. these european university networks consist of bottom-up university networks across the eu. students can obtain a degree by combining studies in several eu countries and universities. this concrete activity will help to promote the international competitiveness of the european universities. the key principles of the gothenburg summit were: (1) joint responsibility to put people first, (2) more men and women in employment and ensuring easier access to labor markets, (3) fair employment and good working conditions for the european labor market, (4) investments in people to facilitate transitions between jobs, and (5) further actions (european commission & the government office of sweden 2017). the general guiding principles of the gothenburg summit were as follows. the first principle of the gothenburg summit was a shared responsibility to put people first, that is, this principle was humanistic and humancentric. the second principle set out the objective of increasing the number of men and women in working life and facilitating general access to the labour market. the third principle was fair employment and good working conditions in the european labour market. the fourth principle was investments in people to facilitate the transition in the european labour market. the fifth principle was the planning and implementation of other additional policy measures. further actions were linked to euro policies underlining gender equity and social cohesion (european commission & the government office of sweden 2017, p. 5). the gothenburg summit – a european vision for education and culture key institutional and organisational steps to european cloud university we can note that key institutional and organisational steps to the realisation of the european cloud university have been three key elements: (1) start-up of the european open science cloud (eosc), (2) new definitions of european data strategy, and (3) reorganisation of the european research area (era). all these principles are strategically linked to the promotion of digital transformation in europe. the european open science cloud (eosc) we can note that the european open science cloud was reflected in many ways our original paper (kaivo-oja & stenvall 2011). in fig. 1 we have reported big data analysis of the concept of the “european open science cloud”. we can note that our original was noted internationally in 2011. it took some years to raise broader international interest to the european open science cloud. the austrian presidency and the european commission invited stakeholders from all eu member states to celebrate the launch of the european open science cloud (eosc) in 2018. the official launch event on 23 november 2018 marked the conclusion of a long process of consultation and reflection with various stakeholders and it was a pioneering start-up event for the european open science cloud. we can critically note that it took for the european union seven years to implement the basic idea of european cloud university and platform approach. the vienna declaration (see a very official political agreement text in appendix 1) on the european open science cloud governance structure (eosc vienna declaration (eosc-launch.eu) summarized the demanding consultation process by highlighting most important steps. the eosc vienna declaration emphasized the need to actively support this joint european effort to ensure smooth and e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 12 successful implementation of the european open science cloud (eosc). the political willpower was very strong in the vienna declaration. today the european open science cloud (eosc) is an environment for hosting and processing research data to support all the eu science activities. the process to create the eosc was initiated by the commission in 2015. the key idea was to develop a trusted, virtual, federated environment that cuts across eu borders and scientific disciplines to store, share, process and re-use digital objects of research (like publications, data, and software) following four fair principles: (meta)data are assigned a globally unique and persistent identifier, data are described with rich metadata. metadata clearly and explicitly include the identifier of the data they describe. fourth principle is that metadata are registered or indexed in a searchable resource (wilkinson et al. 2016). the interim governance is composed of the eosc governance board with (1) representatives from all the eu countries, countries associated with the horizon 2020 program (and now horizon europe program), with (2) the european commission to ensure effective supervision of the eosc implementation, with (3) the eosc executive board: representatives from the research and with e-infrastructures communities and the eosc stakeholders (european open science cloud 2021). today the eosc brings together institutional, national and european stakeholders, initiatives, and data infrastructures to develop an inclusive open science ecosystem in europe. we can note that this development is a new policy element of social inclusion policy and european integration policy in the european union. this policy decision can create a potential momentum for new insights and innovations, higher research productivity, and improved reproducibility in science, technology and innovation activities (see also kaivo-oja & stenvall 2012). new open science principles describe a more inclusive, collaborative, and transparent world of research. (european open science cloud 2021). later in may 2015, the european commission proposed creating a european open science cloud for the competitiveness council. the strategic aim was to federate existing research data infrastructures in europe and realise a web of fair data and related services for science, making figure 1 big data analysis of “european open science cloud” (google trends database 20.4.2022) 0 20 40 60 80 100 120 20 11 -0 9 20 12 -0 1 20 12 -0 5 20 12 -0 9 20 13 -0 1 20 13 -0 5 20 13 -0 9 20 14 -0 1 20 14 -0 5 20 14 -0 9 20 15 -0 1 20 15 -0 5 20 15 -0 9 20 16 -0 1 20 16 -0 5 20 16 -0 9 20 17 -0 1 20 17 -0 5 20 17 -0 9 20 18 -0 1 20 18 -0 5 20 18 -0 9 20 19 -0 1 20 19 -0 5 20 19 -0 9 20 20 -0 1 20 20 -0 5 20 20 -0 9 20 21 -0 1 20 21 -0 5 20 21 -0 9 20 22 -0 1 big data analysis of "european open science cloud" 13 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 research data interoperable and machine-actionable following the fair guiding management principles described above in previous section. in the initial phase of development until 2020, the commission invested around €320 million to start prototyping the eosc through project calls in horizon 2020 the commission’s research and innovation funding programme. in march 2018, the european commission finally published the eosc implementation roadmap detailing the main action lines of the first eosc implementation phase until 2020. a multi-layered framework, and interim governance structure was established from november 2018 to steer and oversee the operational implementation of the eosc from 2019 to 2020. (european open science cloud 2021). european data strategy the european data strategy recognises the eosc as the nucleus for science, research and innovation data space, which will become articulated with the nine sectoral data spaces foreseen by the data strategy. the eosc timeline indicated in the european data strategy foresees the following stages: (1) by 2025: deploy eosc operations to serve all the eu researchers; (2) from 2024: open up, connect and articulate the eosc beyond the research communities, with the wider public sector and the private sector activities, and (3) post-2020: establish a renewed, stakeholder-driven eosc governance structure possibly in connection with the launch of a corresponding eosc european partnership in the first quarter of 2020. (european commission 2021). in a nutshell, this is actually the european data strategy. the european data strategy aims to make the eu a global leader in a data-driven society. creating a single market for data will allow data to flow freely within the european union and across industries and sectors for the benefit of businesses, researchers and public administrations. european research area (era) the eosc is a central element supporting knowledge circulation, diffusion, and uptake in a revitalised european research area (era), which aims to fit for the digital industry 4.0 age. one of the fourteen actions introduced in the communication on a new european research area for research and innovation consists of ensuring a novel eosc that is offering a web of fair data and related advanced services. further actions were linked to the euro policies in the following ways. the summit witnessed the joint proclamation of the european pillar of social rights by the european parliament, the council, and the european commission. (european commission & the government office of sweden 2017, p. 5). the european commission´s work programme (2021) includes key statements, which provide an updated situation analysis of the european digital transformation policy. this work programme includes strategic eu policy statements (european commission 2021, p. 4), which in a nutshell are including policy statements. the european commission (ec) wants to ensure that there really will be europe’s digital decade. the ec wants to propose a roadmap with clearly defined goals for 2030, such as key policy variables, as for (1) connectivity, (2) skills, and (3) digital public services. this eu approach will follow four clear principles: the right to privacy and connectivity, freedom of speech, free flow of data, and cybersecurity. following the idea of the digital decade era, the european commission will take action across these different policy areas, notably with legislation covering the safety, liability, fundamental rights, and data aspects of artificial intelligence. there will be a data act to set the right conditions for better control and conditions for data sharing for citizens and businesses. the european commission will propose a new european digital identity to make it easier to do tasks and access services online across european member countries and ensure that european citizens will have greater control and e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 14 peace of mind over what data they share digitally and how this content is used. planning work for an international agreement for a fair tax system continues. this reform will provide long-term sustainable revenues for governments. the european commission will propose a digital levy in near future. in the same spirit of a fair business environment, the ec will propose a legal instrument to level the playing field as regards foreign subsidies. these planned eu actions uphold fairness of governance in the digital world. the ec will also update new industrial strategy (linked to industry 4.0 transformations) for europe to take into account the impacts of the covid-19, the global competitive context, and the acceleration of the twin green and digital transitions. the ec will continue its ongoing review of competition rules to ensure they are fit for the changing market environment, including the accelerating a determined digitalisation of the economy. and as a final political statement, the ec works for ensuring dignified, transparent, and predictable working conditions, a legislative proposal to improve the working conditions of people providing services through platforms will be presented with a view to ensuring fair working conditions and adequate social protection. clearly defined goals linked to the eosc for 2030, are (1) better connectivity, (2) better skills, and (3) better digital public services. 0 20 40 60 80 100 120 20 11 -0 9 20 12 -0 1 20 12 -0 5 20 12 -0 9 20 13 -0 1 20 13 -0 5 20 13 -0 9 20 14 -0 1 20 14 -0 5 20 14 -0 9 20 15 -0 1 20 15 -0 5 20 15 -0 9 20 16 -0 1 20 16 -0 5 20 16 -0 9 20 17 -0 1 20 17 -0 5 20 17 -0 9 20 18 -0 1 20 18 -0 5 20 18 -0 9 20 19 -0 1 20 19 -0 5 20 19 -0 9 20 20 -0 1 20 20 -0 5 20 20 -0 9 20 21 -0 1 20 21 -0 5 20 21 -0 9 20 22 -0 1 big data analysis of "european open science cloud" critical assessment of the european open science cloud (eosc) in fig. 2 we present critical elements of assessment of the european open science cloud. from the perspective european integration policy planning, we note that key critical elements are: (1) european industry 4.0 curriculum, (2) platform strategy of the european university system, (3) systemic science, technology and innovation approach of the european university system, (4) data sovereignty strategy of the european union and social inclusion policy of the european union. we note also that research infrastructure (ri) strategy can be seen as a key element of the european university system. data sovereignty means keeping ownership and control of personal and organisational data, so it remains subject to your own governance structure. eosc strategic links to industry 4.0 approach it is a generally known fact that we are in the age of the fourth industrial revolution. the main challenges are related to the exponential growth of digital tools and products that include robots, cobots, connected objects, communication systems, data centers, and associated energy configure 2 critical elements of assessment of the european open science cloud 15 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 sumption. the european open science cloud (eosc) has a huge potential to support european companies and corporations to be in the forefront of industry 4.0 development. in jan 2020, the european commission (2020, p. 10) noted in the official report “skills for industry curriculum guidelines 4.0: future-proof education and training for manufacturing in europe”: “while there are already examples of effective approaches towards adapting engineering training to the needs of industry 4.0, numerous education and training providers only now begin to consider the necessary development. reshaping curricula is a considerable challenge, implying complex decision-making processes and various administrative obstacles. many departments and faculties are still dominated by traditional approaches and subject-related ‘silo thinking’, while the new industrial age requires fundamentally new mind-sets and visionary leadership.” this european policy statement can be taken as a critical assessment of the eosc operations. in the european union there are many needs to offer more a source of inspiration, conceptual guidance and good practice examples of the eosc operations. awareness and good case studies are needed. there is need to have more guidelines, which are applicable for both designing fundamentally new educational offers and advancing existing industry 4.0 curricula, depending on the level of required change. we are broadly aware that advanced manufacturing and the industry 4.0 agenda have a high priority on the political agenda of the european union, and these issues are seen as a key enablers that will lead european society towards higher industrial competitiveness, sustainable growth and job creation, and improved societal wellbeing. eosc strategic links to the platform economy thinking we can see government systems as digital platforms (bygstad & d’silva 2015). government as a platform combines the three characteristics of the digital era governance: (1) human centricity, (2) full digitalization and (3) common goals. by combining these three characteristics, and including feedback loops for measuring their success, it reaches three goals: efficiency, inclusion and institutional change. the digital era governance cannot happen if there are services that don’t leave a digital trace. many benefits of digitalisation are lost, if there is no data. data is pre-condition for most of industry 4.0 technologies. digital by default strategies help and enable developing digital services in the right way. another helpful approach is to build common data sharing funnels, such as the x-road in estonia. (koponen 2018, x-road® — e-estonia (e-estonia.com)). there are many institutional changes that are required to get everything out of the later stages of digitalization such as hyperconnected society, artificial intelligence (ai), blockchain, etc. for the public sector, the most important transition is the transition from “new public management” to “digital era governance”. new public management guided government organizations to efficient but budget lead, siloed approaches. typically, very large organizations were divided to smaller groups, competition inside the public sector was increased. a lot of public work was done via tenders and projects and there were new monetary reward systems for leaders and groups. the npm approach emphasized doing things right, while sometimes having a blind spot in doing the right things – at least from the whole of government public service perspective. because of these kind of problems, digital tools don’t work well with the npm paradigm. too often similar apps and digital productions are produced in neighbouring municipalities, apis are non-existent or non-standardized and common public goal is completely missing. however, the benefits of digitalization come from various network effects and victorious loops that are not visible when one is only looking at digital practices in each government agency and municipality individually. this can be a problem in the context of eosp. (see dunleavy et al. 2006, koponen 2018) today, the impacts of the platform economy on public services and government are not well known. many possibilities are still open and hidden. the potential for the digital platform economy to help restructure services and governance structures of european union. an algorithmic e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 16 revolution, big data analytics and cloud computing are well-known drivers of digital development. platforms are often used in coordinating market transactions in an extremely efficient way. however, in order to apply the platform-concept to the public sector, an experimental approach is needed. public platforms cannot be built by transposing mechanical models of the private sector to the public sector, because the organisational logic of public services is quite different than open markets. collaborative value co-creation in the platform economy needs more attention in the context of eosc (see hautamäki & oksanen 2018). human beings can be both consumers and citizens are this is a fundamental starting point to develop platforms for private and public sectors. there can also be hybrid platforms, which include elements of both private and public platforms. typically (1) platform owner, (2) objectives, (3) industries, (4) business model and (5) challenges of the platform economy are different in various alternative platforms of private and public sectors (ottlewski & gollnhofer 2019). public media attention is mainly focused on private sector platforms that pursue profit maximization objectives. however, public sector platforms have recently emerged providing solutions for socio-economic challenges in our highly disruptive times (including european covid-19 era crisis). they share some commonalities with private sector platforms, but they are fundamentally different in their social goals and premises. moreover, there are hybrid platforms which may blend/mix the characteristics of private and public sector platforms to offer innovative solutions. the possibility of public and private partnerships should always be taken seriously. one key aspect of platform economy thinking is the functionality and nodularity of various platforms. in fig. 3 we have presented tiwana´s analysis of platform integration (tiwana 2014). one strategic barrier of the eosc approach can be that there is not very clear strategic approach, how to manage various possible functionalities of the european open science cloud. in any case there should be some kind of transparent way to handle this challenge. figure 3 envelopment of one platform (b) by a platform (a) in a adjacent market (tiwana 2014, p. 36) another critical aspect of the structure of the european open science cloud is how products, services and platforms of european universities should be organised. fig. 4 demonstrates this challenge in many ways. we know that universities have originally been organised physically, but now digital aspects matter more. this means that the delivery systems, purchasing systems and digital contents matter more and more. for example, mooc, massive open online courses alternatives need more attention in the eosc development (see e.g. eures, european commission 2021, edx 2021, kim 2015). there are some unsolved problems in the eosc. platform modularisation has four downsides for app developers. well-known and identified key problems are (tiwana 2014, p. 105): (1) modularity imposes additional costs on app developers, (2) app performance takes hits, but not always, (3) modularity constraints experimentation and apps may be reformulated in european universities and (4) leveraging the platform increases app developers´ vulnerability. these four problems must be solved in some ways and strategic decisions. modular platforms give platform 17 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 owners an increased capacity to innovate within a platform. there should be more open and critical discussion, how these four key problems are solved within the eosc. the question of modularity is a key question, because designing a perfectly modular platform is almost impossible. there is need to recognise, anticipate and resolve all app-platform dependencies in advance (see e.g. baldwin & clark 2000, p. 6). figure 4 the packetization cube framework (tiwana 2014, p. 14) the socio-technical anticipation of european open science cloud needs probably more attention in this respect. for example, the expected integration of ar/vr technologies to the eosc is a huge european opportunity in global competition of higher education, but there is not too much discussion in the european union and in the eosc. the platform architecture is a broader question than successful apps. this is a challenge for a platform owner, for the eosc. eosc strategic links inclusive country-level participation and social inclusion policy social inclusion is a catchphrase of european integration policy. this policy issue is underlined in many policy agendas and policy declarations of the european union, especially now in the conditions of covid-19 crisis. in fig. 5 we have visualised some fields of social inclusion. if we want that the eosc serves the idea of social inclusion, we must understand in deeper ways how the activities of european sti ecosystem systems serve the targets of social inclusion. as widely recognised, especially, the unresolved problem of structural exclusion needs more attention (thomas et. al 2012). the key challenge of social inclusion is how eu policies help people to fight against poverty. get better education, better knowledge and information services and improve quality of life in europe. if we want to integrate social inclusion targets of the european union to the eosc, some figure 5 eu social inclusion policy: key variables e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 18 key aspects are presented in fig. 6. according to our critical assessment, we still lack many critical elements of social inclusion policy in the context of the eosc. fig. 6 can be used and applied in the planning process of architecture and governance of the european open science cloud (eosc). in this way we could pay more attention to the principle of governing as governance (see kooiman 2003). in the context of data management policy this principle is a relevant aspect. figure 6 the european open science platform (eosc) and social inclusion challenges eosc strategic links to sti strategy of innovation, closed innovation and symbiotic innovation systems in table 1 we have outlined key innovation approaches and their links to product, service and platform approaches. symbiosis innovation management approach is needed in the most of futures-oriented futures studies (see kaivo-oja & santonen 2016). a key point in this context is that we claim between closed and open innovation approaches there is a symbiosis approach because closed innovation and open innovation are not performed in pure forms nowadays in very international and globalised world of innovations. for example, the government of south africa made an interesting study about its sti policy and future needs with big data analytics (nace secretariat 2019). this process was focusing on all sti resources and challenges. actually, this study was linked to symbiosis of closed and open innovation approaches in a global setting. similar possibilities of digital big data analysis tools are today available for the european commission and its member countries. research potential of european union in various domains can be accessed via basic research publication activity with indicators of european union member countries and other countries in the eosc and scopus databases. integration of various big data sources and pools need more attention in the eosc administration and agencies. table 1 closed, symbiosis and open innovation: product, service and platform approaches closed innovation symbiosis open innovation product typical market approach typical public-private approach new market approach service typical market approach typical public-private approach new market approach platform new market approach typical public-private approach emerging private and public approach 19 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 eosc strategic links data sovereignty questions and challenges many eu member states are transitioning to a new economy built on data and digital economy. individuals and firms in eu member states have expertise in using data to create new goods and services as well as in how to use data to solve complex problems. in fig. 7 we have outlined key alternatives of data sovereignty policy. every nation must define its own data sovereignty policy, but there are also some needs for european integration. as a recent oecd paper, the author notes, ‘data flows have brought risks, weaknesses, and complications as well as benefits’ (svantesson, 2020). today understanding data governance models is, therefore, a key strategic challenge for eu member countries. it is impossible to define the rules of data governing or data governance models by one organisation or one project. partnerships are needed in many fields of data management. there must be broader discussion in society and also in the context of the european open science cloud. micheli et al. (2020) identified four key emerging data governance models, which may function as useful alternatives to today’s dominating platform models: (1) data sharing pools (dsps, see e.g. mattioli 2017), (2) data cooperatives (dcs), (3) public data trusts (pdts), and (4) personal data (micheli 2020, p. 7, lehtiniemi 2017). to avoid concentrating public and private resources at the mercy of large-scale enterprises located elsewhere, especially as concern over digital protectionism grows (aaronson, 2019; svantesson, 2020), we believe than european commission, and eu member countries should consider these avenues as part of a forward-looking big data-strategy and link to the next steps of the eosc. an important dimension to discuss is the extent to which these models democratise data governance in the european union. for example, we must pay more attention to the social power of algorithms (beer 2017). the warnings about the big data divide already are given (see andrejevic 2014). as a general critical comment, we can recommend applying data governance models in the next phases of the european open science cloud and its digital applications. data domain, data scope, and organizational scope are key elements of data governance models (abraham et al. 2019). figure 7 data sovereignty policy. relevant alternatives for the planning of the eosc e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 20 other strategic questions european union faces today competition in the global context. for example, the bricsa countries are arriving to the global arena of sti ecosystems (kaivo-oja & lauraéus 2017). we can claim the also european open science platform faces global platform competition, because it includes various possibilities of massively distributed innovation. in fig. 8, we present a basic analysis about this point of view. this figure 8 informs clearly us about costs and risks of modularity in platform management. figure 8 modularisation challenge. seeking optimal balance between coordination costs and modularity. (tiwana 2014, p. 105) the packetization cube framework (tiwana 2014, p. 14) informs us about seven alternative modular packets of digital services. we can ask, which are european packets in relation to european cloud university platforms? finding an optimal balance is not easy because drivers like deepening specialisation, packetisation, software embedding, the internet of things technologies, and ubiquity increase systemic complexity of the european decision environment. this is a very good reason to plan and foresight reasonable coordination costs and modularity (fig. 6). emerging platforms are changing the rules of competition. platform ecosystems are normally composed of externally produces complements that augment the capabilities of the platform. new innovations that different platforms often emerge in the downstream part of the platform´s value chain. the true platform must be at least two-sided. there must be app developers and end-users that interact with each other using the platform. this is not happening automatically. the most successful platforms start as standalone products and services. the platforms which serve and help various industries are the most useful and desirable. we can claim that industry-agnostic platforms include the highest potential for the european union. (see e.g tiwana 2014, p. 20-21). modularisation challenge needs very much attention in the future. especially european cloud initiative must take the modularisation challenge seriously. 21 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 summary and conclusions the key conclusions of critical reassessment are: (1) there is a need to strengthen strategic links between the european open science cloud and the industry 4.0 strategy and industry 4.0 curriculum in europe, (2) the concept of public platform alternatives needs more discussion in the development of the european open science cloud, especially concerning modules of the platforms, (3) country-level and university-level participation and especially social inclusion of the european open science cloud needs more discussions and more updated and concrete operational future-proof implementation plans and governance programs. in this context, we discuss complex systems and foresight activities in this complex systemic context (see e.g. kaivo-oja & stenvall, 2013), and (4) there is a need to plan symbiotic and digitalized innovation eco-system policy and general economic growth policy framework for the european union (see kaivo-oja & santonen 2016). especially, the full potential of big data analytics and analyses needs to be implemented in the european union. data sovereignty means keeping ownership and control of personal and organisational data, so it remains subject to its own governance structures. we note that the platforms, which serve and help various industries are the most useful. we can claim that industry-agnostic platforms include the highest potential for the european union. today a very important dimension to discuss is the extent to which these platforms and data management models democratise data governance in the european union. we must pay more attention to the social power of algorithms. the warnings about the big data divide already are given. social inclusion must not only be a catchphrase concept if we want to avoid big data divide in the european union. it is clear that research into the platform economy of open science requires a lot of additional research, which should be multidisciplinary in nature and as transparent as possible references abraham, r, schneider, j. & vom brocke, j. 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(2016) the fair guiding principles for scientific data management and stewardship. scientific data, vol. 3, 160018 (2016). web: https://doi.org/10.1038/sdata.2016.18 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). jari kaivo-oja professor (social sciences), doctor of administrative sciences, msc (international economics), adjunct professor (university of helsinki and university of lapland), position, research director, professor (social sciences), adjunct professor (university of helsinki and university of lapland) finland futures research centre, turku school of economics, university of turku, finland and kazimieras simonavičius university, vilnius, lithuania fields of interests big data research, european integration, digitalisation, methods of social science, foresight, anticipation, futures studies, innovation management, innovation systems, open innovation, economics, public management, global economy address åkerlundinkatu 2 a, 4th floor, 33100 tampere, finland and dariaus ir girėno st. 21, vilnius, lt-02189, lithuania +358-41-753 0244 jari.kaivo-oja@utu.fi jari stenvall professor (administrative science) tampere university, faculty of management and business fields of interests public administration, innovation management, digitalisation, public management, innovations systems, european integration, public sector reforms, university administration address kanslerinrinne 1 (pinni a), 33100 tampere, finland +358-40-8284350 jari.stenvall@tuni.fi 135 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the retail sector is an important engine of the national economy and an indicator of the development of the national economy. over the last ten years, the total retail turnover index has increased by 31%, which highlights the acquisition of competitive advantages. businesses need to fight strategically for consumers in an environment where information and services are widely available. promoting customer loyalty is important for companies, but with the realization of responsible and sustainable operations, corporate social responsibility is one of the ways to promote it. it is important to understand how important corporate responsibility is to consumers and what corporate social responsibility activities are now important to consumers to draw conclusions about their impact on customer loyalty. the aim of the current research is to identify corporate social responsibility activities that promote customer loyalty in the latvian retail sector. in order to achieve the aim of the work, the following tasks have been set: (1) to study theoretical aspects of corporate social responsibility and customer loyalty; (2) to develop a questionnaire to assess public opinion on the importance of corporate social responsibility in the food retail sector and to conduct an in-depth interview to find out the opinion on the results of the questionnaire in practice;(3) to identify the corporate social responsibility activities that are important to society and promote the loyalty. the research question put forward is: what corporate social responsibility activities affect customer loyalty? for analysis of statistical data, the authors use such methods as internal coherence analysis (cronbach’s alpha), frequency analysis, ranking, factor analysis, graphical analysis. in order to identify the factors influencing corporate social responsibility in the latvian retail sector, a survey was carried out. as a result of factor analysis a scheme of corporate social responsibility activities was developed for companies in the food retail sector, grouping together the most important directions and activities of corporate social responsibility for consumers in order to promote the customer loyalty. keywords: customer loyalty, corporate social responsibility, retailing, competitiveness, corporate citizenship. abstract corporate social responsibility as a factor promoting customer loyalty in the latvian retail sector http://dx.doi.org/10.5755/j01.eis.1.16.31325 velga vevere, inga shina, samanta ganina eka university of applied sciences, 1/5 lomonosova street, riga lv-1019, latvia european integration studies no. 16 / 2022, pp. 135-149 doi.org/10.5755/j01.eis.0.16.31325 submitted 05/2022 accepted for publication 06/2022 corporate social responsibility as a factor promoting customer loyalty in the latvian retail sector eis 16/2022 introduction retail is an area that every member of society faces, whether it is the retail sale of food or clothing and footwear, or the retail sale of home and garden goods. consequently, retail trade is an important engine of the national economy, the development of which also indicates the development of the national economy. (liniņa, 2018). it is important to note that between 2010 and 2020, the total turnover index of the retail sector increased by 31%, while the number of retail enterprises has been declining over the years (official statistics portal, 2021), which in turn may mean increased competition in the sector. the development of the retail sector and the intensie u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 136 fication of the competitive situation mean that companies need to plan strategically in the fight for the consumer, who is the main person who is able to influence the company’s operations with his decision and purchase. this means that retailers need to think about how to better meet consumer expectations and boost their satisfaction with a service or product (zvirgzdiņa et al., 2015). it must be borne in mind that this task has become more difficult with the development of globalization and the availability of digital technologies and the internet, as today’s consumers are more informed than they used to be. the consumer has easy access to a wide range of information on the products available on the market, prices and distribution channels, different views on the product (pires et al., 2006). this means that the availability and exchange of consumer information helps the consumer to make a faster purchase decision, but at the same time creates a difficult-to-control brand image. with increasing competition in the retail sector, as well as the availability and abundance of information, businesses need to fight strategically for the consumer. one of the main tasks of each company is to satisfy the wishes and needs of consumers, which results in a business-consumer relationship, where the company attracts and retains the consumer, increases turnover, market share, makes a profit, but in the meantime the consumer receives the desired product or service in the right place (liniņa, 2018) customer loyalty is one of the main goals of companies, because they are one of the greatest values of companies it is recognized that it is more profitable to retain a customer than to attract a new one, as well as loyal customers are happy to recommend a brand to which he is loyal to others by promoting a positive word of mouth that is considered good and credible advertising (stanisavljević, 2016). customer loyalty is formed for many different reasons, but one of the factors influencing loyalty and purchase decision is the added value of the product for today’s consumer, who keeps up with the world news. the added value is provided by the current issue of sustainability, ethical and socially responsible operations. (gürlek et al., 2017). consumers, it has been shown prefer companies that act responsibly in their actions, such as corporate social responsibility. although, it has to be admitted that not all research provides such conclusions. thus, for example, a survey of supermarket customers on the impact of the corporate social responsibility on their satisfaction and loyalty, conducted in 2019 (linina et al., 2019) demonstrated that customers in supermarkets in the baltic states exhibited a relatively low loyalty ratio for the company. the retail companies were not yet taking every opportunity to attract and retain consumers. participation in and organization of the social projects (i.e. corporate social activities) in the eyes of consumers, according to this research, were the most insignificant factors in actually choosing the particular supermarket for shopping, whereas the same exact factors were ranked high on the general evaluation scale. the responsible behavior is particularly important in the retail sector, as market participants are defined as a bridge between the consumer and the supplier and are generally managed by many stakeholders (jones et al., 2007). corporate social responsibility in the activities of a retailer is an important factor, because they have a great influence on consumer behavior, habits, have the opportunity to influence demand and supply, which in turn can influence not only the consumer but also suppliers (musso & risso, 2006). with the actualization of sustainable and responsible activities for today’s consumer, along with the abundance and availability of information on things of interest, as well as increasing competition for consumers in the retail sector, it is important to promote customer loyalty. it is important because it provides the company with an independent customer who is loyal to the products, resistant to competitors’ marketing activities, promotes turnover, increases market share. one of the ways to promote the customer loyalty in this prism of the situation is strategic action within 137 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the framework of corporate social responsibility. the authors believe that it is important to conduct a study to find out what are the directions and activities of corporate social responsibility, which are important for the consumer in the latvian retail market, which in turn would be able to build customer loyalty. the aim of the current research is to identify corporate social responsibility activities that promote customer loyalty in the latvian retail sector. in order to achieve this aim, the following tasks have been set: (1) to study theoretical aspects of corporate social responsibility and customer loyalty; (2) to develop a questionnaire to assess public opinion on the importance of corporate social responsibility in the food retail sector and to conduct an in-depth interview to find out the opinion on the results of the questionnaire in practice; (3) to identify the corporate social responsibility activities that are important to society and promote loyalty. the research question is the following: what corporate social responsibility activities affect customer loyalty? literature review the customer loyalty is a topical issue for today’s companies. given that the goal of business is to make a profit from all processes, but the consumer is important for its implementation. an important factor in driving turnover is the consumer who is satisfied with the product or service received, but more importantly, if this satisfied consumer becomes a loyal consumer (liniņa, 2018) customer loyalty is an important factor in the company’s competitiveness in various types of markets both unsaturated and saturated, because it ensures the company’s sustainable operation (abu-alhaija et al., 2018). often, consumers are not only looking for a product or service, but also for the experience that comes with it, demanding not only a comprehensive offer, but a personalized experience that can give the company a different edge from its competitors. in turn, this consumer experience, which they seek and purchase, also promotes customer loyalty (pekovic & rolland, 2020. customer loyalty is defined as “a strong commitment to re-purchase a product or service in the future that favours re-branding, regardless of the overall situation and surrounding factors, as well as competitors’ marketing efforts to encourage switching behaviour” (oliver, 1999). rai and medha (2013) mention that the customer loyalty is defined as the willingness of consumers to repurchase the same goods and services under a particular brand, as well as the desire of consumers to recommend branded products or services to family, friends, relatives and other acquaintances. therefore, the customer loyalty is considered to be one of the most important goals of companies to promote business development, which makes the term loyalty relevant among companies (khan, 2013). customer loyalty is considered to be a valuable result of a company’s marketing activities. loyalty is an attitude that is formed towards things, actions, and at the same time also towards brands. it is emphasized that loyalty forms the consumer’s relationship with the brand, which can take the form of multiple purchases under a particular brand, regardless of the actual circumstances of the purchase, such as price, advertisements designed to change consumer behaviour (uncles et al., 2002,). loyalty is an important indicator of a company’s performance, as it not only means creating value and satisfaction for the consumer, but also encourages them to make recommendations to family, friends, colleagues, confirming that loyalty is not just a behaviour caused by preferences, but a condition created by determination (filipe et al., 2017). it is recognized that it is more profitable for companies to retain an existing consumer than to attract a new one, as the existing consumer can spend more and the cost of attraction has decreased (liniņa, 2018). a loyal customer could not only make larger purchases within one company, but also reduce marketing costs, because regardless of competitors’ efforts to change consumer behaviour, it would continue to make purchases, promoting turnover at a particular brand. consequently, a retained customer is more valuable and profitable than an acquired customer (filipe et al., 2017). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 138 the loyalty is promoted by various factors such as trust, customer satisfaction, emotions, enjoyment, customer involvement, customer commitment, product, service quality perception, brand reputation, brand image, risk perception, value perception, benefits, switching costs, consumer relationship management, advertising, habits, religion, brand experience, employee-customer interaction, employee involvement in business processes (abu-alhaija et al., 2018), price awareness, store image, industry brand awareness, impulsivity (cho et al., 2015). it is also necessary to be aware of the negative factors in customer loyalty that can promote or reduce it, such as customer fear, regret, boredom. customer loyalty can be promoted and influenced by many different factors, which, in the authors opinion, companies can influence, such as brand image, advertising, employee involvement in the business process. there are factors that companies can partially influence, such as brand experience, service or product quality perception, consumer relationship management, as well as factors that cannot be influenced by the company, as they depend entirely on the customer, such as values, emotions, habits. . customer loyalty is divided into 4 other types the consumer is a prisoner who has no choice to shop elsewhere, but there is no reason to perceive the brand negatively; the consumer is a convenience seeker accustomed to a certain routine of low-engagement products, and the brand is perceived with neutrality but a drive for convenience; a satisfied consumer who values the brand, develops a positive attitude and, if possible, recommends it to others; a consumer completely loyal who rarely considers other brands and is happy to attract other customers to that brand (dapi & phiri, 2015). in his turn, oliver (1999) proposed the division of customer loyalty into four dimensions cognitive loyalty, emotional loyalty, trust loyalty, action loyalty. it is emphasized that not all dimensions are equally relevant in all sectors, and it is emphasized that dimensions may not be secondary but mutually reinforcing. the divisions of loyalty are many and varied, but the main characteristics of the types of loyalty are customer attitudes, actions and the impact of loyalty. according to the authors, these three common denominators are the most important for these types of loyalty, because they determine how strong the customer’s loyalty is and how resilient it is to the marketing tools of other competitors, as well as price changes. the concept of corporate social responsibility (hereinafter csr) is not new and is already known and practiced in business, but the approach to the definition of the concept is different. although the world business council for sustainable development recognizes that there is no universally accepted definition of csr, it is agreed by international meeting as the quality of life of families, as well as the quality of life of the local community as a whole ”, and it is mentioned that the direction of csr is in human rights, labor rights, environmental protection, supplier relations and community involvement (world business council for sustainable development, 1998). the european commission has defined csr as “the concept whereby companies incorporate social and environmental concerns into their business on a voluntary basis and in interaction with stakeholders”, stating that csr activities go beyond companies’ legal obligations to society and all stakeholders (eur-lex, 2011). csr is considered to be a voluntary responsibility for the impact of the company’s activities on society, the environment, divided into two dimensions, internal: in relations with employees and the management model; external: public relations, stakeholders, environmental impact. authors of scientific articles and literature also offer several adaptations to the definition of csr. for example, kotler and lee (2005) define csr as “a commitment to the well-being of society through discretionary business practices and investment of corporate resources”, emphasizing the importance of volunteering, which is not expected to be required by law or ethics. according to a. carroll (1991) csr is described as the company’s simultaneous economic, legal, ethical and 139 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 philanthropic responsibility implementation. carroll (2021), mentions that the concept of csr, the word “corporate” is attributable to a variety of companies both large and small. at the same time, the word “social” is applied to people, society, the well-being of society, stakeholders both in a smaller circle and on a larger scale. the word “social” is applicable not only to humans as a society, but also to the question of other creatures animals, plants and nature in general. the word ‘responsibility’ refers to holding companies accountable to the public, being aware of their potential and impact on society. csr is also defined as “the company’s commitment to improving and promoting sustainable economic development with employees, their families and society as a whole, by improving the quality of life, which is also beneficial for business development (al-ghamdi & badawi, 2019). given the recent growing urgency of globalization, csr is a collection of good practices that are a fundamental element of a company’s response to what is happening in society, gaining the trust and support of stakeholders. csr has become an important element of a company’s strategy to not only become competitive, but also to promote responsible operations. (rodriguez-gomez et al., 2020). lisa wan and other authors point out that csr definitions focus on the commitment of companies to activities such as improving the environment, supporting minorities, socially responsible employment, responsible production and entrepreneurial practices within animal and human rights (wan et al., 2016). in summary, csr is a voluntary activity of a company aimed at strategically directing the resources obtained as a result of profit to promote the benefit of society and the environment. it is necessary to take into account this tendency of the society to follow the activity of companies and its evaluation is related to a series of scandals that draw the public’s attention and make you think when evaluating which company and its activities you support with your purchase. at the same time, the increase in public interest in csr activities can be explained by the growing pressure from the public on topical issues related to csr, such as environmental protection and working conditions. of course, along with the public interest, the interest of the media is also developing, as well as the involvement of the companies themselves in the activities. today, the environment in which companies have to operate is becoming more accessible to the public and their evaluation, which in turn makes it necessary to keep up with this issue in order to promote not only responsible operations but also competitiveness in an environment where it is necessary to promote a positive brand image. may also have a positive effect on consumer attitudes (wan et al., 2016). exposing the public to information about corporate social responsibility changes in general changes consumer attitudes and perceptions about business practices in general. negative examples of csr in consumers are considered to lead to negative associations, while positive examples are positive. this, in turn, can affect consumers ‘willingness to buy products and the development of companies’ products (rodrigues & borges, 2015). therefore, it is necessary to understand that with the development of information flow and availability, as well as social activities, companies must not only provide quality products or services, but also consider ways to add value to the company itself as a citizen in society. retail is an important sector of economy for consumers, as it accounts for a large proportion of their daily purchases, so it is important for retailers to be aware of csr activities that are relevant to their activities and could also be relevant to their stakeholders, such as consumers (deepa & chitramani, 2015). today, consumers are strongly interested in various csr-related business activities, such as environmentally friendly products, cooperation and assistance to the local community, thus preferring to focus on companies that are socially responsible, but at the same time avoid companies that not only do not comply with additional csr. activities, but also engaged in illegal activities, did not care about the environment and their employees. it is becoming increasingly important for consumers to decide what they support with their purchase. although there is e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 140 little research on consumer responses to csr activities by retailers, it is believed that retail companies that implement csr activities can secure and maintain long-term relationships with their customers (dang, et al., 2020). although csr activities and consumer relations with the business are considered to have an indirect link in favour of the business, it must be borne in mind that aggressive and false csr activities can do the opposite in a business-to-consumer relationship that can influence purchases and thus turnover. in order to avoid the inappropriate csr activities that may have the opposite effect, it is advisable for companies to assess which course of action is more appropriate in the first place to promote competitiveness. factor, emphasizing the company’s difference from competitors. second, it is important for a company to understand which of the csr directions and what activities might seem important to stakeholders in attracting their attention. third, the company needs to assess whether the chosen csr direction or activities are consistent with the overall direction of the company, so as not to cast doubt on the true intentions of the activities (smigielska & oszkowska, 2017). retailers act as intermediaries between the consumer and the producer, which means that they have a major role to play in determining what consumers can choose. by successfully implementing csr activities, communicating them, companies can attract the attention of consumers, build relationships with those for whom socially active activities are important (pivato, et al., 2008). retailers represent not only themselves but also the manufacturer, which means that retailers are able to shape consumer demand when communicating with consumers, which in turn means a certain level of responsibility to make sure that consumers make informed purchases that meet their expectations of fair use. and clear business practices and communication with consumers without misleading them about availability, price and quality (smigielska & oszkowska, 2017). the retail is a significant sector that reaches a wide range of societies and also connects consumers with producers, involving other actors in the business chain. within the framework of csr, the retail industry has many directions within which to operate and achieve benefits. it is recognized that it is becoming increasingly important for consumers today to be socially responsible, so not only will they act within their own responsibilities, such as caring for the environment, but they will also make sure that the company they support with their purchase is also socially responsible (chun & bang, 2016). dapiphiri study also states that consumers, especially in developed countries, pay particular attention to a company’s csr activities, and that it is in the company’s interest to maintain a positive relationship with customers in order to promote a strong brand with customer loyalty that can be done through csr activities (dapi & phiri, 2015). it is important to take into account that consumers are attentive when evaluating companies’ csr activities and are often sceptical about them, citing honest and transparent behaviour within csr as important factors. the company’s csr activities must be in line with the company’s corporate values in order to create a sense of trust for the consumer. csr is not only an essential marketing tool to attract consumer attention and promote customer loyalty, but it is primarily a strategic activity whose activities are not only about the visual image, but also about the value achieved and the positive impact on society (rivera et al., 2018). the customer loyalty is the goal that companies strive for, because as mentioned, a loyal circle of customers means security for competitors’ activities, price changes, as well as is a more advantageous aspect from the point of view of marketing budget. today’s society is not only interested in the best value for money, availability, but also in whether the company is reliable and responsible. csr activities have a positive impact on the development of customer loyalty, with customers positively assessing the concern for customers, society, the environment and the overall development of society. the customer loyalty through csr activities is based on the added value that the customer gains from using the product or service (al-ghamdi & badawi, 2019; mandhachitara & poolthong, 2009). 141 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 in order to find out which factors of corporate social responsibility are the most important for consumers in the framework of building customer loyalty, a survey was conducted, for which a research tool a questionnaire was developed (see appendix 1). the questionnaire was distributed by e-mail within various organizations and companies between april 18 and april 30. 421 respondents participated in the questionnaire. the questionnaire was divided in 3 sections, a, b and c respectively (each of them divided in subsections): section a profile of respondents; section b questions to find out consumers’ attitudes towards corporate social responsibility activities; section c questions to find out which corporate social responsibility activities are most important for consumers. method table 1 summary of questionnaire design source: authors sections of questionnaire item codes measurement demographic profile a1 – a4 multiple choice questions (1 answer to be selected) general attitude of the respondents towards csr b1 – b5 5-point likert scale most important and topical csr activities in respondents’ opinion c1 – c5 5-point likert scale in the section a, the profile of the respondents was determined with questions about their gender and age: male/female; up to 18 years; 18-24 years; 25-34 years; 35-44 years; 45-54 years; 55-64 years; 65 and over years. the education obtained by the respondent was asked in the division: primary education, secondary education and higher education. in the section a, the employment of the respondents was also clarified within the profile of the respondent, dividing the answer variants into categories: student; students; the employee; unemployed; pensioner. employed persons are persons who “during the reference week performed any work for payment in cash or for remuneration in goods or services” (portal of official statistics, 2021), as well as persons employed as self-employed persons, farmers or homesteads for the production of products for own consumption or sale, as well as persons engaged in professional practice are referred to as employees (ibid.). an unemployed person is a person who “did not work anywhere during the reference week and was not temporarily absent from work, actively sought work during the last 4 weeks, was ready to start work immediately (within the next 2 weeks) if he / she found a job.” within the framework of the section a, the level of the respondent’s income before taxes was also clarified, dividing the answer options: up to 500 euros; from 501 euros to 1150 euros; above 1151 euros, the division is based on the press release of the central statistical bureau on the average wage, where it is mentioned that the average monthly gross wage for full-time work has reached 1147 euros (ibid.). according to the data of the cabinet of ministers, from january 1, 2021, the minimum monthly salary is 500 euros. (cabinet of ministers, 2020). thus, the author of the study has assumed that a low monthly income would be up to 500 euros, on average from 501 euros to 1150 euros, while high above 1151 euros. questionnaire sections b and c were designed according to the likert scale principle. this scale is used to assess attitudes on a five-point scale in quantitative terms as part of data analysis (boone & boone, 2012). the scale is formed by the degree of expressiveness, without defining sequence differences or distances from one point to another (kristapsone, 2020). in the section b, the score according to the likert scale was: disagree; partially agree; neither agree nor disagree; partially agree; fully agree. in the section c, an evaluation according to the likert scale grades was the following: not important; insignificant; quite important; important; very impore u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 142 tant. the aim of the section b within the questionnaire is to find out the general attitude of the respondents towards the csr. this section includes the following statements: “corporate social activities are significant for the company development”; “csr activities influence the purchase decision”; “impact of the company’s csr activity on the willingness to pay more”; “csr activities promote trust in the company”; “the company’s csr activities promote satisfaction with the purchase decision”. the authors believe that the main initial factor for csr to develop loyalty to the retailer is that the concept of csr seems important and relevant to the consumer. if the company’s activities within the framework of csr are not important to the consumer, then there is no reason to develop the loyalty promoted by csr. trust in a company affects the willingness of consumers to recommend the company to others, the consumer’s purchase decision, as well as loyalty. trust is one of the components that promotes loyalty; thus, the csr activities are one of the reasons why trust can be built. the aim of the section c of the questionnaire is to find out which csr activities are the most important and topical in the opinion of the respondents, assuming that they would have a greater opportunity to promote consumer loyalty. the section c is divided into 5 sub-sections in the following way: the c1 contains statements regarding company support for sports and cultural activities, engagement in the charity programs, as well as in promotion of the societal well-being; the sub-section c2 consists of seven statements related to environmental protection (“the company participates in and sponsors environmental protection measures”; “the company designs and develops an environmentally friendly product / service”; “the company is aware of and controls the impact of its activities on the environment”; “the company is aware of and controls the pollution caused by its activities”; “the company carries out activities to protect the environment”; “the company controls and optimizes the use of raw materials”; “the company controls and recycles the generated waste”); the c3 sub-section in 7 statements targets corporative ethical responsibilities; the sub-section c4 of the questionnaire comprises statements regarding the legal liability (“the company operates in accordance with national laws and regulations”; “the company operates in accordance with the regulations applicable to it”; “the company operates in compliance with legal framework”; “the company implements mandatory legal requirements for products and services”); the sub-section c5 proposes 7 statements regarding economic responsibilities (the company operates by controlling production costs””; “the company promotes customer loyalty”; “the company is constantly improving the quality of products and services”; “the company ensures long-term economic success”; “the company follows a competitive pricing policy”; “the company is trying to improve its economic performance”; “the company is working to improve productivity”). using the cronbach‘s alpha coefficient in the internal consistency analysis, all blocks were evaluated as internally matched in the cronbach‘s alpha coefficient ranges of 0.8 <α <0.9 indicating a good value. the questionnaire was distributed by e-mail, sending it to various companies and organizations within and outside riga. the study was conducted in april 2021. the survey was divided into three blocks profile of respondents, attitude towards corporate social responsibility, attitude towards corporate social responsibility activities to find out the attitude of respondents towards corporate social responsibility, its activities, which in turn would be linked to customer loyalty and develop corporate social responsibility. a model of activities that would promote the development of customer loyalty in food retail companies. in order to find out the sample size required for the study, the authors used data from the central statistical bureau on the population of latvia aged 15 and over, which presents the general set of the study. according to the data of the central statistical bureau, in 2020, there are 1,602,487 143 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 inhabitants aged 15 and over in latvia (official statistics portal, 2021). in order to obtain representative data within the study at 95% confidence and 5error margin, 385 respondents should be surveyed (kristapsone, 2020). within the framework of the questionnaire, 421 respondents were interviewed, thus the obtained data are representative. research and discussion 421 respondents participated in the questionnaire, of which 341 respondents or 81% were women, but only 80 respondents or 19% were men. this distribution of respondents can be explained by the fact that most women buy food in households, however, the author points out the distribution of these respondents as a limitation of the study, which may affect the results of the survey. 2.1. the figure shows the age of the respondents. the smallest group of respondents is over the age of 65 4% of the total number of respondents, but the next is the age group from 18 to 24 5%. no respondents under the age of 17 participated in the questionnaire. there is a relatively even distribution in the age groups from 25 to 34 years; from 35 to 44 years; from 45 to 54 years; from 55 to 64 years, respectively 14%; 25%; 25%; 26%. the lack of an even distribution between the ages of 18 and 64 is also considered a limitation of the study, as consumers‘ perceptions of corporate social responsibility and the topicality of activities may differ, which, in turn, should be taken into account when implementing strategic corporate social responsibility. from the company‘s target audience. taking into account the uneven distribution between the ages, it is not possible to analyze the results according to the distribution of the groups of respondents within the framework of the study. within the framework of the questionnaire, 41 respondents or 10% of the total number of respondents with secondary education participated, but the remaining respondents with a higher (university) education. within the framework of the questionnaire, the author found out the occupation of the respondents. student answer options were offered; students; the employee; unemployed; pensioner, as well as the answer variant “other”, in which the respondents answered “working pensioner”, “both student and employee”. 383 respondents who are employed, 18 respondents who chose the answer “other”, 13 students, 6 pensioners and 1 unemployed person took part in the questionnaire. the majority of respondents, 233 respondents or 48% of the total number of respondents, receive a medium-level salary after taxes, which ranges from 501 euros to 1150 euros, while 35% receive over 1151 euros after taxes. the remaining 80 respondents or 17% receive a low salary or up to 500 euros. based on the results of the section b on the request to evaluate the statements in order to find out the respondents‘ attitude towards corporate social responsibility, it is possible to observe that there is no equivocal or partial disagreement with the proposed statements. there is also no equivocal agreement with the section‘s statements. instead, the answers to the “neither agree nor disagree” answers are mostly scattered, which indicates the neutrality of the respondents, as well as the agreement to the “partly agree” answers. consequently, the overall attitude of the respondents has a neutral, positive trend. the authors also considered the comparison of the answers of the section b with each other according to the positive, neutral and positive evaluations. when analyzing the ratings of statements on the response scale, the ratings are divided into a negative rating of “1”, “2”, a neutral rating of “3”, a positive rating of “4”, “5”. the statement that the corporate social responsibility of a retail company is important for the respondent has a high proportion of positive assessments, as well as an average proportion of neutral assessments. very few respondents assessed this statement negatively. referring to the data obtained in block a that the factors “retailer reputation”, “corporate social responsibility activities” are assessed as the least important factors, the author concludes that the idea of corporate social responsibility is important for consumers, however, when making a purchase e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 144 decision, this factor is not as important as, for example, the quality of the goods, the price, the assortment and the location of the store as a whole. this means that it is worthwhile for retailers to consider csr activities, but at the same time recognizing the need to develop a good price, quality offer, because the importance of csr can contribute to the development of loyalty in the right context, because the concept of csr is relatively important. item code statement evaluation completely disagree -1 partly disagree -2 neutral -3 partly agree -4 completely agree -5 b1 significance of csr 4.51% 4.28% 27.08% 47.27% 16.86% b2 influence on purchase decision 9.26% 12.83% 38.95% 33.49% 5.46% b3 readiness to pay more 10.45% 19.48% 35.15% 28.98% 5.94% b4 trust 5.23% 6.89% 31.12% 43.47% 13.30% b5 satisfaction with purchase decision 5.70% 6.65% 35.15% 37.05% 15.44% table 2 comparison of block b responses by importance of statements source: authors similarly contradictory answers are about the impact of corporate social responsibility on the consumer‘s purchasing decision the proportion of positive and neutral answers is equal, but significantly higher than the proportion of negative answers. the author believes that in this case the set of four most important factors is also important, while corporate social responsibility could be one of the decisive factors in choosing between similar companies, which in turn can be an important factor in developing loyalty. comparing the responses of the section b according to the importance of the statements, there is a positive effect on the role of corporate social responsibility in promoting consumer confidence in the food retailer, as well as in promoting consumer satisfaction with the purchase. more than half of all respondents have positively assessed the statement “corporate social responsibility activities promote trust”, but a relatively small proportion have answered negatively. a similar assessment is made for the statement „corporate social responsibility activities promote satisfaction with the purchase decision“. both of these statements are related to the development of customer loyalty. the statement “the company‘s csr activities affect the willingness to pay more” has the same proportion of the importance of the statements as negative, positive and neutral, which indicates an uncertain position of the respondents in this statement, considering that other section b statements are more neutral and positive rather than negative. at the same time, an important factor must be taken into account, such as the willingness of respondents to pay more if social corporate responsibility is implemented. the author considers that the assessment of this statement is directly related to the respondents‘ pre-tax revenue level, given that only 35% of pre-tax revenue is high, as well as the importance of the factor „product price level“ when choosing a food retailer. low and medium revenue levels can be considered as a barrier to respondents‘ willingness to pay if a retailer implements corporate social responsibility activities. sub-section b3 statements indicate that, although consumers have a neutral or positive view of csr activities, they will carefully consider the need to pay more for a product due to csr activities. in order to understand which of the corporate social responsibility activities offered by the sub-section c are the most important for the respondents the authors perfomed a factor analy145 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 sis. the factor analysis requires at least 100 respondents, and the number of respondents must be twice the number of factors to be analyzed (foster, 2002). it is also necessary to check the existence of correlative coincidence and the applicability of factor analysis (jansons & kozlovskis, 2016). this can be done with the kmo and bartlett test available in the spss program, the criterion of which varies from 0 to 1, showing how it is possible to use the prepared information for factor analysis based on the size of the criterion. the results of the kmo and bartlett test are presented in the table 3. table 3 kmo and barrett‘s test results (source: author‘s data collection spss environment) source: authors kmo and bartlett's test kaiser-meyer olkin measure of sampling adequacy ,943 bartlett's test of sphericity approx. chi-square 10579,190 df 378 sig. ,000 applying the kmo and bartlett test to the c-block factors, the criterion 0.943 is obtained, which, after the specified interpretation of the criteria “> 0.9”, indicates that it is possible to apply the proposed factors to the factor analysis almost completely. it can be seen that five groups of factors have been identified in the spss environment within the framework of factor analysis. all factors exceed the specified model values of 0.5, thus none of the factors is excluded from the factor analysis. the table 4 summarizes the groups of factors developed in the framework of factor analysis, arranging the factors according to the proportion of positive evaluation in descending order from the highest to the smallest proportion, indicating also the proportion of serial numbers to find out which factor group is most important among respondents and which factors groups are the most important. the factors were divided into five groups: » environmental responsibility the company’s responsibility to take care of the impact of its activities on the environment, to implement measures that reduce the impact of operations on the environment, as well as to take preventive measures to prevent negative effects on nature and environmental pollution. » economic responsibility the company’s responsibility to ensure that the financial resources obtained as a result of profits through consumer support are used to implement productive and efficient operations of the company, product development, reducing the inefficient use of resources. » ethical responsibility the company’s responsibility to act in accordance with best practices and best principles, following the company’s assumptions about ethical conduct, setting guidelines for the company’s ethical conduct to help take responsibility for its customers, employees, market participants such as competitors and society as a whole. » legal responsibility the responsibility of a company to act in accordance with certain aspects, which applied to the company both as a party operating in the industry and as a provider of services and workplaces. » responsibility to the society the company’s responsibility is not only to follow the relevant operating principles, but also to benefit society, the environment, culture, as well as sports and charity by engaging in sponsorship activities. the hierarchy of factors where three higher positions are taken by the legal, environmental and human rights (2,75; 12,1667; 14.8571) ones clearly demonstrate the latvian consumers’ perception of the role of csr in the society. that is to say, first, the consumers feel legally rather unprotected they are not sure that their consumer rights would be sufficiently protected, espee u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 146 cially regarding the product and service quality, therefore they associate the social responsibility of the company primarily with this aspect. the second ranked is the environmental factor (albeit there exists a quite large gap between the first and the second positioning of the factors) mostly associated with the environmental pollution and waste management. it is rather interesting that c4.4 1 legal requirements for products, services responsibility to act in accordance with the established aspects c4.2 2 regulations c4.1 3 laws, norms c4.3 5 legal bonds 2.75 c2.4 7 environmental pollution responsibility to take environmental protection and prevention measures. c2.7 8 waste c2.5 10 environment protection c2.6 13 raw materials c2.3 15 environment c2.2 20 environmentally friendly product / service 12.1667 c3.6 9 human rights responsibility within the framework of the best principles towards our customers, employees and society as a whole c3.7 11 recruitment policy c3.1 12 social and ethical norms c3.2 14 ethical activity c3.3 17 a good citizen c3.4 18 more than a law, norms c3.5 23 code of ethics 14.8571 c5.3 4 quality of products, services responsibility to use financial resources to improve the company‘s productivity, product quality, promote the company‘s development c5.5 6 price policy c5.2 16 customer loyalty c5.4 18 economic success c5.7 19 productivity c5.6 21 economic indicator c5.1 22 production costs 15.1429 c2.1 24 environmental protection activities responsibility to provide benefits to parties not involved in the company‘s operations environment, culture, sports, charity c1.3 25 quality of life in society c1.2 26 charity activities c1.1 27 cultural, sports activities 25.5 table 4 interpretation and ranking of the grouping of factors proposed by the factor analysis according to the proportion of positive evaluation source: authors 147 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the retailers’ activities in the field of recruitment, ethical behaviour, etc., that in theory are the most visible aspects of the csr take only the third position in this hierarchy. it can be explained by the fact that by the consumers’ distrust by and large to the public statements of the companies regarding their social activities. at least partly it can be caused by the fact that not all companies publish their annual csr and/or sustainability reports, and even if they publish the reports, they are rather formal and do not reach the existing and potential consumers. perhaps the most surprising is that the last two positions are being taken by the economic (15,1429) and charity and life quality enhancing, in general, (25,5) factors. does it means that the economic and philanthropic activities are not as important as the legal and environmental ones in the eyes of people? it is not as univocal as it may seem at the first glance. in our opinion, it depends on the context in which the question is being asked. thus, for example, if asked about the reason of choice of the particular food retailer, the main factors mentioned are the following: the store location, product quality, etc. but if asked about their attitude towards the retailer, the social responsibility aspects are the most important factors. this is a matter of the so-called “false loyalty.” this is a question to be solved by the retailers by the means of regular information, publishing the csr reports, popularizing their socially oriented activities. the next step of the current investigation is to research the relation between the csr communication and consumer loyalty in the retail field. conclusions 1 the research question of the current investigation has been answered the main activities promoting customer loyalty are compliance with the legal requirements of corporate social responsibility in the provision of products and services, compliance with regulations, laws, norms and legal bonds. 2 important factors of the consumers’ choices when selecting a food retailer are: product quality, product price levels and store location, product offerings, but least important are factors such as the retailer’s reputation and corporate social responsibility activities. 3 according to the research, the ranking of the social responsibility factors according to the positive evaluation is the following: (1) legal factor – 2,75; (2) environmental factor 12.1667; (3) human right factor 14.8571; (4) economic factor 15.1429; and (5) philanthropic factor – 25,5. in our view this ranking can be explained by two main reasons – the general public distrust in declared values and the lack of information about the csr activities. 4 in order to find solutions for the use of corporate social responsibility in promoting customer loyalty, it is necessary to study further the factors that would promote the topicality of corporate social responsibility in the food retail sector among the public. measures should be taken to raise consumer awareness of corporate social responsibility activities, which would add value to consumer purchases, which in turn could influence the development of customer loyalty. these measures can 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(2015). efficient consumer response (ecr) principles and their application in retail trade enterprises in latvia. european integration studies, 9, 257-264. https://doi. org/10.5755/j01.eis.0.9.12812 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). velga vevere dr. phil. eka university of applied sciences fields of interests business ethics, social entrepreneurship, corporate social responsibility and corporate governance address 1/5 lomonosova street, riga lv-1019, latvia +37126463584 velga.vevere@gmail.com inga shina dr. oec. eka university of applied sciences fields of interests business ethics, marketing, social entrepreneurship, corporate philanthropy address 1/5 lomonosova street, riga lv-1019, latvia, +37129224148 inga.shina@gmail.com samanta ganina mba eka university of applied sciences fields of interests corporate social responsibility address 1/5 lomonosova street, riga lv-1019, latvia ganina6@gmail.com 124 issn 1822–8402 european integration studies. 2014. no. 8 ethical issues related to e-commerce: case of discount e-shopping site in lithuania jolita greblikaite dovile pervazaite kaunas university of technology a.mickeviciaus st. 37, lt-44029, kaunas, lithuania e-mail: jolita.greblikaite@gmail.com, dovile.pervazaite@gmail.com http://dx.doi.org/10.5755/j01.eis.0.8.7060 technological development proposed very broad possibilities in various spheres. one of them is e-commerce. the retailing possibilities became absolutely different and reached the new level. marketing specialists directed their research and actions to digital environment and its uniqueness because traditional approaches and methods were not suitable any more. web environment proposed a lot of various possibilities for entrepreneurs. but the customer-seller relationship remains one of the most important objects of research in marketing. the complexity and intangibility of digital environment produced some specific problems encountering ethical. as the amount of e-transactions is growing the amount of ethical problems rises as well. there is almost no research in lithuania focusing on ethical problems in e-commerce despite that it specialists and technologies in lithuanian market develop very fast and are of very high quality. there are about 33 acting discount e-shopping sites in lithuania and the number is growing. accordingly e-shopping intensity and amount is growing. from the other side customers suffer from unfairness, security problems, falsifications, delays an etc. the research problem of this article is related to solving and further developing such questions as is e-commerce ethics really something different from traditional business ethics and what are the most important ethical issues related to e-commerce; does and how traditional business ethics and ethical decision making propose appropriate solutions in morally unacceptable and unethical situations in e-commerce. the research aim of the article is to analyse the case of selling fake products in one of lithuanian discount e-shopping site using different theories of ethical decision making. the research object is ethical issues related to e-commerce. in the article theoretical background of the most important ethical issues related to e-commerce is analysed. the situation in lithuanian discount e-shopping sites’ market is shortly described as well. the case of fake ariel sold in discount e-shopping site in lithuania was analysed in the article as unethical behavior in business case. the novelty of the article is based on the researching theoretical ethical issues of e-commerce and implying these ethical issues in the case analysis of lithuanian discount e-shopping site. the main findings of the article are related with such issues as distinguishing the main ethical issues actual to e-commerce. the case analysis of discount e-shopping site was fulfilled with traditional ethical decision making’ instruments: utilitarian, justice ethics’, and deontological approaches. the (un)ethical case analysis revealed that moral problems of business world are complex and it would be difficult to solve them in accordance with only one provision or position, however, the elementary ethical principles remain in e-commerce and web environment. keywords: e-commerce, e-shopping site, ethical issues, business ethics, ethical decision making. introduction the most important features of e-market today are its speed and capability to adapt novelties. especially quickly changing environment is e-commerce market because the popularity of e-shopping is growing every day. marketing theories, sales management research is based a lot on e-commerce subjects: how to rise sales in so competitive environment, how to attract intelligent customers and etc. but the essential content of problems with customers is not changing moving towards from traditional commerce to e-commerce. customers are interested in quality of products and services as well as ratio of quality and price. ethical questions arise not as rare as we might think. competitiveness brings different solutions in e-business and a lot of decisions should and might be effectively made with business ethics and ethical decision making help. research on ethical issues related to e-commerce is rather new. marshall (1999) analysed how technology introduced new ethical problems and the lag between technological and ethical development. maury and cleiner (2002) researched personal information matters in digital environment. kracher and corritore (2004) discussed about e-commerce ethics: was it something special or different from business ethics. mcmurrian and matulich (2006) discussed the value of being ethical in web environment. thompson and jing (2007), hwang and kim (2007) researched e-trust matters which are tightly related with e-commerce ethical issues. nardal and sahin (2011) researched ethical issues in e-commerce arising in online retailing. the research problem of this article is related to solving and further developing such questions as is e-commerce ethics really something different from traditional business issn 1822–8402 european integration studies. 2014. no. 8 125 ethics and what are the most important ethical issues related to e-commerce; does and how traditional business ethics and ethical decision making propose appropriate solutions in morally unacceptable unethical situations in e-commerce. the research aim of the article is to analyse the case of selling fake products in one of lithuanian discount e-shopping site using different theories of ethical decision making. the research object is ethical issues related to e-commerce. the tasks of the research: to analyse theoretical background of the most important ethical issues related to e-commerce; shortly present the situation in lithuanian discount e-shopping sites’ market; analyse the case of fake ariel sold in discount e-shopping site in lithuania. the research methods are scientific literature analysis, and case analysis made using ethical decision making. the novelty of the article is based on the researching theoretical ethical issues of e-commerce and implying these ethical issues in the case analysis of lithuanian discount e-shopping site. the main findings of the article are: in the article the main ethical issues actual to e-commerce were distinguished and emphasized; the case analysis of discount e-shopping site was fulfilled with traditional ethical decision making’ instruments: utilitarian, justice ethics’, and deontological approaches; the case analysis revealed that moral problems of business world are complex and it would be difficult to solve them in accordance with only one provision or position, however, the elementary ethical principles remain in e-commerce and web environment. scientific purpose of the article to scientific discussion about unethical behavior in web environment can be valuable from the distinguishing most important aspects in theoretical level related to ethical issues in e-commerce as well as revealing practical need for effective ethical decision making in e-commerce solving rising problems. ethical issues related to e-commerce as the scientific problem of this article is grounded on ethical issues related to e-commerce, so the theoretical part of this research is based on the question: is there some special e-commerce ethics? classical ethical theories are developed a long time ago and it might seem that appliance of them in today’s business world might be not quite appropriate or not effective. we should accept that e-commerce is a new paradigm in business. e-commerce paradigm was first known in 1993. it might be described as business-to-consumer and business-to-business commerce conducted by way of the internet or other electronic networks.1 as judson and kelly (1999) have written e-commerce is made possible by the internet, the relatively new digital environment that is expected to thoroughly transform the way in which business is conducted. kracher and corritore (2004) discussed the issue that the speed and degree to which e-commerce develops in the markets and society makes some preconditions that ethical dimensions are critical in examining the issue. e-commerce practically became as requirement for big stores, top names. the small and medium-sized enterprises (smes) using e-commerce very successfully as well. often it is the most appropriate way for conducting business. even environmental protection factor is included as positive in e-commerce as the process reduces some costs (tiwari, singh, 2011). it broadens 1 http://www.merriam-webster.com/dictionary/e-commerce the comprehension of sustainable development in digital environment. for further discussion about ethical issues in e-commerce it is important to state that in any cases e-commerce is still commerce. so, traditional business principles still are valid. but internet represents a “new environment for unethical behavior” (freestone, mitchell, 2004). e-commerce has most commonly distinguished features (kracher, corritore, 2004): • interconnectedness; • simplicity; • speed; • virtuality; • cost. one of the most important differences in applying ethics in e-commerce and traditional commerce is the question of ethical lag. it occurs when the speed of technological change far exceeds the tempus of ethical development (marshall, 1999, kracher, corritore, 2004). as marshall reveals from a social structural perspective, there are several reasons that ethical systems lag behind technology development. the first is that the expense and complexity of technology development today draws technology developers into highly focused and controlled corporate structures. second, new technologies promise the possibility of great economic returns, but in a highly competitive environment. research presumes that business ethics develops more slowly than technological development as well as cultural environment changes rather passively. kracher and corritore (2004) presume that there is „a lack of exploration of e-commerce ethics“. according to them e-commerce ethics is a practical ethics about real morally unacceptable problems that arise when conducting business on the web. top issues in e-commerce ethics are as follows (kracher, corritore, 2004, p. 79): • access; • intellectual property; • privacy and informed consent; • protection of children; • security of information; • trust. access, according kracher and corritore (2004) is connected with people ability to “be connected” to the internet and to get an access to information. the availability of internet is not equal. even if there is public spaces for free wireless connection or internet usage places in libraries, universities and etc., the abilities or time can be the limitations for the amount of information is got. intellectual property issues especially became actual developing internet network. personal rights can be violated more easily and it is more difficult to find the responsible persons or organisations (kracher, corritore, 2004) personal information issues became very important in e-commerce (milne, rohm, 2000). a lot of different legal and ethical questions arise relating with trademarks, copyrights, patents (maury, kleiner, 2002). opt-in and opt-out matters are actual and concerning as well. companies require name, address, phone registering to their web pages, and the usage of that information often becomes uncontrollable and unclear. such situations call customer awareness. privacy is often highlighted both as central to the ethics of e-retailing and as a critical factor in its development (whysall, 2000). issn 1822–8402 european integration studies. 2014. no. 8 126 according kracher, corritore, 2004, insecurity problems arise giving personal information in the web and it has more difficulties and mistrust than in brick-and-mortar business2. often cookies gather personal information secretly and there are no legal limits on how cookies are used (nardal, sahin, 2011). a cookie is a small diary of where someone has been on the web. each time a user goes back to the site, the web site can open the cookie. this process is also known as “profiling” or “data-mining” (stead, gilbert, 2001). alba et al (2007) emphasize that the key element for further development of home e-shopping remains collection of personal information and matters with it. customers expect that their personal data will not be used in unsecure or inappropriate ways. security matters are concerned with financial and credit cards security (bart et al., 2005; roman, 2007). in contrary, venkatesh (1998) suggested that the extension of commerce in cyberspace is connected with freedom and the place where customers establish their identity. children protection what comes to children pornography issues (spencer, 2002) are most often related with internet and its possibilities. here special care is taken and special protective instruments are used. the blocking of web pages is not very effective instrument unless the age of children is very young. information on the internet becomes often available worldwide and it becomes the one of the most important issues discussing e-commerce ethical questions. trust is one of the main features in customer-seller relationship. in web environment we should talk about e-trust (hwang, kim, 2006). in the internet environment the trust is more often intangible. thompson and jing (2007) researched cultural aspect and peculiarities of e-trust in the united states, singapore, and china, emphasizing that e-trust have been based on cultural environment as well. it might be presumed that some peculiarities of e-trust exist in lithuania or other eu countries. one very interesting aspect is social trust (mutz, 2005, p. 393). it is believed that social trust is important because it reduces the “transactional costs” involved in interacting with others. in economic transactions that kind of trust is eliminating the need of monitoring others behavior and it becomes economically affordable. it is very important to notice that in the cyberspace seller and buyer have conditionally long distance between them, so the ethical or unethical behavior could be presumed less noticeable or valuable because of some intangibility. it might be presumed that moral “quality” of e-commerce is insufficient for the reason that e-commerce entrepreneurs are very young by their age. but the e-traders should not forget that ethics is perceived by customers as a major component of value they expect (mcmurrian, matulich, 2006). this value can be easily minimized by entrust and unevaluated actions of companies. in contrary, companies’ profitability might tightly be connected to being ethical in the way of acting (donaldson, 2003, kurt, hacioglu, 2010). bush et al. (2000) researched ethical concerns most often mentioned. they were security of transactions, illegal activities, privacy, and honesty/ truthfulness of the information on the internet (roman, 2007). it is tightly connected to 2 relating to or being a traditional business serving customers in a building as contrasted to an online business (http://www.merriamwebster.com/dictionary/brick-and-mortar) the matters discussed above as distinguished important in cyberspace dealing with unethical situations. one of important aspects in this article should be mentioned about laws and ethics. laws and ethics may overlap to some extent but they are not the same (hyeon-suk lyu, 2012). laws are approved and ratified by by state. ethics and its rules are conventional and often can be even unwritten. as hyeon-suk lyu (2012) discusses unethical behavior and illegal behavior key difference which lies on the sanctions that are applied. three moral philosophical dimensions underline marketing actors’ ethical perceptions: (1) moral equity; (2) contractualism; (3) relativism (babin et al., 2004). moral equity represents the inherent rightness/ wrongness, or perceived justice of some action. contractualism represents potential violations of implied or explicit rules or promises. relativism represents perceptions that some action is acceptable by traditional or sociocultural standards. these three moral dimensions are applicable in ethical situations in digital environment also. traditional ethical theories analyse and propose solutions for ethically questionable situations. ethical decision making can successfully be used in e-commerce. it might be presumed that values distinguished and nourished by traditional ethics might be valued in e-commerce customer-seller relationship successfully. “e-commerce does not have special ethical principles, ideals, standards, and rules. rather, it has a special manifestation of ethical principles, ideals, standards, and rules that apply in every aspect of life (kracher, corritore, 2004, p. 85). in this article case analysis is based on business ethics and traditional ethical decision making theories that can help to solve the problems (greblikaite, navickaite, 2012). utilitarian reasoning would recommend that decisions be made that produce the greatest good for the greatest number (vranceanu, 2005). it is often identified as a cost/ benefit approach to ethical decision making. a major drawback of applying this approach to decision making is the inherent assumption that social positive and negative impacts are measurable (sama, shoaf, 2002). justice theory emphasizes the legal/ illegal circumstances and importance of justice, for example, if a client pays bigger price, he gets better service or better quality. the deontological approach states that duty is the basic moral category, independent of the consequences of the action (beu et al., 2003, p. 89). the case analysis of lithuanian discount e-shopping site presents the appliance of traditional ethical analysis techniques in e-commerce case. discount e-shopping sites’ market in lithuania lately, in lithuania, group e-shopping sites are becoming more and more popular. in the past few years the number of such sites in the country nearly doubled and reached thirty. actually, currently there are 33 such e-shopping sites, however, one of them is under reconstruction and one more should start working soon. the list of them is provided bellow3: 3 imti.lt, grupinis.lt, beta.lt, ciumpam.lt, uogos.lt, dienosakcijos.lt, dyl.lt, kartu.lt, urbanday.lt, bigbonus.lt, kiauletaupykle.lt, dailycard. lt, pagauknuolaida.lt, perpuse.lt, mamamija.lt, stora.lt (is prepared), skubek.lt, kuponai.lt, labainoriu.lt, noriunoriunoriu.lt, tykas.lt, zizu. lt, masinis.lt, kasdienpoakcija.lt, nuolaiduklubas.lt, gigi.lt, ciageriau.lt, kupi.lt, okay.lt, akcijatau.lt, kuponai.lt, kupo1.lt, pasiulymubankas.lt issn 1822–8402 european integration studies. 2014. no. 8 127 currently in lithuania, the major part of the market of group e-shopping sites holds beta.lt and grupinis.lt operated by a group shopping company “cherry media group” in eastern europe. however, the rapid increase of the number of such sites causes greater competition and entrepreneurs often drastically “increase discounts” giving a much higher market price than it really is. in such way the consumers are often persuaded that the goods or services they are purchasing are almost half the price (sometimes even more). according to the chief specialist for public relations of the authority of the state consumer rights protection, complaints concerning coupons make about 3% of all complaints regarding poor quality of non-food products and services. the consumers indicate that they purchase the coupons in the above-mentioned sites but later, when they want to get or use the goods or services purchased they face various problems: 1) for example, the goods are not delivered on time or not delivered at all; 2) in other cases, the consumers are not able to get registered for the services purchased until the end of the coupon period; 3) there are also a number of those who remain dissatisfied with the quality of goods received, or those that come to take back the goods and must pay an additional fee about which they were not informed before purchasing the goods. in the cases when customers encounter difficulties concerning the quality of products it is often difficult to find a culprit since most of the sites only enter into a contract with the providers of products and services but to contact the suppliers of those goods and services often very difficult or even impossible. thus, the sites themselves are not always able to protect themselves from unscrupulous traders. case analysis: fake „ariel“ in lithuanian e-shopping site two businessmen from šiauliai (lithuania), namely v. p. and a. g., tried to expensively sell fake ariel laundry detergent in lithuania which was cheaply purchased in poland. the two men announced about the product which they named ariel in a group e-shopping site (the name of site known for authors) and received a great interest not only from customers but from police officers as well. it turned out that fake laundry detergents containing ariel labels were being sold in one of the most popular group shopping sites in lithuania. based on the data provided by lithuanian press, v. p. purchased the detergent on his several visits to poland and intended to sell those in lithuania, however has not found any customers and decided to falsify the product. a. g. has found one advertising company which agreed to produce labels with the sign of ariel. those labels were put on the bottles containing fake detergents and the fake product was offered to e-shopping site with the help of another businessman, their acquaintance. v. p. asked him to spread the information about liquid ariel detergent promising to send the pictures of the product. he claimed that the detergents were bought in one market in poland where the price of one bottle was about 7–10 litas. the man checked the real price of the detergent and realized that it is actually much higher. that is why he asked whether the documents of the detergents exist and was assured that such documents will be provided if needed. the businessman claimed that he has been working with the employees of the group shopping site for a long time and they trusted him because of successful previous deals. he offered e-shopping site to place the information about ariel. the owner of the site trusted him and placed the information without making an agreement. immediately after placing the offer in the site the news came out that v. p. was arrested because of ariel. the trade in the site was immediately terminated. this is the situation when the traders’ desire to make profit is overshadowing their decency. such form of trading is unfair not only in respect of licensed traders but also in respect of customers because of the fact that they don’t receive the product which is promised but only its cheap counterfeit which is of low quality, too. parties acting in the situation: • two individual businessmen from šiauliai (lithuania) • us company “the procter&gamble” • e-shopping site • customers business ethics-related aspects of the situation: • the businessmen illegally used the brand of “ariel” which belongs to the us company “the procter&gamble” in this way weakening and discrediting the company’s prestige and reputation. • instead of benefit – the damage to the brand owners, customers and the site was made. they cheated on the customers, on the companies “the procter&gamble” and e-shopping site and on their colleagues i.e. they used other people seeking personal benefit. • the quality-proving documents were forged (which is not only unethical but also illegal act). • the e-shopping site not only has suffered serious damage but its reputation was discredited as well. according to the supervisor of the site, the company had proved that the product was original and met all the requirements established by the site. the seller of fake “ariel” violated the following retail trade rules which state that the trader is forbidden to: • sell goods the purchase of which, according to the law, is not confirmed by purchase supporting or proving documents. • sell goods without compliance documents issued according to the law. • sell goods which have been re-labeled, repacked or otherwise re-made. outcomes of the illegal act: • the court appointed 2600 lt fine for each of the businessmen for the criminal offense. • the court has decided to confiscate and destroy 320 plastic bottles containing 4-liters of liquid detergent each. nearly half of them were already marked by “ariel” labels. • the trade in the site was immediately terminated. the situation described may be analyzed based on 3 different ethical theories, namely utilitarian, deontological and justice ethics (sama, shoaf, 2002; beu at al., 2003; vranceanu, 2005; greblikaite, navickaite, 2012). looking at the situation from the utilitarian perspective, the acts of cheating, lying and counterfeiting cannot be regarded as morally acceptable and legal acts because they do not bring positive results that would be useful to the majority of people taking part at this situation. here, one man’s interests are raised above the society’s interests. lying is regarded as unacceptable act because it reduces universal welfare. when issn 1822–8402 european integration studies. 2014. no. 8 128 people lie to each other they reduce their ability to rely on each other and at the same time to cooperate. the lower intensity of confidence and cooperation – the lower is the benefit. in case of success of the businessmen to sell the fake detergents, only the sellers would have had benefit and all the other people included in this situation would have suffered certain losses when morality principles, on the contrary, say that the interests of all the people surrounding us should be considered (not only our personal interests). the primary idea of business, stating that the customer should be the most important, is being disclaimed. basing on utilitarianism, the businessmen should act in such a way that the maximum benefit would be achieved. in this case, the maximum benefit would be achieved if as many as possible buyers purchased laundry detergents of original brand and of high quality for lower price. in this way everyone, including the seller and the buyer, would get the maximum benefit and consequently, the act would be considered as morally acceptable and legal. basing on the perspective of deontology, the seller does not fulfill his basic obligations (to obey the law) by counterfeiting the product and in this way breaking the law. the sellers tried to use other people as a means to achieve their goal which means that their rights were disregarded as well. the act of lying itself is already regarded as unethical. according to this theory, even if the result of this act would be positive and beneficial for majority of the people concerned it would not be considered as morally acceptable anyway. finally, basing on justice ethics, compliance with the law is equally obligatory for everyone. however, in the case of the situation analyzed, this fact was disregarded. the main idea of justice theory which says that welfare should not be built at the expense of others is violated. individual’s moral duty is to obey the laws that are fair, that do not discriminate other individuals or groups and do not provide illegal privileges. without going into details and various nuances, it may be said that the acts of the site were moraly acceptable considering the fact that they immediately terminated the trade of the counterfeit detergents so that the customers would not have more losses and the company itself would not damage its reputation. moreover, they had quality-proving documents. however, as their major fault could be regarding the fact that they did not sign the contract. there exist several possible solutions in order to avoid similar situations in trade business, especially when it is online. first of all, in order to reduce the possible damage, trade companies should use various legal services; cooperate with legal institutions, investigators and consultants. secondly, they should always sign contracts which would state the obligations of the sellers and outcomes for violating the rules of the contract. besides that, penalties for counterfeiting should be increased because of the fact that in many cases the businessmen are more willing to pay fines instead of acting according to ethical and moral norms. finally, they should pay more attention to the control of the quality of the goods that are about to be sold. e-shopping site claims that the company is seeking that the customers would purchase the products and services only of the highest quality. for this reason, they check the quality of the goods and carry out the monitoring of services. after this and several other similar cases, when the company had to deal with rogue traders and when the traders were selling goods illegally, a decision was made to establish a quality department which would more carefully check the quality of the goods and help the customers to solve all quality-related problems. already, for some time, the information about the traders, their reputation and reliability is being constantly collected. the reviews of the customers are being evaluated. basing on those reviews, the partners are being selected with whom cooperation is extended. therefore, the situations like this should be avoided in the future. this also may be seen as the only positive outcome of such negative situation. moreover, the sites of such kind are not highly trusted due to similar incidents, therefore, the buyers themselves also should pay more attention to what they are buying and, first of all, think of the actual value of the products or services they are about to purchase. to sum up, moral problems of business world are complex and it would be difficult to solve them in accordance with only one provision or position, however, the elementary ethical principles remain. all ethical theories are related to one another and complement each other; therefore it would not be fair to assign the analysis of a certain behavior or situation to one specific ethical theory. these ethical theories as in this case utilitarian, deontological and justice, can be used in combination in order to obtain the most ethically correct answer possible for each scenario. in modern society a plenty of ethical systems “live” together. this suggests that different explanations of one or another phenomenon are possible; however, in the case of the situation discussed, none of the theories can justify the morality of the two businessmen actions. conclusions • digital web environment provided e-commerce possibilities. e-commerce is developing rather fast as all information technologies do. • in e-commerce, for some parts, ethical problems and dilemmas (defined earlier) are different as compared to mortar and brick business. top issues in e-commerce ethics remain: access; intellectual property; privacy and informed consent; protection of children; security of information; trust. • theoretical analysis allows concluding that e-commerce ethics is similar to business ethics and traditional ethical rules and ethical decision making can successfully be applied in solving ethical problems and dilemmas in digital environment. • the case analysis of lithuanian discount e-shopping site reveals that unfairness situation can exist even with brand and well-known names. the situation presents the possible threat to company’s trust than such unfairness (counterfeit product) was sold in their e-shopping site. even legal actions were taken to manage the situation of cheating; the case analysis discloses that almost any additional actions were not taken to rebuild moral justice. just concrete actions as building quality department in the company and giving more attention to legal matters were taken. • moral problems of business world are complex and it would be difficult to solve them in accordance with only one provision or position, however, the elementary ethical principles remain. all ethical issn 1822–8402 european integration studies. 2014. no. 8 129 theories are related to one another and complement each other; 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(2000). retailing and the internet: a review of ethical issues// international journal of retail & distribution management, vol. 28, no. 11, pp. 481–489. available on the internet: http://www.emeraldinsight. com/journals.htm?articleid=857303&show=abstract http://dx.doi.org/10.1108/09590550010356840 the article has been reviewed. received in april, 2014; accepted in june, 2014. 65 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 abstract financing energy transition in poland: possible contribution of eu funds http://dx.doi.org/10.5755/j01.eis.1.16.31152 elżbieta kawecka-wyrzykowska warsaw school of economics, poland european integration studies no. 16 / 2022, pp. 65-77 doi.org/10.5755/j01.eis.0.16.31152 submitted 05/2022 accepted for publication 06/2022 financing energy transition in poland: possible contribution of eu funds eis 16/2022 introduction there is a general agreement that the energy transition is necessary on a global scale to avert the threat of a climate catastrophe and that it is very costly. in the eu, this transition is supported by funds under the multilateral financial framework and the new generation eu facility. the purpose of the paper is to identify eu financial instruments available for poland to support the energy transformation, to estimate their scale and assess chances to use these funds. the research methods applied are a critical review of polish and eu documents and methods of statistical analysis. against the background of european green deal strategy, the author identifies eu funds available for poland for low emission transition and estimates their size. the paper also addresses the eu institutions’ allegations of violating the eu law by poland. main conclusions are as follows. the huge eu support for energy transition is at risk, due to poland’s refusal to comply with the eu law, as assessed by commission and the court of justice of the eu. this situation creates a double cost for poland: of non-used eu money and of high penalties for the rejection of the cjeu orders. costs of the energy transformation are inevitable and must be incurred in poland not only due to the adaptation to the requirements of the egd, but also due to the fact that a large part of the polish energy sector is old and will require replacement in any case. moreover, polish products may be denied access to eu market due to noncompliance with eu environmental standards. the eu funds should be a good opportunity to move away from coal and develop new eco-friendly industries. without energy transformation in poland, the eu results of climate protection policy will be limited, as the country is one of the biggest ghg emitters. keywords: eu climate policy, energy transition, eu funds for poland, greenhouse gas emissions, national recovery plan. for many years the eu has been conducting policy addressing climate protection which involves quantitative commitments to reduce ghg emissions. as the eu member, poland is obliged to comply with these commitments. ghg emissions reduction is necessary in order to avoid climate catastrophe. poland belongs to the biggest air polluters in the eu. due to this fact, the eu results of climate protection policy will be limited without energy transformation in poland. the main reasons for high ghg emissions are high dependence of the electricity and heat generation on coal, one of the most co 2 -emitting fuels; low energy efficiency and low share of renewable energy sources. huge investments are necessary in poland and in other eu members to meet the eu climate goals. in order to support the costly process of energy transformation,1 the eu has 1 the energy transformation (transition) involves shifting the energy sector from a system based on fossil fuels (oil, gas and coal) to one dominated by clean, renewable energy. the main instruments to achieve this goal are: cutting radically emissions, investing in green technologies and renewable energy sources, energy storage and improving the energy efficiency of the economies. in this context it is good to notice that most experts and the european commission argue that the benefits of implementing the eu’s climate strategy will be much higher than the costs. this opinion is not shared by all analysts. tol (2021) argues that it is not true and the european commission did not provide a full cost-benefit analysis when promoting the strategy. in his opinion, the costs will far exceed the benefits: the total cost of ghg emission reduction could be 3% or more of gdp and the benefits only 0.3% of gdp). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 66 introduced a number of instruments, including the financial aid. funds for poland are at risk due to the eu’s reservations regarding compliance with eu law in poland. research questions are: (a) how much money can poland get from the eu funds to implement the energy transformation, in view of its very high cost; (b)why there is a risk that poland will not get the eu support?; (b) what is the cost of not receiving the eu funds? the objectives of this paper are to identify eu financial instruments available to poland to support the energy transformation, to estimate their scale and assess the chances to use these funds. the thesis is that the key condition for country’s energy transformation is not so much the availability of funding but compliance with eu laws. the cost of poland’s noncompliance with eu laws includes unused eu funds and penalties imposed on poland by the court of justice of the eu. a precondition for gaining access to eu funds is the introduction of appropriate changes to polish law, including the provisions governing the judicial system. the paper is organised as follows. it starts with a short analysis of poland’s position in the eu with regard to greenhouse gas (ghg) emissions, in order to assess the efforts needed to reduce ghg emissions in line with the eu laws and ambitions. this section is followed by a brief overview of eu goals within the european green deal strategy and poland’s approach to this strategy. next, poland’s financial needs related to green transformation are presented, as calculated by the government and academia. the main section is author’s estimation on eu funds available for poland for low emission energy transition. this analysis is accompanied by a brief history of poland-eu disputes regarding the rule of law enforcement in poland. only financial implications of those disputes have been addressed, and legal merits have been omitted. the paper ends with conclusions. in order to make reliable comparisons and conclusions, the statistical data on available eu funds is presented in 2018 prices, unless otherwise indicated. the main source of data is official poland’s and eu’s documents and laws, as well as statistics. the research methods applied are a critical review of polish and eu documents as well as methods of statistical analysis. poland’s share in the eu greenhouse gas (ghg) emissions in all eu countries, the total emissions have been decreasing gradually in recent years, although at different rates across countries and sectors of the economy. in 1990-2020, eu-27 domestic greenhouse gas (ghg) emissions (total ghg emissions, excluding land use, land use change and forestry lulucf2, including international aviation, in co 2 equivalent) were down by 31%. the main factor of this positive trend in all countries was first of all the decline of energy-inefficient heavy industry, and in 2020 covid-19 pandemic and related economic recession. in members which joined the eu in 2004 and later, an additional important determinant was the deep overall restructuring of the economy in the late 1980s and early 1990s. the decrease of ghg emissions was quite big also in poland: minus 21% in 1990-2020 (mainly in the energy sector), although in the transport (especially road transport) and building sectors, emissions increased drastically: by more than 3 times while in the whole eu-28 – only by 20% (european commission, 2021a, p. 40; european commission, 2020, p. 41). despite the overall reduction of pollution, poland is still a country with one of the highest levels of ghg emissions. in 2020, the country accounted for 11% of total eu emissions. only a few countries recorded a higher share in pollution: germany (22%), france and italy (both countries – 12%), but all those economies were much larger than the polish one. in terms of per capita emissions, poland occupied 4th place from the last, after luxembourg, ireland and czechia (the lowest emissions were in malta and sweden). as regards the greenhouse gas emissions intensity (i.e. the ratio between emissions and gdp), the situation was even worse: in 2020 poland occupied the 2nd place in the ue (after bulgaria and before czechia and romania), (european commission, 2021a, pp. 40-42). 2 lulucf means emissions and removals from the land use, land use change and forestry sector. 67 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 a major contributor to global warming are co 2 emissions, accounting for 79% of all eu greenhouse gas emissions in 2019 (in all nace sectors) excluding lulucf. in poland, the corresponding share was 81% (european environmental agency, 2021, p. 67). one of the most co 2 -emitting fuels used to generate electricity, is coal, especially lignite. consequently, coal is responsible for less than a fifth of the electricity and heat generated in the eu, but for half of the emissions from these sectors. in poland, the share of coal (hard coal and lignite) in domestic gross electricity production in 2020 was the highest in the eu (more than 83%). in the eu on average, coal and lignite supplied 37% of europe’s electricity in 2020, much less than in poland (redl et al., 2021, p. 15). coal (hard) also plays an important role in producing heat in poland (76% of this production in 2019 and only 6-7% from renewables). at the same time, coal played the highest role in energy supply in poland 44%, while in the next country on the list – czechia – 32% and in the eu average was 10% (eu-28, 2019). poland has significant extraction of hard coal: 94% of eu extraction in 2019 (zachmann et al., 2021, pp. 27-30). thus, poland is a country which contributes relatively very much to the eu pollution statistics. in this situation, a huge challenge for poland is to reduce, and even more, to eliminate, the very high dependence of electricity generation and heat production on coal. renewables (mostly wind and solar) together supplied 38% of eu’s 27 electricity in 2020, for the first time exceeding fossil-fired generation whose share – as mentioned above – was 37%. in poland, the respective share was only 17%, whereas czechia and hungary recorded even lower shares (12% and 15% respectively). poland and the czech republic are the only two countries with more than four times the amount of fossil generation as renewables generation.3 this situation confirms that poland’s transition from coal to clean energy sources will be very long. in december 2019, the newly nominated commission presented the european green deal (egd) concept. it provided for more ambitious goals of climate protection (faster reduction of ghg emissions and confirmation of the 2018 goal to achieve climate neutrality by 2050), (european commission, 2019, p. 4). in the next years, several efforts were undertaken by the commission to speed up the transition towards lower emission economy and to adopt legal measures necessary for efficient achievement of climate polity goals. in june 2021 the european climate law was adopted (regulation (eu) 2021/1119). it made binding both, the new target (ghg emissions reduction of at least 55% by 2030) and the goal of reaching climate neutrality by 2050 (european commission, 2021b, p. 4). the law aims to ensure that all eu policies contribute to this goal and that all sectors of the economy and society play their part. on 14 july 2021 the european commission presented a series of legislative proposals to achieve the 2030 climate target (the so called ‘fit for 55’ package4). the earlier analysis of the situation revealed, according to the commission, that the existing goals and respective measures were not bold enough to ensure achieving of climate neutrality by 2050. as the energy sector accounts for 75% of the eu’s greenhouse gas emissions,5 the new proposals mostly cover areas related to energy production and consumption, including inter alia renewables, energy efficiency, land use, energy taxation, buildings, transport. regulatory proposals are accompanied by various financial instruments (see section 4). within ‘fit for 55’package, the main new goals are as follows:6 a to reduce by 2030 the ghg emissions by 55%, and not by 40% , compared to 1990 levels; b to increase the current eu-level target for energy efficiency from 32.5% to 36% for final, and 39% for primary energy consumption; 3 at the same time, austria and denmark generated, respectively, 79% and 78% of its electricity from wind and solar in 2020, redl et al., 2021, p. 15. 4 the name of the ‘fit for 55’ package is explained by the 2030 goal of ghg emission reduction of at least 55%. 5 https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_3544. 6 https://www.consilium.europa.eu/en/policies/green-deal/eu-plan-for-a-green-transition/. european green deal targets e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 68 c to increase the current eu-level target of at least 32% of renewable energy sources (res) in the overall energy mix to at least 40% by 2030. poland’s energy policy goals are more modest (energy policy, 2021, pp. 3 and 7): a reduction of ghg emissions by 2030 by 30% compared to 1990; b energy efficiency increase: a target is 23% reduction in primary energy consumption in relation to 2007 forecasts. c the share of res in gross final energy consumption should be at least 23%; in that not less than 32% in power industry (mainly wind energy and solar photovoltaic), and at least 28% in heating sector, 14% in transport (with a strong contribution from electromobility). a simple comparison reveals that polish climate goals are insufficient to achieve the eu target: reduction in ghg emissions by 55% by 2030. also, they put into question the achievement of climate neutrality by 2050. the year 2050 appears in poland’s strategy only in connection with this goal for the whole union.7 the energy transition will incur considerable investment outlays. according to the recent government’s estimates, in the years 2021-2040 they may reach approx. pln 1,600 billion (eur 348 billion at the exchange rate 4.6 pln/eur). this estimate assumes that the energy transition is carried out in a socially acceptable manner, while ensuring energy security, maintaining competitiveness of the economy and limiting environmental impact.8 in the fuel and energy sector, investments may amount to approx. pln 867-890 billion (eur 188 193 billion), mostly covering the electricity generation, in that from zero-emission sources, i.e. res and nuclear power.9 investments in the remaining non-energy sectors (industry, households, services, transport and agriculture) may reach approx. pln 745 billion (eur 162 billion). according to this document, around pln 260 billion (eur 56.5 billion) should come for these investments from the eu (energy strategy, 2021, pp. 4 and 87-93). according to the national centre for emissions management (kobize), the outlays in the energy sector in 2021-2050 can amount to approx. eur 295 billion by 2050.10 in turn, the european commission calculated that the energy transformation will cost poland in the coming decade about eur 240 billion (buchholtz, wróbel, 2021, p. 13). the authors of the mckinsey report came to a conclusion that in a business-as-usual scenario (with no decarbonization measures), poland would need to spend eur 1,200 billion to eur 1,300 billion for the five sectors analysed (power, buildings, transport, industry, and agriculture) to replace infrastructure and add new assets. full decarbonisation will require additional capital expenditures for mobility transformation and upgrading energy infrastructure and building stock. 7 formally, poland’s targets are not inconsistent with eu goals. according to the regulation (eu) 2021/1119, ‘[t]he union-wide 2050 climate-neutrality objective should be pursued by all member states collectively’, although ‘both the union and the member states contribute to the global response to climate change’ (respectively, recitals 20 and 8). thus, the 2021 regulation on achieving climate neutrality, provides that the emission reduction target is binding collectively and not individually by each member state. this can make achieving of the goal problematic. 8 these aspects seem to be very important, especially in less affluent eu countries. radovanović et al. (2022) have correctly noticed that according to eu documents, the monitoring of the process of implementing climate strategy is based exclusively on environmentally related indicators and ignores other implications, including social and security aspects. these effects should also be taken into consideration. in particular, when implementing energy policy, the eu should not only aim at the elimination of fossil fuels, but also at ensuring the energy security of the member states (mišík, 2022). 9 huge outlays result not only from the significant dependence of this sector on coal, but also from the fact that poland’s power-generation stock is ageing: according to the mckinsey report on ‘carbon-neutral poland 2050’, about two-thirds of poland’s installed coal capacity is more than 30 years old. with a possible life span of up to 60 years, those assets would need to be replaced by 2050. moreover, new investments in power generation are necessary in order to meet the expected increase in demand for electricity (engel et al., 2020, p. 10). 10 https://www.kobize.pl/pl/article/aktualnosci-2021/id/1926/analiza-cake-polska-net-zero-2050. poland’s financial needs related to green transformation 69 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 these needs were estimated at eur 10-13 billion a year, or 1-2% of gdp, for the next 30 years (engel et al., 2020, p. 10).11 the costs anticipated by individual institutions vary considerably. it should be added that such costs are difficult to estimate. to a large extent, they will depend on which path of transformation (pace of change, target energy mix, etc.) poland will choose and this is still not clear. it is also difficult to predict new technologies that may appear soon and reduce the costs of transformation, the rate of increase in electricity demand (depending, among others, on the growth rate of the number of electric cars), etc. in order to achieve the goals of the egd, during the negotiations on the mff 2021-2027, the european council agreed that at least 30% would be allocated to these goals (the share is slightly different for specific programs).12 a similar requirement applies when using the extraordinary new generation eu (ngeu) fund. ngeu worth eur 750 billion (eur 390 billion in grants and eur 360 billion in loans) addresses the needs of post-pandemic recovery of eu economies. the idea underlying this program is that the post-pandemic economy will be different: more climate-friendly, better digitalised and more competitive. the biggest part of the ngeu is the recovery and resilience facility (rrf, appr. 80%). within this facility poland can count on eur 23 billion in grants and appr. eur 34 billion in loans (means for all purposes). 37% of rrf should be spent on climate protection and energy transition, it is eur 8.5 billion minimum in the case of poland. government’s and author’s own estimates differ by about eur 14 billion. the main reasons for differences are: a/ government’s data has been calculated on the basis of current prices, while author’s figures are expressed in 2018 prices; b/ government’s strategy has taken into account all due money for energy transition within the nrp (grants and loans), while this author has assumed poland using only grants; c/ both calculations consider slightly different items. there are also two other studies estimating the size of funds that poland can get from the eu for energy transformation, prepared by specialists from energy forum (poland). according to the first analysis (wróbel, 2020, p. 6), poland can count on eur 29 billion (only grants). the second study (buchholtz, wróbel, 2021, p. 9) has calculated these funds at approx. eur 42.5 billion in 2021-2027. both analyses, similar to the author’s estimates, have only assumed funds from the eu budgets (the so called national envelopes). wróbel (2020, p. 7) has added that eu funds have to be co-financed by polish beneficiaries at eur 21-51 billion, which would total eur 50-80 billion for energy investments. huge funds should also be available from the sale of the ets allowances. this type of revenue for low emission energy transition has already been mentioned as an instrument financing several existing and proposed new funds. it is worth adding that the vast majority of the ets revenue goes nowadays to national budgets and 50% (at least) should be spent by members on climate eu funds for energy transformation and climate policy for poland 11 rough estimates for the total investment needs in the world, including infrastructure are huge and range from usd 54 tn to usd 90 tn until 2050. however, polzin and sanders (2020) argue that such large sums are not a problem as technically, they can come from institutional investors and lenders such as pension funds, banks, etc. a real problem is to know how to use the available money. the authors, basing on their analysis, develop a matrix indicating the role and availability of different sources of finance, new intermediation channels in the energy transition and how these should be deployed. the issue of insufficient public funds and the need for higher private financing of climate policy has been addressed also by mazzucato & semieniuk (2020). the authors argue, on the basis of adopted estimators, that public investment can be highly effective at mobilizing private investment into renewables. 12 in addition to proposing large financial resources, the commission is promoting various legal provisions aimed at increasing banks' interest in lending, and at the same time reducing the related risks. two examples are the adoption of the sustainable finance strategy and establishing an eu taxonomy for sustainable activities, see more: brühl v. (2021). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 70 13 column 1 presents the source of funding for the program (in brackets). official estimates (column 2) come from energy policy (2021, p. 4), while author’s estimates (column 3) base on official eu documents, listed for individual programs. 14 regulation (eu) 2021/1058 (recital 6). the european social fund plus (esf+) has not been taken into account as it does not directly contribute to climate protection. the total allocation for poland within the cohesion policy in 2021-2027 is approx. eur 66.8 billion. 15 regulation (eu) 2020/2221. it is estimated that the allocation for poland may amount to approx. eur 2 billion. according to the regulation, 25% of these funds will be allocated for the energy sector, which gives approx. eur 0.4 billion. 16 the national recovery plan (nrp) is a basis to apply for eur 23.1 billion (grants) and the eur 34 billion loans within the eu recovery and resilience facility. 37% of rff, it is eur 8.5 billion minimum should be spent on climate protection. two components of the nrp are foreseen for achieving this goal: 1/ green energy and reduction of energy intensity (eur 5,7 billion in grants and eur 8.6 billion in form of loans); 2/ green, intelligent mobility (eur 6.8 and 0.7 billion, respectively), see: https://www.gov.pl/web/planodbudowy/czym-jest-kpo2. 17 regulation (eu) 2021/1056. jtf is a key instrument of a bigger just transition mechanism. two other elements are: a/ investeu ‘just transition’ scheme. it aims to mobilise more than eur 372 billion of public and private investment through an eu budget guarantee of eur 26.2 billion that backs the investment of implementing partners such as the european investment bank (eib) group and other financial institutions. the funds will be distributed on the basis of competition; b/ public sector loan facility which will combine eur 1.5 billion of grants, financed from the eu budget (mff), with eur 10 billion of loans from the european investment bank (eib), to mobilise between eur 25 and eur 30 billion of public investment. this instrument will exclusively target public entities. both facilities have not been included into the estimate as they provide for loans, hard to predict now, see: https://ec.europa.eu/info/strategy/ priorities-2019-2024/european-green-deal/finance-and-green-deal/just-transition-mechanism/just-transitionfunding-sources_en 18 the modernisation fund is offered to 10 poorest eu members (which have joined the eu since 2004, without cyprus, malta and slovenia) and is financed from ets revenue, cir 2020/1001. the final amount of the modernisation fund will depend on the number and prices of emission allowances in the period up to 2030. poland will be its largest beneficiary, participating in 43.4% of the fund. it’s size in the period 2021-2030 has been estimated by the commission at 14.0 billion, and poland’s share at 43.4%, it is eur 6.1 billion, see: https://ec.europa.eu/clima/eu-action/funding-climateaction/modernisation-fund_pl. 19 the social climate fund is intended to mitigate the effects of the planned expansion of the eu ets to include buildings and transport. poland would receive eur 4.2 billion in support, it is 17.6% of the planned fund at eur 23.7 billion in 20252027. however, for this to happen, the proposal to extend the ets to include these two sectors must be accepted by eu countries (european commission, 2021b, annex ii). table 1 eu funds potentially available for poland for energy transition in 2021-2027 (eur billion)13 eu program poland’s government estimate (current prices) author’s estimate (2018 prices) 1 2 3 cohesion policy14 (mff) efrd cohesion fund 17.6 16.6 (30% of 42 = 12.6) (37% of 10.8 = 4.0) cohesion policy react-eu (ngeu)15 0.4 (25%) of 2 = 0.5 national recovery plan (within recovery and resilience facility)16 21.9 (in that, grants at 9.2) 8.5 just transition fund17 (mff & ngeu) 3.4 3.5 modernisation fund18 (ets) 10.3 (together with funds from the sale of co 2 emission allowances) 6.1 social climate fund (ets and mff)19 4.2 (proposal) total 53.6 39.4 note: own estimates based on documents cited in footnotes for individual programs. 71 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 protection and energy transition. it is big money. in 2021, polish budget received from this source approx. eur 5.4 billion. the expected extension of the ets to new sectors (road transport and buildings) can provide additional funding for low-emission modernisation. the amount of this revenue will depend on several factors that cannot be foreseen at present (e.g. the price of ets allowances). still, according to experts, by 2030, poland may obtain in total over eur 82.3 billion from the eu ets (assuming the price of emissions at eur 70/t co 2 , (buchholtz, wróbel, 2021, pp. 12-13).20 thus, the eu ets system will be the largest stable source of financing the energy transformation in poland in this decade. possible increases in allowances prices and the weak polish zloty will contribute to increasing the size of this pool. all calculations have not included several other sources of eu funding for poland’s energy transition, and first of all from the innovation fund. in this case, any estimate is basically impossible.21 also, potentially available loans have not been taken into account (within nrp and investeu eib loans), (see more footnote 14). in addition, some programs managed at the eu level, especially the program life22, are allocated to environmental protection, which is the eu’s funding instrument for the environment and climate actions. it is a part of the ‘natural resources and environment’ spending area in the mff 2021-2027 and has an earmarked budget of eur 5.43 billion. to date, poland’ participation in this programme has been modest (total investment of eur 34 million, of which eur 17 million has been provided by the eu).23 certain funds are also available through the horizon europe (research and development program). the use of both of these programs requires participation in the eu competition procedures. so far, however, the involvement of polish entities in both of these programs has been insignificant and it is difficult to expect a radical change in the coming years. energy transition could also be supported be the eu renewable energy financing mechanism (refm), operational since 2021, which is not compulsory for eu members (cir (eu) 2020/1294).24 the remf provides for an innovative approach to achieve its goals as it pools the voluntary contributions from eu countries and then allocates funding through a system of competitive tenders.25 the eu funds dedicated to low emission transition and to environmental protection in poland are significant. there is, however, a risk that part of this money will be lost by poland. access to these funds requires meeting a number of criteria, including compliance with eu law, and since 2019 20 however, it should be remembered that the ets system is not only about revenues for the state budget, but also about costs. high prices of emission allowances increase costs for the emitters of these emissions, and consequently also for consumers. also, they reduce the competitiveness of products, especially carbon-intensive ones. since the fast energy prices increases in 2021, poland has started to blame the ets system for these increases and requested rejecting of the ‘fit for 55’ respective legislative proposals. 21 innovation fund is to be financed from the revenue coming from the extension of the emissions’ allowances to road transport and buildings. it is estimated to amount to eur 25 billion or more over 2020-2030, at a carbon price of eur 50/t co 2 . before this extension takes place, the fund is financed from the unused earlier ets allowances, https:// ec.europa.eu/clima/eu-action/funding-climate-action/innovation-fund/policy-development_en. 22 life – abbreviation comes from french: l'instrument financier pour l'environnement, it is: funding instrument for the environment, created in 1992. 23 https://cinea.ec.europa.eu/system/files/2021-06/poland_update_en_final_may21.pdf last update: 31/05/21. 24 cir (eu) 2020/1294. 25 the mechanism links countries that voluntarily pay into the mechanism (contributing countries) with countries that agree to have new projects built on their land (hosting countries). thus, member states can either host a project, without needing to provide finance themselves, or contribute financially to a project located in a different member state. the effect should be new incentives for financing the eu renewable energy investments. state aid rules do not apply to the mechanism, neither for contributing nor for hosting countries, see more: https://www.cliffordchance.com/briefings/2021/10/the-eurenewable-energy-financing-mechanism---will-it-incentivis.html and https://ec.europa.eu/regional_policy/en/newsroom/ news/2021/11/24-11-2021-eur11-billion-react-eu-funds-allocation-now-available-for-2022. 26 the other bottlenecks of the use of money, e.g. efficient management., have been omitted. threats to the use of eu money related to poland’s (non) conformity with the eu law26 e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 72 poland has faced several allegations about violation of this law. from the point of view of negative financial implications for poland, the most important issue is the eu request to liquidate the disciplinary chamber at the supreme court of poland, created on the basis of 19 december 2019 law. in the end of 2019, the commission asked the cjeu for interim measures, complaining that the chamber undermined the independence of polish judges. referring to this request, the cjeu called on poland on 8 april 2020 to suspend immediately the laws relating to the disciplinary chamber (case-791/19). this order was confirmed by the court’s judgment of 15 july 2021. poland refused to follow this ruling and was punished on 27 october 2021 with a penalty of eur 1 million per day (case c-204/21r). on 18 january 2022, the final date to pay the due fine (some eur 68.5 million plus penalty interest) passed.27 poland refused to pay this money. in this situation, at the beginning of april 2022, the commission started to deduct the accumulated penalties from transfers to poland (in several tranches). in turn, eurosceptics in the government declared to ‘punish’ commission and reduce contributions to the eu budget. poland’s failure to comply with the law is a big problem not only because of the high penalties, but even more because it prevents the use of the funds under the ngeu and mff. at the beginning of may 2021 the polish government submitted to the commission the national recovery plan (nrp, to be financed within the recovery and resilience fund, the biggest part of the ngeu). this plan had to be accepted by the council at the commission’ proposal as a legal basis of the use of huge money for post-covd-19 recovery of eu economies, including transition to low emission economies.28 the plan has not been accepted by eu institutions till the end of april 2022, depriving the economy of big support. the reason has been commission’s allegations of violation of the rule of law, including the failure to liquidate the disciplinary chamber, in accordance with the above mentioned judgment of the cjeu of 15 july 2021. on 16 february 2022, the commission obtained a solid legal basis to use the violation of the law by any eu member to limit financial support, both from the multiannual budget (mff), and under the ngeu. on this day, the cjeu dismissed the requests of poland and hungary submitted on 11 march 202129 to the cjeu to annul the so called conditionality regulation of 2020 as non-consistent with eu (cases c-157/21 poland v parliament and council and c-156/21 hungary v parliament and council). this order made receiving funding from the eu budget a subject for eu member states to the respect of rule of law as defined in the conditionality regulation (regulation (eu, euratom) 2020/2092).30 the regulation allows the suspension of payments from the eu budget and ngeu in cases when breaches of the rule of law principles in member states affect or risk affecting the eu financial interests. among other legal disputes between poland and eu institutions, important from financial point of view, was the 21 may 2021 order of the cjeu calling on poland to introduce interim measure and stop lignite extraction activities at the turów mine on the border with the czech republic (case c-121/21 r). this was the court’s decision in response to the complaint submitted by czechia in february 2021.31 as poland refused to implement this measure, the cjeu, by its order of 20 september 2021 imposed a daily penalty payment of eur 0.5 million on poland. the coun27 https://www.reuters.com/world/europe/poland-gets-formal-eu-demand-pay-fines-over-judicialregime-2022-01-20/. 28 national recovery and resilience plans have to outline how a country intends to spend money in post-pandemic recovering funding, before the money can be released. 29 https://www.politico.eu/article/top-court-decide-rule-of-law-funding-link-february-16/. 30 let’s notice that this law is different from the european rule of law mechanism which provides a process for an annual dialogue between the commission, the council and the european parliament together with member states as well as national parliaments, civil society and other stakeholders on the rule of law, see: https://ec.europa.eu/info/ policies/justice-and-fundamental-rights/upholding-rule-law/rule-law/rule-law-mechanism_en. 31 the czech government claimed that the mine drains groundwater from czech villages and causes pollution, see: https://www.ceje.ch/fr/actualites/energie-et-environnement/2021/10/daily-penalty-payment-imposed-poland-noncompliance-interim-measures-activities-turow-coal-mine/. 73 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 try refused to pay the fine, and it was only on 3 february 2022 that the understanding between poland and the czech republic was achieved. in total, from the moment of imposing the fines to the withdrawal of the czechia’s complaint from the cjeu, the penalty was calculated in the amount of eur 68.5 million. this sum has been increasing by penalty interest, as poland continues to delay the performance of its obligations. in this situation, the commission also decided to withhold due money in funds intended for poland from the eu budget. by the beginning of april 2022, the european commission has deducted over eur 30 million from transfers to poland in order to cover unpaid fines (from two programmes under cohesion policy). in total, for failing to comply with the court of justice of the eu ruling to suspend operations at a coal mine and for failing to close the disciplinary chamber for judges, poland owes over eur 200 million in unpaid fines (eur 68,5 million for turów mine and eur 155 million for disciplinary chamber).32 this number is growing eur 1 million every day due to the unsolved dispute over this chamber, as well as due to the cost of penalty interest in both cases. the ministry of finance declared that missing funds will be replaced from poland’s state budget, so that no beneficiaries of the programmes will be affected. let us add, that the commission also requests poland to eliminate several other breaches of eu law, the result being the escalation of conflict over poland’s compatibility with the eu laws. there is no doubt that the cost of energy transformation in poland will be huge. eu money can be a significant contribution to this transition. the national recovery plan and other targeted funds will not solve all of poland’s economic and energy problems, but they can substantially help. the estimates presented above suggest that poland can count on approx. eur 40 billion (in 2018 prices) till 2027. the final amount of this money might be even higher, mostly due to the reform of emission trading system, as well as cheap loans available for energy transformation (within the ngeu and other programs). moreover, additional eu financing can come from the new facilities that have been started only recently (e.g. the renewable energy financing mechanism), the scale of which is difficult to estimate now. despite the enormous financial offer from the eu funds, it may turn out that poland will not be able to use these funds. this risk is due to poland’s refusal to ensure compliance with the eu law, as assessed by the commission and the cjeu. for this reason, large amounts of nrp in particular are at risk. a factor that escalates the controversy and strengthens the threats to obtaining eu funds is poland’s refusal to pay penalties imposed by the cjeu. in this situation, the conclusion is that the key condition for country’s energy transformation is not so much the availability of funding but meeting the eu laws. in particular, it is about the (non)compliance of polish energy policy with the goals of the egd and the (non)implementation of cjeu judgments. this situation creates a double cost for poland: one resulting from the unused eu money (in particular within the ngeu), and the other one consisting in very high penalties for failure to implement the cjeu rulings. in both cases, it is a waste of public money. the costs of the energy transformation in poland must be incurred in any case, not only due to the adaptation to the requirements of the egd, but also due to the fact that a large part of polish energy sector is old and will require replacement in the near future. moreover, polish companies may be denied access to eu funds because they will not fit eu environmental standards based on ‘clean’ energy. also, delaying energy transition may cause in the next few years that some polish products cannot be offered on the single european market due to the non-compliance with the pollution emission standards and competitive disadvantage because of the growing cost of carbon. the first step in this direction has been already done. the taxonomy rules have been adopted by the eu. they define which types of economic activities are consistent with the requirements of 32 https://notesfrompoland.com/2022/04/07/eu-deducts-e30-million-from-polands-funds-to-cover-unpaid-fines/. conclusions e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 74 sustainable growth and allow producers to apply for eu funds. the general taxonomy regulation, which is a part of the european green deal, was adopted in 2020 (regulation (eu) 2020/852). it is a tool to help companies and investors make sustainable investment decisions. there is also a discussion on the introduction of mandatory information on the content of carbon footprint on product packaging. the importance of energy transformation in poland also results from the fact that without such a change, the eu results of climate protection policy will be limited as poland is one of the biggest greenhouse gas emitters in europe. limiting the emission of pollutants and improving the efficiency of the energy sector also depends on how the available funds will be spent. the general condition for transferring the funds to member states is to undertake investments which will not only bring quick but also lasting effects. they should help stop global warming, improve air quality and increase energy security. the underlying assumption of all investments addressing climate problems and financed from the eu funds is that the post-pandemic recovery must not be based on obsolete pre-pandemic technologies polluting the environment. the huge eu money should be a good opportunity to shift the polish energy sector to the low-emission (first of all low-carbon) track and develop new, more competitive eco-industries and eco-services (installations for solar and wind energy, their servicing, etc). without using this opportunity poland will not be able to cope with the costs of eu energy policy and with domestic challenges of the energy sector alone. these costs include not only outlays for changing the outdated coal infrastructure, increasing energy prices, adversely affecting price competitiveness of polish products and budgets of all actors (households, companies, public utilities etc.) for heating and electricity, but also the costs of treating the consequences of polluted air (many diseases). improving relations with the eu is essential for poland to gain access to large eu funds for modernisation of the energy sector. the new geopolitical and economic situation following the russian invasion in ukraine seems to modify the positions of the eu institutions and the polish government. national recovery plan, the huge source of eu funding, has to be approved by the council by qualified majority on commission’s proposal. in the end of april 2022, both poland and the commission seem to be close to achieve a compromise on unlocking funding under the nrp for poland. however, even when the funds for poland are unlocked, this does not mean that money will be automatically transferred to polish economy. first, milestones and targets indicated in the nrp must be achieved and they will be financed first from national resources. only their approval will allow for reimbursement of incurred expenses. a big challenge for poland will be the spending of funds within due (short) period. the funds in question have to be allocated until 31 december 2023, and until the end of 2026, payments shall be made (regulation (eu) 2021/241). brühl v. 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(2021, january 19). retrieved from https://cinea.ec.europa.eu/ system/files/2021-06/poland_update_en_final_ may21.pdf questions and answers making our energy system fit for our climate targets. (2021, february 10). retrieved from https://ec.europa.eu/commission/ presscorner/detail/en/qanda_21_3544 questions and answers emissions trading putting a price on carbon. (2021). retrieved from https://ec.europa.eu/commission/presscorner/ detail/en/qanda_21_3542 slowik a. (2021, february 10). daily penalty payment imposed on poland for non-compliance with the interim measures on the activities at turów coal mine. retrieved from https://www.ceje.ch/fr/actualites/ energie-et-environnement/2021/10/daily-penalty-payment-imposed-poland-non-compliance-interim-measures-activities-turow-coal-mine/ tilles d. (2022, february 11). eu deducts €30 million from poland‘s funds to cover unpaid fines. retrieved from https://notesfrompoland.com/2022/04/07/ eu-deducts-e30-million-from-polands-funds-tocover-unpaid-fines/ 77 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 about the author this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). elżbieta kawecka-wyrzykowska ph.d, professor fields of interests financing the eu budget, regional preferential agreements, european green deal, eu cohesion policy, harmonization of eu taxes.elżbieta kawecka-wyrzykowska address warsaw school of economics (szkoła główna handlowa w warszawie), department of european integration and legal studies. 02-554 warszawa, al. niepodległości 162, poland orcid no. 0000-0002-6655-874x ; ekawec@sgh.waw.pl 95 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 european integration studies no. 15 / 2021, pp. 95-109 doi.org/10.5755/j01.eis.1.15.28886 abstract critical review of sustainability priorities in the heritage sector: evidence from latvia’s most visited museums http://dx.doi.org/10.5755/j01.eis.1.15.28886 a vibrant debate about the role and participation of museums in urbanisation, industrialisation, human rights protection, technological progress, climate change and other global challenges has persisted in the field of museums ever since the boom of theoretical museology, which coincided with the development of the sustainable development concept. however, often culture is considered a part of social sustainability pillar, covering manifestations such as equity, participation, social justice etc. (murphy, 2012; vallace et al., 2011; cuthill, 2010) or ignoring cultural aspects altogether (chiu, 2004). many voices have called to promote culture as the fourth pillar of sustainable development as a necessary foundation, condition or groundwork through which understandings of social, economic, and environmental sustainability may appear (soini & birkeland, 2014; hawkes, 2001). although the potential of cultural heritage institutions such as museums towards sustainable development is outlined in relevant literature, there has been no radical shift in museum practice (ross, 2004; simon, 2010; nomikou, 2015). the paper aims to propose the first-ever critical review of sustainable development priorities in latvia’s most popular museums with a view to finding out their strategic priorities and using these findings to identify today’s specific thematic development lines relevant to the museum sector within the sustainable development framework and to apply this bottom-up principle to propose potential ways to improve the general goal of latvia’s museum accreditation system – that of promoting sustainable museum practices – with specific pointers and thematic building blocks for the broad umbrella concept of sustainable development. research objectives include (1) conducting a critical review of relevant literature to identify the role of cultural heritage within the evolution of the sustainable development concept (2) identifying the themes of sustainable development that have been communicated as strategic priorities to stakeholders by the country’s nine most visited museums and (3) using research findings to illuminate and pinpoint a specific array of themes pursuant to the general goal of latvia’s museum accreditation system – that of promoting sustainable museum practices – for the system to serve as a more comprehensive and targeted tool for fostering sustainable development in the heritage sector and beyond. qualitative content analysis has been chosen to analyse museum development strategies and their collection, research, and communication policies, that is, the museum strategic documents to be submitted by the museums seeking to receive state recognition. the study covers latvia’s nine most popular museums, whose joint annual share of visits amounts to 50% of the country’s total rate (latvian academy of culture, 2018). the study reveals substantial diversity in how latvia’s most popular museums approach sustainable development goals while also exposing a few significant downsides. according to the findings, museum priorities elīna vikmane latvian academy of culture submitted 02/2021 accepted for publication 06/2021 critical review of sustainability priorities in the heritage sector: evidence from latvia’s most visited museums eis 15/2021 anda laķe latvian academy of culture e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 96 include (1) heritage preservation, efforts to strengthen national identity, and information and communication technology sustainability in the context of cultural sustainability, (2) financial sustainability as well as tourism-multiplication and image-building in the context of economic sustainability, (3) eco-cultural resilience and improvements in the infrastructure for better energy efficiency as well as a degree of progress towards more sustainable transportation solutions in the context of environmental sustainability and (4) physical, intellectual, socio-economic and emotional accessibility and a focus on boosting social capital in the context of social sustainability. adjustment of accreditation requirements to meet the sustainable development priorities, at least identified within the study, should, in the long run, raise awareness within the field, enable museums to target their efforts at addressing their downsides and finding possibilities for growth in the context of sustainable development as well as foster sustainable development in the larger field of cultural heritage sites and institutions, which, unlike its kindred sector of museums, exists outside the scope of restrictions associated with accreditation. such adjustments will help achieve a broader input from the heritage sector towards sustainable development goals. keywords: sustainable development, sustainable development goals, cultural sustainability, cultural heritage, museums, museum accreditation a vibrant debate about the role and participation of museums in urbanisation, industrialisation, human rights protection, technological progress, climate change and other global social challenges has persisted in the field of museums ever since the boom of theoretical museology, which coincided with the trending of sustainable development as a concept. ever since the un general assembly adopted its 2015 resolution, transforming our world: the 2030 agenda for sustainable development, setting the objectives for sustainability that emphasised the shared responsibility of every individual and institution, sustainable development goals have become a universal benchmark for the museum sector and its development. at the same time, critical voices have cautioned against underrating the multidimensional role of culture in the categories that define the targets, goals and indicators of sustainable development. these critics have advocated for recognising culture as the fourth pillar of sustainable development or even framing it as a necessary foundation for economic, social and environmental sustainability. admittedly, despite this longstanding discussion, sustainability issues have only recently breached the communicative discourse of latvia’s museum sector. some of the most pertinent examples of this breakthrough include the projects driven by the latvian museum association in 2020, like seminars, webinars and the adding of a sustainability-themed case-study and lived-experience section to latvia’s online museum platform (public-access electronic resource muzeji.lv) in 2020/21, and the national position of icom latvia regarding the need to expand the definition of museums with the concept of sustainable development in 2021 (accepted during the annual meeting in 2021). on this note, the paper aims to propose the first-ever critical review of sustainable development priorities in latvia’s most popular museums with a view to finding out their strategic priorities and using these findings to identify today’s specific thematic development lines relevant to the museum sector within the sustainable development framework and to apply this bottom-up principle to propose potential ways to improve the general goal of latvia’s museum accreditation system – that of promoting sustainable museum practices – with specific pointers and thematic building blocks for the broad umbrella concept of sustainable development. research objectives include (1) conducting a critical review of relevant literature to identify the role of cultural heritage within the evolution of the sustainable development concept (2) identifying the themes of sustainable development that have been communicated as strategic priorities to stakeholders by the country’s nine most visited museums and (3) using research findings to illuminate and pinpoint a specific array of themes pursuant to the general goal of latvia’s museum accreditation system – that of promoting sustainable museum practices – for the system to introduction 97 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 serve as a more comprehensive and targeted tool for fostering sustainable development in the heritage sector and beyond. qualitative content analysis is used to analyse museum development strategies and their collection, research, and communication policies, that is, accreditation papers from latvia’s nine most popular museums, whose joint annual share of visits amounts to 50% of the country’s total rate (latvian academy of culture, 2018). details of research design and methodological considerations are outlined further in the paper. the declaration of the united nations conference on the human environment (united nations, 1972) was the first bold effort to reach worldwide agreement on the challenge of sustainable development with its statement – to defend and improve the human environment for present and future generations has become an imperative goal for mankind as previously development and conservation had been regarded as conflicting ideas (paxton, 1993), with the former directed at exploitation and the latter – at protection. later prescot allen (1980) defined sustainable development as development that is likely to achieve lasting satisfaction of human needs and improvement of the quality of human life. however, the sustainable development definition as we know it was published years later in the so-called brundtland report, formally – world commission on environment and development (wced), as part of the our common future report. this report specified sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs (wced, 1987) or so-called mutually beneficial growth (bisk and bołtuć, 2017). the three-pillar concept the brundtland report was a turning point, when the old ways of industrial progress, wealth distribution and addressing the emerging ecological crisis had become unfeasible, and the main concern was a global redistribution of resources towards poorer nations to encourage their economic growth in order to enable all human beings to achieve their basic needs as well as fairness in the distribution between generations (du pisani, 2006; soini & birkeland, 2014). the report triangulated sustainable development dimensions – economy, environment, or ecology with society (munasinghe, 1993). later, they become known as the three sustainable development pillars or the triple bottom line (elkington, 1997), defined as people, planet and prosperity (adding peace and partnership as additional dimension) in a later policy document, the 2030 agenda (united nations, 2015) or similarly adding even more pillars like technological sustainability and political participation that is separated from social sustainability (fuchs, 2006), or three dimensions of space, plus permanence and persons (seghezzo, 2009). explicit discussions about economic sustainability in isolation from other aspects are relatively sparse. initially defined as the limitations that a sustainable society must place on economic growth (brown et al., 1987), it is now an essential part of a broader debate on ecological modernisation, green economy, and bio-economy, which aim to combine ecological and social goals of sustainability through economic means (soini & birkeland, 2014). thus, historically, the environmental dimension was seen as genetic diversity, resilience, biological productivity (barbier, 1987), continued productivity and functioning of ecosystems, and protection of genetic resources and the conservation of biological diversity (brown et al., 1987) or environmental health (purvis et al., 2019). now more and more institutions worldwide are involved in the ongoing debate about the most effective ways to make buildings and practices more environmentally sustainable, thinking about metrics such as lowering the carbon footprint and paper consumption, water and energy efficiency, waste reduction and recycling, decreasing air, noise and light pollution, fair trade practices, use of local and reusable materials, purchasing and procurement policies, re-engineering hvac systems, connecting buildings and landscapes to contribute to environmental health, using innovations and the role of culture within the sustainable development concept e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 98 educating the public (american alliance of museums, 2013; national audit office, 2015). the economic perspective is embodied in people, planet, and prosperity, all three pillars of the latest un resolution in 2015. bold statements such as ‘end poverty and hunger and ensure that all human beings can enjoy prosperous (..) lives’ resonates with the earlier concerns about unequal resource distribution among countries, sustainable consumption and production, sustainable management of natural resources and the idea that ‘economic (..) progress occurs in harmony with nature’, which, in turn, echoes the approach of soini and birkeland. murzyn-kupisz (2012) elaboration (which is based on hutter and rizzo, 1997; avrami and randall, 2000; navrud and ready, 2002; rizzo and towse, 2002; howard, 2003; greffe, 2004; greffe et al., 2005; mcloughlin et al., 2005; pike et al., 2007; bowitz and ibenholt, 2009; blakely and leigh, 2010; murzyn-kupisz and gwosdz, 2010; murzyn-kupisz, 2010a) specifies several aspects of sustainable socio-economic development, where cultural heritage institutions can have a part. these include direct impact (direct income of organisations), indirect and induced economic impact (tourism multiplication, real estate market, structural changes in the economy), the image of place (among residents, tourists, entrepreneurs and investors), urban/rural regeneration (institutions as flagships of regeneration strategies and a backdrop to regeneration processes), development of knowledge and creative economy (education, cultural capital and inspiration for new products and services), etc. with growing awareness of the challenges of fragility, persistent inequality, and racial discrimination, social sustainability has been recognised as central to economic growth and poverty reduction (world bank 2020). it can be identified by concepts such as social welfare (passet, 1979), quality of life (macnaghten & jacobs, 1997), social progress (custance & hillier, 1998) and the sociocultural domain, which encompasses equity and participation (munasinghe, 1993). besides, social sustainability is increasingly seen as important in achieving environmental aims (boström, 2012). a un resolution from 2015 emphasises that human beings can fulfil their potential in dignity and equality, ‘enjoy (..) fulfilling lives and social (..) progress in harmony with nature’ in peaceful, just and inclusive societies, free from fear and violence, focused in particular on the needs of the poorest and most vulnerable, ‘with the participation of (..) all people’. the world bank describes social sustainability as being about inclusive and resilient societies where citizens have voice and governments respond, about creating opportunities for marginalised groups and individuals, and fighting discrimination, exclusion, and violence (world bank, 2020). the concept of sustainable development standing on three pillars is criticised both for being (1) a compromise without theoretical background and (2) too simplistic for the complex world we live in. as a compromise, the concept is not entirely acceptable by either side. it is challenged for being ideologically biased, more anthropocentric than eco-centric and endangered by extreme positions on both ends claiming that genuine sustainability and genuine development would, from a purist point of view, be irreconcilable and overworked (du pisani, 2006). moreover, studies reveal that there is no single point of origin of this three-pillar conception, but rather a gradual emergence from various critiques (purvis et al., 2019) of economic growth. all pillars have the same conceptualisation problem with the concept of sustainability. there appears to be no original text from which it derives, seemingly just appearing in the literature and commonly taken at face value (purvis et al., 2019). the approach has been presented as a common view of sustainable development (giddings et al., 2002) and criticised as a landfill dump for everyone’s environmental and social wishlists (goodland & daly, 1996). a few concerned voices have even warned that sustainable development has reached a conceptual dead-end (sneddon et al., 2000). for the purpose of this research, the authors are more interested in the second criticism of the triple bottom line – it being insufficient to explain the complexity of contemporary society and its development. thus, the authors focus on a subjective translation of this concept into priorities by institutional actors for their development and communication with stakeholders. 99 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 cultural heritage within the debate of culture as the fourth sustainable development pillar it is the role of culture or rather the lack of a prominent role of culture in the sustainable development concept that raises many eyebrows, primarily due to the apparent interdependency between culture and society. nevertheless, the shortage of a clear-cut conceptualisation is just as applicable to cultural as to any other pillar. culture is hardly ever discussed in terms of sustainability we can assume that either sustainability is seen as integral to and inseparable from culture as a whole or concerns regarding the sustainability of heritage or cultural practices are raised within economic, social, and environmental contexts. ultimately, culture shapes what society means by good or right and how it conceptualises development, as well as determines how people act in the world that they inhabit (agenda 21 for culture). the principles of sustainable development and its goals described in numerous international commitments (rio declaration: un, 1992; in from the margins: european council, 1997; convention for the safeguarding of the intangible heritage: unesco, 2001; convention on the protection and promotion of diversity of cultural expressions: unesco, 2005; the 2030 agenda: un, 2015) can be helpful in the management of cultural resources and organisations with economic and environmental awareness, if we look at them from the perspective of ‘ communities, as carriers, custodians and direct users of cultural heritage resources’ (keitumetse, 2011). the most problematic part here is the missing link between theory and application (barbier & markandya, 2013; barbier & burgess, 2017). the heritage sector wherein heritage is defined as an expression of the ways of living developed by a community and passed on from generation to generation, including customs, practices, places, objects, artistic expression and values (icomos international cultural tourism charter, 1999) in its everyday work does meet countless sustainable development issues, requiring informed decisions about trade-offs. there are solid attempts to defend the view that culture and creativity contribute to each of these pillars transversally and that the three pillars contribute to the safeguarding of cultural heritage and the nurturing of creativity (unesco, 2017), which reflects the idea of culture as the inseparable spiritual domain of any society. for instance, the international council of museums (icom), the most influential worldwide organisation in the museum sector, by defining museums as institutions in the service of society and its development, open to the public and engaged in the conservation, research, communication and exhibition of the humanity’s tangible and intangible heritage and its environment for the purposes of education, study and enjoyment (icom, 2007), encourages museums to dig into the resources available on the sdgs and their implementation, which museums can draw on: ‘we don’t need to reinvent the wheel or start from scratch. so, what have the sdgs got to do with museums? everything!’ (mcghie, 2020). mcghie (2019) invites museums to contribute to the sdgs by focusing on seven key activities – heritage protection, learning opportunities and research in support of the sdgs, enabling cultural participation for all, supporting sustainable tourism, providing management and operations toward the sdgs, and implementing external collaborations and partnerships towards the sdgs. others criticise the approach of culture contributing to the three pillars for the many challenges associated with its practical application. often, culture is considered a part of social sustainability, covering cultural aspects such as equity, participation, and awareness of sustainability (murphy, 2012), interpreting it as appropriate behaviour and preservation of sociocultural patterns (vallace et al., 2011) and talking about social capital, social infrastructure, social justice and equity (cuthill, 2010). a more critical view states that sustainable development policies often examine the cultural dimension within the social one or ignore it altogether (chiu, 2004). as a possible solution, many voices have called to promote culture as the fourth pillar of sustainable development because culture is not only an instrument but a necessary foundation and condition and a perspective through which understandings of social, economic, and environe u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 100 mental sustainability may appear (soini & birkeland, 2014), emphasising that cultural action is required to lay the groundwork for a sustainable future (hawkes, 2001). a study of scientific discourse around cultural sustainability, comprising 50 full papers, 34 abstracts (including book abstracts), and two book reviews, identifies seven storylines that function as metonyms that embody various meanings of cultural sustainability (soini & birkeland, 2014) among cultural theorists, showing a few contradictory and overlapping ideas not to be missed when analysing sustainable development in culture: heritage (source of identity, sense of place, passing down values etc); vitality (participation, sharing, accessibility of cultural heritage, creativity, nurturing cohesion etc), economic viability (resources for regional development, strengthening of local industries, place-branding etc); diversity (diversity of cultural values, perceptions, cultural acceptance to achieve social acceptance etc); locality (perceptions and cultural rights of those living on the margins of society: ethnic minorities, indigenous people, marginalised people, etc.); eco-cultural resilience (balance and collaboration between humans and nature in policy development), and eco-cultural civilisation (an ecological shift of values and human behaviours, cultural change as the need to transition to sustainable practices). additionally, development of information and communication technologies play important role in enabling socio-cultural sustainability (zacher, 2017) both social and cultural sustainability, for example, helping to preserve culture, facilitating learning new skills within vulnerable population or reducing exclusion (weber & zink, 2014). many of the storylines emphasise the role of cultural heritage in the building or sustaining of identity, also through other pillars, thus proposing to include culture (and, specifically, cultural heritage and cultural practice) as the fourth pillar of sustainable development in every goal. some storylines show culture as the very foundation of successful economic, social and environmental practices to reach sustainability. although cultural heritage institutions such as museums’ potential towards sustainable development goals seems to have been convincingly outlined in literature, nevertheless, there has been no radical shift in museography or museum practice (ross, 2004; simon, 2010; nomikou, 2015) or at least two have progressed at a visibly different pace. museums have failed in ambition and met the stimulus of new social theories with a surprising degree of resistance (low, 2014). studies on museum work in britain suggest that this theoretical framework has failed to change traditional museum practices to a full extent the current trend seems to expose museums as deficient in the inclusion and representation of all social groups (mccall & gray, 2013). so far, potential of museums to promote economic, environmental, and social sustainability in the rapidly changing world, unlike their contribution to cultural sustainability, might not been fully realised and appraised. historically, content analysis first emerged as a widely used and popular method with recognised quantitative applications when it was introduced in the communications field (krippendorf, 2004). later, researchers from different fields expanded the possibilities of content analysis as a qualitative method to understand or explain complex behaviours by identifying and describing both implicit and explicit themes within the data (guest et al, 2012; mayring, 2014; tight, 2019), although the confusion associated with the overlap between different-named forms of analysis has been a long-standing concern (tight, 2019). within the present study, qualitative content analysis was chosen as the most appropriate empirically grounded method. exploratory in process and predictive or inferential in intent, it is commonly used as a research technique for making replicable and valid inferences from texts to the contexts of their use (krippendorff, 2013). the analysis rests on the notion that the textual material, although created for another purpose and limited in scope, can help infer broader cultural, social and contextual meanings. traditionally, the museum accreditation scheme is a peer-based validation of museum operations and impact based on core standards (american alliance of museums), industry standards (arts council england) or nationally agreed standards (museums & deaccessioning in europe), supporting museum research design 101 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 efforts to plan and develop their services (arts council england) and raising museum standards (accreditation guidance by arts council england, 2019). in latvia, the national museum accreditation scheme started emerging in 1997 with the adoption of law on museums and approval of the national accreditation standard by the cabinet of ministers in 1998. the scheme is peer-based and administrated by the ministry of culture. the first five museums were accredited in 1999. the goal of the accreditation scheme is to promote sustainable museum practices and effective management of the national museum collections, strengthen the public role of museums (..), and ensure that museums operate with quality and professionalism and remain oriented to public interests and needs (in-house regulations for museum accreditation, ministry of culture, 2010). the idea behind accreditation suggests that ‘initially, the collection was the priority (..) because accreditation established that the weak point was the preservation of the collection and the state of the depository. both were beyond any criticism (..)’. ‘now it is research-based communication across museums’ admits head of museum department (from 2010 to 2018) jānis garjānis in a recent round-table discussion (creative museum, 2019). the present study covers latvia’s nine most popular museums (table 1) from the total of 110 registered accredited museums as of 2020 (ministry of culture), whose joint annual share of visits amounts to 50% of the country’s total rate (latvian academy of culture, 2018) of culture, with the situation remaining essentially the same in 2019. in total, the authors analysed 651 pages of text, covering the priorities of these museums in terms of their development strategies (aimed at one or two terms) as well as the priorities outlined in their collection, research and communication policies in the sought period of accreditation, as stipulated in the regulations no. 532 by the cabinet of ministers from 2006 that specify the course and process of accreditation and list the documents to be submitted by the museums seeking to enter the procedure. strategic documents of the latvian national museum of art include the priorities of its branch institution – art museum rīga bourse. qualitative content analysis within the present study involved several tasks: (1) discovering themes (categories) and subthemes (subcategories) based on an existing theoretical framemuseum abr. 2018 2019 period latvian national museum of art, including lnma 208 709 179 814 2016-2025 art museum rīga bourse amrb 144 224 194 983 turaida museum reserve tmr 273 312 286 045 2014-2023 rundāle palace museum rpm 263 284 275 449 2017-2022 museum of rīga’s history and navigation mrhn 238 123 226 507 2015-2020 bauska castle museum bcm 183 289 182 853 2020-2025 rīga motor museum rmm 155 641 157 200 2016-2020 latvian war museum lwm 187 800 148 001 2015-2024 latvian ethnographic open-air museum lem 149 928 131 828 2018-2022 table 1 museums featured in the study, their abbreviations, visitor numbers and periodization of strategic documents submitted for accreditation source: the authors; data from the ministry of culture of the republic of latvia; department of archives, libraries and museums, strategic documents submitted by museums to the ministry of culture e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 102 predetermined category predetermined subcategory theoretical framework coding rule sample of the priority economic sustainability tourism multiplier murzyn-kupisz (2012); mcghie (2019) description of the priority with words related to tourism development developing a tourist attraction programme exhibition halls featuring information in english for museum guests from abroad table 2 content analysis categorisation matrix (example) source: the authors work, (2) creating a categorisation matrix – winnowing themes to a manageable set of subcategories, manually sorting themes into hierarchies, writing the codebook or coding rules, manually identifying anchor samples (table 2). the authors proceeded throughout the study with the expectation for other subthemes or subcategories to emerge and worked towards constant discovery and continuous comparison of relevant meanings and nuances (altheide & schneider, 2013). thereby the analysis allowed eliciting standout themes framed as sustainable development priorities of museums. the codes in the form of phrases or short sentences are manually lifted straight from the dataset. interpretations of contextual or latent meanings in the data were made as necessary (zakaria & zakaria, 2016). inter-rater reliability was established by double-checking the subcategories between both researchers and setting down the rule that at least five priority samples from different museums associated with the same subcategory is considered enough to reveal a solid tendency. this process reflects the summative approach to content analysis that quantifies key words and interprets the context of the themes that are developed (hsieh & shannon, 2005). in latvia, the normative framework for museum accreditation is set by museum law and subordinate regulations by the cabinet of ministers. however, museum sustainability issues only appears in even more subordinate normative acts, notably the in-house regulations by the ministry of culture on museum accreditation (2010). even there, it is mentioned only twice: first, to define the goal of accreditation as promotion of sustainable museum practices and effective management of the national museum collections as well as strengthening the public role of museums, and, secondly, to point out, almost as an add-on towards the end, that accreditation statement should describe the museum’s potential to guarantee its sustainability. this situation gives museums freedom of interpretation regarding the concept and, at the same time, rules out the option for museums to conduct a systematic assessment of priorities and success stories within the museum sector and, indeed, to strengthen the weaker areas, all of which would make a vital contribution to sustainable museum practices. in the present study, the authors analysed accreditation submissions serving also as the strategic documents that set the priorities for museum practice. quantitative analysis yielded only 30 mentions of the term sustainability across 651 pages in total (including 24 unique mentions). five museums used it in the general sense (6 mentions), three museums – in the context of financial sustainability (5 mentions), two museums – to speak about social sustainability (9 mentions), one museum in the context of environmental sustainability (1 mention) and one museum referring to high-level national planning documents (3 mentions). therefore, qualitative content analysis emerged as a critically necessary method to establish how museum priorities are manifested and thereby illuminate the tendencies in museum contributions towards sustainable development goals within a specific timeframe. conclusions 103 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 cultural sustainability » despite an intense international debate about the role of culture in sustainable development as a catalyst to all sustainable development aspects, a separate pillar, or a foundation for all the other pillars, there is a clear consensus about the unique role of the heritage sector as the custodian of cultural heritage, which is made explicit in sustainable development goals. latvia’s museums are equally clear about their key priority – accumulation, preservation, accounting, maintenance, and ongoing replenishment of cultural heritage to provide authentic testaments about the history, development, and importance of cultural heritage in the context of broader historical and contemporary processes, boost their informative value and guarantee the availability of the said heritage to future generations. in fact, none of the following priorities can be fully realised without fulfilling this one: they become either impossible or devoid of meaning and thus essentially pointless. » an equally clear value and priority are attributed by museums to the strengthening or maintenance of national identity (lnma, bcm, lwm), boosting self-worth (lnma) and national self-awareness (mrhn), inspiring pride in relation to heritage (a collection unlike any other museum in the world rmm), maintenance of “uniquely latvian wisdom derived from the nation’s historical traditions” (latviešu dzīvesziņa) (tmr), cultural praxis through the discovery of heritage, local traditions, and the traditionally appraised aesthetics (bcm). » digitalisation is another priority across all museums, with a focus on both cultural and social sustainability through keeping museum items, also artworks with exceptional artistic value (especially the unexhibited), both preserved and available to new target groups or through expanding the range of opportunities for existing audiences. however, the digitalisation of museum collections is far from being finished; another important downside is the unavailability of the digitalised segment of the cultural heritage in high resolution. for all that, the current pandemic has brought technological innovations into centre stage, so it is reasonable to expect significant breakthroughs within the field, addressing various sustainability aspects such as education, research, engagement, accessibility, inclusion and many more, strengthening the means of implementing sustainable practices. economic sustainability » a financially and economically stable facility is among the essential priorities of latvia’s museums. financial sustainability, that is, sufficient resources for the maintenance of the museum and, consequently, the physical infrastructure of the collections, appears to be a nearly self-sufficient standard for validating museum sustainability. on the other hand, equalling sustainable operations to survival capacity might be either the lowest sustainability threshold or just a misinterpretation of the complex and broad sustainability concept. » another critical priority is increasing the revenue for self-maintenance. in addition to providing existing and new services to the public and strengthening its loyalty, a key priority for all museums in the form of complementary activities is their ability to provide highly professional services – specialist advice, expertise, certification, assessment, etc. other trending priorities are the reception of visiting exhibitions prepared and financed by other legal entities (lwm, lnma, mrhn), the deposit of items for permanent exhibition needs (rmm), as well as participation in joint exhibition projects (lnma, rpm, mrhn). the latter type of activity, among its other benefits, helps reduce operational costs. » in terms of economic sustainability, all the analysed museums prioritise the tourism multiplication priority and boosting incoming tourism – through introducing new products and proe u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 104 grammes, training tour guides, using multiple languages in their exhibitions, audio-guides and information materials, and strengthening cooperation with partners from the tourist sector. » image-building emerges as a significant priority of latvian museums. however, there is no single tendency in their opinions about where said image-building should be focused – on the image of the country in general (lnma), the museum itself (bcm, mrhn), or the region or city it is located in (rmm subsidiary, rpm). given that the study deals only with museums of great national importance and features the country’s most popular or most visited institutions, it suggests that a more systematic association of museum accreditation criteria with the national priorities of boosting incoming tourism, whilst leaving museums sufficient freedom to determine how they present the country’s overall image and purposefully engage with the national tourism priorities, would provide valuable guidelines for state-funded museums and serve the country in terms of more targeted support to existing efforts to encourage and develop incoming tourism. » another priority identified in the museum cohort is cooperation with local businesses in areas such as production of souvenirs and copies of historical artefacts (bcm), boosting local services (car maintenance, care sales – rmm; catering of tourist groups – tmr, cooperation with creative industries – lnma, rmm or development of applied arts – lem). at present, the accreditation process does not make it incumbent upon museums to find cooperation opportunities to support local or regional economies. environmental sustainability » activities towards environmental sustainability were the most complex to analyse in the present study because environmental sustainability priorities tend to be hidden behind other pillars and because environmental sustainability is generally assessed through highly specific quantitative measures, such as the ecological footprint, energy efficiency indicators, etc., which have not been calculated for latvia’s museums. lack of quantitative guidelines for museums deny museums the possibility to understand the trade-offs of their choices and the effects of their activities with regards to the environment. however, several trends in museum priorities within the study clearly come to the fore: » eco-cultural resilience – focusing on the human/community–nature relationship within various contexts and landscapes, is one of the most significant priorities, although it is expressed across the broadest spectrum – from descriptions of target audiences (lem) to forms of educational activities (lwm) to an almost random single mention that the museum is located in a protected area under the european nature directives natura 2000 (bcm). this suggests that neither the concept of environmental sustainability nor eco-cultural resilience has become self-evident in museum priorities. with that, museums, almost by intuition, seem to perceive that their priorities and roles include: maintaining a safe and accessible natural environment that can be used in a variety of ways (bcm); appreciating the value of an intact rural environment around the museum and preserving species diversity while maintaining the largest garden in the baltic region (rpm); educating the public about the diversity and uniqueness of local natural heritage (tmr); offering educational programmes that involve physical activities out of doors, organisation of environmental clean-up efforts (lwm) or becoming involved in efforts to create new tourist trails (bcm). » museums also prioritise environmental sustainability in terms of improvements to their physical infrastructure. they mention reconstructing the heating system and replacing the windows to save heat (lwm), reconstructing the restoration lighting to save electric energy (rpm) or drawing up a reconstruction project (mrhn) explicitly to improve environmental 105 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 sustainability. this suggests that museums demonstrate a general awareness of sustainability in terms of resource-saving. with that, it is important to point out that lnma and its structural unit mmrb, as well as rmm, have recently acquired reconstructed or brand-new buildings or collection storage facilities, which might explain there being no mention of this environmental sustainability aspect in their strategic documents. » development of access to transport infrastructure as a priority for sustainable development is ambivalent because it does not necessarily mean progression towards sustainable development goals. for instance, improving individual parking spaces by rendering them more comfortable or free of charge boosts the rates of car use (rpm, lem). at the same time, some museums prioritise sustainable improvements to the transport infrastructure, such as introducing cycling lanes (bpm), a tourist trail (bcm) or improving public transport schedules for better access to the museum (rmm). it is worth pointing out that museums do not perceive access to transport through the lens of environmental sustainability. instead, they associate it with social sustainability, aiming to make museum visits more comfortable and financially accessible. » museum initiatives, so far, have not extended to prioritising specific environmental sustainability criteria neither in their work with cooperation partners nor in procurement procedures or other activities such as letting out their property (for instance, lwm lends out some of its lands for agricultural use on a long-term contract basis, but is the agricultural approach questioned for environmental sustainability?). in any case, no evidence was found in strategic museum documents. clearly, this concern deserves systematic attention on the national level, for instance, by stipulating relevant priorities and criteria for issues such as government procurements, requirements for cooperation partners or energy efficiency, which should automatically apply to the museum sector. social sustainability » social sustainability aspects in strategic documents of latvia’s most popular museums yielded the broadest spectrum of priorities. the identified focus on the society–heritage interaction is an exceedingly positive sign regarding the input of the heritage sector towards sustainable development. with that, the analysis also exposed a few critical concerns. » access is a top priority in museum documentation, and it refers to several aspects. one priority is increased physical accessibility and security. however, at the time of the study, only two museums from the entire cohort were fully accessible to visitors with reduced mobility, with the rest being only partially accessible. in-house regulations by the ministry of culture on museum accreditation do invite museums to think about access, but no optimum or even minimum standard is set for accreditation. paradoxically, or perhaps naturally, state-funded museums are incapable of fulfilling state-decreed accreditation priorities, which is precisely why accreditation requirements do not stipulate specific standards for access. » access priorities include opening hours (open daily all year round or at least during the high season – rmm, bcm, mrhn, lem, lwm) or longer workdays (lnma) and financial availability, with free admission for specific groups or discount days for the public. with that set as priorities, only lwm offers its permanent exhibition free of charge for all. other museums grant free admission or discounts to various groups that can verify their special status (with a national or local government-issue id for senior citizens, persons with disability and schoolchildren, or a school-issue application letter). besides, the exempt categories of visitors are vastly different across museums. for instance, at present, museums do not grant free access at regular intervals, such as once a month, to all persons, especially excluding socially vulnerable groups as single-parent families, former convicts, the homeless, victims of human e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 106 trafficking or abuse, etc., whose vulnerable status is stipulated in national normative acts but who would find it difficult, if not altogether impossible, to present an official document to confirm exemption from pay. » all museums prioritise accessibility of knowledge through providing accurate and research-based information with their activities, educational programmes and information materials. the information is presented with an increasing diversity when it comes to language. museums continue to seek new forms of address tailored to specific target audiences. additional priorities in this category include fighting stereotypes, boosting public involvement and participation (lnma) or stressing the importance of the museum being available for all regardless of prior preparation, perception or physical abilities, social status, ethnicity, religious views or geographical location (lem). » fostering emotional accessibility, providing opportunities for recreation (mrhn, lnma), giving visitors emotionally resonant information (rpm, bcm) or an emotional experience (lwm), some visual pleasure (rmm), the joy of play and celebration (lem) all come under another museum priority. » conscious efforts to build and maintain social capital (lnma) or social ties, interaction and cooperation with multi-level educational institutions are prioritised by all museums in the cohort. this activity is stipulated in a nationwide financial support programme. in addition, some museums tend to promote more specific community associations (war veterans – lwm; rapier enthusiasts – bcm; motor-sports veterans – rmm, sailors – mrhn, artists – lnma). in a similar way, museums outside the capital seek to connect with their local populations (rpm, bcm, lem). it also resonates with the final sustainable development goal number 17 – that of promoting cooperation. at the same time, no expectations are raised throughout accreditation procedures about reinforcing existing cooperation efforts or ongoing involvement of ever-new partners, vulnerable communities, or social groups. the study demonstrates diverse involvement from the country’s most popular museums in sustainable development at the strategic level. at the same time, it identifies windows for improvement on both individual or museum level and the national level. museum accreditation priorities in latvia have developed over time and are, as of now, set out in a low-status in-house information document. thus, the priorities within the museum accreditation process could be easily adjusted from the normative perspective to gradually invite latvia’s museums towards an ever-greater input in sustainable development by using methodological documents attendant to accreditation rules to explain the complexity of the sustainable development concept revealing itself through this study, encourage museums to set priorities, whilst maintaining museum opportunities to choose their own categories or subcategories, set their own goals and assess their own performance. it would (1) specify and give additional value to the general goal of latvia’s museum accreditation system to promote sustainable museum practices, (2) raise awareness of the importance of sustainable development in the museum sector in general, especially beyond the priorities of heritage preservation and financial sustainability and (3) promote positive competitiveness among museums committed to sustainable development, serving as a catalyst for broader appraisal of sustainable practices, a driving force for innovation and an incentive for constantly growing cooperation with players from other sectors, such as education, social services, healthcare, ict, environmental protection and many more for mutual benefit and overall sustainable development. this research is funded by the ministry of culture, republic of latvia, project “cultural capital as a resource for sustainable development of latvia, project no. vpp-km-lkrva-2020/1-0003 acknowledgment 107 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 american alliance of museums. 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(2016). qualitative content analysis: a paradigm shift from manual coding to computer-assisted coding using atlas.ti. sage research methods cases, 1-6. http://doi.org/10.4135/9 78144627305015599170 elīna vikmane phd student, director of ma programme “cultural heritage governance and communication” latvian academy of culture fields of interests museology, sustainable development, cultural heritage, cultural theory. address ludzas 24, riga, latvia elina.vikmane@lka.edu.lv anda laķe professor, head of lka research centre latvian academy of culture fields of interests cultural heritage, cultural theory, creative industries, research methodology. address ludzas 24, riga, latvia lake.anda@gmail.com about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). 66 issn 1822–8402 european integration studies. 2014. no. 8 has european immigration policy changed? a benchmarking analysis of immigration trends to 30 european countries in 1998–2011 jari kaivo-oja finland futures research centre turku school of economics university of turku unit of tampere yliopistonkatu 58 d 33100 tampere email: jari.kaivo-oja@utu.fi http://dx.doi.org/10.5755/j01.eis.0.8.6897 the purpose of research article is to present an analysis of european immigration policy in 1998–2011. the analyses and research tasks include: (1) immigration to the nordic countries, (2) immigration to baltic countries, (3) immigration to germany, france, uk, italy, spain and italy, (4) immigration to czech republic, croatia, hungary, slovenia and slovakia and (5) immigration to austria, poland, switzerland, belgium, and the netherlands, and (6) immigration to ireland, greece, portugal, lichtenstein, luxembourg, malta and cyprus. the research results include benchmarking trend analyses of immigration flows of analyzed countries for years 1998–2011. thus, 14 years period of immigration flows in european continent is analyzed. key results of the study inform us about various changes of immigration policy in the european union, towards the “fortress europe” policy. the study includes some statistical comparative analyses and also logarithmic trend analyses (reported in appendix 1). if we want to have evidence-based immigration policy in the european union, these kinds of empirical trend analyses may help us to make informed decisions. these results indicate that in many european countries immigration policy has changed in a considerable way towards “fortress europe model” – especially during financial crisis. biggest changes can be observed in poland, in iceland, in the netherlands, in greece, spain, in austria and in lichtenstein. one remarkable change is that the united kingdom and germany have changed their rank positions as major immigration countries of the european union in 1998–2011. thus, in 2011 six major european countries taking immigrants to their county were the united kingdom, germany, italy, spain, france and poland. in 1998 these six largest immigration flow countries were germany, the united kingdom, france, greece, italy and the netherlands. also other remarkable changes are reported in this empirical immigration study. however very latest publication of eurostat (2014b) in may 2014 reveals that germany was again in 2012 the biggest country taking immigrants in the eu-27 country group. keywords: european union, immigration flows, trend bencharking methodology, immigration policy, trend analysis, comparative study, europesn integration policy. introduction immigration is a very important issue in the fields of european integration policy. immigration poses important challenges to europe. there are many critical social questions like will european societies be able to integrate increasing immigrant flows? (ortega, f. and polavieja, j.g., 2012) or how to manage illegal immigration in the european union (faccini, g. and mayda, a., 2009, mayr, k., minter, s. and kriger, t., 2012). attitudes toward immigration are changing in europe and there are many potential sources of conflict between different socio-cultural groups (burns, p. and gimpel, j.g., 2000, mayda, a., 2006, meuleman, b., davidov, e., and billiet, j., 2009). for example, western germany benefitted a lot from immigration in 1990s. germany has hosted the largest number of immigrants in europe. workers with foreign origin have represented more than 10% of the total labor force since late 1990s. (d´amuei, f., ottaviano, g. and peri, g., 2010). for many economies immigration policy is important issue. for example, recent reforms have put germany among the eu countries with the fewest restrictions on labour migration for highly-skilled occupations, yet inflows continue to be relatively low. labour migration is supposed to be one means to help meet future labour and skill shortages caused by a shrinking working-age population. how to ensure that international recruitment can help meet urgent needs in the labour market which cannot be met locally? labour migration system, on the demand side and on the supply side need to be developed in the european union (see e.g. nickell, s., 1997, laing, d., palivos, t. and wang, p., 2003, card, d., 2009, oecd, 2013b, chassamboulli, a. and palivos, t., 2013). german employers can recruit from abroad for any job requiring university-level qualifications. yet even employers declaring shortages have not done so, in part, due to their insistence on german-language skills and specific qualifications, and in part to a perception that international recruitment is complex and unreliable. while the process could be made more transparent, its negative reputation is issn 1822–8402 european integration studies. 2014. no. 8 67 unjustified. international students appear well positioned to meet employer concerns, but germany could do more to promote this channel for labour migration. a large part of the demand is also expected in skilled occupations requiring non-tertiary vocational training, but here, channels remain more restrictive. to address anticipated shortages in these occupations, more should be done to recruit into the dual system, and germany’s new recognition framework could contribute to open new channels. thus, immigration is a social issue with many impacts on labour markets, labour supply, employment, competitiveness, equality, gender issues, homelessness and cultural issues (daly, g., 1996, barone, g. and mocetti, s., 2011). theoretical immigration studies have shown that there is asymmetric distribution of gains from immigration, but empirical evidence is mixed in quite some instances. the boundaries of the field european “immigration and welfare state policy” are fuzzy. many european countries have made much progress over past decades in helping immigrants integrate in their societies. but much remains to be done, notably in improving how well immigrant children do at school and in finding work, and in immigrant women’s access to employment, according to an oecd report (oecd, 2012). immigration has impacts on welfare systems and welfare policies of the european union (myers, g.m. and papageorgiou, y.y., 2000, nannestad, p., 2004. nannestad, p., 2007, hansen, j. and lofstrom, m., 2009). immigration has also impacts on demographic changes like fertility, population and human capital (azarnert, l.v., 2010). giordani and ruta (2013) have also discussed coordination failures of immigration policies in the eu. many labour unions are also worried about wage development, when immigration flows increase (chassamboulli, a. and palivos, t., 2013). from these perspectives studying and researching the trends of immigration flows is important for european integration studies. immigration debate has been a forum for populism in european union. recent studies tell that bounded rationality affects performance of democratic institutions. recent outcome the 2014 european parliament elections indicate this kinds of populist tendencies (reuters, may 25, 2014). we do not fully understand policy choices in a representative democracy when voters do not fully anticipate a politician’s strategic behaviour to manipulate his/her re-election chances. researcher have found that this limited strategic sophistication affects policy choice in a fundamental way. under perfect sophistication, a politician does not make any use of his private information (for example about immigration) but completely panders to voters’ public opinions. in contrast, under limited sophistication, a politician makes some use of private information and panders only partially. thus, limited sophistication crucially determines how welfare under representative democracy compares to welfare under alternative political institutions such as direct democracy or governance by experts. under limited strategic sophistication, representative democracy is still preferable to the other institutions from an ex ante perspective. (see e.g. binswanger, j. and prüfer, j., 2012). the enlargement of the european union has provided a unique opportunity to study the impact of the lifting of migration restrictions on the migrant sending countries. one of the biggest impacts was, with eu enlargement in 2004 that 1.2 million workers from eastern europe emigrated to the uk and ireland. emigration to these countries significantly changed the wage distribution in the sending country, in particular between young and old workers. when a novel dataset from lithuania, the uk and ireland for the calibration of a structural model of labour demand was used, it was shown that over the period of five years emigration increased the wages of young workers by 6%, while it had no effect on the wages of old workers. contrary to the conventional immigration literature, there is no significant effect of emigration on the wage distribution between high-skilled and low-skilled workers (see goddard ii, j. and shivaji, r., 2014). the purpose of research article is to present an analysis of european immigration flows and immigration policy. the analyses and research tasks include: (1) immigration to the nordic countries, (2) immigration to baltic countries, (3) immigration to germany, france, uk, italy, spain and italy, (4) immigration to czech republic, croatia, hungary, slovenia and slovakia and (5) austria, poland, switzerland, belgium, and the netherlands, and (6) ireland, greece, portugal, lichtenstein, luxembourg, malta and cyprus. the analysis is based on the database of eurostat (2014a, 2014b). according to eurosta definitions (eurosta 2014b) “it should be noted that the two figures above do not represent the migration flows to / from the eu as a whole, since they also include flows between different eu member states“. thus, the research results include trend analyses of immigration flows of analyzed european countries for years 1998–2011. thus, 14 years period of immigration flows in europe is analyzed in this article. in this study we focus on official eurostat statistics (oecd, 2013a, eurostat, 2014). estimating the number of undocumented migrants in any european country is a formidable task, which always comes with political overtones. the task is complicated by a lack of any good way of knowing how many illegal immigrants have left the origin country. the difficulty is fully elaborated in the comparative report for the european commission clandestino project (triandafyllidou, a., 2009, eurostat, 2013). these estimates of illegal immigrants vary between 1.9 and 3.8 million for the eu 27 in 2008, relatively close to the more political figures released by governments during the past decade. key results of the study inform us policy various changes of immigration policy in the european union. the study includes also logarithmic trend analyses (see appendix 1) and some statistical comparative analyses (last section). if we want to have evidence-based immigration policy in the european union, these kinds of empirical analyses help us to make informed decisions. international migration flows are essential for the effective functioning of european economies. even in times of financial crisis and fiscal constraint, a holistic approach is required to fully reap its full benefits. this empirical study reveals also some interesting observations about immigration flows during financial crisis after 2007. trend analyses of immigration flows in this section reporting of trend analyses of immigration flows in 30 european countries will be provided. in appendix 1 an analysis of logarithmic variations are reported as an additional information for readers to identify changes in trends in a more concrete way. issn 1822–8402 european integration studies. 2014. no. 8 68 immigration to the nordic countries first, immigration to the nordic countries is analysed in fig. 1. we can observe that sweden has had largest immigration flow among the nordic countries. in 2005 there was a considerable change in immigration flow in sweden. the flow increased for over 60 000 to over 100 000 immigrants peer year. this was a big change in the immigration policy of sweden. figure 1. immigration flows to the nordic countries, years 1998–2011 in other nordic countries slightly upward sloping trends can be observed in fig. 1. especially in norway, immigration flows have increased yearly from 40 000 to 70 000 immigrants in 1998–2011. in iceland development of immigration has been quite stable. in finland immigration flow level has increased in volumes slowly compared to other nordic countries. in 2011, in finland it was about 35 000 immigrants, while it was in sweden little bit less than 100 000. immigration to the baltic countries in this section immigration flows to the baltic countries is analyzed. fig. 2 visualizes immigration trends in the baltic sea countries. we can observe that biggest changes has happened in lithuania, where immigration has increased from 2000 to almost 16 000 immigrants in 1998. 2011. smaller changes can be observed in estonia and latvia. the impact of financial crisis can be seen after 2008. in the case of baltic countries, an additional analysis of emigration statistics would be needed to reach more balanced conclusions. figure 2. immigration flows to the baltic countries, years 1998–2011 immigration to major eu countries in this sub-section immigration flow trends to major eu countries are analyzed. we can see that many changes have happened. in spain immigration has collapsed after financial crisis started in 2008. also in germany immigration flow has decreased in a considerable way (fig. 3). figure 3. immigration flows to germany, italy, france, uk, and spain, years 1998–2011 in france development has been quite stable, but the reliability of data is not strong. there may be some kind of data bias in these french figures. the opposite increasing immigration trend can be observed in the u.k. and italy. in italy there have been considerable fluctuations in immigration flow (see fig. 3). immigration to other european countries in sub-section the analysis of immigration flows to czech republic, croatia, hungary, slovenia and slovakia is visualized. we can observe that immigration policy of czech republic has changes much in 1998–2011. in 2008 peak level of immigrants was reached with 110 000 immigrants. after peak year 2008, immigration to czech republic decreased much reaching lower level of 30 000 immigrants. other countries in this european country group have taken less than 40 000 immigrants per year. hungary and slovenia have had increasing trends in immigration flows. croatia has had decreasing trend in immigration flows. in this country group converge in numbers of immigrants can be observed (fig. 4). figure 4. immigration flows to czech republic, croatia, hungary, slovenia and slovakia, years 1998–2011 issn 1822–8402 european integration studies. 2014. no. 8 69 figure 5. immigration flows to austria, belgium, the netherlands, poland, switzerland, years 1998–2011 in fig. 5 immigration flows in 1998–2011 to austria, to poland, to switzerland, to belgium and to the netherlands are reported. in this country group, poland shows very considerable increase in immigrations flow. in many countries financial crisis has decreased immigration, but poland as an european country is an exception to this thumb rule, because in poland financial crisis has increased immigration flows in a considerable way. in other countries in this country group immigration increased steadily till 2008 but after this year immigration flows decreased. in austria fluctuations in immigration flows have been considerable. figure 6. immigration flows to ireland, greece, portugal, liechtenstein, luxembourg, malta and cyprus, years 1998–2011 fig. 6 visualizes changes in immigration glows in smaller european countries, ireland, greece, portugal, liechtenstein, luxembourg, malta and cyprus. biggest changes can be observed in ireland, greece and portugal. small european countries have suffered quite much from financial crisis and this issue has had considerable impacts on immigration flows. in other countries (cyprus, malta, luxembourg and liechtenstein) of this trend analysis, changes in immigration volume have been smaller. decrease of immigration flow have been in greece from peak observation 160 000 to over 110 000 immigrants. in ireland the peak level of 140 000 immigrants turned down to over 50 000 immigrants and in portugal peak level 80 000 immigrants turned down to 20 000 immigrants. volume changes in these countries have been considerable in numbers of immigrants. conclusions and additional remarks in this section a summary of trend changes in immigration flows in europe will be presented. figure 7 illustrates maximum, minimum and range of statistical observations. we can observe and identify the countries where absolute changes in immigration numbers have been biggest in 1998– 2011. such countries are germany, united kingdom, italy, spain, poland and france. in smaller european countries large changes in immigration flows have happened in ireland, in belgium, in sweden, in the netherlands, in switzerland and in greece. in general terms, we can note that the biggest absolute changes in immigration flows have happened in biggest eu member countries. fig. 8 summarizes main variations in 30 european countries analysed in this study. this summary figure reveals where the most considerable changes in comparative terms have happened. the changes in spain are very considerable, as well as changes in germany, in italy, in poland, in the united kingdom and in czech republic. figure 7. maximum, minimum and range of statistical observations in immigration statistics in 30 european countries analysed in this study in table 1, logarithmic analyses of immigration flow volumes are reported in year 1998 and in year 2011. we can observe that logarithmic numbers vary between 2.54–5.90 in 1998, but in 2011 logarithmic numbers vary between 2.81–5.75. this indicates that larger countries have slightly decreased immigration and smaller countries have slightly increased immigration in 1998–2011 in europe, but changes are not very large in logarithmically scaled analysis of immigration flows. still large european countries (uk, germany, italy, spain, france and poland) host most of immigrants. countries with external border of the eu have major problems in immigration policy. issn 1822–8402 european integration studies. 2014. no. 8 70 figure 8. variation in yearly immigration flows in 30 european countries, years 1998–2011 table 1. logarithmic analyses of immigration flow volumes country year 1998 country year 2011 change in ranking 1 germany 5,90 united kingdom 5,75 1 2 united kingdom 5,52 germany 5,69 -1 3 france 5,47 italy 5,59 2 4 greece 5,20 spain 5,57 5 5 italy 5,20 france 5,50 -2 6 netherlands 5,09 poland 5,20 16 7 switzerland 4,98 switzerland 5,17 0 8 belgium 4,92 belgium 5,16 0 9 spain 4,91 netherlands 5,11 -3 10 austria 4,86 greece 5,04 -6 11 croatia 4,71 austria 5,02 -1 12 denmark 4,71 sweden 4,98 1 13 sweden 4,69 norway 4,85 3 14 ireland 4,68 ireland 4,73 0 15 portugal 4,63 denmark 4,72 -3 16 norway 4,56 finland 4,47 2 17 hungary 4,24 hungary 4,45 0 18 finland 4,15 czech republic 4,43 2 19 luxembourg 4,07 cyprus 4,36 2 20 czech republic 4,01 luxembourg 4,31 -1 21 cyprus 3,94 portugal 4,29 -6 22 poland 3,93 lithuania 4,20 4 23 slovenia 3,66 slovenia 4,15 0 24 iceland 3,66 croatia 3,93 -13 25 latvia 3,49 latvia 3,86 0 26 lithuania 3,43 malta 3,74 4 27 slovakia 3,31 slovakia 3,68 0 28 liechtenstein 3,11 iceland 3,61 -4 29 estonia 3,09 estonia 3,57 0 30 malta 2,54 liechtenstein 2,81 -3 some important changes in 1998–2011 have been: (1) change of rankings of germany and the united kingdom (1998–2011), (2) poland´s increased immigration flow in recent years, (3) croatia´s decreased immigration flow in recent years, (4) greece´s decreased immigration flow in recent years, (5) portugal´s decreased immigration flow in recent years, and 6) iceland´s decreased immigration flow in recent years. it is still good to remind that we are talking about official immigration statistics and illegal immigration to the eu is another issue. in may 2012 eurostat (erostat 2014b) published some new immigration statistics of year 2012. these novel statistical observations showed the following changes in immigration slows (eurostat 2014b). year 2012 was not included to the trend analysis of this article because some country data was missing and eurostat publication (eurostat 2014b) was published in may 2014 after this article was originally written and data analyses were performed. according to eurostat (2014b) during 2012, there were an estimated 1.7 million immigrants to the eu27 from countries outside the eu-27. in addition, 1.7 million people previously residing in one of the eu member states migrated to another member state. in 2012, about 3.4 million people immigrated to one of the eu-27 member states, while at least 2.7 million emigrants were reported to have left an eu-27 member state (eurstat 2014b). the difference of immigration and emigration was 0,7 million persons in the eu-27. statistics of 2012 does not change much conclusions of this article. only the fact that germany reported the largest number of immigrants (592 200) in 2012, and it was followed by the united kingdom (498 000), was a considerable new observion. according to eurosta definitions (eurostat 2014b): “it should be noted that the two figures above do not represent the migration flows to / from the eu as a whole, since they also include flows between different eu member states“. this statistical aspect is good to understand when one is reading this article. figure 9. changes in immigration flows in some european countries and in eu-27, years 2011–2012 (eurostat 2014b) in 2012, germany reported the largest number of immigrants (592 200) in 2012, followed by the united kingdom (498 000), italy (350 800), france (327 400) and spain (304 100). thus, in 2012 gemany took number one position in immigration statistics (eurostat 2014b). spain reported the highest number of emigrants in 2012 (446 600), followed by the united kingdom (321 200), france (288 300) and poland (275 600). a total of 14 of the eu-27 member states reported more immigration than emigration in 2012. however, in bulgaria, the czech republic, ireland, greece, spain, cyprus, poland, portugal, romania and the three baltic member states, emigrants outnumbered immigrants, as they did in croatia. this is a remarkable issn 1822–8402 european integration studies. 2014. no. 8 71 detail in new eurostat statistics (eurosta 2014b), which was published in may 2014. in 10 a summary of immigration statistics of this study for 30 european countries is presented and visualised. this fig. 10 reveals the considerable impact of financial crisis on immigration flows in europe. change in the volume of immigrants in 2007–2011 was 998 098 immigrants in the eu-30 country analysis. in 2007 the number of immigrants was 4411082, but in 2011 only 3412984. statistical decrease in immigration flows of the analyzed eu-30 countries in 2007–2011 was -22.6%. probably this considerable change in european immigration was not coordinated or planned political change of official european immigration policy. more or less it has been forced change in european immigration policy. this empirical results causes many questions in european population policy, which has aims to adopt to the aging of population. (eurostat 2014b). figure 10. immigration in the eu-30 countries, years 1998–2011 it is good to remind readers that we are talking about official immigration statistics and illegal immigration to the eu is another issue. thus, it is possible to draw a conclusion that european immigration policy has changed in 1998–2011, especially in recent years of financial crisis. there have been many considerable changes in immigration flows in europe. especially many impacts of global financial crisis on immigration flows can be observed in this study. we can expect that demografic push and pull factors have changed in the european union in the years of financial crisis. if we analyse only immigration flows to european countries, european union has moved towards “fortress europe policy“ -model. in other studies it would be interesting to analyse emigration statistics and its relation to immigration statistics. very big impacts on immigration can be observed in special european country cases of poland and spain. obviously there are many coordination and policy failures of immigration policy in europe. these coordination failures are caused mostly by economic volantilities of financial crisis in 2007–2012. in the european union policy failures may be linked to populism and policitical unstabilities. appendix 1. immigation flows to european countries in logariyhmic variatiots. figure a1. immigration flows in the nordic countries in 1998–2011. logarithmic variations in fig. a1 logarithmic variations of immigration flows are reported. in all nordic countries logarithmic immigration indicator is below 5, in iceland it is below 4. fig. a2 illustrates logarithmic figures of immigration in the baltic countries. immigration flows are having quite similar shape in the baltic sea region. logarithmic index is over 4 in lithuania and below 4 in latvia and estonia. figure a2. immigration flows in the baltic countries in 1998–2011. logarithmic variations fig. a3 logarithmic numbers of immigration flows to czech republic, croatia, hungary, slovenia and slovakia are reported. logarithmic indices are between 5 and 6 in this european country group. fig a3 reveals that financial crisis have had biggest relative impacts in czech republic and slovenia in this european country group. in fig. a4 logarithmic variations of immigration flows to germany, italy, france, uk, italy, spain and italy are reported. these trends confirm convergence observation. a country with major changes in immigration policy has been spain, which logarithmic trend line has been quite unstable compared to other countries in this country group. also the logarithmic trend line of italy was not very stable. issn 1822–8402 european integration studies. 2014. no. 8 72 figure a3. immigration flows to czech republic, croatia, hungary, slovenia and slovakia in 1998–2011. logarithmic variations figure a4. immigration flows to germany, italy, france, uk, italy, spain and italy in 1998-2011. logarithmic variations figure a5 verifies clearlyobservations presented in text section. in this country group convergence to the logarithmic level of 5 can be observed. biggest change in immigration policy in 1998–2011 can be observed in poland. very many people have travelled back to their homeland poland from other countries of europe (especially from united kingdom). poland has converged to the trend lines of this european country group (austrial, belgium, netherlands and switzerland). logarithmic variation nicely reveals the change of trend in poland (see fig. a5). figure a5. immigration flows to austria, poland, switzerland, belgium and the netherlands in 1998–2011. logarithmic variations fig. a6 summarizes findings of the previous analysis nicely. this analysis of changes in logarithmic indicators, however, reveals antoher very interesting result, which is big comparative change of immigration policy in malta (see fig. a6). we can also observe some weak form of convergence in this group of small european countries. liechtenstein is an out-layer country in this convergence process of small european countries. figure a6. immigration flows to ireland, greece, portugal, liechtenstein, luxembourg, malta and cyprus in 1998–2011. logarithmic variations references azarnert, l.v. 2010. immigration, fertility, and human capital: a model of economic decline of the west. european journal of political economy, 26(4), pp. 431– 440. http://dx.doi.org/10.1016/j.ejpoleco.2010.03.006 barone, g. and mocetti, s. 2011. with a little help from abroad: the effect of low-skilled immigration on the female labour supply. labour economics, 18(5), pp. 664–675. http://dx.doi.org/10.1016/j.labeco.2011.01.010 binswanger, j., and prüfer, j., 2012. democracy, populism, and (un)bounded rationality. european journal of political economy, 28(3), pp. 358–372. http://dx.doi. org/10.1016/j.ejpoleco.2012.02.002 burns, p., gimpel, j.g., 2000. prejudicial stereotypes, and public opinion on migration policy. 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university of latvia aspazijas bulv. 5, lv – 1050, riga, latvia e – mail: inara.kantane@lu.lv valdis avotins ventspils university college inženieru iela 101a, lv – 3601, ventspils, latvia e – mail: valdis.avotins@venta.lv elita jermolajeva daugavpils university vienības iela 13, lv – 5401, daugavpils, latvia e – mail: elita.jermolajeva@du.lv http://dx.doi.org/10.5755/j01.eis.0.8.6839 business start is important issue from government policy side as well as it has interests of academic researchers worldwide. researcher attention is paid on decision to start or not to start business (townsend, et al, 2010), on issues on business takeover or new venture start (parker, et al, 2012), different approaches in business start – up are analysed (chwolka and raith, 2012), there are made evaluations of different research conducted in this area during half a decade (lambert and davidson, 2013), made comparisons and cross – country investigations (clerq, et al, 2012), made different kinds of forecasts (cassar, 2014). researchers are interested in performance expectations of entrepreneurs in business start: which driving forces are most important, do they differ in different countries, by age groups, by education level obtained to examine intrinsic and extrinsic motives in different contexts. aim of the current research is to make comparisons of performance expectations of entrepreneurs willing to start business with special attention to factors influencing business success in comparison with entrepreneurs in canada, usa and mexico. tasks of the current paper are: to find out the results of opinion of starting entrepreneurs, which factors are more important; find out the complex factors of entrepreneurs motivation to start business and make comparisons with the results in other countries; find out the opinion differences of starting entrepreneurs by age groups and by education level. the results of researchers could be used for public administrators and politicians for preparation of suggestions for decision making. methods and results: research methods used: scientific literature studies, survey of starting entrepreneurs in the business start phase in latvia (survey was conducted in october 2013 – february, 2014) which is comparable with survey conducted in canada, usa and mexico, results are compared with survey results in canada, usa and mexico. in survey for most of questions evaluation scale 1 – 5 is applied. the same methodology is used as in countries listed. for data processing descriptive statistical indicators, factor analysis and variance analysis are applied. main findings of the paper are that in general the motivation factors in different countries are alike, but for latvia entrepreneurs willing to start their business most important factors influencing business success are: good client service; honesty reputation; charisma and friendliness with clients; good management abilities and among the less important factors are: political support and interest. factor analysis has indicated five complex factors from 17 initial factors. factor analysis with extraction method: principal component analysis, rotation method: varimax with kaiser normalisation was performed rotated five complex factors in 9 iterations. keywords: business start, entrepreneurs, performance expectations. 1 authors express thanks to anete brauča (ventspils university college) for big contribution in data collection issn 1822–8402 european integration studies. 2014. no. 8 153 introduction new venture start has been on research agenda worldwide for many decades as entrepreneurs and their success in business create conditions for further development of their businesses as well as national economy. motivation to start new businesses has been researched by many scientists and on different aspects. the aim of the current research is to make comparisons of performance expectations of entrepreneurs willing to start business with special attention to factors influencing business success in comparison with entrepreneurs in canada, usa and mexico. tasks of the current paper are: to find out the results of opinion of starting entrepreneurs, which factors are more important; find out the complex factors of entrepreneurs motivation to start business and make comparisons with the results in other countries; find out the opinion differences of starting entrepreneurs by age groups and by education level. the results of researchers could be used for public administrators and politicians for preparation of suggestions for decision making. methods and results: research methods used: scientific literature studies, survey of starting entrepreneurs in the business start phase in latvia (survey was conducted in october 2013 – february, 2014) which is comparable with survey conducted in canada, usa and mexico, results are compared with survey results in canada, usa and mexico. in survey for most of questions evaluation scale 1 – 5 is applied. the same methodology is used as in countries listed. for data processing descriptive statistical indicators, factor analysis and variance analysis are applied. main findings of the paper are that in general the motivation factors in different countries are alike, but for latvia entrepreneurs willing to start their business most important factors influencing business success are: good client service; honesty reputation; charisma and friendliness with clients; good management abilities and among the less important factors are: political support and interest. theoretical background american scientists david m. townsend, lowel w. busenitz and jonathan d. arturs have devoted their research on outcome and ability expectations in the decision to start a new venture and after five year’s study came to conclusion that there are different results proved by statistical data (townsend, et al, 2010). personality aspects are important in new enterprise start which has been indicated by five metaanalyses and scientifically discussed by researcher hermann bradstrater from austria (bradstrater, 2011). researchers from united kingdom, norway and the netherlads have devoted their scientific interest to the nature of entrepreneurial experience, business failure and comparative optimism came to conclusion that entrepreneurs who have experienced failure do not appear to adjust their comparative optimism (uchasaran, et al, 2010). researchers from canada and the netherlands have investigated the entrepreneur’s mode of entry: business takeover or new venture start (parker and van praag, 2012). research on importance of entrepreneurial goals and resource allocation in new owner-managed firms have been researched by scientists from united states and have found that owner goals have statistically significant effect on resource allocation for new firms (dunkelberg, et al, 2012). research on what kind of capital is needed to start business: financial or human have resulted that both factors are important (montgomery, et al, 2005). gavin cassar from usa has indicated the linkages among providers of finance, maturity of assets, and the capital structure of start – ups (cassar, 2004). researching aspects in service business and service revenue have indicated that if manufacturing companies can overcome beghavioral processes thr managerial motivation is increasing leading to more investments in the service business and thus enhancing service revenue and overall profitability (gebauer and fleisch, 2007). the influence of personality traits may be stronger with entrepreneurs than with most other professions, achievement motivation is favourable both for business foundation and business success (brandstätter, 2011). david m. townsend, lowell w. busenitz and jonathan d. arthurs (townsend, et al, 2010) had indicated that ability expectancies are a robust predictor of new venture start-up decisions while outcome expectancies play a marginal role. extensive research on cross – country investigation of micro-angel investment activity and the roles of new business opportunities and institutions were performed by researchers from canada, belgium and united kingdom has shown that there are cross – country differences in micro – angel investment activity (de clercq, et al, 2012). research on entry regulation and business start-ups as evidence from mexico has indicated that new start – ups about 5 % per month are in eligible industries (kalpan, et al, 2011). research on start – up incentives as entrepreneurship policy or active labour market programme has indicated that several approaches could be applied (roman, et al, 2013). issues on business creation in higher education establishments and use of academic experience in entrepreneurial activities are on research agenda of italian and american researchers, good results could be used in practice (fini, et al, 2014). researchers on different kinds of companies and their activities in r&d in japanese start – ups have concluded that firms investing more in r&d tend to engage in r&d cooperation, regardless the type of partners (okamuro, et al, 2011). in many researchers have been confirmed that it is important to have business support infrastructure for entrepreneurs are for special importance for developing of work-based learning with the encouragement of efficient knowledge management in entrepreneurship (cakula, et al, 2013). in different countries motivation, selfefficiacy, and risk attitudes among entrepreneurs are different and it is important to take into account local specifics to manage the company in a successful way (tyszka, et al, 2011). in most of the countries illegal entrepreneurship is on agenda. researchers have investigated the aspects of illegal entrepreneurship and the level of business performance and motivation and have found that such experience create problems for company development (aidis and van praag, 2007). the findings of researchers in other countries (schane, 2014; birley and westhead, 1994) and wide range of scientific publications make motivation to investigate the researched aspects in home country and make comparisons with the results of other countries. issn 1822–8402 european integration studies. 2014. no. 8 154 empirical data analysis the data of the register statistics of latvia (lursoft – enterprise register, republic of latvia, 2014) has shown that the largest newly founded businesses in the last 5 years were in 2011, the 18045 were founded. during the last two years the number of newly founded businesses had decreased approximately by 9.3% (in 2012 the 16891 were founded, in 2013 – 16365). the number of the liquidated businesses during the last two years had increased approximately by 5.9% (in 2011 were liquidated 3921 businesses, in 2012 – 4307, in 2013 – 4152). the average age of small businesses in latvia is approximately 6.5 years. motivation to start business and business success influencing factors were measured using a five-point likert scale. the evaluation 1 would rate as unimportant, 2 as not very important, 3 as mildly important, 4 as very important and 5 as extremely important. the same evaluation scale was used in the canada, usa and mexico. most important motivations factors to start business for entrepreneurs in latvia were: make own decisions; increase income and maintain personal freedom. the entrepreneurs evaluated these factors more than very important. among the less important factors were: provide jobs for family; gain public recognition and build a business to pass on. the entrepreneur’s evaluations were quite homogeneous (see table 1). in the canada and usa the motivation factor make my own decision were evaluated uppermost (mean 4.46 and 4.30, std. deviation 0.793 and 0.780), in the mexico entrepreneurs higher evaluated factor increase income (mean 4.33, std. deviation 0.881). for identifying the key factors motivating entrepreneurs to start business and determining the mutual statistical relations of the factors the authors had used the factor analysis. as a result of the factor analysis the initial 18 factors, through six iterations (by using the varimax rotation with kaiser normalisation), using extraction method principal component analysis were grouped in 6 complex factors (see table 2). the interpretation of the identified complex factors with regard to the indicators with which the initial indicators have relatively high burdens: 1) complex factor f1: independence – the factor has relatively high burdens on the following motivation variables: be my own boss; create my own job; make my own decisions; maintain my personal freedom. 2) complex factor f2: family support – the factor has relatively high burdens on the following motivation variables: build a business to pass on; provide jobs for family; be closer to my family; always have job security. 3) complex factor f3: business development – the factor has relatively high burdens on the following motivation variables: maximize business growth; increase sales and profits; meet the challenge. 4) complex factor f4: prove that i achieve success – the factor has relatively high burdens on the following motivation variables: gain public recognition; prove i can succeed. 5) complex factor f5: income – the factor has relatively high burdens on the following motivation variables: acquire a comfortable living; increase my income; build up equity for retirement. 6) complex factor f6: personal satisfaction – the factor has relatively high burdens on the following motivation variables: have fun; for my own satisfaction. table 1. entrepreneurs assessments of motivation to start business, means and standard deviations mean std. deviation make my own decisions 4.38 0.666 increase my income 4.36 0.678 maintain my personal freedom 4.30 0.831 maximize business growth 4.27 0.863 have fun 4.26 0.846 acquire a comfortable living 4.23 0.753 increase sales and profits 4.20 0.822 be my own boss 4.20 0.835 create my own job 4.17 0.874 for my own satisfaction 4.15 0.866 prove i can succeed 3.97 1.002 meet the challenge 3.95 0.954 to always have job security 3.87 1.020 be closer to my family 3.79 1.081 build up equity for retirement 3.68 1.095 build a business to pass on 3.47 1.128 gain public recognition 3.30 1.062 provide jobs for family 3.12 1.140 source: authors calculations based on entrepreneurs survey conducted in october 2013 february 2014 (n = 195), evaluation scale 1–5, where 1 – unimportant; 5 – extremely important. issn 1822–8402 european integration studies. 2014. no. 8 155 the results of descriptive statistic indicators – indicators of central tendency (arithmetic mean, mode and median) as well as indicators of variability (range, standard deviation and standard error of mean) have shown the importance of respective motive which was associated to each complex factor (see table 3). the motivation factor of independence had the highest evaluations by respondents, this factor has been evaluated by the highest evaluation by most of respondents (indicated by mode), the second most important factor was personal satisfactions, third – business development, fourth – income, fifth – prove that achieve success and sixth – family support. all analysed factors had very high evaluations indicated by indicators of central tendency (arithmetic mean, mode and median). in the canada, usa and mexico four complex factors were extracted by using factor analysis: income, personal motivation, independence and family, security. in the canada the first complex factor was the family, security, second – income, third – independence and fourth – personal motivation. in the usa and mexico the first complex factor like in the canada was income factor, second – independence, third – personal motivation and fourth family, security. the business success factors were measured with same five-point likert scale described above. the most important factors influencing business success were: good client service; honesty reputation; charisma and friendliness with clients; good management abilities, the entrepreneur’s evaluations were quite homogeneous. among the less important factors were: previous entrepreneurship experience, geographical location, political support and interest (see table 4). table 2. entrepreneurs motivations to start business factor analysis (complex factor matrix after rotation) factors f1 f2 f3 f4 f5 f6 be my own boss 0.861 0.036 -0.004 0.086 0.179 0.041 create my own job 0.822 0.216 0.225 0.094 0.054 0.043 make my own decisions 0.636 0.025 0.176 -0.005 0.116 0.224 maintain my personal freedom 0.538 0.272 -0.144 -0.118 0.105 0.519 build a business to pass on 0.099 0.782 0.222 0.213 -0.016 0.052 provide jobs for family -0.022 0.780 -0.024 0.079 0.184 0.039 be closer to my family 0.186 0.723 0.159 -0.144 0.091 0.256 to always have job security 0.449 0.570 0.137 0.071 0.108 -0.150 maximize business growth 0.049 0.117 0.843 0.091 0.193 0.179 increase sales and profits 0.304 0.302 0.722 0.004 0.123 0.015 meet the challenge 0.083 0.021 0.590 0.481 0.043 0.240 gain public recognition -0.073 0.026 -0.021 0.824 0.105 0.077 prove i can succeed 0.195 0.143 0.196 0.813 0.031 0.037 acquire a comfortable living 0.179 -0.021 0.127 0.065 0.776 0.175 increase my income 0.176 0.075 0.056 -0.046 0.720 0.020 build up equity for retirement -0.011 0.279 0.113 0.172 0.669 -0.058 have fun 0.110 0.066 0.157 0.013 0.101 0.824 for my own satisfaction 0.092 0.042 0.213 0.388 -0.022 0.689 extraction method: principal component analysis. rotation method: varimax with kaiser normalization. rotation converged in 6 iterations source: authors calculations based on entrepreneurs survey conducted in october 2013 february 2014 (n=195), evaluation scale 1–5, where 1 – unimportant; 5 – extremely important. table 3. descriptive statistics figures for motivations factors motivation factors mean std. error of mean median mode std. deviation range independence 4.26 0.029 4 5 0.808 4 family support 3.56 0.040 4 4 1.130 4 business development 4.14 0.036 4 4 0.793 4 prove that achieve success 3.64 0.055 4 4 1.085 4 income 4.09 0.038 4 4 0.828 4 personal satisfaction 4.21 0.044 4 4 0.856 4 source: authors calculations based on entrepreneurs survey conducted in october 2013 february 2014 (n=195), evaluation scale 1–5, where 1 – unimportant; 5 – extremely important. issn 1822–8402 european integration studies. 2014. no. 8 156 the three factors that influence business success – appropriate training, previous entrepreneurship experience and marketing factors, sales support, differed statistically significant by age groups. the evaluation of differences by age groups were evaluated by help of analysis of variance (anova), the mean difference of age groups was significant (p < 0.05) (see table 5). the factor – appropriate training, differed statistically significant in the age groups 20–29 years and 50–59 years (tamhane test, p = 0.043). in the age group 50–59 years entrepreneurs evaluated factor appropriate training higher than entrepreneurs in the age group 20–29 years (mean 4.4 and 3.8 accordingly). the factor – previous entrepreneurship experience, differed statistically significant in the age groups 20–29 years and over than 50 (lsd test, p = 0.017). in the age group over than 50 years entrepreneurs evaluated factor previous entrepreneurship experience higher than entrepreneurs in the age group 20–29 years (mean 4.3 and 3.3 accordingly). the factor – marketing factors, sales support, differed statistically significant in the age groups 30–39 years and 40 – 49 years (tamhane test, p = 0.020). entrepreneurs in the age group 40 – 49 years evaluated factor appropriate training higher than entrepreneurs in the age group 30–39 years (mean 4.4 and 3.9 accordingly). it is checked, the evaluations of only one factor that influence business success – good product and competitive price, differed statistically significant depending on entrepreneur’s education level, it was performed by help of analysis of variance. the mean difference of entrepreneur’s evaluations was significant (p < 0.05) for education levels: college and university degree. the entrepreneurs whose table 4. entrepreneurs evaluations of business success influencing factors, means and standard deviations mean standard deviation good client service 4.56 0.638 honesty reputation 4.52 0.725 charisma and friendliness with clients 4.44 0.671 good management abilities 4.44 0.605 ability of personnel management 4.35 0.756 good product and competitive price 4.34 0.718 society involvement 4.13 0.911 marketing factors. sales support 4.12 0.824 capital availability 4.11 0.876 family and friends support 4.01 0.890 appropriate training 3.99 0.800 accurate sales/documentation of income 3.80 0.881 hard work 3.74 0.919 support from management 3.63 0.999 previous entrepreneurship experience 3.55 0.960 geographical location 3.53 1.082 political support and interest 3.16 1.061 source: authors calculations based on entrepreneurs survey conducted in october 2013 february 2014 (n = 195), evaluation scale 1–5, where 1 – unimportant; 5 – extremely important. table 5. business success influencing factors which influence differed statistically significant by age groups, variance analysis (anova) sum of squares df mean square f sig. appropriate training between groups 6.476 4 1.619 2.643 0.036 within groups 100.471 164 0.613 total 106.947 168 previous entrepreneurship experience between groups 10.490 4 2.623 3.015 0.020 within groups 143.533 165 0.870 total 154.024 169 marketing factors, sales support between groups 8.086 4 2.021 2.932 0.022 within groups 113.050 164 0.689 total 121.136 168 source: authors calculations based on entrepreneurs survey conducted in october 2013 february 2014 (n = 195), evaluation scale 1–5, where 1 – unimportant; 5 – extremely important. issn 1822–8402 european integration studies. 2014. no. 8 157 education level was college level education have evaluated factor of good product and competitive price higher than entrepreneurs whose education level were university degree (mean 4.8 and 4.3; standard deviation 0.41 and 0.75 accordingly). the average evaluations (arithmetic mean, mode and median) are reflected in figure 1. conclusions main findings of the research results included in the paper are that in general the motivation factors in different countries are alike, but for latvia entrepreneurs willing to start their business most important factors influencing business success are: good client service; honesty reputation; charisma and friendliness with clients; good management abilities and among the less important factors are: political support and interest. the entrepreneurs in latvia were more centred on intrinsic motives to start a business– the desire to be independent. most important motivations factors for beginners in entrepreneurship are: to start business for entrepreneurs in latvia were: make own decisions; increase income and maintain personal freedom which is similar to the canada, usa and mexico entrepreneurs view. in latvia the most important factors influencing expectations for business success for starting entrepreneurs were: good client service; honesty reputation; charisma and friendliness with clients; good management abilities. there are statistically significant differences with high probability of starting entrepreneurs on attitudes towards appropriate training: the evaluations of respondents by age groups: older entrepreneurs evaluate appropriate training higher than younger entrepreneurs. there are statistically significant differences on starting entrepreneur’s attitudes towards previous entrepreneurship experience: the evaluations of respondents were different by age groups: older entrepreneurs evaluate appropriate training higher than younger entrepreneurs. for other evaluated factors there were not statistically significant differences by age groups. the entrepreneurs with college level education have evaluated factor of good product and competitive price statistically significant higher than entrepreneurs who had university level education. the evaluations of business success influenced the following factors: appropriate training, previous entrepreneurship experience and marketing factors, sales support, differed statistically significant by age groups. in evaluations of starting entrepreneurs only one factor of the evaluated factors – good product and competitive price, differed statistically significant depending on entrepreneur’s education level. the investigated factors had high evaluations of respondents. references aidis, r., van praag, m. 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(2010). the nature of entrepreneunerial experience, business failure and comparative optimism. journal of business venturing, 25, pp. 541–555. http://dx.doi.org/10.1016/j. jbusvent.2009.04.001 the article has been reviewed. received in april, 2014; accepted in june, 2014. 111 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 abstract european trends in business incubation through open innovation approach http://dx.doi.org/10.5755/j01.eis.1.16.31635 iveta cirule biorganik5 ltd, latvia inga uvarova artsmart ltd.; ba school of business and finance of latvia ginta caune riseba university, latvia european integration studies no. 16 / 2022, pp. 111-124 doi.org/10.5755/j01.eis.0.16.31635 submitted 05/2022 accepted for publication 06/2022 european trends in business incubation through open innovation approach eis 16/2022 the open innovation (oi) is the actual framework for exploiting external resources and wider networks in doing innovation instead of just operating with in-house resources. business incubators ensure networking and facilitate oi collaborations both inside the incubator among entrepreneurs and outside with external stakeholders. the purpose of the qualitative study is to identify the european trends in business incubation through oi approach by setting two main tasks – 1) identify business incubation trends and 2) validate these theoretical findings by conducting the empirical study in latvia business incubators and 3) draw the conclusions for business incubation practitioners in order to improve business incubation from oi perspective. the qualitative research methods applied – 1) literature review on business incubation trends, oi approach in business incubation such as service provision, online and onsite incubation, tenant oi competences and strategies, co-creation and collaboration and 2) the empirical qualitative research in latvia business incubators by conducting incubator management (13) interviews. the results proved that the main national trends dominant and present in latvian business incubation are corresponding to the european trends, namely, 1) incubators are serving as oi partners and are recognized by tenants as access providers to external resources ands networks; 2) networking as facilitating activity of the inside-out and outside-in oi strategies; 3) tenants’ oi strategies and motivation as well as variety of oi partners (experts, mentors, clients, companies, researchers, universities) promote the better incubation results in terms of ideas validated, product developed, companies created and innovation implemented. these results are in line with the main findings on european trends from a literature review perspective. this article provides national findings on oi application in business incubation as the empirical novelty for business incubation practitioners, academia, entrepreneurship support policy makers and tenants internationally detecting the crucial role of oi activities applied in business incubation and incubators as oi partners. business incubation trend analysis through open innovation approach is a novelty of this research. keywords: open innovation, open innovation strategies, business incubator, business incubation trends, value co-creation. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 112 introduction the open innovation (oi) is the actual framework for exploiting external resources and wider networks in doing innovation instead of just operating with in-house resources (vanhaverbeke et al., 2018). instead of playing a mere passive role, incubators now facilitate oi for their inhabitants by providing relevant services (grama-vigouroux and royer, 2020). new business creation is frequently related to innovation and business incubators have a unique position of knowledge transfers in this innovation and entrepreneurship ecosystem (mian et al., 2016). the oi theory addressing business incubation has been popular since 2015. oi is the new model of doing innovation (chesbrough, 2003) and it includes specific strategies (such as inside-out and outside-in activities) (gassmann & enkel, 2004). in order to use these strategies, a nascent entrepreneur needs specific competencies, named oi competencies (du chatenier et al., 2010), (fukugawa, 2013) motivation and partners. the purpose of the qualitative study is to identify the european trends in business incubation through oi approach by setting two main tasks – 1) identify business incubation trends; 2) validate these theoretical findings by conducting the empirical study in latvia business incubators and 3) draw the conclusions for business incubation practitioners in order to improve business incubation through oi perspective. business incubation trend analysis through open innovation approach is a novelty of this qualitative research. the two research questions are proposed: » rq1: are national business incubation trends corresponding to european trends in business incubation through the open innovation approach? » rq2: is the open innovation approach present in the national business incubation trends? the qualitative research methods applied – 1) literature review on business incubation trends, oi approach in business incubation such as service provision, online and onsite incubation, tenant oi competences and strategies, co-creation and collaboration and 2) the empirical qualitative research in latvia business incubators by conduction incubator management (14) interviews in 1) latvia investment and development agency incubators funded by national business incubation programme and 2) university-led incubators funded by public and private higher education figure 1 methodological roadmap of the research tasks and results source: authors 113 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 literature review establishments. the key results proved that the main national trends dominant and present in latvian business incubation are corresponding to the european trends, namely, 1) incubators are serving as oi partners and are recognized by tenants as access providers to external resources ands networks; 2) networking as facilitating activity of the inside-out and outside-in oi strategies; 3) tenants’ oi strategies and motivation as well as variety of oi partners (experts, mentors, clients, companies, researchers, universities) promote the better incubation results in terms of ideas validated, product developed, companies created and innovation implemented. these results are in line with the main findings on european trends from a literature review perspective. this article provides national findings on oi application in business incubation as the empirical novelty for business incubation practitioners, academia, entrepreneurship support policy makers and tenants internationally detecting the crucial role of oi activities applied in business incubation and incubators as oi partners. the literature review reveals the main findings about actual trends in business incubation through the open innovation approach, which is a novelty of this research. the following european trends are identified 1) incubators as oi partners (e.g., grama-vigouroux & royer, 2020; carayannis et al., 2021; 2) networking as important inside-out and outside-in oi strategies (e.g., klofsten et al., 2020; barile et.al., 2020); 3) tenant oi competences, motivation, partners, difficulties (e.g., vanhaverbeke et al., 2018; bøllingtoft, 2012; du chatenier, et al., 2010); 4) globalization and internationalization facilitated by oi strategies/ activities/ actors/ artifacts (tsai et.al., 2009; zykienė et.al., 2021); 5) sustainability and shared value creation promoted through oi (e.g., hull et al., 2021; barile et.al., 2020), particularly recently promoted by the green course of eu agenda (european commission, 2019) and sustainable development goals globally (un, 2021; halkos & gkampoura, 2021). the concept of oi offers new strategies and practices for using not only in-house resources in the innovation process, but also to gain knowledge, new ideas and expertise from outside in order to advance in the innovation (outside-in), or to share ideas and knowledge with others (inside-out). both outside-in and inside-out oi activities contribute to advance in the value creation and capturing (chesbrough, 2006). oi practice envisages the creation of new knowledge and ideas in the collaboration with other stakeholders, for instance, government organizations, consultants, research centers and universities, customers, society and non-governmental organizations or other private companies considered as the triple, quadruples and penta helix cooperation (carayannis et al., 2021; uvarova et al., 2021). currently the concept of living labs combines the oi framework (lapointe & guimont, 2015), which should be considered in further development of incubators. oi requires the specific strategies, such as inside-out and outside-in activities, but also some coupled activities, which suppose a combination of those two (cirule et.al, 2017). outside-in activities are supposed to involve external and internal parties of the business to accelerate internal innovation. inside-out activities include new ways of commercializing the unused technology and patents. the outbound dimension of oi refers to “earning profits by bringing ideas to market, selling ip, and multiplying technology by transferring ideas to the outside environment”. it focuses on external paths to commercialize innovations that have been developed internally (vanhaverbeke et al. 2018). scholars previously have proved that “innovation capabilities might not reside exclusively inside firms, but could be co-created relationally with other parties in the business ecosystem” (giudici et.al, 2018 p.1369). this is an important conclusion which motivates the investigation of the future perspective and trends of the adaptation of the open innovation approach within the busie u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 114 ness incubators. in total 1214 publications were selected in the scopus database using keywords “business incubation” or “business incubator”. using the vosviewer, the content analysis was conducted within the selected publications to identify main keywords or phrases that appear with the highest frequency within these scientific publications. given keywords or phrases, show the main research trends of scholars regarding the business incubation (see figure 2). the size of the keywords or phrases reflect the frequency of co-occurrence of these words within the scientific publications. the content analyses do not recognize the open innovation concept in this field of research, but there are some other important keywords associated with the open innovation, such as collaboration, clusters, university business incubators, spinoffs. this initial content analysis proves the novelty of the business incubator development using an open innovation approach. figure 2 the network visualization of co-occurrence of keywords “business incubator” or “business incubation” based on articles of the scopus database source: authors after the initial content analysis, we conducted a more detailed search of the literature and selected within the scopus database the scientific publications with more narrow focus using keywords (“business incubators” or “business incubation” and “open innovation”). in total 94 publications were collected and their abstracts analyzed to identify most relevant publications for the detailed analyses. furthermore after the abstract analyses 54 publications were kept for the more detailed analyses of the full text of publications. during the detailed literature review 115 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 additional information sources were added using the reverse selection of already cited sources within the previously selected articles. researchers have defined in the past that accelerators, living labs, open labs and other similar forms of cooperation and value co-creation are essential initiatives for promoting open innovation, not only in business sectors, but also in different non-commercial and social spheres (de silva & wright, 2019). within such collaboration forms actors may create business model innovations, but also other ideas for the sustainable transition. this is previously defined by scholars as the shared value which requires the development of the business model in the way that it combines the business needs (profit making) with the positive social and environmental impact (porter, 2021). addressing sustainability issues is an essential issue not only for the governments and policy makers, but also for the business society. thus it influences as well the role and functions of business incubators to facilitate the pro-environmental and sustainable behavior among start-ups and entrepreneurs, also stimulating the creation of sustainable business ideas and business models (theodoraki et.al., 2018). during the last 10 years the scholar community has been increasingly discussing the promotion of the sustainable and circular business model innovations and new ventures (geissdoerfer et.al., 2017). some researchers have investigated the circular economy or green business incubators that recently are seen as important contributors to the sustainable transition and achievement of the sustainable development goals (hull et.al., 2021). the table 1 “business incubation trends through oi approach” demonstrates the main literature review findings and respective scholars in this field. table 1 business incubation trends through oi approach trend code business incubation trend through open innovation (oi) approach, label title literature review, authors t1 incubators as oi partners: » incubators as value co-creation spaces and platforms » incubators as access to networks » customer or user-centric innovation » living labs, do-it-yourself labs, open labs grama-vigouroux & royer, 2020; carayannis et al., 2021; claussen and rasmussen, 2011; lapointe & guimont, 2015; klofsten et al., 2020; barile et.al., 2020; de silva & wright, 2019; ngongoni & grobbelaar, 2017 t2 networking as inside-out and outside-in open innovation strategies » from infrastructure to networking » growing importance of networking » networking services in bi promoting outside-in open innovation activities such as knowledge attraction from mentors, experts, researchers » oi inside -out strategy » oi outside-in strategy theodorakopoulos et al., 2014; hausberg & korreck, 2020; bank et al., 2017; mian, et al., 2016; giudici et.al, 2018; vanhaverbeke et al., 2018 t3 tenant oi competences, motivation, partners, difficulties » oi partners (experts, crowd, clients, universities, co-opetitors instead of competitors) » oi competences chesbrough et.al., 2018; vanhaverbeke et al., 2018; bøllingtoft, 2012; du chatenier, et al., 2010; fukugawa, 2013; grama & royer, 2013; gramavigouroux & royer, 2020 e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 116 summarizing the main findings from the literature review, the conclusions are: 1 business incubators are important oi partners as the value co-creation spaces and platforms providing access to networks and external resources; 2 networking as inside-out and outside-in open innovation strategies manifestation; 3 tenants possessing the oi competences and motivation could improve innovation capacity and performance by choosing co-opetition instead of competition; 4 globalization and internationalization expande industrial and geographical borders of cooperation among business incubators, business incubation tenants and other stakeholders, particularly facilitated by hackathons and cross-border entrepreneurial activities; 5 the promotion of sustainability and value co-creation in business modeling facilitate the transition to sustainability and contribution to sdgs achievement. trend code business incubation trend through open innovation (oi) approach, label title literature review, authors t4 globalization and internationalization facilitated by oi strategies/ activities/ actors/ artifacts expanding industrial and geographical borders of cooperation between business incubators, business incubation tenants and other stakeholders » hackathons combining international teams » cross border teams » virtual incubation tsai et.al., 2009; zykienė et.el., 2021; gao et.al, 2021; musteen et.al., 2014 t5 sustainability and shared value creation » shared value creation within the business model » facilitation to the sustainable transition and contribution to sdgs hull et al., 2021; barile et.al., 2020; del vecchio et al., 2018; fichter & hurrelmann, 2021; porter, 2021; klofsten & bienkowska, 2021 source: authors empirical research method and design the main aim of the empirical research was to validate the findings from literature review on business incubation trends’ analyses through open innovation approach by conducting the empirical qualitative research in latvia business incubators with incubator top management heads of incubators, in total 13 interviews in a year 2020. the research environment 1) latvia investment and development agency (lida) incubators, funded by national business incubation programme, total 11 interviews, and 2) university-led incubators funded by public and private higher education establishments, total 2 interviews. the sample size of lida business incubators in this time period was 11 regional business incubators and 1 creative and culture industry incubator in the capital city riga (total 12) and 4 university-led incubators. the interviews were conducted remotely, reaching 11 out of 12 lida heads of incubators (91,6%) and 2 out of 4 university incubator heads (50%), representing the majority of business incubation top managers nationally. the authors have set geographical and professional competence limitations the research was conducted nationally in latvia business incubators by interviewing only top managers (heads of incubator) as the main interview expert selection criteria. these incubation professionals have been working in national incubation for a certain period (at least 5 years) and are well-recognized professionals. the interview sample size of a total 16 national top managers in a country is an objective limitation of research. 117 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 trend code question oi outside-in (inbound) strategy oi inside -out (outbound) strategy oi competences and motivation oi partners oi difficulties type t1 what are the current trends and challenges in business incubators? x x x x x open t2 how could you improve your job as an incubator manager? x x x open t3 what improvements would you like to see in the operation of the incubator? x x x x x open t4 what other services would you like to see in incubators (tangible / intangible)? x x x x open t1 how do you think it would be possible to run the incubator more conveniently / agilely? x x x open t1 how do you think public, university and industry / private incubators differ? x x x x x open t3 to what extent do incubated companies use the networking services provided by incubators? x x x x enough not enough t2 what is the role and importance of mentors / business coaches, consultants? x important partly important not important t3 does physical space matter to achieve a faster result? x x x x yes no partly t4 what, in your opinion, is the motivation of the incubated tenants? x x open t4 what difficulties do you think incubated companies face during incubation and after leaving the incubator program? x open table 2 business incubator managers’ interview structure source: authors e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 118 the interview questions were structured to answer the two main research questions: 1 are national business incubation trends corresponding to european trends in business incubation through the open innovation approach? 2 are national business incubation trends revealing the open innovation approach? the interview questions were structured in three main scales – 1) the current situation analyses, 2) future improvements and 3) tenants’ and management oi competences, strategies. motivation, partners and difficulties. the main aim of interview questions was to detect the presence of the current trends in business incubation through oi perspective. the table below demonstrates the interview structure trend label from literature review identified by the authors, questions created by the authors, correspondence to the oi dimensions (strategies, competences, motivation, partners, difficulties), answer type – open or structured. the interview results were structured to answer the two main research questions: rq1: are national business incubation trends corresponding to european trends in business incubation through the open innovation approach? rq2: is the open innovation approach present in the national business incubation trends? the tables 3 and 4 below demonstrate the main interview results. majority of bi managers admitted the presence of three (t1, t2, t3) european trends in the the national bi, namely, 1) incubators are serving as oi partners and are recognized by tenants as access providers to external resources ands networks (t1, total 12 managers); 2) networking as facilitating activity of the inside-out and outside-in oi strategies (t2, 13 managers); 3) tenants’ oi strategies and motivation results and discussion table 3 european bi trends in the national bi, interview results trend code business incubation trend through open innovation (oi) approach, label title rq1: european bi trends in the national bi numeric results (no of interviews, total 13) t1 incubators as oi partners 12 t2 networking as inside-out and outside-in oi strategies 13 t3 tenant oi competences, motivation, partners, difficulties 10 t4 globalization and internationalization facilitated by oi strategies/ activities/ actors/ artifacts 7 t5 sustainability and shared value creation promoted through oi 4 as well as variety of oi partners (experts, mentors, clients, companies, researchers, universities) promote the better incubation results in terms of ideas validated, products developed, companies created and innovation implemented (t3, 10 managers). these results corresponds with the the main findings from literature review such as grama-vigouroux & royer, 2020 and carayannis et al., 2021 on oi partners; vanhaberke, 2018 and hausberg & korreck, 2020 on networking; du chatenier, et al., 2010 and bøllingtoft, 2012 on oi competences and motivation. the results on the trend t4 globalization and internationalization facilitated by oi strategies/ activities/ actors/ artifacts (t4, 7 managers) and trend t5 sustainability and shared value creation promoted through oi (t5, 4 managers) revealed the weak presence of these european trends in the national bi. this could be explained by the recent appearance of 119 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 rq2: oi approach presence in the national bi trends numeric results oi approach presence (no of interviews, total 13) oi outside-in (inbound) strategy 13 oi inside -out (outbound) strategy 11 tenants’ oi competences 10 tenants’ oi motivation 11 oi partners 12 oi difficulties, mainly, tenants do not recognize the oi approach 13 table 4 oi approach presence in the national bi trends source: authors sustainability and sdgs related issues on the national entrepreneurship support system agenda after european green deal introduction in 2020 and a new eu funding planning period priorities of 2021 -2027 (ec, 2019). the table 4 below demonstrates the results of interviews regarding the second research question. the majority (at least 10 of 13) incubator managers agreed that the oi outside-in approach as defined by oi researchers is dominant. this corresponds with markovic et al., 2020 stating that in the current, highly competitive business environment, outside-in oi has become a popular phenomenon. outside-in oi consists of purposefully bringing external knowledge (i.e., insights and ideas of external partners) into internal innovation processes (vanhaverbeke et al., 2020). oi outside-in approach is mainly promoted through business consultancy and infrastructure service, whereas, inside-out approach is observed through networking services. the interviews prove that the oi approach is applied and utilized in bi but not fully recognized by tenants. tenants mostly do not value the networking, co-creation and collaboration as the oi manifestation as all 13 managers stressed this as the main oi difficulty. finally, analyzing the development trends of the business incubators in the context of open innovation from the literature review perspective, it can be seen that incubation functions, meaning and even the way incubators operate are changing. although they are characterized by artifacts associated with open innovation, for instance, collaboration, societal involvement, user perspective, co-creation, involvement of users and others, there are various designations and names used recently. the analysis highlights two major development trends in the evolution of business incubators in the context of the open innovation approach. one of the directions within this evolution is the traditional development and operational model, where incubators focus on the continuation of the provision of the pre-incubation, incubation and post-incubation services, just adapting the particular services according to actual needs of the tenants of business incubators. in such, the business incubator continues to play an important role within the innovation and start-up ecosystems. such business incubators are mostly managed by e.g. national or regional business support agencies, also, financed or supervised by public bodies. the other pattern of the transformation of business incubators puts them outside of the traditionally used operation models and responsibilities. in this development model of business incubators, the open innovation is accumulated not only between tenants but also actively used in the business incubator management. this model requires adaptation of the open innovation approach as an important part of the business incubator strategy, requiring wide collaboration with various stakeholders beyond the start-up ecosystem. in such a role business incubators e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 120 become the important actors of development of a particular city, region or rural communities. business incubators are participating in the development of a given area. ess models. business incubators facilitate the development initiatives to address various socio-economic challenges by stimulating the creation of new businesses in these areas. within the collaboration with types main characteristics and services authors open labs and community based “do it your-self” labs facilitate the development, testing, adoption of new technologies services: laboratory equipment, order-ready materials, accessible scientific or professional knowledge or consultations characterized with: the open cooperation beyond the boundaries of particular public, scientific and business organizations associated with co-working spaces, sand box, hack labs aiming at: improving collaboration, transdisciplinary knowledge sharing and social communication within the laboratory work in order to discover and create innovative solutions in europe the major geographical locations: in united kingdom, germany, france, netherlands, belgium, italy, sweden, austria and spain novelty: stimulates public engagement within r&d, open science and technological development sarpong et.al., 2020 you et.al., 2020 diybiosphere (n.d.) do nascimento et.al., 2014 living labs facilitate interaction between different stakeholders, customers and users in order to identify their needs and behaviors services: co-creation at the early stage of the product, process, technological, organizational and other innovation characterized with: social innovation space, collaborative platforms for sustainable and smart transition, physical or virtual collaborative ideation workshops aiming at: interaction between different stakeholders and users for ideating, prototyping, validating and assessing complex solutions or products. in europe the major geographical locations: mostly in western european countries in the southern, central and northern part of europe. less recognised within eastern european countries, but already have some signs of such initiatives. novelty: the societal involvement, the user-centric participatory approach and oi. exploiting quadruplex helix collaboration model dell‘era & landoni, 2014 edwards‐schachter& alcántara, 2012 vallance et.al., 2020 hasche et.al., 2020 zavratnik et.al., 2019 enoll (n.d.) hackathons eventual activities for fast idea generation, verification, prototyping and presentation services: forming teams (also international) for the cocreation of business ideas, business models or business solutions. characterized with: time limitations (usually non-stop 24h, 48h or other); intensive and well structured work to set-up teams, generate a number of new ideas or solutions, as well as stimulate their commercialisation. hackathons are designed to offer financial or non-financial incentives in order to stimulate teams to innovate multiple new ideas or solutions. in europe the major geographical locations: throughout europe novelty: within the oi context civic engagement and cooperation between various stakeholders is an important issue, also known as entrepreneurial citizenship. johnson& robinson, 2014 irani, 2015 zukin & papadantonakis, 2017 table 5 the open innovation initiatives that could be adopted within business incubators source: authors 121 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 various stakeholders business incubators promote the co-creation of the shared value with the economic, social and environmental impact. these can be private or community lead business incubators or university business incubators. it can be observed that such factors as the legal status and ownership of the business incubator, financial sources (private or public) can influence the transformation of business incubators. the autonomy of the business incubator management to make decisions and lead changes, as well as dynamic capabilities of the business incubator managers may influence the ability to assume and adopt the open innovation approach. further research should be carried out on the causal relationship between these factors mentioned above and the ability to adopt open innovation strategies within the business incubation management. the analysis shows that the transformation of business incubators is inevitable towards more open collaboration within and beyond the boundaries of the business start-up ecosystem. the following table shows three types of initiatives that can already be used as a basis for further development of business incubators using the oi approach. the results of this study revealed that: » the main national trends dominant and present in latvian business incubation are corresponding to the european trends, namely, 1) incubators are serving as oi partners and are recognized by tenants as access providers to external resources ands networks; 2) networking as facilitating activity of the inside-out and outside-in oi strategies; 3) tenants’ oi strategies and motivation as well as variety of oi partners (experts, mentors, clients, companies, researchers, universities) promote the better incubation results in terms of ideas validated, product developed, companies created and innovation implemented. the recommendation for bi managers and tenants is to promote practical oi activities in bi, such as involving customers directly in the innovation process, indirectly by using third parties to intercept creativity and knowledge from the internet; actively participating in other innovation projects. tenants may be more aware of the oi‘s nature, as well as the benefits of co-creation and collaboration, as a result of the practical oi activities. » networking as an inside-out and outside-in oi strategies tool is dominant in latvian business incubation. the oi outside-in approach purposefully bringing external knowledge into internal innovation processes, is particularly dominant in national business incubation. the recommendation for bi managers and tenants is to exploit also the inside-out strategy or knowledge sharing by tenants and teams with external partners, e.g., participation in others’ innovation projects and sharing or selling innovation invented inside team, which will not not be implemented due to some obstacles, like, lack of resources (time, finance, human capital). » the literature review highlights the new perspective of business incubators facilitating the development initiatives to address various socio-economic challenges by stimulating the creation of new businesses and business in these areas; in cooperation with various stakeholders business incubators promote the co-creation of the shared value with the economic, social and environmental impact. the recommendation for national bi policy makers is to support the open labs and community based “do it-your-self” labs in order to facilitate the development, testing, and adoption of new technologies. the results of the present research are supporting the latest theoretical findings regarding the trends in business incubation through oi approach. it is also notable that two trends globalization and internationalization facilitated by oi strategies/ activities/ actors/ artifacts, and susconclusions and 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(2017), „hackathons as co-optation ritual: socializing workers and institutionalizing innovation in the „new“ economy“, kalleberg, a.l. and vallas, s.p.(ed.) precarious work, research in the sociology of work, vol. 31, emerald publishing limited, bingley, pp. 157-181. https://doi. org/10.1108/s0277-283320170000031005 zykienė, i., laučienė, r., daugėlienė, r., & leskauskienė, a. (2021). strengthening lithuanian-latvian cross-border cooperation in the context of international trade. european integration studies, (15), 138-159. https://doi.org/10.5755/j01.eis.1.15.29062 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). iveta cirule dr. sc. administr. biorganik5 ltd fields of interests open innovation, business incubation, innovation ecosystem, entrepreneurial competences address veca bikernieku 9-16, riga, lv-1079, latvia, +37129189748 biorganik3@gmail.com inga uvarova phd candidate artsmart ltd., management department, ba school of business and finance, latvia fields of interests sustainable business models, business model innovations, start-up support ecosystem, quadruplex helix address stepini, aizkraukles pag., aizkraukles nov., lv-5101 +371 26434730 inga.uvarova@ba.lv ginta caune riseba university fields of interests open innovation, business incubation, social capital address meza street 3, riga, lv-1048, latvia +37126068307 ginta.lejina@inbox.lv 87 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the transnational cooperation is seen as important research object especially in the light of today’s world challenges such as war in ukraine, covid-19, euroscepticism, migration and others. in this context intensive cooperation among the nordic and baltic countries can be discovered as new normal for transnational development. the rationale of nordic and baltic countries cooperation is common interest in stability, security and welfare in the baltic sea region and beyond, and has existed for quite some time. it should be emphasized that the cooperation in the nordic and baltic region has overcome many challenges. nevertheless, the idea of cooperation in this region is stronger than ever. in the light of global and regional political instability, it is crucial to maintain political dialogue, strengthen and develop cooperation between the nordic and baltic countries. a spread of stronger populism uncovered an existential tension of european integration processes. in response to the european-wide crisis it is the possibility for nordic states react to emerging challenges by deepening the integration between the nordic countries in the light of european integration processes during their critical moment. with reference to the context described above, the purpose of the research is to identify the added value of cooperation of nordic and baltic countries for further regional development. the tasks of the research were set as follows: 1) to identify benefits of cooperation among countries in the context of different theories and practices; 2) to analyse the cooperation of the nordic-baltic countries in the period from 1990 2020 and its implications for growth of baltic sea region; 3) to discuss the eu macro-regional strategies and identify their added value for further regional development. research methods: scientific literature analysis, analytical interpretations of the eu documents as well as future prognosis on cooperation in the nordic-baltic region. abstract nordic-baltic cooperation: old-new trends or possible balance for challenged european integration processes? http://dx.doi.org/10.5755/j01.eis.1.16.31609 jurgita barynienė kaunas university of technology, lithuania živilė paužaitė kaunas science and technology park, lithuania rasa daugėlienė kaunas university of technology, lithuania european integration studies no. 16 / 2022, pp. 87-96 doi.org/10.5755/j01.eis.0.16.31609 submitted 04/2022 accepted for publication 06/2022 nordic-baltic cooperation: old-new trends or possible balance for challenged european integration processes? eis 16/2022 introduction ongoing globalization process emphasizes the importance for countries not only be different in order to have competitive advantage (for example, ideas of smart specialization), but also to find similar points with other countries. in this light, the idea of cooperation among countries appears. the cooperation process among countries is analyzed in many scientific articles (hansen, 1983; milner, 1992; lamasheva, 2004; tursie, 2015; mikhaylov, bolychev, 2015; perkmannm, 2007; friman, ojala, lorentz, 2019; basboga, 2020; mikhaylov matthew j. spaniol, nicholas j. rowland, 2022). the main idea of effective cooperation is that each country has its strengths and can contribute seeking common goals, especially in region to which it belongs. the cooperation as the effective process should be ensured through engagement of national, local e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 88 authorities and other stakeholders, which are interested in effective cooperation. added value is achieved through collective endeavor mobilizing of countries strengths. the european union has its unique attitude towards the cooperation and treats this process as the main precondition to deeper european integration. moreover, nowadays, europe suffers from different challenges such as security issues in the region, brexit, crisis in health sector, unanswered questions about refugees and migrants integration. in this light cross-border cooperation becomes even more important and territorial cooperation can be an effective platform to deal with challenges in particular regions. with reference to the context described above, the purpose of the research is to identify advantages of cooperation among countries in the nordic-baltic region, to analyze the eu macro-regional strategies and to identify their added value for further regional development. the tasks of the research were set as follows: » to identify benefits of cooperation among countries in the context of different theories and practice; » to analyse the cooperation of the nordic-baltic countries in the period from 1990 2020; » to discuss the eu macro-regional strategies and identify their added value for further regional development. approach: the paper conceptualizes cooperation among countries in the same region as the strategic approach of international policy in the context of nowadays challenges. the belongingness to the same region is the prerequisite to stronger cooperation and collective action for common interest in stability, security and welfare. research methods: theoretical insights, analytical and statistical interpretations of the eu documents as well as future prognosis on cooperation in the nordic-baltic region. keywords: macro-region; cooperation; nordic-baltic region; european integration; processes. cooperation among countries: theoretical view scientists from different disciplines such as political sciences, economy, and international relations analyze the phenomenon of cooperation among countries. the current changing context makes countries interdependent among each other, especially countries which appear in the same geographical area. cooperation among countries can be a relevant instrument in order to develop economic, political and societal issues and to achieve regional cohesion. this cooperation is strongly related to political as well as economic integration, and security assurance. in this context, the discussions about regionalism appear. regionalism is defined as a multidimensional process in which the clear aspects of economic, political, social and cultural spheres are involved. the process of regionalism is based on countries’ interests and focus on common issues in order to fulfill its interests. regional cooperation helps to meet and solve raising regional and/or global challenges (hettne, söderbaum, 2004). furthermore, regional cooperation could be seen as an efficient instrument to pilot different challenges in specific regions. the scientists such as dubois et al. (2009) argue that the process of regionalization brings a wide scope of benefits such as the use of joint challenges as a common denominator, the stimulation of territorial cohesion, new possibilities for multi-level governance, and subsidiarity. regarding to this context and looking from the pragmatism paradigm, the process of cooperation is always interest-led. each country has a motive why is it worth to be in relations with others (see in figure 1). 89 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 figure 1 cooperation phenomenon through interaction (made by authors) regional cooperation can have different instruments. cooperation can be based on different types of agreement between countries’ institutions as well as regional organizations. one of them can be focused on specific fields or policies; the other – more comprehensive agreements involving different fields or policies. hettne, söderbaum (2004) present the typology of regional cooperation according four dimensions: organization/network/ unidimensional/multidimensional. figure 2 typology of regional cooperation instruments (hettne, söderbaum 2004) analyzing more deeply, it is rational to identify the concept of a macro-region. scientific analysis shows that a macro-region is the platform for different countries, which have common denominators, for instant history, challenge, and problems and seek synergy effect from acting together. the european commission describes the macro-region as “an area including territory from a number of different countries or regions associated with one or more common features or challenges” (ec, 2009). e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 90 the importance of cooperation between countries in regions is essential in our contemporary, fast changing and complex world. according to scientific literature, several rationales for cooperation within regions could be identified as the following: » decreasing inequalities in the region; » stronger identity of the region in the regional and global arena in the context of globalization, especially for small countries; » higher level of regional integration; » joint recourses (intellectual, financial and etc.) for development; » impulse for policy development; » better accessibility to information and knowledge base; » better territorial governance; » security of the region. effective cooperation based on trust and common vision achievement helps get benefits from synergy effective for the whole region. more than 30 years of successful cooperation in the nordic and baltic region cooperation, just as competition, is part of human nature and a driving force for evolution. working together has a purpose that allows individuals, entities and states to form strong groups and to achieve common goals. even an ad hoc cooperation has its own origins, reasons and quite often long-lasting traditions. one example of a regional cooperation with long traditions, which even reaches the viking age and hansa, is the nordic-baltic cooperation. fighting and competing with each other, nordic-baltic countries not once in the past joined their knowledge and power towards common goals: to fight common enemies, to invade lands and eventually to trade goods and become competitive merchants in the region. the nordic-baltic official cooperation started in the early 1990s. the main ideas and cooperation areas are identified in figure 3. figure 3 main spheres of nordicbaltic cooperation (1990 – 2020) (made by authors) 91 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 a new revival of nordic-baltic cooperation could be considered the early 1990s, when the three baltic states became independent. the nordic council of ministers launched its bureaus in tallinn, riga and vilnius. nordic countries sent a message to the world about a beginning of cooperation with three baltic states and an official support to their independence. initially, cooperation began with the establishment of contacts, promotion of nordic culture and social values as well as democracy and gender equality in the baltic region. after the baltic countries joined the eu in 2004, it was determined that co-operation should be on equal terms. the nordic council of ministers’ work with estonia, latvia and lithuania is directed today by the guidelines adopted by the nordic ministers for co-operation on 13 november 2008, and updated on 13 october 2013. these express a desire to develop nordic-baltic cooperation in areas of common interest, and thus strengthen work towards political stability and a strong economy in the baltic sea region. the subject areas in which the nordic council of ministers particularly wants to develop cooperation are as follows (guidelines for the nordic council of ministers’ co-operation with estonia, latvia and lithuania from 2014): » education, research and innovation; » business, cluster co-operation and creative industries; » the environment, climate and energy (including environmental conditions in the baltic sea and the promotion of effective environmental technologies and renewable sources of energy); » the international challenges faced by welfare societies (combating human trafficking and the spread of hiv/aids; improving cooperation between police forces and public prosecution services; developing hospital services; addressing demographic challenges in relation to, for example, labour-market policy; » cross-border regional cooperation to promote joint fundamental values, such as democracy, good governance, gender equality, freedom of speech and tolerance – both under nordic– baltic auspices and in relation to other neighboring countries. after more than 30 years of very successful cooperation, thousands of activities have taken place related to social welfare, gender equality, trafficking, sustainability, the environment, culture, the media, and other issues. project administration of the joint nordic-baltic mobility programmes for public administration and culture greatly contributed and continues to contribute to a successful nordic-baltic cooperation. in recent years, the cooperation has been tightened and extended, adding further policy areas to the group’s activities. among others, cooperation within the field of hard security has become more relevant within the nordic-baltic context (etzold, 2017; henningsen, 2017). in april 2017, nordic and baltic ministers responsible for digitalization adopted a declaration “the nordic-baltic region: a digital frontrunner” which forms the basis for cooperation between the nordic and baltic countries. the declaration is aimed at the digitalization of public services and within the business sector across borders, as well as strengthening the development of a regional digital market, contributing to the eu’s ambitions for a digitally integrated europe. etzold (2017) also highlights that if defense and hard security was not a priority area for regional cooperation until 2014, it has become more important recently and, therefore, it might be useful to establish new regional formats with a stronger hard security focus. regional cooperation is a dynamic process, which does not take place in isolation. thus, countries as well as the regional institutions have to react and adapt to new international circumstances and challenges. a spread of euroscepticism and stronger populism as well as number e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 92 of difficulties, among which, the greek financial crisis, the refugee problem, and challenges of the eurozone and schengen area, threats of brexit uncovered an existential crisis of european integration processes (penttilä 2016). in response to the europe-wide crisis, penttilä (2016) introduced one idea that the nordic states should react to emerging challenges by deepening the integration between the nordic countries. pentillä also proposed an idea of a new nordic treaty, which could replace the helsinki treaty of 1963 (the framework treaty of nordic cooperation). with reference to their proposal, a new treaty would show a regional way forward for european integration as well as prepare the nordic countries for the possible scenario that the european union would disintegrate even further. with reference to etzold (2017), in uncertain times, the multilateral cooperation around the nordic-baltic region and their related institutions remain important for the region’s development and prosperity. they, however, need to adapt and adjust constantly and continuously to new external circumstances and challenges to remain relevant for their stakeholders, to be able to tackle the challenges, and to contribute to finding solutions. in response to the ongoing processes and challenges, the eu strengthens its focus on macro-regional cooperation. the successful start of the first macro-regional strategy for the baltic sea region has followed with three others. added value of the eu macro-regional strategies for further regional development macro-regions have become a new level of policy dialogue in different parts of the world and particularly in europe. macro-regions combine two main features (ketels, helge, 2016): » they include countries and regions that are through their proximity the most natural partners for trade and investment; » often compete together for a position in global value chains. during the last decade, the eu has strongly supported an idea of cooperation among different countries in the same geographical area. the idea of macro-regions in the eu first came from member states seeking to cope with common issues together and taking on board players of different levels (local, national as well as regional). the idea of macro-regions in the eu is closely related to theory of differentiated integration (warleigh-lack, 2015; kölliker, 2001). in terms of theory of differentiated integration, state cluster formation is seen as an alternative for the integration process. currently eu has four macro-regional strategies: » the eu strategy for the baltic sea region (eusbsr) (2009); » the eu strategy for the danube region (eusdr) (2011); » the eu strategy for the adriatic and ionian region (eusair) (2014); » the eu strategy for the alpine region (eusalp) (2015). nowadays in this framework, there are different eu member state participants. the biggest achievement is the integration of non-eu members into this framework. in the eu, macro-regional strategies are seen as beneficial instruments for bringing added value for regions in different spheres: social, economic as well as territorial cohesion. the eu is ready not to investigate new finance instruments, legislation or institutions (ec, 2016) in order to ensure the development of the eu macro–regional strategies. it should be emphasized that the eu macro-regional strategies and their priorities closely corresponded with the eu strategy for europe 2020. the priorities of europe 2020 are shown in picture 4.the implementation of these priorities in smaller regions can be seen as an alternative way for better integration in the region and efficient achievement of the pre-defined europe 2020 goals. 93 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 2 / 1 6 the interact programme1 has been providing support services to the eu macro-regional strategies since early 2010. during this time, interact has followed the developments of macro-regional strategies, broadened its knowledge and has gained valuable experience. interact launched in early 2016 a study called ‘added value of macro-regional cooperation: collecting practice examples’. the study aimed at collecting evidence on the benefits of working for a macro-region. the focus of the study was on projects implemented in the baltic sea and danube regions as well as on their funding instruments, analysing where these projects and funding sources see the added value of macro-regional cooperation (european regional development fund, 2017 ). with reference to the above mentioned study, main added values of macro-regional strategies could be identified as follow: » macro-regional strategies focus on progresses that can stimulate and bring change; » macro-regional strategies can further improve policy-orientation, efficiency and coherence of projects and funding programmes (see figure 5); » benefits projects have from linking to a macro-regional strategy: in the project development phase, in the implementation phase and in the post project life; » macro-regional strategies help programmes with strategic framework and wider coordination mechanism, larger audience, enhanced visibility, extended outreach of the programmes. summing up, the eu macro-regional strategies create added value through deepening integration among states, in particular geographical areas including non-eu members as important partners. region countries develop the internal policies through connecting their resources and strengths. figure 4 the priorities and flagship initiatives of europe 2020 (ec, 2010) smart growth developing an economy based on knowledge and innovation initiatives: innovation union youth on the move a digital agenda for europe sustainable growth inclusive growth promoting a more resource efficient, greener and more competitive economy initiatives: resource efficient europe an industrial policy for the globalisation era fostering a highemployment economy delivering social and territorial cohesion economy initiatives: an agenda for new skills and jobs european platform against poverty 1 interact is a network, which, since 2003, provides practical support, training and advice to european territorial cooperation programmes on management techniques, financial issues, european regulations, communication, strategic orientation and policy development. it also offers a unique forum for european territorial cooperation stakeholders by supporting institutional and thematic networks on topics of common interest. interact supports managing authorities, joint technical secretariats, monitoring committees, national contact persons, first level controllers, certifying authorities and audit authorities etc. across europe. on 4 december 2007, the european commission approved interact ii for 2007-2013 and on 13 august 2015 interact iii for 2013-2020 a european territorial cooperation programme that covers the whole of the european union, plus norway and switzerland. e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 2 / 1 6 94 » cooperation of countries in a determined geographical area or region is essential in today’s world. with reference to the made analysis of scientific works and documents can be stated that macro-regional cooperation is a joint action of countries with similar interests and their individual contributions towards common political, economic and social as well as cultural and security goals. macro-region wherein is a platform for macro-regional cooperation and macro-regional strategy is a tool for its successful implementation. » one of examples of successful regional cooperation is the nordic-baltic region. cooperation of nordic and baltic countries went through many historical challenges. nevertheless, in the context of the eu crisis, the idea of cooperation in this region is stronger yet again. in the light of global and regional political instability it is crucial to keep the political dialogue, strengthen and develop cooperation between the countries in the region. therefore, the eu macro-regional strategy for the baltic sea region greatly contributes to the development and prosperity of nordic and baltic countries through their cooperation in the region. the main added value is achieved through connecting countries’ resources and strengths in order to reach stability, clear identity of the region and stronger voice in regional and global arena. figure 5 macroregional strategies as driving forces of changes – how do macro-regional strategies support programmes and projects? (spacial foresight 2017) smart growth developing an economy based on knowledge and innovation initiatives: innovation union youth on the move a digital agenda for europe sustainable growth inclusive growth promoting a more resource efficient, greener and more competitive economy initiatives: resource efficient europe an industrial policy for the globalisation era fostering a highemployment economy delivering social and territorial cohesion economy initiatives: an agenda for new skills and jobs european platform against poverty conclusions references basboga, k. 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(2015) macro-regional strategies of european integration. what can the danube region learn from the baltic sea region?, procedia social and behavioral sciences, volume 183, pages 1-10, issn 1877-0428, https://doi.org/10.1016/j. sbspro.2015.04.839 alex warleigh-lack (2015) differentiated integration in the european union: towards a comparative regionalism perspective, journal of european public policy, 22:6, 871-887, doi: https://doi.org/10.1080/13 501763.2015.1020837 about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/). jurgita barynienė dr. kaunas university of technology fields of interests regional cooperation, european integration address donelaičio st. 73, kaunas, lithuania +37067818579 jurgita.baryniene@ktu.lt živilė paužaitė kaunas university of technology fields of interests regional cooperation, european integration address k. petrausko st. 26, kaunas, lithuania +37061164349 zivile.pauzaite@kaunomtp.lt rasa daugėlienė assoc. prof. dr. kaunas university of technology fields of interests eu economic integration, eu internal market functioning, new public governance address kaunas university of technology faculty of social sciences, arts and humanities mickevičiaus 37 str., lt-44244 kaunas, lithuania rasa.daugeliene@ktu.lt orcid id 0000-0002-5232-7270 99 issn 1822–8402 european integration studies. 2014. no. 8 trade relations between lithuania and russia in context of integration processes leonas zitkus kaunas university of technology fakulty of social sciences, arts and humanities institute of europe mickevicius str. 37, kaunas, litnuania e-mail: leonas.zitkus@ktu.lt http://dx.doi.org/10.5755/j01.eis.0.8.6848 the aim of the paper is to analyze the influence of integration processes on the formation of current lithuanian-russian trade relations and, on the basis of the analysis, to formulate insights on their specific features. the first part of the paper deals with the nature of the eu common commercial policy by stating that within the integration group two categories of international economic relations are formed, i.e. internal and external. internal relations are based on the principles related to free trade, and external relations seek to protect internal market from the effect of third parties, bigger than allowed by wto, i.e. protectionism. in other words, the countries of integration group are opposed to third parties outside the boundaries of the group. the second part is focused on the fact that russia’s attitude to european integration processes of the last two decades is negative. that attitude is expressed by russia’s strategic choice, i.e. closer cooperation with some older eu states rather than with the whole organization. that condition, together with peculiarities of mutual economic exchanges, determines that major changes in the development of eurussian trade relations are not to be expected. the third part of the paper offers some insights on lithuanian – russian trade relations. based on the statistic figures and analysis of political documents, peculiar features of these relations are discussed, i.e. insufficient level of cooperation intensity, vulnerability of the relations and uncertainty of their perspective. keywords: trade relations, integration processes, commerce policy, bilateral agreements, tendencies. introduction during the last several years, a supranational integration structure ranking second largest economy in the world has been formed in the major part of europe. the power of the united european states as well as the policy of the majority of the world countries at the turn of the 20th and 21st centuries were focused on increasingly close economic cooperation acquiring various forms, i.e., from ordinary export/import operations to the formation of elaborate network structures. in that respect the eu exhibits abundant and intensive relations with third countries or their groups. eu external relations of different nature are a driving force for relations and processes, such as common economic growth, good neighbor policy, aid to developing countries or liberalization of international trade. in spite of different political and economic systems, the benefit received from those interrelations turns into the stimulus for strengthening and developing those relations including improvement of mutual trade relations. according to the european commission, international trade and eu common commercial policy contribute to the growth of influence of the group of those countries, and common mutual actions are supposed to support the eu interests in the third countries. the commission has provided a sufficiently extensive framework of third-party relations, so that eu companies benefit as much as possible from global market. the eu integration processes constantly change the nature of the union, however, in pursuing the cooperation policy the member states have to observe the principles of mutual solidarity, since it is only because of solidarity that europe can achieve the goal declared in international forums, i.e. it can become the main vehicle for goods, services and capital markets and free trade. it is rather difficult to define the lithuanian-russian federation economic relations within that context. moreover, these relations are paradoxical. on the one hand, the statistics of trade relations clearly show the trend of permanent growth. on the other hand, this growth proceeds in a very unfavorable political environment formed by three factors, i.e. painful and ambiguous historical experience, pro-western orientation and russian-western antagonism as well as the tendency of the politicians of both countries to use severe and forthright rhetoric (babičius, 2012, p.2). actually, the background of communication was not alleviated by russia’s wto accession. in analyzing lithuanian-russian economic relations it is easy to give them a biased evaluation. scientific objectivity requires employing economic interpretation. economic ties between countries cannot be explained or generalized by only using figures illustrating mutual trade. to that end, world or regional economic and political tendencies lying behind ideology and statistics should be employed. this paper addresses the problem how lithuanian russian trade is affected by european integration processes and russia’s attitude to them. the aim of the paper is to analyze the influence of integration processes on the formation of current lithuanianrussian trade relations and, on the basis of the analysis, to formulate insights on their specific features. the aim is pursued by addressing the following objectives: issn 1822–8402 european integration studies. 2014. no. 8 100 • revealing the nature of the eu common commercial policy and its role in third-party relations; • discussing the peculiarities of mutual eu – russian federation economic relations; • identifying features of economic relations determining their development trends. scientific originality and practical significance of the article: • the ‘internal’ origin and orientation of eu common trade policy; • core differences in attitudes hindering normalization of eu-russian economic relations; • insights into lithuanian-russian commercial relations are formulated. the research methods: the analysis of scientific literature and official documents, secondary statistical analysis and synthesis of information. common commercial policy as the basis for trade relations between eu and third countries the provisions of the eu common commercial policy laid down in the legal acts of the primary and secondary law are a legal framework of trade relations between member states and third parties. this policy is in operation on two planes. firstly, while operating within the world trade organization (wto), the union contributes to the build-up and consolidation of the world trade system principles. secondly, the eu concludes individual bilateral agreements, whereby the eu represents the interests of its member states in the relations with the third parties or their groups by establishing trade regulations. commercial policy is a specific form of the government’s interference into trade relations within the international markets. theoretically, two possible extreme cases of such interference are the following: • protectionism, i.e. the totality of factors, instruments, procedures, seeking to, firstly, protect the manufacturers of your country from foreign competitors and, secondly, to promote export of your country; • free trade formed and pursued under the conditions of supply and demand and fair competition. even though the provisions of eu common commercial policy are directed against protectionism, they fail to refer to the unconditionally free trade, since such approach may cause opposition from the governments of the interested countries based on the motives of general or economic security, morality or nature protection, etc. nevertheless, unlike in a not too distant past, presently the regulation of eu third-party trade is not based on quantitative or fiscal barriers. and the european union as a member of wto encourages rejection of restrictions of that type. currently international trade regulation measures making both transaction parties observe the rules of fair trade competition are stressed. common commercial policy is a tool to enhance the influence of the eu on the international level, and joint actions of the eu member states are meant to support the eu interests against the third parties (commission…, 2008). in spite of the clearly defined and outwardoriented field of common commercial policy, i.e. trade relations with nonmember states, the principles of that policy were formulated under the effect of integration processes within the european union. naturally, the origin of that policy lies not only in the statements of the primary or secondary legal acts of the eu, but also, even primarily, in the very conception of economic integration. the effect of integration in economics has been analyzed and the attempts to define it were being made for a long time: fr. perroux, w. ropke, r.aron, g. myrdal, ch. kindlaberger, a.marshal, j. tinbergen, r.f.sannwald, j.stohler, b.balassa (ladyga, 2001, p.20), outstanding economists of the past, took part in the discussion on the concept of integration. in their works the concept means very different things: it may be integration of the enterprise into a bigger concern, subjection of regional economy to seek the economic goals of the whole country and other actions related to integration. to define the developments in europe, the integration definitions by willem molle (2006, p.8) are used: economic integration is gradual elimination of borders between independent states resulting in integral economy of the states. during the process of integration a uniform structure like a uniform organism covering a group of countries is formed. such internal integrity determined by close economic relations is distinguished in the global economy; however, that distinguishing character does not imply breach of relations with the external world, but, rather, means transformation of management of these relations. two categories of international economic relations are formed in the integration group, i.e. internal and external. internal relations are based on free movement of goods, services, labor and capital (i.e. the principles contiguous to free trade), and external relations seek to protect the internal market from the effect of third parties which is bigger than allowed by wto rules (i.e. protectionism). in other words, the countries or integration group are opposed to third parties beyond the borders of the group. in this context one important feature is standing out. the said opposition is of a protective nature, i.e. this is how the protection of the group’s market from the competition of third parties occurs. this produces a question whether or not such group is legal in the light of the gatt/wto requirements. in answering this question, paragraphs 4 and 5 of article 24 (the general agreement on tariffs and trade, 1986, p. 41-42) are to be quoted: (a) with respect to a customs union, or an interim agreement leading to a formation of a customs union, the duties and other regulations of commerce imposed at the institution of any such union or interim agreement in respect of trade with contracting parties not parties to such union or agreement shall not on the whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the constituent the contracting parties recognize the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements. they also recognize that the purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories. accordingly, the provisions of this agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free-trade area; provided that: issn 1822–8402 european integration studies. 2014. no. 8 101 territories prior to the formation of such union or the adoption of such interim agreement, as the case may be; (b) with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free-trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the freetrade area, or interim agreement as the case may be; and (c) any interim agreement referred to in sub-paragraphs (a) and (b) shall include a plan and schedule for the formation of such a customs union or of such a free-trade area within a reasonable length of time. the above provisions of gatt mean that the existence of integration groups (not only of eu, but also nafta, mercosur, etc.) does not distort (at least, at the present stage) the operation of the world trade system. the only condition is that the measures applied to protect the internal market of the group from the operation of the third parties should not be stricter than those taken earlier. the integration group, however, shall not take into consideration and, in any way, compensate competitive advantage gained by its manufacturers over those of the third parties due to the socalled long-term consequences of integration, i.e. the growth of efficiency or scale effect. it is common knowledge that the ec integration level referred to as the customs union was reached in 1968. since then (more exactly, since 1 july 1968) the countries of the union were obliged to abandon their individual foreign trade policy and transfer their competences to the union, so that it should represent their interests in relations with the third parties. it is accepted that the ec third-party trade relations were finally settled until 1 january 1970, and those with the block of the former socialist countries until 1 january 1975 (zysk, gromala, 2013, p. 16). the basis for common commercial policy of the acquis communautaire is the treaty of rome (1957), articles 110-116, which later with minor amendments was transferred to more modern versions of the treaty. the treaty of rome and other that followed failed to define the concept of trade policy, however, in the preamble the signatories of the treaty declared the intention to gradually eliminate the obstacles for international trade. each institution tends to use its own interpretation of the concept of common commercial policy (table 1). the european commission uses instrumentalist interpretation, i.e., it regards all regulatory measures of the third-party trade as trade policy. the council of the eu has adopted the purposive approach according to which commercial policy covers all measures designed to affect the foreign trade flows. even the european court of justice failed to make a final decision on that issue. it legitimized the principle of extensive interpretation of common commercial policy, i.e., it declared that common commercial policy is the national foreign trade policy on the union’s level. the systemic-evolutionary interpretation, however, (also, legitimized by the european court of justice) stresses a close relation between the provisions of the common commercial policy defined in the treaties and the process of creation of the single market. the common commercial policy principles drawn up in the rome treaty have remained unchanged until the present days. in the maastricht treaty establishing the eu, only a few changes were made, while in the secondary legal documents the rules of using policy implementation tools were modified several times. the modifications were caused by two things: changes related to the establishment of the internal market of the union and the need to adapt to the requirements of gatt uruguay round. in the nice treaty (26.02.2001) some procedural changes in the international negotiations and signing of agreements, related to the division of competences between the union and the member states, were made. table 1. interpretations of the concept of common commercial policy approach concept instrumentalist common commercial policy is all regulatory measures of third-party trade. purposive common commercial policy is measures designed to regulate the volume and trends of foreign trade flows. principle of extensive interpretation common commercial policy is the equivalent of national foreign trade policy on the community level. systemicevolutionary common commercial policy is both the tool and the consequence of a single market of the european community. source: worked out by the author according to zysk, gromala, 2013, p. 17 in the present version1 of the eu treaty the fundamentals of common commercial policy are laid down in articles 206-207 making up a separate chapter as well as in article on general regulations of the treaty. the objects of the trade policy regulated by the main treaty are laid down in article 207, paragraph 1 (consolidated version …, p. c326/140): “the common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalization, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies. the common commercial policy shall be conducted in the context of the principles and objectives of the union’s external action.” the sources of scientific (zysk, gromala, 2013, p.19; gstohl, 2013, p.2) and informative nature (moussis, 2005, p.189) focus on one paradox: such significant area of cooperation of the eu with other states as trade is regulated but rather laconically by the primary legal acts. they stress that the common commercial policy is not sufficiently integral and efficient. that causes a number of problems, starting with some redundancy of specific provisions in the national and union’s legal acts (which leads to a smaller degree of transparency) and finishing with uncertainties in the case of conflicts between any of the eu states and third countries. peculiarities of eu – russia relations the shortcomings of the eu common commercial policy emerge in the course of building relations with ‘mighty’ 1 consolidate version of the treaty on the functioning of the european union, 26.10.2012 issn 1822–8402 european integration studies. 2014. no. 8 102 partners (usa, china and russia) who exhibit a sufficiently strong negotiating power and are able to impose their own interests, most often based on political, rather than economic motives. the eu commercial relations with russia are an evident proof of that statement. starting with the early 1990s, bilateral cooperation is regarded as one of the most important goals of foreign policy both of the eu and russia. nevertheless, that goal is not expressed precisely, and mutual cooperation priorities are not sufficiently highlighted, either. therefore, some duality in brussels’ position is felt: on the one hand, the changes in russia are supported and closer cooperation opportunities are sought, on the other hand, unwillingness to grant russia a major role in european integration processes is obvious (willa, 2010, p.27). that is motivated by the difficulties in foreseeing russian politics, insufficient speed and scope of democratic transformations, by russia’s intentions to retain the former sssr republics under its power and its negative attitude to the eu enlargement towards the east. bilateral relations are also aggravated by the fact that russia in its own way denies the existence of the eu and , as much as opportunities permit, maintains close relations only with some member states , mainly, with the old ones. russia is aware of the fact that the eu operational mechanism hinders implementation of its major national interests, such as access to the european markets and to financial or technological aid (legucka, 2007, p.145). therefore, it tries to exploit the need of the older eu countries to ensure permanent supply of natural resources and opportunities to sell high-tech products, including military ones. russia has chosen the strategy of closer cooperation with separate countries, rather than with the whole organization. the eu so far has not been able to resist russia’s position. currently as many as 18 member states of 27 have signed bilateral ‘strategic’ agreements with russia. the situation like this is most often the cause of differences between the actions of individual states and the eu institutions (judah, kobzova, popesku, 2011, p.53-58), which shows inefficiency of the eu policy in regard of russia. moreover, russia, by means of bilateral contacts, is able to influence brussels’ decisions. in that respect the european union still remains a group of sovereign states, which, the major ones in particular, in their relations with russia employ their national policies focused on cooperation and compromise (kanet, 2009, p. 14-15; larive, 2008, p.3). the attempts to change the present situation fail to produce desirable results. due to a limited scope of the paper we will present only one example of the latest eu initiatives, i.e. the political agreement ‘partnership for modernization’ of 2011 (barroso, 2011). that agreement was meant to promote the free market-based reforms in bilateral relations in the areas of investment, innovations, power engineering, harmonization of technical standards and norms, protection of intellectual property, transport, fight against corruption, civil dialogue, etc. despite good intentions the initiative failed to change the character of eu-russia cooperation. it is common knowledge that the decisive factor determining that situation is the structure of russian economy based on oil and gas export. currently as much as three quarters of russia’s gdp is generated in that sector and that accounts for three quarters of the whole export value. naturally, the country’s elite seeks to exploit the significance of huge natural resources for both domestic and foreign policy and is not interested in either the success of any initiative or even in closer relations between russia and the eu (cwiek-karpowitz, 2011). in the context of the present trade relations between lithuania and russia, the russian attitude to eu expansion eastwards is very important. that attitude developed until the year 2004 is the factor giving shape to the relations with the new eu member states. at the beginning the eu enlargement perspective was accepted rather favorably as an alternative to the nato expansion. there were expectations of the improvement of mutual relations including commercial relations. but the fear that the eu eastward development may bring about new division of europe, grew with time. the problems of territorial security, economy and trade exchange were identified as the main ones (heinz, 2007, p.5). russia’s export to central and east european countries, which were to become members of the eu, accounted for a significant part of total export and grew from 11.8% in the mid-1990s to 17.4 in 2000 (zysk, gromala, 2013, p.121). the greatest fear was that after the accession of central and east european countries to the european union, the conditions of supplying energy commodities might change, other restrictions on export might be introduced and the transit costs might grow. the outcome of these developments could have caused the fall in export volume and diversification, which inevitably might have resulted in a harmful effect on russian economy. russia identified the fears in a number of documents where it expressed a negative attitude to the eu enlargement. the first of the documents was the list of 15 problematic areas (in russia’s opinion) submitted to the european commission on 25 august 1999, including those related to trade: duty rates, transit, commercial preferences and application of norms and certificates. in reply the european commission stressed that the aim of the eu expansion to the east does not mean russia’s commercial or economic isolation, but, rather, a step towards improvement of mutual relations. the commission highlighted the unification of the trade rules with ten new member states, elimination of quantitative restrictions on goods and reduction of duty rates for manufactured goods from russia. the second document of that kind was on russia’s attitude to economic and trade consequences of the eu enlargement. it stressed potential difficulties caused by the obligations of both partners to apply common norms and standards for the products as well as by transitional periods. the consensus between russia and the new member states on the effects of the changed conditions of trade was not reached. the eu experts predicted that due to the reduction of duty rates from 9% to 4% russia was going to ‘earn’ up to 300 million euros annually. in russia’s opinion, however, its annual loss will be 150 million euros (zysk, gromala, 2013, p. 122). on that account russia threatened that in case its opinion was neglected, it would oppose the application of the provisions of partnership and cooperation agreement (pca)2 signed on 22 january 2004 to the new eu member states. 2 pca is a wide – scope legal document consisting of a preamble, 112 articles, ten supplements, two protocols, and several unilateral and bilateral declarations. that agreement was drawn up for the period of ten years, and after the expiry of the period it shall be automatically extended for a year on condition that no party opposes it. due to disagreements on energy and polish meat import restrictions the extension of the agreement was terminated and since that time the provisions of the original version of the agreement have been in effect. issn 1822–8402 european integration studies. 2014. no. 8 103 until the moment of accession of ten central and east european countries to the eu, russia’s negative position on the effect of eu enlargement got softer. despite that, on 22 january 2004, russia submitted the list of debatable problems to brussels (the so-called ‘fourteen postulates’), the solution of which russia associated with its approval of the enlargement process. the eu council demolished the list and demanded to automatically extend the effect of pca provisions on the ten new member states. otherwise, the eu threatened to apply economic sanctions. at last on 27 april 2004 the protocol on the extension of the effect of pca as well as common statement on eu enlargement and its relations with russian federation was signed in luxemburg. as a natural continuation of that process, bilateral agreement on mutual accessibility of goods and services was signed in may 2004. it is only natural that the agreements effected in the atmosphere of mutual distrust, expostulations and even threats cannot be constructive in terms of the expected results. presently economic relations between europe and russia are neither simple nor harmonious. despite that, both parties need one another. russia (after the usa and china) is the third largest eu trade partner complying with the strategic partnership criteria (renard, 2010, p.4). compared to the other two major partners, cooperation between russia and eu has several specific features. firstly, bilateral meetings of russia and eu take place twice a year, and, secondly, russia is the only strategic partner with the common border with the eu. these circumstances undoubtedly contribute to the maintenance of a fragile balance of bilateral relations (barysch, coker, jesien, 2011, p.48). mutual economic dependence of eu and russia is best illustrated by statistic figures of goods, services and capital exchange. their dynamics is represented in tables 2, 3 and 4. table 5. eu – russia mutual trade structure in 2012 according to sitc goods classification se ct io n label im po rt s, % e xp or ts , % s0 food and live animals 0.6 6.7 s1 beverages and tobacco 0.0 1.3 s2 crude materials, inedible 1.9 1.4 s3 mineral fuels and related materials 76.3 1.1 s4 animal and vegetable, oil, fats 0.2 0.4 s5 chemicals and related materials 3.0 15.8 s6 manufactured goods 6.4 10.3 s7 machinery and transport goods 0.9 49.6 s8 miscellaneous manufactured art. 0.2 11.9 s9 commodities and transactions 2.8 0.8 source: worked out by the author according to commission of the …, 2013. table 2. eu27 international trade in goods with russia (billion euro) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 russia exports 22.7 31.6 34.4 37.2 46.0 56.6 72.3 89.1 104.8 65.6 86.1 108.4 123.3 imports 63.8 65.9 64.5 70.7 84.0 112.6 141.0 145.0 178.3 118.0 160.7 199.9 213.2 balance -41.0 -34.3 -30.1 -33.5 -37.9 -56.0 -68.7 -55.9 -73.5 -52.4 -74.6 -91.6 -90.0 total extra-eu27 exports 849.7 884.7 891.9 869.2 953.0 1057.6 1161.9 1242.9 1317.5 1099.2 1356.6 1559.3 1686.8 imports 992.7 979.1 937.0 935.2 1027.5 1183.2 1363.9 1445.0 1582.9 1233.1 1530.5 1724.2 1791.7 balance -143.0 -94.4 -45.1 -66.0 -74.6 -125.6 -202.0 -202.1 -265.4 -133.9 -173.9 -164.9 -105.0 russia/total exports 2.7% 3.6% 3.9% 4.3% 4.8% 5.4% 6.2% 7.2% 8.0% 6.0% 6.3% 6.9% 7.3% imports 6.4% 6.7% 6.9% 7.6% 8.2% 9.5% 10.3% 10.0% 11.3% 9.6% 10.5% 11.6% 11.9% source: record levels…2013. table 3. international trade in services between eu and russia 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 import 4.63 4.88 4.37 5.76 7.98 9.77 10.71 11.67 14.04 11.36 14.09 13.64 export 3.77 5.44 4.9 7.76 9.23 12.4 14.84 18.75 21.63 18.68 23.2 25.4 saldo -0.86 0.56 0.53 2 1.25 2.63 4.13 7.08 7.59 7.32 9.11 11.76 source: eurostat, (2013-12-07) www.epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database table 4. u and usa investments in russia 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 eu 27 20.643 32.89 50.541 72.351 89.101 96.484 119.99 124.203 eu 25 10.693 10.22 14.786 20.637 32.88 50.442 72.246 89.085 96.466 119.97 124.002 eu 15 7.32 10.562 10.07 14.597 20.175 32.01 49.298 70.527 82.691 79.345 101.43 114.362 usa 1.233 1.002 1.082 1.988 2.834 7.258 8.634 10.209 14.211 13.845 7.394 7.868 source: eurostat, (2013-12-07) www.appsso.eurostat.ec.europa.eu/nui/submitviewtableaction.do issn 1822–8402 european integration studies. 2014. no. 8 104 maintenance of stable political and economic relations with russia is the basis of european policy. at the same time it is a guarantor of stability in the region (commission of the …,). it is to be noted that the nature of these relations depended on and is going to depend on two very pragmatic conditions clearly seen in the presented statistics: 1. europe is highly dependent on energy resources as well as on the import of mineral resources from russia. russia benefits from that situation, because it can make use of that condition in building bilateral relations. in addition, it is a permanent source of huge income: currently russia’s export to eu countries accounts for one third of extracted oil and one fourth of gas, which results in 163 billion euros of revenue. that accounts for 75% of all import from eu. 2. eu is the main capital supplier to russia, that being a counterbalance to russia’s ‘energy arguments’. in addition, the eu manufacturers almost fully meet the demand of the russian market in such group of goods, as machines and transport facilities, chemicals, food products, etc. the value of manufactured goods from eu to russia in 2012 accounted for 90 billion euros, and that was nearly 85% of all export to that country. the asymmetric balance of eu-russian relations is evidently advantageous to both parties; therefore, positive transformations in bilateral relations can hardly be expected, at least in the near future. commercial relations between lithuania as well as other countries of former sssr and russia are further going to remain in so-called ‘grey area’, i.e. they are not going to be substantially protected from possible russia’s one-sided actions. insights into the trade relations between lithuania and russia the facts of the previous parts of the paper lead to a certain context within which lithuanian-russian trade relations have been developing. the essential features of that context are the following: 1. lithuania, as a member of the eu, is to follow the provisions of the common commercial policy. that policy, however, oriented around the defense of the interests of the eu, as of the integration group (in a broader sense), in its relations with third parties, proves inefficient in case of violation of interests of one or several individual countries. 2. russia tends to openly employ machiavellian principle of building relations with eu countries, i.e. divide and conquer. by exploiting europe’s strong dependence on russian energy resources, russia pursues different trade policy (in terms of the instruments applied) with old european countries and the new members. that context forms special features of lithuanian – russian cooperation, i.e., low intensity of trade exchange, fragility of cooperation and uncertainty about further change in these areas. low intensity of trade exchange. lithuanian –russian trade relations can be characterized by a great asymmetry. in the year 2012 russia was the first on the list of the lithuanian export and import markets. lithuania, however, was the 64th among the russian goods importers (q.v. http://www. indexmundi.com/g/r.aspx?c=rs&v=85). that is only natural taking into consideration the difference in the size of economy of the two countries. also, it is common knowledge that the intensity of trade turnover is insufficient, especially, taking into account the geographical situation of both countries and the role that in lithuanian strategic plans was and still is ascribed to russia (adamkus, 2002). the fact that in terms of export from that country, lithuania is left behind by such distant countries as new zealand (61st), peru (58th), puerto rico (54th) or qatar (36th place), seems rather strange. it can be stated that lithuanian – russian commercial relations have been focused on meeting the most imperative needs. the cooperation potential is far bigger, however, used insufficiently. in that respect the relations with russia’s other neighboring countries are much better. table 6 represents comparison of three countries in terms of lithuania’s export ‘contribution’ to the gdp of those countries. it is evident that under such conditions lithuania’s export to belarus and ukraine is relatively bigger than that to russia. table 6. the ratio of lithuanian export and gdp of russia, ukraine and belarus (in 2012), % russia ukraine belarus export from lithuania / gdp 0.29 1.95 0.86 source: worked out by the author according to eurostat data. vulnerability of lithuanian – russian cooperation. the facts and common statistical data of trade exhibit not only the asymmetry in economic relations, but also the need for such relations. in terms of both import from and export to russia, that country is lithuania’s main trading partner, which is not true to lithuania’s importance to russia. in that context the problem of vulnerability of cooperation between both countries is very important. vulnerability can be expressed by the comparative weight of export and import of different product groups in the total trade volume3: • import of energy resources (oil, gas, electricity, petrol and diesel fuel) from russia accounts for nearly 85% of all lithuanian import. out of these, oil and gas are almost entirely imported from russia. russia’s export of these resources to lithuania, however, accounts for only 0.05% of the total russian export; • in 2013, one-third of lithuanian export of milk and milk products went to russia (cf., in 2004 only 18.9% of export of these products were channeled to russia). in the russian market, however, (mostly in big cities) it accounted for only 1% of all products turnover; • russia is an important market for other lithuanian goods: rail or tram locomotives and rolling stock (72.9% of export of these goods), rubber and its products (31%), carpets (30%), soap and washing agents (25%), non-alcoholic drinks (23%), meat and its products (22%). even though the export weight of these goods in the russian market is much lower than that of milk and milk products, their inclusion into the ‘black list’ may cause significant economic and social problems. the data presented lead to the assumption that any 3 data of statistics department of lithuania and eurostat had been used to compare. issn 1822–8402 european integration studies. 2014. no. 8 105 interference in trade relations turns painful to lithuania, that being of little significance to russia. besides, any trade restrictions affect one another area of economic activity, i.e. transportation, automobiles in particular. the situation is aggravated by the fact that reexport to russia accounts for as much as 77% of all export to russia. russia can at any time find other mediators or start direct import of goods. it is to be noted that vulnerability is characteristic not only of lithuanian-russian relations, but also of other post-soviet countries with russia. table 7 identifies the main ‘economic wars’ between russia and its nearest neighbors. the fact that most conflicts are related to food products, is explained as violation of sanitary or epidemiologic rules, which takes much time and effort to correct or deny. table 7. trade conflicts between russia and middle and east european countries country year conflict content estonia may 2007 boycott of estonian goods latvia october 2006 boycott of latvian sprat (losses of approx. 10 million usd) lithuania 2009 embargo of lithuanian milk products september 2013 enhanced checks of lithuanian carriers (losses approx. 2 million litas per day) october 2013 embargo of lithuanian milk products (conflict still continues) poland november 2005 embargo of polish meat (losses approx. 800 million euro) ukraine february 2012 prohibition to import ukrainian cheese september 2012 prohibition to import ukrainian milk products august 2013 prohibition to import most ukrainian food products moldavia march 2006 embargo of moldavian vine (losses from 60 to 100 million usd) september 2013 renewal of moldavian vine embargo source: worked out by the author. uncertainty of lithuanian – russian commercial perspectives. the current lithuanian foreign policy regarding russia (or, more exactly, the absence of such policy) eliminates hopes that the nature of economic relations may change due to some mutual actions. most probably, the relations will further remain as the fluxion of conditions referred to at the beginning of the paper. the validity of that assumption is illustrated by the dialogue between the eu and russia on the so-called pca2, i.e. the updated version of the partnership and cooperation agreement. the first version of the agreement (signed in 1994 and effective in 1997) has been the document regulating economic relations of the eu and russian federation for 17 years. the first motif for that agreement was consolidation of bilateral relations between eu and russia. the document provided for intensifying political cooperation aimed at the desired unanimous position on international issues. the document reflected optimism with regard to russia’s future. there were hopes that russia would follow the example of other central and east european countries and take the path of liberalization of economy, politics and society as well as of absolute civil freedom. as mentioned in the second part of this paper, presently bilateral relations are temporarily regulated by pca-1 based on mutual agreement. a new version of that agreement is being negotiated. the dialogue on pca-2 was launched at the eu and russian federation summit meeting in chanty mansijsk in june 2008 (joint statement …, 2008). the first round of the negotiations took place in july the same year. even though the current round of the eu-russia economic cooperation satisfies both sides, the problems arise systemically, which seriously aggravates the negotiation process. that is not at risk of termination, but still it hinders acceleration of the process (szkop, 2012, p.52). both parties have different visions of the new agreement. russia expects to gain more influential reputation in relations with the european partners. the agreement is supposed to reinforce strategic partnership and, simultaneously, parity in mutual relations. the very document, in russia’s opinion, should be of general nature without providing any specific obligations. the eu, however, in the negotiations on pca-2 seeks to guarantee security of its interests by specific agreements on trade, investments and energy. in russia’s estimation, that could impose excessive obligations, which can lead to stricter regulations of the present relations. in addition, russia substantiates its approach to pca-2 by participation in the world trade organization (wto). the country is not interested in signing the new agreement, because it regards its obligations in the framework of the wto as the main priority. the terms of involvement in that organization are supposed to be a solid guarantee for the eu to ensure stability and predictability of trade relations. presently, it is evident that russia’s accession to the wto was not the impetus to stimulate addressing the problems, as, for example, those of the risk of one-sided trade restrictions. conclusions 1. the eu common commercial policy is characterized by the feature of duality. its provisions are directed against protectionism; however, they do not give priority to absolutely free trade. in spite of the clearly defined area of the eu free trade policy, i.e. trade relations with non-members of the eu, the main principles of trade were formed as the consequence of integration processes developed and still being developed inside the european union; therefore, the origin of that policy lies not only in the statements of the eu primary and secondary legal acts, but also (likely, in the first place) in the very conception of economic integration. it is very likely that the integration group is well aware of the provisions of common commercial policy, but there is a lot of skepticism and criticism outside. the lack of unity and inadequate efficiency of that policy are exhibited in the relations with the third parties. that causes a lot of problems starting with dubbing of some provisions in the national and community legal acts (which leads to the lack of transparency) and finishing with uncertainties due to possible conflicts between eu member states and the third parties. 2. the current trade relations between eu and russian federation theoretically substantiated by common trade policy provisions, are practically formed by a number of conditions related to eu integration processes: issn 1822–8402 european integration studies. 2014. no. 8 106 • russia’s negative attitude to the involvement of central and eastern european countries in the integration processes; • russia’s denial of the existence of eu and the strategy of closer bilateral cooperation with individual eu member states rather than with the whole organization; • inability of the eu to resist russia’s behavior and duality of brussels’ position, i.e. willingness to establish closer contacts and evasion from granting russia a bigger role in the european integration processes. on the other hand, economic results of mutual relations show that both sides need each other. mutual political disability to normalize trade relations and economic necessity to maintain them determine rather fragile, but acceptable to both sides equilibrium of relations; therefore, improvement of relations between eu and russia is not to be expected at the moment. 3. the context of trade relations between eu and russia suggests that trade relations between lithuania, as well as between other former soviet states, and russia will remain in a so-called ‘grey zone’, i.e. they are not going to be protected from possible russia’s unilateral actions. the present lithuanian policy (or, more exactly, its absence) regarding russia does not show any signs of improvement or change in economic relations caused by some bilateral actions. lithuanian –russian relations are further going to be characterized by such peculiarities as low intensity and vulnerability due to considerable difficulties in renewing partnership and cooperation agreement (pca) between eu and russia. references adamkus, valdas. 2002. “lietuva integruotame pasaulyje”. speech presented at the royal institute of international affairs, london, march 27. lietuvos užsienio politika 2002. vilnius: vilniaus universitetas. babičius, dmitrijus. 2012. “lietuva ir rusija – tarp ekonomikos ir politikos”. accessed february 17, 2014. http://www.bavi.lt/lietuva-ir-rusija-tarp-ekonomikos-irpolitikos/. barroso, jose m. 2011. “bringing eu – russian relations to a new level”. baltic rim economies 5: 211. accessed february 17, 2014. http://www.utu.fi/fi/yksikot/tse/ yksikot/pei/raportit-ja-tietopaketit/documents/bre%20 2011%20.pdf barysch, katinka, christopher cocer and leszek jesien. 2011. eu – russia relations. time for a realistic turnaround. brussels: centre for european studies. commission of the european communities. 2008. trade and investment barriers report – tibr. commission of the european communities. 2011. “eu – russia: towards closer ties”. meeting between commission and russian government, february 25. accessed february 21, 2014. http://ec.europa.eu/new/ external_relations/110225_1_en.htm . commission of the european communities, dg for trade. 2013. “european union, trade in goods with russia. accessed december 7, 2013. http://trade.ec.europa.eu/ doclib/docs/2006/september/tradocs_113440.pdf . consolidated versions of the treaty on the functioning of the european union and charter of fundamental rights of the european union. accessed december 17, 2013. http://register.consilium.europa.eu/doc/srv?l=en&t=p df&gc=true&sc=false&f=st%206655%202008%20 rev%207 . cwiek – karpowicz, jaroslaw. 2011. “eu – russia relations one year after the partnership for modernization”. bulletin 61/278, june 7. accessed february 21, 2014. http://www.isn.ethz.ch/isn/digital-library/ publications/detail/?ots591=cab359a3-9328-19cc-a1d28023e646b22c&lng=en&id=130741 . heinz, dominic. 2007. “a review of eu – russian relations. added value or structurally deficient?”. zei discussion paper 46: 3-9. judan, ben, jana kobzova, and nicu popescu. 2011. dealing with a post – bric russia. ecfr report. london: european council on foreign ralations. accessed february 1, 2014. http://ecfr.eu/page/-/ecfr44_postbric_russia.pdf . kanet, rodger e. 2009. “russia and the european union: the u.s. impact on the relationship”. jean monnet/ robert schuman paper series 2: 3-18. ladyka, stanislaw. 2001. z teorii integracji gospodarczej. warszawa: szkola glowna handlowa. larive, maxime .2008. “between perceptions and threats – the fraught eu – russia relationship”. euma papers 5: 3. legucka, agnieszka. 2007. “rosyjska wizja unii europejskiej”. bezpieczenstwo narodowe 3-4: 145. moussis, nicholas. 2005. guide to european policies. european study service, rixenstar. record levels for trade in goods between eu27 and russia in 2012. eurostat: newsrelease 83, june 3. accessed december 7, 2014. file:///c:/documents%20and%20 settings/userxp/my%20documents/downloads/stat13-83_en.pdf . renard, thomas. 2010. “strategy wanted: the european union and strategic partnerships”. security policy brief 13: 4. szkop, ewa. 2012. gospodarka w relacjach unia europejska – federacja rosyjska. warszawa: universytet warszawski. the general agreement on tariffs and trade. 1986. geneva. accessed february 6, 2014. http://www.wto.org/english/ does_e/legal_e/gatt47_e.pdf. willa, rafal. 2010. “stosunki unii europejskiej z federacja rosyjska – stan obecny, perspektywy”. in studia i analizy europejskie – polrocznik naukowy 6/2010, edited by karolina marchlewska, 27-4 zysk, wojciech, and paulina gromala. 2013. stosunki handlowe unii europejskiej z panstwami trecimi na przykladzie usa, chin i rosji. warszawa: cedewu. the article has been reviewed. received in april, 2014; accepted in june, 2014. 107 issn 1822–8402 european integration studies. 2014. no. 8 solution of urgent intensification problems in dairying of the regions of latvia rosita zvirgzdiņa turiba university, latvia graudu iela 68, riga, latvia, lv-1058 e-mail: rosita@turiba.lv elga tilta institute of economics of latvian academy of science academijas laukums 1, riga, latvia, lv-1050 e-mail: elgatilta@inbox.lv madara zosule turiba university, latvia graudu iela 68, riga, latvia, lv-1058 e-mail: madaraz@turiba.lv http://dx.doi.org/10.5755/j01.eis.0.8.6829 in latvian rural regions, the dairying, being a widespread kind of economic activities and the most significant source of income of the rural household, determines that to social economic, technological and ecological aspects of this kind of production there must be paid a constant attention also by the scientists, in line with the professionals, entrepreneurs and politicians. the paper contains long term research results on the topicalities of intensifying of dairying in latvia in the context of comparatively high proportion of dairying in the economy of the country, the growing necessity of carrying out of different intensification undertakings in dairy-farming, the activities of dairy farms and their diverse competitiveness in latvian rural regions. the aim of the paper is to take a closer look at urgent intensification developments and processes in the dairying of latvian rural regions. the analysis of differences in intensity of milk yield in latvian regions, on the basis of comparing them with corresponding indices in other countries of the eu, working under similar agro-climatic and economic conditions, showed that the results of undertakings of intensification were influenced negatively by the recession. the research provided the possibility to to find out the common and distinctive factors, influencing the intensification arrangements carried out by the dairies, taking into account the advantages and rapid changes in the rural regions. on the basis of the complex of factors related to intensification of production processes in dairy farms, there was possible to elaborate a functional model that may be adapted to certain peculiarities of the rural regions of latvia. the paper, as examples, includes such kind of the functional model of zemgale region. keywords: intensification, dairying, regions, milk yield, productivity. introduction the dairying is a widespread kind of economic activity in latvian rural regions and the most important source of income of the rural households of the country. it is an agricultural area with ancient traditions that has, in length of time, experienced essential changes under the impact of numerous factors, but has never lost its relevance in the economy of latvia, and has been able to overcome difficulties and to gain success (lza ekonomikas institūta gada grāmata, 2007). to the amount of the added value, the dairying contributes more than 20 percent. its products provide with employment more than 4 thousand economic active inhabitants of the cities (latvijas statistikas gadagrāmata, 2011). directly and indirectly, the dairying facilitates the increase of the gdp and the improvement of the foreign trade balance. the dairying of latvia is an area that has never been afraid to face different challenges, inter alia, also the intensification of production, being closely related to the globalisation. it is evidenced by the fact that, irrespective of the limitations of milk production, defined by the eu and the government of latvia, many dairies put into practice intensification undertakings targeted to increase the milk yield under conditions of restricted resources, as well as to keep the achieved production level, using technologies, being more adequate to intensive economy. they succeeded because of the ability to adapt, flexibly, to the changing environment of entrepreneurship in rural areas and to social economic upsets created by financial crises and other challenges of a global nature (sproģis a., … 2007). issn 1822–8402 european integration studies. 2014. no. 8 108 as a new challenge, there is, in the framework of the common agriculture policy, the abolition of the milk quotas in the 2015 that provides new opportunities for intensification of dairying activities and the combination of disposable resources of dairy farms with the opportunities created by the eu and the government of latvia (council regulation…, 2008). it means that, also in the future, the attention of scientists, politicians, professional and potential entrepreneurs of the rural entrepreneurship may be paid to different social economic, technological and ecological aspects (dūklavs j., 2008). an important condition in intensification of dairying processes is related to the regional aspect. although the dairies are, in latvian rural regions, located comparably regularly, their competitiveness differs because the achieved intensification level in dairying varies from region to region, and every region possesses its specific advantages of natural competitiveness and possesses its characteristic intensification opportunities (blakely e., 1994). the intensification activities are oriented to the end result and may be revealed by the level of the use of production resources. in the dairying, to indispensable and principal resources there belongs the herd of dairy cows. the paper considers some topicalities related to the intensification of the productivity of dairy cows, taking into account the regional specifics. the aim of the paper is to take a closer look at intensification processes in the in the dairying of latvian rural regions. to achieve the aim, the following tasks were fulfilled: 1) to describe the intensification in dairying; 2) to analyse some comparable aspects of intensification; 3) to evaluate the functional model of a region. the following methods were used: monograph, synthesis and analysis, statistical analysis and others. key words: intensification, dairying, regions, milk yield, productivity. results and discussions the research was based on the assumption that the intensification of dairying processes means the increase in amount of milk produced by dairy farms, facilitating constantly the quantitative and qualitative adequacy of the used resources to the target of the production. according to the productivity of different kinds of resources, in such areas as the improvement of the use of agricultural land, and the increase of the profitability in dairying, more and more important become the intensification undertakings, elaborated reasonably, implemented skilfully and aimed to increase the productivity of dairy cows, taking into consideration that the intensification arrangements of the use of land are related closely to the increase of the intensity in dairy farming. generally, the intensity in dairy farming has, in latvian regions, increased, but remained still different and backward in comparison with the results achieved in other countries of the eu. the differences of the intensity in dairying of latvian regions may be described by the milk yield (table 1). the changes in the intensity of productivity of dairy cows, having taken place in rural regions, may be recognized as positive. the higher level of productivity is achieved in zemgale region, in which the intensity in dairy farming has increased from 4.11 to in 2004 to 5.83 t in 2013 or by 34.6 percent. however, the highest milk yield per cow, 5.96 t in the 2013, was achieved by dairy farms of pierīga region. the productivity of the cows in this region has increased by 27.18 percent that turns out to be the second best result among the rural regions of latvia. the lowest intensity level has taken place in latgale region, in which the average of the milk yield per cow made, in the end of the period, 4.34 t. it means that the dairy farms of latgale region are backward, by 1.01 t or 24.3 percent, from the average intensity of the country. simultaneously with quantitative changes in the productivity of the cows, it is important to have a look at the qualitative side of the intensification process, characterized by the qualitative indices of the productivity intensity of the cows (table 2). the highest relative intensity increase in dairy farming has taken place in zemgale region, in 2005 – by 11 percent. in the period of a rapid economic growth, the highest increase was achieved by kurzeme region, where, in 2008, the milk yield of dairy cows increased by 10 percent. it turns out that, under conditions of the recession, the intensity in dairy farming has, in some regions, increased. in the first year of the recession, the highest relative increase, among the rural regions, has taken place in the kurzeme region – 6.7 percent. in other regions, the productivity of dairy cows increased in the interval from 1.1 percent to 3.9 percent, except the zemgale region, in which the milk yield decreased by 2.4 percent. the highest level of horizontal fluctuations has taken place in pierīga region, in which the difference between the maximal and minimal increase of the productivity of the cows table 1. quantitative changes in intensity of dairy farming in latvian rural regions regions changes in the productivity of cows (kg/sg) 13./04. %2004 2006 2008 2010 2012 2013* pierīgas 4 689 4 881 5 879 6 061 5 953 5 961 27,1 vidzemes 4 357 4 756 5 062 5 386 5 423 5 500 26,2 kurzemes 4 274 4 398 5 054 5 255 5 693 5 754 34,6 zemgales 4 109 4 646 5 431 5 197 5 609 5 829 41,9 latgales 3 892 3 899 3 668 3 972 4 262 4 342 11,6 in rural regions 4 223 4 469 4 903 5 085 5 310 5 399 27,8 deciphering of abbreviations included in the table: *prognosis data, sg – dairy cows source: elaborated by the authors on the basis of the data of the csb of the republic of latvia. issn 1822–8402 european integration studies. 2014. no. 8 109 makes 21.4 percentage points. comparatively high amplitude of fluctuations may be observed also in latgale and zemgale regions – 15.1 and 13.4 units, respectively. however, the most stable level of the productivity has been kept in vidzeme region, in which the amplitude of fluctuations has not exceeded 7.3 percent. vertical fluctuations of relative changes in the productivity of the cows indicate to differences of the changes in productivity among the regions. the highest amplitude of fluctuations took place in the 2005 – 12.6 percentage points, the lowest in the 2013, when the difference between the highest and the lowest productivity increase made 3.8 units. comparatively high amplitudes of horizontal and vertical fluctuations indicate to essential differences in intensification undertakings related to the activity of dairying, and to the efficiency of these undertakings in the rural regions. and there must be taken into account the sharp changes in the increase in demand and supply of dairying products in the period of a rapid growth of the economy, and the aftercrisis period of the recession, followed by the fluctuations, in vast amplitude, in the purchase prices of milk and household income. it has made a negative impact on the amount of disposable return of the dairies, and on the amount of means to be separated for intensification of the activities of the dairies. the nature and the tendencies of increase in the growth of the intensity of dairy farming may be characterized, in more clearer and precise way, with the help of graphic models of respective time-series (figures 1 and 2). as it is shown by the figure 1, the nature of the productivity of dairy cows in vidzeme region differs essentially from the nature of changes in the similar index of pierīga and zemgale region. the dairies of vidzeme region have comparatively stable intensity increase in the dairy farming, in which the implications of the period of the rapid growth and the following recession period are insignificant. and it may be explained by the fact that this region has the lowest horizontal amplitude of fluctuations, making less than 7.3 percent. to the stability of increase in the productivity of dairy cows in this region, there indicates also the trend function: y = 131.66x + 4317.2 with r2 = 0.9339 (1) the comparatively high value of the regression coefficient r2 = 0.9339 indicates to a close relationship between the trend function and the changes in the productivity of dairy cows. it table 2. dairying intensity of dairy farms in rural regions regions intensity changes of the amount of produced milk in time intervals % hsa 2005. 2007. 2009. 2011. 2012. 2013.* pierīgas 7,3 1,7 2,4 -0,6 -1,2 0,1 21,4 vidzemes 2,4 2,2 3,9 -0,8 1,5 1,4 7,3 kurzemes 3,3 9,9 6,7 0,3 8,1 1,1 12,5 zemgales 11,0 8,7 -2,4 5,5 2,3 3,9 13,4 latgales -1,7 2,2 1,1 2,1 5,1 1,9 15,1 in rural regions 3,6 4,4 2,5 1,3 3,1 1,7 3,9 vsa 12,6 8,2 9,1 6,3 9,2 3,8 x deciphering of abbreviations included in the table: *prognosis data hsa – amplitude of horizontal fluctuations; vsa – amplitude of vertical fluctuations source: elaborated by the authors on the basis of the data of the csb of the republic of latvia. figure 1. dynamics and tendencies of the intensity in dairying of the pierīga, zemgale and vidzeme regions deciphering of the abbreviation included in the figure: sg – dairy cows source: elaborated by the authors on the basis of the data of the csb of the republic of latvia. issn 1822–8402 european integration studies. 2014. no. 8 110 means that the trend function may be used to prognosticate the efficiency of intensification of activities of the dairies in the vidzeme, related to the increase of the productivity of the herd, for a middle-term period. considerable features of instability in the intensity of dairy farming take place in pierīga region. in the 2006, being a favourable year to economic development, this region is characterised by a decrease in the productivity of dairy cows, notwithstanding that in vidzeme and zemgale regions, the milk yield per cow, during this period, increases. in the 2008, the intensity in dairy farming experienced a rapid increase in pierīga region, making nearly 1000 kg and resulting in 5870 kg per cow. such increase in milk yield cannot be explained only with physiological qualities of the cows. it may, possibly, be related to statistical and accounting specifics. the intensity of dairy farming in zemgale region is characterized by the following trend function: y = 165.63x + 4210.4 with r2 = 0.8787 (2) the inner and outer factors, influencing the activity of dairy farms of zemgale region have not created such sharp changes in the productivity of dairy cows as it has taken place in the dairies of the pierīga region. therefore, it may be said that the trend function (2) characterises the changes in zemgale region in a sufficiently high level. the comparatively high value of the regression coefficient r2 = 0.8787 evidences that the dairies, in this region, are acting consequently in an area, using intensification measures to increase the productivity of the herd of dairy cows, and that the productivity of the cows in zemgale region has approached to the highest level, achieved by the pierīga region, and is dropping back from it only by 132 kg or 2.2 percent, although, in the beginning of the period, the backwardness made 580 kg or 12.4 percent. the relatively high intensity level in dairy farming of pierīga, zemgale and vidzeme regions indicates clearly to a necessity of a new innovative approach, related to a further increase of the productivity of dairy cows, to diminish the differences in the average level in comparison with the eu27 and to approach to the productivity level achieved by the eu-15, elaborating and using appropriate intensification arrangements for a further increase of the productivity of dairy cows. the graphic models of time-series of the productivity of the dairy cows related to latgale and kurzeme regions (figure 2) show that the nature of the increase in intensity of the dairy farming in the latgale region, is, expressively more instable in comparison with the changes in respective processes of kurzeme and other rural regions. it may be created by inaccessibility of the necessary resources used in the intensification processes, as well as by the efficiency of intensification. the productivity of dairy cows in latgale region is reflected by the trend function: y = 47.812x + 3698.1 with r2 = 4464 (3) the productivity of dairy cows in latgale region is characterized by periodic fluctuations in its changes. therefore the linear trend function shows a weak adequacy to the changes in respective processes. this instability in such a vast territory as a whole region is, undoubtedly, related to the reaction of the dairies to the instability of the environment of economic activity. the nature of changes in the productivity of dairy cows in kurzeme region, resulting from intensification undertakings of the dairies, is shown by the following function: y = 171.087x + 4092.1 with r2 = 0.9314 (4) in this region the nature of increase of intensity and the trend function of the dairy farming show a comparatively high adequacy and stability in the changes of the process. it means that the environment of economic activity in this region has been favourable to implementation of intensification undertakings into dairy farming and the introduced undertakings have been sufficiently effective to achieve the aims of the activity of dairies. figure 2. dynamics and tendencies of the intensity in dairying of latgale and kurzeme regions source: elaborated by the authors on the basis of the data of the csb of the republic of latvia. issn 1822–8402 european integration studies. 2014. no. 8 111 as the most important means of production, the disposable dairy cows determine the specialisation of economic activity. therefore, it is understandable, why the intensification undertakings implemented by the dairies are oriented, generally, to the increase of the productivity of the cows, because it is a means favourable to increase of the welfare of the owners of dairy farms. it may be characterized by the changes of income per cow (table 3). in rural regions, there take place differences in the return per dairy cow that are tending to grow with all the resulting negative social economic consequences. the increase in the return is related mainly to the changes in the number of the dairy cows. in zemgale region the return per cow has increased from 539 lvl/sg in the beginning of the period to 1.25 thousand lvl/sg, in the end of the period. during the whole period, the higher level of specific return takes place in pierīga region, achieving in 2013 about 1.3 thousand lvl, but the lowest specific return per cow in the end of period is to be find in latgale region, being backward from the income achieved in pierīga region by 348 lvl or 1.4 times. it is important to mention that the return of dairy farms per cow is proportional to the increase of the productivity of the cows that may be explained with the respective intensification undertakings. an unfavourable impact on the stability of increase in the return of dairies has made the rapid growth of economy and the following recession. the irregularity of income influences negatively the intensification processes in the dairies of regions, hampering to providing of return from the used intensification resources, yearly. a rapid decrease in the return creates essential problems to the dairies, especially, in keeping of the return and costs in balance. getting into the united economic space of the eu, the dairy farms of latvia have to compete with the milk producers in other countries of the eu, possessing much richer traditions of milk production under conditions of market economy and achievements of better results (viekals u., 1998). if there becomes analysed the dairy farming of the countries of the eu, functioning under similar agro-climatic and economic conditions, then considerable differences are coming to the surface (table 4). the best results are achieved by the dairies of denmark. in this country, the produced and delivered to processing amount of milk has increased from 11.05 t per cow to 14.1 t per cow or by 27.7 percent. it is interesting that the intensification activities carried out by the dairies of finland have provided a two times higher increase in processed milk per cow, in comparison with the respective index in sweden. among the baltic states, better results have been achieved by the dairies of estonia, in which the milk delivered for processing made, in the end of the period, 6.76t. it should be mentioned that, already in the second half of the previous century, many dairies of the countries of the eu paid, table 3. changes in specific return per dairy cow in rural regions regions changes in return per dairy cow in time intervals (lvl/sg) 13./04. 2004 2006 2008 2010 2012 2013* pierīgas 615 794 1 127 1 078 1 136 1 282 2,09 vidzemes 571 774 970 958 1 035 1 183 2,07 kurzemes 560 716 969 934 1 086 1 237 2,21 zemgales 539 756 1 041 924 1 070 1 253 2,33 latgales 510 635 703 706 813 934 1,83 total 553 727 940 904 1 013 1 161 2,10 deciphering of abbreviations included in the table: *prognosis data source: elaborated by the authors on the basis of the data of the csb of the republic of latvia. table 4. changes in the productivity of dairy cows, resulting from intensification, in the member states of the eu, included in the comparison regions changes in the amount of produced milk in time intervals (t/sg) 13./04. %2004 2006 2008 2010 2012 2013* dānija 11,05 11,68 12,54 13,82 14,07 14,12 27,7 igaunija 4,60 5,56 6,04 6,25 6,76 6,92 50,4 latvija 2,49 3,25 3,73 3,81 4,20 4,50 80,6 lietuva 2,63 3,25 3,50 3,55 3,97 4,32 64,6 somija 7,46 7,87 7,82 8,05 8,27 8,43 12,9 zviedrija 8,05 8,14 8,08 8,20 8,40 8,57 6,5 deciphering of abbreviations included in the table: *prognosis data source: elaborated by the authors on the basis of the data of the csb of the republic of latvia. issn 1822–8402 european integration studies. 2014. no. 8 112 actively and reasonably, a great attention to intensification undertakings in dairying, and, as a result, the milk yield per cow increased rapidly. but, the dairies of latvia have, in the increase of the productivity of the cows, achieved more improved results only during the last decades. to continue the process of intensification the productivity in dairying of latvian regions, the search for new opportunities of implementation of intensification undertakings becomes a topicality, and the efficiency of intensification arrangements depends on the abilities of the dairy farmer to identify the inner and outer factors, related to the opportunities and threats, to take them into account in achievement of strategic and tactical targets. it requires from the dairy farmer a great flexibility and a deep knowledge. in reality, he stands before a complex and many-sided task (eiropas savienības …, 1995) and the necessity to take into account the specifics of dairying and its close relationship to other areas, as the intensification of dairying processes becomes influenced by a great many of inner and outer political, economic, social, technological and environmental factors (jasko d., 2007). the dairy farmer has to form his attitude to intensive and extensive approach to the production (liscova a., špoģis k., 2008), taking into consideration that a high level of profitability may be achieved by the dairies of extensive, as well as of intensive nature (bolton k., vanderlin j., 2011), because the conditions of dairying vary from country to country and from region to region (rivža b., 2000). he must be able to react in case, if the increase in demand of milk products overtakes the increase in supply in the world (loren t.w., kaiser h.m., 2011). and, above all, he should take into consideration the absolute limitation of the land in the framework of a country, as well as on the scale of the world (dūklavs j., 2008). so, for example, he has to evaluate the impact of the chemical preparations that may pollute and even degrade the environment (boxall a., 2012). some chemicals can, through forage and medicaments get into milk (saad n.m., ibrahim t.a., shehata a., seddek a.s., 1990). and, above all he must be innovative in his attitude to the opportunities and activities (ābeltiņa a., 2007). the above mentioned inner and outer factors, influencing the intensification in dairying, may disclosed better by the model of the figure 3. on the basis of the figure 3 and specifics of dairying in latvian rural regions r. zvirgzdiņa prepared a functional model that includes the important positive effects provided by intensification undertakings in the dairying of the regions. the model provides the possibility to find out the intensification level in dairying achieved by dairy farms in rural regions and the indices for the adequate evaluations, as well as the directions of intensification to be implemented in the future. besides, the functional model discloses other important basics of intensification increase in dairying, and the relation of intensification effects to the material interests and action target of rural farms, getting involved into dairying. the paper contains the description of adaption of the functional model to zemgale region (figure 4). the model reflects the achieved intensification level of dairying activities in zemgale region and the opportunities of increasing of efficiency in dairying, using modern intensification activities. the region is characterized by a comparatively high decrease in the herd of dairy cows – by 26 percent, despite the fact that the intensity in dairying has increased from 4.11 t to 5.83 t or by 34.6 percent. the region has had also the lowest intensity level in the use of agricultural land by dairy farms, lowering gradually throughout the whole period. because of shrinking in the number of dairy cows in this region, in the end of the period the prognostic number of the cows per 100 ha of the agricultural land will achieve 7.4 units, i.e. being backward, by 2 cows, of the average of rural regions. according the intensity of income, the dairy farms of zemgale region have achieved the highest intensity increase level – 71.2 percent in comparison with the 2004. a further increase of intensity level figure 3. inner and outer factors, influencing the intensification in the dairying source: elaborated by the authors. deciphering of abbreviation used in the figure: peste factors: political, economic, technical and scientific, as well as ecological factors; lb – forage. issn 1822–8402 european integration studies. 2014. no. 8 113 in zemgale region requires measures related to the increase of the potential of biological productivity of the herd through cattle breeding. the achieved intensification level in the region and the future measures determine the necessity to pay, in the future, a special attention to obtaining of the knowledge on all levels – from the operators of machine milking to the managers of the dairies. for the dairy farms, acting in this region, becomes topical implementation of the newest technologies in the processes of dairying and a fuller quantitative and qualitative adequacy to the achieved and desired productivity of dairy cows. to provide the necessary forage basis, the dairy farms of the region should use more actively the opportunities of cooperation, as recommended also by the scientists (lachmann w., haupt r., farmer k., 2005). the prepared functional model underlines the close relationship between the improvement of the production in dairying and the circumstance that in the regional development much depends on activities of the local government (keišs s., kazinovskis a., 2001) and the authority of the intermediaries between the local and central government. the model may contribute to the solution of administrative territorial problems. conclusions • the topicalities of intensification in dairying of latvian regions are on agenda of decision making in related political, social economic technological and environment protection areas. • the results of intensification undertakings are influenced negatively by the instability created by economic growth and the following recession, increasing the polarization between the regions. • the highest instability takes place in latgale region and is the consequences of the instability of the environment of economic activities. the policy makers in agriculture have to take into consideration that a rapid decrease in the number of cows create losses not only to respective dairies, but also to the whole society that decreases potential possibilities of the region to keep the previous milk production level and together with it the potential working places and the income in balance. literature ābeltiņa a. 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(1990). estimation of some industrial pollutants in milk and milk products. assiut veterinary medical journal 1990 vol. 23 no. 46. issn 1012–5973. sproģis a., sproģis j., sproģe i. (2007). latvijas lauksaimniecība gadu gaitā. tautsaimniecības attīstības problēmas latvijā. rīga: lu, nr.5, 59–117 lpp. viekals u. (1998). piena konkurētspējas paaugstināšanas iespējas. zinātniskā konference „latvijas tautsaimniecība: stāvoklis, problēmas, risinājumi” konferences materiāli. jelgava: llu, 93–94 lpp. the article has been reviewed. received in april, 2014; accepted in june, 2014. 141 issn 1822–8402 european integration studies. 2014. no. 8 leadership, communication and union commitment in latvia: development perspectives of strategic management antra line riga teacher training and educational management academy imantas 7.linija -1, riga, latvia, lv-1083 e-mail: antra_line@inbox.lv anita lasmane university college of economics and culture lomonosova street 1k 5, riga, latvia, lv-1019 e-mail: anita.lasmane@gmail.com http://dx.doi.org/10.5755/j01.eis.0.8.6990 the aim of the paper is to analyse the contiguity between the strategic management and leadership of latvian trade unions and to assess member participation in decision making, communication between members and union leaders, and union commitment. the tasks of the study are to analyse literature about leadership peculiarities in trade unions, and member participation in trade union management; to justify the methodology of the study; to analyse the results of the study in order to obtain conclusions about leadership in latvian trade unions in the context of strategic management. the theoretical and methodological basis have been constructed using scientific literature, publications and online resources issued by the european union countries as well as canada, finland, australia and the united states. the authors have used a nonexperimental quantitative research design that includes a cross-sectional design: comparative and correlational design. the results (n = 452) have been acquired by the means of a questionnaire, comparing two random groups’ opinions on the research question: trade union leaders (n = 170) and members (n = 282). in the literature review, the following issues have been analysed: the process of leadership in trade unions, its distinctive features in comparison to other types of organizations, the assessment of the impact between leaders and followers (emphasising the leadership role in the formation of a collective action), the interaction between leaders and members of trade unions forming a shared leadership to ensure democratic process management. the research provides an evaluation of contemporary (2003–2013) research on leadership and communication in trade unions. the research results analysis: the literature analysis showed that in trade union leadership investigations most attention has been paid to analysing leaders’ main personality characteristics and the extent to which leadership affects union members’ satisfaction with the organisation, however, leadership aspects in regards to communication have been little researched. the survey results indicate that there are statistically significant correlations between leadership and strategic management, meanwhile discovering that there are strategy at the enterprise trade union level is mostly influenced by enterprise trade union leaders’ opinions, showing lack of democratic leadership in these organisations. the overall level of enterprise trade union members’ participation in making decisions can be evaluated as medium or low. the results indicate an ineffective two-way communication between trade union members and enterprise trade union leaders, revealing a leadership problem: industry trade union leaders cannot or do not want to find out members’ opinions on significant issues about the trade union’s activities. the leadership issue affects member commitment, which can be viewed as medium or low. the discovered problems show the possible directions of latvian trade union strategic management improvements. keywords: trade unions, leaders, leadership, communication, strategic management. introduction non-governmental organizations, as well as trade unions, have a significant role in the development of any democratic society. for latvian trade unions to develop and survive in the modern changing environment, they need to develop strategic management. whereas, to ensure it, new management methods are required, but those have not been designed for the strategic management of trade unions, nor comprehensive research about strategic management in trade unions has been performed, research that would include such significant strategic management aspects as leaders’ attitudes and behaviours. therefore, it is topical to study if trade union chairpersons are leaders and, if they are not, what the potential solutions for improving the leadership skills are. two-way communication is a critical strategy implementation requirement as it highlights the activity or passivity of members as followers, which in turn is linked to the chairpersons’ leadership skills. the aim of the paper is to analyse the contiguity between the strategic management and leadership of latvian trade unions and to assess member participation in decision making, communication between issn 1822–8402 european integration studies. 2014. no. 8 142 members and union leaders, and union commitment. the tasks of the paper are: to analyze literature about leadership peculiarities in trade unions and member participation in trade union management; to justify the methodology of the study; to analyse the results of the study in order to draw conclusions about the leadership of latvian trade unions in the context of strategic management. the novelty of the research is approved by the fact that contiguity between trade union leadership and communication has been little researched so far, as well as that there is ineffective communication of latvian trade union leaders with union members, which impacts negatively on the union commitment. the theoretical and methodological basis of the research has been obtained by applying scientific literature, publications and online resources of the countries of the european union, as well as canada, finland, australia, and the united states of america. modern research (2003– 2013) on leadership and communication in trade unions was evaluated. the research has a non-experimental quantitative research design comprising cross-sectional design: correlational and comparative design. the results (n=452) were obtained applying a survey questionnaire. opinions about research issue were compared in two random sample groups: trade union officers (n=170) and members (n=282). the questionnaire was designed for the data summary and the analysis of the findings to be able to distinguish two groups of respondents: lower level trade union leaders’ group and union members’ group. the justification for such an approach was the desire to obtain an objective view about the opinion of both groups, as well as the opportunity to compare these opinions. the research sample can be classified as a combined sampling method. the general sample group was real industry/ professional and general trade unions operating in latvia. 453 respondents participated in the survey, out of which 170 were trade union leaders and 282 were union members. calculating according to the formula, it was concluded that the number corresponds to the required sample size. the results of the research approved that scientists focus on studying the main personality traits of leaders regarding trade union research, to what extent leadership is affected by the union members’ satisfaction with the organization, but leadership and communication contiguity is seldom studied. the findings of the survey revealed that there is a statistically significant correlation between leadership and strategic management characteristics. at the same time this correlation reveals that there are strategy implementation problems in latvian trade unions in leadership and communication with regards to information exchange. the discovered problems mark the directions for the improvement of the strategic management of latvian trade unions. scientific analysis. various terminology is used in the scientific literature on trade union management regarding the terms ‘leader’ and ‘manager’, but both terms are used. for example, academicians k. fullagar, j. barling, e. kelloway, p. clark and other academicians use the term ‘leader’, but t. hannigan, j. dunlop, m. salamon use the word ‘officer’. while sometimes the term ‘steward’ is used to refer to trade union officers in enterprises. the literature analysis provided evidence for the statement that leadership in a trade union is a process that affects the operations of the members of organized groups, operations that are aimed at attaining trade union goals (clark, 2009). this definition reveals leadership as a process, the result of which is attaining goals, and to a trade union as a group of organized followers who are affected by the leader and the leader’s behaviour. research of trade unions as organizations started relatively recently – some of the first researchers that began studying the topic in the 60-ies of the previous century were j. child, r. loveridge and m. warner (dempsey, brewster, 2009). the power typology designed by j. french and b. raven was comparatively significant (raven, 2001; brauer, bourhis, 2006), because the existence of congresses, committees and boards and decision making in them impact on the proportions of the type of the leaders’ power. research approves that expert and referent power are positively correlated to employee satisfaction and work execution; trust is most likely related to referent and expert power, conformity is most likely linked to legitimate and reward power, but resistance – to coercive power (yukl, 2005). the authors of the present research consider that trade union leaders should not execute coercive power because it can cause member resistance and dislike toward the officer. on the contrary, members may use reward, coercive and informational power to the trade union officers as thus they may impact on the leaders’ behaviour for their own benefit. power issues are very topical as reduction of the democracy level in structural units can be observed (rigby, smith, brewster, 2006). leadership is considered from several aspects, but the following leadership features are mentioned as the most significant: leadership is a process, it includes impact and common goals, and leadership is met in a group (northouse, 2009). leadership is a process of mutual impact between leaders and their followers in order to attain organizational goals with the help of change. leadership can also be defined as a process through which the effectiveness of the followers’ performance is increased and simultaneously the followers’ motivation is maintained or enhanced, as well as their work satisfaction and other psychological welfare ways (popper, 2004; alimo-metcalfe, albanmetcalfe 2004). the process of impact is significant as a leadership cornerstone because in this process the leader communicates new ideas, receives followers’ support and motivates them to change; as well as the goals – the desirable outcomes of human behaviour, in the defining of which both the leader and the followers are involved (lussier, achua 2001). thus, leadership is an active and various process and to implement it, the leader is required to possess different knowledge and skills, for example, good communication skills, ability to initiate changes, ability to lead the organization to goal attainment. this is also approved by leadership research in enterprises, which focuses on the role of leadership in developing team performance (darlington, 2009; lichtenstein, 2010). team performance may facilitate the solution of such issue as power and democracy in trade unions, so that trade unions would implement deliberative democracy and successful conflict resolution, which is often linked with the management of unbalanced positions of the social power (employer and employee relations) (nirenberg 2004; bogg, 2011). the significance of the previously discussed issues is approved by the research on the mutual impact process between leaders and their followers (popper, 2004; alimo-metcalfe, albanmetcalfe 2004). in comparison with leadership in business, leadership in trade unions is little issn 1822–8402 european integration studies. 2014. no. 8 143 researched because there are no comprehensive studies about the personality, functions and roles of trade union leaders, nor about leadership styles. since the early forties of the previous century leadership traits of the top level trade union officers, their main personality traits and to what extent leadership affects the member satisfaction with the union, as well as contiguity between leaders’ behaviour and their ambitions have been studied (knowles, 2007; northouse,2009). t. hannigan has defined three roles of the national level trade union officer: steward, officer and leader. (hannigan, 1998). based on the above discussed theoretical basis, the authors of the present research have designed the definition of the trade union leader. a trade union leader is an officer elected by the members, who through the development of an environment favourable for the followers, provides execution of the trade union functions and attainment of its goals. trade unions are specific and complex organizations. academicians p. clark and l. grey admit that the experience and personality traits of trade union leaders should be equal to the experience and personality traits of the leaders of large enterprises (dempsy, brewster, 2009). researchers emphasise the role of leadership in developing the team behaviour of trade unions (darlington, 2009; lichtenstein, 2010; bogg, 2011), which determines the interaction between leaders and members (hammer, bayazit, wazeter, 2009), which in turn provides grounds for the need for shared collective leadership to ensure democratic process management (cain, 2012). shared collective leadership is considered as a democratic management of processes. therefore, it is emphasised that leadership in trade unions should be analysed, first of all, in the context of leaders and their followers because followers’ activities, attitude and expectations impact the leader’s behaviour (cain, 2012). the summarized and analysed theories (daftt, 2005) and contemporary research about the significance of communication in the management processes (alimo-metcalfe, alban-metcalfe, 2004; asmuß, svennevig, 2009); communication in managing trade unions (glass, 2003; burchielli, 2008; darlington, 2009; kumar, lucio, rose, 2013); member commitment to unions (johari, ghazali, 2011) approve the need for considering the leadership issue in relation to communication, especially internal communication issues. for example, the responsibilities of the local trade union officers in great britain are: negotiations with the enterprise management and managers of different structural units; decision making within their competence; executing such leadership that enhances unity within the trade union. a significant responsibility is transmitting information between the trade union and the enterprise management, as well as checking the received information. whereas, in germany the responsibilities of the local trade union officers include inviting members to discuss topical issues of trade union operation, organizing and participating in various activities, informing members about the decisions of the trade union committee and its operational policy, consulting labour committees before signing contracts, informing members about the collective agreements. it is emphasized that local trade union officers are the closest to the members on everyday basis; therefore, it is exactly these leaders’ attitude and behaviour that often determines the members’ participation level and attitude to the union (murakami 2000). in 1977 american academicians e. batston, l. boraston and s. frenkel designed a classification of leadership styles of local level trade union officers, in which two factors were used as criteria: • the first factor indicates delegation and representation in everyday work. • the second factor shows the extent to which the leader complies with the trade union principles (barling, fullagar, kelloway, 1992). the trade union principles listed by the academicians are unity, team spirit and social justice. within the framework of both factors, the authors have developed four leadership styles of the local level trade union officers: leaders, cowboys, nascent leaders and populists. as much as possible, ‘leaders’ represent trade union members and fully comply with the trade union principles. representatives of this style consider that it is sometimes useful to activate members; they communicate with top level trade union officers more frequently, and they are on more equal terms with enterprise managers than ‘populists’. in comparison with ‘populists’, ‘leaders/managers’ rely more on informal negotiations, less on strikes and other formal conflict procedures. ‘cowboys’ fully represent members, but they are busier with executing shortterm goals and their conformity with trade union principles is low. the compliance level of ‘populists’ is also low; however they try to delegate and consult other trade union officers and members. in difference from ‘leaders’, ‘populists’ emphasise the need to realize the members’ desires and the trade union serves only as a tool in attaining this goal. the conformity level of ‘nascent leaders’ to the trade union principles is high and they, similar to ‘populists’, delegate and consult other trade union officers and members. according to e. batston, l. boraston and s. frenkel’s conclusions of the research, in 1977 us trade unions were more represented by ‘leaders’ and ‘populists’, less by ‘cowboys’ and ‘nascent leaders’ (barling, fullagar, kelloway, 1992). the results of the analysis of the information available to the author of the present research allow her to conclude that this approach to leadership styles is the only one designed especially for trade union leaders, not taking into account the theoretical approaches developed within the framework of business management. the most typically encountered leadership style in trade unions is the transactional one, i.e. leaders are oriented to implementing traditional trade union functions – signing collective agreements and dealing with allegations. the transactional leader determines what and in what way trade union members should do to attain the organizational or individual goals. if the leader considers that support will not be granted, sometimes even the threat of punishment can be applied. such transactions are a policy elements of many trade unions. the leaders’ responsibilities are related to their ability to identify and fulfil the members’ priorities. leaders of this style successfully operate in stable organizations, the goal of which is to maintain the current position (clark, 2009). leaders of this style are effective in attaining goals, they possess skills to form positive relations and lead negotiations (cain, 2012). considering theoretically approaches to the leadership of various levels of trade union leaders, the authors of the present paper state that, irrespective of the specifics of trade union leaders, the overall typical trend in trade union leadership issn 1822–8402 european integration studies. 2014. no. 8 144 approaches is to take over the ones of business management. according to the authors of the present paper, there exist differences in the leadership of both, but they do not exclude the possibility to apply the leadership approaches developed in business management to trade union leadership. the present opinion is grounded in the research of foreign trade unions (clark 2009; cain, 2012), where researchers, when studying the operation of trade union leadership, indicate such styles as transformational, transactional and laissez-faire. studying communication in trade unions, it has been concluded that a star-type communication model is the most frequently applied model in trade unions. it can be explained by the fact that many trade union leaders have a tendency to “store” information and disseminate it only when they consider it necessary. whereas, decentralized communication models, for example a circle and a web, reflect free information flow between union members. centralised models foresee fast information dissemination, but union members have few opportunities to show initiative and creativity. ensuring effective communication in the trade union has always been based on developing “we” feeling within the union group. if union members do not trust its leaders, the quality of bottomup communication drops because the members consider that informing leaders will not lead to the necessary outcomes (hannigan,1998). p. drucker has admitted that people who work in ngos (also trade unions) must ask two questions to themselves, regarding unions. the first question is: “what information do i need to perform my duties well?”, but the second question is: “what information should i give to other staff so that they could perform their duties well?” employees and union members should take the responsibility for what information they provide or do not provide to the leaders or other members. to large extent, effective communication ensures trust. moreover, it is trust that is on the basis of the feeling of belongingness to the trade union (drucker, 2007). t. hannigan’s and p. drucker’s opinions reveal contiguity between communication and trust in the leader: effective communication ensures trust, but a reverse effect can also be observed – if union members do not trust their leaders, the quality of bottom-up communication drops (see figure 1). figure 1. contiguity between effective communication and trust in leaders source: author’s designed. as research in the usa, great britain and other countries approves, trade union leaders should devote much time to their communication with employees and members, but it does not always happen so, and communication does not always provide the desired results. union leaders are largely responsible for ineffective communication and its created consequences, therefore, their task is to continuously improve their communication skills (glass, 2003; lucio, stuart, 2009; kumar, lucio, rose, 2013). the author of the present paper considers that to ensure effective communication, trade union leaders of all levels should use various communication channels and special attention should be paid to maintaining feedback with union members, partners and public as such. loyalty concepts mostly explain the different behaviour of union members – people are in trade unions due to different reasons and, therefore, their behaviour and actions are also different (johari, ghazali, 2011). trade union academicians e. kelloway and j. barling have come to conclusions in their research that member commitment to their unions closely correlates with their participation in various trade union activities. high participation in trade union activities impacts positively on the overall effectiveness of trade unions. thus, if a trade union wants to increase its member participation and to become more effective, union commitment should be increased (clark, 2009). in the empirical research in latvia the largest group of respondents was the group of trade union members (62.4% or 282 respondents), but the smallest – the group of union officers (37.6% or 170 respondents). as the survey results show, most of the respondents were in the age group 31–60. the survey results revealed the trend of aging among the members and the low involvement of young people. regarding the education of the officers’ group, it can be concluded that higher education prevails – 70.6% had a bachelor’s or a master’s degree. a rather large number of officers (42.9%) have been trade union leaders already before latvia regained its independence, which, of course, may impact on the understanding and attitude to leadership and communication, i.e. centralisation trends can be more exhibited in management. the summary of pearson chi square test indicated that there are 16 correlations between leadership and goal attainment indicators in the member group (n=282); there are 15 correlations between the leadership and strategic planning indicators and there are 14 correlations between leadership and defining the strategic direction. more detailed results are presented in table 1 and table 2. table 1 depicts that out of 15 possible correlations, there are 14 significant correlations (p<0.05) between leadership and defining the strategic direction. there is a correlation between the frequency of consultations with the trade union chairperson and the existence of the mission and the vision, as well as the way in which the information is obtained about both. there is a correlation between the members’ opportunities to impact on the content of the decisions made in the enterprise and the industry trade union and the existence of the mission and the vision, as well as the way in which information about these issues is obtained. as well, there is correlation between the frequency of consultations with the trade union chairperson and the members’ desire to participate in developing the mission and the vision, and also between the opportunities of the members to impact on the decisions made in the industry trade union and the desire to participate in developing the mission and the vision. issn 1822–8402 european integration studies. 2014. no. 8 145 out of 18 possible correlations, 15 significant (p<0.05) correlations exist between the members’ opportunities to impact on the content of the decisions made by the industry trade union and the existence of goals (see table 2). there is a correlation between the opportunity of the members to impact on the content of the decisions made in the industry trade union and the existence of goals, the way in which information about the trade union goals is obtained, the desire to participate in defining goals, the enterprise management attitude to the trade union and the existence of the strategy. there is also a correlation between the opportunity to impact on the content of the decisions made by the industry and the enterprise trade unions and the mentioned indicators of strategic planning. results of pearson chi square test in the trade union members’ group (n=282) also revealed correlations between leadership and goal attainment indicators: out of 18 potential correlations, 16 are significant (p<0.05). it can be observed that there are more correlations between the frequency of consultations with the trade union chairperson and the goal attainment, which approves a significant importance of communication in attaining the goals. the correlations exists between the opportunity to impact on the content of the decisions made by the industry trade union and the quality of the collective agreement, how fast the trade union can react when members’ rights are violated, the salary increase for industry employees over the last 5 years, actions against the salary reduction in the industry in the last 2 years, the ability to protect employees from the enterprise management’s unfair behaviour. correlations also exist between the opportunity to impact on the content of the decisions made by the enterprise trade union and the existence of the collective agreement, how fast the trade union can react when members’ rights are violated, actions against the salary reduction in the industry in the last 2 years, the ability to protect employees from the enterprise management’s unfair behaviour. the descriptive statistics of the survey findings highlighted the topical issues of leadership, communication and strategic management in latvian trade unions. as the findings indicated, slightly more than half of the respondents – members (56.4%) and 72.9% of the respondents – officers are ready to participate in developing the goals of the industry trade union. table 1. correlation between leadership and indicators for defining the strategic direction leadership indicators question asked opportunity to impact on the content of the decisions made in the enterprise trade union opportunity to impact on the content of the decisions made in the industry trade union frequency of consultations with the trade union chairperson in di ca to rs fo r d efi ni ng th e st ra te gi c di re ct io n existence of mission p<0.05 p<0.05 p<0.05 way in which information about the mission is obtained p<0.05 p<0.05 p<0.05 existence of vision p<0.05 p<0.05 p<0.05 way in which information about the vision is obtained p<0.05 p<0.05 p<0.05 desire to participate in the development of the mission and the vision p>0.05 p<0.05 p<0.05 source: analysis of the findings of the author’s designed survey of latvian union members in 2011. table 2. correlation between leadership and strategic planning indicators leadership criteria question asked opportunity to impact on the content of the decisions made in the enterprise trade union opportunity to impact on the content of the decisions made in the industry trade union frequency of consultations with the trade union chairperson st ra te gi c pl an ni ng in di ca to rs existence of goals p<0,05 p<0,05 p<0,05 way in which information about trade union goals is obtained p<0,05 p<0,05 p<0,05 desire to get involved in defining the goals p<0,05 p<0,05 p<0,05 need to inform society about the potential results if the goals are attained p>0,05 p>0,05 p>0,05 what is the enterprise management attitude to the trade union p<0,05 p<0,05 p<0,05 existence of strategy p<0,05 p<0,05 p<0,05 source: analysis of the findings of the author’s designed survey of latvian union members in 2011. issn 1822–8402 european integration studies. 2014. no. 8 146 comparatively, it could be observed that the potential activity regarding the trade union goals is higher among respondents than when defining the mission and the vision is considered. 42.6% of the respondents – members and 22.9% of the respondents – officers do not want to participate in developing the trade union goals, which characterises the members as potentially passive followers. the fact that slightly more than half of the respondents – members (56.4%) and 72.9% of the respondents – officers are ready to participate in developing the trade union goals approves of the members’ motivation to participate in the goal development and also of the fact that so far they have very little participated in it, which, in turn, indicates that effective methods to involve members have not been used. analysing the obtained results, assessing the strategy implementation, the existence of ineffective two-way communication between the chairperson and the members can be observed, which simultaneously reveals a low level of participation because 24.8% of the members and 2.4% of the officers do not know whether the collective agreement has been signed. 75.9% of the officers consider that the collective agreement has been signed in the enterprise, but only 54.3% of the members demonstrate the same opinion. the number of respondents who consider that the collective agreement has not been signed is similar in both respondent groups (20.9% members and 21.8% officers). such results indicate a negative trade union management approach because the trade union members should participate in developing the collective agreement and they should know its content. further, according to the aim of this paper, the authors analyse the results obtained from the assessment of strategy implementation regarding leadership, communication and union commitment aspects. member involvment in decision making. as figure 2 depicts, the opinion about the opportunities to impact on the content of the decisions made by the enterprise trade union differs for both respondent groups. figure 2 distribution of the respondents’ answers about the opportunity to impact on the content of the decisions made by the enterprise trade union (% of respondents, members group n = 282, officers group n = 170) the answers “little”, “very little” and “no” comprise 83.7% of the total response and should be evaluated as an explicit negative trend, which indicates that members have no opportunities or they do not want to impact on the content of the decisions made by the enterprise trade union. if members do not want to impact on the content of the decisions made by the enterprise trade union, they can be considered passive followers. the answers of the enterprise trade union officers approve of the centralisation trend in decision making. as the survey findings indicate, the opportunity of the enterprise trade union officers to impact on the content of the decisions made in the enterprise trade union are much higher than that of the members (see figure 2). the opportunity of the members’ group to impact on the content of the decisions made in the industry/professional trade union have been evaluated as large only by 1.1%, as sufficient – by 11.3%, as little – by 19.1%, as very little – by 31.6%, and a large number of respondents – 36.9% admit that they do not have such an opportunity. the answers “little”, “very little” and “no” make 87.6% in total. such response indicates insufficient communication between the industry/ professional trade unions and their members. whereas, in the enterprise trade union officers’ group slightly more respondents have evaluated such opportunities as large – 3.5%. among others, 38.8% say that they have sufficient opportunities, 30.0% – little, 17.6% – very little, but only 9.4% of the respondents consider that they have no opportunities to impact on decision making. it is noteworthy that in the enterprise trade union officers’ group also 9.4% of the respondents consider that they have no opportunities to impact on the content of the decisions made by the industry/ professional trade union, which approves of insufficient involvement of enterprise trade union officers in the operation of the industry/professional trade union. in total, the answers “little”, “very little” and “no” comprise 57%, which leads to another conclusion that part of the respondents do not want to be active followers and participate in decision making. listening to the members’ opinion. respondents have admitted that the enterprise trade union invites them to express their opinion about the content of the collective agreement. it has been admitted by 45.4% of the members’ group and 75.3% of the officers’ group. the opinion is also invited about the organization of public activities – 57.1% in the members’ group and 67.6% in the officers’ group, organization of a strike – 16.7% in the members’ group and 30.0% in the officers’ group, defining the trade union goals – 26.2% in the members’ group and 41.2% in the officers’ group say so. however, the answer “other” has been selected by 11.7% in the members’ group and more than half of these respondents have stated that the trade union does not at all invite members to express their opinion, which additionally approves of the decision making centralisation trend and the opinion of the authors of the present paper that members of latvian trade unions are not sufficiently involved in decision making. respondents of the members’ group have admitted that the industry/professional trade union invites them to express their opinion about the content of the general agreement (8.2%); organization of public activities (59.9%), which is the highest indicator; defining the trade union goals (24.8%), organizing a strike (22.3%). respondents of the officers’ group reveal that the industry/professional trade union invites them to express their opinion about the content of the general agreement (24.7%); organization of public activities (64.1%), which is the highest indicator; organizing a strike in the officers’ group (35.9%); defining the trade union goals issn 1822–8402 european integration studies. 2014. no. 8 147 in the officers’ group (43.5%). the answer “other” was selected b y 14.2% in the members’ group and 18.2% in the officers’ group. under the answer “other” one third of the respondents has also revealed that the industry/professional trade union does not at all invite its members to express their opinion, which is a significant drawback in the operation of the industry/professional trade union, and that increases the member alienation from these organizations. assessment of the frequency of communication with the trade union chairpersons is depicted in figure 3. figure 3. distribution of the answers of the respondents of the members’ group on how frequently they consult with the enterprise trade union chairpersons (% of respondents, n = 282) however, the analysis of the respondents’ answers about the most frequently discussed issues, allows the authors to observe that the most frequently discussed issues in the officers’ group at the enterprise trade union meetings over the last year have been organizing public activities – 62.4%, issues related to the content of the collective agreement – 61.8%, issues about the legal labour relations – 58.2% and issues about the situation in the enterprise – 57.6%. the respondents of the members’ group mentioned the following issues as the most frequently discussed ones: issues related to the content of the collective agreement – 37.6%, situation in the enterprise – 35.5% and organization of public activities – 28.0%. in addition, 27.7% of the respondents in the members’ group and 2.9% of the respondents in the officers’ group admitted that they did not know what issues had been discussed at the enterprise trade union meetings. these respondents can be characterised as passive followers who are not interested in what is happening in the trade union. it is significant that both respondents’ groups have admitted that special attention is not paid to defining trade union goals at these meetings: 35.5% in the officers’ group and only 13.8% in the members’ group have admitted that this issue is being discussed. in total, the answers of both respondents’ groups are rather different though a little explanation is provided by the members’ group’s free answers in the choice “other”. majority of these respondents have emphasised that there are no trade union meetings in the enterprise. way of obtaining information. respondents’ answers indicate that, most frequently in the members’ group, 34.4% of the entire sample obtain information about the news in the industry/professional trade union from informal communication with the trade union chairperson, 29.1% obtain it from the industry/professional trade union homepage but only 26.6% – at the enterprise trade union meetings. whereas, 18.8% obtain this information from the local trade union, 17.7% – from the trade union newsletter or booklet, 16.3% – electronically from the industry/professional trade union, but only 10.3% – at the industry/professional trade union meetings. however, in the officers’ group the distribution of answers is as follows: 51.8% of the respondents obtain information electronically from the industry/professional trade union, 47.6% obtain it electronically from the local trade union, 45.9% – from the trade union newsletter or booklet, 41.8% – at the industry/professional trade union meetings, but 35.3% – from the informal communication with the trade union chairperson. the survey results indicate the prevalence of informal communication in the members’ group and electronically obtained information in the officers’ group. leadership style. the results demonstrated a negative trend: 35.1% of the members admitted that they did not have information to assess the work of the chairperson of the enterprise trade union. according to the authors, these results approve one more time the existence of the communication problem between the trade union chairpersons and members, as well as a leadership problem – if 35.1% of the members lack information to assess the work of the trade union chairperson. according to p. clark, it indicates the laissez-faire leadership style (clark 2009,) at the enterprise trade union level. the authors consider that it possibly characterises union members as passive followers. the low indictor (20.9%) for consolidating union members for common work also has to be evaluated negatively, which to some extent explains the passive behaviour mentioned in the interviews and suggested by the survey findings. according to p. clark’s theory (clark,2009), the obtained results partially indicate the characteristics of both transformational leadership style: consolidate members for common work; facilitate implementation of new ideas; and transactional leadership style: motivate to be active using various rewards; take care that the current procedures are not changed. the difficulties of the trade union chairpersons’ to adjust to the new circumstances are approved by the fact that only 18.4% of the enterprise level trade union chairpersons suggest implementation of new ideas, which in the modern changing macroenvironment would be most desirable (see figure 4). the fact that 58.9% of the members’ group admitted that they lack information to assess the behaviour of the chairperson of the industry/professional trade union should be evaluated negatively. the other answers of this respondents’ group is divided like this: 24.5% of the respondents consider that the chairperson of the industry/professional trade union pays large attention to providing help to the members, 22.3% consider that large attention is paid to solving administrative issues, 19.1% – to facilitating implementation of new ideas, 18.8% – to consolidating trade union members for common work, 17.0% – to-taking care of changing the current procedures in the trade union, 11.0% consider that the chairperson of the industry/professional trade union does not pay attention to providing help to the trade union members. the authors of the present paper consider, that, according to p. clark’s theory (clark,2009), the obtained results partially indicate the attributes of transformational leadership: consolidate members for common work; facilitate implementation of new ideas; and of transactional leadership: motivate to be active issn 1822–8402 european integration studies. 2014. no. 8 148 using various rewards; take care that the current situation does not change. chairpersons of the industry/professional trade unions pay too little attention to information exchange with members, therefore, the survey results repeatedly indicate communication problems between the management of the industry/professional trade unions and the members, as well as characterises members as passive followers. the response “other”, which was selected by 1.4 respondents, also reveals the members’ negative opinion about the chairpersons of the industry/professional trade unions in this case. whereas, in the officers’ group most of the respondents (57.6%) consider that the chairperson of the industry/professional trade union pays large attention to providing help to the members, 54.7% consider that the chairperson consolidates trade union members for common work, 50.6% – that the chairperson facilitates implementation of new ideas, 31.2% consider that the chairperson pays large attention to solving administrative issues, 25.3% – that the chairperson takes care that the current situation in trade unions does not to change, 20.0% – that the chairperson motivates members to be active using various rewards, but only 1.8% state that the chairperson of the industry/professional trade unions does not pay attention to figure 4. distribution of the respondents’ answers on how they would characterise the behaviour of the trade union chairperson (% of respondents, n = 282) figure 5. distribution of answers regarding what the respondents’ attitude to trade unions is (% of respondents, member group n = 261, officers group n = 127) issn 1822–8402 european integration studies. 2014. no. 8 149 providing help to the members (see figure 4). the answer “other”, which was selected by only 1.2% of the respondents of this group, also reveals the negative opinion about the chairpersons of the industry/professional trade unions. the results indicate that the respondents of the officers’ group are better informed about the operations of the chairperson of the industry/professional trade union; therefore, it can be concluded that there are less communication errors between the chairpersons of the industry/professional trade unions and the chairpersons of the enterprise trade unions than between the chairpersons of the industry/professional trade unions and their members. union commitment. response to the question about members’ attitude to trade unions indicates various levels of commitment and to members as active or passive followers (see figure 5). the fact that many respondents did not want to provide answers to this question is worth mentioning: only 261 of 282 members and 127 of 170 officers replied to this question. during the research, the respondents have prioritised the offered answer choices from 1 to 8, assigning the highest priority to 1, but the lowest to 8. the answer “i am proud of belonging to a trade union “, which indicates a theoretically high commitment, occupies the last place among the members’ group. the answer “i have clear understanding of the rights and responsibilities of a trade union member” has received the least number of points and takes the first position. the answer choice “i suffice by just paying the membership fee”, which occupies the third place among the members but the last place among the officers, indicates the lowest commitment level. the answer choice “i am ready to work in various work groups in the trade union”, which approves of the members’ commitment and activity, has received only the seventh place in both respondents’ groups. the passivity of the members as followers is approved by the fact that the response to the question “i am ready to execute various responsibilities in the trade union” ranked only as the sixth in the members’ group. it should be marked that in the officers’ group the answer “i am ready to participate at the trade union meetings” ranked only as the sixth, which also indicates the passive behaviour of the officers. conclusions the survey results revealed that a statistically significant correlation exists between leadership and strategic management indicators: • the summary of pearson chi square test results in the members’ group reveals that out of eighteen potential correlations, there are sixteen significant (p<0.05) correlations between leadership and goal attainment indicators; out of eighteen potential correlations, there are fifteen significant correlations between leadership and strategic planning indicators; out of fifteen potential correlations, there are fourteen significant correlations between leadership and the indicators for defining the strategic direction. • the indicators of leadership and the strategic direction demonstrate that a statistically significant correlation exists between the frequency of consultations with the trade union chairperson and the existence of the mission and the vision, as well as the way in which the information is obtained about both. there is a correlation between the members’ opportunities to impact the content of the decisions made in the enterprise and the industry trade union and the existence of the mission and the vision, as well as the way in which information about these issues is obtained. in addition, there is a correlation between the frequency of consultations with the trade union chairperson and the members’ desire to participate in developing the mission and the vision, and also between the opportunities of the members to impact the decisions made in the industry trade union and the desire to participate in developing the mission and the vision. the indicators of leadership and strategic planning reveal that there is a correlation between the opportunity of the members to impact the content of the decisions made in the industry trade union and the existence of goals, the way in which information about the trade union goals is obtained, the desire to participate in defining goals, the enterprise management attitude to the trade union and the existence of the strategy. there is also a correlation between the opportunity to affect the content of the decisions made by the industry and the enterprise trade unions and the mentioned indicators of strategic planning. the indicators of leadership and goal attainment show that there are more correlations between the frequency of consultations with the trade union chairperson and the goal attainment, which approves a significant importance of communication in attaining the goals. • at the same time these correlations revealed that problems in implementing the strategy exist in latvian trade unions, regarding leadership and communication, information exchange. the disclosed disccovered problems mark the direction for developing the strategic management of latvian trade unions. • respondents of the officers’ group are better informed about the existence of goals. the results indicate low member participation rates in defining the trade union goals. the majority of the respondents of both groups can be evaluated as potentially active and their potential level of involvement should be assessed as high. it can be assumed that members have motivation to participate in defining the goals but they have done it little so far, which indicates that effective member involvement methods have not been applied. the results reveal ineffective two-way communication between the chairpersons and the members, which simultaneously also proves a low level of participation. • at the enterprise trade union level, the opinion of the enterprise trade union officers is the dominant one, which shows a lack of democratic leadership in these organizations. in total, the member participation level regarding decision making in the enterprise trade union can be evaluated as medium or low. in the officers’ group the opinion about minimal opportunities to impact the decision made by the industry/professional trade union prevails, which also reveals the insufficient involvement of these officers into the activities of the industry/professional trade union. • a slightly more than one third of the members issn 1822–8402 european integration studies. 2014. no. 8 150 demonstrate a low participation level regarding the opportunities for the impact on the decisions made by the industry/professional trade unions. whereas, one third of the officers’ group, if compared to the members’ group, demonstrates a higher level of participation. the participation level is affected by the fact that members are invited to express their opinion mainly about organizing public activities and the content of the collective agreement, thus the member participation in defining the trade union goals is not high. hence, the leadership problem is highlighted: the chairpersons of the industry/professional trade unions are not able or do not want to investigate the members’ opinion about important issues of trade union operation. • the results indicate inefficient two-way communication between the trade union members and the chairpersons of enterprise trade unions, the member passivity, as well as a partial officers’ indifference to providing effective communication with trade union members. the most topical issues at enterprise trade union meetings are issues related to the content of the collective agreement, the situation in the enterprise and the organization of public activities. despite the fact that the issues about the content of the collective agreement have been frequently discussed, as the answers to the existence of the collective agreement revealed, 24.8% of the respondents – members do not know whether the collective agreement with the enterprise has been signed, which demonstrates ineffective two-way communication between the trade union chairpersons and members, as well as revealing members as passive followers.the fact that the dominating way of obtaining information in the members’ group is informal communication with the trade union chairpersons, but in the officers’ group it is electronically obtained information from the industry/professional trade union, shows that there is a leadership and communication problem. • the authors conclude that at the enterprise and industry/ professional trade union level the leadership style is weak, which indicates the characteristics of laissezfaire style. assessing the chairpersons of the industry/ professional trade unions, the respondents of the officers’ group see more explicit characteristics of the transformational leadership than the respondents of the members’ group. the authors assume that leadership and communication problems determine the fact that the union commitment of the members’ group can be evaluated as medium or low, but the commitment of the officers’ group can be evaluated as medium or high. • the findings of the research reveal the decision making centralization trends and indicate that latvian trade union members are not sufficiently involved in decision making. according to the authors, it can be explained by the fact that as provided by the legislation of the republic of latvia, the execution of this activity requires active member participation. • the authors conclude that the obtained results outline the leadership problem: industry/professional trade union 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http://dx.doi.org/10.1111/j.0021-8308.2004.00238.x raven, b. h., 2001. power/interaction and interpersonal influence: experimental investigations and case studies. in a. y. lee-chai, j. a. bargh (eds.). the use and abuse of power. philadelphia, pa: psychology press, pp. 217– 240. rigby, m., smith, r., brewster, ch., 2006. the changing impact and strength of the labor movement in advanced societies. in: harcourt, m., wood, m. trade unions and democracy: strategies and perspectives. usa: transaction publishers, pp. 336–50 yukl, g. a.,2005. leadership in organizations. new york: prentice-hall. the article has been reviewed. received in april, 2014; accepted in june, 2014. 56 issn 1822–8402 european integration studies. 2014. no. 8 european convergence and its impact on the social strategy of latvia elena dubra faculty of economics and management university of latvia aspazijas blvd. 5 riga lv-1050 latvia e-mail: elena.dubra@lu.lv http://dx.doi.org/10.5755/j01.eis.0.8.6759 the purpose of this study is to introduce evaluation of convergence policy activities in the european union and to designate social development trends of latvia in the context of reaching the goals of strategy “europe 2020. the aim of the research has set the following tasks: to introduce the main eu social convergence theory investigations as the development challenges for improvement socio-economic well-being of the eu states; to evaluate current social situation and eventual social strategy of latvia on 2014–2020; to estimate european convergence policy impact on the social development of latvia. the strategic goals of eu policy are discussed as well as the development challenges for improvement of the national economy well-being in the eu states and to avoid social disparities this study contains analysis of the new concepts of „europe 2020“ growth strategy and the europe convergence policy impact appreciate on latvian social strategy changes and prospects. the main emphasis of this research lies in the complex approach to the social convergence theory and eu cohesion policy implementation on the social development strategy of latvia. the research methodology is based on the convergence theory and its main scenario analysis, convergence catch-up rate calculation, on the eu strategy and european commission legitimate documents application, on the growth theory and socioeconomic forecasts analysis and on the national and external factors and variables estimations. the research methods employed in the present study are the monographic method, analysis and synthesis, statistical analysis and the graphic methods. this research investigate major information for social situations estimation in latvia as well as gdp growth, welfare conditions, inflation and unemployment indicators and its possible development on 2014–2020. the speed of convergence depends on the initial discrepancy of the development level in the eu states. the efficiency of european convergence policy can also be improved by significant economic growth and by clever choice of the country-specific social activities. the objective of this study is to describe current social policy of latvia and its consistent including into european convergence process. the main targets of social development prescribed by the strategy “europe 2020” influence on the contents of the latvia`s strategy „europe 2020” and of the „national development plan of latvia for 2014–2020”. in this medium-term planning strategies documents the main social and economic development priorities and sources of finance for their implementation are mutually coordinated. the eventual situation of the social policy in latvia continues improving and the long-term calculations and forecasts by medium-growth scenario shows increasing tendency of latvia`s gdp per capita in (pps) from 64.0% in 2012 to 75.3% for 2020 and till 87.0% for 2030 of eu-28 average level. the main results and conclusions of this study reflect the overall social convergence situation estimation in the eu and especially in latvia, contain different latvian social indicators calculations, describe the main principle for welfare increasing and information flows preparation for national growth model estimation. the discussion consist analysis of the strategic choice for socio-economic policy of latvia in the context of “europe 2020” strategic goals and include current and future european convergence policy impact significance on social progress in the eu states and latvia. keywords: convergence, strategy “europe 2020“, social development, cohesion policy. introduction european convergence policy is an eu development policy and provides original evidence to reduce socio-economic disparities in the development capacity and contribute social situation of the eu member states. convergence policy is trying provide recommendations for the future development and it is important for explanation how to achieve reducing of state`s development levels. the strategic goals of euconvergence policy are discussed as well as the development challenges for improvement of the socio-economic well-being in the eu states. the socio-economic development of latvia take place within the frame of the eu strategies and regulatory acts, economic strategies and legal acts of latvia as well as the eurostat forecasts. this research introduces evaluation of european convergence policy which aims improvement of issn 1822–8402 european integration studies. 2014. no. 8 57 the socio-economic situation of eu states and also to avoid social disparities. the main problems in of national economy development have been identified in the strategic and policy planning documents of the republic of latvia on period 2014– 2020. the development of latvia`s economy are basically in line with the legal acts and policy planning documents of the eu. as social policies are an integral part of the „europe 2020“ strategy, the commission also supports eu countries’ efforts to address their social challenges through the actions foreseen in the platform against poverty and social exclusion and social investment package as well as the eu funds, in particular the european social fund. now eucountries are far from reaching the 2020 targets and the worsening social situation caused by the economic crisis is undermining the sustainability of social protection systems. president of the european commission josé manuel barroso determine the main gols of eu politics: “europe 2020 is the eu’s growth strategy for the coming decade. in a changing world, we want the eu to become a smart, sustainable and inclusive economy. these three mutually reinforcing priorities should help the eu and the member states deliver high levels of employment, productivity and social cohesion. concretely, the union has set five ambitious objectives – on employment, innovation, education, social inclusion and climate/energy – to be reached by 2020. each member state has adopted its own national targets in each of these areas.concrete actions at eu and national levels underpin the strategy” (barroso, j.m., 2013). the purpose of this study is to evaluat current social situation in latvia and its possible development into eu. this study introduce convergence policy concept and contain european union objectives and general outlines on the period 2014–2020 as a whole and this strategy impact analysis on social progress in latvia. the review of the literature providing an analytical performance of the eu states convergence theory application in the light of its intended purposes. in this context this paper introduced the newest proposals for the eu convergence policy on 2014–2020 and its implementation in latvia. during the development process of the national economy of latvia the socio-economic structure undergoes not only quantitative changes but also qualitative changes decreasing disproportions between the economic and social indicators of national economy. strategic documents of national economy and social situation development in latvia reflect the main goals and tasks defined by eu programmatic documents. the research has set the following tasks: to introduce the main eu social convergence theory investigations as the development challenges for eu states; to evaluate current social situation and eventual social strategy of latvia for 2014–2020; to describe social situation and its possible improvement in latvia as the social eventual development in the context of the eu strategic tagets. the research methodology is based on the convergence and growth theories analysis, eu strategies and european commission documents consideration, on the socio-economic convergence scenario and eu and national variables analysis. the research methods employed the monographic method, analysis and synthesis, statistical analysis and the graphic methods. in this paper discussed the different approaches that have been used in the literature for gdp and income convergence analysis. the main results and conclusions of this research reflect the overall convergence situation discription in the eu states and social convergence progress analysis in latvia. this research presented information about main convergence socio-economic indicators as well as gnp growth, welfare contitions, inflation and unemployment levels and its possible development for 2014–2020. in order to achieve socioeconomic growth and social convergence goals latvian government must identify main social priorities and decide where the money will deliver the best results whis higt social efficiency. the social development investigations needs to be pragmatic approach into financing in order to create employment and reduce poverty level and social disparitis in the national economy. the latvian social policy improvement is general connected with investment flows, new technologies and productivity growth. the european budget spending will have to be more effective on 2014–2020 for latvia`s economic and social convergence promotion to the eu average level. the main tasks of latvian economy for the recent years are taken as the important priorities developing of social legislation, situation in the income`s growth, pension`s policy improving, education systeme and labour market development. taking into account the actual socio-economic problems in the eu countries european convergence policy should provide more attention for countries with minimum income level and high income`s disparity with target to reduce unequal and improved social convergence between eu countries. convergence theory investigations and its influence on the social development in the eu states european convergence theory is the visible direction which aims at balanced and sustainable development while fostering economic integration throughout the eu as a whole. and it is a place-based policy which gives a role to each european state to optimaze economic growth and social activity. the review of the literature providing an analytical performance of the eu states convergence theory application in the light of its intended purposes and eu socio-economic integration tagets. the convergence research methodology is based on the β-convergence and σ-convergence scenario and catch-up rate calculations, on the growth theory and socio-economic forecasts scenario analysis and on the eu strategies and european commission regulatory documents and integration`s requirements consideration, as well as on national and external factors and variables estimations. the research approach in the present study for social situations estimations investigate major information of the gdp growth, welfare conditions and powerty level, inflation and unemployment indicators. this main theories and different approaches for convergence evaluation employed in the monographies and economic literature (hess, p., clark, r., 1997; lipschitz, l., lane, t., mourmouras, a., 2005; pelcmans, j., 2006; sachs, j.d., larrain, f.b., 1993). convergence is the process that describes the progressive elimination of disparities in output and income levels. the growth economics literature has isolated two types of convergence: the β-convergence and the s-convergence (barro, r., .sala-i-martin, x., 2004). the former indicates issn 1822–8402 european integration studies. 2014. no. 8 58 whether the distribution of income across countries has become less or more uneven over time. recent economic theory confirms this approach which shows that the eu arrived impressive economic and social convergence since 1988. at the level of the states, relatively strong economic growth of those with a low gdp per capita has meant that eu states have been converging. the inverse relationship between growth and the level of income is considered β-convergence. if this phenomenon is present, poorer countries become closer to the richer ones. the β-convergence ratio highly depends on the internal economic policy and other country-specific factors and basically indicates how long convergence will last in terms of time frame success of the integration process of the new eu member states is reflected by their convergence performance. these tendencies are of special importance considering further enlargement of the eurozone. new convergence methodology considers the experiences gained in real convergence in the eu states and the convergence catch-up processes and their future prospects. in particular, the convergence theory analysis focuses on the sustainability of the social convergence processes. an analysis of eu convergence policy made an attempt to asses whether the distribution of income across eu-28 has become more equitable in the last years, by analyzing the dispersion of gdp per capita expressed in purchasing power standards (pps) throughout country members of the european union. however, economic growth theory provides two types of the convergence: s-convergence (sigma) and b-convergence (beta) (barro, r., sala-i-martin, x., 2004). the s-convergence serves as an indicator to measure weather the distribution of income across regions or countries has become less uneven over time. in contrast the b-convergence, attempts to describe the mobility of income within the same distribution and predominantly serves to find out whether the convergence occurred because poorer regions and countries. (marzinoto, b., 2012). main calculations and trends in catching up in the new eu member states can be analysed methodologically by this means growth accounting through a production function approach and the calculation and interpretation of the catchup rate. the relationship between gdp growth and the level of income is considered as β-convergence scenario. convergence reflects the measure of progress, while catch up measures the distance to be travelled. the pace of catching–up usually relates to b-convergence and is expressed as a (rcatch-up) (halmai p., vasary v., 2010, p. 244). catch-up rate is calculated as follows: 3 growth economics literature has isolated two types of convergence: the β-convergence and the σ-convergence (barro, r., .sala-i-martin, x., 2004). the former indicates whether the distribution of income across countries has become less or more uneven over time. recent economic theory confirms this approach which shows that the eu arrived impressive economic and social convergence since 1988. at the level of the states, relatively strong economic growth of those with a low gdp per capita has meant that eu states have been converging. the inverse relationship between growth and the level of income is considered βconvergence. if this phenomenon is present, poorer countries become closer to the richer ones. the β-convergence ratio highly depends on the internal economic policy and other country-specific factors and basically indicates how long convergence will last in terms of time frame success of the integration process of the new eu member states is reflected by their convergence performance. these tendencies are of special importance considering further enlargement of the eurozone. new convergence methodology considers the experiences gained in real convergence in the eu states and the convergence catch-up processes and their future prospects. in particular, the convergence theory analysis focuses on the sustainability of the social convergence processes. an analysis of eu convergence policy made an attempt to asses whether the distribution of income across eu-28 has become more equitable in the last years, by analyzing the dispersion of gdp per capita expressed in purchasing power standards (pps) throughout country members of the european union. however, economic growth theory provides two types of the convergence: σ-convergence (sigma) and β-convergence (beta) (barro, r., sala-i-martin, x., 2004). the σ-convergence serves as an indicator to measure weather the distribution of income across regions or countries has become less uneven over time. in contrast the βconvergence, attempts to describe the mobility of income within the same distribution and predominantly serves to find out whether the convergence occurred because poorer regions and countries. (marzinoto, b., 2012). main calculations and trends in catching up in the new eu member states can be analysed methodologically by this means growth accounting through a production function approach and the calculation and interpretation of the catchup rate. the relationship between gdp growth and the level of income is considered as βconvergence scenario. convergence reflects the measure of progress, while catch up measures the distance to be travelled. the pace of catching– up usually relates to β-convergence and is expressed as a (r catch-up ) (halmai p., vasary v., 2010, p. 244). catch-up rate is calculated as follows: )( )( 100 * 11 * −− − − −δ ⋅= tit tit upcatch yy yy r (1) in the equation: y it reflects the level of gdp per capita as pps for country i at a time t; y t * is the average for the y t of eu-28; δ indicates the difference between t and t-1; y t * is the weighted average of the eu-28. it is calculated on the basis of historical actual growth rate and serves as a framework for ex-post analysis of the catching up dynamism. this, nevertheless, allows making future projections for the potential growth rates. the success of the integration process of the new eu member states is reflected by their convergence performance. these tendencies are of special importance considering further enlargement of the eurozone. new convergence methodology considers the experiences gained in real convergence in the eu states and the convergence catch-up processes and their future prospects. in particular, the convergence theory analysis focuses on the sustainability of the social convergence processes. the possible trends of longer term growth and convergence scenario are presented and based on a qualitative analysis representing the supply side approach. (barro, r., sala-i-martin, x., 2004). living standards can be compared by measuring the price of a range of goods and services in each country relative to income, using a common national currency called the purchasing power standard (pps). comparing gdp per capita in pps provides an overview of living standards across the eu. the eu strives to improve living standards by protecting the environment, encouraging job creation, reducing regional disparities and connecting formerly isolated areas by developing cross-border infrastructure. this indicates the need for more structural reform to remove rigidities in the allocations of resources, which is essential in order to raise living standards. the real situation in eu states by main convergence indicator as the gdp per capita last years can illustrate in table 1. the convergence in the eu during the past decades shows a relatively steady pace. the social situation is influenced by the gdp level, economic structure of the national economy, the total consumer`s income and demand levels, labour force skills and education. at the same time future projection shall be based on the gdp potential growth rate, but now forecasts of social development based of gdp per capita at purchasing power standard. the european union is undergoing a process of changes that have significantly altered the socio-economic structure of societies. the main efforts refered on the improvement the quality of life of some society`s groups whis transition costs increasing for social inequality reduction. the eu should make available better and clearer statistical information on inequality in europe ststes and provide more attention for countries with minimum income level and high income`s disparity with target to reduce unequal between eu countries and improve social convergence in the eu member states. important information for convergence estimation can to receive from world economic climate survey`s which has studied by initiative of university of munich’s centre for economic studies and the ifo institute. the survey is conducted in co-operation with the international chamber of commerce in paris. methodology used by cesifo is the survey questionnaire that focuses on qualitative information: assessments of a country’s general economic situation and expectation regarding key economic indicators. this paper`s author is world economic survey (wes) expert from latvia. the wes results present a rapid, up-to-date assessment of the economic situation prevailing around the world. the results of the ifo world economic survey (wes) showed that economic climate also improved in europe, primarily thanks to less negative assessments of the economic situation. (1) in the equation: yit – reflects the level of gdp per capita as pps for country i at a time t; yt* – is the average for the yt of eu-28; d – indicates the difference between t and t-1; yt* – is the weighted average of the eu-28. it is calculated on the basis of historical actual growth rate and serves as a framework for ex-post analysis of the catching up dynamism. this, nevertheless, allows making future projections for the potential growth rates. the success of the integration process of the new eu member states is reflected by their convergence performance. these tendencies are of special importance considering further enlargement of the eurozone. new convergence methodology considers the experiences gained in real convergence in the eu states and the convergence catch-up processes and their future prospects. in particular, the convergence theory analysis focuses on the sustainability of the social convergence processes. the possible trends of longer term growth and convergence scenario are presented and based on a qualitative analysis representing the supply side approach. (barro, r., sala-i-martin, x., 2004). living standards can be compared by measuring the price of a range of goods and services in each country relative to income, using a common national currency called the purchasing power standard (pps). comparing gdp per capita in pps provides an overview of living standards across the eu. the eu strives to improve living standards by protecting the environment, encouraging job creation, reducing regional disparities and connecting formerly isolated areas by developing cross-border infrastructure. this indicates the need for more structural reform to remove rigidities in the allocations of resources, which is essential in order to raise living standards. the real situation in eu states by main convergence indicator as the gdp per capita last years can illustrate in table 1. the convergence in the eu during the past decades shows a relatively steady pace. the social situation is influenced by the gdp level, economic structure of the national economy, the total consumer`s income and demand levels, labour force skills and education. at the same time future projection shall be based on the gdp potential growth rate, but now forecasts of social development based of gdp per capita at purchasing power standard. the european union is undergoing a process of changes that have significantly altered the socio-economic structure of societies. the main efforts refered on the improvement the quality of life of some society`s groups whis transition costs increasing for social inequality reduction. the eu should make available better and clearer statistical information on inequality in europe ststes and provide more attention for countries with minimum income level and high income`s disparity with target to reduce unequal between eu countries and improve social convergence in the eu member states. important information for convergence estimation can to receive from world economic climate survey`s which has studied by initiative of university of munich’s centre for economic studies and the ifo institute. the survey is conducted in co-operation with the international chamber of commerce in paris. methodology used by cesifo is the survey questionnaire that focuses on qualitative information: assessments of a country’s general economic situation and expectation regarding key economic indicators. this paper`s author is world economic survey (wes) expert from latvia. the wes results present a rapid, up-to-date assessment of the economic situation prevailing around the world. the results of the ifo world economic survey (wes) showed that economic climate also improved in europe, primarily thanks to less issn 1822–8402 european integration studies. 2014. no. 8 59 negative assessments of the economic situation. expectations for the next six months remain confiden (table2). in the eu much attention is currently being paid to the consequences of social policy interventions generally tend to focus a temporary measure for redusing social inequality in the long-term. it requires not only a structure of national social models but also a discussion on the strategic choice of countries concerning the social policy. the possible trends of longer term growth and convergence scenario are presented based on a qvantitative analysis of the gdp per capita growth. the estimation of gdp level (per capita in pps) on period 2015–2030 in latvia reliable and based on stable development scenario and the gdp trends by ministry of economics of the republic of latvia (2010) “europe 2020” strategy of latvia, the cabinet of ministers of the rebublic of latvia (2012) „national development plan of latvia for 2014–2020” and long-term forecasts. according proposals of latvia`s mediumand long–term strategic scenario, gdp avarage growth rate can to reach 5% in 2012-2014; 4.5% in 2015-2020 and 3.5% on period 2020-2030 (the sustainable development strategy of latvia until 2030, 2010). the long –term forecasts of social development for eu cohesion countries and estimated by convergence catch-up rate calculation by formula (1). this calculation for latvia based on medium growth scenario for long–term strategy with most probable gdp growth rates in the eu states and latvia for period till 2030. taking into account that latvia`s gdp per capita in pps on 2012 arrived 15 900 euro per capita and average level in eu-28 to reach 25 500 euro per capita the results of eu cohesion countries development can illustrate in table 3. table 1. gdp per capita in the eu countries (gdp in pps eu-28=100, 2012) country gdp per capita in pps country gdp per capita in pps bulgaria (bg) 47 cyprus (cy) 92 romania (ro) 50 spain (es) 96 croatia (hr) 62 italy (it) 101 latvia (lv) 64 united kingdom (uk) 106 poland (pl) 67 france (fr) 109 hungary (hu) 67 finland (fi) 115 estonia (ee)) 71 belgium (be) 120 lithuania (lt) 72 germany (ge) 123 greece (el) 75 sweden (se) 126 portugal (pt) 76 denmark (dk) 126 slovakia (sk) 76 netherlands (nl) 128 czech rebublic (cz) 81 ireland (il) 129 slovenia (si) 84 austria (at) 130 malta (mt) 86 luxembourg (lu) 263 source: calculation based on eurostat and european commission data 2013 and european forecast autumn 2013, european economy 7/2013. table 2. world economic climate climate (2005=100) i/2012 ii/2012 iii/2012 iv/2012 i/2013 ii/2013 iii/2013 iv/2013 i/2014 north america 87.9 95.4 81.2 80.3 86.2 87.0 93.7 88.7 102.1 europe 81.6 96.1 86.4 80.6 90.3 93.2 99.0 109.7 116.5 asia 74.6 90.4 83.3 81.6 97.4 106.1 89.5 98.2 97.4 source: ifo world economic survey (wes) of the 1st quarter 2014, p. 1-3 table 3. development of the level of gdp per capita in the eu cohesion countries in the long-term gdp in pps 2015 2020 2030 eu-28 100.0 100.0 100.0 bulgaria 47.0 50.0 54.8 romania 52.2 56.5 61.4 latvia 68.1 75.3 87.0 lithuniania 77.5 84.1 88.4 estonia 89.0 92.9 99.3 poland 63.3 66.0 72.6 czech rebublic 92.5 96.2 97.9 hungary 68.7 71.6 76.5 source: author`s calculation for latvia; countrie`s data collection based on eu ageing reports 2012-2013 and halmai p., vasary v., 2010., p. 244. . issn 1822–8402 european integration studies. 2014. no. 8 60 the gdp growth and social development scenario in latvia is based on the assumption that the situation in the euro area will continue stabilising and growth in the eurozone will gradually recover from 2014 (dubra e., soms k., 2014, pp.78–90). therefore, as growth resumes in the eurozone, external demand for latvian exports of goods and services is expected to increase, thus promoting further economic and social development. the gdp of latvia in the mediumterm is expected to be equal to the potential growth of latvia (regional policy–inforegio, 2012). eurostat data shows that gdp rose by 0.3% in the euro area (ea17) and by 0.4% in the eu-28 during the fourth quarter of 2013, compared with the previous quarter, according to flash estimates published by eurostat, the statistical office of the european union. in the third quarter of 2013, gdp grew by 0.1% in the euro area, by 0.3% in the eu-28 and by 4.1% in latvia (eurostat, 2014). the forecasts and opinion of the socio-economic situation in eu states and its development analysis concerning issues of national policy improvement.the main information`s flows for forecast for national socio-economic model estimation is outlined in figure 1. the basic directions of the socio economic policy for the achievement of the established objectives and convergence are as follows: • to reach macroeconomic stability; • to create favourable preconditions for economic activities; • to stimulate effective growth of national economy; • to reduce social and economic disparities and ensure sustainable development. the neo-classical theories of growth generate real convergence.the standard growth model incorporate major factors of production and capital flows which influence on economy as long–term strategic scenario. national growth model`s targets and forecasts are formulated useing main priorities attainment for economy of latvia. trends for the recent years are taken as social-economic situation development strategy of latvia which can be used for social estimation as income`s and pension`s policy improvement, labour market and education system optimization. social strategy of latvia for 2014–2020: changes and prospects the main goals of social development, prescribed by the eu strategy “europe 2020”, influence the economic strategy of latvia “eu 2020” and the “national development plan of latvia for 2014–2020”. this documents is a medium-term planning strategies, where social and regional development priorities and sources of finance for their implementation are mutually coordinated. the europe 2020 strategy, adopted by the european council on 17 june 2010, is the eu’s new tenyear strategy for growth and jobs. it puts forward three mutually reinforcing priorities – smart, sustainable and inclusive growth to make europe more inclusive place to live. the european union future programme (2014–2020) has set ambitious objectives to be reached by 2020 in main social areas: employment; innovation; education; poverty (see table 4). the “national development plan of latvia for 2014–2020” provides for the main development directions of latvia and tasks for achieving further objectives. the strategic objective of this plan is education and knowledge for the growth of the national economy and technological excellence. the following priorities have been established for the achievement of the set objective: an educated and creative individual; the technological excellence of companies; the development of science and research. the main economic objective of this plan is to facilitate a balanced and sustainable development of the country and to ensure an increased the social indicators of latvia (the cabinet of ministers of the rebublic of latvia, 2012. national development plan of latvia for 2014–2020). the european commissionn has issued to latvia six country specific recommendations (csrs) to help it improve socio-economic performance in the areas of: sustainable public finances; youth and long term unemployment; poverty reduction; higher education and research systems; energy market and efficiency; judiciary reform .(european figure 1. scheme of information`s flows for national growth model estimation (author̀ s construction based on forecasting theory) issn 1822–8402 european integration studies. 2014. no. 8 61 commission, 2013, “country-specific recommendations). latvia has prepared the second progress report on the implementation of the national reform programme of latvia within the “europe 2020” strategy on april 2013. the second progress report on the implementation of the “europe 2020”strategy was developed taking into account the „national development plan of latvia for 2014–2020“. during a socio-economic recession in 2008–2010, the influence of convergence policy on latvian education system, incomes and labour productivity can be reduced by the negative impact of external and national factors on economy. development of latvian economy in 2011–2013 the social structure undergoes not only quantitative changes but also qualitative changes decreasing disproportions between the social indicators of national economy, which generates a range of problems in implementing national social development programmes. development processes underway in the economy of latvia comply, to a large extent, with guidelines of strategic documents on the development of national economy and social situation in the country, reflecting goals and tasks defined by eu programmatic documents for the areas of social development in the eu and latvia. the economy of latvia continued growing at a rapid pace in 2012 and the gross domestic product increased by 5.2% compared to the previous year. it was the fastest growth among the european union member states. data from latvian statistic office shows gdp increase by 4.1% in 2013. the strong economic growth in 2012 and 2013 was based on both external and domestic demand. the national reform programme of latvia for the implementation of the “europe 2020” strategy and the convergence programme of latvia describes the mediumterm and long-term macroeconomic scenario and reflects the main macro-structural bottlenecks of latvia and the key measures as well as national quantitative targets of latvia for 2020 in the context of the “europe 2020” strategy. the situation in the social policy of latvia continues improving from 2012. at the same time, employment will grow slower than the economic growth, as the output will be mainly based on the rise of productivity. the registered unemployment rate in 2012 reached the lowest point since 2009 constituting 12.1%.the employment rate increasing in latvia till 68.5% of population aged 20–64. the dynamics of inflation showed a tendency to decline significantly to 0.4% in 2013. the risk of poverty rate or the share of the population below the poverty line increased during the period when the total income of the population was increasing substantially and the unemployment rate was comparatively low. the person at risk of poverty rate in latvia has increased to 19.4% and for children aged 0–17 years has the highest risk of poverty – 24.7% in 2012. this risk of poverty largely applied to recipients of small pensions and other individuals with low income, particularly families with children. but now in latvia economic growth and increasing employment have a positive impact on the poverty risk of employed persons. according to the assessment income of persons living close to the at-riskof-poverty threshold grew slower than the average income level (central statistical bureau of latvia, 2013). the key priorities in reducing poverty and social exclusion in latvia are the increase in income from paid work, highlighting families with children as a special target group. these measures comply with the priority of the annual growth survey 2013 to tackle unemployment and the social consequences of the crisis, facilitate the achievement of employment, poverty and social exclusion targets of the „europe 2020“ strategy and the implementation of the flagship initiative european platform against poverty (european commission, 2010). increasing in the private consumption will depend on changes in personal income. the social and personal income taxes in latvia is planned to be gradually decreased from 2014 and this changies can to increase personal incomes and fostering growth of private consumption. however, the still high unemployment rate does not allow to increase wages and the medium-term changes in wages are unlikely to exceed the increase in productivity. the main principle for living standard growing and welfare increasing author defined as observance real proportions between indicators of productivity, wages and inflation annual growth rates by formula 2. ∆(y / n) > ∆w > ∆π, (2) in the equation: ∆(y/n) – productivity rate, annual growth, %; ∆w – wages rate, annual growth, %; ∆π – inflation rate, annual growth, %. latvia has prepared the second progress report on the implementation of the national reform programme of latvia within the “europe 2020” strategy on april 2013. this progress report was developed taking into account the „national development plan of latvia for 2014–2020“main trends. in the mediumto long term, latvia faces a number of challenges, in particular to maintain sound fiscal policy and reduce the size of theincomes disparity. other challenges relate to the quality of vocational education, social assistance, r&d spending and innovation performance, energy and the efficiency of the judiciary. table 4. “europe 2020” and latvian social targets eu member states targets eu headline targets latvian targets employment rate 75% 73% r&d in % of gdp 3% 1.5% early school leaving 10% 13.4% tertiary education in 40% 34-36% reduction of population at risk of poverty or social exclusion in number of persons 20.000. 000 121.000 source: calculation data based on european commission europe 2020 targets, 2013 issn 1822–8402 european integration studies. 2014. no. 8 62 european structural funds for 2014–2020 will provide an important source of public investment to support latvia in meeting these challenges. in the programming period 2014– 2020 the achievement of the following europe 2020 strategy targets is being through the eurorean social fund support: improve competitiveness, education systeme and employment level, implement labour market reforms to ensure flexicurity, as well as promoting social inclusion to reduce poverty. eu funds financing for the achievement of the “europe 2020” strategy targets essential promode national economy competitiveness and latvian socio-economic convergation into eu. the government of latvia has determined the thematic allocation of the eu funds policy and financing for the programming period 2014–2020. the allocation of financing is based on the priorities, directions of activities and tasks of the „national development plan of latvia for 2014–2020” and closely linked to main needs of the economy of latvia, taking into account the gdp growth rate, investments planning in all thematic objectives, activities in the social policy reforms, education systeme improving, labour market formation as the priorities directions. european statistics shows that in 2012 24% of all the eu population are at risk of povertyor social exclusion – this includes 28.1% of all children in europe, 19.3% of those over 65 and 25.4% of adults. latvia`s social convergence progress estimations show that the at-risk-ofpoverty rate in latvia has increased from 19.2% in 2005 to 25.7% in 2009 and decreased up to 19.4% in 2012. economic growth and increasing employment have a positive impact on the poverty risk of employed persons but now in latvia children aged 0–17 years has the highest risk of poverty – 24.7%. the social conditions and employees in latvia also become more and more aware of the possibilities offered by the global eu market it requires not only a structure of national social models but also on the strategic choice of countries concerning the social policy. the new elements of policy on 2014–2020 set out the commitments to concrete actions to deliver “europe 2020” objectives. minimum allocations are fixed for a number of priority areas where the eu has set itself goals. the old classification of regions under convergence, and competitiveness and employment, is replaced by a new classification: less developed regions, with gdp per capita of below 75% of the eu-28 average; transition regions, with gdp per capita of between 75% and 90% of the eu-28 average; and more developed regions, with gdp per capita of more than 90% of the eu-28 average. after several sessions of hard negotiations, latvia received the european parliament’s support for the multiannual budget for 2014–2020 on november 19, 2013. essentially, the agreement was reached in a timely manner, so as to avoid breaking the long-term budgeting, which would have a negative impact on both the latvian farmers and the successful implementation of cohesion projects. thus, the overall results of the budget 2014–2020 planning negotiations for latvia can be summed up as following: • latvia still will receive much more funding from eu budget, than it contributes to it. • in the next seven-year time period, more than 7.479 billion euro will be available to the latvian economy from the eu budget. • cohesion funding available for latvia in the period from 2014 to 2020 will be 4.765 billion euro. • from 2014 latvian farmers will receive 109 euro/ ha from the eu direct budget payments. in 2019 this amount will reach to 196 euro/ha. 969 million euro will be available to latvia for the rural development promotion. the eu funding will make it possible to continue investment in growth-enhancing areas, such as transport system development, research, technology development and innovation in small and medium enterprises competitiveness, energy efficiency, environment, promotion of employment and education (latvijas republikas ārlietu ministrija ārpolitika,. 2013). in the mediumto longterm, latvia faces a number of challenges, in particular to maintain sound fiscal policy and reduce the size of social disparity. other challenges relate to the quality of vocational education, social assistance, r&d spending and innovation performance. european structural funds for 2014–2020 will provide an important source of public investment to support latvia in meeting these challenges. in the programming period 2014–2020, the achievement of the following europe 2020 strategy targets is being through the esf support: improve competitiveness, education system, foster employment, implement labour market reforms to ensure flexicurity, as well as promoting social inclusion to reduce poverty. the current socio-economic strategy of latvia in the coming 7 years (2014–2020) included the following themes: the estimations of the socio-economic development and its effectiveness; the economic structural policy improvement; poverty, income disparity; labour market and education system problems solution; forecasts of demography situation and migration processes and european structural funds resources effective utilization the social situation is influenced by the gdp level, economic structure of the national economy, which is determined by products offered by sectors and the total consumer`s income and demand levels, labour force skills and education, but also a discussion on the strategic choice of countrie`s socio-economic policy. the “europe 2020” strategy objectives and european structural funds are real support for latvian social strategy development in order to reach main social goals. conclusions 1. european convergence policy is an eu development policy and provides original evidence to reduce socio-economic disparities in the development capacity and contribute social situation improvement in the eu states. convergence process in eu is tryin providing recommendations for the future development with target to achieve socio-economic wellbeing in the european states. 2. “europe 2020” strategy goals and proposals of socioeconomic convergence for the eu member states has been considered as one of the most important economic development targets in the eu, concentrating national resources and eu funds on the areas and sectors where they can make the most important progress. the strategic goals of euconvergence policy are discussed as well as the development challenges. 3. taking into account the actual socio-economic problems in the eu countries european convergence policy issn 1822–8402 european integration studies. 2014. no. 8 63 should provide more attention for countries with minimum income level and high income`s disparity with target to reduce unequal and improved social convergence between eu states. 4. european convergence the past years showed a relatively steady pace, but the effectiveness of european convergence policy can also be improved by significant economic growth and by clever choice of the country-specific social activities. the inverse relationship between growth and the level of income is considered β-convergence scenario. if this factor is present, poorer countries get closer to the richer ones. 5. european national economies strategies have been related to the influence of several internal and external factors. socio-economic development of latvia reflecting goals and tasks defined by eu program`s documents and social strategies. latvian participation in eu convergence process can be sufficiently supports for improvement sustainable economic and competitiveness growt, social development, job creation and quality of life. 6. the socio-economic policy improvement in general connected with investment flows, new technologies and productivity growth. trends of the recent years 2014–2020 of latvian economy are taken as the important priorities developing of social legislation, income`s growth, pension`s policy improving, education systeme and labour market development. 7. the socio-economic development scenario of latvia for 2014–2020 is based on the assumption that the situation in the euro area will continue stabilising and growth in the eurozone will gradually recover from the 2014. therefore, as growth resumes in the eurozone, external demand for latvian exports of goods and services is expected to increase, thus promoting further economic and social development. 8. the eventual situation of the social policy in latvia continues improving and the long-term calculations and forecasts by medium-growth scenario shows increasing tendency of latvia`s gdp per capita in (pps) from 64.0% in 2012 to 75.3% for 2020 and till 87.0% for 2030 of eu-28 average level. 9. the european budget spending will have to be more effective, in particular on 2014–2020 for promotion economic, social and regional cohesion at the national and eu levels. in the next seven-year time period, more than 7.479 billion euro will be available to the latvian economy from the eu budget. 10. the latvian social policy improvement in general connected with investment flows, new technologies and productivity growth. trends of the recent years 2014–2020 of latvian economy are taken as the important priorities developing of social legislation, situation in the income`s growth, pension`s policy improving, education systeme and labour market development. 11. for future`s social development investigations and governmental decisions needs to be pragmatic approach into financing in order to create employment and reduce poverty level and social disparities in the national economy. in order to achieve social convergence goals in the national socioeconomic policy must identify main social priorities and decide where the money will deliver the best results and high social efficiency. references barro, r. j. and lee, j.-w. 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accepted in june, 2014. 63 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 abstract social media use across generations: from addiction to engagement http://dx.doi.org/10.5755/j01.eis.1.15.29080 social media is used at very high rates among young people not only in europe and other developed countries but also developing and people from almost all generations have started to use social media. the use of social media has become an addiction regardless of country and changed the daily behaviour of users. studies related to social media addiction are generally done on youth. it is observed that middle-aged and older individuals started to have engaged in social media. therefore, the lack of research related to social media addiction of middle-aged individuals and over has made this study important. the aim of this study is to understand the tendencies to use social media as people get older. in the study, a survey was conducted on people aged between 24 and 49, and on people aged 50 and over; the goal was to understand the difference between the two age groups. social media addiction scale adult form was used in the study was conducted on a total of 650 participants. as a result of the analysis of the data, it was concluded that as the age increased, the level of social media addiction decreased but that the social media addiction levels of individuals over middle age were considerably high more than expected. as the education level increases, the virtual tolerance sub-factor increases and the risk of social media addiction increases. there is a significant relationship between participants' marital status, smartphone use and social media addiction. the use of social media in the society can be transformed into an environment that can be used in education, self expression, creativity, media literacy and integration with society by getting rid of addiction. in addition, since addiction issue is being spread in turkey and europe, we want to increase an awareness for individuals and policymakers. keywords: internet, social media, addiction, social media addiction, generations. the existence of communication dates back to the existence of human beings. as people started to live in communities, the necessity to communicate emerged (kongar 2014). thus, communication between people, starting from the first man, reaching the present day and to continue to the future, has continuously developed and accelerated. communication, which has existed since the first human communities where people living in the same community communicated face-to-face with each other, started to differentiate as individuals and communities living far away from each other needed to communicate. the change that continued throughout history evolved and spread more rapidly in the last 30 years of the 20th century than ever before due to both military and global reasons. european integration studies no. 15 / 2021, pp. 63-77 doi.org/10.5755/j01.eis.1.15.29080 submitted 01/2021 accepted for publication 06/2021 social media use across generations: from addiction to engagement eis 15/2021 orhan koçak i̇stanbul university cerrahpaşa, faculty of health science, social work department. i̇stanbul,türkiye introduction hüseyin arslan i̇stanbul commerce university, faculty of business, aviation management department. i̇stanbul, türkiye abdullah erdoğan i̇stanbul university cerrahpaşa, faculty of health science, social work graduate program. i̇stanbul,türkiye e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 64 the internet and social media became the environments where people spent most of their time in daily life leading to addiction. this addiction has spread to almost the whole society, especially to the people born after the advent of the internet and social media; 'young people trying to follow old people' has been replaced by 'old people trying to follow young people'. it is known that people spend one third of their time using a smartphone, tablet, computer and playing digital games every day (akkaş 2019). the internet and social media addictions are considered as a type of addiction that is widespread among young and middle-aged individuals. relationships between individuals over middle age and these addictions has not been measured very much in national and international studies. but, it was seen that social media, game and internet addiction along with smartphones have influenced individuals over middle age and that the increasing use of technology by individuals over middle age is remarkable just like by young and middle-aged individuals (doğan et al. 2019). however, the use of technology and social media will be an important opportunity to combat aging in the developed countries of the world and especially in europe where the rate of elderly is an important issue (foster, 2015). turkey is in the process of european union membership, has entered the aging process. educating not only young people but also middle-aged and older people in information technology literacy will support human and economic development. with this study, it was understood that social media usage can lead people to addiction. however, considering the empowering dimension of technology, it is aimed to be seen as an opportunity and to guide individuals and societies appropriately with new policies. in this sense, icts support elderly people to improve their quality of life, their health and to live independently (katrin et al., 2014). it helps them to be active both in business life and social life. digital technologies and the internet contribute to the completion of declining talents and integration into society (summers, 2018). in the study, the social media addiction status of those aged 24 and over was tried to be understood. in addition, the social media addiction levels of the participants were analyzed together with their age, marriage, education status and smartphone usage. social media addiction scale was used in the study. in addition, a demographic information form was prepared to obtain demographic information from the participants. t-test, anova test, regression and correlation analyzes were performed using the spss program the concept of addiction and drug addiction addiction is derived from the latin word 'addicere', which means 'devoted' or 'enslaved by' (şahin 2011). addiction is in question and a person is regarded as an addict when he cannot give up the substance he has used more than once though he wants to give it up, when he increases the dose and the number of the use of the substance, when he experiences symptoms of withdrawal in the absence of the substance and when he continues using it despite its harms (ercan 2013). there are three basic elements in addiction. » the user tries to obtain the substance with an inner motive that he cannot prevent no matter what his state is like. » the user does not find the amount of substance he used before sufficient in the course of time and increases the amount or frequency of use (tolerance), » the user may need the substance or its effects severely (withdrawal) (toraman 2013). substance (drug) addiction is the case in which a person cannot stop the use of a pleasure-giving substance that he uses in order to obtain a certain effect, cannot stop the need to take the substance and shows signs of withdrawal when he cannot access that substance despite the physiological, psychological and social problems it causes. (hazar 2018). literature 65 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 drug addiction and addictions arising from the use of technological devices and services show similarities in that they produce activity in the same regions of the brain and they are caused by the same human needs (akkaş 2019). in fact, the behaviours creating addiction have existed for a long time. however, more common and irresistible forms of addiction have emerged recently. in these new addictions, there are no drugs but attractive and well-designed elements that are free of chemicals. addictions such as gambling, social media and the internet have the same effect on the user as drugs with their designs and systematic stances (alter 2017). technology and internet addiction technology is the process or technique that enables people to carry out their tasks such as sharing information and fulfilling a duty (mary 2018). devices that were produced by the addition of the internet to technological products have virtually surrounded people. the relationship of users with these products starting as habits like entertainment and leisure turns into addiction after a while (akkaş 2019). technology addiction is a type of addiction that started with the introduction of new technological products to human life, that emerges with the excessive use of the internet, tablet, mobile phone, social media, computer or television and in which a person shows withdrawal symptoms when he cannot access any of them (turel et al. 2011; ögel, 2018). when individuals spend most of their time due to technology addiction, it negatively affects their social life, their relationship with their families, school, friends and social environment, their academic development, and their psychological and cultural states. in fact, the excessive use of technology, which has many benefits, affects the users negatively with all these problems and has an effect in all areas of life. technology addiction consists of subtitles such as internet addiction, smartphone addiction, social media addiction and video game or digital game addiction (tiryaki 2015; başaran 2005). the internet is a communication system based on worldwide computer networks, formed by the reconnection of computer networks, which means the connection of two or more computers to one another (canöz 2016; castells 2005; chayko 2018). in general, internet addiction, which is defined as deterioration in people's lives, motives and behaviours as a result of the excessive use of the internet (halley 2015), causes problems at home, at school, at work, in short, in all living spaces by distancing people from their social lives. in order to describe the internet addiction, it must meet the following criteria (young 1999; azizi, 2019) : a to be engaged in the internet and spend more and more time online. b repeated attempts to reduce the internet use c the occurrence of withdrawal symptoms when you decrease the internet use. d time management problems. e problems with the people around (family, school, work, friends). f telling lies about time spent online. social media, with the increase of its use in recent years, is defined as web-based services that allow users from many communities to interact and to distribute all their information online through individual methods (kuşay 2013). social networking sites, which are virtual communities where every user can create their own profile, communicate with their friends and meet other people based on interests, form the backbone of social media; a great majority of internet users use social media. social media, which attracted users with the opportunity to create profiles and list friends for the first time in 1997, gained momentum with the fast increase in the number of users when facebook was launched in 2004. afterwards, various opportunities social media addiction e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 66 emerged with social networking sites such as twitter, youtube, flickr, instagram; thus, many positive and negative phenomena emerged (grau et al. 2019). in the studies were done, it was seen gender, age, marital status, number of siblings, income level, usage of smartphones, and education level were associated with social media addiction (aydin et al., 2021; hamutoğlu et al., 2020; demircioğlu and kose, mohammed et al., 2021, mahamid and berte, 2019). according to this literature following hypotheses were assumed. » h1. the younger group has a higher sma than the older group. » h2. women have higher sma than men. » h3. there are significant differences between marital status in terms of sma the issue of addiction is remarkable in the results of the use of social media too because social media includes platforms with the highest number of users. the fact that smartphones have become widespread and are being used by almost all over the world and by almost any age group makes it easier for social media, which people start to use due to its positive features first, to become a tool of addiction. it is seen that the use of smartphone, which first spread among young people and then among higher age groups gradually, leads people from all parts of the society to social media addiction. that mobile and web designers working on social networks enable social media networks to become available for longer periods and easily navigable places also increases this addiction. according to this literature following hypotheses were assumed. » h4. smartphone users have higher sma than non-users » h5. there are significant differences between education level in terms of sma » h6. there is a negative impact of age on sma » h7. there is a negative impact of education on sma according to kuşay, there are both positive and negative consequences of social media addiction (kuşay 2013). social media, which has positive consequences such as self-expression, sociality, integration with society, creativity, media literacy, intercultural exchanges, contributing to the self-development of young people and adolescents in particular and allowing people to redefine themselves, also have negative and dramatic consequences (yalin and zhang, 2021). the fact that the individual participates in social media activities for a long time causes addiction; it becomes inevitable for the values and cultural structures to be harmed. confidentiality and privacy, ethical and security problems may arise; sexual content sharing, lying easily, fraud, etc. damage the environment of trust (kuss and mark, 2011). in addition, one of the most important negative consequences is that excessive use of social media causes people to get lonely, to speak less, to laugh less and to argue less; it causes face face-to-face relationships to lose importance compared to the past, leading to the emergence of psychological disorders such as depression and anxiety (turel et al., 2018). studies conducted between social media addiction and age have found a negative relationship between them. in this impact some variables such as having smartphone and education level mainly have moderating effect (andreassen et al., 2017; gungor and kocak, 2020). in addition to the fact that social media has an important effect on the socialization of young, immigrant people, it has become widespread for the elderly to reach their old friends, find new friends and get rid of their depressions, especially if they are left alone (abbasi, 2019; hu et al., 2021; yalin and zhang, 2021, aydin et al., 2021, yıldız and kocak, 2020). according to this literature following hypotheses were assumed to understand impact differences on social media addiction in terms of education, age grıups and smartphone usage situations. 67 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 » h8. smartphone usage situation and education level has a moderation impact in the effect of age on sma » h9. two age groups has a moderation impact in the effect of age and education on sma as it has been explained in literature, since young people were born in a world where the products of cutting-edge technology such as social media, internet and computer are used, it seems natural for them to use this technologies and to produce new concepts and research topics through them. however, the socialization of a phenomenon means that it should spread to all sections of the society. this prevalence and addiction that started among young people gradually spread to other groups of the society by affecting mentally, psychologically, physically and socially (pantic, 2014). it is remarkable that these products are being used in every part of the society, from a baby to an old person today. the use of technology, the internet and social media, which has become an addiction among young people, started to turn into a kind of addiction gradually among middle-aged people and older ones. the aim of this research it is to measure the social media addiction of people as they age. when both national and international researches are examined, it is seen that researches conducted related to addictions such as technology, internet, social media, digital games, smartphones are generally conducted on young and middle-aged individuals. although it is seen that individuals over middle age have started to use technology as much as young people in daily life, there is very little research on this subject; this research is different in that it shows the social media addiction of individuals the difference between under 50 and 50 and over. in the research, scientific literature review and field research method related to the field were used. to this end, previous studies in the field were found; the theoretical part was written based on the information collected from them; then, a field research was conducted to measure the information in this theoretical part. the research group of the study, determined by simple random sampling method, consists of a total of 650 adults, 272 of whom are 50 years old and over, living in istanbul and participating in the research voluntarily. a survey study was conducted in the research. in the first part of the survey, which consists of two parts, personal variables (age, gender, marital status, education, whether they live in their hometown and whether they use a smartphone) were asked. in the second part, social media addiction scale (smas) was used personal information form participants were asked about their personal information before answering the social media addiction scale. the participants were asked about their age, gender, marital status, education level, and whether they use a smartphone. the age continuous variable was transformed into a dichotomy variable (coded 0 and 1) for descriptive analysis as under 50 and over 50. social media addiction scale (smas) social media addiction scale (smas) adult form developed by şahin and yağcı and given in the appendix of this study was used (şahin and yağcı, 2017). smas consists of two sub-dimensions (virtual tolerance and virtual communication) and 20 five-point likert type scale items. virtual tolerance sub-dimension consists of items 1-11, and virtual communication consists of items 1220. items 5 and 11 were added to the total with the reverse scoring system. the virtual tolerance subdimension explains social media users’ increasing their time of use over time and disrupting other normal daily activities; virtual communication explains how the individual communicates via social media. scale scoring is done between 20 and 100 points. as the score increases, it is concluded that the individual perceives himself as a social media addict. measures the aim and importance of the research the method of the research e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 68 the data collected in the study were evaluated through appropriate analysis techniques. as a result of the analyses, the validity of the data was found as cronbach’s α = .893 and kmo test value 891; the barlett test value was found to be χ2 = 4649.74 (sd = 190, p = 0.00). the results in kmo and barlett tests showed that the survey was suitable for factor analysis. exploratory factor analysis (efa) was performed on the data and it was observed that the virtual tolerance and virtual communication sub-dimensions reached the expected factor loadings (table 1). in addition, significant results were obtained by conducting independent sample t-test to determine whether the addiction differentiates according to two option variables, anova to determine the effect of educational background on addiction, and regression analyses to see the effect of age on addiction. additionally, moderation analyses were done to find the impacts of education, age groups, and smartphone usage status in the association between age and social media addiction. spss process-macro model 1 analysis was used to test and transform the moderation data into graphs. findings data analysis scale item no factor loading values virtual tolerance virtual communication 1 .639 2 .839 3 .654 4 .822 5 .685 6 .826 7 .545 8 .316 9 .520 10 .461 11 .397 12 .480 13 .536 14 .568 15 .470 16 .803 17 .567 18 .443 19 .641 20 .685 eigenvalue 6.70 1.71 explained variance 33.51 8.58 total va r i a n c e : 42.10% table 1 factor loadings of the data obtained through sma scale descriptive statistics 391 (60.2%) of the participants in the study were female and 259 (39.8%) were male. 272 (41.8%) of these participants were over 50 years old, 284 (43.7%) were married, 320 (49.2%) were single, 26 (4%) were widows/widowers and 20 were (3.1%) divorced. as for the educational background of the participants, 5 (0.8%) could not read and write, 6 (0.9%) could only read and write, 34 (5.2%) were primary school graduates, 14 (2.2%) were secondary school graduates, 80 (12.3%) were high school graduates, 388 (59.7%) were university graduates and 123 (18.9%) had graduate degrees. it was found out that 434 (66.8%) of the participants did not live in their hometowns and that 627 (96.5%) used smartphones. independent samples t-tests and one way anova tests the average addiction scores of the participants were calculated and their state of addiction was analysed, as seen in table 2. when the addiction scores of the participants were added, it was observed that the lowest ones had 20 and the highest ones had 98 points; it is noteworthy that the average of the social media addiction level of all participants was x̅ = 50.8, the average of the participants over 50 was x̅ = 47.8 and the average of the participants between the ages 25 and 49 was x̅ = 53.2. it is remarkable that social media addiction in individuals of 50 years old and over is close to that of young and middle-aged individuals. even though the averages are so close indicates that social media addiction has started to spread over middle age young and middle aged people has significant difference than those who are 50 and over. according to this result, hypothesis h1 was accepted. when other analyses conducted based on the average of the addiction scores of the data are viewed, it is seen that the levels of social media addiction differs significantly in terms of the participants' gender. while the 69 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 average addiction of male participants was x̅ = 49.1, the average addiction of female participants was found to be x̅ = 51.8. in addition, when the average of addiction among the participants living in their hometown is viewed, it is seen that the result is x̅ = 49,6; and the average of those who do not live in their hometown is x̅ = 51,3. according to this result, hypothesis h2 was accepted. it is noteworthy that there are significant differences between the marital status of the participants in terms of their social media addiction levels (table 3). when the social media addiction levels of the participants are examined based on their marital status, it is seen that the highest one is among the divorced ones with x̅ = 56.5, followed by the single ones with x̅ = 53.6, married people with x̅ = 47.8, and widows/widowers with x̅ = 42.6. however, the most striking result is related to the effect of smartphone use on social media addiction. while the average of the participants who use a smartphone is x̅ = 51.7, the average of the participants who do not use a smartphone is x̅ = 25.7. in other words, it is seen that the addiction level of those who use smartphones is more than twice the addiction level of those who do not use smartphones. therefore, it is possible to state that smartphones increase social media addiction. according to these results, hypotheses h3 and h4 were accepted. one-way variance analysis (anova) was applied to the data to determine whether there were significant differences among education categories of the participants in terms of social media addiction, and the results in table 5 were obtained. when table 5 is seen, a significant difference between the education level of the participants is understood. while the average of the social media addiction level of the high school graduate participants is the highest with the score x̅ = 52.3, the average of the people who can only read and write is lowest with the score x = 26.1 (f = 9.228; p <0.5). when the anova test results were examined, the p value was less than p<0.001; therefore, tukey test, from post-hoc tests, was applied and it was concluded that the education level of the participants had significant differences in terms of social media addiction levels, as understood in table 6. according to this result, hypothesis h5 was accepted. regression analysis was conducted in order to determine the relationship between age and social media addiction, and meaningful results were obtained. in addition, it was seen that effective n minimum maximum x̅ sd social media addiction level 650 20 98 50.8 14.6 participants aged 50 and over 272 20 98 47.8 16.1 participants aged between 25 and 49 378 22 92 53.2 13 table 2 t-test between age groups and social media addiction variable n x̅ sd marital status and social media addiction level married 284 47.8 15.4 single 320 53.6 13.3 widow/widower 26 42.6 13.8 divorced 20 56.5 13.2 use of smartphone on social media addiction level uses 627 51.7 13.9 does not use 23 25.7 11.1 table 3 anova tests between marital status, smartphone usage and social media addiction level table 4 the relationship of the addiction level of the participants with their age and education background dependent variable age education social media addiction level -.272 3.19 e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 70 and meaningful results were achieved when the education levels of the participants and their social media addiction levels were subjected to regression analysis. variable education level n x̅ s variable cannot read and write 5 26.2 13.3 can only read and write 6 26.1 9.2 primary school 34 40.6 19.4 secondary school 14 48.5 16.1 high school 80 52.3 14.4 education level source of variance ss sd f p between groups 11099.20 6 9.228 .000 within groups 128898.06 643 total 139997.27 649 table 5 anova results of the social media addiction levels of the participants according to their education level education level variables (j) difference of averages p cannot read and write can only read and write .033 1.000 primary school graduate -14.44 .336 secondary school graduate -22.30 .041 high school graduate -26.12 .001 university graduate -25.31 .002 graduate degree -26.55 .001 can only read and write cannot read and write -0.33 1.000 primary school graduate -14.48 .241 secondary school graduate -22.33 .022 high school graduate -26.15 .000 university graduate -25.34 .000 graduate degree -26.58 .000 primary school graduate cannot read and write 14.44 .336 can only read and write 14.48 .241 secondary school graduate -7.85 .585 high school graduate -11.67 .001 university graduate -10.86 .000 graduate degree -12.10 .000 secondary school graduate cannot read and write 22.30 .041 can only read and write 22.33 .022 primary school graduate 7.85 .585 high school graduate -3.82 .967 university graduate -3.01 .987 graduate degree -4.25 .938 high school graduate cannot read and write 26.12 .001 can only read and write 26.15 .000 primary school graduate 11.67 .001 secondary school graduate 3.82 .967 university graduate .81 .999 graduate degree -.43 1.000 table 6 anova results of the social media addiction levels of the participants according to their education level 71 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 when table 4 is seen, it is observed that there is a negative significant relationship between age and social media addiction level (b = -,272; p <0.001). that is, as the age of the participants increases, social media addiction decreases. a high positive significance was also found between the impact of education level on social media addiction of the participants (b=3.19; p<0.001). that is, it was concluded that as the education level of the participants increased, the level of social media addiction improves. in this sense, social media addiction negatively associated with age, whereas negatively with education level. according to these results, hypotheses h6 and h7 were accepted. in the study, the moderator analysis method was used to determine the variables predicted to change the direction and effect of the relationship between the dependent variable and the independent variable. for this purpose, moderator effects of education, smartphone users and two different age groups in the effect of age on smas and the impact of two different age groups in the effect of education on smas were tested. for this purpose, spss process-macro model 1 analysis was used to test and transform the data into graphs. the results we found using moderation analysis were statistically meaningful, and hypotheses h8 and h9 were accepted. moderation analysis figure 1 the conceptual diagram for moderation analysis education level variables (j) difference of averages p university graduate cannot read and write 25.31 .002 can only read and write 25.34 .000 primary school graduate 10.86 .000 secondary school graduate 3.01 .987 high school graduate -.81 .999 graduate degree -1.24 .980 graduate degree cannot read and write 26.55 .001 can only read and write 26.58 .000 primary school graduate 12.10 .000 secondary school graduate 4.25 .938 high school graduate .43 1.000 university graduate 1.24 .980 a moderation analysis was conducted to examine the relationship between the ages of the sample group of the study and social media addiction by comparing smartphone users and non-users. there is a significant effect of age and smartphone usage status interaction on social media e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 72 addiction. as a result of the moderation analysis performed with process-macro model 1, a significant relationship was found (β = -.4628, p<.05). accordingly, there are differences between smartphone users and non-users regarding the effect of age on social media addiction. according to the graphic in figure 2 (a), social media addiction decreases as the ages of non-smartphone users increase, and social media addiction decreases very little as the age of the smartphone users increases. by comparing those with a high level of education to those with a low level of education, moderation analysis was used to examine the correlation between the ages of the study's sample group and social media addiction. age and education level interaction has a major impact on social media addiction, and a significant association was discovered (β=.1459, p<.001). as a result, the impact of age on social media addiction varies according to education level. according to the graph in figure 2 (b), social media addiction declines as the age of the low educated increases and increases almost insignificantly as the age of the high educated increases. (a) (b) figure 2 moderation effects of smartphone and education status in the impact of age on sma 0 20 40 60 80 100 120 140 s oc ia l m ed ia a dd ic tio n under 50 50 and above low education high education 0 10 20 30 40 50 60 s oc ia l m ed ia a dd ic tio n under 50 50 and above low age high age figure 3 moderation effects of age groups in the impact of education and age on sma (a) (b) 52 47 42 37 32 27 s oc ia l m ed ia a dd ic tio n smartphone user non smartphone user low age high age 20 25 30 35 40 45 50 55 60 65 70 s oc ia l m ed ia a dd ic tio n low education high education low age high age 73 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 the study's sample group was divided into those under the age of 50 and those aged 50 and over. a moderation analysis was used to determine the role of two age groups in the correlation between education level and social media addiction. education and two age groups interaction has a profound effect on social media addiction, as shown by a significant correlation (β =3.75, p<.01). education has a different effect on social media addiction in both of the two age groups. according to the graph in figure 3 (a), social media addiction decreases as education increases under the age of 50 and significantly rises as education increases the age of 50 above. the role of two age groups in the effect of age on social media addiction was determined using a moderation study. age and two age groups significantly impact social media addiction, as shown by a significant relation (β=-.6860, p<.01). for age groups, age has different impacts on social media addiction. according to the diagram in figure 3 (b), social media addiction decreases as the age increases of 50 and above, whereas it remains almost the same as age increases of under 50. social media is a new phenomenon for humanity but it has become widespread and affected almost the entire world. social media, which has become indispensable especially for the generations that came to the world after the new media transformation, has started to influence all of the society gradually along with the young generation. when we view x, y and z generations, it is seen that z generation is very much engaged in social media. along with the perceptions that social media is virtually a 'necessity' of the new world, first generation y, that is, middle-aged individuals, started to adopt social media. social media has spread to all sectors of the society and led the x generation, that is, individuals over middle age, to adopt this technology. thus, the individuals over middle age who do not want to break their ties with the society, their families, friends and the groups they belong to have started to communicate better by using social media. when literature is reviewed, it is observed that researches related to social media addiction are generally conducted on young people; this research was designed to focus on differences between middle age individuals and older people. in the study, all of the hypotheses that we assumed were accepted. the average of the addiction scores of the participants turned out to be 50.8; the score was 47.8 for the participants over 50 and 53.2 for the 25-49 age group. although the addiction level of individuals over 50 years of age was less than the other group and the average, it was determined that there was only a 3-point difference between them and the general average and the average of individuals over middle age. the level of social media addiction among middle-aged individuals turned out to be below average, but social media addiction levels were considerably high. current finding about elderly group was consistent with recent literature which shows the use of social media in elderly people is increasing (he, et al., 2020; spagnoletti et al., 2015; wen et al., 2013; cornejo et al., 2013; jeehoon et al., 2017) when the other findings of the research are studied, it is seen that the use of smartphones greatly affects the level of social media addiction. the average of social media addiction levels of 627 participants using smartphones was 51.7 while the average of the participants who did not use smartphones was 25.7. another remarkable point here is that only 23 participants out of 650 participants, 272 of whom are over middle age, do not use smartphones while 627 of them use smartphones. there were also significant differences between the marital status of the participants and their social media addiction levels. the highest social media addiction level was among the divorced participants and the lowest was among widows/widowers. significant differences were found in relationships between the level of social media addiction and the gender of the participants. women had more addiction than men which is consitent with the literature (hogue and mills, 2019; chen, 2015; hamutoğlu et al., 2020; demircioğlu and kose). when the relationship between the education level of the participants and the level of social mediscussion e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 74 dia addiction is examined, it is seen that the level of social media addiction increases as the level of education increases. the participants who graduated from secondary school, high school and universities and those with graduate degrees have a much higher social media addiction level than primary school graduates and those who can only read and write. we determined that the increase in the level of education causes rising in social media addiction is consistent with recent literature (mohammed et al., 2021, mahamid and berte, 2019). we found that as the virtual tolerance sub-dimension, which expresses that social media users increase their time of use more and that they disrupt other normal daily activities, increases, virtual communication explaining the communication of the individual through social media increases (β = .52, t = 20.04, p<0.001). it was understood that the relationship between them was statistically significant. we determined that social media addiction decreases as the age increases, but it was seen that the level of social media addiction of individuals over middle age is at a considerable level. the fact that technology and social media are widely used by the middle-aged individuals too can be evaluated as the tendency for the individuals over the age of 50 to approach the average in the forthcoming years. it can be thought that the average difference of 6 points between young and middle-aged individuals and individuals over middle age will decrease as technology companies increase their policies towards the elderly and that individuals over middle age will follow the new technological transformations more closely (jeehoon et al., 2017; tyler et al., 2020; fang et al., 2018; cotton, 2017). thus, it seems possible that the widespread social media addiction, which exists in the younger generation, will be also possible for individuals over middle ages. as a result of the moderation analysis performed in our study, it was understood that education level and smartphone usage status had a moderating effect on social media addiction. in another analysis, it was determined that two different age groups moderated the effect of educational status on social media addiction. even if there are no similar studies in the literature, many studies that are partially similar have found effects according to education, age groups, and smartphone usage situations (andreassen et al., 2017; gungor and kocak, 2020; aydin et al., 2021, yıldız and kocak, 2020). it can be said that the use of social media by middle-aged and over individuals, which are described as the x and y-generation, has become widespread. due to socialization, communication, being busy, spending time, quick access to information, and the guidance of business, economic and social life, social media addiction similar to that of the z generation may be increased among the x and y generation. since there were no enough studies on technological addiction with elderly of the population, new studies must be done for comparison. even though our study contributes to the current literature, more studies covering all segments of society should be made. due to the online survey, we could not reach the elderly face to face and focus on their detailed social media usages. also, we could not understand their feelings towards social media and similar technologies because of online surveying. in particular, in europe, where the elderly population is very high, and in turkey, where the population is rapidly aging, the issue of technology addiction of the elderly who started to use new technologies more intensively should be studied more. in our study, we evaluated the relationship of social media addiction with socio-demographic variables. also, by making age and education variables independent variables, the moderation effect of smartphone use and age groups in the effect of age and education level on social media addiction was tested. as a result, it has been determined that age, gender, marital status, education level, and smartphone usage predict social media addiction. besides, it has been determined that the social media addiction of different categories such as male and female, young and advanced age, and education levels differ. in addition, it was found that two different age groups and the use of smartphones have moderating effects in the effect of age and education level on social media addiction. conclusions limitations of the study 75 e u r o p e a n i n t e g r a t i o n s t u d i e s 2 0 2 1 / 1 5 references abbasi, i., s., (2019). social media addiction in romantic relationships: does user's age influence vulnerability to social media infidelity?, personality and individual differences, volume 139, pages 277-280, issn 01918869, https://doi.org/10.1016/j.paid.2018.10.038. akkaş, i̇brahim (2019). teknoloji bağımlılığı. konya: eğitim yayınevi. aktan, ercan (2018). 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"modern i̇letişimde i̇nternet ve sosyal medyanın yeri: türkiye'deki kullanıcılara yönelik bir araştırma", nwsa humanities sciences,c.11,s.2,s.33-54. konya. https://doi.org/10.12739/ nwsa.2016.11.2.4c0201 castells, manuel (2005). enformasyon çağı: ekonomi, toplum ve kültür, birinci cilt: ağ toplumunun yükselişi (translated by ebru kılıç). istanbul: bilgi üniversitesi yayınları chayko, mary (2018). süper bağlantılı i̇nternet, dijital medya &tekno-sosyal hayat (translated by berkay with the spread of the covid 19 virus, quarantines applied in countries have exposed people to more internet and digital technologies, regardless of the age. at the same time, people who have to stay in their homes in quarantines will face more psychological, physical, spiritual and social problems (kocak et al., 2021). with the excessive use of the internet and social media, digital addiction will emerge and psychosocial problems will further increase. new digital based technologies and the internet have become an integral part of everything and they have rapidly been penetrating into societies’ daily lifes from workplaces to homes. today’s youth generations who are heavily using digital technologies will become tomorrow’s elderly people and the technologies will still be dominant more than today in their old age. unless producing proactive policies in rapidly developing technologies area and on their effect in social area, there will incrementally be technical as well as physchological, mental, and social issues in the future. families should provide proper settings for both children and the elderly who are at home, where they can use the internet to an extent that does not cause addiction. significantly, there should be implemented some programs at schools by which students must be encouraged to use new technologies to gain knowledge and information, news, and other things which will increase their research capacity rather than leading to addiction. the programs to be implemented at schools should be guided by social workers, phycologists, and experts working on new technologies to combine social and technical issues. projects and arrangements should be made by policy makers in order to raise awareness of the society about technology addiction, which is likely to affect individuals' behavior and daily lives. technology addiction is not easily understood like other addictions, because the use of technology is a part of our lives. for this reason, individuals should be given training on how to use technology without being dependent on technology literacy at the beginning of their education life. in addition to formal education, the information of individuals should be updated in the understanding of lifelong education. suggestions for researchers, individuals and policymakers e u r o p e a n i n t e g r a t i o n s t u d i e s2 0 2 1 / 1 5 76 bayındır, deniz yengin, tamer bayrak). istanbul: der yayınları chen, g.m. 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(2020). üniversite öğrencilerinde sosyal medya bağımlılığı ve algılanan sosyal destek arasındaki ilişkinin değerlendirilmesi. toplum ve sosyal hizmet, 31(3), 1102-1126 https:// doi.org/10.33417/tsh.681389 young, kimberly (1999). internet addiction: symptoms, evaluation, and treatment innovations in clinical practice, 17, in l. vande creek, & t. l. jackson (eds.), sarasota, fl: professional resource press. orhan koçak professor. faculty of health sciences at i̇stanbul university cerrahpaşa, i̇stanbul, türkiye fields of interests social policies and is working on social issues such as addiction, immigration and the elderly. e-mail: orhan.kocak@istanbul.edu.tr hüseyin arslan assistant professor dr. i̇stanbul commerce university, i̇stanbul, türkiye fields of interests social policy, social security systems, immigration. e-mail: harslan@ticaret.edu.tr abdullah erdoğan masters degree social work at istanbul university cerrahpaşa, i̇stanbul, türkiye fields of interests social policies that could be effective in türkiye and the middle east. e-mail: abdulllaherdogan@gmail.com about the authors this article is an open access article distributed under the terms and conditions of the creative commons attribution 4.0 (cc by 4.0) license (http://creativecommons.org/licenses/by/4.0/).